Tsao v Chen

[2023] NZHC 679

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-000561

[2023] NZHC 679

BETWEEN

WENG-YUAN TSAO

First Plaintiff

SHAN-HUA CHEN
Second Plaintiff

AND

YEN WEI CHEN
First Defendant

KUEI HUAN CHEN

Second Defendant

Hearing:	27 March 2023
Appearances:	Plaintiffs and Defendants are self-represented
Judgment:	30 March 2023

JUDGMENT OF ASSOCIATE JUDGE BRITTAIN

This judgment was delivered by me on 30 March 2023 at 2 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

WENG-YUAN TSAO v YEN WEI CHEN [2023] NZHC 679 [30 March 2023]

Background

[1]    The plaintiffs and the defendants were once in business together, including the operation of a company, Alligators Fast Food Ltd (AFF). The relationship between the parties ended badly. The plaintiffs invested money in the business and lost it. They believe that they have legal remedies against the defendants. The parties have been involved in litigation in various jurisdictions since 2010.

[2]    Prior litigation included a claim by the plaintiffs against the defendants in the District Court. The litigation history and outcome of that proceeding was summarised by the Court of Appeal as follows:1

[2]        There is a substantial history of litigation between the applicants and the respondents consequent upon an unsuccessful business venture. The applicants were successful in a proceeding against the respondents in the District Court but the respondents’ appeal was allowed and a direction made for a rehearing in the District Court. That proceeding was eventually struck out on 25 July 2016 on account of the applicants’ non-compliance with directions. An appeal against the strike-out order was dismissed on 21 February 2017.

(footnotes omitted)

[3]       A subsequent High Court proceeding, CIV-2017-404-1276, ultimately concluded when the Court of Appeal refused to grant leave to the plaintiffs to appeal out of time against a costs decision of Associate Judge Bell in his judgment dated   29 March 2018, following his decision on an application by the defendants to strike out the plaintiffs’ claim. The Court of Appeal described the High Court litigation as follows:2

[3]        The applicants then commenced a fresh proceeding in the High Court on 14 June 2017. The respondents applied to strike-out that proceeding. Their application was dismissed in a judgment of Associate Judge Bell delivered on 29 March 2018. The judgment concluded in this way:

This decision has gone in favour of Mrs Chen and Mr Tsao. If they had legal representation, I would order costs in their favour. If the defendants may later seek costs against them, Mrs Chen and Mr Tsao may be able to raise their victory on this occasion as counting in reduction of any order for costs they might otherwise be ordered to pay.

1      Chen v Chen [2019] NZCA 136.

2      Chen v Chen, above n 1.

[4]        The proceeding was called again before Muir J on 1 November 2018. His Honour’s minute of 1 November 2018 records that, after an adjournment during which the parties conferred, a comprehensive settlement was reached which was recorded in a handwritten agreement, a copy of which is appended to the minute. The agreement included provision that the applicants agreed to “cease litigation and will not in future litigate the defendants anything related to this case”. The respondents also agreed that they would not “counterclaim or litigate any costs associated with the case”.

(footnotes omitted)

[4]       On 30 March 2021, the plaintiffs commenced this proceeding and filed a statement of claim. The defendants have not filed a defence. Instead, they filed a notice of appearance under protest to jurisdiction. The defendants’ position is that the Court does not have jurisdiction to hear the plaintiffs’ claim because of the compromise effected by the settlement agreement dated 1 November 2018 (the settlement agreement).

[5]       The statement of claim is prolix and difficult to understand. In broad terms, it appears to primarily relitigate issues from the prior litigation in the District Court and the High Court and, as part of that approach, challenges the enforceability of the settlement agreement.

[6]       Both parties are self-represented and were assisted by interpreters during the hearing of the protest to jurisdiction. As self-represented litigants with English as a second language, the parties are struggling to negotiate their way through the procedural requirements of the High Court Rules 2016 (HCR).

Objection to jurisdiction

[7]Rule 5.49 of the HCR provides:

5.49 Appearance and objection to jurisdiction

(1)A defendant who objects to the jurisdiction of the court to hear and determine the proceeding may, within the time allowed for filing a statement of defence and instead of so doing, file and serve an appearance stating the defendant’s objection and the grounds for it.

(2)The filing and serving of an appearance does not operate as a submission to the jurisdiction of the court.

(3)A defendant who has filed an appearance may apply to the court to dismiss the proceeding on the ground that the court has no jurisdiction to hear and determine it.

(4)[Revoked]

(5)At any time after an appearance has been filed, the plaintiff may apply to the court by interlocutory application to set aside the appearance.

(6)The court hearing an application under subclause (3) or (5) must,—

(a)if it is satisfied that it has no jurisdiction to hear and determine the proceeding, dismiss the proceeding; and

(b)if it does not dismiss the proceeding under paragraph (a), set aside the appearance.

(7)To the extent that an application under this rule relates to service of process effected outside New Zealand under rule 6.27 or 6.28, it must be determined under rule 6.29.

(7A) But both this rule and rule 6.29 are subject to section 27(1) of the Trans-Tasman Proceedings Act 2010, which provides that a New Zealand court cannot stay a civil proceeding before it on forum grounds connected with Australia otherwise than in accordance with subpart 2 of Part 2 of that Act.

(8)The court, in exercising its powers under this rule, may do so on any terms and conditions the court thinks just and, in particular, on setting aside the appearance it may extend the time within which the defendant may file and serve a statement of defence and may give any directions that appear necessary regarding any further steps in the proceeding.

(9)If the appearance set aside has been filed in relation to a proceeding in which the plaintiff has applied for judgment under rule 12.2 or 12.3, the court—

(a)must fix the time within which the defendant may file and serve—

(i)a notice of opposition; and

(ii)an affidavit by or on behalf of the defendant in answer to the affidavit by or on behalf of the plaintiff; and

(b)may, under subclause (8), give any other directions that appear necessary regarding any further steps in the proceeding.

[8]       The Court’s jurisdiction may be precluded by the operation of a contractual term. That typically occurs in situations where parties have previously agreed to refer any disputes to arbitration or where they have agreed that disputes will be determined

in a particular country. Neither situation is the case here. Instead, the defendants object to the jurisdiction of this Court on the ground that the terms of the settlement agreement operate as a bar to the plaintiffs’ claims. That is not an appropriate basis on which to challenge the Court’s jurisdiction. Whether the settlement agreement ultimately defeats the plaintiffs’ claims is a question unrelated to matters of jurisdiction.

[9]       The proper course of action for the defendants in this situation was to file a statement of defence and to apply for either summary judgment or an application for an order striking out the proceeding under r 15.1 of the HCR. While that has not occurred the Court may still, in an appropriate case, exercise its inherent jurisdiction to strike out the whole or any part of a pleading, irrespective of any application.3

The plaintiffs’ challenge to the settlement agreement

[10]     The Court understands that the terms of the settlement agreement have now been performed, other than the terms that prohibit further litigation between the parties. Following enforcement action in the District Court, the agreed costs of

$24,700.00 have been paid by the plaintiffs, and AFF’s remaining funds have been distributed.

[11]     The present issue is the scope of the compromise effected by the settlement agreement and whether any of the plaintiffs’ claims related to the operation of the business and AFF can be pursued. This depends on the interpretation of the settlement agreement.

[12]     It is helpful to first consider the background that led up to the parties entering into the settlement agreement.

[13]The plaintiffs’ causes of action in CIV-2017-404-1276 included, inter alia:

(a)breach of duties owed by the defendants as directors of AFF;

3      High Court Rules 2016, r 15.1(4). See Siemer v Stiassny [2011] NZCA 1 at [15].

(b)breach of contractual obligations owed by the defendants to the plaintiffs;

(c)misappropriation of AFF assets by the defendants;

(d)misrepresentation;

(e)misleading and deceptive conduct under the Contractual Remedies Act 1979; and

(f)shareholder oppression under s 174 of the Companies Act 1993.

[14]     Following Associate Judge Bell’s strike-out decision in CIV-2017-404-1276, dated 29 March 2018, some of the plaintiffs’ causes of action were struck out and some survived.4

[15]     The surviving causes of action, including applications under ss 165 and 328(6) of the Companies Act, were heard by Muir J on 1 November 2018. Following intervention from the Judge at the commencement of the hearing, the proceeding was adjourned while the parties conferred regarding a possible settlement. The plaintiffs’ McKenzie friend, Mr Zhang, was involved. The parties agreed terms of settlement, which were recorded in the settlement agreement. Muir J then prepared a minute recording what had happened.5

[16]     Regarding the scope of the compromise, the relevant provisions of the settlement agreement are:

The plaintiffs cease litigation and will not in future litigate the defendants anything related to this case.

The defendants will not counter claim or litigate any costs associated with the case.

…

We agree to cease and close the Alligator Fast Food Company and all debts, costs, equipment will cease and be nullified.

4      Alligators Fast Food Ltd v Chen [2018] NZHC 587.

5      Alligators Fast Food Ltd v Chen HC Auckland CIV-2017-404-1276, 1 November 2018.

[17]     When the agreement is read as a whole, it is plain that the objective intention of the parties was that there would be no further litigation between them in the future regarding any matter in any way related to CIV-2017-404-1276, including any matter related to the operation of the business and AFF. That is consistent with Muir J’s description of what had been agreed, in paras [6] and [7] of his minute.

[18]     Therefore, the defendants are entitled to plead the settlement agreement as a bar to all claims that seek to relitigate matters in any way related to the business and AFF. Any cause of action that relates to those matters should be struck out.

[19]     It remains open to the plaintiffs to bring a claim seeking to overturn the settlement agreement, for example on grounds of misrepresentation or fraud, or on any other basis which enables the Court to grant a remedy voiding the settlement agreement. It is not the Court’s role to advise the plaintiff on what causes of action may be available to the plaintiffs on the facts to achieve that end.

[20]     The following extracts and features of the plaintiffs’ pleadings appear to challenge the settlement agreement:

(a)“The Defendants used previous judgments obtained from misleading behaviour to threaten and coerce the plaintiffs to sign a contract that is deemed illegal in an attempt to stop the proceedings.”

(b)“… the plaintiffs applies the High Court cancels the settlement agreement …”

(c)“The Defendants threaten plaintiffs to pay for defrauding the court. The Defendants base the incorrect justice threaten plaintiffs to sign the illegal contract.”

(d)Reference is made to s 73 of the Contract and Commercial Law Act 2017, which provides:

73       Illegal contracts have no effect

(1)Every illegal contract is of no effect.

(2)No person is entitled to any property under a disposition made by or under an illegal contract.

(3)This section and section 74 apply—

(a)despite any rule of law or equity to the contrary; but

(b)subject to the provisions of this subpart and of any other enactment.

[21]     These pleadings do not adequately set out distinct facts which together comprise a recognised cause of action.

[22]     If the plaintiffs can file an amended pleading which sets out a cause of action, or causes of actions, which are reasonably arguable and which might establish a basis for the Court to overturn the settlement agreement if the cause of action succeeds, then the claim ought to proceed. A claim to overturn the settlement agreement remains unaffected by limitation periods.

[23]     For these reasons, the defendants’ protest to jurisdiction should be set aside and the plaintiffs should be given an opportunity to amend their claim.

Other matters

[24]     If the plaintiffs insist on continuing to plead facts to establish a cause of action arising directly out of the operation of the business and AFF, then they can expect such claims to be struck out, either on application by the defendants, or on the Court’s own motion.

[25]     Although it may still be open to the plaintiffs, as a matter of law, to advance a cause of action seeking to overturn the settlement agreement, they will face significant difficulty in proving such a claim. If the plaintiffs file an amended claim which complies with the High Court Rules and the directions made in this judgment, then it will be open to the defendants to apply for summary judgment when they file their defence. An application for summary judgment would need to be supported by affidavit evidence, particularly regarding the circumstances that led up to the parties executing the settlement agreement.

[26]     Even if the plaintiffs are able to overturn the settlement agreement, their path would remain a difficult one. It seems likely that all causes of action arising out of the operation of the business and AFF, which rely on facts from 2010 or earlier, will now be out of time. The plaintiffs would face the prospect of an endeavour to value the benefit of the causes of actions lost when they signed the settlement agreement and discontinued CIV-2017-404-1276, which are now out of time.

Result

[27]The defendants’ protest to jurisdiction is set aside.

[28]There is no order as to costs.

[29]I make the following directions:

(a)The plaintiffs shall file an amended statement of claim by

21 April 2023.

(b)The defendants shall file and serve a statement of defence to the amended statement of claim, together with any application to strike out the statement of claim or for summary judgment, including supporting affidavits, by 19 May 2023.

(c)The proceeding is adjourned to a case management conference on

24 May 2023 at 12.30 pm. Attendance is required in person.

Associate Judge Brittain