Rapp, Rapp & Rapp v Li No. DCCIV-01-1448

Milan Rapp, Slavka Rapp and Peter Rapp v Ping Li
[2004] SADC 27
Judge Clayton
Civil

The claim of the plaintiffs as set out in the original Particulars of Claim is for recovery of a loan of $377,500 and interest evidenced by a written agreement entered into by the parties on 19 February 1999. The written agreement relied upon is described as a Share Mortgage Agreement. By an amendment made at trial, the plaintiffs added allegations that “the agreement” consisted of a written Sale of Shares Agreement and a written Share Mortgage Agreement which were either executed on behalf of the defendant by her agent, Kevin Cheung (the defendant’s husband), on 19 February 1999, or alternatively, were novated to the defendant on or about 14 April 1999, or in the further alternative, were a tripartide agreement between the plaintiffs, the defendant and Kevin Cheung, by which the defendant agreed to accept the rights, benefits and obligations undertaken by Kevin Cheung on 19 February 1999, under agreements in his own right.
In her defence, the defendant admits that she signed an agreement dated 19 February 1999. She denies that she was advanced the sum of $377,500 or any other sum, by the plaintiffs. The defendant says that she had a limited ability to read English, that she was given no independent explanation of the terms of the agreement, that she believed the agreement related to the purchase by her of an interest in a business and that she did not understand the agreement to constitute any undertaking by her to pay money to the plaintiffs. She says that the money, which is the subject of the purported loan, represented the outstanding purchase price owed by Kevin Cheung, in respect of shares which were the subject of Share Sale Agreements. She says she had no knowledge of the worth of security which was shares in Ocean Foods Pty Ltd. She also says that her husband, as agent for the plaintiffs, misrepresented the nature of the agreement so that the agreement was harsh and unconscionable and was induced by misleading statements for which the plaintiffs are liable. By an amendment to the Defence made at trial she alleges that the agreement was entered into by the parties under a common mistake, namely, that the defendant could acquire all the issued shares in Ocean Foods Pty Ltd.
In their Reply, which pre-dates the amendments made to the Particulars of Claim at trial, the plaintiffs say that the defendant signed the agreement as part of a single transaction which recorded the purchase by her of an interest in a business upon usual commercial terms, including an obligation to pay the purchase price. They say that she did not pay the whole of the purchase price on the day she acquired the shares because the agreement provided partial vendor finance. They also say her husband acted as her attorney and not as the plaintiffs’ agent (as alleged in the defence). Finally, the plaintiffs say that the defendant has received the benefit of the contract.
In the pleadings the plaintiffs refer to at least three separate agreements, namely, a Share Mortgage Agreement signed by Kevin Cheung as agent of Ping Li on 19 February 1999, a Share Mortgage Agreement signed by Ping Li herself in April 1999 and an agreement for the sale of a business which is described alternatively as a novation and a tripartied agreement.
The defendant, Ping Li, was a citizen of the Peoples Republic of China. She and her husband were successful business proprietors in Hong Kong and Singapore. She wished to qualify as a business migrant to Australia and negotiated to purchase the businesses of Ocean Foods Pty Ltd and South Australian Lobster Exporters Pty Ltd in South Australia from the plaintiffs. In the negotiations Ping Li was represented by a solicitor, Mr Velik of Sydney and the vendors were represented by a solicitor, Mr W. Ouwens, and their accountants, KPMG.
Evidence was given for the plaintiffs by Milan Rapp, one of the vendors, Mr Ouwens and Mr Murton of KPMG. Ping Li and her present solicitor, Ms Sin, also gave evidence.
In April 1998, Ping Li executed separate Heads of Agreement which contemplated the purchase by her of the shares in both Ocean Foods Pty Ltd and South Australian Lobster Exporters Pty Ltd. The Heads of Agreement had been derived from drafts forwarded to KPMG by Mr Velik in March 1998. In the Heads of Agreement Ping Li agreed in principle to acquire the shareholding of Ocean Foods Pty Ltd for $410,000 and the shareholding of South Australian Lobster Exporters Pty Ltd for $390,000.
On 15 May 1998, Ping Li appointed her husband, Kevin Cheung, as her attorney to act on her behalf to acquire the shares. She said she signed the power of attorney at the request of her husband who told her that he was going to Australia to buy the factory and he asked her to sign the power of attorney so that he could act on her behalf.
Mr Ouwens gave evidence that the plaintiffs were prepared to leave some vendor finance in the company, but their position was that they would not advance any vendor finance unless there was a personal obligation on the part of Ping Li to guarantee the finance. That was the origin of the requirement for a share mortgage.
In July 1998, Ping Li lodged an application for migration to Australia. The application was initially made under Class 127 as a business owner, but was later converted to an application under Class 128 which relied upon her business experience, rather than her ownership of a business. The application disclosed that Ping Li was a manager of Pearl Orchid Company Ltd of Hong Kong and the managing director of Pearl Orchid (Singapore) Pty Ltd and stated that she had the overall management and daily operation management of a business which, in both 1996 and 1997, had an annual turnover of more than AUD$60 million. On 5 November 1998, Ping Li was assessed to be a suitable business migrant to Australia.
Negotiations and the drafting of documents continued and on 25 November 1998, Mr Velik sent to Mr Ouwens suggested amendments to two share sale agreements together with a proposed share mortgage agreement. Ping Li, by her solicitor Mr Velik, had therefore contributed in a direct way to the ultimate form of the Share Mortgage Agreement. That is a matter which becomes relevant when considering the claim of Ping Li that the documents should be set aside as unconscionable. The Share Mortgage Agreement must be viewed in the context of a sale of shares which involved vendor finance; it was never intended to be a stand alone transaction but was always ancillary to the sale of shares.
Exhibit “D22” is a letter from Velik Solicitors to “Ping Li c/-Kevin Lee” dated 26 November 1998, in which Velik Solicitors explained that two share sale agreements had been referred to them with amendments made unilaterally by the other parties. Kevin Lee was an employee of the defendant’s company who represented her in negotiations. The agreements to which Velik Solicitors referred were “D6” and “D7” which purport to be agreements for the sale of the shares in the two companies to Ping Li. They were predecessors of the Sale of Share Agreement, “P1-12”, which was signed on 19 February 1999. While “D6” and “D7” were signed by all of the parties, they must have been treated as drafts because they were never implemented. The provenance of “D6” and “D7” is not fully explained by the evidence, but a footer on the documents indicates that they were printed by Velik solicitors on 11 June 1998. Exhibit “P1-12”, the final Share Sale Agreement, was printed on 20 January 1999. Exhibit “D6” is different in some but not all respects from “P1-12”, but like exhibit “P1-12”, clause 7.3 of “D6” and “D7” had contemplated the execution of a share mortgage.
On 20 January 1999, there was a luncheon in Sydney attended by Mr Ouwens and Mr Rapp, on the one hand, and Ping Li, Kevin Cheung, Kevin Lee and Mr Velik on the other. Mr Ouwens gave evidence that everyone at the luncheon, including Ping Li, was delighted that an agreement had finally been reached. On the other hand, Milan Rapp said that two children and a lady, whom he assumed was Ping Li, were at the luncheon but were at another table because Kevin Cheung wanted quiet. This evidence does not throw any light on the level of understanding that Ping Li may have had of the transaction. In any event, the terms of a Share Sale Agreement were finalised, documents were subsequently prepared to reflect what had been agreed and a time was appointed for settlement.
Mr Ouwens said that Ping Li and her husband came to Adelaide on 18 February 1999, the day prior to the time fixed for settlement. There was a lunch at a restaurant in Adelaide, attended by himself, Mr Jenkins, the vendors’ accountant, Milan Rapp and Kevin Cheung. He could not recall whether Ping Li attended. That evening there was a matrimonial disagreement which led to Ping Li returning home to Sydney early the next morning. She did not attend at the meeting which had been arranged for the execution and settlement of the agreement, but Kevin Cheung did. The other people who attended the meeting were Milan Rapp, Mr Ouwens and Mr Jenkins. They all wished to proceed with the transaction. Kevin Cheung announced that he would buy the shares for his wife. Mr Ouwens spoke with Mr Velik in Sydney who told Mr Ouwens that he had obtained instructions from Ping Li and that she no longer wished to be the purchaser and that it was in order for Kevin Cheung to acquire the shares. The typed Share Sale Agreement which had contemplated a sale to Ping Li, was amended by hand by deleting the name of Ping Li and substituting the name Kevin Sy Cheung on the front sheet, in the clause naming the parties and in the execution clause but not in the body of the document where certain provisions still expressly referred to Ping Li. The amended document was signed by the plaintiffs as vendors and by Kevin Cheung as purchaser. One of the issues in the case relates to the capacity in which Kevin Cheung signed.
Mr Ouwens gave evidence that initially Kevin Cheung said he would sign the documents on his wife’s behalf as her attorney, but on his advice Milan Rapp rejected that proposal. Mr Ouwens said he was not prepared to advise his clients to have Kevin Cheung act under a power of attorney that had not been produced. It was specifically agreed that Kevin Cheung would contract in his own right. Mr Ouwens also said Milan Rapp did not care whom he sold the shares to as long as he got his money. At the settlement on 19 February 1999, Mr Cheung paid $AU300,000 by a bank cheque and $US35,000 in cash. A receipt was issued in the name of Kevin Cheung. Kevin Cheung said that he would sort things out with his wife later on.
Mr Ouwens said in cross examination that on the day of settlement it was clear in his mind that Kevin Cheung purported to be the purchaser of the shares in both entities in his own right and Ping Li no longer wished to be the purchaser. He agreed that the share transactions were settled on 19 February 1999, with Kevin Cheung becoming the purchaser, making cash payments and entering into a Share Mortgage for the balance of the purchase price. He said that on 19 February 1999, share transfers were executed and that after settlement had taken place the only residual interest of the vendors was as mortgagees. He said, “They sold out the lot”. On that evidence of Mr Ouwens, on 19 February 1999, Kevin Cheung had become the beneficial owner of the shares and was a debtor to the vendors in respect of the notional loan created by the provision of vendor finance. Mr Ouwens summarised the end result in the following evidence :
“ …. No, it was settled as far as we were concerned. As far as the plaintiff was concerned, we didn’t really mind who we sold the shares to, we wanted a settlement, and the money was available to settle. Kevin Cheung was unable to produce a power of attorney to say he was acting for his wife and it was sold to him in his own right.”
The position was put beyond any doubt by the following exchange between Mr Ouwens and the cross examiner :
"QThe one thing you were astute to try and achieve, isn’t this right, on 19 February was to make sure that Kevin Cheung got these shares in his own right.
AYes.
QAnd not as an attorney under a power of attorney for Ping Lee.
AYes.”
Milan Rapp gave evidence of the meeting of 19 February 1999. He said Ping Li was not happy and she left to return to Sydney. Milan Rapp asked Kevin Cheung what was going to happen and Kevin Cheung replied, “We’re going ahead with the purchase”. After talking over the telephone, Kevin Cheung said he would buy the company for Ping Li because he had a power of attorney and, “I am buying it for Catherine (the defendant) because she needs a visa”. Milan Rapp said that he was advised to put the proceeds of the settlement in the safe of KPMG because they knew that when the power of attorney came in there would be a share change to Ping Li. He said there was a discussion to the effect that Ping Li should finish up with the shares because she needed to run the business. Mr Rapp said that at the end of the meeting Kevin Cheung said he would come back as soon as possible with the power of attorney. Mr Rapp said he was “waiting for the power of attorney to transfer it on Ms Ping Li’s name and that at the end of the day it was his intention that Ping Li would purchase the business in her own right”.
That evidence by Milan Rapp appears to be intended to support the plaintiffs’ plea that the documents were executed on the defendant’s behalf by her agent and to create the impression that when Kevin Cheung settled he did so as agent for a disclosed principal, Ping Li, subject to the production of the power of attorney. That evidence is inconsistent with the evidence of Mr Ouwens that the contract was settled unconditionally by Kevin Cheung on his own behalf and that at the meeting on 19 February 1999, Milan Rapp rejected the proposal that Kevin Cheung should sign as attorney for Ping Li. It is also inconsistent with subsequent letters from KPMG to which I refer below, the fact that the parties saw the need for the execution of fresh documents by Ping Li in April and the plaintiffs’ present claims that there was a later novation or tripartide agreement whereby Ping Li was substituted for Kevin Cheung as purchaser. In cross examination Mr Rapp eventually acknowledged that immediately after settlement he had sold the shares to Kevin Cheung who entered into a Share Mortgage to pay back the outstanding money. He understood that Kevin Cheung hoped to produce the power of attorney later and redo things so that Ping Li might become the purchaser.
Milan Rapp said he saw a copy of the power of attorney in March and that Mr Ouwens suggested that the relevant documents be sent somewhere for Ping Li to sign. Why Ping Li should be required to sign personally if the power of attorney had been sighted and accepted is not clear. Notwithstanding his prevarication, it is clear that on 19 February 1999, Milan Rapp knew he had contracted with Kevin Cheung in his own right and not as agent for Ping Li. Also, the evidence of Mr Ouwens establishes that on 19 February 1999, the vendors were not prepared to deal with Kevin Cheung as agent for Ping Li. A telling fact is that after 19 February 1999, nobody regarded Ping Li as the contracting party. Everyone treated Kevin Cheung as the purchaser and acted on the assumption that further documents needed to be signed if Ping Li was to become the purchaser.
Accordingly, I find that Kevin Cheung was the contracting party and that Ping Li did not incur any liability by reason of the documents signed by Kevin Cheung in Adelaide on 19 February 1999. Additionally, if necessary, I would find that there was an implied revocation of Kevin Cheung’s authority to act as the attorney of Ping Li as a consequence of her conduct on 19 February 1999. Although the power of attorney was created by deed and is stated to be irrevocable, that is not the end of the matter. See Bowstead on Agency, 15^th Edition, Article 125 page 509 ff, where it is stated that a power of attorney is only irrevocable when coupled with an interest. On 19 February 1999, Ping Li and Mr Velik made it clear that Ping Li no longer wished to proceed with the contract.
I reject the plaintiffs’ allegation that Kevin Cheung was acting as the agent of Ping Li when he signed and executed documents on 19 February 1999. The allegation is contrary to the evidence and is inconsistent with the subsequent requirement that Ping Li execute further documents personally in April 1999. Accordingly, if Ping Li is liable to the plaintiffs it must be as a consequence of her own actions after 19 February 1999.
I find that the end result of the settlement on 19 February 1999, was that the plaintiffs had entered into and completed a Share Sale Agreement with Kevin Cheung who acquired the shares in the two companies. As at 19 February 1999, Kevin Cheung and not the defendant owed the balance of the purchase price for the shares to the plaintiffs which was secured by a share mortgage executed by Kevin Cheung. The question is whether anything happened after 19 February 1999, which created a liability on the part of Ping Li to the plaintiffs.
The plaintiffs’ original claim relied upon the express terms of the Share Mortgage Agreement. The alternative formulations of the plaintiffs’ claim also ultimately depend upon obligations stated in the Share Mortgage Agreement. As I have mentioned, the defendant incorrectly admits that she signed a Share Mortgage Agreement on 19 February 1999, whereby the plaintiffs purported to advance $377,500 to her. While the admission of Ping Li is not factually correct as to the date of signature, it is factually correct as to the execution of the document. Having admitted that she did sign a Share Mortgage Agreement, the question becomes whether the defences which have been raised exonerate Ping Li from the clear obligations which the document purports to place upon her. That question requires consideration of the circumstances in which Ping Li signed the document.
On 23 February 1999, KPMG forwarded copies of the agreements signed by Kevin Cheung, to Mr Velik. The letter assumed that Kevin Cheung, and not Ping Li, was the purchaser of the shares. On 11 March 1999, Mr Jenkins of KPMG wrote to Kevin Lee advising that stamp duty on the sale of the shares was payable by Kevin Cheung as the purchaser of the shares pursuant to clause 11.3 of the Agreement. That letter is an indication that as at 11 March 1999, Mr Jenkins, who had attended the settlement on 19 February 1999, still believed that Kevin Cheung and not Ping Li was the purchaser.
Mr Ouwens said in evidence that after the settlement, Kevin Cheung and Milan Rapp approached him and Kevin Cheung indicated that he still wanted his wife to buy the shares because of the requirement for a visa. Kevin Cheung produced the power of attorney and said Rico Chan of his office in Hong Kong would contact the representatives of the vendors and make the necessary arrangements. Mr Ouwens gave evidence that Kevin Cheung said, “Would you produce a nomination form to say that - confirming what occurred on the date of settlement, that the shares were, in fact, acquired by my wife with me having been nominated as the purchaser pursuant to my power of attorney”. Confused as it was, that was a request to rearrange an unambiguous transaction which had already been settled. It was suggested to Mr Ouwens in cross examination that the request would amount to a deliberate plan of deceit. He responded that Kevin Cheung at all times had said, “Look my wife needs to acquire these shares. I am acting for her in acquiring these shares”. When confronted with his earlier admission that he understood that on 19 February 1999, Mr Cheung had acquired the shares in his own right, Mr Ouwens gave an answer in which he attempted to distinguish between the legal interest and beneficial interest. Ultimately, he agreed that Mr Cheung had made no nomination of anyone else to purchase the shares. Mr Ouwens said, “Li Ping eventually signed the Share Sale Agreement, I am not sure whether it emanated from my office or not or it emanated from KPMG or Velik”, and, “I think the Share Mortgage went from my office to Rico Chan at Pearl Orchid”, after 19 February 1999.

At the settlement on 19 February 1999, the plaintiffs had sold the shares to Kevin Cheung who had paid part of the consideration and mortgaged his interest in the shares to secure his obligation to pay the balance of the purchase price. After 19 February 1999, the plaintiffs were no longer in a position to sell the shares to Ping Li unless they first came to some arrangement with Kevin Cheung.
Rico Chan did contact Mr Ouwens and asked for share transfer forms, a fresh Share Mortgage document and the other agreements for ratification by Ping Li. Mr Ouwens said, “The documents went up to Hong Kong and eventually they returned signed”. Exhibit “D5” is a facsimile transmission from Rico Chan of Pearl Orchid International Holdings Ltd to Mr Ouwens dated 22 March 1999, which stated :
“Regarding the ‘Purchaser’ of the agreement. Kevin Cheung finally decided that Ms. Ping Li should be the purchaser in order to satisfy the original negotiation of the take-over for Immigration purpose. It would be very kind of you to prepare the said documentation with Ms. Ping Li as the purchaser. When the documentation is ready, please advise me by fax so that I would advise you what place the document should be courier to such as H.K. China or if possible Ms. Ping Li would go to Adelaide for signature. …..”
On 14 April 1999, Mr Ouwens replied to Rico Chan at Pearl Orchid International Holdings Ltd in Hong Kong enclosing, “agreements and share transfers for signature by Ms Ping Li where indicated”. Milan Rapp knew that Mr Ouwens was going to send the documents to the Hong Kong company for Ping Li to sign. Nobody appears to have given consideration to the fact that it was not simply a matter of substituting one purchaser for another because the contract had already been settled and given effect to by the transfer of shares to Kevin Cheung. However, the documents sent to Rico Chan were eventually presented to Ping Li by Kevin Cheung for signature.
In a way which has not been fully explained, Ping Li eventually became registered in the company records as owner of the shares which had been the subject of the agreement between the plaintiffs as vendors and Kevin Cheung as purchaser. The circumstances in which Ping Li became registered as the owner of the shares are highly relevant to the plaintiffs’ claim.
Mr Jenkins of KPMG acted for the vendor in respect of the mechanics of the transaction. The preparation of share transfer forms and the other formalities was left to him. He was overseas at the time of the trial and could not give evidence. He would have been an important witness. Mr T.W. Murton, an employee of KPMG, did give evidence. Mr Murton was not present at the settlement on 19 February 1999, and was not able to give evidence of any dealing subsequent to 19 February 1999, which involved the defendant. He said the words Ping Li written in the transfer form are in the hand of Mr Jenkins, the preparation of the Share Transfer forms was attended to by Mr Jenkins and handwriting, dated 6 January 2000, in the Register of Members, is in the hand of Mr Jenkins. Mr Murton was unable to give evidence of the circumstances in which the entries were made. He was unable to give evidence about steps after 19 February 1999 to change the purchaser from Kevin Cheung back to Ping Li.
Exhibit “P1-13” is the Share Mortgage Agreement signed by Ping Li dated 19 February 1999, wherein she purported to mortgage and charge shares in Ocean Foods Pty Ltd. Notwithstanding the admission of Ping Li, the evidence establishes that the Share Mortgage Agreement was not signed by her on the date it bears, but was signed in Hong Kong some time between 14 April 1999 and 23 July 1999 when it was stamped.
The first clause in the Share Mortgage Agreement acknowledged that the mortgagees (the plaintiffs) had advanced the principal sum by way of loan; the second clause acknowledged receipt of the principal sum by Ping Li and created a mortgage and charge over Ping Li’s interest in the shares; the third clause contained an agreement by Ping Li to repay the principal sum to the plaintiffs. The Share Mortgage Agreement assumed that Ping Li had become the owner of the shares. Mr Ouwens, gave evidence that a similar Share Mortgage Agreement had previously been signed by Kevin Cheung on 19 February 1999, “because he was the buyer of the shares and we took a Share Mortgage back from him”. The fate of the mortgage signed by Kevin Cheung is not known.
Exhibit “P1-22” includes four photocopy Share Transfer forms. Exhibits “D15” and “D16” are the original Share Transfer forms for Ocean Foods Pty Ltd. Each of the Share Transfer forms is dated 19 February 1999. In each case, the name “Li Ping” had initially been inserted in the space provided for the name of the transferees but was crossed out. The name “Kevin Sy Cheung” was then written in the space. To the right of that, the name “Li Ping” was written again in each of the forms. The crossing out of the name “Li Ping” where it first occurred and the insertion of the name “Kevin Sy Cheung” was made in black ink. Where the name “Li Ping” is written again to the right of the name “Kevin Sy Cheung”, it is written in blue ink. One can assume that the names were written on the forms on three separate occasions but, as I have mentioned, the evidence does not explain the circumstances in which the endorsements were made. Each of the forms was signed by the vendors as transferors and by Kevin Cheung and “Catherine Li” (the style in which the defendant signs her name) as transferees. Although the documents purport to have been signed by the transferees/buyers on 19 February 1999, other evidence makes it clear that Ping Li did not sign the transfer forms on that day. Ping Li gave evidence that when she signed the transfer forms she did not know what the documents were for. She said her husband brought them with other documents and she did not look at them when she signed. Notwithstanding some confusing evidence to the contrary, she did concede in cross examination that she believed that she would be named as the owner of the shares.
Exhibit “P1-22” also includes four photocopy Share Certificates issued as a consequence of the four transfers. In each case the name “Li Ping” had been typed in the Share Certificate but was crossed out and in its place appear in handwriting the words “Li Ping by her attorney Kevin Sy Cheung”. The certificates are dated 19 February 1999, and are signed by Kevin Cheung as director and Kevin Lee as secretary. It can be assumed that in each case the name “Kevin Sy Cheung” was placed on the document alongside the crossed out name “Li Ping” and the words “Li Ping by her attorney” were added subsequently in a different hand in front of the name “Kevin Sy Cheung”. Mr Ouwens could not say whose writing it was, but it was not his.
The documents indicate an initial intention to issue the share certificates to Ping Li, a subsequent decision to substitute Kevin Cheung in place of Ping Li as the shareholder and then a further substitution of Ping Li in place of Kevin Cheung. In their final form the certificates describe the shareholder as “Li Ping by her attorney Kevin Sy Cheung”. While a shareholder can act by her attorney it is not appropriate for the shareholder to be described in that way in a share certificate. In this case, an explanation for the inappropriate description of the shareholder is that the words “Li Ping by her attorney” were added after the name “Kevin Sy Cheung” had been written on the certificate. The certificates are consistent with an initial decision to sell the shares to Kevin Cheung and another decision being made after 19 February 1999, that Ping Li should acquire the shares in the place of Kevin Cheung, however the ultimate endorsement on the certificates does not correctly describe either transaction. The ultimate endorsement misdescribes the first transaction when Kevin Cheung purchased the shares in his own right and misdescribes the second transaction when Ping Li personally purported to acquire the shares. There is no evidence which explains the circumstances in which the writing came to be placed upon the Share Certificates. It was Mr Jenkins’ writing and he did not give evidence.
Exhibit “P1-22” includes a copy of the Register of Members of Ocean Foods Pty Ltd which shows that the subject shares were transferred out of the names of the plaintiffs and registered in the name of the defendant on 6 January 2000. Importantly, there is no intervening registration of Kevin Cheung as owner. Accordingly, Kevin Cheung never became the legal owner of the shares. Ford’s Principles of Corporations Law, Volume 2, para 21.220. The Share Sale Agreements which the vendors signed and the Share Transfers from the vendors to Kevin Cheung did no more than create an equitable interest. For the legal interest to be transferred it was necessary for the name of Kevin Cheung to be entered in the register of members. Again, there was no evidence to explain the entry in the Register of Members which evidenced the transfer of the legal interest in the shares to Ping Li.
Ping Li gave evidence. In 1998 her husband had told her that he was going to Australia to buy a business and that he would pay for the business. He wanted Ping Li to live in Australia with her children. Exhibit “P1” includes the Heads of Agreements which were signed on 8 April 1998. Ping Li said she signed those documents in Hong Kong. She had no legal advice. She did not read the agreements before she signed them. She said she could not understand them and she could not read them. Kevin Lee sent the documents to her and spoke with her husband who told her to sign. Her husband told her it “should be some sort of contract” regarding the “Ocean Food company”.
Ping Li said that she went to Sydney in November 1998 and met Mr Rapp. She met Mr Velik only once, at dinner. She said she did not ask Mr Velik to act as her solicitor in relation to the purchase of the lobster exporting business but knew that her husband was speaking to Mr Velik from time to time.
Exhibits “D6” and “D7” are the share sale agreements which Ping Li signed in late 1998. She could not recall when she signed the agreements, but said she did not get any legal accounting or financial advice about them. While Mr Velik had played an active role in the preparation of the documents on her behalf, Ping Li denied receiving advice from Mr Velik. Mr Velik did not give evidence.
Ping Li said between the visit to Sydney in November 1998, and the trip to Adelaide to Adelaide on 18 February 1999, she was not given any information about the lobster exporting business. Mr Velik never spoke with her about draft forms of agreement and he never wrote telling her what he was doing. That evidence was not correct because there are letters from Mr Velik to Ping Li. Maybe Ping Li did not see the letters. Also, there are cost memoranda from Mr Velik which evidence advice from Mr Velik to Ping Li.
Ping Li said that before she came to Adelaide in February, Kevin Cheung told her that he was buying a lobster business in Adelaide, but he had all the discussions. He told Ping Li “he was coming to buy the business and has to sign the contract”. Before coming to Adelaide in February 1999 Kevin Cheung told Ping Li that he was coming to Adelaide to buy the business and he had to sign the contract. Ping Li said nobody had shown her a copy of the contract. That statement was not completely frank because she had signed the Heads of Agreement in April 1998 and the preliminary version of the contract in November 1998 so that the final document should not have come as a surprise to her. She had the argument with her husband and left Adelaide before signing.
Ping Li said that some time after the trip to Adelaide in February 1999, Kevin Cheung brought some documents to Sydney and asked her to sign them. The documents included the Share Mortgage Agreement. She could not recall whether the Sale of Shares Agreement was one of the documents. The document was not translated into Chinese. She said, “I didn’t read it, because I couldn’t read it. I wouldn’t understand”, and, “Because it was in English and I don’t really understand English”. Previously she had given evidence that she could speak English and read English “just a little bit”. She had never tried to read legal documents previously. Her husband brought a few other documents, but because she could not read, he pointed to where she should sign and that was it. At the time he said, “He bought some businesses and he has paid part of it”. She said Kevin Cheung told her that the document was a “contract for buying from Adelaide the Ocean Foods business”. In particular, Ping Li said that when she signed the Share Mortgage Agreement in 1999, she did not understand that the Agreement required her to pay any money to the Rapp family. If she had been told that she was agreeing to a loan of about $400,000 from the Rapp family, she would not have signed the document. Although she acknowledged her signature, she could not remember when her signature was placed on the Sale of Shares Agreement. She said, “All I know is that I signed something, a contract or something, but I don’t know whether it is a mortgage or whatever”. That evidence, which creates an impression of ignorance and lack of involvement in the transaction is inconsistent with the sworn evidence of Ping Li in exhibit “P2” in which she said she signed two Share Sale Agreements at the same time as the mortgage. She gave evidence that before signing the documents she did not speak with Mr Velik or have any other legal or financial advice.
Exhibit “P1-12” is the Share Sale Agreement which was executed by the vendors and by Kevin Cheung at the settlement on 19 February 1999. The typed document had contemplated execution by Ping Li, but her name was struck out and the name Kevin Sy Cheung was written by hand. In the way that I have already described, Kevin Cheung had become both the signatory and the named contracting party to the Share Sale Agreement. The signature of Ping Li was added to the already complete document below the signature of Kevin Cheung.
Exhibit “P2” is two paragraphs of an affidavit of Ping Li sworn 27 June 2002, in which she said that this action “relates to an agreement entered into between myself and the plaintiffs on 19 February 1999”, and :
“4.At the same time that I signed the Loan Agreement, I also signed two Share Sale Agreements. The parties to these agreements were the Plaintiffs, my husband Kevin Cheung, Ocean Foods Pty Limited and, in one case, South Australian Lobster Exporters Pty Limited. A true copy of the Share Sale Agreement without (sic) South Australian Lobster Exporters Pty Limited is annexed hereto and marked ‘LP1’. A true copy of the Share Sale Agreement with South Australian Lobster Exporters Pty Limited is annexed hereto and marked ‘LP2’. Each of these agreements bears the same date as the Loan Agreement, namely, 19 February 1999. My signature on the Share Sale Agreements appears immediately below that of my husband.”
The Share Sale Agreement which was annexure “LP1” to that affidavit was admitted in evidence in this case separately as exhibit “P1-12”. “P1-12” is described on its front sheet as a Share Sale Agreement. It relates to the shares in Ocean Foods Pty Ltd. On the front sheet the date “1998” was typed together with the names of the parties and the name and address of “Velik Solicitors”. The inference is that the document had been prepared by that firm who were the solicitors for Ping Li. The fifth party named on the first page of the text of the agreement was Ping Li. The document is a comprehensive agreement for the sale of the shares in Ocean Foods Pty Ltd to Ping Li.
The sale and purchase of shares was dealt with in clause 2. Clause 2.2 required the purchaser to pay a deposit on the making of the agreement and the balance on or prior to completion; by clause 2.3 the title to property in and right of the shareholding passed to the purchaser on and from completion; the “Completion Date” was “10 February 1999 or as agreed otherwise by the parties”; clause 4 originally made the obligations of the parties conditional upon the grant of a permanent entry visa to Ping Li, but that clause was deleted; clause 6.3 provided that on completion and as a condition of completion, the vendor should deliver to the purchaser transfers and share certificates in respect of the shareholding; clause 6.4 provided that on completion and as a condition of completion meetings of directors and members of the company be held to approve the share transfers, appoint Milan Rapp, Kevin Lee and Ping Li as directors of the company, Kevin Lee as secretary and KPMG as accountants for the company and clause 6.5 provided that on completion and as a condition of completion the purchaser should pay the purchase price. There was no reference to vendor finance, but clause 7.3 of the agreement required the purchaser to give a mortgage over the shares. Clause 7.1 provided, amongst other things, that with effect from completion, Milan Rapp, Kevin Lee and Ping Li should be the initial directors of the company and that Velik Solicitors should be the solicitors for the company and clause 7.3 of the agreement required the purchaser to give a mortgage over the shares.
When the typed agreement was amended by hand on 19 February 1999, the name and address of “Kevin Sy Cheung” was substituted for “Ping Li” as the fifth party, but the definition of “purchaser” (“means Ping Li”) in the body of the document was not amended, nor were provisions such as clauses 6.4 and 7.1 which referred specifically to Ping Li. That is, although Kevin Cheung was substituted as the named contracting party and he signed the document, the benefits created by the contract were expressed to remain with Ping Li. It is not clear whether that was what was intended or whether it was a consequence of the haste surrounding the last minute substitution of Kevin Cheung for Ping Li on 19 February 1999, but the practical result was that when Ping Li signed the document in April she was already referred to in the body of the document in clauses such as 6.4 and 7.1 and as the purchaser.
Ping Li said that after the trip to Adelaide her belief was that her husband was buying the shares in the Rapp companies using her name. Her husband told her the cost was about $800,000 but she had no idea of the worth of the companies. When cross examined, Ping Li said, “It was true that the business was brought under my name but it was my husband who had paid for the purchase”. She also said, “As far as I am concerned, because my husband paid for the business it should be his business and he only wanted me to manage the business”. She said she was to be the nominal owner of the business but in reality, it was his business.
On 3 May 1999, Mr Jenkins of KPMG, lodged an Application for Opinion No. 496866 with the State Taxation Office. The instrument to which the Application related was the Share Sale Agreement dated 19 February 1999, the parties to which were M. Rapp, H. Bourne, P. Rapp, K. Cheung and Ocean Foods Pty Ltd; it was “P1-12”. The consideration was $396,162 and the estimated duty was $2,577.20. On 18 June 1999, an Application for Opinion No. 496866 was lodged in respect of a mortgage dated 19 February 1999, between the same parties. The amount subject to the mortgage was said to be $377,500 and the estimate of duty was $1,311.25. It would seem that as late as 18 June 1999, KPMG were not aware of the substitution of Ping Li for Kevin Cheung.
On 23 July 1999, the Share Mortgage Agreement signed by Ping Li in April 1999, not the Share Mortgage Agreement signed by Kevin Cheung in February 1999 which had been the subject of the application for opinion, was stamped as security for $377,500. Whoever was responsible for the stamping did not differentiate between the mortgage signed by Kevin Cheung in February and the mortgage signed by Ping Li in about April. Stamp duty of $1,311.25 together with interest and other charges totalling $112.58 were paid. On 26 January 2000, two transfer forms in respect of shares in Ocean Foods were stamped. In the case of the transfer which is “D15”, the duty was $1,625.40 and in the case of “D16”, duty of $751.80 together with interest of about $35.00 was paid. On 6 January 2000, the Share Sale Agreement signed by Kevin Cheung on 19 February 1999, to which Ping Li had subsequently attached her signature in April 1999 (“P1-12”), was stamped pursuant to Application for Opinion No. 496866. Ping Li had not been named as a party in the Application for Opinion.

As I have mentioned, clause 11.3 of the Share Sale Agreement required the purchaser to pay all taxes in respect of the agreement and the transfer of shares. There is no evidence as to who paid the stamp duty. Mr Murton of KPMG was involved in the obtaining of the opinions as to the stamp duty, but he did not give evidence as to who provided the funds. From Mr Jenkins’ letter of 11 March 1998, and clause 11.3 of the Share Sale Agreement, it can be inferred that the duty was paid by or on behalf of the purchaser, but there is nothing to suggest that Ping Li was involved. The evidence of Mr Jenkins on the stamping of the documents might have been important.
When the second instalment of the purchase price was not paid on the due date, a demand was made upon the defendant, a default judgment was obtained and a bankruptcy petition issued against Ping Li. Mr Ouwens gave evidence that on 12 April 2002, the solicitor for the defendant, Ms Sin, spoke to him and made an offer to pay if the bankruptcy petition could be adjourned. Ms Sin gave evidence disputing the conversation. The plaintiffs have not made any claim based on a promise to pay and I refrain from resolving the conflict between the evidence of the respective solicitors.
On the basis of the Share Mortgage Agreement signed by Ping Li in about April 1999, I would find that she has a prima facie liability to the plaintiffs, because the express terms of the document contain an unambiguous promise on the part of Ping Li to pay the principal sum. It therefore becomes necessary to consider the various defences.
An argument put on behalf of Ping Li was that the consideration which is identified in the Share Mortgage Agreement was never provided. It was argued that the plaintiffs did not advance $377,500 to Ping Li and that the vendor finance was a totally different consideration from that which is expressed in the Share Mortgage Agreement. It was argued that the person who owed the outstanding balance of the purchase price was Kevin Cheung, the purchaser, not Ping Li. It was put on behalf of Ping Li that should be the end of the case because the Share Mortgage Agreement could only secure whatever amount was advanced. The plaintiffs’ case was that although there was no actual advance of $377,500, the consideration was “vendor finance” for the purchase of shares.
Counsel for the defendant submitted that it is not permissible to have regard to extrinsic evidence to determine whether there was consideration which was different from that stated in the Share Mortgage Agreement. He submitted that the plaintiffs really required rectification of the Share Mortgage Agreement signed by Ping Li so that the true consideration was correctly stated; but the plaintiffs had not sought that rectification. As I have mentioned, the defendant’s case was that the consideration which is referred to in the Share Mortgage Agreement was never provided. The irony of the defendant’s argument is that it is Ping Li who resorts to extrinsic evidence to avoid the express terms of the Share Mortgage Agreement. This is not a case where the plaintiffs seek to introduce extrinsic evidence for the purpose of interpreting the Share Mortgage Agreement or to use the language of Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 347, “to subtract from, add to vary or contradict the language of a written instrument”. The plaintiffs seek to enforce the express obligation to repay the principal sum to the plaintiffs which is placed on Ping Li by the third clause of the Share Mortgage Agreement. To the extent that it places the written agreement in context extrinsic evidence is permissible.
I have accepted that the plaintiffs had, on 19 February 1999, entered into and completed a Share Sale Agreement with Kevin Cheung who acquired the shares in Ocean Foods Pty Ltd. The result was that after 19 February 1999, the plaintiffs no longer had shares in Ocean Foods Pty Ltd which they could sell to Ping Li. Also, as at 19 February 1999, Kevin Cheung, as the purchaser of the shares, had undertaken to pay the outstanding balance of the purchase price, namely, $377,500, to the plaintiffs. However, I find that in April 1999 the plaintiffs did reach a fresh agreement with Ping Li to transfer the shares to Ping Li and that Ping Li agreed to pay for them. The position of the plaintiffs was no different from that of a share trader who sells “short”. The plaintiffs had an obligation to come to an arrangement with Kevin Cheung so that they could deliver the shares to Ping Li. The means by which the vendors achieved delivery of the shares to Ping Li is inconsequential.
The effort and care which went into the preparation of the Heads of Agreement and the Sale of Shares Agreement is to be contrasted with the contractual arrangements after 19 February 1999; but that does not mean that there was no agreement. I find that after 19 February 1999, the plaintiffs and Ping Li entered into a further contract which was partly in writing, partly oral and partly to be implied. The relevant terms were that Ping Li would purchase the shares from the plaintiffs on the terms set out in the Sale of Shares Agreement, exhibit “P1-12”, to which she added her signature. She had at all times been named as the purchaser in the document notwithstanding the fact that Kevin Cheung became the contracting party on 19 February 1999. While the vendors never executed a fresh Sale of Shares Agreement, an offer on their part to enter such a contract can be inferred from their conduct in sending the documents to Rico Chan for signature by Ping Li and their subsequent treatment of Ping Li as purchaser and the transfer of the shares to Ping Li.
Ping Li accepted the plaintiffs’ offer, became purchaser of the shares and performed the contract. That is established by her conduct in adding her signature to the Sale of Shares Agreement, signing the Share Mortgage Agreement which assumed that she had become the owner of the shares, and signing the acceptance of the transfer of the shares to her. Additionally, for a time she accepted remuneration of $3,000 and later $2,000 a month by the company.
As was to have been the case on 19 February 1999, the Share Mortgage Agreement signed by Ping Li was part of a wider transaction. As I have mentioned, the care which had attended the drafting of the documents prior to 19 February 1999, was missing. The advisors ignored the fact that the shares had already been transferred to Kevin Cheung and that as a matter of strict law it was not simply a matter of substituting Ping Li for Kevin Cheung. However, there is no reason why the parties could not agree to reverse the settlement of 19 February 1999 between Kevin Cheung and the vendors and reach a fresh agreement with Ping Li in similar terms. That result required some contractual gymnastics and steps in addition to the original transaction, but subject to a consideration of other defences raised by Ping Li, I find on the whole of the evidence that is what the parties intended and did. Because the beneficial ownership in the shares had been transferred by the vendors to Kevin Cheung the achievement of the result contemplated by the April contract had been complicated, but it was still possible. All that was required was that the vendors should come to some arrangement with Kevin Cheung so that they could deliver the shares to Ping Li. All the necessary steps could have been set out in appropriate documentation, but that was not done. Nevertheless, I find that the parties were in agreement as to the desired result.
The sale of the shares to Ping Li was the consideration for the share sale contract. The vendor finance for the sale of the shares was the consideration for the Share Mortgage Agreement. There is no evidence as to whether Kevin Cheung was released from his obligations under the share mortgage which he had signed on 19 February 1999, and there is no evidence of any arrangement with respect to the money which Kevin Cheung paid to the plaintiffs at the settlement on 19 February 1999, but those matters are no impediment to a finding that there was a fresh agreement between Ping Li and the plaintiffs.
This interpretation of the events may not fall squarely within any of the alternative formulations of the plaintiffs’ claim; however, the strict identification of causes of action in pleadings is not necessary. The Court is required to grant all such relief on any cause of action to which the parties might be entitled on the evidence. Rule 46.04(a). S.P. Hywood Pty Ltd v Standard Chartered Bank Ltd SC (SA), Perry J, Judgment Number S3764, 21 December 1992. As I have mentioned, the liability of Ping Li arises by reason of the express terms of the Share Mortgage Agreement which she signed. The wider agreement for the sale of the shares is relevant insofar as it provides the consideration for the Share Mortgage Agreement. I am satisfied that in April 1999 a fresh agreement was reached between Ping Li and the plaintiffs.
The Share Mortgage Agreement signed by Ping Li assumed a transfer of the shares to Ping Li, acknowledged an advance of the principal sum and contained an agreement to repay the principal sum. While there may not have been any physical payment of monies by the plaintiffs, it is clear that the sum stated to have been advanced was the notional advance of vendor finance on the sale of the shares by the plaintiffs to Ping Li. This approach ignores the fact that the shares had already been sold by the plaintiffs to Kevin Cheung on 19 February 1999, and assumes that it was for the plaintiffs and Kevin Cheung to come to an arrangement between themselves which would enable the plaintiffs to perform their obligations under the contract with Ping Li. The evidence does not fully explain that arrangement, but there must have been one because the vendors were able to perform and deliver the shares to Ping Li. It could be inferred that as between the plaintiffs and Kevin Cheung there was an agreement that the settlement of 19 February 1999 should be treated as if it had never occurred in consideration of Ping Li being substituted and assuming the obligations of purchaser, but I do not need to go that far. For the purposes of this action I need go no further than find that there was an agreement between Ping Li and the vendors.
One fact which cannot be ignored is that Ping Li has become the registered owner of the shares. That did not happen in a void. By signing the acceptance of the share transfers Ping Li consented to becoming the owner of the shares. By becoming the shareholder and by accepting remuneration from the company, Ping Li has acknowledged the contract. In those circumstances, it is not a large step to hold her to her written agreement to pay for the shares, particularly in the light of the fact that up until the time of the disagreement with her husband on 18/19 February 1999, she had intended to assume the same liability.
The evidence of Ping Li that she did not understand the documents presented to her in April 1999 must be looked at in its correct perspective. Those documents did no more than create the same obligations on her part that she had been prepared to accept up until the time of the argument with her husband. She had previously signed Heads of Agreement in April 1998, and the preliminary Sale of Shares Agreement in November 1998, so that the April 1999 transaction was not new to her. When, in April 1999 she signed the Share Mortgage Agreement, there was no reason why she should have assumed that she was doing anything different from that which she had been anticipating for approximately 12 months.
I reject the argument that the consideration identified in the Share Mortgage Agreement was never provided. I find that the reference in clause 2 of the Share Mortgage Agreement to “the principal sum now lent by the mortgagees to the mortgagor (the receipt of which principal sum is hereby acknowledged)” refers to the notional provision of vendor finance on a contract entered into by Ping Li in April 1999. Accordingly, I find that there was an advance which constituted the consideration for the Share Mortgage Agreement.
Having found that there was a fresh agreement between the plaintiffs and Ping Li in about April 1999 it is unnecessary to deal with the plaintiffs’ claims based on tripartied agreement and novation.
The defendant pleads mistake. It is said that the common mistake was that Ping Li could acquire the shares from the plaintiffs. As I have mentioned, Ping Li did receive the shares from the plaintiffs. The shares may have reached her via a route which was more convoluted than a direct transfer from the plaintiffs; but the shares were nevertheless transferred to her. Accordingly, I reject the argument that there was a common mistake.
It was argued on behalf of Ping Li that the execution of the Share Mortgage Agreement by Ping Li made her liable to pay the outstanding amounts which were due on settlement by her husband so that as a matter of substance Ping Li became a guarantor of a debt which was properly the debt of her husband. Counsel referred to cases which illustrate that where a wife becomes a guarantor for her husband the guarantee is liable to be set aside if three things can be demonstrated : firstly, that she did not have a proper understanding of the true nature and extent of the guarantee; secondly, that the provision of the guarantee was voluntary; and, thirdly, that the parties seeking the benefit of a guarantee took no steps itself to explain the document or to ensure that an independent party had properly explained the document to the wife. The principle is well understood and is illustrated by cases such as Garcia v National Australia Bank Ltd (1998) 194 CLR 395 and Yerkey v Jones (1939) 63 CLR 649. However, those cases can be distinguished because, in this case, none of the three basic requirements is satisfied.
First, in the present case, Ping Li was not a volunteer. She received good consideration for the transaction, namely, the shares in the companies.
Secondly, Ping Li had been represented by Mr Velik during the preparation of the documents. Ping Li claims that Mr Velik gave her no advice. I do not accept that claim which is inconsistent with documents such as exhibit “D22”, a letter from Velik Solicitors to Ping Li dated 26 November 1998 reporting on developments to that time, and fee memoranda which refer to advice from Mr Velik to Ping Li. However, whether Ping Li received advice from Mr Velik or not, the vendors, who were innocent third parties, were entitled to assume that Ping Li had had the document properly explained to her by her own solicitor who had played an active role in the negotiations.
Thirdly, I am not satisfied that Ping Li did not have a proper understanding of the true nature and extent of the document. Some of her answers in cross examination show otherwise. She is not naïve but is an executive of a company with a large turnover. If she did not understand the transaction that could only have been because of carelessness on her part.
This is not a case where it would be unconscionable for the vendors to enforce the agreement against Ping Li.
The document signed by Ping Li is clear and unambiguous. In those circumstances, that fact that the belief of Ping Li was that which she claims is irrelevant. Even if she did have a belief that her husband would pay, there is nothing unclear about her obligations in the document which she did sign. The approach to construing a written contract which is clear and unambiguous was described by Isaacs J in Goldsbrough Mort and Co. v Carter (1914) 19 CLR 427, 428 as follows :
“I arrive at that conclusion from applying the plain unequivocal words of the document to the known and equally unequivocal subject matter. In that state of things evidence can throw no light on the intention of the parties, which must be ascertained from the words they have used : Charrington & Co. Ltd v Wooder (1914) A.C. 71 and Bowes v Shand 2 App Cas.”
In this case the defendant does not challenge the meaning of the document but contends that the Share Mortgage Agreement is not binding upon her because she did not understand the agreement to constitute any undertaking by her to pay money to the plaintiffs. That is ancillary to the plea in the Defence that her husband, as agent for the plaintiffs, misrepresented the nature of the agreement so that the agreement was harsh and unconscionable and was induced by misleading statements for which the plaintiffs are liable.
I have found that Kevin Cheung was not the agent of the plaintiffs. even if he did mislead Ping Li in some way, which has not been established, that is not by itself a matter which should deny the plaintiffs the benefit of a clear written agreement.
The defendant relied upon the doctrine non est factum. It was argued that Ping Li believed that the document was something radically different from what it was. She gave evidence that she thought it was a contract for purchase, not a share mortgage. It was claimed that she did not read the document and had a good excuse for not reading it; she lacked sufficient familiarity with English. She gave evidence that when she signed the Share Mortgage Agreement she believed it was a document recording the purchase by her of an interest in a business and that she did not understand the agreement to constitute any undertaking by her to pay money to the plaintiffs. Her husband told her he had “bought some businesses and that the documents were a contract” for buying the Ocean Foods business. In particular, she said that when she signed she did not understand that she was agreeing to take a loan from the Rapp family of about $400,000 and that if she had been told that she would not have signed. She did not have legal or financial advice. She said that she believed her husband would pay for the shares. She said she was nominally buying the shares but the shares would be her husband’s.
The evidence of Ping Li was that she could only speak a little English, the document was given to her by her husband who did not read it to her and she did not read the document herself because she could not read and her husband pointed to where she should sign.
Ping Li said in cross examination that in 1998, she knew what a contract was - she believed it was an exchange of promises that was enforceable at law. She also gave evidence that she knew that a contract for sale and purchase would provide that someone would provide goods of value and someone would pay a price. She understood that a business was being purchased but believed it was her husband who was going to buy the business. She knew the factory had to be paid for but she believed that she did not have to pay. She knew that the factory was to be paid for in two instalments, one at the beginning of 1999 and the other later. She said all the dealings regarding the contract were done by her husband and all she did was to sign where she was supposed to sign. She said, “… when we were in Hong Kong we already discussed that my husband said he was going to buy this factory and he would use my name to buy it, and he will pay for the purchase”. In cross examination she acknowledged that the documents which her husband presented to her were the “written expression of the legally enforceable promise to buy the business and pay the balance”, and when she signed the Share Mortgage Agreement she knew that the document which she was signing was a “legally enforceable promise to pay for the balance of the shares, the balance of the business”. She knew that “P5” was a contract. On the basis of her own evidence in cross examination she fails to make out the requirements for the defence of non est factum. She carries the onus. Her own evidence was rambling, contradictory and vague and I am unable to accept her evidence that she misunderstood the transaction.

In her application for immigration, Ping Li stated that she spoke and wrote fluent French, English and Mandarin. She has a Bachelor of Arts Degree from the Tianjin Foreign Language Institute. Her major subject was French and for two years she had two English lessons a week. For a period of three years she worked as a French interpreter.
Exhibit “P1-7” is a file of the Australian Consulate General Hong Kong Migration Office. It includes a record of an interview which Ping Li attended alone. The record includes detailed information about Ping Li, her family and business. The information could only have come from herself. The interviewer recorded :
“PA has acquired all the shares of an existing business in South Australia by paying AUD$410,000. The name of this company is Ocean Foods ….”
In addition, the record includes detailed information about Ping Li’s plans for the business. The interviewer recorded the following “
“How did you find this company ? The manager (Kevin Li) of our company in A/a (Original Development Co Ltd) found this company for me. I and my husband always want to get into the restaurant and seafood business and we realise there is no opportunity in Australia for textile. We asked our manager Kevin Li to look for opportunities for us in Australia. Ocean foods faced financial crisis as less and less export customers are willing to pay them cash in bad economic times so they decided to sell the business.
How are you going to manage a seafood co ? you got no experience in this field ? the previous owners of Ocean food Milan Rapp and Peter Rapp will stay in the Co as managers, further we have recruited two chinese managers to learn the business and Kevin Li will assist me in improving the business. I will retain existing customers of Ocean Foods i.e. customers in Japan, HK, Singapore, USA and at the same time explore the China market. I and my husband have good connection with a number of restaurants and export cos in Tianjin. To attract customers, I will offer customers a credit term of three-month, I will use the facilities obtained from the Singapore banks to finance this seafood business in Australia. PA has travelled to A/a 6 times, on 456 visa.”
There is no reason why the document should not be accepted as an accurate record of what Ping Li told the interviewing officer. On the basis of that record, it is apparent that Ping Li has been less than frank in her evidence to the court. She told the interviewer that she had acquired the shares in the company by paying $400,000 and claimed to have an intention to be personally involved in the business. She demonstrated an understanding of what was involved in the purchase and the running of the business. That is quite different from her evidence in support of the plea of non est factum to the effect that she had no knowledge of the business which was to be her husband’s and she did no more than to sign documents at the request of her husband who would pay for the business.
Additionally, in the course of her evidence she demonstrated an actual ability to read and understand documents in English, although that was not necessarily an indication of the position in 1998 and 1999. Her education and background belies her claim that she could not understand English.
Ping Li was the manager of a substantial business. She had an understanding of what a contract was. If she did not understand any document she had the resources to have it explained to her. I do not accept her evidence that she did no more than sign documents at the direction of Kevin Cheung and that she misunderstood the nature of the documents.
The requirements for the defence of non est factum were described in Petelin v Cullen (1975) 132 CLR 355, 359-360, in the following terms :
“The class of persons who can avail themselves of the defence is limited. It is available to those who are unable to read owing to blindness or illiteracy and who must rely on others for advice as to what they are signing; it is also available to those who through no fault of their own are unable to have any understanding of the purport of a particular document. To make out the defence a defendant must show that he signed the document in the belief that it was radically different from what it was in fact and that, at least as against innocent persons, his failure to read and understand it was not due to carelessness on his part. Finally, it is accepted that there is a heavy onus on a defendant who seeks to establish the defence.”
On this issue, Ping Li carries the onus of proof. Clear and positive evidence is required, Saunders v Anglia Building Society (1971) AC 1004. Specifically, Ping Li has not explained why there was any reason for her, rather than her husband, to sign a contract at all, if she believed that it was to be her husband’s business and she would have no obligation to pay. She admitted in cross examination that she knew that the factory had to be paid for and she knew that the documents were “the written expression of the promise to buy the business and pay the balance”. She agreed that when she signed the Share Mortgage Agreement she knew that she was signing a “legally enforceable promise to pay for the balance of the shares, the balance of the business”, although she also said that her husband would pay for the purchase and that she thought that she would not be responsible. She has not persuaded me that she misunderstood the purport of the document.
If Ping Li did misunderstand the purport of the document which she signed (which I do not accept), that could only have been because of carelessness on her part. She was experienced in business matters and had at least Mr Velik and Kevin Lee to explain the documents to her if anything needed explaining. She could also have asked her husband. Ping Li was an experienced business person. She was the manager of a company with an annual turnover in the order of $60,000,000. When she signed the document in April 1999 she was not taken by surprise; the transaction had been 12 months in gestation and she had signed Heads of Agreement in April 1998 and the preliminary agreement in November 1998. More fundamentally, answers in cross examination indicate an understanding of the transaction. Even if the answers could be disregarded on the basis that her evidence was mistaken, Ping Li has not discharged the heavy onus on a defendant who seeks to establish the defence of non est factum. See Petelin v Cullen at 359-60.
I find against that defence of non est factum on the evidence. For reasons which I have explained, I do not accept that Ping Li did not have the ability to read and understand the document or that she had a belief that the document was something different from what it was. I find that if she did misunderstand the document that was because of carelessness.
I find that there is no basis for the Share Mortgage Agreement or any agreement to be set aside on the basis that Ping Li had an understanding of the obligations under the Share Mortgage Agreement which was different for the requirements of the agreement. To put it another way, I find that there is no reason why Ping Li should not be bound by the express terms of the agreement.
Even if Ping Li believed that the document signed by her was one which recorded the purchase by her of an interest in the business, her evidence does not explain how she, as purchaser, could have avoided paying for the business, that is the fundamental obligation which she now seeks to avoid. The very fact that she was required to sign the documents should have indicated to her that she was assuming a liability. To sign a document such as the Share Mortgage Agreement in those circumstances without having it explained was carelessness.
In summary, the evidence of the defendant does not establish any of the defences. The defendant’s evidence was internally inconsistent and not convincing. I cannot accept her as a reliable witness. Accordingly, I reject the defences based on non est factum, a misunderstanding of the document, misrepresentation, misleading statements, mistake and the rule in Yerkey v Jones. I find that she is liable to the plaintiffs by reason of the express terms of the Share Mortgage Agreement.
There will be judgment for the plaintiffs against Ping Li in the sum of $377,500.
I will hear counsel as to interest and costs.

[2004] SADC 27

20 February 2004