Mills v Feng
[2023] NZHC 2674
•26 September 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-212
[2023] NZHC 2674
UNDER the Insolvency Act 2006 IN THE MATTER
of the bankruptcy of WEIQIANG FENG (also known as BRIEN FENG)
BETWEEN
DAVID LAWRENCE MILLS and FIONNA
EILEEN MILLS as trustees of the MILLS FAMILY TRUST
Judgment Creditors
AND
WEIQIANG FENG (also known as BRIAN FENG)
Judgment Debtor
Continued …
Hearing: 5 September 2023 Appearances:
Katerina Wendt for the Judgment Creditors/Third Defendants Weiqiang Feng (also known as Brian Feng) is self-represented
Judgment:
26 September 2023
JUDGMENT OF ASSOCIATE JUDGE C B TAYLOR
[Application to set aside a bankruptcy notice and for strike out]
This judgment was delivered by me on 26 September 2023 at 3:00 pm
pursuant to Rule 11.5 of the High Court Rules
…………………………. Registrar/Deputy Registrar
MILLS v FENG [2023] NZHC 2674 [26 September 2023]
Continued …
CIV-2023-404-972 BETWEEN
WEIQIANG FENG (also known as BRIAN FENG)
Plaintiff
AND
RAY WHITE REMUERA
First Defendant
KAI WANG (also known as TONY WANG) Second Defendant
DAVID LAWRENCE MILLS and FIONNA
EILEEN MILLS as trustees of the MILLS FAMILY TRUST
Third Defendants
TABLE OF CONTENTS
Paragraph
Introduction [1]
Background [3]
Mr Feng’s application to set aside bankruptcy notice [9]
The Mills Trust’s opposition to the set aside application [11]
The Mills Trust’s application to strike out part of pleading [13]
Mr Feng’s opposition to strike-out application [15] Legal principles
Set aside bankruptcy notice [16]
Strike-out pleading [21]
Analysis [23]
Strike-out application [24]
The Mills Trust was aware Mr Feng was not the actual purchaser [25]
No valuation of the property [26]
Consent to re-sale of the property [27]
Breach of the Fair Trading Act 1986 [28]
Negligence by the Mills Trust [29]
Result in respect of strike-out [30]
Set aside application [32]
Orders [34]
Introduction
[1] Mr Weiqiang (Brian) Feng (Mr Feng) has applied to set aside a bankruptcy notice issued against him by David and Fionna Mills (the Mills) as trustees of The Mills Family Trust (the Mills Trust). This proceeding is filed in the High Court at Auckland under CIV-2023-404-212 (the 212 proceeding). The Mills Trust opposes Mr Feng’s application to set aside the bankruptcy notice.
[2] Mr Feng has issued proceedings against Ray White Remuera, Mr Kai (Tony) Wang (Mr Wang), and the Mills Trust in the High Court at Auckland filed under CIV-2023-404-972 (the 972 proceeding). The Mills Trust, as third defendants in the 972 proceeding, apply to strike out the part of Mr Feng’s statement of claim which is against them.
Background
[3] The Mills Trust initially agreed to sell a property situated at 22 Manapau Street, Meadowbank, Auckland (the property) to Mr Feng, who then nominated Mr Wang as purchaser under the sale and purchase agreement. Mr Wang subsequently failed to settle, and the Mills Trust was obliged to resell the property at a loss, which it sought to recover by way of summary judgment.
[4] On 7 December 2022, Lang J granted summary judgment jointly and severally against Messrs Feng and Wang to the value of $756,597.31.1 Mr Feng was legally represented at the hearing but did not take any steps to defend himself against summary judgment.2 There was no appearance for Mr Wang although there was an understanding he may be seeking to dispute service of the proceeding claiming he was overseas — something that Lang J said would be left to a set aside application if Mr Wang had such evidence.3
1 Mills v Feng [2022] NZHC 3278.
2 At [3].
3 At [4] and [5].
[5] Mr Feng subsequently applied for a stay of execution of Lang J’s judgment pending the Mills Trust’s enforcement of their judgment against Mr Wang, and the outcome of Mr Feng’s 972 proceeding against the real estate agent, Mr Wang and the Mills Trust. On 22 May 2023, Campbell J refused to grant such a stay.4
[6] In accordance with the Court’s 24 April 2023 order allowing substituted service of the bankruptcy notice dated 3 February 2023 (the bankruptcy notice),5 the Mills Trust served Mr Feng on 2 May 2023.6 That day Mr Feng filed an application to set aside the bankruptcy notice.
[7] Additionally, on 19 April 2023 Mr Feng filed the 972 proceeding. On 2 August 2023, the Mills Trust filed an application to strike out the parts of the pleading which relate to them. Mr Feng has subsequently filed an amended statement of claim dated 6 August 2023, in which the Mills Trust is still included.
[8] This judgment determines both Mr Feng’s application to set aside the bankruptcy notice and the Mills Trust’s application to strike out Mr Feng’s statement of claim against them.
Mr Feng’s application to set aside bankruptcy notice
[9] Mr Feng seeks orders setting aside the Mills Trust’s bankruptcy notice effectively served on 2 May 2023 and for indemnity costs.7
[10]The grounds on which the orders are sought are:8
1. Please refer to document marked “A” affidavit dated 2.5.2023 that Judgment debtor had claimed Judgment creditors and others with higher claim amount in this court that filed and served at 24.4.2023.
2. Please refer to document marked “B” affidavit dated 2.5.2023 that Judgment debtor had Judgment creditors to consent to stay the bankruptcy
4 Mills v Feng [2023] NZHC 1199.
5 Mills v Feng HC Auckland CIV-2023-404-212, 24 April 2023 (Minute of Associate Judge C B Taylor).
6 Affidavit of Katharine Charlotte Thornber confirming compliance with substituted service order dated 2 May 2023.
7 Interlocutory application to set aside judgment creditors’ bankruptcy notice dated 2 May 2023 at
(a) and (b).
At [1]–[3].
notice and consent Judgment debtor’s stay execution application until full determination of Judgment debtor’s claim in this Court had higher claim amount.
3. Judgment creditors did not consent the request and the cost issue for this matter should be indemnity as Judgment debtor’s claim fulfil the condition where Judgment debtor had the stay execution application under CIV 2022-404-1909 and statement of claim dated 19.4.2023 with higher claim as per document marked “A” affidavit dated 2.5.2023.
The Mills Trust’s opposition to the set aside application
[11]The Mills Trust opposes the application on the following grounds:9
2.1. On 7 December 2022 the judgment creditors obtained judgment in the Auckland High Court against Kai (Tony) Wang (Mr Wang) and Weiqiang (Brian) Feng (Mr Feng), jointly and severally. The total amount awarded, including interest and costs, was $756,597.31 (the Judgment Debt).
2.2. Following an application by the judgment creditors, Associate Judge Taylor made orders for substituted service of the Bankruptcy Notice on Mr Feng in a Minute dated 24 April 2023. The Minute also directed that the filing of an affidavit confirming compliance with the substituted service steps would deem service to have been effected on Mr Feng.
2.3. By email to the High Court on 2 May 2023 at 5:24pm, an affidavit was filed that confirmed compliance with the substituted service steps and therefore completed service of the Bankruptcy Notice on Mr Feng.
2.4. Mr Feng has advised that he has filed a statement of claim dated 19 April 2023 against the judgment creditors in the High Court (the Statement of Claim). The judgment creditors do not know whether the Statement of Claim has been filed or accepted for filing, and it has not been validly served.
2.5. The judgment debtor has no genuine and triable counterclaim, set-off or cross demand against the judgment creditors.
[12] The Mills Trust also further seek costs on this application and on their leave and substituted service application, which were reserved in the Court’s minute of 24 April 2023.
9 Notice of opposition to interlocutory application by judgment debtor to set aside judgment creditor’s bankruptcy notice dated 23 May 2023 at [2].
The Mills Trust’s application to strike out part of pleading
[13] The Mills Trust seeks orders that part of the statement of claim filed by Mr Feng, dated 19 April 2023, against its trustees as third defendants are struck out, and for increased costs.10
[14]The grounds on which the orders are sought are:11
3.First, Mr Feng’s claim against the third defendants discloses no arguable cause of action and is clearly untenable.
3.1. On 7 December 2022 the third defendants obtained summary judgment against Mr Feng and Mr Wang jointly and severally for amounts totalling $756,597.31 (the judgment debt) for losses and damages following Mr Feng’s and Mr Wang’s failure to settle the purchase of a property from the third defendants. Mr Feng was the named purchaser under the sale and purchase agreement and Mr Wang was the nominated purchaser.
3.2. Mr Feng was legally represented for that proceeding and did not oppose the entry of judgment against him.
3.3. The matters raised in Mr Feng’s claim against the third defendants provide no basis for any cause of action against the third defendants. Instead, Mr Feng is seeking to relitigate matters that were determined in the third defendants’ proceeding against him and now raise defences that he did not advance in the third defendants’ proceeding against him.
3.4. Even if those defences had been advanced by Mr Feng in the third defendants’ proceeding against him, they were irrelevant to the third defendants’ claim against him and would not have succeeded.
3.5. Mr Feng’s cause of action against the third (and other) defendants is for breach of the Fair Trading Act 1986. The third defendants were not ‘in trade’ for the sale of their residential property to Mr Feng and Mr Wang and for the purpose of the Act, and therefore no cause of action under the Act can succeed against them.
4.Second, Mr Feng’s claim against the third defendants is likely to cause prejudice or delay:
4.1.Mr Feng has pleaded irrelevant material and his pleadings disclose no cause of action against the third defendants.
10 Third defendants’ interlocutory application to strike out plaintiff’s claim against third defendants under r15.1 of the High Court Rules 2016 dated 2 August 2023 at [1].
11 At [3]–[6].
4.2.The intention of Mr Feng’s proceeding is to prejudice the third defendants and delay their enforcement of the judgment debt against Mr Feng.
4.3.Mr Feng has applied to set aside a bankruptcy notice served on him in respect of the judgment debt, and he has relied on his claim against the third defendant as a basis for setting aside the notice. The purpose of Mr Feng’s claim against the third defendants is simply to delay the bankruptcy process against him.
5.Third, Mr Feng’s claim against the third defendants is frivolous and vexatious, for the reasons set out above.
6.Fourth, Mr Feng’s claim against the third defendants is an abuse of the process of the Court, for the reasons set out above.
Mr Feng’s opposition to strike-out application
[15] Mr Feng has not filed a notice of opposition to the Mills Trust’s application to strike out his claim against it, but from his submissions dated 4 September 2023 the grounds of his opposition to the strike-out application appear to be:
(a)The Mills Trust were aware that Mr Feng was not the actual purchaser and the Mills Trust should not participate in a breach of the Overseas Investment Office’s (OIO) requirements by letting Mr Feng sign as purchaser in the first instance. Ray White Remuera, the first defendant in the proceedings, represents the Mills Trust as vendor and accordingly the Mills Trust are liable for any mistakes made by Ray White Remuera as the vendor’s agent.
(b)No valuation of the property was obtained before the re-sale, and the purchase price might be over-inflated in the sale and purchase between Mr Wang and the Mills Trust because of the OIO issues. The Mills Trust then re-sold the property under financial pressure and potentially below market price.
(c)A breach of s 9 of the Fair Trading Act 1986 by the Mills Trust, as vendor, when it remained silent and did not disclose the details of the discussion between the Mills Trust, Ray White Remuera as agent, and Mr Wang. Mr Feng alleges breach of the Fair Trading Act due to
conduct relating to breach of the OIO regulations, lack of a registered valuation before marketing the property, conduct relating to viewing the property, and the Mills Trust being responsible for any mistakes made by Ray White Remuera as the vendor’s agent.
Legal principles
Set aside bankruptcy notice
[16] The Court may set aside a bankruptcy notice if satisfied the debtor has complied with the notice’s requirements, or if the debtor has satisfied the Court that he or she has a cross claim against the creditor.12
[17] A cross claim is a counterclaim, set-off or cross demand that is equal to, or greater than, the amount the debtor has been ordered to pay, and that the debtor could not use as a defence in the action or proceeding in which the judgment was obtained.13
[18] The expression “could not use as a defence” usually connotes legal, rather than practical or factual impediments — a failure to take advantage of an opportunity will not suffice.14 There must be “cogent circumstances” for a judgment debtor to be able to establish a factual inability to set up the cross claim as a defence.15
[19] If a debtor does satisfy the Court that they have a cross claim, there is no relevant act of bankruptcy. In that case, the Court has no residual discretion to allow the bankruptcy notice to stand. But the cross claim must be “genuine” and “triable”, requiring the debtor to demonstrate that the claim has true substance and that they genuinely propose to pursue it.16
[20]In establishing the cross claim is genuine and triable, a debtor must show:17
12 Insolvency Act 2006, s 17(1)(d)(ii).
13 Section 17(7). See also Clark v UDC Finance Ltd [1985] 2 NZLR 636 (HC) at 637. The latter requirement reflects the principles of res judicata and issue estoppel: Flow Control Ltd v Il Forno Ltd [2021] NZHC 1159.
14 Flow Control Ltd v Il Forno Ltd, above n 13, at [21], citing Clark v UDC Finance Ltd, above n 13, at 630 and Hardy v Booth [1992] 1 NZLR 356 (HC) at 13.
15 Aluminium Plus Wellington Ltd v Shaw [2017] NZHC 2607 at [53].
16 Sharma v ANZ Banking Group (NZ) Ltd (1992) 6 PRNZ 386 (CA) at 389; and Wikeley v Jacomb
[2014] NZCA 146 at [37]–[40].
17 Mao v Kim [2021] NZHC 3253 at [33].
(a)there is a prima facie case that has a fair chance of success;18
(b)there is a degree of mutuality between the subject of the cross-claim and the underlying judgment debt;19
(c)the counterclaim, set-off, or cross-demand is sounding in money:20
(d)the cross-claim is against the creditor, not a third party;21 and
(e)the debtor [genuinely] proposes to pursue the cross-claim.22
Strike-out pleading
[21]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[.]
[22]There are established criteria for strike out:23
(a)A strike out application proceeds on the assumption the pleaded facts are true, unless those pleaded facts are entirely speculative or without foundation.
(b)The cause of action or defence must be clearly untenable.
(c)The jurisdiction is to be exercised sparingly and only in clear cases.
(d)The jurisdiction is not excluded by the need to decide difficult questions of law.
(e)The Court should be slow to strike out a claim in any developing area of the law, particularly where a duty of care is alleged in a new situation.
18 Clark v UDC Finance Ltd, above n 13.
19 Re Elvin, ex parte Sandilands [1990] 3 NZLR 124 (HC).
20 Robertson v ASB Bank Ltd [2014] NZCA 597 at [24].
21 Re Falloon, ex parte Bank of New Zealand HC Wellington B175/97, 12 August 1997.
22 Sharma v ANZ Banking Group (NZ) Ltd, above n 16.
23 Attorney-General v Prince & Gardner [1998] 1 NZLR 262 (CA) at 267; and Couch v Attorney- General [2008] NZSC 45, [2008] 3 NZLR 725 at [33].
Analysis
[23] In this judgment I propose to, first, deal with the Mills Trust’s application to strike out Mr Feng’s claim against it and, second, deal with Mr Feng’s application to set aside the bankruptcy notice issued by the Mills Trust against Mr Feng. Mr Feng’s main ground for seeking to set aside the bankruptcy notice is his claim against the Mills Trust under the 972 proceeding. If the Mills Trust’s strike-out application is granted, this will result in Mr Feng’s application to set aside the bankruptcy notice under the 202 proceeding being dismissed.
Strike-out application
[24] Ms Wendt, for the Mills Trust, in her submissions deals with each of Mr Feng’s grounds for resisting strike-out of the statement of claim as against the Mills Trust.
The Mills Trust was aware Mr Feng was not the actual purchaser
[25] In this respect, Ms Wendt submits that Mr Feng was named as purchaser on the sale and purchase agreement, and as such under the terms of the agreement, he remained liable for performance of the agreement notwithstanding Mr Wang was nominated as purchaser.24 She submits Mr Feng did not raise this in the summary judgment proceedings and, even if he had, the Mills Trust’s knowledge of the arrangements between Mr Wang and Mr Feng are irrelevant to Mr Wang and Mr Feng’s joint and several liabilities under the sale and purchase agreement.
No valuation of the property
[26] Ms Wendt submits that Mr Feng did not raise in the summary judgment proceedings the fact that no valuation of the property was provided, nor did he raise the issue that he did not view the property before he signed the sale and purchase agreement. She submits that even if he had, this is irrelevant to the Mills’ Trust claim against Mr Feng. The Mills Trust had no legal obligation to ensure any due diligence by Mr Feng, and that was his sole responsibility.
24 Mills v Feng, above n 4.
Consent to re-sale of the property
[27] As to Mr Feng’s argument that he did not consent to the Mills Trust’s re-sale of the property and no valuation of the property was obtained before re-sale, Ms Wendt submits that this was not raised in the summary judgment proceedings. Further she submits even if it had been, the evidence of Mr David Mills and Mr Matthew Gibson,25 given in the summary judgment proceedings as to the steps taken on re-sale of the property, make it clear that the Mills Trust did not in any way fail to mitigate its loss and proper steps were taken in respect of the re-sale of the property.
Breach of the Fair Trading Act 1986
[28] As to Mr Feng’s claim that the Mills Trust is in breach of the Fair Trading Act 1986, Ms Wendt submits that the Mills Trust were not “in trade” for the sale of their residential property to Mr Feng and Mr Wang for the purposes of the Act, and hence the Act has no application to them.
Negligence by the Mills Trust
[29] As to Mr Feng’s claim that the Mills Trust was negligent in allowing Mr Feng to sign the sale and purchase agreement and should have allowed the OIO and finance conditions to be inserted in the Agreement, Ms Wendt submits that again these matters were not raised in the summary judgment proceeding. She submits in any event Mr Feng has not identified any legal duty of care owed by the Mills Trust as vendor to Mr Feng and it was Mr Feng’s duty as purchaser to identify and request any sale conditions required by the purchaser prior to the parties signing the sale and purchase agreement.
Result in respect of strike-out
[30] I am of the view that Mr Feng’s claim against the Mills Trust should be struck out as none of the arguments he has put forward, in my view, are tenable. The reasons for this are as follows:
25 Affidavit of Matthew Blair Gibson in support of interlocutory application for summary judgment dated 3 October 2022.
(a)The fact that the Mills Trust may have been aware that Mr Wang was the actual purchaser, not Mr Feng, does not alter Mr Feng’s liability under the sale and purchase agreement having signed it as purchaser. This is confirmed in the judgment of Campbell J.26 Further, financial arrangements between Mr Feng and Mr Wang are irrelevant to Mr Wang and Mr Feng’s joint and several liabilities under the sale and purchase agreement.
(b)The fact no valuation of the property was provided, and that Mr Feng did not view the property before signing the sale and purchase agreement are irrelevant to his liability under the agreement. The Mills Trust, as vendor, had no legal obligation to ensure any due diligence was conducted by Mr Feng and this was his sole responsibility.
(c)The fact that Mr Feng did not consent to the Mills Trust’s re-sale of the property and no valuation of the property was obtained before re-sale is not a ground for a claim against the Mills Trust. Having reviewed the evidence of Mr Mills and Mr Gibson as to the steps taken on re-sale of the property, I can see no tenable argument by Mr Feng that the Mills Trust failed to mitigate its loss in respect of the re-sale.
(d)As to breach of the Fair Trading Act, I accept the Mills Trust was not “in trade” in respect of the sale of the property, and therefore the Act has no application to it.
(e)As to the claim of negligence by the Mills Trust, I find there was no duty of care owed by the Mills Trust to Mr Feng to ensure that any conditions which may have been required for the protection of the purchaser relating to OIO or finance were inserted into the agreement. It is clearly Mr Feng’s obligation to identify any conditions which may have been required to be inserted in the sale and purchase agreement for the protection of the purchaser.
26 Mills v Feng, above n 4.
[31] I am therefore of the view that none of the arguments put forward by Mr Feng are reasonably arguable and accordingly his claim against the Mills Trust should be struck out.
Set aside application
[32] Mr Feng’s application to set aside the bankruptcy notice relies on his proceedings filed against the Mills Trust, being the 972 proceeding.
[33] As I have reached the conclusion that Mr Feng’s claim against the Mills Trust should be struck out, he has no genuine triable cross claim in relation to the judgment debt that could not have been used as a defence in the action in which the relevant judgment was given. Accordingly, his application to set aside the bankruptcy notice should be dismissed.
Orders
[34]I make the following orders:
(a)Mr Feng’s statement of claim, so far as it relates to the Mills Trust in the 972 proceeding, is struck out.
(b)Mr Feng’s application to set aside the bankruptcy notice issued by the Mills Trust is dismissed. The bankruptcy proceedings will be listed in the next available Bankruptcy list in the High Court at Auckland.
(c)The Mills Trust are entitled to the following costs as against Mr Feng:
(i)costs on a 2B basis in respect of the Mills Trust’s opposition to Mr Feng’s application to set aside the bankruptcy notice of
$6,094.50 together with disbursements of $160.00, totalling
$6,254.50;
(ii)costs on a 2B basis in respect of the interlocutory application for leave to serve the bankruptcy notice overseas and orders for
substituted service of $1,434.00 together with disbursements of
$500.00, totalling $1,934.00;
(iii)costs on a 2B basis in respect of the Mills Trust’s application to strike out Mr Feng’s claim against them under the 972 proceeding, together with disbursements as fixed by the Registrar.
…………………………….. Associate Judge Taylor
Solicitors:
Powle & Hodson (Donna Powle), Newmarket, Auckland, for the Judgment CreditorsCopy for:
Katerina Wendt, Barrister, Richmond Chambers, Auckland, for the Judgment Creditors Brian Feng, Beachlands, Auckland, Judgment Debtor/Plaintiff in CIV-2023-404-972
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