Zheng v Deng
[2019] NZHC 2762
•29 October 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-002730
[2019] NZHC 2762
BETWEEN LU ZHENG
First Plaintiff
ORIENT CONSTRUCTION LIMITED
Second PlaintiffAND
DONGLIN DEN
First Defendant
BIN JIANG
Second DefendantORIENT HOMES LIMITED
Third DefendantEVERSOLID CONSTRUCTION LIMITED
Fourth DefendantHONGLAN LIU
Fifth DefendantD&R HOMES LIMITED
Sixth DefendantYAN JIN
Seventh Defendant
TONG ZHU
Eighth DefendantYAOKUN CHEN
Ninth Defendant
Hearing: 23 October 2019 Appearances:
D Zhang and S Zhao for the Plaintiffs
L Huang for the First and Third Defendants
K L Chiu for Second, Fifth and Sixth DefendantsJudgment:
29 October 2019
ZHENG v DEN [2019] NZHC 2762 [29 October 2019]
JUDGMENT OF ASSOCIATE JUDGE SARGISSON
This judgment was delivered by me on 29 October 2019 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
[1]This judgment deals with an application for leave to amend pleadings.
[2] The plaintiffs, Mr Zheng and Orient Construction Ltd, have brought claims against the nine named defendants in this proceeding. The origin of the dispute is that Mr Zheng was involved in two business ventures, one with Mr Deng (the first defendant) and one with both Mr Deng and Mr Jiang (the second defendant), in which they would acquire, develop and sell land. Those ventures have ceased to function, and the plaintiffs now seek to resolve their situation through these proceedings.
[3] A ten day trial is scheduled to begin on 18 November 2019. The plaintiffs filed their most recent amended statement of claim on 12 July 2019. They now seek to further amend their statement of claim. Because the close of pleadings date has passed they require leave to do so.1 Mr Deng and Orient Homes Ltd (the third defendant) oppose. For convenience, I will refer to the first and third defendants as “the respondents” for the purposes of this application.
[4] In this judgment I grant leave for the plaintiffs to make the sought amendments. Before briefly explaining my reasons I begin with the statement of claim and the proposed changes, and I set out the relevant legal framework.
1 High Court Rules 2016, r 7.7.
A summary of the case
The Orient Partnership
[5] The current statement of claim sets out a narrative wherein Mr Zheng was involved in two business enterprises. The first is an alleged partnership referred to as the Orient Partnership. The partners were Mr Zheng and Mr Deng. The Orient Partnership allegedly involved the partners purchasing land for the purpose of development and sale. Allegedly, they did this through corporate vehicles, including those named as other defendants along with their director/shareholders.
[6] Relating to the Orient Partnership, Mr Zheng alleges that Mr Deng owes him personal debts. He says Mr Deng withdrew money from the various bank accounts used by the Orient partners in April and May 2015. He says Mr Deng then declared the partnership at an end, despite ongoing projects, and took a further $24,000 in September 2015. He says Mr Deng has refused to take account of the Orient Partnership and pay Mr Zheng “his fair share”. Further, Mr Zheng and Orient Construction Ltd allege that Mr Deng and his de facto partner (who is not a named defendant) took payments and expense reimbursements from Orient Construction that they should not have.
The Bella Vista project
[7] The second business venture is referred to as the Bella Vista project. This was between the Orient partners and Mr Jiang. The purpose of this alleged partnership was to purchase 11 lots of land from a vendor named Bella Vista Ltd in order to develop them. Following the various purchases, the lots were transferred to other parties who would hold them as volunteers.
[8] The plaintiffs allege that Mr Deng and/or Mr Jiang have misappropriated Bella Vista assets or otherwise breached their partnership obligations and worked to undermine Mr Zheng’s rights under the Bella Vista partnership, by managing the Bella Vista assets without his involvement; refusing to render true accounts or full information regarding his partnership rights; transferring (or supporting the other named defendants in transferring) various land lots to people or entities other than
bona fide purchasers for value without notice; refusing to share profits; and failing to realise a profit for the sale of various land lots. The plaintiffs make largely the same allegations in relation to the Orient Partnership.
The sought amendments
[9]There are five sets of amendments in the proposed amended statement of claim.
[10] First, in the proposed new paragraphs 31 and 33–35 the plaintiffs plead new facts intended to update the Court as to events subsequent to, and information obtained since, the first filing of a statement of claim in November 2017:
(a)Paragraph 31 claims that Mr Deng was the sole controller of the third defendant (Orient Homes Ltd) following the breakup of the Orient Partnership, before it was removed from the Companies Register. It also claims that Mr Deng and Mr Zhu (the eighth defendant) were the sole controllers of the fourth defendant (Eversolid Construction Ltd) following the breakup of the Orient Partnership before it was removed from the Companies Register.
(b)Paragraphs 33–35 detail the transfers of certain of the Bella Vista lots in 2017 and 2018.
[11] Second, the new paragraphs 14–18 provide further detail on the cooperation between Mr Zheng and Mr Deng in the Orient Partnership, including their use of different corporate entities, the sharing of staff and resources in each of their different companies, and that they regularly did an accounting for all the projects they were involved in.
[12] Third, the plaintiffs seek to amend the remedies sought under Mr Zheng’s second cause of action against Mr Deng. That cause of action is to do with the ending of the Orient Partnership without an agreement on the approach to winding it up. Mr Zheng already seeks a declaration that a partnership exists and as to his rights under s 44 of the Partnership Act 1908 to be indemnified by Mr Deng for the partnership’s debts and liabilities. He also seeks an account of profits and reimbursement of the
monies Mr Deng has allegedly misappropriated. The plaintiffs seek to add to the prayer for relief orders “to make inquiries and take accounts of the assets and dealings” of each of the third and fourth defendants (which have been removed from the Companies Register).
[13] Fourth, Mr Zheng seeks to bring a new cause of action as an alternative to his second cause of action against Mr Deng. The proposed new cause of action is for breach of fiduciary duty. It relies on the same facts as the second cause of action (regarding the end of the partnership) but argues that Mr Zheng and Mr Deng owed fiduciary duties to each other.2 It includes vague particulars of how those duties arose. The prayer for relief seeks an order winding up the joint venture; an order to make inquiries and take accounts of the assets and dealings of the joint venture as well as the third and fourth defendants; an order for payment to the Court of sums due for distribution; distribution of sums in accordance with Mr Zheng’s entitlement in the joint venture; and an account of profits and/or disgorgement of profits.
[14] Finally, the plaintiffs seek to insert new particulars at paragraph 49 of the amended statement of claim, which better particularise the existing claim that fiduciary duties existed between Mr Zheng, Mr Deng and Mr Jiang in relation to the Bella Vista project.
Legal framework
[15] Leave to amend the statement of claim is sought under r 7.7 of the High Court Rules 2016:
7.7 Steps after close of pleadings date restricted
(1) No statement of defence or amended pleading or affidavit may be filed, and no interlocutory application may be made or step taken, after the close of pleadings date without the leave of a Judge.
(2)Subclause (1) does not apply to—
(a)an application for leave under that subclause; or
(b)a pleading or an affidavit that merely brings up to date the information before the court; or
2 Under the principles in Chirnside v Fay [2006] NZSC 68, [2007] 1 NZLR 433.
(c)an application for amendment of a defect or an error under rule 1.9.
[16] Under r 7.7(2)(b) leave is not required for those paragraphs of the amended pleading which simply update the information before the Court. I consider this applies to paragraphs 33–35.
[17] It is possible to introduce a new cause of action in an amended pleading whether or not it has arisen since the filing of the earlier statement of claim.3
[18] For this Court to grant leave to file amended pleadings doing more than simply updating information after the closing date the applicants must clear the “three formidable hurdles” of showing that the amendment is in the interests of justice and will not cause significant prejudice to the defendants or significant delay. 4
[19] The principles applicable to an amendment of pleadings were summarised by Cull J in Monster Energy Company v Ox Group Global Pty Ltd:5
(a)the merits of the proposed amended pleading;
(b)whether irreparable damage would be suffered by the applicant;
(c)the timing of the application and magnitude of, and reasons for, delay;
(d)the risk of significant prejudice to other parties;
(e)the effect on public resources reflected in the impact on case management and the timetable to trial;
(f)the importance of the principle that the parties should have every opportunity to ensure that the real controversy goes to trial so as to secure the just determination of the proceeding; and
(g)the overarching requirement is to exercise the discretion in the interests of justice.
(citations omitted)
3 See High Court Rules 2016, r 7.77.
4 Elders Pastoral Ltd v Marr (1987) 2 PRNZ 383 (CA) at 385; followed in Body Corporate 172108 v Gundry [2014] NZHC 954 at [40].
5 Monster Energy Company v Ox Group Global Pty Ltd [2016] NZHC 2124 at [28]. This summary was in the context of an application under r 7.77, but the principles applicable are the same.
[20] Counsel for the respondents also pointed me towards the following comments of the High Court of Australia, in the context of allowing an appeal against a decision to grant leave to amend pleadings:6
An application for leave to amend a pleading should not be approached on the basis that a party is entitled to raise an arguable claim, subject to payment of costs by way of compensation. There is no such entitlement. All matters relevant to the exercise of the power to permit amendments should be weighed. The fact of substantial delay and wasted costs, the concerns of case management, will assume an importance on an application for leave to amend.
The grounds of opposition
[21] The core of the respondents’ opposition is that the proposed amendments arrive extremely late in the process, leaving little time for them to respond, and are significant in scope. They characterise the sought amendments as introducing new factual allegations; new third parties; the notion that certain corporate entities are partners in the alleged Orient Partnership beyond Mr Zheng and Mr Deng; disputes as to whether those companies were the “true owners” of the assets they held; a new breach (that Mr Deng was allegedly obliged to keep accounts and failed to do); and a new cause of action for breach of fiduciary duty.
[22] Regarding the lateness of the hour, the respondents put in evidence previous correspondence with the plaintiffs in which they sought clarification and further particulars, during which the plaintiffs did not raise the new material in the pleadings. The respondents argue that they have structured their case and briefed their witnesses to respond to the allegations as set out in the statement of claim filed in July. The relevant evidence has already been served.
[23] The respondents also submit that the plaintiffs were, or should have been, able to access the allegedly new material in the pleadings for over 20 months prior to this point – making the lateness of the application unacceptable.
[24]The respondents point to prejudice they will suffer in the form of:
6 Aon Risk Services Australia Ltd (AON) v Australian National University (ANU) [2009] HCA 27 at [11]; cited by Whata J of this Court in SE Swiss Entrepreneur AG v Kiwi Deposit Building Society [2015] NZHC 1851 at [23].
(a)potential disruption to the timetabling of the proceeding and associated administrative burdens, including a possible adjournment to the 18 November fixture;
(b)the plaintiffs getting a chance to “perfect” their pleadings and evidence right before trial;
(c)being required to amend their existing statement of defence;
(d)being required to consider further discovery, including relating to other parties, and the possibility that discovery cannot be completed by the trial date; and
(e)being required to consider preparing further briefs of evidence.
Discussion
[25] I consider the interests of justice in this instance tell towards allowing all of the proposed amendments. The proposed amendments serve to allow “the full controversy” to go to trial, without causing undue prejudice to the respondents’ case or risking unwarranted delay.
[26] The proposed new paragraphs 14–18 and 31 bolster and clarify the background of the alleged partnership between Mr Zheng and Mr Deng, but the further details pleaded do not appear to me to be either surprising or exceedingly novel. They are substantively similar to what was already pleaded and will assist the trial Court in assessing the causes of action. I am not satisfied they meaningfully prejudice the defence. Nor do they appear to attempt to bring further third parties into the proceeding in a substantive way.
[27] The same is true of the proposed further particulars at the new paragraph 49. These are simply the requisite assertions that will have to be proved for the Court to accept that the claimed fiduciary duties existed. They do not introduce new evidence or arguments which would require effort to respond to. I do not see them as causing prejudice to the respondents.
[28] The more substantive changes are the updated prayer for relief under Mr Zheng’s second cause of action against Mr Deng and the new third cause of action against Mr Deng for breach of fiduciary duty. Regarding the updated prayer for relief, while I consider there may be difficulties in implementing the orders sought involving the third and fourth defendants, being de-registered companies, I do not consider that allowing the plaintiffs to seek those orders causes the defendants prejudice warranting my declining leave. A change as to the remedy sought does not seem to require that the defendants alter how they conduct their case.
[29] Regarding Mr Zheng’s new cause of action against Mr Deng for breach of fiduciary duty, I consider there is sufficient overlap between the new cause of action and Mr Zheng’s second cause of action regarding the existence of the Orient Partnership to warrant my granting leave. The facts relied on will be essentially the same between each of the causes of action. Further, the legal bases are only slightly different – while partnerships and fiduciary duties are both fact-specific legal occurrences, the elements which must be made out for each will be substantively similar. It is not clear that the respondents will have to amend their evidence to respond to the new cause of action – which can largely be dealt with by counsel simply addressing the fiduciary duty issue in submissions at trial.
[30] While I accept that the plaintiffs could likely have sought the proposed amendments earlier in the process, delay alone will not justify me declining leave.7 Further, counsel for the respondents gave me the impression at the hearing that, while it would be somewhat unfair to allow these late amendments, the defence was capable of responding to the proposed amendments in the time allocated.
[31] For these reasons, I consider that the balance of justice lies in favour of me granting the application for leave.
[32] The timetable that follows reflects a middle ground between the different timetable directions suggested by the opposing parties at the hearing. Counsel for the first and third defendants proposed a timetable that they considered would be
7 See Body Corporate 338356 v Endean [2014] NZHC 2644 at [46]; and Goodfellow v Brown
[2016] NZHC 984 at [10].
achievable, while stressing that they were not to be taken as conceding the plaintiffs’ application. Their proposals allow more time for an amended statement of defence and a supplementary brief than counsel for the plaintiffs’ suggestions.
Orders
[33]I make orders as follows:
(a)The plaintiffs have leave to further amend the statement of claim in accordance with their proposed amended statement of claim. They are to file and serve the further amended statement of claim by
5.00 pm today.8
(b)The first and third defendants have until 5.00 pm on 8 November 2019
to file and serve an amended statement of defence.
(c)The defendants have until 5.00 pm on 14 November 2019 to file and serve a supplementary brief of evidence.
(d)If the amended statement of defence contains new affirmative defences, the plaintiffs have until 5.00 pm on 14 November 2019 to file and serve a formal reply to those affirmative defences.
(e)As there is a pre-trial conference tomorrow before the Duty Judge these orders are subject to any contrary or amended orders that may be made at that conference or by way of pre-trial direction by the Civil List Judge or Trial Judge.
[34] I add a postscript. The first, fifth and sixth defendants have filed an application seeking leave to file a counterclaim – based on an alleged indemnity – and particulars from the plaintiffs. The application was filed late, and there was insufficient time to deal with it at the hearing on 23 October 2019. The application is to be listed for
8 Counsel for the plaintiffs advised at the hearing that the plaintiffs are able to file the proposed amended statement of claim immediately.
tomorrow’s telephone pre-trial telephone conference before the Duty Judge. It is sufficient for present purposes to note that, though the application is opposed, counsel discussed a possible timetable that they thought would be achievable – assuming the application is granted – which envisaged a statement of defence to the proposed counterclaim by 30 October 2019; supplementary briefs of evidence in response to the counterclaim by 11 November; and particulars by 30 October. Whether or not the application is granted is a matter for the Duty Judge, as will be any related timetable.
Costs
[35] Costs on the application are reserved. Brief memoranda as to costs may be filed within 5 working days subject to any contrary direction by the Duty Judge.
Associate Judge Sargisson
Solicitors:
Amicus Lawyers, Auckland Forest Harrison, Auckland
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