Chen v Auckland Weihao Investment Ltd

[2021] NZHC 2271

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-1236

[2021] NZHC 2271

BETWEEN

LIYUN CHEN

Plaintiff

AND

AUCKLAND WEIHAO INVESTMENT LIMITED

First Defendant

MOUNTFORD ESTATE AGENTS LIMITED

Second Defendant

Continued …

Hearing:

13 May 2020

Appearances:

Plaintiff in person (assisted by Mr G Chang as interpreter and Mr A Lau as McKenzie friend)

S Lucas and M A Singleton for the Second Defendant

Judgment:

31 August 2021

JUDGMENT OF GAULT J

(Strike Out Application)

This judgment was delivered by me on 31 August 2021 at 4:30 pm pursuant to r 11.5 of the High Court Rules 2016.

Registrar/Deputy Registrar

……………………………………

Parties / Solicitors / Counsel:

The Plaintiff

Ms A Lucas and Ms M A Singleton, Wotton + Kearney, Auckland

CHEN v AUCKLAND WEIHAO INVESTMENT LTD [2021] NZHC 2271 [31 August 2021]

Continued …

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

[1]    The second defendant, Mountfort Estate Agents Ltd (Mountfort) applies to strike out the claim brought against it by the plaintiff (Ms Chen).

Factual background

[2]    On 16 October 2019 Ms Chen entered into a sale and purchase agreement (SPA) with the first defendant, Auckland Weihao Investment Ltd (AWIL), to purchase a property at 285 Murphys Road, Flat Bush, Auckland (the property).1 The purchase price was $10.8 million. Settlement date was to be 15 June 2020.  Ms Chen paid a  10 per cent deposit of $1.08 million.

[3]    Mountfort acted as AWIL’s real estate agent in relation to the sale and purchase. The parties were legally represented.

[4]    There was no finance condition in the SPA, but Ms Chen alleges that Mountfort knew of the proposed involvement of Ms Chen’s father and the refinancing of a property in Takanini in order to fund the purchase.

[5]    Due to COVID-19, Ms Chen’s father was unable to travel to New Zealand from China and therefore arrange financing.

[6]    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.

[7]    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. Ms Chen nominated LC1521319 Development Co Ltd to purchase the property.

[8]    On 24 June 2020 AWIL’s solicitors sent Ms Chen’s solicitors documentation for settlement, and a loan agreement for the vendor finance to be signed (by the nominee as borrower and by another company and Ms Chen as guarantors). The same

1      Lot 1, DP 510556, Title 782243.

day Ms Chen’s solicitors returned the signed loan agreement. Ms Chen’s solicitors also showed their e-dealing number.

[9]    On 25 June 2020 at 11:41 am, AWIL’s solicitors advised Ms Chen’s solicitors they had signed and certified the transfer on the e-dealing, and gave undertakings.

[10]   The same day at 3:23 pm Ms Chen’s solicitor forwarded a deed of priority and subordination which prevented AWIL from being paid or enforcing its security until the first mortgagee was fully paid. AWIL refused to agree to postpone receiving payment until the first mortgagee was fully paid and requested an amendment to the deed. No agreement was reached. On 26 June 2020 Ms Chen lodged a caveat.

[11]   AWIL was willing to agree to defer settlement on terms. Discussions continued but no agreement was reached. On 1 July 2020 AWIL served a settlement notice.

[12]   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. The proceeding was served on AWIL on 19 July 2020.

[13]   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 proceeding.

[14]   On the same day AWIL also applied to lapse the caveat. Court proceedings in relation to that caveat, and a further caveat, followed.2 Relevantly, in the context of deciding whether Ms Chen had a caveatable interest in the property, this Court has previously held that Ms Chen has not shown an arguable case for being able to cancel either the SPA or the loan agreement. The Court has said there was nothing to show an arguable case for either breach of contract by AWIL or any claim for misrepresentation.3

2      Chen v Auckland Weihao Investment Ltd [2020] NZHC 2450, (2020) 21 NZCPR 409 (appeal pending); and Chen v Auckland Weihao Investment Ltd [2021] NZHC 156, (2021) 21 NZCPR 826.

3      Chen v Auckland Weihao Investment Ltd [2021] NZHC 156, (2021) 21 NZCPR 826 at [23].

Relevant procedural history

[15]   Ms Chen has acted in person filing her statements of claim in this proceeding. Her original statement of claim against AWIL alleged misrepresentation and breach of the loan agreement.

[16]   On 12 October 2020 Ms Chen filed an amended statement of claim joining Mountfort as second defendant.

[17]   On 10 December 2020 Ms Chen filed a second amended statement of claim naming additional defendants.

[18]On 13 April 2021 Ms Chen filed a further amended statement of claim.

[19]   Appreciating that Ms Chen is self-represented, timetabling for this hearing provided that Ms Chen was not required to file and serve written submissions. Nevertheless, Ms Chen filed a further affidavit and submissions on the morning of the hearing (with translation).  While this late filing of material was unhelpful, I infer  Ms Chen was only seeking to protect her position. Ms Lucas, for Mountfort, pragmatically did not object to its receipt.

Approach on strike out application

[20]   The Court may strike out all or part of a pleading if it discloses no reasonably arguable cause of action.4 The approach on strike out applications on the ground of no reasonably arguable cause of action is well established.5 The Court proceeds on the assumption that the facts pleaded in the statement of claim are true. Before the Court may strike out proceedings, the causes of action must be so clearly untenable that they cannot possibly succeed. The jurisdiction is to be exercised sparingly, and only in a clear case where the Court is satisfied it has the requisite material, but is not excluded by the need to decide difficult questions of law requiring extensive

4      High Court Rules 2016, r 15.1(1)(a).

5      Attorney-General v Prince and Gardner [1998] 1 NZLR 262 (CA) at 267, approved in Carter Holt Harvey Ltd v Minister of Education [2016] NZSC 95, [2017] 1 NZLR 78 at [10].

argument.6 Also, where a defect in the pleadings can be cured by an amendment that the plaintiff is willing to make, the Court will not generally strike out the proceeding. Rather, it will permit the plaintiff to make the amendment provided the cause of action is still within time.7

Ms Chen’s claim against Mountfort

[21]   The statement of claim is not in  orthodox format, reflecting the  fact  that  Ms Chen is self-represented and English is not her first language.

[22]   Appreciating that, Ms Chen’s claims appear to focus on an underlying allegation that the third defendant, AWIL’s sole director, Mr Nengyi Chen (Mr Chen), did not live in New Zealand, resulting in breaches of the Companies Act 1993 (the Companies Act) and the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (the AML/CFT Act), and invalidating the 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.

[23]   Ms Chen’s claims against Mountfort are summarised in the following section of her pleading:

(iv)PLAINTIFF FIRST GROUND AGAINST 2nd DEFENDANT – Breach of fiduciary duty as real estate agent- 2nd defendant should do AML/CFT check on 1st defendant under AML-CFT-Real-Estate- Guideline-Dec-2018 (1) before putting the property on the market in order to avoid plaintiff as victim of AML/CFT 2009.

-2nd defendant should not list the property on the market while 1st defendant not comply with section 10/151 Companies act and an overseas person holding over 24% shareholding.

-2nd defendant should not prepare an offer of 11million plus GST if any while plaintiff is not GST registered.

(v)PLAINTIFF SECOND GROUND AGAINST 2nd DEFENDANT – negligence as real estate agent- 2nd defendant should do AML/CFT check on 1st defendant under AML-CFT-Real-Estate-Guideline-Dec- 2018 (1) before putting the property on the market in order to avoid plaintiff as victim of AML/CFT 2009.

6      I acknowledge that particular care is required in areas where the law is confusing or developing:

North Shore City Council v Attorney-General [2012] NZSC 49, [2012] 3 NZLR 341 at [146].

7      Marshall Futures Ltd v Marshall [1992] 1 NZLR 316 (HC) at 324.

-2nd defendant should not list the property on the market while 1st defendant not comply with section 10/151 Companies act and an overseas person holding over 24% shareholding.

-2nd defendant should not prepare an offer of 11million plus GST if any while plaintiff is not GST registered.

(vi)PLAINTIFF SECOND GROUND AGAINST 2nd DEFENDANT- In breach of Consumer Guarantees act as plaintiff did not satisfied with the service of 2nd defendant as provide such large misleading information and trap plaintiff to sign an agreement with a none [sic] compliance company.

(vii)PLAINTIFF Third GROUND AGAINST 2nd DEFENDANT- (Fair Trading Act) misleading and deceptive conduct by putting the lot 1, 285 Murphys rd on market while 1st defendant not comply with section 10/151 Companies act and an overseas person holding over 24% shareholding. This action is misleading to Public/plaintiff. (misleading, deceptive or was likely to mislead and deceive, pursuant to section 9 of the Fair Trading Act 1986.)

[24]I deal with each of these claims in turn.

Breach of fiduciary duty

[25]This claim alleges that Mountfort was in breach of fiduciary duty by:

(a)failing to check AWIL as required by the AML/CFT Act prior to putting the property on the market;

(b)listing the property while AWIL was in breach of the Companies Act requirement to have a director who lives in New Zealand;8

(c)preparing an offer while Ms Chen was not GST registered.

[26]   Assuming the facts alleged are true, the issues are whether Mountfort owed Ms Chen a fiduciary duty and whether any of these matters could amount to a breach causing loss to Ms Chen.

8      The separate allegation that an overseas person could not have over a 24 per cent shareholding is irrelevant to the SPA and was not pursued.

Fiduciary duty

[27]   Mountfort acted as AWIL’s real estate agent. The principal and agent relationship is inherently fiduciary.9 As AWIL’s agent, Mountfort owed AWIL a fiduciary duty including a duty of loyalty. Mountfort could not also owe a fiduciary duty to Ms Chen. They would be inherently inconsistent or competing duties.

[28]   Further, Ms Chen’s claim that Mountfort failed to check AWIL as required by the AML/CFT Act is part of her underlying complaint of a breach of s 10 of the Companies Act because AWIL’s only director did not live in New Zealand.

[29]   The relevant obligation on the part of a reporting entity in the AML/CFT Act is to conduct customer due diligence and report suspicious activity.10 Ms Lucas accepted that where the customer is a company such as AWIL, that due diligence includes taking reasonable steps to verify the identity of the director(s) by name and address.11 The AML/CFT Act does not require directors to live in New Zealand.

[30]   Even assuming Mountfort failed as a reporting entity to conduct appropriate customer due diligence in breach of the AML/CFT Act when accepting instructions to act for AWIL on the property transaction, and failed to identify a breach of s 10 by AWIL because Mr Chen was the sole director and did not live in New Zealand at any relevant time, AWIL remained in existence and could appoint agents to carry on business on its behalf, including entering into contracts to sell property, as Associate Judge Bell said in the second caveat decision.12 A breach of s 10 would not preclude Mountfort from listing the property.

[31]   Further, even if Mountfort owed Ms Chen the alleged duty, a causation issue arises. I do not consider a breach of s 10 would make the sale and purchase in this case a suspicious transaction for the purposes of the AML/CFT Act. Even if it did, the

9      Chirnside v Fay [2006] NZSC 68, [2007] 1 NZLR 433 at [73].

10    In another context in the proceeding Ms Chen has  alleged money laundering on the basis that    Mr Chen received pyramid selling income from China but did not suggest that made the property transaction suspicious. Also, she alleged at the hearing that a change of directors in 2015 for less than 24 hours was a clear act of money laundering. I do not understand that allegation but in any event it is irrelevant to this claim.

11 The obligation also applies to persons acting on behalf of a company.

12 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, (2017) 28 NZTC 23-026.

obligation in relation to suspicious activity is to report it. It would be an offence for a person who has reported suspicious activity to disclose the details of that to a counterparty.13 Ms Chen’s claim would depend on a causative link between Mountfort’s failure to identify a breach of s 10 and Ms Chen entering the unconditional SPA, which is not pleaded. I do not consider such a causative link could be pleaded given that a breach of s 10 would not have precluded Mountfort from listing the property nor required Mountfort to disclose a breach of s 10 to Ms Chen. I do not accept Ms Chen’s submission that once a breach of s 10 had been identified, a Court appointed liquidator would be required before the property could be marketed.

[32]   Finally, the allegation relating to preparing an offer while Ms Chen was not GST registered has no merit. A purchaser (including a nominee) may or may not be GST registered. Recording the purchase price in the SPA as “plus GST if any” does not give rise to a claim here.14

[33]   For these reasons, Ms Chen’s breach of fiduciary duty claim is not reasonably arguable.

Negligence

[34]This claim alleges that Mountfort was negligent by:

(a)failing to check AWIL as required by the AML/CFT Act prior to putting the property on the market;

(b)listing the property while AWIL was in breach of the Companies Act;

(c)preparing an offer while Ms Chen was not GST registered.

[35]   Again, assuming the facts alleged are true, the issues are whether Mountfort owed Ms Chen a duty of care and whether any of these matters could amount to a breach causing loss to Ms Chen.

13 Anti-Money Laundering and Countering Financing of Terrorism Act 2009, s 46.

14 This is not a negligent misstatement claim such as that in Johnston and Johnston as trustees of Squadron Investment Trust v Colliers International New Zealand Ltd t/a Colliers International Auckland Central [2019] NZHC 2711.

[36]   As Ms Lucas submitted, the duty alleged would be novel. Consideration of such a duty requires assessment of foreseeability and proximity, that is everything bearing upon the relationship between the parties, and whether it is fair, just and reasonable to impose a duty, that is externalities – the effect on non-parties and on the structure of the law and on society generally.15

[37]   Foreseeability requires assessment of whether the loss claimed was a reasonably foreseeable consequence of the acts or omissions in issue. Here, Ms Chen claims from Mountfort loss of her deposit and consequential losses. A purchaser’s loss of deposit and consequential losses might be a reasonably foreseeable consequence of some acts or omissions by a vendor’s real estate agent, but I do not consider they are the reasonably foreseeable consequence of the acts or omissions alleged here. As indicated, the relevant obligation on the part of a reporting entity in the AML/CFT Act is to conduct customer due diligence, focusing on failure to identify a breach of s 10 of the Companies Act rather than reporting suspicious activity since the latter would not come to Ms Chen’s attention. Identifying a breach of s 10 is not the purpose of the AML/CFT Act. Loss resulting from a failure to identify a breach of s 10 is not reasonably foreseeable. Nor is a loss resulting from the other alleged acts reasonably foreseeable, that is loss resulting from listing the property while AWIL was in breach of s 10 and loss resulting from preparing an offer while Ms Chen was not GST registered.

[38]   Proximity involves consideration of whether the relationship or closeness of the connection between the parties is such that Mountfort has an obligation to take reasonable care not to injure Ms Chen. While a real estate agent’s primary duty is to its principal, I accept there is a degree of closeness between a vendor’s agent and a purchaser. But given the fiduciary obligations of an agent, any duty owed by a real estate agent to a purchaser must be narrow in scope – relating to matters directly affecting the purchaser. That is not the case here.

15     North Shore City Council v Attorney-General [2012] NZSC 49, [2012] 3 NZLR 341 at [147]– [161].

[39]   Whether it is fair, just and reasonable to impose a duty involves wider policy considerations. Here the alleged duty is of broad scope, requiring compliance with the AML/CFT Act and compliance by Mountfort’s principal with the Companies Act. Even if foreseeability and proximity indicated the presence of the duty, the purpose and separate means of enforcement of the AML/CFT Act weigh against the imposition of the alleged duty in these circumstances. In particular, the key purpose of the AML/CFT Act is to detect and deter money laundering and the financing of terrorism.16 Mountfort had statutory duties to conduct customer due diligence when accepting instructions to act for AWIL on the property transaction, and Part 3 of the AML/CFT Act provides for means of enforcement. But the AML/CFT Act does not seek to ensure that a vendor complies with the Companies Act, for a counterparty’s benefit or otherwise. Also, the fact that a breach of s 10 would not have precluded Mountfort from listing the property weighs against the imposition of the alleged duty.

[40]   For these reasons, I do not consider it reasonably arguable that Mountfort owed a common law duty of care to Ms Chen to take reasonable care in carrying out its statutory duties under the AML/CFT Act. A duty not to list the property while AWIL was in breach of the Companies Act is also untenable. Even a duty on AWIL’s agent to disclose a breach of s 10 to Ms Chen would not be arguable. A duty not to prepare an offer while Ms Chen was not GST registered is also untenable, for the reasons given above. Therefore, I do not consider that Mountfort owed Ms Chen a duty of care as pleaded.

[41]   Further, even if Mountfort owed Ms Chen such a duty of care, the same causation issue arises.17

[42]For these reasons, Ms Chen’s negligence claim is not reasonably arguable.

16     Anti-Money Laundering and Countering Financing of Terrorism Act, s 3(1)(a).

17     At [31] above.

Consumer Guarantees Act 1993

[43]   This claim alleges that Mountfort breached the Consumer Guarantees Act 1993 by misleading Ms Chen about AWIL’s non-compliance (with the Companies Act and/or the AML/CFT Act), leading Ms Chen to sign the SPA.

[44]   Ms Lucas submitted that Mountfort provided its real estate agent services to AWIL as vendor, not to Ms Chen, and Ms Chen was not a consumer as she did not acquire from Mountfort “services of a kind ordinarily acquired for personal, domestic, or household use or consumption” given the commercial nature of the property, being purchased for development.

[45]   This claim is misconceived. The pleading does not identify which statutory guarantee is said to apply and none seems apt. In any event, I agree that Mountfort provided its services to AWIL rather than Ms Chen (whether or not Ms Chen comes within the definition of consumer).18 Also, the same causation issue arises.19

Fair Trading Act 1986

[46]   This claim alleges that Mountfort breached s 9 of the Fair Trading Act 1986 by putting the property on the market while AWIL was in breach of the Companies Act.

[47]   I do not consider it arguable that putting the property on the market while AWIL was in breach of the Companies Act could give rise to misleading and deceptive conduct in breach of s 9. Putting the property on the market did not represent that AWIL was fully compliant with the Companies Act. Nor was the (alleged) breach of s 10 concealed in breach of a duty to disclose.

[48]Further, the same causation issue arises.20

[49]   At the hearing, Ms Chen suggested as a further alternative claim that prior to settlement Mountfort misled her by saying that Mr Chen would arrange vendor

18     Ms Chen’s claim at the hearing that Mountfort had acted for AWIL selling a separate property while AWIL was in breach adds nothing.

19     At [31] above.

20     At [31] above.

finance. I do not consider it arguable that such a statement was misleading and deceptive. Vendor finance was offered. The dispute arose due to the issue about repayment/priority. It was not suggested Mountfort had misrepresented that. Also, Ms Chen was already bound by the unconditional SPA.

Conclusion

[50]   For these reasons, Ms Chen’s statement of claim discloses no reasonably arguable cause of action against Mountfort. The claims against Mountfort should be struck out.

Result

[51]   Mountfort’s application is granted. Ms Chen’s claims against Mountfort are struck out.

[52]   Having succeeded, Mountfort is entitled to costs. Ms Chen must pay 2B costs to Mountfort.

Gault J