Heartland Bank Limited v Ora HQ Limited
[2021] NZHC 2035
•6 August 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2020-404-95
[2021] NZHC 2035
UNDER Part 18 of the High Court Rules BETWEEN
HEARTLAND BANK LIMITED
Plaintiff
AND
ORA HQ LIMITED
First Defendant
WILD LOGIC LIM ITED
Second DefendantWILD LOGIC PROPERTIES LIMITED
Third Defendant
Hearing: On the papers Counsel:
I J Thain and I E Scorgie for the Plaintiff T Cooley for the Third Defendant
Judgment:
6 August 2021
COSTS JUDGMENT OF DUFFY J
This judgment is delivered by me on 6 August 2021 at 4:00 pm pursuant to r 11.5 of the High Court Rules.
.....................................................
Registrar / Deputy Registrar
Solicitors:
DLA Piper, Auckland
HEARTLAND BANK LTD v ORA HQ LTD & ORS [2021] NZHC 2035 [6 August 2021]
Brookfields, Auckland
[1] On 12 February 2021, I granted Wild Logic Properties Limited (Wild Logic), who is the third defendant in this proceeding, leave to file a statement of defence out of time (the leave judgment).1 The leave application was granted subject to an order that Wild Logic pay the plaintiff, Heartland Bank Limited (Heartland), for its wasted costs, given that the formal proof hearing would no longer proceed.
[2] Pursuant to my order, Heartland now applies for wasted costs for the formal proof and other costs and disbursements pertaining to Wild Logic’s leave application.
[3] Wild Logic opposes the quantum of wasted costs sought by Heartland and argues that costs should lie where they fall on the leave application.
Procedural background
[4] Heartland filed the substantive proceeding on 24 January 2020. The proceeding was duly served on Wild Logic. Wild Logic was required to file a statement of defence by 23 March 2020, if they wished to do so.
[5] No statements of defence (or applications for leave to defend out of time) were filed. On 24 June 2020, Heartland duly made an application for a formal proof hearing, which was set down for 17 July 2020.
[6] On 14 July 2020, Heartland learned that Wild Logic had been put into liquidation. Heartland advised the Court of this fact on 16 July 2020. Heartland responsibly agreed to an adjournment of the formal proof hearing, to enable Wild Logic to consider their options.
[7] On 14 August 2020, Wild Logic applied pursuant to rule 15.9(3) of the High Court Rules 2016 for leave to file a statement of defence out of time (the leave application). The application was opposed, which necessitated the hearing and leave judgment in Wild Logic’s favour.
1 Heartland Bank Ltd v Ora HQ [2021] NZHC 144 at [39](d).
[8] Given these events occurred at an early stage of the proceeding there has been no case management conference at which the proceeding was categorised for costs purposes.
Costs
[9] I deal first with costs for the abandoned formal proof hearing and then costs on the leave application.
Wasted costs
[10] This Court has jurisdiction to award wasted costs against a party whose default causes a fixture to be vacated.2 The Court may only award “trial focused” costs directly thrown away as a result of the vacation of a fixture. Where a fixture is vacated, these comprise costs thrown away or wasted, at least in part, because they must be redone for the purposes of a trial on a refocused basis. The amount awarded is a matter “of impression and best judgment of the Court at the time”.3
[11] Heartland seeks a total of $11,841 in wasted costs for the formal proof hearing that did not proceed, including:
(a)Application for formal proof: $543.75;
(b)Filing/serving application for formal proof; affidavits in support:
$2,899.73;
(c)Affidavit and counsel memorandum in support of formal proof default judgment: $5,206.74; and
(d)Urgent vacation/adjournment of formal proof hearing: $3,199.88.
[12] In support of its claim, Heartland submits that preparation for the formal proof hearing required consideration of complex matters of fact and law, given the nature of
2 Jeffreys v Morgenstern [2013] NZHC 1361 at [31].
3 Jeffreys v Morgenstern, above n 2, at [37].
the claim and the number of parties involved. Further, Heartland says that as the adjournment occurred the day before the scheduled hearing, following urgent discussions with Wild Logic’s liquidators, that preparation was well advanced and continued right up until that date (being 16 July 2020).
[13] Heartland submits that a 20 per cent discount for professional fees incurred in respect of the preparation for the formal proof hearing (namely, memorandum of counsel and affidavit in support of formal proof default judgment) is appropriate. This work will need to be revised and refocused for the purpose of a defended hearing.
[14] Heartland also seeks costs incurred in obtaining the first defendant’s consent to a formal proof hearing, via their liquidators.
[15] Wild Logic submits that Heartland’s request for wasted costs is excessive and unreasonable and represents their actual solicitor and client costs for the period May
– July 2020 rather than wasted costs pertinent to the adjourned hearing. In summary, Wild Logic propose that Heartland should be awarded wasted legal costs of $1,939.40 being 20 per cent of available costs as follows:
(a)$956 for preparation of the memorandum of counsel seeking the allocation of a formal proof hearing, on a 2B basis; 4 and
(b)$983.40 for preparation of the affidavit in support and memorandum of counsel for the formal proof hearing.5
[16] To support this approach Wild Logic relies on Neumayer v Kapiti Coast District Council.6
4 $956 is 20 per cent of 2B scale costs for two days’ work. Wild Logic does not identify which Step in the Schedule they are using to make this calculation.
5 $983.40 is 20 per cent of $4,917 which is actual costs for time recorded to file the affidavit of service and memorandum of counsel dated 24 June 2020 according to the solicitor’s narration of services.
6 Neumayer v Kapiti Coast District Council [2014] NZHC 417, [2015] NZAR 1185.
[17] The respective arguments of the parties fall under two heads: (a) costs for preparation for the formal proof hearing; and (b) costs for preparation of affidavit evidence and memorandum of counsel.
Preparation for formal proof hearing
[18] In general, Wild Logic submits that the narration of attendances supplied by Heartland’s solicitor shows that much of this work was unrelated to the formal proof hearing and should be excluded from the calculation of wasted costs. In particular, Wild Logic say that the following narrations are outside the scope of available costs: research into the issue of DLA Piper withdrawing as solicitor for the second defendant; email correspondence with parties concerning the release of funds; drafting reports to Heartland; drafting letters to Wild Logic’s liquidators seeking consent to continue the proceedings; and correspondence with Wild Logic’s solicitors, Brookfields, in relation to seeking the liquidator’s consent and filing a joint memorandum with timetable to progress the proceedings. Citing Jeffreys v Morgensten,7 Wild Logic submit that the only steps for which Heartland may claim are filing the affidavit of service and two- page memorandum of counsel seeking the allocation of a formal proof hearing on 24 June 2020, and the preparation of affidavit in support of judgment by default by way of formal proof and memorandum of counsel.
[19] In response, Heartland contends that all costs sought were connected with the application seeking allocation of a formal proof hearing. These include: legal research related to the second defendant; provision of advice and updates to clients; seeking instructions from clients; and correspondence with Wild Logic’s liquidators and solicitors in relation to the adjournment of the formal proof hearing. Heartland accepts that some email correspondence relating to the release of funds may be questioned, but submits that as these emails total less than half an hour in time entries, any discount should be minimal.
7 Jeffreys v Morgenstern, above n 2.
Affidavit and memorandum of counsel
[20] Wild Logic argues that the affidavit of Heartland’s deponent Peter Griffin provides evidence and documents relating to the factual background of the proceeding that can be used for the substantive hearing without revision. Therefore, it is not a wasted cost. However, Wild Logic acknowledges that it may be necessary for Mr Griffin to file a supplementary affidavit in response to Wild Logic’s defence.
[21] Wild Logic also argues that insufficient detail has been provided in relation to Heartland’s memorandum of counsel in support of the formal proof hearing. The narrative of attendances shows that this was completed on 14 July 2020, but does not specify the time spent on it and does not show how advanced the draft document was by this date.
[22] Wild Logic contends that the 20 per cent discount suggested by Heartland in relation to the Peter Griffin affidavit and memorandum of counsel is too low, and submit that an 80 per cent discount would be more appropriate given that most of the work (including the affidavit in its entirety) can be re-used at trial.
[23] In response, Heartland argues that this affidavit was prepared in the absence of any defence and that, although it includes information on the merits of the claim, it was not prepared for the purpose of a substantive hearing and will require significant re-working for trial.
Discussion of wasted costs
[24] In my view, Heartland acted responsibly by informing the Court of Wild Logic’s change in circumstance and agreeing to an adjournment of the formal proof hearing. I agree that the hearing involved complex matters, and that Heartland’s preparation would have been well advanced by the date the hearing was vacated, which was the day before the hearing was set down. I consider that Heartland is entitled to receive preparation costs up until the adjournment date.
[25] I also accept Heartland’s submission that correspondence with its clients and with the third defendant’s liquidators and solicitors formed a necessary part of its
preparation for the formal proof hearing, and that costs arising out of its adjournment application is an appropriate category of wasted costs.
[26] Heartland has provided Wild Logic with invoices subject to a confidentiality agreement. These invoices have not been put before me. I am not prepared to make a confidentiality order, as suggested by the plaintiff, to enable me to review these documents. I find that it is therefore unnecessary for me to engage with the details of disputed items in the narration of attendances. Rather, I consider that increased costs is an appropriate alternative pathway through which Heartland may recover its wasted costs.
[27] The starting point is to identify the appropriate scale costs and then to stand back and determine the level of uplift. Scale 2B costs for filing an interlocutory application are $1434 (being 0.6 of $2390). I agree with the approach Heartland has taken in treating the preparation for the formal proof hearing as if it involved preparation for an affidavit hearing. A hearing by way of formal proof is provided for in r 15.9 of the High Court Rules. If successful, the plaintiff obtains entry of a substantive judgment against the defendant. This is more than success on an interlocutory application. Further, obtaining a judgment on formal proof is no easy task and requires the plaintiff to prove both liability and quantum to the Court’s satisfaction. Ferreria v Stockinger shows that under r 15.9 proof of liability and quantum is required and a plaintiff cannot assume that entry of judgment will be immediate:8
[33] … r 15.9 of the High Court Rules applies to a formal proof hearing when no statement of defence has been filed and the plaintiff seeks judgment by default for other than a liquidated demand, which is the case here. This rule provides a mandatory procedure: “it does not involve the immediate entry of judgment by default”.9
[34] Under r 15.9(4) a plaintiff must establish to a Judge’s satisfaction each cause of action relied on and, if damages are sought, provide sufficient information to enable the Judge to calculate and fix the damages. The affidavit evidence required by r 15.9(4) should not include evidence that the Court could not receive if objection was raised by the defendant.10
8 Ferreria v Stockinger [2015] NZHC 2916.
9 Neumayer v Kapiti Coast District Council [2013] NZHC 1106 at [8].
10 Stephens v Cribb (1991) 4 PRNZ 337 (CA) at 344 which deals with the former rule but which is applicable by analogy to r 15.9(4).
[35] When it comes to the extent to which the plaintiff’s evidence is required to satisfy a Judge under r 15.5(4) the presence of r 15.5(5) gives some indication of what may be required. Rule 15.5(5) permits a Judge to direct a deponent of an affidavit to attend the Court to give additional evidence. The fact the rules make provision for a Judge hearing a formal proof to hear from witnesses whose evidence has obviously not been challenged by an opposing party suggests to me that the level at which a Judge is required to satisfy herself regarding the plaintiff’s evidence is much the same as it would be if the proceeding had gone to trial. This view of r 15.9 is consistent with the observation of Kós J in Neumayer that the r 15.9 procedure may not provide any advantage over allowing matters to run to trial.11 The view that I take of r 15.9 is also consistent with the very helpful discussion of the earlier version of r 15.9 in Chen v Zhong, where Wylie J makes it clear that in a claim for unliquidated damages where no statement of defence has been filed, it does not necessarily follow that allegations of fact made in the statement of claim are deemed to be admitted.
[36] On the other hand in a formal proof hearing, the plaintiff is only required to prove a cause of action so far as the burden of proof lies on the plaintiff. The plaintiff is not required to engage with any matters of affirmative defences, set-off or counter-claim.12
[28] It follows that Heartland was required to prepare for the formal proof hearing as outlined above. There is nothing to suggest that Heartland did not properly prepare for the hearing. This would have entailed the degree of time and effort on Heartland’s part that is associated with an affidavit hearing.
[29] Steps 30 and 32 provide for preparation for an affidavit hearing, including preparation of affidavits, authorities and the common bundle (2 days for first hearing day), and preparation for the hearing itself (2 days for first hearing day). On a 2B basis this works out at $9,560. Heartland acknowledges that some discount should be made given that no bundle was prepared, and some aspects of the work may be re- used at trial. I discount this item by 20 per cent, given that no bundle was prepared, and some documents Heartland’s counsel identified for use may be re-used at trial. This brings those costs down to $7,648.
[30] Step 11 provides for filing memorandum for a case management conference or mentions hearing. I agree with Heartland, that this step may be used by analogy to calculate the costs of preparation for the adjournment of the formal proof hearing. Heartland submits that this work should be calculated on a 2C basis because it was
11 Neumayer v Kapiti Coast District Council, above n 10, at [8].
12 BBC Technologies Ltd v Sociedad Agricola Topagri Ltda [2014] NZHC 2386 at [5].
undertaken on urgency. I do not agree. I am not persuaded by Heartland’s argument that filing under urgency may warrant an award on a 2C basis. To adjourn the formal proof hearing was a simple and straightforward task. Scale costs for step 11 on a 2B basis come to $956. This brings the total scale costs to $8,604.
[31] It follows that I reject Wild Logic’s assessment of scale costs that are available here. I consider the circumstances here are not comparable to those in Neumayer v Kapiti Coast District Council.13 There, both parties had delayed taking the appropriate steps. Here, Heartland did all it could do at the appropriate times to secure judgment by formal prof. Further, the grant of wasted costs for the formal hearing was one of the bases on which Wild Logic was granted leave to file its defence out of time.
[32] I consider an uplift of 25 per cent recognises the wasted effort that was brought about by Wild Logic’s late attempt to defend the claim against it which left it until the eleventh hour before notifying Heartland it would be seeking leave to file a statement of defence out of time. This brings the award to $10,755. This figure is slightly below the specified wasted costs sought by Heartland. I consider this result to be fair in all the circumstances.
Leave application costs
[33]As for the leave application costs, Heartland submits as follows:
(a)Wild Logic was granted an indulgence by the Court;14
(b)the significant delay in filing any statement of defence was not explained to an appropriate degree; and
(c)the leave application (including affidavits filed in support) required substantial consideration by Heartland.
13 Neumayer v Kapiti Coast District Council, above n 6. ]
14 Mason v Camoola Pty (2002) 16 PRNA 367 at [23].
[34] Therefore, Heartland seeks the costs of considering Wild Logic’s leave application on a 2B basis (using preparation of a notice of opposition as a proxy) being
$1,434.
[35] Heartland then submits that other costs arising in relation to the leave application should lie where the fall.
[36] Wild Logic acknowledges that they obtained an indulgence from the Court, and that this may warrant an exception to the principle that “costs follow the event” and should be awarded to the successful party. On balance, they submit that leave application costs should lie where they fall.
Discussion of application costs
[37] I agree that although Wild Logic was the successful party in the matter of the application it was granted an indulgence by the court. This circumstance warrants an exception to the usual principle that costs follow the event. However, I do not consider that Heartland, as the unsuccessful party, is entitled to recover any costs for opposing the leave application. The success of the leave application hinged on the evidential character of Wild Logic’s defence. Its strength could not be assessed until the evidence was heard and tested. This is something that should have been obvious to Heartland. Nevertheless, it chose to oppose the leave application. In the circumstances, I consider the fair outcome is for the costs of the leave application to lie where they fell.
Disbursements
[38]Heartland seeks the following disbursements:
(a)Scheduling fee for filing application for formal proof hearing on 24 June 2020, of $640.
(b)First defendant’s costs in relation to the formal proof hearing, May to July 2020, of $2,716.31.
[39] Heartland argue that they are entitled to recover the first defendant’s costs as a disbursement. The first defendant’s liquidators agreed to consent to the formal proof proceeding against the first defendant on the basis that Heartland agreed to pay their costs. Costs accrued by the first defendant in relation to the formal proof, according to Heartland’s schedule, amount to $2,716.31 for the period of May to July 2020.
[40] Wild Logic submits that Heartland should not be awarded costs paid to the first defendant in relation to the formal proof hearing. They argue that the first defendant took no active steps in the proceedings other than filing a notice reserving its rights, and never intended to file a separate memorandum (as noted in Heartland’s memorandum dated 24 June 2020). Further, the invoice provided by the first defendant’s liquidators lacks sufficient detail to show that the first defendant contributed to Heartland’s preparation for the formal proof hearing.
[41] In reply, Heartland say that Wild Logic’s actions caused the first defendant to incur costs and thereby increased Heartland’s wasted costs. Heartland is unable to disclose these narrations without the first defendant’s consent.
[42] Wild Logic accepts that Heartland is entitled to recover the scheduling fee paid on 6 July 2020 from the defendant but contends that this amount should be reimbursed by the Court.
Discussion of disbursements
[43] I agree that Heartland is entitled to recover the scheduling fee for the formal proof hearing application, of $640.
[44] Heartland has not shown me how its formal proof claim against Wild Logic would have been assisted by Heartland also proceeding by way of formal proof against the first defendant. Nor do I have any explanation for why the first defendant’s agreement was required to a formal proof process against Wild Logic. Formal proof under r 15.9 is undertaken when a defendant fails to file and serve a statement of defence. Absent the existence of a legal requirement for the first defendant to agree to Heartland proceeding by formal proof against Wild Logic, I consider there is no basis for permitting Heartland to recover payment of the costs the first defendant is
alleged to have accrued relevant to the formal proof. Heartland has not directed me to any such legal requirement. Accordingly, recovery of this payment as a disbursement payable by Wild Logic is denied.
Result
[45]Heartland is awarded increased costs for the formal proof in the sum of
$10,755, which is a 25% increase on 2B scale costs.
[46]Heartland is awarded disbursements in the total sum of $640.
[47] Costs related to Wild Logic’s application to the Court for leave to file a statement of defence out of time shall lie where they fall.
Duffy J
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