Ip v Ip [2016] NZHC 528 (24 March 2016)

Last Updated: 3 May 2016

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2015-404-1197 [2016] NZHC 528

UNDER	the Declaratory Judgments Act 1908 and Section 51 of the Trustee Act 1956
BETWEEN	YUM KEUNG IP Plaintiff
AND	YUM KEUNG IP AND ROSA WEI CHING TAI First Defendants SUI FONG IP CHOW and ROSA WEI CHING TAI as trustees of the Valonia Trust Second Defendants SUI FOND IP CHOW (also known as CHOW SUI FONG) Third Defendant

Hearing:	On the papers
Judgment:	24 March 2016

_{COSTS JUDGMENT OF DUFFY J}

This judgment was delivered by me on 24 March 2016 at 2.15 pm pursuant to

Rule 11.5 of the High Court Rules.

Registrar/ Deputy Registrar

Solicitors:

Lee Salmon Long, Auckland

McVeagh Fleming, Auckland

IP v IP AND ORS [2016] NZHC 528 [24 March 2016]

Introduction

[1] The applicant, Mr Yum Keung Ip, and the third defendant, Mrs Sui Fong Ip Chow, have each filed memoranda seeking costs in relation to Mr Ip’s application for freezing orders over certain trust property. That application was discontinued on the day of the hearing when Mrs Ip Chow provided an undertaking to the High Court that (amongst other things) she would not charge, encumber or otherwise dispose of the disputed property.

[2] Mr Ip seeks a deferral of the costs decision pending the outcome of the substantive hearing, or alternatively seeks scale costs in his favour. Mrs Ip Chow seeks increased costs in respect of the application for freezing orders, as well as scale costs in relation to the costs memorandum prepared by counsel.

Factual background

[3] The applicant, Mr Ip, brought proceedings under the Trustee Act 1956 alleging various breaches and misconduct in the administration of two family trusts, the Victoria Trust and the Valonia Trust. There were three respondents:

(a) Mr Ip and Ms Rosa Wei Ching Tai, as Trustees of the Victoria Trust; (b) Mrs Ip Chow and Ms Tai, as Trustees of the Valonia Trust;

(c) Mrs Ip Chow in her personal capacity.

[4] The two trusts were established while Mr Ip and Mrs Ip Chow were married. Following their separation in July 2013, Mr Ip and Mrs Ip Chow implemented a relationship property agreement effecting certain changes to the trust arrangements. However, it appears that Mr Ip subsequently regretted aspects of that agreement. He filed proceedings alleging breaches of trust and misconduct in the administration of the Victoria Trust and the Valonia Trust. Mr Ip also asserted the existence of an implied, resulting, constructive or bare trust over properties in Hong Kong that were purchased during the marriage. Mr Ip sought freezing orders in respect of various trust property as well as two apartments in Hong Kong.

[5] A hearing was scheduled to take place on 11 February 2016 in relation to the application for freezing orders. However, in court the parties agreed to sign a written undertaking in relation to the properties, such that judicial determination of the matter became unnecessary. The parties were invited to file memoranda regarding costs.

Submissions for the applicant regarding costs

[6] Mr Fuscic argued that any order regarding costs should be made at the time when the substantive proceeding was determined. He acknowledged that this was prima facie inconsistent with r 14.8 of the High Court Rules¹ but submitted that that rule did not apply in this case, since the interlocutory application was settled without any judicial determination. In the alternative, Mr Fuscic submitted that Mr Ip was entitled to costs on the basis that the terms of the final undertaking were substantially

similar to the terms of the freezing order application and therefore Mr Ip did not

‘fail’ in respect of his application.² Moreover, Mr Fuscic suggested that Mrs Ip Chow’s decision to give that undertaking amounted to a concession that the merits of the case lay with Mr Ip.

[7] Mr Fuscic further noted that Mr Ip had sought an undertaking in relation to the contested property as early as August 2015 and submitted r 14.11 of the High Court Rules therefore applied.³

Submissions for the third defendant regarding costs

[8] Counsel for Mrs Ip Chow, Messrs Hikaka and Schultz, submitted that Mr Ip’s application was unnecessary, poorly founded and continued in the face of reasonable settlement offers. They further noted that Katz J declined an earlier application for freezing orders submitted by the applicant. On that basis, counsel sought the

_following:

¹ Rule 14.8 provides that:

(1) Costs on an opposed interlocutory application, unless there are special reasons to the contrary,—

_{(a) must be fixed in accordance with these rules when the application is determined[.]}

² _{See Obrecht v Earthquake Commission [2015] NZHC 555.}

3. That provision states that previous written offers can be taken into account in determining the matter of costs at the discretion of the court.

(a) Increased, or alternatively scale costs on the application;

(b) Costs on the oral application for freezing orders that was declined by

Katz J and the costs memorandum.

[9] Counsel submitted that increased costs were justified under r 14.6(3) of the High Court Rules. Specifically, counsel submitted that the final undertaking, as agreed on the day of the hearing, was substantially less favourable to Mr Ip than previous undertakings offered by Mrs Ip Chow. Counsel argued that this was unreasonable, resulting in unnecessary expense and a waste of judicial resources. Counsel further submitted that Mr Ip’s application lacked merit, since there was no risk of disposition in relation to the trust property; some of the properties were outside the jurisdiction of the court; and no evidence was advanced to demonstrate a risk of disposition.

[10] In the alternative, counsel submitted that scale costs should be ordered against Mr Ip on the basis that he rejected reasonable settlement offers and that r

15.23 creates a presumption that the party who discontinues or withdraws proceedings should pay costs.

Discussion

Award of costs after discontinuance

[11] The general presumption is that costs relating to an interim application should be awarded at the determination of the application.⁴ This is consistent with the principle that “so far as possible the determination of costs should be predictable and expeditious.”⁵

[12] There was some discussion in the memoranda provided by counsel regarding the proper interpretation of “determined”. Specifically, Mr Fuscic submitted that discontinuance did not amount to a determination of the application since the court

_{was not required to issue a judgment. In my view, there is no reason to adopt such a}

⁴ _{High Court Rules, r 14.8.}

⁵ High Court Rules, r 14.2(g).

narrow interpretation of the word “determined”. The New Zealand Oxford Dictionary defines “determine” to mean “bring or come to an end”.⁶ In the present case, the application has come to an end as a result of the discontinuance and therefore the application has been determined. This wider interpretation was also adopted by Nicholson J in Abdullahi v Minister of Immigration.⁷ In that case, the parties reached a confidential settlement and the plaintiff subsequently filed a notice of discontinuance. Nicholson J held that the proceedings had been determined for the purposes of r 66(3) of the High Court Rules, which provided:

(3) Subject to subclauses (5) to (8), a person has the right to search, inspect, and copy a document on a file relating to a proceeding that has been determined.

[13] Mr Fuscic also referred me to cases in which a decision on costs was reserved until the determination of the substantive application, on the basis that the court had not had the opportunity to determine the merits of the case.⁸ However, I do not consider that those decisions are applicable in the present case. In my view, a more relevant decision is Chapman v Badon Ltd, in which the Court of Appeal held:⁹

Apart from applications for summary judgment, the general approach to costs in respect of interlocutory applications is that they are dealt with at the time the applications are determined rather than being held over until the outcome of the proceedings is known. This reflects the fact that the merits of particular applications and the merits of the substantive proceedings are different matters.

[14] This observation seems to be particularly pertinent in the present case. The interlocutory application concerns freezing orders, whereas the substantive application concerns matters of trust law. There is no real connection between the legal outcomes of the two sets of proceedings.¹⁰ I consider that it is more suitable to deal with costs at this point in time, rather than deferring the decision until the

_{determination of the substantive proceedings.}

⁶ Toney Deverson and Graeme Kennedy The New Zealand Oxford Dictionary (Oxford University

_{Press, Melbourne, 2005) at 295.}

⁷ _{Abdullahi v Minister of Immigration (2000) 14 PRNZ 253 at [5].}

⁸ Kenealy v Morton-Jones [2015] NZHC 297; Commercial Factors Ltd v Veda Advantage (NZ) Ltd HC Auckland CIV-2010-404-6798, 21 June 2011.

⁹ _{Chapman v Badon Ltd [2010] NZCA 613, (2010) 20 PRNZ 83 at [12].}

¹⁰ This can be contrasted with a number of the cases cited by the plaintiff, including Kenealy v Morton-Jones [2015] NZHC 297 and Commercial Factors Ltd v Veda Advantage (NZ ) Ltd HC Auckland CIV-2010-404-6798, 21 June 2011.

Liability for costs

[15] Rule 15.23 of the High Court Rules provides that:

Unless the defendant otherwise agrees or the court otherwise orders, an applicant 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.

[16] Rule 15.23 applies by analogy to the present proceedings, with the result that Mr Ip will be required to pay costs incidental to the interlocutory application up to and including the day of the hearing, unless this court orders otherwise.

[17] Mr Fuscic submitted that this would be an appropriate case in which to depart from the general presumption set out in r 15.23 and referred me to Gendall J’s decision in Obrecht v Earthquake Commission.¹¹ In that case, the second defendants sought to strike out a claim because it did not plead a valid cause of action. On the morning of the hearing, the plaintiffs amended their claim and the strike out application was therefore discontinued. Gendall J considered that the second defendants had effectively been successful and ordered the plaintiffs to pay costs.

[18] I do not consider that the same logic is applicable in the present case. From August 2015 until the day of the hearing, Mr Ip refused every undertaking that was offered by Mrs Ip Chow. The last of those offers was made on 28 January 2016, two weeks before the hearing date. These refusals give rise to the inference that the freezing orders, if granted, would have conferred some extra benefit upon him, above and beyond the terms offered by Mrs Ip Chow. However, Mr Ip ultimately sacrificed that additional benefit on the day of the hearing and accepted an undertaking on terms which were substantially similar to those offered by Mrs Ip Chow on 28 January 2016. Given those circumstances, I do not think it can be said that Mr Ip has effectively been successful in his application. In contrast, Mrs Ip Chow has effectively achieved her desired outcome. Since August 2015, Mrs Ip Chow has indicated that she was willing to settle and ultimately this case has been

_{resolved on her terms.}

¹¹ Obrecht v Earthquake Commission, above n 2.

[19] I do not consider that there is any reason to depart from the general presumption that an applicant who discontinues an interim injunction will be required to pay costs.

Increased costs

[20] Mrs Ip Chow sought increased costs on the discontinued freezing application. The threshold for awarding increased costs is that there has been a failure by the party in question to act reasonably.¹² A percentage uplift will be justified to the extent that this failure reasonably contributed to the time or expense of the proceedings in question.¹³

[21] Lack of merit is one of the grounds for an order of increased costs under r

14.6. However, it is difficult to justify an order of increased costs on this basis where the application has been discontinued, since the court has not had an opportunity to assess the merits of the case in a hearing. In N-Tech Ltd v Abooth Ltd, Kós J cited a number of key cases discussing the effect of unmeritorious claims on

an award of increased costs.¹⁴ He held:¹⁵

It follows from these authorities that increased or indemnity costs may be awarded on the basis of lack of merit, in a case where the trial is not completed, only where the lack of merit is both obvious and incontrovertible. 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 applicant 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.

[22] Although that costs decision arose from a civil trial regarding alleged fraud, the general findings seem equally applicable to an interlocutory application. In my view, Mr Ip would have faced substantial difficulties in obtaining the freezing orders that he sought. However, I do not consider that the very high threshold set out above

_{has been met.}

¹² _{Bradbury v Westpac Banking Corp [2009] NZCA 234; [2009] 3 NZLR 400, (2009) 19 PRNZ 385 (CA) at [27].}

¹³ Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2010] NZCA 400, (2010) 24

_{NZTC 24,500 at [165].}

¹⁴ _{N-Tech Ltd v Abooth Ltd [2012] NZHC 1167 at [100]—[107].}

¹⁵ At [108].

[23] A failure without reasonable justification to accept an offer of settlement is also grounds for an order of increased costs under r 14.6. The reasonableness or otherwise of rejecting an offer must be assessed at the time when the offer was made rather than with the benefit of hindsight.¹⁶ In the case of a discontinued interlocutory application:¹⁷

[A]ny party seeking increased costs on the basis of the other’s failure “without reasonable justification” to accept a settlement proposal will need to establish clearly that the failure was unreasonable. More evidence than normal is required because the court does not have a definitive judgment against which to contrast the settlement offer. A court cannot assume that a discontinuance is akin to judgment for the defendant[.]

[24] This court did not have the opportunity to hear the parties’ submissions in relation to Mr Ip’s application for freezing orders. Therefore, there has not been a definitive judgment regarding the merits of that application. However, the application was discontinued after Mr Ip accepted an undertaking which was substantially similar to the undertaking offered on 28 January 2016. There is no evidence to suggest that there was any material change in circumstances between 28

January 2015 and the day of the hearing which might have affected the acceptability of that undertaking. I consider that Mr Ip’s conduct in accepting the February undertaking indicates that the terms of the undertaking were reasonable and therefore that his prior rejection of a similar (if not superior) offer was unreasonable. As a result of that rejection, the parties were put to considerable time and expense preparing for a hearing which never needed to proceed at all. Increased costs are therefore justified in respect of steps taken after 28 January 2015.

[25] The approach to determining the amount of an award of increased costs was set out by the Court of Appeal in Holdfast NZ Ltd v Selleys Pty Ltd.¹⁸ McGechan on Procedure provides the following helpful summary:¹⁹

Step 1: categorise the proceeding under r 14.3.

Step 2: work out a reasonable time for each step in the proceeding under r

_14.5.

¹⁶ New Zealand Sports Merchandising Ltd v DSL Logistics Ltd HC Auckland CIV-2009-404-5548,

_{19 August 2010 at [26].}

¹⁷ _{Holdfast NZ Ltd v Selleys Pty Ltd, above n 18, at [29].}

¹⁸ _{Holdfast NZ Ltd v Selleys Pty Ltd [2005] NZCA 302; (2005) 17 PRNZ 897 (CA) at [43]—[46].}

¹⁹ Andrew Beck and others McGechan on Procedure (looseleaf ed, Brookers) at [HR14.6.02].

Step 3: as part of the step 2 exercise a party can, under r 14.6(3)(a), apply for extra time for a particular step.

Step 4: the applicant for costs should step back and look at the costs award it could be entitled to at this point. If it considers it can argue for additional costs under r 14.6(3)(b) it should do so, but any increase above 50 per cent on the costs produced by steps 1 and 2 is unlikely, given that the daily recovery rate is two-thirds of the daily rate considered reasonably for the particular proceeding.

[26] It is not necessary for me to consider steps 1 through to 3, since both parties agreed that scale costs should be awarded on a 2B basis.

[27] Regarding step 4, counsel for Mrs Ip Chow submitted that an uplift of 50% was justified in respect of all steps taken in relation to the freezing orders application; or alternatively that scale costs should be awarded in respect of steps taken before 26 or 28 January 2016 with an uplift of 50% thereafter. As noted above, I consider that increased costs are justified in respect of the steps taken after

28 January 2016. In my view, an uplift of 30% is justified.

Costs in respect of memoranda on costs

[28] Both Mr Ip and Mrs Ip Chow submitted that an award of 2B scale costs was appropriate to reflect the time and expense required to prepare the various memoranda regarding costs. The general presumption is that an award of costs should follow the event. There is no reason to depart from that presumption in the present case and I will make orders accordingly.

Calculation of costs

[29] The total costs are calculated as follows:

Item	Step	Date	Rate 2	Time B	Scale costs	Uplift	Total costs
12	Appearances at first call	23/07/2015	$2,230.00	0.2	$446.00	-	$446.00
11	Memorandum for duty judge	29/07/2015	$2,230.00	0.4	$892.00	-	$892.00
23	Filing opposition to interlocutory	7/08/2015	$2,230.00	0.6	$1,338.00	-	$1,338.00

_Total

Conclusion and orders

[30] Mrs Ip Chow is entitled to costs in the sum of $10,258.00 and disbursements as claimed of $240.20.