In the Court of Appeal of New Zealand

CA [2019
between

RICHARD CILIANG YAN
Appellant

and

MAINZEAL PROPERTY AND CONSTRUCTION LIMITED

(IN LIQ)
First Respondent

and

KING FACADE LIMITED (PREVIOUSLY KNOWN AS

RICHINA LAND LIMITED) (IN LIQ)
Second Respondent

and

MAINZEAL GROUP LIMITED (IN LIQ)
Third Respondent

and

 

COUNSEL:
DAVID CHISHOLM QC

LEVEL 14. WATERLOO QUADRANT.

AUCKLAND
TELEPHONE 09 358 4091
FACSIMILE 09 362 0750

NOTICE OF APPEAL
21 March 2019

LeeSalr?nonLong

Barristers and Solicitors

LEVEL 16 VERO CENTRE 48 SHORTLAND STREET

PO BOX 2026 SHORTLAND STREET AUCKLAND NEW ZEALAND
TELEPHONE 64 9 912 7100 FACSIMILE 64 9 912 7109

EMAIL: tim.mullins@lsl.co.nz SOLICITOR ON RECORD: TIM MULLINS

ANDREW JAMES BETHELL AND BRIAN MAYO-SMITH
Fourth Respondents

and

PETER GOMM
Fifth Respondent

and

RT HON JENNIFER MARY SHIPLEY
Sixth Respondent

and

CLIVE WILLIAM CHARLES TILBY
Seventh Respondent

and

PAUL DAVID COLLINS
Eighth Respondent

and

RICHINA GLOBAL REAL ESTATE LIMITED (IN LIQ)
Ninth Respondent

and

ISOLA VINEYARDS LIMITED (PREVIOUSLY KNOWN
AS WAIHEKE VINEYARDS LIMITED)

(IN LIQ)

Tenth Respondent

NOTICE OF APPEAL

Richard Ciliang Yan (Mr Yan), the appellant in the proceeding identified above,
gives notice that he is appealing to this Court against the parts of the decision of
Cooke in the High Court at Auckland ([2019] NZHC 255; CW 2015-404-1094)),
delivered 26 February 2019 (Judgment) finding the Mr Yan breached 5135 of the
Companies Act 1993 (Act); that such breach caused loss to the First Respondent
(Mainzeal) being said to be the total loss to creditors in the liquidation; that Mr Yan?s
culpability was substantially greater than the other directors due to his conflict of
interest and personal benefit; and that he be liable in the sums set out in the
Judgment to Mainzeal.

GROUNDS OF APPEAL
The High Court Undertaking Own Inquiry I Breach of Natural Justice

1. The High Court erred in finding that it could undertake its own separate
inquiry under 3301 of the Act, in the sense that it was independent of the
plaintiffs? pleaded case, the plaintiffs' submissions, and the evidence they
had adduced. in particular, after the plaintiffs had closed their case, the
High Court issued Minutes dated 24 October and 2 November 2018 (High
Court?s Minutes) to the effect that if liability under 3135 of the Act arose,
then the High Court could make its own assessment of quantum, even if it
was not on the basis contended for by the plaintiffs in their pleadings or
evidence.

2. The High Court erred in subsequently making findings relevant to liability,
causation and quantum under S135 that were not pleaded, not supported
by evidence, and not put to Mr Yan, or Richina Pacific Limited 
Chairman at the relevant time, Mr Walker, in particular, namely that:

Mr Yan?s (unidentified) breach may have occurred ?from an earlier
stage? than the Fifth to Seventh Respondents despite Mr Yan not
being a director of Mainzeal between November 2004 and April
2009, and there being no pleading or finding that Mr Yan was a de
facto director in the relevant period 

Mr Yan was culpable for the ?vulnerable trading? policy the High
Court found Yan had required of Mainzeal, apparently
independently of the Fifth to Seventh Respondents [417],
[453(b)l);

(G) Mr Yan misled the Fifth to Seventh Respondents by the manner in
which he gave assurances of support and this was a significant
factor in the breaches of duties by the Fifth to Seventh
Respondents and

Had Mr Yan and the Fifth to Seventh Respondents insisted to the
point of resignation, these directors would have been successful in
forcing RPL/the Richina Group ?to abandon the vulnerable trading
approach? ([417] and [426]) and RPL ?would have been prepared
to provide legally binding support? 

 

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3. These findings were unfair to Mr Yan by reason of the following:





Breach of 51 35

Those findings were based on errors of fact and/or did not arise on
the case pleaded by the plaintiffs;

The theory of causation and loss raised in the High Court?s Minutes
was not argued or adopted by the plaintiffs at trial;

The plaintiffs were unsuccessful in establishing the loss as pleaded
[407] because the High Court found that
there was no deterioration in Mainzeal?s financial position;

The findings were made without adequate notice to Mr Yan, even
if (which is denied) the High Court had power to undertake its own
separate inquiry under 301, because of the matters above and
also:

The basis for the High Court?s findings on causation and
quantum were not adequately identified in the High Court's
Minutes;

(ii) The High Court?s reasoning on causation and quantum

was unorthodox and could not fairly have been anticipated
by Mr Yan at the time of the High Court's Minutes; and

Even if (which is denied) the High Court had power to conduct its
own separate inquiry under 301, the High Court?s findings were
made without Mr Yan having an adequate opportunity to be heard
both as to evidence and submission.

4. The High Court erred in fact and in law in finding that Mr Yan breached
135 of the Act.

5. The plaintiffs' pleaded case and evidence in support was essentially that
Mr Yan and the Fifth to Seventh Respondents collectively breached their
duty under 135 by allowing Mainzeal to continue to trade beyond the
pleaded breach dates of 31 January 2011 and/or 31 July 2011 which in
turn caused Mainzeal?s financial position to deteriorate. On the findings in
the Judgment:





There was no reason to place Mainzeal into receivership or
liquidation on the January or July 2011 breach dates as pleaded
and

There was no deterioration of Mainzeal?s financial position
between the 31 January 2011 breach date and liquidation in 2013


6. The High Court erred in finding that there was a breach of 135 because
there was no sufficient assurance of support by RPL on which Mr Yan could
reasonably rely if adverse circumstances arose (at an error itself
based on the following erroneous findings:

 

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 There was a conscious decision by RPL in late 2010 not to provide
a written commitment of support (at 

RPL had procured Mr Yan's breach of 135 by requiring Mainzeal
to adopt a policy of insolvent trading whilst using creditors? funds
as working capital over a number of years as its modus operandi
(at [280], [282] and 

(0) Mr Yan had culpability, as a director of Mainzeal, for the policy of
?vulnerable trading? that RPL was (erroneously) found to have
required Mainzeal to adopt (at [453(a)] and 

Any such decision by RPL amounted to a conflict of interest for Mr
Yan, as a director of Mainzeal, because it would not have been in
his interests for RPL to provide a legally binding obligation of
support for Mainzeal (at 

RPL did not provide Mainzeal with significant financial support
during the years 2006?2011, as generally it was the other way
around (at [220], 

Mr Yan could not rely on his own informal expressions of support,
because such reliance became unreasonable after the group
restructure in 2009 (at [226], [235], and

(9) Mr Yan caused the infringing manner of trading prior to the Fifth to
Seventh Respondents allowing it, given his role in establishing the
arrangements, including two loans for other group purposes,
known as the MLG Loans, at an earlier stage (at [291], In
fact, Mr Yan was not a director of Mainzeal when the two loans
from Mainzeal to MLG were documented in 2005 (although he was
when the first advance of was made in late 2004 when
he was a director). He became a director again in April 2009.

Loss not caused by I available as remedy for breach

7. The High Court erred in finding that compensation under 301 of the Act
could be assessed on the basis of the entire loss to creditors, relying on
dicta from Re South Pacific Shipping (HC) and Lc'iwer Traveller (CA),
when the reasoning in those decisions rested entirely on the express terms
of 320 of the Companies Act 1955, which included power to declare a
person ?personally responsible, without any limitation of liability, for all or
any part of the debts and other liabilities of the company? (emphasis
added) (at By contrast, section 301 ofthe Act does not include
such a power and is confined to the award of compensation for the loss
caused by the relevant breach of duty.

8. The High Court erred in conflating the loss suffered by Mainzeal flowing
from the breach on the one hand and the losses suffered by creditors of
Mainzeal upon liquidation, on the other.

9. The High Court erred in finding that Mr Yan's breach of s1 35 caused a total
loss of $110m to Mainzeal's creditors upon Mainzeal?s liquidation, and
(implicitly) finding that this was sufficient to establish that Mr Yan?s breach
caused a $110m loss to Mainzeal (at In particular:

., of W, ?p-22, 3

 

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(C)







The total quantum of admitted creditor claims of $110m in
Mainzeal?s liquidation (including other companies) did not flow
from a breach of duty as found by the High Court that occurred in
either mid-2010 or January/July 2011 

The figure of $110m was not a ?deficiency" as found by the High
Court, rather it was a sum derived in the Judgment from the total
admitted claims of creditors of Mainzeal and several other
companies, whose liquidations were pooled under 271 of the Act.
The High Court also failed to have regard to the assets at the time
of liquidation and recovery ordered against the Tenth Respondent
in arriving at that figure as a ?deficiency? [427];

The directors? actions at the time of the breach as found by the
High Court did not cause the losses suffered by creditors;

The directors could not force RPL to capitalise Mainzeal or to give
a legally enforceable undertaking to pay intercompany loans to
Mainzeal owed by other group companies. Even if they had
obtained an undertaking, it would not have prevented Mainzeal
from being placed into liquidation;

There was no pleading or evidence, or testing of relevant
witnesses, to support the findings in to the effect that
the directors could have successfully procured the group to
?abandon the vulnerable trading approach?;

A threat by Mr Yan and the Fifth to Seventh Respondents to resign
would simply have caused an earlier liquidation and thus greater
losses for creditors; and

The undisputed evidence was that RPL could never capitalise
Mainzeal or provide further funding than it was otherwise providing:

RPL could not complete the 2008/2009 restructuring
because of the relevant third party investor withdrawing its
support in early 2009;

(ii) RPL had a provisional liquidator appointed in March 2013
by reason of its inability to meet bond liabilities of
approximately $19m and thus was never in a position to
commit to further funding;

bond exposure was substantially greater in 2011
than it was in 2013; and

(iv) The ability to procure funds from China for the benefit of
Mainzeal was exhausted by 2013.

10. The High Court erred in finding that Mr Yan?s breach of 135 should
nonetheless be regarded as the cause of an entire ?loss? of $110m, as a
matter of law (at despite finding that Mainzeal?s failure and the
extent of its losses may have been contributed to by factors other than a
breach Yan.

 

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11. The High Court erred in finding that, had RPL been legally committed to
support Mainzeal, then Mainzeal's failure would have been avoided
altogether (at despite having found that:

Even if legally binding support for Mainzeal had been provided by
RPL, RPL may have been prevented from providing such support
when called upon due to the limitations imposed by Chinese law
(at and

When faced with $19m of construction bond liabilities arising from
Mainzeal's failure in 2013, RPL was forced to appoint a provisional
liquidator for the remainder of 2013, due to lack of liquid
assets and Chinese foreign currency exchange laws preventing
payment by RPL (at 

Culpability

12. The High Court erred in finding that Mr Yan was more culpable than the
Fifth to Seventh Respondents, because of the following erroneous findings
in particular:

Mr Yan's breach may have occurred from an earlier stage than that
of the Fifth to Seventh Respondents. This finding appears to be in
substance that either:

Mr Van caused the original loans from Mainzeal to MLG
(the terms of which were documented in 2005 when Mr
Yan was not a director of Mainzeal, so the finding is wrong
in fact); or

(ii) Mr Yan is personally liable as a (later) director of Mainzeal,
for the actions of RPL (which is wrong in law as it conflates
Mr Yan's acts as a director with those of RPL and wrong
in fact because Mr Yan was only one of the investors in
RPL (see 

(at 

Mr Yan was in a conflict of interest position given his shareholding
in RPL. On this finding any director who has ability to contribute
or procure the contribution of funds to a balance sheet insolvent
company will be culpable and have acted in conflict of interest for
not doing so (at 

Mr Yan misled the Fifth to Seventh Respondents by exaggerating
the support that was being provided and assuring them that there
was no reason to worry (at despite finding (at [309]) that
it would not have been apparent to any of the directors (including
Mr Yan) that Mainzeal?s failure would occur until very near to the
point where Mainzeal actually failed;

Mr Yan benefited very substantially from using Mainzeal?s funds to
assist in acquiring assets in China. This amounts to a finding that
Mr Yan is culpable as a director of Mainzeal due to loans the terms

 

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of which were agreed to when he was not a director of Mainzeal
and conflates Mr Yan?s position with that of and

The extent of the amount that Mr Yan is required to contribute ?is
materially less than the value extracted from Mainzeal to assist in
acquiring this wealth? (at In fact, the contribution ordered
against the Fifth to Seventh Respondents (total $18m, $6m each)
and Mr Yan (the total $36m) is significantly more than the principal
of the MLG Loans as originally advanced (approximately $15m).

13. The High Court erred in exercising the discretion in 301, including by
failing to have sufficient regard to:

The finding that there had been no net deterioration in Mainzeal's
position;

Mr Yan?s honesty and commitment to Mainzeal;

The short duration of the period when Mainzeal?s future as a going

concern was in question;

The absence of causation between Mr Yan?s conduct as a director
as found and the company's losses; and

The other causes of the failure of Mainzeal.
JUDGMENT SOUGHT
14. The Appellant seeks the following relief:

The High Court?s findings under 301 of the Act as to breach of
S135, causation of loss and contribution by Mr Yan be set aside;

Costs of this appeal be awarded to the Appellant and any costs in
the High Court determined based on the High Court?s judgment
against Mr Yan be set aside;

(0) Such other orders as the Court sees fit.

15. The Appellant is not legally aided.

Dated 21 March 2019

 

 

im Mullins
Solicitor for the Appellant

 

This document is filed by Tim Mullins solicitor for the Appellant of the firm
LeeSaImonLong.

Documents for the Appellant may be served at the offices of LeeSaImonLong
situated on Level 16, Vero Centre, 48 Shortland Street, Auckland, or may be posted
to Box 2026, Shortland Street, Auckland.

 

NOTICE OF APPEAL-FDOCX