Lu v Gong
[2022] NZHC 3588
•22 December 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-000869
[2022] NZHC 3588
IN THE MATTER OF an application under Section 339 of the Property Law Act 2007 BETWEEN
XIAOBING LU
First Applicant
JINGLI CAI
Second Applicant
AND
YIJUN GONG
Respondent
On the papers Counsel: K K Sun for the applicants
M S P Pang and P C Nikolaou for the respondentJudgment:
22 December 2022
JUDGMENT OF VAN BOHEMEN J
[on applications for costs in proceeding settled by agreement]
This judgment was delivered by me on 22 December 2022 at 4.00pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date: ………………………….
Solicitors/Counsel:
Capstone Law Limited, Auckland Integritas Law Firm, Auckland
XIAOBING LU v YIJUN GONG [2022] NZHC 3588 [22 December 2022]
[1] A dispute over a property at 55 Harris Drive, Silverdale, Auckland (the Property) gave rise to two proceedings: Gong v Lu (the First Proceeding)1 and Lu v Gong (the Second Proceeding).2
[2] The principal dispute between the parties has been resolved by agreement in a Consent Order dated 26 October 2022.3 As set out in the Consent Order, the parties have agreed procedures for the sale of the Property and for an accounting of the proceeds, including with respect to any income tax payable by the respondent in respect of capital gains arising from the sale of the Property.
[3] Counsel for the parties have now filed memoranda seeking costs against the other’s clients in relation to both proceedings.
[4]Both claims are without merit and impose needlessly on the Court’s time.
Relevant background
[5] In May 2018, Xiaobing Lu and Jingli Cai (the applicants) and Yiyun Gong (the respondent) entered into a property agreement (Property Agreement) for the purchase of the Property for the sum of $1,218,800.
[6]Under the Property Agreement:
(a)the applicants and the respondent were each to contribute 50 per cent of the purchase price – the respondents by way of lump sum; the applicant by way of a loan secured by a mortgage over the Property;
(b)the applicants and the respondent were each to own 50 per cent of the Property; and
1 Gong v Lu HC Auckland CIV-2022-404-292.
2 Lu v Gong HC Auckland CIV-2022-404-869.
3 Lu v Gong HC Auckland CIV-2022-404-869, 26 October 2022 (Consent Order).
(c)the sale of the Property was to be discussed and agreed by the parties; in principle, the Property was not to be sold within five years from the date of settlement except due to force majeure.
[7] The applicants say that, because the respondent did not have a right to residency in New Zealand, the applicants’ lender was not prepared to advance the funds if the respondent was on the title to the Property. To satisfy those concerns, the respondent agreed that the Property should be registered in the names of the applicants only and to sign a declaration acknowledging that she had gifted $590,000 to the applicants. Even so, the applicants say it was understood between the parties that the applicants and the respondent each owned 50 per cent of the Property.4
[8] The applicants say the reason for the restriction on the sale of the property within five years was to avoid liability for income tax on any capital gains.
[9]The respondent disputed various aspects of the above account.
[10] After settlement of the purchase in July 2018, the applicants, the respondent and the respondent’s daughter moved into the Property. The respondent moved out of the Property at around March 2019. Her daughter stayed on until around May 2021, when she too left.
[11] At some point after this, the respondent sought a sale of the property. The parties were unable to reach agreement on selling the Property.
The proceedings
[12] On 23 February 2022, the respondent filed the First Proceeding. The respondent pleaded four causes of action:
(a)breach of trust in respect of the respondent’s half interest in the Property;
4 In aggregate, the respondent paid $610,000 or 49.91 per cent of the purchase price. The applicants provided 50.09 per cent of the total funding.
(b)a claim for repayment of an amount, $124,800, advanced by the respondent to the applicants, plus interest;
(c)a claim for repayment of an amount, $25,000, advanced by the respondent to Jingli Cai, plus interest; and
(d)a claim for repayment of an amount, RMB 250,000, advanced by the respondent to Jingli Cai, plus interest.
[13] In a statement of defence dated 1 June 2022, the applicants denied key allegations made by the respondent under all four causes of action.
[14] In June 2022, before any case management conference had been held with respect the First Proceeding, the applicants sought leave to commence the Second Proceeding by way of originating application. In a memorandum in support of the application, Mr Sun, counsel for the applicants, informed the Court the applicants had paid into the respondent’s solicitor’s trust account a sum sufficient to meet the claims in the second, third and fourth causes of action in the First Proceeding, and the only remaining issue for resolution by the Court concerned the sale of the Property. He submitted this was best achieved by way of originating application.
[15] On 17 June 2022, leave was granted to commence the Second Proceeding by way of originating application, with costs reserved.
[16] On 29 June 2022, the Second Proceeding was called in the Duty List before Peters J who recorded that, Mr Pang, counsel for the respondent, informed her that many of the issues between the parties had been resolved and that, while there might be an issue as to costs, it was hoped that too could be resolved by agreement.5
[17] On 7 July 2022, in accordance with timetable directions made by Peters J, Mr Sun and Mr Pang filed a joint memorandum seeking, by consent:
(a)timetable directions for the Second Proceeding;
5 Lu v Gong HC Auckland CIV-2022-404-869, 30 June 2022).
(b)an order consolidating the First Proceeding and the Second Proceeding; and
(c)timetable directions for the filing of memoranda on costs on the second, third and fourth causes of action in the First Proceeding on the basis the respondent was discontinuing those causes of action which were unrelated to the sale of the Property.
[18]On the same day, Powell J made the orders requested.6
[19] Counsel duly filed their memoranda on costs. Ms Cai also filed an affidavit in support of the applicants’ position.
[20] The memoranda of counsel and related papers were referred to Lang J for decision. However, Lang J declined to determine costs on the second, third and fourth causes of action in isolation and directed that they should be fixed once all causes of action in the First Proceeding had been settled or determined.7
The substantive dispute
[21] The parties’ claims with respect to the sale of the property were set down for hearing before me on 12 October 2022.
[22] It was apparent from submissions filed in advance of the hearing that, despite competing claims about the interpretation of the Property Agreement and cross- allegations of cancellation and repudiation of the Property Agreement, there was no real disagreement between the parties over the fact that the Property should be sold and the proceeds divided, subject to resolution of various ancillary issues. The issues principally in dispute concerned the processes for marketing and selling the Property. Both sides were concerned to secure as high a price as possible but were conscious of the declining Auckland property market. The primary questions at issue were the identity of real estate agent who should market the property, the setting of the reserve
6 Lu v Gong HC Auckland CIV-2022-404-869, 7 July 2022.
7 Lu v Gong HC Auckland CIV-2022-404-869, 15 September 2022.
price and the mechanism for adjusting the reserve price if a sale did not become unconditional within a specified timeframe.
[23] At the hearing, I pointed out to counsel that these were not inherently legal issues and should not require decisions by the Court. I also offered my views on some of the ancillary issues in contention. I adjourned the hearing to enable counsel to engage with the parties.
[24] When the hearing resumed, counsel advised they had taken instructions and had reached agreement on the terms of an order for sale of the Property that could be made by consent. Mr Sun outlined the terms of the agreed order but asked for time to provide the Court with the agreed language of the order. Despite further delays after counsel filed memoranda on the need for further time, a draft Consent Order was filed on 20 October 2022. The Consent Order was sealed on 26 October 2022.
[25]The Consent Order does not address costs.
The applications for costs
[26] Following the Consent Order, Mr Sun filed a memorandum seeking increased costs against the respondent in respect of both the substantive dispute over the sale of the Property and the second, third and fourth causes of action in the First Proceeding.
[27] Mr Sun also referenced the affidavit of Ms Cai filed in support of the applicants’ claim for costs that Lang J had declined to determine. In that affidavit, Ms Cai described and provided copies of four Calderbank offers8 made by the solicitors for the applicants between 28 January 2022 and 30 March 2022 to resolve the matters in dispute with the respondent. Ms Cai also provides copies of responses from the solicitors for the respondent rejecting these offers.
[28] The Calderbank offers were addressed principally to the processes for selling the Property and the division of the proceeds. The initial three offers also included proposals for the payment of the sums claimed under the second, third and fourth
8 Offers made “Without prejudice save as to costs” in accordance with Calderbank v Calderbank [1976] Fam 93 (CA).
causes of action in the First Proceeding. Under those proposals, the applicants offered to pay interest in specified amounts and rates upon payment of the sums at issue on the date of settlement of the sale of the Property.
[29] Mr Sun says that, with the exception of a lower reserve price, the terms of the Consent Order are substantially the same as those in the Calderbank offers and that, if the respondent had accepted the offers, the respondent would have received more money from a sale of the Property than they will receive from a sale of the Property in accordance with the Consent Order.
[30] Mr Sun also says that if the respondent had accepted the proposals in the Calderbank offers relating to the claims under the second, third and fourth causes of action in the First Proceeding, the respondent would have received repayment of the sums claimed sooner and at a higher interest rate than they could have received if the causes of action had gone to trial.
[31]In response, Mr Pang filed a lengthy memorandum in which he submits that:
(a)costs with respect to the substantive dispute should lie where they fall;
(b)if Calderbank offers are taken into consideration, regard must be had to settlement proposals put forward by the respondent on a Calderbank basis and which were not accepted by the applicants and which warrant a costs award in favour of the respondent; and
(c)costs on the second, third and fourth causes of action in the First Proceeding should be awarded in favour of the respondent, who succeeded in her claim.
Discussion
[32] It is surprising either party would seek costs on claims that were largely settled out of Court and without a full hearing or judicial determination of the questions at issue. In such circumstances, the Court has little basis for determining which party had the greater success unless it revisits issues the parties decided for themselves or
have left undecided. It would be a rare situation where that would be advisable or a sensible use of the Court’s time.
[33] The present case is not such a rare case. Indeed, it is plain there is no merit in either claim for costs.
Claim in relation to the substantive dispute
[34] The applicants’ contention in relation to the substantive dispute is that, if the respondent had accepted one or other of the applicants’ Calderbank proposals for the marketing and sale of the Property, the sale price achieved would have been superior to that which will be achieved when the Property is sold in accordance with the procedures in the Consent Order. That contention is premised on the proposition that the Property would have sold if marketed before 1 July 2022, before the decline of the property market.
[35] The contention and the proposition are hypothetical. The Court cannot know if the Property would have been sold if marketed in the first half of 2022 in accordance with the procedures in the Calderbank offers, let alone the price that might have been achieved. Similarly, the Court cannot know if the Property will sell if marketed in accordance with the procedures in the Consent Order or, if it does sell, the sale price. Whatever the state of the property market, each property has its own characteristics which affect its saleability and price.
[36] The Court cannot be satisfied, therefore, that the respondent would have received more money from a sale of the Property if it had been marketed in accordance with the procedures in the Calderbank offers in early 2022 than the respondent will receive if the Property is sold under the procedures in the Consent Order.
[37] For that reason, there is no basis for the Court to make any order in relation to costs let alone an order for increased costs. This conclusion applies equally to the respondent’s claim for costs based on settlement proposals it put forward on a Calderbank basis.
Claim in relation to second, third and fourth causes of action in the First Proceeding
[38] The applicants’ claim for costs in relation to second, third and fourth causes of action in the First Proceeding is premised on the proposition that the sale of the Property would have settled before any judgment was issued following trial. For the reasons already given, the Court has no way of knowing if and when the Property would have been sold if marketed in accordance with the procedures in the Calderbank offers in early 2022.
[39]Accordingly, this claim by the applicants also must fail.
[40] There is a hint of merit in the respondent’s claim for costs under this heading because the applicants have paid the sums claimed. Because those sums were paid, I am satisfied this is not a case where the presumption in r 15.23 of the High Court Rules 2016 applies.9 However, the claims were unrelated to the dispute over the sale of the Property and were discontinued before any significant step was taken in the First Proceeding beyond the filing of a statement of claim and a statement of defence. In those circumstances, any claim for costs by the respondent would be minimal and do not warrant the attention of the Court.
Result
[41] The applications for costs by the applicants and by the respondent are dismissed. I am satisfied that no order for costs should be made. The costs of the parties should lie where they fall.
9 Rule 15.23 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.
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