Ren v Pan

[2025] NZHC 184

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2024-409-555

[2025] NZHC 184

BETWEEN

XIAOJIN REN

Plaintiff

AND

JINYUAN PAN and KE ZHANG

Defendants

Hearing:	14 February 2025
Appearances:	J A Frampton for Plaintiff I Sugimoto for Defendants
Judgment:	14 February 2025

JUDGMENT OF ASSOCIATE JUDGE PAULSEN

This judgment was delivered by me on 14 February 2025 at 4.00 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date:

REN v PAN [2025] NZHC 184 [14 February 2025]

[1]                This judgment concerns an application by the defendants for security for costs. In my experience it is an unusual application because the defendants have not filed a statement of defence or explained what their defence is to the claim. They have only provided a bare denial of the claim.

[2]                The primary issue arising, and the one that ultimately determines the application, is whether the Court should exercise its discretion to order the plaintiff to provide security for costs in these circumstances.

Background

[3]                The plaintiff is a Chinese citizen residing in China. The defendants reside in New Zealand.

[4]                In 2020 the plaintiff spent time in New Zealand and met the defendants. She says they interested her in buying a residential property in New Zealand as she was considering living here. The plaintiff’s evidence is that she trusted the defendants and they told her that despite restrictions that applied to overseas persons acquiring residential land it was legal for her to acquire a property and for them to hold it in trust.

[5]                The plaintiff says upon her return to China the defendants sent her information about residential properties to buy. Ultimately it was agreed they would purchase a property for her at 2 Lucas Way, Albany, Auckland. The plaintiff pleads that she provided the defendants with $1,580,000,1 and the property was acquired with the defendants registered as the owners on 9 September 2020. The plaintiff understands that $1,500,000 was for the property, and additional amounts were required for other expenses associated with the purchase.

[6]                In around March 2021 the defendants purchased another property at 11 Borneo Drive, Fairview Heights, Auckland. At the time they took title, a mortgage was registered against both the Lucas Way and the Borneo Drive properties. The plaintiff

1      Ms Frampton advises me that the plaintiff has now discovered that a greater sum was in fact paid and the plaintiff intends to increase the amount of her claim accordingly.

had no knowledge of the mortgage and believes it may have been obtained to assist the defendants to purchase the Borneo Drive property.

[7]                The plaintiff has not obtained residency in New Zealand. She says she instructed the defendants to sell the Lucas Way property to repay her, but the defendants have refused to do so. The defendants did make payments to her during January and March 2024 totalling $198,253 but have resisted repaying any further amounts, raising personal issues which they say have prevented them from doing so. The plaintiff says that of the original sum she transferred to the defendants there remains $1,381,747 that has not been repaid.2

Statement of claim

[8]                The statement of claim raises a single cause of action, although the claim could be pleaded in several ways. It is alleged there was a verbal agreement between the parties that the defendants would acquire the Lucas Way property and hold it on trust for the plaintiff, and that the plaintiff was induced to enter into the agreement by misrepresentations that the arrangement was lawful and the property would be transferred to the plaintiff once she was able to lawfully own the property herself. The plaintiff pleads she has cancelled the agreement and seeks repayment of the balance of the amounts transferred to the defendants, taking into account the repayments made to date.

The parties’ positions

[9]                As noted above, the defendants have not filed a statement of defence. They have made broad denials of the contents of the plaintiff’s statement of claim and affidavit. In her affidavits the second-named defendant says “[w]e deny the allegations set out in the statement of claim filed by the [plaintiff]” and “[u]nless explicitly acknowledged, we deny everything stated in the Plaintiff’s Affidavit”.

[10]            The defendants’ stance is that they do not wish to file a statement of defence until security has been paid and “unless there is no other choice”. They say they have

2      As noted, the sum claimed will be amended.

received advice from their lawyer regarding the right to assert privilege against self-incrimination for breach of the Overseas Investment Act 2005, while at the same time denying “all allegations of our non-compliance with the [Overseas Investment Act]”. They seek security for costs in an amount of $88,383, based on a five-day trial including expert witness fees of $20,000 and interpreter’s fees of $5,400.

[11]            The plaintiff opposes the application for security for costs. Her position is that the Court should refuse to order security because:

(a)the merits of the case are strongly in her favour;

(b)the defendants have failed to file a defence or explain that they have a defence;

(c)none of the reasons provided by the defendants for failing to file a defence or to provide particulars of a defence stand scrutiny; and

(d)there is no risk that the defendants would not be paid any costs if she was unsuccessful in any event as they hold a significant asset of hers, which is the money advanced to acquire the Lucas Way property and/or the property itself.

[12]The plaintiff also argues that the amount sought by the defendants is excessive.

The rules and principles — security for costs

[13]Rule 5.45 of the High Court Rules 2016 (the Rules) relevantly provides:

5.45     Order for security of costs

(1)Subclause (2) applies if a Judge is satisfied, on the application of a defendant,—

(a)that a plaintiff—

(i)is resident out of New Zealand; or

…

(2)A Judge may, if the Judge thinks it is just in all the circumstances, order the giving of security for costs.

…

[14]            Whether or not to order security, and if ordered the quantum of such security, are discretionary matters. The discretion is not to be fettered by constructing principles from the facts of previous cases.3

[15]            In reliance upon Aquaculture Corporation v McFarlane Laboratories (1984) Ltd the defendants submit, and I accept, the following approach to the giving of security by a plaintiff resident overseas:4

(a)there is no inflexible principle that such a plaintiff with no assets within the jurisdiction should normally be ordered to give security;

(b)the Court’s discretion is to be exercised by taking into account all the circumstances of the case and arriving at a conclusion which will do justice between the parties;

(c)the ease, convenience, and cost of enforcing a costs judgment in the plaintiff’s country of residence is a primary consideration; and

(d)otherwise the principles applicable to applications for security by a plaintiff resident overseas are those applicable under what is now       r 5.45(1)(b) (where security is sought because there is reason to believe the plaintiff will be unable to pay costs if unsuccessful).

[16]            The defendants also submit, and again I accept, the general principles applicable to applications for security for costs include but are not limited to:

(a)As far as possible the Court will endeavour to assess the merits and prospects of success of the claim, bearing in mind the early stage of the proceeding.5

3      McLachlan v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [13].

4      Aquaculture Corporation v McFarlane Laboratories (1984) Ltd (1987) 1 PRNZ 467 (HC).

5      Ambrose v Pickard [2009] NZCA 502 at [32].

(b)The Court will balance competing interests, weighing the defendant’s right to protection from a barren costs orders and the plaintiff’s fundamental right of access to justice.6

(c)Delay in applying for security for costs may be relevant to the Court’s exercise of its discretion, if it causes unfairness to a plaintiff.7

[17]            Finally I note that applications for security for costs should not be allowed to be used as a tactical weapon which can be abused by a defendant.8

My analysis

[18]            There is no dispute that the plaintiff is resident out of New Zealand so that the threshold test for ordering security under r 5.45(1)(a) is satisfied. I turn then to whether the Court should exercise its discretion to order security on the facts of this case.

[19]            The primary matter relied upon by the defendants is that the plaintiff has no assets in this country, so that any costs judgment they obtain will need to be enforced in China. The defendants argue there is no bilateral treaty for reciprocal recognition and enforcement of civil judgments between New Zealand and China and a costs judgment obtained in New Zealand is therefore not automatically recognised in China. They contend the cost of enforcing such a judgment would be significant and there is no certainty it would be allowed.

[20]            The defendants also rely on decisions where this Court has ordered plaintiffs based in China to provide security for costs due to the uncertainty surrounding enforcement processes in that jurisdiction.9 They also say the enforcement processes in China would necessarily present practical and financial challenges, including:

(a)the cost of document translation;

6      Clear White Investments Ltd v Otis Trustees Ltd [2016] NZHC 2837 at [4].

7      Oxygen Air Ltd v LG Electronics Australia Pty Ltd [2018] NZHC 945 at [26].

8      Stills v McCormack [2023] NZHC 702 at [33].

9      Qingdao Zoono Biotech Co Ltd v Zoono Ltd [2020] NZHC 1282; Shanghai Neuhof Trade Co Ltd v Zespri International Ltd [2019] NZHC 617; Yao v Shen [2022] NZHC 221.

(b)engaging local representation; and

(c)navigating an unfamiliar legal framework.

[21]            I accept that if a plaintiff is resident overseas and has no assets in New Zealand the ease, convenience and cost of enforcing a costs judgment against them in their country of residence is usually an important and, indeed, primary factor in determining whether to order that security for costs be provided. I also accept, despite the absence of evidence in relation to the matter, that it is likely enforcing a costs judgment in China will not be straightforward and will be expensive.

[22]            However, this case differs from previous decisions that I was referred to where security was ordered against a plaintiff resident in China. In those cases, the party applying for security had filed a statement of defence and identified the issues in dispute so that the Court could undertake a merits assessment. Here, the defendants have not filed a statement of defence nor identified any defence to the plaintiff’s claim. As things stand, the claim is undefended and the plaintiff would be entitled to apply for the entry of judgment by formal proof.10 In the absence of any defence there is no prospect of the plaintiff being required to pay costs, against which the defendants need to be protected by the making of the order sought.

[23]            I have not been referred to any case where the Court has ordered a plaintiff to provide security for costs when no statement of defence has been filed. While I accept the Rules do not prevent that, I cannot see how the Court would be justified in doing so when the defendant has not provided details of a defence.

[24]            Notwithstanding that, the defendants argue that the plaintiff’s claim is not strong. They say the plaintiff’s claim rests on a verbal agreement and there is no “objective documentary evidence” to substantiate either the existence of an agreement or the terms of that agreement or, counsel added, that the plaintiff had transferred funds to the defendants. I do not accept that submission.

10 Ms Frampton advises me that one reason the plaintiff has not applied for formal proof is because she wishes to increase the quantum of the claim and is considering making an application for summary judgment.

[25]            The plaintiff has filed a full affidavit substantiating the basis of her claim. The defendants have replied with a bare denial. It is not surprising there is no written agreement between the parties when the arrangement was said to have been verbal, based on an established personal relationship of trust. However, the defendants are wrong to submit there is no documentary evidence to support the plaintiff’s claim. There are, for instance, records of title and other Land Registry documents substantiating the plaintiff’s evidence. There is also correspondence between the plaintiff’s lawyers and the defendants, in which the defendants were asked for a payment proposal. The defendants’ email responses, that they wished to negotiate a plan to resolve the issue, are substantially at odds with their blanket denial of the claim.

[26]            I am troubled by the submission that the plaintiff should have provided bank records to show the payments to the defendants. The defendants would plainly know if they received from the plaintiff an amount substantially in excess of $1,500,000 and whether those funds were used to acquire the Lucas Way property. There is an obvious inference that can be drawn against the defendants from their failure to specifically address these issues that they did indeed receive the funds.

[27]            Support for the plaintiff’s claim can also be found in the reasons advanced by the defendants for refusing to respond to the claim in any meaningful way. Apart from their desire to avoid costs, the defendants argue the plaintiff does not come to court with “clean hands”, apparently on the basis that upon her evidence the Lucas Way property was acquired in breach of the Overseas Investment Act. Related to this, the second-named defendant says in her affidavit:

7.We understand that breaching the [Overseas Investment Act] may result in both civil and criminal penalties.

8.We have been advised by our solicitor regarding our right against self- incrimination and that we may decline to provide information that could be used to incriminate us. We do not wish to prepare a statement of defence unless there is no other choice.

[28]            Leaving aside the issue of whether the privilege against self-incrimination can be asserted in this proceeding,11 the fact that the defendants raise compliance with the Overseas Investment Act at all provides substantial support for the plaintiff’s case as

11     Evidence Act 2006, ss 62 and 63.

to the nature of the arrangement between the parties and the understanding upon which the defendants acquired the Lucas Way property.

[29]            Further, if the defendants intend to argue that the plaintiff breached the Overseas Investment Act, they were parties to the breach and as a result have obtained, and are retaining, a very substantial asset funded entirely by the plaintiff from which they could recover any costs award in their favour.

[30]            The defendants’ conduct in failing to articulate any defence to the claim, in asserting there is no documentary evidence in respect to matters that are clearly within their knowledge, and in raising the possibility of self-incrimination as justification for not articulating a defence, leads me to the view that this application was not filed out of a genuine concern about their ability to recover costs but is tactical, designed to further delay resolution of the plaintiff’s claim.

[31]            In the exercise of my discretion, I dismiss the defendants’ application for security for costs. In summary, this is because on what is before me there is no realistic prospect the plaintiff will be ordered to pay the defendants’ costs and, in the event such an award was made the defendants would not recover those costs from the asset they acquired using the plaintiff’s funds and have retained.

[32]            It is unnecessary to consider the further issues upon which the parties filed submissions in relation to the quantum of security.

Result

[33]The defendants’ application for security for costs is dismissed.

[34]            The plaintiff is entitled to costs, and I so order. Ms Sugimoto argued that if the application was dismissed costs should be reserved as the plaintiff made no offer to provide security after service of the application. This overlooks that the application lacked merit. It is not a reason to depart from the ordinary rule that costs on opposed

interlocutory applications should be fixed and paid when the application is determined.12

[35]            If counsel cannot agree on the quantum of costs, they may file memoranda within 14 days of this judgment. Memoranda are to be no more than six pages and I will determine quantum on the papers.

O G Paulsen Associate Judge

Solicitors:

Lane Neave, Christchurch Capstone Law Ltd, Auckland

12     High Court Rules 2016, r 14.8.