HAN v ZHU [2021] NZHC 3007

HAN v ZHU [2021] NZHC 3007 [8 November 2021]NOTE: IN RELATION TO PARAGRAPH [39] ONLY, PURSUANT TO S 35AOF THE PROPERTY (RELATIONSHIPS) ACT 1976, ANY REPORTREFERRING TO THE CONTENT OF [39] OF THIS JUDGMENT MUSTCOMPLY WITH SS 11B, 11C AND 11D OF THE FAMILY COURT ACT 1980.FOR FURTHER INFORMATION, PLEASE SEEhttps://www.justice.govt.nz/family/about/restriction-on-publishing-judgments/IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2021-404-1082[2021] NZHC 3007UNDER the Contempt of Court Act 2019BETWEEN HONGZE HANApplicantAND LANYING ZHURespondentHearing: 1 November 2021Appearances: K Sun for the ApplicantK Puddle for the RespondentJudgment: 8 November 2021JUDGMENT OF GORDON JThis judgment was delivered by meon 8 November 2021 at 2 pm, pursuant tor 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:Solicitors: Capstone Law Limited, AucklandK3 Legal Limited, Auckland[1] The applicant, Hongze Han and the respondent, Lanying Zhu, were married.They separated in around 2013 and their marriage was dissolved in August 2015. On28 February 2017, Judge S J Fleming in the Family Court at Auckland, after a formalproof hearing in the absence of Ms Zhu, made orders that a property in Gillies Avenue,Epsom (the property) be sold by way of public action and the net sale proceeds equallydivided between the parties.1[2] Ms Zhu is the sole registered proprietor of the property which remains unsold.[3] Mr Han seeks orders under s 16 of the Contempt of Court Act 2019 (the Act):(a) that a warrant be issued committing Ms Zhu to a term ofimprisonment as the Court considers appropriate to penaliseMs Zhu for her refusal to comply with the Family Court order;(b) that a fine be imposed on Ms Zhu, in part or in whole, payable toMr Han;(c) an award of costs in favour of Mr Han for, and incidental to, theapplication on a solicitor-client basis; and(d) any other relief that the Court considers just.[4] Ms Zhu opposes Mr Han's application.A brief background[5] Mr Han and Ms Zhu married in 1986, and have one daughter named Dan HanHoolihan (also known as Alice). Their marriage was dissolved in August 2015.During the course of their marriage, Ms Zhu purchased the property and she is the soleregistered proprietor. In April 2015, Mr Han issued proceedings seeking orders forthe division of relationship property (including the property). The Family Court1 Han v Zhu FC Auckland FAM-2015-004-000407, 28 February 2017.proceeding and Judge Fleming's order for sale of the property are described in moredetail below.[6] In her affidavit filed in support of her notice of opposition to the application,Ms Zhu says that over the course of 2012, wanting to provide for her daughter whowas about to be married, she set up the Dan Han Family Trust (the Trust). Ms Zhu isthe sole trustee and Alice, and her children and grandchildren, are the beneficiaries.On 14 June 2012, Ms Zhu gifted the property to the Trust by way of a deed of gift.Mr Puddle, for Ms Zhu, submits it is incontestable that Mr Han knew of the transferof the property to the Trust by at least August 2014, evidenced by an email sent thatmonth in which Mr Han acknowledged the transfer. Mr Puddle submits that Mr Hanknew that the property was owned by the Trust (and that Ms Zhu's name was on thetitle in her capacity as trustee of the Trust) when Mr Han asserted in the Family Courtproceeding that it was relationship property.[7] Mr Puddle says that the Family Court proceeding derailed for Ms Zhu due tocommunication difficulties between her and her then barrister who was not a Chineselanguage speaker. This is supported by an affidavit from Ms Zhu to that effect.Ms Zhu says she was unaware that the proceeding (by way of formal proof) was eventaking place.[8] Counsel for Mr Han, Mr Sun, says that in the four years since the date of theFamily Court hearing Ms Zhu has still not complied with the sale order, despiterepeated requests from Mr Han. However, the nature of these requests is notparticularised. In his affidavit Mr Han simply says "I have tried to ask the respondentto comply with the Order for 4 years since 2017". Ms Zhu says Mr Han did not get intouch with her about the sale of the property until around April this year. She theninstructed her present solicitors who began communications with the law firm thenacting for Mr Han about how the issue might be resolved. Then in late May 2021,Mr Han instructed new counsel who filed the application for orders under s 16 of theAct on 15 June 2021.Family Court decision and orders[9] The sale order in question was made by Judge S J Fleming in the Family Courtat Auckland, on 28 February 2017, after the application by Mr Han for orders for thedivision of relationship property was set down for a formal proof hearing.2[10] Judge Fleming began by traversing the difficult history of the proceeding,which had first been filed by Mr Han in April 2015. The Judge noted that servicedifficulties had necessitated Mr Han applying for substituted service, and that nothinghad been filed by Ms Zhu in support of her notice of defence except for an affidavit ofassets and liabilities early on in the proceeding.3 The Judge recorded that, on 2 June2016, Judge McHardy had indicated that Ms Zhu had a period of 10 days to fileaffidavit evidence after which, if no such evidence was received, she would bedisqualified from having a formal role in the proceeding and the matter would progressto formal proof.4[11] Judge Fleming noted than an issue was whether the property was being heldon trust for the parties' daughter. The Judge stated, with respect to the trust issue:5 That was referred to in the respondent's notice of defence but, as I haveindicated, no evidence apart from an affidavit of assets and liabilities was everfiled by Ms Zhu. So there is no evidence in support of her claim that theproperty at Gillies Avenue was owned in trust for the parties' daughter6 and,accordingly, I am quite satisfied that that property is relationship property.[12] The Judge was satisfied that both properties at issue (of which only theproperty is relevant for this proceeding) were relationship property and should be thesubject of equal sharing. Accordingly, the Judge made orders:7(a) For sale of the property conducted by way of public action; and .(b) For equal division of the net sale proceeds, after deduction ofreasonable legal fees and land agent's commission, from the propertybetween the parties.2 Han v Zhu, above n 1..3 At [2] – [3].4 At [4].5 At [8].6 In fact Ms Zhu had stated in her affidavit of assets and liabilities that the property was held ontrust for the parties' daughter. However it was a bare statement with no supporting evidence.7 At [11].[13] Judge Fleming made a 2B costs award against Ms Zhu. She noted that Ms Zhuhad delayed proceedings, necessitated an application for substituted service andignored three separate directions at conferences to file evidence.8[14] The Judge concluded by reserving leave for further directions, stating:9Finally, I will reserve leave to either party to come back to Court for furtherdirections to implement or make further orders to give better effect to theorders I have made. I am doing so because, looking at the history of theseproceedings, there may be difficulties for the applicant in enforcing the orderI have made for sale of the Gillies Avenue property in particular. There mayalso be difficulties around distribution but I anticipate that the most difficultywill relate, if it is going to happen to implementing the order for sale.SubmissionsMr Han[15] Mr Sun, for Mr Han, submits there are no other methods of enforcing the saleorder. He submits that while Mr Han could hypothetically seek further orders fromthe Family Court to appoint himself as attorney to implement the sale order, it isreasonable to anticipate that Ms Zhu would "vehemently threaten any conveyancinglawyer who dared to process this transaction". Additionally, Mr Sun says Ms Zhu'scooperation would be required for other aspects of the sale process, such as land agentaccess to take photographs for marketing purposes and she would need to give vacantpossession. Mr Sun submits the reality is that, given Ms Zhu has not complied withthe sale order to date, she will not comply with any further orders. In short, Mr Sunsubmits even if further orders were obtained from the Family Court, Ms Zhu wouldsimply ignore or oppose them. Mr Sun acknowledges that other methods of enforcingthe order have not been attempted but he says Mr Han's resources are limited.Accordingly, he has elected to proceed as he has to avoid the possibility of multipleapplications to the Family Court without there being any certainty that Ms Zhu willcomply with further orders of that Court.[16] Mr Sun submits the sale order is clear, unambiguous and clearly binding onMs Zhu. In response to Ms Zhu's position that the sale order is unclear and ambiguous8 At [12].9 At [14].because it does not specify a date by which the sale must occur, Mr Sun submits areasonable person would interpret the sale order to mean the public auction must takeplace as soon as practicable. Further he submits Ms Zhu is not disobeying the saleorder because of the lack of an express date but rather because of her disagreementwith the Family Court's decision.[17] Mr Sun says there is no doubt that Ms Zhu has knowledge of the terms of thesale order.[18] Finally, Mr Sun submits Ms Zhu has knowingly failed to comply with the saleorder. He submits that if Ms Zhu did not agree with Judge Fleming's decision, theappropriate course would have been to appeal the decision to the High Court.10 Buthe says Ms Zhu is now barred from bringing an appeal because the 20 working daysfor bringing an appeal has long since expired.11 Accordingly, Mr Sun submits Ms Zhudoes not have any reasonable excuse for knowingly refusing to comply with the saleorder.[19] For completeness, Mr Sun submits that Ms Zhu's trust claim has no merit.However, in making that submission, Mr Sun emphasises that the Court, on anapplication such as this, does not consider the merits or validity of the sale order.Ms Zhu[20] Mr Puddle submits the application does not get through the first gateway unders 16(3)(a) of the Act . He submits there are two methods of enforcement available toMr Han. One appears to have been considered but not pursued and the other appearsnot to have been considered at all.[21] In relation to the first method, Mr Puddle notes that the Family Court expresslyreserved leave to Mr Han to seek further directions or orders. He submits this is theobvious first step to enforce compliance. Mr Puddle says while it is correct to sayMs Zhu considers the Family Court decision is problematic, the fact that Mr Han hasnot taken up the Family Court's invitation to apply for further directions or orders10 Property (Relationships) Act 1976, s 39.11 High Court Rules 2016, r 20.4(2)(b).means that he cannot pass through the statutory gateway. Mr Puddle submits thatkeeping in mind an order under the Act is a remedy of last resort, Mr Han's vague andunsupported assertions as to futility are insufficient.[22] The second method Mr Puddle refers to is the express provision in s 33(5) ofthe Property Relationships Act 1976 (PRA) whereby the Court can make orders tofacilitate the sale of properties held by recalcitrant owners. Mr Puddle submits that,at best, Mr Sun refers to "hypothetical" orders to appoint him as attorney. However,says Mr Puddle, there is nothing hypothetical about orders that may be made unders 33(5) of the PRA. Nor is it a given that Mr Han, as opposed to an officer of theFamily Court, would be granted the authority to execute the documents and take othersteps necessary for transfer of the property.[23] Next, Mr Puddle submits the sale order is not clear and unambiguous, nor is itclearly binding on the respondent. First, Mr Puddle submits the order has no date forcompliance as required by r 202 of the Family Court Rules 2002. As to Mr Han'ssubmission seeking to impose a standard of a "reasonable time", Mr Puddle says thisignores the requirement that the unambiguous nature of the order must be establishedbeyond reasonable doubt. Mr Puddle submits reasonable people can disagree as towhat a reasonable time is and, in any event, Mr Han himself was content to wait forover four years before seeking to implement the sale order.[24] Mr Puddle submits it is also not clear that the order is binding on Ms Zhu. Hesubmits the documents filed in this proceeding show unequivocally that Ms Zhu giftedthe property in 2012 to herself as trustee of the Trust. Ms Zhu owns the property astrustee with all the obligations on her as contained in the Trust Deed. Mr Puddle saysthat it was Ms Zhu, in her personal capacity, who was the party to the Family Courtproceeding and again in this proceeding in the High Court. At no time was she joinedin the Family Court in her capacity as trustee nor in this Court, as required by r 5.35of the High Court Rules 2016. Nor was notice given to the parties' daughter, Alice,who is the beneficial owner of the property.[25] Mr Puddle accepts that Ms Zhu has knowledge of the terms of the sale order.[26] Finally, he submits that Ms Zhu has a reasonable excuse for failing to complywith the sale order as it requires her to sell at an uncertain and unspecified time aproperty that she did not and does not beneficially own. Mr Puddle submits the saleof the property and a distribution of the proceeds to non-beneficiaries (to her andMr Han) would be a breach of the Trust capable of being injuncted and exposingMs Zhu, as trustee, to claims against her. In addition, if any portion of the proceedswas paid to Mr Han he would be a knowing recipient of the proceeds of the breach oftrust.[27] Mr Puddle submits, given the indisputable fact that the property is held subjectto the Trust and the issues arising from that factual position, there is a reasonableexcuse for Ms Zhu not complying with the sale order.Applicable Law[28] The availability of contempt of court proceedings for non-compliance withcourt orders is premised on the effective administration of justice and the rule of lawthat court judgments and orders will be enforced.12 The Act, which came into forceon 26 August 2020, governs this application.[29] Section 16 of the Act reads:(1) This section applies to—(a) any interim or final order, decision, decree, direction, orjudgment of a court (a court order) to do or abstain from doingsomething, except as provided in section 17:(b) any undertaking given to the court if, on the faith of theundertaking, the court has sanctioned a particular course ofaction or inaction.(2) A court may enforce the court order or undertaking against the party,non-party, or other person bound by the order or undertaking by takingaction provided for in subsections (3) and (4) on application by—(a) the party who sought the order or undertaking being enforced;or(b) a person who benefits from, or has an interest under, the orderor undertaking; or12 See discussion in Siemer v Solicitor-General [2010] NZSC 54, [2010] 3 NZLR 767.(c) the Solicitor-General, if the Solicitor-General is satisfied thatthere is a high degree of public interest in enforcing the orderor undertaking.(3) The court—(a) must not proceed further under this section unless it issatisfied that other methods of enforcing the court order orundertaking have been considered and are inappropriate orhave been tried unsuccessfully; and(b) if so satisfied, must make a finding as to whether it is provedbeyond reasonable doubt that—(i) the court order or undertaking being enforced hasbeen made in clear and unambiguous terms and isclearly binding on the person; and(ii) the person had knowledge or proper notice of theterms of the court order or undertaking beingenforced; and(iii) the person has, without reasonable excuse, knowinglyfailed to comply with the court order or undertakingbeing enforced.[30] Section 16(3)(a) is unambiguous that contempt of court proceedings are a lastresort.13 A court must not act unless all other methods of enforcing an order have beeneither exhausted or have been considered and deemed inappropriate. The Court mustthen be satisfied beyond reasonable doubt of the three matters listed in s 16(3)(b).[31] Even if the Court gets to that point, the penalty to be imposed (or whether apenalty is imposed at all) is a discretionary matter for the Court under s16(4). Thissubsection reads:(4) On finding beyond reasonable doubt that the requirements ofsubsection (3)(b)(i) to (iii) are met, the court may—(a) do any of the following:(i) issue a warrant committing the person or a director oran officer of the body corporate, as the case may be,to a term of imprisonment not exceeding 6 months:(ii) impose a fine,—(A) in the case of an individual, not exceeding$25,000; or13 Johnson v Johnson [2021] NZHC 840 at [64].(B) in the case of a body corporate, not exceeding$100,000:(iii) order the individual or a director or an officer of thebody corporate, as the case may be, to do communitywork, not exceeding 200 hours, as the court thinks fit:(b) if the court is the High Court, make a sequestration order inaccordance with the rules of court.[32] Under subs (4), it is clear that notwithstanding the elements of contempt beingsatisfied, there will be situations where penalties will be inappropriate in thecircumstances.14 The Court will consider the extent of the contempt, the defendant'smotive, and the degree of prejudice suffered by the innocent party.15[33] Finally, it is not for a defendant in contempt proceedings to challenge thevalidity of the order with which they have not complied. As the Supreme Court saidin Siemer v Solicitor-General (and the Act does not alter this position):16Provided the court had power to make an order of its kind, a court order isbinding and conclusive unless and until it is set aside on appeal or is for someother reason lawfully quashed. Collateral attacks on such orders are notpermitted. Neither the parties, nor other persons subject to an order, arepermitted to arrange their affairs in accordance with their perceptions of itsflaws, including any individual views they may have concerning the validityof the order.Discussion[34] I put to one side Ms Zhu's evidence and submissions that the property is ownedby her in her capacity as trustee of the Trust. That is a collateral attack on the saleorder. Ms Zhu may be able to raise that argument in other proceedings, but it is notrelevant on this application, except perhaps insofar as it might shed light on whethera penalty would be appropriate.[35] However, the application does not get that far. It fails at the first hurdle.14 See for example Lockwood Group Ltd v Small HC Auckland CIV-2009-404-1019, 21 April 2010at [68]; and Pihema v Pihema [2020] NZHC 2749 at [52].15 Booth v Tito [2020] NZHC 1071 at [20]; and Lockwood Group Ltd v Small, above n 14, at [68].16 Siemer v Solicitor-General [2013] NZSC 68, [2013] 3 NZLR 441 at [191].[36] Mr Han cannot make it through the s 16 (3)(a) gateway. The Court must notproceed further unless it is satisfied that other methods of enforcing the court orderhave been considered and are inappropriate or have been tried unsuccessfully. Mr Hansimply has not given any evidence of what steps he took in the four intervening yearsto enforce the order. It seems none. In fact, he first made contact with Ms Zhu throughhis solicitors in only April this year.[37] I accept Mr Puddle's submission that there are two available means ofenforcing the sale order. The first is to go back to the Family Court underJudge Fleming's reservation of leave to seek " further directions to implement ormake further orders to give better effect to the orders I have made. ".17[38] The second method of enforcing the sale order could well operate inconjunction with the first method. Section 33(5) of the PRA provides:(5) Where, pursuant to this Act, the court makes an order for the sale ofany relationship property and for the division, application, orsettlement of the proceeds, the court may appoint a person to sell theproperty and divide, apply, or settle the proceeds accordingly; and theexecution of any instrument by the person so appointed shall have thesame force and validity as if it had been executed by the person inwhom the property is vested.[39] Under the above provision the Court can, on the making of an order for sale,appoint any person to sell the property and deal with the proceeds of sale. Thesubsection also provides that the signing of any documentation by the personappointed is valid. The Court is not limited to appointing Mr Han. It may, forexample, appoint the Registrar of the Family Court or an independent solicitor to actas directed. Examples of such orders are:(a) An order that one of four property lawyers in the relevant area beappointed as the Court's agent to sell two properties. Powers givenincluded the power to list the properties with appropriate real estateagents, to act on settlement of sale and to attend to division of theproceeds in accordance with the Court's orders;1817 Han v Zhu, above n 1, at [14].18 Sparks v Prescott [2016] NZFC 275 at [96].(b) An order appointing the Registrar of the Family Court to execute thetransfer and/or client authority and instructions form to effect thetransfer of the property concerned to one of the parties;19(c) If the parties were unable to agree on the means of marketing andeffecting the sale of the home, within 21 days of that default then theRegistrar of the Family Court was appointed to sell the family home;20and(d) An order that the sale process be managed by an independent solicitor.Detailed orders made regarding the authorisation and directions to thesolicitor, including that he was authorised to sign on behalf of theparties all documents necessary to arrange and complete the salehowsoever, including any contract whether of sale, appointment ofauctioneers, real estate agents and solicitors or otherwise .21[40] It simply is not sufficient to submit, as Mr Sun does, that even if Mr Han soughtfurther orders from the Family Court Ms Zhu would not comply because she believesthe decision was wrong. That is speculative. Such speculation does not make thealternative method inappropriate. Further, Mr Sun himself recognises in his writtensubmissions that "alternatively, Mr Han could hypothetically seek further orders fromthe Family Court to appoint himself as attorney to implement the Sale order". In asituation where even counsel for the party seeking the contempt order acknowledgesthere is an alternative option (albeit submitting that option would not result in aneffective outcome) then a contempt order would be manifestly inappropriate as ajudicial tool of "last resort". It is immaterial that Mr Sun asserts that seeking furtherorders from the Family Court is futile as Ms Zhu would "simply ignore (or oppose)them". It is still a reasonable alternative route to enforcement.[41] Mr Sun says Mr Han's financial resources are limited. Accordingly, he haselected to have one shot (my expression) at enforcing the sale order by means of an19 MDG v SLG FC Palmerston North FAM-2007-054-000869, 28 April 2009 at [41(2)].20 APG v SMG FC Christchurch FAM-2008-009-000856, 24 September 2008 (Order 2).21 S v M FC Ashburton FAM-2006-003-000155, 8 December 2006 at [22].order under s 16 of the Act. I do not accept that is a sufficient reason to resort to anapplication under the Act. It does not follow that simply because it may be necessaryfor Mr Han to go back to the Family Court on more than one occasion that either ofthe two enforcement methods referred to above is "inappropriate".[42] For all the above reasons the Court is not able to proceed further under s 16 asI am not satisfied that other methods of enforcing the order for sale made byJudge Fleming had been considered and are inappropriate or have been triedunsuccessfully. It is, therefore, unnecessary to consider the further arguments by theparties made in relation to s 16(3)(b).Result[43] The application by Mr Han for orders under s 16 of the Contempt of Court Act2019 is refused.Costs[44] Costs are reserved. Ms Zhu, as the successful party, is prima facie entitled tocosts. If the parties are able to agree costs, a joint memorandum is to be filed within20 working days of the date of this judgment. If costs are not able to be agreed,Ms Zhu may file and serve a memorandum in support of an application for costs(supplementing, if necessary, the submissions on costs already made in the synopsisof submissions filed for the hearing).[45] Mr Han is to respond by filing and serving a costs memorandum within fiveworking days of the date of service of Ms Zhu's memorandum.[46] If separate memoranda are filed, Ms Zhu's memorandum should not exceedtwo pages (supplementing the three pages of submissions already filed). Mr Han'smemorandum should not exceed five pages. In either case, the parties may fileattachments to the memoranda which exceed the limit on the number of pages that Ihave directed.[47] I will determine costs on the papers.___________________________________Gordon J