Li v Luan

[2019] NZHC 3267

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2019-409-000680

[2019] NZHC 3267

BETWEEN

HONGTAO LI

First Applicant

JAMES MARTIN
Second Applicant

CANTERBURY RYWM HOLDINGS LIMITED
Third Applicant

AND

XIAODI LUAN

First Respondent

CRUSADERS BUILDING DEVELOPMENT LIMITED

Second Respondent

Hearing:	11 December 2019 (By way of telephone conference)
Appearances:	B M Russell and J A Frampton for Plaintiff C Mo for Respondents
Judgment:	11 December 2019

JUDGMENT OF GENDALL J

This judgment was delivered by me on 11 December at 4:45 p.m. pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date: 11 December 2019

LI v LUAN [2019] NZHC 3267 [11 December 2019]

[1]                  On 6 December 2019 the applicants in this proceeding filed a Statement of Claim together with an Interlocutory Application on Notice Seeking an Interim Injunction together with supporting affidavits of James Martin and Hongtao Li.

[2]                  Counsel for the applicants sought as a matter of urgency that an interim injunction order be made on an interim basis for a number of reasons. This was despite the fact that the injunction application itself was one brought on notice.

[3]                  On 9 December 2019 an affidavit of service of the proceedings was filed confirming that service took place on the first respondent on Saturday 7 December 2019 and on the second respondent (the Company) on Friday 6 December 2019.

[4]                  This matter was then scheduled for an initial hearing by way of telephone conference of the urgent interim injunction application today, 11 December 2019.

[5]                  At the hearing, Mr Russell and Ms Frampton appeared as counsel for the first, second and third applicants and Ms Mo appeared as counsel for the first and second respondents. All counsel had instructions.

[6]The interim injunction orders sought by the applicants today are pursuant to r

7.53 of the High Court Rules.

[7]                  As McGechan on Procedure at para HR7.53.04 states, the general principles relating to 7.53 involve:

…three stages to the consideration of an application for an interlocutory or an interim injunction:

1.the applicant must establish that there is a serious question to be tried or, put another way, that the claim is not frivolous or vexatious;

2.the balance of convenience must be considered, which requires consideration of the impact on the parties of the granting of, and the refusal to grant, an order;

3.finally, an assessment of the overall justice of the position is required as a check.

[8]                  Before me today, Mr Russell for the applicants indicated that the applicants sought an urgent interim injunction order here purely to preserve the status quo

regarding the Company’s property at 888 Colombo Street, Christchurch, until a full substantive hearing of its application could proceed in the New Year.

[9]                  He confirmed that the title to the Colombo Street property which is owned by the second respondent is presently unencumbered. Urgency is required because of concerns which the applicants hold regarding this property and the first respondent’s position in the Company in particular.

[10]              Notionally it seems the records at present show that the shareholding in the company is held 82 per cent by the first respondent and 18 per cent by the second applicant.

[11]              The first applicant, Mr Li, it seems has provided some over $2 million to the second respondent some time ago on the basis, he says, that this would bring him a

38.21 per cent shareholding in the Company. That claim, according to Ms Mo, seems to be disputed by the first respondent. No doubt it will need further exploration at the full hearing of this application which will likely take place in the New Year.

[12]              In the meantime, Mr Russell says the need for extreme urgency in this matter arises for three reasons:

(a)First, a shareholders’ meeting of the Company occurred on 3 December 2019 at which the first respondent who is its sole director proposed that the company would undertake borrowing from a related company of his, Bo Si Limited. This borrowing would be repayable upon demand and secured by way of mortgage over the Colombo Street property. Concerns have been raised by the applicants that this may well be a ploy  by  the  first  respondent  to  obtain   for  his   own   company,  Bo Si Limited, the Colombo Street property as the second respondent company has no income and no ability to service this on demand mortgage.

(b)Secondly, Mr Russell says that evidence in the affidavits of Mr Martin and Mr Li confirm that the first respondent has said in the past he

intends to have the Company sell the Colombo Street property. On the face of the shareholding in the Company, it is claimed that he holds  82 per cent of the share capital and therefore even though a sale of the Colombo Street property may be a major transaction he would be able to pass the appropriate resolution for this to occur, to the prejudice of the other shareholders. Those other shareholders, the applicants say, are in reality the first and second applicants. This, Mr Russell contends creates a significant risk here.

(c)Lastly, Mr Russell claims that urgency is also required in this case because previously the first respondent without reference to any other party has raised substantial loans from finance sources against the security of the Colombo Street property for the benefit of other developments not affecting the Company which he is personally engaged in. Although these loans, it seems, have been repaid (as the mortgages over the Colombo Street property are now discharged), this it is said shows the first respondent’s willingness to enter into personal borrowings against company assets which are not in the best interests of the company.

[13]              Linked to these matters, Mr Russell maintains that the applicants’ claims in the substantive proceedings generally are for breaches on the part of the respondents of duties under the Companies Act, breaches of agreements to subscribe for shares in the company, unauthorised borrowing and general breaches of director’s duties.

[14]              Ms Mo for the respondents confirmed before me that the allegations advanced by the applicants here are disputed. She contended that no evidence is before the Court of any intention or indication by either respondent to sell or otherwise deal with the Colombo Street property or the shares in the company. She confirms that an issue does arise here over the advance of funds made by Mr Li, the first named applicant, to the Company and whether or not these may have constituted an advance rather than a subscription for shares. This, she notes, needs full exploration at the substantive hearing to take place in this proceeding.

[15]              Ms Mo confirms also today that formally she has instructions to oppose any interim injunction order being granted here. Notwithstanding this, after some discussion with counsel today, Ms Mo appeared to accept that as a way forward in this proceeding it would be reasonable for the interim injunction orders now sought to be granted simply to preserve the status quo on the basis that the proceeding would move quickly to a substantive hearing in the New Year.

[16]              On all of this, I am satisfied first, that in reflecting on the strength of the applicants’ case against the respondents based upon the material filed, there is a serious question to be tried here. I accept that the applicants’ claim, as advanced on its face, does not appear to be frivolous or vexatious.

[17]              Next, so far as the balance of convenience is concerned, I am satisfied too that over the short period for which this interim injunction order is sought and will remain in place until a substantive hearing can occur, simply preserving the status quo must mean that this balance falls in favour of the interim order being granted. The impact on the respondents, given that Ms Mo indicates no dealings with the Colombo Street property are proposed in the meantime, would be of a minimal effect. Refusing to grant the interim order sought, however, might well have serious effects for the applicants if matters regarding the Colombo Street property did develop in line with fears which they have expressed in material which, although untested, is presently before the Court.

[18]              Lastly, I am satisfied that at this point overall justice here supports the position advanced by the applicants.

[19]              An undertaking by the applicants as to damages has been filed as required by r 7.54 of the High Court Rules. Accordingly, the application for an interim order made by the applicants is to succeed.

Result

[20]              I conclude that on the basis a serious question is to be tried here, and, given the balance of convenience favours the granting of the interim injunction order sought, the interim application of the applicants succeeds.

[21]An interim injunction order is now made:

(a)That the first and second respondents are not to sell, mortgage, encumber or otherwise transfer the property at 888 Colombo Street, Christchurch (Section 1 Survey Office Plan 17510), without further order of this Court.

(b)This interim order is made and is to remain in force until the substantive hearing of the applicants’ application or until the time any such further order of this Court is made.

[22]              In addition, so far as the hearing of the substantive application is concerned, the following directions are now made:

(a)The respondents are by 20 December 2019 to file and serve their signalled notice of opposition and any supporting affidavit material in response to the applicants’ interlocutory application for an injunction (which was filed on 6 December 2019).

(b)Any affidavits in reply from the applicants are to be filed and served by 16 January 2020.

(c)The Registrar is directed to liaise with counsel for the applicants and counsel for the respondents to set down for hearing (one day is allowed) at the first available date after 1 February 2020 the opposed substantive application by the applicants seeking injunction orders here.

(d)Three working days prior to the allocated hearing date the applicants are to file and serve their submissions for that hearing.

(e)One working day prior to the allocated hearing date the respondents are to file and serve their submissions.

[23]              Leave is reserved for any party on 24 hours’ notice to approach the Court for any additional or alternative directions which may be reasonably required with respect to this matter.

[24]In the meantime, costs on this matter are reserved.

...................................................

Gendall J

Solicitors:

Lane Neave, Christchurch Saunders & Co, Christchurch

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