Fuati v Peng
[2018] NZHC 2134
•17 August 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-000848
[2018] NZHC 2134
UNDER Part 32 of the High Court Rules BETWEEN
MUSABAYOUFU FUATI and JUN JIN
Applicants
AND
YUCHEN PENG
First Respondent
WONDER INTERNATIONAL LIMITED
Second RespondentASB BANK LIMITED
Third Respondent/Non-partyANZ BANK NEW ZEALAND LIMITED
Fourth Respondent/Non-partyBANK OF NEW ZEALAND
Fifth Respondent/Non-partyWESTPAC BANKING CORPORATION
and WESTPAC NEW ZEALAND LIMITEDSixth Respondent/Non-party
Hearing: 20 June 2018 Appearances:
N J Scampion for Applicants D Zhang for First Respondent
Judgment:
17 August 2018
JUDGMENT OF COURTNEY J
This judgment was delivered by Justice Courtney
on 17 August 2018 at 4.15 pm (re-issued 5 September 2018) pursuant to R 11.5 of the High Court Rules Registrar / Deputy Registrar
Date………………………
FUATI & OR v PENG & ORS [2018] NZHC 2134 [17 August 2018]
Introduction
[1] The applicants, Mr Fuati and Mr Jin, allege that the first respondent, Ms Peng, borrowed a total of NZ$900,000 from them on the basis that she would repay that sum on or before 4 April 2018, together with interest at 18 per cent per annum. They say that Ms Peng repaid NZ$156,942.54 but the balance remains outstanding. In May 2018, Mr Fuati and Mr Jin applied without notice for freezing and ancillary disclosure orders against Ms Peng and Wonder International Ltd (WIL) of which Ms Peng is the sole director and shareholder.
[2] Moore J made freezing orders in respect of Ms Peng’s and WIL’s assets and ordered ancillary disclosure by Ms Peng, WIL and four New Zealand banks to ascertain the existence, value, and whereabouts of assets falling within the scope of the freezing order.1 The banks complied with the disclosure order but Ms Peng and WIL did not.
[3] The freezing order was due to expire on 20 June 2018 (having been extended twice). The matter came before me on that day with the following matters to deal with:
(a)Mr Fuati’s and Mr Jin’s applications for:
(i)a continuation of the freezing order until further order of the Court (I granted a further continuation pending my reserved decision);
(ii)an order that the banks provide limited further disclosure in relation to the alleged breach;
(iii)an order under r 8.38 requiring Ms Peng to answer questions about an alleged breach of the freezing order.
(b)Ms Peng’s and WIL’s applications for:
(i)a discharge of the freezing order;
1 Minute of Moore J 10 May 2018.
(ii)a variation of the disclosure order to reduce its scope and/or allow more time for compliance; or alternatively a stay of the disclosure order.
Should the freezing order be continued or discharged?
Relevant principles
[4]The criteria for the grant of a freezing order are:2
(a)The applicant must show that he or she has a good arguable case on their substantive claim;
(b)There must be assets of the defendant within the jurisdiction to which the orders can apply; and
(c)The applicant must show there is a real risk of dissipation or disposal of the assets.
[5] The Court must consider the overall justice in the circumstances, balancing the need to protect the plaintiff so as to ensure any judgment is not rendered barren against any prejudice or hardship to the defendant and to third parties from a grant of the order.3
[6] If the application is made without notice, the applicants must make full and accurate disclosure of all material facts.4 Material non-disclosure may, in an egregious case, result in the order being discharged.5
[7] Under r 7.49 of the High Court Rules, a party may apply to have an interlocutory order varied or rescinded if that party considers the order to be wrong. As noted earlier, applications to vary or discharge any ancillary order to a freezing order obtained without notice proceed by way of a hearing de novo in light of fuller
2 High Court Rules 2016, r 32.21; Bank of New Zealand v Hawkins (1989) 1 PRNZ 451 (HC). See also Zhou v Chi [2018] NZHC 1298 at [41]; Medtronic New Zealand Ltd v Finch [2013] NZHC 1253.
3 Bank of New Zealand v Hawkins, above n 1.
4 High Court rules 2016, r 32.2(3).
5 Covington Group Holdings Ltd v Zhang (2004) 17 PRNZ 819 at [90].
evidence.6 The Court also has inherent jurisdiction to review procedural orders of continuing effect.7
The freezing and ancillary orders
[8] The freezing order was made on the basis of an affidavit by Mr Jin. He described how he and Mr Fuati first met Ms Peng in 2017 when they all worked for the same company, Prosperous Capital, (with Ms Peng occupying a senior management position). Subsequently, they started a tourist business and she sub-let space from them for her currency exchange business. She asked to borrow money from them and they agreed. It was not entirely clear what the purpose of the loan was. Between May and August 2017, they lent her approximately NZ$900,000. Mr Jin’s money was held in China on trust by a friend, Mr Wei Wang, who transferred the funds to Ms Peng. Documents evidencing the transfer were produced.
[9] The money was due to be repaid on 4 April 2018, together with interest at 18 per cent per annum. On that day Mr Jin and Mr Fuati received NZ$100,000 from Ms Peng and NZ$50,000 from her friend, Sihan Zhang. However, that same day they arrived at work to find that Ms Peng’s desk had been cleared and subsequent efforts to contact her were unsuccessful. The next day, Mr Fuati and Mr Jin had a chance encounter with Ms Peng’s boyfriend, Nick Jin. He admitted the debt was owing and said that it would be repaid within the week. However, that did not happen. Nick Jin did not return any calls. Ms Peng could not be contacted. She stopped paying her rent. WIL was de-registered on 4 April 2018. Enquiries made through a private investigator indicated that Ms Peng had begun moving money out of accounts in China.
[10] Moore J was, justifiably, satisfied that there was a good arguable case, assets to which a freezing order could attach and a real risk that Ms Peng would dissipate or dispose of assets in New Zealand. Now, however, a number of disputes have emerged, some central to the freezing order, others of limited significance.
6 Peter Blanchard (ed) Civil Remedies in New Zealand (2nd ed, Brookers, Wellington 2011) at 316, citing Barson Computers NZ Ltd v Bristow, above n 6; Convington Group Holdings Ltd v Zhong (No 3), above n 6,at [11]; Allen v Commissioner of Inland Revenue, above n 6, at [93]; and Westley v Triangle Cables (NZ) Ltd, above n 6. See also Strathmore Group Ltd v Fraser (1990) 3 PRNZ 665 (HC) in relation to r 7.49 of the High Court Rules 2016.
7 McGechan on Procedure, above n 8, at [HR7.49.07], citing Foodtown Supermarkets Ltd v Tse
(1987) 2 PRNZ 545 (HC) at 546 per Greig J.
Factual disputes
[11] First, Ms Peng challenges the description Mr Jin gave of the circumstances in which he and Mr Fuati met Ms Peng. Mr Jin and Mr Fuati had previously asserted that she occupied a senior management position in Prosperous Capital, where they also worked. But Ms Peng says that it was Mr Fuati, as the then manager of Prosperous Capital, who interviewed her for the job of receptionist and later told her that she was to also perform the accounts payable function. She produced an email relating to her job interview that supports this.
[12] Secondly, Ms Peng does not accept that she and the applicants operated separate businesses. She says that the applicants were involved in WIL’s currency exchange business and, indeed, still use that name.
[13] Thirdly, Ms Peng denies borrowing the money from Mr Fuati and Mr Jin and says that, in any event, she has paid them at least the amount that they alleged they paid her. In support of that assertion she provided copies of bank statements. Ms Peng claims to have paid a total of 1,099,808 Chinese RMB to Mr Wei Wang’s bank account and that she paid a total of 2,359,468.93 Chinese RMB to Mr Fuati’s bank account. The total she claims to have paid to them was 3,459,276.93 RMB which, she claims, leaves Mr Fuati and Mr Jin owing her 84,000 RNB. Ms Peng also challenged Mr Jin’s evidence that his money was being held on trust for him by Mr Wei Wang in China. But Mr Jin produced an affidavit by Wei Wang confirming Mr Jin’s statement that Mr Wang held Mr Jin’s money for him.
[14] Mr Fuati and Mr Jin acknowledge that Ms Peng paid a total of 2.4 million RMB to Mr Fuati and 1.1 million RMB to Mr Wei Wang, but says that those payments were unconnected with the money that they had loaned her. They say they were the repayment of funds that they had made available to her to assist in her foreign exchange business (and that conversely, Ms Peng sometimes assisted them when they needed RMB or NZ dollars on short notice for their business).
[15] Fourthly, Mr Jin’s further affidavit provides details of information obtained through the ancillary disclosure from Ms Peng’s banks which, he says, shows that she had transferred or tried to transfer a total of $444,509.05 to Nick Jin, since 28 March 2018, including a transfer of $100,000 from a Westpac account which, Mr Jin asserts,
is a breach of the freezing orders. Ms Peng explains these transactions relate to her assisting Nick Jin’s family with currency exchange. There is, however, no affidavit from Nick Jin or his family members to confirm this. Mr Scampion, for Mr Fuati and Mr Jin, pointed out that the documents Ms Peng relies on do not support her claim (e.g. the remittance slips do not show the remitter’s name and account number).
[16] Fifthly, Ms Peng says she ceased contact because of threats made by Mr Fuati and Mr Jin. There is some evidence to support that claim. But it does not adequately explain the complete failure to address the issues.
[17] I cannot resolve these various disputes on the basis of affidavit evidence. On balance, however, the evidence shows a good arguable case on the central issue of whether the Mr Fauti and Mr Jin lent Ms Peng NZ$900,000 over and above the various other transactions that occurred between them. There is evidence that the money was paid to Ms Peng. The claimed loan fell due at the very time Ms Peng closed her office, emptied her bank accounts, and ceased to take calls. The de-registration of WIL is highly coincidental. Taken together, I am satisfied that the prerequisites for the freezing order remain satisfied and that it is in the overall interests of justice that it continues.
Should the disclosure order be varied?
[18] Under r 32.3 of the High Court Rules, the Court may grant ancillary orders in support of a freezing order if it considers it just to do so. Generally speaking, such orders are designed to ensure the freezing order can be properly policed and is effective. If assets are unidentified, the risk of their being dissipated is increased.8
[19] Ms Peng failed to provide the disclosure ordered by Moore J on 10 May 2018. As of June 2018, she had five-and-a-half weeks to comply with the disclosure order. Moore J originally gave her five working days from the date of service.
8 Andrew Beck and others McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR32.3.01(1)], citing Monasterio v Bujak HC Christchurch CIV-2008-409-1901, 21 August 2009.
Application by Ms Peng/WIL to vary disclosure order
[20] Mr Zhang, for Ms Peng, submitted that the extent of the information requested was too onerous to provide within the timeframe required by the orders. There is, of course, no basis for complaint now because, by the time Ms Peng’s application to vary the orders was heard, she had already had more than a month to comply and it is now nearly three months since the order was made.
[21] The second ground for seeking a variation or stay of the disclosure order is that the transactions evidenced by the transfer of funds through the affected bank accounts may incriminate Ms Peng as a result of non-compliance with anti-money laundering laws. This is not a reason to vary the orders; under s 63 of the Evidence Act 2006 a person required to disclose documents in a civil proceeding does not enjoy a privilege against self-incrimination. However, evidence so obtained cannot be used in criminal proceedings except in a proceeding concerning the falsity of the information itself. Mr Zhang also submitted that information about Ms Peng’s currency exchange business would be commercially sensitive because it would show the business operated, including the names of clients. However, insufficient information was given to justify opposing the order on this ground.
[22] Finally, Mr Zhang argued that the scope of the freezing order was unnecessarily wide. I agree with this last submission. Ancillary order 5(d) is not constrained by any timeframe and there is no assertion by Mr Fuati and Mr Jin that would support a claim on any funds transferred from the accounts. Likewise, I do not see any basis for requiring Ms Peng to disclose the nature and extent of her income from any source, nor her interest in any trust as required by orders 5(f) and (g). The application to vary the disclosure order is accordingly allowed to the extent that orders 5.1(d) and (f) are discharged.
Application by Mr Fuati and Mr Jin to extend the disclosure order
[23]Ms Peng says in her affidavit that:
On 14 May 2018, I found out that my bank account was not working so I went to the bank, I was told that my account was frozen and was handed a document which is titled Freezing and Ancillary Disclosure orders dated 11 May 2018.
[24] Ms Peng appears to have emptied her personal savings account at Westpac on 14 May 2018, by transferring $90,000 to her Westpac personal chequing account at
1.09 pm. She also transferred $100,000 to Nick Jin at 2.19 pm on 14 May 2018 from her Westpac personal chequing account.
[25] Ms Peng was formally served by the process server on 14 May 2018, shortly after 3.37 pm. Mr Scampion says that he wrote to Ms Peng’s counsel asking for confirmation as to when on 14 May 2018 Ms Peng discovered that her accounts were frozen, and when and where she visited the bank and obtained a copy of the freezing order. The information sought was not provided.
[26] Mr Fuati and Mr Jin allege that Ms Peng’s payments to Nick Jin after the freezing order was made were a breach of the order. To substantiate that assertion, they wish to obtain further information from the banks as to the timing of the transactions, and seek a variation of the disclosure order to require the banks to provide further information, including information about Ms Peng’s actions on 14 May 2018, the banks’ online access records, visit records, CCTV footage if requested, and file notes relating to those actions.
[27] The information sought is not relevant to determining what assets remain that may be subject to a freezing order. This information could be relevant to an allegation of contempt, for example, but that is not relevant to enforcement of the freezing order now.
Application for order to answer questions
[28] The applicants also apply under r 8.38 for an order requiring Ms Peng to answer, by affidavit, various particulars about 14 May 2018, including questions relating to when, where and how she found out about the freezing order, and in particular, was she ware of the freezing and ancillary disclosure orders at the time she transferred funds from her Westpac bank account on that date.
[29] Mr Zhang submits that it is inappropriate to make such an order in these proceedings, and a separate hearing should be held for that matter.
[30] Under r 8.38, the Court may require a person to file and serve a statement in answer to interrogatories at any stage of the proceeding. The interrogatories must
relate to matters in question in the proceeding, and the Judge must not make an order unless satisfied that the order is necessary at the time when it is made. The authors of McGechan on Procedure comment that:9
Where interrogatories are sought in aid of Mareva injunctions. As it is not possible to serve a notice requiring answers to interrogatories unless the defendant has filed a statement of defence, a party seeking to administer interrogatories in aid of a Mareva injunction would be required to apply to the Court under this rule for an order that interrogatories be administered at the time the injunction was served or at any time thereafter where the plaintiff suspects that the injunction was not being obeyed.
[31] Once a statement of defence has been filed, interrogatories can be filed by notice, pursuant to r 8.34 of the High Court Rules. Under that rule, interrogatories can be filed requiring a party to answer specified interrogatories relating to any matter in question in the proceeding between the interrogating party and the party served. A statement of defence has now been filed, dated 6 July 2018. It would therefore seem more appropriate to treat the matter as being under the latter rule.
[32] Regardless of which rule is engaged, however, interrogatories are designed to assist in the proof of one’s case.10 Under r 8.40 of the High Court Rules, a party may object to answer an interrogatory only if it does not relate to a matter in question between the parties involved in the interrogatories, it is vexatious or oppressive, the information sought is privileged, or the sole object of the interrogatory is to ascertain the names of witnesses. The test of relevance is whether the interrogatory has some bearing on the questions in issue and a tendency to establish, or form a step in establishing the allegations.11
[33] Mr Scampion has not provided any reason for why the order to answer is sought, other than that the Mr Fuati and Mr Jin suspect that Ms Peng has breached the freezing order, and there is a proper basis for that suspicion. They request that Ms Peng provide information to disprove that. This is not a request on the basis that it will assist in the proof of their case that Ms Peng has failed to repay all of her loan debt. In the absence of any other reason, I do not consider it appropriate to make an order to answer.
9 McGechan on Procedure, above n 8, at [HR8.38.04].
10 McGechan on Procedure, above n 8, [HR8.34.02].
11 Shore v Thomas [1949] NZLR 690 (SC) at 695; BNZ v Gardner (1990) 2 PRNZ 278 (HC).
Result
[34]The freezing orders will remain in place until further order of the Court.
[35] The ancillary orders as made by Moore J on 10 May 2018 are varied by discharging orders 5.1(d), (f) and (g).
[36] The application for an order requiring Ms Peng to answer interrogatories is dismissed.
[37] There is one final matter. To the extent that disclosure shows that Ms Peng holds assets in excess of the amount said to be owing, there could be no justification for continuing the freezing order in respect of those assets. The freezing and ancillary orders can have draconian effect and it is not right to impose orders that would curtail a person’s right to deal with his or her assets beyond what is necessary to prevent the disposal of assets in a way that would frustrate the process of the Court. Leave is therefore reserved to Ms Peng to make a further application for variation of the freezing order in the event that disclosure pursuant to the ancillary orders suggests that the scope of the freezing order itself is excessive.
[38] Counsel may file memoranda as to costs on behalf of Mr Fuati and Mr Jin within 10 working days and on behalf of Ms Peng and WIL within a further 10 working days.
P Courtney J
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