Xing v Chen

[2025] NZHC 2301

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2024-404-002989 [2025] NZHC 2301

BETWEEN  HUINA XING

Plaintiff / Respondent

AND  YIN CHEN

Defendant / Applicant

Hearing:                   11 August 2025

Appearances:           A T Grant / D E Archibald for the Plaintiff/Respondent K Sun / T S Jones for the Defendant/Applicant

Judgment:                14 August 2025

JUDGMENT OF ASSOCIATE JUDGE COGSWELL

This judgment was delivered by me on 14 August 2025 at 11.00 a.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date.......................................

Solicitors:

Capstone Law Ltd, Auckland Lighthouse Law, Auckland

A T Grant / D E Archibald, Auckland

XING v CHEN [2025] NZHC 2301 [14 August 2025]

Introduction

[1]    Ms Chen and Ms Xing were friends until Ms Xing invested in Ms Chen’s beauty business. They have now fallen out and are party to litigation. The litigation centres around allegations that Ms Chen misrepresented the business. There are claims for damages and for relief under s 174 of the Companies Act 1993.

[2]    The proceedings are set down for trial in November 2026. Ms Chen has applied for security for costs against Ms Xing. In the alternative, Ms Chen seeks orders freezing assets of Ms Xing equivalent to her claim for security for costs.

[3]    The key issue in this application is resolving a stark conflict of evidence in statements made by Ms Xing.

[4]    On deciding that she no longer wanted to be part of the business and wanted her investment back, Ms Xing wrote to Ms Chen saying that she was in an impecunious position, had no assets, and extensive debts. I will not set out all of those statements, but they included a statement that, “now I am not only completely broke, but also deep in debts”. Ms Xing said that her home was mortgaged and that she had debts of $1.6 million.

[5]    To support her argument that she was utterly impecunious, Ms Xing also sent a screenshot to Ms Chen which was said to be a screenshot of her bank accounts. They show a poor financial position with effectively no funds available.

[6]    Faced with this evidence, and the very real risk that if correct Ms Chen would likely be left without a remedy in costs, she has sought security for costs. Alternatively, she seeks an order freezing Ms Xing’s assets to an amount equivalent to the amount of the security sought.

Security for costs

[7]    The approach to an application for security for costs is well-settled. The determination under r 5.45 of the High Court Rules involves a two-step analysis:

(a)Has the applicant satisfied the Court of the threshold issue, that there is a reason to believe the plaintiff will be unable to pay costs if unsuccessful?

(b)If  so,  how  should  the  Court  exercise  its  broad  discretion  under   r 5.45(2)?

[8]    The decision to award security for costs and the quantum of any security ordered are discretionary matters. The cases are clear that the discretion should not be fettered by constructing “principles” from previous cases.1

[9]    The Court must consider the initial threshold question of inability to pay. Should the applicant fail to meet the threshold, then the later considerations of the Court’s discretion do not need to be engaged with. If met, then the later considerations include an assessment of the strengths of the claim, extent to which the defendant may have contributed to the impecuniosity and overall justice issues, including not lightly depriving a meritorious claim from proceeding.

Discussion

[10]   Ms Chen has not satisfied me that Ms Xing is likely to be unable to pay the costs of the proceedings if she is unsuccessful in her proceeding.

[11]   This somewhat surprising conclusion  is  reached  following  a  review  of  Ms Xing’s sworn evidence in this application.

[12]Her evidence is that she owns:

(a)an unencumbered property at 9 Runway Rise, Dairy Flat, with a CV of

$900,000, owned jointly with another person. There is no mortgage registered against that title;

(b)$306,789.02 in her BNZ savings account;

1      A S McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [13]–[14].

(c)$300,932.27 on term deposit with the BNZ; and

(d)$48,676.45 in her ASB savings account.

[13]   In addition to this statement of her financial position, Ms Xing swears that she has no debts, that the property is owned freehold, and that she is able to meet an adverse costs award should she be unsuccessful in this proceeding.

[14]   She also refers to her ownership of a Tesla motor vehicle and a Rolex watch, which she says collectively are worth around $130,000.

[15]   Given her earlier statements about her financial position, it is not possible to easily reconcile these two positions.

[16]   The only explanation is that Ms Xing’s earlier statements as to her poor financial position were made in an attempt to encourage or manipulate her friend,  Ms Chen, into returning her investment in their jointly-owned company.

[17]Her affidavit makes this clear:

Later messages in which I appear to be worried about my financial position represented my attempt to try and persuade [Ms Chen] to settle this matter by returning my investment without needing to go into litigation…

I felt even more helpless as a result, so attempted to appeal to [Ms Chen’s] sense of fairness and concern by asking her effectively to “help me out” financially … those messages clearly do not represent the truth of my financial position, and were not meant to.

[18]To support her sworn statements, Ms Xing exhibits:

(a)the title to the property which records that it is unencumbered;

(b)a letter from the BNZ recording the $300,000 investment;

(c)a document from the BNZ recording the $306,789.02 savings account balance; and

(d)a print-out from ASB bank showing the $48,676.45 in her ASB savings account.

[19]   Therefore, in response to the application for security for costs, Ms Xing has provided an affidavit deposing that she will be able to meet costs awarded and provided documents to support that position.

[20]   I cannot easily dismiss that evidence. The Court will give significant weight to a plaintiff’s sworn evidence that it can meet an adverse costs award.2

[21]   Also of relevance is the Court’s approach in New Zealand Democratic Party for Social Credit Inc v Minister for Land Information. There the plaintiff had, like here, engaged in conduct that suggested impecuniosity. Notwithstanding that conduct, the Court gave more weight to the sworn testimony of ability and willingness to pay, saying that it was “not to be lightly ignored.”3

[22]   I have also considered whether, if she is lying about the $1.6 million debt, what the state of Ms Xing’s financial position would be. Assuming, without any details, there is a debt of $1.6 million, then Ms Xing is just solvent. If her evidence is to be believed that there is no debt, then she has more than sufficient assets to meet an adverse costs award.

[23]   Having considered the sworn statements of Ms Xing as to her financial position, the exhibits attached to her affidavit, and her denial of the existence of the alleged $1.6 million debt, I must conclude on the basis of the sworn uncontroverted evidence that Ms Xing is able to meet an adverse costs award should she be unsuccessful in this proceeding.

[24]   I give primacy to Ms Xing’s sworn statement and the documentary evidence provided that supports her position.

2      Bay of Plenty Pharmacy Services Ltd v Chemworks Ltd [2019] NZHC 785 at [7].

3      New Zealand Democratic Party for Social Credit Inc v Minister for Land Information [2020] NZHC 1104 at [16].

[25]   Accordingly, I find that Ms Chen has failed to establish the threshold question that Ms Xing is likely to be unable to meet an adverse costs award should she be unsuccessful in this proceeding.

[26]   I have considered but reject the argument that because the assets are liquid there is a risk of dissipation. There is no evidence of that risk. Ms Xing has a husband and children who are being educated in Auckland. There is no evidence that she is or may dissipate her assets to avoid an adverse costs award.

[27]   My findings above are enough to dispose of the application for security for costs. I do not need to engage in the second stage of the enquiry, which would include an analysis of the merits of Ms Xing’s proceeding.

[28]   If I am wrong in that, then I would have found that the claims were weak, on the grounds that:

(a)Ms Xing conducted a lengthy due diligence inquiry of several months, including visiting the business premises and attending training seminars.

(b)Ms Xing obtained independent legal advice before entry into the agreement under which the shares were purchased.

(c)The agreement under which the shares were purchased contained an entire agreement clause excluding reliance on pre-contractual representations.

(d)Ms Xing had full access to all financial information and awareness of the operation of the business.

[29]Whilst weak, I could not say that the claims were hopeless or meritless.

Application for freezing order

[30]   As an alternative, Ms Chen sought orders freezing Ms Xing’s assets to the level of the security for costs she claimed.

[31]   The key enquiry in such an application is evidence that the judgment debtor might abscond, or that there is a risk of dissipation of assets available to meet judgment.

[32]   There is no evidence of either of those matters to satisfy me that a freezing order is appropriate or should be granted.

[33]   Ms Xing’s comments about an alleged desire to return to China are generalised comments and contradicted by the fact that Ms Xing owns property and lives here with her husband and children. There is no evidence to support an allegation that Ms Xing is a flight risk.

[34]   Similarly, there is no evidence at all of any attempt by her to dissipate her assets. One allegation said to support that submission is an allegation that Ms Xing took funds from the company account without authority. That is not evidence to support an argument that she is, or is likely to, dissipate her personal assets in order to defeat Ms Chen’s claims.

Result

[35]   Ms Chen is unable to meet the threshold question required on an application for security for costs that Ms Xing is unlikely to be able to meet an adverse costs award should her proceeding be unsuccessful.

[36]   Ms Chen has been unable to satisfy the requirements for a freezing order that there is a risk that Ms Xing will dissipate her assets or abscond from New Zealand.

[37]Ms Chen’s application is declined.

Costs

[38]   As to costs, ordinarily Ms Xing would be entitled to costs on successfully resisting Ms Chen’s application.

[39]   However, in the present case, and because of the inconsistent and dishonest statements made by Ms Xing that Ms Chen relied on when making the application for security for costs, I decline to order costs in Ms Xing’s favour. Costs lie where they fall.

Associate Judge Cogswell