WENZHOU HONGLIANG TRADING CO LIMITED v PERI MICHAELA FINNIGAN and [2021] NZHC 824

IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2019-404-1187[2021] NZHC 824UNDER the Companies Act 1993 and Part 19 of theHigh Court Rules 2016IN THE MATTER OF the liquidation of WENZTROCOOPERATION LIMITEDBETWEEN WENZHOU HONGLIANG TRADING COLIMITEDPlaintiff/RespondentAND PERI MICHAELA FINNIGAN andBORIS VAN DELDENDefendants/ApplicantsHearing: 14 April 2021 at 10:00amAppearances: Morgan Fee for the Applicants/DefendantsStephen Bryers for the Respondent/PlaintiffJudgment: 14 April 2021ORAL DECISION OF ASSOCIATE JUDGE R M BELLSolicitors:McVeagh Fleming (Geoff Baxter), Auckland, for the Plaintiff/RespondentFee Langstone (Virginia Wethey/Morgan Fee), Auckland, for the Defendants/ApplicantsCopy for:Stephen Bryers, Auckland, for the Plaintiff/RespondentWENZHOU HONGLIANG TRADING CO LTD v FINNIGAN and VAN DELDEN [2021] NZHC 824 [14 April 2021][1] This case has a fixture for seven days beginning 28 June 2021. The close ofpleadings date is today. The plaintiff filed an amended statement of claim on 26 March2021. A statement of defence is due today, but after discussion Ms Fee has sought anextension of time. The statement of defence is to be filed and served by 21 April2021.[2] The defendants have applied for further security for costs and for furtherdiscovery. By agreement, security was set at $45,000. The defendants say that amountis no longer adequate and they seek an increase to $80,000. The plaintiff's position isthat there is an extra $20,000 available, under arrangements which I will refer to later,and that should be sufficient.[3] The defendants also seek further disclosure of two classes of documents. Thefirst are documents relating to the plaintiff's complaint to the Law Society against thelawyer who acted for the defendants in proceedings in the liquidation of WenztroCooperation Ltd. They also seek discovery of invoices by other law firms who actedfor the plaintiff. I am advised that the second class of documents has been disclosed.[4] During the hearing, another discovery issue was raised. Ms Fee suggested thatthe new statement of claim made new allegations which may raise fresh discoveryissues. I direct the defendants to write to counsel for the plaintiff by 23 April 2021,setting out any other requisitions as to discovery. The plaintiff will be expected tomake any further discovery no later than 5 May 2021, when it is to serve its evidence.The application for additional security[5] The plaintiff is a Chinese company incorporated under the laws of the People'sRepublic of China. It does have an agent in New Zealand, Mr Lin, but otherwise hasno presence in New Zealand. It does not have any significant assets in New Zealand.There are no formal reciprocal enforcement of judgments arrangements in placebetween New Zealand and the People's Republic of China. It is uncertain whether anorder for costs of this court would be enforceable against a Chinese resident under thelaws of the People's Republic of China. The defendants have accordingly satisfiedthe threshold for ordering security for costs.1 That was recognised when the plaintiffagreed to provide security of $45,000 earlier in the proceeding. While security wasagreed at $45,000, $25,000 was initially paid. There was delay in providing the extra$20,000. That was paid only recently.2[6] The defendants' case is that that security is no longer adequate. They haveprovided a schedule of costs they are likely to recover if they are successful at trial.They have calculated costs under category 2 claiming band B for most steps, and bandC for discovery. They have claimed for second counsel, given the complexity ofissues. They say that scale costs for attendances to date would come to $44,215. Costsfrom now on would be a further $59,272. They have estimated $55,000 for experts'costs. With the $45,000 already in place, they are unsecured for $113,000 odd. Intheir application and in correspondence with the plaintiff's solicitors they sought totalsecurity of $80,000.[7] The plaintiff raises delay by the defendants in seeking increased security. Theapplication was made very late in the piece and the application is being heard on theclose of pleadings date. Counsel referred to my decision in Oxygen Air Ltd v LGElectronics Australia Pty Ltd3 as to the potential for unfairness to a plaintiff when anapplication for security is made late. Against that, the defendants say that there is anexplanation for the delay. For a large part of 2020, they say that the plaintiff was notactively pursuing the case and had not paid the initial amount of security in full. Whilethe security remained unpaid, the proceeding was stayed. There were changes ofsolicitor by the plaintiff. They did not raise the question of increased security untilactive steps were taken to pay the amount of extant security. I accept that offers anexplanation for the delay in seeking security. I am satisfied in the circumstances ofthis case that on balance there is not any overall unfairness to the plaintiff in applyingfor further security at this stage.[8] Counsel reviewed the merits of the case. Necessarily on security for costsapplications the court does not make a deep enquiry into the merits of the case. The1 High Court Rules 2016, r 5.45(1)(a)(ii).2 Mr Bryers explained that the funds had been paid to the plaintiff's former lawyers but had notbeen on-paid.3 Oxygen Air Ltd v LG Electronics Australia Pty Ltd [2018] NZHC 945 at [26].court can only gain a general impression of the case. I regard the proceeding asrelatively complex.[9] Wenzhou Hongliang Trading Ltd was a creditor of Wenztro CooperationLimited. It was the only creditor. The company went into liquidation by shareholders'resolution once it was clear that it was insolvent. That was in October 2012. Theinitial liquidator resigned and was replaced by other experienced insolvencypractitioners who in turn resigned shortly afterwards and were replaced by another setof insolvency practitioners. The defendants are the fourth liquidators. They becameliquidators in February 2016. They engaged an Auckland law firm to take aproceeding under s 301 of the Companies Act 1993 against the directors of Wenztrofor breach of directors' duties. The plaintiff funded the litigation including the legalfees. The plaintiff had already obtained judgment against Wenztro on a summaryjudgment application. It applied for summary judgment before the company went intoliquidation. The first liquidator did not oppose the plaintiff continuing with thesummary judgment application after liquidation. Judgment was for $765,000 plusinterest.[10] The proceedings by the defendant liquidators against the directors had achoppy history. That has generated the plaintiff's complaints against the defendants.Having poured very large sums of money into the costs of the liquidators and the costsof the litigation, the exercise has been on the whole uneconomic for it. There has beenlimited recovery from the directors under the judgments against them. The plaintiffcriticises the conduct of the litigation. Claims were made that could not be sustainedand had to be abandoned at trial. There were other claims available which werepursued at the wrong stage in the litigation. What might have been sought as damageswere instead claimed as costs but were was rejected. Steps taken were unnecessary.[11] There are four causes of action in the latest statement of claim. The first is innegligence/breach of statutory duty, alleging misconduct by the liquidators in breachof the duties under s 253 of the Companies Act 1993; the second cause of action seeksa review of the liquidators' remuneration; a third is a complaint that funds paid in assecurity were misapplied; and the fourth cause of action relates to a priority questionas to distributions in the liquidation under the seventh schedule of the Companies Act1993.[12] For the plaintiff, it was urged that it has a strong case and is likely to besuccessful. Against that the defendants, while not saying they are bound to win, pointto difficulties in the case. For myself, I regard the case as complex. There will besome difficult issues for the parties and the court. The plaintiff's case is not hopeless– nor on the other hand is success assured. Mr Bryers pressed on me that that theplaintiff is bound to succeed on at least some causes of action, if not all of them, andthat therefore makes it unlikely that costs would be awarded. That may not, however,be a complete answer. In a proceeding like this, it is not unknown for offers ofsettlement to be made before trial. If the plaintiff does not succeed to the extent of anoffer of settlement made before trial, then costs might be awarded against the plaintiffnotwithstanding its success on some causes of action. There is in my view areasonable likelihood that costs may be ordered against the plaintiff, given the issuesin the case. That is not a prediction of the final outcome. I am simply acknowledgingthat possibility is not so remote that I should dismiss it out of hand.[13] I am satisfied that the amount that has already been fixed for security shouldbe reviewed in light of what seems to be increased complexity. I note in particularthat while there was increased complexity when the plaintiff filed its statement ofclaim in 2020, yet more steps have been required by the defendants to deal with thenew statement of claim which has added fresh factual allegations and will require yetfurther work by the defendants.[14] It is open to the court to review security for costs on a subsequent application.I am satisfied here that the security should be increased. I fix the total security at$80,000. Even if the plaintiffs succeed on some causes of action, costs may yet beawarded for not accepting a reasonable settlement offer. Such costs are only likely tocover the costs of trial.[15] Accordingly, the security is increased by $35,000. $20,000 of that is alreadysecured. Mr Bryers has provided a copy of a deed of 12 February 2019 between thedefendants and the plaintiff under which the judgments against the directors wereassigned to the plaintiff. Clause 4.2 provides that $20,000 is to be held in the plaintiff'ssolicitors' trust account as security for the plaintiff's obligations under the deed.Those funds are to be held until the later of a date on which all appeals are finallyexhausted or the completion of the liquidation. I was advised that all appeals havebeen resolved. The funds therefore seem to be readily available for payment.[16] Accordingly, I order security of a further sum of $35,000. $20,000 is alreadysatisfied, and I order the plaintiff to provide further security of $15,000 to be paid intocourt or, by agreement of the parties, paid into the trust account of agreed solicitors nolater than 5 May 2021.[17] The plaintiff has an Auckland agent, Mr Lin. He offered a personal guaranteeby way of security. While I understand that he is related to the director of the plaintiff,it seems to me more convenient that funds be paid into court to offer real securityrather than an undertaking which may need to be enforced through further processesof the court. It seems to be more efficient for the plaintiff to provide the funds itselfrather than to expose its New Zealand agent to the risk of personal liability.[18] If the security is not paid by 5 May 2021, the parties should contact the courtpromptly for further directions and ask for conference as a matter of urgency. Thedirection may be a stay of the proceeding. If any stay were ordered, that is likely tocause the fixture to be abandoned. On any decision about abandoning the fixture, thecircumstances should be carefully reviewed, so I am not ordering an automatic staynow.Discovery application[19] The plaintiff made a complaint under the Lawyers and Conveyancers Act 2006against the lawyers who acted in the litigation for mishandling funds. I have beenadvised that a hearing before a Standards Committee held in favour of the plaintiff,but the plaintiff has sought a review and the Legal Complaints Review Officer hasreserved their decision. The plaintiff acknowledges holding documents relating to thatcomplaint and accepts that those documents are relevant and would ordinarily bediscoverable. But it raises confidentiality considerations. Under reg 31 of the Lawyersand Conveyancers Act (Lawyers: Complaints Service and Standards Committees)Regulations 2008, decisions of the Standards Committee are confidential. Under reg30, if a practitioner is to be censured a decision may be made that the practitioner beidentified. In other words, the publicity and identification may be part of thepunishment. I understand that so far the practitioner has not been identified.[20] I am reluctant to make any decision about whether this class of documentshould be disclosed without first having heard from the practitioner and also from theLaw Society. Mr Bryers helpfully referred me to Walker Data Vision Ltd v RadiolaCorporation Ltd, where Fisher J recognised that where the disclosure of informationwas about information believed to be confidential to a non-party, that non-party shouldbe heard before any decisions as to disclosure of documents containing thatconfidential information.4 I wish to hear from the practitioner and from the LawSociety how the confidentiality provisions of the Lawyers and Conveyancers Act andthe regulations apply to the circumstances of this case. In particular, it would behelpful to hear any submissions as to how s 69 of the Evidence Act 2006 applies, if itdoes at all.[21] I am accordingly adjourning this part of the case until my chambers list onFriday 23 April 2021 at 2.15 pm so that I can hear further argument on this point. Iwould be grateful if Ms Fee would notify the Law Society and the practitioner of thismatter so that they can take steps to appear.Associate Judge R M Bell4 Walker Data Vision Ltd v Radiola Corporation Ltd HC Auckland CP 153/94, 28 June 1994.