Han v Zhu
[2021] NZHC 3514
•17 December 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-1082
[2021] NZHC 3514
UNDER the Contempt of Court Act 2019 BETWEEN
HONGZE HAN
Applicant
AND
LANYING ZHU
Respondent
Hearing: On the papers Appearances:
K Sun for the Applicant
K Puddle for the Respondent
Judgment:
17 December 2021
JUDGMENT OF GORDON J
[As to costs]
This judgment was delivered by me on 17 February 2021 at 4 pm, pursuant to
r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors: Capstone Law Limited, Auckland
K3 Legal Limited, Auckland
HAN v ZHU [2021] NZHC 3514 [17 December 2021]
[1] By judgment dated 8 November 2021, I refused an application by the applicant, Hongze Han, for orders under s 16 of the Contempt of Court Act 2016 against the respondent, Lanying Zhu for failure to comply with a Family Court order for sale of a property in Epsom (the property) and distribution of the proceeds (the substantive judgment).1 I reserved costs and noted that Ms Zhu, as the successful party, was prima facie entitled to costs.2
[2] The parties were unable to agree costs and, in accordance with the Court’s directions, have filed separate costs memoranda.3
[3] The crux of the disagreement between the parties is whether Ms Zhu is entitled to indemnity or increased costs, as her counsel Mr Puddle submits, or whether costs should lie where they fall as Mr Sun submits for Mr Zhu.
Background
[4] As set out in the substantive judgment, Mr Han and Ms Zhu married in 1986, and have one daughter.4 Their marriage was dissolved in August 2015. During the course of their marriage, Ms Zhu purchased the property as the sole registered proprietor.
[5] In April 2015, Mr Han issued proceedings in the Family Court seeking orders for the division of relationship property (including the property). The sale order in question was made by Judge S J Fleming in the Family Court at Auckland, on 28 February 2017, after the application by Mr Han for orders for the division of relationship property was set down for a formal proof hearing.5
[6] It was not until 15 June 2021 that Mr Han commenced proceedings in this Court for orders under s 16 of the Contempt of Court Act 2019. He sought, among other relief, that a warrant be issued for Ms Zhu’s imprisonment to penalise her for failure to comply with the Family Court order and that a fine be imposed payable to Mr Han.
1 Han v Zhu [2021] NZHC 3007.
2 At [44].
3 At [46].
4 See background at [5] – [8].
5 Han v Zhu FC Auckland FAM-2015-004-000407, 28 February 2017.
[7] At the substantive hearing, Mr Sun said that in the four years since the date of the Family Court hearing Ms Zhu had not complied with the sale order, despite repeated requests from Mr Han. However, the Court was unable to accept this argument, on the basis that Mr Han had simply not given any evidence of what steps he took in those four intervening years.6
[8] Ms Zhu said that Mr Han did not get in touch with her about the sale of the property until around April 2021, at which point she instructed solicitors to enter into communications about how the issue might be resolved. Ms Zhu said that the earlier Family Court proceeding derailed for her due to communication difficulties between her and her counsel, and that she was unaware the formal proof was even taking place. She disputed the validity of the sale order, saying that the property was, in fact, held on trust for their daughter (with herself as trustee) and that Mr Han knew of this fact at the time of the formal proof hearing. I put this argument to one side as a collateral attack on the sale order, as it was inappropriate in the context of contempt proceedings.7
[9] I found it was clear that Mr Han could not make it through the gateway of s 16(3)(a) of the Contempt of Court Act which requires that the Court may not proceed under that section unless it is satisfied that other methods of enforcing the court order or undertaking have been considered and are inappropriate or have been tried unsuccessfully.8 Namely, there were readily available means, which had not been attempted by Mr Han, of enforcing the sale order by either going back to the Family Court under Judge Fleming’s reservation of leave to seek further directions, or by seeking appointment of a person under s 33(5) of the Property Relationships Act to sell the property and deal with the proceeds of sale.9
[10] I refused the application on the basis that other methods of enforcing the sale order were appropriate and had not been considered by Mr Han and, consequently, that the Court was plainly unable to make an order under s 16.10
6 Han v Zhu, above n 1, at [36].
7 At [34].
8 At [36].
9 At [37] – [39].
10 At [42] – [43].
Submissions
[11] Mr Sun submits that in the interests of justice, costs ought to lie where they fall, because it was Ms Zhu’s disobedience with the sale orders which necessitated the making of the contempt application in the first place.
[12] In his submissions Mr Sun traverses Ms Zhu’s history of ignoring Court orders, which resulted in the Family Court proceeding taking almost two years to resolve. He submits that, given this history, Ms Zhu did not come to the proceeding with “clean hands”. Moreover, if Mr Han were ordered to pay costs, then the Court would be communicating to the New Zealand public that it is acceptable to disobey Court orders and that innocent parties will be penalised for trying to seek relief from the Court for non-compliance.
[13] Should the Court determine that Mr Han is liable for costs, Mr Sun submits that indemnity costs are not justified. Although Mr Han was ultimately unsuccessful, Mr Sun submits that Mr Han’s action in bringing the application was consistent with the purposes of the Contempt of Court Act and that he did not act vexatiously, frivolously, improperly, or unnecessarily in trying to compel Ms Zhu to comply with the sale order.
[14] In a similar vein, Mr Sun submits that increased costs are not justified, as Mr Han’s arguments had prima facie merit, notwithstanding that he was unsuccessful under s 16. Namely:
(a)that all variations of the sale order may still require compliance;
(b)that forcing the sale order through a Court’s agent, comparable to a mortgagee sale, would diminish the value of the property; and
(c)Mr Han’s financial resources will be diminished by going back to the Court multiple times to vary the sale order.
[15]Unsurprisingly, Ms Zhu disagrees. Mr Puddle submits that indemnity costs of
$36,935.58, as evidenced in an affidavit of a legal secretary, Ms Yap, dated 3
December 2021, are appropriate as Mr Han has acted vexatiously, improperly or unnecessarily by commencing and bringing the application. In summary, Mr Puddle submits that:
(a)the contempt proceedings should never have been brought, as signalled to Mr Han previously;
(b)Mr Han used expensive contempt proceedings in the High Court with the threat of imprisonment as a remedy of first resort, not the last;
(c)There were alternative methods of enforcing the order, most obviously seeking further orders from the Family Court;
(d)The High Court was not the most obvious forum in which to commence proceedings which added to the cost; and
(e)Mr Han’s submissions contained needless inflammatory language, multiple inaccuracies and unsupported statements.
[16] In the alternative, Mr Puddle submits that increased costs ought to be awarded, as Mr Han’s contempt application lacked merit and had, on any objective view, little chance of success when he had taken no other steps to enforce the sale order. If the Court takes this view, Mr Puddle calculates scale costs on a 2B basis totalling
$10,396.50, and submits that a 50 per cent uplift is appropriate to total $15,594.75. Disbursements of $345 are also claimed.
[17] Responding to Mr Sun’s submissions, Mr Puddle submits that the argument that costs should lie where they fall as Ms Zhu came to the court with unclean hands has no merit. Rather, he says that if “any party has unclean hands in this application, it is the applicant”, when Mr Han sought orders for contempt without first exhausting clear mechanisms for enforcing the judgment and against the invitation of Ms Zhu that the matter should be remitted to the Family Court.
Law
[18] The costs granted to a successful party are discretionary pursuant to r 14.1 of the High Court Rules 2016. Scale costs are assessed by applying the appropriate daily recovery rate to the time considered reasonable for each step reasonably required in relation to the proceeding or interlocutory application.11 While costs are discretionary, there is a general principle that the party who fails with respect to a proceeding should pay costs to the party who succeeds.12
[19] Pursuant to r 14.6(1), the Court may make an order increasing costs otherwise payable (increased costs), or order that the costs payable are the actual costs incurred by a party (indemnity costs). Relevantly for this proceeding:
(a)the Court may order a party to pay increased costs under r 14.6(1)(a) if the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by taking or pursuing an unnecessary step or an argument that lacks merit;13 and
(b)The Court may order a party to pay indemnity costs if the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding.14
[20] In Bradbury v Westpac Banking Corp, the Court of Appeal said the distinction between standard scale costs, increased costs and indemnity costs can be broadly summarised as follows:15
(a)standard scale applies by default where cause is not shown to depart from it;
(b)increased costs may be ordered where there is failure by the paying party to act reasonably; and
11 High Court Rules 2016, r 14.2(1)(c).
12 Rule 14.2(1)(a).
13 Rule 14.6(3)(b)(ii).
14 Rule 14.6(4)(a).
15 Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [27].
(c)indemnity costs may be ordered where that party has behaved either badly or very unreasonably.
Analysis
Should costs lie where they fall?
[21] Addressing the argument in the interests of completeness, I do not accept Mr Sun’s submissions that Ms Zhu’s non-compliance with the sale order is a basis for costs to lie where they fall. Ms Zhu, as was stated in the judgment, is prima facie entitled to costs as the successful party. Mr Sun has not raised any arguments additional to those he made in the contempt application sufficient to displace that principle. Simply put, Ms Zhu’s non-compliance with the sale order and conduct in previous proceedings was insufficient to found a successful contempt application and it remains insufficient to make costs in her favour inappropriate.
Are indemnity costs or increased costs appropriate?
[22] Mr Han’s application under the Contempt of Court Act plainly lacked merit, so as to justify a departure from scale costs. Clearly, the claim was not likely to be successful. As was stated in the substantive judgment, s 16(3)(a) of the Contempt of Court Act is unambiguous that contempt of court proceedings are a last resort. In a situation where Mr Han had taken no previous steps to enforce the judgment, electing to have “one shot” at enforcing the sale order by means of an order under s 16 was not a sufficient reason to resort to an application under that Act.16
[23] However, the underpinnings of the contempt application were not entirely baseless. While it is true that Mr Han had not taken steps in the four years following the Family Court proceedings to enforce the sale order,17 it is also true that Ms Zhu had not complied with the order in that time. Nor had she, despite the evidence and submissions put before the Court at the contempt hearing to support the contention that the property is owned by Ms Zhu in her capacity as trustee,18 made any attempt to appeal or rectify the sale order in that same period.
16 Han v Zhu, above n 1, at [41].
17 At [36].
18 Noted at [34] and dismissed as a collateral attack on the sale order which was irrelevant for the purpose of contempt proceedings.
[24] Indemnity costs are not appropriate. Namely, I do not consider that Mr Han has acted vexatiously, frivolously, improperly, or unnecessarily for the purposes of r 14.6(4)(a) in bringing the contempt proceedings.19 The proceeding cannot be labelled a “hopeless case” as that term was used in Bradbury v Westpac Banking Corp, given that it is an accepted fact that Ms Zhu has not complied with the sale order.20 The availability of contempt of court orders for non-compliance is premised on the fundamental principle that court judgments and orders will be enforced.21 While this was not the appropriate avenue, the fact remains that Ms Zhu has been non-compliant with what remains, in the absence of further proceedings to correct the order, a prima facie valid sale order.
[25] Instead, I consider that increased costs are appropriate as Mr Han has contributed unnecessarily to the time and expense of the proceeding by bringing an application for contempt of court which lacked merit when alternative avenues for enforcement of the sale order plainly remained appropriate.
What percentage uplift is appropriate?
[26] In making an order for increased costs, the Court is required to consider the extent to which the failure to act reasonably contributed to the time or expense of the proceeding, with any percentage uplift being justified only to that extent.22 In this case, as the application itself lacked merit, Ms Zhu has been put to the cost of taking all steps necessary to oppose the application in responding to a proceeding in the High Court which should not have been necessary to incur.23
[27] Mr Puddle submits that 50 per cent costs are appropriate. I disagree. A Court will not grant such an uplift merely on the basis that an application was made which
19 Note that “unnecessarily” in r 14.6(4)(a) differs in a significant way from “unnecessary” in r 14.6(3)(b)(ii), as the former takes its contextual meaning from the adverbs vexatiously, frivolously and improperly. See Bradbury v Westpac Banking Corp, above n 9, at [26].
20 Bradbury v Westpac Banking Corp, above n 9; endorsing Goddard J’s approach in Hedley v Kiwi Co-operative Dairies Ltd (2002) 16 PRNZ 694 at [11] (HC).
21 See discussion in Siemer v Solicitor-General [2010] NZSC 54, [2010] 3 NZLR 767.
22 Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2010] NZCA 400, (2010) 24 NZTC 24,500 at [165].
23 In such cases, the uplift can be applied equally to all steps in proceedings rather that making a blow-by-blow comparison of the appropriate uplift for each step NR v MR[2014] NZCA 623, (2014) 22 PRNZ 636 at [52].
failed.24 There must be a correlation between the extent to which the failure to act reasonably in bringing the application incurred cost and the percentage uplift. As already noted, while the application was ultimately meritless, it was not entirely unfounded. Rather it was driven out of the failure of Ms Zhu to comply with the sale order.
[28] For these reasons, I believe that a more modest 20 per cent uplift reflects the extent to which the proceeding was based on an ultimately meritless claim but, notwithstanding, precipitated by Ms Zhu’s own actions. With the exception of Mr Puddle’s claim for 0.4 of a day in relation to step 12, which is properly 0.2 under the sch 3 allocations, I agree with his calculations of 2B scale costs and consider that scale costs of $9,918.50 with a 20 per cent uplift are appropriate.
[29] The disbursements as claimed also appear to be appropriate and are not disputed in any event.25 However, these are evidenced by the invoices attached to Mr Yap’s affidavit to total $340 rather than the $345 claimed in submissions.
Outcome
[30] I award costs of $11,902.20 (representing 2B scale costs of $9,918.50 with a 20 per cent uplift), together with disbursements of $340 to Ms Zhu against Mr Han. The total sum awarded to Ms Zhu against Mr Han is $12,242.20.
Gordon J
24 See discussion in Li v EJ Holdings [2021] NZHC 1830 at [21].
25 High Court Rules, 14.12.
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