Liu v Xie

[2018] NZHC 3391

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2015-404-002994

[2018] NZHC 3391

BETWEEN

YUXI LIU

Plaintiff/Counterclaim Defendant

AND

CHINAN XIE

First Defendant/First Counterclaim Plaintiff

YUNXI LI

Second Defendant/Second Counterclaim Plaintiff

BEIJING TONG REN TANG (AUCKLAND) COMPANY LIMITED

Third Defendant/Third Counterclaim Plaintiff

Hearing:

26 – 30 November 2018

Appearances:

G Round for the Plaintiff

R S Pidgeon for the First and Third Defendants Second Defendant in person

Judgment:

18 December 2018

JUDGMENT OF WOOLFORD J

This judgment was delivered by me on Tuesday, 18 December 2018 at 2.00 pm pursuant to r 11.5 of the High Court Rules.

Solicitors:           Law & Associates, Manukau City

Dawsons, East Tamaki for the First and Third Defendants

Counsel:            R S Pidgeon, Mairangi Bay, Auckland for the First and Third Defendants

LIU v XIE [2018] NZHC 3391 [18 December 2018]

Introduction

[1]                  This is a dispute between shareholders of three local traditional Chinese medicine companies which entered into a joint venture with a long established and well known Chinese producer of traditional medicines. Two of the three shareholders of the local companies became minority shareholders of the joint venture company. The third shareholder claims she was wrongfully denied a shareholding in the joint venture company. She claims a nine per cent shareholding or damages.

Background

[2]                  The first and second defendants, Chinan Xie and Yunxi Li, were shareholders and directors of three companies, each of which had a retail store in Auckland selling traditional Chinese medicines, Shiyitang Chinese Medical and Health Ltd, Chinese Medical Company Ltd and Yang Sheng Tang Chinese Medicine Ltd (the three companies). In around 2010 the plaintiff, Yuxi Liu, and her husband, Zhizhong Feng, contacted Mr Xie and Ms Li about the possibility of a joint venture between the three companies and the Beijing Tong Ren Tang group, a business originally founded in 1669, which is one of the largest producers of traditional Chinese medicine in the world. Mr Feng’s sister was the chief financial officer of one of the companies in the group and so Ms Liu and Mr Feng offered to use that connection and their skills and expertise in negotiating a joint venture.

[3]                  On 31 October 2011, Mr Xie, Ms Li and Ms Liu signed an agreement in terms of which Mr Xie and Ms Li agreed to transfer 10 per cent of each of their shareholdings in the three companies to Ms Liu. On 31 October 2011 and 14 November 2011 the shareholding of the three companies therefore changed to 40 per cent for Mr Xie,   40 per cent for Ms Li and 20 per cent for Ms Liu. Fifteen per cent of the 20 per cent held by Ms Liu was deemed to be an investment in the form of skills to be applied in relation to the proposed venture. The remaining five per cent (or $25,000) was actual capital investment.

[4]                  On 15 November 2011, a business dinner was held  in  Bejing attended by  Mr Feng’s sister, Mr Xie, Ms Li’s husband and Jianping Ma, vice director in the foreign affairs department of the parent company, China Beijing Tong Ren Tang Group

Co Ltd (the parent company). Prior to or at the dinner, Mr Ma was provided with information about the three companies prepared by Mr Xie and edited by Mr Feng. Mr Ma is said to have expressed interest in a joint venture.

[5]                  Ms Liu subsequently visited Beijing and saw Mr Ma, who advised her that she should approach Jihong Hua, the vice general manager of a Hong Kong based subsidiary company, Beijing Tong Ren Tang Chinese Medicine Co Ltd (the Hong Kong company), who was in charge of overseas operations. She also met with her sister-in-law to discuss what requirements the Beijing Tong Ren Tang group might have in order to finalise the deal.

[6]                  Following her visit to Beijing, Ms Liu began working full time as a manager for the three companies. On 22 February 2012, the three shareholders agreed by way of resolution that if a joint venture with Beijing Tong Ren Tang group was reached and the actual price of acquisition was no less than $500,000, the three companies would pay Mr Feng $25,000 as a reward. If a joint venture could not be reached, Mr Xie and Ms Li agreed to buy back Ms Liu’s 20 per cent shareholding in the three companies by paying her $25,000.

[7]                  In a further resolution dated 11 March 2012, a slight change was made to the resolution dated 22 February 2012 by imposing a deadline for reaching a joint venture of 30 June 2012 and altering the payee of the reward fee from Mr Feng to his wife, Ms Liu. Then, because of concerns about the financial position of the three companies, Ms Liu refused to accept any liabilities of the three companies and ceased working for them as a manager.

[8]                  In an agreement drafted by lawyers and dated 8 May 2012, it was agreed that Ms Liu would be refunded her capital contribution of $25,000 and that she would transfer her shareholding in the three companies back to Mr Xie and Ms Li so that Ms Liu would be fully indemnified against any losses or liabilities relating to the operation of the three companies. Mr Xie and Ms Li further agreed that they would change their respective shareholdings so that Mr Xie would own 51 per cent and Ms Li would own 49 per cent. On 9 May 2012, the shareholding of the three companies therefore changed to 51 per cent for Mr Xie and 49 per cent for Ms Li.

[9]                  However, discussions continued between the parties and on or about 28/29 July 2012, two further agreements were signed by the parties. The first was an “Agreement on Share Transfers”, which confirmed that Mr Xiu and Ms Li would once again voluntarily transfer 10 per cent of their shareholdings to Ms Liu. On 8 August 2012 and 22 August 2012 the shareholding of three companies therefore changed once again to 41 per cent for Mr Xie, 39 per cent for Ms Li and 20 per cent for Ms Liu. It was confirmed that the 20 per cent shareholding held by Ms Liu would be treated as an investment in the form of skill as Ms Liu was in charge of the proposed joint venture between the three companies and the Beijing Tong Ren Tang group.

[10]              In terms of the agreement, Ms Liu’s shares were non-transferable. She was also not entitled to any voting rights nor would she be involved in the daily management of the companies. She was also not entitled to any profit sharing before the joint venture was further progressed.   If the joint venture could be reached,     Ms Liu’s shares would immediately convert into unrestricted shares. She would be made a board member and “thus be entitled to all the rights available to shareholders and board members”.

[11]There was also a best endeavours clause as follows:

Ms Yuxi Liu has promised to do her best to make the joint project a reality, and during the period of co-operation, not to be involved in any other co- operative arrangements between other companies and Beijing Tong Ren Tang Group Limited. Both Ms Yunxi Li and Mr Chinan Xie have promised to try their best to make this project a success.

[12]              Finally, the agreement provided that if the joint venture could not be reached with the Beijing Tong Ren Tang group, then Ms Liu would unconditionally surrender all the shares she owned in the three companies.

[13]              In addition, the parties signed a second document entitled “Agreement for Co-operation” whereby Ms Liu was said to be responsible for relevant communications and liaison work for the joint project based on her understanding of the New Zealand market and relevant resources in China accessible to her. She was responsible for all communications and liaison work with the Beijing Tong Ren Tang group and any related costs. Mr Xie and Ms Li promised that the three companies

would be responsible for arrangements in New Zealand for an inspection tour by the Beijing Tong Ren Tang group and would bear the expenses for the negotiators’ stay in New Zealand.

[14]              The parties regard these two agreements as having superseded the earlier agreement and resolutions and as governing the relationship between them.1

[15]              Two weeks later, on 14 August 2012, Ms Hua, the vice general manager of the Hong Kong company, contacted Mr Xie to propose a visit to New Zealand to inspect the three companies’ businesses in Auckland and survey the traditional Chinese medicine market in New Zealand. The visit was, however, later cancelled. It was not until almost a year later, on 31 July 2013, that Ms Hua again contacted Mr Xie to propose a visit to New Zealand. This time the visit did proceed. At the invitation of Mr Xie, Ms Li, Ms Liu and Mr Feng accompanied Ms Hua and Alison Leung, an area manager in the Hong Kong company, on their visit to Auckland and Rotorua.

[16]              Mr Feng says that after the visit to New Zealand he received word from his sister that Beijing Tong Ren Tang group had approved a joint venture in principle. He says he told Mr Xie and invited Mr Xie to finalise the joint venture as his wife, Ms Liu, had no rights to access the financial accounts of the three companies. He said the terms of the Agreement on Share Transfers dated 28/29 July 2012 prohibited any involvement by her in the daily management of the companies.

[17]              On 28 January 2014 the Hong Kong company contacted Mr Xie to discuss the structure of a possible joint venture and seeking more information about the three companies. Negotiations then ensued, which took approximately three months.

[18]              On 1 May 2014 the Hong Kong company instructed an Auckland law firm to incorporate the third defendant, Beijing Tong Ren Tang (Auckland) Ltd (the Auckland company), in which the Hong Kong company invested $1,200,000 and took a 60 per cent shareholding, Mr Xie invested $400,000 and took a 20 per cent shareholding and Ms Li invested $400,000 and took a 20 per cent shareholding.

1      The shareholding in Shiyitang Chinese Medical and Health Limited was later inexplicably changed to 51 per cent for Mr Xie and 49 per cent for Ms Li, but Mr Xie and Ms Li accept that they held a 20 per cent shareholding on trust for Ms Liu.

[19]              There was a lack of evidence about the substance of the negotiations between the Hong Kong company and Mr Xie. Ms Liu pleads in the statement of claim that Mr Xie and Ms Li falsely represented to the Beijing Tong Ren Tang group that she had neither the intention nor the funds to obtain shares in the Auckland company and agreed to transfer her shareholding to the Beijing Tong Ren Tang group. There was however no admissible evidence to that effect.2

[20]              Mr Xie denied the allegation and said in evidence that he provided details of the three shareholders in the three companies to the Hong Kong company and it was the Hong Kong company which decided who it would enter the joint venture with. He says he presumes the Hong Kong company chose himself and Ms Li because of their knowledge and experience of traditional Chinese medicine. Mr Xie says he did not question the Hong Kong company’s choice of minority shareholders.

[21]              The Hong Kong company asked for personal credit reports for the minority shareholders. Mr Xie said he therefore requested both Ms Li and Ms Liu to obtain reports and forward them to him. They did so, but Mr Xie said he never provided them to the Hong Kong company because they did not follow up the request.

[22]A joint venture agreement was formally signed and dated 22 April 2014.

[23]              Whatever the substance of the negotiations between the Hong Kong company and Mr Xie, Mr Feng acknowledged being sent some emails between the Hong Kong company and Mr Xie discussing the terms of the joint venture. Concerned about what he saw as breaches of the two agreements dated 28/29 July 2012, Mr Feng contacted Mr Xie, who arranged a meeting of the shareholders of the three companies at the Sichuan restaurant in Newmarket, Auckland, on 25 May 2014. The discussions and resolutions signed at the meeting are of pivotal importance to Ms Liu’s case. These are discussed in the next section of the judgment.

2      Mr Feng says he “discovered” that when he contacted Ms Hua and Feng Li of the Hong Kong company sometime in mid-2014.

[24]              The next day, 26 May 2014, Mr Xie signed sale and purchase agreements between the three companies and the Auckland company by which the three companies agreed to sell their assets to the Auckland company.

[25]              It does not appear, however, that the Auckland lawyers acting for the Hong Kong company knew of Ms Liu. On 3 June 2014, they wrote the lawyer acting for Mr Xie as follows:

We understand that in addition to Chinan Xie and Yunxi Li, Luxi Liu is a shareholder of Yang Sheng Tang Chinese Medicine Limited and Chinese Medical Company Limited. We have been provided with a shareholders’ agreement dated 29 July 2012 in this regard (and which also refers to Shiyitang Chinese Medical and Health Limited) and it would appear that by entering into the joint venture arrangements with Beijing Tong Ren Tang,  Mr Xie and Ms Li are in breach of the shareholders’ agreement.

In light of the above please provide us with an urgent explanation of the current status of, and each shareholder’s position under, the shareholders’ agreement.

[26]Mr Xie’s lawyers replied:

We have not heard from the minority shareholder Ms Liu at this stage. I understand that the minority shareholder was supposed to discuss with your client and paid [sic] for all expenses that enable any cooperation between the three companies and your client but the minority shareholder has not done anything. It is questionable whether there has been proper consideration for the 20% shareholding.

[27]              Mr Xie’s lawyers also provided the Hong Kong company’s lawyers with a copy of the shareholders’ resolution signed by Mr Xie and Ms Li (together representing  80 per cent of the shareholding in the three companies) authorising the sale of assets to the Auckland company.

[28]              Having bought the assets of the three companies, the Auckland company commenced business from the same premises on 1 June 2014. The three companies later completed financial statements to 31 December 2014, noting that the business had been sold to the Auckland company in June 2014. The three companies were then wound up in a solvent liquidation, which was recorded as resulting from a restructuring of the shareholders’ commercial affairs. Although a solvent liquidation, there was no distribution to the shareholders after payment of all liabilities and liquidator’s fees.

Shareholders’ resolution dated 25 May 2014

[29]              This is a crucial document for Ms Liu. She was not present at the meeting of shareholders of the three companies held at the Sichuan restaurant in Newmarket, Auckland on 25 May 2014, being represented by her husband, Mr Feng. The other two shareholders who held 80 per cent of the shares in each of the three companies, Mr Xie and Ms Li, were present as was an employee of the three companies, Hongyin Ding, as a witness.

[30]              Before the meeting, Mr Xie prepared a draft document containing four resolutions. The first two were in the alternative as were the third and fourth. It read:

SHIYITANG CHINESE MEDICAL AND HEALTH LTD. CHINESE MEDICAL COMPANY LTD.

YANG SHENG TANG CHINESE MEDICINE LTD.

Resolutions of Shareholders (Directors) Meeting

Date of Meeting: 25 May 2014

Location of Meeting: Auckland Sichuan Restaurant Host: Chinan Xie

Minute Taker: Hongyin Ding

The directors and shareholders meeting of the 3 companies named above were hosted on 25 May 2014 at the Auckland Sichuan Restaurant. There were 3 shareholders (directors), representing 100% of the total share holdings, in attendance. Pursuant to Company Act and Constitution of the Companies, the meeting has resulted in the following resolutions:

1.     That the Asset Sale and Purchase Agreement of Beijing Tongrentang (Auckland) Ltd. be approved (shareholders in agreement with this resolution being the undersigned):

2.     That the Asset Sale and Purchase Agreement of Beijing Tongrentang (Auckland) Ltd. be disapproved (shareholders in agreement with this resolution being the undersigned):

3.     That a financial liquidation company be authorised to execute the dissolution and liquidation requirements of the above-mentioned companies (shareholders in agreement with this resolution being the undersigned):

4.     That a financial liquidation company not be authorised to execute the dissolution and liquidation requirements of the above-mentioned companies (shareholders in agreement with this resolution being the undersigned):

Signature of Shareholders:

Ms YUNXI LI Ms YUXI LIU Mr CHINAN XIE

Witness:

[31]              Mr Xie says that he prepared three copies of the document, one for each shareholder.   There was some discussion at the meeting, but no final agreement.   Mr Feng left the restaurant before lunch as he was dissatisfied with the discussions. He took with him one of the copies of the document. On that copy, the word “Agreed” had been handwritten under the first resolution, which had then been signed by     Mr Xie, Ms Li and Mr Feng. The word “Agreed” had also been handwritten under the third resolution, which had then been signed by Mr Xie and Ms Li, but not Mr Feng. Mr Xie and Ms Li had also signed at the bottom of the document with their signatures having been witnessed by Ms Ding.

[32]Critically for the plaintiff, Mr Xie had also handwritten a note on the document:

The precondition of Yuxi Liu’s approval of the first resolution: Yuxi Liu is to own no less than 9% of new company’s shares.

This had also been signed by Mr Xie, Ms Li and Mr Feng.

[33]              Ms Liu says that this note is evidence of an agreement by Mr Xie and Ms Li that they would allocate nine per cent of the shares in the Auckland company to her. Mr Xie and Ms Li say that the note merely records Mr Feng’s position as articulated at the meeting. By recording Mr Feng’s position, they did not agree to allocate a  nine per cent shareholding to his wife, Ms Liu.

[34]              After hearing the evidence of Mr Xie, Mr Li and Ms Ding for the defendants and from Mr Feng for the plaintiff, I have no doubt that Mr Xie and Ms Li did not agree, by their signature underneath the handwritten note on the document, to allocate a nine per cent shareholding to Ms Liu. I accept that Mr Xie told Mr Feng that, for whatever reason, he did not have the authority to change the shareholding of the

Auckland company. Mr Feng became angry and walked out of the restaurant when he understood from Mr Xie that there was no part for Ms Liu to play in the Auckland company.

[35]              The effect of the handwritten note on the shareholder resolution dated 25 May 2014 is that Ms Liu did not approve the sale of the three companies’ assets to the Auckland company. Her approval was conditional on a condition that was not fulfilled. The handwritten note however imposes no legal obligations on Mr Xie or Ms Li.

[36]              The fact of the matter was that Ms Liu’s approval was not required for the resolutions as she held only 20 per cent of the shares in the three companies. Section 106 of the Companies Act 1993 enables a 75 per cent majority to approve a major transaction or put a company into liquidation by way of a special resolution. If Ms Liu disagreed with the sale of the three companies’ assets to the third defendant (a major transaction), she had the right to require the companies to purchase her shares, but she did not do so.

Statement of claim

[37]The statement of claim contains five causes of action.

Breach of agreement to transfer shares in the Auckland company to the plaintiff

[38]              Ms Liu relies on the handwritten note to the shareholder resolutions dated   25 May 2014, which states that the precondition of her approval of the first resolution [approving the sale of the three companies’ assets to the Auckland company] is that she is to own no less than nine per cent of the Auckland company’s shares. Despite demand, Ms Liu alleges that Mr Xie and Ms Li failed to register her shareholding in the Auckland company. Ms Liu seeks a declaration that Mr Xie and Ms Li hold a nine per cent shareholding in the Auckland company on trust for her and an order that the Registrar of Companies register a transfer of nine per cent of the shares in the Auckland company from Mr Xie and Ms Li to her. Alternatively, judgment is sought against Mr Xie and Ms Li in a sum to be quantified.

Breach of fiduciary duty

[39]              Ms Liu alleges that the business arrangement between her and Mr Xie and Ms Li was a joint venture and, accordingly, gave rise to fiduciary obligations between the parties. In breach of their fiduciary duties, Mr Xie and Ms Li failed to register her shareholding in Shiyitang Chinese Medicine Co Ltd. Furthermore, she was not given a nine per cent shareholding in the Auckland company, nor was she appointed a director of the Auckland company. The same orders are sought as in the first cause of action.

Constructive trust

[40]              Ms Liu alleges that the business arrangement between her and Mr Xie and  Ms Li recorded a common intention on the part of her, Mr Xie and Ms Li that she would receive a nine per cent shareholding in the Auckland company. Ms Liu claims she had a reasonable expectation that she would therefore receive a nine per cent shareholding and Mr Xie and Ms Li should reasonably expect to yield interests in the form of a nine per cent shareholding in the Auckland company to her. Ms Liu alleges it would be unconscionable for Mr Xie and Ms Li to deny her the nine per cent shareholding.

[41]              Ms Liu seeks an order declaring a remedial constructive trust held by Mr Xie and Ms Li in her favour as to a nine per cent shareholding in the Auckland company and judgment in such sum as the Court deems just in respect of dividends and/or other benefits received by Mr Xie and Ms Li from the date of incorporation to the date of hearing pursuant to the nine per cent shares in the Auckland company held in trust for her.

Breach of terms of restraint

[42]              Ms Liu alleges that pursuant to cl 5 of the Agreement on Share Transfers dated 28/29 July 2012, Mr Xie and Ms Li were restrained from being involved in any business relationship with the Beijing Tong Ren Tang group in the event that the business arrangement between her, Mr Xie and Ms Li was terminated. In breach of the restraint, Ms Liu alleges that Mr Xie and Ms Li incorporated the Auckland

company and procured the Auckland company to enter into a business arrangement with the Beijing Tong Ren Tang group.

[43]              Ms Liu seeks an order restraining Mr Xie, Ms Li and the Auckland company from having any business relationship with the Beijing Tong Ren Tang group and an account of profits arising out of the business relationship with Beijing Tong Ren Tang group.

Knowing receipt and unjust enrichment

[44]              Ms Liu alleges that in May or June 2014 the Auckland company entered into agreements with each of the three companies to purchase their assets. Ms Liu alleges that Mr Xie and Ms Li, to her exclusion, received the benefit of the consideration for transfer of the companies’ assets to the Auckland company and failed to account to her for her proportionate share of consideration for transfer of the companies’ assets to the Auckland company. Ms Liu also alleges the Auckland company has been unjustly enriched as a result of acquiring the assets of the companies. Ms Liu seeks a declaration that the assets transferred from the three companies to the Auckland company are subject to a 20 per cent charge in her favour or alternatively judgment against Mr Xie and Ms Li in the sum representing 20 per cent of the value of the assets transferred to the Auckland company.

Counterclaim

[45]              Mr Xie and Ms Li acknowledge they were in a business relationship in the nature of a joint venture with Ms Liu. They say Ms Liu represented to them that she had a close connection with the Beijing Tong Ren Tang group and could facilitate a business relationship with them. Mr Xie and Ms Li allege that in return for the shares in the three companies transferred to her, Ms Liu promised to use her skill, expertise and claimed connection with the Beijing Tong Ren Tang group to increase business for them.

[46]              Mr Xie and Ms Li allege that Ms Liu breached her promise to them as she did not have a close connection to the Beijing Tong Ren Tang group, or if she did, she failed to utilise it. The breach of promise is said to have led to significant wasted

expense to be detailed prior to trial. Mr Xie and Ms Li seek a declaration that Ms Liu breached her promise to them and has no right to a shareholding in the Auckland company. Finally, they seek damages.

Discussion

[47]              The major flaw in Ms Liu’s case is her contention  that the document  dated 25 May 2014 entitled her to a nine per cent shareholding in the Auckland company. It did not. It merely recorded that her approval of the sale of the assets of the three companies to the Auckland company was conditional on the allocation of no less than nine per cent of the shares in the Auckland company to her. She was not allocated nine per cent of the shares so did not approve the sale of the assets of the three companies.

[48]              Ms Liu’s lack of approval counted for nothing, however. The other two shareholders who together held 80 per cent of the shares in the three companies approved the sale of the assets of the three companies. Holding more than the minimum requirement of 75 per cent of the shares, they were therefore able to proceed quite lawfully with the sale of the assets of the three companies (and then to wind-up the three companies voluntarily).

[49]              The Agreement for Co-operation dated 28/29 July 2012 states that the parties accept that Beijing Tong Ren Tang group is to own no less than 51 per cent of the shares in any joint venture company. It also provides for an appraisal to be made of the assets of the three companies and that the final funds for the project would be confirmed through negotiations with Beijing Tong Ren Tang group based on the appraised result. It said nothing about who, apart from the Beijing Tong Ren Tang group, would hold the remaining shares and in what proportion.

[50]              Nor did the Agreement on Share Transfers, also dated 28/29 July 2012. The only benefit specified for Ms Liu if a joint venture was reached with Beijing Tong Ren Tang group was that the restrictions on dealing with her shares, voting and profit sharing would be lifted and Ms Liu would become a board member “and thus be entitled to all the rights available to shareholders and board members”.

[51]              An earlier agreement had specified a reward fee of $25,000 if a joint venture was reached, but the parties regard that as superseded by the Agreement for Co-operation and the Agreement on Share Transfers, both dated 28/29 July 2012.

[52]              The plaintiff has failed to prove she was entitled to a nine per cent shareholding in the third defendant. There was, therefore, no breach of any agreement to transfer shares in the Auckland company to Ms Liu as alleged in the first cause of action.

[53]              The second cause of action is perhaps the strongest claim as Mr Xie and Ms Li admit that they owed the following fiduciary duties to Ms Liu:

(a)Trust and confidence.

(b)Good faith.

(c)Not to unduly benefit from the relationship.

(d)Not to act in a manner adverse to her interests.

[54]              Ms Liu alleges that Mr Xie and Ms Li breached their fiduciary duties to her in the following ways:

(a)Mr Xie and Ms Li failed and/or neglected to register her shares in Shiyitang Chinese Medical and Health Ltd.

(b)Mr Xie and Ms Li falsely represented to Beijing Tong Ren Tang group that Ms Liu had neither the intention nor the funds to obtain shares in the Auckland company and agreed to transfer Ms Liu’s shareholding to the Auckland company.

(c)Ms Liu was not given a nine per cent shareholding the Auckland company.

(d)Ms Liu was not appointed a director of the Auckland company.

[55]              Mr Xie and Ms Li deny any breach of those duties. As to the first alleged breach, they acknowledge that whatever the position recorded in the Companies Office, they held 20 per cent of the shares in Shiyitang Chinese Medical and Health Ltd on trust for Ms Liu. The wrongful removal of Ms Liu as a shareholder therefore has no legal consequences.

[56]There was no admissible evidence of the second alleged breach.

[57]              The third and fourth  alleged breaches  of fiduciary duties add  nothing  to  Ms Liu’s claim that there was a specific agreement with Mr Xie and Ms Li that she would be allocated nine per cent of the shares in the Auckland company. There was no agreement, nor did any fiduciary duties owed by Mr Xie and Ms Li oblige them to allocate nine per cent of the shares to Ms Liu.

[58]              However, the fiduciary duties owed by Mr Xie and Ms Li may have had some relevance in the course of negotiations between the Hong Kong company and Mr Xie. If, as Mr Xie says, it was the Hong Kong company’s choice to offer shareholdings just to Mr Xie and Ms Li, then perhaps Mr Xie had an obligation to advise Ms Liu when he received the first draft of the agreement. If she had been advised earlier of the intended minority shareholding which excluded her, then Ms Liu may have been in a position to take it up with the Hong Kong company and/or Mr Xie before the Auckland company was incorporated.

[59]              There was, however, no such pleading. There was also a lack of evidence about the substance of the negotiations between the Hong Kong company and  Mr  Xie.  Ms Liu relies almost entirely on the 25 May 2014 document to substantiate her claim. The second cause of action must therefore fail as unproven.

[60]              The third cause of action pleaded, that of constructive trust, adds nothing to Ms Liu’s claim. There was no common intention that she would receive a nine per cent shareholding in the Auckland company.

[61]              The allegation in the fourth cause of action of a breach of the terms of restraint set out in cl 5 of the Agreement on Share Transfers is also not well founded. The

parties were only restrained from individually co-operating with Beijing Tong Ren Tang group if Beijing Tong Ren Tang group did not proceed with a joint venture with the three companies and any one of them. Beijing Tong Ren Tang group did proceed with a joint venture with the three companies so the restraint of trade provision is not applicable.

[62]              The fifth and final cause of action arises out of events after the Hong Kong company purchased the assets of the three companies. The liquidator of the three companies then repaid the shareholder advances made by Ms Xie and Mr Li, which totalled $568,450 as at 31 March 2014. Ms Liu complains that she has not been treated equally as a 20 per cent shareholder. However, she had no outstanding balance due to her. Although Ms Liu had initially made a capital advance of $25,000 for a five per cent shareholding, that had been repaid in May 2012. She did not make any capital advance for the 20 per cent shareholding subsequently received in August 2012. The 20 per cent shareholding held by Ms Liu in the three companies had no value before or after the sale of their assets in 2014. The net assets of the three companies were entirely funded by shareholder loans from Mr Xie and Ms Li. Ms Liu has not proven that the approach taken by the liquidator was wrong and led to Mr Xie and Ms Li’s unjust enrichment.

[63]              Ms Liu’s claim must fail. It has not been proven on the balance of probabilities. However, if I am wrong on that account, I am of the view that Ms Liu has also failed to prove any loss. Ms Liu was not entitled to a nine per cent shareholding in the Auckland company without payment.

[64]              The Hong Kong company paid $1.2 million for a 60 per cent shareholding. Mr Xie and Ms Li each paid $400,000 for a 20 per cent shareholding. The shareholders subsequently advanced another $1,050,000 with Mr Xie and Ms Li paying a further $210,000 to bring their capital contributions up to $610,000 each. If Ms Liu was now entitled to a nine per cent shareholding she would need to pay

$274,500.     The  Auckland  company  has,  however,  accumulated  losses  totalling

$425,452 as at 31 December 2017. No dividends have been paid to any shareholder. The net tangible assets value of a nine per cent shareholding is, therefore, now only

$236,209.32. It is difficult to see what losses Ms Liu has suffered. Loss of opportunity was not pleaded.

[65]              The counterclaim must also fail. The Agreement on Share Transfers only contained a best endeavours clause “Ms Yuxi Liu has promised to do her best to make the joint project a reality.” The clause is too vague to be of any practical utility. It is unenforceable. In any event, the joint venture was made a reality. Whatever effort Ms Liu put into the project, it was successful. Mr Xie and Ms Li have suffered no damage.

Result

[66]              The plaintiff’s claim is dismissed. The first and second defendants’ counterclaim is also dismissed.

[67]              Costs are payable on a 2B basis by Ms Liu to Mr Xie and the Auckland company. Ms Li is not entitled to costs, having represented herself. If counsel are unable to agree on quantum, memoranda of no more than three pages are to be filed by 31 January 2019.

Woolford J