Du v M5 Holdings Limited
[2020] NZHC 28
•28 January 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2015-404-2124
[2020] NZHC 28
BETWEEN JIANYU DU
Plaintiff
AND
M5 HOLDINGS LIMITED
First Defendant
DAVID COTTER
Second DefendantYUE YANG
Third DefendantFENG SHI
Fourth Defendant
Hearing: On the papers Counsel:
D Zhang for plaintiff
A Manuson for fourth defendant
Judgment:
28 January 2020
JUDGMENT OF KATZ J
[Costs on discontinuance]
This judgment was delivered by me on 28 January 2020 at 4:30pm Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
Solicitors: Amicus Law, Auckland
Prestige Lawyers Limited, Auckland
DU v M5 HOLDINGS LIMITED [2020] NZHC 28 [28 January 2020]
Introduction
[1] The plaintiff, Ms Jianying Du, issued proceedings against four defendants in respect of an investment that she attempted to make in the first defendant, M5 Holdings Limited (“M5”), which is a New Zealand company. The claims against the first, second and third defendants were subsequently discontinued.
[2] On 9 March 2017, I delivered judgment in favour of Ms Du against the fourth defendant, Mr Feng Shi, following a formal proof hearing. Mr Shi was not present or represented by counsel at the hearing. Both Ms Du and Mr Shi live in China.
[3] I found that in 2014, Ms Du had decided to invest in M5, which is in the business of manufacturing honey. She entered into an agreement (“the Agreement”) with Mr Shi, in which he agreed to transfer his 22.5 per cent shareholding in M5 to her for $270,000. The agreement included a number of representations, covenants and warranties on the part of Mr Shi as transferor. By 27 June 2014, Ms Du had paid the full share purchase price. Although Ms Du was initially added to the share register by Mr Shi, she was removed shortly after, due to Mr Shi’s failure to comply with the pre-emptive rights provisions in M5’s Constitution. I concluded that Ms Du had paid the full contract price for transfer of the shares, but Mr Shi had not fulfilled his part of the bargain and transferred the shares. Ms Du was accordingly entitled to the return of the purchase price for the shares, together with costs and interest.
[4] On 18 April 2018, I issued a further judgment awarding costs in favour of Ms Du. (I will refer to the two judgments collectively as “the Judgments”). Ms Du subsequently took steps to enforce the Judgments in the People’s Republic of China.
[5] Mr Shi then applied to this Court to set aside the Judgments, primarily on the basis that he had not been properly served with the proceeding. He claimed that he only became aware that there were New Zealand court proceedings against him in July 2018, when Ms Du sought to enforce the Judgments in China.
[6] I found that the proceeding had been properly served, but that the service documents did not comply with r 6.31 of the High Court Rules (“Rules”).1 The Judgments were accordingly set aside.
[7] On 24 October 2019, Ms Du discontinued the proceeding. Mr Shi now seeks costs on a 2B basis in the sum of $20,315, plus $1,958 in disbursements.
[8] Ms Du accepts that costs are appropriately assessed on a 2B scale basis but has raised several issues about the appropriate quantum of any costs award.
What costs should be awarded in respect of Mr Shi’s successful application to set aside the Judgments?
[9] In general, the losing party in a proceeding should pay costs to the winner.2 Interlocutory applications follow the general costs rules unless there are special reasons to not do so.3 Furthermore, a plaintiff who discontinues proceedings must generally pay costs to the defendant.4 All awards of costs are at the discretion of the Court, but the exercise of that discretion should follow the principles in r 14.2 unless there are special reasons to the contrary.5
[10] It is common ground that Mr Shi is entitled to costs, given that Ms Du has discontinued the proceeding. A number of items are not in dispute, namely the costs for filing a memorandum (item 11); appearance at a telephone conference (item 12), preparation of written submissions (item 24); appearance at the hearing (item 26); preparation of further submissions (on a 2A scale basis) (item 24); and sealing judgment (item 29).
[11] Ms Du disputes, however, Mr Shi’s claim that the application to set aside the Judgments should be treated for costs purposes as an originating application (item 37), rather than an interlocutory application (item 22). On behalf of Mr Shi, Ms Manuson
1 Du v M5 Holdings Ltd [2019] NZHC 231.
2 High Court Rules 2016, r 14.2(l)(a); Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109, [2013] 1 NZLR 205 at [8].
3 Rule 14.8.
4 Rule 15.23.
5 Rule 14.1; clarifying that discretion is to be exercised in accordance with the rules unless special circumstances prevail, Mansfield Drycleaners Ltd v Quinny’s Drycleaning Ltd (2002) 16 PRNZ 662 (CA) at [27].
submitted that as there is no express allowance for the filing of affidavits under the “interlocutory application” heading, the application should be treated as an originating application.
[12] I reject that submission. Interlocutory applications are routinely supported by affidavits – a fact that was no doubt well known to the drafters of the Rules. The necessary inference is that the time allowance for the filing of an interlocutory application was intended to cover the drafting of any supporting affidavits. There is nothing exceptional in this case that requires a departure from that general approach. Item 22, rather than item 37, is accordingly appropriate for the application to set aside the Judgments. As a result, the costs payable for all interlocutory steps relating to that application are $9,321.
What costs should be awarded in respect of the substantive proceeding?
[13] No statement of defence was filed prior to Ms Du discontinuing the proceeding. Costs claims for work on substantive claims are not expressly allowed where no statement of defence has been filed, but in special circumstances the Court may consider them as a claim for increased costs under r 14.6.6
[14] Mr Shi claims three items under this head. First, he says that the affidavits filed in support of the interlocutory application contained matters relevant to the substantive proceeding and accordingly a further time allowance of one day should be provided for those affidavits. I reject that submission. Amongst other things, the relevant affidavits set out, in a fairly general way, evidence relating Mr Shi’s proposed defence to Ms Du’s claim. Given the nature of the application, that was both necessary and appropriate. It is not unusual for evidence in support of (or in opposition to) interlocutory applications to engage with the substantive merits of a proceeding. In the particular circumstances of this case, the interests of justice do not require an uplift for this factor.
6 Griffin Trust AG v Global Oil Services Ltd [2019] NZHC 3418 at [21].
[15] Second, Mr Shi seeks a cost allocation of two days for the preparation of a statement of defence. Ms Manuson noted that a draft statement of defence was annexed to counsel’s submissions for the interlocutory application.
[16] I am not persuaded that such an allocation is appropriate. Mr Shi has been afforded an allocation of 1.5 days for the preparation of submissions for the interlocutory hearing. The draft statement of defence annexed to counsel’s submissions is fairly pro-forma and is only two pages in length. It was provided simply to substantiate the submission that Mr Shi had defences available to him. The preparation of that document is appropriately covered, in my view, by the time allocation provided for the preparation of submissions. If the matter had proceeded, it is clear that counsel intended to undertake extensive further work on drafting the statement of defence. This is evidenced by the fact that, only three days before Ms Du discontinued the proceeding, Mr Shi sought a five-week extension for filing his statement of defence.
[17] The third item claimed in respect of the costs of the substantive proceeding is the filing of a callover memorandum (item 11). This item is not in dispute. The costs payable in respect of steps taken in the substantive proceeding are accordingly $956.
Disbursements
[18] Disbursements are sought for filing the interlocutory application ($500); translation of affidavits ($818); and hearing fee ($640). Ms Du has not taken issue with any of these disbursements and they are awarded accordingly.
Result
[19] I order the plaintiff, Ms Du, to pay costs to the fourth defendant, Mr Shi, in the sum of $10,277 together with disbursements of $1958 (totalling $12,235).
Katz J
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