LIYUN CHEN / Counterclaim LC1521319 DEVELOPMENT CO LIMITED / Counterclaim Continued over AND GOODMORE INVESTMENTS (NEW ZEALAND) LIMITED /Counterclaim
[2024] NZHC 2655
•13 September 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-0691
[2024] NZHC 2655
BETWEEN LIYUN CHEN
First Plaintiff/First Counterclaim Defendant
LC1521319 DEVELOPMENT CO LIMITED
Second Plaintiff/Second Counterclaim Defendant
Continued over
AND
GOODMORE INVESTMENTS (NEW ZEALAND) LIMITED
Defendant/Counterclaim Plaintiff
Hearing: 9 September 2024 Counsel:
M Tingey/ B Han for the Applicants
S Gollin/ H Jacques for Goodmore Investments (New Zealand) Ltd
D Chisholm KC for Tawa Trade Finance LtdJudgment:
13 September 2024
JUDGMENT OF ASSOCIATE JUDGE BRITTAIN
This judgment was delivered by me on 13 September 2024 at 3 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors/Counsel:
Essence Law, Auckland
MinterEllisonRuddWatts, Auckland Murray Tingey, Barrister, Auckland David Chisholm KC
CHEN v GOODMORE INVESTMENTS (NEW ZEALAND) LTD [2024] NZHC 2655 [13 September 2024]
RHC PROPERTY INVESTMENT LIMITED
Third Counterclaim Defendant
LIYUN CHEN as TRUSTEE OF THE ROYALL FAMILY TRUST
Fourth Counterclaim Defendant
AND CIV-2023-404-427
BETWEEN LIYUN CHEN
First Plaintiff
LC 152319 DEVELOPMENT CO
Second Plaintiff
AND TAWA TRADE FINANCE LIMITED
Defendant
Introduction
[1] These two proceedings, CIV-2023-404-691 (691) and CIV-2023-404-427 (427), began as claims by Liyun Chen (Ms Chen) and LC1521319 Development Co Ltd (LDC) against financiers, Goodmore Investments (New Zealand) Ltd (Goodmore) in 691, and Tawa Trade Finance Ltd (Tawa) in 427.
[2] Ms Chen has become embroiled in substantial litigation with financiers seeking to recover loans from her or entities associated with her. Those financiers include Goodmore, Tawa and General Finance Ltd.1 Ms Chen has been fighting a rear-guard action.
[3] In 2021, Goodmore provided finance to Ms Chen, LDC, RHC Property Investment Ltd (RHC) and Ms Chen in her capacity as a trustee of the Royall Family Trust (the Trust) for a term of 12 months under a term loan agreement, to enable Ms Chen and her interests to refinance four properties. LDC, RHC and the Trust are entities utilised by Ms Chen in her property developments.
[4] In 2023, Tawa provided finance to Ms Chen and LDC under two loan agreements, each for a term of six months, to refinance two properties previously secured to Goodmore.
[5] In 691, Ms Chen’s claims against Goodmore included: breach of disclosure obligations under the Credit Contracts and Consumer Finance Act 2003 (CCCFA); oppression under the CCCFA; breach of mortgagee’s duty under s 176 of the Property Law Act 2007 (PLA); breach of s 10 of the Companies Act 1993; breach of the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (AML/CFTA); duress; and breaches of the Fair Trading Act 1986 (FTA) and the Consumer Guarantees Act 1993 (CGA).
1 Chen v General Finance Ltd [2023] NZHC 1329; Chen v General Finance Ltd [2023] NZHC 1758; Chen v Tawa Trade Finance Ltd [2023] NZHC 1333; Chen v Tawa Trade Finance Ltd [2023] NZHC 1801; Chen v Tawa Trade Finance Ltd [2023] NZHC 2156; Tawa Trade Finance Ltd v Lau [2023] NZHC 2220; Chen v Goodmore Investments (New Zealand) Ltd [2023] NZHC 1942; and Goodmore Investments (New Zealand) Ltd v Chen [2023] NZHC 2214.
[6] In 427, Ms Chen’s claims against Tawa included: that Tawa verbally agreed to extend the loans on “reasonable rates” for another six months; oppression under the CCCFA; breach of mortgagee’s duty under s 176 of the PLA; and breach of the AML/CFTA.
[7] The financiers counterclaimed to recover the amounts outstanding under the loan agreements, and Goodmore joined RHC and the Trust as counterclaim defendants in 691.
[8] On 22 February 2024, Associate Judge Taylor gave summary judgment dismissing the 691 claims brought by Ms Chen and LDC against Goodmore, entering judgment against Ms Chen, LDC, RHC and the Trust for the amounts outstanding under the loan agreement.2 Judgment was entered for $766,282,21, together with interest at the contractual rate of 24.2 per cent per annum and costs.3
[9] On 1 March 2024, Associate Judge Taylor gave summary judgment dismissing the 427 claims brought by Ms Chen and LDC against Tawa, entering judgment against Ms Chen and LDC for the amounts outstanding under the loan agreements.4 Judgment was entered for $1,111,939.06, together with interest at the contractual rate of 28 per cent per annum and costs.5
[10]Tawa has recently sold the last secured property by mortgagee sale, realising
$650,000 which will be applied to Tawa’s judgment, including the default interest that continues to accrue.
[11] Ms Chen and LDC have appealed both judgments to the Court of Appeal. The appeals are set down for hearing on 18 February 2025. Ms Chen and LDC now seek a stay of execution of the judgments, pursuant to r 12(3) of the Court of Appeal (Civil) Rules 2005 (CACR), pending determination of the appeals.6
2 Chen v Goodmore Investments (New Zealand) Ltd [2024] NZHC 139.
3 At [121].
4 Chen v Tawa Trade Finance Limited [2024] NZHC 410.
5 At [98].
6 The application was originally for a stay of enforcement under r 20.10 of the High Court Rules 2016. However, that rule applies to appeals to the High Court. The applicants’ submissions correctly rely on r 12(3) of the Court of Appeal (Civil) Rules 2005.
[12] On the material before the Court, it is unclear whether RHC and the Trust also appeal the judgment against them in 691 and join in the application for a stay. Mr Tingey appeared for the applicants for a stay, and he confirmed that RHC and the Trust do seek a stay. If necessary, they apply to be joined as applicants. For the avoidance of doubt, I order that RHC and the Trust are joined as applicants for a stay of execution of the judgment in 691.
[13] Ms Chen says that the judgment debtors do not have the financial means to pay the judgments. There is an extant bankruptcy proceeding against Ms Chen. The Court has ordered that Goodmore may substitute as plaintiff in that proceeding, although Goodmore has not yet filed its creditor’s application as directed by the Court.7
[14] The primary argument advanced in support of the applications for a stay of execution of the judgments is that an order adjudicating Ms Chen bankrupt would render the appeals nugatory.
Jurisdiction
[15] Ms Chen has not applied for a halt of the bankruptcy proceeding under s 42(2) of the Insolvency Act 2006, which provides jurisdiction for the Court to halt a bankruptcy proceeding pending determination of an appeal of the judgment that underlies the bankruptcy notice.
[16]Ms Chen relies on r 12(3) of the CACR, which provides:
(3)Pending the determination of an application for leave to appeal or an appeal, the court appealed from or the Court may, on an interlocutory application,—
(a)order a stay of the proceeding in which the decision was given or a stay of the execution of the decision; or
(b)grant any interim relief.
7 Tawa Trade Finance Ltd v Chen [2024] NZHC 1746 at [29].
[17] The CACR do not define what amounts to “execution” of a judgment. There is a difference between execution of a judgment and applying for adjudication in bankruptcy because of insolvency.8
[18] The Insolvency Act confirms a dichotomy between insolvent debtors and solvent debtors: execution processes are available against solvent debtors and the Insolvency Act provides the appropriate means for dealing with insolvent debtors.9
[19] This is confirmed by s 24 of the Insolvency Act, which provides that a debtor commits an act of bankruptcy if an execution process has been issued against the debtor or the property of the debtor. An execution process is defined to mean a writ of sale, writ of possession, writ of arrest or writ of sequestration.
[20] A stay of execution of a judgment under r 12(3)(a) of the CACR does not prohibit the filing or prosecution of a bankruptcy proceeding. However, interim relief under r 12(3)(b) of the CACR can include orders in respect of a bankruptcy proceeding10 or a liquidation proceeding.11 Ms Chen has not specifically sought orders under r 12(3)(b).
Legal principles
[21] The bringing of an appeal does not operate to stay the effect of any judgment being appealed. The general rule is that a successful party is entitled to enjoy the fruits of a judgment.
[22] Generally, a stay of a monetary judgment will be granted on provision of security for repayment.12
8 Sullivan v Clode [2017] NZHC 1973 at [34].
9 Webb Ross & Co v Stirling [1990] 1 NZLR 569 (HC) at 575; and Body Corporate 68792 v Memelink [2018] NZCA 509, [2019] NZAR 127 at [18].
10 Wikeley v Jacomb [2013] NZHC 3368.
11 Industrial Group Ltd v Bakker HC Auckland CIV-2009-404-6432, 31 May 2010 at [21].
12 Keung v GBR Investment Ltd [2010] NZCA 396, [2012] NZAR 17 at [12].
[23] In deciding whether to grant a stay, the Court must balance the successful litigant’s rights to the fruits of the judgment and any need to preserve the unsuccessful litigant’s position should the appeal succeed.13
[24] The burden is on the applicant to satisfy the Court that it should exercise its discretion to grant a stay. The relevant factors to consider are:14
(a)whether the appeal may be rendered nugatory by the lack of a stay;
(b)the bona fides of the applicant as to the prosecution of the appeal;
(c)whether the successful party will be injuriously affected by the stay;
(d)the effect on third parties;
(e)the novelty and importance of questions involved;
(f)the public interest in the proceeding;
(g)the overall balance of convenience; and
(h)the apparent strength of the appeal.
[25] The appeals in these proceedings do not raise any novel questions. The outcome of the appeals will not affect third parties and are of no public interest.
[26] The fact an appeal may be rendered nugatory if a stay is not granted is not determinative.15
[27] There is a difference between judgments where a failure to order a stay will render the appeal nugatory given the nature of the relief ordered in the judgment, and
13 Duncan v Osborne Building Ltd (1992) 6 PRNZ 85 (CA) at 87.
14 Keung v GBR Investment Ltd, above n 12, at [11].
15 Cousins v Heslop [2007] NZCA 377, (2007) 18 PRNZ 677 at [10]; Keung v GBR Investment Ltd, above n 12, at [20].
monetary judgments. In the case of monetary judgments, if the appellant is adjudicated bankrupt or, if a company, put into liquidation, then it is open to the Official Assignee or a liquidator to carry on the appeal. In that sense, the appeal is not rendered nugatory.16
[28] The effect of a refusal to grant a stay on solvency and, therefore, the likelihood of an appeal being prosecuted requires a consideration of the applicant’s financial position, particularly if interim relief is sought analogous to a halt under ss 38 or 42 of the Insolvency Act. An applicant is expected to provide full disclosure.
Will the appeals be rendered nugatory if a stay is not granted?
[29] Ms Chen has filed two affidavits in support of each application for a stay, dated 19 June 2024 and 5 September 2024. Ms Chen asserts that neither she nor LDC have sufficient assets in New Zealand to satisfy the judgments in full or in part. The only evidence that LDC is unable to meet the judgment debts is Ms Chen’s bare assertion.
[30] Ms Chen does not give any evidence regarding the ability of RHC or the Trust to pay the Goodmore judgment. Ms Chen does not say whether any of the judgment debtors have assets in another jurisdiction. None of the judgment debtors have provided a statement of financial position.
[31] Ms Chen asserts that she and LDC have a claim against General Finance Ltd, another financier of her property developments, implying that proceeds from that claim will become available to pay the judgment debts. No details or documents are provided to support the assertion.
[32]Ms Chen repeats the following averment in both affidavits:
The position remains that if the claim against General Finance and the appeal is not successful, I intend to borrow funds from third party in China to satisfy the judgment debts and costs awards, but I will need approximately 6 months to make necessary arrangements and borrow funds.
New Zealand Insulators Ltd v ABB Ltd (2006) 18 PRNZ 459 (CA) at [13]; Jeffreys v Morgenstern
[2014] NZHC 671 at [22]–[23]; and ASB Bank Ltd v Sgargetta [2018] NZHC 2061 at [23].
[33] In her affidavits dated 5 September 2024, Ms Chen gives no evidence of any steps taken by her to arrange finance from China since affirming her affidavits on 19 June 2024. Ms Chen does not say that the finance referred to in the earlier affidavits is no longer available. This invites the inference that Ms Chen has taken no steps to obtain this finance, and that she does not intend to do so unless the appeals are unsuccessful. It was open to Ms Chen to take steps to raise finance to provide security for a stay, but it appears that she has chosen not to do so.
[34] It is not inevitable that Ms Chen will be adjudicated bankrupt. Ms Chen has put insufficient evidence before the Court to enable that conclusion to be drawn.
[35] Even if Ms Chen is adjudicated bankrupt, I do not accept that a bankruptcy will render the appeals nugatory. It would be open to the Official Assignee to continue with the appeals. The Official Assignee could enter into a funding agreement with interests associated with Ms Chen or obtain support from a litigation funder. Alternatively, the Official Assignee could assign the choses in action to Ms Chen’s interests.
[36] If Ms Chen is adjudicated bankrupt the other judgment debtors will be free to pursue the appeals, under the control of new directors. If the appeals were ultimately successful, it would be open to Ms Chen to apply for a discharge from bankruptcy or an annulment. The judgment creditors have not served statutory demands on the companies. If they do, and the companies are liquidated before the appeals are heard, then a liquidator may continue the appeals.
[37] I do not accept that the appeals will be rendered nugatory if stays are not granted.
The apparent strength of the appeal
[38] In their appeal, the judgment debtors have abandoned many of the grounds advanced at the summary judgment hearing and rejected by Associate Judge Taylor in his judgments. The written submissions filed on behalf of the applicants for a stay narrowed the grounds of defence to the financiers’ claims to the following:
(a)in respect of Goodmore:
(i)Goodmore failed to advance further development funding of
$1,000,000 for the development of one of the secured properties, as agreed by Goodmore in consideration for the borrowers agreeing not to claim a GST refund on the purchase price of the secured properties;
(ii)Goodmore did not allow the borrowers to partially settle the loan in January 2022 in return for a discharge of one of the secured properties;
(iii)this conduct by Goodmore was oppressive under the CCCFA; and
(iv)Goodmore breached its obligations to exercise reasonable care to obtain the best price reasonably obtainable on the sale of secured properties;
(b)in respect of Tawa:
(i)Tawa breached an oral agreement to extend the term of the loans, made in consideration for the borrowers agreeing not to claim a GST refund on the purchase price of the secured properties;
(ii)Tawa’s conduct was oppressive under the CCCFA; and
(iii)the ordinary interest rate of nine per cent per annum and the default interest rate of 28 per cent per annum were oppressive under the CCCFA.
[39] In 691, Associate Judge Taylor held that the claims of oppression under the CCCFA and the claim under s 176 of the PLA were not arguable, including on the grounds that there was no sufficient evidential basis for the claims.17
[40] In 427, Ms Chen and LDC argued that the term of the loan agreements had been extended based on a representation by Tawa to that effect. Associate Judge Taylor rejected the representation, because it was inconsistent with the written loan offers and not credible. Associate Judge Taylor also accepted Tawa’s argument that any alleged oral agreement did not assist Ms Chen and LDC, because they had been in breach of their obligations under the loan agreements from inception, because they had agreed to grant security to another financier over the properties that were secured to Tawa, in breach of the written terms of the loan agreements.18
[41] Mr Tingey further refined the grounds of defence in his oral submissions. On appeal, the borrowers intend to argue that the Goodmore and Tawa loan agreements were consumer credit contracts because one of the debtors is a natural person and one of the secured properties was Ms Chen’s residence. In that context, the credit contracts were oppressive because:
(a)terms in the loan agreements and/or otherwise agreed between the parties prevented the borrowers from claiming GST refunds on the purchase prices for the secured properties;
(b)the ordinary interest rates ranged from 15 to 19 per cent per annum if financing fees are taken into account, and the default interest rates ranged from approximately 24 to 28 per cent per annum; and
(c)the loan-to-value ratios .
[42] Mr Tingey conceded that the oppression arguments are much less likely to succeed if the Court of Appeal finds that it is not arguable that the loan agreements
17 Chen v Goodmore Investments (NZ) Ltd, above n 2, at [94] and [100].
18 Chen v Tawa Trade Finance Ltd, above n 4, at [66] and [67].
were consumer credit contracts, and the terms of the loan agreements are assessed in the context of bridging finance for property development.
[43] Mr Tingey submitted that the arguments available to the borrowers were not adequately put to Associate Judge Taylor, because Ms Chen was unrepresented and English is her second language. However, I note that Ms Chen is a seasoned litigant and that she elected to represent herself, and LDC was represented by counsel at the hearing of the applications for summary judgment in 691.
[44] I accept that it is not appropriate to make a detailed assessment of the strength of the appeals. This is one of those cases, as in Keung, where the merits of the appeals are not so obvious as to be a critical factor in favour of a stay.19
The balance of convenience
[45] I accept Mr Tingey’s submission that if a stay is granted any prejudice to the judgment creditors from delay caused by unsuccessful appeals would be ameliorated by their ongoing right to charge default interest.
[46] To date, no execution steps have been taken by Goodmore or Tawa against LDC, or by Goodmore against RHC or the Trust. A stay would deprive the judgment creditors of their right under the High Court Rules 2016 to examine the judgment debtors as to their means to meet the judgment debts. The judgment creditors may have viable enforcement options against assets of the judgment debtors, which cannot be ruled out given the failure of the judgment debtors to give full disclosure of their financial positions.
[47] Any deferral of the judgment creditors’ right to seek an order adjudicating Ms Chen bankrupt, or an order putting LDC or RHC into liquidation, may have consequences for the ability of the Official Assignee or a liquidator to challenge transactions by Ms Chen or the companies that might result in recoveries for the bankrupt estate or the companies in liquidation.
19 Keung v GBR Investments Ltd, above n 12, at [21].
[48]The balance of convenience is against a stay of execution of the judgments.
Conclusion on the exercise of the discretion
[49] It is not appropriate to order a stay of execution or interim relief restraining the judgment creditors from pursuing the bankruptcy proceeding given Ms Chen’s failure to provide full disclosure of her financial position and the financial position of the other judgment debtors. Ms Chen has failed to explain why she has taken no steps to raise finance from China to provide security for the judgment debts.
[50] The appeals will not be rendered nugatory if I decline a stay of execution or interim relief. The balance of convenience is against relief.
[51] The strength of the appeal does not outweigh these factors. I am satisfied that this is not an appropriate case for orders under r 12(3) of the CACR.
[52] Costs should follow the event. My preliminary view is that costs should be determined on a 2B basis.
Orders
[53] The application by the counterclaim defendants in CIV-2023-404-0691 for a stay of execution of the judgment of Associate Judge Taylor dated 22 February 2024 is dismissed.
[54] The application by the plaintiffs in CIV-2023-404-427 for a stay of execution of the judgment of Associate Judge Taylor dated 1 March 2024 is dismissed.
[55]If the parties are unable to agree on costs, then:
(a)Goodmore Investments (New Zealand) Limited and Tawa Trade Finance Limited may file and serve a memorandum regarding costs, of no more than five pages, by 27 September 2024;
(b)The counterclaim defendants in CIV-2023-404-0691 and the plaintiffs in CIV-2023-404-427 may file and serve submissions on costs, of no more than five pages, by 11 October 2024; and
(c)I will then determine costs on the papers.
Associate Judge Brittain
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