Wang v Guangzhou Dongjiang Petroleum Science & Technology Development Company Limited
[2023] NZHC 1087
•9 May 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-921
[2023] NZHC 1087
UNDER Part 17 of the High Court Rules 2016 BETWEEN
JIANPING WANG
First Applicant
ONE PURE INTERNATIONAL GROUP LIMITED
Second ApplicantAND
GUANGZHOU DONGJIANG PETROLEUM SCIENCE &
TECHNOLOGY DEVELOPMENT COMPANY LIMITED
First RespondentYONGNAN KANG
Second Respondent
Hearing: 17 April 2023 Appearances:
G D Simms and S J Macintosh for Applicants J Strauss for Respondents
Judgment:
9 May 2023
JUDGMENT OF PETERS J
This judgment was delivered by Justice Peters on 9 May 2023 at 11 am pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date: ...................................
WANG v GUANGZHOU DONGJIANG PETROLEUM SCIENCE & TECHNOLOGY DEVELOPMENT COMPANY LTD [2023] NZHC 1087 [9 May 2023]
Introduction
[1] This judgment determines an application by the first and second applicants, Mr Wang and One Pure International Group Ltd (“One Pure”), to vary an interim charging order made on 25 November 2020.
[2] The application is made pursuant to High Court Rules 2016, r 17.44, on the basis that the applicants are prejudicially affected by the charging order. The applicants also rely on r 7.49 which permits the Court to rescind an interlocutory order, and which does not on its face require the applicant to evidence prejudice.
[3] The charging order charges the second respondent’s, Mr Kang’s, shareholdings in several companies with payment of a sum, denominated in Chinese Yuan, due to Guangzhou Dongjiang Petroleum Science & Development Company Ltd (“GDP”). By my calculation the NZ$ equivalent of the principal and interest due to GDP, as of today’s date, is approximately $3.25 million.
[4] One shareholding charged is Mr Kang’s 25 per cent shareholding in One Pure (“One Pure shareholding”). Mr Wang holds the other 75 per cent. The applicants seek an order excluding the One Pure shareholding from the charging order.
[5] Mr Wang holds his own charging order in respect of largely the same assets, including the One Pure shareholding. The sum charged in Mr Wang’s case is substantially more, being approximately (NZ)$23.7 million plus interest and costs.
[6] The applicants’ case is that they are prejudiced by the charging order in the following respects.
[7] First, they contend that Mr Kang has no beneficial interest in the One Pure shareholding and that Mr Wang is entitled to have the shareholding transferred to him pursuant to provisions of a shareholders agreement between Mr Kang and Mr Wang of 29 November 2018 (“shareholders agreement”). Secondly, they contend that One Pure is prejudiced because the charging order imposes a “freeze” on the One Pure shareholding and this is preventing the proper management and performance of the company.
[8] GDP’s case is that the beneficial interest in the One Pure shareholding remains with Mr Kang and that the order sought should not be made. GDP has no objection to a discharge of the charging order as it applies to the One Pure shareholding, provided however that Mr Wang pays into Court the amount of the judgment debt or the fair market value of the shareholding.
[9] For reasons set out below, I am satisfied that Mr Kang continues to hold the beneficial interest in the One Pure shareholding, and I decline this application accordingly.
[10] I record that Mr Kang did not appear at the hearing. Apparently he has been out of contact for some time and his whereabouts unknown.
Charging orders
[11] Both charging orders are interim as they apply to personalty. In the usual course of events, a judgment creditor’s next step would be to have the interim order made final and then seek an order for sale.
[12]As to the effect of an interim order, r 17.55 provides:
17.55 Effect of interim charging order
A person served with an interim charging order may not, except ... with the leave of the court,—
...
(b) make, concur in making, or permit any conveyance, transfer, assignment, or disposition of any estate, right, or interest, or of any share in a partnership or company, of the liable party named in the interim charging order.
[13] Accordingly, and as counsel for Mr Wang, Mr Simms, submits an interim charging order imposes a “stop” on transactions affecting the assets charged.
[14] A charging order may only be made in respect of assets in which the judgment debtor has a beneficial interest. It follows that I should make the order the applicants
seek if I accept Mr Wang’s submission that he now holds the beneficial interest in the One Pure shareholding.
[15] It is also common ground that a judgment creditor does not obtain a better right in or to any asset charged than the judgment debtor has at the time the order is made.1 In the present case, this means Mr Kang’s interest in One Pure continues to be subject to any material provisions in the shareholders agreement of which cl 12 is one and cl 10, which confers pre-emptive rights on a continuing shareholder in the event of a sale of shares, another.
Background
GDP proceedings
[16] In May 2019, GDP obtained judgment against Mr Kang in China, and then against him in this Court in November 2020, at which time GDP obtained its charging order.
Wang/Kang proceedings
[17] In November 2018, Mr Kang, who then owned 100 per cent of the shares in One Pure, sold 75 per cent to Mr Wang for approximately $33.6 million. Mr Kang and Mr Wang entered into the shareholders agreement at the same time.
[18] By late-May 2020, a dispute had arisen between Mr Wang and Mr Kang. In the course of this, Mr Kang and One Pure learned of GDP’s charging order.
[19] Mr Kang and Mr Wang submitted their dispute to arbitration before the Hon Tony Randerson KC in June 2022. Mr Randerson delivered his interim award, in Mr Wang’s and One Pure’s favour, on 23 June 2022 and his final award on 4 August 2022. He determined that Mr Kang owed damages of $22.35 million to Mr Wang for breach of warranty. On 30 September 2022, Mr Wang and One Pure sealed the awards as judgments of the High Court.
1 Dalston Developments Pty Ltd v Dean [1967] WAR 176.
[20] Mr Wang has since sought to recover from Mr Kang in other proceedings and in was in those proceedings that he obtained his own interim charging order, this being sealed on 14 November 2022.
Transfer notice
[21] The applicants’ submission, that Mr Wang holds the beneficial interest in the One Pure shareholding, is based on cl 12 of the shareholders agreement.
[22] I set out the relevant parts of cl 12 below but the scheme of it allows the “non-defaulting party” — Mr Wang — to require the defaulting party — Mr Kang — to give a “transfer notice” in respect of the defaulting party’s shareholding in the company if he fails to remedy a breach of the shareholders agreement within 20 working days of notice to do so. If the defaulting party does not give the required transfer notice, the non-defaulting party may act as their agent for the purpose of doing so.
[23]The relevant parts of cl 12 are as follows:
12.Termination
12.1.In the event of:
...
12.1.3.Either party failing to observe or perform any of that party's obligations under this Agreement and such failure not being rectified within 20 working days of written notice by the other party requiring such failure to be remedied.
the following provisions shall apply:
I. The other party (in this clause called “the Non defaulting Party”) may at its option by notice in writing to the first mentioned party (in this clause called “the Defaulting Party”) within 3 months after… expiry of the notice given under [subclause 12.1.3], … require the Defaulting Party to give a transfer notice in respect of all its Shares … in accordance with the Constitution in which event the Defaulting Party must, within 10 working days of receipt of the notice, give a transfer notice accordingly;
II. If the Non-defaulting Party does not wish to exercise its right under sub clause (I) of this clause or does not for
any reason purchase the Shares of the Defaulting Party pursuant to any transfer notice given in accordance therewith, the Non-defaulting Party may at its option by notice in writing to the Defaulting Party given within the 3 month period referred to in sub clause (I) of this clause or within 3 months after it is finally determined that the Shares of the Defaulting Party will not be purchased by the Non-defaulting Party, as the case may be, require that the Company be liquidated.
12.2.If the Defaulting Party fails or refuses to sign any transfer notice or liquidation resolution pursuant to clause 12.1, the Non defaulting Party is entitled to act as the attorney or agent of the Defaulting Party for the purpose of signing any such transfer notice or passing any such resolution, as the case may be, and each party hereby irrevocably appoints the other as its attorney for such purpose.
...
[24] The arbitrator determined that Mr Kang had breached cls 7.1.4 and 7.1.5 of the shareholders agreement. This finding satisfied cl 12.1.3 of the shareholders agreement. By letter dated 20 July 2022, Mr Wang’s then solicitors gave notice to Mr Kang requiring him to remedy his default within 20 working days. Mr Kang did not do so.
[25] By letter dated 21 October 2022, Mr Wang’s (new) solicitors, Wynn Williams, gave notice to Mr Kang pursuant to cl 12.1(I) of the shareholders agreement, requiring Mr Kang, as the defaulting party:
… to give a transfer notice in respect of all [of his shares in One Pure] in accordance with the Constitution … within 10 working days of receipt of the notice ...
[26] Mr Kang did not give such a notice. Nor could he, given r 17.55. Likewise, Mr Wang has not sought to act as Mr Kang’s attorney or agent for the purpose of signing a transfer notice, pursuant to cl 12.2.
Effect of shareholders agreement
[27] Mr Simms submits that all steps required for a transfer of the One Pure shareholding to Mr Wang have been completed and that any equity in the shares has been transferred to him. Alternatively, Mr Simms submits that, at the very least, the
One Pure shareholding is subject to Mr Wang’s rights under the shareholders agreement.
[28]I do not accept the first submission for the following reasons.
[29] First, there is an immediate issue with cl 12.1(I), in that it provides for a transfer notice in accordance with “the Constitution”, defined in cl 1.1 of the shareholders agreement as “the constitution of the Company if one exists from time to time”. One Pure does not have, and never has had, a constitution. Accordingly, if cl 12.1(I) is to be effective, it would be necessary to imply a term to make provision for the content of the notice.
[30] Secondly, for the following reasons, if such a term were to be implied (and it might not be, of course), it would not provide for a transfer without consideration flowing from the non-defaulting party. I do not accept Mr Simms’ submission that cls 12.1(I) and (II) anticipate the defaulting party’s shares will be transferred without payment of consideration. Clause 12.1(II), which applies after a transfer notice is given, contemplates that, on receipt of the defaulting party’s transfer notice, the non-defaulting party must decide whether or not to “purchase” the shares. The word “purchase” indicates that money will change hands. Accordingly, consideration will be required.
[31] If the non-defaulting party does not purchase the shares, then they may decide to take no further action or may require the company to be liquidated.
[32] Given these matters, it follows that any transfer notice under cl 12.1(I) would, at the very least, have to nominate a price on the One Pure shareholding, and that it would be for the non-defaulting party to accept that or not as he saw fit. Thus, Mr Wang requiring Mr Kang to give a transfer notice was a necessary step in the process but not one inevitably resulting in Mr Wang becoming bound to purchase the One Pure shareholding. This is the minimum that would be required for a transfer of the beneficial interest.
[33] Quite aside from the scheme of cls 12.1(I) and (II), a provision requiring a transfer of shares for no consideration might well constitute a penalty and be struck out accordingly.
[34] I do accept the applicants’ second submission, namely that Mr Wang retains his rights under the shareholders agreement. However, GDP does not dispute that point, and nor is GDP opposed to Mr Wang acquiring the One Pure shareholding on the terms referred to above.
[35] Counsel for GDP, Mr Strauss, submits that the basis on which the One Pure shareholding might be valued for the purpose of cl 12 is likely to be in the nature of fair market value. It is unnecessary for me to consider that point for the purposes of determining this application. However, regard might also be had to cl 10.1 of the shareholders agreement, which confers pre-emptive rights on a continuing shareholder if another wishes to sell. To the extent cl 10.1 provides for a price other than “fair market value”, it might be considered an appropriate price-fixing mechanism under cl 12.1(I). Clause 10.1 provides:
10.Transfer of Shares
10.1.The Shareholders shall not, unless expressly permitted by this Agreement, sell or otherwise dispose of the legal or beneficial ownership of any of their Shares at any time during the term of this Agreement without first offering such shares to the other on the terms that are the same as or better than those on which the Shares would be offered or disposed to another party.
Other prejudice
[36] I turn now to One Pure’s argument that the charging order is causing prejudice by preventing the proper management of the company. The applicants also submit there will be no prejudice to GDP if the One Pure shareholding is excluded from its charging order.
[37] As to the first of these, the applicants’ evidence is that important matters in respect of the company’s affairs are in abeyance and that this is prejudicial to One Pure. However, I accept Mr Strauss’s submission that any such prejudice derives
from Mr Kang’s absence and not from the charging order. It will be resolved if Mr Wang or a third party purchases the One Pure shareholding.
[38] I do not accept the second submission, to the effect that there will be no prejudice to GDP if the One Pure shareholding is excluded from its charging order. The shares are one of Mr Kang’s assets, of considerable value given the arbitration award, and GDP is as entitled to charge them as any other asset.
Conclusion
[39] To conclude, I do not accept that Mr Wang holds the beneficial interest in the One Pure shareholding. This remains with Mr Kang.
[40] Mr Wang’s entitlements under the shareholders agreement subsist, whether under cls 10 or 12 of the shareholders agreement. However, his rights under either provision do not include a right to a transfer of the One Pure shareholding without payment for the same.
[41] Nor am I satisfied that One Pure is prejudicially affected by the charging order or that GDP will not be prejudiced by the making of the order sought.
Result
[42] I dismiss this application. The parties may make brief submissions on costs if they are unable to agree.
Peters J
Solicitors: Wynn Williams, Auckland
JC Legal, Auckland
Counsel: J Strauss, Auckland
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