Lai v Huang [2018] NZHC 1207 (25 May 2018)

Last Updated: 27 July 2018

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2016-404-1535 [2018] NZHC 1207

BETWEEN	SOPHIE LAI First Plaintiff
AND	RICHARD HUANG Second Plaintiff
AND	LIU SHUN-MEI HUANG First Defendant
AND	CHUN-CHING HUANG Second Defendant
AND	CHUN-TA HUANG Third Defendant
AND	LIU SHUN-MEI HUANG AND CHUN- CHING HUANG AS TRUSTEES OF THE SONG LIN FAMILY TRUST Fourth Defendants

Hearing:	on the papers
Appearances:	R Reed and A Manuson for the Plaintiffs J R Robertson and C Jiang for the Defendants
Judgment:	25 May 2018

RESERVED JUDGMENT OF ASSOCIATE JUDGE SMITH

[1] The plaintiffs have failed to pay costs awarded against them in this proceeding, in which they claim an interest in a farm property near Coatesville (the farm) formerly owned by Hsui Lin Huang (the Deceased). The defendants ask for an order staying the proceeding under r 7.48 of the High Court Rules, until the costs have been paid.

SOPHIE LAI v RICHARD HUANG [2018] NZHC 1207 [25 May 2018]

Background – the plaintiffs’ claims

[2] The first plaintiff is the estranged wife of the third defendant, and the plaintiff and the third defendant are the parents of the second plaintiff, Richard.

[3] The first defendant is the Deceased’s widow, and the second defendant and the third defendant are children of the Deceased.

[4] The plaintiffs say that the first plaintiff carried out certain work on the farm during the Deceased’s lifetime, and the Deceased told her and the second plaintiff that the farm would pass to the first plaintiff and the third defendant and their children. The plaintiffs say that Richard also carried out work on the farm when he became old enough to do so. They say that they and the third defendant (and Richard’s younger sister, Gini) were financially dependent on the Deceased, and that he provided for them financially from 1997 until his death.

[5] The Deceased died on 24 August 2012. After his death, the plaintiffs say they became aware that the Deceased had executed a will that made no provision for them or the third defendant. They say that on 20 December 2012 the farm was transferred to the first defendant, and she transferred the farm into the joint names of herself and the second defendant (as trustees of the Song Lin Family Trust) in March 2013.

[6] The plaintiffs plead a number of causes of action. First, they say that the Deceased, through his words or conduct, led them to believe that they had an interest in, or would inherit, the farm. They say they relied on the Deceased’s assurances, and that the fourth defendants, who are the trustees of the trust that now owns the farm, are bound by the Deceased’s conduct and statements. They seek a declaratory judgment that the farm is beneficially owned by them, and an order that the trustees of the trust transfer such shares of the farm to each of the plaintiffs as the Court may deem just.

[7] The plaintiffs also plead alternative causes of action in constructive trust and alleged breach of fiduciary duties (against the first and second defendants). There are also claims under the Law Reform (Testamentary Promises) Act 1949, the Family
Protection Act 1955, and the Trustee Act 1956, and a claim by the first plaintiff against the third defendant under the Property (Relationships) Act 1976.

[8] The defendants deny any liability to the plaintiffs.

The costs orders against the plaintiffs

[9] In a judgment given on 25 November 2016, Thomas J struck out the third and fourth causes of action then pleaded by the plaintiffs, and directed the plaintiffs to pay
$10,000 as security for the defendants’ costs, on terms set out in the judgment.¹

[10] The plaintiffs appealed against that judgment, but their appeal was dismissed by the Court of Appeal on 3 November 2017.² Costs in the Court of Appeal were awarded to the defendants in the sum of $9,665.62, and a sealed costs order was served on the plaintiffs on 17 January 2018. The defendants have since received the security which had been posted by the plaintiffs on the appeal to the Court of Appeal, but there is a balance of $2,979.75 owing on the costs awarded in the Court of Appeal.

[11] Following the Court of Appeal decision, the parties made written costs submissions on the applications which had been determined by Thomas J in this Court on 25 November 2016. Her Honour awarded costs to the defendants on a 2B basis (with certain stated exceptions) on 5 March 2018. The costs in the High Court were subsequently quantified in the sum of $18,385.53.

The conference on 27 March 2018

[12] On 27 March 2018, the case was called before me in the chambers list. In the course of the hearing, Mr Jiang for the defendants raised the issue of the (still) unpaid costs of $21,365.28. He submitted that the proceeding should be stayed until those costs have been paid.

[13] In their memorandum filed in advance of the hearing counsel for the plaintiffs had acknowledged the default in paying the costs awards, saying that the plaintiffs “do

¹ Lai & Anor v Huang & Ors [2016] NZHC 2828.

² Lai & Anor v Huang & Ors [2017] NZCA 499.

not currently have the funds to make the payments”. They submitted that it would be for the defendants to take separate steps in relation to the costs orders, and that progress of the proceeding should not be delayed on that account.

[14] I directed counsel to file memoranda on the issue of whether the proceeding should be stayed on account of the plaintiffs’ failure to pay the costs award. I said that I would deal with any stay application on the papers, and if necessary convene a telephone conference to hear from counsel. Counsel have now filed memoranda in accordance with those directions.

The defendants’ application for increased security for their costs

[15] On 6 April 2018 the defendants applied for an order directing the plaintiffs to pay an additional $30,000 by way of security for the defendants’ costs. The plaintiffs have filed a notice of opposition, in which they contend that there is no basis for the increase in security sought by the defendants. They say that the proceeding has not changed in character, and the plaintiffs’ financial circumstances have remained the same as they were when Thomas J fixed security in the sum of $10,000 on 25 November 2016.

[16] The plaintiffs say that the first plaintiff is earning a low but stable income and that they would be able to pay any adverse costs order over a period of time. They also alleged that their financial constraints have been caused by the defendants since this proceeding started.

[17] The plaintiffs have been endeavouring to find a lawyer to take their case on legal aid, but (as at 20 April 2018) they had not been successful in those endeavours.

[18] In an affidavit sworn on 18 April 2018, the first plaintiff said that she would be unable to pay the additional security for costs sought by the plaintiffs within the times proposed by the defendants ($15,000 within 10 working days of the Court’s decision on the application, and a further $15,000 by the close of pleadings date – now fixed at 9 November 2018).

Joint memorandum and orders made on 17 May 2018

[19] The defendants’ application for additional security for their costs was set down for hearing on 11 June 2018. Also for hearing on that date were interlocutory applications by the plaintiffs for an order joining Ms Gini Huang as a third plaintiff (and if necessary appointing a litigation guardian to act for her), and for an order removing the fourth defendants as trustees of the Song Lin family trust.

[20] By joint memorandum dated 16 May 2018 counsel asked for an order vacating the fixture scheduled for 11 June 2018 and allocating a new hearing date for the defendants’ additional security for costs application and any further and better discovery applications, after 16 August 2018. The memorandum also advised that, as the plaintiffs were transitioning to counsel who provides legal aid services, the $5,000 so far paid by the plaintiffs as security pursuant to the orders made by Thomas J on 25 November 2016 could be paid out to the defendants on account of the outstanding costs.

[21] On 17 May 2018 Wylie J made orders by consent vacating the fixture for 11 June 2018 and directing the payment out to the defendants of the $5,000 paid as security by the plaintiffs. His Honour also directed, again by consent, that the deadline for the parties to file any applications for further and better discovery be extended to 22 June 2018, and that any such applications were to be heard with the defendants’ application for increased security for costs and the plaintiffs’ applications to join Gini Huang as a party and to remove the fourth defendants as trustees of the Song Lin family trust (if the applications by the plaintiffs have not earlier been stayed by the Court).

Affidavit of the first plaintiff

[22] In her affidavit of 20 April 2018, the first plaintiff set out details of her current financial status. She earns $690 per week from three different sources, and from that income she supports herself and her two children. She acknowledged that she is unable to pay the balance of the outstanding costs orders, but said she anticipated she could pay them off at the rate of $80 per week.
[23] The first plaintiff said she had been gathering funds to pay the Court of Appeal costs of $2,979.75, and had recently paid that sum into her solicitor’s trust account. However $1,600 of that sum had to be spent on a Court scheduling fee. An application was later made to have the scheduling fee remitted, and the $1,600 refunded, and that application was successful. The scheduling fee was remitted by the Registrar on 26 April 2018.

The plaintiffs’ submissions opposing the stay

[24] Ms Reed and Ms Manuson submit that the plaintiffs have not been wilfully refusing to pay the costs. Rather, they have limited financial means, and there is a genuine inability to pay the costs. The second plaintiff was a minor at the time the dispute arose, and he is currently a university student. The first plaintiff is a single mother who has not yet received her share in the relationship property owned by herself and/or the third defendant. They submit that the plaintiffs would be able to pay the costs over a period of time, or by instalments, and that this should be a matter for negotiation between the plaintiffs and the defendants, or for further direction from the Court. However, the failure to pay does not call for the effective punishment of the plaintiffs by ordering a stay of the proceeding.

[25] Ms Reed and Ms Manuson refer to the decision of Fisher J in Smith v Antons Trawling Company Limited, in which His Honour considered that the following matters will be relevant to the Court’s discretion to enforce non-compliance with an interlocutory order:³

(a) The duration of the non-compliance;

(b) Its impact on the progress of the proceeding as a whole;

(c) Whether there is an excuse or explanation;

³ Smith v Antons Trawling Company Limited HC Auckland CL 40/98, 24 March 2000 at [5].

(d) Whether the non-compliance continued after reasonable opportunities and reminders, particularly where the Court has already made a fresh order, or given a warning due to earlier non-compliance;

(e) Whether the non-compliance has substantially prejudiced the innocent party, whether procedurally or due to some wider impact upon the innocent party’s interests and affairs;

(f) Whether there is any realistic expectation that it will be rectified following further opportunity for compliance.

[26] As to the duration of the non-compliance, the plaintiffs say that the sealed order for costs of $18,385.53 in this Court was not served until 23 March 2018, and that was the first time the plaintiff became aware of the quantum of those costs. Ms Reed and Ms Manuson submit that it would be premature to consider any enforcement order in respect of non-payment of costs that were notified to the plaintiffs only one working day before the 27 March 2018 conference.

[27] Ms Reed and Ms Manuson further submit that the costs orders are independent from the progress of the proceeding, and should not interfere with it. The effect of staying the proceeding pending payment of the costs would only be to punish the plaintiffs; it would not ensure that justice is done in the substantive proceeding. In that context, they refer to what they describe as a benevolent approach adopted by the New Zealand Courts on non-compliance with costs orders.⁴ They submit that the plaintiffs’ right to a judgment on the merits weighs heavily against any stay of the proceeding.

[28] In their 6 April 2018 written submissions, Ms Reed and Ms Manuson submitted that the failure to pay the costs is sufficiently explained by the plaintiffs’ genuine inability to pay. They also submitted that they had not had sufficient opportunity to consider their clients’ financial position, or negotiate with the defendants about how payment may be made over a period of time, since they became aware on 23 March

4. Referring to Patel v Patel [2014] NZHC 2410 at [12], Parlane v Hayes [2015] NZCA 341 at [31], and Lees Trading Co NZ Ltd v Loveday HC Christchurch CP 70/96, 3 June 1998 at [11].

2018 of the costs order made in this Court. They said that no reminders or demands were made in relation to the costs issue before the 27 March 2018 conference.

[29] Ms Reed and Ms Manuson submit that the non-compliance does not prejudice the defendants, beyond the kind of prejudice that would fall into the category of ordinary litigation risk. The defendants have so far managed that risk by applying for and obtaining an order for security for costs, and it is within the security for costs framework that the necessary balancing of interests (plaintiffs’ interest in access to justice, versus the defendant’s interest in being protected from the plaintiffs’ inability to meet any costs orders made against them) should be determined. They submit that the balancing exercise was carried out by Thomas J in her judgment on the security for costs application, and it would now be double-jeopardy for the plaintiffs, having complied with the security for costs order, to then have the proceeding stayed for non- payment of costs subsequently awarded.

[30] Ms Reed and Ms Manuson submit that the plaintiffs do intend to comply with the costs orders, and that an opportunity should be given to them to do so over a period of time. If they are successful in the proceeding, they will have the funds to meet the costs awards.

The defendants’ submissions

[31] The defendants rely on r 7.48 of the High Court Rules 2016. That rule materially provides:

7.48 Enforcement of interlocutory order

(1) If a party (the party in default) fails to comply with an interlocutory order or any requirement imposed by or under subpart 1 of Part 7 (case management), a Judge may, subject to any express provision of these rules, make any order that the Judge thinks just.

(2) The Judge may, for example, order—

(a) that any pleading of the party in default be struck out in whole or in part:

...

(c) that the proceeding be stayed in whole or in part:

...

[32] Costs orders fall within the ambit of interlocutory orders for which enforcement orders may be sought.⁵

[33] In their submissions, Ms Robertson and Mr Jiang addressed each of the factors considered by Fisher J in Smith v Antons Trawling Company Limited. On the duration of the plaintiffs’ default, they note that the Court of Appeal costs order was served on 17 January 2018, and that the plaintiffs have failed to pay the balance of $2,979.75 in the period of approximately three months since then. Nor had any proposal relating to the High Court costs order served on 23 March 2018 been received by the time Ms Robertson and Mr Jiang made their submissions in support of the defendants’ stay application on 11 April 2018.

[34] Ms Robertson and Mr Jiang submit that the plaintiffs’ failure to meet costs orders has had a significant effect on the proceeding as a whole. Their clients have themselves incurred significant legal costs defending what they regard as a baseless claim, and they are now faced with a purported interlocutory application by the plaintiffs to remove the fourth defendants as trustees, which is not in truth an interlocutory application (because the relief sought is the same as part of the substantive relief sought in the plaintiffs’ amended statement of claim). They submit that the defendants are in effect being forced to defend unjustified litigation, with no recovery of their costs.

[35] Ms Robertson and Mr Jiang submit that there is no excuse for the plaintiffs’ defaults, and that the plaintiffs’ claim of impecuniosity sits uncomfortably with the fact that they have been instructing solicitors throughout the proceeding, and have not applied for legal aid. They also express concern that, given the extensive delays to date, the plaintiffs’ lack of explanation for the non-compliance, and the alleged impecuniosity, the breaches might not be rectified as the plaintiffs say they will be.

[36] On the question of the Court’s alleged benevolent approach to non-compliance, Ms Robertson and Mr Jiang submit that the Court’s benevolence should not be

⁵ Kidd v van Heeren HC Auckland CIV-2004-404-6352, 16 November 2006 at [17] and [18].

exploited. They note that while in Smith v Antons Trawling Company Limited Fisher J noted that cases should not be dismissed lightly on purely or technical procedural grounds, His Honour did say that there comes a point at which the victim of procedural default is entitled to justice too, and effective case management rests upon credible procedural directions which the Courts will enforce where necessary.⁶

[37] Ms Robertson and Mr Jiang note that the defendants are not presently seeking a dismissal of the proceeding. They are asking only for a stay of the proceeding, including the plaintiffs’ interlocutory applications, until the significant outstanding costs orders have been complied with.

Discussion and conclusions

[38] I accept that there is jurisdiction under r 7.48 to make the stay order sought by the defendants, including in respect of the plaintiffs’ failure to pay the costs awarded against them in the Court of Appeal. That is clear from the judgment of Cooper J in Kidd v van Heeren, where His Honour considered that the forerunner of r 7.48 (r 258(1)) authorised any order the Court thinks just on a party’s failure to comply with an interlocutory order, and that a costs judgment made on an interlocutory application is an “interlocutory order” for the purposes of the rule.⁷ His Honour considered that the powers given by [the forerunner of] r 7.48 were wide-ranging and had teeth, and that reflected the importance of interlocutory orders for the just and efficient determination of proceedings before the Court.⁸ On the question of the enforcement of costs orders made by the Court of Appeal on appeals from interlocutory orders made in this Court, His Honour referred to s 63 of the Judicature Act 1908, which provides that all orders of the Court of Appeal may be enforced by the High Court as if they had been made or given by that Court. A corresponding provision now appears in s 58 of the Senior Courts Act 2016. His Honour concluded that it was “plain” that an order for costs made by the Court of Appeal could be enforced under [the forerunner of] r 7.48.⁹

⁶ Smith v Antons Trawling Company Limited, above n 3 at [3].

⁷ Kidd v van Heeren, above n 5, at [16] and [17].

⁸ At [19].

⁹ At [20].

[39] The issue, then, is whether I should exercise my discretion to grant an immediate stay of the proceeding. I do not consider that I should, although I am of the view that the question of stay or no stay should be reviewed when the defendants’ application for increased security for costs is heard, and that the application for an order removing the fourth defendants as trustees of the Song Lin family trust should be adjourned for hearing after the defendants’ application for increased security has been heard and determined.

[40] The first and most obvious point on the immediate stay issue is that the plaintiffs simply cannot pay, at least unless they are allowed to do so by instalments over time. This is not a case where the plaintiffs have acted in contempt of the costs orders. Nor is the duration of the default particularly egregious given the plaintiffs’ financial position as described above, especially if the Court of Appeal costs can now be paid. The costs in the High Court sere not quantified until 5 March 2018, and the quantified amount was not notified to the plaintiffs until 23 March 2018.

[41] In addition to those factors, the defendants have now (or will soon) receive
$5,000 on account of the outstanding costs under the order made by Wylie J on 17 May 2018. And it appears that the plaintiffs could immediately start paying up to $80 per week on account of the outstanding costs.

[42] All of the foregoing factors point against the grant of an immediate order staying the whole proceeding. So do the following factors.

[43] In setting security in the sum of only $10,000 for the entire proceeding, it must have been clear to Thomas J that if the plaintiffs were completely unsuccessful the defendants might be awarded costs well in excess of the amount fixed as security. Her Honour was clearly doing her best to balance the competing interests, allowing the plaintiffs to have their claims heard on the one hand, and doing what appeared to be reasonably possible to protect the defendants against the risk of being unable to enforce any costs award if they succeeded at trial on the other. To that extent, the possibility of the defendants being unable to recover costs awarded to them has already been “factored in” on the security for costs application, with the proceeding to continue to trial notwithstanding that possibility.
[44] The application for increased security is now to be heard some time after 16 August 2018, and it seems to me that, with the exception of the application for an order removing the fourth defendants as trustees of the Song Lin family trust, the various interlocutory applications should proceed to a hearing, with the defendants’ stay application adjourned for hearing with those applications. If that approach is taken, the competing interests can be properly balanced in the appropriate context.

[45] The last factor pointing against an immediate stay order is the possibility that the plaintiffs may be granted legal aid for the proceeding – while that has not yet occurred, if a grant of legal aid is made, s 45 of the Legal Services Act 2011 would preclude any further costs orders against the plaintiffs, unless the defendants can establish exceptional circumstances.¹⁰

[46] I think the interlocutory application to remove the fourth defendants as trustees, filed on 21 March 2018, is in a different category. It asks for orders removing the fourth defendants as trustees and replacing them with Guardian Trust, “until further orders of the Court”. The grounds relied upon are that the fourth defendants have allegedly allowed construction waste products to be dumped on the farm, and failed to account to the trust for funds received by them for the use of the farm for dumping the waste. Further, they are said to have omitted to carry out any maintenance on the farm, including failing to action necessary repairs to the house on the farm. The fourth defendants are also said to have neglected their duties in other respects relating to the farm, and have failed to realise the potential capabilities of the farm. Finally, the fourth defendants are said to have conflicting interests. They want to sell the farm, and are unwilling to apply the funds of the trust to what the plaintiffs say is necessary maintenance or development of the farm.

[47] The plaintiffs say they are discretionary beneficiaries of the trust and on that basis have a direct interest in the farm. They have placed a caveat on the title to the farm to prevent it being sold by the fourth defendants.

[48] An affidavit affirmed in support of the trustees removal application by the second plaintiff contends that the dumping of clay and waste on the farm commenced

¹⁰ Legal Services Act 2011, s 45(2)

(at least) in early 2016. It is said to have continued into and throughout 2017. The second plaintiff says that a portion of the farm became used as a landfill, and is no longer suitable for farming. There is said to have been an adverse effect on the drinking water at the farm, and a strawberry growing operation on part of the farm leased to a strawberry grower is also said to have been adversely affected – clay dumped on the farm adjacent to the strawberry growing area is said to have caused flood waters from the landfill to be absorbed into the strawberry farm area.

[49] The second plaintiff also asserted in his affidavit that the fourth defendants have not obtained the consent of the Auckland Council to the use of the farm for landfill purposes.

[50] The relief now sought in the interlocutory application is essentially the same as that sought by the plaintiffs in their fifth cause of action in their amended statement of claim dated 26 February 2018. The grounds for the relief sought are also substantially the same – alleged neglect of the farm by the fourth defendants, and use of the farm in a manner which decreases the fertility and value of the farm.

[51] In my view the fourth defendants should not be required to expend further resources defending this interlocutory application, until a decision has been made on the application for increased security for costs. In coming to that view I note first that this is not a new issue – the subject of the complaint goes back as far as early 2016 – and I have nothing before me to suggest that the position is likely to be significantly worsened if the other interlocutory applications are dealt with first. Secondly, it seems to me that the defendants are likely to be required to spend substantial time and money opposing this particular application, particularly as the relief sought appears to be the same as that sought in the substantive proceeding, will require evidence on a broad range of matters covering a lengthy period, and could turn out to be, in effect, a final order (if circumstances justify the appointment of Guardian Trust on an interim basis, it may be very difficult for the fourth defendants to establish at trial that the interim appointment should be overturned, and that they should be reinstated as trustees). Thirdly, if there has been an unlawful use of the land for landfill purposes, the plaintiffs probably have other means of redress, in the form of a complaint to the Auckland
Council, or to any other local authority having jurisdiction over Resource Management Act issues affecting the farm.

[52] I think the justice of the case will be met if I vacate the various timetable orders made insofar as they relate to the interlocutory application for orders removing the fourth defendants as trustees of the Song Lin family trust, and direct that that application is to be heard and determined (subject to any stay orders that might be made when the application for increased security for costs is heard and determined) after the determination of the other pending interlocutory applications (including any discovery applications that may have been filed). There will be orders accordingly.

Result

[53] I make the following orders:

(a) Adjourning the plaintiffs’ application dated 21 March 2018 for orders removing the fourth defendants as trustees of the Song Lin family trust, for hearing after the hearing and determination of the defendants’ application for increased security for their costs (subject to any stay order that might be made at the time of the determination of the increased security application, whether on that application or on the defendants’ application for a stay of the proceeding under s 7.48). The timetable directions made by Wylie J on 17 May 2018 are vacated to the extent they relate to the trustees removal application.

(b) Declining the defendants’ application for an immediate stay of the proceeding under r 7.48, and adjourning that application for hearing with the interlocutory applications for increased security for costs, joinder of Gini Huang as a plaintiff, and any discovery applications.

(c) As a condition of the adjournment of the s 7.48 application at order (b) above, the plaintiffs are to pay to the defendants, on account of their liability for the outstanding costs, the sum of $2,979.75. That payment is additional to the payment out to the defendants of the $5,000 security
for costs ordered by Wylie J on 17 May 2018, and it is to be made within 15 working days of the delivery of this judgment.

(d) I make no order at this stage directing the plaintiffs to make additional (weekly) payments on account of their liability for the outstanding costs, but their failure to make those payments may be a matter taken into account on the hearing of the increased security for costs application and the adjourned r 7.48 stay application.

(e) Costs on the defendants’ r 7.48 stay application are reserved, to be dealt with when the application is finally determined.














Associate Judge Smith

Solicitors:

Prestige Lawyers, Auckland for the Plaintiffs Glaister Ennor, Auckland for the Defendants