Yao v Shen

[2022] NZHC 221

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-831

[2022] NZHC 221

BETWEEN

NAN YAO

Plaintiff

AND

JIAN SHEN

First Defendant

BO ZHENG

Second Defendant

Hearing:	On the papers
Appearances:	No appearance for the Plaintiff S J Corlett for the Defendants
Judgment:	18 February 2022

JUDGMENT OF ASSOCIATE JUDGE SUSSOCK

This judgment was delivered by me on 18 February 2022 at 4pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

Brookfields Lawyers, Auckland

Copy to: N Yao

YAO v SHEN & ANOR [2022] NZHC 221 [18 February 2022]

Introduction

[1]    The defendants, Jian Shen and Bo Zheng, seek a security for costs order against the plaintiff, Nan Yao, in the range of $35,000 to $40,000 with the proceedings stayed until that amount is paid. The order is sought on two grounds: that the plaintiff resides outside of New Zealand and that it appears that she will be unable to pay costs if her claim is unsuccessful.

[2]    If the defendants manage to successfully defend the claim, costs are likely to be awarded in their favour. But if such a costs award is required to be enforced in a foreign jurisdiction or there is no money to pay the costs award, the successful defence may not seem like success. The High Court Rules provide a mechanism for protecting parties from this outcome through security for costs orders. These orders require parties to pay money or to provide security to the Court to ensure that any costs award (or at least a significant part of it) will be paid. They are available either where a party is not resident in New Zealand or where there is evidence that the party bringing the claim may be impecunious. The Court’s discretion is broad with staged orders being common. I note that the Court has the discretion not to make an order if to do so would put an end to an otherwise meritorious claim.

[3]    In addition to the security for costs orders the defendants seek suppression and confidentiality orders in respect of a consultancy management agreement which is annexed as Exhibit “D” to the affidavit of the second defendant filed in support of the application for security (“Management Agreement”). The confidentiality orders are sought on the basis that the Management Agreement contains commercially sensitive and confidential financial information, including in regard to the payment structure for remuneration of one of the parties to the agreement.

Issues

[4]The issues for determination are:

(a)Is Ms Yao resident outside New Zealand or is there reason to believe she will be unable to pay costs?

(b)If so, is it just in all the circumstances for a security for costs order to be made in this case?

(c)What amount of security ought to be paid?

(d)Should suppression and confidentiality orders be made in respect of the Management Agreement?

Summary of proceedings

[5]    The plaintiff filed her claim on 19 April 2021. She alleges that as a result of discussions with the defendants she had entered into two agreements with them to share profits generated by a group of entities which the plaintiff says are associated with a New Zealand based company, Carrick Just Capital Markets Limited (referred to in the statement of claim as the “CJC Group”). Two causes of action are pleaded:

(a)a claim against the defendants for payments due to the plaintiff under an alleged agreement to share profits for the period between May 2019 and December 2019; and

(b)a claim against the defendants for payments due to the plaintiff under a second alleged agreement to share profits for the period from January 2020 onwards.

[6]    The defendants served their statement of defence on 25 June 2021 denying the plaintiff’s claims. The defendants say:

(a)the plaintiff was at all material times employed by CJC Markets Co Limited (“CJCMC”), an entity registered in the St Vincent Islands, as evidenced by her signed employment agreement;

(b)the defendants are not aware of the group of entities called “CJC Group” and no such entity or group of entities exists;

(c)neither defendant entered into any agreement with the plaintiff personally or otherwise;

(d)neither defendant paid any monies to Ms Yao and all funds received by her were paid by CJCMC as her employer (including those she relies upon as part performance of the alleged agreements); and

(e)all of the defendants’ dealings with Ms Yao were strictly in their capacities as representatives of PT Wealth Management Limited (“PTWML”) and in that company’s own capacity acting as management consultant to CJCMC, during which they interacted with Ms Yao strictly in her capacity as an employee of CJCMC.

[7]    The defendants’ application for security for costs was filed on 21 October 2021. The potential for such an application was first raised in the parties’ joint memorandum filed for case management review and dated 15 July 2021.

[8]    A Minute was issued by Associate Judge Bell on 6 August 2021 requiring any application for security to be made by 1 October 2021. In addition to other case management directions, the Minute allocated a four-day trial commencing on 18 July 2022. No pre-trial directions have yet been made.

[9]    By memorandum dated 30 September 2021 the defendants sought an extension of time by which its application for security was required to be filed on the basis that they had been attempting to agree matters with the plaintiff but that the plaintiff’s lawyers had not been able to obtain instructions.

[10]   A without notice application to withdraw had in fact been filed by the solicitor on the record for the plaintiff on 23 September 2021. It was filed on a without notice basis including to protect privileged information. Orders were made by Minute dated 4 October 2021 granting an extension for applying for security to 22 October 2021. The application for security with supporting affidavits was then filed on 21 October 2021.

[11]   In my further Minute dated 12 October 2021, I granted the application of the solicitor for the plaintiff to withdraw as solicitor on the record. Since that Minute the plaintiff has not replied to emails from the Registry in relation to attendance at the case management conference scheduled for 3 November 2021 by telephone. The

memorandum filed on behalf of the defendants in advance of the conference dated 29 October 2021 confirmed that counsel for the defendants had at that time also had no response from the plaintiff to their efforts to communicate.

[12]   Timetable orders were made on 3 November 2021 allowing the plaintiff a further extension for the filing of any notice of opposition to this application and any supporting affidavits but recording that if no opposition was filed, the matter would be determined on the papers with the defendants to file and serve written submissions within 10 working days of the date that the plaintiff was required to take steps to oppose the application.

[13]   No notice of opposition has been filed or any further steps taken by the plaintiff. The defendants have therefore filed written submissions as directed for this matter to be determined on the papers.

[14]   To complete the chronology, I record that my Minute on 3 November 2021 directed that further timetable directions in respect of discovery and interlocutory applications were vacated except for the four-day trial, which is scheduled to commence on 18 July 2022.

Legal principles – security for costs

[15]   Rule 5.45 of the High Court Rules 2016 provides that the Court may order a party to give security for costs if it is just in all the circumstances including if:

(a)the plaintiff is resident outside of New Zealand;1 or

(b)it appears that the plaintiff will be unable to pay costs if the proceeding fails.2

[16]   The above are alternative thresholds. If the defendants establish that the plaintiff is resident outside of New Zealand, they do not also have to meet the threshold that the plaintiff will be unable to pay costs.

1      High Court Rules 5.45(1)(a).

2      High Court Rules 5.45(1)(b).

[17]   In Agriculture Corp v McFarlane Laboratories (1984) Ltd, McGechan J set out the following principles for the giving of security by a plaintiff overseas:3

(a)There is no inflexible principle that a plaintiff with no assets within the jurisdiction should normally be ordered to give security.

(b)The court’s discretion is to be exercised by taking into account all of the circumstances of the case and arriving at a conclusion which will do justice between the parties.

(c)The ease, convenience, and cost of enforcing a costs judgment in the plaintiff’s country of residence are primary considerations. New Zealand courts have taken the view that the whole point of ordering security against an overseas plaintiff is to avoid the cost and difficulties of overseas enforcement.

(d)Otherwise, the principles applicable to applications for security by a plaintiff resident overseas are those applicable under r 5.45(1)(b).

[18]   When considering a plaintiff’s ability (or inability) to pay costs, it is sufficient to adduce evidence of surrounding circumstances from which an inference of inability to pay can reasonably be drawn.4

[19]   The Court of Appeal has warned against constructing principles from the facts of previous cases5 but some factors that have been held relevant to the requirement in r 5.45(2) that the security order be “just in all of the circumstances” include:

(a)balancing both parties’ interests;

(b)as far as is possible, bearing in mind the early stage of the proceeding, the Court will endeavour to assess the merits and prospects of success of the claim;

(c)whether the impecuniosity results from the defendants’ actions; and

(d)any aspect of delay in applying for security for costs.

3      Agriculture Corp v McFarlane Laboratories (1984) Ltd (1987) 1 PRNZ 467 (HC) at 470.

4      Totara Investments Ltd v Abooth Ltd HC Auckland, CIV-2007-404-990, 4 March 2009 at [28].

5      AS McLachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [13].

Initial threshold: Is Ms Yao resident out of New Zealand or does it appear likely Ms Yao will be unable to meet a costs award?

[20]   There is no question that Ms Yao is resident out of New Zealand. The plaintiff’s statement of claim states that she lives in Singapore and her former solicitor’s application to cease acting for her advises that Ms Yao’s address for service is an address in Singapore. The defendants’ evidence is that as far as they are aware Ms Yao has no connection to New Zealand and has not lived nor ever worked here. Furthermore, the defendants say Ms Yao does not have any assets, property or business interests here. The defendants suggest that Ms Yao may now be living in China following enquiries of her employer, CJCMC.

[21]   The initial threshold for considering whether a security for costs order is appropriate is therefore met. There is no need to go on to consider whether it appears likely that Ms Yao will be unable to pay costs if her claim does not succeed.

[22]   For completeness I record that I would have been prepared to infer from the evidence that it appears Ms Yao may not be able to meet a costs award given the withdrawal of her solicitors, including following a failure to pay fees and her failure to engage further solicitors or to respond at all to the Court following her solicitors’ withdrawal.

Costs of enforcing a costs award in Singapore or China

[23]   In the Minute of Associate Judge Bell dated 6 August 2021, his Honour refers to there being reciprocal enforcement of judgment arrangements in place between New Zealand and Singapore and makes the suggestion that any security could be set at an amount roughly equal to the costs of enforcing a New Zealand judgment in Singapore.

[24]   In the submissions filed on behalf of the defendants, it records that enquiries have been made by the defendants with a Singaporean lawyer who confirmed that the possible costs of enforcing a New Zealand costs order could amount to approximately NZ$64,000 on a contested basis.

[25]Whether a costs award could be enforced in China is uncertain.

[26]   The primary consideration under r 5.45(1)(a) is the ease, convenience and cost of enforcing a costs judgment in the plaintiff’s country.

[27]   Given the likely costs of enforcing in Singapore and the uncertainty associated with any enforcement in China, and in the absence of any submissions from the applicant, it appears on a preliminary basis to be appropriate to make a security for costs award.

Is the delay in applying for security justifiable?

[28]   Ordinarily defendants apply for security before or at the same time as they file their statement of defence. In this case the statement of defence was filed on 25 June 2021 and the security for costs application was not filed until 21 October 2021. As the chronology set out above makes clear however the defendants have indicated their need for security from an early stage and had been attempting to agree matters with the plaintiff. The defendants cannot therefore be criticised for the delay.

What is the appropriate quantum?

[29]   In the submissions filed on behalf of the defendants, an estimate of scale costs for a four-day trial is given as $53,536. On that basis, the defendants seek security in the range of $35,000 to $40,000 as being appropriate.

[30]   The statement of claim records that the amounts owing to the plaintiff and the subject of her claim will be quantified following discovery.

[31]   Given the estimate of the likely cost of enforcing any costs award in Singapore referred to above, I consider it is appropriate to make a security for costs order of

$40,000.

[32]   Security for costs orders are often staged. In circumstances where the applicant has not taken any steps despite efforts being made to contact her, it is appropriate for the plaintiff to be required to pay the full amount of the security as a lump sum to

protect against circumstances where the plaintiff is again not contactable. I make orders below on this basis.

[33]   In addition, I vacate the current date for the four-day trial given discovery has not yet been completed and the parties have indicated the pleadings will require amendment following discovery.

Should suppression and confidentiality orders be made in respect of Management Agreement?

[34]   The defendants seek suppression and confidentiality orders in respect of a copy of the Management Agreement between PT Wealth Management (“PTWML”) — formerly Carrick Trust Asset Management Limited — and CJCMC (“Management Agreement”), annexed as Exhibit D to the affidavit of the second defendant filed in support of the application for security.

[35]   The Management Agreement contains commercially sensitive and confidential financial information, particularly in relation to PTWML’s remuneration structure, and contains a confidentiality clause.

[36]   Section 52(2) of the Evidence Act 2006 provides that a Judge may make orders restricting the use of confidential information under s 69 of the Evidence Act on the Judge’s own initiative or on the application of an “interested person”.

[37]   “Interested person” is not defined in the Evidence Act but the Management Agreement is between PTWML and CJCMC and the defendants are directors of PTWML. The defendants are therefore interested persons for the purposes of this application.

[38]   The form of the orders sought is not set out in the defendants’ application or submissions. The affidavit has been filed and served annexing the document without restriction other than being accompanied by the application for orders, so the suppression and confidentiality orders must only be to restrict publication to third parties rather than as against the plaintiff.

[39]   Section 69(3) of the Evidence Act sets out the factors to which I must have regard in considering whether to make such an order. These include:

(a)the likely extent of harm that may result from the disclosure of the communication or information;

(b)the nature of the communication or information and its likely importance in the proceeding;

(c)the nature of the proceeding;

(d)the availability or possible availability of other means of obtaining evidence of the communication or information;

(e)the availability of means of preventing or restricting public disclosure of the evidence if the evidence is given;

(f)the sensitivity of the evidence, having regard to –

(i)the time that has elapsed since the communication was made or the information was compiled or prepared; and

(ii)the extent to which the information has already been disclosed to other persons; and

(g)society’s interest in protecting the privacy of victims of offences and, in particular, victims of sexual offences.

[40]   Considering these factors, particularly the date of the agreement, the sensitivity of the information and the fact the defendants are not seeking to prevent publication to the plaintiff but just to third parties, I consider it is appropriate to make the orders sought.

Result

[41]I order:

(a)the four-day trial scheduled to commence on 18 July 2022 is vacated;

(b)the plaintiff is to pay security for costs in the lump sum amount of

$40,000 to the Registrar by 18 May 2022;

(c)the proceeding is stayed until security has been paid;

(d)the Management Agreement dated 10 January 2020 annexed as Exhibit D to the second defendant’s affidavit affirmed on 20 October 2020 is to remain confidential except as ordered by the Court and a “confidential” stamp is to be placed on the document in the Court file;

(e)the Registry is to allocate a case management conference on the first available date after 20 May 2022 prior to which the parties are to file and serve memoranda proposing next steps.

Costs

The applicants/defendants have succeeded in their application and are entitled to costs on a 2B basis.

Associate Judge Sussock