Chen v Huang

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

CA429/2022
[2024] NZCA 38

BETWEEN	XIAOLIN CHEN First Appellant WAIHOPAI VALLEY VINEYARD LIMITED Second Appellant YI LU Third Appellant DON CHEN Fourth Appellant JINPING HUANG Fifth Appellant QI YANG Sixth Appellant ADELAIDE EDUCATION GROUP PTY LIMITED Seventh Appellant
AND	HONGZHAO HUANG First Respondent JIEYU LU Second Respondent MATAKANA WINES LIMITED Third Respondent

Hearing:	1 and 2 November 2023
Court:	Wylie, Mander and Muir JJ
Counsel:	A R B Barker KC, S R G Judd and P W G Ahern for Appellants M D O’Brien KC and M D Pascariu for Respondents
Judgment:	1 March 2024 at 11 am

JUDGMENT OF THE COURT

ALeave is granted to the respondents permitting them to adduce by way of further evidence [1] and [2] of Ms Lu’s affidavit of 27 October 2023. Leave is declined to the respondents to adduce in evidence the remainder of the affidavit.
BThe first appellant is granted leave to amend his prayer for relief as set out in [245] of this judgment.
CThe respondents are granted leave to amend their prayer as set out in [246] of this judgment.
D    The appeal is allowed in part:
(a)     The award of equitable damages made in respect of the first, second and third causes of action is set aside.
(b)     The principal sum awarded in respect of the fourth cause of action is reduced from $2,376,261, to $1.2 million.
(c)     The principal sum awarded in respect of the fifth cause of action is reduced from $2,376,261, to $1,176,271.
(d)     The orders made in respect of the seventh cause of action are set aside.
(e)     The orders made in respect of the eighth cause of action are amended, by setting aside the direction that Waihopai pay Mr Huang, Ms Lu and Matakana Wines $2,376,271. In all other respects, the relief granted in respect of the eighth cause of action is upheld.
E    The orders for the payment of interest in respect of Mr Chen’s third counterclaim and in respect of the respondents’ fourth, fifth, sixth and eighth causes of action are set aside.
F     Interest on each relevant cause of action/counterclaim is awarded pursuant to s 24(2)(b) of the Interest on Money Claims Act 2016, from the date of each advance to the date of judgment at the rate of 5 per cent per annum and from the date of judgment to the date of payment pursuant to ss 10 and 12 of that Act.
GIn all other respects the appeal is dismissed.

H There is no order as to costs.

__________________________________________________________________

REASONS OF THE COURT

(Given by Wylie J)

Table of Contents

Para No

Introduction
The factual background

The parties

The Chen interests (the appellants)

The Huang interests (the respondents)

2006-2012

2013

2014-2016

2017

2018-2021

The pleadings
The High Court judgment

Credibility

The status of the payments made by Mr Huang/Ms Lu

Was there a partnership?

Estoppel

Misrepresentations

The JV agreement

The causes of action pleaded

The Matakana causes of action

The Counterclaims

The Waihopai claims

The affirmative defences

Summary

The appeal
Analysis
Was there an Integration Scheme and/or a partnership based on such a scheme?

Submissions

Relevant law

What did the parties say and do?

Mr Huang’s initial investment and the Integration Scheme documents

The conduct of the parties from 2014 to 2016

The conduct of the parties following the breakdown of their relationship in 2017

The OIO correspondence and interview

Mr Chen’s actions in selling Waihopai and distributing its assets

Conclusion

Other issues related to the alleged partnership

If there was a partnership, was it vitiated by misrepresentations or misleading conduct?
If the Integration Scheme or partnership was agreed and was not vitiated, is the appropriate remedy to order an accounting?
If the Integration Scheme or partnership was not agreed or it was vitiated, what are the appropriate remedies?

Should Mr Huang and Ms Lu be permitted to adduce further evidence?
Should all three parties to the JV agreement be required to perform the terms of the agreement and if so when, or should the assets remain with the respondents?

The submissions

The JV agreement

The applicable law

The Matakana land — Chinese law

Has the JV agreement been cancelled?

The consequences of non-cancellation

Should the damages award against Mr Chen for the increased building costs of the proposed Matakana development due to delay be set aside?

Submissions

Analysis

Were the payments made by the respondents in relation to the Waihopai Vineyard loans to Mr Chen only, or to both Mr Chen and Waihopai?

Submissions

Analysis

Should the orders made against the third to seventh appellants under s 348 of the Property Law Act be set aside?

Submissions

Analysis

Should the interest award to the respondents on the Waihopai claims be set aside?

Submissions

Analysis

Applications for leave to amend claims to seek interest
Costs
Result

[1]
[5]
[5]
[6]
[10]
[13]
[15]
[36]
[42]
[43]
[54]
[68]
[69]
[70]
[77]
[87]
[88]
[95]
[96]
[97]
[104]
[109]
[113]
[114]
[117]
[119]

[122]
[122]
[124]
[131]

[133]
[150]

[158]
[164]
[167]
[170]
[171]

[171]

[172]

[173]

[174]

[180]
[180]
[182]
[183]
[189]
[194]
[196]

[198]
[200]
[202]

[207]
[208]
[210]

[216]
[217]
[219]

[225]
[226]
[228]
[237]
[248]
[249]

Introduction

The primary (but not the only) issue in this appeal is whether a joint venture agreement (the JV agreement) dated 19 April 2012 between the first appellant, Xiaolin (Chris) Chen (Mr Chen), and the first and second respondents, Hongzhao (Alex) Huang (Mr Huang) and his wife, Jieyu (Chrissy) Lu (Ms Lu), remains in force, or whether it was replaced by a subsequent partnership agreement, based on an “Integration Scheme”, in or about May/June 2013.
In a comprehensive judgment issued on 4 August 2022, Gordon J, in the High Court at Auckland, found that the Integration Scheme was never agreed between the parties and that there was no partnership based on it or otherwise.[1] In the alternative, the Judge held that if a partnership agreement had been reached, it was vitiated ab initio by various misrepresentations made by Mr Chen.
[1]Huang v Chen [2022] NZHC 1888 [High Court judgment].
The appellants submit that the Judge’s findings were incorrect. They argue that the overwhelming weight of the evidence was to the effect that Mr Chen, Mr Huang and Ms Lu did enter into a partnership and that they abandoned the JV agreement. They deny that either Mr Huang or Ms Lu was misled or deceived. They seek a declaration that there was a partnership, together with an accounting to determine the respective entitlements of the parties in the partnership assets.
Mr Huang and Ms Lu support the findings made by the Judge. They say that the Integration Scheme was never finalised and that what was discussed was simply a proposal. They also deny that there was a partnership created by the conduct of the parties. They say that the governing document remains the JV agreement and that it applies to the unwinding of much of their business relationship with Mr Chen.

The factual background

The parties

The proceeding arises following a falling out between two couples who were initially friends and who became increasingly involved in business dealings with each other.

The Chen interests (the appellants)

Mr Chen first came to New Zealand in 1996. He has been a New Zealand citizen since 2001 and he now lives in this country. Since about 2006, Mr Chen and the fifth appellant, his wife Jinping Huang (Jackie Huang), have worked in the wine industry, including by promoting New Zealand wines in China. They both have wine industry qualifications. Gordon J recorded that Mr Chen’s and Jackie Huang’s first language is Mandarin but they can both speak, read and write English. Mr Chen is more proficient in English than Jackie Huang.[2]
[2]At [25].
The second appellant, Waihopai Valley Vineyard Ltd (Waihopai), was incorporated by Mr Chen and the third appellant, Yi Lu, in August 2006. Mr Chen held 40 per cent of the shares in Waihopai; his brother, the fourth appellant, Xiaodong Chen (Don Chen), held 20 per cent of the shares; Yi Lu held the remaining 40 per cent of the shares.
The sixth appellant, Qi Yang, is Yi Lu’s wife. She lives with her husband in Auckland.
The Judge recorded that the seventh appellant, Adelaide Education Group Pty Ltd (AEG), carries on an education business. It has its registered office in Australia. At relevant times, it had three shareholders, including Don Chen. He was also a director of the company.[3]

The Huang interests (the respondents)

[3]At [29].

Mr Huang is a businessman. He lives in China. At all relevant times he would travel from China to New Zealand, stay a few days and then return. He typically spent less than a month a year in New Zealand. He obtained residency in January 2015, based on his marriage to Ms Lu. Mr Huang was, at all relevant times, an overseas person as defined in the Overseas Investment Act 2005 (the OIA).[4] He does not speak English.
[4] Overseas Investment Act 2005, s 7 definition of “overseas person”, para (2).
Ms Lu came to New Zealand in 2004 to study English. She has since obtained New Zealand residency. She met Mr Chen’s wife, Jackie Huang, in China in 2003 or early 2004. Jackie Huang then operated a business helping Chinese students in New Zealand and she arranged accommodation and schooling for Ms Lu. She and Ms Lu became friends and Jackie Huang introduced Ms Lu to her (Jackie Huang’s) husband, Mr Chen.
The third respondent, Matakana Wines Ltd (Matakana Wines) was incorporated by Mr Chen in 2012. He was initially its sole director. As is explained below, its shares were initially in Mr Chen’s name but, by the time of the hearing before Gordon J, the shares were held by an entity known as Kiwi Club Ltd (Kiwi Club), a company controlled by Ms Lu.

2006–2012

There was no dispute between the parties as to what happened pre-late 2012. All agreed that the Judge was correct in her summary of the relevant facts prior to this date. We gratefully adopt her analysis.

[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 parties referred to [the lots they had purchased] as … the “villa” lots. …
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 … 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 … 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. …
[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. …
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.
…
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) [the Matakana land] 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 [Overseas Investment Office (the OIO) under the OIA]. 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, … 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. …
[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 [OIA] 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 [Chief Executive Officer (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.
…
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. …
[62]     … [T]he 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.

Some of what happened thereafter (and certainly the interpretation to be placed on various documents and on the parties’ conduct) is in dispute. We discuss first what occurred and, later in this judgment, the interpretation to be placed on and the conclusions to be drawn from various of the documents produced and the parties’ conduct.

2013

Waihopai had become involved in a dispute with Savvy around mid-2012 and, by early 2013, Waihopai was in financial difficulty. Mr Chen travelled to China in late 2012/early 2013 and spoke with people he thought might be interested in investing in Waihopai. Yi Lu introduced him to Changjiang Sun. Mr Sun was interested and he, Mr Chen, Don Chen, Yi Lu and Yi Lu’s brother-in-law entered into a letter of intent recording how they might refinance Waihopai.
Waihopai remained under pressure from its bank. Receivers were appointed on 4 February 2013.
Mr Chen nevertheless still hoped to resolve the situation. He offered Mr Huang the opportunity to invest in Waihopai. Mr Chen thought that Waihopai’s grape growing business would fit in well with Matakana Wines’ wine making business and with his, Mr Huang’s and Ms Lu’s overall plan of exporting New Zealand wine to China. Mr Chen sent Mr Huang a copy of the letter of intent with Mr Sun on 23 February 2013. Mr Huang could not remember receiving it but, through his personal assistant, Su Huimin (Ms Huimin), he sent Mr Chen a document in Mandarin on the same day. The heading on the document has been variously translated; one translation is “Vineyard Reform Suggestions”. The document set out Mr Huang’s proposals for refinancing Waihopai. It recorded that the shares in Waihopai were worth $8,425,000. It set out Mr Chen’s shareholding in the company and then set out what the new shareholdings would be “[i]f Mr HUANG buys 20% shares from [Mr] CHEN”. It also recorded:
This plan may reject [Mr] SUN’S investment, or [Mr] SUN’S investment may belong to Yi LU.
Mr Huang sent a WeChat message to Mr Chen on 23 February 2013. It has been translated as follows:
I’m in the company, I can tell you.
Mr Huang then drafted various proposals for a possible Integration Scheme. Drafts were sent to Mr Chen on or about 1 March 2013, 11 March 2013, 27 May 2013 (including a 26 May draft) and 26 June 2013 (two drafts — one more detailed than the other).
Broadly, it appears from the drafts that Mr Huang’s proposal was that he would purchase shares in Waihopai from Mr Chen, that Matakana Wines would integrate its business with Waihopai’s business, that the assets of the two companies would be combined, that Mr Huang, Mr Chen and Yi Lu would each make cash injections into the integrated business and that the shares in Waihopai would be held between Mr Chen, Yi Lu and Mr Huang/Ms Lu.
In the 11 March 2013 draft, one of the effects of integration was described as follows:
Establish a 3-way decision making board of directors and a platform for the Matakana Estate brand, make good use of Yi LU’s sales network in China, [Mr] CHEN’s operations and management in New Zealand and Mr Huang’s advantages amongst high-end communities, and reach our goal of taking our assets to the next level.
The draft sent on 27 May 2013 recorded what Mr Chen said were the assets of each of the various entities and the planned cash injections, including $1.088 million it was then proposed would be advanced by Mr Huang. It noted the proposed shareholdings — Mr Chen, 40 per cent, Mr Huang, 50 per cent and “Jie Jie” (Ms Lu), 10 per cent. The draft also recorded as follows:
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.
On 25 June 2013, Mr Huang paid $1.2 million into Mr Chen’s solicitor’s (Mr Botting) trust account. The entry on Mr Botting’s trust account statement records “[p]art of Funds for Shareholders Loan Advance to Waihopai”. In addition, $499,975.00 was paid into the trust account by Mr Sun, $300,000 by Yi Lu,[5] and $25 by Mr Chen.
[5]Before us, Li Yu’s advance was treated by the parties as amounting in total to $800,000. This sum presumably included the monies paid into Mr Botting’s trust account by Mr Sun.
On 28 June 2013, the funds were transferred to solicitors, who, we presume, were acting for Waihopai’s banker. In any event it is clear that the monies were used to repay Waihopai’s indebtedness to its bank and to take the company out of receivership.
Also on 28 June 2013, Mr Chen and Yi Lu as directors of Waihopai signed a board of directors’ resolution recording that they had managed to procure $2 million of “new shareholders’ loans for the Company” and that the company should enter into an acknowledgment of debt to record the “new Shareholders’ Loan”. The acknowledgment of debt is dated the same day. It recorded that Waihopai was indebted to Mr Chen and Yi Lu in the sum of $2 million.
WeChat messages were exchanged between Mr Huang and Mr Chen on 25 June 2013. The following exchange occurred:
[Mr Chen]:
Mr HUANG, funding has arrived, all of it arrived! The lawyer will arrange for us to take back the vineyard tomorrow.
[Mr Huang]:
Thank you for the trouble of having to do the practical arrangements.
[Mr Chen]:
Now it feels like we are a real wine company, with the back up to do promotions. Success is the only option for Matakana !
[Mr Huang]:
Still need an estate, more efforts required !
On 26 June 2013, Ms Huimin circulated two further versions of the proposed Integration Scheme. The covering email read:
Ho[w] are you! Attached is the <<Matakana Estate Integration Scheme>> which has just been sorted[.]

Both versions recorded the capital in Waihopai at $8.435 million and Mr Chen’s 60 per cent share of that capital at $5.061 million. These figures had been provided by Mr Chen. The documents also recorded that the equity or shareholding ratio in the integrated entity would be Mr Chen, 30 per cent, Jackie Huang 10 per cent, Mr Huang 44 per cent and Ms Lu, 16 per cent. One draft referred to the payment of $1.2 million made by Mr Huang the previous day as “[t]he NZD 1.2 million first advanced payment from Alex Huang to acquire [Waihopai]”. The other draft contained a similar statement.

Also on 26 June 2013, Mr Huang sent a WeChat message to, inter alia, Mr Chen. It read as follows:
I have sent the Matakana Estate integration plan to everyone’s mailboxes, please make amendments.
On 28 June 2013, the receivership of Waihopai was terminated. On 1 July 2013, Mr Chen in a WeChat message sent to Mr Huang, Ms Lu and Jackie Huang the following:
[Waihopai] Vineyard has been officially taken back on 28 June. Matakana also officially owns [Waihopai] vineyard, from now on it will be promoted as the Matakana Marlborough vineyard.
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 drafts. The covering email said as follows:
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 enquire with the corresponding contact person, mr Huang, will arrive at Auckland on 9th August to discuss this integration scheme with [other] shareholders. Thank you!
On 11 October 2013, Mr Chen forwarded Ms Huimin legal advice received by Waihopai in relation to its dispute with Savvy.
On 22 October 2013, Ms Huimin circulated an English translation of one of the 26 June 2013 Integration Scheme drafts to Mr Huang, Ms Lu, Mr Chen and Jackie Huang. The accompanying email read:
How are You! Attached is the <<Matakana Estate Integration Scheme>> which has just been translated … Wishing you success in business!
Mr Chen was in China at the time. He forwarded the English translation to his New Zealand solicitor, Mr Botting. He asked Mr Botting to draft an agreement for the shareholders of Matakana Wines.
Mr Botting prepared draft heads of agreement and sent them to Mr Chen for his perusal. A revised version was sent by Mr Botting to Mr Chen on 23 January 2014. The document prepared by Mr Botting recorded that the parties (Mr Huang, Ms Lu, Mr Chen and Jackie Huang) were to enter into a limited liability partnership, to be known as Matakana Wine LLP. The draft agreement contained a number of conditions, namely:
(a)Mr Huang and Ms Lu ceasing to be overseas persons for the purposes of the OIA or the partnership being otherwise permitted to own the assets.
(b)Each of the Chen group and the Huang group, or the parties who formed those respective groups, acquiring ownership or an unconditional right to acquire ownership of the assets which were to form part of their initial capital.
(c)Each party procuring all consents and approvals required from third parties for the transfer to the partnership of those assets forming part of that party’s initial capital.
(d)The parties approving the form of the partnership agreement and the constitution for the general partner.

Settlement was to be the later of 40 working days from the date of satisfaction of the conditions, or 20 working days after the partnership was registered as a limited liability partnership. The draft provided that the parties would, prior to settlement, incorporate a limited liability company for the purposes of being the general partner, procure the preparation of a partnership agreement and each execute all necessary documents.

Mr Chen sent the heads of agreement prepared by Mr Botting to Mr Huang and Ms Lu. Neither responded. It is common ground that the heads of agreement were neither completed nor signed. Nor were any of the steps set out in the draft undertaken.

2014–2016

On 24 March 2014, Ms Huimin sent Mr Chen, Jackie Huang and Ms Lu a document headed “Matakana Estate management structure”. This document recorded that Mr Huang was to be a director and that the board of directors would comprise Mr Huang, Ms Lu, Mr Chen and Jackie Huang. Mr Chen was named as the CEO. One of the entries in a “wiring” diagram setting out the management structure was headed “South Island management team”.
The Matakana Estate management structure was approved at a “board meeting” held on 15 April 2014. Mr Huang was present, along with Ms Lu, Mr Chen and Jackie Huang. An accountant, Bin (Bernice) Lin, was also present. There were further board meetings in July and November 2014. At the November 2014 meeting, the South Island Vineyard financial report for 2013–2014 was presented along with forecasts for 2014–2015. The South Island Vineyard financial report for July 2014 to July 2015 was presented at a meeting in March 2015. All present signed a record of this meeting as directors. It recorded that slight adjustments to the Matakana Estate management structure were proposed and that the Waihopai Vineyard was starting to produce an income. There was a further meeting in August 2015 where the South Island Vineyard financial report was discussed.
Mr Chen and the accountant, Ms Lin, forwarded cash flow documentation for Waihopai to Mr Huang and Ms Lu. Mr Chen, Jackie Huang, Ms Lu and Mr Huang also received emails from the accountant advising them that further funds were needed. Proposed funding arrangements were sent out and financial projections were distributed.
Mr Huang and Ms Lu made a series of additional advances to Mr Chen and/or Waihopai (we discuss this issue below) from various sources. The accountants circulated reports giving details of the funds injected into Waihopai.
Mr Chen and Yi Lu were becoming increasingly concerned about Waihopai’s situation with Savvy. Both companies were locked in litigation against each other. To try and protect against the perceived risk of losing any further advances to Waihopai, it was decided that such advances should be made by way of loans through Ms Lu, who would act as a third party lender. A document headed “Memorandum of Corporate Trusteeship” was drafted in Chinese.[6] The first paragraph of the memorandum recorded that the existing shareholders in Waihopai, Mr Chen and Yi Lu, had “invited” Mr Huang to become a new shareholder with a cash contribution. The document continued that each investing party confirmed that the updated shareholding structure for Waihopai would be amended as follows — Mr Chen 24 per cent, Mr Huang 36 per cent and Yi Lu 40 per cent. This document was signed by Mr Huang, Ms Lu, Mr Chen and Yi Lu in New Zealand in March 2015.
[6]This document is referred to as both the “Memorandum of Corporate Trusteeship” and the “Memorandum of Company Trusteeship” by the parties. The former title was used in oral submissions and we adopt the same.
By late 2016, Mr Chen was suffering from burnout and he took time off to recover. By this stage, relationships had begun to sour. In December 2016, Mr Huang and Ms Lu terminated Mr Chen’s employment. Mr Chen ceased to be the CEO and General Manager of Matakana Wines and Ms Lu took over.

2017

In late 2017 and early 2018, Mr Huang and Mr Chen exchanged various WeChat messages and written proposals about how they could best separate their respective business interests. Mr Chen’s position is that the various proposals drafted by Mr Huang were all 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 that Mr Chen and Jackie Huang were entitled to 40 per cent. Mr Huang’s position is that he was entitled to be repaid the various advances he had made to Mr Chen to enable the Matakana transaction to proceed as well as the various advances he had made to Mr Chen and/or Waihopai in relation to Waihopai. None of these various discussions and proposals resulted in agreement.

2018–2021

On 11 May 2018, Mr Huang, via his New Zealand solicitors, made demand on Mr Chen for the loan advances made pursuant to the JV agreement. Mr Chen says that this was the first time that Mr Huang had ever demanded he repay these advances. Mr Huang says that he had made oral demands prior to the letter. The letter also alleged that Mr Chen had breached his obligations under the JV agreement to obtain consents under the OIA for Mr Huang and Ms Lu and, further, that Mr Chen owed Mr Huang and Ms Lu the monies they say that had advanced to assist Waihopai. The letter demanded that Mr Chen pay $4,536,651.15 to Mr Huang and Ms Lu by 21 May 2018.
The demand was not met by Mr Chen.
When Ms Lu took over the operation of Matakana Estate from Mr Chen, she and Mr Huang had still not obtained consent under the OIA in relation to the Matakana land. They asked their solicitors to advance this issue and the solicitors advised the OIO about the acquisition of the Matakana land. The OIO began an investigation into the transaction which lasted some two years. Mr Chen corresponded through his barrister, Alan Lear, with the OIO. Mr Chen was also interviewed in the course of the investigation. We return to the detail of this correspondence and the interview below.
Mr Huang and Ms Lu commenced proceedings against Mr Chen in January 2019. The initial claim was based on the alleged failure by Mr Chen to repay the loans made under the JV agreement and the alleged Waihopai loans. In an amended statement of claim filed subsequently, Mr Huang and Ms Lu further sought to recover the costs said to be associated with Mr Chen’s alleged failure to obtain OIA consent for them. They also sought specific performance in relation to Mr Chen’s alleged failure to transfer title of the Matakana land to them in breach of the JV agreement.
Mr Chen filed a statement of defence. In his statement of defence, he asserted that the advances made to Waihopai were shareholder advances in accordance with the Integration Scheme and not loans. He denied that he was responsible for arranging for Mr Huang and Ms Lu to obtain OIA consent and he asserted that he was not required to transfer title in the Matakana land to them.
On 16 September 2020, retrospective consent was granted to Mr Huang and Ms Lu permitting them to acquire the Matakana land. The consent was subject to a number of conditions. Inter alia, Mr Huang and Ms Lu had to develop the land and register an easement that allowed for public walking and cycling access across the property. Title to the Matakana land was still in Mr Chen’s name. Mr Huang and Ms Lu’s solicitors wrote to Mr Chen asking for his consent to carry out this work. Mr Chen’s solicitor responded refusing to consent without further information.
The parties attended a mediation on 21 December 2020, but no agreement was reached.
Shortly before the mediation, and unbeknown to Mr Huang and Ms Lu, Mr Chen and Li Yu caused Waihopai to enter into an agreement to sell its land and business. Immediately after the sale was completed, Mr Chen distributed the net proceeds totalling $7,476,766.27; he received $1,138,000 (15.2 per cent of the proceeds); Don Chen received $3,348,059.76 (44.8 per cent); Yi Lu received $2,990,706.51 (40 per cent). The payments were purportedly made to repay loans each was said to have made to Waihopai. Mr Huang and Ms Lu received nothing.
The sale of the Waihopai assets was only disclosed to Mr Huang and Ms Lu on 22 February 2021. Mr Huang and Ms Lu immediately brought proceedings against Waihopai and they obtained, on a without notice basis, freezing orders in respect of its assets.[7] However, the sale proceeds had already been distributed.
[7]Huang v Waihopai Valley Vineyard Ltd HC Auckland CIV-2019-404-304, 24 February 2021 (Minute of Duffy J); and Huang v Waihopai Valley Vineyard Ltd [2021] NZHC 348.

Having been served with notice of Mr Huang’s and Ms Lu’s application seeking freezing orders, Mr Chen, Don Chen and Yi Lu, each further distributed the monies they had received as follows:
(a)Mr Chen discharged a loan secured against his home;
(b)Don Chen made various payments, including to his family and to the seventh appellant, AEG; and
(c)Yi Lu transferred the sale proceeds to his wife, Qi Yang, the sixth appellant.
When they became aware of this, Mr Huang and Ms Lu obtained further without notice freezing orders against Mr Chen, Don Chen, Yi Lu, Mr Chen’s family trust and Qi Yang on 26 February 2021. By this time however, a significant portion of the sale proceeds had been transferred out of the reach of Mr Huang and Ms Lu.

The pleadings

The pleadings are lengthy. What follows is very much a summary.
Mr Huang, Ms Lu and Matakana Wines pleaded the acquisition of the Matakana land and the JV agreement dated 19 April 2012. They referred to the OIA consent and asserted that it had been Mr Chen’s responsibility to arrange for Mr Huang and Ms Lu to obtain that consent. They said that Mr Chen had failed to do so. They then referred to Waihopai and to it coming under financial pressure in the second half of 2012. They asserted that, as part of a rescue plan to take the company out of receivership, Mr Chen and Yi Lu were required to inject $2 million by way of further capital into the company, but that Mr Chen did not have sufficient funds to make a capital contribution. They alleged that Mr Chen asked Mr Huang to lend him the required funds and that Mr Chen and Mr Huang agreed orally that the funds would be advanced as a loan, repayable on demand. It was asserted that the $1.2 million paid by Mr Huang to Mr Botting on 25 June 2013 was paid pursuant to this arrangement. It was also asserted that subsequent funding for Waihopai provided by Mr Huang was advanced by way of loan, repayable on demand (the total advances to or for Waihopai are referred to in this judgment as the Waihopai advances).
It was pleaded that Mr Huang, Mr Chen and Yi Lu discussed the possibility of integrating the assets of Matakana Wines and Waihopai, and that a number of draft proposals for an Integration Scheme were exchanged. It was said that none of those drafts was ever agreed or executed and that none was binding or enforceable. The treatment of the Waihopai advances in Waihopai’s accounts was pleaded, as was the sale of the Waihopai land in late December 2020/early January 2021. There was then a reference to the settlement of the agreement for sale and purchase, and to the dissipation of the sale proceeds.
The first cause of action was against Mr Chen. Mr Huang and Ms Lu asserted that he held the Matakana land on constructive trust for them. They said that Mr Chen had retained legal ownership of the land, that it was unconscionable for him to do so and that they had been unable to replant grape vines, increase the profitability of the land, or develop the land as anticipated and as required in their OIO consent. It was asserted that they suffered loss and damage as a result. They sought a declaration that the Matakana land was held on constructive trust for them, an order requiring Mr Chen to transfer the title to the Matakana land to them (free from any encumbrances) and orders for equitable damages and interest.
The second cause of action was also against Mr Chen. It alleged breach of fiduciary duty. Mr Huang and Ms Lu claimed that Mr Chen had obtained the Matakana land as a fiduciary and that he held it in their favour as principals. Again they sought an order requiring Mr Chen to transfer the Matakana land to them, unencumbered. They also sought equitable damages and interest.
The third cause of action alleged breach of the JV agreement by Mr Chen. Mr Huang and Ms Lu asserted that Mr Chen had failed to repay the Matakana loan, refused to transfer the Matakana land to Matakana Wines and that they had suffered loss and damage as a result. The same orders as are detailed above were sought.
As a fourth cause of action Mr Huang and Ms Lu alleged that Mr Chen had failed to repay the Waihopai advances in the total sum of $2,376,261. They sought judgment against him in this sum together with interest.
As an alternative, and as a fifth cause of action against Waihopai, they asserted that if the Waihopai advances had not been advanced by way of loan to Mr Chen, then they were by way of loan to Waihopai and that Waihopai had failed to repay the same. The same relief as in the fourth cause of action was sought.
As an alternative, and as a sixth cause of action — for moneys had and received — Mr Huang and Ms Lu alleged that the appellants had all been unjustly enriched at Mr Huang and Ms Lu’s expense and that it would be unconscionable for the appellants to retain the benefit of the Waihopai advances. They sought judgment in the sum of $2,376,261 together with interest.
As a seventh cause of action against Mr Chen, Don Chen, Jackie Huang and AEG, they said that the various dispositions of Mr Chen’s share of the sale proceeds from the sale of Waihopai had been made with the intent to prejudice Mr Huang and Ms Lu as creditors of Mr Chen and in breach of s 348 of the Property Law Act 2007. They sought orders pursuant to that provision.
As an alternative eighth cause of action against all appellants, Mr Huang and Ms Lu asserted that the dispositions were made with the intent to prejudice them as creditors of Waihopai and again they sought orders under s 348.
There was a ninth cause of action (wrongly noted in the pleadings as the tenth cause of action) alleging unjust enrichment.
Mr Chen and the other appellants raised two affirmative defences. They first raised estoppel and asserted that Mr Huang and Ms Lu had represented to Mr Chen, Jackie Huang and Yi Lu, by words and conduct, that they were bound by the Integration Scheme. As a second affirmative defence, they alleged that Waihopai owed Mr Chen a debt and that, to the extent that payments had been made by Waihopai to Mr Chen, they were in satisfaction of that debt.
Mr Chen (and in some cases the other appellants) also brought six counterclaims.
(a)There was a counterclaim against Mr Huang and Ms Lu for alleged breach of the JV agreement and the Integration Scheme. Mr Chen asserted that he and Mr Huang had agreed that Mr Chen was to receive an interest in the company incorporated in China — Matakana (Zhongshan) Wines Ltd. Mr Chen said that Mr Huang and Ms Lu failed to provide any interest in the company to him and that they had failed to account to him for its profits. Mr Chen sought specific performance and an account of the profits made by Matakana Zhongshan Ltd.
(b)Mr Chen alleged breach by Ms Lu of the JV agreement and/or the Integration Scheme.
(c)Mr Chen alleged that Matakana Wines had failed to repay him advances that he had made to that company between 8 May 2015 and 29 March 2016, in the total sum of $540,000. He sought judgment in this sum, together with interest.
(d)Mr Chen alleged that at all material times he was the registered proprietor of the Matakana land, that a written deed of lease had been entered into between the parties to the effect that Matakana Wines agreed to least part of the Matakana land and that Matakana Wines had failed to pay the rental and other outgoings due under the lease.
(e)Waihopai alleged that it had repaid $120,000 to Ms Lu in October 2016, in repayment of an advance of $100,000 she had earlier made to the company and by way of a further advance of $20,000 to Ms Lu. Repayment of the further advance was sought, with interest.
(f)Mr Chen and Jackie Huang sought a declaration of partnership. They asserted that since on or about 25 June 2013, they, together with Mr Huang and Ms Lu, had been partners in the Integration Scheme partnership. They sought declarations they were in partnership and that the partnership had been dissolved, together with an order for the taking of the accounts of the partnership.

Mr Huang and Ms Lu for their part denied these various allegations and filed an affirmative defence to the sixth counterclaim (declaration of partnership), alleging misleading and deceptive conduct by Mr Chen.

The High Court judgment

The judgment is lengthy and very thorough. What follows is, again, very much a summary.

Credibility

After recording the factual background, largely as above, Gordon J turned to credibility issues.[8] She referred to the Supreme Court’s decision in Deng v Zheng,[9] noting the caution there sounded in cases where one or more of the parties has a cultural background which differs from that of the Judge. She recorded that the Supreme Court nevertheless commented that most of the usual ways that Judges assess credibility remain available.[10] The Judge noted her view that there were credibility issues for all three main witnesses: Mr Huang, Ms Lu and Mr Chen.[11] She also commented adversely on Yi Lu’s evidence.[12] She recorded that she had exercised “a degree of caution in accepting the word of any of [these] witnesses on important issues unless there [was] other documentary support or support from other witnesses”.[13]

The status of the payments made by Mr Huang/Ms Lu

[8]High Court judgment, above n 1, at [108].

[9]Deng v Zheng [2022] NZSC 76, [2022] 1 NZLR 151 [Deng (SC)].

[10]High Court judgment, above n 1, at [168], citing Deng (SC), above n 9, at [78(d)].

[11]At [109].

[12]At [119].

[13]At [121].

The Judge next turned to consider the status of Mr Huang’s payment of $1.2 million into Mr Botting’s trust account on 25 June 2013 and the later advances, totalling $1,176,261.00. The Judge dealt with this issue first because, if she found in favour of Mr Chen on the Integration Scheme issue, anything owing by Mr Chen under the JV agreement would be subsumed into the Integration Scheme.[14]
[14]At [122].
After recording the views of the parties, the Judge noted that before Mr Huang advanced the $1.2 million, he was aware that Waihopai was in receivership.[15] She noted that Mr Huang said in evidence that issues with Waihopai had the potential to result in Mr Chen’s bankruptcy and that the Matakana land would then be at risk because it was in Mr Chen’s name. Further, Matakana and Waihopai had a joint interest in grape supply, because Waihopai was supplying grapes used by Matakana Wines for its wine production. The Judge considered that Mr Huang’s concerns could be “reasonably understood”.[16]
[15]At [127].
[16]At [127].
The Judge noted that while the $1.2 million was advanced when discussions between Mr Huang and Mr Chen about integration were underway, that the advance was made did not necessarily mean that an agreement had been reached over integration.[17]
[17]At [129].
The Judge considered that Mr Chen’s position was contradictory. On the one hand, Mr Chen was saying that the Waihopai advances were a capital investment by Mr Huang. If that was so, Mr Huang and Ms Lu would receive nothing from Waihopai because it was insolvent. On the other hand, Mr Chen was acknowledging that Mr Huang and Ms Lu should receive a payment of approximately $2.4 million. The Judge took the view that these assertions were inconsistent.[18]
[18]At [130].
Leaving the Integration Scheme issue aside, the Judge considered that the Waihopai advances were loans, noting the following:[19]
(a)The advances made by Mr Chen and Yi Lu to Waihopai were by way of loan.
(b)An investment in Waihopai by another person, Lucy Wang, was by way of loan.
(c)An indirect advance from Mr Jiang (a personal friend of Yi Lu) made via Yi Lu, was by way of loan, as were other advances from Yi Lu’s family and friends.
(d)The $2 million paid out to take Waihopai out of receivership was recorded as a loan in Waihopai’s board of directors’ resolution and in a deed of acknowledgment of debt, signed by Mr Chen and Mr Lu.
(e)It would be inconsistent to treat Mr Huang’s proportion of the $2 million advance ($1.2 million) recorded in the deed of acknowledgment of debt differently from the funds contributed by Yi Lu ($800,00).
(f)The $2 million advance was recorded in Waihopai’s accounts from 2014 onwards as a loan.
(g)The later advances from Mr Huang and Ms Lu were recorded in Waihopai’s accounts as loans.
[19]At [131].
The Judge was satisfied that the accounts were authentic. She considered that they evidenced what was intended and that Waihopai’s shareholders had advanced funds to the company by way of loan.[20]
[20]At [133]–[134].
The Judge also referred to the letter written on Mr Chen’s behalf to the OIO when it was investigating Mr Huang’s and Ms Lu’s retrospective application. The Judge considered that the letter supported the assertion that Mr Huang’s advances were not capital payments, but rather were loans.[21]

Was there a partnership?

[21]At [135]–[137].

The Judge then turned to consider whether or not there was a partnership, as Mr Chen had asserted. She noted that while Mr Chen was relying on the Integration Scheme, his argument that a partnership had come into existence did not depend on that scheme alone.[22] She also noted that it was agreed between the parties that New Zealand law applied to the partnership issue and that there was little, if any, disagreement as to the relevant principles that govern whether or not there was a partnership.[23]
[22]At [140].
[23]At [144].
The Judge noted that it was Mr Chen’s evidence that, from the time he received Mr Huang’s first response on 23 February 2013, he regarded Mr Huang as committed to investing in Waihopai. The Judge considered that it could not be said that Mr Huang was committed as from that date, based on what was plain from the document.[24]
[24]At [151].
The Judge next recorded that Mr Chen placed weight on the WeChat message sent by Mr Huang on 23 February 2013, noted above at [18]. She accepted Mr Huang’s explanation that, correctly translated, the message meant “I’m in the company, can communicate via phone”. She considered that this was a reasonable explanation, given the documents that followed.[25]
[25]At [152].
The Judge observed that between February and June 2013, there were a number of documents drafted by Mr Huang in relation to the proposed Integration Scheme and that, under cross-examination, Mr Chen had asserted that the parties had reached a concluded agreement on the Integration Scheme in May 2013.[26] The Judge held that it was clear from the contemporaneous documents that the parties had not reached an agreement as at that date.[27] She noted that the drafts continued after May 2013; the values for the Waihopai Vineyard and other assets set out in the drafts were based on figures given by Mr Chen which needed to be verified; there were various emails from Ms Huimin which suggested that there were further discussions yet to occur; Mr Chen acknowledged under cross‑examination that, as at 23 October 2013, it was Mr Huang’s and his own intention to get a document drafted up under New Zealand law by a New Zealand lawyer for he and Mr Huang to consider; Mr Botting’s email to Mr Chen on 23 January 2014 revealed that Mr Botting did not consider that agreement had been reached at that stage and the draft agreement prepared by Mr Botting made it clear that there was no final agreement.[28] The Judge also noted that under cross‑examination, Mr Chen accepted that there was never any formal partnership agreement, that no general partner was established, that there was no formal assumption of responsibility for the specified percentages of the Waihopai debt, that Mr Huang plainly wanted a written formal agreement and that the heads of agreement were not signed by any of the parties.[29]
[26]At [152]–[153].
[27]At [154].
[28]At [155]–[167].
[29]At [168].
The Judge went on to consider the cultural context. She referred to the Chinese concept of guānxi and to the decisions given by both this Court, and the Supreme Court in Deng v Zheng in regard to this issue.[30] The Judge referred to expert evidence given by a Dr Zhixiong Liao in relation to guānxi. It was Dr Liao’s evidence that there was no “one-size-fits-all approach” to the concept of guānxi and that much depends on the type of relationship and the nature and value of the transaction.[31]
[30]At [169], citing Zheng v Deng [2020] NZCA 614, [2021] NZCCLR 30 [Deng (CA)]; and Deng (SC), above n 9.
[31]High Court judgment, above n 1, at [172].
The Judge recorded that:
(a)Mr Huang and Mr Chen had previously entered into formal written agreements with each other, noting that in 2007 they signed a written agreement in relation to the intended development of the Matakana villa lots. In October 2011, they entered into a joint venture agreement, which was later superseded by the more formal JV agreement in April 2012. These agreements were in writing, prepared with legal assistance, witnessed, signed and fingerprinted by each of the three individuals involved. Additionally, Mr Chen had a written employment agreement in his capacity as General Manager of Matakana Wines. The Judge considered that the history of the business relationships between the parties indicated that each expected negotiations to conclude with a formal, written and signed agreement.[32]
(b)The value of Mr Chen’s financial interest in Waihopai had not been confirmed. This was not a mere detail but rather a critical issue going to the heart of the Integration Scheme. Both Mr Huang and Mr Chen agreed that Mr Chen did provide Mr Huang with financial forecasts. It was Mr Huang’s position however that he wanted to see the underlying financial accounts. Under cross‑examination, Mr Chen accepted that he did not give Mr Huang a copy of Waihopai’s accounts. While he asserted that Mr Huang did not ask for them, Mr Chen did agree that it would have been normal for Mr Huang to want to see them.[33]

For these various reasons, the Judge concluded that the parties were not in agreement on the Integration Scheme as at 23 January 2014 and there was no partnership agreement.[34]

[32]At [173].

[33]At [174].

[34]At [175].

The Judge went on to consider the conduct of the parties. She noted Mr Chen’s assertion that the conduct of the parties between early 2014 and late 2016 indicated that in fact they had integrated their respective businesses and that accordingly, a partnership was formed.[35] The Judge took the view that there were indications that pointed both ways.[36] She referred to the Matakana Estate management structure document, noted above at [36], and to the Memorandum of Corporate Trusteeship dated 23 March 2015 and signed by the parties, noted above at [40]. She set out the detail of the latter document and held that it did not record integration.[37] Although it referred to Mr Huang’s shareholding of 36 per cent, consistent with the percentage attributed to him in the draft Integration Scheme documents, the document also referred to an “invitation” to Mr Huang to join as a new shareholder. The Judge noted the evidence that Mr Huang never became a shareholder. The Judge also noted that, in addition, Ms Lu was not invited to be a shareholder of Waihopai, but that, on Mr Chen’s version of events, she was meant to have a percentage interest in the integrated business as well. Further, the Judge noted that the document did not provide that Mr Huang’s cash contributions were to be by way of equity rather than by way of loan. She also considered it important that the memoranda did not record any pre‑existing integration of Waihopai and Matakana Estate.[38]
[35]At [176].
[36]At [178].
[37]At [180]–[185].
[38]At [185].

The Judge noted that Mr Chen also relied on emails sent by the accountant for Matakana Wines and Waihopai, Ms Fu, to Mr Huang, Mr Lu, Mr Chen and Jackie Huang, which were addressed to them as “shareholders”. She noted however that under cross-examination, the accountant said that she had been told by Mr Chen and Mr Huang that Mr Huang either had a share in Waihopai or was intended to have a share.[39]
[39]At [186].
The Judge referred to various other factual matters, but she considered that none of them pointed unequivocally to a partnership agreement. She considered that they were equally consistent with the parties working together and even hoping for an agreement, but without agreement having been concluded.[40]
[40]At [187]–[203].
In summary, the Judge did not consider that the evidence indicated that Mr Huang had given up on his position that he required that the Integration Scheme be formally documented. In the Judge’s view, the evidence overall indicated that while the parties may 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. The Judge concluded that there was no partnership, whether based on the Integration Scheme or otherwise.[41]

Estoppel

[41]At [203].

The Judge then turned to deal with Mr Chen’s first affirmative statement of defence — estoppel. Her findings in this regard were not challenged before us and accordingly, we do not deal with the Judge’s findings in relation to the matter in any detail. Suffice to say that the Judge found that Mr Chen and Jackie Huang had failed to establish an estoppel.[42]

Misrepresentations

[42]At [214].

The Judge then turned to consider whether, if she was wrong in her finding and there was a partnership between Mr Chen and Mr Huang, there were any misrepresentations made by Mr Chen to Mr Huang, and if so, their legal effect.
The representations pleaded by Mr Huang and Ms Lu were that Mr Chen had represented to them that he had a 60 per cent share in the equity of Waihopai, which had a value of approximately $5.061 million, and that he was willing to give 60 per cent of his share in the equity in Waihopai to Mr Huang and Ms Lu in exchange for a 40 per cent interest in Matakana Estate.[43]
[43]At [217].
The Judge recited the relevant law and turned to consider whether or not representations had been made as pleaded.[44] She noted that there was no dispute that Mr Chen had 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 interest to Mr Huang in exchange for a 40 per cent interest in Matakana Estate. It was Mr Chen’s position however that this was all true.[45]
[44]At [219]–[224].
[45]At [224]–[226].
The Judge recorded that the respondents had called an expert accountant, Jason Weir, who had been able to reconstruct from the general ledger Waihopai’s balance sheets for the years 2012–2014. Mr Weir considered that, when the shareholder’s loans were treated as liabilities, the bottom line changed significantly. Waihopai was insolvent from at least 2013 onwards. The Judge noted that the expert evidence was clear — shareholder’s loans are not equity but debt.[46] The Judge considered therefore that the value attributed by Mr Chen to his interest in Waihopai was misleading, because it overlooked the fact that company’s shareholders did not control all of the loans.[47] She noted that it was Mr Huang’s evidence that had Mr Chen told him that his shareholding in Waihopai had a negative value, there would have been no further discussions about integration.[48]
[46]At [228].
[47]At [232].
[48]At [233].
The Judge therefore found that Mr Chen represented to Mr Huang that he had equity in Waihopai to the value of approximately $5.061 million and that this was not true.[49] The Judge also found that Mr Chen’s interest in Waihopai was not 60 per cent. Rather it was 40 per cent and his brother, Don Chen, held the other 20 per cent.[50]
[49]At [234].
[50]At [235]–[236].
In relation to Mr Huang and Ms Lu’s assertion 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 Matakana Estate, the Judge considered that there were two relevant representations. First, Mr Chen’s willingness to make a formal exchange and secondly, Mr Chen’s assertion that he had equity in Waihopai.[51] There was 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 set out in the Integration Scheme. Accordingly, the Judge did not consider that Mr Chen’s willingness was in issue;[52] rather if Mr Chen made a statement of his 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 his intention was false. The Judge found that Mr Chen must have known that he was unable to fulfil his intention as expressed.[53]
[51]At [240].
[52]At [241].
[53]At [244].
The Judge found that s 9 of the Fair Trading Act 1986 was satisfied;[54] Mr Huang was misled or deceived and Mr Chen’s conduct was an effective cause of Mr Huang’s resulting loss.[55] The Judge observed that even if she was wrong and that there was a partnership as from 23 June 2013 as alleged by Mr Chen, the partnership was vitiated ab initio by Mr Chen’s misrepresentations as to the value of Waihopai and his interest in the company.[56]

The JV agreement

[54]At [245]–[251].

[55]At [253] and [256].

[56]At [258].

The Judge then turned to consider the JV agreement in greater detail. It stated that it had been concluded within the territory of the People’s Republic of China and that it was governed by and was to be construed in accordance with the laws of China. The Judge referred to the evidence of the two experts called by the parties, Dr Andrew Godwin by Mr Chen and Dr Zhixiong Liao by Mr Huang and Ms Lu. Both experts agreed that principles of good faith and fairness are applicable to the interpretation of contracts in China, but there were some areas of disagreement. The Judge referred to the evidence as to how the JV agreement would be interpreted under Chinese law. She noted the various provisions in the JV agreement and found that because Mr Chen had not repaid the monies advanced to him by Mr Huang under the JV agreement, Mr Chen was in breach of the agreement.[57] The Judge noted that as of the time of the hearing, Mr Chen remained the sole registered proprietor of the Matakana land and that he had refused to transfer the land or any portion of it to Mr Huang and Ms Lu. The Judge also found that because Mr Chen had not paid his financial contribution, he was, as matters stood at the time, not entitled to his 35 per cent of the joint venture assets.[58]

The causes of action pleaded

[57]At [279].

[58]At [279].

The Judge then turned to the various causes of action pleaded by Mr Huang and Ms Lu, noting that the first three were against Mr Chen in relation to the Matakana land and that the other six were against Mr Chen and the other appellants and arose out of the Waihopai advances and the distribution of the net proceeds from the sale of Waihopai’s assets.[59]

The Matakana causes of auction

[59]At [284]–[285].

In relation to the Matakana land causes of action, the Judge noted that Mr Huang, Ms Lu and Matakana Wines said they held a beneficial interest in the Matakana land on two bases:[60]
(a)pursuant to a constructive trust (the first cause of action); and
(b)in accordance with the JV agreement:
(i)pursuant to fiduciary obligations owed by Mr Chen (the second cause of action); and
(ii)pursuant to contract (the third cause of action).

The Judge dealt with these matters in reverse order.

[60]At [286].

Before doing so, she turned to consider whether New Zealand law or Chinese law should be applied. Mr Huang said New Zealand law should apply. This was not contested. The Judge noted that the courts in this country can apply remedies under New Zealand law to match substantive rights determined by foreign law.[61] The evidence indicated that equity is not part of Chinese law unless incorporated by statute, which was not the case in the present situation; further, estoppel and resulting and constructive trusts have not been adopted in Chinese statutes; nor have fiduciary relationships.[62] The Judge recorded the observations of Chadwick J in Arab Monetary Fund v Hashim as follows:[63]
… 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.
[61]At [288].
[62]At [289]–[290].
[63]At [291], citing Arab Monetary Fund v Hashim QB 15 June 1994, quoted in Kuwait Oil Tanker Co SAK v Al Bader [2000] EWCA Civ 160, [2000] 2 All ER (Comm) 271 at [192].
Following this approach, the Judge dealt first with the third cause of action — breach of the JV agreement. She found that Mr Chen had breached his contractual obligations under the JV agreement in accordance with the laws of China because he had failed to make the stipulated payments on the due dates, he had failed to pay interest and he had failed to transfer title of the land to Mr Huang and Ms Lu. The judge found that the third cause of action was established.[64]
[64]At [294]–[295].
As for the second cause of action — breach of fiduciary duty — Mr Huang argued that, while Mr Chen’s obligations under Chinese law were purely contractual, Mr Chen also owed him and Ms Lu a fiduciary obligation in respect of the acquisition and ownership of the Matakana land. The JV agreement was governed by the law of China, which does not recognise fiduciary relationships in the same way as New Zealand. However, the principle of good faith is a fundamental principle enshrined in the Civil and Contract Codes under Chinese law. The Judge considered that Mr Chen owed Mr Huang and Ms Lu fiduciary obligations arising from the circumstances of the relationship. The JV agreement provided that the parties were contracting on the basis of honesty, mutual benefit and friendly cooperation. Further, Mr Huang and Ms Lu were in a vulnerable position; they were not New Zealand residents at the relevant time; they trusted Mr Chen with Mr Huang’s money and with legal ownership of the Matakana land; they were not familiar with New Zealand law or business dealings; and they had no experience managing a winery. It was therefore reasonable for Mr Huang and Ms Lu to repose trust and confidence in Mr Chen. There was a fiduciary relationship and by excluding Mr Huang and Ms Lu from legal ownership of the Matakana land, Mr Chen had breached his fiduciary obligations.[65]
[65]At [300]–[304].
Turning to the first cause of action — constructive trust — Mr Huang was claiming an equitable proprietary interest in the Matakana land and a constructive trust was the appropriate relief. Although purchased with Mr Huang’s funds, legal title was in Mr Chen’s name and Mr Chen had refused to transfer the property to Mr Huang and Ms Lu. The Judge considered that New Zealand law should apply to this claim.[66] She noted that, to establish a constructive trust, a claimant must show contributions (direct or indirect) to the property, the expectation of an interest, that such expectation was reasonable, and that the defendant should reasonably expect to yield the claimant an interest.[67] The Judge found that all elements were established and that Mr Chen held the land on constructive trust for Mr Huang and Ms Lu.[68]
[66]At [306].
[67]At [307], citing Lankow v Rose [1995] 1 NZLR 277 (CA) at 294 per Tipping J, with whom Cooke P, Hardie Boys, Gault and McKay JJ agreed.
[68]High Court judgment, above n 1, at [308]–[310].
Mr Huang and Ms Lu had argued that any attempt by Mr Chen to belatedly repay the $1.47 million loan in order to acquire a share of Matakana Estate was barred by the equitable doctrine of laches.[69] The Judge observed that, given the dispute between the parties, it would be problematic if Mr Chen was to be permitted to belatedly repay the loan and acquire a share of Matakana Estate. She ventured that it would be pointless for Mr Chen to pursue such a claim and that he would likely be barred by the doctrine of laches.[70]
[69]At [312].
[70]At [318].
Mr Huang and Ms Lu had sought equitable damages in relation to the three Matakana Estate claims. They said Mr Chen’s failure to transfer title has delayed the development, which was required under the OIO consent conditions. They called an expert witness, Patrick Hanlon, who said that the development costs had increased by approximately $3 million between 2020 and 2022.[71] Mr Chen’s position was that the damages claimed were not foreseeable and thus not recoverable.[72] The Judge was of the view that Mr Chen ought to have foreseen that Mr Huang and Ms Lu would want to start developing the Matakana land at the earliest opportunity. She found that Mr Huang and the other respondents were entitled to damages as a result.[73]

The counterclaims

[71]At [319].

[72]High Court judgment, above n 1, at [320] and [322], citing Hadley v Baxendale (1854) 9 Exch 341, (1854) 156 ER 145 (Exch).

[73]High Court judgment, above n 1, at [323]–[324].

The Judge then considered the counterclaims to the Matakana causes of action.
First, Mr Chen claimed that Mr Huang and Ms Lu had breached the JV agreement by failing to provide him any interest in Matakana Zhongshan Ltd. The Judge noted the JV agreement provided that a subsidiary of Matakana Wines was to be set up in China and that Mr Huang accepted that Mr Chen had been entitled to a share in Matakana Zhongshan Ltd, conditional on Mr Chen performing his obligations under the JV agreement, including repaying Mr Huang. The Judge accepted Mr Huang’s arguments and concluded that this counterclaim failed.[74]
[74]At [328]–[331].
The second counterclaim was against Ms Lu. Mr Chen said he was the sole shareholder when Matakana Wines was first incorporated. In September 2012, he transferred 100 per cent of the shares to Kiwi Club, a company owned by Ms Lu, to assist in her immigration application. Mr Chen said that it was an implied term in their agreement that she would procure the transfer to him of 40 per cent of the shares in Matakana Wines once her immigration application was approved. This 40 per cent was sought under the Integration Scheme. Alternatively, if the JV agreement was still in force, Mr Chen claimed 35 per cent of the shares in Matakana Wines. The Judge accepted that the transfer of the shares was to assist Ms Lu with her immigration application. However, Mr Chen was not entitled to 35 per cent of shares as he was in breach of the JV agreement. This counterclaim also failed.[75]
[75]At [332]–[335].
Thirdly, Mr Chen argued that Matakana Wines had failed to repay advances he had made totalling $540,000 and he sought to recover this sum. He also claimed interest on this sum and on earlier repaid advances. The Judge found that the amount owed to Mr Chen was $530,784.[76] However, the claim for interest was rejected due to a lack of evidence regarding agreed practice and because there was no pleading referring to the Interest on Money Claims Act 2016.[77]
[76]At [339].
[77]At [343].
Mr Chen’s fourth counterclaim relied on Mr Chen being the registered proprietor of the Matakana Land. He said that Matakana Wines had occupied the premises since March 2012 and had failed to pay rent or outgoings since at least January 2015. He said that if Mr Huang and Ms Lu were entitled to enforce the JV agreement, he was entitled to payment from Matakana Wines under the strict terms of the lease. The Judge held this was not a tenable position and said that “[b]ecause 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”.[78] This claim failed.[79]

The Waihopai claims

[78]At [346].

[79]At [347].

The Judge held that both the fourth and fifth causes of actions brought by Mr Huang and Ms Lu succeeded.[80] The fourth cause of action was against Mr Chen for his failure to repay the Waihopai advances/loans. The fifth was an alternative claim against Waihopai for the failure to repay the loans.
[80]At [355].
The sixth cause of action was brought by Mr Huang and Ms Lu to recover the Waihopai advances in equity. They had pleaded moneys had and received. They said they had made the advances as loans to remove Waihopai from receivership. Mr Chen and Yi Lu then caused Waihopai to sell its assets and dissipated the sale proceeds without repaying the advances/loans. Mr Chen and others were therefore unjustly enriched at Mr Huang’s and Ms Lu’s expense and it would be unconscionable for them to retain that benefit.[81] Mr Chen pleaded there was no debt due to the Integration Scheme, a defence which the Judge found had failed.[82] In the circumstances, the Judge considered that the claim for money had and received was an appropriate response. This cause of action also succeeded.[83]
[81]At [356].
[82]At [203] and [357].
[83]At [360].
The seventh cause of action was in the alternative to the preceding causes of action. The eight cause of action was in the alternative to the seventh. The Judge addressed both together. Mr Huang and Ms Lu claimed that the payments of the sale proceeds of Waihopai’s assets were “prejudicial dispositions” pursuant to the Property Law Act.[84] Mr Chen’s position was that Mr Huang and Ms Lu were not creditors of Mr Chen or Waihopai because of the Integration Scheme, an argument that had been rejected by the Judge.[85] The Judge discussed the claim by reference to subpt 6 of pt 6 of the Property Law Act. She accepted that Mr Huang and Ms Lu were creditors of Mr Chen and/or Waihopai in respect of the Waihopai advances. The Judge concluded that Mr Chen and the other appellants had received property through a prejudicial disposition, having received monies from the sale of Waihopai.[86] These claims succeeded.[87]
[84]At [362].
[85]At [363].
[86]At [382].
[87]At [384].
The ninth cause of action was founded on unjust enrichment. However, having found in favour of Mr Huang and Ms Lu in relation to the sixth and eighth causes of action, the Judge did not consider it necessary to determine this cause of action.[88]

The affirmative defences

[88]At [387].

The Judge finally turned to the affirmative defences raised by Mr Chen. He had pleaded that payments he had received were partly owed to him. The Judge found there was a lack of underlying evidence regarding the debt owed and the affirmative defence failed.[89] The Judge also addressed a counterclaim brought by Mr Chen against Ms Lu, which pleaded that Ms Lu owed him $20,000. Again, there was an absence of evidence and the Judge rejected this counterclaim.[90]

The position with the later advances is more difficult to ascertain, because the evidence is more limited. Mr Huang and Ms Lu pleaded that the later advances were loans to Mr Chen. Mr Chen denied this and said that they were loans to Waihopai. The loans commenced in December 2013 and continued on a relatively regular basis until February 2017. The March 2015 Memorandum of Corporate Trusteeship recorded that all future advances to Waihopai were to be made by way of loan through Ms Lu, as a third party lender. This document was signed by Mr Chen, Yi Lu, Mr Huang and Ms Lu.
In so far as we can glean, the later advances made by Mr Huang, Ms Lu and entities associated with them, were treated in such other records as were adduced in evidence for the period 2014–2018 as loans direct to Waihopai (albeit that most of the records produced in the course of the hearing were unsigned). In its financial statements for the year ended 30 June 2016, Waihopai included the later advances to that point comprising two loans — one called the “Alex loan” and the other the “Chrissy loan”. They were shown as being liabilities of Waihopai. The 2017 financial statements do not assist and in the 2018 financial statements, the Alex loan and the Chrissy loan seem to have been consolidated with other loans under the heading “Shareholder Loans”. The Waihopai shareholders, Mr Chen and Yi Lu, were also advancing funds to Waihopai by way of loan. There is no evidence to suggest, or reason to find, that the advances by Mr Huang, Ms Lu and the various entities they controlled, should be treated differently. The Judge was satisfied that the accounts were evidence of what was intended.[153] So are we. On the balance of probabilities, we conclude that the additional advances over and above the initial $1.2 million were made by way of loan to Waihopai.
[153]High Court judgment, above n 1, at [134].
The conclusions we have reached require some amendment to the amounts awarded under some of the causes of action relating to the Waihopai advances. The Judge gave judgment in the principal sum of $2,376,261 against Mr Chen under the fourth cause of action. That sum is reduced to $1.2 million. Under the fifth cause of action, she gave judgment against Waihopai in the principal sum of $2,376,261. That sum is reduced to $1,176,261.

Should the orders made against the third to seventh appellants under s 348 of the Property Law Act be aside?

We have summarised the relevant causes of action above at [111].

Submissions

Mr Judd’s submission on this point was straightforward. He argued that Waihopai did not owe any debt to Mr Huang and that therefore the judgments against the third to seventh appellants should be set aside, as Mr Huang (and Ms Lu) were not creditors of Waihopai. He accepted however that, if monies were owing by Waihopai to Mr Huang (and Ms Lu), the proceeds of sale of the vineyard should be repaid to the company. He challenged the Judge’s direction that any of the funds received by the appellants from the sale of the vineyard should be paid direct to Mr Chen and by him to Mr Huang in satisfaction of the Waihopai advances. He argued that the effect of the Judge’s direction in relation to the sixth and seventh causes of action was to give Mr Huang priority over other creditors of Waihopai.
Mr Pascariu argued that the appellants’ criticisms were unwarranted. He argued that Waihopai was a recipient of all the advances made by the respondents. He noted that if Mr Chen was the party liable for the Waihopai advances, he could no longer repay those advances to the respondents, because he had rendered himself insolvent through his concealed distribution of the vineyard proceeds. He also noted that the distribution rendered Waihopai insolvent. He submitted the Judge’s finding that the distribution of the vineyard proceeds was intended to cause prejudice and had the effect of causing prejudice to the respondents was supported by the evidence. He referred to ss 346–348 of the Property Law Act and argued those provisions gave the Court a discretion to make an order vesting property in, or requiring a person to pay reasonable compensation to, an applicant prejudiced by the disposition of the property. He submitted that the exercise of the discretion conferred by the Property Law Act and the “waterfall” relief granted by the Judge was appropriately tailored to respond to the appellants’ breaches of the Property Law Act and the loss suffered by Mr Huang (and Ms Lu) as a result.

Analysis

We have concluded above that some of the monies advanced by Mr Huang were loans to Mr Chen and that other of the monies were loans to Waihopai. There was no challenge to the Judge’s findings in regard to the operation of ss 346–348 of the Property Law Act.
The seventh cause of action was against Mr Chen, Don Chen (Mr Chen’s brother), Jackie Huang and AEG. The Judge found the cause of action was proved and made an order under s 348 of the Property Law Act requiring each of them to repay the funds they received through the prejudicial dispositions back to Mr Chen’s account and further requiring Mr Chen to pay the respondents $2,376,261, together with interest on that sum from the date on which each of the individual advances making up that sum was advanced.[154]
[154]High Court judgment, above n 1, at [399].
We have some difficulty with the Judge’s orders in relation to the seventh cause of action. The monies that were paid out to Mr Chen, Yi Lu, Don Chen, Jackie Huang, Qi Yang and AEG came from the proceeds of sale of Waihopai and its assets. It seems that some of them were creditors of Waihopai, as were Mr Huang and Ms Lu. We cannot see that it is appropriate to direct Mr Chen, Don Chen, Jackie Huang and AEG to repay the funds received by them to Mr Chen’s account. It was never Mr Chen’s money. In so far as we are aware, Don Chen, Jackie Huang and AEG were not creditors of Mr Chen and they were not paid out on that basis. In our judgement, it is appropriate to set aside the orders the Judge made in respect of the seventh cause of action.
With one exception it is however appropriate to retain the orders made by the Judge under the eighth cause of action. Under that cause of action, the Judge required Mr Chen, Yi Lu, Don Chen, Jackie Huang, Qi Yang and AEG to repay the amounts they received direct to Waihopai, and for Waihopai to pay the respondents $2,376,261.[155]
[155]At [402]–[403].
In our view, it is not appropriate to require Waihopai to pay the monies direct to Mr Huang, Ms Lu and Matakana Wines. Waihopai may have other creditors, including some of the appellants. The better course is to leave it open to any of the parties to appoint a liquidator. Each of the various parties, together with Mr Huang and Ms Lu and any other creditors, will be entitled to seek to prove in the liquidation and to participate pro rata in the distribution of Waihopai’s assets.
This requires us to amend the orders made in respect of the eighth cause of action, by setting aside the order that Waihopai pay Mr Huang, Ms Lu and Matakana Wines $2,376,261. In all other respects we uphold the relief granted by the Judge in relation to the eighth cause of action.

Should the interest award to the respondents on the Waihopai claims be set aside?

The Judge awarded interest to the respondents on the Waihopai claims under s 12 of the Interest on Money Claims Act.

Submissions

Mr Judd argued that the Judge was wrong to award interest to the respondents, because they did not, as required, plead a claim for interest under s 24(2)(b) of the Interest on Money Claims Act. It was submitted that as a result, the Judge was prevented by s 25 of that Act from awarding interest to the respondents.
Mr Pascariu pointed to s 26 of the Interest on Money Claims Act and argued that it expressly preserves the respondents’ right to interest at common law and in equity. He also said that claim for recovery of the Waihopai advances was pleaded not only as a debt, but also by way of claims for monies had and received and for unjust enrichment. Out of caution he made an oral application for leave to amend the statement of claim to seek interest under s 24(2)(b) of the Interest on Money Claims Act.

Analysis

The Interest on Money Claims Act came into force on 1 January 2018, well after the initial $1.2 million was advanced by Mr Huang and some time after the later advances, which occurred between 2013 and 2017.
Section 24 of the Interest on Money Claims Act provides, relevantly, as follows:
24Special provision for interest or lump sum relating to contracts entered into before commencement
(1)This section applies to the period before the date of a money judgment if the judgment is given for an amount under, or for breach of, a contract entered into before the coming into force of this Act.
(2)Where this section applies to a period before the date of a money judgment,—
(a)the court may not award interest under Part 1 for the period; but
(b) the court may—
(i)award interest on all or part of the amount of the money judgment at a rate not exceeding the rate prescribed for the purposes of this section, calculated in the manner (with or without compounding) that the court directs; or
…
(iii) determine not to award interest …
The maximum prescribed rate is currently 5 per cent per annum.[156]
[156]Interest on Money Claims Regulations 2019, reg 4.
Section 25 of the Act relevantly provides as follows:
25Court may not award interest unless procedural requirements complied with
(1)A court may not award interest under a section of this Act for a period unless the party who claims interest under the section for that period specifies the section and, as far as possible, the period in that party’s statement or notice of claim or counterclaim.
…
(2) If a party claims interest under section … 24,—
(a)the party must specify in that party’s statement or notice of claim or counterclaim the amount or rate of interest claimed; and
(b) the court may not award interest—
(i)exceeding the amount claimed under paragraph (a); or
(ii)at a rate exceeding the rate claimed under paragraph (a).
…
(4)Nothing in this section prevents a court from making an award of interest where the court has at any time made or accepted an amendment to a statement or notice of claim or counterclaim in accordance with the rules of court and where that statement or notice of claim or counterclaim, as amended, complies with the requirements in subsections (1) and (2).
The respondents, in their statement of claim, sought interest in respect of the fourth to eighth causes of action in the following or similar terms:
Interest on the above amount in accordance with s 10 of the Interest on Money Claims Act 2016 from the date of advance or such other date as the Court thinks fit; …
Section 10, which provides that in every money judgment, a court must award interest as compensation for a delay in the payment of money, is contained in pt 1 of the Act. Pursuant to s 24(2)(a), the Judge had no power to award interest under s 10, because the relevant time period was before the Act came into force. The Judge did not do so — rather she ordered interest from the date of each advance, calculated under s 12 of the Act on each of the relevant causes of action. Section 12 is also in pt 1 of the Act and again s 24(2)(a) applies.
Without amendment, Mr Judd’s argument seems to us to be correct. Section 25(1) and (2) preclude the Court from awarding interest, because the respondents did not specify the section under which interest was sought or the amount of rate of interest claimed. They did however, in respect of each of the fourth to eighth causes of action, specify at least in some part and in so far as was possible, the periods in respect of which interest was sought — namely from the date of each advance or payment.
For the sake of completeness, we record that we did not understand Mr Pascariu’s argument that the position was in some way affected by the fact that one of the claims — the sixth cause of action — was for monies had and received and that another claim — the ninth cause of action — was for unjust enrichment. The Judge did not deal with the ninth cause of action. As already noted, in the sixth cause of action, interest was sought under s 10 of the Interest on Money Claims Act. It suffers from the same defect regarding interest as the other Waihopai advances claims.
We now turn to the final issues raised by the appeal. If they succeed there is no need to set aside the interest awards although they will require amendment.

Applications for leave to amend claims to seek interest

Mr Chen sought leave to amend his third counterclaim to seek interest under s 24 of the Interest on Money Claims Act on amounts owing to him by the third respondent. Mr Huang and Ms Lu sought leave to amend their prayer for relief in respect of the fourth, fifth, sixth and eighth causes of action to seek interest, also under s 24.
We have set out above an example of the respondents’ pleading seeking interest in respect of the fourth to eighth causes of action. The appellants, in their pleading, sought interest in respect of the third counterclaim as follows:
Interest of $498,777.53 to 15 July 2021 plus further interest on any amounts outstanding at a rate of 15% per annum until date of payment.
It is clear that the pleadings do not comply with s 25(1) and (2) of the Interest on Money Claims Act. It is equally clear from s 25(4) that the court can make or accept an amendment to the statement of claim or the counterclaim.
Under s 25(4) any amendment must be in accordance with the rules of the court. The relevant rule is r 1.9 in the High Court Rules 2016. It provides that the court can, before, at, or after the trial of any proceeding, amend any defects and errors in the pleadings, whether or not there is anything in writing to amend and whether or not the defect or error is that of the party applying to amend.[157] Amendments can be made that are necessary for determining the real controversy between the parties.[158]
[157]High Court Rules 2016, r 1.9(1).
[158]Rule 1.9(2).
Rule 48(2) of the Court of Appeal (Civil) Rules provides that this Court has all the powers and duties of the court of first instance concerning procedure, including in relation to the amendment of pleadings.
There can be a late amendment to pleadings provided an applicant can surmount the “three formidable hurdles” identified by this Court in Elders Pastoral Ltd v Marr.[159] An applicant must show that:
(a)the amendment is in the interests of justice;
(b)it will not significantly prejudice the other party; and
(c)it will not cause significant delay.
[159]Elders Pastoral Ltd v Marr (1987) 1 NZPC 91, (1987) 2 PRNZ 383 at 385.
The amendment of pleadings to accommodate the requirements of ss 24 and 25 of the Interest on Money Claims Act has very recently been considered by Osborne J in the High Court in Davern v QBE Insurance (Australia) Ltd.[160] The Judge observed that s 25(4) permits an amendment “at any time” and that this contemplates the possibility of very late amendment, including after the trial of a proceeding. He also commented that the breadth of the power accommodates the fact that issues in relation to interest claims are most likely to arise consequential upon the substantive judgment.[161] The Judge discussed previous cases where parties have failed to comply with s 25 and, either formally or informally, obtained leave to amend their pleadings so as to belatedly comply.[162]
[160]Davern v QBE Insurance (Australia) Ltd [2023] NZHC 3543.
[161]At [16].
[162]At [23], referring to Harvey v Harvey [2021] NZHC 2405; Harvey v Harvey (No 2) [2021] NZHC 3508; Leondale Ltd v Boyd [2021] NZHC 470; Plumbco New Zealand Ltd v Plumbco Commercial and Civil Ltd [2023] NZHC 690; Plumbco New Zealand Ltd v Plumbco Commercial and Civil Ltd [2023] NZHC 1819; and Swenson v Lawton [2022] NZHC 3544, [2022] NZFLR 847.
In our view, it is appropriate to take the same approach as Osborne J took in Davern to Mr Chen’s proposed amendment to his third counterclaim and to Mr Huang and Ms Lu’s proposed amendment to their prayer for relief in respect of the fourth, fifth, sixth and eighth causes of action. It is clear that the omission to properly plead interest in accordance with the relevant statutory provisions was a straightforward error. Both Mr Chen in his pleading, and Mr Huang and Ms Lu in their pleading, claimed interest, albeit not in compliance with the Interest on Money Claims Act. There is no prejudice to either party. Delay is not in issue. In our clear view, the interests of justice require that the amendments should be allowed.
Accordingly, Mr Chen is granted to leave amend his prayer for relief in respect of his third counterclaim to claim as follows:

(a)interest pursuant to s 24(2)(b) of the Interest on Money Claims Act from the date of each advance to the date of judgment, at 5 per cent per annum; and
(b)interest from the date of judgment to the date of payment pursuant to ss 10 and 12 of the Interest on Money Claims Act.

The respondents are granted leave to amend their prayer for relief in respect of the fourth, fifth, sixth and eighth causes of action, to claim as follows:

(a)interest pursuant to s 24(2)(b) on the Interest on Money Claims Act, from the date of each advance as identified in sch 1 to the statement of claim, to the date of judgment, at 5 per cent per annum; and
(b)interest from the date of judgment to the date of payment pursuant to ss 10 and 12 of the Interest on Money Claims Act.

We vacate the interest awards made by the Judge and award interest in accordance with the above amendments.

Costs

Both the appellants and the respondents have enjoyed a measure of success on this appeal. We make no order as to costs.

Result

Leave is granted to the respondents permitting them to adduce by way of further evidence [1] and [2] of Ms Lu’s affidavit of 27 October 2023. Leave is declined to the respondents to adduce in evidence the remainder of the affidavit.
The first appellant is granted leave to amend his prayer for relief in respect of his third counterclaim as set out in [245] of this judgment.
The respondents are granted leave to amend their prayer for relief in respect of the fourth, fifth, sixth and eighth causes of action as set out in [246] of this judgment.
The appeal is allowed in part.
(a)The award of equitable damages made in respect of the first, second and third causes of action is set aside.
(b)The principal sum awarded in respect of the fourth cause of action is reduced from $2,376,261, to $1.2 million.
(c)The principal sum awarded in respect of the fifth cause of action is reduced from $2,376,261, to $1,176,271.
(d)The orders made in respect of the seventh cause of action are set aside.
(e)The orders made in respect of the eighth cause of action are amended, by setting aside the direction that Waihopai pay Mr Huang, Ms Lu and Matakana Wines $2,376,271. In all other respects, the relief granted in respect of the eighth cause of action is upheld.
The orders for the payment of interest in respect of Mr Chen’s third counterclaim and in respect of the respondents’ fourth, fifth, sixth and eighth causes of action are set aside.
Interest on each relevant cause of action/counterclaim is awarded pursuant to s 24(2)(b) of the Interest on Money Claims Act, from the date of each advance to the date of judgment at the rate of 5 per cent per annum and from the date of judgment to the date of payment pursuant to ss 10 and 12 of that Act.
In all other respects the appeal is dismissed.

There is no order as to costs.

Solicitors:
Morrison Kent, Auckland for Appellants
Hamilton Locke, Auckland for Respondents

[2024] NZCA 38

1 March 2024 at 11 am