Li v Xie
[2022] NZHC 2471
•28 September 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-1083
[2022] NZHC 2471
BETWEEN YUE LI
Plaintiff
AND
LING XIE
First Defendant
WEIBIN JIANG
Second DefendantX&J TRADING NZ LIMITED
Second Counterclaim Plaintiff
Hearing: On the papers Counsel:
MSP Pang for Plaintiff
SRG Judd for First Defendant
Judgment:
28 September 2022
JUDGMENT OF WOOLFORD J
[Costs]
This judgment was delivered by me on Wednesday, 28 September 2022 at 2:15 pm pursuant to r 11.5 of the High Court Rules.
Solicitors/Counsel:
Forest Harrison (S Chan), Auckland Integritas Law (MSP Pang), Auckland SRG Judd, Barrister, Auckland
LI v XIE [2022] NZHC 2471 [28 September 2022]
[1] This was a joint venture claim set down for a five day hearing commencing 4 July 2022. On the first day of the hearing, the parties settled, and I ordered accordingly:1
(a)The joint venture came to an end on 12 July 2019;
(b)The parties were to account for the profit/loss of the joint venture;
(c)Certain funds (“the funds”) were to be released into a solicitor’s trust account, to be used to pay debts of the joint venture companies with the parties’ consent;
(d)Costs were to be determined on the papers.
[2]Both parties now claim costs on this hearing.
[3] The proceeding continues; the parties have not yet succeeded in accounting for the profits and losses of the joint venture, and have requested an extension of time.2
Ms Li’s submissions
[4] Ms Li submits both parties sought an account, and this was reflected in the settlement. Therefore, the ordinary rule that costs should lie where they fall should apply.
[5] However, this must be considered in light of Ms Xie’s counterclaim of May 2021, which sought compensatory damages of $805,486.00. Ms Li submits this was wildly unrealistic and in terrorem, that is, an attempt to force a settlement by making an aggressive but baseless claim. This is an improper tactic that should be avoided.3
1 Li v Xie HC Auckland CIV-2020-404-1083, 4 July 2022.
2 Li v Xie HC Auckland CIV-2020-404-1083, 19 September 2022.
3 Citing Ellison v L [1998] 1 NZLR 416 (CA); upheld Harris v McIntosh HC Auckland M1475/98, 13 November 1998.
[6] Ms Xie sought leave to amend this counterclaim on 8 June 2022, but leave was never granted. Ms Li’s counsel therefore prepared for the hearing on the basis of the original counterclaim.
[7] The counterclaim was effectively abandoned shortly before trial. Ms Li submits the abandonment of a hopeless or improper cause of action will usually justify increased or indemnity costs, on the basis that it has unnecessarily contributed to the cost of the proceeding.4
[8] On this basis, Ms Li seeks 2B scale costs, uplifted by 25 per cent, for all steps taken from 25 May 2021, the date of Ms Li’s amended reply and statement of defence to the amended counterclaim.
Ms Xie’s submissions
[9] In her amended statement of defence and counterclaim dated 8 June 2022, Ms Xie abandoned her claim for damages, and sought a declaration that the joint venture ended on 12 July 2019, an order for an account of the joint venture on that basis, and for the funds be used to pay debts.
[10] On 19 April 2022, Ms Xie’s solicitors wrote to counsel for Ms Li, without prejudice save as to costs. That letter claims the joint venture ended on 11 July 2019. It indicates that, if proceedings continue, Ms Xie will seek an account or damages. Otherwise, it offers settlement on the following terms:
(a)The funds are used to pay debts;
(b)The claim and counterclaim are discontinued with no costs orders; and
(c)The parties will make no further claims against each other.
[11] On 13 June 2022, Ms Xie’s solicitors sent a second letter with an updated settlement offer. This letter suggested that an account would require Ms Li to pay
4 High Court Rules 2016, r 14.6(3)(b)(ii).
Ms Xie $60,312.10. Instead, Ms Xie offers to accept the lower sum of $40,000. The remaining terms are identical to those in the 19 April letter.
[12]On this basis, Ms Xie submits she is entitled to costs.
[13] First, she was the successful party. Ms Li pleaded breach of fiduciary duty and joint venture agreement, and unjust enrichment. She abandoned these claims. Ms Xie’s amended counterclaim sought an account of the joint venture. This was the outcome of the hearing.
[14]Alternatively, r 15.23 of the High Court Rules 2016 (“the Rules”) provides:
Unless the defendant otherwise agrees or the court otherwise orders, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance.
[15] The rule applies whether or not the plaintiff has formally discontinued, provided the plaintiff has indicated his or her intention to do so.5 Ms Xie submits it applies in this case.
[16] The rule does not, however, apply where discontinuance is simply the mechanism to give effect to a settlement agreement.6
[17] Finally, Ms Xie submits the two letters demonstrated Ms Li’s claim could not succeed, and made offers consistent with the eventual settlement. It was not reasonable for Ms Li to refuse these offers. Therefore, Ms Xie is entitled to an uplift of 50 per cent on the cost of steps taken after 19 April 2022, the date of the first letter.7
[18] Responding to Ms Li, Ms Xie submits it was obvious from the two letters that the counterclaim was no longer being pursued.
5 FM Custodians Ltd v Pati [2012] NZHC 1902 at [28].
6 Lendrum v Northern Presbytery [2020] NZHC 325 at [28].
7 High Court Rules, r 14.6(3)(v).
Law
[19]There is no rule that no order for costs may be made following settlement.
[20] Where the pleadings or terms of the settlement reveal a clear winner and loser, it will be straightforward for the judge to make an award of costs. However, the facts will often be insufficiently clear, or the settlement will represent compromise rather than the success of one party over the other. Where, based on a “perusal of the papers” there is no good reason to award costs, the “fall-back position” is to let costs lie where they fall.8
Discussion
[21] Fundamentally, Ms Li submits the parties settled, while Ms Xie considers Ms Li effectively conceded defeat. The issue is whether it is possible, on the basis of the available materials, to determine which stance is correct without the benefit of a hearing.
[22] On the original claim and counterclaim, both parties sought damages for various breaches, but ultimately settled on an account of profits. Neither party was successful, and costs should lie where they fall, at least until 19 April 2022.
The settlement offers
[23] Ms Xie invites me to find that the letter of 19 April 2022 effectively withdrew the original counterclaim. However, no attempt to amend the counterclaim was made until 8 June 2022, less than a month before the hearing. Ms Xie’s pleaded case remained the same. The settlement offers do not necessarily imply the counterclaim was withdrawn; settlement offers are compromised alternatives to pleaded claims for damages.
[24] Given the apparent inconsistency between the position described in the first letter and the counterclaim, there may be some truth in Ms Li’s argument that the
8 Ng v Pauatahanui GS Ltd [2014] NZHC 3396 at [8] and [11]; citing Brawley v Marczynski & Anor (No 1) [2002] EWCA Civ 756, [2003] 1 WLR 813; and BCT Software Solutions Ltd v C Brewer & Sons Ltd [2003] EWCA Civ 939.
counterclaim was improperly inflated for tactical purposes. However, this is a factual question that is difficult to resolve without a hearing.
[25] While the letters offer a reasonable compromise, they are not entirely on the terms as agreed. The letters suggest what the outcome of an account would look like, and offer to settle on that basis. But the parties did not agree on this outcome; they agreed to work together on an account.
[26] This does not appear to have been a simple process; the parties have yet to agree on the account and have requested an extension of time. In the meantime,
Ms Xie has obtained freezing orders over Ms Li’s property.9
[27] Given the process continues, it is impossible to say whether it was reasonable for Ms Li to reject Ms Xie’s account of the joint venture.
The amended counterclaim
[28] I note that, despite Ms Li’s claim to have prepared for the hearing on the basis of the counterclaim, the opening synopsis states:
The Defendant previously sought relief of $805,486.00 in her original counterclaim pleadings… The Counterclaim Plaintiffs are now merely seeking an account, and they have appeared to have abandoned the
$805,486.00 claim of loss of business value.
[29] The amended counterclaim is in substantially the same terms as the settlement agreement. The final issue is whether the amended counterclaim counts. Although Ms Li seems to have treated the amended counterclaim as having been validly filed, no leave was granted to file the amended counterclaim, so it does not count for costs purposes.
[30] Costs should therefore also lie where they fall from 19 April 2022 to the commencement of the hearing on 4 July 2022.
Woolford J
9 Li v Xie HC Auckland CIV-2020-404-1083, 19 August 2022.
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