Mo v Tamaki Homes Limited

[2019] NZHC 3032

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-2619

[2019] NZHC 3032

BETWEEN

QINGHUA MO and YU HUANG

First Plaintiffs

AND

TAMAKI HOMES LIMITED

First Defendant

ZHE YANG and JACKSON ING WEI LAW

Second Defendants

CIV-2019-404-1927

BETWEEN

QINGHUA MO and YU HUANG
First Plaintiffs

AND

ZHE YANG and JACKSON ING WEI LAW

Defendants

continued: …/2

Hearing:	14 and 15 November 2019
Appearances:	G S D Wiles and R Kaur for Plaintiffs I Hutchison for Defendants
Judgment:	20 November 2019

ORAL JUDGMENT OF ASSOCIATE JUDGE BELL

Solicitors/Counsel:

DX Law Ltd, Auckland – S Hou

Croftfield Law Ltd, Wairau Valley, Auckland G D Wiles, Barrister, Auckland

I Hutchison, Barrister, Auckland

MO and HUANG v TAMAKI HOMES LTD [2019] NZHC 3032 [20 November 2019]

…/2

CIV-2019-404-997

BETWEEN  QINGHUA MO and YU HUANG

First Plaintiffs

D H & P M LIMITED
Second Plaintiff

AND  ZHE YANG

First Defendant

YAN YANG

Second Defendant

CIV-2019-404-506

BETWEENZHE YANG and JACKSON ING WEI LAW

Plaintiffs

AND  D H & P M LIMITED

First Defendant

QINGHUA MO and YU HUANG

Second Defendants

[1]        On 14 and 15 November 2019, I heard three applications. After hearing each application, I gave a ruling. This decision gives those rulings.

The plaintiffs’ application for further discovery in CIV-2018-404-2619

[2]         Zhe Yang and Jackson Ing Wei Law carry on business as property developers in Auckland.   For some of their projects they received finance from the plaintiffs.     I will accordingly refer to the plaintiffs as the financiers and the defendants as the developers. Tamaki Homes Ltd is a company of which the developers are directors. It is a vehicle through which they have carried out developments around Auckland. They also have a project management company, Vinjax Ltd.

[3]        CIV-2018-404-2619 relates to a development at 12 Ropata Avenue, Point England, Auckland. In their amended statement of claim of 30 August 2019 the financiers say that they and the developers made an agreement in about July 2015, under which the financiers would take title to a townhouse to be constructed on a subdivided lot at 12 Ropata Avenue. Title was held in the name of Tamaki Homes Ltd. They plead that they would contribute $400,000, which would be applied towards the purchase of the property and the construction of five townhouses. Payment of the

$400,000 would give them an equitable interest in the property pending the completion of the subdivision. The developers were to obtain all the necessary consents and to construct the townhouses at their own cost. They were to complete the job by December 2016. The financiers say that they made payments totalling $409,000 between September 2015 and 19 April 2016. They made further contributions between May 2015 and June 2017 amounting to $995,000 and, in or around November 2016, they made further cash payments totalling $112,200. They say that all up their contributions come to $1,516,000.

[4]        While they were to take one lot in the subdivision, they say that the defendants tried to sell all the lots without consulting them. They lodged a caveat. I understand that the issue of title has been held up because of the caveat, and, more recently, because of a charging order they obtained. They also say that the developers borrowed funds from FM Custodians Ltd. The borrowed funds stood at $1,800,000 at

May 2018. FM Custodians’ borrowings were secured by first registered mortgage and that was in breach of what had been contracted.

[5]        The financiers sue the developers for breach of contract. Alternatively, they claim a resulting trust and, as a third cause of action, make claims under the Fair Trading Act 1986.

[6]        The developers deny the arrangements alleged by the financiers. They say that there was no agreement which lot the financiers were to have. It was agreed that they would have a house on a lot at cost price. They plead that there was no specific agreement as to what ‘cost price’ meant. On their side, they would include a wide range of costs including holding costs, subdivision costs, acquisition costs, development costs, construction costs, management costs, materials and labour costs, interest where applicable and other monies spent on completing the development. They accept that the financers were to contribute $400,000 to assist in the purchase of the property. They also say that the design of the townhouses was left entirely to them.

[7]        They deny that all the payments made by the financiers were applied towards the Ropata Avenue project. They plead that some payments were applied to other projects as well. I note that some of the other projects are the subject of other proceedings.

[8]        Standard discovery was directed, that is, discovery on the adverse documents test. The defendants provided an affidavit of documents. The financiers were not satisfied with that and filed an application for further discovery. The developers filed a supplementary affidavit of documents, but the financiers say that the matters for which they sought discovery remain unsatisfied.

[9]        The application for further discovery is made under r 8.19 of the High Court Rules 2016. The parties agree that the matters outlined by Asher J in his Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd decision apply to applications for

further discovery.1 So far as this application is concerned, the key considerations are relevance and proportionality.

[10]      The schedule to the application for discovery sets out eight groups of documents. The first group sets out an extensive schedule of invoices which the developers have discovered. The date of the invoice, the supplier, the person invoiced and the amount are all set out. The discovery requisition is to provide bank statements showing entries corresponding with payments of the invoices set out in the schedule.

[11]      The relevance of this matter goes to the developers’ claim that the financiers would acquire title to a unit at cost price. The financiers wish to establish what costs were incurred in carrying out the development. While they have been presented with invoices, they are not satisfied that those invoices reflect the actual costs of development. They therefore wish to see documents that are evidence of payment. The developers have disclosed bank statements. They say that the bank statements they have disclosed will include records of payments which can be matched up to the invoices.

[12]      Obviously, an accounting analysis is required. I put it to Mr Hutchison, for the developers, that the financiers might say that while suppliers may have sent invoices, they may not have been paid. It is possible, for example, that the developers may consider that a supplier has over-charged and may have paid only part of the invoice. If they have only part-paid an invoice, it would not be appropriate for them to claim the face value of the invoice as a cost incurred. Some way needs to be found to check against that. Mr Hutchison advised that his client is presently undertaking a reconciliation of invoices against records in bank statements. That would usefully assist the parties in establishing the actual costs of development. Mr Hutchison said that while that is underway, he could not give a definite completion date. He also took the point that we are concerned only with a discovery application and that goes only to disclosure of documents.

1      Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd [2015] NZHC 2760, [2018] NZAR 600 at [14].

[13]      Nevertheless, it is important to see that, if possible, such accounting matters can be clarified in an efficient way. For this matter of records of costs, I leave the defendants to provide a reconciliation within four weeks — 5 December 2019. If required, I would put that as a particulars direction to be satisfied by the developers by that date. In other words, the particulars would give a reconciliation of documents that have already been discovered.

[14]      That satisfies the matters sought under the schedule to the discovery application under groups 1, 4, 5 and 6. If the financiers consider that the particulars given by 5 December do not satisfy what they are after, they should request a conference which should be brought on at short notice for further directions to be given.

[15]      I now deal with the other matters. Under group 2, the financiers request legible copies of documents that have been discovered. Mr Hutchison accepts the point that the copies provided are not legible and he undertakes to provide legible copies.        I expect that to be attended to within two weeks.

[16]      The third group is copies of valuation reports. The developers’ discovery includes invoices for valuations for Tamaki Homes Ltd. I accept the financiers’ submission that valuations of the property during the development are relevant. They will be relevant for establishing the costs incurred in the course of development or the value of what has been provided. Value may be relevant because the financiers have sought specific performance. Specific performance is a discretionary remedy. The court may instead award monetary compensation. That being the case, the value of the lot intended for the financiers would have a bearing on the relief to be awarded by the Court, as well as the values of all the lots. In response, Mr Hutchison said that the particular invoices were for reports that did not relate to the Ropata Avenue development. Ms Kaur is satisfied that they did relate to the Ropata Avenue development. The requisition is quite simple: to provide the reports if they relate to the Ropata Avenue development. That is to be attended to within two weeks.

[17]      Group 7 seeks disclosure of various reports. One, a spending report to be signed off by a chartered accountant to show how much had been spent each month

and the total amount spent to date. The second is a cost report to show the total cost of each unit. The third is a QS report for each phase of the development. The developers say that they have provided an interim cost report as the second document and that the other two documents do not exist. I accept their evidence on that point. Mr Wiles, for the investors, did not seriously contest that. It led to discussion whether the developers had provided reports to their financier when they made draw-downs. Those reports might usefully show either the costs incurred for the development up until the date of draw-down or the value of the work carried out. They would be relevant to costs incurred and the value of the development. While they were not specifically sought in the application, the documents would be discoverable under     r 8.18(2) of the High Court Rules and should be disclosed.

[18]The eighth group seeks these documents:

(a)the loan agreement between Tamaki Homes Ltd and First Mortgage Trust;

(b)Tamaki Homes Ltd’s annual reports;

(c)investment agreements relating to 12 Ropata Avenue between the defendants and any other investors; and

(d)Watercare documentation corresponding to payments made by Tamaki Homes Ltd.

[19]      As to the first, the developers have admitted that they made a loan agreement with FM Custodians, that being the First Mortgage Trust, and a mortgage was registered against the title to the property. The fact of the loan agreement is not in issue, but Mr Wiles makes the point that as the developers say that their interest charges are part of the costs which should be charged to the financiers then interest charges under the loan agreement ought to be disclosed. The developers might wish to consider whether finance charges are part of the costs to be charged to the financiers. If they wish to continue with that then they will need to disclose documents showing interest charges incurred.

[20]      On the second item, if Tamaki Homes Ltd was a single project company, I would require disclose of its annual reports, but the developers say that it undertakes other projects on other sites and its annual reports are therefore not likely to provide useful information for ascertaining the costs of development at 12 Ropata Avenue. Agreements with other investors are not relevant to the issues in this case. The Watercare documentation goes to the question of costs generally and is covered by the orders I have already given.

The defendants’ application for further discovery in CIV-2018-404-2619

[21]      The developers’ discovery application is directed at requiring the financiers to provide documentary verification for payments which they have alleged in their statement of claim. The financiers resist, saying that they have already provided discovery showing the payments challenged by the defendants.

[22]      The background is that the plaintiffs financed the developers in a number of projects in Auckland. There is a dispute as to the total amounts paid and as to which projects particular payments were allocated. Each side has retained independent forensic accountants to examine the matter more fully.

[23]      According to Mr Hutchison, the financiers allege that their contributions over all the projects are about $3,200,000, whereas the developers acknowledge payments of only $1,800,000. Ordinarily one would expect that these matters could be resolved by producing bank statements and showing transfers of funds between one side and the other. The matter is not, however, quite so straightforward. The financiers say that in some cases they made payments in cash. They also say that they were requested to make payments to people nominated for payment by the developers and, in some cases, they made payments not to the developers directly but to their relatives. In other cases, the funds came not from the financiers but from their associates and relatives.

[24]      To a large extent this matter may be self-regulating. Each side will be conscious that they will need to provide the best evidence that they can on the matters in issue. Where they have not provided documents to support their side of the case, an inference may be drawn against them because of the absence of documents. As an example, if the financiers establish that they made a payment and show that the

destination for the payment was a bank account of the developers and the developers do not produce a bank statement for that period, there may be an inference that any bank statement they hold is likely to record the payment. The absence of disclosure would count against them.

[25]      The way that the financiers have pleaded their statement of claim is relevant. They have pleaded payments made for the Ropata Avenue job in three paragraphs. In paragraphs 5 and 8 of their statement of claim, they have pleaded each payment they rely on; they have given the date of each payment, the amount of the payment and the payee. In some cases, the payee is not the first and second defendants, but the wife or the sister of Zhe Yang, the first-named second defendant. The bank accounts into which the payments were made are expressly pleaded. Obviously, to plead those account numbers, the financiers must have documents identifying the accounts into which the payments were made. If so, it is a simple matter for the financiers to check that they have included in their discovery the documents they relied on to plead the accounts to which they made their payments.

[26]      Paragraph 9 of the statement of claim pleads payments under the heading “Cash Contribution”. The financiers have provided bank statements showing entries described variously as “withdrawal” or “cheque/withdrawal”. I was advised that where an entry shows only “withdrawal”, that is a withdrawal of cash only. The financiers say that they have no more documents to prove those payments. The case will turn instead on oral testimony at trial that money the financiers withdrew from their account as cash, they handed over to the developers or to payees nominated by them. This may be a reflection of the cash economy. It is plausible for the financiers that they allowed payments to be made in cash rather than by cheque.

[27]      For those transactions identified in the bank accounts as “cheque/withdrawal”, I was advised that the cheques were made out to “cash”. I was advised that, so far, the financiers have not discovered the cheques. That is a matter on which they should make discovery, if only in their own interests to prove that the payments were made for the Ropata Avenue development. The cheques, even if made out to cash, would pass through the banking system and come back to their own bank. They will therefore

be accessible and within the control of the financiers. They should therefore disclose those cheques.

[28]      There are two other areas I want to address. The first is that in some cases funds were transmitted from overseas by relatives or friends of the financiers. Those documents relating to the transmission of funds from overseas are not within the control of the plaintiffs. The plaintiffs have, however, provided documentation which supports the payments they allege. That is in the form of We-Chat communications which have been exhibited in an affidavit filed today.

[29]      Finally, there is a payment said to have been made by Lei Zhang. The financiers have put in evidence a bank statement showing a payment from his account to the developers. That, however, may only be partial discovery. Further documentation may be needed to explain why a payment by him is to be treated as a payment made on behalf of the plaintiffs. For example, the financiers may have advanced the funds to Lei Zhang and he may have in turn paid the defendants or there may be some other arrangements in place. That is an area where further documentation may be required.

[30]      I hope that what I have said is enough to give general guidance to the parties as to what is required by way of further discovery.

[31]      I direct the financiers to consider whether, in light of what I have said, they should file and serve a supplementary affidavit of documents. That is an invitation to them to provide further discovery, not an order that they must provide it. That is on the basis that if they elect to go to trial on the existing documents they risk adverse inferences from not providing documents which would support their case. I am sure that they will be alive to the risks of not providing the documents. The independent accountant they have consulted has already pointed to gaps in their information.

[32]      Correspondingly, I issue a similar invitation to the developers to consider the adequacy of their discovery. Given that the financiers seem to have proof of payments and they say that the developers have not disclosed certain bank statements, they will be aware of the adverse inferences that may be drawn if they were not to provide their

bank statements corresponding to the periods when the financiers say they made payments for their benefit. I direct any such affidavits to be filed and served within four weeks from now.

The developers’ application under r 10.12

[33]      The developers seek orders for this proceeding to be heard in conjunction with proceedings under CIV-2018-404-1927, CIV-2019-404-997 and CIV-2019-404-506. The financiers oppose. They accept that there is some overlap between two of the proceedings — 2619 and 506. They say that the other two proceedings are unrelated and should be heard separately.

[34]      Some background can be given. As I have already recorded, the 2619- proceeding relates to the property at 12 Ropata Avenue, Point England. The investors provided funds for the development of the property on the understanding that they would take title to one lot. Their claim also seeks repayment of funds they advanced. The development has been completed, but titles for the five lots have not yet been issued, although I understand that titles could issue with some cooperation between the parties. The financiers’ interest is protected through a caveat lodged against the head title. They have also obtained a pre-judgment charging order. A significant dispute in that proceeding is the amounts which the financiers claim they paid towards that development.

[35]      The 1927 proceeding concerns a property at 3 Huxley Place, Glen Innes. The developers bought the property for $860,000. They invited the financiers to provide them with funds by way of investment in the property. The financiers contributed

$350,000. The property has been sold for $1,200,000. The financiers say that they were to get back their $350,000 and a share of the profit on the resale. They say that share is $136,000. They seek a money judgment. They applied for summary judgment. Associate Judge Sargisson noted that there were arguable defences and dismissed the application.2 Recently directions for discovery have been given.

2      Mo v Yang [2019] NZHC 2447.

[36]      The 506 proceeding concerns properties in Union Road, Howick and Taurima Avenue, Glen Innes. The developers are the plaintiffs and the financiers are the defendants. The financiers provided funds and the developers carried the developments.

[37]      The 997 proceeding concerns the property at  Bawden  Road,  Dairy  Flat. Zhe Yang approached the financiers with a request that they provide funds to complete the purchase of the property. There was to be a deed of nomination in favour of the financiers. They complain that title was taken in the name of the sister of Zhe Yang and that was contrary to the arrangements. The sister, Emily, is a defendant in that proceeding.

[38]      The developers propose that all four proceedings be heard in one hearing together. There would be one judge to hear all four proceedings. Evidence for all proceedings would be served sequentially: the financers’ evidence would go first, the developers’ evidence would go next and the financiers would have the opportunity to give reply evidence on affirmative defences and in opposition to counterclaims by the developers. I made enquiries with the Registry as to possible hearing dates. There will be time available for a four-day hearing beginning on 9 February 2021. For a three-week hearing there would be time available in the week beginning 10 April 2021.3 There is no time available earlier.

[39]      A matter motivating the financiers is that they want to get early resolution. If they can get resolution on at least one case that will result in an early return of funds to them. They have explained that they are significantly out of pocket and are in financial difficulty without the funds being returned to them. That is entirely understandable. When one looks at the case on a broad overview, it appears that, one way or the other, the developers will have to account for the financiers, either in money or land or both. The proceedings may be an extended exercise in working out just how much they have to return.

[40]      I sound a cautionary note about quick fixes. In these proceedings each side has tried to get a quick fix. In the 506 proceeding the developers applied for an interim

3      Since the hearing, the Registry has advised that the correct date is 10 May 2021.

mandatory injunction in the hope of it trying to make progress on the Union Road job. That failed.4 Equally, the financiers applied for summary judgment in the Huxley Place and Bawden Road proceedings and those applications failed.5 These cases will require a full hearing.

[41]      That arises in part because of the way the parties dealt with each other. Many of their arrangements were made orally. They communicated with each other by We- Chat, invariably in Mandarin. While each side will be able to point to documents to support their cases, there will not be a complete documentary record. The judge will need to listen carefully to witnesses giving oral evidence and being tested in cross- examination.6

[42]      Given the need for full hearings there are, in my view, advantages in dealing with all matters together:

(a)It is desirable that one judge hears all matters. That is to avoid the risk of inconsistency in decisions on matters that overlap. Allocating one judge to hear all four cases together gives better prospects of consistency. For the court it is much more difficult to arrange for the same judge to hear the cases at different times.

(b)Because credibility will be a big factor, it will be easier for the judge to assess credibility where witnesses give evidence for all proceedings at the same time. Evidence given for only one proceeding may be no more than a snapshot.

(c)Mr Hutchison referred to the difficulties of having separate proceedings where matters dealt with in one proceeding are raised in another proceeding and it is necessary to refer to notes of evidence from an earlier proceeding.

4      Yang v DH and PM Ltd [2019] NZHC 953.

5      Mo v Yang [2019] NZHC 2447; and Mo v Yang [2019] NZHC 2712.

6      I was advised that all parties have a good command of English. All the affidavit evidence has been in English. No one seems to have disputed the translations of We-Chat messages.

(d)There is greater streamlining available if evidence for all matters is given at the same time.

(e)For the parties it is likely to be more efficient to prepare for all proceedings at the same time than to have separate hearings for the proceeding. Preparation for one hearing is likely to be shorter than having to prepare separately and for two or even three separate hearings.

[43]      One potential disadvantage is that a judge hearing the case may require longer to give a decision than if one or two of the cases were hived off. I count that as a factor going the other way.

[44]      The real nub of the financiers’ opposition is the delay in getting resolution. They hope that they will get some early resolution, if one case is heard in which they are confident of getting a quick victory. In the disputes between these parties, quick victories do not seem to be available. The advantage in time between a hearing in February 2021 and a hearing in April 2021 (now May 2021) is marginal.

[45]      In weighing up all those matters, I am satisfied that there is sufficient overlap on factual matters and on matters of credibility that it is desirable to hear all matters together. The factors going the other way are not sufficient to count against the four proceedings being heard together.

[46]      I canvassed during the hearing whether further parties would need to be joined. While the financiers flagged that as a possibility, it became clear that if there were to be claims against other parties, they would be in separate proceedings.

[47]      I note the concern of the financiers that the delay before there will be a full hearing will cause hardship to them. All I can do is note the possibility of an order for interim payments under sub-pt 5 of pt 7 of the High Court Rules. That is a possible remedy, although it is rarely used.

Outcome

[48]On the financiers’ application for discovery in the 2619 proceeding, I order:

(a)By 6 December 2019 the defendants are to give particulars by providing a schedule giving a reconciliation of invoices (which they have claimed as their costs) with their records of payment.

(b)By 29 November 2019 the defendants are to provide legible copies of documents in section 2 of the schedule to the plaintiffs’ discovery application of 25 July 2019 and to discover any valuation reports relating to the Ropata Avenue development, all reports made to FM Custodians for draw-down and all documents showing interest charged for the First Mortgage Trust/FM Custodians mortgage.

[49]      On the developers’ application for discovery in the 2619 proceeding, I make no order requiring discovery but give each side the opportunity to file and serve supplementary affidavits of documents as to payments and receipt of payments. They are to be filed by 13 December 2019.

[50]      On the developers’ application under r 10.12, the four proceedings are to be heard together. They are set down for hearing for three weeks beginning 10 May 2021. The evidence at that hearing will be used for all proceedings. There will be one case officer to handle all proceedings and the Registrar is to arrange for one Associate Judge to case manage all proceedings.

[51]      The Registrar is to allocate an issues conference for two hours, to be arranged reasonably promptly to give further directions. The parties should, in the meantime, comply with all other directions that have been given in the proceedings, especially directions for discovery.

[52]      I invite counsel to confer as to costs. If they do not agree, memoranda may be filed.

……………………………….

Associate Judge R M Bell