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Zespri International Limited v Shanghai Neuhof Trade Company Limited [2021] NZHC 168 (15 February 2021)

Last Updated: 16 March 2021

JUDGMENT OF WYLIE J

This judgment was delivered by Justice Wylie On 15 February 2021 at 3.00 pm

Pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar

Date:..............................

Solicitors/counsel:

Buddle Findlay, Wellington/M A Corlett QC

Winston Wang & Associates/B D Gray QC and K M Muller, Auckland Alexander Dorrington/G Blanchard QC, J W H Little, Auckland

ZESPRI INTERNATIONAL LTD v SHANGHAI NEUHOF TRADE COMPANY LTD [2021] NZHC 168 [15

February 2021]

Introduction

• [1] The applicant, Zespri International Ltd (“Zespri”) seeks orders that the respondents, Shanghai Neuhof Trade Company Ltd (“Shanghai Neuhof”) and Shanghai Hui Zhan Logistics Ltd (“Hui Zhan”), and the non-party, Weixin Li (“Ms Li”), are jointly and severally liable to pay its costs of and incidental to these proceedings, either on an indemnity basis or on an increased basis in such sum as the Court thinks just. Its claim for indemnity costs seeks an award in the sum of

$1,832,262.64. If indemnity costs are not ordered, it seeks costs on an increased basis. It claims costs for each step taken in the proceeding on a mixed 3B/3C basis, in the total sum of $342,861.00 plus a 50 per cent uplift – in total $514,291.50. In either case, or if scale costs only are awarded, disbursements are sought in the sum of
$742,618.05.

• [2] Shanghai Neuhof and Hui Zhan agree to an award being made for scale costs (properly calculated) and for reasonable disbursements incurred in respect of their claims against Zespri, but not in respect of the counterclaims made against them by Zespri. They abide the decision of the Court in relation to the costs order sought against Ms Li and oppose all other orders sought.

• [3] Ms Li opposes any costs order being made against her. She says that she did not cause the proceedings to be commenced, that she did not fund or control the proceedings and that she did not stand to benefit from them.

The background

Relevant entities

• [4] Both respondents are incorporated in the People’s Republic of China. Xiongjie Liu (“Big Liu”) was at all relevant times Shanghai Neuhof’s General Manager. He was a shareholder in Hui Zhan, but not in Shanghai Neuhof.

• [5] Shanghai Neuhof distributed Zespri’s kiwifruit in China. The nature of the relationship and how it worked is disputed by the parties but, in very broad terms, Zespri sent kiwifruit from New Zealand to Shanghai Neuhof in China. Shanghai

Neuhof liaised with the Chinese customs authorities and attended to payment of the duty on each consignment of kiwifruit. It received the proceeds from the sale of the kiwifruit. It accounted to Zespri for the net amounts received by it, after deducting, inter alia, the duty it had paid. These arrangements commenced in or about 2006/2007 and came to an end in 2011.

• [6] The arrangements came to the attention of the responsible customs authorities in China and, after an investigation, they alleged that Shanghai Neuhof had breached relevant regulations and failed to pay the duty which should have been paid on the kiwifruit. Big Liu and Shanghai Neuhof were charged, and in December 2012 both were convicted of smuggling by the Shanghai Number One Intermediate People’s Court. Big Liu was sentenced to 13 years’ imprisonment. Shanghai Neuhof was fined RMB 40 million (approximately NZ $8.6 million). The sentences were upheld on appeal, first by the Shanghai High People’s Court and then by China’s Supreme Court.

• [7] Big Liu’s sentence has been commuted on three separate occasions since with the result that it has been reduced by three years and nine months in total. He became eligible for parole in January 2019 and an application for his release was then made. Either that application was unsuccessful or it has not yet been dealt with. Insofar as I am aware, he is still in prison.

• [8] Shanghai Neuhof has failed to pay the fine imposed and the evidence suggests that it is insolvent. It no longer trades; its business licence was revoked in February 2019. The evidence also suggests that Hui Zhan is still trading. It has a reported registered capital of RMB 160 million (approximately NZ $34.4 million).

• [9] Ms Li is Big Liu’s sister. She and Big Liu have two other brothers – Yingjie Liu, known as “HB”, and Renjie Liu, known as “Little Liu”. HB and Little Liu both reside in China. Ms Li resides in New Zealand. She has been in this country for approximately 30 years. She has a son, Jhun Si, who also resides in New Zealand.

The proceedings

• [10] On 25 October 2013, Jhun Si gave an interview to TVNZ. He asserted that Zespri had made Big Liu a “scapegoat” for what had occurred in China. TVNZ

reported that Big Liu’s family were considering legal action in this country against Zespri. A “before action” letter was sent to Zespri reserving the rights of Shanghai Neuhof, Big Liu and each member of his family, against Zespri.

• [11] In May 2014, these proceedings were filed. The pleadings were relatively straightforward. Shanghai Neuhof alleged that Zespri had breached a partly written, partly oral contract that was entered into between 2006 and 2011. It alleged that Zespri:

(a) had breached the contract by failing to reimburse it for duty paid by it to the relevant authorities in China;

(b) had failed to comply with various adjustment provisions in the contract;

(c) had wrongfully terminated the contract; and

(d) was liable as principal under an agency relationship.

Further, Shanghai Neuhof and Hui Zhan sued on a collateral contract. They said that Zespri had asked Shanghai Neuhof to build a cool store for it and agreed that it would purchase from Shanghai Neuhof and Hui Zhan cold storage and services in respect of a specified number of trays of kiwifruit each year. They alleged that Shanghai Neuhof arranged the construction of the cool store by Hui Zhan and that Zespri breached the collateral contract when it terminated the distribution contract with Shanghai Neuhof.

• [12] In June 2014, Zespri through its solicitors wrote to the respondents, putting them on notice for costs. Zespri asserted that, on the pleadings, Big Liu would need to be called as a witness, recorded its view that Big Liu’s imprisonment meant that he would not be able to give evidence in support, and claimed that its ability to defend the proceedings would be prejudiced if it could not cross-examine Big Liu in person. It invited the respondents to either address how the alleged prejudice could be managed or to discontinue their proceedings.

• [13] The respondents did not discontinue and Zespri filed a statement of defence in July 2014. It denied the contracts alleged by the respondents and asserted that legal

title to the kiwifruit passed from it to Shanghai Neuhof when the kiwifruit crossed the ship’s rail at the destination port. It pleaded that the obligation to calculate the correct duty payable on the kiwifruit and to pay that duty rested with Shanghai Neuhof and not it, both under the relevant importer agreements and under Chinese law. It denied the existence of any trade relationship or contracts as pleaded by the respondents and denied that it had any liability to reimburse Shanghai Neuhof. It raised an affirmative defence, namely that Shanghai Neuhof’s claim was founded on unlawful acts.

• [14] Zespri applied unsuccessfully to strike out the proceedings. There were a number of interlocutory applications, including protracted discovery applications. Costs were awarded on some rulings, but not on others.

• [15] In March 2018, the respondents filed a second amended statement of claim. The respondents no longer asserted a partly oral, partly written contact, but rather alleged that the terms of the distribution contract between the parties were arrived at through a course of dealings between Big Liu, the respondents and Zespri between 2000 and 2011. They asserted that Big Liu was the managing director of both Shanghai Neuhof and Hui Zhan, that he was “centrally involved” and that the parties’ key negotiations and contract variations were agreed between Zespri’s General Manager, Asia and Big Liu. The respondents sought damages of NZ $8,185,138 from Zespri in respect of the distribution contract and NZ $17,589,123 in respect of the cool store contract.

• [16] Zespri filed a second amended statement of defence on 16 March 2018. It denied that there was a distribution contract arrived at through a course of dealing, and said rather that the relationship was governed by various annual importer agreements that the parties entered into between 2007 and 2011, which themselves were varied by conduct. Affirmative defences were pleaded as follows:

(a) the claim was founded on unlawful acts;

(b) there was no duty shortfall;

(c) it was entitled to an equitable set off because there was a conspiracy to injure to which the respondents were parties;

(d) it was entitled to an equitable set off consequent on alleged deceit by the respondents;

(e) there was a failure to mitigate; and

(f) the proceedings were in part barred by the Limitation Act 1950 and/or the Limitation Act 2010.

It brought two counterclaims against the respondents, the first associated with the affirmative defence noted in (c) above, alleging that the respondents were indebted to it in the sum of NZ $37 million for duty overpaid by it and seeking damages in that sum, and the second, associated with (d) above, seeking damages of some NZ $20 million from Shanghai Neuhof, because of false representations alleged to have been made by it.

• [17] On 22 February 2019, Zespri filed a third amended statement of defence and counterclaim. It made additional claims in relation to domestic tax it said Shanghai Neuhof had wrongfully claimed from it. That tax was assessed in the sum of some NZ $13 million, and it increased the set off sought by Zespri to NZ $49,967,560.80. The fourth affirmative defence was also amended by adding an extra NZ $7.1 million in relation to domestic tax, and the set off claimed was increased to NZ $27,52,286.20. For some reason, the damages sought on the counterclaims were not however increased.

• [18] On 19 June 2018, the Registry scheduled a six-week trial, to commence on 1 July 2019. The respondents anticipated that Big Liu would be available by that date. On 26 March 2019, the respondents applied to adjourn the trial because Big Liu was still in prison. On 27 May 2019, I granted the respondents’ application, adjourning the trial to 27 April 2020. On 29 November 2019, the respondents filed a fresh application seeking to further adjourn the trial, again on the basis that Big Liu remained in prison. In December 2019, I declined the application for a further adjournment and, on 31

January 2020, the respondents discontinued their proceedings. Shortly thereafter, on 18 February 2020, Zespri discontinued its counterclaims against the respondents.

Costs on a discontinuance

• [19] Zespri seeks costs against the respondents and Ms Li consequent on the discontinuance of the proceedings. Its costs claim extends not only to its defence of the claims brought against it by the respondents, but also to the counterclaims it brought against the respondents. The respondents have not to date sought costs against Zespri in respect of its discontinuance of the counterclaims. As already noted, they resist any costs award in respect of the counterclaims.

• [20] Under the High Court Rules 2016, the notices of discontinuance brought an end both to the respondents’ claims against Zespri and to Zespri’s counterclaims against the respondents. The discontinuances however do not affect the determination of costs.¹ Absent agreement or Court order, a plaintiff (or counterclaim plaintiff) who discontinues a proceeding against a defendant (or counterclaim defendant) must pay costs to the defendant (or counterclaim defendant) of and incidental to the proceeding up to and including the discontinuance.² This presumptive liability on a plaintiff obviates any requirement for the defendant to demonstrate that the plaintiff acted unreasonably in commencing and then discontinuing the proceeding. The defendant has the advantage of the presumption even where there has not been such unreasonableness.³

• [21] The general costs rules contained in Part 14 of the High Court Rules apply, in particular those relating to the level of costs. Pursuant to the rules, costs are in the discretion of the Court.⁴ This discretion however is qualified by the specific costs rules and is exercisable only in situations not contemplated or fairly recognised by them.⁵ Indemnity or increased costs can be awarded upon a discontinuance.⁶ There

¹ High Court Rules 2016, r 15.21(2).

² Rule 15.23.

³ Kroma Colour Prints Ltd v Tridonicatco NZ Ltd [2008] NZCA 150, (2008) 18 PRNZ 973.

⁴ High Court Rules, r 14.14.

⁵ Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [6].

6. Lesa Systems Ltd v Canzac Ltd HC Christchurch CIV-2006-409-624, 16 May 2006; Parts Import Co v Tse HC Auckland CIV-2007-404-6648, 31 March 2009.

is, however, no implication that an award of increased or indemnity costs follows a discontinuance.⁷

Indemnity costs

Relevant law

• [22] Rule 14.6(4) provides for the award of indemnity costs. Relevantly, it provides that the Court may order a party to pay indemnity costs if that party has acted vexatiously, frivolously, improperly or unnecessarily in commencing, continuing or defending a proceeding or a step in a proceeding, or where some other reason exists which justifies the Court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious.

• [23] The leading authority dealing with the imposition of indemnity costs is the judgment of the Court of Appeal in Bradbury v Westpac Banking Corporation.⁸ In this case, the plaintiff solicitor withdrew his causes of action during closing submissions on the seventh day of the substantive hearing. Extensive evidence had already been given, and that evidence had been tested by cross-examination. Indemnity costs were sought on the basis that the plaintiff’s case was hopeless from the outset. It was also claimed that the plaintiff had commenced and continued the proceedings for an improper purpose. Both the trial Judge and the Court of Appeal concluded from a review of the evidence that the plaintiff’s principal claim, which was based on an alleged contract of retainer, was fundamentally inconsistent with the rules of professional conduct applying to the relationship with the client, and that this meant that the case was hopeless. Further, the Court concluded there was insufficient evidence to establish the contract pleaded and that this should have been apparent to the plaintiff, as should the fact that variations proved to have been made subsequent to the original contract meant that the original contract could not be enforced.

• [24] The Court made a number of general observations relevant to indemnity costs. It noted that international experience is increasingly to lean against such costs, but that an indemnity award can be made where a party persists with what proper consideration

⁷ Arnold v Fairfax New Zealand Ltd [2016] NZHC 1078, [2016] 23 PRNZ 317 at [19].

⁸ Bradbury v Westpac Banking Corporation, above n 5, at [73].

would have shown was a hopeless case.⁹ It went on to distinguish between standard scale costs, increased costs and indemnity costs. It noted that the standard scale applies by default where cause is not shown to depart from it, that increased costs can be ordered where there is a failure by the paying party to act reasonably, and that indemnity costs can be ordered where that party has behaved either “badly or very unreasonably”.¹⁰ It endorsed the approach taken in earlier cases to indemnity costs and noted that, while the categories in which the discretion to order indemnity costs can be exercised are not closed, indemnity costs have been ordered in the following circumstances:¹¹

(a) the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud;

(b) particular misconduct that causes loss of time to the Court and to other parties;

(c) commencing or continuing proceedings with some ulterior motive;

(d) doing so in wilful disregard of known facts or clearly established law; and

(e) making allegations which ought never to have been made or unduly prolonging a case by groundless contentions – the “hopeless case”.

• [25] Subsequent authority has held that, when indemnity costs are sought based on an alleged lack of merit, the lack of merit must be both obvious and incontrovertible:¹²

So clearly so that there is no reasonable possibility that the Court might form a different view with the benefit of all the evidence and closing submissions. No difficult or detailed speculation is involved. The claim is and was so flawed that nothing in the evidence and submissions to follow could save it – and the plaintiff has acted unreasonably in bringing or continuing the claim. It is, thus stated, a double hurdle. The first assesses the claim; the second, the claimant’s conduct.

⁹ At [24].

¹⁰ At [27].

¹¹ At [29].

¹² N-Tech Ltd v Abooth Ltd [2012] NZHC 1167 at [108].

The submissions

• [26] Zespri’s claim for indemnity costs relies on r 14.6(4(a) and/or (f). It asserted that each iteration of the statement of claim filed by the respondents depended on Big Liu’s evidence and that when the claim was first filed, Big Liu was only two years into his 13 year prison sentence. Mr Corlett QC, acting for Zespri, relied upon four premises in support of Zespri’s claim. In short, he submitted that:

(a) the respondents could never have succeeded in their claims without evidence from Big Liu;

(b) the respondents must have known this;

(c) the respondents knew at the time the proceedings were filed that Big Liu was unavailable to give evidence; and

(d) there was a significant risk that Big Liu would not become available, but the respondents made no attempt to brief his evidence or to arrange for him to give evidence by AVL or similar.

• [27] Mr Gray QC for the respondents referred to the evolution of the respondents’ claims, noting that the statements of claim all pleaded simple claims in contract. He noted that the claims were, in the respondents’ view, supported both by documentary evidence (much of it emanating from Zespri) and by the evidence of witnesses other than Big Liu – notably Joseph Yu, who was a Zespri employee and Cynthia Li, who is related by marriage to Big Liu and who is involved with Hui Zhan. He noted that other witnesses were available, including former employees of Shanghai Neuhof. He accepted that Big Liu was always an important witness for the respondents but argued that he only became critical when Zespri filed its counterclaims in 2018 alleging fraudulent conduct and conspiracy, because the conspiracy was alleged to have been between Big Liu and unnamed individuals involved with other entities. He also noted that Big Liu’s availability was a changing factor and that the respondents expected him to be released on parole in early 2019.

Analysis

• [28] In my view, Big Liu was always an extremely important witness. It is difficult to see that the respondents’ claims could have succeeded without evidence from him. I have not, however, seen the briefs of evidence exchanged and there was no substantive hearing. As a result, I cannot be confident that the claims could not have succeeded without evidence from Big Liu. Mr Gray has pointed to other available evidence, including evidence from within Zespri. I accept that it is possible albeit unlikely, that the claims may have succeeded without Big Liu’s evidence.

• [29] Of more significance is that, in my view, it cannot properly be said that the respondents, by commencing the proceedings when Big Liu was in prison, acted vexatiously, frivolously, improperly or unnecessarily or, to the use the words in Bradbury, badly or very unreasonably. They anticipated at all relevant times that Big Liu would become available to give evidence once he was released from prison. When they filed the proceedings the respondents faced limitation issues. Indeed, such issues were raised as an affirmative defence by Zespri. The respondents had to act or risk their claims becoming statute barred either in whole or in part. They knew that Big Liu was in prison, but that does not mean that it was “very unreasonable” to commence or continue the proceedings. The respondents hoped that Big Liu would become available to give evidence prior to trial. That expectation at the time was not unreasonable. They must have known it would take some time to ready the matter for hearing. As already noted, the proceedings were allocated a fixture in July 2019. Big Liu became eligible for parole in early 2019 and application for his release on parole was then made. Big Liu’s sentence had already been commuted on three prior occasions. As I noted in an earlier judgment, based on advice from officials in China, it seemed likely in early 2019 that the application for parole would be granted,¹³ and there was every expectation at that time that Big Liu would be released on parole by the date fixed for the trial. By December 2019, the position was less certain.¹⁴ By this stage, however, the die was cast. The respondents’ failure to brief Big Liu notwithstanding that he was in prison and the failure to try and put in place arrangements for him to give evidence by AVL are more troubling, but the failure to

¹³ Shanghai Neuhof Trade Co Ltd v Zespri International Ltd [2019] NZHC 1176 at [4].

¹⁴ Shanghai Neuhof Trade Co Ltd v Zespri International Ltd [2019] NZHC 3479 at [7].

try and arrange for Big Liu’s evidence to be given remotely only became an issue when the first application for an adjournment had to be made. It was still anticipated at that point that Big Liu would become available and the failure to brief or try and arrange AVL does not, in my view, compel the conclusion that the respondents acted vexatiously, frivolously, improperly or unnecessarily in either bringing or continuing the proceedings.

• [30] Mr Gray argued that this was not a case where the claims discontinued by the respondents were hopeless from the outset. However, Mr Corlett did not suggest otherwise. For the sake of completeness, I record that, in my judgment, it cannot be said that the claims were so flawed that they could never succeed. There was no obvious lack of merit in the claims.

• [31] Nor was there anything else in the respondents’ conduct justifying an award of indemnity costs. In the absence of Big Liu, proof may have been difficult, but that does not warrant an award of indemnity costs. Although Zespri has on various occasions asserted to the contrary, there is no objective evidence to suggest that the respondents commenced or continued the proceedings for some ulterior motive. Indeed, there is no evidence of any motive apart from the recovery of damages believed by the respondents to be due to them, and perhaps, and collaterally, to clear Big Liu’s name and to remove the stain on the Liu family’s honour (although this seems to have been a concern more to Big Liu’s family than the respondents).

• [32] I cannot see that indemnity costs are appropriate and I decline to award the same.

Increased costs

Relevant law

• [33] Increased costs are governed by r 14.6(3). Relevantly, it provides that a Court may order a party to pay increased costs if the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or a step in it, by failing to comply with the rules or with a direction of the Court, by taking or pursuing an unnecessary step or an argument that lacks merit, by failing without reasonable

justification to admit facts, evidence, documents or accepted legal argument, by failing without reasonable justification to comply with an order for discovery, a notice requiring further particulars, a notice posing interrogatories or other similar requirement of the rules, or by failing, without posing reasonable justification, to accept an offer of settlement. Increased costs can also be ordered if 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.

• [34] A party claiming increased costs carries the onus of persuading the Court that such award is justified.¹⁵

• [35] As already noted, in Bradbury the Court of Appeal summarised the position when it observed that increased costs can be awarded where there is a failure by the paying party to act reasonably.

• [36] A Court awarding increased costs uplifts costs from scale. It does not award a percentage of actual costs. The process for determining whether increased costs are appropriate was set out by the Court of Appeal in Holdfast NZ Ltd v Selleys Pty Ltd.¹⁶ The approach involves four steps:

(a) categorisation of the proceedings under r 14.3;

(b) identifying the reasonable time for each step in the proceeding under r 14.5;

(c) considering whether extra time should be allowed for any particular step pursuant to r 14.6(3)(a); and

(d) considering whether the party seeking costs is entitled to increased costs under r 14.6(3)(b).

¹⁵ Strachan v Denbigh Property Ltd HC Palmerston North CIV-2010-454-232, 3 June 2011 at [27].

¹⁶ Holdfast NZ Ltd v Selleys Pty Ltd [2005] NZCA 302; [2005] 17 PRNZ 897 (CA) at [43]- [48].

The Court noted that any increase above 50 per cent of the costs produced by steps (a) and (b) is unlikely, as the daily recovery rate is two thirds of a daily rate considered reasonable for the proceedings.

• [37] Before considering the application of these various steps, I first consider whether or not Zespri can seek costs in relation to its counterclaims. Determination of that issue will govern what steps need to be considered when considering the claim for increased costs.

Costs on the counterclaims

• [38] I have already summarised the counterclaims above at [16]. There were two counterclaims, each associated with what was said to be an affirmative defence. Zespri accepted that, under the “loser pays” principle found in r 14.2(1)(a), unsuccessful counterclaim plaintiffs are normally required to pay costs to counterclaim defendants for steps taken in respect of the counterclaim. It said that despite this principle, a Court can order counterclaim defendants to pay costs where both the claim and counterclaim are discontinued. It relied upon the judgment of Kós J in N-Tech Ltd v Abooth Ltd.¹⁷ Zespri alleged that its counterclaims were “parasitic” of its affirmative defences, that they did not contribute any more than marginal costs distinct from costs arising out of the respondents’ claims, and that they were filed as a defensive reaction to the claims brought against it.

• [39] It was argued for the respondents that the affirmative defences associated with the counterclaims brought by Zespri were not in fact affirmative defences at all, and that the counterclaims were not parasitic. It was accepted that they raised issues that significantly overlapped with the issues raised in the affirmative defences, but only because the relevant affirmative defences were not in substance defences at all, but rather counterclaims. It was further submitted that the counterclaims were not wholly defensive, albeit that it was accepted that they were intended to discourage the respondents from pursuing their claims. It was argued that, in substance, the counterclaims were offensive in nature.

¹⁷ N-Tech Ltd v Abooth Ltd, above n 12, at [147] –[148] and [155].

• [40] In N-Tech, the defendants, after filing a proforma statement of defence, filed a substantive pleading which admitted the agreements on which the plaintiffs sued and the payment obligations relied on, but raised various affirmative defences and counterclaims. Shortly before the trial was due to begin, the defendants filed an amended defence with new and revised counterclaims. The proceedings were abandoned by the plaintiffs after 19 days of hearing. All claims and counterclaims were discontinued and the defendants sought costs, including costs incurred on their counterclaims. Kós J followed the decision of the House of Lords in Medway Oil & Storage Co Ltd v Continental Contractors Ltd.¹⁸ In that case, the House of Lords held that, where a claim and a counterclaim are both dismissed with costs, the claim should be treated as if it stands alone and the counterclaim should bear only the amount by which the costs of the proceedings have been increased by it. No costs not incurred by reason of a counterclaim can be costs of a counterclaim.

• [41] Kós J, in N-Tech, first reviewed the relevant chronology. He noted that the late filing of the counterclaims “can have added but minimal cost to what thereafter followed”. He then went on as follows:

• [155] Secondly, ... most of the contested issues were common to the claim and counterclaim. The counterclaims are parasitic on the affirmative defences, and rely on those having been sustained. As [counsel] put it:

... the central factual and legal issues in the claims, being those raised by the affirmative defences, are essentially the same issues that arise in the counterclaims ... With limited exceptions, in particular limitation, the counterclaim is largely the obverse to the claim. Success on the claim would generally entail success on the counterclaim and vice versa. The issues are essentially common.

• [156] Thirdly, having sat through the trial up to the point of its demise, there is no question at all in my mind but that the function of the counterclaim ...was wholly defensive in nature. This is a separate consideration from whether it is parasitic to the affirmative defences and whether it contributed any material marginal cost. Functionally the renewal of claims for monetary relief ... was to provide a last line of defiance (and defence) to, and potential discouragement of, the plaintiffs’ pursuit of their claims.

• [157] Fourthly, again I am very clear from my observation of the dynamics of trial that, but for the bringing of the claims by the plaintiffs, the counterclaims would never have seen the light of day. The counterclaims are wholly responsive to the claims. This was not a case where the identity of the plaintiffs was the result of a haphazard process as to who was first to file. But

¹⁸ Medway Oil & Storage Co Ltd v Continental Contractors Ltd [1929] AC 88.

for the plaintiffs filing, there would have been no “plaintiffs” at all pursuing any of the issues ventilated in these proceedings.

He concluded that the filing of the defence of counterclaims made no difference and that the costs associated with the counterclaim issues were all costs the plaintiff would have had to meet in responding to the affirmative defences to the claim. He held that there was no proper basis on which costs should be apportioned as between the claim and the counterclaim. He declined to award costs to the plaintiffs on the defendant’s discontinuance of their counterclaim.

• [42] I am not persuaded that the same conclusions should be reached in the present case.

• [43] I have already commented on the nature of the counterclaims in the present proceedings, both in an earlier minute¹⁹ and in a judgment.²⁰ I observed that Zespri’s affirmative defences – asserting an equitable set off because of a conspiracy by the respondents and others to injure Zespri, and because of deceit by Shanghai Neuhof in relation to the duty claims – did not flow on from matters raised by the respondents, but rather raised discrete and separate allegations. I noted that the allegations of conspiracy and deceit were made by way of counterclaim and that they were separate proceedings in their own right and would stand or fall regardless of the fate of the respondents’ claims. I expressed the view that the counterclaims were not inextricably mixed with the subject matter of the respondents’ claims and the other affirmative defences, but rather were separate and distinct.

• [44] There was no application for recall of, nor appeal against, my judgment.

• [45] Zespri invited me to revisit these observations, essentially on the basis that it has discontinued the counterclaims which, it says, underlines their defensive nature. It also said that I now have the benefit of its lawyer’s invoices, to “determine how much time [was] taken in considering Zespri’s counterclaims”.

19. Shanghai Neuhof Trade Co Ltd v Zespri International Ltd HC Auckland CIV-2014-404-1316, minute issued 8 February 2019.

²⁰ Shanghai Neuhof Trade Co Ltd v Zespri International Ltd [2019] NZHC 617.

• [46] I accept that I can revisit my earlier observations, and Mr Gray properly acknowledged that they are not a bar to Zespri’s argument. Having reconsidered the issue, I am not however persuaded that my earlier views were wrong.

• [47] I agree with Mr Gray that the fact that Zespri discontinued its counterclaims says nothing about their nature. In my judgment, affirmative defences (c) and (d) and the associated counterclaims arising out of those affirmative defences were neither parasitic nor defensive. They were not the obverse of the respondents’ claims and the issues raised were not common. If the respondents’ claims had succeeded, the counterclaims would not have automatically collapsed.

• [48] Accordingly, I decline Zespri’s claim for costs in respect of its counterclaims. I accept, however, that some steps claimed by Zespri involved both the respondents’ claims and the counterclaims and that Zespri is entitled to an award for its costs with respect to those steps which were taken in relation to the respondents’ claim. It is not, however, entitled to recover costs associated with the counterclaims which have increased the costs of the proceedings. This causes difficulties. It has been noted that is impracticable and thoroughly uneconomic to try and analyse each step to determine whether it was principally concerned with a claim or principally concerned with a counterclaim.²¹ Neither counsel tried to undertake this exercise. Nor have I. Rather, I have been left with no alternative but to make an (educated?) guess at the appropriate apportionment.

• [49] I now turn to consider the various steps discussed in Holdfast to determine whether or not Zespri is entitled for increased costs for the steps it has taken in defending the claims brought against it.

Step (a) – categorisation

• [50] Zespri claims for all steps taken in the proceedings on a category 3 basis.

• [51] Under r 14.3, proceedings are categorised as category 1, 2 or 3. The Court usually determines in advance a proceeding’s category and such categorisation

21. Newbrook v Marshall, HC Rotorua, CP 26/94, 11 September 2011, cited in N-Tech Ltd v Abooth Ltd, above n 12, at [150].

generally remains in place for the proceeding. A Judge can recategorise proceedings under r 14.3(2) if there are “special reasons” to do so. This restriction reflects the fact that the initial costs categorisation will likely have influenced the parties’ conduct of the proceeding. As a result, the inadequacy of an earlier categorisation is not of itself considered to be a special reason.²²

• [52] At the first case management conference, counsel agreed that these proceedings were category 2 proceedings, but that some steps might occur that would warrant a higher categorisation.²³

• [53] Insofar as I can glean from the file, the proceedings have not subsequently been recategorised. Costs on a number of applications have been awarded based on the categorisation agreed. Costs were fixed on a 2B basis when Zespri sought a review of the discovery undertaken by the respondents in 2015.²⁴ When the first application for an adjournment was made, Zespri opposed the application. I granted the adjournment, but reserved to Zespri the right to seek costs. Zespri sought costs on the application on a 3C basis. I declined to award costs on that basis and instead fixed them on a 2B basis, but with an uplift of 50 per cent to take into account the respondents’ conduct.²⁵ When the second application for an adjournment came before me, the parties agreed on 2B costs. I endorsed that agreement.²⁶ On Zespri’s application for discovery relating to non-party funding in May 2020, it was also agreed that costs should be fixed on a 2B basis, and again I endorsed that agreement.²⁷ The only time when costs on a category 3 basis have fallen for consideration is found in Zespri’s application for increased security in March 2019. Zespri had estimated its costs of taking the proceedings through to their conclusion on a mixed 3B/3C basis. It sought increased security on this basis. I ordered increased security, not in the sum sought by Zespri, but based on Zespri’s estimate.²⁸ I did not order costs.

²² See AC Beck (ed) McGechan on Procedure (online ed, Thomson Reuters) at HR 14.3.01(e).

23. Shanghai Neuhof Trade Co Ltd v Zespri International Ltd HC Auckland CIV-2014-404-1316, minute issued 15 April 2015.
24. Shanghai Neuhof Trade Co Ltd v Zespri International Ltd HC Auckland CIV-2014-404-1316, minute issued 18 June 2015.
25. Shanghai Neuhof Trade Co Ltd v Zespri International Ltd [2019] NZHC 1176 and [2019] NZHC 1507.

²⁶ Shanghai Neuhof Trade Co Ltd v Zespri International Ltd [2020] NZHC 3479.

²⁷ Shanghai Neuhof Trade Co Ltd v Zespri International Ltd [2020] NZHC 987.

²⁸ Shanghai Neuhof Trade Co Ltd v Zespri International Ltd [2019] NZHC 617.

• [54] Zespri sought to recategorise the proceedings as category 3 proceedings from the outset. It pointed out that the parties initially agreed that some steps might warrant higher categorisation, and it was submitted on its behalf that, viewed overall and in retrospect, the steps in the proceeding not already dealt with warrant costs generally on a category 3 basis, consistent with the basis on which further security was determined. It was argued that the proceedings warranted counsel of superior skill and experience, because of their complexity and significance. It was noted that all parties briefed senior counsel. It was accepted that this is not necessarily determinative, but it was submitted that the skill and experience of counsel is generally an indication of the skill and experience required.

• [55] On behalf of the respondents, it was submitted that what was a relatively straightforward proceeding was given the appearance of complexity and difficulty as a result of Zespri’s reluctance to provide discovery, its numerous interlocutory applications and the introduction of the conspiracy and deceit based affirmative defences/counterclaims. It was argued that there is no basis for retrospectively recategorising the proceedings now that they have been discontinued.

• [56] As I have noted, proceedings can be recategorised under r 14.3(2) where there are special circumstances such that recategorisation is appropriate. What amounts to special reasons justifying a (post-judgment) reclassification of a proceeding’s costs category was considered in Body Corporate No 189855 v North Shore City Council.²⁹ In that case, recategorisation was declined because there were no special reasons. Venning J observed as follows:

• [9] All of the reasons advanced by the plaintiffs as special reasons, are reasons that support an argument the proper classification of proceedings was category 3. They do not, however, provide special reasons for reclassifying the proceeding in accordance with r 48(2) after trial. They are all reasons that would, or should have been apparent to the plaintiffs well in advance of the trial. That was the time to make an application to vary the cost categorisation.

... the fact that the skill classification is not adequate is unlikely to be itself a special reason after trial. Any such application should at least address the issue of why it was not sought to address an uplift in the costs categorisation prior to trial. The plaintiffs have not done so.

29. Body Corporate No 189855 v North Shore City Council HC Auckland CIV-2005-404-5561, 2 October 2008.
    • [10] For their own reasons all parties to this proceeding went to trial in the knowledge that the proceeding had been classed as category 2. Decisions as to the conduct of the proceedings, including any pre-trial settlement discussions, would have been influenced at least in part by that classification. An important principle of the costs rules is that so far as possible the determination of costs should be predictable and expeditious. The principle of predictability would be undermined if the need for special reasons was read down and, following trial, it was effectively open for a successful party to seek to uplift the costs categorisation on the basis the earlier categorisation was incorrect.

• [57] Here, Zespri do not point to any special reasons other than the engagement of senior counsel. In effect, Zespri is belatedly saying that senior counsel was necessary from the outset because of the complexity and/or significance of the proceedings. I do not accept this argument. In my view, any need for senior counsel should have been identified by Zespri well in advance of the proposed trial and application should have been made then to vary the costs categorisation. That did not happen. Nor did Zespri in fact engage senior counsel for much of the proceedings. It is apparent from the material produced by Zespri in support of its application for indemnity costs that senior counsel was engaged only briefly in late 2014/early 2015, and then again from early 2019. During the intervening periods, Zespri relied on its solicitors, presumably on the basis that it did not then consider that the case required the engagement of senior counsel. There has been no substantive hearing and I cannot speculate as to how complex the matter was. All I can say is that the respondents’ claims were, on the face of the pleadings, relatively straightforward contractual claims. I accept that Zespri’s affirmative defences/counterclaims introduced potential complexity, and that they necessitated Zespri obtaining off-shore advice and evidence, but I do not consider that these matters amount to special reasons sufficient to recategorise the proceedings certainly in whole or even in part. Zespri proceeded in filing its counterclaims in the knowledge that the proceeding had been classed as category 2, albeit that some steps might require a higher classification. It took no steps to put any higher classification in place and the proceedings were conducted throughout on the original classification agreed.

• [58] In my judgment, Zespri has not established any special reasons sufficient to justify reclassification. Accordingly, I hold that it is entitled to recover costs only on a category 2 basis, and not on a category 3 basis.

Step (b) – reasonable time for each step - banding

• [59] Zespri has claimed on either a band B or a band C basis for each step in the proceeding. Band B is appropriate if the normal amount of time is considered reasonable. Band C is appropriate if a comparatively large amount of time for a particular step is considered reasonable.³⁰

• [60] Zespri seeks band C for a number of steps – commencing its defence, listing its documents, filing interlocutory applications and preparing written submissions in relation to them, replying to the amended statement of claim, pleading in response to the amended pleadings, filing its briefs of evidence and preparing for the hearing. It says that each of these steps involved comparatively large amounts of time and that band C is appropriate for the same.

• [61] While the respondents assert that many of the steps which Zespri has claimed for were straightforward procedural steps, they do however accept that more complex steps such as discovery could warrant an uplift if scale costs are inadequate.

• [62] I agree with the respondents that many of the steps taken by Zespri were relatively straightforward, but it has not claimed costs on a band C basis for these steps. It has only claimed costs on a band C basis for those steps where a comparatively large amount of time would have been required.

• [63] I accept that the banding proposed by Zespri is appropriate.

Step (c) – extra time – r 14.6(3)(a)

• [64] It is possible for a party claiming costs to get a greater time allocation for a particular step if he or she can show that the step in the proceeding was such that the time required substantially exceeded the time allocated under band C.³¹ Where this is shown, the appropriate judicial response is to increase the amount of time allocated

³⁰ High Court Rules, r 14.5.

³¹ Rule 14.6(3)(a).

for the particular step, and then apply the appropriate daily recovery rate to the time so fixed.³²

• [65] Zespri has not argued that any particular step in the proceeding justifies an increase in costs under this head. I take this no further.

Step (d) – additional grounds for awarding increased costs – r 14.6(3)(b)-(d)

• [66] Additional grounds for awarding increased costs are set out in r 14.6(3)(b), (c) and (d).

• [67] All of the grounds identified in r 14.6(3)(b) depend on a finding that the party opposing costs has contributed unnecessarily to the time or expense of the proceeding, or a step in the proceeding.

• [68] Zespri seeks an uplift of 50 per cent for the same reasons as it sought indemnity costs. I have noted those reasons above at [26]. I did not consider that those reasons justified an award of indemnity costs and, for the same reasons as I have earlier set out, I do not consider that they should lead to an award of increased costs.

• [69] I awarded an increase on scale costs following the respondents’ first application for an adjournment. I do not, however, accept Zespri’s argument that the reasons which justified an increase at that time apply equally to the whole of the respondents’ conduct in commencing and continuing the proceeding. Zespri did not point to anything that the respondents did which contributed unnecessarily to the time or expense of the proceeding. It did not point to any failure by the respondents to comply with the rules or with directions made by the Court. It did not suggest that the respondents pursued an unnecessary step or an argument that lacked merit. Nor did it say that the respondents failed without reasonable justification to admit facts, evidence, documents or accept a legal argument. While discovery was bitterly contested, and while the arguments over discovery were wide-ranging, Zespri did not submit that the respondents failed to comply with orders relating to discovery, or similar Court orders. Insofar as I am aware, there was no offer of settlement. Nor am

³² Holdfast New Zealand Ltd v Selleys Pty Ltd, above n 17, at [44].

I persuaded that any 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.

• [70] Zespri’s application for increased costs is declined.

Scale costs

• [71] As I have noted, in my view, costs fall to be categorised on a category 2 basis. The appropriate banding is either B or C depending on the step being considered. Some adjustment is necessary to exclude any increase in costs resulting from the counterclaims.

• [72] Most of the steps claimed for by Zespri were not disputed by the respondents.

• [73] Zespri claimed for its costs in filing its third amended statement of defence and counterclaim, saying that this pleading was in response to the respondents’ amended pleadings. That assertion is not correct. The plaintiffs filed their second amended statement of claim on 2 March 2018, and Zespri filed a second amended statement of defence and counterclaim on 16 March 2018. The third amended statement of defence and counterclaim was filed on 22 February 2019. I have already noted the changes introduced by this document above at [17].

• [74] I agree with the respondents that Zespri is not entitled to recover in respect of this step. The document filed by Zespri did not respond to an amended pleading filed by the respondents.

• [75] Zespri also seeks substantial sums for filing its briefs of evidence, for preparing its list of issues, authorities and the common bundle, and for preparing for the hearing.

• [76] The respondents argued that the briefs were filed in support of Zespri’s counterclaims, and that they therefore cannot be claimed by Zespri. They also said that they were responsible for compiling the common bundle and that the timetable stopped on 27 May 2019 when the adjournment was granted. They submitted that, at that stage, the first tranche of evidence had not been filed in its entirety and that the

claimed steps thereafter – preparation of list of issues, authorities and common bundle and preparing for the hearing – were not warranted.

• [77] Zespri responded that the respondents specifically sought the contemporaneous exchange of evidence, and then sought an adjournment shortly thereafter, which resulted in these costs being wasted. It also argued that the nature of the pleadings meant that the evidence would have been used to advance Zespri’s affirmative defences as well as its counterclaims, that it was required to compile and index documents for its briefs, and that these costs were also wasted. It argued that it was appropriate, in a case of this kind, to begin preparations well in advance, and that these costs have been wasted.

• [78] I dealt with wasted costs when the adjournment was granted, but I did so in anticipation that the trial would proceed on the reallocated date and that many of the costs claimed by Zespri would not in fact end up being wasted. In the event, my expectation proved to be wrong, because the matter did not proceed. In my view, Zespri is entitled to recover costs it incurred which have turned out to be wasted. However, I accept the respondents’ point that part of the evidence filed related to Zespri’s counterclaims. Without painstaking analysis, it is impossible to definitively tie down what evidence related to the counterclaims and what related to the respondents’ claims and the affirmative defences. I have necessarily approached the apportionment on a broad brush basis. I reduce the costs claimed for in the preparation of briefs of evidence and for preparing for the hearing by 25 per cent, to recognise that in part these steps related to the counterclaims and increased the costs which might otherwise have been incurred.

• [79] By my calculation, costs properly payable on a 2B/2C basis come to

$213,098.50.³³

³³ Using Schedule B annexed to Mr Corlett’s submissions. Total costs claimed in that schedule on a mixed 2B/2C basis come to $223,133.50. I have deducted from that the sum of $4,460 being costs on a 2C basis for the preparation and filing of the third amended statement of claim, and $5,575 being 25 per cent of the costs, calculated on a 2C basis, for preparing and filing the briefs of evidence and for preparing the hearing.

Disbursements

• [80] As already noted, Zespri seeks disbursements in the total sum of $742,618.05. In large part, the disbursements relate to forensic and other services provided in regard to discovery and the review of documents. Some of the disbursements claimed relate to the obtaining of expert evidence, as well as offshore legal advice. The disbursements are discussed by a witness for Zespri, Ms Evans, in an affidavit filed in support of the application for costs.

• [81] The respondents argue that disbursements are only recoverable if they fall within the definition contained in r 14.12(1), if they were reasonably necessary to the conduct of the proceedings and if they are reasonable in amount.

• [82] The respondents do not take issue with the Court fees, travel and accommodation costs and general disbursements claimed by Zespri, unless they relate to an application Zespri made for an unless order in mid-2017.

• [83] I dealt with the unless order application in July 2017. I adjourned Zespri’s application for a stay or strike out, and required the respondents to take various steps. I recorded that if the respondents did not comply with various obligations imposed by me, I would hear further from the parties as to the consequences of non-compliance, and determine whether I should grant the relief sought by Zespri and deal with costs.³⁴ In the event, the respondents complied, and I did not have to make any further orders. In effect, Zespri was the successful party. I can see no reason why it should not now obtain its costs in relation to its application for the unless orders.

• [84] Zespri has claimed some $340,000 for disbursements incurred in attending to discovery and document review. The disbursements claimed reflect invoices rendered by PricewaterhouseCoopers, Deloitte, and Streamlined Litigation Support. Zespri also seek to recover fees charged by Deloitte for what are referred to as “relativity fees”. Mr Corlett explained that relativity fees are “fees for the electronic discovery platform” which was used in managing the significant amount of material required to be reviewed and/or disclosed.

³⁴ Shanghai Neuhof Trade Co Ltd v Zespri International Ltd [2017] NZHC 1543.

• [85] The respondents argue that some of this work could have been undertaken in- house. They submitted that Zespri did not adopt an efficient and cost effective approach to discovery and that the disbursements claimed are neither necessary, reasonable, proportionate, nor appropriate.

• [86] I do not accept the respondents’ submissions. There is no evidential support for them. Discovery is an onerous obligation in litigation such as this, and large numbers of documentation are required to be checked and discovered. The use of electronic discovery packages and outside firms to assist is not uncommon. I allow the disbursements sought.

• [87] Finally, in relation to the respondents, Zespri seeks to recover the fees charged by experts retained by it.

• [88] The respondents argue that Zespri can only recover expert fees for the time spent by the expert witness in giving or preparing evidence. On this basis, they say it is doubtful that any of the expert witness’ disbursements are claimable. They say that fees incurred before April 2017 are too early and that fees incurred after 31 July 2018 related primarily to the counterclaims, rather than their claims.

• [89] There is no evidential support for the submission that fees rendered for work done by experts prior to April 2017 is too early, or that it does not relate to the plaintiffs’ claims. The significance of the 31 July 2018 date escapes me. The affirmative defences/counterclaims were filed in March 2018. They were amended in February 2019. There are a number of invoices post March 2018. There is no way in which I can accurately determine whether or not the fees charged by the experts related to work done on the counterclaims, or work done on the respondents’ claims. The amounts involved are not however insignificant. There were nine invoices from Beattie Varley Ltd – six for “forensic services”, one for “counsel’s fees”, and two for “data entry fees”. They total $176,364. There are a number of invoices from legal firms in China. Invoices from Baker McKenzie total $12,862.38, those from Hiways law firm, $54,757.32, and that from Fenxun Partners, $730.84. In total, expert fees incurred either immediately before or after the counterclaims were filed amount to

$244,714.54.

• [90] It is impossible to try and analyse how much of the work undertaken by the experts related to the respondents’ claims and the affirmative defences and how much related to the counterclaims. Counsel did not endeavour to undertake that exercise. Nor have I. Again, and adopting the same broad brush, I reduce the expert fees incurred about or after the counterclaims were filed by 25 per cent – $61,178.63 – to recognise that some of the work likely related to the counterclaims.

• [91] It follows that I am prepared to certify for disbursements in the total sum of

$681,439.42.

Result – costs against the respondents

• [92] I award costs in favour of Zespri and against Shanghai Neuhof and Hui Zhan of $213,098.50, together with disbursements of $681,439.42.

Costs – Ms Li

• [93] Zespri seeks an order that the non-party, Ms Li, is jointly and severally liable for the costs ordered in its favour against the respondents. It argued that she funded the litigation, controlled its conduct along with members of her family and that she stood to benefit from it. As noted, Ms Li submitted that she did not cause the litigation to be commenced, that she did not fund it, that she did not control how it was conducted and that she did not stand to benefit from it.

Evidence

• [94] Ms Li filed an affidavit. She was also cross-examined by Mr Corlett. In the course of cross-examination, she gave evidence which differed from what she said in her affidavit.

• [95] In her affidavit, Ms Li said that she had three brothers, HB, Big Liu and Little Liu. She said that her father died in 2012, and that her mother, Ouhua Li, survived her father, dying in July 2019. She said that Big Liu founded the respondents and managed them before he was imprisoned. She went on to say that Big Liu initially funded the

respondents’ legal costs, but that some time in the first half of 2016, HB advised “us” that Big Liu’s savings would not be enough to pay for the rest of the litigation, after an updated budget estimate had been received from the legal advisors. She said:

We decided, as a family, that money from our father’s estate should be used to support Big Liu in continuing the litigation.

She went on:

As a family, ... we decided it was the right thing to do to support him and so the [respondents], to pursue the claims they had against Zespri.

• [96] When she was cross-examined, Ms Li said that Big Liu’s conviction brought shame on him. When it was put to her that it also brought shame on the family more generally, she said:

We feel very bad, everyone is feeling bad but not ashamed because [Big Liu] didn’t do anything wrong.

When it was put to her that she supported the litigation to support Big Liu, she stated:

I didn’t any provide any support in terms of the financial support, I didn’t have that ability.

Rather, she said that the support she provided was to provide a bank account in New Zealand, through which the lawyers’ fees could be paid. She went on to add that she was not Big Liu’s “legal sister”. She said that she was given to someone else at birth, and that she never lived together with the Liu family and that she was not supported by them. When it was put to her that the family decided to help Big Liu by using money from the father’s inheritance, she responded:

Yes, that was the decision made by the two brothers because it was their money. Actually, it was the heritage (sic) my mother was still alive. My mother was a bit worried about this matter, [s]he would of course help her son.

• [97] I asked her whether she had inherited any part of her birth father’s estate. She responded:

No, I didn’t have that entitlement and it was not possible for me because I inherited the state from my adoptive parents.

When I asked her whether she participated in the decision made by her birth mother, HB and Little Liu to use her birth father’s estate to help Big Liu, she responded:

No, I didn’t have any knowledge of that except a phone call from them to tell me about it.

• [98] She stood by these answers when she was subsequently cross-examined on the issue by Mr Corlett. She explained that the birth father’s estate passed to her birth mother, and said that that was the law in China.

Credibility

• [99] Mr Corlett invited me to find that Ms Li lied when she gave viva voce evidence in Court and submitted that I should prefer her affidavit evidence and the evidence in an affidavit from Cynthia Li.

• [100] Cynthia Li deposed that Ms Li’s birth father’s estate passed to Ouhua Li and that the estate was managed by the eldest son, HB. She said that the Liu children and Ouhua Li had “no disputes” over the inheritance and agreed that it should be shared equally between them. She went on to record that apart from Big Liu and HB, the children are Ms Li and Little Liu. She said that when Big Liu’s savings ran out, his siblings agreed to use their inheritance to continue the case. She said that while there was no written agreement between them to that effect, all the family were agreed that it was the right thing to do.

• [101] Cynthia Li’s evidence was filed by the respondents. In the event, Mr Gray did not rely on the evidence. This avoided the need for Cynthia Li to be cross-examined, but it meant that I did not hear from her in person.

• [102] I accept that there is a conflict between Ms Li’s affidavit evidence, which is broadly consistent with Cynthia Li’s evidence, and the oral evidence which Ms Li gave in Court. There is also a conflict between Ms Li’s oral evidence, the notice of opposition which was filed on her instructions and the written submissions which were prepared and filed in advance on her behalf.
• [103] Despite these conflicts, I am not prepared to find that Ms Li lied in Court. Ms Li does not speak English and it must be a possibility that issues have been lost, or at least confused, in translation. This could explain the discrepancies between Ms Li’s oral evidence on the one hand, and affidavit, the notice of opposition and the written submissions filed in advance, on the other hand. Cynthia Li was not cross- examined on her evidence, and on the face of it, she has only reported what she has been told. Her evidence is strictly hearsay and therefore inadmissible.

• [104] While the conflicts are unsatisfactory, in my view, they are explicable. There is no independent and admissible evidence directly contradicting Ms Li’s oral assertions. I am not prepared to find that she lied when she gave oral evidence in Court.

• [105] That is enough to determine the application for third party costs. On the evidence which I accept, Ms Li has not funded the litigation.

• [106] Even if I am wrong in this regard, I would not have found Ms Li jointly and severally liable for the costs ordered against the respondents. I briefly set out my reasoning.

Relevant law

• [107] The leading decision in relation to ordering costs against a non-party is Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2).³⁵ The Lordships in the Privy Council summarised the position as follows:

25. A number of the decided cases have sought to catalogue the main principles governing the proper exercise of this discretion and their Lordships, rather than undertake an exhaustive further survey of the many relevant cases, would seek to summarise the position as follows:

1. Although costs orders against non-parties are to be regarded as “exceptional”, exceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. The ultimate question in any such “exceptional” case is whether in all the circumstances it is just to make the order.

...

³⁵ Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2005] 1 NZLR 145 (PC).

2. Generally speaking the discretion will not be exercised against “pure funders”, described ... as “those with no personal interest in the litigation, who do not stand to benefit from it, are not funding it as a matter of business, and in no way seek to control its course”. In their case the court's usual approach is to give priority to the public interest in the funded party getting access to justice over that of the successful unfunded party recovering his costs and so not having to bear the expense of vindicating his rights.

3. Where, however, the non-party not merely funds the proceedings but substantially also controls or at any rate is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party's costs. The non-party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes. He himself is “the real party” to the litigation, ...

Analysis

• [108] Even if, contrary to the findings I have made, Ms Li did jointly fund the litigation along with other members of her birth family, such funding would not in my view suffice to make Ms Li jointly and severally liable for the resulting costs. She had no personal interest in the litigation. There is no evidence that she stood to benefit from it in any way. She was not funding it as a matter of business and there is nothing to suggest that she controlled the course of the litigation. It cannot be said that she funded the litigation for her own purposes. Rather, she was seeking to assist her birth brother, to maintain his and the family’s honour.

• [109] Generally, where funding is provided by family members, an order against a disinterested relative who has provided funding out of natural affection for a case reasonably advanced will not normally be considered appropriate.³⁶ That is the situation in this case.

• [110] I would not have been prepared to exercise my discretion against Ms Li. It would be disproportionate and unfair to do so. There is nothing other than speculation to suggest that her family would get in behind her to meet any award that might be make against her. In my view, the attempt to hold Ms Li liable was unfortunate. Zespri

36. Murphy v Young & Cos Brewery Plc [1996] EWCA Civ 1000; [1997] 1 All ER 518 at 530; Appleton v Attorney General, HC Blenheim CP8/98, 13 June 2003 at [60].

was doing no more than seeking to find a solvent person in this country against whom it could enforce any judgment it might obtain.

Result – Ms Li

• [111] I decline Zespri’s application to hold Ms Li jointly and severally liable for the award of costs made against the respondents.

• [112] Ms Li, as the successful party, is entitled to her reasonable costs and disbursements. It is my preliminary view that costs should be fixed on a 2B basis. If counsel accept that view, then the calculation of costs should be straightforward. If counsel do not accept that indication, or if there is any difficulty in fixing costs, I direct as follows:

(a) within 10 working days of the date of receipt of this judgment, Ms Li is to file a memorandum seeking costs and disbursements;

(b) within a further 10 working days, Zespri is to file a memorandum in reply;

(c) memoranda are not to exceed five pages.

I will then deal with the issue of costs and disbursements on the papers, unless I require the assistance of counsel.

Addendum

• [113] Simply to ensure that it is not overlooked, I record that on 21 January 2021, I arranged for my associate to send an email to counsel, advising them that my son-in- law has recently started working for Zespri. I advised counsel that it was my preliminary view that I did not need to recuse myself, but I invited them to check with their respective clients, and advised that I would deal with any request that I should recuse myself at the commencement of the costs hearing.
• [114] At the start of the hearing, I raised this issue with counsel. All confirmed that neither they nor their respective clients had any objection to my continuing to deal with the matter.

Wylie J