He v Huang

[2014] NZHC 378

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV2013-404-001576 [2014] NZHC 378

BETWEEN  YAO WEI HE Plaintiff

ANDJIANWEN HUANG Defendant

Hearing:                   On the papers.

Judgment:                6 March 2014

COSTS JUDGMENT OF GILBERT J

This judgment is delivered by me on 6 March 2014 at 11am pursuant to r 11.5 of the High Court Rules.

..................................................... Registrar / Deputy Registrar

HE v HUANG (Costs) [2014] NZHC 378 [6 March 2014]

Introduction

[1]      This judgment deals with Mr Huang’s application for costs following his successful application for an order disqualifying his former solicitor, Mr Hong, from acting for Mr He against him in this proceeding.1   Mr Huang seeks an award of costs against both Mr He and Mr Hong, calculated in accordance with scale but increased by 70 per cent to reflect what he claims was their unjustified opposition to the disqualification application.

[2]      Mr  He  has  not  taken  any  steps  in  response  to  Mr  Huang’s  application although Mr Hong purports to make submissions on his behalf despite my disqualification order.  Mr Hong seeks to justify this on the following basis:

I had been restrained but in the interest of administration of justice and as I believe [Mr He] had  not yet appointed new lawyers, I need to and am making this submission for [Mr He]. If the Court considers that this would breach the Court’s order then do discount the paragraphs under this header.

[3]      My order disqualifying Mr Hong from acting for Mr He remains in full force and effect.   To the extent that Mr Hong’s submissions are purportedly made on behalf of Mr He, they are in clear breach of my earlier order and I will disregard them. There is no evidence that Mr He authorised these submissions.

[4]      Mr Hong opposes any order for costs being made against him personally.  He also  opposes  increased  costs  and  submits  that  instead  costs  should  be  reduced because the removal application should have been filed earlier.   Finally, he argues that the costs for each step must be calculated in accordance with band B and that it is inappropriate to award costs under more than one band.

Should costs be awarded against Mr Hong personally?

[5]      The Court  has  an  inherent  jurisdiction  to  award costs  against  a solicitor personally.  This rests on the duty which solicitors owe to the Court as officers of the Court.2   The jurisdiction to award costs against a practitioner can only be invoked in

cases  where  there  has  been  a  serious  breach  of  that  duty.3      It  is  important  to

1 He v Huang [2013] NZHC 2665.

2 Harley v McDonald [2002] 1 NZLR 1 (PC) at [45].

3 At [48].

distinguish between breaches of a practitioner’s duty to the Court and breaches of duties owed to other parties, including clients and former clients.   The inherent jurisdiction to award costs against a practitioner is founded on and limited to cases involving breaches of the duties owed to the Court.4

[6]      Cost awards against a practitioner personally are exceptional and may only be made in clear cases, suitable for summary disposal, where the Court can be satisfied on the basis of the evidence before it that the circumstances warrant it.5   In order to justify an award of costs against a solicitor, the conduct complained of must amount to more than mere negligence; the party seeking costs must demonstrate gross negligence or wilful misconduct.6

[7]      The purpose of such an award is to impose a sanction for the breach of duty. In that sense it serves a punitive function.  However, the award may also serve to compensate a disadvantaged litigant.

[8]      Mr  Baird  submits  that  a  costs  order  should  be  made  against  Mr Hong personally in the exercise of the Court’s inherent jurisdiction on the grounds that:

(a)       The opposition to the disqualification application was without merit;

and

(b)Mr Hong’s affidavit in opposition to the application was unnecessarily lengthy,  repetitive  and  did  not  comply  with  his  obligations  under r 13.5 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 or the requirements of r 9.76 of the High Court Rules.

[9]      In my view, Mr Hong ought to have recognised the conflict of interest at the outset and should not have accepted instructions to act for Mr He in this proceeding. I consider that it was an error of judgment on his part to do so.  Mr Hong should also

have appreciated that there was no realistic prospect of successfully opposing the

4 At [51]-[52].

5 At [50].

6 At [55]; Myers v Elman [1940] AC 282 (HL) at 340.

disqualification application. However, mere errors of judgement do not attract the exercise of the Court’s inherent jurisdiction to award costs against a practitioner.7

What matters is whether the practitioner has breached a duty to the Court.  While Mr Hong may have breached his professional obligations to Mr Huang, his decision to act for Mr He and resist the disqualification application did not constitute a breach of his duties to the Court.  It follows that Mr Baird’s first ground cannot support an award of costs against Mr Hong.

[10]     As noted in my earlier judgment, Mr Hong’s affidavit in opposition to the disqualification application is replete with inappropriate opinion evidence and argument in breach of r 9.76 of the High Court Rules.  Solicitors owe a duty to the Court to facilitate the efficient administration of justice and ensure that the Court’s time is not wasted.  It is a breach of this duty to include plainly inadmissible opinion evidence, argument and unnecessary repetition in affidavits.   However, I am not satisfied that Mr Hong’s breaches in this regard amount to gross negligence or a serious dereliction of his duty to the Court which would justify an award of costs against him personally.

[11]     It was also inappropriate for Mr Hong to make submissions on behalf of Mr He in opposition to the disqualification application when he was also giving evidence,  particularly  in  circumstances  where  his  own  conduct  was  in  issue. Mr Hong responds that he had a right to be heard and give evidence on his own behalf in the disqualification application.  While this is correct, his choice to do so

required that he not act for Mr He.8

[12]     Mr Hong’s conduct in this regard raises two concerns.   First, he failed to recognise that there was a conflict of interest in acting on the disqualification application because his own conduct was in issue.  Second, he failed to appreciate that it was improper for him to offer evidence and make submissions in respect of

the same contentious application.  However, these lapses do not constitute a breach

7 At [57].

8 Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008; r 13.5; Hutchinson v Davis [1940] NZLR 490 (CA) at 506, 508 and 522; Vector Gas Limited v Bay of Plenty Energy Ltd [2010] 2 NZLR 444 (SC) at [146]-[149].

of his duty to the Court, certainly not one sufficiently serious to justify a personal costs award.

[13]     Mr Baird alternatively submits that Mr Hong should be required to pay costs as a funder of the litigation.  The principle underlying such a costs award is that a party funding litigation with a view to gaining a benefit from it should share in the risk of an adverse costs award if the proceeding fails.9

[14]     Mr Hong says in his affidavit that he is supporting Mr He in this proceeding by agreeing to defer payment of his fees.  He says that Mr He does not have access to funds to enable him to pay the legal costs.  Mr Baird invites me to infer that this amounts to a contingency arrangement and that Mr Hong stands to derive a benefit from the litigation beyond his reasonable fees if it succeeds.   I cannot draw this inference on the evidence before me.   Mr Hong may have agreed simply to defer payment of his fees on the basis that payment is contingent on recovery.  Such an arrangement is permitted and does not expose the practitioner to an adverse costs award.  I therefore do not consider that a satisfactory evidential foundation exists to justify ordering Mr Hong to pay costs personally on the basis that he is a litigation funder with an entitlement to share in any recovery.

What costs, if any, should be awarded against Mr He?

[15]     Costs against the unsuccessful party generally follow as a matter of course. Mr He has not opposed an order for costs being made against him and I see no reason why such an order should not be made.

[16]     In assessing whether increased costs should be ordered the Court must first determine  what  costs  would  be  payable  applying  the  appropriate  scale.    This involves categorising the proceeding under r 14.3, determining a reasonable time for each step in the proceeding under r 14.5 and then assessing whether increased costs

should be ordered under r 14.6(3).

9 Arklow Investments Limited v MacLean HC Auckland CP49/97, 19 May 2000 at [21].

What are the appropriate scale costs?

[17]     This is a category 2 proceeding.

[18]     Mr Baird submits that band B should apply for all steps with two exceptions. First, he argues that three days should be allowed for the preparation of written submissions  in  accordance  with  band  C  rather  than  1.5  days  as  allowed  under band B.  Second, Mr Baird seeks an allowance of two days under band C for filing the affidavit of Mr Huang in reply to Mr Hong’s affidavit.

[19]     I am not satisfied that this is a case which required more than the average amount of time to prepare written submissions.  The question to be determined on the application was relatively straightforward. The applicable law is well established and the facts were within a relatively narrow compass.

[20]     The same time allocations apply to all interlocutory applications, including applications for summary judgment. No specific allowance is made for the filing of affidavits in support, in opposition or in reply, although such affidavits are routinely filed.   The relevant time allowance is subsumed in the allowance for filing the application or opposing it.  Additional allowances can be made if the circumstances require.  However, it is important to bear in mind that the costs are intended to be predictable and capable of expeditious determination.

[21]     The fact that Mr Hong’s affidavit contained inadmissible opinion evidence, objectionable  submission  and  unnecessary  repetition  should  not  have  added materially to the time required to respond to it.  Mr Huang was entitled to ignore the inadmissible material in the affidavit and did not need to respond to this.   To the extent that Mr Hong repeated himself, only one response was required.   I do not consider that any special allowance should be made for preparing the reply affidavit.

[22]     The  scale  costs  are  otherwise  as  set  out  in  Mr  Baird’s  memorandum. Applying band B for preparing written submissions and deleting the allowance for the reply affidavit leads to a final allowance of 4.2 days.  Assessed on a category 2 basis, this amounts to $8,358.

Should costs be increased?

[23]     Mr  Baird  submits  that  increased  costs  should  be  awarded  pursuant  to r 14.6(3)(b), on the basis that there was no reasonable justification for opposing the application to disqualify Mr Hong.   I accept this submission.  In my view, for the reasons explained in my earlier judgment, there was a clear disqualifying conflict of interest that should been obvious to Mr Hong.  Mr Huang should not have been put to the trouble and expense of having to make a formal application to disqualify Mr Hong from acting against him in this proceeding. The outcome was inevitable.

[24]     However, I do not accept Mr Baird’s submission that it would be appropriate to apply an uplift of 70 per cent.   The standard rates provided under sch 2 of the High Court Rules are intended to be approximately two-thirds of a reasonable fee for the particular  step.    It  follows  that  an  increase  of 50  per cent  would  normally represent full recovery of the reasonable cost of that step.  For this reason the Court of Appeal has observed that increases beyond 50 per cent will seldom be justified.10

Mr Baird has provided no justification for exceeding this level of uplift.

[25]     I am satisfied that an uplift of 50 per cent is appropriate to reflect the fact that the opposition to the disqualification was devoid of merit.

Result

[26]     The  application  for  an  award  of  costs  against  Mr  Hong  personally  is dismissed.

[27]    The defendant is entitled to costs against the plaintiff in respect of the disqualification application calculated on a 2B basis with a 50 per cent uplift. This

amounts to $12,537 plus disbursements of $1,493.35.

M A Gilbert  J

10 Holdfast NZ Ltd v Selleys Property Ltd (2005) 19 PRNZ 897 (CA) at [47]-[48].