Tang v Sunbow Limited (in liquidation and receivership)
[2023] NZHC 1730
•5 July 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2019-404-001572
[2023] NZHC 1730
UNDER Companies Act 1993 BETWEEN
JINQIU TANG
First Plaintiff
SUNBOW GROUP LIMITED
Second PlaintiffSUNBOW INVESTMENT LIMITED
Third PlaintiffFANG SUN
Fourth PlaintiffAND
SUNBOW LIMITED (in liquidation and receivership)
First Defendant
YING ZHONG (in bankruptcy) Second Defendant
intituling continued overleaf…
Hearing: 27 April 2023 and written submissions dated 5 May 2023 Appearances:
J Marcetic & N D Whittle for the Third Plaintiff
R A Idoine for the liquidators of the First Defendant
Judgment:
5 July 2023
JUDGMENT OF TAHANA J
This judgment was delivered by me on 5 July 2023 at 3.30pm Pursuant to Rule 11.5 of the High Court Rules
…………………………
Registrar/Deputy Registrar
TANG v SUNBOW LIMITED (in liquidation and receivership) [2023] NZHC 1730 [5 July 2023]
AND KENNEDY POINT GROUP LIMITED (in
receivership)
Third DefendantCARRICK WINES LIMITED
Fourth DefendantDIGITAL POST LIMITED
Fourth DefendantDIGIFILM LIMITED
Sixth Defendant
Introduction
[1] The third plaintiff, Sunbow Investment Ltd (Hong Kong) (SILHK), seeks judgment for $2,077,853.741 by way of formal proof against the first defendant, Sunbow Ltd (in liq and in rec) (Sunbow). SILHK relies on an Acknowledgement of Debt and Settlement Agreement dated 3 December 2019 (the Settlement Agreement) in which Sunbow acknowledged that it owed $2,077,853.74 (the alleged Debt) to SILHK.
[2] SILHK holds 14 per cent of the shares in Sunbow. The first plaintiff, Ms Jingqiu Tang holds 10 per cent of the shares. There is a dispute as to whether the second plaintiff, Sunbow Group Ltd (Sunbow Group) is the beneficial owner of 60 per cent of the shares such that the second defendant, Ms Ying Zhong, holds only the remaining 16 per cent. Sunbow Group is the trustee of the family trust of the fourth plaintiff, Mr Fang Sun.
[3] This proceeding was filed in August 2019 seeking orders that Sunbow Group beneficially owns 60 per cent of Sunbow. The claim was opposed by the defendants.
[4] There is a complicated history between Ms Tang and Mr Sun on the one hand, and Ms Zhong on the other.
[5] Ms Tang is the ex-partner of Mr Sun. Mr Sun and Ms Zhong met in about 2013 or 2014 and undertook a range of business dealings. Mr Sun deposes that he transferred millions of dollars to Ms Zhong to purchase assets in New Zealand on his behalf.
[6] Sunbow owned land (the Waiheke land) and a vineyard business on that land (the Waiheke business). SILHK says that in 2017 it entered into a sale and purchase agreement with Sunbow to buy the Waiheke land and Waiheke business, and paid money to Sunbow for this purpose. The purchase did not proceed on the proposed settlement date. SILHK also says it advanced funds to Sunbow to repay creditors of Sunbow and related companies in July 2019.
1 SILHK also seeks interest under the Money Claims Act 2016 from 17 December 2019 and costs.
[7] Ms Zhong filed affidavits in this proceeding in 2019 and 2020.2 In those affidavits Ms Zhong deposed in October 2019 that Mr Sun had threatened to kill her. She subsequently deposed in January 2020, after the Settlement Agreement was signed, that she did not want to accept it, that things were rushed, and that the plaintiffs called her over 30 times insisting that she sign. She said the plaintiffs also threatened that they had gang connections and would harm her.
[8]On 28 November 2020 Mr Sun murdered Ms Zhong.3
[9] The plaintiffs amended the claim in November 2022, adding a cause of action against Sunbow for repayment of the alleged Debt.
[10] The liquidators of Sunbow indicated at the hearing that, in the circumstances of Ms Zhong’s death, they considered it appropriate that SILHK seek to establish the alleged Debt by way of formal proof.
[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 SILHK.
Background
[12] SILHK says that on 20 July 2017 it paid $1,367,187.50 to Sunbow for payment towards the purchase of the Waiheke land and Waiheke business.
[13] Ms Zhong deposed that around mid-2017, Sunbow was suffering financially. It could not sustain its mortgage payments and she was “financially against the wall.” Ms Zhong said she reached out to Mr Sun for help, and he provided approximately
$1.3 million, which came through in the name of SILHK. She said Mr Sun did not discuss with her how the payment was to be treated.
[14] Ms Zhong deposed that Mr Sun said that SILHK could provide further money but for this he wanted paperwork showing that she was selling the Waiheke land and Waiheke business to SILHK.
2 Affidavits of Ms Zhong dated 19 July 2019, 4 October 2019, 10 January 2020 and 5 March 2020.
3 R v Sun [2022] NZHC 1881.
[15] On 19 December 2017 Sunbow entered into two sale and purchase agreements with SILHK:
(a)to purchase the Waiheke land for $5 million (the 2017 land SPA); and
(b)to purchase the Waiheke business for $500,000.00 (the 2017 business SPA).
[16] The 2017 land SPA was conditional on Overseas Investment Office (OIO) consent. The 2017 land SPA did not specify a “Land Act/OIO” date by which this condition was required to be met by SILHK, as purchaser. The settlement date was 31 May 2018 and a 10 per cent deposit was payable upon the agreement being accepted by both parties. The 2017 business SPA also had a settlement date of 31 May 2018.
[17]SILHK says it paid $1 million to Sunbow, as follows:
(c) $300,000.00 on 21 December 2017;
(d) $200,000.00 on 28 December 2017; (e) $300,000.00 on 5 January 2018; and (f) $200,000.00 on 8 January 2018.
[18]Ms Zhong deposed that:
44.It was not clear to me at the time how much SIL would be providing and the basis on which it would be paying the money (whether it would be a loan, an investment or a purchase of the winery). However, I was desperate for the money and I thought that even if SIL wanted to buy Kennedy Point winery (land and business) for $5.5 million, I was o.k with that.
45.SIL ended up paying $1 million in July 2017. It did not provide any further funds. Mr Fang Sun/SIL and I did not discuss how the advance should be treated.
[19] OIO approval does not appear to have been obtained. Neither the 2017 land SPA nor the 2017 business SPA settled on 31 May 2018.
[20] On 28 June 2019 DBR Ltd (DBR) issued Sunbow with a notice under the Property Law Act 2007 (PLA notice) for its default on a loan, and requested an interest payment of $27,181.73.
[21]SILHK says it made the following further payments in July 2019:
(g) $128,383.78 to Sunbow on 4 July 2019;
(h)$27,919.73 to DBR (financier of Sunbow) on 12 July 2019;
(i)$28,000.00 to Kennedy Point Group Ltd (wholly owned by Ms Zhong) on 17 July 2019; and
(j) $27,191.73 to DBR on 26 July 2019.
[22] In relation to the 2017 land SPA and 2017 business SPA, Sunbow’s solicitors wrote to SILHK on 31 July 2019 stating:
Having passed the due date without settlement occurring and without notice or further negotiation, our client wishes to confirm that both agreements (for the sale and purchase of the business and sale and purchase of the land) are hereby cancelled.
[23]On 6 August 2019, these proceedings were commenced.
[24] In August 2019, the parties’ solicitors negotiated the terms of an undertaking in which Ms Zhong would undertake to market and sell properties and businesses owned by Sunbow, including the Waiheke land and the Waiheke business. Ms Zhong was to notify the plaintiffs (at that time, Ms Tang, SILHK and Sunbow Group) of an offer and they were to confirm whether there was any disagreement based on an independent valuation. The proceeds of the sale, after paying existing registered obligations to the Bank of New Zealand (BNZ) and DBR, marketing costs, and legal fees associated with the sale, would be placed in the trust account of a law firm, agreed between the parties. The law firm was required to report and provide information to the plaintiffs (Ms Tang, Sunbow Group and SILHK).
[25] After execution copies were agreed and sent to Ms Zhong’s solicitors on 30 August 2019, the solicitors for the plaintiffs (Ms Tang, Sunbow Group and SILHK) informed Ms Zhong’s solicitors that they would like to amend the undertaking so that it did not include the Waiheke land and Waiheke business. The previously agreed undertaking was not therefore signed.
[26] On 10 October 2019, SILHK notified Sunbow that the purported cancellation of the 2017 land SPA and the 2017 business SPA was invalid and amounted to a repudiation. SILHK requested repayment of the $2.5 million paid to Sunbow and indicated that if the funds were not repaid, SILHK would seek a caveat over the property.
[27] On 23 October 2019 the Court made orders restraining the defendants from selling the Waiheke land and Waiheke business unless the sale was at market value, as supported by an independent valuation, and the proceeds of sale were placed in the trust account of Loo & Koo solicitors pending determination of the proceeding subject to all obligations of the Sunbow Companies4 to the BNZ and DBR and the Inland Revenue Department (October 2019 Orders). Ms Zhong was required to take reasonable steps to sell the “Kennedy Point Winery” (being the Waiheke land and Waiheke business). SILHK was to withdraw the caveat it had lodged over the Waiheke land without prejudice to its claimed purchaser’s lien over any proceeds of sale. The plaintiffs and associated individuals were restrained from taking any steps to prevent the sale of the Waiheke land. The order was to be in force “up to after the next hearing on 5 December 2019.”
[28] On 5 December 2019, BNZ demanded Sunbow pay $210,723.32 owing to BNZ. BNZ had lent money to Sunbow which was secured by a general security agreement. BNZ also demanded $18,883.91 from Ms Zhong personally, who had guaranteed the borrowings.
4 Defined in the order as Sunbow Ltd, Digital Post Ltd (wholly owned by Sunbow), Digifilm Ltd (wholly owned by Sunbow), Kennedy Point Group Ltd (wholly owned by Sunbow), and Carrick Wines Ltd (shares held by Ms Zhong in trust for Sunbow).
[29] In November 2019, DBR exercised its rights to sell the Waiheke land. Ms Tang says SILHK and Sunbow Investment Ltd (SILNZ) tried to step in, offering to pay any outstanding interest payments, but DBR was not prepared to alter its course.
[30] On 2 December 2019 Sunbow and SILHK entered into a further sale and purchase agreement for the Waiheke land for $4.5 million (2019 SPA). The 2019 SPA provided that the $1.5 million deposit had been paid “within the terms and conditions of settlement agreement of debt.” Settlement was three working days after the 2019 SPA is declared unconditional. The 2019 SPA was conditional on Sunbow obtaining the consent of DBR as mortgagee and CNZF Management Co Ltd (CNZF) as caveator.
[31] On 3 December 2019 Sunbow and SILHK entered into the Settlement Agreement with Ms Zhong and Kennedy Point Group Ltd as guarantors. The background to the Settlement Agreement records the final debt owed to SILHK as
$2,077,853.74 (after set-off for payments made by Ms Zhong to CNZF).
[32]The Settlement Agreement provides that:
SET-OFF DEBT
(1)The Debtor [Sunbow] acknowledges that the total amount to be repaid to the Creditor [SILHK] is $2,077,853.74 as at the date of this Agreement, which excluded any interest on the amount. The Creditor agrees to waive all interest if the Debtor fully perform this settlement agreement within one months following the execution of this Agreement.
(2)The Creditor agrees to sign a sale and purchase agreement (in New Zealand Law Society format) to purchase the real property 44 Donald Bruce Road (“Winery property”) owned by the Debtor for a price of
$4,500,000,00 plus GST with settlement on 10 working days after the Agreement. The Debtor shall acknowledge that the deposit
$1,500,000.00 must be deemed to have been paid by the purchaser (whoever nominated by the Creditor). This amount of deposit is deemed as repayment and shall set off partial of the debt owed by the Debtor to the Creditor.
(3)The Creditor agrees to sign a sale and purchase agreement (in New Zealand Law Society format) to purchase the business at the above address (“Winery business”) owned by the Debtor and or the Guarantor Kennedy Point Group Limited for a price of $577,853.74 plus GST, with settlement date at 10 working days after the Agreement. The Debtor shall acknowledge that the purchase price for the Winery Business is deemed fully paid upon this agreement.
…
ACKNOWLEDGEMENT OF NO DURESS/UNDUE INFLUENCE
(7)It is disclosed that the Debtor has needed repaying the loan owed to DBR Limited as the mortgagee of the Winery property. But the Debtor acknowledges that before entering into this Agreement, the Debtor has been given enough time to consult its accountant, property valuer, business valuer, independent legal adviser and tax adviser in relation to the commercial viability of this settlement agreement.
(8)The Debtor acknowledge that to allow the set off of the debt as its repayment to the Creditor or to the Creditor’s nominee, is for its company’s best interest. Therefore, it shall not claim undue influence, or duress, or lack of legal/tax advice to avoid the agreement in the future.
(9)The Guarantors disclose that they are voluntarily entering into this agreement due to the close financial relationship with the Debtor. The Guarantors also acknowledge that before entering into the Agreement, they have been given enough time to consult its accountant, property valuer, business valuer, independent legal adviser and tax adviser in relation to the commercial viability of this settlement agreement.
(10)The parties acknowledge that the price for the Winery Property is the lowest price that the parties would have agreed upon for the property under the rules relating to the accrual treatment of income and expenditure in the Income Tax Act 2007 and Tax Administration Act 1994 and on the basis no income or expenditure arises under those rules.
[33]On 3 December 2019, DBR held a mortgagee auction.
[34] Ms Zhong cancelled the 2019 SPA on 6 December 2019 on the basis that the consent of DBR and CNZF had not been obtained.
[35] Ms Tang says that Ms Zhong engineered the non-compliance with the conditions of the 2019 SPA because SILHK had got DBR to agree to remove the mortgage once it received funds, CNZF agreed to remove the caveat once Sunbow paid it $16,000.00 (which SILHK says it proposed making available), and Sunbow agreed that the caveat could be removed.
[36]On 6 December 2019, SILHK lodged a caveat on the title of the Waiheke land.
[37] On 10 December 2019 SILHK’s solicitors demanded that Sunbow either repay the $2,077,853.74 or proceed with the 2019 SPA.
[38] On 10 December 2019 DBR as mortgagee entered into a sale and purchase agreement for the Waiheke land for $4.3 million (plus GST), with settlement on 20 December 2019.
[39] On 12 December 2019 Ms Zhong’s solicitors wrote to SILHK’s solicitors requesting removal of the caveat in light of the October 2019 Orders.
[40] The Waiheke land was sold to a third party pursuant to the sale and purchase agreement signed on 10 December 2019.
Legal principles for formal proof
[2] The procedure for a formal proof hearing is governed by r 15.9 of the High Court Rules 2016. Relevantly, the plaintiff must file affidavit evidence before the hearing to establish the cause of action to the Judge’s satisfaction.5 Duffy J has held that “the level at which a Judge is required to satisfy herself regarding the plaintiff’s evidence is much the same as it would be if the proceeding had gone to trial.”6
[3] I therefore consider whether the evidence filed proves the cause of action against Sunbow.
Does Sunbow owe SILHK the alleged Debt?
[41]SILHK claims that Sunbow owes it $2,077,853.74.
[42]On the face of the Settlement Agreement, Sunbow acknowledges it owes
$2,077,853.74 to SILHK.
[43]SILHK claims that:
(a)SILHK paid Sunbow the monies comprising the alleged Debt;
(b)SILHK was entitled to be repaid the alleged Debt;
5 High Court Rules 2016, r 15.9(4).
6 Ferreira v Stockinger [2015] NZHC 2916 at [35].
(c)The alleged Debt was repayable on 17 December 2019; and
(d)Sunbow has no defence to the claim.
Did SILHK advance the amount of the alleged Debt to Sunbow?
[44] The evidence indicates that funds of varying amounts were advanced to Sunbow and/or creditors of Sunbow or related companies. There is no documentation accompanying the transfers that specifies the purposes for them. Ms Zhong’s evidence is that the funds advanced in July 2017 arose because she reached out to Mr Sun because Sunbow was in financial distress. She deposed that there was no discussion as to whether the funds were advanced by way of capital, loan, or for the purchase of the property.
[45] The payments in December 2017 and January 2018 exceeded the amount of the deposit required to be paid under the 2017 land SPA, that being $500,000.00. There was no deposit payable under the 2017 business SPA. SILHK was also a shareholder of Sunbow and Mr Sun claims he is beneficially entitled to 60 percent of the shares in Sunbow.
[46] The payments in July 2019 relate to payments to creditors of Sunbow and related companies. At the time of the payments, there does not appear to be any documentation as to how those payments should be treated as between Sunbow and SILHK.
[47]There is a complicated history of transactions between the parties.
Does Sunbow have a defence to the claim?
[48] Counsel for SILHK submits that Ms Zhong’s evidence that she was coerced into signing the Settlement Agreement is inconsistent with competing evidence and contemporaneous documents, and therefore, on the balance of probabilities, she has no defence. SILHK says that Ms Zhong’s evidence is not credible based on Ms Tang’s evidence and Ms Zhong’s March 2020 affidavit. SILHK also refers to emails leading
up to the Settlement Agreement and Ms Zhong’s lawyer’s letter in December 2019 after demand for payment was made.
Ms Zhong’s evidence
[49] Ms Zhong has filed four affidavits in this proceeding dated 9 July 2019, 4 October 2019, 10 January 2020 and 5 March 2020. Despite this, counsel for SILHK only put the 2020 affidavits in the common bundle for the formal proof hearing. It should have been obvious that the evidence included in Ms Zhong’s affidavits signed in 2019 were also relevant. The 2020 affidavits expressly referred to those earlier affidavits. The 2019 affidavits are particularly relevant to the nature of the business dealings between Ms Zhong, Mr Sun and Ms Tang. They are also directly relevant to the 2017 land SPA and the 2017 business SPA, which Ms Zhong had annexed to her 4 October 2019 affidavit. What occurred prior to Ms Zhong signing the Settlement Agreement is also directly relevant to the credibility of the evidence she subsequently deposed in January 2020 when she said she had been threatened prior to entering into the Settlement Agreement.
[50] In her affidavit of 4 October 2019, Ms Zhong deposes that in late 2015, Mr Sun informed her that he needed help with his wife’s (Ms Tang’s) immigration application. Ms Zhong deposed that Mr Sun asked her to give Ms Tang shares in Sunbow so that she could satisfy immigration requirements. Ms Zhong says she then gave 10 per cent of her shares in Sunbow to Ms Tang. This is reflected in the Companies Office register.
[51] In her 9 July 2019 affidavit, Ms Zhong said that Mr Sun had lent her $2.5 million in 2015 and that she repaid him $1 million and then gave him 10 per cent shares in Sunbow, which were registered in his ex-wife’s name, Ms Tang. The evidence is inconsistent as to the basis for the transfer of 10 per cent of the shares to Ms Tang, but it does indicate that the dealings between the parties are not straightforward.
[52] Ms Zhong also deposed in her 4 October 2019 affidavit as to the role of Mr Sun in their business dealings:
There was no consideration paid for the above transfer to Ms Tang. At the time, I did not check how much the shares were worth. I gave the shares without much thought at the time because Fang Sun was an important middleman who could help make connections for Sunbow Limited. However, that help came only at a time when I [was] financially against the wall, which I will discuss below.
I was under the impression that Mr Fang Sun treated SIL as his, as he could cause a reduction in the shares SIL without issue.
I understand that Ms Jingqiu Tang requires her shares as an investment for her immigration.
[53] Ms Zhong also deposed that she reached out to Mr Sun for help when Sunbow was struggling to pay mortgages in relation to land at the Carrick Vineyard and the Waiheke land. This evidence indicated that Mr Sun was intimately connected with SILHK despite not being a director nor a shareholder. Ms Zhong said that Mr Sun did not discuss with her how the July 2017 payment would be treated. Again, this evidences that transactions were made in which significant amounts of money were transferred from China to New Zealand without any records as to their purpose.
[54]Ms Zhong in her 4 October 2019 affidavit deposes that:
71.He [Mr Sun] has been bullying Mr Hong Ye, who was the CEO of Chinese B to B company, also our mutual friend, to take responsibility for his debts.
72.Now, he has turned to me.
…
74.He had threatened me that if I do not behave, he will kill me.
Proposed sale of the Vineyards and financial duress
75.Mr Fang Sun has now created a situation of financial duress on me to make me comply with his demands.
76.From our dealings with Carrick Wines in 2016 and 2017, Mr Fang Sun is fully aware that my ability to pay the loans to the investors, who he referred but who withdrew from their investment, depends on my ability to realise the assets of Sunbow Ltd.
77.In knowing the above, he arranged for my debt with Quzhou 3D Film to be assigned to him/Sunbow Group Ltd in June 2019, while, at the same time he interfered with the business of Sunbow Ltd so that I would not be in a position to realise the assets of Sunbow Ltd.
…
78.In June 2019, I ceased making the mortgage repayment to DBR Ltd on behalf of Sunbow Ltd because I was under the impression that Mr Fang Sun had taken over Sunbow Ltd and I could not do anything about it. I was angry and frustrated and did not want to keep paying for the debts of a company that I believed Fang Sun had taken over. In my anger I thought that if he wants my company then he should deal with the debts of the company himself too.
79.I later understood that the legal position is in fact unclear and I have since resumed making mortgage repayments to DBR Ltd.
…
82.I have urged to Mr Fang Sun that both Carrick Wines and Kennedy Point needs to be sold as they are the main businesses of Sunbow Ltd that are making a loss and requires ongoing capital injection of funds from shareholders.
…
87.In respect of Kennedy Point, Mr Fang Sun told me about getting his company, called Faith Travel Limited to purchase Kennedy Point land and business. …
88.He wants Faith Travel Limited to buy the Kennedy Point Land and Business for $3.3 million. …
89.I understand that Mr Fang Sun may wish to purchase Kennedy Point, and perhaps Carrick Wines, but he is still unable to pay for them and the offer made was unreasonably low. Mr Fang Sun needs to pay a fair price if he wishes to acquire Carrick Wines and Kennedy Point from Sunbow Ltd.
…
94.Mr Fang Sun is now trying to use the rights of the minority shareholders, and Allen Wu and Preston Zhang, to stall my management of Sunbow Ltd.
95.None of the above parties have any ongoing financial risks tied with Sunbow Ltd, and Allen Wu and Preston Zhang virtually do not have any interest in Sunbow Ltd – they are only used by Mr Fang Sun to oust me from Sunbow Ltd. I am the one making the ongoing contributions to Sunbow Ltd for its loans, and I have been bearing the burden as the sole guarantor for its loans. Sunbow Ltd would have been in a financially better position now if we had signed the agreement with the Japanese buyer three months ago [in respect of Carrick Wines]. However, Mr Fang Sun’s interruption now puts Sunbow Ltd on the verge of liquidation.
96.I believe that I am in fact the only appropriate director of Sunbow Ltd and the one who has a substantial stake in the company. If the company suffers, I also suffer financially. I have every interest to manage the company well. I have my personal guarantee for the loan related to Sunbow Ltd.
97.The plaintiffs are damaging the normal business functions, and deliberately putting Sunbow Ltd and myself in the most difficult position than ever. Further, BNZ and the financier DBR have chased me for the misconducts of Sunbow Ltd which I have been totally unaware of.
[55]On 10 January 2020, Ms Zhong subsequently deposed that:
49.In November 2019, Faith Travel Ltd, a company controlled by Mr Fang Sun, changes its name to Sunbow Investment Ltd. This is a company in New Zealand and is different to the third plaintiff company in this proceeding, Sunbow Investment Ltd, which is based in Hong Kong. …
50.Sunbow Investment Ltd (NZ) offered to pay $4.5 million to purchase the Kennedy Point land. Other offers came in at below $4.5 million and I believe this was due to struggles of the business caused by the plaintiffs. …
51.Sunbow Investment Ltd (NZ) then sought to pay part of the purchase price by reference to the monies which Sunbow Investment Ltd (Hong Kong) or Mr Fang Sun had transferred to New Zealand. The plaintiffs sought an agreement to be executed to this effect. I did not want to accept this at the time, but everything was so rushed, and the plaintiffs called me over 30 times insisting that I sign the agreement and threatening that I would not be acting in the best interest of Sunbow Ltd if I did not. They also threaten that they had gang connections and will harm me.
52.Loo & Koo Lawyers told me at my meetings at their office, always in the presence of the plaintiffs, that the agreement would be in the best interest of the companies, as it means that Sunbow Ltd will be able to repay some of its debt.
[56] Ms Zhong deposed that she cancelled the 2019 SPA because neither CNZF nor DBR had consented. This is contrary to the evidence of Ms Tang.
[57] Ms Zhong also deposed that it was in the best interests of Sunbow to cancel the 2019 SPA because:
(a)DBR was selling the Waiheke land by way of mortgagee sale;
(b)the sale to SILHK would not be enough to meet the debts secured by the Waiheke land because SILHK “or Mr Fang Sun” was seeking a set- off;
(c)the sale to SILHK would not produce the necessary cashflow for the Sunbow companies; and
(d)Sunbow would be left in an awkward position if DBR found a buyer.
Mr Sun’s evidence
[58] In an affidavit dated 12 December 2019, Mr Sun deposed that he met Ms Zhong in 2013. He says she was a New Zealand citizen and was unemployed and did not have a steady income. Mr Sun deposed that Ms Zhong did not have any significant assets prior to meeting him.
[59] Mr Sun says Ms Zhong became his trusted adviser and representative for all his investment activities in New Zealand. He says from 2013 onwards, he transferred investment funds to Ms Zhong for the purposes of setting up and acquiring various investment assets in New Zealand on behalf of himself and other Chinese entities with whom he is affiliated. Mr Sun says that Ms Zhong set up and acquired various companies, including the Sunbow Companies. He says that although Ms Zhong set up the companies on the basis that she had legal ownership, it was always understood that he had provided the funds for the investments and was the “beneficial or true owner” of the investments.
[60] Mr Sun says that he lent $6 million to Ms Zhong in March 2016 to be repaid by September 2017. Mr Sun deposed that in November 2016, Ms Zhong agreed to transfer 18,000,000 shares in Sunbow to Sun Fund Trustee Ltd (now Sunbow Group), which was the trustee of Mr Sun’s family trust. Mr Sun says the purchase price was intended to be the $6 million owing under the loan but was recorded as $9 million.
[61] Mr Sun also deposed that Ms Zhong was aware the shares were beneficially owned by him. This is reflected in an email exhibited to his affidavit from Ms Zhong to a creditor on 26 June 2019:
… As Sunbow Limited of New Zealand is the sole shareholder of Digipost, and SUN Fang is a majority shareholder of Sunbow, in actual fact the Loan Agreement was about SUN Fang’s funds that were in my name only nominally, and that were then transferred overseas. Now Sunbow of New
Zealand is being subjected to investigations for allegedly illegally acquiring sensitive land in New Zealand. Its contract to sell Carrick Winery to a large Japanese corporation cannot proceed normally. Sunbow’s assets are unable to meet its debts, and there is increasing interest repayment pressure from its bank creditors. As a result, there is no likelihood of Sunbow repaying the loan of 46,000,000 Renminbi by 31 December 2019. I would like to make President ZHANG Yang aware of this, so that you may adjust your company’s strategies accordingly.
Ms Tang’s evidence
[62] In response to the alleged threats, Ms Tang deposes in her 30 January 2020 affidavit that:
49.Finally, Zhong claims that SILNZ threatened her by saying we had gang connections and would harm her. That is not true. In fact the threats came from Ms Zhong not the other way around.
50.On or about April 2019, Ms Zhong said to my son, Aaron Sun, and I that she would shoot us with her gun. She made this threat at the Sunnyhill property while Aaron and I were living there. After her threat, my son and I promptly moved out of the Sunnyhill property.
[63] SILHK then says that because Ms Zhong did not respond to the above evidence in her March 2020 affidavit, Ms Zhong should not be believed.
Threats of violence
[64] The evidence discloses a tangled web of transactions raising a number of issues. Including compliance with OIO requirements, compliance with immigration requirements, and transfers of large amounts of money from China to New Zealand without any clear documentary evidence as to the purpose of the transfers. The documents evidencing payments to Sunbow were in Chinese (without a translation) or are illegible. I accept however, that they were made, as Ms Zhong did not contest that funds were transferred.
[65] Mr Sun was clearly intimately involved and Ms Zhong’s evidence is that she dealt with Mr Sun and then received funds from SILHK. This is despite Ms Tang being the majority shareholder and director of SILHK.
[66] I am not satisfied that Ms Tang’s evidence refutes Ms Zhong’s evidence that there were threats of violence.
[67] Ms Zhong’s evidence is that Mr Sun threatened to kill her prior to October 2019, that the plaintiffs called her over 30 times insisting that she sign the Settlement Agreement, and that the plaintiffs threatened they had gang connections. The fact that Mr Sun murdered Ms Zhong some months later, in November 2020, supports Ms Zhong’s evidence in October 2019 that Mr Sun had threatened to kill her. That evidence is prior to Ms Zhong signing the Settlement Agreement without Ms Zhong being aware of any proposed settlement.
[68] Ms Tang may not have been aware of Mr Sun’s actions, so the fact she was not aware of any threats does not give the Court a basis to reject Ms Zhong’s evidence that she was threatened by Mr Sun. I am satisfied that Mr Sun had likely threatened to kill Ms Zhong by October 2019, and likely told her that he had gang associations. I am satisfied Ms Zhong had been threatened when she entered into the Settlement Agreement in December 2017. That is consistent with her contemporaneous evidence in October 2019 and the fact that she was subsequently murdered.
[69] Counsel for SILHK, somewhat surprisingly, submit that the Court ought not to give any weight to the actions of Mr Sun because he is not the plaintiff in this matter. I am not satisfied the Court should ignore the clear evidence that Mr Sun was intimately involved in the business dealings.
[70] The evidence discloses that Mr Sun was involved in the transactions involving SILHK. On Mr Sun’s own evidence he was the majority beneficial owner in Sunbow, so had an interest in any transaction Sunbow entered. Mr Sun deposed that he transferred large amounts of money to Ms Zhong for investments in New Zealand. Ms Zhong has deposed that Mr Sun used SILHK to transfer monies to Sunbow, that Mr Sun considered he could control SIL (which I understand to be a reference to SILHK), and that Mr Sun asked Ms Zhong to transfer shares in Sunbow to Ms Tang. I reject counsel’s suggestion that Mr Sun had no part to play in the affairs of SILHK or of Ms Tang. That is inconsistent with the evidence of Ms Zhong and Mr Sun.
[71]Counsel for SILHK submit that:
Ms Zhong’s murder in November 2020 cannot reliably evidence whether threats had been made against Ms Zhong a year prior, and whether those threats caused her to enter into the Acknowledgement of Debt and Settlement Agreement in December 2019.
[72] I reject the above submission in circumstances where Ms Zhong deposed in October 2019 that Mr Sun had threatened to kill her. The evidence includes both a threat to kill by October 2019, threats in December 2019, and Ms Zhong’s actual murder in November 2020. Taken together, I am satisfied on the balance of probabilities that it is more likely than not that Mr Sun threatened to kill Ms Sun in October 2019 prior to her signing the Settlement Agreement in December 2019.
[73] Counsel for SILHK refer to Ms Zhong’s affidavit of March 2020 and say that because Ms Zhong did not respond to Ms Tang’s denial of threats or again allege physical threats that Ms Zhong was only alleging financial pressure.
[74] I reject this submission. The threats Ms Zhong refers to in her October 2019 affidavit relate to Mr Sun. The threats in the January 2020 affidavit relate to the “plaintiffs”, who include Mr Sun. Ms Zhong had not alleged any threats from Ms Tang, so her failure to respond to Ms Tang’s denial does not mean that Mr Sun made no threats. The fact Ms Zhong said Mr Sun threatened to kill her in the 4 October 2019 affidavit and the fact that he did kill her in November 2020 indicate that it is more likely than not that Ms Zhong was telling the truth in October 2019.
[75] Ms Tang denies that threats were made and says that Ms Zhong had SILHK “over a barrel.” It is not clear how Ms Zhong had SILHK over a barrel or how Ms Zhong benefitted from signing the Settlement Agreement and 2019 SPA in circumstances where DBR was in the process of arranging a mortgagee sale which would not include a set-off of the amount of the alleged Debt such that more funds would be available to meet debts owed by Sunbow if the Waiheke land was sold to another party. It was Ms Zhong who was “over a barrel.” If she did not sell the Waiheke land, she would have no funds to repay creditors. On her evidence, Sunbow and Ms Zhong personally were in significant financial difficulty. That financial
difficulty arose because Ms Zhong had guaranteed borrowings to Sunbow and Sunbow related companies.
[76] Ms Zhong was facing personal liability to third parties and had deposed in her 4 October 2019 affidavit that:
In fact, I have personally guaranteed loans of Sunbow Ltd, entered into loan arrangements, and provided further funds of my own to sustain the liabilities of Sunbow Ltd. I would not have done this and tied my personal financial position to that of Sunbow Ltd, if I had known that most of the shares belonged to Mr Fang Sun.
[77] Counsel for SILHK say that it was Ms Zhong who had power over SILHK and Ms Tang felt that she had to agree to the set off of $625,000.00 that Ms Zhong claimed she had paid to CNZF for SILNZ’s benefit, even through Ms Tang says that she did not agree this full amount had been paid. SILHK says this claimed set-off had never been raised in correspondence. Ms Tang felt that she had no option to agree because “Ms Zhong said that this had to go in otherwise she would not sign anything.”
[78] I do not accept that SILHK was under more pressure than Ms Zhong. SILHK had advanced funds without any documentation. SILHK’s alleged Debt was unsecured, and the Settlement Agreement would change that position to its benefit, and potentially to the detriment of Sunbow’s secured creditors such that less funds would be available to repay Sunbow’s secured creditors than would be the position if another purchaser was found.
[79] I am satisfied on the balance of probabilities that Ms Zhong was threatened, at least by October 2019, and again in December 2019 when she signed the Settlement Agreement.
Financial pressure
[80] SILHK says that if the Court considers that there was some financial pressure on Ms Zhong as a result of the plaintiffs exercising their legal rights to seek repayment of the alleged Debt, financial pressure does not give rise to any defence. A party is entitled to enforce their rights to repayment.
[81] I understand Ms Zhong’s evidence of financial pressure to refer to the fact that she had personally guaranteed loans to Sunbow and related companies. That did not arise because of the alleged Debt to SILHK, but because of her personal guarantees to Sunbow’s financiers.
[82] Two days after signing the Settlement Agreement, on 5 December 2019, DBR issued a PLA notice demanding payment of $330,031.13 from Kennedy Point Group Ltd, Ms Zhong, Carrick Wines Ltd, Sunbow, Digifilm Ltd and Digital Post Ltd.
[83] This is not a situation where the threats were of “entirely lawful conduct” such that it is limited to a defence of economic duress. Ms Zhong’s evidence indicates that there were threats to kill her and that those threats were made prior to her signing the agreement.
Consistency with contemporaneous evidence
[84] Counsel for SILHK say that Ms Zhong’s evidence conflicts with contemporaneous evidence and refers to an email sent on 30 November 2020 to Loo & Koo in which Ms Zhong said:
Hi Allen, I have no objection with the amount of money borrowed from Sunbow Investment Limited.
[85] In another email that day Ms Zhong said, “the amount is correct from my end” and she then asked to make an appointment explaining that she was “prepared to sigh [sic] the reasonable offer before the mortgagee sale tenders.” That email also states that “I have two unconditional offers to discuss with you all at the same time.”
[86] SILHK then refer to the terms of the Settlement Agreement itself which include provisions acknowledging that the agreement was in the company’s best interests and that it shall not claim undue influence, or duress, or lack of legal or tax advice to avoid the agreement in the future. Counsel for SILHK say there are credibility issues in Ms Zhong agreeing to sign the Settlement Agreement if this provision was not true.
[87] SILHK refer to the fact Ms Zhong received legal advice and refer to her evidence in January 2020 that:
Loo & Koo Lawyers told me at my meetings at their office, always in the presence of the plaintiffs, that the agreement would be in the best interest of the companies, as it means that Sunbow Ltd will be able to repay some of its debt.
[88] Loo & Koo had previously indicated on 16 August 2019, that it required joint instructions to be able to act given the dispute between the parties:
We have been advised that Duthie Whyte who is representing Ms Jingqiu Tang, Sunbow Group Limited and Sunbow Investment Limited has issued proceeding in the High Court against Sunbow Limited (“the Company) and Ms Ying Zhong as the First and Second Defendant respectively.
Our firm does not have instructions to act for the Company in the proceeding. Due to the dispute between the two groups of shareholders regarding the control of the Company, we are unable to accept instructions unless there are joint instructions given by both parties.
[89] It therefore follows that both Ms Zhong and the plaintiffs would have to agree to Sunbow entering into the Settlement Agreement and that the decision to sign the Settlement Agreement was not Ms Zhong’s alone.
[90] I accept that Loo & Koo acted for Sunbow, and Ms Zhong’s evidence is that she was told it was in the company’s best interests. It was certainly in Sunbow’s interests to secure a purchaser. Sunbow needed funds to repay secured creditors. The more funds Sunbow had available to repay secured creditors, the better. This therefore suggests that another purchaser who did not require a set-off against the purchase price would have been in Sunbow’s best interests. That would not risk a dilution of funds to pay secured creditors.
[91] SILHK says that neither Sunbow nor Ms Zhong’s solicitors raised issues of duress following the demand for repayment on 10 December 2019. Ms Zhong’s solicitors sent a letter dated 12 December 2019. That letter notes that:
… the alleged debt to Sunbow Investment Ltd (Hong Kong) or Sunbow Investment Ltd (New Zealand) is disputed and it is unclear why a caveat has been lodged.
(emphasis added)
[92] While the above letter did not specify the basis for the dispute, it did indicate that the alleged Debt was disputed. This was only seven days after the Settlement
Agreement. Then, on 10 January 2020, Ms Zhong deposed that she had been threatened and had signed the Settlement Agreement under duress.
[93] I consider that on the balance of probabilities it is more likely than not that Mr Sun threatened Ms Zhong’s life and that she was coerced into signing the Settlement Agreement. This is supported by her evidence in October 2019 (prior to signing the Settlement Agreement), the position her solicitors took in the 12 December 2019 letter to Chapman Tripp (just after the Settlement Agreement was signed), her affidavit dated 10 January 2020, and her subsequent murder on 28 November 2020.
[94] In circumstances where someone’s life is threatened, I do not consider that the terms of the Settlement Agreement nor the fact a solicitor was acting for Sunbow indicate that Ms Zhong must have acted freely when signing the Settlement Agreement.
[95] I also do not accept that it was necessarily in Sunbow’s best interests to enter into the Settlement Agreement and the 2019 SPA in place of a sale and purchase agreement with a purchaser who did not require the purchase price to be set-off against unsecured debt. Sunbow would receive more funds to repay secured creditors if it sold to a third party than if it sold to SILHK. The Settlement Agreement improved SILHK’s position and was not simply an enforcement of its existing rights as an alleged unsecured creditor.
[96] Further, the background and business dealings between SILHK, Sunbow, Ms Tang, Mr Sun and Ms Zhong are complex and interwoven. I am not satisfied that the evidence provided shows the purpose for which the monies was transferred at the time the transfers were made. SILHK is a shareholder of Sunbow, Mr Sun was involved in transfers under SILHK’s name and Mr Sun alleges that he is beneficially entitled to 60 per cent of the shares in Sunbow.
Result
[97]SILHK 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.
Tahana J
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