Tai Star 01 Pty Ltd v Linyang Holdings Pty Ltd

[2023] NSWSC 1254

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Tai Star 01 Pty Ltd v Linyang Holdings Pty Ltd [2023] NSWSC 1254

Hearing dates:

23 October 2023

Date of orders:

25 October 2023

Decision date:

25 October 2023

Jurisdiction:

Equity

Before:

Elkaim AJ

Decision:

I make the following orders:

1. On the plaintiff’s notice of motion filed on 4 September 2023:

(i)   The defences filed on 14 August 2023 and 4 September 2023 are struck out.

2. On the defendants’ notice of motion filed on 11 September 2023:

(i)   The defendants are not permitted to file an amended defence in the form annexed to the affidavit of Mr June Lih Edward Lin dated 8 June 2023.

(ii)   The defendants have leave to file an amended defence within 14 days, provided that all of the admissions as to the statement of claim contained in the current defences are repeated and the amended defence is otherwise limited to an allegation of duress in respect of the Purchase of Unit Agreement dated 24 October 2022.

3. The defendants are to pay the plaintiff’s costs of both notices of motion.

Catchwords:

EQUITY – summary judgment sought – where defendants failed to pay monies owing under a Purchase Agreement – where duress, want of consideration and unconscionability are pleaded in a proposed amended defence

Legislation Cited:

Corporations Act 2001 (Cth), s 127

Uniform Civil Procedure Rules 2005 (NSW), r 13.1

Cases Cited:

Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51; [2003] HCA 18

Australian Securities and Investment Commission v General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; [1964] HCA 69

Australian Securities and Investment Commission v Kobelt (2019) 267 CLR 1; [2019] HCA 18

Commercial Bank of Australia v Amadio (1983) 151 CLR 447; [1983] HCA 14

Thorne v Kennedy (2017) 263 CLR 85; [2017] HCA 49

Texts Cited:

Wayne Courtney, John Phillips and James O’Donovan, The Modern Contract of Guarantee (4th ed, 2020, Thompson Routers)

Category:

Procedural rulings

Parties:

Tai Star 01 Pty Ltd (Plaintiff)
Linyang Holdings Pty Ltd (First Defendant)
June Lih Edward Lin (Second Defendant)

Representation:

Counsel:
Mr A Macauley (Plaintiff)

Mr K Kwan (Defendant)

Solicitors:
GOH Lawyers (Plaintiff)
CMI Legal (Defendants)

File Number(s):

2023/227161

JUDGMENT

1. There are two notices of motion before the Court. The first was filed by the plaintiff on 5 September 2023. It seeks summary judgment or, in the alternative, that certain paragraphs of the defence be struck out.

2. The second notice of motion was filed by the defendants on 12 September 2023.  It seeks leave to file an amended defence.

3. The plaintiff’s notice of motion is supported by an affidavit of Mr Frank Ngo dated 4 September 2023.  The defendants’ notice of motion is supported by an affidavit of Mr Edward Lin dated 8 September 2023.  There is another affidavit by Mr Lin, of the same date, responding to the plaintiff’s notice of motion.

4. The plaintiff (Tai Star) is a company which was incorporated on 23 May 2018. Tai Star’s sole director and secretary is Mr Cheng. The first defendant (Linyang Holdings Pty Ltd) was incorporated on 3 July 2019. Linyang Holdings Pty Ltd’s sole director, secretary and shareholder is the second defendant, Mr Lin.

5. Mr Lin is also the sole director, secretary, and shareholder of 7 Dayman Developments Pty Ltd (Dayman Developments). Dayman Developments is the trustee of the 7 Dayman Developments Unit Trust.

6. The first defendant was the sole unit holder in the above Unit Trust.

7. On 20 December 2019 the plaintiff, the first defendant and Dayman Developments entered into a deed whereby the plaintiff purchased 1,200 trust units (of 4,000) from the 7 Dayman Developments Unit Trust for the price of $2 million. The Deed (or Sales Agreement) contained a put option in the following terms:

“4.1 Party A warrants that after the first three (3) years from the date of Completion of the purchase of 7 Dayman Apartments, Party B may require Party A to buy back 1200 units – for an amount of $2,000,000.00 (‘Buy-Back’). Party B’s right to the Buy-Back must be exercised within three (3) months after 3 years from the Completion (‘Exercise Date’). To avoid any doubt, the right to the Buy-Back shall lapse after the Exercise Date.

4.2 Party B may elect to exercise the above right in full, in part or retain its units at its sole discretion.”

8. The development behind the transaction was a student accommodation property situated in Marsfield, a suburb in northern Sydney. The development was stated (in court) to have a value in excess of $18 million.

9. Before the put option was able to be exercised, the parties, plus the first defendant, entered into a “Purchase of Unit Agreement” (the Purchase Agreement) on 24 October 2022. Under the Purchase Agreement the plaintiff would be paid $2.4 million in exchange for the 1,200 units. The $2.4 million was to be paid in two instalments, each of $1.2 million, the first by 31 December 2022 and the second by 31 March 2023.

10. The second defendant was added to the Purchase Agreement as a guarantor of the two payments to be made by the first defendant.

11. The first instalment was not paid, leading to a variation of the Purchase Agreement on 5 May 2023, which extended the time for the payment of the monies owing under the agreement to 30 June 2023, provided the defendants immediately paid the plaintiff $399,419.18. This sum was made up of a part payment of the $2.4 million of $300,000 plus interest of $99,419.18. The $399,419.18 was paid on 5 May 2023.

12. The balance of the $2.4 million ($2.1 million plus interest) was not paid by 30 June 2023 and is the subject of the proceedings.

13. The statement of claim was filed on 17 July 2023. A defence was filed on 14 August 2023, seemingly admitting the whole of the statement of claim but asserting that the two agreements (the Sale Agreement and the Purchase Agreement) were unconscionable or had been signed under duress. There is also an amended defence, filed on 4 September 2023, which had some requested particulars.

14. Presumably, recognising the deficiencies in the defence the defendants now wish to file an amended defence. In broad terms the defendants wish to assert the following:

1. the Sales Agreement was void as a deed because the signatures had not been witnessed;

2. there was no consideration for the uplift from $2 million to $2.4 million to buy back the units;

3. there was no consideration for the inclusion of the first defendant as a guarantor;

4. the plaintiff had engaged in unconscionable conduct in “entrapping” the defendants to enter the two agreements; and

5. the second defendant had executed the Purchase Agreement under duress.

15. Before dealing with each of the above points I think it important to note the following:

1. the second defendant and Mr Cheng are both experienced businessmen;

2. the two businessmen were legally represented at all relevant times; and

3. both the Sales Agreement and the Purchase Agreement were drafted by the defendants’ solicitors.

16. Turning back to the amended defence, the lack of a witness point is easily disposed of by, the then in force, s 127 of the Corporations Act 2001 (Cth). I reject the defendants’ submission that Common Law principles requiring witnesses to give effect to a deed were not subject to s 127.

17. The lack of consideration for the uplift of $400,000 is countered by the fact that under the original put option, the option was available to be exercised only by the plaintiff. Accordingly, if the plaintiff chose not to exercise the option the plaintiff would remain as owner of the 1,200 units and would have all the rights that that ownership encapsulated. By paying the extra $400,000 the defendants were able to secure the plaintiff’s exit from the development and therefore to free themselves of any interference by the plaintiff. I note that the defendants assert that the plaintiff did interfere in the development, in particular in the obtaining of finance.

18. In relation to the guarantee the plaintiff referred me to Wayne Courtney, John Phillips and James O’Donovan, The Modern Contract of Guarantee (4^th ed, 2020, Thompson Routers) at 75, where it is stated:

“The usual form of consideration provided by the creditor is the creditor’s action in entering into the principal transaction: for example, by the supply of particular goods; the making of advances to the principal; entering into a lease; or, in a fidelity guarantee, by the creditor entering into a contract of employment with the principal. This is often stated to be the consideration in the guarantee. In cases in which the consideration is the actual act of entering into the principal transaction, the guarantee will only become binding when that act occurs, that is, by the actual supply of goods, the actual making of advances or entering into the lease.”

19. The purchase of the units is I think equivalent to a supply of goods. Accordingly, I do not think there is any substance to the guarantee point.

20. In relation to unconscionability, I agree with the plaintiff that the amended defence simply goes nowhere near pleading facts necessary to establish the allegation. There is no alleged special disadvantage, there is nothing to suggest Mr Lin was an innocent party incapable of making a reasoned judgement and there is nothing to suggest he was the subject of victimisation or exploitation. These are typical ingredients in an unconscionability allegation: Commercial Bank of Australia v Amadio (1983) 151 CLR 447; [1983] HCA 14 at 463-464; Thorne v Kennedy (2017) 263 CLR 85; [2017] HCA 49, and Australian Securities and Investment Commission v Kobelt (2019) 267 CLR 1; [2019] HCA 18 at [15] per Kiefel CJ and Bell J, [118] per Keane J, [146]-[148] per Nettle and Gordon JJ.

21. While the circumstances of unconscionability are not closed, they do exclude a mere allegation of a difference in bargaining power. In Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51; [2003] HCA 18 Gleeson CJ said at [11] and [14]:

“11. …  A person is not in a position of relevant disadvantage, constitutional, situational, or otherwise, simply because of inequality of bargaining power. Many, perhaps even most, contracts are made between parties of unequal bargaining power, and good conscience does not require parties to contractual negotiations to forfeit their advantages, or neglect their own interests.

...

14. Unconscientious exploitation of another's inability, or diminished ability, to conserve his or her own interests is not to be confused with taking advantage of a superior bargaining position.”

22. The defendant’s submissions suggested that details may not have been disclosed to the Court because of a desire on the part of Mr Lin to “save face.”  Perhaps, it was implied, this was the reason behind a lack of full disclosure as to his circumstances.  Whether this is the case is not relevant. If he is to assert unconscionability, he must describe (plead) facts sufficient to give rise to the allegation. He has not done so.

23. As stated above, not only were the parties represented by solicitors, both agreements were actually drafted by the defendants’ lawyers. The suggestion at [16] of Mr Lin’s affidavit to the effect that the Sale Agreement had been drawn up by the plaintiff’s solicitors is obviously wrong.

24. It was also conceded by the defendants that their solicitors, in drafting and forwarding the agreements to the plaintiff’s solicitors, had never, at any stage, suggested that the documents were being executed by their clients as a result of any disadvantage they were suffering.

25. In respect of duress, which is the main argument being pursued by the defendants, Mr Lin, in his affidavit of 8 September 2023 to oppose and rebut the plaintiff’s motion for strikeout/summary, does make assertions of duress. For example, at [15] he states:

“CK told me that he will make sure that I could not refinance my project with the banks. He will do his utmost even if this will result in losses to his own 1200 Units unless I give him ‘returns’ on his investment and promptly.”

26. There is no affidavit from Mr Cheng, nor any other evidence, refuting Mr Lin’s allegations of duress.

27. The plaintiff submitted that the duress point was more than adequately met by the: affirmation of the Purchase Agreement, the defendants paying the $399,419.18, the variation of the agreement to extend the dates for payment, and by the delay in the assertion of duress. These points are all valid but do not take into account the continuation of the duress, if that were the case, through the payment and the variation.

28. In order to obtain summary judgment, pursuant to r 13.1 of the Uniform Civil Procedure Rules 2005 (NSW), as set out at [16] and [17] in the plaintiff’s written submissions, “it is necessary for the court to reach a high level of satisfaction that the orders should be made. A clear case is required, with the power to be used sparingly …. As such, the court is to have a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way.”

29. In effect, I need to be satisfied that there is no validity in the proposed amended defence. Put another way the lack of a defence must be clearly demonstrated (General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125; [1964] HCA 69 at 129). I am satisfied to that degree in respect of the allegations concerning the witnessing of the Sales Agreement, the consideration points and unconscionability.

30. However, in relation to duress, notwithstanding a deep sense of scepticism, there remains the unanswered allegations about Mr Cheng’s conduct. Mr Kwan, who appeared for the defendants, also made the point that commercial distress may have taken on a different character during the Covid-19 epidemic.

31. I think the duress issue should be litigated and I propose to allow the defendant to file an amended defence asserting only this issue. My orders will also ensure that the defendants are not able to withdraw the admissions their pleadings have already made.

32. In relation to costs, although the plaintiff has not obtained summary judgment, it has succeeded in having a good deal of the proposed defence struck out. I note that the conclusion I have reached was also posed as an alternative by the plaintiff. Accordingly, I think the defendants should pay the plaintiff’s costs of the motions. I will, however, hear the parties if any different costs order is sought.

33. I make the following orders:

1. On the plaintiff’s notice of motion filed on 4 September 2023:

1. The defences filed on 14 August 2023 and 4 September 2023 are struck out.

2. On the defendants’ notice of motion filed on 11 September 2023:

1. The defendants are not permitted to file an amended defence in the form annexed to the affidavit of Mr June Lih Edward Lin dated 8 June 2023.

2. The defendants have leave to file an amended defence within 14 days, provided that all of the admissions as to the statement of claim contained in the current defences are repeated and the amended defence is otherwise limited to an allegation of duress in respect of the Purchase of Unit Agreement dated 24 October 2022.

3. The defendants are to pay the plaintiff’s costs of both notices of motion.

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Amendments

15 November 2023 - Jurisdiction amended to Equity

Decision last updated: 15 November 2023