Cayman Spectrum (NZ) Co v Spark New Zealand Trading Limited
[2024] NZHC 1671
•24 June 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-002687
[2024] NZHC 1671
BETWEEN CAYMAN SPECTRUM (NZ) CO
First Plaintiff/Counterclaim First Defendant
EVEREST WIRELESS PARTNERS I LP
Second PlaintiffAND
SPARK NEW ZEALAND TRADING LIMITED
First Defendant/Counterclaim Plaintiff
Hearing: On the papers Appearances:
A F Pilditch KC, M B Wigley and N M Foulis for Plaintiffs Z G Kennedy and M D Toulmin for Defendant
Judgment:
24 June 2024
JUDGMENT OF LANG J
[costs]
This judgment was delivered by Justice Lang On 24 June 2024 at 2.00 pm
Pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar
Date:…………………………
Solicitors/counsel:
Wigley and Company, Wellington/A F Pilditch KC, Auckland MinterEllisonRuddWatts, Auckland
CAYMAN SPECTRUM (NZ) CO v SPARK NEW ZEALAND TRADING LTD [2024] NZHC 1671 [24 June 2024]
[1] On 19 February 2024, I issued a judgment in which I dismissed claims by the first plaintiff, Cayman Spectrum (NZ) Co (Cayman) against the defendant, Spark New Zealand Trading Ltd (Spark).1 The second plaintiff, Everest Wireless Partners I LP (Everest), abandoned its claims against Spark at the commencement of the hearing.
[2] I dismissed the first cause of action in Spark’s counterclaim but entered judgment in its favour on the second. This related to a claim for compensation on a quantum meruit basis. The issue of quantum under this cause of action has yet to be determined.
[3] I am now required to fix costs in relation to the proceeding to date. In doing so I take the reader to be familiar with my judgment. I therefore do not propose to set out any of the background to the plaintiffs’ claims other than is necessary for present purposes.
Summary of issues
[4]I am required to determine the following issues:
(a)Should the plaintiffs be required to pay costs to Spark on an indemnity basis?
(b)If not, should I increase the costs payable for certain steps in the proceeding on the basis that the amounts recoverable under the High Court Rules 2016 (the Rules) do not provide adequate compensation for the time required to complete those steps?
(c)Should I require the plaintiffs to pay increased costs to Spark?
(d)What disbursements should Spark be able to recover?
[5] The plaintiffs oppose costs being awarded on either an indemnity or increased basis. They have instead proposed a practical approach that would result in Cayman
1 Cayman Spectrum (NZ) Co v Spark New Zealand Trading Ltd [2024] NZHC 107.
paying costs to Spark in the sum of $388,022.29 and Everest being jointly and severally liable for $314,986.54 of this sum.
1. Should the plaintiffs be required to pay indemnity costs to Spark?
Relevant principles
[6] There is no dispute regarding the principles that apply when indemnity costs are sought. I summarise them in accordance with Spark’s submissions. In short, indemnity costs may only be awarded against a party who has behaved either badly or very unreasonably.2 Examples of such conduct include:3
(a)the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud;
(b)particular misconduct that causes loss of time to the Court and other parties;
(c)commencing or continuing proceedings for some ulterior motive;
(d)doing so with wilful disregard of known facts or clearly established law; or
(e)making allegations that ought to have never been made or unduly prolonging the case by groundless contentions.
[7] Indemnity costs may be awarded where a party brings a case that is, objectively viewed, hopeless in the sense that it is totally without merit and bound to fail.4
2 Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [27].
3 At [29].
4 TheCircle.co.nz Ltd v Trends Publishing International Ltd (in liq and in rec) [2021] NZCA 235 at [34].
The argument for indemnity costs
[8] Spark seeks indemnity costs on the basis that Cayman and Everest acted very badly or very unreasonably in bringing and pursuing the proceeding because, from the outset, their case was based on the following speculative theory:
(i)Spark knowingly agreed to pay Woosh and Craig Wireless more than the market value of the 2300 spectrum in order to acquire Cayman’s property and rights under the NSA and GBA, and colluded with Mr Craig to put in place a series of transactions to achieve this outcome;
(ii)Spark knew that Mr Craig was advancing his own financial interests (through Craig Wireless and Woosh) at Cayman’s cost, and without Everest’s consent, in breach of the fiduciary duties he owed to Cayman;
(iii)Spark acted dishonestly in all the circumstances, including in responding to the Lowndes letter on 22 December 2015;
(iv)Spark was motivated to do so by the objective of depriving new entrants, primarily Mr Dick’s companies Blue Reach Services Limited and Blue Reach Wireless Limited (together, Blue Reach), of the opportunity to acquire the 2500 spectrum.
[9] Spark also contends that the plaintiffs’ case was based on conjecture and surmise rather than any credible factual basis. It says the plaintiffs’ case was shown to be misconceived before they issued proceedings or, at the very latest, upon completion of discovery and inspection.
[10] In addition, Spark contends that the plaintiffs alleged deliberate dishonesty and, for a time, fraud against Spark and its senior employees and executives. Finally, Spark contends the plaintiffs pursued the litigation for a collateral purpose, namely the advancement of the interests of companies in the Blue Reach group. These entities were not parties to the proceeding and had earlier unsuccessfully brought proceedings against Spark arising out of the same factual circumstances.
The acquisition by Spark of the 2300 spectrum
[11] Spark agreed to pay Mr Craig’s companies, referred to in the proceeding as Woosh and Craig Wireless, the sum of $9 million to acquire spectrum they held in the 2300 range. The plaintiffs contended that, in reality, Spark paid considerably more
than the spectrum was worth in order to acquire valuable commercial rights from Cayman under a Network Services Agreement (NSA) and a Guard Band Agreement (GBA). The NSA gave Spark the right of last refusal to purchase spectrum held by Cayman in the 2500 range.
[12]The final version of the statement of claim contained the following allegations:
203.The terms of the NSA enabled Spark to benefit by producing a situation by which the Cayman MRs [management rights] could be terminated by the Crown, including by enabling termination of the NSA by Spark, leading to that outcome.
204.CW [Craig Wireless] Interests were able to secure:
(a)more favourable terms on the sale of the Woosh/Craig MRs including higher sale prices and/or
(b)whether or not at a higher price, a sale of the Woosh/Craig MRs in any event, which would not otherwise have happened but for the NSA, the GBA and the Cayman assets and rights given to Spark.
[13] These pleadings were not amended prior to closing submissions being made. In closing submissions, counsel for Cayman confirmed that their client expressly abandoned the allegation that Spark paid a higher price than it would otherwise have done to obtain the 2300 spectrum. I had not appreciated that fact because the pleadings had not been formally amended. As I noted in my judgment,5 counsel for Cayman was unable to identify any other respect in which the agreements Mr Craig caused Cayman to enter into with Spark enabled his companies to secure more favourable terms for the sale of the 2300 spectrum than would otherwise have been the case.
[14] Spark contends that Cayman should have realised that its allegations in relation to the 2300 spectrum could never be sustained because of information Spark sent to the plaintiffs’ counsel at an early stage setting out the steps Spark had taken to ascertain the value of the 2300 spectrum it was seeking to acquire from Mr Craig and his companies.
[15] I accept that this information ought to have placed Cayman on notice that it may not be able to sustain its allegations. However, up until the commencement of
5 At [67].
the hearing it was entitled to rely on evidence Mr Dick had given on behalf of Everest and Cayman in an earlier arbitration in which they sued Mr Craig’s companies. In that arbitration, Mr Dick had given evidence that he was stunned when he heard Spark had agreed to pay the sum of $9 million to acquire the 2300 spectrum. He told the arbitrator that he believed this was approximately three times greater than the value of the spectrum at that time.
[16] By the time of the hearing in this Court, however, Mr Dick had evidently revised his opinion. He accepted in cross-examination that the 2300 spectrum was potentially worth considerably more than Spark had paid for it.
[17] For the reasons I give subsequently, I accept that Cayman’s approach to the issue of the sale of the 2300 spectrum justifies an award of increased costs. However, I am not satisfied that its conduct in pursuing this aspect of its claim reaches the threshold required for an award of indemnity costs.
Spark’s knowledge that Mr Craig was advancing his companies’ interests at Cayman’s cost and without Everest’s consent
[18] To the extent that this issue relates to the sale of the 2300 spectrum, it is tied very much to the issue I have just discussed, namely the terms on which Mr Craig and his companies sold the 2300 spectrum to Spark. It is not necessary for present purposes to consider it further.
[19] To the extent that it relates to the events leading to Cayman entering into the NSA and GBA, I need to bear in mind the fact that Mr Craig did not have the necessary authority to enter into those transactions on Cayman’s behalf and he did so without Everest’s knowledge and consent. Spark also undoubtedly benefited from the two agreements because of the commercial rights it obtained under them. In the end, the issue of whether Mr Craig breached his fiduciary duty to Cayman came down to whether he was acting in good faith and in Cayman’s best interests. I found that he was.6 However, this was a contestable issue and it cannot be said the plaintiffs acted very badly or very unreasonably in pursuing it.
6 At [139].
The allegation that Spark acted dishonestly after receiving the letter from Lowndes and Co on 22 December 2015
[20] Spark says that the plaintiffs should not have persisted with their allegations that Spark acted dishonestly, including in responding to the Lowndes letter on 22 December 2015.
[21] I found against Cayman on this issue because I considered that Spark’s response to the Lowndes letter was justified.7 Spark sought to maintain the status quo and leave any arguments as to its entitlements under the NSA and GBA to a later date. It therefore acted as an honest and reasonable person would have done once it received the letter from Lowndes on 22 December 2015.
[22] Two factors persuade me that Cayman did not act very badly or very unreasonably in persisting with this allegation. First, Everest and Cayman knew by 22 December 2015 that Mr Craig had entered into the agreements with Spark without Cayman’s authority and without Everest’s consent. They were therefore entitled to take such steps as they could to protect their respective positions. More importantly, one of the issues Spark was required to confront at trial was that Mr Craig failed to respond to several requests by Spark’s solicitors that he provide evidence of his authority to act on Cayman’s behalf. Spark also knew that Mr Craig had a partner who was paying close attention to the negotiations relating to the proposed NSA. This arguably meant that Spark was placed on notice of the possibility that Mr Craig did not have the necessary authority to enter into the agreements giving rise to the present litigation.
[23] I ultimately found that this would not have been sufficient to alert a reasonable person in Spark’s position to the likelihood that Mr Craig was acting without authority in causing Cayman to enter into the NSA and GBA.8 Again, however, I consider this was a contestable issue and does not justify an award of indemnity costs.
7 At [180].
8 At [166].
Did Cayman have a collateral motive for issuing and pursuing the proceeding?
[24] This issue relates to the fact that Mr Dick is the controlling force behind the Blue Reach group of companies. Blue Reach had earlier filed proceedings in which it made allegations against Spark based on alleged shortcomings in the information it gave to the Commerce Commission when it applied for clearance of the acquisition of the 2300 spectrum from Woosh and Craig Wireless. That proceeding was struck out by this Court,9 and an appeal to the Court of Appeal was unsuccessful.10 The Supreme Court also declined an application by Blue Reach for leave to appeal against the Court of Appeal’s decision.11
[25] It was plain when he gave evidence that Mr Dick still believes that Spark entered into the NSA so as to provide it with a means of ultimately acquiring Cayman’s 2500 spectrum and thereby depriving his Blue Reach companies of the opportunity to acquire it.
[26] I accept Spark’s submission that Mr Dick’s hostility towards Spark may well have underpinned his decision to cause the plaintiffs to issue and continue the present proceeding. However, the earlier proceedings related to a different issue than those raised in the present proceeding. Further, the present proceeding could never have benefited the Blue Reach companies because they were never parties to it. The only parties who could have benefited from a successful outcome were Cayman and Everest. I therefore do not consider this issue engages the principles relating to indemnity costs.
[27] For completeness, the Blue Reach companies supported the plaintiffs in an application to use documents discovered in this proceeding for a collateral purpose. I dismissed this application in a judgment delivered on 15 May 202312 and have also fixed costs on that application.13 The Court of Appeal is yet to hear an appeal by the plaintiffs against my decision. I do not consider this issue to be relevant for present purposes.
9 Blue Reach Services Ltd v Spark New Zealand Trading Ltd [2018] NZHC 847.
10 Blue Reach Services Ltd v Spark New Zealand Trading Ltd [2019] NZCA 2.
11 Blue Reach Services Ltd v Spark New Zealand Trading Ltd [2019] NZSC 65.
12 Cayman Spectrum (NZ) Co v Spark New Zealand Trading Ltd [2023] NZHC 1094.
13 Cayman Spectrum (NZ) Co v Spark New Zealand Trading ltd [2023] NZHC 1367.
The allegations made against Spark’s employees and executives
[28] Spark points out that, from the outset, the plaintiffs made serious allegations against Spark and, later, its senior employees and executives. The original version of the statement of claim contained an allegation that Spark had committed fraud under s 70 of the Radiocommunications Act 1989. The two subsequent versions of the statement of claim extended those allegations to named individuals. I did not find it necessary to deal with these allegations in my judgment because I did not find them to be relevant to the issues I was required to determine.
[29] I accept that allegations of this type can be extremely stressful to the persons involved. And, as my judgment demonstrates, the issues the plaintiffs sought to raise in this context were wholly collateral to the substance of the claims they made. Matters were also not helped by the fact that it took nearly four years for the proceeding to come to trial. The plaintiffs must bear much of the responsibility for this because of the way in which they conducted the case during the interlocutory phase.
[30] However, without wishing to diminish the gravity of the allegations for the persons affected by them, they formed a small part of the pleadings and did not feature at all in the evidence given at trial. Whilst regrettable, I do not consider this aspect of the plaintiffs’ conduct justifies an award of indemnity costs.
[31]It follows that I do not consider that an award of indemnity costs is justified.
2. Should costs be increased for steps taken in the proceeding because the costs recoverable under the Rules do not provide adequate compensation?
[32] Counsel for Spark have set out in a schedule attached to their submissions the costs that they seek for interlocutory steps for which costs have not yet been fixed. Spark seeks costs on a band A basis for some steps and on a band B basis for others. It seeks costs on a band C basis for four steps that involved significant expenditure of
time and effort.14 With one exception, I approve all these claims. I also approve the claim for second counsel for the trial.
[33] The exception relates to three days claimed for the preparation of the memorandum seeking costs. The Court does not usually award costs for this step although it undoubtedly has the power to do so. In the present case I have not upheld some of Spark’s submissions as to costs. I award costs calculated on the basis of one day for this item.
[34] For some steps, however, Spark contends that costs on a band C basis would not be sufficient to reflect the time and cost it took to complete them. The Court has the power to award increased costs when the costs recoverable under band C of the Rules do not provide adequate compensation.15 In the present case Spark contends that the costs recoverable under band C do not provide adequate compensation for the following steps:
Filing statements of defence
[35] Spark was required to file three statements of defence to respond to the original statement of claim and the two subsequent amended versions of that document. Under band C it would be entitled to costs calculated on the basis of six days for the original statement of defence and two days each for the second and third.
[36] The time records kept by Spark’s solicitors show that they spent 22.4 days preparing the original statement of defence, 15.5 days preparing the second and 12 days preparing the third. This reflects the fact that the original statement of claim contained 179 paragraphs, the second contained 203 paragraphs and the third contained 236 paragraphs. Spark seeks to be reimbursed on the basis of 11 days for the original statement of defence, eight days for the second and five and a half days for the third.
14 These comprise preparation of a notice seeking further particulars of the plaintiffs’ claims, preparation of a memorandum dated 3 June 2019, preparation of an application for security for costs and inspection of the plaintiffs’ discovered documents.
15 High Court Rules 2016, r 14.6(3)(a).
[37] I accept that all three versions of the statement of claim were extremely lengthy and discursive documents that contained a wide range of factual allegations. It is not surprising that Spark’s advisers expended considerable effort to respond to them. I too allow recovery for these steps as sought by Spark.
Discovery
[38] Recovery under band C for this step would result in costs being calculated on the basis of seven days. Time records show that Spark’s advisers spent 48 days attending to this step of the interlocutory process. Spark seeks costs calculated on the basis of 35 per cent of the time actually spent attending to discovery. This would equate to 17 days. It cites the approach taken in Trustpower Ltd v Commissioner of Inland Revenue16 and Mainzeal Property and Construction Ltd (in liq) v Yan17 as authority for this.
[39] I accept that discovery in the present case was a particularly complex and time consuming exercise because of the nature and scope of documents involved. It involved the manual review of more than 15,000 documents spanning a six-year time period. I consider the approach suggested by Spark is reasonable in the circumstances. I make an award of 17 days accordingly.
Preparation of briefs of evidence
[40] The hearing took nine days in total. Under band C, Spark would receive costs calculated on the basis of eight days for preparing briefs of evidence. However, time records show that Spark’s advisers spent a total of just over 71 days preparing and reviewing the briefs of evidence for its seven witnesses. This reflects the fact that Spark’s evidence related to events that occurred in 2015 and 2016 and needed to explain several agreements and transactions in considerable detail.
[41] Spark seeks a total of 20 days to reflect this step. Again, I consider its approach to be reasonable and make an award on the basis it seeks.
16 Trustpower Ltd v Commissioner of Inland Revenue [2014] NZHC 3072 at [15]-[16].
17 Mainzeal Property and Construction Ltd (in liq) v Yan [2019] NZHC 1637 at [51].
Should Cayman and Everest pay increased costs to reflect the manner in which they conducted the proceeding?
[42] Rule 14.6 sets out the circumstances in which the Court may make an award of increased costs. It relevantly provides:
(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
…
(2)The court may make the order at any stage of a proceeding and in relation to any step in it.
(3)The court may order a party to pay increased costs if—
(a)the nature of the proceeding or the step in it is such that the time required by the party claiming costs would substantially exceed the time allocated under band C; or
(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
(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
…
[43] Costs have already been fixed in relation to several interlocutory steps for which I was required to issue judgments. For some of these Spark sought and was awarded increased costs. I do not propose to re-visit or modify any of those awards now. Nothing that has emerged at trial would justify me doing so.
[44] However, I consider that both Cayman and Everest should jointly pay increased costs for all other steps taken up until the commencement of the trial to reflect the manner in which they conducted the proceeding during the interlocutory phase. Cayman should also pay increased costs in relation to the trial. Everest did not participate in the trial.
[45] I propose to award increased costs because I consider that Cayman and Everest unnecessarily prolonged and increased the cost of the proceeding in several ways. First, by maintaining their claim in relation to the 2300 spectrum when they must have become aware prior to trial that it was unlikely to succeed. It is reasonable to assume that Mr Dick provided counsel with instructions. By the time of the trial he must have appreciated that he could not maintain, as he had done at the earlier arbitration, that Spark had paid Woosh and Craig Wireless more than the 2300 spectrum was worth. The plaintiffs would also have known that Spark had conducted its own research into the likely value of the spectrum.
[46] Other than the sale price achieved for the spectrum there was no other benefit to Mr Craig’s companies from the sale. The circumstances surrounding the sale and purchase of the 2300 spectrum nevertheless occupied a considerable amount of hearing time at the trial. This was because Spark’s witnesses were obliged to describe and be cross-examined at some length about the events that led to the purchase of that spectrum.
[47] I consider that the plaintiffs also unnecessarily contributed to the cost of the interlocutory process by maintaining for a considerable period that the discussions between 2degrees Wireless Ltd and Spark in early 2016 were relevant in some way to their claim. I did not find it necessary to refer to these at all in my judgment because I saw no relevance in them.
[48] Similarly, the plaintiffs continued up until trial to persist with their allegations about the conduct of Spark’s employees and executives when that had no relevance to their claim. I did not find it necessary to address this issue at all in my judgment. The plaintiffs also continued to maintain that Spark was motivated by its desire to prevent
the Blue Reach companies from gaining a foothold in the market when that was simply not borne out on the evidence.
[49] I consider the plaintiffs took all these steps without reasonable justification and thereby unnecessarily contributed to the time and cost of the proceeding.
[50] Spark also relies on the fact that, on 30 April 2020, it invited the plaintiffs to withdraw their claims on the basis that costs would lie where they fell. Its solicitors had earlier sent the plaintiffs’ solicitors a detailed letter explaining why, in their opinion, the plaintiffs’ claims could not succeed. Spark contends that the plaintiffs rejected this offer without reasonable justification and increased costs are justified under r 14.6(3)(b)(v) as well.
[51] I do not accept this submission. I found that Mr Craig acted without Cayman’s authority and Everest’s consent when he caused Cayman to enter into the NSA and GBA.18 He had also made Spark aware of the fact that he had a partner in relation to the 2500 spectrum. In addition, he told Spark that this person was proving difficult in relation to key features of the proposed NSA from Spark’s perspective. Further, Spark had been unsuccessful in its attempts to have Mr Craig provide evidence of his authority to enter into these transactions on Cayman’s behalf. This meant that the plaintiffs had an arguable case that, to Spark’s knowledge, Mr Craig had acted in breach of his fiduciary duty to Cayman (and possibly Everest) in entering into those transactions. I therefore do not consider the plaintiffs’ decision to reject the offer of settlement was without reasonable justification.
Order
[52] Taking the above factors into account I make an order that Cayman and Everest are jointly and severally to pay costs on a category 3 basis but increased by 30 per cent for all steps for which costs have not yet been fixed up until the trial. Cayman is to be solely liable on the same basis for the costs payable in relation to the trial.
18 Cayman Spectrum (NZ) Co v Spark New Zealand Trading Ltd, above n 1, at [107].
Disbursements
[53] Spark seeks disbursements in the sum of $45,945.79. This comprises filing fees of $1,991.29 together with the amount paid to two litigation support providers who have hosted information and documents generated during the discovery process.
[54] Mr Wigley suggests on the plaintiffs’ behalf that Spark should be awarded one- half of the amount claimed for the services provided by the litigation support providers. However, I can see no principled reason to take that approach. Spark has incurred these costs in meeting its discovery obligations and there is no reason to deny it recovery in full. Cayman and Everest are therefore jointly and severally liable to reimburse Spark its disbursements in the sum of $45,945.79.
Leave reserved
[55] Counsel are to endeavour to reach agreement regarding quantification of the sums to be paid by Cayman and Everest so that an order can be sealed. Both parties have leave to file further memoranda should they encounter any difficulty in giving effect to this judgment.
[56] Spark has signalled an intention to apply for an order requiring Mr Dick to pay costs personally if Cayman and Everest are unable to pay the costs awarded in this judgment. It does not require the Court’s leave to take that step if it wishes to do so.
Lang J
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