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James v NZSouthPole Team Limited (in liq) [2021] NZHC 1682 (7 July 2021)

Last Updated: 26 August 2021

[COSTS] JUDGMENT OF MOORE J

This judgment was delivered by me on 7 July 2021 at 4:00 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar / Deputy Registrar Date:

JAMES v NZSOUTHPOLE TEAM LIMITED (In liq) [2021] NZHC 1682 [7 July 2021]

Introduction

• [1] This costs judgment concerns two separate proceedings, CIV-2020-404-506 (“the 506 application”) and CIV-2020-404-2132 (“the 2132 application”). In my judgment of 30 March 2021, I dismissed Ms Caoping Ding and Mr Barry Bai’s application for this Court to:

(a) grant an appeal against the District Court’s refusal to grant leave to appeal out of time;

(b) permit Ms Ding to represent the respondent, NZSouthpole Team Limited (“NZSouthpole”);

(c) recall the order liquidating NZSouthpole or terminating its liquidation under s 250 of the Companies Act 1993; and

(d) join Ms Ding to the liquidation proceeding.

• [2] Ms Ding brought the applications in the 506 application. Ms Ding and Mr Bai brought the application in the 2132 application.

• [3] In my judgment, I observed that Mr James and NZSouthpole’s liquidators, as the successful parties, were entitled to costs. I invited the parties to file memoranda on the issue.

• [4] Mr Pamatatau, for Mr James, submits that on both the 506 and 2132 applications, Ms Ding and Mr Bai should be jointly and severally liable for indemnity costs as non-parties. In respect of the 506 application only, Mr Pamatatau, seeks scale costs against Ms Ding. He seeks non-party indemnity costs against Mr Bai.

• [5] Mr Martelli, for NZSouthpole, seeks indemnity costs against Ms Ding and Mr Bai.

• [6] Ms Ding and Mr Bai oppose any award of costs.

Submissions

Counsel for Mr James

• [7] Mr Pamatatau refers to Mr Bai’s active role in the proceedings. He says Mr Bai signed documentation, was plainly actively engaged in all aspects of the litigation, was present and attempted to be heard at the various hearings this matter has featured in different Courts.

• [8] He says the applications and notice of appeal Ms Ding and Mr Bai filed were always “doomed to failure”. By way of example he refers to an occasion during the hearing before me. Mr Bai claimed this Court’s civil registry had lost the application Jagose J ordered be filed seeking leave to appear on behalf of the company when, for the reasons I gave in my judgment of 27 May 2021, it plainly had not. When challenged, Mr Bai alleged that the Court staff and counsel had conspired to mislead me.¹ For the reasons set out in my judgment, I determined the application was never filed.

• [9] Mr Pamatatau submits that Ms Ding and Mr Bai have exhibited a “blatant disregard for the High Court Rules”. He seeks a scale costs award on a 2B basis of

$19,239.50 and disbursements of $234.78 excluding GST. These disbursements consist of two filing fees for the notices of opposition ($191.30) and the sealing fee on the judgment ($43.48).

• [10] Mr Pamatatau requests $21,046.50 in indemnity costs (including GST and disbursements) against Ms Ding and Mr Bai jointly and severally. He says that the total costs could have been $35,019.00. However, he discounted the claim by

$13,972.50 (including GST) due to “the frustrating nature of [the] litigation”.

• [11] In an updated memorandum dated 21 June 2021, Mr Pamatatau claims $301.30 in disbursements (included in the $21,046.50 total). He claims $191.30 in filing notices of opposition and $110.00 in general office expenses from the period 21 August 2020 to 27 April 2021.

¹ James v NZSouthpole Team Ltd (in liq) [2021] NZHC 657 at [50]–[52].

Counsel for the liquidators

• [12] Mr Martelli, for NZSouthpole, seeks indemnity costs against Ms Ding and Mr Bai. He submits that Ms Ding and Mr Bai’s application was for an unjustifiable collateral purpose, which was to avoid personal liability. He says it was a vexatious application. It had no chance of success and has incurred significant and unnecessary costs for the Court and all the parties who were required to engage counsel to oppose the orders sought.

• [13] Mr Martelli seeks indemnity costs against Ms Ding and Mr Bai totalling

$18,241.00 (including GST). In an updated memorandum dated 21 June 2021, Mr Martelli claims $110.00 in disbursements for the cost of the filing fee for notice of opposition.

• [14] Mr Martelli submits that this case meets the threshold for an award of non- party costs against Ms Ding and Mr Bai according to the principles set out in Kidd v Equity Realty because:²

(a) Ms Ding and Mr Bai acted in their own interests (rather than the interests of NZSouthpole) in commencing and prosecuting the proceedings and as such are the “real” parties; and

(b) Ms Ding and Mr Bai’s conduct has been obstructive throughout.

• [15] Mr Martelli also submits this case meets the pre-requisites required to grant indemnity costs, that is the making allegations of fraud knowing them to be false. He submits their particular misconduct has caused valuable Court time to be lost and unnecessarily added to the costs of the parties. Ms Ding and/or Mr Bai commenced and continued the proceedings for an ulterior motive – that is attempting to avoid personal liability – and they have made serious and false allegations against the background of a case which was patently hopeless.³

² Kidd v Equity Realty (1995) Ltd [2010] NZCA 452 at [16], citing Re North West Holding plc; Secretary of State for Trade and Industry v Backhouse [2001] EWCA Civ 67 and Goodwood Recoveries Ltd v Breen [2005] EWCA Civ 414, [2006] 1 WLR 2723 at [59].

³ Hedley v Kiwi Co-operative Dairies Ltd (2002) 16 PRNZ 694 (HC) at [11].

• [16] As for the false accusations, Mr Martelli pointed to Ms Ding and Mr Bai’s claims that NZSouthpole’s liquidators utilised the COVID-19 pandemic for a collateral purpose, they attempted to unlawfully retain COVID-19 wage subsidies and they, in concert with Court staff and counsel, conspired to mislead the Court.

• [17] Further, Mr Martelli refers to occasions where, during the course of the litigation, Ms Ding and Mr Bai used intensely insulting and personal language in relation to the liquidators. Examples were given. Further, Mr Martelli refers to my comments in the 30 March 2021 judgment, where I said:⁴

“[33] The liquidators received no assistance from Ms Ding or Mr Bai in undertaking their roles as liquidators. Instead, all their approaches for information were met with hostility, ad hominem abuse and offence. Mr Bai and Ms Ding were obstructive.

...

[52] ... the absurdity of Mr Bai’s claim that Court staff and counsel have together conspired to defeat the course of justice by seeking to wilfully mislead me, and Mr Bai’s failure to produce the document in question, despite the large volume of documents he was holding, lead me to conclude that no application for leave was ever filed.”

• [18] On the claim that Ms Ding and Mr Bai were responsible for unnecessarily prolonging and complicating the proceedings, Mr Martelli cited the filing of mountains of evidence, which was verbose, irrelevant and often unintelligible. He says the application and extensive evidence filed in that application wasted this Court’s and the parties’ time and resources.

• [19] Mr Martelli submits that the application was an abuse of process. It was unsupported by evidence and filed with the intention of delaying the proceedings. In particular, he claims Ms Ding and Mr Bai likely submitted the application to avoid being held personally liable.

• [20] In summary, Mr Martelli submits that the proceedings were vexatious and had no prospect of success. He said this is a rare case where it is appropriate to order indemnity costs against non-parties.

⁴⁴ James v NZSouthpole Team Ltd (in liq), above n 1, at [33].

Ms Ding

• [21] Ms Ding and Mr Bai submit that the only basis for the liquidation costs claim was the “content of the liquidation work” and the fact they submitted liquidation documents to the Auckland High Court.

• [22] They submit that the indemnity costs award sought by Mr Martelli is unfounded and should not be allowed by this Court. They submit Mr Martelli refused to provide them with basic calculation information.

• [23] Further, Ms Ding and Mr Bai submit that the liquidators took actions following my decision on 30 March 2021, which were “without minimum professional ethics”. Specifically, Ms Ding and Mr Bai refer to the liquidators allegedly towing away a vehicle they claim was on their private property. They said the liquidators removed the vehicle in a “rude and brutal way”, causing mental harm to “anyone (especially children and the elderly)”.

• [24] In a document entitled “Notice of Opposition to Liquidator’s Indemnity Costs and Illegal Towing of Private Vehicle”, supported by an affidavit from Mr Bai, Ms Ding and Mr Bai do not address the question of costs. Instead they exhort “Judge Moore to “...wake up and make a little correction and change”. Consistent with other documentation they have filed, the memorandum contains wide-ranging complaints and criticisms of the liquidators’ conduct including what they claim is the unauthorised and unlawful seizing of a motor vehicle/s and seeking orders to remove the liquidators, impose penalties for breaking the law and seeking orders for the return of the vehicle.

Law

• [25] As is well understood, granting scale costs is discretionary according to r 14.1 of the High Court Rules (“the Rules”). Generally, the party who loses should pay costs to the party who succeeds.⁵ The costs award should be assessed by applying the appropriate daily recovery rate to the time considered reasonable for each step

⁵ High Court Rules 2016, r 14.2(1)(a).

reasonably required in respect of the proceeding.⁶ The determination of costs should be predictable and expeditious.⁷

• [26] Regarding indemnity costs, r 14.6 of the Rules provides that:

“a court may make an order ... that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party. The court can make an order at any stage of a proceeding and in relation to any step in it.”

• [27] Rule 14.6(4) outlines the circumstances in which a Court may order that a party pays indemnity costs:

“...

(4) The court may order a party to pay indemnity costs if—

(a) the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or

(b) the party has ignored or disobeyed an order or direction of the court or breached an undertaking given to the court or another party; or

...

(f) 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.”

• [28] The party claiming indemnity costs carries the onus of persuading the Court that an indemnity costs award is justified.⁸ The standard required to grant indemnity costs is very high. They are awarded in rare cases, commonly involving breaches of confidence or flagrant misconduct.⁹ Other situations include allegations of fraud knowing the claim is false, particular misconduct causing loss of time to the Court and to other parties and making allegations which ought never to have been made (i.e., a

⁶ Rule 14.2(1)(c).

⁷ Rule 14.2(1)(g).

⁸ Strachan v Denbigh Property Ltd HC Palmerston North, CIV-2010-454-232, 3 June 2011 at [27].

⁹ Prebble v Awatere Huata (No 2) [2005] NZSC 18, [2005] 2 NZLR 467 at [6].

“hopeless case”).¹⁰ The general principle in costs is that an award should reflect the conduct of parties during the proceedings, not prior.¹¹

• [29] Determining whether to order indemnity costs is a “fact-specific” exercise where the ultimate question is whether it is just in all the circumstances to make the order.¹² If the Court determines indemnity costs are warranted, the quantum of indemnity costs should be calculated not on the basis of the costs rules, but on the basis of a reasonable allocation of actual costs having regard to the appropriate time taken, the significance and complexity of the work, and a median hourly rate reasonably applicable.¹³

Analysis

The claims for indemnity awards

• [30] As noted, Mr Pamatatau seeks $21,046.50 (including GST and disbursements) and Mr Martelli seeks $18,241.00 (including GST) and $110.00 in disbursements against Ms Ding and Mr Bai, claimed on an indemnity basis. Mr Pamatatau says Ms Ding is the losing party in the 506 proceeding and it follows that she is liable to pay costs. Both Mr Pamatatau and Mr Martelli seek costs against Ms Ding and Mr Bai as non-parties to the 2132 application.

Indemnity costs for non-parties

• [31] It is possible to claim costs against non-parties in exceptional circumstances.¹⁴ These are cases “outside the ordinary run of cases”.¹⁵ Costs are usually awarded against non-parties where the non-party was connected to the litigation to such an extent and in such a way as to effectively be a litigant standing behind one of the

¹⁰ Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [29], citing Hedley v Kiwi-Cooperative Dairies Ltd, above n 3, at [11].

¹¹ Paper Reclaim Ltd v Aotearoa International Ltd [2006] NZCA 27; [2006] 3 NZLR 188 (CA) at [160].

¹² Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2004] UKPC 29, [2005] 1 NZLR 145 at [25(1)].

¹³ Bradbury v Westpac Banking Corp [2008] NZHC 751; (2008) 18 PRNZ 859 (HC) at [204] and [209].

¹⁴ Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2), above n 12, at [25(1)].

¹⁵ At [25].

parties. Lord Brown described the scenario as the non-party is in substantial control of the proceedings or “are to benefit from” the proceedings.¹⁶

• [32] I accept that Ms Ding and Mr Bai have each become an effective “real party” to the proceedings. Ms Ding is in substantial control of the proceedings because she has filed a majority of the applications for this proceeding. She filed the application for leave to appeal, the appeal to the Court of Appeal and the interlocutory application. Mr Bai has contributed to the proceedings by making affidavits, completing and filing Court documentation, appearing in Court and filing volumes of evidence in support of interlocutory proceedings. Both Ms Ding and Mr Bai have benefited from the proceedings by delaying the substantive hearing in relation to NZSouthpole’s liquidation which has been suspended pending the present litigation. As Mr Pamatatau and Mr Martelli submit, Ms Ding and Mr Bai have stood behind NZSouthpole during these proceedings.

• [33] I also accept that Ms Ding and Mr Bai acted in an improper and dishonest manner during these proceedings. The non-parties did not observe the conventional standards of honesty and courtesy while engaged in these proceedings. Ms Ding ignored Clifford J’s directions regarding the correct process for filing a leave to appeal application at the Court of Appeal.¹⁷ To me, Ms Ding claimed she had filed the application to appear for the company when plainly, in my view, she had not. Mr Bai, as I note he has in other proceedings, was quick to falsely blame Court staff and counsel when it suited in an attempt to deflect the fault of his own omission. Mr Bai accused Court staff and counsel of committing a criminal conspiracy to mislead me. When given the opportunity to retract the accusation, Mr Bai refused. Although he complied with my request that any costs memorandum not exceed five pages in length, other material filed in relation to the proceedings has been characterised by both its vastness and irrelevance to the issues.

• [34] Additionally, during the course of the litigation, both Ms Ding and Mr Bai have, without evident provocation or cause, referred to the NZSouthpole liquidators in particularly personal, offensive and derogatory terms.

¹⁶ Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2), above n 12 at [25(3)].

¹⁷ James v NZSouthpole Team Limited (in liq), above n 1, at [34].

• [35] I agree with counsel that in all the circumstances, there is no alternative inference available other than that the proceedings initiated by Ms Ding and Mr Bai have been commenced and pursued for the improper, collateral purpose of frustrating the lawful and orderly administration of NZSouthpole’s liquidation. It must not be overlooked that this proceeding is still only at the interlocutory stage. Despite that, as I observed in my judgment of 30 March 2021, there has been a bewildering series of interconnected applications across three jurisdictions.¹⁸ As a consequence, both Ms Ding and Mr Bai have avoided personal liability by continuing their obstructive conduct in circumstances where the prospect of success is rightly characterised as hopeless.

• [36] Sight should also not be lost of the fact that the original proceedings before the Disputes Tribunal involved a straightforward claim and counterclaim in relation to a modest domestic construction contract entered into in March 2017. Judgment against NZSouthpole was entered some 10 months later. The procedural history is set out in my judgment.¹⁹ It is apparent from that chronology that Ms Ding and Mr Bai have done everything in their power to frustrate the liquidation process. It is also apparent that Ms Ding and Mr Bai, while using the Court’s processes to their own advantage, are simply not prepared to comply with or respect the wider judicial process when the result does not suit them. While it is the right of every litigant to take whatever lawful and proper redress they consider may be necessary to remedy unfairness or correct error, these rights are not unlimited. There are consequences. One is that in the event of loss they may be liable to meet a costs award. If the litigant’s conduct during the course of the proceedings deserves it, the Court has jurisdiction to award increased or indemnity costs.

• [37] Given the circumstances I have set out above, I am satisfied that the test of exceptionality is made out in this case. It follows that I find it is just in all the circumstances to award indemnity costs against Ms Ding and Mr Bai as non-parties in favour of NZSouthpole and Mr James.

¹⁸ James v NZSouthpole Team Ltd (in liq), above n 1, at [1].

¹⁹ At [5]–[49].

• [38] The next question is what costs are reasonable in the circumstances? Mr Martelli and Mr Pamatatau have annexed schedules to their memoranda and updating memoranda setting out their actual costs. Mr Pamatatau claims discounted attendances of 80.4 hours totalling $21,046.50 including GST and disbursements and Mr Martelli claims just over half that amount at 42.5 hours totalling $18,241.00 including GST and $110.00 in disbursements.

• [39] After reviewing Mr Martelli and Mr Pamatatau’s schedules containing their respective actual costs of this proceeding, I find their costs are reasonable. Mr Pamatatau has carried the weight of answering Ms Ding’s and Mr Bai’s claims since 21 August 2020. He has filed two notices of opposition to the interlocutory applications filed by Ms Ding and Mr Bai. The general office expenses he claims appear reasonable compared to the normal costs of preparing for litigation. In fact, Mr Pamatatau has heavily discounted his claim to something approaching that of Mr Martelli.

• [40] Mr Martelli’s actual costs are particularised well and provide a more transparent statement of the work actually involved to represent the NZSouthpole liquidators. He includes a reasonable amount for filing the notice of opposition as the only disbursement claim. Mr Martelli’s claims tend to support the reasonableness of Mr Pamatatau’s costs. I am satisfied both claims of indemnity costs are reasonable.

• [41] I thus award $15,972.50 to NZSouthpole (including disbursements) on the basis that costs are GST-exclusive if a party is GST-registered. It is likely that NZSouthpole is GST-registered. If I am wrong, leave is reserved to apply for indemnity costs that are GST-inclusive. I also award $21,046.50 (GST-inclusive and including disbursements) in favour of Mr James.

• [42] I emphasise that the liquidation must be permitted to run its course. Obstructive measures by Ms Ding and Mr Bai – such as those discussed above – are capable of being met by orders on application or on my initiative.²⁰

²⁰ Senior Courts Act 2016, s 166 and Genge v Visiting Justice at Christchurch Men’s Prison [2019] NZCA 583 at [6], [16] and [21].

Result

• [43] I award:

(a) $15,972.50 (GST-exclusive and including $110.00 in disbursements) in indemnity costs in favour of NZSouthpole against Ms Ding and Mr Bai; and

(b) $21,046.50 (GST-inclusive and including disbursements of $301.30) in indemnity costs in favour of Mr James against Ms Ding and Mr Bai.

Moore J

Solicitors:

Mr Pamatatau, Auckland Mr Martelli, Auckland

Copy to:

Ms Ding, Auckland