Body Corporate Administration Limited v Mehta
[2013] NZHC 214
•15 February 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2009-404-6656 [2013] NZHC 214
BETWEEN BODY CORPORATE ADMINISTRATION LIMITED Plaintiff
ANDCYRUS MEHTA First Defendant
ANDSTRATA TITLE ADMINISTRATION LIMITED
Second Defendant
Hearing: 1 October 2012
Appearances: P J Wright and W Reid for plaintiff
R J Thompson for first defendant
M I S Phillipps for second defendant
Judgment: 15 February 2013
(INTERIM) JUDGMENT NO.4 (COSTS) OF ALLAN J
In accordance with r 11.5 I direct that the Registrar endorse this judgment with the delivery time of 1.00 pm on Friday 15 February 2013
Solicitors:
P J Wright, Auckland [email protected]
R Thompson, Auckland [email protected]
M J S Phillipps, Auckland [email protected]
BODY CORPORATE ADMINISTRATION LIMITED V CYRUS MEHTA HC AK CIV 2009-404-6656 [15
February 2013]
Introduction
[1] In a judgment given on 17 April 2012, I granted the plaintiff leave to discontinue this proceeding and directed that if counsel were unable to agree as to costs, then they should file memoranda. Agreement has not been reached. Counsel filed memoranda which in total ran to several hundred pages.
[2] Both the substantive proceeding and the ensuing costs argument were hard fought. The oral costs hearing occupied a full day. A number of costs issues are in dispute. Some are of fundamental importance; others simply concern matters of detail. In order to discuss them intelligibly, it is necessary to outline the history of the proceeding in some detail.
Procedural background
[3] The plaintiff (BCA) and the second defendant (STA) are leading providers of secretarial services to bodies corporate. The first defendant (Mr Mehta) was employed by BCA until 31 October 2008, when his employment was terminated on the ground that he was thought to be intending to set up in business in opposition to his employer. On 20 November 2008, he commenced employment with STA. Soon thereafter, the management of BCA became concerned that prior to the termination of his employment, Mr Mehta may have copied confidential documents, and subsequently made them available to his new employer.
[4] On 16 December 2008, BCA wrote to STA and Mr Mehta expressing concern that he had taken confidential information and seeking written undertakings that such confidential information was not being misused. On 22 December 2008, STA provided a written undertaking to that effect.
[5] However, BCA remained dissatisfied. In June 2009, it instructed a forensic expert to produce a report which focused upon the extent to which Mr Mehta had accessed BCA’s confidential information prior to the termination of his employment. Over the next few months the management of BCA became convinced that
Mr Mehta had, in the days leading up to the termination of his employment, reviewed a large number of confidential documents, otherwise than in the course of his ordinary employment duties.
[6] On 12 October 2009, almost a year after the termination of Mr Mehta’s employment, BCA commenced the present proceeding and applied for a range of orders by way of interim relief. On 21 October 2009, Hugh Williams J granted a search order pursuant to r 33.2, together with interim injunctions which, inter alia, restrained STA from dealing with any of BCA’s existing customers pending further order of the Court. The orders were made without notice to the defendants.
[7] The search order was executed on 23 October 2009 at the business premises of STA, and at Mr Mehta’s home address. Some 107 pages of hard copy material was seized. They remained for some considerable time in the hands of an independent solicitor.
[8] Certain material on STA’s computers was cloned. It was referred to an
independent forensic computer specialist, Mr B C McKenzie, for analysis.
[9] In November 2009, STA applied to discharge the search order and to dismiss or vary the injunctions.
[10] On 22 April 2010, I heard cross applications by the parties. STA applied to discharge the search order and sought the return of all documents and materials obtained pursuant to it. For its part, BCA sought an order confirming the terms of the search orders and the injunctions until trial of the proceeding. STA’s applications were based upon arguments that the search order was obtained in bad faith, that there had been material non-disclosure, and that had been an abuse of process on BCA’s part.
[11] I refused STA’s application.1 An executed search order will not ordinarily be discharged prior to trial, unless the order has been obtained male fides or on material
non-disclosure, or if there are other special circumstances which clearly demonstrate
1 Body Corporation Administration Ltd v Mehta HC Auckland CIV-2009-404-6656, 10 May 2010.
the need for immediate relief. I held that STA had not made out an exceptional case; nor was I satisfied that there had been an absence of good faith or an abuse of process.
[12] I considered also that STA’s application to discharge the injunctions was premature in that there had been insufficient opportunity to analyse the material seized. Accordingly, I adjourned the application insofar as it concerned the interim injunctions (known as the “Paragraph 12” orders). I had envisaged that the analysis of the documents seized from the defendants would take no more than a few weeks and that the Court would then be in a position in the light of the analysis results, to reach a view as to whether the interim injunctions ought to be perpetuated or not prior to trial. As matters transpired, my assumption proved to be unduly optimistic. It was not until late 2010 that any substantial progress was made.
[13] On 15 December 2010, I heard a fresh application by the defendants for an order discharging the Paragraph 12 orders. By this time the focus of BCA’s case had changed somewhat. Earlier, the Court had been told that the plaintiff expected that an analysis of the documents seized from the defendants’ computers would establish the plaintiff’s claim in respect of misuse of confidential information. At the hearing of 15 December 2010 however, Mr Wright concentrated his argument upon BCA’s contention that following his employment by STA, Mr Mehta had contacted so many of BCA’s customers that, as a matter of logical inference, he must have relied upon the documents allegedly printed off by him while at BCA, despite the fact that none of such documents had been furnished either to the defendants or the Court for the purposes of the proceeding.
[14] In my judgment No.2, I held that BCA had established a serious question for trial, but noted that its case did not appear to be especially strong.2 I said that it was not possible to reach a more decided conclusion in the absence of proof of the documents allegedly unlawfully obtained by Mr Mehta. But I held that the balance of convenience favoured the defendants, who had been prevented for 18 months
from competing with BCA. I noted that the so-called “springboard” principle often
2 Body Corporation Administration Ltd v Mehta (No.2) HC Auckland CIV-2009-404-6656, 16 March
2011 at [41].
resulted in the grant of an injunction for a period of time (usually no more than 12 months), where a plaintiff could demonstrate that there had been a breach of fiduciary obligation, and an injunction was necessary to enable it to recover from the impact of the breach on its business. For practical purposes, STA had been prevented for 18 months from competing with BCA. I considered that period to have been amply sufficient, even if the plaintiff was able to make out its case.
[15] Accordingly, I discharged Paragraph 12(b) of the order, which prevented STA from competing with BCA for BCA’s customers. However, I declined to discharge the order appearing in Paragraph 12(a), which was directed at prohibiting STA’s use of BCA’s confidential information. Because STA asserted that it had no such information, I considered it was suffering no detriment, and that the order ought to inure until trial.
[16] Although I had reserved questions of costs in my judgment of 10 May 2010, I directed in Judgment No.2, that all outstanding questions of costs to date ought to be tidied up and therefore gave directions for the filing of costs memoranda, indicating that I would deal with the question of costs on the papers unless any party desired to present oral argument.
[17] Counsel duly filed memoranda. Most unfortunately, they were never brought to my attention and have now been largely overtaken by the submissions advanced at the 1 October 2012 hearing.
[18] Between the two judgments, the defendants applied for orders for discovery against BCA. There was agreement that the plaintiff’s discovery obligations need not finally be complied with until my Judgment No.2 was delivered, but counsel for STA pointed out in writing to counsel for BCA that it was his client’s responsibility in the meantime to proceed with the identification and collation of relevant documents.
[19] On 3 May 2011, several weeks after my Judgment No.2, Mr Wright wrote to counsel for the defendants in the following terms:
3 May 2011
M I S Phillipps Richard Thompson
Barrister Barrister
PO Box 3320 PO Box 3321
Shortland Street Shortland Street
Auckland 1140 Auckland 1140
Without Prejudice Save as to Costs
CIV-2009-404-6656 Body Corporate Administration Limited v Mehta & Ors
As I am sure you are aware this matter is now about to head into a relatively prolonged and expensive phase of activity involving discovery and inspection followed by preparation for the hearing.
I am therefore instructed to make the following offer of resolution:
(a) BCA will discontinue the proceedings but on the basis that
Paragraph 12(a) of the order remains in force;
(b) Costs lie where they fall.
Kindly let me have your response at your earliest convenience so that, if appropriate, we may advise the Court accordingly and avoid any further attendances.
[20] The defendants did not respond to that letter. Thereafter, the parties sought a judicial conference, but it appears that nothing was done by the Court to that end for a period of some weeks.
[21] In July 2011, STA formally applied for discovery orders against the plaintiff and for further particulars of its claim. The proceeding came before Potter J on
3 August 2011, and then before Ellis J on 18 August 2011. As directed, both counsel filed memoranda prior to the hearing before Ellis J. Counsel for BCA dealt with the scope and the proposed method of the plaintiff ’s discovery, and issues relating to confidentiality. At that point, BCA proposed that counsel for the defendants might see the plaintiff ’s documents, but they would not be available to their clients.
[22] Counsel for BCA also filed a memorandum seeking formal particular discovery by the defendants, and leave to discontinue the proceedings on terms that largely (but not completely) mirrored the proposals in the 3 May 2011 letter. The
variation concerned costs. BCA now proposed that the unresolved costs applications already filed be dealt with by me, but that costs would otherwise lie where they fell.
[23] BCA continued to seek leave to discontinue upon the basis that the defendants would remain subject to a permanent injunction in terms of Paragraph
12(a).
[24] Before Ellis J, counsel for the parties agreed that the application to discontinue on terms should be listed if possible before me, that BCA was to file and serve a verified list of documents within 28 days, and that the defendants were similarly to file and serve a verified list of documents within that period. The question of further particulars was deferred.
[25] The defendants filed and served their list of documents in mid September
2011, and in November STA filed and served a supplementary list. By that time, BCA had still not complied with its discovery obligations and was put on notice in writing on 17 November that it was in breach of the discovery orders made by Ellis J, and that application would be made for solicitor/client costs.
[26] On 2 December 2011, the defendants made an application to strike out the proceeding on the basis of BCA’s non-compliance with the discovery order. A verified list of documents was ultimately filed and served by the plaintiff on
20 February 2012.
[27] The various applications for leave to discontinue, and for discovery and confidentiality orders, was set down for hearing before me on 23 April 2012, later brought forward to 17 April 2012. On 30 March 2012, I conducted a telephone conference with counsel in advance of the 17 April hearing. My subsequent minute confirmed that the fixture for 17 April was to cover the application for leave to discontinue, together with the defendants’ applications for further discovery and for relaxation of the current confidentiality regime. Counsel for the defendants indicated that the strike out application would not proceed, because BCA had remedied its default by filing a list of documents in February 2012; however they indicated that they would be seeking indemnity or increased costs on that
application. I also directed that argument on 17 April should deal with the question of the procedure to be followed in respect of the costs applications already filed but not determined.
[28] At the hearing of 17 April I considered first BCA’s application for leave to discontinue on terms. In discussion with counsel I made it clear that there was no proper basis upon which the Court could grant BCA leave to discontinue while leaving the Paragraph 12(a) interim order permanently in force. To follow that course would be in effect to grant BCA the relief which it sought in its statement of claim without proving its case against the defendants.
[29] Upon receipt of that indication, Mr Wright then chose, without taking further instructions, to advise the Court that in the alternative BCA sought leave to discontinue the proceeding unconditionally. Unsurprisingly there was no opposition to that course from counsel for the defendants. Accordingly, in a brief oral judgment I granted the plaintiff leave to discontinue and directed that counsel should file memoranda in respect of costs of the whole proceeding. It was of course unnecessary to proceed to hear argument in respect of discovery and confidentiality issues.
[30] Subsequently counsel filed memoranda and synopses of submissions which formed the basis of oral argument at the hearing on 1 October 2012.
Costs principles
[31] Questions as to costs are governed by Part 14 of the High Court Rules. The over-arching principle is that all matters of costs are in the discretion of the Court.3
But that discretion must be exercised in accordance with settled principles and having regard to the detailed provisions of Part 14.
[32] Ordinarily, an unsuccessful party must pay costs to the successful party. In the first instance those costs will be determined in accordance with r 14.3-14.5,
which provide for the award of scale costs.
3 Rule 14.1(1).
[33] The Court may award increased or indemnity costs in appropriate circumstances,4 and may refuse or reduce costs as appropriate.5 The Court may take into account to the extent that it thinks fit, a written offer to settle expressed to be without prejudice except as to costs.6 Where several defendants defend a proceeding separately and it appears to the Court that all or some of them could have joined in their defence, the Court must not allow more than one set of costs unless it appears that there is good reason to do so.7
Costs on discontinuance
[34] The general principle is a plaintiff who discontinues must pay the defendant’s costs, unless the defendant otherwise agrees or the Court makes an order to the contrary.8
[35] Rule 15.23 is designed to provide certainty and predictability upon discontinuance. But the rule may be displaced where the circumstances of the case justify that course.9 Among the relevant considerations will be the reasonableness of the stance of all parties and the underlying merits of the plaintiff’s claim. For example, where a party discontinues because it has already achieved the objective sought by commencing proceedings, costs may be awarded to the discontinuing plaintiff.10 On the other hand, care must be taken to ensure that the predictability of outcomes under the costs regime is preserved. For example, the conduct of the parties relied upon must occur within the proceeding itself.11
Increased and indemnity costs
[36] Rule 14.6 of the High Court Rules sets out the circumstances in which a party may be awarded increased or indemnity costs. Rule 14.6(3)(b) provides that
4 Rule 14.6.
5 Rule 14.7.
6 Rule 14.10-14.11.
7 Rule 14.15.8 Rule 15.23.
9 Kroma Colour Prints Ltd v Tridonicatco NZ Ltd [2008] NZCA 150, (2008) 18 PRNZ 973 at [12].
10 Small v A Judicial Committee HC Christchurch CIV-2009-409-2622, 20 April 2010.11 Thames-Coromandel District Council v Coromandel Heritage Protection Society Inc [2009] NZCA
204, (2009) 19 PRNZ 365 at [13].
increased costs may be awarded when a party has contributed unnecessarily to the time or expense of the proceeding, or a step in it, by:
(a) failing to comply with the rules, or a direction of the Court; or
(b)taking or pursuing an unnecessary step or an argument that lacks merit; or
(c) failing without reasonable justification to admit facts, evidence, documents or accept a legal argument; or
(d)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 the Rules; or
(e) failing without reasonable justification to accept an offer of settlement, whether in the form of an offer under r 14.10 or some other offer to settle or dispose of the proceeding.
[37] Rule 14.6(4)(a) provides for the award of indemnity costs where:
A party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding.
[38] The distinction between scale, increased and indemnity costs was helpfully discussed and summarised by the Court of Appeal in Bradbury v Westpac Banking Corporation.12
[27] The distinction among our three broad approaches – standard scale costs, increased costs and indemnity costs – may be summarised broadly:
(a) standard scale applies by default where cause is not shown to depart from it;
(b) increased costs may be ordered where there is failure by the paying party to act reasonably; and
(c) indemnity costs may be ordered where that party has behaved either badly or very unreasonably.
12 Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [27] and [28].
[28] Subject to that, the starting point of our rules, which gives a one-third or thereabouts deduction from a set figure, is comfortably in the modern main stream. It affords recognition of the access to justice factor that prevails in the United States and should not lightly be departed from. Clear cause must be shown to justify an increase. Our three-stage classification, with a discretion in each class as to where the order should be pitched, accords with that approach. Indemnity costs, which depart from the predictability of the Rules Committee’s regime, are exceptional and require exceptionally bad behaviour. That is why to justify an order for such costs the misconduct must be “flagrant” (Prebble v Awatere Huata (No 2) [2005] 2 NZLR 467 (SCNZ) at para [6]).
[39] Rule 14.6(4) reads:
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
(b) the party has ignored or disobeyed an order or direction of the court or breached an undertaking given to the court or another party; or
(c) costs are payable from a fund, the party claiming costs is a necessary party to the proceeding affecting the fund, and the party claiming costs has acted reasonably in the proceeding; or
(d) the person in whose favour the order of costs is made was not a party to the proceeding and has acted reasonably in relation to it; or
(e) the party claiming costs is entitled to indemnity costs under a contract or deed; 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.
[40] An abandonment of a cause of action of itself is not a pointer to increased or indemnity costs.13 Moreover, the Court is obliged to examine the nexus between a party’s alleged unreasonableness and the contribution of that unreasonableness to delay or increased expense in the proceeding. Only to the extent that the unreasonableness contributed to the delay and expense can an uplift be justified.14
As noted by the Court of Appeal in Bradbury, awards of indemnity costs will be rare
13 At [79].
14 Commissioner of Inland Revenue v Chesterfield Pre-schools Ltd [2010] NZCA 400, (2010) 24
NZTC 24,500 at [165].
and exceptional. Bradbury was itself an example of a case where such an award was appropriate. The proceeding was hopeless in inception, in that it was based upon propositions which flew in the face of established legal principles.
[41] An award of indemnity costs was made in Devcich v AMI Insurance Ltd, following a finding of the Court of Appeal that Mr Devcich had defrauded his insurance company by committing arson and then suing the insurer on the policy.15
[42] Re Westpac New Zealand Ltd ex parte Jacob, was a case in which the proceeding had been launched in the face of established legal principles and contrary to known and accepted facts.16 The claim was held to be a gross abuse of the processes of the Court. Indemnity costs were awarded.
[43] But in many cases in which the requirements for an award of indemnity costs have arguably been met or approached, the Court has instead ordered increased costs. Examples are Lesa Systems Ltd v Canzac Ltd,17 New Pastures Ltd v FM Custodians Ltd, 18 Scott v Miller,19 and Eden Refuge Trust v Hohepa.20 In this last case, the Court awarded increased costs of 75% rather than indemnity costs, even
though claims of breach of fiduciary duty, knowing receipt and dishonest assistance were made out, both the High Court and the Court of Appeal concluding that the case involved actual dishonesty.
[44] An analysis of a number of cases, including those cited above, suggests that cases which fall on the cusp between indemnity and increased costs, will generally result in a substantial increase in scale costs.
Calderbank offers
[45] Rules 14.10 and 14.11 respectively provide:
14.10 Written offers without prejudice except as to costs
15 Devcich v AMI Insurance Ltd HC Auckland CIV-2009-404-5567, 8 November 2011.
16 Re Westpac New Zealand Ltd ex parte Jacob [2012] NZHC 729.
17 Lesa Systems Ltd v Canzac Ltd HC Christchurch CIV-2006-409-624, 4 October 2006.
18 New Pastures Ltd v FM Custodians Ltd HC Christchurch CIV-2009-409-231, 2 November 2009,
19 Scott v Miller HC Gisborne CIV-2009-416-236, 11 February 2011.20 Eden Refuge Trust v Hohepa [2012] NZHC 685.
(1) A party to a proceeding may make a written offer to another party at any time that—
(a) is expressly stated to be without prejudice except as to costs;
and
(b) relates to an issue in the proceeding.
(2) The fact that the offer has been made must not be communicated to the court until the question of costs is to be decided.
14.11 Effect on costs
(1) The effect (if any) that the making of an offer under rule 14.10 has on the question of costs is at the discretion of the court.
(2) Subclauses (3) and (4)—
(a) are subject to subclause (1); and
(b) do not limit rule 14.6 or 14.7; and
(c) apply to an offer made under rule 14.10 by a party to a proceeding
(party A) to another party to it (party B).
(3) Party A is entitled to costs on the steps taken in the proceeding after the offer is made, if party A—
(a) offers a sum of money to party B that exceeds the amount of a
judgment obtained by party B against party A; or
(b) makes an offer that would have been more beneficial to party B than the judgment obtained by party B against party A.
(4) The offer may be taken into account, if party A makes an offer that—
(a) does not fall within paragraph (a) or (b) of subclause (3); and
(b) is close to the value or benefit of the judgment obtained by party B.
[46] For present purposes, the relevant sub-rule is r 14.11(3)(b). As is discussed in cases such as McDonald v FAI (General Insurance Company Ltd), the effect of a Calderbank offer on an award of costs is fully discretionary.21 Such an offer does not stand alone. All the surrounding circumstances must be considered.
[47] In the present case, the argument for BCA is that the defendants ought to have accepted the offer contained in Mr Wright’s letter of 3 May 2011, because they would have been better off had they done so. The acceptance of the offer would have brought the proceeding to a much earlier end, with the result that the defendants would have saved significant legal costs.
[48] Mr Wright argues that BCA is entitled to an award of costs for the period following 3 May 2011. For that reason, and considering that submission, I must take
21 McDonald v FAI (NZ) General Insurance Company Ltd) (2002) 16 PRNZ 298 (HC) at [53].
into account all the circumstances of the case; even if I conclude that the defendants would have been better off to accept the offer, it does not follow that BCA is automatically entitled to an award of costs in consequence.
[49] The circumstances in which so-called Calderbank offers are made vary enormously.22 There is little to be gained from a detailed examination of decided cases. Each case much stand or fall on its own facts.
The issues
[50] Counsel on either side have raised a significant number of issues. Some involve overarching arguments which have the potential to affect the outcome of the entire costs analysis. Other arguments are simply concerned with matters of detail. Many of the issues overlap.
[51] In their written submissions and again in oral argument, counsel tended to approach the necessary analysis by reference to separate tranches embracing certain defined periods of time, but the tranches overlapped to a certain degree, and some of the arguments required consideration of more than one tranche.
[52] Although, overall, counsel’s arguments were very detailed and careful, the result was somewhat convoluted. I propose to deal first with the major questions of principle, and then to cover rather more briefly certain matters of less significance.
The search orders and injunctions
[53] The defendants submit that the plaintiff had no proper basis for seeking and obtaining search orders and injunctions without notice in October 2009, and that
their actions in doing so amount to very bad, or very unreasonable, behaviour so as
22 Examples are Eastern Agriculture Ltd v Manawatu-Wanganui Regional Council HC Palmerston North CIV-2008-454-31, 22 December 2011; Junior Farms Ltd v Commissioner of Inland Revenue (No.2) (2011) 25 NZTC 20-085; Bloor v IAG NZ Ltd HC Rotorua CIV-2004-463-425, 3 February
2011; Oraka Technologies Ltd v Geostel Vision Ltd HC Hamilton CIV-2005-419-809, 22 April 2010;
Wealand International (NZ) Ltd v Safe Kids in Daily Supervision Ltd HC Auckland CIV-2008-404-
4658, 24 February 2009.
to attract an award of indemnity costs, or alternatively a failure to act reasonably so as to justify the award of increased costs.
[54] It is important to note that the defendants do not argue that the proceeding ought never to have been issued. It is accepted that this is not one of the hopeless cases which will almost automatically result in an award of indemnity costs. Rather, the defendants’ point is that the plaintiff without justification obtained orders without notice (and maintained them for 18 months), which had the effect of restraining the defendants from competing with BCA and for practical purposes, meant that they could not even approach a BCA customer.
[55] The orders concerned were made on the basis of a statement of claim which alleged breach of fiduciary obligations and conspiracy in the context of BCA’s confidential information. In effect, BCA alleged that Mr Mehta in particular, and STA by association, acted dishonestly by appropriating confidential information associated with BCA’s business and then using it to further the interests of STA, at the expense of BCA. As counsel for the defendants say, allegations of that sort may be made only where there is sufficient evidence available to support them at the time they are made. Counsel for the defendants argue that BCA and its legal advisers never had sufficient evidence to support the making of search orders or the grant of injunctions without notice, and that the Court was effectively misled at the outset. Moreover, counsel maintain, the plaintiff’s position never improved as the case developed.
[56] Much of the argument on this issue centred upon what became known as exhibit H, which was in effect a schedule of BCA’s body corporate clients, including body corporate numbers and addresses, together with the date upon which a particular inquiry had been made in BCA’s computerised records and an indication of the type of document that had been viewed. Such documents included schedules of trustees, schedules of owners, details of levy demands and so forth. Exhibit H had been prepared by BCA on the strength of Mr Wendt-Thorne’s report. He was the computer expert instructed by BCA in 2009. Exhibit H purported to record the detail of certain computer searches made by Mr Mehta during the latter stages of his employment with BCA.
[57] In his reply submissions, Mr Thompson emphasised the point that the defendants’ argument was based on an allegation of impropriety by BCA in relation to a step in the proceeding.23 It was not about its entitlement to commence proceedings at all. Mr Thompson analysed the core elements of the defendants’ complaint as follows:
(a) By reference to information gleaned during the discovery and inspection process, it had become clear that BCA had commenced the proceeding and obtained the search orders and injunctions, without ever having retrieved and inspected the actual documents Mr Mehta was alleged to have viewed and then copied prior to the termination of his employment. In other words, Mr Thompson (supported by Mr Phillipps) submits BCA simply made assumptions from the number of inquiries apparently made by Mr Mehta through BCA’s computer system and the types of documents which he had apparently viewed, without ever going to the documents themselves;
(b)BCA’s application for interim relief was supported by affidavits which contained allegations that ought not to have been made without an inspection of the underlying documents, and their production to the Court, and
(c) The documents eventually produced by BCA were demonstrably inconsistent with some of the principal allegations in their affidavits, but were consistent with Mr Mehta’s strenuous rebuttals of those allegations.
[58] At the heart of BCA’s case lies the contention that Mr Mehta’s duties while employed by it could not have justified the scale and scope of the computer inquiries made by him in the period leading up to the termination of his employment. That assertion is vehemently denied by Mr Mehta, who says that he was responsible for a great many more bodies corporate than BCA admits, and that further, his duties were
much wider than BCA accepts. For example, he conducted a great many meetings of
23 High Court Rules, r 14.6(4)(a).
bodies corporate and was heavily engaged in debt collecting in respect of unpaid body corporate owner levies. BCA deponents claimed that Mr Mehta was responsible for a limited number of body corporate clients, and that his duties were relatively restricted.
[59] Counsel for the defendants engaged in a detailed analysis of exhibit H (and the accompanying exhibits I and J which were further iterations of exhibit H), for the purpose of showing that Mr Mehta was correct in his contentions as to the scope of his duties, and also that the documents now produced by BCA tend to support his version of events rather than that of BCA. In my view there is considerable substance in those submissions.
[60] But the Court’s present task is not to resolve the dispute by reaching a conclusion as to what evidence is to be preferred. That would be a task for trial. Counsel for the defendants have carefully eschewed any intention of inviting the Court to express a preference for the evidence of Mr Mehta over that of BCA’s witnesses. But for costs purposes, they say, it is permissible to analyse BCA’s evidence and test it against Mr Mehta’s evidence and the supporting documentary material, for the purpose of concluding whether or not BCA had a sufficient basis for seeking without notice search orders and interim injunctions. That distinction is perfectly valid but is nevertheless subtle. Some care is needed to avoid a merger of the two approaches.
[61] I have reached the conclusion that BCA had a sufficient basis for issuing the proceeding and seeking the interim orders. BCA (and Ms Beaton and Mr Kwok in particular), had its own view as to the range and extent of Mr Mehta’s duties while employed by it.
[62] It is impossible to say without further evidence and cross-examination, whether BCA’s evidence on the point reflects the genuine belief of the witnesses concerned. Mr Mehta was dismissed in the context of a report to BCA management by a fellow employee that he had spoken of setting up in competition with BCA. He had also admittedly been a participant in a secret commission arrangement while at
BCA (Mr Mehta has explanations in respect of these last two issues but at the moment that is beside the point).
[63] The evidence available to BCA following the production of the computer expert’s report suggested an unusual level of activity by Mr Mehta which BCA management considered out of the ordinary. Following Mr Mehta’s departure and his employment by STA, BCA found that competition by STA for BCA’s clients increased markedly.
[64] In those circumstances, there was sufficient material in my view to justify not only concern on BCA’s part, but also the decision to issue this proceeding and to seek interim relief. It is of course likely that BCA expected, on execution of the search order, to find that much of its material was now held by one or both of the defendants. In the event, that proved not to be the case, but that does not alter the analysis. As the proceeding developed, Mr Wright’s focus moved away from the material held on STA’s computers and concentrated rather more on several handwritten documents found to be in Mr Mehta’s possession. They included lists of bodies corporate with which he had been involved during his period of employment with BCA.
[65] The significance of the finding of those documents cannot be assessed in the context of the present application. They could be consistent with the concerns which impelled BCA to issue this proceeding. But the lists are equally consistent with legitimate competition between the parties.
[66] Although at one point counsel for the defendants argued that BCA was at fault both in obtaining the orders and later in maintaining them, counsel addressed no detailed argument on the latter aspect.
[67] The defendants propose to pursue a claim against BCA for damages in respect of the initial grant and then the maintenance of the interim injunctions based on the undertakings given by BCA at the outset. Such damages could well include additional costs arising out of the period of time for which the injunctions were maintained.
[68] In summary, I do not consider that it would be appropriate to award either indemnity or increased costs arising simply out of BCA’s decision to seek and obtain the search orders and interim injunctions, and then to maintain them.
The Calderbank letter
[69] In its letter of 3 May 2011, BCA offered to discontinue the proceeding on terms which, if accepted, would have obliged the defendants to accept a perpetual injunction in respect of BCA’s confidential information and to accept that costs were to lie where they fell.
[70] In August 2011, this offer was modified in respect of costs, to provide that the Court should determine existing costs issues in terms of the memoranda already filed, but that costs would otherwise lie where they fell.
[71] The defendants did not accept either offer. There was extensive interlocutory activity between May 2011 and April 2012. Mr Wright argues that the defendants ought not to receive any costs in respect of steps taken after 3 May 2011 because they should have accepted BCA’s offer of that date, which conferred on them a greater benefit than was subsequently achieved. Moreover, he argues, the defendants failure to accept the offer, coupled with their pursuit of discovery issues against the plaintiff for an alleged collateral purpose (the gathering of evidence for a proposed damages application) amounts to flagrant misconduct, or alternatively, the pursuit of an unnecessary step. The result, Mr Wright submits, is that not only should the defendants be refused costs for the period following 3 May 2011, but that the plaintiff ought to be awarded costs for that period on either an indemnity or an increased costs basis.
[72] Mr Wright’s argument is based on two complementary propositions:
(a) The defendants ought to have accepted the offer in the 3 May 2011 letter, and would have been better off had they done so;
(b)In any event, it must have been obvious to the defendants that if BCA was unsuccessful in obtaining leave to discontinue on terms, then it would simply discontinue unconditionally.
[73] I deal with each of these propositions in turn.
[74] I do not accept that the defendants would have been better off to accept BCA’s Calderbank offer. The proposed discontinuance was conditional upon the defendants consenting to a perpetual injunction without the plaintiff having established its case at trial. Mr Wright argues that such an injunction would simply declare the defendants’ legal position in any event, and so ought to have been of little significance to the defendants. I disagree. As was discussed at the hearing on
1 October 2012, the grant of a perpetual injunction would impose upon the defendants the risk of the imposition of a sanction for breach of a Court order (so placing the defendants in contempt) in circumstances where the injunction concerned was expressed so widely that the defendants could easily place themselves in breach unwittingly. Any approach to a client of BCA might attract an application for the imposition of penalties for contempt of Court. The defendants could not be expected to accept that state of affairs, especially in circumstances where BCA had decided that its case was not strong enough to justify the plaintiff continuing to trial.
[75] Mr Wright’s argument overlooked, I believe, the serious consequences of the grant of a perpetual injunction, and the gravity of the sanctions that could be imposed for breach. Accordingly, I am unsurprised that the defendants chose not to accept the Calderbank offer. There is no basis upon which it would be right to refuse the defendants’ costs or alternatively, to grant costs to the plaintiff, simply on the footing that the offer ought to have been accepted.
[76] Mr Wright’s second argument is that in any event, the defendants ought to have realised that BCA was prepared to discontinue unconditionally, and that accordingly, the defendant ought not to have taken any of the steps after May 2011 for which it now claims costs.
[77] For that argument he relies principally upon a memorandum filed and served on 17 August 2011, the day before the hearing before Ellis J. At paragraph 12 of his memorandum, Mr Wright indicated that the plaintiff no longer wished to pursue the claim. Expressed in that way, the indication is apparently unconditional. But it must be read in the context of the application of the same date in which the plaintiff, inter alia, sought leave to discontinue on the same terms as the Calderbank offer (as modified in August). In other words, the application sought leave to discontinue on terms. There is nothing to suggest that BCA would, in the alternative, seek leave to discontinue unconditionally.
[78] Moreover, at the hearing before Ellis J on 18 August 2011 and thereafter, BCA participated in timetabling and other arrangements in respect of the defendants’ forthcoming discovery and confidentiality applications. BCA must have been aware from the filing and pursuit of these applications by the defendants, that the defendants did not apprehend the possibility that BCA might seek leave to discontinue unconditionally. Counsel for the defendants say they were unaware until
17 April 2012, when I rejected the application to discontinue on terms, that BCA
intended in the alternative to seek leave to discontinue unconditionally.
[79] I accept that that was the situation in which the defendants found themselves, and that they were justified in assuming until 17 April 2012, that if BCA could not get leave to discontinue on the terms it sought then it would continue to trial.
[80] It follows from that conclusion, that I do not accept that the defendants were pursuing their discovery and confidentiality applications for a collateral purpose. They were entitled to assume that the plaintiff ’s case was going to trial and to prepare accordingly. For these reasons, I reject Mr Wright’s argument that the plaintiff ought to have increased indemnity costs (or indeed any costs) for the period after 3 May 2011. On the other hand, given Mr Wright’s advice to the Court, it appears that BCA’s intention from no later than May 2011, was to discontinue unconditionally if it could not obtain leave to discontinue on terms.
[81] If that was its position, then it ought to have brought the application for leave to discontinue on for hearing much earlier than it did, and then to have obtained
leave to discontinue unconditionally in the event that its preferred option was not acceptable to the Court. Moreover, it ought to have made quite clear to the defendants the fact that its ultimate intention was to discontinue in any event. Its failure to do so resulted in the defendants undertaking several steps at significant expense in circumstances where they would not have done so had they been aware of BCA’s true intention.
[82] I reject Mr Wright’s argument that the terms of the defendants’ notices of opposition to the application for leave to discontinue revealed an intention to pursue discovery and confidentiality issues against the plaintiff in any event for collateral purposes.
[83] Against that background, I consider BCA to have acted unreasonably, and that the defendants are entitled to an increase of 50% on the costs to which they would otherwise be entitled for the period following 3 May 2011, save for costs on the costs applications with which I deal separately below. The steps taken during this period comprise chiefly the giving of discovery by STA, the filing and pursuit of applications for particular discovery and in respect of confidentiality, and the defence of BCA’s application for leave to discontinue on terms.
[84] Mr Wright argues that the pending applications in respect of particular discovery and confidentiality were misconceived and were bound to fail when heard. I cannot of course determine the applications without hearing argument. They appear to be of substance and that is sufficient for present purposes.
Costs of the costs applications
[85] It is now well established that costs may be awarded in respect of an application for costs.24 An application for costs is to be treated no differently for costs purposes from an ordinary interlocutory application, so costs may be awarded
according to scale or on an increased or indemnity basis as appropriate.
24 See for example Auckland Regional Council v Arrigato Investments Ltd (2002) 16 PRNZ 217 (HC).
[86] At an earlier stage of the proceeding, costs memoranda were filed by counsel in compliance with a direction of the Court. Unfortunately they were not referred to me and remained unconsidered until now. Counsel for the defendants now seek costs both in respect of the earlier memoranda and now on the preparation of argument and the 1 October hearing. The defendants appear to claim costs in the round in the sense that the amounts claimed bear some relationship to the amounts actually incurred, rather than the relevant scale.
[87] There appears to be no warrant for a departure from the ordinary approach, which would be to start with an assessment according to scale and then to seek to have costs fixed in accordance with category C, in the event that the expenditure of an extraordinary amount of time could be established. Be that as it may, I have concluded that in this case there ought to be no order at all in respect of the various costs applications. That is because, on the major issue, upon which most time and effort was expended, I have rejected the defendants’ claim for increased or indemnity costs in respect of the whole proceeding, based upon the contention that BCA had no proper basis for obtaining the search orders and injunctions in the first place. Moreover, I have directed below that the defendants file further costs submissions. That will put BCA to further expense. Although the defendants will finish with a substantial award of costs, BCA has enjoyed some success on the costs argument.
Other issues
[88] In this section of the judgment I endeavour to deal with certain detailed matters of less moment that appear in counsel’s synopses of argument.
Filing of statements of defence
[89] Each defendant claims an amount above scale for the preparation, filing and service of a statement of defence. Mr Phillipps, for STA, argues that band C was appropriate for that work, by reason of the breadth and complexity of the issues to be considered and pleaded. Accordingly, STA claims $9,600 rather than the band B allowance of $3,200.
[90] Mr Thompson for Mr Mehta simply increases the band B allowance of
$3,200 by a figure of $5,000, which he says reflects the complexity of responding to a wide ranging statement of claim which was supported by numerous affidavits. However, he concedes that to some extent the additional costs reflect the cost of preparing affidavits in response to those of the plaintiff, so he has allocated some time to the preparation of affidavits, and the balance to the preparation of the statement of defence.
[91] I can see no warrant for the approach adopted by counsel for the defendants. I accept that this case was not without its complexities, but it did not call for a band C classification for these first steps and in those circumstances, the defendants must accept the costs available on a 2B basis. To some extent the regime operates on an unders and overs principle. Sometimes the scale will produce an over-recovery for a particular step, in other cases a party will recover less than might be thought appropriate. But the over-riding principle in r 14.2(g), is that as far as possible the determination of costs should be predictable and expeditious.
Costs on the hearings of 22 April 2010 and 15 December 2010
[92] As earlier recounted, the hearing on 22 April 2010 was followed by my judgment of 10 May 2010 in which I dismissed the defendants’ application for discharge of the search order, and adjourned the application for discharge of the interim injunctions on the ground that they were premature.
[93] The hearing of 15 December 2010 resulted in my judgment of 16 March
2011, in which I discharged Paragraph 12(b) of the search order, but perpetuated Paragraph 12(a). The ordinary rule that costs follow the event applies to interlocutory applications.
[94] At the first hearing BCA succeeded; the defendants succeeded at the second hearing, the principal objective of which was to enable the defendants to resume competition with BCA for their clients. I see no reason why the ordinary rule ought not to apply. Consequently, BCA ought to have its costs on the first judgment, and the defendants ought to have their costs on the second judgment.
[95] I have carefully considered all of the written submissions filed by counsel on this aspect of the costs argument. It is simply not possible to give a considered judgment on the strength of those submissions, because on either side they appear to have overlooked the outcome of the respective applications and to assume an entitlement to an award of costs, not only at scale but also on an increased or indemnity basis in some instances. I will require further submissions on this part of the case in the light of this judgment. Those submissions will need to take account of the outcome of each of the hearings, and then deal with costs on a scale basis, moving if necessary to an argument for increased or indemnity costs.
[96] Having said that, on the material presently available, I am unable to discern that either side has a credible basis for asserting that increased or indemnity costs might be available in respect of the respective interlocutory applications and the resulting judgments. There may be a case for an award at a band C level in a particular instance, but a case will need to be clearly made out for that.
[97] This aspect of the costs argument is accordingly formally adjourned for the filing of further submissions in the light of this judgment.
Defendants’ costs for period 15 December 2010 to 17 August 2011
[98] Mr Phillipps seeks an uplift of scale costs at 50% amounting to $11,562 plus disbursements, in respect of attendances between December 2010 and August
2011.25 The thrust of this claim appears to be that the defendants were obliged to
serve a notice for particulars, and then to bring a later application which ought not to have been necessary. Further, it is asserted that the plaintiff was dilatory with respect to its own discovery and that the defendants were thereby put to additional unnecessary work. But there seems to be also a suggestion that various steps taken by the second defendant during this period took longer than is allowed for by the scale. It is difficult to understand whether counsel is making a succession of separate points, or whether he relies upon the proposition that in all the
circumstances the second defendant ought to have an additional allowance.
25 See paragraphs 45-54 of his synopsis of 7 June 2012.
[99] Mr Wright opposes any additional allowance and points out some apparent arithmetical errors. A significant proportion of the work for which a claim is made during this period relates to steps taken after 3 May 2011. For that later period I have already allowed the defendants an uplift of 50% on scale. In my view, that is sufficient to reflect also any substance in Mr Phillipps’ argument under this head for increased costs.
Two sets of costs?
[100] Rule 14.15, set out earlier, provides that the Court must not allow more than one set of costs where several defendants defend a proceeding separately, if it appears to the Court that all or some of them could have joined in their defence, unless the Court considers there is good reason to do so. The objective underlying the rule is to minimise costs by requiring a Court to exercise some caution before awarding costs in favour of multiple parties, particularly where there is some overlap
or community of interest between them in relation to the litigation.26
[101] In a responsibly muted way, Mr Wright has alluded to the fact that the defendants here have been separately represented by counsel throughout and has suggested that on one or two occasions there may have been an unnecessary duplication of costs. He does not contend that the parties ought to have been represented by the same solicitors and counsel for all purposes.
[102] The commentary on r 14.15 in McGechan suggests that:27
The following principles emerge from the cases:
(a) The court will look in a realistic way at whether parties have common or overlapping interests and, if so, to what extent. A consideration is the extent to which separate cases were run against, and separate relief sought from, each defendant, and whether the impact on the defendants of granting that relief would have been identical or different.
(b) If defendants’ reputations are at stake (for example, where they are
alleged to have acted fraudulently or to have colluded in trading
26 Norfolk Trustee Co Ltd v Tattersfield Securities Ltd HC Auckland CIV-2004-404-3668, 30 March
2005 at [51], and Jordan v O’Sullivan HC Wellington CIV-2004-485-2611, 1 May 2009 at [7]-[13].
27 Andrew Beck & Ors McGechan on Procedure (online loose leaf ed, Brookers) at [HR 14.15.02].
unfairly), the court will be more ready to accept, as reasonable, separate representations.
(c) Whether the parties took legal advice as to the appropriateness of separate/joint representations and, if so, what it was and whether it was followed.
(d) The extent to which one party did or could have relied upon the evidence or submissions of another.
See: Apatu v Apatu HC Napier CIV-2007-441-823, 3 November 2011 at
[24]–[27]; Re Blue Chip New Zealand Ltd (in Liq) HC Auckland CIV-2009-
404-1511, 3 May 2011 at [17]–[19].
[103] In Jordan v O’Sullivan, Clifford J observed that relevant factors will include whether or not the plaintiffs ran separate cases against the defendants or sought separate relief from them, whether the defendants’ reputations were at stake (for example where there was an allegation of fraud), whether a conflict of interest was likely in terms of the way the plaintiffs ran their case, and/or whether the defendants’ relationship was such that they were justified in remaining at arm’s length from each
other.28
[104] Mr Thompson submits that the following factors point to the need for separate representation throughout:
(a) There were serious allegations of dishonesty made by BCA against Mr Mehta. Some applied solely to Mr Mehta, namely that Mr Mehta engaged in a secret commission scheme and wrongfully accessed and took its data. It also alleged Mr Mehta and Strata wrongfully used BCA’s confidential information.
(b) The court could conceivably have reached different decisions as to the involvement and liability of the two defendants which could have created outright conflicts of interest between them. He was entitled to independent legal representation to address all the issues which the plaintiff’s claim raised.
(c) Much of the information related solely to Mr Mehta’s conduct whilst at BCA and was exclusively in his knowledge. Only he could respond to it. that applied to all work in preparing his affidavits responding to the numerous affidavits accusing him of unlawful activity when employed by BCA. Likewise when formulating requests for further particulars or considering discovery, Mr Mehta had exclusive knowledge of the information he had used in his employment with BCA.
28 At [12].
(d) Likewise Strata had different interests in regards to the claims about its own database and claims that it had conspired with him after his sacking and used information which he had taken.
(e) Mr Mehta remains employed by Strata. In addition to reputational issues, there would have been significant implications if the Court made adverse findings against Mr Mehta. The injunction against Mr Mehta personally would have continued regardless of his status as an employee of BCA. The defendants could not have “joined in their defence”.
[105] I accept Mr Thompson’s submission. I have considered the instances in which Mr Wright says that the defendants ought to have avoided a duplication of costs, but I am satisfied that they have done what they could to that end. In particular, where substantial passages in the respective synopses of argument are identical, counsel have assured the Court that significant costs have been saved thereby.
[106] In oral argument, there was very little duplication in the separate arguments addressed to the Court by Mr Thompson and Mr Phillipps. On occasion, they carefully divided the issues between them so that there was no unnecessary repetition.
Delay
[107] On both sides there have been allegations of unnecessary delay by the opposing party, claimed to have escalated overall cost. But no precise particulars have been provided of additional costs occasioned thereby. The Court is told that total costs have grown because the case has taken too long.
[108] I agree that the proceeding ought to have been resolved long ago. There have been a number of unexplained delays, but I am not convinced that they are necessarily entirely the fault of either the plaintiff or the defendants. There seems to have been a period early in the proceeding where counsel for the defendants were prevented for some time from examining the products of the Court ordered search, and even then inspection was restricted to counsel. Likewise, there were difficulties over the inspection of documents discovered within BCA’s own records. But there
appear to have been delays also in respect of the production of the defendants’
records to the plaintiff for inspection. Again, there were personnel restrictions.
[109] These problems are not to be wondered at. They are encountered routinely in proceedings involving trade competitors. Nothing sufficiently specific has been placed before the Court to justify, on delay grounds, a variation of the orders that would otherwise be made.
Conclusions
[110] In this judgment I have ruled on certain arguments advanced by the parties, including several which are central to the resolution of issues relating to costs.
[111] In other instances and particularly on claims for costs in respect of the two earlier judgments and the legal work entailed in preparing for and arguing them), I have been unable to reach a reasoned conclusion because the arguments (particularly those of the defendants) appear to have departed from the settled results-based approach. Accordingly, for the reasons set out above, I have called for further submissions.
[112] I had contemplated giving judgment for an identified costs figure, but that has not proved possible at this point. First I need to resolve the question of costs on my two earlier judgments, but second, I have to some degree been overwhelmed by a plethora of tables and charts. Some have apparently incorporated scale costs; some have set out costs in excess of scale, some have set out a party’s actual costs. In some instances where precise information is needed, it seems not to be available in arithmetical form.
[113] For the foregoing reasons this is an interim judgment. In the light of the rulings contained in it, counsel are asked to file and serve:
(a) further memoranda setting out their arguments in respect of claims for costs on my earlier judgments. Where claims are made for increased costs then they must be particularised and be supported by evidence.
It is not sufficient simply to assert that a particular step took more time than is covered by the scale. A claim to band C costs must have some detailed factual support.
(b)In the light of this judgment and of the material submitted to the Court by memorandum under (a) above, counsel are asked to provide a comprehensive (and comprehensible) table setting out the detail of the costs claimed on either side, in a manner which renders it unnecessary for me to resort to earlier material filed.
[114] The foregoing memoranda should be filed and served: (a) By the defendants on or before 1 March 2013; (b) By the plaintiff on or before 15 March 2013;
(c) By the defendants in reply on or before 28 March 2013.
[115] Counsel are urged to consult and if appropriate to file a joint memorandum in respect of:
(a) Anything in this judgment which requires clarification;
(b)Any topic referred to in argument which appears to have been omitted from this judgment;
(c) Whether or not a telephone conference is desired at this point.
C J Allan J
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