Sunbow Investment Limited v Sunbow Limited (in liquidation)
[2024] NZCA 305
•11 July 2024 at 10.00 am
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA443/2023 [2024] NZCA 305 |
| BETWEEN | SUNBOW INVESTMENT LIMITED |
| AND | SUNBOW LIMITED (IN LIQUIDATION) |
| Hearing: | 17 June 2024 |
Court: | Katz, Brewer and Downs JJ |
Counsel: | J Marcetic and T F Cleary for Appellant |
Judgment: | 11 July 2024 at 10.00 am |
JUDGMENT OF THE COURT
A The appeal is dismissed.
BThe appellant must pay the respondent costs for a standard appeal on a band A basis and usual disbursements. We certify for two counsel.
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REASONS OF THE COURT
(Given by Brewer J)
Introduction
On 5 July 2023, Tahana J ruled that Sunbow Investment Ltd (SIL) had not established on a formal proof basis that it is owed $2,077,853.74 by Sunbow Ltd (in liquidation) (Sunbow).[1]
[1]Tang v Sunbow Ltd [2023] NZHC 1730.
SIL argued that the sum sought was due and owing pursuant to a settlement agreement (the Agreement) executed on behalf of Sunbow by Ms Zhong. The Judge found that Ms Zhong entered into the Agreement “under duress and undue influence in circumstances where Ms Zhong’s life had been threatened”.[2]
[2]At [97].
SIL now appeals Tahana J’s decision. It does not contend that Tahana J was wrong to find that the Agreement was entered into under duress and is therefore unenforceable. The gravamen of the appeal is that the evidence shows antecedent payments by SIL to Sunbow which led to the Agreement being drafted. These payments are repayable by Sunbow independent of the Agreement and it is submitted that Tahana J should have made an order accordingly.
SIL seeks an order that Sunbow is liable to it in the sum of $1,742,187.50. This amount is calculated by subtracting from the sum of the alleged payments ($2,367,187.50) a set-off identified by Tahana J of $625,000.[3]
[3]At [77]. SIL does not accept there is a set-off but does not contest the matter on this appeal.
Sunbow and the ninth respondent filed a notice of appearance on 17 August 2023. Subsequently, Sunbow gave notice it would appear in support of Tahana J’s decision and it has applied for leave to advance an additional ground described as “the illegality defence”.
The reason why Sunbow seeks to advance the illegality defence on appeal is that on 28 November 2020, Mr Sun, a man closely connected to SIL (and, arguably, its controller) murdered Ms Zhong. Sunbow submits that Ms Zhong’s murder puts it at a material disadvantage and, given Mr Sun’s connection to SIL, the illegality defence means that SIL’s appeal must fail.
Background
For reasons which we will come to, it is not necessary for us to engage with the details of the parties’ arguments. But for our reasons to be understood it is necessary to sketch the background.
The pleading operative before Tahana J was the second amended statement of claim dated 25 November 2022. There were four causes of action:
(a)The first cause of action concerned a pleading that on or about November 2016, Ms Zhong and Mr Sun agreed that Ms Zhong would transfer 60 per cent of the shares in Sunbow to a family trust for Mr Sun in satisfaction of a debt owed by Ms Zhong to Mr Sun. It was pleaded that Ms Zhong did not record the share transfer in Sunbow’s share register. A number of declarations and orders to rectify the share register and validate the appointments of directors were sought.
(b)The second cause of action concerned pleadings that Mr Sun is the beneficial owner of the shares in the second plaintiff, Sunbow Group Ltd, and that Ms Zhong held all the shares in that company at Mr Sun’s direction. It was pleaded that Ms Zhong refused Mr Sun’s direction to transfer the shares in Sunbow which were the subject of the first cause of action to Sunbow Group. The same suite of declarations and orders were sought as under the first cause of action.
(c)The third cause of action was a claim by the first, second and third plaintiffs that Ms Zhong caused Sunbow to act in a manner that was oppressive, unfairly discriminatory and unfairly prejudicial to the first, second and third plaintiffs. The relief sought were orders largely aimed at taking control of Sunbow.
(d)The fourth cause of action was the one upon which judgment by way of formal proof was sought and refused:
140As a result of the cancellation of the sale and purchase agreements:
(a) the Agreement was unable to be performed;
(b) As of 17 December 2019, the debt of NZD 2,077,853.74 admitted under the Agreement became due and owing from Sunbow to [SIL];
(c) The debt of NZD 2,077,853.74 remains unpaid as at the date of this statement of claim.
The pleadings submitted to be of relevant antecedence to the fourth cause of action were:
[SIL] pays Sunbow NZD 2,578,682.74
35In 2017, [SIL] agreed to purchase the Kennedy Point Vineyard from Sunbow.
36 On 20 July 2017, [SIL] paid Sunbow RMB 7,000,000 (NZD 1,367,187.50) on Ms Zhong’s directions, towards the Vineyard purchase.
37 On 19 December 2017, [SIL] entered into separate sale and purchase agreements with Sunbow, the terms of which are relied on as if pleaded in full, to purchase:
(a) the property on which the Vineyard was located, being 44 Donald Bruce Road, Surfdale, Waiheke Island, for NZD 5,000,000 (Vineyard Property); and
(b) the Vineyard’s business for NZD 500,000 (Vineyard Business).
38Ms Zhong had represented to [SIL] that Sunbow Limited owned the Vineyard Property and the Vineyard Business.
39It turned out, however, that while Sunbow owned the Vineyard Property, Sunbow did not own the Vineyard Business. The Vineyard Business was instead owned by Kennedy Point Group Limited, of which Ms Zhong was the sole director and shareholder.
40Under the sale and purchase agreements, [SIL] had to pay NZD 500,000 as a deposit to purchase the Vineyard Property, and NZD 500,000 as the full purchase price for the Vineyard Business.
41Between 21 December 2017 and 8 January 2018, [SIL] paid Sunbow NZD 1,000,000 in accordance with the sale and purchase agreements.
Particulars
(a) [SIL] paid Sunbow:
(i) NZD 300,000 on 21 December 2017;
(ii) NZD 200,000 on 28 December 2017;
(iii) NZD 300,000 on 5 January 2018; and
(iv) NZD 200,000 on 8 January 2018.
42[SIL] through a subsidiary then made further payments totalling NZD 211,495.24 in 2019 to assist Sunbow to pay loans secured by a mortgage over the Vineyard Property.
Particulars
(a) [SIL] through a subsidiary paid:
(i) NZD 128,383.78 to Sunbow on 4 July 2019;
(ii) NZD 27,919.73 to DBR Limited (a mortgagee of the Vineyard Property) (DBR) on 12 July 2019;
(iii) NZD 28,000 to Kennedy Point Group Limited on 17 July 2019; and
(iv) NZD 27,191.73 to DBR on 26 July 2019.
Purported cancellation of the sale and purchase agreements
43On 31 July 2019, without sending a settlement notice, Sunbow advised [SIL] that it was cancelling both sale and purchase agreements for the Vineyard Property and the Vineyard Business respectively.
44This purported cancellation was invalid and amounted to a repudiation of the sale and purchase agreements.
45On 10 October 2019, [SIL] advised Sunbow that the purported cancellation was invalid and amounted to a repudiation, and on that basis [SIL] was cancelling both sale and purchase agreements and requested repayment of the monies [SIL] paid to Sunbow.
46Sunbow failed to repay the monies to [SIL].
The Agreement, founding the fourth cause of action, was then pleaded:
Acknowledgement of Debt and Settlement Agreement
47In November 2019, DBR exercised its right to sell the Vineyard Property at a mortgagee auction and advised Sunbow that Sunbow could itself sell the Vineyard Property until 10 December 2019.
48On 3 December 2019, Sunbow entered into an “Acknowledgment of Debt and Settlement Agreement” (the Agreement) with [SIL] and SILNZ, the terms of which are relied on as if pleaded in full.
49Under the Agreement, Sunbow:
(a) admitted that Sunbow had paid [SIL] a total of NZD 2,577,853.74;
(b)claimed a set off of NZD 500,000 paid to CNZF Management Co Limited for [SIL’s] benefit;
(c) admitted Sunbow owed [SIL] NZD 2,077,853.74; and
(d) agreed to enter into and sign a sale and purchase agreement to sell:
(i) the Vineyard Property to [SIL] for a purchase price of NZD 4,500,000 plus GST; and
(ii) the Vineyard Business to [SIL] for a purchase price of NZD 577,853.74 plus GST;
(e) agreed that the purchase prices would take into account the NZD 2,077,853.74 debt owed as admitted in the Agreement.
50On or about the same time as entering into the Agreement, in accordance with the Agreement, Sunbow and SILNZ entered into the relevant sale and purchase agreements.
51The sale and purchase of the Vineyard Property and Vineyard Business were conditional on DBR’s approval and CNZF Management Co Limited lifting a caveat it had placed on the title of the Vineyard Property.
52On 5 December 2019, CNZF Management Co Ltd had not agreed to lift its caveat and DBR had not consented to the sale and purchase agreements.
53On 6 December 2019, Sunbow cancelled the sale and purchase agreements.
54On 10 December 2019, [SIL] wrote to Sunbow requiring Sunbow to comply with the sale and purchase agreements or in the alternative demanding repayment of the Debt Agreement Debt of NZD 2,077,853.74 owed by Sunbow Limited to [SIL] by 17 December 2019.
On the basis of the above pleadings, and as addressed in the submissions made to her, Tahana J adjudicated on whether SIL had satisfied her that it was owed $2,077,853.74 by Sunbow pursuant to the Agreement:
[11] The key issue I need to determine is whether the Settlement Agreement is binding on Sunbow such that it is liable for $2,077,853.74 to [SIL].
Tahana J concluded:
[97] [SIL] has not established on a formal proof basis that it is owed $2,077,853.74 by Sunbow. I am satisfied that the Settlement Agreement was entered into under duress and undue influence in circumstances where Ms Zhong’s life had been threatened. The claim is rejected.
The appeal
Counsel for SIL puts the issues on appeal:[4]
36SIL does not seek to challenge the High Court’s finding that the Settlement Agreement was unenforceable due to the threats by Mr Sun, albeit SIL notes that the Judge identified that SIL’s director, Ms Tang, may not have been aware of Mr Sun’s actions.
37Rather, SIL challenges two findings:
37.1 first, the High Court’s factual findings that the evidence did not show that the Payments were made as part of SIL’s attempt to purchase the Winery Property and Business or otherwise as a loan; and
37.2 second, the High Court’s legal finding that the lack of a clear purpose meant that the Debt was not due and owing.
[4]Footnote omitted.
The submissions of counsel traverse the evidence and point to evidential inferences which, it is submitted, the Judge was either wrong not to draw or should have drawn. The conclusionary submissions are:
62SIL considers that the ultimate legal consequence is that the Debt is due and owing to SIL because:
62.1 If the Court accepts that the High Court erred because the purpose of the Payments was not unclear and instead was to purchase the Kennedy Point Winery’s Property and Business, then it follows that following the cancellation of the sale and purchase agreements, the Payments were debts owed to SIL.
62.2 Conversely, if the Court holds that the High Court was correct in finding that there was no clear purpose, then it follows as a matter of law that the Payments are treated as loans repayable on demand.
The problem for the appellant is that Tahana J was not asked to decide the points now advanced on appeal. That is hardly surprising since the fourth cause of action seeks to enforce the Agreement.
We raised this point with counsel. The response was to the effect that the pleading of the detail of the antecedent transactions and payments was sufficient for Tahana J to have jurisdiction to find for SIL on the basis now advanced on appeal. However, in our view, the antecedent transactions and payments were not pleaded to found a separate claim or claims but to give context to, and validate the Agreement.
Therefore, on appeal, we are asked to go outside the case argued before Tahana J and to hear and decide a different case. We decline to do so. There is no error on the part of the Judge. In effect, the appellant contends that the Judge should have added a cause of action not pleaded and given relief in a sum not sought and on a basis not argued.
The case in the High Court is still in existence. Only one of the four causes of action has been decided. It may be that further pleadings are possible. That is for the High Court.
Likewise, whether the defence of illegality can be advanced is for the High Court.
Decision
The appeal is dismissed.
The appellant must pay the respondent costs for a standard appeal on a band A basis and usual disbursements. We certify for two counsel.
Solicitors:
Chapman Tripp, Auckland for Appellant
Anthony Harper, Auckland for Respondent
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