Commercial practice in China having investors disguise their activities caused confusion during a High Court hearing before the court ruled that investor Yu Hua’s $700,000 was not a loan due for repayment but lost in a failed retail venture as an equity investment.
Use of intermediaries to transfer funds and failures to maintain correct shareholder records were explained away as steps commonly taken to avoid drawing attention from government officials in China.
The High Court was told Yu Hua, also known as Kevin Hua, agreed in 2017 to join with two others, Jingjing Zhang and Jie Wen, to establish a retail store.
Whilst initially seeking to convince the High Court that this venture was intended to operate in New Zealand, Mr Hua later acknowledged the proposed deal was to set up a company in China, leasing commercial premises in Baoji City to sell tea, wine and other products imported from New Zealand.
When the business failed, he claimed the $700,000 he put in was a loan and that Ms Zhang, also known as Cathy Zhang, had personally promised repayment. This promise was supposedly made at a meeting between the two in Auckland at a Sylvia Park McDonalds in August 2018.
The circuitous route taken to send funds to China supported Ms Zhang’s claim that China was at all times the intended site of their retail store.
Initial tranches of Mr Hua’s $700,000 investment were sent from New Zealand via a China bank account operated by Ms Zhang’s mother. Her mother asked that to stop; as a senior local government official she would come under suspicion if large sums of money passed through her bank account. Subsequent tranches passed through the China bank account of Ms Zhang’s mother-in-law.
Shaoyuan Trading Ltd was incorporated in China for their intended business. It did not name either Mr Hua or Ms Wen as shareholders. Ms Zhang and several close relatives were listed as shareholders.
Ms Zhang told the court that Mr Hua, for reasons not disclosed to her, did not want his name recorded on any official documents in China.
Ms Wen was excluded from the public record because she did not live in China; getting her signature was difficult.
Justice van Bohemen was asked to rule whether Mr Hua’s investment was a loan, to be repaid by Ms Zhang, or an equity investment, lost when the business failed following severe covid-19 pandemic lockdowns in China.
Some of the evidence given did not make sense and some was clearly false, he said.
The tenor of WeChat messages between Mr Hua, Ms Zhang and Ms Wen made it clear that Mr Hua was an equity investor in the Baoji City business, he ruled.
Justice van Bohemen ruled there was insufficient evidence that Ms Zhang personally promised in 2018 to repay the $700,000 investment. The only written record of such a promise was in a WeChat message sent by a third party who was not present at the 2018 McDonalds meeting.
Ms Zhang said the 2018 meeting discussed an ongoing dispute with a contractor fitting out their Baoji City business premises. She denied ever accepting personal responsibility for repayment of Mr Hua’s investment.
Hua v. Zhang – High Court (6.08.25)
25.175