Gao v Jia

[2022] NZHC 3006

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-000828

[2022] NZHC 3006

BETWEEN

SEN GAO

Applicant

AND

XINHONG JIA

Respondent

Hearing:

19 October 2022

Appearances:

K Sun and I Sugimoto for Applicant

B J Norling and W M Alexander for Respondent

Judgment:

17 November 2022

JUDGMENT OF VENNING J

This judgment was delivered by me on 17 November 2022 at 3.00 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:           Capstone Law Ltd, Auckland

Heritage Law, Auckland

GAO v JIA [2022] NZHC 3006 [17 November 2022]

Introduction

[1]    Sen Gao seeks summary judgment against Xinhong Jia in the sum of $1.5 million together with interest.

[2]    Mr Gao advanced the $1.5 million to Mr Jia in 2015. Mr Jia acknowledges that he received the money but says that the debt was effectively assigned to Mr Gao’s partner, Ms Yang, and it was then taken into account in fixing Ms Yang’s shareholder’s current account with Winter Forest Holdings Limited (WFHL), a company which Mr Jia established to take over and complete a development project that Mr Gao had substantially financed.

Background

[3]    On 15 October 2014, Mr Jia incorporated Wanqi Business Holdings Limited to acquire and develop land at 4 Bute Road, Browns Bay, Auckland into apartments and commercial offices (the development project). On 19 March 2015, the company name was changed to Browns Bay Seaview Limited (BBSL).

[4]    In or about early 2015, the plaintiff visited New Zealand with his partner Yuling Yang and their son. They met a real estate agent, Baofeng Guo (Alan). Alan introduced them to the defendant, Mr Jia.

[5]    On 23 May 2015, Mr Gao agreed to lend Mr Jia $1.5 million which Mr Jia needed for the development project. Mr Gao and Mr Jia entered a loan agreement (written in Chinese) to record the arrangement. The money was advanced to Mr Jia in three tranches. The agreement provided the principal was repayable on or before 20 November 2017.

[6]    Mr Jia put the $1.5 million into the development by BBSL. It was reflected in his current account as a shareholder’s advance.

[7]    Mr Jia did not repay the loan when it fell due in November 2017. Despite that, at Mr Jia’s request, Mr Gao agreed to substantially finance BBSL’s development project.

[8]    Ultimately, Mr Gao agreed to invest approximately $16 million in the development project through his partner, Ms Yang.

[9]    The parties discussed Mr Gao’s further involvement in the ongoing development project and the appropriate structure for some time. In March 2020, Mr Jia and Ms Yang completed a number of documents recording the restructured arrangements involving WFHL’s take-over of the development project from BBSL. It is the detail of those discussions and the arrangements regarding the restructuring of the development project which Mr Jia relies on to oppose Mr Gao’s application for summary judgment.

[10]   On 17 May 2021, Mr Gao’s former solicitors issued a letter of demand for repayment of the $1.5 million advance. Although the letter referred to the advance of

$1.5 million, it rather curiously demanded payment of $47,276,270.57. On 10 August 2021, Mr Gao’s current solicitors sent a further letter of demand for the more realistic sum of $2,393,095.89 including interest and costs.

[11]   On 31 August 2021, Mr Jia’s solicitors responded (it is accepted the letter was for some reason incorrectly dated 18 June 2020). In that letter Mr Jia’s solicitors addressed the financial situation facing the development project and noted that it was in all parties’ interests to confirm the restructuring of the development project (including the further advances to the project by Mr Gao through Ms Yang) that had been implemented in March 2020.

[12]The parties have been unable to resolve the issues between them.

[13]   These proceedings followed. Mr Gao filed his application for summary judgment on 26 May 2022.

The evidence

[14]   Mr Gao filed an affidavit in support of his application for summary judgment. Mr Jia and the accountant for the development project, Mr Price, filed affidavits in response. Mr Gao then filed an affidavit in reply.

[15]   Mr Gao’s initial affidavit in support of the application was brief. He gave details of the loan advance of $1.5 million and then said Mr Jia promised the $1.5 million would be repaid when the development project was completed, which he said occurred in early May 2021.

[16]   Mr Gao then referred to the letters of demand by his solicitors and Mr Jia’s solicitor’s response of 31 August. He noted the claim by Mr Jia’s solicitors in that letter that the loan had somehow been “washed up” or converted into a shareholder’s loan by his partner Ms Yang to BBSL.

[17]   While Mr Gao accepted that Ms Yang had become a shareholder in BBSL in December 2018 and that he had injected capital into it to help Mr Jia complete the development project, he says the investment in BBSL was completely independent of his loan to Mr Jia. He says he never agreed to any “wash up” or conversion of that loan into a credit in his partner’s shareholder’s current account with BBSL (or WFHL).

[18]   In his affidavit in reply, Mr Jia emphasised that both he and Mr Gao are Chinese. He says it is usual business practice for Chinese to enter business arrangements without formal documentation, but they were advised in November 2019 to formalise their business arrangements. The documents recording the arrangements were signed in March 2020 (including by Ms Yang). He also noted that Mr Gao had effectively appointed Alan as his agent representative. For a time Alan was also a director of the relevant companies.

[19]   Mr Jia accepted that Mr Gao had advanced the $1.5 million to him and it was to be repaid in November 2017. Mr Jia had agreed to help with Ms Yang’s application for residency and it was anticipated that would be resolved by around that date.

[20]   In the event, Ms Yang’s residency was not resolved by November 2017 and the development was delayed by a lack of pre-sales. Mr Jia says Mr Gao said he did not require repayment at the time. Mr Jia says that later, around August 2018, he contacted Mr Gao and explained he was not able to repay the loan as the development project

was not returning a profit. At that stage Mr Gao became interested in becoming directly involved in financing the development project.

[21]   The first proposal intended to facilitate and record Mr Gao’s financial involvement in the project was the New Fang Yuan Limited (NFYL) proposal. NFYL was to purchase the development project from BBSL. To that end NFYL was incorporated on 12 November 2018. Alan (on behalf of Mr Gao) and Mr Jia were to be the directors. A Mr Wu, a chartered accountant, undertook an audit of the equity advanced by Mr Jia to the project to determine the amount he had invested. I infer that Mr Wu was acting on the instructions of Alan on behalf of Mr Jia.

[22]   The first proposal contemplated that BBSL would sell the development project to NFYL for $11,500,000.00. Ms Yang was to hold 80 per cent of the shares and Mr Jia, 20 per cent.

[23]   The draft agreement for sale and purchase (ASP) included a condition recording that BBSL and Mr Jia owed Ms Yang a debt of $1.5 million which was to be offset against the purchase price and deemed to be repaid on settlement.

[24]The relevant clauses of the ASP were:

19.1      The vendor and the shareholder of the vendor owe Yuling Yang, one shareholder of the purchaser a debt of $1,500,000.00 (“the Debt”). The debt will be offset against the purchase price for the equivalent amount. Thus,

$1,500,000.00 will be deemed to have been paid by the purchaser and the Debt will be deemed to have been repaid by the vendor and the shareholder of the vendor simultaneously.

19.2      The shareholder of the vendor is one of the two shareholders of the purchaser whose equity contribution to the purchaser is agreed to be

$6,500,000.00. Thus $6,500,000 of the purchase price will be deemed to have been paid on settlement.

and

19.3      The purchaser will pay the balance purchase price on the settlement date.

[25]   For a number of reasons that proposal was not given effect to. Approval under the Overseas Investment Act 2005 was not obtained, and Mr Jia said he was advised

against the proposal to give Ms Yang 80 per cent shareholding before Mr Gao introduced the further capital. NFYL was subsequently removed from the register in 2019.

[26]   Mr Jia says that the next proposal was also based on Ms Yang having an 80 per cent shareholding (to represent Mr Gao’s investments in the project) but it was intended to use BBSL as the vehicle. Alan was appointed a director of BBSL, and Mr Jia executed share transfers. However, Mr Jia was advised by BBSL’s accountant Mr Price that would affect tax losses. There was a retransfer of shares.

[27]   Mr Jia says that ultimately the final proposal agreed involved the incorporation of a new holding company, WFHL. In March 2020, the vehicle for the development project was restructured which resulted in an assignment of all debts owing by Ms Yang and Mr Jia to BBSL being sold to WFHL in consideration of all shares held in BBSL being sold to WFHL and WFHL entering a loan agreement with Mr Jia and Ms Yang.

[28]   Mr Jia says that the March 2020 restructuring involved a number of documents including the transfer of $1.5 million in Mr Jia’s shareholder’s current account with BBSL to Ms Yang in repayment of the $1.5 million loan. On or about 1 April, a manual journal entry was completed to record that transaction.

[29]   At the time of the WFHL restructure the shareholder advances were recorded as $6,668,610 by Mr Jia, and $15,543,037.21 by Ms Yang. It is the defendant’s case that while the shareholding and shareholder advances were recorded in Ms Yang’s name, they were effectively held in trust for Mr Gao and her shareholder advances figure of $15,543,037.21 including the $1.5 million initially advanced by Mr Gao to Mr Jia.

[30]   Mr Jia’s evidence about the restructure involving WFHL and the journal entry confirming the treatment of the $1.5 million is supported by the evidence of Daniel Price, the accountant to BBSL. On 1 April 2019, Mr Price executed a manual journal debiting Mr Jia’s current account balance and crediting the current account balance of Ms Jiang with BBSL as:

BDO $1.5 loan repayment to Mr Gao via Yuling Current Account – BDO $1.5 loan repayment to Mr Gao via Yuling Current Account.

[31]   Mr Price also later confirmed that the record of the shareholder loan accounts for the year ended 31 March 2020 were correct and showed “convert personal loan from Mr Gao” as a credit in Ms Yang’s current account as part of the transfer of $15.5 million to WFHL.

[32]   In his affidavit in reply, Mr Gao confirms his position that none of the development project matters are relevant to the $1.5 million loan to Mr Jia, which is a stand-alone agreement. He denies agreeing to any assignment of that debt to Ms Yang.

[33]   Mr Gao accepted that he did agree to advance approximately $16 million to the development project in return for 80 per cent of the shares (to be held by Ms Yang on his behalf). He says Ms Yang signed the March 2020 restructure documents without understanding the meaning and implication of them. At the time he was unaware of the documents.

[34]   Mr Gao also denies ever verbally agreeing to the $1.5 million loan being repaid by transfers within the shareholders’ current account.

Principles

[35]   The principles to apply on an application for summary judgment are well settled. As the Court of Appeal confirmed in Krukziener v Hanover Finance Ltd:1

[26] … 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 Yong v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a

1      Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307.

robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA)

[36]   During the course of submissions counsel referred to cultural considerations. In his written submissions Mr Norling noted the comments of the Supreme Court in Deng v Zheng, which recognised that the Courts can, in appropriate cases, consider evidence about the cultural framework of the parties.2 He suggested that the concept of guānxi might be applicable to explain the general relationship between Mr Gao and Mr Jia and their rather informal dealings.

[37]   Mr Sun responded to that submission by making the reasonable point that as a matter of principle, whether the parties were Chinese or not should make no difference where there was a written loan agreement. The plaintiff was entitled to rely on that document irrespective of culture and there should be no suggestion that in some way Chinese business people dealing in New Zealand were to be held to a different standard. In this case, cultural considerations are not sufficiently relevant to affect the presumption that a party can rely on a written loan agreement.

[38]   Ultimately, the issue for this Court on this application for summary judgment is whether Mr Gao can satisfy the Court that Mr Jia has no reasonably arguable defence to his claim for repayment of the $1.5 million.

Plaintiff’s submissions

[39]   Mr Sun noted that there was no dispute the $1.5 million had been advanced by Mr Gao to Mr Jia and it had not been repaid. Next, he submitted that Mr Jia’s defence was contradictory. On the one hand, there was a suggestion that, in reliance on a clause in an unsigned draft sale and purchase agreement relating to a separate entity, NFYL, the $1.5 million was to be regarded as fully repaid, yet, on the other hand, Mr Jia apparently also sought to rely on the assignment of the loan to BBSL as the new borrower by way of an adjustment to Ms Yang’s shareholder’s current account in BBSL. The two propositions could not stand together.

2      Deng v Zheng [2022] NZSC 76.

[40]   Mr Sun also submitted there was no objective evidence that Mr Gao had agreed to the assignment of the debt in the way the defendant suggested. Mr Jia could not point to any document executed by Mr Gao that confirmed the assignment.

[41]   In response to the evidence of Mr Price, the accountant, Mr Sun submitted that the evidence was hearsay, in that Mr Price was effectively simply recording the instructions he had received from Mr Jia. Further, importantly again, there was no objective evidence that Mr Gao had agreed the loan advance to Mr Jia would be treated in that way.

Analysis

[42]   Although the commercial dealings between the parties, including the restructure became somewhat complicated, there are two important features of the dealing between the parties that are not in dispute and which inform consideration of the matters in issue. First, that Mr Gao advanced $1.5 million to Mr Jia and that Mr Jia put that money into BBSL to advance the development project. That was reflected as a shareholder’s advance in Mr Jia’s current account with BBSL.

[43]   Second, although the loan was not repaid in 2017 when it fell due, Mr Gao was nevertheless prepared to invest a further substantial sum of money into the development project in 2018. He did so through Ms Yang, his partner. For example, on 28 August 2019 Mr Gao executed a further document in which he recorded his agreement to give Ms Yang up to $20 million to invest in the development project. Ultimately, it appears he invested between $15 and $16 million at least in the project.

[44]   I do not accept Mr Sun’s submission that the first proposal involving NFYL and the draft ASP with BBSL is necessarily contradictory of the second proposal which Mr Jia ultimately relies on to oppose the entry of summary judgment. Both are consistent with Mr Jia’s position which is that, as part of Mr Gao’s decision to further invest in the development project the personal loan to him of $1.5 million would be treated as an advance to BBSL as part of Mr Gao’s further investment and commitment to the development project. The proposed ASP with NFYL was never concluded. But the proposals in it as to how the $1.5 million was to be dealt with are consistent with

the defendant’s case as to how the $1.5 million loan was accounted for in the March 2020 restructure involving WFHL.

[45]   While the first proposal involving NFYL did not proceed, it is evidence that the parties at least considered the possibility of the $1.5 million advance being taken into account as part of Mr Gao’s further investment in the development project.

[46]Mr Sun emphasised that there was no objective evidence Mr Gao agreed to the

$1.5 million loan being treated in that way. There was no written assignment by him to Ms Yang. While there is no written assignment, that is not necessary for a valid assignment. The defendant relies on an equitable assignment.

[47]   Section 50(5) of the Property Law Act 2007 provides for equitable assignments. For the assignment to be effective there must be either consideration from the assignee or the assignment must be complete.3 Mr Gao’s potential assignment falls into the latter category. Assignment is complete when the assignor has done everything that needs to be done to transfer its rights in relation to the thing in action. It does not matter if it is absolute, conditional or by way of charge.4 No particular form of words or conduct are necessary. All that is necessary is that the assignor intends the assigned rights are to become the property of the assignee.5 Importantly, the intention to assign may be inferred from a course of conduct.6 The essence of the assignment is the manifest intention to transfer the right.

[48]   There are a number of factors that support the defendant’s argument for an equitable assignment, at least for summary judgment purposes.

[49]   Mr Gao did not insist on repayment of the loan when it originally fell due. Moreover, even after the date for repayment passed, Mr Gao agreed to make a substantial investment in the development project. Next, he effectively used Ms Yang as his agent or trustee to hold the monies he had advanced. She held the money in her

3      Property Law Act, s 50(5).

4      Section 50(7) and (8).

5      Hoole v Darby [2008] NZCCLR 22 (HC); William Brandt’s Sons & Co v Dunlop Rubber Co Ltd [1905] AC 454 (HL) at 462; Magee v UDC Finance Ltd [1983] NZLR 438 (CA) at 442; and West City Construction Ltd v Levin [2014] NZSC 183, [2015] 1 NZLR 362.

6      Hela Pharma AB v Hela Pharma Australasia Ltd CA 165/03, 17 February 2005 at [60].

name but on behalf of Mr Gao. The advances were recorded in the current accounts of BBSL and WFHL. It made commercial sense for the $1.5 million advance (which Mr Jia had put into the development project) to be dealt with as the defendant says as part of Mr Gao’s investment in the project.

[50]   Next, there are the documents executed by Ms Yang. I find it difficult to accept that she would not have discussed them with Mr Gao. Mr Sun submitted that Ms Yang was not a sophisticated business person, and did not fully understand the documents. Given her relationship with Mr Gao and that she was holding the investment for him, I would expect her to discuss the documentation with him. Further, I note that Ms Yang was referred for independent advice at the time. It is also relevant that there is no evidence from Ms Yang at this stage.

[51]   Further, Mr Wu, an accountant acting for Mr Gao, gave him advice on 5 December 2018 regarding the draft ASP with NFYL. As noted, that draft ASP expressly recorded the proposal that the $1.5 million loan would be credited to Ms Yang’s current account. I find it unlikely that Mr Gao would not have seen the draft ASP.

[52]   Nor am I able to accept the characterisation of Mr Price’s evidence as hearsay. Mr Price was the accountant for BBSL and subsequently WFHL. While he was acting on the instructions of Mr Jia, nevertheless his evidence and the actions he took are consistent with the assignment that the defendant Mr Jia relies on. The alternative would be, as Mr Norling suggested, that for a number of years Mr Jia had effectively been preparing documents (and indeed using the accountant Mr Price) to prepare complicated restructuring documents to respond to a claim for payment of the $1.5 million at a time when Mr Gao was not pursuing repayment. During 2018 and 2019 and into 2020 the parties’ focus was entirely on the completion of the development project. The first demand for repayment was not until 17 May 2021.

[53]   It is at least arguable from these arrangements that Mr Gao had completed his assignment to Ms Yang. Mr Gao’s dealings indicate that Ms Yang was now in control

of the debt and therefore he “has done everything necessary that, according to the subject-matter, is necessary to pass good title to the assignee [Ms Yang]”.7

Conclusion

[54]   For the above reasons the plaintiff is not able to satisfy the Court that the defendant does not have an arguable defence based on an equitable assignment of the loan. Whether ultimately that defence will succeed at trial must be for another day.

Result

[55]The application for summary judgment is dismissed.

Costs

[56]   Although the defendant seeks costs the usual practice when an application for summary judgment fails is to reserve costs through to the substantive hearing when the merits of the case can be considered in full in a proper way. I consider that to be the appropriate course in this case. Order accordingly.

Venning J

7      Hoole v Darby, above n 5, at [135(b)].