On 20 June 2022, the highly anticipated decision of the Supreme Court in Deng v Zheng matter was released. The Supreme Court was to decide whether the Court of Appeal was correct in its findings that there was a partnership between the two parties, of which they were allegedly equal partners. As part of this, the Supreme Court was faced with a raft of potential issues surrounding the interpretation of documents, specifically documents which were translated from Mandarin. Another important consideration of this hearing were the cultural elements present between the two Chinese parties, and the impact it should have on the understanding of the parties’ relationship.
The Judges recognised the increasing presence of different cultures in New Zealand which differ from our Western system, including that of Eastern culture. As such, the Supreme Court has taken the first step into recognising how different cultures may impact decisions in a Western Court system.
Background
Donglin Deng (Mr Deng) and Lu Zheng (Mr Zheng) entered into a business relationship in the late 1990s. The relationship was carried out until 2015 when the parties agreed to end their associations. By trade, Mr Deng is a project manager and land developer, whilst Mr Zheng is a property developer. In 2004, Mr Deng acquired ownership interests in some of the projects Mr Zheng was involved in.
The heart of the dispute stems from the Bella Vista Agreement, a short agreement dated 27 April 2008. Its title was variously translated into English from the original Mandarin as “partnership agreement” or “cooperation agreement”. Mr Zheng signed the Bella Vista Agreement, however, Mr Deng did not. Mr Zheng contends he signed this agreement on behalf of himself and Mr Deng.
By 2015, the strained business relationship between Mr Deng and Mr Zheng came to an end. No settlement could be reached between the parties as to the separation of their affairs and High Court proceedings were brought to resolve the issues at hand. The most relevant issue being Mr Zheng’s claims that there was a partnership between him and Mr Deng or, alternatively, a joint venture. Mr Deng argued that his relationship with Mr Zheng was based on various corporate and contractual structures but with no overarching partnership or fiduciary elements.
There was quite a contrast between the findings of fact of the High Court Judge (which were firmly in favour of Mr Deng) and those of the Court of Appeal (which were equally firmly expressed but went in favour of Mr Zheng and found the existence of a partnership between the parties).
Barriers in translation
Within their decision, the Supreme Court referred to cultural considerations. Specific reference was made to whether the meaning of specific Chinese characters goes beyond “company” and can extend to “firm” or “enterprise.”
In the Court of Appeal decision, a note of caution was intertwined into the findings. Nearly all of the documents in this case, including the parties’ correspondence and evidence given by witnesses, was provided in Mandarin. The Court had the challenging task of ascertaining what the true purpose of each piece of evidence was. As stated at paragraph [86] of the Court of Appeal judgment:We are conscious that when referring to relevant documents, it is necessary to bear in mind that Court is referring to English translations prepared by different people at different times, who may or may not have understood and taken into account the legal nuances of particular words and phrases that they have used.
The Court of Appeal noted that none of the translators gave evidence on why they had used certain terms in favour of others in specific documents. There was a lack of consistency throughout the use of terms, with no clarity on which term was correct. This poses a stark contrast between Western and Eastern cultures. Whilst the true purpose of words and documents is quite clear in a Westernised dispute, when different cultures enter the Western court system, a high degree of caution is required by Judges and lawyers before placing any significance to the specific terms that appear in the various English translations.
The Supreme Court dealt with this issue relatively quickly, stating the Court of Appeal was “entitled to have regard to a Chinese-English dictionary and [they] are not persuaded that it placed inappropriate weight on that dictionary.”
Guānxi
The second cultural element of relevance was the significance of Guānxi. Guānxi is a cultural concept in China. It has strong roots in rural society, stemming from where people have known each other for generations and there are strong family connections. The Supreme Court described Guānxi as a complex term with multi-faceted meanings:
Guānxi may be understood as “interpersonal connections”, “social capital”, or the “set of personal connections which an individual may draw upon to secure resources or advantage when doing business or in the course of social life”. Important bases of guānxi for an individual include kinship and co-working.
Guānxi is closely linked with Chinese Confucian culture. It rules the social behaviours between people and dictates how a large proportion of those engaged in Chinese business relationships work. Chinese parties will often deal with each other on the basis of trusting relationships, resulting in no or inadequate documentary evidence that could assist the courts when it comes to civil disputes.
It was clear to the Supreme Court that the relationship between Mr Zheng and Mr Deng fell within the bounds of Guānxi. Little evidence on Guānxi, if any at all, was referred to by the High Court. However, the Court found that this was not needed in this case, as the relationship of Guānxi or partnership between the parties was clear from the documents.
In situations where the relationship may not be as clear, a Judge will need to act with caution when referring to Guānxi. In its comments, the Supreme Court noted “first, people who share a particular ethnic or cultural background should not be treated as a homogeneous group,” and that merely because “guānxi is important for some people of Chinese ethnicity does not mean that it important for everyone of Chinese ethnicity.” If considerations are not taken on a case by case basis, the Western system runs the risk of stereotyping Eastern, and other cultures, into a mere checkbox. Whilst “Guānxi influences the behaviour of some Chinese people, it should not be assumed that this is so with all Chinese people.”
Effect on our legal system
The key lesson for the legal practitioners and Judges in areas of cultural difference is to approach each case with caution. As explained by Emilios Kyrou, Judges specifically should develop “a mental red-flag cultural alert system which gives them a sense of when a cultural dimension may be present so that they may actively consider what, if anything, is to be done about it.”
Legal practitioners should consider whether cultural elements would be of use in their arguments and take great care in introducing it.
Regardless of any information presented, Judges will have to take great care in these types of situations. Specifically, where the evidence comes from an expert, or in reliance on ss 128 and 129 of the Evidence Act:
Assuming, without case-specific evidence, that the parties have behaved in ways said to be characteristic of that ethnicity or culture is as inappropriate as assuming that they will behave according to Western norms of behaviour.
Sections 128 and 129 of the Evidence Act allow Judges to have all the information in front of them, information which is of unquestionable accuracy. It also allows the admission of reliable published documents in relation to matters of public history, literature, science, or art. A key skill for legal practitioners and Judges alike to learn is that of recognition. Recognising and interpreting when cultural aspects will be of use, or when will hold no credibility.
Conclusion
The Supreme Court’s decision is a step in the right direction of ensuring the New Zealand Courts meet the needs of an increasingly diverse population.
Our current legal system provides for several “tests” based on the behaviour of a hypothetical “ordinary reasonable person.” However, it is becoming more common to question who the ordinary reasonable person is. Let alone who the ordinary reasonable person in New Zealand will be in years to come.
It is easier to filter out different cultures, on the assumption that despite cultural differences that everyone operates the same way. However, trying to decide an Eastern cultural case with a Westernised system is like trying to open a door with the wrong key. At first, it may seem like it will work, but upon further inspection, it becomes clear there is a mismatch, and the door will never open.
Deng v Zheng does not provide a detailed guidance on how to interpret different cultures in our Western system. However, the Supreme Court held that the “relevant information can be brought to the attention of the court” and recognised that the Courts shall, in appropriate cases, consider evidence about the cultural framework of the parties.
The onus is on Counsel to bring forward and explain cultural considerations for their clients, and to ensure that adequate evidence (including evidence from experts) is produced to assist the Court.
Declaring a person bankrupt is a serious action, not only for the person in question but also the Court. Therefore, it is understandable why there are so many considerations to get through before officially adjudicating a person bankrupt.
Typically, a creditor is entitled to an order for adjudication if they have satisfied the requirements under s 13 of the Insolvency Act 2006. Regardless of these requirements, the Court retains discretion whether an order for adjudication is to be made. Section 37 of the Insolvency Act 2006 sets out the instances in which the Court may refuse an application for bankruptcy at its discretion. These are if:
The creditor has not established the requirements of s 13 of the Insolvency Act 2006; or
The debtor is able to pay his or her debts; or
It is just and equitable that the Court does not make an order of adjudication; or
For any other reason an order of adjudication should not be made.
The onus is on the debtor to show the Court that it should not make an order of adjudication. In considering whether to exercise its discretion, the Court considers not just the interests of those involved, the debtor and the creditor, but also the wider public.
These circumstances where the Court can exercise its discretion to refuse application to bankrupt a person are the subject of this article.
Section 37(a) – Creditor has not established the minimum requirements
The following minimum requirements have to be satisfied under s 13 of the Insolvency Act 2006 before a creditor can apply for the debtor’s adjudication:
The debtor must owe the creditor a certain amount of money, and the amount owed must be $1,000 or more;
The debtor has committed an act of bankruptcy within the period of 3 months before the filing of the application; and
The debt is payable either immediately or at a certain future date.
Sections 17 – 28 of the Insolvency Act 2006 set out various acts of bankruptcy. The most common act of bankruptcy is a failure to comply with a bankruptcy notice issued following the creditor obtaining judgment and/or order against the debtor. Other examples of acts of bankruptcy include (but not limited to) departure by the creditor of New Zealand with intent to defeat creditors, avoidance of creditors, a notice to the creditor that the debtor is about to suspend (or has suspended) payment of the debtor’s debts, and admission of insolvency by the debtor.
If the creditor’s application relies on the act of bankruptcy where the debtor failed to comply with a bankruptcy notice, and the debtor has appealed against the judgment or order forming the basis of the bankruptcy notice, the Court has powers under s 42 of the Insolvency Act 2006 to either refuse or stay application for adjudication.
Additionally, the Court can refuse to adjudicate a debtor with a special status, such as:
A minor is someone aged under 18. Contracts entered by minors are not enforceable unless there is approval from the Court. Where a minor is the subject of a bankruptcy application (or an adult, but the events in question occurred while the person was a minor) and they have entered into an unfair contract, the minor can dispute the creditor/debtor relationship and on this ground, defend the application. The Court can also enforce a contract on the grounds that it is fair and reasonable to do so, in which case, the minor could be subject to the bankruptcy regime.
Disabled persons. If a person is suffering from a disability and they are a debtor, they must have a litigation guardian to represent them. People with disabilities are not fully excluded from being classed as debtors, however the Court may refuse an application for bankruptcy if it seems like the person is unable to understand the nature and requirements of the bankruptcy process.
Foreigners or persons living outside of New Zealand. There is a provision in respect of bankruptcy notices in which said notices must be served in New Zealand unless the Court gives permission for it to be served elsewhere. With cases where the debtor is not residing in New Zealand the factors that the Court takes into consideration include the strength of connection and whether it will be appropriate to hear the application within New Zealand.
Members of Parliament and diplomats. If the debtor is a diplomatic official or a member of Parliament, they may have privileges of diplomatic immunity in civil suits.
This raises the question of whether the debtor has the actual ability to pay their debts, rather than if they are willing to pay their debts but have no funds to do so. The test is whether the debtor is able to pay his or her debts, as opposed to having a positive asset position. As such, showing a positive balance sheet would be insufficient.
In order to succeed under this limb, the debtor must provide sufficient evidence that they are both willing and able to pay off the debt. The Court might consider the debtor’s ability to make an immediate payment, or payment over a period of time. If the Court considers allowing payment over a period of time, the Court must take into consideration the interests of the creditors, how long they have been without the money they are owed and the reasonableness of the proposed payment period.
Debtors may argue that they have a claim against a third party, which after being considered, would bring sufficient funds to repay the creditors. Generally, the existence of the claim by itself, where there is no possibility of it being determined for a while, is not a good ground for the avoidance of adjudication. However, the Court has also commented that in circumstances where the claim seems to be straightforward and it could be resolved in the near term, the Court could exercise its discretion to refuse application for bankruptcy.
Where the Court is not prepared to refuse adjudication but is willing to provide the debtor with additional time to repay the creditors, the Court has jurisdiction under s 38 of the Insolvency Act 2006 to stay application for adjudication for any period the Court thinks appropriate.
Sections 37(c) and (d) – Just and equitable or other reason why order should not be made
The Court takes into account the economic climate, debtor’s age, employment, and prospects of recovery (e.g. through the presence of assets), as well as the overall public interest when an application for refusal of adjudication is considered.
In Re Taylor ex parte Greenwood (1992) 4 NZBLC 102,875, the Court stayed an application for adjudication in circumstances where the debtor had limited job prospects due to his age, had no assets which the Official Assignee could take, found himself in financial difficulty through no fault of his own, and there was no public interest in his adjudication.
However, the Court has since highlighted that each case where similar factors are raised should turn on its own facts. It has been found to be in the public interest to make an adjudication order in similar cases where the debts were greater, there were more creditors, or the debtor found himself in financial difficulty as a result of his own fault.
In Re Aitcheson, ex p BNZ, Salmon J, 9/7/99 HC Auckland B1235/98, the debtor argued that there was a public interest in refusing the application for adjudication as:
The debt resulted from a personal guarantee given as a director of a company which failed;
The debtor had no other creditors;
The debtor has made a reasonable offer to settle;
The failure of the company was not attributable to the debtor; and
The bankruptcy would damage the debtor’s reputation in the industry.
While the Court was sympathetic with the debtor, the Court considered there was a public interest in endorsing the commercial importance of holding those who give guarantees to the consequences of their promise. The Court considered that the factors put by the debtor did not outweigh the commercial considerations.
The same view has been upheld in various later decisions. However, in special cases, there could be other factors that could justify the Court exercising its discretion in the context of personal guarantees. For instance, in Re Timmins, ex p Motor Trade Finances Ltd 9/3/99, Master Thomson, HC Wanganui B56/97, adjudication was refused on just and equitable grounds, where the debt was as a result of personal guarantee given as part of requirements for finance for the debtor’s former partner, the former partner had left New Zealand for the USA, the petitioning creditor was the only creditor of the debtor, and the debtor wanted to avoid bankruptcy as she would not be able to continue receiving student loan to finalise her studies. The Court also found that there was no misconduct on the part of the debtor.
The Court could also consider refusing an application for adjudication if the debtor was in such a position of standing in the community that order of bankruptcy would result in excessive stigma and embarrassment. In Re Sellar, ex p Hesketh Henry Solicitors Nominee Co Ltd, Master Kennedy-Grant, 16/3/94 HC Auckland B1621/93, the Court refused to make an adjudication order in circumstances where there was no prospect of recovery in bankruptcy, the debtor was of old age, and due to the nature of his community (the debtor lived in the same community for more than 50 years, has made material contributions to his community and was well known), he would suffer excessive embarrassment.
Loss of employment and future business opportunities could also be relevant considerations. Application for adjudication has previously been refused where adjudication could affect the debtor’s ability to continue being a policewoman, and there was also no public interest in the debtor’s adjudication.
Conclusion
The circumstances which could provide grounds for defending an adjudication application are diverse. In some cases, where the creditor failed to satisfy all pre-requisites to apply for adjudication, it is easier to predict whether the Court would refuse an application for adjudication. In other, especially where defense is based on the ground of public interest, building the case and predicting an outcome can be harder. Our professionals will be able to assist with assessing your position and defending the adjudication application (if necessary).
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