Young and Another v Zhang
| Jurisdiction | New Zealand |
| Judge | Courtney J |
| Judgment Date | 21 December 2017 |
| Neutral Citation | [2017] NZCA 622 |
| Docket Number | CA646/2016 |
| Court | Court of Appeal |
| Date | 21 December 2017 |
and
[2017] NZCA 622
Kós P, Courtney and Toogood JJ
CA646/2016
IN THE COURT OF APPEAL OF NEW ZEALAND
Civil Procedure — Appeal against a High Court decision which refused to set aside a consent order and imposed for contempt of court on the second appellant in breaching court orders — second appellant director of company in failed sale agreement — aiding and abetting a company to breach Court orders
Appellants in Person
No appearance for Respondent
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A The application for leave to adduce further evidence is declined.
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B The appeal against the refusal to set aside the consent order is dismissed.
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C The appeal against the finding of contempt is dismissed.
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D The appeal against the penalty is allowed. The penalty is quashed and a fine of $7,500 substituted.
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E There is no order for costs.
REASONS OF THE COURT
(Given by Courtney J)
This appeal has its origins in a sale and purchase agreement that failed to settle. The vendor was King David Investments Ltd (KDIL), of which the second appellant, Ms Ying, was the sole director and shareholder. The purchaser was the respondent, Ms Zhang. The dispute was eventually settled and the terms of settlement recorded in a settlement agreement. The agreement required a consent order, which Duffy J made in a minute of 5 July 2016. The consent order required KDIL to transfer the property to Ms Zhang. Ms Ying and her husband, Mr Young, applied to set aside the consent order. By the time their application was heard KDIL had sold the property to a third party and was in liquidation.
In the decision presently under appeal, Palmer J refused to set aside the consent order and imposed on Ms Ying a fine of $10,000 for contempt of court in breaching court orders. 1 Mr Young and Ms Ying appeal. The grounds of appeal against Palmer J's refusal to set aside the consent order are that the Judge erred in:
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(a) disregarding the evidence that Ms Ying and Mr Young were affected by illness and exhaustion when they signed the settlement agreement;
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(b) rejecting their evidence as to their misunderstanding of the settlement agreement; and
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(c) treating their original defences to the claim for specific performance as having been superseded by the settlement agreement/consent order.
Ms Ying's grounds of appeal against Palmer J's finding of contempt and imposition of a fine are that:
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(a) Ms Ying was not bound by the order until she had been served with the sealed order and, had she been served with the order promptly, KDIL would not have sold the Hoteo Avenue property when it did;
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(b) the order was ambiguous; and
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(c) the penalty was inappropriate.
KDIL owned a residential property in Hoteo Avenue, Papatoetoe. It was subject to a mortgage in favour of Hong Kong Shanghai Banking Corporation Ltd (HSBC) as partial security for a loan of $880,000. On 14 April 2013 Ms Ying signed an agreement for sale and purchase under which KDIL agreed to sell the Hoteo Avenue property to Ms Zhang (the agreement). Mr Young also signed the agreement, although he was not a director of KDIL.
Ms Ying and Mr Young regretted the decision to sell the Hoteo Avenue property and attempted to extract KDIL from the agreement. They maintain that KDIL subsequently offered to settle the sale but Ms Zhang failed to perform. That account seems unlikely because Ms Zhang eventually issued proceedings against KDIL for specific performance and against Mr Young for damages for interfering in the contract between her and KDIL. Ms Ying was not named as a party to that proceeding.
KDIL was represented in the proceedings by Mr Duckworth. Mr Young, who is a practising solicitor, was unrepresented. The trial commenced on 4 July 2016. At the end of the first day Mr Duckworth was pessimistic. That night Ms Ying gave him written instructions as to the terms on which KDIL was prepared to settle, namely that it would perform the sale and purchase agreement but Ms Zhang had to pay penalty interest under the agreement and that each party would pay their own legal fees.
The next day there were settlement negotiations which resulted in the parties signing a handwritten settlement agreement prepared by Ms Zhang's lawyer under which:
The overall effect of the agreement was that KDIL would transfer the property in return for a net payment of $149,000 (already having received a deposit of $30,000). These terms were recorded in the consent order.
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(a) KDIL would transfer the Hoteo Avenue property to Ms Zhang by 13 September 2016;
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(b) KDIL would pay Ms Zhang $220,000 by way of set-off from the purchase price; and
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(c) costs would lie where they fell.
For reasons that are not clear, Ms Zhang did not serve the sealed consent order on KDIL until 22 September 2016. Ms Ying and Mr Young ascribed some significance to this but, as we come to later, it is immaterial.
In the months following the making of the consent order Ms Ying and Mr Young tried unsuccessfully to extract KDIL from the settlement agreement. They variously asserted that they had signed the settlement agreement in a state of illness and exhaustion, had not properly appreciated the contents of it, had been pressured, that the interpreter present had not accurately translated the document and that the terms of the agreement were not what they had agreed to. Ms Zhang did not accept that there was any ground on which to release KDIL from the agreement.
On 12 July 2016 Mr Young and Ms Ying requested that the Chief High Court Judge arrange for their signatures to be withdrawn from the agreement and to continue the hearing. The Chief High Court Judge advised he could not do so.
KDIL then took steps to divest itself of another property it owned, this one in Wintere Road, Papatoetoe. On 19 July 2016 it gifted that property to Ms Ying's and Mr Young's children. They, in turn, agreed to sell the property to a third party. Settlement was to be 10 October 2016.
On 25 July 2016 Mr Young and KDIL applied to set aside the consent order. The application was not properly filed and so not acted on by the court.
On 26 July 2016 KDIL applied for an order that the caveat initially lodged by Ms Zhang over the Hoteo Avenue property lapse. Ms Zhang, inexplicably, took no steps to oppose the application and the caveat lapsed.
Having heard nothing in relation to the application to set aside the judgment, Mr Young and KDIL filed an appeal against the consent order. In a minute dated 29 August 2016 this Court advised that it did not have jurisdiction to consider the appeal and that the proper course was to apply to set the order aside. 2
The following day, 30 August 2016, KDIL sold the property to Topcut Property Ltd, a bona fide purchaser for value without notice of Ms Zhang's interest. The purchase price was $655,000 and the settlement date was 12 September 2016, the day before KDIL was required by the consent order to transfer the property to Ms Zhang. KDIL settled the sale to Topcut on 12 September 2016 and applied the proceeds to reduce the loan secured by way of the mortgage in favour of HSBC. On 13 September 2016 Ms Zhang's lawyer sent a notice to settle.
On 11 November 2016 Ms Zhang applied without notice for:
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(a) writs of arrest of Ms Ying and Mr Young and orders that they be held in contempt of court and be imprisoned until the proceeds of sale of the Hoteo Avenue property had been disgorged; and
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(b) a freezing order over a property in Haseler Crescent, Howick, which was owned by Ms Ying's and Mr Young's trust, the Ying and Young Trust.
The application was directed to be served on Mr Young and Ms Ying but they failed to appear at the call of the application on 26 September 2016. Instead, Ms Ying placed KDIL in liquidation that same day.
On 27 September 2017 Woodhouse J issued an interim freezing order over the Haseler Crescent property and directed Ms Ying and Mr Young to appear on 28 September 2016, otherwise writs of arrest would issue. Woodhouse J also subsequently froze KDIL's bank account.
On 28 September 2016 Ms Zhang caveated the Wintere Road title. At the hearing of Ms Zhang's application for an order that the caveat not lapse, Toogood J made consent orders under which $550,000 from the proceeds of the sale of Wintere Road would be paid into Court and Ms Zhang's caveat would not lapse until she had withdrawn those funds.
On 7 October 2016 Ms Ying and Mr Young applied to set aside the original consent order made by Duffy J, for leave to withdraw their consent, and to discharge the interim freezing order over the Haseler Crescent property.
Ms Zhang's application for writs of arrest, a finding of contempt and a freezing order over Haseler Crescent were heard before Palmer J, together with Mr Young's and Ms Ying's application to set aside the consent order and discharge the interim freezing order over Haseler Crescent. The evidence was heard on 28 October 2016 and adjourned until 17 November 2016 for submissions.
By the date of the hearing the parties were agreed that the consent order should be set aside, but for different reasons. Ms Zhang accepted that since the Hoteo Avenue property had been sold to a third party specific performance was no longer possible and it was therefore inappropriate for the consent order to remain. Ms Ying and Mr Young asserted that it should be set aside because it had been obtained improperly, when they were ill and exhausted, that the terms were contrary to the instructions given to Mr Duckworth, that the interpreter arranged by Ms Zhang had made errors, and that there were problems with the trial itself.
Ms Ying and Mr Young both gave evidence. The Judge rejected all the grounds raised. Specifically, he found...
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