Mao v Best Capital Limited [2021] NZHC 735 (1 April 2021)

Last Updated: 21 June 2021

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-2197 [2021] NZHC 735

BETWEEN	JIAWEN MAO First Plaintiff LIANSEN MAO Second Plaintiff YINTIAN CO LIMITED Third Plaintiff
AND	BEST CAPITAL LIMITED First Defendant HYUN BIN KIM Second Defendant DUK YOUNG LEE Third Defendant

Hearing:	19 November 2020
Counsel:	A Yang for the Plaintiffs SP Gamble for the Defendants
Judgment:	1 April 2021

JUDGMENT OF ASSOCIATE JUDGE SUSSOCK

This judgment was delivered by me on 1 April 2021 at 4pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

JC Legal, Auckland Hesketh Henry, Auckland

JIAWEN MAO v BEST CAPITAL LIMITED [2021] NZHC 735 [1 April 2021]

Introduction

• [1] The defendants have applied to strike out the plaintiffs’ claim on the basis that it discloses no reasonably arguable cause of action and is an abuse of process.

• [2] The plaintiffs’ claim relates to two development loan agreements entered into between various of the plaintiffs and the defendants.

• [3] The first two causes of action relate to 31 Chester Avenue, Greenhithe and allege:

(a) that the second and third defendants’ mortgagee sale of 31 Chester Avenue was in breach of s 176 of the Property Law Act 2007 by failing to obtain the best reasonably obtainable price at the time of sale; and

(b) misleading and deceptive conduct by the second and third defendants in failing to lend further funds once a house was relocated onto the property leading to the plaintiffs suffering loss.

• [4] The second and third defendants brought proceedings in the District Court subsequent to the mortgagee sale of 31 Chester Avenue to recover the shortfall of

$209,931.92. Default judgment was entered by the District Court following the failure to file a statement of defence by the first and second plaintiffs.

• [5] The full amount of the shortfall was paid by the first plaintiff on 22 September 2020 (after bankruptcy notices had been served on the first and second plaintiffs).

• [6] In this strike out application, the defendants say that allowing the two causes of action to proceed in relation to 31 Chester Avenue would be an abuse of process given the proceedings that have already been heard and determined in the District Court (and the judgment sum fully paid by the plaintiffs). They further contend that they are not sufficiently pleaded.
• [7] The third cause of action relates to 88 Fairburn Road, Otahuhu. It pleads that the defendants are in breach of a duty of care owed to the plaintiffs by continuing to charge penalty interest at 20 per cent per annum and not releasing the plaintiffs from their debt by disposing of the property within a reasonable timeframe.

• [8] As well as submitting that the third cause of action is not sufficiently pleaded, the defendants say it does not disclose a reasonably arguable cause of action because there is no such duty owed.

• [9] The issues for determination are not only whether the three causes of action are sufficiently pleaded but also whether it would be an abuse of process to allow the first and second causes of action to proceed and whether there is any prospect of the third cause of action succeeding (even if sufficiently pleaded).

Background

• [10] The loan agreement in respect of 31 Chester Avenue, Greenhithe was entered into on 13 July 2016 between the third plaintiff, Yintian Co Ltd, and the second and third defendants, Hyun Bin Kim and Duk Young Lee. The principal sum was

$1,000,000 and it was secured by a mortgage over 31 Chester Avenue (“Chester Avenue Agreement”).

• [11] The loan agreement in respect of 88 Fairburn Road, Otahuhu was entered into on 2 June 2017 between the third plaintiff and the defendants with the first and second plaintiffs and a further company, Chen Hong Ltd, agreeing to guarantee the loan. It is alleged in the statement of claim that Chen Hong Ltd was the registered owner of this property. The loan advanced was $450,000, secured with a mortgage over 88 Fairburn Road (“Fairburn Road Agreement”).

• [12] The first plaintiff, Ms Jiawen Mao, is a director of both the third plaintiff and Chen Hong Ltd and guaranteed both the Chester Avenue and Fairburn Road Agreements. The second plaintiff was the second guarantor of the Chester Avenue Agreement.
• [13] The statement of claim pleads that on 3 July 2017, the plaintiffs defaulted under the Chester Avenue Agreement and then on 2 August 2017 Chen Hong Ltd and the first plaintiff defaulted under the Fairburn Road Agreement.

• [14] 31 Chester Avenue was sold by way of mortgagee sale on 14 December 2017 for $1,130,000. There was a shortfall of $209,931.92.

• [15] On 15 December 2017 Chen Hong Ltd was placed in liquidation. The property at 88 Fairburn Road has not yet been sold by mortgagee sale.

• [16] On 26 February 2018 the second and third defendants filed proceedings in the District Court against the first and second plaintiffs to recover the shortfall in respect of 31 Chester Avenue.¹ No statements of defence were filed and the District Court granted default judgment for $216,723.92 (including interest and costs) against the plaintiffs and Mr Yintian Zhang on 3 October 2018.

• [17] In separate proceedings, after a sentencing indication on 22 May 2018,² the first plaintiff, together with Mr Augustine Lau, pleaded guilty to breaches of the Resource Management Act 1991 (“RMA”) in respect of offences committed at 88 Fairburn Road.

• [18] The first plaintiff was sentenced on 10 July 2018 in the District Court to a fine of $24,000 plus $120,000 in reparation for the Fairburn Road offences (together with a further $40,000 in fines and $35,000 for offences committed at a property in Ormiston Road).³

• [19] Mr Lau was sentenced to 24 months imprisonment for offending in respect of Fairburn Road and Ormiston Road, as well as further offending at other properties. The Crown appealed the sentencing decision to the High Court. Whata J delivered his decision on 15 November 2018, commenting that “the egregious nature of Mr Lau’s

¹ CIV-2018-004-381.

² R v Lau DC Auckland CRI-2016-004-010786, 22 May 2018 (sentencing indication).

³ R v Lau DC Auckland CRI-2016-004-010786, 10 July 2018.

offending was also aptly noted”⁴ by the District Court Judge quoting the following passage:⁵

[27] In terms of the history of non-compliance with warnings by the regulator, I have to say that Mr Lau’s position is the worst I have known of. He has completely ignored risks identified by others. The offences he has committed in these instances were committed for financial gain. They were premeditated, he knew exactly what he was setting out to do and he knew that what he was doing was unlawful. He continued to do it nevertheless.

• [20] And the following referring to Ms Mao.⁶

• [16] In respect of 88 Fairburn Road, that was owned by a company, Chen Hong Company Limited of which Ms Mao was the director, it was managed by Mr Lau. Nine hundred cubic metres or more of earthworks were undertaken. They created an unstable and unsafe situation; they were done without preparation or compaction and without consent.

• [17] Importantly the fill material included rubbish and debris and the top layer contained asbestos fibres and fines and fragments of asbestos containing material. Again, interim enforcement orders were issued. No compliance was forthcoming. In fact, things got worse. A pile of material including more asbestos was flattened into the site. Enforcement orders were ignored.

• [21] On 13 September 2019, the second and third defendants served a bankruptcy notice on the first plaintiff for the judgment debt from the District Court proceedings for the shortfall from the sale of 31 Chester Avenue.

• [22] On 11 October 2019 these proceedings were filed by Ms Mao.

• [23] On 29 November 2019 an order for substituted service of a bankruptcy notice on the second plaintiff was made.

• [24] On 10 December 2019 the defendants first applied to strike out these proceedings.

⁴ R v Lau [2018] NZHC 2935 at [3].

⁵ R v Lau, above n 2, at [27].

⁶ Above n 2 at [16] and [17].

• [25] On 16 December 2019 an application to set aside the bankruptcy notice against the second plaintiff was filed together with an affidavit by the first plaintiff in support. The grounds on which the application to set aside was made included that the judgment debtor had filed this proceeding.

• [26] On 17 February 2020 Associate Judge Smith issued a Minute in this proceeding highlighting issues with representation of the parties and difficulties following the English used in the statement of claim. The Minute required an amended statement of claim to be filed and recorded:

(a) that if the third and fourth (at that time) named plaintiffs, Yintian Co Ltd and Yuxuan Co Ltd, were to remain as parties they must be represented by a solicitor; and

(b) that the first plaintiff must address the question of her entitlement to file the claim as attorney for the second plaintiff.

• [27] On 13 March 2020 an amended statement of claim was filed by Ms Mao but it did not address her entitlement to file the claim as attorney for the second plaintiff, and still named Yintian Co Ltd as the third plaintiff, contrary to the orders made by Associate Judge Smith.

• [28] On 12 June 2020 Associate Judge Smith issued a further Minute staying this proceeding pending the filing of a further amended statement of claim which either:

(a) named Ms Mao as the sole plaintiff, and only sought relief to which she would be entitled; or

(b) was filed on behalf of all of the plaintiffs by a solicitor holding a New Zealand Practising Certificate.

• [29] Associate Judge Smith recorded that the filing of the amended statement of claim by Ms Mao, still naming a corporate plaintiff, appeared to have been a step deliberately taken in contravention of his earlier order. Associate Judge Smith made

an order for costs and directed the Registrar to refer his 17 February and 12 June 2020 Minutes to the Complaints Section of the New Zealand Law Society.

• [30] There was a further attempt to file an amended statement of claim on 10 August 2020 but it was rejected by the Registry.

• [31] A further amended statement of claim was filed on 19 August 2020 by Ms Olga Pelevina of JC Legal, as solicitor for the plaintiffs.

• [32] On 22 September 2020 the plaintiffs paid the default judgment debt in full from the sale proceeds of other properties.

• [33] On 24 September 2020 the bankruptcy proceeding against the first plaintiff was withdrawn as the judgment debt had been fully paid with the issue of costs to be dealt with on the papers.⁷

• [34] Costs orders were then made on 27 October 2020⁸ for costs of $21,414.20 to be paid on an indemnity basis, relying on cl 9.1 of the deed of guarantee signed by the debtor and s 274(1)(b) of the Insolvency Act 2006.

• [35] On 3 November 2020 an application for leave to appeal the costs decision was filed. Associate Judge Bell, in his Minute dated 9 November 2020, recorded that the judgment debtor did not require leave to appeal the costs order as it was a final order, not an interlocutory one.

• [36] An appeal of the order for indemnity costs directly to the Court of Appeal has now been filed.⁹ A stay has been granted with the next event date not until 25 December 2021.

⁷ Minute of Moore J CIV-2019-404-1036, 24 September 2020.

⁸ Minute of Associate Judge Bell CIV-2019-404-1036, 27 October 2020.

⁹ CIV-2020-685-000243.

• [37] Meanwhile, directions have been made in the bankruptcy proceedings against the second plaintiff, adjourning the application to set aside the bankruptcy notice until a decision on this application is made.¹⁰

Legal principles applying to strike out applications

• [38] High Court Rule 15.1 provides:

15.1 Dismissing or staying all or part of proceeding

(1) The court may strike out all or part of a pleading if it—

(a) discloses no reasonably arguable cause of action, defence, or case appropriate to the nature of the pleading; or

(b) is likely to cause prejudice or delay; or

(c) is frivolous or vexatious; or

(d) is otherwise an abuse of the process of the court.

(2) If the court strikes out a statement of claim or a counterclaim under subclause (1), it may by the same or a subsequent order dismiss the proceeding or the counterclaim.

(3) Instead of striking out all or part of a pleading under subclause (1), the court may stay all or part of the proceeding on such conditions as are considered just.

(4) This rule does not affect the court’s inherent jurisdiction.

• [39] The relevant principles are well settled. The Supreme Court in Couch v Attorney-General¹¹ endorsed the decision of the Court of Appeal in Attorney-General v Prince & Gardner¹² which set out the following principles:

(a) a striking-out application proceeds on the assumption that the facts pleaded in the statement of claim are true;

(b) the causes of action must be so clearly untenable that they cannot possibly succeed;

(c) the jurisdiction is one to be exercised sparingly, and only in a clear case where the Court is satisfied it has the requisite material;

(d) the fact that the application to strike out raises difficult questions of law does not exclude jurisdiction.

¹⁰ Minute of Associate Judge Andrew in CIV-2019-404-1039, dated 2 February 2021.

11. Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33] per Elias CJ and Anderson J.

¹² Attorney-General v Prince & Gardner [1998] 1 NZLR 262.

• [40] The defendants submit that there are a number of allegations in the statement of claim made without factual foundation. In Siemer v Stiassny¹³ the Court held that on a strike out application the Court is not required to assume the truth of a pleaded allegation which appears entirely speculative and without foundation. In such a case the plaintiff should not have the benefit of the assumption normally applying in strike out applications that the factual assertions are capable of truth.

• [41] As well as alleging that the statement of claim discloses no reasonably arguable cause of action, the defendants submit that the causes of action in relation to 31 Chester Avenue are an attempt to re-litigate matters which have already been considered by the Courts and so are an abuse of process. This ground is provided for at r 15.1(1)(d).

• [42] The circumstances in which proceedings may amount to an abuse of process are varied.¹⁴ They include proceedings prevented by the principle of res judicata, where final judgment has been given on that right of action or in respect of that issue by a court of competent jurisdiction.¹⁵ In this case the defendants did not defend the proceedings in the District Court, with judgment being entered by default. As a result, the claims now raised were not raised in the District Court by way of defence. The Courts have held, however, that it will still be an abuse of process “where defendants are harassed with issues that should have been raised in previous litigation”.¹⁶ This principle is known as the rule in Henderson v Henderson.

• [43] The Court of Appeal discussed these principles recently in Craig v Stringer.¹⁷ After confirming that the starting point must be that there is an entitlement to access the courts for resolving differences, the Court went on:

• [15] However, consistent with this principle of preserving access to the courts for the resolution of genuine disputes, access is properly denied where the litigant seeks to misuse the court's processes for an improper purpose such as to vex, harass or embarrass the other party rather than for the genuine purpose of seeking to vindicate legal rights. The court has a duty to prevent its processes from being abused in any such manner...

...

¹³ Siemer v Stiassny HC Auckland CIV-2008-404-6822, 30 November 2009, per Winkelman J.

¹⁴ Chamberlains v Lai [2006] NZSC 70, [2007] 2 NZLR 7 at [61].

¹⁵ Saba Yachts Ltd v Anae HC Auckland, CIV-2007-404-1049, 27 June 2007 at [26].

¹⁶ Chamberlains v Lai, above n 15, at [59].

¹⁷ Craig v Stringer [2020] NZCA 260.

• [16] Access to the courts will be denied where a litigant seeks to reopen a dispute that has already been determined. This is precluded by the doctrine of res judicata which serves the public interest in finality in litigation and upholds the principle that a party should not be vexed twice in the same matter. Res judicata applies where a cause of action has been determined in earlier proceedings between the same parties or their privies — cause of action estoppel. The doctrine prevents re-litigation of the same cause of action in any subsequent proceedings. Res judicata can also apply where there has been a determination in earlier proceedings between the same parties or their privies of an issue that was essential to the determination of the claim such that the judgment could not stand without it — issue estoppel. Issue estoppel is narrower, and less absolute in its application than cause of action estoppel.

• [17] A related principle is that the parties are required to bring forward their whole case and will generally be prevented from later attempting to re- open the same subject on a different basis. This principle was first recognised by Wigram V-C in Henderson v Henderson:

“[W]here a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case.”

...

• [44] The public interest underlying the Henderson v Henderson principle is the same as that underlying cause of action estoppel and issue estoppel, there should be finality in litigation and a defendant should not be oppressed by successive suits.¹⁸

Discussion

First cause of action — 31 Chester Avenue

• [45] Turning to the pleadings in this case, the first cause of action is for breach of s 176 of the Property Law Act. This section provides that a mortgagee who exercises a power to sell mortgaged property owes a duty of reasonable care to the current mortgagor and any covenantor.¹⁹ The pleading alleges that the second and third defendants breached the duty provided for by s 176 by failing to obtain the best price reasonably obtainable.

¹⁸ Craig v Stringer above n 18, at [18]. See also Chamberlains v Lai above n 15, at [58].

¹⁹ Covenantor includes a guarantor. See s 4 of the Property Law Act 2007.

• [46] The defendants submit that the District Court has already determined matters relating to 31 Chester Avenue and that any issues regarding the Chester Avenue Agreement and the mortgagee sale should have been raised in the District Court proceedings.

• [47] As set out above, the District Court proceedings were commenced in February 2018 by the second and third defendants against the first and second plaintiffs to recover the shortfall following the mortgagee sale.

• [48] Substituted service was effected on the plaintiffs on 10 July 2018. Substituted service included service by email on the first and second plaintiffs, a copy of which was also sent to the solicitor acting for them in another proceeding.

• [49] The defendants in the District Court proceedings (which included the first, second and third plaintiffs in this proceeding, plus Mr Yintian Zhang, an additional guarantor), chose not to file any statement of defence or to make an appearance in the proceedings.

• [50] On 3 October 2018 the District Court granted default judgment for the amount of the shortfall for Chester Avenue plus interest and costs.

• [51] If the plaintiffs consider that the mortgagee should have achieved an increased price, as pleaded in the first cause of action, this should have been raised in the District Court proceedings to deny the right to recover any shortfall. This is what the Henderson v Henderson principle requires, with the underlying policy being to promote finality in litigation and ensure a defendant is not oppressed by successive suits. The principle is particularly relevant here where the judgment debt was paid in full by the plaintiffs in September 2020.

• [52] The timing of the filing of these proceedings, only following the issue of the bankruptcy notices, suggests that they were brought for an ulterior motive. It is not unusual in bankruptcy proceedings for proceedings to be filed following the issue of a bankruptcy notice, as it supports a party’s position that it has a genuine triable cross claim. But here, the plaintiffs filed proceedings alleging breaches of s 176 of the

Property Law Act and misleading and deceptive conduct in circumstances where they knew the defendants had already successfully brought proceedings in the District Court to recover the shortfall and they, the plaintiffs, had paid the judgment debt obtained.

• [53] In the circumstances, it would be an abuse of process for the claim set out in the first cause of action to be brought.

Second cause of action — 31 Chester Avenue

• [54] The second cause of action also relates to 31 Chester Avenue. In this cause of action, the plaintiffs allege that the conduct of the second and third defendants was misleading and deceptive as the defendants’ mortgage broker, LP Finance, allegedly promised that a further development loan would be available once a house was located on the land.

• [55] Again, this is a matter that should have been raised in defence of the District Court proceedings seeking to recover the shortfall.

• [56] Even were it not a claim that should have been raised in the District Court proceedings, the claim is still amenable to strike out as it is not sufficiently pleaded. The claim fails to disclose whether the cause of action relates to an allegation under the Fair Trading Act 1986 or s 35 of the Contract and Commercial Law Act 2017. More importantly, the plaintiffs have failed to plead the facts on which the allegations of misleading or deceptive conduct are based. The pleading is a base assertion of misleading and deceptive conduct.

• [57] The amended statement is the third statement of claim²⁰ filed by the plaintiff so it would be generous to allow further amendment of the pleading to avoid strike out, even if there were a realistic claim. In circumstances where proceedings were brought in the District Court for the shortfall following the mortgagee sale and the plaintiffs have now paid the judgment debt, it is not appropriate to allow further amendment of the pleading.

²⁰ Or fourth if the statement of claim rejected by the Registry is taken into account.

Third cause of action — 88 Fairburn Road

• [58] The third cause of action relates to the Fairburn Road Agreement and pleads a breach of an alleged duty of care owed to the plaintiffs, as borrower and guarantors, to dispose of the property within a reasonable time at the best obtainable price in order to release the borrower and guarantors from their indebtedness to the defendants.

• [59] The defendants assert 88 Fairburn Road is owned by Chen Hong Co Ltd which is now in liquidation, and that any claim for alleged breach of duty of care against the defendants would have to be brought by Chen Hong Co Ltd (in liquidation).

• [60] However, if a duty of care were owed, it is likely to be owed to guarantors as well as the owner of the property in the same way as the duty of care provided for in s 176 of the Property Law Act. If Chen Hong Co Ltd does own the property, as the defendants assert, I do not consider this would be fatal to this third cause of action.

• [61] The difficulty with the plaintiffs’ third cause of action, however, putting aside for the moment its lack of particularisation, is that it is settled law that there is no duty of care owed by a mortgagee to sell within a certain time.

• [62] In this case, the defendants, as mortgagee, have not exercised the power to sell 88 Fairburn Road. The Court of Appeal in Applefields Ltd v Damesh Holdings stated:²¹

The duty of care owed by the mortgagee is concerned with obtaining the best price reasonably obtainable as at the time of sale. As such, it does not qualify the mortgagee’s right to decide in its own interests if and when to sell: Countrywide Banking Corporation Ltd v Robinson at p 77. The reason is that a duty to sell at a particular time or at all would make the business of lending almost impracticable: See China & South Sea Bank Ltd v Tan Soon Gin [1989] UKPC 38; [1990] 1 AC 536 (PC) at 545.

• [63] The above case was decided prior to the passing of the Property Law Act 2007. After the enactment of that Act, the Court of Appeal held in Mitchell v Trustee Executives Ltd, ²² that they did not see any reason to go behind such well established authorities as Applefields Ltd v Damesh Holdings, confirming that the mortgagee has

²¹ Applefields Ltd v Damesh Holdings [2001] 2 NZLR 586 (CA) at [49].

²² Mitchell v Trustees Executors Ltd [2011] NZCA 519, (2011) 12 NZCPR 659 at [86].

the right to decide when it is appropriate to sell a mortgaged property and to make that decision in its own interest.

• [64] The policy reason for the approach articulated in Applefields still applies; that a duty to sell at a particular time, or even at all, would make the business of lending impossible.

• [65] Counsel for the plaintiffs relied on Couch v Attorney-General²³ to say that the Court must be “cautious and slow in disposing of a claim on a summary basis” both to prevent injustice to the claimants and “to avoid skewing the law with confident propositions of legal principles”.²⁴ But the Supreme Court in Couch v Attorney- General went on to say that striking out a claim summarily is inappropriate “unless the Court can be certain that it cannot succeed”, and that “(p)articular care is needed in cases that are confused or developing”.²⁵ The duty of care pleaded in the third cause of action is not pleaded in an area that is confused or developing. It is settled law that a mortgagee does not owe such a duty of care.²⁶

• [66] The only cause of action which might be available to a mortgagor based on delay by the mortgagee in exercising powers of mortgagee sale would be a claim for breach of the duty of good faith.

• [67] This has not been pleaded in this case. The High Court held in Contributory Mortgage Nominees Ltd v Harrison²⁷ that, while a mortgagee has a wide discretion as to when to sell, it might be possible on the facts of a particular case for excessive delay in selling to amount to a breach of the equitable duty of good faith.²⁸ At the hearing the possibility of such a pleading was discussed with counsel for the plaintiffs but Ms Yang was unable to point to any circumstances on which a pleading for breach of the duty of good faith could be based in relation to 88 Fairburn Road.²⁹

²³ Couch v Attorney-General [2008] NZSC 45, [2008] 3 ZNLR 725 at [32].

²⁴ At [32].

²⁵ At [33].

26. Applefields Ltd v Damesh Holdings, above n 24; Public Trust v Ottow [2009] NZHC 2904; (2009) 10 NZCPR 879 (HC) at [17] and Westpac New Zealand Ltd v Lamb [2012] NZHC 319.

²⁷ Contributory Mortgage Nominees Ltd v Harrison [2005] NZHC 294; (2005) 6 NZCPR 824 (HC).

²⁸ At [37].

²⁹ Ms Yang did note an issue with the treatment of GST in respect of 31 Chester Avenue but this is a matter that, again, should have been raised in the District Court proceedings in respect of that loan shortfall.

• [68] Nor, in the circumstances of this case, would a breach of a duty of good faith appear to be an available cause of action given the remedial work that appears necessary in respect of this property.

• [69] As discussed above, in R v Lau³⁰ the first plaintiff was sentenced to a fine of

$24,000 plus $120,000 in reparation for breaches of the RMA in respect of 88 Fairburn Road. Ms Mao faced charges with Mr Augustine Lau. The description of the offences for which Mr Lau and Ms Mao were charged included that 900m² or more of earthworks were undertaken, which created an unstable and unsafe situation. The earthworks were done without preparation, compaction or consent. Importantly, the fill material used included rubbish and debris with the top layer containing asbestos fibres. Interim enforcement orders were issued but were ignored and further material, including more asbestos, was flattened into the site.³¹

• [70] As a result, 88 Fairburn Road will require significant remedial work prior to any sale. Establishing a breach of a duty of good faith on the part of the mortgagee in the circumstances would be very difficult even were there some basis on which this could be pleaded.

Result

• [71] The defendants have succeeded in establishing that the first two causes of action, relating to 31 Chester Avenue, infringe the rule in Henderson v Henderson in that they are matters which should have been raised in the earlier proceedings brought in the District Court. Not only that, neither cause of action is pleaded sufficiently to withstand strike out.

• [72] The third cause of action in relation to 88 Fairburn Road, as well as failing to plead essential facts, does not disclose a reasonably arguable cause of action.

• [73] The defendants have succeeded in their strike out application in respect of all three causes of action and so the amended statement of claim is struck out in its entirety.

³⁰ R v Lau, above n 6.

³¹ At [44], referring to R v Lau above n 2.

Costs

• [74] The defendants are entitled to costs.

• [75] Indemnity costs are sought on the basis that the proceedings are an abuse of process and had an ulterior motive of being brought to delay bankruptcy proceedings.

• [76] These proceedings were clearly filed to delay the bankruptcy proceedings with the allegations in relation to 31 Chester Avenue made after failing to defend District Court proceedings and after having paid the default judgment.

• [77] Furthermore, the allegation that the defendants, as mortgagee, have breached a duty of care owed by not selling 88 Fairburn Road when the first plaintiff is guilty of serious breaches of the RMA in respect of that property, including dumping asbestos and other rubbish at the property and failing to respond to six enforcement orders, is conduct that should be sanctioned through an order for indemnity costs.

• [78] The plaintiffs were directed to amend their pleadings several times. Despite this, the plaintiffs’ pleading still fails to plead essential facts to support the allegations made.

• [79] In the circumstances, an order for indemnity costs reasonably incurred is made, including for the amendment to the application to strike out necessitated by the amendments to the statement of claim.

• [80] The parties should attempt to agree quantum but if agreement cannot be reached, memoranda should be filed (by the defendants within 20 working days of this judgment and by the plaintiffs within a further 10 working days). The memoranda are to be limited to five pages excluding schedules.

Associate Judge Sussock