IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE	
CIV-2018-404-2724
[2019] NZHC 787	

IN THE MATTER OF	Demand for Repayment of Outstanding Deposit and Transferred Funds	
BETWEEN	QING YU
First Plaintiff

XINXI XIAN
Second Plaintiff	
AND	LIZHU XIAN
First Defendant

WEIQIANG PAN
Second Defendant	

Hearing:	3 April 2019	
Appearances:	Plaintiffs in person
C R Andrews and K T O’Halloran for Defendants	
Judgment:	11 April 2019	

JUDGMENT OF PETERS J

This judgment was delivered by Justice Peters on 11 April 2019 at 11 am pursuant to r 11.5 of the High Court Rules

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

Solicitors:	McVeagh Fleming, Auckland Copy for:	Plaintiffs
Integritas Law Firm Limited, Auckland

YU v XIAN [2019] NZHC 787 [11 April 2019]

[1]	The defendants, Ms Xian and Mr Pan, apply to set aside a freezing order made without notice on 13 February 2019.1

[2]	The grounds on which the application is made are that:

(a)	the applicants, ie the plaintiffs, failed to make full and frank disclosure of all relevant matters to the Court when they sought the order; and

(b)	there is no risk of disposal of assets.

[3]	The order restrains the defendants from disposing of, dealing with or diminishing the value of properties situated at 22 Jezero Drive, Massey and 157 and 451B Old North Road, Kumeu (“Jezero”, “157” and “451B”). I extended the operation of the freezing order at the conclusion of the hearing before me, pending further order of the Court.

Background

[4]	The  plaintiffs,  Ms  Yu  and  Mr  Xian,   commenced   this   proceeding   on 11 December 2018. They contend that the defendants are indebted to them in the sum of approximately $758,900 and seek orders for repayment of that sum, plus interest and costs. The defendants deny any indebtedness to the plaintiffs.

[5]	The plaintiffs applied for the freezing order on 12 February 2019. As I have said, one of the grounds on which the defendants have applied to set aside is a failure to make full and frank disclosure. That criticism is made as regards two matters. The first is that the plaintiffs should not have applied without notice as they well knew that the defendants denied the plaintiffs’ claim and had instructed McVeagh Fleming to act for them. Indeed, the plaintiffs had served that firm with their proceedings pursuant to an order for substituted service. The second is that the plaintiffs did not give the Court a full account of proceedings presently before the Family Court.

1	Yu v Xian (Interlocutory Application Without Notice for Interim Freezing Order) HC Auckland CIV-2018-404-2724, 13 February 2019 per Toogood J.

[6]	I shall address the latter criticism below but it is enough to say at this point that the plaintiffs and their then counsel, Mr Paul Pang of Integritas Law Firm Limited, should not have applied for the freezing order without notice. Nothing in the circumstances warranted a without notice application and, to compound matters, neither Mr Pang nor the plaintiffs informed the Court of McVeagh Fleming’s involvement. They should have done.

Parties

[7]	The plaintiffs are married and have two teenage children who are still at school (“children”). The children live with the second defendant, Mr Pan, and he has had their day-to-day care for many years.

[8]	The first defendant, Ms Xian, was a friend of Ms Yu’s mother (now deceased), and she is also Mr Xian’s godmother. Ms Xian lives in China or at least spends much of her time there and has purchased, or is in the process of purchasing, a property in China, referred to below.

[9]	Mr Pan was formerly married to Ms Xian’s daughter, Ms Chu Yu Xian, known to all concerned as Ivy. Although that marriage has ended, the defendants remain very close, and Mr Pan on good terms with Ivy.

[10]	As best I can ascertain from the affidavit evidence before me, the parties’ relationship was harmonious until September 2018. The plaintiffs then broke away from the defendants, contending that the defendants had brainwashed them and their children, and had defrauded them of large sums of money. The defendants deny these allegations. They say that at all material times the parties were part of a wider family group which included Ivy, Ms Yu’s sister Kylie, and the children.  As to the latter,  Mr Pan has commenced proceedings in the Family Court to be appointed a guardian of the children and for a parenting order, so as to formalise the children’s longstanding living arrangements. The plaintiffs themselves have sought a parenting order.

[11]	I have affidavit evidence from all concerned with the exception of Ms Xian. However, Mr Pan states in his affidavit that his affidavit is for both defendants and I shall proceed on that basis.

Plaintiffs’ claim

[12]	The plaintiffs’ claim comprises three components.

Jezero Drive

[13]	The first two relate to Jezero, a residential property presently owned by the defendants as tenants in common in equal shares. The defendants had the property listed for sale prior to the making of the freezing order. The plaintiffs say that it was seeing the property on the market in February 2019 (by which time it had in fact been on the market for several months) that caused them to apply for a freezing order in the first instance. The freezing order having been made, the defendants withdrew the property from the market but it is vacant, earning no income, and this state of affairs should not continue if it can be avoided.

[14]	Ms Yu became the registered proprietor of Jezero in January 2015. She transferred the property to the defendants in October 2017. The issue that will need to be resolved in respect of this property at trial is whether Ms Yu had the beneficial interest in the property, as the plaintiffs say, or whether Ivy did, as the defendants and Ivy herself say.

[15]	Ms Yu’s evidence is that she acquired the property for $760,000, financed as follows: $106,000 of the plaintiffs’ joint funds; a loan from Ms Yu’s sister, Kylie, to Ms Yu of $20,000; a loan by Ms Xian to Ms Yu of $26,000; and the balance from the ANZ.

[16]	In September 2017, Ms Yu entered into an agreement to sell the property to the defendants for $1.1 million, a price that Ms Yu states was “way above market value”.

[17]	Ms Yu contends that the defendants did not pay her the deposit of $110,000 ostensibly  due  on  the  face  of the  agreement.   This  is  the first  component  of the

plaintiffs’ claim. The defendants’ response is that it was agreed that the defendants would not pay the deposit or, rather, that all concerned would treat it as having been paid and that the plaintiffs have no claim for the amount of the deposit.

[18]	The evidence before me does not explain why the parties would agree a sale price at well above market value, if that is what it was; provide for a deposit that was never to be paid; or, if Ms Yu expected the deposit to be paid, why she allowed settlement to occur as it did.

[19]	The second component of the plaintiffs’ claim is in respect of the net proceeds of the sale, being $457,942.13 after paying the sum due to the ANZ. On receipt of these net proceeds, Ms Yu transferred $457,500 in instalments to Mr Pan’s bank account. Ms Yu contends that the payments were a loan, the transfers are described as “lending” in her bank statements, and she has demanded repayment but it has not been made.

Payments made on 18 and 19 January 2018

[20]	The third component of the plaintiffs’ claim arises from transfers the plaintiffs made to Ms Xian on 18 and 19 January 2018, totalling $191,390.

[21]	Mr Xian transferred sums of $46,390 (described on his statement as “Bill Payment”) and $95,000, and Ms Yu $50,000. The plaintiffs contend these sums were also loans repayable on demand.

[22]	As to why the plaintiffs should have acted in this way, the gist of the allegations in their statement of claim is that at the time they were members of a “cult” run by Ms Xian and managed by Mr Pan. Their case is that at all material times they were under Ms Xian’s influence, that they acted at her direction, and that they are now no longer under her influence and wish to recover the funds to which I have referred.

Defendants’ case

[23]	The defendants deny all of these allegations. First, they say that Ms Yu acquired Jezero on trust for Ivy, as it was considered preferable that neither Ivy nor

her then partner was on the title in case the relationship ended, which it did. The defendants say that, in fact, Ms Xian was intending to hold the property in her name but for reasons given in the affidavit evidence it was decided that Ms Yu should do so instead.

[24]	As to Ms Yu’s transfer of the property to the defendants in October 2017, the defendants say this reflected a change of trustees but no change in the beneficial ownership. Ivy confirms this account in her affidavit. She also states that she directed that the net proceeds of sale which Ms Yu transferred to Mr Pan should be applied to assist Ms Xian’s purchase of a property in China, and that this has occurred.

[25]	This leaves the issue of the plaintiffs’ contribution of $106,000 to the original purchase in 2015, and which would have formed part of the $457,500 Ms Yu transferred to Mr Pan. The defendants admit the plaintiffs’ contribution in their statement of defence but say the payment was a gift within the family group to which I have referred.

[26]	As to the sums the plaintiffs transferred on 18 and 19 January 2018, the defendants’ evidence is that Mr Xian’s payment of $46,390 constituted a refund of a sum that Mr Xian had been holding for Ms Xian, and the funds have now been applied to the purchase of the property in China. As to the other two payments, the defendants say these were gifts by the plaintiffs, intended to assist in the acquisition of that property.

Full and frank disclosure

[27]	Aside from the plaintiffs’ failure to advise the Court that McVeagh Fleming were acting for the defendants, Mr Andrews submits that the plaintiffs and Mr Pan failed to advise the Court of the nature of the proceedings before the Family Court, including the applications that Mr Pan has filed.

[28]	Mr Andrews submits Mr Pan’s applications are entirely inconsistent with any intention to quit the jurisdiction. I accept that submission, although for present purposes a more important issue is the defendants’ intentions regarding their assets.

[29]	In response to the defendants’ criticism, the plaintiffs say they informed the (High) Court that “proceedings in the Family Court were ongoing” or words to that effect. That is insufficient. The plaintiffs and Mr Pan should have given a proper account of what was before the Family Court and left the Judge to decide whether it was material.

[30]	The usual course of events when there is a failure to disclose is to revisit the order de novo which I shall now do.2 That requires me to consider whether the plaintiffs have an arguable case; whether I am satisfied there is sufficient evidence of a risk the defendants will dispose of or diminish their assets so as to deprive the plaintiffs of recovery; and then the overall justice of the case.

Arguable case

[31]	At present, I am not satisfied that there is an arguable case as to the first component of the plaintiffs’ claim, although the position may be different at trial. The evidence on this aspect of the transaction is less than fulsome but, at the very least, Ms Yu seems to have known throughout that she was not going to be paid the deposit. She would not have transferred the property otherwise.

[32]	I am satisfied the plaintiffs have an arguable case on the second and third components of their claim. The usual rule is that a payment from one party to another is assumed to be a loan, and not a gift, and the recipient is subject to an obligation to repay on demand.3 This is subject to the contrary presumption of advancement that may arise in a transfer between close relatives.4 Absent such circumstances, however, it is for a defendant to point to evidence establishing that the payment was gratuitous.

Risk of dissipation

[33]	The evidence as to the risk of disposal or diminution of assets is as follows.

2	Carter Holt Holdings Ltd v Fletcher Holdings Ltd [1980] 2 NZLR 80 at 84.
3	Seldon v Davidson [1968] 2 All ER 755 (EWCA Civ) at 757, as cited in Equiticorp Industries Group v R (Judgment No 47) [1996] 3 NZLR 586 (HC) at 608. See also Re Matthews [1993] 2 NZLR 91 (HC) at 94.
4	See Chang v Lee [2017] NZCA 308, [2017] NZAR 1223 for a recent appellate consideration of the presumption of advancement in those cases.

[34]	First, there is the transfer, somewhat historic now, of funds to assist the purchase of the property in China, being the $457,500 and the payments the plaintiffs made in January 2018.

[35]	Secondly, there is the fact that the defendants placed Jezero on the market for sale. The defendants reject the suggestion that their marketing Jezero for sale is evidence of an intention to diminish their assets. They say no useful purpose was served by their continued ownership of the property and that the plaintiffs knew from discussion at a family dinner in September 2018 that the defendants proposed to sell the property. This latter point is supported by affidavits from Ivy, Kylie, and Mr Pan but denied by the plaintiffs.

[36]	Whatever the position may be, Jezero is a substantial asset and the defendants intended that it be sold.

[37]	Thirdly, the defendants say they have no intention of disposing of the other two properties.

[38]	The defendants own 451B as tenants in common in equal shares, this being the property at which Mr Pan and the children live.

[39]	The defendants own 157 in unequal shares, being 4/5ths to Ms Xian and 1/5th to Mr Pan. For many years Mr Pan has conducted a market garden business, which presently employs 10 staff and which Mr Pan says is valuable and generates income. The business operates from, and leases, 157 Old North Road and 107 Old Railway Road, this latter property being owned by Kylie.

[40]	Fourthly, Mr Pan states that there is sufficient equity in the three properties combined to meet the plaintiffs’ claim.

[41]	On the evidence before me, the combined capital value of the three properties as at 1 July 2017 was $5,185,000.

[42]	All three properties are mortgaged. Mr Pan states that the debt secured against Jezero is $900,000, and against 451B is $1,050,000. Mr Pan does not say how much

debt is secured against 157, if any, nor whether it may be necessary to increase borrowings. However, on the face of the mortgage documents, that is a possibility. The priority amounts for the mortgages against Jezero, 451B and 157 are $1,200,000,
$2,100,000 and $1,500,000 respectively, being $4.8 million in total.

[43]	The plaintiffs also submit that it would be a relatively easy matter for the defendants to transfer the properties to other family members in an attempt to put them beyond the plaintiffs’ reach and they cite examples of prior changes in ownership, particularly of shares, said to confirm this point.

[44]	Taking all of these matters into account, I am satisfied that there is sufficient evidence of a risk of disposal to justify continuing the existing order, and pending further order of the Court. I am particularly concerned by the relocation of substantial funds from New Zealand to enable the acquisition of a property in China.

[45]	It follows that I dismiss the defendants’ application to set aside the freezing order made on 13 February 2019.

[46]	This brings me to two points.

[47]	First, the terms of the existing order do not reflect this judgment. The plaintiffs have an arguable case in respect of what I have referred to as the second and third components of their claim, plus interest and costs. The order must be restricted to that sum (see r 32.6, High Court Rules 2016). In addition, the defendants may still wish to sell Jezero.

[48]	Given that, I ask Mr Andrews to advise the amendments the defendants wish to be made to the terms of the order and, if the defendants do wish to resume the marketing of Jezero, the terms proposed as regards the proceeds of any sale. I assume they would be applied to bank debt but shall leave Mr Andrews to discuss that with the defendants.

[49]	Secondly, this matter is to be called in the Duty Judge list at 10 am, 17 April 2019. The parties are to file a joint memorandum or, absent agreement, memoranda

setting out the directions sought by 4 pm, 15 April 2019. Given the existence of the freezing order expedition is required.

[50]	No order as to costs is required as the plaintiffs are unrepresented.5 I would not have made one in any event given the material non-disclosure to which I have referred. I ask the case officer to send a copy of this judgment to Mr Pang so that he is clear as to his duties as counsel in a matter such as this.

Peters J

5	See McGuire v Secretary of Justice [2018] NZSC 116, [2018] 3 NZLR 71.