Qian v Dong
[2022] NZHC 744
•13 April 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-000132
[2022] NZHC 744
BETWEEN DONG QIAN
First Plaintiff
GRZ PROPERTIES LIMITED
Second PlaintiffAND
JIAQING DONG
First Defendant
NAC INTERNATIONAL TRADING LIMITED
Second DefendantYU WEN
Third DefendantYU HOMES LIMITED
Fourth Defendant
Hearing: 21 March 2022 Appearances:
G Blanchard QC and K Puddle for the Plaintiffs C Jiang for the First and Second Defendant
Judgment:
13 April 2022
JUDGMENT OF ASSOCIATE JUDGE GARDINER
This judgment was delivered by me on 13 April 2022 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
QIAN v DONG [2022] NZHC 744 [13 April 2022]
Introduction
[1] Dong Qian (Mr Qian) claims that he and Jiaqing Dong (Mr Dong) bought a property at Wicklam Lane, Greenhithe, to develop together as partners. A resource consent for the subdivision of the property was obtained. Mr Qian and Mr Dong then had a falling out. Mr Dong sold Wicklam Lane to Yu Wen (Mr Wen). Mr Qian was not informed of the sale. A month later, Mr Wen sold around 50 per cent of the land area of the property to Yu Homes Group Limited (Yu Homes). That company has lodged a caveat against the certificate of title for the property.
[2] Mr Qian claims that Mr Dong breached their partnership or joint venture by not completing the development, transferring the property to Mr Wen below market price and without his knowledge, not receiving full payment or accounting to Mr Qian for the transfer, requiring Mr Qian to pay development costs after the transfer, and depriving Mr Qian of the ability to profit from the development and/or not paying him his share of the profits. Alternatively, he and his company QRZ Properties Ltd (QRZ) claim damages for breach of contract, or that they have a beneficial interest in the property under a constructive trust arising out of contributions they made towards the property’s purchase and development. Mr Qian alleges that Mr Dong and Mr Wen conspired to deprive him of his unregistered interest in the property and the development profits.
[3] Against Mr Wen, Mr Qian claims that he knew, or ought to have known, that he received the property from Mr Dong further to a breach of partnership, joint venture, or trust. On the basis that Mr Wen had actual knowledge or was wilfully blind to Mr Qian’s unregistered interest, and intended to defeat that interest, Mr Qian seeks declarations including that Mr Wen holds the property on trust for him and is prevented from settling the sale to Yu Homes, and an order that the caveat registered against the certificate of title for the property is removed.
[4] This decision deals with discovery. Mr Qian and QRZ have applied for further and better discovery from Mr Dong of documents relating to the purchase and sale of Wicklam Lane. Of the 13 categories of documents identified in the application, 11 were resolved before or during the hearing. Either Mr Dong and his company
NAC International Trading Limited (NAC) consented to their discovery; or Mr Qian and QRZ accepted their explanation that the documents do not exist.
[5]There remain two categories of documents in dispute:
(a)copies of Mr Dong’s bank statements for the period 2 to 10 November 2020; and
(b)any record of the agreement between Mr Dong and his mother, Peilan Liang, for the advance of money from Mr Qian through her for the purchase of the property by Mr Dong.
[6] The plaintiffs contend that these documents are relevant to existing causes of action in the statement of claim and should be discovered. The defendants argue that the plaintiffs are “fishing” and that the allegation in the statement of claim to which the documents relate is speculative and without evidential foundation.
Legal framework
[7] Under r 8.19 of the High Court Rules 2016, a Court may make an order for particular discovery after the proceeding has commenced, where:
… it appears to a Judge, from evidence or from the nature or circumstances of the case or from any document filed in the proceeding, that there are grounds for believing that a party has not discovered 1 or more documents or a group of documents that should have been discovered …
[8] The starting point is that a document or class of documents will only be discoverable if relevant to the matters at issue before the Court. Only then can it be said that, in terms of the rule, they “should have been discovered”.1
[9] The Court usually follows a four-stage approach in considering applications under r 8.19.2 First, are the documents relevant to issues before the Court, and if so, how important will they be? Secondly, are there grounds for believing that the
1 Robert v Foxton Equities Ltd [2014] NZHC 726, [2015] NZAR 1351 at [8(a)].
2 Assa Abloy New Zealand Ltd v Allegion (New Zealand) Ltd [2015] NZHC 2760, [2018] NZAR 600 at [14]; and Andrew Beck and others McGechan on Procedure (online ed, Thomson Reuters) at [HR8.19.03].
documents exist? This will often be a matter of inference. Thirdly, would the time and cost of discovery be proportionate to its potential value? Fourthly, weighing and balancing these matters, in the Court’s discretion, is an order appropriate?
[10] This Court has previously observed that relevance is to be assessed according to the pleadings.3 In determining relevance, it is the case of the party seeking discovery that must be assumed to be true, not the party from whom discovery is sought. Further, the party seeking particular discovery has the onus of establishing that the party from whom discovery is sought is in control of document that should have been discovered under standard discovery.4
Mr Dong’s bank statements
[11]The plaintiffs seek discovery of these documents:
Copies of the bank account statements for the first defendant, Kiwibank accounts 38-9020-0363774-01 and 38-9020-0363774-00 from between 2 November and 10 November 2020, being the accounts into which the
$1,050,000 “deposit” was transferred, and copies of any other accounts into which any part of the $1,050,000 “deposit” was paid.
[12] To explain, on 30 November 2020, Mr Dong sold Wicklam Lane to Mr Wen, for $3,500,000. A portion of the price was allegedly paid by way of 14 bank transfers of $50,000 and $100,000 between 2 and 10 November 2020, totalling $1,050,000. Mr Wen has deposed that he funded the purchase price by a gift from his mother of
$1,050,000 and a bank loan from Westpac.5 He has put in evidence a “gifting letter”
dated 7 October 2020 in which his mother declares that she gifts the sum to him to purchase Wicklam Lane.6
[13] Mr Wen deposes that his mother paid the $1,050,000 gift to his ASB bank account in various instalments between 2 and 10 November 2020. The instalments were for $50,000 and $100,000 each. He deposes that as soon as each instalment was transferred to his bank account from his mother’s account, he paid the same instalment
3 Robert v Foxton Equities Ltd, above n 1, at [8(b)].
4 At [8(c)].
5 Affirmation of Yu Wen in support of interlocutory application for summary judgment and for leave to file summary judgment application dated 11 October 2021 at [16]–[17].
6 Annexure F to Affirmation of Yu Wen dated 11 October 2021.
to Mr Dong’s bank account. He has put in evidence a copy of his ASB bank statement showing the payments to his account from his mother totalling $1,050,000.7 The transfers from his account to Mr Dong’s account can also be seen on the bank statement.
[14] Mr Dong has provided his bank statement for his “-11” bank account with Kiwibank, which shows the 14 deposits of $50,000 or $100,000 from Mr Wen’s account to his account between 2 and 10 November 2020.8 The bank statement also shows that Mr Dong transferred all but $157,000 of the $1,050,000 to either his “-00” or “-01” accounts in instalments over the period of 2 to 10 November 2020.
[15] Critically, the plaintiffs allege that these money transfers were part of a “money-go-round”. Specifically, they allege that once the funds were deposited into Mr Dong’s -00 or -01 accounts, they were then recycled by Mr Dong to Mr Wen, either directly or through intermediate third parties. As such, they contend that Mr Wen provided no cash contribution to the purchase or development of the property.
[16] The plaintiffs plead the “money-go-round” in their first cause of action against Mr Dong for breach of partnership, their second cause of action against Mr Dong for breach of a joint venture, their fifth cause of action against Mr Wen for knowing receipt, their sixth cause of action against Mr Dong and Mr Wen for conspiracy to injure by unlawful means, and their seventh cause of action against all defendants for equitable proprietary tracing and associated relief.9
[17] Mr Blanchard QC for the plaintiffs emphasises that discovery is determined with reference to the pleadings.10 Plainly the documents are relevant to several of the pleaded causes of action. The “money-go-round” is in the statement of claim, it is disputed, and the Court will need to determine if there was in fact a “money-go- round”.
7 Annexure G to Affirmation of Yu Wen dated 11 October 2021.
8 Affidavit of Jiaqing Dong in support of First and Second Defendants’ Notice of Opposition to Plaintiffs’ Application for Further and Better Discovery at GD132.
9 Second amended statement of claim dated 9 March 2022.
10 Chatfield & Co Ltd v Commissioner of Inland Revenue [2016] NZCA 614.
[18] Further, the plaintiffs’ case is assumed to be true for the purposes of discovery.11 The strengths or merits of the plaintiffs’ case are irrelevant to the application, so long as it is not without merit.
[19] Mr Blanchard submits that the plaintiffs are not “fishing” as the defendants allege. He relies on the definition of “fishing” by Chilwell J in AMP v Architectural Windows:12
An applicant is fishing when he seeks to obtain information or documents by interrogatories or discovery in order to discover a cause of action different from that pleaded or in order to discover circumstances which may or may not support a baseless for speculative cause of action.
[20] Mr Blanchard QC submits that the documents in this category are requested to support an existing cause of action. Further, that cause of action is not entirely without merit, baseless nor speculative. In support of the second point, Mr Blanchard relies on the following:
(a)The plaintiffs’ claim has survived an application for summary judgment by Mr Wen. The claim will therefore go to trial.
(b)To discharge the freezing orders, Mr Dong agreed to pay sums to Mr Qian and retain orders over two properties.13
(c)There was no commercial or contractual basis for Mr Wen to pay a
$1,050,000 deposit.
(d)The payments were made in 14 separate transactions over several days, directly between the parties, rather than through a solicitor’s trust account, which is unusual.
11 Kawerau Village Holdings Ltd v Yuen [2015] NZHC 1379 at [38].
12 AMP v Architectural Windows [1986] 2 NZLR 190 (HC) at 196.
13 After these proceedings were commenced, Mr Qian obtained freezing orders against Mr Dong. The freezing orders were lifted after Mr Dong agreed to repay Mr Qian $800,000, pay a further
$150,000 into an independent stakeholder’s account, and for freezing orders to remain over two unrelated properties: Joint Memorandum of Counsel dated 25 March 2021.
(e)If Mr Dong has actually received $1,050,000 in cash, and sincerely believes that Mr Qian was due repayment of the $950,000 he contributed to Wicklam Lane, it is inexplicable that Mr Dong made no attempt to repay Mr Qian that sum, but rather retained that money until after the proceedings were commenced.
(f)Two months after Mr Dong allegedly received the $1,050,000 in cash, all his assets were frozen. His assets did not include cash in the sum of
$1,050,000, or any recently purchased assets which could account for the difference.
[21] On the other side of the ledger, Mr Blanchard submits that Mr Wen has provided no evidence regarding how his mother had $1,050,000 in cash available for use as a gift, or why such a large sum had to be transferred in small amounts.
[22] Furthermore, the involvement of Mr Wen’s mother in the payment of the cash contribution to purchase the property is similar to Mr Dong’s use of his mother when purchasing Wicklam Lane.
[23] Against that, Mr Jiang for Mr Dong and NAC submits that the “broad brush approach” taken by the plaintiffs cannot be correct. It cannot be that as long as a cause of action is not speculative, any discovery requested under that cause of action is justified. Mr Jiang submits that the specific allegations or particulars must not be speculative in order to support an application for discovery. He submits that this is consistent with r 15.1 of the High Court Rules 2016 that allows the Court to strike out any part of the pleading (not limited to entire causes of action). Mr Jiang submits that here, while the causes of action themselves might not be speculative, the specific allegation of the “money-go-round” is speculative, without evidential foundation, and does not support a request for further discovery.
[24] In my view, the Court may take a nuanced approach to an application for discovery of documents said to relate to a specific allegation within a cause of action. The Court must be satisfied that the cause of action is not baseless or speculative. The Court may also consider how the specific allegation, and the related documents, relate
to the cause of action, and the issues raised by that cause of action. As always, the Court must be satisfied that there are grounds for believing that the documents exist and have not been discovered.
[25] Consistent with that approach, I find it helpful to step back from the specific allegation that the funds were cycled through the bank accounts of Mr Dong, Mr Wen and his mother to give the illusion of a cash payment of $1,050,000 and assess the relevance and importance of the documents sought in terms of the issues for determination under the relevant causes of action.
[26] To my mind, and based on the plaintiffs’ second amended statement of claim dated 9 March 2022 and first and second defendants’ statement of defence dated 18 March 2022, the Court will need to determine these key issues:
(a)What was the nature of the arrangement between Mr Qian and Mr Dong? Was it a partnership, a joint venture, or one of lender/borrower?
(b)What amount of money did Mr Qian advance to Mr Dong for the purchase of the property?
(c)What amount of money did Mr Qian, QRZ and Mr Dong respectively contribute to the development of the property?
(d)Did Mr Dong and QRZ make payments towards the purchase and development of the property in the expectation of acquiring a beneficial interest in the property?
(e)Was the sale of the property from Mr Dong and Mr Wen a genuine, arm’s length transaction, or did Mr Dong and Mr Wen conspire to deprive Mr Qian of his unregistered interest in the property and his share of development profits?
(f)Did Mr Wen know, or ought he to have known, that he was acquiring the property from Mr Dong in breach of Mr Dong’s partnership or joint venture with Mr Qian, and in breach of trust, if proven?
[27] The issues at (e) and (f) arise out of the fifth cause of action against Mr Wen for knowing receipt, the sixth cause of action against Mr Dong and Mr Wen for conspiracy to injure by unlawful means, and the seventh cause of action against Mr Dong, Mr Wen and Yu Homes for equitable proprietary tracing and associated relief. The essential allegation common to these causes of action is that Mr Dong’s transfer of ownership to Mr Wen was a fraudulent scheme to defeat Mr Qian’s unregistered interest in the property and deprive him of his entitlement to a profit share.14
[28] I consider that there is enough of a factual foundation to conclude that this essential allegation is not baseless or speculative.
[29] Before setting out my own reasons, I note that in his judgment dismissing Mr Wen’s application for summary judgment against Mr Qian and QRZ, Associate Judge Taylor concluded:15
I do not think the plaintiffs’ allegations are entirely baseless or lacking in merit. I consider that Mr Qian has at least a plausible, if not especially compelling, claim that Mr Wen and Mr Dong dealt with the property other than in total good faith.
[30] In his judgment, Associate Judge Taylor identified several circumstances which “require further investigation and explanation” relating to the transaction between Mr Dong and Mr Wen.16 The questions identified by Associate Judge Taylor apply equally here.
[31] For my part, I highlight the following circumstances as providing an adequate factual foundation for the allegation contained in the causes of action identified, that the transfer of ownership from Mr Dong to Mr Wen was a deliberate scheme by them
14 The plaintiffs also plead the “money-go-round” as a particular of breach of joint venture or contract in their first and second causes of action.
15 Qian v Dong [2022] NZHC 378 at [64].
16 At [65].
to defeat Mr Qian’s unregistered interest in the property and deprive him of his entitlement to a profit share:
(a)Mr Dong purchased the property in November 2019 for $3,000,000 and sold it to Mr Wen 10 months later, having obtained a resource consent for its subdivision, for $3,500,000. Then, only three months later Mr Wen sold around 50 per cent of the land area of the property for
$4,870,000.
(b)The cash payment of $1,050,000 through 14 separate transactions over several days, directly between Mr Dong, Mr Wen and Mr Wen’s mother, rather than through a solicitor’s trust account, is unusual.
(c)Cash of $1,050,000, ostensibly originating from Mr Wen’s mother, is a large sum of cash to have available by anyone’s standards.
(d)Mr Dong has not offered any explanation for why he transferred each of the 14 payments from his -11 account to his -00 and -01 accounts soon after each was received.
(e)Mr Dong did not inform Mr Qian of the transaction or make any attempt to repay Mr Qian on receiving the $1,050,000 in cash but retained that money until after the proceedings were commenced.
[32] I find that the bank statements for the -00 and -01 accounts into which Mr Dong transferred the deposits from Mr Wen could provide important evidence to assist the Court to determine whether the sale was indeed an arm’s length transaction or a fraudulent scheme as alleged. If, as the plaintiffs suspect, the bank accounts show the instalments being immediately paid out to another account, that may be evidence that the transaction between Mr Dong and Mr Wen was indeed a scheme.
[33] Disclosure of the bank statements will not be time consuming or expensive and is therefore proportionate. The records can be provided with appropriate undertakings to protect Mr Dong’s privacy.
[34] For these reasons, I am satisfied that an order for discovery of this category of documents is appropriate.
Record of agreement with Mr Dong’s mother
[35]The plaintiffs seek these documents:
Documents or any record of an agreement or otherwise with Peilan Liang (the first defendant’s mother) for advance of money through her for the purchase of the property in the first defendant’s name.
[36] By way of background, Mr Dong admits in his evidence that he used his mother, Peilan Liang, to conceal from China Construction Bank Mr Qian’s involvement in funding the purchase of Wicklam Lane. He states that he thought his application for a loan might be affected if the Bank knew he was receiving third party funding from elsewhere.
[37]The plaintiffs contend that the documents are relevant in three ways:
(a)They relate to Mr Dong’s application to the China Construction Bank, as Mr Dong’s evidence is that his mother was used to conceal Mr Qian’s involvement in funding the purchase of Wicklam Lane.
(b)How Mrs Liang and Mr Dong recorded matters between them could provide evidence on the nature of the relationship between Mr Qian to Mr Dong, and the nature of the advance of funds, namely whether they were in partnership or the funds were an unsecured, interest-free loan.
(c)Any record of the arrangement Mr Dong reached with his mother when he purchased Wicklam Lane could provide evidence that the sale from Mr Dong to Mr Wen was indeed a scheme devised by Mr Dong, if there is a similarity in the arrangement reached between Mr Dong and his mother to that reached between Mr Wen and his mother.
[38] The first reason does not take matters any further. Mr Dong admits that he used his mother to conceal Mr Qian’s involvement from the China Construction Bank.
[39] Regarding the second reason, if there was any written agreement or record between Mr Dong and his mother, I consider it a remote possibility that the record would shed any light on the nature of the relationship between Mr Qian and Mr Dong (partnership or lender/borrower) and the character of Mr Qian’s advance. If Mr Qian and Mr Dong did not record their arrangement in writing themselves, it is highly unlikely that Mr Dong would have recorded anything of this nature with his mother.
[40] The third reason is, I discern, the main reason for seeking these documents. Mr Wen has said that his mother gifted him the funds. He has put in evidence a “gifting letter” from her. I note no further discovery is sought from Mr Wen or his mother. The plaintiffs’ interest in this category seems to be that if there is a written record of the arrangement between Mr Dong and his mother and it also involves a “gifting letter” like the one between Mr Wen and his mother, it will be evidence that the gift from Mr Wen’s mother was part of a scheme devised by Mr Dong to deceive Mr Qian.
[41] In my view, this rationale is strained. There is no evidence to suggest that Mrs Liang and Mr Dong falsely recorded the advance of Mr Qian’s funds for the purchase of the property as a gift from Mrs Liang to Mr Dong. This is pure speculation. Furthermore, the document (if one exists) is not sought to prove or disprove anything about that transaction, but rather in the hope that it will provide evidence in relation to another transaction (that between Mr Dong, Mr Wen and his mother). I am not persuaded that this part of the application passes the first two stages of the Assa Abloy test.
[42]I decline to order discovery of this category of documents.
Result
[43] I record that the plaintiffs did not seek orders for discovery of the first five categories of documents identified in Schedule 1 to their interlocutory application, accepting Mr Dong’s evidence that no such documents exist beyond those already discovered.
[44]I order that Mr Dong is to give discovery of:
(a)copies of bank statements for his Kiwibank -00 and -01 accounts and any other accounts into which any part of the $1,050,000 deposit was paid for the period 2 to 10 November 2020, on confidentiality terms that follow.
[45]By consent, I order Mr Dong to give discovery of:
(a)the entire conveyancing file for the purchase of Wicklam Lane including the deed of nomination of Mr Dong as purchaser;
(b)all correspondence with China Construction Bank and documents concerning the loan over the property, including application documents, correspondence, and documents relating to the repayment holiday;
(c)the resource consent application for the property;
(d)copies of any documents relating to Mr Dong’s experience in property development and development consultancy which support his claim that he provided consultancy services, and that those services were worth the value which he charged for them; and
(e)documents relating to the GST refund from the purchase of the property.
[46] Mr Dong is to swear a further affidavit of documents and provide the documents within 10 working days.
[47] The documents will be provided to the plaintiffs on the undertaking that they will only be provided to the plaintiffs’ solicitor, counsel, and forensic accountant unless the parties agree otherwise or there is a further order of the Court.
[48] As to costs, the plaintiffs have been successful in relation to one of the two disputed categories and unsuccessful in relation to the other. They accepted before the hearing that documents in the first six categories did not exist or had already been
discovered. Mr Dong consented to the discovery of five categories before or during the hearing. With respect to at least two of these, this consent was given without conceding that the grounds for an order were made out. I invite counsel to try to agree a costs position. If they cannot agree, I will accept submissions of no more than three pages.
Associate Judge Gardiner
Solicitors:
K3 Legal Ltd, Auckland Tompkins Wake, Auckland Lane Neave, Auckland McVeagh Fleming, Auckland
G Blanchard QC, Auckland
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