Treasure River Enterprise Limited v Natway International Service Limited
[2019] NZHC 648
•1 April 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2017-404-2789
[2019] NZHC 648
BETWEEN TREASURE RIVER ENTERPRISE LIMITED
Plaintiff
AND
NATWAY INTERNATIONAL SERVICE LIMITED
First Defendant
AND
SCA GROUP LIMITED
Second Defendant
AND
BO WANG
Third Defendant
AND
MINGYU GAO
Fourth Defendant
Hearing: On the papers Counsel:
B O O’Callahan for Plaintiff
R M Gapes for Fourth Defendant
Judgment:
1 April 2019
JUDGMENT OF PAUL DAVISON J
[Re: Costs]
This judgment was delivered by me on 1 April 2019 at 11:00 am Pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
K3 Legal Ltd, Auckland Simpson Grierson, Auckland
TREASURE RIVER LTD v NATWAY INTERNATIONAL SERVICE LTD [2019] NZHC 648 [1 April 2019]
Background
[1] Ms Ming Gao, the fourth defendant in the proceeding, applies for increased or indemnity costs against Treasure River Enterprise Ltd (Treasure River), the plaintiff in the proceeding. In response, Treasure River have made a cross application for costs on a 2B basis against Ms Gao.
[2] Ms Gao also applies for directions as to how a question of damages will proceed to determination.
[3] The question as to who should be ordered to meet an award of costs arises out of facts concerning the forged signature of Ms Gao on a guarantee. On the basis of the authenticity of Ms Gao’s signature, Treasure River obtained a freezing order against Ms Gao, in the substantive proceeding. Upon discovery and confirmation that Ms Gao’s signature on the guarantee was a forgery, the freezing order and proceedings were withdrawn.
Facts
[4] SCA Group Limited (SCA Group) is a New Zealand company and the second defendant. SCA Group had a memorandum of understanding with Bellamy’s Organic for the sale of their organic products.
[5] An arrangement was reached between Bo Wang (the third defendant and a director of SCA Group), and Lu Sun who was representing Natway International Service Limited (Natway), (the first defendant and a company based in Hong Kong), for a business venture selling Bellamy’s Organic products in New Zealand, Australia, China and Hong Kong.
[6] Natway borrowed HK $59M from Vigo Hong Kong Limited (Vigo) to fund the venture. The loan agreement was entered into on 31 May 2016 and the funds had been advanced in full by 7 June 2016. As a condition of the loan, Vigo required personal guarantees from people involved in the business, including Mr Wang, Ms Gao, and two other individuals, Ke Shen, and Fu Zing Li. At the time the loan agreement was entered into, Mr Wang and Ms Gao were married.
[7] It was subsequently established that Ms Gao’s signature as a guarantor on the loan agreement had been forged by Mr Wang and Mr Shen. Ms Gao first learned of the forgery sometime between June 2016 and 14 March 2017.
[8] Repayments on the loan were made by Natway until 10 July 2017. At this point, Vigo assigned the remaining outstanding balance of the loan to Treasure River. No further repayments were made. On 3 October 2017, Ms Gao and Mr Wang were personally served with a final demand for payment. No further payments were made in response to the demand, however Ms Gao wrote the following email:
Hi Susan,
I have received the final demand letter of your client Treasure Ltd yesterday. After engaged with my lawyer today, here is my formal response.
I hereby decline any demand from your client as I didn’t know about the agreement with your clients awareness. Please kindly contact the other parties regarding any doubts.
Please kindly pass this message to your client with many thanks. Kind Regards
Mingyu Gao
[9] On 24 November 2017 Treasure River began recovery proceedings. Treasure River attempted to serve proceedings on Ms Gao between 11 December 2017 and 15 March 2018. During a visit to her listed address, Treasure River discovered that Ms Gao was attempting to sell her property, and that she had transferred two properties from her personal estate into Gao Trustee several days after being served with the final demand.
[10] Treasure River subsequently obtained a freezing order against Ms Gao and Gao Trustee from Woodhouse J on 1 May 2018.
[11] On 8 May 2018, Ms Gao informed Treasure River that her purported signature on the guarantee was forged. Two days before the scheduled hearing on 31 May 2018, Treasure River withdrew the application against Ms Gao.
Ms Gao’s submissions
[12] Ms Gao requests increased or indemnity costs totalling $172,700.09 under Rule 32.10 and Rule 14.6. Ms Gao does not provide a schedule detailing these costs.
[13]Her counsel, Mr Gapes’ broadly submits that:
(a)the freezing orders were based on fabricated evidence;
(b)the plaintiff presented other misleading evidence; and
(c)the plaintiff delayed abandoning the proceeding after service of the orders.
[14] Mr Gapes notes that the freezing order was based on a fraudulent signature on the guarantee. He points to the text Commercial Injunctions in which the learned author writes:1
Where relief is obtained without notice on the basis of false evidence relied upon by the claimant, the court may order the defendant’s costs to be paid by the claimant on an indemnity basis regardless of whether or not false evidence had been fabricated by a third party without the knowledge of the claimant
[15] Mr Gapes submits that Treasure River provided other misleading evidence. Specifically, he points to the affidavit of Hong Li, a representative of Treasure River, dated 16 April 2018 and the claim that Hong Li had personal knowledge of the matters described in the affidavit. In the affidavit Hong Li described Ms Gao as guarantor of the loan and stated that Ms Gao had executed various documents. Mr Gapes argues that Hong Li cannot have had personal knowledge of Ms Gao executing those documents, as Hong Li was not present when the documents were signed and moreover the signature was a forgery.
[16] Further, Mr Gapes submits that Hong Li’s affidavit is misleading as it makes no mention of the knowledge of Lu Sun, a representative of Natway, who was aware that Ms Gao’s signature had been forged. Mr Gapes says that Hong Li’s affidavit makes no mention of Ms Gao’s email response to the final demand on 4 October 2017, in which she denied liability.
1 Steven Gee Commercial Injunctions (6th ed, Sweet & Maxwell, London, 2016) at 873.
[17] In relation to the conduct of the plaintiff post freezing order, Mr Gapes submits that Treasure River acted unreasonably by refusing to discharge the freezing order promptly after being informed of the forgery. Further, that the failure to discontinue the proceedings until 29 May 2018 constitutes an unreasonable delay which has put Ms Gao to additional expense.
Treasure River’s submissions
[18] Treasure River resists Ms Gao’s application for costs, and seeks costs against Ms Gao. Treasure River’s counsel, Mr O’Callahan broadly submits that:
(a)Ms Gao knew of the forgery of her signature on the guarantee long before the commencement of any action. Her failure to inform Treasure River of the forgery caused them to incur unnecessary costs.
(b)The steps taken by Treasure River, namely the application for a freezing order, were an appropriate response to the situation of an apparently authentic guarantor taking steps to transfer her property.
(c)After Ms Gao first raised the forgery, Treasure River acted promptly and responsibly in assessing the veracity of Ms Gao’s claims and discontinuing its claim.
[19] Mr O’Callahan submits that as Ms Gao knew of the forgery before the final demand was made and before the proceedings were commenced, it was incumbent upon her to inform Treasure River of that. Had it been made aware, Treasure River would have conducted the proceedings differently, leading to reduced costs expenditure for both itself and Ms Gao. As matters stood, however, in light of the apparent guarantee and Ms Gao’s subsequent actions of moving personal property into a trust immediately following the final demand being made, Treasure River’s actions are understandable.
[20] Mr O’Callahan acknowledges that Hong Li was not personally present when the documents were executed. However, as the documents are business records in Treasure River’s possession, she possessed knowledge of the documents and had no reason to doubt their authenticity when preparing her affidavit. As a result, Mr O’Callahan submits that there is nothing misleading in her affidavit.
[21] Mr O’Callahan submits that Lu Sun’s knowledge of the forgery cannot properly be attributed to Treasure River, as he was at all times acting on behalf of Natway and is in no way an agent of Treasure River. Moreover, there is no evidence to suggest that Lu Sun ever informed either Natway, or Treasure River, of the forgery.
[22] In response to Ms Gao’s contention that Treasure River has acted unreasonably after obtaining the freezing order, Mr O’Callahan directs the Court’s attention to the English Court of Appeal case of Fox Gregory Ltd v Spinks.2 Mr O’Callahan submits that this case stands for the proposition that a plaintiff is entitled to a reasonable time to evaluate new evidence before being held liable for costs. In this case, Mr O’Callahan submits that a period of three weeks to check the veracity of Ms Gao’s statements, in circumstances where the forgery had not been previously raised by Ms Gao, despite her knowledge of it since at least since March 2017, is entirely reasonable.
[23] In total, Treasure River seeks scale costs against Ms Gao, primarily on a 2B basis, but with 2C costs being applied to the preparation of the application for the freezing order. The total sought is $13,714.50 together with disbursements of
$15,797.85.
Ms Gao’s response
[24] The sum of Ms Gao’s response is that because Lu Sun knew of the forgery, Treasure River ought to have known about it as well. That Ms Gao is Chinese, which explains her uncertainty as to what the appropriate course of action to adopt was, in relation to her knowledge of the forgery. Further, that Treasure River ought to have enquired further of Ms Gao after her email response to the final demand letter.
Principles
[25] The High Court Rules empower the Court to make any order it considers just in relation to costs arising out of freezing orders. Generally, as costs follow the event,
2 Fox Gregory Ltd v Spinks [2006] EWCA Civ 1544, [2006] All ER (D) 47 (Oct).
costs would go to Ms Gao as she was the successful party in this proceeding. Departure from this principle is permissible in exceptional circumstances.
Discussion and result
Freezing order based on fabricated and misleading evidence
[26] Mr Gapes presented two primary submissions on the allegedly improper nature of the evidence used to obtain the freezing order. First, that the signature on the guarantee is fabricated evidence. Second, that Hong Li’s affidavit was misleading.
[27] Undoubtedly, the forged signature on the guarantee amounts to fabricated evidence. Mr Gapes submits that an award of costs should follow a freezing order based on fabricated evidence regardless of whether the party adducing the evidence knew of the fabrication. I do not consider this to be applicable when the party against whom the order was made was also aware of the forgery and thereby in a position to correct the original understanding of the other party as to the legitimacy of the evidence.
[28] I do not consider Hong Li’s affidavit to be misleading in any material way. Mr Gapes places emphasis on the fact that Hong Li claimed to have personal knowledge of the matters contained within her affidavit, but was not actually present when the guarantees were executed. I do not consider there to be any real substance to this. Hong Li was entitled to claim to have personal knowledge of the matters without actually having been present when the guarantees were executed; they are business documents of Treasure River, and Hong Li had no reason to doubt the authenticity of the signatures of Ms Gao as guarantor. Mr Gapes also refers to the absence of any mention of Ms Gao’s email response to the final demand letter, in Hong Li’s affidavit. I do not consider the omission of reference to this email in the affidavit to be material, for the reasons I shall set out below.
Conduct of plaintiff after freezing order
[29] Ms Gao contends that Treasure River has not acted reasonably after obtaining the freezing order. She contends that after 8 May 2018, it had become clear that the
signature on the guarantee was forged, and that Treasure River should have withdrawn its proceedings and set aside the freezing order. I disagree.
[30] Treasure River was not obliged to accept the evidence that that signature on the guarantee was a forgery at face value. They were entitled to a reasonable period of time to evaluate the evidence and decide if they wished to continue the proceedings.3 Treasure River were told about the forgery on 8 May 2018. Treasure River then engaged their own expert, organised for the guarantee documents to be delivered from Hong Kong, and upon consideration, withdrew their application on 29 May 2018, two days after their expert confirmed the finding that the signature was not genuine. I consider Treasure River’s actions in establishing the veracity of Ms Gao’s claims of forgery to have been both reasonable and conducted within a reasonable timeframe.
Failure to inform Treasure River of forgery
[31] Treasure River contends that the failure of Ms Gao to inform it of the forgery entitles it to costs. I consider the remarks of Hillyer J in Rintoul v Corbett to be directly applicable:4
Although the defendant has succeeded, had the defence now put forward been waived at any early stage, a great amount of expense to which the plaintiff has been put would have been saved, and I do not consider it proper that he should have to bear that expense.
[32] Ms Gao discovered the forgery sometime between June 2016 and 14 March 2017. Treasure River issued a final demand to Ms Gao on 3 October 2017. Faced with a demand for a substantial sum of money, one would expect a response that at least included an explanation that she had never signed the guarantee. Instead, Ms Gao responded with the email outlined at [8]. That email does not make any reference to the forgery of her signature.
[33] Ms Gao contends that if this email was ambiguous, Treasure River ought to have enquired about her reason for resisting their demand. I disagree. The onus is not
3 Fox Gregory Ltd v Spinks [2006] EWCA Civ 1544, [2006] All ER (D) 47 (Oct) at [32].
4 Rintoul v Corbett HC Whangarei CP45/89, 16 August 1990.
on Treasure River to enquire as to why the debt is denied. That obligation falls upon the person in the best position to supply that information - Ms Gao. Furthermore, the email indicates Ms Gao was legally advised and making a formal response. Her non- disclosure was at best unwise. In any case, by taking the position she did, she put Treasure River to unnecessary cost in pursuing the claim, and as a consequence she too had to incur legal costs to defend the proceeding.
[34] When faced with the final demand letter, Ms Gao transferred property to the Gao Trust and put another property up for sale. Once aware of this conduct, it was entirely reasonable for Treasure River to seek a freezing order, as anyone in the position of Treasure River would have regarded Ms Gao’s conduct with suspicion, and seen it as an attempt to avoid the effect of what it then regarded as a legitimate personal guarantee, by disposing of her property.
[35] I do not consider that Ms Gao has made out a claim for costs, with an uplift, on an indemnity basis, or otherwise. It is entirely the conduct of Ms Gao that has caused both her own and Treasure River’s costs to be incurred in the present case, and I think it entirely inequitable that Treasure River should be put to any further expense in relation to Ms Gao in this proceeding.
[36] For these reasons, I find that Treasure River is entitled to an award of scale costs against Ms Gao on a 2B basis. I disallow Treasure River’s application for an uplift award of 2C costs being applied to the preparation of the application for the freezing order.
Damages claim
[37] So far as Ms Gao’s claim for damages in concerned, I note that the loss complained of is to her mother and not to herself. That loss is said to arise from the freezing order, which had the effect of preventing Ms Gao from advancing funds to her mother for a business project, the result being her mother was forced to look elsewhere for finance.
[38] In the second memorandum of 14 September 2018, counsel for Ms Gao accepts that that the damages claim would not be made by Ms Gao, and instead would be made by her mother’s company, YIF Construction Limited (YIF).
[39] YIF is not a party to this proceeding, and I can see no reason why it would or should be joined. If YIF has a claim against Treasure River, arising out of the freezing order made against Ms Gao, then that can be dealt with properly by way of filing a statement of claim in a new proceeding.
Conclusion
[40] Ms Gao is ordered to pay costs on a 2B basis totalling $7,247.50 and disbursements totalling $15,797.85, making a total payment of $23,045.
Paul Davison J
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