New World (New Zealand) Limited v Zhang
[2023] NZHC 854
•20 April 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-2453
[2023] NZHC 854
BETWEEN NEW WORLD (NEW ZEALAND) LIMITED
Plaintiff/First RespondentAND
QIAN ZHANG
Defendant/Second Respondent
AND
SHAOJUN WANG
Interested Third Party/Applicant
Hearing: On the papers Counsel:
A J B Holmes for Applicant
B O’Callahan and J Ding for First Respondent No appearance for Second Respondent
Judgment:
20 April 2023
COSTS JUDGMENT OF PETERS J
This judgment was delivered by Justice Peters on 20 April 2023 at 11 am pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date: ...................................
Solicitors: Carter Atmore Law, Auckland
K3 Legal, Auckland
Counsel:A J B Holmes, Auckland B O’Callahan, Auckland
NEW WORLD (NEW ZEALAND) LTD v ZHANG [2023] NZHC 854 [20 April 2023]
Introduction
[1] I issued a judgment in this matter on 29 October 2021, in favour of Ms Wang, referred to in the intituling as the interested party.1 This judgment determines costs as between Ms Wang and New World, the plaintiff.
[2] Ms Wang seeks an award of indemnity costs, alternatively increased costs, in both this Court and the District Court.
[3] New World submits, correctly in my view, that I do not have jurisdiction to determine costs in the District Court. As to costs in this Court, New World submits that I should award no more than scale costs, calculated on a 2B basis.
[4] For reasons set out below, I propose to award costs on an indemnity basis in this Court. If I am wrong in this, I would have awarded costs on a 2B basis with an increase of 50 per cent.
[5] Although the substance of the dispute between the parties is set out in my judgment, it is necessary to say something about the procedural course of events to put what follows in context.
Background
[6] Ms Zhang, the defendant, is a former employee of New World. Ms Zhang resigned from the company in April 2017. Several months’ later, in November 2017, New World brought proceedings against her in the District Court at Auckland seeking to recover a sum it alleged Ms Zhang had stolen from the company.
[7] Although Ms Zhang initially defended the proceedings, New World ultimately obtained judgment against her by default, in October 2020. As is apparent, but unexplained, it took almost three years for New World to obtain that judgment.
[8] Shortly after commencing proceedings against Ms Zhang, New World sought to restrain any assets in which she might be interested. It was in these circumstances
1 New World (New Zealand) Ltd v Zhang [2021] NZHC 2899.
that Ms Wang became caught up in the dispute which culminated in a hearing before me in July 2021. In 2016, Ms Zhang and Ms Wang had purchased a residential property together (“property”). Each had a beneficial interest in the property but title was in Ms Zhang’s name alone.
[9] On resigning from New World, Ms Zhang advised Ms Wang that she proposed to return to China. The two agreed that Ms Wang would purchase Ms Zhang’s beneficial interest in the property, and thenceforth assume responsibility for meeting all outgoings on the property. The outgoings included not only the usual items such as rates and insurance but also interest and principal due on a loan from the ASB to Ms Zhang for the purchase of the property, that loan being secured by a mortgage over the property. For her part, Ms Wang had made a substantial cash contribution to the purchase at the outset.
[10] Ms Wang’s and Ms Zhang’s individual solicitors documented this agreement by a Deed of Declaration of Trust and Transfer of Property (“Deed”), which the two executed on 10 November 2017. The important point for present purposes is that the Deed provided that Ms Wang would acquire Ms Zhang’s beneficial interest in the property and Ms Zhang declared that she held the property on trust for Ms Wang.
[11] On 10 November 2017, Ms Wang paid Ms Zhang $70,000 being the sum agreed to be paid to acquire the latter’s beneficial interest in the property. The evidence before me was to the effect that this was fair market value for that interest at the time.
[12] Accordingly, and whatever her liability to the ASB, Ms Zhang ceased to have a beneficial interest in the property on 10 November 2017 at the latest. Ms Wang also lodged a caveat against the title to the property on 13 November 2017, on the ground that it was held on trust for her.
[13] A week or so thereafter, New World obtained a freezing order in respect of Ms Zhang’s assets. On the face of it, these assets included the property.
[14] Ms Wang’s caveat having come to its attention, New World served its freezing order on her solicitors on 22 December 2017, literally as they were closing their office for Christmas.
[15] On 15 May 2018, Ms Wang’s solicitors, Carter Atmore, wrote the first of what proved to be several letters to New World’s solicitors advising that Ms Zhang had transferred her beneficial interest in the property prior to New World obtaining its freezing order, and that the property should be excluded from the ambit of the freezing order. Carter Atmore also provided an extensive affidavit from Ms Wang, with exhibits, evidencing the matters relevant to the transfer of Ms Zhang’s beneficial interest to Ms Wang.
[16] In response to this, on 23 May 2018, K3 Legal acting for New World advised that New World “does not accept that your client’s claimed interest should be excluded from the freezing orders”.
[17] It is unnecessary to traverse the subsequent back and forth between the solicitors on the point. Carter Atmore continued to assert that Ms Zhang did not have a beneficial interest in the property and why that was so, and K3 Legal, who had instructed senior counsel, maintained that she did. The important point is that on my reading of the correspondence, despite several invitations to do so, K3 Legal did not give any reasons for maintaining this position. To compound matters, in August 2018, New World obtained an order in the District Court requiring Ms Wang and other third parties, such as the ASB, to disclose information New World specified as being necessary for it to assess Ms Wang’s claim in detail. That information was provided but does not appear to have led to the assessment promised.
Enforcement
[18] After obtaining judgment by default against Ms Zhang in October 2020, New World obtained a charging order in the District Court in respect of the property, registering it against the title.
[19] Given that a charging order charges the debtor’s beneficial interest in an asset, it should not be sought in respect of property in which the debtor is not beneficially interested. I come back to this point below.
[20] Thereafter, in November 2020, the District Court judgment (against Ms Zhang) and the charging order were removed to the High Court.
High Court
[21] In early-December 2020, New World applied for an order for sale of the property. This led to a further letter from Carter Atmore to K3 Legal, to the effect that New World should not have made the application and again requesting an explanation of why New World contended Ms Zhang retained any beneficial interest in the property. There is no evidence before me of any response to this letter. Rather, it appears that New World obtained its sale order shortly before Christmas 2020.
Rule 17.44
[22] It was in those circumstances that, in February 2021, Ms Wang applied to the High Court pursuant to High Court Rules 2016, r 17.44 seeking an order excluding the property from the charging order.
[23] New World opposed the application on the ground that, although Ms Wang alleged she was the beneficial owner she was not the registered proprietor, and on the ground that Ms Wang and Ms Zhang may have entered into the Deed with an intention to defeat creditors or alternatively that it might be a “sham” given the property was to be transferred “at a significant undervalue”. There was no evidence of a transfer at an undervalue. The evidence was to the contrary.
[24] At the hearing, counsel for Ms Wang maintained that Ms Zhang did not have a beneficial interest in the property.
[25] Although it abandoned any suggestion of dishonesty, New World submitted that Ms Zhang retained an equitable interest in the property because of and proportionate to her continuing liability to the ASB.
[26] I determined that New World’s submission was incorrect. The Court of Appeal having upheld that decision, it is now necessary to determine costs.2
Costs in the District Court
[27] Ms Wang submits that I have jurisdiction to make an award in respect of her costs in the District Court, pursuant to s 96 of the District Court Act 2016 (“Act”).
[28]Section 96 provides:
96 Costs in cases transferred
(1)This section applies to a proceeding or counterclaim or set-off and counterclaim (a transferred proceeding) that is transferred—
(a)from the District Court to the High Court; or
(b)from the High Court to the District Court.
(2)Any order for costs in a transferred proceeding must be made by the court to which the proceeding is transferred.
...
[29] New World submits that I do not have jurisdiction to award costs in the District Court, as the matter before me was not a proceeding transferred from the District Court to the High Court in the sense of s 96(1). Rather, New World submits that the proceeding in the High Court arose because the judgment in the District Court and the charging order made in the District Court were removed to the High Court. These steps were not taken pursuant to s 96 but pursuant to ss 120 and 189 respectively.
Discussion
[30] Section 96 is in Part 5 of the Act, which is concerned with the transfer of proceedings between the District and High Courts. Section 120 is in Part 8 which is concerned with, inter alia, the removal of a judgment from the District Court into the High Court and vice versa. Section 189 is in Part 10 which is concerned with enforcement procedures.
2 New World (New Zealand) Ltd v Wang [2023] NZCA 35.
[31] Removal of a judgment and of a charging order do not constitute the removal of a proceeding from one Court to another in the sense of s 96 of the Act. In this case, the proceeding in the District Court, which was between New World and Ms Zhang, remained in the District Court. It follows that I accept New World’s submission that I do not have jurisdiction to make any order as to costs in the District Court.
Costs in the High Court
[32] The circumstances in which the Court may make an award of increased or indemnity costs are set out in rr 14.6(3) and (4), the relevant parts of which are as follows:
14.6 Increased costs and indemnity costs
...
(3)The court may order a party to pay increased costs if—
...
(b)the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—
...
(iii)failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument; or
(iv)failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or other similar requirement under these rules; or
...
(4)The court may order a party to pay indemnity costs if—
(a)the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or
...
(d)the person in whose favour the order of costs is made was not a party to the proceeding and has acted reasonably in relation to it; or
...
(f) some other reason exists which justifies the court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious.
Quantum
[33]Ms Wang’s costs in the High Court on a 2B basis would be approximately
$15,000. The schedule to Ms Wang’s submissions includes some items at band C but nothing much turns on that.
[34] If the costs were increased by 50 per cent, the total increased costs in the High Court would be approximately $22,500.
[35]The indemnity costs claimed in the High Court are $53,319.46.
[36]Disbursements in the High Court total $3,614.42.
Indemnity/increased costs
Rule 14.6(4)(d)
[37] The first ground on which Ms Wang seeks costs on an indemnity basis is that she is within r 14.6(4)(d), that is she was not a party to the proceeding and acted reasonably. “Party” is defined in r 1.3 as meaning any person who is a plaintiff or a defendant or a person added to a proceeding.
[38] New World submits that Ms Wang falls outside r 14.6(4)(d) because she was a party to the proceeding in the High Court. New World submits that, having applied to this Court for relief as she did, Ms Wang became an “interested third party” in the sense of r 17.45 and thus falls outside r 14.6(4)(d).
Discussion re r 14.6(4)(d)
[39] I am not persuaded to award indemnity costs under r 14.6(4)(d). I accept New World’s submission that Ms Wang was a party to the proceeding in the High Court, both literally and in spirit.
Other grounds
[40] The alternative grounds on which Ms Wang seeks an award of indemnity costs are those set out in rr 14.6(4)(a) and (f).
[41]Counsel for Ms Wang submits that:
(a)New World should never have sought a charging order in respect of the property given the facts known to it, and Ms Wang should not have been required to make her application.
(b)Not only should New World not have sought the charging order, for the most part it declined to accept that Ms Wang had any interest whatsoever in the property, and it also sought to impugn her honesty by its suggestion of a sham or a transaction at an undervalue.
(c)Ms Wang was required to contest New World’s position for more than three years. Moreover, she was required to do so despite several (unanswered) requests that New World say why it considered Ms Zhang retained an interest in the property.
(d)New World’s submission that Ms Zhang retained an interest commensurate with her liability to the ASB ignored the provisions of the Deed and Ms Wang’s evidence that, but for the freezing orders and charging order, she would have repaid the ASB and discharged its mortgage some time prior.
[42] Accordingly, it is Ms Wang’s submission that New World’s conduct of the matter was improper, unreasonable, and put Ms Wang to unnecessary cost.
[43] In response (and to be fair to New World, this was before the hearing in the Court of Appeal), counsel for New World submits as follows:
(a)New World was entitled “to pursue any enforcement step it consider[ed] necessary”.
(b)New World does not accept that Ms Zhang has disposed of her beneficial interest.
(c)New World did not resile from alleging dishonesty. It had evidence that Ms Zhang, a party to the Deed, was a thief; the arrangements between Ms Zhang and Ms Wang were not transparent; and that Ms Zhang essentially took no steps in the District Court. It is implicit in this submission that Ms Zhang only had herself to blame for matters reaching the High Court.
(d)New World had every right to enforce its judgment.
Discussion
[44] I am satisfied that this is a case in which it is appropriate to make an award of indemnity costs against New World. My reasons are as follows.
[45] Through no fault of her own, Ms Wang was caught up in a dispute between New World and Ms Zhang. This is not to criticise New World in the first instance. Ms Zhang was on the title to the property and, given that, it was reasonable for New World to seek to freeze that.
[46] However, from May 2018 New World was in possession of all the information required to evaluate Ms Wang’s claim that Ms Zhang had ceased to have a beneficial interest in the property prior to New World obtaining its freezing order.
[47] Ms Wang also continued to make that case to New World in subsequent correspondence. However, New World failed to address the substance of her solicitors’ correspondence.
[48] It is one thing to consider a claim and then take what turns out to be an incorrect legal position on it. It is another altogether to persist without considering information provided, and indeed sought on disclosure. That is what happened in this case. The sale order left Ms Wang with no option but to do as she did — apply to the High Court and pay for legal representation.
[49] Mr O’Callahan’s assertion in New World’s submissions, that it was open to New World to pursue whatever means of enforcement it saw fit, is incorrect. New World was entitled to pursue whatever means of enforcement were properly open to it. It is improper to obtain a charging order, let alone an order for sale, in respect of an asset in which the debtor has no beneficial interest.
[50] To conclude, New World’s legal advisers were required to at least turn their mind to the comprehensive information Ms Wang made available to them at the outset and then again following the disclosure order. Had they done so, all of Ms Wang’s costs in the High Court, and quite possibly a substantial part of whatever she incurred in the District Court, could well have been avoided.
[51] In those circumstances, I am satisfied that an award of indemnity costs in the High Court is appropriate on the grounds of rr 14.6(4)(a) and (f).
[52] Lastly, indemnity costs must be reasonable costs. Any dispute on that score is to be resolved by the Registrar, subject to New World identifying the invoice or invoices with which it takes issue and why, so that Ms Wang is not put to further unnecessary expense.
Result
[53] I award Ms Wang indemnity costs in the High Court, together with all her disbursements.
Peters J
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