Li v Yeung

[2021] NZHC 2

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-2473

[2021] NZHC 2

UNDER

the Fair Trading Act 1986, the Financial Markets Conduct Act 2013

IN THE MATTER

of breach of the Fair Trading Act 1986, negligence, knowing receipt, unjust enrichment, and breach of the Financial Markets Conduct Act 2013

BETWEEN

KAREN KAYAN LI AND OTHERS

Applicants

AND

LAM YEUNG AND OTHERS

Respondents

Hearing:

6 January 2021

Appearances:

C McLean for Applicants

D Dufty for Second Respondent
P Shanahan-Pinker for Eighth and Fourteenth Respondents

Judgment:

6 January 2021

JUDGMENT OF CAMPBELL J

This judgment was delivered by me on 6 January 2021 at 4.45 pm Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

LI AND OTHERS v YEUNG AND OTHERS [2021] NZHC 2 [6 January 2021]

Introduction

[1]    The   plaintiffs,   of   which   there   are   69,   filed   this   proceeding   on    16 December 2020. They make claims against 15 defendants. Their statement of claim runs to 22 pages (not including a lengthy schedule).

[2]    On 21 December 2020 the plaintiffs applied without notice for freezing orders over 12 properties located in Auckland. The 12 properties are owned by various (but not all) of the 15 defendants. On the same day the plaintiffs applied on notice for leave to bring the proceeding as a representative action. The plaintiffs filed 11 affidavits in support of the two applications.

[3]    The plaintiffs’ application for freezing orders was referred to Gault J as Duty Judge. On 21 December 2020 Gault J issued a minute noting that the application was not accompanied by a memorandum of counsel, as required by r 7.23(3). His Honour said that without such a memorandum there was no prospect of the orders being made on the papers before the impending vacation.

[4]    On 22 December 2020 Mr McLean, counsel for the plaintiffs, filed a memorandum.

[5]    In a minute dated 23 December 2020 Gault J said that he was satisfied that the plaintiffs had a good arguable case, and satisfied that there was a real risk of dissipation. Gault J noted that only eight of the 69 applicants had signed an undertaking as to damages, as required by r 32.2(5). He considered that the absence of the other undertakings did not, “for present purposes” preclude the grant of the freezing orders, though he said that the other plaintiffs should sign an undertaking. His Honour referred to r 32.6(2), which provides that if the maximum amount of the claim is known, the value of assets covered by the freezing order must not exceed that amount together with interest and costs. The total value of the 12 properties appeared to exceed the amount claimed. However, given the number of plaintiffs, the different position of some respondents and the potential for joint and several liability, his Honour accepted that it may not yet be possible to limit the assets covered by the freezing orders.

[6]    His Honour made the freezing orders, but said that “in the circumstances” the duration of the freezing orders should be limited until 6 January 2021. He therefore listed the application in the Duty Judge list for that date. The application came before me this morning.

Nature of the plaintiffs’ substantive claim

[7]    Gault J set out the nature of the plaintiffs’ substantive claim in his minute of 23 December 2020. I summarise that here.

[8]    Since 2015 the first to eighth defendants, who are members of the Chinese- speaking community in Auckland, have been encouraging people, mainly members of the same community, to invest large sums of money into an organisation or scheme called MFC Club/MBI International (MFC). They have done so by representing that MFC provided guaranteed high returns as the investment would multiply at least twice a year. It was represented that the investment was safe as MFC would pay cash if the investment was not able to be sold on the MFC market.

[9]    The plaintiffs say that they relied on the representations and invested money into MFC, either by paying the first to eighth defendants directly, or into bank accounts that they were directed to pay into. The ninth to fifteenth defendants received investment money from the plaintiffs. They were often related to the first to eighth defendants.

[10]   The plaintiffs invested substantial sums in MFC and have made significant losses. They say that MFC bears many hallmarks of a pyramid selling or Ponzi scheme prohibited under New Zealand law.

[11]   In July 2019 the Financial Markets Authority (FMA) issued a warning about MFC, referring to unsubstantiated and/or false and misleading claims.

Service

[12]   Gault J directed that the freezing orders and other documents be served on the defendants forthwith. Mr McLean, who appeared for the plaintiffs this morning,

informed me that he understood that only three of the defendants had so far been served: Lin Zhao (the fourth defendant), Serena Li (the seventh defendant), and Zhangqin Xie (the thirteenth defendant).

[13]   However, Mr Shanahan-Pinker appeared this morning for Xiaoning Wang (the eighth defendant), who  Mr Shanahan-Pinker told me had been served  yesterday,     5 January 2021. Mr Shanahan-Pinker also provisionally appeared for Xiaoan Wang (the fourteenth defendant), though she has not yet been served.

[14]   Notwithstanding the very recent service, Mr Shanahan-Pinker had been able to file a memorandum last night, opposing any extension of the freezing orders. His essential point of opposition was that the plaintiffs had failed to show any real risk of dissipation.

[15]   Mr Dufty appeared for Serena Li, the seventh defendant. He told me that he had only recently been instructed, and had only seen the statement of claim this morning.

Onus

[16]   The purpose of the application coming before me this morning was to review the freezing orders, and  decide  whether they should be continued  or renewed.  By  r 32.7(3), the onus is on the plaintiffs to satisfy me that they should be continued or renewed.

The plaintiffs’ position

[17]   Mr McLean submitted that the freezing orders be continued for several more weeks, to allow the rest of the defendants to be served and for them to file any opposition (if they decided to oppose the orders). Mr McLean said that he had discussed this with Mr Dufty, who was provisionally in agreement.

[18]   I told Mr McLean that I was not prepared to simply continue the orders on that basis. The plaintiffs bore the onus under r 32.7(3). I would only continue the orders if I was satisfied that they should be continued.

The requirements for a freezing order

[19]   There are essentially three requirements for a freezing order. The applicant must show:

(a)That it has a good arguable case.

(b)That there are assets of the respondent(s) to which the order can apply.

(c)That there is a real risk that the respondent(s) will dissipate or dispose of the assets.

[20]   Having read the affidavits in support, I am satisfied that the plaintiffs have a good arguable case. Neither Mr Shanahan-Pinker nor Mr Dufty suggested otherwise. It is also clear that there are assets of the defendants to which the freezing orders can apply. The issue on this application is whether the plaintiffs have shown a real risk of dissipation.

Has a real risk of dissipation been shown?

[21]   Mr McLean submitted that, in essence, there were two reasons why there was a real risk of dissipation. The first was the nature of the claims, involving an alleged pyramid or Ponzi scheme. The second was that the defendants had overseas ties, having easy access to overseas bank accounts and in some cases now living overseas.

[22]   I accept that these matters go some way to establishing a real risk of dissipation. But in this case there are other matters that tell against that risk. The plaintiffs’ affidavits reveal that:

(a)A separate proceeding (brought by a party who is not one of the present plaintiffs) has been on foot against the eighth and fourteenth defendants in the Auckland District Court since 2019.

(b)The plaintiffs have been asking for their investments to be returned since some time in 2018.

(c)The first plaintiff, Karen Li, complained to the Police about the MFC scheme in March 2019. Ms Li deposes that the matter has since been investigated by the Commerce Commission, and the Serious Fraud Office. It appears that the FMA is also investigating.

(d)In April and May 2019 Ms Li travelled to Malaysia (with other investors) in an attempt to recover her investment. She was partly successful in so doing.

[23]   The cumulative impression created by those matters is that the defendants have been well aware, for a considerable period of time, that various investors have been seeking repayment of their investments and have been taking serious action in relation to that. The defendants are likely to have expected that a proceeding such as the present was on the horizon (or an actuality, in the case of the District Court proceeding). Notwithstanding that, there is no evidence that any of the defendants have, over that time, taken any steps to dissipate or dispose of their assets or of the properties in question. There is nothing in the plaintiffs’ affidavits that explains why the defendants would take those steps now.

[24]   In those circumstances I am not satisfied that the plaintiffs have shown a real risk of dissipation.

Other matters

[25]   For completion, I note two other matters that would, in any event, have caused me to pause before continuing the freezing orders.

[26]   First, despite Gault J saying that the other plaintiffs should sign undertakings as to damages, none of them had done so before today. This was unexplained.

[27]   Secondly, it is evident from a review of the statement of claim that some of the claims against some defendants are considerably less than the value of the (frozen) property of that particular defendant. For example, the claim against the fourteenth defendant is only about $40,000, yet the value of her property frozen by the orders was over $2 million.

Result

[28]I decline to order that the freezing orders continue or renew.

[29]   The defendants who appeared today are entitled to costs. If the parties cannot agree costs, I invite short memoranda – the defendants first (by 22 January 2021), then the plaintiffs (by 29 January 2021).

Campbell J