Han v Xue
[2024] NZHC 1428
•31 May 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-1717
[2024] NZHC 1428
UNDER Part 18 of the High Court Rules 2016 IN THE MATTER
of a declaratory order pursuant to the Declaratory Judgments Act 1908
BETWEEN
WENNING HAN
First Plaintiff
YUNYUE ZHU
Second PlaintiffAND
JINXING XUE
Defendant
Hearing: On the papers Appearances:
Mr Wenning Han in person
No appearance by or for Mrs Yunyue Zhu
R J Hollyman KC and J A McMillan for Mr Jinxing XueJudgment:
31 May 2024
JUDGMENT OF GAULT J
(Costs)
This judgment was delivered by me on 31 May 2024 at 4:00 pm pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
……………………………………
HAN v XUE [2024] NZHC 1428 [31 May 2024]
[1]This judgment deals with costs in respect of:
(a)the unsuccessful interlocutory application by the first plaintiff (Mr Han) dated 18 October 2023, supported by the second plaintiff (Mrs Zhu, Mr Han’s mother-in-law), seeking orders that this proceeding be consolidated and/or heard together with a second proceeding just filed,1 and that the five-day trial commencing on 19 February 2024 be vacated (the consolidation application); and
(b)Mr Han’s further adjournment application in February 2024 and wasted costs in the proceeding.
Background
[2] In this proceeding commenced in 2021,2 the plaintiffs seek declaratory relief under the Declaratory Judgments Act 1908 that a loan agreement, guarantee and mortgage are unenforceable. These documents were executed in 2018 when a development of 13 terraced houses in Remuera (the development) was at risk of being sold by a mortgagee. The defendant (Mr Xue) has counterclaimed seeking payment.
[3]On 29 April 2022, the February 2024 trial date was allocated.
[4] On 18 October 2023, Mr Han commenced the second proceeding comprising claims in deceit, breach of fiduciary duties and knowing assistance against four new defendants in respect of actions relating to the development that preceded the 2018 documentation in issue in this proceeding.
[5] At the hearing of the consolidation application on 6 December 2023, I discussed with counsel the need for an early decision given the February 2024 trial date and I indicated that due to other commitments before the vacation I may need to give a results only judgment. That proved to be the case and on 12 December 2023 I gave my decision dismissing the consolidation application, with reasons to follow.
1 Han v Robertson (CIV-2023-404-2444) filed on 18 October 2023.
2 Under pt 18 of the High Court Rules 2016.
In my reasons judgment dated 2 February 2024, I indicated that Mr Xue was entitled to costs.
[6] In the meantime, both plaintiffs’ lawyers applied to be permitted to cease acting. On 26 January 2024, I made an order declaring that Mr Kirkland and Ms Chan had ceased to be counsel and solicitor on the record respectively for Mrs Zhu. On 1 February 2024, Lang J made orders as sought by Mr Han’s solicitors.
[7] On 12 February 2024, Anderson J minuted that she had received an informal application by Mr Han to adjourn the trial due to commence on 19 February 2024 on the basis that he had been unable to obtain representation. The matter was referred to me as acting Civil List Judge. On 13 February 2024, I convened a telephone conference and directed the parties to confer in relation to the costs implications of adjournment and clarify whether new lawyers could be arranged.
[8] On 14 February 2024, following receipt of a further memorandum updating the Court, I decided the interests of justice were best served by adjourning the fixture to a new date available in September 2024.
The disputed costs
[9]Mr Xue seeks indemnity costs as follows:
(a)$48,001.28 plus GST on the consolidation application; and
(b)$75,566.64 plus GST in relation to the adjournment, preparing the common bundle and wasted trial preparation costs.
[10] In the alternative, Mr Xue seeks increased costs with an uplift of 50 per cent from scale costs, totalling:
(a)$20,533 on the consolidation application; and
(b)$32,265 plus GST for the adjournment and wasted trial preparation costs.
[11]By way of further alternative, Mr Xue seeks 2B scale costs of:
(a)$10,266.50 including disbursements on the consolidation application;3 and
(b)$22,705 for the adjournment and wasted trial preparation costs.4
[12] Mr Xue says that Mrs Zhu should pay one-third of any costs award but Mr Han should remain jointly and severally liable for the entire amount.
[13]Mr Han accepts that he should pay 2B costs of:
(a)$7,170, together with disbursements, on the consolidation application; and
(b)$1,434 in relation to the adjournment and $5,975 for wasted trial preparation costs.
[14]Mrs Zhu did not file any memorandum in relation to costs.
Costs – applicable principles
[15] The applicable costs principles are well settled. One general principle is that costs follow the event, including on interlocutory applications.5 The position is different where an adjournment is the result of an indulgence.
[16] Another general principle is that costs should be assessed by applying the appropriate daily recovery rate to the time considered reasonable for each step reasonably required,6 that is, applying the scale in the High Court Rules 2016. However, r 14.6 provides for indemnity and increased costs in certain circumstances.
3 That is, 2B costs of $9,201.50 plus disbursements of $1,065.
4 That is, $3,346 for the adjournment application, $1,195 for common bundle preparation, and
$18,164 for wasted trial preparation.
High Court Rules 2016, r 14.2(1)(a).
6 Rule 14.2(1)(c).
Indemnity costs
[17] Indemnity costs are provided for in r 14.6(4). Mr Xue relies on the following paragraphs:
The court may order a party to pay indemnity costs if—
(a)the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or
…
(f) some other reason exists which justifies the court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious.
[18] As the Court of Appeal said in Bradbury v Westpac Banking Corporation, “unnecessarily” in the context of r 14.6(4)(a) takes its meaning from the adverbs which precede it: “vexatiously, frivolously, improperly”.7 Indemnity costs may be ordered where a party has behaved either badly or very unreasonably.8 The Court went on to say that indemnity costs, which depart from the predictability of the Rules Committee’s regime, are exceptional and require exceptionally bad behaviour. That is why to justify an order for such costs, the misconduct must be “flagrant”.9
[19] Rule 14.6(4)(f) requires specific circumstances overcoming the principle that the determination of costs should be predictable and expeditious.
[20] The onus is on an applicant for indemnity costs to persuade the Court that such an award is justified.
Increased costs
[21] Increased costs are provided for in r 14.6(3). Mr Xue relies on the following paragraphs:
The court may order a party to pay increased costs if—
…
7 Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [26].
8 At [27](c).
9 At [28].
(b)the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—
(i)failing to comply with these rules or with a direction of the court; or
(ii)taking or pursuing an unnecessary step or an argument that lacks merit; or
…
…
(d) some other reason exists which justifies the court making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.
[22] As the Court of Appeal said in Bradbury in the context of r 14.6(3)(b)(ii), increased costs may be ordered where there is failure by the paying party to act reasonably.10
[23] Rule 14.6(3)(d) also requires specific circumstances overcoming the principle that the determination of costs should be predictable and expeditious.
[24] Again, the onus is on an applicant for increased costs to persuade the Court that such an award is justified.
Wasted costs
[25] In addition, the Court has jurisdiction to make an order for wasted costs against a party whose default causes a fixture to be vacated. As Venning J said in EBR Holdings Ltd (in liq) v Van Duyn,11 a wasted costs award is to compensate a party who has incurred costs that are wasted and for which any ultimate cost award will not compensate. It recognises that the issues will need to be revisited and some steps repeated. As he earlier explained in Jeffreys v Morgenstern,12 default that leads to vacation of fixtures leads to inconvenience and cost not only to the other parties to that proceeding but to other parties awaiting fixtures in the Court. Fixtures allocated by
10 Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [27](b).
11 EBR Holdings Ltd (in liq) v van Duyn [2018] NZHC 1065 at [14]. See also Burgess v Monk [2015] NZHC 1881 at [15] and Alexander v Southern Response Earthquake Services Ltd [2020] NZHC 1660 at [13].
12 Jeffreys v Morgenstern [2013] NZHC 1361 at [31].
this Court are commitments of limited judicial and Court resources. Time is booked for the case. Other parties who might otherwise have had their cases allocated hearing time are disadvantaged by default which leads to late vacation of fixtures. Where the Court is required to consider wasted costs, it involves a matter of impression and best judgment of the Court at the time.13
GST
[26] As Mr Han submits, in the absence of evidence that Mr Xue cannot recover GST, the Court will proceed on the basis that GST is not added to costs.14
Discussion
Consolidation application
[27] Mr Xue submits that Mr Han acted vexatiously, frivolously, improperly, and unnecessarily in commencing the consolidation application. In particular, Mr Xue submits in support of indemnity (or alternatively increased) costs that:
(a)Mr Han delayed in filing the second proceeding, making the application hopeless. He had from 2018 to file a claim against the defendants in the second proceeding, yet waited until this proceeding was less than four months from trial to bring the second proceeding and apply for consolidation. By this point, he had been in possession of non-party discovery from Dyer Whitechurch, one of the defendants in the second proceeding, for five months, and had not shared that with Mr Xue.
(b)Mr Han’s application took place during a key phase of Mr Xue’s preparation for trial, when he was preparing briefs of evidence. The application appeared to have been designed to distract Mr Xue from trial preparation.
13 Jeffreys v Morgenstern [2013] NZHC 1361 at [34], citing Simpson v Hubbard [2012] NZHC 3603.
14 New Zealand Venue and Event Management Ltd v Worldwide NZ LLC [2016] NZCA 282, (2016) 27 NZTC 22-058 at [13]-[16].
(c)It should have been plain that the consolidation application would not succeed. The second proceeding can be described as merely adjunct to this proceeding. Mr Han can pursue his claims against the defendants in the second proceeding without consolidation. Equally, he can pursue his claims against Mr Xue in this proceeding.
[28] Mr Xue relies on an affidavit indicating that his solicitors made these points to Mr Han’s solicitors shortly after Mr Han served the consolidation application, but Mr Han proceeded anyway. On 25 October 2023, Mr Xue wrote to Mr Han’s then lawyers, Meredith Connell, and invited Mr Han to withdraw the consolidation application. Mr Xue submits that the letter explained that Mr Han’s application would fail for the reasons set out above and that Mr Xue would seek indemnity costs if he refused to withdraw the application. Mr Han refused to withdraw the consolidation application. He thereby caused Mr Xue to expend considerable time and money in opposing it.
[29] Mr Han relies on his former counsel’s explanation for the consolidation application in their earlier written submissions and says he remains troubled by details of the property transactions that are the subject of the second proceeding which he believed were fundamental to determination of this proceeding. He notes that my judgment recognised the commonality in the proceedings.
[30] I have already determined that Mr Xue is entitled to costs on the consolidation application. Mr Han accepts that he should pay scale costs as the unsuccessful party. He disputes two steps claimed:
(a)preparation of an authorities bundle; and
(b)second counsel.
[31] I disallow the claim for an authorities bundle separately from the bundle of documents for hearing (step 25) which Mr Han’s solicitors prepared in any event.
[32] I allow the claim for second counsel (step 27). Often two counsel are not required for an interlocutory application but given the nature of the consolidation application involving consideration of two proceedings, and the fact that both the applicant and respondent had two counsel, I allow the claim.
[33] Thus, 2B costs on the consolidation application are $7,767.50,15 plus disbursements of $1,065.
[34] As for indemnity or increased costs, I consider the consolidation application at such a late stage was a step that lacked merit. It contributed unnecessarily to Mr Xue’s lawyers’ time and expense. Mr Han was warned in a without prejudice save as to costs letter. Increased costs are appropriate. However, I do not consider that the high threshold for indemnity costs is reached despite the warning that they would be claimed. Also, the actual costs sought are high, reflecting possible overlap with work relating to the proceeding as a whole (despite some reduction for that) and Mr Xue’s choice of special counsel. For similar reasons, I do not consider a 50 per cent uplift on 2B costs is justified. When seeking an uplift as high as 50 per cent, it is important to keep in mind that scale costs are designed to deliver to the successful party approximately two-thirds of the daily rate considered reasonable once the proceeding has been placed in its appropriate category for complexity and significance and then in the appropriate band for time. Thus, a 50 per cent uplift is effectively making up the final third of reasonable costs. As the Court of Appeal observed in Holdfast NZ Ltd v Selleys Pty Ltd:16
An increase of 50 percent on scale costs should … grant the costs-claiming party a fair recovery for the step unnecessarily forced on it, assuming that the time allocated to the step has been reasonably calculated… Any greater recovery than that would mean that the party paying costs is contributing to the other party’s choice of special counsel.
[35] In the circumstances, I consider that a 25 per cent uplift is appropriate on scale costs for the consolidation application, totalling $9,709.37, plus disbursements of
$1,065.
15 That is, $9,201.50 - $1,434 for preparation of authorities bundle.
16 Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [47].
Further adjournment application and wasted costs in the proceeding
[36] Mr Xue submits that Mr Han has acted vexatiously, frivolously, improperly, or unnecessarily in continuing the proceeding to the brink of trial when he was aware that he was not in a position to prosecute his claims. Mr Xue submits it is solely as a result of Mr Han’s failure to be ready for trial that Mr Xue wasted costs preparing for a trial that did not happen. In particular, Mr Xue submits that:
(a)Mr Han as plaintiff was required to be ready to prosecute his claims at trial. His failure to take the necessary steps to make sure he was ready led to the trial being adjourned only two and a half (working) days before it was due to commence.
(b)The February 2024 trial date was set down almost two years earlier, on 29 April 2022. Mr Han knew he required lawyers to assist the prosecution of his claims against Mr Xue and had sufficient time to ensure he had them in place and had the means to pay them (or otherwise discontinue his claims). There was no indication, until the application for leave to withdraw, that Mr Han was not in a position to fund a trial. In fact, one of the grounds on which Mr Han sought, and was granted, an adjournment was that he had sufficient funds to pay for lawyers, but that there was no longer enough time for them to prepare for trial.
(c)Mr Han did not confirm to the Court or Mr Xue that he would be unable to prosecute his claims at the February trial until a week before the hearing, despite two case management conferences being convened to discuss his lack of representation. It transpires that Mr Han was aware, from at least mid-December 2023, that he would struggle to pay his lawyers for trial, but did not apply for adjournment until the week before the trial was scheduled.
[37] Mr Xue submits that he had no option but to prepare for trial on the basis that it would commence on 19 February 2024, until the trial was adjourned on 14 February 2024. From January 2024 until 14 February 2024 – two and a half working days
before the trial was due to commence –work included briefing witnesses, drafting opening submissions, preparing trial aids and organising interpreters. Mr Xue took all steps he could to ensure that the trial was able to proceed on 19 February 2024, including taking steps that Mr Han was required to take, such as preparing the common bundle of documents. At the case management conferences relating to Mr Han’s lack of representation, counsel for Mr Xue made clear that he was taking these steps.
[38] In claiming indemnity costs, Mr Xue says that he has made a generous allowance for work that may be able to be re-used at the adjourned trial – he is only seeking to recover one-third of his actual trial preparation costs even though, in reality, a much higher proportion of trial preparation will likely need to be redone, especially if Mr Han files any further evidence or if he files submissions before the adjourned trial.
[39] In opposing indemnity costs, Mr Han submits that the total trial preparation costs are high. I accept that, again reflecting the choice of special counsel. Mr Han also points to entries in Mr Xue’s lawyers’ time records that do not relate to wasted trial costs. That is also accepted, but Mr Xue claims only one-third of his actual costs.
[40] Mr Han accepts that he should pay costs on his informal adjournment application. Although successful, it was an indulgence sought very late. He disputes two items:
(a)memorandum of 14 February 2024; and
(b)appearance at mentions hearing on 7 February 2024.
[41] Contrary to Mr Han’s submission, the memorandum of 14 February 2024 did not precede the adjournment request. I allow this item.
[42] The appearance on 7 February 2024 did precede the adjournment request. I disallow this item. The real point, however, is that Mr Han should have explained his position to defence counsel and the Court earlier, which is more relevant to increased or indemnity costs addressed below.
[43]Thus, 2B costs on the informal adjournment application are $2,868.17
[44] Mr Han also disputes the common bundle cost. He points out that there is a counterclaim and submits the responsibility for bundle preparation should be left to be determined following a decision on the substantive claims.
[45] Despite the counterclaim, the pre-trial directions provided for the plaintiff to prepare the common bundle by 8 February 2024. Neither plaintiff did so. Mr Xue took up that step at short notice given the pending trial. However, it will be recoverable at this stage only if it was wasted cost for Mr Xue.
[46] As for wasted trial preparation costs more generally, Mr Xue claims (in the alternative) for the following scale steps:
(a)memorandum for mention on 1 February 2024;
(b)appearance at mention on 1 February 2024;
(c)pre-trial conference;
(d)preparation of briefs, list of issues, authorities and agreeing common bundle (50 per cent claimed);
(e)preparation of submissions; and
(f)preparation for hearing for a five-day trial (50 per cent claimed).
[47]Mr Han accepts the last item but disputes all the others.
[48] Approaching wasted costs as a matter of impression and best judgment, I accept that Mr Xue incurred wasted costs as a result of Mr Han’s default. Mr Han should not have put himself in a position where his lawyers withdrew at the last minute. He should have made other arrangements for trial or requested the
17 That is, $3,346 - $478.
adjournment earlier. That would have avoided wasted cost for Mr Xue, and inconvenience for the Court.
[49] As for the specific scale items in dispute, I consider the common bundle cost was wasted cost for Mr Xue. It only became a cost for Mr Xue when Mr Han failed to provide it as directed by the Court and the trial date was looming, before Mr Han raised his adjournment request. I consider it is recoverable.
[50] I also allow items (a)-(d) in [46] above. Although they preceded the adjournment request, they related to trial matters or matters affecting the trial and involve wasted costs. The 1 February mention related to the lawyers’ withdrawal, but that impacted on the trial and the mention could have been avoided if the issue had been addressed earlier. The pre-trial conference was wasted as it will need to be repeated. Item (d) in part involves wasted costs given the trial has been adjourned. The 50 per cent claim is reasonable. Item (e), claimed as step 40, is disallowed. That relates to originating applications. Item (f) is not disputed. Excluding item (e), these amounts total $14,579.18
[51] Thus, 2B costs on Mr Xue’s wasted trial costs (including the common bundle costs) are $15,774.19
[52] As for indemnity or increased costs, I consider that Mr Han contributed unnecessarily to Mr Xue’s lawyers’ trial preparation by failing to make other arrangements for trial or to request the adjournment earlier. I do not consider that the high threshold for indemnity costs is reached (even accepting the one-third allocation sought). However, I consider that increased costs are appropriate. I do not consider a 50 per cent uplift on 2B costs is justified for similar reasons to those given in relation to the consolidation application. In the circumstances, I consider that a 25 per cent uplift is also appropriate in relation to the adjournment application and Mr Xue’s wasted trial costs (including the common bundle costs).
18 That is, $18,164 - $3,585.
19 That is, $1,195 for common bundle cost + $14,579 for the other trial preparation costs in [46](a)–
(d) and (f).
[53] The costs on the adjournment application uplifted by 25 per cent total $3,585. The wasted trial costs (including the common bundle costs) uplifted by 25 per cent total $19,717.50. Together, these total $23,302.50.
Joint and several liability
[54] Given Mrs Zhu’s role supporting the consolidation application, I accept that she should be liable for one third of the costs award but Mr Han should remain jointly and severally liable for the entire amount awarded. However, only Mr Han should be liable for costs in relation to the adjournment application and Mr Xue’s wasted trial costs (including the common bundle costs).
Result
[55]On the consolidation application, the defendant is entitled to costs of
$9,709.37, plus disbursements of $1,065 from the plaintiffs, but with the second plaintiff’s liability limited to one-third of the total amount.
[56] The defendant is entitled to costs of $23,302.50 in relation to the trial adjournment and wasted costs.
Gault J
Parties / Solicitors / Counsel:
The Plaintiffs
Mr R J Hollyman KC, Barrister, Auckland
Mr J A McMillan and Ms IFA Hawkins (defendant’s instructing solicitor), Dentons Kensington Swan, Auckland
Copy to:
Ms K H Morrison, Ms N E Copeland and Mr B Zhou, Meredith Connell, Auckland Mr M B Kirkland, Barrister, Dunedin
Ms T Chan (second plaintiff’s instructing solicitor), Teresa Chan Law Ltd, Dunedin
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