HANGZHOU SHENGZHE TRADE CO LTD V HE HC AK CIV-2012-404-3860

HANGZHOU SHENGZHE TRADE CO LTD V HE HC AK CIV-2012-404-3860 [19 December 2012]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2012-404-3860[2012] NZHC 3536BETWEEN HANGZHOU SHENGZHE TRADE COLTDFirst PlaintiffAND HANGZHOU FULUOSI THERMALINSULATION MATERIALS CO LTDSecond PlaintiffAND HANGZHOU JIAHUA INVESTMENTCO LTDThird PlaintiffAND HANGZHOU KANLI CAR SALES ANDSERVICES CO LTDFourth PlaintiffHearing: 21 November 2012Counsel: E Orlov for PlaintiffsR E Harrison QC and D Liu for DefendantsJudgment: 19 December 2012JUDGMENT OF KATZ JIn accordance with r 11.5 High Court RulesI direct the Registrar to endorse this judgmentwith a delivery time of 4 p.m. on 19 December 2012.Solicitors: Stewart & Associates Lawyers Ltd, Alexandra – greg@stewartlaw.co.nzYu Lawyers, Auckland – david.liu@xtra.co.nzCopy to: R E Harrison QC, Auckland – rehqc@xtra.co.nzE Orlov, Auckland – evgeny.orlov@equitylaw.co.nzAND WEIDONG HEFirst DefendantAND FURONG PANSecond DefendantAND XIAOMEI LIUThird DefendantAND MARYLAND COMPANY LIMITEDFourth DefendantAND MARYLAND BASSETT COMPANYLIMITEDFifth DefendantIntroduction[1] The first defendant, Mr Weidong He, is originally from the People's Republic of China ("China"). He moved to New Zealand with his wife Furong Pan (the second defendant) in 2008. The third defendant is a trustee of Mr He's family trust.The fourth and fifth defendants are companies associated with Mr He.[2] Mr He was the Chairman of a Chinese property development company,Zhejiang Dongzhou Industrial Group Co Limited ("ZDIG"). Mr He and his wife owned all or most of the shares in ZDIG.[3] The four plaintiffs are each companies based in Hangzhao, China. They allege that:(a) Between 2006 and 2008 Mr He approached the plaintiffs and requested them to provide funding to ZDIG in the sum of RMB36m.(b) The plaintiffs loaned the requested funds to ZDIG and Mr He personally guaranteed the repayment of such loans.(c) Shortly after the money was borrowed Mr He and his wife removedthe funds from ZDIG's bank accounts and moved to New Zealand.[4] Mr He strenuously denies any allegations of fraud and/or misappropriation of funds. He further says that, in the case of the alleged loan and guarantee agreements relied upon by the first, third and fourth plaintiffs, none of the alleged agreements bears his signature. To the extent that an imprint of a copy of his personal seal does appear at various points, this was unauthorised and was not applied by him or in his presence. Mr He also contests the validity of the guarantee relied on by the second plaintiff. Mr He says that the personal guarantees are unenforceable against him under either New Zealand law (s 27(2) of the Property Law Act 2007) or Chinese law.[5] On 18 December 2008 the Westlake District People's Court in Hangzhou, China ("Chinese Court") issued judgments in favour of each of the plaintiffs against Mr He and ZDIG, for principal sums totalling RMB36m (approximately NZD7m) together with interest and costs ("the Chinese Judgments"). Neither ZDIG nor Mr He has made any payment in terms of the Chinese Judgments. ZDIG apparently has no assets and has now been struck off.[6] Mr He says he was unaware of the existence of the Chinese proceedings until the present New Zealand proceedings were brought to his attention. When the Chinese proceedings were filed in Hangzhou on 23 July 2008, Mr He was resident and physically present in New Zealand. He was not served with copies of the Chinese proceedings. Nor was the fact of their existence brought to his attention. Mr He says that he has not, at any stage, submitted to the jurisdiction of the Chinese Courts.Scope of the summary judgment application[7] Each of the plaintiffs seek to enforce their first cause of action, which is against Mr He only, by way of summary judgment application. The precise scope of the summary judgment application was, however, in dispute at the hearing. Unfortunately both the statement of claim and the summary judgment application lacked clarity and precision in their drafting, which led to confusion as to the precise scope of the issues.[8] The plaintiffs' written submissions proceeded on the basis that the sole issue before the Court was a summary judgment application for enforcement of the Chinese Judgments. In oral submissions, however, Mr Orlov also sought summary judgment on the basis of direct enforcement of the guarantees allegedly provided by Mr He to the plaintiffs.[9] Mr Harrison, for the defendants, argued that the only claims before the Court in respect of which summary judgment could be sought were claims to enforce the Chinese Judgments.[10] For the purposes of the summary judgment application, the sole relevant causes of action were the first of the causes of action brought by each plaintiff. These claims were against Mr He (only). Using the first plaintiff's claim as anexample, the relevant cause of action is as follows:FIRST GROUND OF CLAIM – BREACH OF GUARANTEE22. The first plaintiff repeats paragraphs 1-21 of the statement of claim.23. The first defendant is liable in accordance with Chinese law via the judgment of the Court in Hangzhou for the following amounts [11] Accordingly, on its face (and despite the heading) this cause of action appears to be a claim to enforce the relevant Chinese Judgment. However some doubt arises due to the cross-reference in paragraph 22 to paragraphs 1-21 of the statement of claim. Those paragraphs set out the history of the dealings between the parties in relation to the loan agreements and the guarantees, the obtaining of judgment by the first plaintiff and various other matters. Many of the paragraphs are more relevant to a substantive claim for breach of guarantee than a claim for enforcement of a foreign judgment.[12] The essential elements in an action on a foreign judgment are covered in part, however, with some exceptions. For example, the facts which establish that the foreign court had jurisdiction over the defendant are not pleaded. Nor is it expressly pleaded that the foreign judgment is final and conclusive, although this is covered in affidavit evidence.[13] It goes without saying that a cause of action based on enforcement of a foreign judgment and a cause of action based on direct enforcement of a contract of guarantee are conceptually different, with different essential elements. They must be pleaded as separate and distinct causes of action.[14] For present purposes I must proceed on the basis of the case as currently pleaded. Despite some conceptual confusion, the first cause of action by each plaintiff appears to have been intended to be a claim to enforce the Chinese Judgment obtained by that plaintiff. The plaintiffs' written submissions proceeded on that basis. They state squarely that "Counsel has applied for summary judgmentunder High Court Rules 12.1 to 12.16 to enforce the Chinese Judgment".[15] Mr He is entitled to know the case he has to meet. He understood that the first cause of action by each plaintiff seeks enforcement of the Chinese Judgments. That is an appropriate assumption, based on the material before the Court. I therefore proceed on the basis that the application before me is for enforcement, by way of summary judgment, of the Chinese Judgments which the plaintiffs have obtained against the first defendant.[16] I note that, based on the evidence currently before the Court, the plaintiffs appear to have strongly arguable claims for direct enforcement of the guarantees in New Zealand. However, if the plaintiffs wish to pursue such claims they will need to be clearly (and separately) articulated and pleaded in an amended pleading.Enforcement of the Chinese Judgments in New Zealand[17] The judgments obtained by the plaintiffs in China have no direct operation in New Zealand. To enforce the Chinese Judgments in New Zealand, the plaintiffs must establish that:1(a) the jurisdiction of the Hangzhou Court to give the judgments is recognised by New Zealand law; and1 Reeves v One World Challenge LLC [2006] 2 NZLR 184; (2005) 18 PRNZ 11; see also Dicey &Morris The Conflict of Laws (15th ed, Sweet & Maxwell, UK, 2012) at 673.(b) the judgments are for a debt, or definite sum of money, but not a sum payable in respect of taxes or other charges of that nature, or in respect of a final penalty; and(c) the judgments are final and conclusive.[18] Argument focussed on sub-paragraph (a) above. In order for the judgments to be enforceable in New Zealand the Chinese Court must have had jurisdiction over Mr He according to New Zealand's conflict of laws rules, rather than according tothe foreign court's own law: Von Wyl v Engeler.2 In Von Wyl the Court of Appeal (drawing on well recognised principles of private international law) identified the following circumstances where such jurisdiction will arise:(a) If the judgment debtor was, at the time the proceedings were instituted, present in the foreign country;(b) If the judgment debtor was a plaintiff, or counterclaimed in the proceedings in the foreign court;(c) If the judgment debtor (being a defendant in the foreign court) submitted to the jurisdiction of that court by voluntarily appearing in the proceedings;(d) If the judgment debtor, being a defendant in the original court, had before the commencement of the proceedings agreed, in respect of the subject matter of the proceedings, to submit to the jurisdiction of that court or of the courts of that country (the agreement must be express not implied).[19] It was common ground in this case that sub-paragraphs (a) and (b) do not apply. Counsel for the plaintiffs submitted, however, that sub-paragraph (c) applied and, in relation to the third plaintiff only, sub-paragraph (d).2 Von Wyl v Engeler [1998] 3 NZLR 416; (1998) 12 PRNZ 187.Did Mr He submit to the jurisdiction of the Chinese Court by voluntarily appearing in the proceedings in China?[20] The plaintiffs' argument that Mr He "voluntarily appeared" in the Chineseproceedings appears to be essentially that, by virtue of his position as Chairman of the Dongzhou Group (of which ZDIG formed part) Mr He submitted to the jurisdiction of the Chinese Court by assigning counsel to appear in the proceedings.[21] The plaintiffs relied on a combination of somewhat ambiguous references in various documents, some of which referred to Mr He as the "legal representative" ofZDIG. Other documents relied on by the plaintiffs constitute an appointment of lawyers to act made by ZDIG in its capacity as a defendant, not by the firstdefendant, Mr He. Those documents have ZDIG's seal on them but do not have MrHe's signature or seal. There is no evidence to suggest that Mr He created orauthorised such documents. However, even if Mr He had instructed lawyers to act for ZDIG (which there is no direct evidence of) that would not constitute a submission to jurisdiction in his personal capacity.[22] Mr He's evidence was that he had no knowledge at all of the Chinese proceedings prior to being served with the current New Zealand proceedings and there is nothing in the documents which indicates otherwise. I note that Mr He was already resident in New Zealand by the time the plaintiffs issued their proceedings in the Hangzhao Court on 23 July 2008. The plaintiffs cannot point to any personal conduct on the part of Mr He indicating that he voluntarily submitted to the Chinese jurisdiction.[23] The judgments themselves identify particular attorneys as acting for each plaintiff company and another attorney as acting for ZDIG. The judgments then state:The defendant Weidong He did not attend the proceeding after the public summon, and the trial has been completed and the case closed.[24] Mr Yee deposed for the plaintiffs that substituted service had been ordered against Mr He in China, by way of advertisement in a publication in China. Hisevidence was that this amounted to sufficient service of the proceedings on Mr He in terms of Chinese law. Given, however, that Mr He was not served while he was present within the Chinese jurisdiction, the question of sufficiency of service is governed by New Zealand law rather than Chinese law. New Zealand law does not recognise substituted service within the foreign jurisdiction on a defendant who is outside the jurisdiction when the proceeding was issued.3[25] Accordingly, there is no evidence that Mr He submitted to the jurisdiction of the Chinese Court by voluntarily appearing in the proceedings in China.Contractual submission to Chinese jurisdiction[26] Although it was not previously pleaded, or raised in written submissions, counsel for the plaintiffs submitted during oral argument that, in relation to the third plaintiff, Mr He has expressly submitted to the Chinese jurisdiction. The relevant contract of guarantee includes the following provision:11 Dispute resolutionAny dispute rises from this agreement should be resolved by negotiations. Ifdispute is not resolved, any party may sue to the People's Court.[27] Mr He, however, denies any knowledge of the guarantee (including the submission to jurisdiction clause). He says that his seal was affixed to the document without his knowledge and, accordingly, he neither agreed to give the guarantee nor voluntarily submitted to the jurisdiction of the People's Court.[28] Accordingly, the issue in relation to submission to jurisdiction in respect of the third plaintiff (only) is essentially the same issue which would need to be determined in any substantive action for enforcement of the guarantee. Was the sealaffixed to the relevant document with Mr He's knowledge or authority? I am notable to determine that disputed factual issue in the context of this summary judgment application.3 Von Wyl v Engeler at 421.Defence based on breach of natural justice[29] Mr He also submitted that the Chinese Judgments were obtained in breach ofnatural ("or substantial") justice. In SHC v O'Brien4 Master Williams (as he thenwas) held that service pursuant to the Virginia (USA) "long-arm" statute did not accord with "New Zealand notions of substantial justice". As a consequence the resultant judgment could not be enforced against the defendant in New Zealand.[30] That case is directly analogous to the present case. Mr He has unequivocally stated on oath that the Chinese Judgments were entered against him without his knowledge and without him having had an opportunity to be heard in his own defence. The plaintiffs have relied, in part, on substituted service having occurred within China (albeit at a time when Mr He was resident in New Zealand). The fact that Mr He was not served with the Chinese proceedings and judgment was entered without his knowledge or ability to participate gives rise to an arguable defence on natural justice grounds.Procedural issue[31] On 5 November 2012, the defendants were served with an affidavit of Ye Quing. That affidavit was objected to by the second defendant as late, not properly in reply, and including both submission and expert evidence. To the extent that the affidavit included expert evidence, Mr He submitted that the affidavit failed to comply with rule 9.43 of the High Court Rules and was lacking in independence.[32] Mr Orlov accepted that, at the very least, if the affidavit was likely to be determinative of the outcome it would be necessary to give the first defendant an opportunity to file evidence in response to it.[33] Ultimately I have concluded that Ye Quing's affidavit does not significantly influence the outcome, given the narrow issues before the Court in this summary judgment application. The first defendant's concerns are, however, valid. I accordingly rule that the affidavit is inadmissible.4 SHC v O'Brien (1991) 3 PRNZ 1 at pp 19, 23-26.Result[34] In order for the Chinese Judgment to be enforceable in New Zealand theChinese Court must have had jurisdiction over Mr He according to New Zealand'sconflict of laws rules. The plaintiffs have been unable to bring their enforcement claim within any of the recognised categories. Mr He has arguable defences to the application for summary judgment. The application is accordingly dismissed.[35] Mr He has foreshadowed that he wishes to seek costs in relation to the application, notwithstanding r 14.8(3) of the High Court Rules. Leave is accordingly reserved to file memoranda on costs._______________________Katz J