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High Court of New Zealand |
Last Updated: 4 July 2018
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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
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CIV-2015-404-2256
[2018] NZHC 1355 |
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BETWEEN
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JIAN JUN QU
First Plaintiff
JIAN PING WANG
Second Plaintiff
YAN QU
Third Plaintiff
J M BUILDING MATERIALS COMPANY LIMITED
Fourth Plaintiff
FORMODA REAL ESTATE DEVELOPMENT COMPANY LIMITED
Fifth Plaintiff
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AND
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JUN ZENG
First Defendant
J & H DEVELOPMENT LIMITED
Second Defendant
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Hearing:
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6 October 2017 and further affidavit evidence and submissions filed up to 3
November 2017
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Appearances:
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G Blanchard QC and C Jiang for the Plaintiffs A Manuson and E Hong for the
Defendants
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Judgment:
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5 June 2018
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Reasons:
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13 June 2018
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JUDGMENT OF WOODHOUSE J
JIAN JUN QU v JUN ZENG [2018] NZHC 1355 [13 June 2018]
This judgment was delivered by me on 13 June 2018 at 9:00 a.m. pursuant to r 11.5 of the High Court Rules 2016.
.......................................... Registrar/Deputy Registrar
[1] The plaintiffs seek declarations that the defendants are in contempt of court by breaching freezing orders, an order that the first defendant be imprisoned for six weeks for contempt, and orders that both defendants pay indemnity costs.
Background
[2] The first and second plaintiffs, Mr and Mrs Qu, are the parents of the third plaintiff Ms Qu. Mr and Mrs Qu control the fourth and fifth plaintiff companies.
[3] The first defendant, Mr Zeng, was Ms Qu’s husband. Mr Zeng is (or at relevant times was) sole director of the second defendant company, J & H Development Ltd.
[4] Ms Qu and Mr Zeng were married in January 2008. Between 2008 and 2015 Mr and Mrs Qu lent substantial sums of money to Mr Zeng. On 28 and 29 September 2015 the plaintiffs commenced proceedings against the defendants and applied for summary judgment. They alleged that Mr Zeng directly, or through J & H Development, acted dishonestly in dealings with the plaintiffs and in respect of assets of the plaintiffs. It is unnecessary to go into the detail.
[5] On 30 September 2015 the plaintiffs obtained the first of six freezing and ancillary orders against the defendants. The orders were served on both defendants on 2 October 2015.
[6] The freezing orders apply to a wide range of particularised real and personal property recorded in cl 4 of the orders, including 10 particularised bank accounts. Further property is described in cl 4 in general terms as follows:
...
(h) Funds held to the first defendant’s order (either severally or jointly) in any account with any other New Zealand bank or financial institution;
(i) Funds held to the second defendant’s order (either severally or jointly) in any account with any other New Zealand bank or financial institution;
...
(m) Any other assets, either real or personal, in which the defendant has a beneficial and legal interest power or disposition, whether solely or jointly.
[7] There are two substantive freezing orders in cls 5 and 6. These orders apply to the property listed in sub-paragraphs (a) to (l) of cl 4, and therefore do not apply to the property described in sub-paragraph (m). These orders restrain both defendants from removing any of the property from New Zealand, or from any place outside New Zealand, and from disposing of, or dealing with, or diminishing the value of, any of the property in or outside New Zealand.
[8] Clause 7 makes provision for each of the defendants to deal with property subject to the freezing orders for the following purposes and on the following terms:
(a) Paying ordinary living expenses up to a maximum amount of $4,000 per month, only to be withdrawn (if needed) from any account or accounts approved in writing by the plaintiffs or their solicitors;
(b) Paying legal expenses related to the freezing order by a maximum one-off, lump sum withdrawal of $10,000, only to be withdrawn (if needed) from an account or accounts approved in writing by the plaintiffs or their solicitors;
(c) Disposing of assets or making payments in the ordinary course of business, including business expenses (if any) incurred in good faith and be limited $1,000 per week [sic], only to be withdrawn (if needed) from an account or accounts approved in writing by the plaintiffs or their solicitors.
[9] Clause 13 has an order as follows:
The first defendant is ordered to file an affidavit and serve the same on the plaintiffs within three working days of service of this order, disclosing the existence, nature, value, and whereabouts of his assets, including, but not limited to:
(a) Particulars of all bank accounts and other accounts held in the first defendant’s name, Easy Cash Finance Limited’s name, and Hopu Investment Limited’s name, and the balances of those accounts;
(b) Originals or copies of all bank statements in the first defendant’s name, Easy Cash Finance Limited’s name, and Hopu Investment Limited’s name;
(c) A detailed description of where all the monies received and/or taken from the plaintiffs have been transferred, paid out, or spent, including
details of the names of any companies, persons, or accounts to whom transfers or payments have been made, when such transfers or payments were made, and where those funds transferred are presently; and
(d) Particulars of all other assets either real or personal in which the first defendant has a beneficial or legal interest, and all assets over which the first defendant has power of disposition or control.
[10] There is an order in cl 14 directed to J & H Development on terms relevantly similar to the order in cl 13.
[11] The second freezing and ancillary orders were made on 14 October 2015. The principal change was an addition to cl 4 of further particularised property, including funds held to the order (severally or jointly) of Zufang Zhang (Mr Zeng’s mother), Huimin Zhao (Mr Zeng’s former girlfriend), and Jiayao Xu (Mr Zeng’s current girlfriend). The substantive freezing orders were amended, extending those orders to the property identified in sub-paragraph (m) of cl 4 (omitted from the original order) and to the further property identified in the additions to cl 4.
[12] Further orders were made on 15 February 2016, 7 July 2016, 27 February 2017 and 29 May 2017. The changes do not need to be recorded.
[13] On 2 March 2017 the plaintiffs obtained summary judgment against the defendants for a sum of NZD 12,168,742.1 The present application followed.
[14] On 6 July 2017 Mr Zeng was adjudicated bankrupt on an application by a creditor named Easy Transport Ltd.
Preliminary issues
[15] There are two preliminary issues. These are issues appropriately dealt with before outlining the relevant legal principles and then considering the plaintiffs’ contention that the defendants are in contempt of court for breaching one or more of the freezing orders.
1 Qu v Zeng [2017] NZHC 315.
Preliminary issue 1: were all orders served on the defendants?
[16] The defendants admitted they were served with the freezing orders made on 30 September 2015, 27 February 2017 and 29 May 2017 – the first, fifth and sixth orders. They contend that the second, third and fourth orders were not served. My conclusions are as follows.
Second orders: 14 October 2015
[17] Service on both defendants on 17 October 2015 is proved by an affidavit of service of the process server, Mr Harry Redwood, sworn on 6 November 2015. It is surprising that Mr Zeng’s contention, that he and J & H Development had not been served, was maintained in submissions notwithstanding the fact that this affidavit of service was filed on 10 November 2015.
Third orders: 16 February 2016
[18] Service on both defendants on 25 February 2016 is proved by an affidavit of service of Mr Redwood sworn on 6 October 2017.
[19] The original proof of service was provided in an affidavit of Ms Qu in which she produced a copy of Mr Redwood’s service report. The report is clear evidence that service had been effected, but it was not contained in an affidavit from Mr Redwood. The report had been produced in response to a contention by Mr Zeng that he had not been served.
[20] The defendants’ contention that they had not been served was maintained in submissions, notwithstanding the clear evidence from the process server’s report, on the grounds that the evidence produced by Ms Qu was hearsay. It is arguable that it is not hearsay, but the plaintiffs took the straightforward course of obtaining an affidavit from Mr Redwood, being the affidavit sworn on 6 October 2017.
Fourth orders: 7 July 2016
[21] The plaintiffs contended that the orders made on 7 July 2016 were served on both defendants by service on solicitors, Loo & Koo, on 13 July 2016. Delivery of
the orders to Loo & Koo, by attachment to an email of 13 July 2016 from the plaintiffs’ solicitors, is established. A copy of the email with the annexed orders is in evidence and there is no challenge to the fact of delivery. The defendants’ contention is that this was not effective service because Loo & Koo were not authorised to accept service on behalf of the defendants.
[22] It appears that Loo & Koo were acting for Mr Zeng when copies of the orders were sent by email on 13 July 2016. However, Loo & Koo were not solicitors on the record in this proceeding and the plaintiffs have not produced evidence that Loo & Koo were authorised to accept service. I am not satisfied that these orders were effectively served. This, however, has no bearing on the issues I am required to determine.
Preliminary issue 2: did Mr Zeng have funds in excess of NZD 1.1 million at 30 September 2015?
[23] The plaintiffs contended that at 30 September 2015, the date of the first freezing order, Mr Zeng had funds at his disposal in excess of $1.1 million. The contention was that this was the balance of proceeds of sale of assets received by Mr Zeng between June and 30 September 2015 and which Mr Zeng had not established had been disposed of by him up to 30 September 2015. It should be noted that this first freezing order was served on both defendants on 2 October 2015. The two day difference between the date of the order and the date of service is not relevant having regard to the evidence. For convenience I will refer to the end date as “30 September 2015” and to the proceeds received by Mr Zeng between June and 30 September 2015 as “the June-September proceeds”.
[24] Mr Zeng’s evidence, in an affidavit filed with leave following the hearing, was:
The Plaintiffs claim I had approximately $1,100,000.00 available from the sale of 80 Fred Taylor Drive. From 1 April 2015 to 30 September 2015, all these funds were used to meet mortgage and car liabilities, loan repayments, business expenses, business investments and my living expenses. By September 2015, there was only approximately $14,000 left in my ANZ bank account. I could not use these funds because of the freezing order.
[25] I am satisfied that the balance of the June-September proceeds available to Mr Zeng at 30 September 2015 was NZD 1,631,428. My reasons for this conclusion follow. The relevant sums are, in summary, as follows:
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The June-September proceeds:
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NZD 2,751,000
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Proved disposition of part of the proceeds by Mr Zeng between June and 30
September 2015:
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NZD 1,119,572
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Balance available to Mr Zeng at 30 September 2015:
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NZD 1,631,428
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The June-September proceeds
[26] As recorded above, one of the orders made on 30 September 2015 was that Mr Zeng file and serve a full statement of assets and of other particulars relating to, amongst other things, disposition of moneys received. No affidavit was filed until 7 August 2017. The failure to provide the affidavit is one of the alleged breaches, to be considered below. The affidavit is presently relevant because it contains admissions by Mr Zeng that, between June and 30 September 2015 he received the total of NZD 2,751,000. The plaintiffs contended that Mr Zeng provided evidence of disposal of only NZD 1,122,435 of that total. The correct figure, from the individual sums relied on by the plaintiffs, is in fact NZD 1,119,572 (ignoring cents). The difference is the balance recorded above of NZD 1,631,428.
[27] Particulars in Mr Zeng’s evidence of the sums he admitted receiving between June and 30 September 2015 are as follows, in chronological order:
(a) Mr Zeng recorded in schedule A to his affidavit of 7 August 2017 that on 6, 16 and 19 September 2015 he received a total of NZD 73,000 from pawning five wrist watches. The plaintiffs had earlier produced evidence from the pawn broker recording the same particulars of dollars received and brands of watches, except all of the dates are in June 2015. Nothing turns on the difference in the dates in relation to the present issue.
(b) Mr Zeng’s evidence establishes that on 17 July 2015 he received NZD 2.4 million from the total proceeds of NZD 7.65 million from the
sale of 80 Fred Taylor Drive. He said that NZD 5.25 million was paid to Mr and Mrs Qu, and the remainder was used to acquire properties in Auckland in St Andrews Road, Tidal Place, Walters Road, and to “pay for outstanding construction fees for J & H Development”.
(c) Mr Zeng also admitted that in August 2015 he received NZD 280,000 from the sale of a Lamborghini. He said that the total sale proceeds were NZD 400,000, that he used NZD 120,000 as a deposit on another Lamborghini, which became subject to the freezing order, and that the balance of NZD 280,000 was “used to meet my living expenses and mortgage liabilities”.
[28] The defendants claimed that the balance of the June-September proceeds was “in excess of $1.1 million”. As recorded above, I have concluded that the balance is NZD 1,631,428. The plaintiff’s cautious reference to the amount of the balance arises from the fact that Mr Zeng’s evidence referred to, or established, two different figures for the sum he received from the proceeds of sale of 80 Fred Taylor Drive – “approximately $2 million” and NZD 2.4 million. For the reasons that follow, I have applied a figure of NZD 2.4 million, as noted above. This also bears on Mr Zeng’s credibility.
[29] Mr Zeng’s affidavit of 7 August 2017 includes annexures “A” and “B”. Annexure A is a schedule which records the property Mr Zeng said he sold between July and September 2015, being the sales I am now dealing with.2 This is the schedule relied on by the plaintiffs for the calculation of the total of the June-September proceeds. In schedule A, Mr Zeng stated that he received “approximately $2 million net sale proceeds” from the sale of Fred Taylor Drive. Annexure B to the affidavit is a copy of an affidavit of assets and liabilities affirmed by Mr Zeng and filed in proceedings under the Property (Relationships) Act 1976 between Mr Zeng and Ms Qu. Mr Zeng said in his affidavit of 7 August 2017 in this proceeding that annexures A and B list all of his assets and liabilities to the best of his knowledge. The evidence in the statement of assets and liabilities in the Property (Relationships) Act proceeding
is substantially more detailed and it establishes, from the detail Mr Zeng himself provided, that he received $2.4 million.
Proved disposition up to 30 September 2015 of part of the June-September proceeds
[30] At the hearing there were substantial differences between the submissions for the plaintiffs and for the defendants on the evidence relating to disposition of the June- September proceeds. Because leave was granted to the parties, at the end of the hearing, to file further evidence and submissions on two other matters, counsel were asked to confer and, if in agreement, to file a joint memorandum recording the position arising from the evidence on disposal of those proceeds. They could not agree. Separate schedules were filed with some further written submissions for each party.
[31] Having considered the schedules, and the evidence identified in the schedules, I am satisfied that the plaintiffs’ contentions are correct. There is a total of 16 separate items identified in the schedules for both parties. I do not intend to analyse each item. I will record broader conclusions.
[32] The plaintiffs’ schedule identified 10 items which they accepted established expenditure by Mr Zeng from the June-September proceeds down to 30 September 2015 – the sum recorded above of NZD 1,119,572 (although, as noted earlier, the plaintiffs’ total was slightly more, because of an arithmetical error). This sum comes from a combination of unchallenged evidence for the plaintiffs, which I accept and which includes necessary particulars in relation to dates and amounts, including documentary evidence, and evidence from Mr Zeng on the other items which the plaintiffs did not challenge and which I also accept.
[33] Mr Zeng did challenge one aspect of the plaintiffs’ schedule, as opposed to evidence. This was in respect of the plaintiffs’ calculations of monthly instalments paid by Mr Zeng for purchases of three cars between July and September 2015; a BMW X3, a Porsche, and a Rolls Royce. The calculations made by the plaintiffs are accurate in respect of the monthly instalments from the date of purchase through to 30 September 2015. The arithmetic was not challenged. Rather there was a submission as follows:
The calculations provided are misleading evidence to the Court as there is no basis to assume the calculations truly reflect the total amount paid towards the vehicles. They are only assumptions which do not assist the Court in determining how much was left over from the sale proceeds of 80 Fred Taylor Drive.
[34] That submission is disingenuous. The calculations are not misleading. They are arithmetically accurate and this is based on the agreements for purchase which were put in evidence and not challenged by Mr Zeng. If there was further probative evidence from or for Mr Zeng of further expenditure by him on one or more of the cars, or on anything else, between June and 30 September 2015, that would be taken into account. But there is no such evidence. And there is no basis to “assume” that Mr Zeng may have spent more money in the absence of evidence of actual expenditure and the date on which it occurred.
[35] The plaintiffs’ schedule of expenditure has an eleventh item relating to furniture at 201A St Andrews Road, Epsom. Mr Zeng had settled a purchase of this property on 30 September 2015 and the sum paid by Mr Zeng towards the purchase – NZD 553,630.49 – was included by the plaintiffs in their calculation of expenditure by Mr Zeng up to 30 September 2015 from the June-September proceeds. The plaintiffs properly recorded the furniture as a possible further expenditure, because they were aware that Mr Zeng had acquired furniture for the property. (It is the subject of one of the alleged breaches of the freezing orders.) But they also recorded that that the cost and date of purchase of any furniture were unknown. Mr Zeng in response simply referred to this item without providing any particulars of dates or sums spent. There is no evidence from or for Mr Zeng that any furniture at St Andrews Road was purchased before 30 September 2015. There is no justification for making any allowance in favour of Mr Zeng in relation to furniture at St Andrews Road.
Mr Zeng’s contentions of further expenditure
[36] Mr Zeng’s principal contention was that, by 30 September 2015, the balance remaining was “only approximately $14,000”. His full evidence is recorded above at [24].
[37] The standard of proof for a plaintiff seeking an order that a defendant be held in contempt of court is proof beyond reasonable doubt of the essential matters that need to be proved. That standard of proof does not apply to issues of the sort I am dealing with in this section. The evidence relied on by the plaintiffs, which includes a substantial body of evidence from Mr Zeng himself, on the face of it establishes that, at 30 September 2015, no more than NZD 1,119,572 had been spent by Mr Zeng from the June-September proceeds.
[38] The bald statement in Mr Zeng’s further affidavit (recorded above) is made without any supporting evidence and is quite unpersuasive. All evidence already adduced by Mr Zeng in relation to expenditure from the June-September proceeds, down to 30 September, has been taken into account, including allowances for all car liabilities, loan repayments, business expenses, business investments, and living expenses established by the particularised evidence. This is all supported by documents, except for Mr Zeng’s claim of NZD 500 a week for living expenses. The living expenses claim is not particularized, but was accepted by the plaintiffs.
[39] Mr Zeng did seek to bring into account four particularised items of expenditure. None of these is relevant to the calculation of expenditure down to 30 September 2015. My reasons are as follows:
(a) NZD 250,000 paid, following demand, to the plaintiffs. This sum was paid on 2 April 2015, some two months before Mr Zeng received any of the June-September proceeds. His own evidence confirms this.
(b) NZD 610,000 in deposits for purchase of 12 Tidal Road. This money was received before June 2015. The evidence produced by the plaintiffs, contained in receipts issued to Mr Zeng by a real estate agency, is that he paid two deposits totalling NZD 610,000 on 27 and 28 May 2015.
(c) Mortgage payments on St Andrews Road of NZD 12,800 per month. Settlement of the purchase occurred on 30 September 2015. There was no liability for a mortgage payment before 30 September 2015.
(d) “Approximately $4,000” for monthly payments on a BMW X6. Evidence produced by the plaintiffs establishes that this car was purchased on 29 September 2015 and the first date for a monthly instalment payment was 22 October 2015. (And, in relation to the general unreliability of much of Mr Zeng’s evidence, the monthly instalment appears to be NZD 3,750,3 rounded to the nearest dollar, not “approximately $4,000”.) This item also is irrelevant.
Conclusion on preliminary issue 2
[40] At 30 September 2015, Mr Zeng had available to him a sum in excess of NZD 1.63 million. This fact is of central relevance in assessing the credibility of Mr Zeng’s evidence in support of his contentions that he did not breach the orders.
Contempt of court orders: relevant legal principles
[41] In May 2017 the Law Commissioner issued a report on the law of contempt: Reforming the Law of Contempt of Court: a Modern Statute.4 The report contains a succinct summary of the matters that must be proved by a party seeking to enforce a civil judgment by contempt proceedings. The summary is as follows, omitting citations:5
- (a) the terms of the court order were clear and unambiguous and binding on the defendant;
(b) the defendant had knowledge or proper notice of the terms of the order, normally as the result of personal service;
(c) the defendant acted in breach of the terms of the order; and
(d) the defendant’s conduct was deliberate.
[42] These four matters must be proved beyond reasonable doubt.6
3 The figure in the copy of the document produced in evidence is a little faint.
5 At [5.23].
[43] The requirement that the defendants’ conduct was “deliberate” does not mean that the applicant must prove that the defendant knew he or she was breaching the order.7 What the applicant must prove is that the act of the defendant which breached the order was an intentional act rather than, for example, an accidental act. A deliberate act in circumstances where the defendant did not know that he was breaching a Court order is likely to have a bearing on penalty, but that is a matter separate from what the applicant must prove to establish contempt.
Evaluation of the contempt claims
[44] The plaintiffs alleged that there were seven breaches of one or more of the orders by the defendants and contended that, individually or collectively, these amount to contempt of court. I will evaluate the plaintiffs’ contentions in respect of each of the alleged breaches. In the course of this evaluation I take account of the essential elements that need to be proved by the plaintiffs in order to establish contempt of court, but I will not record conclusions on each of the four elements in respect of each of the seven alleged breaches.
Breach (1): failing to file and serve affidavits of assets and dispositions
[45] This heading refers to the order in cls 13 and 14 of the first freezing order which required each defendant to file a comprehensive affidavit with particulars of assets, dispositions of monies, and other particulars, “within three working days of service of” the order. These affidavits should have been filed and served on 5 October 2015.
[46] An affidavit in purported compliance with this order, for both defendants, was not filed and served until 7 August 2017. In another affidavit, sworn six days earlier, Mr Zeng contended that he did not file the affidavit required by the 30 September 2015 order because “I did not know this was required by me”. I do not accept that contention for the following reasons. First, a failure to understand what was required would only provide a defence if the order was not clear. The order was clear. Second, there is evidence from Mr Zeng that he did understand other provisions of the orders, soon
7 Siemer v Stiassny [2007] NZCA 117, [2008] 1 NZLR 150 at [10].
after they were served on him. Third, even if Mr Zeng had some difficulty in understanding exactly what was required of him, he should have sought legal advice. There was a separate argument for Mr Zeng, in relation to penalty, that he could not afford to engage a lawyer. I reject that argument given my conclusion that, at 30 September 2015, Mr Zeng had over $1.6 million at his disposal if he ignored the freezing order, which he did.
[47] I am also not persuaded that the fact that the affidavit has now been filed means that Mr Zeng and J & H Development have purged their contempt. In my judgment Mr Zeng knowingly and intentionally defied a Court order for almost 22 months. Over this period he either disposed of or hid a sum in excess of NZD 1.6 million. This was a sum that clearly was subject to the first freezing order, and to all subsequent orders, as well as a sum that needed to be fully accounted for, with adequate documentation, in the affidavit of assets due on 5 October 2015.
Breach (2): using mother’s bank account to dispose of funds
[48] On 7 October 2015 an account was opened in the name of Mrs Zufang Zhang. Mrs Zhang is Mr Zeng’s mother. Mr Zeng admitted that this account was opened at his request. I infer that Mr Zeng made the direct arrangements with the bank, and that it was an account effectively controlled by Mr Zeng, because his mother was living in China and the address of the account holder is 201A St Andrews Road, Epsom, being Mr Zeng’s home when the account was opened.
[49] Mr Zeng also admitted that a sum of NZD 52,285.80, paid into this account as an opening deposit on 7 October 2015, belonged to him. This particular sum, in this account, was not disclosed and was disposed of in breach of the freezing order that had already been served on the defendants. Almost NZD 42,000 of the total was withdrawn on 9 October 2015.
[50] Mr Zeng said his parents had agreed to lend him the NZD 12,800 for monthly mortgage payments on St Andrews Road, and the account had been opened by his mother, at his request, because his bank accounts had been frozen and he “had no way of meeting” his mortgage liabilities. He said that his mother “arranged for monthly mortgage repayments of $12,800”.
[51] I am unable to accept this evidence for two reasons.
[52] The first is that the documentary evidence does not support the bald contention. There is no evidence in the bank statements of deposits of NZD 12,800, or any other sum which, from the amount or other information, appears to be a deposit from Mr Zeng’s mother to meet the mortgage. There are only two debits for mortgage payments on St Andrews Road between 7 October 2015 and the final statement in evidence which ends at 11 December 2015. The deposits to this account, apart from the opening deposit of NZD 52,285.80, total NZD 154,446.53. There is no evidence to indicate that any of this money came from Mr Zeng’s mother.
[53] The second reason I reject Mr Zeng’s evidence applies not only to Mr Zeng’s arguments in relation to this alleged breach, but arguments in relation to other breaches. Mr Zeng contended in respect of other breaches, as with the one I am now considering, that he was forced to borrow money to meet expenses. These contentions cannot be reconciled with the fact, as I have found, that Mr Zeng at 30 September 2015 had available a sum of over NZD 1.6 million. On the basis of the available evidence which I accept, that was well in excess of what would be required to meet Mr Zeng’s legitimate expenses for a lengthy period, and probably through to the date of the hearing before me. There is no affidavit evidence from Mr Zeng’s parents, or from any of the other persons in China from whom money was allegedly borrowed. Mr Zeng’s affidavit in the Property (Relationships) Act proceedings does not record a liability to his parents for loans. There is also evidence from the plaintiffs which indicated that Mr Zeng’s parents would not have been able, or at least would have had real difficulty, in lending substantial sums of money to their son.
[54] In addition to the sum in excess of NZD 1.6 million, there is evidence of a further substantial sum available to Mr Zeng at 30 September 2015. This evidence comes from a verified statement from a foreign exchange dealer used by Mr Zeng, Golden Mountain Finance Group Ltd (Golden Mountain). Transactions through Mr Zeng’s account with Golden Mountain are the subject matter of breach (5) alleged by the plaintiffs, considered below, in respect of transactions through Golden Mountain after 30 September 2015. The Golden Mountain statement also records that between 22 October 2014 and 22 September 2015 a total of approximately
NZD 450,668.43 had been converted to Chinese currency (CNY) and paid into various accounts. I am satisfied that the inference to be drawn, because there is no probative evidence from or for Mr Zeng to the contrary, is that at least a substantial portion of this money, or investments made with it, were controlled by Mr Zeng and subject to the first and the subsequent freezing orders.
[55] My conclusion on breach (2) is that Mr Zeng deliberately breached the freezing orders that had been served on him by using an account in his mother’s name, but controlled by him, to hide and dispose of funds which were subject to the freezing orders.
Breach (3): transfer of ownership of a Porsche car
[56] A Porsche Cayenne was subject to the first freezing order. On 9 October 2015 Mr Zeng signed a transfer of ownership of this car to his former girlfriend, Huimin Zhao, and changed the vehicle registration.
[57] These facts, contained in an affidavit for the plaintiffs, were not disputed by Mr Zeng. His defence to what is, on the face of it, a further intentional breach of the order, was that he transferred ownership because he owed Ms Zhao NZD 60,000 and she had demanded repayment in full. He claims that he tried to repay Ms Zhao by selling the Porsche, but when that was unsuccessful he tried to transfer ownership of the car to her.
[58] These acts were in breach of the first order.
Breach (4): abandoning a BMW car
[59] A BMW X3 was subject to the first freezing order. The plaintiffs contended that there was breach of the order when the car was abandoned by Mr Zeng in an Auckland street.
[60] The fact that the car was abandoned was admitted. Mr Zeng says that he abandoned it because he believed the plaintiffs had installed a tracking device in the car.
[61] Ms Manuson, for Mr Zeng, argued that abandoning the car was not an act in breach of either of the two freezing orders, which by then had been served, because it was not a “disposition” of the car, or another act clearly covered by the orders.
[62] If Mr Zeng decided he no longer wanted to use the car he should probably have surrendered it to the plaintiffs, or at least to the car dealer to whom money was still owed. But I accept Ms Manuson’s submission that leaving the car on the side of the road was not a breach of the orders because it was not a “disposition” of the car.
Breach (5): transfer of funds to and from China
[63] The plaintiffs alleged that Mr Zeng transferred funds between New Zealand and China, or converted NZD to CNY, or vice versa, and that these transactions were in breach of freezing orders. This was one of two allegations of breach which had not been pleaded in the formal application for contempt orders. The second is breach (7). In respect of both of these allegations I held, at the conclusion of the hearing, that the plaintiffs could advance these allegations, the defendants would have leave to file affidavits in opposition, with further leave to the plaintiffs to file further affidavits, and both parties were entitled to file further submissions on these matters. Further affidavits and submissions for both parties were filed.
[64] The plaintiffs alleged that there were four transfers in breach of the order; two from NZD and two from CNY. Mr Zeng admitted that his account with Golden Mountain was used for the four transactions, but denied that any of the transactions was in breach of any of the orders.
NZD 11,000 to China on 21 October 2015
[65] The evidence establishes that Mr Zeng’s Golden Mountain account was used to convert NZD 11,000 to CNY which was then transferred to an account in China of Huimin Zhao, Mr Zeng’s former girlfriend. Mr Zeng said in his reply affidavit that this transfer had “nothing to do with me”.
[66] For the following reasons I do not accept Mr Zeng’s evidence and I am satisfied that the NZD 11,000 came from him.
[67] There was no evidence from Ms Zhao. It is not credible that Mr Zeng had nothing to do with this deposit into his own account. And it is not credible that Ms Zhao would put her own money into Mr Zeng’s foreign exchange account if, as Mr Zeng alleged, Ms Zhao was owed NZD 60,000 by Mr Zeng.
[68] This transaction was in breach of the existing freezing order and in contempt of the order.
NZD 12,491.93 to China on 11 August 2016
[69] Mr Zeng admitted that on 11 August 2016 he converted NZD 12,491.93 to CNY 60,000 and said that this was transferred to an account in China of a friend of his parents, Lijun Cai. The Mr Zeng said that the money was required to repay Mr Cai for a loan of CNY 60,000 he had made to Mr Zeng’s parents “in or around May 2016” to help Mr Zeng pay for his “mortgage liabilities and living expenses”.
[70] This is another alleged breach which Mr Zeng seeks to dispute on the basis of loans from or through his parents. The conclusions earlier recorded in relation to such contentions apply with equal force in this instance. In relation to the alleged loan from Mr Cai, and the alleged transfer on to Mr Zeng, Mr Zeng did produce two documents. They are in a mixture of Chinese and English and are not easy to follow. One of the documents does record a transfer from Mr Zeng’s mother on 19 May 2016 of CNY 60,000, but the payee appears to be Shubo Zhang not Mr Zeng. The connection to the matter in issue is not apparent.
[71] Apart from the inadequacy of the evidence relating to the alleged loan in May, the central issue is whether there was breach on 11 August 2016 with the transfer to China. Mr Zeng said that in August 2016 Mr Cai demanded repayment of the loan from Mr Zeng’s parents, but they did not have sufficient funds to repay him and asked Mr Zeng “to find a way to make the funds available”. Mr Zeng said that, given his parents’ request, he borrowed NZD 12,491.93 from his then girlfriend, Ms Jiayao Xu.
[72] Mr Zeng produced a partial copy of an ASB bank statement which he said related to Ms Xu’s bank account and which was said to prove that the money came from Ms Xu. The document is almost entirely redacted. The only entry shown on it
is a withdrawal of NZD 12,491.93 on 11 August. There was no evidence as to where the money came from. There was no explanation for the redaction of everything else on this page of the statement.
[73] As with many of the issues of fact, there was sufficient prima facie evidence of breach, from the plaintiffs, to put an evidential onus on Mr Zeng to satisfy me that the adverse inference against him, that would otherwise be drawn from the plaintiffs’ evidence, should not be drawn; that is, that the admitted transfer from his Golden Mountain account to China was not a transfer of his money. The evidence he produced failed to rebut that adverse inference.
[74] This transaction was in breach of the Court order and in contempt of the order.
NZD 8,097.17 from CNY 40,000 on 29 August 2016
[75] On 29 August 2016 Mr Zeng’s Golden Mountain account was used to convert CNY 40,000 to NZD 8,097.17. Mr Zeng said that his parents sent CNY 40,000 from China as another loan from them to him to pay a home loan instalment. This is unpersuasive given Mr Zeng’s contention, on the previous transaction, that only 18 days earlier his parents could not pay the alleged loan from Mr Cai.
[76] Mr Zeng then said that he withdrew the New Zealand dollar amount in cash. He said that he gave NZD 8,000 in cash to Ms Xu to make a mortgage payment, that she deposited the money into her ASB bank account and then transferred it to China Construction Bank for the mortgage payment.
[77] A copy of another largely redacted page from Ms Xu’s bank statements has been produced. This records four ATM deposits to Ms Xu’s account on 29 August totalling NZD 8,000: two deposits of NZD 2,500, one of NZD 2,050 and one of NZD 950. The reason for depositing four separate sums through ATM machines is not explained and it calls for an explanation. More significantly, the only other entry on this page that has not been redacted is a withdrawal on 29 August of NZD 7,000, not the NZD8,000 allegedly given to Ms Xu to make the mortgage payment. And this sum was credited to a Bank of New Zealand account – indicated by the prefix 01 – in
the name Jacky Zeng. Jacky is a first name by which Mr Zeng is known. There is no evidence of a payment to China Construction Bank.
[78] This transaction was a breach of the orders and in contempt.
NZD 12,629.70 from CNY 65,000 on 27 July 2017
[79] Mr Zeng acknowledged that, on 27 July 2017, CNY 65,000 was transferred from China to his Golden Mountain account. This was converted to NZD 12,629.70, and this sum was paid to his lawyers, Prestige Lawyers.
[80] Mr Zeng said in his affidavit, filed after the hearing, that this was yet another loan from his parents, provided on this occasion to pay a retainer sought by his lawyers.
[81] The plaintiffs do not appear to dispute that the money was paid to Prestige Lawyers. The principal issue is whether this came from funds controlled by Mr Zeng.
[82] For the reasons earlier recorded, in relation to contentions from Mr Zeng that he borrowed money from his parents for various purposes, I am not persuaded that this was a loan from his parents. I am satisfied that it came from money controlled by him. In consequence, this transaction was also in breach of the orders, subject to a question whether it was a legitimate payment for legal expenses “related to the freezing order”, in terms of r 32.6 of the High Court Rules. In my opinion this was not a payment as contemplated by r 32.6.8 The retainer was not to enable Mr Zeng to challenge one or more of the freezing orders, or seek some other relief in relation to those orders, but to seek to resist the present application. The present application is not concerned with a challenge to, or variation of, the freezing orders. However, given the purpose for which this sum has been used, it is not a breach which I intend to take into account on the question of contempt.
8 Rule 32.6 is discussed further below, at [94]-[95] and n 14.
A further argument for Mr Zeng
[83] Ms Manuson submitted that, if any of the Golden Mountain funds in question belonged to Mr Zeng, contrary to the primary contentions, the terms of the freezing orders are not clear enough to cover this money. The argument, in its essence, was that the freezing orders, in cl 4, are very detailed in respect of many particularised identified bank accounts, and other particularised property, which were frozen by the substantive orders in cls 5 and 6. Ms Manuson submitted that, because of the specificity in respect of these bank accounts and other items, it could not have been clear to Mr Zeng that money in other accounts, not identified in this way, were subject to the freezing orders.
[84] I do not accept that argument. In my judgment, these funds were clearly covered by one or more of paragraphs (h), (i) and (m) of cl 4 (recorded above at [6]). As earlier noted, paragraph (m) was not a category of property subject to the first freezing order (probably through inadvertence), but it was added to the second freezing order. The second freezing order was served on Mr Zeng before the first of the Golden Mountain transactions occurred on 21 October 2015.
Breach (6): pawning a Hublot watch on 19 March 2016
[85] Mr Zeng admitted that, on 19 March 2016, by which date he had been served with the first three freezing orders, he pawned a Hublot watch for NZD 15,000.
[86] Ms Manuson acknowledged that this was “arguably” in breach, but submitted that, if it was in breach, it should be excused because of Mr Zeng’s evidence that he had to pawn the watch to pay for living expenses and meet mortgage liabilities. Given my conclusion in relation to the June-September proceeds, I do not accept the explanation. This was a further act in contempt of the orders.
Breach (7): disposing of furniture in July 2017
[87] The plaintiffs produced evidence that on 29 July 2017 furniture in Mr Zeng’s home in St Andrews Road was advertised for sale.
[88] Mr Zeng does not dispute that the furniture was advertised. He said that this had been done by Ms Xu, without his knowledge, because they were having to move out of the home, but when he became aware of what she had done he asked Ms Xu to stop the sale, and that the furniture has not been disposed of.
[89] There is no evidence that the furniture was sold. The plaintiffs nevertheless maintained their contention that a breach had been established because Mr Zeng failed to provide photographs of the furniture to prove he still had it. I do not agree. On this allegation an evidential onus did not shift to Mr Zeng.
[90] This alleged breach has not been established.
Penalty
Penalty: principles
[91] The Law Commission’s final report on the law of contempt contains the following summary of principles relating to penalties relevant to this case:9
5.33 The usual penalty for civil contempt is the imposition of a fine. Courts exercise the power to imprison for civil contempt with great care and caution. They will not impose an order of committal to prison where the non-compliance has been accidental or unintentional or is of a minor or technical nature.10 Courts do not order imprisonment unless the contempt involves fault or misconduct.11 ...
...
5.35 When determining an appropriate penalty, courts generally have a discretion. The court must consider the extent of the contempt, the defendant’s motive, and the prejudice suffered by the innocent party.12 A Full Court of the High Court has stated that a penalty ought to be assessed applying a methodology akin to that used for sentencing a criminal offender.13
10 Soljan v Spencer [1984] NZCA 34; [1984] 1 NZLR 618 (CA); Morris v Douglas (1996) 10 PRNZ 363 (HC) at 366.
11 In a number of cases, the courts have determined that the elements of contempt are made out, but that sanctions, particularly committal or sequestration, are not appropriate. See for example Lockwood Group Ltd v Small HC Auckland CIV-2009-404-1019, 21 April 2010 at [68].
12 At [68].
Plaintiffs’ submissions
[92] In relation to penalty, the plaintiffs in their original application sought an order that Mr Zeng be imprisoned for three months, orders for sequestration of specified property of Mr Zeng and J & H Development, and indemnity costs. Mr Blanchard QC for the plaintiffs, in his closing submissions, advised that the application was modified to the following extent:
(a) The application for sequestration orders was not pursued.
(b) The maximum term of imprisonment sought by the plaintiffs was six weeks or, if a term of imprisonment is not imposed, the appropriate penalty would be a sentence of community work. The plaintiffs did not seek imposition of a fine.
(c) The application for indemnity costs against both defendants was maintained.
Defendants’ submissions
[93] Ms Manuson’s principal submission on penalty was that, even if the defendants had acted in contempt of the orders, no penalty should be imposed. I will summarise the main grounds for that submission, and my conclusions on each, under the sub- headings which follow.
The freezing orders are inconsistent with r 32.6
[94] Rule 32.6 of the High Court Rules is directed to the form and some of the terms of freezing orders. Rule 32.6(3) provides that an order “must not prohibit” the respondent from dealing with assets covered by the order for the purpose of paying ordinary living expenses, paying legal expenses related to the freezing order, or disposing of assets, or making payments, in the ordinary course of the respondent’s business.
[95] Clause 7 of each of the orders, recorded above at [8], makes provision for the defendants to deal with property for the purposes referred to in r 32.6(3). Ms Manuson did not submit that the orders are invalid because of this provision.14
[96] I am not persuaded that this argument supports the primary submission on penalty. The thrust of the argument for the defendants is that, because of the restrictions in cl 7 (another aspect of which is noted under the sub-heading which follows) the defendants, and in particular Mr Zeng, were effectively forced to breach the orders. There is no substance in this argument given my conclusion on the June- September proceeds and on each breach where Mr Zeng argued impecuniosity. Also, as earlier recorded, I am satisfied that Mr Zeng had significant funds at his disposal in accounts outside New Zealand.
The plaintiffs refused to release funds
[97] The submission for the defendants was that the plaintiffs “effectively prohibited the defendants from paying” the three types of expense listed in r 32.6(3). I do not accept Mr Zeng’s contentions that there were wrongful responses from the plaintiffs to proven requests from him for release of funds. This is considered further below.15
Mr Zeng could not afford legal representation
[98] It was argued that any breach by the defendants should be excused because Mr Zeng could not afford to engage lawyers until July 2017, with this alleged difficulty compounded by the fact that English is his second language. The money available to
14 It is to be noted that r 32.6(1) provides that a “freezing order must be issued in form G38”. Clause 6 of form G38 restates r 32.6(3) in positive terms, addressed to the respondent, without any provision for specification of maximum sums or the plaintiff’s approval as to the frozen account from which payment may be made. However, in proceedings for contempt of a Court order, a collateral challenge to the validity of the order does not provide a defence. In Siemer v Solicitor- General [2013] NZSC 68, [2013] 3 NZLR 441 at [191], the majority of the Supreme Court (McGrath, William Young and Glazebrooke JJ) said:
“Provided the Court had power to make an order of its kind, a Court order is binding and conclusive unless and until it is set aside on appeal or is for some other reason lawfully quashed. Collateral attacks on such orders are not permitted. Neither the parties, nor other persons subject to an order, are permitted to arrange their affairs in accordance with their perceptions of its flaws, including any individual views they may have concerning the validity of the order.”
Mr Zeng at 30 September 2015 is again an answer to this argument. In addition, there is no evidence that Mr Zeng sought legal advice in relation to the freezing orders until he consulted his present lawyers in or about July 2017. He did consult lawyers in June 2016, but that was for advice on action being taken by a mortgagor.
No prejudice to the plaintiffs
[99] Ms Manuson submitted that the plaintiffs have not been prejudiced by any of Mr Zeng’s actions. I do not agree. I am satisfied that there has been material prejudice, with this arising most prominently from the failure of Mr Zeng and J & H Development to make immediate disclosure of all assets following service of the first freezing order, which assets most prominently included the balance of the June-September proceeds.
Delay and the plaintiffs’ bona fides
[100] Ms Manuson noted that the first breach occurred in October 2015 but the plaintiffs did nothing for two years. In this context there was a further submission that the “bona fides and ulterior motive of the plaintiffs must be questioned”.
[101] The first breach occurred on 6 October 2015 when the defendants failed by that date to file and serve the affidavits of assets. The consequences of this were significant because, had Mr Zeng done what clearly was required, there would have been disclosure of his control of the balance of the June-September proceeds, and where the proceeds were held, enabling the plaintiffs to take appropriate action in relation to a substantial sum.
[102] There was considerable delay by the plaintiffs in applying to enforce this order. This bears on the nature of any penalty to be imposed on Mr Zeng. But I am not persuaded that the delay means that Mr Zeng should not be held in contempt of Court. This was contempt involving serious misconduct because, for the reasons now set out at length, it was a means by which Mr Zeng hid and dealt with funds which were plainly subject to the freezing orders. I am also satisfied that he did this knowing that he was acting in breach of the orders. This is compounded by what in my judgment amounts to inexcusable delay in complying with the order to provide the affidavit. It
was only provided after the present application was served on Mr Zeng (and J & H Development). By then the substantial damage from the contempt of the order had been done.
[103] I am not persuaded that the plaintiffs have acted in bad faith or with ulterior motives. The submission for the defendants is, in any event, irrelevant to the matters I am required to assess, both in relation to the question whether there has been contemptuous breach of Court orders and, if so, whether there should be a penalty and the nature of it.
Mr Zeng has already been punished
[104] Ms Manuson submitted that Mr Zeng has already been punished because of two events: summary judgment was entered against him on 2 March 2017, with this occurring because he could not afford a lawyer to defend the application; and he was declared bankrupt in July 2017 because he was unable, as a consequence of the freezing orders, to pay an alleged business debt of NZD 52,000.
[105] For reasons now traversed at length I am not persuaded that Mr Zeng did not have sufficient funds in 2017 to engage a lawyer to defend the summary judgment application and to pay the debt.
[106] If it is assumed, contrary to the findings of fact I have made, that Mr Zeng had no disposable assets available to him by March 2017, the essential contention for Mr Zeng, that summary judgment was entered and he was made bankrupt because of the freezing orders, is not sustainable in light of the relevant evidence which I accept.
[107] In relation to summary judgment, there is no evidence that Mr Zeng actively sought to oppose the summary judgment application. Mr Zeng’s argument, on the assumption that he had no funds of his own, is also irreconcilable with many of his contentions, in response to the allegations of breach, that he was able to borrow money from family or friends. The lack of credibility in relation to the summary judgment argument is given emphasis by the fact that, in July 2017, just four months later, Mr Zeng was able to pay in excess of $12,000 as a retainer to his present lawyers when faced with the present application.
[108] Mr Zeng’s main argument in relation to bankruptcy was that this occurred because the plaintiffs wrongfully refused to release funds. I reject the argument for the following reasons.
[109] On 27 July 2017, Mr Zeng affirmed an affidavit in support of applications to set aside the bankruptcy notice, to set aside the summary judgment and to vary the freezing orders. This is the earliest of four affidavits relied on by Mr Zeng in opposition to the present application. In this affidavit Mr Zeng said:
After my bank accounts were frozen, I had an outstanding invoice from Easy Transport Limited due in relation to the construction of one of our investments. This was approximately $52,000. I asked my wife for consent to have this invoice repaid using funds from my bank account but she refused. As a result I have been made bankrupt. I realised my wife and Parents-in-law would not be reasonable for any requests I made therefore I was permanently stuck financially. I have had to financially rely on my parents after the freezing order.
[110] This statement is similar to many contentions advanced by Mr Zeng. It is markedly lacking in particularity and unsupported by any supporting evidence, and in particular any supporting documentary evidence.
[111] The evidence in response for the plaintiffs was that there had been no request from Mr Zeng until late July, after the bankruptcy order had been made, for a variation of the freezing orders to pay the invoice from Easy Transport Ltd. I accept this evidence, and the plaintiffs’ evidence that there had been no earlier requests from Mr Zeng for money to be released to him for any purpose.
[112] Mr Zeng argued that he had been prejudiced by alleged failure of the plaintiffs to release funds to him not only in relation to the debt which led to the bankruptcy but also in relation to other types of expense that might be covered by r 32.6. My conclusion from the evidence is that no request was made to the plaintiffs for release of funds, in terms of cl 7 of the orders, before the request in late July in relation to the debt to Easy Transport Ltd. There is no evidence that persuades me that the plaintiffs acted unreasonably in this regard at any time. But if I am wrong in one or both of those conclusions, this would have had no material consequence. This is because the frozen funds held in accounts in Mr Zeng’s sole name, or jointly with another, totalled
only $1,047.14.16 In consequence, even if the debt leading to Mr Zeng’s bankruptcy was, in terms of r 32.6(3), a “business expense incurred in good faith” and otherwise was a business expense to which the rule applies, which is by no means clear, a refusal by the plaintiffs after the bankruptcy to release just over $1,000 would have made no difference. It would not be a factor which I consider would have any bearing on whether a penalty should be imposed, or on the nature of the penalty.
Mr Zeng’s apology
[113] Ms Manuson referred to a written apology from Mr Zeng to his parents-in-law and submitted that this should be taken into account in mitigation. There was a written apology, but it is not one which should be taken into account in mitigation of penalty. When this letter was written Mr Zeng had admitted to his parents-in-law that he had defrauded them and it was an apology for his dishonesty in that regard. It had nothing to do with the breaches of the freezing orders which are the subject of the present application, and which application was made long after the letter of apology. On the present application, Mr Zeng has shown no remorse.
Penalty: evaluation
[114] For the reasons leading to my conclusions on the June-September proceeds and the established breaches, and in rejecting Mr Zeng’s defences, I consider the gravity of Mr Zeng’s contempt is reasonably high. Mr Zeng acted with knowledge that he was defying the Court orders. This was serious misconduct on his part. This has been compounded by Mr Zeng’s response to the present application.
[115] Notwithstanding those conclusions, I am not persuaded that this is a case requiring imprisonment. I am satisfied that the appropriate penalty is that Mr Zeng serve a sentence of community work. A fine would not be appropriate.
16 Ms Manuson suggested, by reference to a schedule produced by the plaintiffs, that the total in the frozen bank accounts was in excess of $34,000. That was a mistake. The total of the individual sums recorded was in excess of $34,000, but Ms Manuson overlooked the fact that many of the entries were debit balances. The net funds in all accounts totalled $11,837.90, but this came not only from accounts in the sole name of Mr Zeng, or in Mr Zeng’s name with another, but also accounts in the name of J & H Development, and in the names of third parties, such as Mr Zeng’s mother and his girlfriends. The total credit balances in accounts in Mr Zeng’s sole name, or accounts held by him jointly with another, was $14,632.19. The total overdrafts in accounts in Mr Zeng’s sole name, or his name with another, was $13,585.05.
[116] Community work is a sentence that can be imposed for contempt of court. As Dunningham J noted in Queen Elizabeth the Second National Trust v Netherland Holdings Ltd, this is because, in the Sentencing Act 2002, “offender” is defined in s 4 as including “a person who is dealt with or who is liable to be dealt with for ... contempt of court”.17
[117] Sentence is to be imposed in open court. Detailed submissions on sentence have already been made. Subject to any further submissions that may be made, there will be a sentence of community work. A sentence of community work must be for a minimum of 40 hours with a maximum of 400 hours.18 Where the sentence is for more than 100 hours, the “offender” must serve at least 100 hours in every six month period from the date on which the sentence commences.19 The number of hours will be stated in open court.
Costs
[118] The plaintiffs seek orders for indemnity costs against both defendants. This application was not developed to any substantial extent in Mr Blanchard’s submissions. He referred to one authority in which indemnity costs were awarded following a finding that the respondent had acted in contempt of court orders.20 However, in that case the Judge did not provide expanded reasons for the order. She simply noted that the applicant had been put to considerable expense as a result of the respondent’s contemptuous behaviour.
[119] Ms Manuson resisted the application by the plaintiffs. Surprisingly, on behalf of the defendants she sought an award of indemnity costs against the plaintiffs. This was on the grounds that the plaintiffs’ application was unmeritorious, the sanctions sought were unjustified, and there was “an element of abuse of the court process”. The grounds for this application by the defendants have no merit. The defendants’ application does not require further consideration and is dismissed.
18 Sentencing Act 2002, s 55(2).
19 Section 58(2).
20 Shawyer v Thow HC Invercargill CIV-2010-425-000116 20 October 2011.
[120] The plaintiffs’ application must be assessed having regard to the High Court Rules on costs; in particular r 14.6 relating to applications for indemnity costs. Indemnity costs may be awarded when, amongst other things, a party has behaved either badly or very unreasonably. One example in that regard is “flagrant misconduct”.21
[121] The misconduct, must be misconduct in the proceeding, not misconduct which occurred before the proceeding commenced. The proceeding in which the present application has been brought is the proceeding with the substantive claim and which led to the freezing orders as well as the summary judgment. The defendants’ misconduct, and particularly that of Mr Zeng, following service of the first freezing order in this proceeding, compounded by continuing breaches, or new breaches, after service of the further orders, was flagrant misconduct. It comes squarely within r 14.6(4)(b) – ignoring or disobeying an order or direction of the Court. Rule 14.6(4) defines the broad circumstances in which the court may order a party to pay indemnity costs.
[122] I am satisfied that this is a case justifying an order of indemnity costs against both defendants. Although the most egregious misconduct was that of Mr Zeng, there was also substantial default, of a flagrant nature, by J & H Development in failing to file the affidavit of assets for 22 months, and then only after this present application was served.
[123] Rules 14.6(1)(b) defines “indemnity costs” as “the actual costs, disbursements and witness expenses reasonably incurred by a party” (emphasis added). Given this rule there will be a formal order requiring counsel to confer on the actual costs sought by the plaintiffs and the question as to whether these are reasonable. If agreement can be reached a joint memorandum should be filed recording the sum agreed and judgment can be sealed on the basis of that memorandum. If agreement cannot be reached, memoranda are to be filed in accordance with the directions that follow.
21 Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [27]- [28].
Result
[124] There is a declaration that the first defendant, Jun Zeng, breached the freezing orders in the manner specified in this judgment and the first defendant is held to be in contempt of court.
[125] There is a declaration that the second defendant, J & H Development Ltd, breached the freezing orders in the manner specified in this judgment and the second defendant is held to be in contempt of court.
[126] Sentence will be as stated in open court.
[127] The defendants are to pay the plaintiffs indemnity costs. This order is subject to the following directions:
(a) Counsel for the parties are to confer for the purpose recorded at [123] of this judgment. If agreement can be reached, a joint memorandum is to be filed, for the purpose of sealing judgment, within 10 working days of the date of this judgment, and an order for costs in the sum recorded in the memorandum may be sealed.
(b) If the parties are unable to agree on quantum:
(i) A memorandum for the plaintiffs addressing their claim for indemnity costs, including the issue whether such costs are reasonable, is to be filed and served within 17 working days of the date of this judgment.
(ii) Any response for the defendants is to be filed and served within a further 7 working days.
(iii) The memoranda are not to exceed 10 pages, excluding any necessary annexures relating to actual costs incurred and evidence directed to the issue whether the costs sought are reasonable or unreasonable.
(iv) The costs issues will be determined on the papers.
[128] The defendants’ application for costs is dismissed.
Woodhouse J
Solicitors / Counsel:
Mr G Blanchard QC, Barrister, Auckland
Mr P McKendrick and Ms C Jiang (plaintiffs’ instructing solicitors), Glaister Ennor, Solicitors, Auckland
Ms A Manuson, Mrs R Reed and Ms E Hong, Prestige Lawyers Ltd, Auckland
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