XIANGLI LIMITED AND A CLASS COACHES 2008 LIMITED
[2024] NZHC 3331
•11 November 2024
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2024-409-093
[2024] NZHC 3331
BETWEEN XIANGLI LIMITED
Appellant
AND
A CLASS COACHES 2008 LIMITED
Respondent
Hearing: Memoranda filed 9 and 16 October 2024, and telephone
conference on 23 October 2024
Appearances:
S Caradus and J K Gunn for Respondent C Jiang for Non-Party
Judgment:
11 November 2024
JUDGMENT OF ASSOCIATE JUDGE PAULSEN (NON-PARTY COSTS)
This judgment was delivered by me on 11 November 2024 at 4.00 pm pursuant to rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date:
XIANGLI LIMITED v A CLASS COACHES 2008 LIMITED [2024] NZHC 3331 [11 November 2024]
[1] Xiangli Ltd (the appellant) brought a claim against A Class Coaches 2008 Ltd (the respondent) in the District Court, claiming a refund of $200,000 paid to purchase a tour bus from the respondent. The claim was dismissed by Judge Kellar.1 Subsequently the appellant was ordered to pay costs to the respondent in the District Court of $24,629. The appellant did not pay the costs and appealed the District Court decision to the High Court.
[2] In a judgment dated 3 October 2024, Preston J dismissed the appeal and awarded costs to the respondent against the appellant.2 She also reserved leave for the respondent to apply for non-party costs against the sole director of the appellant, Yuxiang Zhai (referred to by counsel as Mr Zhai), who is also a 50 per cent shareholder of the appellant.
[3] Counsel filed memoranda in respect of the respondent’s claim for non-party costs and I conducted a telephone conference with them. Counsel for Mr Zhai, Mr Jiang, was also counsel who appeared for the appellant at its appeal. He confirmed the application could be dealt with on the papers without a formal application being made.
[4] Counsel agree that the ultimate question to be determined on this application is whether in all the circumstances it is just for an order to be made that Mr Zhai pay costs in the proceeding.
Legal principles
[5] The Court has a broad discretion to make an order for costs against a non-party, either under r 14.1 of the High Court Rules 2016 or under its inherent jurisdiction. The leading authorities are decisions of the Privy Council in Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) and the New Zealand Court of Appeal in Kidd v Equity Realty (1995) Ltd.3
1 Xiangli Ltd v A Class Coaches 2008 Ltd [2023] NZDC 27777.
2 Xiangli Ltd v A Class Coaches 2008 Ltd [2024] NZHC 2871.
3 Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2004] UKPC 39, [2005] 1 NZLR 145 at [25]; and Kidd v Equity Realty (1995) Ltd [2010] NZCA 452 at [14]–[20].
[6] Non-party costs are exceptional but only in the sense that they are outside the ordinary class of case where parties pursue claims for their own benefit and at their own expense. While it may be a relevant factor for awarding non-party costs,4 it is not necessary that the party applying for such an award demonstrate misconduct or mala fides on the part of the non-party.5
[7] Mr Jiang referred me to a summary of the relevant principles discussed in the Dymocks Franchise Systems case as set out in McGechan on Procedure, which I adopt in this case as follows:6
(a)A costs order against a non-party should only be made in exceptional circumstances. “Exceptional” means no more than “outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense”.
(b)The ultimate question in any such “exceptional” case was whether in all the circumstances it was just to make the order.
(c)Liability for costs will attach to non-parties who not only funded a proceeding but substantially control it or are to benefit from it. The most difficult cases are those where non-parties fund receivers or liquidators in litigation that is designed to advance the funder’s own financial interests.
(d)However, that is not to say that orders will invariably be made in such cases particularly, say, where the non-party is himself a director or liquidator who can realistically be regarded as acting rather in the interests of the company (and more especially its shareholders and creditors) than his own interests.
4 See for instance see Wagner v B Property Group Ltd [2024] NZHC 1305.
5 Carborundum Abrasives Ltd v Bank of New Zealand (No 2) [1992] 3 NZLR 757 (HC) at 764–765.
6 Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at [HR 14.09].
(e)Being a major shareholder or dominant director in a company is not enough: something additional, such as a fresh injection of capital for the known purpose of funding litigation, is generally required. Providing non-financial support, such as time or assistance with proceedings, is not enough to constitute a person a “funder”.
The respondent’s submissions
[8] The respondent argues it is just to award costs against Mr Zhai for several reasons. First, it is said that it was acknowledged following the issue of the District Court’s decision that Xiangli Ltd was impecunious and could not pay costs in the District Court. The appeal was therefore pursued knowing the company would not be in a position to pay costs.
[9] Related to this, since August 2024 Xiangli Ltd has been overdue with its obligation to file an annual return and notice has been given of the Registrar’s intention to remove the company from the Register. This suggests the company is not trading and any costs award obtained against it will be barren.
[10] Second, Xiangli Ltd is a closely owned company. Mr Zhai is the sole director and 50 per cent shareholder of Xiangli Ltd. I note that there is one other shareholder who shares an address with Mr Zhai. Mr Caradus refers to the notes of evidence before the District Court, which it is said show that Mr Zhai had used the purchase of the bus as part of his application for permanent residency through the investment criteria. I was also referred to evidence indicating that decisions made in respect of the bus were taken for Mr Zhai’s personal benefit.
[11] Third, it is said it was Mr Zhai who advanced the claim for the company in the District Court and the appeal in the High Court in circumstances where the company was insolvent. I am asked to draw an inference that Mr Zhai funded the litigation, and Mr Caradus submits that it would be highly unpalatable for a director or shareholder to channel funds into an insolvent company to pursue litigation, shielding the director or shareholder from any costs exposure and leaving the other party out of pocket.
[12] Fourth, the respondent submits Mr Zhai was the controlling mind and will of the company and he clearly considered his own personal views and actions as synonymous with those of the company.
[13] Finally, the respondent says the claim (and the appeal) was a “try on” from the start, and the fundamental basis upon which it was advanced was patently incorrect.
The non-party’s submissions
[14] Mr Jiang submits there is no evidence the appellant was impecunious from the commencement of the proceeding in 2018 until trial in 2023 as it met all court fees and its legal costs during that period.
[15] He argues the allegation that Mr Zhai used the purchase of the bus to obtain residency is irrelevant and factually incorrect. It is said Mr Zhai has interests in several businesses and there is no evidence that he applied for residency through the appellant.
[16] As far as funding the proceeding is concerned, it is again said there is no evidence that Mr Zhai has provided funds into the company for that purpose.
[17] While the respondent alleges Mr Zhai is the controlling mind and will of the company, Mr Jiang submits he is only a 50 per cent shareholder, meaning that if the other shareholder disagreed with his decisions there would be a deadlock and he could not carry out any major transactions without the other shareholder’s consent.
[18] As far as the merits of the claim are concerned, it is denied that it was a “try on” and submitted that if the claim was so hopeless the respondent would be seeking increased costs not just scale costs.
[19] In conclusion, Mr Jiang says Mr Zhai did not advance the proceeding for his own benefit, and there was no personal benefit to Mr Zhai, “or to Mr Zhai only”, when he is only a 50 per cent shareholder. It is said this is not an exceptional case where an award of non-party costs would be appropriate.
Analysis
[20] I consider Mr Zhai should pay non-party costs. It is clear from correspondence that passed between solicitors following the District Court judgment that the company was not in a position to pay costs, and has not done so. Despite this inability, a decision was made to pursue the appeal.
[21] Mr Jiang submits that the company was not impecunious “during the proceedings”. However, at best he could only mean the District Court proceeding, as in emails sent to Mr Caradus after the District Court issued its judgment he refers to the appellant’s impecuniosity and inability to pay costs. Whether the appellant was also impecunious prior to that date is not presently relevant as the non-party costs sought relate only to the appeal.
[22] The respondent asks the Court to infer that Mr Zhai provided the appellant with the funds to pursue the appeal. The allegation is not expressly denied in counsel’s submission as could be expected if Mr Zhai was not funding the litigation. It was open to Mr Zhai to provide evidence that he had not funded the litigation if that was the case. It is, after all, a matter that is peculiarly within his knowledge. He did not do so. It is not sufficient, in my view, for Mr Jiang to submit there is “no evidence” and the assertion is “purely speculation”.
[23] I also do not accept that the allegation Mr Zhai funded the litigation is purely speculation. Rather, in the absence of evidence to the contrary there is an inference to be drawn from proven facts that Mr Zhai did fund the appeal. Those facts are the company’s acknowledged inability to pay costs, Mr Zhai’s role as the sole director of the company, and that he was the person driving the litigation.
[24] This leads to the next matter, namely the extent of Mr Zhai’s control over the company and the litigation. Mr Zhai’s submissions that any disagreement between shareholders would have caused a deadlock and he could not carry out a major transaction without the other shareholder’s consent are not a satisfactory answer. There is no major transaction in issue and the decision to pursue the claim (and the appeal) is one that a director, not the shareholders, would be expected to take.
[25] I also do not accept the submission that the appeal was to benefit the appellant as if successful it would have allowed the company to repurchase a bus and “[t]here was no personal benefit to Mr Zhai, or to Mr Zhai only” as he was only a 50 per cent shareholder. There is nothing to suggest that the company is still trading, and that would be surprising given the acknowledgment it cannot pay costs and that steps are being taken to remove it from the Register.
[26] I do not consider it relevant in the present context that Mr Zhai may have relied upon his business interests to obtain residency in this country, nor is it necessary for me to make any finding that the appeal was a “try on”, although it is hard to see that it had any realistic prospect of success.
[27] I consider that Mr Zhai should pay non-party costs because I am satisfied he pursued and funded the appeal in the name of an insolvent company from which he would personally benefit had it been successful. In that respect this is the type of case recognised by William Young P in Kidd v Equity Realty (1995) Ltd, where an award of non-party costs is appropriate because a director has funded litigation in his own interests and is “thus the real party”.7
[28] In respect to the quantum of such costs, I understand there to be no dispute that if costs are to be awarded that should be on a 2B basis. The respondent’s scale costs total $7,409.
Result
[29]The respondent’s application for non-party costs is allowed.
[30]The respondent is awarded costs against Mr Zhai in the sum of $7,409.
[31] The respondent was successful on its application for non-party costs. There is no reason why in respect to that application costs should not follow the event, and I
7 Kidd v Equity Realty (1995) Ltd, above n 3.
award the respondent a further amount for preparing submissions on costs on a 2A basis in the amount of $1,195.
O G Paulsen Associate Judge
Solicitors:
Duncan Cotterill, Christchurch Tompkins Wake, Auckland
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