Mogilin v Jo HC Auckland CIV 2011-404-1584

[2011] NZHC 1383

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2011-404-1584

BETWEEN  ANATOLY MOGILIN First Plaintiff

ANDMARFA MOGILIN Second Plaintiff

ANDNAM GEUN JO First Defendant

ANDMARTINA JHO Second Defendant

Hearing:         19 August 2011

Counsel:         E Orlov and T Shah for Plaintiffs

M J Wallace for Defendants

Judgment:      26 August 2011

JUDGMENT OF HEATH J

This judgment was delivered by me on 26 August 2011 at 3.00pm pursuant to Rule 11.5 of the High

Court Rules

Registrar/Deputy Registrar

Solicitors:
Botany Law, PO Box 64106, Manukau
Murray Withers & Associates, PO Box 13589, Christchurch

Counsel:

E Orlov, PO Box8333, Auckland

M J Wallace, PO Box 13254, Christchurch

MOGILIN V JO HC AK CIV 2011-404-1584 26 August 2011

Introduction

[1]      Mr and Mrs Mogilin seek a freezing order to prevent Mr Jo and Mrs Jho (husband and wife) from disposing of certain property, in which the Mogilins allege they have an interest.  Specifically, orders are sought forbidding Mr Jo and Mrs Jho from dealing with a rural property at 1543 Springs Road, Lincoln, Christchurch (the Lincoln property) and shares in a company called Eurostile Ltd (Eurostile).

[2]      Mr Jo and Mrs Jho are the directors of Eurostile.  Although Eurostile is not a party  to  this  proceeding,  Mr  and  Mrs  Mogilin  also  seek  an  order  against  the company, to restrain it from dealing with its own bank accounts.

[3]      Mr Jo and Mrs Jho oppose the application on five grounds. They say that: (a)          No good arguable case exists.

(b)There is no proven risk of assets being dissipated pending disposal of the substantive proceeding.

(c)       No order is required to protect the position of Mr and Mrs Mogilin, pending trial.

(d)The undertaking as to damages proffered by Mr and Mrs Mogilin is worthless.

(e)       There is no jurisdiction to make an order against Eurostile, as it is not a party to the proceeding.

Oral application for joinder of Eurostile

[4]      Faced with the jurisdictional point, Mr Orlov, for Mr and Mrs Mogilin, made an oral application to join Eurotile as an additional defendant.   If joinder were granted, he submitted that the order sought was justifiable.

[5]      Mr Wallace, for Mr Jo and Mrs Jho, opposed the oral application, on the grounds that his clients’ notice of opposition had made it clear that the jurisdictional point was taken and (for the purpose of the present application) it was now too late for joinder to be sought.

[6]      While there is jurisdiction to make a freezing order against a respondent that is not a party to a proceeding in which substantive relief is sought against it,[1]  an entity against which an order is made must be a party to the application.   Rule

32.2(1) of the High Court Rules makes it clear that a freezing order may be made only against a “respondent”.  The term “respondent” is defined as including a person against whom a freezing order is sought.[2]

[1] High Court Rules, r 32.4.

[2] Ibid, r 32.1, definition of “respondent”.

[7]      At  this  late  stage,  it  is  inappropriate  to  join  Eurostile  as  a  party  to  the application.  While that company is controlled by Mr Jo and Mrs Jho, it may have been necessary for separate counsel to have been instructed to deal with its position. Further, no attempt was made after receipt of the notice of opposition to join Eurostile.   Counsel for Mr and Mrs Mogilin can consider whether a further application should be made, to seek relief against Eurostile, after this judgment has been delivered.  I dismiss the oral application for joinder.

General background

(a)      Introductory comments

[8]      In order to explain the unusual circumstances in which the present application is  made,  it  is  necessary  to  sketch  the  general  background  and  to  outline  the competing positions taken by Mr and Mrs Mogilin (on the one hand) and Mr Jo and Mrs  Jho  (on  the  other).     That  approach  enables  analysis  of  the  competing submissions more readily than might otherwise be possible.

[9]      There is an unfortunate lack of clarity in the affidavits of both Mr Mogilin and Mr Jo about the sequence of events.  The summaries that follow are based on my

reconstruction of events, by reference to the terms of each of those affidavits and the documentary exhibits produced.

(b)      Mr and Mrs Mogilin’s position

[10]     Around June 2007, the Commissioner of Inland Revenue issued a notice of proposed adjustment, in relation to taxation said to be payable by Mr and Mrs Mogilin as a result of sale of a property at Glovers Road, near Christchurch.   No steps were taken by Mr and Mrs Mogilin.   On 7 December 2007, judgment was entered against them for $455,203.89 in the District Court at Christchurch.

[11]     After judgment had been entered, Mr and Mrs Mogilin instructed Mr Tee, a solicitor from Christchurch, to act on their behalf in disputing the taxation levied. One of the exhibits is a letter from Mr Tee to the Commissioner, dated 5 December

2008, in which an attempt was made to stave off imminent bankruptcy proceedings, based on the default judgment obtained.

[12]     At the time Mr Tee was instructed, neither Mr nor Mrs Mogilin was in a position to pay his legal fees.  While they had no real disposable income, they had assets, in the form of the Lincoln property and shares in Eurostile.   The Lincoln property  consists  of  53  acres  and  was,  at  the  time  they  instructed  Mr  Tee, subdivisible.  Mr Mogilin deposes that it was worth “around a million dollars” at that time but says that he and his wife now “believe the land is ... substantially higher in value because we believe that the land will be rezoned in the future”.   That is a realistic possibility, given the events in Christchurch in February 2011.

[13]     Eurostile owned six houses in the Christchurch area.  Those houses had been built by Mr Chernishoff.  Mr Mogilin estimates that the net value of those properties was around $800,000.

[14]     Despite the value ascribed to those assets, Mr Mogilin says that his attempts to raise money to pay legal costs were thwarted as, due to public knowledge of the Commissioner’s judgment against him and his wife, they were not regarded as good

credit risks.  It was necessary for some other method to be found to enable funds to

fight the Commissioner’s claim.

[15]     By  this  time,  proceedings  were  on  foot  against  Mr  Chernishoff  and  his company, Mt Lyford Products Ltd, in relation to alleged deficiencies in the building of the houses.   The evidence suggests those proceedings were issued in the High Court at Christchurch, sometime in 2006.  The amount claimed was approximately

$2.5 million.  Funding for those proceedings was also needed.

[16]     Mr Tee introduced Mr and Mrs Mogilin to a close friend, Mr Jo, who was held  out  as  having  experience  in  taxation  and  litigation.     Mr  Tee  informed Mr Mogilin that he and Mr Jo were involved “in  various large projects together including claims against the Bank of New Zealand and the City Council of Christchurch”.  Mr Tee’s office was in the same building as that occupied by Mr Jo.

[17]     Mr and Mrs Mogilin allege that Mr Jo promised them that he would be able to finance their claims against the Commissioner if they were to transfer to him legal title to the Lincoln property.  They say that Mr Jo intended to use his own name to obtain credit and to provide the proceeds to Mr and Mrs Mogilin.  Mr Jo allegedly assured them that both he and Mr Tee would work to resolve outstanding issues with the Commissioner.

[18]     On Mr Mogilin’s evidence, he and his wife were visited regularly by Mr Tee and Mr Jo, in the period leading up to the signing of an agreement for sale and purchase of the Lincoln property.  Mr Mogilin gives evidence of the “extreme stress and  medical  health  problems”  from  which  he  was  suffering  at  that  time,  and continues to suffer.  One example is a “severe case of diabetes” which, according to Mr Mogilin, brings about “a clouded judgment, sometimes hazy thought patterns and huge fluctuations of sugar levels which make me extremely tired and irritable and unable to assess information properly”.  A number of documents executed at or after this time are alleged to have been signed under the illegitimate influence of Mr Tee and/or Mr Jo.

[19]     In or about early February 2010, Mr Tee prepared an agreement for sale and purchase to evidence Mrs Jho’s purchase of the Lincoln property for $850,000.  This was signed by Mr and Mrs Mogilin.   I infer that a share transfer form was also signed (around this time) to pass title to their shares in Eurostile.

[20]     Mr and Mrs Mogilin now seek damages (or other relief) against Mr Jo and Mrs Jho for unlawfully taking the benefit of the transferred assets, being the Lincoln property and the shares in Eurostile.   The claims are based on pre-contractual misrepresentation,  breach  of  contract,  “commercial  deceit”,  breach  of  fiduciary duties and breach of trust, whether resulting, constructive or actual.

(c)      Mr Jo and Mrs Jho’s position

[21]     Mr Jo contends that the transactions in which the Mogilins, his wife and himself were involved arose in very different circumstances.  In his own words:

... I understood it was [Mr and Mrs Mogilin’s] desire to no longer have any New  Zealand  assets,  but  instead  to  have  off-shore  assets  that  might  be beyond the reach of the Commissioner.

[22]     Mr Jo’s position is that he and his wife entered into transactions with Mr and Mrs Mogilin that were commercial in nature and involved the passing of valuable consideration  each  way.    Expressly,  Mr  Jo  questions  suggestions  made  by  Mr Mogilin that he was “naive and simple in terms of business dealings”.   He says that his “desire was to assist [Mr and Mrs Mogilin] out of a very real problem that they faced”.  Notwithstanding transfer of the shares in Eurostile to himself and his wife, Mr Jo points to a number of payments made to Mr and Mrs Mogilin out of company funds, to assist them in the period after the agreement for sale and purchase was signed.

(d)      The documentation

[23]     On 1 April 2007,[3] a Joint Venture Agreement was entered into between Mr Jo and Mrs Jho (as trustees of the SY Trust) and Mr and Mrs Mogilin.   This date

precedes the date on which the adjusted tax assessment was made against Mr and Mrs Mogilin, in respect of the Glovers Road property.[4]    The recitals to the joint venture agreement record that Mr and Mrs Mogilin wished “to invest in ... patents held by SY Enterprises Ltd” and that both parties “would like to commercialise the use of the patents and invest in more patents developed in Russia, South Korea and other countries if possible”.

[3] A date pleaded in Mr and Mrs Mogilin’s Statement of Claim at para 18(c).

[4] See para [10] above.

[24]     The patents were said to relate to food bacteria detection and deer velvet.  A recital states that the patents were agreed to have a market value of $5,600,000.  The agreement records an intention for 30% of the shares held by Mr Jo and Mrs Jho, in SY Enterprise Ltd, to be transferred to Mr and Mrs Mogilin.   In consideration for that, Mr and Mrs Mogilin’s interests in the Lincoln property and all of the shares in Eurostile were to be passed to Mr Jo and his wife.

[25]     Based on what is recorded in the joint venture agreement, it is possible to discern an equality of value passing each way.  The agreement records the total value of SY Enterprises Ltd as $5,600,000, 30% of which equates to $1,680,000.  A value of $850,000 is ascribed to each of the Lincoln property and the shares in Eurostile, a total of $1,700,000.

[26]     Subsequently,  the joint  venture agreement  was  amended.   The document purporting to do that is undated and shows only Mr and Mrs Mogilin and Mrs Jho as parties.  It recorded:

Anatoly Mogilin, Marsha Mogilin agreed to transfer 1543 Springs Road, Lincoln certificate of title CB366/101 to Martina Jho of SY Trust in 2007 in exchange for the shares in S.Y. Enterprise Limited.

Now Anatoly Mogilin, Marsha Mogilin and Martina Jho agree to change the joint venture agreement.   Anatoly and Marsha Mogilin will transfer 1543

Springs Road, Lincoln on these conditions.

1.Martina Jho refinances the properties owned by Eurostile Limited together with 1543 Springs Road.  If Martina Jho cannot refinance, the property at 1543 Springs Road will not be transferred to Martina Jho.

2.        If  Martina  Jho  can  refinance  the  properties  owned  by  Eurostile

Limited together with 1543 Springs Road, Martina Jho consent to

Anatoly  Mogilin  and  Marsha  Mogilin  putting  a  caveat  on  1543

Springs Road.   This is because Martina Jho, Anatoly Mogilin and

Marsha Mogilin have agreed to have 1543 Springs Road returned to Anatoly Mogilin and Marsha Mogilin if their agreed joint venture in Russia cannot go ahead or if Anatoly Mogilin and Marsha Mogilin decide to terminate that joint venture.  If this is the case, then Marsha Mogilin must transfer the 30% shares in S.Y. Enterprise Limited to Martina Jho and Martina Jho transfer 1543 Springs Road to Anatoly Mogilin and Marsha Mogilin.

3.        All these must go through the proper legal process.

[27]     The amendment to the joint venture agreement is likely to have been signed before the agreement for sale and purchase of the Lincoln property was prepared.  It states  that  Mr and  Mrs  Mogilin  “will  transfer”  the  Lincoln  property on  certain conditions.  Clause 2 of the variation refers (in vague terms) to the parties’ “agreed joint venture in Russia” and the obligation for Mrs Jho to transfer back to Mr and Mrs Mogilin the Lincoln property, in exchange for the shares in SY Enterprise Ltd, if the Mogilins decided to terminate the joint venture.

[28]     An  agreement  for  sale  and  purchase  of  the  Lincoln  property  dated  16

February 2010 was signed by Mr and Mrs Mogilin (as vendors) and Mr Jho and Mrs Jo (as purchasers), the latter in their capacity as trustees of the SY Trust.  The purchase price was stated as $850,000 (inclusive of GST), a sum consistent with the amount shown in the schedule to the joint venture agreement.

[29]     One   further   document   was   prepared,   though   the   copy   produced   by Mr Mogilin  is  both  unsigned  and  undated.    It  purports  to  assign  rights  to  the proceeding against Mr Chernishoff for the benefit of Eurostile, with Mr Jo being given the right to negotiate a settlement but requiring consent of the Mogilins before it was binding. The Deed of Assignment provided:

BETWEEN     ANATOLY  MOGILIN  and  MASHA  MARFA  MOGILIN

both  of  Christchurch,  Property  owners  (hereinafter  called

“the first party”)

AND             NAM   GEUN   JO   of   Christchurch,   Company   Director

(hereinafter called “the second party”)

AND               EUROSTILE   LIMITED   a   duly   incorporated   company having  its  registered  office  at  Christchurch  (hereinafter called “the third party”)

WHEREAS:

A.        [The Mogilins] purchased residential properties at Reserve Close, Christchurch, such properties being registered in the name of [Eurostile].

B.      The [Mogilins] has initiated proceedings in the High Court at Christchurch under number CIV 2006-409-1384 against IVAN CHERNISHOFF, MT LYFORD PRODUCTS LIMITED AND/OR OTHERS.

C.        the benefits of the proceedings referred to in recital B hereof are to be assigned to [Eurostile].

NOW THIS DEED witnesseth as follows:-

1.        ALL benefits and proceeds of any judgment in respect of the High

Court proceedings hereinbefore referred to are assigned to [Eurostile].

2.        THE  proceeds  from  the  High  Court  proceedings  hereinbefore referred to shall be directed to be paid into the High Court and paid as directed by [the Mogilins].

3.        A sum of money amounting to approximately FOUR HUNDRED AND NINETY THOUSAND DOLLARS ($490,000.00) is owing by [Eurostile] to [the Mogilins] and suitable security shall be taken if required.

4.        [The Mogilins and Eurostile] authorise [Mr Jo] to negotiate any settlement offered in respect of the High Court proceedings hereinbefore referred to but the final decision as to any settlement is to be made by [the Mogilins].

5.        WHEN directed [Mr Jo] will transfer all shares in [Eurostile] to [the Mogilins] or as [the Mogilins] may direct and [Mr Jo] will ensure that all other shareholders if any will similarly transfer their shares.

6.        WHEN directed [Mr Jo] will resign as a director of [Eurostile] so that [the Mogilins], or as [the Mogilins] directs, can become directors of [Eurostile].

7.        ALL parties acknowledge that the [the Mogilins] and [Mr Jo] were introduced by one TIM BAN CHOON TEE of Christchurch, Barrister and Solicitor and that [the Mogilins] took no separate legal advice prior to resigning as directors and transferring shares in [Eurostile].

8.        IF the High Court proceedings hereafter referred to are unable to be settled, [Mr Jo and Eurostile] are authorised to have the matter heard in the High Court.

...

[30]     Mr Tee has left New Zealand, as a result of bankruptcy proceedings issued against him.

Freezing orders

[31]     Jurisdiction to make a freezing order is conferred by r 32.2 of the High Court

Rules:

32.2     Freezing order

(1)       The court may make an order (a freezing order), on or without notice to a respondent in accordance with this Part.

(2)       A freezing order may restrain a respondent from removing any assets located in or outside New Zealand or from disposing of, dealing with, or diminishing the value of, those assets.

(3)       An applicant for a freezing order without notice to a respondent must fully and frankly disclose to the court all material facts, including—

(a)      any possible defences known to the applicant; and

(b)       information  casting  doubt  on  the  applicant's  ability  to discharge the obligation created by the undertaking as to damages.

(4)       An application for a freezing order must be made by interlocutory application under Part 7 or originating application under Part 19, which Parts apply subject to this Part.

(5)       An applicant for a freezing order must file a signed undertaking that the applicant will comply with any order for the payment of damages to compensate the respondent for any damage sustained in consequence of the freezing order.

[32]     In effect, r 32.2 codifies the criteria applied previously in relation to what were then known as Mareva injunctions.[5]     The purpose of a freezing order is to provide some assurance to a plaintiff that it will not be denied recovery in the event its claim were successful.  While the jurisdiction was originally exercised to prevent defendants from moving assets out of the jurisdiction, an order can now be made to prevent dissipation of assets generally.

[5] Derived from Mareva Compania Naviera SA v International Bulk Carriers SA [1975] 2 Lloyd’s Rep 509 (CA).

[33]     There are three general criteria that must be met before an order can be made:[6]

[6] Shaw v Narain [1992] 2 NZLR 544 (CA) at 548, adopting observations made by Gault J in Bank of

New Zealand v Hawkins (1989) 1 PRNZ 451 (HC).

(a)       The plaintiffs have a good arguable case on their substantive claim.

(b)The defendants have assets within the jurisdiction to which the orders can apply.

(c)       There is a real risk that the defendants will dissipate or dispose of

assets so as to render themselves “judgment proof”.

[34]     On the “dissipation” issue, a mere assertion of a belief that a defendant might dissipate assets, unsupported by solid evidence justifying that belief, will be insufficient.  On the other hand, affirmative proof of the likelihood of dissipation or nefarious intent is not necessary.[7]

Competing submissions

[7] Bank of New Zealand v Hawkins (1989) 1 PRNZ 451 (HC) at 454.

[35]     Mr Orlov submits that Mr Mogilin’s affidavit can be shown as demonstrating a factual foundation for the pleaded claims.[8]   He submits that there are assets within the jurisdiction to which a freezing order could attach; namely, the Lincoln property, the shares in Eurostile and bank accounts operated by Eurostile.

[8] See para [20] above.

[36]     As to the risk of dissipation of assets, Mr Orlov accepts that a “real danger of dissipation” must be shown.   He relied on an attempt to avoid service of the proceeding or the absence of Mr Jo and Mrs Jho from the jurisdiction, at the time service was attempted.  Ultimately, an order for substituted service on Mr Jo’s and Mrs Jho’s solicitors was made, on 13 April 2011.   In addition, Mr Orlov refers to Mr Jo and Mrs Jho’s Korean citizenship.

[37]     Mr Wallace  disputes  the  existence  of  a  “good  arguable  case”  of  a  type contemplated  in  cases  such  as  Shaw  v  Narain[9]   and  Bank  of  New  Zealand  v Hawkins.[10]      He  submits  that  the  core  documents[11]   recording  the  arrangements

between the parties demonstrate clearly that there was a commercial basis for the

transaction in issue.  Mr Wallace also submits that Mr Mogilin was well aware of the structure of the transaction.

[9] Shaw v Narain [1992] 2 NZLR 544 (CA).

[10] Bank of New Zealand v Hawkins (1989) 1 PRNZ 451 (HC).

[11] See paras [23]–[29] above.

[38]     On the question of risk of dissipation of assets, Mr Wallace refers to evidence from Mr Jo that he and his wife reside in Christchurch, in a home owned by Mrs Jho. They are developing a ginseng growing operation at the Lincoln property (allegedly with the consent of Mr and Mrs Mogilin) and are involved in substantial claims in the High Court at Christchurch.  Mr Wallace submits that there is no rational basis on which the Court could be satisfied that there is any real risk that assets will be disposed of pending trial of the present proceeding.

[39]     Mr Wallace submits that there is no basis for a freezing order to be made in respect of the Lincoln property, as Mr and Mrs Mogilin are already protected by a caveat lodged against its title.  In his submission there is no reason why the caveat should  not  be regarded  as  a primary method  by which  the position of Mr and Mrs Mogilin can be preserved, pending trial.

[40]     Mr Wallace also questions the adequacy of the undertaking as to damages. He submits that, on Mr and Mrs Mogilin’s own evidence, there is no real protection to be gained from the undertaking.  Mr Wallace refers to Taylor v Mahne[12] in which McGechan J made the following observations about the need for an undertaking to provide real protection to a party against whom a Mareva injunction might be issued. McGechan J said:

[12] Taylor v Mahne HC Wellington CP786/90, 11 September 1992 at 1-2 (McGechan J).

I deal first with the Mareva application.   An undertaking as to damages signed by the plaintiff was in fact lodged by counsel during argument, overtaking a previous affidavit statement that an undertaking would not be lodged as it could not be honoured.  The requirement for an undertaking in Mareva injunction situations is similar to that in other interim injunction situations.  The undertaking must be one with substance behind it.  A mere piece of paper is not enough.  It must represent a real protection to the other party, in the event of the Mareva injunction being wrongly issued.  In this case I see no ground for departing from the usual practice in that regard.  It may be, as the plaintiff contends, that his financial difficulties are due at least in part to the refusal of the defendant to pay money considered due, but there is other evidence within his own affidavits in the substantive proceedings which can point to other causes.  On that basis the application for a Mareva injunction cannot succeed and is dismissed.

Analysis

[41]     The background to the transactions is murky.  The documents produced tend to be at odds with the chronology to be inferred from Mr Mogilin’s affidavit.  But, equally, the benefits said to flow to Mr and Mrs Mogilin are not well explained. There is a disconnect between the benefits to be gained from use of patents and other evidence  dealing  with  a  Russian  fishing  venture.    While  Mr  Mogilin  makes  a guarded reference to the “fishing” venture, I am unable to identify either its nature or scope.

[42]     In addition, Mr Jo (whom one would expect to have the information) has not produced any evidence of the financial position of SY Enterprise Ltd to demonstrate that the value to Mr and Mrs Mogilin of 30% of the shares in that company was truly equivalent to the combined value of the Lincoln property and the shares in Eurostile.

[43]     While it is possible to draw an inference against Mr Jo and Mrs Jho of engaging in conduct that resulted in an unconscionable bargain, I am not prepared to go much further than that.  There are two reasons for that.  The first is the absence of any  evidence  (independent  or  otherwise)  demonstrating  the  time  during  which Mr Mogilin suffered from illnesses that could have affected his ability to understand the documents he signed, even assuming that Mrs Mogilin executed documents on her husband’s instruction.  The date (1 April 2007) of the joint venture agreement does not seem to square with the alleged period of stress.  The second arises out of the unparticularised chronological sequence of events described by Mr Mogilin and their relationship to the time at which the agreement for sale and purchase of the Lincoln property was signed.

[44]     I propose to assume (without deciding) that the allegations in the statement of claim give rise to a good arguable case against Mr Jo and Mrs Jho, for freezing order purposes.  I consider that the question whether or not an order should be made will turn on whether there is adequate evidence of a risk of dissipation or disposal of assets, so as to render the defendants “judgment proof”.

[45]     Risk of dissipation has been discussed in many cases.  For example, in Z Ltd v A-Z and AA-LL,[13] Kerr LJ made the point that the order should not be “debased” by transforming it into a mode of obtaining security in advance of judgment.  In Third Chandris  Shipping  Corporation  v  Unimarine  SA,[14]    Lawton LJ  held  that  the dissipation issue should be viewed from  the perspective of a “prudent, sensible commercial man”  who could “properly infer a danger of default” if assets were dissipated.  The approach taken by Lawton LJ was endorsed by William Young J, in Raukura Moana Fisheries Ltd v The Ship “Irina Zharkikh”.[15]

[13] Z Ltd v A-Z AA-LL [1982] 1 QB 558 (CA) at 586.

[14] Third Chandris Shipping Corporation v Unimarine SA [1979] 1 QB 645 (CA) at 671.

[15] Raukura Moana Fisheries Ltd v The Ship “Irina Zharkikh” [2001] 2 NZLR 801 (HC) at para [122].

[46]     In the present case, there is no risk that the Lincoln property will be disposed of pending trial.  The reason for that is the existence of a caveat over the property, lodged by Mr and Mrs Mogilin.  No dealings can take place with the land without the caveators’ consent.  The nature of Mr and Mrs Mogilin’s claims against Mr Jo and Mrs Jho suggest that any attempt to remove the caveat pending resolution of the proceedings would be futile; at least, that is the view that I have formed.  In those circumstances, a freezing order in respect of the Lincoln property is unnecessary.

[47]     I do not consider that Mr Jo and Mrs Jho (or either of them) are flight risks. They own property in Christchurch, are engaged in substantial litigation in that city and are developing a ginseng growing operation on the Lincoln property.  The fact that they are Korean citizens does not weigh heavily in favour of a risk of flight. Nor does the difficulty in locating them when service of the proceedings was being effected.  That can be readily explained by the dislocation evident in many parts of Christchurch after the February 2011 earthquake.

[48]     The remaining issue is whether Mr Jo and Mrs Jho may dispose of the shares in Eurostile pending trial. As Eurostile’s main asset is a claim for about $2.5 million (Mr Mogilin’s evidence) or $1.6 million (Mr Jo’s evidence) against a person who is alleged to have built houses inadequately and there is little evidence of the actual value of those  properties  in  the current  Christchurch  market,  it  is  unlikely that anyone would purchase the shares, even if Mr Jo and Mrs Jho were minded to sell

them.   Mr Jo’s current evidence is that security for costs has been ordered in the

proceeding against Mr Chernishoff and the proceeding remains stayed as the security has not been posted.   I am not satisfied that there is a risk of the type that would justify a freezing order.

[49]     I deal briefly with Mr Wallace’s “undertaking” point.   While it is true, as McGechan J observed in Taylor v Mahne,[16]  that an undertaking must represent “a real protection” to the party against which a freezing order is issued, it does not lie in Mr Jo’s  mouth  to  complain  about  inadequacy  of  assets  on  the  part  of  Mr  and Mrs Mogilin  in  circumstances  where,  on  his  and  his  wife’s  case,  shares  in  SY Enterprise Ltd, to the value of approximately $1,800,000 have been transferred to them.  I would not have been prepared to refuse relief on this ground.

Result

[16] Taylor v Mahne HC Wellington CP786/90, 11 September 1992 at 1; set out at para [40] above.

[50]     For the reasons given, the application for a freezing order is dismissed.

[51]     Costs are reserved.  The circumstances are such that it was not unreasonable for Mr and Mrs Mogilin to bring the application and it is impossible to judge at this early stage where the merits ultimately will lie.  While I fix costs on the application on  a  2B  basis,  I  reserve  the  incidence  of  them,  to  await  the  outcome  of  the proceeding generally.

[52]     The Registrar is directed to set the proceeding down for a case management conference before an Associate Judge at the earliest available date, so that directions to ensure prompt disposal of the proceeding can be made.  At the end of the hearing, I  indicated  to  Mr  Wallace  that  an  order  for  discovery  against  his  clients  was inevitable and that it would be wise to deal with that issue voluntarily before the next

case management conference is held.

P R Heath J

Delivered at 3.00pm on 26 August 2011