Jackson v Kerr

[2022] NZHC 29

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV 2021-404-000812

[2022] NZHC 29

UNDER

Sections 12 & 34 of the Receiverships Act 1993

BETWEEN

NEALE JACKSON and NATALIE GYTHA

BURRETT, insolvency practitioners, as receivers of PYNE HOLDINGS LIMITED (in receivership)

Applicants

AND

GEORGE CHARLES DESMOND KERR

Respondent

Hearing:

On the papers

Appearances:

J Marcetic for the Applicants

G P Blanchard QC & S J Nicolson for the Respondent

Judgment:

19 January 2022

JUDGMENT OF VAN BOHEMEN J

[costs]

This judgment was delivered by me on 19 January 2022 at 3.00pm Pursuant to Rule 11.5 of the High Court Rules

…………………………

Registrar/Deputy Registrar

Solicitors/Counsel:

G Blanchard QC, Auckland Chapman Tripp, Auckland Lowndes Jordan, Auckland

JACKSON v KERR (costs) [2022] NZHC 29 [19 January 2022]

Introduction

[1]    The applicants, the receivers for Pyne Holdings Ltd (in receivership) (PHL), seek indemnity costs of $102,459.91 (incl GST), plus disbursements of $929.99, against Mr Kerr, the sole director of PHL, for costs incurred in enforcing Court orders requiring Mr Kerr to provide documents and information about PHL and its interests in related entities following PHL’s default on a loan of $67.7 million from the Bank of New Zealand Ltd (BNZ). The receivers also seek costs of $487.00, on a 2B basis, for preparing their costs memorandum.

[2]    The respondent, Mr Kerr does not dispute his liability for costs. However, he says that, if the Court is minded to award costs in excess of scale, it should award increased costs rather than indemnity costs. Mr Kerr also says the indemnity costs sought by the receivers are excessive and, if indemnity costs are awarded, should be reduced by 20 per cent. Mr Kerr also disputes the receivers’ claim for the costs of preparing their costs memorandum.

Relevant background

[3]    As recorded in my judgment dated 12 November 2021,1 the receivers have been seeking documents and information concerning the assets of PHL and its interests in related entities since May 2021. The receivers say Mr Kerr’s failure to provide the documents and information seriously impeded their ability to discharge their responsibilities.

[4]    Despite Court orders requiring Mr Kerr to provide the documents and information, and despite undertakings by Mr Kerr  to  comply  with  those  orders, Mr Kerr had not provided all the documents and information ordered by the Court, prior to the hearing on 12 November 2021.

[5]    Accordingly, the receivers applied for further orders requiring Mr Kerr’s compliance with the earlier Court orders. The receivers also foreshadowed an intention to seek an order against Mr Kerr under s 16 of the Contempt of Court Act

1      Jackson v Kerr [2021] NZHC 3067.

2019 if he did not comply with the further orders sought. The receivers also asked for indemnity costs on their application.

[6]In my judgment of 12 November 2021, I:2

(a)declared that Mr Kerr had not complied with Court orders made by Lang J on 12 May 2021, by Walker J on 15 June 2021 and by Nation J on 25 June 2021 regarding the production of documents and information to the receivers of PHL; and

(b)ordered Mr Kerr, by 16 November 2021, to comply with the Court orders and to file an affidavit confirming that he had provided all documents and information sought.

[7]    I made no order as to costs but recorded that, given the history of the proceeding and Mr Kerr’s non-compliance with Court orders, an award of indemnity costs appeared to be appropriate in principle.3

[8]    On 16 November 2021, Mr Kerr provided an initial tranche of documents and the affidavit ordered in my judgment. Mr Kerr provided further tranches of documents to the receivers on 18 and 26 November 2021.

[9]    On 29 November 2021, Mr Kerr’s solicitors advised the receivers that, Mr Kerr had, to the best of his knowledge, provided all relevant documents under his control.

[10]   By memorandum dated 30 November 2021, counsel for the receivers advised that the receivers regarded Mr Kerr’s affidavit and the letter of 29 November 2021 as confirmation that Mr Kerr had complied with the relevant Court orders.

[11]   By minute dated 1 December 2021, I made timetable directions by consent for the filing of memoranda on costs.4

2 At [41].

3 At [40].

4      Jackson  v  Kerr  HC  Auckland  CIV-2021-404-000812,  1   December   2021   (Minute   of  van Bohemen J).

Submissions by counsel for receivers

[12]   Counsel for the receivers say that indemnity costs are appropriate because, in terms of Bradbury v Westpac Banking Corp, Mr Kerr has “behaved either badly or very unreasonably”.5

[13]In particular, they say Mr Kerr:

(a)repeatedly failed to comply with Court orders (some of which were made with Mr Kerr’s consent) over a six-month period;

(b)filed no evidence explaining why he had not complied with the relevant orders and having no excuse for non-compliance; and

(c)through his non-compliance with the Court orders, necessitated the application brought by the receivers and the associated costs.

[14]   The receivers say that an order for indemnity costs would be consistent with the approach of courts in similar situations and refer to Grant v Bhana6 and Burmester v Burmester,7 where indemnity costs were ordered following repeated failures to comply with Court orders.

[15]   Counsel for the receivers say that the costs were reasonably incurred and that the rates charged are in line with industry standards and are reasonable in the circumstances. An affidavit affirmed by Ms Bailey of Chapman Tripp particularises the costs claimed, describes the work undertaken and sets out the hourly rates of the persons involved on the file. Ms Bailey’s affidavit also sets out relevant GST information as discussed in Crown Money Corporation Ltd v Grasmere Estate Trustco Ltd.8 Counsel for the receivers state that because PHL is not GST registered, the receivers are not entitled to claim an input tax credit for the GST. Accordingly, the award of costs should include GST.

5      Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [27].

6      Grant v Bhana [2018] NZHC 1527.

7      Burmester v Burmester [2019] NZHC 32.

8      Crown Money Corporation Ltd v Grasmere Estate Trustco Ltd (2008) PRNZ 591 at [14].

Submissions by counsel for Mr Kerr

[16]   Counsel for Mr Kerr say that, while there was delay in providing the documents and information, Mr Kerr complied to the best of his ability and the non-compliance was not a case of deliberate intention to disobey the Court orders but rather a consequence of factors including:

(a)The need to deal with related summary judgment proceedings brought by BNZ;

(b)A failure by BNZ to provide bank records for the initial two-year periods of loads to PHL and LPC;

(c)The size of the task which required Mr Kerr to obtain and collate the records from multiple different sources, including lawyers and accountants; and

(d)Time differences between New Zealand and the United Kingdom and the impact of COVID-19 restrictions.

[17]   Counsel for Mr Kerr say that Mr Kerr ultimately provided the receivers with all of the documents and information he held; had always intended to do so; and has given full his reasons for delay. The only issue was timing.

[18]   Accordingly, they submit that increased costs would be appropriate on the basis that Mr Kerr has contributed unnecessarily to the time or expense of the proceeding by failing to comply with the court directions and orders for discovery in terms of     r 14.6(3)(b)(i) and (iv) of the High Court Rules 2016.

[19]   Counsel for Mr Kerr submit that costs on a 2B basis with a 50 per cent uplift would adequately reflect Mr Kerr’s delays in compliance. A further uplift of 15 per cent would appropriately reflect the GST position and result in a final award of

$27,500 which, they say, would be fair and just in the circumstances.

[20]   Counsel for Mr Kerr submit that, if the Court were minded to award indemnity costs, a discount of 20 per cent should be applied to reflect the fact that the costs claimed by the receivers are excessive and not reasonable. They say there was nothing manifestly complicated such as to attract legal fees of over $100,000 or over six times the scale costs. They also take issue with the involvement in the application of two partners, one senior associate, three solicitors and three paralegals and say this led to duplication in work and inefficiencies for which Mr Kerr should not bear the cost.

The High Court Rules 2016 and related law

[21]   Rule 14.6 of the High Court Rules sets out provides the circumstances in which the Court may order increased or indemnity costs:

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).

(2)The court may make the order at any stage of a proceeding and in relation to any step in it.

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

(a)    …

(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)…

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

(a)    …

(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)    …

[22]   It is well accepted that while indemnity costs are determined with reference to actual costs, the award may be less if the court considers that the actual costs are unreasonably high. As Harrison J summarised in Bradbury v  Westpac  Banking Corp, while the ultimate result reached must be just and fair in the Court’s assessment of what costs are reasonably incurred, “what is reasonable is to be determined so as not to defeat the purpose and spirit of a rule which provides a right to recover actual costs.”9

Discussion

Is an award of indemnity costs appropriate?

[23]   When the Court heard the receivers’  application  on  12  November  2021, Mr Kerr had failed to comply with orders made by Lang J on 12 May 2021, by Walker J on 15 June 2021 and by Nation J on 25 June 2021.

[24]   For that reason, I stated at the hearing on 12 November 2021 and recorded in my judgment of that date that I considered that indemnity costs were appropriate in principle.

[25]   Mr Kerr has not provided any information that persuades me to alter that position.

[26]   I am satisfied that the receivers were put to unnecessary expense in making the application as a result of Mr Kerr’s serial non-compliance with Court orders. While Mr Kerr has ultimately complied with the substance of those orders, that eventual compliance did not lessen the costs incurred by the receivers to that point. I am satisfied that this is clearly a case where indemnity costs are appropriate.

Were the costs and disbursements “reasonably incurred”?

[27]   While counsel for Mr Kerr challenge the rates charged, I accept that the rates are reflective of standard rates charged by major law firms such as Chapman Tripp. I also accept that the practice of such firms is to devolve work from partners to more

9       Bradbury v Westpac Banking Corp (2008) 18 PRNZ 859 (HC) at [207].

junior lawyers and paralegals in the interests of efficiency and in an effort to reduce costs. For that reason, I do not accept that this delegation of work has led to duplication of effort and increased cost. The sum at issue is considerable - $67.7 million. It is hardly surprising that significant resources have been allocated to investigating the circumstances of PHL’s default and the prospects of recovering the funds.

[28]   While costs on costs are usually not awarded,10 I consider that, given Mr Kerr’s failure to respond to correspondence necessitated the filing of both a costs memorandum and a response memorandum on the receivers’ part, the amount of

$487.00 sought for the preparation of the costs memorandum is appropriate in this case.

[29]   For completeness, I note that the disbursements claimed are appropriate – including the remote attestation fee.

Result and orders

[30]I order Mr Kerr to pay the receivers costs of:

(a)$103,389.90 comprising indemnity costs of $102,459.91 (including GST) and disbursements of $929.99; and

(b)$487.00 for the costs of preparing the receivers’ costs memorandum.

G J van Bohemen J

10     See, for example, Jeffreys v Morgenstern [2013] NZHC 1361 at [40].