Chen v He - [2013] NZHC 2033

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-5671 [2013] NZHC 2033

IN THE MATTER of SS 165 and 167 of the Companies Act
1993

BETWEEN ZHIXIONG CHEN Plaintiff Respondent

AND YAO WEI HE
Applicant Defendant director
NZ PRODUCTS INTERNATION LIMITED
First Respondent company
YOUNGZHOU CHEN Second Respondent director

Hearing: 25 July 2013

Appearances: Mr N Campbell QC for Plaintiff Respondent
Mr T Banbrook for Applicant Defendant
Mr Cogswell for Y Chen - second respondent

Judgment: 12 July 2013

JUDGMENT OF ASSOCIATE JUDGE J P DOOGE

This judgment was delivered by me on
12.08.13 at 5 pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Counsel:
Mr N Campbell QC, Auckland
Mr T Banbrook, Auckland
Mr P Cogswell, Auckland

CHEN v HE [2013] NZHC 2033 [12 July 2013]

Background

[1] By way of introduction to the background, it is necessary to note that while affidavits have been filed on both sides concerning the application which Mr He (“the defendant”) has brought for leave to commence a derivative action, the evidence is only part of a wider dispute between the parties. The proceedings were commenced by Mr Chen (“the plaintiff”) to recover an amount of $300,000 which he said the defendant owed to him and in regard to which the defendant had signed an acknowledgement of debt.

[2] The evidence before the Court on the present application includes the summary judgment application evidence which the plaintiff put before the Court in support of his application for summary judgment in regard to the $300,000 debt. The defendant has filed an extensive affidavit which deals with the $300,000 but ties that issue into the wider issues that are raised by his application for leave to bring a derivative action pursuant to s 165 of the Companies Act 1993. A response was made in due course to the application in the form of affidavits which the plaintiff and his son, Mr Chen junior, filed which were affirmed/sworn in June of 2013. However, those affidavits do not respond to the considerable detail which the defendant has included in his affidavit. The plaintiff was content for the present application to be determined without a detailed reply to the various allegations which the defendant has made in his affidavits.

[3] There is no dispute that over a period from June to August 2010, the plaintiff advanced by instalments a sum of $300,000 to the defendant. It is also accepted that on 16 August 2010 the defendant signed an acknowledgement of debt. Beyond that point, nearly everything is in dispute. The plaintiff says that the loan was meant to be repaid by 16 February 2011 but it has not been. It is also common ground that a business was established called NZ Products International Limited (NZPIL) in June of 2010 as a result of discussions between the plaintiff and the defendant. This company was set up to export milk formula to China. Broadly speaking the plaintiff and the defendant’s families owned 50…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Chen v He

Details

AGLC: Chen v He [2013] NZHC 2033
Case: [2013] NZHC 2033
Decision Date: 12 July 2013

CaseChat Overview and Summary

In the High Court of New Zealand, the case of Chen v He involves a dispute between Zhixiong Chen and Yao Wei He, with NZ Products International Limited and Youngzhou Chen also being respondents. The case revolves around a debt of $300,000, an alleged breach of fiduciary duty, and a request for leave to bring a derivative action under sections 165 and 167 of the Companies Act 1993. The court was tasked with deciding whether to grant He leave to bring a derivative action against Chen, who is alleged to have breached his fiduciary duties as a director.

The court considered several factors in its decision, including the likelihood of the proceedings succeeding, the costs of the proceedings, any action already taken by the company, and the interests of the company in the proceedings being commenced, continued, defended, or discontinued. The court also looked at the prudent business person test when deciding whether to bring the claim, as well as authorities concerning when leave will be granted.

After assessing the evidence and arguments presented, the court concluded that leave should not be granted to He for the following reasons. The court found that it was doubtful that Chen's actions amounted to a breach of his obligations as a director to the company. It was not clear that Chen had taken advantage of confidential information, and the market and operation of the milk product marketing business did not appear to be particularly unique. Additionally, the company was no longer trading and would be a suitable candidate for winding up. The court considered the appointment of a liquidator to be the best approach to resolving the issues between the parties.

In conclusion, the application for leave to bring proceedings pursuant to s 165 of the Companies Act was dismissed. The parties were instructed to confer on the question of costs relating to the application, and if they were unable to agree, to file memoranda not exceeding four pages in length within 10 working days of the date of this judgment.

Orders