Zhong v Bains Brothers Limited

[2022] NZHC 14

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-1095

[2022] NZHC 14

BETWEEN

XING ZHONG

First Plaintiff

XING SEN LIMITED
Second Plaintiff

AND

BAINS BROTHERS LIMITED

First Defendant

SATNAM ENTERPRISES LIMITED
Second Defendant

TARA SINGH
Third Defndnat

Continued…

Hearing:

On the papers

Appearances:

Q Cao for Plaintiff

M Singh for Second to Eighth Defendants

Judgment:

12 January 2021

JUDGMENT OF LANG J

[costs following discontinuance]

This judgment was delivered by me on 12 January 2021 at 10.30 am, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date……………

ZHONG v BAINS BROTHERS LTD [2022] NZHC 14 [12 January 2021]

SGAH INVESTMENTS LIMITED

Fourth Defendant

SATNAM BAINS
Fifth Defendant

SHAMINDER KAUR
Sixth Defendant

PATEL AND ASSOCIATES LIMITED
Seventh Defendant

CHEN LIANG

Eighth Defendant Sixth Defendant

PATEL AND ASSOCIATES LIMITED
Seventh Defendant

CHEN LIANG
Eighth Defendant

Solicitors:

Glaister Ennor, Auckland

[1]                In this proceeding the plaintiffs, Mr Zhong and Xing Sen Ltd (XSL), advanced claims based on an alleged breach of a restraint of trade provision contained in an agreement of sale and purchase of a liquor store business.

[2]                An amended statement of claim was subsequently filed in which Mr Zhong was no longer a plaintiff and the fourth to eighth defendants were no longer listed as defendants. Mr Zhong and XSL then filed a notice in which Mr Zhong formally discontinued his claims against all defendants and XSL discontinued its claims against the fourth to eighth defendants.

[3]                All defendants now seek indemnity costs against Mr Zhong for steps they have taken to defend the proceeding prior to the filing of the notice of discontinuance. In addition, the fourth to eighth defendants seek indemnity costs against XSL. The defendants also seek an order that XSL and Mr Zhong are jointly liable for any costs that may be awarded.

[4]                Mr Zhong and XSL contend that costs should be reserved to await the outcome of the substantive proceeding in its current form.

Background

[5]                XSL is the owner of a liquor store and superette in South Auckland. It purchased the store in 2014 from the first defendant, Bains Brothers Limited (Bains Brothers). The third defendant, Mr Singh, was a shareholder and director of Bains Brothers.

[6]                Mr Zhong originally owned the shares in XSL. He subsequently transferred these to a third party. Mr Zhong came to believe that Bains Brothers had breached a restraint of trade provision contained in the agreement for sale and purchase of the business. This occurred when Mr Singh’s son allegedly set up a competing liquor store less than three kilometres from the store purchased by XSL. Mr Zhong then commenced a proceeding in this Court against Bain Brothers and Mr Singh (the first proceeding).1 Mr Zhong was the sole plaintiff in the first proceeding.

1      Zhong v Bains Brothers Ltd HC Auckland CIV-2020-404-714.

[7]                The defendants in the first proceeding applied for summary judgment against Mr Zhong and/or an order striking out the proceeding on the basis that it was an abuse of the Court’s process. In a judgment delivered on 23 March 2021 Associate Judge P J Andrew granted the application for summary judgment.2 He held that any right to enforce the restraint of trade provision rested with XSL and that Mr Zhong had no ability to bring such a claim in his own name.3 The Associate Judge also noted that Mr Zhong did not own the shares in XSL and had no authority to bring the proceeding on its behalf.4

[8]                Undeterred by this setback, Mr Zhong re-acquired the shares in XSL. He then commenced the present proceeding against not only Bains Brothers and Mr Singh but also the remaining defendants. Mr Zhong acted for himself and XSL in filing the statement of claim. He included himself as a plaintiff notwithstanding the fact that the earlier judgment made it plain that he had no ability to sue in his own right. Mr Zhong also issued the proceeding despite receiving clear advice from the defendants that they would seek indemnity costs against him if he continued with his claim.

[9]                All defendants applied for summary judgment and/or strike out of the claims advanced by Mr Zhong in the present proceeding. The second to eighth defendants also applied for summary judgment and/or strike out of the claims advanced by XSL. On 14 September 2021 Wylie J directed that the defendants’ applications were to be heard on 3 December 2021. Mr Zhong then took legal advice and, on 1 October 2021, his solicitors filed an amended statement of claim removing Mr Zhong as a plaintiff and removing the fourth to eighth defendants from the proceeding. The notice of discontinuance was then filed on 18 October 2021.

Relevant principles

[10]            Rule 15.23 of the High Court Rules 2016 provides that, unless the defendant otherwise agrees or the Court otherwise orders, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance. This means that Mr Zhing must

2      Zhong v Bains Brothers Ltd [2021] NZHC 583.

3      At [29]-[32].

4 At [32].

pay costs to all defendants unless the Court orders otherwise and XSL must likewise pay costs to the fourth to eighth defendants unless the Court orders otherwise.

[11]            The principles that apply to an application for indemnity costs are likewise well established. In general terms, indemnity costs are awarded where a party has behaved either badly or very unreasonably.5 Alternatively, they may be awarded in a case that is hopeless from the outset even though there has been no flagrant misconduct by the plaintiff.6

Decision

[12]            Rule 14.2(1)(g) provides that the determination of costs should be predictable and expeditious. I therefore do not accept that costs on the discontinuances should await the outcome of the substantive proceeding. That is particularly so given that Mr Zhong and the fourth to eighth defendants will no longer be parties to the proceeding. The future conduct and ultimate outcome of the proceeding will be wholly irrelevant to the costs the Court is now being asked to determine.

Costs payable by Mr Zhong to all defendants

[13]            Mr Zhong was plainly aware from the judgment in the first proceeding that he had no right or standing to bring a proceeding against any defendants in his own name. He therefore blatantly ignored the Associate Judge’s earlier determination by including himself as a plaintiff in the present proceeding. The fact that he had by that stage re-acquired the shares in XSL is of no moment because, although this gave him the authority to advance the proceeding on XSL’s behalf, it gave him no right to bring any proceeding on his own behalf.

[14]            The defendants should not have been required to meet the costs incurred in filing a statement of defence to the present proceeding, let alone the application for summary judgment and/or strike out. I am therefore satisfied Mr Zhong should pay a single award of indemnity costs to all defendants.

5      Bradbury v Westpac Banking Corporation [2009] 3 NZLR 400, (2009) 19 PRNZ 385 (CA) at [27]-[28].

6      Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2014] NZCA 348, [2014] 22 PRNZ 322 at [27].

Cost payable by XSL

[15]            The position is different so far as XSL is concerned. I do not consider there is any justification for an award of indemnity costs against it. The fourth to eighth defendants will therefore be entitled to an award of costs against XSL on a Category 2B basis in respect of all steps taken by them up until the filing of the notice of discontinuance.

Result

[16]            All defendants are entitled to a single award of indemnity costs against Mr Zhong for steps they have taken in the present proceeding prior to the filing of the notice of discontinuance.

[17]            The fourth to eighth defendants are entitled to a single award of costs on a Category 2B basis against XSL for all steps taken up until the filing of the notice of discontinuance.

[18]            Mr Zhong and XSL are to be jointly and severally liable to the extent of the costs awarded in favour of the fourth to eighth defendants. The defendants are also entitled to their disbursements as fixed by the Registrar.

Lang J