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Ma v Tay [2014] NZCA 608 (11 December 2014)

Last Updated: 18 December 2014

     
IN THE COURT OF APPEAL OF NEW ZEALAND
BETWEEN
 Appellant
AND
 First Respondent SELINA SHAW NYUNG TAY Second Respondent JIREH HOTEL INVESTMENT LIMITED Third Respondent
Hearing:
22 October 2014
Court:
Miller, Heath and Dobson JJ
Counsel:
P J Dale for Appellant No appearance by, or on behalf of, Respondents
Judgment:


JUDGMENT OF THE COURT

  1. The application under s 76(2) of the Insolvency Act 2006 to continue the appeal is granted.
  2. The appeal is allowed, with the consequence that the order for costs made against Ms Ma in the High Court is set aside. No order as to costs on appeal.

____________________________________________________________________




REASONS OF THE COURT

(Given by Heath J)

The appeal

[1] Ms Ma has appealed against a judgment given by Ellis J in the High Court at Auckland on 4 September 2013.[1] Mr Dale, for Ms Ma, challenges the Judge’s decision to dismiss her claims for general damages against Mr Tay. Although Mr Tay, his wife and a company with which he is associated, were also named as respondents to the appeal, Ms Ma seeks to proceed only against Mr Tay. A subsequent judgment (on costs) delivered by Ellis J on 20 February 2014 is the subject of a separate appeal.[2]
[2] The appeal was filed on 16 September 2013. Subsequently, both Mr and Mrs Tay were adjudged bankrupt. As a result, s 76 of the Insolvency Act 2006 (the Act) operated to “halt” the appeal.[3] Ms Ma seeks an order under s 76(2) of the Act to enable her to proceed with it.
[3] The Official Assignee abides the decision of the Court, on behalf of Mr Tay’s estate. No appearance was entered on his behalf. Nor did anyone appear for the other respondents to the appeal.

Background

[4] The background against which the present appeal falls to be considered is complex. Its origins lie in an application for summary judgment, made by Ms Ma against Mr Tay and others, based on an alleged guarantee or indemnity. Apart from the judgment under appeal (and the subsequent costs decision), no less than six judgments of the High Court have considered issues connected to the original claim.[4] The best exposition of background facts can be found in the judgment given by Associate Judge Gendall on Ms Ma’s application for summary judgment.[5] We gratefully acknowledge the clarity with which the Associate Judge expressed himself. In providing our own summary of relevant events, we have drawn extensively on his judgment.
[5] Ms Ma is a medical practitioner. She qualified as such in China and immigrated to New Zealand in 2002. She speaks English and has been a New Zealand citizen since May 2006. Sometime after Ms Ma obtained citizenship, her parents joined her in New Zealand. Her father, Professor Ma, had practised as a neurologist and spinal specialist in China for some 43 years.
[6] In 2006, not long after Ms Ma’s parents arrived in New Zealand, Ms Ma and her father met Mr Tay. They did so through the Auckland Baptist Tabernacle Church, of which Mr Tay was an elder. At that time, Mr Tay and his interests were engaged in property and business development.
[7] Mr Tay was involved in the development of “wellness centres” in New Zealand. He encouraged both Ms Ma and Professor Ma to become involved in his project. They agreed. In January 2007, two companies were incorporated for the purpose of developing a health retreat on a property overlooking Lake Karapiro. Ms Ma was appointed as managing director of one of those two companies.[6]
[8] The Karapiro property was owned by another company in which Mr Tay had an interest. It had been subdivided. By June 2007, some 45 strata titles had been issued for units on the property. At the request of Mr Tay or others associated with him, Ms Ma entered into an agreement to purchase one of those units on 14 June 2007. The purchase price was $450,000. A deposit of $90,000 was to be paid on execution of the agreement, with the balance of the purchase price being paid two weeks later. The agreement was subject to finance being arranged for an amount sufficient to complete the agreement.
[9] Ms Ma made an application for finance to Westpac Banking Corp. A loan of $360,000 was sought. The application was prepared by Ms Golian, a financial advisor to whom Ms Ma had been referred by Mr Tay. Ms Ma signed the application form before it had been fully completed. She alleged that Ms Golian falsely overstated her annual income to obtain a loan in that sum. Ultimately, Westpac approved the loan, which was to be secured by first mortgage over the unit that she was to acquire.
[10] It is unnecessary to rehearse the sequence of events that led to settlement being completed. Associate Judge Gendall described “aspects of [the] whole transaction” as appearing “rather confusing”, and raising “a number of significant questions”.[7] The Judge described relations among Ms Ma, Westpac and Mr Tay, around early 2011, as having “turned somewhat sour”.[8] Mr Tay’s interests had taken responsibility for meeting mortgage payments. They received the benefit of rents paid by occupants of the unit. However, rental payments for the unit were subsequently stopped, and defaults under the Westpac mortgage began to occur.[9]
[11] In May 2011, Ms Ma received a demand from Westpac in the sum of $380,240, the amount for which she was said to be in default at that time under the mortgage. Ms Ma could not pay. She took the demand to Mr Tay and his wife. She says that they told her “not to worry” and that they would deal with the problem and solve it.[10] The problem was not solved. On 18 August 2011, Westpac served a summary judgment application on Mr Ma, culminating in judgment being given against her in favour of Westpac in the sum of $403,034.44 on 15 September 2011.[11]
[12] On 22 and 30 September 2011, two meetings took place between Ms Ma and Professor Ma (on the one hand) and Mr and Mrs Tay (on the other). Professor Ma recorded parts of the conversation. A transcript (in English) of what was said in Mandarin was produced as an exhibit on the summary judgment application. Further meetings took place on 12 and 15 October 2011 involving a wider group of people. For example, the Chinese pastor of the Auckland Baptist Tabernacle Church attended the meeting on 12 October 2011 and other members of Mr Tay’s family met with Ms Ma and Professor Ma at their home in Howick on 15 October 2011.
[13] As a result of documents signed by Mr and Mrs Tay following those meetings, the Tays (and interests associated with them) took responsibility for the Westpac loan. They acknowledged that the loan had been obtained for Mr Tay’s benefit, to ensure that two companies with which he was associated were kept afloat. Further, a guarantee or indemnity was given in favour of Ms Ma, in relation to the Westpac debt.[12]
[14] Ms Ma sought summary judgment on the basis of the guarantee or indemnity. Deciding that a defence raised by the Tay interests based on duress or undue influence was implausible, Associate Judge Gendall entered judgment on that cause of action in favour of Ms Ma against Mr and Mrs Tay (and two other interests associated with them) in the sum of $403,034.44, together with interest and costs.[13]
[15] The Associate Judge was not prepared to deal with a claim for general damages or two other causes of action based on fraud and conspiracy to defraud respectively. He did not consider them appropriate for disposition on a summary judgment application. Those claims came before Ellis J in May and June 2013, and resulted in the judgment under appeal. The Judge found in favour of the Tay interests on the fraud allegations. She ruled against Ms Ma on her claim for distress damages, on the grounds that no causal connection had been established between acts on behalf of the relevant Tay interests and Ms Ma’s accepted distress.[14]
[16] On appeal, it was contended that Ellis J erred in finding against Ms Ma on the fraud, conspiracy to defraud, and distress damages claims. As the hearing progressed, argument became more focussed on dismissal of the distress damages claim.
[17] At the time of the hearing, we were not aware of Ellis J’s judgment of 20 February 2014 on the question of costs.[15] We did not realise that increased costs had been awarded. In the course of preparing our judgment, we discovered that the separate judgment on costs had been given. We issued a minute on
4 November 2014 asking Mr Dale to explain why he had not referred the costs judgment to us and to make submissions about why, having regard to the reasons given by Ellis J to award increased costs, it was said that the order should be reversed.[16] Mr Dale filed a helpful memorandum addressing the issues raised, to which we refer later.[17]

The s 76 Insolvency Act application

[18] Because Mr Tay has been adjudicated bankrupt, an order of the Court to continue the appeal is required.
[19] Section 76 of the Act provides:

76 Effect of adjudication on court proceedings

(1) On adjudication, all proceedings to recover any debt provable in the bankruptcy are halted.

(2) However, on the application by any creditor or other person interested in the bankruptcy, the court may allow proceedings that had already begun before the date of adjudication to continue on the terms and conditions that the court thinks appropriate.

[20] Bankruptcy of an individual is a collective insolvency regime. One of its fundamental purposes is to require all creditors of the bankrupt to submit proof of their respective claims to the Official Assignee and for payment of those debts to be made on a rateable basis out of the realisations of the bankrupt’s assets. This is known as the pari passu principle. Such distribution takes place in accordance with statutory priorities.[18]
[21] In order to determine whether a claim is valid, the Official Assignee will inquire into it and decide whether it should be admitted or rejected, in whole or in part.[19] In the event that a claim is rejected, a dissatisfied creditor may apply to the Court to review the Official Assignee’s decision.[20] This procedure is designed to avoid the need for the Official Assignee to meet a plethora of proceedings that would otherwise be brought to establish individual debts.
[22] The Court’s ability (under s 76(2)) to grant permission for a party to continue with an existing proceeding is designed to deal with cases in which, for a variety of reasons, it is inappropriate for the Official Assignee to determine whether a particular claim should be admitted or rejected.
[23] Examples of the type of case in which an order might be required were discussed by Paterson J in Saimei v McKay.[21] In that case, Mr Saimei, having been knocked unconscious while participating in a boxing match in Auckland, sought exemplary damages against a number of people, including Mr Todd, arising out of the serious injury that he suffered. Mr Todd, his trainer, had been adjudged bankrupt, and it was necessary for Mr Saimei to obtain an order to proceed against him under the predecessor of s 76(2) before the claim could proceed to trial.[22]
[24] Paterson J declined to grant such an order because, on the evidence of the value of Mr Todd’s bankrupt estate and any residual income that would not have been payable to the Official Assignee, Mr Todd would not have been able to contribute to any judgment that might have been entered.[23] Even if there were sufficient funds available, other creditors would be entitled to participate in conjunction with any judgment that Mr Saimei might obtain.
[25] In the course of his judgment, Paterson J formulated a number of principles that could be applied on a s 76(2) application. For present purposes, the following are relevant:[24]
[26] Different considerations apply when permission to continue with an appeal is sought. In the absence of a successful appeal, the Official Assignee is bound to proceed in accordance with the first instance court’s judgment. In the present case, that means that an asset in the bankruptcy is a debt owed by Ms Ma to Mr Tay in the sum of $43,282.50. That is the amount of costs that Ellis J awarded against Ms Ma.[25] The only way in which the Official Assignee’s right to enforce that judgment may be removed is by any order made by this Court on appeal.
[27] A jurisdictional question arises. Section 76(2) provides that proceedings may be continued if “the Court” so allows.[26] The term “the Court” is defined by s 3 of the Act as “the High Court”. That definition applies “unless the context otherwise requires”.[27] As the Court with general supervisory jurisdiction over insolvency proceedings, the High Court is the natural forum in which permission to proceed will be granted. That is because relevant civil proceedings will, almost invariably, be commenced in the District Court or the High Court. However, when an appeal is brought, it is more appropriate for the appellate court to determine whether permission to continue should be granted. We consider that, in cases where a party seeks to proceed with an appeal, the context requires that the appellate court be regarded as the Court to which application to continue must be made. For that reason, we hold that this Court has jurisdiction to grant permission under s 76(2) when an appeal is pending before it.
[28] There would be a benefit to Ms Ma if her appeal were successful and the order for costs was reversed. Ordinarily, no such benefit would be needed because Ms Ma would have a right of set-off, as a result of the moneys owing to her by Mr Tay following earlier judgments of the High Court. However, we have no evidence about the precise date on which Mr Tay was adjudged bankrupt, and the Official Assignee (who has elected not to be heard on the appeal) has, in correspondence made available to us, evinced a clear intention to enforce the judgment.[28]
[29] For those reasons, we are satisfied that an order should be made in Ms Ma’s favour on her s 76(2) application.

The claim for distress damages

[30] In her judgment of 4 September 2013, Ellis J found that there was insufficient causal connection between the distress that Ms Ma had suffered and Mr Tay’s breach of the October 2011 agreements. She said:[29]

[38] In the present case, however, I do not propose to enter that particular arena. That is because I agree with [counsel for Mr Tay] that there is a fundamental causation problem here. The “material and substantial” cause of Ms Ma’s distress and anxiety was not Mr Tay’s breach of the October 2011 agreement; it was (as her own evidence made clear) the (prior) judgment obtained by Westpac against her and her own (prior) decision to sign a variety of very significant, legally binding, documents without considering the potential consequences. While Mr Tay’s later breach of the indemnity may not have helped her stress and anxiety levels it was not, in my view, the cause of them.

[31] In giving summary judgment in favour of Ms Ma under the alleged guarantee or indemnity, Associate Judge Gendall had accepted that the agreement for sale and purchase of the unit on the Karapiro property was entered into in good faith. In reaching that conclusion, the Associate Judge found that Ms Ma could not justify her contention that she did not know that she was buying (or later owned) the unit, “even though she may have been misled to some extent when she signed the agreement for sale and purchase”.[30] Nevertheless, other facts to which Associate Judge Gendall referred and evidence relating to the circumstances in which Ms Ma came to sign the application for finance and the mortgage documents, persuaded him that the finance was being raised entirely for the benefit of Mr Tay’s interests.[31] The Judge found that Mr Tay was using Ms Ma to obtain finance that could not otherwise have been procured by two companies that were near (if not actually) insolvent.
[32] With respect, we consider that Ellis J took too narrow an approach to the question of causation. She focussed on the nexus between (a) Ms Ma’s decision to sign documents without considering the potential legal consequences; and (b) the distress she subsequently suffered.[32] In our view, having regard to the way in which Associate Judge Gendall approached the summary judgment application, we think that the relevant nexus was between (a) the conduct in which Mr and Mrs Tay engaged from the time they said they would take responsibility for the Westpac loan and (b) the distress suffered by Ms Ma as a result of the subsequent events that unfolded. Those events included Westpac’s application for summary judgment against Ms Ma on 15 September 2011, the four meetings that followed in an endeavour to put pressure on Mr Tay to honour his commitments, and Mr Tay signing the agreements to assuage Ms Ma’s concerns but with no (apparent) intention that they be honoured. They represented the circumstances in which it was necessary for Ms Ma to issue proceedings against Mr Tay’s interests to obtain judgment under the guarantee or indemnity.
[33] Ellis J acknowledged that there was evidence of both “physical and mental manifestations of [Ms Ma’s] stress and her ongoing anxiety that Westpac might bankrupt her”.[33] However, she was not convinced about a claim for reputational damage because of what she termed a “significant cultural overlay about which [she] received no evidence”.[34] In our view, reputational damage was likely engaged, regardless of whether cultural evidence was or was not available.
[34] From that analysis, we conclude that there was sufficient evidence from which Ms Ma could make out a claim for conventional distress damages on the grounds that they were caused by Mr Tay’s conduct. That is not to say that damages would inevitably have been awarded because, as the Judge correctly said, the circumstances in which such damages will be ordered in a case such as this “continues to be a vexed one”.[35]
[35] While it would be open to us to consider whether to award distress damages in this case, we are reluctant to do so when there is no contradictor available to put the opposing argument. Had it been necessary to do so, we would have considered the need to appoint counsel to assist the Court, to achieve that goal. The law may properly be described as uncertain in this area; for example, we refer to the majority and minority judgments in Bloxham v Robinson, in which competing views are expressed by McKay and Temm JJ, and Thomas J.[36]
[36] Ordinarily, we would have remitted the claim to the High Court for the question whether distress damages ought to be ordered to be reconsidered. However, the High Court proceeding itself is halted under s 76(1) of the Act. We think that it is unlikely that the High Court would grant permission for Ms Ma to proceed, given (what we perceive to be) the absence of sufficient funds within the bankrupt estate from which the fruits of a successful claim could be paid. In any event, it remains open to Ms Ma to apply to the High Court to pursue the claim under s 76(2), should she be so advised.
[37] Our decision to allow the appeal requires the costs order to be set aside. We are mindful that Ellis J ordered increased costs based on her dismissal of the distress damages claim, the promotion of fraud claims that she regarded as unreasonable and a failure, on the part of Ms Ma, to accept a settlement offer without prejudice save as to costs of $20,000 on the distress damages claim.[37] If we had not differed from Ellis J on the distress damages claim, we would have been reluctant to interfere with her discretionary decision to award costs on the basis that she did.
[38] Mr Dale explained that he did not refer the judgment on costs to us because he accepted that it could not be challenged on a stand-alone basis. While the judgment should have been put before us, we now understand Mr Dale’s reasons for not doing so. We accept his explanation. We are satisfied that he did not intend to mislead the Court.

Result

[39] For those reasons:









Solicitors:
Wilson McKay, Auckland for Appellant

[1] Ma v Tay [2013] NZHC 2292 [general damages decision].

[2] Ma v Tay [2014] NZHC 232 [costs decision].

[3] Set out below at [19].

[4] Ma v Tay [2012] NZHC 990 [summary judgment decision] (successful application by Ms Ma for summary judgment in the sum of $403,034.44, together with interest and costs): Ma v Tay [2012] NZHC 1387 (unsuccessful application by Mr Tay to recall the summary judgment order): Ma v Tay [2012] NZHC 2624 (judgment awarding costs in favour of Ms Ma on the unsuccessful recall application) and Ma v Tay [2013] NZHC 573 (order striking out subsequent proceedings issued by Mr Tay against Ms Ma as an abuse of process). See also two judgments: Asher J on an adjournment application (Ma v Tay [2012] NZHC 2679) and Woolford J on costs (May v Tay [2013] NZHC 2278).

[5] Summary judgment decision, above n 4.

[6] The Tay and Ma interests held 60 per cent and 40 per cent stakes in those companies, respectively.

[7] Summary judgment decision, above n 4, at [34].

[8] At [50].

[9] At [50].

[10] At [51].

[11] Westpac New Zealand Ltd v Ma HC Auckland CIV-2011-404-4572, 15 September 2011.

[12] The relevant part of the agreements of 13 October 2011 (signed in the early hours of that day after the meeting began at 7.30pm on 12 October) and 15 October 2011 are set out in the summary judgment decision, above n 4, at [56] and [63].

[13] At [148].

[14] General damages decision, above n 1, at [38], set out below at [30].

[15] Costs decision, above n 2.

[16] Ma v Tay CA643/2013, 4 November 2014 at [2].

[17] See below, at [38].

[18] Insolvency Act 2006, s 273.

[19] Sections 231–237.

[20] Sections 238–242.

[21] Saimei v McKay (1998) 6 NZBLC 99-454 (HC) at 102,613–102,614. We observe that the case refers to “leave” but that does not to reflect the language of s 76.

[22] Insolvency Act 1967, s 32.

[23] At 102,616.

[24] At 102,614.

[25] Costs decision, above n 2, at [37].

[26] Insolvency Act 2006, s 76(2).

[27] Insolvency Act 2006, s 3.

[28] The right of set-off is derived from s 254 of the Insolvency Act 2006. Although we have no evidence about the true position, if Mr Tay had been adjudged bankrupt prior to the costs judgment being delivered on 20 February 2014, we would have expected the Official Assignee to advise the High Court, as any potential inability to set off might well have been a relevant consideration for the Judge to take into account in determining whether to award costs.

[29] General damages decision, above n 1 (footnote omitted).

[30] Summary judgment decision, above n 4, at [74]–[76].

[31] At [77].

[32] General damages decision, above n 1, at [38].

[33] At [36].

[34] At [36].

[35] At [37].

[36] Bloxham v Robinson (1996) 5 NZBLC 99-390; Bloxham v Robinson (Note) [1996] 2 NZLR 664 (CA).

[37] Costs decision, above n 2, at [24]–[25].

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