Ming Shan Holdings Ltd v Ma HC Auckland CIV-2000-404-001597

[2007] NZHC 2105

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2000-404-001597

BETWEEN  MING SHAN HOLDINGS LTD Plaintiff

ANDTAI YAN MA AND SHU JUAN ZHANG First Defendants

AND  YING MA

Second Defendant

ANDMING SHAN INTERNATIONAL FINANCIAL SERVICES LTD Third Defendant

ANDMING SHAN INTERNATIONAL SHAREBROKERS LTD

Fourth Defendant

ANDMING SHAN INTERNATIONAL PUBLISHING LTD

Fifth Defendant

AND  WEINAN MA

First Counterclaim Defendant

AND  TAI SHAN MA

Second Counterclaim Defendant

ANDAUCKLAND PLASTIC FACTORY LTD Third Counterclaim Defendant

ANDMING SHAN SHAREBROKERS LTD Fourth Counterclaim Defendant

ANDMING SHAN COMPANY (NZ) LTD Fifth Counterclaim Defendant

ANDMING SHAN PUBLISHING LTD Sixth Counterclaim Defendant

Hearing:         12 September 2007

MING SHAN HOLDINGS LTD V MA AND ORS HC AK CIV-2000-404-001597  12 September 2007

Appearances: Mr T Banbrook for counterclaim plaintiffs

Mr S W B Foote for counterclaim defendants

Judgment:      12 September 2007

(ORAL) JUDGMENT OF LANG J

[on application by defendants for further security, alteration of costs categorisation and further and better discovery

and by plaintiffs for order discharging and/or varying preservation orders]

Solicitors:

Mr T Banbrook, Auckland Mr S W B Foote, Auckland Mr R J Katz, Auckland

[1]      The trial of this proceeding began before me on 21 May 2007.   At that stage it was estimated to last three weeks.     At the end of three weeks, however, the plaintiffs’ case had not concluded.    Indeed approximately four weeks into the trial we are only now at the stage where the defendants have opened their case and called one witness.   That witness is yet to be cross-examined.

[2]      Counsel now estimate that at least three further weeks will be required to complete the trial.   This means that the original estimate of three weeks was some four weeks shy of the mark.   Obviously this is a significant factor and it is one that has many consequences.     Some of those consequences are reflected in the applications that are before me today.

[3]      There are in fact four separate applications before me.   The first of these is for an order re-classifying this proceeding as a Category 3 proceeding rather than a Category 2 proceeding.     The second is for an order that the plaintiffs provide increased security for costs to reflect the length and duration of the trial.   The third is an application by the plaintiffs for an order that they be permitted to have resort to funds and/or property that is currently the subject of a preservation order.   The final application is for an order requiring the plaintiffs to provide further and better discovery.

[4]      I begin by considering the application for change in costs categorisation.

Costs categorisation

[5]      At present, the proceeding is a Category 2 proceeding.   It has proceeded on that basis since the proceeding was commenced in 2000.    Numerous interlocutory applications have been heard and determined on the basis that the costs payable in respect of those applications should be paid on a Category 2 basis.   The defendants now suggest, however, that several factors  indicate  that  the  costs  categorisation should be altered and that the proceeding should become a Category 3 proceeding.

[6]      The  difference  between  the  two  categories  is,  of  course,  the  skill  and experience that is required of counsel appearing in the proceeding.     Category 2 proceedings are proceedings in which the parties can be properly represented by

counsel having average skill and experience in civil proceedings in the High Court. Category 3  proceedings  involve  issues  of  fact  or  law  of  special  complexity or importance and in which the engagement of senior and experienced counsel is warranted.

[7]      Counsel for the defendants suggest that the following factors indicate that the change in costs categorisation is warranted:

a)        The length of the trial, now estimated to be seven weeks;

b)The fact that the subject matter of the trial is historical events that occurred in two foreign countries;

c)       The fact that much of the documentary evidence that the Court will be required to examination is written in Chinese.     These documents cover matters of political, financial and legal significance.

d)The fact that the trial has involved the use of interpreters, both to translate documents and also to interpret the oral evidence given at trial.

e)       The evidence is said to be complex.    In particular, evidence is to be called regarding relevant aspects of Chinese law.     In addition, the defendants  will  be  calling  evidence  in  relation  to  the  political, financial and economic policies of China during periods material to this proceeding.

f)        Difficult and complex legal issues are likely to arise as a result of the issues to be determined in the proceeding.   Included in these will be applicable law to be applied and also issues relating, for example, to the law in respect of breach of trust in China.

[8]      Counsel for the defendants submits that although this proceeding may have started life as a simple claim for money had and received, it has now developed into

something that is much more complex.   He submits that all of the factors to which I

have referred should persuade me that a re-categorisation is now appropriate.

[9]      I do not discount the possibility that I may ultimately accept that the costs categorisation of this proceeding should be changed in some respects.   In particular, I accept that the preparation for trial and the trial itself involved difficulties so far as counsel are concerned that are beyond the norm.   I consider, however, that it would be wrong at this stage to determine that issue.   The trial is just past its mid point, and I am not yet sure of the precise nature of the issues that will ultimately need to be determined.    For that reason I would prefer to leave the issue of re-categorisation until such time as those issues are clear.   That may not be possible until such time as I have actually delivered my judgment.

[10]     There is another issue that also persuades me that it would not be appropriate at this stage to make the order that the defendants seek.    This flows from the fact that the parties to date have all proceeded on the basis that this is a Category 2 proceeding.    Orders in relation to security for costs have been made on that basis and the plaintiffs had prepared for trial on the basis that they may be required to contribute to costs on a Category 2 basis.   I consider that it would be unfortunate at this stage, particularly given the fact that there is a further application for security that needs to be determined, if the costs category was changed mid-stream.

[11]     All of these matters persuade me that it is premature to consider this issue, and that the earliest time that it should be reconsidered is the point at which the trial proper has been completed.     For those reasons I dismiss the application for re- categorisation for the costs category of this proceeding.

Security for costs

[12]     I now turn to consider the application for further security for costs.   I begin by observing that there is no barrier to the Court making an order requiring further security to be provided.    Such orders are routinely made in circumstances where trials, for whatever reason, go beyond their allotted duration.

[13]     The ability to require a plaintiff to provide increased security merely reflects the fact that the Court should take into account changing circumstances, and the duration of the trial is one of these.   That is particularly important in circumstances where the plaintiff may acknowledge that it is impecunious, and therefore unlikely to be able to meet an order for costs in the event that its claim is unsuccessful.   For that reason I do not consider that there is any jurisdictional barrier to the Court making an order requiring the plaintiffs to provide further security.

[14]     It is also relevant to note that the plaintiffs themselves readily accept that they are impecunious.   They accept that it is highly unlikely that they will be able to meet an award of costs in the event that their counterclaim does not succeed.    There is therefore jurisdiction in that sense for a further order to be made.

[15]     There are, however, a number of factors about this case that persuade me that it would be inappropriate to make an order requiring the plaintiffs to provide full security as the defendants seek.   If I was to adopt that course of action, I would need to require the plaintiffs to provide further security in the sum of approximately

$144,000.   Given that security to date has amounted to just $97,000, I have no doubt that the plaintiffs would face real difficulties in the event that they were required to provide increased security in that sum at short notice.

[16]     I have reached the conclusion for several reasons that, if further security is to be ordered at all, it should only be in a modest sum.   The first of these is the manner in which the extended duration of the trial has come about.

[17]     The  plaintiffs’  case  consisted  of  oral  evidence  from  just  two  witnesses. These were Tai Yuan Mä and his wife, Shu Juan Zhang.   Mr Mä gave his evidence in chief over a period of one and a half days.    He was then cross-examined for a total of nine days by counsel for the defendants.   The oral evidence in chief of Shu Juan Zhang occupied just one day.   She was then subject to five and a half days of cross-examination.    As a result, the plaintiffs’ case took more than three weeks to complete.   It will be obvious from what I have said that the principal cause of that was the length of the cross-examination of the two witnesses called on behalf of the

plaintiffs.     By any standards the duration of that cross-examination can only be described as extraordinary.

[18]     In saying this, I do not intend to criticise counsel for the defendants for the length of the cross-examination.    It may ultimately prove to have been necessary, and indeed of importance to the outcome of the proceeding.

[19]     The real issue here, however, is that security for costs was originally ordered on the basis of the time estimate that both counsel provided.    Originally counsel estimated that the trial was likely to occupy two weeks.   In the course of a hearing before  Heath  J  on  18  May  2006,  however,  they accepted  that  a  more  realistic estimate was one of three weeks.    It was on that basis that I subsequently made orders requiring the plaintiffs to provide security for costs.

[20]     During the various interlocutory hearings that have occurred throughout this proceeding I have constantly been reminded by counsel for the defendants that the trial would be a lengthy affair in which detailed and close analysis would be undertaken of the documentary exhibits.     It must therefore have been clear to counsel that some considerable time would be needed in order to cover the various issues that arise for determination.   In those circumstances, it is difficult to see how the time estimate could have been so woefully short of the mark.

[21]     I gained the impression in fact that, even during the course of the trial, counsel for the defendants was unsure as to how long his own cross-examination was likely to take.    This point is illustrated by an example that I provided to counsel during the hearing today.    At 5 pm on Wednesday, 30 May 2007, counsel for the defendants advised me that he was “desperate to finish” the cross-examination of Tai Yuan Mä and that he would not be too much longer.     On the following day I was required to conclude the day’s hearing at 4.30 pm in order to attend to another engagement.   Counsel for the defendants advised me at that time that, if I had been able to sit through until 5 pm, then he thought he would have been in a position to complete his cross-examination.   Based on that advice I assumed, optimistically as it turns out, that he had approximately 30 minutes further cross-examination to cover.

[22]     On  the  following day,  however,  counsel  for  the  defendants  continued  to cross-examine until 5 pm.   Both counsel were aware that the Court could not sit the following week because of the fact that I was due to be on leave.   When the hearing concluded on Friday, 1 June 2007, counsel for the defendants suggested that if I was in Auckland the following week then consideration should be given to resuming the hearing because he had approximately one hour of cross-examination to complete. Thankfully I declined that invitation, and the hearing resumed on 11 June 2007. Counsel for the defendants continued to cross-examine Mr Mä for the whole of that day and then for at least a further hour on 12 June 2007.

[23]     Again, I emphasise that I do not criticise counsel for the defendants for the duration of the cross-examination.   The point that I emphasise, however, is that even during the course of the hearing it seems that counsel was unable to make any realistic estimate as to the length of time that his cross-examination would take.

[24]     When I put these matters to Mr Foote, who did not appear as counsel for the plaintiffs during the trial, he made a number of valid points in reply.   He observed that the transcript of the evidence suggests that Mr Mä gave convoluted answers and answers that were not on point.   These took some time to interpret and to transcribe. He also pointed out that many of the issues were quite complex, and needed to be covered with Mr Mä in some detail.

[25]     I  accept  that  these  submissions  are  not  without  merit.      Mr  Mä  was undoubtedly a difficult witness to cross-examine and his answers were often prolix. He also tended to wander off the point.    Nevertheless, even these factors do not adequately explain why the time estimate for the trial was so manifestly inadequate.

[26]     In saying that, there is also some force to Mr Banbrook’s submission that many documents were referred to Mr Mä on numerous occasions at very stages during the cross-examination.     This suggests that at least parts of the cross- examination may have covered territory that had already been covered earlier in the piece.

[27]     The extent to which the trial has now been extended inevitably gives rise to further problems.    The first and most pressing of these is the fact that it is now necessary to find further fixture time within which to complete the trial.    At this stage the earliest date upon which the trial may be resumed is 22 October 2007, when approximately two weeks may be available.   Thereafter it will be a matter for the Registry to determine whether any further time can be allocated to the hearing before the end of the year.   There is therefore the realistic prospect that the trial may not be able to be concluded until the first quarter of 2008.   As a result, there looms the unhappy prospect that the trial may conclude some 11 or so months after Mr Mä was first called to give evidence.

[28]     This gives rise to very real practical difficulties for both counsel and the Court.   It potentially also gives rise to an argument on appeal that the trial was so truncated that the Judge could not fairly be expected to have retained important aspects of the evidence that was given on behalf of the plaintiffs.

[29]     These factors suggest to me that it is imperative that I do not make an order requiring the plaintiffs to provide further security that would effectively prevent the trial from resuming as soon as is practicable.   That factor, in my view, coupled with the fact that the duration of the trial has been extended as a result of the length of cross-examination of the plaintiffs’ witnesses, means that my approach to security is considerably different than the approach that I would have taken if I had been asked to determine the issue of security for a trial of seven weeks duration prior to the commencement of the trial.

[30]     The evidence adduced in opposition to the application suggests that, to date, the   plaintiffs   have   obtained   funding   from   outside   sources   amounting   to approximately $250,000.   Of that sum, the sum of $97,000 has been paid into Court by  way  of  security  for  the  defendants’  costs.      The  balance  has  largely  been subsumed in the costs of the trial.

[31]     The plaintiffs have adduced evidence to the effect that they are impecunious and that they do not have the ability to borrow further monies.   For that reason their counsel submits that any order for further security is likely to prevent them from

continuing further.     That would obviously be an extremely unfortunate outcome given the extent to which time and resources have been invested in the proceeding to date.

[32]     I do not, however, accept that the plaintiffs will be unable to provide any further security at all.    I consider that the fact that the plaintiffs have already been able to obtain access to approximately $250,000 suggests that, provided the amount is not too substantial, it is likely that they will be entitled to obtain access to further funds.

[33]     Another important factor is, of course, the fact that it is virtually inevitable that if the plaintiffs do not succeed in their counterclaim then the defendants will be left without any real ability to recoup their costs.

[34]     For these reasons I am satisfied that some further modest security should be provided.     I say modest, because I am conscious that any substantial order for security at this stage is likely to prevent the trial from resuming on 22 October 2007. That outcome could have disastrous results for all concerned.

[35]     I therefore propose to direct that the plaintiffs provide further security in the sum of $24,000.    That equates to the costs payable in respect of three weeks of hearing time.   I do not propose to make an order requiring the plaintiffs to provide security for further preparation time or for second counsel.   Second counsel to date has largely been conspicuous by his absence, and I do not consider that it would be appropriate to make an order requiring security to be provided in relation to preparation when that would simply create an obligation on the part of the plaintiffs that they would be unable to fulfil before October.

[36]     I therefore direct that the plaintiffs are to provide security in the sum of

$24,000.    That sum is to be paid to the Registrar no later than Friday 19 October

2007.

Discharge and/or variation of preservation order

[37]   The plaintiffs have applied for an order discharging and/or varying a preservation order that was originally made by this Court on 29 August 2000.   That order  was  subsequently varied  by an  order  made  by  Master  Kennedy-Grant  on

11 September 2000.    On 8 April 2005 Cooper J heard a further application by the plaintiffs for an order discharging or varying the preservation orders.   He dismissed that application in a judgment delivered on 4 August 2005.   The plaintiffs now seek to bring a second application to discharge and/or vary the preservation orders.   As a result, they need the leave of the Court to do so.

[38]     The Court is empowered to grant leave to an applicant to bring a second interlocutory application in circumstances where special circumstances exist:  r 262. In the present case the plaintiffs contend that special circumstances exist by virtue of the following matters:

a)       The effluxion of time between the first application in 2005 and the present application.

b)The fact that the earlier application was made prior to the completion of discovery and inspection.

c)       The fact that the earlier application was made prior to the completion and delivery of the briefs of evidence of the plaintiffs and before the compilation of the combined trial documents.

d)The fact that the earlier application was heard and determined prior to the evidence of the plaintiffs being adduced in Court.

e)       The  fact  that  the  earlier  application  was  also  heard  prior  to  the evidence given at trial by the defendant Lin Li.

[39]     Counsel also submits that there is new evidence available in the form of aspects of the evidence given at trial.    He submits that, when viewed overall, the

above matters amount to a material change in circumstances and that special circumstances exist.

[40]     I do not consider that any real significance can be attached to the effluxion of time between the earlier application and the present.    All that has happened in the interim is that the parties have prepared for trial and in the course of this process they have prepared their briefs of evidence and the bundle of documents.    For similar reasons I do not consider that any real importance can be attached to the fact that discovery and inspection had not been completed at the time that the earlier application was heard.     Nothing in the way of documentary evidence has been produced before me or at trial to radically alter the situation since the date that Cooper J heard the earlier application.

[41]     In reality, the present application is based on an argument that the case for the counterclaim plaintiffs is now before the Court, and that it materially alters the position as it was known at the time that Cooper J heard the earlier application.

[42]     I accept that in some cases the evidence at trial may so radically alter the factual basis on a  claim is made that the essential basis upon which an  earlier application was decided is removed.   In the present case, however, that is simply not the case.   The issues that Cooper J refers to in his judgment as being required to be determined at trial remain essentially the same.   The only thing that has changed is that the witnesses for the plaintiffs have now given their evidence, and I have the ability to consider all of the documents that are to be produced by the parties.

[43]     I do not propose to go into the evidence in any detail because it would be improper of me to do so given the stage that the trial has now reached.   Similarly, it would be wrong of me to give any indication of even tentative views that I may have reached based on the evidence that I have heard thus far.   All of the evidence needs to be completed before I can properly do that.   Any other approach would be to risk bringing a closed mind to the proceeding.

[44]     The best that I can say is that the plaintiffs may now be at the stage where they have produced a case to answer.    This, however, is based solely on the oral

evidence of the plaintiffs’ witnesses.    It is also supported to some extent by the documentary evidence that has been produced.    I need to bear in mind, however, that the admissibility of a great deal of that evidence is still in dispute and until issues of admissibility have been finally determined it will not be possible for me to define the scope of the evidence with precision.

[45]     Similarly,  the  oral  evidence  of  the  plaintiffs  will  need  to  be  considered against the backdrop of all of the contemporaneous documentary evidence.    These issues become more complicated in the present case because the defendants claim that certain documents that are likely to be important to the plaintiffs’ case are forgeries.

[46]     All of these matters persuade me that, although the scope of the evidence that is now available is undoubtedly wider than was the case before Cooper J, the overall situation has not changed.   I therefore do not consider that it can realistically be said that special circumstances now exist that would warrant revisiting the issue of a possible discharge of the preservation orders that this Court has already determined to be necessary.    For those reasons I would not be prepared to grant leave to the plaintiffs to bring a second application.

[47]     Even if I had been minded to grant leave, I would not have been prepared to exercise my discretion to make the orders that the plaintiffs seek.    It needs to be remembered that the preservation orders were made in order to preserve assets in respect of which the defendants claim they have a proprietary interest.    In simple terms, the defendants claim that they own the money and the real property that is currently the subject of the preservation orders.

[48]     The plaintiffs are asking the Court to vary the existing orders so that they may have recourse to those assets in order to fund the future costs of this litigation. It goes without saying that any funds that may be released to the plaintiffs will inevitably be expended on legal costs and disbursements.    As a result, they will never be available to the defendants in the event that the defendants succeed in showing that they have a proprietary interest in the assets.

[49]     There  is  another  aspect  to  the  matter.      The  plaintiffs  advance  their application on the basis that they need to have recourse to the assets in order to be able to meet the future costs of the litigation.   To date, however, they have been able to  fund  the  litigation  from  outside  sources.      As  I  have  already  indicated,  the evidence confirms that the plaintiffs have obtained loans totalling approximately

$250,000 from relatives in order to fund the proceeding.   This has enabled them to satisfy earlier orders requiring them to provide security for the defendants’ costs and also to meet their own legal costs.

[50]     As I have already indicated, I do not accept that further funding will not be available to the plaintiffs.     They have already been able to gain access to very significant sums of money.    In the event that they genuinely wish to complete the trial of this proceeding and have their claim determined, I have no doubt that they will find the wherewithal to do so.

[51]     For these reasons I have reached the conclusion that no special circumstances exist that would justify me in disturbing the orders that have now remained in place for nearly seven years.   Even had I been prepared to grant leave, I would not in the present circumstances have been prepared to release any part of the property to the plaintiffs in order to enable them to meet their legal costs.

[52]     The application for leave to lodge a second application is dismissed.

Further and better discovery

[53]     I now turn to the final application, which is the application for further and better discovery.     Counsel have been able to reach agreement in respect of this application.   I therefore make directions by consent in terms of paragraphs C1, 2 and

3 of the amended application dated 20 August 2007.    The only variation to those orders is that the reference to 10 days in paragraph C2 should be a reference to 14 days.

Costs

[54]     The defendants have succeeded in relation to the application for discharge and/or variation of the preservation order and have partially succeeded (but also partially failed) in relation to the application for further security for costs.     The defendants have also failed in relation to the application for costs re-categorisation. The application for further and better discovery has been resolved by consent, although the application was necessary because of the failure of the plaintiffs to respond to earlier correspondence.

[55]     In those circumstances I consider that the interests of justice will be served by making a single award of costs and disbursements in favour of the defendants in relation to one interlocutory application.    Costs are to be calculated on a Category

2B basis.   They are also entitled to the costs of preparation and for appearance at the hearing on the basis of one quarter of a day.

Next event

[56]     Counsel should liaise with the Fixtures Registrar regarding the resumption of this trial.   At this stage it is anticipated that the trial may be able to be resumed on

22 October 2007.

Lang J