FMI Building Innovation Limited v Li
[2025] NZHC 754
•2 April 2025
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-2366
[2025] NZHC 754
BETWEEN FMI BUILDING INNOVATION LIMITED
Plaintiff
AND
LIN LI
First Defendant
XI SHEN
Second DefendantLIN LI and XI SHEN as Trustees of the Oka Tree Family Trust
Third Defendants
Hearing: 27 March 2025 Appearances:
R Selby for Plaintiff
K Sun and T Jones for Third Defendants
Judgment:
2 April 2025
JUDGMENT OF VENNING J
This judgment was delivered by me on 2 April 2024 at 3.00 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Capstone Law Ltd, Auckland
Russell van Hout Ltd, Auckland
FMI BUILDING INNOVATION LTD v LI [2025] NZHC 754 [2 April 2025]
Introduction
[1] FMI Building Innovation Limited (FMI) has brought summary judgment proceedings against Mr Li as guarantor of a debt. Mr Li and his wife, Ms Shen, are trustees of the Oka Tree Family Trust (the Trust). FMI has obtained freezing orders over the assets of Mr Li, Ms Shen and the Trust. The summary judgment application, which also seeks to set aside certain dispositions of property, is due to be heard on 28 April 2025.
[2] In the meantime, the Trust seeks directions varying the freezing order, specifically by releasing $37,896.73 from the funds that are frozen to pay the ordinary living costs of Ms Shen and her and Mr Li’s children for the months of January, February, March and April 2025, and an additional $37,000 for the legal fees of the Trust.1
[3] FMI opposes the application. The debt which it is seeking to enforce is in excess of $1.2 million. The frozen funds in New Zealand at present are $151,747.54. If the application is successful, then Ms Selby says that would leave just $86,851.54 to settle FMI’s claim.
[4] The frozen moneys are assets of the Trust. On previous occasions, 3 October 2024, 8 February 2024, and 28 February 2025, the Court has made orders approving payment out of the frozen funds to meet the ordinary living costs of Mr Li and Ms Shen and for legal fees.
Background
[5] Mr Li had provided FMI with a guarantee related to the trading of a company he was involved in. The company failed. FMI sought to pursue Mr Li in reliance on the guarantee.
[6] Mr Li and Ms Shen owned two properties, one at Morewa Place and one at Emmerdale Avenue. On 6 September 2024, 10 days after Mr Li was served with a
1 The amount sought is actually $47,896.73 but the applicant accepts $10,000 was released by Muir J in his minute of 28 February 2025 to meet these expenses pending this hearing.
notice of demand under the guarantee, Mr Li and Ms Shen transferred the Emmerdale property to the Trust. On 19 September 2024 Mr Li and Ms Shen entered into a property agreement under the Property (Relationships) Act 1976 which acknowledged the Morewa and Emmerdale properties were Ms Shen’s separate property. Mr Li and Ms Shen subsequently sold the Morewa property and were left with net proceeds of
$211,778. On 24 September 2024 Mr Li and Ms Shen transferred $200,000 to Ms Shen’s mother (who lives in China).
FMI’s opposition
[7] FMI opposes the application. Underlying its opposition is FMI’s case that when FMI began to pursue Mr Li on his personal guarantee, Mr Li and Ms Shen deliberately took steps to dispose of the two properties that Mr Li had an interest in.
[8] Specifically, FMI argues that the Trust does not itself, have any living expenses. Next, it says Ms Shen has not demonstrated she cannot meet her own living costs. In particular, Ms Shen has access to the $200,000 which she sent overseas to her mother.
[9] FMI also says it would be objectively unfair and not in the overall interests of justice for the funds to be depleted on the Trust’s legal costs.
[10] Finally, the living costs sought include costs already incurred and paid by Mr Li, Ms Shen and/or the Trust which are not claimable.
[11] Ms Selby argued the Trust itself has no living expenses. Further, Mr Li and Ms Shen have failed to demonstrate they were unable to pay their own living costs. She criticised their evidence, and submitted it was inconsistent, contradictory and at times clearly false. She noted that $200,000, almost the entire net proceeds of sale of the Morewa property had been transferred to Ms Shen’s mother in China on the very day the sale settled in September 2024. Ms Selby noted the loans were not even due for repayment when the transfer was made. In the circumstances, she submitted that the $200,000 was transferred to defeat creditors and Mr Li’s and Ms Shen’s assertion they do not have possession or control over the $200,000 was just not plausible.
Counsel referred to the cases of SJ v SL, and YGJ v MH,2 (both Family Court cases) and argued the Court should regard the $200,000 as being under Mr Li and Ms Shen’s possession and control.
[12] Ms Selby also queried the evidence that Mr Li’s income is limited, noting that until recently Mr Li was the director of a company Cozy Life Kitchen Limited, which showed that for the 10 months ended 31 January 2025, had a trading income of in excess of $763,000 and paid salaries in excess of $369,000. However, Mr Li’s income tax return suggests he received a very modest income. I interpolate here that Mr Li has recently been made bankrupt.
Discussion
[13] The starting point on this application must be the rules applying to freezing orders and the principles that the Courts have developed in relation to them.
[14]High Court Rule 32.6(3) provides:
(3)The freezing order must not prohibit the respondent from dealing with the assets covered by the order for the purpose of—
(a)paying ordinary living expenses; or
(b)paying legal expenses related to the freezing order; or
(c)disposing of assets, or making payments, in the ordinary course of the respondent's business, including business expenses incurred in good faith.
[15] The Commentary to the Rules and a number of authorities have made the point that:3
The remedy is not intended to give the plaintiff priority over those assets or to punish a defendant for his misdeeds, or to enable a plaintiff to exert pressure on a defendant to settle an action: PCW (Underwriting Agencies) Ltd v Dixon [1983] 2 All ER 158. It is normal to permit a defendant an exemption from the order in respect of legal costs incurred in defending the relevant proceeding and to permit him to meet day to day living expenses: Mansour v Mansour (1990) FCR 17; CBS v Lambert [1982] 3 All ER 237, 242.
2 SJ v SL FC WhakataneFAM-2009-087-000049, 23 November 2009, 16 April 2010; and YGJ v MH FC Waitakere FAM-2008-090-000307, 31 March 2008.
3 An Ying International Financial Ltd v Li & Zhao HC Auckland CIV-2004-404-6952, 6 April 2005.
And further, as Allan J noted in An Ying International Financial Ltd v Li & Zhao:4
Moreover, the level of allowances permitted a defendant must be realistic and not parsimonious. A defendant ought not to be required to reduce his or her living standards at the behest of a plaintiff: PCW (Underwriting Agencies) Ltd v Dixon at p 162. The level of the allowance made for legal costs ought to be reasonable in all the circumstances and sufficient to permit the defendants to take competent legal advice: Halifax plc v Chandler [2001] EWCA Civ 1750.
[16] In Twentieth Century Fox Film Corporation v Dotcom (No 3) Courtney J confirmed a freezing order does not give a plaintiff security and is intended only to prevent the dissipation of assets against which judgment might later be enforced.5
[17] On the issue of whether the funds of the Trust should be released to pay the living expenses of Ms Shen and children, neither counsel was able to point to an authority directly in point. Judges have raised the issue in the course of these proceedings as to whether it is appropriate but nevertheless, as noted, have directed payments from the funds held.
[18] In the Twentieth Century Fox case Courtney J allowed a variation to a freezing order for Mr Dotcom's living expenses from restrained government bonds as she had concluded that the trust assets were insufficiently liquid to meet those expenses. The Judge did not identify any issue with allowing the release of trust funds in that manner. Similarly in Li v Li Lang J noted that the sum of $225,000 which otherwise was money available to the trust was frozen as a result of the freezing order.6 Nevertheless the Judge accepted that the frozen funds were the only source from which the personal defendants would be able to meet their living costs and made orders releasing funds from the trust.
[19] Rule 32.6 allows the respondent to broadly deal with frozen assets for the purposes of meeting ordinary living expenses. There is no reason why this broad principle should not extend to permit trustees making appropriate distributions to meet the living expenses of the beneficiaries. That would seem to be consistent with the purpose of the rule, particularly where there is no other source available.
4 At [82].
5 Twentieth Century Fox Film Corporation v Dotcom (No 3) [2016] NZHC 2509 at [20].
6 Li v Li HC Auckland CIV-2011-404-7393, 2 December 2011.
[20] As to the submission that Ms Shen has recourse to other assets – particularly the $200,000, the difficulty with FMI’s argument is that it is inviting this Court, on this interlocutory application to make findings that are going to be addressed by the Court on the summary judgment application, namely whether the transfers are genuine or not. Certainly, the timing of the establishment of the Trust, the transfer of the assets to the Trust and then the subsequent forgiveness of debt, are suspicious given the context of FMI’s claim against Mr Li as guarantor at the time. However, it is not for this Court on this application to determine that matter substantively. That is for the Court at the hearing in April.
[21] On the evidence currently before the Court there were loan agreements confirming the advances and money was transferred to Ms Shen consistent with the loan agreements so that the $200,000 was repayable to Ms Shen’s mother, albeit that the time for repayment had not eventuated. On that basis the cases Ms Selby relied on can be distinguished. I do not accept on the information currently before the Court and short of the full hearing on the matter that the $200,000 paid to Ms Shen’s mother is or remains under the control of Mr Li and more particularly Ms Shen and children so that she should have or could have resource to those funds.
[22] Next, I accept that, on the evidence before the Court the living expenses sought appear genuine expenses.
[23] As to the legal expenses, Ms Selby submitted that the legal expenses were in part in relation to the summary judgment application. Again, in my judgment the allowance for legal expenses contemplates legal expenses incurred when responding to the substantive claim which supports the application for the freezing order. That is the approach Lang J took in the Li v Li case. I accept that legal expenses on a completely unrelated matter would not be covered but that is not the position.
[24] However, I agree with Ms Selby that the amount to be released payments should be no more than is reasonably necessary. In that regard I accept Ms Selby’s submission that as a forward-looking jurisdiction the mortgage repayments for the Emmerdale Avenue property which the Trust no longer owns are not approved, nor are the insurance costs for that property or the insurance for the rental property which has
already been paid. Further, the lump sum sought to pay for school fees to September 2025 is not approved.
Result
[25]On that basis, I confirm that the freezing order is varied to allow payment of
$8,328.51 for January, and $8,275.57 for February, March and April 2025 (less the
$10,000 that has already been approved for that period), together with a further
$37,000 for the Trust’s legal fees, in total $60,155.22.
[26]I reserve the issue of costs.
Venning J
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