Yang v Chen HC Auckland CIV 2007-404-1751
[2010] NZHC 1263
•1 April 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2007-404-1751
BETWEEN LIMIN YANG AND LIU (JASMINE) YANG
Plaintiffs
ANDPAUL YU PO CHEN Defendant
Hearing: 11 March 2010
Counsel: Patrick McPherson for plaintiffs
Damian Chesterman for defendant and Heard Park Limited
Judgment: 1 April 2010 at 3:30pm
RESERVED JUDGMENT OF HUGH WILLIAMS J
This judgment was delivered by The Hon. Justice Hugh Williams on
1 April 2010 at 3:30pm
pursuant to Rule 11.5 of the High Court Rules
……………………………………………..
Registrar/Deputy Registr
A.The plaintiffs’ contempt application against the defendant is adjourned for determination with the substantive hearing.
B. The plaintiffs’ application for dissolution of their solicitors’ undertaking and repayment to them of the $1m held by the solicitors for security for costs is dismissed.
C. The plaintiffs’ contempt application against a non-party, Heard Park
Limited, is granted.
D. Costs are dealt with as discussed in the judgment.
LIMIN YANG AND LIU (JASMINE) YANG V PAUL YU PO CHEN HC AK CIV-2007-404-1751 1 April
2010
Introduction
[1] This judgment deals with:
a) An application by the plaintiffs to discharge on undertaking given to the Court by their solicitors on 18 July 2008 to hold $1m pending further order, and to release that sum to the plaintiffs.
b)Applications by the plaintiffs against the defendant, Mr Chen, and a company controlled by him, Heard Park Limited, for contempt for alleged breach by Mr Chen of the Court’s orders of 4 April 2007 and by Heard Park Limited for non-compliance with a non-party discovery order made on 22 June 2009.
Facts
[2] Only a relatively brief review of the facts is required to set these applications in context.
[3] The proceeding first came before the Court by way of an application for what was then called a Mareva injunction against Mr Chen on 4 April 2007. Counsel for both parties were able to agree and, of some importance in the resolution of the present applications, consent orders were made by Stevens J on that day, preventing Mr Chen from dealing with the assets of three companies, Top International Limited, Rotorua International Villas Limited and Dacha International Limited other than in the course of ordinary dealings. He consented to orders debarring him from dealing with shares held in his name in those companies and others listed in an affidavit by the first plaintiff, Ms Limin Yang, and he was also to refrain from dealing with any real property held in his name whether jointly or otherwise in New Zealand.
[4] The brief background to the claim is that the plaintiffs, Ms Limin Yang and her daughter, Ms Liu Yang, assert they entrusted substantial funds to Mr Chen to
manage on their behalf and that they are in fact the true shareholders in the three companies mentioned.
[5] A number of other interlocutory matters were dealt with. They are of no present moment other than that, despite his having consented to the Mareva orders, Mr Chen shortly afterwards mounted a very determined effort to have them dissolved.
[6] The hearing of that application began on 8 November 2007 but the time estimates of counsel were badly astray and the hearing occupied two further days before Asher J in July 2008.
[7] In a reserved decision delivered on 17 July 2008, Asher J analysed the facts of the matter, particularly a declaration of trust dated 12 May 2006 in which, on its face, Mr Chen declared he held all the shares in the three companies on behalf of Ms Yang. Mr Chen offered a different interpretation but Asher J held there was a good arguable case that the declaration of trust required Mr Chen to hold the shares on trust for Ms Yang (at [34]). There was also a good arguable case that Mr Chen had breached his trustee’s duties by treating the shares as his own. Indeed, the Judge noted Mr Chen’s affidavits maintaining he was the equitable owner of the Top International shares.
[8] At the conclusion of a careful judgment, the Judge held the interests of justice clearly favoured maintaining the Mareva orders and dismissed Mr Chen’s application for their discharge.
[9] It is of importance to the present applications to note that, contemporaneously with the Mareva injunction discharge application, Mr Chen applied for security for costs and queried the worth of the plaintiffs’ undertaking as to damages. In a Minute delivered on 15 July 2008 Asher J directed the sum of $1m be transferred to the plaintiffs’ solicitors trust account with those solicitors providing a written undertaking to the Court that it had received the funds and would hold them pending further order of the Court or agreement between the parties. The Judge recorded that, on the basis of that undertaking, Mr Chen’s counsel did not then pursue the
suggestion the undertaking as to damages was inadequate or the application for security for costs. The latter was merely adjourned.
[10] Of the subsequent interlocutory history, it is only necessary to note that Dacha International and Rotorua International Villas have filed an application for leave to file a derivative action against Mr Chen, Heard Park Ltd, and Top International. By agreement between the parties, that application is to be heard with the substantive fixture for the main claim, now allocated a four week fixture to begin on 26 April 2010.
[11] On 15 December 2009 Asher J made timetable directions both for the substantive fixture and towards the hearing of the contempt and solicitors’ undertaking application with which part of this judgment deals. Those latter timetables are noteworthy only for the direction that Mr Chen file any affidavits in opposition by 29 January 2010.
[12] The applications had a fixture for 12 February 2010, but that had to be adjourned because Mr Chen applied to adjourn the substantive fixture. After a postponement, Mr Chen’s adjournment application was argued (with Mr Chen appearing by telephone, his latest solicitors having been given leave to withdraw) on
4 March 2010. Asher J declined the adjournment application and confirmed the fixtures for these interlocutory hearings for 11 March 2010 and the substantive fixture for 26 April 2010.
[13] Mr Chen breached the timetable requirement for the filing of his affidavits in opposition to the present applications. In fact, up until the night before the fixture, his opposition to the application was unsupported by evidence. It was only by email filed overnight between 10-11 March 2010 that Mr Chen filed very extensive opposing affidavits. He was also able to secure the services of Mr Chesterman at short notice.
Australian proceedings
[14] There has been litigation in New South Wales between the parties to this proceeding and others – particularly a company run by the Ms Yang called Lym International Pty Limited – running roughly in parallel the proceedings in New Zealand. After a lengthy hearing between October-December 2008, a reserved judgment of Hamilton J delivered on 2 March 2009 essentially held that a contract whereby Mr Chen bought property from Lym International on 15 August 2006 and the transfer of that property to Mr Chen pursuant to that contract were transactions effected in breach of Mr Chen’s fiduciary duties to Lym International. Hamilton J ordered the contract for sale and transfer be set aside and declared Mr Chen held that property and others in trust for Lym International. He required him to re-transfer the property to Lym subject to existing encumbrances.
[15] The Judge made a number of other orders including one requiring an inquiry to determine the amounts advanced to Mr Chen by Westpac which were paid to discharge another mortgage at the time of the transfer of the property in question and other orders to implement that direction.
[16] He also declared that the transfer of $A1,118,000 by Mr Chen into the joint names of Ms Yang and her husband, Mr Liu (who is now in prison in China) was unauthorised and amounted to a misappropriation of those funds by Mr Chen. A transfer of $A120,000 by Mr Chen from a particular bank account was similarly unauthorised by Ms Liu Yang and was required to be repaid with costs.
[17] Mr Chen appealed, but in a reserved decision delivered on13 October 2009, although the New South Wales Court of Appeal set aside the orders for re-transfer of the property and extended the order for an inquiry, it left the remaining orders unchanged – including the orders that the payments mentioned were misappropriated by Mr Chen and the Mesdames Yang and their interests remain entitled to the money.
[18] While the ordered inquiry is still in progress, Mr McPherson said at this hearing that the plaintiffs are in the course of registering that judgment in New Zealand with a view to its enforcement in this country against Mr Chen.
Contempt application
[19] As noted, on 4 April 2007 Mr Chen consented to the Mareva orders earlier summarised.
[20] Since then, as a result a number of orders for non-party discovery, the plaintiffs have ascertained that transfers were registered on 5 April 2007 pursuant to which properties owned by Rotorua International Villas (the name to which Top International had been changed) were transferred into the name of Mr Chen’s mother-in-law, Ms Choon Khiaw Chin, for $1.5m, a sum which the plaintiffs note is in marked contrast to a May 2005 valuation of those properties of $3.2m. This transaction occurred after the plaintiffs’ solicitors wrote to Mr and Mrs Chen on 17
January 2007 giving notice of this claim and warning against dealing with any of the company’s assets.
[21] All the properties bar one remain in Ms Chin’s name and she has been joined as a party to the derivative action. She sold the Kiwi Hotel and business on
2 November 2007 for $2m. The net proceeds of $370,577.40 was paid into a bank account in the name of Kiwi Villa’s.
[22] In one of Mr Chen’s later affidavits, however, he claims the agreement for the sale and purchase of the Rotorua International Villas properties at 11 Tyrone Street, 9 Froude Street, and 10-12 Meade Street, all in Rotorua, to his mother-in-law was entered into on 1 December 2006 with settlement occurring on 30 March 2007 and accordingly he no longer owned the properties at the date of the consent Mareva order and was powerless to prevent registration of the transfers.
[23] Mr Chen appears to have been the sole director and shareholder of a company called Kiwi Villas Limited since incorporation on 28 November 2003. He says, however, that the company never traded or held a bank account but Ms Chin
operated her business as a sole trader under her trading name as “Choon Khiaw Chin t/a Kiwi Villa’s”. Mr Chen accordingly asserts that “Kiwi Villa’s” and Kiwi Villa’s Limited are separate and unrelated entities. His assertion concerning the Kiwi Villas’ bank account appear to be supported by a certificate from the bank.
[24] Although Mr McPherson for the plaintiffs objected to the reception of Mr Chen’s late affidavits, the factual matters they raised made it appropriate to admit the same into evidence. Once that occurred Mr McPherson accepted that there were disputed issues as to fact concerning the genuineness of the Rotorua International Villas transaction in late 2006-early 2007 and the Kiwi Villa’s/Kiwi Villa’s Limited issue which could not be resolved in an interlocutory application such as this.
[25] While Mr McPherson continued to submit Mr Chen was in breach of the Mareva injunction and thus in contempt of Court, the Court’s view is that, once Mr Chen’s opposing affidavits were admitted, the factual basis on which the contempt orders were sought was plainly disputed and the application should not succeed, at least at this stage, a result that was advised to counsel during the hearing. It was accordingly adjourned to be determined at trial.
Application to rescind solicitors’ undertaking and re-pay $1m to plaintiffs
[26] Mr McPherson’s submissions were to the effect that because of delays and difficulties emanating principally from Mr Chen, it was appropriate to dissolve his firm’s undertaking and repay the $1m to the plaintiffs.
[27] He said the undertaking was given to deal with Mr Chen’s contention that the plaintiffs were not good for the undertaking as to damages filed in support of the Mareva order but, now the Australian Courts have held Mr Chen liable to pay the plaintiffs and their company in excess of $A1.2m, if Mr Chen were to meet that debt, the plaintiffs’ funds should be released to them. Payment of the judgment would ensure there could be no enduring concerns about the worth of the plaintiffs’ undertaking.
[28] This is a matter which can be dealt with in short compass.
[29] There is a significant difference in character between satisfaction of a judgment and funds held by solicitors on an undertaking to the Court not to disburse the same without further Court order. The latter are funds impressed with a special character arising out of the relationship between the plaintiffs and their solicitors and the Court, while the latter is no more than private debt collection, admittedly through the Court’s processes. Legally, the one cannot be set off against the other.
[30] Further, Asher J expressly recorded that the fact the defendant’s application for security for costs was not to be proceeded with was on the express basis that the
$1m would be held. Therefore, were the undertaking to be dissolved and the funds repaid to the plaintiffs, Mr Chen would be in a position to revive his application for security for costs, with whatever result might be considered appropriate.
[31] Further again, when the substantive hearing of this proceeding is so close, there seems no particular prejudice to the plaintiff for the status quo to be maintained until the principal proceedings can be determined and the ultimate position between these parties ascertained. Further again – though of much lesser moment – the judgment against Mr Chen in the Australian proceeding is not just in favour of the Mesdames Yang but also in favour of Lym International. Lym International is not a party to this claim.
[32] In all those circumstances, the Court’s view is that no basis has been made out for dissolving the solicitors’ undertaking to the Court and repaying to the plaintiffs the funds held in relation to the defended security for costs application.
[33] An additional issue in relation to this matter is that the plaintiffs’ application seeks to set aside a consent order to which they were parties.
[34] It is well settled that consent orders can only be set aside on certain limited grounds. They include that the interests of justice require such a step when the circumstances have changed. (Stead v The Ship “Ocean Quest of Arne”.[1]
Mr McPherson argued that the result of the Australian proceedings amounted to a
significant change of circumstances in this case. Because the consent application can be dealt with on other grounds, the Court accepts that to be the case, though without deciding the issue.
[1] Stead v The Ship “Ocean Quest of Arne” [1995] 3 NZLR 415, 419-421.
[35] For completeness, it should also be noted that Mr Chen’s affidavits in relation to the two interlocutory matters now dealt with raised a large number of issues concerning the Australian proceedings, his view of the plaintiffs and a large number of other matters. Given the way in which the two applications have been dealt with and the fact that many of those issues will no doubt arise for determination in the substantive hearing, it would be inappropriate for the Court to discuss that evidence.
[36] The application is accordingly dismissed.
Contempt application against Heard Park Limited
[37] On 22 June 2009 non-party discovery was ordered against Heard Park. Mr Chen is a director of Heard Park and a 50 per cent shareholder. That was purported to be complied with when Mr Chen swore an affidavit of documents on behalf of Heard Park on 14 December 2009. That affidavit said he had conducted a thorough search and he had already disclosed all relevant documents in the company’s power in his own discovery and that it had no further documents relevant to these proceedings.
[38] The order for non-party discovery against Heard Park included an obligation to discover all documents relating to a loan agreement between the company and Beiya (Group) Co Ltd and documents relating to attempts by Heard Park and/or its directors to enforce that agreement including non-privileged documents on that topic held by Kensington Swan.
[39] Heard Park’s affidavit of documents sworn by Mr Chen did not list any documents relating to those specifically mentioned in the order or even refer to documents of which it might no longer have had control. Inquiries of the solicitors then acting for Heard Park elicited no reply on the discovery question, but that some such documents exist has now been discovered by Kensington Swan. The plaintiffs
accordingly sought contempt orders against Heard Park for failure to comply with the specific discovery ordered against it.
[40] Mr Chen’s notice of opposition asserted Heard Park had complied with its obligations and Mr Chesterton submitted the company had complied with the discovery order and purged any alleged contempt.
[41] He relied on another of Mr Chen’s late affidavits in which he said that apart from his affidavit of documents on Heard Parks behalf he reiterated “that as part of my own personal discovery obligations as a defendant ... I have already disclosed all relevant documents in Heard Park’s power or possession” and Heard Park had no relevant additional documents in its possession. He said that “all documentation has been given to my former lawyers”.
[42] It is trite that when complying with discovery parties and non-parties must list not just relevant documents in their possession but other documents of others such as solicitors acting for them, and relevant documents no longer in their possession or control.
[43] Here it is now clear that there were documents relevant to this proceeding - including documents specifically listed in the discovery order - which while not in Heard Park’s physical possession, were in the possession of its legal advisors. Heard Park was accordingly in breach of its discovery obligations in omitting those from its list.
[44] Similarly, it does not amount to compliance with a non-party company’s discovery obligation for its director - who is also a defendant - to say the company had complied with its discovery obligations in the sense that he had complied with his discovery obligations. Heard Park’s discovery obligations, purported to be complied with by its director, were not the same as Mr Chen’s discovery obligations as the defendant. Heard Park’s purported compliance with the non-party discovery order, through Mr Chen, did not therefore amount to compliance with its discovery obligations as a non-party.
[45] Rule 8.42 provides that “Every person is guilty of contempt of Court” I they are an entity from whom non-party discovery is sought and if they “wilfully and without lawful excuse disobey the order or fail to ensure the order is complied with”.
[46] Heard Park must, accordingly, be held to have been in contempt of Court in its failure to comply fully with the discovery ordered against it.
[47] The question is, however, what action should be taken as a result.
[48] The plaintiffs sought a declaration that Heard Park is in contempt of Court and an order that it be fined $50,000 or such other amount as the Court may determine with half the fine to be paid to the plaintiffs.
[49] On any view of it, the amount sought was well beyond any sum the Court was likely to award. There is no possible basis for fining Heard Park, still less in a sum remote approaching the amount sought by the plaintiffs. Further, no basis is suggested on which part of any fine could be paid to the plaintiffs in the circumstances of this case.
[50] Sim’s Court Practice[2] refers to Stewart v Shotover Jet Limited[3] in which the then Master Venning (now Venning J) held that r 8.42 gives no jurisdiction to make orders against officers of a company in contempt. So no order can be made against Mr Chen, even if it were sought.
[2] Sim’s Court Practice para HCR8.42.3 p 105,037.
[3] Stewart v Shotover Jet Ltd High Court Christchurch CP69/97, 22 August 1997.
[51] The basis for the plaintiffs’ application was patent non-compliance by Heard Park with its obligations. The plaintiffs accordingly brought this application to give the Court an opportunity to mark Heard Park’s non-compliance appropriately. In those circumstances, it is appropriate that, apart from declaring that Heard Park was in contempt of Court in the phrasing of the affidavit of documents filed on its behalf in purported compliance with its discovery obligations, Heard Park should also be ordered to pay the plaintiffs the costs and disbursements specifically referable to the contempt application. Beyond that, it would not be appropriate for the Court to go.
Result
[52] In the result:
a) The plaintiffs’ application for an order declaring the defendant is in contempt of Court in the circumstances discussed in this judgment is adjourned for determination in the substantive hearing.
b)The plaintiffs’ application for their solicitors’ undertaking to be dissolved and for the $1m held by their solicitors to be repaid to them is dismissed.
c) The plaintiffs’ application for a declaration that Heard Park was in contempt of Court in the way in which its affidavit of documents sworn by Mr Chen in purported compliance with its non-party discovery application was phrased is granted and Heard Park is ordered to pay the plaintiffs’ costs and disbursements specifically referable to that application.
d)Ordinarily Mr Chen, having been successful in his opposition to the undertaking/repayment application and, possibly, having regard to the result of the contempt application against him, might have been entitled to costs but his very late filing of the affidavits which brought about those results means no order for costs should be made in his favour. The costs of those applications are accordingly to lie where they fall.
.................................................................
HUGH WILLIAMS J.
Solicitors:
Hesketh Henry (Alan Sherlock), Private Bag 92093 Auckland 1142
Copy for:
Damian Chesterman, Bankside Chambers, Level 22 Lumley Centre,88 Shortland Street, Auckland 1010
Email: [email protected]
Kensington Swan, Private Bag 92101 Auckland 1142
Email: reec[email protected]
Mr Paul Yu Po Chen, 26 Awarua Crescent, Orakei, Auckland 1071
Email: [email protected]
Case Officer: [email protected]
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