Hemi v Tyler

[2024] NZHC 348

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-419-243

[2024] NZHC 348

BETWEEN

HOHUA WARREN HEMI

Plaintiff (discontinued)/Counterclaim Defendant

AND

MICHAEL STEVEN TYLER

Defendant (discontinued / Counterclaim Defendant

AUTO NET
First Third Party

ROBERT DEVON STONE

Second Third Party

Hearing:

13 February 2024

Counsel:

JA MacGillivray for Counterclaim Defendant MD Branch for Counterclaim Plaintiff

DP Shaw for First Third Party
SD Campbell for Second Third Party

Judgment:

28 February 2024

JUDGMENT OF ASSOCIATE JUDGE BRITTAIN

This judgment was delivered by me on 28 February 2024 at 12 midday Pursuant to Rule 11.5 of the High Court Rules.

…………………..

Registrar/Deputy Registrar

Solicitors:

Tompkins Wake, Hamilton, Harkness Henry, Hamilton, Wynn Williams, Christchurch, McCaw Lewis, Hamilton,

HEMI v TYLER [2024] NZHC 348 [28 February 2024]

Introduction

[1]        The plaintiff, Houhua Hemi (Mr Hemi) and Robert Stone (Mr Stone) began a business relationship around 1991, purchasing used cars in Japan and exporting them to New Zealand and elsewhere in the world.

[2]        Over time, Mr Hemi and Mr Stone developed a complex business structure, including: a company incorporated in the Cayman Islands, Auto Net; iComm International Incorporated based in the Philippines; Autoterminal New Zealand Ltd, now in liquidation (ATNZ); and IBC Japan Co Ltd (IBC).

[3]        Michael Tyler (Mr Tyler) was employed in the business from around 1999, and from 2009 he held shares in ATNZ on trust for Auto Net, with Mr Hemi and Mr Stone as the ultimate beneficial owners.

[4]        Mr Hemi and Mr Stone fell out.  In this proceeding, Mr Hemi alleges that   Mr Tyler breached fiduciary duties owed to him personally, as a result of Mr Tyler essentially siding with Mr Stone in the dispute.

[5]        The background facts and pleadings are more complicated than the summary I have given, however my summary will suffice for present purposes.

[6]        Mr Tyler joined Auto Net and Mr Stone as third parties, seeking an indemnity for costs incurred in defending Mr Hemi’s claim. Mr Hemi has discontinued all claims against Mr Tyler. In a separate proceeding, IBC has brought claims against Mr Tyler. Mr Tyler’s third-party claims against Auto Net and Mr Stone in this proceeding have been transferred and consolidated into that other proceeding, CIV-2023-419-42.

[7]        The only outstanding issue in this proceeding is an award of costs to Mr Tyler following Mr Hemi’s discontinuance. Mr Hemi concedes that Mr Tyler is entitled to an award of costs under r 15.23 of the High Court Rules 2016 (HCR). The parties agree that an award of 2B costs would be $24,856. Any costs that relate to Mr Tyler’s third-party claims will be determined in CIV-2023-419-42.1

1      Minute of Associate Judge Brittain dated 9 January 2024 in CIV-2023-419-042.

Mr Tyler’s position

[8]        Counsel for Mr Tyler submitted that there is a “presumption of unreasonableness following a discontinuance”. Counsel for Mr Tyler characterised the claim as hopeless from the start. Counsel further submitted that the discovery exercise was extraordinary and complicated by Mr Hemi’s unreasonable challenges to Mr Tyler’s claims for privilege. Counsel argued that an award of indemnity costs is justified, seeking approximately $275,000.

[9]        Alternatively, if I do not accept that indemnity costs are justified for all steps in the proceeding, it was submitted that the award should reflect 2B costs for all steps other than the steps associated with discovery, which should be actual costs. This would result in an award of costs of approximately $155,000.

[10]      As a fall-back position, counsel for Mr Tyler submitted that costs for all discovery steps should be 2C, which would result in a total award of costs of $36,000, being the agreed amount if that approach is taken. During argument, counsel for Mr Tyler submitted that this might be further increased, by an uplift beyond 2C for the discovery steps, which comprise $16,730 of the $36,000 total award.

Mr Hemi’s position

[11]      Counsel for Mr Hemi submitted that there is no presumption of unreasonableness. Counsel conceded that Mr Hemi’s claim against Mr Tyler for breach of fiduciary duty was novel, however the claim survived Mr Tyler’s application for defendant’s summary judgment or for strike-out, on the basis that the claims were arguable.2

[12]      Counsel submitted that Mr Hemi is treated as the losing party and should be in no worse a position than a party that loses at trial. The usual principles should be applied if there is to be an uplift beyond 2B costs.

[13]      Regarding discovery, counsel for Mr Hemi submitted that the scope of the attendances required in respect of Mr Tyler’s discovery was complicated by his initial

2      Hemi v Tyler [2020] NZHC 2166.

failure to comply with his discovery obligations, and by justified challenges by Mr Hemi to claims of legal privilege.

[14]      Finally, counsel submitted that any execution on any costs award should be stayed pending determination of CIV-2023-419-42, because Mr Tyler’s legal fees have been met by ATNZ (in liquidation) and Mr Tyler has indicated that he does not intend to return any award of costs in his favour to ATNZ (in liquidation).

Analysis

Legal principles

[15]Rule 15.23 of the HCR provides

15.23 Costs

Unless the defendant otherwise agrees or the court otherwise orders, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance.

[16]      Following a discontinuance, the defendant is entitled to costs as of right and does not need to demonstrate that the plaintiff acted unreasonably. There is no presumption in favour of an award of increased costs or indemnity costs.3 It remains necessary to satisfy the criteria in r 14.6 of the HCR for such an award.

[17]Rule 14.6(3) and (4) provide:

14.6 Increased costs and indemnity costs

(3)The court may order a party to pay increased costs if—

(a)the nature of the proceeding or the step in it is such that the time required by the party claiming costs would substantially exceed the time allocated under band C; or

(b)the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—

(i)failing to comply with these rules or with a direction of the court; or

(ii)taking or pursuing an unnecessary step or an argument that lacks merit; or

3      Arnold v Fairfax New Zealand Ltd [2016] NZHC 1078, (2016) 23 PRNZ 317 [19].

(iii)failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument; or

(iv)failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or other similar requirement under these rules; or

(v)failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding; or

(c)the proceeding is of general importance to persons other than just the parties and it was reasonably necessary for the party claiming costs to bring it or participate in it in the interests of those affected; or

(d)some other reason exists which justifies the court making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.

(4)The court may order a party to pay indemnity costs if—

(a)the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or

(b)the party has ignored or disobeyed an order or direction of the court or breached an undertaking given to the court or another party; or

(c)costs are payable from a fund, the party claiming costs is a necessary party to the proceeding affecting the fund, and the party claiming costs has acted reasonably in the proceeding; or

(d)the person in whose favour the order of costs is made was not a party to the proceeding and has acted reasonably in relation to it; or

(e)the party claiming costs is entitled to indemnity costs under a contract or deed; or

(f)some other reason exists which justifies the court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious.

Discussion

[18]      Mr Hemi discontinued his proceeding after completion of discovery and other interlocutory steps, and before preparation of evidence for trial. I do not accept the submission of counsel for Mr Tyler that discontinuance at that stage of the proceeding was unreasonable. Parties should be encouraged to review their position in the litigation after discovery and before preparation of evidence.

[19]      I am not satisfied that Mr Hemi contributed unnecessarily to the time or expense of the proceeding or any step in it, so as to justify increased costs. I am satisfied that none of the grounds in r 14.6(4) are made out, and there is no basis for an award of indemnity costs.

[20]      The solicitor involved in preparing Mr Tyler’s evidence provided an affidavit confirming that the actual cost of discovery was in the realm of $200,000. The affidavit attributes $120,267 to “discovery and inspection” costs, $47,484 to “later discovery and particulars applications” and other costs associated with discovery in 2021 fall under the category of “dealt with” which amounts to $142,435.50. Mr Tyler’s discovery was complicated by the relationships between the various parties involved in the factual background to the litigation, resulting in difficult issues regarding claims of legal privilege. It was always going to be time consuming and expensive to resolve those issues, and I see no basis to lay blame for the cost of discovery with Mr Hemi.

[21]      However, I am satisfied that the nature of Mr Tyler’s discovery was such that extra time was required, substantially exceeding the time allocated under band C. An increase in costs for discovery steps, under r 14.6(3)(a), is justified.

[22]      In my view, Mr Tyler is entitled to costs for discovery based on band 2C plus an uplift of 50%. That results in an increase in the costs for discovery from $16,730 to $25,095. The corresponding increase in the overall award of costs is from $36,000 to $44,365.

[23]      Mr Tyler has been unsuccessful with his claim for indemnity costs, and in my view it is appropriate that costs in respect of the application for costs shall lie where they fall.

[24]      I award Mr Tyler costs against Mr Hemi of $44,366, together with disbursements as fixed by the Registrar.

[25]      I decline to stay execution of the costs order. Any issues between Mr Tyler and ATNZ (in liquidation) are governed by the contract between them, and possibly the

insolvency provisions of the Companies Act 1993. Those issues and not the subject of this proceeding.

Associate Judge Brittain