Zhou v BCH Investments Limited

[2021] NZHC 426

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-001987

[2021] NZHC 426

IN THE MATTER OF

The liquidation of BCH INVESTMENTS LIMITED

BETWEEN

BINGYAN ZHOU

First Plaintiff

XIANGTAN COUNTY XINTIAN MICRO MORTGAGE COMPANY LIMITED
Second Plaintiff

AND

BCH INVESTMENTS LIMITED

Defendant

Hearing:

On the papers

Counsel:

First Plaintiff in Person

No appearance by or for Second Plaintiff H McDermott for Defendant

Judgment:

9 March 2021

JUDGMENT OF ASSOCIATE JUDGE P J ANDREW

ZHOU v BCH INVESTMENTS LTD [2021] NZHC 426 [9 March 2021]

Introduction

[1]    These  are  liquidation  proceedings.     They  were  struck  out  by  me  on     3 December 2020 on the grounds that they were an abuse of process. I held that they were fundamentally flawed.1

[2]    Mr Zhou, the first plaintiff, now applies to set aside my judgment striking out the proceedings, with a view to reinstating the substantive liquidation proceedings.

[3]    The defendant, BCH Investments Ltd, has applied to strike out Mr Zhou’s application to set aside.

[4]    In accordance with my minute of 4 February 2021, I am determining the defendant’s application to strike out Mr Zhou’s application to set aside, on the papers. That follows the receipt of submissions and further affidavit evidence from Mr Zhou. I reject the plaintiff’s request for an oral hearing.2

Background

[5]    On about 27 September 2020 the defendant was served at its registered office with a “letter of demand” in which the plaintiffs demanded a total of some $9,250,000.

[6]    On 7 October 2020 the defendant’s solicitor sent a letter to the second plaintiff company advising it that the debt was disputed and denied in its entirety. The defendant said it had no knowledge of the debt and pointed out the defects in the letter of demand which the defendant says purported to be (but was not) a statutory demand. The defendant noted that further action would be defended and indemnity costs sought.

[7]On 9 November 2020 the defendant was served with the following documents:

(a)affidavit in support by the plaintiff serving demanding letter document dated 20 October 2020;

1      See my minute of 3 December 2020, which also records that there was no appearance then, by or on behalf of, the plaintiff.

2      See plaintiff’s memorandum of 29 January 2021.

(b)statement of claim for  placing the company into liquidation dated    19 November 2020;

(c)affidavit in support of statement of claim liquidation;

(d)notice of proceeding.

[8]    On 19 November 2020 the defendant filed and served the following documents:

(a)application to strike out the application for the liquidation of the defendant;

(b)affidavit of Qian Yu Bu in support of application to strike out;

(c)memorandum of counsel in support of application to strike out;

(d)notice of defence.

[9]    On 23 November 2020 the plaintiffs placed an advertisement in the New Zealand Herald. They did not file any notice of opposition to the defendant’s application to strike out and nor did they file any reply to the defendant’s notice of defence.

[10]   The proceedings were called in the Liquidation List on 3 December 2020. There was no appearance by or on behalf of the plaintiffs and, as already noted, the proceedings were struck out.

[11]   I ordered that the plaintiffs were to pay costs to the defendant, plus disbursements on a 2B basis. I also ordered that the plaintiffs were to re-advertise in the New Zealand Herald and the New Zealand Gazette retracting the advertisement of the liquidation proceedings and advising that they had been struck out.

[12]   On 15 December 2020 the defendant filed its interlocutory application to set aside / review / recall and/or stay my judgment of 3 December 2020. An affidavit of Tai Man Dolly Chau was filed in support of the application.

[13]   The plaintiffs filed a notice of opposition to the defendant’s application to strike out the plaintiffs’ application to set aside the judgment, dated 23 December 2020.

[14]   The plaintiffs’ application to recall was called in the Miscellaneous Companies List on 4 February 2021. There was again no appearance by or on behalf of the plaintiffs. I noted that it was the second time that there had been no appearance for the plaintiffs. In my minute of 4 February 2021, I recorded that the failure by Mr Zhou to appear or to secure legal representation on at least two occasions was unacceptable.

[15]   However,  I  directed  that  Mr  Zhou  as  the  applicant  would  have  until  15 February 2021 to file and serve any written submissions, and I would then determine his application on the papers.

[16]   The plaintiffs filed and served written submissions dated 14 February 2021, together with an affidavit in support from Tai Man Dolly Chau, sworn on 12 February 2021 (there are in fact two submissions dated 14 February 2021). There is an earlier affidavit filed in support of the plaintiffs’ notice of opposition to the defendant’s application to strike out the application to set aside, dated 21 January 2021. Although I did not grant leave for Mr Zhou to file further evidence (as Ms McDermott, counsel for the defendant, noted) – namely the affidavit of 14 February 2021 – I have taken the affidavit of 12 February 2021 into account.

Relevant legal principles

[17]Rule 10.9 of the High Court Rules 2016 (Rules) provides:

Judgment following non-appearance may be set aside

Any verdict or judgment obtained when one party does not appear at the trial may be set aside or varied by the court on any terms that are just if there has, or may have been, a miscarriage of justice.

[18]Rule 15.10 provides:

Judgment may be set aside or varied

Any judgment obtained by default under rule 15.7, 15.8, or 15.9 may be set aside or varied by the court on such terms as it thinks just, if it appears to the court that there has been, or may have been, a miscarriage of justice.

[19]   As to the meaning of “miscarriage of justice”, the authors of McGechan on Procedure say that:3

… “miscarriage of justice” really defies definition.

[20]   McGechan then refers to the test laid down by the Court of Appeal in Russell v Cox:4

The test against which an application to set aside a judgment should be considered is whether it is just in all the circumstances to set aside the judgment, and the several factors mentioned in the judgments discussed should be taken, not as rules of law, but as no more than tests by which the justice of the case is to be measured, in the context of procedural rules whose overall purpose is to secure the just disposal of litigation.

[21]   McGechan further notes the considerations featuring in the cases on this rule, including:

(a)whether the defendant’s failure to appear was excusable;

(b)whether the defence has substance;

(c)whether the plaintiff would/might suffer irreparable injury if a judgment it has obtained is set aside (eg, where a crucial witness has died in the interim);

(d)where solicitors/counsel have withdrawn;

(e)whether that withdrawal was with or without advice for the relevant party and the Court;

3      A C Beck and others McGechan on Procedure (online ed, Thomson Reuters) at [HR10.9.2(2)].

4      Russell v Cox [1993] NZLR 654, at [659], as affirmed in Madison v Jones CA 198/92, 11 December 1992.

(f)the applicant’s overall attitude to the proceeding, particularly if it has been casual or cavalier;

(g)a greater reluctance to grant the defendant’s application, because it deprives the plaintiff of the benefits of its judgment; and

(h)whether there has been delay in applying to set aside the judgment.

Analysis and decision

Service of the defendant’s application

[22]   Mr Zhou contends that the plaintiffs were not served with the defendant’s application to strike out their substantive liquidation proceedings. It is contended that the email correspondence from counsel for the defendant attaching the application to strike out and other relevant documents (affidavit and notice of defence) went into Mr Zhou’s junk email box. (See affidavit of Tai Man Dolly Chau dated 15 December 2020).

[23]   Mr Zhou also contends that because the second plaintiff was an overseas company, the defendant’s documents should have been served personally to 8 Gerrard Street, Three Kings, Auckland 1042.

[24]   It may be that Ms McDermott’s emails with the relevant application to strike out attached were received in Mr Zhou’s junk email box, but there is no evidence establishing that the fact and substance of the defendant’s application to strike out did not then come to the attention of the plaintiffs. The Court is presumably being asked to infer that because the emails went into the junk email folder, they did not come to Mr Zhou’s attention, or at least not until it was too late. However, that is far from clear.

[25]   I also note, as Ms McDermott submitted, that the deponent of the affidavits that the plaintiffs rely upon (and for all grounds of their application to set aside), namely Tai Man Dolly Chau, merely states that she is “close relative to plaintiff/applicant”. She does not state that she has first-hand knowledge of the

matters to which she deposes or that she is authorised by the plaintiffs to make the affidavit on their behalf.

[26]   In any event, as Ms McDermott for the defendant has submitted, the plaintiffs were served with the relevant documents from the defendant at their preferred method of service, namely by email to Mr Zhou’s hotmail email address. Ms McDermott served the defendants documents in that manner in response to the plaintiffs indicating at the end of their statement of claim dated 20 November 2020 as follows:

This statement of claim is filed by the plaintiff for an address of service preferable to email: [the email address was then spelt out].

[27]   In serving the documents in that manner, Ms McDermott was correctly serving the documents in accordance with r 6.1(d) of the Rules, which provides:

Method of Service

(1)       Any of the following methods may be used for serving a document that is required by these rules to be served:

…

(d)   if the solicitor for the party or person, or the party or person, has, under rule 5.40(5)(a), 5.42(2)(b)(i), or 5.44(1)(e), specified a post office box address, document exchange box number, fax number, or email address.

[28]   Furthermore, even if the defendants did fail to take steps to bring the application to strike out another defence document to the attention of the plaintiffs, that did not excuse the failure by the plaintiffs to attend at the hearing on 3 December 2020, and in support of their own substantive application for liquidation. Having brought the application, it was the responsibility and duty of the plaintiffs to prosecute it, and for Mr Zhou to appear in Court at the call on 3 December 2020. No excuse has been offered for that non-attendance. Mr Zhou was clearly aware of that 3 December 2020 date, since it appeared in the advertisement he placed in the New Zealand Herald in November 2020. Had the plaintiffs appeared on 3 December 2020, any natural justice issue (if in fact there was one) could have been addressed.

[29]   I also note that the second plaintiff is a company, and at no time has Mr Zhou or anyone else obtained authority from this Court to represent it.

[30]   I now turn to address the critical issue of whether the plaintiffs have a substantial defence to the defendant’s application to strike out its substantive liquidation proceeding.

[31]   It is not easy to discern, from the multiple documents filed by the plaintiffs, exactly what the nature of their substantive claim against the defendant is. It is not acceptable to refer in either submissions or affidavits to multiple different documents without a clear explanation as to their relevance and how they might assist in establishing that there is in fact genuine debt owed by the defendant company. As Ms McDermott has submitted, the submissions of the plaintiffs dated 14 February 2021, contain multiple, duplicate numbering and refer at paragraph 3 to a statement of claim involving parties different to those involved in these liquidation proceedings. This all creates confusion and does not assist the plaintiffs.

[32]   In any event, I find that the plaintiffs have failed to establish that they have a substantial defence to the defendant’s application to strike out their substantive liquidation proceedings. In substance, there is no real merit to the plaintiffs’ application to set aside my decision striking out the liquidation proceedings.

[33]   It is abundantly clear from the evidence that there is a genuine and substantial dispute as to the existence of the alleged debt (said by the plaintiffs to be owed by the defendant company) and thus no basis for the substantive liquidation proceedings in the first instance. As the Court of Appeal made clear in Yan v Mainzeal Property & Construction Ltd (in receivership and in liquidation), a winding up order will not be made where there is a genuine and substantial dispute as to the existence of a debt such that it would be an abuse of the process of the Court to order a winding up.5 In such circumstances, the dispute should be resolved through action commenced in the ordinary way and not in the companies court.

[34]   For the reasons submitted by Ms McDermott, there is a genuine and substantial dispute and that is simply not a matter that I can resolve as part of the current

5      Yan v Mainzeal Property & Construction Ltd (in receivership and in liquidation) [2014] NZCA 190 at [61].

application to recall my judgment, and nor could it be resolved in the context of the substantive liquidation proceedings.

[35]   The defendant contests the debt, the subject of the letter of demand, and substantive liquidation proceedings on the following bases:

(a)there was no contract between the plaintiffs and the defendants;

(b)the first plaintiff, Mr Zhou, is not a party to the contract he seeks to enforce;

(c)the defendant is not a party to the contract the plaintiffs are relying upon to support their claim;

(d)the first plaintiff, Mr Zhou, is not a party to the Chinese court judgment that the plaintiffs are relying upon to support their claim; and

(e)the defendant is not a party to the Chinese court judgment that the plaintiffs are relying upon to support their claim.

[36]   I note that the defendant disputed the debt referred to in the letter of demand within the 15-day time period set out in the letter of demand. The defendant’s position was made very clear to the plaintiffs at that early stage. Despite that, the plaintiffs commenced substantive liquidation proceedings.

[37]   There are further compelling factors as to why the plaintiffs’ application to set aside should not be granted. First, there is the cavalier attitude and conduct of the plaintiffs, including placing an advertisement for liquidation when they were clearly on notice that the debt was disputed. Second, it is clear that the defendant would be substantially prejudiced if the application to set aside were granted and the defendant required to re-engage with the substantive liquidation proceedings when the debt at issue is clearly disputed.

[38]   As noted above, the second plaintiff – also a party to the substantive liquidation proceedings – is a company. At no time has it been represented by a solicitor. As

Woolford J noted in a recent minute issued in proceedings in this Court, SGAH Investments Ltd v MEI Enterprises Ltd,6 a company generally has to be represented in this Court by a lawyer. A company cannot put forward a member or director and claim to be appearing personally.7

[39]   In all the circumstances, I can see no basis at all for my recalling my decision to strike out the substantive liquidation proceedings; they simply should never have been brought. That is the reason why I referred to the proceedings as being “fundamentally flawed” in my minute striking out the proceedings dated 3 December 2020.

Result

[40]   The application by the plaintiffs to set aside my judgment of 3 December 2020 (striking out the substantive liquidation proceedings) is dismissed.

Costs

[41]   In my judgment of 3 December 2020, striking out the proceedings, I awarded costs against the plaintiffs on a 2B basis.

[42]   Upon reviewing the file, it appears that costs on a 2B basis (as calculated by Ms McDermott in her memoranda) exceeded the defendant’s actual indemnity costs of $6,728.00 (see Table A to memorandum of counsel for the defendant dated 23

6      SGAH Investments Ltd v MEI Enterprises Ltd HC Auckland CIV-2020-404-001819 (Minute of Woolford J, 22 October 2020). See also Re G J Mannix Ltd [1984] 1 NZLR 309 for the established rule a solicitor must be appointed to represent a company in liquidation proceedings.

7      At [3] of the minute of 22 October 2020, above n 7, Woolford J stated: “Mr X [the plaintiff] appears today to represent Mei [Mei Enterprises Ltd]. I have explained to Mr X that he has no authority to represent a company in these proceedings. A body corporate, which includes the plaintiff company, generally has to be represented in this Court by a lawyer. It cannot put forward a member or director and claim to be appearing personally. The rationale as I explained to Mr X, for this rule, is to ensure that legal proceedings are appropriately pleaded and managed, including by counsel who have a primary obligation to the Court. This is in part to ensure the company’s and shareholders’ interests are properly represented in any decision to participate in litigation. Where proceedings are commenced by a company, they may only be filed by a solicitor on behalf of the company. Only a solicitor who has authority under r 5.36 of the High Court Rules may act. This Court does retain a discretion to allow non-lawyers to appear on behalf of companies in exceptional circumstances, but the circumstances here are not of that kind.”

November 2020). That may have been an error on my part. The Rules are clear that parties are not entitled to more than their actual costs.8

[43]   In the circumstances, however, the better way to remedy any issue as to costs (if indeed any correction is required) is for the defendants to advise the Court by memorandum as to their overall actual costs incurred in defending the plaintiffs’ application to set aside, i.e. actual indemnity costs on top of the sum of $6,728.00 referred to in Table A of the submission of 23 November 2020. It would be of assistance to the Court for counsel to provide a total figure of actual costs incurred overall for all matters at issue in these proceedings.

[44]   Upon receipt of that memorandum, the Court can then address the question of costs overall.

[45]   A further memorandum from the defendants is to be filed and served within seven days. I will then address the question of costs on the papers.

Associate Judge P J Andrew

8 High Court Rules, r 14.2.(1)(f).