Li v EJ Holdings Limited
[2021] NZHC 1830
•20 July 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-2041
[2021] NZHC 1830
BETWEEN NING LI
Plaintiff
AND
EJ HOLDINGS LIMITED
First Defendant
HEYDAY INTERNATIONAL LIMITED
Second DefendantFANSHENG MENG
Third DefendantSHAOYING SUN
Fourth Defendant
Hearing: On the papers Appearances:
H McDermott for the Plaintiff
W McCartney for the Defendants
Judgment:
20 July 2021
JUDGMENT OF GORDON J
[As to costs]
This judgment was delivered by me on 20 July 2021 at 2 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors: Righteous Law, Auckland
Carson Fox Legal, Auckland
Counsel: W McCartney, Auckland
LI v EJ HOLDINGS LTD [2021] NZHC 1830 [20 July 2021]
Introduction
[1] This is an application for costs by the defendants, EJ Holdings Limited, Heyday International Limited, Fansheng Meng and Shaoying Sun.
[2] In my judgment of 13 February 2020, I refused an application by the plaintiff, Ning Li, for freezing orders against the defendants. I found Ms Li was unable to establish a good, arguable case for any of her four causes of action: prejudice to a minority shareholder; breach of fiduciary duty as directors; conversion; and unjust enrichment. Nor was there a real risk of dissipation of assets by the defendants.
[3] The parties were not able to agree costs and in accordance with my direction they filed separate costs memoranda on 25 February 2020 and 5 March 2020.1 As is apparent, there has been a significant delay in costs being determined. The usual processes were not followed by the case officer concerned. As a consequence the memoranda were not provided to me until 16 July 2021. The Registry has apologised to counsel for this unacceptable lapse.
Background
[4] Ms Li lives in China. Her claim is she invested NZD 780,000 in the first defendant, EJ Holdings Ltd. She heard about EJ Holdings Ltd through Kenghong Li, who was her classmate at school in China. He told her he owned a furniture business in New Zealand. Mr Li said Ms Li’s investment would assist her daughter’s application to attend New Zealand schools.
[5] Ms Li claimed Mr Li convinced her to invest in EJ Holdings Ltd. He said it was a good investment and told her to transfer the money for the investment into his personal bank account in China to avoid any complicated international money transfer procedures and for convenience.
[6] Between 19 March 2017 and 8 May 2017, Ms Li transferred NZD 750,000 to Mr Li’s personal bank account. Mr Li also asked Ms Li to transfer NZD 30,000 in rent to EJ Holdings’ bank account. Ms Li did not know what the money was used for
1 Li v EJ Holdings Ltd [2020] NZHC 146 at [64].
or where it went. Mr Li said Ms Li would receive 20 per cent shares in EJ Holdings. Ms Li signed a shareholder agreement and then transferred NZD 250,000 afterwards.
[7] In August 2018, Ms Li heard that Mr Li had fled New Zealand with EJ Holdings’ money. Ms Li asked Mr Meng and Mr Meng confirmed that Mr Li had left. Mr Meng said Mr Li had tricked more than 30 people into paying around NZD 7 million for his business.
[8] As a result of these circumstances, Ms Li believed that Mr Li was acting as the agent for EJ Holdings, Mr Meng and Mr Sun. She believed EJ Holdings had never traded and instead the business was operated by Heyday International Ltd. She also believed her investment funds were used by Mr Li and Mr Meng to finance Heyday International and that EJ Holdings was a shell company, which had never traded.
[9] Along with her statement of claim, Ms Li filed an interlocutory application without notice for a freezing order over: all physical assets of the defendants; all bank account deposits of the defendants; and all furniture stock held in the warehouse by the defendants. As noted in [2] above, I refused the application.
Submissions
Defendants’ submissions
[10] Mr McCartney, for the defendants, seeks increased costs on standard 2B costs, with a 50 per cent uplift, totalling $10,894.12. He says increased costs are warranted under r 14.6(3)(b)(ii) of the High Court Rules 2016 (HCR). Mr McCartney submits that Ms Li’s application for a freezing order should not have been made. He says there was never any cogent evidence that there was a real risk of dissipation of assets.
[11] Further, Mr McCartney says in the judgment I did not find Ms Li had a good arguable case on any of her four causes of action. He says Ms Li would have known it was Mr Li who caused her loss, not the defendants.
[12] Mr McCartney certifies that the total claimed ($10,894.12) is less than the defendants’ actual costs. Mr McCartney also seeks disbursements in the sum of
$139.12.
Plaintiff ’s submissions
[13] Ms McDermott, for Ms Li, says that the costs claimed by Mr McCartney are unjustified and unfair. She says it is clear the four defendants attempted to mislead Ms Li as to the value of her investment and what happened to her investment.
[14] Ms McDermott submits that costs should be awarded on a 2B basis, rather than increased costs.
Law
[15] The costs granted to a successful party are discretionary pursuant to r 14.1 of the High Court Rules 2016 (HCR). A party is not entitled to an award of costs that exceeds the actual costs incurred.2 Costs should be assessed by applying the appropriate daily recovery rate to the time considered reasonable for each step reasonably required in relation to the proceeding or interlocutory application.3
[16] The court may order increased costs under r 14.6(1)(b) where one or more of the requirements in r 14.6(3)(b) is satisfied. Rule 14.6(3)(b)(ii) provides that increased costs may be warranted where the party opposing costs has contributed unnecessarily to the time or expense of a proceeding or step in it by pursuing an argument that lacks merit.
[17] When assessing whether to grant increased costs, the court generally will consider behaviour during litigation, not before it.4 This Court is required to consider the extent to which the failure to act reasonably contributed to the time or expense of the proceeding.5 That extent influences whether an uplift is justified.6
2 High Court Rules 2016, r 14.2(1)(f).
3 Rule 14.2(1)(c).
4 Paper Reclaim Ltd v Aotearoa International Ltd [2006] 3 NZLR 188 (CA) at [160].
5 Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2010] NZCA 400, (2010) 24 NZTC 24,500 at [165].
6 At [165].
Analysis
Scale costs
[18] As the successful parties, the defendants are entitled to costs. Both counsel accept that 2B standard costs are appropriate for this proceeding. I agree. Mr McCartney sets out the time allocations in the “schedule of costs” which I have reproduced and which is attached to this judgment as “Table A”. I accept those steps were taken.
[19] The disbursements Mr McCartney claims of $95.65 for the filing fee for a notice of opposition and $43.47 for sealing the order are appropriate under r 14.12(2).
Increased costs
[20] Mr McCartney claims increased costs by way of a 50 per cent uplift on the 2B standard costs.
[21] I do not consider that an uplift on standard 2B costs is warranted for this proceeding. The Court would not grant an uplift simply because Ms Li made an application that failed.7 Although I did not grant Ms Li’s application for a freezing order because she was unable to establish a good arguable case on any of her four causes of action, and because she had not established a real risk of dissipation of assets by the defendants, those findings do not justify an uplift of 50 per cent. Ms Li was able to advance submissions in relation to each cause of action. The arguments were not strong and I did not accept them but they were not completely devoid of merit. Ms Li was similarly able to make arguments which she submitted demonstrated a risk of dissipation of assets. I did not accept the arguments but again they were not completely meritless. I considered that certain points made by Ms Li might indicate poor practice by directors of the company towards a shareholder but they did not suggest a risk of dissipation of assets.8
7 Helilogging Limited (in rec and liq) v Civil Aviation Authority of New Zealand [2021] NZHC 1676 at [28].
8 Li v EJ Holdings Ltd, above n 1, at [60].
[22] In comparison, and by way of example, in NR v MR the majority of the Court of Appeal characterised the appellant’s claims as “devoid of merit” and “unnecessary”.9 In that case, the appellant had appealed to the Court of Appeal after being told their claims were meritless in the High Court.10 The majority uplifted costs by 50 per cent to reflect the unnecessary steps and arguments that lacked merit.11
[23] A further example is Baker v Waimakuku Whanau Trust Board Inc, where Associate Judge Gendall granted a 50 per cent uplift on a 2B standard costs award for an unsuccessful joinder application.12 The High Court described the application as a “collateral attack” and an “abuse of process”.13
[24] While Ms Li failed in her application, in light of the above considerations, I do not find that increased costs with an uplift of 50 per cent are justified in this proceeding. Nor, for completeness, is a smaller uplift warranted. A costs award of standard 2B costs against Ms Li is appropriate.
Result
[25] I order costs in favour of the defendants in the sum of $7,279.11 against Ms Li ($7,170.00 in 2B standard costs and $139.12 in disbursements).
Gordon J
9 NR v MR [2014] NZCA 623, (2014) 22 PRNZ 636 at [51].
10 At [51].
11 At [53].
12 Baker v Waimakuku Whanau Trust Board Inc HC Napier CIV-2020-441-581, 13 October 2011 at [20].
13 At [19].
Schedule of Costs
Table A
Item
Description
Days
Amount at 2B
Amount at 2B x 1.5
Costs
12
Appearance at first call
0.2
478.00
717.00
23
Filing notice of opposition
0.6
1434.00
2151.00
24
Preparing written submissions
1.5
3585.00
5377.50
26
Appearance at hearing of defended application
0.5
1195.00
1792.50
29
Total
2.8
$7,170.00
$10,755.00
Disbursements
Filing fee notice of opposition
95.65
95.65
Sealing order
43.47
43.47
Total
$7,279.11
$10,894.12
3
0