Ji v Ding
[2023] NZHC 2730
•29 September 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-001468
[2023] NZHC 2730
BETWEEN WENJUN (RENEE) JI
Plaintiff
AND
ZHAOHAI DING
Defendant
Hearing: 26 September 2023 Appearances:
G Kohler KC for the Plaintiff
No appearance for the Defendant
Date of Judgment:
29 September 2023
JUDGMENT OF ASSOCIATE JUDGE BRITTAIN
This judgment was delivered by me on 29 September 2023 at 12 midday.
Pursuant to Rule 11.5 of the High Court Rules.
…………………..
Registrar/Deputy Registrar
Solicitors:
Connell & Connell, Auckland K3 Legal, Auckland
Counsel:
Shortland Street Chambers, Auckland
JI v DING [2023] NZHC 2730 [29 September 2023]
Introduction
[1] The plaintiff, Ms Ji, and Annecy Holdings Limited (Annecy), were parties to an agreement for sale and purchase of a property at 389 Dominion Road, Mt Eden (the property), dated 30 April 2022 (the contract). Annecy was the vendor and Ms Ji was the purchaser.
[2] The purchase price was $2.9 million. Ms Ji paid a deposit of $1.3m, and on 1 June 2022, an instalment of purchase price of $1 million. The balance of $600,000 was due on the settlement date of 28 October 2022.
[3] On 28 October 2022, Annecy’s solicitor sent an email to Ms Ji’s solicitor, which stated:
Unfortunately our company does not have sufficient funds to discharge the mortgage at the moment, thus not in a position to settle today. We understand that the finance company will sell the property by tender in the upcoming weeks. If the property can be sold at a reasonable price, we might be able to repay part of the deposit back to the purchaser. At the same time, we will try our best to raise fund to repay the purchaser.
[4] Annecy was unable to settle the contract, because Annecy was unable to discharge a mortgage registered over the property in favour of a financier, Loan Investment Trustees Limited (the mortgage). Consequently, Annecy defaulted in performance of its obligations under the contract.
[5] Ms Ji served a settlement notice, which was not satisfied, and then cancelled the contract. The property has since been sold by the mortgagee. Annecy has not refunded the deposit and instalment of price.
[6] On Ms Ji’s application, Annecy was put into liquidation on 21 April 2023. The liquidator’s initial report (the liquidator’s report) confirms that there will be no distribution to Ms Ji as a creditor of Annecy. Ms Ji is the only party to lodge an unsecured creditor’s claim.
[7] The defendant, Zhaohai Ding (Mr Ding) was at all material times the sole director of Annecy. In this proceeding, Ms Ji seeks an order under s 301 of the Companies Act 1993 (the Act) requiring Mr Ding to pay $2.3 million plus interest to
Ms Ji in her capacity as a creditor of Annecy, on the grounds that Mr Ding breached his duties under ss 135 and 136 of the Act. Ms Ji has applied for summary judgment.
Procedure
[8] Mr Ding was personally served with the proceeding, including the application for summary judgment and supporting affidavit of Ms Ji affirmed on 30 June 2023, on 1 August 2023.
[9] The application for summary judgment was called in Court on 12 September 2023. Mr Shanahan-Pinker appeared for the defendant. The defendant had not filed a notice of opposition. Johnstone J directed that Mr Ding was to file and serve his notice of opposition and any affidavits in support before the next call of the matter on 26 September 2023 at 9 am.
[10] Mr Ding failed to comply with that direction. When this matter was called on 26 September 2023 at 9 am, there was no appearance by or on behalf of Mr Ding. Accordingly, the plaintiff sought judgment.
The relevant provisions of the Act
[11]The relevant sections of the Act are:
135Reckless trading
A director of a company must not—
(a)agree to the business of the company being carried on in a manner likely to create a substantial risk of serious loss to the company’s creditors; or
(b)cause or allow the business of the company to be carried on in a manner likely to create a substantial risk of serious loss to the company’s creditors.
136Duty in relation to obligations
A director of a company must not agree to the company incurring an obligation unless the director believes at that time on reasonable grounds that the company will be able to perform the obligation when it is required to do so.
301 Power of court to require persons to repay money or return property
(1)If, in the course of the liquidation of a company, it appears to the court that a person who has taken part in the formation or promotion of the company, or a past or present director, manager, administrator, liquidator, or receiver of the company, has misapplied, or retained, or become liable or accountable for, money or property of the company, or been guilty of negligence, default, or breach of duty or trust in relation to the company, the court may, on the application of the liquidator or a creditor or shareholder,—
(a)inquire into the conduct of the promoter, director, manager, administrator, liquidator, or receiver; and
(b)order that person—
(i)to repay or restore the money or property or any part of it with interest at a rate the court thinks just; or
(ii)to contribute such sum to the assets of the company by way of compensation as the court thinks just; or
(c)where the application is made by a creditor, order that person to pay or transfer the money or property or any part of it with interest at a rate the court thinks just to the creditor.
(2)This section has effect even though the conduct may constitute an offence.
(3)An order for payment of money under this section is deemed to be a final judgment within the meaning of section 17(1)(a) of the Insolvency Act 2006.
(4)In making an order under subsection (1) against a past or present director, the court must, where relevant, take into account any action that person took for the appointment of an administrator to the company under Part 15A.
[12] In Yan v Mainzeal Property and Construction Ltd (in liquidation)1, the Supreme Court confirmed that s 301 allows for a direct claim by creditors against a company director for breaches of ss135 and 136, for losses that they have suffered as a result of those breaches.2
[13] An objective approach is taken in determining whether the business of the company was carried on in a manner prohibited by s 135.3 The Court should consider
1 In Yan v Mainzeal Property and Construction Ltd (in liq) [2023] NZSC 113.
2 Above at [163].
3 Above at [211].
the facts and circumstances which the director was aware of, or should have been aware of if exercising appropriate care.
[14] Under s 136, a director ought not to commit a company to obligations unless confident on reasonable grounds that the obligations will be honoured.4 Section 136 is not confined to obligations of a particular kind, and may be invoked in relation to a course of trading.5
[15] Directors have a continuing obligation to monitor the performance and prospects of their company. Directors should squarely address the future of the company if by reason of the company’s solvency position there is doubt as to whether there is a continuing reasonable basis for belief that obligations to be incurred will be able to be honoured.6
[16] Section 301 permits a flexible remedial response for breach of ss 135 and 136, responding to the facts of particular cases.7
[17] Although the duty under s 136 is owed by a director to the company, the purpose of s 136 is creditor protection. Relief may be calculated by reference to the losses to a creditor or creditors.8 In Yan, the Supreme Court said:
So, the wording is consistent with the view that the damage for which compensation should be available under s 136 is the incurring of obligations that were not met and that such damage is most logically measured by the deficiency in respect of those obligations.9
Discussion
[18] Annecy acquired the property on 15 December 2021. The mortgage was registered on the same date.
4 At [244].
5 At [249].
6 At [270].
7 At [351].
8 At [242] and [296].
9 At [291].
[19] The liquidator’s report confirms that Annecy was in the business of investing in residential property. The property was its only investment at the material time. Annecy had previously owned 12 other properties, all disposed of.
[20] On 19 July 2022, the mortgagee served a notice on Annecy under s 119 of the Property Law Act 2007, which records that the term of the loan had expired on 15 June 2022, and the amount due to be paid was $2,869,249.68.
[21] The liquidator’s report confirms that the debt owed to the mortgagee increased to $379,023.53, and the proceeds from the mortgagee sale available to discharge that debt were $2,930,677.82.
[22] I am satisfied that the plaintiff has adduced sufficient evidence to prove that Mr Ding caused the business of Annecy to be carried out in a manner likely to create a substantial risk of serious loss to the company’s creditors, including Ms Ji, in breach of s 135 of the Act.
[23] In particular, Mr Ding allowed Annecy to receive $2.3 million of the purchase price from Ms Ji without applying those payments towards discharge of the mortgage, which would be required if Annecy was to complete settlement and convey clear title to the property to Ms Ji.
[24] Mr Ding knew, or ought to have known, that Annecy would be unable to perform the obligations owed to Ms Ji under the contract. In` breach of s 136 of the Act, there was no basis for Mr Ding to hold a belief on reasonable grounds that Annecy would be able to perform its obligation to convey clear title to the property to Ms Ji when it was required to do so.
[25] Accordingly, plaintiff’s is entitled to summary judgment. I enter judgment for the plaintiff against the defendant for the following:
(a)$2.3 million dollars;
(b)interest on the sum of $1.3 million dollars pursuant to the Interest on Money Claims Act 2016 from 30 April 2022 to the date of payment;
(c)interest on the sum of $1 million dollars pursuant to the Interest on Money Claims Act 2016 from 1 June 2022 to the date of payment;
(d)costs on a 2B basis, together with disbursements, as fixed by the Registrar.
Associate Judge Brittain
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