Huang v Huang
[2021] NZHC 2902
•29 October 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2020-404-2519
[2021] NZHC 2902
BETWEEN PEXIAN HUANG
First Plaintiff
HUAIJIAN HUANG
Second PlaintiffPOY TONG WONG
Third PlaintiffAND
JIEHAO HUANG
Defendant
Hearing: 5 and 6 July 2021 Appearances:
R J Katz QC, S F Gazley and J Wedlake for the Plaintiffs R E Harrison QC and D Liu for the Defendant
Judgment:
29 October 2021
JUDGMENT OF CAMPBELL J
This judgment was delivered by me on 29 October 2021 at 12:30pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
HUANG v HUANG [2021] NZHC 2902 [29 October 2021]
[1] The plaintiffs are members of an extended family that originates from the People’s Republic of China (PRC). They sue the defendant, also a member of that family, in respect of an investment they say was made on their behalf in a property in Silverdale, Auckland. The plaintiffs claim the defendant has failed to account to them for approximately $7.8 million from that investment.
[2] This judgment deals with two matters. First, the defendant (who was not served in New Zealand) entered an appearance objecting to jurisdiction and applied for an order dismissing the proceeding on the ground this Court has no jurisdiction. The plaintiffs opposed that application and made their own application for an order setting aside the defendant’s appearance objecting to jurisdiction. I have to determine those cross applications.
[3] Secondly, when filing the proceeding the plaintiffs sought freezing orders and ancillary orders. On 13 January 2021, Lang J granted the freezing orders on an interim basis but declined to grant the ancillary orders. If I find in favour of the plaintiffs on the jurisdiction dispute, I have to determine whether the interim freezing orders should continue and, if so, whether to grant the ancillary orders.
Background
The parties
[4] The first and second plaintiffs, Peixian Huang and HuaiJian Huang, are sister and brother. Peixian Huang has lived in New Zealand since about 2011. HuaiJian Huang is from Guangzhou, in the PRC, but has recently moved to live in Canada. The third plaintiff, Poy Tong Wong, is their brother-in-law. Poy Tong Wong has lived in the United States since 1988.
[5] The defendant, JieHao Huang, is a nephew of Peixian Huang and HuaiJian Huang. He received his secondary education in New Zealand between 2004 and 2008. He lives in Guangzhou but is also a permanent resident of New Zealand.
The Heli Group
[6] From around 1999, members of the Huang (sometimes translated as Wong) family formed a business group in Guangzhou known as the Heli Group. The Heli Group is not a registered entity under the laws of the PRC (or elsewhere). It is a name used by the family to describe a group of companies and partnerships owned by the family.
[7]By 2002, the owners of the Heli Group were:
(a)ZhaoJian Huang (the defendant’s father), holding a 3/11ths share.
(b)Peixian Huang (the first plaintiff), holding a 3/11ths share.
(c)HuaiJiang Huang (the second plaintiff), holding a 3/11ths share.
(d)Poy Tong Wong (the third plaintiff), holding a 1/11th share.
(e)Cho Kin Wong (youngest brother of the plaintiffs), holding a 1/11th share.
[8] These owners did not necessarily hold registered interests in the companies and partnerships that comprise the Heli Group. The interests in the various companies and partnerships were held by one or more of the owners (or their spouses or nominees) on trust for the owners in the proportions set out above.
[9] The parties refer to these owners as the “first generation” to distinguish them from the owners’ children (such as JieHao Huang), who are referred to as the “second generation”. The plaintiffs say the first-generation owners refer to themselves as “the Board” and are the decision makers for the Heli Group. The plaintiffs say that both first and second generation attend Board meetings but ultimately decisions are approved by the first-generation owners only. This includes decisions about profit distribution (which the plaintiffs refer to as “dividend” payments), which would be distributed to owners according to their percentage share in the Heli Group.
[10] The plaintiffs say the beneficial ownership of the companies and partnerships in the Heli Group, and control of the Heli Group, remain as set out above.
[11] JieHao Huang disagrees. He says beneficial ownership changed in 2014 when three of the first-generation owners decided to step back from the family business and let their successors take over their roles as well as their beneficial interests. JeiHao Huang says at that time:
(a)His father, ZhaoJiang Huang, transferred his beneficial ownership to him (JieHao Huang);
(b)The first plaintiff, Piexian Huang, transferred her beneficial ownership to her son, GuoQuan Liu;
(c)The second plaintiff, HuaiJian Huang, transferred his beneficial ownership to his son, ZhenHao Huang; and
(d)Consequently, the only remaining first-generation owners were Poy Tong Wong and Cho Kin Wong, each holding a 1/11th share.
[12] JeiHao Huang says, moreover, that from 2014 the entities in the Heli Group have been managed by three second-generation owners: himself, ZhenHao Huang and GuoQuan Liu. JeiHao Huang says these changes are evidenced by what happened after 2014. He says from that time:
(a)Legal ownership of company shares and partnership interests was transferred to himself, ZhenHao Huang and GuoQuan Liu;
(b)Profits previously distributed to ZhaoJian Huang, HuaiJian Huang and Piexian Huang were instead distributed to himself, ZhenHao Huang and GuoQuan Liu; and
(c)Company documents and resolutions that had previously been signed by the first-generation owners were signed by himself, ZhenHao Huang and GuoQuan Liu.
[13] This change is disputed by the plaintiffs. They accept there was a change in legal ownership and a change in the registered directors in 2014, but they say the plaintiffs’ beneficial ownership of the Heli Group remained the same. HuaiJiang Huang, who has made the primary affidavits on behalf of the plaintiffs, says the first- generation owners have from time to time “stepped into and out of” the direct management of the Heli Group entities. He says when they have stepped out they have put in their second-generation successors to act as their representatives and have “re-directed their dividend returns to that successor at their discretion”. HuaiJiang Huang says that notwithstanding this “fluidity”, the first-generation owners’ beneficial ownership, power to “step back in” and high-level control “has never changed”.
[14] This dispute about the beneficial ownership and control of the Heli Group is a central issue in the proceeding.
Heli Group bank accounts
[15] Bank accounts for the various companies and partnerships within the Heli Group were opened in the personal names of relevant employees of the companies and partnerships. Those employees would then operate the bank accounts in accordance with instructions of the Heli Group.
The Silverdale investment
[16] Cho Kin Wong, who is the youngest of the Huang/Wong siblings, has been living in New Zealand since 1987. In 2013, he met Sky Cai, who had just agreed to purchase a 1.5 hectare property for residential development in Albany, Auckland. Sky Cai was looking for investors to join him. Cho Kin Wong and two others from the PRC, Yamin Zhan (Cho Kin Wong’s oldest brother’s daughter-in-law) and Xikun Zhan, agreed to take a 60 per cent share in the Albany development. Sky Cai held 40 per cent.
[17] In 2015, Sky Cai identified two neighbouring Silverdale properties that had potential for residential development. The properties comprised a little over 26 hectares. This was a much larger project than the Albany development. Sky Cai said he could only fund about ten per cent. He asked Cho Kin Wong, Yamin Zhan and
Xikun Zhan whether they wished to invest. They then approached family and friends in the PRC about investing. They found ten investors, one of whom was JieHao Huang.
[18] The vehicle for the Silverdale investment was a company, Grand Silverdale Development Ltd (GSDL). GSDL has 110 shares. Ten of those shares are held (through a company) by Sky Cai. One hundred shares are held by Cho Kin Wong, Yamin Zhan and Xikun Zhan. They hold their shares on a bare trust for the ten investors they found in the PRC. Of those shares, they hold 30 on trust for JieHao Huang. Through this trust and corporate structure JieHao Huang therefore had an effective 3/11ths share in the Silverdale investment.
[19] The Silverdale investment was highly profitable. GSDL purchased the properties in 2017 for $32.8 million. Within a few months GSDL had entered into an agreement to sell the properties for $80 million. That agreement settled in 2019. After development costs and other expenses, GSDL’s profit was about $38.4 million.
Dispute over JieHao Huang’s share in the Silverdale investment
[20] The plaintiffs say JieHao Huang invested in a 3/11ths share of the Silverdale investment largely on their behalf. They say he therefore holds his share of the proceeds of sale largely on their behalf. They say JieHao Huang has failed to account to them for most of the proceeds.
[21] JieHao Huang disputes that he invested in the Silverdale investment on behalf of the plaintiffs. He accepts he was investing on behalf of others. But he says those others are three of the companies in the Heli Group. JieHao Huang says he has distributed some of the sale proceeds in accordance with that position. He says he is not prepared to distribute the balance of the sale proceeds given there are competing claims to the proceeds.
[22]It is necessary to explain the positions taken by the parties on this dispute.
The plaintiffs’ position on JieHao Huang’s share
[23] HuaiJiang Huang, the second plaintiff, has made two substantial affidavits. He says the Silverdale investment was first brought to the plaintiffs’ attention in 2015. Cho Kin Wong telephoned HuaiJiang Huang from New Zealand saying he was looking for potential investors. Cho Kin Wong travelled to the PRC later in 2015 and met with the first-generation owners as well as those of the second generation who by then were the legal owners of the companies and partnerships in the Heli Group (JieHao Huang, ZhenHao Huang and GuoQuan Liu).
[24] HuaiJiang Huang says the investment proposal was then formalised in a notice of proposal dated 2 November 2015 that was put before a Heli Group board meeting. The notice of proposal stated the Heli Group would invest in land in New Zealand and that the investment would be “in the form of shareholder dividends”. HuaiJiang Huang says the board nominated JieHao Huang to be the Heli Group’s representative for the Silverdale investment, as he was easily able to travel to New Zealand owing to his residency here.
[25] HuaiJiang Huang says JeiHao Huang held his share in the Silverdale investment on behalf of the Heli Group – that is, on behalf of the first-generation owners (since they remained, according to HuaiJiang Huang, the beneficial owners of the Heli Group: ZhaoJian Huang (3/11ths), HuaiJiang Huang (3/11ths), Peixian Huang (3/11ths), Poy Tong Wong (1/11th) and Cho Kin Wong (1/11th)).
[26] GuoQuan Liu (one of the second generation) has also made an affidavit in support of the plaintiffs’ position. He says the first-generation owners agreed to invest in the Silverdale development according to their ownership shares of the Heli Group, and that the investment in the Silverdale development was funded from dividend payments owed to those first-generation owners. He says the dividend payments were not distributed directly to the personal bank account of each owner, but to bank accounts in the names of Heli Group employees.
[27] One of those employees, ShaoFang Yu, has made an affidavit. She states she made payments to New Zealand from bank accounts that were in her name but which
she operated on behalf of one of the companies in the Heli Group. She says the payments were recorded as dividend payments to Heli Group owners.
[28] Between late 2015 and mid-2017, the plaintiffs say about $9.7 million was transferred from bank accounts within the Heli Group’s control to bank accounts in New Zealand within JeiHao Huang’s control to fund his share in the Silverdale investment. The plaintiffs say that money consisted of dividends owed to the first- generation owners.
[29] After the Silverdale properties were sold, the plaintiffs say JeiHao Huang initially dealt with the sale proceeds in a manner consistent with their claim he held his share in the investment on behalf of the first-generation owners. According to HuaiJiang Huang:
(a)On 29 August 2017, JieHao Huang sent a message to the Heli Group WeChat group saying an initial distribution of about $1.9 million was available. His message (translated) included: “I would like to ask all shareholders how the money from land sale should be handled?”
(b)On 4 September 2019, JieHao Huang sent another WeChat message saying a second instalment of $3.3 million was available to be distributed and requesting “all shareholders” to provide a bank account for providing the money.
(c)In those messages “shareholders” is a reference to the first-generation owners of the Heli Group.
(d)JieHao Huang paid the second instalment according to the shares of the first-generation owners: 3/11ths to ZhaoJian Huang, 3/11ths to HuaiJiang Huang, 3/11ths to Peixian Huang, 1/11th to Poy Tong Wong and 1/11th to Cho Kin Wong.
[30] The plaintiffs say that JieHao Huang has failed to return the balance of the sale proceeds. They also allege JieHao Huang has used some of those proceeds to make
unauthorised investments in another property in Massey, Auckland and in an Auckland car dealership.
JieHao Huang’s position on his share
[31] JieHao Huang says he and two other second-generation owners (ZhenHao Huang and GuoQuan Liu) were approached by Cho Kin Wong about the Silverdale investment in about mid-March 2016. He says he, ZhenHao Huang and GuoQuan Liu considered the proposal had merit and agreed to invest a 3/11ths share in the Silverdale investment. He says it was agreed between him, ZhenHao Huang and GuoQuan Liu that the 3/11ths share would be held by him in trust for three companies in the Heli Group. He says they arranged for funds to be transferred to New Zealand from bank accounts beneficially owned by those three companies.
[32] It may be recalled that JieHao Huang’s position is that, from 2014, he, ZhenHao Huang and GuoQuan Liu (rather than any first-generation owners) were managing the Heli Group. His position is also that from that time the beneficial owners of the Heli Group have been himself, ZhenHao Huang, GuoQuan Liu, Poy Tong Wong and Cho Kin Wong.
[33] JieHao Huang says the above discussions and decisions were made in the PRC in March 2016. He rejects HuaiJian Huang’s account that the Silverdale investment was proposed to a Heli Group board meeting in November 2015. He disputes the authenticity of the notice of proposal dated 2 November 2015 that HuaiJian Huang says was put before that meeting.
[34] As to the distribution of sale proceeds, JieHao Huang points to other WeChat messages sent in October 2019. He says his messages made it clear he considered the beneficial owners of the Heli Group at that point were himself, ZhenHao Huang, GuoQuan Liu, Poy Tong Wong and Cho Kin Wong. He refers to a WeChat message dated 1 October 2019 that describes a board resolution being passed by himself, ZhenHao Huang and GuoQuan Liu (consistent with his position they had taken over management of the Heli Group).
[35] JieHao Huang says he has distributed about $9 million of the sale proceeds. He says about $2 million has been used to buy, on behalf of the Heli Group, a share in a property in Massey and a shareholding in an Auckland car dealership. He says these acquisitions were authorised by the Heli Group. He says the balance of the distributions have been paid in accordance with his position that the beneficial owners of the Heli Group are himself, ZhenHao Huang, GuoQuan Liu, Poy Tong Wong and Cho Kin Wong.
[36] JieHao Huang says he has yet to account for about $6.9 million of the sale proceeds. He is withholding distribution of those funds for two reasons. First, he says there are competing claims to the funds he holds. Those competing claims relate to the overall dispute as to ownership and control of the Heli Group. In particular, he says ZhenHao Huang and GuoQuan Liu have refused to recognise Cho Kin Wong’s ownership interest in the Heli Group. Cho Kin Wong has made an affidavit to the same effect. JieHao Huang says he is not prepared to distribute further funds to the Heli Group until Cho Kin Wong’s ownership has been properly recognised and documented.
[37] Secondly, JieHao Huang says he is not prepared to release the balance of the sale proceeds because he is owed a significant amount of money by either ZhenHao Huang, GuoQuan Liu or the Heli Group that far exceeds the value of the funds and assets held by him in New Zealand.
The plaintiffs’ statement of claim
[38] The plaintiffs’ claims are found in an amended statement of claim dated 1 April 2021. The plaintiffs plead that JieHao Huang held his interest in the Silverdale investment “on behalf, and for the benefit, of the Heli Group and the Shareholders”. By “Shareholders” the plaintiffs mean the first-generation owners who they say remain the owners of the Heli Group.
[39] The plaintiffs allege that JeiHao Huang has failed to distribute about $12.2 million to the Shareholders. The plaintiffs represent 7/11ths of the Shareholders’ interests. They therefore claim their entitlement to the undistributed funds is about
$7.8 million. The plaintiffs pursue five alternative causes of action against JeiHao Huang, which they style:
(a)Breach of remedial constructive trust. The plaintiffs seek judgment in the sum of $7.8 million plus an account of profits received by JieHao Huang from his use of the sale proceeds;
(b)Breach of implied constructive trust. The plaintiffs seek judgment in the sum of $7.8 million;
(c)Breach of agency agreement and account of profits. The plaintiffs seek judgment in the sum of $7.8 million;
(d)Constructive trust and tracing. The plaintiffs seek judgment in the sum of $7.8 million, or alternatively a declaration they are entitled to trace that sum into, and claim equitable title to, their proportion of the sale proceeds and that JieHao Huang holds the sale proceeds on trust for the plaintiffs; and
(e)Breach of a joint venture agreement. They plaintiffs seek compensation for loss (unquantified, but presumably $7.8 million) caused by alleged breaches of fiduciary duty, plus an account of profits earned by JieHao Huang from the sale of the Silverdale properties.
Objection to jurisdiction: overview
[40] The plaintiffs served, or purportedly served, this proceeding on JieHao Huang in the PRC. They did so in reliance on r 6.27 of the High Court Rules 2016. Rule
6.27 allows, in certain cases, an originating document to be served out of New Zealand without leave of the Court.
[41] JieHao Huang objected to the jurisdiction of the New Zealand courts to hear the proceeding. After filing, under r 5.49(1), an appearance objecting to jurisdiction, JieHao Huang applied under r 5.49(3) for an order dismissing the proceeding for want
of jurisdiction. His grounds for saying the Court has no jurisdiction, as pursued at the hearing, are:
(a)Service of the proceeding on him was effected contrary to the law of the PRC and was therefore invalid under r 6.32(4). Because he had not been validly served, the Court lacked jurisdiction to hear and determine the claims brought in this proceeding.
(b)Alternatively, if service was valid, the Court should decline to assume jurisdiction because:
(i)The plaintiffs did not have an arguable case; and/or
(ii)New Zealand was not the appropriate forum for the trial.
[42] The plaintiffs opposed the application and made their own application under r 5.49(5) for an order setting aside JieHao Huang’s appearance objecting to jurisdiction. They said the proceeding had been validly served, they had an arguable case, and New Zealand was the appropriate forum.
[43] Rule 5.49 provides alternative routes for determining the parties’ respective applications:
5.49 Appearance and objection to jurisdiction
…
(6)The court hearing an application under subclause (3) or (5) must,—
(a)if it is satisfied that it has no jurisdiction to hear and determine the proceeding, dismiss the proceeding; and
(b)if it does not dismiss the proceeding under paragraph (a), set aside the appearance.
(7)To the extent that an application under this rule relates to service of process effected outside New Zealand under rule 6.27 or 6.28, it must be determined under rule 6.29.
…
[44] The r 5.49(7) route is the one usually followed in cases like this involving overseas parties. It leads to r 6.29, which asks whether this Court should assume jurisdiction by reason of matters such as New Zealand being the appropriate forum. But the r 5.49(7) route applies only to the extent that service has been effected – which must mean validly effected – outside New Zealand. It follows that if, as JieHao Huang contends, he was not validly served, the r 5.49(6) route, rather than the r 5.49(7) route, applies.
[45] I will begin by considering JieHao Huang’s contention that he was not validly served. This contention is advanced as a reason for dismissing the proceeding for lack of jurisdiction under r 5.49(6). The onus under 5.49(6) is on JieHao Huang.
[46] I will then consider whether, if there was valid service, this Court should assume jurisdiction under r 6.29. The onus under r 6.29 is on the plaintiffs.
Was JieHao Huang not validly served?
[47] There is no dispute the plaintiffs were entitled, under r 6.27, to serve the proceeding out of New Zealand. The dispute was about the method used by the plaintiffs to purportedly serve the proceeding on JieHao Huang.
[48] On its face there was nothing unusual about the method of service used by the plaintiffs. The documents were personally served on JieHao Huang.
[49] Rule 6.32(1) provides for the methods by which an originating document that can be served outside New Zealand may be served. Any method specified in r 6.1 is permitted. Rule 6.1 provides, among other things, for personal service.
[50]However, r 6.32(1) is subject to r 6.32(4), which provides:
6.32 Service outside New Zealand
…
(4)No service outside New Zealand is valid if effected contrary to the law of the country where service is effected.
[51] Mr Harrison QC, for JieHao Huang, submitted personal service of a New Zealand proceeding in the PRC was contrary to the law of the PRC. He relied on an affidavit by Dr Fang Chen. Dr Chen completed a PhD in constitutional and administrative law at the China University of Political Science and Law in 2001. He was admitted as a lawyer in the PRC in 1998 and has practised there for 23 years. He is currently vice president of the Guangdong Province Lawyers Association. I accept Dr Chen is an expert on the law of the PRC.
[52] Dr Chen deposed that art 276(1) of the Civil Procedure Law of the PRC provides that (translated):
In accordance with the international treaties concluded or acceded to by the People’s Republic of China or with the principle of reciprocity, the people’s courts of China and foreign courts may make mutual requests for assistance in the service of legal documents, in investigation and collection of evidence or in other litigation actions.
[53]Dr Chen then said that art 277 of the Civil Procedure Law provides:
The request for the providing of judicial assistance shall be effected through channels provided in the international treaties concluded or acceded to by the People’s Republic of China; in the absence of such treaties, they shall be effected through diplomatic channels.
A foreign embassy or consulate accredited to the People’s Republic of China may serve documents on its citizens and make investigations and collect evidence among them, provided that the laws of the People’s Republic of China are not violated and no compulsory measures are taken.
Except for the conditions provided in the preceding paragraph, no foreign organisation or individual may, without the consent of the competent authorities of the People’s Republic of China, serve documents or make investigations and collect evidence within the territory of the People’s Republic of China.
[54] Dr Chen said this meant that under the law of the PRC, extraterritorial proceedings can be served in the PRC only by one of four methods:
(a)In accordance with the procedures set out in international treaties concluded or acceded to by China;
(b)Served by a court of the PRC at the request of a foreign court;
(c)Served by a foreign embassy or consulate on their own citizens; or
(d)Served by a court of the PRC on PRC citizens or legal persons and third-country or stateless persons in the PRC through diplomatic request.
[55] Dr Chen explained that, given the PRC and New Zealand do not have an agreement on mutual judicial assistance for civil and commercial matters, and as New Zealand is not a party to the Hague Service Convention, the present proceeding could only be served by a court of the PRC after having received a request from a New Zealand court or through diplomatic channels. He concluded that, as the proceeding was not served on JieHao Huang in that manner, service “has been effected contrary to PRC law”.
[56] The plaintiffs obtained an affidavit from Dr Zhixiong Liao, also an expert on the law of the PRC. Dr Liao deposed that what Dr Chen said about service of the proceeding in the PRC “largely represents the law in the PRC”. But Dr Liao then opined that whether service was effective or not under the law of the PRC was irrelevant. His opinion was that r 6.32(1) permits service by a method specified in r
6.1 and JieHao Huang was served in accordance with such a method. I put that opinion to one side. The effect of r 6.32(1) is a matter for submission, not expert evidence. Further, Dr Liao did not address r 6.32(4).
[57] Mr Katz QC, for the plaintiffs, submitted Dr Chen’s evidence on the rules of civil procedure in the PRC was inadmissible. He submitted it was necessary for Dr Chen to put the original (in this case Mandarin) version of PRC law in evidence, together with a translation of that law by a qualified translator. Mr Katz referred me to English cases that he said were to that effect.1 Mr Katz submitted that, Dr Chen having not put the original Mandarin version in his evidence, his evidence was not substantially helpful (in terms of s 25 of the Evidence Act 2006) and was therefore inadmissible.
1 A/S Tallinna Laevauhisus v Estonian State Steamship Line (1947) 80 Lloyd’s Rep 99 (CA);
National Bank Trust v Yurov [2020] EWHC 100 (Comm).
[58] On my reading of the English cases I doubt they support the proposition Mr Katz put forward. In any event, s 144 of the Evidence Act provides that a party may offer “evidence given by an expert” as evidence of a statute or other written law of a foreign country.2 It is not necessary for there to be evidence of the original language version or of a translation by a qualified translator. Of course, if the version of the foreign law put forward by the expert is disputed, the lack of a translation by a qualified translator may be problematic. But here Dr Liao raised no issue with the version of the PRC civil procedure rules set out by Dr Chen. Rather, he said that what Dr Chen had set out “largely represents the law in the PRC”.
[59] Mr Katz next submitted that, even if Dr Chen’s opinion were admissible, and notwithstanding that Dr Liao had not disagreed with it, personal service of the proceeding was not contrary to the law of the PRC. Mr Katz put forward two arguments.
[60] The first was that the PRC civil procedure rules to which Dr Chen referred merely showed that personal service was not permitted by the law of the PRC. Those rules did not, Mr Katz submitted, support Dr Chen’s conclusion that personal service was contrary to the law of the PRC. Mr Katz said “not permitted” by the law of the PRC was not the same as “contrary to” the law of the PRC.
[61] I accept that, at least in the context of r 6.32, “not permitted” is not the same as “contrary to”.3 But I do not accept Mr Katz’s submission that the PRC civil procedure rules do not support Dr Chen’s opinion. The final paragraph of art 277 of the Civil Procedure Law provides that, except on conditions that did not apply here, “no foreign organization or individual may … serve documents … within the territory of” the PRC. Such service would be “contrary to” art 277. Dr Chen’s view was that the service of the proceeding on JieHao Huang was contrary to art 277 (and other aspects of the PRC’s civil procedure law). Dr Liao did not disagree.
2 Mr Katz fairly referred me to s 144. But he did not explain why, notwithstanding s 144, an original language version and a translation was required.
3 Abela v Baadarani [2013] UKSC 44, [2013] 1 WLR 2043 at [24] (dealing with the English equivalent to r 6.32).
[62] Mr Katz’s second argument relied on the decision of the Supreme Court of Western Australia in Channar Mining Pty Ltd v CMIEC (Channar) Pty Ltd.4 There the Court had to consider whether, under a rule equivalent to r 6.32, a proceeding had been served in the PRC “contrary to” the law of the PRC. The Court received expert evidence that the law of the PRC (including arts 262 and 263 of the PRC Civil Procedure Law) was that “no foreign organisation or individual may themselves serve documents issued by foreign courts within the territory of the Republic”.5 In Channar the plaintiffs had served a notice of writ (issued by the plaintiffs’ solicitor), rather than the writ itself (issued by the Court). Pullin J held that service of the notice of writ was not contrary to the law of the PRC because it was not issued by a foreign court.6
[63] Mr Katz submitted the same reasoning applied here. He said that under the High Court Rules the notice of proceeding and statement of claim were not issued by the High Court. Personal service was therefore not contrary to the law of the PRC. He also said that Dr Chen had not referred to arts 262 and 263 of the PRC Civil Procedure Law.
[64] I do not accept that submission. Dr Chen gave expert evidence on the procedural law of the PRC. His expertise was not questioned. Dr Liao said Dr Chen had got it right. In those circumstances I am satisfied that the procedural law of the PRC is as stated by Dr Chen. I am not going to be dissuaded from reaching that conclusion by evidence that was not before me and that addressed PRC procedural law as it stood 18 years ago.
[65] Mr Katz had one more submission on this subject. He said the concern over the method of service was a technical objection. He said the real issue was whether the proceeding had come to the attention of JeiHao Huang, and it obviously had, given Mr Harrison was appearing on his behalf.
[66] In support of that submission, Mr Katz relied on the United Kingdom Supreme Court’s decision Abela v Baadarani.7 I do not agree that Abela supports Mr Katz’s
4 Channar Mining Pty Ltd v CMIEC (Channar) Pty Ltd [2003] WASC 253.
5 Channar Mining Pty Ltd v CMIEC (Channar) Pty Ltd [2003] WASC 253 at [21].
6 Channar Mining Pty Ltd v CMIEC (Channar) Pty Ltd [2003] WASC 253 at [34]-[36].
7 Abela v Baadarani [2013] UKSC 44, [2013] 1 WLR 2043.
argument. Abela was concerned with the power under r 6.15 of the Civil Procedure Rules (CPR) to order that a step already taken to bring a document to the attention of the defendant by an alternative method of service is good service. There the defendant was in Lebanon, so the Supreme Court had to consider how the r 6.15 power interacted with CPR r 6.40, which is the equivalent to New Zealand’s r 6.32. Like r 6.32, CPR r 6.40 provides that a document served on a party out of the United Kingdom may be served by a method permitted by the law of the country in which it is to be served, except that the service cannot be “contrary to the law of the country where the claim form or other document is to be served”.
[67] Mr Katz is correct that the Supreme Court emphasised the importance of asking whether the document had come to the attention of the defendant. But that was because CPR r 6.15 required that focus. Abela was not a case in which the proposed method of service was contrary to the law of the country in which the claim form had been served. Lord Clarke recorded this:8
… Although it was held that delivery of the claim form was not permitted service under Lebanese law, it was not suggested or held that delivery of the documents was contrary to Lebanese law or that an order of an English court that such delivery was good service under English law was itself contrary to Lebanese law.
[68] Abela therefore does not support the proposition that a method of service invalidated by r 6.32(4) is nonetheless valid if it has brought the document to the attention of the defendant.
[69] I conclude that personal service of the originating documents in this proceeding was effected on JieHao Huang contrary to the law of the PRC. Consequently, under r 6.32(4) that service was not valid.
What is the consequence of the invalid service?
[70] Mr Harrison submitted that a necessary consequence of invalid service is that the Court lacks jurisdiction to hear and determine the claims against JieHao Huang that have been brought in this proceeding. He submitted the proceeding should be
8 Abela v Baadarani [2013] UKSC 44, [2013] 1 WLR 2043 at [24].
dismissed on that ground alone. He relied on the Court of Appeal’s decision in
Commerce Commission v Viagogo AG.9
[71] Viagogo AG states the well-established proposition that the Court’s jurisdiction to hear and determine any claim against a defendant depends on that defendant having been validly served.10 I therefore accept that, JeiHao Huang having not been validly served, this Court presently has no jurisdiction to hear and determine this proceeding.
[72] Viagogo AG did not deal with whether a proceeding over which a court lacked jurisdiction by reason of invalid service should be dismissed (rather than, for example, be stayed pending service being validly effected). That matter is governed by r 5.49(6), which provides that if the Court is satisfied there is no jurisdiction it must dismiss the proceeding. This supports Mr Harrison’s submission that I should dismiss the proceeding on the ground of invalidity of service.
[73] However, r 5.49(8) provides that the powers under r 5.49 may be exercised on any terms and conditions the Court thinks just. If this Court lacks jurisdiction only by reason of the invalidity of service, it would not be appropriate to unconditionally dismiss the proceeding, given that lack of jurisdiction could be cured by the plaintiffs subsequently effecting valid service. The appropriate response would be to order the proceeding be dismissed unless the plaintiffs effected valid service within a further defined period.
[74] It is therefore necessary to examine whether there is any other reason this Court lacks jurisdiction. I will do so by considering whether, if (contrary to the conclusion I have just reached) JieHao Huang was validly served, this Court should assume jurisdiction under r 6.29.
If JieHao Huang was validly served, should this Court assume jurisdiction?
[75] If JieHao Huang was validly served, the parties’ applications would be determined under r 6.29. Because service was without leave, r 6.29(1) applies:
9 Commerce Commission v Viagogo AG [2019] NZCA 472, [2019] 3 NZLR 559.
10 Commerce Commission v Viagogo AG [2019] NZCA 472, [2019] 3 NZLR 559 at [52].
6.29 Court’s discretion whether to assume jurisdiction
(1)If service of process has been effected out of New Zealand without leave, and the court’s jurisdiction is protested under rule 5.49, the court must dismiss the proceeding unless the party effecting service establishes—
(a)that there is—
(i)a good arguable case that the claim falls wholly within 1 or more of the paragraphs of rule 6.27; and
(ii)the court should assume jurisdiction by reason of the matters set out in rule 6.28(5)(b) to (d); or
(b)that, had the party applied for leave under rule 6.28,—
leave would have been granted; and
(ii)it is in the interests of justice that the failure to apply for leave should be excused.
[76] Mr Harrison accepted there is a good arguable case the claim falls within one or more of the paragraphs of r 6.27. It is therefore sufficient to determine the applications under r 6.29(1)(a).11 This means the ultimate question is whether the plaintiffs have established that this Court should assume jurisdiction by reason of the matters set out in r 6.28(5)(b) to (d):
6.28 When allowed with leave
…
(5) The court may grant an application for leave [to serve an originating document out of New Zealand] if the applicant establishes that—
…
(b)there is a serious issue to be tried on the merits; and
(c)New Zealand is the appropriate forum for the trial; and
(d)any other relevant circumstances support an assumption of jurisdiction.
11 If the plaintiffs are unable to establish that, in terms of r 6.29(1)(a)(ii), the Court should assume jurisdiction by reason of the matters set out in r 6.28(5)(b) to (d), they will not be able to show that, in terms of r 6.29(1)(b), had they applied for leave under r 6.28, leave would have been granted.
[77] Mr Katz submitted there was a serious issue to be tried on the merits and New Zealand was the appropriate forum. Mr Harrison took issue with both points. The issues therefore are:
(a)Is there a serious issue to be tried on the merits?
(b)Is New Zealand the appropriate forum for the trial?
Is there a serious issue to be tried on the merits?
[78] The Court must be satisfied there is a serious legal issue to be tried and there is a sufficiently strong factual basis to support the legal right asserted. In approaching these questions, the Court will not determine credibility issues where there are conflicting affidavits other than in exceptional cases.12
[79] Mr Harrison sensibly acknowledged there were serious factual disputes that I could not resolve on this interlocutory application. He also accepted that, on the factual case put forward by the plaintiffs, there was a serious legal issue to be tried if the applicable law was New Zealand law. But he submitted the applicable law was PRC law and that this had two consequences. First, under PRC law the plaintiffs were not the proper plaintiffs and lacked standing to bring the claims. This was because the plaintiffs were not the registered shareholders or owners of the companies and partnerships in the Heli Group and their claim to be beneficial owners was based on a trust that was not recorded in writing. This meant they were not entitled to the money that was sent from the PRC to New Zealand to fund JieHao Huang’s share of the Silverdale investment. Secondly, under PRC law the plaintiffs’ causes of action, being equitable, were not tenable.
[80] To assess those two arguments, I first have to address the parties’ arguments over the applicable law.
12 Wing Hung Printing Co Ltd v Saito Offshore Pty Ltd [2010] NZCA 502, [2011] 1 NZLR 754 at [37].
The applicable law
[81] Mr Katz’s starting point was that New Zealand law was the applicable law. He modified that position during the hearing, in response to my asking whether different systems of law might apply to different issues in this dispute. He accepted that PRC law would apply to issues over the beneficial ownership of the Heli Group companies and partnerships, and over entitlement to the money sent to New Zealand for the Silverdale investment. But he said New Zealand law would apply to the balance of the issues in this proceeding: whether JeiHao Huang was subject to equitable or other obligations in respect of that money, whether he had failed to deal with the proceeds of sale in accordance with those obligations, and if so what remedies should follow. He added that at this stage the plaintiffs merely had to satisfy me there was a serious issue that New Zealand law was the applicable law for those issues.
[82] There are cases where some issues are resolved by the law of one country and other issues are resolved by the law of another country.13 This may be one of them. PRC law must, as Mr Katz accepted, be the applicable law for the disputes over beneficial ownership of the companies and partnerships in the Heli Group and over entitlement to the money paid from those entities towards the Silverdale investment. These are entities incorporated and operating in the PRC. The dispute over beneficial ownership of the entities is concerned with events from 2014 onwards. Most of those events occurred in the PRC and before there was any thought of an investment in New Zealand. The dispute over entitlement to the money paid from those entities (that is, whether the money was paid on behalf the first-generation owners as “dividends” to which they were beneficially entitled) will depend on (i) resolution of the dispute over ownership of the entities and (ii) whether the payments were made on behalf of the first-generation owners (or merely on behalf of the Heli Group entities). It is difficult to see how these issues could be governed by any system of law other than PRC law.
[83] By contrast, the applicable law is not so obvious in relation to whether JeiHao Huang was subject to any (and, if so, what) obligations in relation to the money that he received and whether he breached those obligations. It depends on how one characterises this part of the dispute. Mr Katz said JeiHao Huang’s obligations arose
13 Macmillan Inc v Bishopsgate Investment Trust Plc (No 3) [1996] 1 WLR 387 (CA) at 402-404.
when he received the money in New Zealand. Mr Katz characterised this as a dispute over property rights. He submitted, relying on the Court of Appeal’s decision in Schumacher,14 that the general rule is that disputes over property rights are determined by the law where the property is located. In this case that meant New Zealand law.
[84] Mr Harrison candidly acknowledged these issues could be characterised in a variety of ways, so that no single choice of law rule could be applied. He submitted, also relying on Schumacher, that it was wrong to dwell on particular distinctions that New Zealand domestic law might make. Instead one should find the most appropriate law to govern the substantive issues. He submitted that central to the plaintiffs’ claims was that JeiHao Huang variously “agreed” or “accepted” or otherwise undertook duties to the plaintiffs. Given the factual circumstances and genesis of the alleged transaction or relationship, Mr Harrison submitted PRC law was clearly the system of law with the closest and most real connection to the transaction or relationship.
[85] It is not necessary (or appropriate, on an interlocutory application with so many factual disputes) to make definitive findings on the applicable law for these issues. I accept Mr Katz’s submission that at this stage the plaintiffs merely have to satisfy me there is a serious issue that New Zealand law is the applicable law for determining JeiHao Huang’s obligations and whether he breached them. I find it is seriously arguable that New Zealand law is the applicable law for these issues, as they may be characterised as disputes over property rights.
Given the applicable law, is there a serious issue to be tried?
[86] I now return to the two reasons that Mr Harrison gave for his submission that there was no serious issue to be tried. I can deal quickly with the second reason, which was that under PRC law the plaintiffs’ causes of action, being equitable, were not tenable. That assumed PRC law applied to JieHao Huang’s obligations. I have held that is not necessarily so.
[87] Mr Harrison’s first reason was that, as the plaintiffs were not the registered shareholders or owners of the companies and partnerships in the Heli Group and their
14 Schumacher v Summergrove Estates Ltd [2014] NZCA 412, [2014] 3 NZLR 599.
claim to be beneficial owners was based on a trust that was not recorded in writing, under PRC law they lacked standing to bring the claims and had no entitlement to the money sent from the PRC to New Zealand.
[88] As noted, I accept that PRC law applies to determine these matters. Mr Harrison relied on Dr Chen’s evidence as to PRC law. Dr Chen deposed that under PRC law a plaintiff must have a “direct interest” in a case. His opinion was that the plaintiffs had no such direct interest. First, they were not registered owners of the entities in the Heli Group. Secondly, to the extent the plaintiffs relied on a trust, Dr Chen explained that PRC law only recognised express written trusts, and there was no allegation of such a trust.
[89] Dr Liao responded in his affidavit with a different opinion. He did not disagree that PRC law requires a plaintiff to have a direct interest in a case. But he said there were many circumstances in which a person, who is not a registered shareholder, has a direct interest and is thus eligible to sue. He said that the true nature of the relationship between the parties may be a partnership, an agency, a joint venture or a long-term contractual relationship. These did not have to be in writing, though he accepted a trust had to be. His opinion was that the plaintiffs were very likely to have a direct interest.
[90] Dr Chen made an affidavit in reply. He noted the plaintiffs themselves pleaded they were “shareholders”. He said PRC law did not recognise “unregistered shareholders”. He acknowledged the plaintiffs could attempt to sue via other legal relationships, but said the current pleading appeared to be based on breach of alleged shareholder rights.
[91] Mr Harrison submitted Dr Liao’s opinion was flawed. He invited me to prefer Dr Chen’s opinion. He also submitted that, in any event, Dr Liao had acknowledged that, as unregistered shareholders, the plaintiffs had no entitlement to govern the companies in the Heli Group. He submitted a necessary consequence of this was that the advances of funds from those companies must be treated under PRC law as having been made on behalf of those companies (not on behalf of the plaintiffs).
[92] I am not in a position to resolve, on the affidavits alone, the conflicting opinions expressed by the experts on PRC law and on how it would apply to the circumstances of this case. There is at least a serious legal issue to be tried that under PRC law the plaintiffs would be entitled to sue, relying on one of the relationships to which Dr Liao referred. The facts pleaded arguably fit those relationships (under PRC law). The pleaded facts, not the labels the plaintiffs have used in their pleadings, are what matters.
[93] I do not accept Mr Harrison’s submission that a necessary consequence of Dr Liao’s opinion is that the funds advanced by the Heli Group companies must be treated, under PRC law, as having been made solely on behalf of those companies. Based on Dr Liao’s opinion, there is a serious issue that, by virtue of a partnership or joint venture or other contractual relationship, the funds were advanced on behalf of the plaintiffs.
[94]For these reasons, I conclude there is a serious issue to be tried on the merits.
Is New Zealand the appropriate forum for the trial?
Relevant legal principles
[95] The relevant principles are not in dispute. They were summarised by the Court of Appeal in Wing Hung Printing Co Ltd v Saito Offshore Pty Ltd.15 The onus is on the plaintiffs to establish that New Zealand is the appropriate forum for the trial. The Court looks to the forum with which the proceeding has the most real and substantial connection. Relevant factors include issues of convenience or expense, availability of witnesses, the applicable law and the places where the parties resided or carried on business. In some cases there may be other relevant considerations: the court’s cautious approach to subjecting foreigners to the jurisdiction of a New Zealand court; whether other related proceedings are pending elsewhere; whether the New Zealand court would provide the most effective relief or whether a foreign court is in a better position to do so; and whether the overseas defendant will suffer an unfair disadvantage if a New Zealand court assumes jurisdiction.
15 Wing Hung Printing Co Ltd v Saito Offshore Pty Ltd [2010] NZCA 502, [2011] 1 NZLR 754 at [43]-[46].
The PRC is the most appropriate forum
[96] An unusual feature of this proceeding is that JieHao Huang accepts he was investing funds in the Silverdale investment on behalf of other persons. He does not say (as defendants often say in proceedings like this) that the funds were his. He merely disputes that the plaintiffs are the persons on whose behalf he was investing the funds. He says he was investing on behalf of certain companies in the Heli Group.
[97] That dispute, in my view, is the key issue in this proceeding. That is not to say there will be no disputes about the quantum of the proceeds that JieHao Huang received from the Silverdale investment, and about whether some of the uses to which he put those proceeds (namely, investments in the Massey property and the Auckland car dealership) were authorised by those on whose behalf he was investing funds. But those issues are less significant than the dispute over the identity of the persons on whose behalf JieHao Huang was investing. This was reflected in Mr Katz’s written submissions, which included:
Fundamentally, all that is relevant in these proceedings is who has a claim to the funds invested in the Silverdale Investment by JeiHao Huang, and in what proportions.
[98] Resolving this key issue will require examination of events that occurred in the PRC. The starting point will be whether, in 2014, the first-generation owners retained beneficial ownership and control of the Heli Group entities notwithstanding the change in registered ownership and directorship that occurred at that time. Then there will be the discussions that occurred in the PRC leading up to the decision to invest in the Silverdale properties. This will include whether that decision was made by the plaintiffs or by the second-generation registered owners, and the terms of any agreement reached. The plaintiffs claim that the funds paid towards the Silverdale investment represented “dividends” that the Heli Group entities owed to them. It will be necessary to examine what payments were made, through what accounts, who authorised those payments, and how those with authority over the entities characterised the payments.
[99] All of these matters are connected to the PRC. They have no connection to New Zealand. Further, it will be much more convenient and less expensive to
determine these matters in the PRC. I would be surprised if there was any document (and the affidavits alone exhibited a vast number of documents) relevant to these issues that was not in Mandarin. All of the witnesses to these matters speak Mandarin; it seems only one or two also speak English. Quite apart from language, an appreciation of Chinese family and business culture will be important to understanding what people said, wrote and did. The applicable law for these issues is PRC law.
[100] All of these factors point to the PRC being the most appropriate forum on this key issue. None point to New Zealand. I would go further. A New Zealand court would be a quite inappropriate forum for determining this key issue.
[101] As noted, I accept there will be other issues in this proceeding. There will be an issue over how much JieHao Huang received from the Silverdale investment. This is connected to New Zealand: not only was the property here, JieHao Huang received the proceeds here. The documents relating to this issue are likely to be in English. But it will only be marginally more difficult for a PRC court to deal with this issue than a New Zealand court. The documents are likely to be from conveyancing files, bank records and financial statements. These can be easily translated. Understanding the documents will not require special appreciation of aspects of New Zealand culture or business practice.
[102] Mr Katz submitted that if the plaintiffs have to sue in the PRC courts they will not be able to obtain all those documents from JieHao Huang, as there is no concept of disclosure in the PRC courts. He relied on Dr Liao’s evidence to that effect. But Dr Chen expressed a different position. Mr Katz did not explain why I should prefer Dr Liao’s evidence over Dr Chen’s. Dr Chen’s evidence was the more detailed on this point. I am not satisfied that there is no disclosure process available in the PRC courts.
[103] There will also be an issue as to whether JieHao Huang was authorised to invest some of the proceeds in the Massey property and the Auckland car dealership. This will turn on the dealings and communications between JieHao Huang on the one hand and, on the other, the plaintiffs and the second-generation owners. All relevant documents are likely to be in Mandarin. Apart from JeiHao Huang, relevant witnesses
do not speak English. The dealings are likely to have occurred mostly in the PRC rather than in New Zealand.
[104] JieHao Huang has already paid some of the proceeds to persons with some relation to the plaintiffs or to the Heli Group. The parties dispute the significance of these payments. The plaintiffs say the payments support their claim that they are beneficially entitled to the proceeds. JieHao Huang disagrees. Resolving this dispute will require a consideration of, among other things, contemporaneous communications between the parties and other members of the extended Huang family. I was taken to some of these, in the form of WeChat messages. The messages were in Mandarin. English translations were provided. The English versions suited each side’s tastes: Mr Katz and Mr Harrison were frequently able to tell me how the same message supported each of their cases. I cannot tell whether this is because of the nature of WeChat messages or because something was lost in translation. Probably both. But I am confident that understanding these messages will be easier for someone who is familiar with the Mandarin language and the culture in which the messages were composed.
[105] I found earlier that there is a serious issue that New Zealand law is the applicable law for determining JeiHao Huang’s obligations and whether he breached them. However, I emphasise that I find it to be no more than a serious issue. It is likely this issue will also be subject to PRC law. The most appropriate characterisation of the issue is a dispute about an agreement rather than a dispute about property rights. The plaintiffs themselves plead there was an agreement and that JeiHao Huang “accepted” a nomination to act as a representative of the Heli Group.
[106] Further, by the time of that agreement JeiHao Huang had already been employed for several years as general manager of one of the Heli Group companies and had risen to the position where he was responsible for the finances of three entities in the group. The agreement was entered into in that context. There can be no doubt that JeiHao Huang’s duties to the Heli Group companies leading up to the agreement were governed by PRC law. It would be very surprising for the parties to have intended a sudden disjunction in which his obligations under the new agreement would be subject to a different system of law. The unlikelihood of that is reflected in the plaintiffs’ amended statement of claim, which pleads that JieHao Huang’s interest in
the Silverdale investment was acquired on instructions from the Heli Group in accordance with the duties he had already held for several years managing the finances of some of the Heli Group companies. Accordingly, I consider it likely that the applicable law for all the issues in this proceeding will be PRC law.
[107] Together, the factors I have addressed firmly point to the PRC as the appropriate forum.
[108] Mr Katz submitted that, even if the PRC appeared the appropriate forum, this Court should assume jurisdiction under r 6.29, because requiring the plaintiffs to litigate in the PRC would lead to injustice. This was for two reasons. First, the plaintiffs would not be able to pursue their causes of action in the PRC as they were all equitable causes of action which are not recognised by PRC law. Secondly, and rather adventurously, he submitted the legal system in the PRC would not provide substantial justice because of lack of independence and corruption in the PRC courts.
[109] As to the first submission, the plaintiffs’ third cause of action is pleaded as a breach of an agency agreement. Although an agency agreement can give rise to equitable obligations, the plaintiffs do not plead any such obligations in this cause of action. There is no evidence it could not be pursued under PRC law. As to the other causes of action, while it may be true that they are not recognised under PRC law, I am not satisfied that the facts pleaded by the plaintiffs would not give rise to any avenues for legal remedies under PRC law. Even if I am wrong on that point, this would not in any event lead to injustice. JieHao Huang’s position is that he holds the proceeds for certain companies in the Heli Group. The plaintiffs’ position is that they have beneficial interests in those companies. There was no evidence to the effect that the plaintiffs are without any remedies against those companies.
[110] As to the second submission, allegations that a foreign court will not deliver substantial justice are treated with great caution. Cogent evidence is required. Speculation will not suffice.16 Mr Katz relied on Dr Liao’s evidence on the courts and judges of the PRC. Dr Liao’s evidence was dated (he has not practised or lived in the
16 This issue was succinctly addressed by Associate Judge Bell in Hebei Huaneng Industrial Development Co Ltd v Shi [2020] NZHC 2992 at [29]-[31].
PRC for many years). It fell well short of persuading me that the plaintiffs would be unable to obtain justice in the courts of the PRC.
[111] I conclude that the PRC is clearly the appropriate forum, and that this Court should not assume jurisdiction over this proceeding.
Conclusion on jurisdiction
[112] JieHao Huang was not validly served. Even if he was validly served, this Court should not assume jurisdiction. The proceeding must therefore be dismissed.
Application for freezing and ancillary orders
[113] Given I am dismissing the proceeding, there is no basis on which the freezing and ancillary orders can be made or continue. But, even if I had not dismissed the proceeding, I would not have made or continued the orders. In the circumstances I can express my reasons briefly.
[114] There are three requirements for a freezing order: a good arguable case on the substantive claim; assets to which the order can apply; and a danger judgment will be wholly or partially unsatisfied because of a real risk the respondent will dissipate or dispose of those assets.
[115] It will be apparent from my decision on jurisdiction that I am satisfied the plaintiffs have a good arguable case on their substantive claim. It is common ground there are assets to which a freezing order can apply. This leaves the requirement that there is a real risk that JieHao Huang will dissipate or dispose of the assets.
[116] On 10 September 2019, JeiHao Huang received the final tranche of proceeds from the Silverdale investment. In that month he distributed some of the proceeds to (or for the benefit of) those who he regards as the shareholders in the Heli Group companies (including himself). In that same month issues emerged between the parties as to entitlement to the proceeds.
[117] At that time, JeiHao Huang was holding about $7 million of proceeds that he had not distributed. Since then he appears to have made only two payments from the proceeds. One is a payment of $328,014.07 for the benefit (JeiHao Huang says) of HuaiJian Huang. The other is a payment of $700,000 which JeiHao Huang made to his own bank account in the PRC in October 2020 to fund his litigation costs (on other proceedings in the PRC). JeiHao Huang holds the balance (about $6.1 million, including interest).
[118] It is notable that, despite this dispute having been on foot since September 2019, JeiHao Huang retains almost all the proceeds. Rather than dissipating the proceeds, he is retaining them. He is retaining the proceeds, he says, because there is a dispute as to entitlement and he has his own larger claims against the Heli Group companies. This points away from any risk of dissipation.
[119] Further, the application for the freezing order was made on notice to JeiHao Huang.17 He did not take any steps to dissipate the funds between receiving notice of the application and the interim freezing order being made. Again, this suggests little or no risk of dissipation.
[120] The plaintiffs rely primarily on two matters to prove a risk of dissipation. First, they say JeiHao Huang’s admitted payment of $700,000 towards his litigation costs in the PRC shows he is dissipating his assets. I do not agree. On JeiHao Huang’s case, he is (indirectly) entitled to at least that much of the proceeds through his shareholding in the Heli Group companies. Even on the plaintiffs’ case, either JeiHao Huang or his father is entitled to 3/11ths of the proceeds. The plaintiffs have not suggested JeiHao Huang’s father objected to the payment. The payment is not evidence of a risk of dissipation.
[121] Secondly, the plaintiffs point to JeiHao Huang’s use of some of the proceeds to invest in the Massey property and the Auckland car dealership. The plaintiffs say those investments were unauthorised (though JeiHao Huang disputes that). This does not evidence a risk of dissipation such that there is a danger any judgment would be
17 The application was originally made without notice. Jagose J, in a minute dated 23 December 2020, directed the application be served on JeiHao Huang.
unsatisfied. JeiHao Huang used funds in bank accounts to acquire other assets. Those new assets are just as available to satisfy a judgment as were the funds in the bank accounts.
[122] For these reasons I am not satisfied there is a danger any judgment obtained by the plaintiffs would be unsatisfied because of a risk JeiHao Huang will dissipate or dispose of assets.
[123] Mr Harrison’s written submissions said JeiHao Huang would, in the event he was successful in applying to dismiss the proceeding for lack of jurisdiction, be prepared to agree to an interim holding arrangement pending the outcome of any proceedings in the PRC to determine entitlement to the proceeds. Counsel discussed that proposal between themselves, but no agreement was reached. In forming my view there is no risk of dissipation, I have not taken into account JeiHao Huang’s preparedness to agree an interim position.
Result
[124]The proceeding is dismissed.
[125]The application for freezing and ancillary orders is dismissed.
[126] The defendant is entitled to costs. If costs cannot be agreed, memoranda are to be filed and served: the defendant by 19 November 2021, the plaintiffs by 26 November 2021. Each memorandum must not exceed three pages, excluding schedules and relevant annexures. I will then determine costs on the papers.
Campbell J
5
5
1