AAM Limited v Exotica Enterprise Limited

[2019] NZHC 1807

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2016-404-2850

[2019] NZHC 1807

BETWEEN

AAM LIMITED

First Plaintiff

MUMTAJ YUNUS AGARBATTIWALA
Second Plaintiff

AND

EXOTICA ENTERPRISE LIMITED

First Defendant

DARIUS KARANI
Second Defendant

MANUKA MASTERS LIMITED

Third Defendant

Hearing:	On the papers
Appearances:	F Pereira for First Plaintiff Second Plaintiff in person L Ponniah for Defendants
Judgment:	30 July 2019

JUDGMENT OF LANG J

[on costs]

This judgment was delivered by me on 30 July 2019 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date……………

AAM LTD v EXOTICA ENTERPRISE LTD (No 3) [2019] NZHC 1807 [30 July 2019]

[1]    In this proceeding the plaintiffs sued the defendants in relation to issues arising out of the purchase by the first plaintiff, AAM Ltd, of a business owned by the first defendant, Exotica Enterprise Ltd.  The plaintiffs alleged Exotica and its director,  Mr Karani, were responsible for pre-contractual misrepresentation, misleading and deceptive conduct under the Fair Trading Act 1986 (FTA) and breach of contractual terms. Both parties also advanced claims seeking recovery of amounts owed for goods supplied to each other but not paid for.

[2]    In a judgment delivered on 28 June 2019, I upheld AAM’s claim based on the breach by Exotica of a turnover warranty contained in the agreement for sale and purchase of the business.1 I also upheld claims by both AAM and Exotica seeking recovery of amounts outstanding for goods supplied but not paid for.

[3]    The parties have been unable to reach agreement regarding the issue of costs. I am therefore required to determine that issue based on the memoranda they have filed.

[4]    In his reply memorandum Mr Pereira for AAM refers to issues that arose in a mediation apparently attended by the parties in in August 2016. He should not have done so because that did not form part of the evidence at trial. Furthermore, the parties to most mediations agree that all matters discussed at the mediation are confidential and I have no reason to think this particular mediation was any different. I therefore put those matters to one side when considering the issue of costs.

Approach

[5]    Although costs are at the discretion of the Court,2 the Court is guided in the exercise of that discretion by the principles set out in r 14.2 of the High Court Rules 2016. To the forefront of these is the principle that the party who fails with respect to a proceeding shall pay the costs of the party who succeeds.3

1      AAM Ltd v Exotica Enterprise Ltd [2019] NZHC 1482.

2      High Court Rules 2016, r 14.1.

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

[6]    In assessing who should pay costs the courts regard limited success as still being success.4 For that reason costs will not generally be awarded against a claimant who has not succeeded wholly in its claims. Instead, and where appropriate, the costs awarded to the successful party may be reduced to reflect partial success or costs may be directed to lie where they fall.

[7]    Rule 14.7 of the High Court Rules 2016 provides for situations in which the Court may reduce the costs otherwise payable to a successful party as follows:

14.7Refusal of, or reduction in, costs

Despite rules 14.2 to 14.5, the court may refuse to make an order for costs or may reduce the costs otherwise payable under those rules if—

(a)the nature of the proceeding or the step in a proceeding is such that the time required by the party claiming costs would be substantially less than the time allocated under band A; or

(b)the property or interests at stake in the proceeding were of exceptionally low value; or

(c)the issues at stake were of little significance; or

(d)although the party claiming costs has succeeded overall, that party has failed in relation to a cause of action or issue which significantly increased the costs of the party opposing costs; or

(e)the proceeding concerned a matter of public interest, and the party opposing costs acted reasonably in the conduct of the proceeding; or

(f)the party claiming costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—

(i)      failing to comply with these rules or a direction of the court; or

(ii)      taking or pursuing an unnecessary step or an argument that lacks merit; or

(iii)      failing, without reasonable justification, to admit facts, evidence, or documents, or accept a legal argument; or

(iv)     failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or other similar requirement under these rules; or

4      Water Guard NZ Ltd v Midgen Enterprises Ltd [2017] NZCA 36; Weaver v Auckland Council

[2017] NZCA 330.

(v)       failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding; or

(g)some other reason exists which justifies the court refusing costs or reducing costs despite the principle that the determination of costs should be predictable and expeditious.

The arguments

[8]    AAM considers it was the successful party overall because it established the breach of the turnover warranty and also obtained judgment for the sums owing in relation to goods supplied to Exotica but not paid for.

[9]    Exotica and Mr Karani contend they were the successful parties overall because they succeeded in defending the remainder of the plaintiffs’ claims. Exotica also contends it effectively succeeded in proving its counterclaim for the balance of the purchase price owing under the agreement for sale and purchase.

[10]   The third defendant, Manuka Masters Ltd, argues it should be entitled to full costs against the plaintiffs because the plaintiffs’ claims against it failed completely.

[11]   The fact that all parties purport to claim overall success means it is appropriate to examine the findings made in the judgment in greater detail.

The judgment in greater detail

[12]   I found that Exotica overstated the warranted turnover of the business by approximately $500,000.5    I held that AAM was entitled to damages in the sum of

$150,000 by way of remedy for the breach.6  This reflected the fact that AAM had paid

$150,000 too much for the business it acquired from Exotica. I therefore held that AAM was not required to pay the sum of $125,000 that remained owing to Exotica under the  agreement  for  sale and purchase.7  I then awarded AAM  damages  in  the

5      AAM Ltd v Exotica Enterprise Ltd, above n 1, at [100].

6 At [138].

7 At [139].

sum of $25,000 to reflect the balance owing in relation to the breach of the turnover warranty.8

[13]   In addition, I held that AAM was entitled to judgment against Exotica in the sums of $6,164 and $6,904.50 respectively under the fourth and fifth causes of action for goods supplied to Exotica but not paid for.9

[14]   Exotica likewise succeeded in its counterclaim for the sum of $23,003.90, being the balance owing by AAM for goods supplied to it by Exotica but not paid for.10

[15]   The only claim against Manuka Masters Ltd was that contained in the third cause of action. This contained allegations that Manuka Masters and Exotica had engaged in misleading and deceptive conduct in terms of the FTA through the manner in which they operated their websites after AAM acquired the business from Exotica. I found against the plaintiffs on this cause of action.11 As a result, I accept that they failed completely in their only claim against Manuka Masters.

Who was the successful party overall?

[16]   I consider AAM to have been the successful party overall as between AAM and Exotica because AAM succeeded in establishing the claim based on breach of the turnover warranty. Exotica had no defence to this claim because it acknowledged during the trial that the warranted turnover of the business was significantly overstated. Furthermore, I do not accept Exotica’s argument that this resulted in AAM receiving nominal damages because damages were assessed at $150,0000. The fact that AAM succeeded in relation to this claim also meant the major component of Exotica’s counterclaim, which related to the balance owing under the agreement for sale and purchase, could not succeed. Exotica’s success in recovering the amount owing for goods supplied but not paid for does not alter my conclusion that AAM was the successful party overall. It follows that AAM is entitled to costs from Exotica. It

8 At [139].

9      At [154] and [186].

10     At [192]-[193].

11 At [144].

is not entitled to costs against Mr Karani because none of the causes of action against him succeeded.

[17]   Manuka Masters was obviously the successful party in relation to the sole claim against it.

Should the award of costs be reduced?

[18]   The real issue so far as costs are concerned relates to whether the costs payable by Exotica should be reduced to reflect several factors relied upon by the defendants. The only factors set out in r 14.7 that could apply in the present case are those contained in r 14.7 (d), (f)(ii) and (g).12

Level of success in defending the claims

Exotica

[19]   The principal focus at trial was on the plaintiffs’ allegation that Exotica had agreed to sell the whole of its business other than its manufacturing operation. The plaintiffs contended that Exotica agreed to sell its export and wholesale businesses and not just the retail store conducted from the Botany premises.

[20]    I rejected this aspect of the plaintiffs’ claim and held that the sale agreement related only to Exotica’s retail business, along with an exclusive right to sell Exotica’s products domestically and by way of export to India.13 In addition, I rejected other claims based on alleged misrepresentations as to the scope and nature of products sold by Exotica,14 the assignment of distribution rights and continuity of supply15 and the tangible assets owned by the business.16 Furthermore, I rejected the claim under the third cause of action, which contained an allegation that Exotica and Manuka Masters operated their websites so as to engage in misleading and deceptive conduct under the FTA.17

12 Set out above at [7].

13     AAM Ltd v Exotica Enterprise Ltd, above n 1, at [45].

14 At [54].

15 At [68].

16     At [95]-[99].

17 At [144].

[21]   Of the claims I was ultimately required to decide, I consider the only one that needs to be recognised for costs purposes is that relating to the scope of the business being sold. This occupied a significant portion of the pleadings, evidence and submissions. It was the plaintiffs’ principal claim and they failed to establish it. I consider the costs to be awarded to AAM should be reduced to reflect this factor.

[22]   The earlier versions of the statement of claim also contained causes of action based on alleged breaches by Exotica and Mr Karani of a restraint of trade provision in the agreement for sale and purchase of the business. This prohibited Exotica and Mr Karani from being involved in any business similar to that which Exotica was selling for a period of three years. This issue was the subject of considerable detailed evidence from both parties and significant evidence and cross-examination at trial. Ultimately, however, the plaintiffs abandoned this cause of action when they filed their final statement of claim at the conclusion of the trial. The defendants were therefore clearly the successful party in relation to this important issue and I consider it requires recognition in the context of costs.

Manuka Masters

[23]   Manuka Masters achieved complete success in defending the claim against it. Mr Ponniah submits that it should receive a full award of costs to reflect this fact. This submission fails to take account of r 14.15, which provides:

14.15   Defendants defending separately

The court must not allow more than 1 set of costs, unless it appears to the court that there is good reason to do so, if—

(a)several defendants defended a proceeding separately; and

(b)it appears to the court that all or some of them could have joined in their defence.

[24]   Manuka Masters has been represented throughout by the same counsel who represented the remaining defendants. In addition, both Exotica and Manuka Masters were subject to the claim under the FTA and for essentially the same reasons. There would therefore have been no justification for Manuka Masters being separately represented. Furthermore, the evidence relating to this particular claim was minimal.

It comprised images taken from Manuka Masters’ website depicting the premises from which Exotica and AAM carried on business. Mr Karani’s explanation for this and the submissions advanced in relation to it were but a tiny part of the overall case. There is therefore no justification for Manuka Masters receiving a separate award of costs. The fact that it succeeded completely is, however, a matter I can take into account when assessing the costs Exotica should pay to AAM.

[25]   Taking these factors into account I consider the level of success achieved by the three defendants warrants a global deduction of 25 per cent from the costs otherwise payable by Exotica.

The manner in which the plaintiffs conducted the proceeding

[26]   The defendants contend that the manner in which the plaintiffs conducted the proceeding from the outset should reduce any award of costs they might receive. They say the plaintiffs have contributed unnecessarily to the cost of the proceeding, and the costs the defendants have therefore been required to incur have increased unnecessarily.

[27]   A review of the file reveals that Ms Agarbattiwala, AAM’s director and shareholder, has been largely responsible from the outset for the conduct of the proceeding. Mr Blanchard QC appeared for the plaintiffs at a hearing before the Associate Judge on 8 December 2017 in relation to an application for particular discovery. Thereafter, however, AAM was unrepresented and Ms Agarbattiwala represented herself.

[28]   This led to difficulties from an early stage. On 16 April 2018 Associate Judge Bell vacated a four day substantive fixture that had been set down for 11 June 2018.18 This occurred after the defendants successfully applied for further discovery and particulars from the plaintiffs. They were unsuccessful in an application for security for costs. The Associate Judge observed that the deficiencies in the plaintiffs’ discovery and pleadings ought to have been apparent since early 2017. He also pointed out that the defendants had delayed making their application for security. He reduced

18     AAM Ltd v Exotica Ltd [2018] NZHC 717.

the costs awarded against the plaintiffs by 25 per cent to reflect these factors. I therefore consider this event to be a neutral factor so far as costs in the present context are concerned.

[29]   On 13 June  2018  Associate  Judge  Smith  dismissed  an  application  by  Ms Agarbattiwala for an order that she be permitted to represent AAM in the proceeding.19 The application was determined on the papers and without the defendants being required to respond to it. It is therefore of no consequence for present purposes.

[30]   Mr Pereira first appeared as counsel for AAM at a conference held before Associate Judge Osborne on 14 June 2018. The conference was convened to address the plaintiffs’ non-compliance with the orders Associate Judge Bell made on 16 April 2018 for the provision of further discovery and particulars. In a Minute issued subsequently Associate Judge Osborne observed that he had spent a considerable amount of time at  the  conference  working  through  and  explaining  matters  to  Ms Agarbattiwala that would not need to be raised with counsel.20 He therefore suggested that Ms Agarbattiwala should consider instructing Mr Pereira to represent both herself  and  AAM.  The  Associate  Judge  also  pointed  out  that,  although Ms Agarbattiwala was entitled to represent herself, this was likely to lead to further delays and could result in further orders for wasted costs being made against her.

[31]Associate Judge Osborne awarded costs to the defendants in the sum of

$780.50 to reflect the needless expense they had incurred in being required to attend the conference. This clearly shows Ms Agarbattiwala was struggling to meet the requirements imposed by the Court’s directions. Her conduct was marked by an award of costs in favour of the defendants at the time, however, and I do not consider it warrants further recognition at this point.

[32]   A further hearing was held on 5 November 2018 to address allegations by the plaintiffs that Mr Karani had committed perjury in swearing the defendants’ affidavit

19     AAM Ltd v Exotica Enterprise Ltd [2018] NZHC 1399.

20     AAM Ltd v Exotica Enterprise Ltd HC Auckland CIV 2016-404-2850, Minute of Associate Judge Osborne dated 18 June 2018 at [3].

of documents. Associate Judge Bell rejected this assertion but directed the defendants to provide further and better discovery.21 The Associate Judge observed that Ms Agarbattiwala had “largely driven” the application before him.22 In subsequently fixing costs, the Associate Judge reduced the costs that would otherwise have been payable by 50 per cent to reflect the fact that Ms Agarbattiwala had played a greater part than Mr Pereira in preparing for and advancing argument at the hearing.23 That approach is relevant to another issue considered later in this judgment,24 but it does not support the defendants’ argument that Ms Agarbattiwala’s conduct of the proceeding justifies a reduction in the costs to be awarded against Exotica.

[33]   It follows that I do not consider the manner in which the plaintiffs managed the interlocutory stages of the proceeding warrants any reduction of the costs payable to AAM as the successful party.

[34]   I accept, however, that the plaintiffs’ pleadings have caused significant difficulties for the defendants throughout. The unsatisfactory nature of the statement of claim led, for example, to the vacation of the original trial scheduled for 11 June 2018. Furthermore, by the commencement of the hearing on 29 April 2019 the plaintiffs were proceeding on the basis of a statement of claim containing no fewer than 14 causes of action.25

[35]   This meant the defendants were required to respond at trial to extremely wide- ranging allegations. As a result, Mr Karani’s brief of evidence ran to 51 pages and comprised 292 paragraphs. He was also required to give evidence for a far longer period than ought to have been the case. I therefore accept that the prolix and discursive nature of the allegations contained in the statement of claim caused the defendants unnecessary expense.

21     AAM Ltd v Exotica Enterprise Ltd (No 2 ) [2018] NZHC 3031 at [36].

22 At [3].

23     AAM v Exotica Enterprise Ltd HC Auckland CIV 2016-404-2850 (Costs Minute of Associate Judge Bell), 13 February 2019), at [9].

24     At [39]-[42]

25     Although counsel for the defendants had received this document there was no record of the statement of claim having been filed in the Registry.

[36]   During the trial I suggested to Mr Pereira that the plaintiffs should consider rationalising the statement of claim to remove claims that were clearly unmeritorious and to focus on those claims having merit. This led to the plaintiffs filing a further amended statement of claim on 6 May 2019 after the evidence had concluded but before closing submissions were delivered.

[37]   The new statement of claim contained five causes of action. The first alleged pre-contractual misrepresentation, the second alleged breach of the turnover warranty, the third alleged misleading or deceptive conduct under the FTA and the remaining two causes of action comprised claims to recover the cost of goods supplied to Exotica for which payment had not been made. As will already be apparent, AAM succeeded in establishing the second, fourth and fifth causes of action but not the first and third.

[38]   Ms Agarbattiwala was also responsible for compiling the bundles of documents relied on at trial. This produced difficulties as well because the documents contained in the bundles were in no discernible order, and many were never referred to at trial.

[39]   Overall, however, I do not consider there is justification for reducing the costs payable to AAM to reflect the manner in which Ms Agarbattiwala conducted the case on its behalf. The trial may have taken slightly longer than it should have, and the bundles of documents included far too many irrelevant documents. I also accept the defendants undoubtedly struggled with the breadth of the plaintiffs’ claims and the manner in which they were pleaded. I do not consider those factors alone, however, are sufficient to justify a reduction in the costs that would otherwise be payable to AAM as the successful party.

Ms Agarbattiwala’s involvement

[40]   This issue arises because, as will probably already be apparent, I am satisfied Ms Agarbattiwala was responsible throughout for the management and conduct of the proceeding. She drafted the pleadings, the evidence, the bundles of documents and virtually all of the plaintiffs’ submissions. Although Mr Pereira nominally appeared as counsel for AAM from June 2018 he played a minimal role and asked very few

questions at trial. Ms Agarbattiwala clearly prepared the opening submissions and the bulk of the plaintiffs’ closing submissions.

[41]   Ms Agarbattiwala was obviously entitled to undertake these tasks to save money but she is equally obviously not a qualified lawyer. The costs provisions in the High Court Rules are designed to require the unsuccessful party to contribute to the legal costs incurred by the successful party in contested litigation. Where a litigant elects or is forced to act in person, he or she incurs no legal costs. It is now well established that in such circumstances the unsuccessful party is not required to pay costs to the successful party.26

[42]   In the present case it would be wrong in principle to permit AAM to recover full costs given Mr Pereira’s extremely limited role in this litigation. He was only involved because the Associate Judge dismissed Ms Agarbattiwala’s application for leave to represent AAM herself. In appearing for AAM, however, he did not assume a full role as counsel. He largely left that to Ms Agarbattiwala. AAM should not now be permitted to receive the benefit of a full award of costs merely because of the limited role Mr Pereira played in the proceeding.

[43]   Like the Associate Judge, I consider this factor warrants a deduction of 50 per cent.

Result

[44]    The plaintiffs are entitled to costs on a category 2B basis for all steps taken in the proceeding that have not already been fixed. Costs are to be reduced by 25 per cent to reflect the level of success achieved by the defendants and, in relation to all steps taken after Mr Pereira first appeared for AAM, by a further 50 per cent. No costs are awarded in relation to hearings in which Mrs Agarbattiwala appeared for AAM or at which AAM was not represented.

26     McGuire v Secretary for Justice [2018] NZSC 116 at [88].

Disbursements

[45]    The plaintiffs are entitled to disbursements as fixed by the Registrar. These are to include the fees charged by Mr Lazelle, the accountant called by the plaintiffs as an expert witness. I preferred the evidence given by Mr Lazelle regarding the quantification of the damages to be awarded to AAM rather than the evidence of the defendants’ accountant, Mr Basrur.27

The counterclaim

[46]   In my substantive judgment I observed that the simplicity of the counterclaim meant that costs on a category 1A basis would be appropriate.28 I remain of that view. Exotica is therefore entitled to costs calculated on a category 1A basis for preparing and filing the counterclaim.

[47]   Thereafter, however, the steps taken in relation to the counterclaim largely merge with those taken by Exotica in defending the plaintiffs’ claims. I acknowledge, however, that Exotica was required to provide discovery of documents relating to the counterclaim for goods supplied but not paid for. Although this was not extensive, Exotica also needed to prepare evidence to support this aspect of its counterclaim. I propose to allow Exotica to recover one day for these attendances calculated on a category 1A basis together with disbursements as fixed by the Registrar.

Lang J

Solicitors:

Corban Revell, Auckland Counsel:

Pereira Law, Auckland Copy to:

Plaintiff

27     AAM Ltd v Exotica Enterprise Ltd, above n 1, at [137]-[138].

28 At [200].