Shanghai Neuhof Trade Company Limited v Zespri International Limited
[2018] NZHC 559
•26 March 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2014-404-001316
[2018] NZHC 559
BETWEEN SHANGHAI NEUHOF TRADE COMPANY LIMITED
First PlaintiffSHANGHAI HUI ZHAN LOGISTIC LIMITED
Second Plaintiff
AND
ZESPRI INTERNATIONAL LIMITED
Defendant
Hearing: 26 March 2018 Appearances:
B D Gray QC, K M Muller and D C J Huang for Plaintiffs S A Barker and L C Sizer for Defendant
Judgment:
26 March 2018
ORAL JUDGMENT OF WYLIE J
Solicitors/counsel:
Winston Wang & Associates/B Gray QC, K Muller, Auckland Buddle Findlay, Wellington
SHANGHAI NEUHOF TRADE CO LTD v ZESPRI INTERNATIONAL LTD [2018] NZHC 559 [26 March 2018]
Introduction
[1] These proceedings were commenced in 2014. They have made remarkably little progress largely due to difficulties between the parties over discovery.
[2] Various consent orders have been made in relation to discovery by Heath J on 24 March 2016, by me on 14 June 2016, and by Moore J on 11 October 2016.
[3] Matters related to discovery reached an impasse notwithstanding the consent orders. The defendant filed an interlocutory application. It sought consent orders staying the proceedings unless the plaintiffs complied with the various consent orders within a further three-month period. In the alternative, it sought to strike out the plaintiffs’ proceedings for non-compliance.
[4] The application was opposed by the plaintiffs. They were seeking the allocation of a fixture.
[5] The application came before me on 22 May 2017 and again, on 23 June 2017. At that stage, although a very large number of documents had been discovered, it was common ground that not all documents detailed in the consent orders had been discovered by the plaintiffs. The plaintiffs were asserting they had used their best endeavours to comply with the consent orders, but that they had been unable to obtain access to some of the documents sought by the defendant. The defendant had filed affidavits from various experts which, in essence, asserted that the plaintiffs had not tried hard enough to obtain the documents sought and that, had they done so, they should have been able to obtain them.
[6] Mr Gray QC, acting on behalf of the plaintiffs, indicated at the hearing that the plaintiffs were prepared to take the various steps then recommended by the defendant’s experts to see if they could obtain yet further information which should be discovered. To this end, I invited counsel to confer to see if they could agree on the appropriate orders necessary to give effect to the defendant’s proposals. They did so and I received a consent memorandum from counsel in this regard.
[7] I issued an interim judgment on the defendant’s application requiring inter alia that the plaintiffs take various steps under the three consent orders which were the subject of the defendant’s application dated 21 April 2017.1
[8] The matter was called before me again on 6 October 2017 to review progress. At that stage, Mr Gray advised me that the plaintiffs had complied, or almost so, with all of the steps required of them. They had filed affidavits in this regard and Mr Gray took me through them. Mr Gray acknowledged that some of the discovery obligations were still not completed because of various delays. He anticipated that they would be completed promptly.
[9] Mr Barker, appearing for the defendant, asserted that many matters remained unexplained and that some matters asserted by the plaintiffs in their affidavits required a response. He advised me that the defendant still adopted the position taken by the financial expert, Mr Osborne, that there was insufficient information on which to respond to the matters raised by the plaintiffs in their proceedings. He sought to proceed with the strike out application.
[10] In a minute, I recorded that the defendant was entitled to have its strike out application heard and I allocated a fixture for that purpose.
The parties’ respective positions
[11] The strike out application is dated 21 April 2017. Inter alia, that application sought an order striking out the proceedings if the plaintiffs’ non-compliance with the consent orders remains unremedied.
[12] As I have noted, the annexure to the interim judgment issued by me detailed the steps which the plaintiffs were required to take under the three consent orders.
[13] Mr Barker says that the steps required by the interim judgment have not been taken. He referred in particular to clauses [11] to [13] dealing with bank statements, and to clauses [17] to [18] dealing with VAT returns. He sought unless orders requiring the plaintiffs to comply with these paragraphs within three weeks of the date of this
1 Shanghai Neuhof Trade Co Ltd v Zespri International Ltd [2017] NZHC 1543.
judgment. He also sought an order that, if the plaintiffs do not comply, their claim should be struck out with costs granted in the defendant’s favour.
[14] Mr Gray in his submissions in response maintained that the plaintiffs have taken all reasonable steps required by the interim judgment. He was seeking the allocation of a fixture. He was also seeking costs.
Clause 11 of the interim order
[15] The defendant says that clause 11 in the annexure to the interim judgment has been breached. It reads as follows:
The plaintiffs will submit a written request to each bank at which either plaintiff held accounts during the period 2007-2011 requesting copies of all statements of account and any other documents pertaining to the conduct of the account(s), including but not limited to mandate/account operating authority. For the sake of clarity, this order extends to all bank accounts of either plaintiff wherever in the world such accounts are held.
[16] Mr Barker points to the final sentence of that paragraph. He accepts that the plaintiffs did submit written requests to their banks in China, but says that they have provided no evidence to the effect that they did not have other bank accounts elsewhere in the world.
[17] Mr Gray points to the evidence filed by the plaintiffs and, in particular, to an affidavit from a Mr Chen dated 29 September 2017. In that affidavit, Mr Chen sets out the steps taken by the plaintiffs to obtain documents from the four banks in China with which one or the other had an account with during the relevant period. Mr Gray argued that nowhere in the defendant’s evidence in response is it suggested that the plaintiffs had bank accounts in other jurisdictions. He noted that the allegation had only been made in the defendant’s submissions, when it was too late for the plaintiffs to address it in their evidence in reply.
[18] Mr Barker is essentially asking me to infer that the plaintiffs may have had bank accounts in jurisdictions other than China because the plaintiffs have not expressly said that they have not got bank accounts anywhere other than in China.
[19] This matter can be simply resolved by the filing of an affidavit from the responsible officer or officers on behalf of the plaintiffs. I propose to make an order in this regard which I will set out shortly.
Clauses 17 and 18 of the interim order
[20] The second issue is a little more complicated. Clauses [17] and [18] in the annexure to the interim judgment provide as follows:
17.The first plaintiff will take the following steps to retrieve its VAT returns:
(a)identify and depose as to whom of the first plaintiff was responsible for filing its VAT returns for 2008, 2009, 2010, and 2011 (“VAT Returns”), and from when the first plaintiff began filing its VAT Returns electronically;
(b)access the first plaintiffs’ electronic tax file with the State Administration of Taxation (“SAT”):
(i)identify what information is available on that electronic tax file;
(ii)list all such information;
(iii)verify such list on oath and then file and serve such on the defendant;
(iv)retrieve all VAT Returns; and
(v)if no such information is available, explain the reasons why that is so;
(c)file a formal written request to the SAT or Shanghai Tax Bureau (“STB”), being its local counterpart (“Initial Tax Authority”), for retrieval of its VAT Returns following the process in the Announcement of the State Administration of Taxation on Promulgating the Administrative Measures for Tax Related Information Inquiry; and
(d)file a Government Information Disclosure Request to the SAT/STB for retrieval of the VAT Returns pursuant to the Regulation of the Government of PRC for the Disclosure of Government Information.
18.The first plaintiff will also take the following steps:
(a)If [17(c)] is unsuccessful, file a request for verification with the Initial Tax Authority under the Announcement of the State Administration of Taxation on Promulgating the
Administrative Measures for Tax Related Information Inquiry;
(b)if [17(c) & 18(a)] are not successful, apply for administrative reconsideration to a higher taxation authority under the Law of PRC on Administration Reconsideration, and the Implementing Regulations for the Law of PRC on Administrative Reconsideration; and
(c)if [17(d)] is not successful, apply for administrative reconsideration to the SAT under the Law of PRC on Administration Reconsideration, and the Implementing Regulations for the Law of PRC on Administrative Reconsideration.
[21] Mr Barker asserted that the VAT returns are critical, both to the plaintiffs’ case and to the defendant’s counterclaim. He said that the plaintiffs have failed to comply with clause 17 because they asked for the wrong thing when they made enquiry from the taxation authorities in China. He referred to an affidavit filed on behalf of the defendant by a Mr Gu, a tax advisor in Shanghai.
[22] In his affidavit, Mr Gu referred to the formal written request filed by the plaintiffs under clause 17(c) of the interim order and the government information disclosure request filed under clause 17(d). Mr Gu deposed that what was asked for was not copies of VAT returns, but rather “records of VAT filings”.
[23] Mr Gu’s view was supported by an affidavit filed by a Ms Yan, who is legal counsel based in Shanghai. She deposed that she had a discussion with the deputy director of the relevant tax authority in China, who recollected that an approach had earlier been made by a “subsidiary of Zespri [the defendant]” and that she was only asked to retrieve “VAT payment vouchers”. Ms Yan also says that she made an application on behalf of another subsidiary of the defendant based in Shanghai seeking its business records and VAT returns for the period ended January 2012. Ms Yan says that she was able to retrieve all relevant documentation in relation to those VAT returns.
[24] On this basis, Mr Barker asserted that the plaintiffs had not complied with clauses 17(c) and (d) or with clause 18 because their applications under clauses 17(c) and (d) were unsuccessful.
[25] Mr Gray took me through the affidavits filed on behalf of the plaintiffs. He submitted that it is clear that the plaintiffs have tried to comply with the interim order. He argued that they engaged an independent legal firm with offices in Shanghai. They provided a copy of the interim order to that firm. The necessary enquiries were undertaken by Mr Chen, who described himself as a trainee lawyer. Mr Chen’s work was supervised by Mr Tian, a lawyer and associate of the legal firm. Mr Chen’s affidavit detailed his understanding of the scope of the interim order and the steps he took. Mr Gray noted that it is not suggested that Mr Chen misunderstood the terms of the interim judgment and its scope. The steps Mr Chen took are set out and particularised in his affidavit. Mr Gray noted that Mr Chen has filed a reply to Mr Gu’s affidavit and that he has denied that he requested only the records of the plaintiffs’ VAT filings. Mr Chen said that he expressly asked for the VAT returns both in writing and verbally. He says that what he requested in Chinese was “record of VAT returns” and that the request did not refer to “VAT payment vouchers”. He says that VAT returns and VAT payment vouchers have different terms in Chinese. Mr Chen’s translation of the requests is borne out by an affidavit from a Dr Zhang, a professional translator fluent in English and Chinese.
[26] In summary, Mr Gray submitted that the plaintiffs have done all that was required of them under clause 17. He accepted that they have not taken the steps set out in clause 18, but said this is because that clause is not engaged. He argued that it did not come into play because it is clear from the steps taken under clause 17 that no documents exist, and that clause 18 only applies if the documents are in existence but the relevant Chinese officials refuse to disclose them.
Analysis
Have the plaintiffs breached the terms of the interim judgment?
[27] The discovery orders supported by the interim judgment were consent orders. I accept the point made by Mr Barker that consent orders should not lightly be disturbed. I observe that the annexure to the interim judgment was drafted by counsel for the parties and it came to me as a consent memorandum of the orders the parties were prepared to accept. Absent further order from the Court, it is not open to the defendant to seek to add to its terms; nor is it open to the plaintiffs to seek to resile from its terms.
[28] Having considered the annexure to the interim judgment, I am not persuaded that the plaintiffs have breached clause 11.
[29] The steps the plaintiffs have taken are consistent with the plaintiffs only having bank accounts in China. I am not prepared to infer that they may have had bank accounts in other jurisdictions and that therefore they did not comply with the Court’s order. The annexure to the interim judgment did not require the plaintiffs to depose that they only had bank accounts in China.
[30] In any event, this matter can be simply remedied. I direct the plaintiffs to file, within 10 working days of the date of this judgment, an affidavit from the responsible officer(s) for either or both of the plaintiffs setting out whether or not the plaintiffs or either of them have had at the relevant times bank accounts other than in China and if so, what steps they have taken to comply with clause 11 in respect of those banks.
[31] Turning to clause 17, similarly, I do not consider that the plaintiffs have breached clause 17.
[32] In my view, the plaintiffs have acted in terms of that order and used their best endeavours to comply with the terms of the interim judgment. They involved and instructed an independent law firm. There is nothing to suggest that they tried to pressure that law firm to act in any way. The enquires made by Mr Chen seem to have been careful, measured and appropriate. His understanding of the requests made in writing is borne out by the affidavit of the translator Dr Zhang. Mr Chen has deposed he made the same request of the tax authorities verbally. Both Mr Chen and his supervisor Mr Tian have confirmed that they are fluent in Chinese and English. Both were familiar with the relevant orders in the interim judgment. Mr Chen has deposed that he was told that the relevant tax authorities did not have physical copies of the VAT returns filed at the relevant times.
[33] Mr Gu’s translation of the document is unsupported by evidence from an independent translator and Mr Gu does not claim any expertise as a translator. He speculates on what he says, from his experience, the tax authorities must hold, but that is simply speculation. Ms Yan’s evidence does not materially assist. The defendant’s evidence as to the ability of its subsidiary to obtain business and VAT returns covers a
different period. Moreover, the evidence is that the plaintiffs are now frozen companies and on their evidence, are blacklisted following their prosecution in China.
[34] I am not, on the materials before me, prepared to require the defendant to retake the steps set out in clause 17, but, using Mr Gu’s terminology. To do so would, in my view, be disproportionate and it is not required by the interim judgment. The plaintiffs have already spent substantial sums of money pursuing discovery in this case. I did enquire whether the defendant would be prepared to meet the costs involved in repeating the steps required by clause 17. This proposition was firmly rebuffed by Mr Barker and I accept that there is force in his submission that it is for any party to proceedings to meet its discovery obligations at its own cost.
[35] The costs issue aside, on balance, I am not satisfied that the plaintiffs have breached the obligations set out in clause 17.
[36] I am not, however, persuaded that they have complied with clause 18. Mr Gray suggested that that clause is only engaged if an official advises that the documents are held but refuses to release them. That is not what the clause says and there has been no application by the plaintiffs to vary the terms of the order. The formal written request to the tax authorities made under clause 17(c) has not been successful. In my judgment, on its face, clause 18(a) comes into play. Similarly, the government information disclosure request under clause 17(d) was unsuccessful and clause 18(c) is invoked. I am not persuaded that it is yet appropriate to invoke clause 18(b). Whether or not that clause will come into play will depend upon the response received under a clause 18(a) request for verification.
[37] I direct the plaintiffs on or before 27 April 2018 to take the steps set out in clauses 18(a) and (c) of the interim judgment.
Unless orders
[38] I am not persuaded that unless orders are appropriate. I do not consider that this is a case of contumacious disregard of Court orders. As I have already indicated, in my view, the plaintiffs have made reasonable and appropriate endeavours to comply with the Court orders.
Other orders
[39]Other steps are required to advance the proceeding:
(a)I direct that the defendant is to file any request for further particulars on or before 27 April 2018;
(b)I direct that the plaintiffs are to file a response to any request for further particulars, and file a response to the amended statement of defence and the counterclaims on or before 11 May 2018; and
(c)I direct that there is to be a further telephone conference before me on the first available date after 11 May 2018 to review compliance with these various orders. I advised counsel that, at that teleconference, I will be allocating a fixture for this matter. I would request counsel to liaise with the view to agreeing a timetable to bring the matter on for hearing.
[40] I reserve to the parties the right to apply for leave to vary this timetable if it proves impracticable or oppressive.
Costs
[41] I have heard from counsel in relation to costs. At Mr Gray’s suggestion, and with Mr Sizer’s agreement, I accept this is an appropriate case where costs should be determined when the substantive matter comes on for trial. Only then will the Court be in a position to ascertain whether or not the defendant’s repeated requests for discovery are unreasonable, or whether the plaintiffs’ delays in discovering are inappropriate.
Wylie J
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