Liu v He
[2023] NZHC 1848
•17 July 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-004-000468
[2023] NZHC 1848
BETWEEN HONG LIU
First Plaintiff
HONG FUND LIMITED
Second Plaintiff
AND
HONGYAN HE
Defendant
Hearing: 12 July 2023 Appearances:
M G Locke for Plaintiffs P L Rice for Defendant
Judgment
17 July 2023
JUDGMENT OF VAN BOHEMEN J
This judgment was delivered by me on 17 July 2023 at 4 pm pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
……………………………..
Counsel/Solicitors:
M G Locke, Auckland P L Rice, Auckland
Turner Hopkins Solicitors, Auckland Alex Lee Lawyers Limited, Auckland
LIU v HE [2023] NZHC 1848 [17 July 2023]
[1] This proceeding has been set down for a three day trial commencing 9 October 2023.
[2] The plaintiffs have applied for leave to file a second amended statement of claim and for an order for the taking of an account under pt 16 of the High Court Rules 2016. Although the plaintiffs’ counsel, Mr Locke, initially submitted that compliance with existing pre-trial directions would be impracticable if leave were given to file an amended statement of claim, at the hearing on 12 July 2023 Mr Locke agreed that it was possible to maintain the current trial date if leave were granted.
[3] The defendant consents to the filing of a second amended statement of claim provided the trial proceeds on 9 October 2023 as previously set down and proposes revised timetable orders to enable the trial to proceed in October. The defendant opposes the application for an order for the taking of accounts. The defendant also seeks increased costs in relation to the plaintiffs’ application.
[4] Because the defendant consented, I gave leave to the plaintiffs to file a second amended statement of claim on the basis that the trial could proceed as scheduled on 9 October 2023. I also made revised timetable directions as sought by the defendant.
[5] I declined to make an order for the taking of accounts because I was satisfied that such an order was inappropriate. As Mr Locke accepted, the application for an account was really an application for further discovery. Although there was some discussion at the hearing about whether targeted orders for further discovery might be made by consent, in the event there was no agreement on such orders.
[6] This judgment sets out my reasons for dismissing the application for a taking of an account, explains why I am satisfied that orders for further discovery should not be made, and orders the plaintiffs to pay the defendant’s costs on a 2B basis with an uplift of 35 per cent.
[7] Because this judgment has taken longer than anticipated and, because of Matariki, will not be issued until 17 July 2023, I have adjusted the dates in the
timetable orders proposed by the defendant to provide further time for the parties to comply with the orders.
Relevant background
[8] This proceeding was commenced in March 2020. The first and second plaintiffs are Hong Liu and Hong Fund Ltd, a company of which Mr Liu is a director. The plaintiffs seek the payment of monies that Mr Liu says are owed to him by the defendant, Hongyan He, in relation to the settlement of accounts between Mr Liu and Ms He over the purchase and development of properties in Byron Avenue, Takapuna which were sold to Hong Fund Ltd in June 2018.
[9] In essence, Mr Liu alleges that he was wrongly informed by Ms He of their respective financial positions when they:
(a)settled accounts between them relating to expenditure on the Byron Avenue properties prior to their sale; and
(b)executed a term loan agreement for $483,148.46 for the amount Ms He said Mr Liu owed to her under that accounting.
[10] Related to that allegation is Mr Liu’s view that Ms He accounted incorrectly for a GST return relating to the sale of the properties. In the context of the current application, Mr Liu also says he has suspicions that Ms He may have diverted funds for her own benefit.
[11] The plaintiffs’ prosecution of their case has been far from exemplary. It is accepted that external factors, including the COVID-19 pandemic, changes in personnel in their solicitors’ law firm and the January 2023 floods in Auckland, have added to the plaintiffs’ difficulties. It is also understood that Mr Liu does not speak English and that he and Ms He each reside in China, at least some of the time. Even so, it is apparent that the proceeding could and should have been progressed more expeditiously than it has been and that the plaintiffs are primarily responsible for this state of affairs.
The proceeding to date
[12] In their first statement of claim, dated 11 March 2020, the plaintiffs pleaded two causes of action which sought payment by Ms He of $233,171.45, being the amount said by Mr Liu to be owed by Ms He under a proper accounting of their respective financial positions.
[13] In her statement of defence dated 2 July 2020, Ms He denied any liability to the plaintiffs and counterclaimed for judgment for $483,148.46, the sum owing under the term loan agreement, plus interest and indemnity costs as provided for in the term loan agreement.
[14] In December 2020 and February 2021, the plaintiffs and Ms He filed and served affidavits of documents for discovery. No issues were raised by either side.
[15] At a case management conference on 23 March 2021, Associate Judge Gardiner suggested to then counsel for the plaintiffs that the statement of claim was unclear and did not specify the legal foundation for each cause of action. In her minute, the Associate Judge also recorded that the parties had completed discovery and that there were no outstanding issues.1 The Associate Judge set down the proceeding for a two-day trial commencing 1 February 2022, made timetable directions for the filing of amended pleadings, a joint statement of issues, evidence and submissions, and set the close of pleadings date as 120 working days prior to trial.2
[16] It appears that amended statements of claim and defence were served by the parties on each other in May 2021, although there is no record of the amended statement of claim on the Court file. It appears from the statement of defence to the amended statement of claim that the plaintiffs pleaded three causes of action in the amended statement of claim: undue influence, mistake and a third unspecified cause of action seeking repayment of the amount claimed by the plaintiffs.
[17] In December 2021, the parties applied jointly for an adjournment of the trial because Mr Liu was in China and was unable to return to New Zealand for COVID-
1 Liu v He HC Auckland CIV 2020-404-468, 23 March 2021 (Minute of Associate Judge Gardiner).
2 At [12].
19 related reasons. By minute dated 2 December 2021, Moore J vacated the trial set down for February 2022, set the proceeding down for a two day trial commencing 3 April 2023 and made revised timetable directions as sought by the parties.3
[18] Under the revised timetable directions, the plaintiffs’ briefs of evidence were to be filed by 1 June 2022. No briefs of evidence were filed by that date or subsequently. It appears that no documents were filed in relation to the proceeding during 2022.
[19] By application dated 14 March 2023, the plaintiffs sought leave to file a second amended statement for claim and an account under pt 16 of the High Court Rules. The draft second amended statement of claim pleads eight causes of action: monies had and received; an action for account in equity; an order for an account under pt 16 of the High Court Rules; unjust enrichment; mistake under s 24 of the Contract and Commercial Law Act 2017; unconscionable bargain; undue influence; and duress. The relief sought included orders declaring the term loan agreement void and unenforceable and an order that Ms He pay Mr Liu $233,171.45, as well as orders for accounts.
[20] By minute dated 20 March 2023, Jagose J set down the plaintiffs’ application for hearing on 12 July 2023, vacated the trial set down for April 2023 and directed that the proceeding be set down for a three-day trial as soon as possible after 1 September 2023 as set by the Registry. Jagose J also directed that, within five working days of obtaining a trial date, the parties file a memorandum or memoranda proposing timetables leading to the hearing.4
[21] On 28 March 2023, the Registry advised counsel that the proceeding had been set down for a three-day trial commencing 9 October 2023. No memorandum or memoranda proposing timetables leading to the hearing were filed in the period from 5 April 2023 to 10 July 2023. However, Mr Rice, counsel for Ms He, included proposed timetable directions in submissions filed on 11 July 2023.
3 Liu v He HC Auckland CIV 2020-404-468, 2 December 2022 (Minute of Moore J).
4 Liu v He HC Auckland CIV 2020-404-468, 20 March 2023 (Minute of Jagose J).
Evidence
[22] Mr Liu and Ms He have each made affidavits giving their respective accounts of their relationship and their roles in relation to the purchase and intended development of the Byron Avenue properties.
[23] It is common to both accounts that Mr Liu was a friend of Ms He’s husband, that Ms He introduced Mr Liu to the project for the development of the Byron Avenue properties, that Mr Liu provided some of the funding for the purchase and development of the properties and that Ms He, through her companies, managed the arrangements for the purchase and the intended development of the properties, including obtaining financing from third parties. It is also common to both accounts that Mr Liu and Ms He agreed in 2018 to terminate their involvement in the project and to transfer titles to the Byron Avenue properties from one of Ms He’s companies to Mr Liu or his nominee. Although each says the other was the instigator of those decisions, that difference is largely immaterial. What is at issue are the arrangements made to give effect to those decisions.
[24] Mr Liu expresses concerns about aspects of Ms He’s performance during the course of the project based on what he says others told him. Mr Liu says that he wishes to have a full accounting into what money went where, and where the accounting sits between Ms He and himself. Mr Liu says he has a strong suspicion that Ms He diverted monies he contributed to the project to the use of Ms He’s development entities and did not account for this in the final accounting between them. Mr Liu provides no evidence to support this suspicion.
[25] Mr Liu recounts his understanding of events leading to the settlement of accounts and the execution of the term loan agreement. He says he and the second plaintiff signed the latter without sufficient information of the final accounting and without the opportunity to obtain independent legal and accounting advice. He also says the accounting is in error because of Ms He’s treatment of the GST refund, which is the reason Ms He owes him at least $233,171.35. He says this is the principal reason for the disagreement with Ms He on the accounting between them.
[26] Ms He says she took no significant steps without Mr Liu’s approval, provided Mr Liu with copies for all invoices for expenses claimed and briefed him on all important meetings. Ms He refutes the allegation that she diverted money to her own purposes and gives her own account of the arrangements made to secure financing for the development of the Byron Avenue properties. Ms He says the GST refund was used to reduce the loan taken out for the purchase of the properties and benefited Mr Liu by reducing the amount of debt he would have to repay.
[27] Ms He says that, in May 2018 she agreed to transfer the development project and title to the Byron Avenue properties to Mr Liu. She says it was agreed that Mr Liu would reimburse her for expenses paid and liabilities incurred by her or her companies in relation to the project and she would arrange for transfer of title to the properties to Mr Liu or a nominated company. However, at Mr Liu’s request, those expenses were kept separate from the purchase price shown on the sale and purchase agreement.
[28] Ms He says that at a meeting on about 31 May 2018, she provided Mr Liu with spreadsheets showing project costs and liabilities and the amount of money owing to her, being $483,148.46. Ms He says Mr Liu’s response when shown the figures was that he could not pay then and needed until September. Ms He notes that this accounting took place two weeks before the agreement for the sale of the Byron Avenue properties to the second plaintiff was signed, on 18 June 2018, and one month before settlement on 29 June 2018. Ms He says that Mr Liu had ample opportunity, to raise any concerns about the accounting and he did not do so.
[29] Ms He says the purchase price of $5,205,800 for the sale of the Byron Avenue properties represented the total purchase and development costs exclusive of GST but did not include the debt owed to her personally, which was to be recorded separately in a loan agreement.
[30] Ms He says she sent Mr Liu the loan agreement for his approval on 29 June 2018, the date of settlement. Ms Liu exhibits copies and provides translations of WeChat messages in Chinese exchanged with Mr Liu that day. They include a message from Ms He forwarding advice from her lawyer that Mr Liu should find a
lawyer to look at the agreement and a reply from Mr Liu to the effect that he was not concerned and would sign straight away – which he did.
[31] Ms He notes that the term loan agreement provided for payment of the agreed sum on 28 September 2018. Ms He says that Mr Liu did not pay on the due date and on 30 September 2018 challenged the accuracy of her accounting, asked her to check her calculations and said they would then negotiate. Ms He says that, in February 2019, she received a letter from Mr Liu’s accountant asserting that she had made an error in treating the GST refund as an expense rather than a liability and that she owed Mr Liu somewhere between $233,141.45 and $343,841.75.
[32] Ms He considers that removing the GST refund from the calculations would not change the amount of Mr Liu’s liability to her.
[33] The plaintiffs also filed, on 7 July 2023, an affidavit from Matthew Kemp, an accountant, who questions the adequacy of Ms He’s calculations and records and identifies the documents that he says would be expected to have been produced and which he would require in order to account for the transactions that occurred. At paragraph 20 of his affidavit, Mr Kemp says these documents are:
(a)all settlement and transaction records relating to the sale and purchase of the Byron Avenue properties;
(b)all settlement documents and statements relating to mortgages and loans;
(c)all invoices and receipts relating to funds expended in the project; and
(d)bank statements evidencing the receipt and use of funds, in particular funds paid by Mr Liu that were in the control of Ms He.
Submissions of counsel
[34] Mr Locke submitted that the plaintiffs’ application for orders setting aside the term loan agreement cannot satisfactorily be determined on the merits without an
assessment of the accounting between the parties. He said the accounting is relevant to whether Mr Liu owes $483,148.46 to Ms He or whether Ms He owes Mr Liu
$233,171.45. He acknowledged that this may depend on how the GST refund is accounted for but said there are other matters at issue. He referred, in particular, to Mr Liu having deposed that he had reason to suspect that some funds may have been misapplied to Ms He’s benefit. Mr Locke said there is no way to determine this allegation on the basis of the meagre accounting information provided. He also said further discovery would be necessary and should include the categories of documents identified by Mr Kemp at paragraph 20 of his affidavit.
[35] Mr Rice said no account should be ordered because Ms He’s liability to Mr Liu has not been established. Ordering an account now would jeopardise the trial date and would be a waste of time. He submitted that an account is not required to determine the proper treatment of the GST receipt. The criticisms of Ms He’s spreadsheets do not square with Ms He’s evidence that she provided Mr Liu with copies of all invoices and that Mr Liu raised no issue about Ms He’s calculations in the month between being provided with the spreadsheets and signing the term loan agreement, or in the three months subsequently. Mr Liu has provided no evidence to substantiate his suspicion that Ms He diverted monies.
[36] Mr Rice submitted that I should not read Mr Kemp’s affidavit because it was filed after Ms He’s notice and affidavit in opposition had been filed, Ms He had insufficient time to instruct her own expert and it does not materially assist the Court.
Relevant law
[37] Under r 7.7(1) of the High Court Rules no amended pleading may be filed, and no interlocutory application may be made after the close of pleadings date without the leave of a Judge.
[38] For leave to be granted, an applicant must show that any such steps are necessary for the interests of justice, will not significantly prejudice other parties and
will not cause significant delay.5 The Court should also consider the merits of the application.6
[39] Under r 16.2 of the High Court Rules, the Court may, on the application of any party, before, at or after the trial of a proceeding, order an account or an inquiry whether or not it has been claimed in that party’s proceeding.
[40] As stated by the Court of Appeal in Nicholls v Nicholls, the process of account is neither a cause of action nor a remedy, but rather a preliminary exercise by which means a claimant can establish an evidentiary basis for the imposition of some form of liability on a defendant. Importantly, the Court of Appeal reaffirmed that an account of profits is consequential upon liability having been established.7 The same principle applies to accounts for monies said to be owing.8
Analysis
[41] As recorded above, because Ms He consented to the filing of the second amended statement of claim, I saw no reason to decline leave and granted it accordingly.
Application for account
[42] It is plain that there are no grounds for ordering an account at this stage of the proceeding. It has not been established that Ms He has any liability to Mr Liu. In addition, it is apparent from the evidence of Mr Liu and Ms He that the principal issue between them is the accounting treatment of the GST refund. On the information before me, I am satisfied that the account sought is not required to determine that issue. Mr Locke did not submit otherwise.
[43] It is evident from Mr Liu’s affidavit and Mr Locke’s submissions that the purpose of the account is to try to find evidence to validate Mr Liu’s unsupported
5 Elders Pastoral Ltd v Marr (1987) 2 PRNZ 383 (CA) at 385.
6 Body Corporate 325261 v McDonough [2014] NZHC 1821 at [12] citing Fordham v Xcentrix Communications Ltd (1996) 9 PRNZ 682 (HC) at 683.
7 Nicholls v Nicholls [2020] NZCA 346 at [76].
8 King v Library Covers (NZ) Ltd [1951] NZLR 133 (SC) at 134.
allegation that Ms He diverted funds for her own use. In that respect, the application conveys the impression of a fishing expedition. Mr Kemp’s affidavit does not dispel that impression.
[44] Although the evidence of Mr Liu and Ms He has yet to be tested by cross- examination, their affidavits appear to provide a basis for concluding that Mr Liu was happy to accept Ms He’s calculations up until the time title to the Byron Avenue properties transferred to his company and that Mr Liu raised issues about the accounting only after the transaction had settled and his debt to Ms He fell due. The sequence of events appears not to support the allegations in the second amended claim that Mr Liu was under pressure to agree to the accounting and to signature of the term loan agreement. In the context of this application, it is not necessary or appropriate to make findings on that matter. It is appropriate to record, however, that, on the basis of the evidence before me, the merits appear strongly to favour Ms He.
[45]For all the above reasons, I dismissed Mr Liu’s application for an account.
Discovery
[46] As Mr Locke agreed at the hearing, in substance the application for an account was an application for further and better discovery. It should have been framed that way and should have been made many months ago, irrespective of the influence of the external factors noted above. However, given the imminence of the trial date, I encouraged counsel to discuss whether there was a practical way of agreeing by consent to orders for further limited discovery by reference to the matters identified at paragraph 20 of Mr Kemp’s affidavit. In the event, that did not prove possible.
[47] Having now reflected more fully on the evidence and reviewed Ms He’s affidavit of documents dated 12 February 2021 and those exhibited with her affidavit, I do not consider I should make any orders for further discovery. It appears from the affidavit of documents that a number of the documents identified by Mr Kemp were discovered over two years ago. Ms He also exhibits to her affidavit copies of relevant documents, including the term loan agreement and a statement showing how the GST refund was used when settling the debts relating to the Byron Avenue properties. If there are further relevant documents that Mr Liu or his counsel do not have, they may
request them from Ms He. On the evidence before me, however, I see no basis for making more general orders for further discovery.
Costs
[48] As Mr Locke accepted at the hearing, Ms He is entitled to costs on the plaintiffs’ application. In her minute dated 23 March 2021, Associate Judge Gardiner categorised the proceeding as Category 2 for costs. Accordingly, Ms He is entitled to costs on the present application on a 2B basis.
[49] Under r 14.6(3) of the High Court Rules, the Court may order a party to pay increased costs if the party “has contributed unnecessarily to the time or expense of the proceeding” by, for example, “taking or pursuing an unnecessary step or an argument that lacks merit.”
[50] In Holdfast NZ Ltd v Selleys Pty Ltd, the Court of Appeal said that an increase of 50 percent on scale costs should grant a costs-claiming party a fair recovery for the step unnecessarily forced on it, assuming that the time allocated to the step has been reasonably calculated under the bands.9
[51] In the present case, I do not consider that an uplift of 50 per cent is warranted given that Ms He has consented to the filing of an amended statement of claim. Even so, I am satisfied that it was not reasonable to seek to revise the pleadings so late in the piece when the proceeding had been commenced over three years ago and the then scheduled hearing was less than a month away.
[52] More significantly, the application for an account had no merit. It required a response from Ms He. It was the focus of her affidavit and Mr Rice’s submissions and of the hearing on 12 July. In these respects, Ms He had to incur costs for a step unnecessarily forced on her.
[53] In these circumstances, I am satisfied that an uplift on scale costs of 35 per cent is appropriate.
9 Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [47].
Result
[54] Leave is granted to the plaintiffs to file a second amended statement of claim as exhibited to Mr Liu’s affidavit.
[55]The plaintiffs’ application for an account is dismissed.
[56] Ms He is entitled to costs on her opposition to the affidavit on a 2B basis and with an uplift of 35 per cent.
[57] Counsel are directed to try to agree on costs. If they are unable to agree, they may submit memoranda of no more than four pages.
Timetable directions
[58]I make the following revised timetable directions up to trial on 9 October 2023:
(a)The defendant is to file a statement of defence to the second amended statement of claim by 21 July 2023;
(b)The plaintiffs’ proposed evidence-in-chief, chronology and an index of the documents the plaintiffs wish to include in the common bundle are to be served by 7 August 2023 (45 working days before trial);
(c)The defendant’s proposed evidence-in-chief, chronology and an index of the documents the plaintiffs wish to include in the common bundle are to be served by 4 September 2023 (25 working days before trial);
(d)The plaintiffs are to file and serve the common bundle of documents by
18 September 2023 (10 working days before trial);
(e)The plaintiffs’ synopsis of opening submissions is to be filed and served by 2 October 2023 (5 working days before trial).
G J van Bohemen J
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