Jiang v Liu

[2021] NZHC 1313

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-2031

[2021] NZHC 1313

IN THE MATTER OF

the specific performance of a separation agreement, especially as it pertains to
L & G Kingsland Limited

BETWEEN

SHUNING (JANE) JIANG

Plaintiff

AND

SONG (LAWSON) LIU

First Defendant

L & G KINGSLAND LIMITED

Second Defendant

Hearing:

3 March 2021

Counsel:

R S Pidgeon for plaintiff

No appearance for defendants

Judgment:

4 June 2021

JUDGMENT OF TOOGOOD J

This judgment was delivered by me on 4 June 2021 at 11.00am, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Solicitors:
Ku & Partners, Auckland for plaintiff

JIANG v LIU [2021] NZHC 1313 [4 June 2021]

Background

[1]    Shuning (Jane) Jiang and Song (Lawson) Liu separated in September 2016 after a marriage of around five years. Ms Jiang now lives in China with the couple’s son, Zachary Liu, aged eight years.

[2]    Mr Liu is a director/shareholder of the second defendant, L & G Kingsland Limited (the company), which owns and operates a Gull service station.

[3]    On 30 May 2018, Ms Jiang and Mr Liu executed a separation agreement (the agreement), the express purpose of which was “to regulate their rights, entitlements and interests in respect of each of their separate property, the property acquired during their relationship and their child care arrangement”. The background to the agreement recorded that, to the extent necessary to achieve those objectives, the parties wished to contract out of the provisions of the Property (Relationships) Act 1976 (the Act). Importantly for the purposes of this proceeding, the agreement provided for the division of relationship property, including the following clause:

5        Gull Kingsland

Lawson has 54% and Jane has 1% shares in L & G Kingsland Limited who owns and operates the business Gull Kingsland service station. Parties agree and acknowledge that their combined 55% shares are relationship property and Lawson will account for Jane’s beneficial interest at 27.5%.

[4]    The agreement was executed in accordance with the provisions of s 21 of the Act with the solicitors witnessing the parties’ signatures on the document certifying that before their respective clients signed the agreement the solicitor explained the effect and implications of the agreement to the client.

Enforcement

[5]    Ms Jiang applies for specific performance of cl 5 of the agreement. The relief sought in the statement of claim, amended by Mr Pidgeon at the hearing, was as follows:

1.That the first respondent is liable to:

(a)pay a fair and reasonable amount to the plaintiff pursuant to clause 5 of the Separation Agreement with the quantum to be determined:

(i)by the appointment of a neutral valuer to undertake a valuation as at 30 May 2018 and the present day, with a final valuation to be determined in the interests of justice between those two dates;

(ii)An order directing that L & G Kingsland Limited (5720829) record 27.5 shares on its publicly accessible share register for each of the applicant and the first respondent;

(iii)An order that the first respondent is liable to specifically perform Clause 5 of the Separation Agreement dated 30 May 2018 (annexed to the Statement of Claim in this matter dated 27 October 2020) between the applicant and the first respondent;

(iv)An order that the First Defendant pay the Plaintiff the agreed sum based on the valuation directed by the Court.

2.An order that the parties are to agree on a valuer to undertake the valuation as per (a) of the prayer for relief of the Statement of Claim dated 27 October 2020, failing which, the Court will appoint a valuer from the one or more nominated by the parties, at the next call of the matter, being at a Duty Judge List 6 weeks after the delivery of the decision in this application.

3.An order that the solicitor for the applicant is directed to file this order directly with the Registrar of Companies to effect the registration of the adjusted shareholding; and the first and second respondents are not to impede that process.

4.The interim orders made 30 October 2020 (“interim orders”) and adjourned to the hearing of the formal proof application are varied in this way:

(a)Clause 3(a) of the interim orders is amended to hold that “the transfer of 26.5 shares in the first respondent’s name will be transferred to the applicant (added to her existing 1 share in the second respondent) and thereafter no further transfers are to occur until further order of the Court, to enable the shares to be values [sic] as contemplated in clause 5 of the Separation Agreement”.

(b)Clause 3(b) is to hold that the interim orders are to continue until the next call of the matter in approximately 6 weeks.

(c)Clause 3(c) remains as is: The Defendants have leave to come back to the Court to have this interim order set aside/varied.

5.The first respondent is liable to the applicant for 2B costs in the sum of $11,279.83.

[6]    On 29 October 2020, Whata J made an interim order preventing Mr Liu and the company from transferring the shareholding in the company. The order applied to Ms Jiang’s one share in the company and to the 54 shares owned by Mr Liu. The application for injunction was made without notice in support of a substantive application for specific performance of cl 5 of the agreement. A summary judgment application had been filed at the same time as the statement of claim, on the grounds that Mr Liu had no arguable defence to the claims.

[7]    Whata J directed that the substantive proceeding should be served on both  Mr Liu and the company. Personal service on Mr Liu was effected on 5 November 2020, both in his personal capacity and as a director of the company. Neither Mr Liu nor the company has taken any step in the proceeding since they were served.

Formal proof – what needs to be done?

[8]    The matter was set down for a formal proof hearing before me. Mr Pidgeon acknowledged that the provision in cl 5 of the agreement requiring Mr Liu to “account for [Ms Jiang’s] beneficial interest at 27.5%” was somewhat vague. He suggested, however, that the defendants had not taken any step that would indicate they disagreed with the proposition in the statement of claim that Mr Liu should “pay a fair and reasonable amount” to Ms Jiang under cl 5 of the agreement to account for her beneficial interest.

[9]    Clause 5 imposes on Mr Liu an obligation to take a positive step to give effect to his recognition in the agreement that Ms Jiang has beneficial ownership of half of the 55 per cent shareholding in the company that was acknowledged to be relationship property. It is arguable that the obligation included making payments from time to time of the equivalent of any dividends paid or payable in respect of that shareholding, but Ms Jiang does not seek such a remedy. It is implicit in the wording of the agreement that the accounting for Ms Jiang’s share should be done within a reasonable time after the agreement was signed. A delay of more than two years is unreasonable. I am satisfied that Mr Liu is in breach of the contractual obligation to account for

Ms Jiang’s shareholding.    By s 21L(1) of the Act, the remedies available for the enforcement of contracts may be used by Ms Jiang to enforce the agreement.

[10]   The intent of the parties that may be inferred from the agreement is that Mr Liu was to retain the joint shareholding in the company and that Ms Jiang was to be paid out. But, since Ms Jiang holds a one per cent share in the company, it would not sufficiently meet the parties’ intention if an award of damages equivalent to the value of a 27.5 per cent interest in the company was made without more. Ms Jiang must relinquish her shareholding in exchange for the compensatory payment.

[11]   I am satisfied, therefore, that damages would not be an adequate remedy and that Ms Jiang is entitled to an order for specific performance.1 After considering the practicalities of giving effect to the agreement, however, I was concerned that some elements of the draft orders sought by Mr Pidgeon would be unworkable in the absence of proactive co-operation between the parties.

The nature of the orders

[12]   I received further submissions from Mr Pidgeon, as a result of which counsel sought leave to amend the claim for relief to provide that:

Wherefore the plaintiff claims:

(1)Orders that in terms of clause 5 of the Separation Agreement outlined in the Statement of Claim dated 27 October 2020 (a) the plaintiff is entitled to the cash value equivalent to her beneficial interest in

27.5 shares of the second defendant company (as presently held by the first defendant as to 26.5 shares and the plaintiff as to 1 share); and

(b) the first defendant will transfer to the plaintiff’s solicitor’s trust account (i.e.: Ku & Associates) the sum equivalent to the plaintiff’s beneficial interest in the 27.5 shares (the “Shares”) within 15 working days of the Court confirming the value of the plaintiff’s beneficial interest in the Shares; and

(2)The Court appoints Matthew Kemp (expert valuer) to undertake a valuation of the Shares, with a view to providing his opinion as to the current value and that (a) When Mr Kemp files this report in the Court, (as soon as practicably possible), that he provides a copy to the plaintiff and (b) Mr Pidgeon is to serve a copy of said report of     Mr Kemp on the first defendant as soon as he is served with a copy of the report; and

1      Loan Investment Corporation of Australasia v Bonner [1969] UKPC 33, [1970] NZLR 724.

(3)An order that the first defendant forthwith provides the following information to Mr Matthew Kemp:

a.Financial statements for the second defendant for the last four years.

b.It would also be useful to gain access to the fourth defendant’s accounting system (e.g., Xero).

c.In relation to fuel supply/sales records the second defendant’s records either directly or those filed with Gull;

d.Any details relating to the sale and purchase of the business (presently owned by the second respondent) at the time the company commenced and any details relating to any later anticipated or actual sale or purchase (all in 2021) of the shares (or parcel of shares), including any details relating to the value of those shares.

e.A copy of all agreements with Gull.

f.A copy of the lease relating to the premises the petrol station trades from.

(g) Mr Kemp is granted leave to revert to the Court on 2 days’  notice for directions should the first defendant not provide the information Mr Kemp seeks.

(4)Mr Pidgeon to serve on the first defendant the Court’s confirmation (made off the papers) of the suitability or otherwise of the valuation amount (of the Shares) as contained in Mr Kemp’s report, together with the details of the solicitor's trust account (of Ku & Associates) the first defendant is to pay the valuation amount into; and

(5)Within 2 working days of the first defendant’s payment (in cleared funds) the plaintiff is to supply the first defendant with a signed transfer of her current one share in the second defendant and to do everything reasonably necessary to perfect the transfer of her share to the first defendant.

(6)That all the costs in the proceedings including the costs of Mr Kemp’s report be payable (to the plaintiff) by the first defendant.

[13]   Mr Liu and the company were served with the updating memorandum on behalf of Ms Jiang setting out the revised prayer for relief but have not objected to it. I grant leave to make the amendment accordingly.

[14]   In the absence of any opposition, I am satisfied that it is appropriate for the Court to make orders that require a fair and reasonable valuation of the shareholding at the date of this judgment, and then for Mr Liu to acquire Ms Jiang’s shares at an

equivalent price. The terms of the orders I now make are based on the amended pleading but do not replicate it entirely.

Orders and directions

[15]   Accordingly, I order that Ms Jiang’s beneficial interest of 27.5 per cent of the shares in L & G Kingsland Limited shall be accounted for by the payment to her of the cash value equivalent of that interest, according to a valuation approved and declared by the Court in terms of  the  orders  which  follow,  and  the  transfer  of Ms Jiang’s one share to Mr Liu.

[16]To give effect to that determination, I further order and direct that:

(a)Mr Matthew Kemp, a partner in Gerry Rea Partners, is appointed as an expert valuer to undertake a valuation of the shares as at the date of this judgment, and report to the Court as soon as is practicably possible. A further judgment of the Court will be required to approve the valuation and declare the sum to be paid to Ms Jiang.

(b)A copy of the report shall be provided by Mr Kemp to Ms Jiang, who shall arrange service of a copy of the report on Mr Liu and the company as soon as is reasonably practicable thereafter.

(c)To facilitate the valuation by Mr Kemp, Mr Liu shall provide the following information to Ms Jiang’s solicitors within 20 working days of the date of this judgment:

(i)The financial statements of L & G Kingsland Limited and copies of all supply agreements with Gull for the four financial years ending 31 March 2018, 31 March 2019, 31 March 2020 and 31 March 2021.

(ii)Fuel supply and sales records for L & G Kingsland Limited for the years ended 31 March 2020 and 31 March 2021.

(iii)A copy of the sale and purchase agreement for the business when it was acquired by L & G Kingsland Limited.

(iv)A copy of the lease for the premises from which the company trades.

(d)Within 20 working days of the Court’s order determining the value of the shares on the basis of Mr Kemp’s report, Mr Liu shall pay the value of the shares to Ms Jiang by payment to a solicitor’s trust account nominated by her, the details of which shall be supplied by Ms Jiang’s solicitors.

(e)Within five working days of receipt of the value of the shares, Ms Jiang shall  deliver  to  Mr Liu   a  signed   transfer  of   her   one   share  in L & G Kingsland Limited.

[17]   Costs in the proceeding are reserved. The costs of Mr Kemp’s report shall be borne by Ms Jiang in the first instance but shall be included in the costs of the proceeding to be paid between the parties as determined by the Court following further submissions as to costs.

[18]   I reserve leave to Ms Jiang to apply to the Court for such further orders or directions as may be necessary.

Toogood J