Haven Insurance Limited v Lombard

[2021] NZHC 255

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2017-404-487

[2021] NZHC 255

BETWEEN

HAVEN INSURANCE LIMITED

Plaintiff

AND

HEINRICH LOMBARD

First Defendant

STATUS FINANCIAL LIMITED (IN LIQUIDATION)

Second Defendant

STEPHEN NICHOLAS BROWN
Third Defendant

ALL SMALL JOBS LIMITED
Fourth Defendant

Continued over ...

Hearing:

24 February 2021

Submissions dated 30 September 2020, 24 November 2020 and
3 March 2021

Counsel:

S M Lowery and S E Russell for Plaintiff

Judgment:

31 March 2021

COSTS JUDGMENT OF PETERS J

This judgment was delivered by Justice Peters on 31 March 2021 at 5 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date: ...................................

HAVEN INSURANCE LIMITED v HEINRICH LOMBARD [2021] NZHC 255 [31 March 2021]

AND

JACK DOUGLAS MILLER

Fifth Defendant

J MILLER CONSULTING LIMITED
Sixth Defendant

DENZEL COETZER (DISCONTINUED)
Seventh Defendant

YOURWAY LIMITED (DISCONTINUED)

Eighth Defendant

BRUCE CARR
Ninth Defendant

B&M CARR FINANCIAL SERVICES LIMITED
Tenth Defendant

FRANCOIS VILJOEN (DISCONTINUED)

Eleventh Defendant

Solicitors:           Russell Legal, Auckland

Sharp Tudhope, Tauranga

Counsel:            S M Lowery, Auckland

B D Gustafson, Auckland

Copy for:           Fifth and Sixth Defendants

Tenth Defendant

[1]                 This judgment determines the plaintiff’s, Haven’s, application for costs and disbursements in this matter.1

[2]                 The defendants have been given ample opportunity to respond to the submissions and evidence of counsel for Haven but none have done so.

[3]                 As the successful party in the proceeding, Haven is entitled to an award of costs and disbursements, but three particular issues arise. The first is whether the award should be reduced and, if so, by how much to reflect that Haven enjoyed only limited success on quantum. The second is how liability for the costs and disbursements should be allocated between the defendants, as this is not a case for joint and several liability. The third is whether Haven should have an award of indemnity or increased costs against the third and fourth defendants, Mr Brown and All Small Jobs Ltd (“ASJ”).

Background

[4]                 Haven brought proceedings against 11 defendants. These 11 comprised insurance advisers and, with one exception, their companies, who had represented Haven in different parts of New Zealand, and who had resigned from Haven en masse.

[5]                 After the advisers’ departures, Haven noticed an increased rate of cancellation of policies that they, the advisers, had previously brokered whilst with Haven. These cancellations caused a loss to Haven of “trail commission”, to which I refer below.

[6]                 Subsequently, Haven discovered that the advisers had, wrongly, solicited and written new policies for their — the advisers’ — Haven-derived clients. An insurance company pays a broker a substantial upfront commission on the sale of a policy, hence the attraction of writing a new policy.

[7]                 Accordingly, whilst Haven lost its trail commission on many existing policies, the advisers, or new vehicles they incorporated, received large commissions in respect of the new policies they wrote in place of the previous Haven-brokered policy.

1      Haven Insurance Ltd v Lombard [2020] NZHC 1248.

[8]                 Having resolved matters with several of the defendants, by the time of trial Haven was only continuing against six, being the third to sixth, and ninth and tenth defendants. These defendants were Mr Brown and ASJ; Mr Jack Miller and J Miller Consulting Ltd (“JMC”); and Mr Bruce Carr and B&M Carr Financial Services Ltd (“B&M”).

[9]                 Mr Brown and ASJ were represented and called evidence at trial. The other four defendants did not participate in the trial and I determined the claims against them as formal proofs.

Result

[10]             In so far as concerns liability, Haven succeeded in establishing one or more of breach of contract or breach of confidence against each defendant, except B&M.

[11]             As to relief, Haven obtained the permanent injunction it sought requiring each defendant to refrain from using any information confidential to Haven, and orders for the return to Haven of all documents which comprised or included such information. Haven also obtained awards of exemplary damages, defeated  a counterclaim by    Mr Brown, and defeated a challenge by Mr Miller to the restraint of trade contained in the standard form Haven “Adviser Agreement”. This was important to Haven, as many of its advisers are engaged on that standard form.

[12]Haven was less successful on its claim for damages.

[13]             Haven sought an award for the total “upfront” commissions paid to the defendants on the new policies (“Part A”). Although this claim did not succeed as a lost profit claim because I was not satisfied Haven would have written the new policies, it could have succeeded as an order that the recipient account for sums received. However, the recipient in the case of each of Mr Brown and Mr Carr was a newly incorporated vehicle which was not a party to the proceedings. Accordingly, this claim only succeeded against Mr Miller and JMC, Mr Miller not having incorporated a new vehicle.

[14]             Haven also sought an award for its lost trail commission (“Part B”). This claim was double counting on Part A, so could only succeed where a Part A claim did not. Even then, however, I considered the multiple that Haven had used to calculate the claim to be too high, and I adopted a lesser multiple.

[15]             Haven also sought contributions to costs it incurred in dealing with the aftermath of the defendants’ departure. These costs fell into two categories. One comprised salaries paid to specially employed advisers to shore up clients previously advised by all the departing advisers (“Part C”). The other was a contribution to the costs Haven had incurred by diverting senior management to deal with the aftermath (“Part D”).

[16]             As to the cost of the employees, this claim was not proved for the reasons set out in the judgment. The claim in respect of the management time was based on “guesstimates” of the time spent, and so I made an award of $5,000 per capita.

Mr Brown and ASJ

[17]To put the above in context, Haven’s claim against ASJ and Mr Brown was

$269,620 for Part A; $89,910 for Part B; $161,891 for Part C; and $42,707 for Part D. These sums total more than $564,000.

[18]             As it was, I made no award against ASJ as I was not satisfied its breach had caused loss. I awarded approximately $75,000 against Mr Brown, being $44,935.14 on the Part B claim, $5,000 on the Part D claim, and $20,000 in exemplary damages.

Mr Miller and JMC

[19]             I ordered JMC to account to Haven for the upfront commissions it had received on the 25 policies it had written for former Haven clients, being the Part A claim. Alternatively, at Haven’s option, I ordered JMC and Mr Miller to pay Haven

$15,880.34 for the Part B claim. I also ordered they pay $5,000 for the Part D claim, and that Mr Miller pay exemplary damages of $20,000.

Mr Carr and B&M

[20]             Haven did not establish liability against B&M. I ordered Mr Carr to pay sums totalling approximately $37,000, being $12,239.50 on the Part B claim, $5,000 on the Part D claim, and exemplary damages of $20,000.

Costs

[21]             Haven has filed several memoranda in support of its claim for costs.2 At my request, Mr Lowery, counsel for Haven, appeared on 24 February 2021 at which point I explained what I considered were the key issues on Haven’s claim as it then stood. Mr Lowery had anticipated many of these points in any event.

[22]             Subsequent to that, on 3 March 2021, Mr Lowery filed a further memorandum revising Haven’s claim and attaching schedules setting out those revisions and which I attach to this judgment.

[23]             As appears from schedule A, Haven’s costs on a 2B basis are $145,790 and its disbursements, excluding GST,  are $69,821.81.3    The total claim for costs on a     2B basis and disbursements is $215,611.81.

Reduction

[24]             Notwithstanding recovery of damages was not necessarily the main purpose of Haven’s proceedings, I consider it is necessary to make some reduction to the scale costs and disbursements to reflect Haven’s limited success on quantum.4

[25]             At my request, but without making any concession, Haven provided calculations of its costs and disbursements based on a 10 per cent and a 15 per cent reduction. These too appear on schedule A.

[26]             I am satisfied a 15 per cent reduction to the scale costs is required. This has the effect of reducing those costs to $123,921.50.

2      The dates of these memoranda are noted on the front page of this judgment.

3      Sums for disbursements below are net of GST.

4      High Court Rules 2016, r 14.7(d).

[27]             As to the disbursements, these include $37,239.50, being the fee Haven claims in respect of the costs of its expert accountants, Korda Mentha. Mr Graham of that firm gave evidence in support of Haven’s various claims for damages. However, and through no fault of his own, large parts of Mr Graham’s brief of evidence were redundant, given the basis on which several of the claims failed. Accordingly, in my view, a 50 per cent reduction of the Korda Mentha fee is required. However, I do not consider it necessary to reduce any of the other disbursements claimed.

[28]             By my calculation, this reduction to the Korda Mentha fee reduces the total claim for disbursements to $51,202.06.

Allocation

[29]             This is not a case for an order that each defendant is jointly and severally liable for all costs and disbursements although, for the avoidance of doubt, Mr Miller and JMC are severally liable for the costs and disbursements awarded against one or both of them.

[30]             Haven proposed the following allocation — 80 per cent to Mr Brown; 15 per cent to Mr Miller and JMC; and five per cent to Mr Carr.

[31]             I accept Haven’s submission that this is a proper allocation. Mr Carr did not have a significant involvement in the proceedings beyond filing a statement of defence to an early version of the statement of claim. Although they did not appear at trial, Mr Miller and JMC defended the proceedings up until that point. Mr Brown and ASJ defended the proceedings at all stages, although as I have said no award was made against ASJ and, accordingly, it is not liable for any portion of the costs.

Additional

[32]             Some interlocutory steps Haven took were solely in respect of Mr Brown and ASJ, and some solely in  respect  of  Mr Carr.  I accept  Haven’s  submission  that  Mr Brown and Mr Carr alone should pay the associated costs and disbursements.

[33]             The additional costs and disbursements are itemised on schedules B and C respectively, being $12,346.75 in the case of Mr Brown and $2,181.57 in the case of Mr Carr.

Haven’s claim for indemnity costs

[34]             In its early submissions on costs, Haven contended it should have an award of indemnity costs against Mr Brown. Following my advice that I did not propose to make such an award, Haven made an alternative claim for indemnity costs in the following amounts, and on the following steps, in lieu of the scale costs for those steps:

(a)a pre-trial application for third party discovery — $20,744; and

(b)preparation for and attendance at trial — $130,152.51.

[35]These sums are set out on schedule D.

[36]             The claim for indemnity costs is made pursuant  to High Court Rules 2016,  rr 14.6(4)(a) and (b).

[37]             I am not persuaded this is a case for an award of indemnity costs on preparation for and appearance at trial. That is because I expect a significant proportion of the preparation time must have been spent on preparing the factual and expert evidence intended to prove the claims for damages, and submissions on the same. Much of this time was ultimately wasted.

[38]             Mr Brown would be liable for an award of indemnity costs on the application for third party discovery, for reasons I discuss below in the context of Haven’s alternative claim for increased costs. That said, the sum Haven claims for indemnity costs on that application is insignificant in the scheme of this case and is better dealt with by an award of increased costs.

Increased costs

[39]             I am satisfied  this is  a case  for  an  award  of  increased  costs  pursuant  to rr 14.6(1)(a) and (3)(b)(iii) and (iv). Mr Brown failed, without reasonable

justification, to comply with an order for discovery and to admit facts, namely that he had solicited numerous of Haven’s clients.

[40]             Mr Brown lied, on oath, in several affidavits he was ordered to swear, and at trial on this important point.  The  evidence  to  the  contrary  was  overwhelming. Mr Brown’s refusal to acknowledge this necessitated a painstaking “client by client” review of the relevant clients in Mr Lowery’s cross-examination of Mr Brown.

[41]             Haven has proposed that I should award an increase of 50 per cent at a minimum and, indeed, referred me to cases in which the Court has allowed an even greater increase. I am satisfied the costs Haven incurred were increased as a result of the manner in which Mr Brown conducted himself throughout the proceedings.  A  50 per cent uplift, but no more than that, is warranted. I order accordingly.

Orders

[42]Pursuant to r 14.7(d), I reduce Haven’s 2B costs by 15 per cent, that is to

$123,921.50.

[43]             I allow all disbursements claimed, less 50 per cent of the sum claimed on account of fees paid to Korda Mentha. By my calculation, this reduces the disbursements to $51,202.06. However, I reserve leave to apply in the event Haven considers I have made any error on that score.

[44]Mr Carr is ordered to pay:

(a)five per cent of the total of the sums in [42] and [43]; and

(b)$2,181.57 as referred to in [33] above.

[45]               Mr Miller and JMC, jointly and severally, are ordered to pay 15 per cent of the total of the sums in [42] and [43].

[46]Mr Brown is ordered to pay:

(a)80 per cent of the sum in [42], increased by 50 per cent pursuant to    rr 14.6(1)(a) and (3)(b)(iii) and (iv);

(b)80 per cent of the sum referred to in [43]; and

(c)$12,346.75 as referred to in [33] above.

[47]             If Haven wishes, it may submit a draft order identifying the individual sums due from each party.

[48]I reserve leave to apply.

Peters J