Chen v He [2014] NZHC 2699 (31 October 2014)

Last Updated: 10 December 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-5671 [2014] NZHC 2699

BETWEEN	ZHIXIONG CHEN Plaintiff
AND	YAO WEI HE Defendant

Hearing:	30 October 2014
Counsel:	NR Campbell QC for plaintiff PD Sills for defendant
Judgment:	31 October 2014

_{JUDGMENT OF FAIRE J}

Solicitors: Nigel L Fagan, Auckland (N Fagan)

BG Hong Law Firm, Auckland (B Hong)

Chen v He [2014] NZHC 2699 [31 October 2014]

[1] This proceeding has been allocated two days for trial to commence on

3 February 2015. Briefs of evidence have been served.

[2] The plaintiff, by counsel, gave notice of a challenge to a number of paragraphs contained in the defendant’s briefs of evidence in accordance with r 9.11 of the High Court Rules. The matter was not resolved. The plaintiff, on 14 August

2014, filed an application seeking an order that specific parts of the defendant’s brief

be struck out and therefore not read at trial.

[3] Counsel attended a conference before Asher J on 28 August 2014. The principal matter discussed was the adjournment of the previous trial date for the proceeding, which was 8 September 2014. His Honour, however, also dealt with an issue that had just arisen, namely the admissibility of evidence and recorded in his minute the following:

[5] There are two outstanding matters. The first is the argument over the admissibility of some of the evidence. It is possible that matter can be resolved now that new counsel has been instructed. Counsel should obviously confer on the issues of relevance to see if an agreement can be reached. However, a two hour fixture should be allocated for the hearing of that application to strike out parts of the defendant’s briefs of evidence. Possibly it could be set down on the morning of Monday, 8 September 2014 if that is not filled with some other fixture. However, that will be a matter for the schedulers.

[4] The application was allocated a fixture for 30 October 2014 by the scheduling office. No notice of opposition, as required by r 7.24, has been filed by the defendant. Belatedly, counsel for the defendant has advised by correspondence the defendant’s position in relation to the challenges. I have been provided with a copy of counsel’s letter of 28 October 2014. Counsel invite me to treat the letter as the notice of opposition. I proceed on that basis, although I record that the position is not entirely satisfactory for reasons which will become self-evident later in this judgment.

[5] Based on the defendant’s counsel’s letter, I record the challenges to the following paragraphs to the defendant’s brief of evidence are accepted, namely 80-

92, 125, 27, 30, 36(a) (recorded as 35(a) by mistake), 54(c), 54(e), 57, 59, 63, 64 and

144.

[6] Accordingly, there will be an order at the conclusion of this judgment that the paragraphs just mentioned be struck out from the defendant’s briefs and shall not be read at trial.

[7] Before dealing with the remaining challenges it is appropriate to record a short background summary.

[8] The plaintiff sues the defendant to recover a loan of $300,000. The defendant admits that the plaintiff advanced $300,000 to him between 15 June 2010 and

20 August 2010. He also admits that he signed an acknowledgement of debt for the advance in favour of the plaintiff. He admits that he has not personally repaid the advance to the plaintiff.

[9] The parties are in dispute over the terms on which the advance was made. The plaintiff says that the acknowledgement of debt correctly records the terms of the advance. He claims that the advance to the defendant was repayable by the defendant.

[10] The defendant’s position is that the acknowledgement of debt does not accurately record the terms. He says they are as follows:

(a) $300,000 was advanced to him on trust to implement a joint venture between the defendant and the plaintiff;

(b) The joint venture was to be through the medium of a company, NZ Products International Ltd (referred to as NZPIL);

(c) The plaintiff agreed that if he was satisfied with the performance of the defendant in the joint venture, the loan would be “rolled over” as a loan by the plaintiff to NZPIL (rather than a personal loan to the defendant);

(d) In due course, the plaintiff was satisfied with the defendant’s performance and the loan was “rolled over” to become a loan by the plaintiff to NZPIL;

(e) Accordingly, it is claimed that the defendant is no longer liable to repay the loan to the plaintiff; and

(f) The advance has been repaid and the evidence of that is contained in

paragraphs 48 to 52 of the defendant’s brief.

[11] It is acknowledged that:

(a) NZPIL was incorporated on 18 June 2010;

(b) The defendant and the plaintiff’s son were the shareholders and directors of NZPIL;

(c) NZPIL’s business was the purchase of dairy products from

supermarket shelves and their export to China;

(d) The plaintiff agreed with the defendant that he would lend money to NZPIL and that, in fact, he lent several million dollars to the company; and

(e) The plaintiff did this to help the plaintiff’s son into business.

[12] The plaintiff’s case is that his advance of $300,000 to the defendant was separate from his loans to NZPIL. Accordingly, the issue in this proceeding is whether the $300,000 advance was on the terms alleged by the plaintiff, or those alleged by the defendant.

[13] There is another dispute between the parties that is separate from the dispute about the advance. The defendant alleges that the plaintiff is liable either to the defendant or to NZPIL for:

(a) Allegedly breaching fiduciary duties to the defendant and to NZPIL in the operation of the joint venture; and

(b) Allegedly misappropriating money from NZPIL.

Neither of these matters, however, arise directly by way of a set-off or counterclaim defence in this proceeding.

[14] Counsel referred to the fact that the defendant had applied for leave to bring a derivative action on behalf of NZPIL against the plaintiff in respect of the other disputed matters. That application was declined by Associate Judge Doogue.¹ His decision was upheld by the Court of Appeal.² NZPIL has now been placed into liquidation.

[15] I now deal specifically with the challenges that are disputed. Before doing so, I acknowledge that Mr Sills was not involved in the preparation of the defendant’s brief. He has taken this brief on at relatively late notice consequent upon a forced change of counsel and instructing solicitor through no fault of the defendant. That has caused Mr Sills considerable difficulty and is the reason why, in various areas, he has offered a recasting of parts of the brief of evidence.

Paragraphs 66 to 79

[16] In the paragraphs prior to this section of the defendant’s brief, he gives evidence concerning the joint venture, and that the advance was made for the purpose of the joint venture and that the advance was subsequently treated as an advance to NZPIL. He then deals, in paragraphs 66 to 79, with the incorporation of Hong Kong Dairy International Ltd (referred to as “HKDIL”) in February 2011. The shareholders of that company are the plaintiff, the plaintiff’s son and his wife, and the defendant. The defendant says that HKDIL was set up to act as a distributor of the dairy products that NZPIL exported and that he had to disclose all of his Hong Kong and Chinese customer details to HKDIL for that purpose.

[17] The plaintiff’s position is that this evidence is irrelevant in this proceeding because it does not bear directly on what were the terms of the advance of $300,000. The paragraphs are only relevant, in the plaintiff’s view, to a potential breach of

_{fiduciary claim that the defendant alleges that he has against NZPIL and against the}

¹ _{Chen v He [2013] NZHC 2033.}

² He v Chen [2014] NZCA 153.

plaintiff. He cannot, in this proceeding, pursue the fiduciary claim. There is no set- off or counterclaim pleaded.

[18] Mr Sills submitted that the paragraphs are relevant to an issue in the proceeding because it shows how the relationship between the parties developed. In particular, he says, it is important to tell the Court how the joint venture developed. Mr Campbell, in my view, rightly submitted that whether the joint venture existed is not the issue in this proceeding. It is accepted, as I have already recorded, that the plaintiff not only advanced money to the defendant, but he also agreed with the defendant that he would lend money to NZPIL. Whatever the nature of that agreement was is not a matter that is in issue in this proceeding. In short, this is not evidence which has a tendency to prove or disprove anything that is of consequence

to the determination of the proceeding.³

[19] I therefore conclude that these paragraphs should be struck out from the

defendant’s briefs and should not be read at trial.

Paragraphs 93 to 124

[20] These paragraphs deal with the following:

(a) The breakdown of the relationship between the plaintiff and the defendant;

(b) The winding up of HKDIL;

(c) The defendant’s allegation that the Chens set up competing Hong

Kong and New Zealand companies;

(d) The defendant’s allegation that the Chens withdrew more than they

_{were entitled to from NZPIL’s bank account;}

³ Evidence Act 2006, s 7(3).

(e) The defendant’s allegation that on the plaintiff ’s instructions NZPIL’s accountants reconstructed the company’s financial accounts and produced inaccurate accounts; and

(f) The defendant’s allegation that the Chens had breached their duties to

him and NZPIL.

[21] Once again, it is self-evident that these matters are not within the matters that are the subject of the pleaded claim and defence. I accept Mr Campbell’s submission that they could only be relevant to the defendant’s or NZPIL’s claim for breach of fiduciary duty and possibly misappropriation of funds. These issues are not raised in the current proceeding by the pleadings. For that reason, they are in the same category as paragraphs 66 to 79 and are not relevant.

[22] Accordingly, I conclude that these paragraphs should be struck out of the

defendant’s briefs of evidence and should not be read at trial.

Paragraph 135

[23] Mr Sills accepted that this challenge was correct. Accordingly, I will order that it be struck out and not be read at trial.

Paragraphs 136 to 139 and 166 to 169

[24] Mr Sills said he would wish to recast these paragraphs. Mr Campbell agreed that that would be an appropriate way of dealing with the matter and, subject to his seeing the recast, might well be dealt with by the parties agreeing on a supplementary brief being filed pursuant to r 9.8.

[25] To the extent, however, that these paragraphs, or their replacements, go beyond simply alleging payment of the debt claimed and allege a set-off, the replacements should not be permitted because no set-off has been pleaded.

Paragraphs 52, 53 and 58

[26] The basic objection to these paragraphs is that they amount to submission and not evidence. Counsel both helpfully agreed that a recast version, which was in fact evidence, might be acceptable and that this area could also be governed by supplementary briefs under r 9.8.

[27] That observation is appropriate and I order that these paragraphs be struck out in their present form and not read at trial.

[28] Before pronouncing the precise orders to be made in this judgment, I record that counsel will continue to confer with a view to a recast brief of evidence being tendered by the defendant. I record that counsel have undertaken to complete this by

20 November 2014 so that there is ample time for the plaintiff ’s counsel to take instructions, which will involve obtaining a translation because the plaintiff does not speak English, and with a view to the parties being able to agree on the final position of the briefs which can be treated, presumably, as supplementary briefs in accordance with r 9.8.

[29] The plaintiff has been substantially successful. Normally, I would have dealt with costs at the conclusion of this judgment. I do not consider that yet appropriate because there is some further work to be done to conclude the review of the briefs. For that reason, in the orders I make, I am allowing time to counsel to see if they can agree first on costs and, if not, then memoranda can be filed in accordance with the order that I make.

Orders

[30] I order:

(a) The following paragraphs from the defendant’s brief of evidence shall

be struck out and not read at trial, namely paragraphs 66 to 79, 93 to

124, 135, 136 to 139, 52, 53, and 58;

(b) The following paragraphs from the defendant’s brief of evidence shall be struck out and not read at trial, namely 80-92, 125, 27, 30, 36(a) (recorded as 35(a) by mistake), 54(c), 54(e), 57, 59, 63, 64 and 144;

(c) Costs are reserved. If the parties are unable to agree, memoranda in support, opposition and reply shall be filed at seven-day intervals.

_{The file shall then be referred to me to determine costs.}

JA Faire J