Gao v Starlight Capital Ltd

[2021] NZHC 730

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-2345

[2021] NZHC 730

BETWEEN

FENG GAO (as trustee of Gao and Li Family Trust)

First Plaintiff

HUANHONG LI (as trustee of Gao and Li Family Trust)

Second Plaintiff

AND

STARLIGHT CAPITAL LIMITED (6418392)

First Defendant

JASON LI

Second Defendant

Hearing:

30 March 2021

Counsel: Appearances:

RM Dillion for the First Defendant

R Gao, First Plaintiff in person

No appearance for Second Plaintiff G Chang (interpreter)

E Lau (McKenzie friend)

Judgment:

1 April 2021

JUDGMENT OF FITZGERALD J

This judgment was delivered by me on 1 April 2021 at 12.30pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

GAO v STARLIGHT CAPITAL LTD (6418392) [2021] NZHC 730 [1 April 2021]

Introduction and summary

[1]    Fang Gao and Huanhong Li, as trustees for the Gao and Li Family Trust, borrowed a sum of money from the first defendant (Starlight Capital) for the purposes of a property development. The advance was secured against a property at 52A Middleton Road, Remuera (the Property) which is owned by the plaintiffs.

[2]    In 2019, the plaintiffs defaulted in their obligations to repay the advance and as a result, in June 2019, Starlight Capital issued a Property Law Act 2007 (PLA) Notice. Discussions ensued between the parties, and on 26 February 2020 they entered into a Deed of Settlement which provided for alternative repayment arrangements. The Deed provided that if the amounts due were not paid in accordance with the Deed’s terms, Starlight Capital could terminate the Deed. The plaintiffs did not repay the amounts required under the Deed and Starlight Capital later terminated the Deed.

[3]    On 16 November 2020, Starlight Capital issued a further PLA Notice demanding repayment of the sums said by it to then be due and owing by the plaintiffs.

[4]    The plaintiffs (being self-represented) commenced these proceedings on 1 December 2020, challenging the validity of the PLA Notice, and alleging a breach by both defendants of s 176 of the PLA. The statement of claim also alleges that Starlight Capital made a number of misrepresentations, breached a fiduciary duty said to be owed to the plaintiffs and also acted in breach of the Consumer Guarantees Act 1991. At the same time as filing their statement of claim, the plaintiffs sought an interlocutory injunction (on a without notice basis) restraining Starlight Capital from taking any further steps in reliance on the PLA Notice.

[5]    Palmer J directed that the application for an interlocutory injunction proceed on a with notice basis. By the time the matter came before Lang J (as Duty Judge) in January 2020, there were three interlocutory applications on the file, being:

(a)the plaintiffs’ application for an injunction;

(b)an application by Starlight Capital for summary judgment against the plaintiffs; and

(c)an application by the plaintiffs for an order that Queen City Law cease acting as solicitors and counsel for Starlight Capital in these proceedings.

[6]    The application at [5(c)] above was predicated on an amended statement of claim dated 6 January 2021, which purported to name Ms Hwang, an employed solicitor at Queen City Law, as a third defendant. Starlight Capital responded (correctly) that it was not open to the plaintiffs to simply file an amended statement of claim adding a further defendant. Rather, a court order is required before a further defendant may be added. The plaintiffs accordingly filed an application seeking such an order.

[7]    This judgment deals only with the application to restrain Queen City Law from continuing as Starlight Capital’s solicitors in these proceedings, and the related application for an order joining Ms Hwang as a third defendant. Starlight Capital confirmed that it will not take any further steps in reliance on the PLA Notice until the applications presently on the file (and thus including its summary judgment application) have been determined. For that reason, in a minute dated 11 January 2021, Lang J declined to make interim orders sought by the plaintiffs.

[8]    The basis upon which the plaintiffs seek an order joining Ms Hwang personally as a third defendant to these proceedings is that in November 2020, Mr Gao asked Ms Hwang for “all relevant AML/CFT information” held by Queen City Law in relation to Starlight Capital, but Ms Hwang did not provide it to him. As will be immediately apparent, a key issue is whether there is any legal cause of action which flows from Mr Gao’s request of Ms Hwang, and Ms Hwang declining to provide the information requested.

[9]    If there is no proper basis upon which to join Ms Hwang as a third defendant to the proceedings, it is common ground that there is no basis to prohibit Queen City Law from continuing to act as solicitors and counsel for Starlight Capital in these

proceedings. Conversely, counsel for Starlight Capital accepts that if Ms Hwang is joined to the proceedings, it would be untenable for Queen City Law to continue acting in this matter.

[10]   I accordingly deal first with the plaintiffs’ application for leave to add a third defendant.

Application for leave to join third defendant – principles

[11]   Once a proceeding has been initiated, a named party may only be struck out or a new party added (as a plaintiff or defendant) by order of the Court.1 This requirement is often overlooked by parties and their counsel, who simply file an amended statement of claim purporting to add new parties to the pleadings — as occurred in this case.

[12]   An order joining a further party does not require a formal application, and may be made on terms the Court considers just.2

[13]   The basis upon which a new plaintiff or defendant may be joined to existing proceedings is controlled by r 4.56(1)(b). This provides that the name of a person may be added as a plaintiff or defendant because:

(a)the person ought to have been joined; or

(b)the person’s presence before the Court maybe necessary to adjudicate on and settle all questions involved in the proceedings.

[14]   Plainly if a plaintiff has a tenable cause of action against a proposed additional defendant, and it is appropriate for that cause of action to be heard together with the causes of action pleaded in the existing statement of claim, joinder would ordinarily follow.

[15]   Equally, however, if there is no discernible legal cause of action against the proposed further defendant, they cannot be said to be a party who ought to have been

1      High Court Rule 4.56.

2      Rule 4.56(2).

joined to the proceedings in the first place, nor is their presence necessary to adjudicate on and settle all questions involved in the proceedings.

Rule 4.56 – application of principles to this case

Why the plaintiffs say Ms Hwang should be joined as a defendant

[16]   As noted, the plaintiffs seek to join Ms Hwang on the basis that on 10 November 2020, Mr Gao requested “all relevant documents for AML/CFT of your client immediately”.3 At the hearing before me, Mr Gao explained that it was a condition of third party lending he was then exploring to refinance the debt to Starlight Capital that such information be provided to the third party. I interpolate to note that there is no evidence before the Court as to such a condition, only Mr Gao’s oral statements at the hearing. In his written submissions, Mr Gao also referred to the template text following the email sign off of solicitors at Queen City Law, which states:

Queen City Law is now required to obtain and verify information from clients relating to client identities and funds for transactions under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (“Act”). This information is mandatory under the Act and we look forward to your cooperation with these compliance requirements. Please feel free to refer to our website (here) for further information.

[17]   As also noted earlier, Ms Hwang did not provide the information requested by Mr Gao. By email dated 11 November 2020, Mr Gao again emailed Ms Hwang and said the following:

Tina

Is your firm provide what I requested below?

If not I will invite Department of Internal Affairs to investigate the issue.

Your client’s careless service caused my family trust 66000 in default to settle with third party lender on 30.9.2020 that expired 30.10.2020 and mortgage broker fee of 30k.

As aware your client funding from overseas that the actual funder not recorded in the company website.

3      The reference to “AML/CFT” is a reference to information which is collected by certain entities pursuant to obligations under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009.

The source of your client’s funding looks suspicious.

Your letter of default meaningless as your client not legally registered under financial market authority.

On the day the company removed your client requested 1.7 million which in fact wrong as Jason ask me to pay 1.6 million.

Now the company removed and resumed but due to your client’s carelessness caused my family trust indebtedness of addition 96k.

[18]By email sent later the same day, Ms Hwang responded to Mr Gao as follows:

1.We have no obligation to provide any of the details requested.

2.We deny any action/omissions by our client has caused you any loss/prejudice. In fact your persistent and ongoing breach and failure is continuingly creating loss for our client.

3.You are currently in significant breach and we will be taking further legal enforcement steps.

4.We remind you again that this is a commercial loan where the CCCFA does not apply.

5.This is the second time you have threatened and blackmailed us (our client). We this very seriously as blackmail is a punishable offence under section 237 of the Crimes Act 1961.

6.Our client reserves its rights and remedies.

[19]   At the hearing before me, Mr Gao said that he sent Ms Hwang’s email to the potential third party lender. It is not clear why he did so. Mr Gao said that Ms Hwang’s refusal to supply the AML/CFT information, as well as her reference to blackmail, “scared off” the potential lender.

[20] Later on 11 November 2020, Mr Gao responded to Ms Hwang’s email stating “Stop say I blackmail you”. Mr Gao also referred to the bottom of the standard email sign off text referred to at [16] above. He then said “I will refer all the correspondence to Law Society and definitely the Law Society will request the information from you and forward to me.”

[21]   Mr Gao subsequently made a complaint to the Department of Internal Affairs (which is the Ministry responsible for administering the anti-money laundering

legislation4) and to the Law Society. There is no evidence before the Court that either agency has taken any steps to date on the complaints. Mr Gao did not suggest otherwise.

[22]   In his written submissions in support of the application, Mr Gao raised a further ground upon which he says Ms Hwang ought to be joined to the proceedings:

As the legal representative of first defendant, [Ms Hwang] should not issue a PLA notice based on an expired term loan agreement and this cause misleading, deceptive conduct that the plaintiffs will add to the amended statement of claim in future against [Ms Hwang]”.

Should Ms Hwang be joined as a defendant to these proceedings?

[23]   Mr Gao could not point to any legal requirement for Ms Hwang to provide the AML/CFT information to the plaintiffs. I accept counsel for Starlight Capital’s submission that there is in fact no legal obligation on Ms Hwang, or any other employed solicitor at Queen City Law, to provide AML/CFT information about that firm’s client to the plaintiffs.

[24]   Pursuant to Part 2, subpart 1 of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (the Act), lawyers have an obligation to collect certain information as part of a “customer due diligence” process. Pursuant to Part 2, subpart 2 of the Act, they also have obligations to report to the Commissioner of Police “suspicious activities”.5 There are specific provisions protecting persons who make suspicious activity reports from any civil, criminal or disciplinary proceedings as a result of such disclosures. Those protections are not, however, available to lawyers disclosing information in respect of which there were reasonable grounds to believe that the information was a privileged communication, but the lawyer disclosed or supplied the information despite the existence of those grounds.6

4      Anti-Money Laundering and Countering Financing of Terrorism Act 2009, s 149(d).

5      Broadly speaking, activities which give rise to reasonable grounds to suspect that a transaction conducted or sought to be conducted through a reporting entity is or may be relevant to the investigation or prosecution of any person for money laundering, drug offending, offending under the Terrorism Suppression Act 2002, or the enforcement of legislation relating to the proceeds of crime. See the Anti-Money Laundering and Countering Financing of Terrorism Act 2009, s 39A.

6      Anti-Money Laundering and Countering Financing of Terrorism Act 2009, s 44(4).

[25]   Further, s 46 of the Act prohibits reporting entities from disclosing certain information, including suspicious activity reports, other than to those persons or agencies specified in s 46(2). Self-evidently, neither the plaintiffs nor the potential third party lender to which Mr Gao refers are one of those specified persons or entities. And as noted by counsel for Starlight Capital, it is in an offence for a person to contravene s 46, in those circumstances set out in s 94(1) of the Act.7

[26]   Given the above, no  possible  cause  of  action  by  the  plaintiffs  against  Ms Hwang can arise from her refusal to supply AML/CFT information about Starlight Capital to the plaintiffs. Nor can it be suggested that Ms Hwang engaged in any misleading or similar conduct in refusing to provide to the plaintiffs the AML/CFT information requested.

[27]   As to Ms Hwang’s conduct in issuing a PLA Notice, the PLA Notice issued in November 2020, while signed by her as “attorney/solicitor” for her client, was issued in Starlight Capital’s name. The various grounds upon which the plaintiffs seek to challenge the validity of the PLA Notice do not give rise to a claim by the plaintiffs against Ms Hwang personally. Plainly she was acting as Starlight Capital’s solicitor, and on her client’s instructions, in issuing the PLA Notice. The matters the plaintiffs raise as to the validity of the PLA Notice are properly matters for determination as between the plaintiffs as borrowers, and Starlight Capital as lender. Much of Mr Gao’s further written submissions focused on why he says the PLA Notice is invalid, but again, those are matters for determination in the substantive proceedings between the parties. They are not relevant to the present applications.

[28]   In short, I am clear in my view that the materials before the Court disclose no possible cause of action by the plaintiffs against Ms Hwang personally, rather than matters which are properly ventilated as between the plaintiffs and Starlight Capital.

[29]   The application for an order joining Ms Hwang as a third defendant to these proceedings is accordingly dismissed.

7      Disclosure for the purposes of obtaining an advantage or pecuniary gain for that person or any other person, or with intent to prejudice an investigation of certain offences.

Application to remove Queen City Law as solicitors to Starlight Capital

[30]   As noted earlier, it was common ground that disposition of the application to join Ms Hwang as a third defendant would dispose of the application to prohibit Queen City Law from continuing to act as solicitors to Starlight Capital in these proceedings.

[31]   The application to prohibit Queen City Law from continuing to act for Starlight Capital in this matter is therefore also dismissed.

Result and costs

[32]   I have dismissed both applications. Starlight Capital is entitled to costs on each application. The matters in issue were reasonably straightforward and I consider costs on a 2A basis to be appropriate.

[33]   The parties ought to be able to agree the quantum of costs on this basis. If they are not able to do so, the quantum of costs is to be fixed by the Registrar.

[34]   Starlight Capital’s application for summary judgment, and the plaintiffs’ substantive proceedings, are to be listed in the first available Duty Judge list after 9 April 2021. The purpose of that listing will be to set a timetable for prompt progress of these proceedings.

[35]   I encourage the plaintiffs to seek legal advice from counsel with suitable experience in High Court litigation on the future conduct of these proceedings.

Fitzgerald J

Solicitors:      Queen City Lawyers, Auckland

To:F Gao, Auckland H Li, Auckland