Zhou v Chi [2018] NZHC 1298 (5 June 2018)

Last Updated: 10 July 2018

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2017-404-1761 [2018] NZHC 1298

BETWEEN	XIN ZHOU Applicant
AND	XIAO RAN CHI First Respondent JIAN PING YUE Second Respondent WEI HUANG YUE Third Respondent

Hearing:	25 May 2018
Appearances:	A Manuson and E H Callister-Baker for the Applicant D Zhang for the Respondent
Judgment:	5 June 2018

JUDGMENT OF MUIR J

This judgment was delivered by me on Tuesday 5 June 2018 at 3.00 pm Pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date:..............................

Solicitors:

A Manuson, Presitge Lawyers Limited, Auckland

E H Callister-Baker, Prestige Lawyers Limited, Auckland D Zhang, Amicus Law, Auckland

ZHOU v CHI [2018] NZHC 1298 [5 June 2018]

Introduction

[1] The third respondent Mr Wei Huang Yue and his parents, the first and second respondents, apply for orders discharging a freezing order made by Courtney J on 1 August 2017 (as subsequently varied by Venning and Palmer JJ).

[2] The charging order was in respect of the net proceeds of sale (comprising a little more than $600,000) of an apartment at 10/C-125A Hobson Street, Auckland Central. This apartment had, for a period of approximately four years been the family home of the Mr Yue and his wife, Ms Zhou, in whose favour the freezing order was obtained. Subsequently, however, they had moved to an address in Blockhouse Bay Road. Subsequently again their marriage broke down and Mr Yue returned to China.

[3] Ms Zhou’s application for a charging order proceeded on the basis that the Hobson Street apartment was relationship property and that the transfer of the proceeds of sale to Mr Yue’s parents was a disposition which could be set aside under s 44 of the Property (Relationships) Act 1976 (the Act).

[4] Mr Yue’s position is that although he was the registered proprietor of the apartment, he had at all times held it on trust for his parents. In addition he says that, even if that were not the case, the property had been acquired many years prior to entry into his relationship with Ms Zhou and at the point it was no longer the family home its status reverted as a matter of law to that of separate property. For these reasons he says Ms Zhou never had a good arguable case to a claim against the proceeds of sale and accordingly there was no proper basis for the issue of a freezing order.

[5] He also says that even if Ms Zhou had a claim against the proceeds, her assumed half share (approximately $300,000) could be satisfied from Mr Yue’s interest in other relationship property in West Auckland. He says, therefore, that a freezing order was not necessary to protect any claim which (contrary to his position) Ms Zhou was able to sustain.

[6] Additionally (and significantly within the context of my decision) he argues that there was material nondisclosure in relation to the without notice application determined by Courtney J.
[7] I have concluded that the freezing order is appropriately set aside. My reasons follow.

Background

[8] The familial relationships of the parties in this case give rise to a complicated factual matrix. I will endeavour to summarise the essential elements.

[9] Both Ms Zhou and Mr Yue have lived in New Zealand for some time. They met in 2011 and commenced living together in or about September of that year. They married in December 2011. They have one child who was born on 5 April 2013.

[10] At the time he met Ms Zhou, Mr Yue was registered as the proprietor of the Hobson Street apartment. This had been purchased in October 2006 when Mr Yue was a student in Auckland. The purchase price was $322,000, which was paid by a deposit of $87,000 and a loan from Westpac bank in the amount of $235,000. It is undisputed on the affidavits that the deposit was paid by Mr Yue’s parents and that they subsequently made payments to discharge the mortgage. This occurred by way of various payments in 2010 with a final payment on 31 August 2011 (that is, approximately coincident with the start of Mr Yue and Ms Zhou’s relationship).

[11] After the deposit was paid but before the purchase was settled, Mr Yue and his parents entered into a signed written agreement, the essential terms of which record that Mr Yue’s parents intended ultimately to settle in New Zealand and to that end had paid the deposit on what is described in the translation as “a small house”. The agreement recorded that the balance of the purchase price would be met by way of a mortgage in the name of their son, Mr Yue, as the borrower. Logically, such arrangement also involved Mr Yue (junior) being the registered proprietor of the property which is indeed what ultimately occurred. The agreement further recited that the parents would at a later time repay the mortgage.
[12] Significantly, the agreement records:

Party A (Parents) have the total ownership of this house.

Party B (Son) can live in this property long term until the time he has the means to be able to buy a house of his own and then move out.

[13] This document forms the basis of Mr Yue’s claim that the apartment was at all material times held by him as trustee for his parents.

[14] On the approach I take in this judgment I am not required to make a final decision in that respect. Whether the apartment was at any stage Mr Yue’s separate property is a matter before the Family Court in related proceedings between the parties. Mr Zhang submits that the 2006 agreement contained sufficient certainties of intention, subject matter and objects to create a trust. Although there is, in my view, force in that submission, the matter should be left for determination of the Family Court (or by this Court were all the proceedings transferred to it) having satisfied itself that the document genuinely predates the parties’ relationship.

[15] In the latter part of 2011, Ms Zhou and Mr Yue moved into the apartment. Approximately eight months later they were joined by Ms Zhou’s parents who Mr Yue describes as elderly and not having a place of their own to live in. Mr Yue says that they were meant to pay rent but never did so and that they had to be fully supported by Ms Zhou and himself.

[16] With the arrival of the couple’s child on 5 April 2013 the apartment was considered too small for a family of five and the parties began to consider alternatives. The largely undocumented transactions which followed appear, in retrospect, to have been the genesis of the deterioration and ultimate collapse of Ms Zhou and Mr Yue’s relationship.

[17] In approximately June 2013, Ms Zhou identified a redevelopment opportunity at 236 Blockhouse Bay Road. This was a large property capable of being subdivided into three lots. Initially it seems that she planned development of the property with a third person (a Mr Lin), but this did not eventuate and at that point Mr Yue became involved in the project.
[18] The property was purchased for $926,000, $660,000 of which was funded by an ANZ loan. The balance appears to have been funded either by Ms Zhou or her parents.¹ Ms Zhou and Mr Yue became jointly registered as proprietors of the property and joint mortgagees to the bank. Ms Zhou says that this was all simply a mechanism to facilitate purchase of the property by her parents who were not in employment and could not therefore raise money for the purchase. Mr Yue says that this is far from the case and that among the ultimate purposes of the development, one was to provide a larger home for their expanding family.

[19] Demolition of an existing dwelling on the property and subdivision proceeded as planned. Three lots were created of which two were sold for $515,000 and $550,000 respectively. A new home was, in turn, constructed on the third lot (236C Blockhouse Bay Road) into which Ms Zhou, Mr Yue, their child and Ms Zhou’s parents moved in or around July 2015. This was approximately one year prior to the break-down of the relationship.

[20] Mr Yue deposes (with extensive primary documentation to support what he says) that he had a very substantial role in the redevelopment, including communicating and negotiating with architects, contractors, lawyers and local authorities and that he also made significant financial contributions to it including a sum of $207,000 which he borrowed on the security of the Hobson Street apartment. He also deposes to having paid at least $4,000 of interest on the ANZ loan together with numerous (and substantial) accounts associated with the development including to Watercare ($21,082), Vector ($4,432) and timber merchants ($10,000). In addition, he says that he introduced in excess of $100,000 of his parents’ money into the development. This sum, together with the amount borrowed on the security of the apartment have been repaid from the proceeds of sale of the two sections.

[21] From the time that the parties moved into the new house, both Ms Zhou and Mr Yue depose to arguments about money. Ms Zhou says this is because Mr Yue was putting pressure on her parents to fund another property in which Mr Yue, Ms Zhou

1. Ms Zhou says her father funded the case contribution but this is not yet established by reference to any primary accounting record. Mr Yue says that even assuming the ultimate source of the money was Mr Zhou a presumption of gifting will apply in Ms Zhou’s favour in the absence of evidence to the contrary.

and their child could live and she says the tension escalated when Mr Yue’s parents arrived in New Zealand and made additional demands in this respect. Mr Yue says that it was in fact Ms Zhou and her parents who were placing pressure on his side of the family. Ultimately the pressures resulted in a breakdown of Ms Zhou and Mr Yue’s relationship.

[22] At the point of separation Mr Yue returned briefly to the apartment with his parents. After approximately a month they all returned to China.

[23] In August 2016, the apartment was sold for $620,000. Ms Zhou was not consulted. Subsequently, the net proceeds of sale were transferred from the trust account of the solicitors who acted on the conveyance to an account in the name of Mr Yue’s parents. Mr Yue says that this is because the apartment was always, beneficially, their property. At the time Ms Zhou sought her freezing order, the monies remained in the parents’ account.

[24] Subsequent to the separation, Ms Zhou has transferred her interest in 236C Blockhouse Bay Road to her father.

The application for freezing order

[25] This was made on a without notice basis on 31 July 2017. It was supported by an affidavit of the same date by Ms Zhou. No memorandum of counsel was filed with the application. Because of the importance of the nondisclosure argument in the context of the current application it is necessary to review the content of the affidavit in detail.

[26] Ms Zhou firstly records that she had commenced proceedings in the Family Court seeking orders under the Act, including orders under s 44 in relation to the sale proceeds of the apartment. She says that she had not served the proceedings for fear that, if she did so, that the proceeds of the sale would be repatriated to China.

[27] She describes the Hobson Street apartment as having been purchased by Mr Yue and that from the commencement of their relationship in September 2011 through to approximately July 2015 they had both lived there. She says that with the arrival
of their son, she and Mr Yue made plans to purchase a bigger property but the proceeds of their apartment together with their savings were insufficient to do so. She then says, in terms highly relevant to the nondisclosure argument:

My father Xin Zhou invited us to move to his property situated at 236C Blockhouse Bay Road, Avondale, rent free. It was agreed that we would temporarily move to the Blockhouse Bay property and rent out the Hobson apartment...

[28] Nowhere in her affidavit does she state that the Blockhouse Bay Road property was in fact registered in the name of herself and Mr Yue and that they assumed liability as mortgagors to ANZ Bank. Nor does she give any background to the circumstances in which it came to be redeveloped, the contributions made by Mr Yue or his parents, or the fact that, to her knowledge Mr Yue had made relationship property claims in respect of it.

[29] She then deposes to a deterioration in the relationship referring to the fact that she was ultimately the victim of “violence” at the hand of Mr Yue’s mother. The affidavit does not explain that the alleged violence involved what Ms Zhou describes in the detail of the annexed police report, as a “very light slap which did not cause any injury”.

[30] She then deposes (in terms that Mr Yue strenuously denies) that from approximately November 2015 Mr Yue began to transfer relationship funds from their joint bank account into accounts under his sole name with a “premeditated pattern of defeating my rights”.

[31] Next she deposes to sale of the Hobson Street apartment in August 2016. She says that she did not know about the sale until shortly after it was completed and that in March 2017 she learnt that Mr Yue had instructed his lawyer to transfer the net proceeds to his parents’ account.

[32] She deposes that the funds in that account “represent the only relationship property of significant value to be divided in the Family Court proceedings under the
Act”² and that she regarded there as being a high risk that they would be disposed of with the result that her “rights and claims under the Act” would be “affect[ed]”.

[33] Significantly, the affidavit speaks only of relationship property claims, not of any other claims, as for example spousal or child maintenance claims. Against that background there was no obvious basis for her to be seeking a charging order over more than 50 per cent of the sale proceeds. Nevertheless, she sought to charge the full proceeds. As indicated, no memorandum was filed and this particular discrepancy was not drawn to the Court’s attention.

Judgment of Courtney J

[34] The applicant’s without notice application came before Courtney J as Duty Judge on 1 August 2017. Her judgment of that date recites the history of the parties’ relationship, the use of the Hobson Street apartment as a family home and their subsequent move “to stay with Ms Zhou’s family in Blockhouse Bay so they could rent out the apartment and save for a bigger home”. Her Honour then recorded:

[8] If Ms Zhou’s assertions are all correct then, on the face of it, she has a legitimate claim on part of the proceeds of sale of the Hobson Street apartment. There is information provided that tends to support her assertions, although the proceeding is at a very early stage. It does appear from Mr Yue’s emails to his lawyer that the proceeds of sale were paid into Mr Yue and Ms Chi’s [the parents] bank account on his instructions. The fact that this appears to have been done without reference to Ms Zhou does suggest he was seeking to avoid allowing her access to the funds, including by way of a Property (Relationships) Act claim.

[35] Her Honour identified that with Mr Yue and his parents having now left the country, there was little reason to keep the money here and that there was accordingly a good arguable case the funds were at risk of being “dissipated” and Ms Zhou’s claims thereby defeated.

[36] Her Honour therefore granted the freezing order in the terms sought which she expressed to be “until further order of the Court”.³

2. A claim which was highly contentious in light of the arrangement in respect of 236C Blockhouse Bay Road.
3. Rule 32.7(1) states that a freezing order must be “limited to a particular date, which should be as early as practicable after the freezing order is made”.

Variations to order

[37] Subsequently, her Honour’s orders were the subject of variations made by the Court because of identification of different account numbers to those originally specified.

[38] On 23 August 2017, an order for substituted service of the proceedings by email was made. This occurred shortly afterwards. Ms Manuson advises that by that stage the proceedings had been allocated a return date of 30 August in the Duty Judge list at which time an appearance was made on behalf of the applicant but no appearance was made for the respondents.

[39] On 30 August 2017, van Bohemen J, in turn, made further orders at that time continuing the freezing order “until the conclusion of the Family Court proceedings concerning the relationship property to which the orders are related”.

[40] I refer to this procedural history in so far as it confirms that the present application (which was filed on a basis expressly without prejudice to the respondents’ position that the onus remained with Ms Zhou to justify the order) is the first substantive opportunity to test the merits of Ms Zhou’s claim. As such I accept Mr Zhang’s submission that the onus remains on Ms Zhou to establish the jurisdictional requirements for the issue of a freezing order. I rely in that respect on the decisions of Shaw v Narain and Gong v Zhang.⁴ However, I do not consider questions of onus ultimately determinative in terms of the outcome of Mr Yue’s application.

Criteria for the grant of a freezing order

[41] These are uncontroversial in terms:⁵

(a) the applicant must show that he or she has a good arguable case on their substantive claim;

⁴ Shaw v Narain [1992] 2 NZLR 544 (CA); Gong v Zhang [2016] NZHC 705.

⁵ Bank of New Zealand v Hawkins [1989] NZHC 198; (1989) 1 PRNZ 451 (HC).

(b) there must be assets of the defendant within the jurisdiction to which the orders can apply;

(c) the applicant must show there is a real risk of dissipation; and

(d) balanced against the prospect the plaintiff’s judgment may be rendered barren must be any prejudice or hardship to the defendant and to the third parties from a grant of the order.

Basis of Mr Yue’s application

[42] Mr Yue’s application to discharge the freezing order proceeds on the following identified grounds which I take from paragraph 2 of the application.

(a) At the first inter parties hearing the applicant bares the onus of satisfying the Court that the freezing order should be continued or renewed, however the applicant does not satisfy this onus.

(b) The applicant has not made full and frank disclosure of all material facts but in fact has misled the Court as to the material facts.

(c) The freezing order is unnecessary because there is no danger that judgment in favour of the applicant will be wholly or partly unsatisfied.

(d) The assets subject to the freezing order are not assets of a judgment debtor or prospective judgment debtor.

(e) In any event the applicant has no legally tenable claim against the frozen assets.

[43] I address at the outset what I regard as the threshold issue, being the adequacy of the applicant’s disclosure on the without notice application.

The obligation of full and frank disclosure

[44] The applicant for a without notice order owes the Court a duty of utmost good faith to make the fullest disclosure of all facts relevant to the application. As McGechan on Procedure HCR 7.49.03(3) records:

This duty extends to all matters relevant to the application, whether or not the applicant considers them important. In particular the applicant has a duty to disclose to the Court any known defence to the application, together with the facts on which it is based. This duty is firmly established on the authorities.

[45] While the rule is one of general application, it has particular relevance to applications for freezing orders and preservation orders where the intrusion on private property rights can be substantial and the consequences draconian.

[46] The most frequently cited statement of relevant principal is that of Gibson LJ in Brink’s MAT v Elcombe:⁶

(a) The duty of the applicant is to make “a full and fair disclosure of all the material facts”.

(b) The material facts are those which are material for the Judge to know in dealing with the application as made: materiality is to be decided by the court and is not an assessment of the applicant or his or her legal advisors.

(c) The applicant must make proper inquiries before making the application. The duty of disclosure applies not only to material facts known to the applicant but also to any additional facts which should have been known had such inquiries been made.

(d) The extensive inquiry which will be held to be proper and therefore necessary must depend on all the circumstances of the case including:

(i) the nature of the case which is advanced;

(ii) the probable effects of the order on the respondent; and

(iii) the degree of legitimate urgency and time available for making inquiries.

(e) If material nondisclosure is established the court will be “astute” to ensure that a plaintiff who obtains the ex parte order without full disclosure is deprived of any advantage he or she may have derived from that breach of duty.

⁶ Brink’s MAT v Elcombe [1988] WLR 1350 (CA) at 1356–1357.

(f) Whether a fact which is not disclosed is of sufficient materiality to justify or require immediate discharge of the order without examination of the merits depends on the importance of the facts to the issues to be decided by the Judge on the application.

(g) It is not for every omission that an order obtained ex parte will be automatically discharged.

[47] To that summary I would add this Court’s observation in Commissioner of Inland Revenue Limited v Dymock, that applicants for freezing orders should take extra care to ensure that the information they present to the Court is up to date and accurate.⁷

[48] Typically, an application for freezing orders will be accompanied by a memorandum of counsel. As noted in Tema Holdings Limited v Kostanich, it should not be left to the Judge to discern the issues and identify possible defences.⁸

Was there material nondisclosure?

[49] In my view the affidavit advanced in support of the without notice application did not meet the requirement on Ms Zhou to make full and fair disclosure of all the material facts. The deficiencies arose in a number of discrete areas, which I will now address.

The Blockhouse Bay Road property

[50] As indicated, Ms Zhou’s affidavit in support of the without notice application stated that 236C Blockhouse Bay Road was her father’s property and he had invited them to live there rent free.

[51] The following information, which was either known to Ms Zhou or, in my view, available to her on reasonable inquiry, was not included in the affidavit:

(a) 236C Blockhouse Bay Road was in fact registered in the name of Ms Zhou and Mr Yue and they had assumed the legal obligation of mortgagors.

⁷ Commissioner of Inland Revenue Limited v Dymock [2013] NZHC 3346 at [32].

⁸ Tema Holdings Limited v Kostanich HC Auckland CP 509/92, 16 April 1992 at 8.

(b) Mr Yue had made substantial financial contributions to its redevelopment, both as a result of a loan raised against the apartment, funds introduced through his parents and other accounts paid by him.

(c) Ms Zhou’s parents neither had any registered interest in the property, nor was there any deed or written declaration of trust in their favour.

(d) Funding for the initial purchase of the property was substantially by way of ANZ loan which had subsequently been discharged on sale of the sections 236A and B Blockhouse Bay Road.

(e) Mr Zhou maintained claims to the property.

[52] The last of these points is reflected in a document of particular relevance which Ms Zhou did not disclose.

[53] In November 2016, after the parties had separated, Ms Zhou (and the parties’ child) travelled to China where Ms Zhou and Mr Yue met and endeavoured to resolve their differences in relation to 236C Blockhouse Bay Road. They entered into a formal agreement identified as “Agreement on the Sale of a Property and Distribution of the Proceeds”. The introduction to the document states that Mr Yue and Ms Zhou:

... agree to sell their New Zealand property under the names (236C Blockhouse Bay Road, Avondale, Auckland, New Zealand, herein after referred to as “the property”) and signed this agreement regarding the sale and distribution of the proceeds”.

(Emphasis added)

[54] The agreement provides for Ms Zhou to conduct a sale of the property with a maximum 10 week settlement period and then provides as follows:

(5) The net proceeds from selling the property will be divided by the both parties’ nominated lawyer on the distribution day, the details are as below:

1. Both parties agree to transfer NZD Eight Hundred Thousand (NZD $800,000) from the net proceeds from the sale of the property to Weihang Yue and Xin Zhou’s joint account (12- 3077-081199-50) with the New Zealand ASB Bank.
2. Both parties agree to transfer the remaining proceeds after the deduction of NZD Eight Hundred Thousand (NZD$800,000), to Xin Zhou’s nominated account (12-3029-0029521-00).

[55] Ultimately, says Mr Yue, Ms Zhou repudiated this agreement.

[56] However, for present purposes it is relevant for the following reasons:

(a) It was entered into after the parties separated.

(b) It acknowledges that 236C Blockhouse Bay Road was “their” property not her father’s.

(c) It proposes a division of the proceeds of sale consistent only with Mr Yue having a relationship property interest in them. Nominally that interest had a value of at least $400,000 being half of the amount to be transferred to the parties’ joint account.

(d) An interest of at least that value was greater than the value of Ms Zhou’s interest in the apartment, assuming on her best case that the apartment was not held in trust for Mr Yue’s parents and it had not reverted to the status of the separate property when the parties moved to 236C Blockhouse Bay Road.

[57] Accordingly, there was evidence, not placed before Courtney J, that any claims Ms Zhou may have in relation to the apartment were adequately protected by Mr Yue’s interests in the Blockhouse Bay Road property.

[58] In a recent Minute in relation to the parties’ Family Court proceedings, Judge D A Burns describes the position in relation to 236C Blockhouse Bay Road in the following terms:⁹

[5] It looks as though, at the date of separation and for some time prior to it, it is the Blockhouse Bay property that was the family home. The respondent [Mr Yue] is claiming that the Blockhouse Bay property is relationship property on the basis that it was registered in the name of the parties. It looks as though the applicant’s [Ms Zhou] evidence is

⁹ Zhou v Yue FAM 2017-004-000249, Minute of Judge D A Burns dated 4 May 2018.

that Mr Zhou [applicant’s father] solely provided for the funding for the purchase of the property. That of course is not directly relevant to categorisation. The question is, was it acquired during the course of the relationship and does it meet the criteria under s 8 to be relationship property? Mr Zhou needed to obtain a mortgage for part of the purchase price but could not because he could not prove his income, thus the loan was taken out in the name of the parties. That is a relevant background fact which goes to the issue of categorisation. Mr Zhou has been making the mortgage payments. That does not mean to say that it is not relationship property. It may require some adjustment under s 18B post separation.

[59] In my view Ms Zhou’s affidavit in support of the application failed by a significant margin to give full and fair disclosure of relevant facts in relation to 236C Blockhouse Bay Road. In particular, simply to describe the property as her father’s house without any reference to the fact that it was registered in her and Mr Yue’s name and to the complexities of potential claims against the property (including by Mr Yue) and in failing to identify her own acknowledgment of Mr Yue’s interest in the property and its value, the Court was, in my view, given such an inadequate picture that on this ground alone the freezing order cannot be allowed to stand. The materiality of the information was obvious because having regard to the value of the respective interests previously acknowledged by her, a freezing order over the apartment proceeds was unnecessary to protect Ms Zhou’s best case claim to such proceeds.

Nondisclosure of defence arising out of move to 236C Blockhouse Bay Road

[60] Assuming the apartment was at one point relationship property by virtue of its status as family home (that is assuming that it was originally Mr Yue’s separate property and not held by him on trust for his parents), nevertheless it had the potential to revert to separate property at the point it was no longer the family home. As indicated in Thackwray v Thackwray the definition of family home is couched in the singular;¹⁰ “the dwelling house” and “the only or principal family residence”. Given the fact that the family moved from the apartment to 236C Blockhouse Bay Road, continuously resided at Blockhouse Bay Road for approximately a year, acknowledged the apartment as too small for their growing family and never returned there as a family, the apartment is, in my view, unlikely to have retained its status as the family home beyond the move to Blockhouse Bay Road.

¹⁰ Thackwray v Thackwray [2014] NZFC 8702 at [29].

[61] Although I do not make a specific finding in that regard, on the grounds that it is a matter appropriately reserved for the Family Court, if I am correct in my provisional views then, on the assumption that the apartment was Mr Yue’s separate property at the commencement of the relationship, it will have reverted to that status at the point it was no longer used for that purpose.¹¹

[62] Again Judge Burns addressed this issue in his Minute of 4 May 2018:

After M was born the parties found that the Hobson Street apartment was not big enough for their family and decided to use the family home to earn rental income while they lived with the applicant’s father, Mr Zhou, at Blockhouse Bay, Avondale. It follows therefore on the face of it that the apartment, which would have become the family home with the parties living there and once that ceased to occur in terms of the usual line of authorities, it would revert back to the separate property status that existed in 2006 once the use as a family home finished. But that needs to require a detailed analysis of the chronology.

[63] In my view it was essential that Ms Zhou’s application was accompanied by a memorandum identifying this issue and the relevant authorities because it foreshadowed a strong potential line of defence to Ms Zhou’s underlying claim. Nor do I have any doubt that, if this issue had been identified, it would have been regarded as weighing significantly on the merits of the application.

The parents’ interest in the apartment

[64] Ms Zhou states that throughout her relationship Mr Yue represented the apartment as his own. Since there is no suggestion in the evidence that she was provided with a copy of the 2006 agreement between Mr Yue and his parents, her position is therefore that she could not reasonably have been expected to identify the alleged trust status as a possible defence to her claims. There is, however, a critical piece of evidence against her on this issue.

[65] On 2 May 2016 Mr Yue, his parents and Ms Zhou met to discuss the potential purchase of another property in which Ms Zhou, Mr Yue and their child could reside. The meeting was in the context of growing tensions at Blockhouse Bay Road. Mr Yue

11. Thompson v Thompson [2000] NZFLR 161 (HC) at [14]-[18]; Thackwray v Thackwray [2014] NZFC 8702 at [40].

deposes that a property (number 78 in a street he cannot now recall the name of), was identified as being suitable for subdivision and construction of a new home. The property was to go to auction. It was anticipated that it would attract a price in the order of $1.2 million. Mr Yue says that his parents “generously” offered to become co-purchasers of this property with an approximately $1 million cash contribution. The balance, together with anticipated subdivision costs, was to be paid by Ms Zhou and Mr Yue who would in turn provide a short term loan pending sale of one of the sites and construction of the new dwelling on the other. Mr Yue produces a handwritten agreement signed by all four parties and dated 2 May 2016, paragraph 2 of which recites:

Yue, Jian Ping and Chi, Xiao Ran [the parents] contribute approximately $1 million (the sale proceeding of the city apartment, 630,000; Cash $290,000; purchase of part of the construction material and furniture from China

$80,000.

[66] This then is clear evidence that Ms Zhou recognised that Mr Yue’s parents were the owners in equity of the apartment. Had that document been disclosed then inevitably in my view no freezing order would have issued for the reason that Ms Zhou would have failed to establish a good arguable case that she had a claim over the property or the proceeds.¹²

[67] Recognising the difficulties this document poses, not only within the disclosure context but in terms both of the jurisdictional requirements for a freezing order and for her substantive claims in the Family Court, Ms Zhou now questions the authenticity of the document. She says that the original (which is handwritten and in Mandarin) is comprised of two pages. She says that the signature occurs only on the second page and that when she signed the document she recalled initialling the first page. Since the document in evidence has no initials on the first page she invites the

¹² Ms Manuson relies on decisions such as Ryan v Unkovich [2009] NZHC 2627; [2010] 1 NZLR 434 (HC); Gray v Gray [2013] NZHC 2890 and SMW v MC [2013] NZHC 396, [2014] NZFLR 71 to say that because s 44 refers to any disposition of property and not specifically relationship property or separate property it was intended to have wide application. Thus, for example, separate property settled on a trust within the first three years of a defacto relationship may give rise to claims under s 44. However, if at all times prior to commencement of the relationship the Hobson Street apartment was held on trust for Mr Yue’s parents, different considerations will apply.

conclusion that the document has been fraudulently altered with the substitution of a new first page containing the reference to the apartment proceeds.¹³

[68] I cannot resolve the authenticity of the document in the context of an interlocutory application. There is an element of convenience in the claims Ms Zhou now makes given the negative implications of the document for her case. Moreover, she does not dispute that there was a discussion in early May 2006 about the purchase of a new home and that Mr Yue’s parents would contribute at or about $1 million towards it. If $630,000 of this contribution was not to come from the apartment the question arises, where else was it to be sourced from? The apartment was at that stage already on the market and an offer at the level of $630,000 had been received. There is accordingly a compelling logic about the parental contribution being in part sourced from the apartment sale. Moreover, to the extent that Ms Zhou says the document is not authentic she does not depose to what she says were its actual contents.

[69] As best, therefore, as it is possible to make any assessment of authenticity at this stage, it favours the document not having been fraudulently altered after execution. If that is the case, then undoubtedly it or its content should have been disclosed. However, assuming for the purposes of argument that it was altered, there was nevertheless, in my view, an obligation on the part of Ms Yue to at least identify in her application that:

(a) To her knowledge there had been discussions, to which Mr Yue’s parents were parties, about a sale of the apartment prior to the parties separation and that an offer had been received.

(b) Mr Yue’s parents were contemplating making a $1 million contribution to a new purchase.

(c) It was possible, indeed likely, that they saw the apartment proceeds as part of that contribution.

13. She deposes “I highly doubt the credibility of the document and believe the first page was altered”. Significantly, she does not state as a direct proposition that the document is a fraud.

[70] For my own part I regard it as implausible that Mr Yue, his parents and Ms Zhou could have been discussing arrangements for co-ownership of a new property without implicit or explicit recognition that the parents’ contribution of $1 million was to be in part sourced from the apartment proceeds. Whatever the authenticity of the document, these discussions and their implications for the defences available to Mr Yue should, in my view, have been disclosed.

Summary: non-disclosure

[71] This therefore is a case where the allegation of material nondisclosure has a number of separate facets. The correct approach is, in my view, to look at the totality of Ms Zhou’s disclosure obligations and to ask whether, assuming there had been proper disclosure, the freezing order would have been issued. If not, then to sustain it now would mean the Court had failed in its obligation to ensure that a party who has defaulted in his or her duty of full disclosure is deprived of any advantage he or she may have derived from that breach of duty.

[72] In my view the nondisclosures in this case were sufficiently material and have so significantly impacted on the original exercise of judicial discretion that the order is appropriately discharged. I am particularly exercised by the failure to disclose the November 2016 agreement which recognised 236C Blockhouse Bay Road as Ms Zhou and Mr Yue’s property and the fact that what was at one stage at least recognised as Mr Yue’s interest in that property was sufficient to meet any realistic claim Ms Zhou might have over the apartment.

[73] I ask myself, if I had been in the position of Courtney J and been the beneficiary of adequate disclosure, would I have made the freezing order? The answer to that question is unequivocally no. I would have considered that, in totality, there were too many doubts about the quality of the claim and/or about the necessity to freeze the sale proceeds in order to protect legitimate claims, for an order of the type sought to be appropriate.

[74] In that context I do not consider it necessary to make any more conclusive findings in respect of Mr Zhang’s alternative arguments about characterisation of the Hobson Street apartment as relationship property and/or (if at any stage it was a family
home), its reversion to the status of separate property at the point the parties moved to 236C Blockhouse Bay Road. In my view these issues are best left for the Family Court, uninfluenced by what at best could only be provisional views without the benefit of a full hearing on the merits.

Result

[75] I discharge the freezing order made by Courtney J on 1 August 2017 (as from time to time varied or confirmed by this Court, refer Minutes of Venning J dated 2 August 2017, Palmer J dated 9 August 2017 and van Bohemen J dated 30 August 2017).

Costs

[76] At the conclusion of hearing I invited submissions on costs on the alternative bases that the application was either granted or declined.

[77] In the event it was granted, Mr Zhang submited that his client should be entitled either to indemnity costs or increased costs.

[78] In the Dymock decision indemnity costs were awarded against the Commissioner on the basis her representatives had used “loose language” in their application and had failed to check material facts such as whether the respondent was in the country before swearing affidavits.¹⁴ The Court considered that, albeit not deliberately, it had been misled.

[79] There is, however, no invariable principle that where an order is granted on a without notice application and subsequently set aside on the basis of material nondisclosure, indemnity costs must follow.

[80] In the present case I am unpersuaded to grant indemnity costs. My reasons are as follows:

¹⁴ Commissioner of Inland Revenue Limited v Dymock [2013] NZHC 3346.

(a) Insofar as there was nondisclosure of the possible legal consequences of the parties having moved from the apartment to 236C Blockhouse Bay Road, that is more likely to have been on account of an oversight on the part of counsel than any deliberate withholding of information by Ms Zhou.

(b) The parties have ongoing proceedings before the Family Court. Much of the work undertaken by Mr Yue on the current application, and in particular the forensic work relating to his contributions to the Blockhouse Bay Road development, is information necessarily presented in the context of the Family Court case. To grant indemnity costs would therefore effectively be to insulate Mr Yue from costs otherwise necessarily incurred and for which he may receive a very different level of ultimate recovery.

(c) I have concerns that parts of Mr Yue’s case were overworked. By way of example, although there is no provision in the Rules for filing reply submissions, Mr Zhang chose to do so. The reply submission was equivalent in length to the maximum permitted to be filed on an interlocutory application. It contained material which in my view was repetitive and unhelpful. So too, the submission in support of the interlocutory application exceeded by 50 per cent the maximum permissible length.

(d) An award of indemnity costs without further review of individual line items would therefore be implicitly to reward actions outside the Rules.

[81] In my view the correct approach is to first categorise the proceedings and then consider whether an uplift is appropriate. As to category and band, I consider 2B to be appropriate. I specifically limit item 24 (preparation of written submissions) to the submission filed on 18 May 2018. I allow 0.75 of a day for the hearing (which concluded at 3.40 pm).
[82] I further consider that an uplift of 25 per cent on scale costs is warranted having regard to a r 14.6(3)(d) and my findings in relation to nondisclosure. Although I have not seen fit to award indemnity costs, it is in my view appropriate that the Court mark, by way of some increase on scale, the critical importance of full and fair disclosure of all material facts on a without notice application. Further an uplift recognises the significant costs to which a party may be put in exposing such inadequate disclosure and therefore a party’s breach of duty to the court.

[83] In the unlikely event quantum cannot be settled on the basis of this judgment, memoranda may be filed.

Muir J