Zhu v JSE Investment Holding Limited

[2025] NZHC 344

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2024-404-1502

[2025] NZHC 344

BETWEEN

JIANZHONG ZHU

Applicant

AND

JSE INVESTMENT HOLDING LIMITED

Respondent

Hearing:	On the papers
Appearances:	M Singh and PS Kim for the Applicant A Grant and C Jiang for the Respondent
Judgment:	7 March 2025

JUDGMENT OF ASSOCIATE JUDGE SUSSOCK

(Costs)

This judgment was delivered by me on 7 March 2025 at 10 am pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

Glaister Ennor, Auckland Tompkins Wake, Auckland

ZHU v JSE INVESTMENT HOLDING LTD [2025] NZHC 344 [7 March 2025]

Introduction

[1]    The applicant, Ms Zhu, applied to lapse a caveat lodged by the respondent, JSE Investment Holding Limited (JSE), against a property in respect of which Ms Zhu had exercised her power of sale as mortgagee. At the hearing on 8 August 2024 orders were made by consent for the caveat to be removed. Costs were reserved with memoranda to be filed if the parties were unable to agree.

[2]    Costs memoranda have now been filed, with the applicant, Ms Zhu, seeking costs on an increased basis in the sum of $24,198.75 plus disbursements of $2,949.24.

[3]    The parties are agreed that the case is appropriately category 2, band B for costs. JSE accepts that having opposed Ms Zhu’s application and then withdrawn that opposition, JSE is liable for Ms Zhu’s scale costs on a 2B basis and that scale costs are as set out in the Schedule to Ms Zhu’s costs memorandum except for one item.

[4]    This item is the one day time allocation for “[f]iling affidavit in reply”, with reference to step 37 in Schedule 3 to the High Court Rules 2016. JSE submits that step 37 contemplates the filing of an application and principal affidavits and does not apply to affidavits in reply. On this basis, JSE submits that the proper amount recoverable by Ms Zhu on a 2B basis is $13,742.50 and that no uplift is appropriate in the circumstances. JSE accepts that the disbursements claimed of $2,949.24 are recoverable.

[5]    I briefly set out the background and relevant costs principles before determining the appropriate reward.

Background

[6]     As a result of the agreement to remove the caveat by consent the evidence filed in support and opposition to the application to lapse the caveat has not been fully considered by the Court. However, I set out below those aspects the parties submit are relevant to the consideration of costs.

[7]    Ms Zhu submits that on 13 January 2023, she agreed to loan $3,800,000 to the original owner of the property against which the caveat was lodged, Golden Touch Investment and Trade Company Limited (Golden Touch). Ms Jian Tan is Golden Touch's sole director.

[8]    The loan was documented in a term loan agreement dated 13 January 2023 and was secured by way of a “registered first and only” mortgage over the West Auckland property (Term Loan Agreement). The loan was personally guaranteed by Ms Tan.

[9]Ms Zhu points to the fact that:

(a)under the Term Loan Agreement, Golden Touch confirmed that it would not grant any further securities or charges over the property without the applicant's prior written consent and represented that the property was not at that time the subject of “any claims whatever”; and

(b)Golden Touch's solicitor further warranted in its Solicitor's Certificate that "having made due enquiry of the Borrower, we are advised that there are no unregistered interests or other matters that may defeat the interest of the Lender as first mortgagee".

[10]   The affidavits filed for the purposes of the hearing state that Golden Touch defaulted on the loan twice.

[11]   On 20 April 2024, after serving notice on Golden Touch under section 119 of the Property Law Act 2007, Ms Zhu exercised her power of sale as mortgagee. Settlement of the mortgagee sale was scheduled for 28 June 2024 (or earlier by mutual agreement).

[12]   On 22 May 2024, JSE lodged a caveat against the property. Ms Zhu alleges JSE is an entity clearly associated with Golden Touch.

[13]The interest claimed by JSE in its caveat was:

As purchaser of part of the land by virtue of the Agreement for sale and purchase dated 12 January 2022 between the Registered Owner Golden Touch Investment and Trade Company Limited as vendor and the Caveator JSE Investment Holdings Limited as purchaser.

[14]   JSE says that it paid a $230,000 deposit to Golden Touch at the time it entered into the sale and purchase agreement in 2022 (SPA).

[15]   JSE’s evidence (as set out in the affidavit of its director Ms Yunqian Zhang), is that it was not aware that Ms Zhu had lent money to Golden Touch or that she had taken a first ranking mortgage over the property. Ms Zhang deposes that it was not until Ms Zhu had entered into an agreement to sell the property to a third party in May 2024 that Ms Zhang learned from Golden Touch’s director, Ms Tan, of the mortgage.

[16]   Ms Tan filed an affidavit in support of JSE’s opposition to the caveat being removed in which she deposes that both she and Ms Zhu’s mortgage broker, Mr Ge, told Ms Zhu about the SPA prior to the loan being made. Ms Tan said that Ms Zhu was adamant about not wanting to receive a copy of the SPA or learn anything more about it and made the loan to Golden Touch in that context.

[17]   JSE relies on a file note made by Mr Ge allegedly referring to the SPA and sent to Ms Zhu’s solicitor at the time the loan was entered into.

[18]   Ms Zhang says further that JSE’s belief in its caveatable interest was fortified when it learned of the unusual circumstances surrounding Ms Zhu’s loan from Ms Tan (without explaining further what those unusual circumstances were). However Ms Zhang says having lodged the caveat and initially opposed its removal in this proceeding, JSE then determined that it was in neither party’s interests to engage in a protracted dispute about the propriety of the mortgage and the effect that would have on priority. JSE therefore filed the necessary papers with Land Information New Zealand to withdraw the caveat on 2 August 2024, a week before the hearing.

[19]   After JSE had taken those steps, it emerged that Golden Touch’s director, Ms Tan, had herself lodged another caveat over the Property that prevented JSE’s caveat from being removed. JSE’s director, Ms Zhang, deposed in an affidavit filed just prior to the hearing that she was wholly unaware of this caveat having been lodged when

JSE took steps to remove its caveat. Counsel for JSE submits that there is no evidence to suggest otherwise.

Relevant costs principles

[20]   The starting point in any costs decision is that costs are at the discretion of the Court.1 Although the discretion is a wide one, it is not unfettered. Rule 14.2 of the High Court Rules 2016 (HCR) sets out the general principles, which include:2

(a)the party who fails with respect to a proceeding or an interlocutory application should pay costs to the party who succeeds:

(b)an award of costs should reflect the complexity and significance of the proceeding:

…

(g)so far as possible the determination of costs should be predictable and expeditious.

[21]   Rules 14.3 to 14.5 provide for the categorisation of proceedings, appropriate daily recovery rate, and the determination of the reasonable time for each step.

[22]   Increased and indemnity costs are provided for in r 14.6. As summarised by the Court of Appeal in Bradbury v Westpac Banking Corp:3

(a)standard scale applies by default where cause is not shown to depart from it;

(b)increased costs may be ordered where there is failure by the paying party to act reasonably; and

(c)indemnity costs may be ordered where that party has behaved either badly or very unreasonably.

[23]   In this case, Ms Zhu seeks costs on an increased basis on the grounds that JSE has contributed unnecessarily to the time or expense of the proceeding by:

(a)taking or pursuing an unnecessary step or an argument that lacks merit;4 and

1      High Court Rules 2016, r 14.1.

2      Rule 14.2(1).

3      Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [27].

4      High Court Rules 2016, r 14.6(3)(b)(ii).

(b)failing, without reasonable justification, to admit evidence, documents or accept a legal argument.5

[24]   The correct approach to an award of increased costs is first to determine scale costs and then determine whether an uplift ought to be applied and what that uplift ought to be.6

What are the appropriate scale costs?

[25]Ms Zhu seeks the following costs:

2B Costs
Item	Description	Time Allocation
37	Filing application and supporting affidavits	2
11	Filing memorandum for first call	0.4
12	Appearance at first call	0.2
37	Filing affidavit in reply	1
22	Filing interlocutory applications seeking urgent fixture	0.6
40	Preparation of written submissions	1.5
41	Preparation by applicant of bundle for hearing	0.6
42	Appearance at hearing	0.25
29	Sealing order	0.2
Total Days		6.75
Total Costs ($2.390/day)		$16,132.50
Total Costs with 50% uplift		$24,198.75
Disbursements
Filing Fee (originating application)		$550
Filing Fee (interlocutory application)		$260
Translation and interpreting (invoices attached)		$2,084.24
Sealing fee		$65
Total disbursements		$2,949.24
Total increased costs and disbursements		$27,147.99

[26]   The costs claimed do not include the filing of the application for priority. Instead Ms Zhu claims a time allocation of one day for step 37, describing it as being for the filing of an affidavit in reply. Ms Zhu’s submissions do not expand on the claim for step 37. However the affidavit filed together with the application for priority was labelled reply affidavit. It appears therefore that the claim for step 37 is for the application for priority.

5      High Court Rules 2016, r 14.6(3)(b)(iii).

6      Holdfast NZ Ltd v Selleys Pty Ltd [2005] 17 PRNZ 897 (CA) as recently confirmed in Belgiormo- Mettis v Auckland Unitary Plan Independent Hearings Panel [2024] NZCA 695 at [31].

[27]   The time allocation for the priority application on a 2B basis is two days. Ms Zhu has instead claimed one day, the time allocation on a 2A basis. I consider this is appropriate in the circumstances as it was a relatively straightforward application.

[28]   I am therefore satisfied that the 2B scale costs sought by Ms Zhu are appropriate.

[29]   JSE accepts the disbursements sought are appropriate but they include GST when Ms Zhu appears to be registered for GST. In these circumstances I award disbursements on a GST exclusive basis. If Ms Zhu is not registered for GST then a memorandum may be filed seeking the additional GST amounts for fixing by the Registrar.

Should increased costs be awarded?

Submissions

[30]   Ms Zhu submits that JSE’s conduct in requiring the filing of the application to lapse, and opposing, before unilaterally removing the caveat warrants increased costs under r 14.6(3)(b)(ii) and (iii). Ms Zhu says JSE, has both contributed unnecessarily to the time or expense of the proceeding by taking or pursuing an unnecessary step or argument that lacks merit, and failed, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument. The following reasons are given in support of that submission:

(a)On 13 June 2024 (before filing her application) the applicant wrote to the respondent explaining why there was no sustainable basis for the caveat and requested its withdrawal but the respondent refused.

(b)Despite further correspondence urging JSE to withdraw the caveat, JSE still refused leaving the applicant no option but to file her application.

(c)JSE then alleged for the first time in its opposition that Ms Zhu had committed "Land Transfer Act fraud" having “declined to receive" and ''deliberately ignored" a Sale and Purchase Agreement said to give rise to JSE's purported caveatable interest.

(d)Alleging fraud or dishonesty is a very serious matter and must be pleaded with care and must not be alleged unless there is reasonably credible material, referring to Schmidt v Pepper New Zealand

(Custodians) Ltd.7 Indemnity costs have been awarded where allegations of fraud have been advanced knowing them to be false or making irrelevant allegations of fraud.

(e)Here, JSE alleged fraud in reliance on inadmissible hearsay statements and despite the documentary evidence being entirely inconsistent with JSE's purported interest whilst at the same time providing no explanation for these inconsistencies.

(f)On 1 August 2024 (only one week before the hearing), the respondent advised that it was in the process of withdrawing its caveat. Ms Zhu then discovered that a new caveat had been lodged (Ms Zhu says coincidentally only the day before on 31 July 2024) by Ms Tan. JSE's caveat could not be removed pending registration of that new caveat.

(g)Ultimately, Ms Zhu says the orders sought by her became necessary and were granted at the hearing on 8 August 2024.

[31]   Ms Zhu submits that JSE’s caveat and opposition to this application were designed to disrupt the mortgagee sale of the property and that JSE made serious allegations of fraud which were entirely unfounded and inconsistent with the documentary evidence filed. Further, Ms Zhu says the respondent's opposition was supported by Ms Tan, the very person whose company borrowed $3.8 million from Ms Zhu and then defaulted, giving rise to the mortgagee sale.

[32]   In response JSE submits that JSE’s opposition to Ms Zhu’s application to remove the caveat was that the SPA gave JSE a caveatable interest in the property, and that the circumstances in which Ms Zhu defeated that caveatable interest gave rise to an arguable case of land transfer fraud.

[33]In support of this position, JSE relies on:

(a)the SPA establishing a caveatable interest;

(b)testimonial evidence from Golden Touch’s director, Ms Tan, allegedly establishing that Ms Zhu knew of JSE’s interest; and

7      Schmidt v Pepper New Zealand (Custodians) Ltd [2012] NZCA 565 at [15].

(c)documentary evidence, in the form of the file note by Mr Ge (Ms Zhu’s mortgage broker), also allegedly establishing that Ms Zhu knew of the SPA when she extended the loan.

[34]   JSE submits that this evidence established an arguable case for land transfer fraud by Ms Zhu which undermined her priority as mortgagee and which would need to be tested at trial with the caveat intact. JSE submits that Ms Zhu sought to discredit this evidence in her substantive submissions, argued that it conflicted with Ms Zhu’s own evidence and that she essentially repeats this argument in her costs submissions.

[35]   JSE says however that a caveat dispute would not have been the appropriate forum for the Court to make the credibility findings Ms Zhu sought, given the Court’s frequent holding that “conflict between affidavits will generally be resolved in the caveator’s favour”.8 JSE’s position is that the evidence it produced was sufficiently cogent so as to provide an arguable basis for land transfer fraud and that contrary to Ms Zhu’s position, the standard for such evidence to sustain a caveat is not high referring to the Court of Appeal’s decision in Green McCahill Holdings Ltd v Ara Wheiti Development Ltd.9

Discussion

[36]   As the caveat was removed unilaterally and orders were then made by consent, I am not in a position to determine the merits of the application to lapse. Instead the focus needs to be on whether JSE’s change in position resulted from matters in reply from Ms Zhu as the change in position may then be considered reasonable. If, however, no new matters were raised in reply by Ms Zhu and JSE simply changed its mind, JSE could be considered to have contributed unnecessarily to the time or expense of the proceeding.

[37]   Considering the correspondence exchanged prior to the filing of the application to sustain the caveat, Ms Zhu’s position as mortgagee was clearly laid out. During this exchange, JSE’s solicitor advised that his client had instructed that Ms Zhu knew

8      Hung v Hung [2024] NZHC 1809 at [48], citing Bethell v Richard [2013] NZCA 68 at [22] and

MacRae v Rapana HC Auckland M633/94, 17 June 1994.

9      Green McCahill Holdings Ltd v Ara Wheiti Development Ltd [2022] NZCA 218 at [108] and [120].

about the SPA on which JSE was relying as “the agreement was part of the Exit Plan” but did not provide any further details. Ms Zhu’s solicitor invited JSE’s solicitor to provide a copy of the SPA and the alleged consent by Ms Zhu but these were not provided requiring the application to lapse to be filed.

[38]   It was only when JSE filed its opposition that JSE finally provided a copy of the SPA and referred to and provided a copy of the file note from Mr Ge, the mortgage broker.

[39]   There is no new evidence in Ms Zhu’s affidavit in reply other than her denial of knowledge of the SPA entered into by Golden Touch with JSE and her denial that she had previously seen Mr Ge’s file note as would have been expected.

[40]   JSE then took steps unilaterally to remove the caveat one week prior to the hearing.

[41]   In these circumstances I consider that increased costs are appropriate as JSE’s actions including in not providing the requested documents prior to the application to lapse being filed unnecessarily contributed to the time and expense of the proceeding.

Appropriate uplift

[42]   Ms Zhu’s position is that the appropriate uplift is 50 percent. JSE does not make submissions on what an appropriate uplift would be if the Court reaches the view that increased costs ought to be payable.

[43]   The usual uplift is 50 per cent because a determination that increased costs are justified should result in an increase to what the reasonable fee for that step would be. Scale costs are said to represent two-thirds of the daily rate considered reasonable. So, as held in Holdfast NZ Ltd v Selleys Pty, an increase of 50 per cent would add the remaining third, awarding what are considered to be reasonable costs for that step.10 On this basis, having found that JSE contributed unnecessarily to the expense of the

10     Holdfast NZ Ltd v Selleys Pty [2005] 17 PRNZ 897 at [47].

proceeding, I consider a 50 per cent uplift is appropriate so that reasonable costs for all steps are payable.

Result

[44]   JSE is to pay costs to Ms Zhu on a 2B basis with a 50 per cent uplift amounting to $24,198.75 plus disbursements of $2564.56 exclusive of GST.

[45]   Leave is granted to Ms Zhu to file a further memorandum if Ms Zhu is not registered for GST, seeking the GST inclusive figure for disbursements.

Associate Judge Sussock