Eichelbaum v Gavigan
[2018] NZHC 2772
•29 October 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2013-404-4910
[2018] NZHC 2772
BETWEEN JOHN REVANS EICHELBAUM
Plaintiff
AND
JOINT ACTION FUNDING LIMITED
Defendant
CIV-2012-004-2330 BETWEEN
JOHN REVANS EICHELBAUM
PlaintiffAND
ANTHONY JOHN GAVIGAN
First Defendant
JOINT ACTION FUNDING LIMITED
Second Defendant
Hearing: 13 September 2018 Counsel:
Plaintiff in person
A R Gilchrist for Defendant
Judgment:
29 October 2018
COSTS JUDGMENT OF WHATA J
This judgment was delivered by me on 29 October 2018 at 4.00 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date: ………………………….
Solicitors: Kiely Thompson Caisley, Auckland
EICHELBAUM v JOINT ACTION FUNDING LTD [2018] NZHC 2772 [29 October 2018]
Introduction
[1] This costs application stems from two closely related proceedings. In the first, CIV-2012-004-2330 (“the 2330 proceedings”), Mr Eichelbaum claimed against Mr Gavigan and Joint Action Funding Ltd (“JAFL”) for a ten per cent share of a “project management fee”, as defined by a litigation funding agreement between JAFL and the litigants in the Feltex litigation. In the second, CIV-2013-404-4910 (“the 4910 proceedings”), Mr Eichelbaum sought to enforce an entitlement to a ten per cent shareholding in JAFL.
[2] The application relates to steps dating back to the commencement of proceedings in the District Court in 2012, the transfer of those proceedings to this Court (now known as the 2330 proceedings), and their (purported) consolidation with the 4910 proceedings. It extends to and includes multiple interlocutory steps in the 4910 proceedings and all steps in the District Court and in the 2330 proceedings up to and including the decision of this Court handed down on 29 April 2016. This brief overview belies a very complicated costs claim. It is not at all possible to make sense of any costs award without providing a detailed summary of the background.
2330 commencement (District Court)
[3] A notice of claim for the 2330 proceedings was filed in the District Court by Mr Eichelbaum in November 2012. Mr Eichelbaum claimed, among other things, that Mr Gavigan and JAFL had engaged in misleading and deceptive conduct under the Fair Trading Act (“FTA”) by promising him a ten per cent share of JAFL’s project management fee, and then failing to pay him those funds.
[4]Multiple interlocutory applications were also made, including the following:
(a)Mr Eichelbaum sought an interim injunction preventing the defendants from accessing five per cent of funds paid to them from overseas funders as well as preventing them from paying directors fees. He further sought property preservation orders requiring the defendants to pay funds into Court pending resolution of the proceedings. Neither of these steps were resolved in the District Court.
(b)Mr Eichelbaum served notices to produce documents. This issue was ultimately resolved by consent before Judge Marshall on 28 March 2013 after the defendants made undertakings as to information disclosure.
(c)Finally, the defendants made an application for suppression and sealing of the Court file, which was granted by Judge Marshall.
[5] In 2014, Mr Eichelbaum applied to transfer the proceedings into the High Court.
4910 commencement
[6] Mr Eichelbaum commenced the 4910 proceedings in the High Court in November 2013. Mr Eichelbaum claimed he was entitled to a 10 per cent shareholding in JAFL.
4910 interim relief
[7] Mr Eichelbaum also made an urgent application for interim property preservation orders. In response, the defendants filed a notice of opposition, as well as their own interlocutory application for strike-out/stay of Mr Eichelbaum’s urgent application. They contended that Mr Eichelbaum’s application was an abuse of process, because he was already seeking similar property preservation orders in the District Court in the 2330 proceeding.
[8] These applications were heard by Brown J and, in a judgment dated 27 February 2014, he granted interim relief.1 He rejected the defendants’ claim that Mr Eichelbaum’s application was an abuse of process:
[33] While I recognise that (assuming that they remain unconsolidated) the proceedings in the two courts would involve a significant overlap of evidence, the causes of action in the two courts are different. The point is fairly taken by the plaintiff that only the High Court has the jurisdiction to entertain the proceedings seeking the relief under the Companies Act 1993. It would be a curious result if this court had exclusive jurisdiction to entertain the
1 Eichelbaum v Joint Action Funding Ltd [2014] NZHC 299.
proceeding but, because of a proceeding in another court, was precluded from entertaining an application for interim relief.
[9] He found there was a serious question to be tried and considered the balance of convenience favoured interim relief. He ordered that ten per cent of all sums received by JAFL in respect of a full or partial settlement of, or a successful resolution of, the Feltex litigation, be paid to the Registrar pending the resolution of the claim by the plaintiff against JAFL for an order for registration of the plaintiff’s shareholding in JAFL. This interim order was to lie in Court until an undertaking as to damages was provided by Mr Eichelbaum. Costs were reserved.
[10] Memoranda were exchanged regarding the adequacy of Mr Eichelbaum’s undertaking, and a minute of Brown J, dated 19 March 2014, confirmed the undertaking was sufficient and the interim order could be sealed. A supplementary judgment was issued by Brown J recording a slight variation of the interim order, made by consent.2
[11] Following the resolution of these peripheral issues, Brown J returned to address costs on the issue of interim relief. In a judgment dated 14 August 2014, he awarded costs to Mr Eichelbaum, as the successful party, in the sum of $8,358.3
[12] Irrespective of this costs order, the defendants’ application claimed costs on steps taken in relation to the interim relief application, and the corresponding strike- out application.
2330 transfer
[13] While the interim relief issue was ongoing in the 4910 proceeding, the removal of the 2330 proceeding from the District Court to the High Court remained afoot.
[14] On 12 March 2014, Mr Eichelbaum filed an originating application in the High Court seeking both removal of 2330 into the High Court, and consolidation of 2330
2 Eichelbaum v Joint Action Funding Ltd [2014] NZHC 669.
3 Eichelbaum v Joint Action Funding Ltd [2014] NZHC 1910.
with 4910. A notice of opposition to the originating application was filed and memoranda were exchanged.
[15] A judgment, dated 25 March 2014, records that Ms Reed for the defendants conceded that the High Court was the appropriate venue for the hearing of both the High Court proceedings and the District Court proceedings.4 Brown J ordered the District Court proceeding was to be removed into the High Court, rejecting the submission from Ms Reed that 2330 should be discontinued and fresh proceedings issued in the High Court. In determining that course of action, he considered:
[15] In particular I do not consider that it is appropriate that Mr Eichelbaum should have to pay the costs in the District Court on the basis of a discontinuance in order to secure the course which both parties agree is appropriate, namely that all issues in dispute between the parties in the two courts should be resolved in the High Court. The position as to costs will be regulated in accordance with s 48 of the Act.
[16] The Judge made no orders in relation to consolidation, preferring to leave that issue for a subsequent case management conference. The Judge further held that in relation to the transfer application, costs should lie where they fall.
Consolidation
[17] On 4 September 2014, Mr Eichelbaum made an application to consolidate 4910 with 2330. Although the defendants initially opposed the application, they later advised the Court they would abide by the Court’s decision in relation to consolidation.
[18] The issue of consolidation was addressed in a minute of Brown J, dated 7 November 2014. The Judge proposed, and the parties agreed, that an order for consolidation under r 10.12 should proceed in a two-stage process. He ordered that from that point on, proceedings 4910 and 2330 were to be case managed together and tried at the same time. Brown J recorded that if the shareholder registration claim was determined, whether by agreement or otherwise, the terms of the consolidation order could be revisited and directions could be made for filing of a consolidated master pleading.
4 Eichelbaum v Joint Action Funding Ltd [2014] NZHC 573 at [7].
[19] Whether the proceedings were fully consolidated is unclear.5 For reasons that I will explain, I do not consider this ambiguity to be significant to the result.
The 4910-substantive hearing and judgment
[20] The substantive hearing for the 4910 proceedings was set down for 8 June 2015. On 2 June 2015, the defendants filed a memorandum seeking either an adjournment or strike-out, on the basis that Mr Eichelbaum had failed to file submissions, reply to affirmative defences, or file evidence. Heath J issued a minute advising the parties to continue nonetheless and, on 8 June, an attempt was made to start the hearing. Mr Eichelbaum made himself available for cross-examination. However, given the absence of affidavits specifically addressing the issue before the Court, he began essentially giving evidence-in-chief. He also sought to rely on affidavits filed in both previous interlocutory applications, and in other proceedings. Due to the evidential disarray, the hearing was adjourned.
[21] Thomas J issued a minute that day outlining her observations as to costs. The Judge ultimately resolved that the costs associated with the adjournment should lie with Mr Eichelbaum but noted that costs in the round would be addressed after the substantive decision.
[22] Following the completion of the adjourned hearing, Thomas J issued a substantive judgment in favour of Mr Eichelbaum,6 which found that he was entitled to have the ten per cent shareholding registered in his favour. The Court rejected Mr Gavigan’s contention that a 2009 agreement had been cancelled and the plaintiff had a mere option only which could be cancelled at his or JAFL’s election. Instead, she found that ten per cent of JAFL was effectively held on trust for Mr Eichelbaum, and the register should be rectified to reflect that.
[23] The relevant judgment as to costs in that part of the proceeding was delivered by Thomas J on 11 March 2016.7 Although the substantive proceedings were
5 See the discussion regarding consolidation in a minute of Duffy J in these proceedings, dated 28 September 2017.
6 Eichelbaum v Joint Action Funding Ltd [2015] NZHC 2163.
7 E v J [2016] NZHC 419.
determined in favour of Mr Eichelbaum, JAFL sought costs on an indemnity basis, citing Mr Eichelbaum’s failure to comply with timetabling directions and poor behaviour as conduct disentitling him from costs. Thomas J accepted Mr Eichelbaum conducted himself improperly, but made a cost award in favour of Mr Eichelbaum, with deductions to recognise Court time wasted through his lack of preparation and his status as a lawyer-litigant. This judgment was successfully appealed – see below at [27].
2330 substantive hearing and judgment
[24] In my judgment, dated 29 April 2016, I found that Mr Gavigan told the plaintiff that he would receive ten per cent of a “project management fee”, as defined by a litigation funding agreement between JAFL and the litigants in the Feltex litigation.8 In reliance on that representation, together with the transfer of a ten per cent shareholding in JAFL, I found that the plaintiff performed services for Mr Gavigan and for JAFL. JAFL was paid management fees as an advance on the project management fee and most of these fees passed on to Mr Gavigan for his management services. Mr Gavigan did not pay ten per cent of these fees to the plaintiff. I therefore resolved that this amounted to misleading conduct under the FTA and oppressive conduct for the purposes of s 174 of the Companies Act 1993. I reserved judgment as to quantum and relief.
[25] In a further judgment, dated 26 June 2016, I addressed the issue of relief and costs, noted that the availability of FTA relief, in the context where the primary loss is expectation loss (i.e. an expectation to receive ten per cent of a contingent profit) is doubtful. By contrast, I found that the plaintiff’s expectation as a shareholder, that he would receive ten per cent of the project management fee, is the type of expectation that s 174, a just and equitable jurisdiction, is designed to secure. I therefore fixed relief pursuant to s 174. I fixed that relief at $71,174. I also addressed the issue of costs. I decided to reserve costs and disbursements, pending the outcome of a costs appeal against Thomas J’s decision wherein she granted costs to the plaintiff on the
8 E v G [2015] NZHC 824.
preliminary question in 4910. To assist the parties, I offered a preliminary view on the papers. I noted:9
[19] E seeks an uplift in scale costs of 50%. There is also a belated claim in relation to G’s counterclaim. G and JAFL seek indemnity costs in relation to allegations of fraud. The starting point is that E succeeded in his primary claim – that he was told he would receive 10% of the Project Management Fee. E withdrew his quantum meruit claim, and his broader claim to gross profit was meritless. He successfully defended the counterclaim for litigation costs, but failed to rebut the claim that he was a fiduciary and breached a fiduciary duty. Beyond this, the parties to this proceeding have not conducted themselves with the requisite accuracy or objectivity ordinarily expected in civil litigation – they have brought their personal animosity, largely unfettered, into this Court. I find that the plaintiffs and the defendants put each other to unnecessary cost through late, excessive and or misdirected pleading and evidence, prolix argument and cross examination and emotively charged complaints. None of the parties can claim the high moral ground for the purpose of r 14.6 and the factors that might trigger the jurisdiction to award increased and or indemnity costs. Accordingly, my current thinking is that if costs are payable, an award according to scale should follow the event with a 20% reduction to reflect the late withdrawal of the quantum meruit claim and meritless gross profit claim, as well as E’s failure to properly admit the breach of fiduciary duty.
[26] I also noted that the plaintiff was entitled to his disbursements but, as with the costs award, I consider that disbursements should mirror the reduction in scale costs.
Court of Appeal on costs in 4910
[27] Thomas J’s substantive judgment, confirming Mr Eichelbaum’s entitlement to a ten per cent shareholding in JAFL, was not appealed. However, JAFL appealed her judgment awarding costs. The Court of Appeal overturned Thomas J’s costs award in a judgment which reconsidered whether a lawyer-litigant could claim costs.10
The Court of Appeal judgment in 2330
[28] Mr Gavigan and JAFL appealed to the Court of Appeal, raising several matters. Relevantly, the Court identified these issues at [28], namely:11
9 E v G [2016] NZHC 1415 at [19].
10 Joint Action Funding Ltd v Eichelbaum [2017] NZCA 249, [2018] 2 NZLR 70.
11 Gavigan v Eichelbaum [2017] NZCA 412, [2018] 2 NZLR 530.
(a)Issue 1: Was Whata J wrong to conclude Mr Gavigan had engaged in misleading and deceptive conduct under s 9 of the FTA?
(b)Issue 2: Was Whata J wrong to conclude relief should be granted under s 174 of the Companies Act?
(c)Issue 3: Was Whata J wrong to conclude Mr Eichelbaum’s claim was not estopped?
(d)Issue 4: Was Whata J wrong to conclude costs claimed in respect of the counterclaim were too remote?
[29] The Court concluded that I had erred in relation to the first two questions. The Court upheld my findings in relation to the last two questions.
[30] In relation to the first question, the Court of Appeal upheld my finding that Mr Gavigan told the plaintiff that he would receive ten per cent of the project management fee when it was received in the future. The Court observed:
[40] … It seems to us that is less a representation than a simple promise made – at the end of October 2009 and the beginning of November 2009 – associated with Mr Eichelbaum acquiring a shareholding in JAFL. As JAFL would receive the project management fee, Mr Eichelbaum would receive 10 per cent of it. The 2 November 2009 email from Mr Gavigan confirmed that. From that point Mr Eichelbaum continued to supply services for the next eleven months without invoice or payment. The logical pleading in these circumstances would be a simple contract based on supply of services being consideration for the promised fee share (and that he had not received his portion while Mr Gavigan had). In other words, what Mr Eichelbaum described as “the original contractual obligation” rather than the elaborately pleaded (but unsuccessful) cause of action based on a separate stakeholder’s agreement. The Judge dismissed that cause of action and that conclusion is not challenged on a cross-appeal. An alternative claim that might have been served, in quantum meruit was abandoned at trial.
[41] The result, which may be unfortunate for Mr Eichelbaum, is that there is no simple contract for the fee extant. The claim has instead to be analysed under the FTA and the Companies Act and those grounds alone. Those pose barriers a contract may not have. But Mr Eichelbaum is an experienced barrister and he has pleaded his case in this way. The error in the High Court appears to have arisen as a result of the parties’ assumption the relevant representations were in terms capable of enforcement through s 9 of the FTA. However, those representations are plainly to be characterised and analysed as statements of future intent.
[31] The Court then reiterates that the first representation was made but observes that, to be actionable under s 9, there must be evidence that Mr Gavigan did not intend to perform it either at the time it was made or perhaps a changed intent formed during
the time the plaintiff continued to perform services in reliance on the original representation. That is, that he was in fact misled or deceived. The Court observed in this regard, there was no evidence, however, that Mr Gavigan did not intend to conform to this representation (to the extent there was one) when he made it or during the time the plaintiff was working without payment. The Court goes on to say:
[45] Indeed, the way Mr Eichelbaum pleaded his s 9 cause of action was in part as “waiting until the plaintiff had performed and given all his consideration and then changing the costs structure”. The words “and then” plainly indicate Mr Eichelbaum’s contention is that at some point after the representations were made Mr Gavigan formed the view that he would implement payments to himself. The evidence does not support a claim that Mr Gavigan did not intend to honour the November 2009 representation when he made it. …
[32] The FTA claim was therefore dismissed. As to the second issue, the Court of Appeal resolved that, to be entitled to make a claim under s 174, the shareholder’s interest must be registered and/or the claimant must hold more than a mere equity to the shareholding. The Court found that as the plaintiff was an option-holder until September 2012, he possessed a mere equity only. It goes on to state (obiter) that as the oppressive conduct occurred prior to his decision to exercise the option, he was not eligible for relief under s 174. The Court also noted my alternative finding that, in the event there was no misleading/deceptive conduct, then the plaintiff was not eligible for relief under s 174.
The current costs application
[33] The defendants in 2330 and 4910 now seek costs. In relation to 2330, they claim that the High Court decisions having been overturned, they are entitled to seek costs and disbursements. In relation to 4910, they claim that:
(a)The 2330 and 4910 proceedings having been consolidated, steps taken in 4910 can properly be awarded here; and
(b)Items arising only in 4910 which relate to steps relating to responses and defences to amended applications can be claimed in accordance with r 7.77 of the High Court Rules, which provides a party amending a pleading must bear the costs of that amendment; the defendants say
the steps taken in 4910 are as a result of Mr Eichelbaum amending documents.
[34] The defendants seek costs against Mr Eichelbaum in the sum of $212,725.60. That sum comprises costs primarily on a 2B basis. However, JAFL also seeks uplift on scale costs on some steps, claiming Mr Eichelbaum has unnecessarily prolonged the proceedings, refused to withdraw claims which had no merit, and conducted himself poorly.
[35] The initial memorandum filed by the defendants, dated 22 December 2017, included a table of over 120 steps for which they now seek costs. The table provided did not separate the costs incurred in 4910 from the costs incurred in 2330.
[36] The defendants then filed a further memorandum, dated 26 March 2018. That memorandum provided further background as to existing orders. It also addresses a third proceeding, 4656, and addresses costs in respect of that third proceeding. It outlines in more detail the actions Mr Eichelbaum has taken which JAFL considers have contributed to the extensive length and cost of these proceedings. For example, Mr Gilchrist contends that the documents in the District and High Courts show the plaintiff amended and updated his documents in total more than twenty times to remedy his defective pleadings, defective applications and improperly filed and served notices to produce. He unsuccessfully sought five urgent hearings on the same or similar issues. Costs are claimed for each step required to be responded to by the defendants.
[37] A more detailed breakdown is provided of the relevant steps by the defendants in each proceeding that are claimed. Unfortunately, as with the first memorandum, no attempt was made in this breakdown to separate the claimed steps by proceeding.
[38] In a minute of 16 May 2018, I sought clarification from the defendants regarding whether new arguments had been raised in the Court of Appeal. I also requested the defendants clearly indicate which steps were being claimed in 2330 and which were being claimed in 4910.
[39] In an affidavit dated 19 June 2018, Mr Abdale-Weir for the defendants provided a table of costs claimed, showing which steps were claimed in relation to 2330 and which were claimed in relation to 4910.
[40]Although that has added clarity, the list of costs as claimed remains deficient:
(a)The High Court Rules contemplate that each step will be claimed in relation to either the main proceedings, or a specific interlocutory application. The defendants did not clarify what each step is claimed in relation to;
(b)The High Court Rules further contemplate a limit on how many steps can be claimed in relation to each aspect of a proceeding (for example, Schedule 3, step 11, clearly contemplates only one memorandum will be filed per case management conference). It is unclear whether the defendants have appropriately limited their claimed costs to reflect this.
[41] This has necessitated a substantial recategorization process. A schedule setting out each of the steps and attributing those steps to relevant parts of the proceedings was prepared by this Court and tabled with counsel.
The cost principles
[42]As set out in Holdfast, costs awards involve four basic steps:12
(a)Categorise the proceeding;
(b)Work out a reasonable time; for each step;
(c)Consider whether extra time is justified; and
(d)Step back and assess overall entitlement.
12 Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 at [43]-[48].
[43] Quantum of costs may, however, be adjusted to reflect a range of factors including, most relevantly:
(a)the conduct of the parties;13
(b)the measure of success;14 and
(c)whether a party succeeded on appeal based on grounds not raised at first instance.15
Categorisation, the steps and reasonable time
[44] Save in respect of identified steps, it is common ground that both proceedings are properly categorised as 2B.
[45] Having reviewed the 127 steps claimed by Mr Gavigan and JAFL with Mr Gilchrist and Mr Eichelbaum, with the benefit of the schedule prepared by the Court, it quickly became evident that many steps were not properly claimable, namely:
(a)Certain steps taken at the District Court which are either duplicates or incorrectly recorded;
(b)High Court steps in relation to the transfer of 2330 from the District Court. Brown J, in his 25 March 2014 judgment, held that costs should lie where they fall on the transfer;
(c)The steps taken in the 4910 proceeding in relation to the application for interim relief. As noted at [10] above, there has already been a costs judgment in relation to this interlocutory matter;
13 High Court Rules 2016, rr 14.6(3)(b) and 14.7(f)
14 Weaver v Auckland Council [2017] NZCA 330 at [28].
15 Pioneer Insurance Company Ltd v White Heron Motor Lodge Ltd [2008] NZCA 450, at [56]-[58]
(d)Steps claimed in relation to the 4910 proceeding which do not relate to an interlocutory application. These have already been addressed in Thomas J’s costs decision (and the subsequent appeal);
(e)The application by the defendants for strike-out in the 4910 proceedings, on the basis that those steps were similarly considered by Thomas J in her costs decision;
(f)Steps relating to the defendant’s unsuccessful application for a stay of execution of Thomas J’s 4910 costs judgment;
(g)Steps relating to matters not prepared by the defendant and, in particular, in relation to memoranda filed by Wilson McKay on behalf of an interested party, Mr Houghton;
(h)The defendants’ claim for inspection of their own documents in the 2330 proceedings;
(i)Steps taken by the defendants in relation to their unsuccessful counterclaim in 2330;
(j)Steps in relation to suppression because the evidence is not clear as to whether those steps were opposed, and because those steps involved an indulgence, namely, seeking an order which is not directly relevant to the merits of the proceedings; and
(k)Steps in relation to consolidation. Costs are to lie where they fall because Mr Eichelbaum ultimately succeeded once the defendants withdrew their opposition.
[46] As a result, the approved steps for quantification purposes are set out in attached schedule 1. However, the following issues will still need to be resolved by the Registrar:
(a)Whether the steps claimed properly relate to events in the proceedings (for example, whether each of the steps claimed under step 11, “filing memorandum for first or subsequent case management conference or mentions hearing” can be linked to a specific conference or hearing);
(b)Whether an application of no case to answer made in 2330 proceedings was made orally or through documents which would attract a costs award; and
(c)What time allocations for District Court hearings can be properly claimed (for example, a hearing on 28 March 2013 has been claimed for a full day, but Mr Eichelbaum submits it ran for a half day only, and a hearing on 22 April 2013 has been claimed when Mr Eichelbaum advises the hearing did not go ahead due to conflict issues).
Entitlement – who won and by how much?
[47] Both defendants, as the successful parties in 2330 and in relation to various interlocutory steps in 4910, seek costs on a 2B basis. As noted, JAFL (but not Mr Gavigan) also seeks an uplift in relation to specified steps. Mr Gilchrist for JAFL submitted (among other things) that the existence and the extensive length and cost of this proceeding was caused by the plaintiff’s defective approach to the proceedings, including the following defects:
(a)Bringing claims in the wrong court;
(b)Constantly amending documents to attempt to remedy procedural and evidential defects;
(c)Refusing to withdraw notices and claims without merit;
(d)Denial of breach of his fiduciary duties to the defendants as junior counsel;
(e)Maintaining the same claims in both the District Court and High Court from November 2013 to April 2014; and
(f)On multiple occasions, seeking urgent orders to which he was not entitled and for which there was no proper basis.
[48]Mr Gilchrist also highlights:
(a)The findings in respect of the wrongful statutory demand and breach of fiduciary duty by Mr Eichelbaum;
(b)Mr Eichelbaum’s emotionally-charged complaints, misdirected pleadings and evidence, and his unfounded allegations of impropriety JAFL; and
(c)Over an extended period, Mr Eichelbaum was, at times, discourteous to, and made unjustifiable allegations against, solicitors at Buddle Findlay.
[49]Mr Eichelbaum responds, in short, that:
(a)Mr Gavigan and JAFL have grossly overclaimed costs; including claiming for unsuccessful interlocutory applications, claiming for steps which are already the subject of costs judgements, and steps not properly claimable under the High Court Rules;
(b)None of the “winning” points in the Court of Appeal were raised in the statement of defence, opening or closing submissions, or a list of issues produced by the parties. No costs can be claimed in relation to these steps because Mr Eichelbaum was deprived of any opportunity to answer the points raised, in breach of natural justice;
(c)Discounts are warranted for attempts to deceive the Court (references are made, for example, to Thomas J’s finding that Mr Gavigan’s
evidence was “disingenuous”), for pursuing arguments without merit and for wasting the Court’s time with irrelevancies;
(d)He succeeded in obtaining the JAFL shares in 4910 and successfully defended the counterclaim. He contends that in dollar value terms, the value of the shares far exceeded the claims in respect of JAFL management fee; and
(e)Finally, Mr Eichelbaum submits that the defendants have been engaged in a scheme to attempt to get him to abandon the proceedings, involving threats, and false complaints to the Law Society.
Assessment
[50] JAFL and Mr Gavigan seek costs on the basis that the proceedings were consolidated. That may or may not be right. But, with the benefit of the extensive review required by the application for costs as framed by the defendants, I am satisfied I should approach the assessment of entitlement in the round, incorporating both proceedings into the exercise. To elaborate, whether the proceedings are viewed as fully consolidated or not, they were closely interrelated, involving the same parties and the same basic connected claims by Mr Eichelbaum to (a) shares in JAFL and to
(b) a pro-rata share to the JAFL management fee. The proceedings were at least consolidated in part given the overlapping and interrelated nature of the proceedings.
[51] I do not see the costs decisions made by the High Court and the Court of Appeal in 4910 as a barrier to this approach. Those awards relate to Mr Eichelbaum’s claims to costs as the successful party. He was awarded costs in the High Court. The main costs award was overturned by the Court of Appeal because, as a lay-litigant, he was not entitled costs.16 But Mr Eichelbaum’s success in those proceedings forms part of the full matrix of considerations when dealing with the present costs claim relating to both 4910 and 2330. To approach the exercise on any other basis would, in my view, depart from (a) an underlying objective of the High Court Rules, namely to secure just
16 Joint Action Funding Ltd v Eichelbaum, above n 10. See [27] above.
determination of proceedings, and (b) the objective of the costs rules, namely predictability based on success.
[52] Turning to the broad assessment of the merits, I am satisfied that I should approach the issue of costs on the basis that success was shared, 35 per cent to Mr Eichelbaum, 65 per cent to JAFL and Mr Gavigan. I reach this view given:
(a)Mr Eichelbaum succeeded in relation to his claim to the JAFL shares in the 4910 proceedings;
(b)Mr Eichelbaum succeeded in defending the counterclaim in the 2330 proceedings;
(c)Mr Gavigan and JAFL succeeded in defending the JAFL management fee claim in 2330; and
(d)The 2330 proceeding (and its predecessor in the District Court) was the larger and more demanding of the proceedings.
[53] I therefore commence costs allocation on the basis that JAFL and Mr Gavigan’s costs should be reduced by 35 per cent to reflect Mr Eichelbaum’s success in the round.
Should there be an uplift?
[54] No. My observation made when the question of costs first came before me remains apposite – see [25] above. As this costs application exemplified, both parties have brought their feud unfettered into the Court. It is neither fair nor just to single out either Mr Gavigan or Mr Eichelbaum for criticism in this regard – both are equally open to it. I accept, however, that the requirement to take additional steps (for example, re-pleading) is something for which Mr Eichelbaum must account in the final analysis – subject to oversight by the Registrar as to the correctness and proof of the claimed additional step.
Should there be a further reduction?
[55] Yes. This is a most unusual case. As Mr Gavigan quite readily acknowledged at the hearing on costs before me, a key issue in the Court of Appeal was never part of his case before this Court, namely that he intended to share the JAFL management fee in accordance with a representation made by him in 2009.17 Rather, his case, and the case for JAFL, in this Court was that a representation to Mr Eichelbaum that he would share in the JAFL management fee was never made. This basic issue occupied the lion’s share of the time in the High Court. Had Mr Gavigan approached the High Court hearing on the basis that he in fact made that representation and always intended to carry out that representation, as the Court of Appeal ultimately found, then the time in this Court would have been considerably reduced. The sole focus would then have been on Mr Gavigan’s subjective intent.
[56] This unusual set of facts brings into play the observations made by the Court of Appeal in Pioneer Insurance Company.18 In that case, the Court of Appeal overturned a decision of the High Court on a basis not argued in that Court. The Court of Appeal accepted that the losing party ought not pay costs in the Court of Appeal and left the costs order in the High Court undisturbed. While in that case, the raising of the new point was considered an indulgence, I see no material difference here. The defendants succeeded on a point that was not only new, but contrary to the case run by the defendants in this Court.
[57] I accept, however, that there cannot be a complete write off. First, as Mr Gilchrist submitted, the Court of Appeal found Mr Eichelbaum failed to prove that Mr Gavigan never intended to carry out the 2009 representation. That finding is now beyond challenge. That being the case, the defendants are the successful party. Second, the observations of this Court and the Court of Appeal about the availability of relief under the FTA highlight an inherent fragility to Mr Eichelbaum’s case based on the FTA misrepresentation. Third, obiter observations about the availability of
17 This concession was offered up, uninvited. Mr Gavigan sought leave to be heard on this point and acknowledged both that he never intended at any stage to share the JAFL management fee on a pro rata basis with Mr Eichelbaum and that he was “confounded” by this aspect of the decision on appeal.
18 Pioneer Insurance Company Ltd v White Heron Motor Lodge Ltd, above n 15.
relief under Mr Eichelbaum’s alternate head of claim, s 174 of the Companies Act, identify further problems with his claim – namely that the JAFL management fee payments predate his exercise of the share options and thus are not amenable to relief under that section.19 Fourth, the late withdrawal of the quantum meruit claim and meritless gross profit claim, as well as Mr Eichelbaum’s failure to properly admit the breach of fiduciary duty, strongly militates against a larger discount for wasted time.
[58] In the result, I am satisfied a further discount of 15 per cent is sufficient to reflect the wasted time in this Court caused by Mr Gavigan’s failure to admit that he did make the 2009 representation and to plead that he intended to perform it.20
Ancillary matters
[59] I address for completeness several other arguments raised by Mr Eichelbaum over the course of this costs application. Mr Eichelbaum contended an offer he made in 2014 to settle proceedings at no cost to either party justified a reduction of costs. The Court of Appeal has already considered the effect of that offer and concluded that it was not an offer made in full and final settlement but merely to discontinue proceeding, and that rejection of the offer by the defendants was not unreasonable.21 Mr Eichelbaum also submitted that the costs claimed far exceeds the value at stake in the 2330 hearing and should be substantially discounted accordingly. But this submission is made with the benefit of hindsight. The issues at stake were very significant to both parties at the time the proceedings were commenced. Mr Eichelbaum also makes the point that, on the available evidence, his shareholding obtained through the 4910 proceeding is more valuable than the claim in the 2330 proceedings. However, I have incorporated Mr Eichelbaum’s success in the 4910 proceedings to the extent that I think relevant when discounting the sum payable to the defendants. Finally, this costs process is not the proper forum for examining whether the defendants sought to place Mr Eichelbaum under unfair duress, as alleged by him.
19 Gavigan v Eichelbaum, above n 11, at [59]-[68].
20 I appreciate this would have been difficult for him given his stated position that he never did and never had any intention to act on it. But I adopt (as I must) in making this evaluation the findings of fact made by the Court of Appeal.
21 Gavigan v Eichelbaum [2017] NZCA 442 at [12].
Outcome
[60] There shall be an award of costs award in favour of the defendants, on a 2B basis, reduced by 50 per cent, on the steps set out in the attached schedule 1 subject, howeve,r to the Registrar’s approval of those steps as per [46].
[61] The defendants are also entitled to their reasonable disbursements in relation to 2330 and its District Court predecessor, reduced also by 50 per cent and subject to the Registrar’s approval.
Costs on this application
[62] Costs on the application are to lie where they fall. Again, both parties have not conducted themselves with the requite accuracy or objectivity. The application took a blunderbuss approach which demanded substantial additional work (including by the Court).22 Conversely, Mr Eichelbaum not only threw the kitchen sink at the application, he left no knife or fork in the draw.
22 In saying this, I mean no criticism of Mr Gilchrist. He had an invidious task of assembling a costs application in respect of matters for which he had no direct involvement. I also commend the balanced and fair approach he took to argument.
District Court steps — all 2330 Steps claimed:
# Date CIV Description Step Type Days $$ 1
2f?,"
2330
Statement of defence
" 2
B
1
1550
2 14 Dec
2012
2330 Response to claim 2 B 1 1550 3 27 Feb
2013
2330 Defendant‘s info capsule 3 B 2 3100 6 22 Nov
2012
2330 Memorandum to rep and address for
service
9.8 B 0.25 387.50 7 22 Nov 233Q Memorandum for defendants 9.8 B 0.25 387.50 8 29 Nov
2012
2330 Memo for defendants 9.8 B 0.25 387.50 9 29 Nov
2012
2330 Notice of opposition to interlocutory
application for injunction/freezing order plus affidavits
9.11 B 1 1550 10 5 Dee
2012
2330 Notice to produce documents (first
defendant)
20 B 0.5 775 11 5 Dee
2012
2330 Notice to produce documents
(second defendant)
20 B 0.5 775 12 5 Dec
2012
2330 Notice of opposition to amended
interlocutory application
9.11 B 1 15S0 13 7 Dec
2012
2330 Memorandum of Counsel for the
Defendants
9.8 B 0.25 387.50 14 11 Dec
20J2
2330 Memorandum of Counsel for the
Defendants
9.8 B 0.25 387.TO 1S 14 Dec
2012
2330 Memorandum of Counsel for the
Defendants
Memorandum of Counsel for theDefendants
9.8
9.8
B
B
0.25
0.25
387.50
387.50
16 24 Jan
2013
2330 17 S Feb
2013
2330 Notice of interlocutory app for
orders
9.10 B 0.4 620 18 7 Feb
2013
2330 Original copy o£ suppressing the Court file 9.1O B O.4 620 19 14 Feb
2013
2330 Second affidavit of Mr Gavigan in
support
9.11 B 0.4 620 22 25 Mar
2013
2330 Synopsis of submissions for
Defendants for interlocutory hearing
on 28 March 2013
9.11 B 1 1550 23 28Mar
2013
2330 Appearance aI interlocutory hearing 9.13 B 1 1550 24 15Apr
2013
2330 Memorandum of Counsel For the
Defendants enclosing accounting information
9.8 B 0.25 387.50
# Date CIV Description Step Type Days $$ 25 12 Apr 2330 Memorandum of Counsel for the 9.8 B 0.25 387.50 2013 Defendants seeking recall and correction of Judge Marshall's judgment 26 12 Apr 2330 Memorandum of Counsel for the 9.8 B 0.25 387.50 2013 Defendants enclosing accounting information 27 18Apr
2013
2330 Third Affidavit of Mr Gavigan 9.10 B 0.4 620 28 18Apr
2013
2330 Synopsis of submissions for
interlocutory hearing
9.12 B 1 1550 29 22Apr 2013 2330 Memorandum of legal costs up ta
curre nt hearing date
9.8 B 0.25 387.50 30 22Apr 2330 Appearance at interlocutory hearing 9.23 B 1 1550 2013 32 17 May 2330 Memo randmm of Counsel for the 9.8 B 0.25 387.50 2013 Defendants ahead of telephone conference on 21 May 2013 33 21 May 2330 Telephone conference 9.9 B 0.3 465 2013 34 22 Jul 2330 Memorandum of Counsel for the 9.8 B 0.25 387.50 2013 Defendants seeking adjournment 3S 5 Sep
2013
2330 Memorandum of Counsel for judicial
directions conference
9.8 B 0.3 465 36 9 Oct 2330 Amended notice of opposition, 6 B 1.5 232S 2013 required given significant amendments to Plaintiffs pleadings and causes, and irrelevant material 37 14 Oct 2330 Memorandum of Counsel for Ehe 9.8 B 0.25 387.50 2013 Defendants 40 19 Nov 2330 Memorandum of Counsel for the 9.8 B 0.25 387.50 2013 respondent in reply to the applicant's Memorandum dated 17 November 2013 49 18
Februa i j
2014
2330 Memorandum of Counsel for
Defendants seeking variation to timetable order
11 B 0.4 796 SI 21 2330 Memorandum as to change of 11 B 0.4 796 February address for service of Defendants 2014 54 6 Mar 2330 Memorandum of Counsel in reply to 11 B 0.4 796 2014 Plaintiffs request that the application
# Date IVR Description Step Type Days $$ for removal of proceedings into High
Court be brought on urgently
116 17Var
2014
2330 Notice of opposition to urgent
application for removal of proceedings into High Court
23 B 0.6 1194
2:g30 general stapy l!n Hfgh Court
43 9 Dec
2014
2330 Statement of defence to amended SoC 9 BE ' 1194 44 7 Oct 2330 Statement of defence to second 9 B 0,6 1398 2O15 amended SoC Memos. and teJephone conferences - mo*tJy cas• managamanl issues 59 20 2330 Hearing (mention only) 12 B 0.2 has Mar 2014 73 8Aug
2014
2330 Memorandum of Counsel for Defendants seeking 11 B 0.4 796 correction/clarification of Minute (No. 7) of Brown J 77 3 Oct 2330 Memorandu m of Counsel for the 11 B 4 796 2014 Defertdant in response to timetable memorandum and regarding consolidation 80 30 Jan 2330 Memorandum of Counsel for 11 B 0.4 796 2015 Defendant requesting extension of
timetable
83 18
Mar 2015
4910/2330
on intituling
Appearance at teleconference 13 B 0.3 597 88 9 Oct 2330 Memorandum of Counsel for 11 B 0.4 932 2015 Defendants 89 21 Oct
2015
30/ 9 0
on
Appearance at teleconference 11 B 0.3 699 intituling 90 10 Nov
2015
2330 Memorandum of Counsel for Defendants in response to Plaintiff’s 11 B 0.4 932 Memorandum _ 91 13 Nov 2330 Appearance at teleconference 13 B 0.3 699 2015 92 26 Jan
2016
2330 Memorandum of Counsel for
Defendants
11 B 0.4 932 (25) 93 2 Feb 2330 Memorandum of Counsel for ]1 B 0.4 932 2016 Defendants 94 8 Mar
2016
2330 Memorandum of Counsel for
Defendants seeI‹fng leave to file
reptysubmis%ons
11 B 0.4 932 Oefsndantc" eubmTsslons 118 17 Nov 2330 eqOn ng submlssions for defendant 24 B 1.5 3495 2015
# ”Date CCIV ! D ipti )Step|
24A
Type|
B
\Days
1.5
$G 119 18 Nov
2015
2330 No case to answer submissions on
1" and 4" cause of action
3495 Trial pmp and attendance 107 3 Mar
2015
(13)
2330 Defendant’s affidavit of documents 20 B 2.5 4975 108 Mar
2015
2330 Inspection of plaintiff’s documents 21 B 1.5 2985 121 4 Nov
2015
2330 Preparing briefs of evidence 30 B 5 II 650 122 4 Nov
2015
2330 Preparing list of tssues, authorities,
common bundle
32
33
B
B
4
3
9320
6990
123 4 Nov
2015
2330 Preparing for hearing 125 Nov
15/Feb
2330 Appearance at trial for Ms Reed 34 B 6 139B0 126 Nov
15/Feb
16
2330 Appearance at trial fof second
Counsel
35
36
B 3 6990 127 22 Feb
2016
2330 B 3 6990 Post hearing Iseues - rellef, costs, etc 9S 6 May
2016
2330 Memorandum of Counsel for
Defendants
11 B 40 932 97 20
May 2016
2330
_
Memorandum of Counsel for the
Defendants as to relief or compensation
11 B 0.4 932
932
98
100
26
May 2016
1]un 2016
(31)
2330
2]3D
Memorandum of Counsel for
Defendants
11 B 0.4 Memorandum of Counsel for
De(endanus
11 B 0.4 932 104 23 Jun
2016
2330 Memorandum of Counsel for
Defendants
11 B 0.4 932
2330 Interlocutory eteps in High Court
)# | Date CCIV ,” Description ) )Etep} ]Ty}fe) ' 6S 9 Apr 2330 Memorandum of Counsel for the 11 B 0.4 796 2014 Defendant replying to Plaintiffs (8) April 2014 Memorandum 66 17 " 2330 Joint Memorandum of Counsel 11 B 0.4 796 Apr proposing adjournment of urgent 2014 interim hearing
# Date CIV Description Step Type Days $$ 74 13
Aug
2014
4910 Memorandum of Counsel for
defendant
11 B 0.4 796 78 6 Nov
2014
4910 Memorandum of Counsel for
defendant
11 B 0.4 796
# Date CIV Description Step Type Days $$ 7S 4 Sep
2014
4910 Memorandum of Counsel for Defendant in response to urgent Memorandum seeming service of
injunction order
11 B 0.4 796
0
8
1