Ballantyne Trustees Limited v GbR Investment Limited
[2017] NZHC 908
•8 May 2017
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2015-409-000157 [2017] NZHC 908
UNDER the Contractual Remedies Act 1979 BETWEEN
BALLANTYNE TRUSTEES LIMITED AVERILL NOELINE HEAD CALMWATER ENTERPRISES PTY LIMITED AND SENG BOU KEUNG AS TRUSTEES OF THE GBR TRUST
First Plaintiffs
SENG BOU KEUNG Second Plaintiff
AND
GBR INVESTMENT LIMITED First Defendant
GRIGORI NIKOLAYEVICH KOULANOV
Second Defendant
NIKOLAI KOULANOV and NATALIA KOULANOV
Third Defendants
THEODOROS INVESTMENTS LIMITED
Fourth Defendant
Hearing: 28 April 2017 (Determined on the Papers) Counsel:
J W A Johnson and S Campbell for Plaintiffs
A J Forbes QC and K-M Paterson for DefendantsJudgment:
8 May 2017
INTERIM COSTS JUDGMENT OF ASSOCIATE JUDGE MATTHEWS
BALLANTYNE TRUSTEES LTD, A N HEAD, CALMWATER ENTERPRISES PTY LTD as Trustees of the
GBR TRUST and KEUNG v GBR INVESTMENT LTD and ORS [2017] NZHC 908 [8 May 2017]
[1] On 14 March 2017 this Court issued a judgment striking out each of the causes of action and dismissing this proceeding. The defendants now apply for costs.
[2] Counsel for the defendants seek indemnity costs under r 14.6(1)(b) of the
High Court Rules. The indemnity costs sought are $101,444.15 including GST and disbursements, comprising:
Solicitors’ fees $61,700.00 Fees of Mr Forbes QC $24,050.00 Filing fees $669.56 Service charge $1,542.50 LINZ and Court search fees including agency $250.23 GST $13,231.86 Total
$101,444.15
[3] In the alternative counsel seeks scale costs either on the basis of scale 3C, or on the basis of scale 2C plus a 50 per cent uplift. On the former basis costs are sought in the sum of $79,860, and on the latter $80,949.
[4] Since the substantive application was argued the plaintiffs have instructed Mr J W A Johnson of Wynn Williams, solicitors. Apart from accepting that the plaintiffs are liable for costs, he takes issue with every element of the defendants’ claim. His position is that costs should be awarded on the basis of scale 2B without any uplift, and that a stay of an order for payment of costs should be made pending resolution of the appeal which the plaintiffs have filed in the Court of Appeal against the judgment of this Court. In essence, he says that indemnity costs are inappropriate and cannot be justified, that if awarded in principle the quantum has not been established, and that if indemnity costs are not awarded, there is no justification for departing from the ruling already made by the Court that costs be in
Category 2.1 Nor is there any justification for applying band C to the proceeding, or
1 Minute of the Court dated 13 July 2016.
for applying any uplift to scale costs assessed on a 2B basis. Mr Johnson takes issue with any allowance being made for second counsel.
Discussion
[5] The issues to be decided are these:
(a) Should an award of indemnity costs be made in favour of the defendants?
(b) Should there be costs for a second counsel?
(c) If indemnity costs are awarded, what should the award be?
(d)If indemnity costs are not awarded, should costs be assessed on the basis of Category 2B or Category 3C?
(e) In the event it is decided that costs should be assessed on the basis of
Category 2B, should there be an uplift? (f) Should the Court stay its costs order?
First issue: Should an award of indemnity costs be made in favour of the defendants?
[6] The relevant portions of r 14.6 of the High Court Rules provide:
14.6 Increased costs and indemnity costs
(1) Despite rules 14.2 to 14.5, the court may make an order –
(a) increasing costs otherwise payable under those rules (increased costs); or
(b) that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party (indemnity costs).
(2) The court may make the order at any stage of a proceeding and in relation to any step in it.
…
(4) The court may order a party to pay indemnity costs if –
(a) the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or
…
(f) some other reason exists which justifies the court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious.
[7] In opposing an order for payment of indemnity costs Mr Johnson relies on four factors. First, he says the proceeding was filed on the last day before the first possible limitation period expired, but within that period, so the mere filing of the proceeding cannot be an abuse. Secondly, the plaintiffs acted on the advice of solicitors and counsel in filing both the statement of claim and the amended
statement of claim.2 Thirdly, Mr Johnson says that the plaintiffs engaged
experienced counsel and a leading firm to conduct the proceeding, which he says is a strong indication that they viewed the case as serious and that they had a genuine desire to proceed with what they saw as a legitimate case. Fourthly, Mr Johnson says that the plaintiffs entered into settlement negotiations with the defendants which, though ultimately unsuccessful, demonstrates that the plaintiffs were not insistent on proceeding with litigation.
[8] Mr Johnson also notes that it was not unreasonable for the plaintiffs to require that the strike out application be tested rather than simply abandoning the case, as there were genuine issues to be reviewed by a court, and the plaintiffs have appealed the decision as they genuinely wish to pursue the causes of action if at all possible.
[9] I accept the first and second points made by Mr Johnson. As to the third, I accept that the plaintiffs engaged experienced counsel at a large law firm to conduct the case. I also accept that they entered into settlement negotiations. Whether the former of these is a strong indication that the plaintiffs viewed the case as serious and had a genuine desire to proceed with it is a matter on which I cannot rule. It is not an inference which should inevitably be drawn. Nor am I able to discern whether the unsuccessful settlement proposals truly demonstrate that the plaintiffs were not insistent on litigation. A certain amount of correspondence, exchanged
without prejudice except as to costs, has been put before the Court. In my opinion,
2 When the statement of claim was filed the plaintiffs were represented by a different firm from the firm which represented them when the amended statement of claim was filed, and on the application to strike out.
having reviewed that correspondence, it is arguable that the bases upon which the plaintiffs were prepared to abandon their claim were not those which would have any attraction to the defendants given the pleadings which the defendants faced. By this I refer to the manifest shortcomings in the pleadings identified in the substantive judgment.
[10] In my opinion, it is not necessary in this judgment to repeat the findings made in the substantive judgment in relation to the statement of claim and the amended statement of claim. The judgment is lengthy and contains an exhaustive analysis of each of the causes of action in the statement of claim and in the amended statement of claim. I therefore make only brief reference to the findings in the judgment as a foundation for the view I have formed on the first issue on the present application.
[11] First, I refer to the causes of action brought by Mr Keung, all bar one of which had vested in the Official Assignee under the Insolvency Act 2006. Given the clear terms of s 3 of that Act, the inclusion of these causes of action in the amended statement of claim cannot be seen as anything other than vexatious and frivolous.
[12] Secondly, and by reference to discussion of the fourth issue in the substantive judgment, arising from the provisions of the Limitation Act 1950, the majority of the grounds on which the plaintiffs sought to avoid causes of action in the amended statement of claim being struck out were directed at showing that they were derived from a pleading within the statement of claim. In this respect heavy reliance was placed on paragraph 15 of the statement of claim which is set out in paragraph [62] of the substantive judgment, and the subsequent 11 paragraphs of the statement of claim in which the causes of action in that document are set out. The law, however, on whether a cause of action is new or is a development of an earlier cause of action, is well established by Court of Appeal authority which is discussed in paragraphs [63] and [64] of the judgment. The arguments presented on behalf of the plaintiffs to the effect that the causes of action in the amended statement of claim were re- pleadings of causes of action in the statement of claim were rejected for the reasons set out in length in the substantive judgment. In short, application of the tests in the two Court of Appeal judgments referred to demonstrated that the subsequent
pleadings fell woefully short of qualifying as re-pleading of existing causes of action, as discussed in the judgment.
[13] Again, it is difficult to describe the pleading of these causes of action as anything but vexatious and frivolous. As just one example, it is difficult to see any basis upon which it could sensibly be argued that the statement of claim contained a cause of action in defamation. This resulted in all the causes of action in defamation being struck out as statute barred, save only for the cause of action alleging ongoing publication which was not statute barred when it was first pleaded in the amended statement of claim. This cause of action failed because it was not alleged in the pleadings that any of the defendants had spoken to the journalist who had written the article to which the plaintiffs took exception, let alone said anything defamatory.
[14] Throughout the judgment numerous criticisms are necessarily made of the drafting of both the statement of claim and the amended statement of claim.3 For the reasons set out in those paragraphs and above I find that the plaintiffs acted vexatiously and frivolously in commencing and continuing this proceeding and, for that matter, in defending the application to strike out which was based on manifestly sound grounds, as were the detailed and carefully drafted written submissions for the defendants.
[15] I have weighed against this circumstance the principle that the determination of costs should be predictable and expeditious, and the general principle that costs awarded on scale should approximately equate to two-thirds of actual costs incurred. However, r 14.6 provides for indemnity costs to be ordered and in my opinion this is a case where such an order should be made. In Bradbury v Westpac Banking Corp the Court of Appeal noted a number of circumstances in which indemnity costs had
been ordered.4 Two of these are apposite. First, indemnity costs have been awarded
where proceedings have been commenced or continued in wilful disregard of known facts or clearly established law. Examples of the latter appear throughout the substantive judgment in the present case. A second relevant circumstance is the
making of allegations which ought never to have been made or unduly prolonging a
3 See paragraphs [51], [52], [56], [57], [99], [100], [102], [141], [142], [143], [145], [146], [154]
and [160].
4 Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400.
case by groundless contentions. This has occurred in this case also. By way of example I note the causes of action in defamation, without any pleading that the publications relied on were defamatory of any of the plaintiffs apart from Mr Keung, and the lack of any pleading that any of the plaintiffs made any statement to the newspaper which made the publication in issue. Those shortcomings are in addition to the fact that except in relation to possible ongoing publication on the internet causes of action in defamation were manifestly time-barred. But those are only examples; others are discussed in the substantive judgment.
[16] I conclude that the plaintiffs will pay costs to the defendants on an indemnity basis.
Second issue: Should costs be awarded for second counsel?
[17] In this proceeding the defendants faced, between them, nine causes of action prior to which 139 paragraphs of factual allegations were pleaded. In the substantive judgment the nature of each cause of action is set out and discussed. It is evident from that material that the pleadings covered a wide range of diverse allegations; analysis of the amended statement of claim was in my opinion a complex task and dissection of it into separate grounds of challenge was likewise a task of considerable complexity. In my view the defendants were entitled to instruct and be represented not only by their solicitors, and in particular the partner in their solicitors’ firm who was on the record of the court, but also by senior counsel. The evidence presented both in support and in opposition to the application was extensive and I am satisfied that a very considerable degree of meticulous work was required in order to present the application to the Court, justifying the fees of two counsel being incurred.
[18] As well, the claimed losses were substantial. Although damages claimed were not quantified in either the statement of claim or the amended statement of claim, figures appearing in the pleadings give a clear indication that the plaintiffs had set their sights on recovering some millions of dollars. Losses alleged on the part of Mr Keung alone are pleaded to the order of $3,000,057,000 in the cause of action alleging negligent misstatement against Mr and Mrs Koulanov. It is said that
payments amounting to nearly $900,000 were made by the plaintiffs in reliance on statements that are said to have been made, and these payments would not have been made otherwise. A more precise indication of the level of damages the plaintiffs were seeking cannot be made on the pleading as it stands, but the defendants were justified in retaining senior representation to meet this claim.
[19] In Nomoi Holdings Ltd v Elders Pastoral Holdings Ltd, Chambers J said:5
[The question when determining whether to certify for second counsel is] whether the nature of [the] proceeding … was such as to justify requiring the losing party to contribute to the winning party’s cost in having a junior counsel present.
[20] I am satisfied that given the obvious detailed involvement of the defendants’ solicitors (an inference I draw from the extent of their costs and the relatively low level of fee rendered by Mr Forbes) it was prudent and acceptable for the defendants to have both counsel engaged in the case present for argument of this application, and that this is a cost properly borne by the plaintiffs in the circumstances of this case. It is the plaintiffs who must bear responsibility for the case which they endeavoured to bring before the Court.
Third issue: quantum of indemnity costs
[21] In r 14.6(1) indemnity costs are defined as the actual costs, disbursements, and witness expenses reasonably incurred by a party. Thus an award of indemnity costs is made by reference to costs actually incurred, but the award may be less if the Court comes to the view that the actual costs incurred are unreasonably high. The Court is to assess a reasonable allocation of actual costs based on the appropriate time taken, the significance and complexity of the work, and a median hourly rate
reasonably applicable.6
[22] In the present case it is not possible on the material provided to the Court to make this assessment. Whilst the invoices rendered by the solicitors for the defendants have been produced, they have been substantially redacted, so the Court
does not have before it any description of the work undertaken. Noting this point,
5 Nomoi Holdings Ltd v Elders Pastoral Holdings Ltd (2001) 15 PRNZ 155 (HC) at [21].
6 Bradbury v Westpac Banking Corp (2009) 18 PRNZ 859 (HC) at [204] and [209].
and in submitting that solicitors’ fees of $61,700 plus GST seems extraordinary, Mr Johnson says that in order to have justified an award of indemnity costs the defendants would have needed to provide unredacted invoices to ascertain the work that was included in each invoice, and provide time sheets verifying the contents of each invoice claimed.
[23] It does not appear necessary to go as far as Mr Johnson says. The Court does require, however, unredacted invoices giving a full description of the work undertaken in respect of which each invoice was raised, hourly rates applied, and the number of hours undertaken in relation to the steps described. It may be that the redacted portions of the invoices do not give sufficient detail of the work undertaken in relation to each invoiced periods for the Court to make an assessment as required and in this event a more detailed summary of the work undertaken will be needed.
Fourth and fifth issues
[24] Given the decision in relation to the first issue it is not necessary to discuss these issues.
Sixth issue: should the Court stay its costs order?
[25] Mr Johnson applies for a stay of enforcement of any costs order made, as an appeal has been brought to the Court of Appeal.
[26] As Mr Johnson accepts, the defendants are prima facie entitled to the fruits of their judgment. Whilst this Court can never overlook the prospect that an appeal may be successful, this is not in my view a case where there are clear areas for a different opinion to be formed by that Court from that which has been formed by this Court. I say that because the judgment applies established principles of law by reference to decided Court of Appeal cases and statute law. Whilst I accept Mr Johnson’s assurance in his submissions that the plaintiffs are genuine about prosecuting their appeal, and intend to pursue it with all due diligence, it is disturbing to note that another basis on which he seeks a stay is “the need to permit the plaintiffs to focus their resources on the appeal at this stage”. That is, in itself, a very good reason to apply the general principle set out in r 14.8(1) that costs on an
interlocutory application should be assessed and paid when the application is determined. The plaintiffs should not expect or be given credit from the defendants for a sum which they owe in order to facilitate the plaintiffs putting the defendants to significant further expense in challenging the judgment the defendants have obtained.
[27] As the claim has been struck out, the costs on the entire proceeding should be assessed and paid, not just the costs on the application to strike out, for the same reasons.
[28] For these reasons I decline the application for a stay.
Outcome
[29] The plaintiffs will pay the defendants costs on an indemnity basis, plus disbursements.
[30] The Court will fix the quantum once material sufficient for the Court to apply the requisite analysis has been filed.
[31] An affidavit is to be filed and served within seven working days, and any affidavit in opposition is to be filed and served within a further seven working days.
J G Matthews
Associate Judge
Solicitors:
Wynn Williams, Christchurch
Buddle Findlay, Christchurch
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