Ou v Liang
[2017] NZHC 1140
•26 May 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2017-404-138 [2017] NZHC 1140
BETWEEN BINGQUI OU
Plaintiff
AND
WEI LIANG Defendant
Hearing: 26 May 2017 Appearances:
S W M Piggin for the Plaintiff
G S C K Sidnam for the DefendantJudgment:
26 May 2017
ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL
Solicitors:
Northern Legal Limited (Puhan Zeng), Brown’s Bay, Auckland, for the Plaintiff
Grand Sidnam, Epsom, Auckland, for the Defendant
Copy for:
S W M Piggin, Barrister, Auckland, for the Plaintiff
OU v LIANG [2017] NZHC 1140 [26 May 2017]
[1] In 2015 Mr Ou lent Ms Liang $250,000 interest free. She has not paid him back. He sues to recover the money. He has five causes of action in his statement of claim:
[a] a claim for failure to repayment under the loan agreement;
[b] an agreement for representation to refund loan advance if residence not obtained;
[c] failure of a condition of the loan agreement; [d] misrepresentation; and
[e] misleading conduct under the Fair Trading Act 1986.
Mr Ou applies for summary judgment on the first and third causes of action. In opposition, Ms Liang says that there are disputed issues of material fact and a dispute as to the interpretation of the parties’ agreement.
[2] There is no dispute as to the principles followed on a plaintiff’s application for summary judgment. The Court of Appeal re-stated them in Krukziener v Hanover Finance:1
[26] The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried … The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated … The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable … In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it …
[27] … [T]he defendant need not file a statement of defence. The onus remains on the plaintiff, and summary judgment will be denied if on the hearing of the application it appears that there is an issue worthy of trial.
1 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307.
Parties
[3] Mr Ou is a Chinese citizen. He presently lives in New Zealand. He is now aged 22 years. His first language is Mandarin, not English. He has given his affidavit in Mandarin. He came to New Zealand in 2012 on a student visa to study for a business diploma. The visa was for one year but has been renewed a number of times. His student visa allowed him to work in employment for up to
20 hours a week but he could not be self-employed. Before he came to New
Zealand he did not have any business experience.
[4] Ms Liang has a media business. She is the sole director of a small company, WOM Group Ltd, which was incorporated in April 2015. She says that over the last ten years she has worked hard in developing relationships in the Chinese community.
Evidence
[5] In 2015 Mr Ou was interested in obtaining permanent New Zealand residence. He hoped to obtain it through what he calls the “business investment category”. An immigration agent had suggested buying a café. Another student, Chang Yong Zhang, introduced him to Ms Liang as a former host of a Chinese radio station. The three met at a café in Brown’s Bay, Auckland. According to Mr Ou, Ms Liang suggested that he invest in her media company and work in the company. By doing so, the time to obtain a residence permit would be shorter. Once he graduated his investment could be converted into a 25 per cent shareholding in the company. That meeting was in April 2015, the same month as WOM Group Ltd was incorporated. Mr Ou says that Ms Liang gave reasons why it would be worth his while investing in her company as a way of shortening the time to obtain a visa:
[a] she would introduce him to a lawyer who could help;
[b] she could arrange for him to work in her company as an assistant manager, and that experience would be valuable in getting a work visa;
[c] she had contacts in the media industry which would lead him to mix with celebrities, and publicity relating to that could improve his chances on his visa application; and
[d] she also promised to refund the money if his immigration application was not successful.
[6] A few days after that meeting, Mr Ou advised Ms Liang that he wanted to make the investment they had discussed. She arranged for her accountant to draw up two agreements. On 29 April 2015 there was a meeting at the accountant’s office. Mr Ou, Mr Zhang and Ms Liang attended. Mr Ou says that the accountant was an elderly man from Hong Kong who spoke Cantonese and English. The agreements were in English. Someone translated the agreements to Mr Ou, but did not explain what they meant.
[7] There were two agreements, both dated 29 April 2015. Both parties have put in unsigned copies of the agreement but it is common ground that the agreement was signed on 29 April 2015. One agreement is between Mr Ou as lender and Ms Liang as borrower. The other agreement is between Ms Liang as lender and WOM Group Ltd as borrower. Mr Ou is suing on the agreement between himself and Ms Liang.
[8] That agreement is called a “term loan contract”. Ms Liang is identified as the borrower and Mr Ou as the lender. The principal sum advanced is $250,000. The loan commencement date is 1 May 2015. The loan is interest-free and unsecured. There is a repayment provision:
THE PRINCIPAL SUM SHALL BE REPAID:
After a minimum period of one year, and thereafter month by month until Bingqi Ou obtains the New Zealand Entrepeneur Work Visa in which he will require the Principal sum to be repaid which he will reinvest this amount to purchase 25% of the shareholding of WOM Group Ltd
There is a schedule containing boilerplate terms. There is also an initial disclosure statement under the Credit Contracts Act 1981 (not the Credit Contracts and Consumer Finance Act 2003).
[9] The second agreement was between Ms Liang as lender and WOM Group
Ltd as borrower. That is also a term loan contract. The amount advanced is
$250,000. That is also interest-free and unsecured. The lender has the right to review the interest rate by giving three months’ notice. The repayment clause provides:
THE PRINCIPAL SUM SHALL BE REPAID:
For a minimum period of one year, and thereafter by agreement between the
Lender and Borrower.
That agreement has the same boilerplate terms as the agreement between Mr Ou and Ms Liang.
[10] Mr Ou paid Ms Liang the $250,000 in May 2015. In the second half of
2015 he began to work part-time in the WOM Group Ltd as an employee. Towards the end of 2015 he asked to see the financial accounts for the business but was told he could not as he was not yet a shareholder.
[11] In 2016 he instructed lawyers. In March 2016 and September 2016 they made demands for repayment of the $250,000. So far, Ms Liang has not repaid him. He still has a student visa, but he does not hold an entrepreneur work visa. His evidence does not say what, if anything, he did to obtain an entrepeneur work visa.
[12] Mr Ou’s fellow-student, Chang Yong Zhang, has given an affidavit describing the meeting at Browns Bay and the signing of the documents.
[13] An issue in the case is Mr Ou’s eligibility for an entrepreneur work visa. For that, an experienced immigration lawyer, Mr David Ryken, has given expert evidence. He has practised immigration law since 1991 and is a specialist in that area. He has qualified himself as an expert in immigration law, in the way that
Immigration New Zealand deals with immigration applications, and also in the best way to present applications to Immigration New Zealand for favourable consideration. He is clearly familiar with the requirements for an entrepreneur work visa. His conclusion is that in the arrangements made in April/May 2015, under which Mr Ou advanced funds to Ms Liang and also worked in her company, were never remotely feasible as a vehicle for Mr Ou to obtain an entrepreneur work visa. His affidavit supports that conclusion, with a careful consideration of the facts given by the plaintiff’s solicitors and the requirements of Immigration New Zealand for an entrepreneur work visa.
[14] Mr Ryken says that instructions given under ss 22-25 of the Immigration Act 2009 by the Minister of Immigration provide for the grant of entrepreneur work visas. The objective of this visa category is said to be to contribute to economic growth by enabling experienced business people to grow or establish a high growth and innovative business with export potential in New Zealand. He describes the entrepreneur work visa as a temporary entry visa, with conditions that allow self-employment in New Zealand. Mr Ryken says that after two years on an entrepreneur work visa, a residence application may be filed. That is an entrepreneur residence visa category. He notes that Mr Ou, with his student visa, was not allowed to work on a self-employed basis, and while a student visa may allow part-time employment, that would not count as self-employment, which is required for an entrepreneur residence visa.
[15] For an entrepreneur work visa, the applicant must be able to make a minimum capital investment of $100,000 (excluding working capital) to their proposed business. Proof of ownership of the funds is required.
[16] There is a points requirement. The applicant needs a minimum of 120 points for factors listed in the rules in the immigration instructions. The applicant must also provide a business plan specific to the proposed business. The applicant must be able to satisfy an immigration officer that:
(1) the applicant has sufficient business experience relevant to the business proposal; and
(2) the applicant has a genuine intent to establish the business described in the business plan and will abide by the conditions of the visa.
[17] There are a number of other requirements:
[a] where applicable, professional or occupational registration must be obtained in New Zealand;
[b] the applicant must not have been involved in involved in bankruptcy or business failure;
[c] the applicant must not have been involved in business fraud or financial impropriety;
[d] there are English language requirements; and
[e] the business must not constitute an unacceptable risk to New
Zealand laws or policies.
[18] Mr Ryken notes that Mr Ou came to New Zealand as a student and had no prior business experience except through student employment in New Zealand. He regards Mr Ou’s chances of satisfying an Immigration officer that he had sufficient business experience as “most unlikely”. Under the points criteria, he notes that points can be awarded for “relevant senior management experience” but that is with a minimum of five years experience and he notes that Mr Ou was well short of that.
[19] Mr Ryken considers how an application for an entrepeneural work visa for Mr Ou could have been made. His evidence relies in part on his experience in how to present an application most favourably so as to obtain acceptance. Points are awarded for the amount of any investment by the applicant, excluding working capital, and points are awarded for new full-time positions generated for New Zealand citizens or residents. Mr Ryken notes that while Mr Ou had paid
$250,000, it is not clear whether that was applied to working capital or constituted a capital investment. Mr Ryken says that as a matter of normal
practice an application for an entrepreneur work visa is lodged first and, if it is approved, the investment is made afterwards. That is so that any increase in staffing arising out of the capital investment can be ascertained and measured, and an immigration officer can assess the prospect of creating new full-time employment.
[20] Funds were invested with the WOM Group Ltd in April/May 2015 before a business plan had been drafted and before any application had been made to Immigration New Zealand. Because the business expertise of the visa-holder is expected to generate an income as a self-employed immigrant, it is seldom appropriate to invest funds into a company before approval of the business plan because it may be difficult to establish a nexus between the investment and the business plan, as well as a nexus with the generation of income and the creation of new full-time positions.
[21] Mr Ryken accepts that it is possible to submit an investment and business plan with an entrepreneur work visa application after an investment has been made. But that timing carries the risk that Immigration New Zealand may not consider that all of the business plan requirements have been met, or may not consider that the investment of funds at an earlier date would bring about the creation of new full-time positions for New Zealand citizens or residents. Mr Ryken considers that this may become problematic at the entrepreneur residence stage when an immigration officer will be required to scrutinise carefully the number of employees before the investment and the situation after two years to determine whether the business plan has been met in the terms set out in the award of points at the work visa stage.
[22] Mr Ryken considers whether Mr Ou could obtain the necessary 120 points required for an entrepeneur work visa. Putting the most optimistic case for Mr Ou, Mr Ryken assesses that he could gain no more than 105 points. He would get 15 points because of his age (being under 24 in May 2015). He would get 10 points for a capital investment of between $200,000-$300,000. Points are available for new full-time work employment creation. The most that can be awarded is 80 points for 10+ new full-time positions. Mr Ryken regards it as
highly improbable that an investment of $250,000 could generate an extra 10 jobs but, to stretch matters, he assumes that a business plan might be drafted to show
10 new full-time jobs. He makes the point that this is most unlikely. Even with those assumptions, he can find no other points which could be claimed for Mr Ou. On a points calculation, he is clear that Mr Ou could not qualify for an entrepreneur work visa.
[23] Mr Ryken also considers whether Immigration New Zealand would exercise its discretion in favour of Mr Ou, even without the qualifying points. Mr Ryken regards that as highly unlikely because Mr Ou does not have the qualifying points, he has absolutely no relevant business experience and he would have none even after completing a business degree. Mr Ryken notes that the policy behind the entrepreneur work visa is to attract proven business persons but, with his age and lack of experience, Mr Ou was doomed to fail. Applications for entrepreneur work visas cannot be made as “try-ons”.
[24] For completeness, Mr Ryken also notes that Mr Ou would not qualify under the skilled migrant category. One reason he gives for that is that Immigration New Zealand will not accept such an application from a part-owner of a business. That is because Immigration New Zealand will not allow immigrants to purchase their own job offer. He also considers that Mr Ou would not qualify under the Investor One and Investor Two categories because he lacks the requisite capital and business experience. His conclusion is that the arrangements made in April/May 2015 under which Mr Ou advanced funds to Ms Liang and later worked in her business were not remotely feasible as a vehicle for him to obtain an entrepreneur work visa.
[25] In her affidavit, Ms Liang acknowledges the agreements she made with Mr Ou and with WOM Group Limited. She also says that once it became apparent that Mr Ou could not obtain an entrepreneur work visa, she made a proposal to amend the arrangements so that he would invest the $250,000 in WOM Group Ltd without first obtaining the entrepreneur work visa. She says that Mr Ou rejected that proposal. He was only interested in getting his money back. She notes that while he worked for her company in 2015 he did not resume
employment in 2016 after he returned from a holiday in China. In submissions, Mr Sidnam accepted that it was part of the arrangements or at least an understanding – although it is not recorded in the loan agreement – that Mr Ou would go to work in Ms Liang’s company, as he in fact did.
[26] On many other matters Ms Liang takes issue with parts of the evidence of Mr Ou and Mr Zhang. These are differences as to “who said what”. They relate primarily to the meeting at the café in Brown’s Bay in April 2015. Those differences are not readily resolvable in a summary judgment application. Ms Liang does not take issue with or challenge the evidence of Mr Ryken. She does not contend that it was feasible for Mr Ou to obtain an entrepreneur work visa. She maintains that she is not an immigration expert, she does not work in that area, and she says that she did not advise Mr Ou whether he was eligible for an entrepreneur work visa or any other visa.
The contract cause of action
[27] Mr Ou’s summary judgment application is based on two causes of action:
[a] for repayment of the loan; and
[b] for repayment because of “failure of condition”.
The second is in the alternative to the first. While the first is a claim in contract, I regard the second as a claim in restitution. Both require a consideration of the terms of the term loan agreement of 29 April 2015. Neither cause of action requires the resolution of contestable factual matters, such as what the parties said to each other.
[28] On the contract cause of action there are competing interpretations. Mr Ou’s case is that the agreement provided for repayment after one year. The one year ran either from the loan commencement date, 1 May 2015, or the date of the actual advance, 15 May 2015 but the difference does not matter because this proceeding was started more than one year after the later date. After the year
there was an extension of the repayment period. During that extension Ms Liang was to pay monthly instalments until Mr Ou obtained the entrepreneur work visa. The loan became repayable in full because of an acceleration provision: Ms Liang did not make any payments at all after the first year. That argument relies not only on the repayment clause but also on the provisions in the boilerplate terms requiring repayment of the principal sum, as prescribed by the contract, and an acceleration clause:
Schedule C
1. Principal sum and interest
(a) The Borrower shall repay to the Lender the principal sum as prescribed by this contract.
…
5. Default
The balance of the principal sum which is outstanding and unpaid and all interest on it (including penalty interest) becomes due and payable immediately on the happening of any of the events in clause 5(a) to (g) even though the time for payment might not have otherwise arrived:
if the Borrower defaults in payment of any of the money which is payable under this contract on the due date for payment. Time is of the essence.
[29] On the other hand, the interpretation advanced by Mr Sidnam for Ms Liang is that two conditions had to be satisfied before Mr Ou could demand repayment:
[i] One year had to pass after the loan was made; and
[ii] Mr Ou had to obtain an entrepreneur work visa.
Ms Liang accepts that the first condition was satisfied, but she says the second was not.
[30] I note this about the way the agreement was to work. The loan was an advance to Ms Liang. When the conditions for repayment were satisfied she was to repay it, and that would then require Mr Ou to advance the funds to the
company, WOM Group Ltd. That might be accomplished by an exchange of cheques. The point to note is that actual repayment, even if by an exchange of cheques, was still required.
[31] As to the competing interpretations, I regard Ms Liang’s as the appropriate one. The repayment clause is the key. The boilerplate terms Mr Ou relies on apply only if the loan, or part of it, has become repayable under other parts of the agreement. The only other relevant part is the repayment clause. So the clause requiring repayment of the principal sum refers back to the repayment clause and the acceleration provision applies only if there has been a default under the repayment clause.
[32] Both sides agree that the principal sum did not have to be repaid until one year was up. Even if Mr Ou obtained a visa during the year, he still had to wait for the year to expire. The repayment clause is better understood as setting out times for repayment. While the English is clumsy, the intent is clear. Even if one year had passed, the time for repayment was extended “and thereafter month by month” until the second condition was satisfied – obtaining an entrepreneur work visa.
[33] Mr Ou’s interpretation, that “month by month” means that Ms Liang had to start making monthly instalments in reduction of the debt, is not workable. It would be void for uncertainty, because the amount of monthly instalments is not stated. The clause reads more comfortably as one fixing a time for payment rather than fixing amounts for payment by partial reduction. It is an all-or- nothing repayment clause. There is no reference to part payments. Accordingly Ms Liang has an arguable defence to the claim under the contract for repayment of the $250,000 because the condition for repayment of the principal sum was not satisfied.
The restitution cause of action
[34] Repayment of the loan was Ms Liang’s primary obligation under the
agreement. Mr Sidnam proposed that there were additional obligations of
employment. But those are not recorded in the agreement. I regard any employment arrangements as outside the agreement and not forming part of it, although they were part of the background to the agreement.
[35] The term for Ms Liang to repay is a promissory condition. Certain events had to occur before she could be required to repay. There is, however, a problem with that promissory condition. For all practical purposes it could never be satisfied. For that, I rely on Mr Ryken’s affidavit. Ms Liang does not challenge that affidavit, and there is nothing in the defence that shows any grounds for doubting his conclusion that the arrangements were never remotely feasible as a vehicle for Mr Ou to obtain an entrepreneur work visa. In those circumstances, Ms Liang would never have to repay.
[36] I say something more as to this question of impossibility. I take an absurd example. If the contract had provided that Ms Liang was to repay when Mr Ou delivered to her a live moa, clearly that condition could never be satisfied. The condition for repayment in this case is not impossible in that sense. Although Mr Ryken did not address it, it may be possible to imagine circumstances in which Mr Ou might obtain an entrepreneur work visa. At the end of his studies he might return to China. There he could go into business and acquire valuable business experience either through self-employment or at senior management level, and accumulate capital so that he could return to New Zealand with a well- crafted business plan that was likely to generate a number of full-time jobs for New Zealand citizens or residents – all done so as to obtain the necessary points. All that remains possible in theory. But that is not what the parties had in mind when they made the term loan agreement in April 2015. It is something radically different. It would take many years.
[37] The contract contemplated that it would be feasible for Mr Ou to obtain an entrepreneur work visa without taking those steps. The extensions of time after the one year were “month by month” - not “year by year” or “decade by decade”. Any suggestion of obtaining a visa by returning to China and accumulating valuable business experience and building up capital can be dismissed as outside the parties’ contemplation, when regard is had to the terms
of the contract, the circumstances in which the contract was made, and the parties’ knowledge, expectations and assumptions. The purpose of requiring Mr Ou to obtain an entrepreneur work visa was to fix the time when the funds he was to provide were to be returned to him by Ms Liang in repayment of the loan and advanced by him to her company to secure an equity participation. It was not to set him a herculean task which might be accomplished only after a return to China and years of effort.
[38] This impossibility test I have applied is similar to that when a contract is found to be frustrated.2 In a frustration case the contract is sound at the outset but comes to an end by reason of supervening events. In this case the insurmountable barrier to performance was there from the beginning.
[39] Given the impossibility of satisfying the promissory condition, Ms Liang made an empty promise in the contract, to pay in circumstances which would never occur. Mr Ou was to receive nothing in return for having paid her
$250,000. There was no consideration given for his payment. The consideration was illusory. An empty promise is not consideration.
[40] Putting this in terms of restitution law, there was to be no counter- performance in return for his payment to her. That was a failure of base, also called a total failure of consideration or an absence of consideration.3 Having paid money under what turns out to be no more than a purported contract, under which he was to receive nothing in return, Mr Ou is entitled to be repaid because the basis for the contract was never there. In restitution he is entitled to the return of $250,000. That amounted to the pleaded “failure of condition”.
Ms Liang’s offer to change the agreement
[41] I refer to Ms Liang’s evidence that she offered to change the arrangements
so that Mr Ou could invest the $250,000 without first obtaining the entrepreneur work visa. Mr Ou did not take up that suggestion. That does not give Ms Liang
2 Planet Kids Ltd v Auckland Council [2013] NZSC 147, [2014] 1 NZLR 149.
3 Charles Mitchell, Paul Mitchell and Stephen Watterson (eds) Goff & Jones: The Law of Unjust
Enrichment (9th ed, Thomson Reuters, London, 2016) at 13-16.
an arguable defence. That is because there was no enforceable agreement at the outset. The term loan was illusory. Her proposal was to create an enforceable agreement when there was not one before. Mr Ou was not bound to accept that offer. He did not do so. He is entitled to enforce his rights on the basis that he was not required to take up her proposal.
Outcome
[42] In summary, I am satisfied that Ms Liang does not have any defence to
the claim for payment under Mr Ou’s third cause of action.
[43] I make these orders:
[a] Mr Ou recovers judgment against Ms Liang for $250,000.00.
[b] He recovers interest on $250,000.00 at five per cent per annum from 1 April 2016 (I have taken that date because Mr Ou’s lawyers made demand on 10 March 2016) down to the date of judgment.
[c] Ms Liang is to pay Mr Ou costs on the proceeding. Costs will be category 2 band B.
[43] If counsel cannot agree costs, memoranda may be filed.
……………………………
Associate Judge R M Bell
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