Zheng v Deng
[2022] NZHC 2595
•11 October 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-002730
[2022] NZHC 2595
BETWEEN LU ZHENG
First Plaintiff
ORIENT CONSTRUCTION LIMITED
Second PlaintiffAND
DONGLIN DENG
First Defendant
BIN JIANG
Second DefendantORIENT HOMES LIMITED
Third Defendant.../intituling cont over
Hearing: 6 October 2022 Counsel:
D Zhang for Plaintiffs
JD Turner and KL Chiu for First Defendant
Judgment:
11 October 2022
JUDGMENT OF DOWNS J
This judgment was delivered by me on Tuesday, 11 October 2022 at 1 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Amicus Law, Auckland.
McVeagh Fleming Lawyers, Auckland.
ZHENG v DENG [2022] NZHC 2595 [11 October 2022]
EVERSOLID CONSTRUCTION LIMITED
Fourth Defendant
HONGLAN LIU
Fifth Defendant
D & R HOMES LIMITED
Sixth Defendant
YAN JIN
Seventh Defendant
TONG ZHU
Eighth Defendant
YAOKUN CHEN
Ninth Defendant
The case
[1] In 2019, I dismissed claims by Lu Zheng and another plaintiff against Donglin Deng and other defendants.1 I later ordered Mr Zheng pay Mr Deng costs of
$258,137.41.2 Mr Zheng appealed to the Court of Appeal. In 2020, that Court concluded I was wrong to find there was no partnership between Mr Zheng and Mr Deng.3 It ordered an account be taken of the dealings of the partnership. Mr Deng obtained permission to appeal to the Supreme Court, but in 2022, his appeal was dismissed by that Court.4
[2] In allowing Mr Zheng’s appeal, the Court of Appeal “strongly” encouraged the parties to resolve matters between them, without the need for further litigation.5 That has not happened. This judgment addresses two matters in relation to this ongoing case:
(a)Whether Mr Deng should be ordered to repay Mr Zheng costs of
$258,137.41.
(b)The procedure to be adopted in this Court in relation to the taking of the account of the dealings of the partnership.
Repayment of $258,137.41?
[3] The Court of Appeal set aside my costs order. Given this and his successful appeal to that Court, Mr Zheng seeks an order Mr Deng repay him $258,137.41. Of this sum, $100,906.52 is held in trust (it governed a disbursement). Mr Zheng seeks an order this be released to him.
[4] Mr Deng opposes both orders, though he acknowledges it is open to me to make them, or ones like them, by analogy to r 20.20 of the High Court Rules 2016 using r 1.6 of the same rules.
1 Zheng v Deng [2019] NZHC 3236.
2 Zheng v Deng [2020] NZHC 959.
3 Zheng v Deng [2020] NZCA 614.
4 Deng v Zheng [2022] NZSC 76.
5 Zheng v Deng, above n 3, at [133].
[5] In very short, Mr Deng contends the Court of Appeal judgment left my determinations intact in relation to several causes of action, so this is not a clear case in which an appellant has been completely vindicated on appeal. Mr Deng also argues Mr Zheng’s case was poorly presented at trial, and even if I had found there was a partnership, the evidence would not have been sufficient to determine who owed whom what. This, Mr Deng argues, tells against repayment of $258,137.41, or at least the full amount. Mr Deng suggests, for example, the sum of $100,906.52 could remain in trust pending the ultimate resolution of the case.
[6] In this situation, a Court typically seeks to restore a successful appellant to the position she, he or it would have been in had they been vindicated at first instance.6
[7] The most important cause of action before me, by some margin, was whether there was a partnership between Mr Zheng and Mr Deng. Unsurprisingly, this cause of action occupied the most time, and evidence. It is now a matter of record there was a partnership. Moreover, the other causes of action identified by Mr Deng do not significantly detract from Mr Zheng’s success as one of two plaintiffs.
[8] Aspects of Mr Zheng’s case were poorly presented. It is also true that had I concluded a partnership existed, I would not have known who owed whom what under the partnership. In other words, an account of the dealings of the partnership would still have been necessary. However, these aspects do not affect what should happen now, especially as Mr Zheng sought, as his primary remedy, an account of the dealings of the partnership.
[9] It follows no good reason exists not to restore, to the extent practicable, Mr Zheng to the position he ought to have been in at first instance. I return to the italicised phrase shortly. An obvious point underscores this conclusion: the Court of Appeal set aside my costs order. So, I make the orders Mr Zheng seeks.
[10] As will be apparent, these orders only go so far as to require Mr Deng to repay Mr Zheng the costs Mr Zheng paid Mr Deng, hence the italicised phrase earlier. The orders do no more than create a neutral costs position between the parties in relation
6 See High Court Rules 2016, r 20.20 and, for example, Kung v Fitton [2017] NZHC 670.
to the earlier High Court chapter of the case, as if each party had borne their own costs. This leads to the related point below.
[11] Mr Deng asked me to re-determine, now, High Court costs, that is, irrespective of the orders sought by Mr Zheng. I declined to do so 25 August 2021.7 I decline to do so again. My reasoning remains that of 2021:8
No one knows what the account of profits will reveal. It may reveal Mr Deng owes Mr Zheng a lot of money. If so, Mr Zheng would have had substantial success in this Court; a position that should be reflected in costs. However, the account of profits may reveal Mr Zheng owes Mr Deng money. If so, the costs position would be rather different.
It follows adjudication of costs should await the account of profits and related determinations that remain outstanding in consequence of the judgment of the Court of Appeal.
Procedure to take the account of the dealings of the partnership
[12] As foreshadowed, the Court of Appeal ordered an account be taken of the dealings of the partnership. That Court said, “the appropriate machinery for the taking of that account is best left to the High Court to determine”.9
[13] I heard argument on what this machinery should be. Rule 16.3 of the High Court Rules and related rules afford a Court a broad discretion in this context. Rule 16.3(1)(c) permits the Court to “direct that the relevant books of account are prima facie evidence of the truth of the matters contained in them”. Mr Zheng seeks such a direction about what I called at trial—and continue to call—the internal accounts.
[14] Mr Deng opposes this direction. He argues that neither the Supreme Court nor Court of Appeal found the internal accounts truthful of the matters contained in them. He reminds me he denied, at trial, that he initialled the 31 March 2010 accounts. (Mr Deng implied his initials were forged.) Mr Deng also said at trial that he had no input into the internal accounts. Mr Deng notes there was evidence at trial about
7 Zheng v Deng HC Auckland CIV-2017-404-2730, 25 August 2021(Minute No 2).
8 At [4]–[5].
9 Zheng v Deng, above n 3, at [129].
discrepancies in the accounts, and more general difficulties in following them. He argues it would be wrong to make the direction sought for these reasons.
[15] I disagree. First, the taking of an account must begin somewhere. The logical starting point is the internal accounts kept by the parties, which on their face, were treated by them as truthful. Second, a direction would do no more than make the internal accounts prima facie evidence of the truth of their contents; a direction would not preclude the possibility of contrary evidence, nor submission about what the internal accounts really mean. In short, a direction would create a presumption of truth, not an irrebuttable presumption. Third, the Court of Appeal and Supreme Court saw the internal accounts as sufficiently truthful to establish the conclusion of a partnership.10 That being so, it would be odd not to give them the significance they deserve.
[16] Mr Deng seeks the same direction in relation to the external accounts of the companies in which the parties had interests. Mr Zheng opposes this direction. He is concerned that what were described as circular transactions at trial may be incorrectly treated if this direction is made.
[17] This objection suffers one of the same difficulties I outlined in relation to the internal accounts: a direction would do no more than make the accounts prima facie evidence of the truth of their contents; it would not preclude the possibility of contrary evidence or submission about what the accounts mean.
[18] I shall make the direction about the internal and external accounts for these reasons.
[19] The next issue is whether an expert should be appointed to take the account (under r 16.6(1)(b)), or whether I should take the account based on reports prepared by an expert for each of the parties.
10 For example, the Supreme Court described at [60] the internal accounts as “authentic”, noting “they record on a running basis the state of affairs between Messrs Zheng and Deng and reflect the nature of their relationship”.
[20] Mr Zheng encourages the latter. He notes each party called an expert at trial— Ms Payne for the plaintiffs, and Mr McKay for the defendants—and each is already familiar with the internal accounts. Mr Deng prefers the former. He questions, albeit not searchingly, whether it is open to the Court to proceed as Mr Zheng suggests. I do not doubt it is. In the recent decision of the Court of Appeal in Nicholls v Nicholls, that Court said:11
... There is provision for the court to appoint an account-taker for the purposes of taking an account who may be the Registrar and/or an accountant. However not infrequently the court will itself supervise the process, as illustrated in the account of profits in relation to the publication of the book Soldier Five.
[21] These observations echo what the Court of Appeal said when remitting the case to me; see [12]. Moreover, there is no reason in principle why the account could not be taken as Mr Zheng suggests: the proposed methodology is fair, transparent, and consistent with the rules of natural justice.
[22] That brings me to what would be best here. I have thought carefully about this, including how cost to the parties can be minimised, especially given that so far. I conclude, admittedly somewhat counter-intuitively, this is not a situation in which I should appoint an expert to take the account. Rather, each party should continue with their own expert, and I should settle the account, following a hearing, if the experts disagree. I reach these conclusions because:
(a)The parties continue to disagree about what transactions should be governed by the account; what should be in, what should be out, and so on and so forth. Instructing a single, Court-appointed expert in these circumstances will be difficult at best. Much time, effort and money could be spent in identifying the scope of the expert’s brief and her or his associated procedure.
(b)The parties disagree about who should take the account if I were to appoint an expert. Mr Zheng has identified Vincent Liu. Mr Deng is wary of Mr Liu, or at least considers the Court has not been told
11 Nicholls v Nicholls [2020] NZCA 346 at [77] (footnotes omitted).
everything it should about him. Mr Deng has identified Stephen Tsang. Mr Zheng objects to Mr Tsang because Mr Deng suggested him. Mr Zheng also questions Mr Tsang’s expertise; he is not sure Mr Tsang is a forensic accountant.
(c)Ms Payne and Mr McKay are already familiar with the internal accounts, and the case more generally. Both experts are experienced and responsible. Each made sensible concessions at trial in relation to the other’s position. Areas of agreement are, therefore, likely.
(d)Ms Payne enjoys Mr Zheng’s confidence. Mr McKay enjoys Mr Deng’s confidence.
[23] In summary, the process is likely to be simpler, cheaper, and commensurate with the interests of justice if each party continues with their chosen expert, particularly if I make directions the experts confer; reach agreement on topics whenever practicable and proportionate; and identify areas of disagreement. However, I leave open the position of appointing an expert to assist me if the reports of Ms Payne and Mr McKay require that course. I would not do so without hearing first from parties.
[24] I will not make directions limiting what the experts may consider. Attempts to address relevance now would be counter-productive, particularly given the case’s history. However, I will direct the experts to identify all of their sources in their reports. This and the requirement to confer should address Mr Deng’s concerns about risk of ambush.12
[25] Neither party could say when their expert would be able to produce a report. For this reason, I impose no timetable at this juncture beyond a telephone conference to monitor progress. Timetable orders will likely issue at that conference.
[26]All of this leads to the suite of orders below.
12 Ms Payne made a late amendment to her evidence at trial.
Orders
[27] Mr Deng is to repay Mr Zheng $258,137.41. The related sum held on trust is to be released, forthwith, to Mr Zheng.
[28] I shall take the account of the dealings of the partnership between Mr Zheng and Mr Deng, aided by one expert report on behalf of each party:13
(a)In taking the account, the internal accounts and external accounts are prima facie evidence of the truth of the matters contained in them.
(b)The experts:14
(i)Are to confer.
(ii)Serve on each other their draft report and final report.
(iii)Agree whenever practicable and proportionate.
(iv)Identify areas of disagreement, with reasons.
(v)Must list all sources of information in their draft and final reports.
(c)The Registrar is to convene a telephone conference on or before
18 November 2022.
(d)The parties may seek further directions at that conference.
……………………………..
Downs J
13 The account concerns the parties’ Bella Vista dealings from 1 April 2008 to 31 May 2015, and all of the parties’ other dealings from 1 March 2010 to 31 May 2015.
14 The parties helpfully said they consented to these directions if I adopted this pathway.
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