Li v 110 Formosa (NZ) Limited
[2019] NZHC 1083
•17 May 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2016-404-1878
[2019] NZHC 1083
BETWEEN JUN LI
Plaintiff
AND
110 FORMOSA (NZ) LIMITED
First Defendant
MENG WANG
Second DefendantDINGZHI HUANG (Discontinued) Third Defendant
GOLDEN BEACHLANDS HOLDINGS LIMITED
Fourth Defendant
…………../continued
Hearing: On the papers Counsel:
DM Connor and JE Heaney for plaintiff DW Grove for first defendant
AJB Holmes and LE Steel for second, fourth and fifth defendants
HM Twomey and R Woods for sixth defendant
Judgment:
17 May 2019
COSTS JUDGMENT OF FITZGERALD J
This judgment was delivered by me on 17 May 2019 at 12 noon, pursuant to Rule 11.5 of the High Court Rules. Registrar/Deputy Registrar ………………………………… Date…………………………….
Solicitors: Carson Fox Bradley Ltd, Auckland (X Li)
Foy & Halse, Auckland (G Halse)
Cook Morris Quinn, Auckland (D Morris) Robertsons, Auckland (M Robertson)
Li v 110 Formosa (NZ) Limited [2019] NZHC 1083 [17 May 2019]
Defendants continued
JENNY AND EAMON HOLDINGS LIMITED
Fifth Defendant
LOO & KOO
Sixth Defendant
CONTENTS
Introduction [1]
Factual background [5]
Mr Li’s claims [19]
Categorisation of proceedings [34]
Costs as between Mr Li and Mr Wang
Parties’ submissions [38]
Discussion – who was the successful party overall? [55]
Should Mr Li’s costs be reduced? [57]
What is the impact of the 2015 Offer? [64]
What time bands are appropriate? [78]
Is Mr Li entitled to increased costs? [81]Disbursements [84]
Costs as between Mr Li and 110 Formosa
The parties’ submissions [96]
Discussion – should increased costs be ordered? [102]
What time bands are appropriate? [109]
Costs as between Mr Li and GBHL/JEHL [111]
Costs as between Mr Li and Loo & Koo
The parties’ submissions [116]
Should indemnity costs be awarded? [131]
Should a Sanderson or Bullock order be made? [142]
Conclusion [150]
Introduction
[1] I delivered a substantive judgment in this matter on 19 December 2018.1 The dispute centred on the beneficial ownership of $4.8 million used in 2014 to contribute to the purchase of the Formosa golf course (the Formosa Property). Meng (Eamon) Wang, the second defendant, said the money belonged to him and/or his family in China, but had been “routed” through the plaintiff, Mr Li, a New Zealand resident, given concerns Mr Wang and his family had at the time about the Overseas Investment Act. Mr Li, on the other hand, said the money was beneficially his, and had been wrongfully used by Mr Wang in the purchase of the Formosa Property.
[2] The evidence on the beneficial ownership of the $4.8 million was not straightforward. But on the balance of probabilities, I found Mr Li was the beneficial owner of the funds.
[3] Mr Li pleaded eight causes of action against Mr Wang and five other defendants. I found for Mr Li on two causes of action against Mr Wang (resulting trust and breach of contract). I dismissed the remaining claims. I encouraged the parties to agree costs, but they have not been able to do so. This judgment accordingly determines the competing, and complex, costs claims.
[4] I first provide a brief overview of Mr Li’s claims and my findings in relation to them. I then address the competing costs claims between Mr Li and Mr Wang, being the primary parties to this litigation. I then determine the costs claims between Mr Li and the other defendants.
Factual background
[5] My factual findings are set out in some detail in my substantive judgment and are not repeated here. The following represents a brief summary only, so the competing costs claims can be understood in their context.
[6] Mr Li is a New Zealand resident. It appears that he and/or his family have made a number of property investments in New Zealand, mainly residential. In June
1 Li v 110 Formosa (NZ) Ltd [2018] NZHC 3418 [Substantive Judgment].
2013, a contact of Mr Li’s, Ms Jenny Huang (a mortgage broker) introduced Mr Li to the Formosa Property as a potential commercial investment. Mr Li and his mother (Na Li) were interested.
[7] Mr Li and his mother could not afford to purchase the Formosa Property outright. They required other investors and/or substantial finance. A potential co- investor was Mr Weidong Jiang, who resides in China. He and Na Li had done business together before. Ultimately, in March 2014, Mr Li entered into an agreement for the sale and purchase of the Formosa Property, which was being sold by mortgagee sale. While Mr Li was the named purchaser on the agreement, he was to hold the property on trust for his mother and Mr Jiang (30 per cent and 70 per cent respectively). The agreement was subject to a finance condition. The parties were unable to raise sufficient finance, and the vendors later cancelled the agreement.
[8] Separately, in April 2014, Mr Wang and his mother (Mrs Zhou) were also looking at property investment opportunities in New Zealand. Mrs Zhou also knew Ms Huang, who told her about the opportunity to purchase the Formosa Property. Mr Wang and his mother were interested. Ms Huang was also to invest, and she and Mr Wang instructed Loo & Koo, the sixth defendants, to act on the purchase for them. An agreement for sale and purchase was entered into in April 2014, with Mr Wang and Ms Huang named as the purchasers (the April Agreement). Additional investors were needed in order to be able to settle the purchase. Ms Huang therefore put Mr Wang and his mother in touch with Mr Li and his mother, and Mr Jiang, as possible co- investors.
[9] The proposal was taken forward to a point where those to invest in the transaction were to advance funds towards the purchase of the Formosa Property by a corporate entity, with each investor to receive a shareholding in the corporate entity commensurate with their actual investment.2 The fifth defendant, Jenny and Eamon
2 A “Cooperation Agreement” between the parties recorded Mr Li as having a 32 per cent share in the corporate vehicle, though that was based on a total intended investment of $12.16 million (made up of an initial investment of $4.2 million, followed by a further tranche of $7.96 million). I found that the parties’ intended that each investor’s shareholding would reflect what was ultimately their actual contribution to the purchase. See my Substantive Judgment at [221] and [239].
Holdings Ltd (JEHL)3 was later incorporated as the corporate vehicle to purchase the Formosa Property.
[10] After Mr Li had been introduced as a potential investor, he went to the offices of Loo & Koo and made a number of separate deposits into their trust account towards the purchase of the Formosa Property. These deposits totalled the $4.8 million referred to at [1] above. Each of the deposits was made to the credit of Mr Wang and/or Ms Huang, for the general purpose of purchasing the Formosa Property.4
[11] As matters transpired, however, other investors were not able to raise their share of the finance and in September 2014, the vendors cancelled the April Agreement. A $2 million deposit which had earlier been paid by Mr Wang was forfeit.
[12] Mr Li was initially unaware that the April Agreement had fallen over. Mr Wang and his mother nevertheless continued to negotiate with the vendors to purchase the Formosa Property. A new agreement for sale and purchase was entered into in September 2014 (the September Agreement). The fourth defendant, Golden Beachlands Holdings Limited (GBHL) was the nominated purchaser under that agreement.5 At that time, Mr Wang held 80 per cent of GBHL’s shares and Ms Huang 20 per cent.
[13] There were again, however, problems in raising the necessary finance. Mr Li had learned in the interim that the April Agreement had been cancelled and was seeking information from Loo & Koo and Mr Wang about that. He did not seek to pull out of the venture at that time, though said Mr Wang should not use the
$4.8 million without his consent.
[14] A $5 million deposit was due under the September Agreement on 1 October 2014. Mr Wang instructed Loo & Koo to transfer the deposit that day. The bulk of
3 Named after Ms Huang and Mr Wang.
4 Substantive Judgment, above n 1, at [227]. The receipts were later altered in September 2014, at the request of Mr Wang, to be to the credit of JEHL, which was at that point, the nominated purchaser under the April Agreement.
5 Mr Wang was advised by the vendors’ agent, a Mr Shih, that given the April Agreement had been cancelled, the vendors would be uncomfortable with JEHL again being the nominated purchaser.
the deposit was made up of the $4.8 million deposited by Mr Li and referred to at [1] above.
[15] Mr Li and Mr Wang continued to correspond and Mr Wang sent Mr Li a copy of the September Agreement. He offered Mr Li a shareholding in GBHL commensurate with the $4.8 million (being around 13 per cent.) Mr Li initially accepted and the shares were transferred into his name. The next day, however, he changed his mind and asked for his investment to be returned within 10 working days. Mr Li said that he did not have confidence that Mr Wang would be able to settle the September Agreement, so did not want to pursue the opportunity of purchasing the Formosa Property with him.6
[16] Mr Wang did not return the $4.8 million. Nothing changed as between Mr Li and Mr Wang over the ensuing months. During that period, however, Mr Wang and his mother secured additional investors in the venture. GBHL later nominated the first defendant, 110 Formosa NZ Ltd (110 Formosa) as the purchasing entity. A number of agreements were entered into by the investors and between GBHL and 110 Formosa. The result was to allocate 19.75 per cent of 110 Formosa’s shares to Mr Wang, reflecting an agreed investment by Mr Wang of the earlier forfeit $2 million deposit; a $1 million commission which had been paid by Mr Wang to the vendors’ agent; the
$5 million deposit paid on GBHL’s behalf on 1 October 2014 and a further $1.4 million contributed by him prior to settlement. In December 2014, Mr Wang also arranged for Mr Li’s shareholding in GBHL to be transferred back to himself.
[17] In early 2016, Mr Li lodged a caveat against the Formosa Property to protect what he said was an equitable interest in the property itself.
[18]Against that backdrop, Mr Li commenced these proceedings.
Mr Li’s claims
[19]Mr Li advanced eight causes of action.
6 Substantive Judgment, above n 1, at [140].
[20] The first was referred to as “constructive trust (“reasonable expectation”)”. Mr Li advanced this aspect of his claim based on the principles set out in Lankow v Rose. It was advanced against 110 Formosa only. Mr Li said 110 Formosa held 32 per cent of its interest in the Formosa Property on an institutional or remedial constructive trust for Mr Li because:
(a)Mr Li paid $4.8 million of the $36 million purchase price;
(b)Mr Wang knew of Mr Li’s contribution;
(c)Mr Wang’s knowledge can be imputed to 110 Formosa, given he was at that time a director of 110 Formosa; and
(d)Mr Li reasonably expected that his contribution would yield an overall 32 per cent interest in the Formosa Property.
[21] I rejected this cause of action on the basis that there was never an expectation, reasonable or otherwise, that Mr Li would have an interest in the underlying Formosa Property itself. Rather, the parties’ intention and the contemporaneous documents were clear that each investor would receive a shareholding in the corporate vehicle to purchase the property, in proportion to their actual contribution. Further, Mr Li adduced no evidence that he was able to secure finance to enable him to make the additional $7.36 million investment, which would have been necessary to secure a 32 per cent shareholding.
[22] The second cause of action was breach of fiduciary duty and knowing assistance. This cause of action was originally advanced against all defendants, though it was not pressed at the hearing in relation to JEHL or GBHL. Mr Li alleged that Mr Wang owed him fiduciary duties which he breached in a number of ways, including by utilising Mr Li’s $4.8 million other than for the purpose for which Mr Li had advanced it. Mr Li said the remaining defendants knowingly assisted Mr Wang in breaching his fiduciary duties.
[23] On this cause of action, Mr Li sought orders stripping Mr Wang of his 19.75 per cent shareholding in 110 Formosa and for that shareholding be transferred to Mr Li. It was further submitted, however, that because there was no information before the Court as to the financial position of 110 Formosa, the appropriate remedy was in fact to cancel Mr Wang’s shareholding in 110 Formosa and declare Mr Li to own a
19.75 per cent interest in the Formosa Property. In the alternative, Mr Li advanced a claim for damages in the sum of $17.8 million, being the alleged difference between the (then) current market value of the Formosa Property and the purchase price under the September Agreement, plus the return of the $4.8 million.
[24] I dismissed this cause of action on the basis I was not persuaded the arrangements gave rise to fiduciary duties owed by Mr Wang to Mr Li.
[25] The third cause of action was also advanced against all defendants. It was stated to be a claim in “resulting trust (“Quistclose principles”)”. In this context, Mr Li said he advanced the $4.8 million solely for JEHL (and no other entity) to acquire the Formosa Property. As JEHL was not the corporate vehicle through which the Formosa property was ultimately acquired, Mr Li said the purpose for which he advanced the
$4.8 million failed and his funds ought therefore to have been returned to him. Given the purpose had failed yet his funds had not been returned to him, Mr Li said that this also gave rise to an underlying interest in the Formosa Property in the same way set out in relation to the preceding causes of action.
[26] I found that, as a matter of principle, this cause of action was made out in relation to Mr Wang. However, I found that the purpose for which Mr Li had advanced the funds was to put a corporate vehicle in funds to purchase the Formosa Property, rather than to put JEHL in particular in such funds. Ultimately, before Mr Li had communicated his intention to withdraw from the venture, Mr Li’s funds had been used to put a corporate vehicle in funds to purchase the Formosa Property. As noted, he was offered and initially accepted a 13 per cent shareholding in GBHL to reflect his $4.8 million investment. Despite later withdrawing from the venture, Mr Li’s funds were not returned to him, and Mr Wang later transferred Mr Li’s GBHL shares to himself. In those circumstances, I held that that portion of Mr Wang’s shareholding
in 110 Formosa which reflects Mr Li’s contribution is held by Mr Wang on resulting trust for Mr Li.
[27] The fourth cause of action was for breach of contract, namely breach by Mr Wang of the “Cooperation Agreement” between, amongst others, him and Mr Li. I found that Mr Wang had breached the Cooperation Agreement by causing Mr Li’s contribution to be used by GBHL and then 110 Formosa to acquire the Formosa Property, but without Mr Li having any commensurate shareholding in 110 Formosa.
[28] On this cause of action I found that Mr Li was entitled to compensatory damages equivalent to the sum advanced of $4.8 million. Given the relief on this and the resulting trust claims are inconsistent, I required Mr Li to elect between the two forms of relief. He elected relief on the resulting trust claim (without prejudice to his rights on appeal).
[29] The fifth cause of action was in “unjust enrichment”. While pleaded as a free- standing cause of action, it was not pressed as such in closing submissions. Rather, it was stated on Mr Li’s behalf that the cause of action had been pleaded in the event the High Court judgment was appealed.
[30] The sixth cause of action was advanced against all defendants and styled “Constructive trust in Formosa Property (property obtained by dishonesty and knowing assistance in such dishonesty).” In Mr Li’s closing submissions, it was stated that this cause of action was in fact the “second limb to the second cause of action (breach of fiduciary duty)”. In light of this, it was not possible for the Court to consider it as a free-standing claim in addition to the dishonest assistance aspect to the second cause of action.
[31] The seventh cause of action was money had and received. Again, Mr Li said the $4.8 million was paid by him into Loo & Koo’s trust account for the purposes of JEHL and no other entity purchasing the Formosa Property. On that basis, Mr Li said that as the funds had been used for a different purpose, each of Mr Wang, GBHL, Loo & Koo and 110 Formosa were liable to account to him for the $4.8 million. As I found that the purpose for which Mr Li had advanced his $4.8 million was to put a corporate
entity, rather than JEHL specifically, in funds to purchase the Formosa Property, I also dismissed this cause of action.
[32] The eighth cause of action was advanced against Loo & Koo only. It was originally framed as breach of statutory duty. At the outset of the hearing, however, the pleading was amended to “negligent breach of statutory duty,” alleging that Loo & Koo acted “negligently and in breach of statutory duty”. There was no other pleading or particulars of negligence. In his closing submissions, counsel for Mr Li sought to pursue a freestanding claim in negligence, acknowledging there is no cause of action of negligent breach of statutory duty and accepting that the claim of breach of statutory duty was unsustainable.
[33] I declined to permit a freestanding claim in negligence to be pursued. I concluded that no proper notice of such a claim had been given to Loo & Koo. I accordingly considered the eighth cause of action on the basis of breach of statutory duty only. On that cause of action, I found that even if Loo & Koo had breached certain provisions of the Lawyers’ and Conveyancers’ Act, the statute did not expressly or impliedly give rise to civil remedies for such a breach. I accordingly dismissed this cause of action.
Categorisation of proceedings
[34] Before turning to the costs claims between the parties, I must first determine the proper characterisation of these proceedings for costs purposes.
[35] The proceedings were not categorised at the outset. Rather, the parties, other than Mr Wang, noted that the categorisation of the proceedings as complex for the purposes of case management might mean that some steps in the proceedings ought to be assessed for costs purposes on a basis other than category 2B. They agreed that this be addressed after trial. Mr Li and 110 Formosa now say that all costs should be assessed on the basis of Category 2C. Mr Wang (and GBHL/JEHL) and Loo & Koo say all costs should be assessed on the basis of Category 3B.
[36] I consider Category 2 is the appropriate categorisation. Category 2 is for proceedings of average complexity requiring counsel of skill and experience
considered average in the High Court. Category 3 is reserved for cases that because of their complexity or significance require counsel to have special skill and experience in the High Court.7 At its core, Mr Li’s claim was relatively straightforward; Mr Li said he advanced $4.8 million towards the purchase of a property, but never saw anything in return. Ultimately, it was the somewhat confused and convoluted manner in which his claim was pleaded and advanced, including multiple and at times overlapping causes of action, some of which sought inflated amounts by way of damages and an account of profits, that made the claim complex. These factors are properly reflected by way of increased costs orders against Mr Li, or decreased costs orders in favour of Mr Li, as the case may be, rather than being reflected in the categorisation of the proceeding overall.
[37] I accordingly categorise the proceeding as Category 2 for costs purposes. Individual steps in the proceeding require separate consideration and are discussed later in this judgment.
Costs as between Mr Li and Mr Wang
Parties’ submissions
[38] Mr Li says he was successful in his claim against Mr Wang, albeit in relation to only two out of six causes of action pleaded against Mr Wang. Referring to Weaver v Auckland Council,8 Mr Li says that “success on more limited terms is still success”. On this basis, Mr Li says that he is the successful party overall and costs should follow the event in the normal way.
[39] Mr Li says there is no basis to reduce any costs award in his favour, given Mr Wang misled the Court in lying to it about the relationship between the parties and the $4.8 million, and unreasonably and unnecessarily adopted a meritless argument that Mr Li’s funds were somehow his.9
7 High Court Rules 2016, r 14.3(1).
8 Weaver v Auckland Council [2017] NZCA 330, (2017) 24 PRNZ 379 at [26].
9 Relying on Waller v Davies (2005) 17 PRNZ 747 at [28].
[40] Putting aside any additional costs ordered on a Bullock or Sanderson basis (addressed later in this judgment), Mr Li seeks costs of $154,539 (on a 2C basis) plus disbursements.
[41] Mr Wang on the other hand, says no costs award should be made in Mr Li’s favour, and instead he should be awarded costs. Mr Wang advances two reasons for this:
(a)First, Mr Li failed to accept an offer made prior to the commencement of the proceedings which would have given Mr Li exactly the same outcome as produced at trial.
(b)Second, Mr Li conducted the proceedings, including pursuing inflated and unnecessary claims, in a manner that significantly increased all parties’ costs, including Mr Wang’s.
[42] In relation to the alleged offer, Mr Wang points to what is described by him as an offer made by him on 10 November 2015 (before proceedings were commenced) (the 2015 Offer). Mr Wang points to a reference to the 2015 Offer in a January 2016 letter of instruction from Mr Li’s solicitors to experts appointed for the purpose of quantifying Mr Li’s loss and valuing the Formosa Property. The letter of instruction set out the factual background to Mr Li’s claims, and made reference to Mr Wang’s letter of 10 November 2015 in the following way:
The [10 November 2015] letter sets out Mr Wang’s invitation inquiring whether Mr Li “wishes to receive $4,800,000 of share capital in 110 Formosa, or wishes to receive $4,800,000”.
[43] Mr Wang’s letter of 10 November 2015 was not, however, provided with the letter of instruction. The experts’ letter of instruction was later appended to one of Mr Li’s expert’s reports, which was adduced in evidence at the hearing.
[44] Mr Wang says that in referring to the 2015 Offer in this way in material adduced in evidence in the proceedings, Mr Li has waived privilege in relation to it.
[45] Alternatively, relying on Dunningham J’s decision in MacDonald v Tower Insurance Ltd, Mr Wang says he is entitled to unilaterally waive privilege in respect of his own offer and does so.10 Mr Wang notes that he is not seeking to give evidence of any counter-offers made by Mr Li. Mr Wang therefore says the whole of the 10 November 2015 letter can be taken into account on costs.
[46] Mr Wang says the reason for the request for Mr Li to elect whether he wished to receive $4.8 million worth in shares or the return of his $4.8 million was to enable Mr Wang to take steps to make an unconditional offer to Mr Li. Mr Wang says Mr Li never responded to the 2015 Offer and instead issued these proceedings in August 2016 seeking damages in significantly inflated amounts.
[47] Mr Wang says the 2015 Offer should therefore be considered under High Court Rule 14.11(3) and (4), where Mr Wang is party A and Mr Li is party B. The rule states:
14.11Effect on costs
…
(3)Party A is entitled to costs on the steps taken in the proceeding after the offer is made, if party A—
(a)offers a sum of money to party B that exceeds the amount of a judgment obtained by party B against party A; or
(b)makes an offer that would have been more beneficial to party B than the judgment obtained by party B against party A.
(4)The offer may be taken into account, if party A makes an offer that—
(a)does not fall within paragraph (a) or (b) of subclause (3); and
(b)is close to the value or benefit of the judgment obtained by party B.
[48] Mr Wang says that if the 2015 Offer had been accepted, no further costs would have been incurred by any party and the proceedings would have been wholly unnecessary.
[49] In relation to Mr Li’s conduct of the proceedings, Mr Wang says Mr Li brought eight causes of action, only two of which were partially successful. Mr Wang says
10 MacDonald v Tower Insurance Ltd [2014] NZHC 2876, (2014) 22 PRNZ 490 at [57].
Mr Li’s approach to the litigation was unjustifiably far-reaching and ultimately led to all parties incurring significant costs that could have been avoided had a more realistic approach been taken; many of the causes of action overlapped, and in many respects, the relief sought was patent double or triple-counting.11 Mr Wang also points to Mr Li’s failure to produce clear and credible evidence in respect of the key factual issue of beneficial ownership of the $4.8 million, which again unjustifiably increased all parties’ costs.
[50] On this basis, Mr Wang claims scale costs of $124,740.00 (on a 3B basis), together with disbursements of $30,956.02.
[51] In response, Mr Li denies he has waived privilege in the 2015 Offer such that the entirety of Mr Wang’s 10 November 2015 letter can be considered on costs. He says the November 2015 letter was never produced in evidence and therefore never put in issue, and that a reference to one aspect of it in the experts’ letter of instruction does not constitute waiver in respect of all of it. Mr Li further says that pursuant to s 65 of the Evidence Act 2006 (the Act), Mr Wang cannot unilaterally waive privilege in the letter, which was stated to be “Without Prejudice”.
[52] Further, Mr Li says that even if the Court were to accept that privilege had been waived, there was no offer made in the letter that could be relied on for the purposes of r 14.10. Rather, Mr Wang merely sought an “indication” as to whether Mr Li wished to receive $4.8 million of share capital in 110 Formosa or $4.8 million plus interest. Mr Li notes that no formal offer, on either basis, was ever made. Mr Li says “all that the letter sought to do was enter into a dialogue as a first step towards a settlement”.
[53] Mr Li also rejects that his conduct in pursuing his claims warrants a costs award in Mr Wang’s favour, or a reduction in any costs awarded in his favour. Mr Li notes that it is important in this context that the unsuccessful causes of action are under appeal. Mr Li further submits that Mr Wang was held to have misappropriated Mr Li’s
11 The claims ranged from $4.8 million to some $26.8 million (the latter being on the sixth cause of action).
funds for his own personal gain, and therefore it would be repugnant to justice to criticise Mr Li for bringing claims for the proper purpose of recovering his funds.
[54] Mr Li also says he went to great lengths to discover relevant bank account records to establish the origin of his funds. He points to the fact that two flow charts were presented on the first day of trial tracing the funds’ “history” to their origin.
Discussion – who was the successful party overall?
[55] Mr Li is right to submit that he was the successful party overall. A key factual issue was who held the beneficial interest in the funds Mr Li deposited with Loo & Koo. On the balance of probabilities, I concluded that Mr Li was the beneficial owner. In light of that finding, I found for Mr Li on two of his six causes of action against Mr Wang. As Mr Li notes, success on limited terms is still success.12
[56] Given Mr Li was the successful party overall, and at least in the first instance, a costs award in his favour ought to follow in the ordinary way.
Should Mr Li’s costs be reduced?
[57] In my view, the key question is whether any matters raised by Mr Wang warrant a reduction in Mr Li’s costs award, including to the extent that costs lie where they fall. In this context, and save for any costs awarded in favour of Mr Wang pursuant to rr 14.10 and 14.11 (discussed later in this judgment), it is not appropriate to make a costs award against Mr Li. As the Court of Appeal made clear in Weaver, there would need to be exceptional reasons before costs were awarded against a successful party.13
[58] In my view, it is appropriate to reduce the costs award in Mr Li’s favour to reflect the fact he was unsuccessful on four out of the six causes of action against Mr Wang, and was only partially successful on the remaining two. I have no doubt that collectively, the causes of action against Mr Wang on which Mr Li was unsuccessful, being the second, fifth, sixth and seventh causes of action, significantly
12 Weaver v Auckland Council, above n 8, at [26].
13 At [20].
increased Mr Wang’s costs, though principally in relation to the legal aspects of those causes of action – the factual evidence adduced by Mr Wang being necessary to respond also to the third and fourth causes of action (on which Mr Li was partially successful). For these reasons, the discount ought to be relatively modest.
[59] I also consider a reduction is warranted for the overall manner in which Mr Li conducted the proceedings. On the key factual question of who owned the beneficial interest in the $4.8 million, it ought to have been a relatively straightforward exercise for Mr Li to prove his beneficial ownership with appropriate documentary records. For whatever reason, this was not the case.14 The documentary evidence Mr Li adduced on this question was complex and, quite oddly, not addressed at all in either his or his mother’s brief of evidence. Indeed, his mother’s brief of evidence was quite unsatisfactory, simply stating that:
I have had [Mr Li’s] brief of evidence dated 7 March 2018 translated and read to me orally. To the extent [Mr Li’s] brief of evidence gives evidence about events involving me, I confirm those statements are accurate.
[60] Aside from the fact that Mr Li’s mother, Na Li, did not give first hand evidence of her involvement in key issues, the above statement proved to be false in any event. In answer to a question from the Court, Na Li said that Mr Li had simply explained to her aspects of his brief of evidence “but he did not go over the whole document word- by-word in such detail”. Further, and as I noted in my substantive judgment,15 the documentary record which Mr Li discovered in relation to the payment flows showed that the moneys originally emanated from two or three key sources in China about whom Mr Li gave no evidence. While two flowcharts were presented by Mr Li’s counsel at the outset of trial, there is no doubt Mr Wang’s counsel would have had to expend significant amounts of time themselves trying to piece together the somewhat opaque documentary record in relation to the payment flows, which could and should have been dealt with in much clearer terms in Mr Li’s own evidence.
[61] In addition, and as I also observed in my substantive judgment, some of the causes of action pleaded by Mr Li against Mr Wang were not in fact advanced at trial,
14 See for example, Substantive Judgment, above n 1, at [161], [164] and [181].
15 At [161] and [174].
either at all or to any significant degree.16 Some of the causes of action also overlapped in an unclear way; for example the sixth cause of action was said in closing to be simply the second aspect of the second cause of action. The relief sought on a number of the causes of action was also unclear (for example, not stating if it was sought in the alternative), and/or involved double-counting (for example, Mr Li’s counsel’s concession that on the second cause of action, seeking a full account of profits as well as return of the $4.8 million was a “double up”).17
[62] I therefore have no doubt that the lack of clarity in the manner in which Mr Li’s claims were pleaded and pursued significantly increased Mr Wang’s costs from what they would have otherwise been.
[63] Taking the above factors into account, and adopting what can only be a relatively broad-brush and “in the round” view,18 I conclude that a discount of 20 per cent on the costs award in Mr Li’s favour is appropriate.
What is the impact of the 2015 Offer?
[64] The next question is whether Mr Li’s lack of engagement with the 2015 Offer warrants any further reduction to Mr Li’s cost award, or an order that costs lie where they fall.19
[65] As a preliminary point, I do not accept Mr Wang’s submission that he can unilaterally waive settlement privilege over his own offer. Section 65(5) provides that:
A privilege conferred by section 57 (which relates to settlement negotiations or mediation) may be waived only by all the persons who have that privilege.
[66]Section 57 relevantly provides:
57.Privilege for settlement negotiations, mediation, or plea discussions
16 The fifth and sixth causes of action.
17 Substantive Judgment, above n 1, at [19].
18 Water Guard NZ Ltd v Midgen Enterprises Ltd [2017] NZCA 36 at [18]; Weaver v Auckland Council, above n 8, at [18].
19 For example, in Water Guard, failure by the plaintiff on significant aspects of its claim, together with unreasonable and obdurate behaviour in refusing to engage on Calderbank offers in the lead up to trial, led to an order that costs should lie where they fall.
(1)A person who is a party to, or a mediator in, a dispute of a kind for which relief may be given in a civil proceeding has a privilege in respect of any communication between that person and any other person who is a party to the dispute if the communication—
(a)was intended to be confidential; and
(b)was made in connection with an attempt to settle or mediate the dispute between the persons.
(2)A person who is a party to a dispute of a kind for which relief may be given in a civil proceeding has a privilege in respect of a confidential document that the person has prepared, or caused to be prepared, in connection with an attempt to mediate the dispute or to negotiate a settlement of the dispute.
…
[67]As the learned authors of Mahoney on Evidence observe:20
It is important to be able to identify who are the holders of a privilege under s 57(1) in respect of any particular communication. Not only will this determine who can assert the rights set out in s 53, but it will also determine who is able to waive the privilege under s 65 (since the consent of all privilege holders is required for waiver of the s 57 privilege). When two parties have a dispute and one of them communicates with the other within the terms of s 57(1), both parties become privilege holders with respect to that communication. This is because the communication is, per s 57(1), “between” the two parties.
[Emphasis in original]
[68] I agree with the above observations. Given the requirement that the communication be “between” the two parties, the privilege is not limited to the party who prepared and sent the particular communication. The words used in s 57(1) can be contrasted with s 57(2), which expressly refers to the person who prepared a particular document holding the resulting privilege (there being no “communication” between the parties envisaged under s 57(2)). Had it been intended that the s 57(1) privilege would only be held by the person who prepared the communication in question, it would have been very straightforward to have said so. I therefore respectfully disagree with Dunningham J’s observations in MacDonald v Tower Insurance Ltd that a party can unilaterally waive settlement privilege over their own offers, so long as they do not seek to introduced evidence of counter-offers by the opposing party. The learned authors of Adams on Criminal Law - Evidence also
20 Elisabeth McDonald and Scott Optican (eds) Mahoney on Evidence (4th ed, Thomson Reuters, Wellington, 2018) at [EV57.07].
conclude that both parties to the communication are a privilege holder for the purposes of s 57(1),21 and note that the approach taken in MacDonald v Tower Insurance Ltd is contrary to that position.22
[69] It not being possible for Mr Wang unilaterally to waive privilege in the 10 November 2015 letter, I therefore consider whether Mr Li has also waived privilege in it, or merely that extract quoted in the experts’ instruction letter. Whether privilege has been waived in this context is an intensely fact-specific inquiry.
[70]Waiver is governed by s 65 of the Act. This (relevantly) provides:
65 Waiver
…
(2)A person who has a privilege waives the privilege if that person, or anyone with the authority of that person, voluntarily produces or discloses, or consents to the production or disclosure of, any significant part of the privileged communication, information, opinion, or document in circumstances that are inconsistent with a claim of confidentiality.
(3)A person who has a privilege waives the privilege if the person—
(a)acts so as to put the privileged communication, information, opinion, or document in issue in a proceeding; or
(b)institutes a civil proceeding against a person who is in possession of the privileged communication, information, opinion, or document the effect of which is to put the privileged matter in issue in the proceeding.
…
[71] There is no doubt Mr Li has waived privilege in the fact that in November 2015, Mr Wang sought an indication from him of whether he wished to receive
$4.8 million plus GST or the equivalent amount in share capital in 110 Formosa. This was communicated to Mr Li’s experts and then that communication was itself adduced in evidence. Voluntarily disclosing that aspect of the 10 November 2015 letter in
21 Simon France (ed) Adams on Criminal Law – Evidence (looseleaf ed, Thomson Reuters), at [EA57.02].
22 At [EA57.08(1)].
evidence is plainly incompatible with a claim of confidentiality over at least that aspect of the letter.
[72] I do not agree, however, that Mr Li has waived privilege in the balance of the 10 November 2015 letter, under either s 65(2) or (3) of the Act. Dealing with the latter section first, the mere reference to the 2015 Offer in the experts’ letter of instruction does not put the 15 November 2015 letter, or its broader contents, in issue in these proceedings.
[73] Turning to s 57(2), as French J explained in Houghton v Saunders, whether a “significant part” of a privileged communication has been disclosed depends on the substance rather than the quantity of privileged material that is disclosed.23 Having considered the contents of the 10 November 2015 letter,24 I am satisfied that, while brief, the extract recorded in the experts’ instruction letter was a significant part of the privileged communication. Indeed, the whole purpose of the 10 November 2015 letter was to set out why such an indication was being sought and the steps to be taken going forward if such an indication were to be given.
[74] That does not mean, however, that waiver has occurred. The disclosure of any significant part of a privileged communication must also be made in circumstances inconsistent with a claim of confidentiality. In this context, the following two principles distilled by French J in Houghton v Saunders are helpful:25
(a)Deliberate disclosure of some of the content of the privileged document will not necessarily amount to an implied waiver but may do so;26 and
(b)The test to be applied is whether in all the circumstances the conduct is inconsistent with maintaining the confidentiality of the privileged material in a way that could lead to injustice if the privilege is upheld.
23 Houghton v Saunders (2009) 19 PRNZ 476 at [55](iii).
24 The letter was produced as an attachment to Mr Wang’s submissions on costs. Mr Li’s counsel was given advance notice that the letter was intended to be so produced, but made no response before Mr Wang’s costs submissions were filed.
25 Houghton v Saunders, above n 23, at [55].
26 Citing Ophthalmological Society of New Zealand Inc v Commerce Commission [2003] 2 NZLR 145; (2003) 16 PRNZ 569 (CA) at 154; 577-578; Astrazeneca Ltd v Commerce Commission (2008) 12 TCLR 116 at [39].
[75] The reference to the 2015 Offer in the experts’ instruction letter was not, in my view, inconsistent with a claim to confidentiality in the balance of that letter in a way that could lead to injustice if the privilege was upheld. The purpose of referring to the 2015 Offer in the experts’ instruction letter was simply to set out the potential recovery paths available to Mr Li when considering the assessment of his overall losses. The letter therefore highlighted to the experts that a potential path was for Mr Li to receive
$4.8 million plus GST or the equivalent of share capital in 110 Formosa, though Mr Li sought expert advice on other losses which may be recoverable by him. In that particular context, maintaining confidentiality in the broader aspects of the 10 November 2015 letter does not give rise to injustice. On the basis of the extract recorded in the experts’ instructions letter, it is clear Mr Wang sought an indication from Mr Li as a means to exploring either one of those two pathways as a potential way of resolving the proceedings. Mr Wang is not prevented from making that point despite privilege in the balance of the letter being upheld.
[76] I am not, however, persuaded that the part of the letter which was recorded in the experts’ instructions letter has any bearing on costs:
(a)Rule 14.11 cannot apply to the 2015 Offer. Rule 14.11 only applies to offers which fall within the scope of r 14.10, which relates to offers which are expressly stated to be without prejudice except as to costs. The 2015 Offer was not expressed in that way.
(b)Nor does the 2015 Offer point towards increased or reduced costs pursuant to rr 14.6(3)(b)(v) or 14.7(f)(v). As Mr Li notes, the “offer” was not in fact a formal offer at all. On its face, it was merely a preliminary request for an indication of whether Mr Li wished to receive his $4.8 million back, or instead receive the equivalent in shares in 110 Formosa. It was not an offer capable of acceptance.
(c)Further, the indication was sought very early in the history of the dispute, before Mr Li had any expert evidence on the losses he might be able to claim, and indeed prior to proceedings being commenced. Accepting the “offer” at that stage would have ascribed effectively nil
prospects of success on any additional recovery. I do not consider it was unreasonable for Mr Li to instead investigate and pursue his potential claims.
(d)Finally, it would have been quite open to Mr Wang to make a formal offer to Mr Li along the lines of the 2015 Offer, on a without prejudice save as to costs basis. Mr Li would have then been on clear notice of the potential costs consequences for him of not accepting such an offer. There is no evidence that Mr Wang ever made such an offer.
[77] Accordingly, while it is unfortunate Mr Li did not at least engage on the preliminary indication sought by Mr Wang, in the circumstances outlined above, I do not consider it appropriate or necessary to further reduce the costs award in his favour.
What time bands are appropriate?
[78] In terms of the time bands on which each step in the proceedings should be ordered, I do not agree that band C is appropriate. Mr Li has not made any submissions on why each step in the proceedings took him a comparatively large amount of time.
[79] The fact a proceeding is categorised as a complex proceeding for case management purposes does not, directly at least, suggest time bands for steps in the proceeding should all be time band C. A case is categorised as a complex defended proceeding if a Judge is of the opinion it will need intensive case management, and thus more than one case management conference before a fixture is allocated.27 More intense case management does not mean that a comparatively large amount of time will be reasonable for each and every step in a proceeding. Rather, the direct effect is the holding of multiple case management conferences, in relation to each of which costs may be claimed. Each step in the proceeding must be considered individually.
[80] While the conduct of these proceedings was somewhat complex,28 this stemmed in large part from how Mr Li’s claims were pleaded at pursued at trial. Again, this does not itself mean that any or all of the steps taken by Mr Li in the
27 High Court Rules 2016, r 7.1(4).
28 Substantive Judgment, above n 1, at [8], [161], and [181].
proceedings (reasonably) took a comparatively large amount of time. Accordingly, in the absence of any information or submission as to why any particular steps should be categorised by reference to time band C, I proceed on the basis that the steps for which Mr Li is to be awarded costs took a comparatively normal amount of time and are therefore to be assessed on the basis of time band B.
Is Mr Li entitled to increased costs?
[81] Mr Li also seeks increased costs. The basis is somewhat unclear, as no reference is made to r 14.6, which aspects of that rule are said to be triggered, or what increase should be awarded. Mr Li simply says that costs ought to be increased given Mr Wang misled the Court in relation to the $4.8 million and unreasonably and unnecessarily adopted a meritless argument that Mr Li’s funds were his.
[82] I am not persuaded that increased costs are justified. The position in relation to the beneficial ownership of the $4.8 million was opaque, and as I noted, Mr Li’s own evidence on that issue was not a model of clarity or reliability.29 Mr Li was also deemed to have accepted that Mrs Zhou made an arrangement with Mr Jiang to transfer the equivalent of $5 million to New Zealand very near to the time when Mr Li deposited the $4.8 million with Loo & Koo. As I stated in my substantive judgment, given the unsatisfactory state of the evidence, I determined this aspect of the proceedings by reference to the burden of proof. The fact I determined this aspect of the claim in Mr Li’s favour is not a conclusion that Mr Wang’s argument was wholly meritless.
[83] Subject to my comments at [95] below on step 31, there is accordingly an award of costs in Mr Li’s favour on a scale 2B basis, reduced by 20 per cent. I also confirm that the sitting time during the hearing was 12 days of trial rather than 13 as calculated by Mr Li.
Disbursements
[84]Mr Wang also challenges some of the disbursements claimed by Mr Li.
29 See [60]-[63] above.
[85]The recovery of disbursements is governed by r 14.12, which relevantly states:
14.12Disbursements
…
(2)A disbursement must, if claimed and verified, be included in the costs awarded for a proceeding to the extent that it is—
(a)of a class that is either—
(i)approved by the court for the purposes of the proceeding; or
(ii)specified in paragraph (b) of subclause (1); and
(b)specific to the conduct of the proceeding; and
(c)reasonably necessary for the conduct of the proceeding; and
(d)reasonable in amount.
(3)Despite subclause (2), a disbursement may be disallowed or reduced if it is disproportionate in the circumstances of the proceeding.
…
[86] Mr Li seeks recovery of accounting fees of a Mr Jai Basrur. Mr Basrur apparently prepared a brief of evidence in this matter, but was not called by Mr Li to give evidence. Given he was not called, I have no visibility of what evidence he was to give. All that is apparent from invoices rendered to Mr Li by Mr Basrur is that he provided financial advice in relation to the assessment of loss to be claimed in the proceedings, including the preparation of financial models and sensitivity analysis.
[87] The fact a witness is not called to give evidence does not preclude their fees being recoverable as disbursements. The overriding question is whether the disbursement meets the requirements of r 14.12(2) and (3).30 Nevertheless, given he was not called to give evidence and absent any other information, I agree with counsel for Mr Wang that the entirety of Mr Basrur’s fees cannot be considered reasonably necessary for the conduct of the proceedings. In addition, and at least on those aspects of Mr Li’s claim on which he was successful (a resulting trust over Mr Wang’s shares representing Mr Li’s contribution of $4.8 million, or damages in that amount), detailed
30 McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR14.12.01] and the cases cited therein.
financial advice and/or modelling ought not to have been required. Finally, because there is no information before me as to the nature or content of Mr Basrur’s evidence, it is not possible to consider whether the amount claimed is reasonable. Ultimately, if disbursements are to be claimed for expert advice which does not lead to the expert giving evidence, significantly more information needs to be provided to the Court than the expert’s invoices.
[88] As Mr Li has not demonstrated why Mr Basrur’s fees meet the requirements of r 14.12(2), I cannot include those fees in the costs award in his favour. I should emphasise that this is not to suggest Mr Basrur’s fees in and of themselves were unreasonable; rather it simply reflects that Mr Li has not satisfied me that the fees ought properly to be included in a costs award.
[89] I also accept that the expert witness fees of Mr Moore ought not to be recoverable as a disbursement against Mr Wang. That evidence was adduced in support of Mr Li’s claim against Loo & Koo, not Mr Wang. Mr Moore’s fees were therefore not reasonably necessary for the claims against Mr Wang. Further, Mr Li was not successful in his claims against Loo & Koo. Mr Moore’s fees are also to be excluded from Mr Li’s costs award.
[90] Mr Wang also challenges the expert witness fees of Mr Seagar, who gave expert evidence on the value of the Formosa Property. The fees claimed total some
$49,000, though invoices of just under $20,000 only have been produced with Mr Li’s costs submissions. These invoices appear to relate to Mr Seagar’s brief of evidence, with earlier fees appearing to relate to an earlier valuation conducted by Mr Seagar.
[91] Mr Li was unsuccessful in all claims to relief which relied on the value of the Formosa Property. Further, in the claim most directly related to the Formosa Property itself (the first cause of action), the proper relief – being a declaration of trust – did not depend on evidence of the property’s current market value.
[92] For these reasons, I do not consider it appropriate for the full fees paid to Mr Seagar to be included as a disbursement. Despite this, however, I do not consider the fact Mr Li was unsuccessful on the issues to which the fees relate preclude them
altogether from being recovered. Ultimately, recovery is at the discretion of the Court, in the same way the Court has discretion to reduce a successful party’s costs to reflect issues on which they were unsuccessful (and which caused the other party to incur significantly increased costs).
[93] Standing back, and despite Mr Li’s lack of success on those claims to which Mr Seagar’s evidence related, I do not consider it was unreasonable for Mr Li to ascertain the value of the Formosa Property in the context of these proceedings. The value was relevant to various aspects of the relief he claimed. There was no challenge to the admissibility of Mr Seagar’s evidence on the basis it was irrelevant (for the purposes of s 7 of the Act) or not substantially helpful (for the purposes of s 25 of the Act).
[94] In these circumstances, I consider that a portion of Mr Seagar’s fees should be recoverable by Mr Li as a disbursement. The figure of almost $50,000 is, however, disproportionate for the purposes of r 14.12(3), given Mr Li did not succeed on any claims to which Mr Seagar’s evidence related. Again, only a broad-brush approach is possible. I consider an award of approximately 30 per cent of Mr Seagar’s fees is fair and reasonable in the circumstances, with the result that $15,000 is to be included in the costs award for Mr Seagar’s fees. Like Mr Basrur’s fees, by reducing the disbursement recoverable I am not suggesting Mr Seagar’s fees were unreasonable. They no doubt reflect the instructions Mr Seagar was given and the scope of work actually carried out.
[95] I also agree with counsel for Mr Wang that it is not appropriate for Mr Li to claim, at least in full, step 31 for preparation of the list of issues, authorities and common bundle, yet also claim as a full disbursement the costs of externally out- sourcing the preparation of the common bundle. In relation to step 31, Mr Li did not prepare a list of issues. I accept there will have been solicitor/counsel time involved in the preparation of authorities and the common bundle, despite the physical production of the bundle being out-sourced. I consider the appropriate approach is to reduce the time awarded for step 31 to one day, and award the full amount paid to Yallop & Co for preparation of the common bundle as a disbursement.
Costs as between Mr Li and 110 Formosa
The parties’ submissions
[96] There is agreement between Mr Li and 110 Formosa that costs should follow the event with a costs award in favour of 110 Formosa. Mr Li submits that scale costs on a 2C basis are appropriate (a figure of $133,354). There is also $220 accepted as disbursements properly payable to 110 Formosa.
[97] For the reasons set out above, and subject to consideration of any particular steps taken by 110 Formosa, scale costs are to be awarded on a 2B basis.
[98] 110 Formosa seeks a 50 per cent uplift on costs following an open letter sent by it on 10 April 2018, i.e. approximately two months prior to trial. 110 Formosa invited Mr Li to discontinue the proceedings against it on terms that it would:
(a)not seek costs of the proceedings to that point;
(b)cooperate with providing evidence to Mr Li in relation to its dealings with Mr Wang; and
(c)consent to and support an application by Mr Li to freeze Mr Wang’s shares so that those shares could be used to satisfy any judgment obtained by Mr Li.
[99] 110 Formosa says it never received a response to its offer. It says it was 110 Formosa who took steps which resulted in Mr Wang giving his undertaking to the Court not to deal with his shares pending the outcome of the proceedings, such that 110 Formosa took steps of significant benefit to Mr Li. Counsel for 110 Formosa also points to my finding that Mr Li’s expectation in paying the $4.8 million was to receive a shareholding in the company which was to own the Formosa Property, rather than a proprietary interest in the Formosa Property itself. Finally, having received Mr Wang’s submissions on costs, 110 Formosa submits that Mr Li’s failure to accept the 2015 Offer bolsters its case for increased costs.
[100] As noted, Mr Li accepts that scale costs ought to be awarded, but he challenges any award of increased costs. He points to the fact that 110 Formosa has failed to pay Mr Li in relation to two earlier costs orders made against it, the first following a hearing on 3 February 2017 and the second following a hearing on 27 September 2018 (i.e. after the substantive hearing before but before delivery of my substantive judgment). The relevance of this to 110 Formosa’s claim for increased costs is not explained, but is presumably advanced on the basis that Mr Li says it is not appropriate for a party in default of earlier costs orders to seek increased costs.
[101] Mr Li further submits that it is relevant the offer was made prior to service of 110 Formosa’s briefs of evidence, referring in this regard to observations made in Easton Agricultural Ltd v Manawatu-Whanganui Regional Council.31 In that case, Kós J stated that making offers after the exchange of evidence allows parties to assess their prospective positions more accurately.32 Mr Li says it was reasonable for him to continue with his claim after receiving the letter, having not been served with 110 Formosa’s briefs of evidence at that time.
Discussion – should increased costs be ordered?
[102] The mere fact I found against Mr Li in relation to his claims against 110 Formosa is not determinative or indeed relevant to the question of increased costs. Rather, the question of increased costs is guided by those matters set out in r 14.6(3), and relevantly for present purposes, whether Mr Li took or pursued an unnecessary step or an argument that lacked merit, or failed without reasonable justification to accept an offer of settlement.
[103] As counsel for Mr Li notes, so-called “walk-away” offers were considered by Kós J in Easton Agriculture Ltd v Manawatu-Whanganui Regional Council. His Honour noted that the onus is on the party claiming increased costs to persuade the Court that the award is justified. That party must satisfy the Court that the failure to accept the offer of settlement was unreasonable. The reasonableness of a rejection is
31 Easton Agricultural Ltd v Manawatu-Wanganui Regional Council HC Palmerston North CIV- 2008-454-31, 22 December 2011.
32 At [16].
to be assessed at the time of the rejection, not just against the subsequent result at trial.33
[104] Kós J also noted that the court is conventionally cautious in awarding increased costs where the successful party has made only a walk-away offer.34 In that context, the Judge accepted that walk-away offers effectively value the opponent’s prospects of success, and their own litigation risk, at nil. He said it would be a “rare case” where it is unreasonable for a plaintiff to take a more opportunistic view of their own prospects than zero per cent. I respectfully agree with his Honour’s observations.
[105] I am not persuaded it was unreasonable for Mr Li not to accept 110 Formosa’s offer. In particular, it was not unreasonable for Mr Li to value his claim against 110 Formosa as having more than zero per cent prospects of success. Indeed, an Associate Judge of this Court had found that Mr Li had an arguable case for a caveatable interest in the Formosa Property.
[106] I accept that 110 Formosa’s offer was made prior to the service of the briefs of evidence for 110 Formosa, but I do place much weight, if any, on this factor. It must have been known to Mr Li and his counsel that 110 Formosa would be able to say very little of relevance to the issues to be determined at trial, as in fact transpired to be the case. By the time the briefs were to be served, only Ms Wen remained a director, and she, Mr Daniel Huang and Mr Wang as shareholders. Mr Wang was obviously to give evidence on his own behalf as second defendant. Neither Ms Wen or Mr Huang had any knowledge of the beneficial ownership to the $4.8 million, and their dealings with Mr Wang in the establishment of 110 Formosa were not directly relevant to any issues requiring determination at trial.
[107] I do not consider the position is altered by the fact 110 Formosa offered to support the Mr Li’s claim and support an application to freeze Mr Wang’s shares. What support 110 Formosa itself could have provided (by way of admissible evidence) is also debatable, for the same reasons set out at [106].
33 Easton Agricultural Ltd v Manawatu-Wanganui Regional Council, above n 32, at [12].
34 At [16].
[108]On that basis, I decline to grant increased costs in favour of 110 Formosa.
What time bands are appropriate?
[109] In terms of the time bands on which each step in the proceedings should be ordered, I do not agree that category C is appropriate for each step. Mr Grove, counsel for 110 Formosa, is right to say that the proceedings were somewhat complex, with reference to observations in my substantive judgment to that effect.35 But as noted above, this stemmed in large part from how Mr Li’s claims were pleaded and pursued at trial. 110 Formosa has not demonstrated why these broad issues resulted in any one or more of the steps taken by it for which it claims costs took a comparatively large amount of time. In the absence of any information as to why the steps ought to attract time band C, I conclude that they are appropriately categorised as time band B.
[110] With reference to those steps set out in the schedule to Mr Li’s memorandum dated 15 March 2019,36 I therefore award costs to 110 Formosa on a 2B basis, together with disbursements (filing fees) of $220.
Costs as between Mr Li and GBHL/JEHL
[111] Mr Li’s claims against GBHL and JEHL were unsuccessful and he accepts costs should follow the event in the ordinary way. GBHL and JEHL were represented by the same counsel who represented Mr Wang, but Mr Li accepts they will have incurred some separate costs, in terms of commencement of their defences. There are also associated disbursements.
[112] The only difference between Mr Li and GBHL/JEHL is whether costs should be allocated on a category 2C basis (Mr Li) or 3B (GBHL/JEHL).
[113] As noted earlier, I have categorised these proceedings for costs purposes as category 2.
35 Substantive Judgment, above n 1, at [8], [161], and [181].
36 Which are accepted by 110 Formosa as the appropriate steps for costs purposes.
[114] There is no principled basis upon which the steps taken by GBHL and JEHL, for which they seek costs additional to those sought by Mr Wang, ought to be awarded on a time band C basis. Indeed, GBHL and JEHL accept that commencement of each of their defences took a comparatively normal amount of time, given they seek costs on a 3B basis.
[115] There is therefore an award of costs in favour of GBHL and JEHL for those steps and disbursements set out in the schedule to GBHL and JEHL’s costs memorandum dated 12 March 2019, save that the costs award is to be calculated by reference to 2B.
Costs as between Mr Li and Loo & Koo
The parties’ submissions
[116] I dismissed all Mr Li’s causes of action insofar as they were advanced against Loo & Koo.
[117] Counsel for Loo & Koo, Ms Twomey and Ms Woods, submit the proceedings overall should be categorised as category 3. As noted, I have categorised the proceeding as category 2. Ms Twomey and Ms Woods quite properly accept that the proceedings were not of such complexity to warrant time band C for all steps. They therefore submit that, if costs are to be assessed by reference to scale, costs on a 3B basis are appropriate. Given my categorisation of these proceedings as category 2, this reflects a cost award on a 2B basis.
[118] Loo & Koo seek indemnity costs for the latter period of the proceedings. They accept that indemnity costs are awarded in exceptional circumstances only. Counsel for Loo & Koo nevertheless submit that “the manner in which Mr Li has pursued his claims has been wholly unreasonable in a number of respects, which, whether taken separately or in combination, would justify an award of indemnity costs”.
[119]Loo & Koo point to the following matters in this regard:
(a)Mr Li’s claims against Loo & Koo were entirely unnecessary given, if he were able to establish an entitlement to the $4.8 million, adequate remedies were at all times available through Mr Wang’s continued shareholding in 110 Formosa, which holds the Formosa Property unencumbered;
(b)The manner in which Mr Li elected to conduct his case put Loo & Koo to unnecessary expense;
(c)Mr Li unreasonably rejected a settlement offer made by Loo & Koo on 9 February 2018; and
(d)Mr Li advanced unsubstantiated and unjustified allegations of dishonesty against Loo & Koo.
[120] As to (a) above, counsel for Loo & Koo submit that Mr Li’s claims were properly directed against Mr Wang (followed by GBHL and 110 Formosa), all of whom held sufficient assets to meet any award that might be made in Mr Li’s favour. Loo & Koo say that in circumstances where Mr Wang’s asset holding (namely his
19.75 per cent shareholding in 110 Formosa) was more than sufficient to fully compensate Mr Li, there was no realistic prospect that Loo & Koo would be ordered to contribute to any award in Mr Li’s favour. Loo & Koo therefore submit that claims against Loo & Koo were entirely unnecessary. Counsel submit that:
While a plaintiff may be entitled to join as defendants all those parties against whom he or she is able to identify a cause of action, to the extent that those claims are wholly and inevitably redundant in the light of recovery available, in priority, from other parties, the plaintiff must expect to meet costs unnecessarily inflicted on other parties.
[121]No authorities are cited for the above propositions.
[122] As to (b) above, Loo & Koo point to the fact that what ought to have been a relatively simple exercise to determine the ownership of the $4.8 million was rendered complex, given Mr Li’s inability to place clear documentary evidence before the Court evidencing the flow of money from him and/or his family in China to to his bank accounts in New Zealand. Loo & Koo also refer to issues which arose when Mr Li
sought to advance in his closing a free-standing cause of action in negligence against Loo & Koo. Counsel note that in this context, Mr Li accepted that there was no such cause of action in negligent breach of statutory duty and all but gave away his cause of action in breach of statutory duty, such that the work that Loo & Koo had done in response to that cause of action was wasted.
[123] In relation to (c) above, counsel for Loo & Koo refer to a settlement offer made some months before trial, proposing that the claims against Loo & Koo be resolved on a “costs savings” basis, with Loo & Koo offering to pay Mr Li $50,000. That offer was rejected. Loo & Koo submit that the result achieved at trial by Mr Li was significantly less favourable to him than acceptance of the settlement offer, given his claims against Loo & Koo failed and he is now liable to them in costs. Counsel acknowledge that the February 2018 settlement offer was subject to a condition requiring Mr Li to provide an indemnity to Loo & Koo in respect of any cross-claims that might be brought against Loo & Koo. However, counsel submit that the condition was not onerous or otherwise made it reasonable to reject the offer. Counsel submit that it was unsurprising that where Mr Li was seeking the disgorgement of trust property from the other defendants, there was not a realistic prospect of any cross- claim against Loo & Koo, as the disgorgement of such property could not be causative of a loss to the other defendants. It is therefore submitted that “the risk of a cross- claim must have been limited”.
[124] Finally, and on (d) above, Loo & Koo note that there were allegations of dishonesty made against them which, in the context of the Court of Appeal’s judgment in Bradbury, justify an award of indemnity costs, at least after expiry of the February 2018 offer.37
[125] Having now also seen Mr Wang’s costs submissions and their reference to the 2015 Offer, Loo & Koo says this further supports an award of indemnity costs, given an early opportunity to resolve Mr Li’s claim was lost and put Loo & Koo to significant further unnecessary cost.
37 Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [29].
[126] Mr Li rejects that any of the factors relied on by Loo & Koo justify an indemnity costs award. First, his counsel submits that it is incorrect to suggest that because other defendants may “rank above” Loo & Koo in the requirement to contribute to recovery of Mr Li’s loss, it was somehow unreasonable for Mr Li to bring a claim against Loo & Koo. Counsel for Mr Li submits that the only relevant issue was whether Loo & Koo could be held liable for their conduct during the transactions.
[127] Further, in relation to the issues which arose over the purported free-standing claim in negligence, counsel note that those issues arose at trial itself, and therefore only nominal additional costs would have been incurred in relation to the negligence claim.
[128] In relation to the settlement offer, Mr Li refers to the indemnity clause. Counsel submits that the fact that Loo & Koo sought an indemnity demonstrates they considered a cross-claim a realistic risk. They further point to clause 5 of the proposed settlement agreement, which prohibited Mr Li from bringing a claim “against any other party arising out of or in connection with this agreement or the proceeding, other than to enforce the terms of this agreement, and further agree that any party breaching this clause will fully indemnify all other parties in respect of that breach, including costs on an indemnity basis”.38
[129] In these circumstances, Mr Li submits that it was not unreasonable for him to reject the settlement offer and draft deed of settlement.
[130] Further, Mr Li says there were no allegations of fraud or actual dishonesty on the part of Loo & Koo, but rather the claim was dishonest assistance, framed on the basis of turning a blind eye.
Should indemnity costs be awarded?
[131] I do not consider indemnity costs are appropriate. First, and as acknowledged by counsel for Loo & Koo, the circumstances in which indemnity costs will be awarded are relatively rare. In Bradbury v Westpac Banking Corp, the Court of Appeal
38 I note, however, that neither party has placed the proposed settlement deed before the Court with their costs submissions.
explained that indemnity costs may be awarded where a party has behaved either badly or very unreasonably.39 It contrasted the jurisdiction to grant increased costs, being directed to simple unreasonableness, with the jurisdiction to grant indemnity costs being directed to “distinctly bad behaviour”.40 Examples of the latter were:41
(a)making allegations of fraud knowing them to be false;
(b)particular misconduct causing loss of time to the Court and other parties;
(c)commencing or continuing a proceeding for some ulterior motive;
(d)doing so in wilful disregard of known facts or clearly established law; and
(e)making allegations which ought never to have been made or unduly prolonging a case by groundless contentions – i.e. persisting in what should on proper consideration be seen to be a “hopeless case”.
[132] As is evident from the above, indemnity costs are reserved for egregious conduct.
[133] Further, no authority has been cited in support of the “ranking” of recovery from various defendants when equitable relief is sought. I therefore proceed on the basis that there is no “clearly established law” expressly addressing this point, which Mr Li wilfully disregarded. In addition, as counsel for Loo & Koo acknowledge, a plaintiff is entitled to join defendants or those parties against whom he or she is able to identify a cause of action. It is only once the various causes of action have been determined, and it is known to what extent, if any, a plaintiff has been successful on them, as well as any appropriate relief being determined, that issues of “ranking” would be considered. Whether or not a claim against one defendant may be wholly redundant because recovery may be available from other defendants involves a range
39 Bradbury v Westpac Banking Corp, above n 40, at [27].
40 At [26].
41 At [29].
of factors, including the success or otherwise on claims against other defendants; the degree of such success; the relief granted on those claims; and the other defendants’ ability to pay. For example, and at least with reference to some of the relief sought by Mr Li, Mr Wang’s 19.75 per cent shareholding in 110 Formosa would not have been sufficient.
[134] Accordingly, I do not consider the mere fact of joining and pursuing a claim against Loo & Koo warrants indemnity costs. And putting aside the “ranking” issue, it is not suggested on behalf of Loo & Koo that the causes of action against it were so hopeless or lacking in merit that advancing them in and of itself justifies indemnity costs.
[135] I am also unpersuaded that the manner in which Mr Li elected to conduct his case put Loo & Koo to unnecessary expense, at least to the extent to warrant indemnity costs. Loo & Koo are correct that the manner in which Mr Li sought to demonstrate his beneficial interest in the $4.8 million was convoluted and complex, as my substantive judgment made clear. Nevertheless, this would not, in my view, have significantly increased Loo & Koo’s costs. Loo & Koo could shed no light on who owned the beneficial interest in the $4.8 million, and therefore would not have needed to incur significant time or costs dealing with that issue.
[136] Further, I accept Mr Li’s submission that the difficulties which arose around the pursuit of a free-standing negligence cause of action was unlikely to have caused Loo & Koo anything other than nominal additional costs. In fact, the issue only arose during counsel for Mr Li’s closing submissions, when it became apparent Mr Li purported to pursue a cause of action of negligence rather than breach of statutory duty. Loo & Koo were put, however, to the unnecessary expense of responding to the pleaded claim of breach of statutory duty, when in closing, it was accepted that such a claim was unsustainable. That cause of action was, however, added to Mr Li’s claim only a matter of days before the hearing. For that reason, it cannot have caused Loo & Koo to incur very significant additional costs. I consider a modest adjustment only to scale costs appropriately reflects these developments, namely a 10 per cent increase from scale for step 33 (preparation for the hearing).
[137] Nor am I persuaded the February 2018 settlement offer warrants indemnity costs after its expiry date. The offer was subject to Mr Li providing an indemnity in relation to any cross-claims. Loo & Koo must have considered there to at least be a risk of cross-claims, given it sought the indemnity. Because of this, and coupled with the fact the offer comprised a very modest contribution only to Mr Li’s claims against Loo & Koo, I do not consider it was wholly unreasonable for Mr Li to reject it.
[138] Finally, I do not consider the fact the claim was one of dishonest assistance in breach of trust, which ultimately failed, to warrant indemnity costs. This was not a case of alleging actual fraud or active dishonesty where there was no proper factual foundation for such serious allegations. Rather, the claim was pursued on the basis of “turning a blind eye”. While I did not accept that Loo & Koo turned a blind eye in the sense required in the authorities for dishonest assistance, as noted by the experts called for both parties, Loo & Koo’s conduct once the dispute arose as to ownership of the
$4.8 million did not reflect best practice.
[139] Ultimately, standing back and looking at these factors individually and combined, I do not consider they reach the high threshold set in Bradbury for the awarding of indemnity costs.
[140] There is accordingly a costs award in favour of Loo & Koo against Mr Li on a scale 2B basis, save for that increase to step 33 addressed at [136] above. Counsel ought to be able to readily recalculate the costs award based on the schedules attached to their respective submissions.
[141] Mr Li does not take issue with any of the disbursements sought by Loo & Koo. The costs award is therefore to include those disbursements set out in schedule D to Loo & Koo’s costs submissions.
Should a Sanderson or Bullock order be made?
[142] Mr Li also seeks an order that Mr Wang contribute, in whole or in part, to the costs orders against Mr Li in favour of any of the other defendants. Such orders are referred to as a Sanderson or Bullock order.42
[143] In this context, Mr Li says 110 Formosa, GBHL, JEHL and Loo & Koo would not have been involved in the proceedings but for Mr Wang’s wrongful conduct. Mr Li further says it was reasonable for him to join the remaining defendants to the proceedings, given Mr Wang’s involvement as a director and shareholder in each of JEHL, GBHL and 110 Formosa, and as a client of Loo & Koo.
[144] Sanderson and Bullock orders were considered in some detail by the Court of Appeal in Lane Group Ltd v D I & L Paterson Ltd. 43 In that case, Tipping J (with whom Henry J agreed) said the following:44
While it may have been reasonable for the plaintiff to join both defendants, that of itself does not entitle the plaintiff to an order that the unsuccessful defendant should pay the successful defendant’s costs, either directly (as a Sanderson order) or indirectly (as a Bullock order). The reasonableness of the original joinder is certainly a relevant factor. If such joinder was unreasonable the plaintiff cannot seek to pass costs payable by it to the successful defendant over to the unsuccessful defendant. Even if the joinder is reasonable at the outset, the position must also be looked at from the point of view of the unsuccessful defendant. If that party has done nothing to cause or contribute to the joinder of the successful defendant, that will be a point in its favour. The converse also applies. How the proceeding develops may well be relevant. Another factor which may be of moment comes into play if an unsuccessful defendant is found liable for significantly less than the claim made against both itself and the successful defendant. Such a situation will be relevant to the ultimate discretion because the costs payable in that event by the plaintiff to the successful defendant (based on the amount claimed) will be more than the costs payable by the unsuccessful defendant to the plaintiff (based on the amount recovered).
[145] If the decision to join other defendants was proper and reasonable, the Court has jurisdiction to consider whether, in the exercise of its broad discretion on costs, an
42 Named after Bullock v London General Omnibus Co [1907] 1 KB 264; Sanderson v Blyth Theatre Co [1903] 2 KB 533. A Bullock order requires a plaintiff to pay the successful defendant’s costs but allows full or partial recovery in the costs payable to the plaintiff by the unsuccessful defendant. A Sanderson order instead requires an unsuccessful defendant to pay directly the costs of the successful defendant.
43 Lane Group Ltd v D I & L Paterson Ltd [2000] 1 NZLR 129 (CA).
44 At [84]. Thomas J dissented.
unsuccessful defendant should shoulder all or part of the costs of a successful defendant.45
[146]Mr Li says Mr Wang’s wrongful conduct in misappropriating Mr Li’s
$4.8 million for his own benefit caused this litigation. However, in any litigation, the unsuccessful party’s conduct will have “caused” the litigation in a broad sense, which does not itself justify Sanderson and/or Bullock orders.
[147] I do not consider it was unreasonable per se for Mr Li to have joined 110 Formosa and Loo & Koo to these proceedings.46 Nevertheless, as made clear by the majority in Lane Group Ltd v D I & L Paterson Ltd, this does not itself entitle a plaintiff to Sanderson or Bullock orders. The position must also be looked at from the position of the unsuccessful defendant, in this case Mr Wang. The dispute at its core was between Mr Li and Mr Wang. Mr Wang did not cause or contribute to Mr Li’s decision to pursue his claims in a broad manner, which sought an interest in the underlying Formosa Property or damages from Loo & Koo. He had no control over the way in which Mr Li’s claims against 110 Formosa and Loo & Koo were progressed. Nor did he seek to attribute blame to any of the other defendants, a factor considered relevant in Lane Group.47
[148] Despite the above, however I consider it an appropriate exercise of my discretion that Mr Wang be ordered to contribute partially to the costs awards I have made against Mr Li in favour of 110 Formosa and Loo & Koo. While the legal basis for Mr Li’s claims against the defendants was not the same, that itself does not preclude such an order.48 As noted, it was not unreasonable for Mr Li to join 110 Formosa and Loo & Koo as defendants in these proceedings. As to 110 Formosa, Associate Judge Christiansen concluded there was an arguable basis for a claim in the underlying property.49 At relevant times, Mr Wang was also a shareholder and director of that company. The basis for joinder of Loo & Koo was less clear, particularly given the reasonably high threshold for dishonest assistance. Nevertheless, as Loo & Koo’s
45 At [89].
46 As GBHL and JEHL’s costs are very modest, I have excluded them from consideration of Bullock
or Sanderson orders.
47 At [92].
48 McDonald v FAI (NZ) General Insurance Company Ltd (2002) 16 PRNZ 298 at [33].
49 Li v 110 Formosa (NZ) Ltd [2017] NZHC 174 at [61].
own expert acknowledged, Loo & Koo’s conduct in the context of the dispute over the
$4.8 million (reflecting Mr Wang’s instructions), did not accord with best practice.
[149] Taking into account that it was not unreasonable to join 110 Formosa or Loo & Koo; the fact Mr Wang’s conduct, in a broad sense only, resulted in the need for these proceedings; that Mr Wang did not cause or encourage Mr Li to pursue his claim in the manner he did; and the result achieved by Mr Li compared to the amounts claimed,50 Mr Wang’s contribution to the successful defendants’ costs awards ought to be modest. I make a Bullock order that Mr Li’s costs award against Mr Wang be increased to include 20 per cent of the total costs award in favour of 110 Formosa and 10 per cent of the total costs award in favour of Loo & Koo.
Conclusion
[150]The following orders are made:
(a)A costs award against Mr Wang in favour of Mr Li on a 2B basis (albeit with a reduction on step 31 for the reasons at [95]), reduced by 20 per cent. There is also an award of disbursements, although excluding Mr Basrur and Mr Moore’s fees, and allowing recovery of only $15,000 of Mr Seagar’s fees;
(b)A costs order against Mr Li in favour of 110 Formosa on a 2B basis, plus disbursements;
(c)A costs order against Mr Li in favour of GBHL/JEHL on a 2B basis, plus disbursements;
(d)A costs order against Mr Li in favour of Loo & Koo on a 2B basis (with a 10 per cent increase from scale for step 33), plus disbursements; and
(e)A Bullock order that the costs award against Mr Wang in favour of Mr Li is to be increased to include 20 per cent of the total costs award
50 Lane Group Ltd v D I & L Paterson Ltd, above n 46, at [84].
in favour of 110 Formosa and 10 per cent of the total costs award in favour of Loo & Koo.
Fitzgerald J
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