Premier Land Holdings Pty Ltd v Excellent Development Pty Ltd

[2017] NSWSC 1575

Supreme Court

New South Wales

Medium Neutral Citation:	Premier Land Holdings Pty Ltd v Excellent Development Pty Ltd [2017] NSWSC 1575
Hearing dates:	2, 3 November 2017
Decision date:	20 November 2017
Jurisdiction:	Equity
Before:	Emmett AJA
Decision:	1. Direct the plaintiff to bring in short minutes of orders to give effect to the conclusions reached in the reasons of today.
Catchwords:	EQUITY – trusts and trustees – their appointment, dismissal, estate etc
Legislation Cited:	Australian Consumer Law, s 18 Companies Ordinance (Cap 622) (HK)
Category:	Principal judgment
Parties:	Premier Land Holdings Pty Ltd (Plaintiff and Second Cross Defendant) Excellent Development Pty Ltd (First Defendant and First Cross Claimant) Min Liu (Second Defendant) Yanmei Xu (First Cross Defendant)
Representation:	Counsel: A Greinke (Plaintiff and Second Cross Defendant) A Joseph (Defendants and Cross Claimants)   Solicitors: Auyeung Hecent & Day Lawyers (Plaintiff and Second Cross-Defendant) Goodwin & Co Lawyers (Defendants and Cross-Claimants) Crown Solicitor’s Office (Submitting Appearance)
File Number(s):	2016/123081

Judgment

1. The principal question in these proceedings is whether the plaintiff, Premier Land Holdings Pty Ltd (Premier), or the defendant, Excellent Development Pty Ltd (Excellent), is the trustee of the Excellent Unit Trust (the Trust). The Trust was established by a trust deed executed by Excellent on 18 March 2015 (the Trust Deed). Excellent was purportedly removed as trustee on 14 August 2015 and replaced by Premier. The present dispute is concerned with the effectiveness of that purported removal, which depends upon who the directors of Key Luck International Ltd (Key Luck) were at that date.

Project 117

2. The Trust was intended to be part of a structure whereby seven investors were to engage in a joint venture involving the purchase and development for residential apartments of a property situated at Meadowbank (the Meadowbank Property). The proposed investors included the second defendant, Ms Min Liu, the first cross-defendant, Ms Yanmei Xu, and Ms Wanrong Zhang. The other four proposed investors were friends and acquaintances of those three individuals. The joint venture was described by the parties as “Project 117”.

3. In November 2014, Ms Liu sought advice from Messrs Kam & Beadman, chartered accountants, about a structure for Project 117. On 21 November 2014, Mr Kam sent to Ms Liu an email suggesting that the best structure for Project 117 was a unit trust in which each of the investors would hold units in proportion to their respective investments. Mr Kam suggested that the trustee of the unit trust would acquire the Meadowbank Property, enter into a loan agreement with investors and a bank lender, engage a builder to construct the apartments, report to the unit holders and distribute profits. In response, Ms Liu suggested that, since the investors, apart from Ms Liu, were residing in China, it might be preferable for the unit trust to be established in Hong Kong. Subsequently, it was agreed among the investors that a Hong Kong company would hold the units of the investors in the unit trust and the investors would hold shares in the Hong Kong company in proportion to their respective investments.

4. In furtherance of that arrangement, Ms Xu acquired the only issued share in Key Luck, a company that had been incorporated in Hong Kong on 19 September 2014. At the time of its incorporation, the sole director and shareholder of Key Luck was GRL14 Ltd (GRL), which was incorporated in the British Virgin Islands. A board resolution of Key Luck dated 28 November 2014 was signed on behalf of GRL. By that resolution it was resolved that Ms Xu be appointed as a director of Key Luck with immediate effect and that GRL be resigned as a director of Key Luck with immediate effect. On 1 December 2014, a form of notice of change of director of Key Luck was lodged with the Hong Kong Companies Registry reporting that, on 28 November 2014, GRL had ceased to be a director and Ms Xu had been appointed as a director. On 1 December 2014, GRL completed a transfer of the one issued share of Key Luck to Ms Xu who also signed the transfer. That transfer was duly stamped.

5. On incorporation, Key Luck adopted as its articles the model articles of association provided for under the Companies Ordinance (Cap 622) (HK) (the Companies Ordinance), except to the extent of inconsistency with its expressly adopted articles of association. Relevantly for present purposes, the articles of association of Key Luck provided that the directors were to have power, exercisable at any time and from time-to-time, to appoint any other person as a director, either to fill a casual vacancy or as an addition to the board. The model articles also provide that a person who is willing to act as a director, and is permitted by law to do so, may be appointed to be a director by a decision of the directors. A director appointed by a decision of the directors must retire from office at the next annual general meeting following the appointment but is eligible for re-appointment.

6. Under the model articles, where a company has only one director and the director takes any decision that may be taken at a meeting of directors, that decision has the effect as if agreed in a meeting of directors. The director must provide the company with a written record of the decision within seven days after the decision is made.

7. Under the Companies Ordinance, a company must keep a register of directors and must enter in the register the required particulars of each person who is a director of the company. A company must keep its register of directors at its registered office or a prescribed place. The register of directors of a private company, such as Key Luck, must contain, with respect to each director who is a natural person, the present forename and surname, the usual residential address and correspondence address and identity particulars of each director. While Key Luck has a register of directors, it is completely blank.

8. Under the Companies Ordinance, a private company must, in respect of every year, except the year of its incorporation, deliver to the registrar for registration an annual return on the anniversary of the date of the company’s incorporation. The annual return must contain, amongst other things, particulars with respect to any person who at the date of the return is a director of the company. Key Luck lodged annual returns as at 19 September 2015, 2016 and 2017 showing that as at those dates the only director of Key Luck was Ms Xu.

9. Despite the evidence set out above, Excellent and Ms Liu contend that, as at 14 August 2015, Ms Liu was also a director of Key Luck. They rely for that assertion on the arrangements put in place in relation to Project 117. To resolve the dispute it is necessary to say something more about the arrangements for the joint venture in relation to Project 117.

10. On 6 February 2015, in pursuance of the proposed joint venture, Ms Liu entered into a deed with High Quality Building No 3 Pty Ltd (High Quality), the owner of the Meadowbank Property, whereby High Quality granted to Ms Liu an option to buy the Meadowbank Property. The option fee was $1 million to be paid as to $500,000 on the date of the deed and $500,000 on the date of exercise of the option. The purchase price for the Meadowbank Property on exercise of the option was $10 million and a deposit of $1 million was to be paid on entering into the contract to buy the Meadowbank Property on the exercise of the option. The option fee was to be applied as the deposit.

11. By the Trust Deed, it was recited that Excellent had resolved to establish the Trust and that it would hold the moneys subscribed for units in the Trust and all property both real and personal from time-to-time constituting the Trust upon the trusts contained in the Trust Deed. The Trust Deed was signed on behalf of Excellent by Ms Liu, who was a director of Excellent.

12. On 19 March 2015, Key Luck made an application for 100 units in the Trust. The application was addressed to Excellent and was signed by Ms Liu on behalf of Key Luck. Excellent issued a unit certificate dated 19 March 2015 showing Key Luck as the holder of 100 units in the Trust. The register of the Trust shows Key Luck as the holder of all of the issued units in the Trust, being 100 ordinary units. The $100 subscribed for the units in the Trust was paid by Ms Liu. It is common ground that that payment was made on behalf of the seven proposed investors in Project 117. It is also common ground that Key Luck was and is the beneficial owner of all of the issued units in the Trust.

13. Notwithstanding that the proposed joint venture had not been documented and formalised, sums totalling $500,000 were contributed by the investors to a bank account of Ms Zhang in February 2015. Ms Zhang then transferred the money from that account to the solicitor acting on the purchase of the Meadowbank Property. The first part of the option fee was paid on 6 February 2015.

14. On 23 March 2015, Ms Zhang sent to Ms Liu a draft of a proposed investment agreement. On 25 March 2015, Ms Zhang sent the draft investment agreement to all of the other investors. There was no evidence of any discussion concerning the terms of the proposed agreement.

15. In early April 2015, Ms Liu opened a bank account with the Commonwealth Bank of Australia in the name of Excellent. The investors paid further sums totalling $500,000 to Key Luck, which transferred those funds to that account. Ms Liu deposited $1000 of her own funds on 20 April 2015, including $100 representing the proceeds of the issue of 100 units in the Trust.

16. On 17 April 2015, Ms Liu exercised the option to purchase the Meadowbank Property and the further sum of $500,000 was paid to High Quality. As a consequence, a contract for the sale and purchase of the Meadowbank Property was entered into between High Quality as vendor and Excellent as purchaser on 17 April 2015.

17. Subsequently, Ms Liu requested that Ms Xu and Ms Zhang bring to Sydney the proposed investment agreement signed by the six investors other than Ms Liu. Ms Xu and Ms Zhang visited Sydney from late May 2015 and brought with them the form of investment agreement signed by the six proposed investors other than Ms Liu. The signed document was left at a hotel to be collected by Ms Liu. In early June 2015, Ms Liu collected the signed agreement and signed it herself shortly afterwards. The agreement that was signed by the investors is in Chinese. It is common ground that an English translation in evidence is an accurate translation from the Chinese original.

18. The investment agreement begins by naming the seven investors and provides that the parties “through friendly discussion and negotiation” had agreed to invest in Project 117 in accordance with the terms and conditions of the agreement. Clause 2 specified the amounts that the seven investors were to subscribe, which totalled $11 million.

19. Clause 3 of the investment agreement provided for the incorporation of a company called “Hong Kong Ruiqi Investment LLC” as the entity to be responsible for the investment and operation of Project 117. The investment agreement provided that the share structure of that company would be in accordance with the proportions in which investors were to subscribe the sum of $11 million. It is common ground that Key Luck is the company adopted by the investors as the company referred to in the investment agreement. The investment agreement also referred to the establishment of the Trust, the incorporation of Excellent and the agreement of the parties to provide financing services, including loans from Australian banks, to ensure completion of Project 117.

20. Importantly for present purposes, cl 4 of the investment agreement provided that the board of directors of Key Luck would consist of three directors, who would be responsible for business and investment plans, as well as the execution and operation of Project 117. Clause 4 also provided that the three directors would have the right to pass resolutions on the investment. The three directors were to be Ms Liu, as executive director, Ms Zhang as director and chief financial officer and Ms Xu as director and treasurer. Finally, cl 4 also provided that a two-thirds majority was required to pass resolutions made by the board. However, it also provided that all parties were required to participate in the decision-making on certain matters and that a two-thirds majority of the total capital investment was required to pass any resolution in relation to those matters.

21. Clause 5 provided that the parties were to contribute to Project 117 by instalments as follows:

Stage 1   Deposit of $1,100,000 by 15 January 2015

Stage 2   Deposit of $900,000 by 10 April 2015

Stage 3   Deposit of $9 million by 31 July 2015.

However, cl 5 provided that those dates were subject to change. Clause 5 also provided that, if any party failed to make the requisite contribution on time, that party would be liable to Key Luck for the unpaid amount and would be liable to pay 10% of the requisite contribution.

22. Clause 13 contained provisions to the following effect:

• The investment agreement had been negotiated by all parties and would take effect once all parties had signed;

• Any issue not included under the investment agreement could be resolved through negotiation by all parties;

• The constitutions of Key Luck, the Trust and Excellent were deemed to be a part of the investment agreement and all parties were required to abide by those provisions;

• There would be nine copies of the investment agreement and each party was given a copy, with Key Luck and “the Trust” keeping the remaining copies.

23. On 10 July 2015, Excellent paid stamp duty in the sum of $535,510 on the contract with High Quality. That sum was provided by the investors in proportion to their obligations under the investment agreement.

The Falling Out

24. For reasons that are not entirely clear, the parties to the joint venture had a falling out. A document dated 14 August 2015 entitled “Resolution of Shareholders Meeting on Change of Excellent Unit Trust” was brought into existence. The document identified five “participants”, being five of the seven investors. Ms Liu was not named as one of the five. The document recorded resolutions as follows:

1.   Resolved that Hong Kong Ruiqi Company decommissioned the executive powers of Excellent Development Pty Ltd on the management of Excellent Unit Trust.

2.   Resolved that Hong Kong Ruiqi Company authorized Yifeng QIAO and Jianxiong YE to set up Premier Landholdings Pty. Ltd. to be the new trust management company of Excellent Unit Trust.

3.   Resolved that Hong Kong Ruiqi Company authorized Yifeng QIAO and Jianxiong YE to set up the operating company for Project 117-119 Bowden St.

It is common ground that the reference to “Hong Kong Ruiqi Company” should be understood as a reference to Key Luck.

25. On 14 August 2015, Ms Xu purported to resolve, as the only director of Key Luck, that Excellent be removed as trustee of the Trust and that Premier be appointed as the trustee of the Trust. Ms Xu also signed a document dated 14 August 2015 entitled:

“Minutes of meeting of the director of Key Luck International Limited”.

The essence of the document was a resolution to remove Excellent as trustee of the Trust and to appoint Premier as trustee of the Trust.

26. On 14 August 2015, Ms Xu wrote to Excellent purporting to give notice that Excellent had been removed as the trustee of the Trust effective as at 5pm on 14 August 2015. The notice stated that Key Luck held 100% of the units in the Trust and, as such, had the required majority to exercise the power to remove the trustee pursuant to the provisions of the Trust Deed. The notice directed Excellent to deliver all books, documents, records, money and other property comprising or relating to the trust fund of the Trust to Premier.

27. On 2 November 2015, an instrument described as “Deed of Rescission of Contract for Sale of Land” (the Rescission Deed) was entered into between High Quality and Premier. By the Rescission Deed, High Quality and Premier agreed that the contract for sale dated 17 April 2015 was rescinded effective from the date of the Rescission Deed. On the same day, High Quality and Premier entered into a contract for the sale and purchase of the Meadowbank Property on the same terms as the contract dated 17 April 2015.

28. The Rescission Deed is curious insofar as it purports to rescind a contract between High Quality and Excellent in circumstances where Excellent is not a party to the Rescission Deed. The parties to it appear to have proceeded on the basis that Excellent had been replaced as trustee of the Trust by Premier and that therefore Premier was in a position to rescind the original contract. In any event, the effect of the Rescission Deed is not presently relevant.

29. On 4 January 2016, an email was sent in the name of Key Luck to all seven of the investors in the joint venture. The email attached a document described as “Directors’ Resolutions” of Key Luck. The document provided that it was resolved that all investors must pay to Key Luck on or before 15 January 2016 their respective amounts pursuant to their respective proportions of the balance of the total investment amount of $9 million. The document provided that, if an investor did not pay the respective amount or share before that date, it would be presumed that that investor was no longer interested in the investment. The document provided for signatures by Ms Liu, Ms Zhang and Ms Xu. Ms Zhang and Ms Xu signed the document. It was not signed by Ms Liu.

30. On 3 February 2016, solicitors acting for the investors other than Ms Liu wrote to Ms Liu calling on her to contribute her proportion of the moneys required by the joint venture for settlement of the purchase of the Meadowbank Property. A copy of the “Directors’ Resolutions” was attached to the letter. On 9 February 2016, solicitors acting for Ms Liu responded to the letter of 3 February 2016. The letter referred to cl 4 as providing that Ms Liu was to be an executive director of Key Luck and noted that Ms Xu was, in fact, currently the only director and the only shareholder of Key Luck. The letter asserted that Ms Liu was willing and ready to perform her obligation under the investment agreement but would only be obliged to make her contribution as requested in the letter of 3 February 2016 if Key Luck registered the share ownership in its capital in accordance with the investment agreement and appointed Ms Liu as executive director.

The Proceedings

31. Against that background, Premier commenced these proceedings in the Equity Division on 16 April 2016 seeking a declaration that it is the trustee of the Trust and an order that all of the property of the Trust be vested in it. Premier also sought an order that Excellent and Ms Liu deliver up the original stamped contract for sale dated 17 April 2015 and the original stamped transfer. That prayer for relief was subsequently amended to provide that the documents be delivered up when released by the Chief Commissioner of State Revenue if they are presently in the possession of the Chief Commissioner.

32. It is difficult to see how any conclusion can be reached other than that the removal of Excellent was effective. The evidence points conclusively to the conclusion that, at all relevant times, Ms Xu has been the only director of Key Luck. The relief sought by Premier has been resisted on the basis that Ms Liu was also a director of Key Luck and that the resolution purporting to remove Excellent and replace it with Premier was ineffective because the meeting was convened without notice to Ms Liu. While there are possible straws in the wind supporting such a proposition, there is no material upon which any conclusion could be based that Ms Liu was ever appointed as a director of Key Luck. Thus, Ms Liu signed the application to Excellent for the allotment of units in the Trust and the purported “Directors’ Resolutions” of 30 December 2015 referred to Ms Liu. It may be that the failure to appoint Ms Liu and Ms Zhang as directors constituted a breach of the investment agreement. That will depend upon whether all parties performed their respective obligations. However, that is not a question presently before me. The only question is whether or not the resolution of Key Luck of 14 August 2015 was effective. I am satisfied that it was.

31. In those circumstances, it is not necessary to deal with the cross-claim filed by Excellent against Ms Xu and Premier. By the cross-claim, Excellent sought the obverse of the relief claimed by Premier as to whether Premier or Excellent was the trustee of the Trust. However, Excellent also sought damages on the basis that they had engaged in conduct in contravention of s 18 of the Australian Consumer Law by falsely representing to High Quality that Premier had replaced Excellent as trustee of the Trust, and that, as a result of that false representation, High Quality was induced to enter into the Rescission Deed and enter into the sale and purchase agreement with Premier. In the light of the conclusion that I have reached, there was no misleading conduct on the part of Premier in representing that it had been appointed as trustee of the Trust.

32. Excellent also claimed damages in its cross-claim on the basis that Premier and Ms Xu had induced a breach of contract by High Quality insofar as they induced High Quality to repudiate the contract for sale between High Quality and Excellent. As I have indicated above, the Rescission Deed was purportedly entered into between High Quality and Premier, whereas the parties to the original contract for sale and purchase of the Meadowbank Property were High Quality and Excellent. Even if Premier had been replaced as trustee, Excellent was still the party to the contract and, while Premier may have been entitled to compel Excellent to agree to rescission and to a novation by High Quality and Premier, it is difficult to see how the contract between High Quality and Excellent could be effectively rescinded without the participation of Excellent.

Conclusion

35. It was accepted by Excellent that, if I concluded that Premier had replaced it as trustee of the Trust, there would be no utility in pursuing the cross-claim on the basis of inducing a breach of contract. In any event, it is difficult to see what loss has been suffered. Whatever the outcome of the proceedings, so far as the replacement of the trustee is concerned, it is common ground that the benefit of the contract for sale and purchase was held on the terms of the Trust. In effect, the only point of the proceedings is to determine which of Premier and Excellent has standing to pursue a claim for recovery of the stamp duty following termination of the contract and, if there is any basis for it, to pursue a claim for relief against forfeiture of the deposit to High Quality.

36. That leaves the question of the relief to be granted. The parties requested that I make no orders until they have had a chance to consider their respective positions. After the completion of oral argument, I intimated to the parties that I had formed the conclusion that the removal of Excellent and the replacement by Premier as trustee of the Trust was effective. Accordingly, the declaration sought by Premier is appropriate, although the consequential orders require some consideration. There is also a question of whether or not the stamped contract and transfer are in the possession and custody of Ms Liu. In cross-examination, Ms Liu said unequivocally that they were in her possession. However, counsel for the defendants indicated to the Court that there is a real question about that and that the documents may be in the possession of the Chief Commissioner of State Revenue. Accordingly, after argument, I gave directions for the parties to file any further evidence on which they wish to rely as to the nature of the relief that should be granted in the light of the conclusion that I have reached. I also indicated to the parties that before the date of the further hearing with respect to relief I would publish reasons for the conclusions I have reached on the substantive question.

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Decision last updated: 20 November 2017