Fog v Frimley Estate Limited

[2016] NZHC 314

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2015-404-1990 [2016] NZHC 314

BETWEEN

MARIANNE FOG

Plaintiff

AND

FRIMLEY ESTATE LIMITED First Defendant

STEPHEN DUFF (aka NICK DUFF) Second Defendant

On the papers
Counsel:	R B Hucker for plaintiff P M Fee and A R Durrant for first and second defendants
Judgment:	1 March 2016

JUDGMENT No 2 (Costs) OF PALMER J

This judgment was delivered by me on 1 March 2016 at 2 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:           Hucker & Associates, Auckland

Fee Langstone, Auckland

Fog v Frimley Estate Limited [2016] NZHC 314 [1 March 2016]

Summary

[1]      Ms Fog obtained summary judgment in relation to two of three subscriptions for shares that she made without a registered prospectus.1   She now seeks an award of costs on a 2B basis  with an uplift.   The defendants submit costs  should be reserved and/or reduced and, in any case, refused in relation to certain steps of the proceeding.   I agree that the plaintiff has succeeded and award her costs on a 2B basis, with no uplift and no reduction, but not in relation to certain steps.

The Law of Success

[2]      It is a fundamental principle that costs follow the event – a losing party pays a winning party a contribution towards their legal costs.2     However, as I have recently noted in another judgment,3 the question of who has won and who has lost litigation is not always straightforward.   The answer is at the discretion of the court (r 14.1 of the High Court Rules), guided by “the interests of justice”.

[3]      The extent to which a litigant has succeeded must be viewed as a matter of substance, not form.  It must be viewed through a realist’s lens, in “determining who in reality has been the successful party”.4

The Substantive Judgment

[4]      The substantive case here involved Ms Fog seeking summary judgment for repayment of three subscriptions for shares made without a registered prospectus.  I granted summary judgment in relation to two subscriptions, amounting to $50,400 plus statutory interest.  However I declined to grant summary judgment in relation to the original subscription of $99,000 because I was not satisfied a limitation defence

was unavailable to the defendants.

1      Fog v Frimley Estate Ltd [2015] NZHC 3301.

2      Rule 14.2(a) of the High Court Rules and Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109, [2013] 1 NZLR 305 at [8].

3      McCaig v A Professional Conduct Committee No 2 [2016] NZHC 306 at [4].

4      Waihi Mines Ltd v AUAG Resources Ltd (1999) 13 PRNZ 372 (CA) at [5].  See also Packing in Ltd (in liq) formerly known as Bond Cargo Ltd v Chilcott (2003) 16 PRNZ 958 (CA) at [6] (calling for “a realistic appraisal of the end result”).

[5]      The defendants raised four defences to the summary judgment application which were resolved as follows:

(a)      A legal argument that s 37AL of the Securities Act 1978 required a stay of  proceedings  was  dismissed  on  the  basis  of  the  legislative history and textual indicia.

(b)A factual argument that Ms Fog was not a member of the public, being argued on appeal, was dismissed as not an arguable defence.  It was noted that, if the Court of Appeal comes to a different conclusion, that would be a ground for appeal of my judgment.

(c)      Mr  Hucker,  for  Ms  Fog,  made  three  arguments  in  response  to  a limitation defence in relation to the original subscription.  However, none of these succeeded.

(d)An argument, that it is arguable that Mr Duff can prove his negligence and misconduct did not cause the default in repayment, was dismissed on the facts.

[6]      Since the substantive judgment  was  issued,  Frimley Estate  Ltd  has  been placed in liquidation and its counsel will be seeking leave to withdraw from the proceedings.   Submissions on costs were filed on behalf of the second defendant, Mr Stephen Duff.

Was Ms Fog Successful?

[7]      Ms Fog submits that she was successful since she succeeded in obtaining summary judgment in relation to two of the three subscriptions. On that basis she wants costs on a 2B basis and an uplift of 25% for what is said to be unmeritorious arguments that had already been advanced and rejected in previous proceedings.

[8]      Mr Duff submits that Ms Fog failed in relation to two thirds of the value of the subscriptions so costs should be reserved until the outcome of the entire proceedings is known.

[9]      With one exception, noted below, I do not propose to reserve costs for further argument.   The result of the summary judgment application is known and further argument on the substantive issues will not assist resolution of its costs.

[10]     I also consider it is clear that Ms Fog succeeded in her application.   She obtained summary judgment in relation to two subscriptions.  The defendants’ four proposed  defences  all  failed  except  for one technical  defence in  relation  to the original subscription.  Ms Fog is materially better off than if she had not applied for summary judgment.   Her application was justified and she has been substantially successful.  Costs should follow the event.

[11]     I agree that costs are appropriately categorised and generally banded as 2B; they were of average complexity for which a normal amount of time would have been  generally required.   I do not consider the average complexity and normal amount of time justifies certification for second counsel.

[12]     I do not consider that any reduction in costs should be made for the failure of the application in relation to the original subscription.   The time involved in the hearing  and  the  scope  of  the  arguments  and  judgment  would  not  have  been materially different had that subscription not been in issue.

[13]     I do not consider any uplift in costs is justified as submitted by Ms Fog.  The defendants’ arguments were not so unmeritorious as to deserve that.  Where a party applies for summary judgment they can expect defences to be offered.

Particular Steps

[14]     Mr Duff says that the costs claimed by Ms Fog are not justified in relation to three particular steps.  I deal with each in turn.

[15]     First, Mr Duff says the “commencement of proceeding” step relates to the whole proceeding and its costs (of $6,690) should be reserved.   Since the costs claimed under this heading appear to relate to the proceedings as a whole, I agree that that claim should be resolved in the context of the costs of the substantive proceeding not of this interlocutory application for summary judgment.

[16]     Second, Mr Duff says the memorandum of 13 November was unnecessary.  I do not agree.  However I do not consider it relates to a case management conference as Ms Fog’s counsel has categorised it.  It is appropriately subsumed into the claim for “preparation of written submissions” for which costs are already claimed, rather than as a separate item.

[17]     Third,  Mr  Duff  objects  to  paying  costs  for  a  memorandum  as  to  costs. Indeed, the High Court has occasionally held that the High Court Rules do not allow for the award of costs on costs arguments.5     Allowing costs to be claimed on costs

could lead to an infinite spiralling loop of costs applications.6   However, the Court of

Appeal has, at least implicitly, accepted the discretion exists.7   This is consistent with the discretionary nature of the High Court’s costs’ jurisdiction recognised by r 14.1. And there is an obvious policy objective in retaining the discretion to encourage parties  to  settle  costs  disputes  without  recourse  to  the  courts.     A  clearly unmeritorious argument over costs can expect to incur an unfavourable award of costs.  However, I do not consider that is the case here.  Mr Duff has succeeded in some of his arguments about costs.   I therefore do not agree that costs should be awarded in relation to the costs argument.

Result

[18]     I  award  costs  on  a  2B  basis  to  Ms  Fog  except  in  relation  to:  the commencement of proceedings; the memorandum of 13 November; and costs on the submissions on costs.

…………………………

Palmer J

5      West v Cowley [2013] NZHC 2356 at [28]; Delegat v Norman [2014] NZHC 1099 at [33];

Horton v Cowley [2014] NZHC 968 at [8]; Young v Television New Zealand Ltd [2012] NZHC

3460 at [15].

6      Bonney v Cottle [2012] NZHC 2195 at [33].

7      Strata Title Administration Ltd v Body Corporate Administration Ltd [2014] NZCA 96 at [14].