Peng v Li
[2016] NZHC 380
•8 March 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-4367 [2016] NZHC 380
BETWEEN ZHONGJIAN (TOM) PENG AND
CATHERINE CHAO Plaintiffs
AND
XIAOXI (RICHARD) LI First Defendant
YUAN CHEN Second Defendant
Hearing: On the papers Counsel:
M A Karam for Plaintiffs
C R Andrews for DefendantsJudgment:
8 March 2016
JUDGMENT (No 2) OF FOGARTY J
This judgment was delivered by me on 8 March 2016 at 4.30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date: ………………………….
Solicitors: Aaron Kashyap, Epsom
McVeagh Fleming, Auckland
PENG v LI [2016] NZHC 380 [8 March 2016]
[1] This is my second decision in relation to this matter. Initially there had been seven causes of action. As outlined in my earlier decision in Peng v Li (which I refer to as “Judgment No 1”), these were:1
1Breach of a joint venture contract over two properties having the postal addresses of 1/18 (“Property 1”) and 2/18 Inverary Avenue (“Property 2”), Epsom.
2A cause of action under the Fair Trading Act alleging false and misleading misrepresentations by the first defendant.
3 An action in deceit against the first defendant.
4 An action for unjust enrichment/money had and received.
5 Constructive trust.
6 Resulting trust.
7 Breach of fiduciary duty.
[2] The plaintiffs were successful in obtaining judgment against the first defendant (but not the second defendant) in respect of the first and third causes of action in my first decision. Damages were awarded in the sum of $507,500, together with interest under the Judicature Act and costs.
[3] The plaintiffs have since abandoned their claim under the second cause of action.
[4] In Judgment No 1 I granted leave to the parties to pursue the equitable causes of action by 20 October 2015 because insufficient submissions had been provided on those points.2 The plaintiffs took up this opportunity and filed written argument on
20 October 2015, seeking an entry of judgment on the fourth to seventh causes of
action. Pursuant to these equitable causes of action, the plaintiffs sought a proprietary remedy of 35 per cent of the first defendant’s interest in Property 1. Submissions from the defendant followed on 20 November, together with submissions of counsel for the plaintiff in reply.
[5] In their reply submissions, the plaintiffs substituted their claim for a proprietary remedy in relation to Property 1 with a monetary award instead: a debt judgment in equity to the value of $507,500. I issued a minute dated 18 December noting this development. On that date I also issued a further minute querying what additional advantage the plaintiff might obtain by having a debt judgment in equity
when they already have a judgment debt for the same sum at common law.3
[6] That led to a further round of submissions. Counsel for the plaintiffs explained that because the first judgment was under appeal and there was a possibility that the judgment debts at common law might be overturned, it was considered appropriate to seek judgment in the plaintiffs’ favour against the first defendant on the equitable causes of action.
[7] Turning to the liability of the second defendant, it was submitted that as she was one of the recipients of the money, that fact completes liability under the fourth cause of action for money had and received and judgment on that cause of action ought to be entered. While there has been no finding of fact that she knew of the dishonest conduct by her husband, the plaintiffs say this is not necessary for proving the fourth cause of action. As to the fifth and sixth causes of action, constructive trust and resulting trust, it was argued that though there was no proprietary remedy available against the second defendant, equitable compensation was available as a
remedy and counsel invited the Court to follow Herbert Equities v Mamfredos.4
[8] Finally, it was submitted that recovery under equitable causes of action involving breach of fiduciary duty can provide the basis for an award of increased costs.
Remaining fourth, fifth, sixth and seventh causes of action against the first defendant
[9] In this round of submissions, subsequent to the first judgment, the plaintiff has not contested entry of judgment against him for damages in the last four causes of action. On the findings of fact in the first judgment of deceit, there is no doubt the first defendant breached a relationship of confidence between he and the plaintiffs. Mr and Mrs Peng entrusted their money to the first defendant.5 Were it possible to trace that money into assets under the control of the first defendant, there is no doubt that the remedies of constructive trust, resulting trust and breach of fiduciary duty would be available to the plaintiffs.
[10] Equity follows the law. It is settled that equitable compensation is available as a remedy where equitable obligations have been breached. In the case of Herbert Equities Ltd v Mamfredos,6 Courtney J readily entered a money judgment for remedies for claims framed in constructive trust and breach of trust. Her Honour stated as follows:
[24] I accept Mr Katz’s submission that claims framed in equity for constructive trust, breach of trust, breach of fiduciary duty and fraud all succeed on the finding of a fiduciary relationship a receipt of monies paid for a particular purpose and application of that money for personal purposes. The plaintiff seeks a money judgment against the defendant jointly and severally, together with interest, costs and disbursements and I accept that judgment should be entered against all of the defendants on that basis.
[11] I have no doubt that, in the absence of a proprietary remedy, a money judgment against the first defendant is justified in equity in the same sum of
$507,500. It is clear judgment must also be entered for the same sum against the first defendant on the cause of action of money had and received.
[12] Judgment is entered for the sum of $507,500 against the first defendant in respect of the fourth, fifth, sixth and seventh causes of action.
The fourth, fifth, sixth and seventh causes of action against the second defendant
Factual findings
[13] The plaintiffs rely on the finding of fact in the first judgment that the defendant used the money that was paid by the plaintiffs into the joint account he shared with his wife.7 This was to repay the first defendant’s loan from his brother in
the United States and to assist his family in settling in Canada.8 The relevant finding
of fact reads:9
[141] The evidence is clear that after he received the $507,000, from the time he replied by text “done”, Mr Li was deceiving Mr Peng. His use of the money to repay his brother was a fraud on Mr Peng and his wife. Leaving them for a period of time deceived into believing that they were participating in a property joint venture.
[14] Mrs Chen, the second defendant, gave evidence. It was never part of the
plaintiffs’ case that she was in on the deceit.
Submissions
[15] The second defendant’s submission is that no judgment should not be entered against her:
Because she is not the actual recipient of those monies merely by virtue of being a named owner along with the first defendant of a joint account into which the money was paid.
It is submitted as far as the second defendant is concerned, the joint account was simply conduit through which the payment procured by the first defendant from the plaintiffs was deposited, and from which the first defendant settled his debt to his brother in the United States. The second defendant, even if she assisted the first defendant by transacting the electronic transfer for the first defendant to his brother, did not retain the plaintiffs’ money to her own use … To the extent that the first defendant also applied a small part of that money to assist both defendants in settling in Canada, it is submitted the benefit flowing in that regard to the second defendant is too incidental to constitute her unjust enrichment for the purposes of this cause of action.
7 Judgment (No 1), above n 1, at [11].
8 At [109]-[110].
[16] In the plaintiffs’ submissions in reply, counsel renewed reliance on the fact that the husband and wife defendants conducted all their financial dealings on a joint basis. The wife benefitted from the repayment to the first defendant’s brother. The key submission was that the cause of action at common law for unjust enrichment and money had and received is not dependent in any way on proof of wrongdoing on the part of the recipient.
[17] The critical submission made on behalf of Mrs Chen is that such benefit as flowed to her was too incidental to constitute unjust enrichment. The plaintiff says in response that this submission misses the point and is not reflective of the law.
Fourth cause of action – money had and received by the second defendant
[18] The action for money had and received is ancient, and recognises the unjust enrichment of receiving a benefit for which no corresponding benefit is provided. The second defendant was one of the recipients of the money because it was paid into the account she shared with her husband. But she did not in any practical sense receive the money.
[19] The plaintiffs placed significant emphasis on the following oft-cited passage of Blanchard J in Nimmo v Westpac Banking Corporation, which posits that the claim does not depend on proof of any wrongdoing or fault on the part of the recipient:10
An action for money had and received is based on the receipt of the money by a defendant who now longer has the right to retain it or has improperly disposed of it. Other than that, the claim does not depend on proof of any wrongdoing or fault on the part of the recipient. The cause of action is complete when the money is received.
[20] In my view this is not a complete statement of the law. In Nimmo the action failed as the money could not be traced.11 Ultimately, the gist of the action is conscience: that it is against the conscience of the recipient of money not due to
them to return it. The Laws of New Zealand cites the Court of Appeal decision of
10 Nimmo v Westpac Banking Corporation [1993] NZLR 218 (HC), at 238.
11 At 238, lines 2 and 31.
Thomas v Huston Corbett and Co.12 All three judges in that case (North P and Turner and McGregor JJ), cited the decision of Parke B in Kelly v Solari.13 Turner J described that case as being “generally regarded as the locus classicus on the subject”. Parke B said:14
I think that where money is paid to another under the influence of a mistake, that is, upon the supposition that a specific fact is true, which would entitle the other to the money, but which fact is untrue, and the money would not have been paid if it had been known to the payer that the fact was untrue, an action will lie to recover it back, and it is against conscience to retain it; though a demand may be necessary in those cases in which the party receiving may be ignorant of the mistake.
Application
[21] On the facts of this case, the second defendant’s conscience was not engaged. There is no proof of any dishonesty on her part. It is an oversimplification of the common law action that mere receipt of the money is sufficient to trigger an obligation to return it. The fourth action for unjust enrichment/money had and received fails against the second defendant.
The fifth, sixth and seventh causes of action: constructive, resulting trusts and breach of fiduciary duty against the second defendant
[22] All trust claims depend ultimately on the application for relief engaging the conscience of the defendant. The distinction between types of trusts has the utility of identifying and collecting categories of sets of facts where the courts have recognised the conscience of the person holding the property is engaged.
[23] Here the fact is that the $507,000 was rapidly dissipated. It was never held to the enjoyment of the second defendant, Mrs Chen. She was unaware of the fraud.
Her conscience was not engaged. This goes against Tipping J’s strong dictum in
12 Thomas v Huston Corbett and Co [1969] NZLR 151 (CA).
13 Kelly v Solari (1841) 152 ER 24; recently cited with approval in New Zealand in Saunders and Co v Hague [2004] 2 NZLR 475 (HC) per Chisholm J (albeit in the context of restitution based on mistake of fact).
14 At 26. (emphasis added).
Chirnside v Fay that the intervention of equity requires engagement of the
defendants’ conscience:15
… Equity, as the keeper of consciences, responds by saying to Mr Chirnside that in the circumstances his conduct was contrary to good conscience and therefore susceptible of equitable intervention.
[24] There is no basis for equity attaching remedies to her share of common property. That proposition can be tested this way. Couples can operate a joint bank account without being fully aware or responsible for each movement of funds in or out of the account. They will have joint liability for the indebtedness of the account to the bank, and that is by reason of contract, not conscience. If the first defendant had opened a bank account and asked Mr Li to pay the money into that bank account and used the money to pay off his brother’s debt and for incidental expenses in settling in Canada, his wife would clearly not be liable.
[25] These claims against the second defendant are dismissed.
Costs
[26] The plaintiffs are awarded costs against the first defendant. Costs lie where they fall on the counterclaim.16 The parties agree that costs be on a 2B basis. The two issues dividing the parties on costs are: the preparation of briefs in reply (a claim of two days); and a claim for the 50 per cent uplift for breach of fiduciary duty.
[27] The additional two days was for the preparation of briefs in reply to the Harbour Fitness defence.17 The Harbour Fitness defence was a positive defence. In my view, it was necessary for the plaintiffs to see the content of the defendants’ briefs in this respect before it could realistically prepare a reply.
[28] The defence argument is that no provision for additional briefs is made in the body of the High Court Rules (the Rules) or in the time allocations in Schedule 3.
The plaintiffs rely on r 14.5(1)(b) or (c). Rule 14.5(1) reads:
15 Chirnside v Fay [2007] NZSC 68; [2007] 1 NZLR 433, at [90] (emphasis added).
16 This is a clarification of the finding of entitlement in [172] of Judgment (No 1). The finding of liability is against the first defendant. See [149].
17 See Judgment (No 1), above n 1, which primarily concerned the Harbour Fitness defence.
14.5 Determination of reasonable time
(1) For the purposes of rule 14.2(c), a reasonable time for a step is—
(a) the time specified for it in Schedule 3; or
(b) a time determined by analogy with that schedule, if Schedule
3 does not apply; or
(c) the time assessed as likely to be required for the particular step, if no analogy can usefully be made.
[29] Rule 14.5(1)(b) and (c) apply. Item 30 of Schedule 3 allocates 2.5 days on a B band basis. I regard the claim for two days as reasonable. The claim for two days is allowed.
[30] The plaintiffs additionally seek an uplift of 50 per cent on account of increased costs against the first defendant in order to reflect the breach of fiduciary duty and dishonest defence he advanced, as found in the judgment. The plaintiffs recognise that they do not meet the threshold for indemnity costs and so submit that an award of increased costs would be appropriate to account for the breach of fiduciary duty and deplorable conduct.
[31] The relevant rule is r 14.6(3):
(3) The court may order a party to pay increased costs if—
(a) the nature of the proceeding or the step in it is such that the time required by the party claiming costs would substantially exceed the time allocated under band C; or
(b) the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—
(i) failing to comply with these rules or with a direction of the court; or
(ii) taking or pursuing an unnecessary step or an argument that lacks merit; or
(iii) failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument; or
(iv) failing, without reasonable justification, to comply with an order for discovery, a notice for further
particulars, a notice for interrogatories, or other similar requirement under these rules; or
(v) failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding; or
(c) the proceeding is of general importance to persons other than just the parties and it was reasonably necessary for the party claiming costs to bring it or participate in it in the interests of those affected; or
(d) some other reason exists which justifies the court making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.
[32] The first defendant submits that none of the criteria set out in that rule apply. I agree. Rather, the plaintiffs are relying on criticism of the first defendant’s conduct prior to the commencement of the proceedings so that his defence was dishonest. It is only conduct after the proceedings have been issued that can be taken into account in r 14.6(3) compared to the next rule providing for indemnity costs, r 14.6(4).
[33] I am satisfied that the plaintiffs are seeking to rely on r 14.6(3) as some midway point, given that they cannot make out a claim for indemnity costs. The plaintiff’s claim is not recognised by r 14.6(3).
[34] The plaintiffs have succeeded in relation to the claim for two days for the reply briefs. However, they have lost on the other point. In relation to the first proceeding, costs are payable to the plaintiffs on a 2B basis.
Outcome from both judgments
[35] The plaintiffs have been unsuccessful in all their causes of action against the second defendant.
[36] Judgment is entered against the first defendant on causes of action 1, 3, 4, 5,
6 and 7, with a common remedy of $507,500, plus interest under the Judicature Act from 4 May 2012.18
[37] Costs are awarded to the defendants jointly on a 2B basis, according to the Schedule, plus two days for the preparation of briefs in reply to the Harbour Fitness defence.
[38] I assume the parties will be able to agree and settle the formal judgment, including the schedule of the costs. I grant leave to the parties to apply if any
difficulties arise.
18 See Judgment (No 1), above n 1, at [172].
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