Ministry of Justice for the People's Republic of China v Top International Limited HC Auckland CIV-2010-404-2918 [2011] NZHC 90 (10 February 2011)

Last Updated: 24 May 2011

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

_{CIV-2010-404-2918}

BETWEEN THE MINISTRY OF JUSTICE FOR THE PEOPLE'S REPUBLIC OF CHINA Plaintiff

AND TOP INTERNATIONAL LIMITED Defendant

Hearing: On the papers

Appearances: C R Pidgeon QC for plaintiff

P J McPherson for intervening parties

No appearance for defendant

Judgment: 10 February 2011

_{JUDGMENT No.2 of ALLAN J (COSTS)}

Solicitors:

C R Pidgeon QC Auckland [e-mail]

_{Hesketh Henry Auckland [e-mail]}

MINISTRY OF JUSTICE FOR THE PEOPLE'S REPUBLIC OF CHINA V TOP INTERNATIONAL LIMITED HC AK CIV-2010-404-2918 10 February 2011

[1] The plaintiff seeks to recover sums totalling US$5,590,798.74, together with interest. It alleges that the sum claimed was fraudulently misappropriated from a Chinese entity and that the defendant holds the funds on trust for that entity. The plaintiff further alleges that it has the right, according to Chinese law, to recover the misappropriated funds from the defendant.

[2] The person appearing on the register maintained by the Registrar of Companies as director and sole shareholder of the defendant was a Mr Paul Chen. He formed the view that the defendant had no defence to the plaintiff’s claim, and accordingly refrained from filing a statement of defence.

[3] Ownership of the shares in the defendant was however very much in dispute. At the time of service of the papers in the present proceeding upon the defendant, judgment was awaited in proceedings in this Court between Mr Chen on the one hand, and Limin Yang and Jasmine Liu (the interveners) on the other. The latter persons claimed that Limin Yang was the true shareholder in the company to the exclusion of Mr Chen. The trial of the substantive proceeding1 had taken place over a period of eight weeks between April and June 2010.

[4] The interveners took a very different view of the present proceeding from that of Mr Chen. They believed that there were proper grounds for defending it. If they were successful in the proceeding against Mr Chen, and so became the shareholders in the present defendant, they intended to file a statement of defence. They therefore applied to stay the present proceeding on the basis that it was proper that the plaintiff ought not to take judgment by default, in circumstances where the shareholding of Top International Ltd remained in doubt.

[5] Mr Pidgeon QC for the plaintiff quite properly undertook to the Court not to enter judgment by default until the stay application had been resolved.

[6] The hearing of the stay application took place on 1 September 2010. My judgment was delivered on 10 September 2010. I rejected an argument based on s 165 of the Companies Act 1993, but granted a stay in the exercise of the Court’s inherent jurisdiction. The order directed that the present proceeding be stayed until the expiration of a period of 14 days following delivery of judgment in the substantive proceeding. I further directed that the interveners (if successful in Yang v Chen) might take such steps as they saw fit towards assuming control of the defendant and of taking appropriate steps in the present litigation. I directed also that if no such step had been taken, the plaintiff might enter judgment by default at the expiration of 14 days.

[7] My judgment in Yang v Chen was delivered on 5 October 2010. The interveners were successful. They subsequently filed a statement of defence in the present proceeding.

[8] In my judgment of 10 September 2010, I reserved questions of costs and directed that counsel might file memoranda if they were unable to agree. Counsel have been unable to agree and have filed memoranda accordingly.

[9] Mr McPherson for the interveners seeks costs totalling $10,128.82, comprising scale costs calculated in accordance with category 2B of $8836 together with disbursements of $1292.82. He relies upon the ordinary principle that costs will normally follow the event.2

[10] Mr Pidgeon submits however that it would not be proper to make an order in favour of the interveners, at least at this point. He argues that:

a) Because the present claim relates to allegedly misappropriated funds, costs should continue to be reserved at this stage because, should the plaintiff be successful, it would not be right that it should nevertheless have made a payment for costs to persons who were in control of the defendant;

b) The original application was brought in reliance solely on s 165 of the Companies Act 1993. The interveners were unsuccessful insofar as they relied upon that section. Their subsequent reliance upon the inherent jurisdiction of the Court was first notified to the plaintiff not long before the hearing.

c) It is inappropriate for the interveners to be awarded costs as the plaintiff was fully entitled to prepare and file a notice of opposition;

d) The plaintiff was entitled to require the interveners to prove their entitlement to control the defendant.

[11] I deal first with the argument that no order for costs should be made at present, given the nature of the proceeding.

[12] Under r 14.8 costs on an opposed interlocutory application must be fixed when the application is determined unless there are special reasons. Mr Pidgeon says that there are special reasons here, in that the interveners were in effect involved in money laundering on behalf of Mr Guiting Liu, now serving concurrent terms of life imprisonment in China for embezzlement and fraud. Limin Yang is Mr Liu’s wife; Jasmine Liu is his daughter. But there is nothing yet before the Court to substantiate that allegation. The claim against the present defendant is based upon an alleged constructive trust. No particulars are provided; neither is there any affidavit evidence. Mr Guiting Liu was never a director or shareholder of Top International Ltd.

[13] I accept of course, that allegations of fraud or money laundering are serious, and that in due course they will require detailed consideration by the Court. But of itself that does not, in my view, justify a decision to make no order for costs at all at the present time.

[14] Moreover, as Mr McPherson points out, the interlocutory application for a stay of proceeding was made by Jasmine Liu and Limin Yang in their personal

capacities, and not by Top International Ltd itself. Any order for costs must accordingly be made in favour of the interveners and not of Top International.

[15] The entitlement of the interveners to the benefit of an order for costs will not be affected by the eventual outcome of the present proceeding. In my opinion costs ought to be fixed now.

[16] Mr Pidgeon’s next point concerns the nature of the initial application which was confined to reliance upon s 165 of the Companies Act. I consider Mr Pidgeon to be on stronger ground here, in that it would not be proper to make an order which allowed the costs of preparing and filing a notice of application specifying grounds that did not succeed. Reliance on the inherent jurisdiction of the Court came later.

[17] There will accordingly be a reduction in the quantum of costs to which the interveners would otherwise be entitled.

[18] The final two grounds relied upon by Mr Pidgeon overlap to some extent. I deal with them together. The argument is that the plaintiff was entitled to require the interveners to establish their entitlement to control the defendant, and effectively to put them to proof on that point. It is indisputable that the plaintiff was entitled to oppose the application. But the starting point is that the successful party is entitled

to costs.3 Having been successful in their application, the interveners are prima facie

entitled to an order for costs.

[19] The plaintiff was invited by the solicitors for the interveners to defer taking judgment until judgment was available in Yang v Chen. But the plaintiff elected not to give any such assurance or undertaking. Instead, it indicated to the solicitors for the interveners that the dispute over the shareholding of Top International was irrelevant to the present proceeding. That was a stance which the plaintiff was entitled to adopt, but the interveners having succeeded, the plaintiff cannot avoid an order for costs simply upon the basis that it was entitled to oppose the application.

3 HCR 14.2(a).

[20] The plaintiff, if it so chose, could have indicated to the interveners’ solicitors that it would defer taking any step in the proceeding, pending the outcome of the dispute between the interveners and Mr Chen. By doing so, the plaintiff would have ensured that a decision as to whether or not to defend the proceeding would be taken by those entitled to control the defendant. Rather, it chose to seek a ruling from the Court as to the entitlement of the interveners to a stay. In so doing it became subject to the ordinary costs consequences.

[21] There will be an order that the interveners are entitled to costs against the plaintiff in the sum of $7,708, together with disbursements of $692.82, making a total of $8,400.82.

C J Allan J