RAWENE DEVELOPMENT LIMITED PARTNERSHIP AND YUQI TIAN TRUST LIMITED

[2024] NZHC 3325

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2024-404-1187_

[2024] NZHC 3325

BETWEEN

RAWENE DEVELOPMENT LIMITED PARTNERSHIP
Plaintiff

AND

YUQI TIAN TRUST LIMITED

Defendant

Hearing:	14 October 2024
Appearances:	Andrew R Gilchrist for the Plaintiff Victoria A Whitfield for the Defendant
Judgment:	8 November 2024

JUDGMENT OF ASSOCIATE JUDGE D B TAYLOR

[Application to set aside a statutory demand]

This judgment was delivered by me on   8 November 2024    at    4:00pm pursuant to Rule 11.5 of the High Court Rules

…………………………. Registrar/Deputy Registrar

Solicitors:

Dyer Whitechurch (Lynn Nicholson), Auckland, for the Applicant

Gurnell Harrison Stanley Law Limited (William Zhang), Hamilton, for the Respondent
Copy for:

Andrew Gilchrist, Southern Cross Chambers, Auckland, for the Applicant Victoria Whitfield, Cambridge, for the Respondent

RAWENE DEVELOPMENT LIMITED PARTNERSHIP v YUQI TIAN TRUST LIMITED [2024] NZHC 3325

[8 November 2024]

Introduction

[1]    Rawene Development Ltd Partnership (Rawene) applies to set aside a statutory demand,1 made on it by Yuqi Tian Trust Ltd (Yuqi Tian) for repayment of monies purportedly loaned to Rawene by Yuqi Tian (the debt).

[2]    In the alternative, Rawene applies for an extension of time (15 working days) for compliance with the statutory demand.

[3]    The key issue is whether there is a substantial dispute as to the existence of the debt.

Background

[4]    Rawene is involved in a major property development on Rawene Road, Birkenhead, Auckland (the Rawene Development).

[5]    On 9 March 2023, Rawene entered into a loan agreement with Yuqi Tian (the Loan Agreement), whereby Yuqi Tian would loan Rawene $250,000 (the loan). This was done in the context of an ongoing business relationship, involving a number of (often informal) dealings, between Mr Zihong (Max) Lu (Mr Lu) — sole director and shareholder of Rawene, Mr Yuqi (Jerry) Tian (Mr Tian) — sole director of Brick Matrix Ltd (BML), and Ms Jieyan (Sissi) Shao (Ms Shao) — Mr Tian’s wife and the sole director and shareholder of Yuqi Tian.2

[6]    On 23 April 2024, Yuqi Tian issued a statutory demand to Rawene demanding that it repay the $254,147.12 owing under the loan (the statutory demand).

[7]    On 8 May 2024, Rawene filed an application to set aside the statutory demand pursuant to s 290(4)(a) of the Companies Act 1993.

1      It is a demand under s 91 of the Limited Partnerships Act 2008 but is referred to in this judgment as a “statutory demand” because Part 16 of the Companies Act 1993 applies in relation to liquidation of a limited partnership, pursuant to s 92 of the Limited Partnerships Act.

2      Mr Tian and Ms Shao each own 50 per cent shareholdings in BML.

Rawene’s application to set aside statutory demand

[8]    Rawene seeks an order setting aside the statutory demand or, in the alternative, extending the time for compliance with the statutory demand.

[9]The grounds on which the orders are sought are, in summary:

(a)that there is a substantial dispute as to whether or not the loan underlying the statutory demand is owing or due by Rawene and that the High Court “companies court” jurisdiction is not the appropriate forum for the determination of the dispute between Rawene and Yuqi Tian;

(b)that the statutory demand ought to be set aside on the further grounds that the statutory demand is an abuse of process and there are significant sums owed by Yuqi Tian to the principal director of Rawene; and

(c)that Rawene is solvent.

Yuqi Tian’s opposition

[10]   Yuqi Tian opposes the application on the grounds there is no substantial dispute as to whether the debt referred to in the statutory demand is owed by Rawene to Yuqi Tian and there are no other grounds justifying the setting aside of the statutory demand.

Legal principles

[11]Section 290 of the Companies Act provides, relevantly:

290     Court may set aside statutory demand

(1)The court may, on the application of the company, set aside a statutory demand.

…

(4)The court may grant an application to set aside a statutory demand if it is satisfied that—

(a)there is a substantial dispute whether or not the debt is owing or is due; or

(b)the company appears to have a counterclaim, set-off, or cross- demand and the amount specified in the demand less the amount of the counterclaim, set-off, or cross-demand is less than the prescribed amount; or

(c)the demand ought to be set aside on other grounds.

…

[12]On the satisfaction of s 290(4)(a), the Court of Appeal has observed:3

What the applicant must show is that the dispute it raises has substance; the applicant must explain to the court what the dispute is; and the dispute so shown must be a real and not a fanciful or insubstantial dispute. The Court must bear in mind that it is operating in the summary jurisdiction, with the accompanying disadvantages that brings for any applicant. The Court must also keep in mind the requirement that what is intended to be a summary hearing should not be converted into a full-blown trial.

[13]   The Court is to look at whether a genuine substantial dispute exists.4 Mere assertion of a dispute does not suffice, and the applicant must show a fairly arguable basis for it.5 In practice, it is required that there be some material short of proof that backs up the claim that the amount is in dispute.6

[14]   Where a counterclaim, set-off, or cross-demand is sought to be raised, the Court has a discretionary power to set aside the statutory demand, but the company must show a real basis, on clear and persuasive grounds, for doing so. And “pay now, argue later” considerations have sometimes been allowed to prevail over the effect of liquidation.7

3      AAI Ltd v 92 Lichfield Street Ltd (in rec and in liq) [2015] NZCA 559, [2016] NZAR 1338 at [22] (footnote omitted).

4      Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297 (CA) at 301.

5      N F Global Ltd v Sky Capital Management Ltd [2020] NZHC 2196 at [39]. See also United Homes (1998) Ltd v Workman [2001] 3 NZLR 447 (CA) at [27].

6      Arzan Investments Ltd v Beresford Apartments Ltd (2003) 16 PRNZ 825 (HC) at [17].

7      N F Global Ltd v Sky Capital Management Ltd, above n 5, at [40] citing Volcanic Investments Ltd v Dempsey & Wood Civil Contractors Ltd (2005) 18 PRNZ 97 (HC); Browns Real Estate Ltd v Grand Lakes Ltd [2010] NZCA 425, (2010) 20 PRNZ 141; Covington Railways Ltd v Uni- Accommodation Ltd [2001] 1 NZLR 272 (CA) at 274–275.

Analysis

[15]   The issue to be determined in this judgment is whether there is a substantial dispute as to whether or not the debt is due and owing.

Rawene’s submissions

[16]   Mr Gilchrist, for Rawene, submits that there are two grounds for the assertion by Rawene that the debt to Yuqi Tian is not owing:

(a)That Yuqi Tian did not advance the funds to Rawene. Instead, the funds were advanced by Mr Tian personally, or alternatively by BML, and the Loan Agreement does not accurately record the true parties to the transaction.

(b)In any event, any obligations to Mr Tian or any of his related companies have been satisfied and there are no funds due by Rawene to Mr Tian or any of his companies.

[17]I deal with each of these grounds in turn.

Funds not advanced by Yuqi Tian

[18]   Mr Gilchrist submits that the loan was not advanced by Yuqi Tian to Rawene but by Mr Tian personally. In support of this proposition, he points to the following in the affidavit of Mr Lu:

(a)over the years, Rawene has had a number of business dealings with Mr Tian and his wife, Ms Shao, most of which were done verbally and with a high degree of trust; and

(b)although business dealings were ostensibly with Mr Tian, Ms Shao and their companies, all relevant communications and dealings were done directly between Rawene and Mr Tian.

[19]   As to the creation of the loan, Mr Gilchrist outlines the following sequence of events:

(a)Mr Tian invested approximately $800,000 into the Rawene Development on an undocumented basis. In 2021, Mr Tian was asked if he would like to settle repayment of his investment by receiving two apartments in the Rawene Development or leave his money invested. He decided to leave the money invested.

(b)In 2022, Mr Tian wished to see the money he had invested in the Rawene Development repaid by the transfer of two apartments in the Rawene Development and their respective carparks to his and his wife’s company, BML. Two formal deeds of transfer were prepared (one in February 2023 and one in November 2023). Both deeds required BML to obtain finance, and to pay a proportion of Rawene’s liability to the financier of the Rawene Development, First Mortgage Custodians Limited (FMT),  subject  to  a  final  reconciliation. Clause 2.9 of the second deed provided:

The parties further acknowledge and agree that BML waives all interest payable by Rawene on the loan amount of $250,000.00 from the date of the Deed of Transfer to the date the full Retention amount is calculated by Rawene’s accountant.

[20]   Mr Gilchrist submits that Rawene did not receive the loan of $250,000 from Yuqi Tian, but received it directly from Mr Tian. He submits that BML did not advance

$250,000 to Rawene either or to one of Mr Lu’s companies. He refers to Mr Tian’s email to the financier of 9 October 2023, where Mr Tian stated:

Secondly, I have lended [sic] 250,000K to the company in April, because Max told me at that time, the company will need to pay off the body corp fees, land rates etc to settle the apartments. So I personally put 250,000 into the company. I can forward all these lending documents and funds transfer records if needed.

[21]   Mr Gilchrist points to further WeChat messages dated 12 May 2023 that support the loan being made by Mr Tian personally.

[22]   Mr Gilchrist submits that notwithstanding the Loan Agreement, there are no sums due by Rawene to Yuqi Tian as Yuqi Tian did not advance the loan funds, or in the alternative, there is a genuine dispute that the Loan Agreement does not accurately record the true parties to the transaction. Accordingly, the statutory demand should be dismissed.

[23]   Ms Whitfield, for Yuqi Tian, submits that the debt owed by Rawene arises through the terms of the Loan Agreement and there is no dispute that $250,000 was lent to Rawene, nor is there any dispute that Yuqi Tian agreed to lend the funds to Rawene by way of the Loan Agreement and Rawene agreed to repay the funds to Yuqi Tian in accordance with the terms of the Loan Agreement.

[24]   Ms Whitfield submits that contrary to Rawene’s argument, the source of the funds, or alternatively the mechanism of payment, is a red herring. She submits that even if Mr Tian “put the money in” as Rawene asserts, there is no doubt it was pursuant to the Loan Agreement and on behalf of Yuqi Tian, because that was what the parties agreed and what was expressly recorded in writing in the Loan Agreement. She submits neither Mr Tian nor BML are claiming a debt from Rawene arising from the

$250,000 lent to Rawene.

[25]   Ms Whitfield submits that essentially, Rawene’s argument is that the Loan Agreement did not record the parties’ true intentions, and that the true intention was that   Mr   Tian   personally,   or   BML,   would   lend   the   funds   to   Rawene.   Ms Whitfield refers to the Supreme Court decisions of Firm PI 1 Ltd v Zurich Australian Insurance Ltd8 and Bathurst Resources Ltd v L & M Coal Holdings Ltd,9 as setting out the principles to be applied in contractual interpretation. She submits that there is no ambiguity and no scope for an alternative interpretation of the express terms of the Loan Agreement that the parties intended a different lender, contrary to the specifically named party. She submits that the Loan Agreement recorded the parties’ intentions that a loan of $250,000 would be made by Yuqi Tian to Rawene and which would be repayable by Rawene to Yuqi Tian, and there is no need for the Court

8      Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147; [2015] 1 NZLR 432.

9      Bathurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC 85; [2021] 1 NZLR 696 at [43].

to look outside the express terms of the Loan Agreement to determine the parties’ intentions.

[26]   Ms Whitfield submits that Mr Lu’s evidence is conflicting and points to [11] of his affidavit where he states:

Clause 2.9, in the November 2023 Deed of Transfer, is significant, as it evidenced the general nature of our relationship. Brick Matrix Limited had never advanced $250,000 to myself or one of my companies. The Respondent/Jerry had advanced $250,000, and that was recorded in a Term Loan Agreement between the Applicant and the Respondent dated 9 March 2023 (a copy of which his annexed hereto and marked with the letter “G”).

She submits that later in his affidavit Mr Lu contradicts this statement by saying the loan came about with Jerry personally, or as an agent for BML. She also points to the contemporaneous records of Mr Lu’s bank statements, which records a report with the description “Loan from Yuqi Tian Trust”.

[27]   Ms Whitfield submits that as to the two messages Rawene relies on sent by Mr Tian after the Loan Agreement was entered into, it is not uncommon for parties to conflate personal identities with those of their closely held companies. She submits it is understandable that Mr Tian referred to having lent funds to Rawene, when the loan was made from a company owned and controlled by his wife. She submits these post- agreement assertions on behalf of Mr Tian are of little relevance to the objective interpretation of the Loan Agreement, and are certainly not persuasive grounds such that a contrary interpretation should be adopted.

Conclusion in respect of identity of the lender

[28]   In my view, there is a dispute as to whether Rawene owes the amount recorded in the Loan Agreement to Yuqi Tian, or to Mr Tian personally, or to BML. It is clear that matters were often done informally between the parties, across different legal entities, and the descriptions of parties lending or receiving money was sometimes fluid. On Rawene’s side of the argument, there is evidence referred to by Mr Gilchrist of communications from Mr Tian indicating that he personally lent the money to Rawene, and there is also cl 2.9 of the November 2023 Deed of Transfer which refers to BML, not Yuqi Tian, waiving the interest due from Rawene on the loan. On Yuqi

Tian’s side of the argument, Ms Whitfield refers to the Loan Agreement being clear in its express terms and under the principles of Firm PI 1 Ltd and Bathurst Resources Ltd, there is no need to go beyond the clear terms of the Loan Agreement in its interpretation. There is other evidence on each side of the argument.

[29]   Accordingly, in my view the issue as to whether the loan to Rawene is owed to Yuqi Tian, Mr Tian or BML needs to be tested at trial and it is not appropriate to resolve it in the context of a statutory demand.

Have Rawene’s loan obligations been satisfied?

[30]   Mr Gilchrist submits that, given the matters between the parties were often done informally and across different legal entities, even if the claim for payment had been brought by Mr Tian personally, any obligations owed by Rawene to Mr Tian or anyone associated with Mr Tian or any of his companies, have been satisfied. He submits that the loan referred to in the Loan Agreement is the same loan as that referred to in cl 2.9 of the November 2023 Deed of Transfer.

[31]   Mr Gilchrist relies on the fact that the set-off was not disputed by Mr Tian or any of his companies when the joint accountants for the parties forwarded an email to Mr Tian and Ms Shao, which set out the calculation of Rawene’s net position and attached a loan calculation showing the amount that was said to be due by Mr Tian/his company, being Mr Tian’s share of the 15.477 per cent payment of Rawene’s obligations to its financier FMT, amounting to $248,396.33. Mr Gilchrist submits that Mr Tian accepted those figures and while there were some queries regarding minor adjustments to the accountants’ calculations, the fact of a set-off was never disputed. Accordingly, Mr Gilchrist submits that funds owing between the entities have been paid in full, or at least there is a genuine dispute as to that having occurred.

[32]   Ms Whitfield submits that there could be no set-off with Yuqi Tian in relation to the Deed of Transfer as Yuqi Tian was not a party to the Deed of Transfer. And, there was no mutuality of debt so there was no ability to raise an equitable or statutory set-off of the debt to Yuqi Tian in relation to the alleged debt from BML to Rawene. She submits in any event there was no debt from BML to Rawene on the objective and

straightforward interpretation of the Deed of Transfer, and she points to the following to show that Rawene is indebted to BML in the sum of $275,758.71:

(a)An overpayment by BML in respect of BML’s 15.477 per cent share of Rawene’s liability to its financier FMT in respect of the Rawene Development. BML paid $1,260,000 whereas the proportion of its debt to FMT equated to only $1,074,241.29, resulting in an overpayment of

$185,758.71 to Rawene.

(b)In addition, BML paid $90,000 into BML’s solicitor’s trust account, to be held as a contingency/retention for the purposes of adjustments.

(c)Any reference to BML’s share of Rawene’s debt to FMT being 16.16 per cent is disputed by Mr Tian.

[33]   Ms Whitfield submits therefore that there cannot have been an effective set-off between the amount owed by Rawene and the debt owed by BML.

Conclusion in relation to Rawene’s debt being satisfied

[34]   In my view there is a dispute as to whether amounts are owed by Rawene to BML or another entity associated with Mr Tian, and whether there has been an effective set-off. This dispute is not suitable for resolution in the context of a statutory demand. In any event and more importantly, this dispute relates to an issue between Rawene and BML rather than Rawene and Yuqi Tian, and does not support a contention that Rawene owes $250,000 to Yuqi Tian. Possibly Rawene owed an amount to BML as a result of the over-payment alleged by BML in respect of the settlement of the apartments and pursuant to the Deed of Transfer, but this does not support the debt underlying the statutory demand.

Result

[35]   As a result of the conclusions I have reached at [28]–[29] and [34], I am of the view that Rawene’s application to set aside the statutory demand should be granted.

Orders

[36]I make the following orders:

(a)Rawene’s application to set aside the statutory demand issued by Yuqi Tian is granted.

(b)As Rawene is the successful party, costs should follow the event. Counsel are directed to endeavour to agree costs and, failing agreement being reached within 20 working days of the date of this judgment, counsel for Rawene will file a memorandum as to costs (not exceeding five pages) within five working days of expiry of the 20 working day period,  and  counsel  for  Yuqi Tian   will   file   a   memorandum (not exceeding five pages) in response within five working days of receipt of counsel for Rawene’s memorandum. A decision as to costs will then be made on the papers.

………………………………..

Associate Judge Taylor