Pask v Liu

[2024] NZHC 1176

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2023-409-000576

[2024] NZHC 1176

BETWEEN

GUY KENNETH PASK

Applicant

AND

ANITA LIU

Respondent

Hearing:	6 May 2024 (via VMR at Wellington)
Counsel:	S P Rennie for Applicant G D Jones for Respondent
Judgment:	13 May 2024

JUDGMENT OF LA HOOD J

An application for a freezing order over relationship property

[1]    Guy Pask (the applicant) applies for a freezing order over assets under the control of his former partner, Anita Liu (the respondent), in the context of complex relationship property proceedings.

[2]    The parties separated in June 2022 following a ten year relationship, during which they accrued a significant pool of assets valued at approximately $20 million. They have one child, aged eight. Their asset pool –– comprising cash in bank accounts, three residential properties, shares in public companies, and shares in their own business, Double Lux Ltd (DLL) –– now manifests in a number of legal proceedings post-separation, in what has been accurately described by Ms Liu’s lawyers as a “battle of attrition” between the parties.

PASK v LIU [2024] NZHC 1176 [13 May 2024]

[3]    In July 2023, Mr Pask commenced proceedings in the Family Court under the Property (Relationships) Act 1976 (the Act) ultimately seeking distribution orders (including interim orders), and orders for the preservation of cash and shares held by Ms Liu.

[4]    On 26 October 2023, Mr Pask made this freezing order application to the High Court to freeze five Australian bank accounts and shares in publicly listed companies with a total value of up to approximately $4.5 million (the assets). Mr Pask seeks to freeze his claim to a half share of these assets. Ms Liu accepts that the assets are relationship property although there remains a dispute about how they should be divided. Mr Pask’s application for interim preservation orders in the Family Court seeks essentially the same orders sought in this Court, but the Family Court has been unable to hear that application.

[5]    Most of the couple’s assets were placed in Ms Liu’s name, or with entities she controls, to prevent potential claims by Mr Pask’s former wife. Following separation, Mr Pask unilaterally appropriated the business of DLL (clients, employees, receivables, work in progress) to Studio Pask Ltd, a new company of which he is the sole shareholder. He says this was necessary due to Ms Liu’s failure to pay him a reasonable salary following separation. Consequently, the respondent is deprived of her sole income source (DLL’s profits), which Mr Pask acknowledges is relationship property.

[6]    Ms Liu, as the sole director of DLL, issued proceedings against Mr Pask and Studio Pask Ltd in the Employment Relations Authority in relation to the appropriation of DLL. She has also applied to the Family Court for spousal maintenance of $45,000 per month for her deprivation of income. Meanwhile, the trustees of the Liu Family Trust, which owns two of the residential properties, have applied to the Family Court to rescind an interim injunction made by the Family Court preventing Mr Pask’s removal from the former family home. Mr Pask has also placed notices on the residential properties to prevent Ms Liu dealing with them.

[7]    I have concluded below that the application should be declined because there is no danger that Ms Liu will be unable to compensate Mr Pask for any dissipation of

the assets from the pool of relationship property that will be available when the Family Court makes orders for division of that property.

Legal principles

[8]Freezing orders are governed by pt 32 of the High Court Rules 2016. In

Hannay v Mount, the Court of Appeal said:1

[19]      Under the Rules, the High Court has the jurisdiction to make freezing orders restraining the removal or disposition of assets. Rule 32.5(4) of the High Court Rules provides that the Court may make a freezing order against a judgment debtor or a prospective judgment debtor if:

… the court is satisfied, having regard to all the circumstances, that there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied because—

(i)the judgment debtor, prospective judgment debtor, or another person might abscond; or

(ii)the assets of the judgment debtor, prospective judgment debtor, or another person might be—

1.removed from New Zealand or from a place inside or outside New Zealand; or

2.disposed of, dealt with, or diminished in value (whether the assets are in or outside New Zealand).

[20]The threat of disposal of the assets, or diminution of their value, is essential to the application for a freezing order. Freezing orders (also known as Mareva injunctions) are thus a valuable protective measure for those commencing civil proceedings. The essential basis of a freezing order is to prevent the dissipation of assets by an actual or prospective judgment debtor, when such dissipation has the effect or object of denying the claimant or judgment creditor satisfaction of their debt. Wasting assets are therefore not usually satisfactory as the subject of a freezing order, for it would defeat the protective purpose of such an order if the property under restraint were not to maintain its value.

(Footnotes omitted and emphasis added)

1      Hannay v Mount [2011] NZCA 530.

[9]    Later, in Oak Hotels & Resorts NZ Ltd v Body Corporate 358851, the High Court held:2

[18]   There is no doubt that Oaks has shown that an asset (the $707,687) is to be disposed of (paid out to unit owners). However, assuming for the purposes of the present issue that there is a good arguable case, the fact that an asset is to be disposed of is in itself not enough to invoke the jurisdiction. The heart of the jurisdiction is a real risk that a judgment or award may go unsatisfied. There must be a danger that the prospective judgment creditor’s ability to recover will be defeated because assets have been disposed of. In Bank of New Zealand v Hawkins it was observed that there had to be a “... real risk that the defendant will dissipate or dispose of assets so as to render himself ‘judgment proof’”. This is now expressly stated at r 32.5(4), which provides that the Court “may” make an order if it is satisfied having regard to all the circumstances that there is a danger that the judgment or prospective judgment will be wholly or partly unsatisfied because of the removal or disposal. As Lawton LJ observed in Third Chandris Shipping Corporation v Unimarina SA, there must be facts from which the commercial court, like a prudent sensible commercial person, could properly infer a danger of default if assets are removed. This test is “not unduly exacting”.

…

[20]      The jurisdiction is not designed to provide an applicant with pre- judgment security. The general rule that a respondent can deal with its assets without constraint, which applied to the original Mareva jurisdiction, is still reflected in the new detailed rule, if only indirectly. Even if the disposal will result in insufficient funds to pay a plaintiff, a Court is unlikely to interfere if the disposition is genuine and in the ordinary course of business. That limitation of the common law regime applies under the new rules and is indicated in r 32.6(3), which states that the freezing order must not prohibit the respondent from dealing with the assets for the purpose of paying ordinary living expenses and legal expenses related to the freezing order, but also “… disposing of assets or payments, in the ordinary course of the respondent’s business, including business expenses incurred in good faith”. The prospective judgment debtor must be able to continue to trade or carry on business in the usual way.

[21]      In short, the common law restrictions on the ambit of the remedy remain, and it will not be permitted to be used by an applicant to force a respondent who could ultimately pay the judgment debt to hold funds for the benefit of its opponent.

(Footnotes omitted and emphasis added)

[10]   I accept Mr Jones’s submission, for Ms Liu, that these statements of principle, and thus the test in r 32.5(4), are applicable to all applications for freezing orders under pt 32 of the High Court Rules.

2      Oak Hotels & Resorts NZ Ltd v Body Corporate 358851 [2013] NZHC 2695.

[11]   I do not accept Mr Rennie’s submission for Mr Pask that r 32.2 provides a separate and distinct test for the making of a freezing order to the test in r 32.5. This submission was made to counter the submission that the application must fail because it does not meet the requirement in s 32.5(4) of satisfying the Court that “there is a danger that a judgment or prospective judgment will be wholly or partly unsatisfied” due to disposal of the assets. Mr Rennie was unable to refer me to any case that directly supports his proposition. In addition to the absence of authority, the plain words of the rules do not support the position. Rule 32.2 is a general provision, stating:

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

[12]   It then sets out largely procedural matters such as how a freezing order can restrain a party dealing with assets (r 32.2(2)), what is required if an application is made without notice (r 32.2(3)), that an application must be made by interlocutory application (r 32.2(4)), and that it must be accompanied by an undertaking as to damages (r 32.2(5)). It contains no test for the making of a freezing order and refers at the outset to the making of an order “in accordance with this Part”. This general, largely procedural, rule is then followed by a specific rule, r 32.5, which sets out the test for granting a freezing order. Rule 32.2 provides no test for the making of a freezing order and there is no basis to read one into it.

[13]   Mr Rennie referred me to the commentary in McGechan on Procedure in support of his argument.3 However, that commentary does not state that there is a separate and distinct test for the making of a freezing order under r 32.2. The commentary does state that “essentially there are three requirements for a freezing order: a good arguable case on the substantive claim; assets to which the order can apply; and a real risk that the respondent will dissipate or dispose of those assets”.4

[14]   The fact that McGechan provides commentary on the test for making a freezing order under both r 32.2 and r 32.5 may create the impression r 32.2 provides a distinct test, but the plain wording of the rules and the case law do not support that proposition.

3      AC Beck and others McGechan on Procedure (looseleaf ed, Thomson Reuters).

4      At [HR32.2.03].

Indeed, the sentence that follows the McGechan commentary (under r 32.2) setting out the three requirements for a freezing order (above) states:

In endorsing those requirements in Shaw v Narain [1992] 2 NZLR 544 (CA) at 548, the Court of Appeal stressed the importance of preserving the flexibility of the remedy, and the need to consider the overall justice of the case, balancing the need to protect the applicant so as to ensure any judgment is not rendered barren against any prejudice or hardship to the respondent or a third party. (emphasis added)

[15]   This further supports that it was intended that the r 32.5(4) requirement of establishing a danger that a “prospective judgment will be wholly or partly unsatisfied” applies to all freezing order applications.

[16]   There is further support for this position in the fact that s 43 of the Act only allows a Court dealing with a relationship property dispute to make orders restraining disposition of property if it is “in order to defeat the claim or rights” of any other person.5

[17]   I also do not accept that the discretion to make a freezing order in the overall interests of justice allows me to ignore the test in s 32.5(4). The discretion only arises when Mr Pask has met the requirements of s 32.5(4).6

[18]   Finally, Mr Rennie relies on the High Court decision of Song v Jiang.7 However, there is little in that decision to support Mr Pask’s position apart from the Judge not specifically mentioning the requirements of r 32.5(4) when briefly summarising the test for obtaining a freezing order. Moreover, the Judge cited the Court of Appeal’s decision in Shaw v Narain as the authority from which the test is derived.8 Although pre-dating r 32.5, as noted in the passage from McGechan, Shaw v Narain should be read as incorporating the principle that the purpose of a freezing order is to ensure any judgment is not rendered barren.

5      Mr Pask has made an application for restraint under s 43 but it has not been able to be heard prior to the freezing order application.

6      McGechan on Procedure, above n 3, at [HR32.2.04], citing Murren v Schaeffer [2018] NZCA 318, (2018) 24 PRBZ 285, at [17].

7      Song v Jiang [2018] NZHC 2321.

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

Application of principles to this case

[19]   Mr Rennie submits that even if I were to accept that r 32.5 applies, this is not the type of case r 32.5(4) was designed to address. It is not a standard money claim for damages but a complex relationship property dispute. Mr Pask is not seeking to restrain property owned by Ms Liu that may be used to satisfy a future judgment in his favour, but rather to restrain Ms Liu from using his share of the property for her own purposes.

[20]It is submitted, for example, that if Ms Liu was to sell Mr Pask’s approximately

$1.5 million in publicly listed company shares to meet her excessive living expenses he will be deprived of the ability of deciding how he should deal with his own property, which in the case of shares may have a significant impact on their value. While there is some attraction to this submission, it overlooks that Mr Pask’s right to a half share in these assets is yet to be determined. For example, Ms Liu says that  any interest Mr Pask has in these assets will be subject to an adjustment on division of the property to compensate her for Mr Pask’s  post-separation actions in relation to  DLL under    s 18C of the Act.9

[21]   On the other hand, Ms Liu’s position is that she needs access to the shares and bank accounts to meet her living expenses given her source of income has been removed by Mr Pask’s taking control of the business. Mr Jones submits that these are the very types of issues that the Family Court is best placed to determine when it makes orders dividing the relationship property.

[22]   In terms of the test for making a freezing order, Mr Jones accepts that Mr Pask has established an arguable case for a half share in the assets, and a real risk that the assets will be dissipated, but submits there is no danger that any judgment will be wholly or partly unsatisfied. This is because, whatever final value is placed on the relationship property, there will be at least $5.4 million of advances made by Ms Liu to the trusts that own the family homes from which any compensation order can be met (Mr Jones concedes these advances are relationship property). This will be more

9      Under s 18C of the Property (Relationships) Act 1979, the Court may order a party to compensate a party if, during the relevant period (defined in s 18B), the relationship property has been materially diminished in value by the deliberate action or inaction of one spouse or partner.

than sufficient to compensate for any dissipation of Mr Pask’s half share of the assets sought to be frozen.

[23]   Mr Pask only seeks to freeze his claimed half share of assets with an estimated value of approximately $4.5 million (half being $2.25 million). I accept Mr Jones’s submission that, even if the full value of those assets are dissipated, the $5.4 million remaining available will be ample to compensate Mr Pask.

[24]   Therefore, whatever the rights and wrongs of the parties’ respective positions (and it seems to me there is room for criticism on both sides based on the limited information before me), this application ultimately turns on a narrow point. In accordance with the test in s 32.5(4) and the decisions of Hannay and Oak Hotels, a freezing order cannot be used by Mr Pask to force Ms Liu, who can ultimately meet any judgment, to hold assets for Mr Pask’s benefit. Although there might be some (at least moral) force to Mr Pask’s general proposition that an applicant’s potential share of relationship property should not be able to be dissipated by a respondent, the law is clear that the Court will not intervene unless there is a danger that dissipation will leave any eventual judgment unsatisfied.10

[25]   It follows that I am not satisfied that the grounds for making a freezing order have been established.

Conclusion

[26]I decline the application for a freezing order.

[27]   I indicated at the hearing that it was disappointing that appropriate undertakings could not be agreed to meet both parties’ concerns, as suggested in Eaton J’s minute of 20 November 2023.11 I invited the parties to have further discussions following the hearing. On 8 May 2024, I received a memorandum attaching open correspondence indicating agreement could not be reached. It seems

10     Both under r 32.5(4) of the High Court Rules 2016 and s 43 of the Property (Relationships) Act 1979.

11     Pask v Liu HC Christchurch CIV-2023-409-576, 20 November 2023 at [8].

to me that reasonably straight forward undertakings would have obviated the need for a freezing order.12 It is a shame a pragmatic solution could not be achieved.

[28]   My preliminary view is that Ms Liu is entitled to scale costs on a 2B basis. If costs cannot be agreed the parties are to file memoranda (not exceeding four pages) within 10 working days of receipt of this decision and any reply memoranda five working days thereafter (not exceeding two pages). However, I caution the parties against further extending this litigation by arguments over costs and refer them to Cooke J’s decision in Lepionka & Company Investments Ltd v Gibson Sheat.13

La Hood J

Solicitors:

Rhodes & Co, Christchurch for Applicant

Saunders Robinson Brown, Christchurch for Respondent

12  For example, undertakings that Ms Liu would not deal with half of the assets Mr Pask seeks to  have frozen in return for receiving a half share of the net profit of the business every month based on monthly accounts, which could be certified by an independent accountant if necessary.

13 Lepionka & Company Investments Ltd v Gibson Sheat [2023] NZHC 2745.