Xijie Cao v Shumiao Zhu

Even experienced businessmen can enter into contracts which turn out to be “unfair” to, or improvident for, one of the parties. That outcome does not guarantee legal redress for the party who claims to have come off second best. The law does not always relieve against what, with hindsight, turn out to be bad commercial bargains. These proceedings are an example of such a case.

The plaintiff (“Mr Cao”) is an investor and property developer. The defendant (“Mr Zhu”) is a real estate agent. Mr Zhu had a longstanding relationship with Mr Sam Fayad as the exclusive selling agent for properties developed by Mr Fayad. Mr Zhu persuaded Mr Cao to invest $2,400,000 in a project of Mr Fayad’s at Baulkham Hills (the “Baulkham Hills Project”).

As a further incentive to Mr Cao to invest in the Baulkham Hills Project, Mr Zhu promised to pay Mr Cao $500,000. Although presented in a number of juridical guises, the only real issue in this case was whether that promise – said to have been made both orally and in writing – was unconditional or whether, as Mr Zhu contended, it was conditional upon Mr Zhu being the exclusive selling agent for the units which comprised the Baulkham Hills Project. In the events which happened, Mr Zhu was not able to fulfil that role because the Baulkham Hills Project was sold, incomplete, to another developer.

Mr Cao sues Mr Zhu in contract and under the Australian Consumer Law (“ACL”) and also makes a claim, in reply, for rectification. Mr Zhu responds, including by cross-claim, raising by way of defence issues of construction, rectification, and unconscionability under the ACL. In summary Mr Cao simply succeeds on the facts. Mr Zhu’s various legal defences fail because Mr Zhu bound himself by deed (the “13 June Deed”) to pay the $500,000 unconditionally and “regardless of whether any of the units in the [Baulkham Hills Project] have been sold or not”.

Mr Cao and Mr Zhu gave evidence of their various conversations that was often in complete disagreement. There were also internal inconsistencies in the evidence of each of them. The case was complicated by their evidence having to be given in Mandarin. I have been left with the impression that at least some, but not all, of those inconsistencies may well have been the result of matters being “lost in translation”. Nevertheless, even after allowing for that, I came to the view that I could not rely on the evidence of either of them unless it was corroborated by contemporaneous documents or independent witnesses, was inherently likely or against interest.

However, two things were pellucidly clear. First, Mr Cao steadfastly maintained that Mr Zhu’s promise was never agreed between them as conditional in the way Mr Zhu alleged. That position was supported by Mr Cao’s solicitor, Mr Ngo. Critically, that position was corroborated by the second matter, being that Mr Zhu could not offer any persuasive explanation why two, contemporaneous solemn documents, one of which he (Mr Zhu) prepared and both of which he signed in the course of his dealings with Mr Cao, recorded Mr Zhu’s obligation to pay the $500,000 unconditionally. The best Mr Zhu could say was that he had been “negligent” of his own interests.

The Court relies primarily on those two documents to conclude as a matter of fact that Mr Zhu’s obligation to pay Mr Cao was not conditional upon Mr Zhu being appointed the exclusive selling agent for the Baulkham Hills Project. That factual conclusion fortifies the Court in its fundamental legal conclusion that there is no basis to find that the 13 June Deed should be construed or rectified to give effect to such a conclusion, or to find that Mr Cao’s reliance on it is unconscionable.

There will be judgment for Mr Cao for $500,000, together with interest and – subject to giving the parties an opportunity to be heard if they wish – costs. Mr Zhu’s cross-claim will be dismissed with costs.

Mr F Santisi of Counsel appeared for Mr Cao. Mr P Bolster of Counsel appeared for Mr Zhu.

The case had been fixed as a three day hearing. At the opening of the case, in response to my question, I was assured by both counsel that they had prepared trial plans and that they believed the case would be finished within the allocated three days. This was said to be so notwithstanding that each of Messrs Cao and Zhu would be giving their evidence through interpreters.

At the conclusion of the second day, I again inquired whether the case would be finished within the allocated time. I was informed by both parties that they were optimistic to finish within the three days, and at the very least that by the end of the three day hearing, all of the evidence would have been given. This would then allow the parties to make extensive written submissions.

Unfortunately, and without being critical of anyone, this did not come to pass. It took two days to cross-examine Mr Cao, and more than a full day to cross-examine Mr Zhu. The Court made itself available to sit late on the final allocated day of the hearing in October to ensure cross-examination of Mr Zhu was completed. Despite this, at the end of the third day of the hearing, the cross-examination of Mr Zhu had not been finalised. Mr Zhu also still had to be re-examined, and three further witnesses had to give evidence.

At the conclusion of the third day of the hearing, I inquired how much longer the parties needed to complete the case. I was informed two more days were required. The hearing was subsequently relisted for further hearing on 21 and 22 November 2019. At the conclusion of the fifth day of the hearing, the Court was informed that Mr Cao intended to call his solicitor, Mr Frank Ngo, to give evidence. In fairness to Mr Zhu, I adjourned the hearing to allow his counsel to prepare to cross-examine Mr Ngo, which took place on 27 November 2019, when I was sitting as Duty Judge.

At the end of the hearing, I made directions for written submission to be made by 10 December 2019, with submissions in reply being due on 18 December 2019. Given the length of time the case had already taken, the parties accepted that no further hearing time should be allocated for the making of oral submissions.

In addition to the length of time taken with the interpreted evidence, there was also an issue with the parties’ affidavits. They bore no indication that they had been interpreted to the parties, both of whom are native Mandarin speakers, and neither of whom is fluent in written or spoken English to the level required to participate in legal proceedings. The affidavits had been prepared by the parties’ respective bilingual solicitors. However, neither of those solicitors was a qualified or accredited interpreter, although apparently one of the solicitor’s staff members was accredited. Furthermore, I also noted that one affidavit was expressed to have been “witnessed via WeChat” (a messaging application popular in the Chinese community), a practice which is entirely unacceptable and without legal foundation.

It is desirable that I record that since the conclusion of the hearing, Part 31 Div 3 has been added to the Uniform Civil Procedure Rules together with Practice Note SC Gen 21. These deal with working with interpreters in civil proceedings. At least two things would have been different had these applied to this case. First, even if the affidavits had been prepared by bilingual solicitors, the final English versions of the affidavits would have had to have been interpreted to the witnesses from English into Mandarin by a certified NAATI interpreter, and the interpreter would then have sworn that the witness had indicated that they (the witness) understood and agreed with the contents of their affidavit. Second, time estimates would have been given allowing at least 2.5 hours for the interpreted evidence for every hour that might have been expected to have been required if the witness had been giving their evidence in English. I take this opportunity to observe that the Court will expect the profession to be familiar with these provisions and apply them.

I will now set out the facts. Except where I have indicated disagreements, they may be taken to have been uncontroversial either or both because they appeared in contemporary documents or were not seriously in dispute.

Mr Zhu is a real estate agent and operates through his company Be100 Property Pty Ltd (“Be100”). Mr Zhu’s wife, Ms Li, is the licensee in charge of Be100.

Mr Cao is a businessman with experience in property investment and development in China. Mr Cao moved to Australia and attained permanent residency in 2002.

Mr Cao first met Mr Zhu when Mr Cao purchased an apartment in Burwood at the end of 2011. Mr Zhu acted as the agent for the transaction.

Merfad Projects Pty Limited (“Merfad”) was registered on 28 February 2011. One of its directors was Mr Fayad, who was originally a 50% shareholder and subsequently became an 83% shareholder.

On 1 August 2011, Merfad entered into a contract to purchase what became part of the land comprising the Baulkham Hills Project for $8,500,000. The completion date was 16 December 2011 but the transfer did not take place until 13 June 2012, being around the time of the events in question in these proceedings.

On 8 February 2012, Merfad entered into a contract to purchase what became the balance of the land comprising the Baulkham Hills Project for $1,125,000. The completion date was 1 August 2012 but the transfer did not take place until 15 October 2012.

Even the question of who began the discussions between them is contested, but nothing turns on it. Sometime in May 2012, Mr Cao and Mr Zhu had a discussion in which, according to Mr Cao’s affidavit evidence, Mr Zhu said words to the effect:

Mr Zhu accepted the above conversation happened, however refuted the suggestion that he made representations that he was the sales agent for Sam and Dyldam. Again, nothing turns on this. As Mr Fayad’s evidence made clear, there was no doubt that even if Mr Zhu at the relevant time had not been formally appointed as sales agent for the Baulkham Hills Project, he was going to be, and Mr Zhu was equally certain that would be the case.

Mr Zhu told Mr Cao that $2.4 million was required to be invested in the Baulkham Hills Project. Mr Zhu told the Court (T189:33-35):

Mr Zhu’s evidence was that he was also hoping to invest in the Baulkham Hills Project.

At some point in the discussions, Mr Cao said he was happy to invest the money in the Baulkham Hills Project, however his investment was conditional on him receiving a rate of return of 36% per annum for his venture. He said this was the rate he was accustomed to receiving on his investments in China.

Much about the initial discussion or discussions was disputed. Mr Zhu’s evidence was that he initially suggested that Mr Cao would loan $2.4 million to him, and he would subsequently on-lend that money to Merfad. This would mean that Mr Cao would not be part of a transaction with Merfad directly. Mr Cao said that Mr Zhu immediately offered to guarantee him (Mr Cao) a 36% rate of return, however Mr Zhu stated he only guaranteed a 20% per annum return if the money was loaned to him. Given the view I have taken of the protagonists’ credit (see paragraphs [115] to [120] below), it is neither possible nor necessary for me to attempt to make findings about all of the disputed aspects of their conversations. No notes were kept. As the documentary record (such as it is) to which I refer below demonstrates, the likelihood is that the negotiations were fluid in the sense of various proposals being discussed from time to time. Having seen both of them give their evidence, I do not accept – and would not expect – that either Mr Cao or Mr Zhu had a reliable recollection of what proposals were being discussed at any particular time.

On 17 May 2012, Mr Zhu took Mr Cao to inspect the site of the Baulkham Hills Project.

At some stage after inspecting the Baulkham Hills Project, Mr Zhu gave Mr Cao a feasibility report for the project. Mr Zhu accepted that he provided Mr Cao with the feasibility report, however was unsure when he did so. This report was not put into evidence before the Court.

Between about 22 May 2012 and the settlement of the first purchase of land for the Baulkham Hills Project on 13 June 2012, Mr Zhu and Mr Cao had meetings with Mr Fayad in relation to the Baulkham Hills Project. What was discussed at those meetings was also in dispute.

Upon reviewing the feasibility report, Mr Cao decided to invest in the Baulkham Hills Project, however he had numerous conditions. His evidence was those conditions included:

Mr Cao’s evidence was that it was only upon those conditions being met that he agreed to invest $2.4 million.

On the other hand, Mr Zhu said that instead of promising a 36% return rate, he guaranteed a 20% return on any investment, whether the project was successful or not. Furthermore, if Mr Cao wanted a higher return on his investment, he would have to speak to the developer, Mr Fayad, to negotiate that return.

Between 22 May 2012 and 1 June 2012, Mr Cao arranged for six monetary transfers to occur, whereby funds totalling $2.1 million were transferred from China to Australia.

On or about 3 June 2012 (which I infer because that is the date it bears), Mr Zhu gave Mr Cao a document written in Mandarin in Mr Zhu’s own hand on Be100 letterhead and signed by Mr Zhu. Mr Cao said this was in accordance with his conditions as outlined in paragraph [33] above. The translation of the document is:

On or about 5 June 2012 (which I infer because that is the date it bears), Mr Zhu gave Mr Cao a document written in Mandarin in Mr Zhu’s own hand on Be100 letterhead and signed by Mr Zhu (the “5 June Zhu Guarantee”). It was in the same terms as the 3 June 2012 document, except it concluded with this additional sentence, which in translation reads:

The 5 June Zhu Guarantee was not expressed to be conditional on Mr Zhu being appointed the exclusive selling agent for the Baulkham Hills Project.

At the same time (because it is dated the same date) the Court finds that Mr Zhu gave Mr Cao the document set out in paragraph [58] below (the “5 June Memorandum”).

Although dated 1 May 2012, I infer from the dates of the preceding two documents that at around the same time as those two documents came into existence, Mr Cao was also provided with a list of the assets of Mr Fayad. It is unnecessary to resolve who provided it. Mr Cao again said that this list of assets was provided to him in accordance with his conditions outlined in paragraph [33] above. The list was on the letterhead of, and signed by, Mr Fayad’s accountant and included:

I next record, but unless otherwise stated, do not make any finding in terms of the parties’ various versions of the conversations said to relate to the documents that passed between them.

Mr Cao said he requested the list of Mr Fayad’s assets because he “want[ed] security” if he was going to loan money.

Mr Cao subsequently asked Mr Zhu to introduce him to Mr Fayad directly. Mr Zhu agreed to make the introduction, however on the condition that should an agreement to invest directly with Merfad arise, that agreement would be separate to any agreement between Mr Zhu and Mr Cao.

Mr Zhu organised for Mr Cao to meet with Mr Fayad personally and discuss making the $2.4 million loan. This discussion occurred through an interpreter. Mr Cao was informed that Merfad could not provide a return of 36%, with the highest rate of return it could offer being between 24% and 26%. Additionally, Mr Cao was informed he would not be issued with voting shares in Merfad, however could be given non-voting shares after the construction loan was secured.

As the information provided by Mr Fayad differed from that provided by Mr Zhu in relation to the rate of return of the investment, Mr Cao said he decided not to continue because of the lower return and the high risk of the investment.

Consequently, in order to ensure Mr Cao invested in the Baulkham Hills Project, Mr Cao said, and the Court accepts, that Mr Zhu offered to pay the difference between the 36% and the 26% which Merfad was offering. This was calculated to be approximately $500,000. In the alternative, if $500,000 could not be given to Mr Cao, Mr Zhu said he would offer Mr Cao an apartment of similar value. That evidence is accepted because it is corroborated by the plain terms of the 5 June Memorandum set out in paragraph [58] below.

Mr Cao said that the $500,000 payment from Mr Zhu was unconditional on Be100 being retained as the exclusive sales agent for the Baulkham Hills Property.

Alternatively, Mr Zhu said that Mr Cao was happy to continue investing with Merfad directly and a meeting was had with Mr Fayad and his lawyer, Mr Bounassif. Even though Mr Cao was investing directly with Merfad, he wanted Mr Zhu to provide a guarantee for the funds invested. This was despite Mr Zhu not being party to the agreement between Mr Cao and Merfad. Mr Zhu agreed to do so.

Furthermore, Mr Zhu submitted that he had a conversation with Mr Cao where following Mr Cao investing directly with Merfad, rather than loaning money to Mr Zhu to on-lend to Merfad, the only benefit Mr Zhu would have in the Baulkham Hills Project would be if Be100 received the exclusive selling rights for the project. Consequently, he would only provide Mr Cao with $500,000 should he acquire the exclusive rights as sales agent for the Baulkham Hills Project. The Court does not accept this submission, both because of the view I have taken as to the credibility of the protagonists and the fact that Mr Zhu had at least two opportunities to make that term express in the documents which he signed (and, in the case of the 5 June Memorandum set out in paragraph [58] below, which he himself prepared).

Mr Zhu said the $500,000 figure was derived from usual practice in the industry to give a referral fee between $2,000 and $5,000 per unit, and with there being more than 90 units, a flat rate of $500,000 was agreed.

Referring to the 5 June Zhu Guarantee, Mr Cao’s affidavit evidence was “I observed that Mr Zhu was very eager and wanted me to sign and lend the money to Merfad … as security on my proposed loan to Merfad, I caused Mr Zhu to re-write [the document] but added a further sentence on the document [relating to security]”.

Alternatively, Mr Zhu said it was he who inserted the additional sentence in the 5 June Zhu Guarantee of his own volition. When questioned as to why he provided Mr Cao with a list of his properties, Mr Zhu replied the purpose of this was just listing his assets so Mr Cao “could understand and know more” (T231:7) and that this just related to his “background information” (T230:45). This explanation was not elaborated upon. Mr Zhu also said that the additional sentence referring to a guarantee was inserted by him as an offer in the process of negotiations (T265:23-31). None of these explanations is convincing, not least given the formality of the 5 June Zhu Guarantee, even if it is handwritten.

Mr Zhu also provided Mr Cao with a copy of all the certificates of title of the properties which were owned by Mr Zhu and Zhu and Li Investment Pty Ltd, a company owned by Mr Zhu and his wife. Mr Cao’s evidence was that he was informed that he would also be indemnified by Mr Zhu and Zhu and Li Investment Pty Ltd. As a result of being shown the assets held by both Mr Zhu and his family company, Mr Cao said he was comfortable they had the assets to secure him making $2.4 million loan.

The last asset listed by Mr Zhu in the document was a “55% share in the project located at X XXXX Drive Homebush.” Mr Zhu was the exclusive selling agent for that project with Mr Fayad.

Additionally, on 5 June 2012 (which I infer because that is the date it bears), the 5 June Memorandum was provided by Mr Zhu to Mr Cao in which Mr Zhu agreed to pay Mr Cao $500,000 upon the completion of the Baulkham Hills Project. Mr Cao said that this document reflected the agreement referred to above in paragraph [33].

Alternatively, Mr Zhu said that the 5 June Memorandum was prepared pursuant to his version of events, as outlined in paragraph [53] above. Furthermore, Mr Zhu explained that he did not expressly state the $500,000 payment was conditional upon Be100 being the exclusive selling agent, because he said this was clear from the discussions they had previously had. Without Be100 acquiring the sale rights for the Baulkham Hills Project, there would be no benefit to Mr Zhu.

The 5 June Memorandum said in translation:

The 5 June Memorandum was in a mixture of English and Mandarin. It was in typescript, except for the words reproduced in italics above. It was signed and dated by both Mr Cao and Mr Zhu.

Mr Cao’s affidavit evidence was Mr Zhu said:

Mr Cao said that the 5 June Memorandum was their agreement reduced to writing.

Mr Cao gave further evidence in cross-examination in answer to a question I posed (T65:24-66:5):

At the time of signing the 5 June Memorandum, Mr Cao said that he was under the impression that Mr Zhu also had an interest in the Baulkham Hills Project through an investment of $2.4 million with Merfad. He said he was shown a copy of a loan agreement dated 7 June 2012 (which is set out in paragraph [70] below) between Mr Zhu and Merfad as proof that Mr Zhu had also invested money in the Baulkham Hills Project. If he was shown it, presumably it cannot have been the copy dated 7 June 2012.

When I asked him why the payment, as expressed in the 5 June Memorandum, was unconditional Mr Zhu said (T245:22-247:7):

Mr Zhu’s evidence was that at the time of the 5 June Memorandum, he understood that he was the exclusive selling agent for the Baulkham Hills Project. During cross-examination, Mr Zhu said (T273:47-274:8):

Mr Zhu elaborated further upon this (T275:50-277:26):

Mr Fayad, whose evidence I accept as that of an independent witness with no interest in the outcome of this litigation, also confirmed without hesitation that in early June 2012, it was his intention to appoint Mr Zhu as the exclusive sales agent for the Baulkham Hills Project (T369:7-44).

On 7 June 2012, a loan agreement was entered into between Mr Zhu and Merfad, whereby Mr Zhu would loan $2.4 million to Merfad (the “Zhu/Merfad Loan Agreement”). Mr Zhu accepts that he signed this agreement with Merfad, however is unsure whether the agreement was signed on 7 June 2012. The date on the front of the agreement is 7 June 2012, however this is not Mr Zhu’s handwriting. It was common ground that Mr Cao was shown this agreement between Mr Zhu and Merfad.

While the Zhu/Merfad Loan Agreement included what might be called boilerplate conditions precedent to Mr Zhu’s obligation to advance the loan, it said nothing about Mr Zhu being appointed the exclusive selling agent (whether as a condition precedent or otherwise).

The loan agreement between Mr Zhu and Merfad included:

Despite entering into this agreement, Mr Zhu never loaned the money to Merfad. He conceded this during cross-examination (T298:22-300:14):

Despite not having loaned any money to Merfad, Mr Zhu later lodged a caveat over the Baulkham Hills Project. I have taken this conduct into account in forming my view that Mr Zhu was not a witness whose evidence could be relied upon. The caveatable interest claimed by Mr Zhu was pursuant to the loan agreement of 7 June 2012. Mr Zhu’s caveat claimed the following interest in the land:

On 11 June 2012, Mr Cao’s solicitor, Mr Frank Ngo, emailed Mr Zhu attaching “the draft proposed amendments to the loan and deed of guarantee as instructed by Mr Cao”. Those amendments included a revised (and now certain) definition of “Fixed Return” which was ultimately included in the loan agreement between Mr Cao and Merfad.

On 12 June 2012, Mr Cao entered into an agreement to loan $2.4 million to Merfad (the “Cao/Merfad Loan Agreement”). This loan agreement was largely identical to the Zhu/Merfad Loan Agreement. The key difference was the adoption of the revised definition of “Fixed Return” proposed in the email referred to in the preceding paragraph. This was:

Both Mr Zhu and Mr Fayad also entered into a deed of guarantee dated 12 June 2012 (the “Zhu/Fayad Guarantee”), which guaranteed Merfad’s obligations to Mr Cao under the Cao/Merfad Loan Agreement between Mr Cao and Merfad. The Zhu/Fayad Guarantee did not make Mr Zhu’s obligations conditional on his appointment as the exclusive selling agent.

On 13 June 2012, Mr Zhu and later his wife Ms Li attended Mr Ngo’s office. What happened when they did so was also a matter of complete controversy. Mr Zhu’s evidence was that Mr Ngo handed him a deed of guarantee and indemnity, and explained the contents of the agreement.

The deed of guarantee and indemnity was prepared by Mr Ngo in English and entered into on 13 June 2012 between Zhu and Li Investment Pty Ltd as guarantor and Mr Cao as beneficiary (the Zhu and Li Guarantee”). Under that deed Zhu and Li Investment Pty Ltd guaranteed to Mr Cao Merfad’s obligations, inter alia, to repay the loan of $2.4 million and the “Fixed Return”. The deed set out the following:

The Zhu and Li Guarantee did not make the guarantors’ obligations conditional on Mr Zhu being appointed the exclusive selling agent.

Mr Cao’s affidavit evidence was:

Furthermore, on 13 June 2012 a deed of agreement in English was entered into between Mr Zhu (whose signature was witnessed by Ms Li) and Mr Cao (whose signature was witnessed by Mr Ngo) (the “13 June Deed”). The 13 June Deed was drafted by Mr Ngo upon the instructions of Mr Cao and is the document on which Mr Cao sues in these proceedings in contract. (Mr Cao’s pleading asserts other causes of action and relies on other documents for reasons which are not readily apparent. It is sufficient to deal with his claim as one in contract on the 13 June Deed.)

The 13 June Deed provided:

Pausing at this point of the narrative, I observe that it is difficult to imagine clearer terms. Moreover, as I will develop below, clause 2 is a complete answer to all of the contractual defences raised by Mr Zhu and, at least in part, to the defence of unconscionability.

Mr Cao’s evidence was that the 13 June Deed initially had the $500,000 payment being due at the same time as Mr Cao was to be paid the return on his loan. Mr Cao’s evidence (corroborated by Mr Ngo) was that Mr Zhu asked for the 13 June Deed to be amended, so the payment of the $500,000 fell at a later date. Mr Zhu denied any such change was ever sought.

Mr Cao’s affidavit evidence was:

Mr Cao’s evidence was that the terms of the 13 June Deed were agreed upon between Mr Cao and Mr Zhu, and then Mr Cao informed Mr Ngo of the terms, and the document was drafted accordingly.

On the other hand, Mr Zhu’s evidence was that he told Mr Ngo that “This money of $500,000 I agreed to give to my friend is from the commission if I sell the units. It is nothing to do with the project and land” and that it was to be paid “when I get commission”. Mr Zhu also said that he told Mr Ngo that he (Mr Zhu) didn’t have a lawyer and “I will have to trust you [Mr Ngo]. Mr Cao does not understand English and my English is pretty poor. You are the lawyer for both of us”. He also said he queried clause 2 with Mr Ngo asking “Does it mean what we discussed?” (referring to the funds coming from his commission and there being a possibility of giving Mr Cao a unit in lieu) to which Mr Ngo replied in the affirmative. Ms Li gave evidence that Mr Ngo told her “I am helping both parties, not only Mr Cao”.

Mr Ngo denied these allegations. His evidence was that other than pleasantries he told Mr Zhu and Ms Li “I can’t be involved, you need to get your own lawyer. I have asked Mr Cao to tell you that”.

Whether or not Mr Ngo told Mr Zhu that he should get his own lawyer is not relevant. I do not accept Mr Zhu’s account for the reasons I have set out in paragraphs [115] to [120]. Ms Li is not an independent witness, so I do not accept her evidence as corroborative of Mr Zhu’s. Furthermore, Mr Zhu’s evidence about his interactions with Mr Ngo, especially his alleged querying the meaning of clause 2, is fanciful. In the course of giving his evidence, it was apparent that Mr Zhu had good conversational English (answering questions before they were interpreted and sometimes correcting the interpreter’s interpretation of his (Mr Zhu’s) evidence) and that he could read English. I have no doubt that if he had read clause 2 – which presumably he must have because his evidence was he said to Mr Ngo “I had difficulty understanding point 2” – he would have understood it and seen that it was silent about the very thing he is now telling the Court concerned him most, being that the $500,000 was (according to him) only payable out of commission if he was appointed exclusive selling agent. I also regard it as inherently unlikely that a solicitor in the position of Mr Ngo, who by then had been in practice for 14 years providing commercial and conveyancing advice to the Chinese community, would have simply volunteered to act for Mr Zhu or allowed himself to be “verballed” into becoming Mr Zhu’s solicitor as well as Mr Cao’s.

As has already been recorded in paragraph [22] above, the purchase of the first tranche of the Baulkham Hills Project land was completed on 13 June 2012. By reference to the settlement sheet that was in evidence, Merfad paid $8,422,076.18, of which $4,900,000 was provided by a loan from Westpac. There was no suggestion by any party that the $2.4 million loaned by Mr Cao to Merfad was not also part of the funds used to complete the purchase.

During 2013, Mr Zhu became aware that Merfad was intending to sell the incomplete Baulkham Hills Project to a third party. On 31 October 2013 Mr Zhu lodged a caveat over the land comprising the Baulkham Hills Project. I have already referred to this caveat in paragraph [72] above.

On 6 November 2013, Mr Cao similarly lodged a caveat, in his case relying on the Cao/Merfad Loan Agreement.

On 18 November 2013, Mr Zhu withdrew his caveat.

In or about May 2014, Mr Zhu entered into a document with Mr Fayad and Merfad entitled “Deed of Settlement – Ancillary Matters” whereby Mr Zhu received $1,000,000 in respect of a dispute which apparently included claims by Mr Zhu for services rendered in connection with the Baulkham Hills Project. This settlement is referred to further in paragraph [112] below.

On 14 September 2014, Merfad entered into a contract to sell the land comprising the Baulkham Hills Project to a third party for $26,900,000.

On 12 December 2014, Mr Cao was repaid in full both the principal of $2.4 million and the fixed return of $1.584 million. Mr Cao withdrew his caveat. The guarantees which had been given in his favour by Mr Zhu and Mr Fayad did not have to be called on.

On 23 September 2016, the strata plan for the Baulkham Hills Project site was registered.

This case involves two obviously astute and experienced businessmen asserting completely different accounts of what was really a straightforward commercial transaction. Mr Cao has maintained he was to be paid $500,000 from Mr Zhu to supplement the 26% return he would receive from Merfad. This payment was to be unconditional.

Alternatively, Mr Zhu has submitted that the $500,000 payment was conditional upon him being made the exclusive selling agent for the Baulkham Hills Project. Mr Zhu has maintained that conversations were had with Mr Cao to this effect, and that the only role he would have in the Baulkham Hills Project would be if he were appointed the agent for the site.

Given the gulf between their respective accounts, credit is an important issue.

Mr Bolster submitted that Mr Cao was not a reliable witness and where there was conflicting testimony between the plaintiff and defendant, the evidence of Mr Zhu should be preferred. It was submitted that Mr Cao’s evidence in relation to the following matters was incorrect, inconsistent or implausible, and as such his evidence should be given little weight.

Mr Zhu’s submissions in relation to Mr Cao’s evidence can be summarised as follows:

There were also apparent inconsistencies in some of Mr Cao’s evidence. I say “apparent” because in some cases those inconsistencies may be the product of interpretation issues, subtleties being “lost in translation” (see paragraph [116] below). For example, Mr Cao’s evidence appeared to differ in relation to who proposed to pay the shortfall of the 36%. On the first day of the trial, Mr Cao gave the following evidence (T64:20-23)

However, on the second day of the trial Mr Cao was again asked whether he approached Mr Zhu to supplement the shortfall of the 36% return and he provided a different answer (T82:33-36):

Mr Cao maintained he was of the belief that he did not think Mr Zhu was able to repay him had he lent money directly to Mr Zhu (T74:37-75:23):

Given Mr Cao’s admission that he did not believe Mr Zhu could make any repayments, it is unclear why he would have believed the contract between himself and Mr Zhu to pay $500,000 was not conditional upon Mr Zhu becoming the exclusive selling agent of the Baulkham Hills Project.

Similarly, Mr Cao’s evidence in relation to whom he was lending the $2.4 million was at times contradictory. Mr Zhu asserted that the initial plan was for Mr Cao to lend the money to Mr Zhu, and for Mr Zhu to then lend the money to Merfad. Mr Cao both accepted and rejected this version of events, as noted below during his cross-examination (T74:26-39):

Mr Bolster submitted that the matters set out in the preceding paragraphs demonstrated that Mr Cao was prepared to do and say anything to embellish his case. Furthermore, given the commercial probabilities, the only explanation is that Mr Cao is not telling the truth about the $500,000 payment and that it was agreed by both parties that the payment was conditional upon Mr Zhu being appointed the agent for the Baulkham Hills Project.

Finally, it was submitted that Mr Cao was an argumentative and unsatisfactory witness. The Court should therefore prefer the version of events put forward by Mr Zhu.

Mr Santisi submitted for Mr Cao that it was Mr Zhu who was the unreliable witness whose evidence was not to be given any weight. His arguments may be summarised as follows:

“Q. The discussions concerning you borrowing money first of all I put to you never happened.

A. INTERPRETER: It didn't happen.”

The Court also notes that Mr Zhu’s explanation as to how the $500,000 payment was derived was not consistent:

Furthermore, Mr Zhu consistently submitted that in the absence of him being appointed the exclusive sales agent for the Baulkham Hills Project, he received no benefit from the project. His affidavit evidence was “I never got anything out of this project.”

Despite this constant assertion, evidence was put before the Court that a settlement was reached between Mr Zhu and Mr Fayad. A deed of settlement was entered into, which included (emphases added):

It was submitted that the terms of that deed made it clear that, at least as to part, it was directly connected with the events of the Baulkham Hills Project.

Given that none of the contemporaneous documents supported Mr Zhu’s claim, and in fact disproved numerous statements made by him, it was submitted for Mr Cao that Mr Zhu’s evidence should be given no weight and be treated as being unreliable. As such, the Court was invited to make adverse credit findings about Mr Zhu.

There is a great deal of force in the parties’ respective criticisms of each other as witnesses. It is clear that there were inconsistencies and exaggerations in the evidence of both Mr Cao and Mr Zhu.

Before going further, the Court acknowledges that the case was complicated by their evidence having to be given in Mandarin. I have been left with the impression that at least some, but far from all, of those inconsistencies may well have been the result of matters being “lost in translation”. There were clearly difficulties in translating some of counsels’ questions, particularly where they were put emphatically, used Australian colloquialisms or double negatives. I endeavoured to clear up some of the obvious misunderstandings as the evidence was given, but a review of the transcript reveals that ambiguities and obscurities remain. Cultural factors, including exaggerations as a means of emphasis, may also have played a part in some of the answers.

However, even when those matters are allowed for, I have no hesitation in finding that neither of the protagonists was a reliable witness.

Mr Cao, whether from frustration or otherwise, given the essential simplicity of his case, was prone to what I perceived as exaggeration and embellishment. For example, his evidence that three times in the one conversation Mr Zhu affirmed the $500,000 was unconditional struck me as, at best, an exaggeration (see paragraph [101(12)] above).

On the other hand, Mr Zhu was even more unsatisfactory. His answers were often discursive and evasive. As will be apparent from some of the extracts of his cross-examination set out above, he was prone to long explanations in an apparent attempt to reconcile the irreconcilable. I came to the view that he was prepared to say anything that he thought at the time might assist his case. His attempts to explain away the clear language of both the 5 June Memorandum and the 13 June Deed struck me as completely unpersuasive.

I therefore came to the view that I could not rely on the evidence of either Mr Cao or Mr Zhu unless it was corroborated by contemporaneous documents or independent witnesses, was inherently likely or against interest. The Court has primarily relied on the contemporaneous documents and what was inherently likely in assessing the facts.

The other witnesses played a much smaller role.

Mr Fayad was a witness with no interest in the outcome. The Court accepts him as a reliable witness.

Mr Ngo was a witness called at the end of the case (see paragraph [13] above). He had been instructing Mr Santisi throughout the hearing and was Mr Cao’s solicitor on the record in the case. As the case went on, it became obvious that if Mr Ngo was not called, the Court would be invited by Mr Bolster to draw a Jones v Dunkel inference. Even allowing for the facts of Mr Ngo’s closeness to the proceedings, his presence throughout the hearing and that he had very few contemporaneous notes, I formed the view that in giving his evidence I could regard him as a professional person with no interest in the outcome who was doing his best to assist the Court with a truthful account of the events. I accept his evidence as reliable.

Ms Li was not an independent witness and gave every impression of being very much in her husband’s camp. The only evidence she could give was of what she said occurred at Mr Ngo’s office. Significantly, she did not suggest she was present when Mr Zhu’s alleged explanation to Mr Ngo occurred or during their later alleged conversation about the meaning of clause 2 of the 13 June Deed (see paragraph [86] above). I have proceeded on the basis that I could not rely on her evidence unless it was corroborated by contemporaneous documents or independent witnesses, was inherently likely or against Mr Zhu’s interest.

Before turning to the parties’ submissions, it is convenient to set out my overall factual conclusions, in addition to the findings that I have made above. Despite the protagonists’ obfuscations and exaggerations, by reference to the uncontested facts, the commercial likelihood and, most importantly, the various documents entered into by the parties up to and including the 13 June Deed, I am well satisfied, and certainly on the balance of probabilities, of what follows and find accordingly.

The story of the dealings between Mr Zhu and Mr Cao is one of a very willing and anxious party in the form of Mr Zhu and a counterparty (Mr Cao) who, as a result, was able to drive a tough bargain to obtain a well secured and significant return on his investment.

In May and June 2012 Mr Zhu was in no doubt that he was the exclusive selling agent for the Baulkham Hills Project. He was correct in that, because Mr Fayad agreed in his evidence that would be the case. Mr Fayad described his working relationship with Mr Zhu as “perfect” (T369:40-41). The fact that a formal (in the legal sense) appointment may not yet have occurred is irrelevant. The commercial reality was clear.

Mr Zhu expected to make a great deal of money from his role in the Baulkham Hills Project. This was the expected “financial benefit” recited in the 13 June Deed. To make that money he needed the project to go ahead. Merfad had been unable to find the money to complete the contract to purchase the first tranche of land for the project. Mr Zhu was prepared to say and do whatever he could to find a financier. He found Mr Cao.

Mr Cao was an astute and determined business man. He knew that he held the commercial whip hand. He was determined to get a 36% return on his investment with maximum security. He was able to get that primarily from Merfad and, as to the balance, from Mr Zhu.

Whether the various steps in achieving that goal were volunteered by Mr Zhu or first suggested by Mr Cao is also irrelevant. Those steps included:

Importantly, none of the documents entered into by Mr Zhu set out in the preceding paragraph, especially the 5 June Memorandum (which Mr Zhu drafted) and the 13 June Deed, were expressed to be conditional on Mr Zhu being appointed the exclusive selling agent for the Baulkham Hills Project.

Mr Zhu understood exactly what he was agreeing to. He did so willingly. He was confident he could meet his obligations to Mr Cao out of the money he would make from the Baulkham Hills Project. He told Mr Cao that he would be paid from the commissions he (Mr Zhu) expected to make. However, at no time did he suggest that his obligation to pay Mr Cao was conditional on him (Mr Zhu) being appointed exclusive selling agent. There is no reason for him to have required such a condition precedent when he was in no doubt that he was the exclusive selling agent. He was willing to agree to pay Mr Cao “regardless of whether any of the units in the [Baulkham Hills Project] have been sold or not” presumably because, knowing he was the exclusive sales agent, he had no doubt that he would make more than enough from his commissions to pay Mr Cao.

Similarly, I readily infer from Mr Cao’s evident determination to achieve the 36% return, the course of the negotiations and the terms of the various documents entered into (especially clause 2 of the 13 June Deed), that had Mr Zhu sought to introduce any element of conditionality into his obligation to pay the $500,000, it would have been rejected by Mr Cao.

In an endeavour to give legal significance to the various conversations and documents which came into existence between 5 and 13 June 2012, Mr Cao’s case was argued in a number of different ways. The simplest of these (described in paragraph 12 of Mr Santisi’s closing written submissions dated 21 November 2019 as “an alternate and further claim”) is an action in contract on the 13 June Deed. That is all Mr Cao needs and all the Court needs to consider. The 13 June Deed is a deed, therefore no issue of adequacy of consideration arises. In its terms the obligation to pay the $500,000 is unconditional. Mr Zhu did not dispute that the registration of the plan of subdivision required to enliven that obligation occurred on 23 September 2016. Subject to determining the defences raised by Mr Zhu, the Court concludes that by reason of the 13 June Deed, Mr Zhu became liable to pay Mr Cao $500,000 no later than 23 December 2016 and is entitled to judgment accordingly.

The defences raised by Mr Zhu are:

I should record that there was also pleaded a claim that Mr Cao was engaging in misleading and deceptive conduct pursuant to s 18 of the ACL by seeking to enforce the 13 June Deed in the face of what was pleaded as an agreement allegedly reached between the parties on 13 June 2012 that “conditional upon his real estate business securing the right to sell the units in the development, [Mr Zhu] would pay the plaintiff $500,000 from any commission received by him referable to the sale of units in the Baulkham Hill development” (Amended Defence, paragraph 7(b)). This claim was not addressed in Mr Zhu’s closing submissions. In any event, I record that I would dismiss it because it depends upon the Court accepting Mr Zhu’s version of what was said between him and Mr Cao on that day. Given the view I have taken of Mr Zhu’s credit and the fact that the alleged agreement is contrary to the terms of both the 5 June Memorandum and the 13 June Deed, I do not accept Mr Zhu’s version of events and reject the claim that on 13 June 2012 the parties made the alleged agreement. To the extent it continued to be pressed by Mr Zhu, this claim under the ACL fails.

Construction or implication

The relevant legal principles were not in doubt. Mr Bolster relied on this statement of the High Court in Rinehart v Hancock Prospecting Pty Ltd; Rinehart v Rinehart [2019] HCA 13 at [44], in which Kiefel CJ, Gageler, Nettle and Gordon JJ stated:

The surrounding circumstances Mr Zhu submitted that needed to be considered by Court when construing the 13 June Deed were:

With these surrounding circumstances in mind, it was submitted that no reasonable businessperson in the position of the parties would have objectively concluded that Mr Zhu was required to pay Mr Cao $500,000 if he were not appointed the exclusive sales agent.

The difficulty with the argument put for Mr Zhu is that it does not start with the requirement to construe the 13 June Deed as a whole and therefore does not address the significance of clause 2. Proper effect must also be given to clause 2 of the 13 June Deed, which it will be recalled provides: “ZHU is liable to pay CAO the amount referred to in clause 1 regardless of whether any of the units of the registered strata subdivision Property Development have been sold or not”. The language is clear. When the surrounding circumstances relied upon by Mr Zhu are taken into account, the proper construction only becomes more certain: Mr Zhu’s obligation to pay did not depend upon him having received any commission from sales. The same result obtains if clause 2 is construed by adding at the end “Mr Zhu” or “by anyone”. Mr Zhu’s proposed construction of the 13 June Deed cannot stand in the face of clause 2.

The same clause means that Mr Zhu’s implication argument must fail. Mr Bolster relied on the well-known test for implication of contractual terms set out in the decision of the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283. Three of the criteria for implication identified in that decision are not met in the present case. Most obviously, the term sought to be implied contradicts clause 2, which makes it clear that Mr Zhu’s obligation is not conditional on him having received any commissions. Whether the reason for him not having received commission is that he was not appointed selling agent or, having been so appointed, he failed to sell any units is irrelevant to the analysis. Nor is the Court satisfied that the 13 June Deed is not effective without the proposed implication or that the proposed implication is so obvious “that it goes without saying”.

With respect, Mr Bolster’s own written closing submissions dated 10 December 2019 make it clear why Mr Zhu’s rectification claim also fails. Those submissions (correctly, in my respectful view) state (emphasis added):

“188. Similarly, there is no evidence to suggest that there was any discussion that the $500,000 was payable in the event that Merfad sold the project and an agent other than Mr Zhu was appointed.

189. The discussions of Mr Zhu and Mr Cao all assumed, indeed they took it for granted, that once the time came for the marketing of the project, it would be Mr Zhu’s company that would be formally appointed the exclusive real estate agent of Merfad and be engaged in the act of selling however many units were finally approved.

190. Their common intention only extended in so far as what was to happen in this eventuality. Put simply, the evidence does not suggest that Messrs Zhu and Cao actually turned their minds to the events that actually transpired, namely that the development site would be sold with the purchaser engaging another agent to sell the units.”

The difficulty with Mr Zhu’s case for rectification is that, as his own counsel’s submissions accept, it is an attempt to rewrite the 13 June Deed by adding a provision to deal with something the parties had not considered and about which, therefore, they did not have any common intention at the time they executed the 13 June Deed.

The law in relation to rectification was recently summarised by the Court of Appeal in Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In liquidation) [2019] NSWCA 11. I respectfully adopt the legal principles as set out in that case by Sackville AJA, with whom Leeming, Payne, White JJA and Emmett AJA agreed (citations omitted):

Mr Bolster’s submissions acknowledge that there was no common intention to the effect of the provision sought to be inserted by the proposed rectification. The claim therefore fails at the first hurdle. Insofar as rectification may involve consideration of the parties’ subjective intentions as manifested to each other, I repeat the observation made in paragraph [133] above that the Court is satisfied that, for his part, Mr Cao was determined to have maximum security for his return on investment and would have rejected any suggestion that Mr Zhu’s obligation to pay should be conditional on anything. Clause 2 of the 13 June Deed demonstrates as much.

Section 20 of the ACL provides that “a person must not, in trade or commerce, engage in conduct that is unconscionable, within the meaning of the unwritten law from time to time”.

Mr Bolster submitted that the unconscionability in Mr Cao attempting to enforce the 13 June Deed arose from the fact that “both parties proceeded upon the consensus, or alternatively assumption, that once Mr Zhu was taken out of the loan transaction (other than as a guarantor) and Mr Cao lent directly to Merfad, Mr Zhu’s only interest or expectation of financial gain” was from the Baulkham Hills Project (closing written submissions dated 10 December 2019, paragraph 210). As will be apparent from the Court’s factual findings set out above, Mr Zhu has failed to prove that both parties proceeded upon any such consensus or assumption. Assuming in Mr Zhu’s favour that he told Mr Cao he expected to pay Mr Cao from commissions, that does not establish that they proceeded on any such joint basis. Clause 2 of the 13 June Deed stands as objective contemporaneous evidence to the contrary.

Mr Bolster submitted that other factors which give rise to unconscionability include:

None of these matters is sufficient to bring Mr Cao’s conduct within s 20 of the ACL. Nor is the fact that to enforce the 13 June Deed in the events which have happened (Mr Zhu not having had the opportunity to earn commissions on the sale of units in the Baulkham Hills Project) now seems somehow unfair. Mr Cao clearly wanted to ensure he received his required return come what may.

The matters identified by Mr Bolster do not, for example, amount to a special disadvantage which seriously affected Mr Zhu’s ability to make a judgment as to his own best interests. Mr Zhu had solemnly promised to pay Mr Cao the $500,000 as early as the 5 June Memorandum which he prepared and signed. There is no suggestion that he could not have sought legal advice at any time between 5 and 13 June. The Court is satisfied that Mr Zhu’s English proficiency was sufficient for him to read and understand the 13 June Deed.

Mr Zhu has not proven that he had no choice but to sign the 13 June Deed there and then, or that his will was somehow overborne to sign it then. Given that Mr Cao had already entered into the Cao/Merfad Loan Agreement (something known to Mr Zhu as a guarantor of that agreement), there was in fact no commercial compulsion that might otherwise have been the case if Mr Cao was saying he would not sign the Cao/Merfad Loan Agreement unless Mr Zhu entered into the 13 June Deed. Nor were Mr Cao’s obligations under the Cao/Merfad Loan Agreement expressed to be conditional upon Mr Zhu executing the 13 June Deed. By 13 June, Mr Cao was legally liable to advance the loan whether or not Mr Zhu signed the 13 June Deed.

As I have set out in paragraphs [125] to [133] above, Mr Cao was in a strong bargaining position vis-à-vis Mr Zhu and Merfad. He used it to ensure he had agreements in place which gave him the maximum prospect of receiving the return he insisted upon making. Using a superior bargaining position in arms’ length commercial negotiations does not engage s 20 of the ACL: ACCC v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51; [2003] HCA 18.

Mr Zhu has not made out any of the defences he has sought to raise in answer to Mr Cao’s suit on the 13 June Deed. There will be judgment for Mr Cao for $500,000, together with interest calculated from 23 December 2016 and – subject to giving the parties an opportunity to be heard if they wish – costs. Mr Zhu’s cross-claim will be dismissed with costs.