Hou v Zhang

[2023] NZHC 3102

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-2290

[2023] NZHC 3102

BETWEEN

ZHENCHANG HOU

Plaintiff

AND

KAI ZHANG

First Defendant

TAMAKI CA LIMITED

Second Defendant

Hearing:

26 June 2023

Further memorandum filed 10 July 2023

Appearances:

M R Taylor and O Sutton for the Plaintiff/Applicant

J G Ussher for the First and Second Defendants/Respondents

Judgment:

6 November 2023

JUDGMENT OF ASSOCIATE JUDGE SUSSOCK

This judgment was delivered by me on 6 November 2023 at 4.00 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

PCW Law Limited

HOU v ZHANG [2023] NZHC 3102 [6 November 2023]

Introduction

[1]    The plaintiff, Mr Hou, seeks summary judgment of his claim for specific performance of the exit clause in a property sharing agreement (PSA) entered into with the first defendant, Mr Zhang. The PSA relates to a property in Pakuranga, Auckland (Property) held by the second defendant, Tamaki CA Limited (Tamaki). Mr Zhang and his wife are directors and shareholders of Tamaki.

[2]    The exit clause (cl 8) include subclauses for determining value and division of proceeds. The plaintiff submits therefore that any issue between the parties as to the appropriate share of the proceeds if the property is sold does not need to be determined in the context of this summary judgment proceeding; an order that the parties are to specifically perform cl 8 includes a mechanism for resolving those issues.

[3]    The defendants oppose summary judgment on both technical and substantive grounds.

[4]    The technical grounds arise including because the plaintiff does not speak English and yet filed an affidavit in English. Directions were made by Venning J addressing this issue which the defendants say have been ignored as while the plaintiff filed a translation of the affidavit in accordance with those directions the wording remained the same. The defendants say it is not therefore the evidence of the plaintiff and ought to be struck out.

[5]In addition, the defendants rely on the following substantive grounds:

(a)the PSA was not adequately explained to the parties and was poorly drafted;

(b)the PSA was varied by consent;

(c)the plaintiff is estopped from relying on the PSA;

(d)the first and second defendants contributed more to the development than the sums alleged by the plaintiff;

(e)the plaintiff knew about and consented to the property being held by the second defendant, and about the tenants and GST refund; and

(f)they have arguable counterclaims.

[6]    The application for summary judgment sets out the specific orders sought including:

(a)requiring the first and second defendants to take reasonable steps to facilitate the sale of the Property;

(b)agreeing to a minimum price at which the Property will be sold, or complying with the valuation clause in the PSA (cl 9) if necessary; and

(c)after accounting for income and expenses, applying the proceeds:

(i)95.65 per cent to Mr Hou, and 4.35 per cent to Mr Zhang; or

(ii)in the alternative, such other sums as the Court deems appropriate.

[7]    At the hearing counsel for the plaintiff made it clear that the plaintiff was no longer seeking orders applying the proceeds in accordance with [7(c)] above, but instead wished to rely on the terms set out in cl 8 of the PSA as those terms allow for the division of proceeds following sale. Counsel for the plaintiff submits that once the property is sold, the parties can attempt to agree on the appropriate share and, only if that is not possible, come back to the Court for further orders.

[8]    At the hearing, counsel for the defendants acknowledged that a significant part of their defence was in relation to apportionment given the division sought (or for the property to be held on trust in the same shares).

[9]    I adjourned the hearing to allow settlement discussions between the parties given the developments. Those discussions did not result in agreement and so the hearing resumed. The parties however asked that preparation of the judgment be

delayed for a period to allow the parties to try to reach agreement as some progress was being made. Unfortunately, no agreement was reached and so I issue this judgment.

[10]   I begin by setting out the principles applying to applications for summary judgment and the factual background before considering the issues arising.

Summary judgment principles

[11]   Rule 12.2(1) of the High Court Rules 2016 (HCR) provides that summary judgment may be granted where a 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.”

[12]   The principles applying to summary judgment applications are well established. They were summarised in the leading authority, Krukziener v Hanover Finance Ltd as follows:1

(a)The question on a summary judgment application is whether the defendant has no defence to the claim; that is, there is no real question to be tried.2

(b)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.3

(c)The court will not normally resolve material conflicts of evidence or assess the credibility of deponents. However, it need not uncritically accept evidence that is inherently lacking in credibility, as, for example, where the evidence is inconsistent with undisputed contemporary

1      Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 at [26].

2      Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 3.

3      MacLean v Stewart (1997) 11 PRNZ 66 (CA).

documents or other statements by the same deponent, or is inherently improbable.4

(d)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.5

Factual background

[13]The plaintiff and the first defendant have known each other since around 2016.

[14]   On or around 31 May 2019, Mr Zhang signed a sale and purchase agreement for the Property in the sum of $1,150,000. Mr Hou says the agreement was signed by Mr Zhang on behalf of them both. Mr Zhang disagrees but this dispute is not relevant to whether summary judgment ought to be entered.

[15]On 1 June 2019, Mr Zhang paid the deposit.

[16]   On around 28 June 2019, Mr Zhang incorporated Tamaki. The directors and 50% shareholders of Tamaki are Mr Zhang and his wife, Jingjin Zhang.

[17]   There is no dispute that Mr Hou and Mr Zhang agreed to enter into a PSA to develop the site, including to demolish the existing dwelling and construct townhouses (Development) and that under the PSA, Mr Hou and Mr Zhang were to contribute equally to the purchase price and the cost of the Development.

[18]   On 6 August 2019, shortly after Mr Hou had arrived in New Zealand from China, Mr Zhang says he took Mr Hou to a lawyer, Mr Tao, before whom the PSA was signed. There is no dispute that the PSA was signed by each of them after Mr Tao had explained it (although Mr Zhang says it was not a very thorough explanation).

[19]   Mr Zhang’s evidence is that although the PSA is dated 12 August 2019, it was signed on 7 August 2019. Mr Hou does not dispute this in his affidavit in reply.

4      Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC).

5      Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).

[20]On 7 and 8 August 2019 Mr Hou advanced a total of $1.1 million to Tamaki.

[21]   On 9 April 2020 Mr Hou and Mr Zhang exchanged messages on WeChat in which Mr Hou proposed withdrawing from the Development in return for repayment of $1.1 million.

[22]   On 17 April 2020, Mr Hou proposed a final deadline of the end of August 2020 for repayment of the $1.1 million advanced.

[23]   On 19 May 2020 there were further discussions between Mr Hou and Mr Zhang about the repayment date and amount. The translations of the final messages on that date are that Mr Hou said “If I get a lawyer and insist on following the withdrawal terms in our previous contract it is still normal. The worst consequence is No. 20 will be frozen and at the end wait for either you or I to receive it or an auction”. Mr Zhang replied, “[t]hen you find a lawyer to sue me. I will wait for you.”

[24]On 25 May 2020 Mr Hou lodged a caveat over the Property.

[25]   On 3 June 2020, Mr Hou’s lawyer wrote to Mr Zhang seeking a resolution and asking Mr Zhang for his proposals.

[26]   On 5 June 2020 Mr Zhang’s solicitor confirmed his client was open to entering discussions with a view to resolving the matter.

[27]On 9 June 2020, Mr Hou’s solicitor wrote to Mr Zhang’s solicitor saying:

My client has told me that your client has indicated an interest in purchasing the property/purchasing my client’s share in the property.

I am instructed to put this on a more formal footing and give notice pursuant to clause 7 of the Property Sharing Agreement that my client wishes to dispose of his interest in the property. This email is notice pursuant to clause 7 which means your client now needs to decide if he will purchase my client’s interest in the property. It would be preferable to deal with this within the shorter timeframe than the timeframe(s) specified in the Property Sharing Agreement.

Please confirm that your client accepts this email as adequate notice pursuant to clause 7 of the Property Sharing Agreement.

[28]On 10 June 2020 Mr Zhang’s solicitor replied:

…

Our client will take your email as formal notice.

So he can consider the matter further can you please indicate what figure your client will be looking for if our client were to buy him out.

…

[29]   On 15 June 2020 Mr Hou’s solicitor responded saying Mr Hou considers that as Mr Zhang has the option to purchase Mr Zhang should propose a figure and advising that Mr Zhang had previously indicated to Mr Hou, he thought the property was worth

$1.45 million. In addition, Mr Hou’s solicitor recorded that Mr Hou was willing to jointly instruct a valuer to provide a current valuation for the property.

[30]   Mr Zhang’s solicitor responded on 22 June 2020 confirming that Mr Zhang considered it sensible to jointly instruct a valuer and share the cost before any proposal was made.

[31]   On 28 June 2020 Mr Hou’s solicitor confirmed agreement and asked Mr Zhang to suggest a valuer. Mr Zhang’s lawyer then provided a list of three valuers and Mr Hou requested that of the three proposed, Seagars was appointed.

[32]   On 14 July 2020 Mr Zhang’s solicitors provided a copy of the Seagars’ valuation for $1,150,000, the same as the original purchase price. The solicitors’ email included a proposal from Mr Zhang to purchase Mr Hou’s share in the Property for

$1,103,044.66 – calculated by taking Mr Hou’s original contribution of $1,100,000 and deducting half the expenses paid by Mr Zhang of $6,510.68 and adding half of the rental income received of $12,600.

[33]   On 30 July 2020, Mr Hou’s solicitor advised that Mr Hou considered the valuation to be too low and suggested, as one option, that Mr Hou purchase the Property for what Mr Hou thought the property was worth. Mr Hou’s solicitor further recorded:

We are also going to need to address your client’s breach of the agreement. Your client did not put in the funding he agreed to. My client had to put in most of the money and this has tied up money that he could otherwise have obtained a return on. He will be looking for compensation for his loss.

[34]   On 19 August 2020 Mr Hou’s solicitor followed up with Mr Zhang’s solicitor for a response. On 1 September 2020, Mr Zhang’s solicitors responded that they had instructions and would respond shortly.

[35]   On 7 September 2020 Mr Hou’s solicitor again followed up with Mr Zhang’s solicitor seeking a response. On 16 September 2020 Mr Zhang’s solicitors said they expected to respond in detail by early the following week. On the same date, 16 September 2020, Mr Hou’s solicitor confirmed that he had instructions to escalate to litigation and would be instructing a civil litigator to prepare proceedings.

[36]   Mr Zhang’s evidence is that there were then without prejudice communications between the parties.

[37]   On 2 August 2022, a barrister instructed by Mr Hou, Matt Taylor, wrote to Mr Zhang’s solicitor acknowledging that the PSA was not particularly well drafted but none the less included terms for buy-out or selling on the open market. He said that after reviewing the various correspondence between the parties, it was clear the buy- out clause had not been complied with and Mr Hou now wished to have the property sold pursuant to cl 8.1.2 of the PSA. The letter asked Mr Zhang’s solicitor to confirm by 16 August 2022 that Mr Zhang agreed to the sale of the property on the open market and that Mr Zhang would comply with his obligations under the PSA and take all steps reasonably necessary to facilitate the sale. There is no response to this letter in evidence.

[38]   These proceedings were filed on 8 December 2022 together with the application for summary judgment.

Issues

[39]The issues are:

(a)Do evidential issues require the plaintiff’s evidence to be struck out?

(b)Is the PSA binding on the parties?

(c)Is it reasonably arguable that there was a variation to the PSA?

(d)Can the plaintiff rely on the failure to comply with the terms of the buy-out clause in seeking specific performance of clause 8?

(e)Is it reasonably arguable that Mr Zhang or Tamaki have a counterclaim that ought to prevent summary judgment?

Do evidential issues require the plaintiff’s evidence to be struck out?

[40]   The defendants’ notice of opposition records that no evidence has been filed in support of the plaintiff’s application as:

(a)The plaintiff is Chinese and speaks no, or virtually no, English.

(b)The plaintiff resides in China, was in China when his affidavit was prepared, and is still in China.

(c)The plaintiff’s affidavit has been prepared in English and not in Chinese.

(d)The plaintiff’s affidavit does not contain any statement that it has been read to him by someone fluent in Mandarin Chinese and English.

(e)The plaintiff’s affidavit does not state that he understands the contents of his affidavit.

(f)The affidavit is not dated except on the cover sheet.

(g)The affidavit has not been witnessed.

(h)The affidavit contains exhibit notes which have not been dated or witnessed.

(i)Even if it had been witnessed in its current form, the affidavit would not be compliant as it contains no statement that the witness is authorised by the laws of China to administer oaths.

(j)The defects in the affidavit are not capable of remedy and it is contrary to the principles of the summary judgment procedure to allow the plaintiff at this juncture to produce evidence when no admissible or compliant evidence was filed or served at the outset.

(k)Even if the affidavit were to be witnessed in a compliant form at this juncture there is no evidence that the plaintiff read or understood his affidavit at the time it was filed.

(l)Should the plaintiff be granted leave to have the affidavit witnessed in its current form, the defendants will seek leave to cross examine the plaintiff, in English, without an interpreter, as to his understanding of it when he filed it.

[41]   The notice of opposition records that the plaintiff’s application should be dismissed on the above grounds alone.

[42]   The plaintiff appeared to take no steps in response to the issues raised in the notice of opposition.

[43]   On 6 June 2023 the defendants requested that the matter be called in the duty judge list to strike out the summary judgment application and vacate the summary judgment hearing. Counsel for the plaintiff filed a memorandum in reply on 7 June 2023 referring to the late filing of the defendants’ notice of opposition and affidavits in support and advising that this had caused issues and delays with the preparation of reply evidence by the plaintiff who is based in China. The plaintiff’s memorandum recorded that the reply affidavit was finalised and with the plaintiff for affirmation. An unsworn version of the reply affidavit was attached to the plaintiff’s memorandum, both in English and Mandarin.

[44]   The plaintiff’s memorandum further confirmed the plaintiff’s position that his affidavit was in an acceptable form and had been witnessed by a notary public in China who received the plaintiff’s oath in accordance with the laws of China. Out of an abundance of caution, the memorandum confirmed that the plaintiff was re-swearing his original affidavit in Mandarin, with the Mandarin version (excluding annexures) attached to the memorandum. Counsel confirmed that after the plaintiff had executed the affidavits, a translator would also swear an affidavit confirming that the English version is a correct translation of the Mandarin version.

[45]   Justice Venning, by minute dated 8 June 2023, held that while he understood counsel for the defendants’ point, it was readily addressed by the usual practice of filing an affidavit from an interpreter confirming that they had read the affidavit to the deponent in their language and that the deponent confirmed the contents of their affidavit to be true and correct. The minute further recorded that the affidavit of the interpreter and the deponent must also, if sworn overseas, comply with r 9.86 of the HCR. Leave was then granted to the plaintiff to file and serve such affidavits by 15 June 2023. Venning J considered that there was no prejudice to the defendants in granting leave as the defendants were well aware of the case they had to meet from the material already filed and served.

[46]   The defendants’ application for an order under r 7.28 for cross-examination of the plaintiff was declined. The Judge explained that cross-examination on a summary judgment application is only allowed in very limited cases. This was not such a case because Mr Ussher wanted to explore whether the plaintiff understood his original affidavit but that issue would be addressed by filing the replacement affidavit. His Honour then recorded that “provided the plaintiff files and serves the affidavits referred to above by 15 June 2023 the application will proceed to fixture on 26 June 2023”.

[47]   The defendants submit that the evidence filed by the plaintiff on 15 June 2023 remains non-compliant. They point to a number of issues, including the jurat not being initialled as required by r 9.76(4); the English translation of the notarial certificate attached to the affidavit not being certified; and the exhibit notes not being translated from Chinese.

[48]   Furthermore, the defendants submit the plaintiff failed to follow Venning J’s directions as the translator’s affidavit deposes only that they translated the plaintiff’s evidence into English. The defendants submit this is misleading as it suggests the plaintiff’s affidavits were in Chinese and that the translator translated them into English when this is obviously not the case. Counsel for the defendants further submits that the fact that the reply affidavit refers to the affidavit being in “Mandarin” (as opposed to Chinese which counsel submits is the correct term for the written form) clearly shows the affidavit was drafted by his lawyer and not even checked by the plaintiff.

[49]   The defendants submit that the issues they raise are not just technicalities but instead go to the integrity and reliability of the evidence. Counsel for the defendants acknowledges that the court is always reluctant to put form over substance but submits there must come a point where if a party chooses to ignore applicable evidential rules, and even the directions of a judge directed at remedying the defects, that party’s evidence ought to be rejected.

[50]   I agree that it is important for the rules of evidence to be complied with and that more effort could have been made in this case. In the end however, and as the Judge noted in his minute, the defendants, despite the evidential issues, are well aware of the case they have to meet from the material filed and served. The affidavits filed on behalf of both parties attach contemporaneous documents and correspondence in respect of which no issues as to authenticity have been raised.

[51]   In addition, the reply affidavit of Mr Hou expressly records that the defendants have taken issue with the supporting affidavit, including that it was not executed in Chinese nor witnessed correctly. Mr Hou then deposes that in order to ensure there is no issue he has re-sworn the supporting affidavit in Mandarin and a translator has provided an affidavit in both Mandarin and English and has certified the translation. The translator, Ailung Gu, has then confirmed that the English version of the reply affidavit in Chinese is a true and correct translation.

[52]   Although the defendant submits that the reply affidavit of Mr Hou must have been prepared in English by Mr Hou’s lawyer first before being translated into

Chinese—and, therefore, in breach of the requirements in s 83(2)(a) of the Evidence Act 2006 and r 9.7(4)(b) of the HCR that an affidavit/brief of evidence be in the words of the deponent/witness—there is no evidence that this is the case.

[53]   The critical issues between the parties relate to whether the PSA is binding on the parties, whether there was a variation to the PSA and whether the defendants have a counterclaim that ought to prevent summary judgment. Significant contemporaneous documentary evidence has been annexed to both Mr Hou’s and Mr Zhang’s affidavits. No issues have been raised with the authenticity of any of those documents.

[54]   Furthermore, the defendants did not suggest following the further evidence filed by the plaintiff on 15 June 2023 that the hearing ought not to proceed on 26 June 2023.

[55]   In all of these circumstances I do not consider it would be consistent with the overriding objective of the HCR, as set out in r 1.2, to secure the just, speedy and inexpensive determination of any proceeding or interlocutory application for the plaintiff’s evidence to be struck out.

Is the PSA binding on the parties?

[56]   This question can be answered relatively briefly. The PSA was provided by the first defendant, Mr Zhang, to Mr Hou. There is some dispute as to whether Mr Zhang, or the lawyer, Mr Tao. However, this dispute does not affect the fact that both parties agree they signed it after Mr Tao had explained the agreement to them, although Mr Zhang’s evidence is that the explanation was not thorough.

[57]   There are clearly issues with aspects of the agreement as some clauses refer to the parties living together and providing for each other under their respective wills. Despite this I do not consider these issues mean the agreement is not binding on the parties. As will be clear from the factual background set out above, the parties clearly referred to the agreement as setting out the process for buy-out and Mr Zhang’s lawyer accepted that notice was given by Mr Hou in terms of the PSA without raising any issue as to it being binding on the parties.

[58]The plaintiff seeks specific performance of cl 8 and so I set it out in full:

8.Sale to Third Parties

8.1Circumstances Requiring Sale: If:

8.1.1Agreement: both parties agree to sell the property; or

8.1.2Failure to Exercise Option: the option granted under section 7 is not exercised;

the Property will be placed on the open market for sale at the best price and on the most favourable terms likely to result in the sale of the Property within a reasonable time. Both parties must take all reasonable steps to facilitate the sale of the Property.

8.2Sale Price: The minimum price at which the Property will be sold under clause 8.1 is the current market value of the value of the Property as agreed between the parties or if the parties cannot agree within one month, then as determined under section 9.

8.3Sale Proceeds: The proceeds of sale of the Property must be applied as follows:

8.3.1Repayment of Mortgage: first, to repayment of the principal, interest and other money secured by the Mortgage;

8.3.2Real Estate Agent’s Commission: second, to payment of any real estate agent’s commission relating to the sale;

8.3.3Legal Fees and Expenses: third, to payment of the legal fees and expenses relating to the sale;

8.3.4Valuer’s Fees: fourth, to payment of the fees of any independent registered valuer appointed under section 9; and

8.3.5Balance: the balance will be divided in apportion of shares between the parties, but the amount of each party’s share will be adjusted to take into account any money owing by that party under this agreement.

[59]   Clause 8.3.5 provides for division of the proceeds after taking into account any money owing by that party under the agreement. If there is any dispute between the parties as to how the balance is to be applied, the parties can return to Court. I adjourn that part of the summary judgment application to protect the parties’ rights in that regard as discussed further below.

[60]   The defendant’s evidence includes details in relation to a number of other transactions between the parties in relation to other properties but the submissions made did not rely on those other transactions as a basis for the PSA not being binding.

[61]   In these circumstances I do not consider there is a reasonably arguable defence that the PSA is not binding on the parties in terms of the buy-out and exit clauses (clauses 7, 8 and 9).

Is it reasonably arguable that there was a variation to the PSA?

[62]   Mr Zhang’s evidence is that the PSA was varied so that the plaintiff would quit the project and be paid out only his original contribution of $1.1 million. The relevant messages exchanged on WeChat show:

(a)9 April 2020:

(i)Mr Hou messages and says:

“… I’ve decided to withdraw! I don’t want to get involved in these any longer, and don’t want to guess who is lying… You pay me back the 1.1 million at your convenient time. It’s not very urgent, but it’s better to give me a deadline…”

(ii)Mr Zhang replies and says:

“…No problem. I’ll arrange it. Give me some time, and then I’ll tell you the deadline.”

(b)10 April 2020:

(i)Mr Zhang says he has contacted his bank manager but it’s a public holiday. He says he will get the documents ready and when they go back to work his bank manager will help him apply at the bank. “Then I will be able to tell the specific repayment date.”

(c)17 April 2020:

(i)Mr Zhang says his bank manager has replied and cannot guarantee a date. Mr Zhang says speaking from experience it could be mid or late August unless the pandemic repeats.

(ii)Mr Hou replies and says mid to late August will be too late because he needs the money to buy sections.

(iii)Mr Zhang says he cannot do anything about it.

(iv)Mr Hou replies and says by August his $1.1 million will have been tied up for a year. Mr Hou asks that Mr Zhang try to repay before the end of August, and says he think this is the final deadline he can accept.

(v)        Mr Zhang says okay, he understands. (d) 14 May 2020:

(i)Mr Hou asks that they prepare a loan contract to replace the PSA. Mr Hou says he has contacted Mr Tao to draft a contract, and Mr Zhang can arrange a lawyer to witness his signature.

(ii)Mr Zhang asks where he can find a different lawyer to Mr Tao. Mr Hou replies and says he will find a new lawyer to draft the contract and Mr Zhang can use Mr Tao to witness his signature.

(iii)Mr Hou says that he is settling on another property in September, and therefore requires the funds to be repaid by then, otherwise he will need further compensation.

(iv)Mr Hou then confirms that Mr Tao cannot act for either party and says Mr Zhang should find a lawyer to witness his signature and he will find a lawyer to draft the contract.

(v)Mr Zhang tells Mr Hou to draft the contract, that he will read it, and if there are questions, he will seek a lawyer to advise.

(vi)Mr Hou replies to tell Mr Zhang that, regardless, a lawyer will need to witness Mr Zhang’s signature. Mr Zhang confirms that he knows this.

(e)       19 May 2020:

(i)Mr Zhang says that he has consulted a lawyer and is prepared to sign a new contract with terms such as repayment times. He asks Mr Hou to arrange a lawyer to draft the contract.

(ii)Mr Hou asks if Mr Zhang can repay half of the funds initially, with the balance in August. Mr Zhang says he understands and again asks for a contract to be drafted. Mr Zhang says the funds must be paid through a lawyer and that there must be a signed contract.

(iii)Mr Hou then says that if Mr Zhang repays the full $1.1 million, there will be no need for a new contract. Mr Zhang replies and says that there must be a contract and that the money would be paid through a lawyer’s trust account, and that he will pay

$550,000 to Mr Hou first.

(iv)Mr Hou next comments:

How to say it. You are only considering that you need to pay interest when borrowing usury. Let’s leave aside the several hundred thousand gained due to the rise of value of the section. Am I lending you the money without interest?

(v)Mr Hou then refers to the withdrawal terms under the PSA and says:

The worst consequence is the Property would be frozen and at the end wait for either [Mr Zhang] or [Mr Hou] to receive it or an auction.

(vi)Mr Zhang replies and tells Mr Hou to find a lawyer and sue him.

(vii)Mr Hou replies asking Mr Zhang whether he has thought it over before saying that, referring to earlier messages sent.

(viii)Mr Zhang says he has been cooperating all the time.

(ix)Mr Hou says he “doesn’t care if Mr Zhang has been cooperating if Mr Zhang wants to dispute with [him].” He points out how his money is held by Mr Zhang and the section by Mr Zhang’s company.

(x)Mr Zhang says it is Mr Hou who is tossing it round and round.

(xi)Mr Hou questions this and Mr Zhang then says “what I’m doing now is to pay you back so you won’t feel worried.”

(xii)Mr Hou then asks:

“Is the one you let Lawyer TAO write before a waste paper?”

(xiii)Mr Zhang replies:

What I say doesn’t count. You consult a lawyer. I learnt a sentence today: protect your neighbours is protect yourself.

(f)9 June 2020:

(i)Mr Hou’s solicitor sends an email saying Mr Hou gives written notice to Mr Zhang that he wishes to dispose of his interest in the property pursuant to cl 7 of the PSA and asks Mr Zhang’s solicitor to confirm that the email is sufficient notice under cl 7.

(g)       10 June 2020:

(i)Mr Zhang’s solicitor confirms that Mr Zhang accepts the email as notice pursuant to cl 7 of the PSA and asks for Mr Hou’s

solicitor to indicate what figure Mr Hou would be looking for if Mr Zhang were to buy him out.

[63]   In these circumstances I consider there is no reasonably arguable defence that the PSA was varied. The messages clearly show that the parties were proceeding on the basis that the exit provisions in the PSA remained operative. Although the plaintiff might have suggested he would agree to exit the agreement after repayment of $1.1 million, the details were never agreed. When Mr Hou asked Mr Zhang whether the PSA was a waste of paper Mr Zhang did not reply “but we have varied the agreement”. Instead Mr Zhang suggested that Mr Hou ask his lawyer. The defendants’ solicitor then accepted the email from the plaintiff’s solicitor as notice under cl 7 of the PSA and asked Mr Hou to indicate a figure that Mr Hou would accept, again consistent with the buy-out clause in the PSA.

[64]   When asked in the hearing how the acceptance of the cl 7 notice by Mr Zhang’s solicitor fitted with the defendants’ position that the PSA had been varied, counsel for the defendants submitted that the parties went back to the PSA at that point but that the parties then quickly moved on from the terms of the PSA.

[65]   From the correspondence, it is clear that Mr Hou did agree to depart from the timelines required by cl 7 when Mr Hou agreed to Mr Zhang obtaining a valuation.

[66]   However, following receipt of the valuation, on 30 July 2020, the plaintiff’s lawyer wrote to the defendants’ lawyers recording that the plaintiff considered Seagars’ valuation to be too low and one option might be for the plaintiff to buy out Mr Zhang. This step is expressly provided for in cl 7.3 of the PSA. The email recorded that Mr Hou’s solicitor was still endeavouring to “tie down [the plaintiff’s] instructions” but the plaintiff’s solicitor still asked for a response to that suggestion. No response appears in the evidence.

[67]   So, although the parties may have agreed to vary the time period allowed, I do not consider that it is reasonably arguable they agreed to vary the exit terms of the PSA.

[68]   Furthermore, the fact that the parties jointly shared the cost of employing Seagars but Mr Hou did not accept the valuation does not mean that there is a failure to comply with cl 7 by the plaintiff. This is because cl 9 of the PSA, which provides for a valuation by a valuer, expressly only refers to cl 7.3 (second option to purchase, following failure to agree on price, here by the plaintiff) and not cl 7.2 (first option to purchase upon receipt of a sale notice from the plaintiff - here by the defendant). Therefore there appears to be no obligation in the PSA for Mr Hou to accept the valuation provided by Mr Zhang.

[69]   I conclude therefore that it is not reasonably arguable that the terms of the PSA were varied to simply require repayment of $1.1 million by Mr Zhang and nor do the arrangements in relation to the obtaining of a valuation by Mr Hou signify a departure from the PSA’s buy-out and exit terms.

Can the plaintiff rely on the failure to comply with the buy-out clause in seeking specific performance of clause 8?

[70]   The plaintiff’s position is that the buy-out clauses have not been exercised within the required timeframes and therefore the sale process under cl 8 of the PSA is triggered. The defendants submit in response that the joint agreement to depart from the terms of the buy-out clause means that there can be no reliance on the failure to exercise the buy-out clauses within the required timeframes. The defendants say that the plaintiff insisted on a particular valuer being engaged but then rejected the valuation. The defendants submit at that juncture the parties clearly departed, mutually, from the agreement.

[71]   I have considered whether it would instead be appropriate for any order for specific performance to require compliance with cl 7 first, prior to compliance with cl 8. However, the failure to respond to the suggestion that Mr Hou buy out Mr Zhang, given Mr Hou did not accept the price offered by Mr Zhang, is in my view sufficient to approach the matter on the basis that rights under cl 7 have been exhausted.

[72]   This view is supported by the attempts to settle between the parties. If an agreement could have been reached that one would purchase the property from the other, then it is likely to have happened by now. Furthermore, any order to specifically

perform cl 8 of the PSA would not prevent the parties instead agreeing to settle on the basis that one or the other purchase the property rather than it being sold in accordance with cl 8.

Is it reasonably arguable that Mr Zhang or Tamaki have a counterclaim that ought to prevent summary judgment?

[73]   As summary judgment is now being sought only for specific performance of cl 8 and not the division of the proceeds, I do not consider that any of the potential counterclaims raised prevent summary judgment in part being granted. The counterclaims are for:

(a)expenses incurred;

(b)potential breaches of the Fair Trading Act 1986 (FTA); and

(c)quantum meruit for services performed.

[74]   The first and the third of the counterclaims relate to the division of proceeds rather than the exit clauses themselves. Counsel for Mr Hou says he does not take issue with the defendants accounting for expenses genuinely incurred and provable by reference to third party invoices, provided that account is also made for income.

[75]    The second counterclaim raised is for potential breaches of the FTA. Counsel did not explain this counterclaim in any detail and accepted that it would be “a bit of a stretch”. In these circumstances I do not consider that it ought to prevent summary judgment as now sought.

What are the appropriate orders?

[76]   The plaintiff seeks an order for specific performance requiring Mr Zhang to comply with his obligations under cl 8 of the PSA. The terms of the order are however modified from those set out in cl 8 in three ways:

(a)allowing one month within which the parties are to attempt to agree a minimum price as provided for in cl 8.2;

(b)adding a requirement to instruct an independent solicitor to undertake the legal services required to convey the property; and

(c)requiring the proceeds of sale to be paid into, and held in, the trust account of the independent solicitor as a stakeholder pending order of the Court.

[77]   It is not appropriate for the orders for specific performance to alter the terms of the contract. Given the proceeds of the sale  must be applied in accordance with  cl 8.3 and I am adjourning the part of the summary judgment application that relates to the division of proceeds, I consider it is appropriate to include an order that the proceeds of sale are to be held in the independent solicitor’s trust account pending further order of the Court.

Costs

[78]   The defendants seek costs on an indemnity basis irrespective of the outcome because of the issues with the plaintiff’s evidence. Although the plaintiff has succeeded, I agree on a preliminary basis that it may be appropriate for there to be some reduction in costs as a result of those issues. The defendants were left with little option but to bring these issues to the attention of the court when the plaintiff did not appear to take any steps in response to the defendants’ notice of opposition. This step would have resulted in extra legal costs for the defendants.

[79]   I ask the parties to confer taking the above comments into consideration and try to agree costs. If agreement cannot be reached the parties are to include proposed directions for determining costs in the joint memorandum filed in relation to the division of proceeds below in paragraph [81(b)].

Result

[80]   The part of the plaintiff’s application for summary judgment seeking specific performance requiring the parties to comply with cl 8 of the PSA is granted subject to the following orders:

(a)the parties are to instruct an independent solicitor to undertake the legal services required to convey the property; and

(b)the proceeds of sale are to be paid into, and held in, the trust account of the independent solicitor instructed in (a) above as a stakeholder pending further order of the Court.

[81]   The part of the plaintiff’s application for summary judgment for division of the proceeds from the sale of the Property is adjourned until either:

(a)a joint memorandum is filed with the Court confirming that agreement has been reached between the parties and seeking consent orders in relation to the distribution and release of the sale proceeds; or

(b)failing agreement, the parties file a joint memorandum proposing directions for the determination of the summary judgment application for division of the proceeds of sale.

Associate Judge Sussock