CTI Resort Holdings Group Pty Ltd v Chen

The defendants, Jing Quan Chen and Full River Pty Ltd (“Full River”), move by amended notice of motion filed in Court today for orders against the plaintiff, CTI Resorts Holdings Group Pty Ltd (“CTI”), including:

The Court is satisfied that, in broad terms, the defendants are entitled to orders of the kind which they seek. However, for reasons which I will shortly explain, the Court is also satisfied that those orders should be stayed in order to give CTI an opportunity to satisfy the Court, and the defendants, that CTI is ready, willing and able to pay $1,350,000 to Full River if CTI is otherwise successful in the proceedings.

These proceedings are, in essence, an action for the loss of a corporate opportunity, being to acquire certain land near Old Bar on the north coast of New South Wales. CTI says that it was entitled to acquire that land. It further alleges that Mr Chen, in breach of fiduciary and statutory duties, appropriated that opportunity for the benefit of himself and Full River.

In the course of determining an earlier application in these proceedings for leave to lodge further caveats, Brereton J in CTI Holdings Pty Limited v Jingquan Chen [2015] NSWSC 2086 said:

The relief claimed by CTI in its statement of claim includes (emphasis added):

By that pleading CTI recognises, correctly, that if it is otherwise successful in its claim, it will be necessary for CTI to do equity by paying to Full River the $1,350,000 purchase price (the “Amount”) which Full River paid for the property the subject of CTI’s claim. The defendants' amended notice of motion relies on the fact that CTI has not demonstrated an ability to pay the Amount.

The evidence upon which the defendants have relied demonstrates the truth of that proposition. Furthermore, in an affidavit intended to be relied upon by CTI in response to the defendants' notice of motion, CTI's solicitor said:

The reference in the affidavit just quoted to a “more binding agreement” is in the context of CTI’s evidence of a memorandum of understanding apparently relied on by CTI to answer the defendants' complaint. However, that memorandum of understanding for a loan of the Amount to CTI is expressed to be not legally binding and in no way demonstrates that CTI is ready, willing and able to pay the Amount. There is also evidence which suggests that the counterparty to that memorandum is of no financial substance.

The requirement for CTI to do equity, if it is successful, by paying the Amount is undeniable. If authority be required for that proposition, it is to be found in the decision of the Court of Appeal in Huang v Wang (2016) 114 ACSR 586; [2016] NSWCA 164. In that decision the Court of Appeal upheld the decision of Black J in Huang v Wang [2015] NSWSC 510. In the context of an application for leave to bring statutory derivative proceedings, Black J declined to grant leave where one of the parties was unable to demonstrate that it was able to do equity by paying a particular sum. His Honour said:

In the Court of Appeal, Bathurst CJ (with whom McColl JA and Barrett AJA agreed) said:

Mr K P Tang of Counsel, recently briefed for CTI, has, with respect, properly recognised the force of the argument put by the defendants. It is clear that proof of CTI’s capacity to pay the Amount is not merely an afterthought or something that can be dealt with after it has otherwise succeeded in the proceedings. It is an essential element of CTI's entitlement to relief that it demonstrate that it is able to pay the Amount.

It is not for the Court to advise CTI as to exactly how it should go about satisfying the Court and the defendants that CTI will be able to pay the Amount if it otherwise succeeds. However — without limiting the commercial arrangements that CTI may choose to make — if CTI itself does not have the funds then it will have to provide evidence, at the very least, of a binding and irrevocable obligation on a financier of undoubted capacity to advance the Amount.

Mr J Lee of Counsel, who appeared for the defendants, again with respect, properly, did not press in the circumstances for orders today that CTI's claim should be struck out. He adhered to an alternative position foreshadowed in his submissions that some reasonable opportunity should be afforded to CTI to put its house in order on this point. I propose to make orders which allow that to occur.

On the other hand, having regard in particular to the provisions of s 56 of the Civil Procedure Act 2005 (NSW), this is not a matter which should be allowed to drag on indefinitely. If, within a reasonable period, CTI is unable to demonstrate that it is able to pay the Amount, then the defendants should not be vexed by this litigation.

To make good the Court's conclusion on this point, I propose to make orders dismissing CTI's claim and ordering CTI to pay the defendants' costs of the proceedings. However, I shall stay those orders to give CTI a reasonable opportunity to demonstrate that it can in fact pay the Amount. In my view, a reasonable period to do so is two months and the Court will make orders accordingly.

The orders of the Court are: