01

NEW SOUTH WALES SUPREME COURT

CITATION:
Yu v Guo [2009] NSWSC 459



JURISDICTION:


FILE NUMBER(S):
3928/08

HEARING DATE(S):

27 May 2009

JUDGMENT DATE:

4 June 2009

PARTIES:

Jia Jia Yu (Plaintiff/First Cross-Defendant)
Cathy Guo (First Defendant/First Cross-Claimant)
Addsum Investments Pty Ld (ACN 116 060 103 (Second Defendant/Second Cross-Defendant)

JUDGMENT OF:

Gzell J

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:

Not Applicable



COUNSEL:

G W McGrath (Defendants/Cross-Claimants)

SOLICITORS:

P M Churchill (Plaintiff/Cross-Defendant)
Martin Churchill Solicitors (Plaintiffs/Cross-Claimant
Austin Haworth & Lexon Legal (Defendants/Cross-Claimants)





CATCHWORDS:

EQUITY - Equitable Doctrines and Presumptions - Rectification - whether deed of agreement for sale of shares in a company contained the wrong purchase price - evidence of prior negotiations admissible

LEGISLATION CITED:


CATEGORY:
Principal judgment

CASES CITED:

Bank of Australasia v Palmer [1897] AC 540
Murray v Parker [1854] EngR 530; (1854) 19 Beav 305 

TEXTS CITED:


DECISION:
Order for rectification of deed of agreement to substitute correct purchase price



JUDGMENT:
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION


GZELL J

THURSDAY 4 JUNE 2009


3928/08 JIA JIA YU v CATHY GUO & ANOR

JUDGMENT

1 On 26 April 2006, Jia Jia Yu, the plaintiff, sold the issued capital of Yu & Company Pty Ltd to Cathy Guo, the first defendant, and sold his office premises to Addsum Investments Pty Ltd as trustee of the Pitt Street Unit Trust, the second defendant. The name of Yu & Company was later changed to Addsum Accountants Pty Ltd. $700,000 was paid for the real estate and $150,000 was paid for the shares. Mr Yu claims that the purchase price for the shares was $250,000 and he sues for that amount.

2 The parties executed a Deed of Agreement dated 26 April 2006. It specified a purchase price of $250,000 for the shares. Ms Guo and Addsum Investments claim there was a collateral agreement that the price was $150,000 regardless of what was stated in the deed. In the alternative, rectification of the purchase price for the shares in the deed is sought.

3 Evidence was adduced of the negotiations of the parties prior to 26 April 2006 in an endeavour to establish that the parties agreed to a purchase price of $150,000. This is contrary to the general rule, best stated by Lord Morris inBank of Australasia v Palmer [1897] AC 540 at 545:“... parol testimony cannot be received to contradict, vary, add to or subtract from the terms of a written contract, or the terms in which the parties have deliberately agreed to record any part of their contract.”

4 But a claim to rectification opens up evidence of prior negotiation. As Lord Romilly MR said inMurray v Parker[1854] EngR 530; (1854) 19 Beav 305 at 308[1854] EngR 530; (52 ER 367 at 368):“In matters of mistake, the Court undoubtedly has jurisdiction, and though this jurisdiction is to be exercised with great caution and care, still it is to be exercised, in all cases, where a deed, as executed, is not according to the real agreement between the parties. In all cases the real agreement must be established by evidence, whether parol or written; if there be no previous agreement in writing, parol evidence is admissible to shew what the agreement really was; if there be a previous agreement in writing which is unambiguous, the deed will be reformed accordingly; if ambiguous, parol evidence may be used to explain it, in the same manner as in other cases where parol evidence is admitted to explain ambiguities in a written instrument.”

5 In her affidavits, Ms Guo said that on or about 7 February 2006 Mr Yu agreed to sell her his accounting and taxation business for $150,000 but the price for the business on paper should be recorded at $250,000. According to Ms Guo, Mr Yu said he would get benefits from an active asset ruling. Mr Yu denied that he told Ms Guo he would get a beneficial tax ruling if the price for the shares on paper was $250,000 and he denied suggesting that should be the on-paper price.

6 On or about 15 February 2006, Ms Guo provided Mr Yu with a two page Head of Agreement document. In an email that he sent on 16 February 2006, Mr Yu said the document should be signed. The next day, Mr Yu and Ms Guo met and read and signed the Head of Agreement document. It specified the business as the accounting and taxation service business of Yu & Company. It specified the price for the business at $150,000.

7 After signing the Head of Agreement document, Ms Guo paid Mr Yu $3,000 as an initial deposit.

8 In his affidavits, Mr Yu said that in the negotiations he put a figure of $150,000 on the taxation and accounting business and $250,000 for the taxation and accounting and home loans businesses. According to him, Ms Guo said she would buy the accounting and taxation part of the business for $150,000. She wanted to buy the home loans side as well but needed to get funding for it.

9 Mr Yu said he telephoned Ms Guo and said if she wanted the home loans side of the business the price was $250,000. He said Ms Guo telephoned back and said she had sorted out funding and wanted to buy the home loans side as well for $250,000. He said he would change the Head of Agreement document. He did so by changing $150,000 as the price for the business to $250,000 and initialling the alteration.

10 It was submitted on Mr Yu’s behalf that there was support for his contention that the purchase price for the business was $250,000 in his initialled alteration of the Head of Agreement document. On the other hand, it was submitted that the document supported Ms Guo’s contention that the agreed price for the business was $150,000.

11 Mr Yu had specified $150,000 as the price for the accounting and taxation business and $250,000 if the home loans business was added. The Head of Agreement document described the business to be acquired as limited to the accounting and taxation service business. When Mr Yu altered the purchase price for the business in the Head of Agreement document he did not also expand the description of the business to include the home loans business.

12 Nor did Ms Guo initial his alteration. It was Mr Yu who wanted the Head of Agreement document signed. One would have expected him to have had Ms Guo initial his change in such an important element of the agreement, the purchase price, if she agreed with the change.

13 Contracts for the sale of the real estate were exchanged on 20 March 2006. The price was $700,000. The deposit was $98,000. Ms Guo paid Mr Yu a further $95,000.

14 The negotiations changed from a sale of a business or businesses to a sale of the shares in Yu & Company.

15 In the week commencing on Easter Monday, 17 April 2006, Ms Guo retained Garry Pickering to draft the Deed of Agreement. In his affidavit, Mr Pickering said Ms Guo showed him a signed copy of the Head of Agreement document and told him that she and Mr Yu had an agreement that she would purchase his accounting and taxation business for $150,000. She said she needed him to draft a Deed of Agreement because the Head of Agreement document was too brief. She told him that Mr Yu wanted the Deed of Agreement to specify a sale price of $250,000 for taxation reasons when the actual price was still $150,000. In his affidavit, Mr Pickering said:“At the time Cathy Guo gave me instructions, I asked Cathy Guo whether she had the telephone number for Jia Jia Yu. Cathy Guo gave me his mobile number, which I rang, and a person who identified himself as Jia Jia Yu answered my call. I said to Jia Jia Yu “I am here with Cathy Guo. She has shown me a Head of Agreement for the sale of your accounting taxation business which both you and Cathy signed. I understand that you and Cathy think the head of agreement is too brief, and want to put more details in it?” Jia Jia Yu said “yes, Cathy is not doing what she agreed she was going to do. She had better sort the matter out before this goes too far.” I said: “I am told by Cathy that the agreement is that she will pay you one hundred and fifty thousand dollars ($150,000.00) for the business but you want the agreement to be in the amount of two hundred and fifty thousand dollars ($250,000.00), is that correct?” Jia Jia Yu said “Yes, we have an agreement. Now she is making trouble after she is able to go to the office, she always asks the staff to do something for her own benefit.” I then said, “Well, the deed of agreement will deal with staff, equipment amongst other matters. I am prepared to draft it.” Jia Jia Yu said, “that’s Ok, write the agreement and give it to Cathy and I will look at it.””16 This passage was put to Mr Yu in cross-examination. He denied that Mr Pickering said that he had been told by Ms Guo that the agreement was that she would pay $150,000 but that he wanted the agreement to be in the amount of $250,000.

17 He was asked whether there was any discussion about that topic and he said there was not. The following exchange took place.

Q: The only part of that conversation that you dispute is the section about the price of the business?

A: No, we discussed the price.

Q: I thought I asked you a moment ago whether there was any discussion about that topic?A: That is what he said.

Q: What did he say?

A: “You have agreement for 150 but you want the price to be 250. Is that correct”. I said “yes”.

Q: I thought you denied that?

A: No. You said the business price is 150. I want the contract to be 250 but I say I didn’t say that I didn’t hear that. He said “you have an agreement, sign a heads of agreement as 150. You want the business price to be 250”.

Q: You are now saying that there was a discussion about the price?

A: He just mentioned “you want 250”. I said “yes”.

Q: I suggest to you that the agreement you had with Ms Guo was for a price of 150?

A: No. It was 250.”

18 Neither Ms Guo nor Mr Pickering was cross-examined. It was submitted that the passage from Mr Pickering’s affidavit should be construed as evidence of a pre-existing agreement for $150,000 that Mr Yu wanted varied to a new agreement for $250,000 and Mr Pickering agreed he would draft such a new agreement.

19 I reject that suggestion. On Mr Yu’s evidence, Mr Pickering played no part in Mr Yu’s negotiation with Ms Guo that led to his alteration of the Head of Agreement document from $150,000 to $250,000. Nor would Mr Pickering agree to draft a new agreement at $250,000 without at least seeking his client’s instructions. Particularly is this so when Ms Guo had told Mr Pickering that there was an agreement at $150,000.

20 I read Mr Pickering’s evidence as corroborative of what Ms Guo had told him earlier in their interview: that Mr Yu had agreed to take $150,000 but required the formal contract to specify $250,000.

21 Mr Pickering drafted the Deed of Agreement.

22 On 21 April 2006, Mr Yu’s solicitors wrote to Ms Guo’s solicitors stating that the transfer of the shares required the purchaser to provide a bank cheque for $150,000 to Mr Yu.

23 On 24 April 2006, Mr Yu’s solicitors wrote to the solicitors for Ms Guo requesting a bank cheque with respect to the sale of the business, and not as part of the sale of land, to be made out in the sum of $150,000 as part of the purchase price of the business.

24 It was submitted on Mr Yu’s behalf that this letter supported $250,000 as the purchase price of the business because it requested the bank cheque for $150,000 as part of the purchase price and not as the full amount.

25 Ms Guo said that on 25 April 2006 she had a conversation with Mr Yu in which he acknowledged that the actual price for the business was $150,000 and he would reimburse her $600 for the additional stamp duty payable on a $250,000 consideration for the transfer of the shares in Yu & Company.

26 While Mr Yu denied that he told Ms Guo that he would refund part of the stamp duty, he accepted in cross-examination that he had researched the amount of stamp duty payable on a transfer of $250,000 on the Internet.

27 Ms Guo said that on 25 April 2006 Mr Yu asked her if she could pay $180,000 by direct deposit. She did so before settlement on 26 April 2006. Mr Yu denied this conversation and denied that he was aware of the deposit at the time of settlement. Ms Guo said she sent the deposit slip to Mr Yu by facsimile and showed it to Mr Yu’s solicitor at settlement. This is the more likely occurrence. I do not accept that Mr Yu’s solicitor would have allowed settlement to take place without being satisfied that the $180,000 had been deposited to Mr Yu’s account.

28 Late on 25 April 2006, Mr Yu sent an email to Ms Guo stating that he had not received her agreement. Mid morning on 26 April 2006, Ms Guo responded as follows:“My solicitor is working on the agreement, should finalize it within half an hour. I have agreed with your price of ¥250000 in the term that have to receive a confirmation from your solicitor to state that receive a deposit of $100,000 from me before settlement. Please advise.”

29 When this email was put to Mr Yu in cross-examination he said he had not read past the first line and had gone to the attachment. There was no attachment. He said there could have been an attachment to another email that contained the Deed of Agreement. He said he downloaded it.

30 I do not accept Mr Yu’s evidence that he did not read the whole of the email from Ms Guo. Late on 25 April 2006 Mr Yu had complained that he had not received the Deed of Agreement. Settlement was to take place at 3.00 pm the following day. He received Ms Guo’s email at 9.35 am on that day. He would have been anxious to see what Ms Guo had to say. His evidence was an attempt to avoid the conclusion that Ms Guo was to pay $150,000 and not $250,000 for the shares.

31 Ms Guo sent the draft Deed of Agreement by facsimile to Mr Yu. In her affidavit, she said it was on or about 25 April 2006 that she sent it. She was in error in that recollection because Mr Yu complained he had not received the deed late on 25 April 2006 and on 26 April 2006 Ms Guo told Mr Yu her solicitor was still working on it. It must have been in the morning of the 26 April 2006 that Ms Guo forwarded the draft Deed of Agreement to Mr Yu.

32 The parties to the Deed of Agreement were Ms Guo and Pitt Street Trust of the one part and Mr Yu and Yu & Company of the other part. The business was limited to the accountancy and taxation services business. It provided for the sale of a business conducted by Mr Yu trading as Yu & Company and the transfer of the shares in Yu & Company. It described the business as an accountancy firm that provided taxation services. It defined the business as Yu & Company. It specified the purchase price for the business as $250,000.

33 There was no danger that if Ms Guo took a transfer of the shares in Yu & Company rather than taking an assignment of the accounting and taxation business alone, she would gain access to the home loans business of the company. Mr Yu acknowledged in cross-examination that Yu & Company had no assets. It merely had permission from Mr Yu to use his taxation agency name and licence and to use his accounting clients. Any permission with respect to what was described as the home loans side of the business would be withdrawn by Mr Yu upon transfer of the shares.

34 Furthermore, Mr Yu controlled Nationwide Mortgage Corporation Pty Ltd, Nationwide Mortgage Pty Ltd and Nationwide Mortgage Market Pty Ltd and he acknowledged in cross-examination that those three companies conducted all home loan and mortgage business that was conducted by him or any of his companies.

35 Ms Guo’s solicitors wrote to her on 26 April 2006 advising her that settlement would take place at 3.00 pm that day. The solicitors said that Mr Yu had asked for a bank cheque for $150,000 for the purchase of the business.

36 It was submitted on Mr Yu’s behalf that this letter dovetailed with the letter of 24 April 2006 and its request for a bank cheque of $150,000 for part payment of the purchase price of the business.

37 But there is a difference between the letters that is inconsistent with a dovetailing. The former refers to a part payment, the latter to a payment in full. And the difficulty in giving weight to the former is that it does not specify a full purchase price.

38 Mr Yu said that before other matters were progressed at settlement, he and Ms Guo discussed the Deed of Agreement, made some alterations to it and signed it. Ms Guo said this process took about an hour and occurred after settlement. This is the more likely happening, in my view. It is unlikely that Mr Yu and Ms Guo would keep their solicitors and the bank representatives waiting while they discussed the Deed of Agreement.

39 Mr Yu argued that the deposit of $98,000 on the sale of the real estate supported his contention that the $250,000 specified in the Deed of Agreement was the agreed consideration for the sale of the shares because the $98,000 was based upon $95,000 as a 10% deposit of the combined considerations of $700,000 and $250,000 together with the initial deposit of $3,000. While that is a feature of this case that supports Mr Yu’s position, there is other evidence that bears on this matter.

40 Mr Yu conceded in cross-examination that he was negotiating for the purchase of a house at Darling Point initially offered for sale at $1.9 million on a 5% deposit of $95,000. Mr Yu denied that he sought a deposit of $95,000 from Ms Guo to enable him to pay the deposit on the house at Darling Point.

41 Contracts were exchanged for the Darling Point property on 20 March 2006, the same day as the exchange of the contracts for the sale of the real estate, or on 22 March 2006, at a price of $1.85 million. Ms Guo’s cheque for $95,000 was dated 8 March 2006. Although Mr Yu said he did not know on what date he banked the cheque, it is unlikely that he refrained from doing so until after the deposit on the Darling Point property was due.

42 The likelihood is that Mr Yu set the deposit for the sale of his office premises at $95,000 to enable him to cover the initially sought deposit on the Darling Point premises. These considerations significantly reduce the significance of the submission that the $95,000 figure was struck at 10% of the combined consideration for the real estate and the shares in Yu & Company.

43 On 26 August 2006, Mr Pickering wrote to Mr Yu stating:“The purchase price was two hundred and fifty thousand dollars ($250,000.00). My client informs me that you have said you did not receive that amount on settlement. I do not understand how you can make such an allegation as I have seen a transfer of shares receipt recording that stamp duty was paid on a transaction in the sum of two hundred and fifty thousand dollars ($250,000.00).”

44 In similar vein was Ms Guo’s original pleading of her defence which asserted that she had paid all moneys Mr Yu required her to pay under their agreement. The pleading continued:“The Defendant relies upon a Transfer of Shares signed by the Plaintiff and dated 26 April 2006 and says that the Plaintiff is estopped from denying the truth of the declaration signed by the Plaintiff on the Transfer of Shares Certificate being the acknowledgment of the receipt of two hundred and fifty thousand dollars ($250,000.00).”

45 It was in an amended pleading that Ms Guo raised the allegation that the purchase price for the shares was $150,000.

46 It was submitted on Mr Yu’s behalf that, having verified her original defence, Ms Guo had conceded that the purchase price for the shares was $250,000 and she could not maintain her claim to rectification of the Deed of Agreement in the first cross-claim.

47 I do not accept that argument. The pleading of full payment is not inconsistent with the allegation that the purchase price was $150,000 and the reliance on the receipt is not necessarily an assertion of fact on the part of Ms Guo that the purchase price for the shares was $250,000. Besides, this is a pleading point that ought to have been taken at the time the amendment to the pleading was sought, rather than by submission after the close of each party’s case.

48 These considerations have led me to prefer the evidence of Ms Guo. Where there is a conflict between her evidence and that of Mr Yu, I reject his evidence.

49 I am of the view that the purchase price for the shares in Yu & Company was $150,000 and Ms Guo has made out her claim for rectification.

50 The statement of claim is dismissed. Mr Yu must pay the costs of Ms Guo and Addsum Investments. The Deed of Agreement between Ms Guo and Pitt Street Trust of the one part and Mr Yu and Yu & Company of the other part dated 26 April 2006 stands rectified by substituting for the words, figures and symbols “two hundred and fifty thousand dollars ($250,000.00)” in clause 3 the words, figures and symbols “one hundred and fifty thousand dollars ($150,000.00)”. Mr Yu and Addsum Accountants must pay the costs of the amended first cross claim of Ms Guo and Addsum Investments.