Lu v Industrial and Commercial Bank of China (New Zealand) Ltd

• Jurisdiction: New Zealand
• Judge: Fitzgerald J
• Judgment Date: 05 March 2020
• Neutral Citation: [2020] NZHC 402
• Court: High Court
• Docket Number: CIV-2019-404-2027
• Date: 05 March 2020

Between

Qiufen Lu

First Plaintiff

Liansen Mao

Second Plaintiff

and

Industrial and Commercial Bank of China (New Zealand) Limited

First Defendant

Qian Hou

Second Defendant

[2020] NZHC 402

Fitzgerald J

CIV-2019-404-2027

IN THE HIGH COURT OF NEW ZEALAND

AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA

TĀMAKI MAKAURAU ROHE

Banking and Finance, Civil Procedure, International — application for strike out by the first defendant — application for an anti-suit injunction by the plaintiffs — the first defendant had commenced proceedings in China for the shortfall due under a mortgage — the loan agreement was governed by New Zealand law but the plaintiffs resided in China and their assets were located there — duties of a bank to a customer — forum non conveniens

Counsel:

J Strauss and A Yang for plaintiffs

DT Broadmore and LM Edginton for defendants

JUDGMENT OF Fitzgerald J

[As to application for strike out/anti-suit injunction]

This judgment was delivered by me on 5 March 2020, at 2:30 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date

CONTENTS

Introduction and summary	[1]
Factual background
Purchase of the Property	[10]
The caveat and enforcement order	[19]
Payment defaults	[26]
The PLA notice	[34]
Steps to sell the Property	[39]
The China proceedings	[56]
Strike out/summary judgment	[63]
The misrepresentation claim	[68]
Promissory (or equitable) estoppel	[78]
CGA claim	[84]
Breach of “duty”	[87]
Breach of duty to secure reasonable price for the property	[91]
Conclusion on strike out	[98]
Anti-suit injunction
Introduction	[99]
Legal principles	[100]
Discussion	[115]
Result and costs	[129]

Introduction and summary

1 In August 2015, the first plaintiff (Ms Lu) purchased a property in Albany for the sum of $6 million (the Property). She saw its value in its subdivision potential. In order to support this purchase, Ms Lu borrowed approximately $2.9 million from the first defendant (the Bank).

2 The Bank says Ms Lu fairly quickly fell into default under her loan agreement. First, in November 2015, a caveat was registered over the Property. Then in September 2017, Auckland Council obtained an enforcement order in relation to the Property, for breaches of the Resource Management Act 1991 and Building Code. Further, by December 2018, Ms Lu had defaulted three times on her repayment obligations, though each of those breaches was ultimately remedied. From January 2018, however, Ms Lu stopped making any repayments to the Bank, based on what she perceived to be the poor service provided by it.

3 Given Ms Lu's defaults, the Bank issued a notice under s 119 of the Property Law Act 2007 (PLA). This was served on Ms Lu in June 2018 (pursuant to orders for substituted service made by this Court). The PLA notice expired unremedied. The Bank thereafter commenced steps to sell the Property through a mortgagee sale. At this point, Ms Lu requested some time to try and sell the Property herself to avoid a mortgagee sale. Her efforts were ultimately unsuccessful, and the Bank sold the Property in October 2019 for a price of $2.2 million.

4 Prior to the sale, the Bank also took steps to recover the shortfall due from Ms Lu under her loan agreement. Ms Lu is a Chinese citizen and resides in China. Despite the loan agreement being governed by New Zealand law (though not containing any submission to jurisdiction clause), the Bank commenced proceedings against Ms Lu in China. It did so as that is where Ms Lu's assets are located. As part of its claim, it also brought proceedings against Ms Lu's husband, Mr Mao (the second plaintiff). This is because under Chinese law, certain debts of one spouse are deemed to be owed jointly by the other spouse. I will refer to the Bank's proceedings in China as the “China proceedings”. As part of those proceedings, the Bank also obtained freezing orders against Ms Lu and Mr Mao's assets in China.

5 Ms Lu and Mr Mao responded to the China proceedings in two ways:

• (a) First, they applied to have the proceedings stayed, on the basis that New Zealand is the proper forum for resolution of the Bank's claim. The Chinese Jiangsu Province Suzhou Municipal Intermediate People's Court dismissed that application, though Ms Lu and Mr Mao have since appealed. I was informed by counsel that it may be several months before that appeal is determined.

• (b) Second, Ms Lu and Mr Mao commenced these proceedings against the Bank in New Zealand, alleging a number of breaches and defaults on the Bank's part. I will refer to these proceedings as “the New Zealand proceedings”.

6 The statement of claim in the New Zealand proceedings is somewhat inelegant, given Ms Lu and Mr Mao were not represented at the time they prepared and filed it. 1 But the key aspects of their claims are reasonably clear. Mr Broadmore, senior counsel for the Bank, distilled the following claims against the Bank:

• (a) Mr Jiang, an employee of the Bank in 2015, is said to have represented or promised Ms Lu that after two years, the Bank would lend her more money for the purpose of subdividing the Property, if she showed a good record of repayment history in the interim. In breach of that promise or representation, the Bank did not lend Ms Lu any more money, when she requested a top up to her loan in December 2017.

• (b) Between November 2017 and March 2018, Jiawen Mao (Ms Lu's step-daughter and who holds power of attorney for Ms Lu) attempted to contact the Bank to obtain further financing for Ms Lu but was unable to contact any staff member of the Bank. It is alleged this was duress,

  or poor service, or a breach of the Consumer Guarantees Act 1993 (CGA).

• (c) It was unfair and in-humanitarian for the Bank to have obtained freezing orders in China.

• (d) The Bank breached s 176 of the PLA by failing to exercise reasonable care to obtain the best price reasonably obtainable as at the time of the sale of the Property.

7 Mr Strauss, counsel for Ms Lu and Mr Mao, helpfully confirmed that this is an accurate distillation of the essence of Ms Lu and Mr Mao's claims. Mr Strauss quite responsibly accepted that the claims based on alleged duress (that is, forming part of (b) above) and that concerning alleged unfair and in-humanitarian conduct (at (c) above) could be struck out, as could the claims against the second defendant (a Bank employee). Mr Strauss also indicated that the claim under the CGA (part of (b) above) was unlikely to be a primary claim going forward. He flagged that on the basis his clients were given the opportunity to replead their claim in a more orthodox fashion, a claim of promissory estoppel would also be included.

8 In the above context, there are two interlocutory applications before the Court:

• (a) First, the Bank has applied to strike out Ms Lu and Mr Mao's claims and/or seeks defendant's summary judgment on them.

• (b) Second, Ms Lu and Mr Mao seek an order enjoining the Bank from progressing the China proceedings, on the basis New Zealand is the appropriate forum for resolution of that claim, and the Bank's pursuit of the China proceedings is vexatious and oppressive. Such an order is commonly known as an “anti-suit injunction”.

9 The balance of this judgment is structured as followed:

• (a) I first set out the factual background in more detail. The underlying facts are largely agreed, and there is a fulsome contemporaneous documentary record.

• (b) I then address the Bank's application to strike out and/or for defendant's summary judgment.

• (c) I then address the application for an anti-suit injunction. The merits of that application will of course be influenced by the extent to which the Bank is successful in striking out or securing a defendant's summary judgment on Ms Lu and Mr Mao's claims.

Factual background

Purchase of the Property

10 Ms Lu purchased the Property pursuant to a sale and purchase agreement dated 1 August 2015 (Agreement). The purchase price was $6 million. A special condition of the Agreement was that Ms Lu, as purchaser, was aware the vendor had a building contract to build a new dwelling on the Property, in accordance with an attached plan and building contract. The Agreement recorded that the purchase price included that dwelling.

11 On 14 August 2015, Ms Lu applied to the Bank for lending to support the purchase, and completed a personal loan application form. That form recorded that Ms Lu was seeking lending of $2.94 million with a repayment term of 18 years. The application form did not itself refer to any proposed further lending, and recorded the purpose of the loan as being “purchase owner occupied property for daughter”. The application form recorded the capital value of the Property as $3.2 million. It also recorded that Ms Lu is not a New Zealand citizen or a permanent New Zealand resident.

12 The Bank approved the loan application on 24 August 2015. The internal loan approval form recorded that:

Resource consent for the subdivision of 13 sections on the property has been granted to the vendor, and the property could be subdivided into 27 sections in [sic] pursuant to provided RV report.

According to front line, the borrower intends to demolish the existing dwelling and build a new one to live in; the borrower does not have any subdivision plans in the near future.

The borrower's relative will take care of the property while she was not in New Zealand [sic].

13 It accordingly is clear that the Bank was aware at that time of the potential to subdivide the Property, though noted that no such plans were imminent.

14 The same day, the Bank (as lender) and Ms Lu (as borrower) entered into a loan agreement (the Loan Agreement). Pursuant to the Loan Agreement, the Bank agreed to advance Ms Lu the sum of $2.94 million on the...