He v Chen [2024] NZHC 1565 (14 June 2024)

Last Updated: 25 July 2024

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2014-404-3369 [2024] NZHC 1565

BETWEEN	YAO WE HE Plaintiff
AND	ZHIXIONG CHEN Defendant

Hearing:	12-16 February; 19-23 February; 26 and 27 February 2024
Appearances:	Yijun Liu, McKenzie Friend for Plaintiff C Jiang and B Hayes for Defendant
Judgment:	14 June 2024

JUDGMENT OF BECROFT J

This judgment was delivered by me on 14 June 2024 at 4pm pursuant to r 11.5 of the High Court Rules 2016.

Registrar/Deputy Registrar

..........................................

Solicitors:

Tompkins Wake, Auckland Copy to: Y He, Auckland

HE v CHEN [2024] NZHC 1565 [14 June 2024]

What is this case about?

• [1] This is a wide-ranging and long running civil action that was commenced in 2014. It arises from the breakdown in the commercial relationship between two businessmen. The plaintiff is Mr Yao Wei He (Mr He). The defendant is Mr Zhixiong Chen (Mr Chen).

• [2] The primary issue is the scope and effect of their business relationship for the export of infant milk formula from New Zealand to Hong Kong and China.

• [3] The starting point is whether there was a joint venture agreement between them, allegedly commenced in June 2010. If so, did Mr Chen breach it, and if he did, did Mr He suffer any loss? Other questions include whether fiduciary duties were owed (and allegedly breached by Mr Chen); whether Mr Chen is liable to account to Mr He for money had and received, or whether a claim against Mr Chen of unjust enrichment could succeed; and, whether s 174 of the Companies Act 1993 (the Act) is engaged?

• [4] Finally, there is an entirely separate question (but first in time) of whether the HKD 800,000 advanced to Mr Chen by Mr He on 28 September 2007, on trust for investment purposes, has been repaid?

An overview of the dispute between Mr He and Mr Chen

• [5] Mr He and his family emigrated to New Zealand from China in 1991. They have lived here ever since. Mr He operated a “noodle house” in East Auckland, assisted by his family. In 2002, he also incorporated Prestige Products (East Auckland) Ltd (Prestige), which supplied gifts and labels for use by companies and organisations within New Zealand. He was apparently earning an “average” income through that company. He owned a home and was repaying a mortgage loan.

• [6] Mr Chen came to New Zealand in 2004 under the investor migrant scheme but continued to reside principally in China. Mr Chen met Mr He in 2004 or 2006 (the evidence is unclear) through a mutual friend from their shared hometown in China. Mr Chen was (and apparently still is) a wealthy and successful Chinese property

developer. He said that by about 2010 he owned at least nine or 10 companies with over 1,000 employees. Mr Chen was based in China but regularly commuted to and from New Zealand, where he owned a house in Auckland.

• [7] From about 2007, Mr He helped Mr Chen look after his house when he was away in China. Mr He also assisted with other jobs for Mr Chen, including, when he was back in New Zealand, arranging fishing trips etc., for which he was reimbursed by Mr Chen. In fact, Mr He described himself as Mr Chen’s “runner-boy”. Mr Chen, in turn, paid for some of Mr He’s flights back to China in 2007 and 2008/2009.

• [8] In August 2007, there were general discussions about how Mr Chen could assist Mr He in his business activities and with investment opportunities in China. The nature of the discussions and what was promised is disputed. I will deal with those matters later. However, it is accepted that Mr He gave Mr Chen HKD 800,000 to invest on his behalf and that Mr Chen invested it. Mr He claims that money was never fully repaid to him. Mr Chen says that it was.

• [9] In mid-2009, Mr He began to investigate the potential for exporting New Zealand-made infant milk formula into Hong Kong and China. This was to take advantage of the 2008 scandal that had erupted in China about melamine contaminated Chinese manufactured infant milk formula. As a result, imported dairy products, particularly from New Zealand, became popular.

• [10] Towards the end of 2009, initially in a small way, Mr He began buying infant milk formula from supermarket shelves in New Zealand and airfreighting it (usually) to Hong Kong. He then sold it in Hong Kong, and sometimes China using his Taobao virtual store—a platform akin to Trade Me in New Zealand. It seems the infant formula tins, or sometimes cartons of six tins, were “smuggled” into China. This new and opportunistic business was carried out through Prestige (Mr He’s company).

• [11] In June 2010, there were discussions between Mr He and Mr Chen about going into business to expand the scope and volume of Mr He’s infant formula exporting business. Again, the nature and detail of these discussions are very much disputed. Mr He is adamant that there was an agreement for a joint venture between the two of

them. Mr Chen says there was no joint venture. Rather, the agreement was for Mr He to work with Mr Chen’s then 20-year-old son, Youngzhou Chen (called in this judgment, Mr Chen Jnr), through a newly formed company in which Mr He and Mr Chen Jnr would have a 50:50 shareholding. Mr Chen would be available for advice and further funding—significant funding—if necessary. Mr Chen says Mr He misunderstood the business arrangement that was finalised.

• [12] What is not disputed is that shortly after these discussions, apparently in June 2010, a new company, New Zealand Products International Ltd (NZPIL) was incorporated. It was structured along the lines discussed between Mr He and Mr Chen. There was (in substance) a 50:50 shareholding split between Mr He and Mr Chen Jnr. They were joint directors. Mr He sold his assets to NZPIL and Mr Chen provided financial backing. And the export business grew.

• [13] In February 2011, there were discussions that led to the incorporation of a second company, Hong Kong Distribution International Ltd (HKDIL). It was a Hong Kong company, based in that country. In this company Mr He and Mr Chen Jnr each had a 30 per cent shareholding and Mr Chen had 40 per cent. Mr He said he at first opposed his reduced shareholding but eventually agreed, albeit reluctantly. Again, the nature and scope of the discussions about the purpose and operation of this new company are very much in dispute. I deal with this later. Suffice to say, Mr He says it was to enable NZPIL to expand its activities into the exportation of New Zealand wine and seafood. Both Mr Chen and his son say, in the first instance, it was to establish a base for NZPIL in Hong Kong, to lease warehouses and employ staff.

• [14] In any event, during 2011 the two companies operated side by side, apparently without difficulties. But according to Mr He, he had a growing sense of unease that he was being treated unfairly, losing control and influence, and that the Chens were withdrawing more money from the companies than he was.

• [15] Issues then arose in relation first, to a shipment of red wine, and then about a major export of scampi to China in January 2012. The scampi may have been unfit for sale because of temperature irregularities in the container in which it was shipped.

No insurance was paid out. Why there was no insurance pay-out and, indeed, whether the scampi may have been later sold and the proceeds pocketed by Mr Chen, is all disputed and the subject of counter allegations between Mr He and Mr Chen.

• [16] In early February 2012, matters came to a head. Mr He says that while he was in Hong Kong, he discovered that Mr Chen had been operating a business of his own in competition with NZPIL and HKDIL. Mr He believes that Mr Chen was using Mr Chen’s New Zealand company, incorporated in 2011, Dairy New Zealand International Ltd (DNZIL). This is all disputed by Mr Chen. The business relationship between Mr He and Mr Chen (and Mr Chen Jnr) effectively and abruptly ended. On 10 February 2012, the parties agreed that HKDIL should be wound up. The parties would go their separate ways.

• [17] HKDIL was wound up in 2012. Its accounts are incomplete and those that are available are considered unreliable by both parties to this proceeding.

• [18] The final accounts for NZPIL for the financial years ending 2011 and 2012 could not be finalised because of inadequate documentation and lack of agreement between the shareholders/directors.

• [19] NZPIL was put into liquidation on 22 May 2014. It is agreed that the Official Assignee could make no progress with the liquidation, that creditors were not paid out, and that Mr He and Mr Chen Jnr, as shareholders, received no final distributions.

• [20] As a side note to this business history, further concerns about contaminated infant formula, this time New Zealand “Karicare” formula, emerged in 2013.¹ A bacterium strain that can cause botulism was discovered in some Fonterra products. As a result, China significantly tightened the relevant importing rules. The business opportunity seized upon by Mr He, and it seems quite a few other Chinese migrants in New Zealand, at least in its original form, was no longer possible.

1. Tania Branigan “Fonterra botulism scare leads to import ban in China, Vietnam and Russia” The Guardian (online ed, Bejing, 5 August 2013).

The five causes of action

• [21] Mr He issued proceedings on 23 December 2014. His third amended statement of claim, dated 21 December 2021, is now the subject of these proceedings. Mr He advances five causes of action.

First cause of action: breach of the joint venture agreement

• [22] Essentially, Mr He alleges that Mr Chen took more than 50 per cent of the profits from the joint venture which he alleges existed between them. He also claims that Mr Chen unfairly arranged for his business activities to have a 70 per cent shareholding in HKDIL.

• [23] Further, that in starting his own separate business in competition with the joint venture, Mr Chen acted in bad faith and contrary to the interests of the joint venture.

• [24] Mr He seeks a taking of account of the financial activities of the joint venture and judgment in accordance with the taking of account; with interest; and costs.

Second and alternative cause of action: breach of fiduciary duty

• [25] Mr He alleges that, as joint venturers, the parties owed each other fiduciary duties and that Mr Chen:

(a) breached his fiduciary duties to Mr He by using information and connections he obtained through the joint venture for his own benefit and that of two his companies:

1. DNZIL; and

2. New Zealand Milk Powder (HK) Ltd (NZ Milk Powder HK), a Hong Kong registered company;

and by generally operating the same business to that which was operated by the joint venture;

(b) profited from the operations of NZPIL in proportions not agreed to in the joint venture agreements; and

(c) did not account to Mr He when the joint venture ceased trading.

• [26] Again, Mr He seeks a taking of account of the financial activities of the joint venture; judgment in accordance with the taking of account; interest; and costs.

Third and alternative cause of action: money had and received or unjust enrichment

• [27] If there is no joint venture, Mr He claims that Mr Chen used confidential business information obtained from Mr He.

• [28] It is claimed this resulted in Mr Chen being unjustly enriched at Mr He’s expense and it would be unconscionable for Mr Chen to profit from his use of that confidential and commercially sensitive information.

• [29] Mr He seeks a taking of account of the financial activities of the joint venture; judgment in accordance with the taking of account; interest; and costs.

Fourth cause of action: relief under s 174 of the Companies Act 1993

• [30] At all material times it is claimed that Mr Chen was a “deemed director” of NZPIL, under s 126(1)(b) of the Act. As a deemed director, he caused NZPIL to be operated in a way that was oppressive, unfairly discriminatory, or unfairly prejudicial to Mr He’s interest as a shareholder.

• [31] Under this cause of action, Mr He seeks compensation as the Court considers just pursuant to s 174(2)(b) of the Act; interest; and costs.

Fifth cause of action: breach of trust

• [32] This cause of action relates to the alleged agreement whereby Mr Chen agreed to invest Mr He’s savings of HKD 800,000 into real estate in Hong Kong. It is alleged Mr He opened a bank account in his name, which was for the use of Mr Chen. On 27 September 2007, Mr He transferred HKD 800,000 into that account and then to

Mr Chen. Most of these funds have not been accounted for or paid back. Mr He seeks repayment of “the balance” of those investment funds; interest; and costs.

Mr Chen’s position

• [33] Mr Chen denies most of the factual background and virtually all the allegations contained in Mr He’s pleadings.

• [34] His statement of defence is clear that there was no joint venture agreement in the specific sense of that term—merely a discussion about doing business together. This was perfected through the formation of the company, NZPIL, where the business was carried out between Mr He and Mr Chen Jnr. Therefore, in that context, no fiduciary duties were owed.

• [35] Mr Chen’s defence is also that Mr He had been withdrawing HKDIL funds, misappropriating HKDIL’s stock, and pocketing funds paid by third parties for HKDIL’s goods—all for his own benefit. When Mr Chen attempted to conduct a stocktake, he alleges that Mr He blocked him from entering the warehouses and called the police. Mr Chen maintains he has not withdrawn money from NZPIL or HKDIL fraudulently and that he owes Mr He nothing.

• [36] In relation to the fifth cause of action, Mr Chen claims the money was paid back in full in 2009.

• [37] In relation to the third, fourth and fifth causes of action, Mr Chen also invokes defences under the Limitation Act 1950 and the Limitation Act 2010.

• [38] I will deal with each of these five claims in turn. However, I deal with the fifth claim first as it occurs first in time and helps set the scene for the first four causes of action. Before doing so, it is necessary to:

(a) set out the previous litigation between the parties, and its relevance;

(b) describe the conduct of this case; and

(c) assess the witnesses, particularly Mr He and Mr Chen and to make general credibility findings, which in this case are generally determinative of the result.

Litigation history between the parties

• [39] Mr He and Mr Chen have been at an impasse ever since their business relationship broke down. They have been well and truly entangled together in the courts for the last 12 years. This claim is not the first “legal shot” fired by either of them. There have been two previous major salvos and many interlocutory applications.

Mr Chen’s 2012 claim for the repayment of a NZD 300,000 loan to Mr He

• [40] The first legal shot was fired by Mr Chen on 14 September 2012, when he issued proceedings to recover what he alleged was a NZD 300,000 loan to Mr He, supported by an IOU signed by Mr He on 16 August 2010. Mr He defended the claim on the basis that the NZD 300,000 was not advanced to him personally but rather to NZPIL in accordance with the alleged joint venture agreement.

• [41] In July 2015, the High Court ruled in Mr Chen’s favour and entered judgment against Mr He in the sum of NZD 300,000 with interest and costs.² That judgment was upheld by the Court of Appeal.³ Mr He’s application to the Supreme Court for leave to appeal was dismissed.⁴

• [42] It was clear in the hearing before me that this trio of decisions profoundly concern Mr He. Almost 10 years later he is deeply disturbed by them, and still cannot accept them—as was clear in his evidence before me—to which I shall briefly return later in this judgement.

² Chen v He [2015] NZHC 1593.

³ He v Chen [2016] NZCA 340.

⁴ He v Chen [2016] NZSC 151.

• [43] For the sake of completeness, I add, as if to emphasise my immediately previous observation, that Mr He failed to pay the judgment debt. Mr Chen issued bankruptcy proceedings against him in 2016. Mr He’s subsequent application to set aside the bankruptcy notice, and the application for freezing orders in the current proceedings, were dismissed in 2017.⁵

Mr He’s proposed derivative claim

• [44] The second significant salvo was fired by Mr He. When Mr Chen first issued the proceedings for the recovery of the loan, Mr He promptly threatened to bring proceedings against Mr Chen. However, Mr He ultimately made an application for leave to bring a derivative action in the name of NZPIL against both Mr Chen and Mr Chen Jnr. That application was dismissed in August 2013.⁶

• [45] The Court of Appeal affirmed this result, but for different reasons.⁷ The Court was satisfied on the evidence before it that Mr Chen was a “deemed” director of NZPIL under s 126(1)(b) of the Act. The Court also concluded that the Associate Judge was wrong to hold that NZPIL did not have an arguable claim against Mr Chen for an alleged breach of the fiduciary duty he owed to the company. However, the Court considered the relief sought was either more appropriately pursued by the Official Assignee, or Mr He personally, or that in some cases the relief had no legal basis.

• [46] Of note, the Court of Appeal observed:

[58] NZPIL may have an arguable (but confined) claim against Mr Chen Snr for breach of fiduciary duty, but when consideration is had to the current confused state of the pleading and the costs of the proceedings we are not at all satisfied that a reasonably prudent business person, acting in pursuit of his or her own interests, would decide to pursue the proposed claim on the information currently before the Court.

• [47] The Court of Appeal concluded:

• [61] We consider that, given the complete falling out between the parties and the current impasse in the company, the appropriate way for the claims that have been identified to be advanced is through the liquidation process. The liquidator can carry out the accounting exercise to determine what

⁵ He v Chen [2017] NZHC 1933.

⁶ Chen v He [2013] NZHC 2033.

⁷ He v Chen [2014] NZCA 153, [2015] NZAR 437.

amounts, if any, the parties may owe the company for moneys wrongfully withdrawn from it.

• [62] Further, while in an appropriate case leave might be granted to pursue a derivative action based on a breach of fiduciary duty even where the company is facing liquidation, we consider the fact the company is no longer trading is a particularly relevant factor in this case. If, after taking independent advice, the liquidator determines there is a reasonably arguable claim against Mr Chen Snr (or Jnr) for breach of duty as director(s), then the liquidator could bring such a claim.

• [48] As I have observed, the confused state of the accounts prevented the liquidator from determining if there was any reasonably arguable claim against Mr Chen for any breach of his duty as a deemed director. No such claim was every brought. Indeed, the Official Assignee, as I understand it, felt unable to take any further action. The Official Assignee let all the NZPIL matters lie where they fell. I need to say that the accounts are generally in no better shape for this case. The state of the business and accounting records remains wholly inadequate and confusing.

How this claim developed

• [49] Undeterred, Mr He issued these proceedings, which have gone through four iterations and many procedural skirmishes. They now survive in the form of a third amended statement of claim. It is finally before the Court for resolution, 10 years after the first statement of claim was filed.

• [50] There have also been significant interlocutory applications filed. These include a partially successful strike out application alleging prolix and confusing allegations in the second amended statement of claim filed by Mr He personally.⁸ The Court ordered the claims to be re-pleaded, which eventually resulted in the current third amended statement of claim. There was also a failed application by Mr Chen for dismissal of this proceeding for want of prosecution and/or because there are no arguable causes of action.⁹ The reasons for the long delay in prosecuting this claim have been previously rehearsed and do not need to be addressed further.

⁸ He v Chen [2019] NZHC 2390 per Associate Judge Sargisson.

⁹ He v Chen [2023] NZHC 119 per Associate Judge Gardiner.

• [51] Mr He has had two previous lawyers acting for him. He began acting for himself sometime after the present third amended statement of claim was filed. This hearing was originally scheduled for June 2022 but was vacated as the case was nowhere near ready for hearing and, in particular, Mr He’s briefs of evidence had not been filed.

The conduct of this case

• [52] Mr He acted for himself during this entire 12-day hearing. He had the benefit of a McKenzie Friend, Ms Yijun Liu, a family friend and a qualified lawyer. She understood her role. She discharged it appropriately and on the terms I set out at the start of the hearing. There was no opposition to Ms Liu’s role from Mr Chen’s lawyer, Mr Jiang, who was ably assisted throughout by Mr Hayes. Mr Chen participated in the hearing by audio-visual link from China.

• [53] Mr He gave evidence and was the only witness for the plaintiff. Mr Chen gave evidence and called five other witnesses, including his son, an accountant from the firm that incorporated and dealt with NZPIL, an expert forensic accountant, and two of Mr Chen’s employees at the time who gave very brief evidence about a relevant transaction they were involved in for Mr Chen.

• [54] A Mandarin interpreter was used throughout the hearing, particularly for Mr Chen, whose English is extremely limited. Mr He has adequate conversational English. But I mean him no disrespect when I say I judged his English as inadequate for explaining and arguing about commercial legal proceedings. All his questions when he cross-examined defence witnesses, and his submissions, as well as most of his answers in his own cross-examination were through the Mandarin interpreter. Initially, when he made his opening submissions in English, I found his English difficult to follow and asked him many questions in clarification—much more than would usually be the case. Similarly, and for the first part of his cross-examination by Mr Jiang, I thought it better to clarify his answers at the time rather than to wait until the end of his evidence. This happened frequently. This helped me understand Mr He’s case, and its strengths and weaknesses, much more clearly. It was at this stage that the parties agreed that Mr He should be encouraged to use Mandarin as his first

form of communication to the Court. I also add that Mr Jiang (senior counsel for Mr Chen) is a fluent Mandarin speaker. In the best traditions of the Bar, he also occasionally helped clarify the points Mr He was trying to make to me—both in cross- examination and in his submissions—even when they were points that he disagreed with. I was careful to check that Mr He agreed with any such clarification.

• [55] The casebook for this hearing comprised a massive 14 large volumes, with supplementary material. It had been prepared by the defendant’s lawyers, using documents mainly provided by Mr He who had used a confusing numbering system. It was all re-numbered and indexed in hard copy by the defendant’s lawyers. Most helpfully, it was also all computerised, indexed and easily accessible using computer screens and a system provided by the defendant’s lawyers and operated by Mr Hayes. It proved invaluable. The documents were readily available to the witnesses.

• [56] I made clear to the parties, on several occasions, that I could and would only refer and read those documents that were referred to me either in opening or closing submissions or which were referred to witnesses or mentioned by witnesses. It would be impossible for me to read all 14 volumes. Some of the documents were in Mandarin, without a translation, or were otherwise impenetrable. Mr He and Mr Jiang accepted this reality.

An assessment of the evidence as a whole and credibility findings

The burden and standard of proof

• [57] I remind myself that Mr He must prove his case to the standard of the balance of probabilities. I explained this to him in conventional terms. I explained that he had the onus or burden of proving his claims. I said that he must establish that it is more probable than not, that each of his claims, separately, are correct. In other words, a possibility that he was right would not do, and mere suspicions that his allegations were correct would not be enough.

The starting point

• [58] The starting point in assessing the evidence and Mr He’s case, is that virtually all the preliminary discussions between Mr He and Mr Chen and their alleged subsequent agreements, were word-of-mouth, apparently concluded only by a handshake. None of their agreements were recorded in writing. While the casebook stretches to 14 volumes, there is also a paucity of direct documentary evidence.

• [59] Also, in most of the areas of essential dispute about the oral agreements, there are no witnesses. However, the exception is that in some instances, particularly regarding the alleged joint venture, Mr Chen Jnr was present. Even though he might be considered partisan and biased towards his father, I judged his evidence as helpful.

• [60] There are also no completed company accounts for the relevant periods, both for NZPIL and HKDIL, and no comprehensive banking and financial records.

Cultural issues

• [61] On this aspect of the case, Mr He also drew my attention to Deng v Zheng,¹⁰ where the Supreme Court, amongst other things, addressed the situation where the parties, as here, are both Chinese nationals, and have a cultural background different from the judge. The judge should be alert to these cultural dimensions, including how this may bear on the task of assessing the credibility of those parties. Mr He’s point was that it was perfectly standard practice in China for important business agreements to be conducted orally, and concluded by a solemn handshake, with absolutely no supporting documentation. Indeed Mr Jiang, for Mr Chen, did not dispute that.

• [62] However, in this case, that is not the issue. I have no doubt that some forms of oral agreements were entered into. But the question is, what were the terms of those oral agreements? Put another way, while the agreements may be none the worse in the legal sense for being oral, here the real issue is what was orally agreed?

¹⁰ Deng v Zheng [2022] NZSC 76, [2022] 1 NZLR 151.

• [63] As Mr Jiang submitted, Mr He has not called expert or other evidence as to how an understanding of the cultural background of the parties would assist the Court in determining the nature of the essential agreements between the parties, or their credibility. I agree. Mr Jiang was also of the view that even if such evidence was called it would be of little assistance. To that extent, he echoes the cautions of the Supreme Court.¹¹ Therefore, as noted by the Supreme Court, I am left with the usual ways to assess credibility, such as assessing the consistency of the evidence over time and with other documents (limited as they are in this case), any inherent plausibility or otherwise in the evidence, and the behaviour and actions of the witnesses at the time and later.

• [64] I also observe that judges have long since given up the notion, save in rare cases, that they have any special gifts in knowing when a witness is lying—at least to the extent that such judgement is based on body language, tone of voice, and general demeanour etc. And in this case, there is the extra dimension that I am dealing with a situation where the central protagonists are from a quite different culture to mine so that drawing any such conclusions is doubly fraught.

Credibility the essential issue

• [65] The next thing to say, is that here, there is little else that is directly relevant to assist in the usual credibility assessment, save for the issue of any inherent plausibility of their accounts and the parties subsequent behaviour, which in this case I conclude, as I later set out, is helpful. Also, in some cases the evidence of Mr Chen Jnr is relevant and helpful. Furthermore, the passage of time since the relevant events took place, as long ago as 2007—17 years ago—makes accurate memory recall very difficult, and the Court’s task of assessing credibility even more challenging.

• [66] Given the above, this case boils down to a pure credibility assessment of Mr He on the one hand and Mr Chen on the other. All areas of their evidence (except that Mr He advanced money to Mr Chen for investment purposes) are diametrically opposed. They cannot both be correct. I add that I reached the clear impression that

¹¹ At [78(d)].

this case had become a matter of personal honour for each of them and there was no backing down.

• [67] I acknowledge that each of them, in their own way, appeared to me to be sincere, earnest and appeared to genuinely believe their own version of the events. This is not unusual.

• [68] However, I cannot help but observe that neither Mr He nor Mr Chen have “clean hands” in their dealings associated with their business.

• [69] For instance, Mr He was prepared to circumvent the restrictions imposed by New Zealand supermarkets which prevented customers from buying more than two or three tins per person to ensure that all New Zealand customers obtained access to infant formula. Mr He also was at least indirectly involved in “smuggling” infant formula into China to get around the Chinese government import restrictions.

• [70] Mr Chen, for his part, readily conceded by Mr Jiang, was prepared to manipulate Chinese finance laws preventing a person transferring more than CNY 50,000 out of China.

• [71] Both Mr He and Mr Chen used what they described as “an underground currency dealer” to get money out of the Chinese-based Taobao account, which received income from people in China purchasing the infant formula.

• [72] In my estimation, they each showed a clear willingness to manipulate restrictions and the laws imposed by governments when it suited them. Essentially, they were equally culpable in this respect. Their credibility is equally adversely affected; and they both equally admitted these transgressions.

Mr He’s credibility

• [73] In his cross-examination, Mr He was prone to answer every question except the one that was asked. He seemed to sense a fishhook in every question and became intent on instead answering what he thought was the real issue being raised by the question. He explained to me that it was important to him that I understood all the

background and all the other matters of the case that may not be obvious in the question that Mr Jiang put to him. He also had the tendency in cross-examination to spontaneously raise new issues supporting his claims not previously contained in his evidence. These were very difficult for the defence to answer at short notice. This was, to say the least, frustrating. In fairness, I attributed that to Mr He’s desperation to prove his case and his abiding belief that Mr Chen, and for that matter his son, had “done the dirty on him”. He was sure the necessary and persuasive evidence existed. He just had to find it. This turned out to be a fruitless search.

The previous litigation regarding the NZD 300,000 loan

• [74] There is one matter raised by Mr He that is best dealt with now. In the early part of his evidence, Mr He continued to assert that Mr Chen had advanced NZD 300,000 to NZPIL in three roughly equal amounts. It took me a little time to realise that Mr He was referring to the same money that this Court had earlier decided was a personal loan advanced to Mr He (not NZPIL) by Mr Chen.¹² I understand that the judgment debt was eventually paid, but not before significant legal challenges were made by Mr He—as previously noted.

• [75] However, on several occasions in his brief and during his evidence, Mr He asserted that in that case such was the strength of his evidence and his defence, that the judgment against him is only explicable by officials being ‘bought off’ or bribed. He also claims that Mr Chen lied and committed perjury in that proceeding.¹³ He also alleged in cross-examination that his first lawyer must have been “paid off” by Mr Chen. So, too, was the accountant, the Inland Revenue Department, the Official Assignee, and the Serious Fraud Office who failed to investigate his claims. He also suggested there may be a possibility that the High Court Judge in that case was “bought off”. As this evidence seemed to relate to most of his first four claims, particularly his evidence in support of his joint venture claim, it makes sense to deal with it early in this judgment.

¹² Chen v He, above n 2.

¹³ Brief of Evidence of Mr Yao Wei He dated 31 March 2023 at [204].

• [76] I made clear to him that the behaviour he alleges is not part of New Zealand culture and certainly not the New Zealand legal system. I emphasised that it was a serious allegation to make, not least without providing a shred of information to support it. After reflection, some days into the trial and during his cross-examination, Mr He sought leave in writing to formally withdraw those allegations. It was proper for him to do so. I put them to one side. In any case, they should not be relevant to my assessment of Mr He’s credibility.

• [77] In my view, Mr He is now estopped from claiming in this case that the NZD 300,000 was a loan to NZPIL supporting his joint venture argument at least in the terms that were clearly rejected by the High Court. Issue estoppel, which is not affected by s 50 of the Evidence Act 2006, clearly applies. In other words, Mr He is not able to take a position in this case (regarding the NZD 300,000 loan) which is fundamentally inconsistent with the way that issue, necessary to the decision in the previous case, was dealt with in that previous case.¹⁴ Also, it would be an abuse of process to re-litigate the same issue.

Mr Chen’s credibility

• [78] For his part, Mr Chen was concise and often blunt in his answers. He appeared confident and sure of the facts from his point of view. Frequently he responded to Mr He’s questions by simply answering that he could not remember. At times I felt this was, perhaps, a little too convenient. He also, at least implied, that the issues in this case were a little minor for him ordinarily to be involved with given the width and scope of his business interests. I felt that did not reflect well on him. But after careful reflection, given the passage of time, I conclude his answers were reasonable. He is a plain-speaking man and I suspect it is in his nature to be somewhat terse. I do not make any adverse findings based on the sometimes spartan nature of his answers and his inability to remember some key aspects of Mr He’s claims.

¹⁴ Talyancich v Index Developments Ltd [1992] NZCA 590; [1992] 3 NZLR 28 (CA); Oranga Holdings Ltd v Duke
(1995) 8 PRNZ 500. See also Attorney-General v Canwest Radioworks Ltd (2005) 17 PRNZ 844.

Credibility findings

• [79] In the general sense, Mr He and Mr Chen are both equally believable. In this case it is generally impossible for me to clearly prefer the evidence of one against the other. Some of what Mr He asserts is possible, but no more than that—for instance Mr Chen’s failure to repay the money given to him. Some of his claims certainly raise suspicions—for example that the Chens may have begun trading in competition with NZPIL, before their commercial relationship with Mr He ended—and even may have precipitated the business breakdown. But they do not constitute proof on the balance of probabilities. On the other hand, I conclude that it is also quite possible that Mr Chen is perfectly correct in his outline of the events and in his denial of the key allegations. And his assertion that he repaid the money Mr He gave him for investment.

• [80] When I assess Mr He’s claims in light of some of the parties’ subsequent behaviour and events, and consider the inherent plausibility of the claims, I am of the view that Mr He has not discharged the evidential burden on him to the necessary standard. None of his claims are more probable than not. In fact, in some respects, for example the alleged joint venture, it is more probable than not that the business relationship was not a joint venture at all between Mr He and Mr Chen. Rather it is more probably a company structure between Mr He and Mr Chen Jnr, just as Mr Chen asserted.

• [81] There is also the fundamental problem in respect of Mr He’s first four claims as to whether he has established Mr Chen caused him any loss, even indirectly? The evidence of the only expert forensic accountant to give evidence (called by Mr Chen) is that it is difficult to establish the true situation and in particular whether there has been any loss to Mr He as a shareholder. I accept his evidence. He is not only a properly qualified expert, but I found his evidence clear, coherent, and compelling.

• [82] Mr He called no contrary accounting evidence. He had earlier advised this Court in writing, on 27 April 2022, that none was required. He recorded “I do not think I need an accounting expert to give the simple accounts evidence ... to show that the financial statements as I have referred to above, were false, pure fabrications and

as such in adducing such in C v H,¹⁵ Mr Chen had committed judicial fraud.” In my view Mr He could not be more wrong. On the evidence before me, even if he could establish the essence of his claims, it was impossible for Mr He to establish that he suffered any loss. Moreover, given the forensic accountant’s evidence, in those causes of action where a taking of accounts was sought, even if it was justified, it would be futile to do so given the utterly incomplete and inadequate financial records for NZPIL.

• [83] From what has been said, it will be clear that, given the state and nature of the evidence, I am clearly of the view that while Mr He’s claims are possible, they are not established as more likely, or more probable, than not. He has not established any cause of action on the balance of probabilities. Indeed, in some cases the reverse is true. In short, given the passage of time, the lack of clear supporting documentation and surrounding evidence, and the inherent implausibility of some of the claims (especially that there was a joint venture) while Mr He has his suspicions and genuinely believes he has been “ripped off” by Mr Chen, at the most they remain only possibilities. The evidence simply goes no further than that.

• [84] While that might be technically sufficient to dispense with this case, detailed reasons are of course required. This has been a 12-day hearing. In view of the voluminous evidence provided by the parties and their very detailed submissions, I address each claim in detail, assessing the relevant evidence showing why it falls short of establishing each of Mr He’s claims on the balance of probabilities.

Fifth cause of action: breach of trust—HKD 799,990 given to Mr Chen in September 2007 for investment

• [85] It is logical to deal with the fifth cause of action first. It is quite unrelated to the four other claims and has nothing to do with the alleged joint venture for the export of baby milk formula. It is also the first in time and importantly, it sets the scene for the first four causes of action.

¹⁵ The 2015 High Court decision, Chen v He, above n 2, still upsets Mr He.

• [86] There is no dispute that on the 28 September 2007, Mr He gave Mr Chen HKD 799,990 for investment purposes.¹⁶ For ease of reference I refer to this amount as the “investment money”. Mr Jiang accepts it was given on trust but notes that it is unclear what type of “trust” Mr He alleges. Mr Jiang describes it as a bare trust, created by an oral expression of trust. There is no need for me to make a finding on this point, but I observe that Mr Jiang’s characterisation seems appropriate. It is accepted there was no written agreement as to the terms of the trust nor the date for repayment. There is a difference of opinion between Mr He and Mr Chen on that point—to which I return later. The fundamental dispute is whether the money was ever repaid. Mr He says it was never repaid, while Mr Chen maintains it was repaid in instalments by 2009.

• [87] This claim is actually part of a two-part “deal” with Mr Chen, alleged by Mr He to have been struck at the same time. The first part of the deal was originally part of this cause of action, but that part of the claim has been dropped. However, it is relevant to this claim, was contained in Mr He’s brief of evidence and was the subject of considerable cross-examination. I deal with it first.

Mr He’s claim for 10 per cent of any commission earned by Mr Chen in his land brokering business

• [88] Mr He claims he had a conversation with Mr Chen in Murrays Bay, Auckland on 16 August 2007 when the subject of general investment arose. Mr He alleges that Mr Chen agreed to “cut him into his land brokering transactions” if Mr He assisted in Mr Chen’s collection of commission on his land sales. This was expressed to be in consideration for Mr He opening a Hong Kong bank account in his own name, through which Mr Chen could channel all his land brokering transactions. This would prevent Mr Chen’s family knowing the full details of his business. Mr He also suspects it was to hide his dealings from the Chinese authorities.

• [89] Mr He says he agreed a few days later and at the same time Mr Chen also agreed to invest Mr He’s investment money—which I discuss after this ‘first’ deal.

¹⁶ While the amount actually transferred into Mr Chen’s account by Mr He was HKD 799,990, counsel agreed for ease of discussion that it be referred to simply as HKD 800,000. The difference, it is agreed, is down to a $10 bank fee.

• [90] As with so much in this case, the agreement was not in writing. There were no witnesses. It is entirely word-of-mouth.

• [91] On 25 September 2007, Mr He and Mr Chen, at Mr Chen’s expense, flew out together to Hong Kong and returned on 30 September. On 27 September, with Mr Chen’s help, Mr He opened a bank account with the Bank of China (BoC) in his own name.

• [92] Mr Chen denies any agreement for Mr He to be paid for this assistance in establishing this account. Mr Chen’s explanation for the creation of the account is quite different. He says it was for general business purposes. And Mr Chen says that when, about a month later, Mr He gave him the investment money to invest on his behalf, Mr He was concerned about his lack of any security. Therefore, Mr Chen agreed to use the account set up in Mr He’s name, to funnel some of his money through so that Mr He could have reassurance, and “notional” security—in that Mr He could access the account and withdraw money at any time.

• [93] It seems clear that the “account” had money paid into it and taken out of it by Mr Chen from 18 October 2007. Significant amounts of money were involved. It appears there were very large balances in the account, often well in excess of the amount of the investment money entrusted with Mr Chen. However, the transactions slowed significantly from early November 2008. The account was closed down on 8 February 2011 in disputed circumstances. Mr He believes it was because Mr Chen was being investigated for suspicious property dealings which could include funnelling a portion of “under the table” property deals through this account. There is no evidence of that. At most, it is based on hearsay allegations by Mr He. But it exemplifies Mr He’s view of Mr Chen throughout all his evidence.

• [94] Mr Chen says the account was closed because there was no further use for it, as he had fully repaid the investment money to Mr He, and Mr He no longer needed the “reassurance” of access to Mr Chen’s money. More on that later.
• [95] Under cross-examination Mr He conceded that he had asterisked those transactions recorded in the account print-out that he understands constituted land commission earned, which he calculates at HKD 54 million.

• [96] However, I am not sure if any commission went through this account. There is absolutely no proof of that. Mr He eventually seemed to accept that. I cannot be sure on the balance of probabilities that if any commission was earned by Mr Chen on his land brokerage dealings, let alone if they went through this account. Mr He’s evidence on this point is mere speculation. Nevertheless, Mr He is insistent that at least HKD 54 million must constitute Mr Chen’s commissions. Therefore, he claims he is owed 10 per cent of that amount, being HKD 5.4 million, which is roughly equivalent to NZD 1 million.

• [97] To say the least, that would be a spectacular deal for Mr He. Mr He agreed that obtaining NZD 1 million for simply setting up a bank account in his name would be a huge windfall for very little effort and no risk on his behalf.

• [98] As if to highlight the difficulties with Mr He’s evidence regarding this claim, in his own evidence, he said that Mr Chen used this account “... to receipt the funds be [sic] such commission funds he earned, or otherwise, he was repaid to me and I am entitled to 10% of the funds put through, being my share of commission or otherwise as such had been the consideration as agreed with him for use of my [BoC (HK) account”.¹⁷ The use of his words in his evidence of “or otherwise” is problematic. It leads me to believe that Mr He was not sure of the origins of the money which was paid into the account. His claim in this respect was at best somewhat fluid.

• [99] There were also other difficulties with Mr He’s evidence about this alleged agreement. I need not mention them all. It is sufficient to note, for instance, that significantly, the “commission claim” was not included in the first statement of claim.¹⁸ Mr He was of the view that he did not have any bank statements to support this claim and that is why it was not included. However, he also said it was because his lawyer did not follow his instructions. These answers are difficult to reconcile. I

¹⁷ Mr He’s brief of evidence dated 31 March 2023.

¹⁸ 23 December 2014.

note that this claim was first mentioned in Mr He’s amended statement of claim, however it does not appear on his current statement of clam. Mr He was also unconvincing as to why the commission to which he said Mr Chen would be entitled was 10 per cent in light of the fact that the usual rate for Hong Kong would have been one per cent.

• [100] Not surprisingly, Mr He has dropped that aspect of his claim from this cause of action on his lawyer’s advice. He regards this as “ill advice”. He emphasised he has given this evidence in this trial, “to show how much he trusted Mr Chen and how immoral, unethical and a criminal he is. His words are not to be trusted”.

• [101] With this assessment in mind, it must be said that Mr He was very clear to me about his views of Mr Chen. Those views certainly remained consistent throughout the trial. I might add, for the sake of fairness, that Mr He presented no evidence of which I am aware to establish that Mr Chen had, or might have, committed any crime as alleged.

• [102] This evidence is no longer the subject of any claim. Nevertheless, Mr He included it in his brief, stuck to his story in cross-examination and clearly believes it to be true. I would characterise his allegations as most improbable, if not fanciful. They negatively colour my assessment of his other evidence about this cause of action, and I draw adverse inferences against Mr He because of them.

The HKD 800,000

• [103] The 16 August 2007 discussions between Mr Chen and Mr He about the alleged offer to cut Mr He into the land brokering transactions, also included discussions about how much income Mr He was making in his restaurant business. Mr He says that Mr Chen said that was too little and asked if he had any cash saved which Mr Chen could invest at far better returns. Mr He says that he explained that he had HKD 800,000 available which he and his wife intended to invest in a residential apartment in Hong Kong.
• [104] Those discussions seem generally agreed, although they differ as to the details; for instance, as to what Mr He might be intending to use the investment for and how it was ultimately invested. However, these matter little and are explicable given the passage of time. It seems Mr Chen accepted that he promised, even if not using the words “guarantee”, that the funds would be safe with him.

• [105] I also accept that Mr Chen, as part of the general discussion, said that he had been able to double his own investments in about five years. However, it was not a term of Mr He’s investment that there would be a doubling of the money, although I accept, in the absence of any other discussion, that it was understood Mr Chen would have the money for up to five years. In reality, probably Mr He could have demanded return of the money earlier and, if so, Mr Chen would have done so.

• [106] I accept that a bare trust was created whereby Mr Chen agreed to invest Mr He’s money on his behalf, being more likely than not, for a maximum period of no more than five years.

• [107] In the end, given the view I have taken of this cause of action, it is immaterial if the payment in five years was an express term of the trust. There is, therefore, no need to decide whether the Limitation Act applies. For what it is worth, I would have held that the Limitation Act period commenced as from the 28 September 2012. This date was five years from the date the money was first transferred to Mr Chen, and therefore the last date by which it should have been repaid. Mr He’s first statement of claim, filed in December 2014, raised this cause of action and was thus well within that limitation period.

• [108] If the five-year repayment period is not a term of the trust, then the default position is that the money would have been repayable upon a demand by Mr He. Mr He’s evidence is that he asked for repayment in 2009. If that were so, the Limitation period would still not have expired. Mr Jiang’s submission is that the relevant limitation period commenced even earlier, being the date when the loan was advanced, and the limitation period would consequently end six years from the date of the loan, but I do not accept that submission.
• [109] This cause of action can be decided on the essential issue of whether the investment money was repaid. There are no documents recording repayment. Mr Chen believes that Mr He only brought this claim as an afterthought, because of Mr Chen’s separate claim against him for the NZD 300,000 loan.

• [110] Mr Chen says that the Asian stock market crashed in 2008. So did the shares in what I understand to be a Hong Kong or Chinese company, KWG property, that it is agreed Mr Chen purchased using Mr He’s investment money. Mr Chen said he felt guilty that Mr He had lost some of his money. He said he felt responsible. In his brief of evidence, Mr Chen said he sold the shares at a loss, and made up the deficit from his own money.¹⁹ He said he repaid the principal sum in 2009. However, in his evidence in Court, he was less certain and believed he repaid Mr He in instalments, some in cash, in both 2008 and 2009. He explained the difference in explanations as the result of having no clear memory of the details, other than his steadfast view that the investment money was repaid.

• [111] Mr Chen says he cannot obtain his bank accounts going back to 2008/2009 to demonstrate his repayment, given the relatively late notice of the claim. Neither can Mr He provide his own bank accounts from 2007 onwards to lend weight to his assertion that the money was not repaid. Mr He says that the logical place to repay the investment money would have been into the account from which it was taken— the BoC (HK) account in Mr He’s name. However, I am not sure why this should be the case. After all it was not Mr He’s account in substance.

• [112] The issue of repayment then is a classic case of one person’s word against the other.

• [113] In Mr He’s favour, is that I judge him to have taken a reasonable and fair approach in reducing the amount he says is owed to him—NZD 160,000, by a further NZD 80,000. He says that this represents three different unrelated financial advances from Mr Chen to Mr He of NZD 10,000, NZD 40,000, and NZD 30,000, respectively. This is all set out in Mr He’s reconciliation statement. During evidence, he clarified

¹⁹ See Brief of Evidence of Zhixiong Chen dated 18 December 2023 at [20].

his claim as therefore being for a reduced amount of NZD 80,000. This reinforces his credibility and shows he may be honest in his assertion that he has never been repaid.

• [114] On the other hand, and counting against his credibility, are two matters.

• [115] First, in that same reconciliation statement, Mr He included an extra amount of NZD 40,000 as also owing to him, in addition to his claim for the NZD 160,000 (HKD 800,000). Under cross-examination it seemed that amount related to a credit in the account of HKD 200,000 dated 26 October 2007. I was a little unsure as to his explanation for including this as part of his claim for repayment of the investment money and something may have been lost in translation. Either Mr He treated that amount as Mr Chen’s commission to which he felt entitled—presumably in reference to the alleged agreement as to receiving a cut of Mr Chen’s land brokering commission. Or, alternatively, he thought it may have been interest on the money he advanced to Mr Chen, which he agreed he was not entitled to. Either way he withdrew that part of his claim. I formed an unfavourable view of him on this matter because he clearly attempted to include money not part of the investment money in his claim, and only Mr Jiang’s careful cross-examination exposed this.

• [116] The second factor is that when Mr Chen sued Mr He for the return of the NZD 300,000 personal loan in 2014, at no stage did Mr He then raise that he was owed NZD 160,000 in return by Mr Chen. I must say I find this surprising. Surely, upon being sued by Mr Chen for a money sum, at that stage Mr He would have said in response, “but you owe me NZD 160,000”.

• [117] In his evidence, Mr He said he felt his defence to Mr Chen’s 2014 action was so strong, such that, I infer, no claim of set-off was necessary. He also blamed his then lawyer for not including this issue. Whatever the reason it seems very strange that it was not raised.

• [118] What I think tips the balance in Mr Chen’s favour are three additional matters. First, his explanation for stopping using the BoC (HK) account (opened in Mr He’s name) is consistent with him repaying the investment money. That is, given his explanation that the account was originally opened to provide a form of notional

security to Mr He, if Mr Chen had repaid the money by early 2009, there would have been no point in him continuing to use the account—and this is exactly what happened. The account was barely used after November 2008. Secondly, the relationship between the two men seemed on very good terms at that time. They had not yet discussed business opportunities between them, and it was understandable for Mr Chen, given his wealth, to have generously repaid Mr He—just as he said. Third, Mr Chen says Mr He asked for repayment of the money in 2009, which ties in with when Mr Chen says he completed the repayment. Also, Mr He says he was chasing up the return of the money by then. And, I could add that even after their relationship fell out, there is no evidence of Mr He making any immediate claim for repayment of the investment money. Mr He agreed that he never issued separate proceedings for the NZD 160,000 that was owed as his unreturned investment funds. He accepted that he could have done so, but he did not.

Conclusion as to this cause of action

• [119] Taking everything into account, in the context of the 17-year passage of time since the investment money was transferred to Mr Chen, I conclude that Mr He cannot establish, on the balance of probabilities, that the investment money was not repaid. In fact, there is a real likelihood that it was. Nor can he establish that there was an agreement wherein Mr He would share in the commission Mr Chen earned on his property dealings.

• [120] Accordingly, this cause of action does not succeed.

First cause of action: breach of the joint venture agreement

Lead-up to the alleged joint venture agreement

• [121] On 3 May 2002, Mr He incorporated Prestige Products Limited (PPL). He was the sole director. For at least seven years it was in the business of supplying gifts and cards to be used by businesses. It was not an export company. My impression was that it operated on a small scale within New Zealand.
• [122] Between July and December 2009, Mr He began investigating the possibility of exporting New Zealand produced and packaged infant milk formula to the Hong Kong and Chinese market. Articles from the New Zealand Herald, admitted in the common bundle dated 16 January 2010,²⁰ made clear that given the concerns in China regarding infected Chinese infant formula, and the risk of botulism which created an internal scandal in 2008, there was high demand for New Zealand infant formula.

• [123] Mr He said he was taking advantage of a “niche market” and wished to exploit the demand in Hong Kong and China. He began that business in late 2009 and contributed about NZD 100,000 as start-up capital.

• [124] He explained how the business worked:

(a) Infant formula (usually Karicare) was purchased in bulk from New Zealand supermarkets—as often as possible in cartons of six tins. He soon had up to 10 people, on commission of NZD 1 per tin, buying as many cartons or individual tins as they could.

(b) When he had accumulated sufficient tins of formula to make it economic to use air freight to Hong Kong, he would send them to Hong Kong in batches.

(c) He would store them in a Hong Kong warehouse—although Mr Chen contended that was no more than his sister’s house.

(d) Some of the milk powder was sold “wholesale” to distributors in Hong Kong.

(e) He also used the China-based virtual shopping platform Taobao to sell direct to individual Chinese buyers.

20. Christopher Adams “China sales lead to NZ baby milk rationing” The New Zealand Herald (online ed, Auckland, 16 January 2010).

• [125] There are no statements of account or accounting records now available for Prestige to show the extent or profitability of the business that Mr He developed. Mr He indicated that, based on the first six months of his operation through to June 2010, the annual profit would have been NZD 100,000 which provided him with an income of about NZD 30,000. He estimated that he was typically making an average profit of NZD 1.57 per exported can. On that basis, he agreed in cross-examination, as a rough calculation, that he would have been buying 62,000 cans a year or 1,224 cans a week or 204 cartons of Karicare tins per week.

• [126] He also agreed that for the first seven months of operation from December to June 2010 he would have been purchasing over 1200 cans per week.

• [127] It was agreed, reinforced by the newspaper articles, that most New Zealand supermarkets, facing a rapid demand for infant formula, put a three to four tin limit of infant formula per customer. Clearly, Mr He was not the only person seeking to use the widespread concern in China about infant formula to his advantage in the hope of making “quick money”. Mr He referred to his operation as being “unique” with “trade secrets” that he wished to protect. In my view this is a huge overstatement. In cross- examination, Mr He agreed that the concept was in fact simple and that others were obviously doing the same thing.²¹ He accepted that what he was doing was not particularly specialised and had no “trade secrets”, as that term is conventionally understood. However, he said that it was organising the distribution network and the practicalities in Hong Kong and China that was the difficult part of the business.

• [128] I gained the clear impression from Mr He’s evidence that he is quite an ingenious man, who realised “he was onto a good thing” with the exportation business. While he had no documentary records to back up his assertions, he certainly considered his operation profitable. I accept as accurate (so far as it goes) his rough ballpark estimate of up to NZD 100,000 a year of profit, with an income of NZD 30,000. However, the business was fledgling. In my view Mr He, while proud of his efforts, was prone to overestimate his business’s scope and significance.

21. Wang Wei “Mothers buy foreign formula online” China Daily (online ed, 25 March 2010) referred to 5,922 Taobao virtual stores selling foreign infant formula.

Was there a joint venture agreement between Mr He and Mr Chen to export infant formula?

• [129] The parties agree that there were passing conversations from about April 2010 between Mr He and Mr Chen about Mr Chen assisting with developing the milk formula export business to Hong Kong and China.

• [130] On 6 June 2010, there were specific discussions between Mr Chen and Mr He regarding growing the export business. The two spoke again on 9 June together with Mr Chen Jnr.

• [131] It does not seem to be an issue that as part of the proposed new business, Mr He would contribute his existing export enterprise, “lock, stock and barrel” (including all the stock that he held in China and Hong Kong). Mr He alleges that Mr Chen would advance NZD 300,000 in three instalments of NZD 100,000 each.²² There may have been the promise of much more money, “up to millions” if the business prospered.

• [132] What also seems clear is that in mid to late June, NZPIL was incorporated as a result of these discussions, with a 50 per cent shareholding for Mr He (Mr He had 499 shares, and his wife had one share) and a 50 per cent shareholding for Mr Chen Jnr (Le Tong Trustee Ltd which was Mr Chen Jnr’s trust, held 498 shares, Mr Chen Jnr had one share, and Mr Chen Jnr’s wife had one share).

• [133] At this point there is a sharp departure in the evidence as to the basis of the agreement by which Mr He, Mr Chen and Mr Chen Jnr were to work together.

• [134] In Mr He’s view what was agreed, indeed what he says was proposed by Mr Chen, was a formal joint venture agreement between the two of them with what, he alleged, were a series of express and implied contractual terms, which do not need to be set out in detail.²³

22. As far as I can understand, Mr He is here referring to the money that was the subject of Mr Chen’s successful High Court claim as a personal loan to Mr He, and not part of a joint venture.
23. Alleged in the Plaintiff’s Third Amended Statement of Claim dated 21 December 2020 at [24]– [26].

• [135] On the other hand, Mr Chen accepts he was keen to ensure Mr He’s business developed and expanded. But Mr Chen said that his main purpose and objective was to enable Mr Chen Jnr (then aged about 20) to be involved in a business in New Zealand which would give him a constructive outlet, develop his business experience, and assist him to settle down and grow roots in New Zealand. Mr Chen denies that there was any conversation or proposal about a formal joint venture with Mr He.

• [136] There is no written agreement between the two of them which would assist the Court. Mr He emphasised that in Chinese culture a handshake is used to formally confirm an oral business arrangement. This has great significance and is very common in China. As previously discussed, I am prepared to accept all of that, even though there was no evidence of any cultural dimension as to the way such alleged joint venture agreements are entered into in China. In any case, I am not sure that such evidence would necessarily be of assistance. The key issue is whether a word-of- mouth joint venture agreement contract was finalised in this case.

• [137] Considerable assistance to the approach the courts should take in assessing whether a joint venture exists is found in the following helpful analysis by Wylie J:²⁴
  • [167] The term “joint venture” is not a technical one with a settled common law meaning. As a matter of ordinary language, it connotes an association of persons for the purposes of a particular trading or commercial undertaking or endeavour, with a view to mutual profit, with each participant usually, but not necessarily, contributing money, property or skill. The term “joint venture” can cover many forms of arrangement, not all of which will necessarily give rise to fiduciary obligations. The absence of a written agreement does not preclude there being a joint venture.

• [168] The Supreme Court has cautioned that care should be taken before labelling arrangements as joint ventures. In Paper Reclaim Ltd v Aotearoa International Ltd, Blanchard J for the Court noted as follows:

[31] ... To style a contractual relationship as a joint venture may be apt to distract. It is a term to be applied with caution. When parties have formed a contract the correct approach is first to decide exactly what they have agreed upon. Only then should the court consider whether any particular aspect of their agreement gives rise to a relationship which can properly be characterised as fiduciary, imposing an obligation of loyalty on one or both parties, which supplements the express or implied contractual terms. It is not enough

²⁴ Pure Elite Holdings Ltd v Bodco Ltd [2019] NZHC 2191 (footnotes omitted).

to attract an obligation of loyalty that one party may have given up more than the other in entering into the contract or that the contract may be more advantageous for one party than for the other. Nor is a relationship fiduciary in nature merely because the parties may be depending upon one another to perform the contract in its terms. That would be true of many commercial contracts which require co- operation. A fiduciary relationship will be found when one party is entitled to repose and does repose trust and confidence in the other. The existence of an agreement, express or implied, to act on behalf of another and thus to put the interests of the other before one's own is a frequent manifestation of a situation in which fiduciary obligations are owed. Partners are the classic example of parties in that situation. Their position is different from that of parties to a contract who may have to cooperate but are doing so for their separate advantages.”

• [138] Therefore, I approach the question of whether a joint venture agreement was created with caution, bearing in mind the reservations expressed by the Supreme Court. Even more so given the sharp factual differences in the parties’ positions on this issue.

• [139] In my view, Mr He’s version of events and his strong view that a joint venture agreement was specifically concluded remains highly unlikely. After careful consideration, I assess Mr Chen’s account as much more probable than Mr He’s. I prefer Mr Chen’s evidence on all the key points.

• [140] Several factors support Mr Chen’s evidence, and his understanding of what was agreed, over that of Mr He’s. In my view these factors, taken together, lead to the inevitable conclusion that there was no agreement at all between them about a joint venture. Rather, as Mr Chen described, it was an opportunity for his son to be involved in a business with Mr He, which Mr He was prepared to support. This is particularly so given the deliberate decision to use a company structure to reflect that business relationship between Mr He and Mr Chen Jnr—which did not involve Mr Chen at all. I now set out the detailed factors which, in my view, support that conclusion. First, I assess the evidence of the discussions between them and the inherent implausibility of Mr He’s allegations. Then, I analyse the steps taken to incorporate a company with Mr He and Mr Chen Jnr as 50:50 shareholders.
• [141] Even on Mr He’s evidence, he makes often vague and sometimes confusing assertions which make it difficult to establish that an oral joint venture agreement was reached. In my view that confusion and lack of specificity is telling. All in all, the evidence about any joint venture is unsatisfactory:

(a) For instance, Mr He’s recollection is that Mr Chen proposed the joint venture on a 50:50 basis between them, and that Mr He agreed. Not only is this denied by Mr Chen, (the business relationship was to be with his son), but also subsequent events and the company structure that was adopted, did not bear this out. I discuss these details below. It is sufficient to say that the new company was a 50:50 shareholding between Mr He and Mr Chen Jnr. Mr Chen was not involved in it at all. This points to Mr Chen’s version as being the more probable.

(b) As another example, Mr He says that during their first meeting on 6 June 2010, he proposed selling 20 to 40 per cent of his export business to Mr Chen. But in cross-examination he could not explain how much his export business was specifically worth nor how such percentages would be assessed. And, as I understand it, Mr He ended up selling all his export business to the new company.

(c) Similarly, Mr He alleged a key term of the joint venture was that Mr Chen promised “millions” in funding, particularly if the export business thrived. To say the least, this lacked certainty, and points away from any concluded joint venture agreement.

• [142] Importantly, Mr He says that a key term of the alleged joint venture was that the NZD 300,000 he borrowed from Mr Chen would be used to buy products and was invested in the joint venture. As I have previously noted, the High Court, affirmed on appeal, held that the NZD 300,000 was purely a loan and had nothing to do with any joint venture. Therefore, a key alleged term of the joint venture, which Mr He still alleges to this very day, cannot stand. I also note, in passing, that the loan/IOU receipt signed by Mr He for the NZD 300,000 did not mention any joint venture nor did any of the earlier receipts for tranches of the loan.
• [143] Mr Chen Jnr attended the second meeting between Mr He and Mr Chen and took part in it. The Chen’s evidence is clear and consistent, and I accept at that stage Mr Chen made clear that the business was to be conducted between Mr He and Mr Chen’s son. I accept the evidence of both Mr Chen and his son on this point— even allowing for the natural tendency of a son to support and align himself with his father’s evidence. With respect, I reject Mr He’s evidence on the point.

• [144] Leaving aside the discussions and alleged terms of the joint venture, when I stand back, it must be said there is an inherent implausibility in Mr He’s allegations. I say this because there was a significant disparity in the then existing business interests and responsibilities between the much less experienced Mr He and the considerably more experienced Mr Chen. Frankly, in this situation, I doubt whether Mr Chen would have had much to gain by entering into a joint venture with Mr He. Mr Chen would not have had the time, given all his other extensive business commitments to become a joint venturer in what was then a very small business operation with someone who was his self-confessed “runner-boy”. I mean no disrespect to Mr He when I say this, but it simply reflects the reality of the situation, and the inherent unlikelihood, indeed implausibility, of a joint venture between them. I accept that it is much more likely that Mr Chen saw Mr He’s fledgling business as a chance for his own son to become involved, to cut his teeth as it were, in a low risk and relatively straightforward business.

• [145] Mr He was very keen to style his business as one involving “trade secrets” and “commercially sensitive information” which would be attractive to Mr Chen, to support his claim of a joint venture between them. However, his claims were exaggerated and without basis. Mr Jiang demonstrated in his cross-examination of Mr He that there were many Chinese nationals conducting a similar sort of business. There was nothing “niche” or special in the purchasing of infant formula from supermarket shelves or in airfreighting it for sale in Hong Kong and China (including sales on the Taobao platform), and there was no “commercially sensitive” or “special information” that would entice Mr Chen into a joint venture. Again, I mean Mr He no disrespect. But it is the reality of the situation.
• [146] I infer from Mr He’s evidence that, given Mr Chen’s status as a successful businessman in their hometown, that Mr He was excited by the idea of having Mr Chen take an interest and express a desire to support his business. Again, I mean no disrespect to him, but having been Mr Chen’s assistant, he was very keen to have Mr Chen seen as his joint venturer. In my assessment there is a very human level to all of this. Being regarded as Mr Chen’s joint venturer would enhance Mr He’s status. I did put this squarely to Mr He at one stage. Mr He made clear, while he understood what I said, that Mr Chen was genuinely keen to become a joint venturer as there was a good chance for Mr Chen to make a significant profit. Nevertheless, I remain of the view, assessing the evidence as a whole, that Mr He was overly keen, indeed at times almost desperate to see Mr Chen as his joint venturer, and this has skewed his evidence.

• [147] I understand Mr He’s evidence that he would not want to go into business with Mr Chen Jnr, somebody he regarded as a “boy” with no business experience. He clearly thought that would be demeaning to him. But in fact, that is exactly what Mr Chen wanted: and it was the price for Mr He of receiving Mr Chen’s loans to the business. And it was a price that Mr He was prepared to pay.

• [148] In my view, Mr He was honest to say that at this time, he both respected and trusted Mr Chen and was very keen to do business with him. He recognised that through Mr Chen his infant formula export business had the potential to grow exponentially. I think that attitude, prompts him to characterise their relationship as a joint venture too readily. It is overblown and, in the circumstances, it is an unrealistic claim.

• [149] The events following the discussions are also instructive. A specific legal vehicle was adopted through which to run Mr He’s expanded business—in the form of NZPIL. This was essentially a 50:50 shareholding company between Mr He and Mr Chen Jnr. At that stage, if there had been a joint venture, one would have thought that the accountants would have documented this. Instead, the new company was incorporated.
• [150] In his brief of evidence, Mr He was of the view that the Le Tong Trust was Mr Chen’s trust and, therefore, it was Mr Chen, not Mr Chen Jnr, who was Mr He’s effective 50:50 partner. However, during cross-examination, Mr He accepted that the Le Tong Trust, named after Mr Chen Jnr and his wife’s first child, was in fact Mr Chen Jnr’s trust. It was specifically set up as Mr Chen Jnr’s vehicle through which Mr Chen Jnr could own the company. Moreover, it seems Mr Chen had no control over his son’s trust.

• [151] Also, Mr Chen was not a shareholder or director of NZPIL. In legal form he was some distance away from the operation of the company. This is inconsistent with him being a joint venturer.

• [152] The evidence of the senior accountant involved in the initial discussions and formation of NZPIL is extremely relevant. Ms Yi Ting Ge is an accountant of 25 years’ experience and a senior partner of Gilligan Sheppard Ltd (GSL). She was an impressive witness. GSL were Mr Chen’s accountants. Ms Ge’s evidence is that Mr Chen introduced Mr He to GSL and she met with Mr He at GSL’s offices on 15 June 2010. Her clear understanding is that Mr He and Mr Chen Jnr would start a milk powder exporting business together. She understood that the funding for the business would be coming in large part from the Chen family and that Mr He would also contribute, but she cannot recall the exact details.

• [153] At the meeting with Mr He, (she could not remember if either of the Chens attended), the ownership structure for the business and the details of the company incorporation were worked out. She confirmed that the Le Tong Trust is Mr Chen Jnr’s family trust which was formed to hold his business interest in what she, at one stage, called a “joint venture”. That was actually her description of the business relationship with Mr Chen Jnr—not his father, Mr Chen. In her evidence she clarified that she did not use the term in any legal sense but simply was referring to the business, in the form of a company, between Mr He and Mr Chen Jnr. The net effect of Ms Ge’s evidence, which I assessed to be balanced, realistic and accurate, clearly points away from any joint venture.
• [154] I accept that Mr Chen was prepared to make, and did make, personal cash advances/loans to NZPIL. He was always clear about this in his evidence. Nevertheless, NZPIL was primarily an operation between Mr He, who preserved and operated the New Zealand end of the business, and Mr Chen Jnr taking primary responsibility for the Hong Kong/China end of the business. But the fact of Mr Chen’s significant loans to NZPIL, in my view, nowhere near tells in favour of a joint venture with Mr He.

• [155] Mr He alleged that the ASB Bank manager, Ms Man, would keep an eye on cashflow of NZPIL, and was effectively Mr Chen’s agent to ensure on his behalf that the joint venture was financially sound and properly operated. This is not a strong point for Mr He. That allegation is equally consistent with a prudent lender keeping a watchful eye on a company to which he was loaning significant money, and his son at the same time. In any case, there is no evidence for it. Mr Chen denied it and Mr He has not called Ms Man to prove it.

• [156] I also accept that Mr Chen became somewhat involved with the day-to-day operation of the company, especially as there appeared to be some difficulties with his son’s ‘behaviour’. The extent of these difficulties was greatly in dispute, but I generally accept that over time Mr Chen became more influential. I sighted no documentation that proved his specific involvement nor any documents that authorised Mr Chen to operate the NZPIL account. Mr He also regularly “reported” to Mr Chen, but as Mr He himself admitted, this was justified because Mr Chen was a major lender to the company. I can quite accept that as a very strong character, Mr Chen had influence over Mr He. Indeed, as I will later discuss in the fourth cause of action, it is appropriate to regard Mr Chen as a “deemed director”. This is a better characterisation of his involvement than that of a joint venturer with Mr He.

• [157] In my view, Mr He wrongly argues that because Mr Chen became more involved in NZPIL, by reasoning backwards, the Court can conclude that he was originally in a joint venture with Mr He. But the proper question is what was agreed in June 2010. As I say, that points clearly towards the adoption of a company structure involving Mr He and Mr Chen Jnr, not a joint venture with Mr Chen.
• [158] In relation to the subsequent incorporation and operation of HKDIL, Mr He accepts that this was owned 40 per cent by Mr Chen, 30 per cent by Mr Chen Jnr and his wife, and 30 per cent by Mr He. As I discuss later, this structure was, eventually, albeit reluctantly, approved by Mr He. There is little in the formation of HKDIL that points towards a pre-existing, let alone continuing, joint venture agreement between Mr He and Mr Chen. Indeed, HKDIL has quite a different structure from NZPIL. Such evidence as there is, shows that HKDIL was simply another separate company operating with and parallel to NZPIL. This conclusion is reinforced by the fact that the operation and accounts of NZPIL and HKDIL were kept separate and operated independently, with HKDIL purchasing mainly infant formula from NZPIL. I know that Mr He’s evidence is that he had no choice but to accept the reality of the HKDIL structure and that it was a quite unfair alteration to the existing joint venture, but the evidence does not support the view.

• [159] I have reflected on Mr He’s assertion that Mr Chen Jnr was no more than his father’s agent; and that Mr He’s real business partner was indeed Mr Chen. However, I reject it. The evidence from Mr Chen Jnr, which I have no reason to disbelieve, is that he made a significant contribution to NZPIL and improved its performance over what Mr He had thus far achieved.²⁵ Also, if it was a true joint venture between them, I do not understand why Mr Chen would not simply be a 50 per cent shareholder himself.

• [160] For all these reasons, I accept Mr Chen’s evidence as being much more probable than not. I conclude that Mr He, in his enthusiasm to be regarded as joint venturer with Mr Chen, has misconceived the situation, and his recollection of events and his assessment of their business agreement is inherently implausible and improbable. Mr He, therefore, has not proved his claim that there was a joint venture with Mr Chen—including both NZPIL and HKDIL.

²⁵ One of the improvements which Mr Chen Jnr explained was his successful idea that the purchase of infant formula in New Zealand be negotiated in bulk with the owners of the supermarkets. I understand that this enabled much greater amounts of formula to be purchased than had previously been the case.

• [161] Strictly speaking, this conclusion is enough to dispose of the first cause of action. If there is no joint venture, then logically it cannot have been breached. However, if I am wrong, I will go on to consider if Mr He has proved any breach of the joint venture in the sevenfold way that he has alleged in his current statement of claim. My findings in this respect will also be relevant in respect of the remaining three causes of action.

If there is a joint venture agreement, did Mr Chen breach it?

• [162] Mr He’s statement of claim essentially alleges the following key breaches of the joint venture by Mr Chen:

(a) Taking more than 50 per cent of the profits from the joint venture and preventing the accumulated assets from being divided equally. This includes two specific matters. First, Mr Chen’s failure to account for the proceeds of sale of a consignment of scampi purchased by NZPIL for net USD 571,800 and sold to one of Mr Chen’s Chinese-based companies. And second, an illegitimate personal withdrawal of NZD 780,000 from NZPIL which money Mr He says originated from HKDIL.

(b) Illegitimately forming HKDIL to ensure that Mr Chen had a 70 per cent shareholding and reducing Mr He’s shareholding to 30 per cent.

(c) Engaging in direct competition with the joint venture, through one of his own companies, using specialist knowledge gained through the joint venture and causing damage and loss to the joint venture.

• [163] Before I address each of those matters, it is necessary to briefly summarise the early days of NZPIL’s operation. My impression is that it operated well enough for six months or so. Indeed, there is no reason to doubt Mr Chen Jnr’s assertions that after his involvement, NZPIL’s revenue or sales were over NZD 9 million for the year ending 31 March 2011, equivalent to NZD 1 million per month as it was only a nine- month financial year.
• [164] Mr Chen Jnr ascribes the company’s success to his father’s funding; his own decision to reduce costs by sea freighting not air freighting the infant formula; his successful negotiations directly with supermarkets, mainly Pak’nSave, to buy significant amounts of infant formula directly to avoid any per customer restrictions; and that he signed up more than 170 pharmacy stores in Hong Kong thereby vastly increasing the buyer channels of their exported baby infant formula particularly to Chinese holidaymakers visiting Hong Kong. I do not understand Mr He to dispute the company’s growth, but he may not necessarily agree with Mr Chen Jnr’s reasons for it.

• [165] There had been at least 14 orders and shipments of infant baby formula to Hong Kong by 20 September 2010. Mr Chen had already begun to contribute loans to NZPIL as he always indicated he would do.

• [166] I accept that in the latter part of 2010, Mr He said he began to have concerns about aspects of NZPIL’s operation and what he viewed as his growing lack of influence. On the balance of probabilities, I conclude his concerns were unjustified. Certainly, he had concerns about Mr Chen Jnr and, in particular, his gambling habits. Mr Chen Jnr accepted that he withdrew at least NZD 23,000 from NZPIL’s account, and used some of it for gambling, which he accepted was bad practice, and he discontinued it.

• [167] Mr He said that Mr Chen intervened in 2011 and stopped his son’s gambling and arranged for Mr Chen Jnr to be removed from the ASB Bank/NZPIL account. To the contrary, the ASB customer detail notes in the common bundle indicate that Mr Chen Jnr’s removal from the account was at the request “of the other director, Mr He”. In any case, I accept Mr Chen Jnr, although he travelled to China occasionally, was still involved with NZPIL’s operation.

• [168] Mr He said he was also concerned that Ms JH Chen, a trusted employee of Mr Chen, was too influential and had too much control over the business. Mr He says that Mr Chen required him to give her control of his Taobao account, and also his Industrial and Commercial Bank of China (ICBC) account that had been used to

receive payments from his Taobao webstore. Mr He said he went to China to do so.²⁶ Both Mr Chen and his son deny that this ever happened. I am most uncertain as to the true situation. Such documentary evidence as Mr He relied upon did not establish that Ms Chen had control of these two accounts. I note that Mr He continued to keep detailed handwritten notes of all the Taobao webstore stock and the ICBC account.

• [169] In my view, there is insufficient evidence to conclude that Ms JH Chen “controlled” the Taobao and the ICBC account. Whatever the true position, Mr He certainly never ceded control of the account and he kept a close eye on it. Neither do I think Mr He’s view that Mr Chen and Mr Chen Jnr wanted to take the business over is justified. I think this is his retrospective assessment.

• [170] I now consider the essential breaches that are raised by Mr He—assuming, contrary to my finding, that there is a joint venture.

(a) Did Mr Chen take more than 50 per cent of the profits from the joint venture and prevent the accumulated assets from being divided equally?

• [171] Mr He supports his allegations in this respect with a morass of records and references to various transactions and text messages. It is impossible for me to record and analyse them all in this judgment. Suffice to say, they do not individually or cumulatively indicate that Mr Chen and/or his son embarked on a patterned and systematic approach to siphoning out funds from NZPIL and/or HKDIL.

• [172] I understand Mr He’s suspicions but virtually everything he pointed to in support of these allegations was inconclusive and certainly short of fraudulent removal of funds or deceit. I could discern no pattern. I observe that Mr He was absolutely convinced of nefarious activity, but in the end suspicion or even in some cases a possibility of wrongful taking of company assets, does not constitute proof on the balance of probabilities.

²⁶ Brief of Evidence of Yao Wei Hei dated 31 March 2023 at [55].

• [173] One example will suffice. It is accepted that JJ Kong, an employee of Mr Chen who also worked for HKDIL, apparently had access to Mr He’s Taobao and ICBC account, with such access freely given by Mr He. The text messages found by Mr He show that Ms Kong asked for Mr He’s approval every time a payment went out. Mr He is convinced that she was stealing money behind his back. He was also concerned that money was transferred from this account to Mr Chen. That was an accepted way of funnelling money out of the Taobao account and then out of China—i.e., using an intermediary who could send money out in smaller amounts to avoid Chinese overseas financial transactions limitations. Even if a specific amount that Mr He identified and is concerned about, was not paid into the HKDIL account on the day he says it should have been, it seems it could have been paid into the account a few days later, which in this case would have been in the next month and recorded in the next month’s accounts. That makes it very difficult to identify within the accounts. Thus, it becomes impossible to determine whether Mr He’s concern was justified. On the evidence before me, it was no more than a possibility. For me to go any further would involve guesswork.

• [174] All these types of similar issues were the subject of significant evidence and cross-examination. In the end, it gets Mr He nowhere.

• [175] Much more compelling in my view is the evidence of the expert forensic accountant. His short conclusion is that there is no accounting evidence to show Mr Chen made improper withdrawals from the NZPIL or HKDIL account. I also emphasise that when the NZPIL accounts are reconstructed (as best as the accountant could), and with the repayment of all loans to Mr Chen, and after full reconciliation of the accounts, there would be no money available by way of profit to the shareholders. That is the insuperable difficulty that Mr He faces in his claims.

• [176] In my view, that is sufficient to dispose of this alleged breach generally. However, that leaves unresolved two specific alleged breaches of the joint venture— namely Mr Chen personally profiting from the purchase of scampi and failing to account for it, and secondly, and of significantly less value, false accounting regarding the purchase of wine for export. These, and other matters, if all were established,

could on the best scenario for Mr He, result in a shareholder payment out to him of slightly more than NZD 100,000. I address each matter in turn.

• [177] The scampi saga was the subject of much evidence in cross-examination. It related to the decision by NZPIL to purchase scampi from Sandford NZ. It is agreed that USD 657,570 (equivalent to NZD 861,000) was transferred into NZPIL’s account, to enable the purchase, which was duly completed. The scampi was transported in two temperature-controlled containers to China. NZPIL was able to “claim back” GST, meaning the scampi only cost NZPIL USD 571,800.

• [178] The parties disagree on the true origin of the purchase funds. Mr He says that the money came directly from HKDIL and had nothing to do with Mr Chen. Mr Chen says he provided the money as a loan to NZPIL for the specific purchase of the scampi. Given the passage of time before Mr He made this claim, said to be in March 2014, Mr Chen says it is impossible for him to obtain his own bank statements to prove his explanation.

• [179] But Mr Chen does reinforce his explanation by reference to the flow of USD funds into the NZPIL account between the 29 September and 3 October 2011. Those accounts support Mr Chen’s explanation that, because of the USD 50,000 limit per person limit on transferring USD out of China, he arranged for a number of his employees to transfer the money individually to either NZPIL directly, or to HKDIL and then to NZDIL. Mr Chen set these out in a schedule to his evidence. The schedule shows how the money in the NZIL account came via his employees. The records are all clear. Two of the employees, whose evidence I accept, gave brief evidence concerning their application to transfer, in each of their cases, USD 29,985. But they were unable to provide details of the transactions given the passage of time and the impossibility of obtaining the supporting documentary evidence. Mr Chen asserts the money must have come from him because there was no reason for his employees to lend money to NZPIL.

• [180] Faced with this explanation, Mr He then asserted in his evidence in reply that Mr Chen used his employees to hide that the origin of the money was from HKDIL, not Mr Chen personally. Mr He’s basis for that conclusion is based on a fine analysis

of the Taobao account and the surrounding transfers from Mr Chen’s account and that of his father. He draws conclusions that Mr Chen orchestrated all these transactions, but the source of the money transferred to his employees to transfer to NZPIL was really HKDIL. There are serious difficulties with this conclusion, as highlighted by Mr Jiang and there is no need for me to repeat them here. Mr He’s assertions are no more than speculation. Indeed, Mr He admitted this in cross examination. On balance, I prefer and accept Mr Chen’s explanation. The money for the scampi was a loan and ordinarily should have been repaid by NZPIL to Mr Chen. He was entitled to withdraw this amount as reimbursement.

• [181] That is not the end of the story. The scampi duly arrived in China. However, it seems that at least one of the containers suffered temperature variations so that the scampi was subject to higher than allowable temperatures and was, therefore, deemed inedible. I understand that for four days the temperature was close to 20 degrees celsius. Mr Chen and Mr Chen Jnr recall tasting the scampi. They said the heads had gone black and, in their view, it was not the top-quality scampi they had expected.

• [182] An insurance claim was made, and an assessor was appointed. There is an absolute disagreement in the evidence as to whether Mr He, Mr Chen or Mr Chen Jnr were responsible for providing more information to the assessor to enable a proper assessment of the scampi’s alleged contamination. I conclude that what happened is that there was a stalemate as to who would provide information about the decay: Mr He waited for the Chinese health authorities, presumably at the behest of Mr Chen to intervene. Mr Chen waited for the New Zealand authorities, who would know the appropriate temperature settings for the scampi, to act at the behest of Mr He. Neither did anything constructive to resolve the situation.

• [183] It seems the information and the insurance assessment were never completed.

• [184] In the event, no insurance was ever paid out. Mr Chen says the scampi was destroyed and his loan was never repaid by NZPIL. Mr He is highly suspicious that at least one container of the scampi may have been sold behind his back and the profits pocketed by Mr Chen. In fact, he specifically alleged that the true purchaser was Ying Bin Ltd, a Chinese company owned by Mr Chen. At most, Mr Chen said that Ying

Bin would have been the delivery address of the scampi. Mr He produced an invoice made out to Ying Bin from NZPIL, which the Chens claim never to have seen and suspect was fabricated to support Mr He’s suspicions. Mr He says that in all the circumstances as he alleges them to be, it is Mr Chen’s personal obligation to repay NZPIL. He says that Mr Chen owes at least half, or perhaps the full, amount of the purchase price to NZPIL. There was significant evidence and submissions on this point.

• [185] I simply cannot make a finding, given the passage of time and the lack of clear documentary evidence. I would be speculating whether the scampi in one or both containers was sold. I do accept that the fate of the apparently non-contaminated container is highly suspicious. But it is no more than that. On the one hand, Mr Chen is an experienced businessman and it is perhaps unlikely he would simply stand by while what may have been perfectly good scampi rotted away. Presumably he would have tried to minimise losses. On the other hand, it could well be that Mr Chen and Mr Chen Jnr wanted to be sure that both containers were fit for consumption and that through no fault of their own the insurance process stalled. They say the warehousing company that stored the container simply disposed of all the scampi, and that it was “written off”. I am unable to make any finding of fraud and certainly no finding of personal liability to NZPIL against Mr Chen. Mr He cannot make out this claim on the balance of probabilities.

• [186] I turn now to the allegation of false accounting concerning a wine purchase.

• [187] Mr He alleges that New Zealand red wine was purchased in the sum of just over NZD 51,000 for export to Hong Kong/China. The wine would then go to Mr Chen’s company in Guangzhou for final sale. Mr He maintains that Mr Chen Jnr withdrew the purchase price from the NZPIL account. In his statement of claim, Mr He claims that after purchase, about NZD 27,000 worth of the red wine was removed by Mr Chen Jnr but not accounted for in the sales receipts. I note that in his evidence, Mr He referred to wine being “consumed by Mr Chen,” rather than Mr Chen Jnr. Given the lack of documentary evidence, and the inconsistencies in Mr He’s claims, I simply cannot be sure what became of the wine. On the evidence, and with the passage of time, I cannot conclude, as Mr He has tried to persuade me to do, that

his assertions of a breach by Mr Chen must be true on the balance of probabilities. There is also the problem that the statement of claim describes actions by Mr Chen Jnr, yet Mr He’s claim is against Mr Chen. Again, Mr He’s claim against Mr Chen is, at best, no more than a possibility.

(b) Did Mr Chen illegitimately form HKDIL ensuring that Mr Chen unfairly had a 70 per cent shareholding, and reducing Mr He’s shareholding to 30 per cent?

• [188] In early 2011, there were discussions regarding the incorporation of a Hong Kong-based company. The reasons for doing so are sharply in dispute. Mr He believes that it was a vehicle to extend their commercial joint venture in Hong Kong to include the sale of seafood and wine into both Hong Kong and China. On the other hand, Mr Chen’s evidence, supported by his son, was that NZPIL needed a Hong Kong-based company which could lease a larger warehouse, employ staff, and act as a base and foothold for growing NZPIL’s business.

• [189] Mr Chen Jnr agreed, given his father had no shares in NZPIL and would be contributing significantly to the growth of the NZPIL business in Hong Kong, that his father wanted a separate company from NZPIL in which, this time, he was involved and could directly control.

• [190] I accept that explanation as being far more likely and reject Mr He’s version. Certainly, as I will mention, Mr Chen later suggested using HKDIL to import and distribute New Zealand wine and seafood—which ventures failed. But that was not the original rationale for the company.

• [191] During discussions about the Hong Kong-based company, Mr Chen made clear that he wished to have 40 per cent of the shareholding with a 30 per cent split between Mr He on the one hand, and Mr Chen Jnr and his wife on the other. He saw this as providing protection for the money he would have to advance. The proposed arrangement was quite different to the NZPIL structure.
• [192] I accept that Mr He was most upset, and correctly assessed that his reduced shareholding would diminish his influence. He initially wished to walk away, terminate NZPIL’s operations, and return to his original Prestige company business. At which point I accept Mr Chen Jnr responded by saying he would start his own business and he promptly incorporated a New Zealand company, DNZIL, which he would operate in parallel to NZPIL if Mr He walked away. Mr He accepted that he eventually agreed, but very reluctantly, to the proposed shareholding split. Mr He said this was only because he realised that with increased turnover in Hong Kong, even his 30 per cent shareholding would generate far more profit for him than his 50 per cent shareholding in NZPIL.

• [193] My firm impression was that Mr He became part of HKDIL after proper consideration and full knowledge of all the implications. Despite some obvious disadvantages to him, he would stand to profit handsomely if all went well. I also accept that, given Mr He’s change of heart, Mr Chen Jnr did not operate DNZIL—as there was no reason to do so.

(c) Did Mr Chen engage in direct competition with the joint venture, through his own company, using specialist knowledge gained through the joint venture?

• [194] One of Mr He’s abiding concerns is that during the term of the alleged joint venture, Mr Chen operated a business similar to NZPIL using knowledge gained from NZPIL to NZPIL’s obvious detriment.

• [195] The basis of his claim arises from a visit to one of HKDIL’s three Hong Kong warehouses on 6 February 2012 to check stock levels. There, Mr He says that he discovered there was more New Zealand infant formula in the warehouse than he says NZPIL had exported to HKDIL. He says he discovered that the excess stock belonged to Mr Chen and that Mr Chen personally had imported it from New Zealand.

• [196] Mr He says that in the warehouse he found a carton with an Air New Zealand freight label on it. On its face, it is evidence that Air New Zealand freighted a consignment of goods weighing 29.785kg, on 3 February from Auckland to Hong Kong. I am prepared to infer that this was in 2012, just days before, and that it was milk powder because Mr He said he knows the signage on the carton and is very

familiar with it. Mr He says it is Karicare goat milk infant formula, which sells well. However, what I am not prepared to infer, and which is Mr He’s biggest hurdle, is that it was Mr Chen who imported the milk powder.

• [197] To support his contention, Mr He played a 58 second mobile phone recorded video in Court, which he first mentioned in his reply brief. He filmed the video. It is in Mandarin with an unidentified female whose face is not shown. The relevant part of the translated transcript records that the female (noted as UKF or “unknown female”) said to UKM (or “unknown male”, said to be Mr He):

UKF: Well, I, I am telling you now I can give you back, um, the records for the old stock. That’s not a problem. But as to the batch of goods that came in later.

UKM: How much was there? How much was brought in? What, what is called later?

UKF: The batch of goods that came in later, was not brought in using the name of Hong Kong Dairy International Limited.

...

UKF: Well, Mr Chen put in under ZIHUA HUANG’S name. UKM: Which Mr Chen, is it Yonzhou Chen or Zhixiong Chen? UKF: Are you recording what I am saying?

• [198] Mr He conceded that he told the interpreter to add the words “Hong Kong” before “Dairy International Limited” in the English translation because he was sure that was what the female must have been meaning. That does not reflect well on him.

• [199] Be that as it may, there is no clarity as to which “Mr Chen” the woman was referring to. Mr Jiang is right to say that Mr He did not put this video or the transcript to Mr Chen during cross-examination.

• [200] The evidence falls well short of establishing that Mr Chen, on the balance of probabilities, was carrying out business behind Mr He’s back. For instance, it is a perfectly legitimate inference that Mr Chen Jnr brought the milk powder into Hong Kong for sale by HKDIL and he would account for it to NZPIL. Nevertheless, I agree that this is suspicious.
• [201] Also, I note the company which Mr He believes was being operated in competition with NZPIL was the DNZIL company incorporated by Mr Chen Jnr. I have already accepted that he did not operate that company while NZPIL was in existence. And Mr He did not have any evidence to counter that. In short, Mr He’s suspicions that Mr Chen was carrying on a separate business behind his back (suspicions I understand) do not, and cannot, in these circumstances constitute proof of this alleged breach on the balance of probabilities

• [202] To summarise, if contrary to my earlier conclusion, there is a joint venture between the parties, then I conclude that on the balance of probabilities Mr Chen has not breached it. However, if I am wrong on that conclusion also, I now go on to discuss if there is sufficient proof that Mr He suffered any loss as a result.

If there is a joint venture, and if Mr Chen breached it, has Mr He suffered any loss and how is it to be quantified?

• [203] During the hearing, Mr He offered a vast amount of documentary evidence on this issue. It became a major focus of the evidence. There are at least four significant difficulties for Mr He in proving any loss he might have suffered. The first relates to the very poor state of the accounts. The second concerns the failure to call any expert forensic accounting evidence. The third is the nature of Mr He’s claim against Mr Chen personally, whereas any loss he might be able to establish is in respect of NZPIL (and perhaps even HKDIL). The fourth is the fact that Mr Chen, himself, might be owed money by NZPIL for unpaid loans. I deal with each in turn.

• [204] First, as to the state of the accounts, there are no finalised accounts for NZPIL for the two financial years that it operated. In terms of 2010/2011, a detailed draft set of accounts appear to have been finalised and then accepted by Mr He as correct. However, during evidence he made clear that he does not now accept their accuracy. The 2011/2012 accounts are in draft form but both parties accept they are not accurate.

• [205] The accountants, GSL, attempted a reconstruction with the information that was provided but were prevented from finalising the work. The accountants say that this is because both Mr He and Mr Chen failed to provide the relevant information that

they sought. I accept that this is the case, although both parties have various excuses for their failings or assert that GSL has misunderstood their situation.

• [206] Indeed, although Mr He withdrew an allegation of fraud against GSL, he was still of the view, albeit at times faintly presented, that GSL were “pro” Mr Chen. Because they were Mr Chen’s personal accountants, Mr He maintains their views cannot be relied upon. Having seen and heard Ms Ge and more importantly assessed her evidence, I find her to be reliable, accurate and truthful. Even more so I was impressed with, and accepted the evidence of, Mr Raymond Cox, who is a forensic and investigative accountant with specialised expertise in reconstructing company accounts. As I have already noted, Mr Cox’s essential conclusion is that the accounts provide no basis for any conclusion that Mr Chen owed money to NZPIL and hence to Mr He by way of shareholder pay-out.

• [207] The second difficulty is that it is beyond this Court’s expertise to forensically examine all the accounting records presented by Mr He. Without Mr He calling his own expert evidence, it is impossible for me to reach any conclusions on the material he has presented. And it is also just too disordered and incoherent. Nevertheless, Mr He believes that his essential claims are so clear that a forensic accountant is unnecessary—and the Court ought to be able to plainly see the losses. Unfortunately, I do not share Mr He’s view. Mr Cox for the defendant was most helpful, and in my view comprehensive in his conclusions. Without any expert to challenge his views, I have no basis to reject his carefully presented and persuasive findings.

• [208] The third complicating question is that Mr He seeks judgment personally against Mr Chen. However, any losses he might be able to establish, are losses to NZPIL. And according to the forensic accountant, Mr Cox, NZPIL owes at least three quarters of a million dollars to creditors. So, Mr He would have to establish significant losses to NZPIL before he could be entitled to any shareholder pay-out personally. Therefore, the real question is whether NZPIL owes Mr He anything? Also, the question is not whether HKDIL, over which this Court has no jurisdiction, has suffered loss. I specifically confine myself to the question of whether Mr Chen has caused any loss to NZPIL and whether, as a result, any shareholder payment would be available to Mr He.
• [209] If so, I understand that Mr He would have to apply to have NZPIL reinstated as a company, or persuade the Official Assignee, now over 10 years later, to complete final liquidation. In other words, any loss caused by most of Mr Chen’s breaches of the joint venture is, in the first instance, suffered by NZPIL. And when the NZPIL situation is fully reconciled, it could only be then, and only then, that Mr He might be entitled to what would be a shareholder payment. Mr He persisted in his argument that, effectively, the creditors of NZPIL should be bypassed and ignored, and that I could and should order half of any losses he could establish be paid directly to him. I reject that approach.

• [210] The fourth complication is that as I understand the evidence, both parties, and the Le Tong Trust, made advances to NZPIL. But by far the most significant amounts advanced to NZPIL were made by Mr Chen. I accept that Mr Chen advanced amounts that total at least NZD 4 million. The company’s indebtedness to Mr Chen, at its height at any one time, was NZD 4 million. Perhaps Mr Chen advanced as much as NZD 7 million over the course of NZPIL’s operation, but I simply cannot be sure. And I cannot be sure that it is more probable than not that Mr Chen has been repaid all these advances. So that is another problem for Mr He in establishing any claim for loss to him.

• [211] Nevertheless, despite these difficulties, Mr He genuinely believes that Mr Chen owes him money. Mr He has done his best to recreate and reconstruct the true situation on the information that is available with considerable reliance on his own recollections. For the record, I note that Mr Chen considers Mr He’s calculations are inaccurate and have no basis. I should also say that Mr Chen believes that Mr He has himself overdrawn the NZPIL account. The two parties are at complete loggerheads.

• [212] Mr He is of the view that Mr Chen and Mr Chen Jnr overdrew the NZPIL account by NZD 1.994 million. And as a 50 per cent shareholder, he should, as I say, have had half of that money paid directly back to him—that is NZD 995,000—without first going through NZPIL. That, in fact, is his claim for loss in respect of the first cause of action, although he is seeking a taking of accounts of the alleged joint venture. I spent some time during Mr He’s cross-examination questioning him myself so that I could properly understand his rationale for concluding he was still owed money, at

least indirectly by Mr Chen. He relies on Schedule E to his brief of evidence and that part of the schedule which showed what he said were unauthorised withdrawals by Mr Chen from the NZPIL account. I will address three in particular.

• [213] The first is NZD 860,000 for the purchase of the scampi which Mr He says was not a loan from Mr Chen and he was not entitled to have it credited to his shareholder’s loan account. It is recorded as four separate amounts in Schedule E. I have already dealt with this matter and, for the reasons previously given, I conclude that the money used to purchase the scampi was a loan from Mr Chen and Mr Chen was entitled to repayment of it.

• [214] During the trial, Mr He added another dimension to the scampi claim. The scampi was sent to a Chinese company Ying Bin, a company associated with or owned by Mr Chen. An invoice, about which Mr Chen says he has no knowledge, was rendered by NZPIL to that company for NZD 750,000 which remains unpaid. Mr He asserts that Mr Chen should pay that amount to NZPIL, or at least half of it, for the one container of scampi that was not contaminated. I have already dealt with this matter. I agree that what happened to at least the uncontaminated container is highly suspicious. I can understand Mr He’s suspicion that Mr Chen sold it himself and pocketed the proceeds of sale. But for the reasons already given, I cannot be sure on the balance of probabilities that Mr Chen did so and that he owes this money to NZPIL. As explained, I am left with no more than suspicion.

• [215] The second unjustified withdrawal Mr He relies upon is an amount of NZD 780,000 which was transferred into NZPIL’s account on 23 February 2012 from DNZIL, and it was transferred back to DNZIL on the same day. Mr He is of the view that this money must have been taken by Mr Chen from HKDIL, perhaps as part of its forthcoming liquidation, and should be treated as an unauthorised withdrawal; and it is HKDIL’s—and therefore NZPIL’s—money. Mr Chen Jnr’s evidence is that because he had parted ways with Mr He, he decided to use DNZIL to trade. Mr Chen Jnr intended to transfer the NZD 780,000 into DNZIL’s savings account but instead he accidentally transferred those funds into NZPIL’s account. When he realised his mistake, he transferred the funds back on the same day. He says it is his money. There is no way of resolving Mr He’s concerns. Indeed, in cross-examination on this point,

Mr He said, “it’s my speculation”. There is insufficient proof, and certainly not on the balance of probabilities, that this money is NZPIL’s money—even if it came through HKDIL. Mr He cannot establish this loss.

• [216] The third specific loss asserted by Mr He is NZD 194,156 representing interest, I understand at eight per cent, credited to Mr Chen in respect of his loans to NZPIL. Mr He says that interest is not justified nor agreed and should be paid back. Again, it is impossible for me to resolve the competing contentions so far after the event. Ms Ge was sure that she must have received instructions to deduct the interest, though she has not retained any documents that would establish that. Usually, she said this issue would be agreed between shareholders. In any case, both Ms Ge and Mr Cox were of the view that it was normal to charge interest at eight per cent, in a situation as here, when there have been significant loans to a company. I accept their views on this issue as being conclusive.

• [217] Mr He raised other more minor issues in his brief of evidence which are simply too numerous to individually discuss, such as unauthorised use of his credit card. I have discussed the three specific issues that he raised in his brief of evidence. The reality is that Mr He cannot establish any of the individual losses that he raises. His evidence simply falls short of proof on the balance of probabilities.

• [218] In this respect it is worth noting that Mr Cox presented three separate scenarios as to what Mr He might be entitled to if some or none of the specific losses incurred by NZPIL (allegedly attributable to Mr Chen) were established. If none were established, then Mr He would in fact owe money to NZPIL. And even if I am wrong about the one container of scampi that may not have been contaminated and that half the scampi invoice is payable to NZPIL, Mr Cox is clear that there is still absolutely no distribution to Mr He—and indeed Mr He would still owe money to NZPIL— something which I know Mr He just cannot accept.

• [219] During his evidence, Mr He came up with an alternative or additional basis for his loss by relying on a short handwritten report from a Ms Zheng, whom he says is Mr Chen’s chartered accountant. The two-page report has been translated into English. The report is undated. It does not have the author’s name on it. I must say I

found this part of Mr He’s evidence very hard to understand and made that clear to him when he was being cross-examined about it. Mr He maintains this report shows that there is unaccounted profit from NZPIL, not yet distributed. In his view, that report makes clear that NZPIL made an overall profit of NZD 1.9 million of which NZD 950,000 should be paid to him.

• [220] Ms Zheng did not give evidence. I do not know of her qualifications. The evidence is not in the form of a set of accounts. I do not know its provenance. I do not see how I can rely on one document said to come from her, without her being cross-examined. It cannot form a basis to conclude that, on the balance of probabilities, Mr Chen should pay Mr He that amount directly. I must say that I found the document inherently confusing and totally inconclusive. In any case, any such conclusion from Ms Zheng is contrary to that of Mr Cox.

• [221] For the sake of completeness, I add that Mr He believes the document also shows the business made a profit of NZD 3.129 million. According to Mr He, that originated from HKDIL, but there is no proof of that in the document itself. The document is very confusing in this respect also. Even though this Court has no jurisdiction over HKDIL, Mr He argues that 30 per cent of that amount, after Hong Kong tax is deducted, should be paid to him according to his shareholding. For the same reasons this claim is simply far too unreliable, and I put it to one side.

• [222] In conclusion on the issue of loss, and to be fair to Mr He, I am in no doubt that he sincerely believes that Mr Chen has treated him badly and owes money to NZPIL, and to him. It became obvious that Mr He was virtually desperate to prove that. During the trial he was still casting about for other ways to establish his loss. For example, at one point in his evidence he came up with another theory which he said established a loss of about NZD 1 million. He located three shipments of formula by NZPIL to Hong Kong, which he said he had discovered had not been paid for. They were NZPIL’s shipments 50, 51 and 53 with invoices respectively of NZD 366,320; NZD 296,912; and NZD 352.898, totalling NZD 988.606. This became known within the hearing as the “million-dollar question”.
• [223] Given that Mr He was representing himself, I allowed him to raise the “million- dollar question”, but on the basis that I gave leave to Mr Cox to further investigate and file a supplementary brief in reply. Mr Cox’s evidence, which I accept, was that he was able to identify these sales as being recorded in the company’s general ledger and that all the money had been received by NZPIL as invoiced—although it may not have been reconciled until February which may be the cause of Mr He’s confusion. In Mr Cox’s words the three invoices had been satisfactorily “zeroed out”. Therefore, there is nothing in this last-minute allegation raised by Mr He.

• [224] On the balance of probabilities, Mr He simply cannot establish that Mr Chen caused loss to NZPIL or that he is personally owed money. This cause of action founders on this ground alone, even if, contrary to my conclusions, he can establish there was a joint venture, and that Mr Chen breached it. Indeed, all of Mr He’s first four causes fail, amongst other things, on this point alone.

• [225] Finally in respect of this cause of action, it is important to note that in Mr Cox’s view, even if this Court ordered a taking of account of the financial activities of the alleged joint venture, as Mr He seeks, matters would not be advanced. This is because of the poor state of the accounts which cannot be remedied, the inadequate and incomplete documentation, and the passage of time. I am not sure if that is any reassurance to Mr He, but it is certainly the reality of the situation.

Conclusion as to this cause of action

• [226] Accordingly, for all the reasons I have set out in detail, the first cause of action must fail.

Second cause of action: breach of fiduciary duty

• [227] Mr He alleges that Mr Chen owed him a fiduciary duty to act in the best interests of the joint venture and not to cause loss or damage to it.

• [228] I consider that in this case the inability to establish a joint venture is fatal to the question of whether fiduciary duties arose. The absence of a joint venture between Mr He and Mr Chen conclusively points against the establishment of fiduciary duties

because Mr He and Mr Chen never had a relationship wherein one reposed trust and confidence in the other. Even I am wrong on that point, as I have already concluded, there is no evidence that Mr Chen breached those duties by operating a similar rival company in competition with NZPIL, or that any loss resulted. All those findings dispense with this alternative cause of action.

• [229] As an aside, I note that Mr He does not separately allege a breach of director duties set out in the Companies Act, nor that they create fiduciary responsibilities themselves. In any case those duties are owed to the company, in this case NZPIL. Mr He is precluded from making a claim in that respect. That would have been for the company itself to initiate. Which it did not do. An alternative would be for this Court to grant leave to Mr He to bring a claim in the name of NZPIL against Mr Chen as an effective deemed director of NZPIL. Leave to do this very thing was sought and refused by the High Court. The High Court held the Official Assignee could pursue an action against Mr Chen. The Official Assignee subsequently elected not to do. The matter cannot now be taken any further.

Third and alternative cause of action: money had and received

• [230] There is an immediate difficulty with what is pleaded. The heading in the statement of claim for this cause of action is “money had and received”. However, the relevant pleadings encapsulated at [76] of the statement of claim read as an unjust enrichment claim. The latter is also consistent with Mr He’s submissions at the end of the evidence, which he characterised as unjust enrichment. To be fair to Mr He, I approach the analysis, first, on the basis that it is a claim for money had and received and, secondly, that it is an unjust enrichment claim. As will be seen, it makes little difference. Either way this cause of action must fail. But first I make some observations about the two concepts.

• [231] I accept Mr Jiang’s submission that money had and received is distinct from unjust enrichment, although the two concepts are often confused. Money had and received is a recognisable cause of action in New Zealand usually relating to recovery of a debt or specific money owed. However, the status of unjust enrichment in New Zealand—whether as a cause of action, a legal principle, or a taxonomical label to

group similar cases together—is unsettled and has been the subject of considerable debate.²⁷ That said, I note the recent observations by Palmer J in Enright v Enright, where his honour did not “accept the submission that unjust enrichment cannot be a separate cause of action in New Zealand”.²⁸

• [232] Mr Jiang submitted that there may be some conceptual overlap between the two, or that money had and received may be seen as a species of unjust enrichment. However, he noted that “unjust enrichment” is not an established requirement for a successful claim for money had and received. He referred to Purucker v Huebler (No 3).²⁹ Money had and received is an action based on a receipt of money by a defendant who no longer has the right to retain it or who has improperly disposed of it. Control over the funds is a central question, and typically it is met if the funds are received by the defendant and come under their control.³⁰

(a) Money had and received

• [233] There is an initial limitation problem if this cause of action is treated as one for money had and received. It seems that this claim was first brought on 28 February 2020. Mr He’s first amended statement of claim, in March 2017, previously alleged equitable remedies for equitable fraud and unjust enrichment. I cannot see how what was then alleged could constitute a claim for money had and received.

• [234] Given that the claim is in relation to events which occurred in 2011 and 2012, the claim is about eight to nine years after the date the relevant statement of claim was first filed. In my view, Mr Jiang is right that such a claim seems time-barred under the relevant Limitation Act. His argument seems unassailable.

• [235] However, if I am wrong about that preliminary point, the fundamental problem with this cause of action is that it does not allege Mr Chen received a quantifiable sum of money. Essentially the claim alleges Mr Chen took Mr He’s “trade secrets”. Whatever else is a component of money had and received, there must be the receipt of

²⁷ Sean McAnally “Money had and received: we’re sorry, will you have us back?” [2023] NZLJ 258.

²⁸ Enright v Enright [2019] NZHC 1142 at [140].

²⁹ Purucker v Huebler (No 3) [2023] NZHC 2246, [2023] NZFLR 334 at [77].

³⁰ Purucker v Huebler (No 3), above n 29 at [73].

money by a recipient, here Mr Chen, who no longer has the right to retain it or has improperly disposed of it. Such a claim is not based on proof of any wrongdoing or impropriety by the recipient—the cause of action is complete when the money is received.

• [236] If this is a claim for money had and received, then it must fail from the beginning.

• [237] In any case, given my previous findings, there was no illegitimate use of that business information let alone at the expense of Mr He.

(b) Unjust enrichment

• [238] If this is a claim for unjust enrichment, then the claim has been made in previous iterations of the statement of claim. Therefore, there is no submission that it is time-barred.

• [239] Mr Jiang’s preliminary point, previously set out, is that there is no such independent cause of action recognised by New Zealand law. However, there is no need for me to decide that apparently “live” issue because there would seem to be three insuperable problems.

• [240] The first and decisive problem is that earlier in this judgment I have ruled that the so-called trade secrets or commercially sensitive information did not exist, and such claims are overblown. The most that could be said is that that the names of the Hong Kong and China purchasers and wholesale distributors might qualify as commercially sensitive information. But more importantly I have ruled that Mr He has not proved that Mr Chen used any business information for his own personal gain nor that he profited from its use at the expense of NZPIL, Prestige, or Mr He.

• [241] The second problem is that I agree with Mr Jiang that if, contrary to my earlier findings, Mr Chen has received and wrongly used any confidential and/or commercially sensitive information, then such information must have been the property of Mr He’s original business through his Prestige Products company and

possibly, then NZPIL. It is not Mr He’s information. It is owned by either or both companies. They are the only two entities that could bring this action. I agree with Mr Jiang that this claim fails on this point also.

• [242] Third, there is also a problem in that, as I understand it, unjust enrichment refers to the circumstances whereby the property or information was obtained, rather than how it was used. Here, Mr Chen, as a “deemed director,” legitimately came into knowledge of how Prestige Products worked, and NZPIL’s version of that system. Mr Chen was perfectly entitled to receive it. Mr He’s allegation relates to how Mr Chen subsequently used the information, which is not a component of an unjust enrichment claim. Usually, the circumstances of the receipt such as mistake, misunderstanding, fundamental error or some other person’s fraud, make it unjust for the recipient to keep the money or property. This is not the allegation here. The allegation relates to the later abuse of the legitimately received information.

• [243] There are other alternative actions to enforce the alleged illegitimate use of the information. The options include Prestige Products or NZPIL bringing an action against Mr Chen, or perhaps the Official Assignee doing so. Those actions, however, would not be for unjust enrichment. Another option is an action under s 174 of the Companies Act which, indeed, is Mr He’s fourth cause of action.

• [244] Thus, whether this is an action for money had and received or unjust enrichment, it is doomed to fail.

Fourth cause of action: relief under s 174 of the Companies Act

• [245] I assume that Mr He’s claim under s 174 relates only to NZPIL. If it purports to relate to HKDIL as well, then it cannot succeed because the Companies Act applies only to companies incorporated and registered with the Companies Registrar in New Zealand.³¹

³¹ Companies Act 1993, s 10.

• [246] Mr Jiang raises a Limitation Act argument here also. This cause of action was first raised in Mr He’s second amended statement of claim dated 28 February 2020 and it relates to events which can only have ever occurred in 2011 and 2012. On its face, it is time-barred.

• [247] However, given my conclusion that this cause of action fails on its facts, I do not need to decide this issue. I simply observe that there are no limitation provisions in s 174 itself. I further note that there are at least two cases supporting that a s 174 claim may be statute-barred.³² However, there are also a series of cases to the contrary.³³

• [248] I move to the substance of the claim itself. Section 174 gives the High Court wide-ranging powers to grant relief where a shareholder has been subjected to conduct that is “oppressive, unfairly discriminatory, or unfairly prejudicial”.

• [249] The Court of Appeal in Sturgess v Dunphy confirmed that although the prejudice jurisdiction is usually invoked to protect minority shareholders, its scope is not limited in that way.³⁴

• [250] The conduct must relate to the “affairs of the company” or “acts of the company”. However, the courts have not taken a restrictive approach to the question of whether conduct relates to the company. It extends to “anything generally concerning the company.”³⁵

• [251] The Courts have also given the words “oppressive, unfairly discriminatory, or unfairly prejudicial” an expansive definition. A leading case on the interpretation of these words is Thomas v H W Thomas Ltd.³⁶ The test is an objective one that concentrates on the effect of the conduct on the plaintiff. There does not need to be any illegality, lack of probity or lack of good faith for s 174 to apply. There are no

32. McLaughlin v MEL Network Ltd HC Auckland CIV-1998-404-253, 9 December 2004 per Potter J; and Scott v Scott Transport Ltd HC Hamilton CIV-2005-419-395, 19 October 2005 per Williams J.
33. Holden v Theatrelight Electronic & Audio Systems Ltd Auckland HC CIV-2006-404-3782 per Heath J.

³⁴ Sturgess v Dunphy [2014] NZCA 266 at [135].

³⁵ McCulloch v Quinn [2012] NZHC 16 at [30].

³⁶ Thomas v H W Thomas Ltd [1984] 1 NZLR 686 (CA) at 693 per Richardson J.

fixed categories to which it can apply, and it can come into play whenever there is “a visible departure from the standards of fair dealing”.³⁷ However, s 175 sets out a non- exhaustive list of situations where s 174 is deemed to apply. Beyond s 175, the types of situations in which s 174 relief has been granted are myriad.

• [252] Further, the courts have suggested that relief may be available where there is a breach of the plaintiff’s “reasonable expectations”.³⁸ The reasonable expectation must be based on something more than the subjective views of the plaintiff as to the way the company should function. The expectations must be objectively identifiable on a review of the way the company was established and has operated. For example, a situation where expectations are not formally reflected in the company’s constitution, but they are in some way clearly visible nevertheless.

• [253] A claim based on reasonable expectations is more likely to succeed in the case of a closely held company, as here, rather than a company with many shareholders.

• [254] In applying the law to this situation, I leave aside the interesting question as to whether there is jurisdiction under s 174 when the company in question has been in liquidation for over 10 years, and the Official Assignee has effectively terminated any involvement in it.

• [255] I also proceed on the basis that Mr Chen is within the scope of the Act, as a “deemed director,” for the reasons set out by the Court of Appeal at [23] to [28] in its decision in respect of Mr He’s failed application to bring a derivative action against Mr Chen.³⁹

• [256] The simple answer to this claim is that, given my previous findings, there was no conduct by Mr Chen that falls within the wide-ranging definition of the Act. Even if there was, there was no loss to Mr He. I agree with Mr Jiang that it is at least as likely that it is Mr He who, over the years of their involvement, withdrew more money from the company than the Chens.

³⁷ At 695, citing Elder v Elder and Watson Ltd [1952] SC 49 (IH) at 55.

³⁸ See Sturgess v Dunphy, above n 34.

³⁹ He v Chen, above n 7.

• [257] The s 174 claim cannot stand.

Conclusion

• [258] Having presided over this 12-day hearing, I have no doubt that Mr He is earnest and genuine in his belief that Mr Chen has wronged him. His problem is that the passage of time is against him, and he has little documentation to substantiate his assertions. His desperation to prove his case and to support his conviction that he has been “ripped off” came through when he gave evidence. However, his earnestly held beliefs do not amount to proof on the balance of probabilities.

• [259] The most that can be said for Mr He is that he is “possibly” correct. On the other hand, Mr Chen, in light of his son’s evidence and documentation, is himself possibly correct. And I would say that at times, especially in respect of his view that there was no joint venture, Mr Chen is probably correct and certainly more likely than not to be correct.

• [260] In short, on any analysis, in terms of his evidence and credibility, Mr He has not discharged the onus on him to establish his case on the balance of probabilities.

Result

• [261] For the reasons given in this judgment, I have concluded that each of Mr He’s five causes of action must fail. Accordingly, the five claims are all dismissed.

• [262] As to costs, I am hopeful that the parties may now be able to agree on costs. If the parties cannot agree, short costs memoranda (of no more than three pages) are to be filed. Mr Chen’s memorandum is to be filed on or before 15 working days from the date of this judgment, and Mr He’s within a further 15 working days. I will then determine costs on the papers.

Becroft J