Wang v Zhang
[2022] NZHC 171
•14 February 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-2583
[2022] NZHC 171
UNDER the Property Law Act 2007 IN THE MATTER
of a prejudicial disposition of property
BETWEEN
JIANPING WANG
Plaintiff
AND
WEIHUA ZHANG
First Defendant
DENNIS CLIFFORD PARSONS AS ADMINISTRATOR OF THE ESTATE OF JIHONG LU
Second Defendant
Hearing: On the papers Counsel:
G E Slevin for Plaintiff
K G Davenport QC for First Defendant P V Cornegé for Second Defendant
Judgment:
14 February 2022
COSTS JUDGMENT OF PETERS J
This judgment was delivered by Justice Peters on 14 February 2021 at 3 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date: ...................................
Solicitors: Davidson Legal, Christchurch
Ben Liu & Co, Auckland Nielsen Law, Hamilton
Counsel: G E Slevin, Christchurch
K G Davenport QC, Auckland P V Cornegé, Hamilton
WANG v ZHANG [2022] NZHC 171 [14 February 2022]
Introduction
[1] I issued a judgment in this matter on 24 November 2021.1 This judgment is to determine costs in the proceeding. The plaintiff, Mr Wang, seeks costs, as does the first defendant, Ms Zhang, for a period. No costs are sought by or against the second defendant, Mr Parsons.
[2] Mr Wang sought orders pursuant to s 348(2)(b) of the Property Law Act 2007 (“PLA”) to require Ms Zhang to pay reasonable compensation in respect of two dispositions of property made by her son Mr Jihong Lu (deceased). Mr Lu was indebted to Mr Wang.
[3] The first disposition was of Mr Lu’s share in residential property in Auckland, of which he and Ms Zhang were joint tenants (“property”). In August 2019, Mr Lu transferred his interest in the property to Ms Zhang by way of gift, making her the sole registered proprietor of the property. By the time Mr Wang commenced proceedings, Ms Zhang had contracted to sell the property for $3,696,000. Less agent’s fees, the sum required to discharge a mortgage registered against the title, and associated disbursements, the net proceeds of sale were $836,376.48. At Mr Wang’s instigation, this fund was held in trust throughout.
[4] The second disposition comprised interest payments of $70,721 that Mr Lu had made to a lender. This claim was hopeless from the start, and I dismissed it. However, it took up virtually no time at all and I put it to one side.
[5] Mr Lu died in Taiwan in January 2020. Mr Parsons was appointed to administer Mr Lu’s estate.
[6] The principal issues at the outset of the proceeding (not the trial itself) were whether Mr Lu had disposed of his interest in the property so as to defeat his creditors and, if so, the value of that interest.
[7] Prior to trial Ms Zhang made it clear she did not dispute that Mr Wang had been prejudiced by Mr Lu’s disposition of his interest in the property. Once that was
1 Wang v Zhang [2021] NZHC 3175.
known, the issue at trial was what would constitute reasonable compensation for the disposition. This was agreed to be 50 per cent of the net proceeds of a sale of the property at market value and, if necessary, the availability of the defence in s 349(2) PLA.
[8] Mr Wang’s case was that Ms Zhang had sold at an undervalue, that market value at the time of sale was $4,250,000, and that reasonable compensation would be
$830,002.28, ie 50 per cent of what would have been the net proceeds of sale at what he contended was market value.
[9] Ms Zhang’s case was that she had sold at market value, and the sum due was one half of the net proceeds of sale in fact, being $418,188.24.
[10] For reasons I gave in the judgment, I determined that Ms Zhang had not sold at an undervalue and that the sum she proposed, plus interest accrued thereon, less any holding costs should be paid to Mr Parsons, with the balance to be released to Ms Zhang. If I were wrong in that, Ms Zhang was entitled to rely on the defence in s 349(2) in respect of any sum greater than 50 per cent of the net proceeds of sale.
[11] Each party now seeks an award of costs, on the previously ordered 2B basis. Mr Slevin contends that Mr Wang is entitled to an award under the usual rule that costs follow the event.
[12] For Ms Zhang, Ms Davenport QC submits a reduction in Mr Wang’s costs is warranted, and she also seeks costs in reliance on an offer or offers she made to settle the matter prior to trial.
Documents
[13]The starting point is the documents on which Ms Davenport relies.
[14] First, in her (first) memorandum of 13 December 2019, Ms Zhang submitted that the dispute concerned only Mr Lu’s share of the net proceeds of sale:
For the purposes of the freezing order, Ms Zhang accepts that 50% of the property transferred to her on 6 August 2019 should be held pending the
resolution of the substantive claim. She does not accept the 50% interest she always owned in the property should be the subject of any order.
[15] This statement does not assist Ms Zhang as it was confined to Mr Wang’s application for a freezing order and made no concession relevant to the issues in the proceeding.
[16] In a memorandum of 10 March 2021, filed in advance of the first case management conference, Ms Zhang said:
The first defendant does not claim to be entitled to the half of the property transferred to her by Mr Lu by way of gift by Deed dated 5 August 2019.
[17]Bell AJ recorded this in his minute of the conference of 16 March 2021.
[18]Next, in her amended statement of defence of 16 April 2021, Ms Zhang said:
… she now accepts that the transfer of the ½ share of the property to her was likely designed by her son to diminish the value of his own estate. Further she accepts that she holds ½ the proceeds of the sale ($836,376.48) being
$418,188.00 for the benefit of her son’s estate or if so ordered by the Court for the benefit of Mr Wang. She confirms that she is ready, willing and able to pay this sum to the plaintiff or as directed by the Court…
[19] It is clear from this document, and the memorandum of March 2021, that Ms Zhang accepted she had no claim to Mr Lu’s interest in the property and was willing to pay the sum to which she referred. That was the outcome of trial, bar my order that Mr Parsons should have the interest accrued less holding costs attributable to Mr Lu’s half share.
[20] Turning then to the offers on which Ms Davenport relies, on 20 May 2021 she wrote to Mr Slevin in the following terms:
Without Prejudice save as to Costs
…
You now have access to discovered documents and have seen those which demonstrate that the property was sold for market value and that valuation in the Deed of Gift (based on the CV) was clearly wrong. The discovered documents show the reports of open homes which indicate the reason the house did not reach a higher value.
We consider your client’s claim to compensation beyond half of the frozen funds is destined to fail in the circumstances of this case. Settlement is the
best option for all. Our client will settle this case by agreeing to provide 50% of the funds to the appointed administrator. Please confirm your client accepts this offer.
[21] In his response of 21 May 2021, Mr Slevin advised that Mr Wang did not consider the sale price of the property “necessarily equates to its market value” at the date of disposition; that Mr Wang intended to seek expert evidence on that point; that Mr Wang did not accept he had all documents relevant to the sale; and requested a current statement of account of the funds held in trust and clarification of the amount being offered.
[22] Ms Isaacs, Ms Davenport’s junior counsel, replied on 24 June 2021, by which time there had been further discovery and the trial date in October 2021 had been allocated. Ms Isaacs provided the requested statement, saying that half of the proceeds of sale then held in trust (by this stage net of payments of Ms Zhang’s legal fees to date) was $379,403.54 but that Ms Zhang offered $400,000, “to address your concerns about some of the invoices” (presumably the legal fees). Ms Isaacs also referred to additional discovery provided that day and relevant to the issue of the sale price.
[23]There is no evidence of any response to this email.
Rules
[24]The relevant provisions are:
14.7 Refusal of, or reduction in, costs
Despite rules 14.2 to 14.5, the court may refuse to make an order for costs or may reduce the costs otherwise payable under those rules if—
...
(d) although the party claiming costs has succeeded overall, that party has failed in relation to a cause of action or issue which significantly increased the costs of the party opposing costs; or
…
(f)the party claiming costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—
(ii)taking or pursuing an unnecessary step or an argument that lacks merit; or
…
(v) failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding…
(g)some other reason exists which justifies the court refusing costs or reducing costs despite the principle that the determination of costs should be predictable and expeditious.
14.10Written offers without prejudice except as to costs
(1)A party to a proceeding may make a written offer to another party at any time that—
(a)is expressly stated to be without prejudice except as to costs; and
(b)relates to an issue in the proceeding.
(2)The fact that the offer has been made must not be communicated to the court until the question of costs is to be decided.
14.11Effect on costs
(1)The effect (if any) that the making of an offer under rule 14.10 has on the question of costs is at the discretion of the court.
(2)Subclauses (3) and (4)—
(a)are subject to subclause (1); and
(b)do not limit rule 14.6 or 14.7; and
(c)apply to an offer made under rule 14.10 by a party to a proceeding (party A) to another party to it (party B).
(3)Party A is entitled to costs on the steps taken in the proceeding after the offer is made, if party A—
(a)offers a sum of money to party B that exceeds the amount of a judgment obtained by party B against party A; or
(b)makes an offer that would have been more beneficial to party B than the judgment obtained by party B against party A.
(4)The offer may be taken into account, if party A makes an offer that—
(a)does not fall within paragraph (a) or (b) of subclause (3); and
(b)is close to the value or benefit of the judgment obtained by party B.
[25] Ms Davenport submits that Mr Wang’s claims for the interest payments, and more than half of the net proceeds of sale of the property, were unmeritorious. She also seeks costs from the filing of the amended statement of defence on 16 April 2021 to the present. She submits that Mr Wang’s failure to accept settlement offers was unreasonable and unnecessarily prolonged the proceeding and increased costs. Ms Davenport submits that Ms Zhang made it clear to Mr Wang thereafter that she would pay (or agreed Mr Parsons should be paid) 50 per cent of the net proceeds of sale. She submits that Mr Wang did no better at trial and thus Ms Zhang is entitled to an award of costs under rr 14.10 and 14.11, and/or to a reduction in the costs otherwise due to Mr Wang under r 14.7.
[26] Mr Slevin submits there is no basis for any award under rr 14.11(3) or (4), or any reduction under r 14.7.
[27] Mr Slevin submits that I should take no account of the offers of 20 May and 24 June 2021 as they were made prior to discovery of an offer of $4,050,000 and other offers for the property which Mr Slevin contends were relevant to the expert valuation advice obtained. He also submits that Ms Zhang breached r 14.10(2) by annexing her email of 24 June 2021 to an affidavit; that the sum of $400,000 offered on 24 June 2021 offered nothing for interest and costs and, in any event, was less than the sum ultimately ordered to be paid to Mr Parsons; and that, in any event, it was not unreasonable to decline the offer as Mr Wang sought interest under the Interest on Money Claims Act 2016 to which he contends Mr Wang was entitled but which I did not award.
[28] As to r 14.7, Mr Slevin submits that Mr Wang’s arguments for more than 50 per cent of the net sale price did not lack merit and any offers to settle were also made at a time when Mr Wang did not know Mr Lu’s equity in the property, and so were made on a “trust me basis”. If they were offers for the purposes of r 14.7, Mr Slevin submits Mr Wang was reasonably justified in declining them as Mr Wang did not have the discovery he required to evaluate them.
[29] As for the submission that his arguments were without merit, Mr Slevin submits that while Mr Wang’s evidence on the value of the property was not accepted, the claim was not so unmeritorious as to justify an award of costs to the losing party.
[30] Lastly, if there is to be any reduction under r 14.7, it should be only in respect of the steps taken to prepare for and attend the hearing.
Discussion
[31] The first issue is whether Ms Zhang made an offer under r 14.10 such that she is entitled to an award of costs under r 14.11(3). I am not persuaded that she did. Mr Wang did better at trial than the sums offered in May or June 2021.
[32] The next issue is what effect, if any, should be given to the documents referred to in [14] to [22]. I accept Mr Slevin’s point that the May 2021 offer did not put a dollar value on the sum offered, and the sum offered in June 2021 was less than half of the net proceeds of sale so I am not satisfied r 11.4 applies or, if it does, I am not persuaded to give it any effect.
[33] That said, from March 2021 onwards, the only issue was whether or not the property had sold at an undervalue. As it turned out, Mr Wang lost decisively on that issue and at the latest it was unreasonable of him to persist with that claim from the time he received the second tranche of discovery.
[34] The lists of documents are on the Court file. From discovery Mr Wang would have known that Ms Zhang had engaged Bayleys, a reputable firm of real estate agents; that they had conducted what appears to have been a fairly standard sales campaign; that several of those who viewed the property had reported to Bayleys that they were deterred by the construction of a very substantial apartment complex, occupying several sites to the rear; and that Ms Zhang had accepted the only offer to purchase that had any merit whatsoever, and which was from a third party purchaser. As I said in my judgment, the other two “offers” were not capable of acceptance. Mr Wang’s stance and valuation evidence was unreasonable in the face of the contemporaneous evidence.
[35] Accordingly, I take the view Mr Wang’s persistence on that point after 24 June 2021 at the latest was unreasonable. As for the matter of interest, quite aside from anything else, there was little prospect of Ms Zhang being ordered to pay interest under the Interest on Money Claims Act. This is because at Mr Wang’s instigation the entire fund — Ms Zhang’s share included — had been frozen in a solicitor’s trust account on term deposit for the best part of two years. This was not a case in which Ms Zhang had been free to act as she wished with the entire fund.
[36] In the circumstances, the case calls for a reduction in Mr Wang’s costs but no award in favour of Ms Zhang.
[37] I order Ms Zhang to pay costs to Mr Wang on a 2B basis, and disbursements, for all steps up to and including Mr Slevin’s review of the second tranche of discovery. From that point on the issues should have devolved to the matters covered by the relief I ordered, and all subsequent steps and applications would have been avoided. Mr Wang is to bear his own costs and disbursements, including his expert’s fees, in respect of all steps thereafter.
[38] Finally, I ask that Mr Slevin review his schedule of costs and disbursements as it is not apparent to me that Ms Zhang should be required to meet costs or disbursements attributable to such matters as the application for substituted service on Mr Lu (nothing to do with Ms Zhang), or amended statements of claim, or the valuation evidence.
Result
[39] The first defendant is to pay the plaintiff’s costs and disbursements in accordance with [37] above.
[40] I reserve leave to apply in the unlikely event of any disagreement between counsel.
Peters J
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