Meng v Wang

[2022] NSWSC 833

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Meng v Wang [2022] NSWSC 833

Hearing dates:

2, 3, 4, 5, 12 May 2022; further written submissions on costs ending 26 May 2022

Date of orders:

12 May, 23 June 2022

Decision date:

23 June 2022

Jurisdiction:

Equity

Before:

Parker J

Decision:

See [105]-[106]

Catchwords:

EQUITY – specific performance – agreement for purchase of shares, to be satisfied in part by transfer of purchaser’s share of land co-owned with vendor – purchaser obliged to buy the shares rather than only having an option to do so – purchase price to be paid within a reasonable time – purchaser in control of company in meantime – before time for payment arrives vendor removes assets used in conduct of company’s business so as to pressure purchaser to pay – unclean hands – relief refused – plaintiff remitted to claim for judgment at law – costs

Legislation Cited:

Conveyancing Act 1919, s 66G

Crimes Act 1900, s 118

Supreme Court Act 1970, s 63

Uniform Civil Procedure Rules 2005 r 42.1

Cases Cited:

Akierman Holdings Pty Limited v Akerman (No 3); In the matter of Akierman Holdings Pty Limited (No 2) [2021] NSWSC 869

Black UhlansIncorporated v Crime Commission (NSW) [2002] NSWSC 1060

Fiduciary Ltd v Morningstar Research Pty Ltd (2002) 55 NSWLR 1

Fitzgerald v Masters (1956) 95 CLR 420

Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589

Rudi’s Enterprises Pty Ltd v Jay (1987) 10 NSWLR 568

Turner v Bladin (1951) 82 CLR 463

Wickham Hill Investment Pty Ltd v Ding [2019] NSWSC 631

Category:

Principal judgment

Parties:

Zihui Meng (Plaintiff/Cross-Defendant)
Binbin Wang (Defendant/Cross-Claimant)

Representation:

Counsel:
J Mee (Plaintiff/Cross-Defendant)
N Kabilafkas (Defendant/Cross-Claimant)

Solicitors:
JurisBridge Legal (Plaintiff/Cross-Defendant)
SHL & Associates Lawyers (Defendant/Cross-Claimant)

File Number(s):

2020/213480

Publication restriction:

Nil

Judgment

1. In May I heard an application for specific performance. The plaintiff sought to enforce an alleged contractual obligation on the part of the defendant to pay $378,000 for the plaintiff’s shares in two proprietary companies. The contract provided that the purchase price was to be satisfied, in part, by the transfer of the defendant’s share of a property co-owned with the plaintiff. It was that aspect of the matter which resulted in the application to this Court for specific relief.

2. The hearing took place over four days beginning on 2 May. At the end of the hearing on 5 May, I announced my conclusions on the issues which had been debated. I adjourned the proceedings to 12 May for argument, to the extent necessary, on the form of orders and costs.

3. On 12 May I heard further argument and made an order dismissing the plaintiff’s application for specific performance. As I will describe, the dismissal of that application was not the end of the proceedings. The remaining claims for relief were the subject of further directions.

4. In this judgment I set out the reasons for the conclusions that I reached on 5 May and the order which I made on 12 May. I also deal with the defendant’s application for costs, which was the subject of supplementary written submissions after 12 May.

5. The plaintiff, Zihui Meng, and the defendant, Binbin Wang, are former business partners. Their business involved the provision of skin and beauty treatment services. The business operated from two shopfront premises, one in Ultimo (or Haymarket, the evidence is not clear on this) and the other at Dixon Street in Chinatown.

6. The business operated under the name “Comfortzone”. It was conducted through two companies, Comfortzone Clinic Pty Limited and Comfortzone Spa Pty Limited. I will refer to these as the “clinic company” and the “spa company” respectively.

7. It is agreed that at the time of the transaction which gave rise to these proceedings, Ms Wang was the beneficial owner of fifty-five per cent of the shares in the two companies, and Ms Meng beneficially owned forty-five per cent (the ownership details recorded in the share register are somewhat different). Ms Wang and Ms Meng were also registered co-owners of the Dixon Street shop with Ms Wang holding fifty-five per cent and Ms Meng forty-five per cent.

8. It was Ms Wang’s share of the Dixon Street property which was the subject of the application for specific relief. Ms Meng claimed that Ms Wang was obliged to transfer that share by way of partial satisfaction of her obligation to purchase the shares beneficially owned by Ms Meng in the Comfortzone companies.

Claims for determination

9. Two sets of proceedings were before the Court at the May hearing. The specific performance application was made in matter 2020/213480. I will refer to these proceedings as the “share sale proceedings”.

10. The other proceedings (2021/98429) I will refer to as the “company proceedings”. In those proceedings Ms Wang sought an order for the winding up of the clinic company. Ms Wang was the plaintiff. The clinic company was the first defendant and Ms Meng was the second defendant. At the hearing it was agreed between the parties that it was unnecessary to determine this application and the only outstanding question was costs.

11. Later, counsel for Ms Wang accepted that the company proceedings should be dismissed with costs, and orders were made accordingly. It is unnecessary for the purposes of this judgment to say anything more about those proceedings.

12. In the share sale proceedings Ms Wang opposed any order for specific performance and contended that Ms Meng’s claim should be dismissed. Against that event, Ms Wang made a cross-claim in which she sought orders pursuant to s 66G of the Conveyancing Act 1919 for the appointment of trustees for the sale of the Dixon Street property and the division of the proceedings between herself and Ms Meng in 55:45 shares.

13. The agreement which is the subject of Ms Meng’s claim was made in October 2019. It provided for Ms Wang to buy Ms Meng out of the Comfortzone business by purchasing the shares owned by her in the Comfortzone companies. The purchase price was $378,000. As I have mentioned, this was to be satisfied (as to part) by Ms Wang transferring to Ms Meng her fifty-five per cent share of the Dixon Street property. The balance was to be payable in cash.

14. It is common ground that if the agreement is enforceable, the price at which the Dixon Street property is to be transferred is fifty-five per cent of its original acquisition price, which was $610,000. The transfer price for Ms Wang’s share would therefore be $335,500.

15. The agreement did not specify when the purchase price is to be paid. It was common ground between the parties that if the agreement was enforceable at all against Ms Wang, the purchase price was to be paid within a reasonable time.

16. Ms Meng’s statement of claim pleaded three alternative reasonable times for payment. These were:

1. by the beginning of January 2020;

2. within three months of the agreement being made (that is, by the end of January 2020); and

3. within six months of the agreement being made (that is, by the end of April 2020).

17. In the course of the hearing, counsel for Ms Meng sought to amend the statement of claim by adding two additional alternative contentions, namely, that a reasonable time had expired by the time of the commencement of the proceedings (21 July 2020), or had now expired. I refused leave because this would have introduced new factual issues which would have required an adjournment.

18. For Ms Wang it was contended that on its true construction the agreement did not oblige her to purchase the shares owned by Ms Meng, but only gave her an option to do so. Alternatively, rectification of the agreement was sought. The rectification claim was, however, abandoned in final submissions.

19. Two affirmative defences were also advanced on Ms Wang’s behalf to the claim for specific performance. Both defences arose out of events in March 2020 when Ms Meng attempted to have Ms Wang complete the contract. Ms Wang allegedly promised to pay within a week, but when she did not do so Ms Meng removed some property from the Dixon Street shop. The contention was that this involved a breach of Ms Meng’s obligations under the share transfer agreement, which deprived her of any entitlement to specific performance of that agreement. Alternatively, her conduct was said to have amounted to unclean hands.

20. Finally, if Ms Meng was entitled to specific performance, it was argued for Ms Wang that she had not demonstrated that a reasonable time had elapsed and accordingly there was no present entitlement to receive the purchase price.

Summary and analysis of evidence

Chronology of key facts

21. Ms Wang is thirty-six years old and is also known as “Vicki Wang”. She was the founder of the Comfortzone business, and responsible for the setting up of the Comfortzone companies. Previously, she had other business partners. When they decided they wanted to withdraw from the business, Ms Wang approached a business broker to find a replacement. This was how she was introduced to Ms Meng.

22. Ms Meng is also known as “Elaine Meng” and is about ten years younger than Ms Wang. She acquired shares in the Comfortzone companies in 2016. At the time she had recently graduated from university and was looking to become involved in business. She had no experience, but was interested in working in the skin care and beauty field.

23. Initially the two Comfortzone companies operated separately. The clinic company operated from the Ultimo/Haymarket shop and the spa company operated from the Dixon Street shop. In 2017, it was agreed between Ms Wang and Ms Meng that the two shops’ financial operations should be combined in the spa company. Thereafter, all of the revenue of the business was put through the spa company. Expenditure was also paid from the spa company. The clinic company remained the tenant of the Ultimo shop. The spa company occupied the Dixon Street property, paying rent to Ms Meng and Ms Wang as the owners. There was no formal lease.

24. By 2019, Ms Meng was becoming dissatisfied with her involvement in the Comfortzone business. Eventually, in about September she asked Ms Wang to buy her out. Ms Wang was at the time negotiating to expand the business to Shenzhen in China. She and Ms Meng went to Shenzhen to meet a prospective investor in July. The investor wanted security over the Dixon Street property. Ms Meng would not agree and the deal fell through.

25. Ms Wang then tried to obtain a personal loan to raise the necessary funds. She asked Ms Meng to transfer to her, temporarily, the shares in the spa company registered in Ms Meng’s name. Ms Meng agreed. The agreement was recorded in writing (in Chinese) and was referred to in the evidence as the “share loan agreement”. On 12 August, Ms Meng transferred her shares in the spa company to Ms Wang.

26. In September, the parties reached an oral agreement about the sale of Ms Meng’s shares in the Comfortzone companies to Ms Wang. In October, they signed the written share sale agreement which is the subject of these proceedings. The document was prepared by Ms Meng. It is in Chinese. I discuss the background to the agreement, and its terms, in more detail below.

27. For the present, it is enough to say that the agreement fixed the price which was to be paid for Ms Meng’s shares at $378,000. Ms Meng ceased work in the business which reverted to Ms Wang’s complete control. But Ms Meng continued to have an entitlement as shareholder to a return from the business. A profit share payment, described by the parties as a “dividend”, was made in December 2019.

28. By early March 2020, the Covid-19 pandemic had begun overseas. Ms Meng and her husband, Ryan Xu, were concerned about Ms Wang’s ability to pay for Ms Meng’s shares. Ms Wang had recently bought, or agreed to buy on the business’ behalf, an expensive beauty treatment machine. Ms Meng and Mr Xu doubted that she could pay for it.

29. On 12 or 13 March 2020 there was an altercation between the parties at the Dixon Street shop. I will describe the events in more detail below. There is a dispute about what was said. According to Ms Meng and Mr Xu, Ms Wang agreed to pay the $378,000 within seven days. According to Ms Wang, she made no commitment but undertook to see if she could raise the money.

30. On 17 March, Ms Meng and Mr Xu paid a visit to the Dixon Street shop. According to their version of events, they arrived to find the staff packing up records for removal by Ms Wang. They themselves removed some of the salon equipment, or essential pieces of that equipment, and some of the records. They retained the items they had removed until October.

31. Meanwhile, Ms Wang established a new beauty salon business known as “V Cosmetic” in Hurstville. The share sale proceedings were commenced on Ms Meng’s behalf in July.

32. There is a dispute about how long the Comfortzone business traded after 17 March. According to Ms Wang, it ceased to trade immediately. According to Ms Meng, it continued to operate for at least six months. But it is common ground that trading has now ceased. No rent is being paid on the Dixon Street salon. The lease of the Ultimo/Haymarket salon has also expired. To all intents and purposes the Comfortzone business has ceased.

Witnesses

33. Ms Meng and Mr Xu gave evidence in Ms Meng’s case. Ms Wang gave evidence in her own case. Each of these witnesses speaks some English but is not fully comfortable in English. Each gave evidence through an interpreter and each was cross-examined. It is unnecessary to make any general observations about their credit. I deal with specific conflicts in the evidence, to the extent necessary, in analysing the facts in more detail below.

34. The other witnesses were formal ones who were not required to give evidence and were not required for cross-examination. It is not necessary to say anything about their evidence.

Pre-contractual discussions

35. On 12 August 2019 (see above at [25]), Ms Meng transferred her shares in the spa company to Ms Wang pursuant to the share loan agreement. It provided (in translation):

Due to reasons of personal loan, Zihui Meng is permitted to transfer share(s) temporarily to Binbin Wang, which shall be returned after the loan. During the period, Zihui Meng shall unofficially be in charge of the finance and arrange for finance pursuant to existing arrangements.

36. It is common ground that in September 2019 there was a conversation between the parties at a place called “Market City” in Ultimo. Ms Meng’s version of the conversation was:

Ms Meng:   I still cannot see much improvement of your management. Accordingly, I cannot hold the pressure anymore, and I have decided to quit the Business.

Ms Wang:   I really don't want you to quit. The Business is running so well that you can still earn a lot from dividend from the Business.

Ms Meng:   I have made my final decision. I don't care about the money anymore; I just don't want to be part of the Business, as I have lost confidence. You will manage the Business on your own. In addition, I have decided to quit the industry as well, so you don't need to worry about any potential competition from me.

Ms Wang:   Okay. That's unfortunate.

Ms Meng:   As I said before, although the value of the Business has almost doubled after Mr Zheng quit, I agree to quit at the same price per share as Mr Zheng got, so the total payment I request is $350,000. I also request refund of my contribution to the decoration costs, being about $28,000. I think the price is fair enough for you.

Ms Wang:   The price is fair, but even though you agree to quit at the same price per share as Mr Zheng got, I don't have sufficient money now to pay you. As you know, I am applying for a personal loan now.

Ms Meng:   Then, when can you pay the money to me?

Ms Wang:   I will pay after I acquire the personal loan, in about several months, but definitely within 1 year.

Ms Meng:   Okay. Then, I will not demand you to make payment to me now, but I still demand my right to dividend and other rights as a shareholder of the Spa Company before you make the payment. I also request that you provide security over your interests in the Dixon St Land; in case you breach our agreement, you must transfer your interests in the Dixon St Land at the price of acquisition. The Spa Company must continue paying the rent to me even after you make payment to me.

Ms Wang:   Okay, agreed.

Ms Meng:   I will draft a simple form agreement for us to sign. I understand that you will travel to China for about 3 weeks, I promise I will manage the Business in these weeks and we will sign the agreement to finalise things once you come back to Sydney.

Ms Wang:   No problem.

37. Ms Wang’s version of the conversation was:

I … deny agreeing to purchase Ms Meng's shares or that I would apply for a personal loan to buy her shares. I deny saying that I would pay her within one year. In and around the beginning of September 2019, at the time we considered two options for moving forward, being that either I would consider the options of (i) purchasing her shares or (ii) let Ms Meng purchase all of my shares. We had a conversation with words to the following effect:

Ms Meng:   I no longer want to work at the business. However, I will retain my Shares in case I change my mind. I propose that we sign an option agreement for you to purchase my Shares back at the original price.

Ms Wang:   I understand that you want to quit the business. However at this time I don't have the money to purchase your shares even if I wanted to. I will consider it as your actions have begun to impact the business's bottom line.

Ms Meng:   That's fine, let's leave the timeline of the agreement open, I don't want to have a time frame because I want to have the option to cancel in case I regret it in the future. You can use this time to organise money before you make any decision.

38. In cross-examination, Ms Wang said the parties would wait one year before taking any formal steps for Ms Wang to purchase Ms Meng’s shares. She said they agreed on the price of the shares but not when they would be purchased.

39. The only contemporaneous written evidence consisted of some WeChat messages between Ms Meng and Ms Wang on 29 September 2019. The message from Ms Meng to Ms Wang was originally left as an audio message, which was automatically transcribed into Chinese by WeChat. In translation, Ms Meng’s message states:

Maybe you can look for another business partner?

I'm thinking you are the one who decides settlement date, and within the period of one year if you find a more suitable partner, or let's say a better one, the shop manager, friends? Whoever wants to buy, right? then you can also, let them buy, or sell it to other people.

Maybe you'll end up with a more worthy partner than me [Tongue] then you'll earn a fortune.

40. (Text deleted). 

Altercation on 12 or 13 March 2020

41. On 12 or 13 March 2020, Ms Meng and Mr Xu visited Ms Wang at the Ultimo shop where the parties were involved in an altercation.

42. Ms Wang’s version of the events was:

At the same time around early March 2020, the outbreak of COVID-19 started and had some impact on Comfortzone Group as the business volume had decreased. Meng became impatient and began forcefully demanding that I buy out her shares.

One day, without prior notice, she and her husband came to the Ultimo Shop and sat at the front desk. We talked outside and had a conversation with words to the following effect:

Ms Meng:   I need to talk to you.

Ms Wang:   I need to rush to pick up my children. Can we speak at a different time?

Ms Meng:   Very quickly, I just need a few minutes from you.

Ms Wang:   Okay

Mr Xu:   Vicky, you seem to have a lot of money. You purchased another device.

Ms Wang:   The device was purchased on loan.

Mr Xu:   I don't care. I need you to purchase our shares right now Tell us a time you will buy our share. I need to know right now.

Ms Wang:   You both know I don't have that much money.

Ms Meng:   I just want to quit, right now The Company is under stress and you still decide to purchase a new device. This is crazy I have only paid a $2,000 deposit for the device purchase. I have not made the final decision of the purchase. However the Company had already pre-sold more than $13,000 in service fees. Don't you think this is a good investment? If you really dislike this device, we can stop the purchase and refund all the pre-sold fees.

Mr Xu:      No, no, no. We just want to sell our shares, give us the money.

Ms Wang:   I don't have money. You know I don't have money and I have not agreed or decided to purchase your shares yet. If you are not happy to be a business partner, do you consider purchasing my shares instead? I can sell you my shareholding with some discounts.

Mr Xu:   No way, we will not buy your shares. Never, no chance. We need money and tell me when you will buy our shares. You have to tell us right now otherwise I won't let you leave.

Ms Wang:   I really need to go. My kids are waiting for me. I will make a few phone calls to my friends and see if I can borrow some money.

Mr Xu:   You are going nowhere unless you tell us by when you will have the money to buy our share I will try my best.

Mr Xu:   How long? When? What time? You must give us a time.

Ms Wang:   I will try my best. I will come back to you with my decision in a week. But I really don't have money. You promised to give me time to buy your shares back. I was not expecting you need money that quickly.

Mr Xu:   In a week? For what? Are you going to give me money in a week or tell me your plan in a week?

Ms Wang:   In a week I will respond to you with my plan.

Mr Xu:   No way!

Ms Wang:   Then what do you want?

Mr Xu:   We need a time, when you are going to give us money?

Ms Wang:   I will try my best, but I will need a week to respond to you.

Mr Xu:   Okay, one week. I will give you just one week. I let you go now.

43. In cross-examination, Ms Wang said she told Ms Meng and Mr Xu she would try her best to find the money to pay Ms Meng but she had no confidence she could obtain financing. She was forced to give them this assurance and she felt scared when they prevented her from leaving the Ultimo shop.

44. Ms Meng’s version of the events was:

Ms Meng:   Do you have some time to talk? I sent WeChat messages to you yesterday, but you have not replied.

Ms Wang:   I need to pick up my kid from school now. We can have a talk another day.

Ms Meng:   I just need a minute.

Ms Wang:   Okay.

Ms Meng:   I cannot accept that the Business purchases the equipment or that you personally purchase the equipment and claim 50% revenue out of it. I don't think it's fair.

Ms Wang:   I have checked with my friends, and they all think it's fair.

Ms Meng:   That's because your friends' opinion is all based on your narrative, which is one-sided. Anyway, as you are preparing to open a new shop and have enough money to purchase this new equipment, I trust you have sufficient money to pay for the shares I transferred to you. I request that you make payment to me now.

Ms Wang:   Okay, I will not purchase this equipment. Alright? I talked to Doctor Tang about the purchase of this new equipment for the new shop, and she didn't say anything. The deposit paid by customers for the packages with this equipment is also kept in the shop. I am just talking to you about the equipment, and you don't need to be mad at me.

Ms Meng:   I am not mad. I am talking to you like this because you are in rush now. Anyway, I don't bother what you want to do now. I just want to acquire my money for the shares.

Ms Wang:   The dividend of the Spa Company I agreed to give to you is actually like usury, which is a good deal for you.

Ms Meng:   Thanks for the usury, but that's not what I wanted. You name a time, when can you pay me for the shares?

Ms Wang:    In a week.

Ms Meng:   Okay, then I will see you next Friday. This is it.

Ms Wang:   Okay. Just relax. Don't be mad.

Mr Xu:   What's the plan for next Friday?

Ms Wang:   I will try to pay the full amount.

45. In cross-examination, Ms Meng said she and her husband had a conversation with Ms Wang outside the shop. Mr Xu said to Ms Wang that she needed to purchase Ms Meng’s shares “right now”. Ms Meng confronted Ms Wang about the machine purchases because she was concerned Ms Wang would not have enough money to pay her back. She said she was not angry or threatened Ms Wang. Instead, she was scared Ms Wang would not pay her back, had purchased expensive items for the store, and was planning on opening a new store.

46. Mr Xu’s version of the events was:

Ms Meng:   I sent you WeChat messages yesterday. Why didn't you reply? When can you give me the money?

Ms Wang:   I must pick up my child now. I don't want to argue with you. I will give you my response in a week.

Ms Meng:   In a week?

Ms Wang:   Okay, I will give you my response tonight.

Ms Meng:   Why can't you give me response now?

Ms Wang:   Are you a little too sensitive? Including the matter that I told Doctor Tang that I would purchase the equipment and put it at Hurstville. I would pay the money.

Ms Meng:   I don't want to be involved for matter between Doctor Tang and you. I don't want any dividends anymore. I feel so tired. After I leave, you can do whatever you want to do.

Ms Wang:   Just relax.

Ms Meng:   We just set the time to make payment at next Friday. Okay?

Mr Xu:   What about next Friday?

Ms Wang:   I will pay the full amount if I can.

Mr Xu:   If you can't pay the full amount, you will mortgage the house? You can find a valuer. If the value of house is below the value of the shares, you can just pay the rest of the amount.

Ms Meng:   If the value is beyond the value of the shares, we will repay you for that amount. I only get what I should have.

Ms Wang:   Okay.

Mr Xu:   Okay.    

47. In cross-examination, Mr Xu said Ms Meng was upset that Ms Wang had bought new machines for the business as she would be unable to pay Ms Meng for her shares. Mr Xu accompanied Ms Meng to the Ultimo shop to persuade Ms Wang to pay for Ms Meng’s shares. He said he did not threaten Ms Wang into paying for the shares. Mr Xu understood Ms Wang as agreeing she would sell her house to pay for Ms Meng’s shares if she could not find the money by “next Friday”.

48. Following the meeting, Ms Wang sent a WeChat message to a Dr Tang, who was a friend of hers. The message included a draft WeChat message to Ms Meng which Ms Wang did not send. It stated (in translation):

Thank you, for the company and tears while the second baby was in hospital, thank you for each time you uttered "sister" all these years, thank you for transferring the shares to my name without any conditions when I needed it, and thank you for your trust and support all these years! Also when you knew I have no money available and amid the pandemic you and your man asked me to make repayment within a week. I said I will not fail you and have done what I promised. The sentiments and the understanding is hereby settled.

49. There was evidence which explained that addressing a woman as “sister” is in Chinese culture a mark of respect. Ms Wang then wrote for Dr Tang:

Wrote these [sic; “this”?] in my grief last night and thought it is really naïve.

Events of 17 March 2020 and subsequent operation of the business

50. On 17 March 2020, Ms Wang alleges that Ms Meng and Mr Xu removed the following items from the Dixon Street shop:

1. A copy of the Comfortzone companies’ customer list which listed prepaid customers;

2. Accounting records which recorded the individual accounts of customers;

3. An iPhone which contained customers’ contact details;

4. An Ulthera Machine (used for cosmetic skin procedures);

5. Power cords and cables used with steam machines and steam cans for cosmetic procedures;

6. Around $6000 to $8000 in merchandise used for cosmetic procedures; and

7. A work computer used to manage the store.

51. A process server, Mr Martin Folkes, returned these items to Ms Wang on 22 October 2020.

52. According to Ms Meng, it was Ms Wang who was attempting to remove the customer information and store equipment from the Dixon Street shop. Ms Meng said she took the equipment and customer documents to prevent Ms Wang from “emptying” the Comfortzone companies to avoid paying Ms Meng for her shares. Ms Wang said she only asked her staff to move the customer records from the Ultimo shop to the Dixon Street shop.

53. In cross-examination, Ms Wang said the business could not operate after these items were taken and immediately stopped trading. About a week after the 17 March incident, NSW went into a Covid-19 lockdown which prevented the business from operating.

54. From June 2020, Ms Wang began operating her business V Cosmetic. A photograph taken of the Dixon Street premises on 25 September 2020 showed the lights inside the shop were on. A photograph posted on V Cosmetic’s Instagram page on 27 September appeared to show a Comfortzone towel being used by the V Cosmetic business. Ms Wang explained she used old photos to advertise the V Cosmetic business.

Specific performance

55. The first issue was whether, on its true construction, the share sale agreement cast an obligation on Ms Wang to buy the shares, or only gave her an option to do so. Secondly, there was a question about whether a reasonable time to do so did not exceed six months. However, it was common ground between the parties that even if I found against Ms Meng on that issue, the Court could still make an order for specific performance of Ms Wang’s future obligations: Turner v Bladin (1951) 82 CLR 463 at 472.

56. The third and fourth issues were the affirmative defences presented to the claim for specific performance.

Obligation to purchase or option?

57. As I have mentioned, the share sale agreement was drafted in Mandarin by Ms Meng. The translation was in evidence:

Binbin Wang and Zihui Meng, upon consultation, have reached the following agreement with respect to the transfer of the 35% equity in comfort zone clinic and comfort zone spa (collectively referred to as “comfort zone company" henceforth) owned by Zihui MENG:

1.   Binbin Wang agrees to acquire the shares under the name of Zihui Meng with 378,000 Australian dollars (350,000 shares + 28,000 new decoration fee). Binbin Wang will extend a one-off payment via cheque of 378,000 Australian dollars to Zihui Meng. No matter how the actual market value of the Company changes, the price shall remain unchanged.

2.   Binbin Wang can acquire shares at any time at the price.

3.   Until the share settlement is completed, Binbin Wang shall be responsible for all the management and operations of the Company as of 20 October 2019. Binbin Wang's annual management salary shall be 100,000 Australian dollars, which shall be calculated and paid for pursuant to the Company performance when dividend is distributed. Under his/her management, Binbin Wang shall ensure steady development of the Company's performance, the business turnover shall be no less than 1.1 million each year and the net profit shall be no less than 30% of the business turnover; if the goal is not achieved, a base salary for store managers being $200 per day shall apply. Until Bin bin Wang has settled the equity transfer fee, Zihui Meng remains a lawful shareholder of the Company, and has the right to dividend, to account books, to be informed and all other legitimate rights for all shareholders.

4.   Guarantee provision, if Binbin Wang does not purchase the shares pursuant to the agreed price. Binbin Wang shall be deemed as having breached the contract. And undertake to, out of his/her own volition, transfer the ownership of 55% of the Property of Shop13/1 Dixon St, Sydney at the purchase price at the time and pay to Zihui Meng as equity transfer fee, and Binbin Wang shall pay for the gap due to the insufficient part and the property transfer fee.

5.   After the transfer of shares, Comfort Zone Company shall continue to pay on time the rent for shop13/1 Dixon St, Sydney being $7620/month excluding GST. The Company shall still be responsible for paying the utilities and related expenses. If the Company intends to end the lease, a notice of at least three months shall be provided to Zihui Meng. After Comfort Zone has ended the lease, (the Property) can be handed to an agent to be rented to others. Comfort Zone has the priority to rent the Property. (If the market price changes after the transfer of shares, the rent can be adjusted pursuant to the market price) (Translator's Note: the sentence in brackets is handwritten on the source document)

58. The wording of the translation is far from idiomatic and in many respects the syntax is deficient or wrong. I have previously commented on the difficulty in construing a document in a foreign language by reference to a translation which is simply presented to the Court without any expert assistance: Wickham Hill Investment Pty Ltd v Ding [2019] NSWSC 631 at [170]. I raised this issue with the parties but neither actively sought to present such evidence. For what it is worth, I was told that the syntax in the original Mandarin was poor.

59. Although it was suggested that an interpreter might be made available at my request, I did not think that I should proceed of my own motion. I therefore considered that there was nothing to do except to proceed on the basis of the translation presented by the parties, imperfect though the process might be.

60. I was also left with the impression that the agreement might well be incomplete. As I have described, the parties appear to have reached some agreement in their prior discussions involving a twelve month period for payment. But that was not reflected in the terms of the written agreement.

61. It might have been possible to characterise the agreement as one which was partially in writing and partially oral. When I raised this in the course of closing submissions, counsel for Ms Meng sought to amend accordingly. This was however resisted by counsel for Ms Wang. Counsel pointed out, correctly, that there was no evidence about the circumstances in which the written agreement had been signed. There simply had not been evidence on the question and it was too late to try to expand the evidentiary scope of the case in the course of final submissions. Unfortunate as that might have been, I thought counsel’s submission was correct.

62. Counsel for Ms Meng observed that at the beginning of the written agreement it is described in three places as an agreement for the transfer of shares: the title itself, the preamble and clause 1. Counsel also submitted that clause 4 made it clear that there was an obligation to transfer the shares.

63. For his part, counsel for Ms Wang relied on clause 2. Counsel submitted that the language, being cast in permissive form, indicated clearly that an option was required.

64. Counsel for Ms Meng acknowledged that, from her client’s point of view, clause 2 was “unfortunately worded”. I would go further. On its own it quite clearly indicates an option rather than an obligation to purchase. But it is a cardinal principle that the document should be read as a whole. Reading clause 2 in that way would be quite inconsistent with the language of the contract and also with clause 4.

65. In my view, this is a case for the application of the principle in Fitzgerald v Masters (1956) 95 CLR 420 that an obviously erroneous statement can be ignored. Alternatively, it is a case where one clause is repugnant to another. If clause 2 is excluded, then the contract makes perfectly good sense. It does not specify a date for the transfer but, as both parties agree, that gap can be filled by way of the implication of a reasonable time. On the other hand, if clause 2 stands then neither clause 1 nor clause 4 can stand. An agreement without those clauses would, in my view, be nonsensical. Accordingly, I concluded that clause 2 is repugnant to the main thrust of the agreement and should be read out of it entirely. Ms Wang had an obligation to purchase the shares, not an option.

Reasonable time

66. The parties took somewhat divergent approaches to the juristic basis of the obligation to complete within a reasonable time. Counsel for Ms Meng presented it as a matter of construction. Therefore, on her approach, the Court could only take into account events which took place up to the making of the contract. Counsel for Ms Wang submitted that the true rule was wider. Counsel relied on the following statement by Samuels JA at 576B in Rudi’s Enterprises Pty Ltd v Jay (1987) 10 NSWLR 568:

What is reasonable must necessarily be affected by external events. Thus the quality of a period of time must be influenced by what occurs as it elapses. To determine it when time starts to run would be to exclude considerations of major importance.

67. I think in the light of this statement of authority, the principle which I must apply is not in doubt. In determining what was a reasonable time for payment, I must take into account relevant facts up to the date of the contract in October 2019. But subsequent events, at least if unforeseeable, must also be taken into account.

68. I have already set out the parties’ conflicting oral evidence on what was said, as well as the WeChat message of 29 September 2019. Counsel for Ms Wang submitted that the WeChat message itself makes it clear that it was intended that Ms Wang would have twelve months to find an alternative purchaser.

69. Counsel for Ms Meng submitted that this was not the appropriate reading of her client’s evidence, or of the WeChat message. Counsel mentioned three factors in particular. First, all of the shares were already in Ms Meng’s name. Second, it was intended that Ms Meng would not continue to work in the business. Third, the transaction was a simple one which did not involve any conditions precedent. In counsel’s submission, these factors would normally lead to the conclusion that a reasonable time would be measured in weeks or at most months, and certainly not one year.

70. I did not find this submission persuasive. To my mind, it is a highly relevant factor that the genesis of the transaction came because Ms Meng wished to be bought out. She had no right to insist upon Ms Wang buying her shares. It is common ground that Ms Wang indicated that she did not at the time have the money to pay for the shares.

71. A further difficulty which the submission faces is that the evidence does not establish that Ms Wang was in fact able to borrow any additional funds to put towards the purchase of the shares. It is admitted that Ms Wang did obtain a loan in January 2020, but there is no admission (and no evidence) as to how much money she was able to borrow.

72. Counsel submitted that it was unnecessary to demonstrate that Ms Wang had been able to borrow enough money to buy the shares. In counsel’s submission, the parties in effect agreed that a reasonable time would be up once the refinancing took place, whether Ms Wang raised any monies from the personal loan to put towards the purchase of the shares or not.

73. I find this a completely unnatural interpretation of the circumstances. Indeed it does not sit comfortably with Ms Meng’s own version of the conversation in her evidence. On Ms Meng’s version, Ms Wang referred to the personal loan immediately after stating that she lacked the monies to complete the purchase.

74. Overall, I think the meaning of the twelve month period is quite clear. Ms Wang was to have twelve months to complete the transaction although it was open to her to find someone else within that period. I think this is even clearer when one refers to the WeChat message, which does not mention borrowing at all.

75. For these reasons, I reject the contention for Ms Meng that a reasonable period expired, at the latest, six months after the making of the agreement. Ms Meng’s pleaded case in this regard fails. But as I have already noted, this would not have prevented the Court from declaring that the agreement was specifically enforceable, so that an order for specific performance could be made when the time came for payment. I therefore turn to consider this possibility.

Duty of co-operation

76. Counsel for Ms Wang submitted that Ms Meng’s conduct in removing essential components of equipment from the shop, and the business’ contact records, was calculated to prevent, and in fact did prevent, Ms Wang from continuing the Comfortzone business. Counsel submitted that in effect it deprived Ms Wang of her income at a critical time when she needed to raise the purchase price.

77. I am not satisfied that this is correct on a factual level. In the first place, the events coincided with the Covid-19 pandemic, which resulted in extensive lockdowns and ongoing suppression of retailing activity, especially in the Sydney CBD. I do not think that the evidence establishes that the Dixon Street shop was closed automatically; more importantly, it seems that much of the business of the Dixon Street shop was in effect taken over within the V Cosmetics business. Ms Wang could not have been working in two places at once and it is clear that she had been contemplating the establishment of the V Cosmetics business even before the share sale agreement with Ms Meng. In fact I am not satisfied that the Dixon Street shop business did immediately terminate.

78. Even if I had formed a different view on the facts, I do not think this would have been an answer to the claim for specific performance. The obligation of good faith exists at law. It gives rise to a right to damages. But no damages claim was mounted, so no question of relying on some sort of set-off can arise. As presented at the hearing, Ms Wang’s case had to be that any breach of the obligation to co-operate, no matter how trivial, meant that the contract was rendered unenforceable. Counsel cited no authority supporting such an extreme outcome. It seems quite contrary to the express provision in clause 1 that the price was not to be affected by fluctuations in the value of the company.

79. I think it is important to remember that the scope of the duty of good faith depends upon the nature of the obligations in the contract itself. In a contract for the sale of shares, the parties’ obligations revolve around the conveying of the shares on the part of the vendor and the payment of the purchase price by the purchaser. Conduct which may have an indirect effect on the ability of the purchaser to raise the purchase price are in my view too remote to constitute a breach of the share transfer agreement. None of this of course would prevent the Comfortzone companies, which remain under the control of Ms Wang, from suing Ms Meng and Mr Xu for any damage which they may have suffered as a result of their conduct. It is even possible that if there was a breach of the duty, then Ms Wang might sue for damages for that directly. But none of that was a reason to refuse specific performance.

Unclean hands

80. The principles which apply were not in doubt. They were stated by Campbell J in Black UhlansIncorporated v Crime Commission (NSW) [2002] NSWSC 1060 at [157]-[183]. In particular, it is necessary that the wrongful conduct must have an immediate and direct relation to the equity sued for.

81. Counsel for Ms Wang submitted that the conduct of Mr Xu and Ms Meng was plainly wrongful, and indeed criminal. Counsel observed that the crime of larceny can be committed even if there is an intention to return the property in due course: Crimes Act 1900, s 118.

82. Counsel for Ms Meng did not seek to defend her actions and those of Mr Xu, which were undertaken on her behalf. Counsel did not accept that their conduct was larcenous, but it was certainly wrongful. Counsel for Ms Wang submitted that the conduct prevented Ms Wang from coming up with the money required to comply with her obligations and this constituted the necessary link with the equity sued for. I am not satisfied of that on the facts. Nevertheless, I consider that there is a link.

83. On my findings, Ms Meng had agreed at the time of entering into the share sale agreement that Ms Wang was to have a year in which to find the money for the shares. It was an express term of the contract that Ms Wang was to have management control of the business. Even if Ms Meng’s concerns about Ms Wang’s management skills were justified, she was not entitled to interfere.

84. On the view I take of the facts, Ms Meng and Mr Xu became nervous by March 2020 about whether Ms Wang would be able to pay the money in due course, and they tried to pressure her to pay early. There was no legal basis for that position. When they failed to obtain payment, they then tried to increase the pressure by removing items of property from the store.

85. I reject the submission that this was to forestall misconduct by Ms Wang. As I see it, there was no plausible justification for removing parts of the machinery except to try and prevent Ms Wang from using that machinery. In effect, the conduct of Ms Meng and Mr Xu was a form of economic duress, as well as being tortious and a breach of Ms Meng’s obligations to the Comfortzone companies.

86. It is relevant I think that there is a possible penal element to the provision dealing with valuation. The effect of clause 4 is that the property is to be valued as at the date it was originally purchased. The benefit from any increase in the value of the property therefore goes to Ms Meng. To the extent that the value of the property has gone up in the meantime, Ms Meng will receive a windfall.

87. The position is thus that Ms Meng, having failed in her unlawful attempt to obtain payment before she was entitled to it under her agreement with Ms Wang, now comes to the Court and asks the Court to enforce the agreement in the way she had originally negotiated it. In my view, for the Court now to grant specific performance would be to reward Ms Meng’s misconduct. I therefore concluded that specific performance should be refused.

Judgment for purchase price at law

88. As mentioned, I have rejected Ms Meng’s pleaded case on reasonable time. On my findings, the parties agreed in October 2019 that Ms Wang would not be obliged to pay in less than a year.

89. This issue had been debated in the course of the amendment application at the trial. Counsel for Ms Wang submitted that the Covid-19 pandemic, and Ms Wang’s own financial circumstances, might have provided a justification for an extension of time beyond the twelve months.

90. Counsel for Ms Wang invited me in these circumstances to dismiss the proceedings in their entirety. When I asked whether that would prevent Ms Meng from bringing a further claim on the ground that the time for payment has now arisen, counsel replied that Ms Wang would rely on Anshun estoppel (see Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589) to say that it did.

91. I did not think it would be right to take this course. I referred the parties to s 63 of the Supreme Court Act 1970 which provides:

63   Final determination

The Court shall grant, either absolutely or on terms, all such remedies as any party may appear to be entitled to in respect of any legal or equitable claim brought forward in the proceedings so that, as far as possible, all matters in controversy between the parties may be completely and finally determined, and all multiplicity of legal proceedings concerning any of those matters avoided.

92. In my view, rejection of the claim for specific performance meant that Ms Meng should be remitted to her claims at law. But, unlikely as it may seem that the time for completion has not now passed, I must give Ms Wang an opportunity to mount that defence if she chooses. Obviously she will be at risk as to costs.

93. It seemed to me that the appropriate course was to permit Ms Meng to amend her statement of claim so as to formulate an alternative claim for damages, rather than to dismiss the proceedings and require Ms Meng to institute separate proceedings which might give rise to a debate about Anshun estoppel. That has now been done and there is a timetable for Ms Wang to file a defence to the damages claim.

Cross-claim

94. The Court having refused the application for specific performance, it is common ground that s 66G orders should be made in the cross-claim. But I think it would be wasteful and unnecessary for the property to be sold to a third party. The appropriate course, given that Ms Meng continues to wish to acquire Ms Wang’s share of the property, is to direct that it be transferred to her at a price calculated by reference to its present value, rather than its acquisition cost. If Ms Meng obtains judgment under the share sale agreement, then she may set off her obligation to pay the price to the extent of that judgment. The parties agree (at least for the moment) that the valuation and transfer of the property should not take place until Ms Meng’s entitlement to damages has been determined.

Costs

95. At the hearing on 12 May, counsel for Ms Wang submitted that I should order that Ms Meng pay Ms Wang’s costs of the proceedings. Counsel relied upon the general rule that costs follow the event (Uniform Civil Procedure Rules 2005 r 42.1). Counsel also sought indemnity costs based on a series of offers made by Ms Wang’s solicitors to resolve the proceedings. The offers relied upon were dated 13 September 2021, and 12, 20 and 29 April 2022.

96. At the time the submissions were made, counsel was contending that I should dismiss Ms Meng’s proceedings entirely. As it happened, I decided only to dismiss Ms Meng’s application for specific performance. Nevertheless, counsel continued to contend that a costs order should be made in Ms Wang’s favour (and on an indemnity basis). Counsel sought an order that Ms Wang pay the costs of the proceedings up to 12 May, and that such costs be assessable and payable forthwith.

97. The application for costs was opposed by counsel for Ms Meng. Counsel pointed out that Ms Wang’s first line of defence had been that she had no obligation to pay for the shares at all, and this had failed. Ms Meng was still pursuing her claim for judgment under the agreement. Counsel also submitted that the offers made on Ms Wang’s behalf, or some of them, did not comply with the requirements of the Rules. Others were only open for acceptance for an unreasonably short time. Counsel submitted that costs should be reserved, or, perhaps, there should be no order as costs.

98. In Akierman Holdings Pty Limited v Akerman (No 3); In the matter of Akierman Holdings Pty Limited (No 2) [2021] NSWSC 869 at [54]-[86] I discussed the way in which the rule that costs follow the event works in circumstances where there are multiple claims for relief, involving multiple issues of fact or law on which one or other of the parties have succeeded. I suggested that the rule generally operates distributively, that is, according to success or failure on discrete claims for relief. But success on such a claim usually carries with it all the costs of issues arising under that claim, unless the party who succeeds on the claim fails on an issue which is “clearly dominant or severable”. No different approach was put forward by counsel for either party in this case.

99. Applying that approach, Ms Meng has failed in her application for specific performance. That claim is distinct from her claim for judgment at law (and from Ms Wang’s cross-claim). It will therefore be proper in due course to order Ms Meng to pay Ms Wang’s costs of the application (or at least the costs solely referable to the application: see below). The question is whether to make that order now.

100. As the proceedings as a whole have not been finalised, making an order in favour of Ms Wang on the specific performance claim will have no practical effect unless I am also prepared to make a further order, as sought, for those costs to be immediately assessable and payable. I therefore turn to that question.

101. In Fiduciary Ltd v Morningstar Research Pty Ltd (2002) 55 NSWLR 1, Barrett J discussed the factors which bear on an application for immediate assessment and payment of interlocutory costs. A factor which may result in the making of such an order is that the costs order reflects the determination of a “separately identifiable matter” or the “completion of a discrete aspect” of the proceedings (at [11]). Another factor is that it is likely to be some time before the rest of the proceedings are disposed of (at [13]).

102. The latter factor is not present here. At this point it is far from clear what the determination of Ms Meng’s monetary claim will require, in terms of evidence and submissions. Furthermore, I am not sure that the specific performance claim is necessarily a “separately identifiable” or “discrete” matter in the relevant sense (it is of course legally distinct from the monetary claim but that is not necessarily the same thing).

103. While most, if not all, of the costs associated with the May hearing are likely to fall under the application for specific performance, other costs incurred earlier in the proceedings may in the end prove relevant to Ms Wang’s claim for judgment at law for the purchase price. I have in mind, in particular, the costs of preparing some of the affidavit evidence which may, depending on the defences, if any, raised to the claim at law, be used again. If Ms Meng succeeds in her monetary claim it will be necessary for the Court to consider whether the costs which straddle that claim and the specific performance claim should follow one claim or the other (see Akierman (No 3) at [55]-[57]). That question can only be determined when the result of the monetary claim is known.

104. In these circumstances, I do not think there is anything to be gained in formulating and making an order concerning the specific performance claim at this stage. Similarly, the debate about whether the offers of compromise should result in orders for indemnity costs for part or all of the proceedings are best determined when the overall result of the proceedings is known. I therefore do not propose to make a costs order at this stage. The costs of the proceedings up to 12 May will be reserved.

Orders

105. The orders of the Court made on 12 May were:

1. Order that the claims for relief in paragraphs 2 to 6 of the Further Amended Statement of Claim filed 3 May 2022 be dismissed.

2. Adjourn the balance of the proceedings for further directions at 9.15am on 26 May 2022.

106. The order the Court now makes on Ms Wang’s application for costs is:

1. Order that the costs of the proceedings up to 12 May 2022 be reserved.

**********

Amendments

15 March 2023 - Grammatical errors and syntax errors.

Decision last updated: 15 March 2023