JIAWEN WANG AND CHUXI ZHENG AND OCTOBER FAMILY TRUSTEE LIMITED Party QIUYE WANG Party
[2024] NZHC 3357
•14 November 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-256
[2024] NZHC 3357
BETWEEN JIAWEN WANG
Plaintiff
AND
CHUXI ZHENG
Defendant
AND
OCTOBER FAMILY TRUSTEE LIMITED
First Third Party
QIUYE WANG
Second Third Party
Hearing: 8 August 2024 Appearances:
SO McAnally and A Ho for the Plaintiff and the Third Parties P Ahern for the Defendant
Judgment:
14 November 2024
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 14 November 2024 at 3 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
Crimson Legal, Auckland Kent Legal, Auckland
WANG v ZHENG [2024] NZHC 3357 [14 November 2024]
Introduction
[1] The plaintiff and third parties (together the applicants) have filed a combined application in response to third party notices issued by the defendant seeking orders as follows:
(a)summary judgment in favour of the third parties as defendants, relying on a settlement agreement that the third parties say prevents the claim the defendant now brings;
(b)if the claim is not prevented by the settlement agreement, setting aside the third party notice because:
(i)the only claim alleged is purely speculative; and
(ii)the claim has insufficient relevant connection with the plaintiff’s claims so as to justify the issue of a third party notice; and
(c)striking out the third party notice on ordinary principles as it discloses no seriously arguable cause of action and because the speculative nature of the allegations and the improperly-made allegation of fraud render the pleading equally frivolous and vexatious.
[2] The defendant opposes the applications. He argues that the settlement agreement does not prevent his third party claims and that the third party claims are properly brought.
[3]I set out the background below before considering the following issues:
(a)Does the settlement agreement prevent the third party claims?
(b)Should the third party notice be set aside or struck out on the basis that the third party claims do not fall within the circumstances set out in
r 4.4 of the HCR, or fail to disclose any reasonably arguable cause of action, or are frivolous or vexatious in terms of r 15.1 of the HCR?
Background
[4] The defendant, Chuxi (Jason) Zheng, and the second third party, Qiuye (Michael) Wang, became business partners in 2016. Michael was Jason’s brother in law at the time. Michael is the sole director and shareholder of October Family Trustee Limited (OFTL), the first third party, which is the corporate trustee of the October Family Trust.
[5] In this proceeding, the plaintiff, Jiawen (John) Wang, claims that in late 2018 his father, Xun Wang, negotiated an agreement with Jason and Michael.1 John says the agreement was to acquire 15 per cent of the shares in each of ZYJ Construction Group Limited (Construction) and ZYJ Group Limited, subsequently renamed McCore Group NZ Limited (McCore), for $750,000 in total.
[6] Jason disputes this and says that the agreement between him, John’s father and Michael was instead to acquire 15 per cent of the shares in McCore for $750,000 and 15 per cent of the shares in Construction for $800,000.
[7]There is no dispute that:
(a)between April and June 2019, the plaintiff’s father paid $750,000;
(b)on 21 August 2019, the defendant and the second third party transferred 15 per cent of the shares in McCore to John; and
(c)on 21 August 2019, the transfer of shares in McCore to the plaintiff was registered with the Companies Office.
[8] However, there was no similar transfer of 15 per cent of the shares in Construction around that time.
1 To avoid confusion between the surnames, I will refer to the parties by their English first names, as they have done in their submissions. I intend no disrespect in doing so.
[9] Jason’s evidence is that in late 2022, early 2023, he and Michael disagreed over their business interests as certain things had happened within the business that he was unhappy about, including concerns that Michael had transferred shares in the companies without Jason’s knowledge. Jason says that it was about this time that he became aware that a share transfer had been registered in the Companies Office on 4 November 2022, transferring 15 per cent of the shares in Construction from Gemland Trust Limited (Gemland), a company owned jointly by Jason and Michael, to the first third party, OFTL. Michael is the director of Gemland and in his affidavit accepts that the shareholding should not have changed without a resolution passed by Gemland.
[10] On 14 September 2023, Jason and Michael entered into a settlement agreement, including of High Court proceedings filed by Jason2 under which they agreed to separate their business interests on certain terms (the Settlement Agreement). As a result of this agreement, Jason was to receive all of Gemland’s shares in Construction together with a one-off cash payment and Michael would receive all of Gemland’s shares in McCore.
[11] As set out above, the third parties rely on the Settlement Agreement for their application for summary judgment. I discuss the terms in further detail below after setting out the relevant legal principles.
Defendant summary judgment principles
[12] The third parties are in the position of defendant in terms of the third party notice so the principles relating to defendant applications for summary judgment apply.
[13] For summary judgment to be granted to a defendant, they must satisfy the court that none of the causes of action in the plaintiff’s statement of claim can succeed.3
2 CIV-2023-404-1502.
3 High Court Rules 2016, r 12.2(2).
[14] In Stephens v Barron, the Court of Appeal summarised the principles from the longstanding authority on defendant summary judgment, Westpac Banking Corp v M M Kembla New Zealand Limited:4
(a)The defendant has the onus of proving on the balance of probabilities that the plaintiff cannot succeed. Usually this will arise where the defendant can offer evidence which is a complete defence to the plaintiff’s claim.
(b)An application for summary judgment will be inappropriate where there are disputed issues of material fact or where material facts need to be ascertained by the Court and cannot confidently be concluded from affidavits. It may also be inappropriate where ultimate determination turns on a judgment able to be properly arrived at only after a full hearing of the evidence.
(c)The Court must be satisfied that none of the claims can succeed. It is not enough that they are shown to have weaknesses. The assessment is not to be arrived at on a fine balance of the available evidence as would be appropriate at a trial.
(d)The residual discretion of the Court to refuse summary judgment would be properly invoked to avoid the oppression which would otherwise result if an application by a defendant for summary judgment would pre-empt a plaintiff exercising the right to amend the pleadings.
(e)Summary judgment should not be applied for unless the substantive merits of the case are clear and capable of summary disposal.
(footnotes omitted)
[15] Where a clear-cut issue of law is raised in a summary judgment application and the point can be decided as fully on the application as at trial, there is no reason why the Court should not deal with the whole matter on the application for summary judgment.5
[16] In Bernard v Space 2000 Limited, the Court of Appeal held that a defendant’s application for summary judgment “contemplates an answer which is clear-cut; what in colloquial language would be described by counsel as a ‘king hit’”.6
4 Stephens v Barron [2014] NZCA 82 at [9], discussing Westpac Banking Corp v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA).
5 Verrall v Great Yarmouth Borough Council [1981] QB 202 (CA) at 215 and 218; and Pemberton v Chappell [1987] 1 NZLR 1 (CA), (1986) 1 PRNZ 183 at 4.
6 Bernard v Space 2000 Ltd (2001) 15 PRNZ 338 (CA) at [21].
Does the Settlement Agreement prevent the third party claims?
Contractual interpretation principles
[17] The interpretation of the Settlement Agreement is key to the summary judgment application. The contractual interpretation process is objective, with the aim being to ascertain:7
… the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
[18] The above reflects the principle that "contractual language, like all language, must be interpreted within its overall context, broadly viewed."8
[19] The Court must first consider the plain meaning of the words in the context of the document as a whole, as this accords with the policy objective of providing commercial certainty.9
[20] Relevant evidence of pre‑contractual negotiations will be admissible where they have been communicated between the parties and tend to show a common mutual understanding as to the meaning of the contents of the contract.10
[21] After setting out the test above, the Court of Appeal commented in Long Capital Holdings NZ Ltd v Jacks Point Village Holdings No 2 Limited:11
[30] … The factual matrix in which the contract is situated is therefore relevant. That raises the question of whether it will be appropriate on a summary judgment application for the court to reach a concluded view on the meaning of the contract when the facts have not been fully tested.
[31] The existence of a factual dispute about the context in which the contract was entered into does not preclude the court from entering summary judgment in a contract claim, but caution is required. The court must be
7 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) at 912, cited with approval in Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at [60]; and endorsed in Bathurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 696 at [43].
8 Firm PI 1 Ltd v Zurich Australian Insurance Ltd, above n 5, at [61].
9 Bathurst Resources Ltd v L & M Coal Holdings Ltd, above n 7, at [46].
10 At [76] — [77].
11 Long Capital Holdings NZ Ltd v Jacks Point Village Holdings No 2 Limited [2020] NZCA 102 at [30] – [31].
satisfied that resolution of the factual dispute is “not necessary to provide the court with such contextual background as is necessary to resolve the claim”.12 Summary judgment may be appropriate, therefore, where, on an objective assessment, the interpretation contended for is plainly the correct one regardless of the factual dispute.
Terms of the Settlement Agreement
[22] Under the Settlement Agreement, the commercial separation of Jason and Michael’s businesses was to occur in two phases. The first was for Jason to receive all shares that Gemland held in Construction together with a one-off cash payment and for Michael to receive all shares that Gemland held in McCore.
[23] Phase two was for certain assets of Gemland or its subsidiaries to be transferred to Jason or Michael as more particularly described in the Settlement Agreement. All remaining assets of Gemland were to be liquidated, with the net sale proceeds first applied to repaying existing debts and liabilities and then to be distributed to each party as described in the Settlement Agreement.
[24] Clause 30 of the Settlement Agreement is headed “Full and Final Settlement” and records as follows:
Full and final settlement: the parties agree that entry into this Deed is in full and final settlement of all matters and claims between the [sic] Jason on one hand, and Michael on the other hand in relation to or in connection with:
(a)the matters set out in all correspondence exchanged between us, through our respective solicitors, between 29 March 2023 and 8 September 2023;
(b)the claims made or anticipated in the High Court proceeding (CIV2023-404-1502) served on 23 August 2023; and
(c)any other matter, event or circumstance arising prior to the Target Completion Date,
(together, the Dispute).
[25] “Target Completion Date” is defined as the date six months after the date of the deed, 14 September 2023, so being 13 March 2024.
12 Jowada Holdings Ltd v Cullen Investments Ltd CA248/02, 5 June 2003 at [29].
[26] Clause 31 then provides that “without limiting this clause” and with effect from the date of the Deed:
(a)Jason will procure that he and each company, trust or other entity that Jason holds an interest in (Jason's Related Parties), irrevocably and unconditionally release Michael and any company, trust or other entity that Michael holds an interest in (Michael's Related Parties), from any claim (whether arising in tort, in contract, by operation of law or otherwise) that Jason or any of Jason's Related Parties may have against Michael or Michael's Related Parties in relation to the Dispute; and
(b)Michael will procure that he and each of Michael's Related Parties, irrevocably and unconditionally release Jason and Jason's Related Parties from any claim (whether arising in tort, in contract, by operation of law or otherwise) that Michael or any of Michael's Related Parties may have against Jason or Jason's Related Parties in relation to the Dispute; and
(c)Jason, and Jason will procure [Construction] to, acknowledge and confirm that both Michael and McCore do not owe any money to Jason or [Construction]; and
(d)Michael, and Michael will procure McCore to, acknowledge and confirm that both Jason and [Construction] do not owe any money to Michael or McCore.
The parties’ positions
[27] The applicants submit that the Settlement Agreement is binding upon Jason and Michael and that cl 30(c) of the Settlement Agreement provides that it is a full and final settlement of, inter alia, “any other matter, event or circumstance arising prior to the Target Completion Date”.
[28] The applicants say that any dispute regarding the share transfer to OFTL on 4 November 2022 is captured by cl 30(c) because it clearly occurred before the defined “Target Completion Date” and, in fact, before the Settlement Agreement was executed.
[29] In addition, the applicants submit cl 31 requires the parties to unconditionally release and discharge not only each other but any entities each holds any interest in, including OFTL, from any claim relating to the disputes covered by the agreement. The applicants say therefore that the evidence leaves no room for doubt that these “matters” had arisen before the Target Completion Date of 13 March 2024, pointing
to the fact that Jason’s own evidence is that he was aware of the share transfer by late 2022 or early 2023.
[30] Jason accepts that the Settlement Agreement is binding but denies it resolved all issues between Michael and himself. He instead deposes that the Settlement Agreement specifically resolved issues raised in the High Court proceedings and communications between the parties as identified in the Settlement Agreement.
[31] Jason accepts that he was aware of the share transfer to OFTL but deposes that he was not aware that OFTL was holding the Construction shares on trust for John at the time of the Settlement Agreement. Jason says his knowledge of OFTL at the time was that it was a trustee of a trust for the benefit of Michael and his family.
[32] Jason deposes in response to Michael’s evidence that the settlement agreement resolved all issues between them:
p.… The settlement agreement specifically resolved issues raised in the High Court proceedings and communications between the parties as identified in the settlement agreement. However this issue involving the 15 % of shares that had been transferred without my knowledge was never part of the negotiations, the correspondence or the settlement;
q.Following the settlement of the dispute I arranged for enquiries to be made of Michael and the plaintiff as to the basis on which they contended that there had been a valid transfer of shares to OFTL allegedly as trustee for the plaintiff as beneficiary. In the absence of any proper evidence to support any such transfer, and noting that the share register for [Construction] showed no transfer of shares to OFTL, that there are no documents held by Gemland Trust reflecting any holding of shares as alleged for the benefit of the plaintiff, no documents held or produced by OFTL to that effect, and noting that the original purchase price of those shares had never been paid, I arranged for the company office records to be amended to reflect the correct position as shown in the company’s share register.
[33] Michael’s evidence in reply does not explain why the shares were transferred to OFTL but says that Jason was party to a number of communications and transactions that included the plaintiff, John, as a shareholder.
Discussion
[34] The documents referred to by Michael record that OFTL was a shareholder in Construction, not the plaintiff, John. John appears to have been involved in some correspondence and to be listed as receiving shareholder remuneration but the plaintiff and third parties do not dispute Jason’s evidence directly that he understood OFTL to be a trustee of a trust for the benefit of Michael and his family prior to the Settlement Agreement being entered into.
[35] In addition, Michael’s evidence is that the first time he became aware that Jason contested John's shareholding was after the Settlement Agreement was entered into. This is consistent with Jason’s evidence that the issue regarding ownership of the 15 per cent of shares in Construction allegedly held for John was not part of the negotiations or correspondence leading up to the Settlement Agreement.
[36] In Michael’s first affidavit he explains the transfer of the shares to OFTL as follows:
12 … In accordance with the agreement with John's father, I arranged for 15 percent of shares in [Construction] to be transferred from Gemland Trust Limited (Gemland) to OFTL as bare trustee for John on 4 November 2022.
13. Jason was not involved in that transaction and I understand, now, that while I thought the transfer was consistent with the agreement with John, that a resolution of Gemland was still necessary before that transaction could be carried out. I also understand that John's claim has nothing to do with my transfer of those shares.
[37] This evidence raises more questions than it answers as it first says that the shares were transferred in accordance with the agreement with John’s father which Michael says was for 15 per cent of the shares in both McCore and Construction to be transferred for $750,000. But Michael then accepts that the shares could not be transferred without a resolution from Gemland. If in fact the agreement was as Michael and John allege, it ought to have been relatively straightforward for Michael to organise a resolution from Gemland. Furthermore, why does Michael finish by saying that he understands that John’s claim has nothing to do with Michael’s transfer of those shares. John’s claim appears to relate to the transfer because according to Michael and John, OFTL held the shares for John. If Jason had not transferred the
shares held by OFTL back to himself then John would not have had to bring his claim against Michael. Paragraph 21(b) of John’s statement of claim is consistent with this as it alleges that Jason had repudiated the agreement by unilaterally transferring to himself the shares held by OFTL as bare trustee for John on, or about, 13 December 2023.
[38] Jason points to the fact that the Construction shares were not transferred until more than three years after the transfer of the McCore shares and says the only basis on which there could have been a transfer of the Construction shares to John is if the
$800,000 was paid because that was the agreement reached with the plaintiff’s father.
[39] Jason deposes that he is concerned the reason that Michael transferred shares from Gemland to OFTL without his knowledge was because John’s father did in fact subsequently pay Michael $800,000 to acquire the Construction shares. Jason says if the $800,000 was paid to Michael, then it ought to have been shared between Jason and Michael. Jason continues:
6.To the extent that [the plaintiff] brings this claim against me alleging that I wrongfully updated the company office records removing the shares held by OFTL in [Construction], the following issues and disputes arise:
a.what were the correct agreed terms of the original agreement between myself, Michael and [the plaintiff’s father]? There is a significant dispute in that regard and it can only properly be resolved with Michael’s involvement;
b.on what basis were the shares transferred from [Gemland] to OFTL? This was a transfer effected by Michael, and I say it was improperly and unlawfully undertaken. There is a significant dispute with Michael as to the basis on which he undertook a transfer of the shares to OFTL;
c.I dispute that OFTL ever properly became a shareholder. OFTL itself as I understand it does not claim that it was a shareholder in its own right, but as a trustee for the plaintiff;
d.If the original agreement is as I contend, and despite the denial of Michael, he did in fact receive a payment of $800,000 for the shares in [Construction], then there is an issue between Michael and I as to those monies and who is entitled to them, and Michael's obligations to account to me for my share of those monies.
[40] In his evidence in reply, Michael repeats that the agreement was for the plaintiff’s father to pay $750,000 for shares in both Construction and McCore for the benefit of the plaintiff. Michael’s evidence is that their discussions were always around “one figure for shares in both companies which was our ([the plaintiff’s] and my) entire business interest at the time”.
[41] Michael then adds that 15 percent of shares in both Construction and McCore was not worth $750,000 and that the plaintiff’s father overpaid for the shares even at that price. Michael says this is verified by the financial statements of both companies, copies of which are annexed to his affidavit, and that they “could not have possibly justified an additional $800,000.”
[42] However, Michael does not expressly deny receiving $800,000 in response to Jason’s allegations. I accept that in his first affidavit filed in support of the applications Michael says he agrees with Jason’s position that a separate $800,000 was not paid for shares in any of our companies but to not then repeat the denial in reply to Jason’s evidence raises questions especially when considering Michael’s other evidence.
[43] Under the heading “[a]llegations about payment of $800,000”, Michael deposes:
8I do not recall any discussion between [Jason] and I that $800,000 had not been paid by [the plaintiff’s father] for there was no $800,000 that I am aware of. Again, there was no separate consideration to be paid for John's shares beyond the agreed $750,000. To my knowledge, there are no other documents referring to this particular sum other than the $800,000 that I agreed to pay to [Jason] pursuant to clause 3 of the settlement agreement.
[44] Michael then moves on to list documents which he says show John was a shareholder but, as set out above, the documents show OFTL was a shareholder rather than John, and Jason’s evidence is that he did not know OFTL was allegedly holding the shares for John until after the Settlement Agreement.
[45] The applicants rely on the wording of cl 30(c) of the Settlement Agreement which on its face is very wide. However, there appears to be an argument that
interpreting this clause as proposed by the applicants would be inconsistent with the Recitals to the Settlement Agreement. The final recital, Recital E, records:
E.The parties enter this Deed to record the terms upon which they have agreed:
i.the commercial separation of the Parties’ respective interests in the business owned by [Gemland]; and
ii.to fully and finally resolve all matters between them arising out of the matters summarised above.
[46] Considering the “matters summarised above”, Recital A records that Jason and Michael have been in business together for over 10 years but, at Recital B, that since the start of 2023 they have fallen out to the point where it is impossible for them to trade on in their current capacity.
[47] Recital C records that through solicitors Jason and Michael have exchanged correspondence between 18 April 2023 and 21 June 2023 to negotiate the terms of their separation. Recital D then refers to the High Court Proceedings (CIV-2023-404- 1502) served by Jason on 23 August 2023 on Michael and other related parties and that in addition to those proceedings there are further matters in dispute between them concerning their respective interests and businesses.
[48] Michael accepts that the issue around John’s ownership interest in the Construction shares held by OFTL was not raised until after the Settlement Agreement was entered into. Furthermore the applicants do not point in their evidence to any correspondence, or documents in the High Court proceeding, that refer to a dispute in relation to the 15 per cent of the shares in Construction allegedly being held on trust for John prior to entry into the Settlement Agreement.
[49] As noted above, the Court is always cautious when interpreting contracts in a summary judgment context.13
[50] Given the wording of the Settlement Agreement, Jason’s undisputed evidence both that he did not know OFTL was holding shares in Construction for John and that
13 Long Capital Holdings NZ Ltd v Jacks Point Village Holdings No 2 Limited, above n 11, at [30] – [31].
the dispute relating to the ownership of the Construction shares had not arisen prior to entry into the Settlement Agreement, this is not an appropriate case for summary judgment to be entered in favour of the third parties. The Settlement Agreement needs to be interpreted in its factual matrix in order to ascertain the meaning that the agreement would convey to a reasonable person having all the background knowledge that would reasonably have been available to the parties at the time they entered into it.
Applications to set aside and strike out
[51] The applicants submit that even if they do not succeed in their summary judgment application, the third party notices should be set aside and the statement of claim against the third parties dismissed as disclosing no reasonably arguable cause of action.
[52] The parties agree that the applications to set aside and strike out the third party notices can conveniently be considered together.
[53] When considering an application to set aside a third party notice pursuant to r 4.16 of the HCR, the Court will have regard to the criteria set out in r 4.4(1).14 This rule provides:
4.4 Third parties
(1)A defendant may issue a third party notice if the defendant claims any or all of the following:
(a)that the defendant is entitled to a contribution or an indemnity from a person who is not a party to the proceeding (a third party):
(b)that the defendant is entitled to relief or a remedy relating to, or connected with, the subject matter of the proceeding from a third party and the relief or remedy is substantially the same as that claimed by the plaintiff against the defendant:
(c)that a question or issue in the proceeding ought to be determined not only between the plaintiff and the defendant but also between—
(i)the plaintiff, the defendant, and the third party; or
14 Green v SG Harvey Ltd (1989) 3 PRNZ 139.
(ii)the defendant and the third party; or
(iii)the plaintiff and the third party:
(d)that there is a question or an issue between the defendant and the third party relating to, or connected with, the subject matter of the proceeding that is substantially the same as a question or an issue arising between the plaintiff and the defendant.
[54] The circumstances in which the Court will strike out a pleading are provided for in r 15.1 of the HCR:
15.1 Dismissing or staying all or part of proceeding
(1)The court may strike out all or part of a pleading if it—
(a)discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or
(b)is likely to cause prejudice or delay; or
(c)is frivolous or vexatious; or
(d)is otherwise an abuse of the process of the court.
(2)If the court strikes out a statement of claim or a counterclaim under subclause (1), it may by the same or a subsequent order dismiss the proceeding or the counterclaim.
(3)Instead of striking out all or part of a pleading under subclause (1), the court may stay all or part of the proceeding on such conditions as are considered just.
(4)This rule does not affect the court’s inherent jurisdiction.
[55] The applicants submit that none of the circumstances in r 4.4(1) providing for when a third party notice may be issued apply in this case. I disagree. I consider that r 4.4(1)(c) and (d) apply and r 4.4(1)(a) could with amendment.
[56] The applicants acknowledge that the statement of claim against the third parties pleads a right to contribution as provided for in r 4.4(1)(a). However, they submit that the prayer for relief is simply a claim for damages for Jason’s “share of the consideration”. The applicants say that “contribution” in rule 4.4(1)(a) refers to contribution to a joint liability15 and submit that this is not a case of determining which
15 Turner v First Fifteen Holdings Ltd (1991) 3 PRNZ 145 at 147.
party, the defendant or the third party, should ultimately bear a loss suffered by the plaintiff.
[57]The applicants further submit that the pleading in relation to receipt of the
$800,000 is a pleading of fraud and that such a pleading must not be made without a proper foundation and must be properly particularised.
[58] Jason’s statement of claim against the third parties currently pleads at paragraph 8:
8. In the event that it is found that consideration had been paid for the acquisition of the Shares, that consideration was required to be paid to the benefit of Gemland Trust Ltd and the defendant, but the first and/or second third parties wrongfully misappropriated those funds.
[59]Jason continues at paragraph 17(a):
17. The defendant claims against the first and/or second third parties;
a.in the event that it is determined that Xun Wang paid the agreed consideration of $800,000 to acquire a 15% interest in what is now [Construction] (which is denied), that he is entitled to contribution from the first and/or second third parties either in relation to receipt of the original purchase price, or any award of damages;
[60] The prayer for relief then seeks damages in relation to the share of the consideration Jason ought to have received if the $800,000 was paid.
[61] In terms of the applicants’ submission regarding allegations of fraud, I consider that the questions arising from the evidence provide a sufficient foundation for the above allegation particularly in circumstances where it is made on a conditional basis. It is also sufficiently particularised. It is noted that the third parties have filed a statement of defence in response to the pleading and so they do not appear to have been prevented from pleading to this allegation.
[62] As far as whether the pleading amounts to a claim for contribution, the plaintiff is seeking a remedy of either the transfer of shares in Construction to him or for damages.
[63] By his current pleading, Jason is seeking a contribution but only if the Court finds the agreement reached was for $750,000 to be paid for the McCore shares and
$800,000 for the Construction shares, and that $800,000 was paid.
[64] Jason does not currently seek a contribution if the Court finds instead that the agreement reached was for John to receive both the Construction shares and the McCore shares for $750,000 (as John alleges). However there appears to be a question in that case as to whether any relief ought to be provided by Jason alone or by Jason and Michael together, given that at the time the agreement between Xun Wang, Michael and Jason was entered into, Michael and Jason were the shareholders of McCore and Construction. The Settlement Agreement may be relevant to this but I have held above that the Settlement Agreement needs to be interpreted in its full factual matrix rather than on a summary basis, so such a claim cannot be discounted at this stage.
[65] It appears therefore that even if the agreement was for $750,000 for shares in both McCore and Construction, Jason may have a right to contribution in respect of any transfer of shares or damages payable to John ordered in response to John’s claims. For the purposes of the applications to set aside or strike out the third party claim, with this amendment, the claim would fall within r 4.4(1)(a) even if the agreement were as John alleges.
[66] Rule 4.4(1)(c) applies where a question or issue ought to be determined not only between the plaintiff and the defendant but also between the plaintiff, the defendant and the third party, the defendant and the third party, or the plaintiff and the third party. The applicants submit that this first requires identification of the issues between John and Jason. The applicants submit that Jason faces an insurmountable obstacle as the only issues between John and Jason are:
(a)What were the express or implied terms of the agreement between John’s father (for the benefit of John), Jason and Michael?
(b)If the terms were that John should receive the Construction and McCore shares for $750,000, should Jason be ordered to specifically perform by transferring the Construction shares to John?
(c)If not, should John be compensated for not receiving those shares and, if so, in what amount?
[67] The applicants say that naturally Jason is interested in the answer to the first of those questions, but neither of the third parties are, with the first third party not a party to the relevant agreement and Michael having no reason to sue or be sued on it. The applicants say if the terms of the Settlement Agreement are as John alleges, he “wins”. If they are not, he does not. Michael’s rights and obligations are unchanged.
[68] I do not accept this because, as already discussed above, John is suing for a transfer of shares or damages. If the agreement is as the plaintiff says and the shares can no longer be transferred, then there is an issue as to whether any compensation payable ought to be payable by Jason alone or Jason and Michael. Even if the shares can be transferred, an issue may arise.
[69] Jason currently pleads the overlap in issues in paragraph 17(b) to (d) of the third party claim as follows:
b.there is a question or issue in this proceeding, namely whether a concluded agreement was reached between Xun Wang and the defendant and the second third party, the terms of that agreement and whether the terms were performed, so as to entitle the plaintiff to the Shares, which is a question or issue that ought to be determined not only between the plaintiff and the defendant, but also between the plaintiff, the defendant and the first and second third party;
c.there is a question or issue in this proceeding, namely whether the first third party validly and or properly ever held shares in ZYJ OldCo as trustee for the plaintiff and therefore the plaintiff has any proper claim against the defendant, which is a question or issue that ought to be determined not only between the plaintiff and the defendant, but also between the plaintiff, the defendant and the first and second third party
d.there is a question or issue between the defendant and the first and second third party relating to or connected with the subject matter of the proceeding that is substantially the same as a question or an issue arising between the plaintiff and the defendant, namely the validity of the transfer of the Shares.
[70] The prayer for relief then seeks three declarations together with a remedy in damages but only if it is found that $800,000 has been paid.
[71] In my view, there is no question that the issues in this case fall within r 4.4(1)(c) as raising issues that need to be determined between the plaintiff, the defendant and the third parties as both John’s claim against Jason and Jason’s claim against the third parties rely on the terms of the same agreement.
[72] In addition, as discussed above, Michael’s evidence in reply confirms that there are questions that need to be determined between the plaintiff, defendant and the third parties.
[73] Furthermore, Jason raises in his statement of defence an affirmative defence on the basis that if it was wrong for him to transfer the shares that had been transferred to OFTL back to himself, then the correct plaintiff is OFTL, not John.
[74] Standing back and considering what would happen if the third party notice was set aside or struck out, Jason would still be able to file his claim separately against the third parties and then apply for consolidation. In Lyttelton Port Co Ltd v Aon New Zealand, Associate Judge Matthews was considering an application for leave to issue a third-party notice under r 4.4 and commented on the possibility of consolidation in a way that is relevant here:16
[37]Thirdly, the premise underlying r 4.4 is that the Court should determine on one occasion all issues between parties involved in a transaction who are alleged to have liability to one or more of the other parties. The same premise appears in r 4.56 which provides that a Judge may order that the name of a person be added as a plaintiff or a defendant because that person’s presence before the Court may be necessary to adjudicate on and settle all questions involved in the proceeding. In relation to applications for leave to issue third party proceedings, the Court of Appeal in KPMG Peat Marwick v Cory- Wright & Salmon Ltd (in rec & in liq) said:
The interests of justice between all parties must be paramount
… If there is delay it will be regrettable … but the attainment of justice by the most efficient means has to be the overriding consideration.
16 Lyttelton Port Co Ltd v Aon New Zealand [2018] NZHC 568.
[38]In my opinion justice between all parties can only be attained by all the issues now raised being tried in the same proceeding, or by consolidation. An application for consolidation is not before the Court, and I do not find it attractive to defer how all the causes of action are to be tried until a later date, while Aon sues Colliers and Opus separately and then makes such an application. Efficiency for the Court and the parties, cost effective procedure from now to trial, and above all the objective of securing a just outcome for all parties clearly favour granting leave as sought. The facts must all be tried once, and once only.
(Citations omitted)
[75] In an earlier judgment of the Court of Appeal, Newhaven Waldorf Management Ltd v Allen,17 the Court cited with approval the following passage in McKendrick Glass Manufacturing Co Ltd v Wilkinson:18
It is the constant aim of a Court of equity to do complete justice by deciding upon and settling the rights of all persons interested in a subject of the suit, to make the performance of the order of the Court perfectly safe to those who are compelled to obey it, and to prevent future litigation. For this purpose all persons materially interested in the subject ought generally to be parties to the suit, plaintiffs or defendants, however numerous they may be, so that the Court may be enabled to do complete justice by deciding upon and settling the rights of all persons interested, and that the orders of the Court may be safely executed by those who are compelled to obey them, future litigations may be prevented.
[76] The commentary in McGechan on Procedure to r 10.12, which provides for consolidation, refers to obvious candidates for an order under r 10.12 being several proceedings turning on the interpretation of the same contract.19 The authors give as an example a standard form contract but where both the original and third party claims rely on the terms of the same agreement, as they do here, it is clear in my view that if they were brought as separate proceedings an order for consolidation would be made.
[77] The final circumstance in r 4.4(1)(d) includes where there is an issue between the defendant and the third party that is substantially the same as an issue arising between the plaintiff and the defendant. Again, this applies in this case because the issues of:
17 Newhaven Waldorf Management Ltd v Allen [2015] NZCA 204 at [45].
18 McKendrick Glass Manufacturing Co Ltd v Wilkinson [1965] NZLR 717 (SC) at 723; citing John Mitford A Treatise on the Pleadings in Suits in the Court of Chancery (5th ed, V&R Stevens and G S Norton, London, 1847) at 190.
19 Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at [HR10.12.03].
(a)whether the agreement reached was for 15 per cent of the shares in McCore and Construction to be transferred for $750,000 or for 15 per cent of McCore to be transferred for $750,000 and 15 per cent of Construction for a further $800,000; and
(b)why the Construction shares were transferred in November 2022;
are issues in both the claim brought by the plaintiff against the defendant and the defendant against the third parties.
[78] I accept that the pleading of the third party claim could be improved, particularly the prayer for relief. But it is not appropriate to set the third party notice aside as the claim clearly falls within several of the categories in r 4.4(1).
[79] In terms of the application for strike out, for the same reasons and again accepting that the pleadings could be improved, the claim does not fail to disclose a reasonably arguable cause of action. As Tipping J held in Marshall Futures Ltd v Marshall, where a pleading can be cured by amendment the Court will almost always allow amendments rather than striking out the pleading, distinguishing between a pleading “which is a total write-off and one which is deficient but capable of effective repair”.20 Whilst the third party claim in this case may be deficient, especially in the relief sought, I do not consider that it could be described as a total write-off.
[80] Nor do I consider it is frivolous and vexatious or otherwise an abuse of process for the reasons already discussed.
[81]It is not therefore appropriate to strike out the claim against Michael.
Result
[82] All three applications are declined with the applicants to pay costs to the defendant. I ask the parties to confer and only if agreement on costs cannot be
20 Marshall Futures Ltd v Marshall [1992] 1 NZLR 316 at 324, (1991) 3 PRNZ 200.
reached, for memoranda to be filed of no more than three pages (excluding schedules), by the defendant by 6 December 2024 and by the applicants by 13 December 2024.
Associate Judge Sussock
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