Cornwall Park Trust Board Inc v Chen [2014] NZHC 665 (3 April 2014)

Last Updated: 16 April 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-0008 [2014] NZHC 665

BETWEEN	THE CORNWALL PARK TRUST BOARD INC Plaintiff
AND	YONG XIN CHEN Defendant

Hearing:	31 March 2014
Appearances:	ME Casey QC and JGH Hannan for Plaintiff/Applicant JA Wickes for Defendant/Respondent
Judgment:	3 April 2014

_{JUDGMENT OF TOOGOOD J}

This judgment was delivered by me on 3 April 2014 at 4:30 pm

Pursuant to Rule 11.5 High Court Rules

_{Registrar/Deputy Registrar}

THE CORNWALL PARK TRUST BOARD INC v CHEN [2014] NZHC 665 [3 April 2014]

Background

[1] This proceeding concerns a dispute between the plaintiff as lessor and the defendant as former lessee of a residential property in Maungakiekie Road adjoining Cornwall Park, Epsom (the Maungakiekie property). It is before the Court at present because the plaintiff wishes the Court to extend a freezing order against the defendant’s assets made on 5 March 2015. The Maungakiekie property, owned by the plaintiff, is the subject of a long-term ground lease (known as a “Glasgow” lease) to the defendant of 21 years renewable in perpetuity with rent calculated as a percentage of a sum established pursuant to stipulated valuation exercises. The lease expired on 29 March 2009. After approximately 18 months a new rental was fixed according to the arbitration procedure set out in the terms of the lease. The defendant elected not to renew the lease at the significantly higher rental than that which she had previously been paying and eventually vacated the property on 16

November 2011.

[2] The plaintiff applied for summary judgment, alleging three distinct causes of action:

(a) First, a claim for the sum of $173,323.64 for rent allegedly due for the period 30 March 2009 to 16 November 2011, being the upset rental sum said to be due after the rent-fixing arbitration conducted in terms of the lease.

(b) Second, a claim for $7,557.63, being the costs of marketing and auctioning the property, and $11,184.25, being the legal costs associated with preparing the property for auction after the defendant notified the plaintiff that she would not take a renewal of the lease.

(c) Third, a claim for $167,404 for the cost of repairs to reinstate the property and the cost of the report obtained for that purpose.

[3] In respect of all claims, the plaintiff relied on specific provisions of the lease.

[4] The summary judgment application was partially successful in respect of the second cause of action. In a judgment dated 13 May 2013, Associate Judge Faire (as he then was) entered summary judgment for the plaintiff in the sum of $18,741.88 but declined the summary judgment application in respect of the first and third causes of action.¹ The defendant was ordered to file a statement of defence and the proceeding went to a case management conference conducted by Lang J on

20 June 2013. Timetable and other orders were made following that conference dealing with the usual interlocutory matters including discovery.

[5] On 28 June 2013, the plaintiff obtained a charging order over a property at

2 Titai Street, Orakei, owned by the defendant (the Orakei property) to secure the judgment debt. On 22 August 2013, a February 2014 trial date originally set was vacated and the proceeding is now listed for a five-day trial beginning on 19 May

2014 at 10:00 am. Discovery and inspection issues which had arisen between the parties were resolved by agreement.

The freezing order made without notice

[6] The plaintiff then made a without notice application for a freezing order and ancillary order. On 5 March 2014, Keane J made a freezing order in respect of the Orakei property and the proceeds of any sale of that property, except to the extent that the aggregate value of such assets exceeds $305,141.70. The Court declared itself satisfied, having regard to all the circumstances disclosed by affidavit evidence filed in support of the application, that there was a danger that judgment in favour of the applicant would be wholly or partly unsatisfied because the assets of the respondent may be removed from New Zealand, or disposed of, or dealt with, or diminished in value.

[7] Since the freezing order was made without notice to the defendant, it was stated to “have no effect after 1 month from the date of ... [the] order unless on that

_{date it is continued or renewed.”}

¹ Cornwall Park Trust Board Inc v Chen [2013] NZHC 1067; (2013) 14 NZCPR 563.

[8] The ancillary order required the defendant to make disclosure of certain information concerning her assets and was expressed in these terms:

12 You, the respondent (Yong Xin Chen) are to disclose as provided below the full nature, extent and value of all of your real or personal assets (whether held beneficially or otherwise), and any assets of any other persons over which any of you may have a power of disposition or control, which are within the jurisdiction of the court or coming into the jurisdiction of the court, identifying in detail the nature of all such assets, their whereabouts, whether they are held in your individual name or jointly with any other party or nominee or otherwise and in any way on your behalf, and without limiting those requirements, you are to provide par are to provide particulars of:

12.1 All bank or other accounts whether individually or jointly held, or held by nominees or otherwise on behalf of you, and the sums standing to your credit in such accounts;

12.2 All solicitors, accountants, agents, or other persons who may have some direct or indirect control over the administration of the affairs of you;

12.3 The nature and extent of income derived or paid to you from any source whatsoever.

Such disclosure is to be effected by you, the respondent (Yong Xin Chen), making an affidavit which shall be filed and served upon the plaintiff’s solicitors by twelve (12) noon on the seventh (7^th) working day following service of these orders on you.

Subsequent developments – the plaintiff seeks an extension

[9] In a memorandum dated 24 March 2014, counsel for the plaintiff advised the Court that the plaintiff had not reached agreement with the defendant “on adequate security for payment of the judgment sum” which the plaintiff expected to obtain in the substantive proceeding. The memorandum explained that the parties had attempted to negotiate the terms on which the freezing order could be removed by consent, so that the Orakei property could be sold with any proceeds of sale up to

$305,141.70 (being the amount which the plaintiff anticipates it will receive if its claims are successful) being held in trust. The memorandum exhibited a copy of a letter from the plaintiff’s solicitors setting out the plaintiff’s offer which involved suggested terms upon which the funds could be held.

[10] On 19 March 2014, as required by the ancillary order, the defendant served on the plaintiff an affidavit of assets which records that the only substantial asset

held by the defendant, other than the Orakei property, were funds in a bank account totalling $409,400.

[11] The charging order over the Orakei property was removed following payment of the judgment debt. But counsel for the plaintiff said that the plaintiff remained concerned, for the reasons set out in the original application and the affidavits filed in support, that without the security provided to it by the freezing order, and in the absence of agreement reached between the parties as to the terms of security being held, any judgment obtained by the plaintiff in the substantive proceeding would be left partially or wholly unsatisfied by the defendant.

The defendant opposes the extension of the freezing order

[12] The defendant opposes the extension of the freezing order. She says that she is a New Zealand citizen and resident who has lived in New Zealand continually since 2003. She is a citizen of no other country and intends to live in New Zealand for the foreseeable future with her husband and family. She said that, after purchasing the leasehold on Cornwall Park property, she paid the ground rent in a timely way and pays her other debts on time. She said that she did not pay the judgment debt because no demand for payment was made and she understood that the sum would be off-set against an award of costs made in her favour in relation to the dispute over discovery and inspection. The sum secured by the charging order was paid by her once she became aware that the order had been made.

[13] The defendant records in her affidavit the grounds upon which the plaintiff relied in asserting that there was a real risk of dissipation of her assets so as to render her “judgment proof” in the following terms:

10.1 That my husband and I have an agreement to sell our property at

2 Titai Street.

10.2 I am not using Loo & Koo (my solicitors in this litigation) to do the conveyancing on that sale.

10.3 In July 2013 my husband and I subdivided and sold our property at

Judges Bay, Parnell.

10.4 In July 2013 Golden Land Investments Ltd a company in which my husband and I were the directors and shareholders (“the company”)

was struck off and prior to its striking off my address on the 2012 annual return was shown as 21 Maungakiekie Street when I had left that address in November 2011.

10.5 I have been evasive in my dealings with the plaintiff.

[14] She then responds to the concerns by saying, first, that she and her husband had been trying to sell the Orakei property since 2011, before the litigation with the plaintiff was commenced, and that the property had been actively marketed during that time. They have finally succeeded in selling the property but have a long settlement date to enable them to purchase a replacement property in New Zealand for themselves and their family. She says that the Judges Bay property was an investment property and that she and her husband had started the procedure to subdivide and sell it in 2012, again before the litigation began.

[15] As to the private company, the defendant explained that she had been sick and because of her illness the company did not trade from about 2010. She left the matter of filing returns in the hands of her accountant who had advised her to let it be struck off and thinks that he may not have noticed in filing the 2012 return that the defendant and her husband were no longer living at the Cornwall Park address.

[16] The defendant explained that they were using different solicitors to do the conveyancing for the sale of the Orakei property as those solicitors were suggested by the agent and she thought they would try them out. Ms Wickes told me from the Bar that she understood the conveyancing solicitor would provide their services more economically.

[17] The defendant denied being evasive in her dealings with the plaintiff and alleges that it was the plaintiff in fact who had misled her, claiming that the plaintiff made misrepresentations and engaged in misleading conduct in its dealings with her.

The plaintiff ’s grounds for the extension

[18] The plaintiff’s response to the defendant’s explanations includes an acknowledgement that the information now provided by the defendant “goes some way to explain some of the concerns” the plaintiff had at the time the application for

freezing orders was made. The plaintiff asserts, however, that the defendant’s explanations are less than candid in that no supporting documentation was provided and that the defendant’s explanations were not complete. It is noted, for example:

(a) that the defendant did not provide bank account details for her BNZ account in which it is said a substantial sum of money is held, and does not explain whether it is in her sole name or a joint account, and does not in any other way verify that the funds she claims to deposit are in fact held by the bank;

(b) no details or documents have been provided to show when the sale of the Orakei property is due to settle;

(c) no details or documents have been provided to show where the proceeds of sale of the Judges Bay property are held; and

(d) no evidence has been provided of how the ownership of any replacement property following sale of the Orakei property is to be structured; that is whether jointly with her husband or solely in his or her name.

[19] Responding to those allegations, Ms Wickes submitted on behalf of the defendant that the plaintiff was simply seeking security for what it anticipated it might receive if it succeeds in obtaining judgment and that its concerns do not amount to establishing a “real risk that the defendant will dissipate her assets so that the plaintiff will be prevented from recovering the fruits of any judgment.” She says frankly that the plaintiff is not entitled to the detailed information it seeks and that as much as anything the defendant is taking a stand as a matter of principle.

Discussion

[20] I have some sympathy with the defendant’s submission that, in the light of her explanation, the plaintiff is seeking simply some form of security for a contingent judgment debt rather than having a genuine, well-founded concern about

dissipation. That impression is reinforced by the way in which the memorandum of counsel for the plaintiff dated 24 March 2014 is worded; I refer particularly to paragraphs 5 and 9.

[21] It is the case, however, that the ancillary order made on 5 March 2014 required the plaintiff to disclose “the full nature, extent and value” of all of her real or personal assets (whether held beneficially or otherwise) “identifying in detail the nature of all such assets, their whereabouts, whether they are held in ... [her] individual name or jointly with any other party or nominee or otherwise in any way on ... [her] behalf”. Further, the order required particulars of all bank or other accounts and the sums standing to her credit in such accounts, among other things.

[22] The defendant has not complied fully with those directions.

[23] It may be that the defendant’s failure to provide the full information required by the order results from a decision by the defendant and her advisers to ensure that a prompt response to the memorandum of counsel for the plaintiff of 24 March 2014 was available to the Court, without the delay of waiting for verifying material. I think it is fair to say, however, that provision of the type of information summarised at [18] above would have added substance to the defendant’s explanations for what might otherwise be suspicious conduct by her or on her behalf.

[24] In these circumstances, I am not presently persuaded that the defendant’s disclosures have mitigated the risk that assets will be dissipated. I consider, however, that she is entitled to a further period within which to satisfy the Court that there is no such risk.

[25] The freezing order made on 5 March 2014 will be extended to expire on Wednesday, 16 April 2014. This matter shall be set down for a one-hour hearing on Monday, 14 April 2014 at 10:00 am. The defendant will have an opportunity to file an affidavit providing information in full compliance with the directions contained in the ancillary order made by Keane J on 5 March 2014. Any such affidavit shall be filed and served on the plaintiff’s solicitors no later than Thursday, 10 April 2014.

[26] If the plaintiff wishes the Court to extend the freezing order beyond 16 April

2014, counsel for the plaintiff shall file and serve a memorandum to that effect no later than 4:00 pm on Friday, 11 April 2014.

......................................

Toogood J