DAMIN LUN AND YONGCING KONG
[2024] NZHC 2441
•3 October 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-795
[2024] NZHC 2441
BETWEEN DAMIN LUN
Plaintiff
AND
YONGCING KONG
Defendant
Hearing: 20 August 2024 Appearances:
Jason Goodall KC/Luke Sizer/Zar Sinclair for the Plaintiff
R J Hollyman KC/NG Lawrence/A Cherkashina for the Defendant
Judgment:
3 October 2024
JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR
Plaintiff’s applications for summary judgment on defendant’s counterclaims and for strike-out of parts of defendant’s statement of defence and
counterclaim;
Defendant’s application for further and better discovery.
This judgment was delivered by me on 3 October 2024 at 3:00pm
pursuant to Rule 11.5 of the High Court Rules
…………………………. Registrar/Deputy Registrar
Solicitors:
Buddle Findlay (L C Sizer / Z T P Sinclair), Auckland, for the Plaintiff
Norling Law (B J Norling/A Cherkashina), North Harbour, Auckland, for the Defendant
Counsel:
Jason Goodall KC, Auckland, for the Plaintiff Robert J Hollyman KC, Auckland, for the Defendant
LUN v KONG [2024] NZHC 2441 [3 October 2024]
TABLE OF CONTENTS
Paragraphs
Introduction [1]
Background [2]
Mr Lun’s application for summary judgment and strike-out [12]
Summary judgment in relation to Counterclaims [13](a)
Settlement Deed [13](b)
Limitation [13](e)
Strike out parts of the Defence and Counterclaims [13](f)
Settlement Deed – Counterclaims [13](f)Paragraph 7.1 of the Defence and Counterclaims [13](g)
Second affirmative defence (at paragraph 11.1) [13](k)
Third affirmative defence (at paragraphs 12.1 to 12.2) [13](m)Claim for relief against Mr Lun in respect of interests in shares not
held by him personally [13](n)
Mr Kong’s opposition [14]
Summary judgment in relation to Counterclaims [14](a)
Strike out of parts of the Defence and Counterclaims [14](e)
Legal principles [15]
Summary judgment [15]
Strike-out [18]
Further and better discovery [20]
Analysis [23]
Mr Lun’s summary judgment application [23](a)
Mr Lun’s strike-out application [23](b)
Mr Kong’s discovery application [23](c)
Whether there is a reasonably arguable basis for Mr Kong’s
Defence and Counterclaims [25]
Legitimacy of the Settlement Deed [29]
Mr Kong’s defences [38] Misrepresentation [40] Mistake [41] Non est factum [42] Alleged unfairness of the Settlement Deed \ [43] Various transactions allegedly not occurring under the Settlement Deed [48]
Conclusion in respect of summary judgment [49]
Strike-out [50]
Paragraph 7.1 [51]
Paragraphs 14.4 and 15.3 [53]
Paragraphs 11.1, 12.1 and 12.2 [54]
Conclusion on the strike-out [59]
Mr Kong’s discovery application [62]
Conclusion on the discovery application [65]
Result [67]
Orders [68]
Introduction
[1] Mr Damin Lun (Mr Lun) seeks summary judgment and strike out on Mr Yongcing Kong’s (Mr Kong) counterclaims and parts of his defence. Mr Kong opposes Mr Lun’s strike-out application and has made an application for discovery under which he seeks access to documents which he says are important to his defence of the summary judgment application.
Background
[2] Mr Lun and Mr Kong were business partners together in New Zealand from 1998 to 2014.
[3] Between 1998 and 2010, Mr Kong and Mr Lun incorporated various companies that carried on the business of chicken processing. This included Sam’s Fukuyama Food Service Ltd (Sam’s Fukuyama) from 2006 and Best Chicken Ltd (Best Chicken) from 2010.
[4] Between 1998 to 2011, Mr Kong and Mr Lun used the profit derived from their New Zealand businesses to expand their business operations and to invest in joint properties in New Zealand and China. These investments relevantly included:
(a)a joint investment in shares in a construction project in China (the Tan Project); and
(b)a joint investment to purchase an interest in shares in a new Chinese company, Guangzhou Zhanyang Trading Co Ltd, which was established to run the Shilou Commercial and Trade Market business premises in Panyu District, Guangzhou, China.
[5] In or around 2011, Mr Kong moved back to China to live. Between 2011 and 2014, he managed the parties’ China enterprises. Meanwhile, Mr Lun managed the New Zealand companies.
[6] In or around late 2012, Mr Lun and Mr Kong decided to restructure their various interests and affairs. They established two New Zealand companies namely, Mega Food Services Ltd (Mega Food) and The Fresh Ltd (The Fresh) to acquire the businesses of, respectively, Sam’s Fukuyama and Best Chicken. Mr Lun’s trust, the Hauraki Trust, held 99.9 per cent of the shares on issue. Although there was no formal agreement, Mr Lun and Mr Kong had a mutual understanding that Mr Lun’s trust held
48.5 per cent of the shareholding beneficially for Mr Kong’s family trust.
[7] In or around late 2013, Mr Lun and Mr Kong agreed to arrange a no-cash settlement for the separation of their various businesses and dealings on agreed terms and entered into the settlement deed dated 18 February 2014 (the Settlement Deed).
[8]Following entry into the Settlement Deed, among other things:
(a)Mr Kong ceased having any involvement with Mega Food and The Fresh (as agreed); and
(b)Mr Kong ceased paying Mr Lun any dividends from the Tan Project (as agreed).
[9] Following Mr Lun’s letters before action in 2021, Mr Kong challenged the validity of the Settlement Deed. Mr Kong’s counterclaim seeks to reopen the Settlement Deed so he can pursue Mr Lun for what he asserts is his share of amounts associated with Mega Food and The Fresh.
[10] Mr Lun now applies for summary judgment and strike out on Mr Kong’s counterclaims and parts of his defence.
[11] Mr Kong, in his discovery application, seeks the documents set out in the schedule to the discovery application dated 11 January 2024 (the Discovery Application). Mr Lun opposes the Discovery Application on the grounds set out in the notice of opposition dated 18 March 2024.
Mr Lun’s application for summary judgment and strike out
[12]Mr Lun seeks orders:1
(a) Summary judgment be granted to Mr Lun against Mr Kong’s counterclaims made in his statement of defence and counterclaim dated 13 October 2023 (Defence and Counterclaims);
(b) the Court strike out the following parts of the Defence and Counterclaims:
(i) paragraphs 7.1 in its entirety;
(ii)the second affirmative defence (at paragraph 11.1) in its entirety;
(iii)the third affirmative defence (at paragraphs 12.1–12.2) in its entirety;
(iv)the first and second counterclaims in their entirety (at paragraphs 13.1–15.3);
(v)in the alternative to [12](b)(iv) above, the first and second counterclaims to the extent that they seek relief against Mr Lun in his personal capacity beyond his legal interest in Mega Food and The Fresh.
[13]The grounds on which the orders are sought are, in summary:2
Summary judgment in relation to the Counterclaims
(a) Mr Lun asserts the Settlement Deed is a complete answer to the Counterclaims.
1 Notice of interlocutory application by the plaintiff for a strike out and/or summary judgment on the defendant’s counterclaim dated 8 December 2023 at [1].
2 At [2].
Settlement Deed
(b) Mr Kong’s Counterclaims allege that Mr Lun owes Mr Kong fiduciary duties or duties as trustee in relation to:
(i) the capital investment, reserves and the retained earnings relating to Sam’s Fukuyama and Best Chicken; and
(ii)a 50 per cent shareholding interest in Mega Food and The Fresh and the profits associated with such.
(c) Under the Settlement Deed Mr Kong and Mr Lun agreed that:
(i) under cl 1 of the Settlement Deed:
1. Mega Food and The Fresh purchased the business of Sam's Fukuyama Food and Best Chicken, which settled completely and the consideration was paid in full (recitals E–F);
2. Mr Kong and the Kong Family Trust received the distribution in full of the sale proceeds from the above transaction (Proceeds) (recital I);
(ii)under cl 2 of the Settlement Deed, Mr Kong and the Kong Family Trust acknowledged that:
1. from the date of the Settlement Deed, they would have no control or interests, legal equitable or otherwise, in (among other things):
A. the business of Sam's Fukuyama;
B. Sam's Fukuyama;
C. Mega Food;
D. The Fresh.
2. they were not owed by any Proceeds by any other party;
(iii)under cl 4 of the Settlement Deed, subject to clauses not relevant in the present context, the Deed represented a compromise of rights and full and final settlement between the parties which each party may have against any other party in relation to (among other things):
1. the business of Sam’s Fukuyama;
2. Sam’s Fukuyama;
3. Mega Food;
4. Best Chicken;
5. The Fresh;
(iv)under cl 5 of the Settlement Deed, subject to clauses not relevant in the present context:
1. the effective date of the full and final settlement would be the date of the Settlement Deed;
2. all interests or distribution that vested in any party would remain the property of that party absolutely;
3. Mr Kong and the Kong Family Trust would not be entitled to seek any control, distribution or repayment of any monies in Sam’s Fukuyama or Best Chicken.
(d) The Settlement Deed operates by way of estoppel and/or accord and satisfaction to preclude Mr Kong’s Counterclaims.
Limitation
(e) In the original summary judgment application, Mr Lun sought summary judgment in respect of the limitation issues raised against Mr Kong in the application. Since filing, Mr Kong has raised a factual dispute relevant to the limitation issues and Mr Lun did not pursue this part of the summary judgment application in the hearing.
Strike out parts of the Defence and Counterclaims
Settlement Deed -- Counterclaims
(f) If summary judgment is not available in relation to the above grounds, then strike out is sought on such parts of the Defence and Counterclaims that are untenable.
Paragraph 7.1 of the Defence and Counterclaims
(g) Paragraphs 7.1(a) and (b) plead wholly inconsistent allegations which cannot both be advanced at the same time, namely that:
(i) Mr Kong is not aware that he signed a “deed of settlement” at [7.1(a)]; and
(ii)that if he did sign such a “deed of settlement” then Mr Lun misrepresented the nature of such a document to him (at [7.1(b)]).
(h) Paragraph 7.1(a) is inconsistent with the indisputable fact:
(i) Mr Kong signed the Settlement Deed, which is evidenced by his signature on it; and
(ii)Mr Kong admitted by his solicitor’s letter of 22 October 2021 at [15] that he signed the Settlement Deed.
(i) Paragraph 7.1 fails adequately to plead any basis on which to allege:
(i) a misrepresentation by Mr Lun; or
(ii)any mistake about the Settlement Deed by Mr Kong; or
(iii)any claim of non est factum.
(j) Paragraph 7.1, to the extent it asserts misrepresentation or fraud, fails to plead the allegations with the requisite care and particularity.
Second affirmative defence (at paragraph 11.1)
(k) For the reasons given above in relation to paragraph 7.1, the second affirmative defence (pleading mistake and/or misrepresentation) should be struck out.
(l) In addition, paragraph 11.1 should also be struck out to the extent it seeks relief based on mistake, because Mr Kong's pleaded mistake is a mistake in the interpretation of the Settlement Deed which cannot amount to a mistake under s 25(1) of the Contract and Commercial Law Act 2017 (CCLA);
Third affirmative defence (at paragraphs 12.1-12.2)
(m) For the reasons given above in relation to paragraph 7.1, the third affirmative defence (pleading non est factum) should be struck out.
Claim for relief against Mr Lun in respect of interests in shares not held by him personally
(n) Mr Kong seeks relief against Mr Lun personally as shareholder in Mega Food and The Fresh in relation to Mr Kong's alleged interests in Mega Food and The Fresh;
(o) Mr Lun holds only 0.10% of the shares on issue in those companies personally, with the balance held by Mr Lun and Mr Chin on trust.
(p) The Counterclaims should be struck out to the extent that they seek relief against Mr Lun in excess of his personal shareholding in Mega Food and The Fresh.
Mr Kong’s opposition
[14]Mr Kong opposes the application on, in summary, the following grounds:3
Summary judgment in relation to counterclaims
(a)Mr Kong’s Defence and Counterclaims are arguable and can succeed.
(b)The Settlement Deed is void and/or is not determinative of the summary judgment application as:
(i)Mr Kong does not recall and does not believe he signed the Settlement Deed;
(ii)in the event he did sign but cannot recall, it would have been under the misrepresentation by Mr Lun as to the effect and meaning of the Settlement Deed, upon whom the defendant was reliant to explain documents to him in Mandarin; and
(iii)Various alleged transactions and/or agreements recorded in the Settlement Deed have never taken place.
(c)Mr Kong is entitled to seek repayment of his entitlements arising out of Mega Food, The Fresh, Sam’s Fukuyama and Best Chicken.
(d)There is a high volume of conflicted evidence which cannot be resolved within a summary judgment context.
Strike out of parts of the Defence and Counterclaims
(e)Paragraphs 7.1(a) and (b) plead in the Defence and Counterclaims are consistent when Mr Kong does not recall the Settlement Deed, or its signing, but he also recognises that he
3 Notice of opposition to interlocutory application seeking strike out and/or summary judgment dated 15 March 2024 at [3].
signed a high volume of documents since 1998 based on Mr Lun’s description of those documents to Mr Kong and without knowing exactly what he was signing because he was reliant upon Mr Lun’s descriptions.
(f)Since Mr Kong does not recall the Settlement Deed and since the Settlement Deed contains terms to which Mr Kong never agreed, it is disputed that he signed the Settlement Deed. As such, paragraph 7.1(a) and Counterclaims are not inconsistent with any indisputable facts.
(g)Mr Kong has never admitted the signing of the Settlement Deed. In fact he has always maintained, since learning about the Settlement Deed in 2021, that he never agreed to the terms recorded in the Settlement Deed.
(h)Paragraph 7.1 adequately pleads the basis of the allegations made therein and is plead with the requisite care and particularity.
(i)Mr Kong seeks relief from Mr Lun in his capacity as the business partner and fiduciary, which will necessarily involve his shareholding in Mega Food and The Fresh.
Legal principles
Summary judgment
[15]Rule 12.2(1) of the High Court Rules 2016 (the Rules) provides:
12.2 Judgment when there is no defence or when no cause of action can succeed
(1)The court may give judgment against a defendant if the plaintiff satisfies the court that the defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action.
[16] The relevant principles governing a summary judgment application are well established:4
The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell. The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart. The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent or is inherently improbable: Eng Mee Yong v Letchumanan. In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel.
[17]The wording of r 12.2 “may give judgment” indicates a residual discretion.
Having regard to the various authorities, the position appears to be as follows:5
(a) The discretion implied by the use of the word “may” is to be restrictively applied. In a great majority of cases, once the court is satisfied the defendant has no defence, there is no room for the exercise of discretion;
(b) the residual discretion may be invoked to avoid oppression or injustice to the defendant where:
(i)the proceeding involves the actions or possible liability of a third party which is not before the court;
(ii)the proceedings are such that the opportunity should be given to allow discovery or other interlocutory applications to be concluded;
(iii)the circumstances of the case disclose very unusual features, the presence of which leads the court to conclude that the entry of summary judgment would be oppressive or unjust; or
(iv)the combination of complex issues of fact and law justify the dismissal of the application for summary judgment, either as a matter of discretion or because the court cannot be satisfied that the defendant has no defence;
(c) even where the court is not satisfied that a defence has been made out, in exceptional circumstances the application may be adjourned to allow for other processes to be followed.
4 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26] (citations omitted).
5 Jessica Gorman and others (eds) McGechan on Procedure (online ed, Thomson Reuters) at [HR12.2.11].
Strike-out
[18]Rule 15.1 of the Rules provides:
15.1 Dismissing or staying all or part of proceeding
(1)The court may strike out all or part of a pleading if it—
(a)discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading[.]
[19]There are established criteria for strike out:6
(a)A strike out application proceeds on the assumption the pleaded facts are true, unless those pleaded facts are entirely speculative or without foundation.
(b)The cause of action or defence must be clearly untenable.
(c)The jurisdiction is to be exercised sparingly and only in clear cases.
(d)The jurisdiction is not excluded by the need to decide difficult questions of law.
(e)The Court should be slow to strike out a claim in any developing area of the law, particularly where a duty of care is alleged in a new situation.
Further and better discovery
[20]Rule 8.19 of the Rules provides:
8.19Order for particular discovery against party after proceeding commenced
If at any stage of the proceeding it appears to a Judge, from evidence or from the nature or circumstances of the case or from any document filed in the proceeding, that there are grounds for believing that a party has not discovered one or more documents or a group of documents that should have been discovered, the Judge may order that party—
6 Attorney-General v Prince & Gardner [1998] 1 NZLR 262 (CA) at 267; and Couch v Attorney- General [2008] NZSC 45, [2008] 3 NZLR 725 at [33].
(a) to file an affidavit stating—
(i)whether the documents are or have been in the party’s control; and
(ii)if they have been but are no longer in the party’s control, the party’s best knowledge and belief as to when the documents ceased to be in the party’s control and who now has control of them; and
(b) to serve the affidavit on the other party or parties; and
(c) if the documents are in the person’s control, to make those documents available for inspection, in accordance with rule 8.27, to the other party or parties.
[21] The Court will apply a four-stage test in considering an application under r 8.19:7
(a)Are the documents sought relevant, and if so, how important will they be?
(b)Are there grounds for belief that the documents sought exist? This will often be a matter of inference. How strong is that evidence?
(c)Is discovery proportionate, assessing proportionality in accordance with Part 1 of the Discovery Checklist in the Rules?
(d)Weighing and balancing these matters, in the Court’s discretion applying r 8.19, is an order appropriate?
[22] As to the first limb, documents will be discoverable only if they are relevant to the pleaded issues.8 As to the second limb, the party seeking discovery must show some credible objective evidence that the existing affidavit of documents filed is incomplete. It need not prove the sought documents actually exist.9 As to the third limb, the possibility of discovering relevant documents needs to be balanced against
7 Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd [2015] NZHC 2760, [2018] NZAR 600 at [14].
8 High Court Rules 2016, r 8.7; Intercity Group (NZ) Ltd v Nakedbus NZ Ltd [2013] NZHC 1054 at [15].
9 Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd, above n 7, at [10] and [12]; Lighter Quay Residents’ Society Inc v Waterfront Properties (2009) Ltd [2017] NZHC 818 at [16]; McCullagh v Robt Jones Holdings Ltd [2015] NZHC 1462 at [7]; and Robert v Foxton Equities [2014] NZHC 726, [2015] NZAR 1351 at [8].
the cost of the discovery exercise. Highly relevant documents may justify greater expense.10 The final limb of the test entails a holistic assessment of whether the Court, having regard to the factors considered under the first three limbs, should exercise its discretion to order further discovery.
Analysis
Issues
[23]The issues to be determined in this judgment are:
Mr Lun’s summary judgment application
(a)Whether there is a reasonably arguable basis for Mr Kong’s Defence and Counterclaims?
Mr Lun’s strike out application
(b)Whether the paragraphs of Mr Kong’s Defence and Counterclaims (including the affirmative defences) which Mr Lun seeks to strike out disclose any reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading?
Mr Kong’s discovery application
(c)Whether discovery of the documents sought by Mr Kong should be ordered after applying the four-stage test set out at [21]?
[24]I deal with each of these issues in turn.
Whether there is a reasonably arguable basis for Mr Kong’s Defence and Counterclaims?
[25] Mr Goodall KC, for Mr Lun, submits that the Settlement Deed precludes Mr Kong’s Counterclaims, such that summary judgment can be awarded to Mr Lun.
10 Commerce Commission v Cathay Pacific Airways Ltd [2012] NZHC 726 at [18] and [21].
[26] As the Settlement Deed is central to the dispute between the parties, I record the key terms of the Settlement Deed as follows:
(a)Mega Food and The Fresh purchased the business of Sam’s Fukiyama and Best Chicken, which settled completely and the consideration was paid in full (cl 1 affirming recitals E–F).
(b)Mr Kong and the Kong Family Trust received the distribution in full of the sale proceeds in the above transaction (the Proceeds) (cl 1 affirming recital I).
(c)Mr Kong and the Kong Family Trust acknowledge that from the date of the Settlement Deed they would have no control or interest, legal, equitable or otherwise, in (among other things) Sam’s Fukuyama, Mega Food and The Fresh (cl 2).
(d)Mr Kong and the Kong Family Trust acknowledge they were not owed any Proceeds by any other party (cl 2).
(e)Mr Lun, from the date of the Settlement Deed, relinquished any control or interests he had in the Tan Project (cl 3).
(f)the Settlement Deed represented a compromise of rights in full and final settlement (subject to the matters in cls 6 and 7) between the parties which each party may have against any other party in relation to (among other things) Sam’s Fukuyama, Best Chicken, Mega Food, The Fresh and the Tan Project (cl 4).
(g)the effective date of the full and final settlement would be the date of the Settlement Deed and all interests or distribution that had vested in any party would remain in the property of that party (cl 5).
(h)Mr Kong and the Kong Family Trust would not be entitled to seek any control, distribution or repayment of any monies in Sam’s Fukuyama or Best Chicken from the date of the Settlement Deed (cl 5).
[27] Mr Goodall points to Mr Kong’s Counterclaims which allege that Mr Lun owes Mr Kong fiduciary duties or duties as a trustee in relation to:
(a)the capital investment, reserves and retained earnings which relate to the Proceeds of Sam’s Fukuyama and Best Chicken; and
(b)a 50 per cent shareholding interest in Mega Food and The Fresh and the profits associated with that shareholding.
[28] Mr Goodall submits that summary judgment should be granted against Mr Kong’s Counterclaims on the basis that the Settlement Deed provides a complete and incontrovertible answer to the claims; under the terms of the Settlement Deed Mr Kong has surrendered his legal and equitable interests in Sam’s Fukuyama, Mega Food, The Fresh, and any Proceeds owing to him; and the Settlement Deed acts by way of:
(a)accord and satisfaction -— the Settlement Deed released Mr Lun from any obligation to Mr Kong in respect of Sam’s Fukuyama, Mega Food or The Fresh by means of valuable consideration being Mr Lun’s interest in the Tan Project; and
(b)estoppel -— it is established that the parties may assume the state of affairs between them which can give rise to estoppel by convention and the Settlement Deed clearly records such an assumed state of affairs (for example, by confirming the payment of the Proceeds) and key parts of the Recitals which were repeated in the operative clauses, and it is not open to Mr Kong to relitigate the Settlement Deed.
Legitimacy of the Settlement Deed
[29] Central to Mr Lun’s application for summary judgment against Mr Kong on the Counterclaims is the legitimacy of the Settlement Deed. Mr Kong has challenged its legitimacy and there has been extensive evidence by both parties as to legitimacy or otherwise of the Settlement Deed.
[30] In Mr Goodall’s submission, the following support the legitimacy and effectiveness of the Settlement Deed:
(a)The starting point is that the Settlement Deed was properly executed and is therefore prima facie enforceable.
(b)Mr Kong’s signature is valid. Mr Lun, Mr Chin and also Ms Gao all give consistent evidence that Mr Kong’s signature is his true and usual signature and Mr Kong himself also admits the signature looks like his signature.
(c)Mr Kong admitted signing the Settlement Deed in his solicitor’s letter of 22 October 2021, and he later confirmed the solicitor’s letter represented his position in relation to the Settlement Deed.11 Although Mr Kong has since changed his position when filing his Counterclaims, it is not credible given his consistent instructions to different sets of solicitors confirmed on oath and through verified translations.
(d)Mr Kong’s vague concerns about the legitimacy of the Settlement Deed are unsubstantiated, entirely equivocal and lacking precision. There is no evidence the Settlement Deed was falsified other than Mr Kong’s assertion and the Settlement Deed was examined by Ms Linda Morrell, who provided evidence on the legitimacy of the Settlement Deed and authenticity of Mr Kong’s signature and initials.12 Ms Morrell did not identify any obvious issues with the legitimacy of the Settlement Deed and concluded that Mr Kong’s initials and signatures contained certain similarities with the reference material and concluded, on a qualified basis, due to “lack of directly comparable pictorial references” that Mr Kong “cannot be excluded as the possible writer” of the signature on the Settlement Deed.
11 Affidavit of Mr Kong dated 1 March 2023 at [4.9].
12 Affidavit of Ms Linda Morrell dated 24 April 2024.
(e)Mr Kong has accepted that the signature on the Settlement Deed “looks like my signature”;13
(f)the allegations of falsification is entirely inconsistent with his pleas of mistake, misrepresentation and non est factum (which are necessarily predicated on him being misled into signing a non-falsified document) and the Court should reject such vague and inconsistent allegations.
(g)Mr Chin, who was a professional trustee for Mr Kong (as well as Mr Lun) is familiar with Mr Kong’s signature and has confirmed that the signatures on the Settlement Deed represented Mr Kong’s “usual signature”.14
(h)The metadata relating to the creation of the Settlement Deed supports Mr Lun’s position that it was properly created and executed.
(i)The actions of Mr Lun and Mr Kong post-signing of the Settlement Deed are consistent with the Settlement Deed being in place:
(i)Mr Kong ceased having any involvement with Mega Food and The Fresh; and
(ii)Mr Kong dealt with the parties’ interest in the Tan Project without reference to Mr Lun and points to three transactions evidencing this.
[31] Mr Hollyman KC, for Mr Kong, in response points to the following matters in Mr Kong’ s evidence relevant to challenging the legitimacy of the Settlement Deed:
(a)Mr Kong cannot recall ever seeing the Settlement Deed before 2021 when the dispute with Mr Lun started.
13 Affidavit of Mr Kong sworn 13 February 2024 at [2.3(c)].
14 Affidavit of Jun Foong Chin in support of Interlocutory Application for Strike Out/Summary Judgment, affirmed 14 December 2023 at [8].
(b)He does not have an original copy of the Settlement Deed.
(c)He cannot recall signing the Settlement Deed.
(d)He would not have signed it because of the clear unfairness of its terms (given the New Zealand chicken businesses, Mega Food and The Fresh were worth considerably more than the Chinese investments).
(e)If he did sign it (and he does not believe that he did) it must have been under the misleading misrepresentations of Mr Lun. The nature of the partnership was that Mr Kong trusted and wholly relied on Mr Lun (as his trusted business partner) in these sorts of matters because Mr Kong did not read or speak English well nor have any knowledge of legal or financial matters.
(f)Prior to the business restructure in 2012 and during the restructure it was common for Mr Kong to sign documents in English after Mr Lun’s explanation of those documents to Mr Kong due to their relationship of trust.
[32] Mr Kong explains his seemingly inconsistent evidence (the denial of signing the Settlement Deed and the Heritage Law letter of 22 October 2021which contains an admission regarding signing a document) by deposing that his comments about signing a document refer to a one-page memorandum of understanding which he states he recalls signing in May 2014 (the MOU).15
[33] Mr Hollyman also points to the following, in summary, as casting doubt on the legitimacy of the Settlement Deed:
(a)There is no Chinese translation (Mr Kong not having any decent grasp of English).
(b)Mr Kong did not receive independent legal advice.
15 Affidavit of Mr Kong dated 17 March 2024 at [6.5].
(c)The other legal owners of the businesses, being the parties’ respective family trusts, were unaware of it and not involved, and the evidence of Mr Chin (the trustee of Mr Lun’s Family Trust and of Mr Kong’s Family Trust) is that he was not aware of the Settlement Deed at the time,16 nor does either trust appear to have received independent legal advice.
(d)It contains no financial figures and no independent valuation of the businesses and assets to be exchanged.
(e)Notwithstanding the Settlement Deed purported to divide significant wealth between the parties, the document was never scanned or emailed to the parties when it was signed, on Mr Kong’s evidence.17
[34] Mr Hollyman also points to the evidence of the two independent witnesses as supporting Mr Kong’s position: the evidence of the accountant to the partnership (Mr Wong), and of a third party who invested with Mr Lun and Mr Kong (Mr Ji Neng Peng).
[35] Mr Hollyman submits that the dispute also raises questions about Chinese culture in business dealings and Mr Kong has filed two affidavits from Chinese cultural experts which effectively explain how important trust is for Chinese people in their business relationships. Mr Hollyman refers to the expert evidence as support for Mr Kong’s position that he trusted Mr Lun and would have relied on his explanation of the Settlement Deed, pointing to the following:
(a)The evidence of Mr Lijun Cao, whose evidence confirms that in Chinese culture it is not unusual for high value deals to be done on a “handshake” basis and for one party to hold their interest for the benefit of another on a prolonged basis without documentation. Mr Cao also explains how considering “the relationship of the parties as friend” (“guanxi”) and their long-standing customs of conducting business on
16 Above n 14, at [6].
17 Affidavit of Mr Kong dated 17 March 2024 at [6.15].
a handshake basis, it is likely an oral agreement between the parties may prevail over a separate written agreement, subject to the Court’s view of the exhibits submitted by the parties18
(b)The evidence of Dr Andrew Godwin, who emphasises the importance of “guanxi” in these relationships and explains in his evidence why it is so important for a Court to consider the contextual relationship between the business partners when determining disputes between Chinese persons.19
[36] Mr Hollyman also refers to the decision of the Supreme Court in Deng v Zheng as recognising the concept of “guanxi” and the relevance of Chinese business culture in dealing with Chinese business relationships.20
[37] Mr Hollyman sums up by submitting that the affidavits of Mr Cao and Dr Godwin support Mr Kong’s position that he trusted Mr Lun to look after his business interests as his 50/50 partner.
Mr Kong’s defences
[38]Mr Kong has advanced defences of:
(a)misrepresentation;
(b)mistake; and
(c)non est factum.
[39] Mr Goodall submits that Mr Kong’s defences are not reasonably arguable and do not displace the Settlement Deed’s prima facie enforceability.
18 Affidavit of Mr Cao Lijun dated 4 April 2024 at [3.31].
19 Affidavit of Dr Godwin dated 2 April 2024 at [4.2]–[4.9] and [4.11].
20 Deng v Zheng [2022] NZSC 76, [2022] 1 NZLR 151 at [75]–[79].
Misrepresentation
[40] Mr Goodall submits that to succeed under s 37 of the CCLA Mr Kong must show there has been an actionable misrepresentation, that the misrepresentation induced Mr Kong to enter into the Settlement Deed, and that reliance on the misrepresentation was reasonable. Mr Goodall submits that Mr Kong cannot establish any of these three criteria:
(a)Mr Kong has not pleaded or given any evidence of any misrepresentations by Mr Lun and in fact Mr Kong’s evidence is that he cannot recall the Settlement Deed and so cannot recall whether Mr Lun made any misrepresentations about it.
(b)The only evidence Mr Kong has given about the alleged misrepresentation is the cultural evidence from Mr Cao and Dr Godwin on the reasonableness of Mr Kong relying on Mr Lun’s explanation of the documents, which does not assist Mr Kong as he cannot say what the explanation was.
(c)The alleged MOU (and misrepresentations about it) has no relevance to the validity of the Settlement Deed. On Mr Kong’s evidence, the MOU is not the Settlement Deed and was a simple one-page document that Ms Cao and Mr Chin were not present at signing, which is clearly different to the three-page Settlement Deed signed by Mr Chin (as trustee of the Kong family trust and the Lun family trust) and witnessed by Ms Gao. As such, any representations allegedly made about the MOU cannot have been misrepresentations about the Settlement Deed. Further, Mr Kong has not provided any evidence supporting the existence of the alleged MOU and Mr Lun could find no evidence of it in his records.
Mistake
[41] Mr Goodall submits that under s 24(1)(a)(i) of the CCLA, the Court may grant relief to a party to a contract if, when entering into the contract, the party was
influenced by a mistake that was material to that party, and the existence of the mistake was known to the other party or to one or more of the other parties to the contract. Mr Goodall submits that Mr Kong’s defence of mistake cannot succeed because:
(a)Mr Kong does not say what the “mistake” was, beyond a mere assertion that he signed the Settlement Deed under mistake, without any evidence of what his mistaken belief was, which is presumably impossible, because he now says he cannot recall signing the Settlement Deed.
(b)In any event, s 25(1) of the CCLA prevents a mistake in the interpretation of a contract from permitting a party to obtain relief under s 28 of the CCLA. A mistaken interpretation of a contract includes a formation of a belief as to the meaning of the document, whether based on reading it, with or without legal advice, or on advice from others, or without reading the document completely or at all.21 Mr Kong’s evidence has been that he did not read the Settlement Deed or understand it, which clearly excludes the possibility of relief.
Non est factum
[42] Mr Goodall notes that the defence of non est factum is available in situations where a person is temporarily or permanently unable to understand the document to be signed and there must be some fundamental difference between the document actually signed and the document the person believed it to be.22 Mr Goodall submits that as with misrepresentation and mistake, Mr Kong cannot give any evidence about what he believed he signed, given he says he cannot recall signing the Settlement Deed and in the absence of such evidence, the defence must fail.
Alleged unfairness of the Settlement Deed
[43] One of Mr Kong’s assertions in challenging the legitimacy of the Settlement Deed is that he would not have signed it because the terms were unfair to him as the
21 W Crighton & Son Ltd v Pilbrow HC Wellington CIV-2008-485-906, 2 April 2009 at [37].
22 Kurth v McGavin [2007] 3 NZLR 614 (HC) at [105]--[108].
value of the New Zealand businesses was significantly greater than the value of the Chinese investments.
[44] There is conflicting evidence on the value of the Tan Projects in China and the value of Mega Food and The Fresh in New Zealand.
[45] Mr Goodall points to Mr Lun’s evidence that the value of the Tan Project in 2014 was at a minimum NZD 3,350,523 being the actual value the parties had jointly invested.23 He also points to Mr Kong’s own evidence where Mr Kong values one of the projects in which the parties (together with Mr Peng) had a 4.25 per cent entitlement, at NZD 530 million meaning that investment alone was worth around NZD 7,685,000 each.24
[46] Mr Kong, on the other hand, points to the evidence of Mr Wing Wong which valued the NZ businesses at approximately $10.8 million compared with NZD 2.8 million which Messrs Lun and Kong had invested in the Tan Project by the end of 2011.
[47] There is also disputed evidence as to whether Mr Lun had withdrawn from the Tan Projects in 2011 or was still an investor in 2014, the implication being that if Mr Lun had already withdrawn from the Tan Project in 2011, then Mr Kong did not receive valuable consideration by obtaining full ownership of the Tan Projects under the Settlement Deed in 2014.
Various transactions allegedly not occurring under the Settlement Deed
[48] Mr Kong denies receiving distributions from the sale proceeds of the New Zealand businesses to Mega Food and The Fresh. Mr Goodall submits that this assertion is contradicted by contemporaneous dividend statements adduced by Mr Lun, and in response Mr Kong disputes the accuracy and legitimacy of the dividend statements. Mr Goodall submits that Mr Kong has not adduced any bank statements for the relevant period in response, or explained why the dividend statements are inaccurate and submits that Mr Kong’s allegations are imprecise and
23 Sixth affidavit of Damin Lun affirmed 12 April at [17].
24 Affidavit of Mr Kong sworn 18 March 2024 at 4.16.
inconsistent with contemporaneous documents and should be rejected. In addition, Mr Goodall submits the Settlement Deed acts as an estoppel under an accord and satisfaction on this issue.
Conclusion in respect of summary judgment
[49] I am of the view that Mr Lun’s application for summary judgment against Mr Kong’s Defence and Counterclaims should be dismissed. The reasons for this view are:
(a)While there is extensive evidence as to the legitimacy of the Settlement Deed and it seems possible that it was signed by Mr Kong (given the evidence of witnesses attesting to the likely genuineness of Mr Kong’ signature), there are sufficient issues relating to the circumstances in which it was signed to require enquiry at trial, including:
(i)why Mr Chin, the professional trustee of the Kong and Lun family trusts, has no recollection of the Settlement Deed;
(ii)why there was no Chinese translation of the Settlement Deed given its importance to the parties;
(iii)given the significance of the transaction separating the New Zealand businesses and the Chinese investments between Mr Kong and Mr Lun, the accountant (Mr Wong) did not appear to have any knowledge of the Settlement Deed nor the co- investor, Mr Peng;
(iv)neither Mr Kong nor the family trusts appear to have received any legal advice, despite the significance of the transaction; and
(v)the conflicting evidence as to the fate of copies of the Settlement Deed after it was signed.
(b)The evidence of the forensic expert, Ms Morell, is equivocal at best.
(c)There are affidavits from persons who would be expected to have knowledge of the Settlement Deed when it was entered into, such as Mr Chin, the trustee of both the Lun and Kong Family Trusts, who appears not to have been involved in the Settlement Deed at all, although having signed it.
(d)There is the evidence of occasions when Mr Lun would have been expected to raise the Settlement Deed in discussions with Mr Kong in answer to claims Mr Kong was making, but he did not do so.
(e)Mr Goodall made much of the alleged inconsistencies in Mr Kong’s evidence of not signing the Settlement Deed, the evidence regarding the MOU, and the evidence that if he did sign the Settlement Deed, his entry into it was based on misrepresentations by Mr Lun. However, if these inconsistencies are viewed against the background of Mr Kong’s poor understanding of English and of legal and financial matters, and the “guanxi” concept with Mr Lun as a trusted partner, Mr Kong’s evidence is arguably explainable and, in my view, cannot be dismissed without being tested at trial.
(f)There is evidence to support an argument of misrepresentation, when taking into account that “guanxi” concept, the nature of Chinese business dealings, and Mr Kong’s lack of understanding of English and legal and financial matters. It is arguable that Mr Kong may have relied on Mr Lun’s explanations and signed the Settlement Deed without understanding its full consequences. There is a plausible argument from Mr Kong about confusion between the Settlement Deed and the MOU and therefore various admissions, while seemingly inconsistent, could ultimately be explained by Mr Kong’s lack of understanding of matters that were being dealt with by Mr Lun.
(g)The evidence of alleged unfairness in the terms of the Settlement Deed is inconclusive, with differing evidence being given as to the value of the businesses of Mega Food and The Fresh, and the value of the
Tan Projects. There is also inconsistency as to when Mr Lun may have ceased his involvement with the Tan Projects and accordingly the value that could be ascribed to Mr Kong receiving ownership and control of the Tan Projects under the Settlement Deed as consideration for relinquishing his interest in the New Zealand businesses. Again, these aspects need to be tested at trial.
Strike out
[50] I deal with each of the paragraphs in the Defence and Counterclaims which Mr Lun seeks to strike out.
Paragraph 7.1
[51] Mr Goodall submits that paragraph 7.1(a) and (b) should be struck out on the basis that they plead wholly inconsistent allegations which cannot both be advanced at the same time, namely that:
(a)Mr Kong is not aware of, and therefore denies he signed the Settlement Deed; and
(b)if he did sign the Settlement Deed, then Mr Lun has misrepresented the nature of the document to him.
[52] Mr Goodall submits that paragraph 7.1(b) should also be struck out to the extent it asserts:
(a)misrepresentation or fraud — it fails to plead the required elements or allegations at all, still less with the requisite care and particularity;
(b)mistake under s 35 of the CCLA — the pleading refers to a “mistake” and goes no further, and does not meet the requirements under s 24(1)(a)(i) of the CCLA and in any event Mr Kong’s pleading is untenable given that it is a mistake in the interpretation of the document; and
(c)non est factum — Mr Kong has not pleaded a proper basis to raise non est factum with Mr Kong’s pleading that the Settlement Deed must have been wrongly explained to him, without affirmatively alleging that it was in fact wrongly explained to him, and alleging what the incorrect explanation was. This is a wholly inadequate pleading and should be struck out.
Paragraphs 14.4 and 15.3
[53] Mr Goodall submits the Counterclaims should be struck out to the extent they seek relief against Mr Lun in respect of his personal shareholding in Mega Food and The Fresh. He submits that Mr Lun only holds 0.1 per cent of the shares on issue in those companies personally, with the balance held by Mr Lun and Mr Chin for the Hauraki Trust.
Paragraphs 11.1, 12.1 and 12.2
[54] Mr Goodall submits that Mr Kong’s second affirmative defence (pleading mistake and/or misrepresentation) should be struck out for the reasons that have been discussed in Mr Lun’s application for summary judgment on these Counterclaims.
[55] Mr Goodall submits that the third affirmative defence (pleading non est factum) should be struck out, for the reasons advanced in support of the summary judgment in respect of Mr Kong’s Counterclaims.
[56] Mr Hollyman, in response, submits that if Mr Lun’s position is that Mr Kong has not included enough particulars in his Defence and Counterclaims, then the proper step would have been for Mr Lun to have sought further and better particulars of the Defence and Counterclaims.
[57] Mr Hollyman submits that for the purposes of strike-out, Mr Kong’s pleaded facts must be assumed to be true and on that basis the Court should evaluate his Defence and Counterclaims to ascertain whether they disclose “any reasonable cause of action”. He submits that on a review of the pleadings it is clear they do disclose a
reasonable cause of action and provide a reasonable and sufficient level of detail, especially considering the pleadings are prior to discovery.
[58] In respect of Mr Lun’s claims that Mr Kong’s Defence and Counterclaims should be struck out because they are unarguable given the Settlement Deed, Mr Kong’s position is the same as set out in relation to his opposition to the summary judgment application, namely that there is too much evidence relating to contesting the legitimacy of the Settlement Deed for the Court to be satisfied that the Settlement Deed is a complete answer to the Defence and Counterclaims. Mr Hollyman submits that Mr Kong’s position is at least arguable.
Conclusion on the strike-out
[59] In my view, the strike-out application rests on the same arguments that have been put forward by Mr Lun in relation to the application for summary judgment on the Defence and Counterclaims. While it is the case that Mr Kong’s Defence and Counterclaims arguably lack particulars, in my view, if the facts are assumed to be true, they disclose a reasonably arguable cause of action against Mr Lun.
[60] As to Mr Goodall’s argument that the Settlement Deed is a complete answer to the Counterclaims, and therefore they cannot be progressed and should be struck out, the same issues arise and the same reasons as set out at [49] as to the reasons why summary judgment is not available, apply equally to why the relevant paragraphs of Mr Kong’s Defence and Counterclaims should not be struck out.
[61] Mr Goodall contends that Mr Kong’s Counterclaims should be struck out to the extent they seek relief against Mr Lun personally as shareholder in Mega Food and The Fresh as Mr Lun only holds 0.10 per cent of the shares in those companies personally, with the balance held by Mr Lun and Mr Chin as trustees of the Hauraki Trust. In my view, the Counterclaim by Mr Kong that he is entitled to a 50 per cent shareholding in Mega Food and The Fresh should stand as the beneficial ownership of the shares in those companies remains in dispute, and if need be Mr Kong should amend the relief sought in the Counterclaim to reflect that the shares are held by the Hauraki Trust.
Mr Kong’s discovery application
[62] Mr Hollyman submits that Mr Kong’s application for discovery was to provide documents to be available for the opposition to Mr Lun’s summary judgment application. Mr Hollyman submits that Mr Lun’s refusal to provide discovery of documents which might be expected to shed some light on the legitimacy of the Settlement Deed and opposing Mr Kong’s application in that regard, means that the Court is entitled to draw an adverse inference against Mr Lun that the documents sought would not be helpful to his case.
[63] Given that the application for summary judgment and the discovery application have been heard together, the discovery application has effectively become otiose given the documents were sought by Mr Kong to support his defence of the summary judgment application.
[64] Mr Goodall submits that this is not a case where discovery is necessary for Mr Kong to establish an arguable defence to the summary judgment application. He submits that:
(a)discovery is not required on any issue relating to the legitimacy of the Settlement Deed — Mr Kong has not provided any compelling reason as to why or how this request for discovery could establish an arguable defence;
(b)discovery is not required on the issues of mistake, misrepresentation, or non est factum:
(i)Mr Kong’s pleadings assert that he cannot recall entering into or seeing the Settlement Deed and it is not open to Mr Kong to contradict his own pleadings; he has not provided any other basis on which the Court would reasonably find an arguable case of mistake, misrepresentation, or non est factum;
(ii)Mr Kong does not suggest there is any particular document which exists that is capable of proving his allegations of
mistake, misrepresentation or non est factum. Mr Kong’s requested documents are broad and he is attempting to “fish” for documents;
(c)Mr Lun has already provided adequate disclosure to Mr Kong of much of what he seeks. Mr Lun has provided PDF and Microsoft Word copies of the Settlement Deed thus enabling a forensic document examiner to inspect the original Settlement Deed. In addition, Mr Lun has previously stated that many of the requested documents either do not exist, or are not in his possession, such that there is no practical merit in granting the discovery application.
Conclusion on the discovery application
[65] I am of the view that Mr Kong’s discovery application should be dismissed. In effect, it has become otiose as the intention of the discovery application was to produce documents to support Mr Kong’s defence of Mr Lun’s summary judgment application. As the matters were heard together, the principal purpose of the discovery application no longer exists.
[66] As the judgment dismisses Mr Lun’s application for summary judgment and application to strike out parts of the Defence and Counterclaims, the proceeding will proceed to trial, with the next steps including discovery. No order as to discovery should be made and the discovery process will apply henceforth.
Result
[67] As a result of the conclusions I have reached at [49], [59] and [65], I am of the view that:
(a)Mr Lun’s application for summary judgment on the Defence and Counterclaims and application to strike out parts of the Defence and Counterclaims should be dismissed; and
(b)Mr Kong’s application for further and better discovery should be dismissed.
Orders
[68]I make the following orders:
(a)Mr Lun’s application for summary judgment in his favour in respect of Mr Kong’s Defence and Counterclaims is dismissed;
(b)Mr Lun’s application to strike out parts of Mr Kong’s Defence and Counterclaims is dismissed;
(c)Mr Kong’s application for further and better discovery is dismissed.
[69] As to costs, each party has had some measure of success. Counsel are directed to endeavour to agree costs and failing agreement being reached within a period of 20 working days from the date of this judgment, counsel for Mr Kong will file a memorandum as to costs (not to exceed five pages) within 5 working days after the expiry of the 20 working day period, and counsel for Mr Lun will file a memorandum (not to exceed five pages) in response within 5 working days of receipt of counsel for Mr Kong’s memorandum. A decision as to costs will then be made on the papers.
…………………………….. Associate Judge Taylor
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