Choi v Hong
[2013] NZHC 2973
•11 November 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-003035 [2013] NZHC 2973
BETWEEN JAE HOON CHOI Plaintiff
ANDIL LIB HONG Defendant
Hearing: 11 November 2013
Appearances: B Gustafson for Plaintiff
J B Murray for Defendant
Judgment: 11 November 2013
ORAL JUDGMENT OF VENNING J
granting injunction
Solicitors: Turner Hopkins, Auckland
Vallant Hooker, Auckland
Copy to: B D Gustafson Auckland
CHOI v HONG [2013] NZHC 2973 [11 November 2013]
Introduction
[1] This case involves a dispute between the parties concerning the control of a company, Twin Oaks Golf Ranges Limited (Twin Oaks). The matter before the Court this morning is an application by the plaintiff Mr Choi for interim injunction orders preventing the defendant Mr Hong from selling or otherwise dealing with shares in Twin Oaks and preventing Mr Hong from selling or otherwise dealing with the property owned by or held in the name of Twin Oaks at Paerata Road, Pukekohe. Leave is also sought to bring the matter back on three working days’ notice for variation of the above orders (if granted).
Background
[2] I take the background from the statement of claim and counsels’ submissions
acknowledging that the position is not necessarily accepted by Mr Hong.
[3] Twin Oaks is the registered owner of a property at 994C, State Highway 22, Paerata Road, Pukekohe. It is a golf range and cafe. Currently it is not being operated.
[4] Initially the shares in Twin Oaks were owned by Mr Hong or interests associated with him. Mr Hong and Mr Choi have entered two agreements in relation to the shares, first on 14 November 2011, the second on 10 August 2012.
[5] Those two agreements have been the focus of this morning’s hearing.
[6] It appears that Mr Choi advanced moneys to Twin Oaks and/or Mr Hong and in exchange Mr Hong agreed to transfer shares in Twin Oaks to Mr Choi. The two agreements deal with those issues. There is a further company interested in the property owned by Twin Oaks. That company is GWM Limited. It apparently claims an interest of 20 per cent in the property as well. For present purposes I put that claim to one side.
[7] It appears that both parties agree that the property owned by Twin Oaks should be sold. The current dispute arises because they are unable to agree which of
them should control the sale and ultimately what should happen to the proceeds of sale.
[8] Twin Oaks had granted a mortgage to ASB Bank. When the Bank moved to take steps to exercise its security Mr Choi bought out the Bank’s interest. Mr Choi now holds a security over the property owned by Twin Oaks.
[9] The last piece of the picture for present purposes is that I am advised Mr Hong has received an offer for $1.5 million for the property. It is a conditional offer and has not yet been accepted. The offer is apparently not acceptable to Mr Choi or at least not until the issues of control of Twin Oaks are resolved.
[10] Although these proceedings were issued on 30 May this year a fixture has not yet been allocated for the substantive proceedings. They are scheduled for a case management conference in the new year.
Principles
[11] The principles to apply on an application for an injunction such as this are well settled as the established two-stage approach discussed in Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd.1
[12] The first issue is whether Mr Choi can meet the threshold question of a serious case for trial. For present purposes that requires consideration of the two principal agreements in issue. Mr Choi relies on the agreement of 10 August 2012. Mr Hong relies particularly on the 14 November 2011 agreement.
[13] The 10 August 2012 agreement was between Mr Hong, Mr Choi and also GWM. The recitals refer to the earlier agreement of 14 November 2011, record that that agreement provided for the transfer of 100 per cent of the shares in Twin Oaks from Hong to Choi for the consideration that Choi loans 580 million Korean Won to Hong, (approximately NZ$685,000) and that the shares were to be transferred back from Choi to Hong upon repayment of 300 million Korean Won, (counsel advise
approximately NZ$266,000). The recitals go on to record that only 300 million
1 Klissers Farmhouse Bakeries Ltd v Harvest Bakeries Ltd [1985] 2 NZLR 129 (CA).
Korean Won had been loaned by Mr Choi to Mr Hong and the liability was limited to that. They also acknowledge that 20 per cent of the shares were to be transferred from Mr Choi to GWM and then acknowledge and record that Mr Choi agreed to transfer the balance of his then shareholding of 80 per cent in Twin Oaks to Mr Hong on the terms set out for the purposes of enabling Hong to effectively procure an agreement for sale of the property.
[14] The operative provisions of the agreement provided that Mr Choi was to execute the necessary documentation to transfer the shares held by him to Mr Hong or his attorney and that, once that had been effected, Mr Hong or his authorised attorney was to undertake reasonable endeavours to secure a sale and purchase agreement for the property by the due date. The due date was recorded in the agreement as 14 September 2012. Importantly for present purposes the agreement went on to state:
4.In the event that no sale and purchase agreement for the property is duly signed by the Due Date [14 September 2012] Hong shall arrange for and effectuate immediate transfer of Choi’s Shareholding back to Choi.
...
7.The said S&P Agreement shall be settled no later than six (6) calendar months from the Due Date. In the event that the S&P Agreement fails to settle on or before the six (6) calendar months from the Due Date (“Expiry Date”) the Choi’s Shareholding shall be transferred back to Choi immediately. [That expiry date being 14
March 2013].
[15] It is not in dispute that no sale and purchase agreement was signed by 14
September 2012. Nor, it follows, can it be in dispute that no agreement for sale and purchase was settled by 14 March 2013. As noted, the only matter before the parties at present is the offer for sale, which post-dated 14 September 2012 as it was only received in the latter part of this year.
[16] On the basis of the August 2012 agreement Mr Choi argues that Mr Hong is obliged to retransfer the 80 per cent shareholding in Twin Oaks that Mr Choi had transferred to Mr Hong in accordance with that agreement. Obviously if 80 per cent of the shares were re-transferred that would give Mr Choi control of Twin Oaks and
control of the sale process. Mr Hong relies on that agreement to support the injunctive orders he seeks.
[17] For Mr Hong, Mr Murray drew the Court’s attention to the November 2011 agreement, which recorded that the transfer of shares in Twin Oaks held by Mr Hong as at November 2011 to Mr Choi was effectively to secure an advance made by Mr Choi to Mr Hong.
[18] Although the English translation of the agreement contains some inaccuracies it is apparently agreed that it records by way of background that Mr Choi was to pay the sum of $580 million Korean Won to Mr Hong (when all documents required for the transfer of the shares of Twin Oaks had been prepared) and that in exchange Mr Hong agreed to transfer all shares of Twin Oaks to Mr Choi and to register the same at the Companies Office.
[19] The rationale for the agreement was apparently to provide some form of security to Mr Choi for the advance he was to make to Mr Hong. Whether the advance was made, what sum was actually advanced, and whether the agreement has been fulfilled are all matters that are in dispute between the parties.
[20] The November agreement also recorded that Mr Choi was to transfer the Twin Oaks shares back to Mr Hong upon Mr Hong repaying 300 million Korean Won to Mr Choi. The parties agreed to re-enter a further agreement in relation to repayment of the balance.
[21] Mr Murray drew the Court’s attention to cl 6 of the November 2011 agreement, which provided that during the agreement period Mr Hong was to agree to and co-operate with the sale of the property owned by Twin Oaks.
[22] Mr Murray emphasised that under the terms of the November agreement the parties agreed to co-operate with the sale of the property and submitted that that obligation persisted so that Mr Choi was obliged to co-operate with the sale of the property. He noted an offer had been received for $1.5 million and submitted Mr
Choi should be obliged to co-operate in terms of negotiating and completing an agreement for sale and purchase of the property.
[23] There are two difficulties with the argument advanced on behalf of Mr Hong by Mr Murray. The first is that the November 2011 agreement stated at cl 3 of that agreement:
3.This agreement is valid for 10 months from the date of the execution or until 14 September 2012 ... whichever is earlier
so that that agreement expired on 14 September 2012. The obligation to agree and co-operate in relation to the sale was during the agreement period which has now ended.
[24] The second difficulty with the argument is that the agreement relied on by Mr
Choi of August 2012 post-dates the November 2011 agreement. While the August
2012 agreement refers to the November 2011 agreement it then goes on to provide further and fresh provisions and outcomes in relation to the transfer of the shares.
[25] So for present purposes Mr Choi satisfies the threshold question. Based on the August 2012 agreement he has a serious case to support his argument at trial that the shares in Twin Oaks currently held by Mr Hong and controlled by him are held by Mr Hong for Mr Choi in accordance with the agreement of 10 August 2012.
[26] The remaining issue for the Court is the balance of convenience. As Wild J observed in the Air NZ Ltd v Wellington International Airport Ltd2 case, this involves balancing the injustice that will be caused to Mr Choi if the interim injunction sought is refused and he ultimately succeeds in his claim against the injustice that would result to Mr Hong if the injunction was made but then subsequently discharged in the event Mr Hong was successful in opposing Mr Choi’s claim.
[27] In relation to that I consider the adequacy of damages for both parties. It appears Mr Hong is currently in China. It is not apparent to the Court that there are
any particular assets of value that Mr Hong has in New Zealand which if Mr Choi is
2 Air NZ Ltd v Wellington International Airport Ltd HC Wellington CIV-2007-485-1756, 30 July
2008.
successful, could be applied to meet any damages that Mr Choi might otherwise obtain against Mr Hong. I note in Mr Choi’s affidavit he deposes to conversations with Mr Hong which suggest Mr Hong has transferred significant assets that he owned to his wife who subsequently divorced him and that Mr Hong had asked Mr Choi for further money for medical expenses and school fees for his son while Mr Hong was in China. Further, it appears that the background to the agreement between the parties is or arises from Mr Hong’s need for funding in the first place. Even accepting there is a dispute as to the quantum advanced the Court is left in the position that in the event Mr Choi is successful it cannot be satisfied that Mr Hong would be able to meet any judgment, quite apart from the difficulty of enforcing any judgment if Mr Hong remained in China.
[28] Against that Mr Murray acknowledged that Mr Choi has purchased the first mortgage from ASB Bank. If ultimately Mr Hong succeeds and retains control of Twin Oaks, and the property is sold for less than the $1.5 million now currently on offer so that a loss is sustained, then there is a substantial sum of money which Mr Choi has paid to buy the ASB Bank mortgage. The amount currently stands in excess of $600,000 (including interest). That would be available to meet any diminution in value in the property, quite apart from taking account of any sums that may be due by Mr Hong to Mr Choi in relation to the loan underlying the agreements between the parties. On that basis then the injunction should be granted.
[29] As Wild J observed in the Air NZ case given that conclusion it is strictly unnecessary to go further.3 However, I briefly note the issue of status quo. It could be suggested, as I apprehend Mr Hong’s argument to be, that the August agreement enabled Mr Hong to go to the market and sell Twin Oaks. The difficulty with that is that position was a conditional position and the conditions have not been met. It is not in dispute that the conditions have not been met. I prefer Mr Gustafson’s interpretation that the status quo position is that Mr Choi had been provided shares
by Mr Hong by way of security for the advances Mr Choi was to make to Mr Hong and that in the event the transactions contemplated by the agreement of August 2012
were not met Mr Choi would be put back in that position of holding those shares.
3 At [9].
[30] For those reasons I am satisfied that the plaintiff is entitled to the injunction he seeks. I accept as discussed with counsel during the course of submissions that the effect of the injunction will be to prevent Mr Hong from selling or dealing with the property, albeit that he holds a majority of shares at the moment. It is in the interest of both parties that the issues between them be resolved and that the property be sold on best terms. The Court cannot however achieve that in terms of the grant of limited relief sought at present. That can only be achieved by the parties by a sensible negotiated commercial resolution or following the outcome of the substantive proceedings
Orders
[31] I make the following injunction orders as follows:
(a) the defendant Mr Hong is not to sell, transfer, encumber or otherwise deal with the shares in Twin Oaks Golf Ranges Limited; and
(b)the defendant Mr Hong is not to sell, transfer, encumber or otherwise deal with, or assist another person to sell, transfer, encumber or otherwise deal with the property at 994C, SH22, Paerata Road, Pukekohe; and
(c) either party has leave to bring the matter back before the Court on
three working days’ notice for variation of the above orders.
[32] Counsel are to file a joint memorandum within 10 working days of today’s date directed to my attention setting out a timetable for the completion of interlocutory steps in this case. They are also to confirm the time required for a substantive fixture and to advise the Court of their unavailability in February and March next year for a fixture as it is the Court’s intention to allocate a fixture as a matter of priority in this case to see the matters in issue resolved.
Costs
[33] The plaintiff is entitled to costs which I fix on a 2B basis for this application and hearing.
Venning J
0
0