Kim v Oh
[2024] NZHC 2374
•23 August 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-675
[2024] NZHC 2374
UNDER
AND
the law of contract and tort IN THE MATTER
of breach of contract and tort of deceit or negligent misstatement
BETWEEN
CHONG CHU KIM and IN SUK KIM
Plaintiffs
AND
TAE LIM OH
First Defendant
YONG SU CHOI
Second Defendant
Hearing: On the papers Counsel:
S Kang for the Plaintiffs
P Murray for the Defendants
Judgment:
23 August 2024
JUDGMENT OF GORDON J
[As to costs]
This judgment was delivered by me on 23 August 2024 at 3 pm, pursuant to
r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors/Counsel:
Fairbrother Family Law, Napier CL Law, Auckland
P Murray, Auckland
KIM v OH [2024] NZHC 2374 [23 August 2024]
[1] On 13 May 2020, the plaintiffs Chong Chu Kim and In Suk Kim commenced a proceeding against the first and second defendants, Tae Lim Oh and Yong Su Choi, respectively. The plaintiffs claimed: breach of contract against the defendants jointly; and tort of deceit or alternatively negligent misstatement against the first defendant only.
[2] On 23 May 2024, I gave judgment in favour of the plaintiffs on all claims (the judgment).1 I reserved the issue of costs.
[3] Following the delivery of the judgment, on 30 May 2024, the defendants were adjudicated bankrupt on their own application.
[4] The plaintiffs make an interlocutory application under s 76(2) of the Insolvency Act 2006 for this proceeding to continue despite the defendants’ adjudication of bankruptcy for the sole purpose of seeking costs.
[5] Given the defendants were in receipt of a grant of legal aid throughout the proceeding, the plaintiffs also seek an order under s 45(5) of the Legal Services Act 2011 for an order specifying what the order for costs would have been if the defendants’ liability had not been limited by reason of being legally aided. Specifically, the plaintiffs says costs on a 2B basis with increased costs to reflect the making of a settlement offer without prejudice as to costs would have been the appropriate order.
[6] The defendants, through their counsel Mr Murray, have advised that they do not intend to take any steps to oppose the orders sought by the plaintiffs.
Should leave be granted under s 76(2) of the Insolvency Act?
[7]Section 76 of the Insolvency Act provides:
76 Effect of adjudication on court proceedings
(1)On adjudication, all proceedings to recover any debt provable in the bankruptcy are halted.
1 Kim v Oh [2024] NZHC 1299.
(2)However, on the application by any creditor or other person interested in the bankruptcy, the court may allow proceedings that had already begun before the date of adjudication to continue on the terms and conditions that the court thinks appropriate.
[8] In Saimei v McKay, Paterson J set out a list of principles applicable to exercising the discretion under the predecessor to s 76(2).2 From those, the following principles are relevant in this proceeding:3
(a)The Court has a discretion to do what is right and fair according to the circumstances of the case;
(b)When a person is adjudicated bankrupt, his [or her] assets are to be administered in an orderly fashion for the benefit of all his [or her] creditors and a particular creditor should not be able to obtain an advantage by bringing proceedings against him [or her]. There should thus be no prejudice to other creditors or to the ordinary administration of the bankruptcy if the action were to proceed;
…
(d) The claim should normally be of a type which is more suitably determined by action rather than by lodging a proof of debt in the bankruptcy. If the claim could just as easily be dealt with in the bankruptcy, leave is not likely to be granted;
…
[9] The proceeding was commenced on 13 May 2020, long before the defendants were adjudicated bankrupt. In terms of the relevant principles set out in Saimei, I consider the principles set out at (b) and (d) favour the granting of leave under s 76(2) as the plaintiffs in this case are not seeking an award of costs against the defendants (personally or through the Official Assignee), but instead an order under s 45(5) of the Legal Services Act. An order under s 45(5) will entitle the plaintiffs to apply to the Legal Aid Commissioner for payment or partial payment of these costs, and the Commissioner is expressly prevented from recovering any such payment from the defendants.4 Granting leave to seek an order under s 45(5) would accordingly not affect the Official Assignee’s duty owed to other creditors.
2 Insolvency Act 1967, s 32.
3 Saimei v McKay HC Auckland CP543/96, 1 October 1998 4–5.
4 Legal Services Act 2011, s 46(1)–(6)
[10] This Court has recognised that it is appropriate for views of the Official Assignee to be sought for applications brought under s 76(2).5 Mr Murray, counsel for the defendants, has done so. Ms Zhang, for the Official Assignee, responded by way of a letter dated 11 July 2024 and advised the following:
(a)in the Official Assignee’s view, the costs order sought by the plaintiffs under s 45(5) of the Legal Services Act is not a debt provable in bankruptcies, and so leave pursuant to s 76(2) of the Insolvency Act is not required in respect of the plaintiffs’ costs application;
(b)the defendants are not barred, owing to their bankruptcies, from taking steps to address the Court regarding the s 45(5) application; and
(c)the Official Assignee has no intention of being involved in the final step of the proceeding.
[11] The Court gives weight to the opinion of the Official Assignee that leave pursuant to s 76(2) is not required. However, this is not an issue which needs to be determined in this proceeding. In any event, and to the extent it is necessary, I consider it appropriate to exercise my discretion to grant leave under s 76(2) of the Insolvency Act for these proceedings to continue for the purpose of determining the issue of costs.
Should an order under s 45(5) of the Legal Services Act be made?
[12]Section 45 of the Legal Services Act relevantly provides:
45 Liability of aided person for costs
(1)If an aided person receives legal aid for civil proceedings, that person’s liability under an order for costs made against him or her with respect to the proceedings must not exceed an amount (if any) that is reasonable for the aided person to pay having regard to all the circumstances, including the means of all the parties and their conduct in connection with the dispute.
(2)No order for costs may be made against an aided person in a civil proceeding unless the court is satisfied that there are exceptional circumstances.
5 Vintage Aviator Ltd v Demarco [2021] NZHC 1911 at [8]; and de Alwis v Luvit Foods International Ltd (2007) 3 NZCCLR 1015 (HC) at [6].
(3)In determining whether there are exceptional circumstances under subsection (2), the court may take account of, but is not limited to, the following conduct by the aided person:
(a)any conduct that causes the other party to incur unnecessary cost:
(b)any failure to comply with the procedural rules and orders of the court:
(c)any misleading or deceitful conduct:
(d)any unreasonable pursuit of 1 or more issues on which the aided person fails:
(e)any unreasonable refusal to negotiate a settlement or participate in alternative dispute resolution:
(f)any other conduct that abuses the processes of the court.
(4)Any order for costs made against the aided person must specify the amount that the person would have been ordered to pay if this section had not affected that person’s liability.
(5)If, because of this section, no order for costs is made against the aided person, an order may be made specifying what order for costs would have been made against that person with respect to the proceedings if this section had not affected that person’s liability.
…
[13] The making of an order under s 45(5) is at the discretion of the Court, though Williams J in AB v Attorney-General recognised that the making of the order is the “usual course” of things.6 Justice Williams also recognised that the “exceptional circumstances” contained in s 45(3) is not relevant to the s 45(5) discretion.7 This was subsequently confirmed by the Supreme Court.8
[14] A court will not refuse to award costs against a party merely because it is bankrupt.9 I am satisfied that an order for costs cannot be made against the defendants because of this section (s 45), and not because the defendants are adjudicated bankrupt. In addition, there is precedent for making an order pursuant to s 45(5) against a bankrupt party.10
6 AB v Attorney-General [2012] NZHC 3626 at [14]–[15].
7 At [19].
8 Van Essen v Attorney-General [2016] NZSC 23 at [2].
9 Rabson v Chapman [2016] NZCA 45 at [13]; and Skelton v Howcroft [2018] NZCA 140 at [22].
10 For example, see Carter v Carter [2020] NZFC 5086.
[15] Mr Murray has contacted Legal Aid Services to ascertain its position on the making of a s 45(5) order, but as of 13 August 2024, no response had been received.
[16] In the absence of opposition from the defendants, Legal Aid Services or the Official Assignee, there is no basis for departure from the usual course of making an award of a s 45(5) order. The plaintiffs were plainly the successful party and there is no reason that costs should not follow the event.11 I will make an order pursuant to s 45(5) accordingly.
What award of costs would have been made against the defendants?
[17] Mr Kang, counsel for the plaintiffs, submits that the appropriate award of costs would have been on a 2B basis amounting to $67,398, plus a “very reasonable” increase of “about” five per cent amounting to $3,579.51,12 together with disbursements in the sum of $24,051.71. These amounts total $95,029.21.
[18] Mr Kang submits that the increased costs are justified because the plaintiffs made a settlement offer on a without prejudice save as to costs basis (the offer).13 The offer was made on 17 May 2021 and was for NZD 500,000 plus 2.5% interest for full and final settlement of all the plaintiffs’ claims. In contrast, the judgment awarded the plaintiffs NZD 571,428.00 and interest at 5.8 per cent from 1 June 2019 against both defendants jointly and severally on the breach of contract action, and USD 350,000.00 against the first defendant on the tort of deceit (or, in the alternative, on the tort of negligent misstatement).
[19] The effect (if any) of making the offer on the question of costs is at the discretion of the court.14 However, the court may order a party to pay increased costs if that party has contributed unnecessarily to the time or expense of the proceeding or step in it by failing, without reasonable justification, to accept the offer.15 Mr Kang submits that the circumstances justify the Court exercising its discretion to award increased costs.
11 High Court Rules 2016, r 14.2.
12 It is unclear to the Court how this exact amount was calculated.
13 Pursuant to High Court Rules, r 14.10.
14 High Court Rules, r 14.11(4).
15 High Court Rules, r 14.6(3)(b)(v).
[20] The offer was made around one year after the proceeding commenced. It was made before the discovery process occurred and before any briefs of evidence were filed. Having said that, I consider the defendants were sufficiently well-placed to make an assessment of the offer as this case largely proceeded on the basis of oral communications between the parties. Any documents that were relevant to the claim in deceit and negligent misstatement were in the possession of the defendants.
[21] I consider increased costs are appropriate as acceptance of the offer would have put the defendants in a more beneficial position. The rejection of the offer was without reasonable justification. The five per cent increase sought is relatively modest.
[22] However, the increased costs are only to apply to the steps following the making of the offer.16 As it is unclear how Mr Kang arrived at the figure of $3,579.51 for “about” a five per cent increase, I propose to simply apply a five per cent increase to all the claimed steps occurring after the date of the offer on 17 May 2021. By my calculation this is an amount of $2,820.20. The total amount of a costs order that would have been made is accordingly $70,218.20.
[23] I am satisfied that the disbursements claimed (largely for translation services) were reasonably necessary for the purposes of the proceeding and are reasonable in amount. The claim of $24,051.71 for disbursements is appropriate.
Orders
[24] To the extent it is necessary, I grant leave under s 76(2) of the Insolvency Act 2006 for these proceedings to continue for the purpose of determining the issue of costs.
[25] I make an order under s 45(5) of the Legal Services Act 2011 that if the defendants had not been legally aided, an order for costs would have been made against them in the sum of $70,218.20 and $24,051.71 for disbursements, together totalling $94,269.91.
Gordon J
16 I am satisfied all these steps occurred.
0
7
0