Supreme Court New South Wales Medium Neutral Citation: Yan v The Won Capital Pty Ltd [2023] NSWSC 1506 Hearing dates: 29 November 2023 Date of orders: 30 November 2023 Decision date: 05 December 2023 Jurisdiction: Equity Before: Richmond J Decision: 1. Grant the plaintiff leave to file and serve a further amended statement of claim. 2. The plaintiff to pay the costs of and occasioned by the amendment. 3. Plaintiff to pay the costs of the first, second and third defendants of the plaintiff's Notice of Motion filed on 30 October 2023. 4. Notice of Motion is otherwise dismissed Catchwords: CIVIL PROCEDURE — pleadings — amendment — delay — interests of justice — amendment permitted CIVIL PROCEDURE — pleadings — amendment —defendant subject to deed of company arrangement — leave required under Corporations Act 2001 (Cth) — amendment refused Legislation Cited: Civil Procedure Act 2005 (NSW) Corporations Act 2001 (Cth) Cases Cited: Attard v James Legal Pty Ltd (2010) 80 ACSR 585; [2010] NSWCA 311 Dymocks Book Arcade Pty Ltd v Capral Ltd [2011] NSWSC 1423 Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498; [2012] HCA 7 Pavey & Matthews Ltd v Paul (1986) 162 CLR 221 Texts Cited: J D Heydon Heydon on Contract (Thomson Reuters, 2019) M Davies et al, Nygh's Conflicts of Laws in Australia (10th edition, LexisNexis, 2020) Category: Procedural rulings Parties: Jianhua Yan (Plaintiff) The Won Capital Pty Ltd (First Defendant) Wensheng Liu (Second Defendant) GR Capital Group Pty Ltd (Third Defendant) The One International Corporation Pty Ltd (Fourth Defendant) Xinfeng Australia International Pty Ltd (Fifth Defendant) Lan Liu (Sixth Defendant) Representation: Counsel: Mr DJ Delany (Plaintiff) Mr HK Insall SC (First to Fourth Defendants, Sixth Defendant) Solicitors: Dentons (Plaintiff) Hugh & Associates Lawyers (First to Fourth Defendants, Sixth Defendant) File Number(s): 2019/00082170 Publication restriction: Nil JUDGMENT 1. On 29 November 2023 the Court heard the plaintiff's Notice of Motion filed on 30 October 2023 seeking leave pursuant to s 64(1) of the Civil Procedure Act 2005 (NSW) (CPA) to file a further amended statement of claim (FASOC). After hearing argument of the parties, I indicated that I would grant leave to the plaintiff to file the FASOC as against the first and second defendants only, and make the other orders set out at [27] below and provide my reasons at a later time. These are my reasons. Background 1. These proceedings have had a long and somewhat chequered history. They arise out of dealings between Mr Jianhua Yan, the plaintiff, and two Australian companies: The Won Capital Pty Ltd (Won Capital), the first defendant, and GR Capital Group Pty Ltd (GR Capital), the third defendant. In substance, Mr Yan seeks to recover two amounts from these companies: 1. an amount of RMB 51 million (approximately $10 million at the time it was paid) which he paid to Won Capital in China on 6 November 2017 allegedly by way of a loan to Won Capital pursuant to a loan agreement entered into with Won Capital on 5 November 2017 for the purpose of purchasing land at 35 Treacy St, Hurstville, NSW; 2. an amount of RMB 50.7 million (approximately $10 million at the time it was paid) which he paid to GR Capital allegedly by way of a loan pursuant to a loan agreement entered into by him with GR Capital on 19 December 2017 for the purpose of the purchase of land at 1-5 Treacy St, Hurstville. 1. Mr Yan commenced proceedings against Won Capital and GR Capital for recovery of these amounts in 2019. Relevantly for present purposes, Mr Yan's claim for repayment of the two payments under his current statement of claim is based in contract and also that the funds are held on a Quistclose trust. In the defence filed on 5 November 2019 Won Capital and GR Capital each admitted that the loan agreements were entered into and the amounts set out above were paid to them by Mr Yan, but deny liability on the basis that each loan agreement and the transaction embodied in it was illegal under Chinese law, the place where the two payments were made. 2. The parties' lay and expert evidence has been filed and served but no hearing date has been set. It is common ground that, based on the expert evidence, the illegality defence is contested. 3. The amendments in the proposed FASOC fall into two categories: 1. The repleading of the existing contract and Quistclose trust claims against the first, second and third defendants in order to clarify them. 2. A new moneys had and received claim against each of Won Capital and GR Capital. 1. The amendments referred to in (a) above are not opposed, but those referred to in (b) are opposed. 2. The essential elements of the moneys had and received claim (MHR claim) against Won Capital and GR Capital are: 1. The plaintiff advanced money pursuant to each loan agreement on the contemplated basis that the loan agreements in question were enforceable. 2. If, which is denied, the defendants' pleading of illegality is made out, then the bargained for benefit has totally failed, so there has been a total failure of consideration. The bargained for benefit is the right to be repaid under the loan agreements (i.e. the performance of the obligations of the borrower under those loan agreements). 3. Consequently, Mr Yan is entitled to the repayment of the money paid. 1. The Court has a discretion under s 64(1) of the CPA to allow an amendment of a pleading. This discretion must be exercised in accordance with s 64(2) (in particular, so that all necessary amendments are made for the purposes of determining the real questions raised by or otherwise depending on the proceedings) and the dictates of justice (s 58 of the CPA). 2. Section 58(2) of the CPA sets out relevant matters to which regard may be had in determining what are the dictates of justice, which include the requirement that the Court gives effect to the overriding purpose of facilitating the just, quick and cheap resolution of the real issues in the proceedings. 3. In Dymocks Book Arcade Pty Ltd v Capral Ltd [2011] NSWSC 1423 Ward J (as her Honour then was) said: [8] The exercise of discretion necessarily involves a balancing exercise (Cement Australia Pty Ltd v Australian Competition and Consumer Commission [2010] FCAFC 101; (2010) 187 FCR 261 at [51] and [66]) having regard to the circumstances of the particular case. [9] In Cement Australia, their Honours (Keane CJ, Gilmour and Logan JJ), said at [45]: Before turning to the particular grounds of complaint agitated in this Court by the Cement Australia parties, we should observe that insofar as the trial judge gave significant weight to the consideration that the achievement of justice in the particular case before him favoured allowing the amendment, that was not contrary to the decision in Aon Risk or anything in s 37M or s 37N of the Federal Court Act. Nothing in Aon Risk or the Federal Court Act suggests that this consideration is not relevant to the exercise of the discretion to permit or refuse an amendment. Rather, the point made in Aon Risk is that this consideration must not be allowed to trump other relevant considerations, including considerations of the kind reflected in ss 37M and 37N of the Federal Court Act. and at [51]: Aon Risk is not a one size fits all case. Whilst various factors are identified in the judgment as relevant to the exercise of discretion, the weight to be given to these factors, individually and in combination, and the outcome of that balancing process, may vary depending on the facts in the individual case. As the plurality in Aon Risk observed at [75], statements made in cases concerning amendment of pleadings are best understood by reference to the circumstances of those cases, even if they are stated in terms of general application. [10] In Aon at [102], the factors to be weighed in the exercise of this discretion were said to include the nature and importance of the amendments to the plaintiff; the effect of the proposed amendments on the defendant; the delay in making the amendments; and, where there is delay in applying for amendment, whether an adequate explanation for the delay has been given. There, Gummow, Hayne, Crennan, Kiefel and Bell JJ said (at [98]) that the requirements for speed and efficiency "should not detract from a proper opportunity being given to the parties to plead their case" and at [102] that "The objectives stated in [the relevant rule there under consideration] do not require that every application for amendment should be refused because it involves the waste of some costs and some degree of delay, as it inevitably will". One of the factors to be weighed in the balance is the point the litigation had reached, relative to a trial, when the application to amend is made. Consideration 1. The defendants advanced at the hearing essentially two reasons for why the plaintiff should be refused leave to file the FASOC to advance the MHR claim: (a) delay in bringing the application and consequential prejudice; and (b) in the case of GR Capital, the failure to seek leave under s 444E(3) of the Corporations Act 2001 (Cth) to begin or continue the proceedings against GR Capital, as it is subject to a deed of company arrangement (DOCA). 2. I will consider first the nature and importance of the amendment. As the plaintiff submitted, it is arguable that the MHR claim is governed by Australian law rather than Chinese law as the law applicable to each loan agreement: M Davies et al, Nygh's Conflicts of Laws in Australia (10th edition, LexisNexis, 2020) at [21.5]. 3. Under Australian law, where a plaintiff is a party to an unenforceable contract and has paid money pursuant to the contract to the defendant, the plaintiff prima facie has an entitlement, as a consequence of an obligation which the law imposes independently of the contract, to recover the money from the defendant as part of the law of restitution if (a) there is a vitiating factor such as failure of consideration rendering the enrichment of the defendant unjust and creating a prima facie duty to effect restitution and (b) the defendant is not able to raise a defence (for example, payment of consideration, change of position or illegality) which renders the enrichment not unjust: Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498; [2012] HCA 7 at [30]; J D Heydon Heydon on Contract (Thomson Reuters, 2019) at [20.1170]. 4. Where the restitutionary claim is based on total failure of consideration due to the illegality of the contract under a statute, it is necessary to determine whether recovery on restitutionary grounds is prohibited by the scope and purpose of the statute creating the illegality: Equuscorp at [34], [45] and [111]. The mere fact that the loan agreement may be invalid under Chinese law (a matter not conceded by the plaintiff) will not be determinative of the restitutionary claim. Essentially for this reason, Mr Insall SC for the defendants ultimately accepted that the plaintiff's MHR claim is an arguable case. 5. The proposed amendment to introduce the MHR claim is relatively confined and designed to meet a defence to the main contract claim. It is clearly of significant importance to plaintiff, because it is an alternative basis on which to recover the full amount of the very significant loans made by the plaintiff to Won Capital and GR Capital. However, it can be expected that an issue will arise as to whether under Chinese law recovery on restitutionary grounds would be inconsistent with the purpose of the statute rendering the loan agreement unenforceable. 6. In relation to delay, it was submitted by the defendants that there has been a history of extensive delay by the plaintiff and the plaintiff has not properly explained the reasons for the delay. Further, the amendment will cause prejudice to the defendants in that it will subject them to new and further costs and delay in having to deal with the new MHR claim, including preparation of a defence to the new claim and preparation of expert evidence, and it will prolong the inconvenience and stress to the defendants. Further it was submitted that to permit the amendment in the circumstances of the present case would be inconsistent with the timely disposal of the proceedings, particularly as the plaintiff has had sufficient opportunity to plead his case and it is too late for further amendment. 7. The plaintiff's explanation for the delay was as follows. The plaintiff instructed new solicitors in October 2022, and then in April 2023 retained new counsel. Thereafter, (a) an existing discovery motion filed in March 2023 was heard and determined in late May 2023, (b) a successful application was made that a cross-claim made by Won Capital should be permanently stayed in circumstances where, at the time, Won Capital had no directors, (c) a winding up application was foreshadowed on the same basis resulting in the appointment of a director to Won Capital and (d) the proceedings were adjourned on 25 August 2023 for four weeks in circumstances where there was a prospect that a liquidator would be appointed to GR Capital. On that prospect not materialising, the plaintiff then sought leave to amend his statement of claim by bringing the notice of motion to clarify and simplify them and to add the MHR claim. It was submitted that these claims do not unduly prejudice the defendants, as the matter has not been set down for trial and no new evidence is proposed, and it is submitted that it is in the interests of justice that Mr Yan be permitted to plead these claims. 8. As to the question of delay, I consider that the plaintiff has given a reasonable explanation for the delay in bringing the MHR claim once new solicitors and counsel were retained. However, no real explanation has been given for the delay prior to October 2022 and this is a matter which must be weighed as a factor against the grant of leave. 9. It is not in dispute that no further lay evidence is expected to be required for the new MHR claim. However, the defendants submitted that they will need to put on a supplementary report from their expert on Chinese law to deal with the question of illegality which arises under Chinese law in respect of the new MHR claim. This will likely necessitate a supplementary report in reply from the plaintiff's expert on Chinese law. In my view, this further expert evidence will largely traverse the same ground as the expert evidence already filed. However, this further expert evidence will have costs consequences which are an element of the prejudice suffered by the defendants from the delay. This is because, had the new MHR claim been raised in a timely way, this issue would have been dealt with by the experts in their existing reports. As a consequence, as a condition for the grant of leave, it will be necessary for the plaintiff to bear the costs incurred by the defendants in obtaining a supplemental report from their expert as it is a cost which they would not have incurred if leave had not been granted. On the evidence before the Court, no other relevant prejudice from the amendment was established. 10. As to the point at which the litigation has reached, it is relevant that there is currently no hearing date set. Given that the further expert evidence required is of a fairly narrow compass, I do not regard the further delay occasioned by the amendments to be material. 11. In my view the interests of justice are a significant matter weighing in favour of the grant of leave. The MHR claim is one which, if successful, would recognise an obligation on the part of a defendant to make a fair and just restitution for a benefit derived at the expense of the plaintiff: Pavey & Matthews Ltd v Paul (1986) 162 CLR 221 at 257. The benefit received by the defendants at the expense of the plaintiff is very significant ($20 million). While there has been a significant period of delay which is unexplained in bringing the claim, I consider that the interests of justice require that the plaintiff be allowed the opportunity to bring the MHR claim, provided that the costs occasioned by the defendants from the late bringing of the claim (including in particular, the costs of obtaining a supplementary report from their expert on Chinese law on the question of legality under Chinese law raised by that claim) are paid by the plaintiff. 12. For these reasons, I granted leave to the plaintiff to file and serve the FASOC as against the first and second defendants only, subject to the plaintiff paying the costs of and occasioned by the amendment. Section 444E(3) 1. The third defendant opposed the grant of leave to file the FASOC to raise the MHR claim against it because the required leave under s 444E(3) has not been given. Under s 444E(3) of the Corporations Act a person cannot begin or proceed with a proceeding against a company which is subject to a DOCA without leave of the Court. GR Capital has been subject to a DOCA since February 2019. The plaintiff has proceeded to date on the basis that it will seek at the final hearing an order granting leave under s 444E(3)(c) made nunc pro tunc. It seems to me that this approach is not appropriate to the new MHR claim, particularly as there are a number of factors which are relevant to the question as to whether leave should be granted under s 444E(3) and it is by no means clear on the basis of the evidence before the Court on this motion that leave will be granted: see Attard v James Legal Pty Ltd (2010) 80 ACSR 585; [2010] NSWCA 311 at [146]-[147]. 2. Had the plaintiff already obtained leave to bring the proceedings against the third defendant under s 444E(3)(c) of the Corporations Act, I would have granted leave to amend its statement of claim to bring the new MHR claim as against the third and seventh defendants. However, it is inappropriate to do so unless and until leave is given to the plaintiff to bring and continue the proceedings against GR Capital under that provision. 3. I indicated to the parties that what the plaintiff needs to do in order to obtain leave to amend its statement of claim as against GR Capital and the seventh defendant is to bring an application in the Corporations List for leave under s 444E(3)(c) and that if leave is ultimately granted, the plaintiff can approach my Associate and I will make the necessary orders in Chambers giving leave to the plaintiff to file and serve the FASOC as against the third and seventh defendants in the form annexed to the Notice of Motion filed on 13 October 2023, provided that the plaintiff moves in a timely fashion to obtain leave under s 444E(3)(c). 4. In relation to costs, in my view, the appropriate order for costs is the plaintiff should pay the costs of the first, second and third defendants in respect of the Notice of Motion on the ordinary basis, because the grant of leave is an indulgence, particularly in light of the plaintiff's delay and the award of costs to the defendants is the price of that indulgence. Conclusion 1. For the above reasons, the Court made the following orders on 30 November 2023: His Honour, Richmond J, makes the following orders and notations: 1. Grant the plaintiff leave to file and serve a further amended statement of claim (FASOC) in the form annexed to these orders and marked "A". 2. The plaintiff to pay the costs of and occasioned by the amendment, including the costs of the first defendant obtaining a supplementary report from its expert on Chinese law on the question of illegality under Chinese law raised by the new moneys had and received claim included in the FASOC. 3. Matter adjourned to the Corporations List on Monday 11 December 2023. 4. Plaintiff to pay the costs of the first, second and third defendants of the plaintiff's Notice of Motion filed on 30 October 2023 (Notice of Motion) on the ordinary basis. 5. The Notice of Motion is otherwise dismissed. 6. NOTES: a. Had the plaintiff already obtained leave to bring the proceedings against the third defendant under s 444E(3)(c) of the Corporations Act before the Notice of Motion was heard, leave would have been granted to amend its statement of claim as against the third and seventh defendants in the form attached to the Notice of Motion. The purpose of listing the matter in the Corporations List under order 3 is to allow for the question whether leave should be given under s 444E(3)(c) to be determined promptly. b. If leave is ultimately granted under s 444E(3)(c) the plaintiff can approach Richmond J's associate for his Honour to make the necessary orders in Chambers giving leave to the plaintiff to file and serve a further amended statement of claim as against the third and seventh defendants in the form annexed to the Notice of Motion. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 05 December 2023