Zheng v Jun Yue Investment Limited

[2023] NZHC 616

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-1743

[2023] NZHC 616

BETWEEN

YINJI ZHENG

First Plaintiff

FUJUN LIU
Second Plaintiff

AND

JUN YUE INVESTMENT LIMITED

First Defendant

PING FAN
Second Defendant

Continued overleaf

Hearing:

17 March 2023 (via AVL)

Appearances:

J W A Johnson and C Jiang for the Plaintiffs

S R G Judd and M H D Chan for the First and Second Defendants No appearance on behalf of the Third or Fourth Defendant

Judgment:

24 March 2023

JUDGMENT (NO.2) OF POWELL J

[Payment of Legal Fees]

This judgment was delivered by me on 24 March 2023 at 3.00 pm pursuant to R 11.5 of the High Court Rules

…………………..

Registrar/Deputy Registrar

YINJI ZHENG v JUN YUE INVESTMENT LIMITED [2023] NZHC 616 [24 March 2023]

YUE YANG

Third Defendant

HONGTAO ZHANG
Fourth Defendant

Solicitors:

Tompkins Wake, Auckland (D Chan) Righteous Law, Auckland (C Jiang)

Counsel:

J Johnson, Auckland S Judd, Auckland

[1]        On 22 December 2022, I issued a judgment (“the 22 December judgment”) making various interim orders in favour of the plaintiffs.1 Since then a number of issues have arisen.

[2]        One of these issues concerns a payment notification made by the first defendant pursuant to [36](a)(iii) and (iv) of the 22 December judgment, specifically a notification that the first defendant intended to pay the current outstanding legal fees of Mr Judd and Righteous Law in relation to this proceeding.

[3]        In relation to the notification, the relevant orders provide the first and second defendants will:

iii.provide Mr Liu and Ms Zheng with two days’ advance written notification (Payment Notice) of any application of Jun Yue’s funds (over the amount of $5,000);

1. set out, in any Payment Notice:

(a)the amount to be paid;

(b)the payee; and

(c)an explanation as to why the proposed payment is a

legitimate company transaction and is in the best interests of Jun Yue.

[4]The plaintiffs argue that:

(a)The notification from Righteous Law is in breach of the requirements of the Court’s payment notification orders; and

(b)Such payments are completely inappropriate in the context of this proceeding.

[5]        In particular, the plaintiffs argue that as the proceeding is essentially a shareholder dispute — and the bulk of the fees sought to be paid have, in fact, been incurred by the second defendant, Ms Fan, personally. As a result the payment of the outstanding invoices cannot be in the best interests of the first defendant company.

1      Zheng v Jun Yue Ltd [2022] NZHC 3605.

[6]        In response, Mr Judd submitted that while the substantive proceedings are focused on the shareholder issues, the interim orders are focused on restraining the first defendant so as to protect the position of the plaintiffs pending the substantive hearing. As a result, in Mr Judd’s submission, the focus of the proceeding to date and the 22 December judgment in particular has been on the first defendant’s opposition, which has been inevitably at the direction of the second defendant. Given this position Mr Judd submits that the outstanding invoices are properly payable by the first defendant. To this end, Mr Judd relied upon r 32.6(3) of the High Court Rules 2016 which provides:

(3)The freezing order must not prohibit the respondent from dealing with the assets covered by the order for the purpose of—

(a)paying ordinary living expenses; or

(b)paying legal expenses related to the freezing order; or

(c)disposing of assets, or making payments, in the ordinary course of the respondent’s business, including business expenses incurred in good faith.

[7]        The application came before me via AVL whilst I was sitting in trial out of Auckland. Responsibly, Mr Judd confirmed at the hearing that the first defendant would not make any payment of the disputed fees prior to the issue of this judgment.

Discussion

[8]        I acknowledge at the outset the plaintiffs have raised genuine concerns as to whether the invoices are properly payable by the company given the nature of the opposition to the interim orders sought by the plaintiff. That opposition inevitably relies on the second defendant’s view of the relationship between her and the plaintiffs as to whether there was any joint venture or other agreement.

[9]        This, in turn, leads to the broader issue as to whether Mr Judd and/or Righteous Law can continue to act for both the first and second defendants. That issue is already before this Court as part of a consolidated application brought by the plaintiffs seeking additional interim relief, including orders restraining Mr Judd and Righteous Law from acting further for both the first and second defendants. The consolidated application is currently set to be heard on 3 July 2023.

[10]      Given this position, I consider it would be wrong to pre-empt the broader consideration of the ability of Mr Judd and Righteous Law to act for the first and second defendants in the context of a skirmish over fees. In those circumstances, I do not consider it appropriate to block payment of the invoices at this point, as to make the orders sought would effectively leave the first defendant unable to pay its solicitors and thereby almost certainly prejudice its ability to participate in the hearing of the consolidated application when the terms of r 32.6(3) of the High Court Rules clearly envisage that freezing orders should not preclude payment of legal fees.

[11]      As Mr Judd points out, the amounts at issue are relatively minor in the context of the proceedings as a whole. In any event nothing in this judgment prevents a later order of this Court directing that the second defendant repay to the first defendant all or part of those fees if it is later concluded that there is a clear conflict as between the first and second defendants or otherwise that the legal fees were properly attributable to the second defendant.

[12]      In view of the outcome of the application, I fix costs on a 2B basis which are payable to the successful party on the application to restrain Mr Judd and Righteous Law from acting for both the first and second defendants.

Other Matters

[13]      As discussed with the parties there are two other issues to be addressed in this judgment.

[14]      The first is to note that the application by the first and second defendants for leave to appeal the 22 December judgment has been abandoned. To the extent that any costs issues arise, the plaintiffs will have two weeks to file submissions. Following that, the first and/or second defendants (as appropriate) will have two weeks to respond.

[15]      The second is that in accordance with [39] of the 22 December judgment both parties have now confirmed that neither seek any redactions. I therefore direct that the 22 December judgment be published without redaction.

Powell J