Wu v Shi
[2019] VCC 858
•19 June 2019
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
GENERAL LIST
Case No. CI-18-00714
| QINTAO WU | Plaintiff |
| v | |
| XIAQI SHI | Defendant |
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JUDGE: | HIS HONOUR JUDGE MACNAMARA | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 30 April, 1, 2, 3, 6, 7, 30 May, 4 June 2019 | |
DATE OF JUDGMENT: | 19 June 2019 | |
CASE MAY BE CITED AS: | Wu v Shi | |
MEDIUM NEUTRAL CITATION: | [2019] VCC 858 | |
REASONS FOR JUDGMENT
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Subject: Contract
Catchwords: Two informal documents; formal contract contemplated; whether binding contract formed; counterclaim based on contract successful for nominal damages only; whether loss on counterclaim not recoverable as being mere reflection of loss by company whose shares were agreed to be sold.
Legislation Cited: Section 14 of the Goods Act 1958;
Cases Cited:Macaura v Northern Assurance Co Ltd [1925] AC 619; Masters v Cameron (1954) 91 CLR 353; Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622; affirmed sub nomGR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631; The Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd [2019] VSCA 91; Nurisvan Investment Ltd v Anyoption Holdings [2017] VSCA 141; Barrier Wharfs Limited v W Scott Fell & Company Limited (1908) 5 CLR 647; Lennon v Scarlett & Co (1921) 29 CLR 499; B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147; Terrex Resources NL v Magnet Petroleum Pty Ltd [1988] 1 WAR 144, 160 per Kennedy J; Elmslie v FC of T (1993) 118 ALR 357, 368 per Wilcox J; Darter Pty Ltd v Malloy [1993] 2 Qd R 615, 619; Hughes v NM Superannuation Pty Ltd (1993) 29 NSWLR 653; Agricultural & Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429; Toyota Motor Corporation v Ken Morgan Motors Pty Ltd [1994] 2 VR 106; Oates v Consolidated Capital Services Ltd [2009] NSWCA 183, Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204; Gould v Vaggelas (1985) 157 CLR 215; Foss v Harbottle (1843) 2 Hare C 461
Judgment: Within 14 days of this day the parties must bring in short minutes to give effect to these reasons
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr B. Carew | SLF Lawyers |
| For the Defendant | Ms G. Crafti | Mills Oakley |
HIS HONOUR:
Background
1 This is another proceeding concerning a dispute between Chinese entrepreneur migrants to Australia arising out of a sale, or alleged sale, of an Australian‑based enterprise by one to the other to enable the latter to obtain a visa for permanent residence in Australia on the basis of investment in and conduct of a business enterprise in Australia. According to the plaintiff, Mr Wu, and his counsel, Mr Carew, in the events that occurred no final and enforceable contract was reached between the two parties, and Mr Wu withdrew from involvement with Mr Shi’s enterprise as he was entitled to do after having undertaken what was no more than a “trial” of that enterprise. According to the defendant, Mr Shi, and his counsel, Ms Crafti, there was a final and legally enforceable agreement reached between the parties which had proceeded to “handover” or completion. Mr Wu had repudiated that contract as a result of “buyer’s remorse”.
2 Mr Shi is aged 55 years. In his native China, he completed secondary school and obtained what he described as “an advanced diploma degree” in school education management. He says he worked as “a teacher at a … elite high school” in China. He migrated to Australia on 13 October 2013. (Transcript (“T”) 268, Lines (“L” 18-21) Mr Shi said he decided to settle in Australia because he “did some research about Australia from the internet. Australia has clean air and, like, a harmonious social environment and everybody has a fair go. I think my personality doesn’t suit me very well in China, so I want to migrate to Australia.” (T268, L4-9) Mr Shi said that he arrived in Australia on a visa known colloquially as a “188” subcategory 8. He described it as “like an investment business visa”. (Ibid L13-17)
3 Mr Shi incorporated a company known as TSC Link Pty Ltd (“TSC”) to carry on business as a wholesaler and retailer of health and nutrition products. He was the sole director. (Ibid L20-26)
4 Some months after TSC was incorporated, it established itself at a warehouse at 52 Hargreaves Street, Huntingdale. (Ibid L27-28) These premises included a warehouse of 280 square metres together with an office area accommodating computers, printers and other office equipment. The company’s stock in trade was stored at this warehouse, and apart from Mr Shi, there were three full-time employees and three part-time employees. The premises included some four computers operating on the “MYOB” system. One computer was for the receptionist, the second was for the counter in the warehouse where retail sales were made, the third was for Mr Shi, and the final one was for the bookkeeper who worked perhaps one day a week. Her name was Serena, but she ceased employment in July 2016 because she was pregnant. Mr Shi obtained his visa for permanent residency, known colloquially as an “888”, in short order in May 2016. (T269-70) In August 2016, he determined to sell the enterprise. His reasons were as follows:
“A couple of reasons. Firstly, because I had been working very hard over the past two years in that business, and also I got high blood pressure. Secondly, after I was granted the permanent residency, two of those part-timers went back to China. Also, my assistant, my very leading assistant, very important one, she was also pregnant. Her name is Vincy. (T270, L12‑19)
5 Mr Shi continued:
“So I was thinking maybe it's time for me to sell this business because God wants me to have some rest. So the third reason is that on 25 November 2015, my mother passed away. I always felt kind of guilty about her death. (T270, L28-T271, L1)
6 When Mr Shi decided to sell, he engaged an agent whom he identified only as “Hellen” and, “The first thing I did is preparing some, like, promotional, marketing material.” (T272, L7-8) Mr Shi also engaged a solicitor from the commercial firm Mills Oakley, Mr Venn King, to draw a sale contract. (T272, L12-22) Mr King prepared a document which, according to the word processing notation at the foot of the page, was produced on 23 September 2010, styled “Share Sale and Purchase Agreement regarding TSC Link Pty Ltd”. Mr Shi was shown as the seller and the name of the buyer was left blank. (Court Book “CB” 788-809) This draft agreement included schedules and annexures, one of the annexures being a balance sheet for TSC made up as at 20 September 2016. (CB 809) The subject of the sale provided for in this draft was the “Sale Shares”. (CB 791, clause 2) This expression was defined to me as “all of the issued shares in the capital of the Company” [viz TSC Link Pty Ltd]. (CB 788)
7 It will be seen that whilst Mr Shi, and indeed Mr Wu, described the transaction which they either undertook, or contemplated undertaking, as being the sale of the business, the legal documentation prepared, though not ultimately executed, provided not for the sale of the business, which was the property of TSC, but rather the sale of the shares in TSC, all of which were owned by Mr Shi.
8 Mr Shi says he received inquiries from at least two parties, one of whom was a Mrs Zhou, who was the holder of a temporary “188 visa” and was looking for an enterprise which would qualify her for permanent residency, and a Mr Shane, whom Mr Shi described as Jewish. (T273, L1-10) The purchase price nominated in the Mills Oakley draft agreement was $555,452.56, subject to adjustment in accordance with the terms of the agreement. (CB 787‑8) This figure was the total of a “transfer fee” and the total asset value as shown in the balance sheet as at 20 September 2016, which, it will be recalled, was an annexure to the draft agreement. Mr Shi explained:
“Firstly, so the transfer fee about – around 210,000, that has been fixed. So – and also because I decided to sell my business, so I asked my accountant to prepare a financial report and on that financial report or balance sheet, it said, as of 20 September 2016, the total asset is about $341,000.” (T273, L17-22)
The transfer fee was a payment for goodwill. (Ibid L24‑25)
9 Ms Zhou seemed to be a keen buyer. She worked at TSC on a number of occasions, along with her daughter. (T274)
10 The plaintiff, Mr Wu, migrated to Australia in March 2016 on a provisional [188] visa. Mr Wu said he migrated to Australia because “I like here”. (T/A105, L17-18) He continued, “The prerequisite for my migration here is I need to conduct some business … So the investment must be around AUD$600,000 and also there are requirements about the annual turnover and also the staff I employ.” (Ibid L19-25) He had the assistance of a gentleman called Sho Bin Li, known in Australia by the given name “Dickson”. (Ibid L15‑16) Dickson arranged a meeting at TSC’s premises between Mr Wu and Mr Shi on 26 September 2016. (T/A106, L3-5)
11 Dickson had previously urged Mr Wu to become involved in a business venture. They had met at a restaurant in Melbourne City Chinatown on 22 September 2016. According to Mr Wu, Dickson said, “Ever since I came to Australia, I have never done any business. That’s no good for me, so I should conduct some sort of business as soon as possible.” (T/A106, L8‑11) Dickson advised him “not [to] touch milk bars or bottle shops” (Ibid L24), and told Mr Wu “that Mr Shi’s nutrition and health product shops are running very well and he intended to sell it out”. (Ibid L24‑26) Mr Wu had been in Australia since March 2016 and had been able to purchase a house without giving immediate attention to obtaining employment or running some sort of enterprise that derived an income. This seems to be indicative of his being well off and having access to capital or income independently of any enterprise which he might conduct in Australia. (T130, L24‑31)
12 According to Mr Wu’s recollection, the meeting on 26 September at Hargreaves Road, Huntingdale, lasted for two hours. (T/A109, L16‑18) According to Mr Wu, Mr Shi did most of the talking. (Ibid L19-21) Mr Shi said that he showed Mr Wu his company’s profile and the draft agreement prepared by Mills Oakley “and also some annexes – appendixes”. (T275, L29‑31) Presumably, the annexures or appendices included the balance sheet for TSC as at 20 September 2016. Mr Shi said Dickson had told him that Mr Wu and his wife were “very interested in my business”. (T276, L19‑22) According to Mr Shi, there was at least one meeting between him and Mr Wu between the initial meeting on 26 September and a subsequent meeting on 2 October. This meeting was held at Mr Shi’s office and attended by Mr Wu, Mr Shi and Mr Wu’s wife, Ms Cui. (Ibid L24‑28) Mr Wu said at the initial meeting, Mr Shi informed him of other interested parties, including in particular Ms Zhou, who had “conducted a trial on [Mr Shi’s] shop before”. (T/A110, L10‑11) Mr Wu said Mr Shi told him that “[Mr Shi’s] business suited me [Mr Wu] well, so if I’m interested the sooner the better.” (T/A110, L22-24)
13 Whilst the Share Sale Agreement in blank was available at the meeting on 26 September, it was not signed. Mr Wu said he told Mr Shi “I need more time to think about it”. (T/A112, L28‑29) According to Mr Wu, Mr Shi told him, “If you’d like to buy my business, you need to maybe put at least 200,000 [presumably Australian dollars]”. (T/A113, L8‑10) This statement as made stands in contrast to the sale price nominated in the Mills Oakley Sale Contract in blank which nominated a sale price over $500,000.
14 Mr Wu remembered two or three meetings between 26 September and 2 October. Each of these intermediate meetings, according to Mr Wu’s account, took place at 52 Hargreaves Street and were attended by Mr Wu, Mr Shi and Ms Cui, Mr Wu’s wife. (T/A114, L9‑13) Dickson was not present. (Ibid L15) Mr Wu said, “All the other meetings are mainly about helping me to gain a better understanding of his business and his ideas.” (Ibid L19‑21) Mr Wu said he was told by Mr Shi “that every year, the sales is over [$]2M. And the … annual profits, are around, maybe, [$]100,000 to [$]200,000. And also the defendant gets paid, like, earn a salary. So his annual salary is about [$]50,000 annual.” (Ibid L24-28) According to Mr Wu, Mr Shi told him that Mr Shi’s wife “got paid around [$]30,000”. (T/A115, L3‑4) According to Mr Shi’s evidence, his wife resides in China.
15 The next substantive meeting, and one at which important events relative to Mr Shi occurred, was on 2 October 2016. The meeting was also at the Hargreaves Street warehouse. (T277, L6‑7) Mr Shi, Mr Wu and his wife were present. Mr Shi was unsure whether Dickson was in attendance. (Ibid L9‑10) Mr Wu’s recollection, whilst he was unsure, was that Dickson was not in attendance. The meeting on 2 October, on Mr Wu’s recollection, lasted for “three to four hours”. (T/A116, L16) About 10 minutes into the meeting, Mr Shi produced a document for signature. This seems to have been his own draft, not one prepared by Mills Oakley. (T/A117, T15‑17) This document, in its Mandarin form, as signed on 2 October 2016, is to be found at CB 33. The text of the agreed English translation is at Annexure 1 to these reasons.
16 The document finally signed differed in some respects from the document produced early in the meeting. Mr Wu could nominate the only change as being a change of date from 20 September 2016 to 2 October 2016. (T4, L8‑12) The parties had been discussing the form of the agreement for a period of two hours. (Ibid L23‑25) Given that the document in question in its Mandarin original occupies but a single A4 page, it is difficult to fathom how discussion as to text could have been so extensive. Mr Shi said that the last sentence of the third paragraph was added to the original which it had tabled because the parties agreed that they should engage a third party inventory specialist to check the stock. (T281, L2‑9)
17 Mr Shi said that on 2 October, the parties did not sign the Mills Oakley draft or some derivative of it “because at that time, Mr Wu hasn’t got himself a lawyer yet. Secondly, a solicitor needs to draft an agreement based on this agreement.” (T282, L5‑8) The stipulation in the last clause of the agreement signed on 2 October for Mr Wu to sign the lawyer drafted version of the Sale Agreement within two days was included, according to Mr Shi, “because, at that time, a lot of people were interested in buying my business. If I send a formal document drafted by my lawyer to him and he always delays, and he – he didn’t want to sign it immediately, then it will affect me selling my business to somebody else.” (T282, L10‑15)
18 On 7 October 2016, Mr Shi sent an email to Mr Wu and Hellen Zheng of the law firm, Nevett Ford, enclosing the Share Sale and Purchase Agreement, the preliminary agreement reached by the parties, and the balance sheet as at 20 September 2016. The letter was addressed “Hi Hellen”, and stated:
“I have heard a lot about you however never met you in person. Mr Wu and I have reached a preliminary agreement. The formal agreement has been drafted by my lawyer based on the one reached by both parties (refer to the attachment). Please help him review the agreement at your earliest convenience. I have already advised Mr Wu that I must go to China at the end of October, so the earlier he signs the agreement, the better it is for the handover and also for him to get familiar with the process. My business is clear cut. I also hope Mr Wu can successfully and smoothly receive his PR through this business partnership under your assistance and become another member in this 188a visa holder circle. As far as I know, it is definitely practicable/OK. In that case, it will benefit your future business development.
Thanks!
Eric Shi
TSC Link Pty Ltd.”
The email was addressed to Ms Zheng because, according to Mr Shi, she was “the lawyer that Mr Wu would like to engage”. (T282, L20‑21)
19 Mr Shi continued:
“I would like to send all relevant documents about selling my business to Mr Wu's lawyer, so Mr Wu's lawyer can go through them and approve them as soon as possible, and assist Mr Wu to sign the agreement.” (T283, L12-16)
20 A meeting followed at the offices of Nevett Ford attended by Ms Zheng, Mr Shi, Mr Wu and Mr Wu’s wife on 7 October. (T/A25, L15-31) There was no representative of Mills Oakley present. (T/A25, L30 - T/A26, L1)
21 According to Mr Wu’s counsel, “not much fell out of that meeting in terms of progressing a formal document. Nothing really progressed at all”. (T/A26, L28-30)
22 Mr Shi said that Hellen Zheng was very famous in the Chinese community as an expert in the law relating to visas and she had a WeChat group, presumably devoted to this subject. (T282, L22-25)
23 Mr Shi said that he sent the email (at CB 40) to Ms Zheng:
“Because Mr Wu has been putting off by not signing that formal agreement. It seems Mr Wu was not so sure whether he can successfully migrate through this channel. He has – it seems he had a lot of doubts and questions.” (T282, L30 – T283, L2)
24 Mr Shi’s account of the meeting disclosed no particular progress made in the negotiations either. (T283)
25 There was a further meeting of the parties on 14 October commencing at 9.00am. This meeting, in one form or another, lasted until the early hours of 15 October. Dickson was in attendance as well as Mr Wu and his wife. In the evening, a stocktake was carried out by a stocktaking organisation known as “RGIS”. The process commenced at 2.00pm and concluded at 12.00am (viz midnight). The purpose, according to Mr Shi, was to finalise the price payable by Mr Wu for the business. (T284)
26 The parties signed another agreement dated 15 October, but apparently signed on the afternoon of 14 October. An agreed translation of this document from the original Mandarin is to be found at CB 163 and set out in Annexure 2 to these reasons.
27 Speaking of the Mandarin original, Mr Shi said that this agreement was typed up in his office on 14 October. (T285, L28) The document was signed sometime in the afternoon of the 14th, but dated 15 October, perhaps because in Chinese culture 14 is an unlucky number. (T286, L9-16) According to Mr Shi, “if you pronounce it, [viz 14] it means – like, the pronunciation is very similar – very similar to you are going to die.” (T286, L28-30)
28 Payment of the final $100,000 instalment of the purchase price referred to in this document was deferred apparently to assist with Mr Wu’s visa application. According to Mr Shi:
“The main purpose for Mr Wu to buy this business is to apply for his 888 visa. So we both worried this agreement that we have signed, whether this agreement can meet the standard set out by the immigration.” (T288, L28 – T289, L1)
29 The parties also signed a document in Mandarin styled “Handover Statement”. The agreed translation into English (at CB 75) states:
“After the stocktake, the Seller handed over everything in the warehouse to the Buyer on the night of 14/10/2016, including the key of the warehouse. Please refer to the inventory report for the details of goods. All goods will be managed by the Buyer.”
30 The parties subscribed to this statement and dated the document 14 October 2016, despite any unpropitious elements in the number 14. Mr Shi said:
“So that means I need to hand over all the things in the warehouse, including the stocks, the keys of the warehouse, and also all the office equipment, some other equipment in the warehouse to Mr Wu.” (T293, L14-18)
31 Another document, this time dated 15 October 2016 and subscribed to by both gentlemen, was also prepared and signed. The Mandarin original appears at CB 172 and the agreed translation at CB 173. The document stated:
“Additional Agreement
Assets purchased by the Buyer do not include accounts receivable and accounts payable. Accounts receivable should be paid back to the Seller when they are received. If the Buyer pays, on behalf of the Seller, some amounts payable with the Seller’s consent, the Buyer is then allowed to deduct the amount from the 2nd payment.
However, the deposit pre-paid by the Seller, the unreceived payment for goods from the online store, tax return and other accounts receivable shall all be paid immediately to the Seller upon signing a formal agreement.”
32 Mr Shi said that he typed this document and that it was based on negotiations between him and Mr Wu. (T293, L22-24) According to Mr Shi, this agreement was made because Mr Wu “insisted that we should use net assets”. (T294, L1)
33 Another document signed, subscribed by the parties and dated 15 October 2016, was styled “Undertaking (about method of payment)”. The Mandarin original appears at CB 175, with the agreed translation at CB 176. That undertaking provided as follows:
“Regarding the method of payment, the Buyer undertakes that after the lawyer checks the Seller’s book dates, for those which cannot be normally withdrawn from the Australian Business Account, the Buyer consents to make a domestic money transfer (within Chinese territory) to the Seller’s designated bank account in China as per the Seller’s request.”
This was subscribed to by Mr Wu alone.
34 The effect seems to have been a provision that the “transfer fee” would be payable to Mr Shi’s credit in Chinese currency in China, which is in fact what happened. (T295, L1-12)
35 At the end of the stocktake, Mr Wu said he disagreed with the figures reached by the RGIS representative. He did not disagree with the quantities found, but he disagreed with the value. To terminate the stocktake process he signed, denoting his agreement with the quantities, but struck through the values recorded. (T/A 27, L2-13, CB 147)
36 According to the “footer” on the report with the contentious figures, it was “produced at 15/10/2016 00:09”, that is, at nine minutes past midnight on 15 October.
37 Mr Wu said that Mr Shi told him when this impasse was reached, “Those figures were definitely correct and I wouldn’t lie to you”. (T27, L9-10).
38 In contrast, Mr Shi said in re-examination, that he joined Mr Wu in striking the figures because he also regarded them as incorrect. He said, however, that a further assessment was done and that the parties then subscribed to stock evaluation figures in which they concurred, (T400) referring to CB 149-156 which appear to be subscribed to by the parties and contain a footer stating “report produced at 15/10/2016 20:17” (viz 17 minutes past 8.00pm on 15 October).
39 The effect of Mr Wu’s evidence was that the valuation of the stock on 14/15 October was an impasse reached between the parties which was never resolved.
40 In re-examination, Mr Shi said that it was resolved and agreed by the later figures just referred to. Unfortunately, Mr Wu was not cross-examined on this point. When I drew Ms Crafti’s attention to this at the conclusion of her re-examination of Mr Shi, she sought leave to reopen her cross-examination of Mr Wu. This course was opposed by Mr Carew and I was ultimately unpersuaded that it would be proper to reopen the matter. It therefore rests in a somewhat unsatisfactory state.
41 CB 36, 37 and 38 records payments of two instalments of $20,000 from Mr Wu’s account with Westpac Banking Corporation to Mills Oakley Lawyers’ Trust Account on 3 October 2016, and some $10,000 by way of transfer from Ms Cui’s [Mr Wu’s wife] account to Mills Oakley. (T15, L24 – T16, L4)
42 According to Mr Wu:
“Mr Shi said if we were genuinely interested in this business then we must pay a deposit, because at that time the (indistinct) was approaching him and also he got calls from people who were interested in buying”. (T16, L13-17)
43 Mr Shi was in a hurry to resolve matters. He said, “I must go to China at the end of October because 25 November is my mum’s death anniversary first year after she passed away”. (T289, L29-31)
44 Mr Shi said that he continued attending at the warehouse until 29 October “in the morning” when he left for China. Until that date, he said he “helped him [viz Mr Wu] tidy out the stocks and also helped him – I answered his inquiry (sic)”. (T295, L23-29)
45 During this time, according to Mr Shi, Mr Wu changed the curtains at the warehouse and cut off the existing surveillance systems or closed circuit television (CCTV) and had a new system installed. Mr Shi said he recruited staff and made contacts about “buying a new cash machine” – that is, a till. (T296, L1-15)
46 On 17 October 2016, in accordance with one of the supplementary arrangements referred to above, some $1,000,090 renminbi (Chinese currency) was paid to the credit of Mr Shi in China. This equated to approximately $AU213,000, apparently the “transfer fee”. According to Mr Wu, he made this payment because “Mr Shi was about to travel to China and he didn’t feel very relaxed if I didn’t pay so he demanded me to pay it.” (T48, L30 – T49, L1)
47 Mr Wu said that a further consideration which led him to make payment of the “transfer fee” in renminbi was that Mr Shi promised access to the computer files and client profiles and other detailed accounting information upon the making of that payment. (T50)
48 Mr Wu also said that Mr Shi had told him that unless this payment were made he would shut the shop. Mr Carew asked him if Mr Shi had said “that if payment was not made he would shut the shop”, to which Mr Wu said “yes”. (The transcript incorrectly omits the word “not”).
49 Mr Wu said that he was given the key to the warehouse on 15 October. The rationale for this, according to Mr Wu, was as follows:
“So previously Mr Shi, the defendant, discussed with me – he said if I made the payment he would give me the key, and while he would be in China I can run and manage that shop and when he comes back he will take me to a bank and open a bank account.” (T51, L17-22)
50 Mr Wu said he was told by Mr Shi that on the latter’s return from China a bank account would be opened with Westpac Banking Corporation to bank receipts from the business because he anticipated that sales would be “huge”. (T51, L23 – T52, L3)
51 Whatever the situation might be with any proposed future account, in fact a current cheque account was opened in the name of TSC before Mr Shi’s departure. The sales receipts were to be banked to that account and Mr Wu had access to it. (T52, L4-7)
52 The account in question was a Business One Flexi 033-090 459945. The signature authority at CB 761 shows that both Messrs Shi and Wu were authorised to operate this account and “any authorised person can operate and sign independently”.
53 On 18 October 2016, Mr Wu paid $19,000 into this account. (T55, CB 764) Mr Wu commented:
“So Mr Shi said, well, he was away, so all the incoming and outgoing amounts into this account should be responsible by me. I should be responsible for all the incoming and outgoing amounts.” (T55, L15-19)
54 There were further sums paid in on 27 October - $19,000 and $20,000 – from Mr Wu and his wife. (T55, L24-27)
55 Mr Wu commented, “So before Mr Shi left to China he asked us to purchase certain goods, so this is for the goods purchased”. (T55, L30 – T56, L1)
56 The account also showed outlays such as $2,352 in payment of an account from St Yun Pty Ltd for goods to be resold by TSC. (CB 554, T56, L13-23)
57 There was a payment of some $4,006 on 2 November against an invoice from a supplier called “Blossoms”. (CB 555, 765, T58) Also on 2 November, there was a payment from the account to Lian Surveillance for an amount of $6,050 invoiced by that company to TSC for “supply 12 IP (16 NVR) Camera CT installation and 3 alarm installation and services”. (CB 549, 765, T58, L8-13)
58 These payments in and out of the account were all effectuated by Mr Wu. Mr Wu made a withdrawal of $17,000 on 11 November. (T58, L31 – T59, L1) He explained this withdrawal: “so after 8 November Mr Shi didn’t want to continue working with me so I withdraw the money”. (T59, L2-4, CB 766) A further $10,000 was withdrawn on 18 November for the same reason. (Ibid, 5-8, CB 766)
59 Some $19,000 was withdrawn on 7 November (CB 765, T58, L27-30). Mr Wu explained this withdrawal: “I ran short of money so I needed that money”. (Ibid, L29-30)
60 In the course of the stocktaking process or its immediate aftermath, Mr Wu and one of his employees, a Ms Hellen Zheng, identified certain stock as being slow selling or “short dated”. I understand “short dated” to be stock which is near expiry of its use by date.
61 Mr Wu, and one of his employees, a Ms Hellen Zheng, made notations to this effect on stock lists appearing at CB 149-150. (T30-34). Mr Wu valued this short dated and slow selling stock at $28,766. (T34, L19) On the evening of the stocktake, Mr Wu discussed this matter with Mr Shi, and the short dated stock was valued at $7,000, being half the original price. (T92, CB 203) This listing included only short selling stock, not stock which Mr Wu or his employee had designated as slow selling. (T93, L3-6)
62 Mr Wu said that Mr Shi told him:
“All those goods were actually of very high value. So I'm now giving you 50 per cent discount actually it is my very big compromise. I will suffer a great loss from this big discount.” (T94, L25-28)
63 Mr Wu had engaged the services of a freelance accountant through a Chinese organisation providing a service similar to “Air Tasker”, who was identified only as “Sam”. There was a proposal for some type of accounting handover on Sunday because “Sam” was only available on a Sunday. (T/A 46-7, CB 306, T68, L20-23)
64 Mr Shi, by then in China, sought to arrange the attendance of his former bookkeeper, Serena, who had terminated her employment due to pregnancy, on the Sunday for an accounting handover, offering her double time for attendance on that day. Ultimately, this proved unsuccessful. The Sunday in question was apparently 6 November. Sam had been interviewed by Mr Shi and Mr Wu on 28 October. (T71, L13-14)
65 Ultimately, because Serena failed to attend or confirm her attendance on Sunday the 6th, Sam did not attend either. (T71, L28 – T72, L1) Sam’s only attendance at the Huntingdale premises was on 28 October. He was to have attended for work on Sunday, 6 November but, in light of the difficulties with Serena, he never did. (T72) The upshot was, according to Mr Wu, that he never gained access to TSC’s accounting records. (T71, L5-7)
66 According to Mr Shi:
“I have given Mr Wu all the logins and passwords of my computers or else he can't conduct his business in the shop because he will have no idea about the prices.” (T303, L26-29)
67 Despite the supplementary arrangements between the parties which sought to exclude pre-existing accounts receivable and payable from the deal, Mr Shi said that Mr Wu had in no way been shut out of information as to pre-existing transactions. (T303, L30 – T305, L2)
68 All relevant information was, according to Mr Shi, entered into TSC’s computer system via the MYOB retail manager system. (T305, L15-19) The original invoices for goods supplied to the company were, according to Mr Shi contained in two or three boxes which were old cartridge carton boxes. (T305, L15-24)
69 There was a flurry of text exchanges via the WeChat system between Mr Wu and Mr Shi around about 4 November. Aside from the abortive attempt to arrange a meeting on 6 November between Serena and the incoming “Sam”, Mr Wu demanded that Mr Shi return from China forthwith “so that we can finish it all, including the existing problems and unsolved issues. We cannot put it off any longer”. (4 November 2016 10.36am, CB 312)
70 A few minutes later, at 10.43am, Mr Wu transmitted: “Forget about it, your company, your shop I will leave it up to you. I cannot take it any more”. (CB 315)
71 Mr Shi responded:
“Please take it easy. … I have handed to you the company’s accounts and accounting system without any transition procedure. You can access and browse our whole system any time you like. Next we have to build mutual trust. If I do not trust you, I will not have transferred all the transferable resources to you.” (CB 318)
72 A few moments later, at 10.57am, Mr Shi continued:
“Also I hope we can sign the agreement reviewed by the lawyers and hand over the business for good. Now, it is not me who is causing issues. If I push you too hard, you will say I do not put my trust in you and all sorts of excuses. Because I have never pushed you, it has been delayed for so long.” (Ibid)
73 Mr Wu responded:
“Stop lying. I’ve only received your external financial reports, not any internal receipts and accounting data in your computer. What is more, that day the accountants we engaged spent quite some time but still failed to log into your set of books in the computer.” (CB 320)
74 Mr Wu said: “Today I am well aware of how to play the trick of a thief crying ‘stop thief!’.”
75 He continued: “You come back as soon as possible and we talk it over straight away.”
76 Mr Shi responded: “My entire MYOB is in the computer. We have not set up any password”. (CB 322)
77 The exchanges continued.
78 Later in the afternoon, it appears from the presence in the Mandarin original of the WeChat exchange of an icon shaped as an inverted handset that the parties allegedly had a telephone conversation. (CB 333)
79 According to Mr Shi, Mr Wu threatened his life in this conversation, stating “you will die in a miserable way”. (T205-6)
80 Mr Wu did not admit saying something along these lines. He seemed to concede possibly telling Mr Shi that he would have some bad luck, but said that it would not have been sensible for him to wish Mr Shi dead, because otherwise how could he finish matters off with him.
81 The flurry of texts continued. At 7.17pm on Saturday 5 November, Mr Shi sent a text or an email to Mr Wu addressed “Hi Director Wu”, stating that he had arranged for “accountant Yang and our bookkeeper Serena” to arrive at 10am sharp tomorrow [6 November] “and hand over accounts books to your bookkeeper”. He continued, “A failure to reply means you are deemed to have cancelled this takeover”. At 9.34pm, a text from Mr Shi accepted that the handover would not take place. (CB 336) Mr Wu sent a transmission, either by email or otherwise, on 9 August 2016 ―
“Ending test run of TSCLINK and cooperation with Mr Shi.
Mr Shi, after consulting with my lawyer on November 8th, we made the following agreements …”
The letter made a series of criticisms of the sale transaction and concluded:
“Here I solemnly declare, if one day we entered the legal processes, it is not our family nor our lawyer’s desire after serious considerations, we do not want to escalate the situations, and we do not want to cause you unnecessary troubles. I declare again, all we want is to retrieve our economic losses, hope you consider twice before taking actions.” (CB 338-340)
Also on 9 November 2016, Mr Shi sent a text to Mr Wu stating:
“I would like to remind you that you do not have [the] right to use any financial reports of the company until all account systems and accounts information have been handed over, because it is illegal to do so. You can only do so with my consent and under the supervision of my accountant, and you can only inquire about prices and access information which is relevant to our handover. I am responsible for all business before 15 October 2016 and you have nothing to do with it.” (CB 362)
82 Given that Mr Wu had given notice, to use a neutral term, that he was “pulling out” of the deal, he sent a text or an email to Mr Shi stating:
“If the items you would like to collect are indeed your personal items other than company properties then feel free to collect them.
Nevertheless I will require you firstly to provide a full list of items, enumerating the items which you claim to be your personal items other than company properties. Once I receive this list, I will consider get them for you. As for some items which are not included in the inventory check, although it is true, however, it does not mean they are not company properties. Therefore 10am tomorrow is not a good time for us. Once the list you provide clearly prove that you have the rights to claim back your personal belongings, then we will arrange how and when to deliver them to you, other than you coming to pick them up.
…” (CB 378)
83 Earlier in the day, Mr Wu had sent a text or email to Mr Shi stating:
“Recently you have requested to take back your company’s business files and documents; however, you do not have [the] right to retrieve them until you terminate our agreement. While our agreement is still effective, especially before you return the payment to us, you have no right to take them away.
If you consent to terminate our agreement and return the payment by 18 November at the latest, we are willing to make some concessions. For example, we will stop claiming compensation for the investment we made into your business (such as installation of surveillance cameras and purchase of office desks). The premise is that both parties are exempt from further compensation claims against the other party in regards to the agreement.”
Mr Wu sought confirmation that he would be refunded the cash deposit of $50,000 and the “transfer fee”:
“Upon my receipt of this refund, I will hand over the business to you immediately.” (CB 380)
Texts continued to flow between the parties.
84 On 18 November, Mr Quah of law firm Thomson Geer, wrote a letter of demand to Mr Venn King of Mills Oakley. Mr Quah alleged a series of representations and warranties made by Mr Shi. The letter said:
“On or around 9 November 2016, Mr Wu informed Mr Shi that there had been a breach of the representations and warranties given by Mr Shi and that Mr Wu did not wish to proceed with the purchase and Mr Wu demanded repayment of [the monies he had paid].”
The letter continued:
“Mr Wu is entitled to such repayment, even if there has been no breach of representation or warranty (which we are instructed has clearly occurred).”
85 Mills Oakley, on behalf of Mr Shi, sent a lengthy letter by email to Mr Wu. It alleged that Mr Wu had repudiated the contract, but said that such repudiation was not accepted by Mr Shi. It alleged that:
“…you are currently accepting orders and despatching products, you have purchased and installed additional fixtures and fittings for the business premises, you have paid staff, and are in the process of recruiting for more staff for the Business.”
The letter demanded payment of $192,271.23 by midday 23 November 2016. (CB 394-396)
86 On 21 November 2016, Mills Oakley wrote to Mr Quah of Thomson Geer maintaining Mr Shi’s position that there was an enforceable agreement which he remained ready and willing to perform and denying that there had been a mere trial period. (CB 397-398) Thomson Geer responded on 24 November 2016, effectively joining issue with Mills Oakley and suggesting a mediation. (CB 403-404) Mills Oakley’s reply of 28 November 2016 continued the disagreement and noted that the rent and council rates on the warehouse had not been paid. The letter stated:
“Please advise as a matter of priority whether your client intends paying the currently due rent and council rates for the business premises.” (CB 408-409)
Thomson Geer responded in a letter of 29 November 2016, requiring a list of items of personal property for Mr Shi’s recovery, once again suggesting a mediation and inquiring how it could be contended that Mr Wu was liable for rent payable on the warehouse premises under a lease in which the lessee was Health Super Pty Ltd. (CB 412-413) Mills Oakley responded with an email letter of 1 December 2016, complaining inter alia that Mr Wu was carrying on a business without accepting liability for rent on the premises in which it was conducted and asserting that mediation would be unnecessary. (CB 414-415) Thomson Geer responded in an email of 6 December 2016, denying liability on behalf of Mr Wu for rental on the premises from 15 October to 15 November 2016. Mills Oakley responded in an email letter of 16 December 2016, stating that since Mr Wu refused to complete the purchase and thereby caused Mr Shi loss, there was no basis for him to retain possession of the premises and the business. The letter threatened a possible application for an interim injunction. (CB 510) In a response dated 19 December 2018, Thomson Geer advised that they would shortly receive possession of the keys with a view to making them available to Mr Shi. Mr Wu sent an email dated 20 December 2016 to Mr Shi advising that his lawyer had delivered the key to the premises to Mr Shi’s legal adviser, Mr Edwin Fah.
87 With the key to the Huntingdale premises surrendered by Mr Wu’s solicitors, the TSC business was back under the sole control of Mr Shi. On 8 March 2017, Mr Shi signed an Exclusive Authority: Sale of Business in favour of Central Business Brokers Pty Ltd. This authority showed the vendor as being TSC Link Pty Ltd and authorised the brokerage to find a purchaser for that business together with all equipment, fittings and fixtures used in the business. The proposed price was $288,000. The authority was current for 180 days. (CB 557-564)
88 On 25 May 2017, Mr Shi sent an email to Mr Wu. This dealt with a number of issues arising out of the dealings between the two of them. Amongst those matters was the fate of the warehouse at Huntingdale. Mr Shi said that he would cease leasing that warehouse at the expiry of its current lease on 1 June 2017 and would obtain a cheaper warehouse to store plant and equipment. (CB 565) As at the expiry of the lease and the email quoted, the business remained unsold. According to Mr Shi, during the period March to August 2017 “a lot of goods are expiring”. (T315, L14-17) Moreover, he said “I didn’t have that much energy to maybe promote my business and run it in a better way and sell it again. This dispute has annoyed me a lot and I believe if I don’t sell this business as soon as possible, then it would be haunting me.” (Ibid, L21-26)
89 In cross-examination by Mr Carew on behalf of Mr Wu, Mr Shi conceded that he did little to achieve a resale of the TSC business between January and June 2017. (T312-313) As far as the “expiry” of goods being part of TSC stock, this would seem to be a symptom of a collapse in the level of sale. If goods were being sold steadily, they would not remain on hand to “expire”. (T316, L4-6) Ultimately, a Contract of Sale of Business dated 15 August 2017 was entered into between TSC and Australia Made Pty Ltd for a purchase price of $20,000 plus stock at value. (CB 592 and following) The ultimate recovery for Mr Shi was $93,000. (T315, L9-17) At the time of TSC’s vacating the warehouse in Hargreaves Road, Huntingdale, Mr Shi disposed of a lot of stock, presumably because it had “expired” or was deemed “slow selling”. Hence, the very modest recovery on stock at valuation achieved in the sale to Australia Made Pty Ltd.
This proceeding
Plaintiff’s Claim
90 In February 2018, solicitors acting for Mr Wu commenced the present proceeding. It referred to Mr Shi’s ownership of the share capital in TSC Link Pty Ltd, as the company was then known, and its operation of a business selling food, health and beauty products. Next, the Statement of Claim referred to the parties’ execution of the two documents which form the annexures to these reasons. According to the Statement of Claim, in executing these two documents ―
“neither the Plaintiff nor the Defendant entered a contract by reason of the fact that neither of them had the intention to be bound to the obligations referred to in those documents.” (CB 6, clause 6)
The particulars to this paragraph refer to clauses 4, 5 and 9 of the first document and clause 8 of the second document, and the fact that Mr Shi’s solicitors, Mills Oakley, prepared a “formal contract”. Alternatively, it was said that neither of the two documents executed “was an enforceable contract by reason of the fact that they failed to include essential terms”. (CB 7, clause 7) The particulars to this allegation were as follows:
“Neither of the said documents specified the total consideration payable.
Neither of the said documents clearly specified the subject matter to be conveyed by the Defendant to the Plaintiff and insofar as they did not properly specify whether shares and/or assets were the subject matter of any intended transaction.”
Alternatively, it was said, if there was a contract entered into, “the performance of any obligations at all was conditional upon the execution of a formal contract to be drawn by their legal representatives”. (CB 7, clause 8) In fact, “No formal contract was executed [by the parties]”. (CB 8, clause 9) Next, as to the payment of $50,000 by Mr Wu to Mr Shi and approximately AUD$213,000 in Chinese currency, it was said, “There was no juridical basis for the Payments in circumstances where the Plaintiff and Defendant had made no contract for a sale of shares or Business assets and no contract at all”. (CB 8, clause 15) Therefore, the plaintiff sought restitution of those amounts. (Ibid, clause 17) Alternatively, it was said that the AUD$50,000 was paid in consideration of an agreement to allow Mr Wu “to operate [Mr Shi’s] business for a trial period”. (CB 9, clause 18) It was said that there were terms of the agreement providing for payment of the $50,000 for Mr Wu to operate the business on a trial basis with assistance from the defendant and the company’s staff and with Mr Wu having full access to the books and records during the trial period. It was said that if Mr Wu, within a reasonable period, informed Mr Shi that he did not wish to proceed with the purchase of the shares or the business assets, Mr Shi would repay Mr Wu the sum of $50,000. (Ibid, clause 19) On or about 17 October 2016, it was said this agreement was varied for valuable consideration and it was agreed that the trial period would continue with Mr Wu paying RMB1,090,736.64, approximately AUD$213,000, and the trial period would continue, despite Mr Shi’s absence from Australia in China, but that if Mr Wu, within a reasonable period, informed Mr Shi that he did not wish to proceed with the purchase of the shares of the business assets, then Mr Shi would repay Mr Wu all monies payable under the agreement as varied. (CB 10, clauses 20, 21) It was said that in breach of the contract, Mr Shi did not provide Mr Wu with full access to the books and records. It was said that access to the books and records was never provided. Therefore, on or about 4 November 2016, Mr Wu informed Mr Shi that the trial period was terminated and he did not wish to buy the shares in the company or the business assets, and on 4 November, or alternatively 18 November, Mr Wu demanded that Mr Shi return the payments. (CB 11, clause 24) No refund had been made and Mr Wu suffered loss and damage. (CB 12, clauses 26, 27)
91 Accordingly, restitution was sought of the $50,000 and the RMB1,090,056.86 damages in the same sum, interest, costs and further relief.
Defence and Counterclaim
92 In his Defence and Counterclaim, Mr Shi admitted executing the two documents referred to in the Statement of Claim, but denied certain features ascribed to the false document by paragraph of the Statement of Claim. (CB 15, paragraphs 1-4) Mr Shi said that the parties intended to be bound by the two documents and that they contained the essential terms. (CB 16, clauses 6 and 7)
93 Mr Shi denied the performance of the obligations under the documents was conditional on the execution of a formal document. He said the parties proceeded to perform, or partly perform, their obligations. The formal documents which might need to be drafted were said to pertain only to Mr Wu’s application for a 888 visa. The second agreement prevailed over the first to the extent of any inconsistency. (CB 17, clause 8) The $50,000 was paid, it was said, in accordance with the terms of the first document. (CB 17, clause 10)
94 Mr Shi referred to the inspection of stock and the stocktake occurring on 14 and 15 October. (CB 17-18, clause 11) The payment of RMB1,090,056.86 was, according to Mr Shi, in accordance with the terms of the two documents executed, such payments being made for good consideration. (CB 18, clauses 12 and 13) He denied that Mr Wu was entitled to any restitution. (Ibid, clause 17)
95 Mr Shi denied there was any agreement for Mr Wu to operate the business for a trial period. (CB 19, clause 18). He admitted that Mr Wu notified him that Mr Wu no longer wished to proceed with the purchase of the business and that he demanded repayment of the monies paid over, but denied any entitlement to their return. (CB 19, clauses 25-27)
96 By way of Counterclaim, Mr Shi alleged that Mr Wu agreed that Mr Shi would sell the business to him. He referred to an agreement dated 2 October 2016 constituted by the document styled “Share Transfer Agreement”. (CB 20, clause 28) Next, he alleged a series of terms said to form part of that agreement. (CB 20-21, clause 29) Next, he alleged the execution of the second agreement on 15 October and alleged various terms thereof. (CB 21‑22, clauses 30-31)
97 It was said that Mr Wu was obliged to pay Mr Shi ―
(a)a deposit of $50,000 upon signing the Share Transfer Agreement;
(b)$406,007.87 by 14 November 2016; and
(c)$100,000 by 15 October 2017. (CB 22, clause 32)
Payments of $50,000 and approximately AUD$213,736.63 had been made. (CB 22-23, clause 33)
98 Mr Wu’s notification of Mr Shi that he did not intend to proceed with the purchase of the business indicated that Mr Wu did not intend to pay the balance outstanding or to continue to operate the business, or Mr Shi was entitled to draw that inference. This constituted a repudiation of the two agreements. (CB 23, clauses 35-37) Mr Shi did not accept the repudiation and affirmed the agreement, remaining ready, willing and able to carry out his obligations. (CB 23-24, clause 38) Continuing failure by Mr Wu to pay amounts payable by him under the agreements was alleged, with Mr Shi resuming operating the business following its abandonment by Mr Wu. (CB 24, clauses 39-40) Mr Shi had resold the business to a new purchaser for $93,532.38, sustaining loss and damage in the process. (CB 24-25, clauses 42-43) Mr Shi sought damages on resale, being the shortfall on resale price together with interest, costs and further or other relief. (CB 25)
99 With the evidence completed on 7 May, I directed the exchange of written submissions by the parties and counsel spoke to those submissions on the morning of 30 May. On that day, I raised with Ms Crafti whether, in light of the evidence, in particular the balance sheet attached to the draft Share Sale Agreement drawn by Mills Oakley showing the assets of the “business” as being property of TSC, there could have been an agreement for the sale of that business between the plaintiff and the defendant. In his closing submissions, Mr Carew, on behalf of the plaintiff, also drew attention to this disconformity. Ms Crafti took the stand that the Counterclaim properly pleaded her client’s case on this matter. Eventually, however, just before I rose for lunch and at the conclusion of her submissions in reply, Ms Crafti sought leave to amend the Counterclaim so as to allege an agreement between the parties for the sale of the business, or further or alternatively the shares in TSC. Mr Carew opposed the grant of leave to amend. I directed Ms Crafti to prepare a proposed draft Amended Counterclaim and listed the matter for further argument on the morning of 4 June. Having heard submissions, and over the opposition of the plaintiff, I granted Ms Crafti, on behalf of the defendant, leave to make the proposed amendment. The Amended Counterclaim therefore alleges in the alternative that there was an agreement between the parties for the sale of the shares in TSC.
Defence to Counterclaim
100 In his Defence to Counterclaim, Mr Wu substantially denied Mr Shi’s counterclaim subject to admission of certain non-controversial matters and events. Mr Carew said that his client’s Defence to Counterclaim should be taken as denying not only an alleged agreement as to the sale of TSC’s business, but also any agreement as to the sale of its shares.
Subject matter of alleged sale
101 Before considering whether an enforceable Share Agreement was or was not made between the parties, it is appropriate to determine what the subject matter of any alleged sale might be. I have already described the progression on this subject in the defendant’s pleaded Counterclaim.
102 It is trite law that a company incorporated under the Corporations Legislation, even a small “one-man” company, is a separate legal person whose property is vested in the company. It is not the property of the person or persons who own the share capital of the company. Hence, that person or those persons did not, for the purposes of the now abolished doctrine of “insurable interest”, have an insurable interest in the property owned by the company. (Macaura v Northern Assurance Co Ltd [1925] AC 619). It would therefore be incompetent for a shareholder to purport to sell the property of the company whose shares he owned, unless perhaps it was contemplated that the company be wound up with the assets transferred to him in specie or otherwise vested, or perhaps that he contemplated himself purchasing the assets from the company to enable him make title. In the present case, the evidence discloses no such contemplations or expectations on the part of either or both of these parties.
103 The first of the two documents, which, according to the defendant, constitutes the contract between himself and the plaintiff, is styled “Share Sale and Purchase Agreement”, on its own, one might think, a definitive characterisation of the subject matter of the agreement or arrangement as being the shares, rather than the underlying business. (Annexure 1) The second document, which is alleged by the defendant to be of contractual force, provides in clause 1: “The Seller [viz Mr Shi] agrees to sell, on two separate occasions, all TSCLINK Pty Ltd’s shares to the Buyer.” Clause 5 commences: “The two sides sign the agreement to buy and sell shares as a Pty Ltd …” (Annexure 2) In my view, these provisions and the consideration as to the ownership of the business by TSC and not by Mr Shi are definitive as to the subject matter of any alleged sale.
104 These matters, to my mind, outweigh the significance of a lot of loose language and imprecise thinking to be found in the exchanges between the parties which might be regarded as more consistent with a sale of business than a sale of shares. This imprecision was not confined to the parties themselves. For instance, in its letter of 18 November 2016, law firm Mills Oakley, acting for Mr Shi, headed the letter “Sale of Business: TSC Link Pty Ltd”. (CB 394) It will be recalled that the same firm prepared a draft Share Sale Agreement for Mr Shi. The existence of this document fortifies me in my view as to the correct subject matter of the dealings between the parties and of any sale which might be found to have been effected or attempted. The agreement was not subscribed to by either of the parties, but it was metaphorically “on the table” as an indication of the sort of transaction which the parties were negotiating or attempting to negotiate.
Was there a contract?
105 Any legal analysis of a situation where parties enter into negotiations for a contract in contemplation that their agreement will be embodied in a formal legal document which ultimately fails to come into existence, must commence with the seminal statements on this subject in the joint judgment of Dixon CJ, McTiernan and Kitto JJ in Masters v Cameron (1954) 91 CLR 353, 360, 361, where their Honours said:
“Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and- until they execute a formal contract.
In each of the first two cases there is a binding contract: in the first case a contract binding the parties at once to perform the agreed terms 'whether the contemplated formal document comes into existence or not, and to join (if they have so agreed) in settling and executing the formal document; and in the second case a contract binding the parties to join in bringing the formal contract into existence and then to carry it into execution. Of these two cases the first is the more common. Throughout the decisions on this branch of the law the proposition is insisted upon which Lord Blackburn expressed in Rossiter v. Miller when he said that the mere fact that the parties have expressly stipulated that there shall afterwards be a formal agreement prepared, embodying the terms, which shall be signed by the parties does not, by itself, show that they continue merely in negotiation. His Lordship proceeded: ‘... as soon as the fact is established of the final mutual assent of the parties so that those who draw up the formal agreement have not the power to vary the terms already settled, I think the contract is completed’; see also Sinclair, Scott & Co. Ltd. v. Naughton. A case of the second class came before this Court in Niesmann v. Collingridge where all the essential terms of a contract had been agreed upon, and the only reference to the execution of a further document was in the term as to price, which stipulated that payment should be made “ on the signing of the contract”. Rich and Starke JJ. observed that this did not make the signing of a contract a condition of agreement, but made it a condition of the obligation to pay, and carried a necessary implication that each party would sign a contract in accordance with the terms of agreement. Their Honours, agreeing with Knox C.J., held that there was no difficulty in decreeing specific performance of the agreement, “ and so compelling the performance of a stipulation of the agreement necessary to its carrying out and due completion”; see also O’Brien v. Dawson.”
106 Professor Carter, in his work Carter on Contract, has stated:
“In recent years it has been suggested that there is a fourth category of case [beyond the four referred to by their Honours in Masters v Cameron], namely, one in which there is an agreement subject to contract where the expectation is that the parties may include further terms in the formal executed agreement.”
107 The learned author refers to a number of authorities, including Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 (affirmed sub nomGR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631, CA) and a number of other authorities. ([05-015] 12,049, Service 38).
108 The professor is sceptical as to the analytical validity of this fourth category, and continues:
“It is, of course, open to the parties to any agreement to vary its terms. Perhaps the acknowledgment of that feature explains the very odd fact that more cases have been placed in the fourth category than any other category. Even allowing for changes in contract practices since the decision, it is difficult to accept that in Masters v Cameron the High Court omitted from its discussion the most populated class of case.” (Ibid)
109 Here, the contention of the defendant counterclaimant, Mr Shi, through his counsel, Ms Crafti, is that the parties made a contract for the sale of the TSC business, or alternatively TSC’s share capital, which was enforceable despite the contemplated formal agreements’ not having been executed, as falling within the fourth Masters v Cameron category. (Defendant’s closing submissions (“DCS”) [10])
110 She referred to a recent decision of the Court of Appeal in The Edge Development Group Pty Ltd v Jack Road Investments Pty Ltd [2019] VSCA 91 and Nurisvan Investment Limited v Any Option Holdings Limited [2017] VSCA 141 [103]. (DCS [11]) She said the two documents said to constitute the agreement were not mere memoranda or proposals, as Mr Wu would have it, but shows language consistent with a concluded agreement. (Ibid)
111 In context, she said it would be improbable for these documents to record merely exploratory discussions. Mr Wu was seeking permanent residency in Australia via the route of purchasing an existing business. He outlaid substantial sums of money funded both from his own and his wife’s resources. (DCS [12])
112 Ms Crafti referred to Mr Shi’s evidence of having been forced or pushed into signing the second document (T208, L20 and 24), despite his not having planned to do so. (Ibid, L18) She said, “this allegation which is not pleaded only has relevance in circumstances where Mr Wu considers himself bound by an agreement”. (DCS [13])
113 Ms Crafti might have remarked that merely feeling pushed or pressured to commit to a contract or committing to a contract under such pushing or pressure is by no means inconsistent with the formation of an enforceable contract unless there was something improper in the pushing or the pressure.
114 Mr Carew, on behalf of the plaintiff, denied that any contract (except perhaps for some “trial” of the business) was made between the parties. First, he drew attention to the contemplation that there would be a formal agreement which in the event never came into existence. (Plaintiff’s closing submissions (“PCS”) [34])
115 Inferentially, this would place the arrangements between the parties in the third Masters v Cameron category, such that no contract would come into existence until the contemplated formal document was executed.
116 He referred to the statement of Mr Shi in a WeChat exchange on 4 November, “I hope we can sign the agreement reviewed by the lawyers and hand over the business for good”. (CB 318)
117 Mr Carew also referred to clause 10 of the second document: “In the event of a conflict with this agreement, this agreement shall prevail”, (CB 163) and his statement that this second document would prevail even over a legally drawn agreement prepared by his solicitors, Mills Oakley. (T388, L4-5, PCS [35])
118 He referred to clause 8 of the second document, which stated: “Once the formal agreement prepared by a lawyer is signed by the two sides and the deposits received, company’s legal representative, the lease and other transfer formalities will be updated”. (CB 163)
119 He said this made “it clear that certain fundamental matters, including a lease, were not proceeding absent execution of the formal agreement”. (PCS [35])
120 Mr Carew also stressed that the Counterclaim as pleaded relied solely upon the two documents annexed to these reasons, and was not said to be constituted by any of the memoranda executed by the parties contemporaneously with the second document.
121 Professor Carter, in his work on contract [Carter on Contract [13-100] 30,145-6 service 12], has suggested that post-contractual conduct may be admissible on the question of whether the parties have in fact made a contract. He referred to Barrier Wharfs Limited v W Scott Fell & Company Limited (1908) 5 CLR 647; Lennon v Scarlett & Co (1921) 29 CLR 499; B Seppelt & Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9147; Terrex Resources NL v Magnet Petroleum Pty Ltd [1988] 1 WAR 144, 160 per Kennedy J; Elmslie v FC of T (1993) 118 ALR 357, 368 per Wilcox J; Darter Pty Ltd v Malloy [1993] 2 Qd R 615, 619; Hughes v NM Superannuation Pty Ltd (1993) 29 NSWLR 653. The Professor referred to these authorities in his analysis of exceptions to the parol evidence rule. The Victorian Court of Appeal, however, seems to have taken a more restrictive view on the admissibility of post-contractual conduct as evidence of whether a contract has in fact been made or not. In Nurisvan Investment Ltd v Anyoption Holdings [2017] VSCA 141, the Court, Osborn, Santamaria and Kaye JJA said, in analysing whether a document styled “Heads of Agreement” constituted a concluded contract, the question whether a concluded contract had been made:
“… was to be determined, objectively, from the text of the document, construed in the context of the circumstances in which it came into being. In such a case, and subject to one qualification, it is difficult to understand how subsequent negotiations between the parties, and, in particular, their subsequent attitude to the Heads of Agreement, could be determinative of the question whether, at the time the document was executed, it was intended to be a binding contract between the parties.”
122 Their Honours explained the “one qualification” to this proposition as follows:
“… the subsequent negotiations and communications between the parties, and in particular the draft Share Sale Agreements that passed between them, would be relevant, from an evidentiary point of view, to demonstrate the nature and extent of the terms, that might be necessary for the conclusion of Share Sale Agreements, that were not included in the Heads of Agreement.” [110] and [111]
123 In Agricultural & Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570, 582, Gummow, Hayne and Kiefel JJ said at [35} that it was not legitimate to use as an aid to the construction of a contract anything which the parties said or did after it was made. As to this authoritative statement by a majority of the High Court, it may be said, that it does not directly touch upon the issue before the Court in this case. The question is not what is the true construction of a contract admitted to exist, but whether there was a sale contract at all. The exception which the Court of Appeal in Nurisvan admits as existing would not appear to be engaged in the present case. In Nurisvan the question was whether the “Heads of Agreement” constituted a concluded contract. Here, as Mr Carew has observed, the allegation is of a contract constituted by two written documents, translations of which are annexed to these reasons. It is not alleged, for instance, that the contract relied upon by the defendant in its Counterclaim was partly oral or created by an exchange of correspondence. Given that the singular includes the plural is a general principle of construction, the analogy with Nurisvan would appear to be complete. Conduct of the parties after the making of the alleged contract must therefore be put aside.
124 It will be recalled that Mr Carew sought to rely upon the evidence of Mr Shi that clause 10 of the second document meant that it [the second document] would, in case of inconsistency, prevail over the Mills Oakley document. (PCS [35]) He quoted passages from Mr Shi’s evidence at T290 and 388. One possible interpretation of what Mr Shi was driving at in these portions of his evidence and one which in the entire context of an operation whose objective was to obtain for Mr Wu a permanent residency visa rather than an arrangement which had an ultimately commercial objective, was that the formal lawyer-drafted document’s purpose was not primarily to be a repository of the parties’ rights and obligations, but rather to furnish evidence in support of Mr Wu’s visa application. The informal documents negotiated and subscribed by the parties themselves were to be the true expression of their agreement. This would appear to be the purport of clause 10 of the second document. This view would necessarily require the rejection of the view that execution of the Mills Oakley drafted document or any other such “formal” documentation was to be the marker of the parties’ commitment to a deal. Rather, it was to be merely a formality to provide convincing evidence for the Immigration authorities. I reject the plaintiff’s contention that these arrangements should be consigned to the third Masters v Cameron category or that the contractual arrangements were subject to a condition precedent as to liability that a “formal” contract be executed (which seems to amount to the same thing). I accept the contention of Ms Crafti that this arrangement appears to fit comfortably into the now well-established fourth Masters v Cameron category.
125 I turn now to the question whether the sale contract alleged by Mr Shi is deficient in essential terms so as for that reason to be unenforceable.
126 In Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429, Barwick CJ said of the contract before the Court:
“As long as it is capable of a meaning, it will ultimately bear that meaning which the courts, or in an appropriate case, an arbitrator, decides is its proper construction: and the court or arbitrator will decide its application.” (1968) 118 CLR 429, 436-7
127 Speaking of this passage, JD Phillips J (as he then was) said:
“The court was there concerned with one clause of what was otherwise a continuing contract for the supply of electricity and the matter was approached as a matter of construction of the language used.”
128 His Honour continued:
“Incompleteness is not to be resolved as a question of construction; incompleteness will not be remedied by applying Upper Hunter.”
Toyota Motor Corporation v Ken Morgan Motors Pty Ltd [1994] 2 VR 106, 200
129 Relying on this analysis, Mr Carew said that the alleged sale contract was simply incomplete and the liberal approach to construction evident in authorities such as Upper Hunter could not be prayed in aid to render the contract enforceable.
130 Mr Carew turned first to the issue of price, contending that the alleged contract was incomplete on this ground. He said that no price could be derived from the documentation. Mr Carew said:
“If it is thought that the price was agreed to be the value of the goodwill and the ‘actual value’ of stock (without having to know the figure on the latter) there still remain obstacles to the contract for which the Defendant contends.” (PCS [43])
131 The starting point for an analysis of the issue of price in this transaction is clause 3 of the first document which refers to the total assets of the company, $341,715.92, plus a transfer fee of $213,736.64, making a total price of $555,452.56. The price was fixed by reference to the assets shown in the balance sheet plus a transfer fee. The translation of the clause begins, “Until 20/09/2016.” This provision was included in the context of the tabling of a lawyer-drafted document attaching a balance sheet made up as at that date disclosing assets of the company of $341,715.92. The phrase “until 20/09/2016” should in context be regarded as a statement that those values were current as at that date and an acknowledgment that there would be a fluctuation in those asset values on later dates. Implicitly the price was to be fixed by reference to asset values which could be regarded as current as at the date on which the relevant shares would be placed under the control of Mr Wu. From Mr Shi’s standpoint, this was a very odd and unsatisfactory way of valuing the TSC business. Axiomatically, the value of a shareholder’s interest is his aliquot share in the assets of the company after its liabilities have been met; that is, the starting point for a share valuation would be the net assets of the relevant company, not its gross assets. A share in a company with very large assets but larger liabilities would be commercially worthless. The question here, however, is not the wisdom of what Mr Shi might have agreed to but rather whether he agreed to what Mr Wu alleges he did. Clause 3 of the first document seems to be clear on this point. The issue just mentioned, however, did not entirely elude the parties. Hence, the subsequent documents which were said to exclude from the transaction accounts payable and receivable by TSC as at the date of the second document and the stocktake. The juridical effect of excluding accounts payable by a company from a sale transaction involving the shares of that company is not immediately obvious. It might be thought, for instance, to constitute an indemnity by the seller against the effect on the value of the shares of the company’s meeting its obligations. Since any contract which was reached has plainly been terminated, no issue along these lines arises, nor is it necessary to consider whether, despite the way in which the Counterclaim was pleaded, these supplementary documents are to be regarded as having contractual force.
132 The price is therefore to be set by reference to the balance sheet value plus a transfer fee. Section 14 of the Goods Act 1958 provides as follows:
“14 Agreement to sell at valuation
(1) Where there is an agreement to sell goods on the terms that the price is to be fixed by the valuation of a third party, and such third party cannot or does not make such valuation, the agreement is avoided: Provided that if the goods or any part thereof have been delivered to and appropriated by the buyer he must pay a reasonable price therefor.
(2) Where such third party is prevented from making the valuation by the fault of the seller or buyer the party not in fault may maintain an action for damages against the party in fault.”
This provision would not have direct effect to the present contract to imply an obligation on the part of Mr Wu as buyer to pay a “reasonable price” for the stock because the present contract, or alleged contract, is one for the sale of shares not the sale of goods. Section 14 provides for sale of goods “at valuation” and requires payment of a reasonable sum “if the goods or any part thereof have been delivered to and appropriated by the buyer”. The section states well known commercial understandings and practices. In fact, as we know, the parties did engage an expert stocktaker to provide a valuation of the stock. There is an issue to which I will turn in due course as to the completion and effect of that valuation. Assuming for present purposes that the valuation was incomplete or ineffective for some reason, that fact in itself would not render the alleged contract incomplete or ineffective for lack of certainty. Issues at stocktake are necessarily posterior to the formation of any alleged contract.
133 The upshot of the stocktake has proved problematic. These events are described at [35] – [40]. The parties agreed that the quantities as recorded by the stocktaker were accurate; the values, however, were in dispute. Hence, those figures were struck through in a stocktake report produced at nine minutes past midnight on 15 October 2016. A further report printed at 10.17pm 15 October seems to have been subscribed to by the parties. Unfortunately, as recorded in the background section, Mr Wu’s evidence was left at the impasse recorded at 12.09am. Neither in-chief nor in cross-examination or re-examination was he asked about the listed stock at CB 149 to 156. As noted above, I did not grant Ms Crafti leave to re-open her cross-examination of Mr Wu when this matter arose in the course of final submissions. The situation is therefore most regrettable. Ms Crafti made lengthy written submissions relative to the rule in Browne v Dunn to the effect that it is a rule of practice but does not go the distance of automatically excluding evidence which is adduced in violation of its terms. And she went further to contend that there was in any event no breach of the rule, a view which I am respectfully unable to accept. Two signatures in Mandarin appear at the end of the stocktake relied on by Ms Crafti. The evidence of Mr Shi was that these are the signatures of Mr Wu and himself. That evidence emerged in re-examination at a point when Mr Carew had no further entitlement to cross-examine Mr Shi. Nevertheless, the matter was of such importance that if it was being disputed by Mr Wu, I would have expected Mr Carew to seek leave further to cross-examine him. Neither at that stage, nor when the matter was raised in final submissions, did Mr Carew seek to renew his cross-examination of Mr Shi, nor did he assert that upon his instructions his client had not subscribed to this version of the stocktake. In those circumstances, despite the regrettable way in which this has emerged, I am prepared to draw the inference that Mr Wu’s subscription indicates his acceptance of the revised stocktake.
134 Part of the case on behalf of Mr Wu was that if there were any contract, which as a matter of primary contention was denied, then such contract was for no more than a “trial” of the business. Were it possible to rely upon post-contractual conduct to eliminate this issue, I would confidently conclude that post-contractual conduct on the part of Mr Wu, such as having the existing security system for the Huntingdale premises removed and replaced, the engagement of staff and the advance of loan funds to the company, would be a contraindication to there having been anything as indefinite as a mere trial. As it is, however, for reasons explained, these matters cannot be treated as probative. Looking at the two documents said to constitute the contract, there is nothing in them which would indicate that a mere trial was being agreed upon. Provisions for the transfer of shares, the designation “Share Sale Agreement” and so on, are entirely in the teeth of any view that this was only a trial. I reject that interpretation.
135 Mr Carew relied upon a WeChat message transmitted by Mr Shi on 4 November stating inter alia, “Also, I hope we can sign the agreement reviewed by the lawyers and handover the business for good.” (PCS [54], CB 320) Assuming that, despite the authority of Nurisvan, this statement can be treated as an admission against interest by Mr Shi, it is equivocal the arrangement evidenced by the two documents entails what Mr Carew described as a “staging of commitments”. (heading above PCS [47]) Particularly when one is dealing with translation it would be wrong to place too much reliance upon a matter of nuance. The reference to “handing over the business for good” could be taken as a reference to the completion of the formalities, to transfer the relevant shares and perhaps to complete the delayed transfer proposed for the following years. On any view, there was to be a “staging” in the passing of ownership. For this and other reasons already given, I do not accept Mr Carew’s conclusion that, “He [Mr Shi] was waiting on execution of the Mills Oakley Contract or such other formal agreement.” (PCS [54]) It would be quite typical of a sale contract and especially a contract which entails deferred terms or “staging” that the contract could become binding between the parties before title to the sale property passed.
136 The payment in RMB made immediately before Mr Wu’s departure to China is not precisely the amount nominated in the first document as the “transfer fee”. It appears, however, to have been treated by the parties as such. Precisely why the figure was somewhat different from the one nominated in the first document was not explained. It could be a simple agreed variation, a fluctuation in exchange rates or perhaps a combination.
137 It follows from what I have said that I reject the contention that the plaintiff is entitled to recover the moneys which he paid to the defendant upon the footing that there was no contractual entitlement on the part of the defendant to receive and retain those moneys.
138 Mr Carew drew attention to the status of the lease for the Huntingdale premises. The lease of those premises was in the name of Healthuper Pty Ltd, a company separate from TSC and controlled by Mr Shi. (CB 410–411) The issue of the lease of those premises is dealt with in the second document with the statement that it is to be “updated” when the formal agreement is signed. This did not happen and, as the narrative above shows, the lease was allowed simply to lapse in 2017 with Mr Shi removing the remaining stock of the TSC business to his personal residence. There might be argument as to precisely what the second document obliged the parties to do relative to the Healthuper lease to have it “updated”. It may be since the cooperation of the third party, namely the lessor, was necessary, that there might have been some difficulty associated with this process. In the event, these matters were not put to the test. The fact which must be regarded as undoubted, that the lease would have created contractual difficulties, does not in itself mean that no sale contract was formed between these parties.
The Counterclaim
139 Difficult issues arise relative to the defendant’s Counterclaim for breach of contract. The damages claimed were losses sustained on resale following termination of the contract. Mr Shi placed the business at TSCLINK Pty Ltd for sale with Central Business Brokers Pty Ltd by an Exclusive Sale of Business Authority dated 8 March 2017. (CB 557) The circumstances surrounding the ultimate sale made by a Contract of Sale of Business dated 15 August 2017 are narrated at [88] to [89] above. One cannot simply equate the result on this sale of business in August 2017 with a resale of the same subject matter as the abortive sale to the defendant. The one was the sale of shares; the other was the sale of the business. Even ignoring this very material distinction, Mr Carew, on behalf of Mr Wu, both in cross-examination and submissions, contended that there had been a failure to mitigate Mr Shi’s loss flowing from the breach of his contract with Mr Wu. This was not pleaded in Mr Wu’s Defence to Counterclaim but issue was joined in the course of the trial on that subject and it is, therefore, a matter proper for me to consider. As noted in paragraph [88], the picture that emerges of TSC’s business in the period after Mr Wu pulled out and the sale was made in August 2017, is of an enterprise with a proprietor who has effectively “dropped his bundle”. Goods were passing their use-by date and therefore becoming far less valuable or perhaps unsaleable. Ultimately, minimal stock was resold and there is no clear explanation of what happened to the rest. The premises at which TSC’s business was conducted was given up and, as Mr Carew correctly observes, any geographic goodwill which attached to that business was thereby abandoned. Mr Carew submitted that one cannot, in a claim for breach of contract, consider that there has been a resale of a business where the identity between the assets originally contracted to be sold and what was ultimately resold, cannot be established. Aside from the issue as to geographic goodwill, he referred to the fact that stock and debtors by their very nature turn over. He cited no authority for that proposition. Ms Crafti contended the opposite but likewise referred to no authority. Whether or not any such broad principle as asserted by Mr Carew exists, I am satisfied that both because of the difference between a business owned by a company and the shares in the capital of that company and the abandonment of the trading premises and the running down of the stock, one cannot find here a resale in the classic sense. There was no suggestion that there was an attempt to resell the shares in TSC. What was ultimately resold was a mere shadow of the business which had operated in the second half of 2016.
140 In my view, the defendant has failed to establish what loss he suffered as a result of breach of the contract which he alleges. As a result he is entitled to no more than nominal damages on his Counterclaim.
141 Mr Carew, on behalf of Mr Wu, contended that Mr Shi’s Counterclaim was misconceived. He said that any loss revealed by the disappointing result of the sale of TSC’s business in August 2017 was a loss suffered by TSC and not by Mr Shi. TSC was the only competent plaintiff to recover such a loss, assuming it could otherwise be established. Mr Wu, as shareholder, could not recover any “reflective loss” which might be evident in the value of the shares which he held in TSC’s capital. Mr Carew referred to Oates v Consolidated Capital Services Ltd [2009] NSWCA 183, Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204, 222-3, and Gould v Vaggelas (1985) 157 CLR 215.
142 In the Prudential Assurance case, the plaintiff brought an action against directors of Newman Industries Ltd alleging that they had inflicted damage on Prudential by means of conspiracy and fraudulent conduct against Newman Industries. The Court, Cumming-Bruce, Templeman and Brightman LJJ said:
“... if directors convene a meeting on the basis of a fraudulent circular, a shareholder will have a right of action to recover any loss which he has been personally caused in consequence of the fraudulent circular; this might include the expense of attending the meeting. But what he cannot do is to recover damages merely because the company in which he is interested has suffered damage. He cannot recover a sum equal to the diminution in the market value of his shares, or equal to the likely diminution in dividend, because such a ‘loss’ is merely a reflection of the loss suffered by the company. The shareholder does not suffer any personal loss. His only ‘loss’ is through the company, in the diminution in the value of the net assets of the company …” ([1982] Ch 204, 222-3)
143 Their Lordships saw their conclusion as flowing from the rule in Foss v Harbottle (1843) 2 Hare C 461. They said:
“This case highlights what the rule in Foss v Harbottle is primarily concerned with, namely, is a plaintiff shareholder entitled to prosecute an action on behalf of the company for a wrong done to it, or ought the action be struck out on the footing that it is for the company and not for the shareholder to sue? That is what Foss v Harbottle itself was about …” ([1982] Ch 204, 219)
144 Oates’ case raised similar issues, though in Australia by then provision had been made in s237 of the Corporations Act 2001 for a derivative action to be brought in the circumstances described in the section. Campbell JA described the litigation as follows:
“Mr Oates wishes to cause CCL Australia to bring proceedings against Messrs Hawkins and Tyne alleging that they had breached fiduciary duties and other directors’ duties owed to CCL Australia, and also to cause CCL Australia, in its capacity as a member of CCL UK, to bring litigation against Messrs Hawkins and Tyne alleging that they had breached fiduciary and other directors’ duties owed to CCL UK.” ([2009] NSWCA 183 [12])
His Honour referred to the rule in Foss v Harbottle in the following terms:
“Under the general law there is a usual principle that only a corporation can sue for a wrong done to it, but there were some exceptional circumstances, recognised in Foss v Harbottle ...” ([2009] NSWCA 183 [16])
145 In Gould v Vaggelas (1985) 157 CLR 215 a husband and wife formed a company to purchase a tourist resort and provided a guarantee mortgage to secure their obligation as guarantors of the company. They alleged that the transaction had been induced by fraudulent misrepresentations by the vendor. The Court distinguished the rule as stated in Prudential Assurance on the ground that the husband and wife were suing for the recovery of a separate and personal loss sustained by them when the vendor enforced the guarantee and mortgage against them, which was not merely reflective of the loss suffered by their company.
146 The principle which emerges from these authorities is that if, upon analysis, the legal wrong complained of was inflicted upon a company, subject to the exceptions which are now to be found in the Corporations Act which have no application here, it is the company that must seek redress, not the shareholder. This all derives from the famous case of Foss v Harbottle. In the present instance, I am inclined to think that the “reflective loss” principle has no application. The premise on which the rule in Foss v Harbottle operates is that the victim of the legal wrong complained of is the company. In the present case, Mr Shi complains that he had a contract with Mr Wu which was breached by the latter. On that assumption, the person who was the victim of the legal wrong was Mr Wu as the innocent party, not TSC which was not a party to the contract at all. It is, however, ultimately unnecessary for me to express a view on this point having regard to the conclusions which I have reached based on other matters.
Costs
147 I have heard no submissions on the question of costs and so I will reserve them.
Final orders
148 I direct the parties within 14 days of this day to bring in short minutes to give effect to these reasons.
ANNEXURE 1
Share sale & purchase agreement
Party A: Xiaqi Shi
Party B: Qintao Wu
After multiple rounds of negotiation between party A and Party B, the following agreement has been reached. The major purpose of this agreement is to show the genuine willingness of each party to conclude this sale and purchase agreement, also to provide a basis for both parties’ lawyers to draft and review a formal agreement:
TSCLINK Pty Ltd run by Party A is in full compliance with Australian laws, which has resulted in Party A successfully being granted a 888 visa;
Party B will purchase 70% of TSCLINK Pty Ltd’s shares on 20th September, 2016 and the remaining 30% on 20th September, 2017. Please refer to Clause 2 for the calculating base;
Untill [sic] 20th September, 2016, the company’s total assets=$341,715.92 (book assets) + $213,736.64(transfer fee) = $555,452.56. Please refer to the balance sheet for book assets. Among the assets, stocks will be checked by a third party inventory specialist within a week after the agreement is signed. The value of book assets should be subject to the actual value (including current accounts) calculated after the stock taking on the handover day;
Upon signing this agreement, party B is expected to pay a deposit of $50,000 which is payable to the lawyer’s trust account. Upon signing the formal agreement drafted by the lawyer, party B is expected to pay another deposit of $50,000, and the remaining amount is payable by instalments in 30 days. The remaining 30% of shares is expected to be paid off in the next year, before 20th September, 2017;
Once the formal agreement is signed and the deposit is received, company director’s information, the lease and other relevant paperwork will be updated;
Party A is independent of Party B’s business operation; Party B is responsible for its own profits and losses.
Party A is accountable for all credits and debts incurred before the agreement signing date.
Party B should fully execute this agreement. Party A promises not to conduct in private any behaviours harming TSCLINK Pty Ltd and promises to act by the company rules.
This agreement will be submitted to a legal practitioner. The lawyer will draft a formal agreement following Australian laws. When the agreement is drafted and sent to the lawyer of Party B, it is required to be signed by Party B within 2 days, otherwise, Party A reserves the right to withdraw this agreement.
Party A’s signature: Xiaqi Shi
Party B’s signature: Qintao Wu
Date: 02/10/2016
___________________________________________________________________________________________
ANNEXURE 2
Agreement
Seller: Xiaqi Shi Buyer: Qintao Wu
After multiple rounds of negotiation between the Seller and the Buyer, the following agreement has been reached. This agreement shows the genuine will of both sides.
The Seller agrees to sell, on two separate occasions, all TSCLINK Pty Ltd’s shares to the Buyer. On the date of signing this agreement, 70% of the shares are to be sold and the remaining 30% are to be sold to the Buyer on 15th Oct, 2017;
The Buyer will apply for a 888 visa using this business. The Seller will fully cooperate with the Buyer and support the Buyer for the whole time until the visa is granted. All the legal documents signed by the Seller are solely for the purpose of assisting the Buyer with the visa. The Seller shall bear no other responsibilities;
The Seller declares that TSCLINK Pty Ltd run by the Seller is in full compliance with Australian laws, which has resulted in him successfully being granted a 888 visa;
Until the handover date of 15th Oct, 2016, the Seller will be responsible for all credits and debts of the company. The Buyer will be responsible afterwards;
The two sides sign the agreement to buy and sell shares as a Pty Ltd, however, the Seller has been selfmanaging [sic] the business and responsible for its own profits and losses. The seller does not assume joint liabilities arising from Buyer’s operation and management;
Please refer to the appendix for the company’s assets, and refer to the inventory report issued b [sic]the inventory specialist for inventories;
Method of payment: On the date of signing this agreement, the Buyer has already paid a deposit of $50,000 which has been transferred to the Buyer’s lawyer’s designated account. Except for the balance of $100,000 for the 2nd year which be paid off to the Seller before 15th Oct, 2017, all the remaining outstanding balance will be paid off within 30 days of signing this agreement;
Once the formal agreement prepared by a lawyer is signed by the two sides and the deposit is received, company’s legal representative, the lease and other transfer formalities will be updated;
Both sides commits to fully executing this agreement. Neither side shall do anything harming the other and detriment to the development of the company;
In the event of a conflict with this agreement, this agreement shall prevail;
To ensure smooth execution of this agreement, both sides appoint Shaobin Li to be a witness to the oral and written agreements;
This agreement has one Chinese version and one English version with exactly the same content. Every version comes with two copies;
This agreement shall enter into force as of the date of signature.
Seller’s signature: Xiaqi Shi
Buyer’s signature: Qintao Wu 3709 0219 7212 2715 13(Chinese ID card number)
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