Huang v Luo [2017] NZHC 680 (6 April 2017)

Last Updated: 20 April 2017

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV-2015-419-000307 [2017] NZHC 680

BETWEEN	JIANMING HUANG Plaintiff
AND	LIN LUO First Defendant W & L LIMITED Second Defendant

Hearing:	6 April 2017
Appearances:	D Zhang and Y Taylor for Plaintiff A B Foster for Defendants
Judgment:	6 April 2017

_{ORAL JUDGMENT OF WYLIE J}

Solicitors/counsel: D Zhang, Auckland

Foster & Milroy, Hamilton

HUANG v LUO [2017] NZHC 680 [6 April 2017]

Background

[1] These proceedings were commenced in September 2015. The plaintiff, Mr Huang, alleges that he and the defendants entered into a partnership to purchase and develop a property situated at 8 Chamberlain Road, Massey, Auckland. He says that the partnership was formalised in writing in February 2014, but that the second defendant had earlier entered into an agreement to purchase the property in August

2011 for the sum of $1,950,000. He says that he contributed $785,000 towards the purchase price, and that he and the defendants agreed that the balance of the purchase price would be funded through the second defendant obtaining a loan from the BNZ. He says that the loan was obtained but that the second defendant subsequently obtained a further loan of $4 million from Pearlfisher Capital Ltd. He asserts that the second defendant had no authority from him to take out a loan from Pearlfisher, and that the first and/or second defendants obtained the loan proceeds using the property as security. He also asserts that there have been GST refunds and rebates received from Vector Ltd in respect of the property and its development. He says that the project has been run without his acquiescence or involvement and that the defendants have failed to keep him informed. He raises various causes of action based in contract, for breach of fiduciary duties, for monies had and received, for unjust enrichment and for a constructive trust.

[2] The defendants have filed a comprehensive statement of defence. They deny many of the key allegations.

[3] It is common ground that the first defendant, Ms Luo, is the sole director of and shareholder in the second defendant, W & L Limited.

Discovery ordered

[4] The proceedings have been before the Court on a number of occasions.

[5] As long ago as July 2016, Associate Judge Sargisson put in place a timetable order which, inter alia, required that standard discovery take place by 12 August

2016.

[6] The defendants complied, in that they filed and served an affidavit of documents by the specified date. The plaintiff however, delayed.

[7] In December 2016, the plaintiff filed an application seeking further and better discovery by both defendants. The plaintiff considered that the documents earlier discovered by the defendants were deficient.

[8] On 2 February 2017, the application was granted by Edwards J by consent. The consent memorandum filed referred to both defendants, but the order made was against the first defendant only and not the second defendant. The second defendant is not named in the intitulement to the judgment and there is no reference to it in the body of the judgment. The judgment refers only to “the defendant” in the singular.

[9] Ms Luo filed a supplementary affidavit of documents on the date fixed by Edwards J, both in her personal capacity as first defendant and as the sole director of the second defendant. The affidavit discovered some further documents, but not all of the documents which were required to be discovered pursuant to the consent order. Ms Luo did not provide any comprehensive explanations for her failure not to discover all of the documents ordered, and such explanations as she did provide were perfunctory and inadequate.

The application

[10] The matter came before me today on an application by the plaintiff for a declaration that the defendants are in contempt, and for an unless order requiring the defendants to discover the balance of the documents which have not been made available to date.

[11] I heard from counsel this morning. Mr Foster, appearing for the defendants, accepted that in various respects the further discovery provided was inadequate, and that it failed to comply with the consent order made by Edwards J.

[12] At my suggestion, counsel liaised and they have finalised a list of documents which it is accepted should have been discovered and which have not to date been disclosed or made available.

[13] By consent, I direct that both the first and second defendants are to discover the following:

(a) Any and all working papers for GST returns from November 2015 to the date of this judgment.

(b) Any and all documents detailing GST refunds received from November 2011 to the date of this judgment, including documents which account for and/or detail the use made of such refunds and who the moneys refunded have been paid or credited to.

(c) Any and all IRD assessments from 17 November 2011 to the date of this judgment.

(d) Any and all BNZ loan document for an additional loan of $1.2 million, including all loan statements, bank statements and cheques showing the loan going in and going out.

(e) Any and all documents relating to the Pearlfisher loan, including all loan statements, bank statements and cheques showing the drawdown of the loan, and payments in and out, and in particular:

(i) all loan statements for the Pearlfisher loan;

(ii) all bank statements for the defendants or either of them showing receipt of the funds either in whole or in part;

(iii) the solicitor’s file for LUO966/1; (iv) the solicitor’s file for WLL625/1; (v) the solicitor’s file for WLL625/14;

(vi) all documents recording the refinance proceeds paid to one or both of the defendants, initially on 30 May 2014 and again on

11 July 2014. The defendants are to discover bank statements, invoices, receipts, and all relevant documents detailing what the Pearlfisher funds were used for, and whether or not such use was in relation to the property at 8 Chamberlain Road Massey; and

(vii) statements of account from Pearlfisher and White Associates, accounting for the payments and loan funds.

(f) Any and all documents relating to the Vector rebates. The defendants are to discover bank statements from May 2016 to the date of this judgment which have not been provided to date and which record the Vector rebates being received, and any other documents which show the receipt of the Vector rebates and/or account for or show how those rebates have been used.

(g) Any and all loan documents which relate to the refinancing of loans by BNZ of $1,000,000 to the second defendant and $1,200,000 to the first defendant. The first defendant and/or the second defendant, as the case may be, are to discover the relevant solicitor’s files and such bank statements for both of the defendants, or either of them as may be required, showing receipt of the BNZ payments and how the funds have been used.

(h) Any and all bank account statements of one or both of the defendants relevant to the matters in issue in this proceeding, and all receipts, invoices, cheques and other documents accounting for the loan funds.

(i) Any and all communications, invoices, receipts, drawdown documents, bank statements, payment details and other relevant documents between Pearlfisher, the first defendant and/or the second defendant, and the Quantity Surveyor, White Associates, accounting for use or disbursement of loan funds. The defendants are to uplift the

relevant files from Pearlfisher and White Associates and discover the same.

(j) Any and all correspondence from the plaintiff/Jason Ji approving or consenting to the use of the loan/project funds, GST refunds and/or Vector rebates.

(k) Any and all cheques and all other documents evidencing payments

made with the plaintiff’s approval.

(l) Any and all correspondence sent to the plaintiff by, or on behalf of, one or both of the defendants, providing updates and/or information on the progress of the project.

(m) Any and all correspondence to the plaintiff by, or on behalf of, one or both of the defendants, accounting to the plaintiff.

(n) Any and all bank statements, receipts, and other documents relating to and accounting for the receipt and/or use of the loan proceeds, GST refunds, Vector rebates and/or project funds.

(o) Any and all documents related to the use of the project funds or funds acquired using the project assets, including but not limited to:

(i) the further BNZ loans totalling $1.2 million; (ii) the $4 million Pearlfisher loan;

(iii) GST refunds; and

(iv) Vector rebates.

Other orders

[14] There have been a number of breaches of the discovery orders to date and a fixture set down to commence this week had to be vacated as a result. The defendants, and in particular the first defendant, is responsible for those breaches. It is appropriate to make an unless order and I record that this was accepted by Mr Foster.

[15] I direct that unless discovery is attended to in terms of this judgment within

21 days of the date of this judgment, the statement of defence is to be struck out and the plaintiff can proceed to judgment on a default basis.

[16] Mr Zhang also sought a declaration that the defendants are in contempt of Court pursuant to r 8.33 of the High Court Rules. Relevantly, that rule provides as follows:

Contempt of court

(1) Every person is guilty of contempt of court who, being a person against whom a discovery order or other order under this subpart has been made, wilfully and without lawful excuse disobeys the order or fails to ensure the order is complied with.

...

[17] I am satisfied that the first defendant, Ms Luo, has breached the consent order insofar as it relates to such documents as were in her possession and power, and that she did so wilfully and without lawful excuse. That is clear from the affidavits filed. Ms Luo seems to have flagrantly ignored her discovery obligations. However, as I have noted, the order made by Edwards J did not expressly extend to the second defendant. I am not sure which documents were in Ms Luo’s possession or power, and which documents were in the second defendant’s possession or power. I cannot be satisfied, as a consequence, that the second defendant has wilfully and without lawful excuse breached the consent order made by Edwards J. Nor can I ascertain the extent of Ms Luo’s breach.

[18] Accordingly, I am not prepared, on the limited materials before me, to make a finding that one or both of the defendants are in contempt.

[19] I am, however, satisfied that an award of costs in favour of the plaintiff is appropriate. The fixture had to be vacated as a result of the breaches, and they were repeated. Mr Zhang has sought indemnity costs, or, in the alternative, costs on an increased basis.

[20] Mr Zhang has not, as yet, finalised his invoice to his client, taking into account today’s hearing. He has agreed to do so forthwith. I direct that Mr Zhang is to file a memorandum on or before 5pm on Wednesday 12 April 2017, setting out the indemnity costs sought by his client, itemising the hourly rate charged and setting out the hours claimed.

[21] Mr Foster accepts liability for costs, but submits that they should be calculated on a 2B basis.

[22] Mr Foster is to respond to such memorandum as shall be filed by the plaintiff, on or before 5pm on Friday 21 April 2017.

[23] I will then deal with the issue of costs on the papers unless I require the further assistance of counsel.

Wylie J