Home | Databases | WorldLII | Search | Feedback High Court of New Zealand Decisions

Huang v Chen [2022] NZHC 1888 (4 August 2022)

Last Updated: 8 November 2022

JUDGMENT OF GORDON J

This judgment was delivered by me on 4 August 2022 at 2 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Counsel: Solicitors:

M D O’Brien QC, Barrister, Auckland William Gong Lawyers, Auckland M D Pascariu, Anderson Creagh Lai, Auckland

M J Grayson, Anderson Creagh Lai, Auckland SRG Judd, Barrister, Auckland

HUANG v CHEN [2022] NZHC 1888 [4 August 2022]

.../2

WAIHOPAI VALLEY VINEYARD LIMITED

Second Defendant

YI LU

Third Defendant

DON CHEN

Fourth Defendant

JINPING HUANG

Fifth Defendant

QI YANG

Sixth Defendant

ADELAIDE EDUCATION GROUP PTY LIMITED

Seventh Defendant

TABLE OF CONTENTS

Introduction [1]

The parties [21]

Factual background [30]

Matakana Villa Lots [31]

Waihopai [37]

Chateau Kiwi [41]

Willow Flat [43]

Long-term business visa application – Ms Lu and Mr Huang [45]

Acquisition of Matakana Estate [47]

The JV agreement [57]

Amended INZ application – Ms Lu and Mr Huang [61]

Integration Scheme [65]

Further advances for Waihopai [81]

Memorandum of corporate trusteeship [84]

End of relationship [86]

Continued operation of Matakana Estate and Matakana Zhongshan [92]

Retrospective OIO consent [93]

First proceeding against Mr Chen [97]

Sale of Waihopai and distribution of proceeds of sale [99]

Proceedings against Waihopai and freezing orders [104]

Credibility issues [108]

Mr Huang [110]

Ms Lu [113]

Mr Chen [116]

Yi Lu [119]

Order of consideration of issues [122]

Status of Mr Huang’s payments to Mr Chen/Waihopai [123]

Partnership [140]

Relevant law [144]

Relevant documents [150]

Cultural context [169]

Conduct of parties [176]

First affirmative defence: estoppel [204]

Misrepresentation [215]

Relevant law [219]

Were the representations made as pleaded? [224] First pleaded misrepresentation: equity in Waihopai [224]

Second pleaded misrepresentation: willingness [238]

Was Mr Chen’s representation of Waihopai’s value and his share of it

misleading and deceptive? [245]

Was Mr Huang misled or deceived? [252]

Was Mr Chen’s conduct an effective cause of Mr Huang’s loss? [254]

JV Agreement – 19 April 2012 [259]

Principles of contract interpretation under Chinese law [271]

The claims [284]

Applicable law [287]

Third cause of action: breach of the JV agreement [292]

Second cause of action: breach of fiduciary duty [296]

First cause of action: constructive trust based on the law of property [305]

Laches [311]

Equitable damages [319]

Counterclaims [325]

First counterclaim (against Mr Huang and Ms Lu): Matakana Zhongshan

shares [328]

Second counterclaim (against Ms Lu): shares in Matakana Wines [332]

Third counterclaim (against Matakana Wines): failure to repay advances [336]

Fourth counterclaim (against Matakana Wines): failure to pay rent and

outgoings [344]

Matakana claims (first to third causes of action): relief in favour of

plaintiffs [348]

Matakana claims (third counterclaim): relief in favour of Mr Chen [349]

Waihopai claims [350]

Fourth cause of action (against Mr Chen) and fifth cause of action (against Waihopai): claims for debt [350]

Sixth cause of action (all defendants): money had and received [356]

Seventh cause of action (against Mr Chen, Don Chen, Jackie Huang and

AEG): dispositions made with the intent to prejudice Mr Chen’s creditors [361]

Eighth cause of action (against all defendants): dispositions made with

intent to prejudice Waihopai’s creditors [361]

Ninth cause of action (all defendants): unjust enrichment [385] Affirmative defence and counterclaim [388] Second affirmative defence (Mr Chen): debt owed [388]

Fifth counterclaim (against Ms Lu): failure to repay advance [392] Waihopai claims (fourth to ninth causes of action): relief [395] Fourth and fifth causes action [395]
Sixth cause of action [397]

Seventh cause of action [399]

Eighth cause of action [402]

Ninth cause of action [405]

Result – summary [406]

Relief [412]

Costs [414]

Introduction

• [1] This proceeding arises following a falling out between two couples who were once friends and who were involved in business dealings with each other. The exact nature of their business relationship is in issue.

• [2] Three of the four, namely the first plaintiff, Hongzhao (Alex) Huang, his (now) wife, the second plaintiff, Jieyu (Chrissy) Lu and the first defendant, Xiaolin (Chris) Chen, together purchased the land (Matakana land) and business of the Matakana Estate Ltd winery (together Matakana Estate) in 2011/2012. Mr Chen’s wife, the fifth defendant, Jinping (Jackie) Huang¹ was not involved in this purchase.

• [3] It is common ground that Mr Huang paid the entire purchase price but a Joint Venture Agreement, signed and dated 19 April 2012, (JV agreement) provided that Mr Chen would repay to Mr Huang his share of the purchase price and the dates for payment are specified. Interest on the loan was provided for. The JV agreement also specified the share that each of the three would have in Matakana Estate. The share of each of the individuals was a reflection of the financial contribution each would make.² There was an initial version of the JV agreement signed and dated 21 October 2011, but the parties agree that it was superseded by the agreement of 19 April 2012. The JV agreement was signed in the People’s Republic of China (China) and is expressed to be subject to the laws of China.

• [4] At the time of the purchase of Matakana Estate, Mr Huang and Ms Lu did not have permanent residency in New Zealand. Mr Chen was, and continues to be, a New Zealand citizen. Pending consent from the Overseas Investment Office (OIO) the JV agreement provided that the Matakana land would be purchased in Mr Chen’s name. Mr Chen had incorporated Matakana Wines Ltd (Matakana Wines) which was used to complete the purchase of the Matakana Estate business. Mr Chen was the sole director and shareholder of Matakana Wines. The Matakana land remains in

1. Jackie Huang is not related to the first plaintiff Alex Huang. I will refer to Alex Huang as Mr Huang and Jackie Huang by her first name and surname rather than as Ms Huang. That is to avoid any confusion between references to Mr Huang and Ms Huang. No disrespect is intended by referring to Ms Huang as Jackie Huang.

² Mr Huang: 55%; Mr Chen: 35%; and Ms Lu: 10%.

Mr Chen’s name but all the shares in Matakana Wines are now held by Kiwi Club Ltd (Kiwi Club), a company owned by Ms Lu.

• [5] At the time of the purchase of Matakana Estate Mr Chen had an interest in a vineyard in the South Island. On 15 August 2006 he incorporated Waihopai Valley Vineyard Ltd (Waihopai) with the third defendant, Yi Lu,³ and Waihopai purchased what was bare land at the time in Marlborough from interests associated with the Vegar family. Mr Chen and Yi Lu were the two directors. Mr Chen held 40 per cent of the shares in Waihopai, his brother, the fourth defendant, Don Chen, held 20 per cent and Yi Lu held 40 per cent.

• [6] Mr Chen says in February 2013 he and Mr Huang began discussions about Mr Huang buying an interest in Waihopai. There followed a series of documents drafted by Mr Huang which are headed (in the English translation of the documents in the common bundle) “Matakana Estate Integration Scheme” (Integration Scheme). The documents on their face purport to show an integration of the interests of Mr Huang, Ms Lu and Mr Chen in Matakana Estate and of Mr Chen’s (asserted) 60 per cent interest in Waihopai. Jackie Huang was also included.

• [7] On 25 June 2013⁴ Mr Huang advanced $1.2 million to Mr Chen’s solicitor’s trust account to be advanced to Waihopai. Mr Huang and Ms Lu later made further advances to Mr Chen and/or Waihopai totalling (it is said) $1,176,261. None of those advances, including the $1.2 million, have been repaid.

• [8] In this proceeding Mr Huang says all of those advances to Mr Chen/Waihopai were loans made to assist Mr Chen and/or Waihopai at a time when Waihopai was in financial difficulty. In fact, at the time of the first advance of $1.2 million Waihopai was in receivership. It then came out of receivership in July 2013.

• [9] Mr Chen disputes the claim by Mr Huang and Ms Lu that the advances were loans. He says that Mr Huang advanced the money as capital contributions for an interest in Waihopai and they were made pursuant to the Integration Scheme.

3. Mr Lu is not related to Ms Lu. To avoid any confusion with Ms Lu I will refer to him as Yi Lu, rather than Mr Lu. No disrespect is intended by the use of his first name.

⁴ The date of receipt into Mr Chen’s solicitor’s trust account.

• [10] Mr Huang and Ms Lu say that the Integration Scheme was never finalised and the terms were never agreed. It was simply a proposal.

• [11] Despite the nine causes of action, two affirmative defences and six counterclaims, the core elements of the dispute are reasonably straightforward. There are two fundamental claims made by the plaintiffs. The first concerns the legal title to the Matakana land and the overall ownership of Matakana Estate. The second concerns what Mr Huang and Ms Lu call the “Waihopai loans”. I will use the neutral term, the “Waihopai advances”.

• [12] As to the former (the Matakana claim) Mr Huang and Ms Lu say that Mr Chen has acted in breach of contractual and equitable obligations of fidelity and good faith by refusing to pay his share of the purchase price for Matakana Estate or transfer the legal title of the Matakana land to them. Mr Huang and Ms Lu say that Mr Chen holds the title to the Matakana land on a constructive trust for them. They also claim damages for the delay in the development of Matakana Estate which they say has been caused by Mr Chen’s actions, and the loss that this has caused.

• [13] As to the second (the Waihopai claim) the plaintiffs say they are entitled to repayment of the Waihopai advances together with interest. They also plead breaches of s 348(4) of the Property Law Act 2007 (PLA) in respect of the distribution of the sale proceeds of Waihopai’s assets following the sale of Waihopai by Mr Chen and Yi Lu in February 2021. The cause of action under the PLA against Mr Chen seeks orders against Mr Chen, Don Chen, Jackie Huang and the seventh defendant Adelaide Education Group Pty Ltd (AEG), on the basis they each received part of the sale proceeds. The cause of action against Waihopai under the PLA seeks orders against all of the defendants on the same basis.

• [14] Mr Chen’s position is that the Integration Scheme (and in particular the version of 26 June 2013) superseded the JV agreement and now governs the relationship and overall shares of the parties in the assets of the two businesses. In a related argument, Mr Chen says that he and Jackie Huang together with Mr Huang and Ms Lu were in partnership. The partnership argument principally relies on the Integration Scheme documentation.
• [15] As a consequence, Mr Chen says he is not required to pay Mr Huang the amounts set out in the JV agreement as his share for Matakana Estate. Rather, as noted above, he says the parties’ respective contributions and accordingly their shares in the assets of the two entities are governed by the Integration Scheme/partnership. Mr Chen accepts that he holds the Matakana land on a constructive trust. But he says he holds it on a constructive trust not just for Mr Huang and Ms Lu, but also for himself.

• [16] Mr Chen also accepts he needs to account to Mr Huang and Ms Lu for the proceeds of sale of Waihopai. At the time Waihopai was sold he did not tell Mr Huang and Ms Lu of the sale and they did not receive any of the proceeds of sale. Those proceeds were distributed to Mr Chen, Yi Lu and Don Chen, who all then further distributed the proceeds they received. The quid pro quo Mr Chen says is that Mr Huang and Ms Lu must account for their share in Matakana Estate’s assets.

• [17] Further to Mr Chen’s position that the assets of the two entities need to be divided in accordance with the Integration Scheme/partnership, he seeks an order that the partnership be dissolved (if it has not already been dissolved) and he says that the dissolution should be subject to an accounting to determine the parties’ respective rights to the assets in the two entities.

• [18] Mr Chen’s counterclaim that a partnership existed and seeking an accounting of what he says are the partnership assets was contained in an amended statement of defence filed on 6 April 2022. The plaintiffs do not oppose the amendment that pleads the existence of a partnership (without conceding that a partnership in fact existed) but oppose the amendment to the relief sought by way of an accounting of assets.

• [19] In any event the plaintiffs’ position is that the parties’ interests in Matakana Estate and Waihopai were never integrated. They say the governing document in relation to the Matakana claim is the JV agreement. In relation to Waihopai they say that the money advanced was by way of loans and was not pursuant to an integration scheme or partnership and was not for an interest in Waihopai.
• [20] In summary then, the primary issue is whether the business relationship between the principal parties is governed by the 26 June 2013 Integration Scheme document or the JV agreement of 19 April 2012.

The parties

• [21] Mr Huang is a businessman who lives in China. At all relevant times he would travel from China to New Zealand for meetings, stay a few days and then return to China. Mr Huang typically spent less than one month a year in New Zealand. He obtained residency in January 2015 based on his marriage to Ms Lu who obtained New Zealand residency at the same time based on the Entrepreneur category. Mr Huang is, and always has been, an overseas person as defined in the Overseas Investment Act 2005 (OIA). He remains an overseas person even though he has obtained residency because he is not ordinarily resident in New Zealand.

• [22] Mr Huang does not speak English. He gave evidence with the assistance of a Cantonese-speaking interpreter. He and Mr Chen, who does speak English, conversed orally in Mandarin in their dealings. Documents exchanged between them were in the Chinese language.⁵

• [23] Ms Lu, who was not then married to Mr Huang, came to New Zealand in 2004 to study English when she was about 22 or 23 years old. Mr Chen’s wife, Jackie Huang, operated a business helping Chinese students in New Zealand. Jackie Huang arranged accommodation and schooling for Ms Lu. They became friends. Jackie Huang introduced Ms Lu to her husband Mr Chen. Ms Lu speaks reasonable English but used the interpreter from time to time when she gave evidence.

• [24] Mr Chen first came to New Zealand in 1996. After a period away from New Zealand he returned in 1999. Mr Chen has been a New Zealand citizen since 2001 and he lives in this country. Mr Chen’s wife, Jackie Huang, has also been a New Zealand citizen since December 2001. Since about 2006 Mr Chen and

5. The characters for Mandarin and Cantonese are the same. I will therefore use the term Chinese language.

Jackie Huang have worked in the New Zealand wine industry including promoting New Zealand wines in China. They both have wine industry qualifications.

• [25] Mr Chen and Jackie Huang’s first language is Mandarin. But they can speak, read and write in English. Mr Chen is more proficient in English than Jackie Huang. Mr Chen used the interpreter only occasionally when giving evidence, Jackie Huang more so.

• [26] Mr Chen met Yi Lu through Yi Lu’s sister, who was Mr Chen and Jackie Huang’s neighbour. As noted above, Yi Lu became a director of and a 40 per cent shareholder in Waihopai. He lives in New Zealand. Yi Lu’s first language is Mandarin. He speaks some English although not proficiently. He used the interpreter from time to time when he gave evidence.

• [27] Don Chen is Mr Chen’s brother. He was a 20 per cent shareholder in Waihopai and lives in Australia. Don Chen was not a witness.

• [28] The sixth defendant, Qi Yang, is Yi Lu’s wife. She lives with Yi Lu in Auckland. She was not a witness.

• [29] The seventh defendant, AEG, is an incorporated company which carries on an education business and has its registered office in Australia. It has three current directors, one of whom is Don Chen. It also has three current shareholders, again one being Don Chen.

Factual background

• [30] In 2006 Mr Huang came to Auckland for business. By that stage he and Ms Lu were in a relationship. Ms Lu acted as his interpreter while he was here. She introduced Mr Huang to Mr Chen.

Matakana Villa Lots

• [31] At about that time Mr Chen was interested in buying a property in Matakana, north of Auckland. He had been introduced to the land by Paul Vegar, a real estate

agent. Mr Chen says that Mr Vegar explained that the land was owned by his family company. It adjoined land owned by the Vegar family’s Matakana Estate winery at 568 Matakana Road. Mr Chen says he discussed this with Yi Lu.

• [32] The land for sale at Matakana was, at that stage, bare land and was in seven lots numbered 8 to 14. Mr Chen says Mr Vegar’s proposal was that his companies would plant grapes on the properties except for an area reserved to build a house on each lot. The Vegars would maintain the vines and use the grapes in their winery and the purchasers of the lots would pay a small amount to the Vegars for maintenance. The neighbouring properties (Lots 4–7) would continue to be owned by the Vegars. The Matakana Estate winery itself was on Lot 4.

• [33] Mr Chen’s evidence was that at the time he had no experience in property investment or in the wine industry but was attracted to the idea of living on a property in Matakana surrounded by grapes. Mr Chen discussed this idea with Mr Huang and Ms Lu while Mr Huang was in New Zealand and they went to see the properties together.

• [34] The upshot was that in late 2006 Mr Chen’s wife, Jackie Huang, purchased Lot 8 and his brother, Don Chen, purchased Lot 14. Yi Lu’s wife purchased Lot 9 and Yi Lu’s brother-in-law purchased Lot 13. Mr Huang purchased Lots 11 and 12, and Ms Lu purchased Lot 10. Ms Lu’s evidence was that Mr Chen and Yi Lu borrowed from Mr Huang to fund their purchases. There was evidence of at least some repayments by Mr Chen.

• [35] Additionally, Mr Huang, Ms Lu, Mr Chen and Yi Lu entered into a written agreement signed and dated 15 March 2007 relating to all seven lots. It appears from that agreement that the parties intended to work together to develop the seven lots and in particular to build a lodge. They commissioned an architect to prepare concept plans but otherwise the 15 March 2007 agreement was not advanced.

• [36] The ownership of those lots has not changed. The parties referred to them as either the “vineyard” lots or the “villa” lots. I will use the latter term.

Waihopai

• [37] Mr Chen said at about the time he was introduced by Mr Vegar to the villa lots, Mr Vegar and his brother Peter talked to him and Yi Lu about investing in a new vineyard development in Marlborough on land owned by a company associated with the Vegar family. Mr Huang and Ms Lu were not involved in the acquisition that followed.

• [38] Mr Chen says that the Vegars’ proposal was that he and Yi Lu would buy the land and the Vegars would provide services to develop the then bare land as a vineyard and to manage and maintain the vineyard including by arranging to sell the grapes. The Vegars’ initial proposal was for a property in Waihopai Valley. That was replaced by another offer by the Vegars for a different piece of land nearby under essentially the same arrangement. The replacement property was known as Kintyre, a name that appears on a number of the documents. The company name Waihopai reflected the land in the original proposal made by the Vegars.

• [39] On 11 October 2006 Waihopai purchased the Kintyre property from the Vines Development Company Ltd, one of the Vegars’ companies, for $5.2 million. Waihopai then entered into two contracts: a Vineyard Management Agreement with the Vines Development Company Ltd and a Grape Supply Agreement with Goldridge Estate Ltd. The latter was a company also owned by the Vegars. Both contracts were later assigned to another Vegar family company, Savvy Vineyards 3550 Ltd (Savvy).

• [40] Waihopai was planted with grapes in 2007 and 2008 and it began supplying grapes to Savvy, some of which were sold by Savvy to the Vegars’ Matakana Estate winery.

Chateau Kiwi

• [41] Also in 2006, Mr Chen and others started a business called Chateau Kiwi which exported New Zealand wine to China. Wine was purchased from a number of New Zealand wineries, including the Vegars’ Matakana Estate winery, and sold at a number of Chateau Kiwi outlets in cities and towns in China.
• [42] Chateau Kiwi Headquarters, the name used for the franchisor, franchised the brand to 15 to 20 franchisees in China. From 2009 Ms Lu was a franchisee in her home town of Zhongshan, China.

Willow Flat

• [43] The friendship between the two couples (Mr Huang and Ms Lu, and Mr Chen and Jackie Huang) continued. In 2009, Mr Huang and Ms Lu visited Marlborough with Mr Chen and looked at another piece of bare land owned by a Vegar family company at Willow Flat. It was 21.60 hectares in area. The Vegars were selling the land on the same basis as they had sold the land to Waihopai in 2006, including the vineyard development, vineyard management and grape supply agreements. Ms Lu was very keen to invest in a vineyard. Mr Chen referred her to his then lawyer, Brad Botting, who gave her advice on the sale and purchase agreement and the three other agreements. Ms Lu waived privilege in that correspondence. The advice was comprehensive and raised a number of issues and risks with proceeding with the transaction, including the risk of losing the deposit. Mr Botting explained that the land was subject to the OIA as Ms Lu was not “ordinarily resident in New Zealand” and it was rural land of an area greater than 5 hectares. The advice included an explanation of the OIA requirements and explained that compliance with the OIA was a different and additional matter to obtaining residency. Having a residence permit did not necessarily make Ms Lu ordinarily resident in New Zealand.

• [44] Notwithstanding Mr Botting’s advice, Ms Lu signed the agreement for sale and purchase and paid the deposit of $114,500, not to the Vegars’ solicitor, nor to the vendor company, but to another company owned by the Vegars. Ms Lu incorporated Kiwi Club for this venture. She was the sole director with 100 per cent shareholding. It appears from Ms Lu’s evidence that her concern at the time was to obtain residency and she hoped that the purchase of Willow Flat would fast track her residency application through the immigration consultant she was using at the time. However, her residency application did not succeed, the company to which Ms Lu paid the deposit went into liquidation, and Ms Lu lost the deposit. Mr Botting continued to advise her, attempting to recover the deposit over the following two years up to July 2011, but was not successful.

Long-term business visa application – Ms Lu and Mr Huang

• [45] After the failed immigration application, Ms Lu and Mr Huang engaged a new immigration consultant. In May 2011 they applied to Immigration New Zealand (INZ) for a long-term business visa. Ms Lu was the principal applicant. The application was based on a business plan under which Ms Lu intended to set up a business in New Zealand to export wine to China. She relied on her experience as a franchisee of Chateau Kiwi in Zhongshan, China and ownership of the villa lots in Matakana.

• [46] Separately, Ms Lu said in her evidence that from October 2011 to 2015 she ran another business which sold wine – including New Zealand wine – in Zhongshan, China, called Halfmoon Bay Club. She says she closed this business in around 2015.

Acquisition of Matakana Estate

• [47] In or around 2011 Mr Chen became aware that the corporate owners of Matakana Estate were in liquidation and receivership and that the winery and land (Lots 4–7) were for sale. Mr Chen says this created a potential problem for the owners of the villa lots because the Vegar companies had set up the development on the villa lots and continued to manage those properties. He says the receivership was also a potential problem for Waihopai because some of the grapes Waihopai produced were supplied to Matakana Estate indirectly through Savvy.

• [48] Mr Chen says he could not afford to purchase the Matakana land and winery business himself, so he discussed the issue with Mr Huang and Ms Lu in September 2011.

• [49] The Matakana land and winery business were being sold in three parts:

(a) Three lots were being sold together as a package (Lots 5, 6 and 7). Those lots were used for growing grapes;

(b) Another lot was being sold separately (Lot 4). This lot (the winery lot) contained the main winery buildings used for the Matakana Estate business; and

(c) The Matakana winery business itself was being sold together with the stock.

• [50] Mr Huang agreed to provide all of the funding to buy the Matakana land and winery business. The plan was that Mr Huang, Ms Lu and Mr Chen would own and operate the business together. It was agreed Mr Huang would lend Mr Chen his contribution towards the purchase and Mr Chen would repay Mr Huang.

• [51] Mr Huang and Ms Lu did not have residency at that stage; they lived in China and were accordingly both “overseas persons” not eligible to purchase the Matakana land under the overseas investment rules. It was decided that Mr Chen would buy the land in his own name and the business through his company Matakana Wines; Mr Huang and Ms Lu would acquire 65 per cent of Matakana Estate (55 per cent to Mr Huang and 10 per cent to Ms Lu) once they had approval from the OIO. Mr Chen would have a 35 per cent share for his contribution of $1.47 million loaned to him by Mr Huang which was to be repaid on specified future dates.

• [52] On 30 September 2011 Mr Chen entered into an agreement to purchase Lot 4 for $1.2 million and an agreement to purchase the winery business for $950,000. The agreement for the purchase of the winery business was later varied and the purchase price was ultimately $1,400,938.94.

• [53] On 21 October 2011 Mr Huang, Ms Lu and Mr Chen entered into and signed a “Joint Venture Contract” which, as noted above, all parties agree was superseded by the later JV agreement.

• [54] The 21 October 2011 agreement contemplated a total purchase price of

$3.5 million dollars to be paid by Mr Huang. Mr Chen would later pay $1.4 million and Ms Lu would later pay $350,000. Mr Huang would therefore have a 50 per cent share, Mr Chen would have 40 per cent and Ms Lu would have 10 per cent.

• [55] On 26 October 2011 the purchase of Lot 4 settled. Mr Huang paid the full purchase price and Mr Chen acquired the land in his name.
• [56] On 2 November 2011, as part of the agreement reached with Mr Huang and Ms Lu, Mr Chen entered into an agreement to purchase Lots 5, 6 and 7 for

$1.25 million. That transaction settled on 27 March 2012. Mr Huang again provided the funds for the purchase. As agreed, Mr Chen acquired the land in his own name and the business assets were acquired by Mr Chen’s company, Matakana Wines.

The JV agreement

• [57] After all the transactions had settled Mr Huang prepared an updated and more formal version of the 21 October 2011 agreement with the assistance of his lawyers in China. The agreement was in the Chinese language and was signed in China on 19 April 2012 by Mr Huang, Ms Lu and Mr Chen. This is the document I have referred to as the JV agreement and which forms the basis of the plaintiffs’ Matakana claim.

• [58] I will discuss the terms of the JV agreement later in this judgment. For present purposes the following summary suffices:

(a) The cost of acquisition of the Matakana Estate project was agreed at

$4.2 million;

(b) $1.47 million of this was to be treated as a loan from Mr Huang to Mr Chen, repayable in three instalments on particular dates between 2013 and 2015;

(c) Mr Huang was to have a 55 per cent share, Ms Lu 10 per cent and Mr Chen 35 per cent;

(d) Due to the requirement for Mr Huang and Ms Lu to obtain OIO consent, Mr Chen would acquire the assets as nominee of the three parties, but the actual buyers were Mr Huang, Ms Lu and Mr Chen; and

(e) Mr Chen would be appointed CEO of the business.

• [59] The parties took possession of the Matakana land and winery business from February 2012 and continued to employ the existing chief winemaker. Mr Chen was employed as the CEO and General Manager of Matakana Wines.

• [60] The plaintiffs say there was agreement reached with Mr Chen that he was responsible for obtaining OIO consent for Mr Huang and Ms Lu. In an earlier version of the statement of claim that was pleaded as a separate cause of action. In the final version of the statement of claim there is no longer a separate cause of action, but it is pleaded that this was Mr Chen’s responsibility under the JV agreement. There was also evidence from the plaintiffs that there was a separate oral agreement with Mr Chen to the same effect. Mr Chen disagrees with that. He says that it was the responsibility of Mr Huang and Ms Lu to get OIO consent. He was prepared to assist them if and when they sought his help – but they never asked him to assist.

Amended INZ application – Ms Lu and Mr Huang

• [61] In mid-2012 Mr Chen transferred all the shares in Matakana Wines to Ms Lu’s company, Kiwi Club. There is disagreement between Ms Lu and Mr Chen as to who proposed the transfer. Mr Chen says that Ms Lu told him she had engaged a new immigration adviser and that it would assist her immigration application if she could say to INZ that she held all the shares in Matakana Wines. Mr Chen says he arranged the transfer as a favour to help Ms Lu, at her request: they were friends at the time and Mr Huang had funded the purchase of Matakana Estate.

• [62] Ms Lu says that Mr Chen proposed the transfer saying it would assist her to meet the visa criteria. For present purposes it is sufficient to say that the transfer was documented on 29 June 2012 and registered with the Companies Office on 10 September 2012.

• [63] On 28 June 2012 Ms Lu was appointed a director of Matakana Wines.

• [64] On 23 October 2012 Mr Huang and Ms Lu’s immigration adviser wrote to INZ to amend their immigration application to rely on the Entrepreneur Plus category. This category requires the applicant to be a self-employed entrepreneur who owns and operates their own business. The letter and subsequent formal application said that

Ms Lu was the sole owner of Matakana Wines and was responsible for managing the business.

Integration Scheme

• [65] In around the middle of 2012 Waihopai started having disputes with Savvy. Mr Chen says the contracts with Savvy were not working well for Waihopai and Savvy withheld payments due to Waihopai. Mr Chen says that Waihopai was under pressure from the bank which ultimately appointed receivers on 4 February 2013.

• [66] Mr Chen says in late 2012 and early 2013 he travelled to China and spoke to people whom he thought might be interested in investing in Waihopai. Yi Lu introduced Mr Chen to a Mr Sun and the three of them signed a letter of intent.

• [67] Mr Chen says that he was also keen to offer Mr Huang the opportunity to invest in Waihopai. Mr Chen says he thought that Waihopai’s business would fit in well with Matakana Wine’s business and with the overall plan of exporting New Zealand wine to China. Based on the information provided by Mr Chen, Mr Huang prepared a document which Mr Huang’s secretary, Sue Huimin, emailed to Mr Chen on 23 February 2013. The English version is headed “Vineyard Reform Suggestions”. Dr Liao, the Chinese law expert called by the plaintiffs, thought a better translation would be Grape Winery or Grape Garden Reorganise or Restructure Proposal.

• [68] At this stage Yi Lu was to be included in the integration arrangement but he subsequently dropped out. Mr Chen says that he gave Mr Huang a copy of a valuation of the Waihopai Vineyard completed in 2010 and also sent Mr Huang a copy of the Letter of Intent with Mr Sun. Mr Huang denies that. The proposed arrangement with Mr Sun did not proceed further.

• [69] Mr Chen’s position is that from this point onwards he regarded Mr Huang as committed to investing in Waihopai. He says that he and Yi Lu did not proceed with Mr Sun because Mr Huang wanted to invest instead. Mr Huang’s position is that the various versions of the Integration Scheme, circulated between February and

May 2013,⁶ were simply draft proposals for integration. None of the Integration Scheme documents was signed. Both versions of the 26 May 2013 document include the following:

The above figures are approximations, accurate figures will need to be confirmed. A new joint venture agreement should be signed in relation to the Matakana Integration Scheme, and local Auckland lawyer(s) should be employed to draft and witness the legal documents.

• [70] Mr Huang’s evidence (in his brief of evidence) is that in May 2013 Jackie Huang travelled to China at short notice and told Mr Huang that Mr Chen urgently needed more money or Waihopai would be auctioned by receivers. Mr Huang’s evidence was that Jackie Huang was very upset; she told him that she was suicidal and that she and Mr Chen could be left with nothing. In her written brief of evidence Jackie Huang did not deny she said that, nor was it put to Mr Huang in cross- examination that Jackie Huang had not said that. In those circumstances it was not necessary for Jackie Huang to be cross-examined on the issue. It is therefore open to the Court to take that evidence into account without limiting the weight to be given to the evidence.

• [71] Mr Huang says that he was concerned that if the situation with Waihopai had the potential to bankrupt Mr Chen, then the Matakana assets which were still in Mr Chen’s name could be at risk. There was also the issue that Waihopai was supplying grapes used by Matakana Wines for its wine production.

• [72] Mr Huang says in those circumstances he advanced $1.2 million to Mr Chen for Waihopai on 24 June 2013 (received into Mr Chen’s solicitor’s trust account in New Zealand on 25 June 2013). Mr Huang’s position is that this advance was by way of a loan so that the bank did not auction Waihopai. Mr Huang acknowledges that the integration discussions continued, but his position is that he had not yet agreed to integration (and never did so).

6. Versions of the document were circulated on 28 February 2013, 2 March 2013, 9 March 2013 and 26 May 2013 (two versions).

• [73] The $1.2 million received from Mr Huang on 25 June 2013, combined with

$800,000 from Yi Lu, enabled Waihopai to reduce the debt it owed to the bank by

$2 million. The receivership ended on 3 July 2013.

• [74] On 26 June 2013 Mr Huang’s secretary, Ms Huimin, circulated two further versions of the “Matakana Estate Integration Scheme”. The covering email for one of the versions from Ms Huimin said that this “has just been sorted”.

• [75] Both versions of the 26 June 2013 document (and the previous versions) valued the capital in Kintyre (ie Waihopai) at $8.45 million. Accordingly, the 60 per cent that was to be integrated with Matakana Estate was valued at $5.061 million. Those figures were provided by Mr Chen. Mr Huang’s position is that he was still waiting for financial details so the figures could be confirmed. He accepts he received financial forecasts but says no financial statements were provided. Both 26 June 2013 versions showed Mr Huang and Ms Lu together as owning 60 per cent of the integrated assets and Mr Chen and Jackie Huang together as owning 40 per cent.⁷ The document referred to the Board of Directors of the combined business as Mr Huang, Ms Lu, Mr Chen and Jackie Huang.

• [76] On 2 August 2013 Mr Huang circulated a further version of the Integration Scheme.

• [77] On 11 October 2013 Mr Chen sent Mr Huang legal advice that Waihopai had received about its dispute with Savvy.

• [78] On 22 October 2013 Mr Huang’s secretary, Ms Huimin, circulated an English translation of the Integration Scheme. The version attached to Ms Huimin’s email is dated 26 June 2013 but does not seem to match either of the 26 June 2013 versions in evidence. It was said that the translation was made to enable a New Zealand lawyer to draw up a formal agreement under New Zealand law.

• [79] Mr Chen forwarded the English translation to his lawyer, Mr Botting, who prepared a draft Heads of Agreement for a limited partnership. As Mr Botting

⁷ That would have given Mr Huang and Ms Lu a 36% interest in Waihopai (ie 60% of 60%).

recorded in the draft Heads of Agreement, Mr Huang and Ms Lu needed OIO consent before they could legally own the assets.

• [80] On 23 January 2014 Mr Chen sent the draft Heads of Agreement prepared by Mr Botting to Mr Huang and Ms Lu. Neither Mr Huang nor Ms Lu responded to the document. The document remains uncompleted and unsigned. Mr Chen’s position is that the four of them proceeded to conduct themselves in accordance with the Integration Scheme.

Further advances for Waihopai

• [81] Between 10 December 2013 and 9 February 2017 Mr Huang and Ms Lu made a series of additional advances to Mr Chen and/or Waihopai. Some of that funding was advanced in the context of the dispute between Waihopai and Savvy to fund litigation costs.⁸

• [82] The funds were advanced from various sources including Ms Lu’s personal bank account, Mr Huang/Ms Lu or Matakana Zhongshan Ltd, a company incorporated pursuant to the JV agreement.

• [83] The plaintiffs’ position is that the further advances were by way of a loan either to Mr Chen personally or to Mr Chen and Waihopai together. Mr Chen’s position is that the payments were pursuant to the Integration Scheme.

Memorandum of corporate trusteeship

• [84] Mr Chen and Yi Lu were becoming concerned about the litigation with Savvy. To protect against the risk of losing any further advances to Waihopai, it was decided that such advances should be made by way of loan through Ms Lu, acting as a third- party lender.

8. The dispute was heard in this Court in June and July 2015. Both parties achieved a measure of success. See Waihopai Valley Vineyard Ltd v Savvy Vineyards 3550 Ltd [2015] NZHC 2089.

• [85] To that end a Memorandum of Corporate Trusteeship was drafted in the Chinese language and was signed by Mr Huang, Ms Lu, Mr Chen and Yi Lu in New Zealand in March 2015. I will discuss this document later in this judgment.

End of relationship

• [86] Mr Chen says that in late 2016 he had burnout from overwork having regard to his responsibilities for both Matakana Wines and Waihopai and he took time off to recover. Mr Huang and Ms Lu then terminated Mr Chen’s employment. Mr Huang and Ms Lu say that there were other reasons for removing him. Mr Chen disputes this. But in any event Mr Chen ceased to be the CEO and General Manager of Matakana Wines from early 2017 and Ms Lu took over.

• [87] In late 2017 and early 2018 Mr Huang and Mr Chen exchanged written proposals to separate their interests. Mr Chen’s position is that the various proposals drafted by Mr Huang were based on the premise that the Integration Scheme applied: namely that Mr Huang and Ms Lu were entitled to 60 per cent of the integrated assets and Mr Chen and Jackie Huang were entitled to 40 per cent.

• [88] None of those proposals came to fruition. On 10 March 2018 Mr Chen offered to settle on the basis that he would transfer Matakana Estate to Mr Huang and Ms Lu if they would give up their interest in Waihopai and pay him $180,000. This proposal was not agreed to.

• [89] On 16 March 2018 Mr Chen resigned as a director of Matakana Wines giving reasons in a letter to Ms Lu. The plaintiffs via their then solicitors said in a letter that Mr Chen had in fact already been removed as a director on 13 March 2018.

• [90] On 11 May 2018 Mr Huang via his then solicitors made demand on Mr Chen to repay the loan under the JV agreement. Mr Chen says that was the first time there was ever a demand to repay that loan. Mr Huang says he had made oral demands of Mr Chen prior to the letter.

• [91] The letter also alleged that Mr Chen had breached his legal obligation under the JV agreement to obtain OIO consent for Mr Huang and Ms Lu, and further that he

owed Mr Huang and Ms Lu the Waihopai advances. The letter demanded that he pay

$4,536,651.15 by 21 May 2018.

Continued operation of Matakana Estate and Matakana Zhongshan

• [92] Mr Huang and Ms Lu have continued to operate the winery and vineyard at Matakana and Matakana Zhongshan since Ms Lu took over in early 2017. They have not included Mr Chen and Jackie Huang in the operation of those businesses. Mr Huang and Ms Lu purchased further land in Matakana in 2017 (Lot 1) to operate a lodge and they are running the winery and lodge in conjunction as a tourism venture.

Retrospective OIO consent

• [93] At the point when Ms Lu took over the operation of Matakana Wines from Mr Chen, she (and Mr Huang) had still not obtained consent from the OIO to own/acquire the Matakana land. They say they had relied on Mr Chen to obtain consent for them, but no steps had been taken by him.

• [94] In 2017 while considering a separate property development Mr Huang and Ms Lu engaged their former solicitors for advice on the OIA process. In October 2017 the solicitors advised the OIO of the acquisition of Matakana Estate. The OIO began an investigation into the transaction which lasted two years. Retrospective consent was granted on 16 September 2020. The special conditions of consent were that:

(a) For the period 1 October 2020 to 30 June 2024 Mr Huang and Ms Lu must retain four full-time equivalent jobs on the Matakana land;

(b) By June 2024 they must register an easement that allows for public walking and cycling across the Matakana land;

(c) By 31 December 2025 they must introduce at least $585,000 to New Zealand for completing “Stage 2” and/or the “preferred design” of a proposed development; and

(d) Each year from 1 June 2023 to 30 June 2027 they must generate at least

$200,000 of non-wine export receipts from the Matakana land.

• [95] If these conditions are not met Mr Huang and Ms Lu may be required to dispose of the Matakana land.

• [96] Mr Huang and Ms Lu’s then solicitors wrote to Mr Chen asking for his consent. Mr Chen’s separate consent was also necessary for a building consent for minor works in relation to the tasting room. On 29 October 2021 Mr Huang and Ms Lu’s solicitors wrote to Mr Chen’s then solicitor seeking consent to the application for a Code Compliance Certificate for the minor building works and again asking Mr Chen to consent to the registration of the necessary easement for the walkway and cycleway. Mr Chen’s solicitor responded two days later refusing to consent to either, without further information. The general tenor of all the correspondence on behalf of Mr Chen was obstructive. Further information was provided by the plaintiffs’ then solicitors a week later, but no response has been received on behalf of Mr Chen to date.

First proceeding against Mr Chen

• [97] Mr Chen did not make any payments in response to the 11 May 2018 letter of demand. On 31 January 2019 the plaintiffs consequently issued the first proceeding against Mr Chen only. The claim was for an alleged failure to repay the loan under the JV agreement and the alleged Waihopai loans. In an amended statement of claim the plaintiffs further sought to recover costs associated with Mr Chen’s alleged failure to obtain OIO consent for them and specific performance in relation to Mr Chen’s alleged failure to transfer the Matakana land in breach of the JV agreement.

• [98] Mr Chen relevantly pleaded that: advances to Waihopai were shareholder advances in accordance with the alleged Integration Agreement and were not loans; it was not his responsibility to arrange for Mr Huang and Ms Lu to obtain OIO consent; and he was not required to transfer title to the Matakana land.

Sale of Waihopai and distribution of proceeds of sale

• [99] The parties attended a mediation on 21 December 2020, but no agreement was reached.

• [100] Shortly before the mediation, Waihopai entered into an agreement on 10 December 2020 to sell its land and business. Mr Chen, as a director and shareholder, was aware of the agreement, but Mr Huang and Ms Lu did not know of it. After the sale was completed, either on the same day of the sale or the next business day, Waihopai distributed cash proceeds totalling $7,476,766.27 to Mr Chen, Don Chen and Yi Lu as follows:

(a) $1,138,000.00 to Mr Chen (15.2 per cent of the proceeds);

(b) $3,348,059.76 to Don Chen (44.8 per cent of the proceeds); and

(c) $2,990,706.51 to Yi Lu (40 per cent of the proceeds).

• [101] The payments purported to repay loans they had made to Waihopai.

• [102] While the payment to Yi Lu is consistent with his stated shareholding, the payments to Mr Chen and Don Chen are not. Mr Chen owned 40 per cent of the shares, but only received 15.2 per cent of the proceeds. Don Chen owned 20 per cent of the shares but received 44.8 per cent of the proceeds. Together they held 60 per cent of the shares and together they received 60 per cent of the net sale proceeds. They received those proceeds as shareholder lenders to repay shareholder advances.

• [103] The sale of the Waihopai assets, which settled on 19 February 2021, was disclosed to the plaintiffs on 22 February 2021 in a brief of evidence for Mr Chen prepared for the original hearing date on 8 March 2021 of the proceeding against Mr Chen. By the time the sale was disclosed settlement was complete and the sale proceeds had already been distributed.

Proceedings against Waihopai and freezing orders

• [104] On learning of the sale of Waihopai, the plaintiffs immediately brought proceedings against Waihopai and obtained freezing orders against Waihopai’s assets.⁹

• [105] Having been served with notice of the plaintiffs’ application to seek freezing orders, including that Waihopai would be required to file a memorandum explaining what had happened to the sale proceeds, Mr Chen, Don Chen and Yi Lu each made payments or further transfers of the sale proceeds:

(a) Mr Chen discharged a loan secured against his home;

(b) Don Chen made various payments including to his daughter, another family member, and the seventh defendant AEG, being a company over which he has control over the disposition of assets; and

(c) Yi Lu transferred the sale proceeds to his wife, Qi Yang.

• [106] On 25 February 2021 Waihopai disclosed the payment of the sale proceeds to Mr Chen, Don Chen and Yi Lu against whom the plaintiffs then also obtained freezing orders. The plaintiffs also obtained a freezing order against Qi Yang who had received funds from her husband Yi Lu. By this time a significant portion of the sale proceeds had already been transferred out of reach of the plaintiffs.

• [107] The two separate proceedings were consolidated and amended statements of claim and defence were filed.

Credibility issues

• [108] In Deng v Zheng¹⁰ the Supreme Court made a number of observations about cultural considerations, saying that cases in which one or more of the parties have a cultural background which differs from that of the Judge should be approached by the Judge with caution.¹¹ The Supreme Court cautioned that the usual rules of thumb a

⁹ Huang v Waihopai Valley Vineyard Ltd [2021] NZHC 348.

¹⁰ Deng v Zheng [2022] NZSC 76.

¹¹ At [78](a) and (b).

Judge might use for assessing credibility may have no or limited utility. For instance, assessing credibility and plausibility on the basis of judicial assumption as to normal practice will be unsafe, if that practice is specific to a culture that is not shared by the parties.¹² However, the Court also said that most of the usual ways that Judges assess credibility remain available.¹³

• [109] It has to be said that there are credibility issues for all three main witnesses: Mr Huang, Ms Lu and Mr Chen. I make the following comments with all of the above in mind.

Mr Huang

• [110] On a number of occasions Mr Huang denied what was plainly written in documents which either he had prepared, or which were sent on his behalf.

• [111] Mr Huang also said he was not aware of the proposal and agreement reached by Mr Chen and Yi Lu with Mr Sun, although he (that is Mr Huang) had referred to Mr Sun in his 23 February 2013 document “Vineyard Reform suggestions”.

• [112] Mr Huang was also complicit in the application made by Ms Lu in 2012 to INZ under the Entrepreneurship category. I refer to that application below in relation to Ms Lu.

Ms Lu

• [113] When she was first called to give evidence, Ms Lu denied that Mr Botting represented her in relation to the intended Willow Flat purchase. She said he refused to act. When Ms Lu was later recalled she acknowledged Mr Botting did act for her and gave her advice.¹⁴

¹² At [78](c).

¹³ At [78](d).

¹⁴ After I had made a direction on an application on behalf of the defendants that a Notice to Produce issue to Ms Lu and Mr Botting in relation to that transaction, it was apparent Mr Botting had acted for her and indeed had provided her with timely assistance throughout the relevant period and had provided comprehensive legal advice (as noted in [43] above Ms Lu waived privilege in that correspondence).

• [114] There is also Ms Lu’s conduct in relation to the shares in Matakana Wines which were transferred to her company, Kiwi Club. It cannot be argued that the transfer was done for any purpose other than to advance her application to INZ on the basis that she was self-employed and the sole owner of Matakana Wines. That was not true. Mr O’Brien QC for the plaintiffs submits that, at that stage, because Mr Chen had not paid the first instalment of the loan as he was obliged to do under the JV agreement, Mr Huang was in fact the 100 per cent owner and that a husband and wife may decide how they deal with their interests between them. In other words, it was not inaccurate for Ms Lu to advance her application to INZ on the basis that she was the 100 per cent owner of Matakana Wines. However, Ms Lu’s evidence was that she married Mr Huang about two months after she got her permanent residency, (which was, of course, after she made her application to INZ in 2012).

• [115] A further issue is that when they advanced their application to the OIO for retrospective consent in relation to Matakana, both Mr Huang and Ms Lu took the position that it was Mr Chen’s responsibility to obtain OIO consent for them and that he had failed to do so. However, when Ms Lu was recalled to give evidence she changed her position on that issue and said that Mr Chen was going to “help”. That is consistent with Mr Chen’s position. He said he had always been willing to help but he was never asked to make the application or help with it. Additionally, in relation to the OIA process Ms Lu said she relied on what Mr Chen told her about the OIA process and that “he said it was not a big deal and the process was not difficult or long”. I consider Ms Lu understated her knowledge of the OIA process in light of her failed Willow Flat purchase referred to above.

Mr Chen

• [116] Mr Chen does not get a clean bill of health either. While it was Ms Lu who was not truthful to INZ, Mr Chen took all the necessary steps to transfer the shares to Ms Lu’s company to enable her to make her application to INZ.

• [117] There is also Mr Chen’s conduct in failing to disclose to Mr Huang and Ms Lu that Waihopai had been sold and the way in which he was involved first in distributing the proceeds from the sale of Waihopai and then, at a time when he was on notice that

freezing orders had been applied for, making further payments from the sale proceeds. Mr Judd, for the defendants, referred to that conduct as “foolish”.¹⁵ In my view it goes well beyond that. I discuss this issue in the context of the seventh and eighth causes of action.

• [118] Despite his assertion that he held 36 per cent of the Waihopai shares in trust for Mr Huang and Ms Lu, Mr Chen did not consult with them or advise them in advance of the sale of Waihopai’s assets, or afterwards. Nor did he pay them any money from the proceeds of sale.

Yi Lu

• [119] Turning to Yi Lu, although his evidence was somewhat peripheral as he was not going to be part of the Integration Scheme (after an initial first draft when he was included), I mention him at this point because I am not satisfied he was completely truthful in his evidence. On the same day he received the proceeds of sale of Waihopai’s assets he transferred the funds to his wife. Because of the (self-imposed) limitation on his bank account, limiting individual transfers to the sum of $50,000, he needed to make around 55 electronic transfers. He made all of those transfers in one evening.

• [120] When asked about these transfers, Yi Lu said that he did so because he was about to travel overseas to visit his father who was very ill, and he followed his past practice of transferring all his money to his wife in case he suffered some sort of accident while away. However, at that stage Yi Lu confirmed he had made no travel bookings to see his father. In my view his explanation was not credible.

• [121] Consequently, I exercise a degree of caution in accepting the word of any of the above witnesses on important issues unless there is either documentary support or support from other witnesses.

¹⁵ Mr Judd was not acting for Mr Chen at the time.

Order of consideration of issues

• [122] I will deal with the Waihopai advances and alleged agreement as to integration before considering the JV agreement, although the latter was first in time. I do so because if I find in favour of the defendants on the integration issue, then anything owing by Mr Chen under the JV agreement will, on the defendants’ case, be subsumed into the Integration Scheme.

Status of Mr Huang’s payments to Mr Chen/Waihopai

• [123] What was the status of Mr Huang’s advance of $1.2 million on 24/25 June 2013 and the later advances said to total $1,176,261?

• [124] Mr Chen says they were payments of capital for an interest in Waihopai. Mr Huang says they were loans. Although this issue is bound up with whether the Integration Scheme had been agreed, it can be considered separately.

• [125] Mr Chen says that by at least 26 June 2013, the Integration Scheme had been agreed. For reasons discussed below, I do not accept that was the case. But, leaving aside the issue as to an agreement over integration of assets in Matakana Estate and Waihopai, I first consider whether the payments made by Mr Huang were by way of loan or a capital investment in Waihopai.

• [126] As already referred to, Mr Huang said that in May 2013 Jackie Huang travelled to China at short notice and told Mr Huang that Mr Chen urgently needed more money or Waihopai would be auctioned by receivers.

• [127] In any event, Mr Huang was aware from Mr Chen that Waihopai was in the hands of receivers before he advanced the $1.2 million. Mr Huang said that if the issue with Waihopai had the potential to bankrupt Mr Chen, then the Matakana land could be at risk as it was still in Mr Chen’s name. Further, Matakana and Waihopai had a joint interest in grape supply: Waihopai was supplying grapes used by Matakana Wines for its wine production. Mr Huang’s expressed concerns can be reasonably understood.
• [128] Against that background Mr Huang said he agreed to advance the $1.2 million Mr Chen needed for Waihopai by way of loan. The money advanced by Mr Huang was applied, together with $800,000 advanced by Yi Lu, to bring Waihopai out of receivership. This formally occurred on 3 July 2013.

• [129] It is important to note that the first advance of $1.2 million occurred at a time when discussions between Mr Huang and Mr Chen about integration were underway. However, on its own, the advance of $1.2 million does not necessarily mean that an agreement had been reached over integration. I also record that the plaintiffs accept that if the Integration Scheme came to fruition/was agreed, then the $1.2 million (and later advances) would form part of the integration. Otherwise, the plaintiffs say they would remain as a loan.

• [130] The defendants’ position is somewhat contradictory. On the one hand they say that the Waihopai advances were a capital investment in Waihopai. If that was so, Mr Huang and Ms Lu would receive nothing from the sale of Waihopai which was insolvent at the time of sale. The way Mr Chen treated Mr Huang and Ms Lu at the time of the sale is consistent with this position as they received nothing. On the other hand, the defendants say/acknowledge that Mr Huang and Ms Lu should receive a payment of (approximately) $2.4 million; this is inconsistent with their position that the payments were a capital investment.

• [131] In any event and leaving the integration issue aside just for the moment, the evidence is that the Waihopai advances were by way of loan:

(a) The advances made by Mr Chen and Yi Lu to Waihopai were by way of loan (except for the $100 share capital);

(b) The investment by another person, Lucy Wang, was by way of loan, or at least it became so, although it was not transparently identifiable in Waihopai’s accounts;

(c) An indirect advance of a Mr Jiang (a personal friend of Yi Lu in China) via Yi Lu, paid out of sale proceeds of Waihopai in the sum of $705,030

was by way of loan, and similarly all the other advances from Mr Lu’s family and friends;

(d) The $2 million paid out on 28 June 2013 to bring Waihopai out of receivership recorded in the Waihopai Board of Directors’ Resolution and Deed of Acknowledgement of Debt, both dated 28 June 2013 and signed by Mr Chen and Yi Lu, was said to be by way of loan;

(e) It would be inconsistent to treat Mr Huang’s portion ($1.2 million) of the $2 million recorded in the 28 June 2013 document differently from the portion contributed by Yi Lu ($800,000);

(f) The $2 million advance (including the $1.2 million advance from Mr Huang) was recorded in Waihopai’s accounts from 2014 onwards as a loan; and

(g) The later advances from Mr Huang and Ms Lu were recorded in the accounts from 2014 as loans until they were subsumed into the shareholder (Chen/Lu) loans in 2018.

• [132] Mr Judd, relying in part on Zheng v Deng,¹⁶ submits that the internal accounting is not necessarily conclusive. In particular, Mr Judd relies on comments by the Court of Appeal that the unorthodox nature of the internal accounts (in that case) did not tell against the existence of a partnership and that a partnership can exist even though any accounts that are kept are idiosyncratic and difficult to understand.

• [133] At the time of the hearing, the decision of the Supreme Court on appeal from the Court of Appeal judgment in Zheng v Deng was awaited. That decision has now been given.¹⁷ On the facts the Supreme Court was satisfied that the internal accounts were authentic; that is, they recorded on a running basis the state of affairs between Mr Zheng and Mr Deng and reflected the nature of their relationship.¹⁸

¹⁶ Zheng v Deng [2020] NZCA 614 at [101].

¹⁷ Deng v Zheng, above n 10.

¹⁸ At [60].

• [134] I am similarly satisfied in this case. The accounts are evidence of what was intended. The evidence shows that the Waihopai shareholders were advancing funds to the company by way of loan. There is no reason for the advances by Mr Huang and Ms Lu to be treated differently.

• [135] There is also the letter written on Mr Chen’s behalf to the OIO. When the OIO was considering Mr Huang and Ms Lu’s retrospective application, it made contact with and interviewed Mr Chen. In a letter to the OIO, Allan Lear, who was Mr Chen’s barrister at the time, referred to the receivership of Waihopai in early 2013 and the bank’s position that if new shareholder funds were introduced in order to reduce the bank’s lending facility by $2 million, the bank would agree to take Waihopai out of receivership. The letter, dated 5 April 2018, states:

Chris and the other shareholders could only raise $800,000 and went to other friends and acquaintances to raise the balance. Chris advises that he secured loans for the balance from acquaintances in China but then thought that he should perhaps inform Alex and Chrissy given their connection with Matakana and that his vineyard supplied some grapes to Matakana. On hearing the proposed arrangement, Alex said he would help them out and provide the balance of the funds to bail the company out of Receivership. Alex advanced $1.2m to Chris and with the other funding provided by the shareholders, Waihopai Valley Vineyard came out of Receivership.

• [136] In relation to the later advances the letter states:

Additional money was required to fund the litigation [with Savvy] that went to a full hearing. The shareholders of the company, along with Alex, contributed funds, at least some of which were loaned to the Company via Chrissy ...

• [137] This letter supports the proposition that Mr Huang’s advances were not capital payments.

• [138] For all the above reasons I accept the Waihopai advances were loans to Mr Chen and/or Waihopai. They were not capital payments for an interest in Waihopai.

• [139] However, whether Mr Huang and Ms Lu made the loans as shareholders in Waihopai requires consideration of whether they were in partnership with Mr Chen

and Jackie Huang. That in turn requires a consideration of the Integration Scheme and whether there was agreement on its terms.

Partnership

• [140] The defendants allege in a counterclaim, by way of a late amendment to their statement of defence, that there was a partnership agreement between Mr Huang and Ms Lu on the one hand and Mr Chen and Jackie Huang on the other. The defendants’ position is that while they rely on the Integration Scheme (they say Integration Agreement) their position on the existence of a partnership does not depend on that agreement.

• [141] The plaintiffs initially opposed the defendants’ late application to amend the statement of defence to allege the existence of a partnership. However, without conceding the existence of a partnership, the plaintiffs then withdrew that opposition. The plaintiffs say: (i) the parties considered but never agreed on the terms of an Integration Scheme; nor did they ever otherwise agree to combine their interests into a partnership; and (ii) if there was agreement (which is denied) such agreement was procured by Mr Chen’s false and deceiving representation as to the value of his equity in Waihopai.

• [142] The plaintiffs do oppose the application to amend the counterclaim in terms of the relief sought by the defendants if the Court finds there was a partnership. In short, the plaintiffs say that delays that will occur in the provision of further information necessary for an accounting to be done will prejudice the plaintiffs.

• [143] Notwithstanding the opposition to the relief sought, if the Court finds a partnership exists, an accounting will need to be undertaken. The Court does not have all the necessary information to make orders and, in any event, the Court may grant relief even though that relief has not been specifically claimed.¹⁹ I therefore grant the defendants’ application to amend the counterclaim in terms as sought. However, given the decision I reach in relation to the existence of a partnership, the issue regarding taking of accounts is somewhat academic.

¹⁹ High Court Rules 2016, rr 5.31(2) and 16.2.

Relevant law

• [144] There is no reference in any of the Integration Scheme documents regarding which country’s law is to apply. However, the draft Heads of Agreement prepared by Mr Botting provides that the law of New Zealand is to apply. It was agreed between the parties that New Zealand law applies on the partnership issues. There was little, if any, disagreement as to the relevant principles that govern the existence of a partnership. Both counsel referred to the Court of Appeal decision in Zheng v Deng.²⁰ The Supreme Court decision in Deng v Zheng²¹ leaves those general principles unchanged.

• [145] The issue of whether the parties had entered into a partnership is a mixed question of fact and law. The starting point is s 4 of the Partnership Act 1908 which provides:

4. Definition of partnership

(1) Partnership is the relation which subsists between persons carrying on a business in common with a view to profit.

(2) But the relation between members of any company or association registered as a company under the Companies Act 1993 or any other Act of the Parliament of New Zealand for the time being in force and relating to the registration of joint-stock, trading, or mining companies, or formed or incorporated by or in pursuance of any other Act of the Parliament of New Zealand or letters patent, or Royal Charter, is not a partnership within the meaning of this Act.

• [146] Some of the factors that may be relevant to determining whether or not a partnership exists are set out in section 5:

5. Rules for determining existence of partnership

In determining whether a partnership does or does not exist regard shall be had to the following rules:

(a) joint tenancy, tenancy in common, joint property, or part ownership does not of itself create a partnership as to anything so held or owned, whether the tenants or owners do or do not share any profits made by the use thereof:

(b) the sharing of gross returns does not of itself create a partnership, whether the persons sharing such returns have or have not a joint or common right or interest in any property from which or from the use of which the returns are derived:

²⁰ Zheng v Deng, above n 16, at [90]–[94].

²¹ Deng v Zheng, above n 10.

(c) the receipt by a person of a share of the profits of a business is prima facie evidence that he or she is a partner in the business, but the receipt of such a share or of a payment contingent on or varying with the profits of a business does not of itself make him or her a partner in the business; and, in particular,—

(i) the receipt by a person of a debt or other liquidated amount, by instalments or otherwise, out of the accruing profits of a business does not of itself make him or her a partner in the business or liable as such:

(ii) a contract for the remuneration of a servant or agent of a person engaged in a business by a share of the profits of the business does not of itself make the servant or agent a partner in the business or liable as such:

(iii) a person being the widow, widower, surviving civil union partner, surviving de facto partner, or child of a deceased partner, and receiving by way of annuity a portion of the profits made in the business in which the deceased person was a partner, is not by reason only of such receipt a partner in the business or liable as such:

(iv) the advance of money by way of loan to a person engaged or about to engage in any business on a contract with that person that the lender shall receive a rate of interest varying with the profits, or shall receive a share of the profits arising from carrying on the business, does not of itself make the lender a partner with the person or persons carrying on the business, or liable as such:

provided that the contract is in writing, and signed by or on behalf of all the parties thereto:

(v) a person receiving by way of annuity or otherwise a portion of the profits of a business in consideration of the sale by him or her of the goodwill of the business is not, by reason only of such receipt, a partner in the business or liable as such.

• [147] The analysis in any particular case is highly fact specific. The Court of Appeal noted that the following warning remains apposite:²²

Very little assistance can be obtained from the numerous cases reported in which the question of partnership or no partnership has been decided. In all such cases the particular facts – what were in effect the respective contracts – were intimately connected with the questions of law.

• [148] The Court of Appeal said: “The question ‘is a legal question to be determined by the Court on the basis of what the parties said and did’”.²³

• [149] The Court of Appeal also stressed that it is important to bear in mind the infinite variation in partnership structures and avoid the assumption that a partnership must have certain characteristics or incidents other than those actually required by s 4(1) of

²² Zheng v Deng, above n 16, at [92] citing Aldridge v Paterson [1914] NZGazLawRp 84; (1914) 33 NZLR 997 (SC) at 1006.

23. Zheng v Deng, above n 16, at [93] quoting from Clark v Libra Developments Ltd [2007] 2 NZLR 709 (CA) at [51].

the Partnership Act. The Court cited a passage from the learned authors of Lindley & Banks on Partnership:²⁴

There is ... a danger that what are, in truth, normal incidents or characteristics of partnership are wrongly perceived as pre-requisites to the existence of that relationship, thus distorting the application of [the United Kingdom equivalent of s 4(1) of the Partnership Act].

Relevant documents

• [150] Mr O’Brien accepts that although what was discussed between Mr Huang and Mr Chen was not something called a partnership agreement (it translates as Integration Scheme, Proposal or Plan),²⁵ if the parties came to an agreement on the scheme then there was a partnership agreement. That must be right. Mr O’Brien also submits that whether there is an integration agreement, either written or oral, whether express or implied, that again could be seen as falling within the umbrella of a partnership. The issue turns on whether there was an agreement.

• [151] Mr Chen’s evidence was that from the time he received Mr Huang’s first document on 23 February 2013 he regarded Mr Huang as committed to investing in Waihopai. Mr Chen says he and Yi Lu did not proceed with Mr Sun because Mr Huang wanted to invest instead. In my view it cannot be said that Mr Huang was committed as at this date based on what is plain from the document. The 20 per cent proposal is couched in the following way:²⁶ “If Mr Huang buys 20 per cent shares from [Mr] Chen

...”.

• [152] Mr Chen places weight on a WeChat message sent by Mr Huang to him on 23 February 2013. The English translation of the message reads: “I’m in the company, I can tell you”. However, Mr Huang’s explanation was that the Chinese message correctly translated should read: “I’m in the company, can communicate via phone”. Mr Huang’s position was that he was not agreeing that he was now part of Waihopai; he was simply explaining he was at work but could give Mr Chen a phone call. That is a reasonable explanation in the context of documents that follow, particularly the

24. Zheng v Deng, above n 16, at [94] quoting Roderick I’Anson Banks Lindley & Banks on Partnership (20th ed, Sweet & Maxwell, London, 2017) at [2–15], (emphasis in original).
25. There was evidence that the Chinese language version could equally be translated to ‘proposal’ or ‘plan’.

²⁶ (Emphasis added).

May 2013 version of the Integration Scheme discussed below, which indicate they had not yet reached agreement.

• [153] As already detailed above at [67] – [80], between February and June 2013 there were a number of documents drafted by Mr Huang for an Integration Scheme.

• [154] Under cross-examination Mr Chen seemed to suggest that the parties had reached agreement on integration in May 2013. But it is clear from the documents that the parties had not reached agreement as at that date. As already noted, both versions of the 26 May 2013 Integration Scheme state that:

The above figures [provided by Mr Chen in relation to Waihopai] are approximations, accurate figures will need to be confirmed. A new joint venture agreement should be signed in relation to the Matakana Integration Scheme, and local Auckland lawyer(s) should be employed to draft and witness the legal documents.

• [155] There is also the fact that drafts continued after May 2013. Further, and importantly, the values for the Waihopai Vineyard set out in the drafts were provided by Mr Chen. They needed to be verified.

• [156] Moving to the 26 June 2013 versions, one of them referred to eight annexures, only one of which was in evidence. No email with the annexures was produced in discovery. In any event there is evidence, which I will come to, which indicates that Mr Huang wanted a formal agreement (as referred to in the 26 May 2013 document).

• [157] Although in his evidence Mr Chen relied on the 26 May 2013 version, the position for the defendants in closing submissions was that the 26 June 2013 document formed the agreement. Mr Judd refers to the covering email from Mr Huang’s secretary which says: “Attached is the Matakana Estate Integration Scheme which has just been sorted”.

• [158] The defendants also rely on the payment by Mr Huang on 24/25 June 2013 of

$1.2 million. Mr Judd notes that the payment was then described by Mr Huang in one of the 26 June 2013 documents as: “The NZD1.2m first advanced payment from Alex Huang to acquire Kintyre Estate ...”. Mr Judd suggests that this implies that Mr Huang owned shares in Waihopai at this time. However, I read “to acquire Kintyre

Estate” as simply a reference to taking back Waihopai from the receivers. That is consistent with the evidence that the $1.2 million advanced by Mr Huang was used to take Waihopai out of receivership.

• [159] The $1.2 million advance was made at a time of need and under a degree of time pressure. It was advanced to an associate who had become a friend, at a time when integration discussions were underway. Almost certainly, the parties hoped those discussions would reach a conclusion. But the mere payment of $1.2 million does not mean that they did.

• [160] The defendants also refer to a WeChat message from Mr Chen to the others in the group of four, namely Mr Huang, Ms Lu, Mr Chen and Jackie Huang (WeChat group), on 1 July 2013 saying: “Kintyre Vineyard has been officially taken back on 28 June. Matakana also officially owns Kintyre Vineyard, from now on it will be promoted as the Matakana Marlborough Vineyard”. That message on its own might tend to suggest there had been agreement as to integration. But it needs to be seen in the wider context.

• [161] On 2 August 2013 Ms Huimin sent an email to Mr Huang, Ms Lu, Mr Chen and Jackie Huang attaching one of the 26 June 2013 Integration Scheme documents. The covering email in the English version says:

Please see attached the newly organised “Matakana Estate Integration Scheme” first draft and its attachment(s), please check you have received it! If you have questions about the attachment(s) you can inquire with the corresponding contact person, mr Huang will arrive at Auckland on 9^th August to discuss this integration scheme with othe (sic) shareholders. Thank you!

• [162] The use of the expression “first draft” would indicate that there was not yet agreement on the scheme. The reference to other shareholders, on the other hand, could tend to indicate that the interests in the two businesses had been integrated. However, it could equally be a reference to the individuals as Matakana shareholders or to intending shareholders. In any event, the covering email suggests there was further discussion yet to occur.

• [163] On 11 October 2013 Mr Chen forwarded to Ms Huimin legal advice received by Waihopai in relation to the dispute with the Vegars’ company Savvy. Mr Judd

submits Mr Chen would only do so if Mr Huang was a shareholder in Waihopai. However, it could equally be the case that the advice was forwarded because Mr Chen needed more money for Waihopai which he wished to borrow from Mr Huang. That was Mr Huang’s evidence. Having regard to credibility issues raised earlier in relation to Mr Huang I do not necessarily take his evidence at face value, but it does provide an explanation for Mr Chen sending the advice. Equally, sending the advice is consistent with disclosure of matters in anticipation of reaching a concluded integration agreement.

• [164] On 22 October 2013 Ms Huimin sent an email to Mr Huang, Ms Lu, Mr Chen and Jackie Huang attaching the “Matakana Estate Integration Scheme which has just been translated ... Wishing success in business!” The attachment was the more detailed version of the 26 June 2013 document which contained the opening words:

On the basis of the JOINT VENTURE CONTRACT (see Annex 1 for details), in order to give light to each party’s special advantage, Chris Chen, Alex Huang and Chrissy Lu decide to reintegrate Matakana Estate. Concrete operations as follows.

• [165] Despite the use of the words “decide to reintegrate Matakana Estate” it would appear that the parties had not yet reached agreement on the terms. I say that because on 23 October 2013 Mr Chen emailed his lawyer, Mr Botting, from China, saying that he would be back at the end of the month and that “I like to ask you to draft an agreement for the shareholders of matakana wines”. Then on 5 November 2013 Mr Chen forwarded the email from Ms Huimin of 22 October 2013 (refer [164] above) and the attached document to Mr Botting. Mr Chen agreed under cross-examination that at that point Mr Huang’s intention and his own intention was to get a document drafted up under New Zealand law by a New Zealand lawyer for them to consider.

• [166] On 23 January 2014 Mr Botting sent Mr Chen an email attaching what he refers to as a “revised” Heads of Agreement. That would indicate there was an earlier draft although no such draft was put before the Court. I set out the email in full:

Hi Chris

Thanks for your time this afternoon.

I have attached a revised Heads of Agreement to reflect the changes to (sic) you requested this afternoon.

Please note that:

1. We still need:

1. a city of residence for Alex (see “parties”)

2. a date by which the conditions are to be satisfied (clause 2.2)

100. an address for notices for Alex and Chrissy (Schedule 2)

2. As flagged earlier, the document has been prepared to be as short and simple as possible and doesn’t include some usual matters such as warranties or obligations for each of the business (sic) involved around taxes all being paid; no disputes; diligent operation of the business pending settlement etc. I am happy to discuss this further if you wish.

3. Your accountants sign-off as required before making firm commitments as there may be significant tax losses and/or imputation credits which the entities involved may lose if the shareholdings change. If you wish, this can be added as a condition.

• [167] It is apparent from Mr Botting’s covering email that he did not consider agreement had been reached at the time he was instructed and briefed by Mr Chen. Had agreement been reached on the terms of integration, Mr Chen would have told him so. The email identifies actions to be taken “... before making firm commitments

...”. Further, the content of the Heads of Agreement attached to Mr Botting’s email and which Mr Chen forwarded to Mr Huang, Ms Lu and Jackie Huang, indicate that agreement had not yet been reached:

(a) Clauses 1.1 and 1.2 required the parties to agree to enter into a limited liability partnership under the Limited Partnership Act 2008;

(b) Clause 2.1 provided that the agreement was conditional on and did not legally bind the parties until the fulfilment of four conditions including:

(i) Mr Huang and Ms Lu ceasing to be overseas persons for the purposes of the OIO;

(ii) Each party acquiring ownership or an unconditional right to acquire ownership of the assets which were to form part of their initial capital;

(iii) Each party procuring any necessary consents and approvals from third parties; and

(iv) Each party approving the form of the partnership agreement and constitution for the general partner;

(c) The date by which the above conditions were required to be satisfied was unspecified;

(d) Clause 5.1 provided that at settlement (the later of 40 working days from the date of satisfaction of the conditions in clause 2 or 20 working days after the partnership was registered as a limited partnership under the Act) the partnership was to take responsibility for a specified part of Waihopai’s debt to the ASB on the basis that the remaining shareholders of Waihopai were to take sole responsibility for the remainder of the debt owed to the ASB;

(e) Clause 6.1 provided that the parties would incorporate a limited liability company prior to settlement for the purposes of being the general partner of the partnership; and

(f) Clause 7.2 provided that prior to settlement the parties would procure the preparation of a partnership agreement and that each party was required to execute all necessary documents.

• [168] Under cross-examination Mr Chen accepted that there was never any formal partnership agreement; no general partner was established; there was no formal assumption of responsibility for the specified percentage of the Waihopai bank debt; Mr Huang plainly wanted a written formal agreement; and the Heads of Agreement was not signed by any of the four parties.

Cultural context

• [169] While the parties agree that New Zealand law applies in determining whether or not a partnership existed, it is also necessary to refer to the concept of guānxi. The Supreme Court in Deng v Zheng²⁷ referred to the following passage from the decision of the Court of Appeal in Zheng v Deng:²⁸

[88] We are also conscious that language is used in a broader linguistic and cultural setting, by reference to background assumptions about personal and business relationships and the ways in which dealings are normally structured, that the parties will have shared but that the Court may not be aware of or understand. For example, as the author of a recent report explains:²⁹

307. Guānxi often governs the Chinese way of doing business, and is in part the reason why Chinese people are less likely to conduct business by using a formal contract and more likely to do so via a “handshake.” As Dr Ruiping Ye notes:

As written contracts are perceived as evidence for transactions, and requiring evidence for agreements with one’s family or friends would appear to be distrusting, many harmony-loving Chinese will find it difficult to ask for a written contract with family, friends or close acquaintances. In cases of close relationship, it is honour that binds the parties, rather than the written contract. Nevertheless, each party would believe that a binding contract exists between them if the terms of the agreement have been discussed and words of confirmation have been spoken unequivocally.

308. Dr Ye notes that where contracts are drafted, they are generally brief. Dr Ye says that this was “sufficient when the society operated on the basis of mutual trust and was governed by social pressure” but that it is “increasingly becoming insufficient as modern life becomes more complicated” and that “parties who are not assisted by competent lawyers do not necessarily turn their minds towards complex or ambiguous matters.” This concern, and the challenge that this creates in ensuring the courts are adequately equipped to provide Chinese parties with equal access to justice, is reflected in some of the cases in our case review, and also in our interviews with judges and lawyers.

²⁷ Deng v Zheng, above n 10, at [39].

²⁸ Zheng v Deng, above n 16, at [88].

²⁹ Mai Chen Culturally and Linguistically Diverse Parties in the Courts: A Chinese Case Study (Superdiversity Institute for Law, Policy and Business, November 2019) (footnotes omitted). See also the article from which this report quotes: Ruiping Ye “Chinese in New Zealand: Contract, Property and Litigation” (2019) 25 CLJP/JDCP 141 at 157–158.

• [170] The Supreme Court explained guānxi as follows:³⁰

[76] Guānxi is a complex term with multi-faceted meanings. Guānxi may be understood as “interpersonal connections”, “social capital”, or the “set of personal connections which an individual may draw upon to secure resources or advantage when doing business or in the course of social life”. Important bases of guānxi for an individual include kinship and co-working. ...

• [171] The Supreme Court noted that at trial there was very little, if any, evidence about guānxi but the Court considered this was not of critical importance as the nature of the relationship between Mr Zheng and Mr Deng emerged with sufficient clarity from the contemporaneous documents.³¹ The Court then offered brief comments as to how any relevant information regarding guānxi can be brought to the attention of the Court.

• [172] In the present case Dr Liao commented on the passage regarding guānxi in the Court of Appeal judgment set out above. He did not disagree with that passage but was concerned that assumptions about Chinese culture and practice should not be applied across the board. He said taking a one-size-fits-all approach to the cultural concept of guānxi may be very problematic. He said much depends upon the type of relationship, and the nature and value of the transaction.

• [173] In this case, Mr Huang and Mr Chen had previously entered into formal, written agreements with each other. In 2007 they signed a written agreement in relation to the intended development of the villa lots. In October 2011, the “Joint Venture Contract” between Mr Huang, Ms Lu and Mr Chen was generated in relation to the purchase and funding of the Matakana land and business. This contract was then superseded by the more formal JV agreement in April 2012, which was in writing, prepared with legal assistance, witnessed, and signed and fingerprinted by each of the three individuals. Additionally, the employment agreement for Mr Chen as General Manager of Matakana Wines was recorded in a signed employment agreement dated 1 September 2012. Ms Lu signed for Matakana Wines and Mr Chen also signed the agreement. All of these matters support the proposition that the Integration Scheme had not yet been agreed given that there were still necessary formalities to be

³⁰ Deng v Zheng, above n 10, at [76] (footnotes omitted).

³¹ At [77].

completed. The history of the relationships between the parties indicates that each party expected negotiations to conclude with a formal, written and signed agreement.

• [174] Finally, but not least, the value of Mr Chen’s financial interest in Waihopai had not yet been confirmed. This was not a mere detail but a critical issue going to the heart of the Integration Scheme. Both Mr Huang and Mr Chen agreed that Mr Chen provided Mr Huang with financial forecasts. But Mr Huang’s position was that he wanted to see the financial accounts. Under cross-examination Mr Chen accepted that he did not give Mr Huang a copy of Waihopai’s accounts (Mr Chen says Mr Huang did not ask for them). But Mr Chen agreed it would be normal for Mr Huang to want to see them.

• [175] For all the above reasons, in my view, there was not yet agreement on the Integration Scheme as at 23 January 2014 and there was no partnership agreement.

Conduct of parties

• [176] Despite the fact that there was no signed agreement as at 23 January 2014, and no such document was ever signed subsequently, Mr Chen claims that the conduct of the parties between early 2014 and late 2016 (in addition to his argument that the partnership was in existence from 26 June 2013) indicates that in fact they had agreed on integration and accordingly a partnership agreement was formed.

• [177] The evidence to which I am about to refer is also relevant to Mr Chen’s affirmative defence of estoppel.

• [178] Mr O’Brien submits that if no partnership was created in 2013, the parties’ subsequent conduct cannot create one. I am not sure that that is a correct submission. By their words and conduct the parties could have decided that no formal, written agreement was necessary. There are indications that potentially point both ways.

• [179] Mr Judd relies on a diagram prepared by Mr Huang and circulated by Ms Huimin on 24 March 2014 to Mr Huang, Ms Lu, Mr Chen and Jackie Huang. The diagram showed the management structure of the integrated businesses (headed in the English translation, “Matakana Estate Management Structure”). It included Matakana

Zhongshan, Matakana Winery, Matakana Lodge (planned but not yet built) and the South Island Management Team. The Board of Directors were Mr Huang, Ms Lu, Mr Chen and Jackie Huang. The plaintiffs’ position is that the diagram represented the entity that the parties wanted to develop but agreement was never reached. The defendants’ position is that the diagram is indicative of an integrated business already agreed to.

• [180] The defendants also rely on a document (headed, in the English language versions, either “Memorandum of Company Trusteeship” or “Memorandum for Corporate Trusteeship” dated 23 March 2015 (referred to above at [84] – [85]). There are three different English language versions in the common bundle and a fourth version prepared by Dr Godwin, the Chinese law expert called by the defendants. The document was signed by Mr Huang, Ms Lu, Mr Chen and Yi Lu, in New Zealand. There is disagreement between the parties as to who drafted the document, but all signatories agree that they signed it. While there are differences between the four English language versions, those differences are not material in terms of the issue being discussed at this point.

• [181] There seems to be no disagreement between Mr Huang and Mr Chen as to the background leading to the drafting of the document. Mr Huang said that Mr Chen and Yi Lu were concerned to protect their investments in Waihopai if the company lost its litigation dispute with Savvy. Mr Chen said he understood that the best way to protect “our investments” in Waihopai would be to structure them as a loan to the company from someone who was not a director or legally a shareholder. To that end the document records that all further advances to Waihopai should be made by way of loan through a third-party lender who was to be Ms Lu.

• [182] The first paragraph records that the existing shareholders of Waihopai, Mr Chris Chen and Mr Yi Lu, invited Mr Huang to become a new shareholder “by invest with cash”. The paragraph continues that each investing party (not clearly defined) confirmed that the latest shareholdings (or updated shareholding structure) for Waihopai are (or will become/will be amended) as follows: Mr Chen’s shares represent 24 per cent, Mr Huang’s shares represent 36 per cent and Yi Lu’s shares represent 40 per cent. The first paragraph concludes that the change of corporate

shareholder share register shall be registered in a timely manner (or at the appropriate time).

• [183] The second paragraph records an agreement whereby the shareholders’ investments in Waihopai will be paid into that company by way of a loan to the company by Ms Lu, although there is no actual loan relationship for those amounts. It says that after the related matters are sorted out (or after all pertinent matters are concluded) the parties to the agreement shall unconditionally proceed with the trusteeship cancellation process.

• [184] In the third paragraph it suggests an agency arrangement and limited integration of the two companies (not the investments) for the period while the “trusteeship” is in operation.

• [185] In my view the document does not record integration. Although it refers to Mr Huang’s shareholding of 36 per cent (consistent with the percentage attributed to him in the Integration Scheme, ie 60 per cent of Mr Chen’s asserted 60 per cent of Waihopai) the document refers to an invitation “to Mr Huang to join as a new shareholder”. The word “invite” or “invited” appears in each of the four English translations. The evidence is that Mr Huang never became a shareholder. Additionally, Ms Lu is not invited to be a shareholder of Waihopai but on the defendants’ case she is meant to have a percentage interest in the integrated businesses. Also, and harking back to an earlier point, it does not say that Mr Huang’s cash contributions were by way of equity rather than by way of loan. Importantly, the memorandum does not record a pre-existing integration of Waihopai and Matakana Estate.

• [186] The defendants also rely on emails sent between 2014 and 2017 by Maggie Fu, who was the accountant for both Matakana Wines and Waihopai at the time. The emails were sent to Mr Huang, Ms Lu, Mr Chen and Jackie Huang and are addressed to “shareholders”. However, under cross-examination (and when asked about a document prepared by Mr Huang for the purpose of separating out the respective interests after the parties had fallen out) Ms Fu said that she was told by Mr Chen and

Mr Huang that Mr Huang either had a share in Waihopai or was intended to have a share.

• [187] As evidence of conduct, the defendants point to the following: Mr Chen worked as CEO across the two businesses; Mr Huang, Ms Lu, Mr Chen and Jackie Huang held “board meetings” for the “Matakana Estate”; Ms Fu provided financial information about Waihopai to Mr Huang, Ms Lu, Mr Chen and Jackie Huang on a reasonably regular basis; from at least 21 March 2015 that information included “NZ South Island Vineyard financial report from 07/2014– 01/2015”; Ms Fu emailed the 2016 annual accounts to Mr Huang; messages in the WeChat group discuss Waihopai; and Mr Huang (on Mr Chen’s evidence) made no demand for repayment of the loan to Mr Chen recorded in the JV agreement when the three due dates for payment had passed, until May 2018. Mr Huang says he did ask for repayment. It is not possible to resolve the dispute between Mr Huang and Mr Chen on that last issue.

• [188] But in any event the matters I have referred to above do not point unequivocally to an agreement. They are equally consistent with the parties working towards and even hoping for agreement but without agreement yet having been concluded. I do not consider they indicate that Mr Huang had given up on having a formal agreement in writing, especially in the context where Mr Chen’s stated interest in Waihopai had not yet been confirmed and given Mr Huang’s past practice in his dealings with Mr Chen of entering into formal, written agreements.

• [189] There is one document which records that the Integration Scheme was signed. In 2017 Mr Huang drafted a number of documents with proposals to separate his and Mr Chen’s assets which Mr Huang’s secretary forwarded to Mr Chen. In one of those documents dated 20 November 2017 (which may in fact have been sent by Ms Lu) it is stated:

2. Based on the Matakana Estate Assets Integration Agreement signed by Hongzhao Huang (includes Jieyu Lu) and Xiaolin Chen (includes Jinpin [sic] Huang) in 2013 (see attachment 2).

...

• [190] There was no attachment 2 in the bundles before the Court and counsel confirmed there was no such attachment in the discovered documents. Further searches were made to confirm that position during the course of the hearing. No such document was found. To Mr Chen’s credit he did not seize on this document to say that there was a signed version of the Integration Scheme. All parties were agreed that it was never signed.

• [191] The defendants also rely on the contents of the various documents prepared during 2017 to separate the parties’ interests. They say that the language of these documents suggests that the Integration Scheme had been in operation. The proposals proceed on the basis that Mr Huang and Ms Lu were entitled to 60 per cent of the integrated assets and Mr Chen and Jackie Huang, 40 per cent. The proposals are clear that the assets included 60 per cent of the shares in Waihopai. On the other hand, Ms Fu’s evidence regarding a document she prepared dated 6 March 2018 which records Mr Chen’s investments in Waihopai, was that the figures needed to be confirmed. That supports Mr Huang’s position that agreement had not yet been reached.

• [192] Mr Huang’s evidence on these documents was that he had advanced money to Mr Chen/Waihopai and now wanted to work out a way to get it back. Because Mr Chen did not have cash, and given the earlier integration discussions, Mr Huang was willing to consider repayment through the transfer of assets.

• [193] There are later statements both by and on behalf of Mr Chen that point away from there being an agreement on the Integration Scheme.

• [194] The letter from Mr Lear to the OIO on behalf of Mr Chen dated 5 April 2018 records:

... Alex put forward a proposal that their respective loans and investments in Matakana and Waihopai be amalgamated in what was termed the “Matakana Estate Integration Scheme” ... Chris does not believe this was signed as a formal agreement needed to be prepared.

• [195] Mr Lear’s letter then refers to Mr Chen’s instructions to Mr Botting to draft an agreement. The letter continues:

Similar to the Integration Scheme, this agreement would have brought together under a 60/40 ownership of Chris’ and his brother’s interest in Waihopai Valley Vineyards, and their respective interests in the Matakana properties. This agreement was conditional on obtaining consents under the Overseas Investment Act if required at the time. Chris believes a copy of the draft was emailed to Alex and/or Chrissy in January 2014 but does not think it was advanced any further or signed.

• [196] I note the language “would have brought together” is used, rather than “brought together”.

• [197] The transcript of Mr Chen’s interview with the OIO on 6 June 2018, which Mr Lear also attended, records that Mr Chen said: It was Mr Huang’s intention that Matakana and Kintyre should consolidate together; the intention of the Integration Scheme was to supersede the earlier JV agreement; the Integration Scheme was “just sort of a future plan” (said by Mr Lear and confirmed by Mr Chen); and there was to be a more formal document (and the Heads of Agreement was referred to).

• [198] The interviewer then restated what had been said regarding the Integration Scheme, confirming that it wasn’t executed “and it was more like, as you say his [Alex’s] vision and overall plan”. Mr Chen confirmed that assessment.

• [199] Mr O’Brien referred the Court to the case of Valencia v Llupar,³² a judgment of the Court of Appeal for England and Wales. While I acknowledge that all cases need to be considered on their own facts, there are some similarities between that case and the present case. The defendant, Ms Valencia, was the owner and manager of two restaurants, one of which had living accommodation above. The claimant, Mr Llupar, made four payments to Ms Valencia by cheque totalling £80,000. The core dispute concerned the basis on which those payments were made and received. According to Mr Llupar, Ms Valencia induced him to make the payments by representing to him that her restaurant businesses were doing very well, taking in between £700 and £1,000 a day, and that in return for his investment he would have a 40 per cent share and be provided with living accommodation above one of the restaurants. Mr Llupar soon

³² Valencia v Llupar [2012] EWCA Civ 396.

discovered that the takings were significantly less, and the accommodation was unavailable for his occupation. However, he continued working at the restaurants.

• [200] Ms Valencia’s solicitor sent a letter to Mr Llupar headed “Partnership Agreement – subject to contract”. The solicitor said that they had been instructed by Ms Valencia “in regard to a Partnership Agreement” with Mr Llupar, that they intended to prepare a draft agreement for his approval and that it was important that he should appoint his own independent legal representative to advise him. No partnership agreement was ever tendered for his consent.

• [201] Subsequently Mr Llupar stopped working for Ms Valencia. He demanded the immediate repayment of his money and stated his intention to terminate the business relationship.

• [202] On appeal it was stated that it is legally possible for a partnership to come into existence before a formal written agreement is executed, or without any formal legal document ever being executed. However, in that case the contemporaneous correspondence was clear on the point: the parties did not intend the legal relationship of partnership to exist between them unless and until they had entered into a formal written partnership agreement.

• [203] Similar considerations apply here. I do not consider the evidence indicates that Mr Huang had given up on his position that he required the Integration Scheme be formally documented in the form of an agreement. In my view the evidence overall indicates that while the parties may well have been working towards and planning to integrate their assets in each of the two operations, Matakana and Waihopai, actual agreement had not been reached. There was no partnership, whether based on the Integration Scheme or otherwise.

First affirmative defence: estoppel

• [204] Mr Judd submits it would be unconscionable for the plaintiffs to resile from the expectation they have created by their conduct that the parties were operating under the Integration Scheme.
• [205] As an alternative to his primary submission that all of the evidence establishes an agreement to be in partnership on the terms of the Integration Scheme, Mr Judd submits that the same evidence shows representations by words and conduct of Mr Huang and Ms Lu that:

(a) The JV agreement had been superseded and Mr Huang’s loan was integrated into the capital of the integrated partnership;

(b) Mr Huang’s investment of the initial $1.2 million and the subsequent advances from Mr Huang and Ms Lu to Waihopai were investments as beneficial shareholders not lenders; and

(c) The parties would share in the Matakana assets and 60 per cent of Waihopai on the basis of 60 per cent to Mr Huang and Ms Lu and 40 per cent to Mr Chen and Jackie Huang.

• [206] Mr Judd submits the evidence shows that Mr Chen and Jackie Huang relied on the representations by working very hard in the integrated businesses between 2013 and 2017 and investing money into the businesses in the belief and expectation that the Integration Scheme was in force.

• [207] In order to succeed on a claim of estoppel the defendants must show that:³³

(a) A belief or expectation by the defendants has been created or encouraged by words or conduct of Mr Huang and/or Ms Lu;

(b) To the extent an express representation is relied upon, it is clearly and unequivocally expressed;

(c) Mr Chen and Jackie Huang reasonably relied to their detriment on the representation; and

33. Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd [2014] NZCA 407, [2014] 3 NZLR 567 at [44].

(d) It would be unconscionable for Mr Huang and Ms Lu to depart from the belief or expectation.

• [208] In National Westminster Finance NZ Ltd v National Bank of NZ, Tipping J for the Court said:³⁴

The decisions of this Court in Wham-O MFG Co v Lincoln Industries [1984] 1 NZLR 641 and Gillies v Keogh [1989] NZCA 168; [1989] 2 NZLR 327 have emphasised the element of unconscionability which runs through all manifestations of estoppel. The broad rationale of estoppel and this is not a test in itself, is to prevent a party from going back on his words (whether express or implied) when it would be unconscionable to do so.

• [209] For the reasons already discussed above, there were no representations by Mr Huang and Ms Lu that the Integration Scheme was agreed upon. The evidence shows that the Integration Scheme was certainly under consideration, but it was subject to confirmation of Mr Chen’s capital contribution to Waihopai and a formal agreement being signed. After the Heads of Agreement was drafted, Mr Huang and Ms Lu did not represent that the terms were agreed. The document remained incomplete.

• [210] The Memorandum of Company/Corporate Trusteeship on which Mr Chen relies, records that Mr Huang was to acquire a 36 per cent interest in Waihopai shares for cash. But, as already discussed, there was no reference to an integration of Matakana Estate and Waihopai in the Memorandum. Indeed, in his interview with the OIO, when asked about the Memorandum, Mr Chen said that the document had nothing to do with the integration.

• [211] When Mr Huang provided Mr Chen with documents in the course of negotiations to separate their assets, the documents were provided on the basis that Mr Chen’s capital contributions to Waihopai would be independently verified by accounts. The documents were not a representation that Mr Huang and Ms Lu were bound by the Integration Scheme or a proposal to integrate the two businesses. I do not consider Mr Huang’s conduct in the course of discussing asset separation indicated he in fact had an interest in Waihopai and Mr Chen had an interest in Matakana Estate.

34. National Westminster Finance NZ Ltd v National Bank of New Zealand [1996] 1 NZLR 548 (CA) at 549.

It was not the sort of clear and unequivocable conduct which could found an estoppel claim. In any event the relevant documents were prepared and sent after the relationship had ended.

• [212] Additionally, there was no evidence that Mr Chen relied on any representation, reasonably or otherwise. In my view, the evidence that Mr Chen and Jackie Huang worked hard in the two businesses between 2013 and 2015 does not show that they acted in the belief and expectation that the Integration Scheme was in force. Mr Chen was CEO of Matakana Wines and was paid a salary. He also had an interest in Matakana Estate under the JV agreement. Jackie Huang’s evidence was that between 2012 to 2015 she was paid several months’ salary but did a lot of volunteer jobs for Matakana Wines without being paid. However, that is simply consistent with Mr Chen having a share in Matakana Estate under the JV agreement. It does not follow that the hard work was undertaken because of a representation that the Integration Scheme was agreed.

• [213] As to Waihopai, Mr Chen had founded the company and he was a director and shareholder. His hard work and continued investment in Waihopai were a natural consequence of his status in the company. This does not provide evidence of reasonable reliance on representations (if there were any) by Mr Huang and Ms Lu that the Integration Scheme had been agreed.

• [214] Mr Chen and Jackie Huang do not succeed on the affirmative defence of estoppel.

Misrepresentation

• [215] If I am wrong and there was a partnership which existed from 26 June 2013, it is necessary to consider if there were any misrepresentations by Mr Chen to Mr Huang and, if so, the legal effect of such misrepresentations.

• [216] The plaintiffs say that if there was an agreement to enter a partnership (denied) the agreement is voidable on the basis of misrepresentation; they seek an order from the Court under the Fair Trading Act 1986 (FTA) for what they say was Mr Chen’s misleading and deceptive conduct.
• [217] The representations as pleaded by the plaintiffs (in reply to the defendants’ counterclaim pleading a partnership) are that Mr Chen said to Mr Huang (before the Integration Scheme documents were drafted) that he:

(a) Had a 60 per cent share in the equity of Waihopai which had a value of approximately $5.061 million; and

(b) Was willing to give 60 per cent of his equity in Waihopai to Mr Huang and Ms Lu in exchange for a 40 per cent interest in the Matakana land and business.

• [218] The plaintiffs allege these representations were false and misleading because:

(a) Waihopai’s liabilities exceeded the value of its assets;

(b) Accordingly, the shareholders of Waihopai, including Mr Chen, had no equity in Waihopai; and

(c) In any event Mr Chen only owned 40 per cent of the equity (if any) in Waihopai.

Relevant law

• [219] The law on misrepresentation within the context of contract formation is well- settled:³⁵

... a misrepresentation is a representation of past or present fact that is false or misleading, and excludes statements of intention, opinion and law. The intention of the representor is irrelevant; what matters is the meaning that it conveys. In determining this meaning, the words used should not be viewed in isolation, but must be read in their context, taking account of surrounding circumstances.

35. Stephen Todd and Matthew Barber Burrows, Finn and Todd on the Law of Contract in New Zealand (7th ed, Lexis Nexis, 2022) at [11.2.1] (footnotes omitted).

• [220] Section 9 of the FTA prohibits misleading or deceptive conduct “in trade”:

9 Misleading and deceptive conduct generally

No person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

• [221] Once a breach of s 9 (or some other provision of the FTA) has been proved, s 43 relevantly provides:

43 Other orders

(1) This section applies if, in proceedings under this Part or on the application of any person, a court or the Disputes Tribunal finds that a person (person A) has suffered, or is likely to suffer, loss or damage by conduct of another person (person B) that does or may constitute any of the following:

(a) a contravention of a provision of Parts 1 to 4A (a relevant provision):

...

• [222] Both counsel referred to Red Eagle Corp Ltd v Ellis,³⁶ in which the Supreme Court considered the proper approach is to deal with ss 9 and 43 in turn. The first stage is whether a breach of s 9 has been established. Then with a breach proven, the court moves to s 43 and must look to see whether it is proved that the claimant has suffered loss or damage “by” the conduct of the defendant. The court must first ask itself whether the particular claimant was actually misled and if so whether the defendants’ conduct in breach of s 9 was an operating cause of the claimant’s loss or damage. Or put another way, was the defendants’ breach the effective cause or an effective cause. The impugned conduct in breach of s 9 does not have to be the sole cause but it must be an effective cause, not merely something which was, in the end, immaterial to the suffering of the loss or damage.³⁷

• [223] In Red Eagle the Supreme Court also referred to the meaning of “in trade”:³⁸

This is a broad term encompassing all kinds of commercial dealing by the party whose conduct is under examination. The section applies to transactions between large, sophisticated corporations as well as to those of persons dealing with consumers.

³⁶ Red Eagle Corp Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492.

³⁷ At [28] and [29].

³⁸ At [26], n 13.

Were the representations made as pleaded?

First pleaded misrepresentation: equity in Waihopai

• [224] The plaintiffs’ allegations of misrepresentation focus on the way in which Mr Chen represented the nature and value of his interest in Waihopai. They say that because Waihopai’s liabilities exceeded the value of its assets, its shareholders, including Mr Chen, had no equity in the company. Both representations as pleaded include the term “equity”. In addition, the first pleaded representation states the monetary value of this equity and the percentage of Mr Chen’s shareholding.

• [225] There was no dispute that Mr Chen represented to Mr Huang that the value of “his” 60 per cent interest in Waihopai was approximately $5.061 million and that he was willing to give 60 per cent of this value to Mr Huang in exchange for a 40 per cent interest in Matakana Estate (both land and business). These representations were subsequently incorporated into the Integration Scheme documents drafted by Mr Huang. These documents include a section on “composition of capital fund” which states:

1. Kintyre Estate [ie Waihopai] = 8.435M x 60% = 5.061M

• [226] Mr Chen’s position is that this information was true.

• [227] Mr Huang’s position is that the value of Mr Chen’s interest in Waihopai (if it had any monetary value) was significantly lower than this figure.

• [228] Jason Weir gave expert accounting evidence for the plaintiffs which dealt with a number of topics, including Waihopai’s equity and solvency position. Mr Weir was able to extract and reconstruct from the general ledger the balance sheets for 2012 to 2014. In short, when all the shareholder loans are treated as liabilities the bottom-line changes significantly. Mr Weir’s evidence demonstrates that Waihopai was insolvent from at least 2013 onwards. As Mr Weir says, shareholder loans are not equity but debt.³⁹ While Mr Weir accepted that it was not wrong to present the accounts in the

39. When the accounting firm WK Advisors and Accountants Ltd (WK) took over as Waihopai’s accountants they discontinued the practice of treating shareholder loans as equity.

way they had been, he said it had the effect of distorting the reality of Waihopai’s position. The plaintiffs say it was this “distortion”, which Mr Chen still promotes, that was presented to Mr Huang.

• [229] Mr Judd submits that this simply does not matter. He cross-examined Mr Weir on this point. He submits that Mr Chen was correct when he told Mr Huang that Waihopai’s assets were about $16 million and the bank debt of around $7.5 million left an equity of $8.45 million. Mr Judd submits that Mr Weir acknowledged this. However, some care needs to be taken over Mr Weir’s acknowledgement. He accepted that the two figures ($16 million and around $7.5 million) would produce approximately that outcome. But the actual figures in the accounts show negative equity from 2013 onwards, as do Waihopai’s tax returns. For example, Waihopai’s tax return for the year ended 30 June 2013 records a negative equity. It was minus

$463,336. This was at the time when Mr Chen and Mr Huang were discussing integration and the various Integration Scheme documents were prepared.

• [230] Mr Huang was not given the 2012 and 2013 accounts at that time. Mr Chen acknowledged this. Mr Judd submits that this does not matter because Mr Huang (or any investor) can make whatever investment they might choose whether it is a sensible investment or not. While people do make “investments” that are less than sensible, that is not the point here. Mr Huang’s evidence was that Mr Chen represented to him that the shareholder equity in Waihopai was around $8.5 million – when that was not the case. The money from shareholders was by way of loans. This is an unstable form of “investment” because the loans can be withdrawn at any time. Additionally, the shareholder loans included loans made by others to the shareholders. They are even less stable.

• [231] Mr Judd takes issue with whether Mr Chen represented to Mr Huang that the

$8.45 million was shareholder equity in Waihopai. He submits that Mr Chen and Mr Huang did not talk in the language that accountants might use. However, Mr Huang’s evidence was that Mr Chen told him that he had in excess of $5 million in equity in Waihopai. Mr Huang was not challenged on that in cross-examination. The alleged statement by Mr Chen to Mr Huang is consistent with what Mr Chen told Mr Sun. It will be recalled that Mr Chen and Yi Lu reached an agreement with Mr Sun

regarding an “investment” in Waihopai before Mr Chen spoke to Mr Huang about this. The signed agreement with Mr Sun states: “The new company’s equity will be calculated as [NZD]8,425,000.00”.

• [232] Even putting to one side Mr Huang’s evidence on that point and substituting the term “shareholder loan” for “equity”, I agree with the plaintiffs’ position that the figure is still misleading. That is because it overlooks the fact that the shareholders did not control all the loans. There were other parties lending directly or indirectly, including advances that Yi Lu sourced from family and friends. There was also Lucy Wang’s loan. It seems from the settlement agreement reached with Ms Wang (but not paid out by Waihopai) that the amount was around $1.5 million. Because Waihopai was insolvent, that loan could not be recovered in full.

• [233] Mr Huang’s evidence was that if Mr Chen had told him that his shareholding in Waihopai had a negative value there would have been no further discussion about integrating assets. Although Mr Huang and Ms Lu did receive financial information at later dates, this was well after the time of the alleged agreement on 26 June 2013.

• [234] For the above reasons, I find that Mr Chen represented to Mr Huang that he had equity in Waihopai to the value of approximately $5.061 million. Given the financial status of Waihopai at the relevant time, this was not true.

• [235] There is also the point that Mr Chen’s interest in Waihopai was not in fact 60 per cent. It was 40 per cent. The other 20 per cent was held by his brother Don Chen. Mr Judd submits that given the ongoing discussions between Mr Huang and Mr Chen, Mr Huang would have been aware of this. That general submission was not founded on any particular evidence.

• [236] I therefore find that Mr Chen’s representation that he had a 60 per cent share in the equity of Waihopai was not true.

• [237] The basis upon which the plaintiffs allege that Mr Chen misrepresented the nature and value of his interest in Waihopai (set out above at [217](a)) is established.

Second pleaded misrepresentation: willingness

• [238] I now turn to the second pleaded representation, namely that Mr Chen was willing to give 60 per cent of his equity in Waihopai to Mr Huang and Ms Lu in exchange for a 40 per cent interest in the Matakana land and business.

• [239] Mr Judd submits that this is not an actionable representation as it is a statement of future intention rather than a statement of existing fact.

• [240] In my view, there are two elements to this statement: firstly, Mr Chen’s assertion of willingness to make a particular form of exchange, and secondly, Mr Chen’s assertion that he had equity in Waihopai.

• [241] Mr Judd submits that there is no dispute that Mr Chen was willing to give 60 per cent of his interest in Waihopai to Mr Huang and Ms Lu on the basis of the terms set out in the Integration Scheme drafted by Mr Huang, and this is in fact what happened. I accept that Mr Chen was willing to make the exchange outlined in the second pleaded misrepresentation. Indeed, he remains willing to make and uphold such an exchange. I also accept that “a misrepresentation is a representation of past or present fact that is false or misleading, and excludes statements of intention”.⁴⁰ A willingness to exchange indicates a future intention rather than a representation of present fact. However, the plaintiffs do not allege that Mr Chen misrepresented his willingness to deal with his interest in Waihopai. The basis for the second pleaded misrepresentation is simply that he asserted he had sufficient equity to undertake the particular deal he offered. Mr Chen’s willingness is therefore not in issue.

• [242] As to the second element, Mr Judd repeats his submission that Mr Chen never said to Mr Huang that he had “equity” in Waihopai in an accounting sense, as they did not talk to each other in technical accounting language.

⁴⁰ Todd and Barber, above n 35, at [11.2.1].

• [243] However, I have already found that Mr Chen represented his interest in Waihopai as equity. This element of the second pleaded misrepresentation is therefore a misstatement of fact. Further:⁴¹

... a person who states an intention also impliedly asserts that he or she has reasonable grounds for making the statement. In other words, the statement of intention also conveys that the present situation is such that it might reasonably support the intention being fulfilled.

• [244] If Mr Chen made a statement of intention which was founded on a misrepresentation as to the nature and value of his actual interest in Waihopai, and he knew when he made the statement that he could not fulfil his intention as expressed, then the representation of intention was false. For reasons discussed below at [248], Mr Chen must have known that he was unable to fulfil his intention as expressed.

Was Mr Chen’s representation of Waihopai’s value and his share of it misleading and deceptive?

• [245] There was no issue over whether Mr Chen was in trade for the purposes of s 9 of the FTA. He was the CEO of Matakana Wines and Waihopai. He was clearly “in trade” in the winery business. If a partnership had been formed on the basis of the Integration Scheme, then Mr Chen entered into the partnership as someone who was “in trade”.

• [246] It is not necessary under s 9 (as opposed to s 43) to prove that a defendant’s conduct actually misled or deceived the particular plaintiff or anyone else. If the conduct objectively had the capacity to mislead or deceive the hypothetical reasonable person, there has been a breach of s 9.⁴² I have found that at the time the alleged partnership was entered into (on 26 June 2013) Mr Chen represented to Mr Huang that he had a 60 per cent share in the equity of Waihopai and that was worth approximately

$5.061 million. For reasons discussed at [228] to [237] above that was untrue.

⁴¹ Todd and Barber, above n 35, at [11.2.1].

⁴² Red Eagle Corporation Ltd v Ellis, above n 36, at [28] citing Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191 at 198 per Gibbs CJ. Gibbs CJ said that the words “likely to mislead or deceive” make it clear that it is unnecessary to prove that the conduct in question actually deceived or misled anyone. See also McWilliams Wines Pty Ltd v McDonalds System of Australia Pty Ltd [1980] FCA 159; (1980) 33 ALR 394 at 413 per Fisher J.

• [247] Mr Judd submits that firstly, Mr Chen was offering an opinion, and secondly that Mr Huang could have asked for all the information required to understand the real position. I address these submissions in turn.

• [248] An honestly held and reasonably based expression of opinion has been held not to be a misrepresentation for the purposes of the Contractual Remedies Act 1979 or the FTA.⁴³ But in this case Mr Chen was not expressing his opinion. It was a statement of fact which he based on a 2010 valuation of the vineyard, minus the bank debt. Moreover, Mr Chen knew that the value he represented included Ms Wang’s debt of around $1.5 million. He also knew that there were debts to overseas investors which he did not control, or which had to be paid in priority to the shareholders’ advances. Further, Mr Chen’s interest was only 40 per cent not 60 per cent; he included his brother’s 20 per cent share when representing his interest to Mr Huang. For all these reasons Mr Chen’s statement as to the nature and value of his interest in Waihopai was not honestly held and reasonably based.

• [249] Mr Huang was provided with financial information such as forecasts. However, what he needed to see was the balance sheets for the critical years ending June 2012 (which would be relevant to Mr Huang’s first payment of $1.2 million, as well as later payments) and June 2013 (relevant to Mr Huang’s later payments). The balance sheets for those years were extracted by Mr Weir after late discovery of the general ledger.

• [250] In any event, it is not a defence to an action for misrepresentation or misleading and deceptive conduct that the claimant, with reasonable diligence, could have discovered a representation to be untrue. In Best of Luck Ltd v Diamond Bay Investments Ltd (No. 2) Heath J stated:⁴⁴

[125] The mere fact that a party has been afforded an opportunity to investigate and verify a representation does not deprive him or her from seeking damages when that representation turns out to be false. As Lord Dunedin stated in Nocton v Lord Ashburton [1914] UKLawRpAC 31; [1914] AC 932 at 962:

43. Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd [2015] NZHC 1444 at [184]–[186] citing Premium Real Estate Ltd v Stevens [2008] NZCA 82, [2009] 1 NZLR 148 at [51].
44. Best of Luck Ltd v Diamond Bay Investments Ltd (No. 2) HC Auckland CIV-2007-404-002043, 11 October 2007.

No one is entitled to make a statement which on the face of it conveys a false impression and then excuse himself on the grounds that the person to whom he made it had available the means of correction.

• [251] Section 9 is satisfied. I now turn to the requirements of s 43.

Was Mr Huang misled or deceived?

• [252] Mr Huang said that he understood that Waihopai was in receivership in early 2013 but he did not fully understand the consequences of a receivership in New Zealand. Mr Chen told him that Waihopai was in financial difficulty, but Mr Huang said Mr Chen had assured him that the company had a large area of land planted with grapevines which was of significant value. His evidence was that Mr Chen repeatedly told him that Waihopai was worth around $15 million, subject to a loan liability to the ASB of around $7 million.

• [253] I accept that Mr Huang was misled or deceived by that statement. This information was consistently recorded in the various versions of the Integration Scheme that Mr Huang drafted and exchanged with Mr Chen.

Was Mr Chen’s conduct an effective cause of Mr Huang’s loss?

• [254] Mr Judd submits that there is no evidence that Mr Huang relied on the representation in entering into the alleged integration agreement. He says, to the contrary, Mr Huang’s evidence was that his advances of funds to Mr Chen (including the advance of $1.2 million and further amounts) were loans to solve Waihopai’s financial issues and had nothing to do with the Integration Scheme.

• [255] Accordingly, Mr Judd says there is no evidence that Mr Huang relied on the representation. Mr Judd submits the Court cannot accept the plaintiff’s position on the one hand that the payments were loans, there was no agreement on integration, and the parties continued to be in discussion over a proposed scheme, while, on the other hand find that Mr Huang relied on the representation in order to enter into the Integration Scheme.
• [256] I do not accept that submission. Mr Huang’s further evidence is that he would never have considered combining their respective assets had Mr Chen disclosed the relevant Waihopai financial information. Mr Huang says he and Ms Lu had put a lot of money into Matakana and had millions of dollars’ worth of equity in that enterprise. I accept that is a logical position for Mr Huang to have taken.

• [257] If there was a partnership at 26 June 2013, as opposed to discussions which had not resulted in a concluded agreement, then the above evidence satisfies the reliance requirement in relation to both pleaded representations.

• [258] In conclusion on the issue of misrepresentation, even if I am wrong and there was a partnership as from 23 June 2013 as alleged by Mr Chen then it is vitiated ab initio by both of Mr Chen’s misrepresentations as to the value of Waihopai and Mr Chen’s interest in Waihopai.

JV Agreement – 19 April 2012

• [259] The relevant document governing the parties’ rights and liabilities is the JV agreement of 19 April 2012.

• [260] The opening words of the JV agreement are that:

On the basis of honesty, mutual benefit and friendly cooperation [Mr Huang, Mr Chen and Ms Lu] reached the following agreement on the joint acquisition and operation of Matakana Estate in Auckland, New Zealand.

• [261] The main terms of the agreement are that the acquisition price for the existing Matakana land and building assets was $3.8 million made up of:

(a) Lots 5, 6 and 7 – purchase price $1.25 million;

(b) Winery (Lot 4) plus brand and building – purchase price $1.2 million;

(c) Brewery equipment – purchase price $950,000; and

(d) Four finished wine containers – value of $400,000.

• [262] An additional $400,000 of funding was provided for cash reserves and to set up a wholly owned subsidiary in China, known as Matakana Zhongshan.

• [263] The total amount of $4.2 million was to be funded in the following proportions:

(a) Mr Huang –$2.31 million (55 per cent share);

(b) Mr Chen –$1.47 million (35 per cent share); and

(c) Ms Lu –$420,000 (10 per cent share).

• [264] The agreement provides that the parties would form a company registered in New Zealand called Matakana Estate Ltd.⁴⁵ The shares in the company would be:

(a) Mr Huang – 55 per cent;

(b) Mr Chen – 35 per cent; and

(c) Ms Lu – 10 percent.

• [265] Clause 3(3) reads:

In order [to] meet the schedule requirement (Direct translation: to differentiate the required time which allowed OIO process, Implied: the deal is being done and OIO would need to be done later) for overseas investment application and approval procedures [Mr Huang, Mr Chen and Ms Lu] entrusted Chris Chen [...] to handle all the process for the acquisition of Matakana Estate as a nominee of the three parties. However, the actual buyers are [Mr Huang, Mr Chen and Ms Lu].

The fund of acquisition of Matakana Estate project is NZD$4.2 million, which is paid in advance by [Mr Huang], upon overseas investment approval, [Mr Chen] will repay to [Mr Huang and Ms Lu] according to the capital and equity per described at Article 3.2 in this agreement for proportion of investment and shares, and process the relevant legal amendment for the shareholders and equity of the Cooperation Company.

45. Mr Chen had in fact incorporated Matakana Wines Ltd on 26 January 2012 and the parties used that as the company name rather than Matakana Estate Ltd.

• [266] Clause 3(5)(3) provides in relevant part:

3(5) Relevant Agreement regarding the investment of [Mr Chen] ... as loan

...

(3) [Mr Chen] owes [Mr Huang] a loan of NZD$1.47 million, [Mr Chen] promised to repay NZD$470,000 by December 31, 2013, repay NZD$500,000 by December 31, 2014, and repay NZD$500,000 by December 31, 2015 to [Mr Huang]. The interest payable on the NZD$1.47 million borrowing is calculated based on the actual amount of unpaid borrowings calculated from the commercial loan interest rate for New Zealand over the same period from the date on which the borrower provided the loan until the actual settlement of all the borrowings is completed.

• [267] Dr Godwin considered the opening words of clause 3(3) would be better translated as follows:

In order to stagger the time required for the approval procedures for overseas investors ...

• [268] In relation to clause 3(3) above, there was no issue that because Mr Huang and Ms Lu would need OIO consent, the purchases of the assets were to be in the name of Mr Chen “... as a nominee of the three parties. However, the actual buyers are [Mr Huang, Mr Chen and Ms Lu]”.

• [269] The JV agreement provides that Mr Chen was to be CEO of Matakana Estate and responsible for the operations of Matakana Estate (it is common ground that this is a reference to Matakana Wines).

• [270] Finally, the JV agreement states that it was concluded within the territory of China and is governed by and construed in accordance with the laws of China.

Principles of contract interpretation under Chinese law

• [271] Dr Godwin and Dr Liao agreed that the principles of good faith and fairness are applicable to the interpretation of contracts. However, in their joint statement they identified areas of disagreement.

• [272] Dr Liao noted that it is an express term of the JV agreement that it is subject to Chinese law and he says the applicable law is the Contract Law (Code, Act) of China

and the General Principles of Civil Law (1986 Act where general principles are involved).

• [273] Dr Godwin’s position is that the provisions in the Civil Code governing contract interpretation (Articles 120 and 466) are applicable to the interpretation of all contracts governed by Chinese law, whether entered into before or after the date on which the Civil Code came into effect (1 January 2021).

• [274] It seems that the degree of objectivity applicable to contract construction is higher under the Civil Code. However, in cross-examination Dr Godwin agreed that the Contract Law legislation applied on the dates of various relevant events.⁴⁶ Given that concession, I return to Dr Liao’s evidence as to the principles applicable to the interpretation of the JV agreement under Chinese law:

(a) The ultimate task of contract interpretation is to ascertain the true intention of the parties to the contract;⁴⁷

(b) The parties’ intention is to be inferred from the contract itself and the surrounding circumstances including the purpose of the contract;⁴⁸ and

(c) A contract is a type of “civil act”, so that interpretation and other aspects of contracts must be governed by the general principles of civil law including the principles of good faith and fairness.⁴⁹

• [275] Dr Liao’s opinion was that Mr Chen was under an obligation to repay the Matakana loan to Mr Huang, together with interest, as provided in cl 3(5)(3) set out in

[266] above. There was no dispute about the meaning of this clause.

• [276] Dr Liao’s view on the possible inconsistency between cl 3(5)(3) and the second (unnumbered) paragraph of cl 3(3), was that the second paragraph of cl 3(3) is not about the due dates for repayment of the Matakana loan, but rather about Mr Chen’s

46. Being the date the JV agreement was signed, the dates on which the parties’ obligations were due for performance (up to 31 December 2015) and the date of filing this proceeding in January 2019.

⁴⁷ Contract Code of the People’s Republic of China 1999, s 125.

⁴⁸ Contract Code of the People’s Republic of China 1999, s 125.

⁴⁹ The two experts were agreed on this point.

obligation to undertake the necessary process, once OIO consent was obtained, to transfer the ownership share of Matakana Estate to Mr Huang and Ms Lu, proportionate to the capital contributions of each party to the joint venture. In the end there was no dispute as to this interpretation.

• [277] Regarding Mr Chen’s entitlement to a share, Dr Liao referred to cl 3(2) which provides that Mr Chen’s investment of $1.47 million accounts for 35 per cent of the “cooperation”. Clause 3(4) also provides that Mr Chen has a share of 35 per cent in Matakana Estate Ltd (that is, Matakana Wines). Dr Liao says under a Chinese approach to contract construction these clauses, read together, indicate that, subject to Mr Chen’s pre-existing obligation to repay the Matakana loan to Mr Huang, he would be entitled to 35 per cent of the assets of the joint venture. Dr Liao was not challenged on this interpretation and Dr Godwin did not address the point.

• [278] Dr Liao’s evidence was that the agreement satisfies all the requirements for a valid written contract under Chinese law: all parties signed the document and applied their fingerprints on every page, and a lawyer provided a formal witness statement with the official stamp of the law firm, private seal of the lawyer, and the lawyer’s signature. Dr Liao’s opinion was that the JV agreement is legally effective, binding and enforceable under Chinese law, whether under the Contract Code of China (as effective at the time the JV agreement was signed) or the newly enacted Civil Code of China, if the latter were to apply. Dr Godwin did not express an opinion on the formalities of the contract.

• [279] It is common ground that Mr Chen has not repaid any money under the JV agreement. He is in breach for that reason. He remains the sole registered owner of the Matakana land and has refused to transfer the land or any portion of it to Mr Huang and Ms Lu. Given Mr Chen has not paid his financial contribution he is, as matters presently stand, not entitled to his 35 per cent share.

• [280] There is the further issue as to whether Mr Chen was responsible for obtaining OIO consent for Mr Huang and Ms Lu. The issue has rather fallen away, given Ms Lu’s concession, when she was recalled to give further evidence, that Mr Chen’s obligation was just to help. I deal with the issue for completeness.
• [281] Clause 3(3) (set out at [265] above) states that Mr Chen was to handle “all the process for the acquisition of Matakana Estate”. There is a distinction between that obligation and the “overseas investment application” which is separately referred to in the same clause. Even on a literal interpretation (if the Civil Code were to apply),⁵⁰ I do not consider the plaintiffs’ interpretation can be sustained, given that the “overseas investment application” is expressed as a separate matter from “all the process for the acquisition of Matakana Estate”. The latter refers to the purchase from the liquidators/receivers of the Vegar family’s companies.

• [282] The plaintiffs also argue that there was a separate oral agreement pursuant to which Mr Chen had responsibility for applying for OIO consent. Both Dr Liao and Dr Godwin agree that the parole evidence rule is not part of Chinese law. Any separate oral agreement can therefore be taken into account. But given Ms Lu’s concession that Mr Chen was only going to help with an application, there was no agreement that Mr Chen was responsible for applying for OIO consent for Mr Huang and Ms Lu. Accordingly, Mr Chen did not breach this obligation.

• [283] In summary, the JV agreement is enforceable; Mr Chen is in breach of his obligation to repay the Matakana loan to Mr Huang on the three stipulated dates and to pay interest on the loan. As OIO consent has now been obtained, Mr Chen is in breach of his obligation to transfer ownership to Mr Huang and Ms Lu. The two experts gave evidence on the issue of relief under Chinese law. I will come to that issue as I work through each of the causes of action to which I now turn.

The claims

• [284] There are nine causes of action pleaded. The first three are against Mr Chen and relate to the title to the Matakana land. Those claims rest upon equity and the JV agreement and, in particular, the payment by Mr Huang of the full purchase price for the Matakana land and business and Mr Chen’s contractual and fiduciary obligations under the JV agreement.

⁵⁰ Dr Godwin’s evidence was that under Article 142 the literal method of interpretation has priority.

• [285] The other six causes of action are brought against Mr Chen and variously against the other defendants in relation to the Waihopai advances (which I have found to be loans) and the distribution of the net proceeds of sale of Waihopai’s assets to the defendants. The Waihopai claims are premised on claims by the plaintiffs for a debt, money had and received, prejudicial dispositions by the defendants in breach of the PLA, and unjust enrichment.

• [286] Starting with the Matakana land claims, the plaintiffs say that they hold the beneficial title to the Matakana land on two bases:

(a) Under the law of property, in accordance with the constructive trust principles in Lankow v Rose⁵¹ (first cause of action); and

(b) Under the law of obligations, in accordance with the JV agreement:

(i) Fiduciary (second cause of action),

(ii) Contractual (third cause of action).

Applicable law

• [287] The issue arises as to whether New Zealand law or Chinese law should be applied in relation to the law of obligations (including remedy). Mr O’Brien submits it should be the former. Mr Judd did not argue otherwise. In the words of Tipping J in Attorney-General for England and Wales v R:⁵²

... In remedial terms it may sometimes be necessary or desirable to apply the lex fori [the law in force in the country where the proceedings are heard] if there is a material difference between it and the proper law of contract.

• [288] In other words, the Court can apply remedies under New Zealand law to match the substantive rights determined by the foreign law. In Attorney-General for England and Wales v R there was no significant difference between New Zealand law and English law (the law of contract) on the relevant remedial issues. In this case an issue

⁵¹ Lankow v Rose [1995] 1 NZLR 277 (CA).

⁵² Attorney-General for England and Wales v R [2002] 2 NZLR 91 (CA) at [28].

arises because the JV agreement imposes particular obligations on the parties of “honesty, mutual benefit and co-operation”, and the relief sought includes an order for the transfer of the Matakana land to Mr Huang and Ms Lu.

• [289] Dr Liao’s evidence is that equity is not part of Chinese law unless a particular equitable principle is incorporated into the statute, which is not the case here. Estoppel and resulting and constructive trusts, have not been adopted by any statutes in China to date. Dr Liao says that although the principle of good faith is one of the fundamental principles enshrined in the Civil Code and Contract Code it “may be too far-fetched to argue that the adoption of the good faith principle equates to the adoption of all the equitable doctrines including estoppel and resulting and constructive trust, (sic) in PRC law”.

• [290] Dr Liao adds that fiduciary relationships are seen as a creation of equity. They are not part of Chinese law, which is in substance a civil law system. Accordingly, Dr Liao says fiduciary relationships or fiduciary obligations have not been directly recognised by Chinese law, at least not for contractual relationships (partnership, joint venture or otherwise). Dr Godwin specifically did not comment on Dr Liao’s evidence regarding fiduciary relationships.

• [291] Chadwick J in Arab Monetary Fund v Hashim set out the following approach on conflict of laws:⁵³

... in cases involving a foreign element in which an English court is asked to treat a defendant as a constructive trustee of assets which he has acquired through a misuse of his powers the relevant questions are: (i) what is the proper law which governs the relationship between the defendant and the person for whose benefit those powers have been conferred, (ii) what, under that law, are the duties to which the defendant is subject in relation to those powers, (iii) is the nature of those duties such that they would be regarded by an English court as fiduciary duties and (iv), if so, is it unconscionable for the defendant to retain those assets.

Third cause of action: breach of the JV agreement

• [292] It is convenient to start with the third cause of action.

53. Arab Monetary Fund v Hashim (15^th June 1994 – unreported) (QBD); quoted in Kuwait Oil Tanker Co SAK v Al Bader [2000] EWCA Civ-60, [2000] 2 All ER (Comm) 271 at [192].

• [293] I have already found Mr Chen breached his contractual obligations; having construed the JV agreement in accordance with the laws of China. Mr Chen failed to make the three payments for his share in Matakana Estate on the stipulated dates, he has failed to pay interest on those amounts, and he has failed to transfer title to Mr Huang and Ms Lu, even in part, after they obtained OIO consent.

• [294] Answering the questions posed in Arab Monetary Fund v Hashim in this case:

(a) The law which governed the contractual relationship between the parties was the law of China;

(b) The duties imposed on Mr Chen under Chinese law were to perform his obligations under the JV agreement honestly, for the mutual benefit of the parties and on the basis of friendly co-operation, and to make his payment contribution on the specified dates for his interest in Matakana Estate; and in the event of failure to make his three payments and any interest payments, to transfer the whole of the title to Mr Huang and Ms Lu;

(c) The good faith nature of the obligation imposed on Mr Chen by Chinese law could be regarded by New Zealand courts as a fiduciary obligation; and

(d) In the circumstances it would be unconscionable for Mr Chen to retain the Matakana land or an interest in it.

• [295] The plaintiffs have established their third cause of action.

Second cause of action: breach of fiduciary duty

• [296] The plaintiffs say that while Mr Chen’s obligations under Chinese law are purely contractual, Mr Chen also owed them a fiduciary obligation in respect of the acquisition and ownership of the Matakana land.
• [297] In New Zealand law, fiduciary obligations can arise in contractual relationships where one party reposes trust and confidence in another party. In such circumstances, the law imposes various duties of loyalty designed to prevent the exploitation of the trust relationship by the party who has the advantage.

• [298] In Amaltal Corp Ltd v Maruha Corp the Supreme Court stated:⁵⁴

It is well settled that, even in a commercial relationship of a generally non- fiduciary kind, there may be aspects which engage fiduciary obligations of loyalty. That is because in the nature of that particular aspect of the relationship one party is entitled to rely upon the other, not just for adherence to contractual arrangements between them, but also for loyal performance of some function which the latter has either agreed to perform for the other or for both or has, perhaps less formally, even by conduct, assumed.

• [299] In Chirnside v Fay,⁵⁵ the majority in the Supreme Court noted that there is a “strong case” for saying that most joint venture relationships can properly be regarded as being inherently fiduciary because of the analogy with a business partnership.⁵⁶ It is well settled that business partners, including those in a joint venture relationship, must act honestly and fairly towards each other and not prefer their own interests.⁵⁷

• [300] However, as discussed above, the JV agreement is governed by the law of China, which does not recognise fiduciary relationships in the same way. Nevertheless, as Dr Liao acknowledges the principle of good faith is one of the fundamental principles enshrined in the Civil Code and Contract Code. Added to that are the express words of the JV agreement.

• [301] In my view Mr Chen owed Mr Huang and Ms Lu fiduciary obligations of fidelity arising from the circumstances of their relationship. The express terms of the JV agreement provided that they were contracting on the basis “of honesty, mutual benefit and friendly cooperation”. Mr Huang provided all the purchase funds while Mr Chen took the title of the Matakana land until OIO consent was obtained; and the benefits and profits were to be shared in proportion to their shares.

54. Amaltal Corp Ltd v Maruha Corp [2007] NZSC 40, [2007] 3 NZLR 192 at [21] (footnotes omitted).

⁵⁵ Chirnside v Fay [2006] NZSC 68, [2007] 1 NZLR 433.

⁵⁶ At [74] per Tipping J.

⁵⁷ Andrew Butler (ed) Equity and Trusts in New Zealand (2^nd ed. Thomson Reuters, 2009) at [17.3.6].

• [302] I also consider that although Mr Huang was a wealthy and experienced businessman in China, he and Ms Lu were in a somewhat vulnerable position at the time of this relationship: they were not New Zealand residents; they entrusted Mr Chen with Mr Huang’s money and the legal ownership of the Matakana land pending OIO consent; they were not generally familiar with New Zealand law or business dealings in New Zealand; ⁵⁸ and they had no experience in managing a winery.

• [303] In all the above circumstances it was reasonable for Mr Huang and Ms Lu to repose trust and confidence in Mr Chen. In other words, there was a fiduciary relationship. By excluding Mr Huang and Ms Lu from the legal ownership of the Matakana land, Mr Chen has breached his fiduciary obligations. There is also Mr Chen’s conduct in relation to the intended use and development of the Matakana land. I have already characterised the correspondence on his behalf as obstructive (at

[96] above). In my view that conduct was also a breach of his fiduciary obligations.

• [304] The plaintiffs have established their second cause of action.

First cause of action: constructive trust based on the law of property

• [305] This claim is pursued on the basis that the plaintiffs’ claim to the title to the Matakana land is assessed under the law of property, rather than the law of obligations. The plaintiffs claim an equitable proprietary interest in the Matakana land and say that a constructive trust is the appropriate equitable relief. As noted, the land was purchased with Mr Huang’s money but the legal title was and is held by Mr Chen. Mr Chen has refused to transfer the property or any part of it to Mr Huang and Ms Lu.

• [306] I accept the submission by Mr O’Brien that, in accordance with the ordinary choice of law rules, lex situs (that is New Zealand law) should apply to the claim. This accords with the approach in Schumacher v Summergrove Estates Ltd where the Court of Appeal stated:⁵⁹

58. Although I acknowledge that Mr Huang and Ms Lu had already purchased the three villa lots and Ms Lu had attempted to purchase Willow Flat near the Waihopai vineyard.

⁵⁹ Schumacher v Summergrove Estates Ltd [2014] NZCA 412, [2014] 3 NZLR 599 at [37]. See also

Americhip Inc v Dean [2014] NZCA 380, [2014] NZAR 1137.

... Where the claimant ultimately asserts an interest in real property, the property choice of law invariably applies.

• [307] To establish a constructive trust, a claimant must show:⁶⁰

(a) Contributions, direct or indirect, to the property in question;

(b) The expectation of an interest therein;

(c) That such an expectation is a reasonable one; and

(d) That the defendant should reasonably expect to yield the claimant an interest.

• [308] If a claimant can demonstrate each of these four points, equity will regard the defendant’s denial of the claimant’s interest as unconscionable and will impose a constructive trust accordingly.⁶¹

• [309] In this case the plaintiffs have established each of the four requirements:

(a) It is common ground that Mr Huang paid the full purchase price of the Matakana land and also contributed the agreed $400,000 as working capital for the joint venture;

(b) Mr Huang and Ms Lu expected to acquire an interest in the Matakana land proportionate to their financial contribution. This was recorded and agreed to in the JV agreement;

(c) The expectation of Mr Huang and Ms Lu was a reasonable one as it accorded with their financial contribution; and

(d) Given Mr Huang paid the purchase price for the Matakana land and Mr Chen agreed to transfer the land once OIO consent had been given,

⁶⁰ Lankow v Rose, above n 51, at 294.

⁶¹ Lankow v Rose, above n 51, at 294.

Mr Chen should reasonably expect to yield the interest in the land claimed by Mr Huang and Ms Lu.

• [310] It follows that Mr Huang and Ms Lu have a proprietary entitlement to the Matakana land. It is unconscionable for Mr Chen to deny their interest in the land. Accordingly, I find that Mr Chen holds the Matakana land on constructive trust for Mr Huang and Ms Lu. The plaintiffs have established their first cause of action.

Laches

• [311] As further support for the relief sought, namely that the Matakana land be transferred to Mr Huang and Ms Lu, the plaintiffs say that any attempt now by Mr Chen to belatedly repay the $1.47 million loan and interest on that sum so as to acquire his share in Matakana Estate would be barred by the equitable doctrine of laches. Under the JV agreement, Mr Chen has the right to acquire a 35 per cent interest in the Matakana land, subject to a condition precedent that he pays $1.47 million to Mr Huang on specified dates, together with interest and his share of later contributions.

• [312] The equitable defence of laches applies where a claimant’s delay in bringing or pursuing a claim would make it unreasonable or inequitable to grant equitable relief. The Supreme Court has said that an assessment of laches:⁶²

... takes into account the length of the delay and the nature of the acts done during the interval of time. However, these are not the only factors and ultimately it is a balancing of equities “in relation to the broad span of human conduct”.

• [313] Whether a claim will be barred by laches depends upon the degree of diligence that might reasonably have been expected from the [claimant]; the two most important considerations are the [claimant’s] acquiescence and the length of the delay.⁶³ The doctrine of laches is preserved by the Limitation Act 1950, s 31.

62. Proprietors of Wakatū v Attorney-General [2017] NZSC 17, [2017] 1 NZLR 423 at [696] (footnote omitted), quoting Eastern Services Ltd v No 68 Ltd [2006] NZSC 42, [2006] 3 NZLR 335 at [37].

⁶³ Todd and Barber, above n 35, at [21.6.2(e)].

• [314] The plaintiffs submit that the balancing of equities would clearly favour them because:⁶⁴

(a) Almost nine years have passed since Mr Chen failed in his obligation to pay the first instalment on the Matakana loan, and the parties have been involved in the present dispute since 2017 and in litigation since 2019;

(b) Mr Chen’s refusal to transfer title to the Matakana land and his unjustifiable, unconscionable and obstructive actions have delayed the development of the Matakana land as required by the OIO consent; and

(c) Mr Chen concealed the Waihopai sale and secret distribution of the sale proceeds without any payment to the plaintiffs in circumstances where Mr Chen’s position was that the plaintiffs had an interest in Waihopai.

• [315] I put to one side Mr Chen’s conduct in relation to the sale of Waihopai and distribution of the sale proceeds. That is a separate issue. However, the other two submissions would arguably support the plaintiffs’ position on laches if Mr Chen were to seek to acquire an interest in Matakana Estate almost nine years after his obligation to pay the first instalment of the Matakana loan.

• [316] I add to the mix that in any event Mr Chen would be in much the same position if he were to pay what was owing under the JV agreement and in turn receive a 35 per cent interest in Matakana Estate. The calculations are as follows. Under the agreement Mr Chen would need to pay $1.47 million plus interest. Interest payable calculated as at 31 March 2022 by the expert witness, Mr Weir, was (at the high end) $2,229,138 or (at the low end) $919,394. Mr Chen would also need to pay a 35 per cent share of the

$2,440,174 subsequently contributed to Matakana by Mr Huang and Ms Lu, which is

⁶⁴ I put to one side the submission for the plaintiffs that the “significant costs” (or at least the best part of them) relating to the plaintiffs’ application to the OIO for retrospective consent in relation to Matakana Estate, could have been avoided if Mr Chen had applied for OIO consent at an earlier date. I have found that that was not Mr Chen’s responsibility. He was simply going to help.

$854,060.90. The total Mr Chen would need to pay under the agreement therefore ranges between $3,243,454.90 and $4,553,198.90.⁶⁵

• [317] Against those figures, the Matakana land currently has a capital value of

$9.125 million and the company has no positive equity or value beyond that. A 35 per cent share is $3,193,750. This figure is less than Mr Chen would have to pay under the JV agreement to secure his interest in the Matakana land.

• [318] Given the dispute between the parties, it would be problematic on a practical level if Mr Chen were permitted to belatedly proceed to make payments under the JV agreement and acquire a share of Matakana Estate. The parties have not been able to resolve the disputes themselves and they are still at odds. For these reasons, I consider that it would be pointless for Mr Chen to pursue a claim for an interest in the Matakana land under the JV agreement. He would also likely be barred from making such a claim by the doctrine of laches.

Equitable damages

• [319] The plaintiffs also seek relief in the form of equitable damages in relation to the three Matakana causes of action. The plaintiffs say that Mr Chen’s failure to transfer the title to the Matakana land and his obstructive approach to the development of that land have delayed development as required under the OIO consent conditions for around two years. They say that development costs have increased significantly during this delay. The plaintiffs called evidence from Patrick Hanlon, a chartered quantity surveyor, registered quantity surveyor and certified quantity surveyor, who said that the development costs increased by between approximately $3 million and

$3.2 million between 2020 and 2022.

• [320] The defendants did not challenge Mr Hanlon’s evidence and did not seek to cross-examine him. Their position is that the damages claimed are not recoverable because they were not foreseeable. In response Mr O’Brien submits that the relevant

⁶⁵ Calculated as $1,470,000 + interest of $2,229,138 or $919,394 + $854,060.90 (35 per cent of

$2,440,174).

context says otherwise. He submits that Mr Chen knew or ought to have known in October 2020 that the OIO consent had conditions attached.

• [321] By letter dated 30 October 2020 the former solicitors for Mr Huang and Ms Lu wrote to Mr Chen’s solicitor confirming previous advice that retrospective OIO consent had been granted to Mr Huang and Ms Lu in relation to the Matakana land. It is apparent from the reply on behalf of Mr Chen that the retrospective consent had been provided in discovery. The consent contained conditions. Mr Chen can be taken to be aware of those conditions.

• [322] Equitable damages for losses arising out of breach of contract are only available where the particular loss was reasonably foreseeable. The traditional test in contract derives from Hadley v Baxendale,⁶⁶ which held that the type of damages suffered must be that which would “ordinarily” arise or was stipulated at the time of the contract. The basic premise behind the principle of foreseeability is that what can be recovered is limited by a judicial determination of what is reasonable.⁶⁷

• [323] In my view, Mr Chen ought to have foreseen that Mr Huang and Ms Lu would wish to start the implementation of the conditions and develop the Matakana land at the earliest opportunity, so as to ensure compliance with the special conditions of the OIO consent. Additionally, Mr Chen was put on notice in a letter from the plaintiffs’ solicitor dated 26 August 2021 that by his conduct he had delayed the implementation of the conditions and that damages would be sought. Mr Chen took no steps to facilitate the implementation of the conditions following receipt of that letter.

• [324] The plaintiffs are entitled to damages from the delay as the loss set out in Mr Hanlon’s evidence was reasonably foreseeable. Increased construction and property development costs are an ordinary and expected consequence of significant delay. In this case, the increase in costs arose in the ordinary way and should have been foreseen by Mr Chen.

⁶⁶ Hadley v Baxendale (1854) 9 Exch 341, (1854) 156 ER 145.

⁶⁷ Andrew Butler, above n 57, at [32.5.2].

Counterclaims

• [325] It is next necessary to consider the counterclaims and any effect they may have on the orders sought by the plaintiffs.

• [326] Of the six counterclaims, Mr Chen pleads four in relation to the plaintiffs’ Matakana claims, and Mr Chen and Jackie Huang together plead the partnership counterclaim which I have already addressed. I have found there was no partnership agreement. That counterclaim therefore fails. The sixth counterclaim is pleaded by Waihopai against Ms Lu. I will consider that counterclaim after considering the plaintiffs’ Waihopai claims.

• [327] I now address the four Matakana counterclaims.

First counterclaim (against Mr Huang and Ms Lu): Matakana Zhongshan shares

• [328] Mr Chen claims that Mr Huang and Ms Lu breached the JV agreement by failing to provide him with any interest in Matakana Zhongshan.⁶⁸

• [329] As the plaintiffs acknowledge, the JV agreement provides that a wholly owned subsidiary of Matakana Wines was to be set up in China with an investment of

$200,000. That sum was provided by Mr Huang. The plaintiffs further accept that Mr Chen was entitled to a share in Matakana Zhongshan, subject to performing his obligations under the JV agreement. One of those obligations was to repay Mr Huang the sum specified in the JV agreement together with interest.

• [330] The plaintiffs defend the counterclaim on two bases:

(a) The JV agreement provides that Mr Chen would acquire a 35 per cent interest in Matakana Wines rather than Matakana Zhongshan; and

⁶⁸ In this counterclaim Mr Chen also alleges a breach of the integration “agreement” by failing to provide an interest to him in Matakana Zhongshan. It is not necessary to consider that part of the counterclaim as I have found that the Integration Scheme had not reached the stage of “agreement”.

(b) Mr Chen’s right to require a 35 per cent interest is subject to a condition precedent that he pays the money due under the JV agreement together with interest.

• [331] The plaintiffs are correct on the first point and I have accepted Dr Liao’s evidence in relation to the second point. There is no answer to the plaintiffs’ defence to the first counterclaim which fails.

Second counterclaim (against Ms Lu): shares in Matakana Wines

• [332] When Matakana Wines was incorporated, Mr Chen was the sole shareholder. In September 2012, he transferred 100 per cent of the shares to Kiwi Club, a company wholly owned by Ms Lu. Mr Chen says this was to assist Ms Lu in her immigration application. I have found that to be the case. Mr Chen pleads it was an implied term of the agreement with Ms Lu that she would procure the transfer of 40 per cent of the shares in Matakana Wines to Mr Chen upon approval of her immigration application and/or the granting of OIO consent, both of which have now occurred. The 40 per cent interest is sought under the alleged Integration Agreement. In the alternative, Mr Chen says if the Court finds the JV agreement was still in force, then he claims 35 per cent of the shares in Matakana Wines.

• [333] Ms Lu denies the counterclaim and pleads that the transfer was in consideration of the money advanced by Mr Huang and herself in accordance with the JV agreement. I do not accept that was the reason for the transfer of the shares having found that the transfer was for the purpose of assisting Ms Lu in her immigration application.

• [334] However, while Mr Chen is in breach of the JV agreement he does not have a 35 per cent entitlement in the shares of Matakana Wines (or the Matakana land).

• [335] The second counterclaim fails.

Third counterclaim (against Matakana Wines): failure to repay advances

• [336] In his third counterclaim against Matakana Wines, Mr Chen alleges a failure to repay advances he made between 8 May 2015 and 29 March 2016 totalling, he says,

$540,000. Mr Chen seeks to recover that sum, plus interest.

• [337] Further, Mr Chen claims interest on earlier advances he made to Matakana Wines which were repaid.

• [338] The plaintiffs refer the Court to the Matakana Wines financial statements which show the amount of $530,784 as the amount owing (rather than $540,000). Ms Fu gave evidence as to the quantum of the debt by reference to Matakana Wine’s ledger. I found Ms Fu to be a reliable witness who gave balanced evidence, notwithstanding she was called as a witness for the plaintiffs. Although Mr Chen challenges the quantum, he did not substantiate his claim by reference to Matakana Wine’s ledgers. He simply asserted in his brief of evidence that he made the advances in the amount pleaded in his counterclaim.

• [339] There is no reason not to accept Ms Fu’s evidence. The amount owed by Matakana Wines to Mr Chen is $530,784.

• [340] Turning to the matter of interest on that sum and the interest on the earlier advances which were repaid, the counterclaim pleads that it was the agreed practice of Mr Huang, Ms Lu and Mr Chen to charge interest on any amounts advanced by themselves or third parties to Matakana Wines from the date of advance until the date of repayment at a rate of between 12 per cent and 18 per cent per annum. That is denied by the plaintiffs. At the hearing, Mr Chen said in evidence:⁶⁹

In all these years, the money that we borrowed from other parties or friends, all these loans, their interests were above 10%. For example, when Alex advanced money into Matakana, he also charged the company 18% of the interest per year.

He also asserted that:⁷⁰

69. In the context of acknowledging that he owed Mr Huang and Ms Lu a share of the proceeds of the sale of Waihopai.

⁷⁰ In the context of pleading his claim for an interest in Matakana Zhongshan.

Mr Huang recorded a loan of 850,000 to Matakana Zhongshan with interest of 18% per year. That is recorded in the [...] meeting. And Ms Lu’s father, at the same time, he make a loan of 1.5 million [...] at the interest rate of 12% per year. So at the same time, they didn’t pay the company, but at the same time, they make a loan to the company with such a high interest. So, my style is difference with them. So based on that, I think, like, even the money of 850,000 RMB, that’s equivalent of about 150,000 New Zealand dollar, to his own company and here's their charge, there's two charge 18% interest per year.

• [341] The above is evidence of what Mr Huang charged as interest in relation to Matakana Wines and Matakana Zhongshan, as well as Mr Huang’s father-in-law in relation to (it seems) Matakana Zhongshan. But the evidence does not go so far as establishing there was an agreed practice to charge interest at the interest rate alleged.

• [342] I have considered whether Mr Chen might be able to claim interest under the Interest on Money Claims Act 2016. However, the difficulty for Mr Chen is that this was not pleaded, as required by that Act.⁷¹

• [343] Mr Chen succeeds in part on this counterclaim to the extent of a claim of

$530,784 owed to him by Matakana Wines. He fails on his claim for interest on the basis of a lack of evidence regarding alleged agreed practice and because there is no pleading in relation to the Interest on Money Claims Act.

Fourth counterclaim (against Matakana Wines): failure to pay rent and outgoings

• [344] This counterclaim relies on Mr Chen being the registered proprietor of the Matakana land. By a written Deed of Lease in 2012, Matakana Wines agreed to lease from Mr Chen the land and buildings on Lot 4 at a specified rental and pay 100 per cent of the outgoings. Mr Chen pleads that Matakana Wines has been in occupation of the premises since 27 March 2012 and has failed to pay rent or outgoings to him since at least January 2015, in breach of the lease. Mr Chen seeks to recover

$454,999.74 in unpaid rental up to July 2021 and further (unspecified) rental from July 2021⁷² and $86,339 in unpaid outgoings (Auckland Council rates).

⁷¹ Interest on Money Claims Act 2016, s 25.

⁷² It appears Mr Chen would calculate any further rental on a monthly rate of $5,833.33.

• [345] Mr Chen’s position is that if the Court were to find there was no agreement on the Integration Scheme and the plaintiffs are entitled to enforce the JV agreement, then Mr Chen seeks payment from Matakana Wines under the strict terms of the lease.

• [346] That is not a tenable position to adopt. Because Mr Chen has failed to repay the amount he owes to Mr Huang under the JV agreement, he was at all relevant times holding the Matakana land on a bare trust for Mr Huang and Ms Lu. Matakana Wines has therefore been in occupation of the land with the permission of Mr Chen as bare trustee for Mr Huang and Ms Lu alone. As far as the claim for rates, there was no evidential basis for this part of the counterclaim.

• [347] The fourth counterclaim fails.

Matakana claims (first to third causes of action): relief in favour of plaintiffs

• [348] I grant the following relief on the first, second and third causes of action:

(a) A declaration that Mr Chen holds the Matakana land on a constructive trust for Mr Huang and Ms Lu (first cause of action);

(b) An order requiring Mr Chen to transfer the title to the Matakana land, unencumbered, to Mr Huang and Ms Lu (first, second and third causes of action); and

(c) An order for equitable damages against Mr Chen in the sum of

$3 million in favour of the plaintiffs as a consequence of the delay suffered by the plaintiffs in developing the Matakana land (first, second and third causes of action).

Matakana claims (third counterclaim): relief in favour of Mr Chen

• [349] I make an order that the third plaintiff, Matakana Wines, pay Mr Chen the sum of $530,784.00.

Waihopai claims

Fourth cause of action (against Mr Chen) and fifth cause of action (against Waihopai): claims for debt

• [350] The fourth cause of action is against Mr Chen for his failure to repay the Waihopai advances (which I have found to have been loans). The fifth cause of action is an alternative claim against Waihopai for failure to repay the Waihopai advances.

• [351] The defendants’ response is that there is no debt because of the alleged agreement on the Integration Scheme. That argument has failed. In relation to the fifth cause of action they say there would be no debt owed by Waihopai in any event because the relationship was between Mr Chen and Mr Huang.

• [352] As I have already found, Mr Huang transferred $1.2 million to Mr Chen’s then solicitors in June 2013. Those funds were used along with $800,000 from Yi Lu to bring Waihopai out of receivership.

• [353] Then from December 2013 to February 2017 Mr Huang and Ms Lu made further advances to both Mr Chen and Waihopai. Together the additional advances totalled $1,176,261. Some of those later advances were made directly to Waihopai. Others were to Mr Chen and he advanced them to Waihopai. The pattern indicates they were advanced on a joint and several basis.

• [354] As to quantum, Mr Chen (while not accepting that the advances were loans) admitted that the plaintiffs advanced in excess of $2 million in relation to Waihopai but did not accept the exact figure of $2,376,261. This sum was calculated by Ms Fu; Mr Chen has offered no accounting evidence to challenge the calculation.

• [355] The plaintiffs succeed on these two causes of action. The advances (which I have found to be loans) were made to Mr Chen and/or Waihopai.

Sixth cause of action (all defendants): money had and received

• [356] In the alternative to the above claims for recovery of the Waihopai advances as a debt, the plaintiffs seek to recover the Waihopai advances in equity. They plead

money had and received (and the doctrine of unjust enrichment in the ninth cause of action). The plaintiffs say they understood they made the Waihopai advances as loans repayable on demand to be used to remove Waihopai from receivership and to ensure that Waihopai could continue trading. They say that Mr Chen and Yi Lu then caused Waihopai to sell its assets and dissipated the sale proceeds without repaying the Waihopai advances to the plaintiffs. They say this resulted in the defendants being unjustly enriched at the plaintiffs’ expense in the amount of the Waihopai advances and it would be unconscionable for the defendants to retain the benefit of the Waihopai advances.

• [357] The defendants again plead there was no debt because of integration. That is their only defence, which has failed.

• [358] The common law action for money had and received is based on the receipt of money by a defendant who has no right to retain it, and the cause of action is complete when the money is received.⁷³ An action for money had and received does not depend on proof of any wrongdoing or impropriety on the part of a recipient and it does not turn on the continued existence or retention of the money received.⁷⁴

• [359] I have accepted that the plaintiffs’ advances to Mr Chen and/or Waihopai were loans. The advances were made to assist in retrieving Waihopai from receivership and enable the company to continue trading. Each of the defendants received money from the proceeds of sale of Waihopai as set out in [382] below.

• [360] The claim for money had and received is an appropriate response in the circumstances. The plaintiffs succeed on this cause of action.

⁷³ Nimmo v Westpac Banking Corporation [1993] 3 NZLR 218 (HC) at 238.

⁷⁴ Worldwide Holidays Ltd v Wang [2019] NZHC 2218 at [71].

Seventh cause of action (against Mr Chen, Don Chen, Jackie Huang and AEG): dispositions made with the intent to prejudice Mr Chen’s creditors

Eighth cause of action (against all defendants): dispositions made with intent to prejudice Waihopai’s creditors

• [361] The eighth cause of action is an alternative to the seventh cause of action which is a further alternative to the previous causes of action.

• [362] Addressing both causes of action together, the plaintiffs’ say that the payments of the sale proceeds of Waihopai’s assets made to the defendants were “prejudicial dispositions” pursuant to the PLA because:

(a) The plaintiffs were creditors of Mr Chen and/or Waihopai in relation to the Waihopai advances;

(b) The concealed sale of Waihopai’s assets and distribution of the sale proceeds just before the original trial date of the plaintiffs’ claim against Mr Chen bears the hallmark of a transaction undertaken with the intention to render Waihopai and Mr Chen judgment-proof;

(c) Mr Chen became insolvent once payment to his brother Don Chen was made in excess of the amount that would equate to Don Chen’s percentage share in Waihopai; and Mr Chen could no longer repay the Waihopai advances to the plaintiffs and other creditors such as Ms Wang;

(d) Additionally, and alternatively, following the payments of all net proceeds of the sale of Waihopai’s assets to the defendants, Waihopai became insolvent (if it was not already); and

(e) The payments were intended to prejudice and have the effect of causing prejudice to the plaintiffs as creditors.

• [363] The defendants’ position is that the plaintiffs are not creditors of either Mr Chen or Waihopai because of the alleged Integration Agreement. That argument has failed.

• [364] The plaintiffs rely on subpart 6 of Part 6 of the PLA. The purpose of subpart 6, as set out in s 344 of the PLA, is:

... to enable a court to order that property acquired or received under or through certain prejudicial dispositions made by a debtor (or its value) be restored for the benefit of creditors ...

• [365] “Property” is defined to include the “proceeds of any property”.⁷⁵

• [366] “Proceeds” in relation to any property means the “proceeds of the sale of the property”.⁷⁶

• [367] The definition of “disposition” is:⁷⁷

A conveyance, transfer, assignment, settlement, delivery, payment, or other alienation of property, whether at law or in equity ...

• [368] A further relevant definition relates to prejudicial dispositions:⁷⁸

A disposition of property prejudices a creditor if it hinders, delays, or defeats the creditor in the exercise of any right of recourse of the creditor in respect of a property.

• [369] Section 346 relevantly provides:

346 Dispositions to which this subpart applies

(1) This subpart applies only to dispositions of property made after 31 December 2007—

(a) by a debtor to whom subsection (2) applies; and

(b) with intent to prejudice a creditor, or by way of gift, or without receiving reasonably equivalent value in exchange.

(2) This subsection applies only to a debtor who—

(a) was insolvent at the time, or became insolvent as a result, of making the disposition; or

...

⁷⁵ Section 345(2).

⁷⁶ Section 345(2).

⁷⁷ Section 345(2).

⁷⁸ Section 345(1).

• [370] A creditor who claims to be prejudiced by a disposition of property to which subpart 6 applies may make an application to the Court for an order to set aside certain dispositions.⁷⁹

• [371] Section 348 relevantly provides:

348 Court may set aside certain dispositions of property

(1) A court may make an order under this section—

(a) on an application for the purpose (made and served in accordance with section 347); and

(b) if satisfied that the applicant for the order has been prejudiced by a disposition of property to which this subpart applies.

(2) The order must do 1, but not both, of the following:

(a) vest the property that is the subject of the disposition in the person (for any applicable purpose) specified in section 350:

(b) require a person who acquired or received property through the disposition to pay, in respect of that property, reasonable compensation to the person (for any applicable purpose) specified in section 350.

(3) If the order does what is specified in subsection (2)(a), it may also require a person who acquired or received property through the disposition to physically restore some or all of that property that is tangible personal property to 1 or more persons specified in the order.

(4) Person who acquired or received property through the disposition means a person who acquired or received property—

(a) under the disposition; or

(b) through a person who acquired or received property under the disposition.

...

• [372] Under s 348 a court may set aside dispositions of property if it is satisfied that the applicant for the order has been prejudiced by a disposition of property to which subpart 6 applies.⁸⁰ The order of the court must either (but not both) vest the property that is the subject of a disposition in the person specified in s 350 (with the vesting to be for any applicable purpose) or require a person who acquired or received property

⁷⁹ Sections 347(1)(a) and 348.

⁸⁰ Section 348(1)(b).

to pay, in respect of that property, reasonable compensation to the person specified in s 350. The plaintiffs seek the former order.

• [373] Under s 350 property may be vested in the debtor, for the purpose only of enabling the carrying out of any execution or similar process against the debtor.⁸¹

• [374] I have already accepted that the plaintiffs are creditors of Mr Chen and/or Waihopai in respect of the Waihopai advances.

• [375] By 22 February 2021 Mr Chen knew that if the plaintiffs succeeded at trial in the proceeding against him (scheduled for hearing in this Court in March 2021) orders would be granted in relation to the Waihopai advances. With this knowledge, on 22 February 2021 Mr Chen paid out $404,000 from the sale proceeds he received to third parties.

• [376] On 24 February 2021, Mr Chen and Yi Lu and, I accept through them, Jackie Huang and Yi Lu’s wife, Qi Yang, knew that freezing orders had been applied for and granted against Waihopai. Then:

(a) On 24 February 2021 Yi Lu paid $2.71 million of the Waihopai sale proceeds from his bank account to the bank account of his wife Qi Yang in around 55 individual electronic transfers of $50,000 each and a further transfer of $1,000;

(b) On 25 February 2021 Mr Chen or Jackie Huang caused $299,000 to be paid to a bank to discharge a loan that was secured against their family home.

• [377] I accept that Mr Chen became insolvent because he could no longer repay the Waihopai advances. That is because Mr Chen has repeatedly confirmed that he has no ability to repay the advances. In an application made to vary and discharge the freezing orders made in April 2021, Mr Chen, Don Chen and Waihopai put forward a security proposal under which they proposed to advance approximately $2.5 million

⁸¹ Section 350(2)(b).

to Waihopai to be held as security for the plaintiffs’ claim. However, Mr Chen’s contribution to the sum was to have been borrowed from other parties including Yi Lu. In the course of the trial Mr Chen professed a willingness to repay this amount but indicated that he has no cash available and that if he is required to pay, he would need to borrow money from friends.

• [378] I accept that the payment of part of the sale proceeds to his brother in excess of the amount that would equate to Don Chen’s percentage share in Waihopai was intended to prejudice and had the effect of causing prejudice to the plaintiffs as creditors of Mr Chen. At the time of the payments the plaintiffs were seeking recovery of the Waihopai advances from Mr Chen. Mr Chen and Yi Lu caused Waihopai to pay part of Mr Chen’s share of the sale proceeds to Don Chen. Mr Chen then paid part of the sale proceeds to Jackie Huang and third parties. Moreover, Mr Chen only disclosed the sale of Waihopai to the plaintiffs after the sale proceeds had been dissipated.

• [379] In relation to Mr Chen, and for the purposes of s 348(4) of the PLA:

(a) Don Chen is a person who received property through a prejudicial disposition because he received $3,348,059.76 from the sale proceeds;

(b) Jackie Huang received property through a prejudicial disposition, because she received at least $90,000 of the sale proceeds from Mr Chen; and

(c) AEG is a person (entity) which received property through a prejudicial disposition, because it received at least AUD$1 million being part of the sale proceeds paid to Don Chen.

• [380] In relation to Waihopai, as a result of the payment of the sale proceeds to Mr Chen, Don Chen and Yi Lu, Waihopai became insolvent because it could no longer repay the Waihopai advances.
• [381] I accept the payments made to Mr Chen, Don Chen and Yi Lu following the sale of Waihopai’s assets were intended to prejudice and had the effect of causing prejudice to the plaintiffs as creditors of Waihopai. At the time of those payments the plaintiffs were seeking the recovery of the Waihopai advances in proceedings against Mr Chen. Those claims included orders that, if necessary, Mr Chen procure Waihopai to pay the Waihopai advances to the plaintiffs. Mr Chen and Yi Lu caused Waihopai to pay all of the sale proceeds to themselves and to Don Chen with no payments made to the plaintiffs and again Mr Chen only disclosed the sale of Waihopai to the plaintiffs after the proceeds had been dissipated from the company.

• [382] In relation to Waihopai and for the purposes of s 348(4) of the PLA, each of the defendants is a person who received property through a prejudicial disposition, having received the following amount from the sale proceeds:

(a) Mr Chen: $1,023,000.00; (b) Yi Lu: $2,990,706.51; (c) Don Chen: $3,348,059.76;

(d) Jackie Huang: $90,000 (being part of the proceeds received by

Mr Chen);

(e) Qi Yang: $2,751,000 (being part of the proceeds received by

Yi Lu);

(f) AEG: AUD$1,000,000 (being part of the proceeds received

by Don Chen).

• [383] For completeness I note that I have considered whether s 345(1)(b) might apply. It provides that a disposition of property is not made with intent to prejudice a creditor if it is made with the intention only of preferring one creditor over another. In this case I accept that Mr Chen concealed the sale of Waihopai’s assets and the distribution of the sale proceeds from the plaintiffs (until disclosed in his brief of evidence for the trial scheduled for March 2021). I accept the plaintiffs’ submission

that in all those circumstances that conduct bears the hallmark of steps taken with the intention to render Waihopai and Mr Chen judgment-proof. Accordingly, s 345(1)(b) does not apply.

• [384] For all the above reasons the plaintiffs succeed on the seventh, and in the alternative, the eighth cause of action.

Ninth cause of action (all defendants): unjust enrichment

• [385] This is a further alternative cause of action in equity. The defendants again plead the Integration Scheme was agreed. They say under that agreement the plaintiffs will be required to account to Mr Chen and Jackie Huang for a greater amount than the Waihopai advances. Again, that defence cannot succeed on the facts as I have found them.

• [386] Unjust enrichment claims seek to reverse otherwise effective transfers because the claimant’s consent was, although objectively manifest, in some way substantively defective or absent. The right to restitution is triggered by the receipt of an enrichment in circumstances that put it within one of the unjust categories: these include mistake, lack of capacity, compulsion and lack of consideration. Liability for unjust enrichment is strict; it does not depend on the commission of the wrong, or the quality of the defendant’s conscience or his conduct.⁸²

• [387] I am not certain that the facts as I have found them fit within the above principles. However, having found in favour of the plaintiffs against all defendants on the sixth and eighth causes of action I do not consider it is necessary to decide the ninth cause of action.

Affirmative defence and counterclaim

Second affirmative defence (Mr Chen): debt owed

• [388] In relation to the plaintiffs’ Waihopai causes of action, Mr Chen pleads a second affirmative defence that payments he received were partly owed to him.

⁸² Andrew Butler, above n 57, at [42.2.2].

He says that as of 22 January 2021 Waihopai owed him a debt of $81,537 being the sum of expenses that he had paid on Waihopai’s behalf. Mr Chen further pleads that to the extent that payments were made by Waihopai to him from 22 January 2021, to a total of $81,537, they were in satisfaction of that debt.

• [389] Mr Judd did not address this defence in his submissions. That is consistent with his general approach that there was a partnership and that the accounting issues would be addressed following an order from the Court that accounts be taken.

• [390] I have reviewed the evidence on this issue. Mr Chen, in his brief of evidence, says that the accounting needs to include various contributions made by the plaintiffs and by himself and Jackie Huang. He then lists various matters he says would need to be addressed as part of the taking of accounts. He says that Waihopai owed him

$81,537 as at 22 January 2021 as pleaded. In the absence of any underlying evidence, I do not accept what is simply a bare assertion.

• [391] Mr Chen’s second affirmative defence fails.

Fifth counterclaim (against Ms Lu): failure to repay advance

• [392] Waihopai brings the fifth counterclaim against Ms Lu. It pleads: prior to 4 October 2016 Ms Lu advanced $100,000 to Waihopai; then, on or around 4 October 2016, Waihopai paid $120,000 to Ms Lu, being repayment of the $100,000 and a further advance of $20,000. Waihopai claims repayment of the $20,000 as a debt and interest under the Interest on Money Claims Act.

• [393] At the hearing the approach on behalf of Waihopai was that the claim should be dealt with as part of the overall accounting, on the basis that the Court would find there was a partnership and order an accounting be taken. I have found there was no partnership. No evidence to support this counterclaim was adduced by Mr Chen.

• [394] The fifth counterclaim fails.

Waihopai claims (fourth to ninth causes of action): relief

Fourth and fifth causes action

• [395] I give judgment in the sum of $2,376,261 in favour of the plaintiffs against Mr Chen and in the alternative against Waihopai.

• [396] I award interest on the above sum of $2,376,261 from the date on which each of the individual advances making up that sum were advanced (adopting 25 June 2013 as the date for the first $1.2 million and for the balance, the dates for each individual advance as specified in Schedule 2 to Ms Fu’s brief of evidence) calculated under s 12 of the Interest on Money Claims Act 2016.

Sixth cause of action

• [397] In the alternative I give judgment in the sum of $2,376,261 in favour of the plaintiffs against all defendants.

• [398] I award interest on the above sum of $2,376,261 from the date on which each of the individual advances making up that sum were advanced (adopting 25 June 2013 as the date for the first $1.2 million and for the balance, the dates for each individual advance as specified in Schedule 2 to Ms Fu’s brief of evidence) calculated under s 12 of the Interest on Money Claims Act 2016.

Seventh cause of action

• [399] In the further alternative I make an order under s 348 of the Property Law Act 2007 requiring Jackie Huang, Don Chen and AEG each to repay the funds received by them through prejudicial dispositions back to Mr Chen’s account (being $90,000 received by Jackie Huang; $3,348,059.76 received by Don Chen; and AUD$1,000,000 received by AEG: which sum is part of the sum of $3,348,059.76 received by Don Chen).

• [400] I make an order requiring Mr Chen to pay the plaintiffs $2,376,261.
• [401] I award interest on the above sum of $2,376,261 from the date on which each of the individual advances making up that sum were advanced (adopting 25 June 2013 as the date for the first $1.2 million and for the balance, the dates for each individual advance as specified in Schedule 2 to Ms Fu’s brief of evidence) calculated under s 12 of the Interest on Money Claims Act 2016.

Eighth cause of action

• [402] In the further alternative I make an order under s 348 of the Property Law Act 2007 requiring each of the defendants to repay the proceeds of the sale of Waihopai’s assets received by them to Waihopai. The proceeds of sale received by each defendant is as follows:

(a) Mr Chen: $1,023,000.00; (b) Yi Lu: $2,990,706.51; (c) Don Chen: $3,348,059.76;

(d) Jackie Huang: $90,000 (being part of the proceeds received by

Mr Chen);

(e) Qi Yang: $2,751,000 (being part of the proceeds received by

Yi Lu);

(f) AEG: AUD$1,000,000 (being part of the proceeds received

by Don Chen).

• [403] I make an order requiring Waihopai to pay the plaintiffs $2,376,261.

• [404] I award interest on the above sum of $2,376,261 from the date on which each of the individual advances making up that sum were advanced (adopting 25 June 2013 as the date for the first $1.2 million and for the balance, the dates for each individual advance as specified in Schedule 2 to Ms Fu’s brief of evidence) calculated under s 12 of the Interest on Money Claims Act 2016.

Ninth cause of action⁸³

• [405] I make no orders on the ninth cause of action.

Result – summary

• [406] The terms of the 26 June 2013 Integration Scheme were not finally agreed between the parties. There was no partnership agreement based on the Integration Scheme or otherwise.

• [407] The advance of $1.2 million made by Mr Huang and the subsequent advances totalling $1,176,261 made by Mr Huang and Ms Lu to Mr Chen and/or Waihopai were not payments under the alleged agreement in the Integration Scheme or otherwise in the course of partnership, but were loans.

• [408] The business relationship between Mr Huang, Ms Lu and Mr Chen is governed by the Joint Venture Cooperation Agreement signed on 19 April 2012.

• [409] Mr Chen is in breach of the 19 April 2012 Joint Venture Cooperation Agreement by failing to make the payments required for his share of Matakana Estate and by failing to transfer title to the Matakana land to Mr Huang and Ms Lu.

• [410] The plaintiffs succeed on each of the first to eighth causes of action. It is not necessary to make a decision on the ninth cause of action.

• [411] Mr Chen succeeds in part on the third counterclaim. The other five counterclaims fail.

Relief

• [412] In relation to the Matakana claims (the first to third causes of action) the relief ordered in favour of the plaintiffs is set out at [348] and in favour of Mr Chen on the third counterclaim at [349] above.

83. Incorrectly called the tenth cause of action in the amended statement of claim dated 28 January 2022.

• [413] In relation to the Waihopai claims (the fourth to ninth causes of action) the relief ordered in favour of the plaintiffs is set out at [395] to [404] above.

Costs

• [414] I did not hear submissions on costs. Costs are therefore reserved. The plaintiffs as the successful parties are prima facie entitled to costs. If the parties are able to agree costs a joint memorandum is to be filed and served within 25 working days of the date of this judgment. If costs cannot be agreed the plaintiffs are to file and serve their memoranda on costs within five working days of the date for the joint memorandum. The defendants are to file and serve their memorandum within five working days of the date of service of the plaintiffs’ memorandum.

• [415] Memoranda are not to exceed five pages, excluding attachments. I will determine costs on the papers.

Gordon J