IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-3860 [2013] NZHC 774

BETWEEN	HANGZHOU SHENGZHE TRADE CO LTD
First Plaintiff

AND	HANGZHOU FULUOSI THERMAL INSULATION MATERIALS CO LTD Second Plaintiff

AND	HANGZHOU JIAHUA INVESTMENT CO LTD
Third Plaintiff

AND	HANGZHOU KANLI CAR SALES AND SERVICES CO LTD
Fourth Plaintiff

AND	WEIDONG HE First Defendant

Hearing:	(on the papers) Counsel:	R Orlov for Plaintiffs
R E Harrison QC and D Liu for Defendants

Judgment:	16 April 2013

JUDGMENT OF KATZ J

This judgment was delivered by me on 16 April 2013 at 3:00 p.m. pursuant to r 11.5 of the High Court Rules 1985.

Registrar/Deputy Registrar

……………………………………

Counsel:
Mr R Orlov, Barrister, Auckland
Mr R E Harrison QC, Barrister, Auckland
Solicitors:
Mr G Stewart (for the Plaintiffs), Stewart & Associates Lawyers Ltd, Alexandra
Mr D Liu, (for the Defendants), Yu Lawyers, Auckland

HANGZHOU SHENGZHE TRADE CO LTD V WEIDONG HE HC AK CIV-2012-404-3860 [16 April 2013]

Cont ...

AND	FURONG PAN Second Defendant

AND	XIAOMEI LIU Third Defendant

AND	MARYLAND COMPANY LIMITED Fourth Defendant

AND	MARYLAND BASSETT COMPANY LIMITED
Fifth Defendant

Introduction

[1]       On 21 November 2012  I heard applications by each of the plaintiffs for summary judgment against the first defendant, Weidong He.  On 19 December 2012
I   delivered   judgment,   declining   the   summary   judgment   applications.      At

Mr Harrison’s request I reserved leave to file memoranda on costs.

[2]       On 13 February 2013 Mr Harrison filed a memorandum on behalf of Mr He, seeking costs in the sum of $28,656 plus disbursements of $833.80.  I then issued a Minute directing that if the plaintiffs wished to make submissions on costs they were to file a memorandum by Friday, 15 March 2013, with any reply from the first defendant to be filed by 22 March 2013.  The plaintiffs did not, however, take the opportunity to make submissions on costs.

[3]       Having   successfully   opposed   the   plaintiffs’  application   for   summary judgment, Mr He now seeks costs calculated initially on a Category B basis, but with a percentage uplift of 100% by way of increased costs pursuant to r 14.6(3) of the High Court Rules.

Approach to costs on summary judgment application

[4]       Rule 14.8 addresses costs on interlocutory applications.  Costs on an opposed interlocutory application are to be fixed at the time the application is determined and become payable when they are fixed, unless there are special reasons to the contrary. However, r 14.8(3) states the rule does not apply to an application for summary judgment.  Counsel for Mr He submitted that the effect of this is not that there is a presumption against fixing costs upon determination of an application for summary judgment, but only that there is no mandatory requirement to fix costs, barring special circumstances to the contrary.   He submitted that r 14.8(3) and indeed  r 14.8 more generally now governs the position, rather than the former leading case of NZI
Bank Ltd v Philpott.1

[5]       The  effect  of  Philpott  was  that  costs  should  generally  be  reserved  on dismissal of a summary judgment application, for assessment after trial.  However, the Court of Appeal also stated that in a case where the plaintiff embarked on summary judgment proceedings when aware that there was a bona fide question of fact or law only capable of being determined after a trial, costs could be awarded in favour of the successful respondent upon dismissal of the application.

[6]       In my view nothing turns in this case on whether r 14.8(3) was intended to, in effect, codify the law as set out in Philpott or not.  On either approach the starting presumption is that costs will not automatically and immediately follow the event in summary judgment applications.  However, if circumstances warrant it, costs may be awarded.  Although each case will turn on its own facts, I refer to the judgment of
Matthews AJ in Heeg v Heeg2  where the earlier cases are discussed and costs on a

2B basis were ultimately awarded.

Mr He’s costs application

[7]       Counsel for Mr He submitted that in the present case there are two reasons why it is appropriate to fix costs on the summary judgment application at this stage:

(a)       The summary judgment application was entirely without merit and doomed to failure.

(b)       All four plaintiffs are resident overseas and any costs order against them  will  be difficult  if not  impossible to  enforce,  other than by means  of  progressive  orders  as  to  security  for  costs  made  and complied with in this country.   It was submitted that one way of assessing the sufficiency of the currently paid in security for costs would be to fix costs on concluded interlocutory matters and direct that such costs be paid immediately out of any funds held by way of security.

[8]       The fact that a summary judgment application was entirely without merit and clearly doomed to failure is a matter which may clearly justify an award of costs.  I am not persuaded, however, that the fact that the plaintiffs are based overseas is relevant in this case. They have been ordered to pay security for costs and have done so.   If it later becomes apparent that the security previously ordered may be insufficient, due to the level of interlocutory activity on the file, the appropriate course would be to seek additional security.

[9]       As to r 14.6(3)(b)(i), counsel for Mr He submitted that, while not necessarily the dominant reason for awarding increased costs, it was nonetheless the case that the plaintiffs’ application and proceedings were “generally littered with procedural errors of varying degrees of seriousness.”  There is some force in this submission. My judgment of 19 December 2012 noted that “both the statement of claim and the summary judgment application lacked clarity and precision in their drafting, which
led to confusion as to the precise scope of the issues”.3

[10]     As to r 14.6(3)(b)(ii) and (iii) counsel for Mr He submitted that the plaintiffs can properly be said to have not only pursued an unnecessary step (a misconceived application for leave to cross-examine) but also to have run arguments that lacked merit and equally failed without reasonable justification to accept legal arguments raised by Mr He.

[11]     In  particular,  it  was  submitted  that  the  plaintiffs’ argument  that  Mr  He submitted to the jurisdiction of the Chinese Court by voluntarily appearing in the proceedings was inevitably doomed to fail.  This was not a case of disputed evidence or law in relation to this aspect, but one where the plaintiffs themselves failed from the outset to establish a crucial element of the pleaded claim, acknowledged by them as such.  The plaintiffs’ subsidiary argument (only available in relation to the third plaintiff) based  on contractual submission by the first defendant to the Chinese jurisdiction was neither pleaded nor advanced in the written submissions.  It was an argument developed during the course of the hearing.

[12]     As to r 14.6(3)(b)(v), counsel for Mr He relied on various “without prejudice except as to costs” communications with the plaintiffs’ solicitors.  It is apparent from these that Mr He’s solicitors had, prior to the hearing, correctly pointed out the fatal flaw in the summary judgment application.  In particular, the Chinese Courts had no jurisdiction against Mr He personally in circumstances where he was not a resident of the People’s Republic of China when the proceedings were commenced and he was not personally served with the proceedings.

[13]     At  a  relatively  early stage  the  plaintiffs  were  offered  the  opportunity  to withdraw their application without costs consequences.  Later the plaintiffs were put on notice that if they proceeded with the application Mr He would seek an award of indemnity or increased costs in the event that the application failed.  The plaintiffs disregarded such warnings. Ultimately the summary judgment application was dismissed on the basis foreshadowed by the first defendant in “without prejudice except as to costs” correspondence.

[14]     Counsel for Mr He submitted that I should not view the summary judgment application in isolation. It was said to form part of an overall “wrong headedness in the pursuit of unachievable interlocutory objectives” which both wasted judicial time and caused the defendants legal expense. In particular it was noted that the plaintiffs had applied without notice (and unsuccessfully) for wholesale freezing orders, and had also lodged caveats against properties held by the defendants which were only permitted to lapse by agreement after the defendants had incurred significant legal expense.

[15]     Although the application to cross-examine is relevant to the costs issues before me, in my view issues relating to the previous interlocutory applications are not.   If the plaintiffs have pursued other interlocutory applications which were misconceived, then costs issues are (or were) appropriately dealt with in the context of each of those applications.   Not having dealt with those matters I am not in a position to form a view as to whether they were misconceived or not.

[16]     Taking all of these matters into account I am satisfied that the facts of this case warrant a departure from the normal practice of reserving costs in relation to summary judgment applications until after trial.  The summary judgment application was misconceived from the outset.  This is not a case where the application failed because there are disputed factual issues which need to be resolved at trial.  There was simply no evidence of submission by Mr He to the Chinese jurisdiction, as Mr Orlov effectively acknowledged.  Accordingly there was no basis on which the application could have succeeded.   Similarly, there appears to be no prospect of success at trial on the claim as currently pleaded.  Realistically, as foreshadowed in my judgment, any prospect of success at trial is likely to be dependent on amending the current pleading to focus on direct enforcement of the Chinese guarantees in New Zealand, rather than enforcement of the Chinese judgments.

Quantum

[17]     Counsel for Mr He has calculated costs a category 2B basis.   However, in addition to the costs associated with the summary judgment application, the costs sought include costs for the commencement of the defence as well as the filing of an interlocutory application for stay and security for costs.  This was on the basis that those matters were appropriate preliminary steps in the proceedings, prior to the summary judgment application being heard.

[18]     On the particular facts of this case I am prepared to award costs for the commencement of the defence.  As noted above, the claim as currently pleaded is fundamentally flawed and it is therefore likely that this matter will proceed to trial on a significantly different basis than that currently pleaded.   I am not, however, prepared to allow the costs claimed for filing the interlocutory application for stay and security for costs.

[19]     Counsel submitted that the category 2B time allocation was appropriate, with one exception.  That was in relation to item 23, filing an opposition to the summary judgment application.   In respect of that item a category C time allowance of two days was seen as justified, rather than a category B allowance of 0.6 days.  Counsel noted the voluminous affidavits (containing considerable irrelevant material) and the misconceived application to cross-examine, which required a memorandum in opposition and an urgent teleconference with the Court.  I accept that a category C time allowance for item 23 is appropriate in this case, to allow for a reasonable contribution towards the very considerable time actually incurred in opposing the summary judgment application.

[20]     Finally, a 100% uplift on 2B costs was sought, by way of increased costs pursuant  to  r  14.6(3)  HCR.    In  that  regard  rules  14.6(3)(b)(i),  14.6(3)(b)(ii),
14.6(3)(b)(iii) and 14.6(3)(b)(v) were relied on.

[21]     The issue of whether to allow an uplift is in my view finely balanced.  The main ground potentially justifying such an uplift is that the plaintiffs pressed ahead with their summary judgment application in circumstances where they should have realised it was fatally flawed.  They simply did not have the evidence to support the claim as pleaded.  This had been squarely drawn to their attention by counsel for the defendants.

[22]     An additional ground on which an uplift could be justified is the lack of clarity and precision in the drafting of the statement of claim, summary judgment application and affidavits (which included considerable evidence which related to a claim  for  direct  enforcement  of  the  guarantees,  a  claim  which  was  not  in  fact pleaded). This added significantly to the costs of the proceedings.

[23]     Although the issue is finely balanced, I have concluded that the plaintiffs are appropriately “penalised” for such shortcomings by my decisions to award costs now (rather than after the outcome of the substantive litigation), to allow costs on a category C basis for filing an opposition, and to allow the costs for commencement of the defence.

Result

[24]	The consequence of this approach is that the first defendant is entitled to costs of $13,134 together with disbursements of $108.80.  I order accordingly.

Katz J