ANZ Bank New Zealand Limited v Lee

[2022] NZHC 2938

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-2127

[2022] NZHC 2938

BETWEEN

ANZ BANK NEW ZEALAND LIMITED

Applicant

AND

JINWON LEE

First Respondent

SUNG HOON LEE
Second Respondent

SOOJUNG LEE
Third Respondent

JINYOUNG LEE

Fourth Respondent

Hearing:	On the papers
Counsel:	S Gollin and A Kirk for the Applicant
Judgment:	9 November 2022

JUDGMENT OF GORDON J

This judgment was delivered by me

on 9 November 2022 at 4 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Solicitors:
Minter Ellison Rudd Watts, Auckland

ANZ BANK NEW ZEALAND LTD v LEE [2022] NZHC 2938 [9 November 2022]

[1]    ANZ Bank New Zealand Ltd (ANZ) has filed an interlocutory application dated 7 November 2022 for freezing and ancillary orders (Application) under pt 32 of the High Court Rules 2016 (HCR).

[2]    The freezing order is sought against assets of the first respondent, Jinwon Lee (aka Jin Won Lee or James Lee). The ANZ also seeks ancillary disclosure orders against Mr Lee.

[3]    The orders are sought against the background of a claim that ANZ has filed against Mr Lee and others in contract and debt under a guarantee for amounts said to be due and owing on facilities provided by ANZ to Hanyang Corporation Ltd (Hanyang Corporation) and Hanyang International Co Ltd (Hanyang International).

[4]    Mr Lee is the sole director and sole shareholder of those two companies. At the same time as it filed the application, ANZ filed an application for summary judgment against all defendants (respondents in this Application) including Mr Lee.

[5]    In summary, ANZ says it has brought the Application against Mr Lee as it says there is a real risk that Mr Lee’s only asset that ANZ is presently aware of, his residential property at 2/59 Sartors Avenue, Browns Bay, Auckland (the property), will be disposed of and the net sale proceeds, representing his equity in the property will be sent offshore and out of reach.

[6]    ANZ says there is reason to believe that Mr Lee has been selling off his business and personal assets and that he may have left New Zealand for Korea. It says it appears the sale of the property, which is currently being marketed for sale and has already been passed in at an auction held last month is the final stage of the sell-off.

[7]    The orders sought are accordingly to protect ANZ’s position pending the obtaining and enforcing of judgment against Mr Lee on its summary judgment application.

[8]    ANZ also seeks ancillary disclosure orders against Mr Lee and other entities to ascertain whether Mr Lee has other assets presently unknown by the ANZ which ought to be frozen.

[9]    The application is supported by affidavits of: Louee Cliffe, a relationship manager in the Lending Services Team at ANZ; Raymond Cox, a chartered accountant and partner at Grant Thornton, who with a colleague was appointed by ANZ jointly and severally on 27 October 2022 as receivers and managers of Hanyang Corporation and Hanyang International; and Rachel Simpson, a property manager, who managed a complex of retail units, two of which were leased to Hanyang Corporation.

Legal principles

[10]   The legal principles relating to applications for freezing and ancillary orders are well settled.1 The elements which must be satisfied are:2

(a)The applicant has a good arguable case on its substantive claim;

(b)There  are  assets  of  the  respondent,  either  inside   or   outside  New Zealand, to which the orders can apply; and

(c)There is a real risk that the respondent might abscond, or might remove, dispose of, deal with or diminish the value of their assets, as to render them “judgment-proof”.

Summary of factual background

[11]   Hanyang Corporation is an importer and wholesaler of Asian, primarily Korean, food products. Hanyang International operates a retail grocery business for the sale of Asian, predominantly Korean, food products. As already noted, Mr Lee is the sole director and sole shareholder of the two companies.

1      McGechan on Procedure at HCR32.2.03, High Court Rules 2016, r 32.

2      Shaw v Narain [1992] 2 NZLR 544 (CA) at 548.

[12]   ANZ made various facilities (the facilities) available to Hanyang Corporation and Hanyang International to fund the importation of Korean food products. Mr Lee, along with the other respondents, jointly and severally guaranteed the obligations of Hanyang Corporation and Hanyang International under the various facilities provided by ANZ, pursuant to a deed of cross guarantee (the Guarantee).

[13]   Hanyang Corporation and Hanyang International have defaulted under the facilities. ANZ has made demand on Mr Lee and the other respondents under the Guarantee and on 27 October 2022 appointed Mr Cox and his colleague Mark McDonald as receivers of Hanyang Corporation and Hanyang International.

[14]   Inquiries made by the receivers and referred to by Mr Cox in his affidavit and inquiries and information obtained by Ms Simpson referred to in her affidavit indicate the following:

(a)The premises occupied by Hanyang Corporation have been vacated and the landlord had re-entered and cancelled the leases for failure to pay rent due under the leases on 1 September 2022 and 1 October 2022;

(b)Despite draft financial statements for both companies for the year ended 31 March 2022 indicating that as at that date both companies were profitable businesses with net assets including a number of vehicles, the receivers, having attended both a warehouse and the retail outlet have found minimal assets of any value remaining at those premises. Mr Cox says he has been unable to locate assets of any value for either of the companies apart from a container containing food products with an invoice value of approximately US$60,000 which was landed at the Port of Auckland in July 2022 and which has remained there since uncollected with detention and other charges accruing;

(c)Neighbours of the premises from which Hanyang Corporation had operated reported that in late August 2022 Hanyang Corporation had conducted a bargain price sale of stock. The tenants of those

neighbouring premises believe that Mr Lee and his parents, the second and third respondents, had returned to Korea;

(d)The property (Mr Lee’s residential property) was advertised for sale at the end of September/beginning of October 2022. Ms Simpson attended the auction on 19 October 2022 when the property was passed in. The property remains advertised for sale;

(e)Mr Cliffe says that despite Mr Lee being in email communication with ANZ until 14 October 2022, Mr Lee made no mention to ANZ that he was disposing of stock, ceasing business, vacating the business premises and selling his home. ANZ has not heard from Mr Lee since 14 October 2022;

(f)Neither the receivers nor Ms Simpson have been able to make contact with Mr Lee. Ms Simpson says she has not been able to raise Mr Lee or his parents by telephone or email. Mr Lee has not responded to emails sent to him by the receivers and telephone calls by Mr Cox to Mr Lee have not been answered. Mr Cox says calls to Mr Lee’s mobile telephone number resulted in a ringing tone which in his experience is consistent with a call to a number overseas, before ringing out and without being picked up. Mr Lee has avoided requests by ANZ to meet during October 2022 to discuss Hanyang Corporation and Hanyang International’s accounts.

Is there a good arguable case?

[15]   The first of the three elements ANZ must establish is that it has a good arguable case against Mr Lee on an accrued or prospective cause of action.3 In order to do so, ANZ does not need to establish a prima facie case but must show that the cause of

3      HCR, r 32.5(1)(b).

action is at least tenable.4 The sufficiency of the evidence must reflect the early stage of the proceedings.5

[16]   ANZ says its claim against Mr Lee is straightforward. It is for that reason ANZ has applied for summary judgment on its claim against Mr Lee and other defendants/respondents. Its claim is a simple claim  in  contract  and  debt  against Mr Lee and the other defendants as guarantors under the Guarantee for amounts due and owing by Hanyang Corporation and Hanyang International under the facilities as a consequence of defaults by those two companies.

[17]   Mr Cliffe annexes to his affidavit the Guarantee and the relevant facility and security documents. As far as the Guarantee is concerned, Mr Lee, and each of the other respondents as guarantors, is liable under the Guarantee as a principal debtor and not just as a surety. In other words ANZ can require him to pay the relevant debt whether or not ANZ has made demand on Hanyang Corporation and Hanyang International as the borrowers.

[18]   Mr Cliffe says that from 21 September 2022 the Hanyang Corporation account in respect of which no overdraft arrangement was in place, was (and remains) overdrawn, with the overdrawn balance increasing substantially.

[19]   Mr Cliffe says that Hanyang Corporation and Hanyang International defaulted under their respective general security agreements in a number of respects including a failure to satisfy demand made on them. A demand was also made on Mr Lee and the other respondents on 4 October 2022 as guarantors under the Guarantee for the then overdrawn balance of the Hanyang Corporation account. The total amount demanded was $537,077.10.

[20]   I accept that the evidence filed in support of the application establishes the required threshold of a good arguable case against Mr Lee.

4      Hannay & Ors v Mount & Ors [2011] NZCA 530 at [21]–[22]; Dotcom v Twentieth Century Fox Film Corporation (2014) 22 PRNZ 479; [2014] NZCA 509 at [18].

5      Dotcom v Twentieth Century Fox Film Corporation, above n 4, at [31].

[21]   I note that ANZ says it is not aware of any possible defences – given the nature of a claim for liability under a guarantee.

Are there assets to which the freezing orders may apply?

[22]   The second requirement that must be satisfied is that Mr Lee has assets to which the order can apply.

[23]   ANZ says the only asset of Mr Lee of which it is specifically aware is the property at 2/59 Sartors Avenue, Browns Bay, Auckland, being Identifier NA80B/209, North Auckland Land Registry for which Mr Lee (as Jin Won Lee) is registered as registered proprietor. This is also the address given for Mr Lee in the Companies Office extracts for Hanyang Corporation and Hanyang International. ANZ understands this is or was his place of residence.

[24]I accept the second element is satisfied.

Is there a risk of dissipation?

[25]   The applicant for a freezing order must point to circumstances from which “a prudent, sensible, commercial person could properly infer a danger of default”. The test is “not unduly exacting”.6

[26]   I accept the matters identified by Mr Gollin, counsel for ANZ, establish a real risk or danger of assets, particularly the property, being disposed of or dissipated:

(a)The property is for sale against a background where the stock of Hanyang Corporation and Hanyang International has been sold off at bargain prices and their premises vacated. Mr Cox’s evidence is that the warehouse containing the head office and warehouse space was in disarray when he visited with scattered boxes of stock, a lot of which appeared to have expired. A chattels sales agent was on site undertaking a stocktake and valuation of the stock and equipment on behalf of the landlord. There were three forklifts at the warehouse but

6      Oaks Hotels & Resorts NZ Ltd v Body Corporate 358851 [2013] NZHC 2695 at [18].

no sign of the motor vehicles and delivery vans listed in the financial statements;

(b)The above matters provide reason to believe that Mr Lee had undertaken a process of cashing up business and personal assets, the last stage of which being the sale of the property;

(c)Mr Lee’s two businesses, Hanyang Corporation and Hanyang International have substantial indebtedness to ANZ;

(d)The two companies vacated their leased premises with arrears of rent owing;

(e)Mr Lee did not mention to ANZ that any of these matters were occurring despite being in correspondence with ANZ at the time; and

(f)Tenants in the neighbouring commercial premises understood that Mr Lee had returned to Korea. If that is the case, it would explain Mr Lee’s not attending meetings which ANZ sought to schedule.

[27]   I accept that all the above circumstances indicate a real risk that on settlement of a sale of the property any sale proceedings remaining after payment of sums owing on the mortgage registered against the title will be remitted offshore beyond the reach of ANZ even before ANZ has been able to obtain and enforced the summary judgment application.

[28]The third element is satisfied.

Balance of convenience and overall justice

[29]   I accept the balance of convenience and overall justice of the case supports freezing orders being granted. There would be little or no prejudice or hardship to Mr Lee. Any such hardship is outweighed by that which will be suffered by ANZ if the freezing orders are not made.

[30]   ANZ accepts that the registered mortgage will take priority on any sale of the property. The purpose of the freezing order is to preserve ANZ’s ability to enforce its judgment against Mr Lee’s equity in the property.

[31]   ANZ has also provided an undertaking as to damages and is clearly able to fulfil its obligations under that undertaking.

Ancillary Orders

[32]   Ancillary Orders are sought under HCR, r 32.3. Such orders may be made for the purpose of eliciting information relating to assets relevant to the freezing order or prospective freezing order.7

[33]   The Ancillary Orders sought are by way of disclosure orders. First, as against Mr Lee, the Ancillary Orders require disclosure of his assets. Such orders will allow ANZ to determine whether there are other assets and whether other parties ought to be served with the freezing order as having custody or control over those assets.

[34]   ANZ also seeks Ancillary Orders by way of disclosure orders against various banks or financial institutions: CFML Lending Ltd (CFML); Kookman Bank, Heartland Bank Ltd (Heartland) and Westpac New Zealand Ltd (Westpac).

[35]   I accept that for each of those institutions there is reason to believe that Mr Lee may have a banking relationship with them and they may, therefore, have information about assets of Mr Lee or assets in which he has an interest.

[36]   CFML is the party with the mortgage registered against the title to the property. The Ancillary Orders therefore seek disclosure of the amount owing and secured by the mortgage. I accept the submission Mr Gollin makes that it is possible that CFML may also hold security over other assets of Mr Lee. The Ancillary Orders sought against CFML also seek disclosure of that information as it would identify other assets to which the freezing order would apply.

7      HCR, r 32.3(2)(a).

[37]   In relation to Kookman Bank and Heartland, both institutions are referred to in the draft statement of financial position for Hanyang Corporation for the year ended 31 March 2022. Accounts with Kookman Bank are listed as current assets and Heartland is listed as a current liability. Given Mr Lee’s close association with Hanyang Corporation (sole shareholder and sole director) I accept it is a reasonable assumption that he may also have a personal banking relationship with those two banks.

[38]   As far as Westpac is concerned, by email to the ANZ in April 2022, Mr Lee referred to discussions he was having at the time with Westpac with a view to refinancing the accounts Hanyang Corporation and Hanyang International had with Westpac. Although that refinancing did not in fact proceed I accept it is conceivable that Mr Lee may nevertheless have established a personal banking relationship with Westpac.

[39]   The bank statement information ANZ seeks from Kookman Bank, Heartland and Westpac is restricted to the months of August, September, October and November 2022 as this was the period of and following the defaults and the various demands made on Hanyang Corporation, Hanyang International, Mr Lee and the other guarantors.

[40]I will make the Ancillary Orders as sought.

Duration or discharge of freezing orders

[41]   ANZ has filed a draft order with its application and suggests 5 pm on Thursday 8 December 20228 as an appropriate time for the order to lapse unless it is renewed by an order of this Court. I will make an order in those terms. ANZ says its intention is that the matter be listed for mention in the Duty Judge List held at 10 am on Thursday 8 December 2022. I direct accordingly.

[42]   In terms of the draft order I accept that three working days is an appropriate notice period if Mr Lee seeks to have the order varied or discharged.

8      The draft order contains the date of 17 November 2022. In a subsequent communication with the Court the date of 8 December 2022 was proposed to give sufficient time for service.

Form of freezing order

[43]   I make a freezing order and Ancillary Orders in terms of the draft annexed to the application (but with the date amended as referred to in [41] above).

Application made without notice

[44]   Finally, as is apparent from the foregoing judgment, the application has been made on a without notice basis. I accept that the application has properly been made without notice on the grounds that: requiring ANZ to proceed on notice would cause undue prejudice to it;9 and an enactment (namely HCR, r 32.1(1)) permits the application to be made without serving notice of the application.10

Gordon J

9      HCR, r 7.23(2)(a).

10     HCR, r 7.23(2)(a)(iv).