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Indemnity costs for interested party caught in tailwind of theft

5 May 2023

| Author: Nadia Sussman

Indemnity costs awarded to interested party – High Court Rules 2016, r 14.6(4)(a),(d) and (f) –  charging and sale order obtained over property in which debtor had no beneficial interest –

New World (New Zealand) Ltd v Zhang [2023] NZHC 854  (Peters J)

Qian Zhang and Shaojun Wang purchased a property together in 2016.  Each had a beneficial interest in the property, but Zhang was the sole registered proprietor. The following year, the two agreed that Wang would buy Zhang out and proceed to meet all outgoings, including principal repayments and interest due on ASB’s loan to Zhang for the purchase.  Their respective solicitors documented this agreement in a deed, executed on 10 November 2017. Wang promptly lodged a caveat against the property.

The following month, Wang was served with a freezing order obtained in an attempt to restrain Zhang’s assets.  It included the property. Zhang had, by this time, become a defendant in a District Court proceeding, in which her former employer, New World, sought to recover an allegedly stolen sum.

Wang’s solicitors, Carter Atmore, wrote numerous letters to New World’s solicitors, K3 Legal, advising that Zhang had transferred her beneficial interest in the property and that it should not be subject to the freezing order. They also provided an extensive supporting affidavit from Wang.  K3 Legal maintained that Zhang retained a beneficial interest in the property, even after Wang and ASB provided further disclosure.

New World eventually obtained judgment against Zhang in October 2020. It thereafter obtained a charging order in the District Court over the property. The judgment and charging order were removed to the High Court in November 2020.

In December 2020, New World applied for an order for the sale of the property. K3 Legal ignored a further letter from Carter Atmore.  New World obtained the order shortly before Christmas.

Wang applied to the High Court in February 2021 for an order excluding the property from the charging order. She was successful. The judgment was upheld on appeal. She accordingly sought indemnity costs in the High Court and District Court under rr 14.6(4)(a), (d) and (f).

Applicable principles – removal of a judgment and charging order is not a transferred proceeding in the sense of s 96 of the District Court Act 2016 – the court may order a party to pay indemnity costs if the person in whose favour the costs order is made was not a party to the proceeding and has acted reasonably in relation to it, r 14.6(4)(d) – the court may order a party to pay indemnity costs if the party has acted improperly or unnecessarily in commencing or continuing a proceeding, r 14.6(4)(a) – it is improper to obtain a charging order and order for sale in respect of an asset in which the debtor has no beneficial interest.

Held: The High Court had no jurisdiction to determine costs in the District Court. However, indemnity costs were awarded in the High Court under rr 14.6(4)(a) and (f). From May 2018, New World had all the information required to evaluate Wang’s claim that Zhang had ceased to have a beneficial interest in the property on 10 November 2017. New World failed to consider this information and left Wang no option but to pay for legal representation and apply to the High Court.

Rule 14.6(4)(d) is not applicable as Wang became a party to the proceeding when she applied to the High Court for relief (r 17.45).

Nadia Sussman is a senior tutor and research assistant at the University of Auckland Faculty of Law

New World (NZ) Ltd v Zhang [2023] NZHC 854

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