JIAN PING GAN & ANOR V PROPERTY FINANCE FUNDING NOMINEES LIMITED & ORS HC AK CIV 2010-404-003858

JIAN PING GAN & ANOR V PROPERTY FINANCE FUNDING NOMINEES LIMITED & ORS HC AK CIV 2010-404-003858 3 November 2010IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2010-404-003858BETWEEN JIAN PING GAN Intended First plaintiff AND GAN NAI KANG AND LIU HUI TEN Intended Second Plaintiffs AND PROPERTY FINANCE FUNDING NOMINEES LIMITED Intended First Defendant AND IAN ROBERT WILD AND GOU LU DAI Intended Second Defendants AND BARFOOT & THOMPSON LIMITED Intended Third Defendant AND RICHARD PARKINSON Intended Fourth Defendant Hearing: 3 November 2010 Counsel: No appearance for intended plaintiffs S E Fitzgerald for intended first defendant Appearance of counsel for intended second defendants excused K J Robinson for intended third defendant Judgment: 3 November 2010ORAL JUDGMENT OF ASSOCIATE JUDGE ABBOTTSolicitors Botany Law, PO Box 260066, Howick East, Auckland for intended plaintiffs Russell McVeagh, PO Box 8, Auckland for intended first defendant Craig Griffin & Lord, PO Box 9049, Auckland for intended second defendants McElroys, PO Box 835, Auckland for intended third defendant[1] The three parties named in this proceeding as the intended first, second and third defendants, have applied for costs against the applicants as intended plaintiffs, following discontinuance of what can only be said to be a misconceived application for pre-commencement of discovery. For ease of reference I will refer to the parties as plaintiffs and defendants rather than intended plaintiffs and intended defendants.Background[2] The plaintiffs commenced this proceeding on 16 June 2010 seeking to obtain documents from the defendants related to the sale of a property at 2/273 St Johns Road, Auckland by mortgagee sale. The first plaintiff was the registered proprietor up until the first defendant (mortgagee of the property) exercised power of sale under its mortgage. The second defendants were the purchasers. The third defendant was the real estate agent acting on the sale. The second plaintiffs are the parents of the first plaintiff, and contend that they had an interest in the property pursuant to some form of tenancy. [3] The mortgagee sale took place in the latter part of 2009. The plaintiffs did not accept that the sale was effected validly and declined to vacate the property. The purchasers (the second defendants) have commenced an action in the Auckland District Court seeking possession. The plaintiffs defended the proceeding and the second plaintiffs counterclaimed for rescission of the sale to the second defendants. That proceeding is continuing in the District Court in respect of the counterclaim only as the second defendants have obtained possession pursuant to an order of the Residential Tenancy Tribunal. [4] The plaintiffs brought their application in this proceeding, for pre- commencement discovery, with a view to widening the dispute to include the mortgagee and the real estate agent. From the outset the defendants have resisted the application both on the grounds that the intended proceeding has never been properly put before this Court, and that the discovery being sought was not necessary for the commencement of the claim that the plaintiffs felt they could bring (there alreadybeing the District Court proceedings, which address the same dispute and could have been extended to include the parties to this proceeding, and in respect of which relevant discovery was available). [5] These points were made forcibly to the plaintiffs, particularly by the first and second defendants, when this proceeding was filed. Notwithstanding these matters, the plaintiffs persisted with the application, causing the first and second defendants to take steps in opposition, and the third defendant to incur costs of attending several interlocutory hearings. The first defendant, in particular, provided a very comprehensive affidavit in support of its opposition, producing many documents relating to its mortgage and to the mortgagee sale process. [6] The plaintiffs have now filed notices of discontinuance of their proceeding. There has been no agreement as to costs as a consequence of the discontinuance. All of the first, second and third defendants are seeking costs on a scale 2B basis, together with an increase of 50% on the basis that the plaintiffs' conduct of this proceeding has significantly increased the costs that the defendants have had to incur. [7] The plaintiffs have taken no steps since filing the last of notices of discontinuance, despite a direction made on 13 October 2010 that they file a memorandum in response to the defendants' claims by 29 October 2010.Entitlement to costs[8] There is no question, in my view, that the defendants are entitled to an order for costs. Rule 15.23 of the High Court Rules provides that a plaintiff who discontinues must pay costs to a defendant up to and including the discontinuance unless the defendant otherwise agree or the court otherwise orders. I am satisfied that there has been no agreement between the parties, and for reasons that I will now cover briefly I also accept that it is appropriate to award costs. There are two issues to address:a) The items of costs which the defendants are entitled to claim (in terms of the scale in schedule 3 of the High Court Rules); b) Whether the defendants are entitled to increased costs, and if so, what amount. [9] Before turning to address each of these issues, I will first make some general remarks about this proceeding. I endorse with respect, remarks made by Hugh Williams J who considered and gave directions on this matter, following an earlier hearing. In a minute issued on 27 August 2010, he noted that there were serious procedural deficiencies with this application. Before referring to them, I note that it was filed purportedly as an originating application, rather than an interlocutory application (although at some point the plaintiffs appeared to have appreciated this and stapled a different cover sheet to the application). More significantly however, (and, as identified by Hugh Williams J, contrary to established practice) there was no draft statement of claim filed with the application, no affidavit specifically in support, and no memorandum of counsel (all of which assist the Court and opposing parties to understand the respects in which it is "impossible or impracticable for the intending plaintiff to formulate ... the claim"). [10] The plaintiffs purported to file an affidavit prepared in the District Court proceeding which annexed a draft statement of claim for a proceeding in this Court. However, that did not address, in any intelligible form, the claims being contemplated against the first and third defendants in particular (and I respectfully agree with the remark by Hugh Williams J in his minute of 27 August 2010 that the 49 paragraph length of that document belies the plaintiffs' assertion that it is impracticable or impossible to plead without the pre-commencement discovery, let alone demonstrate the necessity required by r 8.25(4)). [11] The absence of an adequate identification of the intended claims is significant. The affidavit and draft claim filed in the District Court suggest that the first defendant could not exercise a power of sale under its mortgage because it was holding the land as a bare trustee. It is beyond doubt that the first defendant was registered as mortgagee. The plaintiffs have not identified any legal basis ofargument for their suggestion that the first defendant was unable to exercise its power of sale or that it was not entitled to rely on the principle of indefeasibility. The affidavit contains an undeveloped suggestion that the first defendant has in some way committed "identity fraud" in that it was not the true mortgagee and was therefore unable to exercise its power of sale. There is also a suggestion (again undeveloped), of breach of the Illegal Contracts Act 1970. [12] I mention these deficiencies in the proposed pleading because they are clearly relevant to the steps that defendants have had to take to try to understand the case being made against them and hence whether there was any merit to the application. It is unsurprising, given the documents filed, that the application was resisted. There appears to be merit to the view of the defendants (based on a comment by counsel for the plaintiffs in his memorandum of 27 July 2010 that the application was made "to see if there was any wrongdoing in the mortgagee sale") that this was a mere "fishing expedition" to search for grounds on which to attempt to challenge indefeasibility.The claims for costs[13] All three defendants seeking costs have filed memoranda and schedules identifying the costs being sought: a) The first defendant has sought costs (in accordance with items in the scale in schedule 3 of the High Court Rules) for preparing its opposition, for filing memoranda for five mention hearings (one as a result of the plaintiffs not having advised the defendants of an adjournment), for filing of an application for security for costs, and for appearances at two mention hearings. The costs sought (before addressing the claim for uplift) total $9,400 if the application is treated as an originating application or $6,768 if the application is appropriately treated as an interlocutory application; b) The second defendant has sought scale costs for preparing its opposition (again based on opposition to an originating application),for filing memoranda for five mention hearings, and for appearances at two mention hearings. The costs it seeks total $8,272; c) The third defendant (which did not file a notice of opposition) has sought scale costs for filing three memoranda and appearing at two mention hearings. This differs from the schedule presented (as a consequence of discussion in the hearing). The costs it seeks total $3,008. [14] I have reviewed the schedules presented, and am satisfied that the claims are appropriate with one exception, namely the basis for claiming the costs of preparing an opposition. It is clear that the application is correctly an interlocutory application, and as such costs should be allowed on that basis rather than as on an originating application. On that basis, the claims made under item 2 of schedule 3 should be amended to be claims under 4.13 of schedule 3. In all other respects I will allow the claims as sought.Increased costs[15] The court has power to award increased costs pursuant to r 14.6(3):14.6 Increased costs and indemnity costs... (3) The court may order a party to pay increased costs if— (a) the nature of the proceeding or the step in it is such that the time required by the party claiming costs would substantially exceed the time allocated under band C; or (b) the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by— (i) failing to comply with these rules or with a direction of the court; or (ii) taking or pursuing an unnecessary step or an argument that lacks merit; or(iii) failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument; or (iv) failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or other similar requirement under these rules; or (v) failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding; or (c) the proceeding is of general importance to persons other than just the parties and it was reasonably necessary for the party claiming costs to bring it or participate in it in the interests of those affected; or (d) some other reason exists which justifies the court making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.[16] The defendants contend that they are entitled to increased costs on the basis of rr 14.6(3)(b)(i), (ii), (iii) and 14.6(3)(d). [17] I am satisfied that the plaintiffs' conduct in this proceeding has contributed unnecessarily to its time and expense having regard to: a) The procedural difficulties in filing the application without giving adequate information as to the nature of the claims being advanced and the difficulties of pleading it without the discovery sought; b) Taking steps unilaterally (seeking an adjournment) and then failing to communicate the fact of the adjournment to the defendants; c) Failing to respond appropriately to the arguments put to them as to the lack of legal basis for any claim and as to their ability to obtain all that they have needed through the existing District Court proceeding or voluntarily (the first defendant offered inspection of documents in its possession by letter dated 27 July 2010);d) Inconsistent responses and changes of position in relation to discontinuance; e) A failure to respond in a timely way or, in some cases, at all to directions of the Court given on 4 and 27 August 2010 in respect of discontinuance; f) A failure to respond to, and take up, a realistic offer by the first defendant (by letter dated 30 August 2010) to agree to discontinuance with a reservation of costs so as to allow costs to be sought before the plaintiffs resurrect the indicated claims to some other form. [18] All defendants have sought an increase of 50% over the amounts awarded on a scale 2B basis. The plaintiffs have been advised of this claim. They have taken no steps to challenge the increase being sought. I do not regard the increase sought as being out of keeping with the likely costs that have been incurred. Indeed, the first defendant in particular has confirmed that actual costs are substantially in excess of even the increased costs sought.Order[19] The intended plaintiffs are to pay the intended first, second and third defendants costs on a 2B basis, in accordance with the schedules filed, save for a substitution of item 4.3 for item 2, and to adjust the third defendant's rate to allow for filing of three memoranda and appearances at two mention hearings. Those costs are to be increased by 50%. The plaintiffs are also to pay the defendants disbursements as approved by the Registrar. ____________________Associate Judge Abbott