LJ Group New Zealand Limited v New Zealand Capital Management Limited
[2024] NZHC 1564
•14 June 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2023-404-2048
[2024] NZHC 1564
BETWEEN LJ GROUP NEW ZEALAND LIMITED
Plaintiff
AND
NEW ZEALAND CAPITAL MANAGEMENT LIMITED and
BRIDGING FINANCE GROUP LIMITED
First DefendantsOJI FIBRE SOLUTIONS (NZ) LIMITED
Second Defendant
Hearing: (On the papers) Judgment:
14 June 2024
COSTS JUDGMENT OF VENNING J
This judgment was delivered by me on 14 June 2024 at 11.00 am pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Ewart & Ewart, Auckland
Aspiring Law, Wanaka
Lee Salmon Long, Auckland
Counsel: S R G Judd, Auckland
S Moore/L Yang, Auckland
LJ GROUP NZ LIMITED v NZ CAPITAL MANAGEMENT LTD and BRIDGING FINANCE GROUP LTD [2024] NZHC 1564 [14 June 2024]
Introduction/background
[1] LJ Group New Zealand Limited (LJ Group) commenced these proceedings seeking urgent orders restraining the registration of a transfer in the exercise of a power of sale in relation to a property at 133 Kawakawa Road, Kinloch (the Kinloch property).
[2] LJ Group purchased the Kinloch property in March 2014. Subsequently, in 2018 LJ Group obtained finance from the first defendants, New Zealand Capital Management Limited and Bridging Finance Group Limited (NZ Capital) and granted a mortgage over the Kinloch property to secure the advance. Ultimately LJ Group fell into default and NZ Capital took steps to sell the Kinloch property as mortgagee. The purchaser under the mortgagee sale was the second defendant, Oji Fibre Solutions (NZ) Limited (Oji). At the time it issued the proceedings LJ Group was not aware of the identity of Oji as purchaser.
[3] On 11 September 2023, Muir J made “interim interim” injunction orders restraining registration of the transfer in exercise of the power of sale. Muir J extended those orders on 14 September 2023 when directing that the application was to proceed on notice.
[4]The on notice application was scheduled for hearing on 13 February 2024. On
31 January 2024, the plaintiff’s original solicitor and counsel sought leave to withdraw. On 5 February 2024, Downs J granted that application. Nevertheless, as a courtesy, Mr Liu, LJ Group’s solicitor, filed a memorandum requesting an adjournment of the fixture to enable LJ Group to instruct replacement solicitors.
[5] The application came before Robinson J on 13 February 2024. The Judge was not minded to grant the plaintiff’s application for adjournment, noting the interim orders had already inconvenienced the defendants. The Judge rescinded the “interim interim” orders made by Muir J on 14 September 2023 and dismissed the plaintiff’s application for interim injunction.
[6] Robinson J directed the issue of costs was to be dealt with by way of an exchange of memorandum. Memoranda in relation to costs have been exchanged and were referred to me as duty Judge on 11 June 2024.
[7] As an aside, I note that LJ Group has instructed an alternative solicitor and counsel and an amended statement of claim against NZ Capital has been filed. On 11 June 2024 the Court made directions to progress the amended pleading. LJ Group has discontinued its substantive claim against the second defendant purchaser. The costs in relation to that are yet to be resolved.
[8] This costs judgment is restricted to the issue of costs in relation to LJ Group’s application for interim injunctive relief which, as noted, has been dismissed and the “interim interim” orders have been set aside.
Parties’ positions
[9] NZ Capital seeks an order LJ Group pay indemnity costs of $49,510.23. It also seeks to enforce the plaintiff’s undertaking as to damages by way of an order that LJ Group compensate them for the management time wasted in dealing with the application. NZ Capital puts a value on that of $25,665.00.
[10] Oji seeks indemnity costs in respect of LJ Group’s unsuccessful application for interim injunction. Alternatively it seeks an uplift of 50 per cent on scale costs. It calculates scale costs at $13,503.50 on a 2B basis.
[11] LJ Group submits that the decision on NZ Capital’s costs should be reserved until judgment on the substantive claim in its amended statement of claim in relation to NZ Capital’s actions. Alternatively, if costs are to be fixed now it submits they should be on a 2B scale basis. It also says the claim for damages lacks evidential support or merit and should be dismissed.
[12] In relation to Oji’s application for costs LJ Group submits that costs on a 2B scale and disbursements are appropriate. It accepts Oji’s calculation of scale costs of
$13,503.50.
NZ Capital’s application for costs
[13] NZ Capital seek indemnity costs on the basis that LJ Group acted vexatiously, frivolously, improperly or unnecessarily in commencing and continuing the proceeding; or that some other reason exists, namely LJ Group’s non-compliance with the Court directions, which justifies the Court making an order for indemnity costs.1
[14] Alternatively, LJ Group says it is entitled to indemnity costs under the loan contract.2
[15] Mr Judd submitted there was no excuse for LJ Group’s delay in commencing the proceeding which led to the initial urgency for NZ Capital to respond at short notice. LJ Group had allowed the mortgagee sale to progress through a full marketing campaign, tender process, negotiation, contract and settlement before applying to the Court. At no point prior to applying to the Court did it advise NZ Capital of the claims it then made in the proceedings. The defendants, including NZ Capital, were put to considerable cost to respond in a very short timeframe. As to the merits, he submitted it was not seriously arguable that Mr Zeng (on behalf of LJ Group) could not understand what it was required to do to remedy the defaults. The application for interim injunction was always doomed to ultimately fail.
[16] Next, it is submitted LJ Group failed to provide full disclosure to the Court when it made its without notice application. In his affidavit Mr Zeng failed to disclose the real reason he borrowed the money from the first defendants and, importantly, failed to disclose his own attempt to sell the property by tender in 2020. During that process Mr Zeng had not obtained a higher offer than the price ultimately achieved by NZ Capital. That was a serious omission given the reliance placed in submissions that the property was sold at an under value. Overall NZ Capital submits LJ Group acted vexatiously, frivolously, and improperly in commencing the proceeding.
1 High Court Rules 2016, r 14.6(4)(a) and (f).
2 High Court Rules 2016, r 14.6(4)(e).
[17] Mr Judd also noted that LJ Group had a history of non-compliance with obligations which increased the cost to all parties.
[18] Alternatively, NZ Capital relies on the following clauses in the term loan agreement:
Clause 7(f): Costs of default are payable: All sums expended by the lender in the exercise of the lender’s rights and powers following a default or in exercising or enforcing or attempting to enforce any power, right or remedy contained or implied in this contract are payable by you to the lender upon demand. This clause does not limit any other term of this contract relating to costs; nor is it limited by any other such term.
…
Clause 12(a): Costs payable by you: You must pay to the lender upon demand, the lender’s legal costs (as between solicitor and client) for:
…
iicosts on default: legal services arising from or related to any default this contract or the enforcement or exercise or attempted enforcement or exercise of any of the lender’s rights, remedies and powers under this contract …
iiicosts of variation, waiver or change demand …
ivlegal costs of lender: legal services relating to the protection of the lender’s security interest taken in conjunction with this contract …
[19] Mr Judd submitted the legal costs of defending LJ Group’s claim in opposing its attempt to stop the sale were costs “arising from or related to any default under this contract” and “legal services related to the protection of the land as security”.
[20] In response, LJ Group submits any decision on the costs sought by NZ Capital should be reserved until findings on its substantive claim against NZ Capital are made. It says that it had late knowledge of the mortgagee sale and an overall lack of information that limited its options to protect its interests in the Kinloch property. LJ Group suggests that the voluminous pages of evidence attached to the affidavits of NZ Capital and Oji are indicative of the complexity of the matter in issue. It submits the substance of the claim and the application were intertwined given the lawfulness of the mortgagee sale itself, which is antecedent to the application’s attempt to prevent
the transfer of the property, remains a formal point of contention. The application for injunction should not be treated separately.
[21] LJ Group next submits that NZ Capital is not able to rely on the provisions in the loan contract, as that presupposes LJ Group was irrevocably in default and the subsequent mortgagee sale was lawful, both of which are yet to be determined and are central to the dispute in the existing proceeding between LJ Group and NZ Capital.
Analysis – NZ Capital’s claim for costs
[22] Mr Zeng’s explanation for failing to respond to the voluminous email correspondence from NZ Capital regarding LJ Group’s defaults, which commenced in early 2003, is that March 2023 was a particularly “tumultuous month” for him and his family. He says he did not have time to check his email accounts and did not see the emails until about 28 April 2023 and then asked for a bank account number to make the necessary catchup payments.
[23] But as Mr Smith confirmed, the payments under the mortgage had all been made by direct debit. There was no reason why any further payment LJ Group may have wanted to make to clear the arrears could not also have been made by direct debit. Further, Mr Zeng was well aware of the consequences of default. He had represented himself to NZ Capital as an experienced property dealer. When he made the application for funding he referred to numerous properties and stated his assessed equity in the various properties was in excess of $13 million. He held himself out as a principal of an LJ Hooker real estate branch.
[24] Mr Zeng’s explanation for not responding to the numerous emails pointing out the default and the consequences and the suggestion he was unaware of his obligations and how to address them simply does not bear scrutiny.
[25] Further, as Mr Smith’s evidence confirms, Mr Zeng had attempted to sell the property by tender which he omitted to advise the Court of when making the application for injunction. I accept that the application for an interim injunction against NZ Capital to prevent it from completing a mortgagee sale was, in the
circumstances, improper in that Mr Zeng failed to provide particularly material information to the Court.
[26] Further, I also consider NZ Capital is entitled to rely on the provisions in the loan agreement. NZ Capital incurred unnecessary costs in responding to the application for interim injunction which are covered by the clauses referred to. LJ Group does not expressly challenge the application of the clauses in the agreement but rather argues the issue of costs should be deferred. The short point is that the interim injunction which sought to prevent the completion of the sale process was ultimately dismissed. In the event LJ Group succeeds at trial it will be entitled to damages and costs. That does not prevent the Court dealing with the issue of costs on the unsuccessful application for injunction which should be fixed and determined now. It was an interlocutory application which has been finally resolved against LJ Group.
[27]On either basis, NZ Capital is entitled to indemnity costs.
Undertaking damages
[28] NZ Capital also seeks to enforce the undertaking. It seeks damages in the sum of $25,665. LJ Group challenges that claim. It submits that it is effectively a costs claim rather than a damages claim which is not claimable under the term loan agreement.
[29] NZ Capital’s damages’ claim is based on Mr Smith’s time spent on the proceeding.
[30] In my judgment it is not appropriate for the Court to try and determine the issue of damages in relation to the undertaking on the papers. NZ Capital’s claim for damages in reliance on the undertaking should properly be pursued by way of counterclaim in the proceedings brought by LJ Group in response to the amended claim. Mr Smith can give evidence to support the claim and be cross-examined on the issue. It is appropriate that issue be left to be canvassed at the substantive hearing.
Result – NZ Capital’s claim for costs and damages
[31] LJ Group is to pay NZ Capital’s costs in the sum of $49,510.23. The costs are to be paid from the funds held as security by the stakeholder, Aspiring Law.
[32] The application for damages sustained by NZ Capital consequent on the undertaking is declined at this time but without prejudice to NZ Capital’s rights to seek damages in reliance on the undertaking in the substantive proceedings between the parties.
OJI’s application for costs
[33] Oji also seeks indemnity costs pursuant to r 14.6(4). It submits LJ Group’s application was misconceived, improperly continued and was abandoned just before the hearing. It makes the following points:
(a)LJ Group filed the application for interim injunction at the last possible moment, having sat on its rights for four and a half months.
(b)There was never any question that Oji was anything other than a bona fide purchaser for value without notice.
(c)LJ Group was on notice of the difficulties it faced regarding the balance of convenience from the outset.
(d)Indemnity costs may be awarded on the basis of flagrant misconduct where a party has pursued a hopeless case. Here the application was not pursued. It was a hopeless case.
(e)LJ Group’s approach has caused both the Court and Oji to incur wasted costs and time.
(f)LJ Group was directed to file submissions in advance of the hearing and failed to comply.
(g)There was no appearance for LJ Group at the hearing which could have been avoided entirely had it acted appropriately.
[34] Oji seeks indemnity costs of $55,234.75 together with $232.23 for disbursements. Alternatively, Oji seeks increased costs by way of an uplift of 50 per cent on scale, on the basis the LJ Group pursued an unmeritorious application against it only to abandon it prior to hearing.
[35] Again, LJ Group’s explanation for its perceived inaction is due to its late knowledge of the mortgagee sale and overall lack of information. It says it was only when the second defendants’ supporting affidavits were filed in mid-October that it had received the pertinent information. It says it had no knowledge of the purchaser or the overall mortgagee sale process, or whether Oji was bona fide. It says Oji’s branding of LJ Group’s attempt as meritless is unduly critical and severe.
[36] LJ Group says it had concerns as to the actions of NZ Capital as mortgagee and was effectively required to try and prevent the registration of the transfer to Oji, (whose identity it was unaware of) if it was to protect its position.
[37] LJ Group also makes the general observation that Robinson J did not indicate it had taken unnecessary steps or made unnecessary arguments so it could not be said its claim was hopeless. The fact it was a losing claim is insufficient. When legally represented LJ Group acted promptly and discontinued the substantive proceeding against the second defendant. It says that Oji could have clarified its position by providing relevant information earlier.
[38] Plainly, and as conceded, Oji is entitled to costs against LJ Group. Again the issue is whether it can be said LJ Group acted vexatiously, frivolously, improperly or unnecessarily in seeking the interim relief against Oji.
[39] LJ Group’s justification for taking proceedings against Oji is that the sale price of $2.6 million was so low relative to the land’s apparent value that, absent any evidence and sensible explanation about the sale process, it raised the question whether Oji was or should have been on inquiry or that there was something amiss in
the sale process. But again, it is particularly relevant that, as noted by Mr Smith (not Mr Zeng), Mr Zeng and LJ Group had sought to sell the property by tender in November 2020 with tenders ranging from $800,000 plus GST to $2,550,000 plus GST (that offer being subject to variations being completed to the Deed of Encumbrance and a forest right with the Lake Taupo Protection Trust and transfer of nitrogen discharge allowance, neither of which occurred).
[40] In the circumstances, if that earlier attempt to sell and the results had been disclosed by Mr Zeng, there could have been no basis upon which the claim against Oji as purchaser could have been responsibly pursued. The application insofar as it related to Oji was unmeritorious.
[41] It follows I accept that LJ Group’s claim against Oji was itself frivolous, vexatious or brought improperly. Indemnity costs are appropriate. The point must be made that a party’s obligation to provide full disclosure on without notice applications must be complied with.
[42] While LJ Group failed to comply with directions of the Court in relation to preparation for the hearing, that had its own consequences in that the interim injunction was set aside. On its own that would have been insufficient to support an award of indemnity costs.
[43] However, for the above reasons, I am satisfied that an award of indemnity costs is appropriate in this case.
Result
[44] LJ Group is to pay Oji Fibre Solutions (NZ) Limited against LJ Group New Zealand Limited costs in the sum of $55,234.75 together with disbursements of
$232.33.
[45] The costs and disbursements are to be paid from the sum held as security by the stakeholder, Aspiring Law.
Venning J
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