Bhargav v First Trust Limited
[2024] NZHC 2128
•1 August 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-1260
[2024] NZHC 2128
BETWEEN AMEET BHARGAV and RENU KHAJURIA
PlaintiffsAND
FIRST TRUST LIMITED
First Defendant
DAVINDER SINGH RAHAL
Second DefendantContinued …
Hearing: On the papers Appearances:
S E Wroe and G R Grant for the Plaintiffs
G Blanchard KC and A T Grant for the First and Second Defendants
Judgment:
1 August 2024
Reissued:
2 August 2024 at 9:00 am
JUDGMENT OF HINTON J
[Final judgment and costs]
This judgment was delivered by me on 1 August 2024 at 11:00 am pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
……………………………………
Solicitors / Counsel:
Ms S E Wroe and Ms G R Grant, Grant & Co., Auckland Mr A T Grant, Barrister, Auckland
Mr A J Shortall (first and second defendants’ instructing solicitor), Shortall Lawyers, Auckland
BHARGAV v FIRST TRUST LIMITED [2024] NZHC 2128 [1 August 2024]
Continued …
AND METSONS (NZ) LIMITED (Discontinued) Third Defendant
VINAY MEHTA (Discontinued) Fourth Defendant
LOCAL REALTY LIMITED (Discontinued) Fifth Defendant
GURBIR SINGH BAL (Discontinued) Sixth Defendant
AND
VIVEK PUNJ (Discontinued) First Third Party
HOVERD & CO LIMITED (Discontinued) Second Third Party
SAMAR CONSTRUCTION LIMITED
(Discontinued)
Third Third PartyMANPRIT SINGH (Discontinued) Fourth Third Party
[1] In 2020 First Trust Ltd (FTL) sold the plaintiffs a leaky home. At all material times Mr Rahal was director and shareholder of FTL, along with his wife.
[2] The background and procedural history of this dispute is set out in my judgment dated 2 May 2024.1 In that judgment I found:
(a)FTL liable for breach of contractual warranty that all works on the property had received the required consents; and
(b)FTL and Mr Rahal jointly and severally liable for misleading and deceptive conduct under s 9 of the Fair Trading Act 1986 (the FTA).
[3] For FTL’s breach of contractual warranty I assessed damages as the cost of repairs of the home (which I estimated at between $600,000 to $700,000). I also ordered the defendants to pay to the plaintiffs their consequential losses, $35,000 in general damages, interest and costs.
[4] For the breach of the FTA I held the plaintiffs entitled to the diminution in value of the property ($270,000) as well as consequential losses, $80,000 in general damages, interest and costs.
[5]Further submissions were ordered on:
(a)the calculation of the cost of repairs and consequential losses;
(b)the treatment of settlement funds received by the plaintiffs; and
(c)costs.
[6] After issue of my judgment the plaintiffs sought an interim charging order over property in which FTL and Mr Rahal have an interest. This order was made by O’Gorman J on 13 May 2024.
1 Bhargav v First Trust Ltd [2024] NZHC 1054.
[7] On 24 May 2024 the plaintiffs filed submissions on the points set out at [5](a) and [5](b). They filed submissions on costs on 28 May. On 10 June 2024 the defendants filed submissions in response. On 12 and 19 July 2024, the plaintiffs filed submissions in reply concerning the final judgment sum and costs respectively.
[8] This judgment addresses those submissions, determines the final judgment sums against FTL and Mr Rahal and fixes costs.
Cost of repairs
[9] As set out above, I held that for FTL’s breach of contractual warranty the plaintiffs were entitled to damages assessed on the basis of the cost of repairs of the home. The experts were largely agreed as to the repairs required but differed on:2
(a)percentage of timber that requires replacement (50 per cent vs 10–20 per cent);
(b)percentage of internal linings requiring replacement (60 per cent vs 10 per cent);
(c)whether the kitchen requires removal;
(d)extent of deck replacement required;
(e)the time required for the full scope of repairs (26 weeks or 22 weeks); and
(f)the rates and quantities of materials required.
[10]I found:3
(a)50 per cent of the timber requires replacement;
2 At [100].
3 At [118]-[120].
(b)50 per cent of internal linings require replacement;
(c)the kitchen does not require removal;
(d)the full deck replacement is not required;
(e)the repair works will take 24 weeks; and
(f)a mid-point between the two parties’ experts should be adopted for the rates and quantities of materials required.
[11] The cost of repairs was estimated to fall in the range of $600,000 to $700,000 but the parties were directed to confer and file a memorandum as to the actual cost in light of my findings.4
[12] James White, a quantity surveyor instructed by the plaintiffs, has prepared a revised cost of repairs based on the above findings. Mr White estimates a total repair cost of $688,868.40 including GST. The defendants do not take issue with this calculation. I have reviewed Mr White’s revised costing. I am satisfied that it appropriately quantifies the cost of repairs.
Consequential losses
[13] The plaintiffs submit the consequential losses arising from FTL’s breach of contractual warranty are $103,107. That is comprised of:
(a)costs of assessing and quantifying damage to the property: $19,100;
(b)lost rental income until remediation: $55,440;
(c)lost rental income during remediation: $5,760;
(d)cost of alternative accommodation during remediation: $18,000; and
4 At [120].
(e)removal costs: $4,807.
[14] For FTL and Mr Rahal’s misleading and deceptive conduct, the plaintiffs submit the quantum of consequential losses is $51,840. That is the lost rental income from date of breach until date of judgment.
[15] The defendants do not oppose the consequential losses as calculated by the plaintiffs. I am satisfied that these losses are also appropriately quantified.
Settlement sums
[16] The plaintiffs initially claimed against six defendants. In addition to FTL and Mr Rahal, the plaintiffs claimed breach of contract and breach of s 9 of the FTA by:
(a)Metsons (NZ) Ltd (Metsons) (a building inspection company that provided a pre-purchase inspection report on the property);
(b)Mr Vinay Mehta (a building inspector and director-shareholder of Metsons);
(c)Local Realty Ltd (a real estate agency who acted on the sale to the plaintiffs); and
(d)Mr Gurbir Bal (director-shareholder of Local Realty and the agent involved in the sale).
[17] The plaintiffs’ claims against those defendants were settled pre-trial. Under those settlements the plaintiffs received $[REDACTED] from Metsons and Mr Mehta and $[REDACTED] from Local Realty and Mr Bal.
[18] At the hearing the plaintiffs’ position was that the settlement sum from Local Realty was to be deducted from the damages award but that the $[REDACTED] from Metsons should be treated as a contribution to their “irrecoverable costs, including the costs of an unsuccessful mediation”. The defendants contested that such a distinction
was appropriate and submitted both sums should be subtracted from the damages award.
[19] I directed further submissions on this point and as to apportionment (if any) of the settlement sums between Mr Rahal and FTL.
[20] Both parties maintain their overall position advanced at trial. The plaintiffs say the $[REDACTED] from Local Realty is properly deductible from the final judgment sum while the $[REDACTED] from Metsons is not. They submit that the
$[REDACTED] sum should be deducted on a net, not gross basis, taking into account costs spent on recovering that settlement from Local Realty and Mr Bal. They rely on AMP Finance Ltd v Heaven where the Court of Appeal applied settlement funds on a net basis.5 The defendants continue to submit that the entire $[REDACTED] must be applied to the final judgment sum.
[21] As to the apportionment of the sums between the defendants, the plaintiffs submit that the settlement sums should be applied against FTL’s damages award only, because FTL was more culpable. The defendants have not made submissions on this point.
[22]Three issues arise:
(a)Whether the $[REDACTED] payment by Metsons and Mr Mehta should be applied to the final judgment sum?
(b)Whether to apply the settlement sum(s) on a net or gross basis?
(c)How to apply the settlement amounts to the final judgment sum?
[23]I address each in turn.
5 AMP Finance Ltd v Heaven (1997) 8 TCLR 144 (CA).
$[REDACTED] payment from Metsons and Mr Mehta
[24] The plaintiffs submit that the settlement agreement between them and Metsons and Mr Mehta expressly recorded that the payment of $[REDACTED] was a payment towards unrecovered costs to that date, including for an unsuccessful mediation held on 31 July 2023. They submit that if the Court was to make an order treating the
$[REDACTED] sum as on account of the damages award that would be contrary to their direct arrangements with Metsons and Mr Mehta and leave them out of pocket.
[25] The standard position is that amounts paid in settlement of a claim are properly recognised as a contribution towards a plaintiff’s loss and must be taken into account. There is no authority to support the plaintiffs’ proposition that parties settling a damages claim may choose in their agreement how that sum is treated for the purposes of the proceeding overall. The terms of the agreement bind the parties to that agreement only. The agreement has no binding effect on the other parties. I agree with the defendants that the $[REDACTED] payment by Metsons should be taken into account in full in terms of damages payable.
Net or gross basis?
[26] The plaintiffs submit that some allowance should be made for the costs incurred in reaching the settlement agreements. They submit the settlement sums should be applied to the damages awarded on a net basis. If the gross sum is applied, the plaintiffs submit the defendants would “gain an advantage by paying less in damages”. However, the defendants submit that the settlement sums reflect the respective parties’ assessments of their positions in light of costs already incurred. They submit that permitting some of the bargained-for settlement amount to be allocated to the costs incurred in reaching that settlement would be to undermine the costs regime as set out in the High Court Rules 2016.
[27] While I acknowledge that the net basis was applied in Heaven, that case preceded the costs regime set out in the High Court Rules. The Rules contains specific provisions concerning costs following discontinuance.6 If the plaintiffs seek to
6 High Court Rules 2016, r 15.23.
recover costs incurred in reaching the settlements with Metsons/Mr Mehta and Local Realty/Mr Bal, the appropriate mechanism to do so is by way of an application for costs against those parties directly. (Whether the settlement agreements and/or the principles of costs following discontinuance prevent them from doing so is a different matter).
[28] To apply the sums on a net basis would be effectively the same as ordering FTL and Mr Rahal to contribute to the plaintiffs’ costs against Metsons/Mr Mehta and Local Realty/Mr Bal. There is no principled basis for doing so. The settlement sums should be applied on a gross basis.
Application to final judgment sum
[29] I find it difficult to follow the logic of the plaintiffs’ argument that because FTL is more culpable, the settlement sums should in effect be deducted from the damages award against FTL, that is they should receive the full credit.
[30] I also do not agree with the plaintiffs that it would be possible to find that FTL was more culpable. I found Mr Rahal and FTL jointly and severally liable for the breach of s 9 of the FTA on the basis that Mr Rahal was the alter ego of FTL. That was the position taken by the plaintiffs throughout the proceeding.
[31] In my view it is not appropriate, at least in this case, to make a determination as to the apportionment or application of the settlement sums vis-à-vis FTL and Mr Rahal. It is sufficient to record that the $[REDACTED] received by the plaintiffs from the other parties to this litigation must be taken into account in the ordinary way and in accordance with the usual principle that plaintiffs cannot recover more than their total loss.
Interest start date
[32]The plaintiffs seek interest from:
(a)4 June 2021 in respect of FTL’s breach of contractual warranty (the date of the first report quantifying the cost of repairs); and
(b)4 March 2020 for FTL and Mr Rahal’s joint and several liability for breach of s 9 of the FTA (the date of the sale and purchase agreement).
[33] The defendants raise no objection in this regard. I am satisfied that the dates from which interest is claimed are consistent with s 9(1)(a) of the Interest on Money Claims Act 2016.
Costs
[34]The plaintiffs are entitled to costs. They submit that scale costs amount to
$130,494 but seek increased costs of $189,288 against FTL and $168,136 against Mr Rahal. They also seek disbursements of $90,467.83.
[35] The defendants submit scale costs amount to $95,361 and that increased costs are not justified.
The law
[36] Costs are at the discretion of the court.7 The key principles applicable to the determination of costs are set out in r 14.2 of the High Court Rules and include that the party who fails with respect to a proceeding should pay costs to the party who succeeds.
[37]Rule 14.6(3) provides:
(3) The court may order a party to pay increased costs if—
…
(b)the party opposing 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 with 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, documents, or accept a legal argument; or
7 Rule 14.1(1).
(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
(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
…
[38] Rule 14.6(3)(b) is concerned with improper or unreasonable steps.8 Increased costs are not intended to be punitive9 and will not be appropriate where there is some reasonable explanation for the defendant’s conduct.10 The party seeking increased costs bears the onus of demonstrating such costs are justified.11
Scale costs
[39] Before addressing the claim for increased costs, scale costs must first be quantified.
[40] I agree with the parties that scale 2B costs are appropriate for all steps. The proceeding was of average complexity, requiring counsel of average skill and experience — that being no reflection on counsels’ actual skill or experience.
[41] As set out above, the plaintiffs submit that 2B costs amount to $130,494. The defendants submit they are $95,361. This difference arises due to various steps that the defendants dispute as being recoverable.
[42] The defendants say that $35,133 of the steps claimed relates only to the third to sixth defendants. They say that those steps are recoverable against those parties only and there is no principled basis for these costs to be paid by the FTL parties. By their 19 July 2024 reply memorandum, the plaintiffs accept that $1,912 was included in error. They submit however that the remaining disputed steps were:
8 Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [27].
9 Wilding v Te Mania Livestock Ltd [2018] NZHC 1506 at [176].
10 Valmar Trustee Ltd v Smart Water Technology [2016] NZHC 1583 at [12].
11 Strachan v Denbigh Property Ltd HC Palmerston North CIV-2010-454-232, 3 June 2011 at [27].
(a)Costs incurred for discovery applicable to all defendants and all issues, including the FTL parties: $13,145.
(b)Costs related to an adjourned hearing against Local Realty. Because the hearing was adjourned “entirely due” to the FTL parties’ and Metsons’/Mr Mehta’s application to set aside the formal proof, the plaintiffs submit the FTL parties should be liable for the steps taken for that hearing, similar to the “wasted costs” awarded by Tahana J when setting aside the formal proof: $20,076.
[43] I accept the plaintiffs’ submission that the preparation and inspection of discovery were steps relevant to all defendants and all issues. As such, those steps are properly recoverable against the FTL parties.
[44] However, I do not accept that the costs incurred in preparation for the adjourned hearing against Local Realty are recoverable. First, those steps were not incurred by the plaintiffs in pursuing the claims against FTL and Mr Rahal. Second, while the hearing was adjourned because of the FTL parties’ application to set aside the formal proof, costs on that application have already been determined.12 I do not consider it appropriate to allow the plaintiffs to now recover these steps against the FTL parties.
[45]Scale costs on a 2B basis amount to $108,506.
Increased costs
[46] Against FTL, the plaintiffs submit a 50 per cent uplift on costs is justified because:
(a)FTL failed, without reasonable justification, to accept an offer of settlement. Specifically, the plaintiffs say it was unreasonable for FTL to reject their offer on 15 August 2023 to settle the proceeding for
$800,000 including damages, costs, disbursements and interest. The
12 Bhargav v First Trust Ltd [2023] NZHC 1086.
offer was made to all six defendants. The plaintiffs submit that FTL was better off under the proposed settlement than the final judgment sum.13 The defendants also rejected cash settlement offers of $660,000 on 25 October 2023, and of $600,000 on 1 November 2023.
(b)FTL applied to set aside the formal proof judgment but has now been found liable for a greater amount than was awarded in the formal proof. This, the plaintiffs submit, resulted in an “own goal” for FTL who “would have been better off living with the result of the formal proof judgment”.
(c)FTL rigorously defended the FTA claim until conceding in closing submissions that it had acted in trade and in breach of s 9. The plaintiffs say this concession should have been made much earlier.14
[47] As against Mr Rahal, the plaintiffs acknowledge that he enjoyed “a measure of success”. However the plaintiffs submit increased costs are justified because:
(a)Mr Rahal failed to comply with discovery orders by initially denying the existence of, or discoverability of documents and then defaulted on timetable directions by almost three months.15
(b)Mr Rahal refused to admit facts in circumstances where contemporaneous documents and witnesses made his denials inherently implausible.16 Mr Rahal’s position was unjustifiable, wasted the Court’s time and put the plaintiffs to additional cost.
[48]I find that increased costs are not justified against either FTL or Mr Rahal.
13 High Court Rules, r 14.6(3)(b)(v).
14 Rule 14.6(3)(b)(iii).
15 Rule 14.6(3)(b)(i) and (iv).
16 Rule 14.6(3)(b)(iii).
[49] As against FTL, I do not consider that the failure to accept the plaintiffs’ settlement offers justifies increased costs. Failure to accept a settlement offer does not automatically point to an uplift. It is only where such failure is unreasonable that an uplift will be justified.17
[50] The plaintiffs say that the defendants disregarded their evidence as to whether the property was readily substitutable and unreasonably rejected settlement offers in light of Supreme Court authority on the issue of damages.18 I disagree. I consider this case did involve uncertain questions of law concerning causation and the appropriate measure of damages. It is therefore understandable that, in those circumstances, the defendants wished to test their position at trial.19 Further, when setting aside the formal proof, Tahana J found that each of the first to fourth defendants had demonstrated a substantial ground of defence on at least one issue.20 Although further discovery and evidence came to light after Tahana J’s decision, against the backdrop of the setting aside judgment and uncertainty regarding the law, it was not unreasonable for the defendants to reject the plaintiffs’ offers. No uplift is justified on this basis.
[51] Second, I do not accept the plaintiffs’ “own goal” submission. There is no authority for the proposition that where a party successfully sets aside a formal proof that party should be ordered to pay increased costs if the subsequent defended judgment awards a higher damages figure. In any event, the costs prejudice to the plaintiffs of having the formal proof set aside was accounted for when Tahana J ordered the defendants to pay the plaintiffs’ wasted costs.21 It is that mechanism, not any uplift to costs on the defended proceeding, which properly recognises the inconvenience to the plaintiffs of having the formal proof set aside.
17 InterGroup Ltd v Pipe Vision NZ Ltd [2024] NZHC 977 at [41] and [53].
18 Marlborough District Council v Altimarloch Joint Venture Ltd [2012] NZSC 11, [2012] 2 NZLR 726.
19 Blanchett v RBI Ltd [2014] NZHC 2450 at [17].
20 Bhargav v First Trust Ltd [2023] NZHC 174.
21 At [72].
[52] Last, while I agree that the defendants could have made the concession regarding the FTA claim much earlier, I do not consider that their failure to do so contributed unnecessarily to the time or expense of the proceeding. The issues which FTL ultimately conceded were not the subject of significant time or focus at the trial. FTL’s concession in closing submissions was a responsible step by counsel and no uplift is justified.
[53] As to the uplift against Mr Rahal, the plaintiffs have not satisfied the onus of demonstrating that Mr Rahal’s conduct meets the high threshold justifying increased costs. While I do not necessarily accept the defendants’ characterisation of Mr Rahal’s initial denial of the existence of documents as entirely inadvertent, the plaintiffs acknowledge that Mr Rahal’s default in discovery is not “in and of itself” sufficient to warrant an uplift. I accept the defendants’ submission that Mr Rahal’s and FTL’s briefs of evidence were served within a reasonable time before trial and largely reflected the matters contained within the affidavits prepared for the setting aside application. Mr Rahal’s breaches of discovery and timetable directions were mostly minor or inconsequential.22
[54] Second, I do not accept that just because I preferred the evidence of other witnesses over Mr Rahal, uplifted costs are justified. Judges are routinely required to prefer the evidence of one witness over another and to accept or reject legal arguments. Rule 14.6(3)(b)(iii) requires a high threshold. In most cases, including the present, the unsuccessful party’s failure to accept facts or legal arguments is appropriately addressed through ordinary scale costs.23 The threshold for increased costs is not met.
[55] The plaintiffs refer to an email from Mr Rahal to ASB. They say this email, which attaches a quote for the reclad of the property, was “conspicuously absent from Mr Rahal’s evidence for the Setting Aside hearing before Tahana J” and that “if Tahana J had been made aware of [that document], her Setting Aside Judgment may well have been different”. This submission is somewhat speculative and in any event is irrelevant to the application for costs before me. To the extent that this email (or any other contemporaneous document) conflicted with Mr Rahal’s evidence, I have
22 Madsen-Ries v Petera [2015] NZHC 2418 at [10]-[11].
23 Auckland Council v Ranfurly Village Ltd [2024] NZHC 1438 at [18].
already determined that my conclusion as to the reliability of Mr Rahal’s evidence is not such that increased costs are appropriate.
[56] Mr Rahal and FTL are jointly and severally liable for scale costs on a 2B basis of $108,506 and disbursements of $90,467.83.
Final orders
[57] FTL is liable for breach of contractual warranty. For that breach, the plaintiffs are entitled to $826,975.40 plus interest made up of:
(a)damages in the amount of $688,868.40;
(b)consequential losses in the amount of $103,107;
(c)general damages in the amount of $35,000; and
(d)interest on the above sums, pursuant to s 10 of the Interest on Money Claims Act 2016, to run from 4 June 2021 until payment in full.
[58] FTL and Mr Rahal are jointly and severally liable for breach of s 9 of the FTA. For that breach, the plaintiffs are entitled to $401,840 plus interest made up of:
(a)damages in the amount of $270,000;
(b)consequential losses of $51,840;
(c)general damages of $80,000; and
(d)interest on the above sums, pursuant to s 10 of the Interest on Money Claims Act 2016, to run from 4 March 2020 until payment in full.
[59] FTL and Mr Rahal are jointly and severally liable for scale costs on a 2B basis of $108,506 and disbursements of $90,467.83.
[60] The final award against FTL is limited to that set out at [57] plus costs and disbursements as set out at [59].
[61] The settlement sums received by the plaintiffs from the other parties to this litigation totalling $[REDACTED] are to be taken into account as set out at [31].
Hinton J
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