Luo v Shiu
[2022] NZHC 1707
•18 July 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2019-404-000706
[2022] NZHC 1707
UNDER Rule 12(3) of the Court of Appeal (Civil) Rules 2005 IN THE MATTER OF
An application to stay execution of judgment pending determination of appeal
BETWEEN
ZHENLIN (ROBERT) LUO
First Plaintiff
KC BROTHERS LIMITED
Second Plaintiff
ANG YIP
Third Plaintiff
MANFEI COMPANY LIMITED
Fourth PlaintiffAND
XIAOLING (ANNIE) SHIU
First Defendant
R&G PHOENIX LIMITED
Second Defendant
CSR POKENI LIMITED
Third Defendant
Hearing: 20 June 2022 Appearances:
S Judd for the Plaintiffs/Respondents
D Bigio QC for the Defendants/Applicants
Judgment:
18 July 2022
JUDGMENT OF TAHANA J
This judgment was delivered by me on 18 July 2022 at 12.30pm. Pursuant to Rule 11.5 of the High Court Rules
…………………………
Registrar/Deputy Registrar
LUO v SHIU and CSR POKENO LIMITED v LUO [2022] NZHC 1707 [18 July 2022]
CIV 2022-404-000285 UNDER
Section 290 of the Companies Act 1992
IN THE MATTER OF
An application to set aside statutory demands
BETWEEN
CSR POKENO LIMITED
Applicant
AND
ZHENLIN (ROBERT) LUO
First RespondentMANIFEI COMPANY LIMITED
Second Respondent
Solicitors/Counsel:
Shortland Chambers, Auckland Righteous Law, Auckland Pidgeon Judd, Auckland Kitchener Chambers, Auckland
Introduction
[1] In a judgment dated 21 December 2021, Whata J entered judgment against the first and third defendants, Ms Shiu and CSR Pokeno Limited (“CSR Pokeno”) (together, “the applicants”).1 Ms Shiu was ordered to pay $2,671,183.73 to Mr Luo and Manfei Company Ltd (together, “the respondents”). CSR Pokeno was held to be jointly liable for a portion of that sum totalling $1,886,856.80.
[2] The applicants filed an appeal which is yet to be heard. The respondents subsequently served statutory demands on CSR Pokeno for the judgment sum it owes plus costs. The respondents have also served bankruptcy notices on Ms Shiu but these are not the subject of the applications.
[3] The applicants have applied for a stay of execution pending appeal and to set aside the statutory demands. The respondents oppose both applications but say they would consent to a stay:
(a)against both applicants if the applicants pay the full amount of the judgment sums plus interest into Court or into a solicitor’s trust account; and
(b)against CSR Pokeno if it procures an undertaking from Pokeno West Ltd (“Pokeno West”) that it will not sell, transfer, mortgage or otherwise deal in any way with the land owned at 53 Munro Road, Pokeno (“the Munro Rd property”).
[4]The applicants have offered security but not in the form described at [3] above.
[5] The issue I need to determine is whether the form of security offered by the applicants is sufficient and the grounds for granting a stay of proceedings are satisfied.
1 Luo v Shiu [2021] NZHC 3564.
Factual background
[6] In 2019, the plaintiffs issued proceedings against Ms Shiu, R&G Phoenix Ltd and CSR Pokeno alleging that Ms Shiu (and through her, CSR Pokeno) made various false representations in relation to five investment properties2 in Pokeno.
[7] Prior to the trial, Ms Shiu was convicted in the District Court of two charges of obtaining by deception arising from representing to the respondents that commission fees were due to a real estate agent in connection with the purchase of the properties when they were not.3 She has repaid the commission.
[8]Whata J found for the plaintiffs and held:4
(a)While the false representations as to the commission fees did not literally induce the respondents to enter into the joint venture, they would not have entered into the joint venture had they known about the dishonesty;5
(b)Ms Shiu’s representations that the respondents would be in business with her and/or profit share went beyond the terms of the joint venture and this did induce them to contract;6
(c)The promise of a profit share was too vague and uncertain to sustain a claim for expectation losses, and relief under s 35 of the Contract and Commercial Law Act 2017 (“CCLA”) was declined;
(d)Relief under s 43 of the Fair Trading Act 1986 (FTA) was appropriate to return the respondents to the position they would have been in but for the deception; and
2 The properties are: 87-89, 119, 133 and 145C Helenslee Rd; and 53 Munro Rd.
3 R v Chen [2020] NZDC 25807.
4 Luo v Shiu [2021] NZHC 3564.
5 Held to be a breach of s 9 of the Fair Trading Act 1986 (FTA).
6 Held to be a breach of s 35 of the Contract and Commercial Law Act 2017 (CCLA), or s 9 FTA.
(e)CSR Pokeno was jointly liable in respect of losses arising from three of the properties because Ms Shiu’s conduct could be attributed to it under s 45 of the FTA.
[9] On 22 December 2022, the Court issued interim charging orders in favour of the respondents over the applicants’ shares in 11 companies7 (the “interim charging orders”). These include charges over Ms Shiu’s shares in CSR Pokeno and CSR Trustee Limited and CSR Pokeno’s shares in Pokeno West.
[10] The applicants have also offered the following as security for the stay of proceedings:
(a)$800,000 cash paid into trust;
(b)A first registered mortgage over 2 Orion St, Papakura, provided in favour of the respondents with an estimated value of between $968,000
– $1,011,000) (“the Papakura property”); and
(c)An undertaking from CSR Pokeno that it will not approve any sale of the Munro Rd property.
Approach to application
[11] The application for stay is made under r 12(3) of the Court of Appeal (Civil) Rules 2005, which provides that:
Pending the determination of … 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 execution of the decision; or
(b)grant any interim relief.
7 ACR Trustee Company Ltd, CSR Pokeno Ltd, CSR Healthcare Ltd, Dr Shiu Medical Limited, CSR Pukekohe Ltd, CSR Trustee Ltd, Auckland Investment and Trade Ltd, Auckland International Consultants Limited, West Pokeno Limited, Pokeno West Limited and R & G Pheonix Limited.
[12] The Court has a discretionary power to order a stay of execution pending appeal.8 That order may be subject to any conditions the Court thinks fit.9
[13] While the starting point is that the successful party is entitled to the fruits of its judgment, the Court must balance this against the need to preserve the appellant’s position in the event of the appeal succeeding.10 The object is to arrange matters so that the appellate Court can do justice between the parties, whatever the outcome of the appeal.11 The onus is on the party seeking the stay to persuade the Court that it is in the overall justice of the case to grant the stay.12
[14] The overall approach is a balancing exercise, with all relevant factors to be weighed, as follows:13
(a)whether the appeal may be rendered nugatory by lack of a stay;
(b)the bona fides of the appellant 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.
8 ASB Bank v Lin [2014] NZHC 106 at [9].
9 Court of Appeal (Civil) Rules 2005, r 12(4).
10 Cullen Group Ltd v Commissioner of Inland Revenue [2019] NZHC 3110 at [10].
11 Minnesota Mining and Manufacturing Co v Johnson and Johnson (No 3) [1976] RPC 671 (EWCA Civ) at 676.
12 Philip Morris (New Zealand) Ltd v Liggett & Myers Tobacco Co (New Zealand) Ltd [1977] 2 NZLR 41 (CA).
13 Keung v GBR Investment Ltd [2012] NZAR 17 (CA) at [11].
[15] I therefore need to determine whether it is in the overall justice of the case to grant the stay taking account of the above factors.
Is it in the overall justice of the case to grant the stay?
Whether appeal may be rendered nugatory
[16] The respondents are not seeking to enforce judgment and say that the judgment sums should be paid into Court or a solicitor’s trust account. Granting the stay will not therefore render the appeal nugatory.
Bona fides of the appellants
[17] The bona fides of the applicants in pursuing the appeal are not contested. Rather, the respondents question the bona fides of the applicants in not paying the full amount of the judgment sums into trust or Court in circumstances where there are adverse credibility findings against Ms Shiu and the applicants purport to have access to equity valued at approximately $25 million. I consider this issue when reviewing the nature of the security the applicants have offered.
Whether the successful party will be injuriously affected by the stay
[18] The respondents appear to accept that they will not be injuriously affected by the stay if security is provided by way of payment of the judgment sums (plus interest) into trust. They argue the form of security offered is insufficient because the charging orders over shares do not prevent the directors of the relevant companies from dissipating assets.
[19] The respondents have not identified any specific prejudice beyond the disadvantage of the judgment sum not being readily recoverable given the nature of the security offered. In these circumstances, the respondents say the applicants, and Ms Shiu in particular, have failed to provide financial information to justify why they are unable to pay the judgment sum in to trust.
[20] If the stay is granted, there is a risk that the respondents will not be able to recover the full judgment sum if the security is not sufficient to secure the full amount
of the judgment sums. The respondents say there is a risk of sale of the Munro Rd property despite the undertakings provided by the applicants. The key issue is the adequacy of the security offered by the applicants, which I consider below.
Effect on third parties
[21] The applicants say that if the stay is not granted, this will affect third parties (Pokeno West and Mr and Ms Shiu’s family) because it will require a sale of assets at undervalue. I accept a forced sale could have this consequence, which would in turn impact third parties.
Novelty, importance and public interest
[22] The appeal does not raise novel issues of public importance. This factor is neutral.
Chance of success
[23] The applicants submit that the appeal has a good chance of success and they are diligently pursuing it. The respondents accept that the appeal is not “hopeless.” This factor weighs in favour of granting a stay.
Overall balance of convenience
[24] The key issue is whether the overall balance of convenience weighs in favour of granting the stay based on the security that has been offered. There is no issue with the $800,000 that has been paid into trust. The next form of security offered is a registered mortgage over the Papakura property, which the applicants’ say has an estimated value of approximately $1 million.
[25] The Court has accepted security other than payment of the full judgment sum, as follows:
(a)in Loktronic Industries v Diver14 the Court granted the stay on condition that the applicants provide a bank bond for the judgment sum in favour of the Court; and
(b)in Eden Refuge Trust v Hohepa15 the stay was granted on condition that the funds were paid into trust or, in the alternative, by providing a registered security over realty to the value of the judgment sum.
[26] I accept the applicants’ submission that the Court has previously accepted that a registered security over realty may be an appropriate form of security.16 The offer of a registered security over the Papakura property is not complex. In response to Mr Judd’s submission that this is costly to implement, any costs associated with the registered security can be borne by the applicants.
[27] For the above reasons, and consistent with Eden Refuge Trust, I consider that a registered security of the Papakura property is sufficient to protect the respondents for the estimated value of the property.
[28] The next issue is security for the remaining amount of the judgment sum. The remaining security offered comprises:
(a)Charges over shares; and
(b)An undertaking from CSR Pokeno that it will not approve any shareholders’ resolution to sell the Munro Road property.
[29] In their notice of opposition, the respondents say that the interim charges do not prevent the directors of the companies from dissipating the assets of the companies. To counter this, Mr Shiu says that as director of Pokeno West he will undertake not to vote in support of the sale of the Munro Rd property.
14 Loktronic Industries Ltd v Driver HC Auckland CIV-2008-404-4657, 1 June 2011.
15 Eden Refuge Trust v Hohepa HC Auckland CIV-2003-404-000539, 21 December 2011.
16 At [5].
[30] It is helpful to set out the ownership structure of Pokeno West, which is the owner of the Munro Rd property. This property is the main source of value upon which CSR Pokeno and Ms Shiu rely to say that the judgment sums are secure. There is no direct security over the Munro Rd property in favour of the respondents.
[31] CSR Pokeno is a 70 per cent shareholder in Pokeno West. CSR Pokeno is owned by Ms Shiu (one per cent), Mr Shiu (one per cent) and CSR Trustee Limited (98 per cent). CSR Trustee Limited is owned by Ms Shiu (50 per cent) and Mr Shiu (50 per cent). Ultimately, CSR Pokeno is therefore owned by Mr and Ms Shiu.
[32] Yes Investment NZ Ltd is the other 30 per cent shareholder of Pokeno West. There is a registered mortgage over the Munro Rd property with a priority amount of
$13,500,000 plus interest in favour of Yes Investment NZ Ltd. It therefore appears that Yes Investment NZ Ltd is both a 30 per cent shareholder and the mortgagee of the Munro Rd Property.
[33] The financial position of Pokeno West is unknown other than the valuation for the Munro Rd property and the mortgage in favour of Yes Investment NZ Ltd. There is also no evidence as to the shareholder rights of Yes Investment NZ Ltd. Any charge over the shares will be subject to the rights of Yes Investment NZ Ltd and any third party creditors of Pokeno West. The respondents are being asked to accept that given the value of the Munro Rd property they should not be concerned as to the form of security.
[34] Both Ms Shiu and CSR Pokeno rely on the value of the Munro Rd property as evidence that the value of the equity in CSR Pokeno is closer to $25 million rather than the significantly lower value disclosed in its financial statements.
[35]Mr Shiu has also deposed that:
(a)CSR Pokeno has insufficient cash to meet its part of the judgment sums;
(b)CSR Pokeno does not trade and has insufficient income to service additional borrowing;
(c)it would be necessary for CSR Pokeno to sell or transfer its shares in Pokeno West if it was required to meet the judgment sum;
(d)any sale or transfer would be at undervalue because it would be a forced sale; and
(e)any sale or transfer in turn impacts:
(i)Mr and Ms Shiu’s family given they are both ultimate owners of the assets; and
(ii)Yes Investment NZ Ltd as the other shareholder.
[36] The applicants rely on the decision in Daisley v Ark Contractors Limited17 where the Court granted the stay after noting that there was “little practical benefit” if the defendants were required to sell a property at undervalue. It was accepted that a forced sale of the property at undervalue could not be compensated if the appeal was successful.
[37] In Daisley v Ark Contractors Ltd the defendants deposed that the sale of the relevant property was the only way the judgment debt could be paid.18 The property was owned by the second defendant company, of which the first defendants were the sole shareholders and directors.19 There was also a charging order over the relevant property and the rateable value of the property exceeded the judgment sum.20
[38] The situation here is different. There is no security over the Munro Rd property. The security is over CSR Pokeno’s shares in Pokeno West. Further, CSR Pokeno does not own all of the shares in Pokeno West unlike the position of the first defendants in Daisley v Ark Contractors Ltd.
17 Daisley v Ark Contractors Ltd [2020] NZHC 1432.
18 At [12].
19 At [17].
20 At [17].
[39] The respondents have requested that CSR Pokeno procure an undertaking from Pokeno West not to sell the Munro Rd property. This would remove any uncertainty as to the intentions of Pokeno West and the other shareholder. If Mr Shiu’s undertaking is to be accepted as protecting against a sale of the Munro Rd property, then it is unclear why Pokeno West would not provide the same undertaking. If as 70 per cent shareholder, the respondents are being asked to accept that CSR Pokeno can block a sale of the Munro Rd property then it would be of no consequence or prejudice to Pokeno West to voluntarily provide the same undertaking. Pokeno West has not however, done so.
[40] Mr Bigio for the applicants says it would be inappropriate for a third party to be required to provide security. While I accept that Pokeno West as a third party may not be compelled to provide security, the applicants must also accept that in the absence of an undertaking from Pokeno West there is greater uncertainty that CSR Pokeno or Mr Shiu can block a sale of the Munro Rd property. This is particularly so when the full financial position of Pokeno West is unknown.
[41] There is also uncertainty as to the rights and/or intentions of Yes Investment NZ Ltd. Mr Shiu has confirmed that there has been interest in the purchase of the Munro Rd property, but he does not have any intention as director of Pokeno West to sell at this time. We do not know the position of Yes Investment NZ Ltd or the other director, Karl Ye.
[42] I accept there would be prejudice to CSR Pokeno if it is forced to sell its shares in Pokeno West at a potential undervalue and is then subsequently successful on appeal. This however, is to be weighed against the prejudice to the respondents of accepting charging orders and an undertaking that do not provide complete security that the Munro Rd property will not be sold.
[43] The respondents also say that it is appropriate to be sceptical in light of Ms Shiu’s convictions and the findings of previous dishonest conduct. I agree that caution is warranted regarding Ms Shiu given this background and the absence of evidence of the full financial position of Ms Shiu.
[44] Counsel for the respondents also submit that the applicants are trying to “have it both ways.” That is, on one hand they are saying there is plenty of equity ($25 million) to eventually pay the debt, but on the other hand they say they cannot raise funds to pay it now so the respondents must accept a form of security that is less than certain.
[45] Mr Shiu says there is insufficient cash for CSR Pokeno to service borrowings. Ms Shiu says she would be required to sell assets if she is required to pay the judgment sums into trust.
[46] The interim charging orders also apply to Ms Shiu’s shares in ACR Trustee Company Ltd, which is a 30 per cent shareholder of West Pokeno Ltd (not to be confused with Pokeno West). West Pokeno Ltd is the owner of 87/89 and 119 Helenslee Rd, Pokeno. The same issues arise however, in that the interim charging orders do not provide certainty that West Pokeno Ltd will not sell those properties.
[47] I must consider the balance of convenience and I agree that it favours granting the stay application but with the appropriate security in place so that the respondents have certainty that the judgment sum is protected.
[48] As set out at [26](a) above, in Loktronic Industries v Diver the Court granted the stay on condition that a bank bond be provided. If the value of the Munro Rd property is accepted, it is unclear why a bank bond cannot be provided for the remainder of the judgment sum. Alternatively, if CSR Pokeno’s position is to be accepted and CSR Pokeno can block a sale of Munro Rd property, then it should not be difficult for CSR Pokeno to procure an undertaking from Pokeno West to that same effect. Pokeno West cannot be compelled to provide the undertaking but in the absence of such undertaking, the respondents are justified in being concerned that there is no certainty that a sale of the Munro Rd property will not take place.
[49] Given the above, I consider that the balance of convenience is in favour of granting the stay but with greater security than has been offered by the applicants.
Result – application for stay of execution
[50] I therefore grant the application for stay of the proceedings pending determination of the appeal on condition that the applicants, within 15 working days, provide the following by way of security:
(a)pay $800,000 into the trust account of Pidgeon Judd (if they have not already done so);
(b)provide a first registered mortgage over the Papakura property in favour of the respondents with a priority amount of $1 million, the costs of which are to be borne by the applicants; and
(c)provide a bank bond in favour of the Court for the remaining amount of the judgment sums plus interest or in the alternative, procure an undertaking from Pokeno West that it will not approve the sale of the Munro Rd property.
[51] I reserve leave to the parties to apply for further directions arising out of this judgment.
Statutory demands
[52] Given my decision on the stay application, subject to CSR Pokeno complying with the conditions set out at [50] above, I order that the statutory demands be set aside.
Tahana J
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