Li v Yeung
[2023] NZHC 1374
•1 June 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-2473
[2023] NZHC 1374
BETWEEN KAREN KAYAN LI
First Plaintiff/Applicant
HUI LING (CATHERINE) KWOK
Second Plaintiff/ApplicantAND
LAM YEUNG
First Defendant/Respondent
YUHONG (CATHERINE) GAO
Second Defendant/Respondent
Hearing: 8 February 2023; further submissions 3, 10, 16 March and
6 April 2023
Appearances:
NR Williams and AME Parlane for the Plaintiffs
NJ Scampion and JAR Barrow for the First Defendant OV Collette-Moxon for the Second Defendant
Judgment:
1 June 2023
JUDGMENT OF FITZGERALD J
This judgment was delivered by me on 1 June 2023 at 4.00pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Shine Lawyers, Auckland
Tompkins Wake, Auckland BSA Law, Auckland
To:N Williams, Auckland N Scampion, Auckland J Barrow, Auckland
O Collette-Moxon, Auckland
LI v YEUNG [2023] NZHC 1374 [1 June 2023]
Introduction [1]
The pleaded claims and defences – issues arising or likely to arise [11]
The pleadings [12]
The issues likely to arise for determination [41]
Applicable legal principles [42]
Discussion [53]
Application for asset preservation orders [92]
Introduction [92]
The applicable legal principles [96]
Submissions [98]
Discussion [104]
Wasted costs of earlier hearing [118]
Background [118]
Legal principles [136]
The parties’ submissions [140]
Discussion [144]
Result [152]
Introduction
[1] The applicants, Ms Li and Ms Kwok, the first two of approximately 60 named plaintiffs, apply for leave to continue this proceeding as a representative proceeding pursuant to r 4.24 of the High Court Rules 2016. They also apply for asset preservation orders against the defendants/respondents, Ms Yeung and Ms Gao, under the Financial Markets Conduct Act 2013 (FMCA).
[2] The proceedings concern a Malaysian-based loyalty scheme, MBI International, which traded in New Zealand as the “MFC Club”. The applicants describe the MFC Club as effectively a “ponzi scheme”. Halley J, in a recent decision of the Federal Court of Australia, describes it as:1
… a sham investment scheme that preyed on vulnerable and unsophisticated investors seduced by the promise of extraordinary returns and beguiled by the complex explanations of the alleged risk free returns and benefits it could provide, and the methods by which it was promoted and marketed to invited guests.
[3] The plaintiffs sue Ms Yeung and Ms Gao under the FMCA and the Fair Trading Act 1986 (FTA) for what is alleged to be their misleading and deceptive conduct in promoting the MFC Club in New Zealand. The plaintiffs say that Ms Yeung and Ms Gao introduced the MFC Club into New Zealand and were the driving force behind it in this jurisdiction; enticed New Zealand based investors to invest in the scheme; promoted the scheme through large scale presentations and seminars in New Zealand; and in doing so, made false and misleading representations as to the nature of the investment and the likely returns. The plaintiffs say the defendants’ conduct induced them to participate in the MFC Club and caused them to suffer financial losses as a result. Those losses are currently assessed as approximately $9.3 million.2
[4] Ms Yeung and Ms Gao deny that they brought the MFC Club to New Zealand or that they were the driving force behind it. Rather, they say that they are effectively in the same position as the plaintiffs — having also lost substantial sums of money because of their own investment in the MFC Club. Ms Yeung and Ms Gao further say
1 Xuan v Xu [2022] FCA 508 at [6].
2 Individual losses range from just under $10,000 to just over $400,000. Most are under or around
$100,000. Ms Li and Ms Kwok’s losses are some of the highest, being $409,221.56 and
$241,326.40 respectively.
that in the event they are found liable for making any misrepresentations in relation to the MFC Club, then so too are many of the plaintiffs, including Ms Li and Ms Kwok.
[5] Ms Li and Ms Kwok apply for leave to represent approximately 92 other “aggrieved persons” who lost varying sums of money by investing in the MFC Club. The group of 92 are made up of the current plaintiffs to this proceeding, as well as other persons who have confirmed they wish to be represented. Most are based in New Zealand, although there are 23 based in mainland China. For ease of reference, I will refer to the persons the applicants propose to represent in this proceeding as the “proposed represented plaintiffs”. I will refer to the applicants and the proposed represented plaintiffs collectively as the “Aggrieved Persons”.
[6] Ms Yeung and Ms Gao oppose the application for leave to continue the proceeding as a representative proceeding. They say there are insufficient common issues between the applicants and the proposed represented plaintiffs to make it appropriate for the matter to continue on a representative basis. They also say that given the way the MFC Club was promoted in New Zealand, with many of the Aggrieved Persons themselves making representations about the scheme and encouraging others to join, there is likely to be conflict between the applicants and the proposed represented plaintiffs, as well as between the proposed represented plaintiffs.
[7] In relation to the application for asset preservation orders, the applicants seek to prevent Ms Yeung and Ms Gao from dealing in or disposing of real property owned by them in this jurisdiction. The applicants say that asset preservation orders are necessary to ensure that there is a viable prospect of recovery from the claims, in the event they are successful, and that unlike freezing orders, there is no requirement to demonstrate a risk of dissipation of assets before asset preservation orders can be made.
[8] Ms Yeung and Ms Gao say that intrusive asset preservation orders are not necessary or appropriate in this case. Counsel for the defendants drew my attention to the fact an earlier freezing order, that was granted on a without notice basis, was
swiftly discharged by Campbell J in early 2021. Campbell J was satisfied that there was no real risk of dissipation of assets.3
[9] There is also an issue of costs to be determined, being the wasted costs of an earlier adjourned hearing of the application for representative orders, which was originally scheduled to be heard in September 2021.
[10]The balance of this judgment is structured as follows:
(a)First, I set out the pleaded claims and defences, and the issues likely to arise for determination.
(b)I then set out the legal principles applicable to applications for representative orders.
(c)I next set out my conclusions and reasoning as to whether representative orders should be made.
(d)I then turn to consider the application for asset preservation orders.
(e)Finally, I address the costs of the adjourned September 2021 hearing.
The pleaded claims and defences – issues arising or likely to arise
[11] It is first convenient to set out the text of r 4.24 of the High Court Rules, which governs when a proceeding may continue as a representative proceeding. It provides:
4.24Persons having same interest
One or more persons may sue or be sued on behalf of, or for the benefit of, all persons with the same interest in the subject matter of a proceeding—
(a)with the consent of the other persons who have the same interest; or
(b)as directed by the court on an application made by a party or intending party to the proceeding.
3 Li v Yeung [2021] NZHC 2 [Freezing order decision].
The pleadings
[12] In Saunders v Houghton, the Court of Appeal said that a vital inquiry to be made on an application for a representative order is the issues or likely issues to arise for determination.4 This allows a court to assess whether, and if so, to what extent, the proposed representative and represented plaintiffs have the same interest in the subject matter of the proceeding.
[13]It is trite that the issues for determination arise from the pleadings.
[14] Of some difficulty on the present application is that despite this proceeding having been on foot since December 2020, there is still not a full set of pleadings from which the issues to be determined can be distilled. Presently there is a first amended statement of claim dated 24 March 2021, plus a draft second amended statement of claim dated 29 July 2022 (the latter having been prepared on the basis of what the claims will be if the representative orders are made). There is presently a statement of defence and counterclaim by Ms Gao, but which responds to the – now overtaken – original statement of claim, and no statement of defence by Ms Yeung.5
[15] Given the unusual status of the pleadings, following the hearing I directed that the parties confer and file a joint memorandum setting out the likely issues to arise. I confirmed that I did not expect the parties to necessarily agree on all the issues that would arise, and those that were not agreed could be set out in a separate section of the joint memorandum. I also confirmed that I did not expect the parties to agree or comment on whether the issues were common or individual issues, being a matter for my determination — and a topic already the subject of written and oral submissions at the hearing.
[16] What I expected to be, and which ought to have been, a relatively straightforward exercise proved anything but. Rather than a relatively short joint-
4 Saunders v Haughton [2009] NZCA 610, [2010] 3 NZLR 331 at [20].
5 There is no suggestion that any party is in breach of the High Court Rules by this state of affairs, having come about due to amendments to the claim made by the plaintiffs, then various iterations of the application for leave to continue the proceeding as a representative proceeding, and more recently, a change of solicitors acting for the plaintiffs.
memorandum, I received separate memoranda, schedules to the memoranda and submissions on the other party’s proposed issues.
[17] I return to the likely issues for determination later in this judgment. I first summarise the claims, defences, and counterclaims as best I can from the current pleadings.
[18] Starting with the plaintiffs’ claims, I have drawn these from the draft second amended statement of claim. The claim commences by setting out a factual background as to the alleged nature and promotion of the MFC Club in New Zealand. It is alleged that Ms Yeung and Ms Gao introduced the MFC Club into New Zealand in 2016, and that it was a “sham investment scheme” which Ms Yeung and Ms Gao were at the top of in New Zealand. The pleading alleges that all the plaintiff investors in the MFC Club (referred to as the “Aggrieved Persons”) are vulnerable consumers
— many of them used their life savings to invest in the Club and at least one has attempted suicide as a result of their inability to liquidate their MFC shares.
[19] The pleading alleges that Ms Yeung and Ms Gao promoted the MFC Club in New Zealand through large scale presentations and seminars which they personally organised and hosted. It is alleged that Ms Yeung and Ms Gao made a range of misrepresentations to the Aggrieved Persons about the MFC Club. For example, it is alleged that Ms Yeung and Ms Gao represented that investments in the MFC Club would only ever go up; that there would be a twice yearly return on investment of 150 percent to 200 percent; that the MFC Club was “like a money printing machine”; that investing in the MFC Club was safe and no investors had or would lose money; and that investors could get their money back at any time.
[20] The first cause of action is for breach of s 19 of the FMCA for “misleading or deceptive conduct generally”. The plaintiffs allege that:
(a)When promoting the MFC Club, each of the defendants were “in trade”.6
6 Financial Market Conduct Act 2013 (FMCA), s 19(1).
(b)The MFC shares were “equity securities” as defined in s 8 of the FMCA, and thus “financial products” as defined in s 7.
(c)Alternatively, the MFC Club was a “managed investment scheme” as defined in s 9 of the FMCA, interests in it were accordingly “managed investment products” for the purposes of s 8(3) of the FMCA, and thus “financial products” as defined in s 7.
(d)The defendants made a number of false or misleading representations in relation to:
(i)return on investments;
(ii)the risk of investing;
(iii)the liquidity of MFC shares; and
(iv)the expert investment and professional credentials of the defendants.
[21] Based on the alleged false or misleading representations, it is alleged that each defendant has contravened a “Part 2 fair dealing provision” of the FMCA, which in turn is a civil liability provision.7 The plaintiffs then seek a declaration of contravention for the purposes of s 486 of the FMCA, on the basis each defendant contravened a civil liability provision.8 I pause to note that s 487 of the FMCA explains that the purpose of a declaration of contravention is:
… to enable an applicant for a compensatory order … to rely on the declaration of contravention in the proceeding for that order, and not be required to prove the contravention …
[22] The claim then alleges that each of the Aggrieved Persons has suffered loss or damage because of the contravention,9 and that the court should make a compensatory order pursuant to s 494 of the FMCA. I again pause to note that pursuant to s 494(2),
7 FMCA, s 485.
8 FMCA, s 486(1)(b).
9 This brings into play the concepts of reliance and causation.
the court may make a compensatory order whether or not the Aggrieved Person is a party to the proceeding.
[23] The pleading seeks compensatory orders under s 495 of the FMCA that the defendants pay the Aggrieved Persons the whole amount of the loss or damage they have suffered, including compensation for emotional distress. In the alternative, civil liability orders are sought under s 498 of the FMCA, that the defendants refund money to the Aggrieved Persons, or that they reinstate the Aggrieved Persons as near as may be possible to their former positions. Interest and costs are also sought.
[24] The second cause of action is essentially the same at the first, other than it is brought on the basis the MFC Club was a “financial service” for the purposes of s 5 of the Financial Service Providers (Registration and Dispute Resolution) Act 2008. This cause of action alleges the same misleading and deceptive conduct, and the same relief is sought as under the first cause of action.
[25] The third cause of action, brought in the alternative, is for breach of s 9 of the FTA. It is again brought on the same basis as the first cause of action, though the plaintiffs do not need to establish that the MFC Club was either a financial product or a financial service. The same type of relief sought under the FMCA is sought pursuant to s 43 of the FTA.
[26] I pause to note that the claim in its present form is relatively unparticularised and will require some amendment. For example:
(a)The various public seminars said to have been hosted by the defendants are not particularised.10
(b)The core alleged misrepresentations, pleaded at [36] of the claim, are not linked to or expressly said to have been made at the public seminars referred to at [14] of the claim. Mr Williams, senior counsel for the
10 Though were referred to in an earlier iteration of the pleading (schedule 2 to the second amended statement of claim dated 23 July 2021) and appear to be those referred to at [7] of Appendix A to the defendants’ memorandum dated 6 March 2023, as well as in exhibit 3KL 1 of the affidavit of Ms Li sworn on 2 August 2021.
applicants, confirmed at the hearing however that the pleading will be amended to clarify that it is alleged that the representations pleaded at
[36] of the claim were made at the public seminars.
(c)It will also need to be clarified if it is alleged that each of the representations referred to at [36] of the claim were made at each of the public seminars, or only some representations were made at some of the seminars. This will be relevant to later issues, such as who was misled by what,11 and by whom.12
(d)The pleading does not say why each of the representations is said to have been false or misleading at the time it was made.
[27] The plaintiffs’ allegations are broadly denied by Ms Gao in her statement of defence — which as noted earlier, responds to the original statement of claim. Because of this, there is presently a disconnect between the plaintiffs’ proposed claims and the pleaded defence. Nevertheless, it is clear that Ms Gao will dispute the general nature of the MFC Club and how and by whom it was introduced into New Zealand. In addition, she says (including by way of affirmative defences):
(a)She was a “mere conduit” for any information shown to have been conveyed by her to any of the Aggrieved Persons about the MFC Club.
(b)Any representations made by her about the MFC Club did not cause any loss, given in the context of those representations, she also made expressed disclaimers about the information she provided.
(c)There is no causation between any representations said to have been made by her to the Aggrieved Persons and their losses, given that the “cumulative effect of various word of mouth statements and representations by plaintiffs and other defendants”, and the continued
11 An earlier iteration of the claim said that “most of the Aggrieved Persons have attended at least 1 of these Public Seminars” (second amended statement of claim dated 23 July 2021, at [14(e)]).
12 Given in an earlier iteration of the pleading, it was alleged that at some of the seminars, both Ms Yeung and Ms Gao were the host/presenter, whereas at some, only one of them was the host/presenter.
operation of the MFC Club, was the operative cause of the losses suffered.
(d)Once an Aggrieved Person began participating in the MFC Club, every subsequent decision by that Aggrieved Person to participate in various ways was a decision made solely by that person and not caused by her.
(e)In relation to at least some assets held by the Aggrieved Persons because of their investment in the MFC Club, they have residual value.
(f)She was not “in trade” under either the FTA or FMCA.
(g)If she is liable for losses suffered by any Aggrieved Person, then “dependent upon such circumstances as may be proved at trial … every plaintiff would have corresponding and similar legal fault and responsibility for their own loss by reason of their own decision to participate …”. Ms Gao says that any damages recoverable should accordingly be reduced by 100 percent pursuant to s 3 of the Contributory Negligence Act 1947.
(h)The claims under the FTA are time barred under s 43A, and there are similar time bar defences available under the FMCA and the Limitation Act 2010.
[28] Ms Gao then pleads a number of counterclaims. In their current form, they are advanced in contingent, very broad and undeveloped terms. They are also pleaded in response to the original statement of claim, which advanced several causes of action which are no longer pursued (such as knowing receipt). It is sufficient for present purposes, however, to summarise the essence of the expected counterclaims.
[29] First, Ms Gao pleads that if she is found to be “in trade” under either or both the FTA and the FMCA, then so too were all the Aggrieved Persons.
[30] Further, if Ms Gao is found to have made any misrepresentations other than as a conduit, she says then so too did all the Aggrieved Persons. This is based on the
suggested “cumulative effect of various word of mouth statements and representations” concerning the MFC Club and its operation.
[31] As such, it is pleaded that if Ms Gao is found to have breached any of the relevant statutory provisions, then all the Aggrieved Persons were similarly in breach of s 9 of the FTA and/or ss 19 to 22 of the FMCA.
[32]Four specific causes of action are then advanced.
[33] The first, against all Aggrieved Persons, is brought under s 24 of the FTA. It is framed in contingent terms, on the basis that if the MFC Club was a pyramid selling scheme under s 24 of the FTA (which no longer appears to be alleged), and Ms Gao promoted it or operated it, then all the Aggrieved Persons would have similarly promoted it or operated it. On this basis, it is alleged that if the Aggrieved Persons prove any losses, then “all plaintiffs would also have caused and are accordingly liable to” Ms Gao for her own losses in the MFC Club collapse, as well as any liability to which she is found to owe another party in the proceeding.
[34] Under this cause of action, Ms Gao seeks judgment for the sum of her own losses in the MFC Club,13 together with “the amount of any liability [she is] held to owe to other parties in this proceeding (or any of them)”.
[35] I proceed on the basis this counterclaim is likely to be reformulated to respond to the proposed claim under s 9 of the FTA.
[36] The second counterclaim cause of action is advanced against specific Aggrieved Persons to whom Ms Gao alleges she made payments to be held in trust. The essence of this cause of action is similar to that described above, in terms of being contingent on findings being made against Ms Gao, but under a cause of action of knowing receipt. I do not say anything further about this cause of action however, as I do not understand that a cause of action against Ms Gao for knowing receipt is to be advanced.
13 The claim refers to a sum of $450,000, but this is understood to be both Ms Gao and a Mr Huang’s loss, Mr Huang no longer a party to this proceeding.
[37] The third counterclaim is styled “equitable contribution”. Again, it is premised on findings of liability being made against Ms Gao for any of the Aggrieved Persons’ losses. It alleges that:
… dependent on such circumstances of the MFC scheme as may be proved at trial (denied), every other plaintiff (plaintiff B) who participated in it or who dealt with plaintiff A [being a plaintiff who is found to have suffered loss for which Ms Gao is responsible] in any way material to plaintiff A’s loss or harm:
a) by plaintiff B’s own acts, omissions, breaches of statute (including ss 9 and 24 of the FTA, and ss 9 to 22 of the FMCA), and breaches of legal or common law duty (including negligent misstatement), and by knowing receipt, all as pleaded above
b) would thereby have independently caused plaintiff A’s loss or harm (or was unjustly enriched), as pleaded above, and
c) would then also be liable to plaintiff A.
[38] On that basis, Ms Gao claims equitable contribution by way of an indemnity from every other Aggrieved Persons, because “every other plaintiff is or would also be liable for the same harm or loss as alleged against Ms Gao…”, and it would be unjust and inequitable for Ms Gao to “bear the burden of meeting such harm or loss and for any other plaintiff who is responsible for it to escape liability.” The prayer for relief seeks “an enquiry into the extent of equitable contribution which it would be just and equitable for every other plaintiff to make” and “an order that every plaintiff pay Ms Gao … the amount of contribution determined by such enquiry, and judgment for that sum”.
[39] The fourth counterclaim is to similar effect, other than it seeks contribution under s 17 of the Law Reform Act 1936.
[40] It is expected that Ms Yeung will advance similar defences and counterclaims to Ms Gao.
The issues likely to arise for determination
[41] In light of the above pleadings, I consider the following key issues will arise for determination:14
(a)Are the MFC shares equity securities for the purposes of the FMCA?
(b)Was the MFC Club a managed investment scheme for the purposes of the FMCA?
(c)Alternatively, was the MFC Club a financial service for the purpose of the Financial Service Providers (Registration and Dispute Resolution) Act?
(d)Did the defendants, or either of them, make any of the representations pleaded at [36] of the draft second amended statement of claim?
(e)On what occasion or occasions did the defendants, or either of them, make those representations (by reference to the “Public Seminars” referred to at [14] and [15] of the draft second amended statement of claim)?
(f)Were either of the defendants in trade when making those representations?
(g)Were any of the representations misleading or deceptive at the time they were made?
(h)Was the relevant Aggrieved Person an investor in the MFC Club?
(i)Has the relevant Aggrieved Person suffered financial loss or damage as a result of being an investor in the MFC Club, and if so, how much?
14 This list is not necessarily settled, and thus not to be adopted as “the” list of issues for determination, given the current state of the pleadings.
(j)Did the relevant Aggrieved Person suffer that loss or damage by reason of any misrepresentation(s) found to have been made by either or both of the defendants?
(k)In relation to any misrepresentation(s) found to have been made by either or both of the defendants, were either or both of the defendants acting as a “mere conduit” when making them?
(l)In relation to any misrepresentation(s) found to have been made by either or both of the defendants, did either or both of the defendants expressly disclaim liability for the content of the representation(s), or was that apparent or ought to have been apparent from the surrounding circumstances?
(m)Are the defendants liable to pay the Aggrieved Persons compensation for emotional distress?
(n)What award of damages or compensation are the Aggrieved Persons entitled to from the defendants (taking into account any right of the defendants to contribution or set-off)?
(o)Is a limitation defence available to the defendants in relation to any of the Aggrieved Person’s claims?
Applicable legal principles
[42] An application for leave to bring representative proceedings is governed by r 4.24 of the High Court Rules 2016. The text of the rule is set out at [11] above.
[43] Under r 4.24, one or more representatives of a group of persons with the same interest in the subject matter of a proceeding may sue on behalf of all such persons, either with the consent of those persons or by direction of the Court.
[44] In this case, each of the proposed represented plaintiffs has consented to the matter continuing as a representative action. In that sense, therefore, leave from the Court is not required.
[45] Mr Williams explained that as a matter of prudence, however, the applicants sought the Court’s leave rather than relying simply on consent of the proposed represented plaintiffs. Given the nature of the issues arising on the application, I consider that to have been a proper course to adopt — there is substantial dispute about whether there is sufficient common interest between the applicants and the proposed represented plaintiffs for the matter to proceed as a representative action. Issues of alleged conflict have also been raised. I nevertheless consider it relevant when considering the application that consent has been provided by each of the proposed represented plaintiffs. I discuss later in this judgment the respondents’ submission that there cannot have been informed consent. Be that as it may, in the ordinary course, it is relevant that the High Court Rules provide that a group of consenting persons with the same interest in the subject matter of a proceeding is entitled to bring a representative action. The scheme of the Rules therefore recognises that proceeding by way of a representative action when there are claims advanced by persons with the same interest is consistent with the overall purpose of the High Court Rules, namely the just, speedy and inexpensive determination of proceedings or interlocutory applications.15
[46] Returning to the underlying principles, they are relatively well settled and have been considered on a number of occasions by both the Court of Appeal and the Supreme Court. The Court of Appeal in Cridge v Studorp Ltd provided a helpful summary:16
(a)The rule [r 4.24] should be applied to serve the interests of expedition and judicial economy, a key underlying reason for its existence being efficiency. A single determination of issues that are common to members of a class of claimants reduces costs, eliminates duplication of effort and avoids the risk of inconsistent findings.
(b)Access to justice is also an important consideration. Representative actions make affordable otherwise unaffordable claims that would be beyond the means of any individual claimant. Further, they deter
15 High Court Rules 2016, r 1.2.
16 Cridge v Studorp Ltd [2017] NZCA 376, (2017) 23 PRNZ 582 at [11] (footnotes omitted).
potential wrongdoers by disabusing them of the assumption that minor but widespread harm will not result in litigation.
(c)Under the rule, the test is whether the parties to be represented have the same interest in the proceeding as the named parties.
(d)The words ‘same interest’ extend to a significant common interest in the resolution of any question of law or fact arising in the proceeding.
(e)A representative order can be made notwithstanding that it relates only to some of the issues in the claim. It is not necessary that the common question make a complete resolution of the case, or even liability, possible.
(f)It must be for the benefit of the other members of the class that the plaintiff is able to sue in a representative capacity.
(g)The court should take a liberal and flexible approach in determining whether there is a common interest.
(h)The requisite commonality of interest is not a high threshold and the court should be wary of looking for impediments to the representative action rather than being facilitative of it.
(i)A representative action should not be allowed in circumstances that would deprive a defendant of a defence it could have relied on in a separate proceeding against one or more members of the class, or conversely allow a member of the class to succeed where they would not have succeeded had they brought an individual claim.
[47] As the Court of Appeal subsequently noted in Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group (Southern Response), an additional consideration is the merits of the proposed claim.17 In that case, the Court stated that the “provisional appraisal of the merits”, as referred to in Saunders v Houghton (No. 1),18 “requires no more than consideration of the claims as pleaded to ensure that on their face they disclose an arguable case on the facts as pleaded”.19 This is not a material consideration in this case. The (voluminous) affidavit evidence filed in support of and in opposition to the application discloses a range of factual disputes on many of the issues arising. That is not surprising in a case of this kind. However, as Mr Scampion, counsel for Ms Yeung confirmed, at least his client does not press the suggestion that the proposed claims are so clearly untenable as to disentitle leave
17 Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group
[2017] NZCA 489, [2018] 2 NZLR 312.
18 Saunders v Houghton [2009] NZCA 610, [2010] 3 NZLR 331 at [38(d)].
19 Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group,
above n 17, at [17].
being granted for that reason alone. That must be right, given on the earlier freezing orders application, two judges of this Court found there to be an arguable case. I accordingly say nothing further about the merits of the proposed claims.
[48] It is also appropriate to make some observations about the potential for the claim to proceed with financial support from a litigation funder. As matters currently stand, there is no litigation funder on board. However, Mr Williams noted that in the event a representative order is made, the proceeding may be supported by litigation funding, though no details as to who the litigation funder is, or the terms of any such funding are before the Court.20
[49] The role of a court in reviewing and potentially approving funding and other arrangements in representative proceedings was addressed by the Court of Appeal in Southern Response. It is useful to set out the Court’s observations in full:21
[76]In short, we have concluded:
(a)It is not the role of the Court to “approve” litigation funding arrangements. The grant of leave to bring representative proceedings is not, and should not be seen to be, an endorsements of the funding arrangements.
(b)But the Court will ensure that, in granting leave under r 4.24, it is not facilitating an abuse of its processes. If a representative proceeding is based on clearly misleading funding arrangements, or is champertous (for example) then the Court will not grant leave knowing that its processes are being used to facilitate unlawful conduct.
[77] This conclusion reflects the discussion in Waterhouse that it is not the general role of the courts to regulate litigation funders, and that there are institutional difficulties in the courts taking up such a role. However the invocation of the Court’s processes under r 4.24 requires the Court to exercise an increased degree of vigilance when detecting possible abuses of its processes.
[78] Our starting point then is that there is good reason why the courts should exercise a greater supervisory role in respect of the setting up of representative proceedings than in proceedings where a party pursues its own claim, even if litigation funded. By the “setting up” of a proceeding we mean
20 A legal services agreement between Shine Lawyers and the Aggrieved Persons, and a Resolution of the Aggrieved Persons (addressing how and on what terms the applicants are to represent the proposed represented plaintiffs in the proceeding) are before the Court. Mr Williams confirmed that in the event the application is granted, updated and comprehensive agreements will be prepared.
21 (Footnotes omitted).
the funding arrangements and communications with prospective class members. This is because the applicant under s 4.24 is seeking to use a process of the court to enable one plaintiff to represent, and to bind, many. The Court will not grant leave to bring such a claim in circumstances where to do so would be to enable or further an abuse of process. So for example, if the funding arrangement entailed a bare assignment of the represented group’s claims, that would amount to an abuse of process which a court could not sanction. Similarly, where the claim has been marketed to prospective litigants with misleading statements, the Court will be concerned not to allow its processes to be used to facilitate that misleading conduct.
[79] Even so, we do not consider it appropriate to speak of the Court “approving” funding arrangements and marketing materials. First, we see no basis for the court to assume such a power. There is nothing in r 4.24 which enables a court to approve funding arrangements or communications, and in the absence of rules creating a regime for approval, the status of any such approval would be uncertain. Would approval preclude the represented or others from later complaining that the material was misleading? Of more concern perhaps is that court approval, in this context at least, could reassure prospective claimants that all is well with the claim, so that they do not undertake their own assessment. There also must be questions about the institutional capacity of the courts to approve such arrangements in what is at best, in this country, a developing market for litigation funders, and given the absence of any detailed rules of procedure or legislation as exist in other jurisdictions. Rule 4.24 cannot bear the weight of a complex funding approval scheme.
[80] We agree with Mr Cooke that in reviewing the materials for this purpose, the primary concern of the Court will be to ensure that its processes are not used in a way which amounts to an abuse, and in particular that it does not sanction such an abuse by the grant of leave. As this Court noted in Saunders v Houghton (No. 1), the requirement in the High Court Rules that proceedings be determined in a “just and speedy” manner reflects “the fundamental principle … that there must be no abuse of process” in the way the proceeding is run. We acknowledge that in that case this Court used the language of approval. But when the passage in question is read in context, we think it apparent that the Court was not laying down a requirement that there be an approval process for funding arrangements and marketing of representative claims. The proper approach is as we have set out above.
[81] We therefore agree with Mr Cooke that the Court is not required to give prior approval for a funding arrangement. The Court will be concerned to see detail of the funding arrangement and the information provided to prospective class members, to reassure itself that there is no obviously unfair, oppressive or misleading aspect to the arrangement. The grant of leave does not amount to an approval of the arrangements, because approving the arrangements carries the risk that a prospective class member will be falsely reassured by the Court’s approval and so not undertake the due diligence that they should do, to protect their own interests.
[50] The Supreme Court in Southern Response Earthquake Services Ltd v Ross also addressed this topic,22 in the context of whether representative proceedings can be brought on an “opt out” basis. That issue does not arise in this case, as it is proposed that the claim continue on an “opt in” basis. The Supreme Court did, however, comment on the courts’ supervisory role more generally.
[51] The Supreme Court did not accept the appellant’s submission that the Court of Appeal in Southern Response had “disavowed” any role in approving notices in opt in proceedings. The Court noted that the Court of Appeal’s comments were directed to marketing materials and funding arrangements only. The Court also stated that “as a general rule”, the need for court approval of a settlement or discontinuance should be a condition of giving leave under r 4.24 to bring the proceeding on an opt out basis.23 The Court also said that “where proceedings are brought on an opt in basis, consideration should also be given to making court approval a term of giving leave under r 4.24(b),”24 and later, said that “applications under r 4.24 should include proposed conditions as to the court’s supervision of settlement and discontinuance.”25
[52] As to the courts’ review of litigation funding agreements, the Supreme Court said that it would be “premature to say there is an expectation that any litigation funding agreement should routinely be provided to the court as part of an application under r 4.24(b)…”.26
Discussion
[53] I have concluded that it is appropriate to make a representative order in this case. I do so for the following reasons.
[54] First, I am satisfied there are sufficient common issues as between the applicants and the proposed represented plaintiffs to satisfy r 4.24’s requirement that the proposed representative and represented plaintiffs have the same interest in the
22 Southern Response Earthquake Services Ltd v Ross [2020] NZSC 126, [2021] 1 NZLR 117.
23 At [83].
24 At [83], n 156.
25 At [101].
26 At [86].
subject matter of the proceeding. At least issues (a)–(g), and (k)–(m) in the list of issues at [41] above are common issues.
[55] In presenting their suggested list of issues arising for determination, the respondents (not unsurprisingly) sought to segregate out each representation said to be made to each Aggrieved Person, and the circumstances pertaining to that individual and bespoke engagement. But that is not the way the claim is pursued against the respondents. At the heart of the proceeding is the allegation that the respondents were at the centre of promoting the MFC Club in New Zealand — by being the host or joint- hosts of the various public seminars used to promote the Club; that they made the alleged misrepresentations to all of the persons attending each seminar; and in reliance on those misrepresentations, each Aggrieved Person invested in the MFC Club and suffered loss as a result. As Mr Williams noted, the claim does not allege or rely on individual representations made by the respondents to individual Aggrieved Persons.
[56] An earlier version of the amended statement of claim referred to 59 public meetings which either or both of the respondents were said to have hosted/presented. I agree with the respondents that this does take this case outside the example of alleged misrepresentations contained in a single document, such as an investment statement provided to potential investors on an initial public offering. But on the basis it is said that representations to the effect of those pleaded at [36] of the draft second amended statement of claim were made by the respondents at each or many of the seminars in question, then all Aggrieved Persons will have the same interest in that aspect of the proceeding. They will all also have the same interest in whether the pleaded representations were false or misleading.
[57] Once it is determined what, if anything, was said by the respondents at the various seminars, issues will also arise as to whether in the circumstances of those seminars, it was clear that Ms Yeung and/or Ms Gao were acting as a “mere conduit” or otherwise made express disclaimers to those in the room in relation to the information they were conveying. Again, I consider that those are common issues; in other words, was there anything in what Ms Yeung and/or Ms Gao said to all those attending the seminar, or the circumstances surrounding the seminar, which would absolve them of any misrepresentations they are found to have made?
[58] Once those matters have been determined, I accept that issues for determination will likely be individual rather than common. It was all but accepted by counsel for the applicants that issues such as causation, reliance and loss are individual issues. But that is the case in many, if not all, of the cases in which representative orders have been made. In other words, the presence of individual issues does not itself mean there is insufficient common interest between the proposed representing and represented plaintiffs to warrant a representative order being made.
[59] Matters arising from affirmative defences/counterclaims to be advanced by Ms Gao and/or Ms Yeung are likely to be individual issues. For example, whether there were any “bespoke” or “one on one” communications between either of them and an Aggrieved Person which absolves them of liability to that Aggrieved Person; whether the respondents can point to any other communications made to that Aggrieved Person which were contributing factors to that Aggrieved Person’s loss;27 whether any limitation defence applies to losses suffered by that Aggrieved Person and so on. But I am not persuaded that the individual issues in this case swamp the common issues. This is particularly so given the suggested individual issues arising on Ms Gao’s counterclaims/claims for contribution are presently pitched in high level and general terms only, which makes it difficult to discern the extent and breadth of them. Ultimately, how the individual and common issues are managed is, as the Court of Appeal and Supreme Court have said in a number of the reported decisions, a matter of appropriate case management in the High Court.
[60] Mr Collete-Moxon raised the scenario of a hearing to determine whether the respondents made any misleading statements about the MFC Club at a particular seminar, and then what occurred at that seminar having to be revisited at a second stage hearing on the individual issues (to determine, for example, whether any other
27 Schedule 3 to Mr Collette-Moxon’s written submissions contains a summary of affidavit evidence which is said to show that in relation to a number of the Aggrieved Persons, they invested in the MFC Club in reliance on statements and information emanating from persons other than Ms Gao. A number of these affidavits appear to have been prepared when the claim was advanced against 15 defendants, with the allegations in them being directed against defendants who are no longer parties to this proceeding (the claims against the third to fifteenth defendants were discontinued in May 2021). Mr Williams submitted that on the plaintiffs’ case, it does not matter that there might have been other contributing causes to the Aggrieved Persons’ losses; submitting that for the defendants to be liable, their conduct need only be a “materially contributing” cause of the loss.
persons made representations at that seminar which were similarly misleading and contributed to an Aggrieved Person’s loss). But that submission assumes that evidence of what else was said at a particular seminar cannot be the subject of evidence and factual findings by the Court in the context of the same hearing which examines the plaintiffs’ evidence about that seminar. In other words, Mr Collete-Moxon’s submission is premised on an assumption that no individual issue could be the subject of a stage one hearing, an assumption that may not be valid in the circumstances of this particular case.
[61] Third, I am also not persuaded that the presence of (likely) counterclaims/claims for contribution means that a representative order is not appropriate. Counterclaims/claims for contribution have been a feature of some of the decisions referred to earlier. For example, Ellis J in Cridge v Studorp Ltd stated:28
[70] Although I have rejected the proposition that a finding of duty and breach on a “product liability” basis would then entitle the plaintiffs to proceed on the basis of some kind of presumptive damage, I am inclined to accept that a finding of inherent defects in the cladding system would render the issues of causation and damage more straightforward. While I acknowledge the position might be complicated by issues of contribution and intervening causes, that complexity exists in claims like these in any event. I do not think they can be fairly regarded as counting against a representative action here.
[62] Similar considerations apply here. How the counterclaims/claims for contribution are handled in the context of a representative proceeding is again a matter for case management.
[63] Fourth, a significant number of the proposed represented plaintiffs are already named plaintiffs to the proceeding. This was a point which persuaded me in About Image Ltd v Advaro Ltd that a representative order was not necessary or appropriate in that case.29 However, in that case, there were a (slightly) smaller number of plaintiffs involved, all were New Zealand based and were small to medium companies. Perhaps more relevantly, the real issue in that case was whether there were sufficient common issues as between the 63 plaintiffs to justify a stage-one trial of those issues.30
28 Cridge v Studorp Ltd, above n 16 (emphasis added).
29 About Image Ltd v Advaro Ltd [2017] NZHC 3264.
30 At [45].
[64] In this case, while the current number of proposed represented plaintiffs is relatively small (at least by reference to other representative proceedings), by comparison to “ordinary” proceedings there are a significant number of plaintiffs. There are also now a reasonably significant number of proposed represented plaintiffs who are not named plaintiffs. It cannot be ruled out that there will be more. Some are also not based in New Zealand, and it appears that many do not speak English. All of these factors present considerable difficulties in marshalling such a group of individual plaintiffs. So, while a representative order is not necessary to bind the existing named plaintiffs to findings on common issues, that itself does not mean a representative order is not otherwise appropriate. Further, in the context of individual issues, it may be that the represented persons, if not already a plaintiff, will need to be joined to the proceeding in any event, so they will be bound by findings on the individual issues relevant to them.31
[65] The Court of Appeal in Southern Response also considered the prospect of all claimants being joined as plaintiffs to the proceeding. The Court stated:32
But requiring each plaintiff to prove an allegation of breach of contract which is common among many would seem to bring no advantage to any party. In other words, there would seem to be no good reason to prefer the procedural complexity of multiple claims over what should be the relative simplicity of a representative claim.
[66] The same considerations apply here, and do not “disappear” simply because the claim was originally commenced with all (then) claimants joined as named plaintiffs.
[67] Fifth, I take into account the obvious difficulties that this proceeding has encountered to date, and that it appears to have been managed by the applicants themselves, supported by their lawyers. It is wholly unsatisfactory that some three
31 See, for example, Glazebrook J’s comments in Credit Suisse Private Equity LLC v Houghton [2014] NZSC 37, [2014] 1 NZLR 541 at [133]. Formal joinder may not be required, however, if the claim for compensation is pursued pursuant to s 494(2) of the FMCA, where a compensatory order may be made in relation to a person even if that person is not a party to the proceeding; see
[22] above. That person would still, however, need to give evidence as to their own reliance on any misrepresentations found to have been made by Ms Yeung and/or Ms Gao, and the losses they suffered as a result.
32 Southern Response Earthquake Services Ltd v Southern Response Unresolved Claims Group, above n 17, at [38].
years after being commenced, there is still not a settled set of pleadings, and the issue of a representative order is only now being considered. I acknowledge that not all the delays fall at the parties’ feet.33 Nevertheless, the pursuit of the claim to date has been unacceptably lengthy and drawn out. But again, I do not see that as meaning a representative order ought not to be made. On the contrary, a representative order in circumstances where there are a range of common issues between a relatively large group of claimants is likely to assist in streamlining the progress of the litigation going forward.
[68] Sixth, a point made in Mr Collette-Moxon’s written submissions was that “all justiciable issues are disputed on the pleadings, so cannot be determined summarily against the second defendant on this application”. For the avoidance of doubt, no factual or legal issues arising on the pleadings for determination are “determined summarily” on this application. Determination of factual and legal issues will occur later in this proceeding.
[69] Finally, I turn to the present arrangements between the applicants and the proposed represented plaintiffs, and the suggestion of conflict or likely conflict between them.
[70] As noted, the Court presently has before it a resolution by the applicants and the proposed represented plaintiffs (which I will refer to as “the Resolution”) and an agreement between the Aggrieved Persons and Shine Lawyers (which I will refer to as “the Legal Service Agreement”). Both Mr Scampion, counsel for Ms Yeung, and Mr Collette-Moxon raised concerns about those documents, the purpose of which was to:
(a)call into question whether there was truly informed consent by the proposed represented plaintiffs to the matter proceeding as a representative action; and
33 Given there have been delays occasioned by changes in representation; delays arising out of the inevitable difficulties managing such a large group of plaintiffs; delays arising out of court scheduling; and all of these matters being exacerbated by the intervening COVID-19 pandemic and associated restrictions.
(b)highlight suggested conflicts or potential conflicts between the applicants and the proposed represented plaintiffs, or between the proposed represented plaintiffs.
[71] For example, while accepting that it can be appropriate in multi-party cases for a group of plaintiffs to appoint a committee to handle procedural matters, Mr Collette- Moxon submitted that the terms of the Resolution go “well beyond a procedural device” and “show the applicants intend to control [the proceeding]”. He referred in particular to that aspect of the Resolution which authorises the applicants to:
(a)select and change counsel;
(b)give counsel instructions on behalf of the represented plaintiffs;
(c)add or remove any plaintiffs;
(d)add or remove any defendant; and
(e)make decisions on behalf of the represented plaintiffs regarding the case.
[72] Mr Collette-Moxon suggested this was aimed at the applicants seeking to insulate themselves from claims against them by the proposed represented plaintiffs.
[73] Mr Collette-Moxon further submitted that the Resolution is “prima facie unlimited”, and under its terms, the proposed represented plaintiffs indemnify the applicants against adverse cost awards.
[74] It is correct that the Aggrieved Persons indemnify the applicants for any costs award made against them. But the applicants are themselves included as Aggrieved Persons in the Resolution, so the position is not quite as stark as Mr Collette-Moxon suggested. However, the ability for the applicants to remove any party as a plaintiff to the proceeding does seem unusual. It means the applicants could discontinue the claim on behalf of any named plaintiff without that named plaintiff’s consent. Mr Scampion also raised the possibility of the applicants removing a person as a
named plaintiff and re-joining them as a defendant. Mr Scampion’s point was that no person would give informed consent to the applicants having powers as broad as those. Mr Williams acknowledged that some aspects of the Resolution were perhaps “infelicitously drafted” and confirmed that if a representative order is made and a litigation funder comes on board, there will be a full suite of new agreements in any event.
[75] Turning to the submission that the applicants probably engaged in conduct vis- à-vis the proposed represented plaintiffs that was similar to their allegations against the respondents, the difficulty with that argument is that none of the proposed represented plaintiffs allege that the applicants are responsible for their losses. The claim is directed solely at the respondents’ conduct. The Court must assess the application for a representative order on the basis of the claims actually in play, not by reference to possible claims arising from what the respondents say the applicants probably did. I also cannot make factual findings on this application as to what certain persons did or did not do in connection with the MFC Club, there being a range of disputed factual matters in the affidavit evidence about the applicants’ alleged conduct. That said, however, it will be important that any future agreements governing the pursuit of the claims going forward contain appropriate provisions about conflict management. As discussed further below, a condition of granting the representative order will be that the Court reviews the agreements to be put in place between the representative and represented plaintiffs, between those persons and the solicitors acting, and the litigation funding agreements (if any).
[76] Mr Collette-Moxon also referred to evidence in Ms Gao’s affidavits of discussions she says she had with a small number of the proposed represented plaintiffs, said to call into question whether they have given informed consent to the Resolution and/or the Legal Service Agreement. Given the hearsay nature of this evidence, I cannot place any real weight on it. Again, however, the grant of the representative order will be conditional on the Court’s review of the agreements to be put in place to advance the claim going forward.
[77] The application for leave to continue the proceeding as a representative proceeding pursuant to r 4.24 is accordingly granted. I do not, however, make the
representative orders formally in this judgment. This is because the form of the orders as sought is somewhat rudimentary. The proposed orders require amendment and additional terms, and will also be subject to the various conditions discussed below.
[78] The first point to address is the opt-in period. Given the delays to date, the class of represented persons ought to be settled without delay. The applicants suggested a period of approximately three months from the date of judgment as a suitable opt-in period. I do not consider such a lengthy period is required. This proceeding has been on foot for about three years and given the apparently close nature of the community in which the MFC Club was promoted in New Zealand, the majority of persons who invested in the Club in New Zealand and want to participate in this proceeding have probably “opted-in” already.
[79] I accordingly set the opt-in period as six weeks from the date the formal representative orders are made.
[80]Second, the application is granted on the condition that:
(a)updated agreements concerning the progress of the claim going forward are to be submitted to the Court for review;
(b)any communication or notice to be distributed seeking interest from any other persons to join the representative action is also to be put before the Court for review; 34 and
(c)if a litigation funder is to provide support to this proceeding, the funding arrangements should also be put before the Court for review.
[81] Counsel for the applicants are to file a memorandum within 10 working days of this judgment providing an indication of the time by which they will be in a position to file the above documents.
34 See for, example, Fullarton v Arowana International Ltd [2021] NZHC 93, [2021] NZCCLR 281 at [150] and [159], in which case the application for representative orders annexed the proposed text of the opt-in notice. This prompted some changes to be made to the notice.
[82] Third, and despite the Supreme Court’s observation in Southern Response that applications under r 4.24 should include proposed conditions as to the Court’s supervision of settlement and discontinuance,35 the present application does not do so. Accordingly, the granting of a representative order is also conditional on the provision of proposed conditions about the Court’s supervision of settlement and discontinuance.
[83] Fourth, in oral submissions at the hearing, Mr Williams submitted that the representative order ought to be backdated to when this claim was first commenced in December 2020. Mr Williams relied on Glazebrook J’s comments in Credit Suisse that:36
The fact that, under the High Court Rules, an action is commenced when the statement of claim is filed, may necessitate the backdating of a representative order if it is not made at the time of filing. This is necessary and desirable to ensure that the court’s process does not disqualify those on behalf of whom a representative proceeding is brought, should the limitation period end in the period between the filing and when the representative order is made.
[84] The need for backdating was not raised in either the application or the applicants’ written submissions.
[85] It is appropriate that the defendants have a proper opportunity to comment on the backdating proposal. If the parties cannot agree on the appropriate date for any backdating, they are to propose a timetable for short submissions on this topic from the applicants, the respondents and then the applicants in reply. A joint memorandum confirming that the backdating date is agreed, or if not proposing a timetable for submissions, is to be filed within 10 working days of this judgment.
[86] Fifth, the proposed representative order in this case does not specify clearly enough the scope of the proposed class of Aggrieved Persons, or any process for contacting potential further members of the plaintiff class and notifying the Court of this. I would expect to see the scope of the proposed class of represented plaintiffs defined with particularity, such as persons who invested in the MFC Club in New Zealand over the period X to Y, attended any one or more of the seminars listed in XX,
35 See [51] above.
36 Credit Suisse, above n 31 (emphasis added). See also Cridge v Studorp, above n 16, at [63]–[86].
and who have suffered loss as a result of that investment.37 In their memorandum to be filed in accordance with [81] above, the applicants are to include the text of proposed and more detailed representative orders that address these observations.
[87] There is one final procedural matter to deal with. That is the parties to this proceeding. In light of information provided by counsel, I proceed on the basis that prior to the formal representative orders being made, the current named plaintiffs to the proceeding are intended to be:
(a)the original 69 named plaintiffs to the original statement of claim filed in December 2020;
(b)minus those eight persons listed on page 2 of counsel for the plaintiffs’ memorandum dated 25 May 2023 who have filed notices of discontinuance;
(c)minus the original seventh plaintiff (Xueying (Shelly) Lei), who passed away last year;
(d)minus the other non-participating plaintiff, Hui Qiong Yang (the original fifty-fifth plaintiff).
[88] Based on the above, the current intended named plaintiffs are those 59 persons listed in Schedule A to counsel for the plaintiffs’ memorandum dated 25 May 2023.
[89] Once the formal representative orders are made, none of the named plaintiffs, including Xueying (Shelly) Lei/her estate and Hui Qiong Yang, will remain as named plaintiffs. Rather, they will form part of the group of represented plaintiffs.
[90] In order to regularise the position, it seems to me that if the original seventh plaintiff (Xueying (Shelly) Lei/her estate) and the original fifty-fifth plaintiff (Hui Qiong Yang) no longer wish to participate in this proceeding, even on a represented
37 See for, example, the text of the orders sought in Fullarton v Arowana International Ltd, above n 34, at [150].
basis, this should be confirmed prior to the formal representative orders being made. Counsel for the remaining plaintiffs are to take steps to serve a copy of this judgment on Xueying (Shelly) Lei’s estate and Hui Qiong Yang, and seek confirmation of whether they want to participate in this proceeding as a represented plaintiff. Absent evidence of those plaintiffs’ consent to continue in this proceeding (as a represented plaintiff) being received by the Court prior to the representative orders being made, they will not be included in the group of represented plaintiffs.38
[91]I turn now to the application for asset preservation orders.
Application for asset preservation orders
Introduction
[92] The applicants seek asset preservation orders under s 522 of the FMCA. Section 522 provides:39
522. When court may make order to protect interests of aggrieved persons
(1)This section applies if—
(a) an investigation is being carried out under the Financial Markets Authority Act 2011 in relation to an act or omission by a person that—
(i)constitutes or may constitute a contravention, or involvement in a contravention, of any Act specified in Part 1 of Schedule 1 of the Financial Markets Authority Act 2011; or
(ii)constitutes or may constitute a contravention, or involvement in a contravention, of any Act specified in Part 2 of Schedule 1 of the Financial Markets Authority Act 2011 (where the person is, or has been, a financial markets participant); or
(iii)may result in a prosecution or civil proceedings of the kind referred to in any of paragraphs (b) to (d) being begun again the person; or
(b) a prosecution has begun against a person for an offence under—
38 They would of course retain the ability to opt-in to the proceeding within the opt-in period if they wished to do so.
39 (Emphasis added).
(i)any Act specified in Part 1 of Schedule of the Financial Markets Authority Act 2011; or
(ii)any Act specified in Part 2 of Schedule 1 of the Financial Markets Authority Act 2011 (where the person is, or has been, a financial markets participant); or
(c) civil proceedings have begun against a person under, or in respect of,—
(i)any Act specified in Part 1 of Schedule 1 of the Financial Markets Authority Act 2011; or
(ii)any Act specified in Part 2 of Schedule 1 of the Financial Markets Authority Act 2011 (where the person is, or has been, a financial markets participant); or
(d) civil proceedings have begun against a person that, in connection with the offer, issue, transfer, supply, or use of financial products or financial services, seek damages or other relief for a contravention, involvement in a contravention, fraud, negligence, breach of duty, or other misconduct.
(2)The court may, on application by the FMA or by an aggrieved person, make 1 or more of the orders listed in section 523 if the court considers it necessary or desirable to do so for the purpose of protecting the interests of an aggrieved person.
(3)In this section, a reference to any Act referred to in Schedule 1 of the Financial Markets Authority Act 2011 includes a reference to any regulations made under any of those Acts.
(4)In this section and section 523,—
aggrieved person means any person to whom a relevant person is liable
associate means an associated person
civil proceedings means proceedings in a court (other than criminal proceedings)
liable means liable, or may be or become liable, to pay money (whether in respect of a debt, by way of damages or compensation, or otherwise) or to account for financial products or other property
relevant person means a person referred to in subsection (1).
[93] The amended application for asset preservation orders was originally framed in broad terms. The applicants sought orders that the respondents were prohibited from:
(a)transferring, charging or otherwise dealing with money, financial products or other property held or controlled by them (whether solely or jointly owned, beneficially held or otherwise, real or personal, including but not limited to certain properties owned by the defendants in Auckland);
(b)taking, sending, or transferring property out of New Zealand; and
(c)from leaving New Zealand without the consent of the High Court.
[94] It will be immediately apparent that the order sought at (c) above would have placed significant restrictions on the respondents’ liberty of movement. While such an order is available under s 523 of the FMCA,40 in a case such as this, essentially commercial litigation between private individuals, an application for such an order was, in my view, unwarranted.
[95] In any event, the applicants pursue asset preservation orders only in relation to three properties owned by the respondents in Auckland. The orders sought in their amended form are to prohibit the respondents from “transferring, charging or otherwise dealing with” the three properties. The applicants also seek an order that no later than five working days after receiving notice of the orders, the respondents each swear and file an affidavit disclosing the nature and extent of any mortgages registered against the three properties.
The applicable legal principles
[96] Winkelmann J, as she then was, considered the approach to asset preservation orders in some detail in Financial Markets Authority v Hotchin.41 This is, as far as counsel and the Court are aware, the only other decision addressing the nature and scope of asset preservation orders under the FMCA. Winkelmann J set out the following general principles (which it is helpful to replicate in full):
40 FMCA, s 523(1)(l).
41 Financial Markets Authority v Hotchin [2011] 3 NZLR 469 (HC) (emphasis added and footnotes omitted). That case concerned the predecessor to asset preservation orders under the FMCA, namely ss 60G to 60I of the Securities Act 1978. Relevantly for the purposes of the present application, they are in materially the same terms.
[48] The purpose of ss 60G-60I is to ensure that the rights of aggrieved persons to damages, compensation or restitution are not frustrated through the assets of a liable person being dealt with in a way that renders them unavailable to meet those claims. There is a public interest in ensuring that those who solicit public money through the use of untrue statements are brought to account.
[49] The provisions allow for such protection to be afforded to aggrieved persons even where breaches of the Act are not established and even where no decision has been taken to bring proceedings against the relevant person. Thus the power to make preservation orders extends to where an investigation is on foot, but no proceeding is yet commenced, and the definition of “liable” includes “may be or become liable”. Investigations into suspected breaches of the Act are usually complex and take time – time during which assets that may have been available to satisfy a likely future claim may dissipate. These provisions enable the assets of the relevant person to be preserved pending the outcome of the investigation.
[50] The remedies available under those provisions are dramatic. Even if made on an interim basis, preservation orders are a significant interference with property rights, and the court should exercise care before making any orders. However, as was observed by Waddell CJ in Corporate Affairs Commission (New South Wales) v Walker:
The legislature clearly intended that drastic remedies should be available to protect the interests of persons who might have a claim in respect of such activity by freezing the assets of those responsible. In applying the section effect should be given to this legislative intention.
[51] Assuming one of the jurisdictional pre-conditions in s 60G(1) exists (in this case that an investigation is on foot), the issue for the court is whether it is “necessary or desirable” to make the orders for the purpose of protecting the interests of an aggrieved person. The focus at this point of the analysis is upon the interests of the aggrieved person. The impact of the proposed orders upon the relevant person, or any other party, does not feature at this stage of the court’s consideration. It may weigh in the subsequent inquiry as to whether the discretion implicit in the words “may order” should be exercised in favour of the making of the orders.
[52] The circumstances in which the court may make orders are wide, as indicated by the words “necessary or desirable”. Thresholds and principles should not be developed that fetter that discretion in any way. It follows also that little reliance can be placed upon factual similarities between the present case and cases in which orders have previously been made or declined. Each case must be considered on its own facts.
[53] In determining whether it is necessary or desirable to make the orders sought, the court must undertake an evaluative exercise. It is left to the court to determine what matters to take into account but it is clear that there is an element of risk management or risk assessment involved in determining whether it is necessary or desirable that orders be made.
[54] There is no requirement on the part of the Authority to demonstrate a prima facie case of liability on the part of the relevant person. Nevertheless, in the case of an application brought on grounds of an existing investigation,
I consider that the Authority must at least show that good grounds exist for the investigation, and its continuation. After all, there can be little public interest in an investigation in the absence of such grounds.
[55] There is also no requirement that the Authority show that the persons assets are about to be dissipated. It is sufficient if there is the potential for dissipation of the assets.
[56] Although a risk of dissipation of assets is not a prerequisite to the making of orders, given the policy objectives of these provisions, the presence of such a risk is likely to be a powerful discretionary factor.
[57] I consider that also relevant to the evaluation to be undertaken is the nature and seriousness of the breach or breaches, the numbers of aggrieved persons and the quantum of the potential liability of the relevant person. It will also weigh in this assessment that the application for preservation orders is made on behalf of aggrieved persons by the Authority. Sprinkled through the Australian authorities is comment[s] to the effect that the public interest role of the Authority may warrant an order in circumstances when it might be denied to a private litigant. Care must be taken not to attach too much weight to this factor, as to do so risks effectively substituting the Authority’s assessment of what is necessary or desirable for that of the judge. However it must at least be a relevant factor that the Authority brings the application on behalf of all aggrieved person’s.
[58] In addition to the jurisdictional pre-conditions in s 60G there are further pre-conditions set out in s 60H which must be met before orders may be made. Asset preservation orders may only be made in respect of certain categories of property as described in s 60H(1)(a)-(i). At a final hearing of an application under s 60G it will be necessary for the Authority to prove on the balance of probabilities that the property falls within one of these categories, for example, that it is property held or controlled by the relevant person (in which case an order can be made against the relevant person), or that it is money held by a third party on behalf of the relevant person (in which case an order can be made against that third party in respect of that property). However, when an interim order is sought under s 60I, the court need only decide whether it is “desirable” that an interim order be made before considering the application. It may be desirable even if the Authority is not able to prove to the civil standard that the property falls within one of the categories.
[59] But even at the interim stage, the Authority still must show something to suggest that it is property falling within the relevant category. Bearing in mind my earlier comments I hesitate to propose a threshold, but it would be difficult to conclude that it is desirable that orders be made if there is nothing to tie the property in question into one of the categories in s 60H(1). I am attracted to the suggestion of Finkelstein J in Australian Securities and Investments Commission v Lee that it will be enough if something like a possible or prima facie case is presented to show the property falls within one of the s 60H categories.
[60] It is also perhaps obvious, but worth recording nevertheless, that the jurisdiction is not to be exercised for a disciplinary purpose. Any orders made must be made for the purpose of preserving assets that could be available to meet any judgment ultimately entered against the liable person. For this
reason, if orders are made, the court must ensure that the orders are no more intrusive than required to preserve the assets.
[97] It will be immediately apparent that many of the observations made by Winkelmann J are primarily relevant when the party seeking the asset preservation orders is the Financial Markets Authority (the Authority).
Submissions
[98] The applicants say that all the requirements for an order to be made under s 522 are met, in that:
(a)civil proceedings have begun against the respondents under or in respect of the FMCA; or
(b)civil proceedings have begun against the respondents that, in connection with the offer, issue, transfer, supply or use of financial products or financial services, seeks damages or other relief for a contravention; and
(c)the orders sought are necessary or desirable for the purposes of protecting the interests of the Aggrieved Persons, and any other persons who may later consent to opt into the representative proceeding; and
(d)disclosure orders are necessary to secure compliance with the asset preservation orders.42
[99] The applicants rely on many of the principles summarised in the above extract from Winkelmann J’s judgment, including that the focus at the evaluative stage of the inquiry is on the Aggrieved Persons, and that a risk of dissipation is not required, nor is a prima facie case. The applicants further say that orders are appropriate in this case because:
42 Relying on observations of Winkelmann J in Financial Markets Authority v Hotchin, above n 41, at [5]–[6].
(a)the seriousness of the alleged breaches is high (the Aggrieved Persons are all vulnerable unsophisticated investors, and the promotion of the MFC Club was clearly designed to deceive them, and having been judicially described in at least one other jurisdiction as a sham investment scheme);
(b)the number of Aggrieved Persons is at least 94; and
(c)the total value of the claim, as it presently stands, is more than
$9 million.
[100] Counsel for the applicants refer to Ms Kwok’s affidavit in which she deposes that the Aggrieved Persons will need the support of a litigation funder to continue their claim, and that a litigation funder requires some assurance that the respondents have assets that will remain available to meet any damages award. There is, however, no affidavit evidence from any proposed litigation funder to this effect, although I accept as a matter of logic the prospects of recoverability will be a relevant consideration for a litigation funder. I note, however, that counsel do not go so far as to suggest that absent asset preservation orders, this action will simply cease.
[101] The respondents oppose the application, including in its more limited form. Counsel for the respondents highlight Winkelmann J’s observations that asset preservation orders are “dramatic” and “drastic” remedies, and her Honour’s statement that the court should exercise care before making such orders. Counsel also highlight Winkelmann J’s observation that comments are “sprinkled through the Australian authorities to the effect that the public interest role of the Authority may warrant an order in circumstances when it might be denied to a private litigant”.
[102] The respondents accordingly urge caution in this case, noting there is no suggestion that the respondents themselves created the MFC Club, and there is a plausible narrative of similar involvement by at least the applicants in its promotion.
[103] The respondents also submit that there is no risk of dissipation. They point to the application for freezing orders made at an earlier stage in these proceedings, which
while granted on a without notice basis, were promptly rescinded by Campbell J on the basis there was no such risk.43 Counsel note that two years have passed since Campbell J discharged the freezing orders and there is no suggestion that there has been a significant and swift dissipation of assets by the respondents in the interim, despite both clearly being on notice of the ongoing nature of these proceedings. Counsel also refer to the respondents’ and their families’ ties to New Zealand, and that they are domestic families of comfortable yet modest means.
Discussion
[104] I have reached the conclusion that it is not appropriate to make asset preservation orders. This is for the following reasons.
[105] First, there is no doubt that the jurisdictional requirement for asset preservation orders is met (s 522(1)(d)). The next step is accordingly the evaluative exercise of whether asset preservation orders are “necessary or desirable”.
[106] I start by observing that Winkelmann J’s comments that such orders are “dramatic” and “drastic”, and the caution to be exercised when considering them, are to be viewed in the context of the scenario then before the Judge. At the time of that application, no proceedings had actually been commenced by the Authority against Mr Hotchin, rather than simply being at the investigation stage.44 Nevertheless it is also evident from Winkelmann J’s summary of the applicable principles that many of those principles are more relevant when it is the Authority pursuing asset preservation orders in the context of funds having been publicly sought from the public. That is an important element missing in this case, where the MFC Club was promoted, as far as I can discern, to a much more limited and “closed” group of potential investors.
[107] Next, I put to one side the suggestion that the orders are necessary to secure a litigation funder. There is no evidence before the Court that this proceeding will not continue if asset preservation orders are not made. It has plainly continued for some time in their absence. I also note that as matters currently stand, it appears that
43 Freezing order decision, above n 3.
44 See, for example, the Judge’s comments in her earlier decision in Financial Markets Authority v Hotchin, above n 41, at [21].
Shine Lawyers have agreed with the Aggrieved Persons that their fees will only be payable in the event of a “successful outcome”.
[108] Winkelmann J noted that in carrying out the evaluative exercise of whether orders are necessary or desirable, there is an element of “risk management” or “risk assessment” involved,45 though no specific need to demonstrate a risk of dissipation.46 It is clear, however, from her judgment that if there is a risk of dissipation, that will be a powerful factor in the assessment of whether asset preservation orders are necessary or desirable.47
[109] Here, there is no real risk of dissipation, as Campbell J found some two years ago. And despite nearly two years passing, there is no suggestion either respondent has engaged in disposition of assets in order to defeat the enforcement of any judgment.48 They both appear to live relatively modest lives, there is no evidence they are involved in complicated asset holding entities such as in Hotchin and, particularly in the case of Ms Gao, they have longstanding ties to New Zealand.49
[110] It is difficult to say with any degree of confidence whether there is strong or little merit to the plaintiffs’ claims. The affidavits are replete with factual disputes that cannot be determined on the present applications. The matter nevertheless passes the arguable case test, as Gault and then Campbell JJ held in granting and then discharging the earlier freezing orders. But I anticipate a degree of complexity arising, particularly in the context of issues such as intervening causes of loss, other persons contributing
45 At [53].
46 At [54].
47 At [56]. See also Hotchin v The Financial Markets Authority [2012] NZCA 155, at [18](d).48 There was a disposition by Ms Yeung of her 12 percent shareholding in a company which owns a property in Hamilton, but that occurred in August 2021, well before the application for asset preservation orders was made. Ms Yeung also deposes that it was not her decision to sell the property (being only a 12 percent shareholder) and at least as of September 2022 (when her affidavit was sworn), the purchase price had not been paid and she had not received any proceeds from the sale of the property.
49 The plaintiffs’ draft second amended statement of claim pleads that Ms Yeung lives in Epsom and is a physical education teacher at a Chinese primary school. It seems from Ms Yeung’s most recent affidavit, however, that she is now be based in Hong Kong, though has property in this jurisdiction, and has a daughter studying in New Zealand. She deposes that she left New Zealand in April 2018, and other than a brief visit back to New Zealand from December 2018 to February 2019, she has not been back to New Zealand. Her move to Hong Kong obviously pre-dates these proceedings being commenced. Ms Gao and her husband have lived here since 1995, with their two children and Ms Gao’s mother. Ms Gao deposes that they have no intention of leaving New Zealand.
to the Aggrieved Person’s losses and so on, all of which means the claims are unlikely to be entirely straightforward to prosecute.
[111] As to the number of claimants and the sums involved, while there are a significant number of Aggrieved Persons, they are not particularly significant by comparison to many other representative actions. Similar observations apply to the quantum involved. As to the seriousness of the breaches alleged, it seems tolerably clear the MFC Club was not as it seemed to be. Ultimately, it was “too good to be true”. But that is a separate issue to the respondents’ own involvement in and responsibility for that state of affairs. Their case is that they too were just as taken in by the lure of the MFC Club as the Aggrieved Persons. That being said, whether conduct is misleading and deceptive for the purposes of the FMCA and FTA is an objective inquiry, and it is not a requirement that the defendant knew their representations were misleading.
[112] The very significant passage of time before the orders were sought is a materially relevant factor. Not only are the orders sought nearly three years after the proceeding was commenced, but also two years after the earlier freezing orders were discharged. This itself undermines the proposition that asset preservation orders are necessary or desirable.
[113] Weighing all these factors together, I am not persuaded that it is necessary or desirable to make asset preservation orders.
[114] The considerable delay in seeking the orders would also have weighed heavily in the discretionary exercise, had that stage of the analysis been reached. It also seems that some of the properties in issue are owned jointly with others who are not parties to this proceeding. I would also have taken into account the prospect of what is likely to be a further lengthy period of time before these proceedings are concluded.
[115] For completeness, Mr Collette-Moxon mounted a vigorous but ultimately distracting argument that the applicants’ conduct would have disqualified them from being successful on their application (a “clean hands” type submission). This was based on the content of a letter written by counsel for the applicants to counsel for
Ms Gao, requesting information about her assets. The letter stated the information was sought so that consideration could be given to discontinuing the proceeding if Ms Gao had insufficient assets to pay a judgment debt or a significant proportion of it. Mr Collette-Moxon submitted that the real and primary reason for the request can be inferred to be a request for information on behalf of a litigation funder, and for information needed to make the asset preservation order application. He urged me to ascribe nefarious intent to the content of the letter,50 which I decline to do. The stated reason for requesting the information was entirely reasonable, and no doubt if Ms Gao had demonstrated that she had no assets at all, consideration would have been given to a discontinuance.
[116] Finally, there was no suggestion that the Court has jurisdiction to make an order for the disclosure of financial information/assets in the absence of asset preservation orders.
[117]The application for asset preservation orders is accordingly dismissed.
Wasted costs of earlier hearing
Background
[118] Ms Yeung and Ms Gao apply for wasted costs associated with the adjournment of the hearing of the application for a representative order, which was originally scheduled to be heard on 9 September 2021. Ms Gao seeks wasted costs on a category 3B basis with a 50 percent uplift, and Ms Yeung seeks wasted costs on an indemnity basis.
[119]It is necessary to first set out some procedural background.
[120] The plaintiffs’ original application for a representative order was filed on 16 December 2020, accompanied by nine affidavits in support.
[121] On 24 March 2021, an amended application for a representative order was filed, together with a further affidavit in support.
50 Describing it as “Machiavellian correspondence”.
[122] By way of a notice of change of solicitor filed on 4 March 2021, the plaintiffs’ former solicitor stated that he was solicitor on the record for all the plaintiffs in the representative action.
[123] On 23 July 2021, the plaintiffs filed a second amended application for a representative order, with two further affidavits in support.
[124] Ms Yeung and Ms Gao each filed a notice of opposition and affidavit in support of the opposition in August 2021. As noted, Ms Yeung claims indemnity costs for that notice of opposition, while Ms Gao seeks increased scale costs on a 3B plus 50 percent basis.
[125] On 18 August 2021, the then solicitor for the plaintiffs filed a memorandum suggesting that the September 2021 hearing be used to determine whether certain “foundational issues” should be determined as preliminary questions. Lang J declined that request by minute dated 20 August 2021, stating that the fixture on 9 September 2021 ought to be utilised as originally intended — namely to determine whether the plaintiffs should be granted leave to issue a representative proceeding.
[126] On 19 and 20 August 2021, Ms Yeung and Ms Gao filed memoranda in advance of a chambers list appearance, raising with the Court their concern that the plaintiffs were not complying with their obligations to preserve documents. Ms Yeung claims wasted costs in relation to this memorandum on an indemnity basis, and Ms Gao claims increased scale costs for this step on a scale 3B basis, plus 50 percent basis.
[127] Correspondence then ensued between the parties as to whether it was correct that the former solicitor for the plaintiffs indeed represented all plaintiffs to the proceeding. The solicitor later confirmed, on 25 August 2021, that there were eight of the 69 named plaintiffs that he did not formally represent.
[128] Ms Yeung and Ms Gao filed a joint memorandum on 27 August 2021 raising this issue with the Court, and their concern that the unrepresented plaintiffs were not aware of the hearing but were entitled to be represented at it. Ms Yeung claims wasted
costs in relation to this memorandum on an indemnity basis, while Ms Gao claims scale 3B costs plus 50 percent.
[129] On 27 August 2021, the plaintiffs’ former solicitor filed a memorandum relying on an earlier version of the resolution of Aggrieved Persons, stating on the basis of that document, he had authority to act on behalf of the unrepresented plaintiffs, and therefore they would not be prejudiced by the fact they were not formally represented by him. At or around this time, counsel for the defendants had proposed that the hearing be adjourned in any event, on the basis it was more appropriate that it be an in-person hearing rather than a remote hearing. Moore J refused the adjournment.
[130] The plaintiffs subsequently filed their submissions on the application for a representative order.
[131] The defendants filed their submissions in opposition on 6 September 2021. Both claim wasted costs for their submissions on a scale 3B basis, plus 50 percent.
[132] On 6 September 2021, counsel for Ms Yeung filed a further memorandum raising the issue of the unrepresented plaintiffs, following one of them again having been in contact with Ms Yeung. Ms Yeung claims wasted costs in relation to this memorandum on an indemnity basis.
[133] The 9 September 2021 hearing commenced, though in light of the issue raised concerning unrepresented plaintiffs, Associate Judge Sussock adjourned the hearing with directions as to how to regularise the situation. She considered she could not proceed with the hearing without clear confirmation as to which plaintiffs were represented by the solicitor then on the record, and who would be represented by the representative plaintiffs if the representative orders were made. Ms Yeung claims wasted costs relating to the hearing and the preparation for the hearing on an indemnity basis. Ms Gao claims scale 3B costs plus 50 percent for preparation, by applying step 30 (preparation for an affidavit hearing) as a proxy,51 but to the extent of one day only.
51 High Court Rules, sch 3.
Ms Gao also claims costs on the same basis for appearing at the hearing, for 0.25 of a day.
[134] Finally, on 22 October 2021, the defendants filed a further joint memorandum suggesting that the first and second plaintiffs were failing to comply with the directions the Associate Judge had made on 9 September 2021. The first defendant claims wasted costs relating to this memorandum on an indemnity basis. The second defendant claims costs on scale 3B plus 50 percent basis.
[135] For all these steps, Ms Yeung claims wasted costs of $27,297.00, and Ms Gao claims wasted costs of $24,092.25. On any view, these are significant claims for wasted costs on an adjourned interlocutory hearing.
Legal principles
[136] There is no doubt that there is jurisdiction to order a party to pay wasted costs where their default has caused a fixture to be vacated or a trial abandoned partway through.52
[137] As to the quantum of wasted costs that may be awarded, only costs directly thrown away as a result of the vacating or discontinuing of the hearing are awarded. This is very much a matter “of impression and best judgment of the Court at the time”.53 In Jeffreys v Morgenstern, for example, where a fixture was vacated beforehand, 50 percent of the costs of preparation of briefs, issues and the common bundle was allowed, plus 50 percent of the fees of expert witnesses who had prepared to give evidence at the hearing. In Fu Hao Construction Ltd v Landco Albany Ltd, where a fixture was also abandoned beforehand, scale costs of preparation from the date of setting down were allowed plus 50 percent of expert fees.54
[138] The authors of McGechan on Procedure state that “a defendant’s costs wasted when a fixture is vacated or a hearing abandoned part way through due to a plaintiff’s
52 Jeffreys v Morgenstern [2013] NZHC 1361 at [31]; Highley Ltd v Vodafone New Zealand Ltd HC Auckland, CIV-2006-404-2870, 6 September 2011 at [11].
53 Jeffreys v Morgenstern, above n 52, at [34].
54 Fu Hao Construction Ltd v Landco Albany Ltd HC Auckland CIV-2004-404-6608, 23 May 2008.
default” come within the category of “other reason” for making an increased cost award pursuant to r 14.6(3)(d). While that is correct, I would caution that it should not be thought that an increase from scale costs in wasted cost awards is the norm. Rather, there needs to be something in particular about the default which led to the fixture being abandoned which justifies increased costs, and certainly indemnity costs. A plaintiff who has caused the abandonment of a fixture is effectively being “penalised” by a costs award at scale in any event, given such an award is an exception to the general principle that costs follow the event, there being no such “event” in the case of an abandoned hearing. Further, if increased or indemnity costs are sought, there is an onus on the party claiming those costs to address why a departure from scale costs ought to be made.
[139] I make these observations as it will be evident from the above summary of the costs claimed by the defendants that the claim seems to be approached on the basis that as a matter of principle, there ought to be an increased costs award and, in the case of Ms Yeung, an indemnity costs award. Indemnity cost awards are of course limited to very specific cases. Outside the context of a “hopeless case”, the general principle is that the misconduct required to justify indemnity costs must be “flagrant”.55 Further, neither defendant made any real submissions on why there should be a departure from scale costs in this case.
The parties’ submissions
[140] The defendants say much of the work they did in relation to the 9 September 2021 hearing was wasted or had to be repeated. They emphasise the actual hearing took place some 17 months after the adjourned hearing, followed a new and further amended application for a representative order, new evidence and new submissions made by new lawyers. The defendants note that new notices of opposition had to be filed, and although the affidavits filed in support of the original notice of application filed were still relied on, the defendants have also put on extensive additional affidavit evidence replying to the new affidavits.
55 Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [28].
[141] The defendants submit that much of the time spent on preparing submissions for the 9 September 2021 hearing was wasted as that task had to be repeated, and the time actually spent preparing for the 9 September 2021 hearing was also wasted.
[142] The plaintiffs’ current solicitors sought input from the plaintiffs’ former solicitor about the abandoned hearing. He says the defendants objected to the 9 September 2021 hearing on “technical issues” due to the large number of plaintiffs, and that the representative plaintiffs were ready to proceed. The former solicitor also refers to the defendants having applied for an adjournment given defence counsel’s preference that the hearing be conducted in person rather than by remote technology. He also suggests that the defendants’ submission that the hearing be abandoned was a tactical step only.
[143] Current counsel for the plaintiffs submits that costs should remain reserved until the plaintiffs’ application for a representative order is decided, and then costs can be addressed based on the outcome of that application.
Discussion
[144] In my view, it is clear the defendants ought to be awarded wasted costs in relation to the abandoned September 2021 hearing. Those costs should not be determined by reference to the outcome of the current application for a representative order, as the plaintiffs suggest. Through default on the part of the plaintiffs, the September 2021 hearing was abandoned. The defendants should not be out of pocket by having to prepare for the representative application hearing on two separate occasions, irrespective of its ultimate outcome.
[145] I agree with the defendants that it is irrelevant they had sought an adjournment of the September 2021 hearing on the basis it ought to take place in person. Ultimately that application was dismissed. In those circumstances, there is no doubt the defendants still incurred costs which could not be recovered as a result of the abandoned hearing. As to the hearing being abandoned on “technical grounds” only, the issues around representation were not technical. And but for those issues, the hearing would have proceeded. It is also incorrect for the plaintiffs’ former solicitor to suggest that the “representative” plaintiffs were ready to proceed at the 9 September
2021 hearing. That misses the point that, at the time, there had been no order made that those plaintiffs were “representative” of all named plaintiffs.
[146] Despite this, I consider the defendants’ claims for wasted costs involve a degree of overreach. For the reasons explained above, the starting point for a wasted costs award ought to be scale costs. There then needs to be a particular reason to depart from scale. For example, in Percy v Sovereign Assurance Co Ltd, a substantive claim was discontinued on day two of an eight-day fixture with no adequate explanation. That attracted a 20 percent uplift.56 In Highly Ltd v Advanced Payment Systems Ltd, a substantive fixture was abandoned on day five of a 10-day hearing, due to the plaintiffs terminating their counsel’s retainer. That attracted a 50 percent uplift. In Marley New Zealand Ltd v Skellerup Rubber Services Ltd, Skellerup was awarded
$25,000 of their estimated actual wasted costs of $45,000 when a four week substantive fixture was adjourned shortly before it commenced at the plaintiffs’ request.57 In Fu Hao Construction v Landco Albany Ltd, the defendant sought and was awarded around one-quarter of its actual wasted costs when a two week fixture was vacated at the plaintiff’s request shortly before the hearing.58 There had also been serious and ongoing default by the plaintiff in the lead up to that hearing.
[147] As Venning J observed in Marley New Zealand Ltd v Skellerup Rubber Services Ltd, there is limited assistance to be had from other cases when setting a wasted costs award, as the situations in which cases are adjourned vary considerably.59 But the above authorities highlight that this case is relatively far removed from a substantive and lengthy fixture being abandoned shortly before starting or partway through. And, as already noted, if parties are to seek substantially increased costs (50 percent generally being considered the maximum percentage uplift) and/or indemnity costs, it is incumbent upon them to articulate and address just why it is said that this should be ordered.
[148] In this case, the plaintiffs’ default that led to the adjournment of the September 2021 hearing cannot be described as egregious, and it no doubt reflected the practical
56 Percy v Sovereign Assurance Co Ltd [2012] NZHC 1712.
57 Marley New Zealand Ltd v Skellerup Rubber Services Ltd [2013] NZHC 3040.
58 Fu Hao Construction Ltd v Landco Albany Ltd, above n 54.
59 Marley New Zealand Ltd v Skellerup Rubber Services Ltd, above n 57, at [9].
difficulties in marshalling the not insubstantial group of claimants. This, coupled with no substantive submissions as to why a 50 percent uplift from scale, or indemnity costs, should be awarded mean that costs will be awarded on a scale basis.
[149] This proceeding is also yet to be categorised for costs purposes. It is not appropriate for me to categorise the overall proceeding for costs purposes when I have only dealt with two interlocutory applications. But in relation to the steps on which the defendants seek wasted costs, none of them ought to have been particularly complex and I consider a costs categorisation of category 2B is broadly sufficient.60
[150]Turning to the specific steps for which the defendants claim costs:
(a)I accept there should be a wasted costs award for preparation of each defendant’s original notice of opposition. A fresh notice of opposition had to be prepared and filed on the amended application. There is no basis in my view for an increased or indemnity costs award on this step. Further, it is likely that not all the cost of the original notice of opposition was wasted, as it will have no doubt provided a useful “springboard” for preparing the updated notice. The 0.6 daily allowance for filing opposition to an interlocutory application (step 23) includes preparation of affidavit evidence. An allowance of 0.5 of a day on a scale 2B basis is awarded to each defendant for the wasted costs of preparing a notice of opposition.
(b)I do not make any award in relation to the defendants’ memoranda filed on 19 and 20 August 2021 raising issues with the plaintiffs’ compliance with their obligation to preserve documents. That is not a matter related to the interlocutory application for a representative order, or the abandoned hearing. Costs for that step ought to be considered in the determination of costs for the proceeding more generally, when they are concluded. That also applies to the claim for a joint memorandum
60 For example, for the relatively simple memoranda for which costs are claimed, there is no explanation for why scale 3B costs are sought, let alone with a 50 percent uplift.
filed on 22 October 2021, being after the adjourned hearing for which wasted costs are sought.
(c)The defendants are entitled to a wasted costs award for their joint memorandum dated 27 August 2021 raising their concern about the presence of unrepresented plaintiffs at the September 2021 hearing. While the memorandum also contained the defendants’ request for an adjournment, the large majority of it addresses the representation point. I make a wasted costs award for this memorandum on a scale 2B basis, allocated equally between the defendants.
(d)In terms of the defendants’ claim for 3B scale costs plus 50 percent for their submissions, given Ms Yeung expressly relied on her earlier submissions in the context of the second application, there must be a reduced award for the wasted costs of those submissions. I accept, however, that submissions on an application for a representative order are likely to have taken somewhat longer to prepare than for some other types of interlocutory applications. I make a costs award in Mrs Yeung’s favour for preparation of written submissions on a 2C basis, reduced by 50 percent. In relation to Ms Gao, I have no doubt that her earlier submissions will have also provided a helpful springboard for the preparation of her later submissions. I make a wasted costs award in her favour on a 2C basis, reduced by 25 percent.
(e)In terms of Ms Yeung’s claim for indemnity costs for a memorandum dated 6 September 2021 (raising further issues around representation and requesting a “short notice hearing” before the hearing of the application), I make an award of 2B costs. The memorandum was straightforward.
(f)It is appropriate that a wasted costs award is made for the defendants’ September 2021 appearance at the hearing. Ultimately that appearance, in addition to the appearance at the hearing that actually went ahead, ought not to have been incurred. Ms Gao claims 0.25 of a day for step
26, which I consider appropriate. An award is made on this basis for each defendant, on a 2B basis.
(g)Ms Gao claims increased scale costs for preparation for the hearing by applying step 30 (preparation for an affidavit hearing) as a proxy, but to the extent of one day only. Step 30 is for preparation for a substantive affidavit hearing and would ordinarily attract a two-day allowance. Notably, there is no allowance made for hearing preparation on interlocutory applications. I have no doubt, however, that there will have been wasted costs incurred by the defendants in terms of their counsel “gearing up” for the September 2021 hearing. I consider it appropriate to make a costs award for each defendant on this basis, with a one-day allowance on a scale 2A basis.
[151] Based on the above, there is a wasted costs award against the applicants and in favour of Ms Yeung in an amount of $9,201.50 and Ms Gao in an amount of $10,038.
Result
[152] The application for a representative order is granted, though on those terms and conditions set out at [80] to [86] above.
[153]The application for asset preservation orders is dismissed.
[154] There is a wasted costs award in favour of the defendants in the amounts set out at [151] above.
[155] The parties are to confer and seek to agree on the costs of the applications for representative and asset preservation orders. My preliminary but non-binding view is that the applicants are entitled to costs on the application for representative orders on a scale 2B basis, and the respondents are entitled to costs on the application for asset preservation orders on a scale 2B basis.
[156] If the parties cannot agree on costs, any party seeking costs is to file a costs memorandum within 15 working days of the date of this judgment. The other party
may then file a memorandum in reply within a further five working days. No memorandum is to be longer than five pages in length (excluding any schedules of cost calculations). Unless I needed to hear further from counsel, I will then determine costs on the papers.
Fitzgerald J
12
0