ANZ BANK NEW ZEALAND LTD v LEE [2022] NZHC 2938

ANZ BANK NEW ZEALAND LTD v LEE [2022] NZHC 2938 [9 November 2022]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2022-404-2127[2022] NZHC 2938BETWEEN ANZ BANK NEW ZEALAND LIMITEDApplicantAND JINWON LEEFirst RespondentSUNG HOON LEESecond RespondentSOOJUNG LEEThird RespondentJINYOUNG LEEFourth RespondentHearing: On the papersCounsel: S Gollin and A Kirk for the ApplicantJudgment: 9 November 2022JUDGMENT OF GORDON JThis judgment was delivered by meon 9 November 2022 at 4 pm, pursuant tor 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:Solicitors:Minter Ellison Rudd Watts, Auckland[1] ANZ Bank New Zealand Ltd (ANZ) has filed an interlocutory applicationdated 7 November 2022 for freezing and ancillary orders (Application) under pt 32 ofthe High Court Rules 2016 (HCR).[2] The freezing order is sought against assets of the first respondent, Jinwon Lee(aka Jin Won Lee or James Lee). The ANZ also seeks ancillary disclosure ordersagainst Mr Lee.[3] The orders are sought against the background of a claim that ANZ has filedagainst Mr Lee and others in contract and debt under a guarantee for amounts said tobe due and owing on facilities provided by ANZ to Hanyang Corporation Ltd(Hanyang Corporation) and Hanyang International Co Ltd (Hanyang International).[4] Mr Lee is the sole director and sole shareholder of those two companies. Atthe same time as it filed the application, ANZ filed an application for summaryjudgment against all defendants (respondents in this Application) including Mr Lee.[5] In summary, ANZ says it has brought the Application against Mr Lee as it saysthere is a real risk that Mr Lee's only asset that ANZ is presently aware of, hisresidential property at 2/59 Sartors Avenue, Browns Bay, Auckland (the property), willbe disposed of and the net sale proceeds, representing his equity in the property willbe sent offshore and out of reach.[6] ANZ says there is reason to believe that Mr Lee has been selling off hisbusiness and personal assets and that he may have left New Zealand for Korea. It saysit appears the sale of the property, which is currently being marketed for sale and hasalready been passed in at an auction held last month is the final stage of the sell-off.[7] The orders sought are accordingly to protect ANZ's position pending theobtaining and enforcing of judgment against Mr Lee on its summary judgmentapplication.[8] ANZ also seeks ancillary disclosure orders against Mr Lee and other entitiesto ascertain whether Mr Lee has other assets presently unknown by the ANZ whichought to be frozen.[9] The application is supported by affidavits of: Louee Cliffe, a relationshipmanager in the Lending Services Team at ANZ; Raymond Cox, a chartered accountantand partner at Grant Thornton, who with a colleague was appointed by ANZ jointlyand severally on 27 October 2022 as receivers and managers of Hanyang Corporationand Hanyang International; and Rachel Simpson, a property manager, who manageda complex of retail units, two of which were leased to Hanyang Corporation.Legal principles[10] The legal principles relating to applications for freezing and ancillary ordersare well settled.1 The elements which must be satisfied are:2(a) The applicant has a good arguable case on its substantive claim;(b) There are assets of the respondent, either inside or outsideNew Zealand, to which the orders can apply; and(c) There is a real risk that the respondent might abscond, or might remove,dispose of, deal with or diminish the value of their assets, as to renderthem "judgment-proof".Summary of factual background[11] Hanyang Corporation is an importer and wholesaler of Asian, primarilyKorean, food products. Hanyang International operates a retail grocery business forthe sale of Asian, predominantly Korean, food products. As already noted, Mr Lee isthe sole director and sole shareholder of the two companies.1 McGechan on Procedure at HCR32.2.03, High Court Rules 2016, r 32.2 Shaw v Narain [1992] 2 NZLR 544 (CA) at 548.[12] ANZ made various facilities (the facilities) available to Hanyang Corporationand Hanyang International to fund the importation of Korean food products. Mr Lee,along with the other respondents, jointly and severally guaranteed the obligations ofHanyang Corporation and Hanyang International under the various facilities providedby ANZ, pursuant to a deed of cross guarantee (the Guarantee).[13] Hanyang Corporation and Hanyang International have defaulted under thefacilities. ANZ has made demand on Mr Lee and the other respondents under theGuarantee and on 27 October 2022 appointed Mr Cox and his colleague MarkMcDonald as receivers of Hanyang Corporation and Hanyang International.[14] Inquiries made by the receivers and referred to by Mr Cox in his affidavit andinquiries and information obtained by Ms Simpson referred to in her affidavit indicatethe following:(a) The premises occupied by Hanyang Corporation have been vacated andthe landlord had re-entered and cancelled the leases for failure to payrent due under the leases on 1 September 2022 and 1 October 2022;(b) Despite draft financial statements for both companies for the yearended 31 March 2022 indicating that as at that date both companieswere profitable businesses with net assets including a number ofvehicles, the receivers, having attended both a warehouse and the retailoutlet have found minimal assets of any value remaining at thosepremises. Mr Cox says he has been unable to locate assets of any valuefor either of the companies apart from a container containing foodproducts with an invoice value of approximately US$60,000 which waslanded at the Port of Auckland in July 2022 and which has remainedthere since uncollected with detention and other charges accruing;(c) Neighbours of the premises from which Hanyang Corporation hadoperated reported that in late August 2022 Hanyang Corporation hadconducted a bargain price sale of stock. The tenants of thoseneighbouring premises believe that Mr Lee and his parents, the secondand third respondents, had returned to Korea;(d) The property (Mr Lee's residential property) was advertised for sale atthe end of September/beginning of October 2022. Ms Simpsonattended the auction on 19 October 2022 when the property was passedin. The property remains advertised for sale;(e) Mr Cliffe says that despite Mr Lee being in email communication withANZ until 14 October 2022, Mr Lee made no mention to ANZ that hewas disposing of stock, ceasing business, vacating the businesspremises and selling his home. ANZ has not heard from Mr Lee since14 October 2022;(f) Neither the receivers nor Ms Simpson have been able to make contactwith Mr Lee. Ms Simpson says she has not been able to raise Mr Leeor his parents by telephone or email. Mr Lee has not responded toemails sent to him by the receivers and telephone calls by Mr Cox toMr Lee have not been answered. Mr Cox says calls to Mr Lee's mobiletelephone number resulted in a ringing tone which in his experience isconsistent with a call to a number overseas, before ringing out andwithout being picked up. Mr Lee has avoided requests by ANZ to meetduring October 2022 to discuss Hanyang Corporation and HanyangInternational's accounts.Is there a good arguable case?[15] The first of the three elements ANZ must establish is that it has a good arguablecase against Mr Lee on an accrued or prospective cause of action.3 In order to do so,ANZ does not need to establish a prima facie case but must show that the cause of3 HCR, r 32.5(1)(b).action is at least tenable.4 The sufficiency of the evidence must reflect the early stageof the proceedings.5[16] ANZ says its claim against Mr Lee is straightforward. It is for that reason ANZhas applied for summary judgment on its claim against Mr Lee and otherdefendants/respondents. Its claim is a simple claim in contract and debt againstMr Lee and the other defendants as guarantors under the Guarantee for amounts dueand owing by Hanyang Corporation and Hanyang International under the facilities asa consequence of defaults by those two companies.[17] Mr Cliffe annexes to his affidavit the Guarantee and the relevant facility andsecurity documents. As far as the Guarantee is concerned, Mr Lee, and each of theother respondents as guarantors, is liable under the Guarantee as a principal debtor andnot just as a surety. In other words ANZ can require him to pay the relevant debtwhether or not ANZ has made demand on Hanyang Corporation and HanyangInternational as the borrowers.[18] Mr Cliffe says that from 21 September 2022 the Hanyang Corporation accountin respect of which no overdraft arrangement was in place, was (and remains)overdrawn, with the overdrawn balance increasing substantially.[19] Mr Cliffe says that Hanyang Corporation and Hanyang International defaultedunder their respective general security agreements in a number of respects including afailure to satisfy demand made on them. A demand was also made on Mr Lee and theother respondents on 4 October 2022 as guarantors under the Guarantee for the thenoverdrawn balance of the Hanyang Corporation account. The total amount demandedwas $537,077.10.[20] I accept that the evidence filed in support of the application establishes therequired threshold of a good arguable case against Mr Lee.4 Hannay & Ors v Mount & Ors [2011] NZCA 530 at [21]–[22]; Dotcom v Twentieth Century FoxFilm Corporation (2014) 22 PRNZ 479; [2014] NZCA 509 at [18].5 Dotcom v Twentieth Century Fox Film Corporation, above n 4, at [31].[21] I note that ANZ says it is not aware of any possible defences – given the natureof a claim for liability under a guarantee.Are there assets to which the freezing orders may apply?[22] The second requirement that must be satisfied is that Mr Lee has assets towhich the order can apply.[23] ANZ says the only asset of Mr Lee of which it is specifically aware is theproperty at 2/59 Sartors Avenue, Browns Bay, Auckland, being Identifier NA80B/209,North Auckland Land Registry for which Mr Lee (as Jin Won Lee) is registered asregistered proprietor. This is also the address given for Mr Lee in the CompaniesOffice extracts for Hanyang Corporation and Hanyang International. ANZunderstands this is or was his place of residence.[24] I accept the second element is satisfied.Is there a risk of dissipation?[25] The applicant for a freezing order must point to circumstances from which "aprudent, sensible, commercial person could properly infer a danger of default". Thetest is "not unduly exacting".6[26] I accept the matters identified by Mr Gollin, counsel for ANZ, establish a realrisk or danger of assets, particularly the property, being disposed of or dissipated:(a) The property is for sale against a background where the stock ofHanyang Corporation and Hanyang International has been sold off atbargain prices and their premises vacated. Mr Cox's evidence is thatthe warehouse containing the head office and warehouse space was indisarray when he visited with scattered boxes of stock, a lot of whichappeared to have expired. A chattels sales agent was on siteundertaking a stocktake and valuation of the stock and equipment onbehalf of the landlord. There were three forklifts at the warehouse but6 Oaks Hotels & Resorts NZ Ltd v Body Corporate 358851 [2013] NZHC 2695 at [18].no sign of the motor vehicles and delivery vans listed in the financialstatements;(b) The above matters provide reason to believe that Mr Lee hadundertaken a process of cashing up business and personal assets, thelast stage of which being the sale of the property;(c) Mr Lee's two businesses, Hanyang Corporation and HanyangInternational have substantial indebtedness to ANZ;(d) The two companies vacated their leased premises with arrears of rentowing;(e) Mr Lee did not mention to ANZ that any of these matters wereoccurring despite being in correspondence with ANZ at the time; and(f) Tenants in the neighbouring commercial premises understood that MrLee had returned to Korea. If that is the case, it would explain Mr Lee'snot attending meetings which ANZ sought to schedule.[27] I accept that all the above circumstances indicate a real risk that on settlementof a sale of the property any sale proceedings remaining after payment of sums owingon the mortgage registered against the title will be remitted offshore beyond the reachof ANZ even before ANZ has been able to obtain and enforced the summary judgmentapplication.[28] The third element is satisfied.Balance of convenience and overall justice[29] I accept the balance of convenience and overall justice of the case supportsfreezing orders being granted. There would be little or no prejudice or hardship toMr Lee. Any such hardship is outweighed by that which will be suffered by ANZ ifthe freezing orders are not made.[30] ANZ accepts that the registered mortgage will take priority on any sale of theproperty. The purpose of the freezing order is to preserve ANZ's ability to enforce itsjudgment against Mr Lee's equity in the property.[31] ANZ has also provided an undertaking as to damages and is clearly able tofulfil its obligations under that undertaking.Ancillary Orders[32] Ancillary Orders are sought under HCR, r 32.3. Such orders may be made forthe purpose of eliciting information relating to assets relevant to the freezing order orprospective freezing order.7[33] The Ancillary Orders sought are by way of disclosure orders. First, as againstMr Lee, the Ancillary Orders require disclosure of his assets. Such orders will allowANZ to determine whether there are other assets and whether other parties ought to beserved with the freezing order as having custody or control over those assets.[34] ANZ also seeks Ancillary Orders by way of disclosure orders against variousbanks or financial institutions: CFML Lending Ltd (CFML); Kookman Bank,Heartland Bank Ltd (Heartland) and Westpac New Zealand Ltd (Westpac).[35] I accept that for each of those institutions there is reason to believe that Mr Leemay have a banking relationship with them and they may, therefore, have informationabout assets of Mr Lee or assets in which he has an interest.[36] CFML is the party with the mortgage registered against the title to the property.The Ancillary Orders therefore seek disclosure of the amount owing and secured bythe mortgage. I accept the submission Mr Gollin makes that it is possible that CFMLmay also hold security over other assets of Mr Lee. The Ancillary Orders soughtagainst CFML also seek disclosure of that information as it would identify other assetsto which the freezing order would apply.7 HCR, r 32.3(2)(a).[37] In relation to Kookman Bank and Heartland, both institutions are referred to inthe draft statement of financial position for Hanyang Corporation for the year ended31 March 2022. Accounts with Kookman Bank are listed as current assets andHeartland is listed as a current liability. Given Mr Lee's close association withHanyang Corporation (sole shareholder and sole director) I accept it is a reasonableassumption that he may also have a personal banking relationship with those twobanks.[38] As far as Westpac is concerned, by email to the ANZ in April 2022, Mr Leereferred to discussions he was having at the time with Westpac with a view torefinancing the accounts Hanyang Corporation and Hanyang International had withWestpac. Although that refinancing did not in fact proceed I accept it is conceivablethat Mr Lee may nevertheless have established a personal banking relationship withWestpac.[39] The bank statement information ANZ seeks from Kookman Bank, Heartlandand Westpac is restricted to the months of August, September, October and November2022 as this was the period of and following the defaults and the various demandsmade on Hanyang Corporation, Hanyang International, Mr Lee and the otherguarantors.[40] I will make the Ancillary Orders as sought.Duration or discharge of freezing orders[41] ANZ has filed a draft order with its application and suggests 5 pm on Thursday8 December 20228 as an appropriate time for the order to lapse unless it is renewed byan order of this Court. I will make an order in those terms. ANZ says its intention isthat the matter be listed for mention in the Duty Judge List held at 10 am on Thursday8 December 2022. I direct accordingly.[42] In terms of the draft order I accept that three working days is an appropriatenotice period if Mr Lee seeks to have the order varied or discharged.8 The draft order contains the date of 17 November 2022. In a subsequent communication with theCourt the date of 8 December 2022 was proposed to give sufficient time for service.Form of freezing order[43] I make a freezing order and Ancillary Orders in terms of the draft annexed tothe application (but with the date amended as referred to in [41] above).Application made without notice[44] Finally, as is apparent from the foregoing judgment, the application has beenmade on a without notice basis. I accept that the application has properly been madewithout notice on the grounds that: requiring ANZ to proceed on notice would causeundue prejudice to it;9 and an enactment (namely HCR, r 32.1(1)) permits theapplication to be made without serving notice of the application.10_____________________________Gordon J9 HCR, r 7.23(2)(a).10 HCR, r 7.23(2)(a)(iv).