He v Chen [2017] NZHC 1933 (1 August 2017)

Last Updated: 28 September 2017

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-3369 [2017] NZHC 1933

BETWEEN	YAO WEI HE Plaintiff
AND	ZHIXIONG CHEN Defendant

_{CIV-2016-404-3275}

BETWEEN ZHIXIONG CHEN Judgment Creditor

AND YAO WE HE Judgment Debtor

Hearing:	14 August 2017
Appearances:	Plaintiff/Judgment Debtor appearing in person NR Campbell QC for Defendant/Judgment Creditor
Judgment:	1 August 2017

_{JUDGMENT OF TOOGOOD J}

This judgment was delivered by me on 15 August 2017 at 10.00 am

Pursuant to Rule 11.5 High Court Rules

_{Registrar/Deputy Registrar}

He v Chen [2017] NZHC 1933 [1 August 2017]

[1] Yao Wei He brings two interlocutory applications, in separate proceedings, which are being heard together. The proceedings are a claim by Mr He for damages and other relief against Mr Chen issued in 2014 under Court registry number CIV-

2014-404-3369 (“the 2014 proceeding”), and a bankruptcy proceeding under registry

number CIV-2016-404-3275 (“the bankruptcy proceeding”).

[2] The bankruptcy proceeding arises out of Mr He’s failure to pay the judgment sum and accrued interest and costs owed following a judgment delivered in July 2015 in which Mr He was ordered to repay a debt of $300,000.00 owed by Mr He personally to Mr Chen (“the debt proceeding”).¹ Mr He appealed unsuccessfully

to the Court of Appeal against that judgment² and was refused leave to appeal to the

Supreme Court.³

Application to set aside bankruptcy notice

[3] The bankruptcy notice dated 22 December 2016 was served on Mr He, on

22 March 2017, by substituted service. The amount now claimed, which exceeds

$450,000.00, has been paid into Court pending the hearing of the application to set the notice aside.

[4] Since the amount of the debt and Mr He’s liability to pay it cannot be in dispute, Mr He will have committed an available act of bankruptcy for failure to comply with the notice unless the Court sets the notice aside on the ground that it is satisfied that he has a counterclaim, set-off or cross-demand:

(a) that is equal to, or greater than the judgment debt; and

(b) that Mr He could not use as a defence in the proceeding in which the judgment was obtained.⁴

[5] Mr He’s objection to the bankruptcy notice may be disposed of quickly. In its decision dismissing the application for leave to appeal from the judgment of the

¹ _{Chen v He [2015] NZHC 1593.}

² _{He v Chen [2016] NZCA 340.}

³ _{He v Chen [2016] NZSC 151.}

⁴ Insolvency Act 2006, ss 17(1)(d)(ii) and 17(7).

Court of Appeal in the debt proceeding, the Supreme Court noted that Mr He’s defence to Mr Chen’s debt had two limbs.⁵ First, that the loan was not personal to him but had become a loan to a joint venture company, NZPIL. That defence was rejected by Moore J⁶ and a challenge to that finding was dismissed by the Court of Appeal.⁷

[6] The second limb of Mr He’s defence was that NZPIL had repaid more money to Mr Chen than Mr Chen had advanced to NZPIL and that the $300,000.00 owed had therefore been repaid. This, in essence, it what Mr He alleges as part of his claim against Mr Chen in the 2014 proceeding. But while that may be relevant to any liability Mr Chen might have to NZPIL, it cannot assist Mr He in respect of a debt which the courts have found, in the debt proceeding, was owed to Mr Chen by Mr He personally.

[7] It follows that the argument based on the 2014 proceeding is misconceived and that Mr He has no qualifying cross claim. I dismiss the application to set aside the bankruptcy notice accordingly.

Application for a freezing order

[8] In the 2014 proceeding, Mr He applies under r 32.5 of the High Court Rules

2016 for a freezing order against Mr Chen’s New Zealand assets, asserting that there is a risk that Mr Chen might dispose of his assets and so leave any judgment Mr He obtains unsatisfied.

[9] For the rule to apply, the Court must first be satisfied that an applicant has a good arguable case on an accrued or prospective cause of action that is justiciable in the Court.⁸ If the rule applies, the Court may make a freezing order against a

_{prospective judgment debtor if the Court is satisfied, having regard to all the}

⁵ _{At [4].}

⁶ _{Chen v He, above n 1, at [73] and [74].}

⁷ _{He v Chen, above n 2, at [53].}

⁸ High Court Rules 2016, r 32.5(1)(b)(i).

circumstances, that there is a danger that the prospective judgment will be wholly or partly unsatisfied because:⁹

(a) the prospective judgment debtor might abscond; or

(b) the assets of the prospective judgment debtor might be removed from

New Zealand or disposed of, dealt with or diminished in value.

[10] Mr He’s case for a freezing order is founded on the proposition that he will be able to establish in the proceeding that Mr Chen has been engaged in fraudulent activity from which criminal proceedings may well eventuate and that Mr Chen will have every reason to remain outside the jurisdiction of the New Zealand authorities. He argues that, although there may be no overt evidence of any attempt by Mr Chen to sell his home, it is entirely possible that he could dispose of the asset in secret without advertising it publicly, and that any other assets presently within the jurisdiction could similarly be disposed of.

[11] For Mr Chen, Mr Campbell QC did not argue that r 32.5 did not apply because Mr He did not have “a good arguable case” in the proceeding. But I do not understand Mr Campbell to have conceded that a good arguable case exists and that a strike-out application could not succeed on the present pleading. The amended statement of claim in the proceeding is long-winded; it contains evidence rather than pleaded facts; and it is confusing. It is by no means clear what causes of action are relied upon and what relief might be available. Mr Campbell indicated from the Bar that the extent to which the pleading will require modification to bring it within the rules and to establish that the claim should proceed to trial has yet to be determined. Mr Chen’s position is simply that he does not rely on r 32.5(1) to oppose the freezing order application.

[12] Mr Campbell’s argument focused on r 32.5(4) and what counsel submits is a failure by Mr He to provide any credible evidence that there is a risk that Mr Chen would abscond and that assets within the jurisdiction will be dissipated or removed

_{from New Zealand.}

⁹ Rule 32.5(4)(b)(i) and (ii).

[13] I accept that submission. The mere suspicion that a prospective judgment debtor might seek to abscond or dispose of assets is not sufficient to justify the making of a freezing order in the present circumstances. What is required is evidence of a real risk of dissipation of assets with the result that a judgment in favour of the applicant will be partly or wholly unsatisfied if the freezing order is not

made.¹⁰

[14] Mr He’s grounds are highly speculative and I am not satisfied that the threshold test has been met in this case.

[15] Accordingly, I dismiss the application for a freezing order.

Costs

[16] Mr Chen is entitled to costs. Mr He shall pay costs on both applications on a Category 2B basis, bearing in mind the consolidation of the hearing, together with disbursements as fixed by the Registrar.

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

_{Toogood J}

¹⁰ Rule 32.5(4); Oaks Hotels & Resorts NZ Ltd v Body Corporate 358851 [2013] NZHC 2695 at [18], referring to Bank of New Zealand v Hawkins [1989] NZHC 198; (1989) 1 PRNZ 451 (HC) at 454 and Shaw v Narain [1992] 2 NZLR 544 (CA) at 548.