Downie Family Trust v Kevin McDonald & Associates HC Auckland CIV 2010-044-820

[2011] NZHC 843

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2010-044-820

BETWEEN  DOWNIE FAMILY TRUST First Plaintiff

ANDDUNCAN BARRY MCFARLANE Second Plaintiff

ANDKEVIN MCDONALD & ASSOCIATES First Defendant

ANDBRIDGING FINANCE LIMITED Second Defendant

Hearing:         On the papers

Counsel:         SE Sharp for plaintiffs

KB Harvey for first defendant
BMK Pamatatau for second defendant

Judgment:      25 July 2011 at 4:45 PM

JUDGMENT OF ASSOCIATE JUDGE FAIRE [on costs]

Solicitors:           Sharp Legal, PO Box 9686, Wellington 6141

Robertsons, PO Box 2068, Auckland 1140

Stuart Pollard, Private Bag 93 512, Auckland 0740

DOWNIE FAMILY TRUST V KEVIN MCDONALD & ASSOCIATES HC AK CIV 2010-044-820 25 July 2011

[1]      The first and second plaintiffs filed notices of discontinuance in this Court on

18 April 2011.

[2]      Memoranda were filed on behalf of the first and second defendants seeking costs consequent upon the notices of discontinuance.

[3]      The defendants understandably relied on High Court Rules, r 15.23, which provides:

15.23   Costs

Unless the defendant otherwise agrees or the court otherwise orders, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance.

[4]      In Kroma Colour Prints Ltd v Tridonicatco NZ Ltd the Court of Appeal summarised the general approach to be applied in considering applications for costs where a notice of discontinuance has been filed.[1]    Importantly, the court does not speculate on the merits of a case it has not heard.  That aspect would only influence the court’s decision on costs in exceptional cases where the merits are clear..

[1] Kroma Colour Prints Ltd v Tridonicatco NZ Ltd (2008) 18 PRNZ 973 (CA).

[5]      This case does not follow the normal procedural course of a proceeding commenced in the High Court.  It is therefore necessary to review the various steps that were taken.

[6]      The proceeding was commenced by the plaintiffs in the North Shore District Court by a notice of claim on 7 May 2010.  A review of that notice reveals that the first plaintiff claimed the sum of $68,520.88, which was made up of a deposit, legal costs and damages for inconvenience.   The second plaintiff claimed the sum of

$25,000 which was said to be compensatory damages for distress and inconvenience.

In addition, costs of $2,160 were claimed.

[7]      The claim arises out of a cancelled sale and purchase agreement which led to a loss of the deposit paid by the first plaintiff.   The sale and purchase transaction followed a mortgagee sale auction.   The first defendant was the solicitor for the mortgagee and the second defendant was the mortgagee concerned.  The plaintiffs’ complaints relate to whether there has been a proper compliance with the provisions of  the  Property  Law Act  2007,  particularly in  relation  to  the  giving  of  notices required by that Act to the mortgagor of the subject property.  The plaintiffs allege that the first and  second defendants, more particularly the first defendant,  gave misleading statements concerning the legal requirements that must be present for a mortgagee sale to be undertaken.   The plaintiffs allege in the pleading that that conduct by the defendants was misleading, justifying relief in terms of the Fair Trading Act 1986.

[8]      The  District  Courts  Act  1947,  s 29  gives  the  District  Court  a  general jurisdiction to hear and determine any proceeding where the debt, demand or damages, or the value of the chattels claimed, is not more than $200,000.

[9]      The claim filed by the plaintiffs in the North Shore District Court therefore fell within the general jurisdiction of the District Court to hear and determine proceedings.

[10]     The first defendant gave notice requiring the transfer of the proceeding to the High Court on 16 June 2010.   Although the notice did not directly refer to the statutory basis for it, it is clear that it was given in reliance on the District Courts Act

1947, s 43(1).  Section 43(1) provides:

43     Transfer to High Court of proceeding within jurisdiction

(1)     Where there is commenced in a Court any proceeding in which the amount of the claim or the value of the property or relief claimed or in issue exceeds

$50,000, the defendant in the proceeding may, within such time as may be

prescribed or at any time thereafter by leave of the Judge, give notice that the defendant objects to the proceeding being tried in the Court, and, where notice is so given, the Judge shall order that the proceeding be transferred to the High Court.

[11]     Because there was some doubt as to the position of the second defendant, a further memorandum was filed with the District Court entitled Joint memorandum of counsel on 2 August 2010 in which the second defendant joined in the request for transfer of the proceeding to the High Court.  As a result, Judge Hinton transferred the proceeding to the High Court in an order made on 10 August 2011 and sealed on

11 August 2010.

[12]     It is appropriate to record that the District Court was required to transfer the proceeding, having regard to the notice that had been given.  That was because the amount of the claimed exceed $50,000.  Claims which are transferred to the High Court pursuant to the District Courts Act 1947, s 43 cannot be returned to the District Court if the High Court does not consider it appropriate that they remain in that court.  That position must be contrasted with the position of a case filed first in the High Court and which is within the general jurisdiction of the District Court.  In that situation the High Court may transfer the proceeding to the District Court, acting in reliance on the District Courts Act 1947, s 46.    Section 46 provides:

46     Transfer of proceeding from High Court to District Court

(1)      If, where a proceeding has been commenced in the High Court,—

(a)      An agreement is made under the provisions of section 37 of this Act that a District Court shall have jurisdiction; or

(b)      The   subject-matter   of   the   proceeding   is   within   the jurisdiction of District Courts,—

the High Court or a Judge of that Court may, on the application of any party to the proceeding, order that the proceeding be transferred to a District Court.

(2)       Where the subject-matter of a proceeding that has been commenced in the High Court is within the jurisdiction of District Courts, the High Court or a Judge of that Court may, of its or the Judge's own motion, order that the proceeding be transferred to a District Court unless,  in  the  opinion  of  the  High  Court  or  the  Judge,  some important question of law or fact is likely to arise in the proceeding.

[13]     A defendant, in respect of a claim commenced in the District Court which exceeds $50,000 but is otherwise within the general jurisdiction of the District Court is in the unique position of being able to require the proceeding to be determined in the High Court.

[14]    The plaintiffs’ position in respect of a proceeding which is within the jurisdiction of the District Court is covered by High Court Rules, r 14.13 which provides:

14.13   Proceedings within jurisdiction of District Court

Costs ordered to be paid to a successful plaintiff must not exceed the costs and disbursements that the plaintiff would have recovered in the District Court if the proceeding could have been brought there, unless the court otherwise directs.

[15]     By definition that rule does not specifically apply to a position where a defendant gives a notice pursuant to the District Courts Act 1947, s 43(1).  Provision is made, however, in s 43(3) for the judge making the order of transfer to require a defendant to give security for costs of the proceeding in the High Court.  I mention that provision although no specific order was made by the District Court judge in this case.

[16]     This file was considered by me on 15 June 2011 and resulted in my issuing a minute drawing attention to a number of matters and, in particular, requesting that further memoranda be filed on the following issues:

(a)      Whether the defendants’ costs should be limited to that which is recoverable in the District Court and, if so, what that amount is; and

(b)Whether there is justification for treating this as an exceptional case and therefore calling for a review of the merits, particularly when no affidavits in opposition to the summary judgment application have even been filed.

[17]     I directed in the minute a timetable for the filing of additional memoranda to cover the above issues.

[18]     Counsel for the second defendant has filed a memorandum as a result and advises that the second defendant accepts that its costs should be limited to that which is recoverable in the District Court.   Further, counsel submits that the appropriate category for costs that should apply for the proceeding is Category 2. Counsel  submits  that  the appropriate  band  for  the steps  that  were taken  in  the

proceeding should be Band B.  The category is fixed having regard to the criteria set out in the District Court Rules 2009, r 4.3  The band is set having regard to the time which is considered  reasonable for  a step and,  in particular, as provided for in District Court Rules 2009, r 4.5.   Counsel’s calculation of the appropriate allowance for costs for the steps taken was $5,550.  Counsel for the plaintiffs accepts that the second defendant’s calculation and claim for costs and disbursements in the sum of

$5,682.89 is appropriate.   In view of that concession the orders that I make at the conclusion of the judgment will reflect that position.

[19]     The first defendant takes a different position. [20]      The first defendant submits that:

(a)      They have always taken the position that the claim against them by the plaintiffs lacked merit and could not possibly succeed.  They say they asked the plaintiffs not to issue the proceedings in the first place. That invitation was declined and the proceedings were issued.  They asked the plaintiff not to proceed with the proceeding. That invitation also was declined.

(b)      The first defendant wished to strike out the plaintiffs’ claims.  Counsel

then submitted:

In terms of the new procedures extant in the District Court the first defendant could not make such application in terms of District Court Rules 2.50 until such time as the parties had completed all of the steps in the notice of claim procedure, including steps relating to the notice of claim, response   by   defendant,   the   exchange   of   information capsules, a claim allocation, a judicial settlement conference and then the filing of a notice of pursuit of claim.

(c)      Counsel next submitted that rather than putting the parties to the costs and delays involved in following the procedure outlined above, the defendants elected to apply to transfer the proceedings to the High Court in order to avail themselves of a process no longer available at the early stage in the District Court.

(d)The defendants’ position is that the steps taken in the High Court following the transfer could not have been taken in the District Court and that accordingly, this Court’s costs are the appropriate costs to be ordered.

(e)      Accordingly, the circumstances justify an order for indemnity costs or, alternatively, increased costs.

[21]     The first defendant acknowledges that :

(a)       The plaintiffs’ claim is within the general jurisdiction of the District

Court; and

(b)The claim itself does not comprise a complexity such as to warrant a hearing in the High Court.

[22]     The issue raised in this case is one of the quantum of costs.  The plaintiffs do not oppose the principal enshrined in High Court Rules, r 15.23, namely that the plaintiff who discontinues a proceeding against the defendant must pay costs to the defendant of and incidental to the proceeding.

[23]     When the court considers costs that are to be paid to the defendant of and incidental to a proceeding up to and including the discontinuance in terms of High Court Rules, r 15.23, the court applies the general cost rules that are set out in Part

14.   It is to that part that I must refer in determining the quantum of costs:   Lesa Systems Ltd v Canzac Ltd; Parts Import Co v Tse.[2]   However, before doing so I must consider whether costs according to the District Court scale as opposed to the High Court are appropriate.

[2] Lesa Systems Ltd v Canzac Ltd HC Christchurch CIV 2006-409-624, 16 May 2006; Parts Import

Co v Tse HC Auckland CIV 2007-404-6648, 31 March 2009.

[24]     I consider the second reason advanced by the first defendant for referring the proceeding to the High Court, which I have set out in [20](b) of this judgment.

[25]     Rule  2.49  of  the  District  Court  Rules  2009  deals  with  interlocutory applications.  The specific portions of that rule dealing with strike out applications are as follows:

2.49.3   A party may apply for any of the following in a proceeding by making an interlocutory application after the proceeding starts:

Nature of application	Rule(s)
…
5.	Striking out pleading, staying or dismissing proceeding, or applying for indemnity costs	2.50

[26]     Rule 2.50 of the District Court Rules provides:

2.50Striking out pleadings, staying or dismissing proceedings, and costs for want of prosecution

2.50.1The court may order that the whole or any part of a pleading be struck out if the pleading—

(a)       discloses no reasonable cause of action, defence, or case appropriate to the nature of the pleading; or

(b)       is likely to cause prejudice, embarrassment, or delay in the proceeding; or

(c)       is otherwise an abuse of the process of the court.

2.50.2 An order under rule 2.50.1 may be made at any stage of the proceeding, and may be subject to any terms that the court considers appropriate.

2.50.3The  court  may  order  that  a  proceeding  be  stayed  or  dismissed generally or in relation to any claim for relief if the court considers that—

(a)       no reasonable cause of action is disclosed; or

(b)       the proceeding is frivolous or vexatious; or

(c)       the proceeding is an abuse of the process of the court.

2.50.4   A defendant may apply for indemnity costs under rule 4.6.4(f) if—

(a)       the  defendant  has  served  the  defendant's  response  in accordance with rules 2.12 and 2.13 but the plaintiff has not

served  the  plaintiff's  information  capsule  within  the  30- working-day period stated in rule 2.14.1; or

(b)       the defendant has served the defendant's information capsule in  accordance  with  rule  2.15  but  the  plaintiff  has  not pursued the plaintiff's claim under rule 2.17 within the 90- working-day period stated in rule 2.17.4.

[27]     It is appropriate to note that no time limits are laid down for the making of an application to strike out. The notes in Civil Procedure, District Courts and Tribunals contains the following comment:[3]

[3] Civil Procedure, District Courts and Tribunals (Vol 1) 2.50.11.

DR2.50.11       Time of application

No time limits are laid down under the rule.  The application may be brought at any time.  However, with all such applications, it is preferable that they be brought at as early a stage as possible.   Indeed, it is permissible to bring them before a statement of defence has been filed:

[28]     The position with respect to strike out applications must be compared with a number  of  other  applications  that  are  referred  to  in  r 2.49.4,  for  example,  an application for summary judgment.  There is, in such a case, a deferral of the time when applications can  be made to the time at or after the start of a directions conference for the proceeding.  It is important to note, however, that that time limit does not apply to the strike out application.

[29]     The strike out application could have been made in this case at any time after the proceeding starts.

[30]     Rule 1.8 defines proceeding as any application to the court for the exercise of

the court’s civil jurisdiction.

[31]     Rule 2.10.1 provides:

2.10     Plaintiff to file and serve notice of claim

2.10.1   A plaintiff starts a proceeding … by filing a notice of claim in form

2.

[32]     I conclude, therefore, that an application to strike out could have been made in the District Court at any time after the filing of the notice of claim on 7 May 2010. The second reason that I consider to be the principle reason for transfer of the proceedings to the High Court is simply not made out and is not justified.

[33]     Counsel referred to Sanson v Parval Marketing Ltd where Asher J had to determine to the High Court scale or the District Court scale should apply.[4]  He said:[5]

[4] Sanson v Parval Marketing Ltd HC Auckland CIV 2006-404-7231, 7 July 2008.

[5] Ibid at [5].

It is clear from the wording of the rule that the Court starts with the proposition that if the proceeding might have been brought in the District Court, that the District Court scale should apply.  The rule does not set out any principles to be applied in considering whether the Court should “otherwise direct”.  In Killalea v In Print Publishing Co. Ltd [1966] NZLR

70, Woodhouse J observed that the rule that then applied, the wording of which was similar, was designed to minimise costs by persuading litigants to

accept the jurisdiction of the lower Court, but that practical considerations had   to   be   applied   with   reasonable   flexibility.      Certainly   if   in   a

straightforward proceeding the amount recovered is less than the present District Court upper limit of $200,000, the Court might take some persuasion before it ordered High Court costs.  However, as Woodhouse J observed at

71:

On the other hand it is not enough to show that a case could have been disposed of satisfactorily in the lower Court; the question is rather whether the case was a proper one to bring in the Supreme Court, and in the final analysis this problem is one of degree: William v Allen (1889) 60 L.T. 103,

104.

[34]     I have already recorded the concession made by the first defendant, namely that the claim is within the general jurisdiction of the District Court and that it does not comprise a complexity such as to warrant a hearing in the High Court.

[35]     I conclude that there is no justification for applying the High Court scale of costs consequent on the plaintiffs’ filing of the notice of discontinuance in this proceeding.

[36]     Counsel  for  the  first  defendant  set  out  in  his  first  memorandum,  dated

13 June 2011, a calculation of costs based upon the District Court scale.  He set it out as follows:

District Court Scale Costs

Activity	Allocated Day or Days or Part Days	Amount ($1,500 daily rate)
Response or defence by defendant	1.0	$1,500.00
Preparing and filing summary judgment application and supporting affidavits	0.4	600.00
Sealing order or judgment	0.2	300.00
Sub total	$2,400.00
Disbursements
Filing fee	613.13
Total	$3,013.13

[37]     It is perhaps ironic that counsel’s memorandum referred to the preparation of a summary judgment application, although counsel’s submissions were put on the basis that it was the strike out proceeding, or aspect of the proceeding, that was the reason for the transfer.  I proceed on the basis that I should deal with the need for the transfer as being a desire to strike out the proceeding in the first place.

[38]     The steps that are identified in counsel for the first defendant’s summary accord, so far as they deal with category, with r 4.3 and so far as they relate to the allowance of a reasonable time for the steps taken, with r 4.5 and Band B of the District Court Rules.  The schedule did not, however, take into account Item 9.8 of the Third Schedule of the District Court Rules dealing with the filing of memoranda and Item 9.9 dealing with the appearance at a judicial conference.  Both matters were also covered by the second defendant.   I consider that although they were omitted from the first defendant’s memorandum, they should at least be included in the order that is made.  The effect is to increase the order by 0.8 of a day, covering both these matters and by the numerical sum of $1,200, so that the total amount based on Category 2, Band B according to the District Court scale that should be allowed for the first defendant is $4,213.13, including disbursements.

[39]     I next consider the remaining grounds.   I do not consider that this is an appropriate case for me to look in depth at the merits of the case because the death of Mr McFarlane, who would have been the deponent relied upon by the plaintiffs to oppose the application has meant that no evidence in opposition could be advanced directly on the merits.   His death is said to have been the principal reason for the notice of discontinuance, as far as the plaintiffs’ were concerned.  Accordingly, I see no reason to depart from the general position that applies where a notice of discontinuance is filed and was set out and endorsed by the Court of Appeal in

Kroma Colour Prints Ltd v Tridonicatco NZ Ltd.[6]

[6] Kroma Colour Prints Ltd v Tridonicatco, above n 1.

[40]     There is next the question of the warning that was given that costs would be sought if the defendants were successful and that that might include a claim for indemnity costs.  Claims for increased and indemnity costs in the District Court are covered by District Court Rules, r 4.6 which follows closely High Court Rules, r 14.6.  Rule 4.6.4 defines the circumstances where an award of indemnity costs can be made.   I have carefully examined each part of that rule and have come to the conclusion that the facts of this case do not justify an award of indemnity costs pursuant to r 4.6.4.  The High Court equivalent rule was analysed by the Court of

Appeal in Paper Reclaim Ltd v Aotearoa International Ltd.[7]    In Hedley v Kiwi Co-

operative Dairies Ltd Goddard J said “Such authorities as there are indicate that

indemnity costs are awarded where truly exceptional circumstances exist”.[8]

[7] Paper Reclaim Ltd v Aotearoa International Ltd [2006] 3 NZLR 188.

[8] Hedley v Kiwi Co-operative Dairies Ltd (2002) 16 PRNZ 694 (HC) at [8].

[41]     There is simply nothing in this case, in my view, which would justify an award of indemnity costs.

[42]     I next consider the question of increased costs.   Increased costs may be awarded if any of the matters that are referred to in District Court Rules, r 4.6.3 apply.  That rule, like the previous one analysed, is similar in effect to High Court Rules, r 14.6(3).  In Holdfast NZ Ltd v Selleys Pty Ltd the Court of Appeal provided

guidance on the correct approach where an award of increased costs is sought.[9]   Four

steps require analysis.   The first is the establishment of the category for the proceeding.   There is no dispute about this, it is Category 2.   The second step requires consideration of the reasonable time for each step in the proceeding.  Once again, there is nothing before me to suggest that Band B was not an appropriate time allowance for the steps that were taken.  Certainly, there is nothing in terms of the third step required to be undertaken which would justify the position that the time allowance substantially exceeds that allowed under Band C.  The fourth step requires me to stand back and look at the cost awards and determine whether any of the matters  that  are set  out  in  the rule can  be  applied.   At  this  early stage of the proceeding, I am of the view that none can.  The position might have been different had the matter proceeded and affidavits been filed.   However, that is not the case here.  Accordingly, I conclude that there is no justification for an award of increased costs in terms of the District Court Rules.

[9] Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897.

[43]     The conclusions I have reached and the position that has been agreed upon, as far as the second defendant is concerned, result in there being proper grounds for an  award  of  costs  in  favour  of  the  first  defendant  being  made  in  the  sum  of

$4,213.13, including disbursements and an award in favour of the second defendant in the sum of $5,682.89, including disbursements, being made.

[44]     I order accordingly.

JA Faire

Associate Judge