B & Z Trades Company Limited v Bei

[2024] NZHC 1345

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2024-404-918 [2024] NZHC 1345

UNDER

Part 13 of the High Court Rules 2016

IN THE MATTER OF

An action for recovery of land

BETWEEN

B & Z TRADES COMPANY LIMITED

Plaintiff

AND

YONG SHENG BEI, YAN XIAN ZHONG and JORDAN BEI

Defendant

Hearing:

7 May 2024

Counsel:

E St John / S P Maloney for the Plaintiff

M S P Pang / X Lin for the Frist Named Defendant

Judgment:

27 May 2024

JUDGMENT OF ASSOCIATE JUDGE BRITTAIN

This judgment was delivered by me on 27 May 2024 at 12 Midday.

Pursuant to Rule 11.5 of the High Court Rules.

…………………..

Registrar/Deputy Registrar

Solicitors:

Heritage Law, Auckland Integritas Law, Auckland

Counsel:

E St John

S P Maloney

B & Z TRADES COMPANY LTD v BEI [2024] NZHC 1345 [27 May 2024]

Introduction

[1]    The first named defendant, Yong Sheng Bei (Yong Sheng), is the father of Yao Ping Bei (Yao Ping). Yao Ping is a director and registered shareholder of the plaintiff, B & Z Trades Company Ltd (B & Z).

[2]    B & Z has owned a property at  59 Galway  Street,  Onehunga,  Auckland (the property) since 2010. Yong Sheng and his wife, the second named defendant, have occupied the property since it was acquired by B & Z.

[3]    Yong Sheng says that he is a beneficial owner of shares in B & Z, and a shadow director. Yong Sheng claims that he should be the sole director and registered shareholder of B & Z, which he says is the corporate vehicle for a partnership between Yong Sheng and Yao Ping.  Yao  Ping denies that Yong  Sheng has any interest  in B & Z.

[4]    B & Z did not take issue with Yong Sheng and his wife occupying the property from 2010 until 2021. The inference that can be drawn from this prolonged period of occupation with the knowledge of B & Z is that B & Z consented to it.

[5]    Yong Sheng says that in about September 2022, Yao Ping told him that B & Z was putting the property on the market for sale. In October 2022, B & Z unsuccessfully applied to the Tenancy Tribunal for an order evicting Yong Sheng and his family. The parties now agree that the defendants are not tenants or lessees of the property. They do not pay any form of occupation rent.

[6]    Yao Ping says that Yong Sheng and  his wife  are  squatting  in the  property. B & Z has applied for summary judgment for an order for possession against Yong Sheng, his wife and their adult son, the third named defendant.

[7]    Whether Yong Sheng has an arguable basis for his continued possession of the property raises the following issues:

(a)Were Yong Sheng and Yao Ping in partnership or a joint venture?

(b)What was the legal basis for Yong Sheng’s occupation of the property from 2010 to 2021?

(c)Does that right of occupation continue?

[8]    During the hearing, an issue emerged regarding the requirements for termination of a bare licence to occupy land, where the licensor is either a company or a partnership and where a dispute exists as to the beneficial ownership and internal management of the company and/or the partnership. I directed the defendants to file any further submissions by 21 May 2024, and the plaintiff by 28 May 2024. The defendants did file any further submissions or explain why not. The plaintiff filed further submissions on 24 May 2024.

Summary judgment principles

[9]    The Court may give judgment against a defendant if satisfied that the defendant has no defence to a cause of action in the statement of claim.

[10]   The leading authority on  applications  for  summary  judgment  is  Krukziener v Hanover Finance Ltd.1 The Court of Appeal set out the following principles:2

(a)The question on a summary judgment application is whether the defendant has no defence to the claim; that is, there is no real question to be tried. The Court must be left without any real doubt or uncertainty.

(b)The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated.

1      Krukziener v Hanover Finance Ltd [2008] NZCA 187, (2008) 19 PRNZ 162.

2 At [26].

(c)The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as, for example, where the evidence is not consistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable. In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it.

[11]   The defendant is under an obligation to lay a proper foundation for the defence in the affidavits filed in support of the notice of opposition.3

[12]   The Court retains a residual discretion to decline summary judgment where oppression or injustice may arise if judgment is entered, including injustice arising out of other aspects of the dispute between the parties.4 That may include circumstances that might result in an injustice if judgment is entered before a third-party claim is tried.5

B & Z

[13]   B & Z was incorporated on 23 May 2000 by Yong Sheng’s sister, Hui Ming Bei (Hui Ming). On incorporation, Hui Ming was the sole shareholder and director. Yong Sheng and Hui Ming say that B & Z was incorporated to run Yong Sheng’s business while he was in China.

[14]   On 1 April 2001, after Yong Sheng returned to New Zealand, Hui Ming resigned as a director and Yong Sheng was appointed as a director. Hui Ming remained the shareholder. Hui Ming’s evidence is that she “returned the company” to Yong Sheng, and that Yong Sheng should have  “taken over”  B &  Z.  Yong  Sheng used  B & Z for his own business purposes from 2001 to 2005.

3      Middleditch v New Zealand Hotel Investments Ltd (1992) 5 PRNZ 392 (CA) at 394.

4      Herring v Herring [2010] NZCA 500, [2011] 2 NZLR 433 at [26].

5      Sudfeldt v UDC Finance Ltd (1987) 1 PRNZ 205 (CA) at 209.

[15]   Yao Ping came to New Zealand in 2001. On 31 July 2001, a document was lodged with the Companies Office recording a change in the directorship of B & Z. Yong Sheng was removed as a director and Yao Ping was appointed as a director. There is a dispute regarding how that came to be and the provenance of the document.

[16]   B & Z’s annual return to the Companies Office dated 28 October 2001 recorded a change in shareholding, with all shares in B & Z recorded as registered in the name of Yao Ping. Hui Ming says that she did not sign any documents to transfer any rights in respect of B & Z to Yao Ping. She says that she had no knowledge of the appointment of Yao Ping as a director in 2001.

[17]   Yong Sheng says that he had no knowledge of these changes in the Companies Register in Yao Ping’s favour until 2005. Yong Sheng says that he confronted Yao Ping when he learned about the changes. That led to Yao Ping creating a document which is in evidence, signed by Yao Ping and Yong Sheng and addressed to the Inland Revenue Department, which recorded that Yao Ping had resigned as a director and that Yong Sheng was the director from 1 April 2005. No documents were filed with the Companies Office to effect a change in directorship.

[18]   B & Z began the business of importing cars in 2005. Yong Sheng provided services to B & Z. There is scant evidence of how the business was operated.

[19]   B & Z’s annual returns to the Companies Office dated 2 December 2019 and 24 November 2020 record Yong Sheng and Yao Ping as joint owners of one parcel of 50 per cent of the shares. There is no evidence from either party to explain why those returns were filed on that basis. Yong Sheng is no longer recorded as a shareholder.

[20]Hayoying Wu (Mr Wu) was appointed a director by Yao Ping in 2022.

[21]    I will not set out in detail the financial contributions that Yong Sheng alleges he has made to the assets now legally owned by B & Z.6 There is evidence of advances by Yong Sheng to B & Z. Source documents relevant to some of the advances are not

6      For a description of these contributions, see Bei v B & Z Trades Company Ltd [2024] NZHC 20 at [28]–[39].

yet available, and the parties have a different view of the nature of the advances. Yong Sheng says that they were contributions of capital towards the purchase price of properties acquired by B & Z or for B & Z’s business operation. Yao Ping says that the advances were loans to B & Z which have been repaid.

[22]   Of most significance, Yong Sheng alleges that in 2006 he and his wife sold a property they owned at 475 Great South Road, Auckland for $330,000 and applied the net sale proceeds to B & Z. He says that those funds were ultimately used by B & Z to purchase the property in 2010. Yao Ping denies that Yong Sheng provided any capital for B & Z, including for the acquisition of the property.

[23]   At present, there is only limited documentary evidence  available  regarding B & Z’s purchase of the property in 2010. Yao Ping has produced a copy of the agreement for sale and purchase, which states that the purchase price was $680,000. Yao Ping says that the deposit and the balance due on settlement were paid from B & Z’s bank account with ASB. The relevant bank statements are not produced. Assuming that the payments were made from that account, there is no evidence to confirm the source of the funds in B & Z’s account.

[24]   It is not possible to make a finding of fact on the affidavit evidence regarding the source of funds for B & Z’s purchase of the property, and whether that included a significant contribution from Yong Sheng from the proceeds of sale of the property at 475 Great South Road.

The history of litigation between the parties

[25]   In October 2022, Yong Sheng registered a caveat against the title to the property. B & Z, acting by its directors Yao Ping and Mr Wu, commenced the lapsing procedure under the Land Transfer Act 2017. Yong Sheng applied for an order sustaining his caveat (the caveat proceeding). The application was declined by Associate Judge Gardiner in a judgment dated 31 January 2024.7

7 At [52].

[26]   Yong Sheng had advanced his case on the basis that B & Z was the corporate vehicle for a partnership between Yong Sheng and Yao Ping, and B & Z held the property on trust for the partnership.

[27]   Associate Judge Gardiner held that Yong Sheng had not demonstrated that he had a reasonably arguable case that there existed a partnership or that B & Z acquired and held the property on trust for the partnership.8 Yong Sheng has appealed that judgment.

[28]   In October 2023, Yong Sheng commenced a proceeding against Yao Ping and B & Z (the substantive proceeding) seeking relief under the Partnership Law Act 2019 (PLA). In his statement of claim, Yong Sheng pleads, inter alia, that:

(a)he formed a partnership with Yao Ping in 2005;

(b)the partnership would be “run through” B & Z as the “corporate vehicle” of the partnership;

(c)Yong Sheng and Yao Ping would be equal partners;

(d)the business of the partnership was importing cars from Japan and other overseas countries for sale in New Zealand;

(e)the partnership acquired the property and two other properties;

(f)Yao Ping dissolved the partnership by his words or conduct in 2021;

(g)Yong Sheng is entitled to relief under the PLA, including a declaration that the partnership existed and an order for equal division of the partnership’s assets (first cause of action);

8 At [51].

(h)Yong Sheng is entitled to a declaration that B & Z holds the property and the other assets of the partnership on trust for the partnership (second cause of action).

[29]   B & Z commenced this proceeding in April 2024. B & Z applied for an urgent hearing of its application for summary judgment, which was granted based on the state of repair of the property.

Were Yong Sheng and Yao Ping in a partnership or a joint venture?

[30]   Yong Sheng continues to argue that B & Z is the trustee for a partnership between Yong Sheng and Yao Ping, and Yao Ping and Mr Wu are not validly appointed directors of B & Z. Yong Sheng says that he is entitled to control B & Z. The latter proposition seems inconsistent with the existence of an equal partnership.

[31]   These propositions conflate concepts of company law and partnership law. If there is a partnership governed by the PLA, then management is vested in the partners, Yong Sheng and Yao Ping. That in turn would have consequences for the control of B & Z.

[32]   B & Z did not argue that Associate Judge Gardiner’s findings in the caveat proceeding raise issue estoppel, preventing Yong Sheng from raising a defence in this proceeding based on a partnership. That is appropriate given that Yong Sheng has appealed Associate Judge Gardiner’s judgment.

[33]   I agree with Associate Judge Gardiner that there is no basis for a finding of a partnership under the PLA, for the following reasons:

(a)There is no written partnership agreement or documents recording the formation of a partnership.

(b)There is no evidence that Yong Sheng received a share of the gross or net profits of the business.

(c)The car importation business was operated by B & Z. This is not a situation where B & Z can be said to be a bare trustee.

(d)The relationship between the shareholders of a company registered under the Companies Act 1993 is not a partnership within the meaning of the PLA.9

(e)It is not possible to determine the nature of the advances by Yong Sheng to B & Z on the affidavit evidence currently before the Court. However, even if the advances were of capital and not loans, that does not alter my assessment that the relationship between Yong Sheng and Yao Ping was not one of partnership.

[34]   If there was a business relationship between Yong Sheng and Yao Ping, then it was a joint venture with B & Z as the corporate vehicle for the joint venture.

[35]   A joint venture is not a legal entity.10 When a joint venture is conducted by a registered company the joint venturers’ rights and obligations arise under the contract between the joint venturers and under company law generally.11 Fiduciary duties may also apply.12

[36]   It is arguable that Yong Sheng contributed capital to B & Z, as the corporate vehicle for a joint venture between Yong Sheng and Yao Ping.

[37]   If Yong Sheng’s claims are established, then he is the beneficial owner of shares in B & Z and ultimately entitled to be named as a shareholder on the register of shares.

9      P R H Webb Laws of New Zealand Partnership and Joint Ventures (online ed) [6].

10 See, above, at [225].

11 At [227].

12     United Dominions Corp Ltd v Brian Pty Ltd [1985] HCA 49, (1985) 60 ALR 741 at 750 per Dawson J.

What was the legal basis for Yong Sheng’s occupation of the property from 2010 to 2021?

[38]A shareholder has no beneficial interest in the assets of the company.13

[39]   There is no evidence of a contractual licence to occupy, and Yong Sheng did not advance his defence on that basis. Yong Sheng’s occupation of the property from 2010 must have been pursuant to a bare licence to occupy granted by B & Z, whether acting for the joint venture or in its own right.

[40]   A bare licence to occupy, given without consideration, is revocable at will by the licensor at any time.14

[41]   The licensor’s decision to revoke the licence must be communicated to the licensee, either by express notice, or by doing an act inconsistent with the continuance of the licence.15

Does that right of occupation continue?

[42]   If it is arguable that there is a joint venture, then in my view, the parties’ agreement that the joint venture has ended was sufficient to terminate the bare licence to occupy.

[43]   If I am wrong in my conclusion that it is arguable that there was a joint venture, and it is arguable that there was a partnership, then Yong Sheng’s occupation of the property must have been pursuant to a licence to occupy granted by the partnership, acting by its agent, B & Z.

[44]   Yong Sheng accepts that the partnership was dissolved in 2021. Dissolution of the partnership was inconsistent with the continuance of any licence to occupy granted by the partnership to Yong Sheng. The result is the same.

13     Companies Act 1993, ss 35–37; Peter Watts, Neil Campbell and Christopher Hare Company Law in New Zealand (2nd ed, LexisNexis, Wellington, 2016) at 143.

14     D W McMorland Hinde McMorland & Sim Land Law in New Zealand (online ed, LexisNexis) [18.013].

15     At [18.015].

[45]   Likewise, if it is not arguable that there was a joint venture or a partnership, then B & Z was entitled to revoke the licence to occupy, which it did by its conduct when B & Z advised Yong Sheng that the property was going on the market and applied to the Tenancy Tribunal for an order for eviction.

[46]   Therefore, I find that the defendants have no present right to occupy the property, and B & Z is prima facie entitled to an order for vacant possession.

[47]   The remaining issue to consider is whether Yong Sheng has a reasonably arguable claim for interim relief in the substantive proceeding allowing him to remain in occupation of the property pending determination of the substantive proceeding. If so, then that might warrant an exercise of the residual discretion on summary judgment in his favour.

Is there any basis for interim relief in the substantive proceeding?

[48]   If the parties were in a joint venture, then what remains is a deadlock between the joint venturers and in the management of the corporate vehicle for the joint venture. It remains open to Yong Sheng to seek appropriate substantive relief on that basis, including a declaration of trust in respect of shares in B & Z and relief under the Companies Act 1993, including relief for shareholder oppression under s 174 or liquidation under s 241.

[49]   If claims of that nature were filed, then preservation of the status quo, and the management of B & Z pending an informal winding up of the joint venture or formal liquidation, are matters that could be dealt with by way of an application for interim relief in the substantive proceeding.

[50]   However, the starting point is that the joint venture has been dissolved, and the property should be sold. Even if Yong Sheng can overcome the threshold of establishing a serious question to be tried, it is unlikely that the balance of convenience would favour his continued occupation of the property pending sale.

[51]   Given the state of the substantive proceeding at present, and the application for summary judgment before the Court, this is not an appropriate time to analyse a

potential claim for interim relief that has not been filed, in respect of causes of action which have not been commenced. Suffice to say that the potential for interim relief is not sufficient to justify an exercise of the Court’s discretion to refuse summary judgment in this proceeding.

[52]   The position is the same if it is arguable that Yong Sheng and Yao Ping were in partnership. The rights and obligations of the partners would continue after dissolution of the partnership, for the purpose of winding up the partnership.16

[53]   Section 76 of the PLA provides that on dissolution, every partner is entitled to have the partnership property applied in payment of the liabilities of the partnership and the surplus assets applied in payment of what may be due to each of the partners.

[54]   Where one partner has been improperly excluded from the management of the partnership, the Court may appoint a receiver to sell the partnership property in the absence of any agreement to the contrary.17 An order for sale may be made before trial of the dissolution proceeding where the partnership is clearly dissolved.18

[55]   The limited potential for interim relief in the substantive proceeding does not warrant deferring the entry of judgment in this proceeding. On Yong Sheng’s best case, the partnership and/or joint venture has come to an end and the property must be sold.

Appropriate relief for B & Z

[56]   I note that the interests of the second named defendant, Yan Xian Zhong, are aligned with Yong Sheng. The third named defendant, Jordan Bei, says that he no longer lives with his parents, and asserts no right to occupy the property. He has applied for an order striking him out as a party.

[57]   I consider that it is appropriate to order vacant possession in favour of B & Z against all three defendants. However, costs should be determined as between B & Z

16     Partnership Law Act 2019, s 75.

17     Redwood v Redwood (1908) 28 NZLR 260 (SC).

18 Webb, above n 9, at [199].

and Yong Sheng as the true protagonists. My preliminary view is that B & Z is entitled to one award of costs against Yong Sheng Bei on a 2B basis, together with disbursements.

[58]   A licensee is entitled to a reasonable period to vacate the premises, even when the licensor applies for vacant possession. In the present case, that must reflect the need for the property to be vacant so that remedial work can continue. I consider four weeks notice to be reasonable given the length of occupation.

Orders

[59]   I enter judgment for the plaintiff against the defendants, requiring the defendants to provide vacant possession of the property known as 59 Galway Street, Onehunga by 4 pm on 24 June 2024.

[60]If the parties are unable to agree on costs, then:

(a)the plaintiff may file and serve a memorandum seeking costs, of no more than five pages, by 7 June 2024;

(b)the defendants may file and serve a memorandum on costs, of no more than five pages, by 21 June 2023; and

(c)I will determine costs on the papers.

Associate Judge Brittain