Tian v Zhang

[2019] NZHC 2785

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-001204

[2019] NZHC 2785

BETWEEN

LINGBI TIAN

Plaintiff

AND

JIE ZHANG

First Defendant

AND

NAIQIAO GU

Second Defendant

AND

NAIQIAO GU and KTT TRUSTEE

LIMITED as trustees of the KTT FAMILY TRUST

Third Defendants

AND

E-JOY LIMITED

Fourth Defendant

On the papers
Appearances:	R Reed and M Tan for Plaintiff T-C Wu for Defendants
Judgment:	30 October 2019

JUDGMENT (NO. 2) OF TOOGOOD J [DISPOSITION AND COSTS]

This judgment was delivered by me on 30 October 2019 at 4.30 pm Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

TIAN v ZHANG & ORS [2019] NZHC 2785 [30 October 2019]

Introduction

[1]    This judgment concerns the making of orders under the Property Law Act 2007 (PLA) and competing applications for costs following liability findings made in a judgment issued on 9 September 2019 (“the liability judgment”).1

The proceeding

[2]    Kelly Tian and Anson Zhang were engaged to be married. Four properties were acquired. Both Ms Tian and Mr Zhang contributed to the amounts paid for the deposits. The properties were registered in Ms Tian’s name or her mother’s. The parties separated, and Mr Zhang lodged caveats over the properties.

[3]    Ms Tian alleged that Mr Zhang’s contributions were gifts; each being part of a dowry that Mr Zhang agreed to pay. She sought a declaration that Mr Zhang had no beneficial interest in the properties and orders that his caveats be removed. In the alternative she sought declarations she and Mr Zhang were co-owners of those properties in shares proportionate  to  their  contributions  to  the  purchase  price.  Mr Zhang argued in favour of the alternative.

[4]    Ms Tian also sought judgment for amounts she said were outstanding under an alleged personal loan and for invoices that she had submitted for assistance provided to Mr Zhang’s mortgage broking company E-Joy Ltd (E-Joy).

[5]    In the liability judgment, I held that Mr Zhang was entitled to an equitable interest in the properties equivalent to $568,522.52. I also dismissed Ms Tian’s claims based on the personal loan and invoices. As to disposition, I said:

[81]  Unless the parties can resolve the basis upon which Mr Zhang should be repaid, it will be necessary for the Court to make appropriate orders under the Property Law Act. I am reluctant, however, to make orders directing the sale of the properties if Mr Zhang’s interests can be satisfied in some other way. In the absence of further assistance from the parties, I would be prepared to make orders in terms of the relief sought in the amended statement of claim, but the parties may prefer to resolve the matters themselves.

…

1      Tian v Zhang [2019] NZHC 2231.

[83]    Accordingly, I direct the parties to confer and, having done so, to file a joint memorandum informing the Court of what relief, if any, is required to be granted in the proceeding to reflect the findings that have been made…. If the parties cannot agree, their respective positions shall be recorded in the memorandum and I shall make further directions.

[6]    Regrettably, the parties have been unable to agree on how Mr Zhang should be paid. I must resolve the impasse. There is also a dispute about costs. Each party seeks increased costs against the other. I am required to rule on that matter also.

How should Mr Zhang be paid?

[7]    Under s 339(1)(a) of the PLA, a Court may make an order for the sale of a property owned by co-owners and the division of the proceeds among them. Before doing so it may order the property be valued and direct how the cost of the valuation is to be borne.2 In addition to an order for sale, the Court may:3

(a)require one co-owner to pay compensation to another;

(b)direct how the expenses of any sale are to be borne; and/or

(c)direct how the proceeds of any sale are to be divided.

[8]Ms Tian suggests that, to give effect to the decision that Mr Zhang is owed

$568.522.52, I should order as follows:

(a)Ms Tian shall sell the property at 35 Corunna Road within 12 months.

(b)14 days prior to settlement, Mr Zhang must remove the caveat lodged on Corunna Road.

(c)The net sale proceeds (less sale and legal costs) shall be placed in her solicitor’s trust account. $568,522.52 will be distributed to Mr Zhang. Any remainder will be distributed to Ms Tian.

2      Property Law Act 2007, s 339(3).

3      Section 343.

(d)If the net sale proceeds are less than $568,522.52, Ms Tian will pay Mr Zhang the shortfall within 14 days of settlement.

(e)Upon being paid $568,522.52, Mr Zhang will remove his caveats on the other three properties.

(f)If Corunna Road is not sold within 12 months, Ms Tian shall pay

$568,522.52 within a further 14 days. Mr Zhang will then remove the caveats over all properties.

[9]    Ms Tian expresses confidence in the saleability of Corunna Road. She also anticipates that the proceeds resulting from that sale will cover most if not all of the

$568,522.52  owed  to  Mr  Zhang.   The  remaining  mortgage  on  Corunna  Road is

$1,310,000. The property was valued at $1,800,000 on 14 May 2018. More recently, on 21 May 2019, Ms Tian agreed to sell the property for $2,200,000. The sale did not proceed, but she says it shows that the property can be sold and at sufficient value so as to satisfy Mr Zhang’s debt. Then, on 17 September 2019, Ms Tian entered into a subsequent agreement to sell Corunna Road along with a neighbouring property for a total of $4,380,000. There being no issues as to saleability, Ms Tian says an order for the sale of Corunna Road could be effected almost immediately.

[10]   Mr Zhang does not favour this approach, but he says he wants to be paid as soon as possible. He disputes the valuation of Corunna Road advanced by Ms Tian and suggests her figures are inflated. Mr Zhang’s preferred course of action is to have a combination of the properties transferred to him to satisfy the debt. He proposes the properties at English Oak Drive and Red Oak Place. Mr Zhang calculates that the total equity in these two properties is $570,000, close to the judgment sum. Upon transfer, Mr Zhang would assume responsibility for all future mortgage repayments and maintenance costs. He would also remove his caveats over all four properties. If this approach were adopted and directed, Mr Zhang says he would require a finance condition to be inserted into the property transfer, with a 12-month period, to allow him to arrange the necessary finance. He says this would be necessary given the depression of the housing market. As the person to whom judgment has been awarded,

Mr Zhang has an incentive to use all endeavours to secure finance so that the transfer is completed as quickly as possible.

[11]   But Mr Zhang anticipates an immediate hurdle; he suspects Ms Tian will dispute his valuation of the properties. Mr Zhang seeks orders from the Court that the parties jointly instruct a registered valuer who would value each of the four properties. He and Ms Tian would share the costs of valuation in equal shares. Following that, Mr Zhang suggests, the parties will be in a better position to determine how the properties should be divided to meet the judgment sum. If no agreement is reached, the Court will be better assisted to make appropriate consequential orders with the benefit of up to date valuation reports.

Discussion

[12]   I have decided that making orders similar to those proposed by Ms Tian is the simplest means of ensuring Mr Zhang is paid in a timely fashion. He has been out of pocket for over four years and Ms Tian, her mother and the family trust have had the use of his capital during that time. Moreover, Mr Zhang’s proposal depends on valuations which are no more than informed estimates of value made by a professionally qualified person. Ms Tian’s proposal values the Corunna Road property in accordance with actual market value determined by a sale.

[13]   Mr Zhang protests the sale of Corunna Road primarily because he says he is entitled to be paid immediately, rather than be required to wait another 12 months to receive his due. But, if anything, the course he proposes is likely to take even longer. First, the properties would need to be valued. This would involve engaging an independent valuer to whom both parties agree. Given the state of the relationship between them, I have no confidence that this  would  be a painless  process.  Then Mr Zhang would need to arrange finance. This is something on which he himself places a 12-month timeframe. And, as was apparent in the course of the proceeding, Mr Zhang’s financial situation is somewhat perilous. The arranging of finance may not be easy for him.

[14]   Mr Zhang’s concerns about the “saleability” of Corunna Road and the suggested sale price overlook the undertaking provided by Ms Tian that she will make

up any shortfall if the proceeds of sale are less than the sum owed to Mr Zhang. It may be that the remaining equity in Corunna Road is somewhat less than $568,522.52. If that is the case, and if Ms Tian cannot sell the property at all, Mr Zhang will still receive payment in full.

[15]   In my view, simply ordering Ms Tian to sell Corunna Road would resolve matters with greater efficacy and certainty. Since Ms Tian is in a position to sell the property promptly, I consider a six-month time limit to be reasonable in the circumstances.

Costs

Legal principles

[16]   I now turn to consider court costs. Costs are at the discretion of the Court.4 Generally costs go to the winner.5 An award of costs should reflect the complexity and significance of the proceeding6 and should not exceed the costs actually incurred.7

[17]   The Court may order a party to pay increased costs where there has been a failure to act reasonably.8 One situation provided for in the High Court Rules is where the party opposing costs has contributed unnecessarily to the time or expense of the proceeding by failing, without reasonable justification, to accept an offer of settlement.9 The party seeking increased costs bears the onus of convincing the Court that they are justified.10 An uplift will be justified to the extent that the failure to act reasonably contributed to the time or expense of the proceeding.11

[18]   If several defendants defended a proceeding separately and it appears to the Court that they could have joined in their defence, the Court must not allow more than

4      High Court Rules, r 14.1.

5      Rule 14.2(a).

6      Rule 14.2(b).

7      Rule 14.2(f).

8      Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [27].

9      Rule 14.6(3)(b)(v).

10     Strachan v Denbigh Property Ltd HC Palmerston North CIV-2010-454-232, 3 June 2011 at [27].

11     Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2010] NZCA 400, (2010) 24 NZTC 24,500 at [165].

one set of costs unless it appears that there is good reason to do so.12 The principles behind this rule were recently summarised by Wylie J in Independent Māori Statutory Board v Auckland Council:13

[8]        …[T]he policy behind the rule is to minimise costs by shortening hearings where a joint defence can reasonably be expected. The rule suggests a policy which requires the Court to exercise some caution in awarding costs, without more, in favour of multiple parties, particularly when there is some overlap or community of interest in the litigation position of the parties seeking costs.

[9]        …The Court should look in a realistic way at whether the parties have common or overlapping interests, and if so, to what extent. It can consider whether the parties took legal advice as to the appropriateness of separate/joint representation, and if so, what it was, and whether it was followed. The Court can consider the extent to which parties did or could have relied upon the evidence or submissions of another.

(Citations omitted)

Ms Tian’s position

[19]   Ms Tian submits that she was “largely successful” in the proceeding. While she did not succeed in either of her secondary claims, the bulk of her case lay in the disposition of the four properties. Ms Tian acknowledges she did not obtain a declaration that Mr Zhang had no beneficial interest in any of the properties; but she did “effectively obtain a beneficial interest of around 90 percent” in the properties. It follows that Mr Zhang obtained only around 10 percent and was not the successful party.

[20]   Ms Tian says, therefore, that she is entitled to scale costs on a 2B basis. Moreover, she submits that any costs award should be increased to reflect various offers of settlement which she made prior to the hearing. Each of these was rejected, unreasonably, by Mr Zhang:

(a)In November 2017 Ms Tian offered to transfer Scarlet Oak and Red Oak to Mr Zhang on the basis that she kept the other two properties and he transferred her the sum of $15,000. By the defendant’s own

12     Rule 14.15.

13     Independent Māori Statutory Board v Auckland Council [2017] NZHC 678.

valuations, he would have received approximately $1,045,000 in equity.

(b)On 31 January 2018, 24 April 2018 and 24 May 2019 Ms Tian made three Calderbank offers in which she offered to transfer Red Oak to Mr Zhang. The equity in this property was some $535,000, very close to the $568,522.52 Mr Zhang eventually received in judgment.

[21]   Ms Tian says that Mr Zhang failed to accept these offers without reasonable justification. Given the relative benefits involved, he should have accepted them. Further, by May 2019 in particular, Mr Zhang would have been well placed to assess the offer realistically against the likely outcome of the proceeding. As a result of his failure to do so, Ms Tian was forced to incur considerable legal costs. She seeks an increase in costs of 30 percent.

Mr Zhang’s position

[22]   Mr Zhang contends that he is the successful party. Further, he argues that he and E-Joy are entitled to separate costs awards. Separate and unrelated claims were made against them individually. The allegations against Mr Zhang concerned his contributions towards the properties and a supposed loan agreement between himself and Ms Tian. The allegations against E-Joy related to the invoices. Mr Zhang says the nature of these claims is “fundamentally different”; there is no overlap or community of interests.

[23]   As to the matter of who succeeded, Mr Zhang reminds the Court that it was Ms Tian who brought the proceeding in the first place. It is pointed out that she was wholly unsuccessful in her claim that Mr Zhang’s contributions towards the properties were gifts in the form of a dowry. A substantial part of the hearing was devoted to determining this matter. Although Ms Tian alternatively sought declarations that the properties are held on trust in proportion with the contributions made by each of the parties, this essentially mirrored Mr Zhang’s statement of defence.  In  this, it was  Mr Zhang who succeeded, not Ms Tian. Mr Zhang was able to establish his contributions towards each property and obtain declaratory orders to that effect.

Ms Tian, on the other hand, was not. She also failed to establish her claims in respect of the personal loan and the invoices.

[24]   As the unsuccessful party, Ms Tian’s offers of settlement are all but irrelevant, according to Mr Zhang. In any case, each of three Calderbank offers was for a significantly lesser amount than Mr Zhang ultimately achieved in judgment. The November 2017 offer, while appearing generous in its terms, contained an onerous condition: Mr Zhang was to arrange the finance necessary to effect the transfer within a certain period of time. If he did not, the properties would be deemed to be transferred to Ms Tian. In the circumstances, Mr Zhang says that there was no reasonable basis to accept the offers and that the defendants were entitled to defend the claims against them.

[25]   In addition, Mr Zhang (and E-Joy) seek an uplift of 50 percent in the award of costs because, they say, Ms Tian conducted herself unreasonably:

(a)Many of her allegations were made without a proper evidential foundation.

(b)The statement of claim was expanded in April 2019 while the parties were engaged in mediation. Prior to this Mr Zhang says they had agreed on a “framework” for settlement.

(c)Ms Tian rejected an offer Mr Zhang made on 2 June 2019, to buy Corunna Road subject to what Mr Zhang says were “quite reasonable conditions”, although he has not explained what these conditions were.

Discussion

[26]   It is clear to me that Mr Zhang was the successful party in this proceeding. Ms Tian alleged in her amended statement of claim that Mr Zhang’s contributions towards the properties were gifts. On that basis, she sought a declaration that he had no beneficial interest in the properties and orders that his caveats be removed.

[27]   I rejected that claim, because Ms Tian failed to produce evidence that persuaded me it was probable that Mr Zhang intended to make an outright and irrevocable gift of the funds to her. She did not displace the presumption of a resulting trust. That being the case, Mr Zhang’s contributions towards the purchase price of the properties were recognised for what they were and declarations as to the corresponding extent of his beneficial ownership made in his favour. This was ultimately to his advantage.

[28]   Further, I agree with Mr Zhang that this matter was the principal issue in the proceeding. Ms Tian cannot reasonably say that she enjoyed a modicum of success in this regard. It follows I reject as artificial her claim that, now being entitled to some 90 percent of the value of the properties, she should be seen as the successful party. Conceptualising the matter that way does not recognise her animus in bringing the proceeding. She sought recognition as the sole beneficial owner of the properties and to have Mr Zhang’s caveats removed. She achieved neither. And while declarations as to the parties’ beneficial ownership in proportion to their contributions was technically pleaded as an alternative ground of relief, the result provided her with no benefit. As Mr Zhang pointed out, it essentially mirrored his pleaded defence.

[29]   Finally, but not insignificantly, Ms Tian failed in the claims she brought in respect of the personal loan and invoices.

[30]   I consider, therefore, that the defendants are entitled to scale costs against   Ms Tian on a 2B basis. I accept that the interests of the two defendants are intertwined, that Mr Zhang is E-Joy’s sole director and that Mr Zhang and the company are represented by the same counsel. Further, in the course of the proceeding, Ms Tian claimed that various payments made to her by either Mr Zhang or E-Joy were not contributions towards the properties as those parties contended, but rather payments towards the personal loan or invoices.  She made no real distinction between the two.

[31]   This was not a case where the claims against each defendant could readily be insulated from one another. Requiring Ms Tian to pay costs twice in separate awards would be contrary to the principles underlying r 14.15 which were articulated by Wylie J in Independent Māori Statutory Board v Auckland Council. Simply ordering that the

costs be paid to Mr Zhang alone and holding that E-Joy should not receive any, however, would be to ignore the veil of incorporation and the different nature of the claims. I consider it appropriate to apportion the costs between Mr Zhang and his company in accordance with my assessment that around 20 per cent of the costs of defending the proceeding related to the claims against E-Joy.

[32]   I do not accept the submission that Mr Zhang should be entitled to increased costs. It is true that Ms Tian’s pleadings were deficient in several respects and her assertions were unsupported by an adequate evidential foundation. But these shortcomings were not so egregious that Ms Tian could be said to have acted unreasonably. The limitations in her case were reflected in my refusal to make orders in her favour. Ms Tian’s claims were not unreasonable or untenable in principle. The claims failed because Ms Tian did not meet the burden of proof she assumed when she issued the proceeding, but that alone does not mean she acted unreasonably. As to Ms Tian’s failure to settle on the eve of the hearing against the backdrop of mediation, I do not have enough information about this to assess, as I must, whether it was reasonable for Ms Tian to reject the offer at the time it was made rather than with the benefit of hindsight.14 In any case, as a general principle, the closer to a hearing a settlement offer is made, the more difficult it is to argue that a party’s failure to accept the offer is unreasonable.15

Ms Tian’s claims against her mother and the other trustee of the KTT Family Trust

[33]   In the liability judgment, I said that I was prepared to make consent orders regarding Ms Tian’s beneficial interests in the properties held by Ms Gu and the KTT Family Trust, but noted that the evidence did not establish the extent or value of her interests.16 I anticipated that counsel for Ms Tian, who confirmed that she was also instructed on behalf of Ms Gu and the Trust, would include in the memorandum a draft order that met her clients’ respective needs or wishes. She did not do so. It may have been that counsel considered the orders to be made for the disposition of the Corunna

14     Samson v Mourant [2016] NZHC 1119 at [44].

15     Loktronic Industries Ltd v Diver [2014] NZHC 1189 at [14].

16     Tian v Zhang [2019] NZHC 2231 at [82].

Road property would affect the appropriate course for the disposition of the other properties.

[34]   Whatever the reason, I decline to make any other orders and leave it to the parties to resolve matters between themselves.

Result

Orders under the Property Law Act 2007

[35]   I make the following orders pursuant to ss 339 and 343 of the Property Law Act 2007:

(a)Ms Tian shall sell the property located at 35 Corunna Road, Milford, Auckland before 1 May 2020.

(b)Not less than 14 days prior to the date of the settlement of the sale of 35 Corunna Road, Mr Zhang shall remove the caveat lodged on this property.

(c)The net sale proceeds (less sale and legal costs) received from the sale of 35 Corunna Road shall be placed in Prestige Lawyers Limited’s trust account and shall be distributed only as follows:

(i)Not more than 7 days after the receipt of the funds into the trust account, if the net sale proceeds are sufficient, $568,522.52 shall be paid to Mr Zhang in satisfaction of his interests in the properties and the remaining sum (if any) shall be paid to the Ms Tian.

(ii)Not more than 7 days after the receipt of the funds into the trust account, if the net sale proceeds  are  insufficient  to  satisfy Mr Zhang’s interests in the properties, the net sale proceeds shall be paid to Mr Zhang and Ms Tian shall pay to Mr Zhang the difference between the net sale proceeds and $568,522.52.

(d)If settlement of the sale of 35 Corunna Road does not take place before 1 May 2020, Ms Tian shall pay the first defendant $568,522.52 on or before 15 May 2020.

(e)Forthwith upon the payment of $568,522.52 to Mr Zhang pursuant to any one of the orders in (c) and (d), he shall remove the caveats lodged on 35 Corunna Road (if not previously removed), 58 English Oak Drive, 31 Scarlet Oak Drive, and 7 Red Oak Place.

Costs

[36]   Ms Tian shall pay scale costs on a 2B basis, plus disbursements as approved by the Registrar, upon the conditions that:

(a)the sum for disbursements shall be paid to Mr Zhang;

(b)the sum for costs shall be apportioned on the basis of 80 per cent to Mr Zhang and 20 per cent to E-Joy Ltd; and

(c)the payment of costs and disbursements is not dependent on the sale of the Corunna Road property.

…………………………….

Toogood J