Texas Heat Ltd v B & J International Trading Ltd
[2016] NZHC 1552
•8 July 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-001964 [2016] NZHC 1552
BETWEEN TEXAS HEAT LTD
Plaintiff
AND
B & J INTERNATIONAL TRADING LTD
First Defendant
SHUYANG BI Second Defendant
Hearing: 21 June 2016 Counsel:
B Gustafson for the Plaintiff
K D Puddle for the DefendantsJudgment:
8 July 2016
JUDGMENT OF EDWARDS J
This judgment was delivered by Justice Edwards on 8 July 2016 at 3.15 pm, pursuant to
r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
Counsel: B Gustafson, Auckland
Solicitors: Macky Roberton Limited (M A Roberton), Auckland
Lowndes, Auckland
TEXAS HEAT LTD v B & J INTERNATIONAL TRADING LTD [2016] NZHC 1552 [8 July 2016]
Introduction
[1] The second defendant (Mr Bi) seeks an order of costs against the plaintiff (Texas Heat) in respect of his application to set aside freezing orders over two properties registered in his name (the Universal Drive and Crystal Ave properties respectively).
[2] Mr Bi seeks an order of increased or indemnity costs on the basis that there was material non-disclosure in the memorandum of counsel that supported the without notice application which led to the freezing orders being made.
[3] Texas Heat opposes any order as to costs and submits that they should either lie where they fall, or be reserved pending determination of the substantive proceeding.1
Background
[4] Texas Heat and the first defendant were lessor and lessee respectively of a commercial property. Mr Bi was the guarantor of the first defendant’s obligations under the lease.
[5] Texas Heat claims unpaid rental and outgoings against both defendants pursuant to the terms of the lease in this proceeding. The first defendant asserts a right of set-off and disputes the claim for outgoings. It also counterclaims against the plaintiff for alleged breaches of the lease.
[6] By without notice application dated 17 May 2016, Texas Heat sought freezing orders over the Universal Drive and Crystal Ave properties. The application was supported by an affidavit of Mr Sandler, and two memoranda of counsel for the plaintiff. The first memorandum sought that the application be made on an “interim
interim” basis with a fixture allocated as soon as possible thereafter to argue the
1 By joint memorandum of counsel dated 7 July 2016 the parties have indicated that they have since reached a settlement of the substantive proceeding. However, the terms of settlement still require the issue of this judgment as to costs.
application on notice. A further and more formal memorandum of counsel dated the same day set out the basis upon which the without notice application was made.
[7] The application was granted by Lang J on 19 May 2016. Lang J found that evidence of conversations between Mr Bi and a director for Texas Heat provided an adequate basis to provisionally conclude that Mr Bi intended to leave New Zealand and dispose of his New Zealand-based assets.
[8] The matter came before Muir J in the Duty Judge List on 1 June 2016. By consent, timetabling orders were made in respect of an application to discharge the freezing orders. The interim orders were also varied by consent to allow the defendants to borrow funds against the Crystal Ave property in order to pay legal fees. The application to discharge was duly made and came before me for hearing on 21 June 2016.
[9] Shortly prior to the hearing, Texas Heat agreed not to oppose the application to discharge the freezing order over the Universal Drive property. Evidence and submissions filed on behalf of Mr Bi made it clear that that property was held in a family trust.
[10] The application proceeded in respect of the Crystal Ave property only. During the course of the hearing, the parties were able to reach agreement as to that property also, and orders were made by consent on 21 June 2016. The freezing order over the Crystal Ave property was discharged upon receipt of an undertaking by Mr Bi in terms agreed between the parties.
[11] The parties did not reach agreement on costs. I heard argument from both counsel directed to that issue.
Relevant legal principles
[12] Rule 32.10 provides that a court may make any order as to costs it considers just in relation to an order made under Part 32.
[13] Mr Bi applies for increased or indemnity costs on the basis that there was material non-disclosure in the memorandum of counsel filed in support of the without notice application. In that respect, r 32.2(3) provides:
32.2 Freezing order
…
(3) An applicant for a freezing order without notice to a respondent must fully and frankly disclose to the court all material facts, including—
(a) any possible defences known to the applicant; and
(b) information casting doubt on the applicant's ability to discharge the obligation created by the undertaking as to damages.
…
[14] The commentary to this rule in McGechan on Procedure sets out the principles which apply to the duty to disclose.2 In brief, what is a “material fact” is determined by the court. The duty to make full and frank disclosure includes a duty to make all proper enquiries. The extent of that enquiry depends on the circumstances of the case.
[15] Non-disclosure is a matter going to the court’s discretion as to whether to discharge the freezing order. It may also be relevant to costs. In Commissioner of Inland Revenue v Dymock, the Court discharged the freezing orders and ordered indemnity costs against the Commissioner for failing to check material facts before filing affidavits.3
Analysis
[16] Mr Bi says that Texas Heat failed to fully and frankly disclose the following relevant facts in the memorandum of counsel:
(a) The possible defences known to the plaintiff;
(b) The status of Ms Jiang as Mr Bi’s ex-wife;
2 Andrew Beck and others McGechan on Procedure (online ed, Brookers) at [HR 32.2.04].
3 Commissioner of Inland Revenue v Dymock [2013] NZHC 3346.
(c) Ms Jiang’s Notice of Claim pursuant to s 42(2) of the Property (Relationships) Act 1976 lodged against the title to the Crystal Ave property; and
(d)The fact that a few days before applying for the freezing orders, the plaintiff had specifically requested information regarding the status of the properties and Mr Bi’s relationship property dispute.
[17] As to the possible defences, the memorandum of counsel contained a simple reference to the defendants’ statement of defence and counterclaim which was on the court file. Mr Puddle, on behalf of Mr Bi, submits that this was insufficient to meet the duty of disclosure under r 32.2(3).
[18] The duty to disclose possible defences is brought into sharp focus when the defendants’ position is not fairly before the court. In those circumstances the court relies on the heightened responsibilities in r 32.2(3) to ensure that all relevant considerations are taken into account. In this case, the defendants’ position was set out in the statement of defence and counterclaim filed on 8 October 2015 and so was before the Court. It would have been preferable for those pleaded defences to have been summarised and referred to in the memorandum of counsel. That would have ensured the Court’s attention was properly drawn to the existence of those defences. However, the failure to do so in this case did not result in a misrepresentation of the defendants’ position, nor did it mislead the Court. I do not consider an order of increased or indemnity costs is warranted in those circumstances.
[19] In respect of the second and third grounds of Mr Bi’s application, the memorandum of counsel refers to Ms Jiang as Mr Bi’s partner, although on one occasion she is referred to as his ex-partner. There was no mention of the Notice of Claim registered against the Crystal Ave property, although the certificate of title for that property, which shows a Notice of Claim registered against the title, was annexed to the affidavit of Mr Sanders sworn in support of the without notice application. As to the possibility of a relationship property dispute, the memorandum of counsel included the following paragraph:
25. Counsel does record, pursuant to the obligation of full disclosure,
that in a “without prejudice discussion” between counsel on 13 May
2016, the Second Defendant’s solicitor explained his instructions were that one of the Properties was held on trust for the First Defendant’s daughter (with the Second Defendant having no beneficial interest in that property) and the other property is the subject of a relationship property dispute between the Second Defendant and his ex-wife. The Plaintiff has no other evidence from the Second Defendant or otherwise supporting this position and accordingly has been unable to verify the accuracy of this background regarding the Properties, prior to filing the application for a freezing order.
[20] In light of paragraph 25, I do not consider the reference to Ms Jiang as Mr Bi’s partner is a material misrepresentation in the memorandum of counsel. Ms Jiang’s interest in the property was referred to in the memorandum, and the possibility of a relationship property dispute was disclosed. In my view, there was no breach of the duty of disclosure in this respect.
[21] However, I do agree with Mr Puddle’s submission that the registration of a Notice of Claim against the Crystal Ave property should have been referred to in the memorandum of counsel. This was a material fact which would have provided some corroboration of the relationship property dispute disclosed in paragraph 25. It was not sufficient to simply attach the certificate of title for the property to the affidavit without drawing the Court’s attention to it in the memorandum of counsel.
[22] I do not, however, agree with Mr Puddle’s submission that the orders would not have been made had there been disclosure. The risk of dissipation of the Crystal Ave property, subject to the Notice of Claim, would depend on Ms Jiang’s position as to the sale of the property. That position was not known at the time the memorandum of counsel and without notice application was filed. (It has subsequently been established that Ms Jiang is taking steps to obtain an order to sell the property). The Notice of Claim, without more, would not necessarily lead to the conclusion that there was no risk of dissipation.
[23] In any respect, Lang J relied primarily on the risks apparent from an alleged conversation between Mr Bi and a director of Texas Heat. I do not consider that disclosure of the Notice of Claim would have led to a different evaluation of that risk at that time. Nor can it be said that the Court was mislead by the failure to draw the
Court’s attention to the existence of the Notice of Claim in the memorandum of counsel. That was a key factor in the Court deciding to award indemnity costs in Commissioner of Inland Revenue v Dymock.4 That is not a factor in this case and I do not consider an order of increased or indemnity costs is warranted on that basis.
[24] Finally, I do not consider that failure to disclose the fact that further information had been sought was material non-disclosure. Orders were sought on an “interim interim” basis. Further information was bound to come to light whether it had been requested or not. The fact that a request for that information had been made was not material to the decision on the without notice application and is unlikely to have lead to a different result.
[25] That then leaves the question of scale costs. Costs are normally awarded in favour of the successful party. As the application for discharge was resolved by consent, there was no final determination of the respective merits of each party’s position.
[26] Nevertheless, the freezing orders over both properties were ultimately discharged as Mr Bi had sought. The consensus reached was due in large part to Mr Bi filing the application and providing information in support. I consider Mr Bi is entitled to scale costs on this basis.
[27] However, some adjustment is required to reflect the fact that Texas Heat’s consent to the discharge over both properties resulted in a shortened hearing. Furthermore, some of the time at the hearing was taken to argue Mr Bi’s application for indemnity and increased costs, in which he has ultimately been unsuccessful.
[28] I consider an award of costs to Mr Bi on a schedule 2B basis for the steps up to, but not including, the hearing, fairly represents the costs position of each party in
respect of the application.
4 Commissioner of Inland Revenue v Dymock, above n 2 at [40]–[42].
Result
[29] Mr Bi’s application for indemnity or increased costs is dismissed.
[30] Mr Bi is awarded costs in respect of his application for discharge of freezing orders on a schedule 2B basis for the steps up to, but not including, the hearing, plus
disbursements as fixed by the Registrar.
Edwards J
0
0
0