Mao v Hesketh Henry

[2023] NZHC 813

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-1055

[2023] NZHC 813

BETWEEN

LIANSEN MAO

Plaintiff

AND

HESKETH HENRY

First Defendant

AND

HYUN BIN KIM

Second Defendant

AND

DUK YOUNG LEE

Third Defendant

Cont:/

Hearing:

On the papers

Counsel/ Representation:

No participation in the proceedings by Plaintiff Liansen Mao Plaintiff Jiawen Mao self-represented

F B Barton for Hesketh Henry

R D Butler and A M Cameron for Hyun Bin Kim and Duk Young Lee

K Perry and E Focus-Turk for Ara Kim/Cooper & Co Real Estate Limited

Judgment:

18 April 2023

JUDGMENT OF PAUL DAVISON J

[Re: Costs]

This judgment was delivered by me on 18 April 2023 at 4pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:

Hesketh Henry, Auckland

MacKenzie Elvin Law, Tauranga Heaney & Partners, Auckland

LIANSEN MAO v HESKETH HENRY [2023] NZHC 813 [18 April 2023]

AND  CIV-2021-404-1475

BETWEEN

JIAWEN MAO
Plaintiff

AND

HESKETH HENRY

First Defendant

AND

ARA KIM/COOPER & CO REAL ESTATE LIMITED

Second Defendant

AND

HYUN BIN KIM

Third Defendant

AND

DUK YOUNG LEE

Fourth Defendant

Introduction

[1]        On 22 August 2022, I issued a judgment striking out all the causes of action brought by the plaintiffs in two related proceedings against four defendants.1

[2]        Two defendants to both proceedings Mr Hyun Bin Kim (Kim) and Mr Duk Young Lee (Lee) seek $19,598 in costs and $500 in disbursements.

[3]        The first defendant to both proceedings Hesketh Henry seeks indemnity costs and disbursements of $46,066.42.

[4]        The second defendant to the second proceeding Ara Kim/Cooper & Co Real Estate Ltd (Kim/Cooper & Co) seeks indemnity costs and disbursements of

$46,385.50.

[5]        The plaintiffs say costs should be stayed until another proceeding it has filed has been resolved.

Background

[6]        The plaintiffs, Mr Liansen Mao (Liansen) and Ms Jiawen Mao (Jiawen) each brought proceedings against the defendants. Liansen is the father of Jiawen. Their claim has previously been before the Court. The following history explains the background to my decision.

[7]        The origin of the dispute is a loan between Jiawen’s company, Yintian Co Ltd (Yintian Ltd) as borrower and Kim and Lee as lenders. The law firm Hesketh Henry was engaged by Kim and Lee to draft the loan agreement. A loan of one million dollars was advanced to Yintian Ltd. The loan was secured by a mortgage over a property at 31 Chester Avenue, Auckland. The loan was personally guaranteed by Jiawen as director of Yintian Ltd.

[8]        Yintian Ltd defaulted on loan repayments and the Chester Avenue property was sold by mortgagee sale on 2 February 2018. Kim/Cooper & Co was engaged by

1      Mao v Hesketh Henry [2022] NZHC 2084.

Hesketh Henry to list and sell the property. The mortgagee sale was conducted on the basis that both vendor and purchaser were registered for the purposes of GST, however Yintian Ltd was not in fact GST-registered.

[9]        On 3 October 2018, Kim and Lee obtained judgment in the District Court against Liansen, Jiawen and Yintian Ltd in respect of the outstanding amount due under the loan agreement. On 6 and 11 June 2019, Kim and Lee issued bankruptcy notices to both Liansen and Jiawen.

[10]      On 11 October 2019 Liansen, Jiawen and Yintian Ltd commenced proceedings in the High Court against Kim, Lee and Best Capital Ltd. Their claims were based on s 176 of the Property Law Act 2007 and allegations of misleading and deceptive conduct on the part of Kim and Lee. By judgment delivered on 1 April 2021 Associate Judge Sussock struck out all of the causes of action.2 Finding that the proceedings were clearly filed in order to delay the bankruptcy proceedings, Associate Judge Sussock awarded the defendants indemnity costs.3 She found that Jiawen, Liansen and Yintian Ltd as plaintiffs failed to plead essential facts to support the allegations they made despite being directed to amend their pleadings several times.4 She further found that Jiawen had alleged that the defendants had breached a duty of care by not selling a property when she was guilty of serious breaches of the Resource Management Act 1991 in respect of that property.5

[11]      The full amount of  the  outstanding loan shortfall was paid by  Jiawen  on  22 September 2020.

[12]      Kim and Lee are the second and third named defendants of Liansen’s claim and the third and fourth defendants of Jiawen’s claim. Hesketh Henry is the first named defendant in both proceedings. Kim/Cooper & Co is the second defendant in Jiawen’s proceedings.

2      Mao v Best Capital Ltd [2021] NZHC 735.

3 At [79].

4 At [56].

5 At [77].

[13]      The nub of Liansen’s argument in this proceeding was that the mortgagee sale of the Chester Avenue property resulted in the wrong amounts of interest and penalty, and costs in relation to “unnecessary litigation” being charged against him. As a result, he says, he had to make a forced sale of another property at a loss, forgoing the opportunity of subdividing and selling the property at a profit.

[14]      Liansen claimed Hesketh Henry was negligent in preparing the loan agreement, or it breached fiduciary duties owed to him. He also alleged  that  Hesketh Henry is liable under s 9 of the Fair Trading Act 1986. He pleaded the same causes of actions against Kim and Lee.

[15]      Jiawen’s pleadings alleged the same causes of action against Hesketh Henry, Kim/Cooper & Co, Kim and Lee. She further alleged that Kim/Cooper & Co was not capable of handling mortgagee sales, and Hesketh Henry’s appointment of Kim/Cooper & Co as real estate agent caused her loss. Additionally, she said that Hesketh Henry charged additional fees and purposely delayed matters to enable Kim and Lee to charge interest at the rate of 20 per cent on the amount they claimed was due under the loan agreement.

[16]      The defendants brought a strike-out application against all the claims made by the plaintiffs. I found that the proceeding was an attempt to re-litigate matters that were already determined:

(a)Liansen and Jiawen’s causes of action for breach of tortious and fiduciary duty against Hesketh Henry were an abuse of process and cannot succeed because no duty was owed to the plaintiffs.

(b)Liansen and Jiawen’s causes of action for breach of tortious and fiduciary duty against Kim and Lee were an abuse of process and cannot succeed because no duty was owed to the plaintiffs.

(c)Liansen and Jiawen’s causes of action against Hesketh Henry based on breach of s 9 of the Fair Trading Act were an abuse of process and were time barred.

(d)Jiawen’s cause of action for breach of duties against Kim/Cooper & Co was an abuse of process and cannot succeed because no duty was owed to the plaintiff.

(e)Jiawen’s cause of action based on breach of s 9 of the Fair Trading Act against Kim/Cooper & Co was an abuse of process and was time barred.

(f)Liansen and Jiawen’s causes of action against Kim and Lee based on a breach of s 9 of the Fair Trading Act were an abuse of process and were time barred.

[17]As a result, all the causes of actions were struck out.6

[18]      I recorded that the defendants succeeded and are entitled to costs.7 I directed memoranda to be filed. Kim and Lee, Hesketh Henry, Kim/Cooper & Co and Liansen have each filed memorandum.

Submissions

[19]      Kim and Lee seek scale costs with a 100 per cent uplift and disbursements. They say that an award of increased costs is justified as the plaintiffs attempted to relitigate claims and issues which had already been determined by the Courts. They note that this was in fact the third attempt to litigate the claims. They submit that they should not be out of pocket for having to defend these vexatious proceedings.

[20]      Hesketh Henry seeks indemnity costs of $46,066.42 for its actual costs and disbursements. It notes that each plaintiff filed a separate statement of claim which were almost identical in the pleading of the causes of action against it. It submits that the causes of action are an abuse of process and a waste of both the first defendant’s and the Court’s time. Further, it argues that the email from Liansen to Kim and Lee confirms that the plaintiffs have been acting vexatiously. It says that if the standards for indemnity costs are not met, then increased costs would be appropriate.

6      Mao v Hesketh Henry, above n 1, at [112].

7 At [114].

[21]      Kim/Cooper & Co seek indemnity costs of $46,385.50 for its actual costs and disbursements. It notes that prior to filing the strike out application, counsel for Kim/Cooper & Co sent a letter to Jiawen offering to accept discontinuance of the claim with no issue as to costs. That letter set out the same principal arguments raised by Kim/Cooper & Co in this proceeding. Jiawen did not accept the offer. Kim/Cooper & Co say that Jiawen unreasonably failed to accept its offer to discontinue the claim with no cost consequences and that instead Jiawen pursued arguments that were an abuse of process. It says that if the standards for indemnity costs are not met, then increased costs would be appropriate.

[22]      Liansen seeks an order that the issue of costs be stayed. He acknowledges that he has not followed the right procedure. He says that he and Jiawen have applied to have the 2018 District Court judgment against them set aside and say that they have filed a counterclaim. He says that the District Court accepted the application to set aside but informed him that he and his daughter would be required to file a fresh statement of claim rather than a counterclaim. He says that he has subsequently filed a statement of claim seeking damages for losses caused by the GST issue. He submits that all costs determinations should be stayed until his new claim has been determined.

Law

[23]      Pursuant to r 14.6(3)(b)(v) of the High Court Rules 2016, the Court has the power to make an order for increased costs if the party opposing costs has contributed unnecessarily to the time or expense of the proceeding, or step in it, by failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under r 14.10 or some other offer to settle or dispose of the proceeding. The offers made by the defendants do not fall within the scope of r 14.10 but rather were “other offer[s] to settle or dispose of the proceeding”.8

[24]      Pursuant to r 14.6(4)(a) of the High Court Rules, the Court may make an order for indemnity costs if the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing or defending a proceeding or a step in a proceeding.

8      High Court Rules 2016, r 14.6(3)(b)(v).

[25]      The Court of Appeal in Bradbury v Westpac Banking Corporation said as regards the costs provisions in the High Court Rules that:9

[27]      The distinction among our three broad approaches — standard scale costs; increased costs; and indemnity costs — may be summarised broadly:

(a)standard scale applies by default where cause is not shown to depart from it;

(b)increased costs may be ordered where there is failure by the paying party to act reasonably; and

(c)indemnity costs may be ordered where that party has behaved either badly or very unreasonably.

[28]      …Our three-stage classification, with a discretion in each class as to where the order should be pitched, accords with that approach. Indemnity costs, which depart from the predictability of the Rules Committee’s regime, are exceptional and require exceptionally bad behaviour. This is why to justify an order for such costs the misconduct must be “flagrant” ( Prebble v Awatere Huata ( No 2) [2005] 2 NZLR 467 (SCNZ) at para [6]).

[26]      The Court of Appeal in Bradbury endorsed Goddard J’s adoption10 of Sheppard J’s summary in Colgate-Palmolive v Cussons Pyt Ltd 11 of the circumstances in which courts have ordered indemnity costs, and said:

[29]      …While recognising that the categories in respect of which the discretion may be exercised are not closed (see r 14.6(4)(f)), it listed the following circumstances in which indemnity costs have been ordered:

(a)the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud;

(b)particular misconduct that causes loss of time to the court and to other parties;

(c)commencing or continuing proceedings for some ulterior motive;

(d)doing so in wilful disregard of known fact or clearly established law; or

(e)making allegations which ought never to have been made or unduly prolonging a case by groundless contentions, summarised in French J’s “hopeless case” test.

[30]Each of these concerns conduct which would fall within r 14.6.(4).

9      Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400.

10     Hedley v Kiwi Co-operative Dairies Ltd (2002) 16 PRNZ 694 at [11].

11     Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 232-234.

[27]      In J Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA Branch) (No 2), French J said:12

Although there is said to be a presumption in such cases that the action was commenced or continued for some ulterior motive or in wilful disregard of known facts or clearly established law, it is not a necessary condition of the power to award such costs that a collateral purpose or some species of fraud be established. It is sufficient, in my opinion, to enliven the discretion to award such costs that, for whatever reason, a party persists in what should on proper consideration be seen to be a hopeless case.

Discussion

Should increased and indemnity costs be awarded?

[28]      The defendants all succeeded in these proceedings and are entitled to an award of costs.13 I decline to make an order staying determination of costs. The outcome of any other proceedings commenced by the plaintiffs will not possibly affect the outcome of this proceeding.

[29]At the conclusion of my judgment delivered on 22 August 2022, I said:

[111]           For the reasons I have set out above all of the causes of action in both proceedings cannot possibly succeed. All of the claims against Kim and Lee, have in substance been brought previously and were struck out . And all of the causes of action brought against Hesketh Henry and against Kim/Cooper & Co, are in substance the same claims as were previously and unsuccessfully brought against Kim and Lee, reframed as claims against the solicitors and real estate agent acting on their behalf and on their instructions. The bringing of these claims is an abuse of process.

[112]           As none of the causes of action against any of the defendants could possibly succeed, they will all be struck out.

[30]      Despite the plaintiffs’ claims based on the same or substantially the same factual allegations having previously been struck out by Associate Judge Sussock on 1 April 2021,14 they commenced the present proceedings, in which they repeated their claims. The present proceedings are not the first time that their claims have been struck out for substantially the same reasons. Each of the causes of action concerned

12     J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA Branch) (No 2) (1993) 46 IR 301 (FCA) at 303.

13     High Court Rules, r 14.2(1)(a).

14     Mao v Best Capital Ltd, above n 2, at [71]–[73].

the issue that had been determined in the District Court and then repeated in this Court. Having struck out all of the plaintiffs’ claims Associate Judge Sussock awarded Kim and Lee as the defendants in that proceeding, indemnity costs.15

[31]      The plaintiffs’ attempt to bring their claims once again and this time include Hesketh Henry and the Kim/Cooper & Co as additional defendants was not only an abuse of process but it was always a hopeless case that could never have succeeded. While the plaintiffs’ pleadings and submissions demonstrate that they are unfamiliar with the law and procedure in the courts, the history of their unsuccessful litigation and the previous decisions of the District Court and this Court dismissing the claims, and in the case of this Court previously awarding indemnity costs against them, ought to have made it quite clear that their case was hopeless, and by pursuing it they were causing the defendants to incur significant legal costs.

[32]      I am accordingly satisfied that the plaintiffs’ bringing and continuing their claims are an example of flagrant misconduct which justify an award of increased or indemnity costs to the defendants pursuant to r 14.6 of the High Court Rules. The plaintiffs’ action of bringing and continuing the proceedings falls squarely within the scope of r 14.6(4)(a) as being brought vexatiously, improperly and unnecessarily having regard to the previous disposition of the same claims. Further, the plaintiffs have contributed unnecessarily to the time and expense of the proceeding, failing, without reasonable justification, to accept an offer of settlement within the scope of  r 14.6(3)(v) by instead attempting to re-litigate already determined matters.

Indemnity costs of first defendant — Hesketh Henry

[33]       In support of its application for an award of indemnity costs, Hesketh Henry has filed a schedule setting out particulars of fee invoices and disbursements incurred in relation to the firm’s defence of the plaintiffs’ claims in the two proceedings. The total costs and disbursements is $46,066.42. This sum does not include GST as the first defendant is GST registered.16 I am satisfied that the first defendant’s costs are

15 At [79].

16     New Zealand Venue and Event Management Limited v Worldwide LCC [2016] NZCA 282 at [13].

reasonable and I shall make an award of costs for the amount sought. I also make an award of disbursements which are to be approved by the Registrar.

Increased costs  of  Hyun Kim  and Duk Lee (the second and third defendants  in  CIV 2021-404-1055, and the third and fourth defendants in CIV 2021-404- 1475)

[34]      In his costs memorandum for the second and third defendants, Mr Butler notes that scale costs on a 2B basis would be $9,799 plus disbursements. However he seeks an award of increased costs on the grounds that Kim and Lee have been required to defend the plaintiffs’ claims which were vexatious and abusive having been previously brought and struck out. Mr Butler seeks an uplift of the scale costs of 100 per cent which would be $19,598.00, plus disbursements.

[35]      Having regard to the plaintiffs’ conduct in bringing and continuing the proceedings when substantially the same claims had been brought previously and struck out, with the result that the second and third defendants were required to defend the claims again, incur legal costs and spend time engaged in defending what were obviously hopeless claims, I find that an award of increased costs is appropriate. I shall make an award of costs for the amount sought. I also make an award of disbursements which are to be approved by the Registrar.

Indemnity costs of second defendant in CIV 2021- 404-175 — Kim/Cooper & Co

[36]      In support of its application the executive manager of Kim/Cooper & Co’s solicitors, Ms Cohen of Heaney & Partners, filed an affidavit. Ms Cohen’s affidavit attaches a schedule setting out particulars of fee invoices and disbursements incurred in relation to the firm’s defence of Jiawen’s claim. The total fees incurred in preparation for the trial were $42,230. The total disbursements incurred were $920. I am satisfied that these costs are reasonable, and I make an award of costs for $43,150.

[37]      Kim/Cooper & Co also seeks costs in relation to $3,235.50 of unbilled fees. Ms Cohen says that the unbilled time relates to the: receipt of the substantive judgment; review of the substantive judgment; preparing memorandum to the court seeking directions regarding the late receipt of the judgment; preparing the costs memorandum and affidavit; and attendance with the other parties, the Court and

clients. These costs therefore relate to the preparing of Kim/Cooper & Co’s costs application. While it is in the discretion of the Court to award costs associated with the application for costs,17 generally such costs are not awarded. I do not consider there is anything within the circumstances of this case to justify such an order. Accordingly, I do not award Kim/Cooper & Co the $3,235.50 sought relating to unbilled time.

Result

[38]For the reasons set out above I make the following costs orders:

(a)An order that the plaintiffs Liansen Mao and Jiawen Mao are jointly and severally liable to pay costs to the first defendant Hesketh Henry in the sum of $46,066.42 together with any disbursements to be fixed by the Registrar.

(b)An order that the plaintiffs Liansen Mao and Jiawen Mao are jointly and severally liable to pay costs to Hyun Bin Kim and Duk Young Lee of $19,598.00 together with disbursements to be fixed by the Registrar.

(c)An order that the plaintiff Jiawen Mao pay costs to Ara Kim/Cooper & Co Real Estate Ltd of $43,150.00 together with disbursements to be fixed by the Registrar.

Paul Davison J

17     Harrington v Wilding [2019] NZCA 605 at [45].