Liu v Kang

[2023] NZHC 1263

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-1018

[2023] NZHC 1263

BETWEEN

MINYING LIU

First plaintiff

AND

YUHUAN LI

Second plaintiff

AND

WETEX KANG

First defendant

AND

MANUKA WHENUA HOLDING LIMITED

Second defendant

AND

1668 HONEY LIMITED

Third defendant

AND

HONEY SCIENCE MANUKA HONEY LIMITED

Fourth defendant

AND

1201 OKAU ROAD LIMITED

Fifth defendant

AND

NORTH HONEY LIMITED

Sixth defendant

Hearing:	On the papers
Counsel:	B J Norling and A Cherkashina for plaintiffs
Date of judgment:	26 May 2023

JUDGMENT OF JAGOSE J

This judgment was delivered by me on 26 May 2023 at 4.00pm, pursuant to Rule 11.5 of the High Court Rules.

…………………………

Registrar/Deputy Registrar

LIU v KANG [2023] NZHC 1263 [26 May 2023]

[1]    As duty judge, I have Minying Liu’s and Yuhuan Li’s 25 May 2023 without notice interlocutory application for freezing orders in support of this proceeding.

Background

[2]    In this proceeding, the plaintiffs contend to be shareholders in the defendant companies, of each of which the first defendant, Wetex Kang, is said to be the sole director of (and directly or indirectly also a shareholder) in the defendant companies. The plaintiffs assert a variety of issues with their investments of nearly $1 million in the defendant companies, whose affairs they allege are being conducted prejudicially to them in terms of s 174 of the Companies Act 1993 and otherwise in breach of trust and their contract or property rights. They seek the defendants acquire their shares, and otherwise financial relief in various and substantial sums.

[3]    On the present application, the plaintiffs seek to freeze all Mr Kang’s assets in New Zealand, including his interests in identified real estate, shares in identified companies, any proceeds from their sales and all bank and other accounts held directly or indirectly by him, as well as all the assets of the defendant companies. The application is expressed as being for ‘interim’ interim freezing orders, and “not to frustrate the sale of any assets for fair market value, … [or] to preclude the payment of ordinary expenses”. The plaintiffs rely on evidence of Mr Kang allegedly “selling down the defendant companies’ properties without obtaining [their] consent”.

Law on freezing orders

[4]    Freezing orders may be ordered if I am satisfied, having regard to all the circumstances, there is a danger a prospective judgment in the plaintiffs’ favour will be wholly or partly unsatisfied because the value of the defendants’ assets are alienated from them in some manner.1

[5]    Freezing orders are “a valuable protective measure for those commencing civil proceedings”,2 for which the plaintiffs must show “a good arguable case on an accrued

1      High Court Rules 2016, r 32.5(4).

2      Hannay v Mount [2011] NZCA 530 at [20], referring to Deutsche Schachtbau-und Tiefbohrgesellschaft MBH v Shell International Petroleum Co Ltd (trading as Shell International Trading Co) [1990] 1 AC 295 (HL) at 317.

or prospective cause of action”.3 By ‘good arguable case’ is meant establishment of “a sufficiently plausible foundation” such that “the cause of action is at least tenable”.4

A good arguable case against the respondent is therefore established if the allegations in the proposed claim are capable of tenable argument and are supported by sufficient evidence, bearing in mind the early stage at which the application is likely to be brought.

[6]    As to the danger of alienation, I must be satisfied assets may be removed or dealt with in a way that may frustrate the prospective judgment; that there are “circumstances from which a ‘prudent, sensible commercial man, can properly infer a danger of default’” on adverse judgment.5

[7]    I then must consider where lies the balance of convenience,6 meaning if it bears harder on the plaintiffs to be without prospective recourse to the defendants’ assets, or on the defendants to have their assets frozen, pending judgment in their respective favours.7

[8]    The form of any freezing order must not prohibit dealings with the assets to pay ordinary living expenses and legal expenses relating to the freezing order or in the ordinary course of business,8 and where made without notice be limited to a particular date as early as practicable after the freezing order is made,9 and with leave reserved to the defendants to discharge or vary the freezing order urgently on notice.10

[9]    Characterisation of the application as for “‘interim’ interim freezing orders” does not change the test or, if met, the orders. Freezing orders are those defined by Part 32 of the High Court Rules 2016.

3      High Court Rules, r 32.5(1)(b).

4      Hannay v Mount, above n 2, at [21], citing Wing Hung Printing Co Ltd v Saito Offshore Pty Ltd [2011] 1 NZLR 754 (CA) at [41] and referring to Kuwait Asia Bank EC v National Mutual Life Nominees Ltd (No 2) [1989] 2 NZLR 50 (CA) at 55, and [22].

5      Murren v Schaeffer [2018] NZCA 318, (2018) 24 PRNZ 285 at [16], citing Raukura Moana Fisheries Ltd v The Ship “Irina Zharkikh” [2001] 2 NZLR 801 (HC) (citing Third Chandris Shipping Corporation v Unimarine SA [1979] QB 645 at 671).

6 At [17].

7      By analogy with Wellington International Airport Ltd v Air New Zealand Ltd HC Wellington CIV- 2007-485-1756, 30 July 2008 at [4] citing Cayne v Global Natural Resources Plc [1984] 1 All ER 225 (CA) at 237.

8      High Court Rules, r 32.6

9      Rule 32.7.

10     Rule 32.8.

Discussion

[10]   Being satisfied r 32.2 of the High Court Rules 2016 expressly permits the application to be made without serving notice of the application, I determine the plaintiff’s application can properly be dealt with without notice.11

[11]   I am satisfied from the plaintiffs’ and supporting affidavit evidence sworn 27 April 2023 and 3 May 2023 their allegations against the defendants are capable of tenable argument. They appear to assert qualifying prejudice, breaches and loss. Further tenable claims of breach of director duties also are open to being made against Mr Kang.

[12]   I am not satisfied of the requisite danger. The above affidavit evidence does not go beyond providing a foundation for the plaintiffs’ claim. To the extent it addresses disposition of property, that appears dispositions conducted in the ordinary course of the companies’ businesses, however allegedly at odds with any statutory requirements or the plaintiffs’ contended contractual entitlements. Disposition alone is insufficient: what is required is alienation, a “real risk” assets will be put beyond the plaintiffs’ reach for satisfaction of their prospective judgment.12

[13]   Tianxia Li’s affidavit sworn 24 May 2023 deposes to her mother’s receipt of some NZD 130,000 from sale of some of the defendant companies’ properties. I find it difficult to infer danger of default from seeming voluntary return on the plaintiffs’ investments. Certainly there is no evidence of any attempt to render the defendants “‘judgment proof’”.13 Counsel put it no higher than “evidence of historical disposition of assets without compliance”.

[14]   My doubt freezing orders ought presently to issue is amplified by counsel’s characterisation of the application as “‘interim’ interim”. They explain such is to mitigate against the risk the defendants “have not had an opportunity to respond to [the plaintiffs’] allegations”. That is not the threshold for freezing orders.

11     Rule 7.46(3).

12     Rule 32.5(4), and Bank of New Zealand v Hawkins HC Auckland CP383/89, 11 April 1989 (1989) 1 PRNZ 451 at 454.

13     Bank of New Zealand v Hawkins, above n 12, at 454.

[15]   The plaintiffs must point to conduct such as prospectively may frustrate any judgment in their favour. Here, the plaintiffs only are pointing to conduct as may justify judgment in their favour.

Result

[16]The plaintiffs’ application for freezing orders is dismissed.

—Jagose J

Solicitors:

Norling Law, Auckland