Chen v Auckland Weihao Investment Limited
[2021] NZHC 3598
•22 December 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-001236
[2021] NZHC 3598
BETWEEN LIYUN CHEN
Plaintiff
AND
AUCKLAND WEIHAO INVESTMENT LIMITED
First Defendant
MOUNTFORD ESTATE AGENTS LIMITED
Second Defendant
Cont/…
Hearing: 27 September 2021 Appearances:
No appearance for the Plaintiff
S Dench for the Intended Tenth & Eleventh Defendants
Judgment:
22 December 2021
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 22 December 2021 at 4.30pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors/Counsel:
Wotton Kearney, Auckland Robertson Law, Auckland DK Wilson, Auckland SWM Piggin, Auckland RS Walker, Auckland
SC Dench, Auckland
Copy to:
Ms Liyun Chen, Auckland
CHEN v AUCKLAND WEIHAO INVESTMENT LTD [2021] NZHC 3598 [22 December 2021]
NENGYI CHEN
Third Defendant
IVY CHAOYUN CHEN
Fourth Defendant
ZUNLIN CHEN
Intended Fifth Defendant
M & L ASSOCIATES LIMITED
Intended Sixth Defendant
LI WANG
Intended Seventh Defendant
BIBIANA LEE
Intended Eighth Defendant
LOO & KOO
Intended Ninth Defendant
DAVID WILSON
Intended Tenth Defendant
RAYMOND WALKER
Intended Eleventh Defendant
Introduction
[1] This proceeding began as a claim by the plaintiff, Ms Chen, against the first defendant, Auckland Weihao Investment Ltd (“AWIL”). Ms Chen has subsequently added 10 more defendants or intended defendants to the claim.
[2] The proceeding relates to the sale and purchase of a property at 285 Murphys Road, Flat Bush, Auckland between Ms Chen as purchaser and AWIL as vendor and a related loan agreement between the parties. The purchase price was $10.8 million with a deposit of $1.08 million paid. The settlement date was originally 15 June 2020 but was extended several times before the agreement was cancelled.
[3] Loo & Koo, the solicitors who represented AWIL in the transaction, originally represented AWIL in these proceedings. However Loo & Koo withdrew when Ms Chen named Ms Lee, a member of the firm and the solicitor on the record, as the eighth defendant and Loo & Koo as the ninth defendant.
[4] The intended tenth and eleventh defendants, Messrs Wilson and Walker replaced Loo & Koo as counsel and instructing solicitor respectively acting for AWIL and the third and fourth defendants, Mr Nengyi Chen and Ms Ivy Chaoyun Chen.
[5]This application relates to the joinder of Messrs Wilson and Walker.
[6] Messrs Wilson and Walker oppose joinder on the grounds that there is no tenable basis for a claim against them. They rely on Gault J’s decision in Chen v Auckland Weihao Investment Ltd (“Lee Decision”) where his Honour held that this ground is equivalent to a strike-out application and is a proper basis for opposing joinder.1
[7] As Messrs Walker and Wilson submit, it would be inefficient to add them as defendants and then hold a subsequent hearing on applications to strike out or for defendants’ summary judgment. Such a two-step process would unnecessarily delay the proceeding.
1 Chen v Auckland Weihao Investment Ltd [2021] NZHC 2247 [“Lee Decision”] at [25].
[8] Furthermore, Ms Chen has sought orders concerning representation of the first, third and fourth defendants now that Messrs Wilson and Walker are named as intended tenth and eleventh defendants.
[9] In the Minute following the case management conference on 1 July 2021, Gault J recorded that counsel for the tenth and eleventh defendants confirmed that if Messrs Wilson and Walker are joined as parties, they will withdraw from acting for the first, third and fourth defendants. This removed the need for there to be a hearing of the application for orders concerning representation of the first, third and fourth defendants. The Judge recorded that, pending determination of the joinder application, the Court did not require the intended tenth and eleventh defendants to cease acting.2
[10] Considering whether there is a tenable claim against Messrs Wilson and Walker at the joinder stage rather than following an application for strike out or summary judgment prevents interference with the representation of the first, third and fourth defendants pending determination of the applications.
Preliminary matter – Ms Chen’s appearance at the hearing
[11] The plaintiff applied to adjourn the hearing but this was declined by Moore J on 9 September 2021 as the facilities allowed for appearance by Virtual Meeting Room (VMR).3
[12] In Ms Chen’s submissions dated 19 September 2021, she advised that she agreed to the proceeding being determined on the papers because of the COVID-19 Alert Level 3 restrictions.
[13] Ms Chen then advised in the additional submissions filed on the morning of the hearing that she would not be attending due to COVID-19 Alert Level 3 restrictions and asked that the matter be determined on the papers.
2 Noting that if leave was required under r 1.20 of the High Court Rules 2016 it was granted pending determination of the joinder application.
3 Chen v Auckland Weihao Investment Ltd HC Auckland CIV-2020-404-1236, 9 September (Minute of Moore J).
[14] Given the history of this proceeding and in the interests of continuing to make progress, I excused her appearance but continued with the hearing.
[15] There have been a number of earlier judgments from this Court where defendants or intended defendants have successfully opposed joinder4 or had the proceeding struck out against them.5 The factual background is set out in detail in those judgments. In all cases the courts have held that the pleading against the defendants or intended defendants did not show a tenable or reasonably arguable cause of action.
Issue
[16] I approach Ms Chen’s application in relation to the tenth and eleventh defendants on the same basis as the previous joinder decisions, with the issue being whether the pleading against Messrs Wilson and Walker reveals any tenable or reasonably arguable cause of action.
Background to Ms Chen’s allegations against Messrs Wilson and Walker
[17] Unlike the other defendants or intended defendants, Messrs Wilson and Walker had no involvement or connection at all with the background transaction or events. Ms Chen’s allegations relate only to their role as lawyers for the first, third and fourth defendants in these proceedings following the withdrawal of the original lawyers for these parties. That withdrawal followed Ms Chen’s filing of an amended statement of claim dated 13 April 2021 naming Ms Lee and Loo & Koo as defendants. Ms Lee then withdrew as solicitor on the record with Messrs Wilson and Walker replacing her as counsel and solicitor respectively.
[18]The amended statement of claim included the following allegations:
(a)since s 10 of the Companies Act 1993 came into force in May 2015, Mr Nengyi Chen (the second defendant and sole director of AWIL) has never resided in New Zealand;
4 Lee Decision, above n 1, and Chen v Auckland Weihao Investment Ltd [2021] NZHC 2683.
5 Chen v Auckland Weihao Investment Ltd [2021] NZHC 2271.
(b)that Ms Lee had instructed Ms Wickes (counsel for AWIL at the time) to mislead the Court by saying that Mr Nengyi Chen had returned to China before the Covid-19 pandemic and has stayed there since;
(c)that Mr Nengyi Chen does not meet the requirements of a New Zealand resident.
[19] Messrs Wilson and Walker drafted and filed an amended statement of defence to the amended pleading dated 30 April 2021 on behalf of the first, third and fourth defendants. In the statement of defence filed, each of the above allegations was denied. The further particulars of that denial were that Mr Nengyi Chen was residing in New Zealand at times during 2015 to 2018 and that he did travel to China in 2018 but had intended to return to New Zealand and has not done so due to COVID-19.
[20] Ms Chen then filed an interlocutory application dated 8 June 2021 applying to join Messrs Wilson and Walker as the tenth and eleventh defendants. This was followed by an amended statement of claim dated 14 June 2021 that named Messrs Wilson and Walker as the tenth and eleventh defendants. Ms Chen is self-represented and English is not her first language so the amended statement of claim is difficult to follow. Ms Chen appears to allege that the denial of the allegations of breach of s 10 of the Companies Act was misleading and deceptive conduct by Messrs Wilson and Walker. There are references to customer due diligence under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (“AML/CFT Act”) and an allegation that as a result Messrs Wilson and Walker were aware that Mr Chen had not been in New Zealand since May 2015 but misled “the plaintiff and Court and other public that third defendant stay in New Zealand since 2015 to 2018”.
[21] Ms Chen claims relief against all defendants together, claiming that “all defendants” are liable for the losses she has suffered in relation to the transaction including penalty interest under the sale and purchase agreement if AWIL is required to transfer the property to her and, if it is not, repayment of the deposit and other losses Ms Chen claims she will suffer if the transaction does not proceed.
[22] Messrs Wilson and Walker have not filed a statement of defence to the amended statement of claim (and nor are they required to until this application is determined, if still necessary).
Relevant legal principles
[23] Rule 4.56 of the High Court Rules 2016 provides for the striking out and adding of parties. It provides a broad discretion to a Judge to order that the name of a party may be added as a plaintiff or defendant if the person:
(a)ought to have been joined; or
(b)the person’s presence before the court may be necessary to adjudicate on and settle all questions involved in the proceeding.
[24] The rule expressly states that an order does not require an application and may be made on such terms as the Court considers just.6
[25] The grounds on which the tenth and eleventh defendants oppose joinder are that there is no tenable legal basis for the plaintiff’s proposed claim against them or for adding them as defendants to the application.
[26] Given the approach being taken to the joinder applications in these proceedings, the approach to strike-out applications on the ground of no reasonably arguable cause of action is relevant. The principles are well established,7 and endorsed by the Supreme Court in Couch v Attorney-General:8
(a)the pleaded allegations of fact are presumed to be true, unless they are entirely speculative and without foundation;
(b)the pleaded causes of action or defence must be so clearly untenable the Court can be certain they cannot succeed;
(c)the jurisdiction is to be exercised sparingly and only in a clear case;
6 High Court Rules 2016, r 4.56(2).
7 Attorney-General v Prince & Gardner [1998] 1 NZLR 262 (CA) at 267.
8 Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33].
(d)the jurisdiction is not excluded by the need to decide difficult questions of law requiring extensive argument; and
(e)the Court should be slow to strike out a claim in any developing area of the law.
Possible causes of action
[27] The submissions filed by Ms Chen are not easy to follow but appear to focus on three underlying themes:
(a)that the pleading filed by Messrs Wilson and Walker was misleading;
(b)that Ms Chen’s allegations of breach of s 10 of the Companies Act are correct; and
(c)that Messrs Wilson and Walker were required to complete customer due diligence under the AML/CFT Act 2009 and so they would have been aware that Mr Chen did not reside in New Zealand.
[28] For the purposes of strike out, the pleadings of fact are presumed to be true. The factual allegation that Mr Chen did not reside in New Zealand is assumed therefore to be true for the purposes of this application.The question for the Court is whether there are any tenable claims that can be made against Messrs Wilson and Walker even if Mr Chen did not live in New Zealand.
[29] Counsel for Messrs Wilson and Walker, Mr Dench, responsibly sought to identify all possible causes of action before discussing each and submitting why none were tenable. The four possible causes of action identified are:
(a)breach of s 9 of the Fair Trading Act 1986;
(b)negligent misstatement and negligence;
(c)breach of s 10 of the Companies Act 1993; and
(d)the AML/CFT Act 2009.
[30]I consider each of these below.
Breach of s 9 of the Fair Trading Act 1986
[31] As submitted by counsel for Messrs Wilson and Walker, Ms Chen alleges misleading and deceptive conduct, which is the language of s 9 of the Fair Trading Act 1986 (“FTA”).
[32] Section 9 prohibits conduct in trade that is misleading or deceptive or likely to mislead or deceive.
[33] In Red Eagle Corporation Ltd v Ellis the Supreme Court proposed that in a relatively simple case:9
The question to be answered in relation to s 9 in a case of this kind is accordingly whether a reasonable person in the claimant’s situation – that is, with the characteristics known to the defendant or of which the defendant ought to have been aware – would likely to have been misled or deceived. If so, a breach of s 9 has been established. It is not necessary under s 9 to prove that the defendant’s conduct actually misled or deceived the particular plaintiff or anyone else. If the conduct objectively had the capacity to mislead or deceive the hypothetical reasonable person, there has been a breach of s 9. If it is likely to do so, it has the capacity to do so. Of course the fact that someone was actually misled or deceived may well be enough to show that the requisite capacity existed.
[29] Then, with breach proved and moving to s 43 [the remedies section], the court must look to see whether it is proved that the claimant has suffered loss or damage “by” the conduct of the defendant. The language of s 43 has been said to acquire a “common law practical or common-sense concept of causation”. The court must first ask itself whether the particular claimant was actually misled or deceived by the defendant’s conduct …
[34] The only conduct that appears to be in issue in the claim against Messrs Wilson and Walker is the pleading of the first, third and fourth defendants’ cases in their joint statement of defence.
[35] As counsel for Messrs Wilson and Walker submits, s 9 does not readily apply to a pleading, the function of which is to define the issues for trial. A claim cannot be brought that a pleading is a misrepresentation because that misunderstands the function of pleadings and the role of the defendants’ lawyers. The first, third and
9 Red Eagle Corp Ltd v Ellis [2010] NZSC 20, [2010] 2 NZLR 492 at [28].
fourth defendants were entitled to deny Ms Chen’s allegations and if they wish to deny the allegations this has to be pleaded. Ms Chen is thereby given notice that her allegations are denied and that she needs to prove them at trial if she wishes to rely on them. It is then for the Court, based on the evidence at trial, to determine the factual issues raised by the pleadings.
[36] Furthermore the allegation by Ms Chen fails to recognise the distinction between the defendants and their lawyers. The pleading is the pleading of the first, third and fourth defendants, not the intended tenth and eleventh defendants. A lawyer does not, merely by drafting and filing a statement of defence, represent that its contents are correct. A lawyer’s role is to articulate a client’s position and to represent the client, but the lawyer does not, without more, personally represent the correctness of a client’s pleading.
[37] Furthermore, no causal link exists between the allegations against Messrs Wilson and Walker and the relief claimed. As the Supreme Court held in Red Eagle, once a breach of s 9 is proved and the court moves to the remedies section, s 43, the court must look to see if it is proved that the claimant has suffered loss or damage by the conduct of the defendant.10
[38] The loss or damage claimed by Ms Chen in this case is the loss or damage arising as a result of the failed sale and purchase transaction. No remedy would therefore be available to her against Messrs Wilson and Walker under s 43 of the FTA as the loss or damage claimed is not “by the conduct of” Messrs Wilson and Walker.
Negligent misstatement and negligence
[39] To succeed in a claim based on negligent misstatement, Ms Chen would face the same hurdles as in relation to the possible allegation of breach of s 9 of the FTA because a pleading cannot be relied upon as a representation by the lawyer personally as discussed above.
10 Red Eagle Corp Ltd v Ellis, above n 9, at [29].
[40] In addition, for negligent misstatement or negligence generally, Ms Chen would need to establish that she was owed a duty of care by Messrs Wilson and Walker.
[41] The general rule is that a lawyer’s duties are owed to their client alone and not to the opposite party in a transaction or proceeding. Messrs Wilson and Walker rely on Radisich v Templeton where Randerson J held:11
[19] Both counsel accepted that it was well established that a lawyer’s duty generally is owed to his or her client alone. As Cooke J stated in Allied Finance & Investments Ltd v Haddow & Co [1983] NZLR 22 (CA) at p 24:
“… the relationship between two solicitors acting for their respective clients does not normally of itself impose a duty of care on one solicitor to the client of the other. Normally the relationship is not sufficiently proximate. Each solicitor is entitled to expect that the other party will look to his own solicitor for advice and protection”.
[20] The principal rationale for this proposition is that the fiduciary nature of the solicitor/client relationship requires the solicitor to act with undivided loyalty in the client’s best interests. As a general rule, there is no assumption of responsibility by a solicitor to the opposite party to a transaction who is represented by his or her own legal adviser.
[42] Imposing such a duty would create a conflict of interest and it would undermine the first, third and fourth defendants’ rights to deny Ms Chen’s s 10 allegations and require her to prove the allegations at trial.
[43] Furthermore if a duty were owed by solicitors, it would also deprive defendants of their choice of counsel, as is potentially happening in this case, where each time a lawyer files pleadings, they are then added as defendants to the claim for alleged mis- representation.
[44] Finally, even if such a duty were to exist, the losses claimed by Ms Chen would not arise from such a breach and so the claim would fail at the causation stage too.
Section 10 of the Companies Act 1993
[45] Ms Chen appears to submit that her allegations in relation to breach of s 10 of the Companies Act are correct and that this therefore provides a basis for joinder of
11 Radisich v Templeton [2009] 3 NZLR 276 (HC).
Messrs Wilson and Walker. Whether there is a breach of s 10 is a matter for the Court to determine at trial however and so is not a matter for determination in this joinder application.
[46] The question for determination is instead whether if there is a breach of s 10, it provides the basis for a claim against Messrs Wilson and Walker. This question was addressed by Gault J in the Lee Decision. Gault J held that s 10 did not give rise to a private action against Ms Lee by a counterparty to a transaction with AWIL, stating that:12
To succeed in an action for a breach of statutory duty, a plaintiff must establish that the statute in question creates a duty enforceable by private action. Whether an enactment gives rise to a cause of action for breach of statutory duty is a question of statutory construction. There is no indication of a legislative intention that third parties entering into contracts with a company are an identifiable class that s 10 was intended to benefit.
(footnotes omitted).
[47] Furthermore, for the reasons already discussed, Messrs Wilson and Walker would not be found to owe a duty of care to Ms Chen to ensure AWIL or the other defendants they represent comply with s 10 or to tell Ms Chen if the defendants did not.
[48] As Associate Judge Bell said in the second of the caveat decisions, a breach of s 10 would not invalidate the sale and purchase agreement.13 Even if there were a breach, AWIL would have remained in existence and could appoint agents to carry on business on its behalf, including entering into contracts to sell property.
AML/CFT Act 2009
[49] Ms Chen in her submissions appears to rely on a requirement for Messrs Wilson and Walker to complete customer due diligence under the AML/CFT Act. The relevant obligations of a reporting entity under the AML/CFT Act are to conduct customer due diligence and report suspicious activity. The AML/CFT Act does not
12 Lee Decision, above n 1, at [40].
13 Chen v Auckland Weihao Investment Ltd [2021] NZHC 156, (2021) 21 NZCPR 826 at [29], citing
YL NZ Investment Ltd v Ling [2017] NZHC 1793.
require directors to live in New Zealand nor to identify any breach of s 10 of the Companies Act. Furthermore no duty could exist to disclose to Ms Chen a breach of the AML/CFT Act as disclosure would be an offence.14
[50] In addition, for the reasons discussed above, AWIL remains in existence even if s 10 is breached and is able to act through agents.
[51] Gault J had no difficulty holding that neither Ms Lee nor Mountford owed Ms Chen a duty to ensure compliance with the AML/CFT Act. The case against Messrs Wilson and Walker, who had no connection with the original transaction, must logically be weaker and so there can be no prospect that such a duty would be owed.
[52] Finally, the same issues in relation to causation arise as in respect of the previous possible claims. No steps taken by Messrs Wilson and Walker could be said to have caused the loss that is claimed for in the amended statement of claim.
Possible amendment to the pleadings
[53] It does not appear that there is any amendment that could be made to the statement of claim to raise a tenable cause of action against Messrs Wilson and Walker both because their actions have only been as replacement lawyers for the first, third and fourth defendants and because it is settled law that lawyers do not owe a duty to an opposing party unless there is a particular assumption of responsibility. That is not pleaded and does not appear possible in the circumstances of this case.
Result
[54] The application to join the intended tenth and eleventh defendants is declined on the basis that their presence before the Court is not necessary to adjudicate on and settle all questions involved in these proceedings and the pleadings do not disclose a tenable claim against these parties.
14 Anti-Money Laundering and Countering Financing of Terrorism Act 2009, sub-pt 3.
Costs
[55] The tenth and eleventh defendants have succeeded and so are entitled to costs on a 2B basis.
Associate Judge Sussock
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