Tsao v Chen
[2023] NZHC 2787
•5 October 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-000561
[2023] NZHC 2787
BETWEEN WENG YUAN TSAO
First Plaintiff
SHAN HUA CHEN
Second Plaintiff
AND
YEN WEI CHEN
First Defendant
KUEI HUAN CHEN
Second Defendant
Hearing: 2 October 2023 Appearances:
Plaintiffs and Defendants in person
Judgment:
5 October 2023
JUDGMENT OF VAN BOHEMEN J
This judgment was delivered by me on 5 October 2023 at 3 pm pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
……………………………..
Copy to:
Weng Yuan Tsao Shan Hua Chen Yen Wei Chen Kuei Huan Chen
TSAO v CHEN [2023] NZHC 2787 [5 October 2023]
Table of Contents
The immediate background [3]
The preliminary trial [7]
The earlier background
The Judge Hubble judgment [10]
The Lang J judgment [15]
The dispute returns to the District Court [22]
The Muir J judgment [30]
The dispute returns to the High Court; the Associate Judge Bell judgment [35] The Muir J minute and the Settlement Agreement [43] The dispute goes to the Court of Appeal [48] The Court of Appeal judgment [49]
The Judge Blackie judgment [51]
The current phase of litigation begins [55]
Protest to jurisdiction [57]
Applications for summary judgment and for injunctions [58]
The setting down of the preliminary trial [62]
The cases for the parties at the preliminary trial [64]
Procedure at the preliminary trial [68]
Question1: Were the Lang J judgment, the Muir J judgment and the Judge Blackie judgment obtained by fraud? [71]
Annex 1 to affidavit of 29 June 2023 [72]
Footnote 2 to Lang J judgment [76]
Other documents referred to by Mr Tsao [78]
Conclusion regarding Question 1 [79]
Question 2: Was the Settlement Agreement an illegal contract? [80]
Conclusion regarding Question 2 [90]
Question 3: Was the Settlement Agreement otherwise voidable? [91]
Conclusion regarding Question 3 [94]
Result [95]
Postscript [100]
[1] This proceeding concerns a dispute between couples that used to be friends but who fell out over a business venture that began in May 2009. I refer to the plaintiffs as Mr Tsao and Ms Chen and to the defendants as Mr and Mrs Chen.1
[2] Aspects of the dispute have been considered in judgments made since 2014 by the District Court, the High Court and Court of Appeal as outlined below. Although the parties agreed on 1 November 2018 to settle the legal proceedings then on foot (the Settlement Agreement), Mr Tsao and Ms Chen did not implement the Settlement Agreement. They remain aggrieved over what happened over 14 years ago and in the subsequent legal proceedings. In 2021, they brought the current proceeding.
The immediate background
[3] In proceedings filed in March 2021, Mr Tsao and Ms Chen sought to challenge the validity of the earlier judgments, which they said had been obtained as a result of fraudulent evidence, and the Settlement Agreement, which they said was illegal. Mr and Mrs Chen responded that the Court had no jurisdiction to hear those challenges because they were precluded by the terms of the Settlement Agreement. Mr and Mrs Chen protested the Court’s jurisdiction to hear the plaintiffs’ claim.
[4] In a judgment dated 30 March 2023, Associate Judge Brittain set aside Mr and Mrs Chen’s protest to jurisdiction and made directions for the filing of amended pleadings.2
[5] After Mr Tsao and Ms Chen had filed an amended statement of claim and Mr and Mrs Chen had filed a statement of defence in which they said all causes of
1 In earlier proceedings, Ms Chen was named as first plaintiff and Mr Tsao as second plaintiff. They have reversed that order in the current proceeding. I use the order in the current proceeding in this judgment.
2 Tsao v Chen [2023] NZHC 679 [Associate Judge Brittain judgment].
action should be struck out, Associate Judge Brittain made directions for a preliminary trial to be held to determine the following questions:3
(a)whether identified prior judgments, including the costs orders, were obtained by fraud;
(b)whether the Settlement Agreement is an illegal contract; and
(c)whether the Settlement Agreement is otherwise voidable.
[6] The prior judgments identified by Associate Judge Brittain were judgments given by Lang and Muir JJ in the High Court in 2014 and 2017 respectively,4 and by Judge Blackie in the District Court in 2021.5
The preliminary trial
[7] The preliminary trial of the questions framed by Associate Judge Brittain was set down for a two-day hearing commencing on 2 October 2023. In the event, the preliminary trial concluded at the end of the morning on the first day.
[8] At the end of the trial, I informed the parties that I was satisfied that the answer to all three questions framed by Associate Judge Brittain was NO. I also informed the parties that I would strike out the proceeding because, as a consequence of the answers to the questions, it did not disclose a reasonably arguable cause of action. I also said I would direct the Registrar that no further proceedings relating to the dispute between the parties should be accepted for filing without the approval of a High Court judge.
[9]These are the reasons for those decisions.
3 Tsao v Chen HC Auckland CIV-2021-404-000561, 30 May 2023 (Minute of Associate Judge Brittain) [Associate Judge Brittain minute] at [2(c)].
4 Chen v Chen [2014] NZHC 2788 [Lang J judgment]; Chen v Chen [2017] NZHC 242 [Muir J judgment].
5 Chen v Tsao [2021] NZDC 3326 [Judge Blackie judgment].
The earlier background
[10] To assess the allegations of Mr Tsao and Ms Chen and the responses of Mr and Mrs Chen, it is necessary to understand the earlier history of the proceeding.
[11] It is convenient to begin with a statement of the facts as set out in the Lang J judgment which includes Lang J’s summary of the District Court decision then under appeal.
[1] This appeal concerns a dispute between two couples who agreed to undertake a joint venture to operate a suburban bakery and takeaway business. The parties had been friends for many years. Their decision to go into business together ultimately proved to be disastrous, and led to litigation in the District Court.
[2] In a judgment delivered on 23 May 2013, Judge Hubble directed the appellants, Mr and Mrs Chen, to pay the respondents, Ms Chen and Mr Tsao, the sum of $29,750. That sum represented the bulk of the money that Ms Chen and Mr Tsao had paid to acquire a stake in the business.
…
Background
[4] Mrs Kuei Huan Chen is the owner of two adjoining retail premises in a small suburban shopping centre in Howick. Until May 2009, she and her husband operated a bakery business from one of the premises, and rented the other to a person who operated a takeaway business from it.
[5] In May 2009, the parties agreed that they would join forces to operate both a bakery business and a takeaway business from the premises. Unfortunately, however, they never recorded their agreement in writing and neither party obtained legal or valuation advice.
[6] At joint expense the parties incorporated a company called Alligators Fast Food Limited. They took equal shareholdings in that company, and were also all directors.
[7] Ms Chen and Mr Tsao were required to pay the sum of $32,500 in order to acquire a one-half share in the venture. They duly paid Mr and Mrs Chen an initial deposit in the sum of $3,000, and then made another payment subsequently in the sum of $29,750. Mr and Mrs Chen used that money for their own purposes.
[8] Both parties provided the company with the sum of $2,000 to provide it with initial working capital. The company then began operating the business.
[9] The parties soon fell out, and this led to Ms Chen and Mr Tsao walking away from the business a short time after it opened. Thereafter Mr and
Mrs Chen continued to operate the business without their input or assistance. They subsequently sold the business to a third party.
The Judge's decision
[10] The focus of the Judge's decision was on the nature and effect of the agreement that the two couples reached when they decided to undertake the venture.
[11] The only contemporaneous note that appears to have been made when the parties negotiated the transaction contains the following information:
Weng Yuan Tsao & Shan Hua Chen (purchaser) Yen-Wei Chen & Kuei-Huan Chen (Vendor) 75930062
The Deposit of purchase a Business ‘Taiwan Bakery’
Attached a plant list
Address of business premises “4A Botany Road, Howick Total purchase price
$65,000 + G.S.T. + Stock
Half share = $32,500 + G.S.T. + ½ stock Deposit $3,000 only
Kuei-Huan Chen
[12] The parties disagree regarding the nature and effect of the agreement that they reached. Ms Chen and Mr Tsao contend that both couples agreed to provide the new company with working capital to the value of $32,500. Mr and Mrs Chen were to provide their contribution by transferring their existing plant and equipment to the new company. Ms Chen and Mr Tsao were to provide the company with cash in the sum of $32,500.
[13] Mr and Mrs Chen have a different view. They contend that Ms Chen and Mr Tsao agreed to purchase a one-half share in the existing bakery business. The new company would then extend that business into the field of selling takeaways. Under this scenario, the parties agreed that the existing business had a value of $65,000, and that Ms Chen and Mr Tsao would be required to pay the sum of $32,500 to Mr and Mrs Chen in order to acquire a half share in the business. Mr and Mrs Chen claim that they were therefore entitled to retain the monies that Ms Chen and Mr Tsao paid to them.
(footnotes omitted).
The Judge Hubble judgment
[12] As noted above, the Lang J judgment was a decision on an appeal by Mr and Mrs Chen from a decision by Judge Hubble in the District Court in Auckland.6 Judge Hubble had accepted what Mr Tsao and Ms Chen had said about what was
6 Chen v Chen DC Manukau CIV-2010-092-5263, 23 May 2013 [Judge Hubble judgment].
agreed in 2009. It is relevant to note that Judge Hubble had also set out in his judgment the document set out at [11] of the Lang J judgment.7 Judge Hubble accepted that Mr Tsao and Ms Chen had not seen the document until after proceedings had been issued, even though Mr and Mrs Chen had said they had provided the note during the course of discussions on 22 May 2009.8
[13] Judge Hubble held that the sum of $29,750 paid by Mr Tsao and Ms Chen to Mr and Mrs Chen should have gone to the new company, Alligators Fast Food (AFF), and not to Mr and Mrs Chen. The Judge held that Mr and Mrs Chen were in breach of contract for failing to apply the contribution of Mr Tsao and Ms Chen to the capital of AFF. The Judge also accepted that it was the complete naivete of Mr Tsao and Ms Chen in business matters that had allowed this to happen.9
[14] Judge Hubble awarded judgment to Mr Tsao and Ms Chen in the amount claimed, plus interest and costs.10 Mr and Mrs Chen appealed that decision to the High Court.
The Lang J judgment
[15] Lang J’s summary of the factual background is set out above. It is relevant to note that, at footnote 2 of his judgment, Lang J recorded that the payment of $29,750 referred to at [7] of the judgment “… included the sum of $250 being their share of the cost of incorporating the company.” The content of this footnote was not an issue before Lang J but was raised before me, as I discuss later.
[16] In the appeal before Lang J, the parties continued to dispute what they had agreed to in 2009. However, the appeal was not decided on the merits of the parties’ positions. Rather, the Lang J judgment was based on two procedural and jurisdictional questions relating to the case pleaded by Mr Tsao and Ms Chen in the District Court.
7 At [24].
8 At [24]–[25].
9 At [23].
10 At [33].
[17] In the District Court, Mr Tsao and Ms Chen had alleged breaches of provisions of the Companies Act 1993, as well as alleged misrepresentations and misleading and deceptive conduct.11 Lang J noted that the District Court had no jurisdiction to deal with the Companies Act aspects of the claim.12 The Judge also noted that, despite that jurisdictional bar, Mr Tsao and Ms Chen had filed a memorandum in the District Court seeking leave to file an amended notice of claim seeking remedies only under the Companies Act and that the District Court Judge had given leave to the proposed amendments in a minute.13
[18] Lang J held that the District Court Judge’s minute operated to amend the allegations contained in the original notice of claim to those set out in the memorandum of counsel and that it followed that all the issues pleaded in the amended notice of claim were beyond the jurisdiction of the District Court. That fact alone meant that the Judge’s decision could not stand.14
[19] Secondly, and in case he was wrong on the previous point, Lang J went on to consider whether, assuming the notice of claim remained in its original form, the Judge nevertheless determined the case on a basis that was outside the pleadings.15 Lang J noted that, although the District Court Judge had decided the case on the basis that Mr and Mrs Chen had breached the terms of their contract with Mr Tsao and Ms Chen, the original notice of claim did not contain any pleading to that effect and no evidence was given in relation to that question during the hearing.16
[20] For these reasons, Lang J allowed the appeal, directed that the case be reheard in the District Court, and said that Mr and Mrs Chen were entitled to costs on a 2B basis.17 Mr Tsao and Ms Chen were later ordered to pay costs claimed by Mr and Mrs Chen.18
11 Lang J judgment, above n 4, at [16]–[17].
12 At [16].
13 At [18]–[20].
14 At [20].
15 At [21].
16 At [22]–[23].
17 At [30]–[31].
18 Chen v Chen [2015] NZHC 9. The judgment did not specify the amount of costs ordered but it is not disputed that the amount ordered was $16,919.00.
[21]From this point onwards, Mr Tsao and Ms Chen were not legally represented.
The dispute returns to the District Court19
[22] On 31 July 2015, Mr Tsao and Ms Chen filed in the District Court a revised claim that named AFF as the first plaintiff, Ms Chen as the second plaintiff and Mr Tsao as the third plaintiff. However, Mr Tsao and Ms Chen had no authority to act on behalf of AFF and AFF had been removed from the Companies register.
[23] The matter came before Judge Blackie on 23 February 2016.20 The Judge noted that AFF had been removed from the Companies Register some time previously. The Judge also noted that Mr and Mrs Chen were anxious that the proceedings be disposed of and that the proceedings were “somewhat confusing”.21 The Judge said he was prepared to give Mr Tsao and Ms Chen “a final opportunity” to have their proceedings presented in an orderly fashion. The Judge adjourned the proceeding until 23 March 2016, by which time Mr Tsao and Ms Chen were to settle their pleadings, including, if appropriate, the reinstatement of AFF as a company so it could take part in the case.22
[24]On 23 March 2016, Judge P Recordon directed Mr Tsao and Ms Chen to:
(a)provide evidence of the reinstatement of AFF;
(b)apply for leave to join AFF as a party and serve that application; and
(c)apply for leave to file an amended statement of claim.
[25] Judge Recordon also ordered that a further case management conference be held on 16 May 2016.
19 The District Court file was not provided to the High Court. The account of what happened in the District Court is taken from the Muir J judgment, above n 4, at [8]–[26].
20 Chen v Chen [2016] NZDC 2801.
21 At [7].
22 At [8]–[9].
[26] On 16 May 2016, Judge P A Cunningham noted that AFF had been restored to the Companies register but that Mr Tsao and Ms Chen had not complied with Judge Recordon’s other orders. Judge Cunningham recorded that she intended to make unless orders as requested by counsel for Mr and Mrs Chen.23 Judge Cunningham directed that, by 28 June 2016, Mr Tsao and Ms Chen were to file and serve a formal application to amend their pleadings and to join AFF as a party. Judge Cunningham also directed that the application be supported by an affidavit which included the draft amended statement of claim which particularised the causes of action relied upon. The Judge also noted the difficulties associated with Mr Tsao and Ms Chen purporting to bring claims in the name of AFF and counselled them to seek legal advice. The Judge adjourned the matter to 5 July 2016.
[27] Mr Tsao and Ms Chen did not comply with Judge Cunningham’s directions by 28 June 2016. Instead, they filed a memorandum advising that they had applied (by memorandum) for leave to join AFF as a party on 8 June 2016, that they believed the supporting affidavit and draft statement of claim could not be submitted until leave had been granted and that the application to join AFF as a party had been deferred to a conference on 5 July 2016.
[28] On 5 July 2016, Judge Lovell-Smith struck out the proceedings on the basis there had been non-compliance with the orders of Judge Cunningham.
[29] Mr Tsao and Ms Chen appealed Judge Lovell-Smith’s strike out decision to the High Court.
The Muir J judgment
[30]The appeal was heard and decided by Muir J on 21 February 2017.24
[31] Muir J noted the background to the appeal as described above. He accepted that Judge Cunningham had made orders requiring a formal application, affidavit and statement of claim, the documents required by the Judge had not been filed by 28 June
23 An unless order is an order directing that a specified sanction, such as striking out a pleading, will be imposed unless the party concerned takes a specified step before a given date.
24 Muir J judgment, above n 4.
2016 as required, and that Mr Tsao and Ms Chen had incorrectly assumed that the application to add AFF should be disposed of before they were required to prepare a draft statement of claim.25
[32]Muir J considered this an obvious case for an unless order. The Judge stated:26
The proceedings had, at the time of the order, been running for in excess of six years. The plaintiffs had been counselled on a number of occasions that any proceeding by the company needed necessarily to be brought in the High Court. Despite this, the matter had continued to languish in the District Court with unsatisfactory pleadings and inappropriate attention to its rules, in particular the requirement for a formal application for leave to amend, supported appropriately.
[33]Muir J also observed:
[36] Ms Chen and Mr Tsao, although unrepresented and therefore entitled to some latitude and understanding, could not take it upon themselves to redefine the time or order in which documents were to be provided to the Court. They are in that sense the authors of their own misfortune.
[37] However, I emphasise that, in my view, the causes of action most likely to have resulted in an adjudication in either their favour or that of [AFF] were always causes of action which could only be prosecuted in this Court, via applications under ss 165 or 174 of the Companies Act. In terms of the overall justice of the case, the District Court's decision to strike out the proceedings should be seen in that context.
[34] Muir J dismissed the appeal and allowed costs to Mr and Mrs Chen on a 2B basis.27 Muir J also made a final observation:
[39] … I encourage the parties to enter into responsible discussions concerning potential claims by [AFF]. The prospect that this Court should be required to consider either a s 165 or s 174 application in circumstances where the sum of money involved is under $30,000 is not a welcome one given the potential complexities of both applications. To the extent that there may be an underlying injustice it should be resolved by more efficient means.
25 At [18], [21] and [23].
26 At [32].
27 At [38].
The dispute returns to the High Court; the Associate Judge Bell judgment
[35] In June 2017, AFF, Mr Tsao and Ms Chen began a new proceeding in the High Court. This came before Associate Judge Bell, who issued a judgment on 29 March 2018.28
[36] The Associate Judge noted that the statement of claim had the following causes of action:29
(a)breach of directors’ duties;
(b)breach of contract;
(c)misuse of company funds;
(d)misrepresentations made to induce Mr Tsao and Ms Chen to invest in AFF;
(e)allegations of misleading justice; and
(f)misleading and deceptive conduct under the Contractual Remedies Act 1979.
[37] The Associate Judge also noted that Mr and Mrs Chen had applied to strike out the causes of action as statute-barred because Mr Tsao and Ms Chen were not competent to represent AFF and all the causes of action arose before 1 January 2011 when the Limitation Act came into effect.30
[38]The Associate Judge held that:
(a)With respect to the claims for breaches of directors’ duties:
28 Alligators Fast Food Ltd v Chen [2018] NZHC 587 [Associate Judge Bell judgment]..
29 At [10].
30 At [14]–[16].
(i)the claims were actionable only by AFF and not by Mr Tsao and Ms Chen personally;31
(ii)a number of the claims were time-barred but there may be an argument for an order that time should not run when AFF was removed from the Companies register, but Mr Tsao and Ms Chen would need to apply for an order under s 328(6) of the Companies Act to overcome the time bar;32 and
(iii)Mr Tsao and Ms Chen had made out a case under s 165 of the Companies Act for leave to bring a derivative proceeding in the name of the company but any proceeding should be brought in the District Court, where it was possible to bring such claims and where Mr Tsao and Ms Chen as directors could appear and act for AFF.33
(b)Because some of the alleged misappropriations occurred after the Limitation Act 2010 had come into force, strike out orders could not be made for the causes of action for misuse of company funds, but any action would have to be brought by way of derivative proceeding under s 165 of the Companies Act.34
(c)The remaining causes of action were struck out.35
[39] The Associate Judge also considered whether Mr Tsao and Ms Chen might bring a claim under s 174 of the Companies Act.36 In his judgment, a claim for relief
31 At [23].
32 At [28(2) and (3)].
33 At [26] and [28(4)]. Under s 165 of the Companies Act, the Court may grant leave to a shareholder or director to bring proceedings in the name and on behalf of the company.
34 At [31]–[36].
35 At [55]
36 Under s 174 of the Companies Act, a shareholder of a company who considers that the affairs of the company have been conducted in a manner that is oppressive, unfairly discriminatory, or unfairly prejudicial to him or her in that capacity or in any other capacity, may apply to the court for an order under the section.
under s 174 was not time-barred but he noted that it might be barred for other discretionary matters.37
[40] The Associate Judge set out the choices facing Mr Tsao and Ms Chen. He considered they needed to choose between bringing a derivative proceeding under s 165 in the name of the company in the District Court and making a personal claim under s 174 in the High Court because it would be oppressive to do both. The Judge set the matter down for a case management conference and directed Mr Tsao and Ms Chen to file a memorandum setting out their choice of option.38
[41] The Associate Judge added some commentary about the conduct of Mr and Mrs Chen in the proceeding and about the wisdom of Mr Tsao and Ms Chen acting without legal representation. He stated:
[59] I add a comment. In his decision dismissing the plaintiffs’ appeal from the District Court order striking out their claim, Muir J noted the desirability of the parties resolving their differences without requiring a decision of the court. The defendants have apparently not taken that to heart, even though the plaintiffs wrote to them inviting a settlement. I take it from their conduct so far that the defendants intend to take all available procedural points to slow Mrs Chen and Mr Tsao in having a hearing on the merits. Mrs Chen and Mr Tsao are vulnerable to those tactics because they do not have legal representation and know little about bringing civil proceedings in the District Court and the High Court. The result is that the parties and the courts have spent too much time on procedural matters. As this decision shows, those procedural matters have become very complicated. Indeed, they are too complex for the amount in dispute. To a large extent, both sides have brought these difficulties on themselves — Mrs Chen and Mr Tsao through trying to litigate without a lawyer, and the defendants through their attritional tactics. Notwithstanding that, Mrs Chen and Mr Tsao are obviously determined to have their case heard in court. I invite the defendants to reflect whether tactics of obstruction are really in their interest. They may also wish to bear in mind that s 174 gives the court wide powers to do what it considers to be just and equitable.
[42] The Associate Judge observed that the decision had gone in favour of Mr Tsao and Ms Chen and that he would have ordered costs in their favour if they had had legal representation.39
37 At [44]–[54].
38 At [55]–[58].
39 At [60].
The Muir J minute and the Settlement Agreement
[43] In the event, Mr Tsao and Ms Chen opted to apply to bring a derivative proceeding under s 165 of the Companies Act and to apply for directions under s 328 of that Act regarding the restoration of AFF to the Companies register. It appears that Mr and Mrs Chen were also considering making applications under s 165 to bring derivative proceedings against Mr Tsao and Ms Chen.
[44] The applications came before Muir J on 1 November 2018. As recorded in his minute of that date, Muir J summarised the history of the proceeding to that point.40 He noted that the costs awarded by Lang J and by Muir J himself had not been paid, although the sum of $1,138.30 had been paid to Mr and Mrs Chen from security for costs lodged with the Court. As at the date of the hearing, therefore, the total unpaid costs awarded against Mr Tsao and Ms Chen were $24,700.70.41
[45] Muir J recorded that he had invited the parties to assess where they were in terms of their dispute and what would lie ahead if he granted the applications before him. He noted that he had asked Mr and Mrs Chen whether a settlement offer referred to in their submissions was still open. He then stated:
[4] … Through their son, Mr and Mrs Y and K Chen advised me that provided they received payment of the costs awards that had been made by Lang J and me they would be prepared to enter into an agreement on terms that both sides abandoned their respective claims against the other. Such claims included potential s 165 claims on both sides ⎯ being claims by Ms S Chen and Mr Tsao in relation to moneys which they say were intended to be working capital of the company but which was banked by Mr and Mrs Y and K Chen to their own account, and claims by the Chens that the plaintiffs had defaulted in their obligations to the company and effectively abandoned it. The potential cross claims also included claims by the Chens for rental for the premises which they had provided to the company to operate the bakery and fast food business from.
[5]I adjourned accordingly while the parties conferred.
[6] After lengthy discussions, assisted greatly by the efforts of Mr Zhang, who acted as McKenzie friend to Ms S Chen and Mr Tsao, and by Mr Chen junior, I was advised that the parties had reached a comprehensive settlement of their differences. Their handwritten agreement is appended to this Minute and copies have been made available to them. In essence, all
40 Alligator Fast Foods Ltd v Chen HC Auckland CIV-2017-404-001276, 1 November 2018 (Minute of Muir J) [Muir J minute].
41 At [2]–[3].
parties agree that no further claims, whether under s 165 of the Companies Act or otherwise will be made against each other arising out of their mutual attempts to establish in business. In addition Ms S Chen and Mr Tsao will now pay the costs awards previously made by this Court for which Mr and Mrs Y and K Chen will accept payment over time (instalments of $3,000 per three months). Furthermore, the parties have agreed to unfreeze the company’s bank account and distribute the proceeds of the account equally among them.
[7] Most significantly Ms S Chen and Mr Tsao agree to “cease litigation and will not in future litigate … anything related to this case” and Mr and Mrs Y and K Chen agree that they will not counterclaim. That, if I might say so, is a most responsible and sensible conclusion to this long running matter. The parties will be free now to focus their attentions on more productive future endeavours in which I wish them well. I acknowledge again the maturity they have shown in reaching the settlement today and congratulate them accordingly.
[46] The Settlement Agreement was in handwriting. As stated above. it was annexed to the Muir J minute.
[47] Despite some unusual drafting, the meaning and intent of the Settlement Agreement are clear. The parties, Ms Chen and Mr Tsao and Mr and Mrs Chen, agreed to settle on stated conditions, including that:
(a)Mr Tsao and Ms Chen would cease litigation and would not in future litigate anything related to this case;
(b)Mr and Mrs Chen would not counterclaim or seek costs associated with the case;
(c)Mr Tsao and Ms Chen agreed to pay the costs awarded to Mr and Mrs Chen totalling $24,700 in instalments of $3000 every three months until all costs were paid, with the first instalment to be paid on 1 January 2019;
(d)The parties agreed to unfreeze the bank account of AFF, divide the money equally between them and wind up AFF.
The dispute goes to the Court of Appeal
[48]Less than a month later, Mr Tsao and Ms Chen went back to court.
The Court of Appeal judgment
[49] On 30 November 2018, Mr Tsao and Ms Chen applied to the Court of Appeal for leave to appeal out of time Associate Judge Bell’s decision not to award costs in their favour.
[50] In a judgment issued on 2 May 2019, the Court of Appeal declined the application.42 The Court noted that the Supreme Court had recently affirmed that a successful litigant in person was not entitled to costs because they were not legally represented.43 The Court did not consider that there was any feature of the present case to engage with the possibility of an exceptional circumstances exception left open by the Supreme Court.44 The Court also noted that the application was procedurally flawed and should have been made to the High Court.45
The Judge Blackie judgment
[51] Two and a half months later, on 17 July 2019, Mr and Mrs Chen filed a new proceeding in the District Court seeking to recover the sum of $24,700 arising out of the costs orders of Lang and Muir JJ and which Mr Tsao and Ms Chen had agreed to pay under the Settlement Agreement. Probably for reasons associated with the COVID-19 pandemic, the case was not heard until 22 February 2021. However, Judge Blackie issued his judgment on 25 February 2021.46
[52] Judge Blackie noted that, under the Settlement Agreement, Mr Tsao and Ms Chen had agreed to pay instalments of $1,000 per month, payable every three months, but that no payment had been forthcoming.47 The Judge also noted that Mr Tsao and Ms Chen had raised a number of issues that purported to be a defence: Mr and Mrs Chen had used immoral tactics; the Settlement Agreement was against a
42 Chen v Chen [2019] NZCA 136 [Court of Appeal judgment].
43 At [12], referring to McGuire v Secretary for Justice [2018] NZSC 116, (2018) 24 PRNZ 350 at
[55] and [88].
44 At [12].
45 At [13]. Because the decision being appealed was made on an interlocutory application in a civil proceeding, s 56(3) of the Senior Courts Act 2016 required the application for leave to be made to the High Court.
46 Judge Blackie Judgment, above n 5.
47 At [2]–[3].
judgment of the High Court; the Settlement Agreement was contrary to s 71 of the Contract and Commercial Law Act 2017 and Mr and Mrs Chen had acted fraudulently.
[53] Judge Blackie set out the background to the proceeding as summarised in the Muir J minute.48 He noted that the sum of $24,700 remained outstanding and was made up of orders for costs made by two High Court Judges which had not been appealed and were final and unchallengeable.49 The Judge held that, despite all the matters raised by Mr Tsao and Ms Chen, there was, in reality, no defence.50
[54] The Judge gave judgment in favour of Mr and Mrs Chen in the sum of $24,700, with interest from the date of his judgment to the date of payment.51
The current phase of litigation begins
[55] Mr Tsao and Ms Chen did not pay the sum ordered in the Judge Blackie judgment. Rather, on 30 March 2021, just over a month after the judgment had been issued, Mr Tsao and Ms Chen filed the current proceeding.
[56] The statement of claim is difficult to follow. In the early section, it set out Mr Tsao’s version of what happened in 2009, gave a selective account of aspects of some of the earlier judgments, asserted that Mr and Mrs Chen provided false evidence and used previous judgments obtained by misleading behaviour to threaten and coerce Mr Tsao and Ms Chen to sign an illegal contract – which I take to be the Settlement Agreement – in an attempt to stop the earlier proceedings. It then alleged breaches of the Contract and Commercial Law Act and the Companies Act and sought orders for the cancellation of the Settlement Agreement and orders that Mr and Mrs Chen pay Mr Tsao and Ms Chen various amounts that appear to total just under $127,000, plus special damages, and that a public apology be published in a newspaper and a fine of
$200,000 imposed under s 374 of the Companies Act.
48 Muir J minute, above n 40, at [1]–[7].
49 Judge Blackie Judgment, above n 5, at [8].
50 At [9].
51 At [10].
Protest to jurisdiction
[57] On 23 April 2021, Mr and Mrs Chen filed a notice of protest objecting to the jurisdiction of the Court on the grounds that the proceeding was in direct conflict with the Settlement Agreement, made false accusations of threats and coercion by Mr and Mrs Chen and unsubstantiated claims of illegality.
Applications for summary judgment and for injunctions
[58] In July 2021, Mr Tsao and Ms Chen applied for summary judgment to be entered granting them various orders, including an order cancelling the Settlement Agreement.
[59] Before that application could be dealt with, on 15 August 2021, Mr Tsao and Ms Chen applied for injunctions preventing Mr and Mr Chen from seizing their property. It appears that, on 12 August 2021, agents acting for Mr and Mrs Chen had seized a car owned by Mr Tsao and Ms Chen to enforce the Judge Blackie judgment.
[60] The injunction application came before Moore J on 20 August 2021. Moore J refused the application.52 He noted that the background to the litigation was extremely complex. He also observed that it appeared that Mr Tsao and Ms Chen were seeking to re-litigate matters that had been the subject of the earlier judgments.53 He commented that the documents filed by Mr Tsao and Ms Chen were all but impossible to understand. However, the primary complaint appeared to be that the enforcement action taken by Mr and Mrs Chen pursuant to the Judge Blackie judgment was on the basis of the Settlement Agreement, which Mr Tsao and Ms Chen considered should be set aside.54
[61] On 17 September 2021, Associate Judge Andrew declined the application for summary judgment.55 The Associate Judge noted that Mr Tsao and Ms Chen continued to file documents and to make allegations that were not easy to understand but that it
52 Tsao v Chen HC Auckland CIV-2021-404-000561, 23 August 2021 (Minute of Moore J).
53 At [3]–[7]
54 At [10]–[11].
55 Tsao v Chen HC Auckland CIV-2021-404-000561, 17 September 2021 (Minute of Associate Judge Andrew).
appeared that they were seeking to re-litigate matters that had either already been determined by the Court or were the subject of a settlement agreement. He directed that the proceedings be set down for a case management conference to discuss with the parties what the outstanding issues were and how these might be resolved.56
The setting down of the preliminary trial
[62] Following a case management conference before Associate Judge Taylor on 26 October 2022, Mr and Mrs Chen’s protest to jurisdiction was heard by Associate Judge Brittain on 27 March 2023. As noted at [4] above, Associate Judge Brittain set aside Mr and Mrs Chen’s protest to jurisdiction and made directions for the filing of amended pleadings.57
[63] Following a further case management conference, by minute dated 30 May 2023, Associate Judge Brittain directed that there would be a preliminary trial to determine the questions at [5(a)–(c)] above.58 The Associate Judge also directed that:59
(a)all allegations in the amended statement of claim of Mr Tsao and Ms Chen were struck out except those recorded in sch B to his minute; and
(b)evidence was to be by affidavit and strictly confined to the questions.
The cases for the parties at the preliminary trial
[64] Mr Tsao filed three affidavits dated 29 June 2023, 31 July 2023 and 27 September 2023, as well as written submissions, in support of the position of Mr Tsao and Ms Chen that the Lang J judgment and the Muir J judgment, including the costs orders, were obtained by fraud and that the Settlement Agreement was an illegal contract or was otherwise voidable. The affidavits and submissions did not address the Judge Blackie judgment in any detail.
56 At [7]–[9].
57 Associate Judge Brittain judgment, above n 2.
58 Associate Judge Brittain minute, above n 3.
59 At [15].
[65] Despite the directions of Associate Judge Brittain, the affidavits and submissions filed by Mr Tsao addressed at some length the factual circumstances that gave rise to the dispute, as well as setting out Mr Tsao’s views on why the Lang J judgment and the Muir J judgment had been obtained by fraud, in the sense that they had been made on the basis of, or had been influenced by, evidence fabricated by Mr and Mrs Chen.
[66] Mrs Chen filed one affidavit and submissions in support of the position of Mr and Mrs Chen that the matters raised by Mr Tsao and Ms Chen were irrelevant to and had no bearing on the Lang J judgment, the Muir judgment and the Judge Blackie judgment and that the Settlement Agreement was a binding agreement that should be given full effect.
[67] Importantly, Mrs Chen’s affidavit stated that, at the time of signature of the Settlement Agreement, Mr Tsao and Ms Chen had costs orders against them from the District Court totalling more than $60,000 and that Mr and Mrs Chen had agreed to exclude those costs when agreeing to the Settlement Agreement.
Procedure at the preliminary trial
[68] At the start of the hearing on 2 October 2023, I told the parties that, in my assessment, much of the material in their affidavits was more in the nature of submissions than evidence and that I would not allow cross-examination on those aspects of the affidavits. I said that I would allow cross-examination on the exhibits to the affidavits but only after I had determined whether an exhibit was relevant to the questions for determination at the preliminary trial.
[69] In the event, Mrs Chen did not seek to cross-examine Mr Tsao or make submissions. The bulk of the hearing was spent in discussion with Mr Tsao, through his daughter, who acted as interpreter. At my request, Mr Tsao took me through the evidence on which he relied to support his allegations that the Lang J judgment and the Muir J judgment had been influenced by fabricated evidence and that the Settlement Agreement was illegal.
[70] As I informed Mr Tsao at the hearing, while I understood his frustrations at the loss of his investment and at having costs awarded against him, none of the propositions advanced at the hearing or in his submissions and affidavits had any merit. I set out below my reasons by reference to the questions framed by Associate Judge Brittain for the preliminary trial and the evidence on which Mr Tsao relied.
Question1: Were the Lang J judgment, the Muir J judgment and the Judge Blackie judgment obtained by fraud?
[71] Mr Tsao referred to various documents that he said supported his contention that Mr and Mrs Chen had lied to the courts below about the nature of the agreement reached in 2009 and had fabricated evidence which meant that the judgments and associated costs orders had been influenced by fraud.
Annex 1 to affidavit of 29 June 2023
[72] This document was a copy of the handwritten original document set out at [11] of the Lang J judgment (see [8] above). The only difference was that Lang J had omitted the date “22 5 2009” set out at the top of the document.
[73]Mr Tsao said this was a fabricated document because:
(a)the document referred to the purchase of the existing “Taiwan bakery” when the agreement of the parties had been to establish a new takeaway business;
(b)Mr Tsao and Ms Chen had not seen the document until it had been produced at the hearing before Judge Hubble;
(c)the document had not been signed by himself and Ms Chen even though, according to Mr Tsao, Mr and Mrs Chen had said before Judge Hubble that it was the agreement between them;
(d)Mrs Chen now says, in her affidavit, that the document is a receipt; and
(e)it could not have been a receipt because bank records showed that the first payment made by Mr Tsao and Ms Chen was made on 27 May 2009, after the date of the document.
[74] As I said to Mr Tsao, Lang J recorded that the document was the only contemporaneous document that appeared to have been made by the parties. I recognised that Judge Hubble had accepted that Mr Tsao and Ms Chen had not seen the document until after proceedings had issued.60 However, Lang J had referred to the document only in setting out his understanding of the background facts. He made no findings about the document, and it did not form any part of the reasons for his decision. That decision had been based on the content of the pleadings of Mr Tsao and Ms Chen in the District Court. It followed that, even if the document was fabricated as alleged, it had no bearing on the decisions made in the Lang J judgment. Nor did it have any bearing on the Muir J judgment. That judgment dealt only with the appeal of Judge Lovell-Smith’s decision to strike out the proceeding for non- compliance by Mr Tsao and Ms Chen with the orders of District Court judges after Lang J had remitted the matter back to the District Court.
[75] For completeness, I record that the document also had no bearing on the Judge Blackie judgment which was limited to enforcement of the Settlement Agreement as it related to the costs orders made by Lang and Muir JJ.
Footnote 2 to Lang J judgment
[76] In footnote 2, Lang J recorded that the payment of $29,750 made by Mr Tsao and Ms Chen had included the sum of $250 for their share of incorporating AFF. Mr Tsao said that was erroneous because the per-person cost of incorporating AFF was
$150. Mr Tsao said this proved the existence of fabricated evidence. It also contradicted the assertion of Mr and Mrs Chen that the agreement had been to purchase a bakery because it showed that the parties had agreed to establish a company. From these propositions, Mr Tsao advanced a number of reasons why the payment referred to by Lang J at footnote 2 was inconsistent with the story advanced by Mr and Mrs Chen over the agreement reached in 2009.
60 Judge Hubble judgment, above n 6, at [25].
[77] As I said to Mr Tsao, nothing in the Lang J judgment turned on payments made by Mr Tsao and Ms Chen. It followed that the issue was of no consequence to the Lang J judgment or to the Muir J judgment. Nor is it of any consequence to the Judge Blackie judgment.
Other documents referred to by Mr Tsao
[78] Mr Tsao referred to other documents which he said supported his contention that Mr and Mrs Chen had fabricated evidence. Most of those documents related to the nature of the agreement reached between the parties in 2009. Some were extracts of pleadings; other were extracts from decisions which, Mr Tsao alleged, proved that Mr and Mrs Chen had lied and had fabricated evidence. Some of the propositions advanced by Mr Tsao were difficult to follow. Others were contrived to support his case. In any event, because the identified judgments did not make decisions about the merits of the dispute between the parties, none of the documents had any bearing on the judgments.
Conclusion regarding Question 1
[79] I am satisfied that there is no basis to the allegation that the Lang J judgment, the Muir J judgment or the Judge Blackie judgment were obtained by fraud. The answer to Question 1 is NO.
Question 2: Was the Settlement Agreement an illegal contract?
[80] Mr Tsao’s primary contention in relation to this question is that the Settlement Agreement was illegal because it was obtained by pressure or coercion.
[81] Mr Tsao’s first proposition was that he had been told he had to sign the Settlement Agreement if he wanted to continue the litigation. I told Mr Tsao that I did not accept the truth of that statement. It was contrary to the Settlement Agreement and to what Muir J had said about the Settlement Agreement. The purpose of the Settlement Agreement was to put an end to the litigation. It had been drafted by the McKenzie friend of Mr Tsao and Ms Chen. I do not accept that Mr Tsao did not understand what had been agreed and was set out in the Settlement Agreement.
[82] Mr Tsao’s next proposition was that he had been unfairly pressured into signing the Settlement Agreement because of the costs awarded against him. He considered that it was particularly unfair that, although he had won some phases of the litigation, he had not been awarded costs. He also said he had been pressured by the threat that he would have to pay costs of over $80,000 if he did not sign the Settlement Agreement. He agreed with the statement in Mrs Chen’s affidavit that Mr and Mrs Chen’s lawyers had sent him requests to pay costs awards in excess of $80,000 from both the District Court and High Court. Mr Tsao claimed, however, that he had never been shown any documents to support those claims.
[83] As I said to Mr Tsao, a costs award is made by the Courts. Once it has been made, there is an obligation on the party it is made against to pay the amounts ordered. That obligation continues unless the party in whose favour the award is made agrees not to enforce it. Mr Tsao may consider that pressure, but it is not unlawful pressure. It is also pressure that would have continued if he had not signed the Settlement Agreement. The same was true of the pressure that might have come from Mr and Mrs Chen making their own application to bring a derivative action on behalf of AFF against Mr Tsao and Ms Chen, as Muir J had said was a possibility. Settling to avoid that pressure did not make the Settlement Agreement unlawful.
[84] If, as appears to have been the case, Mr and Mrs Chen had agreed not to enforce the District Court’s costs award, Mr Tsao has overlooked the fact that, at least as far as costs were concerned, the Settlement Agreement was a good deal for him. He has also overlooked or not understood that, from the Lang J judgment onwards, all the decisions had been based on procedural arguments. Most of those decisions had gone against Mr Tsao, largely because he had chosen to represent himself and had clearly not understood legal processes. Mr Tsao’s complaint that it was unfair that he had not been awarded costs when successful shows he has not understood that self-represented litigants will not ordinarily be awarded costs - as the Court of Appeal made clear.
[85] For all these reasons, it is apparent that there is no substance to Mr Tsao’s claim that the Settlement was the result of coercion or unlawful pressure.
[86] Mr Tsao’s other arguments at the preliminary trial in support of the alleged illegality or invalidity of the Settlement Agreement were that:
(a)Mr and Mrs Chen had unilaterally wound up AFF;
(b)the Settlement Agreement prevented him exercising his right as a shareholder to bring a derivative action on behalf of AFF under s 165 of the Companies Act as held by Associate Judge Bell;
(c)the Settlement Agreement prevented him exercising his right as a shareholder to bring a personal action under s 174 of the Companies Act as held by Associate Judge Bell.
[87] None of these arguments has any merit. The Settlement Agreement provided for AFF to be wound up. If Mr Tsao was not willing to implement its terms, he could not complain that Mr and Mrs Chen did so unilaterally. Associate Judge Bell did not hold that Mr Tsao and Ms Chen had rights to bring actions under ss 165 and 174 of the Companies Act. He had held that such actions were legally possible but had said that it would be oppressive for Mr Tsao and Ms Chen to do both. Importantly, and as already noted, the purpose of the Settlement Agreement was to bring litigation to an end, including putting an end to any application that any of the parties might bring under any section of the Companies Act.
[88] In his written submissions, Mr Tsao also says the Settlement Agreement was unfair because Mr and Mrs Chen had lawyers whereas he and Ms Chen were at a financial disadvantage. That is no basis for holding the Settlement Agreement to be illegal.
[89] Mr Tsao also advanced arguments that were clearly taken from text books or other legal sources, based on the principle of legality, by reference to the concepts of actus reus and mens rea, and the principle of proportionality. These arguments are legally nonsensical. Mr Tsao also alleged breaches of the Crimes Act 1961, the Companies Act, and the Contract and Commercial Law Act. None has any legal force or relevance in relation to the legal validity of the Settlement Agreement.
Conclusion regarding Question 2
[90] I am satisfied that there is no basis to the contention that the Settlement Agreement was illegal. The answer to Question 2 is NO.
Question 3: Was the Settlement Agreement otherwise voidable?
[91] This question was not considered in detail at the preliminary trial because the arguments advanced were essentially the same as those made in relation to Question 2.
[92] In his written submissions, Mr Tsao argued that the Settlement was voidable because it had been procured by fraud; that is, Mr and Mrs Chen had submitted a fabricated note (presumably that in Annex 1 to Mr Tsao’s first affidavit) and made false statements, thereby leading the Courts astray. Mr Tsao also alleged breaches of the Crimes Act, the Companies Act, and the Contract and Commercial Law Act and the High Court Rules 2016.
[93] The first of these arguments fails because I have held that the decisions in the relevant judgments were not based on any documents put forward by Mr and Mrs Chen. The remaining arguments have no legal force or relevance.
Conclusion regarding Question 3
[94] I am satisfied that there is no basis to the contention that the Settlement Agreement was otherwise voidable. The answer to Question 3 is NO.
Result
[95] The answer to each of the three questions framed by Associate Judge Brittain is NO.
[96] It follows that there is no cogent evidence to support the allegations of Mr Tsao and Ms Chen the Lang J judgment, the Muir J judgment and the Judge Blackie judgment were obtained by fraud and that the Settlement Agreement was illegal or otherwise voidable.
[97] As a consequence of this conclusion, Mr Tsao and Ms Chen have no arguable cause of action based on alleged fraud in relation to the judgments or in relation to alleged illegality or voidability of the Settlement Agreement.
[98] In accordance with r 15.1(1)(a) of the High Court Rules, therefore, I strike out this proceeding.
[99]Because both parties are self-represented, there is no order as to costs.
Postscript
[100] Despite the length of this judgment, it was plain from the outset that the claims of Mr Tsao and Ms Chen were hopeless and that the preliminary trial served little purpose other than to confirm that reality.
[101] The lack of purpose of the preliminary trial was underscored by the Court being told at the end of the trial by Mrs Chen’s son, who acted as interpreter for his mother, that Mr Tsao had in fact paid the costs ordered by Lang and Muir JJ and agreed in the Settlement Agreement in order to get his car back. Mr Tsao’s daughter confirmed that this was correct. If Mr Tsao had disclosed that fact at any of the case management conferences after payment of the costs had been made, it is highly unlikely the proceeding would have been allowed to go any further.
[102] Despite the lack of purpose of the preliminary trial, I have set out the history of the proceeding in some detail for two reasons:
(a)First, to ensure that another judge does not have to wade through the earlier judgments should anything in relation to this proceeding arise again.
(b)Secondly, as an object lesson in what can happen when litigants in person pursue procedural arguments that they do not understand and have no capacity to manage. Scarce court time has been taken up for little purpose.
[103] I note that Mr Tsao and Ms Chen might have achieved a different result if, after the Lang J judgment, they had repleaded their case with the assistance of competent counsel. Judge Hubble’s judgment indicated that there were questions to be asked about the nature of the agreement reached in 2009 and about the authenticity of the document at Annex 1 to Mr Tsao’s first affidavit. However, because of the way Mr Tsao and Ms Chen conducted the proceeding after the Lang J judgment, the substantive merits of the respective positions were not before the Courts at any subsequent stage of the proceeding. Because of the Settlement Agreement, as well as the passage of time, those questions cannot now be revisited.
[104] That is not to say the Settlement Agreement was a bad idea. To the contrary, I agree with Muir J and Associate Judge Bell that more efficient ways for resolving the dispute between the parties should have been pursued rather than making complicated applications under the Companies Act when the sum at issue was less than $30,000.
[105] Lastly, and as signalled at [7], given Mr Tsao’s obvious reluctance to accept that he and Ms Chen are precluded by the Settlement Agreement from bringing further proceedings in relation to their dispute with Mr and Mrs Chen, I direct the Registrar that no further proceeding relating to the dispute between the parties is to be accepted for filing without the approval of a High Court judge.
G J van Bohemen J
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