Fa'agutu v Derhamy

[2020] NZHC 1374

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2017-404-1071

[2020] NZHC 1374

BETWEEN

FA’ASOLO FA’AGUTU

First Plaintiff

AND

THE ESTATE OF HAMSAT ALI

Second Plaintiff

AND

SEYED MOHAMMAD TAGHI DERHAMY

First Defendant

AND

MT ALBERT ACCOUNTANTS LIMITED

Second Defendant

On the papers
Appearances:	A Kashyap, S Raju and S Yong for Plaintiffs B Murray for Defendants
Judgment:	19 June 2020

JUDGMENT OF WALKER J [INTEREST AND COSTS]

This judgment was delivered by me on 19 June 2020 at 3.30 pm Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

FA’AGUTU v DERHAMY [2020] NZHC 1374 [19 June 2020]

Introduction

[1]    On 6 March 2020, I delivered an interim substantive judgment in favour of the plaintiffs.1 I awarded damages in the sum of $288,000 (Primary Sum) plus interest, and general damages of $10,000. I also directed the second defendant to account to the plaintiffs for interest in respect of money received from the plaintiffs, but which had been returned to the first plaintiff in instalments between December 2014 and January 2018 (Secondary Sum).

[2]    I reserved three issues for subsequent determination. The three issues were the rate and period in respect of which interest is payable, costs and the status of the profit received by the first defendant from the Mudharaba transaction. I invited submissions from the parties on these issues.

[3]    The various memoranda filed on behalf of the parties ultimately narrowed these remaining issues for determination. The third issue – the question of potential disgorgement of profit is not pursued by the plaintiffs. I say no more about it.

[4]    This further judgment determines costs and interest. As to interest, I intend only to direct the parties as to the applicable approach in view of the on-going payments by the defendants in reduction of the award of damages. It is for the parties to confer and agree on the calculation of the sums in accordance with this judgment and to advise the Court accordingly to enable final judgment to be sealed.

[5]    This judgment also deals with an application for costs by the defendants in respect of the plaintiffs’ application for a charging order over the sale of the first defendant’s properties after issue of my interim substantive judgment. That application, initially made without notice, was withdrawn by the plaintiffs.2 The parties agreed that the question of these costs should be dealt with in conjunction with the remaining issues in the substantive proceeding.

1      Fa’agutu v Derhamy [2020] NZHC 404.

2      Refer Minute of Whata J dated 1 May 2020.

Interest on the Primary Sum

[6]    The first question is as to the rate of interest payable on the Primary Sum and the date from which interest is payable.

[7]    The plaintiffs submit that the statutory rate of interest under the Judicature Act 1908 should apply. The maximum rate of interest payable in accordance with the Judicature Act 1908 is discretionary and is not to exceed the prescribed rate. The maximum rate is 5 per cent.3

[8]    The defendants contend that the interest rate ought to be consistent with the rate that the plaintiffs would have earned had their savings remained in the BNZ term deposit account which was the source of funds for the Mudharaba transaction. The plaintiffs did not challenge the accuracy of these rates. I accept the defendants’ contention that these rates most accurately represent the real opportunity cost for the plaintiffs.

[9]    In my view the appropriate rates are as set out in the table in [8] below and should be applied on the basis that the interest earned annually is reinvested at the same term deposit rates.

[10]   I also accept that it is appropriate that interest payable is to be calculated from 1 February 2015, being the day after the maturity date of the BNZ term deposit, to prevent any “double dipping”. This was properly conceded by the plaintiffs.

[11]The applicable interest rates then are:

1 February 2015	4.5%
1 February 2016	3.5%
1 February 2017	3.25%
1 February 2018	3.5%
1 February 2019	3.55%
1 February 2020	2.88%

3      This proceeding was commenced before the Interest on Money Claims Act 2016 came into force.

[1]                 The defendants argue that they should not have to pay interest for the two-year period from January 2016 to January 2018, as the plaintiffs slept on their rights in this period. I do not accept this contention. This delay can be explained. The first plaintiff found herself “in the defendants’ hands”, seeking explanations, payments and resolution over that time. I place no weight on the plaintiffs’ so-called delay in filing and serving the proceedings but in any event, such a delay does not in principle support the argument for an interest free period. Rather, the delay benefitted the defendants.

Interest on the Secondary Sum

[2]                 In my assessment, the interest rate applicable on the Secondary Sum must also reflect the defendants’ use of money over the period of repayment since it was never paid to APS but remained in the defendants’ control. I therefore direct that the appropriate interest rate is the maximum prescribed rate of 5%. This is to be calculated on a simple (not compounding) basis on the outstanding balance between the dates each payment has been made by the defendants in reduction of the sum owing. The start date for the calculation of interest is also 1 February 2015.4

Application of funds paid by defendants after interim judgment

[3]                 I direct that amounts paid by the defendants after the judgment, as recorded in the memoranda of counsel for the defendants dated 25 May 2020 and 18 May 2020, be applied first to any interest and the surplus to the base amounts payable pursuant to the judgment, being the Primary Sum and general damages. Thereafter, the amounts paid may be applied towards costs.

Costs on application for charging order

[4]                 The defendants seek costs in respect of the application for charging order initially filed by the plaintiffs on a without notice basis. Whata J directed as follows:5

I am not satisfied the application for charging orders in respect of an as yet unsealed judgment debt should proceed without notice. Rather, I direct that a telephone conference is to be convened as soon as is practicable in the

4      This is largely consistent with the proposal by the plaintiffs in counsel’s memorandum dated 30 March 2020.

5      Minute of Whata J dated 25 March 2020.

expectation that suitable arrangements for the preservation of sufficient assets or funds to cover the judgment debt will be agreed pending a full opposed hearing.

[5]                 The defendants argue that the application was unnecessary, baseless and overly broad. They seek 2B costs for “steps” taken on the basis these steps were analogous to the preparation and filing of a formal notice of opposition and evidence in support. They also seek an uplift of $2,000 by way of increased rather than indemnity costs.6

[6]                 The defendants seek a total of $5,346.00 comprising 1.4 days in accordance with Schedule B and the uplift to be off-set against the costs payable to the plaintiffs on the substantive judgment.

[7]                 The plaintiffs contend that the application for charging order was made in good faith. They say the circumstances were that the first plaintiff was served with a notice to vacate the home at Kivell Close without explanation and/or reassurances that there would be any security in respect of the sums owing to her.

[8]                 In my view, some of the defendants’ criticism of the application is warranted but I am not prepared to increase the cost award. The defendants are entitled to an award of costs of $3,346.00 to be offset against the cost award in favour of the plaintiffs.7

Costs on the substantive judgment

[9]This is a Category 2B proceeding.

[10]              The first plaintiff obtained a grant of legal aid from 2 May 2019. This grant was intended to cover hearing preparation and trial attendance, although, as it transpired, the former was capped at a level below actual preparation days permitted by the Schedule in the High Court Rules.

[11]The plaintiffs seek $42,303 plus disbursements as scale costs plus an uplift of

$5,975.00 on the following basis:

6      The plaintiffs did not apparently receive legal aid for this application.

7      High Court Rules, r 14.17.

(a)Costs on a 2B basis for all steps before the receipt of legal aid coverage;

(b)Reduced costs for hearing preparation (step 33B) taking into account coverage permitted by legal aid but with a top up for actual permitted preparation days;

(c)An uplift to reflect additional attendances in connection with the plaintiffs’ application for further discovery and resulting inspection of documents.

[12]              No scale costs are sought with respect to the hearing because of the coverage by legal aid.

[13]              The legal aid coverage and disbursements sum is $14,009.74.8 This is additional to the costs claim in [11] above.

[14]              The defendants properly accept the steps set out in the plaintiffs’ memorandum of 30 March 2020 save for the following:

(a)The claim for costs in respect of answers for further particulars and in respect of the amended statement of claim.

(b)A sum for costs opposing the defendants’ application for security for costs.

(c)Any entitlement to claim for preparation on an aided and non-aided basis (the additional preparation time).

(d)Any uplift in respect of further discovery or non-party discovery.

[15]              The defendants submit that the appropriate award of costs is $46,563.74, inclusive of the sum to be repaid to Legal Aid.

8      This must be repaid to Legal Aid.

[16]              I accept the defendants’ position on points (a), (b) and (d) in [14] above. I set out my reasons.

[17]              Rule 7.77(8) of the High Court Rules 2016 provides that if an amended pleading has been filed, the party filing the amended pleading must bear all the costs caused by the original pleading and any application for amendment, unless the court orders otherwise. The additional particulars sought by the defendants were both reasonable and necessary given the deficiencies and gaps in the plaintiffs’ first statement of claim dated 21 February 2017. An example of this deficiency was that the plaintiffs made broad allegations around dishonest, misleading and deceptive actions and of unconscionable conduct that were not explained or particularised. The plaintiffs cannot claim costs associated with the filing and preparation of the amended statement of claim.

[18]              This removes the time allocation for answering further particulars and filing an amended statement of claim from the plaintiffs’ cost schedule.9

[19]              I am not satisfied that an award of costs is warranted in relation to the preparation of submissions opposing the application for security of costs. Agreement on security for costs does not unequivocally signal that the defendants’ application was justified. It may just as easily represent a pragmatic decision by the plaintiffs in circumstances where straitened financial circumstances were due to the defendants’ actions. However, there were opportunities to resolve the defendants’ application without necessitating preparation time. I remove the plaintiffs’ costs of 1.5 days preparation.

[20]              The plaintiffs seek $2,390.00 for the preparation of the hearing which I apprehend is to top up the legal aid contribution. The defendants say that the plaintiffs cannot claim costs for preparation on both an aided and non-aided basis, relying on Taunoa v Attorney-General.10

9      Costs schedule attached to plaintiffs’ memorandum dated 30 March 2020.

10     Taunoa v Attorney-General [2004] 8 HRNZ 53.

[21]              As a general rule, a successful legally aided party is entitled to the full sum of the legal aid grant, provided this is the same or less than the appropriate costs award calculated on a scale basis. The question in this case is whether the plaintiffs can recover more than the legal aid grant. I do not read Taunoa as stating that the grant of legal aid acts as a “cap” to the total amount of costs recoverable by the successful, legally aided party. The answer must depend on whether the plaintiffs actually incurred costs in excess of the legal aid grant since the costs regime expressly provides in r 14.2 that:

(f)An award of costs should not exceed the costs incurred by the party claiming costs.

[22]              There are examples of cases where the total costs awarded equal the total legal aid grant plus any personal contribution of the parties.11 In my view, that is the approach that should be adopted in this case. The plaintiffs are entitled to claim the additional $2,390.00 over and above the legal aid grant for the preparation of the hearing provided this cost was incurred.

[23]              Finally, I agree with the defendants that there is insufficient justification for an uplift in respect of the application for further and better discovery and non-party discovery. All the plaintiffs note is that this is an uplift of 2.5 days for additional attendances surrounding the obtaining of further discovery and inspection from the defendants. I reject the proposed uplift for 2.5 days attendance.

Summary of costs to plaintiffs

[24]              In conclusion, I award costs and disbursements of $48,953.74 inclusive of the legal aid component. I deduct from this award the sum of $3,346.00 awarded in favour of the defendants in relation to the charging order. The final order of costs in favour of the plaintiffs is $45,607.74.

11     See, for example, Para Franchising Ltd v Laverty HC Napier CIV-2005-441-652, 2 March 2007 at [26].

[25]              Both parties have had a measure of success in respect of the costs and interest issues. Costs in respect of these are to lie where they fall.

.....................................................

Walker J