Federal Court of Australia

Yang v Zhang [2022] FCA 697

ORDERS

THE COURT DECLARES THAT:

1.    The plaintiff has held 150 fully paid shares in the second defendant since 22 January 2007.

2.    The plaintiff has been a director of the second defendant since 22 January 2007.

THE COURT ORDERS THAT:

1.    The interlocutory application which was accepted for filing on 13 April 2022 is dismissed.

2.    If the second defendant does not have a register of members within the meaning of s 168(1) of the Corporations Act 2001 (Cth), then the second defendant shall forthwith set up such a register and record in that register that Huarui Yang has held 150 shares in the second defendant since 22 January 2007.

3.    If the second defendant does have a register of members within the meaning of s 168(1) of the Corporations Act 2001 (Cth), then the second defendant shall correct its register so that it records that Huarui Yang has held 150 shares in the second defendant since 22 January 2007.

4.    Pursuant to s 1322(4)(b) Corporations Act 2001 (Cth), the Australian Securities and Investments Commission is directed to rectify its registers by amending the Form 484 Change to company details lodged on 14 December 2017 (Document 7E9746487) to record Huarui Yang as being a director of Aus-China International Pty Ltd ACN 103 263 350 with a share and member holding of 150 ordinary shares in Aus-China International Pty Ltd ACN 103 263 350 since 22 January 2007 and to record Edward Zhang as increasing his shareholding by 250 shares and not 400 shares as was recorded in Document 7E9746487.

5.    There be liberty to the plaintiff and to the Australian Securities and Investments Commission to apply as to matters relating to giving effect to Order 4.

6.    By 4.00 pm on 24 June 2022, the parties file and serve any further submissions as to the appropriate costs order which should be made (limited to 3 pages) accompanied by any affidavit which is relevant to the issue of costs only.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

DOWNES J:

Introduction

1    The plaintiff, Mr Huarui Yang, is a director and shareholder of the second defendant, being the Company, which purchased land located in Canning Vale, Western Australia in 2007.

2    This proceeding is brought by Mr Yang arising out of his discovery in May 2021 that he had been removed as a director and shareholder of the Company according to the registers kept by the Australian Securities and Investments Commission, which removal he claims occurred without his consent. By this proceeding, Mr Yang seeks orders which have the effect of reinstating him as both director and shareholder of the Company on both the ASIC registers and the Company’s register. The Company did not take an active part in the proceeding.

3    The first defendant, Mr Edward Ye Zhang, is a director and shareholder of the Company, and was the person who lodged a Form 484 in December 2017 with ASIC which recorded the transfer of Mr Yang’s shares to him and the removal of Mr Yang as a director.

4    Mr Yang did not sign a share transfer form or any form of written instrument of transfer, as required by clause 28 of the constitution of the Company and s 1070A(1)(b)(i) of the Corporations Act 2001 (Cth), and did not deliver any written resignation of his position as a director as required by clause 56 of the constitution. Further, clause 27 of the constitution of the Company, which contained a process which needed to be followed before shares were transferred, was not complied with.

5    Mr Zhang appeared at the hearing, opposed the relief sought and cross-applied for relief pursuant to s 1322(4)(a) of the Act for orders that the transfer of Mr Yang’s shares to him, and the “resignation, or removal” of Mr Yang as a director, were each “not invalid” notwithstanding that there had been non-compliance with the Act and the constitution. By his counsel, Mr Zhang relied upon particular facts to seek the relief sought in his application.

6    It is Mr Zhang’s case that there was an oral agreement between the shareholders of the Company that, upon the sale of the land, each of the shareholders other than Mr Zhang would “exit the Company” and, in doing so, return the Company to him. It is contended that the effect of such an agreement was, relevantly, that Mr Yang would, at the time of the sale of the land, resign as a director and transfer his shares in the Company to Mr Zhang.

7    There are three issues which arise in this proceeding:

(1)    whether there was an agreement as alleged by Mr Zhang;

(2)    if there was such an agreement, whether it is appropriate to exercise a discretion under s 1322(4)(a) of the Act to declare that Mr Yang’s removal as a director and shareholder was not invalid despite the processes prescribed by the constitution and the Act not being followed, being the relief sought in Mr Zhang’s interlocutory application; and

(3)    whether it is appropriate to make the orders which Mr Yang seeks.

8    For the following reasons, the answers to these issues are:

(1)    No.

(2)    No.

(3)    Yes.

9    The consequence is that Mr Yang is entitled to the relief sought by him, with some modifications, and Mr Zhang’s application will be dismissed.

10    As the parties have already made submissions as to costs, they will be directed to make any further submissions as to costs, limited to 3 pages, and the issue of costs will be determined on the papers.

Relevant facts

11    Prior to 22 January 2007, the shareholders and directors of the Company were Mr Zhang and members of his family.

Invitation by Mr Zhang

12    On 17 January 2007, Mr Zhang sent an invitation to certain people, including Mr Yang, to become shareholders and directors of the Company in order to raise funds to complete the purchase of the land.

13    The invitation, which was signed by Mr Zhang, relevantly stated:

I am writing to invite you to visit Perth from 10 February to 25 February 2007 to attend to the following matters:

Due to the restructure of [the Company], you are to become a new shareholder and director. We will hold a meeting of the Board of Directors at 10.00am on 14 February 2007 to discuss related matters. Your presence at the meeting is essential. Before the meeting we will hold a number of discussions to prepare for the meeting.

As agreed upon by the new shareholders and directors, [the Company] has offered to purchase [the land], which is block of about 37,000 square metres with an established three-bedroom house. The settlement date is 28 March 2007, we need you to come to finalise matters regarding financial arrangement and future development.

You are also needed for other matters related to the restructured company.

Please find attached the Agenda for the Meeting of Board of Directors, the Offer for purchasing the block and the List of New Shareholders and Directors.

(emphasis added)

14    An agenda which was attached to the invitation stated as follows:

Time and Date: 10.00am 14 February 2007 (Wednesday)

Venue: Unit 12, 5 Aberdeen Street, East Perth, Western Australia 6004

Members of the Board of Directors Attending the Meeting: Dr Edward Ye Zhang (Chairman), Mr YAO Liang, YANG Huarui, Mr TANG Jian, Mr HE Qiang, Ms LI Hongyue (Secretary)

10:00am    Call to order by Dr Edward Ye Zhang

10:05am     Quorum to be established: All five members of Board of Directors and Ms LI Hongyue (Secretary)

10:15am    Agenda to be approved

10:20am    Chair Report by Dr Zhang

10:40am     Discussion about settlement of [the land]

11:00am     Discussion about application for development of [the land]

11:20am     Discussion about establishment of Auschina Travel Pty Ltd

12:00noon    Lunch

2:00pm        Treasurer Nomination

2:20pm        Other Matters

3:00pm        Resolutions

4:00pm        End of Meeting

Meeting in 2007

15    Mr Yang, Mr Zhang and Mr Qiang He attended a meeting in Perth in early 2007. They each gave evidence at trial.

16    Other attendees at the meeting included Mr Liang Yao and Mr Jian Tang but they did not give evidence, and there was no explanation for why they were not called. No party submitted that any inference should be drawn from these matters.

17    By his second affidavit, Mr Zhang gave evidence about the meeting to the effect that:

(a)    Mr Yang, Mr Yao and Mr Tang said words to the effect that they were interested in being involved in purchasing the land for the purposes of developing it;

(b)    it was discussed, and “agreed”, by “each of us” that the Company would be used for the purchase and development of the land; and

(c)    it was discussed, and “agreed”, that Mr He would represent the Chinese investors, including Mr Yang, in relation to their involvement with the land and the Company.

18    That Mr Zhang referred to Mr Yang as an investor is consistent with Mr Yang’s evidence that he provided 1.5 million RMB for his shares in the Company so as to enable it to acquire and develop the land.

19    It is difficult to place much, if any, weight on Mr Zhang’s evidence about what the attendees “agreed”. That is because, by giving evidence in this manner, Mr Zhang was expressing an opinion as to what the outcome of the discussions were, rather than giving evidence of what he recalled was said by any particular person. The absence of detail around these important discussions mean that the correctness of his opinions that the attendees agreed anything cannot be evaluated or accepted.

20    Mr Zhang also deposed in his second affidavit that:

At the same time, I had a conversation about the use of the Company with Mr He. He said words to me to the effect that “your company is your company” and, as such, once the project for the development of the Land was complete, the Company would be returned to me.

I cannot recall whether Mr Yang, Mr Yao and Mr Tang was present at that time Mr He said that to me. …

(emphasis added)

21    However, this evidence is ambiguous as to whether Mr Zhang is deposing that Mr He said the emphasised words to him or whether that is what he understood Mr He to be saying when he said, “your company is your company”. And critically, Mr Zhang accepted that Mr Yang might not have been present when these words were said.

22    When Mr Zhang gave oral evidence, he was asked whether the issue of what would happen with the ownership of the Company after the land was purchased was discussed at this February meeting, and he said, “We discussed together but I can’t recall who said what” and “I can’t recall, but my impression is they all agreed”. As Mr Zhang had only affirmed his second affidavit in the week before the hearing, and did not give oral evidence which came close to the positive assertions of fact in his second affidavit, I do not consider him to be a reliable witness.

23    A conclusion that Mr Zhang is an unreliable witness is fortified when one has regard to the drastic differences between his two affidavits. In his first affidavit affirmed 28 January 2022, Mr Zhang attested to a very different degree of interaction with Mr Yang, Mr Yao and Mr Tang. In that affidavit, he stated that:

The other three shareholders [Mr Yang, Mr Yao and Mr Tang] and I are not familiar with each other. I saw two of them only once and have never met the third person. I did not have any contact with them. They held the most shares of the Company, but they never asked me to attend any meeting, nor did they pay any money to the Company, nor give even a word about the Company. Mr Qiang He was the only contact I had had from 2007 to 2018 for 11 years in the Company. At the time, I was the smallest shareholder of the Company and minimum voting power.

(emphasis added)

24    Remarkably, Mr Zhang gave oral evidence at the trial that the contents of both of his (inconsistent) affidavits were true and correct, and that he had no corrections to them. It is therefore difficult to know what, if anything, Mr Zhang actually recalled about the 2007 meeting or if he even attended it.

25    Using similar language to Mr Zhang, Mr He deposed in his second affidavit that, in the course of the 2007 meeting, it was discussed and “agreed” by the attendees that, once the project for the development of the land was completed, ownership of the Company would be returned to Mr Zhang. This evidence suffers from the same problems as Mr Zhang’s evidence such that I am unable to accept that an oral agreement was reached based on this evidence.

26    By contrast, Mr Yang’s evidence was that there was no discussion or “agreement” at the 2007 meeting of the kind described by Mr Zhang and Mr He, and that the discussion at the meeting followed the agenda. It is relevant that the agenda makes no reference to what would occur after the purchase and development of the land was complete. At the date of this meeting, the land had not even been purchased, so that is not surprising.

27    Mr Yang’s evidence is supported by the existence and content of a document entitled “Australian Investment Agreement”. That investment agreement was prepared by Mr He at the meeting and was signed by Mr Yang, Mr He, Mr Yao and Mr Tang. It is a contemporaneous record of what was discussed and agreed. It stated as follows:

Five people including Liang Yao, Huarui Yang, Jian Tang, Ye Zhang and Qiang He hereby discuss their investment in Perth, Australia together.

Qiang He and Ye Zhang received oral instructions from Liang Yao, Huarui Yang and Jian Tang before they purchased the land of 36,000 square metres located in Lot 102, Acourt Road, Canning Vale on 10 January 2007 in the name of AusChina International Pty Ltd at the price of AU$1.36 million. A deposit of $5,000 has been paid. It is agreed that the payment should be made and the contract should be signed before 28 March 2007.

A further discussion on the implementation of the following items is required.

1.    Distribution of the company's shares

AusChina International Pty Ltd is originally under the name of Ye Zhang. We should verify the distribution of shares to each shareholder and engage an accountant to process the paperwork regarding the change with the competent government agency.

Based on the initial discussion, the shares shall be distributed as follows.

Liang Yao:         50%

Huarui Yang:         15%

Jian Tang:         15%

Ye Zhang:         10%

Qiang He:        10%

2.    Funding for initial investment

The purchase price of the land is AU$1.36 million and the tax imposed is approximately $100,000. The total cost is $1.46 million. Our land is currently zoned for farmland preservation and has extensive use. It may be used for residence, a farm or the operation of a project, and is more suitable for the operation of the company than land for general use. The only downside of the land is the inability to subdivide it for sale for the time being. It is considered as a whole, but it has a promising future. We can work together to lodge an application for subdivision with the state government while we are using its strength as the premises of the company, subject to the further plan and decision made by each shareholder.

It is initially advised that each shareholder should provide funds in proportion to their shareholding for the land for the time being. After that, 10% of the investment for the land should be allocated for the preliminary operation of the company first. The total amount is approximately AU$1.6 million, which is equivalent to approximately 10 million RMB.

The amount to be invested by each shareholder in proportion to their shareholding is as follows.

Liang Yao:         5 million RMB

Huarui Yang:         1.5 million RMB

Jian Tang:         1.5 million RMB

Qiang He:         1 million RMB

Ye Zhang:

Qiang He guarantees that all of the funds contributed shall be used for the purpose specified in this Investment Agreement only.

3.    Shareholder’s signature:

Liang Yao [signed]                 Qiang He [signed]

Huarui Yang [signed]                 Jian Tang [signed]

Ye Zhang

                        1 February 2007

(emphasis added)

28    The investment agreement did not refer to any discussions or “agreement” that, once the purchase and development of the land was complete, ownership of the Company would be “returned” to Mr Zhang, or any detail behind what that meant. Having regard to its contents, and the timing of its preparation, it is likely that the investment agreement would have contained such a reference had any such discussions occurred and especially if an agreement was reached about this topic. That it does not contain any such reference is consistent with Mr Yang’s evidence that there was no such discussion or agreement.

29    Further, the terms of the investment agreement are consistent with, and provides objective support, for Mr Yang’s evidence that he provided 1.5 million RMB for his shares in the Company so as to enable it to acquire and develop the land (being something which is disputed by both Mr Zhang and Mr He). This provides another reason to prefer the evidence of Mr Yang generally over that of Mr Zhang and Mr He.

30    I was invited to prefer the evidence of Mr He over that of Mr Yang, including because of some inconsistences in Mr Yang’s oral evidence given at the hearing. However, the second affidavit of both Mr He and Mr Zhang were served late in the week before the hearing, contrary to the orders of the Court. Mr Yang did not have the opportunity to file and serve an affidavit in reply, which had been contemplated by previous orders, and the hearing was stood down to enable instructions to be obtained from Mr Yang. This was in circumstances where the proceeding had already reached trial the previous month and been adjourned. Mr Yang, who does not speak English, gave evidence at the hearing by video-link, and this led to some difficulties in relation to both identifying documents for him to look at while giving evidence and issues with the interpretation of his evidence. All of these matters had the consequence that Mr Yang’s evidence did contain some inconsistencies but the overall impression was that these inconsistencies were, in large part, caused by the circumstances in which he was being asked to give evidence “on the run”.

31    For all of these reasons, I do not accept the evidence of Mr Zhang and Mr He in relation to the 2007 meeting. Further, I do not accept the evidence of Mr He over that of Mr Yang, either in relation to this meeting or at all (including for the reasons developed below). It follows that Mr Zhang has failed to establish that there was an agreement reached at this meeting as alleged.

Alleged meeting on 3 August 2015

32    According to Mr He’s second affidavit, a meeting occurred in China on 3 August 2015 at which all shareholders were present except for Mr Zhang, who attended by telephone. Mr He deposed that it was expressly discussed and “agreed” by all participants that, amongst other things, once the land was sold, ownership of the Company was to be returned to Mr Zhang.

33    However, this evidence suffers from the same deficiencies addressed earlier in these reasons in that Mr He expresses a conclusion as to what was “agreed”.

34    In any event, Mr Zhang does not refer to being a telephone participant in the 2015 meeting in either of his affidavits. When asked whether he had a conversation around August 2015 that occurred by telephone with Mr He and Mr Yang, Mr Zhang said, “No. I never had any call with Mr Yang”. This evidence was consistent with the evidence given by Mr Zhang in his first affidavit that he never had any contact with the shareholders other than Mr He. It is also consistent with the evidence of Mr Yang that he did not attend a meeting in China at which Mr Zhang was contacted by telephone.

35    For these reasons, I do not accept the evidence of Mr He in relation to the 2015 meeting. It follows that Mr Zhang has failed to establish that there was an agreement reached at this meeting as alleged.

No agreement in any event

36    Irrespective of the above findings, even if it was discussed by the shareholders, including Mr Yang, that “ownership of the Company” would be returned to Mr Zhang after the land was purchased and developed, or sold, I am unable to conclude that this amounted to an agreement of the kind alleged by Mr Zhang. That is because the concept of returning the “ownership” of the Company is ambiguous. It could mean returning the shares in the Company to Mr Zhang for a negotiated amount of money to be paid by him, for example. And even if it means returning the shares to Mr Zhang without any payment for those shares, it does not follow that returning the “ownership” means that any directorship in the Company will also be relinquished.

37    Mr Zhang urges the Court to look at post-agreement events to support the existence of the agreement said to have been reached. However, if that is done, such conduct includes that Mr He remained a director and shareholder of the Company until November 2018 which was more than a year after a contract for the sale of the land had been entered and nearly a year after the sale settled. This conduct is contrary to, and tells against the existence of, the alleged “agreement”.

Power of attorney documents

38    Much of the hearing was occupied with two versions of a power of attorney which Mr Zhang (by Mr He) contended had been executed by Mr Yang on two separate occasions. The evidence given by Mr He about these two documents casts real doubt on Mr He’s credibility as a witness.

First power of attorney

39    It was Mr He’s evidence that he prepared a document which was signed by the shareholders (other than Mr Zhang) in his presence at the meeting on 3 August 2015 (first power of attorney).

40    The first power of attorney provided:

Power of Attorney

Mr Qiang HE is now fully entrusted to represent the shareholders Liang YAO, Huarui YANG, and Jian TANG to list the land of [the Company] in Perth, Western Australia for sale. The entrustment period ends on the completion of sale of the land.

41    Mr He’s evidence that this document was signed by Mr Yang at the 3 August 2015 meeting was contained in his second affidavit, but not his first affidavit (which annexed the document).

42    According to Mr He’s first affidavit, the circumstances surrounding the preparation of this power of attorney were that:

During the telephone hook-up [Mr Zhang] said to me that I must arrange to have something signed so that the shareholders would not dispute the sale price of the Land and that once the Land was sold, Aus-China would be returned back to [Mr Zhang]. I prepared a Chinese document which was signed by my Business Partners giving me fully [sic] authority to deal with the sale of the land and to transfer Aus-China back to [Mr Zhang].

(emphasis added)

43    It is self-evident from the terms of the power of attorney which are set out above that it does not give Mr He authority to “transfer [the Company] back to [Mr Zhang]”, as Mr He deposed.

44    Further, not only does Mr Zhang give no evidence that he participated in this meeting by telephone, he also does not give evidence that he requested that Mr He prepare this document.

45    Instead, Mr Zhang’s evidence was that Mr He presented him with a power of attorney dated 3 August 2015 in Chinese signed by Mr Yao, Mr Tang and Mr Yang which authorised Mr He to handle all matters relating to the sale of the land and that, at the time that Mr He presented him with the document, Mr He said words to the effect that, once the land was sold, the Company would be returned to Mr Zhang because its purpose of owning the land would be over.

46    Mr Yang accepts that he signed the first power of attorney but said that this occurred after he had a telephone conversation with Mr He about relisting the land on the market.

47    Therefore, again, Mr He’s version of events is not supported by the evidence of either Mr Yang (the plaintiff) or Mr Zhang (the first defendant). Further, his evidence is contradicted by the terms of the power of attorney itself. For these reasons, I do not accept Mr He’s evidence about the first power of attorney.

Second power of attorney

48    A second document was admitted into evidence which Mr He said he prepared at the request of Mr Zhang, “which reflected the agreement of the parties to sell the land at $900,000” (second power of attorney). Mr He did not attest to the facts to support his opinion that there was an “agreement” to sell the land at $900,000.

49    However, Mr Zhang did not refer to this second power of attorney in his affidavit evidence and (contrary to the evidence of Mr He) he does not say that he requested the document to be prepared.

50    The typed part of the second power of attorney contained similar wording to the first power of attorney (allowing for differences in translation).

51    At the bottom of the page of the second power of attorney was a handwritten notation which, as translated, provided:

The above-mentioned land was sold for AUD 900,000 (net gain) with consent of all of the shareholders after discussion. Liang Yao holds 50% of the shares accounting for AUD 450,000, which shall be paid by Huarui Yang and shall be paid in full by the end of October 2016.

52    The handwritten notation was dated 4 October 2016 and appeared to bear the signatures and fingerprints (in red ink) of Mr Yao, Mr Tang, Mr He and Mr Yang below the handwritten words.

53    By his second affidavit, Mr He stated that this “agreement” was signed by Mr Yang in his presence in China. In oral evidence addressing Mr He’s evidence on this issue, Mr Yang said that he did not remember the “handwritten part” and, while he agreed that it looked like his signature, he could not remember signing at the bottom of the second power of attorney (that is, under the handwritten part). He also gave evidence that, “when we sign documents, we don’t usually put a fingerprint on it”. Mr Yang said that, “In China, [handwriting] is not usually recognised”. Mr Yang said that he did not know there were two versions of the power of attorney.

54    Under cross-examination, Mr Yang asked at least twice to see the original version of the second power of attorney, and responded “maybe” to a suggestion that his signature could have been forged. He later said that, with modern technology, it is easy to fake signatures on a photocopy.

55    This evidence raised a real issue about the authenticity of the second power of attorney. From the bar table, counsel for Mr Zhang stated on instructions that the original version of the second power of attorney was “in a safe in China” but no evidence was given by Mr Zhang or Mr He about this or to explain why the original document could not be produced. That was so even though a colour photograph of the second power of attorney, lying on what appears to be a wooden table, was tendered by Mr Zhang.

56    In any event, the concerns about the authenticity of the second power of attorney were overtaken by oral evidence given by Mr He which, for the reasons given below, I find was untruthful.

57    Under cross-examination, Mr He gave evidence about the execution of the second power of attorney at an additional meeting which took place on 4 October 2016. The evidence about this meeting was not referred to in Mr He’s affidavits, was not a fact relied upon by Mr Zhang to obtain the relief in his interlocutory application and was not put to Mr Yang in cross-examination.

58    Mr He said that in 2016, he found an offer of $900,000 so he went to talk to them (being Mr Yao, Mr Tang and Mr Yang) to have a discussion and ask them if they agreed to sell the land. He said that “during the meeting they agreed to sell the land”. Mr He’s evidence was to the effect that he printed out the power of attorney document again, wrote the sentences at the bottom of the document and “passed it to them for them to sign”. He explained that the fingerprints were placed on the document because “we are sensitive to price”.

59    Mr He also said that “we” had already agreed that he was authorised to deal with the Company and the land and there was a “typo” in the power of attorney which “we noticed” but did not make a correction. He said that, “when I print out the document, we realised there was a typo and we had a discussion in the meeting”. He also said that, “At the meeting I noticed the typo and I told everyone else, and then they said, ‘That’s okay. We already have the agreement. We’re not going to use the company any more. There’s no use to correct the typo’”.

60    It was suggested to Mr He that he was making up this evidence in the witness box. No evidence of any prior consistent statement was adduced. I infer from this that no prior consistent statement existed.

61    Taking into account all of these matters, I do not accept Mr He’s evidence about the second power of attorney. Further, the evidence did not establish that Mr Yang signed his name below the handwritten words on that document.

Loan acknowledgement

62    Mr Zhang also relied on a document entitled “Loan Acknowledgement” which purported to bear the signature of Mr Tang and Mr He and which bore the date 28 September 2018. Mr Tang was not called as a witness and objection was taken to the relevance of this document, which included the statement:

According to the previous decision made through discussions by the shareholders of [the Company], HE Qiang has been fully authorised to deal with the company and the land at the price of AUD 900,000. Therefore, after the confirmation of the settlement, TANG Jian no longer owns any shares of [the Company] and will no longer act as a director of the Company.

63    As the Court only has the word of Mr He that this document was signed by Mr Tang, no weight is attached to the contents of this document as Mr He is not a truthful witness and Mr Tang was not called to confirm that he had signed the document.

64    No similar document signed by Mr Yang was in evidence.

65    Further, it is noteworthy that, if genuine, the document clarified (and was needed to clarify) that the consequences of discussions between the shareholders and the authorisation given to Mr He was that Mr Tang would no longer own shares in the Company and would cease to be a director. This harms rather than helps Mr Zhang’s case because it tells against any oral agreement being reached in these terms.

Practice of Mr Yang

66    Mr He gave evidence about a practice which was not contained in his affidavits and was not put to Mr Yang in cross-examination. Mr He said under cross-examination, when giving evidence about discussing the “typo” at the October 2016 meeting, “we believed that once the land was sold the company will be [no] use. [It’s] consistent with our practice in China. Whenever we finish a project, we would carry out the company because it’s not useful any more”. In re-examination, Mr He clarified that the practice was that of himself, Mr Yao, Mr Tang and Mr Yang.

67    It is not clear what Mr He meant by “carry out the company”. This evidence does not warrant a finding that it was the practice of these people to transfer the shares held by them in a company back to one of the original shareholders and to resign as directors once a project was completed, primarily because that is not what Mr He said and, in any event, because Mr He is not a truthful witness. However, even if that was their practice in China, it does not mean that any such practice was carried out as a matter of course and without obtaining the consent of the participants to the share transfer and their removal as directors.

Form of relief

68    Mr Zhang lodged the form with ASIC which caused Mr Yang to be removed as director and shareholder. Mr Zhang did not have the constitution of the Company available to him when he lodged the form and accepted that “maybe I didn’t do it properly”.

69    In this regard, Mr Zhang is correct – he did not do it properly. Neither the constitution of the Company nor the Act had been complied with. Further, having regard to the findings which have been made, Mr Zhang did not have Mr Yang’s authority to lodge this form.

70    The consequence of this is that it is appropriate to dismiss the interlocutory application brought by Mr Zhang and to make the declaratory relief sought in paragraphs 1 and 2 of the amended originating application. Accordingly, I will dismiss the interlocutory application accepted for filing on 13 April 2022 and declare that:

(1)    The plaintiff has held 150 fully paid shares in the second defendant since 22 January 2007.

(2)    The plaintiff has been a director of the second defendant since 22 January 2007.

71    Mr Yang also sought orders requiring the Company to correct its share register to record that Mr Yang has held 150 fully paid shares in the Company since 22 January 2007. He relied upon the Court’s implied power to order a company to correct its registers which is tacitly recognised in s 175 of the Act.

72    Section 175 relevantly provides that, “A company or registered scheme or a person aggrieved may apply to the Court to have a register kept by the company or scheme under this Part corrected.” Having regard to the findings in these reasons, I am satisfied that Mr Yang is an aggrieved person within the meaning of this section and has standing to apply for an order pursuant to it.

73    Whether the power under s 175 should be exercised involves an exercise of discretion: Grant v John Grant and Sons Proprietary Limited [1950] HCA 54; (1950) 82 CLR 1 at 51; In the matter of Centura Global Holdings Pty Ltd (2016) 111 ACSR 185; [2016] NSWSC 62 at [53].

74    The only basis for Mr Zhang’s opposition to an order that the Company’s share register be rectified was that Mr Yang had not established that the Company kept a register. A form of contingent order was proposed by the parties to the effect that, if a register is maintained by the Company, then certain corrections would be required to be made to it.

75    However, that is not an appropriate order. That is because, pursuant to s 168 of the Act, the Company is obliged to set up and maintain a register of its members and the register must contain certain information, such as that contained in s 169(1) of that Act. The Company cannot be permitted to sidestep its statutory obligations if it does not have a register. If it does not have one, then it is appropriate to order that one be created.

76    That the Court has the power to order that one be created appears to be accepted.

77    In Taylor v Goldana Investments Pty Ltd (No 2) (2015) 236 FCR 298; [2015] FCA 947, Wigney J stated at [17]–[18]:

The difficulty here is that no register has been located. How then can it be corrected? There is some authority that the Court can create a register so as to correct it. In Re Mogul Stud Pty Ltd [2012] NSWSC 1639 at [7], Black J noted that whilst s 175(1) of the Corporations Act does not confer a power to create a register, it assumes that the Court already has such a power at general law. His Honour referred, in that context, to Peninsula Gold Pty Ltd v Sunbeam Victa Holdings Ltd (1996) 20 ACSR 553 at 558-559 and Grant v John Grant & Sons Pty Ltd (1950) 82 CLR 1 at 51, and the general law power to rectify a register.

Black J’s reference to these authorities and the general law power to rectify is a bit puzzling as these authorities do not appear to involve the creation of a register. Nor does it appear to have been necessary for his Honour, in the case he was deciding, to order that a register be created. Nevertheless, the power in s 175 of the Corporations Act, considered against the background of the general law power to rectify a register, would appear to be sufficiently broad to enable a register to be created where the original has been destroyed or cannot be located. Section 175 is plainly a beneficial provision and should be construed broadly.

78    In In the matter of Hillsea Pty Ltd [2017] NSWSC 1870, Brereton J made orders that a company set up a register as referred to in s 168 of the Act and in accordance with s 169 of the Act, before ordering that the company correct the register of members in a particular way. His Honour observed that s 168(1A) provides that an offence based on s 168(1) is an offence of strict liability, and stated at [21]–[22] that:

It has been suggested in a number of cases that the power in s 175 to rectify a register extends to creating a register where one does not exist. It seems to me that, whatever the position is in that regard, it is clear that resort may be had to Corporations Act, s 1324, to require a company to set up and maintain a register if it has not done so. …

As it seems to me, pursuant to s 1324(1) and, alternatively, pursuant to s 1324(2), the Court can plainly make an order requiring the company to do what s 168 requires it to do, namely to set up the relevant register.

(citations omitted)

79    In the circumstances and for the reasons already given, it is appropriate to order that:

(1)    If the Company does not have a register of members within the meaning of s 168(1) of the Corporations Act, then the Company shall forthwith set up such a register and record in that register that Mr Yang has held 150 shares in the Company since 22 January 2007;

(2)    If the Company does have a register of members within the meaning of s 168(1) of the Corporations Act, then the Company shall record in that register that Mr Yang has held 150 shares in the Company since 22 January 2007.

80    The further order which Mr Yang sought is one which is directed to ASIC to rectify its registers pursuant to s 1322(4)(b) of the Act. Section 1322 relevantly provides that:

1322     Irregularities

…

(4)    Subject to the following provisions of this section but without limiting the generality of any other provision of this Act, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes:

…

(b)     an order directing the rectification of any register kept by ASIC under this Act;

…

…

(6)     The Court must not make an order under this section unless it is satisfied:

…

(c)     in every case—that no substantial injustice has been or is likely to be caused to any person.

81    For the reasons already given, I am satisfied that Mr Yang is an interested person within the meaning of this section and has standing to apply for an order pursuant to it: Golden Gate Petroleum Ltd (ABN 090 074 785), in the matter of Golden Gate Petroleum Ltd (ABN 090 074 785) (2010) 77 ACSR 17; [2010] FCA 40 at [44].

82    ASIC is not a party to this proceeding, but has been notified of it and has provided a suggested form of order. That form of order proposes an amendment to the form which was lodged by Mr Zhang, rather than an order that the form be withdrawn from the register (as occurred in, for example, Day, in the matter of A Bliss Clinic Pty Limited v Goodwin (No 2) [2020] FCA 869). That is presumably because a withdrawal of the form would affect the rights of Mr Yao and Mr Tang, who are not parties to this proceeding.

83    After concerns were raised by Mr Zhang about the form of the order proposed by ASIC, Mr Yang’s closing submissions proposed an amendment and Mr Zhang accepted that this amendment addressed his concerns. Mr Zhang had no other objection to the form of order, as amended.

84    I am satisfied that no substantial injustice has been or is likely to be caused to any person if the order which is now sought by Mr Yang is made.

85    Taking into account these matters and for the reasons already given, the orders sought as to rectification of the ASIC registers should be granted with further minor modifications.

86    The following order will therefore be made:

Pursuant to s 1322(4)(b) Corporations Act 2001 (Cth), the Australian Securities and Investments Commission is directed to rectify its registers by amending the Form 484 Change to Company Details lodged on 14 December 2017 (Document 7E9746487) to record Huarui Yang as being a director of Aus-China International Pty Ltd ACN 103 263 350 with a share and member holding of 150 ordinary shares in Aus-China International Pty Ltd ACN 103 263 350 since 22 January 2007 and to record Edward Zhang as increasing his shareholding by 250 shares and not 400 shares as was recorded in Document 7E9746487.

87    As this form of order differs to that suggested by ASIC and proposed by Mr Yang, I will grant Mr Yang and ASIC liberty to apply in the event that a different form of order is required to rectify ASIC’s registers so as to give effect to the findings made in these reasons.

88    By their closing submissions, the parties made submissions as to costs. The parties will be directed to provide any additional submissions as to the appropriate costs order by 24 June 2022 and the issue of costs will be determined on the papers.

Associate:

Dated:    16 June 2022