ADM International SARL v Golden Shine NZ Ltd

[2023] NZHC 3021

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-1384

[2023] NZHC 3021

BETWEEN

ADM INTERNATIONAL SARL

Applicant

AND

GOLDEN SHINE NZ LTD

Respondent

Hearing:	9 October 2023
Counsel:	A J Sherlock and C D Hunter for Applicant P Davies for Respondent
Judgment:	30 October 2023

JUDGMENT OF BREWER J

This judgment was delivered by me on 30 October 2023 at 4 pm pursuant to Rule 11.5 High Court Rules.

Registrar/Deputy Registrar

Solicitors:

Hesketh Henry (Auckland) for Applicant Fee Langstone (Auckland) for Respondent

ADM INTERNATIONAL SARL v GOLDEN SHINE NZ LTD [2023] NZHC 3021 [30 October 2023]

Introduction

[1]    On 17 July 2023, Davison J granted an ex parte application by ADM International SARL (ADM) for a freezing order in respect of the assets of Golden Shine NZ Ltd (GSNZ).1

[2]    Justice Davison declined to make an ancillary order requiring GSNZ to make discovery. He directed that the application for the ancillary order be served on GSNZ.

[3]    The freezing order was an interim one. Following some interlocutory skirmishing before Venning J on 24 July 2023, it was extended to 2 August 2023 for review and consideration of further extension.2

[4]On 2 August 2023, Campbell J:3

(a)granted the application for the ancillary order that discovery be made; and

(b)set down for hearing on 9 October 2023 the issue of whether the freezing order should continue.

[5]    On 10 August 2023, GSNZ advised its intention to file an application to set aside the freezing order and filed an application for stay of the ancillary order pending determination of its prospective application.

[6]    On 18 August 2023, GSNZ filed an application, inter alia, for an order discharging the freezing order.

[7]    The application for stay was dismissed by Isac J in a results judgment4 delivered on 22 August 2023.5

1      ADM International SARL v Golden Shine NZ Ltd [2023] NZHC 1859.

2      ADM International SARL v Golden Shine NZ Ltd HC Auckland CIV-2023-404-1384, 24 July 2023.

3      ADM International SARL v Golden Shine NZ Ltd HC Auckland CIV-2023-404-1384, 2 August 2023.

4      ADM International SARL v Golden Shine NZ Ltd [2023] NZHC 2296.

5      The Judge’s reasons judgment was delivered on 27 September 2023: ADM International SARL v Golden Shine NZ Ltd [2023] NZHC 2694.

[8]    It fell to me to preside at the hearing on 9 October 2023. It was not the most coherent of hearings. ADM had raised the possibility of adjournment for non- compliance with the ancillary order. Neither party had filed submissions (but submissions for both sides were handed up to me during the hearing). Formally, I had before me ADM’s application to continue the freezing order (as set down by Campbell J on 2 August 2023), GSNZ’s application for an order discharging the freezing order (filed on 18 August 2023) and an application by GSNZ for security for costs (also filed on 18 August 2023).

Background

[9]    The background to the case is set out in the judgments of Davison J and Isac J. I will not repeat it. In outline, GSNZ provided Performance Guarantees to ADM in respect of Charter Party agreements between ADM and Golden Shine Management Ltd (GSM). GSM is in default and ADM seeks to rely on the Performance Guarantees.

[10]I will summarise in broad terms the positions of the parties.

[11]   For GSNZ it is that GSNZ has no assets and has ceased trading. The freezing order should not have been granted because ADM was not candid in its advice to the Court. In any event, GSNZ has no assets to dissipate and so the freezing order lacks one of its legal prerequisites. It has complied with the ancillary order and has confirmed GSNZ’s position. The freezing order should be discharged.

[12]   For ADM it is that GSNZ has not complied with the ancillary order. The issues raised by GSNZ cannot be determined until it is. ADM has a good claim against GSNZ under English law and proceedings have been issued in the High Court in London. There should be an adjournment of the issue on whether the freezing order should be made permanent until the ancillary order has been complied with.

Discussion

[13]The ancillary order provides, relevantly:

2.The court is satisfied, having regard to all the circumstances disclosed by affidavit evidence filed in support of the application, that there is a

danger that judgment in favour of the applicant will be wholly or partly unsatisfied and that further information is required to accurately identify relevant assets for the freezing order to attach to.

3.This ancillary order requires the respondent to:

(a)Discover any documents revealing the existence, whereabouts and value of any assets currently held by the respondent (whether as legal or equitable owners) or where assets are held for the benefit of the respondent. This includes, but is not limited to all bank accounts, debts owed to the respondent, chattels, carbon credits and real property.

(b)Discover all underlying transactions, correspondence (internal or external) and documents relating to the relinquishment of forestry rights (on lots WN263/279, 653339 and WN56C/602) on or about 19 September 2022.

(c)Discover all underlying transactions, correspondence (internal or external) and documents relating to the charging of carbon credits on the PPSR on in early December 2022.

(d)Provide details of the assets (plant, machinery, property) purported to be worth NZD 70,000,000 in its 2021 financial statement, and if those assets are no longer owned by the respondent, discover any documents relating to the transfer of those assets.

[14]   The purpose of the ancillary order is clear. Both Campbell J and Isac J expressed the view that without it there is little utility to the freezing order.6 I respectfully concur. And, I consider that compliance with the ancillary order is necessary before the Court can decide the arguments of the parties as to whether the freezing order should continue.

[15]The issue at this point is whether GSNZ has complied with the ancillary order.

[16]   The evidence for GSNZ is primarily an affirmation of CUI Min, a director of GSNZ, dated 7 September 2023 and filed on 21 September 2023. Ms Cui affirms, effectively, that GSNZ has no assets and has not traded for some years, and so it does not produce financial statements.

[17]In relation to forestry rights, Ms Cui affirms:

6      ADM International SARL v Golden Shine NZ Ltd, above n 2, at [9]; and ADM International SARL v Golden Shine NZ Ltd, above n 5, at [33].

12.Attached marked “A-3” to “A-36” are all the documents located that relate to the relinquishment of forestry rights on lots WN263/279. 653339 and WN56C/602 on or about 19 September 2022. The forestry grant document has been redacted as the only relevant part is the termination provision.

13.The context to the termination was that the person at GSNZ who was originally responsible for trading carbon credits passed away from disease, so that no trades were ever made, only several VER (Voluntary Emission Return) applications. Our client therefore did not wish to maintain the arrangement.

[18]   The forestry grant agreement (the Agreement), redacted in the disclosure, is a key document. ADM’s case is that GSNZ had valuable forestry rights, including rights to carbon credits, which it relinquished, or appears to have relinquished, at about the time it became apparent that GSM would default on the Charter Party agreements. If so, GSNZ might have acted unlawfully.

[19]   On 3 October 2023, GSNZ permitted Mr Hunter, a lawyer in the firm (Hesketh Henry) acting for ADM, to inspect the Agreement. As a result, Hesketh Henry wrote to GSNZ’s lawyers (Fee Langstone) setting out apparent inconsistencies between the terms of the Agreement and other documents and assertions.

[20]ADM submits:

32It is noted that the copy of the Agreement counsel has seen appears to be inconsistent with the state of evidence. In particular:

(a)The March 2022 correspondence between GS NZ and KFIL7 that refers to a breach of agreement through the use of third- party services. This does not (as far as counsel can tell) appear to be an obligation in the Agreement.

(b)The 2 August 2022 deed8 refers to performance targets. These performance targets do not appear in the Agreement.

(c)The 13 September 2022 surrender notice9 states that the forestry assets  are  to  be  returned  in  10  working  days  (27 September 2022), but in fact Duncan Cotterill registered the instrument effecting surrender on 19 September 2022, one day before GSM entered into negotiations for reduced hire and stopped paying hire under the Charter Party Agreements.

7      This is a reference to the other party to the Agreement.

8      Deed of Surrender of the forestry rights disclosed by GSNZ.

9      Disclosed by GSNZ.

(d)The 13 September 2022 board resolution10 also mentions return of the forestry rights pursuant to cl 5.2 of the Agreement, which would mean 10 working days.

(e)KFIL registered financing statements against GS NZ’s carbon credits on 2 December 2022, two days after ADM made its initial calls on the Performance Guarantees. When enquiry was raised on this GS NZ’s counsel stated that this was just due to the security agreement provided for in the Agreement. However, ADM’s counsel saw no evidence of such provisions.

(f)The Agreement provided that GS NZ was to obtain the carbon credits for KFIL’s forests, yet it seems now to have no carbon credits or assets, despite those credits being worth a great deal of money.

[21]   ADM submits that GSNZ has failed to make material disclosure as required by the ancillary order. It seeks:

(c)disclosure by the respondent (GS NZ) of

(i)the 2017 agreement (Agreement) between GS NZ and Kiwi Forest Investments Limited (KFIL);

(ii)any addendum/s or amendments to the Agreement;

(iii)disclosure of GS NZ’s carbon credit register history; and

(iv)Disclosure of the Supplemental Deed to the Grant of Forestry Right.

[22]   The response for GSNZ is that the only evidence before the Court as to GSNZ’s economic position is that of Ms Cui. The ancillary order is not a general discovery order and ADM should not be permitted to use it for a “fishing expedition”.

[23]   Ms Cui’s  evidence  and  that  of  an  expert  in  Chinese  business  culture,  Dr Zhixiong Liao, which has not been challenged, explain why cultural differences may lead to business activities appearing suspicious to Western eyes when they are well within Chinese norms.

[24]   Accordingly, GSNZ’s submission is that there is simply no reason why the freezing order should remain.

10     Disclosed by GSNZ.

Decision

[25]   I have reached the view that GSNZ has not complied with the ancillary order. The requirements of 3(a) and 3(b) of the order are broad, but not overly so. I consider:

(a)GSNZ should have disclosed the Agreement without redaction. It is not just the termination provision which could be relevant. The legal obligations of the parties could be relevant to whether the termination provision was properly given effect.

(b)There is reason to believe that the Agreement was amended. Clause 4.2 of the Deed of Surrender disclosed by GSNZ says:

The Holder agrees and acknowledges that the Holder failed to meet the Performance Target as defined in the 2017 Deed (as amended) as of the date of this Deed, and as a result, it is not entitled to any Carbon Credits, fees, rewards, compensation, or remuneration in any form notwithstanding its performance (if any) of its obligations under the 2017 Deed.

I was informed from the Bar that Mr Hunter did not see any reference to performance targets when he perused the unredacted Agreement.

(c)Disclosure of GSNZ’s carbon credit register history is necessary.

(d)If there is a supplemental deed to the Agreement it should be disclosed.

[26]   I do not consider ADM is “fishing”. The documents it seeks are within the scope of the ancillary order.

[27]   I do not see material prejudice to GSNZ, given its assertion that it is not trading and has no assets to be frozen, if the freezing order is continued until full compliance with the ancillary order. I acknowledge that GSNZ is correct that a requirement for a freezing order is that there are assets to which the order can apply. However, its failure to comply with the ancillary order obscures the assessment of whether any assets do exist.11

11     Bank of New Zealand v Hawkins (1989) 1 PRNZ 451 (HC) at 453.

[28] I direct that GSNZ make disclosure of the documents sought by ADM and listed at [21]. It is to do this no later than 24 November 2023.

[29]   I direct the registry to list the substantive applications for the freezing order to be made permanent/discharged for hearing, allowing one day, on the next available date after 24 November 2023.

[30]The freezing order is extended in effect until further order of the Court.

[31]   Leave is reserved to either party to seek an earlier call of the case for timetabling or other interlocutory orders.

[32]Costs are reserved.

Brewer J