Wang v Meng

MACFARLAN JA: I agree with White JA.

WHITE JA: This is an application for leave to appeal from orders of the Equity Division by which the respondent (plaintiff in the court below) was granted leave to amend her already amended statement of claim to claim damages for breach of contract after the judge had determined that her claim for equitable relief, by way of specific performance and related relief, should be dismissed (Meng v Wang [2022] NSWSC 833). For the reasons which follow I would refuse leave to appeal.

The respondent, Ms Zihui Meng, sued the applicant, Ms Binbin Wang, for specific performance of an agreement by which (as the judge found) Ms Wang agreed to purchase Ms Meng’s shares in two proprietary companies (Comfort Zone Clinic Pty Ltd and Comfort Zone Spa Pty Ltd) for $378,000.

By her amended statement of claim filed on 7 September 2020, Ms Meng sought the following orders:

The hearing before the primary judge commenced on 2 May 2022. Both parties sought to amend their pleadings. Some amendments were allowed and some disallowed. Ms Wang had pleaded that on 17 or 19 March 2020, Ms Meng attended the premises occupied by one of the companies and removed equipment, records (including customer lists and contact details), stock and other devices, and disabled Ms Wang’s access to the company’s email account used to contact suppliers and customers and, for those reasons, together with the COVID 19 pandemic which prevented trading, the contract was frustrated.

On 27 April 2022 Ms Wang foreshadowed a proposed amendment to the defence to abandon the defence founded on frustration, with that defence to be replaced, by reference to the same facts, with claims that Ms Meng had breached implied terms of cooperation and good faith, and was not entitled to relief by reason of her unclean hands.

On 3 May 2022 leave was given to Ms Wang to raise those defences. The defence of unclean hands, and that defence alone, succeeded.

The primary judge recorded that it was common ground that if the agreement between the parties was for the sale and purchase of Ms Meng’s shares (as his Honour found to be the case) the purchase was to be completed within a reasonable time. Ms Meng had pleaded three alternative reasonable times for payment for the shares, the last being within six months of the agreement being made, that is by the end of April 2020 (J [15]-[16]).

The primary judge recorded:

Prior to the hearing the parties served a summary of their respective claims. The claim summary prepared for Ms Meng dated 4 February 2022 included the following:

One of the issues identified by Ms Meng in that document was:

Reference was made to a share valuation report that Ms Meng had served.

A substantial part of the first day of hearing was taken up with Ms Meng’s application to amend her statement of claim. In paragraph 47 she had pleaded that it was a term of the share transfer agreement that the time the plaintiff was required to transfer the shares to Ms Wang was the earlier of a time Ms Wang elected or the expiration of a reasonable time after the date of the Share Transfer Agreement. She also pleaded that, for the purposes of that paragraph, a reasonable time after the date of the Share Transfer Agreement was a period of no greater than three months or in the alternative a period of no greater than six months. In her opening submissions, counsel for Ms Meng submitted that there could be no doubt that, by the date of the hearing, a reasonable time had passed and that as Ms Wang had refused to perform the Share Transfer Agreement, Ms Meng was entitled to an order for specific performance (Turner v Bladin (1951) 82 CLR 463; [1951] HCA 13).

Counsel for Ms Wang submitted that a reasonable time for the purchase of the shares was at least a year after the agreement was made. He submitted that what is a reasonable time was not limited to what the parties had in contemplation at the time of entering into the contract but was a matter affected by subsequent events. These included Ms Wang’s capacity to pay for the shares, as well as the COVID 19 pandemic.

Before the primary judge and counsel embarked on Ms Meng’s application for leave to amend to add an alternative claim or claims as to when a reasonable time for performance of the agreement had occurred, the following exchange took place between the primary judge and counsel for Ms Wang:

Ms Meng sought to amend her statement of claim by alleging at paragraph 55A that a reasonable time after the date of the Share Transfer Agreement had expired was by the date of commencement of the proceedings or, alternatively, by the date of the proposed amendment. On the second day of the hearing the primary judge refused Ms Meng leave to make that amendment. His Honour said:

The primary judge found that the reasonable time for performance was not within the period of six months pleaded by Ms Meng but this would not prevent the court from declaring that the agreement was specifically enforceable so that an order for specific performance could be made when the time came for payment (J [75]). His Honour rejected Ms Wang’s contention that on its proper construction the agreement gave her an option to acquire Ms Meng’s shares but did not require her to do so (J [62]-[65]). As indicated above, his Honour upheld the defence of unclean hands.

At the conclusion of the fourth day of the hearing, the primary judge said that he was not in a position to deliver a full oral judgment but had reached conclusions on the issues that had been debated before him. He stated those conclusions. Relevantly for the present application, his Honour said:

In his published reasons, the primary judge said:

On 12 May 2022 the primary judge ordered that the claims for relief in paragraphs 2 to 6 of the further amended statement of claim filed 3 May 2022 be dismissed. The proceedings were adjourned for further directions. On 24 June 2022 the primary judge granted leave to Ms Meng to amend the statement of claim in accordance with a proposed third further amended statement of claim provided to the court that day. The amendments made by that document were relevantly:

The grounds of Ms Wang’s proposed appeal are as follows:

The decision to allow Ms Meng to amend her statement of claim was an interlocutory decision and leave to appeal is required. Leave is usually granted only where the proposed appeal raises an issue of principle, involves a question of general public importance, or where the applicant can point to a serious injustice which is more than merely arguable (The Age Company Ltd & Ors v Liu (2013) 82 NSWLR 268; [2013] NSWCA 26; Young v Hones (No 2) [2014] NSWCA 338 at [14]). Moreover, the judge’s decision was discretionary and the grounds for appellate review are as stated in House v The King (1936) 55 CLR 499 at 505; [1936] HCA 40.

Ms Wang submitted that the application raised a question of principle, and a question of general importance regarding case management.

The issue of principle was said to be whether the primary judge misconstrued s 63 of the Supreme Court Act 1970 (NSW) by finding that the section required him to grant leave to Ms Meng to amend.

Particular emphasis was placed upon observations made by the primary judge during the course of counsel’s submissions where his Honour said that “s 63 where it applies – I emphasise those words, ‘where it applies’ – is not discretionary, it’s an obligation on the Court”.

Neither in his summary of conclusions, nor in his published reasons, did the primary judge hold that s 63 required him to grant Ms Meng leave to amend. In his summary of conclusions quoted at [18] above, his Honour said “As I have said, I would dismiss the application for specific performance, but I am inclined to think that section 63 of the Supreme Court Act means that I should not [not “cannot”] dismiss the proceedings completely…”. In his reasons, his Honour said (at [93]) that “it seemed to me that the appropriate course was to permit Ms Meng to amend her statement of claim…”.

Section 63 is cast in mandatory terms. It provides:

Section 63 does not confer power on the Court to order amendments. Nor does it direct how the power to order amendments, or to grant leave for the making of amendments, should be exercised. Nonetheless it gives expression to a principle that is also reflected in s 64(2) of the Civil Procedure Act 2005 (NSW). Section 64 relevantly provides:

Ms Wang submits that the primary judge erred in thinking that s 63 was applicable as Ms Meng’s legal claim (as distinct from her equitable claim that had been dismissed) was not a claim that had been “brought forward in the proceedings”. This was because a claim for damages for breach of contract had not been pleaded.

However, a claim for damages for breach of contract, as well as the claim for the price of the shares agreed to be transferred, was part of the controversy between the parties. The claim for the price of the shares had been pleaded and the claim for damages for breach of contract had been foreshadowed in Ms Meng’s summary of her claims for relief and opening submissions (AON Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 at [71]; [2009] HCA 27).

The primary judge directed the amendment as he was entitled to do under s 64(1)(a) of the Civil Procedure Act. The exercise of that power was subject to s 58 of the Civil Procedure Act. Section 58 provides:

The judge did not expressly refer to ss 56, 57 or 58 of the Civil Procedure Act. Ms Wang accepted that that does not itself connote error (Johnson v Mackinnon [2021] NSWCA 152 at [94]). Ms Wang submitted that nonetheless the primary judge determined the matter solely by reference to s 63 of the Supreme Court Act “…with the qualification that he did not think that the respondent should be exposed to the risk of an Anshun estoppel when she could well succeed if the amendments were allowed”.

I accept that it should be inferred that the primary judge proceeded on the basis that Ms Meng might well succeed if the amendments were allowed. It does not follow that he solely had regard to s 63, as distinct from the principle in that section which is reflected in s 64(2).

Ms Wang submitted that the judge erred in principle by granting Ms Meng leave to amend her statement of claim when she had not applied for such leave. I do not agree. It is open to a judge acting under s 64(1)(a) of the Civil Procedure Act to direct an amendment to ensure that the pleaded issues reflect the real issues in controversy if that can be done without procedural unfairness and in accordance with the requirements of s 58 of the Civil Procedure Act. The judge was entitled to be satisfied that the dictates of justice required the grant of leave.

Ms Meng’s prospects of success if the amendments were allowed was relevant to the requirement of s 58(1) that the Court must seek to act in accordance with the dictates of justice. The judge rejected Ms Wang’s defences except the defence of unclean hands. The defence of unclean hands was a defence to the claim for equitable relief but not a defence to a claim at law, either for the price of the shares (which would only be payable in exchange for a transfer of the shares not already registered in the name of Ms Wang and would only be payable when the time for performance arrived) or for damages (which would only fall for assessment after the time for performance had arrived if Ms Wang then refused to perform). The primary judge had determined that the time for performance that Ms Meng had pleaded (being up to six months after the date of the agreement) was not the time for performance but there was a prima facie strong case for saying that the time for performance had arisen by the time of the hearing.

If Ms Meng were required to institute fresh proceedings at law, the foreshadowed Anshun defence might or might not succeed. Prima facie it might be thought that such a defence would be unlikely to succeed, given that it was not until the second day of the hearing that Ms Wang was given leave to plead the defence of unclean hands that was the only successful defence to the claim for specific performance and that claim had only been foreshadowed a few days before the commencement of the hearing. If the Anshun defence failed, then the parties would be put to greater expense and delay by requiring Ms Meng to commence new proceedings than by giving her leave to amend in the existing proceeding where the case was under the active management of the judge. On the other hand, if the Anshun defence succeeded, the injustice to Ms Meng of being deprived of what, on the judge’s findings, was apparently a meritorious claim, would clearly outweigh the prejudice to Ms Wang of the further expense and delay associated with the further hearing (see by analogy Macquarie Bank Ltd v National Mutual Life Association of Australia Ltd (1996) 40 NSWLR 543 at 555 (per Clarke JA, with whom Priestley JA agreed) and 604-605 (per Powell JA with whom Priestley JA also agreed on this point); Cement Australia Pty Ltd v Australian Competition and Consumer Commission (2010) 187 FCR 261 at [73]; [2010] FCAFC 101).

It was clear from the early exchange quoted at [15] that the judge had in mind that if the claim for specific performance failed on the ground of unclean hands Ms Meng would have an available action for damages. No question was raised as to a potential Anshun defence at that stage. Had it been, the judge would have been justified in making it a condition of the leave to raise the unclean hands defence that Ms Wang undertake not to raise an Anshun defence to a new action for damages if Ms Meng’s then pleaded claim failed only by reason of that defence.

Ms Wang also submitted that the judge erred in principle by giving Ms Meng leave to amend to avoid the risk of an Anshun estoppel when there was no evidence that she intended to bring a new action. Counsel relied on observations of French CJ in AON Risk Services Australia Ltd v Australian National University at [32] where his Honour found that in that case the court below had no basis for inferring that, if proposed amendments were refused, there would be further proceedings.

That observation addressed the facts of that case. It did not purport to lay down a principle of law that such evidence is always required (see by analogy Cement Australia Pty Ltd v Australian Competition and Consumer Commission at [52], [55]).

Ms Wang complained that the primary judge granted leave to Ms Meng to amend the times by which she claims a reasonable time for performance would have expired, having earlier refused to allow that amendment. But his Honour’s earlier refusal was on the basis that if Ms Meng were entitled to an order for specific performance, the order could be made even if the time for performance had not yet arrived. Once the dictates of justice required that Ms Meng have leave to bring a claim at law for damages, then it followed that she should have leave to amend her claim to allege different reasonable times for performance. It followed from that that she should also be permitted to sue for the price on the basis that the time for performance had expired.

The prejudice on which counsel appearing for Ms Wang at trial relied in opposition to the grant of leave to amend was that Ms Wang had not prepared a case that a reasonable time for performance was more than the six months pleaded. But the primary judge’s orders allow Ms Wang time to provide evidence to meet the amended claim.

Ms Wang made no submissions as to the last ground of appeal. Costs are in the discretion of the court and were reserved until the overall result of the proceedings is known (J [104]). There is no ground for interfering with the order reserving costs.

The application does not raise a question of principle. Nor did the primary judge’s discretion miscarry. The application for leave to appeal was heard concurrently with the appeal if leave be given. The Court had the benefit of full argument. Nonetheless the appropriate order is that the summons for leave to appeal be dismissed with costs.

BASTEN AJA: I agree with White JA.