Hemu Trade Company Limited v Le [2017] NZHC 766 (24 April 2017)

Last Updated: 15 May 2017

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2016-404-416 [2017] NZHC 766

BETWEEN	HEMU TRADE COMPANY LIMITED First Plaintiff CHIN WEN LI Second Plaintiff CHING-CHI LI Third Plaintiff
AND	CHUN MAO LE Defendant

Hearing:	24 April 2017
Appearances:	Ms A Manuson for Plaintiff/Applicant Ms J Wickes for Defendant/Respondent
Judgment:	24 April 2017

ORAL JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE [APPLICATION FOR PARTICULAR DISCOVERY (NO.2)]

HEMU TRADE COMPANY LIMITED & Ors v LE [2017] NZHC 766 [24 April 2017]

[1] The brief background is that the case concerns a claim by the plaintiffs that a property in which the defendant acquired an interest, is actually beneficially held for the plaintiffs as a result of a resulting trust which arose from the plaintiffs’ alleged provision of the purchase price paid for it.

[2] A key issue is obtaining evidence on discovery about whether the plaintiffs provided the funds supporting the alleged resulting trust. The defendant’s position is that he provided part of the purchase funds.

[3] Irrespective of which parties’ account is correct, there does not seem to be any disagreement that the funds that were used to purchase the property in New Zealand in 1996, regardless of which party actually contributed them, originated in Taiwan. They were transferred to New Zealand where they were lodged in an ASB account and thereafter were disbursed to settle the transaction for the purchase of the property.

[4] Both parties have made allegations against the other that there have been breaches in compliance with orders for discovery. The application which was before the Court today is the plaintiffs’ application. The plaintiffs’ seek additional particular discovery.

[5] The defendant has actually discovered some of his banking records in Taiwan. I have not sighted these documents and they have not been the subject of further evidence or detailed submissions. Ms Wickes tells me that what they show is that the defendant made substantial withdrawals from a bank account under his control. I do not know whether the dates of any of those transfers is significant because it coincides with the time when the funds were required for the purchase of the house in New Zealand in 1996. There are no documents discovered, however, which show a link between the bank accounts of the defendant and the account from which money was transmitted to New Zealand. The money was transmitted by a Taiwanese bank called the ICBC. There are arguments between the parties about who controlled the ICBC process. The plaintiffs, for example, say that there must have been an account in the ICBC which the defendant was the proprietor of. The

submissions that Ms Wickes made on behalf of the defendant in that regard was that such scant evidence as there is does not in fact establish that the defendant owned such an account. As I understand the position of the defendant it is that the ICBC was simply an agent which was used for transmission of the money to New Zealand in the circumstances briefly outlined earlier.

[6] Notwithstanding the analysis of the position which Ms Wickes has put forward, the defendant has given some evidence about trying to locate documents relating to the ICBC account. He says that the bank no longer exists which is, obviously, a major stumbling block to acquiring further documents.

[7] The plaintiffs have made enquiries, too, it appears. However the wife of the third plaintiff who was the financial controller of the Wenheng company and the third plaintiff states that the defendant has given instructions to the ICBC (which is now operating under a different name but is still extant) which prevents them from accessing information about the account from which the funds left Taiwan. The parties are agreed that the impasse that has resulted could be resolved by both sides providing an authority to the bank (under whatever name it now operates) to release information about the account from which the funds were sent to New Zealand. This information would obviously relate to entries in the account in the second half of

1996 which evidenced receipt of funds by the ICBC and then onward transmission to New Zealand. There should be no restrictions on the data which the bank is authorised to provide but clearly any information about identifying the source of money coming into the account, correspondence with any of the parties including faxes etc evidencing the instructions given to the bank would all be matters that would be relevant.

[8] The parties are to draw up a suitable form of direction to the ICBC. If there is any disagreement on the matter (which I do not anticipate will occur) then leave is reserved to apply for further directions. I expect the parties to co-operate concerning these issues. Any party which does not cooperate will be at risk of a costs order.

Bank statements for any bank accounts which received the rental income of the property, from 1997 to present

[9] Ms Wickes submitted that the defendant has provided in his affidavit of documents, documentary evidence concerning rental arrangements for part of the time since the property was acquired in 1996. I have not viewed those documents and nor have they been subjected to consideration in the course of the hearing today. However it appears to be common ground that there is no rental payment record covering the whole period from when the property was acquired in 1996 to date. As well the defendant says that there was no bank account into which rental payments were deposited. He apparently accepts that there was a record of rent paid for some of the time, though. I understand that he has disclosed a partial record of the rent received. Ms Wickes says that the inference is that during the time when the defendant was receiving the rental it may have been paid in the form of cash and it does not necessarily follow that there is a bank account as the plaintiffs invite the Court to infer.

[10] Another aspect of the matter is that the defendant takes the point that he has only lived in New Zealand for part of the period which is under consideration, that is from 1996 to date. He says in his affidavit:¹

Both families lived together on the property until 2001 when I and my family left New Zealand. From 2001 to 2004, I understand rent was collected by the plaintiffs. Since then, my daughter has lived in the main property with no objection from the plaintiffs ever, and she has from time to time had friends or tenants living in the sleepout.

[11] The evidence which is put forward in support of the application comes from the second plaintiff who says:²

15. Since the property was purchased in 1996, the rare dwelling of the property has been rented to tenants. I lived in the front dwelling, along with the defendant and his family.

16. Since I moved back to Taiwan in 2002, further tenants occupied the front dwelling. I also understand that, when the defendant did not reside in New Zealand, the extra space was also rented out.

¹ _{BD 54.}

² BD 13.

17. The defendant or his family managed the tenants and received rental income.

[12] The approach that I intend to adopt when considering this part of the application is set out in the judgment of Asher J in Assa Abloy New Zealand Limited v Allegion (New Zealand) Limited:³

14. I will follow therefore a four stage approach in considering this r

8.19 application:

(a) Are the documents sought relevant, and if so how important will they be?

(b) Are there grounds for belief that the documents sought exist?

This will often be a matter of inference. How strong is that evidence?

(c) Is discovery proportionate, assessing proportionality in accordance with Part 1 of the Discovery Checklist in the High Court Rules?

(d) Weighing and balancing these matters, in the Court’s

discretion applying r 8.19, is an order appropriate?

[13] The first requirement that the plaintiff is required to establish is that the documents are relevant and the Court also has to carry out an assessment of how important they will be.

[14] Included in the relief that the plaintiffs seek is a claim in regard to rental payments that were allegedly paid to the defendant and there is little doubt that any documents which touch on that aspect of the matter would be relevant. Given the time period covered in the pleadings many of the alleged rental payments will have occurred over a decade ago. Written documents evidencing the amount of rental would always be likely to be relevant and important in a dispute of this kind but they have added importance in the context of this case having regard to the lapse of time that I have mentioned. The difficulties of proving a claim of this kind without such documentary material being available are manifest.

[15] The next requirement is that the Court cannot make an order unless there are grounds for belief that the documents sought exist. The Assa Abloy judgment notes,

³ Assa Abloy New Zealand Limited v Allegion (New Zealand) Limited 2015 NZHC 2760.

this will often be a matter of inference and the Court is required to enquire into the strength of the evidence that supports the application. It will be obvious that assessing the strength of any inference is part of that process.

[16] In my view the application fails at this point. I do not accept that it is self- evident that there will be a bank statement that was used for collection of rent. I consider that it is an open question as to whether there is any general practice followed by landlords when collecting rental. As well there may be different cultural approaches to paying money into bank accounts that may potentially have influenced such practices as the defendant followed when receipting rental payments. Further, there are real questions about whether the discovery which has been provided is inadequate. As I said there has been no detailed analysis of the discovery put forward to date. Further, the evidence which is offered at least since the year 2002 would seem to be hearsay in that the second plaintiff from that year was resident back in Taiwan. He makes the bald assertion, which I have already noted in the extract from his evidence, that further tenants occupied the front dwelling. He does not state what the source of his information is and he does not state for what periods that occurred and whether that is or is not covered by any discovery that might have been provided to date.

[17] For these reasons I do not intend to make an order in terms of paragraph 4 of

Schedule 1 to the application.

Schedule 1, Category 5

[18] The case for the plaintiffs is that the defendant used property belonging to Wenheng to acquire his named property, the property which was acquired in New Zealand. It was the case for the plaintiff that funds were provided to the defendant to acquire the property for it, and not for himself.

[19] The plaintiffs also contend that on a previous occasion the defendant has acted in a similar way which resulted in criminal and civil proceedings being taken against him in a Taiwanese Court. In the Taiwanese case it was alleged against the defendant that he had misappropriated various items of property including securities

which belonged to individuals who had an association with that company on whose behalf they held them. The reason why those individuals were holding the property in their own name rather than the company was said to be connected with taxation reduction strategies that the company was pursuing. It was alleged in the Taiwanese proceedings that the defendant who was in a position of trust and authority breached his obligations to the company by attempting to claim the assets in question for himself personally.

[20] The Taiwanese proceedings resulted in the parties reaching a settlement which I understand contained the concession that the defendant did not have entitlement to the company’s property that he claimed. Apart from the settlement agreement there also appears to have been judgment entered against the defendant. It is not necessary in these interlocutory proceedings to examine the details of those judgments. The plaintiffs now seek an order for discovery in the following terms:

5. Records in the control or possession of the defendant in relation to the embezzlement of the funds of the first plaintiff company.

[21] I assume that the plaintiffs wish to put that evidence forward on the basis of s

40 of the Evidence Act 2006, and perhaps, common law principles. I referred to some of the authorities in cases where propensity evidence has been admitted in the decision of Silver Oaks Group Limited v Westpac Banking Corporation.⁴ In that judgment I also referred to the acknowledged need for the Courts to adopt a cautious approach in order to avoid oppression or unfairness in admitting the evidence. However, for the purposes of this discovery application there seems to be little doubt that evidence of this kind would be admissible at trial although the exact scope of what evidence can be admitted would be a question for the trial Judge.

[22] The issue of whether discovery should be ordered in cases where what was called “similar fact” evidence might be obtainable was considered by Wallace J in Mao-Che v Armstrong Murray.⁵ The Judge, having noted that he was not making a final determination of whether the evidence in question would be in fact relevant at

_{the trial, said that what he was deciding was that it may well have been relevant to a}

4. Silver Oaks Group Limited v Westpac Banking Corporation [2014] NZHC 2060 at [54] and following.

⁵ Mao-Che v Armstrong Murray (1992) 6 PRNZ 371.

substantial issue in the case and was evidence that might enable the plaintiffs to advance their own case or damage the case of the defendants. He ordered discovery. The Judge also considered the question of whether ordering discovery would be oppressive. In that case there had been an identification of six files of documents which the Judge described as being “not of massive proportions and which are of

relatively recent origin”.⁶ He noted that in the end questions of oppression involve

balancing considerations of cost and time against the potential value of discovery before concluding in that case that the balance was in favour of ordering discovery.

[23] The plaintiffs did not attempt in the application which I heard to advance a detailed analysis of how this evidence would assist them. I assume the plaintiffs will argue that the current claim came about through the defendant breaching trust obligations in relation to the New Zealand property. The plaintiffs will argue that he did the same thing in regard to property in Taiwan. The dealings with the Taiwan property involved the same parties. Therefore, the defendant, it will be argued, has demonstrated a propensity that explains his action with regard to the New Zealand property.

[24] Little detail was put forward about the alleged scheme that the plaintiff put into effect in regard to the Taiwanese property. It is not clear to me that the defendant himself had acquired legal ownership of the property which he used as a platform from which to argue that he owned the property free of any beneficial interest and that the plaintiffs had no beneficial entitlement in respect of it.

[25] At best, the effect of the evidence would be to establish that in the Taiwanese proceedings the court concluded that the defendant had dishonestly used his position of trust in relation to the plaintiff’s in order to effectively misappropriate the property. Such evidence would show that the defendant was the type of person who would be morally disposed to appropriate to himself the property of others which is what the plaintiff says he has done with regard to the New Zealand property.

[26] While the plaintiffs did not put forward any detailed analysis of the use to which the evidence would be put and its significance, equally, the arguments put

⁶ At page 377.

forward by the defendant did not mount a substantial opposition to certain aspects of the Taiwanese Court proceedings. It was not contended that the conclusions of that Court would not be entitled to some weight as proving that the defendant was the sort of person who would appropriate the property of others. It was not contended that proving such matters would assist the plaintiffs in establishing their case in New Zealand. Rather, the case which Ms Wickes put forward focused on the oppressiveness involved in production of this material on discovery.

[27] I conclude that the actions of the defendant which were considered in the Taiwanese proceedings could well be advanced by the plaintiffs in the New Zealand proceeding as propensity evidence which is admissible under s 40 Evidence Act

2006. Documents which relate to the Taiwanese prosecutions and civil claims have the potential to assist the case of the plaintiffs and be adverse to the case for the defendant. There can be no certainty that the evidence would actually be admissible

– that will be a matter for the Judge who deals with the case. The present proceeding is not concerned with that point. All that the plaintiffs need to show is that the documents support their case. If they provide support for the proposition that the defendant has previously misused his position in relation to company assets to benefit himself then they are documents which support the case of the plaintiff.

[28] While the documents therefore may be two types of documents that are required to be disclosed under r 8.7, there are other issues that need to be considered and it does not automatically follow that an order ought to be made for discovery.

[29] In this case the way in which the category, as framed, in the application which the plaintiffs bring for particular discovery, is in very wide terms. It relates to events which occurred in or about 1999, that is some 18 years ago. My view is that documents which show that the defendant has wrongly claimed the beneficial interest in property belonging to the company on a previous occasion, not widely separated in date from the dates when the causes of action in this case arose, would in fact be relevant. I express that conclusion in the same provisional way that Wallace J did in the case which he had to decide, namely, that it will be open to the trial Judge to make a final ruling on the point.

[30] While I have no idea about the extent of the documents in question. It may be relevant to the question of potential oppression that the documents would have been identified some years ago for the purpose of the Taiwanese proceedings and presumably would have been collected at that point for use in those proceedings. On the other hand, I do not know what part of the documents were put forward by the plaintiff, and what, if any, by the defendant. The Taiwanese proceedings are now some seven years in the past. While it may have been practicable for the defendant to assemble documents at that point there is no certainty that they have been retained. Presumably the plaintiff is in a like position. On the other hand, it is possible that copies of the documents could be obtained from the Taiwanese Courts. I do not have any information that expressly establishes that is so but it would seem that there are alternative sources such as the Taiwanese Courts from which the documents could be obtained. I do not know whether lawyers were involved in the case and whether they or other third parties might retain copies of them.

[31] Balancing all of these considerations my conclusions are these. The ambit of the order which the plaintiffs seek is uncertain but potentially very wide.

[32] A party who is seeking orders for discovery of documents must take care when formulating the width of the category of documents proposed. Otherwise the Court may take the view that while there is good reason to believe that some of the documents that are sought could satisfy the requirements of HCR 8.7, the very width of the categories that are proposed mean that the Court could not contemplate making an order of the kind actually sought.

[33] The essence of the Taiwanese case is that it shows actions on the part of the defendant on another occasion which allegedly establish that it is more probable than not that he behaved in breach of his duties in regard to the acquisition of the house property in New Zealand. The primary records showing how these transactions in Taiwan were structured would on such a view be admissible if they showed fraudulent or similar conduct on the part of the defendant. A secondary source of the information would potentially be judgments or decisions of the Taiwanese Court which summarise and expressed conclusions concerning the transactions in Taiwan.

Whether such documents in the latter category would be admissible at trial in New

Zealand is another question which does not need to be enquired into at this point.

[34] It is the uncertainty about the scale of the exercise of collecting and collating and disclosing the documents which were created as part of the Taiwanese transactions that gives me concern in this case.

[35] Looking at the overall justice of the situation, the need for discovery which informs the question of how important the documents are to the plaintiff is to some extent minimised by considerations of whether the plaintiffs may be able to put copies in their own possession for its documents at trial or obtain copies from third parties. If the conduct of the defendant in regard to the sales of securities in 1999 is relevant then it is important for the plaintiffs to have the documents – but as I have attempted to outline there is uncertainty as to what burden it would place upon the defendants to provide these documents and there is the likelihood that the plaintiffs have retained some of the documents or could get them from third parties. Balancing all of those issues I consider that it would not be justified for the Court to make an order for particular discovery as sought.

Travel records of the defendant from 1994 to present

[36] Ms Manuson told me that the particular travel records which the plaintiffs are seeking are the immigration history showing the arrivals and departures of the defendant in New Zealand. This information which would be recorded by the immigration authorities is contained in documents (presumably electronic) which are under the control of the defendant to the extent that he can require a copy to be provided to him.

[37] It is the plaintiffs’ contention that the dates that the defendant was in New Zealand may have relevance to receipt by him of rent for the property. Secondly the applicant’s case is that the defendant returned to Taiwan and would have had the opportunity to view the financial statements of the family company. If the financial statements showed that the Avondale property was a company asset and if the

defendant claimed to have a beneficial interest in the property then he would have observed the inconsistency between his claim and what the company records said.

[38] In relation to the rent issue Ms Wickes pointed out that the claim brought against the defendant does not apparently seek compensation for his occupation of the Avondale property.

[39] It can fairly be argued for the plaintiff, I consider, that if the defendant had the means to physically control possession of the property at Avondale then he would have been able to collect rent from the property (whether for a particular room or rooms in the main dwelling or for the “sleep out”). Given that it should be fairly easy for the information to be obtained from the official sources I consider that for that reason alone the information about his arrivals and departures from New Zealand could be relevant. I appreciate that in terms of a standard discovery order such information cannot be said to advance his case or detract from the plaintiffs’ case. But I consider that a tailored discovery order directing provision of this type of information can with justice be made in the circumstances of the case given the relatively narrow scope of the information sought.

[40] There is a supporting reason which I consider also is persuasive and that is that if there was no bank account and if the defendant was receiving a payment of the rent directly into his own hands then the fact that he was present in New Zealand would be at least consistent with the allegations of the plaintiffs. The defendant would have had the ability to take possession of rental funds. For those reasons I consider the order as sought ought to be made.

Costs

[41] The defendant seeks costs as does the plaintiff. The defendant’s counsel, Ms Wickes, submitted that the defendant had been successful on the current application except for one category of the six in regard to which orders were sought.

[42] Ms Manuson made reference to Category 5 and said that initially the opposition which the defendant brought to that part of the application was that the

documents were irrelevant to the current proceeding. Ms Manuson noted however that the Court accepted that possibly the documents were relevant and that it was on grounds of proportionality that the application was dismissed. She said this was not noted in the notice of opposition.

[43] Ms Wickes on the other hand noted that in her written synopsis at 11.9 she expressly raised the question of proportionality.

[44] As I did in the previous costs order made in this case on 11 April 2017 I again refer to the Court of Appeal decision in Packing In Limited ( in liq) formally known as Bond Cargo Limited v Chilcott.⁷ The decision in Packing In clarified the approach that the Court is to take “where in broad terms each party has had similar success” in relation to an application. In this case I consider the defendant has had the preponderance of success. There has not been approximately equal success and failure on each side. Nor is this a case where the plaintiffs, although unsuccessful on the numerical majority of issues, had success in the one issue that was substantially

of much greater significance than the others. This latter type of case is one where a party in the position of the plaintiffs might be entitled to an order for costs. This, however, is not such a case.

[45] In my view costs ought to be paid by the plaintiffs on a 2B basis together with disbursements as fixed by the Registrar.

Final matters

[46] Ms Manuson addressed some additional remarks to Category 5 of Schedule 1 after I had given my decision in regard to that category. It was her position that because the Court had attached considerable weight to the potential width of the category of documents sought that there could be no assurance that ordering

_{discovery would not have an oppressive affect. She submitted therefore that the}

⁷ Packing In Limited ( in liq) formally known as Bond Cargo Limited v Chilcott (2003) 16 PRNZ

869 at [5].

most effective way of dealing with the matter might be for the question to be left open so that the plaintiffs could re-address the formulation of the documents that they were seeking to limit them to a more manageable category. This approach was opposed by the defendant.

[47] In my judgment, some of the discovery issues that have had to be determined by the Court in this case are not those which could be described as being straightforward. While it is possible for the Court to informally deal with discovery issues in case management conferences without the structure of a notice of application, notice of opposition and supporting material, that approach would not have been apt here. It would not be suitable either for considering a scaled back version of what the plaintiffs would now wish to substitute as the definition of documents in schedule 1 Category 5. It is open to the plaintiffs to bring a further application if they judge that that would be wise. I have however drawn attention to the requirements of r 7.52 which places a limitation on second interlocutory

_{applications being brought without first obtaining leave.}

J.P. Doogue

Associate Judge