With fourteen million dollars already committed to an Auckland North Shore property development, Yuling Yang and Sen Gao were approached by fellow investor Victor Jia for a further $1.5 million to bail him out of a problematic personal debt. Repayment of what eventually became a three million dollar personal loan was in dispute after China Construction Bank called up its loan over the six-storey residential development.
Mr Jia, also known as Xinhong Jia, said this personal loan was in fact a limited-recourse loan tied to their joint project, with his benefactors only entitled to payment out of what might remain from the wash-up on liquidation.
The Court of Appeal was told Mr Jia’s plea for a personal loan followed difficulties in repaying a debt owed another member of the Chinese community. Non-payment would be a severe loss of face.
Ms Yang and Mr Goa came to the rescue with an agreement recording what became an unsecured non-interest bearing three million dollar personal loan with repayment deferred until the North Shore project at Browns Bay was complete and ‘shareholder dividends payable and paid [to them as] shareholders.’
This agreement was concluded at a time when prospects of their property development being profitable looked good.
Three years later, Ms Yang and Mr Goa were demanding repayment of their three million dollars. Twelve months on, China Construction Bank forced a sale of Browns Bay, recovering $21 million dollars owed.
Mr Jia alleges China Construction sold at an undervalue. Action against the bank is threatened.
Fending off claims by Ms Yang and Mr Goa for return of their three million dollars, Mr Jia said they had to wait for the outcome of litigation against China Construction. Any surplus would be paid as a ‘shareholder dividend,’ amounting to final repayment in terms of their loan agreement, he said.
The Court of Appeal ruled ‘dividends’ as envisaged by their agreement applied to payments made by a solvent company to its equity investors. It cannot be likened to a payment made on liquidation, the Court said. Use of the word dividend was not to be confused with payments to creditors in a liquidation, which also get labelled as dividends, the court said.
Their contract made no provision for what might happen if the project failed; this prospect was never considered when the loan was set up.
The Court ruled it was an implied term in their loan contract that if the project failed, Mr Jia’s obligation to repay his personal loan fell due immediately.
Jia v. Yang – Court of Appeal (13.06.25)
25.140