Sichuan Heruiyuan Industrial Co Limited v TFT Investments Limited
[2016] NZHC 2312
•29 September 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2016-404-1165 [2016] NZHC 2312
BETWEEN SICHUAN HERUIYUAN INDUSTRIAL
CO. LIMITED Plaintiff
AND
TFT INVESTMENTS LIMITED Defendant
Hearing: 12 and 13 September 2016 Counsel:
BJ Upton and KR Lydiard for plaintiff
TJ Herbert for defendantJudgment:
29 September 2016
JUDGMENT OF FAIRE J
This judgment was delivered by me on 29 September 2016 at 10 am, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Simpson Grierson, Auckland
Hornabrook Macdonald, Auckland (A Thomas)
Sichuan Heruiyuan Industrial Co. Limited v TFT Investments Limited [2016] NZHC 2312 [29 September 2016]
Contents
The application .......................................................................................................[1] Preliminary issue ....................................................................................................[3] The facts ...............................................................................................................[30] Statement of claim................................................................................................[44] Plaintiff’s submissions .........................................................................................[46] Defendant’s submissions ......................................................................................[48] The Court’s approach to a plaintiff’s summary judgment application .................[49] Result....................................................................................................................[58] Orders and directions ...........................................................................................[60] Costs .....................................................................................................................[61]
The application
[1] The plaintiff (“Sichuan”) seeks summary judgment against the defendant
(“TFT”), being repayment of a deposit paid of $519,980, plus interest and costs.
[2] The deposit has been held in the trust account of TFT’s solicitors, effectively as a stakeholder. Counsel were agreed that any issue relating to interest should be confined to the interest earned in the solicitor’s trust account from the date of expiry of a demand for repayment of the deposit, namely 16 March 2016.
Preliminary issue
[3] As this is an application for summary judgment by the plaintiff, the plaintiff must comply with the following parts of r 12.4(4) and (5), namely:
12.4 Interlocutory application for summary judgment
…
(4) The party making the application must file and serve on the other party the following documents:
(a) an interlocutory application on notice in form G 31: (b) a supporting affidavit:
(c) if the party is a plaintiff applying at the time the statement of claim is served,—
(i) a notice of proceeding in form G 13; and
(ii) a statement of claim:
…
(5) The affidavit—
(a) must be by or on behalf of the person making the application:
(b) if given by or on behalf of the plaintiff, must verify the allegations in the statement of claim to which it is alleged that the defendant has no defence, and must depose to the belief of the person making the affidavit that the defendant has no defence to the allegations and set out the grounds of that belief:
…
[4] TFT advances as one of its grounds in opposition to summary judgment that the supporting affidavit is defective.
[5] On 3 June 2016, an affidavit by Ms Yang was filed in support of Sichuan’s application for summary judgment. On 5 August 2016, a second affidavit of Ms Yang was filed in reply to Mr Manning’s opposition affidavit. TFT submits that the affidavits of Ms Yang do not comply with the High Court Rules and that therefore justifies dismissing the application for summary judgment.
[6] TFT submits that the affidavit in support of an application for summary judgment must be given by someone who has both the knowledge necessary to give the evidence and the authority of the person on whose behalf the evidence is given.
[7] Ms Yang is a lawyer employed by a law firm that operates out of Chengdu, China. She was engaged by Sichuan in relation to the agreements. In particular, she was involved in undertaking due diligence and considering the terms of possible agreements.
[8] TFT acknowledges that Ms Yang states that she is authorised by Sichuan to give evidence, however, it submits that she does not have the requisite knowledge. The main issue in the proceeding is the interpretation of the Land Memorandum, and TFT notes that Ms Yang freely admits that she was not involved in the negotiation of the Land Memorandum and does not have any personal knowledge of the circumstances that existed at the time the Land Memorandum was entered into.
[9] TFT submits that this ‘hole’ in Ms Yang’s knowledge has four effects: (a) she is not able to verify the key allegations;
(b) she is not able to depose her personal belief that TFT has no defence;
(c) it is questionable whether she is capable of fulfilling her obligation to disclose in her affidavits any facts which Sichuan is aware of that could amount to a defence; and
(d)anything that Ms Yang refers to prior to her involvement must be hearsay.
[10] TFT also submits that Ms Yang would not be able to provide her evidence if she were a New Zealand lawyer rather than a Chinese lawyer and that this could amount to an abuse of process. TFT relies on r 13.5.4 of the Lawyers and Conveyances Act (Conduct and Client Care) Rules 2008.
[11] There are two matters of concern in relation to compliance with r 12.4. The first is the requirement that the person making the affidavit must depose to that person’s belief that the defendant has no defence to the allegations, and set out the grounds of that belief. In this case, in the first affidavit Ms Yang deposed: “I confirm the plaintiff believes that TFT has no defence to either of the alternative claims set
out in the statement of claim”. In the second affidavit Ms Yang deposed: “I confirm that the plaintiff continues to believe that TFT has no defence to either of the alternative claims set out in the statement of claim”.
[12] Shortly after the introduction of the summary judgment regime, Barker J had to consider if this jurisdiction permitted the filing of supplemental affidavits to fill in gaps in the original affidavit. In Foodstuffs (Auckland) Ltd v RW Schweiger he held that the Court had jurisdiction to permit a supplemental affidavit which filled in the gaps in the original affidavit.1 He observed that such an approach was consistent with the aims of the summary judgment procedure and with the then r 4 of the High Court Rules, which required the rules to be construed so as to secure a just, speedy and inexpensive determination of any proceeding.2 That objective is retained in the current r 1.2.
[13] Because Ms Yang had not herself deposed to her belief that the defendant has no defence to the allegations in the statement of claim, I inquired of the plaintiff as to whether Ms Yang, who was present in Court, was in a position to swear an affidavit which complied with the rules. Counsel indicated that instructions would be taken over the luncheon adjournment.
[14] Following the luncheon adjournment, Mr Upton sought leave to file a further affidavit from Ms Yang which contained the following statement:
2I confirm that I believe and that the plaintiff still believes that TFT has no defence to either of the alternative claims set out in the statement of claim.
3. The grounds for that belief are set out in my two earlier affidavits.
4.I confirm that I remain authorised by the plaintiff to affirm this affidavit on its behalf
[15] Not surprisingly, having regard to the analysis of Barker J in Foodstuff
(Auckland) Ltd v RW Schweiger, Mr Herbert did not oppose the filing of a further affidavit by Ms Yang. Accordingly, leave to file that affidavit was duly granted.
1 Foodstuffs (Auckland) Ltd v RW Schweiger [1986] 1 NZLR 463, (1986) 1 PRNZ 173.
2 At 175.
That further affidavit was filed. It addressed the second of the two matters of particular concern that was raised by Mr Herbert in respect of the preliminary matter.
[16] The first issue raised under the preliminary matter is whether Ms Yang has verified key allegations set out in the plaintiff’s statement of claim to which it is alleged that the defendant has no defence and whether she has set out the grounds for that belief.
[17] Although the application for summary judgment seeks summary judgment in respect of two alternative causes of action, Mr Upton properly acknowledged that if the plaintiff could not succeed with summary judgment on the first cause of action it was appropriate that the matter proceeding to trial. That is so for a number of reasons, one of which is the fact that the second cause of action, by its very nature, involves an assessment of factual evidence, which is not appropriate for final determination on an interlocutory application for summary judgment. Accordingly, it is necessary that I consider the second concern raised under the preliminary issues in relation to the first cause of action only.
[18] I shall therefore review each allegation made in the first cause of action and the evidential material submitted in respect of it by Ms Yang.
[19] Paragraphs 1 and 2 of the statement of claim are addressed by production of the relevant copies of either Government Certificates or extracts from the New Zealand Companies Office. That is the best evidence and is admissible.
[20] Paragraph 3 of the statement of claim refers to two signed memoranda: one dated 19 October 2015 and other dated 18 November 2015. Both are produced. No objection was taken to their production. That allegation is likewise proven.
[21] Paragraph 4 of the statement of claim refers to the terms of the first produced agreement and is accordingly proven. The same position applies in respect of the second agreement so that paragraph 5 of the statement of claim is proven.
[22] Paragraph 6 of the statement of claim pleads that the consequence of the two memoranda referred to in paragraph 3 “would have allowed Sichuan to develop an operator licence for casino and hotel contracts on Yadua Island”. That is a matter of interpretation of the two agreements.
[23] Paragraphs 7, 8, 9, 10, 11, 12 and 13 of the statement of claim are all covered by Ms Yang’s affidavit and are matters that she was personally involved in.
[24] Paragraph 14 of the statement of claim asserts that the plaintiff decided not to proceed any further with negotiations. Ms Yang was involved in the plaintiff’s decision-making process.
[25] Paragraphs 15 and 16 of the statement of claim are not in issue because it is accepted that a request for the return of the deposit has been made, that request has been refused and the funds remain in the defendant’s solicitors’ trust account.
[26] Accordingly, so far as the precise allegations contained in the statement of claim are concerned, Ms Yang was in a position to deal with each allegation which is made in the statement of claim on which the cause of action was founded, and has done so.
[27] On the third issue, Ms Yang has now deposed that the defendants have no defence. Whether that is correct is a matter still to be determined.
[28] The fourth hole alleged in Ms Yang’s knowledge is not directly relevant to the specific issues which I must consider under the preliminary issues. What Ms Yang has deposed to are matters that she was directly involved in and had knowledge of. There is no question of hearsay in that respect. Whether it is sufficient to dispose of the summary judgment application itself is another matter and will be considered later in this judgment.
[29] As a result of the filing of the additional affidavit, I rule against the defendant on the preliminary opposition to summary judgment raised that the supporting affidavit is defective and there has been non-compliance with r 12.4(4) and (5).
The facts
[30] Sichuan is a company incorporated in the People’s Republic of China which
carries on business as a real estate developer.
[31] TFT is a company incorporated under the Companies Act 1993, which has its registered office in Auckland, New Zealand. Timothy Manning is the director of TFT. Bishops Holding (Fiji) Ltd (“Bishops”) is an incorporated company. It is a wholly owned subsidiary of TFT. The sole purpose of Bishops was to purchase and hold shares in a Fijian company, Yadua Island (Fiji) Limited (“Yadua Ltd”). Yadua Ltd holds a lease for the land comprising Yadua Island, Fiji. The island is vacant land.
[32] Mr Manning was also involved with another entity, One Hundred Sands Ltd
(“OHSL”). That company was involved with casino licences in Fiji.
[33] In 2014, TFT decided to sell the island and engaged a real estate agent to commence a marketing campaign for the island. Through a tender process, six tenders were received. One of those was from Sichuan which verbally offered NZD $5,200,000 in June 2015.
[34] There was a period of negotiations between TFT and Sichuan in September and October 2015 during which time representatives of Sichuan visited Yadua Island. During negotiations, representative of Sichuan became aware that Mr Manning was involved with casinos and indicated that they would be interested in a casino licence for Yadu Island.
[35] On 18 October 2015, TFT and Sichuan signed a document entitled ‘Land
Memorandum’. On 19 October 2015, OHSL and Sichuan signed a document entitled
‘Casino Memorandum’. The Casino Memorandum set out an agreement for Sichuan to purchase a casino licence from OHSL for Yadua Island when one became available.
[36] On 18 November 2015, TFT and Sichuan signed a new Land Memorandum. This is the document at issue in the proceedings.
[37] The operative parts of the Land Memorandum provide:
The Vendor has agreed to sell to the Purchaser or other companies appointed by the Purchaser, and the Purchaser or other companies appointed by the Purchase has agreed to purchase from the Vendor the shares in Bishop Holdings Fiji Limited (“the Deal”).
1. The total price for the Shares is NZD$5,200,000.
After this memorandum is signed, the Purchaser may do due diligence including but not limited on the Vendor Bishop Holdings Fiji Limited in legal and financial area. The Vendor shall fully co- operate with due diligence.
The price of the Shares may be cut down in case the Purchaser finds false documentation that is materially misleading during or after due diligence in consideration that the Purchase is willing to purchasing.
2.The Purchaser shall pay to the Vendor a deposit into the trust account of the Vendor’s solicitors trust account in the following manner.
The Purchaser will transfer a 10% deposit (NZD$ 520,000) to the Vendor Solicitors Trust Account on 25th November 2015, or as soon as the Purchaser get approvals from State Administration of Foreign exchange and bank.
The above deposit shall be transferred back unconditionally to the appointed account by the Purchaser in case the Purchaser and the Vendor unilaterally announce to cancel the deal as detailed above.
3.During the due diligence the Purchaser and the Vendor will negotiate and sign a formal agreement on the Sale in the event that the Purchase deems the Sale is feasibility.
The purchaser agrees to appoint its attorneys by Friday 20th
November and its accountant by Tuesday 25th November.
It is estimated that the later and accountant will compete the due diligence in 20 days but the lawyer from the Purchaser reserve the right of final decision on completion of the date parties from each side should respect on this term. This due diligence period should be no later than 20 days from the date of signing unless specific issues need resolving as documented by the purchaser’s attorney and accountant and by agreement of both parties, hence a further 7 days will be granted. However lawyer and accountant from the Purchaser should report to Vendor every two days on the progress of due diligence If the lawyer or accountant stops working with no reasons the Vendor has the rights to terminate the agreement.
4.On the Settlement Date (shall be followed as the date negotiated in the form agreement if both parties agree, the settlement date can be on December 18th 2015), the Purchaser shall pay to the Vendor the balance of the Share Purchase Price less the deposit (as already paid)
by way of cleared funds deposited into the trust account of the
Vendor’s solicitors as detailed above.
5.Both the Vendor and the Purchaser agree and accept that a scanned copy sent by email to be signed in China and New Zealand respectively will formalize this memorandum.
6.After this memorandum is signed the deposit is paid, and the agreement is declared unconditional the vendor shall not contact or negotiate with any third party on the Sale of the Shares. Otherwise the Vendor shall be responsible for its fault liability.
[38] On 14 December 2015, Sichuan paid $519,980 into TFT’s solicitor’s trust account. Other than an email exchange giving instructions as to how and where the deposit was paid, no other information is provided concerning the circumstances of the payment of the deposit.
[39] In December, Sichuan undertook due diligence. In late December, Sichuan indicated that it wished to renegotiate the price. It indicated that it had thought that the transfer included a gambling licence whereas it was now clear that such a licence may never become available.
[40] In February 2016, Mr Manning visited Sichuan in China to further negotiate the price. Mr Manning states that while in China he was told that Sichuan only wished to pay CNY8,000,000 which equated to around NZD1,700,000.
[41] On 3 March 2016, Mr Manning authorised TFT’s solicitors to accept the offer conditional upon a sale and purchase contract being agreed. On 8 March 2016, Sichuan emailed Mr Manning stating that they had decided to terminate the agreement and seeking repayment of the deposit pursuant to the Land Memorandum.
[42] Counsel filed a detailed chronology following the hearing. I have considered it but do not intend to further record background facts for reasons which I shall shortly set out.
[43] The deposit has not been repaid.
Statement of claim
[44] Sichuan brings its claim on two alternative causes of actions:
(a) On the terms of the Land Memorandum, Sichuan is entitled to return of the deposit;
(b)In the event that the Land Memorandum is read so as to only allow cancellation by Sichuan and return of the deposit in the event that false documentation or materially misleading information is identified during or after due diligence then Sichuan was entitled to cancel the contract and is entitled to return of the deposit.
[45] On both causes of action Sichuan seeks an order directing that TFT repay the deposit of $519,980 plus all interest accrued to Sichuan.
Plaintiff ’s submissions
[46] The plaintiff submits that the claim advances three essential propositions:
(a) That there were conditions material to the formation of a binding contract which were not met namely:
(i)The plaintiff’s own assessment of feasibility following due diligence.
(ii) Final written agreement.
(b)That failure to meet those pre-conditions were in large part due to materially misleading information that was identified during due diligence in relation to the likely availability of a casino licence in addition to concerns about feasibility generally. That situation of itself put price in issue and no final agreement could be reached.
(c) Whatever the position, the parties agreed that if either cancelled the
Land Memorandum, the deposit money would be returned.
[47] The plaintiff submits that the first cause of action is advanced solely on a strict application of the words in the Land Memorandum itself.
Defendant’s submissions
[48] Having regard to the preliminary issue earlier discussed, and counsel’s agreement on the correct approach to interest, Mr Herbert advanced the following matters in opposition:
(a) The obligation to pay the deposit under the Land Memorandum has never been triggered;
(b)The Land Memorandum contains no express mechanism for cancellation;
(c) To the extent that there is a mechanism for cancellation provided in the contract, that required cancellation by both parties;
(d)Save in the case of (c) above, the Land Memorandum merely allows the plaintiff to reduce the price if the purchaser finds false documents that are materially misleading. In short, there is no provision in this circumstance permitting a refund of the deposit; and
(e) In the alternative, the remedy claimed is not specific performance. If there is found to be a breach, the only relief is payment of money and that is properly a damages claim.
The Court’s approach to a plaintiff ’s summary judgment application
[49] Rule 12.2 of the High Court Rules requires that a plaintiff satisfy the Court that a defendant has no defence to a cause of action in the statement of claim or to a particular part of any such cause of action. The obligations imposed by the rule have been examined by a number of authorities.
[50] The correct approach to an application for summary judgment by a plaintiff was summarised in Krukzeiner v Hanover Finance Ltd where the Court said:3
The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR 1 at 3 (CA). The Court must be left without any real doubt or uncertainty. The onus is on the plaintiff, but where its evidence is sufficient to show there is no defence, the defendant will have to respond if the application is to be defeated: MacLean v Stewart (1997) 11
PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept
uncritically evidence that is inherently lacking in credibility, as for example
where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable: Eng Mee Yong v Letchumanan [1980] AC 331 at 341 (PC). In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA).
[51] The central issue in this proceeding is the construction of the Land Memorandum. The particular provision which is central to the disposal of the first cause of action are the words contained in paragraph 2, dealing with the return of the deposit. There is a patent ambiguity. That is apparent when one looks at the clause broken down in parts as follows. The particular sentence involves a right to a transfer back of the deposit unconditionally. The words then used provide: “in case the Purchaser and the Vendor ... announce to cancel the deal as detailed above”. It will be noted that I have deleted the word “unilaterally” from that summary. Read with the words “unilaterally” deleted the refund or transfer back of the deposit is dependent upon both purchaser and vendor announcing they cancel the deal.
[52] However, the full text reads: “in case the Purchaser and the Vendor unilaterally announce to cancel the deal as detailed above”. The reference to one or other of the parties, that is purchaser or vendor, unilaterally announcing to cancel the deal suggests that one alone has the right to cancel the deal and therefore trigger the transfer back of the deposit.
[53] That illustrates that what this case requires is a resolution of the ambiguity that is patent on the face of the Land Memorandum.
3 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307 (CA) at [26].
[54] A brief summary of what is required when the Court is required to determine the construction and interpretation of a contract which contains an ambiguity, as I have described it, is now set out.
[55] The Supreme Court has given recent guidance and has said:4
[60] …the proper approach is an objective one, the aim being to ascertain “the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract”. This objective meaning is taken to be that which the parties intended. While there is no conceptual limit on what can be regarded as “background”, it has to be background that a reasonable person would regard as relevant. Accordingly, the context provided by the contract as a whole and any relevant background informs meaning.
[61] … Contextual interpretation of contracts has a significant history in New Zealand, although for many years it was restricted to situations of ambiguity.
…
[79] … we accept that in interpreting commercial contracts the courts should have regard to their commercial purpose and to the structure of the parties’ bargain, to the extent that they can reliably be identified.
…
[89] But if consideration of the relevant background forces a court to the conclusion that something has gone wrong with the contractual language, it is not required “to attribute to the parties an intention which they plainly could not have had”. Just as the courts have accepted that understanding the commercial purpose of a commercial contract is relevant to its interpretation, so have they accepted that that if a particular interpretation produces a commercially absurd result, that may be a reason to read the contract in a different way than the language might suggest. However, it has also been accepted that a court is not justified in concluding that a contract does not mean what it seems to say simply because the court considers that, so interpreted, the contract is unduly favourable to one party. There is an obvious tension between these two positions, and it will often be difficult to determine whether particular cases fall within one category or the other.
[56] The primary evidence advanced by the plaintiff comes from Ms Yang, who was not involved in the various steps taken up to the execution of the Land
4 Firm PI 1 Ltd v Zurich Australian Insurance Ltd t/a Zurich New Zealand [2014] NZSC 147, [2015] 1 NZLR 432 (footnotes omitted).
Memorandum. I have deliberately excluded, at this stage, all reference to the correspondence, which included the sending of a Chinese Mandarin interpretation of the Land Memorandum to the plaintiff. My view is that that evidence would be more appropriate to a claim for rectification, which is not yet pleaded in this case. It is, therefore, not relevant for the purposes of my determining this summary judgment application.
[57] The first cause of action proceeds on the basis that the plaintiff has the unilateral right to announce that the deal is cancelled. I am not satisfied that that issue should be resolved in a summary judgment context, because it is clear to me that there is a need to refer to the background circumstances to determine objectively what the parties’ intentions were for this contract. Resolution of this patent ambiguity is essential for the determination of this issue. It is simply not possible to advance the other arguments submitted by both plaintiff and defendant without having the benefit of the full contextual background, which can only be achieved by requiring this matter to proceed to trial.
Result
[58] Accordingly, the application for summary judgment is declined.
[59] I discussed the two possible outcomes for this application with counsel in the course of hearing submissions. A possibility that I did not raise with them at the time was whether the plaintiff might wish to amend the statement of claim. In the directions that I now make, I am making provision for that because the circumstances indicate to me that there may well be a desire on the plaintiff’s part when the matter is further considered to plead a claim for rectification. It is because of that possibility that I am making provision for the filing of an amended statement of claim in the timetable directions that are now set out.
Orders and directions
[60] Accordingly, I order:
(a) The application for summary judgment is dismissed;
(b)Should the plaintiff wish to file and serve an amended statement of claim, same shall be filed and served within 10 working days of the date of issue of this judgment;
(c) The defendant shall file and serve a statement of defence within
20 working days of the date of the issue of this judgment;
(d) Both plaintiff and defendant shall file affidavits of documents within
50 working days of the date this judgment. The discovery required is standard discovery. The parties shall comply with the listing and exchange protocol set out in Part 2 of Schedule 9 of the High Court Rules;
(e) The Registrar shall allocate a case management conference before an Associate Judge on the first available date 65 working days after the date of issue of this judgment. The matters to be discussed at that conference are:
(i) Confirmation of the costs category for this proceeding; (ii) The issues requiring resolution at trial;
(iii)Whether any further interlocutory application or direction is required and, if so, what it is;
(iv) The forum for settlement discussions; and
(v)Trial duration, the fixing of the trial date and the making of any special trial directions that are required. In respect of these matters counsel should have available the number of witnesses to be called and the general scope of the evidence to be covered by them so that an accurate assessment can be made of trial duration. In the event that expert witnesses are to be called counsel must have available the scope of matters to
be covered by the experts so that the Court can give consideration to directions pursuant to r 9.44.
Because the issues requiring resolution at trial will be considered at the conference, memoranda shall be filed on a sequential basis so that the plaintiff’s memorandum is filed and served five working days before the conference and the defendant’s memorandum is filed and
served two working days before the conference.
Costs
[61] In my discussions at the hearing of this summary judgment application, my understanding was that counsel agreed that costs should be reserved in the event that I declined summary judgment and gave directions to have the matter ready for trial. In my view, that position is appropriate and has the support of the Court of Appeal
decision in NZI Bank Ltd v Philpott.5 Clearly, the examination before me will help
finalise pleadings and the issues that require resolution at trial. Having regard to these matters, I reserve costs on the summary judgment application.
JA Faire J
5 NZI Bank Ltd v Philpott [1990] 2 NZLR 403 (CA).
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