Zhang v Hu
[2023] VCC 935
•7 June 2023
fplaintiff
| IN THE COUNTY COURT OF VICTORIA AT Melbourne COMMERCIAL DIVISION | Revised Not Restricted Suitable for Publication |
General List
Case No. CI-21-04017
| Xiaohua Zhang | Plaintiff |
| v | |
| Conghan Hu | Defendant |
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JUDGE: | Her Honour Judge Burchell | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 18 and 19 January 2023 and written submissions dated 13, 16 and 20 March 2023 | |
DATE OF JUDGMENT: | 7 June 2023 | |
CASE MAY BE CITED AS: | Zhang v Hu | |
MEDIUM NEUTRAL CITATION: | [2023] VCC 935 | |
REASONS FOR JUDGMENT
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Subject:LOANS – AGREEMENTS – DURESS
Catchwords: Whether the plaintiff made a cash advance to the defendant – whether the defendant signed the original loan agreement and receipt under duress – whether the defendant made repayments under the loan – whether the defendant signed the loan repayment agreement under duress – whether the defendant is indebted to the plaintiff.
Legislation Cited: Evidence Act 2008 (Vic) s97(1).
Cases Cited:Zhang v Hu (Ruling) [2023] VCC 248; Re Victoria Station Corp Pty Ltd (2018) 56 VR 26; Jones v Dunkel (1959) 101 CLR 298; Elomar v The Queen (2014) 316 ALR 206 278; Hughes v The Queen (2017) 263 CLR 338; Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40; Barton v Armstrong [1973] 2 NSWLR 598;Smith v William Charlick Ltd (1924) 34 CLR 38; Braam v BBC Hardware [2020] VSCA 164; Thorne v Kennedy (2017) 263 CLR 85; Australia & New Zealand Banking Group v Karam (2005) 64 NSWLR; Doggett v Commonwealth Bank of Australia (2015) 47 VR 302; North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705; Mason v New South Wales (1959) 102 CLR 108; B & S Contracts and Design Ltd v Victor Green PublicationsLtd [1984] ICR 419.
Texts Cited: LexisNexis, Halsbury's Laws of Australia, Nature and Formation — Agency; LexisNexis, Halsbury's Laws of Australia, Duress in Contract — General.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | D Gration | James Partners Lawyers |
| For the Defendant | S Clement | Oakfair Lawyers |
HER HONOUR:
Summary and Outcome
1In this proceeding, the plaintiff (“Zhang”) alleges that he advanced ¥9.5m to the defendant (“Hu”) by way of a loan agreement and supplementary loan agreement dated 10 September 2019 and 31 March 2021 respectively. Zhang alleges that Hu was required to repay $1.9m plus interest and that, save for two part-payments totalling $50,000.00, the balance of $1.85m remains due and payable.
2Hu denies the existence of the loan and says that Zhang did not advance any money to him. Hu says that the alleged debt arises out of an unsuccessful loan advanced in 2017 by Zhang to an unrelated company, the investment of which was brokered by Hu’s business. The result of this loan was that Zhang eventually recovered his principal loan of $5.1m, however, did not receive any interest. Hu says that Zhang has sought to make the defendant responsible for the loss of his expected interest by way of this current proceeding. Further, that Zhang engaged in a course of demands, threats and harassment, which caused him to sign documents in September 2019 and March 2021 that purported to record the loan of ¥9.5m. It is these loan documents that Zhang relies on.
3In my judgment, and on the evidence before the Court, the existence of the loan has not been made out. Further and in the alternative, I find that the loan agreement, supplementary loan agreement and two payments were procured under duress. My reasons in respect of each ground are set out below.
4Accordingly, I order that the proceeding be dismissed. I also order that Zhang pay Hu’s costs of and incidental to the proceeding on the standard basis, in default of agreement, unless either party has a basis for seeking a different order as to costs. I will invite the parties to prepare draft orders to give effect to these reasons and will determine any issue concerning costs on the papers.
Factual Background
5Zank & Company Pty Ltd (“Zank & Co”) is in the business of providing a range of finance solutions, including funds management, private lending, and mortgage brokerage services. Until August 2017, there were two directors of Zank & Co: the defendant, Hu, who worked from Sydney, and Xiaohu Liu (“Tiger”) who worked in the Melbourne office. Tiger ceased to be a director of Zank & Co in or around August 2017 and Hu remains the only director of Zank & Co.
6Garden Street Development Pty Ltd (“Garden Street Development”) owned a potential development site in Southport, Queensland, and was referred to Zank & Co for the purpose of obtaining finance. Tiger handled that matter on behalf of Zank & Co.
7On 3 July 2017, Zank & Co made a conditional finance offer to Garden Street Development for a proposed $5.1 million loan. Zhang became the nominated lender for that $5.1m loan and he advanced $5.1m to Garden Street Development. Zhang was a contact of Tiger.
8According to Zhang, this loan was paid electronically and there were other investors in China who had contributed to the loan. The loan is recorded in various loan documents, including a facility agreement, guarantee, and security agreement. The loan was to be for six months, with the interest rate at 20% and 30% in the event of default. Zhang understood that he would receive around 18% interest on the loan. This was communicated to his investors.
9Tiger left Zank & Co shortly after the $5.1m loan was advanced by Zhang and it was at this point when Hu began to manage the Garden Street Development loan. Garden Street Development defaulted on its loan repayments around October 2017. Hu managed the default and was in communications with Zhang regarding it.
10In around mid-2018, Zank & Co commenced mortgage repossession action for Zhang. At this time, the parties became aware of a second mortgage on the Queensland properties belonging to a company called YQC Southport Pty Ltd (“YQC Southport”). YQC Southport was controlled by Jian Hua Jiang (“David”). Hu attempted to cause YQC Southport to buy out Zhang’s interest in the loan, to which a deed of assignment was draw up. YQC Southport was to pay Zhang the sum of $5,780,000.00 in two tranches and Zhang’s assignment would only be completed upon payment of the entire assignment fees.
11Between July 2018 and February 2019, YQC Southport paid $3,393,000.00 to Zhang. YQC Southport was unable to pay the full amount to Zhang pursuant to the deed of assignment and, therefore, the assignment of the interest to YQC Southport was not effected.
12In April 2019, Zhang appointed McGrath Nicol as receivers & managers to Garden Street Development. Colliers were appointed to sell Garden Street Development’s properties as mortgagee in possession on behalf of Zhang. Multiple offers were made for the properties ranging from $1.5m to $1.6m, however, Zhang did not want to sell the properties unless it would repay the outstanding loan amount. The properties were then removed from the market.
13In or around May or June 2019, Hu suggested that he and David form a company and purchase the properties for $1.82m. David and Hu formed Garden Street Holdings Pty Ltd (“Garden Street Holdings”), and the contracts of sale were signed in March 2020, however, settlement did not occur until April 2020.
14On or around June 2019, it became apparent that Zhang would only recover his principal loan of $5.1m from Garden Street Development and not any interest on that loan. Between July and September 2019, it is alleged that Zhang engaged in threatening conduct and harassment by demanding that Hu pay interest that he had lost on the Garden Street Development loan. On 10 September 2019, loan documents were drawn up reflecting a debt owed by Hu to Zhang.
15On 9 and 10 September 2019, Zhang and Hu corresponded about the preparation of a loan document. The total loan sum was for ¥9.5m, which is equivalent to $1.9m. It is alleged that this amount was derived from the Garden Street Development loan, being the unrecovered interest amount that Zhang was expecting over the two-year period from the initial advance in July 2017.
16On 10 September 2019, Zhang attended Hu’s office, and both Hu and Zhang signed the loan document (“the Loan Agreement”). At the same time as the parties signed the loan document, Hu handwrote and signed an acknowledgment of receipt (“Receipt”) of cash from Zhang.
17The terms of the alleged Loan Agreement included:
(a) Zhang would lend Hu ¥9.5m for a period of 14 months;
(b) the loan would be repaid on 31 October 2020 (“the due date”);
(c) the amount to be repaid would be $1.9m;
(d) no interest would be paid on the loan if it was repaid by its due date;
(e) if the loan was not repaid on its due date, interest would accrue at the rate of 15% per year, until the loan was repaid in full.
18Zhang alleges that, between the signing of the Loan Agreement and Receipt on 10 September 2019, ¥9.5m in cash was delivered to Hu’s agent in China. The cash was purportedly delivered by an unidentified person in China, whilst both Zhang and Hu were in Australia. All of the alleged ¥9.5m loaned cash was said to be Zhang’s cash alone, without any supplement from other investors. Hu denies that he received any cash from Zhang.
19In November and December 2019, Hu and David caused $800,000.00 to be paid to Zhang. In April 2020, after the purchases of the properties settled, Zhang had received repayment for all of the principal loan of $5.1m. Hu did not make any repayments of the alleged ¥9.5m loan.
20From around September 2020, Zhang allegedly continued his demands towards Hu about payment on account of the Garden Street Development loan.
21Zhang claims that, in breach of the Loan Agreement, Hu failed to pay the sum of $1.9m by the due date. Zhang says that, on or about 17 November 2021, Hu paid the sum of $30,000.00 and, on or about 4 January 2021, he paid a further sum of $20,000.00.
22On 11 November 2020, Hu caused Zank & Co to pay $30,000.00 to Hua Cheng, Zhang’s mother-in-law. The remittance for that payment shows that the reference is “consultation fee”. On 17 November 2020, Hua Cheng paid $30,000.00 to Zhang. On 11 December 2020, Hu caused Zank & Co to pay $20,000.00 to Hua Cheng. The remittance for that payment also shows that the reference is “consultation fee”. On 4 January 2021, Hua Cheng paid $20,000.00 to Zhang. These payments totalling $50,000.00 were made, as set out above, and are not in dispute between the parties.
23In March 2021, Zhang purportedly prepared a second written agreement which was to supplement the original Loan Agreement (“the Supplementary Loan Agreement”). There is no dispute that each party signed this document. The Supplementary Loan Agreement includes a section headed, “Agreed Loan Repayment Plan 1”, referring to Hu transferring his 25% interest in Garden Street Holdings to Zhang.
24Zhang claims that the terms of the Supplementary Loan Agreement included as follows:
(a) the parties acknowledged that Hu had borrowed ¥9.5m from Zhang and had agreed to repay all principal and interest by 31 October 2020;
(b) interest on overdue amounts would be charged at 15% per annum;
(c) Hu had agreed to repay the loan by a payment of $1.9m by the due date;
(d) Hu had made the payments of $30,000.00 and $20,000.00;
(e) the remaining $1.85m has not been paid;
(f) the parties agreed to two alternative repayment plans:
(i)under the first plan, Hu would grant security over his interest in a company called Garden Street Holdings Pty Ltd, 25% of the equity in the company would be sold, and the proceeds of sale paid to Zhang and any shortfall between the amount paid and $1.85m would be paid within a further 20 days;
(ii)under the second plan, Hu would repay $1.85m in 12 monthly instalments, payable on the 15th day of each month.
25Zhang claims that there were implied terms of the Supplementary Loan Agreement that:
(a) Zhang would forbear from suing Hu under the original Loan Agreement if Hu paid the sum of $1.85m in accordance with the first or second plan; and
(b) Zhang would be entitled to sue Hu forthwith for the full amount owing if Hu did not make the required payments in accordance with the first or second plan.
26Hu alleges that the Supplementary Loan Agreement was procured under duress by reason of Zhang’s conduct (the details of which are set out below). Hu made no payments to Zhang after signing the Supplementary Loan Agreement documents. Zhang’s conduct continued in his attempts to obtain payments from Hu. On 15 June 2021, Zhang visited Hu’s office at Zank & Co. On 15 and 16 June 2021, Zhang sent various text messages to Hu in respect of prospective purchases of the Queensland properties. At this time, in June 2021, Zhang also sent messages to others about Hu.
27Hu had advised Zhang that he had gone to the police and requested all communication be through his lawyer. On 11 August 2021, an Interim Personal Safety Intervention Order (“IVO”) was granted by the Magistrates’ Court of Victoria in Ringwood.
28Zhang claims that, on and from 5 January 2021, the sum of $1.85m remained owing under the loan agreements. By letter dated 26 August 2021, Zhang’s legal representatives sent a letter of demand to Hu for payment of the sum of $1.85m.
29This proceeding was commenced on 17 September 2021. Zhang caused default judgment to be entered in default of defence. Zhang issued a bankruptcy notice relying on that default judgment. Hu applied, successfully, to set aside the default judgment after Zhang refused to provide his consent.
Issues
30The issues, as agreed by the parties, that the Court must determine in this proceeding are as follows.
(a) Did Zhang advance ¥9.5 million to Hu in September 2019?
(b) Did Hu sign the original Loan Agreement and Receipt under duress?
(c) Did Hu make payments of $30,000.00 and $20,000.00 to Zhang in respect of the loan in November and December 2020?
(d) Did Hu sign the Supplementary Loan Agreement in March 2021 under duress?
(e) Is Hu indebted to Zhang for $1.85m plus interest?
Tendency Evidence
31By Notice of Intention to Adduce Evidence dated 16 January 2023, Hu made an application that the Court permit evidence of Zhang’s conduct in June 2021 to assist in the fact-finding process pursuant to s97(1) of the Evidence Act 2008 (Vic) (“Evidence Act”) and for the purpose of proving that Zhang had a tendency to: (1) make threats to Hu; and (2) make repeated and unwelcome visits to Hu’s office (“the Purpose”).
32The Notice dated 16 January 2023 relevantly provided:
“2. The defendant intends to adduce evidence that:
(a) between around August and September 2019, the plaintiff engaged in a course of persistent harassment and threats to the defendant by:
(i) attending the defendant’s business offices daily and engaging in disrupting behaviour and refusing to leave those premises;
(ii) threatening the defendant that if the defendant did not sign a loan agreement, then the plaintiff would (1) continue to attend the defendant’s business offices daily and also the defendant’s home, and (2) use his influence in China to cause harm to the defendant’s family members who are located in China; and
(iii) messaging the defendant’s father to request payment of a sum of money;
(b) between around January and March 2021, the plaintiff engaged in a course of persistent harassment and threats to the defendant in the similar conduct set out in subparagraphs (a)(i) and (ii) above;
(c) in around June 2021, plaintiff engaged in a course of persistent harassment and threats to the defendant by:
(i) attending the defendant’s business offices and vandalising the defendant’s office and damaging equipment;
(ii) visiting and/or purporting to have visited the defendant’s home or former home without notice;
(iii) sending menacing and threatening text messages to the defendant (which messages are contained at pages 59-63 and 278-279 of the Court Book); and
(iv) sending text messages to the defendant’s friends, family, employees and/or business associates (which messages are contained at pages 282-287 of the Court Book)
(collectively, the Threatening Conduct).
3. The defendant saw, heard or otherwise perceived the conduct constituting the Threatening Conduct.
4. Evidence of the Threatening Conduct:
(a) proves that the plaintiff has a tendency to engage in threatening, intimidatory and harassing behaviour to try to induce the defendant to make payment to him and/or cause the defendant to sign documents; and
(b) increases the probability that the plaintiff engaged in the same or similar conduct in respect of the preparation and signing of the loan agreement dated 10 September 2019; and
(c) increases the probability that the plaintiff engaged in the same or similar conduct in respect of the preparation and signing of the supplementary loan agreement dated 31 March 2021”.
33In my ruling dated 24 February 2023,[1] I concluded that the evidence that Hu seeks to adduce under paragraphs 2(a) and 2(b) of the Notice, save for paragraph 2(a)(iii), is directly relevant to his pleaded case and admissible on that basis. To the extent that it is necessary, such evidence is admissible under s97(1)(b) of the Evidence Act.
[1] Zhang v Hu (Ruling) [2023] VCC 248.
34Of the evidence that Hu seeks to adduce under each subcategory of paragraph 2(c) of the Notice, sub-paragraphs (i), save for evidence of the alleged vandalising of the defendant’s office and damaging equipment, (ii) and (iii) have significant probative value to support the tendency of Zhang to engage in threatening, intimidatory and harassing behaviour towards Hu as required under s97(1)(b) of the Evidence Act.
Witness Credibility
Zhang’s witness
35Zhang gave oral evidence at trial.
36Zhang’s evidence was often non-responsive, contradictory, and inconsistent. Zhang gave evidence that he was still friends with Hu in June 2021, despite sending a series of messages of a threatening nature. Further, Zhang gave evidence that he never made any threats to Hu about going to the media, however, contemporaneous text messages suggest otherwise. Zhang also denied trying to visit Hu’s home in June 2021, despite text messages sent to Hu stating that such a visit was made, and other messages reflecting attempts to obtain Hu’s home address from others. Later, Zhang’s evidence changed to being that he could not recall if he visited Hu’s home. Zhang gave incorrect evidence that he was invited by Hu to go to the offices to sign the Loan Agreement, which was contradicted thereafter. Zhang also said he had no knowledge of the default judgment he caused to be entered against Hu and denied that he caused the bankruptcy notice to be issued, contrary to what appears on the Court record.
37Zhang was not an impressive witness, particularly when he gave implausible evidence about the alleged ¥9.5m loan being handed over in luggage by his driver to Hu’s agent in China. He gave inconsistent evidence about being in Court for an ex parte IVO application. I do not accept his evidence that he did not tell Hu about his firearm because they were “friends”. I find that Hu would have no way of knowing about Zhang’s firearm unless Zhang told him.
38The inconsistency of Zhang’s evidence was also clear in respect of the property sale in China. The sale documents produced contradicted the oral evidence and when put to Zhang, he did not make any concessions. Instead, he said that it was a different agreement to what was recorded in the contract of sale.
39Zhang was not willing to make appropriate concessions, even in the face of contemporaneous documents, such as the settlement statement, and when he received his last repayment on his Garden Street Development loan. Further, Zhang gave inconsistent evidence about hearing of Garden Street Holdings and Hu’s shareholding in that company for the first time in trial. The Supplementary Loan Agreement itself notes that Hu was to transfer his 25% shareholding in Garden Street Holdings to repay the loan to Zhang in 30 days. He gave evasive evidence that he was “not sure” about events put to him. He gave inconsistent evidence about threatening to go to the media and about his understanding about the giving of security in loan transactions.
40I find it implausible that the WeChat translations are as a result of a misquoting of Zhang’s audio messages in circumstances where his own interpreter provided the English interpretation. Further, there are negative inferences to be drawn, given Zhang’s failure to call his driver to give corroborative evidence in relation to the alleged payment of the “cash” contained in luggage to Hu’s agent in China. Zhang gave contradictory evidence of the location of the signing of the Loan Agreement, the lodging of the default judgment, setting aside the default judgment and the bankruptcy notice.
41Given Zhang’s reluctance to make appropriate concessions or qualifications and his often evasive responses, I am unable to rely on his evidence absent other objective evidence.
Hu’s witness
42Hu gave oral evidence at trial.
43Hu presented as a careful and considered witness who was ready to make appropriate concessions. Although not a perfect witness, I have generally preferred the account of Hu over Zhang, particularly as to the events leading up to the execution of the Loan Agreement, Receipt and the Supplementary Loan Agreement.
44Whilst Hu’s evidence does conflict with the loan document, which he admits to signing, in my view, Hu sought to answer most questions put to him as best he could and made concessions against his interests. In particular, not refuting that he had signed the relevant documents and directly addressing the contemporaneous communications and providing context.
45It ought to be noted that Hu did readily admit that there was no documentary evidence supporting his allegations of duress. Hu conceded that there were no documents in the Court Book that showed the threats and duress alleged by Hu prior to him signing the Loan Agreement, Receipt and Supplementary Loan Agreement. Hu conceded that there is nothing in the Court Book before 11 December 2020 that demonstrates Zhang’s threatening behaviour.
46Further, in re-examination, Hu said that the Court Book did not contain all of the WeChat messages between Zhang and Hu.
47Hu conceded that the interest on the Garden Street Development loan was a loss suffered by Zhang and that the first time that Hu raised the Garden Street Development documents was on 15 December 2022 in the Court Book additions.
48Despite not being a perfect witness, I have generally preferred the account of Hu over Zhang’s, absent any objective evidence.
Issue 1: Did Zhang advance ¥9.5 million to Hu in September 2019?
Zhang’s submissions
49Zhang submits that because of various transactions in China, including a property sale, Zhang had “¥9 million cash spare, like put aside” and when called to do so, was able to produce documentation relating to the property deal. Zhang gave evidence that “due to the restrictions imposed by the Chinese government… I usually paid in cash or… dealt in the black-market”. Given the restrictions on Chinese citizens taking large amounts of cash out of China, Zhang says that he entered into an arrangment with Hu, where he would lend him ¥9.5 in China and then Hu would repay the loan in Australian dollars. This was documented in the Loan Agreement executed by the parties.
50Zhang submits that Hu prepared the first draft of the Loan Agreement and that subsequent drafts were sent to Zhang in WeChat exchanges dated 9 and 10 September 2019. Zhang says there was nothing hostile or threatening in these exchanges.
51Zhang further says that, while the draft was based on a template, Hu had taken steps to adapt the template to the proposed transaction and specified the term of the loan to be 14 months and that it would be made in cash (¥) and then repaid in Australian dollars. Hu’s suggestion that these changes were made at Zhang’s direction is inconsistent with the changes being included in the first draft.
52Zhang relies on Hu’s evidence, in which he agreed that he understood what was in the Loan Agreement and that he did not have any doubts when he signed the documents. Further, in the WeChat messages, Hu said that an “IOU receipt” would be required, “[s]ince it’s a cash transaction, there is no digital trace that shows the funds have been received”, and following this, Hu handwrote and signed a document acknowledging receipt of ¥9.5m cash from Zhang. This is consistent with Zhang’s case that the loan was provided in cash. Further, there is no document or communication prior to the commencement of this proceeding in which Hu disputes that the loan was advanced. Indeed, Hu accepted that he handwrote the Receipt and signed it in Zhang’s presence.
53Zhang submits that, after the Loan Agreement was signed by him and Hu, they both enjoyed a casual dinner together with their colleagues and friends and that Hu’s subsquent actions are further consistent with the loan having been advanced to him.
54Zhang submits that Paragraph 1 of Article 2 of the Loan Agreement provided that the term of the loan was 14 months from the date the Loan Agreement was signed, and that the loan was to be received in cash. Paragraph 3 of Article 3 of the Loan Agreement provided that the loan repayment was due on 31 October 2020. Zhang submits that the loan, on any view, was repayable by 10 November 2020, although Paragraph 2 of Article 4 of the Loan Agreement allowed for the loan to be repaid in instalments, in which case, interest was to be paid.
55In respect of contemporaneous correspondence consistent with the Loan Agreement, Zhang refers to messages on 3 October 2020, in which Hu said to Zhang that he would start “making repayments at the end of this month” (however, it is noted that there is an alternative translation of this message that refers to a making of a “transfer”). On 24 October 2020, Zhang said to Hu, “[i]t’s already the end of the month. When are you going to make a repayment?”. On that same day, Hu attempted to make payment of $30,000.00, however, there was a typographical error in the account details used. Hu asked Zhang if he had received the payment on 9 November 2020 and Zhang advised him of the wrong account details. Hu acknowledged this and a further transfer of $30,000.00 was made on 9 November 2020. On 21 November 2020, Hu asked Zhang to ask his accountant to send a receipt for the payment characterised as a “consulting fee” for the purposes of bookkeeping. Hu agreed that he had done so for Zank & Co to claim a tax deduction in respect of the payment. On 11 December 2020, Hu transferred a further $20,000.00 to Zhang. The payment from Hu was made to the account of Zhang’s mother-in-law, Hua Cheng. No further payments transpired between Hu and Zhang.
56Zhang submits that on 31 March 2021, the Supplementary Loan Agreement was signed and agreed to, and that Zhang prepared the first draft and met Hu to discuss it with him. The agreement was signed at a second meeting at the Mountain View Hotel in Glen Waverley.
57Zhang submits that the Supplementary Loan Agreement acknowledged that there was a loan from Zhang to Hu of ¥9.5m. Under the original Loan Agreement, all principal and interest was due on or before 31 October 2020. Any outstanding balance would attract interest at 15% per annum until the balance was paid in full. Hu’s original obligation was to repay $1.9m, however, he had made payments of $30,000.00 on 17 November 2020 and $20,000.00 on 4 January 2021. In turn, Hu’s obligation as at 31 March 2021 was $1.85m. The agreement provided for two alternative repayment plans, in accordance with which Zhang submits Hu did not make payment.
58Zhang argues that evidence shows that Zhang advanced ¥9.5m to Hu on 10 September 2019 and that, on 31 March 2021, Hu was indebted to Zhang for $1.85m plus interest. He submits that there is no evidence that Hu contested this position at any time before the commencement of the proceeding. Further, that Zhang has already referred to the arrangement as a loan and makes references to the transcription of the audio message sent on 16 June 2021.
59In respect of the Garden Street Development background and context, Zhang responded to Hu’s submissions that the Loan Agreement was a sham and intended to allow Zhang to recover “unrecoverable interest for a $5.1m loan made by the plaintiff to Garden Street Development Pty Ltd in July 2017”.
60Zhang submits there are many issues with Hu’s case.
61Whilst the argument that the Loan Agreement was a sham became Hu’s central defence at trial, the documents relating to this claim were first disclosed on 15 December 2022, some 10 months after the proceeding commenced and only one month before trial. Hu’s defence was only amended by leave granted at trial, and further, Hu had no adequate explanation for why the documents had not been disclosed earlier.
62Zhang also says that there is no mention in the WeChat exchanges between Zhang and Hu, or in the Loan Agreement, of the Garden Street Development loan. Hu has not once referred to what he now says was the real purpose of the arrangement.
63Zhang further submits that the proposition that the arrangement was intended to compensate Zhang for interest forgone does not stand.
Hu’s submissions
64Hu denies ever receiving any money and says that the question of whether the payment of cash occurred stands as a central issue for determination.
65Hu gave evidence that the loan agreements do not reflect a real loan and contends that they were instead a mechanism used by Zhang to recover a non-existent debt relating to the failed Garden Street Development investment. The documents arose out of Zhang’s desire to make Hu liable for those losses.
66Hu contends that Zhang’s debt claim relates to his loan to Garden Street Development and the sum recorded in the Loan Agreement is the amount referable to Zhang’s lost interest on the $5.1m loan. Hu submits that Zhang could not provide an explanation for why that sum was to be borrowed by Hu, and Zhang’s evidence was that he had no discussions about the purpose of the loan, nor could he say why the Loan Agreement recorded that the loan is for a “project in Australia”.
67The alleged “debt” relates to the Garden Street Development investment as reflected in Zhang’s June 2021 text messages to Hu, which refer to other “shareholders from whom you also borrowed money” and demands payment of funds. Zhang’s evidence was that the ¥9.5m he says he loaned to Hu was all his own money, despite messages to Hu’s father seeking repayment of the loan stating: “Regarding the huge amount of money your son borrowed from me for the purpose of the project. It has been several years now…” and “I have to do this one thing, that is, to help my investors recover the money”. This suggests that the alleged debt relates to the Garden Street Development loan.
68Further, Zhang’s suggestion that the alleged loan was to be repaid on 31 October 2020 and that the Supplementary Loan Agreement gave rise to new repayment terms over twelve months is inconsistent with contemporaneous text messages from Zhang to Hu’s wife saying that: “I wanted to give him a chance, but it had been two years”. It is inconsistent with the pleaded case. Hu contends that Zhang’s own evidence is consistent with the facts that he was seeking repayment of the foregone interest he and his investors expected to receive out of the Garden Street Development loan, and not a loan personally to Hu.
69Hu further references the objective factual surrounding material, including the failed $5.1m loan to Garden Street Development, which was brokered and managed by Zank & Co and, further, Zhang’s belief that his loan was to Zank & Co directly. It is commercially improbable that Zhang would agree to lend such a significant sum of money to Hu after the failed Garden Street Development loan transaction, for which he blamed Zank & Co. Further, the informality of the documentation of the Loan Agreement should be compared to the documentation used by Zhang in his $5.1m loan to Garden Street Development.
70Hu argues that the loan documentation itself does not make sense, nor does it conform with Zhang’s pleaded case. In particular, that it records that the funds were for “a project in Australia”, which contradicts the suggestion that Hu wanted to receive cash in China. Further, the Receipt is inconsistent with Zhang’s case, as it states that Hu received cash from Zhang, despite his pleaded case being that his agent delivered cash to Hu’s agent in China. The evidence of both Zhang and Hu was that the Receipt was handwritten and signed by Hu at the same time as the Loan Agreement was signed. This should be considered in the context of Zhang’s own evidence that no payment had yet been made when exchanging messages earlier that day. The legitimacy of the Receipt should be questioned as it was signed when there had not been any cash advanced.
71Accordingly, Hu submits that, in light of the above detailed considerations, the only reasonable conclusion is that the Loan Agreement dated 10 September 2019 did not record a real transaction.
72In relation to the issue of whether Zhang had ¥9.5m cash available to him in China, both Zhang and Hu were in Australia on 10 September 2019 and were together when the Loan Agreement was signed. Hu submits that Zhang’s evidence about his capacity to pay the ¥9.5m cash in China is inadequate. Zhang has not discovered any documents evidencing the withdrawal of the cash and has only given evidence about an alleged property transaction in China, which is said to have resulted in the sum of cash. This is inconsistent with the documentary record of the transaction which evidences that the payment of the sale price was to be made to a bank account nominated by Zhang. Further, it is improbable that Zhang possessed the ¥9.5m cash available to him to deliver to Hu, or through their agents, of which there is also no evidence.
73In relation to the issue of whether each party had an agent in China for the purposes of the alleged cash delivery, Hu submits that the evidence of this is unquestionably deficient. Zhang has not provided the identity of either parties’ agents. Hu relies on established principles of an agency relationship which requires: (1) consent or assent of both principal and agent to their roles; (2) the conferral of authority on the agent to act on the principal’s behalf; and (3) the principal’s control over the agent’s actions, none of which has been established. Further, Zhang’s closing submissions have not grappled with his alleged agency case and, in the absence of any communications about the alleged transaction, Zhang cannot make good the elements of his case that both he and Hu had agents in China who gave effect to a significant cash delivery and receipt. Zhang’s pleaded claim must, therefore, fail.
74In relation to the issue of whether the ¥9.5m cash was delivered to Hu in China, Hu argues that there are several features of the alleged cash delivery that requires scrutiny, including the logistical elements and absence of any evidence of the alleged delivery. Hu notes that the largest bank note in China is ¥100, which would mean the logistics of the pleaded delivery would require 95,000 ¥100 notes. Counsel for Hu asserted that the notes would, therefore, weigh more than 109kg. There is a complete absence of any evidence about the actual delivery of cash in China, including no communications between Zhang and his agent about the transaction and no evidence about the delivery of a huge quantity of cash organised between the involved persons.
75Further, there is no evidence that Hu received the cash and it was not put to him in cross-examination how he may have ever retrieved the cash from China. Hu submits that it is not credible to suggest that there are no records for the alleged payment if it did happen. The only evidence in support of Zhang’s case is that the impugned loan documents were signed.
76Critically, Zhang, on his own admission, did not know and could not give evidence about any advance of any cash in China. There is no evidence of any payment having been made by Zhang to Hu and, therefore, Zhang cannot make good his claims. Further, an acknowledgment of debt or the Receipt do not create a debt where there is no underlying valid claim, which is relevant as Zhang never actually advanced any money to Hu.
77Hu’s submissions on this issue conclude by reiterating Zhang’s burden to prove his case on the balance of probabilities which, he submits, he has not done. There are many gaps in Zhang’s evidence, and the contextual evidence of how and why this Loan Agreement came about corroborates Hu’s evidence. The evidence does not establish that the alleged cash payment occurred and does not make good Zhang’s pleaded case. It follows that if there was no payment of the ¥9.5m in cash, then Hu must succeed, regardless of the balance of the issues.
Analysis
78The following sub-issues are material in determining the overarching question of whether Zhang advanced ¥9.5 million to Hu in September 2019. It is also relevant to the central issue in dispute, being the very existence of the Loan Agreement and subsequent indebtedness of Hu to Zhang. Accordingly, I will consider each of the following sub-issues in turn:
(a) Do the written loan agreements reflect a real loan?
(b) Did Zhang have available to him, in China, ¥9.5m cash?
(c) Did each party have an agent in China for the purposes of the alleged delivery of cash?
(d) Was ¥9.5m in cash delivered to Hu in China?
79For the reasons set out below, I am of the view that Zhang has not discharged his onus of proof in respect of his alleged claim that he advanced ¥9.5m to Hu in September 2019.
Do the written loan agreements reflect a real loan?
80In my view, contrary to Zhang’s position, the background and context behind the Garden Street Development loan is necessarily relevant to the question of whether the written loan agreements reflect a real loan or not. Indeed, the loan agreements do not reflect an actual loan. Instead, they were a mechanism for Zhang to recover interest lost as a result of the failed Garden Street Development loan for which he sought to make Hu liable. The evidence I rely on is as follows.
81Hu said that Zank & Co was a company that gave financial advice. Initially, Hu was in charge of the Sydney office and Tiger ran the Melbourne office until August 2017. After that time, Hu became the sole director of Zank & Co. Zhang says that he first met Hu through a project in 2019 and both had discussed potential profitable projects in Australia.
82Hu said Tiger initiated the Garden Street Development loan with Zhang to refinance the security in the sum of $5.1m. Zhang agreed that he lent $5.1m to Garden Street Development on 10 July 2017 with an interest rate of 18% to develop two properties. He then said he could not recall the details of the transaction. The facility had a 20% interest rate with a term of 6 months. Zhang dealt with the then director, Tiger, for the project. Tiger left Garden Street Development and Zhang then dealt with Hu. Zhang knew that Zank & Co was managing his loan and that Hu was a director of Zank & Co. Zhang thought that Tiger and Hu were both directors of Zank & Co.
83By deed of assignment dated 2018 between Zhang and YQC Southport, the assignee agreed to pay $5.78m to Zhang. $1.14m was to be paid immediately with a $4.64m balloon.
84Zhang said that he lent the money to Zank & Co to develop the Garden Street Development and the repayment came from Zank & Co. Hu said that some payments were made to Zhang. On 6 July 2018, $1.118m was paid to Zhang from YQC Southport under the deed of assignment. YQC Southport stopped payments around 18 February 2019 after making a transfer in the sum of $80,000.00. After the payments from YQC Southport stopped, Hu suggested that Zhang sell the properties.
85A receiver was appointed to Garden Street Development, who then appointed Colliers to do the marketing to sell the properties under the mortgage recovery process. Zhang did not know about Colliers being appointed to sell the properties. He only cared about the money coming back into his account. He did not recall rejecting the offer that would not recoup the $5.1m. Zhang agreed to sell the properties to Garden Street Holdings. His instructions were to get back as much money as possible to balance out the $5.1m loan.
86The Garden Street Development project involved other investors in addition to Zhang, who he described as “his friends”. Zhang denied that they were Chinese National Security friends. He subsequently said that he could not remember.
87Zhang said that the investors were not happy that their money was tied up for years with no profit. They complained to Zhang but had visibility, as businessmen, into the project. Zhang agreed that the outcome was not up to his expectations, but he still treated Hu as a friend. Zhang agreed he told the investors that they would get 17–18% interest on the project. They determined that the project would not be profitable, so Zhang decided to exit the project.
88Zhang claimed that the repayments came from Zank & Co and Hu’s personal account. The project was not making money, so he trusted Hu to sell the property on Zhang’s behalf. Zhang could not recall when the last repayment in respect of the $5.1m loan was received. The loan payment statement indicates that the last repayment was made on 18 June 2020.
89Hu said that the highest offer was around $1.5–$1.6m, which was not enough to cover the loan amount. Some $3m had already been paid by YQC Southport under the deed of assignment. Zhang refused to sell at such a low price and asked Hu to look for other solutions to get his money back.
90In around May 2019, Hu discussed forming a company with David of YQC Southport to buy the properties over their market valuations to cover Zhang’s principal. Hu said that Zhang then asked about the interest. Hu said that, according to the Loan Agreement, Zhang was to receive around 18% interest on the $5.1m loan. Hu said that he felt sorry for Zhang that he made a loss and that Zhang kept pushing Hu to find a solution.
91Initially, Hu said that he invited Zhang to his office to discuss potential solutions in person and by phone. Hu said that Zhang told him that Hu was responsible for the interest. Hu said that he was not responsible for the interest as he was a mortgage broker and did not guarantee that the interest would be repaid. Tiger referred the loan to Zhang. Hu said that Zhang told him that the loan was referred by the company Zank & Co.
92Zhang said he was not sure if he said to Hu in August 2019 that he wanted Hu to pay the lost interest back to him. Hu was making repayments to Zhang and was helping Zhang sell the project. Zhang then inconsistently said that he did not know what interest was being referred to. He said he got the $5.1m back and some interest and the case was closed.
93Zhang gave evidence that he wanted Zank & Co to be responsible for the interest that he missed out on. Hu continued dealing with Zhang. He said it was Hu’s duty to get his interest back. It was also Zhang’s duty to get his interest back. Zhang said that Hu had paid some interest to him.
94Hu said that the AUD $1.9m was the investment in Garden Street Development over July 2017 to July 2019 for a two-year period if Zhang received 20% interest and, after discounting the commission fees, resulted in a rate of 18%, which converted to AUD $1.8m. Given the delay of Zhang not receiving the funds in July, they calculated the sum of $1.9m.
95The WeChat messages from 9 to 10 September 2019 discuss the content of the Loan Agreement. Hu said that Zhang does not use computers. Zhang asked Hu to draft the document using a template. Hu googled a loan agreement in Chinese. Hu said that Zhang asked Hu to make changes to the template where it stated the payment would be made to a bank account. It was changed to refer to “cash”. This evidence was inconsistent with Hu’s pleaded case that the document was prepared by Zhang.
96Zhang said the Loan Agreement was drafted by Hu and had nothing to do with the failed Garden Street Development project. The WeChat messages of September 2019 contain discussions about the drafting of the Loan Agreement. Zhang claimed that the sum of ¥9.5m was not close to the interest lost on the Garden Street Developments project.
97Zhang said he could not recall whose idea it was to sign the Loan Agreement in Hu’s office. The WeChat message on 10 September 2019 indicated that it was Zhang who suggested he come to Hu’s office to sign the Loan Agreement. Zhang said it was more convenient to go to Hu’s office so they could make any necessary changes to the document.
98Hu conceded that, although he told Zhang in around June and July 2019 that Tiger set up the loan and not Hu, Zhang put pressure on Hu and his family to be responsible for Zhang’s losses in relation to the Garden Street Development project. Hu signed the document that made him personally liable, and not Zank & Co, because Zhang told him to.
99Hu denied that he borrowed cash from Zhang or that he owes Zhang money.
100In my view, it is clear from the evidence that Zhang’s alleged debt claim relates to his loan to the failed Garden Street Development and is an attempt to recover the interest. Indeed, the sum of these alleged loan agreements are referrable to Zhang’s losses in interest as a result of the failed Garden Street Development investment for which Zhang attributes blame to Zank & Co and Hu.
101Zhang acknowledged in his submissions the “superficial arithmetic attraction” to Hu’s interest calculation but sought to rely on the contractual terms of the Garden Street Development loan that gave rise to default interest at the higher rate of 30% (clause 5.1) and compounded (clause 5.2(b)). Hu submitted that the contractual claims were only good against the borrower. I accept that the deal between the parties was limited to recouping the interest that Zhang and his investors expected to receive on the project.
102There is no explanation or credible reasoning provided by Zhang as to the basis of this arrangement and why Hu would enter such an agreement. Instead, Zhang's submissions rely on the WeChat exchanges in relation to the loan agreements, subsequent conduct of the parties and the Receipt of acknowledgment as the primary bases to substantiate that the alleged loans were actual loans, which is insufficient.
103Further, Zhang offers no explanation as to the purpose of the loan or why the Loan Agreement records that it is for “a project in Australia”, which is contradictory to Zhang’s pleaded case. The Loan Agreement does not conform to the pleaded case and has many contradictions. These include that the funds were recorded for “a project in Australia”, despite Zhang's suggestion that Hu wanted to receive cash in China. There are also discrepancies around the Receipt of the Loan Agreement, which both Zhang and Hu agreed was signed by Hu at the same time as the Loan Agreement. The Receipt itself is inconsistent with Zhang's pleaded case that Zhang delivered cash to Hu's agent in China.
104Zhang claimed that, because Hu helped him get his money back on the Garden Street Development, he was willing to loan Hu the sum of ¥9.5m. Zhang said the loan had two purposes: first, interest was already included in the AUD $1.9m principal amount; and second, to change the Chinese yuan (¥) to Australian dollars ($).
105Zhang said that he was not sure whether the ¥9.5m was for “a project in Australia”. Zhang said he did not need to ask how Hu was going to use the money. However, the Loan Agreement notes at Article 2 that it was for “a project in Australia”. Zhang still said that he was not sure what the actual purpose of the loan was and that he filled out “a project in Australia” in Article 2 because they could not leave it blank. Zhang said it was a personal loan to Hu. He did not know the purpose of the loan. He only cared if Hu could repay him in $AUD. Zhang then claimed that Hu mentioned his father had been scammed.
106Hu said that he was not borrowing money for “a project in Australia”. Hu said that the Loan Agreement document is fake.
107In agreeance with Hu, I find that there are clear commercial improbabilities about Zhang agreeing to lend Hu such a significant amount and the informality to the documentation is noteworthy when compared to the loan facility documents prepared for Garden Street Development. I accept Hu’s evidence that he downloaded a sample loan agreement in Chinese on Google and, on Zhang’s instructions, updated the document to include the parties’ details because Zhang did not use a computer that often. Further, I accept that Hu made a series of changes to the sample loan agreement upon demand from Zhang. The WeChat messages from 9 and 10 September 2019 do not evidence any negotiation between the parties, but rather, that Zhang demanded changes to be made and Hu complied with those requests and sent back updated drafts.
108The WeChat messages from September 2019 contain discussions about the drafting of the Loan Agreement. Zhang claimed that the sum of ¥9.5m was not close to the interest lost on the Garden Street Development project. Zhang said that, because the Loan Agreement did not have a security clause, he got involved in the case. Zhang said that, if he had been aware of the importance of a security clause, he would not be involved in the legal dispute today. Zhang then said that he did not understand what a security clause was. He inconsistently said that there was no security clause in the Loan Agreement. He claimed there was no security clause in the Loan Agreement because he and Hu were friends. He denied that he knew that he was able to sell Garden Street Development because of a security clause.
109Whilst I agree with Zhang that Hu’s central defence and documents relating to the Garden Street Development were first disclosed only one month prior to trial, Hu was forthcoming and provided an explanation for this.
110Hu conceded that the interest on the Garden Street Development was a loss suffered by Zhang and that the first that he raised the Garden Street Development documents was on 15 December 2022 in the Court Book additions. Hu disputed that he did not disclose the Garden Street Development documents before because he understood that Garden Street Development was irrelevant to this case.
111Hu conceded that he did not discover the Garden Street Development documents in his affidavit of documents on 6 July 2022. Hu said that after his previous barrister was unavailable because her father was sick, his new barrister took over the conduct of the case and the Garden Street Development documents were then produced.
112I accept that the appropriate amendments and documents were disclosed once new counsel was retained to appear at the trial. I give no weight to the claim by Hu that the issue was raised at mediation in circumstances where privilege was not waived and there was no opportunity to cross-examine Hu on the evidence or for Zhang to call other relevant evidence (if any).
113In summary, Zhang has not satisfied, on the balance of probabilities, the existence of an actual loan and, therefore, the appropriate conclusion is that the Loan Agreement dated 10 September 2019 did not record a real transaction.
Did Zhang have available to him, in China, ¥9.5m cash?
114In my view, Zhang’s evidence about the availability of ¥9.5m cash to him in China is inadequate. The evidence I rely on is as follows.
115Zhang says the Loan Agreement was signed by Hu and himself at Hu’s office in Melbourne, which is inconsistent with the pleaded case that it was at Zhang’s office in Melbourne. The loan amount was ¥9.5m and was to be paid in cash. Zhang said that he had the cash available through a property dealing in China and he had ¥9m set aside. Due to the restrictions in foreign currency exchange in China at the time, commission fees were dealt with in cash or dealt with on the black market. There were restrictions on Chinese citizens taking currency out of China.
116Zhang did not put in evidence his bank account statements showing he had ¥9.5m. Zhang claimed he sold a villa worth ¥14m in China, however, the transaction did not come from the sale of the property in China. He claimed he had other assets available to him to lend the ¥9.5m. He could not remember when he sold the villa, but thought it was a couple of months before the alleged ¥9.5m loan. Zhang said that it was a private sale so there is no contract and that he could no longer provide a settlement statement. Zhang then said there was a contract recorded in the property transaction in China. Zhang said that a lot of property transactions are done in cash in China. Documentary evidence was then produced at trial relating to the purported proposed sale.
117Zhang produced a contract of sale signed on 29 March 2019 for his property in Suzhou City. He claimed that the deposit of ¥3m was paid to him directly and not paid into an escrow account designated by the government administration and that he also received the ¥11.5m in cash. Zhang claimed that most of the cash lent to Hu came from this sale, but other cash came from other sources. He denied some of those funds came from other people.
118Whilst I accept Zhang’s submission in respect of property transactions and produced documents, there is still insufficient evidence about the withdrawal of the cash and the availability of ¥9.5m cash from Zhang to deliver to Hu personally or through their agents. As identified by Hu, the documentary record of the transaction reflects that a payment of the sale price was to be made to a nominated bank account and not by cash. There was also no further evidence from Zhang to support the other sources of cash referred to. Further, both Zhang and Hu were in Australia on 10 September 2019 and were together when the Loan Agreement was signed.
119In my view, Zhang has not satisfied, on the balance of probabilities, that he had ¥9.5m cash available to him in China for the purposes of delivering it to Hu.
Did each party have an agent in China for the purposes of the alleged delivery of cash?
120Agency is a relationship between a person (the principal) who consents to another person (an agent), to represent him or her in law so as to create legal relations between the former and a third party. Recently, in Re Victoria Station Corp Pty Ltd,[2] Robson J clarified the two essential elements of an agency relationship. First, agency requires that both the principal and agent consent to their roles. The second requirement for the existence of an agency relationship is the conferral of authority upon the agent.[3]
[2] (2018) 56 VR 26; See also LexisNexis, Halsbury's laws of Australia, Nature and Formation — Agency [15-65].
[3] Ibid at [63]-[65].
121In my view, it cannot be established that each party had an agent in China for the purposes of the alleged cash delivery. Zhang has not proved the requisite agency principles to make good his claim. Further, I agree with Hu that Zhang's evidence that each party had an agent in China for the purposes of the cash delivery is clearly deficient. I rely on the evidence as follows.
122Zhang says that, on 10 September 2019, Zhang advanced ¥9.5m to Hu. The loan was said to have been advanced by delivery of the ¥9.5m in cash in China to Hu’s agent by Zhang’s agent.
123On 9 September 2019, Hu sent a loan contract to Zhang by WeChat message. Zhang said that Hu had been amending the document. Zhang claimed that the money was kept in luggage and delivered by Zhang’s driver to Hu’s agent so as not to be detected by the Chinese Government, but conceded that he did not hear the alleged telephone conversation between the agents at the time.
124Zhang’s agent, who allegedly delivered the cash in China, is not a witness in the proceeding. Zhang said that the agent was his driver who had left the company and was in China. There is no evidence of any communication with Zhang’s driver. I must, therefore, draw the necessary inference that Zhang’s agent’s evidence would not have assisted him in this proceeding, in accordance with the rule in Jones v Dunkel.[4]
[4] (1959) 101 CLR 298.
125Hu said that he did not have an agent in China and no agent received any amount of cash from Zhang. Hu agreed that he handwrote and signed the Receipt. He denied that he received confirmation that his agent in China received ¥9.5m in cash. Hu said he handwrote the Receipt directly after he signed the Loan Agreement. He knew what the document said.
126In my view, absent any communications or identification of either of the parties’ agents, it cannot be concluded that both Hu and Zhang had agents in China who gave effect to the significant cash delivery of ¥9.5m. Further, and in agreement with Hu, Zhang has not established the necessary principles of an agency relationship and, accordingly, Zhang’s pleaded claim must fail.
Was ¥9.5m in cash delivered to Hu in China?
127In my view, again, there are several logistical impediments to Zhang’s claims that the ¥9.5m cash was delivered to Hu in China. Given there is no evidence of any communications between Zhang and his alleged agent about the transaction and no evidence about the delivery of the significant amount of cash or the persons involved, the appropriate conclusion is that the ¥9.5m cash was not delivered to Hu in China. The evidence I rely on is as follows.
128Zhang said that Hu signed the Receipt acknowledging that he received the ¥9.5m on 10 September 2019 and he saw Hu sign the document. Zhang admitted that he did not know if Hu had received the cash. He assumed there was some phone call to Hu from Hu’s agent.
129Zhang agreed that the handwritten Receipt was also signed on 10 September 2019. Zhang claimed that the Receipt proves that Hu received the cash.
130Zhang said that the Receipt was signed only after Hu had received the cash. Zhang could not even agree that he wanted Hu to sign a receipt to show that he had received cash. Zhang did not respond to the question that Hu has not been to China since 2019 and could not receive the cash. He relied on the signature on the Receipt as proof of the loan.
131Hu said that he did not have an agent in China and no agent received any amount of cash from Zhang. Hu said that ¥100 is the largest denomination in China and a delivery of ¥9.5m would require 95,000 ¥100 notes. Zhang agreed that ¥100 is the largest bank note in China. He claimed there would still be more room left in the luggage after filling it with 95,000 ¥100 notes.
132In my view, and in agreeance with Hu, there are several logistical and unexplained issues with the pleaded delivery of ¥9.5m cash in China. Zhang has not provided any evidence about the delivery of this amount of cash nor evidence that it was in fact received by Hu. Zhang merely relies on the loan documents themselves to support his contentions without any credible evidence of the payment having been made by Zhang to Hu. In turn, Zhang’s pleaded case must fail, and it cannot be established that Zhang possessed the ¥9.5m cash available to him to deliver to Hu personally or through their agents.
Summary
133For the foregoing reasons, I have concluded that Zhang has not satisfied his onus to prove, on the balance of probabilities, that he advanced ¥9.5 million to Hu in September 2019 in China. In turn, it follows that Zhang has not made good his pleaded case about the existence of a loan which he advanced to Hu and for which Hu is indebted to him. It must follow that Hu should succeed on the balance of the issues and it is not necessary for me to determine the remainder of the issues in dispute, including duress, and whether Hu is indebted to Zhang.
134However, for the sake of completeness and, in the event I am wrong, I will consider the balance of the issues and the question of whether, in the event there was a loan between Zhang and Hu, the loan was nevertheless void and of no effect as it was procured under duress.
Issue 2: Did Hu sign the original Loan Agreement and Receipt under duress?
Zhang’s submissions
135Zhang denies that he went to Hu’s office daily, engaged in disruptive and intimidatory behaviour and refused to leave, despite the multiple requests made by Hu. Zhang refers to Hu’s evidence at trial that he invited Zhang to attend his office and further, that he attended the office approximately twice a week while other investors would attend around once a month. Zhang submits that this is consistent with his own evidence that he attended Hu’s office “roughly two to three times” by appointment with Hu.
136Hu’s principal complaint was that Zhang sat in his office and smoked, which Zhang denies. In any event, Zhang contends that, although smoking in a person’s office may be unpleasant, it is not unlawful or illegitimate pressure amounting to duress. Additionally, Hu did not say that he requested Zhang to leave his office or that Zhang refused to do so when asked.
137Hu says that the first act of alleged intimidation by Zhang was that Zhang said that he was going to tell the media that he had invested with Hu’s company and lost money. In reply, Zhang submits that there is nothing unlawful or illegitimate about talking to the media and further denies that he had threatened to go to the media in August or September 2019.
138Hu says the second act of alleged intimidation by Zhang was that he suggested that the co-investors in the Garden Street Development project were associates with the Ministry of Security of the People’s Republic of China. Hu says that he had Googled the Ministry of Security and understood it to be similar to the CIA or the KGB and said, “it sounds scary and by watching a movie where they have the KGB or CIA involved, it’s definitely not a good result”. Hu says that, by reason of the mention of the Chinese Ministry of Security and what he knew of the KGB and CIA from movies, he was concerned for his own safety and that of his parents in China.
139In reply, Zhang submits that there was no evidence at trial of the conduct of the Chinese Ministry of Security and that the Court cannot conclude, based on the supposed conduct of the CIA and the KGB portrayed in unspecified movies, that Hu could have reasonably believed that he had no alternative but to sign the Loan Agreement with Zhang and further sign the Receipt for monies that he says were not advanced. Zhang denies that he said he would use his influence to harm Hu’s family members in China or made threats as to having friends in the Chinese National Security. Despite Hu saying there were witnesses to Zhang’s alleged intimidation detailed above, no such witnesses were called to give evidence.
140Hu alleges that Zhang further threatened him that, if he did not sign the document proffered by Zhang, Zhang would continue to attend Hu’s office every day and also his home. Zhang purportedly said to Hu that he had a firearm. Zhang denies that he made these threats and references Hu’s evidence that the alleged threat by Zhang to attend his office every day was made in late August 2019 and not when the Loan Agreement was drafted by Hu on 9 September 2019 and then signed on 10 September 2019. Hu did not say that Zhang did, or threatened to, attend his home in August and September 2019, nor that Zhang told him that he had a firearm. Zhang further denies that he threatened to attend Hu’s office every day or that he threatened to attend Hu’s home in August or September 2019. Whilst Zhang accepts that he acknowledged that he had a firearm license, he denies mentioning this to Hu.
141Zhang submits that Hu’s allegations that he attended his office, smoked and said that he would tell the media about his losses on the Garden Street Development investment cannot be viewed or considered as illegitimate pressure applied to Hu to compel him to sign the loan documents. In respect of the most serious allegation that Zhang would use his contacts in the Chinese Ministry of National Security to harm Hu’s family in China, there is no evidence that would allow the Court to conclude that it was objectively reasonable for Hu to believe this. Zhang argues that it is insufficient to establish duress on the basis that Zhang’s conduct made Hu feel tired and exhausted and that he gave up. Hu further acknowledged that, as an experienced financial professional, he was aware that a person who signed a document was bound by it. He also took no steps before the commencement of the proceedings to extricate himself from the documents and obligations he says he entered into under duress. Zhang submits that Hu’s allegations of duress must, therefore, fail.
Hu’s submissions
142Hu acknowledges there is a dispute on each witnesses’ evidence as to whether Zhang engaged in threatening conduct alleged by Hu in July to September 2019. However, Hu submits that there can be no real dispute about Zhang’s conduct in 2021 because that conduct is captured in contemporaneous text messages written by Zhang and was the subject of various admissions at trial.
143Hu further submits that, pursuant to my ruling dated 24 February 2023,[5] the Court is able to use as tendency evidence Zhang’s conduct in June 2021 to assist in the fact-finding exercise of what transpired in the lead up to the signing of the loan documents in late 2019 and March 2021. Zhang’s counsel described the messages as “heated exchanges between [Zhang and Hu] in June 2021” and “heated arguments”. Hu’s counsel described the messages as “menacing”, “threatening” and “scary”.
[5] Zhang v Hu (Ruling) [2023] VCC 248.
144Accordingly, Hu contends, citing Elomar v The Queen,[6] that Zhang has a tendency to make threats to Hu and to make repeated and unwelcome visits to his office and it is, therefore, more likely that Zhang did so at the relevant moments in time as alleged by Hu. Further, that Zhang had this tendency increases the likelihood that Zhang did also act in the particular way alleged by Hu between July 2019 and March 2021. Hu submits that Zhang acted in this way to cause Hu to agree to make to him payments referrable to his loss of his expected interest from the Garden Street Development loan.
[6] (2014) 316 ALR 206 278 per Bathurst CJ, Hoeben CJ at CL and Simpson J at [359]–[360].
145Referring to Hughes v The Queen,[7] Hu argues that the close similarity between the events increases the probative value of the tendency evidence. Zhang’s conduct in June 2021 is strikingly similar to the alleged conduct prior to the signing of the 10 September 2019 loan documents. In June 2021, Zhang visited the Zank & Co office once and threatened in writing to visit every day, despite being told not to attend. Zhang’s written messages also repeat threats relating to Chinese National Security, threats to Hu’s family in China, ominous threats of harm to Hu and threats to utilise the media. Hu submits that the Court should find that Zhang acted in 2019 in the same manner that he acted in June 2021, whereby he made unwelcome attendances at Zank & Co and made threats to Hu and to his family. These threats by Zhang were unlawful and prima facie illegitimate and, in the alternative, even if not unlawful, the threats and other conduct are obviously illegitimate and designed to try to recover payment of the money now owed by Hu.
[7] (2017) 263 CLR 338 at [39].
146In relation to the effect of the illegitimate pressure of Zhang, Hu gave evidence that he felt as though he had no choice but to agree to Zhang’s demands. Further, that he knew he was not responsible for payment of the lost interest, however, hoped that by agreeing to the demands, Zhang would stop his threats. Hu submits, citing Crescendo Management Pty Ltd v Westpac Banking Corporation,[8] that once it is established that illegitimate pressure is present, then the victim need only show that the illegitimate pressure was a reason and not the only reason they entered into the agreement. Further, that once evidence established that the pressure exerted was illegitimate, the onus lies on the person applying the pressure to show that it made no contribution to the victim entering the agreement.[9]
[8] (1988) 19 NSWLR 40 at 46 per McHugh JA.
[9] Ibid referring to Barton v Armstrong [1973] 2 NSWLR 598 per Lord Cross at 633.
147Hu concludes that the Court ought to accept that Zhang’s threats and conduct was a reason for Hu signing the 10 September 2019 loan documents. The evidence establishes that Zhang exerted illegitimate pressure upon Hu, which induced him to enter into the Loan Agreement. The Loan Agreement is, therefore, either void or voidable and it is appropriate that the Court make a declaration to this effect.
Analysis
148Given my earlier reasoning that there was no loan in existence between Zhang and Hu, it is unnecessary for me to determine this issue. In my view, Zhang did not establish his pleaded case on the balance of probabilities that he advanced ¥9.5 million to Hu in September 2019. Necessarily, as I found there to be no evidence substantiating Zhang’s claim that he advanced ¥9.5 million in cash to Hu, Hu must succeed on the balance of the issues in dispute in this proceeding. However, in the event I am wrong, and for the sake of completeness, I will consider whether, if the alleged Loan Agreement and Receipt were valid, they should be declared void and of no effect on the basis that Zhang exerted illegitimate pressure upon Hu, which induced him to enter into the Loan Agreement.
149Acts, such as entry into a contract, have legal significance and must generally be “voluntary” and not done under “compulsion”. Compulsion includes every kind of duress or conduct analogous to duress, actual or threatened, exerted by or on behalf of the payee, transferee or promisee and applied to the person or the property or any right of the payer, transferor or promisor.[10]
[10] Smith v William Charlick Ltd (1924) 34 CLR 38 at 56 per Isaacs J; See also LexisNexis, Halsbury's laws of Australia, Duress in Contract — General [110-5665].
150Ordinarily, a person who signs a document is bound by it and this must be the case more so when the person has drafted the document and acknowledges that he understands its contents. However, as reasoned by Osborn JJA in Braam v BBC Hardware,[11] an exception to this principle is that the law will not give effect to apparent consent which was induced by illegitimate pressure. Justice Nettle, in the High Court decision of Thorne v Kennedy,[12] observed that illegitimate pressure should be restricted to pressure by “threatened or actual unlawful conduct”.
[11] [2020] VSCA 164 at [81].
[12] (2017) 263 CLR 85 at [70] referring to Australia & New Zealand Banking Group v Karam (2005) 64 NSWLR.
151The initial burden of proof rests on the person who alleges the contract was entered into as a result of duress to prove the appropriate kind of threat and unlawful pressure directed to procuring the contractual assent. However, once established, the onus lies on the party who applied the pressure to show that it made no contribution to the victim entering into the agreement.[13]
[13] Barton v Armstrong [1973] 2 NSWLR 598 at 120.
152It is sufficient for the party claiming duress to demonstrate that the pressure was a cause of the decision to enter into a contract, even if the pressure is not the sole or principal cause of the decision to contract.[14]
[14] Ibid.
153The two principal elements of contractual duress are as follows: [15]
(a) that illegitimate pressure was applied to the victim; and
(b) that illegitimate pressure induced the victim to enter into the contract or make a payment.
[15] Doggett v Commonwealth Bank of Australia (2015) 47 VR 302 per Whelan JA at 321-2.
154The primary concern of duress is identifying which forms of pressure the law regards as illegitimate, as opposed to proper and acceptable commercial pressure. Factual matters which are relevant in this assessment include:
(a) the nature of the threat;
(b) the demand made;
(c) the effect produced by a threat found to be wrongful and to that extent, at least, illegitimate;
(d) the courses open to the victim; and
(e) the presence or absence of protest by the victim.
155The illegitimacy of pressure or threat is likely obvious where conduct is inherently illegal. However, even less extreme forms of wrongful conduct are capable of constituting an unlawful threat giving rise to duress.[16] Therefore, where a person enters into a new contract to avoid the carrying out of a threat, it may be appropriate to conclude that duress is pressure and that the contract is voidable.[17] Indeed, where the pressure involves an actual or threatened unlawful act, it is prima facie illegitimate.[18]
[16] Crescendo Management Pty Ltd v Westpac Banking Corp (1988) 19 NSWLR 40 at 46.
[17] North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705.
[18] Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 per McHugh JA at 46.
156Although duress may be found where the victim is so placed that there is no choice but to submit to the pressure, the crucial question is not whether the victim had an alternative, but whether the choice between the alternatives is made freely, or made under the influence of pressure.[19] If the consequences are both serious and immediate, the choice between alternatives is not made freely and, therefore, may be found to be illegitimate.[20]
[19] Mason v New South Wales (1959) 102 CLR 108 at 128.
[20] North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1979] QB 705 per Mocatta J; B & S Contracts and Design Ltd v Victor Green Publications Ltd [1984] ICR 419 at 428 per Kerr LJ.
157The evidence of Hu was that Zhang’s conduct and statements were made over the phone and also in person when Zhang came to visit Hu’s offices in late August and early September 2019.[21] Hu gave evidence that these threats were made repeatedly and caused him to fear for his safety and for the safety of his family, and that he felt no choice but to agree to Zhang’s demands.[22]
[21] Transcript 128 lines 5-7, and Transcript 131 lines 15-19.
[22] Transcript 133 line 26, Transcript 136 lines 24-30, Transcript 159 lines 19-25, Transcript 167 line 30 to 168 line 4, Transcript 170 lines 22-24 and Transcript 184 lines 14-16.
158In my view, in light of my earlier credibility findings, I have preferred the evidence of Hu and find Hu has established, and Zhang has not adequately rebutted, that illegitimate pressure was exerted upon Hu, which induced him to sign the Loan Agreement and Receipt. The appropriate conclusion is, therefore, that the Loan Agreement and Receipt are void and of no effect.
159In accordance with my ruling given on 24 February 2023, I have referred to and utilised admissible tendency evidence of Zhang’s conduct in June 2021 to assist in reaching my conclusion on what occurred in the lead up to the signing of the loan documents.
160In Elomar v The Queen,[23] Bathurst CJ and Hoeben CJ at CL and Simpson J described the reasoning process underlying the admission of tendency evidence as follows:
“Tendency evidence is evidence that provides the foundation for an inference. The inference is that, because the person had the relevant tendency, it is more likely that he or she acted in the way asserted by the tendering party, or had the state of mind asserted by the tendering party on an occasion the subject of the proceedings. Tendency evidence is a stepping stone. It is indirect evidence. It allows for a form of syllogistic reasoning”.[24]
[23] (2014) 316 ALR 206, 278 per Bathurst CJ, Hoeben CJ at CL and Simpson J at [359]-[360].
[24] Ibid.
161In Hughes v The Queen,[25] the majority of Kiefel CJ, Bell, Keane and Edelman JJ summarised the reasoning process as follows:
"The trier of fact reasons from satisfaction that a person has a tendency to have a particular state of mind or to act in a particular way to the likelihood that the person had the particular state of mind or acted in a particular way on the occasion in issue”.[26]
[25] (2017) 92 ALJR 52.
[26] Ibid at [16].
162Gageler J, in the minority, further summarised the reasoning process as follows:
“Applied to evidence of past conduct, tendency reasoning is no more sophisticated than: he did it before; he has a propensity to do this sort of thing; the likelihood is that he did it again on the occasion in issue.
Tendency reasoning, as courts have long recognised, is not deductive logic. It is a form of inferential or inductive reasoning…”[27]
[27] Ibid at [70]-[71].
163Broadly, the authorities dealing with tendency evidence treat the underlying reasoning process as a form of inferential reasoning. Accordingly, the process of reasoning would be as follows. On an occasion other than the one in question in the proceeding, Zhang acted in a particular way and it can, therefore, be concluded that Zhang had a tendency to act in that way. By reason of this tendency, it can be inferred that, on the occasion in question in this proceeding, Zhang acted in conformity with that tendency. There are three broad categories of alleged intimidation in dispute.
Conduct: Media
164The first act of alleged intimidation by Zhang was that he said that he was going to tell the media that he had invested in Hu’s company and lost money. The evidence I have relied upon is as follows.
165Hu said that Zhang told him that Hu was responsible for the interest. Hu said that he was not responsible for the interest, he is a mortgage broker and did not guarantee that the interest would be repaid. Tiger referred the loan to Zhang. Hu said that Zhang told him that the loan was referred by the company Zank & Co. Hu said that Zhang told him that if he did not accept liability for the interest that Zhang said he would go to the media and bring a journalist to Hu’s office to say that Hu caused Zhang’s losses.
166Hu said that he found the media claim very stressful. Zhang denied that he made threats to Hu about going to the media.
Conduct: Chinese National Security
167The second act of alleged intimidation by Zhang was that he suggested that there were co-investors in the Garden Street Project who were associates with the Ministry of Security of the People’s Republic of China. The evidence I have relied upon is as follows.
168The Garden Street Development project involved other investors in addition to Zhang, who he described as his “friends”. He denied that they were Chinese National Security friends. He subsequently said that he could not remember. Zhang said he did not know what project the investors had invested in and could not clarify if they were the same investors as in the Garden Street Development.
169Hu said the allegations about the co-investors who were part of the National Security Department made him feel very scared and he was concerned about his safety in China as he thought they were like the KGB or CIA. Hu’s parents run a listed company in China and their details are easy to find. Hu said this was a serious matter.
170Hu said that Zhang told him that the investment involved co-investors in China who were government-related in the National Security Department. Zhang said he was talking “nicely” to Hu. If he could not settle the matter “nicely”, Zhang said he would get the people to talk to Hu and his family in China and he could not guarantee what the consequences might be in China. Zhang said that Zhang visited Hu in his office from the end of July 2019 to September 2019 and said that sooner or later, Hu would see Tiger’s legs broken.
171Zhang denied sending the message to Hu’s wife stating:
“I wanted to talk to you. Xiao Hu owes me 190 Australian dollars, and now he/she is trying to repudiate it. A few Chinese National Security friends are also creditors. I wanted to give him a chance, but it had been two years. Domestic creditors will find your parents and his parents. Life will be difficult for [you guys] if this matter is not settled. Just give me your home address so that we can have a good chat. But should [you] keep trying to get away, there will always be a way to find out”.
172Zhang claimed it might have come from another investor in China who knew Hu’s family and wife. Zhang denied that he made these threats to Hu in August 2019 to get him to repay the interest on the Garden Street Development loan.
Conduct: Attendance at office
173The principal conduct alleged was that Zhang further threatened Hu that if he did not sign the document proffered by Zhang, that Zhang would continue to attend Hu’s office every day and also his home. Further, that Zhang purportedly said to Hu that he had a firearm. The evidence I have relied upon is as follows.
174Hu said that for a period of approximately two weeks prior to Zhang attending Hu’s office on 10 September 2019, Zhang had engaged in a course of persistent harassment of Hu.
175This included attending Hu’s office premises daily, engaging in disruptive and intimidatory behaviour, and refusing to leave despite multiple requests made by Hu. Zhang’s attendances at Hu’s office on those occasions were also witnessed by Hu’s employees and by clients who were present at the office, although it should be noted that no other witnesses were called to give evidence at trial.
176Additionally, Zhang further threatened that, if Hu did not sign the document proffered by Zhang, Zhang would continue to attend Hu’s office every day and also Hu’s home. Zhang said to Hu that he had a firearm.
177Further, Zhang also said to Hu that if Hu did not sign the document, Zhang would use his influence in China to cause harm to Hu’s family members who are located in China. Zhang denied he said to Hu that he would come into Zank & Co’s office every day until the interest was paid.
178Zhang said that he went to the Zank & Co office two to three times, including when signing documents and attending appointments. He denied attending the Zank & Co office smoking cigarettes, refusing to leave or interrupting meetings.
179Zhang said he did not want to say much about the question of whether he made threats to Hu to make payments. He said that people who owe money come up with reasons to not repay money. Zhang said that they were in a public venue and did not want to make threats to Hu.
180Around late August 2019, Zhang said he was in Australia, and he could come to Hu’s office and sit there all day smoking. Hu said that Zhang did attend his office every day.
181Hu said that he signed the Loan Agreement on 10 September 2019 because he was scared and exhausted by having the conversations with Zhang, who was disrupting his business operations. Hu said he just gave up.
182On 10 September 2019, Zhang wrote on WeChat that he would come to Hu’s office that afternoon. Hu modified the loan agreements following their conversation and Zhang’s suggested changes. Hu said that he did what Zhang told him to do even though he knew the document was a fake and had no force or effect.
183Hu said that on or about 10 September 2019, Zhang attended Hu’s office premises. Hu, in his defence, alleged that Zhang went into his office suite and produced a document which, to Hu’s knowledge, was prepared by Zhang. Zhang demanded that Hu sign the document forthwith.
184The alleged Receipt document was signed at the same time as the Loan Agreement in Hu’s office. The Receipt is in Hu’s handwriting. Hu said that he did not receive ¥9.5m in cash. He said that, at that time, he was so scared and tired by Zhang’s behaviour that he would sign anything to make it stop.
185Zhang denied that he engaged in the conduct in August and September 2019. Zhang said that he did hold a firearm licence at the time, but denied that he mentioned this fact to Hu at the time because “they were friends”. He denied that he engaged in the conduct alleged by Hu.
186He denied saying that he would attend Hu’s home every day. Zhang did have a firearm licence at the time. He denied that he told Hu this, however, it is implausible that Hu would know of Zhang’s firearm unless Zhang told him. Zhang denied that he told Hu that he would use his contacts in China to influence Hu’s family.
Tendency Evidence
187There is a clear dispute and divergence of facts between Hu and Zhang as to whether Zhang engaged in the threatening conduct as alleged by Hu between July 2019 to September 2019, being the requisite period in which the alleged loan documents were signed and agreed to. Pursuant to my ruling dated 24 February 2023, the tendency evidence I rely upon is as follows.
188On 15 and 16 June 2021, Zhang sent various threatening text messages to Hu saying:
“Director Hu, I came by your office today with a couple of shareholders from whom you also borrowed money. We didn't find you, so we left a "gift" for you. We are just trying to be nice to you, please take it. From this moment on, we will push the case forward by going to the media and lawyers. You see, we have left you some leeway today. But it will won't be the case anymore from now on.
I have been extremely tolerant to you. As for you, let's say that you want to welch on the debt, it's your call. For me, I believe that I can play you till your death. Our game has just begun!
There is a professional team trying to scam me. I believe it, because of your credibility. I also have a professional team to deal with this. So, you just relax.
One more thing, I have also dropped by your house. You have moved your house, right? What is your current home address? How about let's have a chat tonight, just two of us, if you want? Of course, I believe that sooner or later I will find you.
When the defendant responds that he is not in the office on that day, the plaintiff states: “When will you be in office tomorrow? I will drop by.” The defendant rejects that suggestion of any physical visit by the plaintiff and says to put any statements in text or voice message. The plaintiff then says: I will drop by your office tomorrow and I hope you will be there. And, I have prepared a big "gift" for you. [The defendant then replies: “No need”]
By the way, I will come by your office every day until I see you. The Sydney office will also send someone to give you a "gift". After all, as the saying goes "gratitude shall be repaid; revenge shall be taken", since you have played me for a few years now.
The plaintiff then states after the defendant asks questions about the proposed new purchasers of the Queensland properties, inter alia:
… I demand you to repay me the remaining loan balance in the timeframe I give you. I have given you some leeway when I came to your office today! My friends were initially thinking to hang the "gift" on your front door.
Relax, I won’t do anything illegal”.
189The image on the bottom left of the messages thread shows a photo of Hu’s desk taken that day. Hu then responds to Zhang to say that he had gone to the police and requests all communication be via his lawyer and expressly states his concern about Zhang hiring someone to kill him. Zhang continues to message as follows:
“It seems like that you are now loved by someone. You (have the audacity) to call the police, knowing that you owe me money. I have given you my mercy but you don't even appreciate it. I wouldn't do anything like this. I give you one week to repay me the AUD 1.9 million. If not, you have to deal with the consequence.
Wait for me. I am coming right over. I will come by your office every day, to help you keep an eye on who would do illegal things to you”.
190Zhang admitted to sending those messages, which said that he would attend Hu’s offices every day in response to Hu going to the police and asking for all contact to be through his lawyers, but denied making such visits.
191Zhang denied he was threatening Hu in June 2021 to go to the media and the lawyers to get his interest back. He claimed that WeChat might have changed his audio message from Mandarin into text and might not reflect his true intention.
192Zhang agreed that he messaged Hu’s wife and staff asking for his home address in June 2021. Pursuant to my previous ruling on tendency evidence, Zhang’s text messages to Hu’s wife and employees cannot be used as tendency evidence for the purpose of proving that Zhang had a tendency to make threats to Hu and make repeated and unwelcome visits to Hu’s office (“the Purpose”). Hu, however, relies on those messages in support of other factual matters in relation to the allegation that Zhang was seeking repayment on the interest forgone on the Garden Street Development loan and not a loan personally to Hu, as set out below. Zhang denied that he uses threats to get people to repay him. Zhang claimed that Hu had made up a story that amused him.
193Zhang denied sending messages to Hu’s father in June 2021 seeking repayment of “the huge amount of money your son borrowed from me for the purpose of the project. It has been several years now”. Zhang said that, if he sent the message, then it would be regarding the alleged ¥9.5m loan. In relation to the passage that “…to help my investors recover the money”, even though he claimed the ¥9.5m was Zhang’s own funds, he sought to explain that he made a reference to “my investors” because he had to come up with a reason to get his money back.
194The messages to Hu’s father, in accordance with my tendency ruling, cannot be used as tendency evidence for the Purpose. Hu relies on the text messages to his father to establish that the alleged debt relates to the Garden Street Development given the reference to “the project”, the “investors” and the time frame of “several years”. Zhang says he did not know why Hu was borrowing the money, he said that the funds came from his own cash reserves and did not involve investors and the alleged loan was due for repayment on 31 October 2020, so could not be owing for “several years”. Zhang’s language is consistent with him seeking repayment for the interest that he and his investors expected to receive out of the Garden Street Development loan.
195Hu said that Zhang’s language and behaviour had been aggressive since 2019 and prior to the WeChat correspondence on 15–16 June 2021. Hu agreed that Zhang was angry that no further payments had been made.
196Zhang denies that he sent WeChat messages on 16 June 2021 to Hu’s wife. Zhang said he was not sure if he had seen the evidence before. He then said that he had never seen the messages before. Given my adverse credibility findings in respect of Zhang, I do not accept his evidence in relation to the messages to Hu’s wife and his father. I find that Zhang did send the messages to them.
197When shown a WeChat message in June 2021, Zhang agreed that he attended the Zank & Co office. He said that he had an appointment to see Hu. At the time they were still friends, he wanted to drop off some yabbies at Hu’s house as a present. Hu responded that, “given the ugly words you have thrown at me, I don’t think there is a need for us to meet again”. Zhang said that, at this stage, the relationship had broken down, as Hu had called the police and Hu claimed Zhang had trespassed on his office.
198Zhang said that he was not sure who he was referring to in the WeChat message:
“I have given you some leeway when I came to your office today! My friends were initially thinking to hang the ‘gift’ on your front door”.
199For contextual purposes only, Hu submits that the reference to the “gift” was the yellow graffiti in his office pictured in the WeChat message, which resulted in Hu obtaining an IVO against Zhang. Zhang denied that he vandalised Hu’s office, but did accept that he had attended Hu’s office on the day of the graffiti attack. The alleged vandalism cannot be used as tendency evidence, pursuant to my previous ruling.
200Zhang denied sending the message to Hu’s wife, stating:
“I wanted to talk to you. Xiao Hu owes me 190 Australian dollars2, and now he/she is trying to repudiate it. A few Chinese National Security friends are also creditors. I wanted to give him a chance, but it had been two years. Domestic creditors will find your parents and his parents. Life will be difficult for [you guys] if this matter is not settled. Just give me your home address so that we can have a good chat. But should [you] keep trying to get away, there will always be a way to find out”.
201Zhang claimed it might have come from another investor in China who knew Hu’s family and wife. Zhang denied that he made these threats to Hu in August 2019 to get him to repay the interest on the Garden Street Development loan.
202Zhang denied sending the WeChat message to Hu’s wife on 16 June 2021 that:
“I have got all the media ready. I want to give him a chance.
All I want is to have my money back, I don't want to make this too ugly! All acts of resistance will be backfired”.
203In June 2021, Hu contacted the police about Zhang’s alleged threats. However, Hu conceded that, as at September 2020, he did not contact the police. Hu said the threats were in person or over the phone and there was no actual evidence that he could put to the police at the time. Hu thought the police might give a verbal warning and “piss off” Zhang more and “start actual action”.[28]
[28] Transcript 171 line 31.
204Hu said that the staff and clients witnessed Zhang’s attendances at the office and not the threats. Hu conceded there were no documents showing Hu complaining that the loan is a fake or that he was pressured to sign.
205The evidence in August 2021 was that the text messages, the harassment and asking of his staff and family for his home address made Hu feel extremely uncomfortable, such that he wanted to protect his family by obtaining an IVO. Hu filed a police report and was granted an IVO against Zhang on 11 August 2021. The IVO was struck out on 13 October 2021.
Summary
206Zhang has a tendency to make threats to Hu and to make repeated and unwelcome visits to his office and it is, therefore, more likely that Zhang did so at the relevant moments in time as alleged by Hu. Because of this tendency of Zhang, it is more likely that he acted in the particular way as alleged by Hu between July 2019 and March 2021 and to try to cause Hu to agree to pay money, or make payments, to Zhang.
207Further, Zhang’s conduct in June 2021 is similar to the alleged conduct prior to the signing of the loan documents in 2019, and the close similarity between the events increases the probative value of the tendency evidence. In particular, in June 2021, Zhang visited Zank & Co and threatened to visit every day, despite being told not to. Zhang’s written messages also repeat threats about the Chinese National Security, use of media and threats towards Hu’s family in China. In turn, I am able to infer that Zhang acted in a similar way between July 2019 and September 2019 as he did in June 2021.
208In light of the above evidence I have relied upon, the concessions made by Zhang at trial and my adverse credibility findings against Zhang, I accept that from July 2019 to September 2019, Zhang came into the Zank & Co office very frequently and would watch Hu work, smoke in the office, generally obstruct Hu’s business, and would not leave when asked. These attendances were not invited by Hu.
209I accept that Zhang said to Hu words to the effect that he would continue to come to the Zank & Co office every day until Hu agreed to pay the lost interest from the Garden Street Development loan.
210I accept that Zhang said to Hu words to the effect that he would use his contacts in the Chinese National Security (said to be similar to the CIA or KGB) to send people from China to harm Hu and his family in China and in Australia, unless Hu agreed to pay the lost interest from the Garden Street Development loan.
211Zhang said to Hu words to the effect that he already sent people to find Tiger and that “sooner or later you will see Tiger's leg is broken”. Zhang submitted that the allegation of harm to Tiger was not pleaded, it was not put to Zhang and Tiger was not called as a witness. I give little weight to this allegation.
212I accept that Zhang said to Hu words to the effect that he would organise media and a journalist to come to Zank & Co and tell them the story about how Hu or Zank & Co had lost his investment return, unless Hu agreed to be liable for the lost interest from the Garden Street Development loan.
213There can be no doubt that the threats made by Zhang were illegitimate. The messages set out above are extraordinary and alarming communications that are menacing, threatening, intimidating and scary, both in words and in tone. They were significant in nature and intended to try to recover payment of money from Hu, which Zhang believed was owed to him. By Zhang’s own words and conduct, he demonstrates what he is capable of in writing in June 2021. I accept that this is tendency evidence of how Zhang also acted earlier and makes it more likely that he acted in the same way in August and September 2019 in light of his failed investment in Garden Street Development.
214I reject Zhang’s counsel’s submission that these communications were “heated exchanges”. They are not exchanges. They are heated threats made by Zhang to Hu, resulting in Hu going to the police and obtaining an IVO.[29]
[29] Court Book 60.
215In any case, even less forms of wrongful conduct are capable of constituting unlawful pressure. I reject Zhang’s submissions that his specific acts of conduct, such as sitting in Hu’s office and smoking and going to the media, does not constitute duress, given they are not unlawful or illegitimate. Indeed, the effect of this illegitimate pressure was that Zhang felt that he had no choice but to agree to Hu’s demands, including signing the Loan Agreement documents. It is sufficient that this illegitimate pressure was a cause, but not the sole reason, for Hu’s decision to agree to the Loan Agreement and Receipt.
216As Hu has satisfied his onus in proving that Zhang’s illegitimate pressure caused him to agree to sign the loan documents, the onus then switches to Zhang to show that this pressure made no contribution to Hu entering into the Loan Agreement. Zhang has not sufficiently rebutted or adequately overcome his onus that his conduct made no contribution to Hu’s assent to the loan documents. It is insufficient for Zhang to rely on the proposition that it was not objectively reasonable for Hu to believe his threats in relation to the Chinese National Ministry and harm to his family in China.
217In summary, and for the above reasons, I accept that Zhang’s threats and conduct were a reason for Hu signing the 10 September 2019 Loan Agreement and the Receipt. Hu has established the requisite principles of duress in relation to the Loan Agreement and Receipt which are, therefore, void and of no effect.
Issue 3: Did Hu make payments of $30,000 and $20,000 to Zhang in respect of the loan in November and December 2020?
Zhang’s submissions
218In respect of the payments of $30,000.00 and $20,000.00 in November and December 2020, Hu alleged that these payments were made under duress exerted by Zhang. Zhang submits that Hu gave no evidence to this effect and rather, that he readily accepted that these payments were voluntary. Hu also accepted that Zhang had not used threatening language in any of the WeChat exchanges concerning the payments. Zhang says that the payments were repayments of the Loan as recorded in the Supplementary Loan Agreement.
Hu’s submissions
219Hu submits that he caused Zank & Co to make payments of $30,000.00 and $20,000.00 to Zhang’s mother-in-law for two reasons. First, because Zhang had referred prospective clients to the business (noting that leave was not granted to include this in the amended defence). Second, because Hu intended to provide some compensation to Zhang for losses incurred as a result of the loan to Garden Street Development. Hu submits that neither reason was in relation to payment of the alleged loan, the existence of which is denied.
220Hu refers to contemporaneous evidence of remittance of payments that demonstrate what has been referred to as a “consultation fee” and that Zhang repeatedly asked Hu for a receipt, which is consistent with the payment being a business expense. Hu further submits that the payments were not payments which Hu or Zank & Co were obliged to make, but were made in part because of Zhang’s previous conduct in demanding payments from Hu. Hu said that, from around September 2020, Zhang started aggressively seeking payment from him by “threats and harassment”.
221Hu argues that Zhang’s conduct was “a reason” for the payments caused to be made by Hu and, therefore, the payments were made under duress. The payments made were not voluntary.
Analysis
222Given my earlier reasoning that there was no loan in existence between Zhang and Hu, it is unnecessary for me to determine this issue. However, for the sake of completeness and consistent with my earlier credibility findings, the $30,000.00 and $20,000.00 payments made by Hu to Zhang’s mother-in-law were not made as payment in respect of the alleged loan. The evidence I rely on is as follows.
223In relation to the WeChat message on 3 October 2020, Hu said that he was going to make a transfer at the end of the month, which coincided with the timeframe under the Loan Agreement. Hu said that he was still trying to make compensation to Zhang for the lost interest on the Garden Street Development investment.
224On 24 October 2020, Hu transferred the sum of $30,000.00 from Zank & Co to Zhang’s mother-in-law’s Westpac Banking Corporation account with the reference described as “consultation fee”. Zhang said that there was a WeChat message from Hu that he did not have the funds in his personal account.
225By WeChat message on 24 October 2020, Zhang asks Hu when he will make payment. At 8.49pm, Hu makes a payment of $30,000.00, which was meant to go to Hu Cheng, Zhang’s mother-in-law, however, there was a typographical error on the account number. On 10 November 2020, Hu transferred the $30,000.00 to the correct account.
226On 21 November 2020, Hu asks Zhang for a receipt of the money transferred to Hua Cheng described as “consulting fee” for bookkeeping. He conceded that Hu asked for a receipt for tax purposes as the money was from Zank & Co.
227Zhang said that the Supplementary Loan Agreement noted that there were two repayments made by Hu in the sum of $30,000.00 on 17 November 2020 and $20,000.00 on 3 January 2021. The agreement set out two repayment plans. Zhang said that Hu refused to make repayments.
228Although Zhang claimed that, on 17 November 2020 and 4 January 2021, Hu paid $30,000.00 and $20,000.00 respectively, the Westpac Bank Statements indicate that it is Zank & Co that deposited amounts on 11 November 2020 and 4 November 2021 into Zhang’s mother-in-law’s account. The Supplementary Loan Agreement incorrectly notes that Hu repaid $30,000.00 on 17 November 2020 and $20,000.00 on 4 January 2021. Zhang claimed that the dates reflect the dates on which the money came into his account.
229Hu denied that the $30,000.00 and $20,000.00 in November and January were repayments of a loan. He said there is no loan in place.
230In my view, it is clear that the payments of $30,000.00 and $20,000.00 made by Hu to Zhang were not made in respect of the Loan Agreement. Consistent with my earlier credibility findings, I have preferred the evidence of Hu over Zhang and accept that the payments were made for reasons other than in relation to the payment of the alleged loan agreements. Further, due to Zhang’s threatening conduct as accepted in my previous reasons, I find that the payments made by Hu were made under duress.
Issue 4: Did Zhang sign the Supplementary Loan Agreement in March 2021 under duress?
Zhang’s submissions
231Hu alleges that Zhang continued to harass him in a similar manner in relation to the Supplementary Loan Agreement of March 2021. In reply, Zhang submits that Hu gave very little evidence in support of this allegation, and that he had not attended Hu’s offices in the period between January and March 2021 because of the COVID lockdowns. Zhang says that their communications were by phone and mostly related to a potential purchaser for the Garden Street Development properties.
232Zhang submits that the only evidence of intimidation given was that Hu said Zhang gave him “[a] similar message, I can't remember the exact wording but that's similar information which back in 2019, about the same thing, 'I'm going to find your parents, I'm going to find you”. Zhang agreed that this was about the Chinese Ministry of Security. However, reiterating earlier submissions, Zhang argues that it was not reasonable for Hu to believe that Zhang could cause the Chinese Ministry of Security to harm his family.
Hu’s submissions
233Hu refers to Zhang’s own evidence that he made similar threats and engaged in similar conduct, previously outlined, save that the threats were only made over the phone and not in person.
234Hu submits and repeats his earlier submissions in respect of Zhang’s illegitimate conduct and the effect of the illegitimate pressure Zhang applied to Hu. Accordingly, the same conclusion should be reached that Zhang’s threats and conduct from between January and March 2021 was a reason that Hu signed the March 2021 Supplementary Loan Agreement which is, therefore, either void or voidable.
235Hu further seeks to rely on Zhang’s text messages of June 2021 as tendency evidence, which he has addressed in earlier submissions.
Analysis
236Consistent with my earlier reasoning, I have preferred the evidence of Hu, and find that Hu has established, and Zhang has not rebutted, the allegation that illegitimate pressure was exerted upon Hu, which induced him to sign the Supplementary Loan Agreement. The case authorities previously referred to are also applicable to the current issue of whether Zhang signed the Supplementary Loan Agreement in March 2021 under duress.
237I accept that, from September 2020 to March 2021, Zhang began to, again, be more aggressive and harass Hu about paying money that he did not receive from the Garden Street Development loan and that Zhang made threats to Hu and his family, including that he would use his connections in China to harm Hu and his family unless Hu paid money to him. These threats were made orally in telephone calls between January and March 2021.
238The appropriate conclusion is that the Supplementary Loan Agreement is void and of no effect. Further, in accordance with my ruling dated 24 February 2023, I have again used the admissible tendency evidence of Zhang’s conduct in June 2021 to assist in the fact finding exercise of what occurred in the lead up to the signing of the March 2021 Supplementary Loan Agreement.
Conduct: Ongoing Harassment
239Hu alleges that Zhang continued to harass him in a similar manner, as he did in the lead up to the September 2019 Loan Agreement, in relation to the Supplementary Loan Agreement of March 2021. Hu suggests that these threats were made over the phone and not in person. The evidence I refer to is as follows.
240After January 2021, Hu said that Zhang’s language became more and more aggressive. Between January to March 2021, Hu said that Zhang used similar words over the phone. Zhang could not attend the office as Melbourne was in lockdown. Close to March 2021, Zhang said that he could find a potential purchaser for the properties for $8–10m. Hu said he could get his money back and he could pay Zhang some compensation.
241Hu says that, in the period leading up to 31 March 2021, Zhang continued to harass Hu in a similar manner as in September 2019. Hu said that he signed the Supplementary Loan Agreement document because it followed months of mental torture of sending people to deal with him. Hu said that if Zhang had a potential buyer, then he wanted Zhang to leave him alone. Repayment plan 1 noted Hu’s 25% shareholding in Garden Street Holdings. Hu did not make any further payments to Zhang after the document was signed.
242Hu said that he did not draft the Supplementary Loan Agreement. He conceded that he signed a document that he personally had made repayments and the remaining loan balance had been reduced by $50,000.00. Zhang did not say that the payments were from Zank & Co in commissions. Instead, Zhang reduced Hu’s personal debt.
243Hu agreed that he signed the Supplementary Loan Agreement on 31 March 2021 at the Mountain View Hotel in Glen Waverley. He conceded that he did not protest at the time, even though he was in a public place. Hu conceded there is nothing in writing evidencing threats and intimidation before signing the Supplementary Loan Agreement.
244As Hu feared for his own safety and the safety of his family members, he said that he agreed to meet Zhang at the Mountain View Hotel in Glen Waverley and signed the document in order to prevent further threats to his safety. Hu said that Zhang’s harassment did not stop after he signed the document.
245Zhang denied that he attended Hu’s office every day in the lead up to the signing of the Supplementary Loan Agreement. He denied saying that he would attend Hu’s home every day. Zhang did have a firearm licence at the time. He denied that he told Hu this. Zhang denied that he told Hu that he would use his contacts in China to influence Hu’s family.
Tendency Evidence
246There is a clear dispute and divergence of facts between Hu and Zhang as to whether Zhang engaged in threatening conduct leading up to March 2021 when the Supplementary Loan Agreement was signed and agreed to. I again rely on tendency evidence pursuant to my ruling dated 24 February 2023 and relevant authorities referred to earlier to assist in the fact finding exercise. In particular, I rely on the various threatening text messages and conduct of Zhang towards Hu in June 2021, detailed earlier, which assist my reasoning as to what transpired from September 2020 to March 2021.
Summary
247In my view, and consistent with my earlier conclusions, Zhang has a tendency to make threats to Hu. Because of this tendency of Zhang, it is more likely that he acted in this way as alleged by Hu between September 2020 and March 2021 in the lead up to the Supplementary Loan Agreement. Again, there is a close similarity between Zhang’s conduct in June 2021 and what is alleged to have occurred between September 2019 and March 2021. Specifically, I refer to Zhang’s repeated threats about the Chinese National Security, use of media and threats towards Hu’s family in China unless Hu paid the money to Zhang. I find that Zhang engaged in a course of persistent harassment and threats towards Hu.
248The fact that Zhang attended Hu’s offices in June 2021 tends to support my finding that Zhang had a tendency to visit Hu’s offices in early 2021. Further, the fact that Zhang made threats to visit and/or purported to visit Hu’s home tends to support that Zhang threatened to attend Hu’s home in September 2019 and March 2021 as part of the aggressive and intimidatory conduct towards Hu.
249The evidence of the menacing and threatening text messages from Zhang to Hu in June 2021 supports the tendency of Zhang to engage in oral threats using similar language in September 2019 and March 2021.
250In light of the above evidence, the concessions made by Zhang at trial and my adverse credibility findings against Zhang, I accept that from September 2020 to March 2021, Zhang began to be more aggressive and continued to harass Hu about payments of money that he did not receive from the Garden Street Development loan; that Zhang again made threats to Hu and his family, including that he would use his connections in China to harm Hu and Hu’s family unless Hu paid money to Zhang. I accept that these threats were made orally in telephone calls between around January and March 2021.
251The threats made by Zhang were illegitimate and Zhang has not adequately overcome his onus that his conduct was of no contribution to Hu’s agreeing to the Supplementary Loan Agreement. Zhang’s main contention remains based on Hu’s objective reasonable belief in the threats, which is insufficient. In my view, Hu signed the 31 March 2021 Supplementary Loan Agreement under duress as a result of Zhang’s conduct and that Hu feared he would carry out the threats.
252In summary, and for the above reasons, I accept that Zhang’s threats and conduct was a reason for Hu signing the March 2021 Supplementary Loan Agreement. Hu has established the requisite principles of duress in relation to the Supplementary Loan Agreement which is, therefore, void or voidable.
Issue 5: Is Hu indebted to Zhang for $1.85m plus interest?
Zhang’s submissions
253Zhang submits that the only payment Hu made in respect of the Loan were the payments of $30,000.00 and $20,000.00. In accordance with the Supplementary Loan Agreement, $1.85m remains owing.
254Zhang further submits that the Loan Agreement provided for interest to be payable at 15% per annum from 31 October 2020 until the loan was repaid in full. Regardless, even if this did not apply, statutory interest would be payable from 26 August 2021 being the date Zhang demanded payment from Hu.
Hu’s submissions
255Hu submits that, based on its earlier submissions and the evidence itself, there was no loan of ¥9.5m from Zhang and, in the absence of Zhang’s pleaded case that this loan was advanced in cash in September 2019 being proven, there is no basis for a finding that Hu is indebted to Zhang for any amount on any pleaded claim.
256Hu contends that Zhang’s evidence does not establish that Zhang made payment of ¥9.5m to Hu as alleged and it follows that Zhang’s claim should be dismissed.
Analysis
257In light of my earlier reasoning, I have already concluded that Zhang has not satisfied his onus to prove, on the balance of probabilities, that he advanced ¥9.5 million to Hu in September 2019 in China. In turn, it follows that Zhang has not made good his pleaded case about the existence of a loan which he advanced to Hu. I also concluded, in the alternative, in the event I am wrong, that if the alleged loan was valid, it should be declared void and of no effect on the basis that Zhang exerted illegitimate pressure upon Hu, which was a reason why he entered into the Loan Agreement. Accordingly, the Loan Agreement is void and of no effect and Hu is not indebted to Zhang for any alleged amount claimed by Zhang, being $1.85m plus interest.
Conclusion
258For the foregoing reasons, the proceeding ought to be dismissed.
Orders
259The orders of the Court are:
1. There is judgment for the defendant against the plaintiff.
2. The proceeding is dismissed.
3. The plaintiff pay the defendant’s costs of and incidental to the proceeding on a standard basis to be taxed in default of agreement.
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Certificate
I certify that these 59 pages are a true copy of the judgment of Her Honour Judge Burchell delivered on 7 June 2023.
Dated: 7 June 2023
Andrea Ko
Associate to Her Honour Judge Burchell
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