Zhou v Wang
[2021] NZHC 896
•27 April 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-001603
[2021] NZHC 896
BETWEEN XI RONG ZHOU
First Plaintiff
BINGYAN ZHOU
Second PlaintiffCHOR LIMITED
Third PlaintiffAND
JANE WANG
First Defendant
BARFOOT & THOMPSON LIMITED
Second DefendantDIONG DING
Third DefendantJAMES KEAT
Fourth DefendantHONG (JULIA) XU
Fifth DefendantWILSON McKAY
Sixth Defendant
On the papers: Counsel:
D Hickson for the Plaintiff B Rooney for T J Hibbitt
Judgment:
27 April 2021
JUDGMENT OF ASSOCIATE JUDGE GARDINER
ZHOU v WANG [2021] NZHC 896 [27 April 2021]
This judgment was delivered by me on 27 April 2021 at 3.30 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Introduction
[1] Mrs Zhou, Mr Zhou and Chor Ltd (the plaintiffs) seek recovery of a Court-ordered penalty of around $540,000, for having breached the Overseas Investment Act 2005 by their purchase and subsequent sale of 64 Derbyshire Lane, Karaka, together with additional costs of $40,000. They seek recovery from their legal advisors on each transaction, and the real estate agents who acted on the purchase.
[2] The third and fourth defendants, Diong Ding and his former law firm James Keat, contracted to provide Mrs and Mr Zhou advice in relation to the purchase of the property, as well as handling the conveyancing and the preparation and registration of documents. The plaintiffs allege that Mr Ding and James Keat breached the contract between them, acted negligently and breached the Fair Trading Act 1986 and Consumer Guarantees Act 1993.
[3] An issue has arisen as to whether the proceeding has been properly served on the fourth defendant, the former law firm James Keat. The proceedings were commenced on 9 August 2019 but not served until much later, in July 2020, after the decision of this Court formalising the penalties against the plaintiffs. Mr Hibbitt, Mr Ding’s former partner in the firm, contends that James Keat has not been validly served within 12 months, therefore the proceeding is deemed to be discontinued as against James Keat pursuant to r 5.72(2).
[4] This judgment resolves this issue. By consent, the issue has been determined on the papers, with written submissions from the plaintiffs and Mr Hibbitt. Mr Ding has not filed any written submissions and has said he will abide the Court’s decision. In a previous memorandum he has contended that James Keat was not validly served.
Background
[5]The relevant sequence of correspondence between the parties is as follows:
(a)On 23 July 2020, Doug Hickson, solicitor for the plaintiffs, emailed Mr Ding:
My clients Xi Rong Zhou, Bingyan Zhou and Chor Ltd have filed proceedings in the High Court at Auckland against six defendants, two of whom are James Keat (sued as a firm) and you.
(b)On 23 July 2020, Mr Hickson also emailed Mr Hibbit:
My clients Xi Rong Zhou, Bingyan Zhou and Chor Ltd have filed proceedings in the High Court at Auckland against six defendants, one of whom is James Keat (sued as a firm).
(c)On 28 July 2020, Bryan Rooney, counsel instructed for Mr Hibbitt, replied to Mr Hickson:
Terry Hibbitt has referred to me your email dated 23 July 2020 about a proceeding, CIV-2019-404-1063.
The documents can be sent to me by email as service on Terry, but he does not know whether there is an order directing him to be served, or whether he is being served as a validly joined party, and reserves all of his rights accordingly.
(d)On 28 July 2020, Mr Hickson replied to Mr Rooney:
Thank you for your email and for your offer to accept service of the proceedings on behalf of Mr Hibbitt.
I now serve the proceedings accordingly (see attached together with covering letter).1
As you can see, Mr Hibbitt is not served personally. Rather, James Keat is sued as a firm (as is Mr Hibbitt’s former partner at James Keat, Diong Keat Ding). The relevant parts of the proceeding arise from actions or omissions of Mr Ding, not Mr Hibbitt, but as Mr Hibbitt was a partner in James Keat at the relevant time, I felt it appropriate to have him served.
1 The attached covering letter to the proceedings is addressed to James Keat, Solicitors.
You may wish to liaise with Mr Ding as he and James Keat may already have representation.
(e)On 5 August 2020 at 11.42 am, in response to a request from Mr Rooney for access to the plaintiffs’ initial discovery, Mr Hickson said:
I should be grateful if you would advise whether you are acting for James Keat in this matter. As previously advised, Mr Hibbitt’s involvement is only in his capacity as partner in James Keat at the time of the events in question.
If you are acting for James Keat, are you also acting for Diong Ding, (who was himself a former partner of the firm, but who is also being sued in his personal capacity)?
Upon receipt of your confirmation of who, precisely, you are acting for, I will respond to your email of this morning.
(f)Mr Rooney responded on 5 August at 1.11 pm:
You have lost me.
On 23 July, you sent Mr Hibbitt an email asking whether he would accept service of some proceedings, in which “James Keat (sued as a firm)” was said to be one of multiple defendants. There was no elaboration as to why your clients wanted to serve Mr Hibbitt.
Was instructed to act for Mr Hibbitt, who was as puzzled as I was and am. I have not said I am acting for “James Keat” or “James Keat (sued as a firm)”. The statement of claim sent to me says nothings at all about Mr Hibbitt, although you now say (below, and therefore outside of the pleadings) that “Mr Hibbitt’s involvement is only in his capacity as a partner in James Keat at the time of the events in issue. But nothing of that nature is pleaded and so far as I am aware nothing has been done to comply with rule 4.25(2). And I gather that there is no order for service on Mr Hibbitt.
I am, therefore, acting for Mr Hibbitt, as a person not referred to in the statement of claim or ordered to be served but who your client has chosen to serve (for reasons which remain unexplained in any relevant manner).
(g)Mr Hickson replied on 5 August at 1.51 pm:
It is my intention, once I know who is acting for James Keat, to seek an affidavit under rule 4.25(2).
In the meantime, as Mr Hibbitt was named as a partner (with Mr Ding) on the letterhead used by James Keat at the time of the relevant events, I felt it appropriate as a matter of courtesy to bring the proceedings to the attention of Mr Hibbitt by serving him with a copy of the proceedings.
If you know who is acting for James Keat, please advise.
(h)On 28 August 2020, Kevin Harborne, acting solicitor for Mr Hibbitt, filed Mr Hibbitt’s statement of defence. It relevantly states:
Terence James Hibbitt … a person served with this proceeding by the plaintiffs and therefore a defendant by reason of the definition of the “defendant” in rule 1.3 of the High Court Rules 2016, says, by reference to the plaintiffs’ statement of claim:
1. He has no knowledge of and therefore denies all of the contents of the statement of claim, to the extent that the statement of claim applies to or affects him or requires him to plead in reply, if at all.
…
5. The plaintiffs commenced this proceeding on 9 August 2019 but did not serve the proceeding on Mr Hibbitt until 28 July 2020.
6. Notwithstanding the matters pleaded in paragraphs 3, 4 and 5 hereof, the plaintiffs did not notify Mr Hibbitt:
6.1 of any allegation or right or claim which was or was to be asserted against him; or
6.2 of any proceeding against him or intended to be served on him;
until the proceeding was served on him on 28 July 2020.
7. Because Mr Hibbitt had no notice of the proceeding, any intention to serve the proceeding on him, or any allegation or right or claim asserted against him whatsoever, Mr Hibbitt did not extend his run-on professional indemnity insurance cover from 2019 and is uninsured in respect of any claim the plaintiffs intend to assert or assert against him.
High Court Rules 2016
[6] Rule 6.15 of the High Court Rules provides that a document may be served on a partnership by serving it on any partner, or at the principal place in
New Zealand of the partnership, in accordance with r 6.11. Rule 6.11 provides for personal service. Service on one partner is enough to bind other partners.2 If more than one partner is served, time runs from service on the last partner served.3
[7] McGechan observes that the rule is silent on the procedure to be adopted where a partnership has, to the knowledge of the plaintiff commencing an action, been dissolved, and that the best approach in this situation would be to try to serve each former partner where that is feasible (and if not, to apply to the Court).4
[8] Justice Ellis considered McGechan’s commentary (then attached to r 201 of the High Court Rules 1986) in Wilkins v Apatu.5 Justice Ellis observed that the equivalent rule in England required all partners of dissolved partnerships to be served.6 The English rule had been changed after the English Court of Appeal’s decision in Ex parte Young.7 There, the majority of the Court, interpreting a rule in similar terms to the New Zealand rule (which did not explicitly refer to service of a defunct partnership) held that service on one partner of a dissolved partnership was good service on the others. As expressed by Brett LJ:8
…those who drew the rules allowing service upon a firm relied upon it being always the interest of one person who is served to inform others who are jointly liable with [her or] him, if [she or] he is liable.
[9]Justice Ellis held:9
In my opinion our [rule governing service on partnerships] has been framed against the history of the English rule and the decision in Ex parte Young and to the effect that it provides equally for service on existing as well as defunct partnerships. While the consequences of service on one partner only would require close scrutiny for the reasons discussed, for example, in Ex parte Young and Davis v Morris (1883) 10 QBD 436, service on one partner is nevertheless service on all in such a case as the present. This was the view expressed, albeit obiter, by Richmond J in Adams v McKenzie & Coy (1888) 7 NZLR 275…
2 High Court Rules 2016, r 6.15(a).
3 Alden v Beckley & Co (1890) 25 QBD 543.
4 AC Beck and others McGechan on Procedure (online ed, Thomson Reuters) at [HR6.15.03].
5 Wilkins v Apatu HC Napier A72/85, 5 August 1987 at 6.
6 At 6.
7 Ex parte Young (1881) 19 ChD 124.
8 Ex parte Young (1881) 19 ChD 124, at 139.
9 At 7 [emphasis added]; Affirmed in Hieber v Commissioner of Inland Revenue (2002) 1 NZTR 12-001 at [55].
[10]As to “the reasons discussed, for example, in Ex parte Young and
Davis v Morris” which necessitate close scrutiny, these include:
(a)whether, by reason of a firm continuing to operate under an old name but with a different partnership composition, it is unclear who the plaintiffs intended to sue;10 or
(b)whether, by conduct, a plaintiff has misled a defendant, and by causing her or him to believe that no action had been brought against her or him, induced her or him to abstain from taking proper steps to defend herself or himself.11
Submissions
[11] The plaintiffs submit they effected service on James Keat by serving the two former partners in accordance with r 6.11, serving Mr Ding on 24 July 2020 and Mr Hibbitt on 28 July 2020. The plaintiffs say Mr Hibbitt was not served with the proceedings in his personal capacity, there being no claim made against Mr Hibbitt personally, and that he was served as a partner of James Keat.
[12] Mr Hibbitt maintains that he was served personally as a defendant within the meaning of r 1.3 of the High Court Rules, not as a partner of the firm James Keat. He points out that r 6.15 requires personal service under r 6.11. For service on his solicitor to suffice, there needed to be agreement under r 6.7. However, there was no agreement as Mr Rooney never agreed to accept service for Mr Hibbitt as a former partner of James Keat. Accordingly, Mr Hibbitt submits that James Keat was not served within the 12-month timeframe of r 5.72(2).
10 Davis v Morris (1883) 10 QBD 436 at 450; Ex parte Young (1881) 19 ChD 124 at 133.
11 Davis v Morris (1883) 10 QBD 436 at 450.
Discussion
[13] The plaintiffs have submitted that they effected service on James Keat by serving not only Mr Ding, but also Mr Hibbitt. However, this is inconsistent with their correspondence at the time. Mr Hickson’s emails, dated 28 July and 5 August, indicate that the plaintiffs were not serving Mr Hibbitt so as to complete service of James Keat under the High Court Rules, but rather because Mr Hickson “felt it appropriate” (28 July) “as a matter of courtesy to bring the proceedings to the attention of Mr Hibbit” (5 August). Further, in his email of 28 July, Mr Hickson suggested that Mr Hibbitt “liaise with Mr Ding as he and James Keat may already have representation.” This reinforces that Mr Hickson considered that James Keat had been served through Mr Ding and that “service” on Mr Hibbitt was just a courtesy. It was only in response to Mr Rooney’s request for access to the plaintiffs’ initial discovery that Mr Hickson asked whether Mr Rooney was acting for James Keat. I cannot see any reason for confusion on the part of Mr Hibbitt as to the basis upon which he was “served”. Plainly he was “served” because he is a former partner of the firm James Keat, the named fourth defendant, and may face liability if the firm is found to be liable to the plaintiffs.
[14] In any event, whatever the intentions and apprehensions of the parties at the time, I am satisfied that, consistent with r 6.15 and Wilkins v Apatu, the plaintiffs service on the fourth defendant, the dissolved partnership of James Keat, was carried out on 23 July when one of the former partners, Mr Ding, was served.
[15] In accepting that service upon the one partner, Mr Ding, of the dissolved James Keat partnership was good service upon James Keat, I have had regard to the considerations highlighted in Ex parte Young and Davis v Morris. In particular, I have considered whether the finding that service on James Keat was validly effected by service on Mr Ding alone on 23 July (and not also Mr Hibbitt) prejudiced Mr Hibbitt in some way. That cannot be the case because Mr Hibbitt was also notified of the proceedings on the same day.
Result
[16] The Fourth Defendant, James Keat, was validly served on 23 July 2020. The proceeding is not deemed to be discontinued against James Keat pursuant to r 5.72(2).
Costs
[17] The plaintiffs are entitled to their costs. The question arises: against whom should the order be made? Mr Ding contended in a memorandum for a case management conference dated 4 February 2021 that James Keat had not been validly served, but did not make submissions and said he would abide the decision of the Court. Mr Hibbitt actively argued the issue, and filed submissions, but he is not a party. James Keat does not appear to have legal representation, and has not filed anything with the Court. In these circumstances, an order for costs in the plaintiff’s favour is reserved.
Associate Judge Gardiner
Solicitors:
McElroys, Auckland Kennedys, Auckland Lovegroves, Auckland
D Hickson, Auckland
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