Xu v Liu

[2020] NZHC 921

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2015-404-2384

[2020] NZHC 921

BETWEEN

JIANGANG XU

First Plaintiff

YOUZHI ZHU
Second Plaintiff

AND

JIN LIU

First Defendant

PING WANG

Second Defendant

Hearing (via AVL):

4 May 2020

Appearances:

C Huang for the Plaintiffs

G P Blanchard QC for the Defendants

Judgment:

6 May 2020

JUDGMENT OF GAULT J

This judgment was delivered by me on 6 May 2020 at 2:00 pm pursuant to r 11.5 of the High Court Rules 2016.

Registrar/Deputy Registrar

……………………………………

Solicitors / Counsel:

Mr C Huang, Queen City Law, Auckland Mr G P Blanchard QC, Barrister, Auckland Mr C Jiang, Glaister Ennor, Auckland

XU v LIU [2020] NZHC 921 [6 May 2020]

[1]                 Following the plaintiffs’ failure to  pay  security  for  costs  of  $60,000  by 24 December 2019, as required by  a  consent  order  dated  10  September  2019,  the defendants filed an application dated 12 February 2020 to dismiss the proceeding and discharge a freezing order in place.

[2]                 On 17 February 2020 Downs J made a (varied) unless order that the plaintiffs must pay security for costs in full by 5.00 pm 27 February 2020. It provided that if they did not, the claim would be stayed. The freezing order would also be discharged.

[3]                 The plaintiffs did not pay the security, but their solicitor filed a memorandum on 27 February 2020 indicating that after some difficulty the plaintiffs had transferred the money from China and expected it to clear within a week. On 28 February 2020 van Bohemen J recalled the 17 February order insofar as it related to the discharge of the freezing order and substituted it with an order that unless the plaintiffs paid security for costs in full by 5.00 pm 5 March 2020, the freezing order would be discharged. The plaintiffs did not pay by that date, and the freezing order was therefore discharged.

[4]                 On 28 April 2020 Lang J issued a minute recording that security for costs had not yet been paid and the proceeding remains stayed. He listed the defendants’ application to dismiss the proceeding for mention in the Duty Judge list on Monday  4 May 2020, warning that if the security remains unpaid, he anticipated the presiding judge would grant the application and dismiss the proceeding.

[5]                 At the mention on Monday, Mr Blanchard QC, for the defendants, sought an order dismissing the proceeding. Security for costs remained unpaid.

[6]                 Mr Huang, for the plaintiffs, requested that the Court allow the proceeding to continue to be stayed for six months to allow time for the plaintiffs to source funds to comply with the security for costs order. He referred to his memorandum of 9 April 2020 to similar effect, which I had not seen. I observed that requesting a further extension in this way appeared not to appreciate that the proceeding is already stayed as a result of the breach of an unless order, and in those circumstances unless an application is made supported by evidence explaining the position, the Court is not

going to be in a position to relieve the plaintiffs from the breach of the unless order.1 Mr Huang acknowledged he had no further instructions from the plaintiffs. I indicated I would reserve my decision so I could locate the 9 April memorandum, and a response the same day which Mr Blanchard advised he had filed.

[7]                 As Mr Blanchard submitted, r 7.48 of the High Court Rules 2016 provides the Court with broad powers in the event of a party’s non-compliance with an interlocutory order. Whether there has been deliberate, blameworthy or contumelious conduct will “usually be highly relevant to whether an order should be made but it is not a jurisdictional requirement”.2 Rule 7.48 empowers a judge to respond to breach of a procedural order by making any order the judge thinks just. This includes orders dismissing or striking out a proceeding. A plaintiff’s claim may be dismissed or struck out where that plaintiff has failed to comply with an order for security for costs.3   The question is what the interests of justice require. As the Court of Appeal has said, in the context of case management:4

To compromise irretrievably a party’s right to a merits judgment for failure to meet some procedural obligation is a serious step that should be taken only when necessary to do justice to the other interests at stake.

[8]                 In the security for costs context, the following aspects of the default will usually be critical:5

(a)Its duration.

(b)Its impact upon the progress of the proceedings as a whole.

(c)Whether there appears to be any excuse or explanation.

(d)Whether it continued after reasonable opportunities and reminders, particularly where the Court has already made a fresh order, or given a warning, due to earlier non-compliance.

(e)Whether it has substantially prejudiced the innocent party, whether procedurally or due to some wider impact upon the innocent party’s interests and affairs.

1      SM v LFDB [2014] NZCA 326, [2014] 3 NZLR 494 at [31].

2      Kidd v van Heeren [2019] NZCA 275, (2019) 24 PRNZ 596 at [34].

3      Jagwar Holdings Ltd v Fullers Corporation (1991) 4 PRNZ 577 (HC) at 578-579.

4      Parlane v Hayes [2015] NZCA 341 at [31]; and Energy Securities LP v Vector Ltd [2018] NZHC 2271 at [5].

5      Smith v Antons Trawling Co Ltd HC Auckland CL40/98, 24 March 2000 at [4]; and Energy Securities LP v Vector Ltd [2018] NZHC 2271 at [5].

(f)Whether there is any realistic expectation that it will be rectified following further opportunity for compliance.

[9]                 Here, the plaintiffs have been in default of the security for costs order since 24 December 2019 and the proceeding has been stayed since 27 February 2020 due to non-compliance with an unless order.

[10]             As to the impact on the proceeding, security for costs has been an issue for almost a year in a proceeding that was commenced in 2015. On 9 May 2019 a fixture was allocated and pre-trial directions were made. A three-week fixture is scheduled to commence on 24 August 2020, close of pleadings is on 29 May 2020 and briefs of evidence are due in June and July 2020. I understand there are no other outstanding interlocutory issues, but preparation of evidence for trial is imminent.

[11]             The only explanation for the failure to comply since the 27 February 2020 reference to difficulty transferring the money from China was in the 9 April memorandum which I have now seen:

The plaintiffs are currently unable to pay the funds for the Security Order and appear to be facing financial difficulties. The plaintiffs’ financial difficulties have been exacerbated by the current coronavirus outbreak. Although the situation is improving in China, the plaintiffs still require more time to source funds to pay the security.

[12]             In that memorandum, Mr Huang requested that, in the interests of justice,   the Court allow this proceeding to continue to be stayed for six months to allow time for the plaintiffs to source funds to comply with the security order.

[13]             I have not seen a notice of opposition to the 12 February application. Nor has there been any application to be relieved of the consequences of the unless order, which may be granted where the Court is satisfied that the breach resulted from something for which the party in default should not be held responsible.6 The failure predates the COVID-19 situation. The 9 April memorandum calls into question the accuracy of the 27 February memorandum which advised the Court that the plaintiffs had transferred the money from China and expected  it  to  clear  within  a  week. The plaintiffs have been given a reasonable opportunity to comply with the orders for

6      SM v LFDB [2014] NZCA 326, [2014] 3 NZLR 494 at [31(d)].

security for costs, but they have failed to do so or adequately explain their non- compliance.

[14]             As for prejudice, the first defendant’s affidavit dated 11 February 2020 indicates that until the plaintiffs decide to re-engage with the proceeding (if at all), the defendants are unable to take any action to defend the case and are effectively being held at the plaintiffs’ whim. As a result, they have experienced significant uncertainty, financial pressures and stress. He is concerned this will go on indefinitely.

[15]             I note that since 27 February the proceeding has been stayed and since 5 March the freezing order has been discharged. Even so, I accept that the plaintiffs’ non- compliance is causing substantial prejudice to the defendants. The proceeding is still hanging over the defendants creating some general prejudice but more significantly the six month deferral sought, or even a shorter deferral, involves vacating the trial fixture for what would likely be a lengthy period, which will undoubtedly cause significant prejudice to the defendants with little assurance of cost recovery.

[16]             In the absence of any update from the plaintiffs since counsel’s memorandum of 9 April, it seems very unlikely there is any realistic expectation that the default will be rectified in time to retain the fixture, even if there is further opportunity for compliance, which would depend on the Court granting an application to discharge the stay already in effect as a result of the non-compliance with the earlier unless order.

[17]             The proceeding is already stayed and there seems little point in a further unless order before dismissal. However, balancing the interests at stake – of each party and other litigants – I consider two factors weigh in favour of giving the plaintiffs one final opportunity before the trial fixture would need to be vacated. First, although not properly explained, the plaintiffs’ difficulties may have been exacerbated by the COVID-19 situation and, secondly, their solicitor and therefore they may have failed to appreciate the seriousness of the situation. I conclude that in all the circumstances, there should be an unless order for dismissal requiring both payment of the security and an application to discharge the stay already in effect as a result of the non- compliance with the earlier unless order, that is an application to be relieved of the consequences of that unless order, by the close of pleadings date. That at least provides

the plaintiffs with one last opportunity to seek to lift the stay and maintain the fixture before the proceeding is dismissed.

Result

[18]             I make an order that, unless the plaintiffs pay security for costs of $60,000 and apply to discharge the current stay by 5:00 pm Friday 29 May 2020, the proceeding is dismissed.

[19]             The defendants are entitled to costs. If costs cannot be agreed, I direct the defendants to file and serve a memorandum not exceeding three pages within 15 working days and the plaintiffs to file and serve a memorandum not exceeding three pages within 10 working days thereafter. I will determine costs on the papers.

Gault J