Qu v Zeng
[2017] NZHC 315
•2 March 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-2256 [2017] NZHC 315
BETWEEN JIA JUN QU
First Plaintiff
JIAN PING WANG Second Plaintiff
YAN QU Third Plaintiff
J M BUILDING MATERIALS COMPANY LIMITED
Fourth Plaintiff
FORMODA REAL ESTATE DEVELOPMENT COMPANY LIMITED Fifth Plaintiff
AND
JUN ZENG First Defendant
J & H DEVELOPMENT LIMITED Second Defendant
Hearing: 23 February 2017 Appearances:
G P Blanchard and C Jiang for Plaintiffs
No appearance from or for the DefendantsJudgment:
2 March 2017
JUDGMENT OF FOGARTY J
This judgment was delivered by Justice Fogarty on
2 March 2017 at 11.30 a.m., pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
QU v ZENG [2017] NZHC 315 [2 March 2017]
Application for Summary Judgment on Notice
[1] This is an application for summary judgment, seeking judgment of a sum exceeding $12 million. I start by satisfying myself as to appropriate notice. The case proceeds upon the plaintiffs’ amended notice of interlocutory application seeking summary judgment. Notice of this hearing date was communicated directly to the first defendant by email dated 21 February 2017, advising him that the hearing of the matter is scheduled for 11.45 am on Thursday 23 February 2017.
[2] The case was called before Edwards J on 21 February, but there was no appearance by or for the defendants. Edwards J dealt with the application to vary freezing and ancillary orders, but not with the application for summary judgment. That was adjourned because there was not enough time for the process of evaluating an application for summary judgment to be satisfied on that day.
[3] The first defendant received a minute from Edwards J, being Minute No.3.That was a minute advising that the application was adjourned to the summary judgment list for 9.00 am on Tuesday 21 February.
[4] The defendants have not participated in these proceedings for some time.
Proof of indebtedness
[5] Proof of the claim was undertaken by senior counsel, Mr Blanchard, taking me through a 35 page (90 paragraph) updated memorandum introducing the case by a factual background, briefly covering the principles relating to the causes of action, arguing for liability, proving loss and seeking costs.
[6] This exercise was undertaken in order that the plaintiffs satisfy the Court that the first and second defendants have no defence. The Court must be satisfied there is no defence. In Pemberton v Chappel, Somers J explained the concept of “no
defence” as “absence of any real question to be tried”.1 A year later, Thorp J in R v
1 Pemberton v Chappell [1987] 1 NZLR 1 (CA) at [3].
Hellaby said the critical question will generally be where the Court is satisfied the
plaintiff’s case is unanswerable.2
[7] High Court Rule 12.12 provides that where the plaintiff satisfies the Court that the defendant has no defence the Court may give judgment.
Background Facts
[8] The first defendant, Jun Zeng, is the son-in-law of the first and second plaintiffs (Mr and Mrs Qu). He is the former partner of their daughter, the third plaintiff, Margaret. The second defendant is a company in which he owns 50 per cent of the shares of, the other 50 per cent of the shares being held by the third plaintiff. The fourth and fifth plaintiffs are companies of the first and second plaintiffs.
[9] In broad outline the first defendant, the son-in-law, obtained significant loans from his parents-in-law with the effect that he was using borrowed money to conduct property developments.
[10] Instead, the evidence is he misused and laundered the moneys, funding a playboy lifestyle by purchasing several luxury cars and supporting a mistress.
[11] Obviously the parents trusted their son-in-law, and he must have known that.
[12] Mr and Mrs Qu and Margaret immigrated to New Zealand in the early 2000s. Mr and Mrs Qu are directors and shareholders of the fourth and fifth plaintiffs. Margaret is also a director and shareholder of the fourth plaintiff.
[13] Margaret met Jun Zeng in Auckland in 2007 and they married in 2008. They have two children. Jun Zeng incorporated the second defendant, J & H Development Ltd. He and his wife are shareholders, but he is the sole director of J & H Development Ltd. From 2008 until 2015, Mr Qu and Mrs Qu advanced large sums of money to Mr Zeng for property development. It was not until early 2015 that Mr
Qu and his daughter Margaret became suspicious, particularly about one of the
2 Towers v R & W Hellaby Ltd (1987) 3 NZCLC 100,064.
ventures known as the Flagstaff Joint Venture, where Mr Zeng had advised his wife and father-in-law that construction had been completed on two properties but they had not been rented out. Construction had not been completed on a third, and construction had been completed on a fourth and fifth property and they had been rented out. One of the properties said to be rented out was 158 Cumberland Road.
[14] Mr Qu and his daughter were puzzled because he had previously told them he had sold 158 Cumberland Road and they could not work out why he was now advising it had been rented out.
[15] They became suspicious and found that he had been lying about the Flagstaff Joint Venture and had in fact sold five of the nine sections as empty lots and had only completed construction on one section,158 Cumberland Road. Construction on three sections had been suspended. Confronted with these wrongdoings, Mr Zeng admitted some of his fraudulent actions, particularly those in relation to the Flagstaff Joint Venture. The plaintiffs then made further discoveries. Particularly as to his luxurious lifestyle and the presence of a mistress.
[16] Mr Zeng was clearly in a fiduciary relationship to the other members of his family. Trust had been reposed in him. He also was clearly in breach of contractual relationships, most of the loans being oral and included oral agreements as to interest. Essentially he had been converting money. Overall he had been deceitful.
Judgment Sought: Debt and Interest
[17] The plaintiffs retained the firm of accountants, Grant Thornton, for forensic accounting of the sums involved and money lost. For the purpose of this hearing, the plaintiffs relied upon two schedules compiled by Grant Thornton summarising an obviously detailed investigation; one being a schedule of outstanding loan balances up to and including 23 February 2017, and the other being interest calculations.
[18] The interest calculations were based on the interest rates that had been agreed when the parents, Mr and Mrs Qu lent the money to their son-in-law. The balance as at 23 February 2017 of sums lost and the indebtedness due by their son-in-law in
contract and in equity is $12,168,742 — made up of a principal sum of $7,874,305 and interest of $4,294,437.
[19] The plaintiffs seek judgment accordingly and have advised that hereafter they will rely on the default Judicature Act 1908 interest rate of 7.5 per cent per annum,3 running on the sum of $12,168,742 plus costs and disbursements.
Proprietary Claims
[20] The plaintiffs are not yet seeking summary judgment in relation to certain aspects of the sixth cause of action of the amended statement of claim (being tracing and constructive trust claims against specific assets), as further discovery and tracing needs to be conducted to make proprietary claims against specific assets and to issue claims in relation to the first defendant’s mother and mistress (who will need to be joined to the proceedings). Those aspects of the sixth cause of action plead:
(a) That the First, Second and Third plaintiffs are entitled to trace certain monies connected with the real property and payments made by the First defendant; and
(b)That those monies, or assets acquired with them, are held on constructive trust for the First, Second and Third plaintiffs.
[21] The plaintiffs seek declarations of those rights and a further injunction restraining the First defendant, or his agents, from disposing of those monies.
[22] It is envisaged that this part of the proceedings will remain on foot to allow
these claims to proceed in the Court’s ordinary jurisdiction.
Costs
[23] The plaintiffs seek costs on an indemnity basis, they being the victims of fraud. They rely on the decision of the Court of Appeal in Bradbury v Westpac
Banking Corporation and in particular the following statement:4
3 Section 87.
Indemnity costs may be ordered where that party has behaved either badly or very unreasonably.
[24] I have also recently examined the law on indemnity costs and cited the authority for it being applicable where parties have been behaving improperly, particularly where those parties have been in a fiduciary relationship of trust and confidence.5
[25] Counsel have analysed that if the plaintiffs’ scale costs are on a mixed 2B and
2C basis the total costs recoverable excluding disbursements would be $83,402. But if the Court awards indemnity costs the plaintiffs would recover their actual costs to date, being the sum of $252,519.89, plus plaintiffs’ actual disbursements. Of this sum, $209,749.55 relates to the expert accounting analysis.
[26] In addition to improper conduct by a fiduciary, the plaintiffs contend that the defendants have ignored, disobeyed and blatantly acted in defiance of successive freezing and ancillary orders of this Court which date back to September 2015. They rely also on attempts of the first defendant to dispose of personal belongings and hiding shareholding in other assets.
Particulars of Judgments Sought
[27] They stress that these proceedings for summary judgment are based on the money claim. That there are separate ongoing proprietary claims particularly based on joint ventures between the members of the family. Formally, the plaintiffs seek the following judgments:
(a) The First Defendant is ordered to pay the First Plaintiff and the Second
Plaintiff $635,812, made up of principal of $282,090 and interest of
$353,722 as at 23 February 2017, in relation to the breach of a loan agreement made on 18 and 19 November 2010 (the Chianti Close Loan). The First Defendant is ordered to pay the First Plaintiff and the Second Plaintiff interest at such rates payable under the Judicature Act 1908 in
relation to the principal of $282,090 from 23 February 2017 until payment.
4 Bradbury v Westpac Banking Corporation [2009] 3 NZLR 400 (CA) at [27].
5 Edel Metals Group Ltd v Geier Ltd [2017] NZHC 225.
(b) The First Defendant is ordered to pay the First Plaintiff and the Second Plaintiff $173,495, made up of principal of $81,000 and interest of $92,495 as at 23 February 2017, in relation to the breach of a loan agreement made on 11 June 2011 (the Remuera Road Loan). The First Defendant is ordered to pay the First Plaintiff and the Second Plaintiff interest at such rates payable under the Judicature Act 1908 in relation to the principal of $81,000 from 23 February 2017 until payment.
(c) The Second Defendant is ordered to pay the Fifth Plaintiff $49,504, made up of principal of $35,486 and interest of $14,018 as at 23 February 2017, in relation to the breach of loan agreements made on 8 September 2012 and 8
March 2013 (the McMenamin Place Loans). The Second Defendant is ordered to pay the Fifth Plaintiff interest at such rates payable under the Judicature Act 1908 in relation to the principal of $35,486 from 23 February
2017 until payment.
(d) The First Defendant is ordered to pay the First Plaintiff and the Fourth
Plaintiff $621,367, made up of principal of $300,000 and interest of
$321,367 as at 23 February 2017, in relation to the breach of a loan agreement made on 7 June 2013 (the Fred Taylor Drive Loan). The First Defendant is ordered to pay the First Plaintiff and the Fourth Plaintiff interest at such rates payable under the Judicature Act 1908 in relation to the principal of $300,000 from 23 February 2017 until payment.
(e) The First Defendant is ordered to pay the First Plaintiff and the Second
Plaintiff $1,334,795, made up of principal of $800,000 and interest of
$534,795 as at 23 February 2017, in relation to the breach of a loan agreement made on 22 October 2013 (the Henderson Valley Loan). The First Defendant is ordered to pay the First Plaintiff and the Second Plaintiff interest at such rates payable under the Judicature Act 1908 in relation to the principal of $800,000 from 23 February 2017 until payment.
(f) The First Defendant is ordered to pay the First Plaintiff, the Second Plaintiff and the Third Plaintiff $1,295,413, made up of principal of $1,211,132 and interest of $84,281 as at 23 February 2017, for breach of contract, breach of fiduciary duty, and deceit in relation to loans advanced to the First Defendant from 22 March 2010 to 28 February 2012 to purchase land in
Flagstaff, Hamilton pursuant a joint venture agreement. The First Defendant is ordered to pay the First Plaintiff, the Second Plaintiff, and the Third Plaintiff interest at such rates payable under the Judicature Act 1908 in relation to the principal of $1,211,132 from 23 February 2017 until payment.
(g) The First Defendant is ordered to pay the First Plaintiff, the Second Plaintiff and the Third Plaintiff $7,475,596, made up of principal of $4,658,262 and interest of $2,817,333 as at 23 February 2017, for breach of contract, breach of fiduciary duty, and deceit in relation to construction loans advanced to the First Defendant from 2010 to 2015 in relation to land in Flagstaff, Hamilton pursuant to a joint venture agreement. The First Defendant is ordered to pay the First Plaintiff, the Second Plaintiff, and the Third Plaintiff interest at such rates payable under the Judicature Act 1908 in relation to the principal of $4,658,262 from 23 February 2017 until payment.
(h) The First Defendant is ordered to pay the First Plaintiff $276,527, made up of the sum of $250,000 and interest of $26,527 as at 23 February 2017, for breach of contract, breach of fiduciary duty and deceit in relation to fraudulently and dishonestly obtaining a total amount of $250,000 from the First Plaintiff between December 2014 and February 2015. The First Defendant is ordered to pay the First Plaintiff interest at such rates payable under the Judicature Act 1908 in relation to the $250,000 amount from 23
February 2017 until payment.
(i) The First Defendant is ordered to pay the Second Plaintiff and the Third Plaintiff $306,232, made up of the sum of $256,335 and interest of $49,898 as at 23 February 2017, for conversion and money had and received in relation to misappropriating $256,335 from the Second Plaintiff and the Third Plaintiff by way of cheques on 2 and 4 April 2013. The First Defendant is ordered to pay the Second Plaintiff and the Third Plaintiff interest at such rates payable under the Judicature Act 1908 in relation to the
$256,335 amount from 23 February 2017 until payment.
(j) The First Defendant and Second Defendant are jointly and severally liable to pay costs to the Plaintiffs/Applicants on an indemnity basis in the amount of
$252,519.89 and disbursements of $209,749.55. The First Defendant and the Second Defendant are jointly and severally liable to pay the
Plaintiffs/Applicants interest at such rates payable under the Judicature Act
1908 from 23 February 2017 until payment.
[28] In relation to the Flagstaff development, by this judgment the first, second and third plaintiffs obtain judgment sum for certain of their proven losses as pleaded in their amended statement of claim, being:
(a) $250,000 lost as a result of the first defendant causing the first plaintiff to make payments on the basis of a fictitious agreement;
(b) In relation to the Flagstaff Loans:
(i) $1,772,576 of principal; and
(ii) $1,193,952 of interest;
(c) In relation to the Flagstaff Construction Loans: (i) $4,658,262 of principal; and
(ii) $2,365,546 of interest.
[29] As noted above in paragraphs [20]-[22], the plaintiffs wish to pursue claims in equity (for tracing, constructive trusts, declarations and injunctions) in alternative proceedings. By seeking summary judgment in respect of the outstanding sums in relation to the Flagstaff Land Loans, the Flagstaff Construction Loans, and the
$250,000 amount, the first, second and third plaintiffs are not abandoning and intend to proceed on their proprietary remedies against specific assets, and against the first defendant and to issue claims in relation to the first defendant’s mother and mistress, who need to be joined in the proceedings, and against any other persons or entities holding property obtained or retained by the misuse of the first, second and/or third plaintiffs’ advances.
[30] I am satisfied that the first, second and third plaintiffs have justification to seek judgments of indebtedness against the first defendant in relation to the Flagstaff
development and pursue these other proprietary remedies in the Court’s equity jurisdiction. Leave is granted accordingly.
[31] I note that when seeking remedies in the Court’s equity jurisdiction the terms of the remedies may need adjustment to take account of any prior recovery of some of the judgment debts obtained in this judgment which loans enabled the first defendant to acquire assets which are the subject to tracing and constructive trust claims.
Conclusion
[32] The judgments sought, as set out in paragraphs [27] and [28] are granted.
[33] Costs are awarded on an indemnity basis, the plaintiffs being victims of fraudulent behaviour by the first defendant for his own benefit and for the benefit of the second defendant.
Solicitors:
Glaister Ennor, Auckland
Churton Hart and Divers Ltd, Manukau, Auckland
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