Luo v Shiu

[2022] NZHC 3302

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-000384

[2022] NZHC 3302

UNDER

the Insolvency Act 2006

BETWEEN

MANFEI COMPANY LIMITED

Judgment Creditor

AND

XIAOLING (ANNIE) SHIU

Judgment Debtor

CIV-2022-404-000385

BETWEEN

ZHENLIN (ROBERT) LUO
Judgment Creditor

AND

XIAOLING (ANNIE) SHIU

Judgment Debtor

Hearing:	On the papers
Appearances:	S Judd / Z Chen for the Judgment Creditors D Bigio KC for the Judgment Debtor
Judgment:	9 December 2022

COSTS JUDGMENT OF ASSOCIATE JUDGE GARDINER

This judgment was delivered by me on 9 December 2022 at 11.30 a.m. pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date.......................................

Solicitors:

Pidgeon Law, Auckland Righteous Law, Auckland D Bigio KC, Auckland

S R G Judd, Auckland

MANFEI COMPANY LTD v SHIU [2022] NZHC 3302 [9 December 2022]

Introduction

[1]                  The debtor, Ms Shiu, applied to set aside two bankruptcy notices seeking an amount she owed to the creditors under a judgment of Whata J.1 Alternatively, she sought a stay of execution of the judgment pending appeal. The creditors opposed both applications. On 18 July 2022, Tahana J granted the stay on the condition that Ms Shiu provide appropriate security within 15 working days.2

[2]                  Ms Shiu eventually paid the security and Tahana  J confirmed the  stay  on  12 September 2022. Counsel then filed a joint memorandum seeking consent orders setting aside the bankruptcy notices (effectively withdrawing them) and for costs to be determined on the papers. I made those orders by way of minute on 21 September 2022.

[3]                  Ms Shiu seeks costs on the basis that she succeeded in having the bankruptcy notices set aside. She points to the fact that a date had been set down for the hearing of her stay application in early April 2022, and yet the creditors still chose to serve bankruptcy notices on her some three weeks later. She says that, having taken the risk that the stay would be granted and the bankruptcy notices inevitably set aside, the creditors should pay her costs.

[4]                  The creditors submit that Ms Shiu should pay their costs. They say that they were successful in obtaining security for the judgment debt that  was not  provided  or offered when they issued the bankruptcy notices. They state that the  costs incurred could have been avoided had Ms Shiu provided security within a reasonable timeframe instead of seeking an extension of time and then a variation of conditions from Tahana J, which resulted in adjournments of the bankruptcy applications.

Legal principles

[5]                  The general principle under the High Court Rules 2016 is that costs follow the event, so the party who fails pays the costs of the party who succeeds.3 This principle

1      Luo v Shiu [2021] NZHC 3564.

2      Luo v Shiu [2022] NZHC 1707.

3      High Court Rules 2016, r 14.1(a).

applies to the outcome of an interlocutory application as well as whole proceedings (with some exceptions). In this case, there has been no determination by the Court of the merits of the application as the bankruptcy notices and the application to set aside were withdrawn by consent.

[6]                  Rule 15.23 contains the presumption that in the absence of any agreement or court order to the contrary, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant up to and including the discontinuance. This rule has been applied analogously where an applicant terminated an interlocutory application.4 The presumption in r 15.23 can however be displaced where the Court decides that it is just and equitable that it should not apply.5 The Court will consider the reasonableness of the stance of both parties up to the point of discontinuance and may also consider the reason for discontinuing.

[7]                  Furthermore, when an application to set aside a bankruptcy notice or statutory demand is withdrawn, rather than relying solely on the presumption in r 15.23, the Court enquires into the surrounding circumstances and what happens afterwards to ascertain which side has substantially succeeded and which side has substantially failed.6 That is because the withdrawal of an application to set aside a statutory demand / bankruptcy notice is equivocal and does not by itself indicate where costs should fall. Rather, success or failure turns on whether the creditor’s position as a creditor for the debt stated in the statutory demand / bankruptcy notice is upheld.

Discussion

[8]                  Arguably, the creditors should pay Ms Shiu’s costs. They submit that they are entitled to costs because they were successful in receiving security for the judgment. However, it is difficult to see how that can qualify as success in the proceeding when obtaining security is not the purpose of a bankruptcy notice (acknowledging that the creditors had signalled in their opposition to the stay and setting aside applications that they would consent to those applications being granted if Ms Shiu provided security).

4      JNJ MV Celebre Ltd v Airwork Flight Operations Ltd [2015] NZHC 1400 at [8], citing Rocket Surgery Ltd v Goodwin [2013] NZHC 2667.

5      Kroma Colour Prints Ltd v Tridonicato NZ Ltd [2008] NZCA 150 at [12] (referring to the equivalent rule, r 476C, in the previous version of the High Court Rules).

6      Greys Avenue Investments Ltd v New Zealand Mint Ltd [2015] NZHC 2633.

[9]                  More significantly, the risk they took in issuing the notices counts against them. Following her filing of a notice of appeal in the Court of Appeal in February 2022, Ms Shiu applied to stay Whata J’s judgment on 11 March 2022. The creditors filed their notice of opposition on 16 March 2022. The Court set down the application for hearing on 20 June 2022. Notwithstanding this, the creditors issued bankruptcy notices, which were served on Ms Shiu on 26 April 2022. As she submits, it should have been obvious to them that the fate of the bankruptcy notices was tied to the outcome of her stay application; indeed, the hearing of her application to set aside the notices was adjourned several times pending a determination on the stay application. Instead of waiting for that determination, the creditors issued the notices knowing that the stay might be granted. This exerted pressure on Ms Shiu, forcing her to file a setting aside application and incur further costs as a result.

[10]              On the other hand, until the stay was ordered, the creditors were legally entitled to issue the notices. Whata J entered judgment against Ms Shiu on 21 December 2021, ordering her to pay a total of $2,671,183.73 to the creditors. Four months passed and Ms Shiu had not paid the amount ordered. The creditors chose to pursue the debt as they were able to do under the law. The fact that a hearing date had been fixed for the stay application did not change the fact that the debt was owing and had been for some months. As for the reasonableness of Ms Shiu’s stance up until the discontinuance, her delay in paying the security ordered by Tahana J may be relevant. As the creditors highlight, costs would have been avoided had she provided this earlier (given the creditors’ willingness to withdraw their opposition upon obtaining security).

[11]              In my view, the matter is finely balanced. There are reasons why it would be appropriate for the creditors to pay Ms Shiu’s costs as well as reasons going the other way. Ultimately, weighing up the competing arguments, I consider in my discretion that the parties should be responsible for their own costs in this case.

Result

[12]Costs are to lie where they fall.

Associate Judge Gardiner