Zhao v Argo Pty Ltd
[2014] VSC 24
•11 FEBRUARY 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 04360 of 2013
| LI ZHAO | Appellant |
| v | |
| ARGO PTY LTD (ACN 145 159 440) | Respondent |
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JUDGE: | ELLIOTT J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 10 FEBRUARY 2014 | |
DATE OF JUDGMENT: | 11 FEBRUARY 2014 | |
CASE MAY BE CITED AS: | ZHAO v ARGO PTY LTD | |
MEDIUM NEUTRAL CITATION: | [2014] VSC 24 | |
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PRACTICE AND PROCEDURE – Appeal against refusal by associate judge to dismiss plaintiff’s claim summarily – tests to be applied – fresh evidence on appeal – appeal dismissed on discretionary grounds – Civil Procedure Act 2010 (Vic), ss 63, 64; Supreme Court (General Civil Procedure) Rules 2005 (Vic), r 77.06; Cheques Act 1986 (Vic), ss 3, 40, 69, 71; Instruments Act 1958 (Vic), ss 3, 4; Sale of Land Act 1962 (Vic), ss 24-26.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr SK Wilson QC with Mr WEM Lye | Russell Kennedy |
| For the Respondent | Mr J Delany SC with Ms G Costello | Soho Lawyers Pty Ltd |
HIS HONOUR:
A. Introduction
This is an appeal from part of a judgment of his Honour, Mukhtar AsJ. The appellant, Li Zhao (“Zhao”), appeals to the trial division of the Supreme Court pursuant to rule 77.06 of the Supreme Court (General Civil Procedure) Rules 2005 (Vic).
On 16 December 2013, his Honour dismissed the application of Zhao, who is the defendant in the proceeding. Zhao was seeking summary judgment against the respondent, Argo Pty Ltd (“Argo”), who is the plaintiff in the proceeding. Argo has sued on a cheque signed by Zhao. Zhao sought to have the proceeding, which was commenced by a writ (“the Writ”) indorsed pursuant to s 4 of the Instruments Act 1958 (Vic), dismissed, principally on 2 grounds: first, Argo did not have standing to prosecute the proceeding and, secondly, Zhao received no consideration in relation to the relevant transaction.
While Mukhtar AsJ acknowledged there was some merit in the submissions made by Zhao, his Honour found, on the facts of this case, that there was:[1]
On the pre existing test as embedded in the rules there is a case to be investigated. And under s 64 of the Civil Procedure Act “the dispute is of such a nature that only a full hearing on the merits is appropriate”.
(Original emphasis.)
[1]Argo Pty Ltd v Zhao (unreported, 16 December 2013, Mukhtar AsJ), [5].
At the same time that his Honour dismissed Zhao’s application, Mukhtar AsJ allowed an application by Argo to join Zhao’s son, Yunhe Yu (also known as Andrew Yu) (“Yu”), as the 2nd defendant to the proceeding. His Honour also granted leave to Argo to file and serve an amended writ and a statement of claim, making allegations against both Zhao and Yu based on causes of action founded in negligence, misleading or deceptive conduct and deceit. There is no appeal from his Honour’s judgment in relation to Argo’s applications.
The orders made by Mukhtar AsJ on 18 December 2013 included the following:
2.[Argo] shall file and serve a statement of claim on or before 20 December 2013 that:
(a)pleads the material facts and, where appropriate, the legal basis on which the plaintiff makes its claim on the cheque, a copy of which appears in schedule A to the writ as originally filed; and
(b)includes the additional claims as pleaded in the proposed statement of claim being exhibit “KK15” to the affidavit of Konfir Kabo sworn 22 October 2013 against both defendants.
3.This proceeding be referred to the Honourable Justice Sifris for procedural management together with proceeding no. SCI 2013 02941 in which [Argo] is plaintiff and Zhiyu Wei and Sam J. Xia are defendants and for that purpose, subject to any different orders by his Honour, the next directions hearing in this proceeding shall occur on 14 March 2014.
B. Background
There are material facts that are not presently in evidence before the court on this interlocutory appeal. The facts as set out in the affidavits filed to date disclose that this case has somewhat unusual, perhaps even extraordinary, aspects to it.
On 28 March 2013, a contract of sale of real estate was entered into between Argo, as vendor, and Zhiyu Wei (“Wei”), Sam J Xia (“Xia”) “and/or nominee”, as purchasers (“the Contract”). Obviously, the title of the purchasers contemplated the possibility of another or others being involved as purchasers. The property the subject of the Contract was located at 36-40 La Trobe Street, Melbourne in the State of Victoria (“the Property”). The real estate agent acting for Argo was Fitzroys Pty Ltd (“Fitzroys”).
Immediately before the Contract was executed by Wei and Xia, a meeting was held attended by those 2 persons, together with Yu and an employee of Fitzroys, namely Charles Emmett (“Emmett”). There is no affidavit from Emmett presently before the court. There is also no affidavit from Wei or Xia.
According to Yu, he attended the meeting and accompanied Wei as a friend. Yu also says he attended because he knew Emmett and had previously introduced Emmett to Wei. Yu also deposes that he had no personal interest in the purchase of the Property, either directly or indirectly.
Without descending to the specific details, Yu says Emmett said at this meeting that Argo had agreed to the offer made by Wei and Xia to purchase the Property at a price of $9.6 million. Emmett also said that a deposit of $960,000 was payable immediately.
Shortly before the Contract was signed, Yu deposes that Wei and Xia told him, in the presence of Emmett, that they had not expected to sign a contract that day and did not have a cheque book with them. They asked Yu whether he would provide a cheque to cover the deposit for the purchase of the Property, which would be substituted by a cheque from Wei and Xia the next business day. (28 March 2013 was the Thursday before Easter, meaning the next business day was Tuesday, 2 April 2013.)
Yu says that because he was good friends with Wei and trusted him, and because he wished to help out Wei, he agreed to provide a cheque. Although Yu did not have his cheque book with him, he recalled that he might have a pre-signed cheque from his mother, Zhao, in his car. Yu said he then searched his car and found a blank counter cheque[2] signed by his mother on one of Zhao’s accounts.
[2]The cheque was not from a cheque book, but had been issued by the bank to Zhao before any book was available.
Yu said that he then inserted the date and the amount, with Emmett completing the name of the payee, which was “Fitzroys Pty Ltd Sales Trust Account” on the cheque (“the Cheque”). The words “or bearer” appeared on the Cheque immediately after the name of the payee.
Yu said at the time he gave the Cheque to Emmett he said, in the presence of Wei and Xia, that there were insufficient moneys in the relevant account to cover the Cheque. Yu said he also stated that the Cheque was not to be banked “and it could only be shown to the vendor as a sign of good faith”. He also stated that Wei and Xia would be replacing the Cheque with their own cheque on the next business day. According to Yu, Emmett “acknowledged the above matters and agreed not to bank the Cheque”. Precisely, or even approximately, what was actually said by Emmett by way of the alleged acknowledgement and agreement is not referred to.
The reason why Yu was able to produce a blank cheque signed by his mother was, according to both Yu and Zhao, because Zhao was in the practice of pre-signing “a number” of blank cheques and providing them to Yu. Zhao, who is a licensed real estate agent with investment properties, said she did this so that Yu could pay expenses from time to time referable to the investment properties. Zhao described these expenses as “more substantial expenses … which cannot be covered by the rental income, for example, plumbing works”.
How many pre-signed blank cheques Zhao had provided to Yu, and over what period of time this practice had been engaged in, is not disclosed on the evidence. Indeed, there was no other cheque put forward by Zhao as evidencing what was said to be this practice on her part.
Shortly after the Contract was executed, and the Cheque was provided to Emmett, Emmett met with the director of Argo, Konfir Kabo (“Kabo”). Matthew Stagg, an agent from another real estate company, was also present at this time. According to Kabo, he received 3 originals of the Contract from Emmett, together with the Cheque. Kabo says he was informed by Emmett that the purchasers were then waiting at a proximate location for a duly signed version of the Contract.
Kabo says that when he was shown the Cheque he took possession of it. Having inspected the Cheque, he asked Emmett who “L Zhao” was. Emmett responded that he did not know, but that the Cheque had been provided to him by Yu.
According to Kabo, Emmett informed him that Wei and Xia would be replacing the Cheque with a bank cheque on the next business day, which would be 2 April 2013 because of the Easter break. In response to a query about what would happen if the bank cheque was not provided, Emmett apparently stated to Kabo that he had advised Wei and Xia that the Cheque would be banked in those circumstances. There is no evidence this was said to Yu, but the position is unclear as to whether Emmett would say (if he ultimately gives evidence) that Yu was present when this advice was allegedly given.[3]
[3]Yu has not given any evidence to suggest he was not present at all times during the relevant discussions with Wei and Xia in relation to the Property, the Contract and the Cheque.
After having this discussion with Emmett, Kabo said that he decided to accept the offer to purchase the Property. He then signed and initialled the Contract, and gave 3 originals of the Contract to Emmett. He said he did not return the Cheque, but retained it at that time. Emmett then departed with the Contract. He walked outside the building in which they were located and provided 1 of the 3 originals of the Contract to Wei and Xia. Kabo says he believes that Yu was also present at that time.
Upon Emmett returning with the Contract after meeting with Wei, Xia and Yu, Kabo said he then handed the Cheque to Emmett. Upon doing so, Kabo told Emmett to bank the Cheque, or the substitute bank cheque, the next business day.
Later on 28 March 2013, Yu departed for China on business. According to Yu, on 2 April 2013 he received a call from Emmett while he was still in China. Emmett told Yu, in substance, that Wei and Zhao had not provided Emmett with a substitute cheque for the Cheque and that he had banked the Cheque. In response, Yu said that he told Emmett that that was not what had been agreed and in any event there was insufficient funds in the account to cover the Cheque.
Yu says he received a further call from Emmett on 3 April 2013. Emmett is alleged to have said that the Cheque had cleared. Yu suggested that that was not possible. After returning from China some 5 days later, Yu received a further call from Emmett in which Emmett said that the clearance of the Cheque had been reversed. He also said that Wei and Xia were seeking to withdraw from the Contract.
Yu says he informed Zhao of none of these events. He has sworn that he was embarrassed to tell her of what had occurred and that he did not think anything would come of the matter as the Cheque had been dishonoured. He also said, based on his discussions with Wei, that Wei and Xia had withdrawn from the Contract and “were going to have [the Contract] set aside.”
On or about 11 April 2013, Argo served a notice of default on Wei and Xia under the Contract. Wei and Xia did not attempt to remedy the alleged default. Accordingly, on 9 May 2013, Argo sold the Property to another purchaser for the sum of $8.5 million.
On 11 June 2013, Argo commenced a proceeding against Wei and Xia for loss and damage suffered by reason that Wei and Xia did not perform their obligations under the Contract.
On 26 July 2013, a defence and counterclaim was filed by Wei seeking declaratory and other relief, effectively to establish that the Contract was terminated on 2 April 2013. It is unnecessary to go into the details as to why this claim is made, beyond stating that the allegations include representations alleged to have been made by Emmett prior to the Contract being executed and the Cheque being paid by way of deposit.
Fitzroys and Emmett are also defendants to the counterclaim. The proceeding is currently under the management of Sifris J in the Commercial Court.
On 22 August 2013, by filing the Writ, Argo sought the sum of $960,000 plus interest due to Argo as “payee bearer” of a bill of exchange. An affidavit sworn by Kabo on 21 August 2013 was filed with the Writ.
On 10 September 2013, Zhao made an application pursuant to s 5 of the Instruments Act for leave to appear and defend the proceeding. On that day, his Honour, Digby J, granted leave to Zhao to defend the claim.[4]
[4]The decision is unreported.
C. The case put by Zhao as to her role and the role of Yu in the transaction
Zhao alleges that she was defrauded by her son, Yu. She has sworn that she had no knowledge of the Contract or the Cheque until after she was served with the Writ.
Further, Zhao says she has never had any interest in the Property. She has sworn that she had no relationship with Wei in relation to the Property.
Yu corroborates the evidence given by Zhao. He says that he provided the Cheque to help a friend until his friend could provide a further cheque, to be provided by way of deposit in relation to the purchase of the Property. Further, Yu says he never had any interest in the Property, or in acquiring any interest in the Property.
D. Further evidence relevant to the role of Zhao and Yu in the transaction
Since the filing of the affidavits relied upon by Zhao before Digby J on 10 September 2013, further matters have come to light. First, Yu was more than a friend of Wei. Evidence now before the court discloses that they were in a business relationship in relation to property investments both before and at the time the Contract was entered into.
Secondly, an expression of interest form (“the Expression of Interest”) was provided by Wei on 27 March 2013. Wei stated his address for the purposes of expressing his interest was suite 302, 991 Whitehorse Road, Box Hill. This was the same address used by both Wei and Yu for companies in which they both had an interest.
Thirdly, an email was sent by Emmett to Yu just over a week before the Contract was executed. The subject of the email is “36-40 La Trobe Street, Melbourne” (ie the Property). The email also contained an attachment which was a document containing details of the Property. The email read as follows:
Hi Andrew
IM attached.
…
This will be a matter of putting an offer so we can go back to you to advise where (sic) he will sell for.
The vendor is going to sell it throughout this EOI process. Don’t worry about what he said earlier on price.
I will come back to you once I hear from the owner of the other La Trobe St site as well – do not worry.
(Emphasis added.)
There is no evidence of what discussions Emmett and Yu had between the date of this email, namely 20 March 2013, and 28 March 2013 when the Contract was signed. From the contents of the email, it is likely that some discussion took place in relation to the Property. In any event, the email demonstrates Yu was taking an active role in relation to the purchase of the Property.
Fourthly, it appears that Zhao and Wei had also been in business together. A current and historical organisation extract provided by the Australian Securities and Investments Commission in relation to Whigate Management Pty Ltd discloses that Zhao is a director of the company, having been appointed on 8 October 2007. The previous directors of this company include Yu (until 23 November 2010); but more importantly, Wei was a director from 26 March 2010 to 15 August 2013 (ie they were fellow directors at the time the Contract was entered into). Moreover, the principal place of business in relation to this company is the same address given by Wei on the Expression of Interest.
Fifthly, on 15 March 2013 a company named “Latrobe Street Holdings Pty Ltd” was incorporated with Zhao as the sole director, secretary and shareholder. Although the incorporation of this company might be explained by the fact that on 18 March 2013 Yu entered into a contract of sale in relation to a property located at 323-331 La Trobe Street, Melbourne, the name of the company is also consistent with Zhao having an interest, or at least a possible interest, in both this property and the Property.
Sixthly, Argo relied upon a further affidavit that was not before the associate judge. The court has the power to receive further evidence on an appeal such as this.[5] The further affidavit was tendered without objection.
[5]Supreme Court Rules 2005, r 77.06.9(3).
Without providing the specifics, exhibits to the further affidavit demonstrated that the account upon which the Cheque was drawn was clearly used for purposes beyond those referred to by Zhao. The bank records tendered demonstrate that very large amounts have been withdrawn from this account, 1 such withdrawal being $450,000. Such transactions show that it is likely that the account was used for purposes other than “substantial expenses” in relation to the investment properties. While this fact may not be inconsistent with the evidence given by Zhao (about which I say nothing further), it does suggest that inquiries need to be made in relation to how other cheques signed by Yu in relation to that account have been utilised.
In short, the relationship between Wei and Xia on the one hand, with Yu and Zhao, both collectively and individually, on the other hand goes well beyond what was previously disclosed to the court. The further evidence also provides a basis upon which questions are raised concerning Zhao’s position that she had no interest in the relevant transaction and the Property.
E.The test to be applied on an application for summary judgment on an appeal from an associate judge
The Supreme Court Rules provide that on an appeal such as this, a judge of the court has the power to, amongst other things, give any judgment and make any order which ought to have been given or made and make any further or other order as the case may require.[6]
[6]Rule 77.06.9(2)(b) and (c).
In Lysaght Building Solutions Pty Ltd (t/a Highline Commercial Construction) v Blanalko Pty Ltd[7] Warren CJ and Nettle JA[8] considered a line of authority concerning the test to be applied under s 63 of the Civil Procedure Act 2010 (Vic). Section 63 provides as follows:
[7][2013] VSCA 158.
[8]With whom Neave JA agreed, [36].
(1)Subject to section 64, a court may give summary judgment in any civil proceeding if satisfied that a claim, a defence or a counterclaim or part of the claim, defence or counterclaim, as the case requires, has no real prospect of success.
(2)A court may give summary judgment in any civil proceeding under subsection (1)-
…
(b) on the application of a defendant in a civil proceeding;
…
(Emphasis added.)
Section 64 of the Civil Procedure Act provides:
Despite anything to the contrary in this Part or any rules of court, a court may order that a civil proceeding proceed to trial if the court is satisfied that, despite there being no real prospect of success the civil proceeding should not be disposed of summarily because -
(a) it is not in the interests of justice to do so; or
(b)the dispute is of such a nature that only a full hearing on the merits is appropriate.
Having considered the relevant authorities, their Honours stated the test under s 63 of the Civil Procedure Act should be construed as one where the respondent to the application for summary judgment must have a “real” chance of success, not just a “fanciful” chance of success. Their Honours also stated that the “real chance of success” test is, to some degree, more liberal than the “hopeless” or “bound to fail” test that previously prevailed. Their Honours then continued:[9]
[A]s the law is at present understood, the real chance of success test permits of the possibility that there may be cases, yet to be identified, in which it appears that, although the respondent’s case is not ‘hopeless’ or ‘bound to fail’, it does not have a real prospect of succeeding.
[9]At [29].
As may be seen, even if s 63 of the Civil Procedure Act is satisfied, the court still has the discretion to refuse an application for summary judgment pursuant to s 64. As already noted,[10] this is what the learned associate judge did in this case.
[10]See par 3 above.
F. Consideration
It is convenient to deal with the issue of consideration first, as it may be dealt with briefly. Senior counsel for Zhao frankly admitted that this aspect of the case for Zhao requires the court to accept that Yu was engaged in a fraud when he provided the Cheque. Senior counsel submitted that there was no controversy on the evidence before the court about this, as both Zhao and Yu said the fraud had occurred.
Self-evidently, subject to the standing issue addressed below, a matter such as this ought to go to trial. At the moment there is no ability on the part of Argo to test the evidence of Zhao and Yu in relation to their involvement, or lack of involvement, in the relevant transaction. With respect, Mukhtar AsJ put it succinctly when he said:[11]
There are obliquities and commercial dynamics in this dealing. There are peculiar facts. There are explanations that will have to be tested under the rigours of trial, as will credibility of the story.
In my view, his Honour’s approach was apposite. In a case involving fraud, blank cheques, and questionable explanations for conduct engaged in, it would be entirely inappropriate for the court to act summarily based on the untested evidence of deponents, 1 of whom admits he has engaged in fraudulent conduct going to the heart of the issues in dispute.
[11]At [5].
G. Standing of Argo
Zhao submits that even if the nature of the case is such that there can be no certainty in relation to consideration, the issue of standing does not depend upon various accounts of what occurred in relation to the Contract and the Cheque. It is submitted by Zhao that there can be no standing in circumstances where Argo was not “the holder” of the Cheque.[12]
[12]See Cheques Act 1986 (Cth), ss 3(1), 40, 69, 71; Instruments Act, s 3.
Submissions were made by both parties before the court concerning the operation and effect of the Cheques Act 1986 (Cth), the Instruments Act and the Sale of Land Act 1962 (Vic).[13] The interrelationship between the operation of these Acts when considering the payment of a deposit by cheque in relation to the sale of land in Victoria makes for some potentially interesting issues.
[13]Sections 24, 25 and 26.
Initially, I was minded to rule on these issues on this appeal as it appeared all the relevant evidence relating to the issue of standing was before the court. However, as a matter of discretion, I have decided not to do so for 3 reasons.
First, counsel for Zhao accepted that all the material allegations of fact the subject of the statement of claim would remain on foot even if Zhao were successful in having the claim made pursuant to s 4 of the Instruments Act dismissed.[14] Accordingly, other than issues going to the question of costs, there appears to be little utility or benefit to the parties if the court were to adjudicate on the issue of standing now.
[14]On the pleading, there was only 1 factual allegation that would be struck out, which related to the fact the Cheque was dishonoured. Nothing turns on this as this would be a fact before the Court at trial in any event.
Secondly, there is a possibility that the evidence presently before the court relied upon by Zhao as the basis upon which Argo has no standing may not ultimately be the facts as found by the court at the completion of the trial of the proceeding. Although this is only a possibility, it would be most unsatisfactory if the court were to determine this present issue summarily based upon facts which the court ultimately held were not correct.
Thirdly, though less significantly than the previous 2 reasons, by reason of the approach taken by Mukhtar AsJ, this court does not have the benefit of reasons of the court at first instance in relation to the issues at hand. Given the dynamics of the case, his Honour, in my view quite correctly, did not conclusively engage in the specific issues in relation to standing.
In any event, turning to the substance of the submissions made, Argo contended that a disclosed principal has constructive possession of a cheque when it is held by the principal’s agent. “Possession”, in relation to a Cheque, is defined in the Cheques Act to mean “possession (whether actual or constructive) of the cheque”.[15] Argo further submitted that, by reason of this constructive possession, at all material times Argo was “the person in possession of a cheque payable to bearer” and therefore “the holder” for the purposes of the Cheques Act. On this basis, Argo submitted it was the proper plaintiff. A number of authorities were referred to in support of this submission.[16] However, no authority directly on point was put before the court.
[15]Section 3(1).
[16]These included Office of the Premier v The Herald and Weekly Times Pty Ltd [2013] VSCA 79; Beesley v Australian Federal Police (2001) 111 FCR 1.
In response, Zhao submitted that a principal does not have constructive possession of a cheque held by its agent if the cheque is made payable to the agent. When I asked for authority to support this proposition, none was forthcoming.
Without expressing any view one way or the other, based on submissions provided to the court, if I had not been minded to exercise the court’s discretion to dismiss the appeal, I would not have been able to find that Argo had no real prospect of success in establishing that it was the proper plaintiff and was entitled to prosecute a claim pursuant to s 4 of the Instruments Act.
H. Conclusion
In summary, there was no error in the approach taken by the judge at first instance. Given the serious issues raised by the facts of this case, only a full hearing on the merits is appropriate.
Costs
In dealing with the matter at first instance, Mukhtar AsJ ordered that costs of Zhao’s application be costs in the proceeding “that is, to follow the result of the claim as initially made distinctively by [Argo] under the Instruments Act”. Subject to any further submissions from counsel, I am minded to make a like order in relation to the costs of this appeal. The matters put on appeal will undoubtedly be ventilated at trial and if Zhao is successful at trial in this regard, she ought to be entitled to the costs of this appeal and of the application at first instance.
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