01

Case Title:

Union Link International Pty Ltd v Evan Ji Pty Ltd


Medium Neutral Citation:

[2011] NSWSC 1078

Hearing Date(s):

08/09/2011

Decision Date:

08 September 2011

Jurisdiction:

Equity Division

Before:

McDougall J

Decision:

Plaintiff's claim dismissed with costs. Judgment for cross-claimant on cross-claim with costs.

Catchwords:

CONTRACT - contract for sale of business - construction of contract - whether contract was repudiated - whether specific performance available to vendor - no question of principle - COSTS - whether party entitled to indemnity costs where successful argument was introduced for the first time in submissions following close of evidence.

Legislation Cited:

Cases Cited:

Calderbank v Calderbank (1975) 3 All ER 333

Texts Cited:

Category:

Principal judgment

Parties:

Union Link International Pty Ltd (ACN 132 950 602) (Plaintiff)

Evan Ji Pty Ltd (ACN 144 898 340) (First Defendant)

Dabin Ji (Second Defendant)

Representation

- Counsel:

Counsel:

D P O'Connor (Plaintiff)

N J Broadbent (Defendants)

- Solicitors:

Solicitors:

Haworth & Lexon (Plaintiff)

Wang & Associates (Defendants)

File number(s):

2011/239105

Publication Restriction:

Judgment (EX TEMPORE)

HIS HONOUR: On 28 July 2010, the plaintiff (Union Link) and the first defendant (Evan Ji) made an agreement for Union Link to sell to Evan Ji Union Link's business at Leichhardt, known as the Amore Cafe Restaurant (the agreement).

The restaurant business (as I shall call it) was one of two businesses then conducted by Union Link at Leichhardt. The other, known as Amore Gelato, was conducted from adjoining premises. That is of some significance in relation to a pre-contractual representation that was said to have been made.

In these proceedings, Union Link seeks, among other things, an order that Evan Ji "do all things necessary to effect the transfer of lease [of the restaurant] as outlined in the document styled, deed of consent to assignment of lease". It seeks a further order that the second defendant (Mr Ji, who is the principal of Evan Ji) "provide the necessary guarantee to allow for an assignment of lease from [sic] the plaintiff to the first defendant". Other orders are sought, including a declaration that Evan Ji's notice of rescission is invalid.

Before the contract was made, Mr Ji discussed the proposed sale of the restaurant business with Mr Wen Cong Lin, the principal of Union Link. It is apparent that Messrs Lin and Ji reached an agreement in principle for Mr Ji to buy the restaurant business. Ultimately, as I have said, that transaction was effected through his company Evan Ji.

In the course of those pre-contractual discussions, Mr Ji raised with Mr Lin what Mr Ji saw as the insufficiency of seating available to the restaurant business. According to Mr Ji, Mr Lin said that the restaurant could use otherwise unused seats in the adjacent gelato business to accommodate any overflow of customers. It is clear that this arrangement was perceived as being beneficial to all parties.

As I have said, the agreement for sale that was struck orally was reduced to writing. Although the contract included a special condition, in the usual form, negating reliance on any pre-contractual statement etc that was not incorporated into the contract, that does not prevent me from finding, as I do, that discussions in relation to the use of the gelato bar's seating occurred, substantially as alleged by Mr Ji in his affidavit.

It will be apparent from what I have said that Union Link carried on the business pursuant to a lease. That lease had been assigned to Union Link when it commenced to operate the business.

The contract contained a number of provisions that are of significance. I start by observing that, on the very first page, and before the details of the parties and the transaction are set out, the following words were contained in parentheses:

(A choice printed in BLOCK CAPITALS applies unless a different choice is marked)

On the second page of the printed form of contract, there was a heading "Choices". Each of the choices was followed by two boxes. One box had the word "NO" against it, in block capitals. The other box had the word "Yes" against it, in lower case print.

One of the choices so indicated read:

Purchaser must provide suitable guarantee.

Neither the "no" box nor the "yes" box was checked. Accordingly, the default position set out on the first page of the contract applied, and the answer "no" must be taken to apply.

The reference to "suitable guarantee" might appear to be somewhat Delphic on its own. However, the contract made it clear that this "choice" was relevant to clause 27.2.3. That clause (again of the printed conditions) dealt with the situation that the premises from which the business was conducted were, or on completion would be, subject to a lease: that is to say, the facts of this case. Clause 27.2 imposed obligations on Evan Ji, as purchaser, in those circumstances:

27.2 The purchaser must -

27.2.1 supply references and other information reasonably required by the landlord to consider the application;

27.2.2 pay or bear the costs and expenses of the landlord (including the costs of a landlord's mortgage) arising from any negotiations between the landlord and the purchaser for proposed changes to a lease disclosed in this contract, whether or not this contract is completed; and

27.2.3 if this contract says the purchaser must provide a suitable guarantee, provide any guarantee reasonably required by the landlord to support performance of the obligations of the tenant under the lease.

Clause 29 of the printed conditions picked up the question of transfer of the lease. It read:

29. Transfer of existing lease

29.1 This clause applies only if -

29.1.1 the premises are subject to a lease; and

29.1.2 this contract does not say the sale is subject to the grant of a new lease.

29.2 The parties intend that the landlord is to consent to a transfer of the lease from the vendor to the purchaser .

29.3 The purchaser must serve the form of transfer at least 7 days before the completion date .

29.4 If the landlord does not consent to the transfer of the lease -

29.4.1 by the completion date , the purchaser can rescind; or

29.4.2 by the 90 th day after the contract date , a party can rescind.

29.5 A party cannot rescind under clause 29.4 after the other party has served notice of the consent of the landlord.

The reference to rescission takes one back to clause 23 which, so far as it is relevant, read:

23.1 If this contract expressly gives a party a right to rescind, the party can exercise the right -

23.1.1 only by serving a notice before completion; and

23.1.2 in spite of any making of a claim or requisition, any attempt to satisfy a claim or requisition , any arbitration, litigation, mediation or negotiation or any giving or taking of possession.

There were a number of special conditions. Special condition 3 required each party to do what was required "for the effective consummation of the transactions contemplated and/or stipulated by this contract".

Special conditions 12 and 17 dealt once more with the lease:

12. Condition precedent

Notwithstanding any other provision in this contract the sale of the business is subject to the lessor transferring the existing lease to the purchaser. Should the Landlord declines to give its consent to the transfer of lease, then the purchasers are entitled to rescind this contract ab initio and the vendor will refund and return to the purchaser their full deposit.

...

17. Completion

The completion of this contract is only conditional upon the Lessor consenting to transfer of the Vendor's current lease to the Purchaser, the notification of such consent to the Purchaser, the Vendor and the Purchaser to sign all necessary transfer of lease documents and consent of settlement from the lessor.

Special condition 27 dealt with transfer of the liquor licence:

27. TRANSFER OF LIQUOR LICENCE

Notwithstanding anything to the contrary, settlement of the sale of business is conditional upon the purchaser obtaining a provisional approval from the Department of Casino, Liquor & Gaming Control Authority. The Purchasers' solicitors should submit to the Vendors' solicitors the relevant documentations for the Vendors' with SEVEN (7) days after exchange of contracts. Upon receipt of the executed documentations from the Vendors' solicitors, the Purchasers should promptly submit the application without delay.

There is no evidence that Evans Ji's solicitors (in this case, in fact, conveyancers) did what was required to be done by the second sentence of that special condition.

The existing lease, that had been assigned to Union Link, was annexed to the contract. That lease specified that a bank guarantee would be provided to cover three months' rent and three months' of the lessee's proportion of outgoings. The requirement was elaborated in clause 16, which required delivery of an unconditional and irrevocable bank guarantee.

There was also annexed to the contract the deed of consent to assignment of lease whereby the lease had been assigned (or agreed to be assigned) to Union Link. Mr Lin was named on the cover page of that document as "Guarantor". Although he was not stated in the body of the deed to be a party, it is apparent that he signed it both in his capacity as director and secretary of Union Link and in his personal capacity.

Mr Ji was cross-examined on the extent to which the various terms of the contract, and the documents annexed to it, have been drawn to his attention. He said, in substance, that he relied on his conveyancer, Mr Sherman Zhong, to explain matters to him; that he signed where Mr Zhong told him to sign; and that he read no more than the parts where he signed. I accept that evidence. It seems to me to be entirely consistent with the probabilities, including the evident fact that English was not Mr Ji's first language, and that to the extent that he had capability in English, it is unlikely that he would have been familiar with legal documents.

Mr Ji said also, in this context, that he told Mr Zhong that he did not wish to be a guarantor. That appears to relate to the possibility that a director of the purchaser would give a guarantee. That was covered by special condition 28, which condition was left incomplete. Mr Ji does not appear to have executed the contract in his personal capacity.

The purchase price of $30,000 was paid on or before execution of the contract, and either Mr Ji or Evan Ji (it does not matter which) went into possession and ran the business. There is unfortunately a dearth of evidence as to what steps were performed during the course of the conveyancing transaction. It is apparent that the lessor of the premises was asked for its consent, and the licensor of some adjacent property (in respect of which Union Link held a licence, and which licence was to be assigned on completion of the contract) was asked for consent to assignment of the licence.

Since there is some, although not particularly cogent, evidence that the licensor did give its consent before Evan Ji gave notice of termination of the contract, I will say no more about the licence.

On 19 August 2010, the lessor's solicitors wrote to Mr Zhong's firm asking for information in relation to the proposed assignment. Three matters were raised:

1. The provisions of the Lease and in particular Clause 10 of the Lease, headed "Transfer and Sub-Lease", will need to be satisfied in relation to the proposed assignment of the Lease to your client and the Lease provides that the proposed Assignee must provide the Lessor with certain information regarding the financial standing and business experience of the proposed Assignee.

2. In order for the Lessor to deal with the request for consent to the proposed assignment of the Lease, it will be necessary for your client to provide us with a completed Questionnaire and Statement of Assets and Liabilities, the form of which is attached . Such Statement is to be certified by your client's accountant, and be provided to us together with any supporting documentation that your client wishes our clients to consider before making a decision in relation to the proposed assignment.

3. Please advise if the Lessee, Union Link International Pty Ltd, has furnished your client with a copy of the Disclosure Statement given to the Lessee in respect of the Lease (in accordance with the provisions of Clause 10.4 of the Lease), together with details of any changes that have occurred in respect of the information contained therein.

It does not appear how, if at all, Mr Zhong replied. However, given that:

(1) on 22 October 2010, the lessor's solicitors indicated that the lessor would consent to the assignment of the lease on certain conditions; and

(2) on 11 November 2010, Mr Zhong wrote to Union Link's solicitors indicated that the (only) matter holding up completion was "the consent for Licence agreement",

I would infer that the lessor's solicitors received a reply, satisfactory to them and their client, to their letter of 19 August 2010.

It should be noted that the letter of 19 August 2010, so far as it appears on the face of the document, did not ask for any information as to who might be prepared to guarantee Evan Ji's obligations under the lease or what the standing and capacity of that person to meet his or her guarantee might be.

It seems that the relationship between Messrs Ji and Lin broke down in late October 2010. At that time, according to Mr Ji, they had a conversation in the course of which, Mr Ji says, Mr Lin sought to change the basis on which the restaurant business could use the spare seating capacity of the gelato bar. According to Mr Ji, Mr Lin, when pressed to keep to his oral promise, said:

"Fine, I'm not selling the restaurant to you anymore."

Mr Ji said that he replied:

"All right, would you return my $30,000."

And that Mr Lin replied:

"You'll get it".

(Those conversations are set out in English in Mr Ji's affidavit but, as he said, they took place in the Mandarin language.)

Mr Lin disputes that the conversation was in the terms alleged. Specifically, he disputes that he said, "I'm not selling the restaurant to you any more" or that he agreed, on request made by Mr Ji, to return the $30,000.

The conduct alleged is said to constitute a repudiation. It is said that the repudiation was accepted by Evan Ji when Mr Ji asked for the return of the money that he had paid.

I am not prepared to find that a conversation took place in the terms alleged by Mr Ji. There are several factors that lead me to that view. The first is that there was no contemporary correspondence in which the alleged repudiation, and acceptance, were referred to. The parties do not appear thereafter to have proceeded on the basis that the contract was at an end. On the contrary, at least so far as Union Link's solicitors and Evan Ji's conveyancer were concerned, the contract was still on foot. It is, I think, particularly significant that (so far as one can tell, from the correspondence) Mr Zhong continued at least from time to time to do things directed towards settlement of the contract, presumably on the understanding that it was still on foot.

Another matter that disinclines me to accept Mr Ji's version of the conversation is that, I think, it was unlikely to have occurred. It is clear that Mr Lin was short of money at the time. It is clear that he could not afford to pay the rent on both premises and that he did not have the time or energy (at least on his view of the world) to run them both. In my view, it is less rather than more likely, in those circumstances, that he would have acted as Mr Ji says he did.

There is a question of onus here. Since it is the defendants who allege repudiation, it is they who bear the evidentiary burden of proving it. The court needs to be satisfied, on balance, that the words alleged (more accurately, their Mandarin equivalent) were used. For the reasons that I have given, I am not satisfied that such words were used.

I would add also that, when Mr Ji was questioned as to why he had not (as it seems he had not) told Mr Zhong of the alleged termination, occurring by accepted repudiation, the answer that he gave was not one that had any sensible content so far as I could discern.

Thus, to the extent that the defendants rely on that alleged repudiation, their case cannot be upheld.

That, however, is not the end of the matter. The notice of termination that was given on 30 May 2011 relied on the right given by clause 29.4.2 of the contract, in circumstances where (it was said) "90 days have passed since the contract date without the lessor's consent".

Union Link relies on the fact that, on 22 October 2010, the lessor's solicitors wrote to both parties (through their representatives) advising that the lessor would consent to assignment of the lease. Leaving aside formalities, that letter reads as follows:

We advise that the Lessor is prepared to consent to the Assignment of the Lease to your client on the following basis:

1. Execution and return to us of enclosed Deed of Consent to Assignment signed by all parties.

2. Provision of a new Bank Guarantee from the Assignee for an amount of $30,321.42.

3. Payment of Lessor's costs of acting on the assignment of Lease in accordance with the invoice enclosed for $1,007.60.

4. Provision of a cheque for payment of the November rent.

5. Evidence of public liability insurance as required under the Lease.

Please advise when settlement of the sale is to take place.

The draft deed of consent to assignment of lease described Mr Ji as "guarantor". Further, and unlike the previous assignment, it actually named him as one of the parties between whom the deed was made. Clause 12 of that would constitute, on Mr Ji's execution and delivery of the deed, an agreement by him to guarantee the obligations of Evan Ji under the lease and to indemnify the lessor in the event of default by Evan Ji.

The question that is raised is whether the indication of consent that was given in the letter of 22 October 2010 is a sufficient consent for the purposes of clause 29 of the contract and (to the extent that they add anything) special conditions 12 and 17.

It is clear, reading the letter with its attachment, that the lessor's position was that it would consent to the assignment if the five conditions specified in the letter were met. One of those conditions required execution and delivery of the deed of consent. By necessary implication, the lessor was saying, among other things, that it required Mr Ji to execute the deed of consent in his own capacity as guarantor, and thus to give an offer of guarantee and indemnity in terms of clause 12 of that deed.

The difficulty, with saying that Evan Ji was obliged to execute that draft deed, is that the requirement for Mr Ji to give a personal guarantee had been negated on the proper construction of the contract. I refer to what I have said as to the relevant "choice" in relation to a guarantee, the default selection of the answer "no" and thus the negation of the operation of clause 27.2.3.

In circumstances where the contract did not require Evan Ji to procure Mr Ji to execute a guarantee of the lease, it seems to me that it could not be said that Evan Ji was required to procure him so to do, either by operation of special condition 13 or otherwise.

Special condition 3 required the parties to do and "execute, acknowledge and deliver, all such further acts, documents or instruments as may be required for the effective consummation of the transactions contemplated and/or stipulated by this contract". In the face of the matters to which I have referred as to the "choices" section of the contract, and the consequent negation of clause 27.2.3, it cannot be said that the execution of a deed of consent which did require Mr Ji to give his personal guarantee was something either contemplated or stipulated for by the contract. Thus, given that the requirement to do those things must be qualified by some implied obligation of reasonableness, it cannot be unreasonable for Evan Ji to have declined to do that which, on a proper view of the contract, it had said it would not do.

In those circumstances, I conclude that the consent, or indication of consent, contained in the letter of 22 October 2010 was not an indication of consent sufficient to engage the relevant requirements of clause 29, or, for that matter, of special conditions 12 and 17.

There was some question too as to the requirements of special condition 27, in relation to the transfer of liquor licence. Although there was no evidence that that condition had been satisfied, it is at least doubtful that Evans Ji could rely on this in circumstances where there is no evidence that its conveyancer, Mr Zhong, had complied with the second sentence of that condition.

Thus, in my view, by the time 30 May 2011 rolled around, there was no consent as required by clause 29.4.2 of the contract and it was then open to Evan Ji to do as it did and rescind.

There were other arguments raised. One related to misleading or deceptive conduct alleged against Mr Ji, apparently in working in the business allegedly knowing that he was required to give a guarantee, but not giving that guarantee and not advising Union Link that he would not do so. The short answer to that seems to me to be that, as I have said, on its proper construction the contract did not require him to give any guarantee (of the lease); on the contrary, it contemplated that he would not give such a guarantee.

Another question raised related to alleged repudiatory conduct on the part of Union Link and Mr Lin, in offering the business for sale once the relationship between the parties had broken down following the events of October 2010. As I said in the course of argument, that evidence appears to me to be equivocal. If Union Link had acted in the manner alleged by Mr Ji, its further actions in seeking to sell the business were consistent. Equally, if Evan Ji had repudiated the contract by refusing to perform, Union Link's actions in seeking to sell the business were consistent with its trying to mitigate its loss.

The conclusions to which I have come as a matter of fact and on the proper construction of the contract, are sufficient to dispose of the proceedings. Before I turn to the cross-claim, I should, however, indicate that in my view there was a fundamental problem in the way that the case for Union Link was put. In essence, it was seeking specific performance of part only of a contract for sale. That is not consistent with the way that equity acts, in granting specific performance. It is usual that contracts for sale have interdependent obligations that are to be performed on completion. That is certainly the case with this contract. If there were to be the equivalent of specific performance, it would be of the whole contract to the extent that it remained to be performed.

It is not appropriate to grant specific performance of an obligation in circumstances where, first, there is no evidence of readiness or willingness on the part of the party seeking specific performance to perform its own unperformed obligations, and, secondly, no offer (at least until the point was drawn to the attention of counsel in submissions) to perform.

In those circumstances, even if I had been of the view that a case for relief had been made out, I would have refused relief of a discretionary kind and left Union Link to its case in damages at law (not under Lord Cairns' Act).

Evan Ji cross-claimed. It sought return of the deposit, alternatively damages and an indemnity against loss. On the view to which I have come, it is entitled to have the deposit refunded. There was no real evidence that it had suffered loss other than in relation to the deposit, and in circumstances where that is so I will do no more than reserve liberty to apply in respect of the prayer for damages if that is pressed.

The result of all this is that the summons must be dismissed with costs, and I so order.

On the cross summons, I direct entry of judgment in favour of the first cross-claimant against the cross-defendant in the sum of $30,000 together with interest from the date of payment of that amount to the date of judgment. I reserve liberty to apply in respect of damages; any such liberty is to be exercised by notice given to the other side and to my associate within 28 days of today's date.

I order the cross-defendant to pay the cross-claimant's costs of the cross-claim.

(Counsel addressed.)

Union Link seeks a variation of the costs orders that I have just made, to reflect the fact that the point on which I decided in favour of Evan Ji was raised only in submissions following the close of the evidence.

Evan Ji seeks an order for costs on an indemnity basis from some time in August 2011. It does so on the basis of a letter that is said to have been sent in accordance with the principles in Calderbank v Calderbank (1975) 3 All ER 333.

I do not propose to accede to either application.

In relation to Union Link's application, it chose to move for specific performance in circumstances where, on my view of the contract and the events that have happened, it could not possibly succeed. For the same reasons it could not possibly succeed either in its alternative claim for damages for breach or in its claim against Mr Ji personally for misleading or deceptive conduct.

The general principle is that costs follow the event. The fact that what might be called the 'killer point' was referred to late in the day does not seem to me to be a sufficient reason to displace that principle.

However, that fact is most relevant to the application for indemnity costs based on the so-called Calderbank letter.

The Calderbank letter does not set out the reasons why it was appropriate for the parties to consider a "commercial outcome" except, of course, the obvious reason for saving costs. Specifically, in that context, there had been no flagging of the point in relation to clause 27.2.3. That point was not referred to until closing submissions. It had not even been referred to in the outline of the first and second defendants' submissions that was provided to the court on 7 August 2011.

In those circumstances, I think, the discretion to award costs on some basis other than the ordinary basis is not enlivened; or if it is enlivened, it should not be exercised in favour of the defendants.

The orders are to be as I have indicated. The only outstanding matter is quantification of the amount to which the first cross-claimant is entitled, bearing in mind that the claim will carry interest from the date when the money was paid. I should go back I think on what I said in that regard because I indicated that interest should run from the date of payment. On reflection, I think, interest should run from the date of rescission, with interest before that date (if it is applicable) to be dealt with in accordance with the terms of the contract.

Whether or not the defendants wish to press the claim for interest for what will only be a few months is a matter for them. I think that the best outcome is to stand the matter over for a day or so so that the parties can prepare short minutes of order to give effect for these reasons. If interest is claimed, I would expect it to be calculated by consent.

I stand the matter over for orders at 9.30am on 16 September 2011 before me. I reserve liberty to apply in chambers in the event that the parties are agreed on the form of orders to be made.