Hebei Huaneng Industrial Development Co Ltd v Shi

[2024] NZHC 266

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-733

[2024] NZHC 266

BETWEEN

HEBEI HUANENG INDUSTRIAL DEVELOPMENT CO. LTD

Plaintiff/Respondent

AND

DEMING SHI

Defendant/Applicant

Hearing:	On the papers
Appearances:	Brent O’Callahan/James Nolen for the Defendant/Applicant Nick Malarao/Nicole Kang for the Plaintiff/Respondent
Judgment:	26 February 2024

JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR

[Application for leave to appeal security for costs decision]

This judgment was delivered by me on   26 February 2024  at    3:00pm

pursuant to Rule 11.5 of the High Court Rules

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

Solicitors:

K3 Legal Limited (J P Nolen), for the Defendant, in support Meredith Connell (N Malarao/N Kang), for the Plaintiff/Respondent

Copy for:

Brent O’Callahan, Barrister, Auckland, for the Defendant/Applicant

HEBEI HUANENG INDUSTRIAL DEVELOPMENT CO. LTD v DEMING SHI [2024] NZHC 266

[26 February 2024]

[1]        The Court delivered a judgment in these proceedings on 20 September 2023 (the Decision) dismissing the application of Mr Deming Shi (Mr Shi) for security for costs against the plaintiff, Hebei Huaneng Industrial Development Co. Ltd (Hebei).1 The Decision ordered the parties to take steps to allow funds deposited by Hebei as security for its undertaking as to damages (in relation to freezing orders obtained at the outset of the proceeding) to be made available to satisfy any costs award made in favour of Mr Shi.

[2]        On 17 October 2023, Mr Shi submitted an application for leave to appeal the Decision and on 17 November 2023 counsel for Mr Shi, Mr O’Callahan, filed submissions in support of the application for leave.

[3]        Hebei filed a notice of opposition to the leave application dated 1 November 2023 and on 5 December 2023 Mr Malarao, for Hebei, filed submissions in support of the notice of opposition.

Legal principles

[4]Section 56 of the Senior Courts At 2016 provides as follows:

56       Jurisdiction

(1)The Court of Appeal may hear and determine appeals—

(a)from a judgment, decree, or order of the High Court:

(b)under the Criminal Procedure Act 2011:

(c)from any court or tribunal under any other Act that confers on the Court of Appeal jurisdiction and power to hear and determine an appeal.

(2)Subsection (1) is subject to subsections (3) and (5) and to rules made under section 148.

(3)No appeal, except an appeal under subsection (4), lies from any order or decision of the High Court made on an interlocutory application in respect of any civil proceeding unless leave to appeal to the Court of Appeal is given by the High Court on application made within 20

1      Hebei Huaneng Industrial Development Co. Limited v Deming Shi [2023] NZHC 2501.

working days after the date of that order or decision or within any further time that the High Court may allow.

(4)Any party to any proceedings may appeal without leave to the Court of Appeal against any order or decision of the High Court—

(a)striking out or dismissing the whole or part of a proceeding, claim, or defence; or

(b)granting summary judgment.

(5)If the High Court refuses leave to appeal under subsection (3), the Court of Appeal may grant that leave on application made to the Court of Appeal within 20 working days after the date of the refusal of leave by the High Court.

(6)If leave to appeal under subsection (3) or (5) is refused in respect of an order or a decision of the High Court made on an interlocutory application, nothing in this section prevents any point raised in the application for leave to appeal from being raised in an appeal against the substantive High Court decision.

[5]        The leave application falls under s 56(3). While there is no statutory requirement for such an application, case law has outlined the criteria applicable. Fitzgerald J in Finewood Upholstery Ltd v Vaughan2 stated the principles as follows:

[13] The requirement for leave to appeal should serve as a “filtering mechanism”, to ensure that unmeritorious appeals of interlocutory orders, or appeals of interlocutory orders of no great significance to either of the parties or, more generally, do not unnecessarily delay the proceedings in which the orders are made.

[6]        The relevant considerations relating to the application for leave to appeal were set out in Greendrake v District Court of New Zealand:3

(a)a high threshold exists;

(b)the applicant must identify an arguable error of law or fact;

(c)the alleged error should be of general or public importance warranting determination or otherwise of sufficient importance to the applicant to outweigh the lack of general or precedential value;

(d)the circumstances must warrant incurring further delay; and

(e)the ultimate question is whether the interests of justice are served by granting leave.

2      Finewood Upholstery Ltd v Vaughan [2017] NZHC 1679 at [13].

3      Greendrake v District Court of New Zealand [2020] NZCA 122 at [6].

Mr Shi’s submissions

[7]        Mr O’Callahan submits that three factors the Court considered counted against ordering security for costs, and resulted in the decision dismissing the application, were:

(a)the Court could direct that a $200,000 deposit, held in the trust account of Hebei’s solicitors, be made available to meet an award of costs;

(b)the “de jure reciprocal relationship with China” would suggest there was a reasonable prospect of an adverse costs award being enforced in China;

(c)no evidence before the Court suggesting that Hebei would to be willing to pay an adverse costs award.

Mr O’Callahan challenges each of these points.

[8]        Mr O’Callaghan submits the Court was wrong to hold the $200,000 deposit could be used to meet a costs award. He submits the deposit had been established in compliance with orders made by Fitzgerald J in the judgment dated 22 September 2020 requiring Hebei to fortify its undertaking as to damages in relation to the freezing orders and associated ancillary orders it obtained. Mr O’Callahan refers to the following passages from Her Honour’s judgment:4

[92]      Given I cannot exclude the risk of loss flowing from the freezing orders, but recognising that on the present materials it is likely to be limited, security to support the undertaking as to damages ought to be modest. There is no suggestion the plaintiff will not be able to meet a modest amount ordered by way of security, and indeed, the information provided to the Court at the without notice stage would suggest there ought to be no difficulty in doing so (putting aside any issue as to the mechanics of transferring funds out of China and to this jurisdiction). It will also remain open to Mr Shi to seek an increase in the security should there be a change in circumstances and evidence before the Court that such an increase is appropriate.

[93]      I propose that a sum of NZ$200,000 be provided by way of security to support the undertaking. This represents less than one per cent of the value

4      Hebei Huaneng Industrial Development Co. Ltd v Shi [2020] NZHC 247 at [92] and [93].

of the plaintiff’s claim, and approximately one per cent of the value of the Stage 1 development pre-sales.

[9]        Mr O’Callahan submits there is no application to vary this order and because the order remains it must be assumed that it will be required to meet Hebei’s liability on its undertaking should Mr Shi be successful. Mr O’Callahan notes that Fitzgerald J described the amount as “modest”, in the absence of any fresh evidence about whether the sum would be sufficient to cover the damages, and it was not open to the Court to treat the NZ$200,000 as if it was also available and sufficient to meet an adverse order for costs and the Court should not have done so.

[10]      Mr O’Callahan submits that the Court was wrong to hold that the de jure reciprocal enforcement principle in China results in Mr Shi being able to enforce a New Zealand costs judgment in China. He submits that the de jure principles would bring about the opposite result because the scenario in which the adverse costs award would be made in New Zealand is a scenario in which New Zealand courts will have, by then, refused to recognise or enforce a Chinese judgment and accordingly, as a reciprocal matter, the Chinese Courts would refuse to enforce a New Zealand judgment.

[11]      Mr O’Callahan submits the Court was wrong to assume the plaintiff would be willing to voluntarily meet an adverse costs award. He submits there is no objective rationale in which the Court could be so satisfied, particularly when there are various indications that suggest it would not be so willing.

[12]Applying the leave principles, Mr O’Callahan submits as follows:

(a)Appeal is capable of bona fide and serious argument

Mr Shi is not required to convince the Court on the application for leave that the Decision is wrong but only whether his challenge is capable of bona fide and serious argument. He submits:

(i)in relation to the first proposed ground of appeal it is a matter of interpreting the judgment of Fitzgerald J, and therefore open to argument;

(ii)in relation to the proposed second ground of appeal, the argument is clear on the face of the de jure reciprocal principle as described by Hebei. The Court may have envisaged another way of looking at it, but again it is not correct to say that the point made is not open;

(iii)in relation to the fourth ground of appeal, the weight given to the findings on the overall justice must be capable of bona fide argument when the majority weighed in favour of an order for security.

(b)No delay

The proposed appeal will not result in any delay in progressing the proceeding. Mr O’Callahan submits there is no concern regarding delay here as directions have been made for bringing the matter to trial and Mr Shi is not seeking to delay or defer any of those steps pending the appeal. He submits that evidence of delay is not required here as it is self-evident there is no delay.

(c)Significant public or private importance

If Mr Shi is correct that he has no real prospect of enforcing that adverse costs award should his defence succeed, then denying him security for costs is highly prejudicial and therefore a matter of significant private importance. He submits this is particularly so in the present context where the Decision acknowledges that the Mr Shi is entitled to security for costs in the sum of

$200,000 and the question whether the provision made in the Decision for that amount was in fact available for that purpose and was sufficient to provide adequate protection for Mr Shi for both damages and an adverse costs award.

That the prospect of enforcing an adverse costs award in China is a matter of general importance and the question raised by the orders made, in the light of Fitzgerald J’s judgment, is potentially a matter of public importance in terms of the consistency of court orders.

(d)Overall justice

That the interests of justice would be served by granting leave, as there are seriously arguable points in relation to an interlocutory issue that matters to Mr Shi, no delay will be occasioned by the appeal, nor is this a case where the issues raised by the appeal can be considered in the context of the trial. He submits that in the circumstances, it would not be just to deny leave.

Hebei’s submissions

[13]      Mr Malarao makes a number of submissions in response to Mr O’Callahan’s arguments.

Decision involved the exercise of the Court’s discretion not to order security

[14]      Mr Malarao points to the decision in McLachlan v MEL Network Limited5 where the Court of Appeal made it clear that a decision on whether to order security and, if so, the amount of security, is highly discretionary. He also points to the decision in Te Whare O Te Kaitiaka Ngahere Inc Society v West Coast Regional Council,6 where the incorporated society was seeing special leave under s 308 of the Resource Management Act 2011 to appeal the High Court’s decision dismissing its appeal application challenging a security for costs order issued by the Environment Court. He submits the Court of Appeal emphasised that if the judge in the Court below had correctly recognised the relevant principles and made a decision (in that case to order security) it is not the Court of Appeal’s role to simply re-consider the exercise of the discretion. He referred to the Court’s statement that such cases –7

5      McLachlan v MEL Network Limited (2002) 16 PRNZ 747 (CA) at [13]-[16].

6      Te Whare O Te Kaitiaka Ngahere Inc society v West Coast Regional Council [2015] NZCA 356.

7 Above, n 6 at [32].

“do not raise an arguable question of law and it is not one which, by reason of its general or public importance or any other reason, ought to be submitted to this Court for a decision.”

[15]      Mr Malarao submits that in this case, in the exercise of a discretion, the factors in favour of not ordering security were:

(a)Hebei’s status as a power company and a subsidiary of a large, state- owned enterprise in China, known for its reputation and creditworthiness, which led the Court to reasonably conclude that Hebei would be willing and able to comply with any costs award made against it by a New Zealand Court after the substantive trial;

(b)Hebei promptly complied with a prior Court order and transferred the

$200,000 to its solicitors’ trust account, demonstrating its willingness to comply and its financial capability.

[16]      Mr Malarao submits that Mr Shi’s argument that there is no objective rationale to support the view that Hebei would voluntarily pay any costs award is the reverse of the correct situation, as it is incumbent upon Mr Shi to produce sufficient evidence that Hebei would not voluntarily pay any costs award.

The nature of the $200,000 provided by Hebei

[17]      Mr Malarao rejects Mr Shi’s submission that the $200,000 cannot serve both as security for costs and security for the undertaking as to damages. He submits that Fitzgerald J’s order was for $200,000 to be provided as security for the undertaking and there is nothing in Her Honour’s judgment to suggest the $200,000 is somehow not Hebei’s money or that it cannot be used as security for costs. He submits that there is no evidence before the Court that the $200,000 is inadequate as security for the undertaking and security for costs.

[18]      Mr Malarao submits that Hebei has promptly complied with the Court’s directive confirming the availability of the $200,000 as security for costs held in its solicitors’ trust account in a letter to Mr Shi dated 11 October 2023. He submits that if Mr Shi has any genuine concerns about the adequacy of the $200,000 security, there

is already a remedy in Fitzgerald J’s judgment for him to apply to the Court for an increase in the security should there be a change in circumstances and evidence before the Court that such an increase is appropriate.

[19]      Mr Malarao submits that if Mr Shi believes that there has been a change in circumstances, the appropriate course of action would be to seek such an increase from the High Court rather than by seeking to challenge the Decision on appeal, and the “filtering mechanism” for leave to appeal is to ensure that the Court of Appeal does not have to entertain cases that involve such minutiae, particularly when an alternative way forward is plainly available.

Enforcing a costs order in China

[20]      Mr Malarao submits that the Court’s finding that insufficient evidence has been presented by Mr Shi to establish enforcement of a costs judgment in his favour in China would be difficult and costly and this was clearly a finding open to the Court to make. He points out that Mr Shi is and remains a Chinese resident.

[21]      As to Mr Shi’s argument that the de jure reciprocal relationship between and New Zealand will be fundamentally broken from his eventual success in the proceeding, and this in itself means that he cannot enforce a costs decision in China, Mr Malarao submits that this argument is a circular, self-serving argument, and is layered with a significant number of assumptions (as set out at 6.4 of Mr Malarao’s submissions).

[22]Mr Malarao, in applying the leave principles, submits as follows:

Arguable error of law or fact?

Mr Malarao submits there is no identifiable error of law or fact in the Decision. Mr Shi is merely requesting a reconsideration of the facts and the application of those facts to the law,  seeking a different result.   He submits the situation mirrors that in the      Te Whare O Te Kaitiaka Ngahere Inc Society v West Coast Regional Council decision,8

8      Above, n 6.

where the Court of Appeal explicitly emphasised the High Court’s discretion and noted that in cases where the court below correctly identified the relevant principles, such cases do not raise arguable questions of law. He submits that in the present application, no arguable error of fact is apparent either.

General or public importance?

[23]      Mr Malarao submits that the two matters of general and public importance put forward by Mr Shi, being “enforcing an adverse costs award in China” and “consistency of Court orders”, are not tenable. He refer to his submissions discussed at [20] and [21] above in relation to enforcing an adverse costs award in China, and his submissions discussed at [17] to [19] above in relation to the consistency of Court orders.

Causing further delay

[24]      Mr Malarao acknowledges that directions have been made for bringing the matter to trial and Mr Shi is not seeking to defer any of those steps pending the appeal. He submits, however, the appeal process must be driven by valid and substantive reasons. This is not the case in Mr Shi’s application for leave, which is based on speculation and assumptions as opposed to facts and the evidence, and causes unnecessary expense and the potential to cause delay.

Overall justice

[25]      Mr Malarao submits that Mr Shi wants to put the matter before the Court of Appeal and get a different answer to that given by the High Court, and there is nothing new, nothing novel, nothing of public or general importance involved, and there is no real risk that Mr Shi will not have cover for costs in the event that he prevails. He submits that causing Hebei to be involved in an extended appeal process would be unjust to Hebei.

Result

[26]      I am of the view that Mr Shi’s application for leave to appeal the Decision should be dismissed. This is for the following reasons:

(a)The application for leave to appeal does not disclose any arguable error of law or fact. The Decision was an exercise by the Court of its discretion to award security for costs or not  and on the authority of  Te Whare O Te Kaitiaka Ngahere Inc Society, providing the Court has applied the proper principles, which it did, it should not be a matter put before the Court of Appeal to review the exercise of that discretion.

(b)One of the factors in the Decision not to award security for costs is that no evidence has been presented that Hebei is unwilling or unable to satisfy any adverse costs award should Mr Shi be successful. Indeed, the evidence that exists is the opposite in that Hebei promptly complied with the requirement under Fitzgerald J’s judgment to lodge the

$200,000 in its solicitors’ trust account, and it has promptly complied with the order and Decision that $200,000 be made available as security for both the undertaking as to damages and an adverse costs award.

(c)I reiterate my view in the Decision that insufficient evidence has been presented to establish that Mr Shi would have difficulty enforcing any costs award in China and consequently this factor does not weigh in favour of granting security for costs.

(d)I do not accept that the appeal is of sufficient significance to Mr Shi or has sufficient general or public importance to justify allowing the appeal.

(e)Potential delay is not a factor in declining the leave application as Hebei has not demonstrated that delay is a significant risk.

(f)In my view, it is in the interests of overall justice that leave to appeal be declined. The grounds put forward by Mr Shi on which the appeal is based are insufficient to justify causing Hebei to incur the expenses of the appeal.

Orders

[27]I make the following orders:

(a)Mr Shi’s application for leave to appeal is dismissed;

(b)As the successful party, Hebei is entitled to costs. Counsel are directed to endeavour to agree costs within 20 working days of the date of this judgment, and failing agreement counsel for Hebei will file a memorandum as to costs (not to exceed five pages) within 5 working days of expiry of the 20 working day period, and counsel for Mr Shi will file a memorandum in  reply  (not  to  exceed  five pages) within 5 working days of receipt of counsel for Hebei’s memorandum. A decision on costs will then be made on the papers.

…………………………….. Associate Judge Taylor