LIMIN YANG AND ANOR V PAUL CHEN HC AK CIV 2007-404-1751

LIMIN YANG AND ANOR V PAUL CHEN HC AK CIV 2007-404-1751 5 October 2010IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2007-404-1751BETWEEN LIMIN YANG AND YANG (JASMINE) LIU Plaintiffs AND PAUL YU PO CHEN DefendantCIV 2008-404-4287AND BETWEEN DACHA INTERNATIONAL LIMITED First Plaintiff AND ROTORUA INTERNATIONAL VILLAS LIMITED Second Plaintiff AND TOP INTERNATIONAL LIMITED Third Plaintiff AND PAUL YU PO CHEN First Defendant AND HEARD PARK LIMITED Second Defendant Hearing: 26, 27, 28 April, 3, 5, 6, 10, 14, 18, 19, 21, 24-28, 31 May, 1-4, 8-11, 18 June, and 17 September 2010 Appearances: P McPherson, G J Luen and S Brooks for plaintiffs B Hucker, M S Chan and B Langsiu for defendants No appearance for Choon Khiaw Chin Judgment: 5 October 2010JUDGMENT (No.2) OF ALLAN JIn accordance with r 11.5 I direct that the Registrar endorse this judgment with the delivery time of 10 am on Tuesday 5 October 2010Solicitors: Hesketh Henry Patrick.mcpherson@heskethhenry.co.nz Paul Chen paulyupochen@gmail.com Queen City Law, Auckland marcus@queencitylaw.co.nz luckymachee@gmail.com R B Hucker hucker@huckerlaw.comcc C R Pidgeon QC colpidge@xtra.co.nzIndex ParagraphIntroduction [01] Procedural history [04] Factual background [27] Ms Yang's evidence [29] Evidence of Mr Chen [84] The heart of the matter [143] The declaration of trust [147] The share transfers [165] Statements of Mr Liu and Mr Shen [196] Mr Liu and Ms Yang [225] Suifenhe loan agreement [234] Remuneration for export work [240] The Beiya loan commission [246] Who owns the shares? [256] The plaintiffs' pleadings [264] The derivative proceeding [278] Mr Chen's counterclaim [288] Result [291] Costs [292]Introduction[1] In these related proceedings, Limin Yang (Ms Yang) and Liu Yang (Jasmine) seek to be declared the owners of all of the shares in Dacha International Ltd (Dacha), Rotorua International Villas Ltd (Rotorua International) and Top International Ltd (Top). They say that Mr Chen holds all of the shares in those companies in trust for them. They further claim that, in breach of his fiduciary duties, Mr Chen has misappropriated certain assets of the companies. For his part, Mr Chen asserts that he is the true owner of the shares in each company and denies any breach of duty. [2] In CIV-2007-404-1751 the Yangs seek declaratory relief and damages for their alleged losses. In the parallel proceeding, CIV-2008-404-4287, they seek the Court's leave to commence derivative proceedings in the name of Dacha, Rotorua International and Top in order to recover certain losses suffered by the companies concerned. [3] The hearing of the proceedings followed an unusual and convoluted path. On 13 May 2010 I delivered a lengthy judgment dealing with certain interlocutory issues, the determination of which influenced to a significant degree the subsequent course of the trial. In that judgment I summarised the course of events leading up to the commencement of the trial, and certain developments over succeeding days. Because much of that history is relevant to the way in which the trial subsequently unfolded, it is convenient to reproduce much of the explanatory material appearing in my earlier judgment; the following section accordingly draws heavily on that judgment.Procedural history[4] These proceedings were set down in November 2008 when a four week fixture to commence on 26 April 2010 was allocated; so the parties had 18 months to work towards the hearing. During 2009, Mr Chen's financial positiondeteriorated. He had been involved in related proceedings in the Supreme Court of New South Wales, which were heard earlier than the present proceedings, and in which the present plaintiffs were largely successful. The proceedings in each jurisdiction were relatively complex. Legal costs were high. Towards the end of 2009 it became apparent that Mr Chen was running out of funds and that his New Zealand lawyers (Lee Salmon Long) would be unable to continue to represent him. [5] Nevertheless, he was still represented in December 2009 when he agreed through his counsel to pre-trial directions which included a requirement to serve his briefs by Monday 22 March 2010. On 30 January 2010, Mr Salmon of Lee Salmon Long filed and served a memorandum of counsel in which Lee Salmon Long gave notice of their desire to withdraw as solicitors on the record for Mr Chen. [6] On 8 February 2010, Mr Chen filed and served, in his own name, an application for adjournment of both a forthcoming interlocutory hearing, and the substantive trial itself. [7] On 3 March 2010, Mr Chen, by then in China, filed an unsworn affidavit in support of his application for an adjournment. Asher J heard the adjournment application on 4 March 2010. Mr McPherson appeared for the plaintiffs. Messrs Salmon and O'Neill appeared for Mr Chen, but were granted leave to withdraw. Mr Chen participated in the hearing by telephone from China. Mr Chen sought to have the Court adjourn both the interlocutory hearing scheduled for 11 March 2010, and the trial itself. The contemplated interlocutory hearing involved various applications, including one by the plaintiffs for the imposition of sanctions for alleged contempt of Court by Mr Chen. Asher J refused to adjourn either the interlocutory hearing or the trial. [8] On 10 March 2010, Mr Chen filed detailed and comprehensive affidavits in respect of the interlocutory hearing scheduled for 11 March 2010. It appears that Mr Chen prepared those affidavits himself. At the interlocutory hearing Mr Chen was represented by Mr Chesterman, who, then and since, made it clear to the Court that his instructions were limited to the matters before the Court on that date. In other words, he had no instructions in respect of preparation for, or an appearance at,the trial. Among the findings made by Hugh Williams J following the 11 March hearing was that Mr Chen was in contempt by reason of his failure to comply with certain directions of the Court. The question of the imposition of an appropriate sanction was left over for determination by me following the trial. [9] Mr Chen did not serve his briefs of evidence by the due date. Indeed, he was completely silent for a period of several weeks. Eventually, on 12 April 2010, Mr McPherson, having become concerned on behalf of the plaintiffs at Mr Chen's inactivity, filed a memorandum pointing out to the Court Mr Chen's failure to comply with timetable directions and seeking an unless order. [10] I was appointed to be the trial Judge during that week. On 16 April 2010 I convened a telephone conference in order to deal with the matters raised in Mr McPherson's memorandum of 12 April 2010. Mr Chen was still in China. Although arrangements had been made for him to participate by telephone, he elected to be represented by Mr Machee, who, although not a lawyer, had been assisting Mr Chen to some degree with matters related to the trial. [11] Having heard Mr McPherson and Mr Machee, I agreed that an unless order was appropriate and directed that Mr Chen must serve his briefs of evidence by 5 pm on Monday 19 April 2010, less than a week prior to the commencement date of the trial. No briefs of evidence were served by that time. [12] Ultimately I permitted Mr Chen to serve his brief of evidence on Tuesday 20 April 2010. I convened a telephone conference on 21 April 2010, in which Mr Machee and Mr McPherson participated. There was no mention during that conference of Mr Chen's desire to serve any other briefs. In terms of the unless order of 16 April, he required the leave of the Court to do so. [13] The trial commenced on 26 April 2010. Mr Chen was not then formally represented by counsel, but Mr Machee appeared along with Mr M Beveridge of Queen City Law. Mr Beveridge indicated that he had no instructions at that point to appear for Mr Chen, but was there in order to monitor developments at the commencement of the trial. Mr Machee renewed Mr Chen's adjournmentapplication, effectively on the same grounds as had been advanced earlier to Asher J. The Court was advised that Mr Chen's remaining funds were insufficient to pay for legal representation at trial, and that Mr Chen remained unable to leave China. He was in effect detained there by the Chinese authorities in order that he might assist in the further investigation of Mr Guiting Liu (Ms Yang's husband) who had earlier been sentenced in China to life imprisonment for criminal fraud. That was the position as at the morning adjournment on Monday 26 April. [14] Remarkably, there was a change of circumstance over the morning adjournment. When the Court resumed, Mr Machee and Mr Beveridge advised the Court that Mr Chen and his family had now been able to raise funds which would enable him to be represented by counsel at trial. Indeed, the Court was advised that those funds extended to the possibility of retention of Queen's Counsel, and a particular name was mentioned in that regard. At that point, financial difficulties appeared to have dropped away as an inhibiting factor. Regrettably, within a day or so it emerged that the expected funding source would not be able to assist. [15] As to Mr Chen's detention in China, the Court was on 26 April provided with a notice dated 20 April 2010, apparently issued by the Ministry of Justice of the People's Republic of China. The notice directed Mr Chen to remain in China for a period of eight weeks, in order that he might assist the Ministry with its on-going investigations. The notice included a list of companies and enterprises which were the subject of that investigation. Mr Chen himself was not one of those under investigation. The notice concluded with the indication that:If you, without having sought permission to exit China, make unauthorised exit from China during the aforesaid period, you shall be liable for the legal consequences.[16] The 20 April 2010 notice was annexed to a draft unsworn affidavit from Mr Chen. There was no evidence that Mr Chen had made any request to the Chinese authorities for temporary permission to leave China, although the possibility of such a request was reserved in the 20 April notice. [17] I considered that there ought to have been evidence as to the making of any request for temporary permission to leave China and the response to it. I alsoconsidered that it was remarkable that the term of the notice was for a period of eight weeks, being a period largely co-extensive with the time allocation made for the present fixture. I was in effect asked to revisit the decision of Asher J to refuse an adjournment. Having considered a variety of factors more particularly set out in my Ruling No.1, I concluded that the trial must proceed. In that respect I took into account the fact that, although it appeared that Mr Chen may well have difficulty in leaving China, he was now better off than he had been before Asher J, when it was assumed that he would have no legal representation. It seemed to me, as I noted in my ruling, there remained the prospect that Mr Chen may be able to give evidence by video link. Accordingly, the adjournment application was refused. [18] Against that background Mr McPherson opened the plaintiffs' case during the afternoon of Monday 26 April 2010. Mr Machee remained in Court, as did Mr Beveridge, who was regarded by the Court as counsel for Mr Chen, at least until other trial counsel was instructed in the light of the funding now available for the conduct of the defence. [19] On the morning of Tuesday 27 April 2010, Mr McPherson concluded his opening address, but that was preceded by another remarkable development. Mr Beveridge appeared at 10 am with Mr Chan, a litigation solicitor in his office. Between them, Mr Beveridge and Mr Chan advised the Court that, contrary to the advice conveyed during the first day of the trial, and despite the availability of funding, they were unable to represent Mr Chen because they simply had insufficient time within which to prepare and run an appropriate defence. They considered their ability to represent Mr Chen to be further compromised by the fact that, in terms of my earlier ruling of 16 April, Mr Chen was debarred from calling witnesses other than himself because no briefs had been served in terms of earlier timetable directions. [20] In my Ruling No.2 I recorded this turn of events and noted that it appeared the case would proceed on a formal proof basis. It was against that background that Mr McPherson completed his opening address, and called his first witness, a police document examiner who gave evidence in chief, but of course was not cross- examined, Mr Chen being at that time formally unrepresented.[21] When the Court reconvened at 2.15 pm on Tuesday 27 April, there was a further major development. Mr Hucker appeared for Mr Chen to advise that he had now been briefed to conduct the case for the defence. Mr Hucker sought an adjournment until Monday 3 May 2010 to enable him to formalise his instructions, and to determine what steps needed to be taken in order to advance Mr Chen's defence. I was not prepared to grant an adjournment for such a long period, but allowed 24 hours for Mr Hucker to gain some appreciation of the case, he having been approached only on the morning of 27 April. [22] When the hearing recommenced on Wednesday 28 April 2010 at 2.15 pm, Mr Hucker confirmed both his brief and the availability of funding for the defence. He advised also that he proposed to make a number of applications to the Court in respect of outstanding interlocutory issues, including the need for an amended statement of defence, the giving of directions for Mr Chen's evidence to be taken by video link, and the calling of additional defence witnesses despite the absence of any briefs for such witnesses. Mr Hucker signalled that Mr Chen would be seeking to call Amanda Chen, William Liew, Xing Zhang, and Yan Xu. Amanda Chen is Mr Chen's wife. She had sworn affidavits earlier in the proceeding. Mr Liew is Mr Chen's brother-in-law and the accountant to the plaintiff companies. His evidence was expected to be both factual and professional (accounting) in nature, and was intended in part to counter the evidence of the plaintiffs' forensic accounting expert, Mr Hussey. The evidence of the two remaining witnesses was intended to cover certain admissions said to have been made by the plaintiffs. Mr Hucker confirmed that if Mr Chen was granted leave to call the proposed witnesses then the trial time was likely to be two to two and a half weeks. [23] I allowed Mr Hucker until the morning of Monday 3 May 2010 within which to prepare his applications and any supporting material. On that morning, he duly filed a compendious application in which all of the foreshadowed orders were sought. Additionally however, Mr Hucker sought an order directing that the evidence be taken by video link from China of Mr Guiting Liu. Of course, Mr McPherson had been given no prior notice of the detail of the applications, or of the material which supported them. Of necessity, I allowed him a further two dayswithin which to consider the material and prepare his argument in opposition. Accordingly, I directed that the hearing resume at 10 am on Wednesday 5 May 2010. [24] I heard argument in respect of the defendants' various applications on 5, 6 and 10 May. In my judgment on those applications, delivered on 13 May 2010, I made orders: a) directing that Mr Chen give his evidence from Beijing by video link; b) granting Mr Chen leave to serve briefs of evidence by Amanda Chen, Xing Zhang, Yan Xu; c) granting the defendants' application for leave to file and serve amended statements of defence and counterclaim; d) granting the defendants' application for variation of a freezing order by permitting Mr Chen to resort to a fund of $2.9 million frozen by earlier Court order, for the purpose of funding Mr Chen's legal costs at a rate prescribed by the Court, and for the further purpose of meeting his video link costs. [25] I refused Mr Chen's applications for orders directing that Mr Liu give evidence by video link from Beijing, and permitting the defendant to serve a brief by William Liew. [26] Mr Chen's appeal against my ruling in respect of the calling of Mr Liu as a witness was dismissed by the Court of Appeal on 30 June 2010.1Factual background[27] The relevant factual matrix is somewhat complex. Much of it is in dispute. The principal witnesses were Ms Yang and Mr Chen. They gave markedly different accounts of many important events. It is therefore necessary to make a number of1 [2010] NZCA 278; CA343/2010, 30 June 2010.credibility findings. To some degree the Court is assisted by the production of certain contemporaneous documents. Some aspects of Ms Yang's evidence are corroborated by the evidence of Jasmine, the adult daughter of Mr Liu and Ms Yang. Some of Mr Chen's evidence was corroborated by that of his wife, Amanda. [28] Because so much of the factual background is disputed, I propose to outline first the account given by Ms Yang and then the quite different evidence given by Mr Chen. Following that I turn to a consideration of the numerous important factual issues upon which the parties differ.Ms Yang's evidence[29] Ms Yang and Jasmine came to New Zealand in September 2002. Ms Yang is now a permanent resident; Jasmine has New Zealand citizenship. [30] Ms Yang's husband, Mr Guiting Liu, supported the move (the family appears to have lived for a time in Australia), but he continued to spend the majority of his time in China, where he was chairman of Beiya Industrial Group (Beiya), a major conglomerate listed on the Shanghai Stock Exchange. From about April 2006, Mr Liu was under investigation by the Chinese authorities; he was subsequently arrested and following a trial, convicted of a number of charges including embezzlement. He was sentenced to two concurrent terms of life imprisonment. [31] From about April 2006, Ms Yang lost touch with her husband. In about mid- 2009, she appears to have regained contact but only through family members. She has not herself returned to China since 2006. [32] Towards the end of 2002, Ms Yang purchased an apartment at 8 Albert Street, Auckland, for $810,000. She and Jasmine lived there until October 2006. Ms Yang had a substantial amount of family money which was available for investment in New Zealand. She took advice from friends and solicitors, and on 1 October 2002 incorporated a company initially known as Top International Ltd. On 28 March 2003 this company changed its name and became RotoruaInternational. It is to be distinguished from a company incorporated in 2003 under the name Top International Ltd, which I refer to throughout this judgment as "Top". [33] Initially Ms Yang was the sole director of Rotorua International. She and Jasmine were the shareholders; Ms Yang holding 70% and Jasmine 30%. [34] In February 2003 Rotorua International purchased the Kiwi Hotel in Rotorua, together with three smaller properties adjacent to it. The total price was about $2 million. It was a cash purchase. Following settlement all the properties were mortgage-free. The Kiwi Hotel was a 30 bedroom hotel. Ms Yang continued to employ existing management. [35] In March 2003, Dacha was incorporated. Ms Yang and Jasmine each took 50% of the shares in this company. In or about April 2003, Dacha purchased the Manaray Lakeside Resort at Holdens Bay, Rotorua, for $1.4 million. Again, following settlement, this property was mortgage-free. [36] Early in April 2003, Ms Yang and Jasmine were introduced by friends to Amanda Chen, and her brother William Liew. William was a principal in the accounting firm Liew & Associates, in Auckland. Amanda had accounting qualifications and worked in the firm. The Yangs struck up a friendship with Amanda and William. Ms Yang thought Amanda in particular would be a good person to take control of the conduct of the business affairs of her companies, and in particular work connected with the preparation of the company accounts. At this stage Rotorua International owned the Kiwi Hotel, but Dacha had not yet settled the purchase of the Manaray Resort. [37] In early May 2003, Mr Liu came to New Zealand. Amanda and William visited Mr Liu, Ms Yang and Jasmine in Rotorua. Amanda brought her husband Mr Paul Chen. This was the first occasion on which Ms Yang had met him. Mr Chen was originally from Taiwan but had been in New Zealand for many years and had built up a real estate business which included ownership of a portfolio of properties.[38] Ms Yang says she needed someone to manage her investments and the companies. Mr Liu was based in China. Ms Yang herself was not familiar with the New Zealand business scene and spoke very little English. Jasmine was learning English, but was not in a position to take a role in the conduct of the family businesses in New Zealand. [39] Ms Yang and Mr Liu thought that Mr Chen would be a good person to become involved in the management of their New Zealand business activities. He was accordingly asked to accept a position as manager of Rotorua International and Dacha on the basis that he would be appointed a director of each company. Mr Chen accepted that offer. On 15 May 2003 a resolution appointing Mr Chen a director of each company was signed at the offices of Liew & Associates in Auckland. [40] Ms Yang says that although she had no idea about the level of salaries in New Zealand, she suggested that Mr Chen be paid $60,000 per annum. She says also that he accepted that offer by his conduct in transferring money from the company accounts from time to time in respect of his remuneration. [41] She maintains that at the time of Mr Chen's appointment there was only general discussion about the future direction of the companies. Mr Chen was not required to take an active role in the day to day management of the two hotels, which had their own staff. [42] On 13 May 2003, Top was incorporated. As was the case with Rotorua International, Ms Yang took 70% of the shares and Jasmine 30%. Ms Yang's intention was to utilise Top as a vehicle for further property investment. [43] Between about June and August 2003, Ms Yang was in China. Upon her return, Mr Chen raised with her the possible purchase of a commercial property at 48 Greys Avenue in central Auckland. Following discussions with Mr Liu, it was agreed that this property be purchased through Top. The purchase price was fixed at $8 million.[44] In August and September 2003, Mr Liu transferred funds in three tranches into Top's bank account. By reference to the accounts of Top for the 2003/2004 financial year, Ms Yang says deposits by Mr Liu in those months totalled US$5,590,798.84 which became NZ$9,442,760.67. Ms Yang notes that these funds are recorded in the 2003-2004 company accounts as shareholder funds. The accounts concerned were prepared by William Liew and signed by Mr Chen, who by then was a director of Top. [45] Having taken possession of the Greys Avenue premises, Top refurbished them and permitted Liew & Associates to move their accounting practice into the building on a rent free basis. [46] Soon after Top was incorporated, Mr Chen discussed selling into the company certain properties owned by him or his family interests. Ms Yang says both she and Mr Liu were involved in these discussions, following which Top entered into agreements to purchase 73 Khyber Pass Road, Newmarket; 22 Danica Street, Te Atatu; and Shops 13 and 23 in the Meadowbank Shopping Mall. The total purchase price of $2,060,000 was fixed by Mr Chen without direct reference to Ms Yang, but she says she trusted him to fix prices that were fair and reasonable. Settlement of these purchases took place in about June 2003, except for Danica Street, Te Atatu, which settled in June 2005. Again, Ms Yang refers to the 2003/2004 accounts for Top for confirmation that Top duly paid the agreed purchase price in each case. [47] Ms Yang relies upon spread sheets which appear to have formed part of the 2003/2004 accounts for confirmation that Top paid the purchase price in part by: a) making a payment to Mr Chen in China on 18 August 2003 of the sum of $1 million; b) paying or crediting the sum of $200,000 to William Liew on 18 August 2003; c) paying to Mr Chen on 21 August 2003 the sum of $9,314;d) paying to Mr Chen on 29 September 2003 the sum of $800,000. [48] That leaves a balance unaccounted for of $50,686. Ms Yang says she believes that sum to have been paid but cannot identify a relevant entry in the financial accounts or bank statements of Top. [49] The payment issue is highly contentious. Mr Chen says he received nothing for the properties transferred to Top, and that he did not expect to receive anything because Top was in effect his company from the outset. [50] I return to the topic later in the judgment. [51] In November and December 2004 (more than a year after the purchase of Greys Avenue) Top purchased four residential properties in Rotorua for a total of $268,300. These properties were at 7B Frank Street, 23 Ewart Street, 33 Bellingham Crescent, and 6 Wrigley Road. [52] On her calculations, Ms Yang considers that by early 2005, Top held unencumbered assets (Greys Avenue, the four Auckland properties and the four Rotorua properties) to a total value of $10,328,300. Rotorua International owned the Kiwi Hotel and three other Rotorua properties totalling $2 million in value, while Dacha had the Manaray Lakeside Resort purchased for $1.4 million. [53] At this time, Mr Liu and Ms Yang had substantial property interests also in New South Wales. There, through their company Lym International Pty Ltd (Lym), they were developing an apartment complex at Mona Vale. [54] In October 2004, Jasmine transferred to Ms Yang all of her shares in the three companies. Ms Yang says there were two reasons for this; first Jasmine was completing her university studies in New Zealand and wished to return to China. Second, Ms Yang had become concerned that Jasmine might in hindsight have been too young to participate in the affairs of the companies as a significant shareholder. Jasmine corroborates her mother's evidence and adds that a further concernexpressed by Ms Yang related to the possibility that Jasmine might marry and that her shares might then be exposed to a claim by her husband. [55] In October 2004 Mr Chen entered into an agreement for the sale of the Manaray Lake Side Resort, owned by Dacha. The sale price was $1,780,000. Ms Yang says she was not consulted by Mr Chen before the agreement was signed. When she discovered what had occurred she was unhappy with Mr Chen. She discussed the matter with Mr Liu, but ultimately it was agreed that the sale ought to proceed. The Manaray Resort had been running at a loss initially, although it made a small profit in the 2004/2005 financial year. The sale price was a good one. Mr Chen allayed Ms Yang's concerns by advising that $500,000 of the purchase price was to be advanced as vendor finance at a satisfactory interest rate of 8% per annum, while the balance of about $1.2 million would be retained on term deposit, pending investment in an alternative commercial property, probably a Rotorua hotel. Accordingly, on 26 October 2004, Ms Yang signed a company resolution approving the sale. The vendor loan was repaid on about 25 May 2005. [56] By late 2004, having made up their differences over the sale of the Manaray Resort, Ms Yang says that she had reached the stage at which she trusted Mr Chen sufficiently to put him in formal control of each of the companies, by appointing him managing director. Nevertheless, he was required to report to her in respect of any major transaction, including any asset sales or the giving of any security over assets. [57] In 2005 Mr Chen and Mr Liu undertook a number of transactions which involved the sale of barley and of satellite equipment by North American vendors to Chinese entities. A company owned by Paul and Amanda Chen, Heard Park Ltd, (Heard Park) played a role in these transactions. [58] Ms Yang says these activities were driven by Mr Chen, at least from at the New Zealand end. They involved the provision of security by both individuals and companies, and the completion of various company documents. She says that was all organised by Mr Chen through the established solicitors for the companies and for Mr Chen, Lawler & Co. Ms Yang says she was aware of the general nature of the transactions, but was often not aware of specific detail. She says that she agreedto the assets of the three companies being used to facilitate the deals (by providing security) but only if there was some benefit to the companies concerned. She agreed to do so because she trusted Mr Chen's explanations to her as to how the transactions would take place. [59] The barley transactions involved the purchase of barley by Heard Park from Crownton Enterprises Ltd (Crownton) based in Hong Kong. The barley would be shipped from Canada directly to Harbin Golden Dragon Trading Co Ltd (Harbin) in China. Harbin was a Beiya subsidiary. Heard Park was to pay Crownton direct by way of a letter of credit. The date on which the letter of credit was to be drawn down was later than the date for delivery to, and payment by, Harbin. Accordingly, Heard Park's exposure was limited, at least in theory. Provided that Harbin paid on time, the letter of credit would not be called upon. [60] Ms Yang accepts that the foregoing summary (derived from Mr Chen's evidence) is broadly correct, but that she was not aware of some of the detail until after this proceeding was commenced. She denies (as as is alleged by Mr Chen), that she played an operational role in the barley shipments. [61] The necessary letter of credit was provided by Westpac, which took a mortgage over the Greys Avenue property, together with general security agreements over Heard Park and Top, as well as personal guarantees from Ms Yang and Paul and Amanda Chen. [62] The first barley shipment went without incident. An overall profit of $55,000 was derived. It was agreed that Ms Yang should have 70% of the profit and that Mr Chen should have 30%. Accordingly, the plaintiffs received approximately $38,000 in June 2005. There is disagreement as to the reasons behind the 70/30 profit split. Ms Yang says it was because assets owned by her (the shares in Top) constituted the primary security for Westpac. [63] Another shipment was scheduled to take place in August 2005. This time there were difficulties. Ms Yang says she was later told by Mr Chen that there was a problem with the quality of the barley and that completion of the sale hadaccordingly been delayed. She claims she heard nothing more about the second shipment until after this proceeding was commenced. She then found that, with Mr Chen's knowledge and consent, Harbin had delayed payment for the second shipment, and that instead Mr Chen had entered into a loan agreement with Beiya, the detail of which she learned only upon reading an affidavit sworn by Mr Chen on 30 April 2007. [64] The satellite deals worked in a similar fashion. Heard Park purchased certain satellite equipment from a company in the USA and on-sold it to a Chinese company. Profit was derived from a 20% interest charge made with the agreement of the Chinese purchaser. In the period between the date of purchase from the USA and the date of supply to China, Mr Chen discussed these proposed transactions with Ms Yang. Heard Park needed an immediate cash injection to fund the deals. Ms Yang agreed that Top and Rotorua International could provide security over their uncharged assets in order to assist Heard Park, upon the basis that the ultimate profit would be split between those companies and Heard Park. Ms Yang says also that she was told by Mr Chen that he was mortgaging his own property to provide part of the necessary security, but she discovered later that no such security was given. [65] In October 2005, security was given over the four Auckland properties owned by Top in order to raise $2.05 million. Ms Yang says although she did not sign the agreements herself, Mr Chen did so with her approval. Rotorua International also executed a mortgage over the Kiwi Hotel in the sum of $1.6 million. In total, Top and Rotorua International lent $3.19 million to Heard Park. Ms Yang executed a personal guarantee in support of the Rotorua International mortgage. [66] Ms Yang considered that these transactions were in the best interests of the companies concerned, given that they were aimed at making a profit for those companies in due course. [67] No profits were received from the satellite transactions. Mr Chen gives a complicated explanation of the reasons for that. Ms Yang says she knew nothing of the satellite transaction problems until she read Mr Chen's affidavit in April 2007.[68] In about April 2006, Ms Yang says she learned from friends in China that Mr Liu was under investigation by the Chinese authorities. The news was a shock to her. She became concerned and very depressed. Mr Liu was arrested in June 2006. Ms Yang had become seriously ill. She understood that the Chinese authorities were seeking her as well as Mr Liu and that they might take steps to seize the family assets. Against that background she says she was unable to cope with ordinary issues associated with the running of the companies, and explains that she was emotionally and physically exhausted and vulnerable. [69] On her account, Mr Chen pressured her into believing that by reason of the risk of investigation by the Chinese authorities, she should resign as a director of the companies and transfer all of her shares to him. She says she was convinced by him that it would be better for her to leave the day to day running of the companies and her investments entirely to him. She agreed to do that, on the basis that all of the shares in the companies would be held on trust by Mr Chen for Ms Yang and her daughter. Mr Chen agreed to take the shares on that footing, she contends. She had an expectation, although not communicated directly to Mr Chen, that she would continue to be consulted in respect of any major issues affecting the affairs of the companies. She expected also that the shares would be transferred back to her at any time upon request. [70] Her evidence (corroborated on this point by Jasmine) is that in early May 2006 she went into the offices of Liew & Associates where she signed share transfer forms and resignation documents in respect of her directorships. At her request, Paul wrote out an informal declaration of trust on a piece of paper and gave it to Ms Yang. A few days later, she was advised by a friend that the informal declaration would not be effective at law, and that she should consult a solicitor. Accordingly, she contacted Mr Chen who instructed Mr Lawler of Lawler & Co to prepare an appropriate document. [71] On 12 May 2006 Ms Yang went to the offices of Lawler & Co where she signed what she understood to be a declaration of trust. The contents of the document were explained in English by Mr Lawler, and then in Mandarin by Mr Chen. Jasmine was also present. The document declared that the shares wereheld in trust by Mr Chen for Ms Yang and Jasmine, and provided for the retransfer of the shares to them upon request, but also upon the basis that Mr Chen was entitled to an indemnity in respect of obligations incurred by him by virtue of his trusteeship. [72] The circumstances in which the earlier share transfers were executed, and in which the declaration of trust was later executed, are matters of serious dispute. So is the proper interpretation of the declaration of trust document itself. I will return to it when discussing Mr Chen's evidence, and later still, during my consideration of the evidence as a whole. [73] By July 2006 difficulties had arisen in Australia with respect to the Mona Vale project. Mr Chen was given a power of attorney which enabled him to go to Australia and there to act in Ms Yang's interests for the purpose of endeavouring to rectify certain problems there. Mr Chen's activities in Sydney became a bone of contention between the parties and were the subject of a judgment given in the Supreme Court of New South Wales and subsequently on appeal 2 . [74] At the same time, relationships between Ms Yang and the Chens in New Zealand began to deteriorate. In August or early September 2006, Ms Yang and Jasmine went to the Greys Avenue building to talk to the Chens, who refused to meet them. Ms Yang was told not to go to the Greys Avenue premises or the Chens' home again. Indeed, a trespass notice was served on her. [75] Ms Yang says that, in September 2006, she received a text message from Mr Chen demanding that she provide a bank cheque forthwith for $680,000, failing which the bank would auction her apartment. In the course of investigating that message, she found that the Chens had not (as she had earlier been told) mortgaged their own home in support of funding arrangements for the satellite transactions. Upon inquiry, she found her home was not in immediate jeopardy, but nevertheless she arranged to repay the outstanding mortgage over her apartment in order to preserve it from future realisation by the bank.2 Lym International Pty Ltd v Chen [2009] NSWSC 98; appeal allowed in part in Chen v Marcolongo(2009) 260 ALR 353 (NSWCA).[76] The proceedings in the Supreme Court of New South Wales against Mr Chen were commenced on 27 October 2006 by Lym, Ms Yang and Jasmine. In his judgment of 2 March 2009,3 Hamilton J found that Mr Chen had breached his fiduciary obligations to the plaintiffs. A number of consequential orders were made. Some of them were reversed or varied on appeal, but the Judge's primary findings were not disturbed. [77] Meanwhile, in New Zealand, Ms Yang's present solicitors were instructed at the end of 2006. The investigations revealed that a) Top had borrowed $7 million on the security of the Greys Avenue property; b) most, if not all, of the remaining properties in Auckland and Rotorua owned by Top had been sold; c) there had been no explanation or accounting by Mr Chen to Ms Yang in respect of the transactions concerned. [78] By reason of these discoveries, Ms Yang instructed Hesketh Henry, on or about 17 January 2007, to prepare the documents necessary to retransfer the shares in the three companies back to her. They were executed that same day. Hesketh Henry wrote to the Chens advising of the changes of shareholders and directorships and sought: a) confirmation that all financial transactions entered into by the Chens on behalf of each of the companies were in the interests of the companies concerned; b) the delivery up of all documents relating to the companies;3 Ibid.c) an accounting in respect of the sale proceeds of any property of the companies, and/or the proceeds of loans raised on the security of assets of the companies. [79] On 25 January 2007, Mr Chen responded in writing to Hesketh Henry, advising that he had transferred the shares in Top and Rotorua International back to himself and had reinstated himself as director of the companies. The letter asserted that Ms Yang and Jasmine had not acted in accordance with the declaration of trust document, but gave no explanation for that contention. [80] After certain correspondence between Hesketh Henry and Lawler & Co, Hesketh Henry received a letter from Burton & Co (newly instructed by the Chens) on 1 March 2007, contending for the first time that the declaration of trust document did not amount in law to a declaration of trust but rather to an ordinary conditional agreement for the sale and purchase of shares. [81] The present proceeding was commenced on 3 April 2007. In May 2007 the parties agreed on the sale of the Greys Avenue property for $10,200,000. The net proceeds of sale, amounting to approximately $2.6 million, have since the date of settlement been held in the trust account of Burton & Co pursuant to the freezing order to which I referred earlier. [82] Following the commencement of proceedings and the grant of the freezing order, there was further activity in respect of the affairs of Rotorua International. Because findings about the assets of that company are properly the province of the second proceeding, it is unnecessary to make any findings at this point. It is, however, appropriate to say that on 5 April 2007, after the freezing order was granted with Mr Chen's consent, four properties belonging to Rotorua International, including the Kiwi Hotel, were transferred to Choon Khiaw Chin, Mr Chen's mother-in-law. These transactions were plainly not at arm's length and it appears that the sales were at an undervalue. [83] Choon Khiaw Chin attended at court on the first day of the trial (although unrepresented), having been summoned by Ms Yang and Jasmine to attend, but shewas subsequently released from further attendance at the plaintiff's request. Although named as third defendant in the derivative proceedings she is not a principal target.Evidence of Mr Chen[84] Mr Chen was born in Taiwan; he came to New Zealand in 1990. Both he and his wife Amanda are New Zealand citizens. They have two children, both born here. He is a director of a number of companies and has been active in the field of property development for some years. But prior to meeting Mr Liu and Ms Yang his business experience was confined to New Zealand. Unlike them, he is fluent in both English and Mandarin. [85] Mr Chen says he first met Mr Liu in Auckland in May 2003. Mr Liu explained that he was chairman of Beiya and interested in pursuing in New Zealand various projects for the group, including the export of paper pulp and milk powder products to China. Mr Liu also indicated that he was interested in pursuing personal investments in New Zealand. He was looking for someone in New Zealand who would be a contact point here, and would be a valuable intermediary between New Zealand and Chinese companies. Within a day or so the two met for dinner; they were accompanied by Amanda Chen and Ms Yang. It was then, Mr Chen says, that Ms Yang became aware that Amanda was an accountant. Plans were made for the Chens to visit Rotorua to inspect an hotel which Rotorua International had earlier purchased. Mr Chen rapidly ascertained that Mr Liu was indeed a powerful businessman with strong connections in China, and that there were opportunities for him to develop international business prospects of his own in conjunction with Mr Liu. [86] The Chens duly visited Rotorua. By this time Dacha had signed an agreement to purchase the Manaray Resort. Mr Liu told Mr Chen that he himself was hardly ever in New Zealand, and that there was a need for someone to assist in the management of the developing Liu/Yang business interests here. Mr Chen was asked to become a director of Rotorua International and Dacha and to assist with overall management.[87] He denies however that any remuneration was agreed, and says that he did not expect a salary because he believed he would be included in forthcoming profitable investment opportunities. [88] Mr Chen agrees that Top was incorporated on 13 May 2003, and that Ms Yang took 70% of the shares and Jasmine 30%. [89] According to Mr Chen, Mr Liu originally suggested that he should take a one-third interest in Top, along with Ms Yang and Jasmine; but because Top was as yet just a shelf company without assets, and because he had contributed nothing in cash at that point, he says he did not regard it as necessary or desirable for him to become a shareholder. [90] In June 2003, Mr Chen visited China at Mr Liu's invitation. Ms Yang was also in China at that time. Mr Chen, accompanied by Mr Liu, visited several Chinese cities where he inspected businesses and projects controlled by Beiya. There was discussion between them about the possibility of transactions in the commodity trading and telecommunications fields. Additionally, Mr Chen inspected a paper pulp trading subsidiary of Beiya in Shanghai. He was greatly impressed by the sheer magnitude of Beiya, and by the scope of its business activities. [91] While he was still in China, Mr Chen says he was advised by his real estate agent that the property at 48 Greys Avenue was on the market, that the vendor was in financial difficulty, and that it could be had for a good price. He discussed this prospect with Mr Liu and Ms Yang. [92] Mr Chen says that his initial intention was to raise finance for about half of the $8 million purchase price through a company belonging to his parents in Taiwan. But Mr Liu told him that Beiya could provide a personal loan of US$5.5 million to Mr Chen in order to assist in the purchase of Greys Avenue. Very favourable terms were available. They included an interest free initial period of six years; thereafter interest at 8% per annum until the tenth year and 10% interest per annum over the next 10 years. The lender would not require security save that Ms Yang and Jasminewere to remain the shareholder s of the purchaser company for the first two years of the loan. [93] Unsurprisingly, Mr Chen regarded this as a deal that was too good to refuse. He therefore accepted the loan offer which he says ultimately proved to have been made on behalf of Suifenhe Fuquan Economic and Trade Co (Suifenhe). [94] Ms Yang says that she knew nothing about this loan until after the present proceedings were commenced. Mr Chen accepts that she was not present when he made the loan arrangements with Mr Liu and does not recall whether he ever discussed it in her presence. [95] Mr Chen says that Mr Liu suggested that the Greys Avenue property be placed in the name of Top since Ms Yang and Jasmine were already shareholders in that company. Mr Chen had no difficulty with that, provided that he was appointed managing director of Top so that he would have immediate control over its assets. Mr Liu agreed. [96] The evidence of Mr Chen (and also of Amanda) is to the effect that Mr Lawler, the solicitor who acted on many occasions for the parties, was asked to attend to Mr Chen's appointment as managing director of Top but he neglected to do so. In fact, it appears that Mr Chen was not so appointed until about October 2004. Mr Chen's position is that Mr Lawler overlooked, or failed to comply with, his instructions. Mr Lawler gave evidence for the plaintiffs but this point was not covered during the course of his evidence. Mr Lawler impressed me as an experienced competent solicitor who ran a well organised practice. I am not satisfied that he was asked to attend to documentation appointing Mr Chen managing director until October 2004. In other words, I accept Ms Yang's evidence to that effect. [97] It is worth noting in addition that of course an appointment as managing director did not secure control of Top for Mr Chen because the shareholder s could have dismissed him at any time. But Mr Chen says that he was told by Mr Liu that after two years he (Mr Chen) " could do whatever I liked with Top International". Mr Chen says also that Mr Liu considered it beneficial for Top to buy the GreysAvenue property mortgage free (by utilising funds that were not secured by a registered mortgage) because that would improve its apparent financial stability in the eyes of others. [98] Mr Chen returned from China in about June 2003 and in his capacity as a director of Top, opened a new US dollar bank account in the name. He was the only authorised signatory. Notwithstanding that he was not a shareholder in Top, he decided to consolidate his own business interests and to transfer certain property assets to it. The result was that Top acquired a significant asset base. Again, he considered that would improve Top's financial credibility. He says that in taking that step he was unconcerned about the current shareholding of Top because, in due course, he expected to own the company outright following his discussions with Mr Liu. [99] Accordingly, Mr Chen signed on behalf of Top as purchaser four agreements for sale and purchase, each dated 30 June 2003. The properties so purchased were at 73 Khyber Pass, Newmarket (purchase price $1,010,000); shop 14, Meadowbank Shopping Centre (purchase price $280,000); shop 23, Meadowbank Shopping Centre (purchase price $280,000); and 22 Danica Street, Te Atatu Peninsula, Auckland (purchase price $650,000). [100] 73 Khyber Pass was owned by LACA Ltd. Mr Chen says at the date of the agreement that company had three shareholders, namely Amanda and Paul Chen and William Liew. The two Meadowbank shops were owned by Heard Park. Danica Street was held in the joint names of Paul and Amanda Chen. Mr Chen says that all of these properties were transferred without payment of any consideration by or on behalf of Top. On his evidence, properties in excess of $2 million were accordingly gifted to Top. [101] This issue is very much in dispute. Mr Chen seeks, by way of counterclaim, judgment against the plaintiffs for the total value of the four properties, in the event that the plaintiffs succeed against him. Three of the properties were transferred in 2003, but the transfer of Danica Street was not completed until 10 June 2005.[102] The agreement for sale and purchase in respect of Greys Avenue was signed on 20 August 2003. Settlement was due in late September. The property was purchased with the proceeds of the Suifenhe loan. The money arrived in New Zealand in three tranches. On 6 August 2003 the sum of US$403,960.26 was received. That was to enable the deposit to be paid. Further instalments were received on 24 and 25 September. The Suifenhe loan agreement itself was not signed until late August. It is dated 25 August 2003. By then of course, Suifenhe had already transmitted a little over US$400,000 to enable Top to pay the deposit to its vendor. Although that is of itself somewhat remarkable, little seems to turn on it. [103] The loan agreement was executed in both Chinese and English versions, the former taking precedence where any difference arose. The borrower was specified to be Mr Chen. The purpose of the loan of US$5,500,000 was said to be to provide funds to him to purchase the property at 48/62 Greys Avenue, Auckland. [104] Clauses 2, 3 and 11 are of particular interest. They read:2. The Loan InterestThe loan shall carry interest at 0% (percent) per annum from the first date to the sixth year anniversary date after the execution of this agreement, followed by 8% (percent) per annum from the seventh anniversary date to the tenth year anniversary date after the execution of this agreement, and followed by 10% (percent) per annum from the eleventh year anniversary date to the twentieth anniversary date after the execution of this agreement.3. The Maturity DateThe entire Loan Amount (including principal and any accrued interest) shall become fully due and payable by BORROWER on 25 th day of August, 2023.11. Special share requirementAs required by the LENDER, the following share holdings must be met: 1. From the execution of this contact until September 2004, LIMIN YANG must hold seventy percent of the shares while YANG LIUmust hold thirty percent of the shares. 2. From September 2004 until September 2005, LIMIN YANG must acquire one hundred percent of the shares. 3., Thereafter, no further share requirements exist.[105] Mr Chen says that the New Zealand dollar equivalents of the sums received from China were as follows:a) 6 August 2003 - US$403,960.26 = NZ$688,412.10 @ 0.5868 b) 24 September 2003 - US$2,774,366.73 = NZ$4,258,522.54 @ 0.651468 c) 25 September 2003 - US$2,412,471.85 = NZ$3,703,030.90 @ 0.65146[106] Mr Chen says that these amounts total NZ$8,649,030.90, although the correct figure is $8,649,965.54. He disputes Ms Yang's evidence that the amount received was NZ$9,442,760.67. [107] The amount transmitted to New Zealand exceeded by US$90,798.84 the amount for which the Suifenhe agreement provided by way of advance, namely US$5.5 million. Mr Chen says that Mr Liu instructed him that the additional amount was intended to provide living expenses for the plaintiffs, it being difficult for Mr Liu to transfer foreign currency out of China. The circumstances of the present advance provided an opportunity for him to do that. [108] In November and December 2004, Top purchased four additional properties in Rotorua for a total of $268,300. Mr Chen undertook these acquisitions in the name of Top, without consulting Ms Yang, and utilising the residue of the Suifenhe loan. He considered that, because the Suifenhe money was effectively his own, he did not need to consult Ms Yang. [109] Meanwhile, for a period of about a year between mid 2003 and mid 2004, Mr Liu and Mr Chen explored certain export opportunities (by endeavouring to source New Zealand exporters or suppliers) in respect of pulp and paper and milk. Their intention was to facilitate the export of such products from New Zealand to China. Mr Chen says that he embarked on self-funded business trips to and from China in order to investigate opportunities there. A former Prime Minister of New Zealand, the Hon. Jenny Shipley, was retained as consultant. She went with Mr Chen to China in February 2004. A delegation of Chinese officials and business people came to New Zealand to inspect various work sites here.[110] None of the projects reached fruition, although in China Beiya was able to obtain a grant of about NZ$200 million for the purpose of establishing a plant to process New Zealand milk products. [111] Mr Chen says that in 2004, when it became plain that Mr Chen himself was not likely to derive anything significant from his endeavours in the export business, it was suggested to him by Mr Liu that he should take, in lieu of any profit, the hotel owned by Dacha, then valued at about NZ$1.4 million. Mr Chen's evidence is that he was not initially interested because the hotel required considerable maintenance, but Mr Liu confirmed that Mr Chen would be free to sell the hotel if he wished and to retain the proceeds. [112] Mr Chen says that in about March or April 2004, he told Ms Yang that the hotel was to be his and that he proposed to sell it. Ms Yang denies any such discussion with Mr Chen. [113] The hotel was ultimately sold on 1 October 2004 for $1.78 million. Mr Chen signed the agreement as managing director of Dacha. Subsequently, the necessary resolutions were signed by the Dacha shareholders. Mr Chen said that reflected Ms Yang's earlier knowledge that he proposed to sell the hotel. For her part, Ms Yang denies knowing anything of Mr Chen's intention to sell until after the agreement had been signed. [114] In about November 2004, Mr Chen says that Mr Liu invited him to participate in certain transactions involving the export of barley from Canada to China. He says that Mr Liu wanted Mr Chen or Heard Park to act as an intermediary between the company selling the barley (Crownton) and a Beiya subsidiary (Harbin) which would be the purchaser. Mr Chen says Ms Yang was a party to an arrangement whereby it was agreed that Top would not be a satisfactory vehicle, because it was to be used purely for property investment, and so Heard Park was chosen. Ms Yang denies any knowledge of any such arrangement. She does however accept that the barley deals took place with her knowledge and approval and it was agreed that the net profit would be split as to 70% for the Liu/Yanginterests and is to 30% to Mr Chen/Heard. The arrangements were not recorded in writing. [115] Crownton's entitlement to the purchase price was secured by way of letter of credit furnished by Westpac on behalf of Heard Park. The date on which the letter of credit was to be drawn upon post-dated the date of payment by Harbin. At least in theory, the transaction therefore entailed no risk. In support of the letter of credit Westpac obtained a mortgage over 48 Greys Avenue, general security agreements from Heard Park and Top and guarantees from Heard Park, Top, Paul and Amanda Chen and Ms Yang. [116] Mr Chen says that the detail of the barley shipments was organised by Mr Liu through staff members appointed by him. Mr Chen also initially said that Ms Yang was involved at an operational level, but in cross-examination he accepted that was not so. For her part, Ms Yang denies any involvement at all in the detail of the barley shipments. The first letter of credit was for a sum of US$3,113,225. Ms Yang and Mr Chen signed the documents necessary to enable Top to enter into the barley transactions. The first barley shipment went smoothly and was complete by June 2005. The overall profit was about NZ$55,000 which, as agreed, was split 70% to the plaintiffs and 30% to Mr Chen. [117] A second barley shipment was arranged in mid 2005. This shipment was to arrive in China in August 2005, but Crownton was not due to be paid until 23 October 2005. The sum involved on this occasion was about US$3.4 million. [118] Mr Chen says that in August 2005, after the second barley shipment had arrived in China, but before Harbin was due to make payment, Mr Liu advised him that Beiya was restructuring and required additional capital. Mr Chen says Mr Liu told him that Harbin would delay making payment until after the due date. The sum to be paid by Harbin for the barley was to be paid instead to Beiya as a loan. In addition, Mr Liu himself was to provide from his own sources a further US$3.5 million in cash, which he would pay to Heard Park for it to advance to Beiya.[119] Mr Chen says he did not understand the purpose of the loan (totalling US$7 million) but was told by Mr Liu not to worry about it. In order to compensate Mr Chen for his co-operation, Mr Liu promised that Heard Park would receive a commission of 20% on not only the redirected payment due from Harbin, but also the additional US$3.5 million being contributed by Mr Liu himself. [120] In August 2005, Mr Chen signed an agreement in China recording the loan to Beiya, which involved a letter of credit of US$3.5 million, together with a further US$3.5 million in cash. Beiya was to repay the loan to Heard Park by 1 May 2006. Harbin was granted an extension of time for payment for the second barley shipment until July 2006. Through his employees Mr Liu arranged an extension with Crownton, on the basis that a significant sum by way of penalty interest would be paid. There was an initial penalty interest obligation of US$54,000, and later a further penalty of US$96,290.13 in respect of a second extension. [121] Mr Chen says that although he was not entitled to his commission on the Beiya loan until 1 May 2006, he asked Mr Liu whether he could be paid in advance and that Mr Liu agreed. Mr Chen's evidence is that they worked out between them that US$1.4 million at an exchange rate of 0.55 produced a figure of NZ$2,545,454 (or approximately $2.5 million). Because Mr Liu did not want to break a term investment in order to produce the cash with which to pay Mr Chen's commission, Mr Chen says he was offered instead all of the shares in Rotorua International. The assets of that company (the hotel, together with three adjacent sections) were worth about NZ$1.8 million. In order to make up the balance, Mr Liu indicated that Ms Yang would mortgage the Albert Street apartment in the sum of NZ$720,000. That produced about NZ$2.5 million. [122] Mr Chen's evidence is that all of this was discussed in China in Ms Yang's presence. She completely denies any such conversation or arrangement. Mr Chen further says that on the same occasion there was a discussion about the transfer of the shares in Top as well. His evidence is that because the two year period referred to in paragraph 11 of the Suifenhe loan agreement had expired " it made sense that [the Top shares] revert to my name". He says that both Mr Liu and Ms Yang agreed and that the necessary paperwork would be undertaken when Ms Yang andMr Chen had returned to New Zealand. Again, Ms Yang denies any such discussion took place. [123] Mr Chen says further that Mr Liu agreed with Mr Chen to organise the transfer of the shares in Dacha to Mr Chen. This was because Mr Chen had the hotel already, and since Dacha had no other assets, it made sense to transfer the shares to Mr Chen as well. [124] In February 2006 and in pursuance of the Beiya loan arrangements, Mr Liu sent to Heard Park the sum of NZ$5 million. At this time Mr Liu, Ms Yang and Mr Chen were in China. Amanda Chen and Jasmine were in New Zealand. Mr Chen says that at Mr Liu's request, Jasmine faxed to Amanda details of the Hong Kong company bank account of a Hong Kong company known as Ease Birch. Amanda duly sent on a sum of about US$3,200,000 to the account of Ease Birch at the Standard Chartered Bank, Shenzhen. [125] By reason of Ms Yang's presence in China and by reason of Jasmine's role in sending the facsimile details of the Ease Birch bank account to Amanda, Mr Chen says each of them must have known the detail of the Beiya transaction. They both vehemently deny any such knowledge. [126] Following Mr Liu's arrest, Mr Chen says he endeavoured to obtain payment from Harbin of the sum owed in respect of the second barley shipment. There was an initial payment of NZ$1,130,000 but it was followed by an indication that the bank account of the relevant company had closed and was under investigation. [127] Meanwhile, from about August 2005, Mr Chen also became involved through Heard Park in transactions involving the export of satellite equipment from the USA to China. The equipment was purchased from an American company, and shipped to an organisation known as Shenzhen Richstar which Mr Liu said was owned by his brother. Heard Park was to pay the American company for the satellites upon delivery, and would then receive the purchase price from Shenzhen Richstar at a later, but pre-agreed, date. Profit was to be derived from a high interest rate charged to the purchaser.[128] Mr Chen says there were about six separate satellite shipments, totalling in value almost US$4 million. These transactions were financed by way of loans and mortgages from the Westpac and ANZ banks. Top provided security over its properties at Khyber Pass, Te Atatu and Meadowbank. There were securities also against a further property at Te Atatu then owned by Paul and Amanda Chen and a mortgage over the hotel owned by Rotorua International. Guarantees were already in place with Westpac; further guarantees were given to the ANZ Bank by Paul and Amanda Chen and by Ms Yang. The latter accepts that she was aware of the general nature of these transactions, and that in October 2005 she participated in the execution of documents relevant to the completion of various securities. [129] Mr Chen says it was also in October 2005 that the parties formalised earlier arrangements for him to take a transfer of the shares in Rotorua International, Dacha and Top. He says that Ms Yang attended at the offices of Liew & Associates to sign the share transfers. They were each dated one month apart. Mr Chen is unable to explain that unusual circumstance. He believes they were all signed on the same day, during October 2005. [130] Although each of the three share transfer forms was largely printed or typewritten, the consideration box was in each case completed by hand. In respect of the shares in Top, consideration was said to have consisted of the terms of the Suifenhe loan agreement dated 25 August 2003. In respect of Rotorua International the stipulated consideration was Mr Chen's agreed 20% commission on the Beiya loan. In respect of Dacha, the consideration is said to have been agreed consultancy fees payable to Mr Chen in respect of the work done by him on the paper pulp and dairy products projects. [131] Mr Chen says that at the same time Ms Yang signed notices of resignation of her directorship of each of the companies; Amanda Chen's evidence was to the same effect as that of Mr Chen. [132] Ms Yang and Jasmine utterly deny the evidence of Paul and Amanda in respect of the share transfers. They say that the meeting at which the share transfers were signed took place in early May 2006, and not in October 2005, and further thatthe consideration boxes on each of the transfer forms were blank at the time of signature and there was no discussion of what should be inserted in the boxes. They say also Ms Yang did not resign as a director until she signed the share transfer forms in May 2006. [133] The circumstances in which the share transfer forms were signed are a key issue in the case. I return to it later. [134] Shenzhen Richstar did not pay for the satellites by 31 December 2005 as had been stipulated. According to Mr Chen, he was advised by Mr Liu that the payment would be delayed until 31 March 2006, but payment was not made then either. [135] In April 2006, Mr Liu sought a loan from Mr Chen of AU$4.5 million to assist in the Mona Vale property development. Issues between the parties in respect of business activities in Australia are the subject of on-going litigation in the Supreme Court of New South Wales. Accordingly the Australian dollar loan is not of direct relevance for present purposes. A partial repayment of NZ$2.4 million was made to Heard Park on 19 April 2006 in respect of the satellite transactions. [136] By early May 2006 both Mr Chen and Ms Yang were aware that Mr Liu was wanted by the Chinese authorities. Mr Chen says at this stage he was still on good terms with Ms Yang, who assured him that Mr Liu was endeavouring to make his way out of China. [137] Mr Chen's evidence is that Ms Yang told him that she and Mr Liu were concerned to safeguard the family assets in New Zealand, and that they also wished to pay back the sums still owing to Mr Chen. He further says that Ms Yang suggested that the best way to achieve both of these objectives was for her and Jasmine to buy Top, Rotorua International and Dacha back from Mr Chen. He says that the agreement was that they would repay all of his personal liabilities in respect of the companies, including the US$5.5 million from Suifenhe and a $7 million term loan he had just organised with Westpac, together with all of the loans he had obtained in respect of the satellite deals.[138] Accordingly, it was agreed that Mr Chen would instruct Mr Lawler to prepare an appropriate agreement. Mr Lawler confirmed in evidence that he prepared the agreement following telephone instructions from Mr Chen. The document was signed on 12 May 2006. It is headed "Declaration of Trust" and on its face appears to be a brief conventional trust declaration by Mr Chen, under which he agrees to hold the shares on trust for the plaintiffs, and to retransfer the shares to them upon demand, subject to his right to be indemnified in respect of expenses and losses incurred by him. That represents Ms Yang's understanding of the document. [139] Mr Chen, however, takes a different view. His evidence is to the effect that he instructed Mr Lawler to prepare an agreement for the sale of the shares in the three companies by Mr Chen to the plaintiffs for a consideration to be calculated by reference to his outstanding liabilities, in accordance with his claimed arrangement with Ms Yang. [140] The circumstances in which this document was prepared and executed and the proper interpretation of the document itself are, in my view, key to the outcome of the dispute over ownership of the shares. I return to the topic below. [141] Crownton was due to be repaid for the second barley shipment in July 2006. When Mr Liu's predicament became known to Mr Chen, the latter organised a loan of $7 million secured against the Greys Avenue property. From this sum Crownton was paid about NZ$5.64 in July 2006. The application of the remaining NZ$1.3 million remains a matter of contention between the parties. [142] In late 2006, in order to reduce outstanding loans, Mr Chen sold the properties owned by Top, save for Greys Avenue, along with the hotel owned by Rotorua International. He agrees that in January 2007 Ms Yang endeavoured to transfer the shares back to herself in reliance on the power of attorney clause in the declaration of trust, but he says he was justified in transferring them back to himself a week later, by reference to his understanding of the terms of the declaration of trust document. Since late January 2007, the shares in Rotorua International, Dacha and Top have remained registered in Mr Chen's name.The heart of the matter[143] There are fundamental differences between the parties. Mr Chen says that the principal relationship was between Mr Liu on the one hand and himself on the other. He argues also that Ms Yang knew a great deal more about the detail of the various agreements and understandings than she was prepared to concede in evidence, but that to the extent that she was not privy to all of the arrangements, she must be taken to be bound by them, because Mr Chen was entitled to treat Mr Liu and Ms Yang, in effect, as a single legal entity. In legal terms, the argument is that Mr Liu must be treated as Ms Yang's agent with ostensible authority to bind her irrespective of her actual knowledge. [144] In advancing this argument on behalf of Mr Chen, Mr Hucker points to Ms Yang's concession in evidence that the assets concerned were regarded as "family" assets by the plaintiffs and by Mr Liu. [145] On the other hand, the argument for Ms Yang is that, contrary to Mr Chen's claims, she did not know of a number of the transactions between Mr Liu and him, nor was she a party to certain promises said by Mr Chen to have been made by Mr Liu. Her case is that Mr Chen has simply misappropriated her shares in the three companies, using as a pretext agreements that never existed or by which she is not bound, or alternatively, by relying upon documents which do not support his case. [146] A great many documents were produced in evidence; a few of them are particularly important. Key among them is the declaration of trust to which I now turn.The declaration of trust[147] It is common ground that the declaration of trust document was prepared by Mr Lawler on the telephoned instructions of Mr Chen. The background, according to Mr Chen, was that Ms Yang and he had agreed that they would sign a document which would record her entitlement to regain the shares in the three companies (transferred to Mr Chen months earlier on his evidence) provided that she paid off allof the sums considered by Mr Chen to be owing to him as a result of his business activities with Mr Liu. [148] Ms Yang's evidence, on the other hand, was that the shares had been transferred by her to Mr Chen only days earlier for him to hold in trust for her, while the Chinese authorities were investigating Mr Liu and Ms Yang. [149] Mr Lawler gave evidence for the plaintiffs without objection from Mr Chen. He produced and read into the record his detailed notes of the telephone instructions received from Mr Chen and confirmed also that the document produced in evidence was the executed declaration of trust. The document executed by the parties reflected Mr Lawler's instructions from Mr Chen as they appeared in Mr Lawler's file note. There was an element of urgency about the preparation and execution of the document. Mr Lawler attended virtually immediately to the task of settling the terms of the declaration, and it appears on the evidence that the parties attended at his office to sign it that same day. Those present were Mr Chen, Ms Yang and Jasmine. Mr Lawler says that he explained in outline the effect of the agreement. Mr Chen accepts that he translated the document for Ms Yang. [150] The declaration of trust reads in its entirety:DECLARATION OF TRUST PARTIES 1. PAUL YU-PO CHEN of Auckland, Company Director ("the Trustee") 2. LIMIN YANG, Manager and YANG LIU, Retired both of Auckland ("the Beneficiaries") AGREEMENT; 1. The Trustee declares that he holds the following shares in the following companies in trust on behalf of the Beneficiaries. Top International Limited 100 sharesRotorua International 100 sharesDacha International Limited 100 shares 2. The Trustee agrees that when requested to do so by the Beneficiaries he will execute a share transfer to transfer the shares back to the Beneficiaries. 3. The Trustee hereby appoints the Beneficiaries as his Attorney for the purposes of signing any share transfer in respect of this Deed and authorises the Beneficiaries to sign any transfer on his behalf subject to the terms of this Deed. 4. The Beneficiaries agree to obtain a release of any personal guarantee or other personal financial obligation provided by the Trustee in respect of the companies when taking a transfer of the shares. 5. The Beneficiaries agree to indemnify the Trustee in respect of any tax or other financial obligations arising as a result of him being a shareholder in the companies. DATED this '12' day of 'May' 2006. SIGNED by PAUL YU-PO CHEN in the presence of "Paul Chen" "Brendan John Lawler, Solicitor, Auckland" SIGNED by LIMIN YANG in the presence of "L Yang" "Brendan John Lawler, Solicitor, Auckland" SIGNED by YAN LIU in the presence of "Y Liu" "Brendan John Lawler, Solicitor, Auckland"[151] It will be seen at once that the document appears to be a simple declaration of trust accompanied by the usual consequential provisions. Clause 1 incorporates a declaration by Mr Chen that he holds the shares in the three companies on behalf of both Ms Yang and Jasmine. Clause 2 contains a covenant by Mr Chen that he will, when requested to do so, execute a share transfer for the purpose of returning the shares to the plaintiffs as beneficiaries. Clause 3 contains a common provision which appoints the plaintiffs to be Mr Chen's attorney for the purpose of signing any such share transfer. It authorises them to do so subject to the terms of the deed. [152] Up to that point, the document can be construed only as a simply declaration of trust. Mr Chen, however, relies on clauses 4 and 5 in support of the argument that it is not a declaration of trust at all. Clause 4 provides that when taking a transferback of the shares, the plaintiffs will obtain a release of any personal guarantee or other personal financial obligation "in respect of the companies" provided by Mr Chen. Clause 5 contains an indemnity for Mr Chen in respect of any tax or other financial obligations arising as a result of him being a shareholder in the companies. [153] Mr Hucker argues that clause 4 is capable of being construed as imposing upon the plaintiffs an obligation to make good all of Mr Chen's losses arising out of his activities with Mr Liu, before taking a transfer back of the shares. It is argued also that the clause 5 indemnity, by referring to "other financial obligations" reinforces the argument in respect of clause 4. [154] I am unable to accept Mr Hucker's argument. Clauses 4 and 5 are conventional clauses which appear in a great many trust documents. The purpose of clause 4 is to ensure that any personal guarantee or other personal financial obligation, incurred by Mr Chen in his capacity as a trustee during the term of the trust, is released at the instigation of the plaintiffs when the shares are transferred back to the plaintiffs. The clause, commonly found in trust documents, is intended to cover obligations assumed by the trustee in that capacity and during the currency of the trust. Likewise, the clause 5 indemnity relates to tax or other financial obligations incurred by the trustee in that capacity and arising during the period for which he is a trustee. [155] That construction is reinforced, in my opinion, by the entitlement of the plaintiffs, pursuant to clause 3, to rely on the power of attorney by transferring the shares back to themselves at any time. [156] In my view, that purpose of the declaration of trust is plain and manifest. It is what it says it is: a declaration of trust. Mr Chen argues, however, that the declaration of trust must be read in context and in the light of what preceded it. He says the shares were transferred from Ms Yang to him in October 2005, some seven months earlier, and that by May 2006 he was owed a great deal of money as a result of obligations incurred during the course of his business activities with Mr Liu. He says Ms Yang was looking for a place to keep secure further funds which she expected to receive from China, in the context of the investigations being conductedby the Chinese authorities. He says his arrangement with Ms Yang was that she could recover the shares in Dacha, Rotorua International and Top, provided that she paid off all of Mr Chen's outstanding liabilities. It was that arrangement which, he says, the declaration of trust document was intended to record. [157] It is impossible to read the declaration of trust in the manner for which Mr Chen contends. If his claim is correct then there was no need whatever for a declaration by Mr Chen that he held the shares in trust for Ms Yang: he already owned them outright. Rather, the document would have recorded her entitlement to purchase the shares from Mr Chen at a price to be calculated by reference to his outstanding liabilities. But there is no hint of any such intention in the document. Moreover, Mr Lawler's file note records nothing of that sort. Mr Chen suggests that Mr Lawler had simply got his instructions wrong, but Mr Lawler was never challenged on the point; neither was Ms Yang. In my view it was incumbent for Mr Hucker to raise the matter squarely with Mr Lawler if it were to be suggested that the document prepared by him did not reflect the joint intention of the parties, or his instructions from Mr Chen. [158] Mr Lawler impressed me as a competent and experienced practitioner who had taken adequate notes of Mr Chen's instructions in the context of what was, on any view, a relatively simple matter. A contract of the type for which Mr Chen contends would require much more detail than could have been conveyed in a brief telephone call to Mr Lawler. [159] Mr Lawler did not have a working knowledge of the relationship of the parties, or of the businesses they conducted. His evidence was that he was told only so much as it was considered he needed to know for the purposes of each separate instruction. [160] It was inherently improbable in my view, that Mr Chen and Ms Yang discussed any arrangement for her to pay off all of his outstanding liabilities. During the course of his evidence in chief Mr Chen claimed that, on an occasion in China, both Mr Liu and Ms Yang had promised him orally that they would ensure all of his liabilities were repaid. In the course of cross-examination he accepted that the onlysuch promise had come from Mr Liu, and that the undertaking could not be extended to Ms Yang. [161] But there is another even more fundamental objection to Mr Chen's argument. There was simply no advantage to Ms Yang in the agreement described by Mr Chen. On his account, Ms Yang was to regain the shares, if and when she paid off all of his liabilities. In the meantime he was to have ownership of the shares, and was free (as he confirmed in cross-examination) to deal with the assets of the companies as he chose. His claim was that Ms Yang needed to have the shares back in her name so she could utilise the companies in order to conceal further funds. But there was no reason for her to utilise these particular companies for that purpose. Indeed, because she had been associated with them previously, the better course would have been for her to seek other entities in which to invest. There was no discernible reason (commercial or otherwise) for her to indemnify Mr Chen to the tune of some millions of dollars, in order to achieve the minimal benefit which the return of the shares in the three companies would provide. [162] In cross-examination Mr Chen agreed that in order to regain the shares Ms Yang would have been required, under his version of the agreement, both to pay off his outstanding liabilities and to pay the market value of such assets as remained in the three companies. The argument that she agreed to do that is simply untenable. [163] I find accordingly that the declaration of trust document prepared by Mr Lawler, and executed by the parties, reflected Mr Chen's instructions to Mr Lawler and that, in turn, those instructions reflected the agreement entered into between Mr Chen and Ms Yang. [164] My finding on this issue raises a question about Mr Chen's credibility. His account of his arrangement with Ms Yang is not only lacking in commercial substance, but also flatly contradicts the evidence of Mr Lawler, which I am satisfied was accurate in every material particular. One explanation is that Mr Chen's account is the result of reconstruction after the event. I will return to the question of the reliability of his evidence overall, having dealt with the closely related issue of the timing and circumstances surrounding the execution of the preceding share transfers.The share transfers[165] Mr Chen asserts that Ms Yang transferred her shares in the three companies to him in October 2005. Ms Yang says it was early May 2006. There are two executed versions of the share transfer forms. Mr Chen has produced a version which, for each share transfer, includes a completed consideration box. Ms Yang's version, also executed, contains blank consideration boxes. [166] Mr Chen and Amanda each say that the share transfer documents were signed at a meeting at the offices of Liew & Associates during October 2005. The share transfer forms were prepared by Mr James Wong, an employee of Liew & Associates, and that Mr Wong brought extra copies to the meeting so everyone would have a copy. [167] Mr Chen and Amanda also say that the consideration boxes were completed by Mr Wong during the meeting, and so bear his handwriting. They say that copies of both the Suifenhe loan agreement and the Beiya loan agreement were on the table in the room when the share transfers were signed, but there was little or no reference to them because Ms Yang already knew what they contained and that the share transfers were being executed by Ms Yang in order to give effect to those agreements, and the understandings between Mr Chen and Mr Liu. [168] Ms Yang for her part says that the agreements were not in the room; that the consideration boxes were not filled in prior to execution and that at the end of the meeting she was provided with a copy of the document as signed. There was no discussion about the Suifenhe and Beiya loan agreements of which she had no knowledge at the time. Share transfers were signed in order to protect her interest in the shares from the investigations of the Chinese authorities. [169] Jasmine confirms that she attended a meeting in May 2006 at the offices of Liew & Associates when the share transfers were signed. [170] The handwritten consideration inserted in the share transfer forms relied upon by Mr Chen referred:a) in the case of Top to the provisions of the loan agreement dated 25 August 2003 between Mr Chen and Suifenhe (presumably in reliance on clause 11 of that agreement); b) in the case of Rotorua International to the commission said to be owing to Mr Chen in respect of the loan agreement between Heard Park and Beiya; c) in the case of Dacha to the consultancy fees said to be payable to Mr Chen in relation to his work on the paper pulp and dairy products projects. [171] Again, it is necessary to consider the surrounding circumstances in determining which version of the share transfer forms was actually executed. It was not put either to Ms Yang or Jasmine that their versions of the share transfer forms had been manipulated in some way. Neither was it suggested to them that Mr Chen and Ms Yang had executed several copies, some referring to consideration and some omitting it. [172] The plaintiffs called an experienced forensic examiner, Ms Delwynne Walsh, who examined the original share transfers held by Mr Chen's solicitors, and also the copies held by Ms Yang. She found no evidence of manipulation in the latter document. She did however observe that an examination of the originals indicated that: a) the consideration boxes had been filled in under different conditions from the balance of the forms (in that the signatures occurred while the original documents was sitting above other documents, and so making an impression on the latter, whereas the consideration boxes appeared to have been filled in at a time when the share transfers had been separated); b) a different pen had been used by the witness when executing the documents and when filling in the consideration boxes.[173] The defence called no evidence to contradict that of Ms Walsh. [174] The witness (who also on the evidence of Paul and Amanda Chen completed the consideration boxes) was Mr Wong. At the time he was, and still is, an employee of Liew & Associates. Although his evidence would have been extremely valuable to the Court, he was not called. [175] Mr McPherson submits that the Court ought therefore to draw a negative inference against the defendants by reason of the rule in Jones v Dunkel4 as discussed in Ithaca (Custodians) Ltd v Perry Corporation.5 There, the Court of Appeal said:[153] The absence of evidence, including the failure of a party to call a witness, in some circumstances may allow an inference that the missing evidence would not have helped a party's case. In the case of a missing witness such an inference may arise only when: (a) the party would be expected to call the witness (and this can be so only when it is within the power of that party to produce the witness); (b) the evidence of that witness would explain or elucidate a particular matter that is required to be explained or elucidated (including where a defendant has a tactical burden to produce evidence to counter that adduced by the other party); and (c) the absence of the witness is unexplained. [154] Where an explanation or elucidation is required to be given, an inference that the evidence would not have helped a party's case is inevitably an inference that the evidence would have harmed it. The result of such an inference, however, is not to prove the opposite party's case but to strengthen the weight of evidence of the opposite party or reduce the weight of evidence of the party who failed to call the witness.[176] Mr Hucker submits that Mr Chen is not a member of Liew & Associates and is therefore in no position to control Mr Wong's movements, nor to insist that he give evidence. But that, in my view, is to ignore the reality of the situation. Paul and Amanda Chen are very closely connected with Liew & Associates; Amanda is William Liew's sister. William was to give evidence for Mr Chen if I granted leave.4 (1959) 101 CLR 298.5 [2004] 1 NZLR 731 (CA) at 767-768.No explanation at all has been provided for Mr Wong's absence; in particular there is no explanation for the defendants' failure to subpoena him. [177] Because he was the person who, on Mr Chen's evidence, both supervised the execution of the share transfers and filled in the consideration boxes, he was in a position significantly to assist the Court on a matter pivotal to the outcome of this proceeding. Only during Amanda Chen's cross-examination did it emerge that Mr Wong was still working for Liew & Associates. I consider that the rule in Jones v Dunkel applies. I draw the inference that Mr Wong is unable to assist the defendants' case in respect of the share transfers in a material way. In reaching a conclusion about the date of and background to the execution of the transfers, I am bound to take into account Mr Wong's absence. [178] Mr Chen says the transfers were undertaken following an agreement in China in August 2005, to the effect that he would become the beneficial owner of the shares in all three companies. He says that some time in October 2005, and certainly before the end of that month, the share transfer forms had been signed. Yet, he was appointed by Ms Yang to be managing director of Rotorua International on 14 October 2005. If by the end of August she had already agreed to relinquish her shareholding in that company and to resign as a director, there would appear to be no reason whatever for Mr Chen to be appointed managing director by her in mid- October. In addition, various documents were lodged in the Companies Office during October 2005, in which Ms Yang was recorded as a shareholder and director. In the case of Dacha, the documents concerned were lodged on 31 October 2005. [179] More particularly, the events surrounding the execution of lending documents for Rotorua International are of special significance. In order to secure a bank loan, Rotorua International, by its directors and with shareholder support, was obliged to execute certain security documents. They were prepared on the basis that Ms Yang remained a director and shareholder. By then, on the evidence of Paul and Amanda Chen, Ms Yang had ceased to hold any interest in Rotorua International. They say that, by reason of the urgency of the bank loan there was insufficient time within which to alter the documents so as to give effect to the earlier share transfers, and sothe documents, which included a guarantee by Ms Yang, were signed in a way that did not accord with the Chens' version of events. [180] The documents concerned were prepared by Mr Lawler and executed under his supervision. He was recalled by leave of the Court in order to answer the contention that he had assisted in the execution of security documents which were allegedly at variance with the true position within Rotorua International. His evidence was that he had no knowledge of the purported transfers by Ms Yang to Mr Chen, and that, had he known of the prior transfers he would not have been a party to the execution of documents which were misleading, and which, in the case of Ms Yang, imposed upon her a liability as guarantor in circumstances where she was no longer a director and shareholder of Rotorua International. [181] Mr Lawler was not cross-examined on his supplementary evidence. [182] Then there is a somewhat remarkable letter written by Paul and Amanda Chen to the Secretary for Internal Affairs and dated 21 February 2007. This letter was written several weeks after Hesketh Henry had first written to the Chens on behalf of Ms Yang. It followed Mr Chen's retransfer to himself of shares which Ms Yang had herself sought to recover in reliance on the power of attorney contained in the declaration of trust. [183] The thrust of the letter from the Chens to the Secretary for Internal Affairs was that Ms Yang and Mr Liu had misconducted themselves in respect of the conduct of their business affairs, and that there were citizenship implications. Towards the end of the letter the following passage appears:We are giving you this information so as you could proceed with your investigations and to ensure that she [Ms Yang] is not granted NZ citizenship. This is to ensure that so as she could make a run and not face the music she deserves.[184] The letter, which runs to five pages, contains a significant amount of detail about the transactions entered into between Mr Liu and Mr Chen, with some reference to Ms Yang. At p 2 of the letter the following passage appears:To facilitative (sic) the deal, they suggested that we used our own company Heard Park Limited where my husband, myself and Li Min YANG through her company Top International Limited provided personal guarantees. As a result of this arrangements (sic), the total shipments of Canadian barley to the Chinese company nominated by the couple amounted to USD$6.5 millions and a further sum of USD$4 millions for the communication products. We have received part payment of USD$3 millions. However the balance of USD$3.5 millions and USD$$4 millions outstanding due to us have been defaulted. Since our company Heard Park Limited had to honour the L.Cs, we put pressure to the LIUs to pay up. The couple then agreed to transfer the shares of Top International Limited and Rotorua International Villas Limited which Mrs Liu (Li Min YANG) was the sole shareholder to us to offset part of the outstanding balances.[185] Of significance in this passage are two particular references. The first is the statement in the first sentence that Top was Ms Yang's company. That statement was inconsistent with Mr Chen's position in this proceeding, which is that from the outset Top was his company, incorporated in order to facilitate the purchase of Greys Avenue and funded thereafter entirely with his own money. [186] The second relevant reference is to the timing of the transfer of shares. The Chens explain that, following default on the Beiya loan, Heard Park had to honour the letters of credit (by paying Crownton) and that the Chens therefore put pressure on Mr Liu and Ms Yang to "pay up". They then say that "the couple then agreed to transfer the shares of Top International Limited and Rotorua International Villas Limited which [Ms Yang] was the sole shareholder" The point about this passageis that the Beiya default occurred at the earliest at the end of December 2005, although it was in mid-2006 that Crownton was paid. The statement that the transfer of the shares in Top and Rotorua International was a response to pressure imposed by the Chens following the Beiya defaults strongly suggests that the share transfers occurred in May 2006, and not in October 2005. [187] Somewhat remarkably, Paul and Amanda Chen each sought in evidence to distance themselves from the letter. Each ascribed to the other primary responsibility for preparing and sending it. Each indicated also however, that the letter was not written by either of them but by a staff member at Liew & Associates who had been given only limited background material with which to work. Accordingly, the Court was told, the letter was not entirely accurate.[188] At the time, Mr Chen was spending significant periods in Australia. For her part, Amanda Chen says that although she was in Auckland, she preferred not to write the letter because her written English is not as good as her fluent spoken English. [189] I have to say I am not impressed by the efforts of Paul and Amanda to disown, or at least resile from, the letter to the Secretary for Internal Affairs. The letter was written for a very serious purpose, and was aimed at damaging the interests of Ms Yang. If ever accuracy was required it was in a letter such as that. Whether or not the letter was drafted in the first instance by a staff member of Liew & Associates, it was for the Chens to ensure ultimate accuracy. [190] Given the level of detail appearing in various passages in the letter, I am satisfied either that the staff member who prepared the letter was given rather more information than the Court is now led to believe, or that one or both of the Chens had a significant hand in its eventual content. In any event, it was for the Chens, as signatories to the letter, to ensure it was correct. I therefore place some considerable weight upon the passage in the letter which deals with the share transfers. [191] Finally, there is the declaration of trust itself. If Mr Chen is correct, then the shares were transferred by Ms Yang to him in October 2005, many months before May 2006. There was no satisfactory explanation from Mr Chen for the execution of a declaration of trust in circumstances where, on his account, he had been the legal and beneficial owner of the shares for such a significant period. [192] I have rejected both of the explanations tendered, namely that the declaration of trust, despite its content, ought to be interpreted as an agreement for the resale of the shares, and that Mr Lawler misunderstood his instructions and prepared a document that did not give effect to them. On the balance of probabilities I am satisfied that the share transfers were executed in May 2006, as Ms Yang contends, and not in October 2005 as Mr Chen asserts. [193] I am satisfied also that when Ms Yang signed the share transfer forms, the consideration boxes were blank. That is because I accept that the forms were signedfor the reasons she gives, namely that she wished Mr Chen to hold the shares in trust for her. [194] That finding leads to the inevitable conclusion that the consideration boxes must have been completed at some later date; presumably when relationships between the Chens on the one hand and Mr Liu and Ms Yang on the other, had broken down. [195] That finding does not assist Mr Chen's credibility. Having rejected his evidence about the declaration of trust and the transfer of the shares, I necessarily approach his evidence on other matters with a considerable degree of care.Statements of Mr Liu and Mr Shen[196] Among the issues determined in my judgment of 13 May 2010 was Mr Chen's application for an order directing that Mr Liu give evidence from China by video link. I dismissed that application. My decision was upheld in the Court of Appeal. 6[197] The initial Court of Appeal judgment was a "result" judgment. Reasons followed on 30 August 2010. The last day of the trial was 18 June 2010. Almost two months later, on 9 August 2010, Mr Hucker advised the Court that the defendant had procured notes of certain interviews with Mr Liu and with a Mr Shen. Mr Hucker further advised the Court that he proposed to make an application under s 18 of the Evidence Act 2006 for an order admitting those notes as hearsay evidence. At the time of his memorandum Mr Hucker had not received the reasons judgment from the Court of Appeal. [198] Mr McPherson opposed the foreshadowed application, which was eventually heard on 17 September 2010. Counsel each filed a written synopsis of argument and made oral submissions. There were no affidavits. [199] The application concerns:a) an English translation of a Chinese transcript of part of an interrogation of Mr Liu conducted on 20 December 2006 in a Chinese prison; b) an English translation of a Chinese transcript of a written record of questioning during an interview conducted on 29 August 2006 in the office of the employer of Baosheng Shen. [200] The hearsay rule appears in legislative form in s 17 of the Evidence Act 2006, which provides:17 Hearsay ruleA hearsay statement is not admissible except— (a) as provided by this subpart or by the provisions of any other Act; or (b) in cases where— (i) this Act provides that this subpart does not apply; and (ii) the hearsay statement is relevant and not otherwise inadmissible under this Act.[201] A "hearsay statement" is defined in s 4 as meaning: a statement that -- (a) was made by a person other than the witness; and (b) is offered in evidence at the proceeding to prove the truth of its contents.[202] Section 18 permits the Court to admit a hearsay statement in certain circumstances. The section provides:18 General admissibility of hearsay(1) A hearsay statement is admissible in any proceeding if— (a) the circumstances relating to the statement provide reasonable assurance that the statement is reliable; and (b) either—6 [2010] NZCA 278; CA343/2010, 30 June 2010.(i) the maker of the statement is unavailable as a witness; or (ii) the Judge considers that undue expense or delay would be caused if the maker of the statement were required to be a witness. (2) This section is subject to sections 20 and 22.[203] The expression "unavailable as a witness" appearing in s 18(1)(b)(i) is defined in s 16(2) which provides:(2) For the purposes of this subpart, a person is unavailable as a witness in a proceeding if the person— (a) is dead; or (b) is outside New Zealand and it is not reasonably practicable for him or her to be a witness; or (c) is unfit to be a witness because of age or physical or mental condition; or (d) cannot with reasonable diligence be identified or found; or (e) is not compellable to give evidence.[204] Section 18(1)(a) requires the Court to consider the "circumstances" relating to the statement concerned in the course of determining whether the statement provides reasonable assurance that it is reliable. The expression "circumstances" as defined in s 16(1) as follows:circumstances, in relation to a statement by a person who is not a witness, include— (a) the nature of the statement; and (b) the contents of the statement; and (c) the circumstances that relate to the making of the statement; and (d) any circumstances that relate to the veracity of the person; and (e) any circumstances that relate to the accuracy of the observation of the person[205] Relevant also to the necessary analysis is s 8 which provides:8 General exclusion(1) In any proceeding, the Judge must exclude evidence if its probative value is outweighed by the risk that the evidence will— (a) have an unfairly prejudicial effect on the proceeding; or (b) needlessly prolong the proceeding. (2) In determining whether the probative value of evidence is outweighed by the risk that the evidence will have an unfairly prejudicial effect on a criminal proceeding, the Judge must take into account the right of the defendant to offer an effective defence.[206] The definition of "circumstances" for the purpose of hearsay evidence makes it clear that the inquiry into reliability must include not only the accuracy of the record of what is said and the veracity of the person making the statement, but also the nature and content of the statement and the circumstances relating to its making:R v Gwaze. 7[207] In my view these applications face significant hurdles. In the first place there is a question as to the authenticity of the statements, a matter that goes to the extent to which the Court can be assured of their reliability. It is to be noted that it is the reliability of the statement and the circumstances in which it was taken, which require consideration for present purposes. The reliability of the maker of the hearsay statement is a separate matter. [208] Remarkably, there is no sworn evidence as to the circumstances in which the two statements came into existence; they have simply been handed up to the Court as part of Mr Hucker's argument. There is no sworn evidence that the statements are in fact those of Mr Liu and Mr Shen respectively. The Court has been provided with both English and Chinese versions of the documents. The Chinese versions appear to bear both a signature and a fingerprint, but there is no evidence as to the circumstances in which the statements were signed and fingerprinted, nor anything to establish that they were signed by the makers of the statements. The documents bear no official markings, nor is the Court told how they came into Mr Chen's possession.7 (2010) 24 CRNZ 702 (SC) at [45].[209] Although the statements were reputedly made in 2006, Mr Chen did not seek to adduce them in evidence during the trial. Mr Hucker advises that nothing was done about placing the statements before the Court until it became clear, once the Court of Appeal had dismissed the appeal from my decision in respect of Mr Liu's evidence (given by the Court of Appeal after the trial evidence had been concluded), that Mr Liu himself would not be giving evidence. [210] At the hearing of the applications on 17 September 2010, I was provided with a copy of a letter bearing that same date, written by Mr Xiaoming Zhang, director of the Division of Legal Assistance in Criminal Matters at the Ministry of Justice of the People's Republic of China. The letter is written to Mr C R Pidgeon QC, who is senior counsel for the Ministry of Justice in separate proceedings against Top. In those proceedings the Ministry claims to be entitled to the sum of approximately $2.6 million, presently held by Top, but subject to an earlier freezing order obtained by the plaintiffs in this proceeding. [211] It seems that the letter from Mr Zhang has been provided to Mr Yoon Lee, a New Zealand solicitor acting for the Ministry of Justice, who has passed it on the Mr Hucker. In respect of Mr Liu, Mr Zhang says the statement is a transcript of a recorded interview conducted by investigators. He says all interviews were conducted within the guidelines and procedures of the police, and that:Mr Liu was accorded the same treatment as any other citizen or suspect in such circumstances. All suspects are entitled to view the interview notes before signing them. The same notes are provided to defence lawyers.[212] There is no explanation in respect of Mr Shen's statement. [213] While the Court has no reason to doubt what Mr Zhang says, the advice conveyed in his letter is presumably based upon what he has been told by others. In other words, his own statement is itself hearsay. Moreover, given the time available to Mr Chen, there was in my view no reason why the tendered statements could not have been supported by appropriate affidavit evidence, sufficient to provide the Court with reasonable assurances as to the genesis and status of the documents relied upon.[214] I am concerned also as to the circumstances surrounding the making of the statement tendered as that of Mr Liu. He was arrested in June 2006. The statement is dated December 2006. Presumably he had been in custody during the whole of the preceding six months. There is no information as to whether, before making the statement, he had access to lawyers or to legal advice. It seems from the statement that lawyers were not present during the interview. [215] It is impossible either to ignore the stark reality of the situation Mr Liu faced. He was ultimately convicted of a number of crimes for which he could, in China, have faced the death penalty. Indeed, Mr Pidgeon earlier advised the Court that Mr Liu might well have been executed had he not co-operated with the Chinese authorities to the best of his ability. [216] Against that background there must be a question mark as to the reliability of the statement. There would have been an inevitable tendency for Mr Liu to provide self-serving information, and in particular to distance himself so far as was possible from suggestions that overseas funds derived from Chinese entities were his property, rather than that of third parties. The serious jeopardy in which Mr Liu found himself is a relevant circumstance that relates to the making of the statement and goes to the question of whether the Court can be reasonably assured that it is reliable. [217] There are further unanswered questions as to the interrogation procedures conducted in China. The Court is not told who the interrogators were. Nor is there any evidence as to interrogation protocols. I have a particular concern in that regard. On its face the statement is said to have commenced at 9.48 am, and to have concluded at 2.34 pm. In other words, it stretched over some five hours, yet the English version of the statement runs only to eight pages. It is a logical inference therefore that the statement consists merely of extracts of what was discussed during that lengthy period. [218] Alternatively, it is possible that there may have been breaks in the interrogation. The Court simply does not know. What is plain enough is the statement was made as part of an on-going interrogation.[219] There is information before the Court to the effect that the Chinese authorities wish to interview both Ms Yang and Jasmine. It seems that Mr Chen is not a suspect, although he has for some considerable time been detained in China in order to assist the authorities with their on-going investigations. [220] Accordingly, Mr Liu had every reason to distance Ms Yang and Jasmine from his activities, and to link Mr Chen with Top, as he does in his statement. [221] In my opinion, the circumstances relating to Mr Liu's purported statement do not provide a reasonable assurance that the statement is reliable. It is accordingly inadmissible on that ground alone. But even if I had reached a contrary conclusion I would have excluded the statement under s 8. The circumstances surrounding the taking of the statement, and in particular Mr Liu's personal predicament, coupled with the inability of counsel for the plaintiffs to cross-examine Mr Liu, would prevent the Court from attaching any appreciable weight to the statement for the purposes of this proceeding. [222] The maker of Mr Shen's statement says that he was involved in sending certain funds to New Zealand from China on the instructions of Mr Liu. But there is absolutely nothing before the Court to justify the admission of his statement. The Court does not even have a letter from Mr Shen. Accordingly, I am unable to consider whether the circumstances relating to the statement provide reasonable assurance that the statement is reliable. Neither is there any evidence as to whether the maker of the statement is available as a witness. [223] Mr Shen was not mentioned by name during the trial; he is unknown to the plaintiffs. They would be unable to provide any meaningful response to his statement if it was admitted in evidence. There is simply insufficient material before the Court to justify the making of an order admitting Mr Shen's statement in evidence. [224] In short, neither statement can be admitted in evidence. The defendant has not made out a case for admission under s 18.Mr Liu and Ms Yang[225] The case for Mr Chen is built on two fundamental propositions. The first concerns Mr Liu. It is common ground that Mr Liu has been found guilty in a Chinese court of numerous offences involving fraud and embezzlement and sentenced to life imprisonment. Mr Hucker submits that I should accord considerable weight to the findings of the court which dealt with him. The record of that court's findings ran to some 90 pages, and was handed up during the course of the present trial. [226] None of that court's factual findings are directly relevant to the issues in this case. I accept, as relevant background material, that Mr Liu appears to have engaged in a number of transactions in China which were contrary to the interests of certain entities to which he owed a duty, and which instead favoured his own interests and the interests of those associated with him. But of itself that consideration cannot establish the truth of Mr Chen's account; nor does it shore up his own veracity, as to which I entertain considerable misgivings. [227] The second plank of the defence is that Ms Yang knew more about Mr Liu's activities than she is letting on, and that the Court ought to infer she was personally aware of the detail of certain transactions in which Mr Chen participated; in particular the Suifenhe and Beiya loans. Ms Yang's evidence is that she was unaware of either until Mr Chen filed an affidavit in this proceeding in April 2007. [228] I reject Mr Chen's contention. He says that Ms Yang was not directly involved in the Suifenhe loan. Nor can he point to anything that suggests she knew of the Beiya arrangements. She herself says she understood that payment for the second Beiya shipment was delayed by reason of problems with product quality. [229] Mr Chen accepts that Ms Yang never guaranteed repayment of Mr Chen's liabilities, even informally. Paul and Amanda Chen each acknowledged, as well, in their letter to the Secretary for Internal Affairs, that Top was Ms Yang's company. Mr Hucker argues that Mr Liu must nevertheless be taken to have been acting as Ms Yang's agent when he allegedly gave away to Mr Chen the property of, andshares in the three companies. In my view there is insufficient evidence to support that argument. Mr Liu was seldom in New Zealand. Ms Yang was here for most of the time, and had principal responsibility for the investments made by the companies. She retained Mr Chen. [230] In those circumstances there is no justification for treating Mr Liu as authorised to dispose of Ms Yang's shares in the companies. Had he been so authorised it might have been expected that Mr Chen would have discussed with Ms Yang the various arrangements he had made with Mr Liu, but there is no evidence that any such discussions took place. [231] Mr Chen says that he assumed that Ms Yang knew what he had agreed with Mr Liu. Her evidence, which I accept, is that she did not. The fact that Mr Chen, or someone at his direction, chose to amend the share transfer forms after execution, suggests that he was aware that Ms Yang would not accept the handwritten entries in the consideration boxes as appropriate. [232] In my judgment, Ms Yang was entitled to be treated as the legal and beneficial owner of the shares in each of the companies and was not bound by arrangements said to have been made between Mr Chen and Mr Liu. [233] However, in deference to Mr Chen's evidence and to Mr Hucker's detailed argument, I consider briefly whether there is, in any event, a credible basis for Mr Chen's claim that he provided the consideration appearing in his version of the share transfers.Suifenhe loan agreement[234] I have set out earlier the principal clauses of this agreement. It is to be noted that there was no reference to the Suifenhe loan agreement, or the proceeds of the loan, in Top's accounts. Rather, the capitalisation of Top is recorded as having arisen from shareholder advances. The shareholders at the time were Ms Yang and Jasmine. There is no evidence that Ms Yang knew of the loan agreement when she transferred her shares. I have already held on the balance of probabilities that shedid not. The relevant accounts were prepared by Liew & Associates and approved by Mr Chen in his capacity as director. [235] Quite apart from those considerations, there is no justification for Mr Chen's claim that clause 11 of the agreement entitled him to the shares. The agreement as a whole is a somewhat unusual document, but clause 11 is confined in its scope. It simply provides that for the first year Ms Yang and Jasmine are to be the shareholders of Top (the company is described by implication only and never directly named) and for the second year of the loan Ms Yang alone should be the shareholder. Thereafter, the shareholding was to be at large. There is no provision in the loan which entitles Mr Chen to an interest in the shares, as he seems to believe, and of course Ms Yang and Jasmine, who were the shareholders at the relevant time, are not parties to the agreement at all, and so in the absence of agency could not be bound by an arrangement entered into by others. [236] The transfer from Jasmine to Ms Yang in October 2004, occurred in my view for the reasons given by both Ms Yang and Jasmine, namely that Jasmine intended to go to China, and because Ms Yang in any event had reservations about Jasmine holding shares at such a young age. It is noteworthy that the transfer bears a reference in the consideration box to the Suifenhe loan agreement. The handwriting appears to be similar to that now appearing in Mr Chen's version of the later share transfers. That raises a serious question as to the authenticity of the consideration entry, but no express finding is needed as to that, given my conclusion that the transfer to Ms Yang occurred for the reasons she gives. [237] Jasmine's shares in Dacha and Rotorua International were transferred contemporaneously with the assignment of her Top shares to Ms Yang. That also very strongly suggests that the transfer occurred for the reasons she and Ms Yang give, and not for reasons associated with the Suifenhe loan agreement. [238] The plaintiffs do not accept the authenticity of the Suifenhe loan agreement which does not bear a "chop" or seal usually affixed to formal documents in China (several other documents produced in evidence do bear a seal). The terms of the agreement itself are unusually generous to Mr Chen. The agreement does not referto Top International at all, even though it is said that the amount of the loan was to be advanced to enable Top's principal asset to be purchased. And the provisions of clause 11 are frankly bizarre. There is no credible explanation for a provision which required Ms Yang and Jasmine to hold the shares for the first 12 months, for Ms Yang to hold them for the succeeding 12 months, and for shareholding thereafter to be unrestricted. There is room for the suspicion that the agreement was prepared at a later date and crafted to fit in with what was then known to have occurred. [239] It is not necessary to draw any concluded view as to authenticity for present purposes. It is sufficient to hold, as I do, that the agreement does not support the transfer of the shares in Top from Ms Yang to Mr Chen.Remuneration for export work[240] Mr Chen's claim is that Mr Liu agreed that he should have the Manaray Resort, owned by Dacha, in lieu of his share of profit on export deals which did not come to fruition. Mr Chen's evidence is that over a period of some months (Mr McPherson calculates about 10 months), he devoted significant time to assisting Mr Liu's endeavours to set up and implement projects involving the sale of wood pulp and dairy products from New Zealand to China. For reasons that were not explained to the Court, none of these projects was successful. [241] Mr Chen says that Mr Liu agreed that, by way of compensation, Mr Chen should take Dacha's principal asset, namely the Manaray Resort, worth approximately $1.4 million. [242] Mr Chen's evidence is that Ms Yang learned of this in March or April 2004 when she returned from China. He says she knew about it because her husband had told her that the hotel was to be sold and that Mr Chen was to have the proceeds. If that evidence is correct, then Mr Chen could have worked for no more than about nine months on export-related work. [243] Ms Yang denies that she was told then, or ever, about the alleged agreement. When Dacha was finally sold, it was without her knowledge or consent. Later, shewas persuaded by Mr Chen to accept the sale, which was subsequently ratified. The proceeds were then deployed as to part by way of vendor finance and as to the balance by placement on term deposit. Mr Chen's case is that it was further agreed with Mr Liu and Ms Yang that he should subsequently take the shares in Dacha as well, given that he was already entitled, on his evidence, to its principal asset. [244] I reject Mr Chen's evidence on this topic. Had his evidence been correct, he would not have needed to resort to what I have found to have been the device of altering the share transfers after the event in May 2006. Instead, he would simply have discussed his entitlement with Ms Yang at the time at which the share transfers were signed. Neither would he have agreed to hold the Dacha shares in trust, as he did in the declaration of trust, because they were already his. Moreover, it is difficult to accept, having regard to his history of business activities in China, that Mr Liu would agree to give away to Mr Chen a family asset worth well over $1 million, for work on Mr Chen's part which occupied a matter of months only, and ultimately bore no fruit. [245] I consider that Mr Chen was not entitled to appropriate the shares in Dacha owned by Ms Yang without her consent.The Beiya loan commission[246] Mr Chen's evidence is that, in return for his co-operation in diverting funds to the making of a loan to Beiya, he became entitled, by agreement with Mr Liu, to a commission of 20%, amounting to US$1.4 million; and further that although the Beiya loan was not due to be repaid until 1 May 2006, Mr Liu agreed that Mr Chen's commission should be payable up front, by means of a transfer by Ms Yang of her shares in Rotorua International to Mr Chen. Mr Chen says the properties owned by Rotorua International were worth about NZ$1.8 million and that Mr Liu agreed to pay the balance by taking out a mortgage of NZ$720,000 over the Albert Street apartment occupied by Ms Yang.[247] Mr Chen maintains that Ms Yang was present at, and participated in, meetings in China at which all of this was agreed in August 2005. Accordingly, the total amount payable to Mr Chen, on his account, was NZ$2.52 million. [248] Given my findings as to the state of Ms Yang's knowledge, and as to the circumstances in which the share transfers were executed, I reject Mr Chen's evidence on this issue. He may or may not have agreed a commission with Mr Liu, but on my findings, Mr Liu was not in a position to give away a property belonging to a company owned by his wife. [249] Again, the execution of the declaration of trust on the instructions of Mr Chen is completely inconsistent with his earlier alleged entitlement to a beneficial interest in the shares in Rotorua International. [250] There is a further reason to doubt Mr Chen's evidence about his entitlement to the Rotorua International shares. On 31 August 2006, Mr MacAvoy of Kensington Swan, solicitors (then acting for Mr Chen) wrote to a Mr Chan, who was involved in discussions over repayment of the loan. Mr MacAvoy's e-mail reads:Hi Danny, Please find attached PDF copies of the banking transactions, together with a copy of the Authority signed by Heard Park Limited authorising ourselves and you to pursue the debt. Heard Park Limited advises "1) US$3.2 + US$300,000 (processing fee) = US$3.5 in Feb 06 2) US$3,349,500 + US$150,500 (processing fee) = US$3.5 in Jun 06 Total loan US$7,000,000 Plus 20% US$1,400,000 Total loan due = US$8,400,00 Please note US$54,484.38 (paid in Apr 06) and US$96,298.13 (paid in October 05) were our cost. Crownton was our supplier and Beiya was our purchaser." Danny, can you now proceed with your contacts.Regards Tim[251] This e-mail, plainly sent on Mr Chen's instructions or at least with his approval, claims not only the loan itself of US$7 million, but also the commission of US$1,400,000. [252] The claim in August 2006 for commission is, of course, completely inconsistent with Mr Chen's claim to have become entitled earlier to the beneficial ownership of the shares in Rotorua International and to the proceeds of the mortgage over Ms Yang's apartment, in satisfaction of his commission entitlement. [253] In evidence, Mr Chen tended to distance himself from this e-mail, but I am satisfied that instructions to Mr MacAvoy must have been given with Mr Chen's knowledge. Because the e-mail so fundamentally contradicts Mr Chen's own evidence on the point, the e-mail provides further grounds for concern as to Mr Chen's reliability as a witness. [254] By way of postscript, I should return to a point taken by Mr Hucker in argument and discussed earlier. It was claimed by Mr Chen that Ms Yang must necessarily have known about the detail of the Beiya loan because a facsimile containing payment directions to a company called Ease Birch (associated with the relevant passage of funds) was sent from Ms Yang's apartment. The evidence was, however, that the facsimile was sent not by Ms Yang but by Jasmine, on the instructions of others, Ms Yang being overseas at the time. There is no evidence that Ms Yang or Jasmine knew anything about the Beiya loan at the time. The facsimile itself could not be regarded as somehow putting Jasmine on notice. The evidence as a whole suggests that she took a very limited interest in the business activities of her parents. [255] Mr Chen also relies upon certain evidence that suggests that Mr Liu might have had an interest in the company which eventually received the Beiya loan, but I do not see how that circumstance could make any difference to the position as between Mr Chen and Ms Yang.Who owns the shares?[256] For the foregoing reasons, I have concluded that until 12 May 2006 the relevant shares were owned by Ms Yang. From 12 May 2006 onwards, Mr Chen became the legal owner, but subject to his duties as trustee pursuant to the declaration of trust. [257] In my view the retransfer procedure effected by Ms Yang pursuant to the power of attorney in the declaration of trust in January 2007 was valid and effective to return legal ownership of the shares to her, but subject to Mr Chen's entitlement to reimbursement for liabilities incurred and sums paid by him, as is provided in clauses 4 and 5 of the declaration of trust. [258] Mr Chen's subsequent attempt to transfer the shares back to himself was, in my view, ineffective. Although he acknowledges Ms Yang's ultimate entitlement to the shares, he does so only in the context of his claim that she must first reimburse him for all liabilities incurred in the course of his relationship with Mr Liu. [259] I reject that contention. Mr Chen is entitled only to reimbursement in respect of personal guarantees or personal financial (including tax) obligations incurred by him in his capacity as a trustee from May 2006 onward. There is no evidence that he has ever supplied details of such obligations or expenditure. Unless and until he does so, his claims cannot be considered. [260] In the meantime, he cannot set up any such outstanding claims for reimbursement as a barrier to Ms Yang's present entitlement to both legal and beneficial ownership of the shares. [261] She is entitled to relief accordingly. I have considered whether the better course is simply to make an order vesting the shares in her. However, because the declaration of trust is made in the names of both Ms Yang and Jasmine and because there is no available evidence as to the proportions (if any) in which the shares are to be taken, the better solution is simply to declare, as I do, that Ms Yang is entitled tothe legal and beneficial ownership of all the shares in Dacha, Rotorua International, and Top. [262] In addition to a declaration as to ownership of the shares themselves, the plaintiffs seek monetary compensation. In their second amended statement of claim they plead against Mr Chen causes of action founded on alleged breaches of trust and breaches of director's duties. [263] I therefore turn to the statement of claim itself.The plaintiffs' pleadings[264] In his closing address Mr McPherson refined the claims appearing in the second amended statement of claim. The plaintiffs now seek: a) The sum of $1.78 million together with interest in respect of the proceeds of sale of the Manaray Resort, formerly owned by Dacha; b) A total of $1,119,077.41 in respect of Rotorua International. This sum comprises: i) $499,077.41 being the sale proceeds of the Kiwi Hotel, said to have been retained and used by Mrs Chen for Mr Chen's benefit; and ii) $620,000.00, being the amount raised on a mortgage against the three remaining residential properties in the name of Rotorua International, such sum having been drawn down by Mrs Chen and used substantially to pay Mr Chen's legal costs both here and in Australia, and to meet general living expenses; c) With respect to Top, an inquiry as to damages, but among the transactions upon which the plaintiffs focus are:i) the payment of $5,630,000 to Crownton; ii) a sum of $1,360,000 retained by Heard Park from the proceeds of the $7 million mortgage of Greys Avenue; iii) a sum of US$1.13 million representing a part payment by Harbin for the second barley shipment, and said to have been retained by Heard Park; and iv) the sum of $757,593 claimed to be the equity retained by Heard Park following the sale of certain properties by Top, after execution of the declaration of trust. [265] Each of these sums is said to be owing to the plaintiffs by Mr Chen in consequence of an alleged breach of duty, arising in consequence of the provisions of the declaration of trust. [266] Mr McPherson argues that Mr Chen has infringed the self-dealing law:Chirnside v Fay, 8 Chellew v Excell, 9 and that he is in breach of his duty to account to beneficiaries and to furnish information to them: Foreman v Kingstone;10 and of a separate duty to take all reasonable and proper measures to obtain possession of the trust property, and to get in all debts owing to the trust estate: Hansen v Young.11[267] The duties owed by a trustee will depend upon all the circumstances of the case. The ordinary situation is one in which a trustee is formally appointed by will or deed of trust, and must assume all the obligations imposed upon him or her by the terms of the instrument of appointment, together with those obligations imposed by the general law of trusts. [268] The other end of the spectrum is what is sometimes called a "bare" trusteeship, where the obligation is simply to hold the trust property at the direction8 [2007] 1 NZLR 433 (SC) at [19].9 [2009] 1 NZLR 711 (HC).10 [2004] 1 NZLR 841 (HC) at [85] and [97].11 [2004] 1 NZLR 37 (CA) at [29].of the beneficiary. The distinction was discussed at length in Burns v Steel,12 upon which Mr Hucker relies. There, Randerson J considered a number of authorities, concluding at [62] that the Court's task: is to ascertain the nature and extent of the trustees' obligations and discretions by reference to the terms of the instrument establishing the trust, assessed in the context of all the relevant surrounding circumstances and the obligations imposed on trustees by the general law or by statute.[269] The circumstances of the present case are unusual. Mr Chen was already a director of the three companies when the declaration of trust was executed and so already owed to Ms Yang, as shareholder, and to each of the companies concerned, certain duties imposed by law on a director. On its face, the declaration of trust imposes no additional explicit obligation, save for the obligation to retransfer the shares upon request. [270] In her evidence in chief, Ms Yang described the consequences of the declaration of trust in the following way:21.8 Paul agreed that he would hold the companies' shares in trust, with my daughter and I retaining the beneficial interest in those shares. Paul was to manage the assets and conduct the businesses to our and the companies' benefit. 21.9 I did not agree that Paul would have a completely unlimited power. I expected that he would: a. Act in the best interests of the companies and my daughter and me as beneficiaries; b. Consult with me closely for any activity he proposed by way of borrowing or sale in relation to the companies' properties. c. Where I had agreed with any specific dealing or step with the companies or their assets Paul had to adhere to what we had agreed. d. Account fully to the companies and to my daughter and I so that we were aware and had knowledge of the companies' position, including the financial position. e. Transfer our shares back to us at any time upon our request. 21.10 I did not specifically discuss these expectations with Paul. Rather, they were my understanding of what a Trust meant. In any event,12 [2006] 1 NZLR 559 (HC).this was how Paul had acted as a director of the companies so far, so I expected him to continue to act in a similar manner.[271] It will be seen that Ms Yang's expectations were (save for the obligation to retransfer the shares upon request) no more than her proper expectations of Mr Chen in his capacity as a director. The intention of the parties was that Mr Chen would hold legal ownership of the shares for the sole purpose (on Ms Yang's evidence, which I have accepted) of removing her name from the register of members, in the light of investigations being carried out by the Chinese authorities. Otherwise, as Ms Yang explains in her evidence, it was business as before. As she says:In any event, this was how Paul had acted as a director of the companies so far, so I expected him to continue to act in a similar manner.[272] I consider that in the particular circumstances of this case, the parties did not intend Mr Chen to assume additional duties as trustee beyond the single duty to retransfer the shares to Ms Yang upon request. As she envisaged, her interests would be served by Mr Chen's observance of the various duties imposed upon him as a director. [273] Ms Yang is not therefore entitled to monetary relief in respect of her claims based upon alleged breaches of trust. [274] The sixth cause of action in the second amended statement of claim is based upon an alleged breach of Mr Chen's duties as director: a) not to profit personally from his position; b) not to allow a conflict to arise between his duty as a director and his own self-interest; c) to exercise his powers in the best interests of the company. [275] These are all duties imposed upon directors under ss 131, 133 and 137 respectively of the Companies Act 1993. Likewise, they are all duties which, under s 169(3)(d)(e) and (h) of that Act are owed to the company and not to shareholders.[276] Section 169(2) prohibits the bringing of an action by a shareholder to recover any loss in the form of a reduction in the value of shares in the company, or a failure of the shares to increase in value, by reason only of the loss suffered, or a gain foregone by the company. [277] Although the plaintiffs do not seek to recover on the basis of a reduction in share value, their claim in the sixth cause of action constitutes, in my opinion, an attempt to recover losses suffered by the company concerned. In such circumstances, it is for the company to sue and not the shareholder.The derivative proceeding[278] This was foreseen by Mr McPherson who endeavoured to devise a procedural solution by agreeing with Mr Chen's former counsel that the derivative proceeding could be commenced and brought on for hearing, along with the principal proceeding, on the basis that if the Court upheld the plaintiffs' claims on the facts, leave to pursue the derivative proceeding could be granted as part of the overall relief obtained. [279] While counsel's ingenuity is to be admired, there is in my opinion an insuperable obstacle in the plaintiffs' path. An application to bring a derivative proceeding may be brought pursuant to s 165(1) of the Companies Act 1993 by a shareholder or director of the company concerned. Section 165 provides:165 Derivative actions(1) Subject to subsection (3) of this section, the Court may, on the application of a shareholder or director of a company, grant leave to that shareholder or director to— (a) Bring proceedings in the name and on behalf of the company or any related company; or (b) Intervene in proceedings to which the company or any related company is a party for the purpose of continuing, defending, or discontinuing the proceedings on behalf of the company or related company, as the case may be.(2) Without limiting subsection (1) of this section, in determining whether to grant leave under that subsection, the Court shall have regard to— (a) The likelihood of the proceedings succeeding: (b) The costs of the proceedings in relation to the relief likely to be obtained: (c) Any action already taken by the company or related company to obtain relief: (d) The interests of the company or related company in the proceedings being commenced, continued, defended, or discontinued, as the case may be. (3) Leave to bring proceedings or intervene in proceedings may be granted under subsection (1) of this section, only if the Court is satisfied that either— (a) The company or related company does not intend to bring, diligently continue or defend, or discontinue the proceedings, as the case may be; or (b) It is in the interests of the company or related company that the conduct of the proceedings should not be left to the directors or to the determination of the shareholders as a whole. (4) Notice of the application must be served on the company or related company. (5) The company or related company— (a) May appear and be heard; and (b) Must inform the Court, whether or not it intends to bring, continue, defend, or discontinue the proceedings, as the case may be. (6) Except as provided in this section, a shareholder is not entitled to bring or intervene in any proceedings in the name of, or on behalf of, a company or a related company.[280] It is to be noted that in determining whether to grant leave the Court must have regard to the factors set out in s 165(2). It must also be satisfied that the company concerned does not intend to bring the proceeding itself. [281] Mr Hucker argues that the plaintiffs lack standing even to bring the s 165 application. They may do so only if they can show that they fall within the expression "shareholder" in s 165(1). Section 2 of the Act provides that the term"shareholder" has the meaning set out in s 96. That section provides that a "shareholder" is: a person whose name is entered in the share register as the holder for the time being of one or more shares in the company.[282] In order to qualify as a "shareholder", the name of the person concerned must be entered into the register of the company as the holder for the time being of one or more shares in that company. [283] Section 2 defines the expression "share register" as meaning the share register required to be kept under s 87 of the Act. That section obliges every company to maintain a share register that records the shares issued by the company. The company's share register is quite different from the register which the Registrar is bound to maintain under Part 20 of the Act. There is no evidence that such a share register was maintained by Dacha or Rotorua International or Top. Mr McPherson accepts that it appears that none exists. [284] In RPB Solutions Ltd v Avoca Holdings Ltd13 Ellis J held that the s 96 definition of the term "shareholder" does not encompass those with beneficial interests or ownerships. That conclusion is with respect, plainly right. The clear intention of the legislature was to confer a statutory right to apply upon a legally identifiable class of persons. In other words, certainty is to prevail. [285] The Court is precluded from considering applications by those who, although not falling within the statutory definition, nevertheless claim standing to apply by reason of asserted beneficial or unperfected interests. To permit such persons to invoke s 165 would be to invite large scale litigation simply upon the question of standing. [286] Neither plaintiff can show that she was a "shareholder" for the purposes of s 96, and therefore for the purposes of s 165. I consider therefore that they had no standing to invoke s 165. The so-called derivative proceeding must be considered a nullity.13 [2010] 2 NZLR 857 (HC) at [23].[287] I reach that conclusion with some regret, because I am anxious to bring this proceeding to a conclusion on the merits. In order to achieve that objective I have set out below certain directions aimed at advancing this litigation to finality.Mr Chen's counterclaim[288] When the trial commenced the only statement of defence filed by Mr Chen consisted of a series of bare denials. Following Mr Hucker's retainer, I granted Mr Chen leave to amend his defence. A very full amended statement of defence followed. It incorporated a counterclaim, in which he pleads that if (as I have found), Ms Yang is held to be the true owner of the shares in the three companies, then he is entitled to judgment against the plaintiffs for $2,060,000 + GST (if any). This sum is calculated by reference to the alleged value of the properties claimed by Mr Chen to have been transferred to Top by him or his interests in or about April 2004, without consideration. [289] This counterclaim is misconceived. The plaintiffs were not parties to any of the agreements concerned and cannot possibly be liable to him. If there is a valid counterclaim it lies against Top. [290] The counterclaim will accordingly be dismissed.Result[291] For the foregoing reasons I make the following orders: a) The plaintiffs or such of them as they determine between themselves are declared to be the legal and beneficial owners in all the shares in Dacha International Ltd, Rotorua International Villas Ltd and Top International Ltd; b) They may give effect to the foregoing declaration of ownership by exercising the power of attorney appearing in the declaration of trust dated 12 May 2006;c) Following the making of the necessary entries in the register of members of each of the companies concerned, the plaintiffs will be in a position to appoint such director or directors as they see fit, and to claim the records of the companies; d) Having assumed control of the companies, the plaintiffs will be at liberty to commence a proceeding in terms of the derivative proceeding. Such fresh proceeding will not in fact be a derivative proceeding since the plaintiffs will be in all respects in control of the companies concerned; e) Any such further claim may be filed under CIV-2008-404-4287 (the proceeding formerly filed under that number having been a nullity); f) The relevant filing fee is waived and service of a notice of proceeding is dispensed with; g) Service of the fresh statement of claim on Mr Hucker's instructing solicitors is to be deemed good service; h) Following service, Mr McPherson is to arrange for a one hour face to face conference before me; the purpose of such conference will be to discuss an appropriate procedure for the determination of remaining issues, including: i) whether there should be a further hearing; ii) whether any further pleadings are required; iii) whether any party ought to be permitted to call further evidence; iv) what arrangements ought to be made for the disposal of the contempt issues left over by Hugh Williams J fordetermination by me (and on which I have heard no submissions). i) Mr Chen's counterclaim is dismissed as against the plaintiffs in CIV- 2007-404-1751. j) I reserve leave to the parties to make any such further application as may be appropriate in the circumstances.Costs[292] Costs are formally reserved. Counsel may consider that costs could usefully be discussed at the conference for which I have made provision above.C J Allan