Li v Yu
[2019] NZHC 330
•4 March 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2016-404-001661
[2019] NZHC 330
BETWEEN ZHONG LI and JIE QING LI
First Plaintiffs
AND
NEW ZEALAND NEW OAK PROPERTY LIMITED
Second Plaintiff
AND
YORK BUYUN YU (STAYED)
First Defendant
AND
SHAN LING
Second Defendant
AND
ZHI YUN YU (SATISFIED)
Third Defendant
AND
HENRY FENG LAWYERS LIMITED and HENRY YU FENG
Fourth Defendants
Hearing: 19 February 2019 Appearances:
K Puddle for the Plaintiffs
D Wilson for the Second Defendant
S Wakefield for the Fourth Defendants, abiding (leave granted to withdraw)Judgment:
4 March 2019
JUDGMENT OF ASSOCIATE JUDGE P J ANDREW
This judgment was delivered by me on
4.3.19 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
LI & Ors v YU & Ors [2019] NZHC 330 [4 March 2019]
Introduction
[1] The plaintiffs seek the recovery of money they say they loaned to the first and second defendants. They also sue the second defendant, Ms Shan Ling, for dishonest assistance and knowing receipt in relation to a property development at Gulf Harbour.
[2] Ms Ling has raised, as a counterclaim and affirmative defence, an allegation of a partnership and constructive trust. The partnership is said to have been a joint venture for investment and the financial advancement of the respective families, and it extended to properties other than the development at Gulf Harbour.
[3] The plaintiffs seek further particulars from Ms Ling pursuant to r 5.2 of the High Court Rules 2016. Ms Ling has made an application for particular discovery pursuant to r 8.19.
[4]The critical issues I must determination are:
(a)Whether Ms Ling has, in her second amended statement of defence and counterclaim of 14 November 2018, provided sufficient particulars of the allegation of a partnership so as to enable the plaintiffs to be fairly informed of the case they must meet; and
(b)Whether Ms Ling has established the twin requirements of relevance and proportionality in relation to her application for discovery.
Relevant legal principles
Law as to provision of particulars
[5]Rule 5.48(5) of the High Court Rules states that:
The statement of defence must give particulars of time, place, amounts, names of persons, nature and dates of instruments, and other circumstances to inform the court, the plaintiff, and any other parties of the defendant’s defence.
[6] The Court of Appeal in Commissioner of Inland Revenue v Chesterfields Preschools Ltd has stated that a statement of claim must:1
(a)Be accurate, clear and intelligible; and
(b)Give sufficient particulars to enable the other party to be fairly informed of the case to be met.
[7] The statement of claim should tell the defendant of the allegations that must be answered, so the defendant is not left to guess.2 Likewise, the statement of defence must not leave the plaintiff to guess about an affirmative defence.
[8] The degree of particulars required should be enough for the opposite party to understand the issues raised and to prepare rebuttal evidence in advance of trial.3
[9] Further particulars can be required by notice under r 5.21. The notice must indicate as clearly as possible the points on which the pleading is considered defective.
[10] In determining whether the Court should order further particulars, three questions could be asked:4
(a)Has sufficient information been provided to inform the other party of the case they have to meet and to enable them to take steps to respond?
(b)Is there a real risk that the other party may face a trial by ambush if further particulars are not provided?
(c)Is the request oppressive or an unreasonable burden on the party concerned?
1 Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2013] NZCA 53, [2013] 2 NZLR 679 at [84]. See also Robert Osborne and others McGechan on Procedure (online ed, Thomson Reuters) at [HR5.48.01]–[HR5.48.03].
2 Financial Markets Authority v Warminger [2016] NZHC 1193 at [13].
3 Robert Osborne and others McGechan on Procedure (online ed, Thomson Reuters) at [HR5.26.07(b)].
4 Body Corporate 74246 v QBE Insurance (International) Ltd [2015] NZHC 1360 at [18(h)].
Discovery
[11] For applications for further discovery under r 8.19 of the High Court Rules, it is customary to follow the four-stage approach Asher J set out in Assa Abloy New Zealand Ltd v Allegion (NZ) Ltd.5 The focus is on relevance and proportionality:
(a)Are the documents sought relevant, and, if so, how important will they be?
(b)Are there grounds for belief that the documents sought exist? This will often be a matter for inference. How strong is that evidence?
(c)Is discovery proportionate, assessing proportionality in accordance with Part 1 of the Discovery Checklist in the High Court Rules?
(d)Weighing and balancing these matters, in the Court’s discretion applying r 8.19, is an order appropriate?
Factual background
[12] The first plaintiffs, Mr Zhong Li and Mrs Jie Qing Li, are husband and wife. The first and second defendants, Mr York Yu and Ms Ling, are also husband and wife.
[13] At all relevant times, Mr Li was the sole shareholder of the second plaintiff, New Zealand New Oak Property Ltd (NZNOP Ltd).
[14] The plaintiffs say that, in order to give effect to a joint venture agreement, Mr Li granted Mr York a power of attorney in 2007. The joint venture agreement addressed a single development on Schnapper Rock Road, Albany. The agreement’s English translation is entitled “a Cooperation Agreement”.
[15] NZNOP Ltd also granted Mr York a limited power of attorney in 2008. Mr York was appointed the sole director of NZNOP Ltd in April 2011.
5 Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd [2015] NZHC 2760, [2018] NZAR 600 at [14].
[16]The plaintiffs make claims against Ms Ling relating to two distinct matters:
(a)The recovery of money under the two loans; and
(b)Claims relating to the second plaintiffs purchase of a property at Gulf Harbour.
[17] The loan claims are said to be straightforward. The plaintiffs advanced money to the defendants for specific purposes. The loans have not been repaid in full.
[18] The claims in relation to the Gulf Harbour property are more complicated. The plaintiffs allege that Ms Ling personally profited at least $1,205,353.33 as a result of Mr York’s breaches of fiduciary duties owed to Mr Li and NZNOP Ltd. Those allegations are the basis for the claims of dishonest assistance and knowing receipt.
[19] The plaintiffs deny that there was any partnership at any time between them or any of the defendants or the second plaintiffs. They admit that there was the written Cooperation Agreement between Mr Li and Mr York but, in accordance with the agreement, it was confined to a single development and specified that all changes were to be in writing.
[20] The plaintiffs have recorded their understanding of Ms Ling’s allegation of a partnership as follows:
(a)The Cooperation Agreement between Mr York and Mr Li was a partnership agreement;
(b)At unspecified dates between 2008 and 2011, that partnership was varied verbally and by conduct;
(c)The partnership was expanded so that Mrs Li and NZNOP Ltd were joint partners of Mr Li, and Ms Ling and New Zealand New Oak Ltd (New Oak Ltd) being joint partners with Mr York;6
6 New Zealand New Oak Property Ltd (NZNOP Ltd) and New Zealand New Oak Ltd (New Oak Ltd) are separate companies. The company NZNOP Ltd is associated with the plaintiffs and New Oak Ltd is associated with the first and second defendants.
(d)The expansion of the partnership was formed by way of verbal discussions between Ms Ling and Mrs Li, Mr York and Mr Li, and all four in combination;
(e)The business of the partnership was the acquisition and development of properties and to assist each other financially with regard to business and personal finances;
(f)The existence of the partnership is to be implied from various matters listed in the second amended statement of defence (which includes, amongst other matters, the supply of kitchen and bathroom fittings and the meeting of interest payment on mortgages); and
(g)The partnership is still in existence and has not been dissolved.
[21] The judgment of Li v Yu dealt with the conclusion of the Schnapper Rock Road development.7 The last three properties in the development were sold in May 2011. In that proceeding, following a formal proof hearing, van Bohemen J found that Mr York dishonestly and fraudulently caused those properties to be transferred to a company associated with Mr York to Mr Li’s detriment. Judgment was granted against that company for Mr Li’s loss of equity in the three properties.
Analysis and decision
Particulars
[22] The plaintiffs contend that Ms Ling has failed to provide adequate particulars as to the nature and extent of the partnership(s) alleged. Mr Puddle, for the plaintiffs, referred to the legal requirements of a partnership in ss 4 and 5 of the Partnership Act 1908 and the need for the unanimous agreement of the partners to expand the partnership to include new members or to vary the partnership in a fundamental way. He also referred to s 27(e) of the Act which provides that all partners are entitled to partake in the decision-making process.
7 Li v Yu [2018] NZHC 3248.
[23] The plaintiffs contend that Ms Ling must provide particulars of who the alleged partners were at particular times and when and how the various partnerships claimed were expanded and/or varied. The plaintiffs say that, without full particulars of this kind, they cannot know the claim alleged against them, cannot prepare evidence and are vulnerable to an ambush at trial.
[24] The plaintiffs formally applied for further particulars by their interlocutory application (dated 18 October 2018). They sought particulars in nine respects, including details of the identities of the alleged partners, the nature of the agreement(s) which formed the partnership, the parties to the partnership(s), the dates on which the partnership agreement(s) were varied and whether the agreement to form a partnership was express or implied.
[25] In response to that application, Ms Ling filed an amended statement of defence and counterclaim (dated 14 November 2018). Mr Wilson, on her behalf, says she has sought to address the issue of particulars at paragraphs 78A through to 78I of the amended statement of defence. The amended statement of defence itself runs to 116 paragraphs and contains schedules of financial contributions that Ms Ling is said to have made to the various partnerships and/or property developments.
[26] I accept the submission of Mr Wilson that, in substance, the second amended statement of defence provides an adequate response to the particulars sought by the plaintiffs in their application of 18 October 2018. The plaintiffs’ criticisms of Ms Ling’s pleading may well have some merit (for example, it could be more intelligible and clear), but I find that adequate particulars have been provided about the partnership(s) (including their nature, the parties and relevant time periods) to enable the plaintiffs to be fairly informed of the defence they need to meet.
[27] The plaintiffs, in their statement of response and defence to Ms Ling’s second amended statement of defence and counterclaim (dated 28 November 2018), denied there was any partnership involving any of the parties at any time. The submissions made by Mr Puddle addressing the factual and legal requirements for partnerships generally do point to some weaknesses in Ms Ling’s defence. However, those submissions address more the tenability of the defence rather than suggesting that the plaintiffs are not adequately informed of the case they need to meet.
[28] It is clear from Ms Ling’s pleading that she is alleging that there was more than one partnership. Paragraph 78A expressly refers to the variation and expansion of the partnerships and refers to the specific parties. At paragraph 78, the nature of the partnership is described. At paragraph 80, it is made clear that the sharing of profits or divisions of losses and the financial entitlement of the parties would be determined at an appropriate time following the making of any profit. While the legal consequences of that contention may need to be addressed subsequently, Ms Ling’s position on the issue of profit sharing is expressly set out. Likewise, she expressly stated in paragraph 78H that the agreement to form a partnership was both express and implied. At paragraphs 78H(a)–(d), particulars of the extent to which the partnerships were implied are set out.
[29] I acknowledge the plaintiffs’ concerns about the timing of when the various partnerships were formed and/or expanded or varied but to some extent, as Mr Wilson submitted, that may well reflect the nature of the relationship between the parties (that is, a relatively loose arrangement with little agreements recorded in writing). I also accept Mr Wilson’s submission that the pleaded timeframe for variation and expansion of the partnership(s) is confined to a period of just over a year, namely from March 2010 to May 2011. That may not ultimately assist Ms Ling in making out her defence but it, is in my view, sufficient to enable the plaintiffs to prepare the evidence necessary to address the contentions made against them.
[30] In relation to the issue of the structure of the partnership and whether it was equal amongst all partners, I interpret paragraph 78A (and this is confirmed by Mr Wilson’s submission) as meaning that what Ms Ling alleges is that the partnership was equal as between the two families (and the company which each had).
[31] In considering the question of the adequacy of the particulars, it is also important to note, as Mr Wilson submitted, that Ms Ling also has claims of equitable estoppel, equitable set-off and constructive trust. These are based on the same acquisition and contributions to property as are said to amount to the partnership(s). As noted above, significant financial detail has been given by Ms Ling in her pleading about the alleged contributions and whether true there is sufficient detail provided (including dates of payments) to enable the plaintiffs to understand the defences they need to address.
[32] The plaintiffs are concerned that without the provision of the further particulars sought, Ms Ling may ambush them prior to, or at, trial by further amendments to her pleading. However, there are other avenues open to the plaintiffs to prevent conduct of that kind. The extent to which Ms Ling’s defence has been an evolving one and the steps the plaintiffs have taken to obtain further particulars may be relevant factors in any future court assessment of these issues.
[33]For all these reasons, the plaintiffs’ application for particulars is dismissed.
Discovery
[34] Ms Ling has sought an order for particular discovery of the following category of documents:
(a)Bank statements of the plaintiff, Mrs Li, from 2007 to the end of 2016;
(b)Bank statements of the second plaintiff, NZNOP Ltd from January 2011 to 2016 (that is, until the time of NZNOP Ltd’s disposal of the Gulf Harbour Property by Anrui Properties Ltd to Boezo Ltd);
(c)Business records of NZNOP Ltd regarding the Gulf Harbour Property;
(d)Documents held by Anrui Properties Ltd;
(e)Correspondence, bank statements and business records relating to the ownership and dealings with the properties at 28, 36 and 40 Smales Road, East Tamaki;
(f)Correspondence, bank statements and business records relating to the ownership and dealings with the properties at Wainui and Wallace Roads, Gisborne; and
(g)Disclosure of all immigration records held by the plaintiffs as well as a copy of the plaintiffs’ files held by the Immigration Department.
[35] In defending the application, the plaintiffs’ position is that, while some of the documents sought may be relevant, particulars should be provided in advance of discovery in order to ensure that the scope of any discovery is properly confined. The plaintiffs have also raised concerns about Ms Ling seeking the documents (such as the immigration records) for ulterior purposes. Further, in the case of Anrui Properties Ltd, the documents sought belong to a third party yet Ms Ling has not sought a third party discovery order.
[36] Relevance is to be assessed according to the pleadings and, in determining relevance, it is the case of the party seeking discovery that must be assumed to be true.8 Furthermore, the Court will not try the case during a discovery application to decide the ultimate relevance alleged by the party seeking discovery.9
[37] In assessing the critical requirement of relevance, it is important to acknowledge that Ms Ling’s defence includes the counterclaim of a constructive trust. The substance of her defence is that she, her husband (the first defendant) and their company took steps to obtain properties towards the conclusion of the Schnapper Rock Road development for the benefit of the respective families (and their companies), and the parties provided work and substantial amounts of money for financial obligations in relation to the development of the Gulf Harbour and other properties.
[38] I accept the submission of Mr Puddle that in some cases it may be obvious from the pleadings or the circumstances of the case that the party seeking discovery is on a “hiding to nothing” on a particular issue.10 However, in light of the extensive detail provided by Ms Ling on the financial contributions she says she and her family made to the property developments at issue, I cannot properly conclude that this is one of those cases.
[39] Against that background, I conclude that the documents sought in all of the above categories are relevant. Subject to the comments I make below about scope, I also conclude that the discovery orders sought would not be disproportionate. In
8 Robert v Foxton Equities Ltd [2014] NZHC 726, [2015] NZAR 1351 at [8]; and Kawerau Village Holdings Ltd v Yuen [2015] NZHC 1379 at [38].
9 Rapid Metal Developments NZ Ltd v Access One Scaffolding Ltd [2017] NZHC 204 at [5] and [15].
10 Dold v Murphy [2018] NZHC 994 at [32].
addressing the issue of scope, the undertakings provided by Mr Wilson (counsel for Ms Ling) also address some of the concerns the plaintiffs have raised.
[40] In relation to the plaintiffs’ immigration records, I find that the scope of any discovery order should be confined to those parts of the immigration records that shed light on the question of the business intentions and proposals of the plaintiffs in immigrating to New Zealand. Information that does not relate to that issue, including for example details of the plaintiffs’ children, may be redacted. Ms Ling has contended that the plaintiffs have manipulated the immigration rules to their advantage in relation to the Gulf Harbour property. However, I do not see how that allegation is relevant to either the constructive trust or partnership issue.
[41] I also find that the documents sought in relation to Anrui Properties Ltd should be discovered by the plaintiffs. Against the background of a claim of constructive trust and the allegation of Anrui Properties Ltd (of whom the shareholders are Mrs Li and Mr Li’s mother) selling the property for a substantial profit of $9,930,000 plus GST, the documents are clearly relevant. I also find that they are in the control of Mrs Li in terms of the definition of control in r 1.3 of the High Court Rules. She, as a director of Anrui Properties Ltd, has an enforceable right to access to the documents sought.11 Furthermore, it makes little sense, particularly at this stage of proceedings when a trial date has been set, to require Ms Ling to seek an order for third party discovery.
Result
[42]I make the following orders:
(a)The plaintiffs’ application for further particulars (dated 18 October 2018) against the second defendant, Ms Ling, is dismissed.
(b)The plaintiffs are to file and serve an affidavit by 22 March 2019 stating whether the following documents are, or have been, in their control and, if they have been but are no longer in their control, the plaintiffs’ best knowledge and belief as to when the documents ceased to be in the plaintiffs’ control and who has control of them now.
11 See Companies Act 1993, s 191.
(i)All of Ms Li’s bank account statements in New Zealand from when she first commenced an account after 2007 until the end of 2016. This is to include Ms Li’s ASB bank account (12-3042- 0408518-00);
(ii)The bank account statements for the NZNOP Ltd from January 2011 until the time that NZNOP Ltd disposed of the Gulf Harbour property by selling it to Anrui Properties Ltd;
(iii)All documents held by the plaintiffs in regard to steps taken in relation to any development of a proposed subdivision of the Gulf Harbour property by NZNOP Ltd, including records and correspondence relating to the disposal of the property to Anrui Properties Ltd in 2015. The documents are to include those in the plaintiffs’ control relating to the dealings with the Gulf Harbour property by Anrui Properties Ltd following the transfer of the Gulf Harbour property to that company and the subsequent sale to Beozo Ltd;
(iv)All correspondence, bank statements and business records relating to the plaintiffs’ ownership and dealings with the properties at 28, 36 and 40 Smales Road, East Tamaki, Auckland and documents relating to the retention by the plaintiffs of 28 Smales Road, East Tamaki;
(v)All correspondence, bank statements and business records relating to the plaintiffs’ ownership and dealings with the properties at Wainui and Wallace Roads, Gisborne. This is to include the documentation involving the sale to Little Apple Trustees Ltd; and
(vi)All immigration records relating to the plaintiffs and within their control, to the extent that such records shed light on the issue of the business intentions and proposals of the plaintiffs when immigrating to New Zealand.
(c)The plaintiffs are to serve the affidavit on the other parties to the proceedings and, if the documents are in the plaintiffs’ control, to make those documents available for inspection in accordance with r 8.27.
[43] I also record the undertaking given by Mr Wilson, counsel for the second defendant (Ms Ling), that any bank statements and immigration records provided to Ms Ling in accordance with r 8.27 are to be kept in hard copy form at Mr Wilson’s barristers chambers and no copies of those documents are to be made or taken by the second defendant, or anyone associated with her, from Mr Wilson’s chambers.
[44] I further direct that the plaintiffs may redact, from their immigration records that are to be discovered, any personal information (including details of their children) that is not related to the issue of their business aspirations and proposals in immigrating to New Zealand. Similarly, the plaintiffs may redact from the various bank statements, the subject of the orders above, details which do not relate to the property developments that are the subject of dispute in the proceedings.
[45] I also remind the parties of r 8.30(4) of the High Court Rules which provides that a party who obtains a document by way of inspection may use that document (or copy) only for the purposes of the proceedings. The Rule also provides that except for the purposes of the proceedings, the party who retains the document must not make it available to any other person (unless it has been read out in open court).
[46] As to costs, I am of the preliminary view that costs should lie where they fall. The plaintiffs have been attempting for some considerable time to obtain further particulars, and it was not until late in the piece that they were provided. Furthermore, the plaintiffs did not oppose much of the discovery application, but rather their position was related very much to the alleged lack of particulars. If the parties cannot agree, memoranda are to be filed within 14 days.
Associate Judge P J Andrew
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