Yang v Jia
[2024] NZHC 992
•30 April 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-1623
[2024] NZHC 992
BETWEEN YULING YANG
First Plaintiff
SEN GAO
Second PlaintiffAND
XINHONG (VICTOR) JIA
Defendant
XINGHONG (VICTOR) JIA, YANG LIU and YANG TRUSTEE COMPANY 2021
LIMITED as trustees of the JIA and LIU FAMILY TRUSTThird Party
Hearing: 22 April 2024 Counsel:
DJ Chisholm KC / J D Ryan for the First and Second Plaintiffs B J Norling / W M Alexander for the Defendant
X Zhang for the Third Party
Judgment:
30 April 2024
JUDGMENT OF ASSOCIATE JUDGE BRITTAIN
This judgment was delivered by me on 30 April 2024 at 4 pm Pursuant to Rule 11.5 of the High Court Rules.
…………………..
Registrar/Deputy Registrar
Solicitors:
Claymore Partners Limited, Auckland Norling Law Limited, Auckland
Zhang Law, Auckland
Counsel:
David Chisholm KC, Auckland
YANG v JIA [2024] NZHC 992 [30 April 2024]
Introduction
[1] The plaintiffs, Yuling (Jenny) Yang (Ms Yang) and Sen (Jason) Gao (Mr Gao), and the defendant, Xinhong (Victor) Jia (Mr Jia) invested in a project to develop a substantial apartment building. Outside of the project, in 2019, Ms Yang and Mr Gao loaned $3,000,000 to Mr Jia. There is a dispute between the parties as to when Mr Jia’s obligation to repay the loan falls due, and whether that obligation is owed by Mr Jia personally or by a third party, namely the trustees of his family trust.
[2] This proceeding was commenced by Ms Yang and Mr Gao in 2022. They applied for summary judgment against Mr Jia based on an alleged oral term of the loan agreement requiring repayment on demand. That application was heard by Associate Judge Lester on 16 March 2023 and declined (the first judgment).1
[3] Ms Yang and Mr Gao now seek leave to file a second application for summary judgment, on the ground that there has been a material change in circumstances since the first judgment. Ms Yang and Mr Gao rely on the liquidation of the two companies that were the corporate vehicles for the project. They say that the liquidation of those companies triggers repayment of the loan pursuant to an express or implied term of the loan agreement. In addition to a grant of leave, they seek summary judgment on that basis.
[4] Mr Jia says that Ms Yang and Mr Gao should not be given leave to file a second application for summary judgment because the liquidation of the companies was brought about by Ms Yang and Mr Gao, and they are seeking to take advantage of a change in circumstances that they created.
[5] In this judgment, I determine the application for leave to bring a second application for summary judgment and the application for summary judgment.
1 Yang v Jia [2023] NZHC 639, (2023) 23 NZCPR 954.
The application for leave
[6] A second application for summary judgment is only permissible if special circumstances exist.2 The focus is on the reason why the second application for summary judgment has been filed. This will generally inform the decision as to whether special circumstances exist.3
[7] The underlying rationale is to prevent plaintiffs from making unmeritorious duplicate applications.4 “Special circumstances” denotes something abnormal or out of the ordinary, but less than extraordinary or unique.5
[8] Mr Jia initially consented to a grant of leave, by a memorandum of his counsel dated 13 February 2024. On 15 February 2024, Mr Jia withdrew his consent citing “new information” as the reason. Mr Jia has declined to disclose the “new information”.
[9] Ms Yang and Mr Gao seek leave to apply for summary judgment on their second cause of action, introduced in their amended statement of claim dated 18 December 2023, filed after the first judgment.
[10] The second cause of action pleads that Mr Jia breached an express or implied term in a written agreement dated 8 May 2019. The cause of action is advanced as an alternative to the first cause of action, which pleads that there was an oral loan agreement, which was the subject of the first application for summary judgment. Therefore, there is no question of issue estoppel or res judicata arising from the first judgment dismissing the first application for summary judgment.
[11] If the second cause of action is established on the affidavit evidence, then it is open to the Court to enter judgment on the second cause of action without determining the first cause of action.
2 High Court Rules 2016, r 12.4(2AA).
3 Hellaby Resource Services Ltd v Body Corporate 197281 [2020] NZHC 2131 at [12].
4 At [14].
5 At [14].
[12] Mr Jia concedes that there has been a material change in the factual circumstances since the first judgment. The two companies that were involved in the project are Browns Bay Seaview Ltd (in liquidation) (BBS) and Winter Forest Holdings Ltd (in liquidation) (WFH). Both companies were put into voluntary liquidation on 30 October 2023.
[13] Counsel for Mr Jia, Mr Norling, argued that this change in circumstances should not support a grant of leave because it was precipitated by the actions of Ms Yang and Mr Gao, namely their refusal to provide further funding for the project and their refusal to sign documentation necessary for BBS to obtain further funding from China Construction Bank.
[14] However, Mr Norling conceded that if Ms Yang and Mr Gao can demonstrate that they can discharge the onus on them to obtain summary judgment, then it is difficult for Mr Jia to contend that leave should not be granted.
[15] Given the need to review the merits of the second application for summary judgment, and the complexity of the factual background, the application for leave and the second application for summary judgment were heard together.
The issues raised by the second application for summary judgment
[16] The Court must ascertain the terms of the parties’ agreement in May 2019. That includes cl 20 of an agreement for sale and purchase of a property at 30 Oban Road, Auckland, dated 8 May 2019, between Ms Yang as vendor and Mr Jia as purchaser. Mr Gao was the beneficial owner of the property. The parties agree that cl 20 is a term of the parties’ agreement for the purpose of the second cause of action.
[17] The principles of interpretation are not in dispute. The Court adopts an objective approach 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 they were in at the time of the contract.6
6 Bathurst Resources Ltd v L & M Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 696 at [41] and [43]; Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at
[18] The implication of a term is part of the construction of the written contract as a whole. An unexpressed term can only be implied if the term spells out what the contract, read against the relevant background, must be understood to mean. The standard for implication is one of strict necessity.7
[19] It is appropriate to interpret a contract on an application for summary judgment if the factual background is sufficiently clear from the affidavit evidence. Therefore, to determine whether summary judgment is appropriate in this case, I must consider the following issues:
(a)What is the extent of any dispute regarding the factual background relevant to interpretation of the loan agreement?
(b)If the findings of fact open to the Court on the affidavit evidence are sufficient to interpret the contract, what is the proper construction of cl 20?
(c)Is the debt owed by Mr Jia personally or by his family trust?
The factual background
Events before formation of the contract
[20] Mr Jia incorporated BBS in 2014 to undertake the project. Mr Gao says that he first became involved in 2015, when he made a loan to Mr Jia personally for the purpose of Mr Jia’s further investment in the project.
[21] In 2018, Mr Gao agreed to provide direct investment into the project. Mr Gao’s investments were made on his behalf by Ms Yang as the legal owner of the money. Mr Gao was the beneficial owner of the investments.
[60]; Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL) at 912.
7 Bathurst Resources Ltd v L & M Holdings Ltd, above, at [116].
[22] It is unnecessary to traverse the precise business structure for the project adopted by the parties. It is common ground that Mr Gao, acting through Ms Yang, loaned funds to BBS and became a beneficial shareholder in BBS. Ms Yang was the legal owner of the shares. From November 2018 to 8 May 2019, Ms Yang and Mr Gao loaned approximately $14,000,000 to BBS.
[23] Against that background, Mr Gao agreed to loan $3,000,000 to Mr Jia personally in early 2019, unrelated to the project. The background to the loan was summarised by Associate Judge Lester in the first judgment:8
[2] In early 2019, Victor approached Jason seeking a loan to repay a debt owed to another member of the Chinese Community. Jason was prepared to help. The assistance was to take the form of a property being sold to Victor with payment deferred until Victor received a dividend from the apartment building project. The transfer of the property would give Victor an unencumbered asset against which he could borrow to pay the debt he wanted to clear.
[3] The transaction did not proceed as I have outlined. The contract of sale is clear that the purchase price was to be left unpaid. What in fact happened was that Victor raised the $3 million purchase price by borrowing the money which he paid to Jenny on settlement. The next day, Jenny advanced $3 million to Victor which Victor used to repay his personal debt and a short term loan he obtained to put the purchase price together. This left Victor with ownership of the property with a mortgage registered to a bank and his personal debt repaid.
[24]Mr Jia says that the value of 30 Oban Road at the time was less than
$2,000,000. A report from a registered valuer dated 2 June 2019 states that the value on that date was $2,350,000.
[25]Clause 20 of the agreement for the sale and purchase provided:
20. The parties agree that the transfer of title is to take place on 20 May 2019 The settlement funds will not be payable until at such time that the Victor Project by Brownsbay Seaview Limited has been completed and the shareholder dividends are payable and paid to the shareholders.
[26] As Associate Judge Lester noted, the agreement for sale and purchase was settled according to its terms. The purchase price was paid in full and title to 30 Oban Road was transferred to Mr Jia’s nominee, his trust. The following day, there was an
8 Yang v Jia, above n 1 (footnotes omitted).
advance of $3,000,000 by Ms Yang and Mr Gao to Mr Jia. The funds were deposited into Mr Jia’s personal bank account with ANZ Bank.
[27] The legal nature of the obligation owed by Mr Jia to Ms Yang and Mr Gao changed by agreement: there was no longer a deferred obligation to pay purchase money; Mr Jia’s obligation was to repay a loan of $3,000,000.
[28] However, that distinction is immaterial for present purposes, because Mr Jia’s position is that cl 20 continues to apply as a term of the contract fixing the date for repayment of the loan. Ms Yang and Mr Gao accept that position to be correct for their second cause of action. There is no dispute regarding the interest rate payable on default: it is 12 per cent per annum as set out in the agreement for sale and purchase.
Events post-contract
[29] In 2020, the investment structure for the project was varied. WFH was incorporated as a holding company for 100 per cent of the shares in BBS. The shares in WFH were issued to Ms Yang and Mr Jia.
[30] The substantial loans that had been made by Mr Jia and Ms Yang and Mr Gao to BBS were restructured as shareholder loans to WFH, with a corresponding shareholder loan by WFH to BBS.
[31] Mr Jia, Ms Yang, BBS and WFH entered into a written shareholders’ agreement dated 24 March 2020 (the shareholders’ agreement). Mr Jia and Ms Yang and WFH entered into written loan agreements recording the shareholder loans to WFH.
[32]The shareholders’ agreement included the following relevant provision.
1.1 “Completion” means the date on which the Code of Compliance Certificate and Certificate of Title pursuant to the Unit Title Plan in respect of the Development are issued or at such other date as the Board may determine from time to time.
10.1 Subject to clause 10.2, the Shareholders wish to record that it is their intention that the Group will distribute any Income (as at the relevant date) of the Group in two (2) tranches: first, on the date Completion is achieved; then on the Taxation Date;
subject to the retention of funds which are in the Board’s opinion sufficient to discharge BBSL’s obligations pursuant to any maintenance period or defective works liability under the sale and purchase agreement(s) in respect of the Residential Units and/or the Retail Units.
[33] The loan agreement between Ms Yang and WFH records that the amount of the loan from Ms Yang to WFH on 24 March 2020 was approximately $15,500,000. The documents prepared and executed in March 2020 do not mention the loan of
$3,000,000 from Ms Yang to Mr Jia.
[34] On 30 September 2020, an agent for Ms Yang and Mr Gao sent a draft loan agreement to Mr Jia in respect of the $3,000,000 loan. The draft agreement named Mr Jia as borrower, and provided:
Interest free loan period: From May 21, 2019, until completion of The Victor apartment project of Browns Bay Seaview Limited (5485918), and the date when the shareholders are paid and the dividends are divided.
Repayment method: The borrower and the lender are also shareholders of WINTER FOREST HOLDINGS LIMITED (7860779), which is the holding company of Browns Bay Seaview Limited (5485918). When the company pays and splits dividends to shareholders, the borrower shall receive directly the loan is deducted from the amount and paid to the lender.
[35]Mr Jia responded by an email, confirming:
I have read this agreement, it is fair and reasonable, and reflects the original we agreed on, if you do not have a problem I will sign.
[36] Mr Jia did not sign the loan agreement. Despite his email, he says that there were issues with the document, including that it named him as borrower rather than his trust. There is no evidence that he raised that issue at the time. He accepts that the draft document records the understanding that the parties had at the time regarding repayment of the loan.
[37] The project continued and construction of the development was completed in about June 2021. The parties fell into dispute in 2022. Ms Yang and Mr Gao were not prepared to provide further funding required for the project. Ms Yang and Mr Gao commenced this proceeding.
[38] BBS owed China Construction Bank approximately $21,000,000. BBS needed to refinance, and Ms Yang and Mr Gao did not agree to the terms for refinancing proposed by China Construction Bank, including the provision of personal guarantees. In September 2023, China Construction Bank commenced a mortgagee sale process to sell the development.
[39] On 14 September 2023, Mr Jia signed a resolution as director of WFH, including:
The date of Completion shall be at such time as the board may further determine in accordance with the Business Plan (described at paragraph 6(a)(i)) but at the date of this resolution the board resolves that the date of Completion shall not be earlier than 31 August 2024 and the date on which the CCB Loan of approximately $21,060,533 (CBB Loan) is repaid in full and the board considers it appropriate to declare a dividend in respect of the Company and/or BBSL, whichever is the later.
[40] On 11 October 2023, Ms Yang and Mr Gao filed a proceeding seeking an order liquidating WFH. Mr Jia responded by passing resolutions to put BBS and WFH into voluntary liquidation on 30 October 2023. Damian Grant and Adam Botterill were appointed as liquidators of BBS.
The liquidation of BBS
[41] Mr Grant has provided an affidavit which confirms the financial position of BBS in March 2024:
(a)the bulk of the development was sold by China Construction Bank as mortgagee, for a price of $23,500,000. That cleared the bank’s security and left approximately $1,300,000 in surplus funds. Approximately
$650,000 was paid to another secured creditor of BBS and approximately $650,000 was paid to WFH;
(b)BBS owns a penthouse apartment in the development, with an appraised value of between $2,900,000 and $3,900,000 and subject to a secured debt of $1,100,000. The penthouse is for sale, and the net sale proceeds after payment of the secured creditor will be paid to BBS;
(c)there is a debt owed to BBS by a related company, East Tamaki No. 70 Ltd, that owns commercial units in the development secured to BBS. The commercial units are currently for sale, and the sale is expected to produce a payment to BBS of between approximately $4,600,000 and
$5,400,000;
(d)WFH has filed a proof of debt for shareholder advances of approximately $34,500,000, including accrued interest;
(e)In addition, there are twelve proofs of unsecured debt totalling approximately $270,000, one proof of secured debt of approximately
$35,000 and a preferential claim of approximately $156,000.
[42] Mr Grant says that the liquidators are “looking at” China Construction Bank’s mortgagee sale process, and a possible claim against Mr Jia for breaches of his duties as a director of BBS, as “areas of recovery”. No other detail is provided.
[43] WFH’s only significant asset is its shareholder loan to BBS, being an advance of principal of approximately $25,000,000, plus accrued interest. WFH has corresponding liabilities, being the shareholder loan owed by WFH to Ms Yang of approximately $17,900,000 of principal plus accrued interest and the shareholder loan owed by WFH to Mr Jia of approximately $7,400,000 of principal plus accrued interest.
[44] Mr Grant opines that there will be a distribution to WFH as a secured or unsecured creditor, or as a shareholder. He offers no opinion on how much that will be or when it will be paid.
[45] Ms Yang and Mr Gao have engaged an independent accountant, Ms Li, to review WFH’s draft financial statements as at 31 March 2023 and a report prepared by BBS’s accountants, BDO, which includes a statement of financial position of BBS as at 31 August 2023. Ms Li has provided two affidavits providing her analysis of the consolidated financial position of the two companies as at 31 August 2023.
[46]Ms Li concludes that BBS and WFH have negative equity of approximately
$32,500,000, based on her assessment of the likely recoveries in the liquidation and allowing for accrued interest on the shareholder loans. Ms Li makes no allowance for potential recoveries from China Construction Bank or Mr Jia.
[47] Mr Jia challenges Ms Li’s opinions by questioning the assumptions in the source documents that Ms Li relied on, including the BDO report. His challenge is supported by an affidavit from Mr Price, an associate director of BDO. Mr Price says that the BDO report was prepared on a basis that was appropriate for management planning purposes, and the information that Ms Li has relied on was unreliable. However, no competing financial analysis is put forward and no direct criticism is made of the substance of Ms Li’s analysis.
[48] Each party has made projections on the likely outcome of the liquidations. The material point of difference is the treatment of possible claims by BBS against China Construction Bank and Mr Jia. There is no evidence before the Court that would allow an assessment of the merit of those possible claims.
[49] It is obvious that the anticipated recovery from the penthouse and the commercial units will realise less than $10,000,000, even if the assessment of values most favourable to Mr Jia is adopted. That will result in a significant shortfall in the recovery of WFH’s shareholder loan to BBS. Allowing for accrued interest, the shortfall will be in the vicinity of $25,000,000. There will be a corresponding shortfall in the repayment by WFH of the shareholder loans owed to Mr Jia and Ms Yang.
[50] Mr Jia argues that this financial picture may change significantly for two reasons:
(a)the liquidators of BBS may be able to recover up to $19,700,000 from China Construction Bank because the bank failed to discharge its duty to exercise reasonable care to obtain the best price reasonably obtainable at the time of sale of the development. Mr Jia argues that the sale was at an undervalue of $19,700,000; and
(b)Ms Yang and Mr Gao have commenced a claim against Mr Jia under s 301 of the Companies Act 1993 (the Act), alleging breaches by Mr Jia of his various duties as a director of BBS. Ironically, Mr Jia argues that the liquidators of BBS may also be able to make a successful claim against him of up to $17,900,000, being the total of the shareholder loan of Ms Yang and Mr Gao.
[51] However, this overlooks that any recovery from China Construction Bank would reduce any compensation available from Mr Jia under s 301 of the Act.
Conclusion on the factual background
[52] There is force in Mr Chisholm KC’s submission for Ms Yang and Mr Gao that it is open to the Court to conclude that the liquidations will not produce a distribution to Mr Jia. At best, he might receive partial repayment of his shareholder loan to WFH. However, I do not need to make that finding to interpret the contract.
[53] The background facts required to ascertain the intention of the parties in May 2019 are not in dispute. Mr Jia cannot point to any additional facts relevant to the formation of the loan agreement in 2019 that might emerge at a trial that would justify deferring interpretation of the agreement until trial.
[54] This is an appropriate case for the Court to interpret the contract on the affidavit evidence as it stands.
Construction of the contract
The plaintiffs’ interpretation of cl 20
[55] The argument for the plaintiffs is based on the construction of the words used in cl 20, with resort to implication of a term requiring repayment of the loan “upon WFH and/or BBS being put into liquidation” only if necessary.
[56] Mr Chisholm argued that the parties did not objectively contemplate that Ms Yang would be required to wait for payment until it is ascertained whether there will
be a payment to creditors and shareholders following a liquidation of BBS, which would potentially mean delay for many years. In support of that submission, counsel noted that the loan to Mr Jia is interest free unless there is default.
[57] Counsel argued that Mr Jia’s obligation to repay the loan crystallised on the liquidation of BBS, because from then on it was legally impossible for BBS to pay “shareholder dividends”, relying on pt 6 of the Act. BBS was no longer able to satisfy the solvency test as required by s 52 of the Act, and the directors had no power to declare a dividend in any event, because their powers ceased on liquidation by operation of s 248 of the Act.
[58] Mr Chisholm submitted that “shareholder dividends” in cl 20 do not include post-liquidation distributions to shareholders under s 313 of the Act.
The defendant’s interpretation of cl 20
[59] Mr Jia accepts that the $3,000,000 advance must be repaid, and was never intended to be, or become, a gift. Counsel for Mr Jia, Mr Norling, conceded that the requirement in cl 20 that the shareholder dividends are “paid” only applies if a shareholder dividend is payable.
[60] Mr Jia’s first argument is that the payment of shareholder dividends is governed by the shareholders’ agreement, and in particular cl 10.1, cited above at [32]. Mr Norling submitted that completion cannot occur until the later of 31 August 2024 or when the board declares a dividend, relying on the resolution passed by Mr Jia on 14 September 2023.
[61] Alternatively, Mr Norling submitted that “shareholder dividends” in cl 20 should be given a broad interpretation, to include post-liquidation payments to the shareholders in two scenarios:
(a)distributions by the liquidators under s 313 of the Act, where recovered assets exceed liabilities to creditors; or
(b)where recovered assets exceed liabilities to creditors, and the shareholders are successful in obtaining orders under s 250 of the Act terminating the liquidations and reinstating the directors’ powers to declare a dividend to shareholders.
[62] Counsel argued that the affidavit evidence on the financial position of BBS and WFH is insufficient for the Court to make findings regarding the likely outcome of the liquidations, and it remains arguable that there will be dividends or distributions paid to the shareholders. Therefore, the loan has not fallen due for repayment.
Analysis
[63] The issue is the interpretation of the qualifying event in cl 20 for repayment of the loan (the qualifying event).
[64] I note that there is evidence that Mr Jia may have paid above market value for 30 Oban Road in 2019, suggesting that there may be a commercial return to Ms Yang and Mr Gao when the loan is repaid, depending on any shift in values in the housing market. I do not consider that the provision for interest or some other commercial return to the lender, or the lack thereof, assists in the interpretation exercise. I make no findings on that issue.
[65] The qualifying event comprises two underlying concepts, which I will endeavour to express in neutral terms:
(a)completion of construction of the building and sale of the apartments and commercial units; and
(b)payment of profit, if any, to the shareholders.
[66] The reference in cl 20 to “the shareholders” as the recipients of the dividends is a reference to Mr Gao and Ms Yang in their personal capacities.
[67] Clause 20 refers to the “…Victor Project by Brownsbay Seaview Limited…”. In my view, the reference in cl 20 to BBS does not limit the qualifying event to
reference to the financial affairs of BBS. The determinative words are “…the Victor Project…”. These words can encompass the financial affairs of BBS and WFH, where the financial arrangements for undertaking the Victor Project were restructured so that shareholder funding was channelled through WFH, and any dividends to Ms Yang and Mr Jia would come from WFH.
[68] This interpretation is consistent with the parties’ execution of the shareholders’ agreement in March 2020, and supported by the form of the written loan agreement under negotiation in September 2020. The parties contemplated that any shareholder dividends payable to Mr Jia would come from WFH and be used to repay the
$3,000,000 loan.
[69] It is arguable that the shareholders’ agreement operated as a variation of the loan agreement, by the addition of further terms that prescribe when the qualifying event occurs, namely cl 10.1 which provides for the distribution of profit.
[70] However, cl 2.1 of the shareholders’ agreement states that the term of the shareholders’ agreement ends when a resolution is passed appointing a liquidator to WFH. Under cl 2.1, the terms of the shareholders’ agreement have no effect after the date of liquidation of WFH “except for provisions which are intended to survive termination”.
[71] I find that cl 10.1 governing distribution of profit was not intended to survive termination of the shareholders’ agreement by a liquidation. Clause 10.1 conferred powers on the board, and those powers ceased on liquidation. Therefore, the shareholders’ agreement can no longer be effective to prescribe when the $3,000,000 loan falls due for repayment.
[72] That leaves Mr Jia’s argument that the meaning of “shareholder dividends” in cl 20 is broad and includes distributions in a liquidation, made under s 313 of the Act, or dividends following termination of a liquidation under s 250 of the Act.
[73] The Court is required to ascertain the objective intention of the parties for repayment of the loan, assessed at the date of the contract. There is no evidence that
the parties turned their minds to any distinction between distributions to shareholders in the form of dividends under s 53 of the Act and distributions to shareholders in a liquidation under s 313 of the Act. That is not surprising given that the parties anticipated that the project would be profitable.
[74]Section 52(1) of the Act relevantly provides:
52Board may authorise distributions
(1)The board of a company that is satisfied on reasonable grounds that the company will, immediately after the distribution, satisfy the solvency test may, subject to section 53 and the constitution of the company, authorise a distribution by the company at a time, and of an amount, and to any shareholders it thinks fit.
[75]Section 53(1) of the Act relevantly provides:9
53Dividends
(1)A dividend is a distribution other than a distribution to which section 59 or section 76 applies.
[76]Section 313 of the Act relevantly provides:
313 Claims of other creditors and distribution of surplus assets
(1)After paying preferential claims in accordance with section 312, the liquidator must apply the assets of the company in satisfaction of all other claims.
(2)The claims referred to in subsection (1) rank equally among themselves and must be paid in full, unless the assets are insufficient to meet them, in which case payment shall abate rateably among all claims.
(3)Where, before the commencement of a liquidation, a creditor agrees to accept a lower priority in respect of a debt than that which it would otherwise have under this section, nothing in this section prevents the agreement from having effect according to its terms.
(4)Subject to section 311, after paying the claims referred to in subsection (1), the liquidator must distribute the company’s surplus assets—
(a)in accordance with the provisions contained in the company’s constitution; or
(b)if the company’s constitution does not contain provisions for the distribution of surplus assets or, if the company does not have a constitution, in accordance with this Act.
[77]Section 250(1) of the Act relevantly provides:
9 Sections 59 and 76 of the Companies Act 1993 do not apply in this case.
250 Court may terminate liquidation
(1) The court may, at any time after the appointment of a liquidator of a company, if it is satisfied that it is just and equitable to do so, make an order terminating the liquidation of the company.
[78] I do not accept that a reasonable person in the shoes of the parties in May 2019 would have understood the qualifying event for repayment of the loan to include completion of a liquidation of the development company and a liquidator’s pursuit of claims for unliquidated damages against a mortgagee of the development company or directors of the company.
[79] I consider that a reasonable person having all the background knowledge which was reasonably available to the parties in May 2019 would understand the qualifying event in cl 20, conveyed by the words used, to be completion of construction of the project and the payment of any shareholder dividends payable to Ms Yang and Mr Gao by a development company controlled by its board of directors.
[80] It is common ground that construction of the project was completed. On the liquidation of BBS and WFH, the qualifying event in cl 20 was satisfied because dividends were no longer payable as a matter of law.
[81] If I am wrong on the interpretation of the words used in cl 20, then I find that the criteria for implication of a term are established. Clause 20, read against the relevant background, must be understood to mean that liquidation of the development company would require repayment of the loan.
[82] Therefore, it is unnecessary to resolve the factual arguments advanced by the parties regarding the likelihood of the liquidations of BBS and WFH ultimately producing distributions to Ms Yang and Mr Jia following successful claims by BBS (in liquidation) against China Construction Bank or Mr Jia.
Which party is liable to repay the loan?
[83] The agreement for sale and purchase dated 8 May 2019 named Mr Jia as the purchaser. Mr Jia entered into that agreement in his personal capacity. Mr Jia nominated his trust to complete the purchase, however there is no evidence that there
was a novation of the contract. Mr Jia remained the contracting party, and the party liable on the agreement.
[84] The advance of $3,000,000 on the day after settlement of the sale of the property was made by Ms Yang directly into the personal bank account of Mr Jia. Mr Jia raised no issue with the draft agreement sent to him in September 2020, which named him as the borrower.
[85] Mr Jia has failed to lay a proper evidential foundation for his defence that he is not the contracting party.
[86] Even if the loan of $3,000,000 had been made to the trustees named as third party to this proceeding, this would not provide Mr Jia with a defence. Mr Jia is a trustee, and personally liable on contracts he makes for the trust while acting in that capacity. There is no contractual term limiting Mr Jia’s liability to the assets of the trust.
Decision and orders
[87] I find that Mr Jia’s obligation to repay the loan fell due on the liquidation of BBS and WFH. Ms Yang and Mr Gao are entitled to enforce Mr Jia’s personal obligation to repay the loan.
[88] I grant leave to Ms Yang and Mr Gao to bring their second application for summary judgment.
[89] I enter judgment for the plaintiffs against the defendant for the following amounts:
(a)the principal sum of $3,000,000;
(b)interest on the principal sum of $3,000,000 from 30 October 2023 until the date of payment at the contractual rate of 12 per cent per annum.
[90] My preliminary view is that the plaintiffs are entitled to costs on a 2B basis, with an allowance to the defendant for the unsuccessful first application for summary judgment. Counsel shall confer and endeavour to agree costs.
[91]If the parties are unable to agree on costs, then the following directions apply:
(a)the plaintiffs may file and serve written submissions on costs, of no more than five pages, by 13 May 2024;
(b)the defendant may file and serve written submissions on costs, of no more than five pages, by 27 May 2024;
(c)I will determine costs on the papers.
Associate Judge Brittain
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