Highley Limited v Vodafone New Zealand Limited HC Auckland Civ 2006-404-2870

[2011] NZHC 628

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

Civ 2006-404-2870

BETWEEN  HIGHLEY LIMITED First Plaintiff

ANDEFTWIRE LIMITED Second Plaintiff

ANDVODAFONE NEW ZEALAND LIMITED First Defendant

ANDBANK OF NEW ZEALAND LIMITED Second Defendant

Hearing:         On the papers

Counsel:         L Herzog for plaintiff

NJ Scampion for first defendant
JH Stevens for second defendant

Judgment:      31 March 2011 at 2:30 PM

JUDGMENT OF FAIRE J

Solicitors:           N Faigan, PO Box 2597, Auckland Wilson Harle, PO Box 4539 Auckland Bell Gully, PO Box 1291, Wellington

HIGHLEY LIMITED V VODAFONE NEW ZEALAND LIMITED HC AK Civ 2006-404-2870 31 March 2011

Background

[1]      The first and second defendants, in a joint application filed on 2 November

2010, sought additional security for costs in the sum of $60,000 for each defendant. Although the application was a joint application, it was supported by an affidavit from HM Sansom on behalf of the first defendant and an affidavit by SL Bartleet on behalf of the second defendant.

[2]      The  application  followed  a  direction  I  made  in  a  case  management conference on 12 October 2010 when the question of further security for costs was discussed.  I recorded the following in the minute:

Security for costs

Security has been given covering interlocutory matters.  The defendants seek further security up to and including trial matters.  Counsel are encouraged to confer with a view to an agreement on this matter.   If agreement is not reached, any application seeking further security for costs shall be filed and served  by  2 November  2010.    It  shall  have  as  its  date  of  hearing  the chambers list at 2:15pm on 1 December 2010.   Notice of opposition and affidavits in opposition shall be filed and served by 16 November 2010. Any replies shall be filed and served by 29 November 2010.

[3]      No specific directions were made for the hearing of the application by way of the exchange of submissions and the preparation of a casebook.   That was because the application was adjourned to a chambers list where conventionally if the matter cannot be resolved quickly a fixture is allocated an appropriate fixtures directions made.

[4]      At the chambers list on 1 December 2010 I observed that no notice of opposition had been filed.  My minute records the position that was reached and how it was resolved. That minute provided:

The defendants have applied for further security for costs – court document 90. This follows orders I made in my minute of 12 October 2010.  No notice of opposition has been filed, despite the fact that I ordered same to be filed if the application was opposed.  However, counsel invited me to discuss a pragmatic solution which takes into consideration the important competing position of the parties which were referred to by the Court of Appeal in AS McLachlan Ltd v MEL Network Ltd (2002)

16 PRNZ 747.   If the security was in the form of money a figure of $60,000 is agreed is appropriate.  However, a solution to this problem, which does not tie up a large amount of money has obvious advantages and, in fact, if it can be implemented best resolves the competing positions referred to by the Court of Appeal.   In the hope that this matter can be sorted out reasonably promptly I order as follows:

a.by 8 December 2010 the plaintiff shall provide in draft form an undertaking from its director to meet any order for costs made against the plaintiffs in this proceeding;

b.by 8 December 2010 the plaintiff shall provide a search of the title of any real property offered as security and a draft agreement to mortgage with confirmation that the registered proprietors are prepared to sign such an agreement to mortgage and confirmation that no objection will be made to the lodging of a caveat to support such agreement to mortgage;

c.to  the extent that  there may be  an  existing mortgage  in  respect  of  the property offered as security, full details of the mortgage  must be made available  and,  if  there  is  any  question  of  the  amount  secured  by  the mortgage not being a certain sum, confirmation from the mortgagee that its priority is limited to an appropriate figure.

The application is adjourned to the chambers list at 10am on 15 December 2010. The court would appreciate counsel having available suggested draft orders.

I reserve costs on today’s appearance.

[5]      Appearances  were  entered  on  the  15 December  2010  chambers  list.    I

recorded the position then reached in the minute issued on that day as follows:

1.Counsel confirmed to me their agreement as to the form of order, save for the question of costs, on the defendants’ application for further security for costs – court document 90.

2.        Accordingly I order by consent:

a.The plaintiffs shall provide additional security for the defendants’ costs in this proceeding in the sum of $60,000 for each of the first and second defendants by way of a payment into court; and

b.        The proceeding shall be stayed until such sums are paid.

3.Counsel  are  unable  to  agree  on  the  question  of  costs.    Initially counsel wished to address but it became clear that there was insufficient time to resolve this matter.  Counsel indicated to me an acceptable solution was that costs should be reserved, reserving the right, nevertheless, for counsel to seek to have costs fixed at a later time.  I accordingly reserve costs on that basis.

Counsel’s cost memoranda

[6]      Memoranda have now been filed by counsel for the first defendant, counsel for the second defendant, counsel for the plaintiffs and counsel for the first defendant in reply.  The defendants seek an immediate order for costs in relation to the application for security for costs.

General observations

[7]      It is unfortunate that the parties’ respective positions have lost sight of the particular directions that were given by the court for disposal of the application. Whilst I appreciate that there are grounds for frustration on the defendants’ part at the approach taken by the plaintiffs to the application for security for costs, what must not be lost sight of is that there were two mention hearings allocated for the security for costs application.   No time was allocated, or directions made, for a defended hearing for it.   Whilst the second mention hearing was occasioned specifically for the plaintiffs’ convenience to see if it could arrange a less invasive form of security nevertheless, at the end of the day, quantum of security for costs was agreed.

[8]      The position, in summary then, is that one application was filed on behalf of both defendants.  It was supported by an affidavit from each of the defendants.  The filing of that application followed a direction I gave in a case management conference.   The plaintiffs did not avail themselves of the opportunity to file a notice of opposition and, perhaps, can count themselves fortunate that although it did not formally comply with the court’s order, the court listened to its position so that the matter ultimately could be resolved on the merits by agreement.  However, this case should not be elevated beyond that position.

[9]      The first and second defendants both seek increased costs for all steps taken subsequent to the filing of the application for further security.  That is on the basis, apparently, that the plaintiffs did not avail themselves of the opportunity that was provided by my minute of 12 October 2010.   In addition, the defendants seek indemnity costs for steps taken from 1 December to 15 December 2010 when

investigation of the alternative means of providing security was undertaken. Accordingly, it is necessary that I look at the basis first for awarding costs, whether there is justification for increased costs at any stage being ordered and, finally, whether there is a basis for indemnity costs being awarded for any part of the application.

The principles applicable in awarding costs

[10]     Rule 14.1 gives the Court a discretion to order costs in relation to a step taken in a proceeding.  That discretion is generally to be exercised in accordance with  the  specific  Rules  contained  in  rr 14.2-14.10:    Glaister  v  Amalgamated Dairies Ltd.1    In Mansfield Drycleaners Ltd v Quinny’s Drycleaning (Dentice Drycleaning Upper Hutt) Ltd it was said of the costs regime contained in what is now rr 14.2-14.10 that:2

there is a strong implication that a Court is to apply the regime in the absence of some reason to the contrary

The test to be applied is entirely an objective and not a subjective one.   The only reference which  it is necessary to make towards actual costs is to be found in r 14.2(f), namely that an award of costs should not exceed the costs incurred by the party claiming the costs: Glaister v Amalgamated Dairies Ltd.3

[11]     Rule 14.2 lists the principles applying to determination of costs. Subrule (a) affirms the principle that the losing party should pay the costs to the successful party.  Subrule (b) requires that the costs reflect the complexity and significance of the proceedings and refers specifically, therefore, to the categorisation of a proceeding which is provided for in r 14.3.  Subrule (c) requires a consideration of each step for which costs are sought and an application of the daily rate having regard to the appropriate band which is to be applied after a consideration of

r 14.5(2) and the Third Schedule to the High Court Rules.

1      Glaister v Amalgamated Dairies Ltd [2004] 2 NZLR 606 [19].

2      Mansfield Drycleaners Ltd v Quinny’s Drycleaning (Dentice Drycleaning Upper Hutt) Ltd

(2002) 16 PRNZ 662 at 668 (CA).

3      Glaister v Amalgamated Dairies Ltd, above n 1, at 610[14].

[12]     Rule 14.8 requires costs on opposed interlocutory applications, unless there are special reasons to the contrary, to be fixed in accordance with the rule when the application is determined and to become payable when they are fixed.

[13]     Rule 14.6 sets out the circumstances where increased or indemnity costs can be awarded.

[14]     Rule 14.6 dealing with increased costs provides:

14.6     Increased costs and indemnity costs

(1)    Despite rules 14.2 to 14.5, the court may make an order—

(a)     increasing costs otherwise payable under those rules (increased costs);

or

(b)     that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party (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

(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.

[15]     In Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 guidance was provided on the correct approach where an award of increased costs is sought.4

Four specific steps require analysis.  The first is the establishment of the category for the proceeding.  The second step requires a consideration of the reasonable time for each step in the proceeding under r 14.5.  The third step requires a consideration of whether any of the steps would substantially exceed the time allocated under Band C.  The fourth step requires one to stand back and look at the costs award and determine whether any of the matters set out in subr (3)(b) can be applied.

[16]     Rule 14.6 in relation to indemnity costs provides:

14.6     Increased costs and indemnity costs

(1)      Despite rules 14.2 to 14.5, the court may make an order—

(a)      increasing   costs   otherwise   payable   under   those   rules

(increased costs); or

(b)       that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party (indemnity costs).

….

(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

4      Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA).

(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: rr 14.2-14.10.

[17]     In Paper Reclaim Limited v Aotearoa International Limited the Court of Appeal  considered  the  application  for  indemnity  costs  pursuant  to  the  now r 14.6(4)(a).5   The Court emphasised the need to examine the specific grounds set out in the Rule for ordering indemnity costs.

[18]     In Hedley & Ors v Kiwi Co-operative Dairies Ltd it was said:6

[8]      Such  authorities  as  there  are  indicate  that  indemnity  costs  are awarded where truly exceptional circumstances exist.

The court’s approach was approved in Bradbury v Westpac Banking Corporation.7

The issues

[19]     The  following  issues  are  raised  in  counsel’s  memoranda  and  therefore

require analysis, namely:

(a)       Should costs be fixed now?

(b)Should increased costs be ordered for some of the steps taken in relation to the application?

(c)       Should indemnity costs be awarded for some of the steps in relation to the application?

(d)In the alternative, should costs be fixed on the normal scale basis by applying the appropriate category for the proceeding and the band for

each step that was taken?

5      Paper Reclaim Limited v Aotearoa International Limited [2006] 3 NZLR 188 (CA).

6      Hedley & Ors v Kiwi Co-operative Dairies Ltd (2002) 16 PRNZ 694 at [8], per Goddard J.

7      Bradbury v Westpac Banking Corporation.[2009] 3 NZLR 400; (2009) 19 PRNZ 385 (CA).

Should costs be fixed now?

[20]     Having  regard  to  the  fact  that  I  gave  the  parties  the  opportunity  of discussing the issue of further security for costs and that produced no specific response I consider, in the exercise the general discretion open to me, that costs on the application should be fixed at this time.  I consider that there are aspects to the application, including the review of my minute, which should be taken into account now and not left to await the determination of the proceeding itself.  Accordingly, although there was not an opposed hearing as such I consider that costs should now be fixed.

Should increased costs be ordered in respect of some steps?

[21]     Mr Scampion has analysed very thoroughly the conduct which he says justifies an award of increased costs.  He invites the court to apply r 14.6(3)(b) of the High Court Rules. The conduct complained of, in summary, he says was:

(a)       The plaintiff’s failure to comply with the direction of the court to file

a notice of opposition;

(b)      The plaintiff’s failure to admit facts or accept legal argument and to

admit  that  a payment  into  court  of $60,000  was  appropriate until

13 December 2010; and

(c)       Dragging   out   the   overall   resolution   of   the   security  for   costs application unnecessarily.

[22]     I  have  reviewed  the  steps  that  were  taken  in  relation  to  the  claim  for increased costs.  I follow the guidance given in Holdfast NZ Ltd v Selleys Pty Ltd.8

The category for this proceeding is Category 2.  The reasonable time for the steps taken in the preparation of the application and the supporting affidavit, I regard as appropriately covered by Band B.  In relation to the preparation of the application I

see  no  need  to  exceed  Band B.    With  respect  to  the  steps  that  were  taken

8      Holdfast NZ Ltd v Selleys Pty Ltd, above n 7.

subsequent to the hearing on 1 December 2010, I accept that the defendants were put to further cost in analysing an alternative method of the security to be provided. It would not, in my view, be appropriate simply to allow Band B for the preparation of the affidavits as being sufficient to cover that attendance.  There is no specific step  identified  in  the  Third  Schedule.     It  is  necessary,  therefore,  to  apply r 14.5(1)(b) and (c).  I consider the appropriate allowance should be one day, based on  a Category 2  allowance for the investigatory steps  that  were taken  by the defendants in looking at the alternative form of security which the court had asked the parties to look at.  I shall make that allowance.

Are indemnity costs justified?

[23]     I next consider whether there is any justification for indemnity costs being awarded in respect of any of the steps undertaken.   I do not regard there being justification for such order being made.   I have reviewed the circumstances and given careful consideration to the direction I made and the responses it produced. Although the plaintiffs changed tack and did not take up the suggestion of alternative  security  and,  indeed,  consented  to  a  money order  being  made,  the circumstances surrounding that cannot be regarded as misconduct which is flagrant:

Bradbury v Westpac Banking Corporation.9   I consider that indemnity costs are not

justified.

Implementation of my conclusions

[24]     I consider that the first defendant is entitled to costs calculated based on

Category 2 and in respect of the following steps contained in the Third Schedule to the High Court Rules and on the application of r 14.5(1)(b) and (c) as follows:

9      Bradbury v Westpac Banking Corporation, above n 6

Step	Description	Allowance $
4.12	Preparation and filing of the application jointly on behalf of first and second defendants, including one supporting affidavit	1,128.00
4.17	Appearance at mention hearings on 1 and 15 December 2010	752.00
R14.5(1)(b) and (c)	Consideration of alternative security proposals for which I allow one day	1,880.00
4.10	Filing memorandum for chambers list hearing on 15 December 2010	752.00
Total	$4,512.00

[25]     I consider the second defendant is entitled to costs calculated on Category 2 and the following steps contained in the Third Schedule to the High Court Rules.  I have already recorded that the application was a joint application which was prepared by the first defendant as was the memorandum for 15 December 2010.  I will deal, as will be self-evident from the summary below, by allowing by analogy and in reliance on r 14.5(1)(b) and (c) half the normal allowance for those two steps on the basis that that would cover counsel for the second defendant’s attendances in respect of both matters.

Step	Description	Allowance $
R14.5(1)(b) and (c)	Half the allowance by analogy for preparation and filing of the interlocutory application and support affidavit	564.00
4.17	Appearance at mention hearings on 1 and 15 December 2010	752.00
R14.5(1)(b) and (c)	Consideration of alternative security proposals for which I allow one day	1,880.00
4.10 and applying r 14.5(1)(b) and (c)	Filing memorandum for chambers list hearing on 15 December 2010 – half allowance	376.00
Total	$3,572.00

[26]     I have made no allowance for preparation for a defended hearing.  That is because both hearings were mention hearings.

[27]     Counsel’s memoranda reveal material exchanged regarding an attempt to resolve costs.   The combined total of the orders that I have made exceed any proposal advanced by the plaintiffs to cover costs.  Accordingly, there is simply no justification for considering offers without prejudice except as to costs in reliance on r 14.10.

Orders

[28]     I order that:

(a)      the plaintiffs pay the first defendant’s costs on the application for security for costs in the sum of $4,512 together with disbursements as fixed by the Registrar.

(b)the plaintiffs pay the second defendant’s costs on the application for security for costs in the sum of $3,572 together with disbursements as

fixed by the Registrar.

JA Faire J