Peng v Li

[2015] NZHC 2323

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-4367 [2015] NZHC 2323

BETWEEN

ZHONGJIAN (TOM) PENG AND

CATHERINE CHAO Plaintiffs

AND

XIAOXI (RICHARD) LI First Defendant

YUAN (ROSEMARY) CHEN Second Defendant

Hearing:	22-25 and 29 June 2015
Counsel:	M A Karam and A V Shinkarenko for Plaintiffs C R Andrews and E L Moore for Defendants
Judgment:	24 September 2015

JUDGMENT OF FOGARTY J

This judgment was delivered by me on 24 September 2015 at 4.00 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date: ………………………….

Solicitors:           Aaron Kashyap, Auckland

McVeagh Fleming, Auckland

PENG AND CHAO v LI [2015] NZHC 2323 [24 September 2015]

Introduction

[1]      The plaintiffs seek in these proceedings to recover from the defendants the sum of $507,500, together with simple interest, or compound interest, and exemplary damages. This claim is martialled in seven causes of action:

(i)Breach of a joint venture contract over two properties having the postal addresses of 1/18 and 2/18 Inverary Avenue, Epsom.

(ii)A cause of action under the Fair Trading Act alleging false and misleading misrepresentations by the first defendant.

(iii)     An action in deceit against the first defendant.

(iv)     An action for unjust enrichment/money had and received. (v) Constructive trust.

(vi)     Resulting trust.

(vii)     Breach of fiduciary duty.

[2]      In respect of the first three causes of action, the remedy of interest sought is pursuant to s 87 of the Judicature Act.  In respect of the remaining causes, except the seventh cause of action, the plaintiff seeks compound interest, to be awarded exercising the Court’s equitable jurisdiction.

[3]      In respect of the seventh cause of action, the plaintiff seeks a declaration that the first defendant holds on trust a 35 per cent interest in 1/18 Inverary Avenue (property one).  It also seeks tracing orders.

[4]      The two properties, property one and 2/18 Inverary Avenue (property two) are cross-leased on one section.   The defendants are husband and wife and own property one.  Property two was, at the time, owned by an elderly widow.

[5]      The subject matter of the dispute is whether in fact the parties ever entered into an agreement to purchase property two, the defendants’ contributing property one and contributing to part of the purchase price in property two, with a view to then developing the whole section for profit.

[6]      In support of that claim the plaintiffs seek a declaration that they have a 35 per cent interest in property one.  The logic is that would be the plaintiff’s share of the total development.

[7]      The plaintiffs are husband and wife, as are the first and second defendants. The two men met first in early 2009.  Since they met they played soccer together socially and then became involved in various business dealings, including at least two joint ventures involving the purchase and development of properties for resale, one in 2010 in Avondale and another from 2011-2012 in Henderson.   The first defendant (Mr Li) was the project manager for both of these developments and charged fees for acting in that capacity.

[8]      The plaintiffs’ case is that in early April 2012, Mr Li approached the first- named plaintiff (Mr Peng) with the proposal for another joint venture, being for the redevelopment of both properties one and two.   The proposal was that Mr Li contributed property one to the joint venture and the plaintiffs and Mr Li contributed to the purchase of property two.  The entire section would then be divided and two new townhouses developed on freehold titles for resale.

[9]      Mr Peng gave evidence of two discussions on the matter.  He had been told by Mr Li that his elderly neighbour had died, leaving only the elderly lady living in the property two, next door to him (property one).  That Mr Li had spoken with her and she agreed that property two could be purchased from her for $725,000.  That he considered his own adjoining property one was worth the same amount, thus valuing the two properties jointly for a total sum of $1,450,000.  The proposal was that if Mr Peng  and  his  wife,  Ms  Chao,  agreed  to  invest  in  the  project,  the  initial  funds advanced would be utilised for the purchase of the neighbouring property two.  Once property two was acquired, it was proposed Mr Li would hold effectively 65 per cent in the total venture and Mr Peng and his wife 35 per cent.  Thus the contribution to

the purchase of the neighbouring property would be $507,500, being 35 per cent of

$1,450,000.   He gave evidence as to other detail of the arrangement,  including expected subdivision costs, building costs and project management fees.

[10]     On 15 April 2012, an application was made on behalf of Mr Peng to the Kookmin Bank seeking a loan of $500,000 for Mr Peng for “purchase of a section joint with his friend for investment”.  Mr Peng said he told Mr Li he had obtained funding from the Kookmin Bank and in return Mr Li told him an agreement to purchase the neighbouring property was to be settled on 4 May.

[11]     On 29/30 April Mr Peng and his wife paid $507,500 into the joint account of the defendants in two components, $500,000 and $7,500.  On 4 May Mr Peng sent Mr Li a text message (translated), “Has the property been sorted out?”   Mr Li replied, “Done”.

[12]     Mr Li’s evidence is that it is a complete invention on the part of Mr Peng that he, Mr Li, proposed the joint venture described above over properties one and two. Rather, that the payment being made by Mr Peng and his wife was to settle a debt arising principally from the purchase of shares in a company called Clay made on 17

August 2011.   This purchase was to buy-out Mr Li’s investment of $400,000 in a business known as Harbour Fitness.

[13]     This “Harbour Fitness” defence is first in time before the alleged contract to develop 18 Inverary Avenue.  This defence, if it succeeds, proves a debt of $507,500 owed by Mr Peng and Ms Chao to Mr Li, prior to April 2012.  If this defence fails then the defendants have no further defence.  For these reasons the Harbour Fitness defence occupied almost all of the trial time, and its analysis largely comprises the whole of this judgment.

The Harbour Fitness venture

[14]     Harbour Fitness was a chain of gymnasiums set up by Mr Bing Xu.  Mr Peng advanced USD500,000 on 30 November 2010 and USD170,000 on 22 November

2010 to Mr Xu.  The parties treated this as equivalent of NZD900,000.  About the time of the advance, Mr Xu and Mr Peng agreed the advance would be treated as a

purchase of the Queen Street gym business by Ms Chao, Mr Xu would manage it. Ms Chao and Mr Peng would receive interest on their advance at 24 per cent (2 per cent per month), payable via wages, and a cash sum of $10,000.  Upon repayment of the advance, the business would revert back to Mr Xu.

[15]     It is Mr Li’s evidence that Mr Peng was enthusiastic about his investment in Harbour Fitness and persuaded Mr Li to invest NZD400,000.   The sequence of events he said was that Mr Peng introduced him to Mr Xu in late January 2011. Over the next few weeks, he and Mr Peng had several meetings with Mr Xu to discuss them both investing in the Queen Street branch of Harbour Fitness.  After some period of time and several meetings, he was persuaded by Mr Peng to get involved and on 11 February 2011, Mr Li advanced $400,000.

[16]     There is a substantial dispute between the plaintiffs and the defendants as to whether or not this was a unilateral decision by Mr Li to follow Mr Peng in making a loan to Harbour Fitness (the plaintiffs’ case) at the same rate of return or whether, on the other hand, this act of investment on 11 February 2011 was as a consequence of an agreement between Mr Li and Mr Peng to have a joint interest in Harbour Fitness. Mr Li says it was the latter and that Mr Peng agreed to guarantee Mr Bing Xu’s performance of the loan.

[17]     Essentially, Mr Li says that he and Mr Peng had agreed in February 2011, at the time of Mr Li’s $400,000 advance, that they would incorporate and register a joint company to invest in the Queen Street fitness business (one of the chain of Harbour Fitness in Auckland).   Mr Peng would guarantee Mr Li two per cent per month return on his investment.  Mr Peng was to run the company and its business and develop and implement investment strategies.  They reached this agreement and then jointly approached Mr Xu.  He says that then, Mr Xu prepared two documents written in Mandarin, being a lending agreement pending completion of the purchase of the Queen Street business and an agreement for sale and purchase of the Queen Street branch to Mr Peng’s wife, Ms Chao and Mr Li.   Mr Xu handed these agreements to Mr Li in exchange for his $400,000 bank cheque.

[18]     Mr Xu was a witness, his evidence corroborates Mr Peng and his wife Ms Chao’s evidence.  Mr Xu said that Mr Li’s investment was separate from Mr Peng’s. That on 11 February, he received from Mr Li a bank cheque for $400,000 made out to his company, BNJ Albany Limited and that was at that time a loan.  He agreed it would be on the same terms as those he had previously agreed with Mr Peng and his wife, namely a 24 per cent annual return, with the interest to be paid monthly in the form of wages and cash payments.  The form of security for the loan from Mr Peng was that Mr Peng would purchase Queen Street branch of the business from Mr Xu, and when the loan was repaid, title to the business would revert to Mr Xu.  Mr Xu’s evidence was that at this time Mr Li was undecided what form of security he would take for his loan, but that one possibility is that he would also purchase a share of the Queen Street business.

[19]     However,  Mr Xu  allowed  for a joint  investment  by the two  men in the business.   After receiving the bank cheque, he provided Mr Li with a Business Cooperation Memorandum and a lending agreement.  The translation of the lending agreement says that:

Mr Xu has borrowed NZD400,000 from Mr Xiaoxi Li, the interest on the borrowing is $2,000 a month”.  This lending agreement should correspond with   the   attached   agreement   for   sale   and   purchase   of   a   business (cooperation)  memorandum.    After  completion  of  the  purchase  of  the Harbour Fitness Queen Street Branch business, this lending agreement will be treated invalid.

[20]     On 10 February 2011, Ms Chao incorporated Clay New Zealand Limited (Clay).  All the shares were registered in her name.  She was the sole shareholder of the company.

[21]     Mr Xu’s Business Cooperation Memorandum records as purchasers both Mr Li and Ms Chao.  It says that the purchasers purchased the Harbour Fitness Queen Street branch, including all its fixed and intangible assets.   The purchase price is

$250,000 but that is an error.  Mr Xu says he meant $2,500,000.  He says that that document was prepared at the request of Mr Li.  It is not executed by either Mr Li or Ms Chao.

[22]     Mr Xu’s memorandum demonstrates that about 11 February 2011, Mr Li and Mr Peng at least were contemplating a joint acquisition of the business, the Queen Street branch of Harbour Fitness.  It is not evidence that an agreement was reached, as they are not executed.   It is not evidence that Mr Peng guaranteed Mr Xu’s obligation to Mr Li. There is no reason why he should have.

[23]     Mr Li’s case is, however, that there was an oral agreement about 11 February, in which Mr Peng guaranteed the performance of Mr Li’s loan.

[24]     On 22 February, Mr Bing Xu sent a text to Mr Li and to Mr Peng saying:

Uncle Li, Uncle Peng, just to let you two know that my negotiation process with the landlord went smoothly, all is well.  The lease agreement transfer could be done by Friday, formally notifying you.

[25]     On 21 March 2011, a deed of lease was executed between the landlord of the Queen Street premises and Clay, signed on the company’s behalf by Ms Chao as tenant with Mr Li being her witness and being guaranteed by Mr Bing Xu.  On the probabilities, this lease is consistent with Mr Li sharing the benefits of co-ownership of the Queen Street business.  But, again, it is not evidence that or any reason why Mr Peng would guarantee the performance of the loan obligations due to Mr Li.

[26]     The lease covered the first floor, the second floor, and the second floor fit-out of 203 Queen Street. There were separate rents for each floor.

[27]     Come August 2011, there were signs of financial troubles in the Harbour Fitness business across Auckland.  In particular, the Queen Street business defaulted on payment of its rent and received on 4 August a notice of default in the rent, and of the power to the landlord to repossess the premises on 18 August.

[28]     Between 4 and 18 August 2011, there was a flurry of activity.  The sequence of events between 4 August and 17 August is not clear and as will become apparent, I do not think it is necessary, or possible, to unravel the sequence of responses to this crisis.

[29]     In brief, Mr Peng and Mr Li first thought that the notice of default was of only one of the three floors of the lease.  At least Mr Li, if not Mr Peng, looked at getting out of the Queen Street business and acquiring in its place the Glenfield branch of Harbour Fitness.  That did not come to pass, and on 17 August, the eve of the default Clay sold the worthless Queen Street branch to Mr Xu’s company, BNJ Queen Street Limited for $1.3m.

[30]     There are a number of draft agreements.  There is conflicting evidence about when they were prepared. They include:

(a)      Several drafts of a sale and purchase agreement of the business of Harbour Fitness Queen Street by BNJ Queen Street Limited (Mr Xu) to  Catherine  Chao  or  Clay  (Mr  Peng  and  Ms  Chao)  with  the possession date in February or March 2011.

(b)An unexecuted sale and purchase agreement of the business, Harbour Fitness Queen Street, by Clay to BNJ Queen Street Limited (Mr Xu), with the possession dated 23 August 2011.

(c)      An  unexecuted  sale  and  purchase  agreement  for  the  sale  of  the business, Harbour Fitness Glenfield Branch from BNJ Sports Co Limited (Mr Xu) to A & R New Zealand Limited (a company formed by Mr Li), stated to be interdependent with the sale of the Queen Street Branch business to BNJ Queen Street Limited ((b) above).

[31]     Then, the last few days before 18 August, on the 15th, the register of shares in

Clay was amended to show 308 shares transferred to Mr Li.   This is reversed on

17 August when there is an executed agreement for sale of Mr Li’s shares in Clay to Ms Chao for $400,000.   On the same day there is an executed agreement for the purchase of the shares of Clay between Mr Bing Xu and Ms Chao, with the purchase price $1,300,000, and a term loan agreement of $1,300,000 from Ms Chao to Mr Xu, executed only by Mr Xu.   This loan document suggests the idea was that Mr Xu purchased the shares with the loan, leaving him in debt to Clay – so that if he ever recovered his wealth, Clay could enforce his debt.

[32]     On 18 August 2011, Harbour Fitness lost possession of the Queen Street branch.  Thereabouts the whole Harbour Fitness business collapsed and the parties to these proceedings lost their respective investments of $900,000 and $400,000.

The plaintiffs’ case of deceit

[33]     It was the plaintiffs’ principal argument that after the Harbour Fitness disaster in 2012, Mr Li had invented the proposed redevelopment of properties one and two as  a way of defrauding  Mr Peng of over $500,000  in  order to  recoup  his  lost

$400,000 and loss of income.

[34]     It was the defendants’ case that on 17 August, the day prior to the collapse of the Queen Street business for non-payment of rent, Mr Peng was still confident in its value and had agreed to purchase Mr Li’s shares in the company, Clay, for $400,000 and had signed the contract providing just that.  The payment of $507,000 odd was settlement of that debt, together with Mr Peng meeting his liabilities as a guarantor of Mr Xu’s promised 24 per cent interest rate return on that investment, running from the date of advance in February 2011 and other costs; there being a slight counter- adjustment for a small gambling debt that Mr Li owed Mr Peng.

[35]     The  written  and  executed  sale  and  purchase  agreement,  dated  17 August

2011, is between Mr Peng and his wife (the plaintiffs) as purchaser and Mr Li as vendor, in the sum of $400,000 for 308 of 1,000 shares in Clay.  The solicitor who prepared that document, Mr Wang, was acting for both parties.  Mr Wang’s evidence was, however, that that document was not intended to be real.  Mr Wang said that if it was a real transaction, he would not have acted for both parties, because of their different interests.

Trial issues

[36]     The plaintiffs have the onus of proof that Mr Li defrauded them.  The onus of proof is on the balance of probabilities, having regard though to the seriousness of the accusation.

[37]     Mr Karam, counsel for the plaintiff, set out the issues that he considered had to be decided chronologically as follows:

1.1Was the proposal which the plaintiffs allege Mr Li made consistent with the terms of earlier development proposals?

1.2      Harbour Fitness:

1.2.1    Did Mr Peng agree in February 2011 to personally guarantee

Mr Li’s 24% p.a. returns on his advance to Bing Xu?

1.2.2    Was it intended that Mr Li was to be a shareholder in Clay

NZ Ltd on its incorporation?

1.2.3Did Messrs Peng and Li attend Winston Wang’s office to get the draft agreement for sale and purchase (ABD 1/173) formally completed?

1.2.4Did the parties reach an agreement on 10 August 2011 on the terms alleged by Mr Li in paragraph 79 of his brief of evidence?

1.3What discussions and agreements occurred between Messrs Li and Peng in April 2012 which led to the payment by the plaintiffs to the defendants of $507,500 late that month?

1.4Is there anything exceptional arising from the altercation between Messrs Peng and Li on 13 December 2012 which would warrant an award of exemplary damages in addition to the criminal penalties already imposed on Mr Peng.

[38]     Mr Andrews, counsel for Mr Li, formulated the issues in this way.  He says the primary issue for determination is this case is the reason that two payments were made, totalling $507,500, by the plaintiffs to the joint account of the defendants on

29 and 30 April 2012.  It is the defendants’ position that these payments were made in fulfilment of a single oral agreement, concluded on or about 10 August 2011, and in part evidenced in writing by the aforementioned share transfer whereby he sold his shares in Clay for $400,000, dated 17 August.

[39]     There is a counterclaim.   On 13 December 2012, Mr Peng attacked Mr Li with an axe.  He entered a guilty plea in the Auckland District Court in relation to that matter.  Mr Li counterclaims against Mr Peng for exemplary damages for assault and battery.

[40]     Mr Andrews correctly submits that if this Court is left unable to determine which of the competing explanations advanced for the payments made by the plaintiffs to the defendants is more probable than the other, then the plaintiffs’ claim must be dismissed.

Resolution of these issues

[41]     To resolve these issues, it is necessary to re-traverse these events in some detail.   It is also necessary to understand more thoroughly the nature of the relationship between the two men.  Further, the relationship between Mr Li and the source of the $400,000, his brother in China, needs to be addressed.  The ultimate issue is whether Mr Peng and his wife, Ms Chao, paid the $507,500 in repayment of the purchase of Mr Peng’s shares in Clay, and associated guarantor obligations, or paid the money believing it was their contribution to a joint venture for the redevelopment of properties one and two at Inverary Avenue.

Earlier and one concurrent joint ventures

[42]     It is important to appreciate that Mr Peng and Mr Li were not only friends but were also successful joint venturers in business.  One joint venture was in progress at the same time as the Harbour Fitness investment.

[43]     Between 2010 and 2012, Mr Peng and his wife, along with Mr Li and other associates agreed to invest in three different developments - one in Albany, one in Avondale and one in Henderson.  Largely these ventures were characterised by oral understandings, in the nature of handshake deals.  The two ventures that proceeded were successful.  Mr Li agreed that he was paid the contributions from Mr Peng as he required them.  It was common ground that there were no agreements in writing.

[44]     Mt  Peng’s  wife,  Ms  Chao,  gave  more  detail.    In  respect  of  the Albany investment, she said the contributions to this project were 40 per cent by her and her husband, 20 per cent by Mr Li and 40 per cent by another investor, Mr Brian Xu (not to be confused with Mr Bing Xu).  Mr Li and Mr Brian Xu disagreed on the house design and this project did not proceed, the shares being transferred to the next project at Avondale.

[45]     The  Avondale  project  was  carried  out  in  2010.    The  property  was  a subdivided section ready for the building of a new house.  In the end, Mr Brian Xu dropped out and the parties to the investment were Mr Peng and Ms Chao at 40 per cent, Mr Richard Li at 40 per cent and a Mr Michael Miao at 20 per cent.  Ms Chao said she transferred money on behalf of her husband and herself to Mr Li’s bank at Mr Li’s request on several occasions, the total amount being invested being around

$220,000.   Mr Li was the project manager.   He initially advised his project management fee was going to be $15,000 but it was reduced to $10,000 due to his neglect  in  not  noticing  the  land  development  contribution  was  not  paid  by the previous owner which caused extra building costs to be incurred.

[46]     When the project was completed, the property was sold for approximately

$650,000  and  Mr  Peng  and  Ms  Chao’s  share  of  the  profit  was  approximately

$35,000.  Mr Li paid them their share.  Everybody in the project was happy with the result and the participants in the project had a celebration dinner.

[47]     The third project was at Henderson.  It also involved a sub-divided section ready for the building of a new house.  The total investment was around $470,000. The parties to the investment were Ms Chao and her husband at 20 per cent; Richard Li, on project management, at 20 per cent; a carpenter, Mr Shumin Tian, at 20 per cent; and an electrician, Mr Fangliang Meng, at 40 per cent.

[48]     Again, there was no written contract.   It was all done by oral agreement. Mr Li’s project management fees were approximately $15,000.   The property was sold for around $570,000, producing a net profit to Ms Chao and her husband. There was never any written documentation executed by any of the investors relating to the project.  Ms Chao’s evidence was corroborated by Mr Miao.

[49]     It may be noted that the Henderson project was carried out in 2011 and 2012, overlapping the Harbour Fitness events.  The Henderson property was purchased in early 2011, the transfer being entered on 8 February.  The proceeds of the sale of the property were distributed through Mr Winston Wang’s firm on 28 August 2012.

Harbour Fitness

[50]     As noted above, Mr Peng and his wife lent Mr Xu $900,000 in two payments on 22/30 November 2010.

[51]     On 11 February 2011, Mr Li handed a bank cheque to Mr Xu for $400,000. It was Mr Xu’s evidence that on that day he and Mr Li agreed that Mr Li’s loan would be on the same terms as those relating to the advances by Mr Peng and Ms Chao, namely at 24 per cent return with interest to be paid monthly in the form of wages and cash payments, as follows:

(a)      Mr Li was to receive two per cent monthly interest return on his money, $8,000 per month, a total of $96,000 per year;

(b)That would be split $48,000 payable to him as salary after PAYE and the  other  $48,000  would  be  payable  in  cash  via  monthly  cash payments of $4,000 at the beginning of each month.

Those terms were not recorded in writing on that day.

[52]     As already noted, on an unknown date but a short time after 11 February, Mr Xu gave Mr Li a business cooperation memorandum written in Mandarin and undated. And as we have seen, Clay became the lessee of the Queen Street premises on 21 March.  At that time Mr Li was not a shareholder of Clay.  But he knew about the lease as he was the witness to Ms Chao’s signature.

[53]     There are various handwritten dates, February and March, on the unexecuted draft agreements for sale and purchases between BNJ Queen Street Limited and Clay or Ms Chao.  There is a conflict in the evidence as to when exactly these drafts were prepared, a topic I return to later.

[54]     The first has the vendor as BNJ Queen Street Limited (Mr Xu’s company) and the purchaser, Catherine Chao and/or nominee.   The address of the business premises is Level 1/2,  203 Queen Street and the description of the business as “fitness  centre”.    It  contemplates  an  assignment  of  the  lease.    It  is  envisaging

possession on 31 March with the landlord’s consent on 25 March.  There then appear to be different versions of that document showing the purchaser as Clay. There is evidence that these subsequent drafts were actually prepared in August.   However, regardless of when all of the drafts were created, on the probabilities, I consider these were draft agreements which were not pursued but, rather, there was a direct deed of lease executed between the landlord of the Queen Street premises and Clay, as  noted  above,  on  21  March  2011,  with  the  guarantor  being  Mr  Xu.    The significance of these drafts is that they provide for a purchase price to Mr Xu’s company in various numbers but ultimately reflecting the two loans.  So that they can be understood as acquiring the assignment of the lease of Queen Street for the same amount of money as to the two parties had lent to Mr Xu’s company.  In the next paragraph I set out the details.  But it is important to keep in mind that these drafts came to nothing and, I find on the probabilities, were overtaken by the deed of lease executed on 21 March 2011.   Second, there is no evidence that Mr Peng guaranteed or otherwise purchased Mr Li’s loan.

[55]     The tangible assets and intangible assets in the first draft are respectively

$150,000 and $100,000 (keep in mind the numerical error).1     In the second overwritten draft, the purchaser of Catherine Chao or nominee is deleted and substituted with Clay New Zealand Limited and the tangible assets are split $97,000 and $33,000, for a total purchase price of $130,000 (again the same error in printing but probably intended to be reflecting the ratio between Mr Peng’s loan of $900,000 and Mr Li’s loan of $400,000 which together total $1,300,000.  The possession date deletes 31 March and substitutes 21 February 2011.   The landlord’s consent substitutes 21 March for the date 18 February 2011 and there are proposed changes to the conditions, including recognising:

All purchase money has been paid; and

Vendor discharge all debts and liability of this business before settlement.

[56]     On  1  June  2011  Mr  Li  flew  to  China  for  a  visit.    He  left  his  wife  a handwritten note, apparently recording four current business commitments, the first

of which reads as follows in translation:

1 See [21] above.

Clay New Zealand Limited Li $400,000 Peng $900,000           (...)

Bought the fitness centre business of Harbour Fitness, Queen Street.  N now managed by the vendor Bing Xu ...   Accountant Xiao Chang ....   Cash payment before 10th of each month.

[57]     The rental default notice was received by Clay New Zealand Limited as lessee  from  the  landlord  on  4 August  2011.    It  advised  that  the  rent  due  was

$47,379.45.   Then calls for immediate remedy of the breach.   It said unless the breaches were remedied within ten working days, the lessor would be entitled to determine and cancel the lease and re-enter the premises.  That date was 18 August. Plainly, if that rental was not paid by that date, that would be the end of the business in the Queen Street premises.  As already noted, initially Messrs Peng and Li did not appreciate all three floors were in default, the fact which explains why they entertained some hope of salvage.

[58]     The next document in time was the incorporation of a company, A & R New Zealand Limited.  This has one director, Mr Li.  All 1,000 shares are held by him.  It was incorporated on 8 August 2011.

[59]     Then there are a series of unexecuted documents, the vendor this time being Clay New Zealand Limited and the purchaser being BNJ Queen Street.   The consideration  was  $1.3m.    Essentially,  these documents  envisaged  reversing  the acquisition by Clay of the Queen Street business for extinguishment of the indebtedness of the plaintiffs and the defendants.  But the documents are confusing, as is another undated agreement in reverse.  There is another agreement bringing in Mr Li’s company, A & R New Zealand Limited.  It is not clear and was not made clear from the evidence, just what the sequence was of the options that were being considered.  Details of these agreements appear in the next four paragraphs.

[60]     There is an unexecuted document, being agreement for sale and purchase of a business with the date August 2011, the vendor being Clay New Zealand Limited and  the  purchaser  being  BNJ  Queen  Street  Limited.     Tangible  assets  are, respectively, $970,000, intangibles $330,000, a total purchase price of $1,300,000.

[61]     There is an undated agreement for sale and purchase in essentially the same terms as the one just described except that the vendor is BNJ Queen Street Limited and the purchaser is Clay New Zealand Limited, however, the possession date is 21

February 2011.  Mr Wang’s evidence, which I return to later, was that he prepared

this document in August.

[62]     That undated document has the signature of the vendor to be Mr Bing Xu and the signature for the purchasers to be Ms Chao.   It is a document all typewritten which would indicate it is likely to have been prepared professionally.  It is in contra- distinction to the earlier unexecuted documents where the particulars of entry are entered in pen or pencil.

[63]     There is another agreement for sale and purchase also dated August 2011 where the vendor is BNJ Sports Co Limited and the purchaser is A & R New Zealand Limited.  The tangible assets and intangible assets and total purchase price of $1,300,000 are the same, but the business is the Harbour Fitness Glenfield branch, not the Queen Street branch, but it is stated to be interdependent with the sale of the Queen Street branch by Clay to BNJ Queen Street Limited.

[64]     On 10 August 2011, there is a transfer executed of a life insurance policy, the transferor being Mr Bing Xu, the transferee being Ms Catherine Chao and the date of registration is expressed as 16 August 2011.

[65]     The next document is dated 15 August 2011 and it is a company registry document in respect of Clay New Zealand Limited recording a new shareholder, Mr Li,  having  308  shares  transferred  from  Ms  Chao’s  previous  shareholding of

1,000, which reduces to 692 shares.  This share transfer was transacted by Ms Chao. That share split follows the ratio derived from the respective advances of $900,000 and $400,000.

[66]     On 15 August a bank cheque was paid to Winston Wang Associates in the sum of $200,000 and an acknowledgement of debt in Chinese executed by Ms Chao. The translation reads:

This is to prove that Catherine Chao borrowed NZD200,000 from Xiaoxi Li. (She) will repay all the money before 15 November 2011.

Signature of Catherine Chao

15/8/2011.

[67]     There is a share transfer dated 17 August 2011 from Mr Li, as transferor, to

Ms Chao of 308 fully paid ordinary shares.   The consideration is expressed to be

$400,000 (FOUR HUNDRED THOUSAND DOLLARS).   That document is fully executed and witnessed by Mr Winston Wang.  Ms Chao said that if she had done it electronically, as per the transaction of 15 August,2 which is reversed here, she would not have entered $400,000.  Note, this is two days after Mr Li first appears on the company register.

[68]     There is a registered document in respect of Clay New Zealand Limited on

17 August registered at 21.59 hours removing Mr Li as shareholder and reallocating all the shares to Ms Catherine Chao.

[69] There is an executed document that is dated 17 August. It is an agreement for sale and purchase of shares of Clay New Zealand Limited between Mr Bing Xu as purchaser and Ms Catherine Chao as vendor where he is purchasing 1,000 fully paid shares for $1,300,000. That is executed by Ms Chao and witnessed by Mr Wang and executed by Mr Bing Xu and witnessed by Mr Li. Given that Clay’s only “asset” was the business of the Queen Street branch, whose premises were to be repossessed the next day, the consideration is extraordinary. It is accompanied by the loan agreement of $1,300,000 from Ms Chao to Mr Xu, executed by Mr Xu, noted above in [31].

The evidence of Mr Wang

[70]     Mr Winston Wang is a solicitor practising in Auckland in the firm of Winston

Wang & Associates.

[71]     He has a substantial practice.  He sees up to five clients a day on a regular basis.

2 See above at [65].

[72]     Mr Li has been his client from about 2002.  In August 2011, he acted for both Mr Li and Mr Peng and his wife.  He was originally subpoenaed by the defendants to give evidence.  They then decided they did not want to call him and he was called as a witness by the plaintiffs.

[73]     It was Mr Wang’s recollection that he first met Mr Peng in respect of the Harbour Fitness matter.  That his first recollection of the Harbour Fitness business was a phone call from Mr Li in which he discussed money that both he and his friend, Mr Peng, had given to a Mr Bing Xu in relation to the Harbour Fitness business in Queen Street, Auckland.   That the call was made because Mr Li had discovered that the business that he and Mr Peng had invested in was in trouble and they wanted to do something in order to reduce or avoid their loss.   That they believed Mr Xu was in severe personal trouble.  That first recollection was amended by Mr Wang to say that his first recollection was an envelope dropped by Mr Li to his office with his phone number on it asking him to read the document and call him. The only difference between the two recollections was whether his engagement in this affair was as a result of a phone call or from receipt of an envelope, either way his engagement began in August.

[74]     Mr Wang’s office records that he first opened his file in early August 2011 in

Richard Li’s name with the file title “Purchase business – Harbour Fitness at ½ 203

Queen Street”.  The envelope had addressed on it in Mandarin the request “please review the agreement for sale and purchase of a business and other issues”.

[75]     He said in his evidence that on or about 8 August, Mr Li instructed him to incorporate a company, A & R New Zealand Limited, the purpose being to use it as the entity to  purchase the Glenfield  fitness  business.   As  already noted,  this  is another branch of Harbour Fitness.   The parties were considering whether their investment could be moved to this branch.

[76]     Mr Wang’s evidence then goes on:

Both Mr Li and Mr Peng visited my office together in August 2011 shortly after I opened my file in this matter.  They were both concerned about the money they had paid to Mr Xu as they knew that Mr Xu and the Queen Street branch were in trouble.   However, I have not been able to find my

diary from 2011 and therefore cannot remember the exact dates that I met them.   However based on when I created electronic copies of certain documents I mention below, I am confident my first meeting with Mr Li and Mr Peng must have been on or before 10 August at the latest.

Mr Li and Mr Peng did not discuss in great detail the nature of their dealings as between the two of them.  However, I did understand from what they told me that they had each already invested a considerable amount of money into the fitness centre business.  At this first meeting they were both anxious to rescue their investment from a financially deteriorating situation.   The documents they asked me to prepare were not intended for any real transactions between themselves but for the purpose of rescuing their investment.

The envelope I had been earlier given by Mr Li contained a handwritten draft sale and purchase agreement for a purchase by Ms Catherine Chao of the  Queen  Street  branch of  Harbour  Fitness.    During the  course  of  the meeting with Mr Li and Mr Peng I made notes of changes to be made on the draft agreement they provided me.  This included naming Clay NZ Limited as the purchaser.  A copy of the draft with my handwritten notes [he gives the reference.]

[77]     This is the document I had previously described as correcting a draft deleting Catherine Chao as purchaser and/or nominee and substituting Clay New Zealand Limited in pencil, readjusting the value of the assets and the possession date back to

21 February 2011.

[78]     He goes on:

On my file I have a typed version which incorporates the handwritten notes I

made.

This is a document which has already been discussed which is typewritten and shows the vendor as being BNJ Queen Street Limited.  The purchaser, Clay New Zealand Limited.  The tangible assets $97,000.  Intangibles $33,000.  Total price $130,000. This document also provided the date for the landlord’s consents of 18 February.

[79]     It was Mr Wang’s evidence that the three versions of the purchase agreement for the Queen Street business, the handwritten draft, the copy with his handwritten notes and the typed version all refer to dates in February or March 2011:

However, I believe it was August 2011 when I first saw the first handwritten draft and made my own changes to it ...

[80]     He then gives a number of reasons why, including the reasons I have already noted,3  but also a recollection they told him they had been keeping costs down by avoiding  lawyers  before  then.    He  says  he  was  instructed  to  prepare  sale  and purchase agreements to sell the Queen Street branch back to Mr Xu and purchase the Glenfield branch from him because that branch was thought to have value.   He disclosed an unexecuted agreement in this regard, providing for BNJ Sports Limited

to sell to A & R Limited (a company Mr Wang incorporated for Mr Li) the Glenfield branch.

[81]     Mr Wang says he does not think these agreements were ever signed and this is because he discovered and pointed out to  Messrs  Li  and Peng that the gym equipment was actually only rented and the businesses did not have any unencumbered assets to acquire or sell.

[82]     He then goes on:

I understand  that  it  may  be  suggested  that  in  15th August  2011  Mr  Li purchased some shares from Mr Peng’s wife, Ms Chao.  Nothing was said to me about this by any of Mr Li, Mr Peng or Ms Chao.  I expect that I would have remembered this because Clay NZ Limited was the company trying to sell the troubled Queen Street fitness centre business back to Mr Xu.

I  was  later  instructed  to  prepare  two  Share Transfer Agreements.    One recorded a sale by Mr Li to Ms Chao of 308 shares in Clay NZ Ltd at a sale price of $400,000.   The other was a transfer by Catherine Chao of 1,000 shares in the same company to Mr Xu for a sale price of $1.3m.   I have confirmed (through checking my electronic document creation records) that these documents were both created on 17 August 2011.

I cannot remember the background of why I was instructed to create these documents.  I also do not recall why the second transfer records that shares in Clay NZ Ltd were being transferred to Mr Xu.  I do confirm though that I witnessed Ms Chao’s signature on the transfer acquiring 308 shares from Mr Li, and that the witnessing signature on that form is mine.  However I do remember that they told me that any document they asked me to prepare was only for the purpose of rescue their investment.  No real deals were intended to happen between themselves.  (Emphasis added.)

[83]     In summary, Mr Wang’s evidence was that he was engaged in August 2011, and not before, in order to assist Mr Peng and his wife and Mr Li to see if they could

reduce or avoid their loss against the imminent collapse of the Queen Street Branch

3 See above at [76].

of Harbour Fitness.  Mr Wang’s narration includes the transfer of Ms Chao’s shares in Clay to Mr Xu.   It makes no mention of Mr Xu’s acknowledgment of debt. Mr Wang gives no support at all to the extraordinary proposition that, on the eve of the imminent failure of the Queen Street business for non-payment of rent, an event to take place on 18 August, that Mr Peng and his wife would agree to purchase Mr Li’s 308 shares for $400,000.  Rather, the intent was to try to acquire the Glenfield Branch in place of the Queen Street Branch.  There was no agreement readjusting any personal obligations as between Mr Peng and his wife, on the one hand, and Mr Li, on the other.  That was Mr Wang’s evidence in chief and he was not shaken from it in his cross-examination.

Competing submissions as to the significance of the executed and unexecuted documents

Submissions of counsel for the defendants

[84]     Mr Andrews, for Mr Li, considered the executed share transfer of 17 August with a consideration of $400,000 is the best evidence. And that the transfer confirms Mr Li’s evidence that he acquired the interest as a co-shareholder and an initial co- investor on Clay’s incorporation in February 2011.  That it was a mistake for that company to have been incorporated with all the shares in the name of Ms Chao.

[85]     Mr Andrews submits that this transfer dated 17 August, is also consistent with an oral agreement that Mr Li says he and Mr Peng reached on Wednesday, 10

August.  Mr Li agreed to lend Mr Peng $20,000 to pay certain overdue rent, to be repaid within one week, and a further $200,000 to be repaid within one month to enable Mr Peng  to avoid a mortgagee enforcement action against his house.  That in return for that:

(a)      Mr Peng and his wife would repay Mr Li’s investment in the Harbour Fitness business by purchasing all Mr Li’s legal or equitable interest in 308 shares  of Clay New Zealand  Limited  for Mr Li’s original investment amount of $400,000.

(b)Moreover pay Mr Li the earlier guaranteed return on his investment being $2,000 per month from 10 August until it was paid to him.

(c)      Pay Mr Li 8 per cent interest on the personal loans and that Mr Li’s salary repayments  from  Harbour  Fitness  would  end  the  following week.

[86]     I would note immediately that this argument is similar to Mr Li’s earlier

argument that terms of this sort were agreed at the time he made his advance of

$400,000 back in February 2011.  In that regard, it was Mr Li’s position that Clay was incorporated at his suggestion on 10 February, with the intent that the respective shareholdings  were  supposed  to  reflect  the  ratio  of  4:9  share  of  the  $1.3m investment, translating as 308 shares for himself and 692 for the plaintiffs.

[87]     Mr Andrews submits that it is a material fact that Clay was incorporated literally on the eve of Mr Li paying his $400,000 investment into Harbour Fitness, when he handed the bank cheque to Mr Xu on 11 February.  He submits these two events were inextricably linked in accordance with Mr Li’s agreement with Mr Peng that the company incorporation and Mr Peng’s guarantee of investment were the basis of and reason for Mr Li making this payment.

[88]     Mr Andrews submits that the plaintiffs have offered no real explanation for this coincidence. That this is doubly remarkable when it is considered that:

(a)      There were no other notable events occurring at this time as they might relate solely to the plaintiffs so as to warrant the incorporation of Clay on that particular date.

(b)They had already made their financial investment  of $900,000 by payments  and  three  months  earlier  on  30  November  2010  and

22 December 2010.   That there was no explanation as to why the plaintiffs, acting independently of Mr Li, chose to incorporate Clay on

10 February.

[89]     Mr Andrews submitted that Mr Peng dropped his guard in cross-examination after being referred to Mr Xu’s text (quoted above) that the lease agreement transfer could be done by Friday, formally notifying you.  Mr Peng acknowledged:

The reason for sending that message is because Mr Li intended to join my business Sir.

Plaintiffs’ counsel’s submissions

[90]     Overall it was the plaintiffs’ counsel’s submissions that both Mr Peng and his wife and Mr Li had a common interest in acquiring some kind of securities for their separate loans and that quite early on there were discussions whereby they would become the lessee of the Queen Street premises of the gym.  But the proposition that they would both share as beneficiaries of the lease over the premises does not require and did not entail Mr Peng in any way guaranteeing repayment of Mr Li and Mr Xu’s obligations to Mr Li in respect of Mr Li’s $400,000 advance and entitlement to two per cent per month.

[91]     Mr Karam submitted that no meaningful attempt has been made to try and justify why Mr Peng might be willing to provide a personal guarantee of Mr Li’s investment returns.   Mr Karam points to the objective fact that Mr Peng had just advanced $900,000 to the business himself.  That there was no commercial utility to Mr Peng to guarantee Mr Li’s advance of $400,000 and the onerous terms of the advance.

[92]     Mr Karam points out that, separately, Mr Peng and Ms Chao on the one hand, and Mr Li on the other, had already secured personal commitments by Mr Bing Xu.

[93]     Mr Karam submits that Mr Xu’s evidence corroborated Mr Peng’s.  Both saw

the lease transfers as a form of security for the loan advances.

Defendant’s counsel’s submissions

[94]     Mr Andrews, for the defendants, had to submit that Mr Wang was mistaken in believing that these attendances by him all took place in August 2011.  In support of that proposition, he said it would be a pointless waste of time and money for a

professional solicitor to be instructed to draft a purchase agreement containing dates for performance and satisfaction of conditions which had already elapsed.  He points to lack of any contemporary file notes or correspondence.  He points out that he was a solicitor running a business practice with numerous clients and many client meetings  each  week,  who  cannot  hope to  recall  with  any assurance of when  a particular meeting occurred.

[95]     He submits that the client file data from the office records is unreliable.  He submits Mr Li was still in China on 2 August and did not arrive back in New Zealand until a day or two later.

[96]     Mr Andrews relies particularly on the fact that one of the typewritten versions

in Mr Wang’s office, as noted, has the tangible assets in the sum of $97,000 and

$33,000 for a total price of $130,000 which coincides with a text message sent by

Mr Xu to Mr Li on 11 February which said:

Accounting  statistic  results,  fixed  assets  $970,000  and  tangible  assets

$330,000. What do you think?

[97]     Mr Andrews submitted:

The  defendant  submits  that  it  cannot  be  reasonably  found  that  this information was sent on that date but was not utilised until months later in August 2011 (by which time it would serve little purpose and would have lost any currency).

[98]     As  supporting  and  corroborating  pieces  of  evidence  to  Mr  Li’s  case, Mr Andrews relied on the fact that Mr Li witnesses the execution of the lease of Queen Street by Ms Chao on 21 March (noted above).  He submitted why would he do that if he had no interest in Clay or even in the Queen Street fitness centre?

[99]     Mr Andrews went on to say that the terms his client insisted on 10 August reflected Mr Li having said “enough”.  Mr Li was already owed nearly $43,000 in unpaid loans from Mr Peng.

[100]   Mr Andrews submits that by 10 August, Mr Li was facing a situation where the investment he had made at Mr Peng’s urging or at least his suggestion, was in jeopardy.   That he had just been through several crisis meetings in an attempt to

explore options to salvage the situation.  Part of the context of 10 August was that Mr Peng had already borrowed money from Mr Li to pay rent arrears at Glenfield and Queen Street.   Mr Peng was also asking for an additional personal loan of

$500,000.

[101]   Mr Andrews said Mr Li said that no security was being offered to Mr Li. That Mr Peng was assuring Mr Li that he still believed there was value in Clay and the business.

[102]   That came to Mr Andrew’s submission:

It is entirely understandable therefore that Mr Li told Mr Peng that Mr Peng needed to buy Mr Li out of Harbour Fitness by way of his Clay shareholding in exchange for the requested unsecured loans.  It is equally understandable that Mr Peng on his and his wife’s behalf agreed.

Issues of fairness or improbability do not arise.  Mr Peng was simply being asked to backup what he was saying about his belief in the value of the company, which on his own evidence Mr Peng still considered existed then, and several days later on 15 August 2011.

Moreover, the additional terms required payment of interest on the $400,000 accruing only from the date of the agreement would not necessarily have proved onerous if Mr Peng promptly liquidated one of his Chinese properties to make payment or perhaps recover the value he saw in the business by selling it to somebody else – even back to Bing Xu.

Chronology of events after 18 August 2011

[103]   There  is  no  documentary  evidence  that  Mr  Li  sought  payment  of  the

$400,000 immediately following the execution of the share transfer on 17 August

2011 or in the following months of 2011.

[104]   Mr Li was promptly repaid most of the other debts owed by Mr Peng and his wife.   On 11 August, Ms Chao repaid Mr Li $13,400 of the rent arrears loan of

$17,460 that he had paid the previous day.  (That payment is explained by the fact that originally the parties to these proceedings originally thought that only one floor of the lease was in arrears.) That was short of $4,000 which was paid by Mr Peng on

29 April 2012.  Most of the $200,000 personal loan was repaid by Mr Peng and Ms

Chao, $30,000 on 23 August 2011, $30,000 on 25 August 2011 and $89,998.61 on 8

September 2011.

[105]   It was Mr Li’s evidence that Mr Peng said he would repay him the balance within a few months time but he needed to keep money back to buy stock for his fashion shop.   It was Mr Li’s evidence that through the rest of 2011 and 2012 he reminded Mr Peng that he wanted repayment of all the money owed as soon as possible.

[106]   It was Mr Li’s evidence that it was in mid-April 2012 that he pinned Mr Peng down and told him he was going to Canada and he wanted a definite date on which he would receive the amounts of money owing to him, including specifically the repayment of the $400,000 investment in the gym.  That Mr Peng then agreed to pay him by the end of April. That this was a repayment amount as follows:

1Repayment of my $400,000 original investment: the agreed purchase price of my Clay shares.

2        Payment of $100,000 for the guaranteed 2% interest return.

3        $5,000 interest on the personal loans I had made together with the

$4,800 shortfall in repayments of the $200,000, a total of $509,800. (Later adjusted for a small gambling debt to $507,500.)

[107]   Mr Karam, for the plaintiffs submitted, that this evidence is inconsistent with Mr Li’s behaviour after August 2011 when he pursued Mr Xu.   It was Mr Xu’s evidence that in October 2011 Mr Li asked to meet with him and at that meeting asked Mr Xu whether “he had any means with which to repay his investments”. That Mr Li enquired about Mr Xu’s assets.   Mr Li denies this evidence.  He says rather the discussion was regarding a property at 22 Karore Crescent owned by Goldwood Investments Limited, an entity controlled by Mr Xu.  However, Mr Xu’s evidence was that the property was “gone” in September, and was no longer an option by the time he met with Mr Li in October.

[108]   Mr Karam’s submission was that between August 2011 and April 2012, Mr Li

got increasingly desperate about what he would do.

[109]   Mr Peng and his wife did not know that a considerable part of the money Mr Li had invested in the business had come from his brother in China.   Mr Li’s wife’s evidence was that there was no particular timetable for repayment of this sum.

Nonetheless, a substantial portion of the $507,000 paid by Mr Peng and his wife, Ms

Chao, was used to repay Mr Li’s brother. That repayment was done in instalments.

[110]   Mr Li accepted that all the repayments to his brother, plus the cost of setting up his family in Canada, came from the money advanced by Mr Peng and Ms Chao. He also agreed that had the money not come from Mr Peng and Ms Chao, it would have been very hard for him to repay his brother.

[111]   On  the  plaintiffs’ theory  of  the  case,  herein  lies  the  reason  for  Mr  Li’s deception to get Mr Peng and Ms Chao to pay him a sum that broadly equated to his losses in the Harbour Fitness business.  He, Mr Li, personally justified this on the basis that Mr Peng had a moral obligation to take responsibility for these losses.

[112]   There is no doubt that Mr Li had, and continues to have, a deep-seated grievance that Mr Peng led him into this disastrous investment in Mr Xu’s gym business.

[113]   In November 2012, Mr Li returned from Canada.  Mr Peng found out about that on 28 November.  He met Mr Li and asked him when he intended to develop the Inverary property.   There was a second discussion on 9 December.   Mr Peng’s evidence is that he asked Mr Li about the house and Mr Li told him a story about a soy sauce bottle.

[114]   At the trial Mr Li was asked about this story:

Q        What’s the soy sauce bottle story that you tell?

ASoy sauce, it’s a Chinese analogue.  A man ordered to get some soy sauce is a least important man and under others it’s a servant or under others order so sometime we see, “Go get the soy sauce”. That means you are a follower.

Q        Go away, you are inferior.

ANo, no, no, you are follower, you follow, you are the least important, do the least important things, get the soy sauce, clean the room, whatsoever.  So it’s a Chinese version says it’s the soy sauce man, the man to get the soy sauce is a man around versus VIP, yeah.

QWhat was the purpose of saying that, surely, what was the purpose of saying that to Mr Peng?

A        I want to express –

Q        He’s not a VIP?

AI say it for the Queen Street business you control the Clay, you control the bank account but finally Bing Xu got money away, I have no control of it, I just follow your instruction.  You say, “Lend me money to pay for the rent”, I did as he said.  He said, “Let’s control the business, get the management (inaudible 15:26:45) to Queen Street, change  the logo,  count  the  equipment  and do  such  other things,”  and  he  said,  “Let’s  swap  the  business”,  and  I  went  to Winston Wang and prepare the documents.  And he said, “Let’s do this, do that”, I just follow him.  So I just the man like the soy sauce man so ..

Q        And you’re the soy sauce man, are you?

A        Yes, in this case, in this case.

Q        And so this is the context of Mr Peng asking you for money? A     Yes.

Q        And you’re saying but you’re the soy sauce man?

A        Yeah I’m a follower, yeah. ‘Cos –

Q        How that’s an answer to him requesting money?

A        He controls the business of –

Q        He’s just paid you half a million dollars.

ABut at that time, yes he paid me, he paid me, he paid me, he do paid me, accept that, but in this case I just follow his order to do what he told me to do.  So as the project business I’m control of the –

QAnd that in fact is your justification for the half million dollars, isn’t it?  You are aggrieved that Mr Peng introduced you to Bing Xu and you lost all your money?

A        I didn’t lost as I state, I got my money back.

Q        Yes.

A        Yeah.

Q        By telling him you were going to do an investment in a project at

Inverory Avenue?

A        That’s quite a – that’s a (inaudible 15:28:23), yeah.

QAnd Mr Peng says at para 29 of his brief, he says exactly what the conversation was, set out at the top of page 7, you said he broke your soy sauce bottle, you introduced him to Bing Xu, you lost 400 with

Bing  Xu,  now  I  will  take  the  house  building  money  from  you.

That’s what he says you sent to him.

AExcuse me, I just cannot – I saw this paragraph and it seems the conversation between two kids in a kindergarten so I don’t think, I think it’s, it’s not true, I would say, and it sounds to me like two kids

–

Q        Much like two kids having a fight a few days later which we’ll come

to.

A        - conversation in the kindergarten, yeah, kindergarten kids, yeah.

...

QMr Li, if you hadn’t lost any money at Harbour Fitness why were you  telling  Mr  Peng  “That  soya  sauce  bottle’s  still  (inaudible

15:44:14)?

AAs I have explained and just to follow, follow his instructions to do things like this, like that.

[115]   Mr Li did not challenge Mr Peng’s evidence that he (Mr Li) had said to Mr Peng back in New Zealand that Mr Peng had broke the soy sauce bottle.   In context, that meant that he (Mr Li) was no longer subordinate to Mr Peng, no longer a follower in his business dealings.  Inferentially he is acknowledging that at the time he made his investment of $400,000, he was following Mr Peng’s investment of

$900,000.

[116]   He was the follower in their personal relationship - the soy sauce bottle man, the person who had the subordinate role in social and business dealings.   That Mr Peng’s conduct had broken that.

[117]   On 13 December, Mr Peng came around to where Mr Li was staying, very angry.   He came with an axe and with a shin pad on his arm.   He came with a document he wanted Mr Li to execute – a mortgage over 1/18 Inverary Avenue, to secure the debt of $507,000.  Mr Li was questioned as follows:

QWere you surprised that he was asking you about money as soon as you got back?

A        Yeah, he thought I owe him money, yeah.

QAnd  so  six  months  beforehand  he’s  paid  you,  just  so  I  can understand   your   case,   six   months   beforehand   he’s   paid   you

$507,000, just before you leave to Canada, correct?

A        Yeah, correct.

QTo do so – now that money includes these shares that you say he agreed to pay $400,000 and a 24% per annum rate of interest right up until the date of that payment?

A        Correct.

Resolution of the indebtedness of Peng to Li on 17 August 2011

[118]   If there was no Inverary project to explain the transfer of $507,500, there has to be a true core liability of $400,000 payable by either Mr Peng and his wife or by their company, Clay, to  Mr Li,  to purchase his investment in the Queen Street business of Harbour Fitness the last day before default of the lease could be avoided with no means to pay the rent arrears.

[119]   Mr Li advances three bases for that liability as we have seen.  To recap: the first is an oral agreement said to have been reached on 10 February, another oral agreement on 10 August, and the third is a written agreement for sale and purchase dated 17 August.

[120]   I start with the executed agreement in writing, dated 17 August, whereby Clay purchased 308 shares from Mr Li for $400,000.   In a subsequent agreement, also dated 17 August Ms Chao sold all the shares in Clay to Mr Bing Xu.  A few days  earlier,  Ms  Chao  had  received from  Mr  Bing Xu  an  assignment  of a life insurance policy over his life to the value on death of $2m.  Mr Peng showed the policy to Mr Li.  On 18 August the Harbour Fitness business failed.

[121]   Both  17  August  share  transfer  agreements  were  prepared  by  Mr  Wang. Clearly they are back to back.  Mr Wang was acting both for Mr Li and for Mr Peng and Ms Chao.  He is a reliable witness.  It was his evidence that in August 2011, he was attending on the needs of both Mr and Mrs Li and Mr and Mrs Peng.  He said they knew Mr Xu’s business had failed.

[122]   As already noted, it was Mr Wang’s evidence that these two transactions were not intended to create or alter any existing or future obligations as between the two couples.  Rather, in all his attendances at this time, his clients were acting jointly to

try to salvage some value from Mr Xu, against the imminent collapse of the gym fitness business, the final date for payment of the rent being 18 August.

[123]   He said that had they not been acting jointly, he would not have acted for them both if they had been transferring assets/liabilities between themselves.  Mr Li was a longstanding client.

[124]   The imminent defaults on the Queen Street leases are the essential context. On 15 August, Mr Peng and Mr Li had learned that not one, but the three parts of the lease4  were all in arrears.  That the liquidity position of the business was hopeless. With this news, their belief in the business being able to survive the demand for rent or loss of possession of one floor of the premises was dashed and with it, necessarily so, the ability of the gym business to repay their advances of $900,000 and $400,000

respectively.   The only possible prospect of recovering anything was from Mr Xu personally.  It was impossible for anyone to believe Mr Li’s 308 shares were worth

$400,000 from 15 August.  No rational person would agree to pay Mr Li $400,000 for his 308 shares in Clay, whose only asset was a lease in default, and on the eve of repossession.

[125]   Mr Li had never advanced $400,000 to Mr Peng.  It was advanced to Mr Xu. There was never any reason for Mr Peng to promise to pay Mr Li the $400,000, be it in February or in August.  I accept Mr Wang’s evidence that there was no intention in the documents that Mr Wang prepared on around 15 August 2011 for there to be a fresh  obligation  assumed  by Mr Peng to  pay to  Mr Li  $400,000  to  replace the

$400,000 Mr Li had loaned to Mr Bing Xu and his company.

[126]   Given these findings of fact, which are inevitable given the financial collapse of the gym, coupled with the attendances of Mr Wang for both of the creditors of the business, the disputed events from February 2011 resolve themselves on the probabilities.

Resolution of remaining issues of fact on the probabilities

[127]   Mr Peng was the first to advance monies to Mr Xu, the not insignificant sum of $900,000.  Mr Peng believed in the worth of that loan and the future of the gym business.   In late 2010 or early 2011, he told Mr Li, his business associate, and encouraged him to invest too.   It was no more than one business associate telling another business associate of a recent investment and encouraging the associate to invest likewise.

[128]   The 17 August transfer of 308 Clay shares from Mr Li to Ms Chao, and the transfer of all the shares of Ms Chao to Mr Xu, were part of a fruitless attempt to salvage some value.  They were not real descriptions of a liability of Ms Chao (and her husband) to pay Mr Li $400,000.

[129]   There was no evidence of any attempt by Mr Li  in 2011 to enforce the agreement for sale of his shares for $400,000.  During this time Mr Peng had repaid promptly the loan of $200,000 which Mr Li had loaned to him about the time of the collapse of the gym business in August 2011.5   The reason for the loan was that Mr Peng had mortgaged his house in favour of the accountant of the gym business.

[130]   It is inherently improbable that in February or in August 2011 Mr Peng would have guaranteed the terms of the $400,000 advance by Mr Li to Mr Xu and his company.   There is no evidence to justify any sense of obligation on the part of Mr Peng to Mr Li.

[131]   On the contrary, Mr Li’s own evidence is the other way.  The soy sauce story indicates that Mr Peng was the dominant person in the relationship between the two men at the time of these transactions.

[132]   It is the absence of any obligation in 2011 for Mr Peng to pay Mr Li the sum of $500,000, let alone $507,500, which renders it probable Mr Peng’s evidence that he did borrow and pay Mr Li $507,500 to participate again in a joint venture for a profit with Mr Li to develop his and his neighbour’s properties 1 and 2.

[133]   Notwithstanding the absence of significant pressure from his brother to repay the loan, it was still obviously a significant embarrassment to Mr Li to have lost a large sum of money provided by his brother.   On top of that, the family were planning to move to Canada.

[134]   There is corroborative evidence in support of Mr Peng’s evidence of Mr Li’s proposition of a joint venture.  It will be recalled that Mr Peng borrowed $500,000 of the $507,000 from the Kookmin bank for the stated reason at the time of purchase of a section joint with his friend for investment.6

[135]   Following  the  payment  at  the  end  of April,  on  4th   May when  Mr  Peng understood the property settlement to take place, he sent a text message asking if the property had been sorted out and Mr Li replied “done”.7

[136]   Mr Michael Miao an Auckland businessman also corroborates Mr Peng’s evidence.  He played soccer with Mr Peng and Mr Li and frequented socially with them.  Mr Li was staying at his home when Mr Peng came with the axe.  He was a party to one of the property development projects with Mr Peng, his wife and Mr Li.

[137]   It was his evidence that in April 2012 Mr Peng talked with them about a proposed property development for Mr Li’s house.   Mr Peng said that Richard Li proposed that they would buy Richard’s neighbour’s house which was valued at over

$700,000.

Tom  would  then  invest  $500,000  for  the  purchase,  and  they  would  re- develop the section and build up two new houses to sell. Tom said this was a project that could make a good profit.

[138]   Mr Maio went on to say that Mr Peng told him how he was arranging funding for the project and asked him, Mr Miao, whether he would be interested in loaning money to the investment if Mr Peng’s loan did not come through.  Mr Miao said he

would be interested but was later told by Mr Peng that he had obtained funding.

6 See [10] above.

7 See [11] above.

[139]   In November 2012, Mr Li returned to Auckland and stayed with Mr Miao and his wife.  During that time he discussed buying a new section through a real estate agent.   Mr Miao wondered why he would not complete his own property re- development first.

[140]   Mr Peng’s and Ms Chao’s evidence is correct.   There was a joint venture contract made for the development of the two properties in Inverary Avenue, as explained in the evidence of Mr Peng and his wife, Ms Chao.

[141]   The evidence is clear that after he received the $507,000, from the time he replied by text “done”,8  Mr Li was deceiving Mr Peng.   His use of the money to repay his brother was a fraud on Mr Peng and his wife.  Leaving them for a period of time deceived into believing that they were participating in a property joint venture.

[142]   It has not been proven that the proposed joint venture was a deceit when first proposed by Mr Li.  But it became a deceit from the 4th of May when Mr Li assured Mr Peng that the property had been sorted out – “done”.

Legal remedies available against these findings of fact

[143]   It  is  now  possible  to  understand  why  the  solicitors  and  counsel  for  the plaintiffs pleaded so many causes of action.  They anticipated that the Court may not find that it was a deceit from the outset.  The Court does not need to find that.  The critical findings of fact are the promise of a joint venture, the assurance that the (Inverary) property was sorted, and the deliberate misuse of the funds paid for that joint venture.

[144]   Contracts are objectively ascertained.  Proof of a contract does not depend on whether or not one party’s promise to the other was in good faith or part of a deceit. The Court finds that there was a contract, there was a joint venture contract made for the  development  of  the  two  properties  in  Inverary Avenue  as  explained  in  the evidence of Mr Peng and his wife Ms Chao.   I find the first cause of action in contract proved.

[145]   I also find the cause of action of deceit against the first defendant proved.  I allow for the possibility that Mr Li may have genuinely proposed a joint venture to develop Inverary Avenue in 2012.  But the evidence is clear that after he received the

$507,000, from the time he replied by text “done”9 Mr Li was deceiving Mr Peng to

believe that property two had been purchased that day, using the $507,000.  His later use of the money to repay his brother was a fraud on Mr Peng and his wife.

[146]   It is not necessary to make findings on the cause of action under the Fair Trading Act.  The Fair Trading Act was not enacted by Parliament to substitute for available causes of action in contract and for direct dishonesty.  In case I am wrong I formally adjourn this claim to 20 October 2015 to enable any application to be filed to pursue it.  If not filed by then, this claim will be dismissed.

[147]   I did not receive any submissions on the nature of any proprietary remedy that the plaintiff may be entitled to, by way of the fourth to seventh causes of action, whether in the $507,500 advanced such as to justify an award of compound interest on that sum, or in property 1.   In the absence of submissions, I am unprepared to make  an  order  granting  an  interest  in  1/18  Inverary  Avenue,  or  an  award  of compound interest in the sum advanced.  Likewise, these claims are adjourned to 20

October 2015, pending any application.  If not, they will be dismissed.

Judgment

[148]   The  plaintiffs  have  succeeded  in  their  first  cause  of  action  in  breach  of contract and the third cause of action in deceit and in respect of those causes of action, are entitled to the following remedy:

(a)       Judgment for damages in the sum of $507,500.

(b)Interest pursuant to s 87 of the Judicature Act on the sums paid by the plaintiffs to the defendants from 4 May 2012 to the date of judgment and costs.

[149]   Judgment  is  entered  against  the  first  defendant  in  the  sum  of  $507,500 together with interest pursuant to s 87 of the Judicature Act on the sums paid by the plaintiffs to the defendants from 4 May 2012 to the date of judgment.  The plaintiffs are awarded costs.

[150]   There is no award of exemplary damages.  It was not seriously pursued.

Counterclaim

[151]   Mr Li brings a counterclaim against Mr Peng in respect of Mr Peng’s attack on him on 13 December 2012.  He seeks a judgment for exemplary damages in the amount of $50,000 or such other amount as the Court considers just and costs.

[152]   As already noted, Mr Peng pleaded guilty to this attack and by doing so accepted the police account of the facts which went along with his guilty plea.

[153]   These facts were that he went to the Warehouse in Newmarket before the attack and purchased an axe which he carried with him in a bag when he went to confront Mr Li.   He strapped shin guards to his body underneath his clothes.   He entered Mr Li’s bedroom and immediately attacked him by punching him in the head.  He pulled the axe out of his carry bag and swung it at Mr Li’s head.  He said to Mr Li, “I’m well prepared. You cannot fight me.” He bit Mr Li’s face and hand.

[154]   He had brought with him a loan agreement granting himself and Ms Chao a mortgage over Mr Li’s Inverary Avenue property and his purpose in this attack was to try and make him sign the agreement.

[155]   Mr Li’s evidence is that the attack was far more extensive than set out in the charges Mr Peng pleaded guilty to.  That Mr Peng launched at him as soon as he opened the door and punched him in the face.  That Mr Peng threatened his life in Mandarin, repeatedly said to him things such as “I’m coming to kill you.  You’re a dead man.   I’m well prepared”.   Mr Li pleads he suffered physical and mental injuries.  He certainly suffered physical injuries, including a ruptured blood vessel to one eye, a contusion to his forehead and cuts from bites.   He said he suffered

ongoing emotional trauma from having his life threatened, preventing him from working normally.

[156]   Mr Peng and his wife have come to the High Court and obtained a judgment which vindicates their claim.  This vindication does not justify in any way the attack of Mr Peng on Mr Li.  The fact that Mr Li owed him a considerable sum of money is no justification at all for the attack.  Civil justice is provided by the State to avoid violence to persons and property.

[157]   Accordingly, the merit of whether or not Mr Li is entitled to exemplary damages needs to be considered separately, and without regard to the fact that Mr Li did owe Mr Peng and his wife the sum of $507,500, being a sum of money he had obtained by deceit.

[158]   Mr Li’s claim for exemplary damages is founded on s 319 of the Accident

Compensation Act 2001.10

[159]   The first issue is determining what happened.  There does not appear to be any opposition to the proposition that Mr Peng committed the torts of assault and battery against Mr Li.  However, counsel for Mr Li submitted that the Court should accept the facts as alleged in Mr Li’s statement, rather than the facts upon which Mr Peng was sentenced.

[160]   For  the  purposes  of  an  enquiry  into  whether  exemplary  damages  are appropriate I do not think there is much difference between the two versions of facts. Judge Ryan’s sentencing notes record the following:11

[3]      I emphasise at the outset that this is very serious offending.   The summary  of  facts,  which  is  not  disputed,  says  that  prior  to  13

December  2012,  you  went  to  The  Warehouse  in  Newmarket  to purchase an axe approximately 450 millimetres long to take with

you when you went to see the victim on 13 December 2012.  There had been bad blood between you and the complainant over a failed

commercial deal. You believe that you were owed $500,000.   The complainant has a different view.  There have been allegations and

10     The effect of s 319 is to partially reverse the Court of Appeal’s decision in Daniels v Thompson

[1998] 3 NZLR 22 (CA).

11     R v Peng DC Auckland CRI-2012-044-7126, 25 March 2014.

counter-allegations, and the matter is now before the High Court in its civil jurisdiction.

[4]       You felt aggrieved that the complainant, after your generosity and assistance to him, denied the loan and refused to pay you anything. You attended a lawyer who prepared a loan agreement which you also took to the victim’s home on 13 December 2012.  You say that the purpose of your visit was to try to resolve matters.  However, by arming yourself with an axe as well as strapping shin and arm pads to your body, you anticipated a physical confrontation.

[5]       You  have  said  previously  that  you  armed  yourself  and  took protective clothing for self-defence.   However, this was not a case where the victim came over to your house and you were fearful that you might be harmed.  You chose to go to house and chose to take a weapon capable of causing significant physical injury or death.  You must have known when you went to the house that there was a high degree of risk in this.

[6]       It is difficult for me to ascertain whether you went there to pick a physical fight, whether you went there to threaten and intimidate the victim with an axe to sign the agreement or you went there to see what would happen and if, as you feared, the victim became aggressive, you could defend yourself.   You   have recognised by your guilty plea, albeit late, that visiting the house with a weapon was the wrong thing to do, and that by taking matters into your own hands, you created a risk of serious physical violence.

[7]       A physical altercation did take place very soon after you arrived at the victim’s home.   The landlord let you in and you went to the victim’s bedroom.  You struck him about the face, he retaliated, you had the axe, but the Crown accepts that you did not use the axe to strike  and  harm  the  victim.    It  is  very  fortunate  you  did  not, otherwise you might be facing more significant charges today.

[8]       The victim fought back. You bit the victim on the right side of his face and his hand, on his left wrist and thumb.  The two of you fell to the ground and began to wrestle. The landlord became alarmed and called the police.   The police arrived a short time later and arrested you.

[161]   The additional facts which appear from Mr Li’s statement to the Police and

his evidence in this proceeding are that Mr Peng:

(a)       actually hit Mr Li with the blunt side of the axe;

(b)      hit Mr Li with a dumbbell that was on the floor of the room;

(c)       said “I’m coming to kill you, you’re a dead mad, I’m well prepared.”

[162]   Counsel for Mr Li submits that there has been no evidence from Mr Peng challenging this version of events and therefore it must be accepted.  There was not found any evidence which contradicted this version and therefore I proceed on the basis that Mr Li’s version of events is correct on the balance of probabilities.

Are exemplary damages appropriate in this case?

[163]   The  defendant  submits  that  the  Supreme  Court’s  decision  in  Couch  v Attorney-General (No 2) establishes that there is a three stage approach to guide an award of exemplary damages:12

(a)      Has there been commission of an actionable tort? (b)      Did the perpetrator act sufficiently outrageously? (c)      Was the perpetrator at least subjectively-reckless?

[164]   In this case the actions were intentional and it is admitted that the torts of assault and battery have been committed. The only remaining question is whether Mr Peng’s actions were sufficiently outrageous to warrant an award of exemplary damages.

[165]   Mr Peng submits that awards of exemplary damages should be confined to exceptional cases, particularly after penalties have been imposed by the criminal court, and particularly given in this case Mr Peng pleaded guilty following a sentencing indication.

[166]   Mr Li submits that Mr Peng’s actions were sufficiently outrageous to justify

an award of exemplary damages. The factors that he relies on are: (a)           purchasing an axe;

(b)      attending Mr Li’s residence;

12     Couch v Attorney-General (No 2) [2010] NZSC 27, [2010] 3 NZLR 149.

(c)       attacking without any physical provocation; (d)           swinging and hitting him with the axe; and (e) biting and threatening to kill.

[167]   In Donselaar v Donselaar the Court of Appeal addressed whether exemplary damages were available for assault and battery notwithstanding the provisions of the Accident Compensation Act 1972.13     The Court held that the statute did not bar claims for exemplary damages.  The facts of the case involved an assault by a man on his brother hitting him with a hammer multiple times.   The brother had been charged with the crime of assault but the magistrate had dismissed the charge.   In reaching the conclusion that on the facts of the case there was no justification for exemplary damages Somers J stated:14

Indeed without some additional feature as for example an abuse of power or the invasion of other rights of the plaintiff, it is not easy to envisage a case of personal injury which would not have been met by compensatory or aggravated compensatory damages the recovery of which is barred by the Accident Compensation Act.

[168]   That  suggests  that  conduct  that  does  not  involve  an  abuse  of  power  or invasion of other rights will not likely meet the standard of outrageousness necessary to justify an award of exemplary damages.

[169]   Other than Donselaar, counsel have not referred to any other cases where exemplary damages have been considered for assault or battery.  Most of the cases where there has been an award of exemplary damages for personal injury involve some form of abuse of power, either involving sexual assaults or assaults by the police.15    For instance, in Fredericks v Attorney-General Panckhurst J increased an award of exemplary damages from $5,000 to $10,000 for an assault by a police officer.16   The plaintiff had been handcuffed and placed in the back of a police car. The officer had struck the plaintiff three separate times while he was seated in the

back of the car.  The context of the assault made it outrageous.   It was gratuitous

13     Donselaar v Donselaar [1982] 1 NZLR 97 (CA).

14     At 117.

15     See for example the list of cases in McDermott v Wallace [2005] 3 NZLR 661 (CA) at [97].

16     Fredericks v Attorney-General [2010] NZAR 91 (HC).

violence.   The officer was seeking to “teach the plaintiff a lesson”, he was in a

position of power and the plaintiff was unable to defend himself.

[170] In contrast, in Mackenzie v Emms William Young J declined to award exemplary damages against a former de facto partner who had assaulted the plaintiff dislocating her jaw.17     The context was that the defendant had driven home and pushed the plaintiff’s car into the garage door.   The plaintiff’s view was that the defendant had deliberately hit the plaintiff’s car with his pushing it into the door. She reacted to this.  The defendant then struck the plaintiff perhaps twice but more likely only once.   There had been no previous violence in the relationship.   In concluding that this was not an appropriate case for exemplary damages William

Young J stated:

[48]     The judgments in Donselaar do not proceed on the basis that every assault warrants an award of exemplary damages. Plaintiffs must be able to point to what might be regarded as exceptional circumstances involving “insult or contumely” or “an abuse of power”. The courts must   not   permit   the   scheme   and   purpose   of   the   accident compensation legislation to be subverted by disguising as exemplary damages what are, in substance, compensatory damages. Yet this is really what the plaintiff has asked me to do here. If this case had come to be litigated in a common law jurisdiction similar to New Zealand but where compensatory damages were available, I think it is inconceivable that Mr Emms, on top of what might well be very substantial compensatory damages, would be required also to pay exemplary damages.

[49]      If the case had been more evenly poised, then it would be relevant to consider whether it would be right to award exemplary damages given the prosecution and conviction of Mr Emms for assault and his subsequent punishment. I do not, however, regard the case, irrespective of that situation, as warranting an award of exemplary damages. In other words, I see the case as far from being evenly poised.

[171]   All of these cases predate the Supreme Court’s decision in Couch.  Although Couch was primarily concerned with whether there was a subjective recklessness requirement before exemplary damages were awarded for negligence, the Supreme Court  also  commented  on  the  purpose  of  exemplary  damages,  with  Tipping  J

observing:

17     Mackenzie v Emms HC Christchurch CP 140/99, 28 July 2000.

[93]      The common law nevertheless insisted that this was not punishment in the abstract for morally wicked conduct; it was punishment for the commission of a private civil wrong in a particularly reprehensible way — in a way which was deserving of punishment. Exemplary damages could be awarded only if the defendant had committed a civil wrong for which compensatory damages, which might include compensation for elements of aggravation, were available. Only if the award of those damages was not enough to exact the necessary punishment should further damages of an exemplary kind be added. This is why exemplary damages were often described as being parasitic on compensatory damages. The punitive focus of exemplary damages was reinforced by the fact that exemplary damages were and still are sometimes referred to as punitive damages. As Cooke P put it in Auckland City Council v Blundel exemplary and punitive damages are different words for the same thing. The damages are meant to make an example of the defendant by punishing him.

[172]   Thus the primary purpose of exemplary damages is punitive.  This behaviour does not meet the standard of outrageousness required to justify an award of exemplary damages.   The defendant has already been punished by the criminal courts.  While the factual allegations against Mr Peng are somewhat more extensive in this proceeding than in the criminal trial, they do not take the conduct into the sphere of outrageousness envisaged by the Court of Appeal in Donselaar.   Mr Peng has been punished for his actions, I do not consider that they are deserving of any further punishment.

Conclusion

(a)      The  plaintiffs  succeed,  in  contract  and  deceit,  and  are  entitled  to recover damages in the sum of $507,500, together with interest from the defendant.

(b)The claims for proprietary relief and relief under the Fair Trading Act are reserved.   Leave is reserved to the plaintiffs to file further submissions on the 2nd  and 4th  – 7th  causes of action by 20 October

2015.

(c)      The plaintiffs are entitled to interest pursuant to s 87 of the Judicature

Act on the sums paid by the plaintiffs to the defendants from 4 May

2012 to the date of judgment and costs.

[173]   The defendants’ counterclaim fails.

[174]   Costs lie where they fall in respect of the counterclaim.