Yang v Chen HC Auckland CIV 2007-404-1751

[2011] NZHC 2087

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2007-404-1751

BETWEEN  LIMIN YANG AND LIU (JASMINE) YANG

Plaintiffs

ANDPAUL (YU PO) CHEN Defendant

CIV 2008-404-4287

AND BETWEEN            DACHA INTERNATIONAL LIMITED First Plaintiff

ANDROTORUA INTERNATIONAL VILLAS LIMITED

Second Plaintiff

ANDTOP INTERNATIONAL LIMITED Third Plaintiff

ANDPAUL YU PO CHEN First Defendant

ANDHEARD PARK LIMITED Second Defendant

ANDCHOO KHIAW CHIN Third Defendant

Hearing:         On the papers

Judgment:      20 December 2011

JUDGMENT NO.6 OF ALLAN J (COSTS)

Solicitors/counsel

Hesketh Henry  [email protected]

Paul Chen [email protected]

Queen City Law, Auckland [email protected] [email protected]

R B Hucker [email protected]

YANG AND LIU (JASMINE) YANG V CHEN HC AK CIV 2007-404-1751 20 December 2011

[1]      In a judgment given on 5 October 2010, I determined a number of matters between the parties.   Limin and Jasmine Yang largely succeeded in the first proceeding.   In the second (derivative) proceeding, I held against the plaintiffs on jurisdictional grounds, but made orders intended to facilitate the further conduct of the proceeding once Limin and Jasmine Yang had taken steps to give effect to the orders made in the earlier proceeding, and so become the shareholders in the three companies which were plaintiffs in the derivative proceeding.

[2]      In short, the plaintiffs in the earlier proceeding were successful.  In that case I reserved costs and asked the parties to file memoranda if they could not agree. Subsequently I have received memoranda from counsel.  Those from the plaintiffs are dated respectively 10 and 14 December 2010, 16 February and 9 March 2011. The last of these memoranda is filed in reply to a memorandum of counsel for the defendants dated 18 February 2011.

[3]      As at 16 February 2010, the plaintiffs sought orders in the first proceeding

(CIV-2007-404-1751) in the sum of $404,269.20, comprising:

[a]      Legal costs,  $192,140.00 [b]      Disbursements  130,620.00 [c]      Reimbursement of non-party costs        13,247.19

[d]      Videolink costs  68,262.01

$404,269.20

[4]      The  plaintiffs’  costs  calculation  has  been  conducted  in  accordance  with category 2B of the Third Schedule.   In other  words, the plaintiffs do  not seek increased  costs  in  respect  of  any  aspect  of  this  long  running  and  complex proceeding.

[5]      In his memorandum of 18 February 2011, Mr Hucker, for the defendants, takes issue with a number of discrete aspects of the costs calculation.

The derivative proceeding

[6]      Mr Hucker draws the Court’s attention to the fact that, although the plaintiffs were undoubtedly successful in the earlier proceeding, they failed in the derivative proceeding on jurisdictional grounds.  I held that the plaintiffs were not shareholders in any of the three companies in CIV-2008-404-4287, and therefore were unable to apply for leave to commence derivative proceedings, let alone claim to act in the shoes of the three plaintiffs as if leave had already been granted.  But I made orders facilitating the subsequent conduct of the later proceeding under the direction of Limin and Jasmine Yang.

[7]      Mr Hucker submits  that,  given  what  he  calls  the  “mixed  success  in  the proceedings” an order ought to be made directing that costs lie entirely where they fall.  He argues that the evidence in the proceedings was related evenly to questions of the ownership of the shares and the allegations contained in the derivative action.

[8]      I reject that argument.  I accept Mr McPherson’s submission that the length of the trial and the scope of preparatory work was not affected at all by the fact that the derivative proceeding continued at the same time as the principal proceeding. Earlier it had been agreed (in a joint memorandum dated 15 September 2009), by Mr Bigio (previous counsel for the defendants), that a joint hearing of the earlier proceeding  and  the derivative proceeding represented the most  efficient  way  of conducting the litigation.  For costs purposes, I treat the two proceedings as one.

[9]      All of the evidence which was led at trial was relevant to the issues in the earlier proceeding.  The witnesses were the same, counsels’ closing addresses may well have been lengthened slightly, but not to the extent that a separate award for costs ought to have been made in respect of the derivative proceeding.

[10]     I reject also Mr Hucker’s submission that the plaintiffs are seeking in effect,

a double recovery of costs.  Mr McPherson advises the Court by memorandum that

the costs of the derivative proceeding (newly constituted) are to be calculated from the date upon which it was freshly reconstituted.

Judgment of 13 May 2010

[11]     When the trial commenced, there was considerable confusion as to legal representation for the defendants.   It is unnecessary to review the extraordinary course of events which unfolded late in April 2010.  It is all set out in my judgment of 13 May 2010.

[12]     Ultimately Mr Hucker was appointed counsel for the defendants.  He found it necessary to make an application for a great many interlocutory orders which ought to have been made weeks, if not months, prior to the trial.  None of that, of course, is Mr Hucker’s fault.   He did a remarkable job in pulling a very untidy procedural situation together from the defendants’ point of view.   But the result of his late retainer was that the Court was required on 5, 6 and 10 May 2010 (in mid-trial), to entertain  a  number of interlocutory applications.    They were determined  in  my

judgment of 13 May 2010.  In that judgment,[1] I made orders:

[1] Yang v Chen HC Auckland CIV-2007-404-1751, 13 May 2010 at [211]

[a]       directing that Mr Chen give his evidence from Beijing by videolink; [b]       granting leave to the defendants to serve briefs of evidence by three

named witnesses;

[c]      granting the defendants leave to file and serve amended statements of defence and counterclaim;

[d]      granting an application for variation of a freezing order to enable the defendants to obtain access to funds with which to pay their legal costs.

[13]     But not all of the defendants’ applications were granted.   In particular, I

refused applications for:

[a]       an order directing Mr Liu to give evidence by videolink from Beijing;

and

[b]       an application for leave to serve a brief by William Sim Vui Liew.

[14]     Mr  Hucker  argues  that,  given  the  degree  of  success  enjoyed  by  the defendants on these applications, the plaintiffs either ought not to get any costs at all in respect of them, or alternatively their costs ought to be reduced by 75% under r 14.7(d) of the High Court Rules.

[15]     I reject that submission.   The defendants were fortunate in the extreme to survive earlier applications by the plaintiffs for the striking out of the defences, or alternatively, for orders debarring the defendants from defending the proceedings at trial.   Notwithstanding the fact that certain of the interlocutory orders I made in favour of the defendants were opposed by the plaintiffs, this was a case in which, in my view, it is proper to allow costs to the plaintiffs.  The orders made in favour of the defendant amounted to the grant of an indulgence.

The position of Heard Park Ltd

[16]     Heard Park Ltd was not a party to the first proceeding.  Mr Hucker submits that it ought to have an order for costs in respect of the dismissal of the second (derivative) action, because the plaintiffs are unable to rely on their success in the first action against Heard Park.

[17]     Again, I reject that submission.  Heard Park Ltd is Mr Chen’s company.  It acted  entirely  in  accordance  with  his  direction  and  was  in  effect  his  corporate vehicle.  There is no basis upon which it would be proper to distinguish, for costs purposes,  between  Mr Chen  on  the  one  hand  and  Heard  Park  on  the  other. Moreover, Heard Park has incurred no costs.  At trial it was without funds and along with  the other defendants  it  advanced  its  case through  Mr Hucker by obtaining access (via a Court order) to funds held pursuant to a freezing order.  In terms of the judgment of 5 October 2010, those funds belonged to the plaintiffs and not to Heard Park, or to any other defendant.

Mr Hussey’s evidence

[18]     Mr Hussey is a forensic accountant who gave evidence for the plaintiffs.  His evidence included a detailed analysis of the affairs of Dacha International Ltd, Rotorua International Villas Ltd and Top International Ltd, and formed the basis of a claim for damages which had been mounted in the earlier stages of the proceedings.

[19]     However, during the course of the trial, counsel for the plaintiffs elected not to pursue a claim for damages and to select other claimed relief instead.  Mr Hucker argues that the plaintiffs are not entitled to claim Mr Hussey’s costs as a disbursement.

[20]     Mr McPherson submits that Mr Hussey’s evidence was reasonably necessary to the conduct of the claim, and so falls within the category of disbursements which may be awarded pursuant to r 14.12(2) of the High Court Rules.   His evidence formed part of the evidential background to the case in which the plaintiffs were successful.  Mr Hussey gave evidence about the transfer of particular funds, and also about certain aspects of the bookkeeping and accounting practices and protocols maintained  by the  three  companies  controlled  by Mr Chen,  but  claimed  by the plaintiffs.

[21]     Mr McPherson  argues  that  Mr  Hussey’s  evidence  “…contributed  to  the factual matrix and assessments of credibility of the defendants’ witnesses and case. The plaintiffs were entitled to be prepared for the claim, including by having accounting evidence of the type Mr Hussey provided”.

[22]     Mr McPherson also points out that the plaintiffs had expected Mr Chen to respond to Mr Hussey’s evidence by calling his own independent accounting expert, but that did not occur.

[23]     I am satisfied that the plaintiffs engaged Mr Hussey in good faith and that his evidence played an important role in establishing the plaintiffs’ entitlement to judgment.   I agree also with Mr McPherson’s submission that Mr Hussey’s fees

should not be disallowed simply because at trial it turned out that Mr Chen had not

called an expert witness to dispute Mr Hussey’s evidence.

[24]     As was pointed out by Chambers J in Peach Road Preservation Society Inc v Whangarei  District  Council,[2]   expert  evidence  is  sometimes  called  to  deal  with aspects of a case which the trial Judge did not need to consider;  but often the shape of  the  trial  and  the  eventual  judgment  cannot  be  determined  in  advance.    As Chambers J held, the party calling the expert witness is not thereby precluded from claiming the witness’s costs as a disbursement.

[2] Peach Road Preservation Society Inc v Whangarei District Council (2001) 16 PRNZ 13 at [18].

[25]     Accordingly, I allow Mr Hussey’s costs in full.

Mareva injunction

[26]     Mr Hucker argues that the plaintiffs’ costs of obtaining a Mareva injunction (as it then was) at the outset of the proceeding in April 2007 ought not to be allowed, because Mr Chen ultimately consented to the making of an order.

[27]     I reject that submission.  The plaintiffs are entitled to scale costs in relation to work undertaken up to the time of the giving of the consent.  The justification for the application is to be found in the fact of Mr Chen’s agreement to the making of an order.  I found in the judgment that the Yangs owned the shares in the companies that were the subject of the Mareva Order.

Inspection and production of documents

[28]     Mr  Hucker  submits  that  in  respect  of  the  totality  of  the  litigation,  the plaintiffs are entitled, in relation to inspection, to no more than the maximum allowance under items 4.6 and 4.7 of Schedule 3 for a category 2 proceeding.  The allowances  total 2.5 days.  He submits that this allowance covers inspection of all of

the documents of all defendants, and also of non-parties.

[29]     The Court has a discretion to allow costs above scale, which I propose to exercise.  Mr Chen and the other defendants were, at times, obstructive and evasive and  at  other  times  simply dilatory.    The  plaintiffs  were  put  to  a  great  deal  of additional work by reason of the overall attitude of the defendants to their discovery and production obligations.

[30]     The plaintiffs’ claims in respect of production and inspection are allowed in

their entirety.

Computer forensics

[31]     Mr  Hucker  submits  that  some  of  the  work  conducted  by  Elementary Solutions Ltd did not relate to evidence called at trial, and that items 50, 51 and 103 ought to be disallowed.   Mr McPherson accepts that items 50 and 51 (totalling

$5916.74) were disbursements related to services which were not specific to the conduct of the proceedings, and that aspect of the claim is withdrawn.

[32]     Item  103  relates  to  the  defendants’  application  for  further  and  better discovery against the plaintiffs, dated 5 February 2009.   In that application, the defendants  sought  discovery  of  Jasmine  Yang’s  laptop.    Elementary  Solutions carried out the search.  A search was also carried out in respect of Jasmine Yang’s facsimile machine.

[33]     I am satisfied that these costs were specific to the proceeding and incurred only at the behest of Mr Chen.   They were therefore reasonably necessary to the conduct of the claim and are allowed.

Invoice from Jin Cheng & Tongda Law Firm

[34]     This disbursements relates to the costs of an expert witness who gave an opinion as to the consequences in China for a person who knowingly gives false evidence there via videolink in a New Zealand civil case.  The evidence was given in support of the plaintiffs’ opposition to Mr Chen’s application to give evidence by

videolink, and also in relation to the application that Guiting Liu give evidence by videolink.

[35]     The plaintiffs succeeded on one application and the defendants succeeded on the other.  The plaintiffs propose that they should be entitled to one-half of the costs of the expert.  I agree that is a suitably pragmatic solution.  Accordingly, the claimed sum of $2076.10 is allowed to the extent of $1038.05 only.

Translation and Interpreter Services

[36]     These costs relate to the need for an interpreter in Court when Limin Yang gave her evidence (she has no real command of English).  An interpreter was also necessary in respect of Limin Yang’s brief which was prepared in Mandarin, and then translated into English.

[37]     For the purposes of r 14.12(2) I am satisfied that this was a disbursement necessarily incurred in connection with the proceeding.   Accordingly, I allow all translation and interpreter costs as a disbursement.

Valuation of 48 Greys Avenue

[38]     This was a claim for $6328.13, being valuation costs in respect of the Greys Avenue  property,  but  on  reflection  counsel  for  the  plaintiffs  accepts  that  the valuation was not prepared in connection with the conduct of the proceeding.  This aspect of the claim is therefore withdrawn.

Conclusion

[39]     In the result, I uphold the plaintiffs’ claim in its entirety, save for those items

which Mr McPherson now accepts ought to be withdrawn.  Those items are: [a]      Items 50 and 51 $5916.74

[b]       Item 119 (half)  1038.05 [c]     Item 16           6328.13

[40]     The  disallowed  disbursements  total  $13,282.92,  so  reducing  the  amount allowed for disbursements to $117,337.08.

[41]     In the result, there will be an order for costs in favour of the plaintiffs against

Mr Chen for $390,986.28.  This sum comprises costs of $192,140, disbursements of

$117,337.08, reimbursement of non-parties’ costs, $13,247.19, and videolink costs,

$68,262.01.

C J Allan J