Forest Holdings (NZ) Limited v Sheung
[2019] NZHC 2090
•23 August 2019
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2019-419-0072
[2019] NZHC 2090
BETWEEN FOREST HOLDINGS (NZ) LIMITED
Plaintiff
AND
THEAN KAI SHEUNG
Defendant
Hearing: 8 July 2019 and 19 August 2019 Counsel:
K I Bond for the Plaintiff
No appearance for the Defendant
Judgment:
23 August 2019
JUDGMENT OF ASSOCIATE JUDGE SMITH
This judgment was delivered by me on 23 August 2019 at 2.30pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors / Counsel:
Braun Bond & Lomas, Hamilton
FOREST HOLDINGS (NZ) LTD v SHEUNG [2019] NZHC 2090 [23 August 2019]
[1] The plaintiff seeks an order for specific performance of a joint venture agreement. It says that it was entitled to receive the sum of $1,170,000 by 29 September 2017, under an agreement it entered into with the defendant and a company called Pristine Timber Co Ltd (PTL) on 29 August 2017 (the joint venture agreement). The money has not been paid.
[2] The plaintiff contends that the defendant has no defence to the claim, and it has applied for summary judgment. The defendant was served with the summary judgment application in Malaysia on 17 May 2019.
[3] When the case was first called on 8 July 2019, I requested a further affidavit relating to service of the documents on the defendant. I also invited counsel for the plaintiff to file a memorandum addressing certain legal issues.
[4] A supplementary affidavit has now been filed showing that the documents were properly served on the defendant in Malaysia, and Mr Bond has submitted a memorandum addressing the legal issues. The defendant has not filed any notice of opposition to the application.
[5]I now give judgment on the summary judgment application.
Background — the joint venture agreement
[6]The plaintiff is the holder of a forestry right (the forestry right) on a
6.18 hectare property located at Hanga Road, Kaimai (the property). The forestry right was granted for a 25 year term.
[7] In 2017 the plaintiff's sole director and shareholder, Mr Roderick Scott, prepared a proposal for the harvesting of the rimu and tawa timber on the property. He proposed that the plaintiff would sell up to 50 per cent of the forestry right to an investor, with the parties to share in the returns from the sold timber. The investor would buy shares in a newly formed jointly owned company, which would hold the forestry right. The total value of the new company would be NZ$2.34 million, and the investor would pay NZ$1.17 million for its 50 per cent interest. The plaintiff
would manage the forest, including harvesting, timber milling, kiln drying and timber processing, as well as sales of timber to the local market.
[8] Mr Scott's proposal was received by a prospective investor, Ms "Esther" Chee Kin Sum (Ms Sum). Ms Sum had already set up a New Zealand company, PTL, and she was interested in taking up the plaintiff's proposal. Ms Sum invited the defendant to become an investor with the plaintiff and PTL, on the basis that the defendant would become a director of PTL and acquire 40 per cent of the shares in PTL (the other shares in PTL would be owned by Ms Sum as to 10 per cent, and Mr Scott as to 50 per cent). The defendant would be responsible for paying NZ$1.17 million for the purchase of 50 per cent of the forestry right held by the plaintiff, together with a further NZ$330,000 for administration, accounting, and general operating costs. Ms Sum would be responsible for managing and reporting on the operation, and the financial performance of the business. PTL would inject a total of NZ$1,500,000 into a joint venture account, on execution of a formal joint venture agreement with the plaintiff.
[9] Ms Sum put her proposal to the defendant by email dated 20 June 2017. She sent the defendant a copy of Mr Scott's proposal, together with her own notes on the proposed funding.
[10] The joint venture agreement was signed on 29 August 2017. The parties were the plaintiff, PTL, and the defendant.
[11] The "Background" section of the agreement recorded that the plaintiff was the holder of the forestry right, and that it wished to enter into an agreement with PTL to jointly own the forestry right and fund the business to undertake maintenance, harvesting, and sale of the timber produced on the property. The Background section recorded that PTL operated a business which provides forestry investment services.
[12]The Background section went on to provide:
B.… [the defendant] agrees to provide the funds to [PTL] for the purchase of the Forestry Right.
C.[Ms Sum] agrees to transfer 90% of [PTL] shares to [the defendant] and to appoint [the defendant] as Director of [PTL].
D.[PTL] is entering the Agreement to purchase 50 percent of the Forestry Right from FHL for the sum of NZ$1,170,000 (one million one hundred and seventy thousand dollars.)
[13]The operative clauses of the joint venture agreement included the following:
2.Establishment of Joint Venture
2.1This Agreement shall commence upon its execution by the parties and [the plaintiff] receiving in its NZ ASB Bank account NZ $1,170,000 (one million one hundred and seventy thousand dollars) plus GST if applicable in cleared funds. The parties agree this will occur on or before 29 September 2017. It shall terminate in accordance with clause 9. [Ms Sum] will transfer 90% of [PTL] shares to [the defendant] and will appoint [the defendant] as Director of [PTL] on the same day payment is made to [the plaintiff] for the forestry right as provided for in this clause.
2.2The Joint Venturers hereby establish a joint venture in accordance with the provisions of this Agreement for the purpose of pursuing the Business.
2.3The Joint Venture shall operate as from the Commencement Date and the Joint Venturers shall conduct themselves in relation to the Joint Venture and this Agreement for the maximum commercial advantage of the Joint Venture and the Joint Venturers (as a group) consistent with prudent commercial practice and the laws of New Zealand.
2.4Without affecting the ability of either Joint Venturer to deal with any other assets which they may own independently of each other, it is agreed that the controlling interest in [the plaintiff] and [PTL] for the duration of the [the joint venture agreement] shall remain under the respective control of the shareholders of those parties (Controlling Interests).
3.Purpose of Joint Venture
3.1[The plaintiff] and [PTL] form and agree to engage in an unincorporated joint venture for the purposes of:
3.1.1cultivating Trees on the Land;
3.1.2harvesting Trees on the Land;
3.1.3marketing and selling the harvested Trees and timber to third parties; and
3.1.4otherwise managing the Business in accordance with the principles specified in clause 2.3.
3.2[The plaintiff] and [PTL] have agreed to the profit share specified in clause 5.
4.Management of the Joint Venture
4.1All day to day management rights and responsibilities relating to the Business will be held and carried out by [the plaintiff] or its employees, agents and contractors, including:
4.1.1The right to plant, re-establish, protect, manage, maintain, harvest, store, carry away, sell and otherwise utilise all Trees growing on [the property];
4.1.2The right to enter upon and pass and re-pass over [the property] with or without machinery, vehicles and plants of all kinds;
…
5.Financial
5.1.1Subject to the provisions of clause 5.1.3 all profits of the Joint Venture shall be shared 40% to [the plaintiff] and 60% to [PTL].
5.1.2The parties agree that the project is to be self-funding and no further capital will be required to be introduced to the Joint Venture unless the directors of [PTL] and [the plaintiff] mutually agree. Some profits may be retained to fund any necessary capital expenditure if the directors of [PTL] and [the plaintiff] agree.
5.1.3The Joint Venture shall follow the accounting procedures set out in Schedule 1.
Alleged breach of the joint venture agreement
[14] In his affidavit supporting the summary judgment application, Mr Scott deposed that the defendant failed to pay the purchase price of NZ$1,170,000 for the transfer of 50 per cent of the forestry rights to PTL on or before 29 September 2017.
[15] Mr Scott said that he contacted the defendant to endeavour to obtain the payment, but without success. On 6 September 2018 the defendant sent an email to Mr Scott in which the defendant said:
My lawyer has submitted for appeal and expect to get hearing by next week. As I mention once settle here I'll go back to KL and hv organise my account there then can deliver the 50% to u and balance 50% within another 10 days.
[16] On 30 October 2018, the plaintiff's solicitors in Malaysia wrote to the defendant demanding payment of the $1,170,000 under the joint venture agreement.
The solicitors referred to repeated reminders and requests for payment, including in emails dated 1 September 2018, 3 September 2018 and 5 September 2018, and the defendant's refusal or neglect to make payment.
[17]Mr Scott said that the purchase price remains outstanding.
The plaintiff's statement of claim
[18] The statement of claim pleads the joint venture agreement and the alleged default by the defendant in failing to pay the purchase price of $1,170,000 by 29 September 2017. In its first cause of action, the plaintiff asks for an order for specific performance of the joint venture agreement, "requiring the defendant to pay the sum of $1,170,000 to the plaintiff" within 10 working days. The plaintiff also asks for interest and costs.
[19] There is also a second cause of action, in which the plaintiff seeks contractual damages from the defendant. However, the plaintiff does not ask for summary judgment on its second cause of action, and I am not presently concerned with it.
Questions from the Court
[20]In a Minute dictated at the 8 July 2019 hearing I said:
[7] I have raised two substantive issues with Mr Bond today. The first is whether Mr Sheung owed any direct obligation to the plaintiff at all, or whether his obligation was to pay the $1,170,000 to PT (who would then pay the money on to the plaintiff). The second issue is whether summary judgment would be appropriate in any event for payment of the sum of money, without regard to other rights and obligations in the joint venture agreement that may have been interdependent with the payment of the $1,170,000. (I note in passing that, on payment of that sum, Mr Sheung was to receive 90 per cent of the shares in PT.) It may be also that any summary judgment (if it were appropriate to enter one) could only be a summary judgment for specific performance of the joint venture agreement, requiring Mr Sheung to pay the money to PT (presumably by way of tender to PT, to be made against delivery to him of the shares in PT and the appointment as a director).
[21] I invited counsel to consider those issues, and adjourned the matter to 19 August 2019 to allow the plaintiff to take any steps it considered necessary (including making any application to amend its statement of claim or application for summary judgment).
Further submissions from the plaintiff
[22] Mr Bond acknowledged that the joint venture agreement was not well drafted, but submitted that the defendant's only obligation under it was to make the payment of the $1,170,000. There was no reason for him to be a party unless it was intended that the plaintiff could enforce the joint venture agreement against him. Also, the joint venture agreement provides that obligations under it are joint and several.
[23] Mr Bond submitted that it is appropriate to order specific performance, because the defendant's obligation was the trigger event which would give rise to other obligations under the joint venture agreement, and there is no indication that those other obligations would not have been honoured by the other parties.
[24] Mr Bond referred to cl 2.1 of the joint venture agreement, which appears to have been drafted without legal assistance. It contains no clear and express statement as to who was obliged to pay the $1,170,000 to the plaintiff. However, it is implicit in the arrangements set out in the joint venture agreement, including in the background provisions, that the ultimate source of payment for the transfer of the 50 per cent forestry right would be the defendant.
[25] If the defendant had no direct obligation to the plaintiff to pay the money, it would have made more sense for there to be a separate agreement, not involving the plaintiff, between the defendant and PTL and/or Ms Sum dealing with the agreement between them. The joint venture agreement could then have been solely between PTL and the plaintiff.
[26] On the second issue raised by the Court, relating to the possible interdependence of the defendant's obligation to pay the $1,170,000 and the obligations of Ms Sum to transfer to him the shareholding in PTL and make him a director of PTL, Mr Bond noted that there has been no indication of any resistance from the other parties (apart from the defendant) to complying with their obligations
— nothing to suggest that if the defendant paid the $1,170,000, Ms Sum and PTL would not honour their obligations. Once having paid, it would be for the defendant to enforce any rights he may claim to have against Ms Sum or PTL.
[27] Mr Bond referred to the recent Court of Appeal judgment in Zhang v Northwest Developments Ltd in support of the proposition that specific performance may be granted against a single breaching party in a multi-party agreement.1 In that case, only two of the five relevant interest groups were parties to the Court proceeding. Mr Bond submitted that Zhang is analogous to the present case, in that the present case involves an agreement with multiple parties and ongoing, reciprocal obligations. In Zhang, the plaintiff (Northwest) was seeking specific performance of certain, specific obligations which had arisen and been breached by the defendants, and the fact that there would likely be further obligations arising for and to various parties under the five-party agreement as the relevant land development continued did not prevent the Court from ordering specific performance.
Discussions and conclusions
Plaintiff's summary judgment applications — the law
[28]Rule 12.2(1) of the High Court Rules 2016 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.
[29] The proper approach to be taken to such applications was considered by the Court of Appeal in Krukziener v Hanover Finance Ltd, where the Court said:2
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 [1987] 1 NZLR 1 at 3 (CA). 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 (1997) 11 PRNZ 66 (CA). 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 Young v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court's
1 Zhang v Northwest Developments Ltd [2019] NZCA 137.
2 Krukziener v Hanover Finance Ltd [2008] NZCA 187 at [26].
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 (1987) 1 PRNZ 84 (CA).
[30] The Supreme Court has confirmed that the fact that the Court may be required to determine questions of law does not preclude summary judgment. In Zurich Australian Insurance Ltd v Cognition Education Ltd, the Court said:3
… in other situations falling within the broad test (that is, the "no arguable defence" test applied on summary judgment), there will be what can properly be described as "disputes" even though they are ultimately capable of being determined by a summary process.
[37] To explain, it has been well established in New Zealand since Pemberton v Chappell that a court can properly determine questions of law on a summary judgment application, and that this includes issues of contractual interpretation. The Court of Appeal has accepted that such a determination may be made even though the question of law is difficult and requires argument (including reference to authority). In International Ore & Fertilizer Corp v East Coast Fertiliser Co Ltd, a case under the old bill writ procedure, Cooke P, by analogy with the summary judgment procedure which had just been introduced in New Zealand, said that where the facts were adequately ascertained and the Court could be confident that the point at issue turned on pure questions of law or interpretation, it should be prepared "to determine, on adequate argument, even difficult legal questions". Similarly, in Jowada Holdings Ltd v Cullen Investments Ltd, McGrath J, delivering the judgment of the Court of Appeal, said that a court should be prepared to grant summary judgment "even if legal arguments must be ruled on to reach the decision".
Application of the law in this case
[31] Although the defendant has not filed any notice of opposition, I must still be satisfied that the defendant has no defence to the cause of action on which the plaintiff seeks summary judgment. On the current pleading, I am not satisfied that that is the case.
[32] The obligation to pay the $1,170,000 by 29 September 2017 is provided for at cl 2.1 of the joint venture agreement. Clause 2.1 does not state expressly who was obliged to make the payment, but it is clear from the clause that Ms Sum was to transfer 90 per cent of the PTL shares to the defendant, and appoint him as a director of PTL, on the same day payment was made to the plaintiff for the interest in the forestry right.
3 Zurich Australian Insurance Ltd v Cognition Education Ltd [2014] NZSC 188, [2015] 1 NZLR 383 (footnotes omitted).
[33] The provisions of the joint venture agreement must be read together, and recital B suggests that the intention was that the defendant would pay the $1,170,000 not to the plaintiff, but to PTL. That makes some sense, as the defendant was entitled to receive 90 per cent of the shares in PTL on the same day as the payment was made to the plaintiff. Presumably, the defendant would have wanted to receive an executed share transfer form contemporaneously with the provision of the funds to PTL.
[34] None of that is pleaded in the plaintiff's statement of claim, which seeks an order directing the defendant to pay the money to the plaintiff, rather than to PTL. If the defendant has indeed failed to pay the $1,170,000, it seems at least arguable for him that the proper plaintiff in any claim against him would have been PTL, and that any claim the plaintiff had should have been brought against the party who was arguably obliged to pay the money by 29 September 2017, namely PTL.
[35] I do not consider that cl 1.3 of the joint venture agreement assists the plaintiff. The clause provides:
1.3 The covenants herein expressed or implied shall bind any two or greater number of persons executing this agreement as a party jointly and each of them severally.
[36] Clause 1.3 appears to be a generic clause, designed to cover a situation where a "party" comprises more than one person. That is not the case here, where the three parties are single entities or individuals.
[37] It may be that the plaintiff's claim against the defendant could readily have been amended in some appropriate fashion. For example, if the facts justified such a pleading, the plaintiff might have pleaded that the defendant failed to comply with the joint venture agreement by failing to tender or pay to PTL the $1,170,000. I accept Mr Bond's submission that the defendant owed duties under the joint venture agreement to both PTL and the plaintiff, but the issue here is over the content of any
duties he may have owed to the plaintiff.4 Arguably, the relevant duty did not extend beyond the duty just identified, namely to tender the purchase money to PTL.
[38] I might have considered further adjourning the matter to allow the plaintiff to amend its claim along the lines indicated, but I have already extended an invitation to the plaintiff to amend its claim, and that invitation was not taken up. In those circumstances I do not think it appropriate in the summary judgment context, to offer the plaintiff a further opportunity to amend.
[39] I do not think the defendant's email of 6 September 2018 advances the plaintiff's case on the summary judgment application. First, the plaintiff does not appear to have offered any explanation for the lengthy delay between the time payment of the $1,170,000 was due (29 September 2017) and the attempts to recover the money from the defendant almost a year later. What was happening in that period? Surely something. Secondly, the defendant's email of 6 September 2018 produced by Mr Scott is ambiguous on the critical point as to whether the defendant had an ongoing obligation to pay the money. The reference to the "appeal" is unexplained (was it an appeal in proceedings between the defendant and Ms Sum?), and nor is there any explanation of the words "once settle here …". It may be that the defendant was assuming a liability to pay the purchase money direct to the plaintiff, but only after some settlement had been effected in Malaysia. The wording of the email is not sufficiently clear for me to be certain.
[40] Similarly, I do not think I can elevate the defendant's failure to respond to requests for payment as something sufficient to displace what is arguably the most likely interpretation of the joint venture agreement, namely that the defendant's obligation was to pay the money to PTL.
[41] The procedure adopted by the plaintiff is a summary one, and the defendant was entitled to a proper pleading of the case against him.
4 For that reason, Zhang v Northwest Developments Ltd does not assist the plaintiff. The issue is not whether one party to a multi-party agreement can sue just one of the other parties to the agreement: it is about whether the relevant duty was owed to the party suing (or to one of the other parties to the agreement who has not been sued).
[42] For the foregoing reasons, I am not satisfied that the defendant has no defence to the plaintiff's claim as it is presently pleaded. The summary judgment application will be dismissed accordingly.
Result
[43]I make the following orders:
(1)The application for summary judgment is dismissed.
(2)I make no order for costs.
(3)The plaintiff is to file and serve any amended statement of claim within 20 working days of the date of this judgment. The defendant is to file and serve any statement of defence by no later than 25 October 2019.
(4)The Registrar is directed to allocate a case management conference, at a suitable time in the week commencing 11 November 2019.
Associate Judge Smith
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