Chen v Auckland Weihao Investment Ltd
[2021] NZHC 2683
•7 October 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 2683
BETWEEN LIYUN CHEN
Plaintiff
AND
AUCKLAND WEIHAO INVESTMENT LIMITED
First Defendant
MOUNTFORD ESTATE AGENTS LIMITED
Second Defendant
NENGYI CHEN
Third DefendantIntituling cont’d over …
Hearing: On the papers Counsel:
Plaintiff self-represented
S W M Piggin for Intended Sixth and Seventh Defendants
Judgment:
7 October 2021
JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
This judgment was delivered by Associate Judge Andrew on 7 October 2021 at 3.00 pm
pursuant to r 11.5 of the High Court Rules Registrar / Deputy Registrar
Date……………………….
CHEN v AUCKLAND WEIHAO INVESTMENT LTD [2021] NZHC 2683 [7 October 2021]
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] The plaintiff, Liyun Chen, makes a further application for joinder.1 She seeks to join the first defendant’s accountants to the proceedings, namely M & L Associates Ltd,2 and the director of that company, Li Wang.3
[2] The present application follows two interlocutory judgments of Gault J, in which he rejected an earlier joinder application and struck out causes of action against the second defendant, Mountford Estate Agents Ltd.4
[3] In the earlier, unsuccessful joinder application, Ms Chen sought to have AWIL’s solicitor, Ms Lee, joined to the proceeding. Similar issues arise across the two applications: namely, whether there is a reasonably arguable cause of action against the party proposed to be joined.
[4] The basis for the joinder application of M & L and Ms Wang is, as in the earlier application, allegedly unlawful returns filed by the first defendant company with the Companies Office registry. Ms Chen says that the returns were misleading and deceptive because the sole director of the first defendant does not live in New Zealand. This is contrary to the requirements of s 10 of the Companies Act 1993. Ms Chen says that M & L and Ms Wang were responsible for filing the erroneous returns.
[5] There have been a number of further relevant judgments from this Court in the extended litigation flowing from this dispute which cover much of the same ground raised in Ms Chen’s present application. I refer to them below.
1 High Court Rules 2016, r 4.56.
2 M & L.
3 The intended sixth and seventh defendants.
4 Refer Chen v Auckland Weihao Investment Ltd [2021] NZHC 2247 [judgment of Gault J (on joinder)] and Chen v Auckland Weihao Investment Ltd [2021] NZHC 2271 [judgment of Gault J (on strike out)], both dated 31 August 2021.
Factual background
[6] The factual background is set out in the judgments of Gault J on the joinder and strike out applications.5 I refer to that background and, for the purposes of this judgment, repeat only the following facts.
[7] In October 2019, Ms Chen entered into a sale and purchase agreement with the first defendant,6 Auckland Weihao Investment Ltd,7 to purchase a property at 285 Murphys Road, Flat Bush, Auckland.8 The purchase price was $10.8 million. The settlement date was to be 15 June 2020. Ms Chen paid a 10 per cent deposit of $1.08 million.
[8] There was no finance condition in the SPA. The parties were legally represented.
[9] On 11 June 2020, settlement was extended for a week to 22 June 2020. In mid- June 2020, Ms Chen arranged finance of $7.5 million.
[10] On 22 June 2020, Ms Chen and AWIL agreed to vendor finance of $3 million for three months on the condition that a second mortgage would be secured over the property and other properties.
[11] On 17 July 2020, Ms Chen commenced this proceeding against AWIL seeking a refund of her deposit and damages for wrongful repudiation of the loan agreement.
[12] On 21 July 2020, AWIL gave notice of cancellation of the SPA. The SPA was cancelled either as a result of this notice or Ms Chen’s earlier service of the proceedings.
[13] On 4 June 2021, Ms Chen filed a further amended statement of claim. It is that document which contains the relevant causes of action against M & L and Ms Wang.
5 See judgment of Gault J on joinder, above n 4, at [2]–[23], and judgment of Gault J (on strike out), above n 4, at [2]–[19].
6 SPA.
7 AWIL.
8 The property.
[14] This application had been originally scheduled for a VMR hearing before me on 13 September 2021.9 However, and in response to further submissions from Ms Chen dated 11 September 2021, the parties agreed to my determining the application on the papers.10
Relevant legal principles
[15] Ms Chen is self-represented. As Gault J noted in his judgment on joinder, Ms Chen did not make an application for joinder under r 4.56 of the High Court Rules 2016 before filing her amended statement of claim naming additional parties.
However, she subsequently made a joinder application.11
[16]Rule 4.56 provides:
Striking out and adding parties
(1)A Judge may, at any stage of a proceeding, order that –
(a)the name of a party be struck out as a plaintiff or defendant because the party was improperly or mistakenly joined; or
(b)the name of a person be added as a plaintiff or defendant because –
(i)the person ought to have been joined; or
(ii)the person’s presence before the court may be necessary to adjudicate on and settle all questions involved in the proceeding.
(2) An order does not require an application and may be made on terms the court considers just.
(3) Despite subclause (1)(b), no person may be added as a plaintiff without that person’s consent.
[17] It is not usual that a plaintiff will formally apply to join a party. Ordinarily, a plaintiff will join a party as it sees fit, and that party can then apply for strike out. I adopt the same course as Gault J, who resolved to approach Ms Chen’s previous application for joinder on the threshold question of whether the pleading against M & L and Ms Wang shows a tenable or reasonably arguable cause of action.
9 While subject to the government’s COVID-19 “alert level 4” orders.
10 There was a very brief VMR hearing with Mr Piggin on 13 September 2021 in the absence of Ms Chen. At that hearing, Mr Piggin confirmed his client’s acceptance to my determining the application on the papers.
11 Judgment of Gault J (joinder), above n 4, at [24].
Analysis and decision
[18] Ms Chen is not only self-represented, but English is not her first language. The amended statement of claim is not in orthodox format and is not easy to understand.
[19] As Gault J noted in his strike out judgment of 31 August 2021,12 Ms Chen’s claims appear to focus on an underlying allegation that the third defendant, AWIL’s sole director, Mr Nengyi Chen, did not live in New Zealand, resulting in breaches of the Companies Act 1993 and the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (the AML/CFT Act), and invalidating any SPA or AWIL’s actions in relation to settlement. Ms Chen alleges that if she had been advised of these breaches, she would not have proceeded with the SPA.
[20] In her amended statement of claim dated 4 June 2021, Ms Chen alleges that M & L and Ms Wang, as AWIL’s accountants:
(a)Filed annual returns in respect of AWIL which were misleading in that they were in breach of s 10 of the Companies Act; and
(b)As the “legal representative” of AWIL, they failed in breach of the AML/CFT guidelines for accountants to do due diligence where Mr Nengyi Chen, the director of AWIL, is not a New Zealand resident.
[21] For the purposes of this joinder application, I assume that the factual allegation that Mr Chen was the sole director of AWIL and did not live in New Zealand at the relevant time is correct. There is thus an arguable breach of the requirements of s 10 of the Companies Act. I also assume that the allegation that M & L and Ms Wang did not do any due diligence in relation to whether Mr Chen was resident in New Zealand is correct.
[22] However, the fundamental problem for Ms Chen is that even if it is arguable that M & L and Ms Wang played a role in the alleged breach of s 10 of the Companies Act and failed to carry out relevant due diligence obligations, those acts or omissions
12 Judgment of Gault J (on strike out), above n 4, at [22].
have no bearing on whether the SPA is invalid or not and whether, as Ms Chen appears to contend in her most recent statement of claim, there should be an order for specific performance requiring AWIL to transfer the property to her. The alleged acts or omissions of M & L and Ms Wang are extraneous issues. As Bell AJ held in a related decision determining Ms Chen’s application to sustain a caveat over the property, AWIL remained in existence as a company and could appoint agents to carry on business on its behalf, including entering into contracts to sell property.13
[23] In addition, Hinton J held in an earlier interlocutory discovery application that whether Mr Chen is qualified to be a director under s 10 of the Companies Act and whether there has been a breach by AWIL or anyone else of the anti-money laundering legislation, are not issues in these proceedings.14 The issues arising for determination on the pleadings as they stood before Hinton J were whether AWIL repudiated its obligations under the loan agreement and whether it was entitled to cancel the SPA.
[24] Ms Chen has of course since then amended her pleadings to include a claim for specific performance. That cause of action is premised (presumably) on the contention that the SPA is valid and should be enforced. If that is now Ms Chen’s primary claim, then it makes little sense to pursue claims of a breach of s 10 of the Companies Act or failures of due diligence. The allegations of invalidity only make sense in relation to the alternative claim of a refund of the deposit.
[25] As Mr Piggin submitted, the breach of s 10 appears to incorporate an allegation of misleading or deceptive conduct. In order to demonstrate a tenable cause of action, Ms Chen must be able to point to some causation and loss or damage arising from the alleged misleading or deceptive conduct by M & L and/or Ms Wang. She cannot do so. Her loss is either the failure of the bargain to which she says she is entitled (the basis on which she seeks specific performance) or a refund of her deposit (sought in the alternative) as a result of wrongful repudiation by AWIL. There is no loss or damage in relation to the property transaction (the focus of the proceedings) that was in any way caused by M & L or Ms Wang. That is the case even if those proposed
13 Chen v Auckland Weihao Investment Ltd [2021] NZHC 156, (2021) 21 NZCPR 826 [judgment of Bell AJ] at [29].
14 Chen v Auckland Weihao Investment Ltd [2020] NZHC 2564 [judgment of Hinton J].
parties were responsible for the filing of the annual returns and/or failed to carry out due diligence.
[26] In any event, I note that there is real doubt as to whether a breach of s 10 by any party, including AWIL as the party to the impugned property transaction, has any prospect of success. As Downs J held in in his decision declining to grant Ms Chen’s application for an interim injunction restraining AWIL from dealing in the property:15
I next consider whether there is a reasonably arguable path to monetary relief based on the statement of claim, including reasonable amendment. Misrepresentation could result in damages, at least in the abstract. And, on one version of Ms Chen’s case, the alleged s 10(d)(i) breach invalidates the transaction. However, this argument is without authority and at best, strained. Moreover, the constellation comprising: (a) an unconditional sale and purchase agreement; (b) a legally represented purchase; (c) an apparently valid settlement notice; and (d) cancellation of the agreement following Ms Chen’s inability to settle leaves little room for a monetary claim.
[27] Downs J further held that the SPA was not conditional on finance or, indeed, “on anything”.16 That remains Ms Chen’s fundamental problem.
[28] It is also important to record that Ms Chen had no contractual or other legal relationship with M & L or Ms Wang as AWIL’s accountants. They cannot have owed any fiduciary or other legal duties to Ms Chen.17
[29] I also find that the following conclusions of Gault J in his joinder application judgment of 31 August 2021 apply equally to M & L and Ms Wang:18
(a)A breach of s 10 would not give rise to a private action against M & L and/or Ms Wang by a counterparty, such as Ms Chen, to a transaction with the company. There is no tenable cause of action for breach of statutory duty.
(b)Sections 91 and 92 of the AML/CFT Act are offence provisions and do not provide for a cause of action against M & L and/or Ms Wang. The
15 Chen v Auckland Weihao Investment Ltd [2021] NZHC 2040 [judgment of Downs J] at [21].
16 Judgment of Downs J, above n 18, at [22] (emphasis in original).
17 Judgment of Gault J (on strike out), above n 4, at [27].
18 Judgment of Gault J (on joinder), above n 4, at [40]–[42].
AML/CFT Act does not require directors to live in New Zealand. There is no duty to disclose a breach of the AML/CFT Act to a counterparty. It would be an offence for a person who has reported suspicious activity to disclose the details of that to a counterparty.19
[30] For all these reasons I conclude that the grounds for joinder have not been made out. The presence of M & L and Ms Wang before the Court is not necessary to adjudicate on and settle all questions involved in these proceedings. There are no tenable causes of action pleaded against them and there is no submission or suggestion from Ms Chen that the pleadings could be amended to disclose reasonably arguable causes of action that might properly form part of these proceedings.
Result
[31]I decline Ms Chen’s application for the joinder of M & L and Ms Wang.
[32] As to costs, having succeeded, M & L and Ms Wang are entitled to costs and on a 2B basis plus disbursements.
The role of Mr Augustine Lau as McKenzie friend
[33] In my minute of 10 September 2021, I directed that Mr Lau is not to act as a McKenzie friend for Ms Chen. I made that direction because in my experience Mr Lau is not a fit and competent person to act as a McKenzie friend in proceedings in this Court. I noted that that was the same conclusion reached by Bell AJ in other proceedings before this Court.20
[34] Mr Lau is well known to the courts of New Zealand. In Mao v Green Land Investment Ltd, Powell J made the following observations:21
[60] I also accept that Green Land have a well-founded concern that if Mr Lau and/or Ms Mao [the plaintiff] are given access to the Candor3 documents, not only will confidentiality not be able to be controlled or maintained, but the information therein could well be used for improper purposes. In particular, Mr Lau is well known to the courts of New Zealand
19 Judgment of Gault J (on joinder), above n 4, at [43].
20 See the minute of Bell AJ of 22 July 2021 in Singh v Zhong HC Auckland CIV-2021-404-983.
21 Mao v Green Land Investment Ltd [2020] NZHC 865 (citations omitted; emphasis added).
for his actions in a series of cases involving development under the Resource Management Act, the Court of Appeal having described Mr Lau as a person who has “demonstrated … a complete disregard for the law”, while the Environment Court referred to Mr Lau orchestrating an “extensive and sustained pattern of illegal development” in which Mr Mao was also implicated. Likewise with regard to Ms Mao, the District Court has expressed concern “at the level of influence that Mr Lau [has] had upon [her] actions” and that she had “remained under the influence and direction of Mr Lau well beyond any reasonable consideration.” With regard to the latter, the close relationship between Mr Lau and Ms Mao was clearly evident at the hearing of the current applications in the High Court as I was able to observe as Ms Mao’s demonstrated reliance upon Mr Lau in the hearing before me.
[35] Mr Lau has been acting as a McKenzie friend in other proceedings before this Court. It is becoming apparent that the parties for whom he has been a McKenzie friend are placing significant reliance upon him and that in many of these proceedings these parties are making ill-conceived claims and legally untenable arguments. A regrettable pattern is emerging. For example, I note van Bohemen J’s comments in his recent judgment in Gao v Starlight Capital Limited:22
[23] Despite the significant sums at stake, the plaintiffs, who are not fluent in English, prepared their own pleadings and submissions and in representing themselves with the assistance of an interpreter, despite advice from a number of judges that they should obtain professional legal advice. In the hearing before me, Mr Gao had the assistance of a McKenzie friend, Mr Augustine Lau, who is not legally qualified and is himself not fluent in English. In taking this course, the plaintiffs have done themselves a considerable disservice. Their pleadings and submissions are difficult to follow and show little understanding of legal concepts.
[36]I also note that Mr Lau was adjudicated bankrupt in 2018.
[37] It has been repeatedly suggested to Ms Chen throughout these proceedings that she obtain the benefit of legal representation. It seems highly likely that her reliance on Mr Lau is responsible, at least in part, for the multiple unsuccessful applications she has made in these proceedings.
[38] If Ms Chen decides to continue to be self-represented, it is essential that she do so without any involvement of Mr Lau. If Ms Chen wishes to have a McKenzie friend to assist her in the future, she will need to find somebody other than Mr Lau and someone with no connection to him. It will be a matter of discretion for the relevant
22 Gao v Starlight Capital Limited [2021] NZHC 1846.
Judge to determine whether any alternative McKenzie friend might be appropriate. The Court will no doubt be seeking some assurance that Mr Lau has no further involvement with these proceedings.
[39] If Mr Lau does continue to be involved with the proceedings, there may well be costs implications both for Ms Chen and possibly for Mr Lau personally (by way of a non-party costs order).
[40] I also then draw the attention of Ms Chen and Mr Lau to ss 21 and 22 of the Lawyers and Conveyancers Act 2006. Section 21 provides that it is an offence for a person, who is not a lawyer, to provide legal services and describe himself as a lawyer or a legal practitioner. Under s 22 it is an offence for a person to hold himself out as providing legal services or as being entitled, qualified, able or willing to provide legal services under the description of lawyer or other terms specified in the legislation.
[41] Should a valid concern arise as to whether Mr Lau may have breached those sections, I caution the Court may well consider referring the matter to the New Zealand Law Society for investigation.
Associate Judge P J Andrew
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