Zheng v Qiu HC Auckland CIV 2006-404-5720
[2007] NZHC 1827
•11 June 2007
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2006-404-5720
BETWEEN KEQING ZHENG AND XIAOLING YU First Appellants
ANDGOLDEN INTERNATIONAL TRADING (NEW ZEALAND) LTD
Second Appellants
ANDTAOXING QIU AND LIHUA YU Respondents
CIV 2006-404-5721
AND BETWEEN TAOXING QIU First Appellant
ANDLIHUA YU Second Appellant
ANDKEQING ZHENG First Respondent
ANDXIAOLING YU Second Respondent
ANDGOLDEN INTERNATIONAL TRADING (NEW ZEALAND) LTD
Third Respondent
Hearing: 16 May 2007
Appearances: M Locke for the appellants
I F Williams for the respondents
Judgment: 11 June 2007
JUDGMENT OF STEVENS J
This judgment was delivered by me on Monday, 11 June 2007 at midday pursuant to r 540(4) of the High Court Rules.
Registrar/Deputy Registrar
ZHENG AND YU AND ANOR V QIU AND YU HC AK CIV 2006-404-5720 11 June 2007
Table of Contents
Para No
Introduction [1] Witnesses in District Court [5] Factual background
The house purchase [9]
The importing businesses [14] The agreement [18] The bidding competition [22]
Nature of appeal [27] Test on appeals by way of rehearing [29] Application to admit fresh evidence [32] Alleged loan of $75,000
Applicable law [40]
Approach of District Court Judge [48]
Discussion [52]
The currency of the company compensation
Submissions [56]
The Judge’s findings [61]
Discussion [62]
Compensation payable to the company
Submissions [63]
The Judge’s findings [68]
Discussion [71]
Conversion
The Judge’s findings [75]
Submissions [78]
Discussion [80] Result [82] Costs [84]
Introduction
[1] This appeal concerns a dispute between two married couples. One couple is Mr Taoxing Qiu and Ms Lihua Yu (Lihua), the other is Mr Keqing Zheng and Ms Xiaoling Yu (Xiaoling). Lihua and Xiaoling are sisters. A dispute arose between the parties in mid-2003, as a result of which two separate proceedings were filed in the District Court at Auckland. Because of an overlap in the factual background, the two sets of proceedings were consolidated.
[2] There was a three day hearing of the case in early August 2006 before Judge
J D Hole who issued a reserved decision on 25 August 2006. The facts are complex
and the Judge was called upon to resolve four issues. The first of these related to a claim for repayment of an alleged house loan of $75,000 from Mr Qiu and Lihua to Mr Zheng. Second, there was an issue as to the correct currency of an amount of compensation payable by Mr Qiu and Lihua to Golden International Trading (New Zealand) Ltd (the company), of which Xiaoling is the sole director and shareholder. Third, there was the issue of whether the company was entitled to payment of that compensation. Lastly, there was the question of whether Mr Qiu was entitled to withdraw the sum of $30,000 from the company’s bank account after an agreement had been reached between the two couples to separate the wholesale and retail operations of businesses they had operated together.
[3] The Judge concluded that the claim for repayment of the loan had not been made out and it was dismissed. As to the second and third issues, he found that the company was entitled to compensation from Mr Qiu and Lihua in the sum of Y150,000 (i.e. renminbis in Chinese currency), together with interest at the rate of
7.5% per annum. In respect of the conversion claim, the company was entitled to judgment against Mr Qiu for $30,000 together with interest at the rate of 7.5% per annum and costs.
[4] Mr Qiu and Lihua have appealed against the dismissal of the claim for repayment of the loan of $75,000. They have also appealed against the finding of liability in respect of the claim by the company for payment of the compensation owed. There is no appeal by them on the quantum of that award and indeed they support the decision that, if owed, the amount of compensation is Y150,000. They finally appeal against the decision requiring payment of $30,000 together with interest for conversion. On the other hand, Mr Zheng and Xiaoling have appealed against the finding that the currency of the compensation payable to the company was found to be in yuan and not NZD150,000. They have also appeal against the finding that the interest rate in respect of such amount was set at 7.5% per annum.
Witnesses in District Court
[5] In support of the case advanced in the District Court by Mr Zheng and
Xiaoling, evidence was given only by Mr Zheng himself and an interpreter. In
respect of the case advanced by Mr Qiu and Lihua, evidence was given inter alia by
Mr Qiu, Lihua, her father Shi Xiong Yu and her mother, Xue Mei Zhong.
[6] Many of the documents presented to the Court were in Mandarin and had been translated by interpreters into English for the purposes of the hearing. The interpreters also gave evidence about the documents they had translated and about issues in dispute in the case.
[7] It is important, in the context of the appeal, to understand what the Judge made of the witnesses and their credibility. At [20] of his decision, he stated:
Except for the father and the two translators, all the witnesses (in one way or another) had an interest in the outcome of the proceedings. I gained the distinct impression that these witnesses were intent in presenting to the Court their version of what happened in a way that would best suit their individual purposes. This does not mean that I think that they were deliberately telling lies with the aim of misleading the Court. Rather, however, they did not appear to appreciate the difference between giving truthful evidence and advocating their own respective causes. Thus, in reaching the conclusions set out in this judgment, I have paid little attention to the verbal testimony of the witnesses and have reached most of my conclusions from the documentary evidence (such as is available).
[8] Such conclusions are relevant on appeal since, although the High Court deals with the case by way of a rehearing, there are clear limits upon the Court in going behind factual findings and the Judge’s views on credibility. This is discussed further below. Moreover, in the absence of credible and reliable evidence from the witnesses (including Mr Zheng, Mr Qiu and Lihua), the Judge was left to rely for the most part on such documentary material as was produced in support of the respective cases.
Factual background
The house purchase
[9] Following their arrival in New Zealand in 1995, Mr Qiu and Lihua commenced an importing business with goods sourced from China for resale here. At their invitation, Mr Zheng and Xiaoling emigrated from China in March 2002. In
the early days, they lived in the home of Mr Qiu and Lihua and relied heavily on them as they spoke no English. Such living arrangements were not satisfactory long term and on 8 May 2002, Mr Qiu and Lihua signed an agreement to purchase a property at 17 James Tyler Crescent, Lynfield, on behalf of Mr Zheng and Xiaoling. The agreement was conditional on finance. The intention was that this property would be occupied by Mr Zheng, Xiaoling and their family.
[10] The agreement for sale and purchase required a deposit of $15,000. It is agreed that Mr Qiu and Lihua lent $15,000 to Mr Zheng and Xiaoling by paying the
$15,000 deposit to the estate agents on 15 May 2002. About a week later, Mr Qiu and Lihua lent Mr Zheng and Xiaoling a further $60,000 which was paid into their bank account at the ASB. This brought the total amount lent to $75,000. Subsequently, mortgage finance for the purchase of the property was approved by the ASB.
[11] On 4 June 2002, Mr Zheng and Xiaoling transferred $60,000 from their bank account to the bank account of Mr Qiu and Lihua. It is agreed that this transfer occurred and that it was a repayment of the earlier loan of $60,000. The parties are in dispute as to whether the repayment was final or temporary. Interest on the loan covering a 14 day period in the sum of $168.00 was paid.
[12] On 27 June 2002, the sum of $60,000 was paid by Mr Qiu to Mr Zheng and Xiaoling. There was a bank transfer of $43,000 and $17,000 was paid in cash. The parties agree that this payment was made. What is in dispute is whether these funds were a re-lending of the earlier loan of $60,000 or repayment of an amount said to be the sum of USD40,000 (NZD81,000) that Mr Zheng and Xiaoling say had been brought to New Zealand and given to Mr Qiu and Lihua for the purposes of changing from US into New Zealand currency.
[13] With respect to the ownership of the property at 17 James Tyler Crescent, Lynfield, there was a letter dated 24 May 2002 from solicitors acting for Mr Qiu and Lihua which advised the solicitors for the vendor that the transferees of the property would be Mr Zheng and Xiaoling. The purchase of the property was completed on
28 June 2002 in the names of Mr Zheng and Xiaoling. They then left the home of
Mr Qiu and Lihua to live in their new residence.
The importing businesses
[14] The parties had agreed in February 2002 that they would together set up a business selling goods imported from China. There was to be a warehouse operation carried on at leased premises at 40 Carr Road, Mt Roskill. A retail shop was to be set up at 422 Great South Road, Otahuhu. The company was incorporated for the purpose, it seems, of running both businesses. For reasons that are not apparent from the evidence, the sole director and shareholder of the company was Xiaoling. Although both couples were involved in setting up the warehouse and retail store businesses, it is not entirely clear what the extent of the involvement of Mr Qiu and Lihua was in their operation.
[15] The Judge found that Mr Zheng and Xiaoling were fully involved in the businesses. He accepted that Mr Qiu and Lihua also played a role, although they did own another business. Part of the role undertaken by Mr Qiu was in respect of the operation of the company’s bank account. Furthermore, Mr Qiu was involved in any dealings with institutions because of his greater ability with the English language. The Judge accepted that, despite protestations to the contrary, Mr Qiu and Lihua played a significant role in the operation of the businesses and knew well what went on.
[16] Later the two families fell out. By the end of June 2003, the two couples realised that their problems were such that their business activities would need to be separated. On 3 July 2003, Mr Zheng and Xiaoling and Mr Qiu and Lihua had a meeting at the home of the latter couple to discuss how to divide the two businesses between them. The idea was that they would then pursue separate business activities and lead separate lives. Lihua and Xiaoling’s father, Mr Yu, was present at the meeting to take notes. He had recently arrived in New Zealand on a visit from China. There is no dispute that the meeting took place and that an agreement was reached. It is recorded in several documents presented in the District Court.
[17] There are two important documents, the originals of which were written by the father. The first is described in one translation as “Minutes on discussion on dissolving partnership”. The second document is simply headed in the translation “Agreement”. Both documents were signed by all four of the parties. The agreement was witnessed by the father.
The agreement
[18] There were apparently two translations of these documents before the Court. The Judge seems to have relied primarily on the translations of the two original Mandarin documents which were referred to as document 44 (the minutes) and document 46 (the agreement). The Judge observed that the translations differed in a number of respects but noted that the nature of the arrangement can be ascertained from these two documents. For convenience, the documents are set out in full below:
DOCUMENT 44
Translation from Chinese
JIN YUAN [TWO CHARACTERS ILLEGIBLE] BAI HUA GONG SI MINUTES ON DISCUSSION ON DISSOLVING PARTNERSHIP
1. Time: 8.30pm, 3 July 2003
2. Venue: Taoxing Qiu’s home
3. Attendants: Taoxing Qiu, Lihua Yu, Keqing Zheng and Xiaoling Yu
4. Minutes Recorder: Shixiong Yu
5. Contents of Discussion
1) Assessment of the Company’s and the shop’s current status: The company was established in March 2002. Throughout the year, the wholesale warehouse had a turnover of approximately 1.2 million, with a gross profit of 300,000 – 400,000 yuan. However, the shop performed poorly and made a loss.
2) The wholesale company sells its independent operating rights. Market value of this is 300,000 yuan. The party who gains the operating rights should compensate the other party with 100,000 yuan (the internal discounted price).
3) The retail shop has three more year’s [sic] tenancy and its annual rental and other expenses (excluding wages and office expenses) are around
100,000 yuan. Under such circumstances that the shop runs at a loss, the party who gains the warehouse operating rights shall grant the party who
gains the shop operating rights the existing commodity stock at the shop.
The warehouse stock is owned by both parties, at 50:50. After the establishment of the partnership dissolving agreement, the stock shall be immediately inventoried and distributed.
Issue of Debtors: Both parties are responsible for chasing the debtors. One party should immediately notify the other about any debts successfully retrieved. If there is a failure to do so, regardless of the amount, a penalty of
1,000 yuan will be applied. Xiaoling is to make a list of debtors and debt collecting assignments.
Existing fixed assets remain where they are, except for the warehouse laser printer which shall be for shop usage.
The party who gains the warehouse operating rights should make a full payment of the transfer fee of 100,000 yuan, within two months from the effective date of the agreement. Interest of 1% shall apply to any unpaid sum.
The commodity stock of the warehouse must be made a 50:50 accounts transfer.
Stock assigned to the party who fails to gain the warehouse operating rights should be removed from the warehouse within two months. If there is a failure to do so, a quarter of the warehouse rental should be covered accordingly.
Following the signing of the agreement, from the effective date, after tonight’s discussion, newly purchased stock belongs to the warehouse.
Expenses of both the warehouse and the shop up to the end of July 2003, excluding wages, shall all be paid by the original company.
The above decisions are made by both parties, following serious discussions. A formal agreement shall be drawn up after the minutes have been finalised.
Signed by: Keqing Zheng Xiaoling Yu Lihua
Taoxing Qiu
Dated: 2 July 2003
DOCUMENT 46
Translation from Chinese
AGREEMENT
Gollden-it [sic] Jin Yuan Bai Huo Gong Si owns 40# Carr Warehouse and Otahuhu Golden make [sic] Shop. In 2002, the warehouse made a profit, but the shop made a loss.
Currently, Xiaoling Yu and Taoxing Qiu respectively own 50% of the above assets. They have now decided to split the operation, yet both parties wish
to run the warehouse. Following negotiations, both parties agreed as follows:
1) The warehouse shall be sold through a bidding competition, i.e. one party makes an offer, the other party counter-offers and the highest bid wins. Should there be no counter-offer, the warehouse goes to the party who made the offer.
2) The successful warehouse bidder cannot take the shop as well. Vice versa, the other party has to operate the shop according to the distribution agreement.
Party A Party B
Signed by: Lihua Yu and Signed by: Keqing Zheng and
Taoxing Qiu Xiaoling Yu
[signed] [signed]
Witnesses by: Shixiong Yu [signed] Date: 3 July 2003
Lihua Yu is willing to bid 150,000 yuan for the warehouse; Taoxing Qiu is willing to bid 150,000 yuan for the warehouse
Notes taken by : Shixiong Yu [signed]
The other party, Xiaoling Yu is unable to counter-bid.
10.30pm 3 July 2003
Notes taken by: Shixiong Yu [signed] Effective from today.
10.35pm 3 July 2003
[19] The other translation of the minutes (document 43) has different wording in paragraph 2. In particular, it appears to have more detail and refers to the “intangible assets of the wholesale company”. The full translation of paragraph 2 in document
43 is as follows:
The wholesale company sells its independent operating rights. Market value of this is 300,000 yuan. Based on an “internal discounted price”, one party should compensate the other with 100,000 yuan, i.e. it is understood that the operating rights of the wholesale company is currently worth over 300,000 yuan. Taking into account that “internal priority consideration was given”, the operating rights holder shall pay 100,000 yuan to the other party.
The intangible assets of the wholesale company are worth approximately
300,000 yuan. The party who gains the operating rights should compensate the other party with 100,000 yuan (internal discounted price).
[20] The minutes were taken by Mr Yu to record the essential ingredients of what he understood to be the discussion between those present at the meeting on 3 July
2003. The minutes show that the topics discussed included an assessment of the current status of the company and the shop. There was a reference to the turnover of the wholesale warehouse and the gross profit. The parties acknowledged that “the shop performed poorly and made a loss”. There was a reference to the market value of the “wholesale company” and a comment that “the party who gains the operating rights should compensate the other party with 100,000 yuan…”. There was a description of the certain features of the retail shop. Various other issues were canvassed including ownership of the warehouse stock, the issue of debtors, the fact that fixed assets were to remain where they were and certain other aspects flowing from a splitting of the warehouse and retail shop businesses. It was plainly envisaged by the parties that, following the discussions, there would be the signing of an agreement between them. It was noted that “the above decisions are made by both parties, following serious discussions. A formal agreement shall be drawn up after the minutes have been finalised.” All four parties signed the minutes.
[21] When the agreement was written up by Mr Yu, there was an explicit reference to the decision to “split the operation”. It was noted that both parties wished to run the warehouse, no doubt because the warehouse business at Mt Roskill was very profitable, whereas the retail shop in Great South Road was performing poorly and making a loss. The agreement reflects the decision of the parties that the warehouse should be sold through a bidding competition on the basis that one party made an offer, the other party counter-offered and the highest bid would win. If there was no counter-offer, then the warehouse would go to the party that made the offer. It was accepted that whoever bid successfully for the warehouse could not take the shop as well. The agreement was signed by all parties and witnessed by Mr Yu. It was dated 3 July 2003.
The bidding competition
[22] Following the making of the agreement, a bidding process was entered into. It is recorded in document 46 that Mr Qiu and Lihua won the bidding. Mr Yu’s note records that Lihua was “willing to bid 150,000 yuan for the warehouse”; Mr Qiu was
“willing to bid 150,000 yuan for the warehouse”, but that Xiaoling was “unable to counter-bid”. The notes of the bidding competition were timed at 10.30pm on 3 July
2003 and stated to be “effective from today”.
[23] There was a dispute between the parties as to whether the bid made in the competition was intended to be Y150,000 or NZD150,000. That was one of the issues heard and determined in the District Court. It was common ground that Mr Qiu and Lihua have never paid Mr Zheng and Xiaoling or the company the compensation resulting from the bidding competition. The obligation of Mr Qiu and Lihua to pay such compensation was also an issue decided in the District Court.
[24] Although the agreement was to become effective, according to its terms “from today”, the cheque book of the company remained with Mr Qiu and Lihua, even though Xiaoling was the sole shareholder and director of the company. According to Mr Zheng and Xiaoling, on 14 July 2003 the parties agreed that control of the company bank account should be with Mr Zheng and Xiaoling. Mr Qiu and Lihua denied that there was any such agreement. In the alternative, they say that if there was such an agreement, it was not supported by any consideration. There is no dispute that on 21 July 2003 Mr Qiu withdrew the sum of $30,000 from the bank account for the retail store and paid that sum into the bank account of Lihua and her mother. On 30 July 2003, Mr Qiu apparently transferred control of the bank account of the company to Mr Zheng and Xiaoling.
[25] It is clear from the documents 44 and 46 that no detailed consideration was given to the position of the company in respect of the proposed transaction to split the businesses. The Judge nevertheless concluded that all parties recognised that the circumstances leading to the agreement showed that the party who was to receive the retail shop premises and the compensation following on from the bidding competition was in fact the company and not Mr Zheng and Xiaoling. That point was not seriously disputed in the appeal.
[26] The factual background may be completed by reference to the fact that Mr Zheng and Xiaoling, in September 2004, issued proceedings against Mr Qiu and Lihua in respect of the outstanding compensation payable to the company and the
conversion of the sum of $30,000. Mr Qiu and Lihua filed proceedings seeking repayment of the alleged loan of $75,000 in November 2004. As noted, the proceedings were consolidated and the various claims heard together.
Nature of appeal
[27] This is a general appeal under s 72 of the District Courts Act 1947. Section 75 of that Act provides that all appeals should be by way of rehearing. This also accords with r 718 of the High Court Rules (the Rules). That rule provides that “all appeals must be by way of rehearing”.
[28] Under s 76 of the District Courts Act, the High Court has broad powers on appeal including a power to make any decision it thinks should have been made in the District Court.
Test on appeals by way of rehearing
[29] The meaning of the expression “appeals must be by way of rehearing” has been discussed in McGechan on Procedure at HR718.01:
The expression “appeal by way of rehearing” has a technical meaning. It does not mean that the court starts with a clean slate. It does, however, have to come to its own conclusion, based on the material presented before the decision-maker, and any further evidence which has been admitted. This rule will apply if the statute conferring the appeal right does not clearly specify another approach: Kelly v LSA (2004) 17 PRNZ 449.
In Pratt v Wanganui Education Board [1977] 1 NZLR 476 it was held that there is not a complete rehearing, as for example in the case of a new trial, but the appeal is to be determined by the Court considering for itself the issues which had to be determined at the original hearing and the effect of the evidence then heard as it appears on the record of the proceedings but applying the law as it is when the appeal is heard and not as it was at the time of the original hearing.
The question was discussed in some detail by the Court of Appeal in Rae v
International Insurance Brokers (Nelson Marlborough) Ltd [1998] 3 NZLR
190 (CA), where Tipping J (for the majority) said (at p 198):
“Any tendency or wish to engage in a general factual retrial must be firmly resisted. This Court will not reverse a factual finding unless compelling grounds are shown for doing so.”
[30] The decision of Rae has been subsequently approved on a number of occasions: see for example Stemson v AMP General Insurance (NZ) Ltd [2007] 1
NZLR 289 (PC) and Urbani v Gillions & Sons Ltd (2004) 17 PRNZ 112 (SC). Rae involved an appeal against a finding of the High Court regarding whether a particular conversation had taken place. Tipping J concluded at 198 (as noted in McGechan above) that, while appellants often wish to treat appeals as retrials of fact, the Court will not reverse a factual finding unless compelling grounds to do so are shown. The two circumstances in which an appeal Court could intervene were discussed at 197. The first is where the conclusion reached was not open on the evidence, i.e. where there was no evidence to support it. The second is where the Court on appeal is satisfied that the trial Judge was plainly wrong in the conclusion reached: see Moodie v Agricultural Ventures Ltd [1998] 3 NZLR 129 (CA) at 132.
[31] In Rae, Thomas J further clarified the situation regarding retrials of fact in the course of a separate and more detailed, though concurring, judgment. At 199, he stated that the trial Judge (here the District Court Judge) possesses numerous advantages in determining matters of fact: seeing witnesses firsthand to get an impression of reliability or credibility; an ability to gain an impression of the evidence based on more than the “cold typeface of the transcript”; the completeness of the picture presented at the hearing; and the firsthand impression of the probabilities inherent in the circumstances traversed in evidence. In short, Thomas J concluded that there has been “too great a willingness to explore a trial Judge’s findings of fact and too little regard to the advantages which that Judge enjoyed in the area of fact finding”.
Application to admit fresh evidence
[32] Several days after the hearing of the appeal, Mr Locke for Mr Zheng and Xiaoling filed an application for leave to admit further evidence pursuant to r 716 of the Rules. The application was supported by an affidavit of Mr Zheng which, far from setting out the new evidence and addressing the pre-conditions which must be established before the Court could allow such an application, was a partisan re-
advocacy of part of the case on the currency point. The application was opposed, the terms of such opposition being contained in a detailed memorandum from Mr Williams for Mr Qiu and Lihua. In summary, it was submitted that this was an attempt to re-open the case after the appeal hearing had formally closed in circumstances where the reasons for the late application were not adequately explained. Moreover, the evidence was not new or fresh in the sense that it could with due diligence have been discovered at an earlier stage. Also, the evidence was not cogent and would have made no material difference to the result of the appeal.
[33] Rule 716 applies to applications for leave to adduce further evidence for the purposes of an appeal. The provisions of the rule contemplate an application being made before the appeal is heard. The rule relevantly provides:
(1)A party to an appeal may, without leave, adduce further evidence on a question of fact if the evidence is necessary to determine an interlocutory application that relates to the appeal.
(2)In all other cases, a party to an appeal may adduce further evidence only with the leave of the Court.
(3)The Court may grant leave only if there are special reasons for hearing the evidence, for example, if the evidence relates to matters that have arisen after the date of the decision appealed against and that are or may be relevant to the determination of the appeal.
…
[34] The commentary in McGechan on Procedure at HR716.01 and HR716.02 discusses r 716 as follows:
HR716.01 Further evidence on appeal
In general, an appeal proceeds on the evidence which was presented to the decision-maker, and the parties do not have an opportunity to bolster their case with new evidence on appeal. Apart from evidence in interlocutory applications relating to the appeal, new evidence can only be adduced with the leave of the Court.
…
HR716.02 Requirements for granting leave
The general test is that the evidence must be cogent and likely to be material, and that it could not reasonably have been discovered at an earlier stage. In Telecom Corp of NZ Ltd v Commerce Commission [1991] 2 NZLR 557; (1991) 3 PRNZ 259 (CA), the Court disapproved of any notion that the appeal should be regarded as a new trial, with the previous hearing acting as a “dummy run”.
[35] On the basis described in the above commentary, it is extremely doubtful, in my view, that Mr Zheng and Xiaoling would have been successful in an application to adduce further evidence, even if it had been filed and dealt with before the appeal was heard. But this application was after the hearing. Mr Williams argued that the test for granting leave in those circumstances is restrictive and he cited the commentary from McGechan on Procedure at HR487.07 which discusses the principles applicable to applications to call evidence at trial after the party has closed its case in a civil trial.
[36] But I consider the better approach is to apply by analogy the approach followed by the Court of Appeal when dealing with applications for leave to adduce fresh evidence under the Court of Appeal Rules, but bearing in mind that this application was only filed after the hearing of the appeal and before judgment. The principles applied by the Court of Appeal are conveniently summarised in the context of the then applicable r 36 of the Court of Appeal Rules 1955 in Rae by Tipping J at 192-193 as follows:
The principles upon which further evidence is admitted are designed to balance the interests of the person seeking to adduce such evidence on the one hand with the interests of the opposite parties on the other. They are also designed to reflect the public interest in ensuring, so far as is possible, that parties put up their best case at trial. Any other approach would be very wasteful of public resources. The conventional requirements are that the further evidence must be fresh, it must be credible and it must be cogent. Evidence is not regarded as fresh if it could with reasonable diligence have been produced at the trial.
Mr Fardell properly accepted that the intended further evidence in this case was not fresh. While the absence of freshness is not an absolute disqualification, the criteria for admission in such circumstances must be very strict. In our view, when the evidence is not fresh it should not be admitted unless the circumstances are exceptional and the grounds compelling. In addition, it will need to pass the tests of credibility and cogency.
[37] Applying these principles, I agree with Mr Williams that Mr Zheng and Xiaoling have not made out any of the required pre-conditions for leave to be granted. First, the evidence is not fresh. Plainly, with any reasonable diligence all of the evidence referred to in Mr Zheng’s affidavit would have been able to be
presented at the hearing of the appeal (if leave had been sought and granted), if not at the hearing in the District Court. Then there is the question of relevance. The factual material concerned relates to the costs and expenses of running the retail shop. Mr Williams contended, correctly in my view, that such contemporary documents can have no relevance to the points for decision on the currency used by the bidders in the competition. The bid price was not related to actual costs and expenses. Neither was it related to market value. To open up that issue at this late stage would be to embark on a completely new line of inquiry which was raised neither before the Judge nor argued on the appeal.
[38] Accordingly, Mr Zheng and Xiaoling have not established that the evidence is cogent in the sense that it is likely to have a material bearing on the case and might reasonably lead to a different result. Furthermore, I do not consider that the circumstances are exceptional nor that there exist compelling grounds for allowing the application to adduce fresh evidence prior to judgment. In my view, the above reasoning applies with even greater force, given that the application was filed after the appeal had been fully argued in the High Court.
[39] Accordingly, the application filed on behalf of Mr Zheng and Xiaoling is dismissed. I propose to deal with the legal and factual matters as they were canvassed at the hearing of the appeal and based on the written and oral submissions of counsel.
Alleged loan of $75,000
Applicable law
[40] Mr Williams first addressed the issue of repayment of the alleged loan of
$75,000 to Mr Zheng and Xiaoling. He argued that three amounts were loaned by Mr Qiu and Lihua to Mr Zheng and Xiaoling. These were the $15,000 for the deposit for the house purchase on 15 May 2002, the sum of $60,000 on 21 May 2002 (which was repaid on 4 June 2002) and the further sum of $60,000 on 27 June 2002.
[41] Mr Williams submitted that the amount outstanding of $75,000 made up of the amounts paid on 15 May and 27 June respectively were prima facie advances by way of loan. Hence, when the payment of any money is acknowledged, this imports an obligation to repay unless the circumstances suggest an advancement: see Seldon v Davidson [1968] 1 WLR 1083 (CA) at 1088 per Willmer LJ and at 1090 per Edmund Davies LJ. He submitted that, where the circumstances did not give rise to a presumption of advancement, any money paid to another gives rise to an obligation to repay within a reasonable time. The onus is then on the recipients to establish that the money was intended to be a gift in order to rebut the notion that there is an obligation to repay. He submitted that there was no suggestion that the $75,000 was intended as a gift.
[42] The Seldon case cited by Mr Williams supports the proposition that payment of money having been admitted, prima facie that payment imports an obligation to repay in the absence of any circumstances tending to show anything in the nature of a presumption of advancement. But the facts in Seldon are different to the present case. There, the circumstances in which the money was advanced were quite clear. This is apparent from the observations of Willmer LJ at 1088:
There is a very scanty authority on this subject. The researches of counsel took us back to the year 1801, and we were referred to Cary and Others, Executors of Greatorex v Gerrish [(1801) 4 Esp 9]. That is a case which no doubt bears a certain similarity to the present case, but it is, I think, distinguishable on grounds which appear from the judgment of Lord Kenyon. When this question was discussed before him, he said:
No evidence is offered of the circumstances under which the draft was given; it might be in payment of a debt due by the testator: or the defendant might have given cash for it at the time.
No such considerations arise in the present case; indeed they are clearly ruled out, because we have from the defendant in this case a clear admission of the payment of the money, and no suggestion that it was paid in settlement of an existing debt, or that it was given in return for cash, or anything of that sort. In the absence of any such circumstances, money paid by the plaintiff in circumstances such as these is prima facie repayable on demand. If the defendant seeks to evade repayment of the money which was paid to him, it seems to me that the judge was right in placing the onus upon him to prove the facts which he alleges show that the money was not repayable.
(emphasis added)
[43] The point was also discussed in the judgment of Edmund Davies LJ who at
1090 also referred to the dictum of Lord Kenyon in Cary cited above and stated:
None of those possibilities arise in the present case. It is clear from the assertion contained in the defence that the advancements were made by way of gift, that no question here arises of the plaintiff repaying by the advancements a debt which she owed to her employee, nor is there any question of the defendant having given cash in return for the cheques drawn by the plaintiff. Again, if one turns to the only other case cited in Chitty on Contracts, 22nd ed, Vol. 2 (1961), p 413, Welch v Seaborn[(1816) 1 Stark
474], the facts are quite distinguishable. There, the assignees of a bankrupt, in order to establish the petitioning creditor’s debt, proved that a sum of
money had been paid over, and Lord Ellenborough, whose judgment is
reported in a mere three-and-a-half lines, is said to have been
Of opinion that there was not sufficient evidence to leave it to the jury, whether this money had been advanced … by way of loan, since the presumption of law was, that money when paid is paid in liquidation of an antecedent debt.
Again, the state of the pleadings in the present case rules out any such presumption.
Accordingly, one is really driven back to consider this matter without the assistance of authority and, being so unassisted, I ask myself what is to be inferred as to the nature of the transaction when the simple payment of money is proved or admitted between strangers. I entirely agree with my Lord that, on that bald state of affairs, proof of payment imports a prima facie obligation to repay the advancement in the absence of circumstances from which presumption of advancement can or may arise.
(emphasis added)
[44] It seems clear that the Court of Appeal in Seldon was speaking about a factual presumption that it was prepared to apply in the particular circumstances of that case. A factual presumption is to be distinguished from a presumption of law (which may be rebuttable or irrebuttable) depending upon its nature and legal characterisation. The basic difference between presumptions of fact and law is the source from which they are derived. Presumptions of law are derived from the law (for example from statute) whereas presumptions of fact are derived from logic and common sense. The distinction between the two types of presumption is succinctly described in Cross on Evidence (8ed 2005) at 1.65:
The word “presumption” is used in a variety of senses. Sometimes it merely means a permissible inference, as that someone who receives goods shortly after they have been stolen is aware of the theft, in which case it is said to be a “presumption of fact”. Sometimes it means a conclusion which must be
drawn as a matter of law unless and until evidence of the requisite cogency is given to the contrary, in which case it is said to be a “presumption of law”.
[45] It is also possible to classify presumptions in terms of presumed fact and basic fact and the burden of proof to which they give rise, rather than by the basic analysis of presumption of fact or of law. A conclusion that a fact exists (the “presumed fact”) may or must be drawn where some other fact is proved (the “basic fact”). The important distinction between the types of presumption then rests on the burden of proof. Some presumptions cast an evidential burden: the presumed fact must be inferred in the absence of further evidence to the contrary. Others cast a legal burden: the presumed fact must be inferred, unless the trier of fact is persuaded of its counter. For discussion of this classification of presumptions, see for example Cross on Evidence at 4.24.
[46] With respect to factual presumptions, both the judgments of Willmer and Edmund Davies LJJ in Seldon make it clear that it is not in every case that the factual presumption (which they found could apply from a payment of money) would be held to apply. In fact, the circumstances in the 19th century cases of Cary and Welch were examples in which the presumption did not apply. The principle that the English Court of Appeal was endorsing in Seldon was that the presumption might not apply in circumstances where the payment was made in settlement of an existing debt, or was given in return for cash or something of that nature. Such an approach
is consistent with the notion that, in the case of factual presumptions, the Court may or may not decide to apply them depending upon the particular circumstances of the case: see Cross & Tapper on Evidence (9ed 1999) at 113-114.
[47] The quotation from Cross on Evidence cited above at [44] illustrates a critical distinction: Courts may rely on presumptions of fact as they are permissible inferences. Courts must rely on presumptions of law. Further, in Phipson on Evidence (16ed 2005) at 6-18(c) the learned authors express the mandatory/permissive distinction as a defining difference between the two:
Presumptions of law are made by the court, and in the absence of opposing evidence are conclusive for the party in whose favour they operate and for the purpose for which they operate; presumptions of fact result in inferences drawn by the tribunal of fact, who may disregard them, however cogent.
Approach of District Court Judge
[48] First, the Judge correctly concluded at [23] of his decision that there was “no formal documentation recording the loan”. But what Mr Qiu and Lihua had relied on to support the loan was a document written in Mandarin by Mr Qiu on or about
4 June 2002. The Judge’s findings on this point are as follows at [24]:
The document consists of an ASB bank statement in the name of [Mr Qiu and Lihua] which records the repayment made on 4 June 2002 in the sum of
$60,000. Written underneath the statement (and it is this upon which
[Mr Qiu and Lihua] rely) is a written record by [Mr Qiu] recording the
$15,000 deposit paid to the real estate agent, the 21 May 2002 withdrawal of
$60,000 and the repayment of $60,000 on 4 June 2002. It also records the interest which it records as being 168 yuan, although the other sums
documented are in New Zealand dollars. It then states that there is a balance
of $757 which [Mr Qiu and Lihua] say was the $168 interest and $589 which was loaned to [Mr Zheng and Xiaoling] by [Mr Qiu and Lihua] for their food and day to day expenses. [Mr Zheng] says that the balance of $757 referred to the fact that there was exactly $757 (actually $757.22) left in [Xiaoling’s] bank account (which was controlled by [Mr Qiu]).
[49] Such findings were not seriously challenged on appeal. But counsel for Mr Zheng and Xiaoling contended that the $75,000 loan was repaid on 4 June 2002 as to $60,000 and shortly afterwards as to the balance of $15,000 by being deducted from funds brought from China by Mr Zheng and Xiaoling and given to Mr Qiu and Lihua to hold for them. This came about in the manner described by the Judge at [25]:
[Mr Zheng and Xiaoling] say that over the same period of time they had been bringing into New Zealand, in instalments, $81,000 from China. This had initially been converted from Chinese renminbis to American dollars and thence to New Zealand dollars. They say that when the monies arrived in New Zealand they gave them to [Mr Qiu] because they did not have the ability to operate a bank account on their own. They say that the $60,000 was repaid on 4 June 2002 because, by this time, their $81,000 had arrived in New Zealand and was available to them to complete the purchase. They say that the advance of $15,000 (being the deposit) was repaid when [Mr Qiu] deducted that sum from the $81,000 which he held on behalf of [Mr Zheng and Xiaoling]. The $60,000 which was advanced on 27 June 2002 comprised part of the $81,000 held by [Mr Qiu] on behalf of [Mr Zheng and Xiaoling].
[50] The Judge then drew the following conclusions on this part of the case at [26]
and [27]:
There is some support for [Mr Zheng and Xiaoling’s] position. Initially the house property was to be purchased in the names of [Mr Qiu and Lihua] (because [Mr Zheng and Xiaoling] had no money for its purchase). However, this was changed and the purchase was ultimately achieved in the names of [Mr Zheng and Xiaoling]. It is clear that [Mr Zheng and Xiaoling] had made loan applications to a bank to enable them to effect the purchase in their names. This evidence is by no means conclusive but it does indicate that the nature of the transaction changed from the time of the signing of the contract on 8 May 2002 to its settlement on 28 June 2002.
It may be a coincidence that the documentary evidence supporting [Mr Zheng and Xiaoling’s] claim of importing $81,000 into New Zealand at the relevant time indicates that they did have $81,000. $81,000 is close to the $75,000 which [Mr Qiu and Lihua] claimed that they loaned [Mr Zheng and Xiaoling].
[51] In view of the acknowledged repayment of the sum of $60,000 on 4 June
2002, the issue for the Court was establishing the nature of the payment by Mr Qiu and Lihua to Mr Zheng and Xiaoling on 27 June 2002. Was it a re-lending of part of the earlier loan, and did Mr Qiu and Lihua demonstrate that there was an obligation on Mr Zheng and Xiaoling to repay that amount? The Judge held there was no such obligation. He stated at [28]-[30]:
The so called written acknowledgement of 4 June 2002 proves absolutely nothing. It does not account for the $60,000 advance of 27 June 2002.
Ultimately, if the claim for $75,000 is to succeed, it is for the party claiming it, namely [Mr Qiu and Lihua], to prove that that sum was loaned to [Mr Zheng and Xiaoling]. There is no documentary evidence to support their claim. As previously indicated, the Court is not prepared to rely upon the oral evidence. There is evidence that [Mr Zheng and Xiaoling] had the funds in New Zealand (under the control of [Mr Qiu]) to complete the purchase of the house. There is a dispute as to whom the $60,000 advanced on 27 June 2002 belonged but there is no documentary evidence either way to support either party’s position.
I conclude, therefore, that [Mr Qiu and Lihua] are unable to satisfy me on the balance of probabilities that the $75,000 remains owing to them. Whilst the evidence supporting [Mr Zheng and Xiaoling’s] claim (that the $60,000 advanced on 27 June 2002 belonged to them personally) is inconclusive, at the end of the day the obligation lies with the claimants, [Mr Qiu and Lihua], to prove their claim. They have not done so.
Discussion
[52] The question is whether the Judge was correct to determine the case against
Mr Qiu and Lihua by an application of the burden of proof. It is clear that the Judge
did not, in the passages just quoted, analyse his approach in terms of the application of a factual presumption or discuss his reasoning by reference to the evidential or persuasive burdens of proof. On the ultimate issue of whether Mr Qiu and Lihua had established that there was a loan of $75,000 to Mr Zheng and Xiaoling that remained outstanding, the Judge applied the correct standard of proof. But the question of whether, in the circumstances of this case, the burden remained upon Mr Qiu and Lihua turns on whether the principle in Seldon applies or whether there were sufficient factors present to prevent the importation of an obligation to repay on a prima facie basis.
[53] Mr Williams submitted that the fact that the Judge had found that the evidence supporting the claim by Mr Zheng and his wife that the $60,000 advanced to them on 27 June 2002 belonged to them personally was “inconclusive”, necessarily meant that the Seldon principle applied. I do not agree. In this case, Mr Zheng and Xiaoling clearly had funds in a bank account in China which were withdrawn by them about the time of their emigration to New Zealand. Evidence of such withdrawals was available to the Court. They contended that they brought the sum of USD40,000 in cash to New Zealand and gave it to Mr Qiu to convert into New Zealand currency. When converted, Mr Qiu would have had NZD81,000 which was held on their behalf. The Judge considered at [26] that there was “some support for [this] position”.
[54] But the fact that at [30] the Judge considered such evidence to be “inconclusive” does not mean that he failed to adjudicate on the issue. Neither does it necessarily follow that the Seldon principle must apply. In my view, what the Judge was really saying was that, despite the fact that he could not reach a concluded view, the allegations raised and the factual circumstances of the relationship between the parties and their complex dealings around mid-2002 were such that he was not prepared to say that the $75,000 was prima facie repayable to Mr Qiu and Lihua. On the contrary, the circumstances were more akin to those found in the cases of Cary and Welch. Accordingly, given the denials of a loan and the contrary allegations that the $60,000 was repayment of the funds held on their behalf, this was an appropriate case to apply the normal burden of proof which Mr Qiu and Lihua had failed to discharge.
[55] These are very much factual issues which the Judge was able to, and did, resolve. The fact that his reasoning may have been somewhat economical or indeed elliptical does not mean that the appellants have established that the Judge was plainly wrong. I conclude that this ground of appeal has not been made out.
The currency of the company compensation
Submissions
[56] Mr Zheng and Xiaoling contended that the Judge erred in finding that the currency in which the parties negotiated and contracted to compensate them through the company for acquiring the warehouse business was in the currency of the renminbi and not the New Zealand dollar. They also challenged the finding that the interest rate agreed between the parties in respect of such compensation was imprecisely stated to be understood and that the interest payable should be fixed at a rate of 7.5% per annum under s 62B of the District Courts Act 1947.
[57] Mr Locke submitted in summary, that the Judge erred:
a) In failing to appreciate, or give sufficient weight to, the fact that the term “yuan” used in the agreement and in the minutes is a generic term which when used by Chinese speakers can denote any currency depending upon the context in which it is used; and
b)In failing to have regard to, or give sufficient weight to, evidence which would have assisted in resolving the ambiguity arising from the use of the term “yuan”; and
c) In failing to have regard to, or give sufficient weight to, the fact that Mr Qiu and Lihua had in two prior pleadings admitted that they agreed to pay NZD150,000 and not Y150,000.
[58] In elaborating upon the alleged ambiguity point, Mr Locke relied upon the evidence of the two translators that there was an ambiguity as to the meaning of the
word “yuan” when used following the reference in document 46 to the figure of
“150,000” being the amount bid by Mr Qiu and Lihua.
[59] In response, Mr Williams submitted that looking at the contents of document
46 and construing it together with document 44, there is no such ambiguity. Next, Mr Williams sought to rely upon the Judge’s findings which he submitted were plainly open on the evidence. He referred to the limited powers of the High Court to intervene in respect of factual findings and noted that there was ample evidence to support the conclusions reached by the Judge on this issue. Mr Williams also submitted that the Judge had at [36] of his decision considered and rejected the contention that the financial statements of the company supported the position of Mr Zheng and Xiaoling.
[60] Mr Williams submitted that the Judge’s findings were clear and based on a number of factors. These included the reliability of the evidence of Mr Yu (at [20]), the fact that all references to sums of money in documents 44 and 46 related to the same currency, being a consistent notation of yuan (at [33]), the fact that both documents were signed by all parties so that they were bound by the contents (at [21], [35] and [38]) and that there was more than one way to make extrapolations from the 2003 financial statements of the company (at [37]).
The Judge’s findings
[61] The conclusions of the Judge on the currency issue at [38] are as follows:
For [Mr Zheng and Xiaoling’s] claim that the currency referred to in documents 44 and 46 was intended to mean New Zealand dollars and not Chinese renminbis, [Mr Zheng and Xiaoling] needed to prove this on the balance of probabilities. The documentary evidence (which they signed) refutes their claim. They have not managed to satisfy me that they are correct in this regard.
Discussion
[62] Having carefully considered the submissions on behalf of Mr Zheng and Xiaoling in support of this issue, I conclude that it has not been established that the Judge was clearly wrong. There is no sound basis, let alone a compelling one, for
showing that he fell into error. The points raised by the appellant are all factual. The findings made by the Judge were open to him on the evidence. The appeal on the currency issue is dismissed.
Compensation payable to the company
Submissions
[63] The first point, and it is not disputed, is that Mr Qiu and Lihua won the right in the bidding competition to operate the warehouse business and have not paid the compensation payment. Indeed, since taking over the warehouse they have refused to pay the amount bid. Mr Zheng and Xiaoling say the Y150,000 is payable to the company. Mr Qiu and Lihua say it is not payable because Mr Zheng and Xiaoling breached the agreement in a number of ways. For example, it is said that certain “intangible assets” were not transferred to them. These include the branding relative to the warehouse, an assignment of the lease giving the right to occupy the warehouse premises in Carr Road and an entitlement to a covenant in restraint of trade. The Judge considered each of these alleged breaches and at [40]-[46] of his decision firmly rejected each breach which had been advanced.
[64] On appeal, Mr Williams argued that the Judge erred as to his interpretation of the agreement and how the entirety of the assets of the company were to be divided. Mr Williams acknowledged that the Judge at [40] to [42] had identified a set of intangible assets, but erred by not including in these the right to expect that they would not face immediate competition from Mr Zheng and Xiaoling, either personally or via the company, by using the company name and targeting customers. Mr Williams submitted that document 44 recorded an intention that the successful bidders would receive “independent operating rights of the wholesale company”. But the fact that the “wholesale company” was to be the vendor was mistaken, because there was no such entity.
[65] Mr Williams noted that the expression used by the Judge at [40] of “intangible assets” did not appear in document 44 itself. It came from a second translation of document 44 quoted at [19] above. The agreement itself, Mr Williams
submitted, was intended to recognise equitable ownership of the shares in the company, allocate equal ownership between the parties of the warehouse stock, record the consideration of Y150,000 due to Mr Zheng and Xiaoling following the bidding competition and assign to Mr Zheng and Xiaoling the retail shop business effectively for no consideration. After assignment of the two arms of business, the equitable shareholding remained equally with the parties. The Judge therefore wrongly inferred that the company would belong to Mr Zheng and Xiaoling.
[66] Mr Williams accepted that the agreement was made up of unconventional records drawn up by lay people. In such cases, a Court should give effect to the common intention not simply as expressly recorded but as may be deduced or implied from the language used within the factual matrix using a purposive construction: see United Pukekohe Ltd v Grantley [1996] 3 NZLR 762 (HC) at 765.
[67] Mr Williams then submitted that to achieve a transfer of the warehouse business, or the “independent operating rights” to it, would have required a transfer of the premises, customers and goodwill. Viewed in this way, Mr Zheng and Xiaoling were in breach because they did not deliver the lease, no customer list was provided, they retained the goodwill by competing as wholesalers from the address of the retail shop in Otahuhu and they used the company name. Mr Williams therefore submitted that such breaches gave rise to a right to cancel the agreement: see s 7 of the Contractual Remedies Act 1979.
The Judge’s findings
[68] This argument for Mr Qiu and Lihua faces substantial hurdles both with regard to the interpretation of the agreement and also the factual question of breach. The Judge considered these questions and found as follows:
[40] When one looks at the agreement in its totality (by a perusal of documents 44 and 46) I conclude that what the company was transferring to [Mr Qiu and Lihua] was the “operational right” to operate the warehouse business. The stock did not form part of what was being transferred as the company owned 50 percent of it and [Mr Qiu and Lihua] already owned the other 50 percent. The documentation refers to the fixed assets of the warehouse (except the laser printer) remaining in the warehouse. The expression “operational right” is an unusual one but it seems to include the “intangible assets” (document 44). The evidence seems to establish that the
intangible assets consisted of the right to continue to operate the warehouse and run a business from it, and the branding which goes with it. I endeavoured to obtain clarification as to what was meant by “branding” but had great difficulty in understanding the answers. This was important as [Mr Qiu and Lihua] claimed that the branding was not transferred to them on
3 July 2002.
[41] The conclusion which I have reached in this regard is that it was up to [Mr Qiu and Lihua] to continue with whatever brand they wished once they started operating the warehouse and that the company had nothing to transfer. If I am wrong in this respect, it is possible that [Mr Qiu and Lihua] expected the company to change its name so that they could use its original name in future trading. There seems to have been no formal request to the company to do this.
[42] The other intangible asset was the right to occur the warehouse premises in Carr Road. As at 3 July 2002 the lease had nine months to run but with two rights of renewal of two years each. Thus, this was a valuable asset available to [Mr Qiu and Lihua]. Again, no formal request was ever made to the company to assign the lease and it is clear that [Mr Qiu and Lihua] subsequently entered into other arrangements with the lessor. These ultimately enabled them to terminate their occupancy of the warehouse premises at an earlier date than that provided in the lease and take occupancy of other premises in the same vicinity owned by the lessor.
[43] In these circumstances, it seems to me that the intangible assets referred to in the documentation in a generalised form were available to [Mr Qiu and Lihua] and, indeed, they took advantage of them (at least insofar as the occupancy of the premises was concerned).
[69] With respect to the question of goodwill, the Judge considered whether Mr Qiu and Lihua were, as had been argued on their behalf, entitled to a covenant in restraint of trade to prevent Mr Zheng and the company operating a business in competition with the warehouse. The Judge considered that Mr Qiu and Lihua had not proved any such covenant. He noted that it had not been referred to in any document. He stated at [45] that “it is axiomatic that if a party seeks to rely on a covenant in restraint of trade, that party must be able to prove that its terms are agreed and reasonable”. Here, there was no evidence of what the terms of the asserted covenant might have been. The Court cannot infer them.
[70] The Judge then concluded at [46]:
Finally, in the context of this transaction, a covenant in restraint of trade would have been inappropriate. Each party owned 50 percent of the stock. Each party received its share of the stock as a result of the 3 July 2003 agreement. Thus, it was always envisaged that the owners of the retail shop premises (as it turned out, [Mr Zheng and Xiaoling]) would continue to trade with stock which had previously been in the warehouse. Plainly, it was
intended that they would sell some of the stock through the retail business in Great South Road. Presumably, somehow, it was intended that they would dispose of the balance of their half of the stock. Accordingly, they would no doubt look for purchasers of it who were known to them. In these circumstances there would need to have been very specific evidence that they could not do this. There is no evidence at all which supports the concept that [Mr Zheng and Xiaoling] and the company had agreed to a covenant in restraint of trade in favour of [Mr Qiu and Lihua].
Discussion
[71] It is apparent that the Judge, as he was required to do, carefully considered the agreement that the parties had signed. It is also apparent that the Judge placed himself in the same factual matrix as the parties and had regard to the surrounding circumstances: see Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1
WLR 989 (HL) at 995-996 per Lord Wilberforce. Having done so, the Judge determined what was to be transferred to Mr Qiu and Lihua when they won the bidding competition. In that context, he considered the various types of intangible assets raised by the appellants in the pleadings. Such consideration led him to conclude that no breaches had been established.
[72] Despite the careful and skilful argument by Mr Williams seeking to demonstrate that the Judge erred, I cannot agree. The interpretation of the agreement in context was clearly open to the Judge. This is not the type of case which would have given rise to a rational argument that the parties must have intended that Mr Zheng and Xiaoling would not compete in respect of the warehouse business (as was found to be the case by Baragwanath J in United Pukekohe Ltd v Grantley). Here, the facts did not leave such an approach open, particularly bearing in mind what was being retained by Mr Zheng and Xiaoling and the fact that they would acquire and would need to dispose of 50 percent of the stock from the warehouse business.
[73] In my view, the Judge was correct in his rejection of the allegations of breach for the reasons that he gave. On that basis, no question of cancellation under the provisions of the Contractual Remedies Act arose. Incidentally, even if the question of cancellation had arisen, the Judge may well have been confronted with real difficulty adjudicating upon precisely what happened in the convoluted factual
aftermath of the transfer of the warehouse to Mr Qiu and Lihua. There is at least some evidence that would support the notion that, even if a breach had occurred, the effect of the breach would not have substantially reduced the benefit of what Mr Qiu and Lihua were to receive under the agreement. Moreover, there is also some evidence that in spite of any alleged breaches, Mr Qiu and Lihua with full knowledge of what had occurred, chose to, as they said in evidence themselves, “make good of a bad situation”. It seems that in all probability they acted in such a way as to affirm the agreement. One illustration of this is that they did not make a formal request to assign the lease to the company. Rather, they went ahead and entered into another arrangement with the lessor.
[74] Accordingly, Mr Qiu and Lihua fail on this aspect of the appeal.
Conversion
The Judge’s findings
[75] In the District Court, Mr Qiu and Lihua argued that there was an express oral agreement between the parties which entitled Mr Qiu to draw a cheque for $30,000 on the company to repay a loan. There is no dispute that such money found its way into a bank account in the name of Lihua and her mother. But the Judge rejected this argument on two grounds. The first was that there was no evidence that Mr Qiu continued to have authority after 3 July 2003 to write cheques on behalf of the company. This conclusion was reinforced by reference to a discussion between the parties in mid-July 2003. The Judge found at [48] that “it seems likely that [Mr Qiu and Lihua] were required to hand over the cheque book as a result of the discussion on 14 July 2003”.
[76] The second ground was that the contention by Mr Qiu regarding repayment of a loan was firmly rejected. The Judge held at [49] that:
In these circumstances, for [Mr Qiu] to withdraw the $30,000 on 21 July
2003 without any authority from the company plainly constitutes a conversion of the $30,000 by [Mr Qiu]. The assertions of [Mr Qiu and
Lihua] and, in particular, the mother in these circumstances were
extraordinary and I do not believe them.
[77] The Judge therefore found that the claim in conversion had been made out. Although the point is not spelled out expressly in his decision, the Judge obviously accepted that the company had a possessory interest in the $30,000 withdrawn by Mr Qiu. Such interest is implicit from the fact that the funds were, prior to their being withdrawn, in the bank account belonging to the company (at [16]) and the fact that Mr Qiu had no authority to write cheques on the company bank account after 14 July 2003 at the latest.
Submissions
[78] Mr Williams submitted on appeal that it had not been established that the company had a possessory interest to the whole of the funds in its bank account. There could be no conversion if the company had authorised or consented to the withdrawal and such consent could be spelled out from the content of the agreement, largely by implication. Mr Williams then developed an argument that the Judge erred when finding at [18] that the party that was to receive the retail shop premises and the compensation was the company and not Mr Zheng and Xiaoling. He also submitted that it was a fair assumption that Mr Zheng and Xiaoling would trade the retail business using a new company vehicle. Finally, Mr Williams noted that the company had considerable “residual value” in that the bank account at the time was in credit in the sum of $61,477.97.
[79] For Mr Zheng and Xiaoling, Mr Locke relied upon the findings of the Judge. He also submitted (correctly) that it was clear that the agreement did not deal expressly with the division of assets of the company. Any argument to the contrary depended on an implied joint intention of the parties and there was no basis for such implication.
Discussion
[80] Having considered Mr Williams’ submissions that the company had not established a possessory interest or title to the funds, I do not accept it. First, the Judge found at [18] that it was consistent with the factual matrix leading to the agreement that the party that was to receive the retail shop premises was to receive
the company in compensation. Second, the sole director and shareholder of the company was Xiaoling. Third, she and Mr Zheng acquired the shop operating rights. Fourth, there was no express agreement between the parties that Mr Qiu and Lihua had any rights to the funds in the company bank account. Fifth, any authority which Mr Qiu had to write cheques on behalf of the company disappeared at the latest by
14 July 2003 when the likelihood was that he was required to hand over the cheque book to Mr Zheng and Xiaoling.
[81] In the light of these findings, I consider that the company did have a possessory interest in the funds in the bank account. Any argument based on an implication to the contrary flowing from equal division of such funds has not reached the threshold necessary to justify interfering with the Judge’s conclusion that the claim in conversion had been made out.
Result
[82] Mr Qiu and Lihua have not succeeded in any of the three appeal points raised by them. They have succeeded in resisting the appeal by Mr Zheng and Xiaoling on the currency of the compensation. Mr Zheng and Xiaoling therefore fail with their appeal on the currency point.
[83] It follows that the appeals and the cross-appeal are all dismissed.
Costs
[84] Bearing in mind the successes and failures in respect of the appeal and cross- appeal, it is apparent that Mr Zheng and Xiaoling have had the greater success. They are entitled to scale costs, but only to the extent of 50 percent of those costs. The parties are agreed that the appropriate category is 2B.
[85] With respect to the unsuccessful post-hearing application by Mr Zheng and
Xiaoling to admit fresh evidence, as discussed at [32] to [39], Mr Qiu and Lihua are
entitled to costs on the application on a category 2B basis. Such costs should be deducted from those payable in respect of the appeal.
[86] This should enable the parties to agree on the calculation of costs. If there is any disagreement on the calculation of such costs, the parties can file a short joint memorandum spelling out the nature of the differences between them and I will
adjudicate.
Stevens J
Solicitors/Counsel:
Jesse & Associates, PO Box 37 020, Auckland
Wang & Associates, PO Box 99974, Newmarket, Auckland
M Locke, PO Box 90915, AucklandI Williams, PO Box 4338, Auckland
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