HG Metal Manufacturing Ltd v Navaratnam
[2021] NZHC 2498
•22 September 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-1955
[2021] NZHC 2498
BETWEEN HG METAL MANUFACTURING LTD
Applicant
AND
VASHIHARAN NAVARATNAM
First Respondent
CIV-2020-404-2230 BETWEEN
VASHIHARAN NAVARATNAM
ApplicantAND
HG METAL MANUFACTURING LTD
Respondent
Hearing: On the papers Counsel:
T B Fitzgerald for plaintiff V Navaratnam in person
Judgment:
22 September 2021
JUDGMENT OF KATZ J
[Costs]
This judgment was delivered by me on 22 September 2021 at 3:00 pm pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
Solicitors: Belly Gully, Barristers and Solicitors, Auckland Copy to: Vashiharan Navaratnam
HG METAL MANUFACTURING LTD v NAVARATNAM [2021] NZHC 2498 [22 September 2021]
Introduction
[1] On 23 April 2020, an arbitrator in Singapore, Mr Wade M. Coriell, delivered an arbitral award (“the Award”) in favour of HG Metal Manufacturing Limited (“HG Metal”).
[2] Vashiharan Navaratnam and his wife, Sherine Sangeetha Navaratnam, were ordered to pay HG Metal SGD404,736.10 and USD1,230,187.73, plus interest, pursuant to their obligations as guarantors of the debts of an associated company, Gayathri Steels Pte Ltd. The guarantee was entered into on or about 24 September 2014 (the “September Guarantee”), and superseded an earlier guarantee entered into in July 2013 (the “July Guarantee”).1
[3] Mr and Mrs Navaratnam moved to New Zealand. HG Metal therefore filed an application seeking recognition and enforcement of the Award pursuant to art 35 of sch 1 of the Arbitration Act 1996 (“the Act”).
[4] On 28 July 2021, I granted HG Metal’s application (“the Judgment”).2 I found that none of Mr Navaratnam’s grounds for opposing recognition and enforcement of the Award had merit.
[5] I also expressed my preliminary view that HG Metal was entitled to an award of costs on a 2B scale basis, but reserved leave to file memoranda if costs could not be agreed.3 Costs have not been agreed.
[6] HG Metal claims indemnity costs of $83,981.50 pursuant to an indemnity included in the September Guarantee. Alternatively, HG Metal claims increased costs pursuant to the High Court Rules 2016.
[7] Mr Navaratnam submits that costs should lie where they fall. As he acknowledges, however, his costs memorandum focuses primarily on his interlocutory application to set aside the Judgment, rather than the merits of HG Metal’s claim for
1 HG Metal Manufacturing Ltd v Gayathri Steels Pte Ltd [2017] SGHC 284 at [14].
2 HG Metal Manufacturing Ltd v Navaratnam [2021] NZHC 1920.
3 At [50].
costs. His principal objection to paying costs seems to be that the substantive decision was incorrect. Mr Navaratnam further submitted that a decision on costs ought to be reserved until his interlocutory application is determined. That submission is rejected.
Relevant law – indemnity costs under a contract or deed
[8] The Court has a general discretion as to costs.4 This includes whether to grant an award for indemnity costs.5 Indemnity costs are the actual costs, disbursements, and witness expenses reasonably incurred by a party.6 One of the circumstances in which the Court may award indemnity costs is where the party claiming costs is entitled to indemnity costs under a contract or deed.7
[9] It is well-established that a party may contractually bind itself to pay the other party’s full solicitor/client costs.8 Where that occurs, the entitlement to indemnity costs must be plainly and unambiguously expressed.9
[10] While the costs for which a party seeks indemnity must be “reasonably incurred”, the word “reasonable” does not import a discretion in the usual sense.10 As noted by the Court of Appeal in Beecher v Mills:11
In the case of a contract it must in the end be a matter of determining what recovery is expressly or impliedly intended. In principle, anything less than a full indemnity for costs properly incurred must leave the indemnitee with part of the liability for which the indemnifier is prima facie responsible… In the absence of a contrary indication it is not to be assumed that the parties intended such a result. Nor can there ordinarily be any room for the exercise of a judicial discretion to order less costs and thereby erode the contractual protection the indemnity was intended to provide. A contractual obligation of that kind is enforceable unless contrary to public policy…
4 High Court Rules 2016, r 14.1.
5 Rule 14.6(1).
6 Rule 14.6(1)(b).
7 Rule 14.6(4)(e).
8 Black v ASB Bank Ltd [2012] NZCA 384 at [78] citing ANZ Banking Group (NZ) Ltd v Gibson [1986] 1 NZLR 556 (CA).
9 Newfoundworld Site 2 (Hotel) Ltd v Air New Zealand Ltd [2018] NZCA 261, [2018] NZCCLR 22 at [84] citing Re Adelphi Hotel (Brighton) Ltd [1953] 1 WLR 955 (Ch) at 961.
10 Black v ASB Bank Ltd [2012] NZCA 384 at [78] citing Frater Williams & Co Ltd v Australian Guarantee Corp (NZ) Ltd (1994) 2 NZ ConvC 191,873 (CA) at 191,887.
11 Beecher v Mills [1993] MCLR 19 (CA). This passage was cited with approval in Black v ASB Bank Ltd [2012] NZCA 384 at [78].
[11] In Frater Williams & Co Ltd v Australian Guarantee Corp (NZ) Ltd, the Court of Appeal considered that it may not be feasible for the Court to make a detailed assessment of the reasonableness of the indemnity costs claimed under a contract, and explained that the test leaves “room for robust judgment as to the costs considered reasonable in all the circumstances”.12
Did Mr Navaratnam agree to pay indemnity costs incurred in the enforcement of the September Guarantee?
[12] HG Metal submitted that it should receive indemnity costs given that Mr Navaratnam agreed to indemnify it for all the costs of enforcing the September Guarantee.
[13] In White v Bank of New Zealand, the Bank of New Zealand (“BNZ”) sought indemnity costs incurred by it in opposing an application for an interim injunction to restrain it from exercising the power of sale over the applicant trustees’ property.13 BNZ claimed it was contractually entitled to indemnity costs under the following clause of the loan agreement with the trustees:14
5.8 Recovery costs
[The Trustees] must pay, on demand, any costs associated with collection or attempted collection of amounts overdue on any account (including collections agent's costs and legal fees on a solicitor/own client basis).
[14] The relevant costs were incurred by BNZ in defending the trustees’ attempt to prohibit it enforcing its security rights to recover money owing to it under the loan agreements.15 The Judge therefore held that BNZ was entitled to recover indemnity costs.16
[15] In Marac Finance Ltd v McFarlane, Marac Finance Ltd (“Marac Finance”) was awarded summary judgment for the sum owing under a loan guarantee by
12 Frater Williams & Co Ltd v Australian Guarantee Corp (NZ) Ltd (1994) 2 NZ ConvC 191,873 (CA) at 191,887.
13 White v Bank of New Zealand [2013] NZHC 2845 at [2] and [7].
14 At [6].
15 At [9].
16 At [9].
Mr McFarlane, together with interest.17 Marac Finance sought indemnity costs under the following clause of the Loan Agreement and Guarantee:18
13.2The guarantor will pay on demand each cost and expense (including all legal expenses on a solicitor and own client basis and taxes) sustained or incurred by the lender as a result of the exercise of, or in protecting or enforcing or otherwise in connection with, its rights under a Relevant Document [which includes the current Guarantee, Securities and Loan Agreements provided by the lender] or another transaction required or contemplated by a Relevant Document, in all cases on a full indemnity basis.
[16] Marac Finance submitted that its solicitor-client costs in bringing the proceeding were clearly incurred as a result of the exercise of or the protection or enforcement of its rights under the Deed of Guarantee and the Loan Agreement.19 Associate Judge Gendall had “no doubt that in the present case the wording of the Deed of Guarantee … is such that it provides an entitlement to the plaintiff to indemnity costs”.20 Marac Finance was accordingly awarded indemnity costs.21
[17] Similarly, in Westpac New Zealand Ltd v Lamb, Westpac New Zealand Ltd (“Westpac”) was awarded summary judgment for the sum owing under a loan guarantee by the Lambs, together with interest.22 Wylie J summarised the cross-guarantee as follows:
[4] Here, the cross-guarantee signed by the respondents required them to pay all costs and liabilities that Westpac incurred in enforcing, contemplating, or attempting to enforce the cross-guarantee, or any security for the guarantee. The obligation extended to legal fees on a full indemnity basis.
[18] Wylie J considered that the clause applied and ordered that the Lambs pay Westpac indemnity costs.23
17 Marac Finance Ltd v McFarlane HC Wellington CIV-2010-485-185, 11 November 2010 at [2].
18 At [7].
19 At [8].
20 At [11].
21 At [23].
22 Westpac New Zealand Ltd v Lamb [2012] NZHC 475.
23 At [11].
[19] In the present case, there is a clause in the September Guarantee which contemplates that HG Metal might incur costs in the enforcement of the guarantee. Mr Navaratnam, as the guarantor, agreed as follows:
6. The Guarantor shall indemnify HG Metal against the full costs (including legal fees as between solicitor and client) of enforcing or attempting to enforce this Guarantee.
[20] Clause 6 is similar to those in the above cases, in particular Marac Finance Ltd and Westpac v Lamb. I consider the clause to be plainly and unambiguously expressed, applying if HG Metal takes action to enforce the guarantee. Where that occurs, HG Metal is entitled to “full costs”, including legal fees as between solicitor and client.
[21] I accept HG Metal’s submission that all of the costs it incurred in applying to recognise and enforce the Award in New Zealand are costs of “enforcing or attempting to enforce” the September Guarantee. Mr Navaratnam did not pay the amount owing under the guarantee while in Singapore. HG Metal therefore took steps to enforce the guarantee in Singapore through the arbitration process. Mr Navaratnam then moved to New Zealand. HG Metal was therefore required to commence these proceedings to enable it to enforce the Award against Mr Navaratnam in New Zealand.
Are HG Metal’s solicitor-client costs reasonable?
[22] Mr Navaratnam has challenged the reasonableness of HG Metal’s solicitors’ fees. In accordance with Black v ASB Ltd, I am entitled to take a robust approach to the assessment of reasonableness. In doing so, I must objectively assess:24
(a)what tasks attract a costs indemnity on a proper construction of the contract;
(b)whether the task undertaken in the instant case was one of those contemplated in the contract;
24 Watson & Son Ltd v Active Manuka Honey Association [2009] NZCA 595 at [20] citing Frater Williams & Co Ltd v Australian Guarantee Corp (NZ) Ltd (1994) 2 NZ ConvC 191,873 (CA) at 191,887. See also Black v ASB Bank Ltd [2012] NZCA 384 at [80].
(c)whether the steps taken were reasonably necessary in pursuance of that task;
(d)whether the rate at which they were then charged was reasonable having regard to the principles normally applicable to solicitor/client costs; and
(e)whether any other principles drawn from the general law of contract would in whole or in part deny the claimant its prima facie right to judgment.
[23] I consider that the steps taken in relation to these proceedings all relate to the enforcement of the September Guarantee. While the arbitration process resulted in the guarantee being enforceable in Singapore, Mr Navaratnam moving to New Zealand meant that the Award practically could not be enforced unless HG Metal applied for recognition and enforcement of it in New Zealand, under the Act.
[24] There is nothing to suggest that HG Metal’s solicitors took any unnecessary steps in their conduct of the proceedings. It was necessary for HG Metal to file an application and supporting documents. HG Metal was then required to respond to Mr Navaratnam’s cross-application. Throughout the proceedings, Mr Navaratnam did not file documents on time and requested adjournments. This meant that HG Metal’s counsel were further required to file additional memoranda and appear at Duty Judge List hearings on 22 October, 5 November and 12 November 2020. Mr Navaratnam raised numerous grounds of opposition to enforcement, requiring extensive work to be undertaken by HG Metal’s solicitors. I am satisfied that the costs incurred by HG Metal’s solicitors were reasonably necessary.
Can HG Metal claim GST on indemnity costs and disbursements?
[25] HG Metal claims $10,954.11 in GST payable to its solicitors as a portion of its costs relating to these proceedings. That figure includes GST relating to its disbursements.
[26] In New Zealand Venue and Event Management Ltd v Worldwide NZ LLC, the Court of Appeal set out the following approach to GST on indemnity costs and disbursements:25
[13] An award of indemnity costs will include GST if the successful party is not able to recover the GST component. Conversely, it will not include GST if the successful party is able to recover the GST component. Usually this will simply depend on whether the successful party is GST—registered. However, in some instances, such as where GST is not recoverable by the successful party because it provides services in the nature of exempt supplies, a GST- registered party may still be awarded GST as part of the costs order.
[14] The rationale for this rule is straightforward: awarding GST-inclusive indemnity costs to a successful party that is GST-registered would usually result in double recovery of the GST component. Conversely, failing to award GST to a successful party that is not GST-registered means it would not achieve full recovery.
[15] Indemnity costs are treated differently to scale costs in relation to GST because an award of indemnity costs aims to provide the successful party with full recovery (or at least something very close to it), rather than merely a reasonable contribution to its costs. There cannot be a proper determination of the full recovery amount without knowing the GST liabilities of the successful party.
[16] As when awarding increased costs, the Court will proceed on the basis that the successful party is GST—registered and entitled to a GST input credit. Accordingly, a party that is not able to recover GST should inform the Court so that this may be taken into account. This basis ensures double recovery is avoided and puts the onus on the successful party to inform the Court of its inability to recover GST if it wants fully to recover its costs.
[17] The position in relation to disbursements is the same as for indemnity costs. If a successful party is to be fully reimbursed for its actual claimable expenses, then the Court must know whether it is registered for GST. The aim when allowing disbursements is full recovery, so that the successful party is not left out of pocket.
(footnotes omitted)
[27] HG Metal is a company incorporated in Singapore. It appears likely that it is not GST registered in New Zealand. That position will need to be confirmed, however.
25 New Zealand Venue and Event Management Ltd v Worldwide NZ LLC [2016] NZCA 282.
Result
[28]I order as follows:
(a)Counsel for HG Metal are to file and serve a memorandum by 29 September 2021 advising whether HG Metal is GST registered.
(b)If HG Metal is not GST registered, I order that Mr Navaratnam is to pay indemnity costs and disbursements to HG Metal in the sum of
$83,981.50.
(c)If HG Metal is GST registered, I order that Mr Navaratnam is to pay indemnity costs and disbursements to HG Metal in the sum of
$73,027.39.
Katz J
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