Paugra Holdings Ltd (in liq) v Harvestfield Holdings Ltd

[2013] NZHC 2200

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-6336 [2013] NZHC 2200

UNDER

the Land Transfer Act 1952

IN THE MATTER OF

Caveat 9255346.1 (North Auckland
Registry)

BETWEEN

PAUGRA HOLDINGS LIMITED (In Liquidation)

Applicant

AND

HARVESTFIELD HOLDINGS LIMITED Respondent

Hearing:	22 August 2013
Appearances:	N H Malarao with K H Kuang for Applicant D G Collecutt for Respondent
Judgment:	22 August 2013

ORAL JUDGMENT (No.2) OF ASSOCIATE JUDGE BELL

Solicitors:

Meredith Connell, Auckland, for Applicant

Simpson Dowsett Mackie, Auckland, for Respondent

Counsel:

D G Collecutt, Auckland, for Respondent

PAUGRA HOLDINGS LTD (In Liquidation) v HARVESTFIELD HOLDINGS LTD [2013] NZHC 2200 [22 August 2013]

[1]      Paugra Holdings Ltd (“Paugra”) has applied under r 7.28 to cross-examine Junjie Tao on his affidavit in opposition to its application under r 12(3) of the Court of Appeal (Civil) Rules.

[2]      Paugra has appealed against my decision of 5 June 2013 dismissing its application that caveat 9155346.1 not lapse.1     Paugra has applied for interim relief that the caveat not lapse pending the determination of the Court of Appeal.   That application for interim relief is opposed.  It is to be heard on 9 October 2013.  The caveat remains on the title in the meantime under interim holding orders.

[3]      Harvestfield Holdings Ltd opposes any order sustaining the caveat pending the appeal if such an order is without conditions.  But it says that an interim order sustaining  the  caveat  would  be  appropriate  if  it  were  subject  to  appropriate conditions.  It proposes these conditions:

(i)that Paugra provide an undertaking as to damages, supported by an undertaking from a third party, to meet the costs of complying with the undertaking;

(ii)that Paugra pay the costs on the caveat application into a trust account to be held as security, pending the result of the appeal; and

(iii)      that Paugra prosecute the appeal with all due diligence.

[4]      The third condition can hardly be controversial.   It is a condition imposed almost without question whenever an interim order is made under r 12(3) of the Court of Appeal (Civil) Rules.

[5]      There seems to be some resistance to the second condition.  The position of the liquidators is that they are able to invoke a set-off for the indebtedness by

1      Paugra Holdings Ltd v Harvestfield Holdings Ltd [2013] NZHC 1297.

Harvestfield to Paugra which exceeds the amount of the order for costs.   For that they rely on my findings in my judgment of 5 June 2013.  I found a prima facie case that Harvestfield was indebted to Paugra in the sum of $6,792,106.40, a sum that would exceed an order for costs according to scale.   The second condition is not likely to require significant debate when the court hears the application for interim relief.

[6]      It is the first proposed condition, requiring an undertaking as to damages from someone of substance, that is likely to be the focus of most of the argument when the application for interim relief is heard.  The position of the liquidators of Paugra Holdings Ltd is that they will not offer an undertaking as to damages.  They accept that Paugra Holdings Ltd would not be worth an undertaking at all.  The liquidators are unwilling to give personal undertakings.  Harvestfield has floated the possibility that the creditor supporting this proceeding, the Commissioner of Inland Revenue, might give an undertaking.  The position of the liquidators and apparently of the Commissioner of Inland Revenue is that the Crown does not give such undertakings in these circumstances.  Reference was made to s 65ZD of the Public Finance Act 1989.   If the Crown is to give an undertaking as to damages or an undertaking that will support Paugra’s undertaking as to damages, the Minister of Finance will need to give it.

[7]      Paugra will oppose being required to give an undertaking for these reasons:

(a)      Its case is that Harvestfield caused the losses incurred by Paugra.  For that, it relies on findings in my judgment of 5 June 2013.  It uses an analogy with applications for security for costs. A plaintiff may resist being required to give security for costs if the other party has caused the plaintiff’s loss.  It says that the same principle should apply here.

(b)Again,   by  analogy  with   security  for  costs   principles,   it   says liquidators who take proceedings to recover assets of a company are not required to give security and that principle should be applied in this case.

[8]      It is to be remembered that the aim of giving relief under r 12(3) is to arrange matters so that when the appeal comes to be heard the Court of Appeal will be able to do justice between the parties, whatever the outcome of the appeal may be.  An undertaking as to damages is a protective measure used when one party seeks interim relief.    It  comes  into  play  when  the  other  party  who  might  not  otherwise  be restrained is subject to some interim fetter until the matter is finally resolved, and that party is ultimately vindicated.  The undertaking allows them to be compensated for any losses or damage they have incurred in the meantime as a result of that fetter. In practice the requirement to give an undertaking may also lead the party seeking interim relief to re-assess the merits of their case if they are to be subject to such an undertaking.

[9]      It may be helpful also to note the relevance of undertakings as to damages to

Paugra’s claim to a caveat and also other remedies that might be available to Paugra.

[10]     In my decision of 4 June 2013, I held that Paugra was at best an unsecured creditor of Harvestfield, but did not have a caveatable interest in Harvestfield’s property at Seymour Road, Henderson.  As an unsecured creditor, if Paugra wishes to put a restraint on Harvestfield disposing of the property, its remedy is to apply for a freezing order under Part 32 of the High Court Rules.  To take that course, it would need to start a substantive proceeding, as it has not yet obtained judgment against Harvestfield.  On its application for a freezing order, it would need to establish that it has a good arguable case and that there is a risk of Harvestfield absconding or disposing of assets.  The court’s power to make a freezing order is discretionary and the terms of the order can be moulded to suit the circumstances of the case.  A party applying for a freezing order is required to give an undertaking as to damages, giving some protection to the defendant if the freezing order should not have been made. While I have held that Paugra has a prima facie case to be an unsecured creditor of Harvestfield  Holdings  Ltd,  Paugra  has  not  started  proceedings  claiming  the

$6,792,106.40 payable to it under the agreement for the sale of the Seymour Road property.  Consequently it has not sought a freezing order and has not been required to give any undertaking as to damages which would be required on such an application.

[11]     Caveats are different.  A caveat may be lodged if the caveator has an interest in the property under s 137(1) of the Land Transfer Act 1952.  Whether the caveator has such an interest is not subject to court scrutiny at the time of lodging, but does come under scrutiny by the court on an application under sections 143, 145 or 145A of the Land Transfer Act.   Apart from making out its interest under s 137 the caveator does not have to justify lodging its caveat.  It does not have to show a need to be protected against some risk on the part of the registered proprietor.  Once a caveatable interest is made out, the court has a very limited discretion to remove a caveat.  So a caveat may be lodged virtually as of right.  Whilst it is good practice to do so, the caveator is not required to start a substantive proceeding when lodging a caveat.  Instead the court may require a caveator to start a substantive proceeding, and pursue it diligently, when it makes an order upholding a caveat.

[12]     Under s 146 of the Land Transfer Act, a caveator is liable for lodging a caveat without reasonable cause.  The liability under s 146 arises on a caveat being lodged.  But so long as the caveat has been lodged with reasonable cause, there is no liability under s 146 for keeping the caveat on the title.

[13]     In  addition  to  s  146,  the  courts  have  recognised  that,  as  a  condition  of upholding  a  caveat,  a  caveator  may  be  required  to  give  an  undertaking  as  to damages:  BP New Zealand Oil Ltd v Van Beers Motors Ltd.2    This power to require an undertaking is discretionary – it is not imposed as a matter of course.  Mr Malarao referred  to  my decision  in  ANZ National Bank Ltd  v Uruamo  (No  2),3      where I declined to order an undertaking in the circumstances of that case.  Liability on the undertaking arises only if the registered proprietor is ultimately successful, but the registered proprietor can sue on the undertaking whether or not the caveator had reasonable  cause  under  s  146.     Mr  Malarao  submitted  that  liability  on  the undertaking  can  arise  only  if  there  is  liability  under  s  146.     But  I  accept Mr Collecutt’s submission to the contrary that liability under s 146 and liability under an undertaking are distinct.  Liability under s 146 arises only at the time when the caveat is lodged.  Liability on an undertaking can arise later for maintaining the

caveat, but not for its lodging.

2      BP Oil New Zealand Ltd v Van Beers Motors Ltd [1992] 1 NZLR 211 (HC).

3      ANZ National Bank Ltd v Uruamo (No.2) [2012] NZHC 1914.

[14]     In appealing to the Court of Appeal, Paugra is asking that court to find that it has a caveatable interest.  If the appeal is successful, the Court of Appeal may also consider what conditions, if any, to attach to an order that the caveat not lapse. Potentially, that might include a condition requiring an undertaking as to damages.

[15]     The judge hearing the application under r 12(3) will need to consider whether it is proper to require an undertaking as a form of interim protection to Harvestfield pending the appeal.  Paugra’s claim is as an unpaid vendor of the land in Seymour Road.  If it is an unsecured creditor, it can obtain an order preventing disposal of the land only if it gives an undertaking as to damages in an application for a freezing order.  On the other hand, if it has security in the form of a caveat, the court might still require an undertaking as to damages in its discretion.  As an appellant, Paugra is an aspiring caveator in that it has still to persuade a court that it has a caveatable interest in the land.  On the application under r 12(3), it is resisting giving an undertaking.  It is saying that pending the appeal it ought to be placed in the position of a caveator who is not required to give an undertaking, even though it has not established that entitlement yet.   As a consequence it is saying that Harvestfield ought to bear any losses arising from the caveat being on the title in the meantime, even if Harvestfield is later upheld on the appeal.

[16]     When the court comes to consider the question of an undertaking, the court may have to assess what damage, if any, Harvestfield might suffer pending the hearing of the appeal, if the appeal fails.  While that may be an issue, it may be only one of the matters to be considered and may not be pivotal.

[17]     I am not required to decide the terms on which Paugra should have interim relief.  I am only required to decide a preliminary matter, whether Junjie Tao, who has sworn an affidavit for Harvestfield, should be cross-examined on his affidavit. The application is made under r 7.28, which provides:

A judge may in special circumstances, on the application of a party, order the attendance for cross-examination of a person who has made an affidavit in support of, or in opposition to, an interlocutory application.

[18]     As to that rule, the Court of Appeal said in Kidd v van Heeren:4

There is no dispute that, as has been accepted in other contexts, “special circumstances” are wide, comprehensive and flexible words indicating something abnormal, uncommon or out of the ordinary but something less than extraordinary or unique. ...

[19]     I  add  that  even  if  special  circumstances  are  found,  the  court  retains  a discretion whether to require the maker of an affidavit to attend for cross- examination.

[20]    The order sought in this case is that Mr Tao attend this court to be cross- examined.   Mr Tao swore his affidavit in Shanghai, People’s Republic of China. Mr Malarao made it clear that he was not seeking an order that would require Mr Tao to travel to New Zealand to be cross-examined here.  He said that the evidence could be taken by remote video-link.

[21]     Mr Tao has sworn two affidavits in the present application. The first one is in both English and Chinese.  Mandarin is Mr Tao’s first language.  He apparently has a limited command of English.  It is obviously understandable that he would prefer to give his affidavit in Mandarin rather than English.  His first affidavit addresses the language question in an acceptable way.  Mr Tao has clearly verified the statements in Mandarin and the document has been certified by a translator as an accurate translation.  Unfortunately, that affidavit was not correctly sworn, according to the requirements of the High Court Rules.

[22]     Mr Tao has sworn a fresh affidavit.   However this affidavit is only in the English language.  Given his apparent poor command of the English language, I am concerned that Mr Tao would not be able to affirm the correctness of the contents of his second affidavit.   It  seems desirable that Mr Tao swear a fresh  affidavit in Chinese, and that that affidavit, in Chinese, be the subject of a further affidavit by an appropriately qualified interpreter/translator verifying that the English version of the affidavit is a correct translation of the contents of the affidavit sworn by Mr Tao in Chinese.  I give directions for such further affidavit, addressing the translation issue,

to be filed in time for the hearing of the application for interim relief.

4      Kidd v van Heeren (1997) 22 PRNZ 422 (CA) at 424.

[23]     Mr Tao’s affidavit addresses the inconvenience to Harvestfield of the caveat remaining on the title pending the hearing of the appeal.  He has referred to, and attached to his affidavit, a copy of a loan contract between Harvest Yik Holdings Ltd

– said to be a family company – which is alleged to have advanced funds to Harvestfield Holdings Ltd, apparently covering contributions towards the purchase price of the property.

[24]     The  property,  33-37  Seymour  Road,  Henderson,  is  vacant  land  but  has resource consents allowing development of 146 medium-density units.  The resource consents were the subject of evidence in the caveat hearing.  The effect of the grant of the resource consents allowing development on the land was to increase the value of the property markedly.

[25]     Mr Tao says that the resource consents are about to expire.  Reference was made to s 125 of the Resource Management Act 1991, which provides for the lapsing of resource consents.  There are also provisions within s 125 for resource consents to be extended but the consent authority is required to enquire into a number of matters including, amongst other things, whether substantial progress has been made towards giving effect to the consent.

[26]     Mr Tao says that he anticipates difficulties in obtaining an extension of the resource consents because of the presence of the caveat.  His evidence is along the lines that further finance will be required to cover the costs of giving effect to the consents as the caveat is said to secure approximately 60 per cent of the value of the property.  That is a barrier to Harvestfield being able to obtain further finance to fund the development work.

[27]     The liquidators have filed an affidavit in reply.  They take strong issue with

Mr Tao’s affidavit.  Matters they take issue with are the following:

(a)       Whether Mr Tao has authority to speak for Harvestfield.  Mr Tao has been, but presently is not, a director of the company – his mother is.

(b)       Mr Tao’s association with Harvest Yik Holdings Ltd.

purports to give security to Harvest Yik, Harvest Yik has taken no steps to register the security against the title to the land, even though there was an opportunity for it to do so before Paugra lodged the caveat against the title.

(d)The advances made were for a period of three years, and the three years have now elapsed.  Harvest Yik has apparently taken no steps to enforce payment.

(e)      An  apparent  change  of  position  by Harvestfield.     Initially, Harvestfield put the property on the market for sale, but it is now proclaiming its intention to carry out development work.   The liquidators refer to advertisements on the internet promoting the property for sale through TradeMe, real estate agents, and the  website and  to  the lack  of any development work carried out by Harvestfield on the property in the interim.

[28]     Given the differences between Mr Tao’s affidavit and the matters set out in

Mr Levin’s affidavit in reply, Paugra says that there are special circumstances under r

7.28.  Mr Malarao’s submissions rely on these matters:

(a)      The duty to cross-examine on significant matters that are relevant and in issue and that contradict the evidence of a witness – that is, the duty under s 92 of the Evidence Act 2006.

(b)There are issues of credibility.   There are clear inconsistencies and discrepancies between the evidence that Mr Tao gave in the caveat application and the evidence now given on the interim relief application.

(c)       There is a conflict of evidence between Mr Tao and Mr Levin.

unless  he  had  cross-examined  in  compliance  with  his  duty  under  s  92  of  the

Evidence Act 2006.

[29]     I do not accept that Mr Malarao will be held to have failed in his duty under s 92 of the Evidence Act 2006 if he is not given the opportunity to cross-examine Mr Tao.  This is an interlocutory application.  It can often happen in an interlocutory application that there will be differences and conflicts between the evidence given on one side and the evidence given on the other.  In general those conflicts in the evidence are not required as to be resolved by requiring deponents to attend court to be cross-examined.   Rule 7.28 makes that plain.   It is only a case of special circumstances that requires witnesses to be made available for cross-examination.  It does not arise as a general rule.

[30]     I understand the concern of Paugra to be that when the application for interim relief is heard Mr Tao’s affidavit may be accepted at face value.   Clearly, Paugra wants to be able to submit to the court that his affidavit should not be accepted at face value.  Mr Malarao made it clear that he would be submitting to the court that Mr Levin’s affidavit and evidence should be preferred to that of Mr Tao.  Paugra has already laid the foundation for it to make such a submission through the reply affidavit sworn by Mr Levin.  Mr Levin has expressed his own views as to Mr Tao’s credibility.  Obviously mere opinion is irrelevant.  But Paugra has also adduced significant evidence on which it can submit that Mr Tao’s affidavit should not be accepted at face value.   The evidence points to inconsistencies between evidence given by Mr Tao in the caveat application and the present application.  It has shown that the property has been put on the market for sale and that there was no development work on site, even before the caveat was lodged.  It says that these matters belie Mr Tao’s evidence of intentions to carry out development work on the property.

[31]     What this means is that it becomes unnecessary for Paugra to cross-examine Mr Tao on these points because there is already material on which it can base its arguments.   Even conflicts in evidence do not amount to “special circumstances”

under r 7.28.  In this regard Mr Collecutt referred to the Court of Appeal’s decision

in Kidd v van Heeren where the Court of Appeal said:5

The central and only issues of importance arising on the part of Mr van Heeren’s application are the authenticity and validity of the document relied upon by him and its proper interpretation.  It is not unusual for such issues to arise on interlocutory applications.  They are common circumstances and not special circumstances justifying cross-examination.   Issues of authenticity and validity of documents can be and are the subject of competing affidavits. Conflicts between deponents do not of themselves create special circumstances justifying cross-examination.

(emphasis added)

[32]     Notwithstanding the conflict in the evidence of Mr Tao and the evidence of Mr Levin, there are some matters which should not be contested.  The property at Seymour Road, Henderson, is vacant land.   It is suitable for development and currently has land use and subdivision consents allowing the development.  Those consents are apparently shortly to lapse.   It can be expected that any owner of Seymour Road with any commercial nous would be likely to claim some degree of hardship from the presence of a caveat lodged against the title.  It seems to me that a judge considering an application under r 12(3) will be unlikely to find that there is no hardship to Harvestfield arising from the presence of the caveat pending the decision on appeal.  Instead, the inquiry is more likely to be as to the extent of the hardship.

[33]    The matter is similar to enquiries made in other cases where there is an application for interim relief.   The court will not be expected to decide precisely what damage Harvestfield will incur.  It is more likely to assess likely heads of possible loss, the probabilities of those losses occurring and their seriousness.  In applications for interim relief, such assessments are typically made on affidavit evidence, without deponents being required for cross-examination.  In my judgment the court will be able to make such an assessment in this case without Paugra cross- examining Mr Tao.

[34]    The context for assessing the potential hardship to Harvestfield will be a decision whether Paugra should give an undertaking as to damages as a condition of interim relief.   Presumably if the risk of loss is slight then it will not be unduly

onerous to require Paugra to give an undertaking.  On the other hand if there is a

5      Kidd v van Heeren (1997) 11 PRNZ 422 (CA) at 425.

significant prospect of loss, then there may be greater need for Harvestfield to be protected.   No doubt Paugra will also submit as to hardship falling on its side as well.  This evaluation of relative risk against potential hardship to the parties is unlikely to  turn  to  any significant  degree on  any possible  cross-examination  of Mr Tao.

[35]     Accordingly, I conclude that I do not find any “special circumstances” under

r 7.28 requiring Mr Tao to be made available for cross-examination.

[36]     I add another matter.   I would regard it as a difficult exercise for Mr Tao to give evidence.  While it may be possible to set up a video-link so that his evidence can be given, I also need to bear in mind that he will be giving his evidence through an interpreter.  That means that an appropriately qualified interpreter would need to be arranged.  With evidence being given long distance by video-link and through an interpreter, there may be difficulties in a judge assessing credibility if the judge is reliant on matters of demeanour.

[37]     I add yet another matter.  In his submissions, Mr Collecutt proposed adducing further evidence to address matters raised by Mr Levin in his affidavit in reply. There was discussion whether time should be given for further affidavits to be filed. On reflecting on the matter, I am concerned that an application for interim relief may be allowed to grow out of its proper proportions.  In the circumstances, I direct that Harvestfield is not to file any further evidence on the merits of the application for interim relief. Any further evidence should simply be limited to evidence that would address the interpretation issues on Mr Tao’s affidavit.

[38]     I dismiss the application under r 7.28

[39]     At least 10 working days before the hearing of the application under r 12(3), Harvestfield is to file and serve a fresh affidavit by Tao in Chinese and an affidavit by an appropriately qualified interpreter verifying a translation of Mr Tao’s affidavit.

Costs

[40]     Mr Collecutt sought costs.  Mr Malarao opposed, saying that costs should be a matter for decision on the hearing of the application for interim relief under r 12.3. I go with Mr Malarao’s proposal.  At the same time, I do remark that it has not been a difficult matter for me to decide that an order should not be made under r 7.28 requiring Mr Tao to attend for cross-examination.   I also record that the case has taken half a day for hearing.  There has been some preparation by Mr Collecutt.  He prepared a notice of opposition and the submissions for the hearing as well.  Both parties co-operated with my suggestion that we hear and decide the matter on the first call. The co-operation of both sides is appreciated.

...........................................

Associate Judge R M Bell