Choi v Hong [2014] NZHC 1883 (11 August 2014)

Last Updated: 20 August 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-003035 [2014] NZHC 1883

BETWEEN	JAE HOON CHOI Plaintiff
AND	IL LIB HONG Defendant

Hearing:	On the papers
Appearances:	B Gustafson for the Plaintiff R M Dillon for the Defendant
Judgment:	11 August 2014

JUDGMENT OF WOOLFORD J [As to Costs]

This judgment was delivered by me on Monday, 11 August 2014 at 2.30 pm pursuant to r 11.5 of the High Court Rules.

_{Registrar/Deputy Registrar}

CHOI v HONG [2014] NZHC 1883 [11 August 2014]

[1] The plaintiff, Mr Choi, has discontinued this proceeding. The first defendant, Mr Hong, seeks costs.¹ The plaintiff argues that no costs order should be made in favour of the first defendant, and submits that costs should lie where they fall.

Background

[2] The factual background is unclear and at points disputed. Broadly put the proceedings concerned the control of a company, Twin Oaks Gold Ranges Limited (Twin Oaks). The primary asset of Twin Oaks was a property styled as a golf range and café at 99C, State Highway 22, Paerata Road, Pukekohe.

[3] Mr Hong or interests associated with him initially controlled the shares in Twin Oaks. On 14 November 2011 the parties entered into an agreement whereby Mr Hong would transfer the shares in Twin Oaks to Mr Choi as security for a loan from Mr Choi to Mr Hong of 580 million Korean Won (approximately NZD $665,000). It was agreed that Mr Park, the second defendant, would be appointed as a representative director of Twin Oaks. The agreement further provided that Mr Choi would transfer back the property to Mr Hong upon repayment of

300 million Korean Won (approximately NZD $344,000).

[4] The parties and another company, GWM Limited, entered into a second agreement on 10 August 2012 (labelled the Share Transfer Agreement by the plaintiff). The recitals record that only 300 million Korean Won had been loaned by Mr Choi to Mr Hong and Mr Hong’s liability was limited to that sum (the actual amount advanced to Mr Hong and whether any advance was made at all is in dispute). It further provided that 20% of the shares were to be transferred from Mr Choi to GWM Limited. Importantly, it recorded that Mr Choi was to transfer back his 80% shareholding to Mr Hong in order to enable Mr Hong to effectively procure an agreement for sale of the property by the due date (apparently in order for Mr Hong to pay back the amount outstanding on the loan provided by Mr Choi).

[5] The due date was recorded as 14 September 2012. Clause 4 of the agreement provided that in the event that no sale and purchase agreement for the property was

1. Proceedings against the second defendant, Mr Park, were discontinued in accordance of a minute of Associate Judge Bell dated 18 October 2013.

signed by the due date, Mr Hong should arrange for and effectuate immediate transfer of the shareholding to Mr Choi. Similarly clause 6 provided that the sale and purchase agreement was to be settled by 14 March 2013, and if that did not occur then the shareholding was to be transferred to Mr Choi immediately.

[6] It is accepted that no sale and purchase agreement was entered into by the due date, nor by the settlement date. The shares were not transferred back to Mr Choi. From there a struggle for control of Twin Parks, the sale process of the property and the sale proceeds ensued. Mr Choi by his statement of claim dated

30 May 2013 alleged that the shares held by Mr Hong were his under the August

2012 agreement. Mr Hong disagreed. In his statement of defence dated 5 July 2013 he claimed the shares were his under the original November 2011 agreement. The dispute was therefore over the interpretation of the two agreements and whether the August 2012 agreement required Mr Hong to retransfer the shares to Mr Choi.

[7] In late 2013 Mr Choi applied to this Court for an interim injunction preventing Mr Hong from dealing with the shares in Twin Oaks and the property. That application was opposed. It was granted by Venning J on 11 November 2013.²

[8] The trial was set down for 28 April 2014. On 24 April the plaintiff discontinued the proceedings. The reason provided for doing so was that the proceedings were unnecessary because the plaintiff had exercised the right to sell the property pursuant to a mortgage held over the property. The mortgage was originally in favour of ASB Bank, but the plaintiff had purchased the mortgagee rights from ASB Bank sometime in early 2013.

Discontinuance

[9] Rule 15.23 of the High Court Rules provides:

15.23 Costs

Unless the defendant otherwise agrees or the court otherwise orders, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance.

² Choi v Hong [2013] NZHC 2973.

[10] The plaintiff originally filed a discontinuance on 17 April 2014. It was rejected by the Registrar as it was not signed by the defendant. A further urgent memorandum requesting a discontinuance was filed on 24 April, four days before the hearing was due to begin. The notice of discontinuance records that Mr Hong was overseas at the time and had not responded to emails sent over the past few weeks sent by the plaintiff’s solicitors. A notice of discontinuance was sent to the defendant to sign but no response had been received.

[11] At the time notice was also given that the plaintiffs would dispute costs. Memoranda have now been filed. Counsel for the defendant submits that the defendant did not consent to the discontinuance and r 15.23 applies. Counsel also seeks a 50 per cent uplift on the basis that the plaintiff’s interim injunction prevented the defendant with dealing with his property between November 2013 and April

2014. The injunction prevented the defendant from taking steps to sell the property and repay the plaintiff. It is also submitted that the plaintiff has not accounted to the defendant following the sale, that it appears that s 196 of the Property Law Act 2007 has not been complied with, and it appears the plaintiff used the proceeding as a clog on the equity of redemption. The total costs sought are $31,939.50.

[12] The plaintiff takes a vastly different view of the facts (a view that I will return to shortly). It is submitted that this case falls within the exception to r 15.23, namely that the presumption in favour of awarding costs to a defendant in the event of a discontinuance may be displaced if there are just and equitable circumstances not to apply it.³

[13] I note that as a general rule in discontinued proceedings, the merits of the competing contentions in the proceedings will not be considered unless the merits are so obvious that they should influence the award of costs.⁴ However, it is also clear that where the presumption in r 15.23 is disputed then the reasonableness of the stance of the parties must be considered.⁵ It is necessary, therefore, to return to the

_{timeline of events leading up to the discontinuance.}

³ _{Kroma Colour Prints v Tridonicatco NZ Ltd [2008] NZCA 150, (2008) 18 PRNZ 973 at [12].}

⁴ _{North Shore City Council v Local Government Commission (1995) 9 PRNZ 182 (HC).}

⁵ Carmel College Auckland Ltd v North Shore City Council HC Auckland CIV-2007-404-5894, 20

January 2009.

Discussion

[14] In the interim injunction dated 11 November 2013 Venning J held that Mr Choi had a serious case to support his argument that the shares in Twin Oaks held by Mr Hong and controlled by him are held for Mr Choi in accordance with the August 2012 agreement.⁶ He noted that the November 2011 agreement expired on

14 September 2012 and that the August 2012 agreement post-dates the first agreement and provides fresh provisions and outcomes in relation to ownership of the shares.⁷

[15] The interim injunction was sought due to fears that Mr Hong would deal with the property in a manner inconsistent with Mr Choi’s claim. Since the property was the only significant asset of Twin Oaks, if it was sold the company would effectively be no business at all. It appears that before relations deteriorated the parties intended the company to remain intact in order to preserve its value as a going concern.

[16] In an affidavit filed in support of the interim injunction Mr Choi expressed grave fears that any award of damages if the property was sold would be unenforceable because Mr Hong had no assets in New Zealand and was currently resident in China. He further claimed that Mr Hong had few assets in China and Korea at all.

[17] In granting the injunction Venning J awarded costs of $7,662.50 against Mr Hong. In a minute dated 12 March 2014 Venning J recorded that since delivery of the judgment the defendant failed to take any positive steps in the proceeding and also had failed to pay costs awarded against him following the injunction hearing. At the same time the solicitors on record for Mr Hong applied for an order of discharge. I gather that those costs were paid by the due date being 26 March.

[18] Between 12 March and 24 April, Mr Hong was unrepresented, was living in Korea and did not respond to emails regarding arrangements for the trial sent by the plaintiff’s solicitors nor it appears take any steps to prepare the trial. Mr Choi

_{determined that even if he were to win at trial there was a very real prospect that}

⁶ _{Choi v Hong, above n 2 at [25].}

⁷ At [23]-[24].

Mr Hong would not comply with any court order to transfer the shares and property to Mr Choi. Since the business had been closed for over two years it was also determined that any value of the business as a going concern had deteriorated and therefore the business was only worth the market value of the property.

[19] In those circumstances Mr Choi decided to exercise its rights as mortgagee and sold the property for $900,000 on 23 April, being the market value of the property as assessed by a registered valuer. The sale price was sufficient to pay back the ASB loan but there remained a shortfall of $4,063.35 after the payment of disbursements. Once the sale was effectuated the company had no assets and there was no need for a trial concerning the return of the shares.

[20] The plaintiff submits that in such circumstances it was reasonable for him to discontinue the proceedings against Mr Hong because he had achieved his ends by other means and for reasons not connected to the merits of the plaintiff’s case.⁸

[21] The plaintiff relies on Olive Francis Retirement Home Ltd v Director- General of Health where Simon France J held the plaintiff did not need to pay the defendant’s costs because the proceedings had been rendered nugatory by the defendant’s actions:⁹

[17] On the other hand, a by-product of the defendant’s decision concerning closure is that these proceedings were rendered nugatory. The discontinuance is something that has had to happen because the subject matter of the proceedings has been overtaken by other events.

[18] In my view the reasons why discontinuance has arisen are sufficient to displace the presumption in Rule 476C. It would be unjust to require the plaintiff to pay the defendant’s costs when the proceedings have never been tested because of the exercise of different powers by the defendant. On the other hand, I see nothing in the actions of the defendant that would support an award of costs against the defendant. Just as the plaintiff has not had its day in Court, nor has the defendant had the opportunity to defend the process.

[22] I note that case is notably different because here it was the plaintiff’s actions that rendered the proceedings nugatory. It was open to the plaintiff to continue as

⁸ _{Fong v Wong [2010] NZHC 705; (2010) 20 PRNZ 22 at [11].}

⁹ Olive Francis Retirement Home Ltd v Director-General of Health HC Auckland CIV-2005-404-

1367, 13 July 2005 at [17] – [18].

planned with the proceedings. If the plaintiff won at trial and Mr Hong did not comply with any court order compelling him to return the shares, then it would have still been open to Mr Choi to exercise his power of sale as the registered mortgagee of the property.

[23] However, given Mr Hong’s failure to pay costs, advance the proceeding in any meaningful way or attend to the emails sent by the plaintiff’s solicitors, I consider Mr Choi’s fear that Mr Hong would either not appear for the trial or not abide by any substantive order made by this court was well founded. There was a distinct risk that the trial would be for nothing because of the risk Mr Hong would not comply, and if Mr Hong were to remain in China that order would not be enforceable. In those circumstances and irrespective of the merits of the case the proceedings were rendered nugatory by Mr Hong’s unwillingness to constructively engage in the court process. It was reasonable for Mr Choi to avoid the costs of a trial by discontinuing the proceedings and recoup his losses through the forced sale of the Twin Oaks property.

[24] For those reasons I consider the appropriate outcome is to direct that costs are to lie where they fall.

[25] As a matter of completeness I note that defence counsel’s submissions for a

50 per cent uplift following the event are, with respect, without merit. Mr Choi has not accounted to Mr Hong for the proceeds of the sale because there remains a shortfall of $4,063.35 after payment of the ASB loan and disbursements. The claims that s 196 of the Property Law Act 2007 was not complied with and that the proceeding was used as a clog on the equity of redemption are not supported by evidence and are at best conjecture.

Result

_{[26] Costs are to lie where they fall.}

Woolford J