Xiao v Sun
[2016] NZHC 1449
•29 June 2016
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV-2015-404-2872
[2016] NZHC 1449
UNDER the Credit Contracts and Consumer Finance Act 2003 BETWEEN
HANYUE XIAO
Plaintiff
AND
XIUFANG SUN
Defendant
Hearing: On the papers Counsel:
A J B Holmes for Plaintiff
B O'Callahan, J A Frampton and Z Chen for Defendant
Judgment:
29 June 2016
COSTS JUDGMENT OF PAUL DAVISON J
This judgment was delivered by me on 29 June 2016 at 2pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors: Loo & Koo (Auckland) for Plaintiff
Kirkland Morrison O’Callahan & Ho (Auckland) for Defendant
XIAO v SUN COSTS JUDGMENT [2016] NZHC 1449 [29 June 2016]
[1] By judgment dated 16 March 2016 I held that the plaintiff was successful in her application for interim relief, and that the defendant was unsuccessful in her applications for summary judgment. I reserved the question of costs and directed the parties to file memoranda regarding costs which I now determine.
[2] The plaintiff submits that I should award costs in her favour, but the defendant says I should further reserve costs pending the outcome of the substantive trial.
Background
[3] For the purposes of determining this costs application, the relevant factual background is as follows. The plaintiff, Ms Xiao, and the defendant, Ms Sun, were gamblers at a casino. Ms Sun leant significant sums of money to Ms Sun for gambling purposes. The exact amount, as well as the nature and terms of the lending agreements, are in dispute.
[4] As part of the agreements entered into for the lending and borrowing of money, Ms Xiao agreed to secure the debt by providing Ms Sun with a mortgage over both her residence and an apartment in Auckland.
[5] In October 2015, Ms Sun’s solicitors served four notices pursuant to s 119 of the Property Law Act 2007 to exercise her powers under the mortgage over the two properties.
[6] In February 2016, Ms Xiao filed proceedings in this Court claiming that Ms Sun had breached her disclosure obligations under the Credit Contracts and Consumer Finance Act 2003 (CCCFA). One of the orders she seeks by way of relief is a declaration that the lending agreements are unenforceable until disclosure has been provided. She also seeks to reopen the credit contract between Ms Sun and herself on the basis that it is oppressive.
[7] Ms Xiao also filed an application for interim relief under r 7.53 of the High Court Rules (the Rules) seeking to restrain Ms Sun from taking any action or
exercising any power under the mortgages registered against her interest in the properties.
[8]Ms Sun, in turn, brought a counterclaim seeking judgment in the sum of
$700,000 against Ms Xiao, being the outstanding sum claimed as due under the lending agreements. She also made an application for summary judgment seeking to dismiss the whole of Ms Xiao’s claim; and judgment in the sum of $700,000 (being the outstanding sum due under the lending agreements).
[9] By my judgment of 16 March 2016, I granted Ms Xiao’s application for interim relief, and dismissed Ms Sun’s summary judgment applications.
Submissions
[10] Ms Xiao now seeks scale 2B costs in the sum of $10,927, relating both to her application for interim relief as well as the steps taken to successfully oppose Ms Sun’s summary judgment applications. She also seeks an uplift of 25 per cent for having to oppose the summary judgment applications on the basis they were unnecessary and lacked merit, and further that Ms Sun had failed to accept an offer of settlement. In total, she seeks costs totalling $12,097.75, together with disbursements calculated at $752.88.
[11] Mr O’Callahan, for Ms Sun, relies on the general principle that costs on a summary judgment application should be reserved pending the substantive determination of the issues raised by the pleadings. He says that although Ms Xiao was the party who commenced the proceedings, in reality it was Ms Sun who was seeking to enforce the loans summarily “so the defendant [Ms Sun] is in substance the plaintiff and the three applications should be conceived of together as a plaintiff’s summary judgment application”.
[12] In Mr O’Callahan’s submission, the three applications were heard together and the central issue before the Court was whether Ms Sun could succeed against the matters which Ms Xiao raised as defences to the applications for summary judgment seeking enforcement of the loan agreement.
[13] Mr O’Callahan further submits that Ms Sun’s applications were not without foundation. He noted that Ms Xiao had produced and referred to a series of We-Chat messages passing between the parties which she claimed substantially supported her version of events. Mr O’Callahan says that although the Court declined to entertain the large volume of messages, (which, he explains were included to answer any suggestion that she was only producing evidence to support her case) this material will again be relied upon at trial. If she is successful at trial, she will seek indemnity costs as provided for under the agreement. This is said to be a further reason to defer the issue of costs until the substantive hearing.
[14] Ms Sun maintains that she was fully justified in rejecting the settlement offer, on the basis that she held a reasonable belief that she had a real prospect of success.
The starting point
[15] I commence by determining Ms Xiao’s entitlement to costs in relation to her successful application for interim relief, made pursuant to r 14.8 of the Rules.
[16] Ms Sun has not filed any submissions on this point, and so I conclude that she is not opposed to the Court fixing costs in accordance with the amount sought. In my view, scale costs are payable on a 2B basis in relation to this part of the proceedings.
[17] The next issue is whether costs on Ms Sun’s unsuccessful summary judgment applications should follow the event. My analysis is below.
Should costs on the defendant’s unsuccessful summary judgment applications follow the event?
[18] Rule 14.8(3) recognises and preserves the court’s power and general practice to reserve costs on an application for summary judgment. The reason for this approach is that in most cases, “the incidence of costs is best settled when the result of the litigation is known”. Therefore, the Court of Appeal in NZI Bank Ltd v Philpott said:1
1 NZI Bank Ltd v Philpott [1990] 2 NZLR 403 (CA) at 409.
By reserving costs the Court retains even more flexibility and discretion as to how costs should be apportioned in summary judgment proceedings.
[19] NZBI Bank Ltd is said to be a decision that primarily deals with situations where it is the plaintiff who brings the action for summary judgment.2 There is however support for the proposition that a different approach should be adopted in the case of a defendant’s unsuccessful application.3
[20] In Suharnan v Brookfields, Associate Judge Faire (as he then was) dealt with the issue of costs relating to a defendant’s unsuccessful application to strike out a claim for summary judgment.4 It was commented:
[13] A plaintiff's summary judgment, even if unsuccessful, can have considerable benefits in relation to the overall disposal of the litigation. The same does not necessarily apply where a defendant seeks summary judgment and, in fact, founds its claim on principles that are those pertaining to strike out applications. The appropriateness of a defendant's application is the subject of comment by the Court of Appeal in Westpac Banking Corp v MM Kembla New Zealand Ltd and by the Supreme Court in Body Corporate 207624 v North Shore City Council. Both emphasise the position that an application for strike out or summary judgment is appropriate only in cases where there is clear legal impediment to liability, or where there is a complete and incontrovertible answer on the facts.
[14] … The considerations that support a different view on a plaintiff's summary judgment application simply do not apply in this case.
[21] I respectfully agree with Judge Faire’s comments. In cases where a plaintiff unsuccessfully claims there is no defence, the questions to be tried are brought to the surface in the determination of the summary judgment application. Thus, despite the plaintiff being unsuccessful, the process nevertheless frequently contributes to a more efficient and focussed resolution of the substantive litigation, as a result of having identified the real issues in dispute between the parties. By contrast, a defendant’s unsuccessful application claiming that the plaintiff’s causes of action cannot succeed, contributes comparatively little to a resolution of the substantive litigation because that unsuccessful outcome says little about whether the plaintiff may ultimately be successful at trial.
2 Schmidt v Registrar-General of Land [2015] NZHC 2438 at [19].
3 Judge v Dempsey [2014] NZHC 2864 at [57]. See also Bernard v Space 2000 Ltd (2001) 15 PRNZ 388 (CA).
4 Suharan v Brookfields [2013] NZHC 586.
[22] Accordingly, I consider it appropriate to hold that costs should follow the event on the two unsuccessful summary judgment applications. Such an approach is consistent with the more general approach provided for by r 14.8, which is that:5
Apart from applications for summary judgment, the general approach to costs in respect of interlocutory applications is that they are dealt with at the time the applications are determined rather than being held over until the outcome of the proceedings is known. This reflects the fact that the merits of particular applications and the merits of the substantive proceedings are different matters.
[23] I do not accept Mr O’Callahan’s submission that Ms Sun was effectively the plaintiff in this case despite the fact that it was Ms Xiao who had commenced the proceedings by bringing her application for an interim injunction It would appear that the purpose of this submission is to challenge the application of the general approach that costs should follow the event on an unsuccessful defendant’s summary judgment application.
[24] I nevertheless disagree with his submission. First, the Court will not notionally alter or reverse the parties named as plaintiff and defendant in a proceeding.
[25]Secondly, Mr O’Callahan’s explains the basis of his submission as follows:
In summary, although the plaintiff commenced the proceeding, it is the defendant who was seeking to enforce the loans summarily so the defendant is in substance the plaintiff and the three applicants should be conceived of together as a plaintiff’s summary judgment application. … the central issue being whether Ms Sun could succeed summarily against the matters which Ms Xiao raised as defences to enforcement of the loan..
[26] I do not agree because, in my view, Ms Xiao not only brought an application for an interim injunction but also brought a substantive claim against Ms Sun seeking relief on the basis that the lending formed part of a credit contract and there had been a failure to comply with the requisite provisions of the CCCFA. When viewed in that way, the matters raised in Ms Xiao’s interim application were not simply defences but were supported by her own causes of action.
5 Chapman v Badon Ltd [2010] NZCA 613, (2010) 20 PRNZ 83 at [12].
[27] The central issue here was whether there were serious questions to be tried in the causes of action Ms Xiao brought against Ms Sun so as to underpin her application for an interim injunction to restrain Ms Sun from taking any steps to enforce the power of sale contained in the mortgage. The answer to that question was “yes”.
[28] It was the determination of Ms Xiao’s application which in fact answered Ms Sun’s claim:
[137] I have already concluded that there are real questions to be tried. To that extent, the granting of the plaintiff’s application for interim relief effectively answers the defendant’s application for summary judgment.
[29] I would add that much of the defence’s case at trial will of course turn on, as Mr O’Callahan put it, “whether Ms Xiao is telling the truth”. This is an entirely separate matter from the issues that were before the Court at the interlocutory stage, and in my view, illustrates that the interlocutory applications here were determined on distinctly different merits from those which will arise in the substantive proceedings. For that reason, I consider that the general approach under r 14.8 should apply and costs should follow the event.
Should I award increased costs
[30] Ms Sun takes issue with the claim for increased costs. For example, it is submitted that the decision to embark on summary judgment proceedings was not erroneous because Ms Sun would have been successful in her applications if the Court had accepted the evidence in the We-Chat messages. The fact of the matter is that, for the reasons I have explained in my substantive decision at paragraphs [140]- [141], the Court did not accept the We-Chat evidence was conclusive on its own. Despite this, there were also competing versions of events as to material issues (identified at paragraph [138]) which raised further doubt and uncertainty; meaning the threshold test for granting the summary judgment applications was not made out.
[31] Nevertheless I do not consider it is appropriate in the circumstances to increase costs. Despite Ms Xiao’s successful application, having regard to the reasons and basis of my decision to reject Ms Sun’s summary judgment applications,
I do not agree with Mr Holmes’s submission that Ms Sun’s approach unnecessarily prolonged the time and expense of the proceedings.
[32] Furthermore, the plaintiff refers to a letter dated 4 February 2016, which Mr Holmes describes as a settlement offer falling within the realms of r 14.6(3)(b)(v). The letter essentially states that the summary judgment applications have no prospect of success, and requests Ms Sun’s solicitors to:
Please confirm that your client will immediately withdraw the summary judgment applications without need for any opposition to be filed. This will allow matters to proceed without further unnecessary costs being incurred. If so, our clients will not seek costs from your client in respect of the withdrawn applications.
[33] The defendant’s rejection of this letter should not count against her in this context. That is because there was no “offer” made to settle and hence no failure by her to accept an offer of settlement under r 14.6(3)(b)(b). Rather, this is a case where one party stated, as parties often do at the outset of proceedings, that it considered the other side’s case to be lacking any merit. The sending of such a letter and Ms Sun’s subsequent rejection of it is not a sufficient basis to warrant an uplift in costs.
Conclusion
[34]I accept Ms Xiao’s calculation of scale costs.
[35] No argument was raised as to the disbursements claimed by Ms Xiao. They appear to be properly made.
[36] Accordingly, I order that Ms Sun pay Ms Xiao costs of $10,927 and disbursements of $752.88.
Paul Davison J
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