Lee v Lee
[2020] NZHC 2540
•28 September 2020
IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY
I TE KŌTI MATUA O AOTEAROA
TE ROTORUA-NUI-A-KAHUMATAMOMOE ROHE
CIV-2010-463-000430
[2020] NZHC 2540
BETWEEN ROBERT LEE as trustee of the estate of JG Lee
First PlaintiffHELEN HEARD as trustee of the estate of JG Lee
Second Plaintiff
AND
GREGORY LEE
First Defendant
GREGORY LEE and JANE LOIS LEE as
trustees of the Leeroy Family Trust Second Defendants
Hearing: (On the papers) Counsel:
Plaintiffs in Person
Lady Deborah Chambers QC and Augustine Choi for the Defendants
Judgment:
28 September 2020
[COSTS] JUDGMENT OF MOORE J
This judgment was delivered by me on 28 September 2020 at 3:00 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar Date:
LEE & ANOR v LEE & ORS [2020] NZHC 2540 [28 September 2020]
Introduction
[1] This judgment settles costs in the High Court for a long running family dispute. It has been discontinued. I ordered the plaintiffs to pay the defendants' costs and invited submissions on costs if the parties could not agree on quantum.
[2]The defendants seek a mixture of increased and indemnity costs, totalling over
$250,000. The plaintiffs oppose the application for costs and seek costs themselves.
Summary of procedural background
[3] In 2011, Robert Lee filed a statement of claim in the High Court on behalf of himself and his sister Helen Heard, in their capacity as trustees of the estate of their late mother. The proceeding challenged transactions through which shares in their parents’ company were transferred to their brother Gregory Lee, a defendant.
[4] The proceedings were struck out in the High Court on limitation grounds, then reinstated after a successful appeal to the Court of Appeal in 2015.1 In 2016, the Court set this proceeding down for a five-day trial beginning 3 April 2017. The plaintiffs were ordered to provide $150,000 security in the form of a second registered mortgage over a property owned the RB and JG Lee Family Trust.2 Robert Lee applied to review that order and in March 2017 Davison J ordered that security of $75,000 was appropriate.3 Davison J noted that co-trustees may not agree to the mortgage, and it was ordered that proceedings would be stayed if security was not provided. Robert Lee did not provide the mortgage.
[5] Robert Lee sought to adjourn the hearing a week before it was to begin. That request was declined. The case came before Edwards J on 3 April 2017. The defendants sought the stay be lifted to allow the trial to proceed on the basis that an order be made directing the Registrar to sign the mortgage document. Robert Lee opposed the stay being lifted.
1 Lee v Lee [2012] NZHC 3283; Lee v Lee [2013] NZHC 1069; Lee v Lee [2015] NZCA 514; [2016]
NZAR 61.
2 Lee v Lee [2016] NZHC 1073.
3 Lee v Lee [2017] NZHC 431.
[6] Edwards J accepted the stay should remain in place and vacated the fixture. Nevertheless she criticised Robert Lee’s behaviour in no uncertain terms, finding considerable merit to the submission that he “had deliberately failed to comply with Court orders so that he could secure the very adjournment of the fixture which had been declined on earlier occasions”, and concluding:4
“Robert Lee’s non-compliance with Court orders appears in many respects to have been deliberately designed to avoid trial. He has not produced any evidence of steps taken by him to procure compliance with the security for costs order, and his co-trustee has refused to provide reasons for declining to sign the mortgage. Deliberate non-compliance may well justify an order dismissing the proceeding.”
[7] Robert Lee then applied for leave to appeal the judgment of Davison J. This application was dismissed.5 However, the Court of Appeal granted Robert Lee leave to appeal.6 The approved question on which leave was granted was whether the High Court was wrong, in all the circumstances, to order Robert Lee to provide security for costs without considering the merits of his claim. The appeal was dismissed and Robert Lee was ordered to provide the $75,000 security.7 The Supreme Court dismissed his application for leave to appeal on 8 November 2019.8
[8] The defendants applied to strike out the proceedings. The plaintiffs initially opposed, but later withdrew the notice of opposition and confirmed security for costs would not be provided on 23 June 2020.
[9] On 1 July 2020 the plaintiffs filed a joint notice of discontinuance. By minute dated 21 July 2020, I confirmed that the proceeding was at an end.
Submissions
Defendants
[10] Ms Chambers QC, for the respondents, submits that for the period between November 2011 and 21 April 2016, costs should be increased by 20 per cent pursuant
4 Lee v Lee [2017] NZHC 712 at [43].
5 Lee v Lee [2017] NZHC 1503.
6 Lee v Lee [2018] NZCA 282.
7 Lee v Lee [2019] NZCA 345.
8 Lee v Lee [2019] NZSC 124.
to 14.6(3)(b)(ii) of the High Court Rules 2016 because the claim was weak from the outset. The Court of Appeal considered the plaintiffs' case in detail and said their ''prospects of success are weak". Ms Chambers submits that the plaintiffs never provided security for costs, or even expressed an intention to provide security for costs.
[11] Further, indemnity costs (totalling $234,338),9 or alternatively scale costs increased by 50 per cent (totalling $101,643),10 are sought for the period from 22 April 2016, on the basis that the plaintiffs unreasonably failed to accept two offers of settlement. On 22 April 2016, the defendants offered the plaintiffs $100,000 in full and final settlement of all issues. The defendants laid out the fundamental problems with the plaintiff’s case: the parents had independent advice from their accountant and lawyer throughout all the key transactions and valuations were obtained; the transactions were fair and fully documented; and the parents’ intentions were recorded in multiple documents. On 17 March 2017, the defendants offered the plaintiffs
$200,000 in full and final settlement. No response was received.
[12] Ms Chambers submits that the plaintiffs resorted to allegations of widespread fraud and conspiracy to explain the evidence corroborating the defendants' case, allegations which the Court of Appeal rejected.11 She states that the plaintiffs’ persistent and illogical refusal to compromise ought to attract serious costs consequences. She also seeks indemnity costs because of the plaintiffs consistently failed to comply with orders for security for costs. The defendants had to fully prepare as though the hearing was going ahead on 7 April, only for it to be adjourned at the outset.
[13]Disbursements of $5,289.20 are also sought.
9 Counsel has offered that relevant copies of the invoices referenced at schedule one of counsel’s submissions can be provided to the Court. This amount does not include filing fees, work between 24 August 2017 and 29 November 2019 for steps taken in the Court of Appeal and Supreme Court (for which costs have been awarded); and the costs of appearance on 3 April 2017, as Edwards J held costs would lie where they fell for that matter.
10 This includes $20,070 for the preparation of the five-day trial, set to commence on 3 April 2017.
11 Lee v Lee [2019] NZCA 345 at [45]—[47].
Plaintiffs’ submissions
[14] Robert Lee, on behalf of himself and his sister, asks the Court to refuse to make any order for costs in favour of the defendants and award costs of $72,890 in favour of the plaintiffs, or alternatively reduce any order for costs owed to the defendants.
[15] Robert Lee supports his submissions by reference to the 2015 appeal against the Limitation Act strikeout application. He submits that the offers made by the defendants should be disregarded because the Court has not issued a substantive judgment, and further that they were not genuine attempts to settle the claim because they only offered $100,000 and $200,000. He details reasons why the trial could not go ahead as scheduled in April. He further claims that the defendants acted fraudulently and in bad faith.
[16] The plaintiffs also filed a memorandum seeking urgent directions from the Court requesting the defendants to produce all invoices referred to in counsel’s memorandum, so that the plaintiffs can correctly respond.
Principles
Indemnity costs
[17] Under r 14.6(4)(a) of High Court Rules 2016, 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
(b)the party has ignored or disobeyed an order or direction of the court or breached an undertaking given to the court or another party; or
….”
[18] Indemnity costs awards are rare, requiring the paying party to have behaved “in an egregious manner”.12 Bradbury v Westpac Banking Corp set out examples of circumstances in which indemnity costs may be awarded, including making of
12 Madsen-Ries v Petera [2015] NZHC 538 at [120]-[121].
allegations of fraud knowing them to be false; commencing proceedings for some ulterior motive; or pursuing a hopeless case.13 There is a distinction between a hopeless case and merely pursuing an argument without merit (which can give rise to increased costs).14 Indemnity costs for disobeying the Court’s orders tend only to be awarded as a response to equally drastic behaviour.15 Unreasonable refusal to accept an offer of settlement is falls under r 14.6(3)(b)(v) as grounds for increased, rather than indemnity, costs.
Increased costs
[19] Under r 14.6(3)(ii), the Court may make an award for indemnity costs where the unsuccessful party pursued steps or arguments that lacked merit. The onus is on the party claiming increased costs to demonstrate that the increase is justified.16 Where the claim is abandoned pre-judgment, only where the lack of merit is obvious and incontrovertible will increased costs be warranted.
[20] The Court may make an order for increased costs where the unsuccessful party failed without reasonable justification, to accept an offer of settlement.17 The reasonableness of a party's rejection of an offer will depend on the size and timing of the offer, the reasonable expectations of the party refusing the offer and on the parties’ ability, at the time of the offer, to assess the merits of the case.18 A party seeking increased costs where the other side rejected an offer and then discontinued will need to establish clearly that the failure was unreasonable: “more evidence than normal is required because the Court does not have a definitive judgment against which to contrast the settlement offer.”19
13 Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [29].
14 Naidu v Chandnaani [2020] NZHC 2056.
15 Such as not removing as caveat - Lepionka & Co Investments Ltd v Naldapat Ltd [2019] NZHC 2679; or resolutely not complying with a partnership order causing ongoing prejudice to the financial interests of others - Burmester v Burmester [2019] NZHC 32 at [27]. Continued non- compliance with discovery orders does not meet the standard - Spark New Zealand Trading Ltd v Spud Consulting Ltd [2020] NZHC 1957 at [6].
16 Strachan v Denbigh Property Ltd HC Palmerston North CIV-2010-454-232, 3 June 2011 at [27].
17 High Court Rules 2016, r 14.6(3)(b)(v).
18 Samson v Mourant [2016] NZHC 1119 at [44].
19 Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [29].
Issues
[21] The plaintiffs are to pay costs. Under r 15.23 of the High Court Rules 2016, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance. Even if this were not the case, Robert Lee is a litigant in person and is not entitled to costs.20
Are indemnity costs available for the period after 22 April 2016?
[22] Although both this Court and the Court of Appeal have taken a dim view of the plaintiffs’ tactics and arguments, there has been no substantive hearing. The proceeding was discontinued due to the plaintiffs’ failure to pay security. I am effectively being asked to make a determination that the plaintiffs’ case was, not just weak, but hopeless, or that they deliberately pursued false allegations of fraud. The plaintiffs did make allegations of fraud and conspiracy,21 but I am not satisfied that they did so knowingly, or that the allegations were so self-evidently hopeless as to be ‘paper thin’.22
[23] As for the claim that Mr Lee disobeyed the order for security for costs to defer the trial, Edwards J found “considerable merit” in this argument.23 The Court of Appeal noted that “a review of the procedural steps in the proceeding discloses that when it has suited Mr Lee he has accepted the stay.”24 However, I draw a distinction here between cases where security was readily available and not paid to delay proceedings,25 and this case where the plaintiffs were impecunious. I am unable to be satisfied that the defendants meet the high-threshold for bad behaviour necessary for an award of indemnity costs.
20 See Lee v Lee [2019] NZCA 668 at [6].
21 See Lee v Lee [2019] NZCA 345 at [45].
22 Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [23].
23 Lee v Lee [2017] NZHC 712 at [20].
24 Lee v Lee [2019] NZCA 345 at [76].
25 See for example, Koyama v Southern Response Earthquake Services Ltd [2015] NZHC 1134 were the appellants failed to comply with timetabling orders and pay security of $660.
Are increased costs available?
[24] I am however satisfied that the plaintiffs’ case lacked merit. The claim was flawed. For the steps taken between November 2011 and 21 April 2016, I will grant the defendants a 20 per cent increase in 2B costs.
[25] For the steps taken after the defendants made the first settlement offer on 22 April 2016, I will increase costs further. The two offers were significant and addressed the issues with the plaintiffs’ case. I do not need to engage in detailed speculation as to the likely outcome of a hearing in or to be sure that the plaintiffs’ would have been in a better position if they had accepted one the offers. Years of fruitless litigation could have been avoided. Overall, and considering the unnecessary delays and difficulties caused by the plaintiffs, a substantial uplift is warranted. The Court of Appeal has held that an increase of 50 per cent on scale costs gives the successful party a fair recovery for a step unnecessarily forced on it.26 Therefore, I will increase costs by 50 per cent for this period.
Quantum
[26]Costs are set as follows:
Step Daily rate Days Uplift Total Commencement of defence $1,880 2 20% $4512 Counterclaim $1,880 1.6 20% $3609 Preparation for first case management conference $2,230 0.4 20% $1070.40 Filing memorandum for first case management conference $2,230 0.4 20% $1070.40 Appearance at first case management conference $2,230 0.3 20% $802.80 Statement of defence to amended statement of claim $2,230 0.6 20% $1605.60 Filing interlocutory application $2,230 0.6 20% $1605.60 Filing memorandum for subsequent case management conference $2,230 0.4 20% $1,070.40 Appearance at subsequent case management conference $2,230 0.3 20% $802.80
26 Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [47].
Step Daily rate Days Uplift Total Notice of opposition to interlocutory application $2,230 0.6 50% $2,007.00 Preparation of written submissions $2,230 1.5 50% $,5017.50 Appearance at hearing of defended application $2,230 1 50% $3,345.00 Filing memorandum for subsequent case management conference $2,230 0.4 50% $1,338.00 Filing memorandum for subsequent case management conference $2,230 0.4 50% $1,338.00 Notice of opposition to application for review $2,230 0.6 50% $2,007.00 Appearance at subsequent case management conference $2,230 0.3 50% $1003.50 Filing memorandum for subsequent case management conference $2,230 0.4 50% $1,338.00 Appearance at subsequent case management conference $2,230 0.3 50% $1003.50 Filing interlocutory application $2,230 0.6 50% $2,007.00 Notice of opposition to interlocutory application $2,230 0.6 50% $2,007.00 Preparation of written submissions $2,230 1.5 50% $5,017.50 Preparation of bundle for hearing $2,230 0.6 50% $2,007.00 Appearance at hearing of defended application $2,230 0.5 50% $1,672.50 Inspection of discovery $2,230 1.5 50% $5,017.50 Filing memorandum for subsequent case management conference $2,230 0.4 50% $1,338.00 Appearance at subsequent case management conference $2,230 0.3 50% $1003.50 Statement of defence to amended statement of claim $2,230 0.6 50% $2,007.00 Preparation of affidavits for hearing set down for 5 days $2,230 6.0 50% $2,007.00 Preparation for hearing $2,230 6.0 50% $2,007.00 Notice of opposition to application for review $2,230 0.6 50% $2,007.00 Filing memorandum for subsequent case management conference $2,230 0.4 50% $1.338.00 Appearance at subsequent case management conference $2,230 0.3 50% $1003.50 Filing memorandum for subsequent case management conference $2,230 0.4 50% $1,338.00
Step Daily rate Days Uplift Total Appearance at subsequent case management conference $2,230 0.3 50% $1003.50 Preparation of written submissions $2,230 1.5 50% $5017.50 Filing interlocutory application $2,390 0.6 50% $2,151.00 Appearance at subsequent case management conference $2,390 0.3 50% $1075.50 Preparation of written submissions $2,390 1.5 50% $5377.50 Sealing order $2,390 0.2 50% $717.00 Total $177,792.60
Result
[27]The plaintiffs are liable on a joint and several basis, to pay disbursements of
$5,289.00 (subject to approval of the registrar) and costs of $177,792.60 to the defendants.
Moore J
Solicitors:
Lady Chambers QC, Auckland Mr Choi, Auckland
Copy to:
Plaintiffs