Donghao Capital Pty Ltd v Guo

1. [1]

   HARRISON CJ at CL: These proceedings were listed before me today with an estimate of four days. The plaintiffs sue upon a Deed of Acknowledgment entered into between the parties on or about 24 May 2017. The plaintiffs claim approximately $8 million from the defendant. The circumstances that give rise to the claim can be briefly described as follows.

2. [2]

   On or about 22 July 2016, Donghao Capital Pty Ltd entered into an agreement, called an Investor Agreement, with DG88 Pty Ltd. Mr Guo was a guarantor, presumably of the obligations of DG88, under the Investor Agreement. Pursuant to the Deed of Acknowledgment entered into 10 months later, Mr Guo agreed with Donghao Capital and Donghao Li that:

   1. (1)

      The plaintiffs were investors under the Investor Agreement;

   2. (2)

      The plaintiffs invested monies at the request of Mr Guo to acquire shares in two companies, namely 545 Queen Street Developments Pty and Maida 545 Development Pty Ltd;

   3. (3)

      Mr Guo, as a guarantor under the Investor Agreement, guaranteed to the plaintiffs a return on investment of not less than 8% per annum, and indemnified the plaintiffs for all monies applied by the plaintiffs in relation to the Investor Agreement;

   4. (4)

      The investment contemplated by the Investor Agreement failed, meaning (at least) that no return of income was expected to be declared.

3. [3]

   Pursuant to the Deed of Acknowledgment, Mr Guo agreed to pay the plaintiffs a principal sum of $5,775,673 by way of a series of instalments commencing on 24 May 2017 and concluding on 23 May 2022. Mr Guo has not paid any money to the plaintiffs.

4. [4]

   The statement of claim commencing the proceedings was filed on 21 December 2021. Mr Guo’s defence was filed on 17 September 2021. The statement of claim and the defence have since been amended in terms that are presently irrelevant. Deutsch Partners have acted for Mr Guo at all times since his defence was filed and up until 25 January 2024, when that firm ceased to act for Mr Guo in circumstances to which it will be necessary to return.

5. [5]

   The burden of Mr Guo’s defence to the claim is that the Deed of Acknowledgment was entered into by him as the result of unconscionable conduct on the part of the plaintiffs, including threats and unfair pressure exerted by them upon him and without giving him any opportunity to seek or obtain legal advice. For example, but by no means exclusively, Mr Guo maintains that the failure of the original venture was the result of the plaintiffs’ inability to complete the purchase of shares contemplated by the Investor Agreement by paying the balance of the purchase price and that the Deed of Acknowledgment was only signed by him following threats by Mr Li that he would use his political and business influence in the Peoples Republic of China to ensure that all business contacts, financial support or patronage to Mr Guo would cease if he did not sign it.

6. [6]

   In these circumstances, as one would expect, the events surrounding and including the execution of the Deed of Acknowledgment by Mr Guo have figured prominently in the parties’ respective affidavit evidence filed for each of them. Mr Li has affirmed several affidavits and he relies upon an affidavit from his solicitor, Samuel Li, concerning the events at the heart of the dispute. Mr Guo has affirmed several affidavits in response and relies upon an affidavit from Jianhua Lu to support his account of what occurred.

7. [7]

   Last Wednesday, 31 January 2024, Mr Guo filed a notice of motion seeking, among other things, orders that the hearing listed to commence on 5 February 2024 be vacated and that it be adjourned for at least three months. Mr Guo’s affidavit of 30 January 2024 deposed to the following matters in support of his motion:

8. [8]

   Mr Guo annexed two documents to his affidavit to which reference is necessary. First, a Notice of Intention of Ceasing to Act filed on 19 October 2022. That notice was in these relevant terms:

9. [9]

   Secondly, on 25 January 2024, Mr Deutsch filed a Notice of Ceasing to Act in the usual terms, informing Mr Guo and the Court that his firm “has ceased to act as the legal representative of Shao Yong Guo…in these proceedings”.

10. [10]

    At the hearing of the motion, Mr Durack of counsel for the plaintiffs appeared in opposition to the orders that were sought.

11. [11]

    At that time, I took the view that I had insufficient information or material before me properly or adequately to understand where the merits of Mr Guo’s application lay. I therefore adjourned the application until 2.00pm in order, if possible, to obtain some assistance from Mr Deutsch, the principal of the firm that had acted for Mr Guo. Although Mr Deutsch was unable to appear, as he was at the time interstate, he assisted me by agreeing to take part in the hearing by telephone from Queensland. The extent of his involvement at that time will be apparent from the transcript on that day. In the events that occurred, I adjourned Mr Guo’s notice of motion to the first day of the scheduled hearing.

12. [12]

    Since then, further evidence has been filed. First, Mr Li’s solicitor, William Addison, has sworn an affidavit dated 2 February 2024 that deposes to a conversation between him and Mr Deutsch by telephone on the morning of 31 January 2024 in the following relevant terms:

13. [13]

    Secondly, Mr Deutsch swore an affidavit dated 5 February 2024 to the relevant terms of which it is necessary to refer:

14. [14]

    The WhatsApp messages extracted in annexure “A” are instructive. They span the period between 3 August 2023 and 31 January 2024. It is in my view a fair summary of the messages that Mr Deutsch was constantly pressing Mr Guo to put his firm in funds for the proceedings and that Mr Guo was, for whatever reason, not doing so. For example, the following exchanges form part of the total sequence:

15. [15]

    Annexure “B” is an email sequence between Madeline Furchtmann at Deutsch Partners and Mr Benjamin Phillips of counsel on 8 September 2023. Mr Phillips was asked if he could supply his available dates for a hearing in 2024. Mr Phillips responded, indicating his unavailable dates, which did not include the week commencing 5 February 2024.

16. [16]

    On that same day, Ms Furchtmann sent an email (annexure “C”) to a number of recipients, including Mr Phillips, as follows:

17. [17]

    Ms Furchtmann advised Mr Guo of the hearing date by email three days later (annexure “E”).

18. [18]

    Annexure “F” is an email from Mr Deutsch to Mr Guo dated 27 October 2023. Among other things, Mr Deutsch wrote, “We need to sort out overdue and mediation fees urgently. I will not be preparing for and attending a mediation without fees sorted.”

19. [19]

    Despite the tone and substance of these emails, Mr Deutsch wrote to Mr Guo as late as 24 January 2024 (annexure “H”) in these terms:

20. [20]

    As already noted, Mr Deutsch filed a Notice of Ceasing to Act the following day.

21. [21]

    The final annexure (“K”) to Mr Deutsch’s affidavit is an email sent by Mr Phillips to Mr Deutsch at 2.40pm on 31 January 2024. Mr Phillips wrote this:

22. [22]

    One further matter should also be noted. Mr Addison swore another affidavit dated 3 February 2024 to which is annexed an email sent by him to Mr Guo on 3 February 2024. The letter is as follows:

23. [23]

    It is clear that Mr Addison advised Mr Deutsch by email on 14 December 2023 that Mr Lu was required for cross-examination and that Mr Guo was himself advised by Mr Addison by email on 31 January 2024 at 3.49pm of the same thing. For present purposes, I understand Mr Durack to accept that the first that Mr Guo actually learned of this requirement himself was following Mr Addison’s 31 January 2024 email, by which time Mr Deutsch had ceased to act for him, and that, to like effect, Mr Durack accepts that Mr Addison’s request of Mr Deutsch that Mr Lu be available had not been passed on to Mr Guo by Mr Deutsch.

Disposition

1. [24]

   In the course of his submissions in opposition to Mr Guo’s motion, Mr Durack described the events I have outlined as “a mess”! It is difficult to take issue with that description.

2. [25]

   The first matter to note is that Mr Guo has singularly failed to respond to Mr Deutsch’s continual and persistent requests to be put in funds. I reject Mr Guo’s pejorative suggestion in the WhatsApp exchange with Mr Deutsch that he had been left with no choice but to represent himself. If that comment were truly intended to convey the view that the present application to vacate the hearing is solely the result of anything that Mr Deutsch had done or has failed to do, it does not take account of all apparently relevant considerations. Standing alone, Mr Guo’s failure to provide Mr Deutsch with money to cover the costs of the hearing, including presumably fees for counsel, over an extended period during which he never disputed that the requests were reasonable, makes it clear that Mr Guo’s current situation as an unrepresented defendant is one for which he is at the very least largely responsible.

3. [26]

   The second matter to note, however, is that there is some doubt about the circumstances in which Mr Deutsch purported to cease to act for Mr Guo and the true state of preparation of the matter for hearing. I am also unable easily to form a view about whether Mr Phillips had been briefed to appear for Mr Guo. Mr Phillips says that he was never briefed to do so although notes that Mr Deutsch’s office “previously advise[d] [him] when it had been set down for hearing and [he] initially pencilled it in [his] diary”. The date or the circumstances of when Mr Phillips removed it from his diary is still unclear to me. That is especially so having regard to what I was told by Mr Deutsch over the telephone during the hearing of the motion as follows:

4. [27]

   Mr Phillips has said he was never briefed to appear. Mr Deutsch says he was but that Mr Phillips had indicated that he could not appear, at what would have been some time in December last year. I am presently unable to resolve that difference of recollection.

5. [28]

   I next observe, as the transcript makes plain, and about which I do not understand there to be a dispute, that Mr Guo’s file has not been returned to him and that Mr Deutsch retains it, presumably asserting a solicitor’s lien for unpaid professional fees. Mr Guo has not adumbrated in terms the difficulties, if any, that this circumstance has created for him, whoever may be the cause of the difficulties, but it would not be possible either for Mr Guo representing himself, or for some other firm of solicitors acting on his behalf, to proceed to a contested hearing in a commercial dispute without possession of that file. That issue remains unresolved.

6. [29]

   The position of Mr Lu is also potentially troublesome. As would appear from a perusal of the competing evidence in the proceedings, he is a critical witness to the circumstances in which Mr Guo came to sign the Deed of Acknowledgment. A request for him to be present for cross-examination is unexceptionable. However, Mr Guo has not, and Deutsch Partners have not, made any arrangements for that to occur. Mr Durack reasonably submits that he should be here, but that if that were not to occur this week, and the hearing were to proceed, I should approach Mr Lu’s uncross-examined evidence as having little or no weight. With respect to that submission, it should not in my view be given any credence. It would be wrong, and entirely unfair to Mr Guo, for a matter of substance, such as whether Mr Lu’s version of what occurred should or should not be accepted, to be diluted or discounted by reason of a procedural problem for which it seems the unrepresented Mr Guo is not at fault. To put that in context, even if Mr Deutsch were still appearing for Mr Guo, Mr Lu’s attendance has not been arranged. It is entirely unrealistic to expect me or any judge of this Court to decide the issues to which Mr Lu’s evidence is directed by adopting some artifice that treats it differently to the competing evidence upon which the plaintiffs rely.

7. [30]

   Nor is the issue that I am required to decide at this stage concerned with whether or not Mr Deutsch was entitled to cease to act when he did or in the circumstances that prevailed. There is plenty of authority dealing with the question of a solicitor’s entitlement to cease to act when he or she has not been paid for work already done for a client or not put in funds for work, including appearing or instructing at a hearing, that is anticipated. No assumptions should be made about the outcome in such a case. In contrast, Mr Guo’s application does not yet at least complain about Mr Deutsch’s withdrawal. Mr Guo’s single present concern is to vacate the hearing when he finds himself unrepresented and without his file.

8. [31]

   In the present circumstances, it would appear that it would not and could not have assisted Mr Guo to attempt to continue to employ Mr Deutsch as his lawyer for this case. No barrister was ready to run Mr Guo’s defence to the claim and Mr Deutsch was not in a position himself to continue to do so. Indeed, as referred to earlier, Mr Deutsch was interstate last week and involved in litigation in the District Court this week. Those problems may not necessarily have amounted to a fait accompli but that is beside the point for present purposes.

9. [32]

   The end result is that Mr Guo is facing down a contested four day hearing in a not uncomplicated commercial dispute with no lawyer to represent him and with no legal training of his own. His only witness is not here, a significant matter but one which I find is not his fault. Mr Guo could have avoided these problems if he had complied with Mr Deutsch’s persistent requests over several months to transfer funds to his trust account. For the purposes of this application only, I consider that Mr Guo’s recalcitrance in that respect is the cause of his current predicament.

10. [33]

    I am, however, not prepared to force him on in the circumstances. The prospect that his case could be properly presented by him is slim at best. An adverse outcome in those circumstances might generate further litigation requiring a potentially costly and time consuming litigious return, involving different parties, to the question of why he lost. That is obviously to be avoided if possible.

11. [34]

    Against the prospect that I might have taken this view, Mr Durack has proposed a series of orders if the hearing were vacated. It seems uncontroversial that Mr Guo should pay the plaintiffs’ costs incurred or occasioned by reason of the lost hearing days, including the costs of and incidental to his notice of motion. Mr Durack has proposed that such costs should be ordered on an indemnity basis. That issue should in my view await the final outcome of the proceedings.

12. [35]

    Mr Durack has also proposed that Mr Deutsch and Mr Phillips be required to show cause why they should not be personally liable for the costs that Mr Guo has been ordered to pay. I do not think I should adopt that course. To start with, each of them is a proper contradictor to that application, not merely the contest that might follow it if it were successful. Procedural fairness demands that no such step be taken without some formal and timely process. Moreover, any such contest ought in my view to await the final outcome in the principal litigation, which might be expected in many respects to inform an understanding of the ultimate significance of Mr Guo’s current predicament.

13. [36]

    Mr Guo has sought an adjournment for at least three months. The proceedings have been on foot for some time. The plaintiffs are entitled to have their matter dealt with soon. There is in my view no reason why this matter should not proceed within approximately two months. Any difficulties that Mr Guo encounters obtaining alternative representation should be brought to my attention as a matter of urgency if and when they are encountered. The question of the production of Mr Guo’s file by Mr Deutsch should also be capable of resolution by Mr Guo giving an appropriate undertaking.

14. [37]

    In the circumstances, I make the following orders:

    1. (1)

       Vacate the hearing before me.

    2. (2)

       Grant liberty to the parties forthwith to approach the List Manager with a view to obtaining the first available hearing date after 8 April 2024.

    3. (3)

       Order the defendant to pay the plaintiffs’ costs thrown away or occasioned by reason of order (1), including the costs of Mr Guo’s motion filed 31 January 2024.

    4. (4)

       Stand the matter over before me for directions on 4 March 2024.

    5. (5)

       Grant liberty to the parties to apply on three days’ notice.