Sylvia Park Resthome Limited v Zhang

[2019] NZHC 3030

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-2217

[2019] NZHC 3030

BETWEEN

SYLVIA PARK RESTHOME LIMITED

Applicant

AND

XIN QUAN ZHANG

Respondent

Hearing:	20 November 2019
Appearances:	H L R McDermott for the applicant H Chung for the respondent
Judgment:	20 November 2019

ORAL JUDGMENT OF PALMER J

Counsel/Solicitors:

Righteous Law, Auckland Loo & Koo, Auckland

SYLVIA PARK RESTHOME LIMITED v ZHANG [2019] NZHC 3030 [20 November 2019]

What has happened?

[1]                 On 17 October 2019, Powell J granted a without notice application by Sylvia Park Resthome Ltd (Sylvia Park) to impose freezing orders preventing one of its three directors, Mr (Peter) Xin Quan Zhang, from making withdrawals or payments from three of his bank accounts. This was on the basis of an affidavit by his former wife and director of Sylvia Park, Ms Wenying Xu, indicating Mr Zhang had transferred

$150,000 to his personal account for unknown reasons and planned to return to China. The lack of the funds apparently prevented Sylvia Park from meeting GST obligations.

[2]                 On 23 October 2019, Downs J extended the freezing order to cover accounts of Sylvia Park. On 25 October 2019, the respondent applied to vary or discharge the order. The order, due to expire on 18 November 2019, was extended by Davison J until today, 20 November 2019. Mr Zhang applies to vary or discharge it. A statement of claim in the substantive proceeding has been filed but only served informally today because service copies have not yet been arranged by the Registry. It claims Mr Zhang breached his fiduciary duty and duty under s 131 of the Companies Act 1993 and seeks an order removing Mr Zhang as director, and an order that Mr Zhang account to Sylvia Park for any profits made on the $150,000 and return that amount and $31,188.65 also alleged to have been withdrawn.

[3]                 Mr Zhang now provides an affidavit in Mandarin with a certified translation. He says he and his former wife, Ms Wenying Xu, ran the business and they transferred shares to his wife’s brother, Mr (Phillip) Wen  Ji Xu.  The three are the directors.   Mr Zhang says he realised in 2015 he had inadvertently assisted Mr Xu to commit immigration fraud, which he reported to Immigration New Zealand. His relationship with his wife deteriorated. She maintained control of their finances.

[4]                 Mr Zhang says his salary was paid into his wife’s personal bank account, she issued proceedings to remove him as a trustee of a trust, they are having a relationship property dispute and he has been wanting Mr Xu to repay a loan she gave him out of their property.  The Police have been involved and there are Family Court orders.   Mr Zhang says, on 10 October 2019, he decided to withdraw the $150,000 being approximately three years’ salary. He says it is still in his ASB account. Mr Zhang

says he bought a one-way ticket to return to Shanghai on 18 October 2019 to visit his 95-year-old mother. He strongly denies he was planning to leave New Zealand to avoid his debts. He has lived in New Zealand for 20 years and is close with his son and family who live here. On 18 October 2019, when he received the freezing order, he went to ASB to repay the money but could not, because his bank account is frozen, so he did not board the plane.

Submissions

[5]                 Ms Chung, for Mr Zhang, submits the onus is on the plaintiff to maintain the freezing orders, the freezing orders are not or are no longer necessary, there is no risk of dissipation and Mr Zhang agrees to repay the $150,000 once he can do so after the freezing order is lifted subject to conditions. She submits Sylvia Park did not make full disclosure and the freezing order is an abuse of process. She submits, if Mr Zhang were to escape to China  he would be leaving behind assets of millions of dollars.  Mr Zhang seeks costs against Ms Wen or Sylvia Park, including reimbursement of his flight costs. Ms Chung is unable to make submissions on whether there is a good arguable case because she has only seen the substantive statement of claim today.

[6]                 Ms McDermott, for Sylvia Park, says $31,188.65 was also taken from its bank account by Mr Zhang on 16 October 2019 for the purchase of a car. If he believes he is owed money he should make a claim, not  just  take money from  the  accounts. Ms McDermott submits Mr Zhang has offered no evidence to demonstrate his actions were legitimate, he has demonstrated he has no qualms about taking money from Sylvia Park’s bank account and the freezing orders are justified until the substantive matter is dealt with or Mr Zhang returns the funds claimed along with costs and interest.

Should the freezing order continue?

[7]                 To grant freezing orders, under r 32.5(4) of the High Court Rules 2016, I must be satisfied Sylvia Park has a good arguable case for substantive relief, there are assets to which the order can apply and there is a real risk of their dissipation.1  I must weigh

1      Shaw v Narain [1992] 2 NZLR 544 (CA) at 548.

the overall interests of justice. A good arguable case requires “the allegations in the proposed claim are capable of tenable argument and are supported by sufficient evidence, bearing in mind the early stage at which the application is likely to be brought”.2

[8]                 I consider the evidence clearly demonstrates Sylvia Park has a good arguable case for substantive relief  and  there  are  assets  to  which  the  order  can  apply. Mr Zhang’s avowed intention to return the $150,000 supports that, as does Ms Xu’s evidence. The primary issue is whether there is a real risk of dissipation of the assets. I am persuaded, on balance, there is. Mr Zhang’s one-way ticket to China, bought soon after withdrawing the money, is prima facie evidence of that, his protestations to the contrary notwithstanding. I extend the existing freezing orders until determination of the substantive application or agreement by the parties. Costs will lie where they fall. I reserve leave for either party to apply to vary or discharge the freezing orders on three-days’ notice if circumstances change.

Palmer J

2      Hannay v Mount [2011] NZCA 530 at [22].