Cornwall Park Trust Board Inc v Chen

[2014] NZHC 792

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV2013-404-000008 [2014] NZHC 792

BETWEEN

THE CORNWALL PARK TRUST

BOARD INC Plaintiff

AND

YONG XIN CHEN Defendant

Hearing:	14 April 2014
Appearances:	J G H Hannan and C M Moody for the Plaintiff J A Wickes for the Defendant
Judgment:	15 April 2014

JUDGMENT OF GILBERT J

This judgment is delivered by me on 15 April 2104 at 4.30 pm pursuant to r 11.5 of the High Court Rules.

..................................................... Registrar / Deputy Registrar

THE CORNWALL PARK TRUST BOARD INC v CHEN [2014] NZHC 792 [15 April 2014]

Introduction

[1]      The plaintiff applies for continuation of an order freezing the defendant’s assets.  An interim freezing order was initially made on a without notice basis by Keane J on 5 March 2014.  The order was temporarily extended on 3 April 2014 by Toogood J and is now due to expire at midnight on 16 April 2014 unless it is further extended.1    The plaintiff claims that unless the order is extended, there is a danger that  any  judgment  it  may  obtain  in  this  proceeding  will  be  wholly  or  partly unsatisfied because the defendant may dissipate her assets in the meantime.

[2]      The plaintiff is a charitable trust which owns and operates Cornwall Park. Much of its funding is derived from ground rent receivable from 110 residential properties bordering the park.   These properties are leased on 21 year perpetually renewable leases.

[3]      The defendant was formerly a lessee of one of these properties, being the property  at  21  Maungakiekie Avenue,  Greenlane, Auckland  (“the  Maungakiekie property”).  The last lease term for this property expired on 29 March 2009.  The ground rent is reviewed at the expiry of each term and the lessee then has the option of renewing the lease at the new rental.  The new rental was not fixed by arbitration until December 2010.   The defendant chose not to renew her lease and she surrendered possession of the property on 16 November 2011.

[4]      There are three components to the plaintiff’s claim in this proceeding.  The first is a claim for $173,323, being the difference between the old rent that continued to be paid by the defendant until she surrendered her lease and the new rent for the period from 30 March 2009 to 16 November 2011.   The plaintiff also claims reinstatement costs which it now assesses at approximately $135,000.2   The plaintiff has already obtained summary judgment for the third component of the claim being the costs of marketing and auctioning the property following the defendant’s election not to renew the lease at the new rent.3    The two outstanding claims are due to be

determined at a trial commencing on 19 May 2014.

1      The Cornwall Park Trust v Chen [2014] NZHC 665.

2      Affidavit of Anthony John Larsen sworn on 4 March 2014.

3      The Cornwall Park Trust v Chen [2013] NZHC 1067.

[5]      There is no dispute that the plaintiff has a good arguable case against the defendant and the defendant has assets within the jurisdiction.  The critical issue is whether the plaintiff has established that  there is a risk that the defendant will dissipate her assets unless the freezing order is continued.  This must be assessed on the basis of all of the evidence now available.

Risk of dissipation of assets

[6]      A  plaintiff  is  not  normally  entitled  to  restrict  the  defendant’s  use  and enjoyment of his or her assets prior to judgment.   The Court’s power to make a freezing order is not designed to provide plaintiffs with security for any judgment they may obtain. An order freezing a defendant’s assets can only be made where the plaintiff can show that there is a risk of dissipation of the defendant’s assets.  Mere assertion of belief of such a risk is insufficient but it is not necessary for a plaintiff to prove a likelihood of dissipation.  The Court will assess the risk in the same way as a prudent commercial person would.

[7]      The plaintiff’s without notice application for a freezing order was supported by an affidavit of Anthony Larsen, the Board’s finance and administration manager. The plaintiff continues to place reliance on the matters raised by Mr Larsen in this affidavit as justifying continuation of the order.  It is therefore necessary to examine each of these matters in the light of the further evidence now available to the Court.

[8]      Mr Larsen referred to the fact that the defendant was previously a shareholder and director of a company called Golden  Land Investments Limited which was struck off and removed from the Companies Register on 19 July 2013.  Mr Larsen noted  that  the  Companies  Office  records  did  not  disclose  the  reason  why  this company was removed from the register.  Mr Larsen also pointed out that the last annual return, lodged on 3 April 2012, showed the address of the Maungakiekie property as the registered office of the company and the address of its two directors, the defendant and her husband.

[9]      The defendant has since filed an affidavit explaining that, as a result of her ill health, this company has not traded since about 2010.   She says that she and her husband allowed the company to be struck off on advice from her accountant who

filed all annual returns.  She says that the accountant must have overlooked that they had moved from the Maungakiekie property a few months before the last return was filed.

[10]     It appears that this company ceased to trade before the current dispute arose. In the light of the defendant’s explanation, I do not consider that her decision to allow this company to be struck off indicates that she is dissipating her assets or that there is a risk of this.

[11]     Mr Larsen also referred to the fact that in May 2013 the defendant and her husband sold a property in Judges Bay, Parnell, Auckland.  The defendant has now explained in her affidavit that this was an investment property and that she and her husband decided to subdivide and sell it before the current litigation commenced. There is no evidence that the proceeds of sale have been disposed of or otherwise dissipated.     I  am  not  persuaded  that  this  transaction  supports  the  plaintiff’s contention that the defendant is dissipating her assets to insulate herself from the present claim.

[12]     Mr Larsen noted that the defendant and her husband had entered into an agreement to sell their property in Orakei.   The defendant and her husband are currently  living  in  this  property  with  their  daughter  and  granddaughter.    The defendant  has  explained  in  her  affidavit  the  personal  reasons  why she  and  her husband decided to sell this property.  She deposes that they have been trying to sell it since 2011 and it has been actively marketed by estate agents throughout that time. She says that she has negotiated a deferred settlement so that she and her husband can purchase a replacement property in New Zealand.  She and her immediate family are all New Zealand citizens and have been living in New Zealand since 2003.  She says in her affidavit that she has no intention of leaving New Zealand, removing any of her assets from New Zealand, or dissipating her assets in any way to avoid paying anything  she  may  be  found  liable  to  pay  to  the  plaintiff.    In  the  light  of  the defendant’s evidence, the sale of the Orakei property does not indicate that she is dissipating her assets or that there is a real risk that she will do so unless the freezing order is continued.

[13]     Mr Larsen also raised a concern that the defendant did not pay the amount for which judgment was entered in respect of the auction and associated costs.   The defendant says that this was because the plaintiff did not demand payment and she understood that the amount would be set off against costs to which she is entitled against the plaintiff.  In any event, the judgment sum has now been paid.  I do not consider that this matter bears on the question of whether there is a risk that the defendant will dissipate her assets.

[14]     I do not accept Mr Hannan’s submission that the matters to which I have referred collectively indicate that the defendant is “shutting up shop”, as he put it. Mr Hannan accepts that there is no suggestion that the defendant is about to leave New Zealand or remove any of her assets from the jurisdiction.  It is clear from her affidavits that she intends to remain in New Zealand with her family and meet the plaintiff’s case on its merits.  She has assets more than sufficient to meet any liability she may be found to have to the plaintiff.

[15]     Mr Larsen referred to a number of other matters which Mr Hannan relies on to support his submission that the defendant has demonstrated “a pattern of evasion and avoidance”.   First,  Mr Larsen notes the defendant’s claim that she did not receive two letters from the Board initiating the rent review.  These were addressed to the defendant at the Maungakiekie property and are dated 5 December 2008 and

25 March 2009.   Second, Mr Larsen notes that the defendant’s solicitors did not advise the Board’s solicitors about the agreement to sell the Orakei property.  Third, he says that the defendant has not engaged her normal solicitors to carry out the conveyancing on this sale.  Fourth, Mr Larsen is sceptical about the estoppel defence raised by the defendant, notwithstanding that the Court has found it is arguable. Fifth, Mr Larsen says that the Board had no contact with the defendant throughout

2009 other than payment of invoices.

[16]     The defendant has explained in her affidavit why she and her husband chose to instruct another solicitor who had been recommended to them.  I do not see that issue as having any relevance to the presence application.  The other matters may need to be explored at the trial and it would be inappropriate for me to express any view as to their merit.   However, these matters do not, in my view, justify an

inference   that   the   defendant   is   intending   to   dissipate   her   assets   pending determination of this proceeding.

[17]     In his judgment delivered on 3 April 2014, Toogood J stated:4

I have some sympathy with the defendant’s submission that, in the light of her explanation, the plaintiff is seeking simply some form of security for a contingent  judgment  debt  rather  than  having  a  genuine,  well-founded concern about dissipation.

The Judge nevertheless granted a further interim extension of the freezing order because the defendant had not complied fully with the directions contained in the ancillary order made by Keane J.  In particular, the defendant had not disclosed full particulars of all bank accounts, nor had she identified whether these were held in her own name or jointly with another.

[18]     Following the release of Toogood J’s judgment, the defendant has filed a further affidavit giving further information including the relevant bank account numbers and account holders.

[19]     For  the  reasons  I  have  given,  I  do  not  consider  that  the  plaintiff  has demonstrated that there is a risk that the defendant will dissipate her assets before this proceeding is determined. Taking into account all of the evidence now available, I am not persuaded that there is a proper basis for continuing the interim freezing order.

Result

[20]     The freezing order made by Keane J on 5 March 2014 and extended by

Toogood J on 3 April 2014 is discharged.

M.A. Gilbert J

4 At [20].