Wu v Liu

[2022] NZHC 3311

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-447

[2022] NZHC 3311

BETWEEN

HUA WU also known as DANNY WU Plaintiff

AND

JINXING LIU

First Defendant

YUHUA LIU
Second Defendant

Continued overleaf

Hearing:

2 November 2022

Appearances:

Submissions and evidence completed:

M Lennard and Y Mortimer-Wang for Plaintiff D Bigio KC and A Grant for First Defendant A Choi for Second Defendant (Excused)

No appearance by or on behalf of Third to Sixth Defendants

15 November 2022

Judgment:

8 December 2022

JUDGMENT OF POWELL J

[Application for freezing order against first defendant]

This judgment was delivered by me on 8 December 2022 at 4.30 pm.

Pursuant to R 11.5 of the High Court Rules.

…………………..

Registrar/Deputy Registrar

Solicitors:

Zhang Law Ltd, Auckland for Plaintiff Domain Law, Auckland for First Defendant

Winston Wang & Associates, Auckland for Second Defendant

HUA WU also known as DANNY WU v JINXING LIU [2022] NZHC 3311 [8 December 2022]

YONG LIU also known as JACKIE LIU Third Defendant

TIMBER KING LIMITED

Fourth Defendant

WENGUI LIU

Fifth Defendant

NANNAN GENG

Sixth Defendant

[1]                 The plaintiff, Hua Wu, seeks a freezing order over a property located in Whenuapai owned by the first defendant, Jinxing Liu (“the Whenuapai property”).

[2]                 There is no dispute that to obtain a freezing order Mr Wu must demonstrate a good arguable case against Mr Liu,1 assets over which the order can apply, a danger that the assets may be dissipated,2 and that it is in the interests of justice for the order to be made.3 In this case while there is no dispute that the Whenuapai property is an asset to which the order sought can apply, the other parts of the test are all in dispute.

A good arguable case?

[3]As the Court of Appeal stated in Hanney v Mount:4

[22] … A good arguable case against the respondent is therefore established if the allegations in the proposed claim are capable of tenable argument and are supported by sufficient evidence, bearing in mind the early stage at which the application is likely to be brought.

The case for Mr Wu — good arguable case

[4]Mr Lennard, on behalf of Mr Wu, has submitted that payments totalling

$400,000 made by Mr Wu to the fourth defendant, together with a payment of

$600,000 and the transfer of a property in Mangere Timber King to Mr Liu were made pursuant to blackmail on the part of Mr Liu and his son Yong Liu, the third defendant, rather than as Mr Liu contends:

(a)for reimbursements of amounts allegedly misappropriated by Mr Wu from Timber King (the $400,000 payments); and

(b)for the purported repayment of a 2008 loan which Mr Wu claims was never borrowed from Mr Liu, (the $600,000 payment and the transfer).

1      High Court Rules 2016, r 32.2; and Robert Osborne (ed) McGechan on Procedure (online ed, Thomson Reuters) at [HR 32.2.03], citing Dotcom v Twentieth Century Fox Film Corp [2014] NZCA 509 at [18] and [31], Hannay v Mount [2011] NZCA 530 at [20]–[22], and Wing Hung Printing Ltd v Saito Offshore Pty Ltd [2010] NZCA 502, [2011] 1 NZLR 754.

2      Rule 32.5(4); Tranquil Holdings Ltd v Hudson (1987) 2 PRNZ 551(HC) at 552; and Oaks Hotels & Resorts NZ Ltd v Body Corporate 358851 [2013] NZHC 2695 at [18], [19] and [22].

3       Shaw v Narain [1992] 2 NZLR 544(CA) at 548.

4      Hanney v Mount, above n 1, at [22].

[5]                 As a result of the $600,000 payment and transfer of the Mangere property   Mr Lennard submitted that Mr Wu had suffered consequential losses “of an amount to be quantified but at least $3 million” arising out of:

(a)The loss of ability to profit from the Mangere Property development;

(b)Opportunity costs from reduced cashflow;

(c)Legal and accounting costs on remedying the situation;

(d)Costs in resolving a tax audit; and

(e)Legal costs in implementing the plaintiff’s compliance.

[6]                 In support of Mr Wu’s contentions, Mr Lennard relied on evidence said to show:

(a)The 2008 loan was a fiction;

(b)The Mangere property had been developed as part of a joint venture with various other third parties by Mr Wu; and

(c)A series of ‘WeChat’ messages threatening Mr Wu (“the Fakename Jade messages”) that Mr Wu alleges could only have come from Mr Liu.

Discussion — a good arguable case

[7]                 Having considered the evidence I am not satisfied that Mr Wu has met the threshold for a good arguable case in support of his application for the freezing order.

[8]                 There is, in fact, little coherence in the evidence on any parties’ positions. As Mr Lennard pointed out, there is little contemporaneous evidence to support Mr Liu’s contentions of the existence of a loan from Mr Liu to Mr Wu in 2008, including complete absence of any contemporaneous documentation.

[9]                 In particular, Mr Liu alleges that he provided a loan to Mr Wu through a middleman, Rong Chen, in mid-2008. The loan is said to have been for a total of RMB 6 million (about NZD 1.1 million at the time), with repayment in full after two months at three per cent per month interest rate. Mr Liu’s evidence is that after the net amount of the loan was advanced5 due to a falling out with Mr Chen Mr Liu lost touch with Mr Wu. It was only some eight years later that Mr Liu encountered Mr Wu, who was by then working for Yong Liu at Timber King. Having realised who each other was, Mr Liu says Mr Wu did not dispute the debt and the parties proceeded to redocument the loan in 2015, following which Mr Liu destroyed the 2008 loan document an action he described as “a common procedure in Chinese business.”

[10]             Mr Liu’s position, after he became aware of Mr Wu’s misappropriation of Timber King funds, is that he then wanted Mr Wu to repay the loan as soon as possible and after negotiations agreed that Mr Wu would pay NZD 1.6 million to clear the debt. As Mr Wu was unable to pay in cash, it was ultimately agreed to be the $600,000 payment and the Mangere property, which Mr Liu estimated to have a total value of

$1.2 million or less which was documented as a repayment of the 2008 loan.

[11]             Mr Liu’s evidence with regard to the 2008 loan is categorically denied by   Mr Wu. Mr Wu relies on evidence to suggest that he was studying in Palmerston North and working part-time at Pak n Save at the relevant time. He says further he was not an international businessman and there is no evidence as to why he may have needed a loan at that time, particularly one with a short term (two months) at a high interest rate (three per cent per month), although Mr Wu’s evidence about his circumstances at that time does not preclude its existence.

[12]             In a similar vein, there is no evidence from the “middleman” Mr Chen, who is said to have negotiated the loan with Mr Wu on behalf of Mr Liu. There is also no evidence of any drawdown of the sums alleged to have been lent by Mr Liu to Mr Wu. As Mr Lennard pointed out that there also appears to have been an enormous coincidence that after Mr Wu allegedly defaulted on the loan, he subsequently started

5      According to Mr Liu the interest for the two-month term of the loan was deducted in advance.

working with Mr Liu’s son and nephew at Timber King, and thereby giving Mr Liu the chance to enforce repayment.

[13]             Equally however, there is also minimal evidence to support Mr Wu’s explanations for the payments and transfer, that Mr Liu and/or Yong Liu blackmailed him to do so in February/March 2018. In particular I note:

(a)any suggestion by Mr Wu that Mr Liu and Yong Liu contacted Mr Liu’s parents in China is inadmissible hearsay as no explanation has been given as to why Mr Wu’s parents are unable to give evidence in support of these allegations which are central to Mr Wu’s blackmail claims; and

(b)the alleged contact with Mr Wu’s parents is, in any event, inconsistent with Mr Wu’s allegations that he was told by Mr Liu and Yong Liu that they would “find” his parents.

[14]             Indeed, these allegations, and concurrent allegations that Mr Liu and Yong Liu spread “false rumours” about Mr Wu and his role at Timber King, suggests that any threatened damage to Mr Wu’s reputation had in fact already taken place.

[15]             It is not, therefore, clear what Mr Wu may have been seeking to avoid by making the payments and transferring the Mangere property to Mr Liu. This issue is placed in even greater relief given no explanation has been given as to why, some four years later, Mr Wu is now challenging the payments and transfer when nothing else has obviously apparently changed including that Mr Wu’s parents remain in China and are apparently still vulnerable. Mr Wu himself was silent in his evidence as to why he has now chosen to bring the present proceedings and raise the issue of blackmail as a basis for challenging the payments and the transfer of the Mangere property for the first time.

[16]             In addition, the blackmail allegations are not obviously supported or corroborated by the existence of the Fakename Jade messages. Although in his oral submissions, Mr Lennard placed great weight on these as having come from Mr Liu, because of a similarity in subject matter and the presence of certain attachments in

particular which Mr Lennard contended could only have come from Mr Liu. However, evidence provided on behalf of Mr Liu, following the hearing, provides at least an arguable basis to suggest that a number of other third parties also had the material disseminated by way of the Fakename Jade messages.

[17]             Likewise, the payment of the $600,000 and the transfer of the Mangere property was not only carried out while Mr Wu was legally represented but occurred over a prolonged period of some six months. In particular, there is no dispute that  Mr Wu first sought legal advice sometime in March 2018, with documents formalising the transactions signed in July 2018 inducing execution and “replacement” loan documentation in respect of the 2008 loan and the $600,000 payment and transfer of the Mangere property occurring in November 2018. There was, therefore, nothing to indicate the transactions were not genuine until the commencement of the present proceedings in March 2022. Finally, there is at least some evidence to suggest that the

$400,000 paid by Mr Wu to Timber King was not only of no direct benefit to Mr Liu, but was to remedy misappropriations made by Mr Wu while he was working there. For example, in a letter from Mr Wu’s then solicitors confirming Mr Wu’s instructions to them on 3 April 2018, he appears to have explained to his solicitors that he owed Timber King $400,000 arising from an on-selling arrangement he devised and carried out.

[18]             Given this context it is difficult to see how issues relied on by Mr Wu, such as the genesis of Mr Wu’s interest in the Mangere property, carry any real weight. On the contrary, the wide divergence between the parties’ competing narratives, which as noted all contain a range of somewhat implausible propositions, and observing that it is for Mr Wu to establish that the various transactions documented in 2018 are shams, leads me to the conclusion that Mr Wu is not able to establish he has a good arguable case and claim against Mr Liu for the payment of the $600,000 and the transfer of the Mangere property as a result of blackmail by Mr Liu and/or Yong Liu. Any claim against Mr Liu in respect of the $400,000 paid to Timber King is, as Mr Lennard conceded, even weaker. As a result, his application for a freezing order cannot succeed.

Risk of dissipation?

[19]             In any event I also conclude that Mr Wu is unable to show any genuine risk of dissipation with regard to the Whenuapai property.

[20]             As the parties have noted the Court of Appeal in Murren v Schaeffer stated the test for this requirement as follows:6

It is perfectly clear that a Judge must not infer a risk of dissipation merely because a foreign defendant has assets within the jurisdiction of the Court. Nor is a risk of dissipation to be inferred merely because the defendant plays its financial cards close to its chest as in The Niedersachsen. On the other hand, the test which the plaintiff must satisfy is not unduly exacting. The plaintiff must point to circumstances from which a ‘prudent, sensible commercial man, can properly infer a danger of default’.

[21]             It is not necessary for the for the applicant to show affirmative proof of the likelihood of dissipation,7 or an intention to defeat creditors.8

Discussion — risk of dissipation

[22]             In this case Mr Wu has raised a number of matters in support of his contention that there is a risk of dissipation. A number of these are directed at the character of Mr Liu, raising issues with regard to Mr Liu’s “dishonesty and contempt for property rights or legal obligations”, that Mr Liu is “a prolific and blatant perjuror”, and/or that Mr Liu and his family have attempted “to pervert the course of justice” in attempting to persuade Mr Wu from continuing his case and/or tampering with potential witnesses.

[23]             While these are serious allegations, they appear to be largely based on Mr Wu’s view of his case against Mr Liu and cannot be resolved in the context of the present application, nor in any event do they go directly to any risk of dissipation. This leaves the following matters advanced by Mr Lennard:

(a)[Mr Liu] has owned nine properties in New Zealand from 2014 to now: this is the only one left;

6      Murren v Schaeffer [2018] NZCA 318, (2018) 24 PRNZ 285 at [16], quoting Raukura Moana Fisheries Ltd v The Ship “Irina Zharkikh” [2001] 2 NZLR 801 (HC) at [122].

7      Bank of New Zealand v Hawkins (1989) 1 PRNZ 451 (HC) at 454.

8      Bank of New Zealand v Hawkins, above n 7, cited in Official Assignee v Bench [2017] NZHC 2467, (2017) 4 NZTR 27-021 at [18].

(b)[Mr Liu] agreed to sell the Buckland Road property to the second defendant’s father within a week of it being transferred to him — at less than 80% of what he purported to have acquired it for;

(c)Three weeks after service of the Statement of Claim on him, [Mr Liu] and his wife booked a one-way ticket to China leaving the next week. He remains in China;

(d)The Whenuapai property is not the [Mr Liu’s] dwelling: it is rural land with development potential.

[24]             The first of these points is the most clearly relevant and it is not in dispute. A closer analysis however shows no discernible pattern of divestment on the part of  Mr Liu, still less demonstrates any intention to dispose of assets following the issue of the present proceedings. On the contrary:

(a)Mr Liu purchased his first property in 2010 and this was sold in 2019;

(b)Four properties were purchased in 2013 and subsequently sold between 2014 and 2016;

(c)A further three properties were purchased in 2016, one of which was sold in 2016 and one in 2020, with the final one being the Whenuapai property that is the subject of the present application; and

(d)The Mangere property was acquired from Mr Wu in 2018 and sold to Mr Liu’s niece, Yuhua Liu, the second defendant, shortly thereafter.

[25]             It follows that the fact the Mangere property was sold almost immediately in 2018 is not relevant to the Whenuapai property as Mr Liu has now owned this for some six years.

[26]             Given the lack of any other information it is difficult to see on what basis the fact Mr Liu (who has apparently lived in both New Zealand and China and has relatives in both places including children and grandchildren in New Zealand) is currently living in China or the fact that the Whenuapai property “is rural land with development potential” can constitute “circumstances from which a prudent sensible commercial [person], can properly infer a danger of default”. On the contrary I

consider inquiries made by Mr Wu’s solicitors when the property next door to the Whenuapai property was put up for sale on or about 20 May 2022 lead directly to the opposite conclusion. In particular, the real estate agent confirmed to one of Mr Wu’s solicitors that inquiries with regard to the neighbouring properties, one of which being the Whenuapai property, established “both neighbours are [sic] either side of #10 are not interested in selling”. The inquiries undertaken on behalf of Mr Wu therefore indicate the Whenuapai property is not for sale.

[27]             Taking these various matters together it is clear that on this basis as well the application must be dismissed.

Decision

[28]Mr Wu’s application for a freezing order against Mr Liu is dismissed.

[29]             Mr Liu is entitled to costs on the application. If these cannot be agreed to within one month, I will determine the issue following the filing of memoranda.

Powell J