Jing v Chen
[2025] NZHC 317
•27 February 2025
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2024-404-2325
[2025] NZHC 317
BETWEEN SHUAI JING
Plaintiff/Respondent
AND
XIAO CHEN
First Defendant/First Applicant
YYDS LIMITED
Second Defendant/Second ApplicantYIFANG WU
Third Applicant
Hearing: 12 February 2024 Counsel:
K Morrison and K Tubbs for Plaintiff/Respondent
D Chisholm KC for First Defendant/Applicant and Third Applicant
Judgment:
27 February 2025
JUDGMENT OF WILKINSON-SMITH J
This judgment was delivered by me on 27/02/2025 at pm Pursuant to Rule 11.5 of the High Court Rules
…………………………
Registrar/Deputy Registrar
Solicitors/Counsel:
Meredith Connell, Auckland D Chisholm, Auckland
Psalms Law Office, Auckland
JING v CHEN & ANOR [2025] NZHC 317 [27 February 2025]
Introduction
[1] The applicants, Xiao Chen and Yifang Wu, together with the second defendant company YYDS Ltd (YYDS), apply to discharge or vary freezing orders granted on the application of Shuai Jing. Mr Jing opposes the discharge or variation of the freezing orders.
[2] Mr Chen says that the value of the assets covered by the current orders exceed the likely maximum amount of Mr Jing’s claim in the substantive proceedings. That claim is agreed to be around $605,000 plus interest and costs.
[3]Mr Chen offers alternative security which he says has a net value of just over
$680,000 consisting of government and council bonds valued at just over $430,000 and real property, with net equity of approximately $250,000. Mr Chen says that the continuation of the freezing order will cause significant prejudice to him, including loss of investment opportunities. Mr Chen says that discharging the freezing orders and providing the alternative security to Mr Jing would cause no prejudice to Mr Jing.
[4] Mr Jing maintains that the freezing orders should not be discharged or varied. Mr Jing says that he has a good arguable case on his substantive claim. He says that Mr Chen has caused almost all of the assets of YYDS, that Mr Chen and Mr Jing operated, to be transferred to the applicants and there are not enough funds remaining in YYDS to satisfy any final judgment that is likely to be obtained by Mr Jing. Mr Jing says that there is a significant risk that the alternative security offered would not meet the potential judgment sum.
Factual background
[5] Mr Jing and Mr Chen collaborated on two property development ventures. The first venture was successfully completed and profit from that development was distributed equally between Mr Jing and Mr Chen.
[6] The first venture began in or around September 2020 when Mr Jing and Mr Chen agreed to incorporate a company, JSCX Ltd, to undertake a property development. Mr Jing and Mr Chen were to contribute equally to the funding of the
project and on completion the company’s remaining assets, or proceeds from the sale of the company’s assets, were to be shared equally between them.
[7] In May 2021, while the first property development was ongoing, Mr Jing and Mr Chen agreed to undertake a second property development and incorporated a separate company, YYDS, for the purpose of that second development.
[8] In October 2021, Mr Jing and Mr Chen purchased land in Henderson (the Henderson land) for the second property development. They each personally contributed $50,000 towards the deposit for the purchase of the Henderson land. To fully fund the purchase of the Henderson land, YYDS needed to obtain a bank loan.
[9] On 4 November 2021, Mr Chen was appointed director of YYDS and Mr Jing transferred 80 shares to him, making him the 100 per cent share holder. On 21 November 2021, Mr Jing ceased to be a director of YYDS. Mr Jing says that this was done by agreement in order to obtain the required loan amount and upon advice received by a mortgage broker. Mr Jing says that despite the change in directorship, it was agreed that Mr Chen and Mr Jing would continue to make decisions regarding YYDS together and that Mr Chen would hold 30 shares on trust for Mr Jing, such that each retained a 50 per cent beneficial interest in YYDS. This underlying agreement is disputed by Mr Chen and is the subject of the substantive litigation.
[10] Mr Chen obtained finance from Kookmin Bank. Mr Jing and Mr Chen each provided funds to complete the purchase of the Henderson land and to progress the development. The purchase of the Henderson land was settled in January 2022.
[11] A company associated with Mr Jing, Easy Good Homes Ltd (EGH), was the construction company undertaking the development. Mr Jing’s wife is the sole shareholder and director of EGH. EGH earned income from the development directly.
[12]Between July 2021 and August 2024:
(a)Mr Jing contributed funds totalling $754,226.12 to YYDS; and
(b)Mr Chen contributed funds totalling $753,369 to YYDS.
[13] Mr Jing and Mr Chen proceeded to develop four properties on the Henderson land, being Lots 1–4. Lots 1 and 4 were sold in early 2024. The sale proceeds were used to pay debts of YYDS.
[14] In July 2024, YYDS entered into an unconditional agreement for the sale and purchase of Lot 2 for $875,000 with settlement scheduled for 26 July 2024.
[15] It became apparent around July 2024 that the development was projected to make a loss. It was estimated that around $1.1 million would be available to be distributed between Mr Jing and Mr Chen. Dividing this equally and accounting for their respective capital contributions, Mr Jing and Mr Chen would each make a loss of approximately $160,000 on their capital investment.
[16] There is considerable disagreement about how events transpired from this point onwards. Mr Jing says that it was around this time that matters soured with Mr Chen who was not happy at the prospect of making a loss on his capital investments.
[17] On or around 25 July 2024, Mr Jing discovered that Mr Chen had changed the password to YYDS’ Kookmin Bank and Inland Revenue accounts so that Mr Jing no longer had access to these accounts and could no longer monitor Mr Chen’s use of YYDS funds. A GST debt was due and Mr Jing’s position is that he wished to ensure payment of that debt as Mr Chen had expressed an intention not to pay the outstanding GST and to voluntarily liquidate YYDS in order to recoup his capital contribution and derive a profit from the development.
[18] Mr Chen asserts that he is the legal and beneficial owner of 80 per cent of the shares in YYDS with Mr Jing being the legal and beneficial owner of the remaining 20 per cent. As a result, Mr Chen contends that he did not require Mr Jing’s approval to make decisions on behalf of YYDS including decisions regarding potential distributions.
[19] Mr Chen also asserts that he is a secured creditor of YYDS pursuant to a term loan and general security agreement, entered into by YYDS on 15 December 2021 (Term Loan Agreement) but registered on 12 May 2023. Mr Jing says that the
existence of the Term Loan Agreement was not known to him until proceedings were filed.
[20] After Mr Chen changed the password to the YYDS accounts, the sale of Lot 2 settled and funds were paid to YYDS’ Kookmin Bank account, pursuant to Mr Chen’s instructions.
[21] In late August 2024, YYDS entered into an agreement for the sale and purchase of Lot 3. That agreement was declared unconditional in September 2024, with settlement scheduled for mid-October 2024.
[22] On 17 September 2024, Mr Jing filed the substantive claim against Mr Chen and YYDS. In early October 2024, Mr Jing applied for freezing and ancillary orders which were granted by Walker J on 7 October 2024.1
[23] Between 20 July 2024 and 7 October 2024, Mr Chen removed $1,053,260 from YYDS. Some of the money was transferred out of YYDS after Mr Chen was served with the freezing order application on a “Pickwick” basis. Mr Jing says that some funds were also transferred after Mr Chen was served with Walker J’s minute granting the freezing order. The amount transferred exceeds the amount of $840,156 including interest, which Mr Chen claims was a secured loan advanced to YYDS. Mr Jing disputes that the funds were a loan rather than a capital investment but says even on Mr Chen’s scenario the amount taken exceeds Mr Chen’s claim. Mr Jing says he has received no payment, including on the basis of his 20 per cent shareholding which Mr Chen does not dispute.
[24] The shareholding dispute and purported oral agreements which form the basis of the shareholding dispute will need to be resolved at trial. Mr Chen says that he took the risk of obtaining lending and provided a personal guarantee to Kookmin Bank to support the borrowing. He says he had a greater risk in the development and that explains why he is the 80 per cent shareholder and director of YYDS at the relevant times.
1 Jing v Chen HC Auckland CIV-2024-404-002325, 7 October 2024 (Minute of Walker J).
[25] Mr Jing claims that Mr Chen holds 30 shares of YYDS on express, constructive and/or resulting trust for Mr Jing and seeks a declaration that Mr Jing has a 50 per cent ownership interest in YYDS. Mr Jing says he expected a 50 per cent interest in YYDS. The change in shareholding to 80/20 in favour of Mr Chen was intended only to assist YYDS to obtain the required loan amount for its purchase of the Henderson land. The beneficial ownership of 50 per cent of YYDS shares, Mr Jing says, remained with him and was similar to the arrangement with the first property development he and Mr Chen collaborated on.
[26]The primary issues at trial are said by Mr Chen to be:
(a)Determining the quantum of profit or losses that flowed from YYDS’ trading activities including the validity of invoices presented to YYDS by EGH.
(b)Whether Mr Chen can rely on the security that YYDS granted to him to secure payment of his advances to YYDS.
(c)Whether Mr Chen holds 30 shares on trust for Mr Jing, although this is academic if YYDS operated at a loss.
The freezing orders
[27] On 3 October 2024, Mr Jing filed an application without notice for freezing orders over YYDS assets and ancillary orders (Freezing Order Application).
[28] The sale of the remaining real property of YYDS (Lot 3) was about to settle on 7 October 2024. On that date, the Freezing Order Application was served on a “Pickwick” basis on Mr Chen.
[29] On 7 October 2024 at 2.52 pm, Walker J issued a minute granting the freezing and ancillary orders sought.2
2 Minute of Walker J, above n 1.
[30] On 7 October 2024 at 4.13 pm, the conveyancing solicitors advised that the sale of Lot 3 had settled that morning and the funds were paid to YYDS at 12.52 pm. Upon receipt into YYDS’ Kookmin Bank account, the funds were disbursed to Mr Chen.
[31] On 14 October 2024, Mr Chen provided documents pursuant to the ancillary orders made. The documents revealed that Mr Chen largely disbursed the YYDS funds to himself and his wife, Ms Wu. On 15 October 2024, Mr Jing made an application to extend the freezing order to the assets of Mr Chen and Ms Wu and to extend the freezing order until further order of the Court (Variation Application).
[32] On 16 October 2024, Gordon J granted the Variation Application.3 The freezing order as varied is made in respect of all property of every kind of YYDS, including the proceeds of the sale of Lot 3 (already removed) and any funds held in bank accounts in the name of Mr Chen or Ms Wu. The ancillary orders required the provision of bank statements and provided that, should Mr Chen pay $526,500 to the Court or to Mr Jing’s solicitors’ trust account, the orders relating to Mr Chen and Ms Wu’s bank accounts would be discharged.
[33] On 25 October 2024, the freezing order was further varied to allow directions to be given to Kookmin Bank to make two specified payments to YYDS creditors.4
[34]On 1 November 2024, the applicants filed the current application.
Legal principles
[35] An application to discharge a freezing order is treated as a de novo application and the onus is on the applicant to satisfy the requirements in pt 32 of the High Court Rules 2016 (the Rules).
[36]In Gold Star Invest Ltd v V, Grice J set out the relevant principles:5
3 Jing v Chen HC Auckland CIV-2024-404-002325, 16 October 2024 (Minute of Gordon J).
4 Jing v Chen HC Auckland CIV-2024-404-002325, 25 October 2024 (Minute of O’Gorman J).
5 Gold Star Invest Ltd v V [2019] NZHC 3504.
[27] The basic test to satisfy in order to maintain the orders involves three elements:
(a)The applicant has a good arguable case on a cause of action.
(b)There are assets of the respondent to which the orders can apply.
(c)There is a danger that the respondent might abscond, or might remove, dispose of, deal with, or diminish the value of the assets, so as to render the respondent judgment proof.
[37] The value of the assets frozen should not exceed the likely maximum amount of the plaintiff’s claim including interest and costs.6 The need to protect the plaintiff from a potentially barren judgment must be balanced against any prejudice or hardship to the defendant.7
Discussion
[38] Mr Chen says that Mr Jing’s current pleadings in the substantive matter are defective but acknowledges that, for the purposes of the present application, a good arguable case is not in dispute.
[39] Although not expressly conceded, Mr Chen also does not argue that the risk of dissipation of funds is not established. I have little difficulty agreeing with Walker and Gordon JJ that there is a risk of dissipation of assets.
[40] The real issue for the purpose of the current application is whether the value of the assets covered by the freezing orders exceeds the likely maximum amount of Mr Jing’s claim and whether the alternative security is sufficient to meet the purpose of the freezing order.
[41] Mr Jing argues that the funds removed from YYDS by Mr Chen, and presumably retained by him, are funds that belong to the company, and that Mr Chen removed a sum of money that is greater than his maximum entitlement by over
$200,000. Ms Morrison argued that what is sought to be frozen is the actual funds belonging to the company in which Mr Jing has a proprietary interest. Ms Morrison
6 High Court Rules 2016, r 32.6(2).
7 Bank of New Zealand v Hawkins [1989] 1 PRNZ 451 (HC).
seeks to put Mr Jing in the position he would have been in had Mr Chen not removed funds from the company.
[42] As Mr Chisholm KC pointed out, it is not anticipated that there will be any profit to be distributed to the shareholders. There will need to be an overall accounting as to debt and contributions between Mr Chen, Mr Jing, YYDS and EGH. Mr Chen says that he is a secured creditor of YYDS. The end result will be a money judgment.
[43] The question for this Court is whether the alternative security adequately protects the position pending the outcome of the litigation. The alternative security consists of the following:
(a)90,000 New Zealand Government Bonds;
(b)100,000 Auckland Council Bonds;
(c)80,000 New Zealand Government Bonds;
(d)85,000 New Zealand Government Bonds;
(e)95,000 New Zealand Government Bonds; and
(f)109 Birkenhead Avenue, Birkenhead, Auckland: record of title NA1879/7 (Birkenhead Property).
[44] The aggregate market value of the bonds assessed by Jarden Wealth Ltd as at 22 November 2024 is $433,510.50. I understand that the bonds are in the custody of Jarden Wealth Ltd.
[45] The Birkenhead Property has a valuation report prepared by Property InDepth which reveals a current market value at $1,365,000. Mr Chen is the registered owner of that property. There is a Westpac mortgage secured over the Birkenhead Property with the sum to be repaid of $1,118,269.20. Mr Chen says the net equity in the Birkenhead Property is at least $246,730.80. It is not disputed that the maximum
amount of Mr Jing’s claim is $605,388.02 plus interest under the Interest on Money Claims Act 2016 and costs.
[46] Mr Chen does not wish to provide cash funds as security because he will not be able to use the cash for at least two years while this matter progresses through the Court. Mr Chen says the net value of the alternative security is greater than his potential liability.
[47] Mr Jing does not accept the value of the alternative security. He says there is a significant risk as to whether the bonds and the Birkenhead Property will be able to fully meet the potential judgment sum including interest payable at the time the judgment is delivered. Mr Jing says that the likely realisable value of the bonds and property is less than the potential judgment sum plus interest; and he would have to wait either for the bonds to reach their maturity dates or the bonds would have to be sold on the secondary market at less than face value.
[48] The bond with the earliest maturity date is 27 July 2026 which has a face value of $100,000. The remaining bonds with an aggregate face value of $350,000 have maturity dates of 15 April 2027, 20 April 2029, and 15 May 2031. Mr Jing says the bonds will not be able to be liquidated for their face value until their maturity dates.
[49] Mr Chisholm for Mr Chen says this is incorrect. The bonds are able to be redeemed prior to their maturity dates and the actual cost of redeeming the bonds early is negligible and nowhere near the 13 per cent suggested by Mr Jing.
[50] Mr Jing also disputes the likely equity in the Birkenhead Property. The valuation provided was supplied on the assumption that the Birkenhead Property is weathertight. The valuation report however identifies the property as higher risk regarding weathertightness based on era of construction and cladding type. The report details actual signs of moisture ingress including rotting windows, cracks in the plaster, and moisture ingress to one of the bedrooms. Mr Jing says any adverse weathertightness findings would significantly impact the value of the Birkenhead Property and there might be little to no positive equity in that property,
taking into account market fluctuations, real estate agent’s commissions and other selling costs.
[51] Mr Jing says that Mr Chen is not legitimately prejudiced by an inability to use frozen funds because he transferred $1,053,260 to himself and his wife when he claims only $840,156 is owed to him. Mr Jing’s position is that Mr Chen has transferred to himself an extra $213,104 even on the amount he claims — which is disputed. Mr Jing says that he has, even on Mr Chen’s position, an entitlement to at least some of the funds that Mr Chen removed from the company. Mr Jing will not have the benefit of access to those funds, and he argues that Mr Chen should not be in an advantaged position by having access to funds that are, at the very least, disputed and to some extent indisputably belong to Mr Jing.
[52] Mr Jing says he has put forward many proposals that would not require all of the funds to remain held in bank accounts. Mr Jing proposed the inclusion of the term in the Variation Order made by Gordon J that enables the applicants’ bank accounts to be released upon payment of half of the funds removed from the company, being
$526,500. Mr Jing says that when the $213,104 amount, which even on Mr Chen’s calculation is excess to his entitlement, is deducted from the amount of $526,500, which represents an equal share, that leaves only $313,396 at issue. That amount as a percentage of the $1,053,260 funds removed by Mr Chen is 29.7 per cent, which is not much greater than the 20 per cent share entitlement that Mr Chen does not dispute. Mr Jing says the proposal included in the freezing order is reasonable and balances the interests of the parties.
[53] It is not appropriate for the Court to make any attempt to resolve the substantive issues between the parties. I am satisfied that Mr Jing has a good arguable case, and I am satisfied that there is a risk of dissipation. The freezing order as it stands, however, does not clearly comply with pt 32 of the Rules. There is a real risk that the value of the assets frozen exceeds the maximum value of the claim. It is therefore necessary to grant the application to vary the freezing order.
[54] I am not impressed by the level of security provided by the Birkenhead Property. There is a real prospect of that property being in negative equity
if the weathertightness issues are borne out and the valuation provides no comfort in that regard.
[55] The Government and Council bonds are in a different category. They are assets with a clear valuation which can be traded or redeemed. While it may create some inconvenience, it is no greater than the inconvenience that would result from having to liquidate real property. But they are not as good security as cash.
[56] I consider that there is little prejudice to Mr Chen and Ms Wu in requiring funds to the value of $300,000 to remain frozen. Mr Chen removed almost all of the funds of YYDS. The funds that remained were required to pay creditors. His claimed position as a secured creditor is disputed. He does not dispute that Mr Jing is at least a 20 per cent shareholder. It is far from clear that the money that he wishes to have the benefit of was his to remove from the company. That will have to be determined but in the meantime, he is in no worse position than Mr Jing, who also has no access to funds which were removed from YYDS and which Mr Jing claims an interest in.
[57]I will vary the freezing orders as set out below.
Result
[58] Order 4(b) in the current order remains. Orders 4(a), (c) and (d) in the current order will be discharged and replaced as follows:
(a)The freezing order applies in respect of the following property of the first respondent:
(i)100,000 Auckland Council Bonds AKC100 3.338% 27/07/26.
(ii)170,000 New Zealand Government Bonds GOV430 4.5% 15/04/2027.
(iii)85,000 New Zealand Government Bonds GOV429 3.00% 20/04/2029.
(iv)95,000 New Zealand Government Bonds GOV531 1.5% 15/05/2031.
(b)Any funds in any bank accounts in the name of or for the benefit of the first respondent Mr Chen and/or third respondent Ms Wu to a total value of $300,000.
[59] The total value of restrained property equals just over $750,000. This reflects the maximum claim of $605,000 plus costs and interest, and also reflects the uncertainty about the liquidation of the bonds.
Costs
[60]Costs are reserved.
Wilkinson-Smith J
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