Wenzhou Hongliang Trading Co Limited v Finnigan

[2021] NZHC 824

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-1187

[2021] NZHC 824

UNDER

the Companies Act 1993 and Part 19 of the High Court Rules 2016

IN THE MATTER OF

the liquidation of WENZTRO COOPERATION LIMITED

BETWEEN

WENZHOU HONGLIANG TRADING CO LIMITED
Plaintiff/Respondent

AND

PERI MICHAELA FINNIGAN and BORIS VAN DELDEN

Defendants/Applicants

Hearing:	14 April 2021 at 10:00am
Appearances:	Morgan Fee for the Applicants/Defendants Stephen Bryers for the Respondent/Plaintiff
Judgment:	14 April 2021

ORAL DECISION OF ASSOCIATE JUDGE R M BELL

Solicitors:

McVeagh Fleming (Geoff Baxter), Auckland, for the Plaintiff/Respondent
Fee Langstone (Virginia Wethey/Morgan Fee), Auckland, for the Defendants/Applicants

Copy for:

Stephen Bryers, Auckland, for the Plaintiff/Respondent

WENZHOU HONGLIANG TRADING CO LTD v FINNIGAN and VAN DELDEN [2021] NZHC 824 [14 April 2021]

[1]    This case has a fixture for seven days beginning 28 June 2021. The close of pleadings date is today. The plaintiff filed an amended statement of claim on 26 March 2021. A statement of defence is due today, but after discussion Ms Fee has sought an extension of time. The statement of defence is to be filed and served by 21 April 2021.

[2]    The defendants have applied for further security for costs and for further discovery. By agreement, security was set at $45,000. The defendants say that amount is no longer adequate and they seek an increase to $80,000. The plaintiff’s position is that there is an extra $20,000 available, under arrangements which I will refer to later, and that should be sufficient.

[3]    The defendants also seek further disclosure of two classes of documents. The first are documents relating to the plaintiff’s complaint to the Law Society against the lawyer who acted for the defendants in proceedings in the liquidation of Wenztro Cooperation Ltd. They also seek discovery of invoices by other law firms who acted for the plaintiff. I am advised that the second class of documents has been disclosed.

[4]    During the hearing, another discovery issue was raised. Ms Fee suggested that the new statement of claim made new allegations which may raise fresh discovery issues. I direct the defendants to write to counsel for the plaintiff by 23 April 2021, setting out any other requisitions as to discovery. The plaintiff will be expected to make any further discovery no later than 5 May 2021, when it is to serve its evidence.

The application for additional security

[5]    The plaintiff is a Chinese company incorporated under the laws of the People’s Republic of China. It does have an agent in New Zealand, Mr Lin, but otherwise has no presence in New Zealand. It does not have any significant assets in New Zealand. There are no formal reciprocal enforcement of judgments arrangements in place between New Zealand and the People’s Republic of China. It is uncertain whether an order for costs of this court would be enforceable against a Chinese resident under the laws of the People’s Republic of China. The defendants have accordingly satisfied

the threshold for ordering security for costs.1 That was recognised when the plaintiff agreed to provide security of $45,000 earlier in the proceeding. While security was agreed at $45,000, $25,000 was initially paid. There was delay in providing the extra

$20,000. That was paid only recently.2

[6]    The defendants’ case is that that security is no longer adequate. They have provided a schedule of costs they are likely to recover if they are successful at trial. They have calculated costs under category 2 claiming band B for most steps, and band C for discovery. They have claimed for second counsel, given the complexity of issues. They say that scale costs for attendances to date would come to $44,215. Costs from now on would be a further $59,272. They have estimated $55,000 for experts’ costs. With the $45,000 already in place, they are unsecured for $113,000 odd. In their application and in correspondence with the plaintiff’s solicitors they sought total security of $80,000.

[7]    The plaintiff raises delay by the defendants in seeking increased security. The application was made very late in the piece and the application is being heard on the close of pleadings date. Counsel referred to my decision in Oxygen Air Ltd v LG Electronics Australia Pty Ltd3 as to the potential for unfairness to a plaintiff when an application for security is made late. Against that, the defendants say that there is an explanation for the delay. For a large part of 2020, they say that the plaintiff was not actively pursuing the case and had not paid the initial amount of security in full. While the security remained unpaid, the proceeding was stayed. There were changes of solicitor by the plaintiff. They did not raise the question of increased security until active steps were taken to pay the amount of extant security. I accept that offers an explanation for the delay in seeking security. I am satisfied in the circumstances of this case that on balance there is not any overall unfairness to the plaintiff in applying for further security at this stage.

[8]    Counsel reviewed the merits of the case. Necessarily on security for costs applications the court does not make a deep enquiry into the merits of the case. The

1      High Court Rules 2016, r 5.45(1)(a)(ii).

2      Mr Bryers explained that the funds had been paid to the plaintiff’s former lawyers but had not been on-paid.

3      Oxygen Air Ltd v LG Electronics Australia Pty Ltd [2018] NZHC 945 at [26].

court can only gain a general impression of the case. I regard the proceeding as relatively complex.

[9]    Wenzhou Hongliang Trading Ltd was a creditor of Wenztro Cooperation Limited. It was the only creditor. The company went into liquidation by shareholders’ resolution once it was clear that it was insolvent. That was in October 2012. The initial liquidator resigned and was replaced by other experienced insolvency practitioners who in turn resigned shortly afterwards and were replaced by another set of insolvency practitioners. The defendants are the fourth liquidators. They became liquidators in February 2016. They engaged an Auckland law firm to take a proceeding under s 301 of the Companies Act 1993 against the directors of Wenztro for breach of directors’ duties. The plaintiff funded the litigation including the legal fees. The plaintiff had already obtained judgment against Wenztro on a summary judgment application. It applied for summary judgment before the company went into liquidation. The first liquidator did not oppose the plaintiff continuing with the summary judgment application after liquidation. Judgment was for $765,000 plus interest.

[10]   The proceedings by the defendant liquidators against the directors had a choppy history. That has generated the plaintiff’s complaints against the defendants. Having poured very large sums of money into the costs of the liquidators and the costs of the litigation, the exercise has been on the whole uneconomic for it. There has been limited recovery from the directors under the judgments against them. The plaintiff criticises the conduct of the litigation. Claims were made that could not be sustained and had to be abandoned at trial. There were other claims available which were pursued at the wrong stage in the litigation. What might have been sought as damages were instead claimed as costs but were was rejected. Steps taken were unnecessary.

[11]   There are four causes of action in the latest statement of claim. The first is in negligence/breach of statutory duty, alleging misconduct by the liquidators in breach of the duties under s 253 of the Companies Act 1993; the second cause of action seeks a review of the liquidators’ remuneration; a third is a complaint that funds paid in as security were misapplied; and the fourth cause of action relates to a priority question

as to distributions in the liquidation under the seventh schedule of the Companies Act 1993.

[12]   For the plaintiff, it was urged that it has a strong case and is likely to be successful. Against that the defendants, while not saying they are bound to win, point to difficulties in the case. For myself, I regard the case as complex. There will be some difficult issues for the parties and the court. The plaintiff’s case is not hopeless

– nor on the other hand is success assured. Mr Bryers pressed on me that that the plaintiff is bound to succeed on at least some causes of action, if not all of them, and that therefore makes it unlikely that costs would be awarded. That may not, however, be a complete answer. In a proceeding like this, it is not unknown for offers of settlement to be made before trial. If the plaintiff does not succeed to the extent of an offer of settlement made before trial, then costs might be awarded against the plaintiff notwithstanding its success on some causes of action. There is in my view a reasonable likelihood that costs may be ordered against the plaintiff, given the issues in the case. That is not a prediction of the final outcome. I am simply acknowledging that possibility is not so remote that I should dismiss it out of hand.

[13]   I am satisfied that the amount that has already been fixed for security should be reviewed in light of what seems to be increased complexity. I note in particular that while there was increased complexity when the plaintiff filed its statement of claim in 2020, yet more steps have been required by the defendants to deal with the new statement of claim which has added fresh factual allegations and will require yet further work by the defendants.

[14]   It is open to the court to review security for costs on a subsequent application. I am satisfied here that the security should be increased. I fix the total security at

$80,000. Even if the plaintiffs succeed on some causes of action, costs may yet be awarded for not accepting a reasonable settlement offer. Such costs are only likely to cover the costs of trial.

[15]   Accordingly, the security is increased by $35,000. $20,000 of that is already secured. Mr Bryers has provided a copy of a deed of 12 February 2019 between the defendants and the plaintiff under which the judgments against the directors were

assigned to the plaintiff. Clause 4.2 provides that $20,000 is to be held in the plaintiff’s solicitors’ trust account as security for the plaintiff’s obligations under the deed. Those funds are to be held until the later of a date on which all appeals are finally exhausted or the completion of the liquidation. I was advised that all appeals have been resolved. The funds therefore seem to be readily available for payment.

[16]   Accordingly, I order security of a further sum of $35,000. $20,000 is already satisfied, and I order the plaintiff to provide further security of $15,000 to be paid into court or, by agreement of the parties, paid into the trust account of agreed solicitors no later than 5 May 2021.

[17]   The plaintiff has an Auckland agent, Mr Lin. He offered a personal guarantee by way of security. While I understand that he is related to the director of the plaintiff, it seems to me more convenient that funds be paid into court to offer real security rather than an undertaking which may need to be enforced through further processes of the court. It seems to be more efficient for the plaintiff to provide the funds itself rather than to expose its New Zealand agent to the risk of personal liability.

[18]   If the security is not paid by 5 May 2021, the parties should contact the court promptly for further directions and ask for conference as a matter of urgency. The direction may be a stay of the proceeding. If any stay were ordered, that is likely to cause the fixture to be abandoned. On any decision about abandoning the fixture, the circumstances should be carefully reviewed, so I am not ordering an automatic stay now.

Discovery application

[19] The plaintiff made a complaint under the Lawyers and Conveyancers Act 2006 against the lawyers who acted in the litigation for mishandling funds. I have been advised that a hearing before a Standards Committee held in favour of the plaintiff, but the plaintiff has sought a review and the Legal Complaints Review Officer has reserved their decision. The plaintiff acknowledges holding documents relating to that complaint and accepts that those documents are relevant and would ordinarily be discoverable. But it raises confidentiality considerations. Under reg 31 of the Lawyers

and Conveyancers Act (Lawyers: Complaints Service and Standards Committees) Regulations 2008, decisions of the Standards Committee are confidential. Under reg 30, if a practitioner is to be censured a decision may be made that the practitioner be identified. In other words, the publicity and identification may be part of the punishment. I understand that so far the practitioner has not been identified.

[20]   I am reluctant to make any decision about whether this class of document should be disclosed without first having heard from the practitioner and also from the Law Society. Mr Bryers helpfully referred me to Walker Data Vision Ltd v Radiola Corporation Ltd, where Fisher J recognised that where the disclosure of information was about information believed to be confidential to a non-party, that non-party should be heard before any decisions as to disclosure of documents containing that confidential information.4 I wish to hear from the practitioner and from the Law Society how the confidentiality provisions of the Lawyers and Conveyancers Act and the regulations apply to the circumstances of this case. In particular, it would be helpful to hear any submissions as to how s 69 of the Evidence Act 2006 applies, if it does at all.

[21]   I am accordingly adjourning this part of the case until my chambers list on Friday 23 April 2021 at 2.15 pm so that I can hear further argument on this point. I would be grateful if Ms Fee would notify the Law Society and the practitioner of this matter so that they can take steps to appear.

……………………………

Associate Judge R M Bell

4      Walker Data Vision Ltd v Radiola Corporation Ltd HC Auckland CP 153/94, 28 June 1994.