Zhang v Cao
[2017] NZHC 1769
•28 July 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2016-404-002383 [2017] NZHC 1769
UNDER Part 20 of Schedule 2 of the High Court
Rules
IN THE MATTER
of an appeal against a decision of the
District Court at AucklandBETWEEN
QI ZHANG First Appellant
AND
ZHZ CORPORATE TRUSTEE LIMITED Second Appellant
ZHENGANG CAO Respondent
Hearing: 1 June 2017 Counsel:
J Ding for First and Second Appellant
D K Wilson for RespondentJudgment:
28 July 2017
INTERIM JUDGMENT OF DUFFY J
This judgment was delivered by me on 28 July 2017 at 3.00 pm pursuant to
Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Solicitors/Counsel: K3 Legal, Auckland
Loo & Koo, Auckland
Kirkland Morrison O’Callahan, Auckland
D K Wilson, Auckland
ZHANG v ZHZ CORPORATE TRUSTEE LIMITED & CAO [2017] NZHC 1769 [28 July 2017]
[1] The parties are engaged in a dispute about various debts which each alleges the other has incurred over the past 10 years.
[2] The proceeding was heard in the District Court at Auckland on various dates in September, November and December 2015 before Judge Cunningham. The decision was delivered on 24 August 2016.1 Judge Cunningham ordered Mr Zhang to pay $1,366.78 to Mr Cao, being the difference between the amount owed by Mr Cao in relation to the sale of 8 Virginia Street and the $101,346.78 owed by Mr Zhang in relation to the mortgage servicing costs. The Judge also entered judgment in the sum of $23,000 against Mr Zhang in respect of the outstanding loans.
[3] Mr Zhang and ZHZ appeal against the District Court decision on a number of grounds. In summary, the appellants contend that the Judge erred by:
(a) applying different standards when assessing the likelihood of the various oral arrangements alleged by the parties;
(b)adopting inconsistent reasoning to make findings against Mr Zhang on different issues;
(c) disregarding objective facts, admissions and contradictions in written and oral evidence; and
(d)disregarding and/or misinterpreting certain terms of written agreements.
Background
[4] Mr Cao and Mr Zhang were once friends. They knew each other through their businesses. Mr Zhang was a property developer, while Mr Cao was a cabinetmaker. Mr Zhang had employed Mr Cao to make cabinets for some of his properties. However, their relationship has soured following a number of dealings,
as a result of which each claims the other owes him a significant sum of money.
1 ZHZ Corporate Trustee Ltd v Cao [2016] NZDC 15993.
[5] The background to those claims is set out below.
Pleasant Way
[6] On 19 December 2007, Mr Zhang’s sister became the owner of a property at
30 Pleasant Way, Gulf Harbour (Pleasant Way). In February of the following year, the property was listed for sale. In March 2007, in circumstances that are disputed between the parties, Mr Cao signed an agreement for sale and purchase of the Pleasant Way property. The sale price was $670,000.
[7] As part of the purchase, Mr Cao obtained a mortgage for $536,000. Over the following months, a number of payments were made into Mr Cao’s mortgage accounts by either Mr Zhang, Ms Huang (Mr Zhang’s wife) or Ms Zhang (Mr Zhang’s sister). The identity of the person making the payments is disputed. In any case, these payments were sufficient to meet the cost of servicing the mortgage. Thereafter the payments stopped and Mr Cao began servicing the mortgage out of his own funds.
[8] On 6 May 2010, Mr Zhang and Mr Cao signed a “proof of loan” in the
following terms:
Proof of Loan
From 25 April 2008, Zhengang Cao opened in Westpac Bank the account of
03-0104-0095841-00 and obtained from the bank a sum of $536,000 (New
Zealand dollars) in loan. The loan was completely used up by Qi Zhang.
By 13 April 2010 Zhengang Cao had paid on behalf of Qi Zhang a total of
$56395.46 in interests and rates (Rodney and Auckland), which, after being checked by Zhengang Cao and Qi Zhang, has been confirmed. This is
hereby established as proof.
[9] Between 6 May 2010 and 13 February 2012, Mr Cao paid a further
$44,951.32 in mortgage and rates for Pleasant Way.
[10] As at the date Mr Cao filed his claim in the District Court he had paid the total sum of $101,346.78 in relation to Pleasant Way.
Small loans
[11] On 29 July 2010, Mr Zhang borrowed $13,000 from Mr Cao.
[12] On 2 August 2010 (four days later), Mr Cao asked Mr Zhang to transfer
100,000RMB (approximately NZ$20,000) to a supplier in China. Mr Zhang complied with this request on 4 August 2010.
[13] On 1 September 2011, Mr Zhang borrowed $10,000 from Mr Cao.
Virginia Street
[14] On 30 September 2011, Mr Cao signed a sale and purchase agreement for a property located at 8 Virginia Street, Henderson (Virginia Street). The vendor was named as “ZHZ Corporate Trustee Ltd”. The stated purchase price was $520,000 and the parties indicated that a deposit of $100,000 had already been paid. However, no money had yet changed hands at that stage.
[15] On 5 October 2011, Mr Cao and Mr Zhang signed an acknowledgment of debt (the October acknowledgement):2
Through negotiations, Qi Zhang and Zhengang Cao both agree to settle the following property (contract price: five hundred and twenty thousand dollars only) at 420,000 New Zealand dollars (four hundred and twenty thousand): 8
Virginia Street, Henderson, Auckland. Within one week after the settlement procedures on 10/10/2011 are completed, Zhengang Cao will fill up the
deficit for Qi Zhang of one hundred thousand dollars only (100,000) in cash. Both parties hereby establish this as proof.
[16] On 10 October 2011, the Virginia Street property was transferred into the names of Mr Cao and his wife. Although it is not specifically pleaded, it appears that the payment of $420,000 was made on that date. However, Mr Cao failed to make the additional payment of $100,000, as was required by the October
acknowledgement.
2 In its current pleading (statement of claim dated 21 September 2015 in CIV-2011-090-1953) ZHZ pleads the 5 October acknowledgment was a variation of the original contract. In his current pleading (statement of defence filed in the District Court on 8 October 2015) Mr Cao admits this.
The claims
[17] On 7 December 2011, ZHZ commenced a claim against Mr Cao in the District Court seeking judgment in the sum of $100,000 plus interest and costs in relation to the sale of the Virginia Street property.3
[18] In 2012 Mr Cao commenced his claim against Mr Zhang seeking judgment for the total sum of $124,346.78, which comprised the $101,346.78 for the costs relating to Pleasant Way and the $23,000 in outstanding loans.4
[19] At the time the parties commenced their respective claims, the District Court had abandoned the procedural requirement for the filing and service of formal pleadings. This requirement was later re-instated, and so approximately one year before the defended hearing in the District Court the parties filed formal pleadings in their respective proceedings against each other.
[20] The relevant pleadings for ZHZ’s claim against Mr Cao are:5 (a) ZHZ’s statement of claim dated 21 September 2015; and (b) Mr Cao’s undated statement of defence filed in the District Court on 8 October 2015.
[21] The relevant pleadings for Mr Cao’s claim against Mr Zhang are:6 (a) Mr Cao’s statement of claim dated 20 July 2015; and (b) Mr Zhang’s statement of defence dated 18 September 2015.
[22] The proceedings were subsequently consolidated and heard together.
Issues
[23] The proceedings raise a number of interwoven issues, as follows:
3 This claim was filed under CIV-2011-090-1953.
4 This claim was filed under CIV-2012-090-481. Mr Cao also sought an order requiring Mr Zhang to take a transfer of a property at 30 Pleasant Way, Gulf Harbour; however, that part of the claim was subsequently abandoned.
5 In CIV-2011-090-1953.
6 In CIV-2012-090-481.
Mr Cao’s claims against Mr Zhang
(a) Was Mr Zhang contractually obliged to pay Mr Cao’s costs of servicing the mortgage over and outgoings for Pleasant Way? If yes, what is the outstanding debt?
(b) Mr Zhang admits that Mr Cao loaned him $23,000 ($13,000 on
29 July 2010 and $10,000 on 1 September 2011). Can Mr Zhang set off a payment of NZ$20,000 equivalent made to Mr Cao’s suppliers in China against this debt?
ZHZ’s claims against Mr Cao
(c) Was the Virginia Street property sold to Mr Cao at a discounted price, and if so can Mr Zhang claim this as a set off against any debt he might owe to Mr Cao?
(d)Payment of $100,000 towards the purchase price of the Virginia Street property (either as provided in the contract or the October acknowledgement) is yet to be made. Mr Cao admits this. Is he contractually liable to pay this sum of money to ZHZ or to Mr Zhang? Can contractual interest be claimed for late payment?
First issue: does Mr Cao have a claim against Mr Zhang in relation to the
Pleasant Way mortgage?
Mr Zhang’s version of events
[24] Mr Zhang said he was approached by Mr Cao in 2008, who was interested in purchasing Pleasant Way. Mr Zhang said he referred Mr Cao to Ms Huang because the property was owned by Ms Zhang and Ms Huang held a power of attorney for Ms Zhang. Mr Zhang said that he was involved with other property ventures at the time. It is clear from Mr Zhang’s evidence that he did not become directly involved in the arrangements relating to Pleasant Way until May 2010 when he signed the proof of loan. Despite his lack of direct involvement or knowledge of events, he gave an outline of how Pleasant Way came to be sold to Mr Cao. Mr Zhang
acknowledged this outline was based on what he was told by Ms Huang and
Ms Zhang. Accordingly, it was hearsay evidence and so of little (if any) weight.7
However, Mr Zhang’s hearsay evidence does acknowledge and affirm Ms Huang’s evidence of how the sale came about. To this extent the evidence has some relevance.
[25] Mr Zhang said that his sister, who was living in China, owned Pleasant Way and she was happy to sell this land to Mr Cao on the condition that she could purchase the land back from him if she decided to move to New Zealand.
[26] Pleasant Way was to be sold for $670,000. Mr Cao was to raise funds from the bank and the balance was to be raised by Ms Huang “arranging” vendor finance on Ms Zhang’s behalf.
[27] Mr Cao would hold Pleasant Way on trust for Ms Zhang until she decided whether she would come to New Zealand or not. If she came to New Zealand she would purchase Pleasant Way from Mr Cao. If she did not come to New Zealand, Mr Cao would retain ownership of Pleasant Way and he would then need to repay the vendor’s finance Ms Zhang had provided to him. To retain the right to buy back Pleasant Way, Ms Zhang would pay all costs for maintaining Pleasant Way, being mortgage and rates.
[28] On 13 May 2008 Mr Cao paid $670,622.95 for settlement of Pleasant Way. From this $383,359.76 went to repay an existing Westpac mortgage. After deduction of expenses a balance of $285,610.31 was transferred to Ms Zhang’s New Zealand bank account. Mr Zhang said $135,422.95 of this sum was the vendor’s finance Ms Zhang provided for the purchase.
Ms Huang’s version of events
[29] Mr Zhang’s wife, Ms Huang, gave evidence in the District Court. Ms Huang
held a power of attorney for Ms Zhang.
7 It is difficult to see why Mr Zhang was permitted to give this evidence.
[30] Ms Huang said that in 2008 Mr Cao approached her, wanting to buy Pleasant Way. He had heard about the property from Mr Zhang. However, at that stage, Ms Zhang was not sure whether she would move to New Zealand and was accordingly unwilling to sell Pleasant Way. Ms Huang proposed an arrangement whereby Pleasant Way would be sold to Mr Cao for $670,000. Mr Cao did not have funds to purchase Pleasant Way. Ms Huang would introduce him to a mortgage broker. In addition to borrowing funds from a bank, Ms Huang provided Mr Cao with $150,000 as a “deposit” to enable him to complete the purchase. She obtained the $150,000 by borrowing from friends, and gathering funds from Ms Zhang and Mr Zhang. Once she had gathered enough funds to make up the $150,000 Ms Huang deposited this sum into Mr Cao’s bank account. Ms Huang said $120,000 of those funds was later paid to Ms Zhang as the “deposit” for Pleasant Way and the remainder was used for mortgage payments on Pleasant Way. However, after some months, Ms Zhang was unable to meet her commitment to pay the mortgage costs and rates so Mr Cao agreed to make the payments instead. Ms Huang said that if Ms Zhang decided not to come to New Zealand Mr Cao would keep Pleasant Way but he would also have to pay back the money he had received from “us”. Ms Huang said that $285,610.31, which is what remained of the purchase funds once the Westpac mortgage in Ms Zhang’s name was discharged on the sale of Pleasant Way, was transferred to Ms Zhang.
Mr Cao’s version of events
[31] Mr Cao said that Mr Zhang approached him, needing money. Mr Zhang asked Mr Cao to take a transfer of Pleasant Way to secure a mortgage, with those funds going to Mr Zhang. Mr Cao believed Mr Zhang was going to use those funds to complete building work on other properties. Mr Zhang would then purchase the property from Mr Cao at a later point, when he had the means to do so. In the meantime Mr Zhang would pay the costs of servicing the mortgage and paying rates.
[32] Mr Cao obtained a mortgage of $536,000 from Westpac. He gave those funds to Mr Zhang. Initially Mr Zhang kept his promise and met the costs of the mortgage and rates. Eventually, however, Mr Zhang ran short of funds and ceased making the payments, forcing Mr Cao to take over. By mid-2010, Mr Cao was
growing increasingly concerned about Mr Zhang’s continued failure to make payment. So, Mr Cao asked Mr Zhang to sign the proof of loan dated 6 May 2010 to evidence his indebtedness to Mr Cao, which Mr Zhang did.8
[33] Mr Zhang never had the financial means to repay Mr Cao and so has never purchased the property from Mr Cao in accordance with the terms of their original agreement.
Extrinsic evidence
[34] The certificate of title for Pleasant Way shows this property was transferred to Ms Zhang on 19 December 2007 and at that time a mortgage to Westpac was registered against the title. This mortgage was discharged on 13 May 2008 when the property was transferred to Mr Cao.
[35] On 8 May 2008 Mr Cao’s Westpac bank statement shows an end of day balance of $150,100.02 which is consistent with funds of $150,000 being deposited to that account.9
[36] The sale and purchase agreement for Pleasant Way was dated “2 March” and
the nominated possession date was 30 April 2008. It recorded that a deposit of
$30,000 was payable.
[37] Settlement statements and statements of account show that the “Property Transfer Centre”, being the conveyancing division of Baker Law, acted for both Mr Cao and “Mr Y Zhang c/o Ms Huang”.
[38] On 13 May 2008, as part of the settlement of the sale of Pleasant Way,
$670,000 was deposited into the trust account of Baker Law solicitors, who had issued a settlement statement to Mr Cao recording the purchase price minus purchaser’s share of the rates. The settlement statement said nothing about the payment of a deposit for the property (be it either the $30,000 stated on the sale and
purchase agreement or the $150,000 that Ms Huang spoke of in her evidence). The
8 See [8] herein for the terms of the proof of debt.
9 No bank statements dated earlier than this statement were produced in evidence to the Court.
conveyancing costs relating to executing the Westpac loan to Mr Cao and registering the mortgage against the title, which occurred on 13 May 2008, were separately dealt with; however, no record of the account of those costs was produced in evidence to the Court. It is not possible, therefore, to see how Mr Cao’s solicitors accounted for the $150,000 which Ms Huang referred to as a deposit and which Mr Zhang later referred to as vendor finance.
[39] Also on 13 May 2008, Baker Law issued an account to “Mr Y Zhang c/o Ms Huang” recording payment of rates and payment of the Westpac mortgage in the sum of $383,359.76. Baker Law’s bank account records show $383,359.76 being credited to Ms Zhang’s New Zealand bank account 03-0104-00506954-091 with the notation “repay mortgage on 13 May 2008”. The Baker Law bank account records also show the balance of $285,610.31 was deposited in Ms Zhang’s New Zealand account 03-0104-00506954-000 on 13 May 2008.
[40] There is no extrinsic evidence showing funds deposited in Ms Zhang’s New
Zealand bank account being transferred off shore.
[41] Apart from the written sale and purchase agreement for Pleasant Way, there is nothing in writing recording the terms of the sale as described to the Court in the evidence of Mr Zhang and Ms Huang.
District Court
[42] Judge Cunningham did not find Ms Huang’s evidence to be credible. In coming to that conclusion the Judge noted that Ms Huang had provided no documentation to support her account of events; that it would have been a “risky” arrangement for Ms Zhang; that the arrangement lacked detail, for example as to when the buy-back condition would end; and the evidence that Ms Zhang was not looking to sell was inconsistent with evidence showing the listing of Pleasant Way for sale in February of the same year.
[43] The Judge also identified problems with Mr Zhang’s evidence. In particular,
she said that it seemed implausible that Mr Zhang would have deliberately distanced
himself from the negotiations and that he would then choose to sign a document acknowledging that he owed a debt to Mr Cao, if that were not the case.
[44] The Judge generally took a more favourable view of Mr Cao’s evidence, although she noted that it was not clear why he would undertake such a “risky” transaction. On the other hand, she noted that Mr Zhang was Mr Cao’s friend and was experienced in property matters.
[45] The Judge was satisfied that Mr Zhang owed Mr Cao the sum of
$101,346.78.
Analysis
[46] To prove his claim regarding Pleasant Way, Mr Cao needed to establish on the balance of probabilities that:
(a) Mr Zhang and Mr Cao entered into a contract for the sale of Pleasant
Way;
(b)a term of that contract was that, once ownership passed to Mr Cao, Mr Zhang would make payments to Mr Cao to meet:
(i) the costs of servicing the mortgage over Pleasant Way; and
(ii) the cost of paying rates on Pleasant Way;
(c) Mr Zhang has failed to make the payments as promised; and
(d) as a result, Mr Cao has suffered a loss of $101,346.78.
[47] Judge Cunningham heard evidence on the above issues and concluded that the factual narratives offered by Mr Zhang and his wife, Ms Huang, were implausible. I agree that the overall tenor of their narrative is implausible.
[48] The idea that Mr Zhang’s sister would be willing to sell Pleasant Way in March 2008 when she had only purchased the property in December 2007, but she also wanted to keep open the possibility that if she later decided to move to New Zealand she could buy this property back from Mr Cao, and so to achieve that end she was prepared to pay costs incurred by him in servicing the mortgage and rates does not make sense. If Ms Zhang wanted the right to buy back this property she could have achieved this by a discounted sale price to Mr Cao rather than the convoluted arrangements that Mr Zhang and Ms Huang say were made on Ms Zhang’s behalf.
[49] Further, it is difficult to see why Ms Huang on behalf of Ms Zhang would seek to gather in $150,000 (in the form of borrowing from others including herself and Mr Zhang) to enable Ms Zhang to provide Mr Cao with funds to pay a “deposit” for Pleasant Way.10 This aspect of the appellant’s evidence is even more implausible when it is realised the sale and purchase agreement purchase price only provided for a deposit of $30,000. Accordingly, it is difficult to see why there was a need for a deposit of $150,000 and for Ms Huang to raise those funds.
[50] Certainly, there was a shortfall between the sale price of $670,000 and the
$536,000 Mr Cao borrowed from Westpac, which would have needed to be met somehow. But there was neither a legal reason (in terms of the contract between Mr Cao and Ms Zhang) nor a commercial reason explaining why Mr Cao needed to have $150,000 for a “deposit” raised by and banked into his Westpac bank account by Ms Huang before the settlement date. The usual approach when there is a shortfall would be for the purchaser to obtain either vendor finance (in the form of a loan from Ms Zhang to him) or a second loan from another lender, either of which would be paid on settlement with usually a security to protect the lending.
[51] The account Mr Zhang and Ms Huang gave of how Pleasant Way was sold to Mr Cao involves: (a) Mr Cao becoming registered owner of the property for the price of $670,000;11 (b) Mr Cao making no personal contribution towards the
purchase price (Westpac provided $535,000 and Ms Huang provided a “deposit” of
10 This was Ms Huang’s evidence and her account was confirmed by Mr Zhang in his evidence.
11 There was evidence this price was near or at the government valuation at the relevant time, and the property was listed for sale in February 2008 for $627,000.
$150,000); (c) Mr Cao making no payments towards the Westpac mortgage or rates for the property; and (d) Mr Cao being obliged to re-sell the property to Ms Zhang when she asked him to do so. It was only if Ms Zhang decided she would not buy back the property that Mr Cao would then become liable to pay anything from his own pocket, as then he would be obliged to repay the money Ms Zhang had spent on the property subsequent to its sale to Mr Cao.
[52] Whether Mr Cao got to enjoy ownership of Pleasant Way hinged entirely on whether Ms Zhang elected to exercise her buy-back rights or not. In return, from the outset of the purchase Mr Cao was the registered owner and mortgagor of Pleasant Way and therefore under a legal liability to Westpac to repay the mortgage. The purchase would have relieved Ms Zhang of her liability under the earlier mortgage to Westpac, which was in the sum of $383,359.76 on the day of settlement. However, she assumed a new set of obligations in the form of the payments under the new Westpac mortgage (in Mr Cao’s name). Her liability to pay rates for the property would continue as before, though the local authority would no longer record her as the liable rate-payer.
[53] From the perspective of either Ms Zhang or Mr Cao I cannot see any commercial purpose in the arrangement as outlined above. Ms Zhang essentially replaced a higher mortgage for the earlier mortgage and a cash sum of $285,610.31 was deposited in her bank account, but in doing so she lost legal ownership of Pleasant Way. Her liabilities for that property would have increased because she would still be the person paying for rates and cost of the mortgage. Given that the mortgage Mr Cao obtained secured a loan of $536,000, servicing costs were likely to be higher than the costs of servicing the mortgage of $383,359.79, which she had taken on only five months earlier. Mr Cao assumed significant legal liabilities, but these were to be performed by Ms Zhang. Whether he gained full ownership of Pleasant Way or not was beyond his control. It is hard to imagine why anyone would enter into such arrangements. The only apparent commercial benefit of the arrangement is that it allowed one mortgage to be replaced with a higher mortgage and it provided a cash sum ostensibly for Ms Zhang.
[54] There is evidence to show the balance of the purchase funds (minus the amount to pay the Westpac mortgage) was paid into Ms Zhang’s New Zealand bank account, but there is no extrinsic evidence to confirm it was then sent to her in China. Given Ms Huang held a power of attorney for Ms Zhang, Ms Huang would have had control over where the funds went after they were deposited into Ms Zhang’s New Zealand bank account. Judge Cunningham made no explicit finding on where the funds went after deposit in Ms Zhang’s New Zealand bank account. However, the Judge’s rejection of Mr Zhang and Ms Huang’s evidence suggests to me their evidence the funds were sent to China may also not be reliable. Without extrinsic evidence to show the funds were sent offshore I am not prepared to believe that they were.
[55] One possibility is that the funds of $285,610.31 remained in New Zealand and they were to be utilised by Mr Zhang. Certainly this is consistent with Mr Cao’s evidence on the intended use of the funds.
[56] The signed “proof of loan” dated 6 May 2010 and the obligations Mr Zhang acknowledged therein are entirely inconsistent with the evidential narrative put forward by Mr Zhang and Ms Huang. The proof of loan which was signed by both Mr Zhang and Mr Cao records that the loan of $536,000 was entirely used by Mr Zhang, who was not the vendor of Pleasant Way.12 This is not literally correct in the sense that the extrinsic evidence shows $383,359.76 of those funds went to re- pay the earlier Westpac mortgage. However, if the discharge of the earlier mortgage had some unrecorded benefit for Mr Zhang then the use of the $536,000 to discharge
the earlier mortgage would in essence have been to Mr Zhang’s benefit, and so in a broad sense he could be said to have full use of those funds. Certainly, he was prepared to sign a written proof of debt that recorded him having received the entire benefit of the $536,000 funds from Westpac. Whilst Mr Zhang denied the proof of loan was intended to have this meaning, Judge Cunningham’s overall rejection of Mr Zhang’s evidence as well as her reliance on the proof of loan as evidencing the
arrangement for the mortgage funds from Pleasant Way suggest to me that the Judge
12 As the registered proprietor of Pleasant Way, Ms Zhang was the person legally entitled to sell the property and to receive funds paid for the property by the purchaser. So too was Ms Huang as the holder of Ms Zhang’s power of attorney. In this capacity she was entitled to stand in Ms Zhang’s place.
disbelieved the explanation Mr Zhang gave for how he came to sign the proof of loan in the terms expressed.
[57] On Mr Cao’s version of events, what transpired was a way in which Mr Zhang gained access to much needed funds that he seemingly could not raise on his own account, which provides a commercial purpose for Mr Zhang’s conduct.13
This explains why Mr Zhang would agree to pay and why he did initially pay the costs of servicing Mr Cao’s mortgage and the rates for Pleasant Way, as well as having the option of purchasing this property from Mr Cao in the future. I realise that Mr Zhang says he did not make those payments. However, this denial is inconsistent with the terms of the proof of loan. I find that written document to be more reliable than oral evidence from a witness whose evidence overall was rejected by the trial Judge.
[58] Mr Cao’s explanation for why he took over paying the mortgage and rates (because Mr Zhang ran short of funds and could not do so) makes sense. In such circumstances Mr Cao had little option but to do so, otherwise he would have been in default under the mortgage and/or faced with proceedings to recover the unpaid rates. The reason for Mr Cao initially being agreeable to participate in the way that he did is because at the time he was a friend of Mr Zhang, and wanted to help him.
[59] Mr Cao’s evidence is consistent with the “proof of loan” which is a piece of extrinsic evidence that can speak for itself. Moreover, his evidence objectively makes sense whereas the overall tenor of the evidence of Mr Zhang and Ms Huang does not.
[60] Mr Zhang does not appear to dispute that if the elements set out at [46] (a)
and (b) are proved, then elements (c) and (d) are proved as well.
[61] I agree with the Judge’s preference for Mr Cao’s evidence over that of Mr Zhang and Ms Huang where there are clashes. I consider the extrinsic evidence supports Mr Cao’s account of the arrangement for Pleasant Way, as do the available
inferences from circumstances outlined in evidence. Looked at overall I find it more
13 Whether this was a proper way for him to obtain those funds is a separate issue.
probable than not that the arrangement for Pleasant Way was on the terms outlined by Mr Cao. I am not persuaded by the submissions for Mr Zhang, in which he invited me to analyse discrete pieces of the evidence on this arrangement for the purpose of concluding that his explanation of the arrangement was plausible and should be preferred to that of Mr Cao.
[62] Mr Zhang also identified aspects of the transaction on which there was a conflict of evidence that the Judge did not resolve. I have considered those carefully. Some of the conflicts are immaterial to the outcome the Judge and I have reached. Others are answered implicitly by the findings the Judge and I have made. None of the omissions that Mr Zhang identifies would impact materially on the outcome of Mr Cao’s claim against Mr Zhang.
[63] So, whilst Mr Zhang contends the Judge made no findings on the terms of the sale of Pleasant Way to Mr Cao, I consider the Judge made sufficient findings to support the view that Mr Cao had proved his claim to the necessary standard of proof. Further, for the reasons I have outlined I am of the same view.
[64] I accept the Judge did not make a specific finding on who provided the so- called “vendor finance”. However, she did not need to do so. Implicit in the preference for Mr Cao’s evidence is the understanding that, regardless of who was instrumental in transferring Pleasant Way or finding the funding for the purchase, Mr Zhang was the driving force behind the scenes and everything was done for his benefit. This view is consistent with the proof of loan which he signed. The same applies regarding Mr Zhang’s complaint the Judge made no specific finding on whether Ms Zhang made contributions to the mortgage and rates after Pleasant Way was transferred to Mr Cao.
[65] Mr Zhang complains that the Judge did not make a specific finding on whether Mr Zhang signed the proof of loan on his own behalf or on behalf of Ms Zhang. He contends the latter to be the case. However, the clear findings the Judge made on the proof of loan show she read the document as something Mr Zhang signed on his own behalf. I agree with this interpretation: it is obvious from the language of the document, which does not support the interpretation for
which Mr Zhang contends. The Judge’s rejection of Mr Zhang’s argument is implicit
in the findings she reached; no more was required.
[66] I am satisfied that Mr Cao purchased Pleasant Way on the terms set out at [46](a) and (b) herein. Mr Zhang has not disputed the terms set out at [46](c) and (d) herein. Accordingly, I find that Mr Cao has suffered a loss of $101,346.78. Whether Mr Cao can recover that loss from Mr Zhang is a separate issue that I deal with later.
Second issue: does Mr Zhang have a right of set-off in respect of the small loans?
[67] Mr Zhang accepts that Mr Cao made loans to Mr Zhang totalling $23,000 in
2010 and 2011. However, Mr Zhang argues that his debt to Mr Cao under those loans is mostly off-set by a payment of NZ$20,000 equivalent that Mr Zhang made to Mr Cao’s supplier in China in 2010.
[68] Mr Cao admits that Mr Zhang did pay NZ$20,000 equivalent to Mr Cao’s supplier in China, but he also contends that he provided Mr Zhang with the funds to make that transaction. However, Mr Cao did not provide any evidence of that payment.
[69] Judge Cunningham noted that as Mr Zhang admitted that Mr Cao had made the loans, he bore the burden of proving on the balance of probabilities that the loan had been repaid or could be set off by Mr Zhang’s payment to the Chinese supplier. In her view, Mr Zhang’s account of events did not meet that standard of proof.
[70] There is no error in the Judge’s approach on this point. In Mawson v Public
Trustee, Turner J held:14
[Counsel] contended that in this case the Public Trustee was obliged to prove as an essential part of his cause of action not only that appellant had contracted to pay certain instalments to deceased, but that he had in fact not paid them. I have examined this argument with care, for there is undoubtedly some authority, which I will mention below, which seems to support it. I have come to the final conclusion, however, that Mr Gazley’s argument must be rejected and that the true position is that in an action for specific payments due under a simple contract, the plaintiff has discharged
14 Mawson v Public Trustee [1956] NZLR 247 (SC) at 249.
the initial onus of proof lying upon him when he has proved the contract under which the defendant is liable to pay. A plea of payment and proof of facts supporting such plea is thereupon a defence open to the defendant.
[71] The reasoning in Mawson v Public Trustee was recently adopted by Brewer J
in NZ Natural Therapy Ltd (in liq) v Little.15
[72] Like Judge Cunningham, I find that Mr Zhang has not discharged the onus of proof he is required to meet to establish the set-off.
[73] Mr Cao argued that Mr Zhang’s account makes little sense. First, in terms of timing: the payment of NZ$20,000 equivalent came only four days after Mr Zhang had needed a loan of $13,000, without any explanation from Mr Zhang as to how he then had sufficient funds to send $20,000 to China. Secondly, in terms of the amounts involved. Mr Zhang had borrowed only $13,000 from Mr Cao at the time Mr Zhang transferred NZ$20,000 equivalent to the supplier.
[74] I accept Mr Cao’s argument. It is difficult to see how the payment of $20,000 equivalent can be regarded as a repayment of the existing loan of $13,000. If the payment to the Chinese supplier was to discharge the $13,000 debt, it is hard to see why Mr Zhang would pay more than he owed to obtain this discharge; it makes no commercial sense to pay a creditor $7,000 more than the creditor is owed. It is even more difficult to see how either Mr Zhang or Mr Cao could intend the $7,000 balance to be treated as repayment of a second loan when that loan had yet to exist, and indeed the second loan did not come into existence until a year after Mr Zhang had sent the $20,000 equivalent to China. I find Mr Zhang’s evidence on this topic to be inherently implausible.
[75] Accordingly, I find Mr Zhang is liable to pay Mr Cao the loans totalling
$23,000.
[76] Judge Cunningham also found that Judicature Act 1908 interest was payable on the small loans from the time the proceeding was commenced until the date of
judgment. I see no reason to depart from that decision.
15 NZ Natural Therapy Ltd (in liq) v Little [2016] NZHC 2585.
Third issue: can Mr Zhang claim a set-off to reflect the discounted sale price for
8 Virginia Street?
[77] ZHZ was the registered proprietor of Virginia Street. The statement of claim filed for ZHZ pleads as follows:
2. In September 2011 the plaintiff and the defendant entered into an
agreement concerning the land at 8 Virginia Street, Gulf Harbour (“8
Virginia Street”) which was partly oral and partly written (“original agreement”). The material terms of the agreement were as follows:
a) The value of 8 Virginia Street was $620,000.00;
b) The plaintiff would sell 8 Virginia Street to the defendant for
$520,000.00;
…
g) The difference of $100,000.00 between the value of 8
Virginia Street of $620,000.00 and the purchase price of
$520,000.00 would act as a set off for the defendant’s costs
owed under the arrangement between the defendant andYing Zhang.
[78] Based on this pleading, it would appear that Mr Zhang’s position is that there were two contracts. The first contract is an accord and satisfaction: Mr Zhang would cause ZHZ to sell Virginia Street at a price $100,000 below its value of
$620,000; in exchange, Mr Cao would forgive the debt owed by Mr Zhang in relation to Pleasant Way. The second contract is the contract for the sale of the Virginia Street property.
[79] As Mr Zhang is claiming a right of set-off, he bears the burden of proving on the balance of probabilities that the first contract (accord and satisfaction) was actually made. Judge Cunningham was clearly of the view that he had failed to meet that burden of proof.
[80] Mr Zhang said in evidence that he had advertised Virginia Street for sale at a price of $629,000. Mr Cao was upset about the money owed to him in relation to Pleasant Way (on Mr Zhang’s version of events it was his sister Ms Zhang who owed this money to Mr Cao). So Mr Zhang offered to reduce the price by $100,000 to allow Mr Cao to purchase Virginia Street for $520,000 as a way of cancelling the money Ms Zhang owed to Mr Cao for the Pleasant Way dealings. Mr Cao would
retain Pleasant Way rather than Ms Zhang buying it back, and he would repay Ms Zhang for her “original vendor finance” when he had sufficient funds. Once Mr Cao repaid Ms Zhang, she would be in funds and Mr Zhang could then recover the $100,000 reduction from her.
[81] ZHZ and Mr Cao signed a sale and purchase agreement for Virginia Street. Mr Zhang accepts that he wrote the deposit had been paid when in fact it had not. He said he did this because he trusted Mr Cao to make the payment (this meant Mr Cao only paid $420,000 for this property). When Mr Cao failed to pay the deposit, Mr Zhang followed up. This led to the October acknowledgment. However, Mr Cao failed to pay the $100,000 in the terms of the October acknowledgment and so Mr Zhang issued proceedings.
[82] On the other hand Mr Cao said in evidence that he was concerned about the money which Mr Zhang owed him in relation to the Pleasant Way mortgage and rates.16 Mr Zhang had told Mr Cao that he was considering filing for bankruptcy and asked Mr Cao to buy Virginia Street from him. Mr Cao agreed. Mr Zhang initially asked for $570,000 for the property, but Mr Cao’s wife did not particularly like the property. As a result, Mr Cao indicated that he would pay only $520,000 for the
property. Mr Zhang wanted Mr Cao to pay the deposit to him directly rather than to ZHZ, so the sale and purchase agreement stated that the deposit had already been paid.
[83] Judge Cunningham recognised that, as Mr Zhang sought to claim a right of set-off, Mr Zhang bore the burden of proving that he had reduced the sale price from
$620,000 to $520,000 in order to be relieved of the debt owed to Mr Cao in relation to Pleasant Way.17
[84] Judge Cunningham noted that Mr Cao’s account of events regarding the sale
of Virginia Street had in some respects changed over the course of the proceeding, which would poorly reflect on the reliability of this evidence. Nonetheless, the
16 On Mr Cao’s version of events it was Mr Zhang who had agreed to pay the mortgage costs and rates for Pleasant Way and then defaulted. Accordingly, Mr Cao viewed Mr Zhang as the debtor who was responsible for meeting the ongoing mortgage costs and rates. I have found Mr Cao’s account of the arrangements to be the more believable.
17 The Judge had found Mr Zhang owed this debt to Mr Cao and I have upheld her finding.
Judge found that Mr Cao had constantly maintained the Pleasant Way debt was to be set off by him not having to pay the $100,000 deposit (from a sale price of $520,000) that was stipulated in the original sale and purchase agreement and the October acknowledgement. This was something separate from the $100,000 discount that Mr Zhang said came from the sale price being reduced from $620,000 to $520,000.
[85] The Judge was not persuaded by Mr Zhang’s evidence for a number of
reasons, including: Mr Cao had consistently said that the purchase price was
$520,000; Mr Zhang owed Mr Cao more than $100,000 so a reduction of exactly
$100,000 in the price in order to extinguish Mr Zhang’s indebtedness would be illogical; and Mr Zhang’s claim was inconsistent with the terms of the October acknowledgement.
[86] Mr Zhang sought to persuade me to take a different view of his evidence from that of Judge Cunningham. However, the Judge had the benefit of seeing and hearing the witnesses. This was a case where there was direct conflict between the evidence of Mr Zhang and Mr Cao when it came to the Virginia Street sale. Apart from the October acknowledgement there was little else in the way of extrinsic evidence that I could take into account in order to assess whose evidence I would accept as reliable and credible.
[87] The October acknowledgement is not helpful to Mr Zhang. First, because it refers to Virginia Street being sold for $520,000 which contradicts Mr Zhang’s evidence the price was really $620,000 with $100,000 being discounted to account for the money owed to Mr Cao in relation to Pleasant Way. Secondly, it is hard to see why Mr Zhang would reduce the sale price of a property ZHZ owned because on Mr Zhang’s version of events his sister Ms Zhang had failed to make the promised payments of the rates and mortgage costs for Pleasant Way. As a director of ZHZ Mr Zhang owed the company a fiduciary duty, which precluded him from selling Virginia Street at undervalue, particularly when either Mr Zhang personally or
someone connected with Mr Zhang stood to benefit.18 The company was trustee of
18 See Sojourner v Robb [2008] 1 NZLR 751 (CA). On Mr Zhang’s version of events it was his sister Ms Zhang who would be relieved of the debts owed to Mr Cao for Pleasant Way. As found by Judge Cunningham and this Court it was Mr Zhang who personally benefitted in this way.
the Zhang family trust, and so the company owed the beneficiaries of the trust fiduciary duties which would preclude ZHZ approving a sale of assets it held in trust at undervalue for the benefit of its sole director/shareholder (or his sister). Accordingly, the company was in no position to permit Mr Zhang to sell its assets at undervalue (which on Mr Zhang’s account is what a sale reduced by $100,000 would have been). If Virginia Street had been sold at a discount to Mr Cao, someone else had to make up the difference so that eventually ZHZ received an equivalent market value for its asset. Mr Zhang attempted to outline in his evidence a way that allowed this to occur. However, his evidence was not accepted by the Judge. This is understandable. The narrative he outlined was fanciful. Secondly, it hinges on a version of the Pleasant Way dealings which the Judge had rejected, as has this Court. Thirdly, the steps Mr Zhang outlined in his evidence could not cure the sale at undervalue because for this to occur the deficit had to be paid to ZHZ. The repayment chain Mr Zhang outlined stopped at the point the money came to him
personally.19
[88] The outcome on the question of the true price for Virginia Street turned on whose evidence the Judge accepted. First, as regards the oral evidence the Judge was in a better position than I am to make this assessment. Moreover, I agree with her assessment; this is not the first example of implausible evidence from Mr Zhang.
[89] Secondly, the available inferences to be drawn from the October acknowledgment support Mr Cao’s evidence and go to show the implausibility of Mr Zhang’s evidence. The October acknowledgement was a document between Mr Zhang and Mr Cao, which recorded an arrangement as between themselves. If the sale of Virginia Street really was a discount sale with a price reduction of
$100,000 as a set-off to cover the difficulties Mr Cao had faced over payment of the Pleasant Way mortgage, I would have expected Mr Zhang and Mr Cao to record this in the October acknowledgement. Instead the document records a sale for $520,000. I consider it more probable than not that the document said this because that is what
the agreed sale price always was.
19 See [75] herein.
[90] Moreover, the legal basis for there being a set-off was problematic. The vendor of Virginia Street was ZHZ. The Pleasant Way debts, on Mr Zhang’s view, were owed by Ms Zhang. On Mr Cao’s view those debts were owed to him by Mr Zhang in his personal capacity. No-one has said ZHZ owed debts to Mr Cao. Accordingly, the benefits/obligations were not mutual, so there was no question of a set-off.
[91] As director of ZHZ, if Mr Zhang was prepared to allow ZHZ to meet a debt that either he owed personally or his sister owed by agreeing to sell Virginia Street at a $100,000 discount, this would leave Mr Zhang under an obligation to repay
$100,000 to ZHZ. However, apart from Mr Zhang’s oral evidence there was no evidence that this was how matters were done.20 It is also questionable, as mentioned earlier, whether Mr Zhang as director of ZHZ could permit ZHZ to pay such debts. Without reliable evidence to show this happened I am not prepared to see matters this way.
[92] For the reasons set out above I am satisfied that no set-off was legally possible, let alone in fact concluded. I find the price Mr Cao paid for Virginia Street did not relieve Mr Zhang of the debt I have found Mr Zhang owed to Mr Cao from their dealings over Pleasant Way.
Fourth issue: identifying the correct creditor in relation to the payment of the deposit for Virginia Street
[93] The claim against Mr Cao regarding payment for Virginia Street was filed by ZHZ. However, Judge Cunningham found the terms of the October acknowledgement meant that the $100,000 was to be paid to Mr Zhang personally as opposed to ZHZ. For that reason she found this sum could not be set off against the sum of money she had found Mr Zhang owed to Mr Cao for their Pleasant Way
dealings.
20 For example there is no evidence of a shareholders’ meeting in which the payment chain as outlined by Mr Zhang was approved by ZHZ. Moreover, because ZHZ is a trustee company for the Zhang family trust, if Virginia Street were owned by ZHZ on behalf of the trust the company would owe fiduciary duties to the beneficiaries regarding how it managed this asset. If that were so, the beneficiaries’ ratification of events may also have been required. Reliable evidence (something other than Mr Zhang’s oral evidence) covering these topics was required.
[94] The original contract for sale and purchase of Virginia Street was between ZHZ and Mr Cao. Mr Zhang was not a party to that transaction. The original contract required payment of a $100,000 deposit before settlement; that did not happen.
[95] In its current pleading,21 ZHZ pleads the 5 October acknowledgment varied the original contract for the sale of Virginia Street. In his current pleading,22 Mr Cao admits this allegation. Accordingly, the parties each accept the original contract was varied by the October acknowledgment.
[96] The October acknowledgement required Mr Cao to “fill up the deficit for Qi Zhang of one hundred thousand dollars only… in cash.” The October acknowledgement was negotiated and executed by Mr Zhang with Mr Cao. ZHZ has pleaded that the October acknowledgement was a variation of the original contract. The October acknowledgement makes it clear that Mr Cao owes $100,000 for the deposit of Virginia Street, which Mr Cao accepts has still not been paid. However, what is less clear is to whom this $100,000 was to be paid. There are two possibilities.
[97] The first possibility is that Mr Zhang signed the October acknowledgement in his capacity as director of ZHZ and the intention was for the $100,000 to be paid to Mr Zhang in his capacity as director of ZHZ. The other possibility is that Mr Zhang signed the October acknowledgement in circumstances where the intention of the variation was that the $100,000 be paid to Mr Zhang in his personal capacity, which is consistent with the October acknowledgment requiring the deficit to be filled up for “Qi Zhang” rather than for ZHZ.
[98] Whether ZHZ or Mr Zhang were entitled to receive the $100,000 is highly relevant because, given Mr Zhang owes over $100,000 to Mr Cao, the debts each owes the other could be set off each against the other with Mr Zhang being liable to pay the remainder only to Mr Cao. On the other hand, if the $100,000 is owed to
ZHZ no set-off is available. Mr Cao will owe ZHZ the $100,000 under the October
21 Statement of claim dated 21 September 2015 in CIV-2011-090-1953.
22 Statement of defence filed in the District Court on 8 October 2015.
acknowledgement and Mr Zhang will owe Mr Cao the debts arising from the
Pleasant Way dealings and the small loans.
[99] In its statement of claim ZHZ has pleaded that the October acknowledgement varied the terms of the original contract. The statement of claim was prepared by ZHZ’s lawyers on its behalf. This pleading holds out the October acknowledgement as a variation of the original contract, which entails ZHZ accepting the variation was done by Mr Zhang with its authority. Accordingly, if the variation correctly interpreted has the effect of diverting the $100,000 to Mr Zhang instead of ZHZ the company must be understood to have authorised this happening. For if that were not so ZHZ could have pleaded that the variation was done without its authority, which is something it has chosen not to do.
[100] ZHZ seeks to persuade the Court to read the reference to “Qi Zhang” in the October acknowledgement as a reference to Mr Zhang in his capacity as director of ZHZ. However, I see no reason to read those words into the October acknowledgement. It was always open to the parties to the October acknowledgement either to refer to “ZHZ” instead of “Qi Zhang” or to refer to “Qi Zhang as director of ZHZ.” The bald reference to “Qi Zhang” when the original contract referred to “ZHZ” as the vendor and recipient of the purchase price suggests to me that the variation was intended to alter the intended recipient of the remaining
$100,000. Everyone knew the deposit recorded as paid in the original contract had not been paid. If the intended recipient was to remain the same it is hard to see why there was a need for a variation of the contract, which is how ZHZ regards the October acknowledgment. Instead, if the concern was limited to Mr Cao’s failure to pay the deposit earlier on, all that needed to be agreed was an extension of time for Mr Cao to pay the outstanding amount late.
[101] I am satisfied the variation was intended to direct the $100,000 to Mr Zhang and not to ZHZ. Because I have found the variation was authorised by ZHZ, I am satisfied the variation binds ZHZ.
[102] Because the variation directed the $100,000 payment away from ZHZ and it is ZHZ that was entitled to penalty interest under the original contract, I see no basis
for finding penalty interest under the original contract is payable for the late payment to Mr Zhang under the October acknowledgement. This document is silent on the question of liability to pay penalty interest for late payment.
[103] Accordingly, I agree with the Judge on the effect of the October acknowledgement insofar as it substituted Mr Zhang as creditor and recipient of the
$100,000. I also agree with the Judge that no penalty interest is claimable by
Mr Zhang.
[104] Once again Mr Zhang contended that the Judge had omitted to make certain specific findings. I accept the Judge did not make those findings; however, it was not necessary for her to do so. Mr Zhang complains the Judge did not specifically make a finding on his evidence that he continued to pursue Mr Cao for the $100,000
Mr Zhang contends is owed to him. Mr Zhang also complains the Judge made no specific finding on Mr Cao’s evidence that Mr Zhang threatened to go into bankruptcy. Neither piece of evidence required a finding. Mr Cao does not dispute he owes Mr Zhang $100,000; he refuses to pay this amount because he sets it off against the money he is owed for Pleasant Way. Whether Mr Zhang threatened bankruptcy or not is no more than background evidence that has no material impact on the outcome of the Virginia Street claim. Accordingly, no specific finding was required. The same applies to Mr Zhang’s complaint the Judge made no specific finding regarding the lapsing of the caveat over the title to Virginia Street. The reasons for the caveat and its lapse are immaterial to the outcome of the Virginia Street claim. I do not propose to go through every instance of the Judge omitting to mention a finding as identified by Mr Zhang. I have considered each and every one of them and they are immaterial to the outcome. The factual and legal findings I have reached are enough to satisfy me that the conclusions I have reached are right.
[105] The Virginia Street claim was brought by ZHZ alone. The company sought to make its case on the premise the original contract was varied to the extent that
$100,000 was to be paid within the stated time frame to Qi Zhang as director of ZHZ. In other words Mr Zhang was to be paid the funds on behalf of ZHZ. If this were so ZHZ would be entitled to sue on the October acknowledgement. However, I have found the variation to mean something else, which in turn limits standing to sue
to Mr Zhang. Accordingly, I am satisfied that ZHZ cannot sue on the variation to enforce its terms. For this reason the appeal by ZHZ must fail.
[106] The notice of appeal was filed by Mr Zhang and by ZHZ. Mr Zhang was a defendant in Mr Cao’s claim and ZHZ was plaintiff in the claim against Mr Cao. Mr Zhang and ZHZ were both unsuccessful in the District Court, and so each could bring appeals against the decisions Judge Cunningham had made in respect of each of them. In the notice of appeal they have identified points on appeal globally, without attributing the alleged errors of the Judge to either of them. That said, neither of them can appeal against a decision that was not made directly against him or it. Accordingly, despite the superficial appearance of the notice of appeal including Mr Zhang in the appeal against the Judge’s decisions in relation to Virginia Street, Mr Zhang has no standing to appeal against those decisions as the claims made in respect of that property were made by ZHZ alone.
General comment
[107] In Austin, Nichols & Co Inc v Stitching Lodestar,23 the Supreme Court outlined the approach to a general appeal and referred to:
… the “customary” caution appropriate when seeing the witnesses provides an advantage because credibility is important. Such caution when facts found by the trial judge turn on issues of credibility is illustrated by Rae v International Insurance Brokers (Nelson Marlborough) Ltd and Rangatira Ltd v Commissioner of Inland Revenue.
(footnotes omitted)
[108] In the present case, having carefully considered the notes of evidence, the exhibits and the submissions made by counsel I can see no proper basis for interfering with the credibility findings of Judge Cunningham. Where I have been able to assess the Judge’s findings against the available extrinsic evidence I have found nothing that would persuade me to adopt the version of the evidence advocated by Mr Zhang. Nor do the circumstances inferentially support the version
of events for which he advocates.
23 Austin, Nichols & Co Inc v Stitching Lodestar [2008] 2 NZLR 141 (SC) at [13].
Concerns regarding recovery of moneys relating to Pleasant Way
[109] I have referred to the lack of commercial purpose in the arrangements for the sale of Pleasant Way to Mr Cao. I have also referred to the arrangements having the apparent benefit of allowing one mortgage to be replaced with a higher mortgage, with Mr Zhang having use of those funds. I consider more explanation is required from the parties as to the purpose of the arrangement before Mr Cao can be permitted to recover the funds I have found are owing to him by Mr Zhang. Accordingly, I propose to resume the hearing of the appeal on this point only.
[110] I direct there is to be a telephone conference for the purpose of setting a timetable for the filing of further submissions relevant to the above. A minute will issue on this topic.
[111] I propose to issue this judgment as an interim judgment.
Result
[112] Insofar as the appeal relates to the claim brought by Mr Cao against Mr Zhang for payment of the sum of $23,000 (being the small loans), Judge Cunningham’s decision is upheld. Mr Cao is entitled to recovery of that sum.
[113] Insofar as the appeal relates to the claim by ZHZ that Virginia Street was sold to Mr Cao for the higher sum of $620,000, which is available by way of set-off against moneys Mr Cao is owed from the sale of Pleasant Way, Judge Cunningham’s refusal to make a declaration to this effect is upheld. There is no such right of set- off.
[114] Insofar as the appeal relates to the claim by ZHZ to recover the sum of
$100,000 from Mr Cao for the sale of Virginia Street, Judge Cunningham’s dismissal
of this claim is upheld. ZHZ cannot recover this sum.
[115] To the above extent, the appeal brought by ZHZ and Mr Zhang is dismissed.
[116] Insofar as the appeal relates to money owing from the sale of Pleasant Way the outcome of the appeal will be determined in a later judgment.
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