Zhan Wang Australia Pty Limited v Jun Li

[2010] NSWDC 58

CITATION:	Zhan Wang Australia Pty Limited v Jun Li [2010] NSWDC 58
JUDGMENT DATE:	16 April 2010
JURISDICTION:	District Court of New South Wales
JUDGMENT OF:	Cogswell SC DCJ
DECISION:	I dismiss the proceedings.
CATCHWORDS:	CIVIL LAW - partnership agreement - construction of commercial agreements - whether there was a variation in contractual arrangements by discussions between parties - nature of payments made - pleadings - need to plead matter which may take party by surprise
LEGISLATION CITED:	Uniform Civil Procedure Rules 2005 r 14.14
CASES CITED:	Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407
PARTIES:	Zhan Wang Australia Pty Limited Jun Li
FILE NUMBER(S):	5839/2008
COUNSEL:	Mr R.D. Wilson for the plaintiff Mr Tzovaras for the defendant
SOLICITORS:	Mr Kitching for the plaintiff

JUDGMENT

1. The plaintiff carried on business of importing and exporting tiles. The business was based in Hong Kong. One of its customers was the defendant who had a business of selling tiles in Australia.

2. It became convenient for the plaintiff and defendant to enter into a partnership arrangement. The general idea was that the plaintiff would supply tiles from China, which would be cheaper for the defendant than sourcing them in Australia. The plaintiff would make a capital contribution of $150,000 to the defendant’s business. In exchange the plaintiff would receive a fifty per cent share of the defendant’s business. It would also be helpful for the plaintiff’s principal to conduct a business in Australia, because she wanted a visa to live here. The arrangement was that if the visa was eventually refused then the partnership between the plaintiff and the defendant would terminate. The plaintiff would receive back its $150,000 contribution and the defendant would receive back the fifty per cent share of the business.

3. As it happened, the plaintiff made its capital contribution by way of goods supplied to the defendant, but not paid for by the defendant. The parties acknowledged in writing that four container loads of goods were not paid for by the defendant, and would represent the plaintiff’s contribution. The four containers were identified and because the parties traded in American dollars the total amount was noted in US dollars. It was also noted that the amount in US dollars was slightly more than the agreed contribution of $150,000 Australian to the partnership.

4. The parties traded, but eventually the plaintiff’s principal’s visa was refused, prompting a termination of their business relationship. At that point the parties fell into dispute and the plaintiff has sued the defendant for the capital contribution of $150,000.

5. Three issues have emerged which I have to resolve in this judgment. Those three issues are these:
1 Whether any event had occurred which gave rise to the liability of the defendant to repay the capital contribution to the plaintiff;
2 Whether the capital contribution was to be refunded in the form of Australian dollars or in the form of American dollars;
3 Whether the defendant had made any partial repayment of its capital contribution.

6. Dealing with the first issue, there are three documents which are important in resolving this. The first is a deed dated 1 December 2005. The parties to the deed are the defendant, the plaintiff and Xuan Li who is the plaintiff’s sole shareholder and director and the person whom I have referred to as the plaintiff’s principal. The second document is a letter from the plaintiff’s solicitors to the defendant dated 17 December 2008. The third is a letter from the defendant’s solicitors to the plaintiff’s solicitors dated 18 February 2009.

7. The deed dated 1 December 2005 recorded an agreement that it amended all earlier agreements between the parties in relation to the carrying on of the business. After certain other agreements were noted, cl 6 recorded the following:

“ The parties agree that this Agreement will terminate upon a response from the Department of Immigration, regarding the approval or rejection of 457 visa to Lin. The sum of $150,000 contribution to the Business will be refunded by Jun Li within 14 days upon that Xuan Li or/and Zhan Wang Australia Pty Limited returns 50% share of the business to Jun Li and changes the business from partnership to sole trader.”

It will be apparent from cl 6 that it is not clear. The document was drafted by the defendant and provided to Xuan Li to sign on behalf of the plaintiff. What is not clear about cl 6 is whether the sum of $150,000 is not payable until fourteen days have expired after returning of the business or whether the $150,000 and the return of the business should occur at the same time. Both interpretations are arguable and were argued on behalf of the plaintiff and the defendant in this case. I will, after referring to those arguments, come to the two other documents, namely, the items of correspondence.

8. Returning to the meaning of cl 6, the defendant argues that no liability has arisen at all for it to repay any money. It argues that whatever the meaning of cl 6 might be, both parties have approached this litigation upon the basis that liability to repay $150,000 does not arise until fourteen days after the return of a fifty per cent share of the business by the plaintiff to the defendant. It points, in support of this argument, to the items of correspondence.

9. One item is the letter I referred to, namely, the letter from the plaintiff’s solicitors to the defendant dated 17 September 2008. In that letter, the plaintiff’s solicitor said the following to the defendant after referring to the history of dealings between the parties:

“Pursuant to cl 6 of the 2005 Deed ZWA’s capital contribution of $150,000 must be refunded by you within 14 days of the transfer of ZWA’s 50% share in the partnership business.

Accordingly, we enclose in escrow conditional upon receipt upon you of a refund of ZWA’s capital contribution in the sum of $150,000, the following:

(1) Executed Transfer of Interest in Business for the transfer of our clients 50% share in the NST Business; and
(2) Incomplete application to the Department of Fair Trading.”

The letter then requested a bank cheque for $150,000.

10. The defendant’s argument relies upon the interpretation of cl 6 of the deed which means that the $150,000 does not become payable at all until the plaintiff “returns fifty per cent share of the business”. The defendant argues that such a return has not yet occurred, despite the plaintiff’s efforts in enclosing the documents which it did with its solicitors letter of 17 September 2008. The defendant argues that in its terms the return of the business was conditional. The documents were described in terms as “in escrow”. The return was conditional, not absolute, argues the defendant, and therefore cl 6 of the deed of 1 December 2005 has not been activated and the plaintiff is not liable to repay the $150,000.

11. On the other hand, the plaintiff argues that it has done all it can to return its fifty per cent share of the business and that it has therefore satisfied cl 6, thereby giving rise to the liability for a refund. It points to its solicitor’s letter of 17 September 2008 enclosing, in escrow, its executed transfer of the business interest.

12. During the course of addresses, and from my recollection not before, the plaintiff argued for an alternative construction of cl 6 of the deed. It argued that the clause should be read as if a full stop appeared after “14 days”. The effect of such a construction, the plaintiff argues, is that as soon as the $150,000 contribution is refunded, the fifty per cent share of the business would be returned. In other words, it would be a transaction something like the settlement of a conveyance, whereby the asset and the consideration for the asset are exchanged simultaneously.

13. The defendant argues that this alternative argument on the part of the plaintiff is not available to it, because the litigation has been conducted on the basis that the liability does not arise until after the transfer of the business. In other words, the defendant argues that the litigation up to that point had been conducted on the basis of a construction of the deed of 1 December 2005 which was the opposite construction to the plaintiff’s alternative argument.

14. I think the plaintiff is right about its construction point, but the defendant is right about the pleading point.

15. I will deal with the construction point first. Commercial agreements should be given a businesslike or commercial construction. This principle was recently reaffirmed by the Court of Appeal in Franklins Pty Ltd v Metcash Trading Limited [2009] NSWCA 407. A construction of a commercial agreement which exposed one party to the transaction to the liability to part with a substantial asset, namely fifty per cent of a business, in exchange for a promise to pay the consideration for that asset at a future time, is not in my opinion a businesslike construction. A businesslike or commercial construction to a clause in an agreement involving an asset worth some $150,000 is more likely, in my opinion, to require a simultaneous exchange of the asset for the consideration. Such a construction would be obvious if “14 days” was followed by a full stop.

16. The alternative construction - that the return of the fifty per cent share of that business would occur within fourteen days after the refund - would require a more elaborate rearrangement of the wording of the clause. It would require the deletion of “upon that” and its substitution with “of” and would require “returns” being substituted with “returning”.

17. I think the plaintiff’s argument is not only one which is a commercial construction; it is consistent with what, it seems to me, has occurred in the drafting of the document. I infer that what has happened is that the defendant, herself not a lawyer, has referred to other legal documents and has carefully drafted the document but has probably omitted the full stop after the expression “fourteen days” and, as well, omitted to commence the following word as a fresh sentence.

18. However, as I said, I think the defendant makes a telling point about the state of the pleadings. The plaintiff asserted in its statement of claim that it had delivered a document “for the transfer of the plaintiff’s fifty per cent share” and in particularising that assertion referred to its solicitor’s letter of 17 September 2008. As I said, that letter written to the defendant asserted that “$150,000 must be refunded by you within fourteen days of the transfer”. As late as 18 February 2009 the defendant’s solicitors wrote to the plaintiff’s solicitors about its defence to the plaintiff’s claim arguing that:

“ any liability to repay moneys arises upon the transfer of the half interest in the business pursuant to the cl 6 of the deed dated 1 December 2005 but that such transfer has not occurred .”

Clearly in my opinion both parties were entering this litigation upon the basis that the transfer had to occur first.

19. When the plaintiff argued for the alternative construction of cl 6 - the one which I regard as more commercially acceptable - the defendant said that such a construction was not available to agitate so late in the proceedings. Had there been an earlier suggestion of an alternative construction the defendant would have explored that in cross-examination. Although declarations of subjective intention of a party are not admissible, surrounding circumstances can be examined if they enable the meaning of the words used in the documents to be ascertained as that meaning would appear to a reasonable person who knew the facts concerning those circumstances. See Franklins v Metcash Trading at [19-23] of the judgment of Allsop P and at [361-362] of the judgment of Campbell JA. Giles JA relevantly agreed.

20. One of the arguments advanced by the plaintiff in support of its commercial construction of the deed was the unlikelihood of the plaintiff accepting an agreement whereby it was required to return the business without receiving the money simultaneously or beforehand, especially since the plaintiff’s principal would have to leave the country. It was pointed out that the plaintiff’s principal would be left without an interest in the business and would have to litigate for the debt from Hong Kong without that interest. The objective facts of whether or not there was a requirement for the plaintiff’s principal to leave Australia after the refusal of a visa, and if so within what period of time, might have been a matter which the plaintiff’s principal would be cross-examined on, had the defendant known that the plaintiff would rely upon the alternative construction. There may have been other associated evidentiary matters which the defendant may wish to have explored.

21. Rule 14.14 of the Uniform Civil Procedure Rules provides that in the statement of claim “the plaintiff must plead specifically any matter that, if not pleaded specifically, may take the defendant by surprise.” The plaintiff’s statement of claim specifically pleads a construction of the deed which asserts that the liability to repay did not occur until fourteen days after the transfer. This was confirmed in later correspondence. In my opinion it would be unfair to the defendant to allow the plaintiff to rely upon an alternative construction at this stage. That is because the defendant was prejudiced by not being allowed to explore the surrounding circumstances in cross-examination or in other evidence.

22. In my opinion therefore cl 6 of the deed has not been triggered and the liability or any liability on the part of the plaintiff to repay the defendant has not accrued.

23. Despite that opinion resolving this matter, I regard it as prudent to include in my reasons my opinion upon the other two issues which were litigated by the parties. Those remaining two issues are whether the capital contribution was to be refunded in the form of Australian dollars or in the form of American dollars and whether the defendant had made any partial repayment of its capital contribution.

24. Under the agreement between the parties the defendant would have to repay $150,000 in the event of the agreement being terminated. The defendant argued that the original agreement to that effect which was contained in a deed dated 13 December 2002 was varied by a further agreement made on 13 December 2003 by which the defendant agreed to refund to the plaintiff the amount of $US107,162.91.

25. The plaintiff claims that it has always been owed $A150,000 and that there was no variation of the agreement to US dollars. The defendant in its argument relies on a document dated 8 December 2003 but signed on behalf of the plaintiff on 13 December 2003 which recorded an agreement by the plaintiff to contribute an initial sum of $150,000 to the business. It noted that the contribution “could be in the form of goods importing containers”. It then recorded four containers totalling $US107,162.91. It noted that that was the equivalent of $A153,089.87.

26. In my opinion the letter of 13 December 2003 did not have the effect of varying the agreement of 13 December 2002, so that the amount was to become repayable in US dollars rather than Australian dollars. I think the plaintiff is right in arguing that the 13 December 2003 letter does not make any reference to the defendant’s obligation to refund $A150,000 which is provided for in the deed of private agreement of 13 December 2002. In fact the 13 December 2003 letter refers to another document, namely a partnership agreement of 12 December 2002. I think the plaintiff is right to argue in its written submissions that the “specific reference to the Partnership Agreement and the omission to refer to the Deed of Private Agreement of 13 December 2002 in the December 2003 Letter provides...a compelling basis in support of the Plaintiff’s case that such letter does not constitute an agreement to vary the Deed of Private Agreement of 13 December 2002.”

27. In addition, as the plaintiff points out, that letter was inconsistent with the terms of the deed of private agreement of 1 December 2005 and also inconsistent with the treatment of the capital contribution in the financial statements of the partnership which were exhibited in these proceedings. There is no reference in those documents to any amounts in US currency.

28. Even if the letter of 13 December 2003 was effective in changing the original agreement between the parties it was superseded by the deed of private agreement dated 1 December 2005. That document is signed by or on behalf of both parties and its first condition provides that the “terms of this agreement amends all earlier agreements between the parties in relation to the carrying on of the business”. It goes on to provide that the refund due by the defendant upon the termination of the agreement will be the “sum of $150,000 contribution to the business”. As the plaintiff points out, the 1 December 2005 deed was drafted by the defendant.

29. However, a more significant question, it seems to me, is whether there was a variation in the contractual arrangements between the parties by reason of any discussions which occurred in April 2008 and any payments made as a result of those discussions. The answer to that question involves exploring the nature of the payments which were made in April 2008 and which are claimed by the defendant to be partial repayments of its capital contribution. A convenient course will be therefore to examine the nature of those payments before returning to the question whether or not there was some variation in the contractual arrangements by virtue of any discussions which occurred before those payments were made.

30. It is common ground between the parties that two payments were made in April 2008: one on 24 April and one on 30 April. The evidence is contained in annexures F and G to the affidavit of the defendant dated 6 August 2009. On 24 April 2008 there was a telegraphic transfer of $US25,183.90 from Stone World Method to Forever Group International Limited and on 30 April 2008 there was a transfer of $25,000 from Stone World Method to Forever Group International.

31. The plaintiff claims that those transfers of funds represented payments for goods supplied in the course of business. The defendant claims that those payments were part repayment of the capital and followed discussions between the defendant and Xuan Li. The defendant claims that the effect of those discussions was to vary the contractual arrangements between the parties so that the repayment of capital by the defendant would be in US dollars rather than for the amount in Australian dollars of $150,000 and that the repayments would be in instalments.

32. The defendant in her affidavit of 6 August 2009 gives evidence of receiving a telephone from Xuan Li in April 2008 where Xuan Li advised her that her visa had been refused. The defendant claimed to have said to Xuan Li “You give me the 50% back and I will pay you for the four containers”. Xuan Li asked whether the defendant could pay part of the money for the transfer of the partnership to which the defendant replied that she would “pay you by four instalments of $US25,000 each, one being paid each week. You can give me the transfer documents after I make the first payment.”

33. The defendant says that Xuan Li agreed to this. The defendant says that she then asked Xuan Li “Where do I send the money?” and Xuan Li replied “I will ask Ms Nie to send you the details”. Xuan Li in evidence described Ms Nie as the secretary/manager of her business in Hong Kong.

34. The defendant annexes to her affidavit an email from the plaintiff’s employee, Ms Nie, to the defendant’s husband, Roger Ding, giving details of what is described as “our bank information”. The account name specified was Forever Group International Limited. The email was sent on 23 April 2008 at 11.12am. At 11.21pm on the same day Roger Ding sent an email to Stone World Method with a direction to send by telegraphic transfer “$25,000 to Forever Group account every week until $107,161.91 pay in full”. On the same day at 10.09pm the defendant sent an email to Xuan Li telling her that the first telegraphic transfer “for the total of USD107,162.91, USD 25,000, has been transferred to your Forever account as requested.” In fact that transfer occurred on the following day but I do not see anything turning on that.

35. In the same email the defendant sent Xuan Li an attachment which became exhibit R in these proceedings. That document purported to be a deed of private agreement, but it was never signed. It provides for the plaintiff to return fifty per cent of the business to the defendant and to change the business from partnership to sole trader and for the defendant to send by telegraphic transfer $US107.162.91 to the account of Forever Group International Limited.

36. The defendant goes on to say in her affidavit that she made a telephone call to Xuan Li later in April 2008 asking whether she had received the first payment to which she received an affirmative answer. The defendant said she asked Xuan Li to come in and sign the documents “to transfer the fifty per cent to me”. Xuan Li then said she was busy packing and would come in the following week and asked whether the defendant could make the second payment next week and the defendant agreed. The second payment was sent on 30 April 2008.

37. Five days later the defendant emailed Ms Nie telling her that “Xuan Li did not come to sign the agreement for the change of business”. The defendant told Ms Nie that she was “writing to inform you that payment is stopped this week”. She said she would “not organise payment to you until Ms Xuan Li comes to sign the paper, which was agreed already.”

38. In her evidence Xuan Li acknowledged in cross-examination that the defendant had said to her that she should come and sign and then she would get paid. Xuan Li said that she had not been aware before these proceedings of the email from Ms Nie sending the bank details to the defendant’s husband. Xuan Li appeared to become more uncertain in cross-examination and when it was put to her that the defendant said that she had to come and sign and after already receiving the first payment she said she could not remember. In re-examination when asked about whether she regarded the two payments of roughly $US25,000 being payment for goods and whether she knew specifically what goods the payments might be for she said that she was not clear about that.

39. The defendant’s husband, Roger Ding, gave evidence that he received a telephone call on the landline one day in April 2008 during the morning. It was Xuan Li telling him that her visa had expired and that she did not wish to appeal. They proposed to move to Hong Kong. At the same time his mobile phone began to ring and he passed the landline to his wife to complete the call with Xuan Li. He overheard his wife say “We have terminated the contract. I will pay for the four containers of $US25,000 each. You come over and sign the deed after the first payment.”

40. Xuan Li also denied in her affidavit and in her evidence the substance of the telephone calls which amounted to an agreement to repay the capital in the form of US dollars representing the value of the four containers.

41. In my opinion the defendant’s account of these transactions should be accepted. The effect of that was the contractual arrangements were varied so that the debt should be repaid in US dollars and two instalments were paid. The arrangement was obviously convenient for both parties and therefore, in my opinion, was supported by consideration.

42. I accept that the defendant’s account is more likely to be true because it is supported by the correspondence and documents which were exchanged between the parties before the dispute arose leading to this litigation. Also, I was impressed by Roger Ding and by the defendant as witnesses and regard the defendant’s account of the conversation as corroborated by Mr Ding.

43. I am therefore of the opinion, so far as the second issue is concerned, that the agreement between the parties was that the contribution was to be refunded in the form of American dollars, rather than Australian dollars and to the amount agreed as the value of the four containers referred to in the document dated 8 December 2003.

44. The final issue to determine is whether the defendant had made any partial repayment of its capital contribution. In my opinion the two payments were by way of refund of the capital contribution.

45. That conclusion is obvious in my opinion from the course of dealings between the parties as evidenced by correspondence which occurred at the time, before any dispute arose. The email from the defendant’s husband to Stone World, which was a customer of the defendant, at 1.21pm on 23 April 2008, directs Stone World to pay “Forever Group account every week until USD 107,162.91 pay in full”. There is obviously a coincidence between the figure of $107,162.91 specified in that email and the exact same amount specified in the letter dated 8 December 2003 signed by both parties, and providing for the “amount US $107,162.91 for these four containers will be refunded upon termination of the agreement”. The defendant’s husband passed on to Stone World the account details which had been sent to him by the plaintiff earlier that day. Although the defendant had known those account details since they were sent by the plaintiff by a fax dated 26 July 2004, there is very little evidence of any dealings between the parties since then. It is therefore understandable that the plaintiff needed to reacquaint the defendant with its account details.

46. The plaintiff’s position is that it is still owed the $150,000 Australian and that no repayment of the capital has been made. It says that the two repayments in US dollars in April 2008 were payment in the course of business for goods supplied. But, as the defendant’s written submissions argue, there is no evidence either by way of invoices or a witness’s account to specify for what goods delivered the payments were made. I find that more convincing than the evidence of Ms A Lek Kho, which indicated that the defendant often paid lump sums in repayment of its debt to the plaintiff. I should add here that I am not critical of Ms A Lek Kho. I found her to be a witness who was making every attempt to tell the truth as she saw it. She was a cousin of Xuan Li’s husband and assisted in the plaintiff’s business because of her command of English. However, the exchange of correspondence which did not directly involve her is, in my opinion, a more reliable source for me to determine what the legal effect is of the transactions between the parties.

47. I also accept the defendant’s argument that it is unlikely that the repayments were for the goods supplied because it would have resulted in an overpayment by the defendant to the plaintiff on its running trading account of an amount of over $30,000 American.

48. The plaintiff argues that there is no evidence of any conversation between the plaintiff and the defendant indicating that the payments were to be regarded as a refund. That is not the case. The defendant herself gives evidence of a conversation between her and Xuan Li and that evidence is supported by Mr Ding who gave evidence of what he heard at his end of the conversation.

49. The plaintiff further argues that it is significant that the defendant chose to call no witness from Stone World. It is noted from the email correspondence that two persons at Stone World were recipients of the email from the defendant’s husband, directing the payments to be made. I do not regard their absence from these proceedings as significant. That is because I cannot see how such witnesses could assist the defendant on this issue. The principal dealings were between the plaintiff and the defendant and the contractual arrangements which this dispute arises from were similarly between the plaintiff and the defendant. It is not obvious to me that the defendant calling a witness from Stone World would throw any light on the defendant’s dealings with the plaintiff.

50. The conversations did, in effect, result in a variation of the Deed of Private Agreement dated 1 December 2005. But the parties were always able to vary the contractual relations between themselves. There were a number of variations over the time in their contractual relationship. This is hardly surprising. At different stages the amount owing by the defendant to the plaintiff was expressed in terms of $150,000 Australian and in terms of $107,162.91 US. It is not surprising that there may have been some discussions between the parties as to which of those sums would represent the amount owing and how it should be paid.

51. The plaintiff argues that these repayments were in fact made to Forever Group International rather than the plaintiff. Forever Group International Limited was a Hong Kong trading company of Xuan Lin and her husband which also exported stone from China to Australia. As I said, Stone World was a customer formerly of the defendant and then of the partnership business. Ms Nie, at specific request of the defendant, directed that repayments should be made to the account of Forever Group. It did not matter how the defendant paid that. As it happened it paid it by directing one of its customers to pay money directly into the account specified by the plaintiff. The defendant argues that in its defence the defendant claims that it owes nothing to the plaintiff and that an argument to the effect that partial repayments had been made is inconsistent with that position. But the correspondence, namely the letter of 18 February 2009 from the defendant’s solicitors to the plaintiff, which became exhibit 5 in these proceedings, made the alternative position clear.

52. I am therefore of the opinion, so far as the third issue is concerned, were it necessary to decide that issue, that the defendant has made a partial repayment of its capital contribution to the plaintiff, namely $53,421.05 US.

53. For the reasons I have given concerning the first issue, I repeat I am of the opinion that the plaintiff has not made out its case that the defendant is liable to repay it any money and I therefore dismiss the proceedings.

That’s it. Date for?

KITCHING: Your Honour I haven’t come armed with any dates. I just wonder if we can do it through your Honour’s associate.

HIS HONOUR: Yes you can.

KITCHING: It may resolve itself. If the costs are going to follow the event it’s just a matter of the indemnity costs with the correspondence.

HIS HONOUR: I am not privy to that, obviously. So what do you want to do Mr Kim?

KIM: I believe Mrs Tsovaras is overseas. We will have to get in touch.

HIS HONOUR: Yes. Mr Kitching suggested that you can agree on a date with my associate. It might be that you can agree on the order I make, in which case I will make the order as you agree. But you will have to come to court for me to do it. It might be that there needs to be an argument about it, in which case you will come to court obviously again.

ADJOURNED

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