IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE	
CIV-2015-404-000099
[2019] NZHC 369	

BETWEEN	JNJ HOLDINGS LIMITED
Plaintiff	
AND	KENT SING TRADING COMPANY LIMITED
First Defendant

QUOC THAI
Second Defendant

LE QUAN WU
Third Defendant	

	CIV-2018-404-001839	

UNDER	
The Insolvency Act 2006	
IN THE MATTER OF	the bankruptcy of LE QUAN WU	
BETWEEN	JNJ HOLDINGSL IMITED
Judgment Creditor	
AND	LE QUAN WU
Judgment Debtor	

Hearing:	18 February 2019	
Appearances:	M C Black for the Defendants/Applicants
P F Dalkie and S M Bhanabhai for the Plaintiff/Respondent	
Judgment:	7 March 2019	

JUDGMENT OF ASSOCIATE JUDGE H SARGISSON

This judgment was delivered by me on 7 March 2019 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules.
…………………………………
Deputy Registrar

JNJ HOLDINGS LTD v KENT SING TRADING COMPANY LTD [2019] NZHC 369 [7 March 2019]

Introduction

[1]	Two applications are before the court:

(a)	In the proceeding filed under CIV-2015-404-99 the defendants seek an order for stay of execution and enforcement of a judgment pending appeal; and

(b)	In a related bankruptcy proceeding filed under CIV-2018-404-1839 the judgment debtor seeks an order setting aside a bankruptcy notice founded on the judgment pending appeal.

[2]	The application for a stay is opposed. But if a stay is granted, it is common ground that pending the outcome of the appeal, a related costs judgment should also be stayed and the application to set aside the bankruptcy notice should be adjourned. If a stay is not granted, it is agreed that the application to set aside ought to be dismissed.

The judgment(s) under appeal

[3]	In a judgment given by this Court on December 21, 2017 Moore J made findings of liability against the three defendants (principally for wrongful termination of a lease) in a proceeding brought by JNJ Holdings as lessor of commercial premises known as The Metro Centre located in the Auckland CBD.1 Judgment was entered against, Kent Sing Trading Company Ltd, as lessee and against its directors, Quoc Thai and Le Quan Wu, as sureties. His Honour also entered judgment against all three for $215,048.42 plus interest of $49,484.49, and he disallowed a counterclaim brought by them and a further party,  General Goods Ltd.   In a costs judgment made on        9 August 2018, JNJ Holdings was awarded indemnity costs (on a reduced basis) of
$61,146.18 on its claim and scale costs of $21,491.10 on the failed counterclaim.2

1	JNJ Holdings Ltd v Kent Sing Holdings Ltd & Ors [2017] NZHC 3274.
2	JNJ Holdings Ltd v Kent Sing Holdings Ltd & Ors [2018] NZHC 2022.

[4]	On 19 January 2018 the defendants and General Goods lodged an appeal against the substantive judgment.3 It is not the only appeal. JNJ Holdings lodged an appeal against the costs judgment on 4 September 2018. It has been agreed that both sides’ appeals will be heard at the same time and the date for the hearing has been fixed for 24 June 2019.

[5]	It is not in dispute that the defendants acted conscientiously to get the appeals ready for hearing as quickly as possible. Any delay is, counsel agree, attributable to the fact that the parties needed to wait for the judgment on costs.

Bankruptcy proceedings and first stay application

[6]	No proceedings have been commenced against Kent Sing Trading Company to enforce the substantive judgment under appeal, but not long after the costs judgment was issued, JNJ Holdings served bankruptcy notices on Quoc Thai and Le Quan Wu. Service was effected on or about 3 and 11 September 2018.

[7]	Quoc Thai did not take steps to have his bankruptcy notice set aside, but on 20 September 2018 Le Quan Wu made a combined application for orders to set aside her bankruptcy notice and for a stay.4 The application for stay was made in reliance on r 17.29 of the High Court Rules.5

[8]	The combined application was before Associate Judge Smith on
11  October  2018.  His  Honour  enquired  whether  the  application  to  set  aside  the bankruptcy notice was possibly misconceived. He also observed that if the basis for the stay was that there was an appeal pending, and the debtor’s rights should not be lost while the appeal remained extant, the application for a stay should be made under r 12 of the Court of Appeal (Civil) Rules 2005. Directions were fixed for further

3	The defendant and General Goods Ltd are referred to collectively as the defendants in this judgment.
4	An act of bankruptcy will not found an application for adjudication unless it has been committed within a period of 3 months before the filing of the application: s 13 Insolvency Act 2006. Though Quoc Thai did not comply with or apply to set aside his bankruptcy notice, thereby committing an act of bankruptcy, JNJ Holdings is out of time to make an application for adjudication in reliance on that particular act of bankruptcy.
5	Rule 17.29 allows a liable party to apply for a stay of enforcement or other relief against the judgment to prevent a substantial miscarriage of justice.

documents to be filed and served should the defendants wish to make a new stay application and for the allocation of a fixture if needed.

The second application for a stay and the parties’ positions

[9]	On 11 October 2018, the defendants filed an application for a stay pending appeal pursuant to r 12 of the Court of Appeal (Civil) Rules 2005. At a mentions hearing on 29 November 2018, counsel for the defendants advised that the application to set aside the bankruptcy notice would not be withdrawn and Moore J directed that both matters – the new stay application and the application to set aside – were to be listed for the hearing on 18 February 2019.

[10]	Counsel for JNJ Holdings acknowledges fairly that if the defendants had requested a stay (formally or informally) in relation to the substantive judgment early in the piece, JNJ Holdings would have agreed, on provision of a reasonable sum by way of security for a portion of the judgment debts. He adds that even after the bankruptcy notices were served JNJ Holdings would have been amenable to a stay provided its actual costs incurred in relation to the notices were also met. But that is in the past. There is no agreement relating to a stay, and JNJ Holdings would prefer now to simply enforce the judgments in its favour. Counsel submits that when all the relevant factors in support of and against a stay are weighed, there is nothing that trumps its entitlement to enforce those judgments. He submits the decisive factor is that the defendants’ appeal is patently weak – indeed hopeless – but he adds that if the Court is minded to order a stay, security of at least $100,000 should be required plus a sum to indemnify JNJ Holdings for its wasted costs relating to the bankruptcy notices and the combined application.

[11]	The defendants’ appeal does not operate to stay enforcement of the judgments in JNJ Holdings’ favour, and there is no express agreement between the parties that might have dispensed with the need for a formal stay. Counsel for the defendants acknowledges as much, but says there was an understandable (if unfortunate) assumption there would be no need to secure either a stay or an agreement, as counsel were co-operating and focussed on getting the appeals to a hearing. It was only when the bankruptcy notices were served that it dawned on the defendants they had acted

on a wrong assumption. He submits it would be unduly harsh not to grant a stay now, as the preparation for hearing has been completed, the hearing is so close, and the consequences for the defendants of a stay would be dire. The defendants accept they must provide some security, but submit a lenient approach relating to quantum would be appropriate. They say they have few assets left between them, and if permitted to keep aside $15,000 for legal costs for the appeal they could put up $85,000 for security. They accept they must also make some contribution to costs incurred so far in the bankruptcy proceeding.

The appeal grounds relied upon by the defendants

[12]	The appeal grounds are largely factual in nature. As such, they are of a kind that is generally difficult to pursue to a successful conclusion. But in this case some related legal issues arise, particularly in relation to whether JNJ Holdings deliberately withheld documents it should have discovered and whether the withholding of such documents materially affected the trial judge’s findings of fact; and whether the trial judge failed to attach sufficient weight to unchallenged evidence of the defendants. Issues of statutory interpretation relating to the giving of notice under the Property Law Act 2007 also arise.

Principles on which a stay should be granted

[13]	The stay application is brought under r 12(3) of the Court of Appeal (Civil) Rules 2005. In determining whether to grant a stay the court must weigh factors “in the balance” between the successful litigant’s rights to the fruits of a judgment and “the need to preserve the position in case the appeal is successful.”6

[14]	The factors conventionally identified as those the court will take into account in this balancing exercise were listed in Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd. They include:7

6	Duncan v Osborne Buildings Ltd (1992) 6 PRNZ 85 (CA) at 87.
7	Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Ltd (1999) 13 PRNZ 48 (CA) at [9].

(a)	If no stay is granted, whether the applicant’s right of appeal may be rendered nugatory;

(b)	the bona fides of the applicants as to the prosecution of the appeal;

(c)	whether the successful party will be injuriously affected by the stay;

(d)	the effect on third parties;

(e)	the novelty and importance of questions involved;

(f)	the public interest in the proceedings; and

(g)	the overall balance of convenience.

[15]	These factors are not comprehensive. The court in Dymocks observed:8

A review of them serves merely to show the breadth of the matters which, in any given case, may have to be addressed by a Court to balance the overall interests of justice.

[16]	The courts have on occasion added as an additional factor:9

… (to the extent that it can be measured), the question whether there is an arguable appeal point and, if so, its likely strength.

[17]	Heath J noted in Body Corporate No 188529 v North Shore City Council   (No 6), rule 12 of the Court of Appeal (Civil) Rules 2005 provides first instance jurisdiction for this Court on an application for stay. If a stay were refused, there is an ability to apply directly to the Court of Appeal.10

8	At [10].
9	Body Corporate No 188529 v North Shore City Council (No 6) HC Auckland CIV-2004–404- 3230, 11 February 2009 at [17]; see also Keung v GBR Investment Ltd [2010] NZCA 396, [2012] NZAR 17 at [11].
10 Body Corporate No 188529 v North Shore City Council (No 6) HC Auckland CIV-2004–404-  3230, 11 February 2009 at [19].

Decision

[18]	The defendants have the onus of showing why they should not simply pay the judgment debts in advance of the appeal hearing or, at the least, adhere to the general rule that applicants for a stay are required to put up security to cover those debts.11  At issue is whether there are features about this case (in terms for the factors outlined in the authorities referred to) that indicate it would not be just to require payment in advance; or whether it would be just to allow a stay in terms requiring the modest security that the defendants propose.

The effect of no stay: is it the case the appeal may be rendered nugatory?

[19]	At the hearing counsel for both sides agreed the lack of a stay would result inevitably in the adjudication of Quoc Thai and Le Quan Wu.12 The possibility that the Official Assignee would be willing to prosecute the appeal for them is unlikely in the absence of funding. But counsel for JNJ Holdings submitted the absence of funding cannot be assumed, on the basis that that the two individuals might have access to significant funds, from some undisclosed source. That line of argument does not sit comfortably with JNJ Holdings’ own choice of bankruptcy notices as the appropriate means of enforcing the judgment debts against them, or with their evidence that their only remaining source of income is from the first defendant which would cease upon their bankruptcy.

[20]	But counsel for JNJ Holdings went further and submitted that even if it was not the case in fact that the directors would have a source – or be a source – of funding for the appeal, enforcement proceedings have not been commenced “at the moment” against the first defendant. From there he submitted the first defendant could still proceed with the appeal even if its directors could not. The submission is not supported by the evidence, which suggests that the fortunes of the directors and the first defendant are closely linked; if the directors are bankrupted, the first defendant’s

11	See Keung v GBR Investment Ltd [2010] NZCA 396, [2012] NZAR 17 at [12].
12 I can only assume from this that JNJ Holdings’ intention would be to serve a fresh bankruptcy notice on Quoc Thai immediately if a stay is not granted, because his bankruptcy notice (served in September 2018) is now stale and would not support an application for adjudication.

operations are likely to cease, and with that, its active involvement in the appeal would be terminated.

[21]	There is also nothing in evidence that indicates other than that General Goods lacks the ability to fund the appeal and counsel for JNJ Holdings did not argue the contrary.

[22]	This state of affairs does not make it certain that the defendants’ appeals will be rendered nugatory. But it points to that outcome as being highly likely; and that likelihood must have a significant bearing when weighing up all of the factors, for and against, on whether it would be just to refuse a stay.

[23]	I turn then to the other factors to be weighed.

The bona fides of the defendants as to the prosecution of their appeal

[24]	Counsel for JNJ Holdings acknowledges that there is no doubt about the bona fides of the defendants in relation to this factor.

Will the successful party be injuriously affected by this stay?

[25]	Counsel for JNJ Holdings acknowledges this factor does not really arise.

The effect on third parties

[26]	Counsel for JNJ Holdings acknowledges that this factor also does not really arise.

The novelty and importance of questions involved

[27]	Counsel for JNJ Holdings points out that the appeal does not raise novel issues that could have wide significance for a large body of litigants, as for instance in some leaky building litigation.13 Further, this is not a case where the question whether there

13	See Body Corporate No 188529 v North Shore City Council (No 6) HC Auckland CIV-2004–404- 3230, 11 February 2009 at [21].

is an arguable appeal point of likely strength is readily assessed. It is sufficient to say that counsel’s submissions focussed on the first ground of appeal which raises the not insignificant question whether a party has deliberately flouted its discovery obligations to conceal a true state of affairs about the leased premises. Related to the assessment of the likely strength of that ground is an application asking the Court of Appeal to consider whether further evidence – said to demonstrate such conduct – should now be allowed. Counsel for JNJ Holdings objected to my reading the affidavit in support of that application. The consequence of that is, as counsel acknowledged, that I am unable to form any real impression on whether the proposed evidence appears significant, and thus whether it points to the appeal point being “likely” to be strong, or whether the proposed evidence appears insignificant. Nonetheless, as counsel acknowledged, I must still treat the fact that the evidence may be of significance as a factor to be weighed in the balancing exercise.

[28]	I therefore find (to the extent that any assessment can be made in the context of the present application) that the question whether there is a reasonably arguable appeal point cannot be dismissed safely. Nor can the appeal be treated safely as simply an attempt to re-run a case that was, as counsel for JNJ Holdings submits, fact-centric. There appears to be a question that goes to the heart of a party’s discovery obligations and as to whether there has been non-compliance (or even a contempt of the Court’s process) that has significantly affected the findings at trial.14 These are questions that are themselves of sufficient importance to weigh positively in the balancing exercise in favour of ordering a stay.

So where does the balance lie?

[29]	As will be apparent from what I have said, I am satisfied that a stay ought to be ordered so as to allow the appeal to proceed, particularly given that JNJ Holdings cannot point to any injurious effect upon it if there is a stay, and the hearing date is not far off. The proviso is that the defendants must expect they should provide some reasonable measure of security against the possibility that the moneys remaining to them will not be disbursed while the hearing is pending. They must also expect to

14	See High Court Rules, r 8.33.

make a reasonable contribution towards JNJ Holdings’ costs related to the wasted stay application made in the bankruptcy proceeding. In relation to that proceeding I think it appropriate to confine costs to steps relating to the wasted stay application and on the basis that the application was essentially interlocutory in nature. Costs related to the bankruptcy notice served on Le Quan Wu and any future application that may be filed for her adjudication are appropriately dealt with when the bankruptcy proceeding comes to a conclusion. The amount I propose to allow now in respect to the wasted stay application is $2,230 based on the following steps calculated on a 2B basis:

(a)	Filing notice of opposition and supporting affidavits 0.6 x 1 day; and

(b)	Appearance at hearing 0.2 x 1 day x 2.

[30]	I make this allowance on the basis that I am satisfied that 2B costs are adequate compensation for the work involved. I am mindful of the submission for JNJ Holdings that such steps relating to the stay application could have been avoided had there been an early request to agree to a stay and JNJ Holdings should therefore be treated as having been put to unnecessary costs. That may well be the case, but it is not sufficient to persuade me that I should allow indemnity costs as sought. The work in relation to the first stay application was not wholly wasted; it was plainly very useful for the second application.

Result

[31]	Weighing up the factors I am required to consider I am satisfied it is appropriate to order a stay, but on terms.

[32]	I make the following orders:

(a)	The application for a stay made by the defendants in CIV-2015-404-99 in relation to the judgment issued on 21 December 2017 is granted

pending determination of the appeal against that judgment in the Court of Appeal.15

(b)	The costs judgment issued on 9 August 2018 in CIV-2015-404-99 is stayed on the same basis.16

(c)	The application made by Le Quan Wu to set aside the bankruptcy notice in CIV-2018-404-1839 is adjourned to Thursday 6 June 2019 at
10.45 am, with leave reserved to seek a further adjournment by way of joint memorandum pending determination of the appeal.

(d)	The above orders are conditional on a memorandum being filed and served   by   the   solicitors   for   the   defendants    on    or    before 18 March 2019 confirming:

(i)	The amount of $85,000 has been paid to the Registrar to be held as security pending further order; and

(ii)	Costs of $2,230 have been paid to JNJ Holdings in relation to the wasted stay application filed in the bankruptcy proceeding, plus reasonable disbursements as approved by the Registrar.

(e)	Leave to apply is reserved, generally.

(f)	Costs on the present application are fixed on a 2B basis together with disbursements to be fixed by the Registrar. The incidence of those costs is reserved and shall follow the outcome in the Court of Appeal. 17

Associate Judge Sargisson

15	JNJ Holdings Ltd v Kent Sing Holdings Ltd & Ors [2017] NZHC 3274.
16	JNJ Holdings Ltd v Kent Sing Holdings Ltd & Ors [2018] NZHC 2022
17		Body Corporate No 188529 v North Shore City Council (No 6) HC Auckland CIV-2004–404- 3230, 11 February 2009 at [21]; see also Keung v GBR Investment Ltd [2010] NZCA 396, [2012] NZAR 17 at [12].

Solicitors:
Dyer Whitechurch (MC Bhanabhai/LM Nicholson), Auckland, for JNJ Holdings Eugene Ou Law, East Tamaki, for the Defendants

Copy for:
P F Dalkie, Auckland, for JNJ Holdings, the Plaintiff Michael C Black, Auckland, for the Defendants