DU v M5 HOLDINGS LIMITED [2020] NZHC 28

DU v M5 HOLDINGS LIMITED [2020] NZHC 28 [28 January 2020]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2015-404-2124[2020] NZHC 28BETWEEN JIANYU DUPlaintiffAND M5 HOLDINGS LIMITEDFirst DefendantDAVID COTTERSecond DefendantYUE YANGThird DefendantFENG SHIFourth DefendantHearing: On the papersCounsel: D Zhang for plaintiffA Manuson for fourth defendantJudgment: 28 January 2020JUDGMENT OF KATZ J[Costs on discontinuance]This judgment was delivered by me on 28 January 2020 at 4:30pmPursuant to Rule 11.5 High Court RulesRegistrar/Deputy RegistrarSolicitors: Amicus Law, AucklandPrestige Lawyers Limited, AucklandIntroduction[1] The plaintiff, Ms Jianying Du, issued proceedings against four defendants inrespect of an investment that she attempted to make in the first defendant,M5 Holdings Limited ("M5"), which is a New Zealand company. The claims againstthe first, second and third defendants were subsequently discontinued.[2] On 9 March 2017, I delivered judgment in favour of Ms Du against the fourthdefendant, Mr Feng Shi, following a formal proof hearing. Mr Shi was not present orrepresented by counsel at the hearing. Both Ms Du and Mr Shi live in China.[3] I found that in 2014, Ms Du had decided to invest in M5, which is in thebusiness of manufacturing honey. She entered into an agreement ("the Agreement")with Mr Shi, in which he agreed to transfer his 22.5 per cent shareholding in M5 to herfor $270,000. The agreement included a number of representations, covenants andwarranties on the part of Mr Shi as transferor. By 27 June 2014, Ms Du had paid thefull share purchase price. Although Ms Du was initially added to the share register byMr Shi, she was removed shortly after, due to Mr Shi's failure to comply with thepre-emptive rights provisions in M5's Constitution. I concluded that Ms Du had paidthe full contract price for transfer of the shares, but Mr Shi had not fulfilled his part ofthe bargain and transferred the shares. Ms Du was accordingly entitled to the returnof the purchase price for the shares, together with costs and interest.[4] On 18 April 2018, I issued a further judgment awarding costs in favour ofMs Du. (I will refer to the two judgments collectively as "the Judgments"). Ms Dusubsequently took steps to enforce the Judgments in the People's Republic of China.[5] Mr Shi then applied to this Court to set aside the Judgments, primarily on thebasis that he had not been properly served with the proceeding. He claimed that heonly became aware that there were New Zealand court proceedings against him in July2018, when Ms Du sought to enforce the Judgments in China.[6] I found that the proceeding had been properly served, but that the servicedocuments did not comply with r 6.31 of the High Court Rules ("Rules").1 TheJudgments were accordingly set aside.[7] On 24 October 2019, Ms Du discontinued the proceeding. Mr Shi now seekscosts on a 2B basis in the sum of $20,315, plus $1,958 in disbursements.[8] Ms Du accepts that costs are appropriately assessed on a 2B scale basis but hasraised several issues about the appropriate quantum of any costs award.What costs should be awarded in respect of Mr Shi's successful application to setaside the Judgments?[9] In general, the losing party in a proceeding should pay costs to the winner.2Interlocutory applications follow the general costs rules unless there are specialreasons to not do so.3 Furthermore, a plaintiff who discontinues proceedings mustgenerally pay costs to the defendant.4 All awards of costs are at the discretion of theCourt, but the exercise of that discretion should follow the principles in r 14.2 unlessthere are special reasons to the contrary.5[10] It is common ground that Mr Shi is entitled to costs, given that Ms Du hasdiscontinued the proceeding. A number of items are not in dispute, namely the costsfor filing a memorandum (item 11); appearance at a telephone conference (item 12),preparation of written submissions (item 24); appearance at the hearing (item 26);preparation of further submissions (on a 2A scale basis) (item 24); and sealingjudgment (item 29).[11] Ms Du disputes, however, Mr Shi's claim that the application to set aside theJudgments should be treated for costs purposes as an originating application (item 37),rather than an interlocutory application (item 22). On behalf of Mr Shi, Ms Manuson1 Du v M5 Holdings Ltd [2019] NZHC 231.2 High Court Rules 2016, r 14.2(l)(a); Manukau Golf Club Inc v Shoye Venture Ltd [2012]NZSC 109, [2013] 1 NZLR 205 at [8].3 Rule 14.8.4 Rule 15.23.5 Rule 14.1; clarifying that discretion is to be exercised in accordance with the rules unless specialcircumstances prevail, Mansfield Drycleaners Ltd v Quinny's Drycleaning Ltd (2002) 16 PRNZ662 (CA) at [27].submitted that as there is no express allowance for the filing of affidavits under the"interlocutory application" heading, the application should be treated as an originatingapplication.[12] I reject that submission. Interlocutory applications are routinely supported byaffidavits – a fact that was no doubt well known to the drafters of the Rules. Thenecessary inference is that the time allowance for the filing of an interlocutoryapplication was intended to cover the drafting of any supporting affidavits. There isnothing exceptional in this case that requires a departure from that general approach.Item 22, rather than item 37, is accordingly appropriate for the application to set asidethe Judgments. As a result, the costs payable for all interlocutory steps relating to thatapplication are $9,321.What costs should be awarded in respect of the substantive proceeding?[13] No statement of defence was filed prior to Ms Du discontinuing theproceeding. Costs claims for work on substantive claims are not expressly allowedwhere no statement of defence has been filed, but in special circumstances the Courtmay consider them as a claim for increased costs under r 14.6.6[14] Mr Shi claims three items under this head. First, he says that the affidavitsfiled in support of the interlocutory application contained matters relevant to thesubstantive proceeding and accordingly a further time allowance of one day should beprovided for those affidavits. I reject that submission. Amongst other things, therelevant affidavits set out, in a fairly general way, evidence relating Mr Shi's proposeddefence to Ms Du's claim. Given the nature of the application, that was both necessaryand appropriate. It is not unusual for evidence in support of (or in opposition to)interlocutory applications to engage with the substantive merits of a proceeding. Inthe particular circumstances of this case, the interests of justice do not require an upliftfor this factor.6 Griffin Trust AG v Global Oil Services Ltd [2019] NZHC 3418 at [21].[15] Second, Mr Shi seeks a cost allocation of two days for the preparation of astatement of defence. Ms Manuson noted that a draft statement of defence wasannexed to counsel's submissions for the interlocutory application.[16] I am not persuaded that such an allocation is appropriate. Mr Shi has beenafforded an allocation of 1.5 days for the preparation of submissions for theinterlocutory hearing. The draft statement of defence annexed to counsel'ssubmissions is fairly pro-forma and is only two pages in length. It was providedsimply to substantiate the submission that Mr Shi had defences available to him. Thepreparation of that document is appropriately covered, in my view, by the timeallocation provided for the preparation of submissions. If the matter had proceeded,it is clear that counsel intended to undertake extensive further work on drafting thestatement of defence. This is evidenced by the fact that, only three days before Ms Dudiscontinued the proceeding, Mr Shi sought a five-week extension for filing hisstatement of defence.[17] The third item claimed in respect of the costs of the substantive proceeding isthe filing of a callover memorandum (item 11). This item is not in dispute. The costspayable in respect of steps taken in the substantive proceeding are accordingly $956.Disbursements[18] Disbursements are sought for filing the interlocutory application ($500);translation of affidavits ($818); and hearing fee ($640). Ms Du has not taken issuewith any of these disbursements and they are awarded accordingly.Result[19] I order the plaintiff, Ms Du, to pay costs to the fourth defendant, Mr Shi, in thesum of $10,277 together with disbursements of $1958 (totalling $12,235).____________________________Katz J