Westpac New Zealand Limited v Chen

[2023] NZHC 998

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-2074

[2023] NZHC 998

IN THE MATTER

of the Insolvency Act 2006

AND

IN THE MATTER

of the bankruptcy of Jiayuan (Georgia) Chen

BETWEEN

WESTPAC NEW ZEALAND LIMITED

Judgment Creditor

AND

JIAYUAN (GEORGIA) CHEN

Judgment Debtor

Hearing:	17 April 2023
Appearances:	J J K Spring and E Johnston for Judgment Creditor No appearance for Judgment Debtor
Judgment:	1 May 2023

JUDGMENT OF ASSOCIATE JUDGE LESTER

This Judgment was delivered by me on 1 May 2023 at 3:00pm pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar Date: …..

WESTPAC NEW ZEALAND LIMITED v CHEN [2023] NZHC 998 [1 May 2023]

[1]    Westpac New Zealand Limited (Westpac) applies for an order adjudicating Ms Chen bankrupt. Ms Chen opposes the application.

[2]    Westpac served a bankruptcy notice on Ms Chen in December 2021. At that time, the amount owed by Ms Chen was $365,849.80. Ms Chen unsuccessfully applied to set aside the bankruptcy notice.1 While Ms Chen has filed affidavits and submissions in support of her  opposition,  she  did  not  appear at  the hearing  on  17 April 2023, apparently due to her residency in Dubai. Ms Chen did not apply to appear by AVL.

Background

[3]    The following is largely taken from Lang J’s decision of 28 July 2022 declining Ms Chen’s application to set aside Westpac’s bankruptcy notice.

[4]    Ms Chen and a Mr McKenzie were the shareholders in a company known as  J & MWM Holdings Limited (the company). In December 2017, the company obtained a loan from Westpac to enable it to purchase a property in Millwater (the property). The loan was secured by way of mortgage over the property. The company was unable to meet the mortgage payments and fell into default.

[5]    Ms Chen and Mr McKenzie had guaranteed the company’s obligations under the loan agreement. The agreement named them as principal debtors along with the company.

[6]    Westpac did not take steps to exercise its power of sale under the mortgage. Instead, it withheld action whilst Ms Chen took steps to sell the property herself. After marketing the property for several months, she sold it in November 2020 for the sum of $1.17 million. After the net sale proceeds were applied against the loan, there was a shortfall of approximately $350,000.

[7]    Westpac then sought summary judgment against Ms Chen and Mr McKenzie. Mr McKenzie ultimately came to an arrangement with Westpac whereas Ms Chen did

1      Westpac New Zealand Ltd v Chen [2022] NZHC 1834.

not. She took no steps to defend the summary judgment proceeding and summary judgment was entered against her on 10 August 2021 for the sum of $365,849.80.

[8]Ms Chen sought to have the bankruptcy notice set aside on the grounds:

(i)that the property was sold at an undervalue because of inappropriate pressure from Westpac;

(ii)that Westpac has unjustifiably refused to accept reasonable payment proposals from her; and

(iii)that the Court should exercise its residual discretion to set the notice aside based on Westpac’s inappropriate conduct.

Inappropriate pressure to sell the property

[9]    Lang J noted that Ms Chen had taken no steps to pursue her alleged claim against Westpac relating to the circumstances surrounding the sale of the property. This was despite at that stage, some 12 months having elapsed since summary judgment was entered against her. Ms Chen has taken no steps since that time to bring a claim against Westpac arising from the “inappropriate pressure” she claims.

[10]   Lang J noted that there was no contemporaneous evidence to suggest Ms Chen believed she was facing inappropriate pressure in relation to the sale process. Lang J set out the following email from Ms Chen to Westpac dated 14 October 2020 in his judgment.

Hi Sunita,

I’d like to confirm a payment plan before I accept the offer, they’ve come up to 1.17m.

I can’t accept the offer without knowing the repayment terms, and without knowing whether or not the repayment is affordable in my situation and       I certainly don’t wish Westpac to be disappointed regarding shortfall payment not being met after the settlement.

Hope you understand and I would appreciate a guideline of the repayment before I sign anything with the buyer. It looks like a solid purchase and once I’ve agreed to 1.17M, the buyers will settle in late November.

Kindly advise.

…

[11]   Lang J saw this email as inconsistent with Ms Chen considering she was under inappropriate pressure. Had such pressure existed, Lang J considered it would have been raised at this time.

[12]   Finally, Lang J noted that Ms Chen was responsible for marketing the property and that having rejected an offer of $1.14m, she described the offer of $1.17m in the email set out above as being a “solid offer”.

[13]   Lang J concluded that Ms Chen did not have a cross claim against Westpac of true substance, which she genuinely proposed to pursue. His Honour’s view as to  Ms Chen pursuing her claim against Westpac has proved correct.

[14]   Lang J left Ms Chen’s arguments relating to Westpac’s actions, including its alleged failure to accept reasonable offers for repayment by instalments until if, and when, Westpac applied for an order for adjudication.

Grounds for opposing the order for adjudication

[15]   Ms Chen does not dispute that Westpac has met the requirements for adjudication under s 37(a) of the Insolvency Act 2006 (the Act). The Court may adjudicate a debtor bankrupt if the creditor has established the requirements set out in s 13 of the Act, being:

(a)the debtor owes the creditor $1,000 or more;

(b)the debtor has committed an act of bankruptcy within the three months before the filing of the adjudication application;

(c)the debt is for a certain amount; and

(d)the debt is payable either immediately or at a date in the future which is certain.

[16]   I am satisfied that the above requirements are met. Ms Chen’s debt is more than $1,000. Ms Chen committed an act of bankruptcy within three months before the filing of the adjudication. The judgment debt is for a certain sum and it is payable immediately. There has been no application for a stay of the summary judgment.

Ms Chen’s grounds for opposing adjudication

[17]Ms Chen’s opposition raised the following grounds:

(1)that the settlement with her co-guarantor, Mr McKenzie, referred to by Lang J at para [7] above, means Westpac has not sustained any loss;

(2)that summary judgment obtained by Westpac misled the Court as it did not disclose the settlement agreement with Mr McKenzie; and

(3)Westpac adopted unfair commercial practices including:

(a)rejection of COVID-19 mortgage deferral in unseen hardship applications;

(b)rejection of proposal to pay the mortgage from rental income;

(c)rejection of six repayment proposals;

(d)increase of the mortgage interest rate from 3.99 per cent to

5.34 per cent;

(e)refusal to provide terms of debt repayment for the impending shortfall; and

(f)unfair sale tactics in inducing the sale of the property.

[18]I now deal with each ground.

Settlement agreement

[19]   Ms Chen submits that because Westpac has entered into a payment arrangement with Mr McKenzie, her co-guarantor, this means Westpac will not suffer any loss as it will eventually be repaid by him.

[20]   It is true that by default, Ms Chen gets the benefit of her co-guarantor’s payments. Mr Spring, counsel for Westpac, advised that the level of indebtedness was now approximately $279,000 taking into account Mr McKenzie’s payments. It is not unjust or inequitable for Westpac  to seek Ms Chen’s  adjudication simply because    a co-guarantor has honoured their obligations to Westpac. Ms Chen is not released from her obligations under Westpac’s judgment because Mr McKenzie is meeting his joint and several obligation.

Failure to disclose settlement agreement with

[21]   Given Lang J expressly refers to Westpac having come to an arrangement with Mr McKenzie, I do not accept Ms Chen’s assertion that summary judgment was obtained by Westpac misleading the Court by not disclosing its settlement agreement with her co-guarantor. The existence of a settlement agreement between Westpac and Mr McKenzie is expressly referred to in the judgment of Lang J.

Westpac’s unfair commercial practices

[22]   The advance here was to the company. The evidence is that the company rented the property out. The transaction has a commercial character to it.

[23]   The evidence is that in May 2019, the loan begun to sporadically fall into arrears and from approximately June 2020 fell into and has since remained in arrears. The loan had been on interest only terms since July 2017 and had been on Westpac’s watchlist, being monitored by Westpac’s credit restructuring team.

[24]   Accordingly, the loan was in default prior to the COVID-19 pandemic which commenced in New Zealand in early 2020.

[25]   As the loan was already in default and on interest only terms, the evidence is that the loan was ineligible for mortgage deferral under Westpac’s internal policy or pursuant to Reserve Bank Guidelines.

[26]   Westpac required existing arrears be cleared before further assistance could be offered. While Ms Chen at one point did bring arrears up to date, the next payment was missed, creating fresh arrears.

Unforeseen hardship application

[27]   The loan agreement between the company and Westpac incorporated an unforeseen hardship clause. The evidence is that no formal application was made by the company under this provision and so no issue of rejection arises.

[28]   Ms Chen, in her submissions, relied on the Credit Contract and Consumer Finance Act 2003 (CCCFA) but here, because the debtor is a company, the advance is not a “consumer credit contract”.2

[29]   Given the loan did not qualify for COVID-19 deferral and no unforeseen hardship application was formally made, this issue is a red herring.

Rejection of proposal to pay mortgage from rental income

[30]   This point is readily dispensed with. The reality is, that Ms Chen has made no payments in respect of the debt since February 2020. Ms Chen controlled where the rental income was paid. Despite requests as to what was happening with the rent at the time the arrears were accruing, no details were provided.

[31]   The fallacy running through Ms Chen’s position seems to be that somehow Westpac had to agree or negotiate payments with the borrower when its obligation was simply to pay what it owed. If the borrower, as owner of the property, had rental income  that  was  money  the  borrower  could  and  should  have  applied  to  its

2      Section 11 of the Credit Contract and Consumer Finance Act 2003 provides that a credit contract is a consumer credit contract if, inter alia, (a) the debtor is a natural person, and (b) the credit is to be used or intended to be used, wholly or predominantly for personal, domestic or household purposes. See also BMW Financial Services New Zealand Ltd v Cotton [2021] NZHC 854 at [16].

indebtedness. Instead, as I discuss below, Ms Chen had the rent paid to an account in her name. The borrower paying rent to Westpac  did not require Westpac to agree to  a proposal; it would simply be the borrower paying its indebtedness from its income. There is nothing in this point.

Rejection of six repayment proposals

[32]   This is similar to the last point. As the email set out at para [10] above shows, Ms Chen was aware that there would be a shortfall after the sale of the property which would have to be cleared regardless of whether payment terms were agreed with Westpac, Ms Chen was free to make payments in reduction of her liability – indeed it was her obligation to do so.3

[33]   Ms Chen’s opposition to adjudication would look very different if she had made monthly payments against the arrears arising from the sale of the property and then against the judgment debt, even in the face of Westpac  refusing to agree to       a payment  proposal.   With  the  shortfall  having  crystallised  in  November  2020, a history of payments for nearly two and a half years would put Westpac’s application to adjudicate (assuming it was pursued in the face of a history of payments) in a very different light. Ms Chen was obliged to pay her debt in any way that she could, whether or not a payment proposal was accepted. Again, there is nothing in this point.

Increase of interest rate

[34]   The evidence is that the mortgage came off a fixed rate and  moved onto       a floating rate. From 25 January 2019 the loan was at a new (reduced) fixed interest rate of 3.99 per cent. After 2019, the then applicable floating rate applied. Accordingly, the change simply reflected the loan shifting from a fixed to a floating rate. The rate change is not conduct of Westpac that disentitles it to the order it seeks.

3      “A debtor is under a standing duty to seek out and pay his creditor …”. Waikare v Florance [1918] NZLR 46 at 48.

Refusal to provide repayment terms in respect of the shortfall

[35]   This point refers back to the email set out in para [10] above. Again, I do not consider there is anything in this point. Ms Chen is an astute businessperson working as a Forex trading specialist in Dubai. Ms Chen will have known the debt to Westpac, the sale price of the property and therefore the resulting shortfall, albeit the exact amount would have been dependent on issues of costs and interest.

[36]   While Westpac did not specify what payment proposal it would accept, it indicated what a likely interest rate for the shortfall would be and that it would expect the shortfall to be cleared within five years. From that information, Ms Chen could have made a proposal. However, at the risk of repetition, Ms Chen has simply not paid anything towards her debt.

Pressure to sell the property

[37]   This issue has already been determined by Lang J in his decision. There are no new circumstances before the Court in respect of this claim. I agree with Lang J that the claim does not have true substance. It is well over two years since the sale of the property. If Ms Chen believed that Westpac pressured her to sell the property, then her company could have brought a claim against Westpac, which has not occurred.

Further grounds raised by Ms Chen

[38]   Whilst not in Ms Chen’s notice of opposition, she says that she has no assets in New Zealand and therefore bankruptcy would be pointless. Ms Chen says she is now based overseas.

[39]   Ms Chen has failed to provide a statement of assets and liabilities. Claims about her asset position in New Zealand are made only in general terms. Ms Chen claims that personal property was stolen from her in December 2019, but I note there is no evidence that such was reported to the Police. Ms Chen claims she knows the identity of the thief and intends to issue civil proceedings against that person. While, in theory,  this claim may be an asset in New Zealand, as submitted by counsel      Mr Spring, its value is doubtful, to say the least.

[40]   The rental income from the property was paid to a bank account in the name of Ms Chen  with a different bank, notwithstanding it  was income derived from      a company asset. From a review of the bank account, the Official Assignee will have the ability to investigate what that money was used for, along with any other issues arising from the transactions. Such favours adjudication in the absence of a detailed assets and liabilities statement.

Is it just and equitable that Ms Chen be adjudicated bankrupt?

[41]   Ms Chen does not claim she is able to pay what she owes Westpac, albeit she says that she can make monthly payments. As noted, she has not made payments to date.

[42]   Ms Chen says in her submissions that the debt is “fortuitously” being paid off by her co-guarantor, Mr McKenzie, as if that somehow means she should not have to meet her obligations to Westpac.

[43]   Ms Chen does not, in her submissions, give any indication that she recognises she is under an obligation to Westpac. She describes Westpac’s actions as “predatory” and suggests she was a vulnerable customer. However, Ms Chen must be taken to be commercially astute given she describes herself in an affidavit dated 27 January 2022 as in 2019 as being:

… involved with the launch of Quantifai Group Sdn Bhd (“Quantifai”) in Malaysia, a company specialising in algorithmic trading and quantitative strategies in the cryptocurrency and currency markets.

[44]   Ms Chen is presently living in Dubai where she describes herself as a “Forex Trading Specialist”. She says that if she is bankrupted in New Zealand it will put her in breach of the law of Dubai. Limited material as to the law of Dubai has been put forward informally by Ms Chen.

[45]   As Mr Spring notes, where the law of another jurisdiction is relevant, such needs to be produced by affidavit by someone with specialist knowledge of the law in that jurisdiction. In any event, the material produced by Ms Chen appears to only relate to debts incurred in Dubai.

[46]   Ms Chen went to Dubai in the later part of 2021. The shortfall to Westpac arose in November 2020. The summary judgment proceedings were served before Ms Chen went to Dubai. If there are adverse consequences for Ms Chen in Dubai from bankruptcy then that is a result of her choosing to go to Dubai knowing of her debt to Westpac.

[47]   Ms Chen suggests the amounts she owes Westpac: “will be a tiny drop in Westpac’s kitty” compared to Westpac’s record profits. She asserts that as a result of Westpac’s  ongoing litigation and the risk of bankruptcy, she had to withdraw from   a profitable business opportunity. If that is the case, then it is because Ms Chen did not enter a payment arrangement with Westpac or at the very least, start making payments against what she owed to Westpac.

[48]   I accept Mr Spring’s submission that this case is a straightforward one where Westpac is enforcing its legal rights in the usual way and that Ms Chen simply does not want to accept the commercial reality of being called to account for her guarantee obligations. The Court has recognised that it is commercially important to hold accountable those who give personal guarantees.4

[49]   At the end of the day, Ms Chen’s actions do not demonstrate any genuine attempt to satisfy the judgment. In fact, they demonstrate quite the opposite. Ms Chen rests on what she describes as her co-guarantor fortuitously making the payments.

[50]   While  Ms Chen  is  not  at  present  conducting  business   activities   in   New Zealand, she is a New Zealand citizen. Given Ms Chen’s conduct indicates that she has failed to, or is unwilling to understand that she is jointly and severally liable to Westpac under the guarantee, the Court can take into account that there is a need for bankruptcy to protect the public, should Ms Chen seek to trade on her own account in New Zealand.

4      Re Aitcheson ex parte Bank of New Zealand, HC Auckland B1235/98, 9 July 1999.

Decision

[51]   I am satisfied Ms Chen has failed to establish a proper basis upon which the Court should decline Westpac’s application that she be adjudicated bankrupt. It follows there is an order adjudicating Jiayuan (Georgia) Chen bankrupt. The order is timed at the release time of this judgment shown on the cover sheet.

[52]   The judgment creditor is entitled to costs on a 2B basis plus disbursements as fixed by the Registrar. That will be the order of the Court if no memorandum in relation to costs is filed, not more than five pages, within five days of the date of this Judgment.

Associate Judge Lester

Solicitors:

MinterEllisonRuddWatts, Auckland (for Judgment Creditor)

Copy to:
Ms J (Georgia) Chen (self-represented Judgment Debtor)