Mao v Hesketh Henry
[2022] NZHC 2084
•22 August 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-1055
[2022] NZHC 2084
BETWEEN LIANSEN MAO
Plaintiff
AND
HESKETH HENRY
First Defendant
AND
HYUN BIN KIM
Second Defendant
AND
DUK YOUNG LEE
Third Defendant
Cont:/
Hearing: 24 February 2022 Appearances:
No appearance by Plaintiff Liansen Mao Plaintiff Jiawen Mao self-represented
F B Barton for Hesketh Henry
R D Butler and A M Cameron for Hyun Bin Kim and Duk Young Lee
K Perry and E Focus-Turk for Ara Kim/Cooper & Co Real Estate Limited
Judgment:
22 August 2022
JUDGMENT OF PAUL DAVISON J
This judgment was delivered by me on 22 August 2022 at 3:00 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Hesketh Henry, Auckland
MacKenzie Elvin Law, Tauranga Heaney & Partners, Auckland
MAO v HESKETH HENRY [2022] NZHC 2084 [22 August 2022]
AND CIV-2021-404-1475 BETWEEN
JIAWEN MAO
Plaintiff
AND
HESKETH HENRY
First Defendant
AND
ARA KIM/COOPER & CO REAL ESTATE LIMITED
Second Defendant
AND
HYUN BIN KIM
Third Defendant
AND DUK YOUNG LEE
Fourth Defendant
Introduction
[1] This judgment relates to interlocutory applications made by the defendants named in two related proceedings seeking to strike out the claims brought against them. The first proceeding (CIV-2021-404-1055) was commenced in May 2021 by Liansen Mao, and the second (CIV-2021-404-1475) was commenced in July 2021 by Jiawen Mao.
The plaintiffs’ claims
CIV-2021-404-1055 — Liansen Mao
[2] In his statement of claim dated 19 May 2021, Liansen Mao (Liansen) claims damages totalling approximately $2.25 million, interest and costs from the law firm Hesketh Henry (the first defendant) and their clients Hyun Bin Kim (Kim) and Duk Young Lee (Lee). The statement of claim appears to have been prepared by or on behalf of Liansen, and without professional legal advice. It is difficult to follow and make sense of the statement of claim, as it fails to clearly set out the legal basis of the claim and fails to provide essential particulars including the dates on which the key events referred to are said to have taken place. Nevertheless the following summary attempts to set out what appears to be the basis of the claim.
[3] In his statement of claim Liansen alleges that he was the guarantor pursuant to a loan agreement between Kim and Lee as lenders and Yintian Co Limited (Yintian Ltd) as borrower. Security for the loan was provided by way of a mortgage registered against the title of a property at 31 Chester Avenue, in Auckland. He claims that as a condition of the loan, Hesketh Henry, Kim and Lee, stipulated that Yintian Ltd was not to be registered for GST. He claims that the defendants Kim and Lee subsequently charged interest and penalty interest on the loan, and that following default under the loan agreement a mortgagee sale of the Chester Avenue property was conducted by Hesketh Henry for the second and third defendants, with the property being sold on 2 February 2018.
[4] Liansen claims that Kim and Lee wrongly claimed amounts of interest and penalty interest, and charged him for costs in relation to “unnecessary litigation” they
had brought against him, which was caused by Hesketh Henry and their own mistakes. He claims that Kim and Lee then commenced bankruptcy proceedings against him. He further claims that they also obtained a charging order which resulted in him having to make a forced sale of his property at 41 Candia Road for around half of its market price at a loss of $1.2 million, and also to lose the opportunity of subdividing and selling the property to achieve a profit of approximately $1 million.
[5] He makes a claim in negligence against Hesketh Henry, alleging that the firm had prepared the loan agreement made between him and his daughter and her company Yintian Ltd, and that the defendants had been required not to register Yintian Ltd for the purposes of GST. He alleges that upon receipt of the proceeds of the mortgagee sale of the Chester Avenue property, Hesketh Henry ignored instructions given to them by Liansen’s daughter and, contrary to her instructions, proceeded to forward the GST component of the sale proceeds (around $77,600) to the Inland Revenue Department (IRD).
[6] Liansen claims that if Hesketh Henry had not mistakenly claimed interest from him and had not as Kim and Lee’s legal representative lodged a charging order against his property, he would not have had to refinance the development funding he had arranged for developing his property at 41 Candia Road which resulted in him suffering losses totalling approximately $2.2 million.
[7] In a second cause of action based on the same pleaded facts, Liansen alleges that Hesketh Henry breached fiduciary duties it owed to him and is thereby liable for damages totalling approximately $2.2 million. Liansen also alleges that Hesketh Henry is liable under s 9 of the Fair Trading Act 1986 for having transferred the GST component of the Chester Avenue mortgagee sale proceeds to the IRD by mistake and subsequently producing a misleading repayment statement to him. Under this cause of action he also claims damages totalling approximately $2.2 million.
[8] Liansen also pleads causes of action alleging negligence, breach of fiduciary duty and breach of s 9 of the Fair Trading Act against Kim and Lee for which he seeks damages in each case totalling approximately $2.2 million.
Interlocutory application by Hesketh Henry for order striking out Liansen’s claim or for security for costs
[9] By interlocutory application dated 25 August 2021, Hesketh Henry applies for orders:
(a)striking out the whole of Liansen’s claim dated 19 May 2021;
(b)directing Liansen to give security for costs to Hesketh Henry in an amount the Court considers to be sufficient;
(c)if the application to strike out Liansen’s claim is not successful, an order that the claim against Hesketh Henry be stayed, until the amount determined as security for costs is paid and security given; and
(d)for Hesketh Henry’s costs of and incidental to this application.
[10] Hesketh Henry says that as solicitors for Kim and Lee it prepared a loan facility agreement in July 2016 which was executed by Jiawen Mao (Liansen’s daughter and a director of Yintian Ltd) as guarantor of the obligations of Yintian Ltd. When Yintian Ltd defaulted on the loan obligations, Kim and Lee took enforcement proceedings and obtained judgment against Yintian Ltd, Jiawen and Liansen (who agreed to be joined as a second guarantor of the agreement on 7 June 2017) for approximately $210,000, and in December 2020 as the judgment sum had not been satisfied, Hesketh Henry acting on behalf of Kim and Lee commenced bankruptcy proceedings against Jiawen.
[11] Hesketh Henry says that it does not owe a duty of care to Liansen, and Liansen does not have a reasonably arguable cause of action. Hesketh Henry says that Liansen’s claim is frivolous and vexatious and otherwise an abuse of the process of the Court.
CIV-2021-404-1475 — Jiawen Mao
[12] In Jiawen’s statement of claim filed on 22 July 2021 she sues Hesketh Henry, Ara Kim/Cooper & Co Real Estate Limited (Kim/Cooper & Co), and Kim and Lee. The statement of claim substantially replicates the statement of claim in the proceeding
commenced by Liansen and is similarly difficult to follow, as it also fails to clearly set out the legal basis of the claim and fails to provide essential particulars including the dates on which the key events referred to are said to have taken place.
[13] The same factual allegations made in Liansen’s statement of claim are also pleaded in this proceeding.
[14] Jiawen pleads as against Hesketh Henry causes of action alleging negligence; breach of fiduciary duty; and breaches of s 9 of the Fair Trading Act. The same three causes of action are pleaded against Kim/Cooper & Co, and against Kim and Lee. In respect of each cause of action Jiawen claims damages of approximately $2 million, calculated on substantially the same basis as the claim for damages made by Liansen. However in her claim Jiawen alleges that as a result of Hesketh Henry registering a charging order against her property at 3/613A Mt Albert Road while acting for Kim and Lee, she suffered loss of $300,000 and “development damages of $600,000”.
[15] Jiawen alleges that Hesketh Henry as legal representative of Kim and Lee, conducted a mortgagee sale of her property at 31 Chester Avenue, without first having appointed a registered valuer, and appointed Kim/Cooper & Co as real estate agent notwithstanding that it was not capable of handling mortgagee sales, and thereby caused her loss and damages totalling $900,000. Jiawen further alleges that Hesketh Henry charged additional fees of approximately $100,000 to her father and her company Yintian Ltd, and purposely delayed matters to thereby enable Kim and Lee to charge interest at the rate of 20 per cent on the amount they claimed as due under the loan agreement.
Interlocutory application by Hesketh Henry for order striking out Jiawen’s claim or for security for costs
[16] By interlocutory application dated 25 August 2021, Hesketh Henry applies for orders:
(a)striking out the whole of Jiawen’s claim dated 19 May 2021;
(b)directing Jiawen to give security for costs to Hesketh Henry in an amount the Court considers to be sufficient;
(c)if the application to strike out Jiawen’s claim is not successful, an order that the claim against Hesketh Henry be stayed, until the amount determined as security for costs is paid and security given; and
(d)for Hesketh Henry’s costs of and incidental to this application.
[17] Hesketh Henry’s interlocutory application is made on the same grounds and is in the same terms as its interlocutory application in the proceeding commenced by Liansen.
Interlocutory application by Ara Kim/Cooper & Co Real Estate Limited for summary judgment and/or strike-out of Jiawen’s claim
[18] By interlocutory application dated 17 September 2021, the second defendant Kim/Cooper & Co, applies for orders:
(a)that Kim/Cooper & Co be awarded summary judgment against Jiawen as Jiawen’s claim against Kim/Cooper & Co has no prospect of success;
(b)that the whole of Jiawen’s claim in her statement of claim against Kim/Cooper & Co dated 19 May 2021, be struck out;
(c)alternatively, and in the event that summary judgment and/or strike-out of Jiawen’s claim is not awarded in favour of Kim/Cooper & Co, requiring Jiawen to give security for costs in the amount the Court considers sufficient by paying that sum to the Court;
(d)if the summary judgment and/or application to strike out Jiawen’s claim is not successful, and in the event that security for costs is ordered to be paid by Jiawen, an order that the proceeding be stayed as against Kim/Cooper & Co until the security for costs sum is paid or security is given; and
(e)an order for costs on the application.
Interlocutory application by Hyun Kim and Duk Lee for order striking out claim or for security for costs
[19] Kim and Lee, named as the third and fourth defendants in the proceeding commenced by Jiawen, also apply for orders striking out the claim against them dated 19 May 2021, and in the alternative an order for security for costs and staying the proceeding pending the payment or giving of security for costs.
Background
[20] The factual background to what has been a long running dispute which has already been considered by this Court is set out in the judgment of Associate Judge Sussock delivered on 1 April 2021,1 and in the affidavit of Mr Hak Jun Lee (Mr Hak Lee), a commercial property lawyer and partner at Hesketh Henry, which is filed in support of Hesketh Henry’s interlocutory application.
[21] In his affidavit Mr Hak Lee says that Kim and Lee jointly engaged Hesketh Henry on or about 12 July 2016, and instructed the firm to prepare a loan facility document in relation to a development loan for $1 million to be made to Yintian Ltd. The principal sum was to be secured by a mortgage over the property at 31 Chester Avenue, Auckland, and to be guaranteed by Jiawen as a director of Yintian Ltd. The loan agreement was prepared and subsequently executed by Kim and Lee as lenders and Yintian Ltd as borrower on 13 July 2016. Jiawen also executed the loan agreement as guarantor of Yintian Ltd’s obligations under the loan agreement.
[22] On 13 January 2017 Yintian Ltd defaulted on loan repayments. Following negotiations between the parties, on or about 7 June 2017 Kim and Lee entered into a variation of the loan agreement with Yintian Ltd. Pursuant to the terms of the variation, Liansen guaranteed the due and punctual payment by Yintian Ltd of money under the loan to an aggregate of $200,000 plus interest on that amount at 20 per cent per annum until payment together with costs. Yintian Ltd became liable to repay to Kim and Lee the full amount of the loan on 31 July 2017.
1 Mao v Best Capital Ltd [2021] NZHC 735.
[23] Following further default by Yintian Ltd, Kim and Lee commenced mortgagee sale proceedings and the Chester Avenue property was subsequently sold at a mortgagee sale on 2 February 2018 for $1,130,000. The mortgagee sale was conducted on the basis that both vendor and purchaser were registered for the purposes of GST which required Kim and Lee to account to the IRD for GST.2
[24] On 15 February 2018 Hesketh Henry sent an email to Liansen and Jiawen’s solicitors, Amicus Law, enclosing a statement setting out the particulars of the outstanding balance of the loan after the net proceeds of the mortgagee sale of Chester Avenue had been credited. At that time Hesketh Henry were treating the sale as being conducted on the basis that Yintian Ltd was GST registered and they had no information to the contrary. On 17 February 2018 Jiawen sent an email to her own solicitors stating that Yintian Ltd was not registered for GST purposes and therefore GST was not deductible from the proceeds of the sale of Chester Avenue. Then on 19 February 2018 Jiawen sent an email directly to Hesketh Henry attaching the prior email string which included the email she had sent on 17 February 2018 in which she had stated that her company was not registered for GST. However she did not provide any supporting information to confirm her statement.
[25] Although Hesketh Henry had Jiawen’s 17 February 2018 email advising her solicitors that her company was not registered for GST, and that GST was not deductible from the mortgagee sale proceeds, as Hesketh Henry was unable to independently confirm the accuracy of Jiawen’s claim and be certain of whether Yintian Ltd was GST registered, Kim and Lee considered that in the circumstances they were required to account to the IRD for the GST. They accordingly paid the GST of $147,391.30 to the IRD. Subsequently, on 20 December 2018, Yintian Ltd’s accountant confirmed to Hesketh Henry that the company was not GST registered and Hesketh Henry obtained a refund of the GST from the IRD which was credited against the outstanding loan balance.
[26] On 26 February 2018, Hesketh Henry was instructed to commence proceedings against both Liansen and Jiawen Mao as guarantors under the loan agreement to
2 Goods and Services Tax Act 1985, s 5(2).
recover the outstanding sum due under the loan agreement. On 3 October 2018 Kim and Lee obtained judgment by default in the Auckland District Court against Yintian Ltd and both plaintiffs for the sum of $209,931.92 together with interest and costs. And on 3 May 2018 the Deputy Registrar of the Auckland District Court issued certificates of judgment certifying the default judgment entered in favour of Kim and Lee against Jiawen and Liansen in the sums of $216,723.92 and $216,773,92 respectively.
[27] On 6 June and 11 June 2019 Kim and Lee issued bankruptcy notices to Liansen and Jiawen respectively. The full amount of the outstanding loan shortfall was paid by Jiawen on 22 September 2020 after the bankruptcy notices had been served on both Jiawen and Liansen.
[28] On 11 October 2019 Liansen and Jiawen commenced proceedings in the High Court at Auckland against Kim and Lee. In that proceeding Liansen, Jiawen and Yintian Ltd as plaintiffs sued Kim, Lee and Best Capital Ltd. Their first two causes of action related to the property at 31 Chester Avenue. They alleged that Kim and Lee’s mortgagee sale of the property was in breach of s 176 of the Property Law Act 2007 by failing to obtain the best reasonably obtainable price at the time of the sale. They also alleged misleading and deceptive conduct on the part of Kim and Lee by failing to lend further funds to the plaintiffs once a house had been relocated onto the property thereby causing the plaintiffs loss.
[29] The defendants responded to those two causes of action, saying that the issues had already been heard and determined in the Auckland District Court in the proceedings in which the defendants had obtained judgment against the plaintiffs and the judgment sum had been fully paid by the plaintiffs. A third cause of action related to a property in Fairburn Road, Ōtāhuhu, and alleged that the defendants had acted in breach of a duty of care they owed to the plaintiffs by continuing to charge penalty interest at 20 per cent per annum, and not releasing the plaintiffs from their debt by disposing of the property within a reasonable time. The defendants in that proceeding, including Kim and Lee said that all three of the claims were an abuse of process, and
could not possibly succeed. By her judgment dated 1 April 2021, Associate Judge Sussock struck out all three causes of action.3 She said:
[71] The defendants have succeeded in establishing that the first two causes of action, relating to 31 Chester Avenue, infringe the rule in Henderson v Henderson in that they are matters which should have been raised in the earlier proceedings brought in the District Court. Not only that, neither cause of action is pleaded sufficiently to withstand strike out.
[72] The third cause of action in relation to 88 Fairburn Road, as well as failing to plead essential facts, does not disclose a reasonably arguable cause of action.
[73] The defendants have succeeded in their strike out application in respect of all three causes of action and so the amended statement of claim is struck out in its entirety.
[30]The Associate Judge awarded Kim and Lee indemnity costs.4
Submissions
[31] As the above summary of the two claims and the interlocutory applications made by each of the defendants illustrates, all of the defendants have adopted the same approach to the claims against them and they all apply for orders striking out the whole of the proceedings and all of the claims made against them. As there is considerable overlap and because of the substantially common grounds relied on it is therefore convenient to deal with the submissions relating to both proceedings together.
Hesketh Henry5
[32] Mr Barton for the first defendant commences by noting that Hesketh Henry was at no stage engaged by nor was the firm acting as the plaintiffs’ solicitors. The firm was engaged and acting for Kim and Lee and he submits that is a crucial factor in determining whether the plaintiffs have an arguable case against Hesketh Henry as regards any of the pleaded causes of action in the statement of claim dated 19 May 2021.
3 Mao v Best Capital Ltd, above n 1, at [73].
4 At [79].
5 Hesketh Henry is sued as the first defendant in both proceedings.
[33] Mr Barton says that while the statements of claim are wide ranging and difficult to follow, it seems the essence of those against Hesketh Henry relate to whether Yintian Ltd was GST registered and whether GST should have been deducted from the mortgagee sale proceeds. He says that Hesketh Henry accepts that it was ultimately established that Yintian Ltd was not GST registered and the GST was refunded. However he says that it is difficult to understand the alleged connection between the payment of the GST and the almost $2 million damages claimed.
[34] As regards the claim based in negligence, Mr Barton notes that the firm was not engaged as the plaintiffs’ solicitors and that consequently it did not owe them any contractual duties. As solicitors engaged by Kim and Lee, the firm owed contractual and professional obligations to them as its clients. He says that the plaintiffs must plead and set out material facts which could give rise to the establishing of a duty of care owed by Hesketh Henry to the plaintiffs. Mr Barton says that nothing is pleaded in the statements of claim which could be understood as founding a duty of care owed by the firm to the plaintiffs. He says that in making what is such a novel claim, the plaintiffs would need to plead the material facts giving rise to a duty of care, what the alleged obligation was, how it was breached, and the direct causal link between the breach of duty and the losses alleged to have been suffered. He submits as regards the damages claimed of approximately $2 million, that there is absolutely no causal connection between the sum claimed and anything that Hesketh Henry did or didn’t do.
[35] Turning to the cause of action alleging breach of fiduciary duty, Mr Barton says that the same deficiencies as relate to the negligence cause of action are also apparent. He says there is simply no pleaded basis to establish the existence of either a duty of care or a fiduciary duty owed by Hesketh Henry to the plaintiffs.
[36] As regards the cause of action based on an alleged breach of s 9 of the Fair Trading Act, Mr Barton submits that although Hesketh Henry was in trade, the plaintiffs’ claims based on the Act are not the type of case or situation that the Act is aimed at. He submits that the Act normally covers situations where there has been a representation made by a vendor or supplier of services, and where the purchaser has been misled or deceived and has acted in reliance on the representation. Mr Barton
says that here, Hesketh Henry was performing its professional functions in relation to a mortgagee sale and in relation to the payment of GST on behalf of the mortgagee vendors of the property sold. He says that there is nothing in the circumstances of what was done by Hesketh Henry that the plaintiffs could be said to have acted in reliance on, and there is no causal link between a representation and anything else that happened, let alone caused the plaintiffs loss. Furthermore, says Mr Barton, pursuant to s 43A of the Fair Trading Act a three year period of limitation applies and as the conduct by Hesketh Henry that the plaintiffs complain about occurred in February 2018, and the present claims were commenced in May and July 2021, this cause of action is out of time.
[37] In reply to the plaintiffs’ submission that Hesketh Henry’s payment of the GST to the IRD had caused them to suffer the losses of $2 million they are claiming, Mr Barton says that the mortgagee sale took place because of Yintian Ltd and Jiawen’s defaults under the loan agreement and guarantee. Therefore the effect of paying the GST and subsequently obtaining a refund of the GST could not have prevented the plaintiffs from refinancing their properties. What prevented them from doing so was their own failure to meet their obligations and defaulting under the loan agreement resulting in the mortgagee sale, default judgment and charging orders.
[38] As regards the declaration prepared by Hesketh Henry by which Jiawen confirmed that she would not register the company for GST, Mr Barton says that this had occurred before the loan funds were drawn down, and well before the situation which arose at the time of the mortgagee sale when Hesketh Henry sought to ascertain whether or not Yintian Ltd was at that time registered for GST, and when the requests they made to the plaintiffs’ solicitors for that information were not responded to. Mr Barton notes that the only information Hesketh Henry had from the plaintiff at that time was her unverified and self-serving statement to the effect that the company was not GST registered. Mr Barton says that eventually after 11 months had elapsed, Yintian Ltd’s accountant confirmed to Hesketh Henry that the company was not registered for GST. He says that at the time of the settlement of the sale, and in the absence of verifiable information confirming that the company was not GST registered, Hesketh Henry was legally required to account to the IRD for the GST.
Mr Hyun Kim and Mr Duk Lee6
[39] Mr Cameron for Kim and Lee refers to the factual background and previous legal proceedings in which the plaintiffs have made claims against his clients seeking damages for losses claimed to have been caused by the defendants’ actions in relation to the enforcement of the loan agreement and recovery of the loan money. He says that these two proceedings are the plaintiffs’ third attempt to litigate their claims relating to the mortgagee sale of the Chester Avenue property over which they held security. He says that the plaintiffs’ claims have already been determined by the District Court and by this Court. They should not be permitted to continue and should be struck out.
[40] Mr Cameron submits that these latest two proceedings brought against them by the plaintiffs should be struck out because they seek to re-litigate issues and claims that have already been finally determined by the courts, and because they are an abuse of process and vexatious. He submits that neither proceeding nor any of the claims made in them are based on a reasonably arguable cause of action.
[41] Mr Cameron says that the present proceedings are based on the same facts, and involve the same parties and same issues as the proceedings determined by Associate Judge Sussock. He submits that the causes of action pleaded by the plaintiffs in the present proceedings arise out of issues that were essential to the determination of the previous proceedings. He says that although the claims have been repleaded to allege different causes of action, they are essentially the same claims. He submits the principles and interests of finality should accordingly apply, and the proceedings should be struck out.
[42] In the alternative Mr Cameron submits that the two claims against Kim and Lee do not in any event disclose reasonably arguable causes of action. As regards the claim in negligence, he notes that the claim adds nothing to the duty to take reasonable care imposed by s 176 of the Property Law Act on a mortgagee exercising a power of sale. He submits that a novel duty of care should not exceed the scope of the statutory
6 Hyun Kim and Duk Lee are sued as the second and third defendants in Liansen’s claim (CIV- 2021-404-1055) and as the third and fourth defendants in Jiawen’s claim (CIV-2021-404-1475).
duty contained in s 176, and says that the terms of the guarantee coupled with the duty under s 176 provide the source of the obligations and duties that were owed to the plaintiffs as guarantors.
[43] In relation to the plaintiffs’ fiduciary claim, he submits that Kim and Lee’s duties were purely contractual and statutory in nature, and not fiduciary. He submits that it is not reasonably arguable that as mortgagees, Kim and Lee owed fiduciary duties which supersede the scope of their obligations under s 176 or their contractual obligations under the terms of the guarantees. He says that fiduciary duties would be inconsistent with the statutory and contractual duties having regard to the different and conflicting interests that exist between mortgagee and guarantor.
[44] As regards the Fair Trading Act claim, Mr Cameron says that it is in no better shape in the present proceeding than it was when considered by Associate Judge Sussock, as comprising a bare assertion of misleading and deceptive conduct without more.
[45] Mr Cameron submits that the plaintiffs have had an opportunity in the context of the District Court proceeding to make the claims they are now making, and it is too late for them to raise these claims again now.
Ara Kim/Cooper & Co Real Estate Ltd7
[46] Mr Perry for Kim/Cooper & Co notes that his client was engaged by Hesketh Henry on behalf of their clients Kim and Lee to list and sell the Chester Avenue property as a mortgagee sale. Mr Perry supports the arguments advanced by Mr Barton on behalf of Hesketh Henry. He says that none of the causes of action in Jiawen’s statement of claim could possibly succeed.
[47] Mr Perry submits that Jiawen’s claim that she was owed a duty of care by Kim/Cooper & Co is appropriately described as being “novel”. He says that where a defendant provides evidence to show on the balance of probabilities that it has a
7 Ara Kim/Cooper & Co are sued as the second defendant in Jiawen’s claim (CIV-2021-404-1475).
complete defence to the plaintiff’s claim, then it will be appropriate to enter summary judgment in favour of the defendant.
[48] As regards the claim in negligence he submits that Kim/Cooper & Co could not owe a duty of care to Jiawen or Yintian Ltd due to the fact that neither were clients of Kim/Cooper & Co for the purpose of the mortgagee sale process. He says that as a consequence the relationship between Kim/Cooper & Co and Jiawen lacks sufficient proximity to justify the imposition of a duty of care.
[49] He says that Jiawen’s claim in negligence is essentially alleging that a real estate agent owes a duty of care to parties other than entities or individuals within the real estate agent/client relationship. In this instance a duty owed to Jiawen as director of the mortgagor of Chester Avenue, notwithstanding that it was the mortgagees who were the real estate agent’s client. He says that he has not found any case law authority which would support the imposition of a duty of care upon the real estate agent in these circumstances. He submits that despite the novel duty of care alleged by Jiawen, there is no proximate relationship between the parties, and as it is clearly untenable and cannot succeed, the Court should enter summary judgment in favour of Kim/Cooper & Co.
[50] In his written submissions Mr Perry also addresses the issue of whether policy reasons exist which point against the imposition of a duty of care. He notes that the Real Estate Agents Professional Conduct and Client Care Rules expressly state that an agent or agency must act in the best interests of their client and in accordance with their client’s instructions, unless it would be contrary to law to do so.8 Moreover the Rules further provide that an agent must comply with the fiduciary obligations owed to their client.9 He submits that having regard to those obligations and duties, it is difficult to see how a real estate agent could comply with and discharge the obligations they owe to their client and at the same time owe a separate duty of care to a party with whom the real estate agent has no existing relationship. This inconsistency is clearly apparent in the case of a mortgagee sale where the mortgagees have the right to sell the mortgaged property without reference to the mortgagor/owner. He submits
8 Real Estate Agents Act (Professional Conduct and Client Care) Rules 2012, r. 9.1.
9 Rule 6.1.
that the duty claimed by Jiawen to exist, cannot exist along with the fiduciary duties owed by real estate agents to their clients.
[51] In relation to Jiawen’s second cause of action alleging breach of fiduciary duties, Mr Perry again submits that as a real estate agent does not owe fiduciary duties to a party who is not their client, this claim cannot possibly succeed against Kim/Cooper & Co. He says that it is clear from the documents exhibited to the affidavit of Ara Kim filed in support of the second defendant’s interlocutory application, that the mortgagee sale of the property was conducted by Kim/Cooper & Co on behalf of the mortgagees who were the real estate agent’s clients.
[52] He therefore submits that it has been established on the balance of probabilities that Jiawen’s claims against Kim/Cooper & Co alleging negligence and breaches of fiduciary duties cannot possibly succeed, and he seeks an order entering summary judgment in favour of Kim/Cooper & Co on Jiawen’s first and second causes of action.
[53] Mr Perry further submits in the alternative that Jiawen’s causes of action founded on negligence, breach of fiduciary duties and breach of the Fair Trading Act are not reasonably arguable and should in each case be struck out. In relation to the claim based on s 9 of the Fair Trading Act, he notes that s 43A of the Act requires an application pursuant to s 43 of the Act to be made within three years after the date on which the damage or likelihood of damage was discovered or ought reasonably to have been discovered. He notes that Jiawen pleads that the alleged misleading and deceptive conduct occurred in or about November 2017 when the property was being marketed for sale and certainly before it was sold at auction on 14 December 2017.
[54] Mr Perry says that even if Jiawen’s claim regarding misleading and deceptive conduct was correct, which is denied, then such misleading conduct and the alleged failures to appoint a registered valuer and advertise the property in Chinese newspapers, would have been known to Jiawen or ought reasonably to have been known to Jiawen throughout the marketing of the property for sale. He submits therefore that time started running for the purposes of the Fair Trading Act cause of action no later than 14 December 2017. And as Jiawen’s claim was not filed in the High Court until 19 May 2021, it is time barred and should be struck out.
The plaintiffs’ submissions
[55] Liansen and Jiawen filed joint written submissions. Jiawen appeared in person at the hearing of the interlocutory applications. Considered overall, the written submissions are discursive and it is difficult to make sense of them. They do not address or focus on the issues and include factual allegations which are unsupported by affidavit evidence. Nevertheless, the following summary is drawn from the written submissions.
[56] In their written submissions, the plaintiffs say that an important part of the factual background was that Hesketh Henry prepared a declaration for Jiawen to sign as director of Yintian Ltd, by which she agreed not to register the company for GST before the drawdown of the loan to the company took place. The plaintiffs say that therefore the email sent by Jiawen to Hesketh Henry on 19 February 2018 in which she attached her email dated 17 February 2018 to her own solicitors stating that the company was not GST registered, should have been treated as a valid notice to Hesketh Henry that the company was not GST registered. The plaintiffs say that if Hesketh Henry needed clarification or more information regarding that matter they should have replied to Jiawen’s email.
[57] The plaintiffs say that as a result of the GST of $147,391.30 being paid by Hesketh Henry to the IRD on 19 February 2018 and subsequently refunded on 22 October 2019, 20 months of penalty interest was incurred amounting to approximately $51,000. They say that the time which elapsed until Hesketh Henry obtained the GST refund resulted in additional and unnecessary costs and interest being charged by Kim and Lee to the plaintiffs. The plaintiffs say that the effect of the GST being paid to the IRD was to increase their outstanding debt to Kim and Lee. Had that not occurred the charging orders would not have been registered and the mortgaged properties would not have been sold for amounts below their market price due to forced sales. Jiawen says that in their “as is” condition the property values were low, but if they had been developed the sales would have achieved a fair market price. She submits that this is a new issue that was not one of the matters considered and determined by Associate Judge Sussock in her judgment dismissing their claim.
[58] As I understand her oral submission, Jiawen says that had the GST not been paid to the IRD in February 2018, the outstanding debt owing by her and her father to Kim and Lee would have been reduced and the charging orders they proceeded to obtain would not have been necessary. She says that because the charging orders were registered against the titles to their properties, the plaintiffs were unable to refinance the borrowings against the properties and they were also unable to proceed with subdivision and sale of the properties, with the consequence that they incurred the losses totalling approximately $2 million being the profits they would have been able to obtain from the subdivision and sale of their properties.
[59] In relation to their claim against Kim/Cooper & Co, the plaintiffs say that Ara Kim’s “main mistake” was not obtaining an up to date valuation of the property from a registered valuer pursuant to s 176 of the Property Law Act. The plaintiffs refer to ASB Bank Ltd v Lin as containing a summary of the steps required to be taken by a mortgagee in accordance with the duty of reasonable care contained in s 176.10
[60] As regards their Fair Trading Act cause of action the plaintiffs say that as Jiawen only became aware of the result of the mortgagee sale at the end of 2019, the three year limitation period should run from that time, meaning that the filing of the claim in May 2021 was within the three year period.
[61] In relation to the interlocutory applications for orders striking out their claims, the plaintiffs cite passages from Couch v Attorney-General,11 and submit that it is inappropriate for the court to strike out a claim summarily unless it can be certain that it cannot succeed. The plaintiffs rely of the Supreme Court’s observation that:12
Particular care is required in areas where the law is confused or developing. And in both X (Minors) v Bedfordshire County Council and Barrett v Enfield London Borough Council liability in negligence for the exercise or non- exercise of a statutory duty or power was identified as just such a confused or developing area of law. Lord Browne-Wilkinson in X thought it of great importance that such cases be considered on the basis of actual facts found at trial, not on hypothetical facts assumed (possibly wrongly) to be true for the purpose of the strike-out.
10 See ASB Bank Ltd v Lin [2013] NZHC 2528 at [44].
11 Couch v Attorney-General (on appeal from Hobson v Attorney-General) [2008] NZSC 45, [2008] 3 NZLR 725 at [31]–[32].
12 At [33] (footnotes omitted).
Law
Rules and legal principles applicable to strike-out
Rule 15.1 of the High Court Rules 2016 provides:
15.1 Dismissing or staying all or part of proceeding
(1)The court may strike out all or part of a pleading if it—
(a)discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or
(b)is likely to cause prejudice or delay; or
(c)is frivolous or vexatious; or
(d)is otherwise an abuse of the process of the court.
(2)If the court strikes out a statement of claim or a counterclaim under subclause (1), it may by the same or a subsequent order dismiss the proceeding or the counterclaim.
(3)Instead of striking out all or part of a pleading under subclause (1), the court may stay all or part of the proceeding on such conditions as are considered just.
(4)This rule does not affect the court’s inherent jurisdiction
[63] The Supreme Court in North Shore City Council v Attorney-General endorsed the applicable principles as being those set out by the Court of Appeal in Attorney-
General v Prince, which are as follows:13
(a)a strike-out application proceeds on the assumption that the facts pleaded in the statement of claim are true;
(b)the cause of action or defence must be so clearly untenable that they cannot possibly succeed;
(c)the jurisdiction is one to be exercised sparingly, and only in a clear case where the Court is satisfied that it has the requisite material; and
13 North Shore City Council v Attorney-General [2012] NZSC 49, [2012] 3 NZLR 341 at [146], citing Attorney-General v Prince [1998] 1 NZLR 262 (CA) at 267.
(d)the fact that the application to strike out raises difficult questions of law does not exclude the jurisdiction.
[64] As well as alleging that none of the causes of action set out in the statements of claim are reasonably arguable, all of the defendants have submitted that the two present proceedings, are an attempt by the plaintiffs to relitigate the plaintiffs’ claims for damages relating to and arising from the mortgagee sale of 31 Chester Avenue, which have previously been determined in both the District Court and in this Court.
[65] Associate Judge Sussock addressed this issue and set out the applicable principles in her judgment, which I respectfully agree with and adopt. She said:14
[42] The circumstances in which proceedings may amount to an abuse of process are varied.15 They include proceedings prevented by the principle of res judicata, where final judgment has been given on that right of action or in respect of that issue by a court of competent jurisdiction.16 In this case the defendants did not defend the proceedings in the District Court, with judgment being entered by default. As a result, the claims now raised were not raised in the District Court by way of defence. The Courts have held, however, that it will still be an abuse of process “where defendants are harassed with issues that should have been raised in previous litigation”.17 This principle is known as the rule in Henderson v Henderson.
[43] The Court of Appeal discussed these principles recently in Craig v Stringer.18 After confirming that the starting point must be that there is an entitlement to access the courts for resolving differences, the Court went on:
[15] However, consistent with this principle of preserving access to the courts for the resolution of genuine disputes, access is properly denied where the litigant seeks to misuse the court's processes for an improper purpose such as to vex, harass or embarrass the other party rather than for the genuine purpose of seeking to vindicate legal rights. The court has a duty to prevent its processes from being abused in any such manner …
[16] Access to the courts will be denied where a litigant seeks to reopen a dispute that has already been determined. This is precluded by the doctrine of res judicata which serves the public interest in finality in litigation and upholds the principle that a party should not be vexed twice in the same matter. Res judicata applies where a cause of action has been determined in earlier proceedings between the same parties or their privies — cause of action estoppel. The doctrine prevents re-litigation of the same cause of action in any subsequent proceedings. Res judicata can also apply where there has been a determination in earlier proceedings between the same parties or their privies of an issue that was essential to the determination of
14 Mao v Best Capital Ltd, above n 1.
15 Lai v Chamberlains [2006] NZSC 70, [2007] 2 NZLR 7 at [61].
16 Saba Yachts Ltd v Anae HC Auckland CIV-2007-404-1049, 27 June 2007 at [26].
17 Lai v Chamberlains, above n 15, at [59].
18 Craig v Stringer [2020] NZCA 260.
the claim such that the judgment could not stand without it — issue estoppel. Issue estoppel is narrower, and less absolute in its application than cause of action estoppel.
[17] A related principle is that the parties are required to bring forward their whole case and will generally be prevented from later attempting to re- open the same subject on a different basis. This principle was first recognised by Wigram V-C in Henderson v Henderson:
[W]here a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case.
(footnotes omitted)
[44] The public interest underlying the Henderson v Henderson principle is the same as that underlying cause of action estoppel and issue estoppel, there should be finality in litigation and a defendant should not be oppressed by successive suits.19
Analysis of Liansen’s claims
Negligence and breach of fiduciary duty — against Hesketh Henry
[66] Liansen’s first and second causes of action against Hesketh Henry are for negligence and breach of fiduciary duty. Although his pleading lacks essential detail, the key factual allegations upon which the claim in negligence is founded is that Hesketh Henry mistakenly accounted to the IRD for the GST of $147,391.30 and as a result of that sum not being applied to reduce the outstanding loan which was guaranteed by Liansen, and the charging of interest and legal costs for enforcement proceedings and the registration of a charging order on the title of Liansen’s property at 41 Candia Road, Liansen was prevented from refinancing his development funding for the property, undertaking a proposed subdivision and sale of a minimum of 10 lots, resulting in a forced sale of the property for a price which was half of its market value resulting in a loss of around $1 million in profit.
[67] The GST at the heart of these allegations related to the mortgagee sale of 31 Chester Avenue. That mortgagee sale and an allegation that Kim and Lee had failed to discharge the duty they owed to the mortgagor of the property (Yintian Ltd) and
19 Craig v Stringer, above n 18, at [18]. See also Lai v Chamberlains, above n 15, at [58].
covenantors pursuant to s 176 of the Property Law Act, was also at the heart of the first cause of action alleged in the proceedings brought by Liansen and Jiawen in their previous claim against Kim and Lee which was struck out by Associate Judge Sussock.
[68] In her judgment Associate Judge Sussock noted that the defendants in that proceeding, who included Kim and Lee, had obtained judgment by default against the plaintiffs for the amount of the shortfall following the mortgagee sale of 31 Chester Avenue together with interest and costs. The Associate Judge said:20
[51] If the plaintiffs consider that the mortgagee should have achieved an increased price, as pleaded in the first cause of action, this should have been raised in the District Court proceedings to deny the right to recover any shortfall. This is what the Henderson v Henderson principle requires, with the underlying policy being to promote finality in litigation and ensure a defendant is not oppressed by successive suits. The principle is particularly relevant here where the judgment debt was paid in full by the plaintiffs in September 2020.
[52] The timing of the filing of these proceedings, only following the issue of the bankruptcy notices, suggests that they were brought for an ulterior motive. It is not unusual in bankruptcy proceedings for proceedings to be filed following the issue of a bankruptcy notice, as it supports a party’s position that it has a genuine triable cross claim. But here, the plaintiffs filed proceedings alleging breaches of s 176 of the Property Law Act and misleading and deceptive conduct in circumstances where they knew the defendants had already successfully brought proceedings in the District Court to recover the shortfall and they, the plaintiffs, had paid the judgment debt obtained.
[53] In the circumstances, it would be an abuse of process for the claim set out in the first cause of action to be brought.
[69] In this present proceeding and cause of action Liansen is alleging that the first defendant, Hesketh Henry as well as Kim and Lee are liable in negligence for his claimed losses. The issue of whether Kim and Lee or their solicitors Hesketh Henry were liable to Liansen by reason of a breach of duty owed to him could only be founded on a breach of s 176 of the Property Law Act by the mortgagees. Any failure by Hesketh Henry as solicitors and agents of Kim and Lee amounting to a breach of s 176 was a matter appropriately to be raised by Liansen in the context of the District Court proceedings in which Kim and Lee sought to recover the shortfall outstanding on the loan following the mortgagee sale of Chester Avenue.
20 Mao v Best Capital Ltd, above n 1.
[70] I therefore find that the bringing of this cause of action is an abuse of process, and should be struck out.
[71] Furthermore, Hesketh Henry were of course not acting for Liansen in the matter of the loan to Yintian Ltd or as regards the conduct of the mortgagee sale. They were engaged by and acting for Kim and Lee, and they owed no contractual or other duties in tort to Liansen, so that a claim based on negligence alleged against them could not possibly succeed.
[72] Liansen’s pleading does not provide any particulars of the nature of the relationship between him and Hesketh Henry upon which he alleges a duty of care or fiduciary duty could be founded. That is yet a further reason why his claim in negligence and his second cause of action alleging a breach of fiduciary duty could not possibly succeed. As neither of these causes of action could possibly succeed, I also find for that further reason that they should be struck out.
Negligence and breach of fiduciary duty — against Kim and Lee
[73] Liansen’s causes of action against Kim and Lee as second and third defendants respectively, alleging negligence and breach of fiduciary duty and which are based on the same factual allegations as the equivalent claims made against Hesketh Henry, also fall within the scope of claims that could have and ought to have been made by Liansen within the context of the District Court proceedings in which Kim and Lee sought to recover the shortfall outstanding on the loan following the mortgagee sale of Chester Avenue.
[74] I therefore find that the bringing of these two causes of action against the second and third defendants is an abuse of process, and they should be struck out.
[75] As I have noted, Liansen was the guarantor of the loan made by Kim and Lee to Yintian Ltd. Following Yintian Ltd’s default under the loan agreement and Liansen’s liability under the terms of his guarantee crystallising, the relationship between the parties was that of debtor and creditor. They had directly opposing interests and in that context there could be no duties owed by Kim and Lee to Liansen,
and his claim based on alleged duties owed could not possibly succeed, and should be struck out on that ground.
[76] Moreover Liansen’s pleading does not provide any particulars of the nature of the relationship between him and Kim and Lee upon which he alleges a duty of care or fiduciary duty could be founded. That is a further reason why his claim in negligence and his second cause of action alleging a breach of fiduciary duty could not possibly succeed. As neither of these causes of action could possibly succeed, I also find for that further reason that they should be struck out.
Breach of the Fair Trading Act — against Hesketh Henry, Kim and Lee
[77] Liansen pleads causes of action against all three defendants based on s 9 of the Fair Trading Act alleging that they engaged in deceptive and misleading conduct. In the case of Hesketh Henry, Liansen alleges that the misleading and deceptive conduct was the firm’s mistaken payment of the GST to the IRD following the settlement of the sale of 31 Chester Avenue and thereafter producing a statement recording the deduction of the GST from the proceeds of sale, which statement is thereby alleged to have been misleading. In the case of Kim and Lee, Liansen alleges that they delayed responding to his requests relating to discharging the charging orders on his and Jiawen’s properties resulting in him being charged additional penalty interest. He also alleges that they produced a misleading settlement statement with which they proceeded to obtain judgment against him in the District Court for an incorrect amount.
[78] These allegations also fall within the scope of claims that could have and ought to have been made by Liansen within the context of the District Court proceedings in which Kim and Lee sought to recover the shortfall outstanding on the loan following the mortgagee sale of Chester Avenue. And I therefore find that the bringing of this cause of action against all three defendants is an abuse of process, and should be struck out.
[79] The mortgagee sale was settled on 2 February 2018 and on 15 February 2018 Hesketh Henry forwarded a statement to the plaintiffs’ solicitors accounting for the proceeds of the mortgagee sale and setting out the particulars of the amount remaining
owing by Yintian Ltd. On 15 February 2018 the plaintiffs’ solicitor forwarded Hesketh Henry’s email and the statement to Jiawen, and on 17 February 2018 Jiawen replied to her solicitor (Mr Orison Wu of Amicus Law), advising him that Yintian Ltd was not GST registered and saying that GST should not be deducted. Then on 19 February 2018 Jiawen sent an email to Hesketh Henry which attached copies of the emails that had been exchanged between Hesketh Henry, Amicus Law, and herself. It is therefore clear that as at 17 February 2018 Jiawen had received the statement prepared by Hesketh Henry accounting for the proceeds of the mortgagee sale of Chester Avenue, and by her email of 19 February 2018 it is also clear that she was asserting that Hesketh Henry’s deduction of the GST sum from the proceeds was incorrect.
[80] Jiawen’s email of 17 February 2018 shows that as that date she had “discovered” the loss or damage she claimed to have been caused by Hesketh Henry’s payment of the GST to the IRD. As Jiawen and her father Liansen were clearly in close communications and Jiawen was communicating with their solicitors on behalf of both herself and her father, I find that the knowledge she had as at 17 February 2018 is appropriately attributed to Liansen. Therefore the time for commencing a claim pursuant to s 43 of the Fair Trading Act expired on 17 February 2021.
[81] Liansen’s notice of proceeding and statement of claim were filed in the High Court at Auckland on 25 May 2021, and Jiawen’s notice of proceeding and statement of claim were filed in the High Court at Auckland on 23 July 2021.
[82] I am accordingly satisfied that all of the causes of action based on s 9 of the Fair Trading Act were claims brought outside the three year period prescribed by s 43A of the Act and are consequently out of time, and must be struck out.
Analysis of Jiawen’s claims
[83] As I noted earlier the statements of claim of both plaintiffs are substantially the same, although Jiawen has added Kim/Cooper & Co as an additional defendant and her statement of claim contains the additional causes of action alleged against Kim/Cooper & Co. Consequently, apart from the causes of action relating to Kim/Cooper & Co, Jiawen’s statement of claim and the causes of action brought against Hesketh Henry and Kim and Lee (as third and fourth defendants respectively),
give rise to the same issues and considerations that I have already addressed in connection with her father’s statement of claim.
Negligence and breach of fiduciary duty — against Hesketh Henry
[84] Jiawen’s first and second causes of action against Hesketh Henry are for negligence and breach of fiduciary duty. Jiawen pleads the same background facts as set out in her father’s negligence cause of action alleging the mistaken payment of GST on the mortgagee sale resulting in Jiawen being charged penalty interest on the GST sum at 20 per cent per annum for a period of 781 days, and being charged around
$100,000 costs for “unnecessary litigation” caused by Hesketh Henry’s “own mistakes”, and which had resulted in District Court proceedings and bankruptcy proceedings. She alleges that had Hesketh Henry not made the alleged mistake regarding payment of the GST, the third and fourth defendants would not have obtained and registered a charging order over her property at 3/613A Mt Albert Road which prevented her from refinancing development funding she had in place and caused the forced sale of the property for half of its proper market price at a loss of
$300,000. Jiawen alleges that if the charging order had not been registered against the property she would have been able to combine it with the neighbouring property at 4/613A Mt Albert Road, which she owned, to develop and sell two terrace houses and yield her a profit of around $600,000.
[85] She further alleges that in appointing Kim/Cooper & Co to conduct the mortgagee sale of 31 Chester Avenue, Kim, Lee and Hesketh Henry engaged an inexperienced and unprofessional real estate agent who failed to advertise the “actual potential” of the property, and failed to obtain a valuation from a registered valuer, before proceeding with the mortgagee sale, resulting in the sale of the property for approximately $900,000 below its real market price.
[86] Jiawen pleads that at all material times Hesketh Henry were the legal representatives of Kim and Lee, and that the firm had prepared the loan agreement between them and herself, her father, and her company, Yintian Ltd. She alleges that notwithstanding an email she sent to Hesketh Henry advising that Yintian Ltd was not registered for GST, Hesketh Henry ignored her advice and transferred the GST on the
mortgagee sale to the IRD. She alleges that due to the shortfall of the GST sum and the penalty interest she was charged on that amount, together with other litigation costs, Hesketh Henry registered a charging order over her property at 3/613A Mt Albert Road, causing her losses totalling $900,000.
[87] Jiawen also claims $100,000 being the sum charged as “additional costs” by Hesketh Henry against her, and her father and Yintian Ltd.
[88] As I have already noted in relation to Liansen’s claim in negligence against Hesketh Henry, a claim against Kim and Lee or their solicitors Hesketh Henry alleging liability to Jiawen by reason of a breach of duty owed to her could only be founded on an alleged breach of s 176 of the Property Law Act by the mortgagees. Hesketh Henry were the solicitors for the mortgagees, and not themselves the mortgagee. Any failure by Hesketh Henry as the solicitors and agents of Kim and Lee alleged to be in breach of the duty imposed on them by s 176 to take reasonable care, was a matter appropriately to be raised by Jiawen in the context of the District Court proceedings in which Kim and Lee sought to recover the shortfall outstanding on the loan following the mortgagee sale of Chester Avenue.
[89] The question of whether Jiawen could bring a further proceeding to claim damages from Kim and Lee for losses suffered as a result of their alleged breaches of s 176 of the Property Law Act, was addressed and determined by the judgment of Associate Judge Sussock, who struck it out as being an abuse of process.21
[90] This claim by Jiawen is the second occasion when she has brought what is essentially the same claim seeking damages for losses she alleges she suffered as a result of alleged failures by Kim and Lee in the manner in which they conducted the mortgagee sale of 31 Chester Avenue.
[91] I accordingly find that the bringing of this cause of action is an abuse of process, and should be struck out.
21 Mao v Best Capital Ltd, above n 1, at [45]–[53].
[92] Furthermore, in her pleading Jiawen has acknowledged that Hesketh Henry were engaged and involved in the mortgagee sale as Kim and Lee’s solicitors, and she does not allege the existence of a relationship between herself and Hesketh Henry which would give rise to that firm owing her, or her father, or Yintian Ltd any duties which if breached and causing loss, would render the firm liable to her in damages.
[93] Jiawen’s pleadings do not provide any particulars of the nature of the relationship between her and Hesketh Henry upon which a duty of care or fiduciary duties owed to her by Hesketh Henry could be founded. I accordingly find this to be further reason why Jiawen’s claim in negligence and also her second cause of action alleging a breach of fiduciary duty could not possibly succeed. As neither of these causes of action could possibly succeed, I also find for that further reason that they should be struck out.
Breach of the Fair Trading Act — against Hesketh Henry
[94] I have already found that the causes of action in Liansen’s claim are time barred by being commenced outside the three year period provided for in s 43A of the Fair Trading Act. For the same reasons Jiawen’s claims under the Act which were commenced when she filed her notice of proceeding and statement of claim on 23 July 2021 are also time barred and must be struck out.
[95] However, I also note that although Jiawen alleges that Hesketh Henry engaged in misleading and deceptive conduct in the course of acting for Kim and Lee and the steps they took to recover the outstanding loan money by conducting the mortgagee sale of 31 Chester Avenue and accounting to the IRD for the GST component of the mortgagee sale proceeds, Jiawen does not plead any particulars of misleading and deceptive conduct other than alleging that Hesketh Henry “later produce [sic] a misleading repayment to plaintiff”. It is however clear from the emails which are included and reproduced in full in Jiawen’s statement of claim, that upon receipt of Hesketh Henry’s statement following the mortgagee sale she immediately saw that the firm was proceeding on the basis that the GST on the sale was required to be paid to the IRD. The statement of claim provides no particulars which would possibly justify the allegation that Hesketh Henry engaged in misleading and deceptive conduct in
relation to their handling of their client’s instructions to recover the outstanding balance of the loan from Yintian Ltd and from Jiawen and her father as guarantors of the loan.
Negligence — against Kim/Cooper & Co
[96] Jiawen’s first cause of action against Kim/Cooper & Co claims damages for negligent breach of duties. Jiawen notes that Kim/Cooper & Co were the real estate agents engaged by Kim and Lee to market the sale of 31 Chester Avenue by mortgagee sale. She alleges that the firm carried out the marketing of the property without appointing a registered valuer to value the property and without advising Hesketh Henry to do so before putting the property on the market. She alleges that Kim/Cooper & Co failed to market the property by reference to its potential for subdivision into three lots, and failed to advertise the property in Chinese newspapers, thereby limiting the “wide range of Chinese buyers to the mortgagee/auction/tender”.
[97] This cause of action is misconceived. As the real estate agent engaged by Hesketh Henry on behalf of their clients Kim and Lee, Kim/Cooper & Co had no contractual obligations to Jiawen, her father, or Yintian Ltd. They owed contractual and fiduciary duties to their clients, namely Kim and Lee. The provisions of the Real Estate Agents Act (Professional Conduct and Client Care) Rules 2012 contain a description of the standards of professional conduct that real estate agents, managers and salespersons must comply with:
6Standards of professional conduct
6.1A licensee must comply with fiduciary obligations to the licensee’s client.22
6.2A licensee must act in good faith and deal fairly with all parties engaged in a transaction.
6.3A licensee must not engage in any conduct likely to bring the industry into disrepute.
6.4A licensee must not mislead a customer or client, nor provide false information, nor withhold information that should by law or in fairness be provided to a customer or client.
22 A “licensee” is defined in s 4 of the Real Estate Agents Act 2008 as meaning “an agent, branch manager, or a salesperson”.
[98] While an agent must act in good faith and deal with all parties engaged in a transaction fairly, an agent owes contractual and fiduciary duties only to their client. Here it is quite clear that Ms Ara Kim, who is a real estate agent, and her firm Cooper & Co Real Estate Limited, were engaged by Kim and Lee with instructions to sell 31 Chester Avenue on their behalf as the mortgagees. In her affidavit Ms Ara Kim says that after she met Kim and Lee, they referred her to their solicitors, Hesketh Henry and she subsequently met with them again at Hesketh Henry’s offices on 10 November 2017 to sign the agency agreement dated 11 November 2017 for an auction sale of the property on 7 December 2017. Ms Ara Kim says that throughout the marketing and mortgagee sale process although she met with Kim and Lee and Hesketh Henry, she did not have any dealings with Jiawen or anyone else as the owner of the property. The auction took place on 14 December 2017 and the sale price was $1.130 million which was above the price the owner had paid for the property in 2016.
[99] There was clearly no contractual or other relationship between Jiawen and the real estate agents engaged by Kim and Lee pursuant to which the real estate agent owed Jiawen a duty of care. Jiawen alleges that Kim/Cooper & Co did not market the property effectively by failing to refer to its potential to be subdivided into three lots, and any criticism regarding the manner in which the mortgagee sale was conducted falls within the scope of the s 176 obligation on Kim and Lee as the mortgagees to act with reasonable care when exercising the power of sale. The allegation that the mortgagees failed to discharge their s 176 duty has already been determined and dismissed by Associate Judge Sussock, and that allegation cannot be reframed and brought as a claim against Kim and Lee’s real estate agents.
[100] Accordingly the attempt to bring this claim again is an abuse of process and it will be struck out on that basis. Moreover, the claim in negligence cannot possibly succeed and will also be struck out on that basis.
Breach of fiduciary duty — against Kim/Cooper & Co
[101] The same factual allegations as pleaded in relation to the negligence cause of action are repeated as the basis of the breach of fiduciary duty cause of action against Kim/Cooper & Co. For the same reasons as I have set out in relation to the negligence
cause of action, the cause of action alleging liability for breach of fiduciary duty will also be struck out. The pleading does not allege facts which if true would give rise to fiduciary duties owed by the real estate agent to Jiawen. The nature of the relationship between the real estate agent and their client meant that the agent owed fiduciary duties to Kim and Lee. This cause of action could not possibly succeed and will be struck out.
Breach of the Fair Trading Act — against Kim/Cooper & Co
[102] The same factual allegations as pleaded in both the negligence and breach of fiduciary duty causes of action are again repeated as the basis for the Fair Trading Act cause of action and the allegation that Kim/Cooper & Co engaged in deceptive and misleading conduct contrary to s 9 of the Act. Although the pleading alleges that the real estate agent failed to appoint a registered valuer and failed to advise Hesketh Henry to appoint a registered valuer to prepare a valuation of the Chester Avenue property, and failed to advertise the property as having the potential to be subdivided into three lots, or advertise it in a Chinese newspaper, there is no pleading as to how it is alleged the real estate agent acted in a misleading and deceptive manner so far as Jiawen is concerned.
[103] Furthermore, for the same reasons set out at [79]–[82] and [94] above, the Fair Trading Act cause of action could not possibly succeed by reason of being out of time.
Negligence and breach of fiduciary duty — against Mr Kim and Mr Lee
[104] Jiawen also pleads causes of action against Kim and Lee alleging negligence, breach of fiduciary duty and breach of s 9 of the Fair Trading Act. These claims are in the same terms and repeat the allegation made by Liansen in the equivalent causes of action set out in his statement of claim. For the same reasons as I have set out above as regard Liansen’s statement of claim and the equivalent causes of action, I find that Jiawen’s causes of action in negligence and breach of fiduciary duty which are based on the same factual allegations as the equivalent claims made against Hesketh Henry, also fall within the scope of claims that could have and ought to have been made by her within the context of the District Court proceedings in which Kim and Lee sought
to recover the shortfall outstanding on the loan following the mortgagee sale of Chester Avenue.
[105] I therefore find that the bringing of these two causes of action against Kim and Lee as the third and fourth defendants in this proceeding is an abuse of process, and they should be struck out.
[106] Jiawen was the guarantor of the loan made by Kim and Lee to Yintian Ltd. Following Yintian Ltd’s default under the loan agreement and Jiawen’s liability under the terms of the guarantee crystallising, the relationship between the parties was that of debtor and creditor. They had directly opposing interests and in that context there could be no duties owed by Kim and Lee to Jiawen other than the statutory duty imposed on them by s 176 of the Property Law Act and this claim based on alleged duties could not possibly succeed, and should be struck out on that ground.
[107] Moreover Jiawen’s pleading does not provide any particulars of the nature of the relationship between Jiawen and Kim and Lee upon which she alleges a duty of care or fiduciary duty could be founded. That is a further reason why Jiawen’s claim in negligence and her second cause of action alleging a breach of fiduciary duty could not possibly succeed. As neither of these causes of action could possibly succeed, I also find for that further reason that they should be struck out.
Breach of the Fair Trading Act — against Kim and Lee
[108] I have already found that the causes of action in Liansen’s claim are time barred by being commenced outside the three year period provided for in s 43A of the Fair Trading Act. For the same reasons Jiawen’s claims under the Fair Trading Act which were commenced when she filed her notice of proceeding and statement of claim on 23 July 2021 are also time barred and must be struck out.
[109] I also note that Jiawen alleges that Kim and Lee engaged in misleading and deceptive conduct by instructing Hesketh Henry to transfer the GST component of the sale proceeds of 31 Chester Avenue to the IRD and by later producing a misleading repayment statement to Jiawen. It is however clear from the emails which are included and reproduced in full in Jiawen’s statement of claim, that upon receipt of Hesketh
Henry’s statement following the mortgagee sale she immediately saw that the firm was proceeding on the basis that the GST on the sale was required to be paid to the IRD. The statement of claim provides no particulars which would possibly justify the allegation that Hesketh Henry engaged in misleading and deceptive conduct in relation to their handling of their client’s instructions to recover the outstanding balance of the loan from Yintian Ltd and from Jiawen and her father as guarantors of the loan.
[110] Given the absence of any adequate particulars alleging misleading and deceptive conduct this cause of action against Kim and Lee as third and fourth defendants named in Jiawen’s proceeding, could not possibly succeed.
Conclusion
[111] For the reasons I have set out above all of the causes of action in both proceedings cannot possibly succeed. All of the claims against Kim and Lee, have in substance been brought previously and were struck out. And all of the causes of action brought against Hesketh Henry and against Kim/Cooper & Co, are in substance the same claims as were previously and unsuccessfully brought against Kim and Lee, reframed as claims against the solicitors and the real estate agent acting on their behalf and on their instructions. The bringing of these claims again is an abuse of process.
[112] As none of the causes of action against any of the defendants could possibly succeed, they will all be struck out.
Result
[113]All of the causes of action against all of the defendants are struck out.
[114] The defendants have succeeded and are entitled to costs. I direct the issue of costs to be dealt with by the filing of memoranda by the parties following which costs will be determined on the papers. No memorandum shall exceed three pages in length other than annexed schedules and supporting documentation. I make the following timetable orders:
(a)The defendants shall each file and serve a costs memorandum within 10 working days from the date of this judgment.
(b)The plaintiffs shall file and serve a costs memorandum in reply within a further 10 working days following service of the defendants’ costs memoranda.
(c)Should any of the defendants wish to respond to the plaintiffs’ costs memorandum, their reply memorandum is to be filed and served within a further five working days following receipt of service of the plaintiffs’ memorandum.
Paul Davison J
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