Grasshopper Farms Limited v Zhou HC Tauranga CIV 2009-470-204

[2010] NZHC 1518

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

CIV 2009-470-000204

BETWEEN  GRASSHOPPER FARMS LIMITED Plaintiff

ANDLINAN ZHOU Defendant

Hearing:         23 June 2010

Appearances: N Tabb/D Liu for Defendant/Applicant

D O'Neill for Plaintiff/Respondent

Judgment:      23 June 2010

JUDGMENT OF ASSOCIATE JUDGE CHRISTIANSEN

This judgment was delivered by me on

23 June 2010 at 3 pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date..............

Solicitors:           Yu Lawers, 711 Dominion Road, Balmoral, Auckland

Fenton McFadden, PO Box 36, Te Puke

GRASSHOPPER FARMS LIMITED V LINAN ZHOU HC TAU CIV 2009-470-000204  23 June 2010

[1]      The applicant (Mr Zhou) applies for a stay of execution pending the hearing of  his  appeal  against  the  Judgment  of  Associate  Judge  Doogue  delivered  on

21 December 2009. By that Judgment the learned Judge ordered Mr Zhou to perform his obligations under a contract for sale and purchase dated 10 August 2007 by which he acquired 27 residential lots at the price of $4.93 million.

[2]      Since that Judgment Mr Zhou has purported to cancel the purchase contract and he seeks to recover his deposit of $400,000 paid.

[3]      Mr Zhou filed his Appeal on 8 February 2010 and since has paid security for costs to the Court of Appeal. His stay application was filed on 12 April 2010 and on or about 17 June 2010 Mr Zhou requested a hearing date for the Appeal. Counsel advises she has been advised the hearing will likely occur within 4-5 months.

Legal Principles

[4]      Rule 12 of the Court of Appeal (civil) Rules 2005 provides the High Court and the Court of Appeal with a discretion to order:

a)        A stay of the proceeding in which the decision was given; or b)         A stay of execution of the decision; or

c)        Any interim relief.

[5]      The factors for consideration upon the stay of execution application include:

i)Whether a right to Appeal will be rendered nugatory if no stay is granted.

ii)       Whether the successful party will be affected by the stay;

iii)      The bona fides of the applicant as to the prosecution of the

Appeal;

iv)      The affect on the parties;

v)       The novelty and importance of the questions involved;

vi)      The public interest in the proceeding;

vii)     The overall balance of convenience in the status quo.[1]

The Applicants Case

[1] Dymocks Franchise Systems (NZW) Pty Ltd v Bilgola Enterprises Ltd [13 PRNZ 48]

[6]      If a stay is not granted Mr Zhou will be obliged to pay approximately $5.5 million (inclusive of penalty interest) to complete his purchase. Evidence from a Mr Wong on behalf of Mr Zhou asserts:

...It will be necessary for Mr Zhou to finance the majority of the purchase through his financiers and the loan will need to be secured against the land. Accordingly, in the event that Mr Zhou is compelled to complete the purchase, the transaction cannot be readily undone in that his financier’s will no  doubt  require  full  repayment  of  the  loan  (together  with  all  accrued interest) that has been taken out in respect of the land, as well as partial repayment of other loans owed by Mr Zhou, before granting a partial discharge of mortgage.

[7]      I gather by that evidence that although Mr Zhou would have to obtain finance to complete the purchase he will incur as well a responsibility to repay other borrowings.

[8]      As well as providing funds to complete the purchase Mr Zhou would incur substantial costs in application/transaction fees, interest, legal and other costs which he says are unlikely to be recovered even if he is successful on the Appeal.

[9]      Mr Zhou opposes the suggestion that he pay the settlement funds into Court. He considers that payment would not give title to the land or the ability to grant security over it.

[10]     If Mr Zhou settles and the funds are paid to Grasshopper then those funds may not be repaid if the Appeal is successful if they are required by Grasshopper to meet its substantial indebtedness to financiers – assumed to be around $30 million.

[11]     Mr Zhou claims Grasshopper has not pointed to any hardship to it if the stay is granted.

Considerations

[12]     If Mr Zhou has to complete the transaction he will in return receive 27 sections of land. Although he would thereby perform the order for specific performance his rights of Appeal would not be rendered nugatory if the funds paid or raised were held pending determination of the Appeal. Likely the transaction could easily be unwound if the Appeal was successful.

[13]     Grasshopper  has  agreed  for  present  purposes  that  it  should  not  take  the money; rather that it be lodged with the Court. This would ensure Mr Zhou could retrieve his money if successful. This would allay Mr Zhou’s concerns over Grasshopper’s indebtedness to its financiers.

[14]     Further, Grasshopper’s mortgagee has provided a letter of comfort which would enable partial discharge of its mortgage that would then release the sections purchased by Mr Zhou and allow security be lodged against the land in the development. That would enable Mr Zhou to offer those lots as security to his funder.

[15]   Save for the above mentioned concerns there appears nothing else of consequence that ought to be considered upon this application. In the Court’s assessment Mr Zhou’s financial concerns can largely be addressed. Also, as Mr

O’Neill submits it likely will be cheaper for Mr Zhou to settle a transaction now rather than he continue to pay the current penalty interest rate of 15%.

[16]     Mr Zhou is concerned about the cost of loan application fees. It is unclear when the responsibility for these, would be payable, but it is a cost that would in due course be payable, if the Appeal failed. If the Appeal is successful there appears no reason why those costs cannot be claimed for if the parties dispute is to go to trial. Regardless it is not a sufficient matter to persuade me from imposing conditions for the granting of a stay.

Result

[17]     A stay will be granted subject to conditions imposed on Mr Zhou to assure Grasshopper that Mr Zhou will carry through with the transaction and so this will happen if the Appeal fails. That arrangement has to operate to ensure that in the outcome of the Appeal Mr Zhou has in place funds or an arrangement which will ensure settlement can be effected forthwith if his Appeal fails. In the interim Grasshopper must ensure it can provide to Mr Zhou the unencumbered security of those 27 sections.

[18]     I am adjourning this matter to a telephone conference at 9 am on 28 July

2010 for the purpose of settling the conditions the order for stay is to be subject to. And before then and by 9 July a memorandum on behalf of the plaintiff is to be filed and served with a suggestion of the wording of the stay conditions. The defendant’s memorandum by way of response is to be filed and served by 23 July 2010. I will then settle upon the form of the order to be made.

[19]     I will also at that time deal with the costs upon the stay application.

[20]     On 28 July 2010 I will also deal with the plaintiff’s outstanding application for enforcement orders.