Lau v Inland Revenue Department

[2024] NZHC 2522

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-001562

[2024] NZHC 2522

BETWEEN

AUGUSTINE LAU

First Plaintiff

JIAWEN MAO

Second Plaintiff

LIANSEN MAO

Third Plaintiff

YINTIAN CO LIMITED

Fourth Plaintiff

AND

INLAND REVENUE DEPARTMENT

First Defendant

Continued overpage

On the papers

Counsel:

First, Second, Third and Fourth Plaintiffs in person A B Goosen for First Defendant

F B Barton and A L Clark-Tahana for Second Defendant K D Perry and A Piatine for Third Defendants

R D Butler and T P Refoy-Butler for Fourth and Fifth Defendants

Judgment:

4 September 2024

JUDGMENT OF JUSTICE VAN BOHEMEN

(on costs)

This judgment was delivered by me on 4 September 2024 at 12 pm pursuant to r 11.5 of the High Court Rules 2016.

Registrar/Deputy Registrar

……………………………..

LAU v INLAND REVENUE DEPARTMENT [2024] NZHC 2522 [4 September 2024]

HESKETH HENRY

Second Defendant

ARA KIM and COOPER & CO REAL ESTATE LIMITED

Third Defendants

HYUN BIN KIM

Fourth Defendant

DUK YOUNG LEE

Fifth Defendant

[1]    In this proceeding, which was commenced in July 2023, the plaintiffs sought judgment, jointly and severally, against the defendants in the sum of $3,285,842.65 for various alleged failures by the defendants in transactions relating to a loan for

$1,000,000 that was provided under a development loan agreement (the Loan Agreement) and secured by a mortgage over a property at 31 Chester Avenue, Greenhithe, Auckland (the Property), and the subsequent mortgagee sale of the Property.

[2]    The plaintiffs purported to discontinue the proceeding in February 2024 after all defendants had applied for it to be struck out. The defendants said the proceeding sought to relitigate issues which were the subject of earlier proceedings that had been struck out as an abuse of process.

[3]    The first, second, fourth and fifth defendants consented to the discontinuance with no issues as to costs. However, the third defendants seek indemnity costs of

$15,278.86 incurred in defending the proceeding.

[4]    The plaintiffs say increased or indemnity costs are not justified. They also say that no costs should be ordered against the second plaintiff, who was adjudicated bankrupt on 15 February 2024.

Relevant background1

[5]    The Loan Agreement was between the fourth plaintiff, Yintian Co Ltd (YCL), and the fourth and fifth defendants, Hyun Bin Kim and Duk Young Lee. The second and third plaintiffs, Jiawen Mao (Ms Mao) and Liansen Mao (Mr Mao), are daughter and father and were guarantors of the loan. Ms Mao was also a director of YCL.

[6]    After YCL defaulted on the loan, Mr Kim and Mr Lee engaged the third defendants, Ara Kim and Cooper & Co Real Estate Ltd (Kim/Cooper & Co), to sell the Property by mortgagee sale. The second defendant, Hesketh Henry, as solicitors

1      This account is drawn from Mao v Best Capital Ltd [2021] NZHC 735, per Associate Judge Sussock [Sussock Judgment]; Mao v Hesketh Henry [2022] NZHC 2084, per Davison J [Davison Judgment]; and Mao v Hesketh Henry [2023] NZHC 813, per Davison J [Davison Costs Judgment].

for Mr Kim and Mr Lee, prepared the Loan Agreement and acted for them on the mortgagee sale.

[7]The mortgagee sale took place on 2 February 2018. The Property was sold for

$1,130,000. The mortgagee sale was conducted on the basis that both vendor and purchaser were registered for the purposes of GST, which  required  Mr  Kim  and Mr Lee to account to the first defendant, the Inland Revenue Department (IRD), for GST.2

[8]    After the mortgagee sale had been concluded, Hesketh Henry prepared a statement setting out the particulars of the outstanding balance of the loan after the net proceeds of the mortgagee sale had been credited. The statement assumed that YCL was GST registered. Ms Mao advised Hesketh Henry by email that YCL was not registered for GST purposes and that GST was not deductible from the proceeds of the sale. However, because there was no independent information to confirm the position, Mr Kim and Mr Lee considered they were required to account to the IRD for the GST. Accordingly, they paid GST of $147,391.30 to the IRD. Subsequently, following confirmation of YCL’s GST status from YCL’s accountant, Hesketh Henry obtained a refund of the GST, which was credited against the outstanding loan balance.

[9]    On 3 October 2018, Mr Kim and Mr Lee obtained judgment by default in the Auckland District Court against YCL as debtor and Ms Mao and Mr Mao as guarantors of the loan, after YCL, Ms Mao and Mr Mao had failed to file statements of defence. Judgment was for the sum of $209,931.92, being the balance outstanding on the loan, together with interest and costs.

[10]   In June 2019, Mr Kim and Mr Lee issued bankruptcy notices to Ms Mao and Mr Mao for non-payment of the outstanding balance on the loan.

First Proceeding

[11]   In October 2019, Ms Mao and Mr Mao commenced proceedings in the High Court at Auckland against Mr Kim and Mr Lee and Best Capital Ltd in relation to

2      Goods and Services Tax Act 1985, s 5(2).

transactions involving the Property and another property (the First Proceeding). In relation to the Property, they alleged that the mortgagee sale of the property was in breach of s 176 of the Property Law Act 2007 by failing to obtain the best reasonably obtainable price and that Mr Kim and Mr Lee had engaged in misleading and deceptive conduct by failing to lend further funds once a house had been relocated onto the Property, thereby causing Ms Mao and Mr Mao loss.

[12]   On 10 December 2019, Mr Kim and Mr Lee applied to strike out the First Proceeding.

[13]   On 16 December 2019, Ms Mao applied to set aside the bankruptcy notice against her on grounds that included that she had filed the First Proceeding.

[14]   In September 2020, the full amount of the outstanding loan shortfall was paid by Ms Mao and the bankruptcy proceedings were withdrawn.

[15]   In a judgment dated 1 April 2021, Associate Judge Sussock struck out all three causes of action in the First Proceeding.3 The Associate Judge held that the causes of action relating to the Property should have been raised in the District Court proceedings to deny the right to recover any shortfall.4 The Associate Judge observed that the timing of the filing of the First Proceeding, following the issue of the bankruptcy notices, suggested that it had been brought for an ulterior motive and was an abuse of process.5

[16]   The Associate Judge awarded indemnity costs against YCL, Ms Mao and   Mr Mao.6

Second and Third Proceedings

[17]   By statement of claim dated 19 May 2021, Mr Mao commenced a proceeding against Hesketh Henry, Mr Kim and Mr Lee (the Second Proceeding). Mr Mao claimed damages totalling approximately $2.25 million, interest and costs in relation

3      Sussock Judgment, above n 1, at [71]–[73].

4      At [51] and [55].

5 At [52].

6 At [79].

to the Loan Agreement and the sale of the Property. The damages claimed were the amount Mr Mao said he had lost as a consequence of Hesketh Henry’s payment of GST on the sale proceeds to the IRD and steps taken to recover the sum owing under the Loan Agreement, which had required the forced sale of another property, at     41 Candia Road, Swanson, at a loss and Mr Mao to forego the development potential in that property. Mr Mao alleged negligence, breach of fiduciary duties said to be owed to him and misleading and deceptive conduct in breach of s 9 of the Fair Trading Act 1986.

[18]   By statement of claim dated 22 July 2021, Ms Mao commenced a proceeding against Hesketh Henry, Kim/Cooper & Co, and Mr Kim and Mr Lee (the Third Proceeding). Ms Mao also alleged negligence, breach of fiduciary duties said to be owed to her and misleading and deceptive conduct in breach of s 9 of the Fair Trading Act against all defendants. In respect of each cause of action, Ms Mao claimed damages of approximately $2 million, calculated on substantially the same basis as Mr Mao’s claim for damages in the Second Proceeding.

[19]   On 25 August 2021, Hesketh  Henry  applied  to  strike  out  the  whole  of Mr Mao’s claim and Ms Mao’s claim or, in the alternative, an order staying the Second Proceeding and the Third Proceeding pending the payment of security for costs. On 17 September 2021, Kim/Cooper & Co and Mr Kim and Mr Lee applied for similar orders with respect to the claims against them.

[20]   In the Davison Judgment issued on 22 August 2022, Davison J struck out all causes of action in the Second Proceeding and in the Third Proceeding as abuses of process.7

[21]   Davison J noted that Mr Mao’s statement of claim appeared to have been prepared without professional legal advice and was difficult to follow. He also noted that Ms Mao’s statement of claim substantially replicated Mr Mao’s statement of claim and was similarly difficult to follow.8 Nonetheless, he summarised the position advanced in support of their claims. This included that Kim/Cooper & Co had failed

7      Davison Judgment, above n 1, at [111]–[112].

8      At [2] and [12].

to obtain an up-to-date valuation of the Property from a registered valuer pursuant to s 176 of the Property Law Act.9

[22]With respect to the Second Proceeding, Davison J found:

(a)Any failure by Hesketh Henry as solicitors and agents of Mr Kim and Mr Lee could only have arisen by reason of an alleged breach of s 176 of the Property Law Act and should have been raised in the context of the District Court proceedings. In addition, any claim in negligence or for breach of fiduciary duty against Hesketh Henry could not possibly succeed because they owed no contractual or other duties to Mr Mao and were acting for Mr Kim and Mr Lee on the other side of Mr Mao’s transaction with them.10

(b)The claims against Mr Kim and Mr Lee should have been raised in the context of the District Court proceedings and any claim in negligence or for breach of fiduciary duty could not possibly  succeed  because Mr Kim and Mr Lee owed no duties to Mr Mao.11

(c)The claims against Hesketh Henry, Mr Kim and Mr Lee under the Fair Trading Act should have been raised in the context of the District Court proceedings and any claim based on the wrongful payment of GST should have been made by 17 February 2021 because Ms Mao had discovered the alleged loss or damage at 17 February 2018.12

[23]With respect to the Third Proceeding, Davison J found that:

(a)Ms Mao’s claims against Hesketh Henry, Mr Kim and Mr Lee for negligence and breach of fiduciary duty should be struck out for the same reasons that Mr Mao’s claims against those parties had been

9 At [59].

10     At [69]–[72].

11     At [75]–[76]

12     At [79]–[82].

struck out.13 He also noted that this was the second time that Ms Mao’s claims against Mr Kim and Mr Lee had been struck out.14

(b)Ms Mao’s claims under the Fair Trading Act were, like Mr Mao’s claims, time-barred and her statement of claim contained no particulars which would possibly justify the allegation that Hesketh Henry engaged in misleading and deceptive conduct.15

(c)The cause of action in negligence against Kim/Cooper & Co was misconceived because they had been retained by Mr Kim and Mr Lee and there was no contractual or other relationship between Ms Mao and the real estate agents in which they owed Ms Mao a duty of care.16

(d)Ms Mao’s statement of claim did not allege facts that, if true, would give rise to fiduciary duties owed by the real estate agents to Ms Mao so the cause of action for breach of fiduciary duty could not possibly succeed.17

(e)There was nothing in Ms Mao’s statement of claim as to how it was alleged that the real estate agents had acted in a misleading and deceptive manner so far as Ms Mao was concerned and, in any event, any claim under the Fair Trading Act could not possibly succeed by reason of being out of time.18

Davison Costs Judgment

[24]   In the Davison Costs Judgment issued on 18 April 2023, Davison J considered applications by Hesketh Henry and Kim/Cooper & Co for indemnity costs and an

13     At [88]–[93] and [104]–[110].

14 At [90].

15     At [94]–[95].

16     At [96]–[100].

17 At [101].

18     At [102]–[103].

application  by  Mr  Kim  and  Mr  Lee  for increased costs.19    The Judge made the following observations about the Second Proceeding and the Third Proceeding:

[31]      The plaintiffs’ attempt to bring their claims once again and this time include Hesketh Henry and the Kim/Cooper & Co as additional defendants was not only an abuse of process but it was always a hopeless case that could never have succeeded. While the plaintiffs’ pleadings and submissions demonstrate that they are unfamiliar with the law and procedure in the courts, the history of their unsuccessful litigation and the previous decisions of the District Court and this Court dismissing the claims, and in the case of this Court previously awarding indemnity costs against them, ought to have made it quite clear that their case was hopeless, and by pursuing it they were causing the defendants to incur significant legal costs.

[32]      I am accordingly satisfied that the plaintiffs’ bringing and continuing their claims are an example of flagrant misconduct which justify an award of increased or indemnity costs to the defendants pursuant to r 14.6 of the High Court Rules. The plaintiffs’ action of bringing and continuing the proceedings falls squarely within the scope of r 14.6(4)(a) as being brought vexatiously, improperly and unnecessarily having regard to the previous disposition of the same claims. Further, the plaintiffs have contributed unnecessarily to the time and expense of the proceeding, failing, without reasonable justification, to accept an offer of settlement within the scope of r 14.6(3)(v) by instead attempting to re-litigate already determined matters.

[25]Davison J ordered Mr Mao and Ms Mao to pay:20

(a)indemnity costs of $46,066.42 plus disbursements to Hesketh Henry;

(b)scale costs of $19,598.00, which included an uplift of 100 per cent, to Mr Kim and Mr Lee; and

(c)indemnity costs of $43,150.00 to Kim/Cooper & Co.

The current proceeding

[26]The current proceeding was filed on 27 July 2023.

[27]   The statement of claim is poorly drafted and difficult to follow. It is plain, however, that the proceeding again sought to recover losses said to have arisen over the mortgagee sale of the Property. The new element of this proceeding is that the

19     Davison Costs Judgment, above n 1.

20 At [38].

IRD was named as first defendant. It was alleged to have caused losses to the plaintiffs by failing to answer requests for information under the Official Information Act 1982.

[28]   With respect to Kim/Cooper & Co, the statement of claim alleged that the real estate agents did not advertise the actual potential of the Property, which was said to include subdivision into three lots, failed to do the research or advise Mr Kim and Mr Lee to appoint a registered valuer before commencing the mortgagee sale process, and did not confirm the GST status of YCL before the Property was put on the market. In other words, the allegations against Kim/Cooper & Co were effectively the same as those made by Ms Mao in the Third Proceeding.

Relevant procedural history

[29]   On 23 August 2023, Hesketh Henry filed a memorandum asking that the proceeding be referred to a judge for consideration under r 5.35A of the High Court Rules 2016 and struck out in accordance with r 5.35B. Similar memoranda were filed by counsel for Mr Kim and Mr Lee, and Kim/Cooper & Co. Orders were also sought pursuant to s 166 of the Senior Courts Act 2016 prohibiting the plaintiffs from commencing or continuing any proceedings connected to the sale of the Property without leave of this Court for a period of three years. The IRD also applied for the proceeding to be struck out.

[30]   On 31 January 2024, the plaintiffs filed a notice of discontinuance with respect to the IRD. The notice stated:

All plaintiffs agreed to discontinuance this proceeding with 1st defendant IRD as IRD agreed the same and each party pay their own costs.

[31]   The proceeding was listed for mention before Associate Judge Sussock on     8 February 2024. The mention was vacated because Associate Judges do not have jurisdiction with respect to rr 5.35A and 5.35B or s 166 of the Senior Courts Act.21 It was referred to me as Duty Judge for the week of 12 to 16 February 2024.

21     Lau v Inland Revenue Department HC Auckland CIV-2023-404-001562, 7 February 2024 (Minute of Associate Judge Sussock).

[32]   On 12 February 2024, the plaintiffs filed a notice of discontinuance against the remaining defendants. The notice stated:

All plaintiffs agreed to discontinuance this proceeding with 2nd, 3rd, 4th and 5th defendant as agreed the same and each party pay their own costs.

[33]   On the basis that it appeared that the proceeding had ended by agreement, I took no steps. The first, second, fourth and fifth defendants subsequently filed memoranda advising that they consented to the discontinuance of the proceeding with no issue as to costs.

[34]   However, on 27 March 2024, counsel for Kim/Cooper & Co filed a memorandum in which they advised that, contrary to the impression conveyed in the plaintiffs’ notice of discontinuance, the third defendants had not consented to costs lying where they fall and said that they sought indemnity costs of $15,278.86.

[35]   On 28 March 2024, counsel for Mr Mao and YCL filed a memorandum in which they said that:

(a)Mr Mao and YCL accepted that Kim/Cooper & Co did not represent to them that they agreed to the discontinuance of the proceeding on the basis that costs lie where they fall and said this was a mistake and they had wrongly assumed otherwise; and

(b)purported to withdraw their notice of discontinuance against the third defendants.

[36]   I held a telephone conference on 17 April 2024 to consider next steps. As recorded in my minute of that date, I did not accept that the plaintiffs had made a mistake.22 I considered that the plaintiffs had been playing games with the Court and were seeking to leverage the discontinuance in order to avoid a costs order.23 As I also

22     Lau v Inland Revenue Department HC Auckland CIV-2023-404-001562, 17 April 2024 (Minute of van Bohemen J).

23 At [12].

recorded, it was apparent from correspondence exchanged between the plaintiffs and the third defendants prior to the filing of the notice of discontinuance that:24

(a)the plaintiffs had been seeking to leverage discontinuance of this proceeding not only to avoid costs in the present proceeding but also to resolve, and avoid costs in, other proceedings involving the plaintiffs and the third defendants, including costs ordered in the Davison Costs Judgment; and

(b)the notice of discontinuance implying there had been agreement to the discontinuance on the basis that costs lie where they fall was filed after the plaintiffs had been advised in writing that the third defendants did not agree to the plaintiffs’ proposals on discontinuance.

[37]   I further recorded that I was satisfied that the plaintiffs had not made a mistake and had abused the Court’s processes when misrepresenting the position to the Court and then seeking to withdraw the notice of discontinuance. Accordingly, I struck out the proceeding.25

[38]   Counsel for the plaintiffs and defendants were content for me to decide costs on the papers that had been filed.26

Costs memorandum of third defendants

[39]   Counsel for Kim/Cooper & Co submit that indemnity costs should be awarded because the claims filed by the plaintiffs were improper and unreasonable. They say two previous sets of proceedings involving the same set of facts were struck out. They note that indemnity costs of $43,150 were awarded in their favour in respect of the Second and Third Proceedings.

[40]   Counsel for Kim/Cooper & Co say that although the present proceeding had two additional plaintiffs, the causes of action pleaded against Kim/Cooper & Co in the

24 At [13].

25 At [15].

26 At [15].

present proceeding are those pleaded in the Second and Third Proceedings and which were struck out by Davison J as incapable of success and an abuse of process. They say it follows that the present proceeding is vexatious and frivolous. They note that the claim is for $3,000,000 which has compelled the defendants to incur costs in defending it.

[41]   Counsel also say the current proceeding was filed for an ulterior purpose; namely as a basis for Ms Mao seeking a stay of execution of the Davison Costs Judgment. They note that Ms Mao’s application for a stay was struck out,27 and that Ms Mao was later adjudicated bankrupt on 15 February 2024.

[42]   Kim/Cooper & Co have filed an affidavit dated 27 March 2024 by Anne Cohen, General Manager at Heaney & Partners, solicitors instructed by the insurer of Kim/Cooper & Co. Annexed to the affidavit is a schedule that itemises fees charged to Kim/Cooper & Co’s insurer from 17 August 2023 to 22 March 2024 in relation to the proceeding. The fees total $15,278.86, excluding GST.

[43]   Kim/Cooper & Co ask that all four plaintiffs be held jointly and severally liable for any costs award, despite the fact that Ms Mao has been adjudicated bankrupt. They note that in Bradbury v Commissioner of Inland Revenue, the Supreme Court upheld an award of indemnity costs against a bankrupt.28

Costs memorandum of plaintiffs

[44]   In a memorandum signed by the second, third and fourth plaintiffs, the plaintiffs say neither Mr Mao nor YCL sued Kim/Cooper & Co in respect of negligence or breach of fiduciary duty before, so the Davison Judgment, as far as it relates to Kim/Cooper & Co, is not binding on Mr Mao or YCL. They also say it cannot be assumed that the claims of Mr Mao and YCL would have been struck out. They refer to the “neighbour principle” established in Donoghue v Stevenson, and observations of the Court of Appeal in Thompson v Hopkins and the Chief Justice in Couch v Attorney-General, as illustrating the scope for the Courts to expand duties of

27     Mao v Hesketh Henry [2023] NZHC 3070.

28     Bradbury v Commissioner of Inland Revenue [2015] NZSC 80, [2015] 1 NZLR 739.

care, including to people on the other side of a transaction.29 They also refer to the Court of Appeal’s decision in Dold v Murphy in support of their submission that a fiduciary duty arguably arose between Kim/Cooper & Co and the plaintiffs.30 They also say that Davison J was in error in holding that the plaintiffs’ claims against Kim/Cooper & Co were related to matters covered by the District Court proceeding.

[45]   For these reasons, they say that the Court cannot be certain that the plaintiffs’ claims were bound to fail or that Kim/Cooper & Co were bound to succeed such that the claims would have been struck out.31 For that reason, they submit that increased or indemnity costs are not justified.

[46]   They also say that, in accordance with s 76 of the Insolvency Act 2006, all proceedings to recover any debt provable in the bankruptcy are halted so no costs can be ordered against Ms Mao and that no leave has been sought under s 76(2) of that Act to continue the proceedings against Ms Mao.

Relevant principles on costs

[47]   Under r 14.6(3) of the High Court Rules, the Court may order a party to pay increased costs if the party “has contributed unnecessarily to the time or expense of the proceeding” by, for example, “taking or pursuing an unnecessary step or an argument that lacks merit”.32

[48]   Under r 14.6(4), 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”.33

29     Donoghue v Stevenson [1932] AC 562 (HL); Thompson  v  Hopkins  [2018] NZCA 197, [2019] 3 NZLR 299; and Couch v Attorney-General [2010] NZSC 27, [2010] 3 NZLR 149.

30     Dold v Murphy [2020] NZCA 313, [2021] 2 NZLR 834.

31     The plaintiffs’ memorandum on costs was filed on 12 April 2024, prior to my striking out the claims on 17 April 2024.

32     High Court Rules 2016, r 14.6(3)(b)(ii).

33     Rule 14.6(4)(a).

[49]   In Bradbury v Westpac Banking Corporation, the Court of Appeal summarised the circumstances where scale costs, increased costs and indemnity costs might be ordered as follows:34

(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

(c)indemnity costs may be ordered where that party has behaved either badly or very unreasonably.

Analysis

[50]   It is apparent that the plaintiffs have been assisted in the preparation of their costs memorandum by someone with legal training. Their submissions are much easier to follow than the statements of claim filed in the various proceedings. However, despite that welcome clarity and the invention shown in positing reasons why it should not be assumed that the claims against the plaintiffs would have been struck out, the arguments advanced in support of the plaintiffs’ position have no merit.

[51]   The arguments based on Donoghue v Stevenson and the other authorities referred are simply that — arguments hypothesising outcomes that are thoroughly unlikely.

[52]   It is plain that in bringing this proceeding against Kim/Cooper & Co, the plaintiffs were making essentially the same allegations as Ms Mao made in the Third Proceeding and which were struck out by Davison J as an abuse of process. The Davison Judgment was not appealed. It continues to apply to the facts that underlie all the proceedings. Positing the judgment may have been in error in one or more respects is of no utility.

[53]   Mr Mao and Ms Mao were both guarantors of the loan. It was in that capacity that Mr Kim and Mr Lee sought recovery of the loan balance from them. All the consequences that followed and for which they then sought recovery stemmed from their roles as guarantors. It follows that Davison J’s findings with respect to Ms Mao’s

34     Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [27].

claims against Mr Kim and Mr Lee, and Hesketh Henry, apply equally to any claims that Mr Mao brings against Kim/Cooper & Co with respect to the same transaction. The same applies to YCL which had principal liability under the Loan Agreement.

[54]   There can be no doubt that none of Mr Mao, Ms Mao or YCL had any right to bring a further set of proceedings against Kim/Cooper & Co in respect of the sale of the Property following the striking out of the earlier proceedings by Associate Judge Sussock and Davison J. To bring this further proceeding was clearly vexatious and improper and, in the terms used by the Court of Appeal in Bradbury v Westpac, bad or very unreasonable behaviour. It was also very wasteful of the time and resources of the Court. The same conclusions apply to Augustine Lau, the first plaintiff, who claimed an interest by virtue of being a caveator of the property. The fact that the plaintiffs have no legal training and were acting without legal advice does not mitigate their responsibility. I have had enough experience of Mr Lau and Ms Mao to know they are very familiar with Court processes.

[55]   The plaintiffs’ bad or very unreasonable behaviour continued in their misrepresentation of the position of Kim/Cooper & Co in relation to the discontinuance of the proceeding, and in their lack of candour with the Court at the telephone conference on 17 April 2024.

[56]   For all these reasons, I am satisfied that Kim/Cooper & Co are entitled to the full claim of their indemnity costs.

[57]   I am also satisfied that it is appropriate to give leave under s 76(2) of the Insolvency Act to permit continuation of the application for costs in respect of this proceeding against Ms Mao, despite her bankruptcy.

[58]   As Lord Neuberger said in Re Nortel GmbH, in a passaged cited with approval by the Supreme Court in Bradbury v Commissioner of Inland Revenue:35

… by becoming a party to legal proceedings in this jurisdiction, a person is brought within a system governed by rules of court, which carry with them the potential for being rendered legally liable for costs, subject of course to

35     Bradbury v Commissioner of Inland Revenue, above n 28, at [13], citing Re Nortel GmbH [2013] UKSC 52, [2014] AC 209 at [89].

the discretion of the court. An order for costs made against a company in liquidation, made in proceedings begun before it went into liquidation, is therefore provable as a contingent liability under rule 13.12(1)(b) [corresponding to s 232(1)(b) of the Insolvency Act], as the liability for those costs will have arisen by reason of the obligation which the company incurred when it became party to the proceedings.

[59]   Ms Mao commenced this proceeding prior to her adjudication as a bankrupt. As such, she became liable to an award of costs and that liability arose by reason of an obligation she incurred when becoming party to the proceeding and those costs are provable in her bankruptcy.

Result

[60]   I order the plaintiffs jointly and severally to pay the costs of the third defendant on an indemnity basis in the amount of $15,278.86.

[61]   I also grant leave, in accordance with 76(2) of the Insolvency Act, to permit continuation of the application for costs in respect of this proceeding against Ms Mao.

G J van Bohemen J

Counsel/Solicitors:

Crown Law, Wellington Anderson Lloyd, Dunedin Heaney & Partners, Auckland R D Butler, Auckland

Holland Beckett, Auckland

Copy to: Augustine Lau

Jiawen Mao Liansen Mao

Danfeng Zhang (for Yintian Co)