Hebei Huaneng Industrial Development Co Limited v Shi

[2023] NZHC 2501

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-733

[2023] NZHC 2501

BETWEEN

HEBEI HUANENG INDUSTRIAL DEVELOPMENT CO LIMITED

Plaintiff

AND

DEMING SHI

Defendant

Hearing:	24 August 2023
Appearances:	N Malarao/A Manuson and K Morrison for the Plaintiff B O’Callahan and J Nolen for the Defendant
Judgment:	20 September 2023

JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR

[Security for Costs]

This judgment was delivered by me on 20 September 2023 at 3:00pm

pursuant to Rule 11.5 of the High Court Rules

…………………………. Registrar/Deputy Registrar

Solicitors:

Meredith Connell (N Malarao/A Manuson/K Morrison), Auckland, for the Plaintiff K3 Legal Limited (J Nolen), Auckland, for the Defendant

Copy for:
Brent O’Callaghan, Auckland, for the Defendant

HEBEI HUANENG INDUSTRIAL DEVELOPMENT CO LIMITED v DEMING SHI [2023] NZHC 2501

[20 September 2023]

TABLE OF CONTENTS

Paragraph

Introduction  [1]

Background  [2]

Mr Shi’s application for security for costs  [4]
Affidavit of Mechaela Grace Gardose Yap dated 14 March 2023  [6]

Hebei’s Huaneng’s opposition  [10]
Affidavit of Boxiang Zhang dated 6 June 2023  [11]

Affidavit of Lin Han dated 6 June 2023  [15]

Affidavit of Miki Reagan dated 30 March 2023  [17]

Reply affidavit of Mechaela Grace Gardose Yap dated 15 May 2023  [18]

Legal principles  [19]

Issues for determination  [27]

Has Mr Shi satisfied the Court of the threshold under 5.45(1)?  [29]

Should the Court exercise its discretion under r 5.45(2)?
Mr Shi’s submissions  [31]

Difficulty in enforcing costs judgment in People’s Republic of China (PRC)          [33]

Absence of New Zealand assets  [36]

Merits of the claim and right of access to the court  [37]

No prejudicial delay  [40]

Hebei Huaneng’s submissions  [42]

Hebei Huaneng is a large state-owned enterprise  [44] Any costs award in favour of Mr Shi would be enforceable against Hebei Huaneng [46] The merits favour Hebei Huaneng  [49]

The Chinese Judgment is final  [52]

Reasonable offer rejected  [54]

Undertaking as to damages  [55]

Overall justice  [56]

Result  [57]

Orders  [59]

Introduction

[1]    Deming Shi (Mr Shi) seeks an order requiring Hebei Huaneng Industrial Development Co Limited (Hebei Huaneng) to provide security for costs.

Background

[2]    In a judgment of the Higher People’s Court of Hebei Province dated 12 August 2019 (the Chinese Judgment), Mr Shi was found liable to pay Hebei Huaneng the equivalent of NZD 21 million (RMB 104,544,241.28). Hebei Huaneng now seeks to enforce that foreign judgment via recognition under New Zealand law.

[3]    Following an unsuccessful summary judgment application,1 the application is on track for a full trial to obtain domestic recognition of the Chinese Judgment. In the meantime, Mr Shi seeks security for costs on the grounds that Hebei Huaneng is a corporation incorporated outside New Zealand and it is just for a security for costs order to be made.

Mr Shi’s application for security for costs

[4]Mr Shi seeks orders:2

(a)      Requiring the plaintiff to give security for costs in such amount as the Court thinks sufficient.

(b)     Staying this proceeding until such security is given.

(c)      Requiring the plaintiff to pay the defendant’s costs of this application.

[5]The grounds on which the orders are sought are:3

1      Hebei Huaneng Industrial Development Co Ltd v Shi [2021] NZHC 2687.

2 Notice of interlocutory application by defendant for security of costs dated 14 March 2023 at [1].

3 At [2].

(a)      The plaintiff is a corporation incorporated outside New Zealand.

(b)     Should the plaintiff’s claim be unsuccessful, the costs that would be payable by the plaintiff to the defendant for further steps in this proceeding are likely to be those set out in the schedule to [the] application.

(c)      It is just that such orders be made.

(d)     The further ground appearing in the affidavit of Mechaela Grace Gardose Yap sworn 14 March 2023 and filed in support of this application.

Affidavit of Mechaela Grace Gardose Yap dated 14 March 2023

[6]    Mechaela Yap (Ms Yap), a legal secretary with Mr Shi’s solicitors (K3 Legal), has made an affidavit in support of Mr Shi’s security for costs application.4 She is familiar with the costs charged by translators and experts engaged by Mr Shi in this proceeding.

[7]    Ms Yap deposes that the translators K3 Legal regularly engages charge at a rate of 40 cents per word and interpreters at a rate of $1,300 per full day court hearing. On the basis that about 10,000 words of evidence will need to be translated, Mr Shi’s approximate translation cost will be $4,000. On the basis that the proceeding will be set down for a seven-day hearing, Mr Shi’s approximate interpreting cost will be

$9,100.

[8]    Ms Yap further deposes that two expert  witnesses,  Mr  Ansley  and Associate Professor Ding, have estimated costs at CAD 40,000 (about NZD 47,000) and USD 60,000 (about NZD 97,000) respectively.

[9]    Overall, Ms Yap says this brings Mr Shi’s estimated total costs to $144,000, which this application has rounded to $150,000 to bear in mind estimates are often exceeded.

4      Affidavit of Mechaela Grace Gardose Yap in support of notice of interlocutory application by defendant for security for costs dated 14 March 2023.

Hebei Huaneng’s opposition

[10]Hebei Huaneng opposes the application on the following grounds:5

(a)      The costs [order] made by the New Zealand Court can be set-off against the judgment of the Higher People’s Court of Hebei Province, under which the defendant is obliged to pay the plaintiff RMB 104,544,241.28 (approximately NZ $21 million). There will be no enforcement costs by the defendant to recover any costs award made [by] the New Zealand court.

(b)     It is not just in all the circumstances to order the giving of any further security for costs, including but not limited to:

(i)       The parties have no connection to New Zealand, other than the defendant having placed assets in New Zealand away from the reach of creditors in China. Both parties are Chinese nationals and reside and do business in China.

(ii)The plaintiff’s claim is based on well-established precedent, whereas the defendant’s defence is based on unprecedented and novel grounds. The expert evidence to support the defendant’s novel defence makes up 55 per cent of the security for costs sought by the defendant. The legal relevance of such evidence and availability of such a legal argument is unknown and yet to be determined by the court.

(iii)The defendant has been content to proceed to date in this proceeding without the need for security for costs, in circumstances where the parties have been through four interlocutory hearings and substantial expert and other costs have already been incurred by the parties.

(iv)The plaintiff has given security for costs pursuant to its undertaking as to damages for the freezing orders obtained against the defendant. There is no evidence that that security will likely be called upon as the property development undertaken by the defendant has not been able to be progressed for reasons unrelated to the plaintiff’s freezing order[s].

5      Notice of opposition to the defendant’s application for security for costs dated 31 March 2023 at [1]–[3].

Affidavit of Boxiang Zhang dated 6 June 2023

[11]   Boxiang Zhang, an in-house lawyer at Hebei Huaneng, has made an affidavit in support of Hebei Huaneng’s notice of opposition.6 Translation of this affidavit into English has been effectuated by Yi (Lori) Liang, a certified translator and interpreter.7

[12]   Boxiang Zhang says Hebei Huaneng attempted to settle this application by proposing that any costs award against them be set off against the amount already owning by Mr Shi under the judgment given by the Chinese Judgment. Mr Shi did not accept this proposal by the 27 March 2023 deadline.

[13]   Boxiang Zhang further says that Mr Shi is a Chinese national and resides and conducts business in China. The amount owing under the Chinese Judgment is said to be RMB 104,544,241.28 (about NZD 21 million).

[14]   Referring to Lin Han’s affidavit, Boxiang Zhang says Hebei Huaneng will abide by any set-off obligations if a costs order is made by the New Zealand courts.

Affidavit of Lin Han dated 6 June 2023

[15]   Lin Han, a senior partner at a law firm engaged by Hebei Huaneng, has made an affidavit in support of Hebei Huaneng’s notice of opposition.8 Translation of this affidavit into English has been effectuated by Yi (Lori) Liang, a certified translator and interpreter.9

[16]   Referring to Boxiang Zhang’s affidavit and the laws regarding set-off in China, Lin Han says there will be no costs that Mr Shi will have to incur to have any costs award satisfied or enforced by way of set-off against the Chinese Judgment. The amount will automatically be immediately satisfied by set-off against that judgment. Relevant articles of Chinese law are set out.

6      Affidavit of Boxiang Zhang in support of the notice of opposition to the defendant's application for security for costs dated 6 June 2023.

7 Affidavit of Yi (Lori) Liang regarding the translation of the affidavits of Boxiang Zhang and Lin Han in support of the notice of opposition to the defendant's application for security for costs dated 4 April 2023 at [4].

8      Affidavit of Lin Han in support of the notice of opposition to the defendant's application for security for costs dated 6 June 2023.

9      Affidavit of Yi (Lori) Liang, above n 7, at [4].

Affidavit of Miki Reagan dated 30 March 2023

[17]   Miki Reagan, a practice administrator at Hebei Huaneng’s lawyers (Meredith Connell), has made an affidavit in support of Hebei Huaneng’s notice of opposition.10 The affidavit annexes copies of Hayfield SHA Ltd’s liquidator’s fourth, fifth and sixth reports dated 23 November 2020, 4 May 2021 and 16 December 2021 respectively.

Reply affidavit of Mechaela Grace Gardose Yap dated 15 May 2023

[18]   Ms Yap has made an affidavit in reply to those filed in opposition.11 She annexes a singular email from K3 Legal to Meredith Connell, which responds as follows to the set-off proposal:

We refer to your letter dated 23 March 2023, which provided just two working days to respond to the proposal therein.

For the avoidance of doubt, we confirm that the proposal, had it remained open for a reasonable period of consideration, would not have been accepted by our client as a proper resolution to the application.

Should the plaintiff be unsuccessful in the present New Zealand proceeding, the Court will have determined that the Chinese judgment does not create a debt recognised by the New Zealand courts. It therefore follows that, in the eyes of the New Zealand courts there is nothing to set-off, and there is no principled basis on which the Court could exercise its discretion to depart from the usual order for security in relation to a foreign plaintiff with no assets in the jurisdiction.

Legal principles

[19]Rule 5.45 of the High Court Rules provides:

5.45     Order for security of costs

(1)Subclause (2) applies if a Judge is satisfied, on the application of a defendant,—

(a)that a plaintiff—

(i)  is resident out of New Zealand; or

10     Affidavit of Miki Reagan in support of the notice of opposition to the defendant's application for security for costs dated 30 March 2023.

11     Reply affidavit of Mechaela Grace Gardose Yap in support of notice of interlocutory application by defendant for security for costs dated 15 May 2023.

(ii)  is a corporation incorporated outside New Zealand; or

(iii)   is a subsidiary (within the meaning of section 5 of the Companies Act 1993) of a corporation incorporated outside New Zealand; or

(b)that there is reason to believe that a plaintiff will be unable to pay the costs of the defendant if the plaintiff is unsuccessful in the plaintiff’s proceeding.

(2)A Judge may, if the Judge thinks it is just in all the circumstances, order the giving of security for costs.

(3)An order under subclause (2)—

(a)requires the plaintiff or plaintiffs against whom the order is made to give security for costs as directed for a sum that the Judge considers sufficient—

(i)  by paying that sum into court; or

(ii)  by giving, to the satisfaction of the Judge or the Registrar, security for that sum; and

(b)may stay the proceeding until the sum is paid or the security given.

(4)A Judge may treat a plaintiff as being resident out of New Zealand even though the plaintiff is temporarily resident in New Zealand.

(5)A Judge may make an order under subclause (2) even if the defendant has taken a step in the proceeding before applying for security.

(6)References in this rule to a plaintiff and defendant are references to the person (however described on the record) who, because of a document filed in the proceeding (for example, a counterclaim), is in the position of plaintiff or defendant.

[20]   In determining applications under r 5.45, the Court will generally follow these steps:12

(a)Has the applicant satisfied the court of the threshold under r 5.45(1)?

(b)How should the court exercise its direction under r 5.45(2)?

(c)What amount should security for costs be fixed at?

(d)Should a stay be ordered?

12     Busch v Zion Wildlife Gardens Ltd (in rec and in liq) [2012] NZHC 17 at [2].

[21]   The relevant principles relating to overseas plaintiffs were set out by McGechan J in Aquaculture Corp v McFarlane Laboratories:13

(a)There is no inflexible principle that such a plaintiff with no assets within the jurisdiction should normally be ordered to give security.

(b)The Court’s discretion is to be exercised by taking into account all the circumstances of the case and arriving at a conclusion which will do justice between the parties.

(c)The ease, convenience, and cost of enforcing a costs judgment in the plaintiff’s country of residence are primary considerations.

(d)Otherwise, the principles applicable to applications for security by a plaintiff resident  overseas are those applicable  under what  is now   r 5.45(1)(b).

[22]Further general principles can be summarised as follows:

(a)The court must consider whether it is “just in all of the circumstances” to make an order for the security for costs.

(b)The overriding consideration is balancing the respective interests of the parties.

(c)As far as possible, the Court will endeavour to assess the merits and prospects of success of the claim, bearing in mind the early stage of the proceeding.14

(d)Delay in applying for security for costs may also be relevant to the Court’s exercise of its discretion, if it cause unfairness to a plaintiff.15

(e)The quantum of any order of security is at the discretion of the Court.

[23]The Court should assess whether there is:16

13     Aquaculture Corp v McFarlane Laboratories (1984) Ltd (1987) 1 PRNZ 467 (HC) at 470.

14     Saunders v Houghton [2009] NZCA 610, [2010] 3 NZLR 331 at [37].

15     Oxygen Air Ltd v LG Electronics Australia Pty Ltd [2018] NZHC 945 at [26].

16  Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd (No 2) [1997] 1 NZLR 516 (HC) at 519; NZ Kiwifruit Marketing Board v Maheatataka Coolpack Ltd (1993) 7 PRNZ 209 (HC); Stephenson v Jones [2013] NZHC 638.

… credible (that is, believable) evidence of surrounding circumstances from which it may reasonably be inferred that the [party] will be unable to pay the costs. This does not, of course, amount to proof that the [party] will, in fact, be unable to pay them.

[24]   A plaintiff’s unwillingness to pay previous judgment debts weighs in favour of an order for security.17 But whether a plaintiff has been a responsible litigant is secondary to the issue of whether the lack of merit of the claim justifies security that would prevent the claim from proceeding.18

[25]   Quantum of security is discretionary and is assessed in the round. It need not be fixed by reference to likely cost awards.19 It is to be what the Court thinks fit in all the circumstances.20

[26]A Court will generally stay a proceeding until the security ordered is given.21

Issues for determination

[27]The issues to be determined in this judgment are:

(a)Has Mr Shi satisfied the Court of the threshold under r 5.45(1)?

(b)Should the Court exercise its discretion under r 5.45(2)?

(c)If so, what amount should security for costs be fixed at?

(d)Should a stay be ordered?

[28]I deal with each of these issues in turn.

17     Taylor v Adair [2018] NZHC 1975 at [30]–[31], citing Burden v Dixie Cummings New Zealand

[2016] NZHC 729 at [22] and Mawhinney v Auckland Council [2014] NZHC 3207.

18     Wright v Attorney-General [2019] NZHC 3046 at [26].

19     Sharp v Pillay [2017] NZHC 647; Red 9 Ltd v The Learning Ladder Ltd (in liq) [2021] NZCA 284, (2021) 25 PRNZ 780 at [30].

20     A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [13] and [14].

21     Tomanovich Holdings Ltd v Gibbston Community Water Co 2014 Ltd [2018] NZHC 990 at [68] and [85].

Has Mr Shi satisfied the Court of the threshold under r 5.45(1)?

[29]   Hebei Huaneng is a company incorporated in the Hebei Province of the People’s Republic of China (China). It is a wholly owned subsidiary of China Huaneng Group Ltd, a state-owned enterprise managed by the Chinese central government.

[30]   As Hebei Huaneng is a corporation incorporated outside New Zealand, the threshold is met in accordance with r 5.45(1)(a)(ii).

Should the Court exercise its discretion under r 5.45(2)?

Mr Shi’s submissions

[31]   Mr O’Callahan, for Mr Shi, submits that under r 5.45(2) the issue is whether the Court should exercise its discretion to order security and whether this is just in all the circumstances. He submits this involves balancing the interests of the parties in the circumstances, which in the present case should be performed by:

(a)As a primary consideration, the likely difficulty, and cost of enforcing a costs judgment in China.

(b)Hebei Huaneng’s absence of assets in New Zealand and the likelihood that a costs order sought to be enforced against Hebei Huaneng in China would at best be set off against Mr Shi’s liability under the Chinese Judgment, effectively preventing any enforcement of the order.

(c)There is a total absence of any countervailing interest that would count against the order being made. He submits this is not a case where ordering Hebei Huaneng to pay security would deprive Hebei Huaneng of the ability to make a meritorious claim as there is no suggestion that Hebei Huaneng would be unable to meet an order for security for costs.

(d)The absence of any prejudicial delay in Mr Shi bringing this application. He submits the application was made responsibly at the time discussed in Coffey v Walker as being the appropriate time.22

[32]Mr O’Callahan then analyses each of these four issues.

Difficulty of enforcing costs judgment in China

[33]   Mr O’Callahan submits the task of enforcing a costs order in China if Hebei Huaneng is unsuccessful in its substantive claim would be both difficult and costly. In support of this proposition, Mr O’Callahan refers to the threshold and criteria for recognition and enforcement of foreign judgments in China set out in the Conference Summary of the Symposium on Foreign-Related Commercial and Maritime Trials of Courts Nationwide (2021 Conference Summary) issued by China’s Supreme People’s Court on 31 December 2021. He submits for a foreign judgment to be enforced in China, the country where the judgment is rendered must satisfy one of the following circumstances:

(a)The country has concluded an international bilateral treaty with China in respect of recognition and enforcement of foreign judgments — New Zealand has not presently concluded such a bilateral treaty;

(b)The foreign country has a “de jure reciprocal relationship with China”

— if Hebei Huaneng were to be unsuccessful in its claim for recognition and enforcement of the Chinese Judgment, this would, of itself, undermine a reciprocal relationship existing between New Zealand and China regarding the enforcement of judgments in either jurisdiction.

(c)The foreign country and China promised each other reciprocity in diplomatic efforts or reached a consensus at the judicial level — not applicable here.

22     Coffey v Walker [2021] NZHC 1073 at [32].

[34]   Mr O’Callahan submits that a foreign judgment will only be enforced in the Chinese courts if none of the following apply to it:

(a)the foreign judgment violates China’s public policy;

(b)the court rendering the judgment has no jurisdiction under Chinese law;

(c)the procedural rights of the respondent are not fully guaranteed;

(d)the judgment was obtained by fraud;

(e)parallel proceedings exist; and

(f)punitive damage are involved.

Applying these criteria to the present case, Mr O’Callahan submits that arguably the Chinese Judgment proceedings could be categorised as “parallel proceedings” under these criteria, given that those proceedings and the present proceedings involve the same parties and the same subject matter.

[35]   Mr O’Callahan submits that even if the threshold and criteria are met, Mr Shi would be unable to enforce any costs award made in New Zealand, given the provision under Chinese law for this to be set off against the amount Mr Shi is liable to pay to Hebei Huaneng under the Chinese Judgment. He submits that this is a further factor that weighs in favour of security for costs being ordered and it is axiomatic that if Hebei Huaneng’s claim were unsuccessful, the result would be that there would be no recognisable debt owed by Mr Shi to Hebei Huaneng which could be enforced in New Zealand, but despite this Mr Shi would have no recourse to recover his costs in this proceeding due to the Chinese Judgment. He submits that it would be unjust for Hebei Huaneng to avoid the effect of a costs judgment in New Zealand by recourse to foreign law which has no applicability in New Zealand.

Absence of New Zealand assets

[36]   Mr O’Callahan submits that Hebei Huaneng does not have any presence or assets in New Zealand that could be realised to meet any costs order made by this Court. With respect to the security that has been provided by Hebei Huaneng in respect of the extension of freezing orders over Mr Shi’s New Zealand property interests, Mr O’Callahan submits that the provision of that security was required to support Hebei Huaneng’s undertaking as to any order for payment of damage sustained in consequence of the freezing orders. Accordingly, he says that even if that security is not realised, it would not be available to Mr Shi seeking to enforce a costs award in the present proceeding, nor has Hebei Huaneng made any application for the security to be released (or otherwise to be available for that purpose). Accordingly, he submits the security provided by Hebei Huaneng in relation to the freezing orders has no bearing on the present application.

Merits of the claim and right of access to the court

[37]   Mr O’Callahan submits that it has not been suggested by Hebei Huaneng that an order for security for costs would preclude it from pursuing its proceedings against Mr Shi and hence access to the court is not an issue.

[38]   As to the merits of Mr Shi’s defences to Hebei Huaneng’s application to have the Chinese Judgment recognised in New Zealand, he submits as follows:

(a)The defences are not based on unprecedented or novel grounds, but will be supported by expert evidence given the inter-jurisdictional nature of the claim and the significant differences between the legal systems in New Zealand and China.

(b)Hebei Huaneng’s claim faces significant hurdles which are evident at the early stage of the proceedings:

(i)there are factual disputes about competing expert views on the Chinese legal system including:

A.     whether the Chinese “courts” are courts for the purposes of the recognition principle;

B.     the relevance of the “property first” principle in Chinese law (which Mr Shi says obliged Hebei Huaneng to exhaust the collateral under certain mortgage agreements before pursuing Mr Shi’s personal guarantee);

C.     whether the Chinese Judgment is final and conclusive.

(ii)claims in common law courts being asked to enforce judgments from China are scarce and so far as Mr O’Callahan is aware there are no cases which have enquired into the Chinese legal system for the purposes of common law recognition principles, and accordingly Hebei Huaneng’s application is novel, complex and untested;

(iii)there are factual questions relating to what security existed at the time of the default and what security now exists, and the precise nature of any steps taken by Hebei Huaneng in relation to the security both prior to and after the Chinese Judgment.

[39]   Accordingly, he submits the merits in relation to Hebei Huaneng’s application lie with Mr Shi’s defences.

No prejudicial delay

[40]   Mr O’Callahan submits that there is no prejudicial delay on the part of Mr Shi in applying for security for costs. He submits that Hebei Huaneng has not pointed to any prejudice that could result from Mr Shi seeking security for costs at this stage of the proceeding, notwithstanding the proceeding to date has included a number of interlocutory applications and the incurrence of costs relating to expert evidence. He

submits the substantive proceedings are still at an early stage, with Mr Shi yet to file a statement of defence.

[41]   He also refers to the decision of Coffey v Walker,23 which he submits is authority for the proposition that when summary judgment is sought, responsible defendants will in most cases await the outcome of this before applying for security for costs. He submits the situation in the present case is the same as in Coffey v Walker and that Mr Shi promptly notified Hebei Huaneng, following the final determination of the summary judgment application (with leave to appeal being declined by the Court of Appeal) that it intended to apply for security for costs.

Hebei Huaneng’s submissions

[42]   Mr Malarao, for Hebei Huaneng, submit that an order for security for costs is not just in all the circumstances of the case for six reasons:

(a)Hebei Huaneng is part of a large state-owned enterprise with assets in New Zealand and respects orders made by the New Zealand courts;

(b)any costs award in favour of Mr Shi would be enforceable against Hebei Huaneng;

(c)the merits of the case favour Hebei Huaneng;

(d)the Chinese Judgment is final and Mr Shi’s arguments for security in New Zealand seek to use to his advantage his own inaction in China;

(e)the reasonable offer that protects Mr Shi in respect of costs has been rejected; and

(f)Hebei Huaneng has given security for costs pursuant to its undertaking as to damages for the freezing orders it obtained against Mr Shi. There

23     Coffey v Walker, above n 22.

is therefore money available in New Zealand to pay costs to Mr Shi in the event that the High Court decides in his favour.

[43]Mr Malarao expands on each of these reasons.

Hebei Huaneng is a large state-owned enterprise

[44]   Mr Malarao submits that Hebei Huaneng is a power company, a subsidiary of a large state-owned enterprise in China, is well known locally and internationally, and is careful about its reputation and credit-worthiness. He submits that other than stating Hebei Huaneng is a corporation incorporated outside New Zealand, Mr Shi has not adduced any evidence that Hebei Huaneng will be unable or unwilling to pay costs ordered by a New Zealand court.

[45]   Mr Malarao submits that Hebei Huaneng has deposited $200,000 into its solicitor’s trust account, and that it is a long established principle that security for costs is not required if the overseas plaintiff owns substantial property in the New Zealand jurisdiction, providing it is of a permanent nature which can be available for security for costs. He relies on the decision in Neely v Attorney-General.24

Any costs award in favour of Mr Shi would be enforceable against Hebei Huaneng

[46]   In relation to this proposition, Mr Malarao submits that there is no evidence that Hebei Huaneng will ignore the orders of the New Zealand Court and refuse to honour any obligation to Mr Shi. He also submits that while Mr Shi has asserted that it would be difficult and costly for him to enforce the order in China, no expert evidence has  been  given  to  support  that  assertion  beyond  reference  to  the  2021 Conference Summary.

[47]   Mr Malarao submits that even if the Court accepts the 2021 Conference Summary as an accurate description of Chinese law, it is clear that a foreign judgment can be enforced in China where the country has a “de jure reciprocal relationship with China”. He refers to refers to two paragraphs of the affidavit of Dr Zhang:

24     Neely v Attorney-General [1984] 2 NZLR 636 (CA).

[10.27]          In light of these international developments, despite the fact that a lot of countries have not yet concluded with China any treaties on judgment recognition, China’s judicial practice has revealed that a follow-suit recognition model has developed between China and other countries (which I discuss further below from paragraph 10.54 onwards). If another country has recognised a Chinese judgment, China will follow suit and generally recognise that country’s judgment (subject to any other substantive defences raised).

[10.28]          Until today, a number of countries have taken the initiative to recognize Chinese judgments, including Australia, Canada, Germany, Israel, the Netherlands, New Zealand, Singapore, South Korea, the United Kingdom, and the United States. The recognition and enforcement of Chinese judgments by foreign courts signifies the reception of Chinese adjudication and the resulting rulings. In particular, as discussed in the above examples, the procedural fairness of the Chinese judicial system is repeatedly affirmed in the courts of many foreign countries.

[48]   In summary therefore, Mr Malarao submits that given New Zealand has previously recognised Chinese judgments, based on a follow-suit recognition model, a costs award judgment would also be enforceable in China. He relies on the decisions in Chen v Lin,25 and Kang v Guangzhou Dongjiang Petroleum Science & Technology Development Company Limited.26

The merits favour Hebei Huaneng

[49]   As has been noted at [22](c) the Court will, so far as possible, endeavour to assess the merits and prospects of success of the claim, bearing in mind the early stage of the proceeding.27

[50]   Mr Malarao submits that the New Zealand courts have considered enforcement of foreign judgments in a number of cases. He submits in the High Court decision of Pacific Premier Bank v Asiatrust New Zealand Limited,28 the Court summarised three prerequisites to the Court exercising its jurisdiction to enforce a foreign judgment:

(a)the foreign court must have had jurisdiction to give judgment;

25     Chen v Lin [2016] NZCA 113, [2016] NZAR 606.

26     Kang v Guangzhou Dongjiang Petroleum Science &Technology Development Company Limited

[2022] NZCA 281.

27     Saunders v Houghton, above n 14, at [37].

28     Pacific Premier Bank v Asiatrust New Zealand Limited [2018] NZHC 1762

(b)the judgment must be for a definite sum of money;

(c)the judgment must be final and conclusive.

[51]   In support of the proposition that Hebei Huaneng’s application to have the Chinese Judgment recognised in New Zealand will succeed, Mr Malarao points to the following reasons:

(a)In the case of Chen v Lin, the Court of Appeal made orders enforcing a Chinese judgment in New Zealand and the Court noted there were very limited  grounds  upon  which  enforcement  of   a   judgment   in  New Zealand obtained in a foreign jurisdiction can be resisted.29 The Court of Appeal commented that private international law favours enforceability of foreign judgments from other civilised nations and it is not for the enforcement jurisdiction to critique the application of substantive law by a foreign court. The Court also endorsed the principle that the public policy exception had a narrow application.

(b)As to the case of Kim v Minister of Justice,30 the position was considered recently by the Supreme Court which, while the case concerned the role of judicial committees in the Chinese legal system, found that in summary Mr Kim would be tried by an independent and impartial tribunal in China. It would be against the Supreme Court’s findings in respect of judicial committees, and the Court of Appeal’s decision in Chen v Lin, were the High Court to find the relevant Chinese courts in this case are so lacking in that process that New Zealand would refuse to recognise the legitimacy of those courts.

The Chinese Judgment is final

[52]   Mr Malarao submits that as set out in Dr Zhang’s affidavit, the legal framework in China allows for a single opportunity to appeal the judgment, with the right to

29     Chen v Lin, above n 25, at [19].

30     Kim v Minister of Justice [2021] NZSC 57, [2021] 1 NZLR 338.

appeal necessitating prompt exercise within a 15-day window. Mr Shi did not avail himself of this appeal right. He submits that from Hebei Huaneng’s point of view the Chinese Judgment is final and conclusive against Mr Shi and there is nothing left to do in China from a legal (both substantive and procedural law) perspective. He submits that if there are legal manoeuvres left to do in China, as Mr Shi asserts, then why is Mr Shi not pursuing these legal avenues in China?

[53]   In summary, Mr Malarao submits that the requirement of finality as set out in [50](c) in relation to the Chinese Judgment is met.

Reasonable offer rejected

[54]   Mr Malarao refers to an offer made to Mr Shi on 23 March 2023 pursuant to which Hebei Huaneng proposed an agreement whereby any costs award made, in the event that it is unsuccessful, is to be set off against the Chinese Judgment. He submits that pursuant to the set-off offer Mr Shi would not incur any additional costs to have any costs award satisfied or enforced. He points to the affidavit evidence of Boxiang Zhang in support of the efficacy of such a set-off agreement in China, and submits that the set-off will happen without any need for further action from Mr Shi.31 The set-off offer was rejected by Mr Shi.

Undertaking as to damages

[55]   Mr Malarao submits that as Hebei Huaneng has given security for costs pursuant to its undertaking as to damages for the freezing orders it obtained against Mr Shi, there is money in New Zealand available to pay any costs to Mr Shi in the event the High Court decides in favour of Mr Shi. Mr Malarao submits that there is nothing in the undertaking relating to the $200,000 held in Meredith Connell’s trust account which would prevent those funds being used to satisfy any costs award in favour of Mr Shi. Mr Malarao submits that the undertaking is worded widely enough to allow the funds held in trust to be used to satisfy any costs award, and further submits that there is no evidence that the $200,000 will somehow prove to be an inadequate security. Accordingly, on the evidence before the Court, he submits there

31     Affidavit of Boxiang Zhang, above n 6, at [4].

are tangible assets (cash) within New Zealand which can be accessed to meet any relevant costs order.

Overall justice

[56]   Mr Malarao submits the overall justice of the case is in favour of the Court exercising its discretion not to order security for costs. He supports this submissions as follows:

(a)Both parties involved in this proceeding have minimal connections to New Zealand, aside from Mr Shi having assets in New Zealand. Both parties are Chinese nationals, and their primary residence and business operations are conducted entirely within China.

(b)Hebei Huaneng has sued through the Chinese courts and obtained a legally enforceable judgment. No steps have been taken by Mr Shi to challenge that decision and in those circumstances Hebei Huaneng are entitled to take steps to enforce that judgment against Mr Shi’s assets in New Zealand.

Result

[57]   I am of the view that security for costs should not be ordered against Hebei Huaneng, but the $200,000 deposit in Hebei Huaneng’s solicitor’s trust account should be made available to satisfy any costs award made in Mr Shi’s favour after the trial of the substantive matters in this proceeding. The reasons for this view are:

(a)It is common ground that there is no issue of Hebei Huaneng’s ability to pay a costs award. It has been noted that it is a subsidiary of a large state-owned enterprise. I also accept Mr Malarao’s submission that there is no evidence before the Court that Hebei Huaneng would not comply with a costs award made by the New Zealand Court. Consequently, there are no grounds presented to the Court which suggests Hebei Huaneng would not have the ability or would not be

willing to pay any costs award made against it and in Mr Shi’s favour after the substantive trial.

(b)Insufficient evidence has been presented by Mr Shi to establish that enforcement of a costs judgment in his favour in China would be difficult and costly. Given Mr Malarao’s submissions, it appears that under the “de jure reciprocal relationship with China” principle, there would appear to be a reasonable prospect that the costs judgment would be enforced in China under the reciprocity rule.

(c)As to the merits of the application, at this early stage it is difficult to assess the strength of Mr Shi’s defence. Mr Malarao relies on the Chen and Kang decisions.32 Mr O’Callahan, on the other hand, avers that the Kang decision holds no relevance to this case as it turned on a public policy issue not an examination of the acceptability of the Chinese court system. Mr O’Callahan submits that the issues raised by Mr Shi have not been properly considered by the New Zealand courts and refers to the Canadian decision of Beales v Saldanha,33which he submits is authority for the proposition that the courts are obliged to enquire into the foreign law system from which the judgment they are being asked to recognise has been produced. My view on this issue is that Mr Shi’s defences are not untenable and there needs to be a trial with expert evidence before a more advanced view of the likely success of Mr Shi’s defence can be determined.

(d)As to the issue of assets in New Zealand, I have resolved this by requiring the $200,000 currently lodged in Hebei Huaneng’s solicitor’s trust account to be available to satisfy any costs award in favour of  Mr Shi in these proceedings.

32     Chen v Lin, above n 25; Kang v Guangzhou Dongjiang Petroleum Science &Technology Development Company Limited, above n 26

33     Beales v Saldanha [2003] 3 SCR 416.

(e)As to the overall  justice  of  the  case,  on  the  one  hand  I  accept  Mr O’Callahan’s proposition that ordering security for costs will not impede Hebei Huaneng from pursuing its claim under the proceedings and accordingly there is no countervailing interest which would count against an order being made.

(f)I also accept Mr O’Callahan’s proposition that there is no prejudicial delay by Mr Shi in bringing the application for security for costs, notwithstanding the interlocutory applications which have occurred and expert evidence which has already been given in relation to the summary judgment. The decision in Coffey v Walker is applicable to the present circumstances.

(g)On the other hand, I also accept Mr Malarao’s submission that the proffering of $200,000 lodged as security for the undertaking as to damages in respect of the freezing orders as protection for Mr Shi from a barren costs order was a fair offer in the circumstances.

[58]   Balancing the factors set out at [57] leads me to the view that security for costs should not be granted but the existing security established by Hebei Huaneng for the undertaking as to damages in respect of the freezing orders be extended to ensure that it is available for any final costs orders in Mr Shi’s favour.

Orders

[59]I make the following orders:

(a)Mr Shi’s application for security for costs is dismissed;

(b)the parties shall promptly take all steps necessary to allow the funds of

$200,000 deposited in Hebei Huaneng’s solicitors’ trust account as security for an undertaking as to damages given by Hebei Huaneng to be available to Mr Shi to satisfy any cost awards made in favour of Mr Shi in these proceedings;

(c)counsel are directed to endeavour to agree costs. If agreement is not reached within 20 working days of the date of this judgment, counsel for Hebei Huaneng shall file a memorandum as to costs (not exceeding 5 pages) within 5 working days of the expiry of the 20 working day period, and counsel for Mr Shi shall file a reply memorandum (not to exceed 5 pages) within 5 working days of receipt of counsel for Hebei Huaneng’s memorandum. A decision on costs will then be made on the papers.

…………………………….. Associate Judge Taylor