Praxis Lawyers recently acted for Mr. Jaykoo Kim in the Supreme Court of New South Wales proceedings In the matter of Hoju Jobs Pty Ltd [2021] NSWSC 302. 

Facts

Background

On 23 January 2017, Mr. Kim paid a sum of AUD$300,000to Hoju Jobs Australia (‘the Company’).  At the time, Mr. Choi was the sole director, secretary and shareholder of the Company.  Mr. Choi held  his shares in the company on trust for Mr. Seoungjin Goo. 

The Oral Contract

Mr. Kim claimed that an oral contract was entered into with Mr. Goo before paying $300,000 to the Company.  Mr. Kim claimed that the terms of that contract were:

1.    Mr. Kim would pay $300,000 for 50 ordinary shares in the Company, and would be appointed the Company’s director;

2.    Mr. Goo would retain all decision-making power in relation to the Company;

3.    Mr. Goo would have the power to dissolve Mr. Kim’s directorship of the Company if Mr. Kim committed a criminal offence or otherwise acted to the detriment of the Company;

4.    Mr. Kim would secure an investment in the Company of $3 billion Korean Won (‘KRW’); and

5.    If the agreement was to break the $300,000 would be repaid to Mr. Kim and he would forfeit his shares in the Company.

It was Mr. Goo’s case that:

1.    Mr. Kim would invest KRW 2 billion into the Company;

2.    Mr. Kim would pay AUD$300,000 into the Company’s account as a deposit;

3.    Mr. Kim would be given ordinary shares in the Company as “security”; and

4.    A refund of $300,000 would occur if Mr. Kim failed to invest the KRW 2 billon into the Company.

Mr. Kim then signed documents that had the effect of transferring his shares and directorship to Mr. Choi. Mr. Kim asserts that he was asked by the Company accountant to sign those documents as a form of security, and that they would only become effective if he committed an offence or brought the Company into disrepute.

Mr. Goo asserted that the documents were signed to enforce his rights under the contract, forcing Mr. Kim out of the Company for any breach of the contract – including where Mr. Kim failed to attract an investment.

The June 2017 Contract

In June 2017, Mr. Goo offered to pay Mr. Kim $300,000.00 plus $100,000.00 to be paid over three years. Mr. Kim argued that he accepted this offer and that an oral contract was formed, Mr. Goo accepted that the offer was made, but denied it was accepted.

Issues

The Issues that the court considered were:

1.    What were the terms of the contract between the Plaintiff and the Defendants;

2.    Can an order of specific performance be made – and if so on what terms; and

3.    Was an additional contract made in June 2017 – and if a breach occurred, is the Plaintiff entitled to damages.

The Breakdown in the Relationship

Both parties accepted that their relationship broke down. The Company’s accountant was instructed by Mr. Goo and Mr. Choi to register the documents that transferred Mr. Kim’s shares and removed him as director. Mr. Kim was given different shares in the Company instead. Those shares did provided Mr. Kim with lesser entitlements over the Company – known as “G Class Shares”.

Mr. Goo argued that the $300,000 was effectively payment for the G Class shares, and that Mr. Kim was not entitled to a refund.

Decision

Ultimately, Mr. Goo’s defence rested on Mr Goo’s contention that their contract included a term to the effect that any G class shares issued would be in consideration for Mr Kim’s $300,000 payment with the result that Mr Kim lost the entitlement to a refund of the $300,000 payment when the G Class Shares were issued.

The Court rejected this. Instead, the Court found that the issuing of the “G Class Shares” were security for the return of the $300,000 payment. At paragraph 80 of her judgment, Her Honour decided that the terms of the contract (as at the relevant time) were:

(1) Mr Kim would invest KRW 2 billion in return for 49 ordinary shares in each of Hoju Australia and Hoju Korea;

(2) Mr Kim’s payment of $300,000 to Hoju Australia on 23 January 2017 was a deposit for that promised investment of KRW 2 billion;

(3) Mr Goo would refund Mr Kim’s payment of $300,000 in the event that Mr Kim’s promised investment of KRW 2 billion did not proceed;

(4) Mr Kim held the 50 ordinary shares in Hoju Australia issued to him on 28 March 2017 on the condition that they would be transferred to Mr Choi (to be held on behalf of Mr Goo) if Mr Kim failed to attract the proposed third party investment of KRW 3.5 billion before the end of April 2017; and

(5) Mr Goo was entitled to give effect to the escrow documents in order to cause those 50 ordinary shares to be transferred to Mr Choi if:

(a) Mr Kim failed to attract the proposed KRW 3.5 billion investment; or

(b) Mr Kim committed a crime or fraud,

(c) provided that Mr Kim would be issued with 50 G Class shares in those circumstances as security for the return of his $300,000 payment made on 23 January 2017 (in circumstances where Mr Kim’s promised KRW 2 billion investment had not materialised).

And based on that, Her Honour decided: 

101. The contract entitles Mr. Kim to repayment of his $300,000 in circumstances where he failed to invest the KRW 2 billion promised in January 2017 and he forfeited the 50 ordinary shares issued to him on March 28 2017 by reason of his failure to secure the KRW 3.5 billion investment for a third party.
 

Conclusion

This judgement serves as helpful case law on issues concerning specific performance of a contract.  Once the court determined the terms of the contract, orders for specific performance were adopted as an appropriate remedy.

For further review of this matter, please see the link to the judgment below:

In the matter of Hoju Jobs Pty Ltd [2021] NSWSC 302 (26 March 2021) (austlii.edu.au)

For many of us, bills and invoices are not necessarily at the top of our “to do” pile; and can easily be lost in a tower of paperwork. This will often result in a polite reminder notice being sent. No harm done, right?

Not true for companies, who are not always entitled to such an indulgence. This is particularly true if included in that pile is a Creditor’s Statutory Demand. In fact, failure to deal with a demand of this type can have very serious consequences for your company.

What is a Statutory Demand?

A Statutory Demand is essentially a formal demand for payment of a debt. More importantly, it is also the first step in the potential winding up of your business.

Once the Statutory Demand has been served, you have 21 days to respond to it. If you fail to respond within that crucial time frame, the company will be presumed insolvent. This means that your creditor can apply to the Court to have the company wound up, and you will be burdened with proving you are solvent in Court. The process of proving solvency is not always simple and can often cost tens of thousands of dollars.

What are the Consequences of a Statutory Demand?

If your company is wound up a liquidator will be appointed, and you will lose control of the company’s assets and affairs. It could also lead to public examinations and claims against any directors or associates of the company.

Addressing these issues in Court is costly, and could be avoided by responding to the Statutory Demand within that initial 21-day period. The sooner you are able to address a Statutory Demand the better, as your leverage to resolve the dispute will typically diminish the closer you get to the 21st day after service.

What should you do if you receive a Statutory Demand?

Considering the implications of not responding or not knowing how to respond to a Statutory Demand when you receive one, it is essential that you speak to your lawyer as soon as possible to ensure the issue is dealt with properly, before any lasting damage is done. You should take the service of a Creditor’s Statutory Demand very seriously.

It is also important that you take note of the day the Statutory Demand was served. This could be different to the day it was received. Any proof you can find confirming the day that it actually turned up in your mailbox could become very important. A daily ledger recording all mail you receive might assist with this.

Any agreement to resolve the debt attached to the Statutory Demand must be reached before the 21-day period expires. The only way you can extend the timeframe for compliance of a Statutory Demand is through the Courts.

Praxis Lawyers have experience in not only issuing Statutory Demands, but also in acting for companies that resist them. We can help you through the process; but please be mindful that the sooner you contact us the better.

It is not uncommon for parties to settle small debts amongst themselves. We are generally very supportive of this, as it can mean that you save costs and time. However, you should be careful when committing a settlement to writing, especially with larger debts.

We have had clients come to us after reaching what they thought was an agreement, only to end up in Court because they did not properly protect themselves, or secure their debts.

For example, have you considered exactly what a contract is? There are many elements to any offer you may wish to make that you might not have even considered. The existence of an agreement, generally, requires three essential elements:

1. An Offer- which is typically an indication by one party to another of his or her willingness to be legally bound or enter into a contract with that other person, on certain terms.

2. Acceptance – being the unqualified agreement to the terms of an offer.

3. Consideration – the payment being made; something must be given in return for a promise in order to make it binding.

So, when might an offer not be an offer?

These elements may seem straightforward enough. However, a situation might arise where you think you have made an offer, but you have just invited the other party to make an offer or enter into negotiations. The court may decide that you instead made an “invitation to treat” for example, and that you never had reached an agreement.

This can sometimes have dire consequences for client, who may think they have settled a debt and even paid what they thought to be the “agreed” amount, only to have their creditor continue to recover against them for the balance.

Be careful when making or accepting offers. Praxis Lawyers is able to provide you with advice and assistance when entering into negotiations, feel free to call us if this is something you require help with.

What are “Without Prejudice” Offers?

Without Prejudice correspondence is a relatively technical area of the law, which we will address in a later blog.

Marking correspondence “without prejudice” provides some protection to the sender of the correspondence, such that it cannot be used by the receiver in Court. It typically only applies in circumstances where the sender is making genuine attempts to settle a dispute.

You should be careful when making a without prejudice offer. You will often hear people say that such correspondence cannot ever be relied upon in Court; which is broadly true, with some caveats.

There are circumstances where without prejudice correspondence can be relied on it Court, even if they are made in the interests of resolving a dispute.

What is a Deed of Release?

You may be asked, as part of a settlement arrangement, to sign a deed of release.

A deed is different to a contract, in that it does not require consideration for it to be binding. It does have some formal requirements however before it can be deemed to be effective; including the requirement that the parties’ signatures are witnessed.

Many deeds are complicated and technical documents. They will also often include requirements for indemnities, and sometimes even securities (such as mortgages or charges over company property).

Given the technical nature of a deed, and the likelihood that rights and obligations in a deed will be of a serious nature; we strongly recommend that legal advice is obtained before any deed is signed.

Praxis Lawyers are experienced in the areas of litigation and commercial advice. We can assist with any settlement you may be involved in, including negotiations and mediations. We also have a library of commercial documents at our disposal (including deeds of release) which allow us to provide our services efficiently and practically.

Looking for a house is stressful enough without having to worry about the legal complications of entering into a contract.

Pressure from the agent, worrying about sorting out your finance, and checking that there are no underlying issues at the property can mean that the experience is not all that positive (we know this from personal experience!)

Knowing the legal position, and having a good legal team supporting you, can take away some of that stress and anxiety. Here are some answers to the more common questions we are asked from people who are looking to buy.

Is an Oral Offer Binding?

Usually, when negotiating on price you will make offers and counter-offers. Sometimes in relation to the terms (for example, the length of the settlement period), but mostly in relation to the price.

We are often asked whether those oral offers are binding. Can the vendor make you buy the property at that price?

The short answer; no. Section 54A of the Conveyancing Act 1919 provides (essentially) that a contract for the purchase of land must be in writing.

Despite this, you should still be careful making any offers, including offers by email. There are also some, limited circumstances where a transfer can occur despite the non-existence of a written agreement. For example, where the transfer is consistent with the creation of a trust, or where there is part-performance of the contract.

You should speak with your lawyer or conveyancer if you require advice in relation to making offers.

Will I need to pay Land Tax?

The second page of the standard contract for the sale of land should refer to Land Tax, and pose the question, is land tax adjustable?

You may be required to pay a portion of the vendor’s Land Tax if the contract states that it is adjustable.

Land Tax is calculated based on the calendar year, and so if you are purchasing a property early in the year the amount of Land Tax you are required to pay could be significant. We have acted for clients who were required to pay thousands of dollars in Land Tax.

You should speak to your lawyer or conveyancer about Land Tax before signing a contract, especially if it is marked as being adjustable.

What are my cooling-off rights?

In New South Wales, you are given a five-day cooling off period to decide whether or not to proceed with the sale. You may exercise your “cooling off rights” in that period, and terminate the contract. If you do so, you will lose .25% of the purchase price to the vendor. If you paid a deposit (say, 5%), the vendor is (generally) required to refund the deposit, less the .25%.

You can agree to waive your rights to a cooling-off period. This is sometimes referred to as being an “unconditional offer”. Your rights can only be waived by your solicitor or conveyancer in writing on your behalf.

Note: If you purchase at auction you have no cooling off rights, and the sale is “unconditional”.

What is a “holding” deposit?

Sometimes a vendor (or their agent) will ask you to pay a holding deposit, to take the property off the market.

We find that this will usually mean one of two things:

1. You pay a certain amount of money (often between $2,000 – $5,000) to show you are serious about purchasing. The vendor will then take the property off the market but will not ask you to sign the contract immediately. They may give you a time frame of a week or two. If you do not proceed, some or all of the deposit is refundable.

2. You pay .25% of the purchase price and exchange the contract, with the balance of the deposit payable in five days’ time (i.e. once the cooling off period expires).

You should be very careful before agreeing to either of these circumstances. We always recommend that you undertake appropriate searches of the property before paying any money. We also suggest that you have your lawyer or conveyancer read the contract before you pay any deposits.

It is not uncommon for property to have underlying issues that are not obvious to the untrained eye. Also, contracts will sometimes include terms that are particularly unfair or cause significant liability (for example, adjustment of land tax).

You should ensure that any issues with the property or the contract are addressed before the contract is exchanged (or becomes unconditional), and any money is paid.

Praxis Lawyers are experienced in conveyancing and property law and can provide assistance on these issues quickly and efficiently. We can also refer you to property inspectors we trust to arrange for pest, building or strata reports on short notice.

What can businesses do to ensure their invoices are paid on time?

This is a common question we are asked by small and medium sized business owners. The non-payment of an invoice can have a significant effect on your business and cause a lot of stress and anxiety.

So, what do we usually recommend businesses do when they are having trouble being paid?

Consider changing your terms

The phrase “prevention is better than a cure” so often proves to be true, and that is no different when it comes to recovering unpaid bills.

A good starting point for any business is to re-visit the terms that they offer to their customers. Having good terms will reduce the risk that a debtor will reject a demand for payment.

Also, depending on your business, it may be wise for you to require some kind of security from customers, particularly if they are new customers of yours, or if it is a particularly big job or order that you are being asked to undertake.

Requiring the payment of a deposit, or the signing of a personal guarantee, can make all the difference.

Due Diligence

Some businesses will undertake routine checks for new customers, to see whether they are a risk. This may not be commercial for you to do every time you pick up a new client, but it is definitely worth considering on larger jobs.

For example, there are searches that can be undertaken to determine whether a person has had problems paying debts in the past, or whether the client has any assets.

Debt Recovery

If all else fails, the cure is still a valid solution! Commencing the debt recovery process is usually quite cheap and straightforward. The costs of recovering the debt will differ depending on the exact circumstances, but any good debt recovery agent or lawyer will be mindful of the commercial realities that you face.

For example, we have fixed fees for debt recovery services at Praxis Lawyers and are very much aware that there is no point spending disproportionate legal costs chasing a debt – or throwing good money after bad.

We can help.

We have experience working in debt recovery, and can offer competitive, fixed-price services. We can also assist your terms and conditions and can undertake the types of searches we described above.

Feel free to call or email us if you have any questions, we are happy to help.

We are often asked the question from our clients 

when is best to get an inspection for a property?

Usually, a reference to an inspection means:

• A strata report, where an expert will inspect the records of the Owners Corporation and give advice on their affairs. This usually provides insight into the amount of money that Strata has available for any repairs, the bylaws that apply (including whether they allow pets) and what issues have been raised at meetings of the Owners Corporation.

• A building report, where an expert will inspect a property and give advice on the quality of the structure’s build.

• A pest inspection, where an expert will inspect a property and give advice on any pests (including termites) that may be present.

We will almost always recommend that at least some of these inspections are undertaken. It is not uncommon for issues to be raised throughout the inspection process that have a significant impact on the property’s value.

But when should you go to the expense of obtaining an inspection?

Sometimes, the seller of the property will already have obtained inspections that you can obtain at a discounted rate or reimburse them for should you agree to purchase the property. Be careful with this, as the expert may specifically state that their report is for the benefit of the seller only, meaning you would have limited options if the report proves to be misleading.

You will find that many agents will encourage you to obtain inspections after you sign the contract. They may say that you can always rescind the contract if you become concerned after reading a report. You should be careful with this too, as you will expose yourself to loss of the deposit if you rescind after signing the contract.

Usually, we suggest people obtain these inspections after agreeing on a price with the seller but before signing the contract. The inspectors we work with will typically finalise their report in two to three days. It is true that you could end up losing the purchase during that period of time, although in our experience it is very rare for that to occur.

Obtaining inspections prior to exchanging on the contract means you will be made aware of any underlying issues at the property before incurring any risk under the contract for sale.

Praxis Lawyers has experience acting for sellers and purchasers of property and can assist through the process. Feel free to call us if you would like to discuss the purchase of your property and the timing of obtaining inspections, we are always happy to help.

Stamp duty – sometimes referred to as transfer duty – is a one-off tax that is imposed by the State government when property is purchased. It is calculated based on the purchase price of a property, on a sliding scale. There are some exemptions to stamp duty, such as where the purchaser is a first home owner, or where the transfer is between husband and wife.

Is Stamp Duty being Abolished?

Not quite.

There is talk of ‘property tax’ being used in lieu of stamp duty. The idea being that a tax will be payable periodically to every home owner in the State, rather than one large sum when a property is purchased.

The proposed reforms involve the tax being fixed at a set amount plus a rate applied to the unimproved land values of an individual property.

Buyers will still have the choice of paying stamp duty, however, once a property is subject to the property tax, subsequent owners must pay that property tax.

The annual property tax may be levied at the following rates – subject to feedback from the public and government officials:

• owner-occupied residential property – $500 + 0.3 per cent of the unimproved land value

• investment, residential property – $1,500 + 1 per cent of the unimproved land value

• primary production land (farmland) – 0.3 per cent of the unimproved land value

• commercial property – 2.6 per cent of the unimproved land value.

What does this mean for Homebuyers?

The ability to be able to pay stamp duty is one of the biggest barriers to home ownership. In most cases the time it takes for the average worker to save up enough money to cover the stamp duty tax is upwards of 2 years according to NSW Treasury. If this proposal is implemented, the removal of Stamp Duty could remove this financial barrier and make the process of buying a home easier for families looking to upgrade.

The biggest issue with this proposed reform is when the property tax will be introduced and what it will entail.

What does this mean for Home Owners, who have already paid Stamp Duty?

The consultation paper suggests that there will be a period of time, calculated from a date prior to the date you purchased your property, that you can opt-in to property tax and be provided a refund of their stamp duty.

This might suggest that if you have already paid stamp duty, you need not “opt-in” to land tax as an option, thereby avoiding any risk of being effectively taxed twice for owning your property.

This is not Advice

This article is not to be taken as advice on the issue, particularly given that the proposal is still in its early stages and subject to change.

What you should do, however, is keep in touch with any changes to stamp duty, as they might affect your plans for future purchases.

Supreme Court Decision – Jaykoo Kim v Hoju Jobs & Ors

Praxis Lawyers recently acted for a client, Mr Jaykoo Kim, in proceedings brought at the Supreme Court of New South Wales.

On 26 March 2021, Her Honour Justice Williams made orders in favour of Mr Kim. A copy of Her Honour’s decision can be found here: https://www.caselaw.nsw.gov.au/decision/1786cd3641bc7d775d5de661

A summary of the case, and the decision, will be provided in a future blog.

We are pleased for Mr Kim, and glad that we were able to assist him in achieving a positive outcome.