Hangzhou Shengzhe Trade Co Limited v He
[2012] NZHC 1669
•12 July 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2012-404-3860 [2012] NZHC 1669
BETWEEN HANGZHOU SHENGZHE TRADE CO.
LTD
First Plaintiff
ANDHANGZHOU FULUOSI THERMAL INSULATION MATERIALS CO. LTD Second Plaintiff
ANDHANGZHOU JIAHUA INVESTMENT CO. LTD
Third Plaintiff
ANDHANGZHOU KANLI CAR SALES AND SERVICES CO. LTD
Fourth Plaintiff
Hearing: 11 July 2012
Counsel: E Orlov for the Plaintiffs
Judgment: 12 July 2012
RESERVED JUDGMENT OF VENNING J
This judgment was delivered by me on 12 July 2012 at 12 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors: Stewart & Associates Lawyers Limited, PO Box 438, Alexandra 9340
Counsel: E Orlov, PO Box 8333, Auckland 1150
HANGZHOU SHENGZHE TRADE CO. LTD V HE HC AK CIV-2012-404-3860 [12 July 2012]
ANDWEIDONG HE First Defendant
FURONG PAN Second Defendant
XIAOMEI LIU Third Defendant
MARYLAND COMPANY LIMITED Fourth Defendant
MARYLAND BASSETT COMPANY LIMITED
Fifth Defendant
Introduction
[1] The plaintiffs seek freezing orders under Part 32 of the High Court Rules. The orders are directed at bank accounts and properties held in the name of the various defendants.
[2] The application is pursued on an ex-parte basis. It was referred initially to Peters J as Duty Judge on 6 July. The Judge directed that the matter be listed in the Duty Judge week of 9 July for consideration. The application was pursued by Mr Orlov on 11 July.
Background
[3] The plaintiffs are all companies based in Hangzhou, China. During 2008, each of them advanced monies at the request of the first defendant, Mr He to a company operated or controlled by him, Zhejiang Dongzhou Industrial Group Limited (“ZDIG”). Mr He guaranteed the repayment of the loans, which were for short terms.
[4] The loans were not repaid. The plaintiffs took action against both ZDIG and Mr He in the Hangzhou City West Lake People’s Court and obtained judgment in that Court against them in 2008. In round figures, judgments were obtained by the
first plaintiff in the sum of RMB4,000,000 (NZ$800,000); the second plaintiff RMB10,000,000 (NZ$2,000,000); the third plaintiff RMB10,456,000 (NZ$2,090,000) and the fourth plaintiff RMB6,000,000 (NZ$1,200,000). The first defendant, Mr He, had judgment entered against him but limited to one-third of the above sums.
[5] Mr He and the second defendant, Ms Pan (his wife), apparently came to New Zealand in 2008. When the plaintiffs came to execute the judgment against ZDIG they found that company had no assets. The plaintiffs have recently learnt the first and second defendants are now living in New Zealand and hold bank accounts in New Zealand and, either in their own names or jointly with the third defendant, a lawyer, own property, presumably as trustees. In addition, Mr He has interests in the fourth and fifth defendant companies which themselves own property.
[6] The plaintiffs seek orders restraining the defendants from removing any of the bank accounts or properties and, from disposing of, dealing with or diminishing the value of those assets.
Requirements for a freezing order
[7] An applicant for a freezing order must:
(a) Satisfy the Court there is a good arguable case against the defendant; (b) Show that there are assets either inside or outside the jurisdiction to
which the order can apply;
(c) Show a risk of dissipation of those assets; (d) Provide an undertaking as to damages.
[8] Generally, the applicant for a freezing order is also required to make material disclosure of all relevant information and possible defences.
The applicants’ case
[9] Mr Orlov submitted that the defendant Mr He had effectively carried out a fraud on the plaintiffs. He said he had obtained advances from each of the plaintiffs on the basis the monies borrowed were to be used as working capital by ZDIG for its real estate developments but that the money was not applied to that end and instead the defendants had fled China and brought the money to New Zealand. Mr Orlov submitted that the plaintiffs had a strong case against the defendants as disclosed by the judgments obtained against ZDIG and Mr He in China. The plaintiffs intend to pursue an application for summary judgment against Mr He.
[10] Mr Orlov next submitted that the defendants had assets within the jurisdiction by reference to the bank accounts and properties the plaintiffs had discovered and by reference to the shareholding Mr He held in the fourth and fifth defendants. Mr Orlov submitted it was necessary to proceed ex-parte because the plaintiffs were concerned if they proceeded on notice against the defendants, the defendants would flee New Zealand and take with them the property. Mr Orlov submitted that there was a sufficient risk of dissipation to support the issue of the freezing orders and the evidence of the dissipation was the defendant’s own actions in (his words) “fleeing to New Zealand four years ago”.
[11] The memorandum filed to support the application for freezing order noted that a complaint had been made to the Serious Fraud Office complaining that the first defendant had obtained permanent residency in New Zealand under the Investor category by fraudulent misrepresentation. The letter also notes that Mr He’s approval of residency on an investor category was apparently obtained on 13 March
2008. I note that the approval in March pre-dated the loan advances the plaintiffs rely on.
[12] I raised with Mr Orlov whether there was sufficient evidence on the affidavits before the Court to support the inference that there was a risk of disposition. Mr Orlov’s response was that if the Court was concerned as to that issue, the Court could make what was, in his words, a “light” interim order freezing the assets and giving the defendants time to present their side of the argument to the Court. I do
not accept that as an acceptable approach. The onus is on the applicant for the freezing order to satisfy the Court of the requirements of such an order before any order is made.
Decision
[13] The application for the freezing order is supported by affidavits from the directors of the various plaintiffs. Binhua Sheng, for the first plaintiff, Juohua Chen for the second plaintiff, Miaogen Zhou for the third plaintiff, and Yansong Wang, for the fourth plaintiff have each deposed as to the monies advanced by their companies to ZDIG and the guarantee by Mr He. Each also annexes copies of the judgments obtained by them. The plaintiffs have also filed an affidavit by a Mr Changming He, a legal practitioner of Hangzhou. Mr He confirms he acted for the plaintiffs in the proceedings against ZDIG and Mr He and that the judgments obtained were, (inter alia), valid and binding judgments of the Chinese Court.
[14] On the unchallenged evidence before the Court, I accept that the plaintiffs satisfy the Court they have a good arguable case against Mr He as guarantor for the borrowings by ZDIG.
[15] The issue of whether the plaintiffs have a good arguable case against the second to fifth defendants is more difficult but for the following reasons it is unnecessary to consider that further.
[16] I also accept (albeit that the deponents do not provide any basis for their evidence) that Mr He has assets inside New Zealand, including bank accounts and shareholding interests in the fourth and fifth defendants.
The principal difficulty for the plaintiffs with their application for the freezing order is the need for them to provide evidence showing a risk of dissipation of the assets that are sought to be frozen. The risk of dissipation is central to the freezing order
jurisdiction. As the commentary to r 32.2(3)(a) by McGechan discloses,[1] even if
[1] Andrew Beck and others McGechan on Procedure (online looseleaf ed, Brookers) at
[32.2(3)(a)].
there is no doubt as to a defendant’s liability, a freezing order will not be issued if the risk of disposition cannot be shown: Euro National Corp v Petricivic Financial Services Ltd.[2] The applicants’ affidavit evidence must present evidence which, in all the circumstances, shows risk: Third Chandris Shipping Corp v Unimarine SA.[3]
[2] Euro National Corp v Petricivic Financial Services Ltd (1989) 2 PRNZ 351.
[3] Third Chandris Shipping Corp v Unimarine SA [1979] QB 645; [1979] 2 All ER 972 (CA), per
Lord Denning MR at 669, 985.
Mere assertion of belief that the defendant might dissipate its assets, unsupported by solid ground justifying that belief, is insufficient.
[17] In the present case, the evidence of the deponents about the risk is primarily found in the following statements in their affidavits:
The reason that first and second defendant left China is to avoid their
personal liabilities and their companies’ liabilities to repay debts.
And:
I believe that unless our application for freezing order is granted there is a real risk that the defendants will remove their assets from New Zealand or dissipate or otherwise dispose of them, thus rendering themselves judgment proof just like they have done in China in 2008.
[18] The same boiler plate statements are made by all four directors of the plaintiffs. They do not, however, provide any evidence of the defendants’ current actions to support the submission that there is a risk that the defendants will dissipate their assets before the summary judgment application against the first defendant, could be heard and determined. It appears the defendants have real estate in New Zealand and, the companies that Mr He holds shares in, also own properties. There is no suggestion that any of those properties are on the market for sale or are otherwise readily disposable.
[19] The plaintiffs’ case for risk of disposition relies on Mr He and Ms Pan’s actions of leaving China in 2008. It is suggested that they fraudulently applied the money obtained from the plaintiffs to support their applications for permanent residence in New Zealand. However, the letter to the SFO attached to counsel’s memorandum suggests that residence was granted in March 2008 before the money
was borrowed from the plaintiffs. The balance sheet for ZDIG as at December 2007
shows current assets of RMB324m or NZ$64.8m. That was before the loans borrowed from the plaintiffs. If indeed the defendants did shift assets to New Zealand in 2008 having obtained residency in March 2008, then those monies could have been applied to the assets.
[20] No matter how Mr Orlov seeks to present the matter, the statements by the plaintiffs that there is a real risk the defendants will remove the assets from New Zealand are no more than bare assertions. The only matter Mr Orlov was able to refer to support that the inference of a risk of disposition was the fact that Mr He and his wife had moved to New Zealand in 2008 and that when the plaintiffs sought to execute the judgment against ZDIG, the company was found to have no money.
[21] Even accepting that for arguments sake Mr He took steps to make ZDIG “judgment proof” in China in 2008 that is not sufficient to support a finding there is a risk of disposition of the assets or properties held by the defendants in New Zealand. There is no evidence to support the assertion that the bank accounts in the name of the second defendant or the companies would be dissipated. I note for instance, the bank accounts in the name of the companies are held by the fourth defendant. On the material before the Court the fourth defendant was a company incorporated in New Zealand in 2003 and well before the actions of Mr He relied on in 2008. There is no evidence of any proposed sales of the properties.
Result
[22] On the evidence currently before the Court the plaintiffs are not able to satisfy the onus on them that there is a risk of dissipation of assets. The application
for freezing orders is declined.
Venning J
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