Hebei Huaneng Industrial Development Co Ltd v Shi

[2020] NZHC 2470

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-733

[2020] NZHC 2470

BETWEEN

HEBEI HUANENG INDUSTRIAL DEVELOPMENT CO LTD

Plaintiff

AND

DEMING SHI

Defendant

Hearing:	14 September 2020
Counsel:	KH Morrison and A Manuson for plaintiff B O’Callahan and JP Nolen for defendant
Judgment:	22 September 2020

JUDGMENT OF FITZGERALD J

[As to application for freezing and ancillary orders]

This judgment was delivered by me on 22 September 2020, at 4pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:           Meredith Connell, Auckland

K3 Legal Ltd, Auckland

Hebei Huaneng Industrial Development Co Ltd v Shi [2020] NZHC 2470 [22 September 2020]

Introduction

[1]    The plaintiff is a company based in China. It is a subsidiary of a large state owned enterprise managed by the central government in China. The plaintiff has had dealings with companies associated with the defendant, Mr Shi, since around 2003. Mr Shi is a Chinese citizen and resides in China.

[2]    From 2003, the plaintiff paid a Chinese company associated with Mr Shi, which I will refer to as “Boen China”, to source coal and distribute it to various electricity production companies in China. The plaintiff provided an advance payment to enable Boen China to ensure an adequate coal supply. The electricity production companies paid the plaintiff for the coal received and from those payments, the plaintiff kept an agreed margin and paid the balance to Boen China.

[3]    From around 2012, the advance payment was agreed in an amount of RMB103,426,279.28, which is approximately NZ$23 million. There is no dispute Boen China was obliged to repay the advance payment in the event its contractual arrangements with the plaintiff came to an end. Mr Shi (together with another company based in China, which I will refer to as “Detai”) guaranteed Boen China’s obligation to do so.1

[4]    In 2015, the plaintiff decided not to renew its agreement with Boen China. Boen China’s obligation to repay the advance payment thereby crystallised, but Boen China was not in a position to do so. It is not in dispute that Boen China defaulted on its obligations in this regard. The plaintiff commenced legal proceedings in China again Boen China, and also against Mr Shi and Detai pursuant to their guarantees.

[5]    The Intermediate People’s Court of Hebei Province (the Intermediate People’s Court) ruled in favour of the plaintiff’s claims, though not in relation to Mr Shi. The plaintiff appealed that judgment to the Higher People’s Court of Hebei Province (the Higher People’s Court) where it was successful in its claim against Mr Shi. The

1      I am not aware of the relationship between Boen China and Mr Shi on the one hand, and Detai on the other.

Higher People’s Court judgment is dated 12 August 2019. I will refer to this as the “PRC judgment”.

[6]    The plaintiff commenced these proceedings on 25 May 2020. The underlying proceeding is an application for summary judgment to enforce the PRC judgment in New Zealand pursuant to common law. The reason why the plaintiff wants to enforce the PRC judgment here is because Mr Shi has no significant assets in China, but owns an apartment in Central Auckland, as well as all the shares in a New Zealand company (Boen NZ) which is presently undertaking a reasonably large residential development in Karaka.

[7]    When the plaintiff first commenced its proceedings, it sought freezing and ancillary orders in relation to Mr Shi’s assts in New Zealand. Those orders were sought without notice, and were granted by Paul Davison J (on the papers) on 22 June 2020. The orders were stated to remain in force until 11 August 2020 unless renewed on that date. Through what appears to have been an oversight, no application to renew the freezing orders was filed or heard on 11 August. The orders accordingly lapsed. Realising this, the plaintiff immediately sought “fresh” freezing orders, again without notice (though served on a Pickwick basis). Fresh orders were granted by Powell J on 13 August 2020, the Judge being satisfied there had been no material change in circumstances since the original orders had been made on 22 June 2020. There was therefore a “gap” of around 48 hours only when the freezing orders were not in place. The freezing orders granted on 13 August 2020 were stated to be over Mr Shi’s Auckland apartment (and any sales proceeds from it, it having transpired that Mr Shi was in the process of selling the apartment), his shares in Boen NZ and debts owed to him by Boen NZ.

[8]    By agreement, the freezing orders have remained in force pending the on notice hearing before me on 14 September 2020.

[9]    Mr Shi will, in the underlying proceedings, oppose enforcement of the PRC judgment in New Zealand. His opposition will be two-fold:

(a)First, he will say that the plaintiff ought to have first sought to enforce the PRC judgment against Detai, which had given security for Boen China’s obligations by way of a first mortgage over Detai’s assets, with collateral valued at RMB121,377,313.00 (being approximately NZ$26.5 million). Mr Shi will argue that the plaintiff was obliged under the “property first” principle of PRC law to exhaust that collateral before pursuing his personal guarantee. Mr O’Callahan, counsel for Mr Shi, submits that these matters are relevant to enforcement of the PRC judgment; that is, they are not a challenge to its underlying merits.

(b)Mr Shi will also argue that the Chinese courts cannot properly be regarded as “courts” for the purposes of enforcement of foreign court judgments in this jurisdiction, given the lack of independence between the courts and the State in China. Mr Shi will rely, inter alia, on the Court of Appeal’s observations in Kim v Minister of Justice of New Zealand, in which the Court of Appeal granted an application for judicial review of the Minister of Justice’s decision to surrender the appellant in that case for extradition to China.2

[10]   Mr Shi opposes continuation of the freezing orders. For the purposes of the present application, however, he accepts the plaintiff meets the threshold for a good arguable case on the underlying claim. He does not accept, however, that there is a real risk of dissipation of assets. His overall position is that he, and companies associated with him, have been conducting a residential property development in New Zealand, on an “ordinary course of business” basis since 2014, and in a transparent and open way. He says the plaintiff’s evidence falls short of demonstrating any risk of his assets being dissipated and/or taken out of New Zealand so as to have the effect or purpose of defeating enforcement of the PRC judgment.

[11]   If, however, the Court is satisfied the freezing orders should continue, Mr Shi says that given the plaintiff is an offshore entity with no assets in New Zealand, it

2      Kim v Minister of Justice of New Zealand [2019] NZCA 209, [2019] 3 NZLR 173. The Court required the Minister to reconsider the extradition decision in light of a range of matters, and also to seek further information on the extent to which the judiciary in China is subject to political control (at [278(e)(i)]).

ought to provide security for its undertaking as to damages. Mr Shi is critical that the question of security was not raised by the plaintiff when it first applied for the freezing orders on a without notice basis. Mr O’Callahan submits that it is highly unusual for a foreign entity with no assets in New Zealand to be granted freezing orders without being required to give security. He says that he has found only one case to date where security has not been ordered in similar circumstances.

[12]   Assuming the orders continue, Mr Shi also opposes the plaintiff’s proposal that his expenditure for those purposes described in r 32.6(3) of the High Court Rules 2016 is limited to a further $200,000.3 But if the freezing orders are continued, he does not oppose the granting of the further ancillary orders sought by the plaintiff, which effectively require him to give more details of his assets and business dealings in New Zealand.

[13]The balance of this judgment is structured as follows:

(a)First, I address the proceedings that have taken place in China to date, with a particular focus on those aspects which the plaintiff says are relevant to the question of the risk of dissipation of assets.

(b)Second, I address the background to the New Zealand proceedings in a little more detail, including the basis upon which the freezing orders have been made to date.

(c)Third, I set out the legal principles applicable to the present application.

(d)Fourth, I set out the parties’ respective positions on whether there is a qualifying risk of dissipation of assets.

(e)Fifth, I set out my discussion of whether the freezing orders ought to continue.

3      Ordinary living expenses; legal expenses in responding to the freezing orders; and other business expenses and sales in the ordinary course of business.

(f)Finally, and assuming the freezing orders are continued, I address whether there should be any restriction on Mr Shi’s expenditure otherwise permitted by r 32.6(3), and the question of security.

Factual background to China proceedings – more detail

[14]   Given Boen China’s failure to repay the advance payment to the plaintiff, the plaintiff commenced proceedings in China on 25 December 2017. Those proceedings were against Boen China, Mr Shi and Detai. As noted, the guarantee given by Detai was secured by a property mortgage over its assets, with collateral valued at approximately NZ$26.5 million. To date, the plaintiff has not taken steps to enforce its claim against the collateral under Detai’s property mortgage. There is nothing in the evidence to explain why that is so.

[15]   As also noted earlier, the plaintiff’s claim was heard at first instance by the Intermediate People’s Court. The plaintiff was successful against Boen China and Detai, but not against Mr Shi. As far as I presently understand matters, the Intermediate People’s Court concluded that the claim against Mr Shi was barred by applicable limitation principles. On appeal, the Higher People’s Court overturned the lower court’s decision, and judgment was entered against Mr Shi on 12 August 2019.

[16]   The plaintiff then sought to enforce the PRC judgment against Boen China, Detai and Mr Shi (in China). The enforcement process is apparently carried out before the Intermediate People’s Court. In an affidavit sworn in support of the application for freezing orders on a without notice basis, Mr Zhang, the head of the plaintiff’s in- house legal team, states that “on 26 March 2020, it was known to [the plaintiff] conclusively that Mr Shi had no other assets in China other than RMB4,196 in his bank account”. I interpolate to note that there is no background information as how the plaintiff came to be aware of this. The reason why this is relevant is because one of the grounds upon which the plaintiff says there is a risk of dissipation of assets is that Mr Shi failed to comply with his obligations under China law to disclose his assets to the plaintiff and the court before which the enforcement steps were being taken.

[17]   In this context, a translation of the “Provisions of the Supreme People’s Court on Issues concerning Property Investigation during Enforcement in Civil Procedures”

was included in the plaintiff’s evidence on the present application (the Property Identification Obligations). These obligations provide, in part, that:

During the enforcement process, the applicant for execution shall provide the information of the property of the person subject to execution; the person subject to execution shall truthfully report his/her property; the People’s Court shall carry out investigation through the network execution, investigation and control system, and adopt other investigation methods if necessary.

(emphasis added)

[18]   There is no expert evidence before me as to whether the Property Identification Obligations require disclosure of assets outside of China. For present purposes, however, I proceed on the basis that it is arguable that they do, given the obligations are not, expressly at least, limited to domestic property.

[19] There is also no evidence confirming whether Mr Shi made a positive declaration of his assets and omitted to include details of his New Zealand-based assets, or whether the plaintiff itself reached the conclusion that his only assets were the relatively small amounts in his bank accounts in China and referred to at [16] above.

[20]   In a ruling dated 26 March 2020, the Intermediate People’s Court issued a “ruling of execution”. This related to Boen China, Detai, and Mr Shi. It noted that the amounts found to be owed by the three parties had not been repaid, though the relatively small amounts in bank accounts in China held by Mr Shi and Boen China “were deducted as the execution expense in the execution procedure”. The ruling goes on to record (in relation to all three parties):

No properties can be executed after online checking, traditional inquiry, and field property survey. Thus, our Court shall legally restrict the parties subject to execution from upscale consumption, and held a talk with the execution applicant about the execution procedure and conclusion. The execution applicant [i.e. the plaintiff] agrees to conclude the execution procedure.

[21]   The ruling records that if the plaintiff later found that the parties subject to the execution process had property available for execution, it may apply again to the Court for execution.

[22] A further consequence of the execution process, and as referenced in the extract from the execution ruling set out at [20] above, was that Mr Shi became subject to restrictions on “upscale consumption”. These restrictions are affected by a further ruling of the Intermediate People’s Court also dated March 2020. This ruling prohibits Mr Shi (and Boen China and Detai) from incurring what is described as “high expenditure and non-essential consumer behaviour”.4

[23]   As far as the evidence demonstrates, these restrictions remain in place, given the Intermediate People’s Court’s order states “[t]he restriction period will continue until the debts are repaid”.

Background to the New Zealand proceedings – more detail

[24]   Mr Zhang deposes in his affidavit that “around this time” (though it is not clear to which time period this relates), the plaintiff “received information that Mr Shi had been transferring funds to New Zealand”. Mr Zhang says that “as a result [the plaintiff] became concerned that Mr Shi had moved his assets to New Zealand”. This led to the plaintiff engaging New Zealand lawyers and the present proceedings being filed on 22 June 2020.

[25]   The original application for freezing orders contained the following grounds as to why there was a risk of Mr Shi dissipating his New Zealand assets:

(a)Mr Shi had failed to make full and complete disclosure of his financial position during the enforcement proceedings in China for numerous debt recovery proceedings;

(b)Mr Shi had breached the Intermediate People’s Court’s restrictions on expenditure by way of the “extensive subdivision through his company, [Boen NZ]”;

(c)Mr Shi had sold his Auckland apartment;

4      This includes matters such as the purchase of real estate or new construction, high end renovation of houses, purchasing vehicles not within the scope of “necessity for operation”, travelling on vacation, children’s attendance in private schools with high charges, and certain classes of travel (on trains, aircraft and so on).

(d)Mr Shi was selling real properties in his control in New Zealand via Boen NZ; and

(e)Mr Shi is domiciled in China.

[26]   It is worth noting at this stage that the fact Mr Shi is located in China (yet has assets in this jurisdiction) is not itself a proper basis for inferring a risk of dissipation.5 Nor is there any expert evidence that Boen NZ’s residential development (including the sale of lots in the ordinary course of its business) put Mr Shi in breach of the Intermediate People’s Court’s restrictions on expenditure.

[27]   Mr Zhang’s affidavit in support of the original application addressed various steps and matters that had occurred in China, which were relied on in support of there being a risk of dissipation. Given the focus on the risk of dissipation on the present application, and that the plaintiff primarily relies on the Court’s prior findings (made on a without notice basis) of a risk of dissipation, it is helpful to set out the relevant extract of Mr Zhang’s affidavit in full:

13.On 23 October 2009, Dandong Boen Real Estate Development Limited (“Dandong”) was incorporated in China, Boen Company held 70% of the shares in Dandong. I am aware Mr Shi had an interest in Dandong as he was involved in some contracts as a guarantor. I refer to paragraph [19] below.

14.In or around April 2013, Dandong was pursued for repayment of debts owing to a third party. Following the demands, Boen Company transferred its 70% shareholding to a third party. I believe Boen Company did this knowing the third party was going to commence legal proceedings.

15.On 28 February 2014, Boen Capital Co. Limited (“Boen NZ") was incorporated. Yuan  Ma was the sole shareholder and director.  On  18 July 2014, all the shares of Boen NZ was transferred to Mr Shi and Mr Shi was added as a director. I therefore believe that Mr Shi is the true and only owner of Boen New Zealand.

16.On 13 August 2014, Mr Shi acquired an apartment at 3103/8 Albert Street, Auckland. He did not mortgage the property for this purchase. Annexed and marked “H” is a copy of the title.

17.On 12 September 2014, Boen NZ acquired 3.8410 hectares of land at 205 Hingaia Road. He did not mortgage the property for this purchase. Annexed and marked “I” is a copy of the title.

5      Raukura Moana Fisheries Ltd v The Ship “Irana Zharkikh” [2001] 2 NZLR 801 (HC) at [122].

18.On 22 September 2014, Mr Shi obtained a Westpac mortgage using 3103/8 Albert Street, Auckland.

19.Between December 2014 to 21 April 2020, Dandong has been involved in 147 court proceedings in China relating to contractual disputes or debt recovery. In some of these proceedings, Mr Shi was involved as a guarantor.

20.On 1 October 2015, Boen NZ acquired 2.9614 hectares of land at   29 Hayfield Way using a mortgage from ANZ bank. It appears that Boen NZ used both 205 Hingaia Road and 29 Hayfield Way as security to obtain the mortgage. Annexed and marked “J” is a copy of the title.

21.From 28 November 2016, Mr Shi started moving his shares in Boen Company when he started to become legally pursued for liabilities. On 8 August 2017, Mr Shi transferred all his shares to his mother, Zhihui Xia.

22.On 12 January 2018, Mr Shi was discredited by the Chinese court for failing to carry out his legal obligations ordered by the Court. Annexed and marked “K” is a copy of this ruling. Annexed and marked “L” is the English translation of the ruling.

23.On 27 February 2018, the first order preventing Mr Shi from spending money other than for reasonable and ordinary living expenses was made as a result of him failing to pay money to a third party under a Chinese court order. Annexed and marked “M” is a copy of this ruling. Annexed and marked “N” is the English translation of the ruling. This first order is similar to the Restriction Ruling which Huaneng Company later obtained on 26 March 2020 (see at paragraph 11 above).

24.On 16 April 2019, Boen NZ subdivided the land at 29 Hayfield Way and 33 new titles were issued. I refer to Annexure J which shows the issue of new titles. I believe this was in breach of the Chinese restriction ruling made on 27 February 2018 as Mr Shi was likely to have provided more funds to Boen NZ, as its sole owner, to develop and subdivide 29 Hayfield Way. Amongst other things, the Chinese restriction ruling prevents Mr Shi from:

Purchase of real estate or new construction, expansion, high- end renovation of houses

25.On 16 May 2019, Mr Shi and a third-party company was ordered to pay debt to various parties. Annexed and marked “O” is a copy of this ruling. Annexed and marked “P” is the English translation of the ruling. It is not clear whether Mr Shi did meet his legal obligations to repay the debt. I believe he did not as, when the Chinese Court made the order restricting his spending on 27 February 2018 (I refer to paragraph 23 above), Mr Shi would have been required to make a declaration as to his assets and liabilities in the Chinese enforcement proceedings. I refer to paragraph 27 below. Upon declaring that he had no assets, the Chinese Court would have had no option but to make an order restricting his spending. I therefore believe that he only

portrayed to the third-party company mentioned here that he had no ability to pay his debt.

26.On 12 December 2019,  out  of  the  33  new  subdivided  land  on  29 Hayfield Way, one of them (Lot 1001) was further subdivided into 7 new sections. Annexed and marked “Q” is a copy of the title. Again, I believe this was in breach on [sic] the Chinese Court order made on 27 February 2018 for the reasons I have set out at paragraph 24 above.

[28]   As will be appreciated, aspects of the above extract from Mr Zhang’s evidence are inadmissible statements of opinion or belief, or are couched in relatively high level and speculative terms.

[29] Mr Zhang also deposes to Mr Shi failing to comply with the Property Identification Obligations by not disclosing his New Zealand assets, as well as his (i.e. Mr Zhang’s) belief that by providing funds to Boen NZ for its property development, Mr Shi breached the court ordered restrictions on spending referred to at [22] above.

[30]   Mr Zhang also stated that on 16 June  2020,  the  plaintiff  discovered  that Mr Shi’s Auckland apartment had been sold in May 2020, although at that time the settlement date was not known.6

[31]   As well as freezing orders, the plaintiff also sought ancillary orders requiring Mr Shi to disclose his assets in New Zealand. As noted, both the freezing and ancillary orders were made on 22 June 2020. The latter required Mr Shi to file and serve (within five working days of the orders) an affidavit:

(a)listing his assets and liabilities in New Zealand as at 1 June 2020 (and the date on which Mr Shi affirmed his affidavit), to be verified by production of bank statements of all bank accounts in New Zealand in the name of or under the control of Mr Shi; and

(b)deposing to the assets of Boen NZ “that have been and are being listed for sale as at 1 June 2020 (and the date which the respondent affirms the affidavit)”.

6      Settlement is 30 September 2020.

[32]   The ancillary orders also required Mr Shi to disclose Boen NZ’s financial statements for the year ending March 2020.

[33]   The papers and orders were duly served on Mr Shi (via his legal counsel in New Zealand, who confirmed they were authorised to accept service). The parties agreed to an extension of the time by which Mr Shi was to file his affidavit as to his New Zealand assets.

[34]   Mr Shi’s subsequent affidavit of assets dated 8 July 2020 referred to the following:

(a)His Auckland apartment had recently been sold for $1.5 million (with settlement to occur on 30 September 2020).

(b)Westpac Bank has a first ranking mortgage over the apartment and was then owed approximately $560,000 (at the date of the affidavit).

(c)As at the date of the affidavit, the solicitors acting on the sale held the sum of $218, 597.57, being the deposit received on the sale, less agent’s commission and payments made in relation to the legal fees of these proceedings, as permitted by r 32.6(3).

(d)That he (Mr Shi) had in previous years advanced funds to Boen NZ to progress the residential property development, but that he did not currently know how much was owed to him by Boen NZ because Boen’s financial statements were yet to be completed.

(e)In addition to the apartment and its sales proceeds, and some $4,700 in a New Zealand bank account, the only other assets owned by Mr Shi in New Zealand are his 100 per cent shareholding in Boen NZ and the debt owed by it to him.

[35]   Mr Shi also gave some further information about Boen NZ’s residential property development. He explained that Boen NZ owns two properties near to each other in Karaka, both of which have been consented to create a number of residential

dwellings over number of stages. One of the properties, referred to as “Hayfield Way”, was consented to create 45 residential dwellings and as at the date of Mr Shi’s affidavit, 42 individual titles had been issued and 36 of those were subject to pre-sale agreements. Mr Shi explained, however, that the pre-sale agreements cannot be settled until a Consent Notice is removed from their titles, which in turn cannot occur until the completion of wastewater connections that Boen NZ, along with a number of neighbouring landowners, need to construct (the Infrastructure Project). Mr Shi explained that the Infrastructure Project is expected to be completed later this year or early next year, assuming all contributing landowners can fund their respective shares of the Project.

[36]   Mr Shi also noted that Boen NZ has a development loan facility with ANZ Bank in an amount of approximately $17 million, secured by first ranking mortgages over Boen NZ’s two Karaka properties, together with a property in Oakland Road owned by a separate company named Oakland Hayfield Development Ltd (Oakland). The development loan is also secured by cross-guarantees and indemnities between Oakland, Boen NZ, and a Mr Yuan Ma, who evidently owns Oakland but is also a director of Boen NZ.

[37]   Finally, Mr Shi noted that he was unable to provide the financial statements for Boen NZ for the year ending March 2020, given Boen NZ had not yet completed the financial statements for that financial year.

[38]   In a subsequent affidavit sworn by Mr Shi, he explains that Mr Ma, who resides in New Zealand, is his fellow director of Boen NZ (and is a former shareholder of Boen NZ). Mr Ma is said to have operational control of Boen NZ, as well as being a shareholder in Oakland. Mr Shi explains that Boen NZ originally sought to purchase the Oakland Road property but was prevented from doing so because of overseas investment restrictions. He states that:

Mr Ma knows that the completion of Stage 1 and 2 by [Boen NZ] will substantially increase the value of the Oakland Road property and for that reason, Mr Ma has provided security for [Boen NZ's] borrowing as well advancing his own funds to Boen NZ.

[39]Mr Shi has also confirmed that:

(a)In the financial year ended 31 March 2015, he advanced some  NZ$9.5 million to Boen NZ to acquire the Stage 1 land.

(b)In August 2015, Boen NZ borrowed NZ$5.4 million from ANZ to acquire the Stage 2 land, and he arranged for further funds of approximately NZ$1 million to be advanced to Boen NZ for working capital requirements.

(c)Not all funds recorded in Boen NZ's accounts as “shareholder advances” were advanced by him. Mr Shi states that although “the bulk” of the funds were from him, some of the funds came from associates of his. Mr Shi states that this was not picked up in the financial statements until after the 2018 accounts, and one of the reasons the 2019 accounts have been delayed is because the accountants have been trying to reconcile the different advances to Boen NZ over the years.

(d)In November 2016, Boen NZ entered into the pre-sale agreements for the 36 lots in Stage 1. The deposits are held in the trust account of Boen NZ's solicitors, Bell Gully, on trust for the purchasers and Boen NZ.

(e)On 31 January 2017, Boen NZ entered into the NZ$17 million ANZ development facility referred to at [36] above.

(f)Over the financial years ending 31 March 2017 and 31 March 2018, Mr Shi arranged for a further approximately NZ$1.1 million to be made available to Boen NZ for working capital requirements.

[40]   Mr Shi goes on to state that in early 2020, he realised Boen NZ would require further working capital to meet its obligations to ANZ and to complete the Stage 1 development. He explains that for that reason he decided to sell his Auckland apartment and make the net proceeds available to Boen NZ. He states that “the decision had nothing to do with [the plaintiff] or the China Proceeding. [Boen NZ]

needed further funding to avoid default with ANZ and to complete the Stage 1 development”.

[41]   Mr Shi also explains that Boen NZ and ANZ have since agreed a further extension to the development facility to 30 June 2021, which allows the financing costs of the facility to be accumulated without default. ANZ has confirmed, however, that the facility cannot be used to fund the Infrastructure Project.

[42]   As to the Infrastructure Project, a separate company that had been formed to undertake the project for the landowners concerned (including Boen NZ) failed in 2019 part way through the project due to a lack of contribution by some of the landowners and a dispute with the head contractor. Boen NZ was a secured creditor of that company, and the liquidators/receivers’ reports confirms that it was fully repaid its approximately $800,000 advance.

[43]   Ms Morrison, counsel for the plaintiff, points to the fact that despite Boen NZ apparently being a secured creditor of that separate company during the 2018 financial year, no such debt is recorded in Boen NZ's 2018 accounts.

[44]   Updating evidence (given by Mr Xinxiong (Colin) Chen, an Executive Assistant and Development Manager for Boen NZ), states that if all nine parties presently expected to commit to the Infrastructure Project do so, Boen NZ's share of the costs of completing the project are projected to be approximately NZ$820,000 (plus GST).

[45]   As explained earlier, Mr Shi wants to advance the net proceeds of the sale of his apartment (the Sales Proceeds) to Boen NZ to assist with working capital and completing the Infrastructure Project. It was common ground at the hearing before me that after repayment of the Westpac mortgage, there are net proceeds from the sale of approximately $1 million. After deducting commission and legal expenditure to date, approximately $800,000 or so remains available to advance to Boen NZ (though this will now be less, given the further legal fees incurred by Mr Shi in connection with the present proceedings).

[46]   Mr Shi explains that he is concerned at the effect the freezing orders may have on the success of the Stage 1 development at Karaka, which is said to be at a crucial point. He states that if he cannot access the Sales Proceeds to service Boen NZ's current obligations to ANZ and help fund the Infrastructure Project, there is a danger that “ANZ will run out of patience and seek to call up its security”. He states that the value of the security in the currently uncertain, COVID-19 market, without the Infrastructure Project complete, is likely to result in Boen NZ and Oakland suffering substantial losses.

[47]   It is appropriate to note at this point that it is largely common ground between the parties that it is in both parties’ interests that Boen NZ is able to continue its development at Karaka, given a successful development and resulting profit to Boen NZ is likely to be the only substantial asset potentially accruing to Mr Shi (as Boen NZ’s sole shareholder). For these reasons, the plaintiff does not oppose in principle the Sales Proceeds being advanced by Mr Shi to Boen NZ for the purposes of the Infrastructure Project. It does, however, want the use of the Sales Proceeds for the Infrastructure Project to be the subject of a formal Court order, to ensure the funds are indeed used to progress the development.

[48]   Finally, also produced in evidence was an employment agreement between Boen NZ and Mr Ma, which provides for a salary of approximately $300,000 per annum. Ms Morrison notes that despite the agreement being entered into during the course of the 2015 financial year, no salary payments are recorded in Boen NZ's 2015 accounts. She also notes that for the 2016 and 2017 years, there are references in the accounts to payments of shareholder salary of approximately $300,000 per annum. Mr Shi was the only shareholder at those times. Mr O’Callahan responds that this is a nomenclature error in the accounts, given the 2018 accounts correctly refer to the payments being for director salary, and include the comparator 2017 figure (which was wrongly described as shareholder salary).

[49]   With that factual background in mind, I turn to the legal principles applicable to the present application.

Legal principles

[50]The applicable legal principles are well-settled and are not in dispute.

McGechan on Procedure summarises the position as follows:7

(a)The requirement to establish a real risk of dissipation is central to the freezing order jurisdiction.

(b)Mere assertion of belief that the respondent might dissipate its assets, unsupported by solid grounds justifying that belief, is insufficient.

(c)The applicant must point to circumstances from which “a prudent, sensible commercial [person] can properly infer a danger of default”, a test which is “not unduly exacting”.8

(d)Meeting ordinary living expenses, legal expenses relating to the freezing order and transactions in the ordinary course of business will not constitute dissipation of the assets: r 32.6(3).

[51]   In Oaks Hotels and Resorts NZ Ltd v Body Corporate 358851, Asher J confirmed that freezing orders may be granted “without nefarious intent on the prospective debtor’s part being proven”.9 As Asher J also explained:10

… [A]ssuming for the purposes of the present issue that there is a good arguable case, the fact that an asset is to be disposed of is in itself not enough to invoke the jurisdiction. The heart of the jurisdiction is a real risk that a judgment or award may go unsatisfied. There must be a danger that the prospective judgment creditor’s ability to recover will be defeated because assets have been disposed of.

(citations omitted)

[52]   Asher J went on to summarise the relevant authorities as standing for the following propositions:

7      R Osborne and others McGechan on Procedure (online ed, Thomson Reuters) at [HR32.2.03(3)] and the authorities therein.

8      Referring to Raukura Moana Fisheries Ltd v The Ship “Irina Zharkikh”, above n 5, at [122].

9      Oaks Hotels and Resorts NZ Ltd v Body Corporate 358851 [2013] NZHC 2695 at [17].

10 At [18].

[20] The jurisdiction is not designed to provide an applicant with pre- judgment security. The general rule that a respondent can deal with its assets without constraint, which applied to the original Mareva jurisdiction, is still reflected in the new detailed rule, if only indirectly. Even if the disposal will result in insufficient funds to pay a plaintiff, a Court is unlikely to interfere if the disposition is genuine and in the ordinary course of business. That limitation of the common law regime applies under the new rules and is indicated in r 32.6(3), which states that the freezing order must not prohibit the respondent from dealing with the assets for the purpose of paying ordinary living expenses and legal expenses related to the freezing order, but also “… disposing of assets or payments, in the ordinary course of the respondent’s business, including business expenses incurred in good faith”. The prospective judgment debtor must be able to continue to trade or carry on business in the usual way.

(citations omitted)

The parties’ respective submissions on dissipation of assets

Plaintiff ’s submissions

[53]   Based on the above factual background, Ms Morrison summarised the plaintiff’s case on risk of dissipation under the following five heads:

(a)First, the historic matters relating to Mr Shi and companies associated with him in China, as described by Mr Zhang and set out at [27] above. Ms Morrison points to the fact that Mr Zhang’s evidence is unchallenged, despite the matters being within Mr Shi’s knowledge and that he has had ample opportunity to respond to it.

(b)Second, Mr Shi’s failure to disclose in the China execution proceedings his assets in New Zealand.

(c)Third, despite the ancillary orders made to date, and the evidence filed by Mr Shi, there remains a real degree of “opaqueness” as to Mr Shi’s relationship with Oakland and Mr Ma, which has given rise to the cross-guarantees and security provided by Oakland and Mr Ma in relation to Boen NZ's obligations, in turn leading to a concern that   Mr Shi’s assets in New Zealand may in some way also include an interest in Oakland.

(d)Fourth, Mr Shi’s inability to say how much Boen NZ currently owes him, and despite the accounts recording substantial shareholder advances, Mr Shi’s evidence that not all such amounts have in fact been advanced by him.

(e)Fifth, that to date, Mr Shi has refused to agree to any controls over the disposition of the Sales Proceeds, giving rise to a concern as to what would become of those funds absent any such controls.

[54]   Ms Morrison submits that taking these matters together, and recognising that the test for a risk of dissipation is “not unduly exacting”, there is ample material from which a “prudent, sensible commercial person” can properly infer a danger of default.

Mr Shi’s submissions

[55]   Mr O’Callahan submits there is insufficient evidence from which to infer a real risk of dissipation. He points to the fact that Mr Shi’s Auckland apartment was purchased in August 2014, and Mr Shi’s contributions to Boen NZ to enable it to commence the Karaka development were also made in 2014. He notes that the bulk of the funds Mr Shi has contributed to Boen NZ were advanced prior to 31 March 2015, well before the termination of the arrangements between the plaintiff and Boen China. Mr Callahan states that the evidence demonstrates a genuine and ongoing residential development in Karaka, which has been conducted at all times on an open and transparent basis. In this context, he points to the fact that Mr Shi’s investment in Boen NZ is in his own name, rather than there being any sense of Mr Shi trying to conceal the investment through trusts or nominees.

[56]   Mr O’Callahan acknowledges that Mr Shi has not paid the judgment sum in China, but that is because he does not consider he ought to be obliged to do so given the plaintiff’s inaction in relation  to  the  collateral  offered  by  Detai’s  security.  Mr O’Callahan also notes that to the extent precision is lacking as to the level of Boen NZ’s indebtedness to Mr Shi, that is understandable given the delays often experienced in preparing annual financial statements. He further submits that there is no evidence

from which it can be inferred Mr Shi is “shadowy” or “secretive”, as the Court described the defendants in Raukura.11

[57]   Mr O’Callahan accepts that Mr Shi has not responded to much of the evidence given by Mr Zhang. But he states that given the breadth of some of that evidence (for example, its reference to 147 proceedings), it was not considered necessary or indeed possible to respond to such matters in the context of the present application. Rather, it was determined that Mr Shi would respond to the key complaints about the disclosure of his assets in New Zealand and the current position and intentions in relation to those assets.

[58]   Mr O’Callahan also submits there is  nothing  shadowy  or  unusual  about  Mr Shi’s relationship with Oakland or Mr Ma, it being clear that Mr Ma and Mr Shi are known to each other and work together, and the fact that the two companies’ land ownings are adjacent to each other explains the interactions between the companies (and that each has  been  willing  to  offer  security  for  the  other’s  borrowings).  Mr O’Callahan acknowledges that Mr Shi is in the process of disposing his only significant asset in New Zealand that has a quantifiable value, but says that is for very good and understandable reasons, connected with the Karaka development.

[59]   Mr O’Callahan also cautions against  drawing any adverse inference from  Mr Shi’s refusal to date to accept the plaintiff’s proposed “controls” around the use to which the Sales Proceeds may be put. He points to the fact that the plaintiff’s proposals in this regard were accompanied by conditions to which Mr Shi objects, namely restrictions and caps on what amounts he can spend pursuant to r 32.6(3) by way of exclusions to the freezing orders.

[60]   Mr O’Callahan confirmed, however, that provided there is appropriate security put in place for the plaintiff’s undertaking and there are no controls or caps on Mr Shi’s ability to utilise his New Zealand assets to fund the present legal proceedings, Mr Shi ultimately takes a pragmatic approach to the freezing orders, at least at this time.

11     Raukura Moana Fisheries Ltd v The Ship “Irina Zharkikh”, above n 5, at [98].

Risk of dissipation – discussion

[61] I do not consider this to be a clear-cut case of a real risk of dissipation, in the sense discussed in the authorities and summarised at [50]–[52] above. The evidence does not demonstrate Mr Shi deliberately moved assets to New Zealand in an attempt to defeat his creditors, and in particular, the plaintiff. Rather, it suggests he has been engaged in a residential property development here in New Zealand for some years, and which pre-dates his present dispute with the plaintiff. But given proof of nefarious intent is not required in the context of freezing orders, and the “not unduly exacting nature” of the test to be met, I am satisfied that the plaintiff has demonstrated the necessary risk of dissipation such that the freezing orders ought to be continued. I say this for the following reasons.

[62]   First, while aspects of Mr Zhang’s evidence on Mr Shi’s earlier dealings in China are inadmissible or, at the least, not particularly persuasive (some being relatively high level statements with no underlying evidence, or unsupported statements of opinion or belief), it is notable in my view, that Mr Shi has not attempted to respond to any of this material, even by way of relatively brief and high level responses. For example, he does not dispute that he is associated with Dandong in the manner suggested by Mr Zhang; that following Dandong being pursued by creditors Boen China transferred its 70 per cent shareholding in Dandong to a third party; or the extent to which Dandong has been involved in dispute and debt recovery proceedings in China. Nor does Mr Shi dispute or respond to the suggestion that from November 2016, when he started to become legally pursued for liabilities, he moved his shares in Boen China and transferred them into his mother’s name. Most if not all of these matters are within Mr Shi’s own knowledge, hence it being odd that he has not responded at all to them. On that basis, Mr Zhang’s evidence is unchallenged, and there appears to be a pattern of conduct in China that is relevant to the freezing order application.

[63]   Second, on the face of the material currently before the Court, there is also some basis for the proposition that Mr Shi has failed in his obligations under Chinese law to disclose all his assets, and in particular, his assets in New Zealand. While there is no independent expert evidence as to whether the Disclosure of Property Obligations

extend to property held outside China, as noted earlier, there is nothing on the face of the law to suggest the obligation is limited to domestic assets. Further, the fact Mr Shi did not make it known to the plaintiff or to the Intermediate People’s Court during the execution process in China that he does have reasonably significant assets in New Zealand (particularly when compared to the very small bank balances held by him in China), does tend to suggest he was content for his true asset holding position to be obscured.

[64]   Third, and importantly in my view, Mr Shi’s only asset in this jurisdiction (and indeed, on the materials before the Court, in any jurisdiction12) that has a presently quantifiable value, namely his Auckland apartment, is in the process of being sold and thereby converted to a liquid asset (which will then be transferred to a third party not directly subject to the freezing orders). I should emphasise that I do not infer anything sinister in the sale of the apartment itself; rather the evidence suggests it is being sold to put Boen NZ in funds to assist with the Karaka development. But the point remains that nefarious intent is not required. Ultimately, one of Mr Shi’s key assets in this jurisdiction is being disposed of and its sale cannot be said to be a part of Mr Shi’s ordinary course of business.

[65]   Fourth, despite the points made by Mr O’Callahan, there remains a fair degree of uncertainty and lack of clarity around Boen NZ’s current financial status, its obligations to Mr Shi, Mr Shi’s (and Boen NZ’s) relationship with Oakland and any direct or indirect interest he may have in that entity. It is relevant, in my view, that Mr Ma, who is Mr Shi’s co-director of Boen NZ and who is said to have operational control of the company in New Zealand, has not given any evidence on the present application, much of which was focused on Boen NZ’s current operations and status. Nor was there any evidence from Boen NZ’s accountants which might have shed some (independent) light on the status of Boen NZ’s accounts and the amounts owing by it to Mr Shi.

[66]   It is the collective effect of these matters which persuades me that the plaintiff has demonstrated it is appropriate for the freezing orders to continue.

12     There is no suggestion in any of the materials filed on behalf of Mr Shi that he has any substantive assets other than those the subject of the present application.

Should there be restrictions on the use of the Sales Proceeds for expenditure pursuant to r 32.6(3)?

[67]   Pursuant to r 32.6(3), a freezing order must not prohibit the respondent from dealing with the assets covered by the order for the purpose of:

(a)paying ordinary living expenses;

(b)paying legal expenses related to the freezing order; and

(c)disposing of assets, or making payments, in the ordinary course of the respondent’s business, including business expenses incurred in good faith.

[68]   Item (b) is in issue in this case.13 Mr Shi is obviously incurring legal costs in responding to the application for freezing orders. He is also incurring legal costs in responding to the underlying substantive proceedings. Mr O’Callahan noted that in addition to legal costs, this expenditure also includes the fees of two international expert witnesses who will give evidence for Mr Shi in the substantive proceedings.14

[69]   There is no question that Mr Shi is entitled to draw on property subject to the freezing orders to fund the legal costs of responding to the freezing orders. That is precisely what r 32.6(3)(b) says. It is also the case that the legal costs of responding to the underlying substantive proceedings fall within the scope of r 32.6(3), and in particular, r 32.6(3)(c). In TGB Holdings Ltd v BFP Trustees No 1 Ltd, and after referring to relevant United Kingdom authorities, Venning J stated:15

In the absence of bad faith, if the legal fees are, on the face of it, incurred for proper purposes, then they will fall within the exception of payments in the

13    I note in passing that Mr O’Callahan stated at the hearing that Mr Shi does not propose to draw   on the Sales Proceeds for ordinary living expenses. If that is so, it might signal that Mr Shi does have other, undisclosed, assets which are supporting his living expenses. But given Mr Shi resides in China, and given the discussion below and it seeming unlikely that Mr Shi has other substantial assets, I do not draw any adverse inference from this fact. It is just as equally likely that Mr Shi is being supported in his day to day living expenses in China by family.

14 Including the Canadian legal academic who gave (affidavit) evidence on the Chinese legal system (and in particular, its criminal jurisdiction) at first instance in Kim v Minister of Justice [2017] NZHC 2109, [2017] 3 NZLR 823, and a Hong Kong based expert on the “property first” principles under Chinese law.

15 TGB Holdings Ltd v BFP Trustees No1 Ltd HC Whangarei CIV-2009-488-566, 8 April 2011 at [40].

ordinary course of business and may be allowed as an exception to the freezing order.

[70]   I observe that this is also implicit in the Court of Appeal’s judgment in Hannay v Mount, in which the Court made it clear that the freezing orders in that case were not to prohibit the respondents from using the frozen assets for the purposes of meeting legal expenses in responding to the underlying civil and related criminal proceedings.16

[71]   In the event, I did not understand the plaintiff to suggest that Mr Shi ought not to have recourse to the frozen funds to pay legal costs associated with his defence of the underlying proceedings; rather, its concern was to impose some controls or oversight in that regard. The plaintiff therefore suggests that to guard against the “wasting away” of the Sales Proceeds on legal fees and other related expenditure,  Mr Shi’s permitted (total) expenditure pursuant to r 32.6(3) be limited to a further

$200,000.17

[72]   In support of Mr Shi’s opposition to any limit or cap on expenditure associated with the freezing orders and the underlying substantive proceedings, Mr O’Callahan noted that the Sales Proceeds are presently sitting in a solicitor’s trust account, such that there is already a degree of oversight of expenditure from the funds. Further, he submits that while concerns are sometimes raised about the level of expenses incurred by a respondent, that is more so when the underlying claims are proprietary in nature which is not the case here. Further, and in responding to the plaintiff’s suggestion that the  legal  costs  incurred  to  date  (over   a  two-month  period)   are   excessive,   Mr O’Callahan noted that:

(a)the plaintiff’s claim is significant, in the vicinity of NZ$23 million, and warrants Mr Shi deploying appropriate expenses in defending it;

16 Hannay v Mount [2011] NZCA 530; see also the draft orders attached to Hannay v Mount [2011] NZCA 280.

17 Ms Morrison confirmed at the hearing that this is in addition to that amount of legal costs already incurred to date by Mr Shi, as referred to at paragraph [2.17(c)] of the plaintiff’s submissions dated 7 September 2020.

(b)the freezing and ancillary orders have the potential to affect reasonably complex commercial arrangements. Expenses have been incurred in responding to the orders to date, and will continue to be incurred in responding to the further ancillary orders sought;

(c)Mr Shi’s defence in the substantive proceedings involves briefing international experts (as described at [68] above); and

(d)there are additional costs associated with the fact Mr Shi is based in China and does not speak English, and hence the “persistent need for translation”.

[73]   Mr O’Callahan submits that the costs to date are, in context, modest, and do not give rise to any need to “cap” the expenditure.

[74]   In Hannay v Mount, the Court of Appeal observed that the r 32.6(3) exclusions “should not be seen as giving licence to [the respondents in that case] to have an unrestricted ability to draw on the frozen assets at the expense of the [appellants]”.18 In relation to legal expenses, Allan J in An Ying International Financial Ltd v Li stated that “[t]he level of allowance made for legal costs ought to be reasonable in all the circumstances and sufficient to permit the defendants to take competent legal advice”.19

[75]   Set weekly or monthly “allowances” for ordinary living expenses routinely form part of freezing orders (and indeed, are often a contentious aspect of the terms of any orders that are granted or continued.20) In Hannay v Mount, the freezing orders the Court of Appeal proposed to make were expressly subject to the r 32.6(3) exclusions, but any proposed expenditure for those purposes was first to be the subject of an application (by memorandum) to the High Court seeking the Court’s prior approval to use or deal with particular assets for one or more of the purposes. I was

18     Hannay v Mount, above n 16, at [53].

19     An Ying International Financial Ltd v Li HC Auckland CIV-2004-404-6952, 6 April 2005 at [82], citing Halifax plc v Chandler [2001] EWCA Civ 1750.

20     See, for example, Twentieth Century Fox Film Corporation v Dotcom [2016] NZHC 1948.

also referred to other authorities where oversight of expenditure on legal expenses was addressed and/or ordered.21

[76]   The only expenditure pursuant to r 32.6(3), at present at least, that Mr Shi anticipates to fund from the frozen funds are legal costs and disbursements associated with these proceedings. Given the relatively small amount that will remain of the Sales Proceeds once the Westpac mortgage is repaid, real estate agents’ commission is deducted and legal costs paid, I am satisfied that some degree of oversight of further expenditure out of the frozen funds is appropriate. In this context, I take into account that Mr Shi has not (clearly at least) deposed that he has no other monies available to him to fund his legal defence,22 and at least has access to sufficient funds or support to meet his ordinary living expenses in China. On the other hand, the fact he has already used the Sales Proceeds to fund his legal costs to date (which is contrary to what I accept to be his desire to make as much of the Sales Proceeds as possible available for the Karaka development), and that the China courts concluded that he did not have any other obvious assets (in China), it is appropriate Mr Shi has proper access to the Sales Proceeds in order to respond to the substantive proceedings in this jurisdiction.

[77]   As noted, the plaintiff suggests that any further expenditure by Mr Shi be limited to $200,000; in other words, a “hard” cap be imposed. I do not agree that is appropriate. I consider the appropriate course is for there to be a mechanism for the Court to have at least some oversight of expenditure proposed by Mr Shi.

[78]   Given the relatively modest amounts involved (at least insofar as the remaining Sales Proceeds are concerned), I do not consider prior Court approval to the incurring of any r 32.6(3) expenditure is appropriate. This is likely lead to further unnecessary legal costs being incurred in connection with seeking consent from the plaintiff and if consent is not forthcoming, seeking the Court’s approval prior to each item of

21 NZF Money Ltd (in rec) v O’Connor [2012] NZHC 1963 at [12] and [14]; and Twentieth Century Fox Film Corporation v Dotcom, above n 20, at [75(b)].

22 Said in some English authorities to be a “condition” of permitting expenditure on the underlying legal proceedings being made out of the frozen funds; see Sundt Wrigley Co Ltd v Wrigley (unreported, 23 June 1993 (CA)), cited with approval by the Court of Appeal in Halifax plc v Chandler [2001] EWCA Civ 1750, and in turn cited by Venning J in TGB Holdings Ltd v BFP Trustees No 1 Ltd, above n 15, at [38].

proposed expenditure. Rather, I propose to order that Mr Shi may have access to the frozen funds up to a sum of a further $200,000 (that is, in addition to the sums referred to at footnote 19 above).23 This is not, however, intended to be a “hard” cap or limit. But if Mr Shi proposes to access the property subject to the freezing orders in any amounts higher than this, the matter will need to be brought back before the Court to consider that request and whether any further controls or caps ought to be imposed.

Security for undertaking

[79]   As noted at the outset of this judgment, a real concern on Mr Shi’s part is that no security has been given for the undertaking as to damages. There is no dispute the plaintiff does not have any presence or assets in this jurisdiction. In such circumstances, some form of security may well be required to support an undertaking as to damages.24

[80]   In this case, however, and despite the duties on parties when making applications on a without notice basis, the topic of security was not raised with the Judge dealing with the without notice application. In my view, it should have been.  A party making a without notice application is expected to draw to the Judge’s attention any matters which might be raised by the respondent and are relevant to whether the orders ought to be made (and if so, on what terms). Given the plaintiff in this case is an offshore company located in China with no assets in this jurisdiction, the question of security was relevant to the worth of the undertaking as to damages, given the questions arising as to the enforceability of the undertaking outside New Zealand, including in China.25 The question of security was also relevant given there was no evidence accompanying the without notice application about the plaintiff’s financial standing and worth (rather than some statements to that effect in counsel’s

23 Being an amount of expenditure that the plaintiff appears to accept would be reasonable in the current circumstances.

24 See for example, Pop-A-Shot v Filtration and Pumping (Commercial) Ltd (1989)  3 TCLR 225 (HC) at 233; referred to in McGechan on Procedure, above n 7, at [HR7.54.01]; and in Matthew Casey and others Sim’s Court Practice (online ed, LexisNexis) at [HCR7.54.4]. Part 7 of the High Court Rules applies to applications for freezing orders; see r 32.2(4).

25  This is so even though Mr Shi resides in China.  The source of any liability the plaintiff might  incur is an undertaking given to the New Zealand High Court, which would need to rule on any application to enforce the undertaking.

memorandum accompanying the application).26 There is still no evidence before the Court on the plaintiff’s financial standing and worth.

[81]   Be that as it may, it was not suggested by Mr O’Callaghan that the fact security for the undertaking was not raised at the without notice stage is so egregious that the freezing orders ought to be set aside for that reason alone.

[82]   The plaintiff submits that it is not an invariable practice that security for an undertaking will be required. Ms Morrison refers to Patel v Patel, in which the Court dispensed with the need for an undertaking altogether.27 Counsel also refers to Richmastery Ltd v Richmastery (Central) Ltd, in which Lang J declined to inquire further into the financial worth of the undertaking in that case.28

[83]   I do not consider either authority particularly relevant to the present circumstances. Patel v Patel involved reasonably complex relationship property proceedings (Mrs Patel resided in Australia). Given the nature of that case, an undertaking was not required at all, so the issue of whether security ought to be given for an undertaking by an off-shore party was not considered by the Court. In Richmastery (which did not concern an off-shore applicant), Lang J explained that “the purpose of an undertaking as to damages is to ensure that a party who is injuriously affected by an injunction has some means of redress if the party obtaining the injunction ultimately fails with its claim”.29 Given the nature of the claims in that case and the defendants’ response to them, Lang J stated that he “could not see how either [defendant] will be injuriously affected in financial terms by the injunction that is sought”.30

[84]   Ms Morrison points to the fact that if security is to be ordered to support an undertaking as to damages, the Court is required to make a logical assessment of the likely loss that could be suffered by the other party by having their assets frozen.

26     Ms Morrison was not counsel for the plaintiff at the time the without notice application was made.

27     Patel v Patel [2014] NZHC 2410.

28     Richmastery Ltd v Richmastery (Central) Ltd HC Tauranga CIV-2005-470-951, 24 May 2006.

29 At [87].

30 At [87].

Counsel refers in this regard to Sun v Peninsula Road Ltd, describing the Court’s assessment in that case as a “careful consideration” of the potential losses involved.31

[85]   Ms Morrison submits that, unlike in in Sun, where there was a clear evidential basis for the alleged losses that might be suffered, there is no evidential or logical basis to suggest Mr Shi (or Boen NZ) might suffer any financial loss should it transpire the freezing orders ought not to have been granted. She reiterates that the plaintiff agrees that the Sales Proceeds may be advanced by Mr Shi to Boen NZ, and that because the freezing orders only attach to Mr Shi’s shares in Boen NZ and the debt owed by it to him, this does not prevent Boen NZ from continuing the Karaka development as planned.

[86]   Turning to Mr Shi’s position on security, in earlier correspondence between the parties’ solicitors, he originally sought $100,000 by way of security, and then subsequently $1.5 million. The latter was based on the pre-sales achieved to date by Boen NZ of approximately $17 million, together with some unsold lots and the balance of the Stage 2 land. Mr O’Callahan submits that if these assets had to be sold in a forced sale situation, it is not unreasonable to expect a reduction in value of at least 20 per cent, namely in excess of NZ$3.4 million. This is said to directly affect the recoverability of Mr Shi’s advances to Boen NZ and the value of his shareholding in the company.

[87]   Mr O’Callahan also points to the possibility that Mr Shi is forced to consider exit strategies in relation to the Karaka development, and if the freezing orders constrain his options in that regard, or hinder him moving quickly in doing so, commercial value may be lost. Mr O’Callahan emphasised at the hearing however, that there is no present suggestion of any need or desire on Mr Shi’s part to exit the Karaka development, which he intends to progress to completion.

[88]   Mr O’Callahan accepted that the various loss scenarios posed on Mr Shi’s behalf are somewhat speculative, and losses accruing to Mr Shi that are attributable to the freezing orders themselves would require a number of adverse events to come about. Nevertheless, I do not consider this to be a situation like that in Richmastery

31     Sun v Peninsula Road Ltd [2012] NZHC 1209.

where it could all but be ruled out that financial loss would flow from the freezing orders. I accept that freezing orders are (unsurprisingly) an unwelcome development in the context of an “in flight” residential property development that appears to be at a relatively critical stage. It also appears that Boen NZ is presently having some financial difficulties, at least to the extent that Mr Shi has had to take the step of selling his apartment with the intention of making the full Sales Proceeds available to the Karaka development. That will not now be possible. For example, there could be at least $300,000 or so less than expected to be advanced to Boen NZ to assist with the Infrastructure Project. While there is no evidence tracking through the ramifications of this, I consider it commercially unrealistic to conclude at this stage that the orders will have no possible adverse effect.

[89]   Further, while I accept that some of the authorities state that an “intelligent estimate” of the potential loss is required,32 I do not consider they require a particularly detailed or complex assessment, especially given the very early stage at which the question of security will be considered (and in many cases, at the without notice stage and on the applicant’s evidence only). This is consistent with the approach recently adopted by the Court of Appeal in MB Technology Ltd v ECOMI Technology Pte Ltd.33 In that case, Wylie J had in fact declined the without notice application for freezing orders on the basis that the applicant, which was based in the British Virgin Islands and had no assets in New Zealand, offered no security in support of its undertaking as to damages. And a further without notice application supported by some security was also considered insufficient. Wylie J’s judgment was appealed (on a without notice basis) to the Court of Appeal, at which point additional security was offered.

[90]   Given the increased security, the Court was prepared to allow the appeal and directed that freezing orders be issued in the High Court.34 The Court noted that “modest” security at not less than NZ$200,000 was “very much less than the value of

32     See, for example, Fortress Value Recovery Fund 1 LLC v Blue Skye Special Opportunities Fund LP [2012] EWHC 1486 at [43].

33     MB Technology Ltd v ECOMI Technology Pte Ltd [2020] NZCA 371.

34 At [20].

the claim”, but “we accept that security must reflect all the circumstances of the case and need not approach that amount”.35 The Court also observed that:36

The risk of loss to the respondents from the freezing orders is limited because the orders are of short duration – three weeks – and may be rescinded on earlier notice. The security is also much less than the potential future value of [the respondents’] assets restrained, but such value is highly speculative…

[91] In this case, the types and quantum of losses suggested by Mr Shi and Boen NZ are speculative. So too is the prospective value of the Karaka development. But given the apparently substantial sums Mr Shi has already advanced to the development and the willingness of ANZ Bank to fund a significant development facility (including its recent extension), it can be assumed for present purposes that there will be some real value in the completed development. Balancing this, the risk of loss to Boen NZ, and thus Mr Shi, as a result of the freezing orders is presently somewhat limited and not supported by any detailed evidence. But at the very least, Mr Shi will now be advancing significantly less than he has expected from the Sales Proceeds to Boen NZ. The freezing orders have therefore already had an adverse impact on Boen NZ. As part of “all the circumstances of the case” to be taken into account, I also note my observation at [61] above that this is not a clear-cut case of risk of dissipation.

[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 of the plaintiff’s

35 At [17].

36 At [17].

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

[94]   Finally, as noted, Mr Shi does not oppose the making of the further ancillary orders sought, in the event the freezing orders are to continue. There will accordingly be orders to that effect, which will require Mr Shi to provide further information as to his assets and Boen NZ’s business in New Zealand.

Result

[95]I make the following orders:

(a)the freezing orders granted on 13 August 2020 and extended by my minute dated 14 September 2020 are to continue pending further order of the Court;

(b)the order at (a) above is conditional upon the plaintiff providing security for its undertaking as to damages in the sum of NZ$200,000, by way of depositing such funds into the trust account of its New Zealand solicitors (Meredith Connell) within 10 working days of the date of this judgment;

(c)Mr Shi is permitted to advance all or part of the Sales Proceeds to Boen NZ, on the condition those funds are used to advance the Infrastructure Project;

(d)within 10 working days of the date of this judgment, Mr Shi is to file and serve an affidavit deposing to those matters set out at paragraphs 1(a) to (e) of Schedule 1 to the plaintiff’s without notice (Pickwick basis) interlocutory application for freezing and ancillary orders dated 12 August 2020;

(e)orders are made in the terms set out at paragraphs 2 to 5 of Schedule 1 to the plaintiff’s without notice (Pickwick basis) interlocutory application for freezing and ancillary orders dated 12 August 2020;

(f)Mr Shi is permitted to access the property the subject of the freezing orders for the purposes described in r 32.6(3) up to an amount of a further NZ$200,000 (excluding GST) over and above that amount referred to at [2.17(c)] of the plaintiff’s submissions dated 7 September 2020 as being legal expenses incurred by Mr Shi;

(g)the amount at (f) above is not necessarily a fixed “cap” or limit. Leave is reserved to Mr Shi to bring the matter back before the Court on 48 hours’ notice should he wish to access the property subject to the freezing orders to an amount greater than referred to at (f) above; and

(h)leave is reserved generally to either party to bring the matter back before the Court for further orders, if required.

Costs

[96]   I would encourage the parties to agree the costs of the application. To the extent they cannot, any party seeking costs may file a costs memorandum within    15 working days of the date of this judgment. The other party may file a memorandum in response within a further five working days. No memorandum is to be longer than three pages in length.

[97]I will thereafter determine costs on the papers.

Concluding observation and direction

[98]   This judgment does not, of course, deal with the underlying substantive proceedings, namely the plaintiff’s claim to enforce the PRC judgment in this jurisdiction. But Mr Shi’s defence to that claim, insofar as it seeks a ruling from this Court that Chinese courts ought not to be considered “courts” for the purposes of the enforcement of foreign court judgments at common law, has potentially broad ramifications. If the Court accepts Mr Shi’s arguments on this point, this would presumably apply to all Chinese court judgments sought to be enforced in this jurisdiction.

[99]   Given these potential implications, I consider it appropriate and make a direction that the relevant underlying papers and a copy of this judgment are served as soon as possible by counsel for Mr Shi on Crown Law in Wellington, so that the Attorney-General may consider whether he wishes to intervene and make any submissions on the matters being advanced.

Fitzgerald J