De Alwis v Chean HC Auckland CIV 2007-404-5357

[2010] NZHC 1004

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2007-404-005357

BETWEEN	HERALD VICTOR DE ALWIS First Plaintiff
AND	MARGARET ELIZABETH DE ALWIS AND HERALD VICTOR DE ALWIS Second Plaintiffs
AND	JOHN WAH KUM Third Plaintiff
AND	CONNIE FAY LING KUM Fourth Plaintiff
AND	MARSHA ADRIENNE TAI PING TAN Fifth Plaintiff
AND	PETER WEE Sixth Plaintiff
AND	PAUL SENG POH KHOR Seventh Plaintiff
AND	AI NEE CHEAN Defendant
Hearing:	24 March 2010

Appearances: No appearances for the First to Fifth and Seventh Plantiffs

G A D Neil for the Sixth Plaintiff
E Orlov and D Lee for the Defendant

Judgment:      31 March 2010 at 4:30 pm

JUDGMENT OF WYLIE J

This judgment was delivered by Justice Wylie 31 March 2010 at 4:30pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

H V DE ALWIS AND ORS V A N CHEAN HC AK CIV 2007-404-005357  31 March 2010

[1]      There are a number of applications before the Court.   Mr Wee, the sixth plaintiff, seeks orders:

a)        varying an asset preservation order made by Cooper J on 30 August

2007;

b)making final an interim charging order issued and sealed by this Court on 9 March 2010; and

c)        for the delivery up of the charged moneys.

[2]      The defendant, Mrs Chean, seeks the stay of a judgment given by the Court of Appeal on 24 February 2010.

[3]      Both parties oppose the other’s applications.

Background

[4]      This proceeding, and the wider litigation associated with it, has had a long and tortuous history.  That history is reviewed in part in the very recent judgment of Courtney J — De Alwis v Luvit Foods International Ltd.[1]    I have drawn from her Honour’s analysis.

[1] HC Auckland CIV-2002-404-001944 24 March 2010 at [6]-[9].

[5]      Mrs Chean’s husband, Mr Chean, was a director of a company known as

Luvit  Foods  International  Limited  (“Luvit”).    In  late  2001,  Mr  Wee  invested

$150,000 in Luvit.  The investment was not successful and Mr Wee and the other plaintiffs, who had also invested in the company, sought to recover their funds. They commenced proceedings in October 2002.   They alleged that Mr Chean had induced them to invest in Luvit by making representations about the company’s performance which were misleading and deceptive under the Fair Trading Act 1976. They also alleged breach of the Securities Act 1978.   It was said that a registered prospectus was required.  It was asserted that s 37(6) of the Securities Act required the repayment of the subscriptions within two months of receipt by the company,

and that the directors were fixed with joint and several liability in the event that repayment was not made.

[6]      The hearing was due to commence on 30 April 2007.  However, Mr Chean adjudicated himself bankrupt on 27 April 2007.  Counsel had no instructions, and he was granted leave to withdraw.  The matter proceeded by way of formal proof on

15 May 2007, and judgment was entered for all plaintiffs, including Mr Wee, on

23 May 2007.  Courtney J held Luvit and Mr Chean jointly and severally liable to repay the plaintiffs’ subscriptions under s 37(6) of the Securities Act.  In addition, she found that Mr Chean was personally liable under the Fair Trading Act for misleading and deceptive conduct.

[7]      Subsequent enquiries by the Official Assignee revealed that Mr Chean had transferred the majority of his assets to the respondent in the present proceedings – Mrs Chean.   The transfers had been effected pursuant to a matrimonial property agreement.  Inter alia, Mr Chean had transferred his half share in the jointly-owned family home at 2 Ramona Mews, Howick, to Mrs Chean.   The effect of the matrimonial property agreement was to put Mr Chean’s half share of the family home out of the plaintiffs’ reach.  The assets taken by Mr Chean under the agreement proved to be worthless, and there was no property of value for the Official Assignee to realise and distribute to the plaintiffs, including Mr Wee, in satisfaction or part satisfaction of the judgment they had obtained.

[8]      The plaintiffs, including Mr Wee, then commenced the current proceeding against Mrs Chean seeking recovery of their subscription monies.  Mrs Chean had also been a director of Luvit.   These proceedings were commenced on 30 August

2007 by way of summary judgment application.   The claims against Mrs Chean relied substantially on the findings Courtney J had made in the original proceeding against Mr Chean.

[9]      At the same time, the plaintiffs, including Mr Wee, sought asset preservation orders securing Mrs Chean’s assets.   She was in the process of selling the family home at Ramona Mews, and there was a concern that the settlement moneys might be dissipated.

[10]     In the event, asset preservation orders were granted by Cooper J in this Court on 30 August 2007.

[11]     The summary judgment proceedings were heard by Associate Judge Faire on

16 and 19 June 2008.  The plaintiffs argued that their cause of action under s 37(6) of the Securities Act was res judicatum as a result of Courtney J’s earlier findings. Their claims were upheld in a judgment dated 4 July 2008.[2]     Mr Wee obtained judgment pursuant to s 37(6) and all plaintiffs succeeded on knowing receipt claims in respect of moneys which had been transferred into a personal bank account jointly held by Mr and Mrs Chean.  Judgment was entered against Mrs Chean in favour of

[2] De Alwis v Chean HC Auckland CIV-2007-404-005357 4 July 2008.

Mr Wee for $150,000, together with interest from 1 October 2001 at the rate of 10 per cent per annum.  The judgment in favour of Mr Chee was sealed on 20 August

2008.

[12]     A supplementary judgment was subsequently entered against Mrs Chean in favour of all plaintiffs in varying sums totalling $573,105.49 on 15 October 2008.[3]

[3] De Alwis v Chean HC Auckland CIV-2007-404-005357 15 October 2008.

[13]     Mrs Chean appealed against the judgments in favour of Mr Wee and the other plaintiffs.  She failed to file her case on appeal within the required time, and it was deemed to be abandoned.  She also failed to pay security for costs.  However, she made  application  to  reinstate  the  appeal,  and  in  a  reserved  judgment  issued  on

25 March 2009, the Court of Appeal allowed the appeal to proceed.[4]

[4] Chean v De Alwis [2009] NZCA 98.

[14]     On 5 June 2009, on Mrs Chean’s application, Winkelmann J varied the assets preservation orders put in place by Cooper J, to allow Mrs Chean to pay her reasonable living expenses to the extent of $1,205 per week out of the frozen fund. Her Honour was satisfied that this amount provided a reasonable allowance for living expenses for Mrs Chean and her child.  She noted that freezing orders are not designed to punish defendants and that they are not intended to allow plaintiffs de facto control over defendants.

[15]     The substantive appeal to the Court of Appeal was heard on 10 November

2009.  Judgment was given by the Court of Appeal on 24 February 2010.  It allowed the appeal in part, and it set aside the judgment based on the cause of action in knowing  receipt.    The  judgment  in  favour  of  Mr  Chean  under  s  37(6)  of  the Securities Act was however upheld.[5]  The Court of Appeal’s judgment in favour of Mr Chee was sealed on 4 March 2010.

[5] Chean v De Alwis [2010] NZCA 30.

[16]     On 9 March 2010, Mr Chee obtained an interim charging order.  The amount charged was $276,236.30 and interest is accruing at the rate of $41.10 per day.  The interim charging order has been served.

[17]     On 17 March 2010, Mrs Chean applied to the Supreme Court for leave to appeal against the Court of Appeal’s decision.   A timetable has been put in place requiring her to file her written submissions in support of the application for leave by Monday  19 April  2010,  and  requiring  the  plaintiffs  (as  respondents  in  those proceedings) to file their response submissions within 15 working days of receiving Mrs Chean’s submissions.

[18]     Further, Mrs Chean, and her husband, have made application to set aside the judgment entered against Mr Chean in the original proceeding determined by Courtney J in May 2007 following the formal proof hearing.  A jurisdictional issue arose.  The plaintiffs asserted that Mr Chean did not have standing, because he is an undischarged bankrupt, and his rights in the proceeding, including the right to apply to set aside the judgment, vest in the Official Assignee.  It was also asserted that Mrs Chean was a non-party, who had no right to apply to set aside the judgment obtained following a formal proof hearing.   Courtney J ruled on that matter on 24 March

2010.  She held that Mr Chean does not have standing to bring the application to set aside because the right to do so vests in the Official Assignee.  She has, however, held that Mrs Chean does have standing to bring the application.   Her Honour directed that a date for the substantive application be allocated.[6]

[6] HC Auckland CIV-2002-404-001944 24 March 2010.

[19]     Mr Neil acting for Mr Wee submitted that:

a)       The frozen moneys are being depleted at the rate of $1,205 per week, and  notwithstanding  that  they  are  now  charged  to  the  benefit  of Mr Wee.

b)The assets preservation orders were obtained by the plaintiffs for their benefit.  All plaintiffs consent to the orders being varied as sought by Mr Wee, and there can be no principled basis for objection to the same.

c)       Mr Wee is entitled to the fruits of his judgment, and it would be unjust if Mrs Chean is able to continue her lifestyle at Mr Wee’s expense. As Mr Neil put it, Mr Wee wants to “turn off the tap”.

d)The charged moneys exceed the sum held pursuant to the assets preservation orders.   Nothing will remain if the assets preservation orders are varied to exclude the charged moneys.  The consequence will be that the variation order made by Winkelmann J will become redundant, and it should be rescinded.

e)       The judgments given by Associate Judge Faire, and by the Court of Appeal, have been sealed, and there is no jurisdictional bar to the interim charging order being made final.

f)        The charged moneys should be paid out to Mr Wee in the exercise of the Court’s inherent jurisdiction.  Mrs Chean’s application to set aside Courtney J’s 2007 judgment is still outstanding.  Any order requiring the charged moneys to be paid out should be deferred pending final determination of that application.

[20]     Mr Orlov for Mrs Chean resisted Mr Wee’s applications.  He submitted as follows:

a)       The variation of the assets preservation orders made by Winkelmann J was appropriate at the time.  Circumstances have not changed so as to render that variation inappropriate.

b)Mrs Chean earlier in these proceedings filed an affidavit as to her circumstances.   Nothing has changed.   She is in a dire financial position.

c)       It would be unfair to her, and it would be destructive of her rights to access justice, if the assets preservation orders were to be varied as sought by Mr Wee.

d)If leave is obtained to appeal the Supreme Court and that appeal is successful, and/or if Courtney J’s original judgment is set aside, then Mrs Chean will be entitled to the frozen fund.  The status quo should remain until her rights are determined.

e)       The moneys are already charged in a de facto sense by the assets preservation order, and nothing can be done with them.

f)        The  stay  application  requires  the  Court  to  balance  the  competing rights of the parties – namely Mr Wee’s right to enforce his judgment, and Mrs Chean’s position in the event that her proposed appeal to the Supreme Court, or her application to set aside Courtney J’s decision, succeed.   The balance falls in favour of Mrs Chean, and it is in the interests of justice to stay the enforcement of the Court of Appeal judgment, and to leave the assets preservation order in place, pending final resolution of all outstanding matters.

[21]     The assets preservation orders are in the following terms:

1.Pending further order of the Court, the Defendant (together with her servants  or  agents  or  otherwise) be restrained from disposing or causing to be disposed or otherwise charging or dealing in any manner whatsoever with, or diminishing the value of, whether beneficially held or otherwise save to the extent that the aggregate value of the monies exceeds the sum of $1,680,000 all proceeds derived from the sale of the property at 2 Ramoana Mews, Howick, Auckland,  which  is  more  particularly  described  in  Certificate  of Title NA 101B/378, (“the Property”) with the exception of:

1.1      ...

1.2      ...

1.3      ...

1.4Such sums as have been secured by the Official Assignee pursuant to an agreement reached between the Official Assignee  and  the  Defendant  to  enable  the  sale  of  the Property to proceed while preserving the Official Assignee’s claim to a one half share in the Property as detailed in the Official Assignee’s caveat number 7421627.1.

2.If at the time an order is made in terms of 1 above any of the sums that are subject to the order have been disposed of, THEN pending further  order  of  this  Court,  the  Defendant    (together  with  her servants or agents or otherwise) be restrained from disposing or causing to be disposed of or otherwise charging or dealing in any manner whatsoever with or diminishing the value of, whether beneficiary held or otherwise, any property acquired with such sums.

3.        …

4.Leave is reserved to any party or non-party adversely affected by these orders to apply to vary or discharge these orders.

5.        …

[22]     Mr Wee is clearly a party adversely affected by the orders.  He is entitled to apply to vary or discharge the same pursuant to Order 4.  The other plaintiffs have filed written consents confirming that they approve the orders sought by Mr Wee.

[23]     Assets preservation orders are orders in personam against defendants.  They confer no property right in favour of plaintiffs.   Their purpose is to prevent the defendant from dealing in his or her own assets to protect a plaintiff’s prospective

interest in the defendant’s property before judgment.  An order must not prohibit a defendant from dealing with assets covered by the order for the purpose of paying ordinary living expenses, or paying legal expenses related to the freezing order, or of disposing of assets, or of making payments, in the ordinary course of the defendant’s business  –  see  r  32.6  of  the  High  Court  Rules.     It  was  on  this  basis  that Winkelmann J varied the assets preservation orders on 5 June 2009.

[24]     Mr  Wee,  with  the  support  of  the  other  plaintiffs,  is  seeking  to  undo

Winkelmann J’s variation order.  Mrs Chean is seeking to keep it in place.

[25]     In my view, and notwithstanding Mr Orlov’s submissions to the contrary, circumstances have changed substantially since Winkelmann J varied the orders.

a)       First, at the time of her Honour’s judgment, Mr Wee and the plaintiffs had not made out their case against Mrs Chean.  Indeed her Honour expressed the view that it was by no means certain that they would be able to do so – see [13] of her judgment.  That is no longer the case. Mr Wee has judgment against Mrs Chean for $150,000 plus interest. He is entitled to enforce that judgment unless a stay is granted.

b)Mr Wee has sealed the judgments issued by Associate Judge Faire, and by the Court of Appeal.  He has issued an interim charging order.

c)       Mrs  Chean  is  seeking to  appeal  the  Court  of  Appeal’s  judgment, and/or to set aside Courtney J’s original decision.   To appeal to the Supreme Court, she will have to satisfy the criteria set out in ss 13(1) and (2) of the Supreme Court Act 2003.  If she succeeds in obtaining leave,  she  will  face  the  burden  of  succeeding  in  the  substantive appeal.  Her application to set aside Courtney J’s judgment has been brought under r 7.51, or alternatively r 15.13 of the High Court Rules. If she is to succeed, she will have to persuade Courtney J to rescind her earlier judgment on the basis that judgment was fraudulently or improperly obtained.   Alternatively she will have to establish that there was, or may have been, a miscarriage of justice.  Courtney J had

expressed the view that r 7.49 may also be applicable.  If that is the case, Mrs Chean will have to satisfy Courtney J that her decision was wrong, or that it should be transferred to the Court of Appeal.  It is by no means certain that Mrs Chean will succeed in any of these applications.  Courtney J in her recent judgment[7] did observe that if her findings were justified on the evidence at the time, and no fresh evidence is available, it is difficult to envisage what ground might exist to justify setting aside the judgment – see [44].

[7] HC Auckland CIV-2002-404-001944 24 March 2010.

[26]     Mr Wee is entitled to the fruits of his judgment.  He is entitled to enforce that judgment, and for that purpose to resort to a charging order.   A charging order operates as a stop order, preserving or holding the property and preventing it from being disposed of so as to defeat any judgment which has been obtained.

[27]     I agree with Mr Neil that in the circumstances, the balance has shifted.  There is no good reason why Mr Wee should be expected to stand by while Mrs Chean’s day-to-day living expenses are met out of moneys which, as things currently stand, he is entitled to resort to in satisfaction of his judgment.  The plaintiffs sought the assets preservation orders to protect their position pending trial.  They all agree with the variation orders sought by Mr Wee.  Accordingly, I vary the assets preservation order, to exclude all moneys charged to the benefit of Mr Wee pursuant to the interim charging order issued and sealed by the High Court at Auckland on 9 March

2010.

[28]     Further and because there will as a result be no moneys the subject of the assets preservation orders out of which a living allowance can be paid to Mrs Chean, in my view it is appropriate to rescind the variation order made by Winkelmann J on

5 June 2009.  I so order.

[29]     I now turn to the second order sought.   Mr Wee has applied to have his interim charging order made final.  There is nothing in the relevant rule – r 17.59 – to suggest that that is inappropriate.  A charging order can be made final at any time after judgment is sealed.  Here, and as noted, both Associate Judge Faire’s judgment

and the Court of Appeal’s judgment have been sealed.  The Court is in effect given a discretion by r 17.59, but as is noted in the commentary to McGechan in the High Court Rules, the discretion is likely to be exercised unless some good reason to the contrary is established – see HR 17.59.01.  The circumstances justifying a refusal of an application to make a charging order final are generally considered to have been limited to cases where an interim order ought not to have been made, or possibly where priority would be unfairly conferred over other creditors, or the execution process has not been properly completed – see Parker Construction Management

(NZ) Ltd (in liq) v Horizon Investments Ltd.[8]   None of these situations are relevant to

the present application.  I can see no good reason why the charging order should not be made final and I so order.

[8] HC Wellington CIV-2007-485-001963 and CIV 2007-485-002104 20 February 2008.

[30]     Once the charging order is made final, it follows that Mr Wee, as the entitled party, is entitled to execute the charging order in accordance with r 17.60.  That rule envisages that Mr Wee, as the entitled party, may enforce the final charging order against  Mrs  Chean’s  solicitors  as  third parties  who  are  holding the  moneys  on Mrs Chean’s account.

[31]     Mr Neil seeks that I should short circuit r 17.60 by ordering the delivery up of the charged moneys to Mr Wee.  He acknowledges that there are no rules allowing for this.   Consequently, he relies upon the Court’s inherent jurisdiction, and the principles of equitable execution that are recognised in cases such as Re Prior[9]  and Sinclair v Young.[10]

[9] [1921] 3 KB 333 at 339.

[10] [1964] 11 MCD 112 at 117.

[32]     Normally I would be loath to exercise the inherent jurisdiction asserted, at least without rather fuller argument than I heard.   However in the present case, Mr Orlov acting for Mrs Chean did not object to the order being made, as long as a condition is imposed requiring that the moneys charged are not to be disbursed to Mr Wee, until final determination of the outstanding proceedings.

[33]     In the circumstances, I accept that the solution proposed by Mr Neil, and accepted by Mr Orlov, is a pragmatic solution.   Mr Neil conceded that an order should  be  deferred  until  the  application  to  Courtney  J  is  finally  determined. Mr Orlov sought that the deferral should extend to the application and possible appeal to the Supreme Court.  I agree with him.  Either application could result in the judgment on which Mr Wee relies being overturned.

[34]     Accordingly,  I  order  that  Mrs Chean,  and  her  solicitors,  should  pay  the charged moneys that are not held to the benefit of the Official Assignee to Mr Wee, providing that such order is deferred, so that no payment is required to be made, until such time as either Mrs Chean’s application for leave to appeal to the Supreme Court and any resulting appeal, or Mrs Chean’s application to set aside the judgment of Courtney J given on 23 May 2007 is finally determined, whichever shall be the later.

[35]     Finally, I deal with Mr Orlov’s application on behalf of Mrs Chean for a stay. As is obvious from what I have already said, that application is declined.  There are two additional reasons for that decision.

a)       The application relied on r 30 of the Supreme Court Rules 2004.  That rule does not confer jurisdiction upon this Court to stay a judgment of the Court of Appeal.   Any application for a stay of the Court of Appeal’s judgment must be made to that Court.

b)The application was also made on reliance on r 17.29.   That rule provides that a liable party may apply to this Court for a stay of an enforcement  order  or  other  relief  against  the  judgment  upon  the ground that a substantial miscarriage of justice will be likely to result if the judgment were  enforced.    In the circumstances which have arisen, I cannot see that there will be any substantial miscarriage of justice.     I  have  ordered  that  the  charged  funds  can  remain  in Mrs Chean’s solicitor’s trust account, until outstanding matters are finally determined.   To my mind, that deals with any possible miscarriage of justice.  Further, and in any event, it is not a substantial

miscarriage of justice for a party that has had the use of another’s money to be required to repay that money, or for a creditor to be able to take whatever steps it sees fit to pursue recovery — see Marac Finance v Twilight Trustee Ltd.[11]

[11] HC Auckland CIV-2008-404-7291 25 February 2009 at [9].

[36]     Both parties sought costs.  Mr Wee is entitled to costs as the successful party. I fix costs on a 2B basis.  Mr Wee is also entitled to his reasonable disbursements.  I trust that counsel will be able to resolve costs and disbursements.   If there is any dispute, the same is to be referred to me by written memoranda to be filed within 10 working days of the date of this judgment.

Wylie J

Solicitors/Counsel:

Meredith Connel, P O Box 2213, Auckland 1140

Botany Law, P O Box 64 106, Auckland

E Orlov, P O Box 8333, Auckland