JNJ Holdings Limited v Kent Sing Trading Company Limited

[2018] NZHC 2022

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2015-404-000099

[2018] NZHC 2022

BETWEEN

JNJ HOLDINGS LIMITED

Plaintiff

AND

KENT SING TRADING COMPANY LIMITED

First Defendant

AND

QUOC THAI

Second Defendant

AND

LE QUAN WU

Third Defendant

Hearing:	(On the papers)
Counsel:	Paul Dalkie for the Plaintiff Michael Black for the Defendants
Judgment:	9 August 2018

[COSTS] JUDGMENT OF MOORE J

This judgment was delivered by me on 9 August 2018 at 3:00 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/ Deputy Registrar Date:

JNJ HOLDINGS LIMITED v KENT SING TRADING COMPANY LIMITED & ORS [2018] NZHC 2022

[9 August 2018]

Contents

Paragraph Number

Introduction  [1]

Background  [3]

My substantive decision  [9]

The costs application  [13]

Issues  [17]

General principles  [18]

Is JNJ entitled to rely on cl 14.1(b)?  [22]

Does cl 14.1(b) allow for recovery of solicitor-client costs?  [23]

How does cancellation affect cl 14.1(b)?  [33]

Has the plaintiff forfeited its right to claim full solicitor-client indemnity

costs?  [36]

Conclusion on this issue  [43]

Are there any matters which reduce the indemnity costs award?  [44] What should be done?  [58]

Is JNJ entitled to costs against General Goods on the counterclaim?              [64] Result  [68]

Appendix A – Claimed indemnity costs

Appendix B – Costs claimed against General Goods on a 2B basis

Introduction

[1]                 On 21 December 2017 I entered judgment for JNJ Holdings Ltd (“JNJ”) against three defendants in a lease dispute, in the sum of $215,048.42 plus interest from the date of judgment.1 I concluded that JNJ validly cancelled its lease for non- payment of rent. The defendants, namely the lessee Kent Sing Trading Co Ltd (“Kent Sing”),2 failed almost entirely on their affirmative defences, counterclaims and set off. I found JNJ was not in breach of the lease at the time of cancellation, and was not liable in negligence.

[2]This judgment deals with the costs of JNJ’s successful proceeding.

Background

[3]                 JNJ is the registered proprietor of a large commercial building situated on Queen Street, Auckland. It executed a formal lease with Kent Sing, a wholesale importation company, to rent a tenancy in the upper basement floor of the building on 1 March 2013. It was contemplated that General Goods Ltd (“General Goods”), an associated company, would operate Kent Sing’s new retail venture out of the leased premises. But their relationship was bedevilled, almost from the start, with problems which led to the lease’s ultimate termination on 25 June 2014.

[4]                 From Kent Sing’s perspective, the premises were not fit for purpose and they complained their tenancy was plagued by issues including water leakage and consequent damage to stock, the presence of a “horrible” smell emanating from the basement and a white sheet covering a pile of rubbish, faulty automatic doors, a lack of signage, and a lack of responsiveness from management to these issues.

[5]                 Little more than a year after the lease commenced, Quoc (Ken) Thai, one of the directors and shareholders of Kent Sing and the second defendant, wrote to the building manager raising these concerns, claiming a chronic failure on the part of JNJ

1      JNJ Holdings Ltd v Kent Sing Trading Co Ltd [2017] NZHC 3274.

2      Mr Thai is the second defendant. He is equal shareholder of Kent Sing with his wife Le Quan Wu, who is the other director and the third defendant.

to rectify, and purporting to give notice of General Goods’ intention to sublet the tenancy. A right to terminate the lease with immediate effect was also claimed.

[6]                 A face to face meeting between the relevant parties did not resolve matters, and on 5 May 2014 Lucinda Thai, the daughter of Mr Thai and Ms Wu, again wrote to the building manager. This time she purported to cancel the lease on account of these issues. The last day of trading was to be 30 June 2014.

[7]                 But prior to that date, on 11 June 2014, JNJ issued Kent Sing a notice under ss 245 and 246 of the Property Law Act 2007 advising that payments were due and were required to be paid. The notice required that the breach be remedied within 10 working days, being 25 June 2014.

[8]                 The breach was not remedied. On 25 June 2014 Kent Sing removed its stock from the premises and the following day JNJ re-entered.

My substantive decision

[9]                 I found JNJ had validly cancelled the lease after Kent Sing failed to pay rental and other payments by the due dates. I awarded damages in the sum of $215,048.42 and interest at a rate of 5 per cent compounded on quarterly rests from the date of judgment. That figure represented a reduction in some of the amounts claimed, namely interest on the amounts owing in damages due to my finding that the contractual rate of interest was an unenforceable penalty.

[10]              I rejected all of Kent Sing’s affirmative defences, which were numerous. I found the claims of water leakage and a noxious smell were exaggerated, no representations about signage had been made, and that any delays in putting up signage were attributable to both parties. I also rejected affirmative defences concerning the automatic doors, failure to carry out lessor’s works on the premises, maintenance of the roof and common area, failure to provide utility services, and failure to deliver up. Those claims were also bundled into generic claims of breach of terms to give business efficacy, quiet enjoyment and derogation of grant. These broader claims, too, were unsuccessful. In short, I concluded the suggestion Kent Sing was justified in (purportedly) terminating the lease due to JNJ’s conduct was untenable.

[11]              A counterclaim and set off were also brought by General Goods and the other defendants, for damages arising out of breach of contract, negligence and tortious interference with goods by JNJ.

[12]              I found exclusion clauses in the lease agreement prohibited a claim in damages arising out of breach of contract and/or tortious interference with goods. Although I accepted a claim in negligence was not excluded, largely for reasons recorded earlier in the judgment I found to the extent there was a duty, JNJ was not in breach. I also found there was insufficient evidence which could sustain a conclusion of liability.

The costs application

[13]              Against that background, Mr Dalkie submits JNJ, as the successful party, is entitled to indemnity costs by virtue of cl 14.1(b) of the lease. These are claimed against Kent Sing, and Mr Thai and Ms Wu as guarantors, in respect of all legal fees and disbursements associated with the proceeding. Mr Dalkie has particularised the sums as set out in Appendix A of this judgment, which total $203,820.59.3

[14]              Costs on a 2B basis and disbursements are also claimed against General Goods in respect of the counterclaim. These are set out in Appendix B, and total $71,637.00.

[15]              Mr Black for the defendants and General Goods accepts that some (reduced) scale costs are payable to the plaintiff from 19 February 2016. But indemnity costs are opposed on the basis the contract has now been validly cancelled and that the parties have previously accepted 2B scale costs are appropriate. Mr Black also submits that the significant quantum claimed has not been properly substantiated, is excessive and unreasonable. Even if indemnity costs are available, he submits there is no evidence the steps taken were reasonable.

[16]              He also submits the plaintiff’s claim fails to account for interlocutory rulings which preclude some of its entitlement to costs, or at least reduces it. In particular he points to non-compliance with court directions and procedural delay on the part of the plaintiff, which at one point resulted in an award of increased costs to the defendants.

3      The total amount claimed for costs and disbursements against the defendants does not include

$9,303.16 already paid by the defendants on the discovery application.

He also suggests there is substantial overlap on a range of items claimed between the plaintiff’s two solicitors and Mr Dalkie, such as discovery.

Issues

[17]The following issues require determination:

(a)Is JNJ entitled to rely on cl 14.1(b)?

(b)If yes, are there any matters which justify a deduction from the claimed amount?

(c)Is JNJ entitled to costs against General Goods on the counterclaim?

(d)If yes, are there any matters which justify a deduction from the claimed amount?

General principles

[18]              While costs are at the discretion of the court,4 there is a longstanding and “fundamental principle” that in all general courts in New Zealand costs should follow the event.5 There is also a strong implication that a Court is entitled to apply the detailed costs regime provided in the High Court Rules 2016 in the absence of some reason to the contrary.6

[19]              The parties are agreed that JNJ, as the successful party, is presumptively entitled to costs. They differ on what quantum is appropriate.

[20]              In most cases costs should be assessed by applying the appropriate daily recovery rate to the time considered reasonable for each step reasonably required in relation to a proceeding.7 But various considerations may lead to the Court to award

4      High Court Rules 2016, r 14.1.

5      Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109, [2013] 1 NZLR 305 at [8].

6      Mansfield Drycleaners Ltd v Quinny’s Drycleaning (Dentice Drycleaning Upper Hutt) Ltd (2002) 16 PRNZ 662 (CA) at [27], cited with approval in Manukau Golf Club Inc v Shoye Venture Ltd, above n 5, at [7].

7      High Court Rules 2016, r 14.2(1)(c).

increased or indemnity costs. Among those, where the party claiming costs is entitled to indemnity costs under a contract or deed, the Court may order a party to pay indemnity costs.8

[21]The salient features of r 14.6(4)(e), as summarised by the Court of Appeal in

Black v ASB Bank Ltd, are as follows:9

(a)Indemnity costs pursuant to a contractual provision are distinct from orders for indemnity costs under other parts of r 14.6(4).

(b)Namely, while indemnity costs arising out of a contractual right must be “reasonable”, “reasonable” does not import a discretion in the usual sense. Assessing whether indemnity costs claimed under a contract are reasonable involves the Court making an objective assessment of:

(i)what tasks attract a costs indemnity on a proper construction of the contract;

(ii)whether the tasks undertaken were those contemplated in the contract;

(iii)whether the steps undertaken were reasonably necessary in pursuance of those tasks;

(iv)whether the rate at which the steps were charged was reasonable having regard to the principles normally applicable to solicitor/client costs; and

(v)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.

8      Rule 14.6(4)(e).

9      Black v ASB Bank Ltd [2012] NZCA 384 at [77]-[99].

(c)The time and other pressures on judges and associate judges leave “room for robust judgment as to the costs considered reasonable in all the circumstances”.10 A liable party seeking a detailed vetting of reasonable has three avenues:

(i)requesting the judge to order indemnity costs subject to taxation;

(ii)seeking agreement to refer the claim to a suitably qualified practitioner to vet it for reasonableness; or

(iii)reference of the costs invoices to the New Zealand Law Society (“the Law Society”) under the complaints procedure in s 132(2) of the Lawyers and Conveyancers Act 2006.

Is JNJ entitled to rely on cl 14.1(b)?

[22]Clause 14.1(b) provides:

“14     MISCELLANEOUS

Lessee to Pay Lessor’s Costs

14.1In addition to the Rent and other moneys reserved by this Lease the Lessee shall pay:

…

(b)All costs charges and expenses for which the Lessor shall become   liable in consequence of or in connection with any breach or default by the Lessee in the performance or observation of any of the terms covenants and conditions of this Lease.”

Does cl 14.1(b) allow for recovery of solicitor-client costs?

[23]              In the judgment I awarded $1,029.25 in legal costs associated with enforcement of rates under the lease.11

10     Frater Williams & Co Ltd v Australian Guarantee Corp (NZ) Ltd (1994) 2 NZ ConvC 191,873 (CA) at 191,887.

11     JNJ Holdings Ltd v Kent Sing Trading Co Ltd, above n 1, at [384].

[24]              Mr Black now submits cl 14.1(b) does not specifically include full solicitor client legal costs. Whether it does is a question of construction.12

[25]              In Watson & Son Ltd v Active Manuka Honey Association, the Court of Appeal found an indemnity clause which provided that, “The Licensee indemnifies AMHA against all actions and damages that may result from the Licensee's operations in relation to the Products”, when properly construed included an award of legal costs on an indemnity basis.13 It considered the possibility of court proceedings, which may result in the Association incurring legal costs, was “plainly contemplate[d]” by the use of the term “actions or damages”.14

[26]              In support of this proposition it pointed to an earlier decision of the same Court in Beecher v Mills.15 In that case the vendors indemnified the purchasers “against all such actions claims or judgments by J R Arkley against the Company”. The Court in Watson noted it also made “no specific reference to legal costs”.16

[27]              There is also no specific reference to legal costs in cl 14.1(b). But unlike the cases discussed above, the other language adopted is likewise general in scope. Rather than reference to “action or damages” or “claims or judgments”, cl 14.1(b) simply refers to “costs charges and expenses for which the Lessor shall become liable in consequence of or in connection with any breach or default” of contract by Kent Sing.

[28]That paragraph follows cl 14.1(a), which provides:

“(a) The Lessor’s reasonable legal costs of and incidental to the preparation, negotiation and completion of this Lease or any extension or variation … and the Lessor’s costs in obtaining any consents or approvals associated with the granting of such lease or any extension or variation together with any other costs arising out of the application of any legislation or regulations relating to the Premises including (without limiting the generality of the foregoing) the Building Act 2004 and the Health and Safety in Employment Act 1992 and the Lessor’s legal costs for considering any request by the Lessee for the Lessor’s consent to any matter contemplated by this Lease.”

12     Watson & Son Ltd v Active Manuka Honey Association [2009] NZCA 595 at [21].

13 At [22].

14 At [22].

15     Beecher v Mills [1993] MCLR 19 (CA).

16     Watson & Son Ltd v Active Manuka Honey Association, above n 12, at [23].

[29]              On its face and read in context, I am satisfied solicitor-client costs are contemplated by cl 14.1(b). First, while the language in the clause is broad is scope, it does not limit the types of “costs charges and expenses” incurred by JNJ “in consequence of or in connection with any breach or default” for which Kent Sing will be liable.17 Like the clause in Watson, I consider cl 14.1(b) contemplates the possibility of proceedings in consequence of in connection to breach or default by Kent Sing, and losses arising out of those proceedings. As in that case, the extent of the indemnity is expressed in unqualified terms.

[30]              That position is reinforced by the positioning of cl 14.1(a) in the lease document, which refers to specific types of costs associated with securing, completing and extending the lease. It is followed by cl 14.1(b) which refers to “all costs charges and expenses”. In that context “all” plainly contemplates the types of costs referred to immediately prior as well as other types.

[31]              I am fortified in this conclusion by the reasoning of Frater J in Pangani Properties Ltd v Owens Transport Ltd.18 There she concluded:19

“In my view, it is straining the clear meaning of the words of clause 36 of the present lease to suggest that an entitlement to payment of

“all costs charges … and expenses … incurred by the Lessor … in order to remedy any breach of covenant by the lessee … or in suing for … any … monies payable hereunder to the Lessor”

means anything less than all costs. And although the inclusion of words such as “full indemnity” (as in Beecher v Mills) or “solicitor/client costs” (in ANZ Banking Group (NZ) Ltd v Gibson) makes the matter plain beyond doubt, I do not consider that they are necessary. Smith LJ in Malvern Urban District Council v Malvern Link Gas Co did not think there was anything ambiguous about a provision for payment of “all costs”. He held that they provided a full indemnity. And so did I.”

[32]              For the same reasons, unless affected by cancellation (a point I address below), cl 14.1(b) is wide enough to cover litigation costs. These proceedings were an action

17 As was the case in Steffensen v BGW Investments Ltd [2014] NZHC 2659, where the clause referred to one party “accept[ing] liability for any direct material loss incurred … but nothing else”. At [15] Whata J found it required a direct causal relationship between an act of negligence and the loss, and that solicitor client costs depended on a number of contingencies.

18     Pangani Properties Ltd v Owens Transport Ltd HC Auckland CIV-2001-404-2036, 12 July 2004.

19     At [25] (footnotes omitted).

for recovery of rental payments owing under the lease, which was cancelled due to the Kent Sing’s non-payment.

How does cancellation affect cl 14.1(b)?

[33]              Mr Black also submits Kent Sing was released of any contractual obligation to pay legal costs when the contract was cancelled. He relies on Ingram v Patcroft Properties Ltd.20 In that case Allan J concluded:21

“I have held that the first defendant repudiated the lease on 14 June 2005, and that such repudiation was accepted by the plaintiffs’ conduct shortly thereafter. The lease was thereby cancelled. Section 8(3)(a) of the Contractual Remedies Act 1979 thereupon operated to release the plaintiffs from any obligation to pay the landlord’s solicitor-client costs in respect of steps taken by the landlord post cancellation.

The first defendant is not therefore entitled to rely on clause 17, and is not entitled to solicitor-client costs against the plaintiffs.”

[34]              But that statement must be read in context of the previous paragraph, in which Allan J referred to the Court of Appeal’s decision in Watson. There the Court accepted that the provisions of the licence in issue only survived termination to the extent there was a breach of the licence prior to termination.22 Only legal costs related to a breach by the licensee prior to termination were indemnified.

[35]              That is the clear effect of s 8(4) of the Contractual Remedies Act 1979 (in force at the time). Because these proceedings arise out of breaches prior to termination (save for the counterclaim which I address separately), there can be no dispute that JNJ’s ability to claim costs under cl 14.1(b) survived termination.

Has the plaintiff forfeited its right to claim full solicitor-client indemnity costs?

[36]              On this point Mr Black submits that because in a Minute of 19 February 2016 Associate Judge Sargisson awarded the defendants costs on a 2B basis arising out of the plaintiff’s non-compliance with timetabling orders, and directed that “this is a category 2 proceeding for costs purposes”, JNJ is estopped from now relying on the

20     Ingram v Patcroft Properties Ltd HC Auckland CIV-2006-404-4171, 21 April 2010.

21     At [14]-[15].

22     Watson & Son Ltd v Active Manuka Honey Association, above n 12, at [40].

indemnity clause. Additionally, the plaintiffs were at a later point awarded $9,303.16 in costs on a 2B basis in relation to a further discovery application.

[37]              Mr Black relies on the decision of Master Venning (as he then was) in Damesh Holdings Ltd v Apple Fields Ltd.23

[38]              That decision is inapposite. In declining to award costs on an indemnity basis the Judge was influenced by the fact plaintiffs other than Damesh had sought full indemnity for their costs in an earlier proceeding and failed, and were “through Damesh … renew[ing] that application by way of a claim in [the new] proceedings”.24 He added:25

“Although the (now) Plaintiffs did not raise a formal cause of action in the earlier proceeding, that earlier proceeding being one taken by Apple Fields to challenge the (now) Plaintiffs' actions, when it came to the issue of costs the (now) Plaintiffs put in issue and sought full recovery of their legal costs and expenses. They chose to put that matter or cause to the Court for determination. If they were dissatisfied with the outcome they had a right of appeal. They did not pursue that right of appeal. The Court made a binding ruling on the Plaintiffs' claims after receipt and consideration of extensive submissions on the point.”

[39]              By contrast Associate Judge Sargisson’s award was part of the same proceeding, and no right to costs on an indemnity basis was advanced at the time. Moreover, costs were in that instance awarded to the defendants, who in any event are not entitled to indemnity costs. It is hard to conceive why the issue of indemnity costs would have arisen at that stage.

[40]              As for the costs award to the plaintiff in respect of the further discovery application, as Lord Bingham has stated:26

“It is … wrong to hold that because a matter could have been raised in early proceedings it should have been … That is to adopt too dogmatic an approach to what should … be a broad, merits based judgment … one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not.”

23     Damesh Holdings Ltd v Apple Fields Ltd HC Christchurch CP55/02, 30 August 2002.

24     At [103]-[104].

25 At [69].

26     Johnson v Gore Wood & Co [2002] 2 AC 1 (HL) at 499.

[41]              On this point I also draw assistance from the following comments of the Court of Appeal in Black v ASB Bank Ltd, dealing with a similar submission:27

“Mr Black's primary submission to us was the one he had unsuccessfully advanced to the Judge. At the first case management conference of the proceeding in the High Court on 29 July 2010, Associate Judge Faire, pursuant to r 14.3 of the High Court Rules, fixed costs at category 2 for the proceeding. In Mr Black's submission, that category then applied for the remainder of the proceeding, unless for “special reasons” the Court changed the category pursuant to r 14.3(2). He contended there were no special reasons for departing from category 2 in terms of the complexity, skill and experience factors mentioned in r 14.3.

…

… the answer to Mr Black's argument on costs is that r 14.6 expressly provides that the Court may order indemnity costs notwithstanding any categorisation of the proceeding earlier made under r 14.3.”

[42]              I therefore do not consider JNJ has forfeited its right to rely on cl 14.1(b), or is estopped from doing so.

Conclusion on this issue

[43]              It follows that JNJ is entitled to rely on cl 14.1(b) in claiming legal costs arising out of and connected to its claim.

Are there any matters which reduce the indemnity costs award?

[44]              Having reviewed the invoices filed in support of the costs claim carefully, I have comfortably arrived at the conclusion the amount claimed is in parts not properly substantiated and in other parts an inference of unreasonableness is available. My reasons follow.

[45]              First, in her Minute of 19 February 2016, Associate Judge Sargisson awarded the defendants 2B costs “up to and including today’s hearing of $7,136 plus an uplift of 50%”. Accordingly none of the fees claimed for steps taken before this point, namely the Simpson Western fees, are properly claimable now. I also note Mr Dalkie’s first invoice covers this period, and his appearance before Associate Judge Sargisson.

27     Black v ASB Bank Ltd, above n 9, at [72], [73].

[46]              Secondly, and relatedly, it appears aspects of the invoices relate to the discovery application for which the plaintiff has already been awarded costs. While the sum of $9,303.16 has been deducted from the total claim, that amount was awarded on a 2B basis, so in all likelihood actual costs in the invoices exceed that amount. Amounts related to the further discovery application should not be claimed, as costs on them have already been determined.

[47]              That leads naturally to the third issue with the claim as formulated. Half of Mr Dalkie’s invoices, dated 24 February 2016 to 23 December 2016, are insufficiently particularised. For example, the invoice spanning the period 17 to 24 February 2016 charges $400 per hour for 22.4 hours work for:

“Read papers

Draw & settle memo for 19/02

Appearing on hearing of guillotine/unless orders cor AJ Sargisson Draw & settle list of docs, file & serve

Ltr, telecons, & emails with you & HC; 2 x conferences”

[48]              It is not clear (a) how much time was dedicated to each step, (b) whether such time allocated was reasonable, and (c) which steps were covered by Associate Judge Sargisson’s award and not properly claimable now. Issues (a) and (b) are true of other invoices from this period.

[49]              Woolford J recently made a similar, and apposite, criticism of invoicing practices in an indemnity costs claim:28

“Further, the liquidators’ actual costs have been presented to the Court in a manner that makes it very difficult to determine whether these costs were reasonably incurred. The costs are documented in timesheets attached to the 4 December 2016 affidavit of Kieran Michael Jones. The costs claimed should have been linked to specific steps in the proceeding, so that the Court can assess whether these amounts were reasonably incurred. Instead, there are over 150 single line entries, the entries are not grouped and the amounts are only totalled at the end.

28     Grant v Bhana [2018] NZHC 1527 at [44]-[45].

… a considerable number of the entries are vague, or contain multiple different items without specifying the time dedicated to each.”

[50]              Fourth, an inference of unreasonable charging is available from the invoices in which Mr Dalkie has provided greater specificity. For example in his invoice of 18 February 2017 Mr Dalkie records:

“February 11; 12:00 until 10:30 pm

I wrote notes for cross examination of Lucinda Thai (8.5 hours) I wrote notes for cross examination of Michele Thai (1 hour)

I spoke to Peter Young on the phone twice to discuss his evidence (1 hour) February 12; 11:00 am until 9:50 pm

I wrote notes for cross examination of all the other witnesses except their expert.

So I wrote the notes for Ken Thai and Ru Wang.

I had a meeting with our expert for one hour (John Lowther) to run through giving evidence.

I read and revised the opening I had prepared to rehearse it for presentation the next day.

I emailed Jay & Sophia chasing up documents: an agreement to lease, and many other documents as listed in the emails.”

[51]There are two possible interpretations of this invoice. One is that between

12.00 pm and 10.30 pm on 11 February 2017, and between 11.00 am and 9.50 pm the following day, Mr Dalkie worked solely on this file, without pausing to check his emails, work on other matters or administration, or to take a break for lunch or dinner. Rather, on the first day he spent a period of some 10 and a half hours on cross- examination preparation, only taking a break to have two phone calls with a witness. The next day, beginning at 11.00 am, he worked for almost 11 hours, again without pause. The other available interpretation is that not all this work is properly claimable.

[52]              Fifth, Mr Black has raised legitimate concerns about overlapping claims by Mr Dalkie and the solicitors on record for a number of steps. For example costs in relation to both Dyer Whitechurch and Mr Dalkie reviewing the evidence, doing legal research, reviewing and preparing various claims and applications, and engaging in conferences,

have been claimed. Without greater specificity as to what steps these costs relate to, I cannot be sure there is no overlap in the amounts.

[53]              Sixth, and relatedly, a portion of the time spent at hearing and preparing for it was dedicated to the counterclaim and not JNJ’s claim against Kent Sing, Mr Thai and Ms Wu. It is duplication for these costs to be sought for each full step against both Kent Sing on an indemnity basis  and against General Goods on a 2B basis, given  Mr Dalkie represented JNJ in both matters at the same hearing. And indeed, because the counterclaim does not arise out of breaches of the lease by Kent Sing, associated legal costs are not properly claimable under cl 14.1(b). They fall to be determined on a 2B basis. This factor therefore requires substantial reduction from the amounts claimed in respect of both Mr Dalkie and Dyer Whitechurch’s costs. I return to this point below in addressing the costs claim against General Goods.

[54]              Seventh, the $10,072.50 in disbursements relating to Mr Lowther’s expert fees are also not properly claimable under the indemnity clause. Mr Lowther’s forensic accountancy evidence related to the counterclaim.29 In this regard I note a further duplication: $10,072.50, Mr Lowther’s fees, is claimed against both Kent Sing under the indemnity and against General Goods. That is also true of the setting down fee, some $14,400.

[55]Eighth, GST has been claimed in respect of each invoice by Simpson Western,

Dyer Whitechurch, and Mr Dalkie. As the Court of Appeal has recently said:30

“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.

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

29     As I go on to discuss below, the plaintiff has also claimed these disbursements twice, against both Kent Sing and General Goods.

30     New Zealand Venue and Event Management Ltd v Worldwide NZ LLC [2016] NZCA 282, (2016) 23 PRNZ 260 at [13]-[15] (footnotes omitted).

GST to a successful party that is not GST-registered means it would not achieve full recovery.

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.”

[56]              Here there has been no indication that JNJ is not GST-registered. As the Court of Appeal went on to say, in such a case the Court may proceed on the basis the successful party is GST-registered.31 The GST component of the costs claimed should also be removed.

[57]              Finally, taking a step back, an inference of unreasonableness may be gleaned from the quantum of costs claimed, $203,820.59, given the judgment sum was

$215,048.42.

What should be done?

[58]              The Court of Appeal in Black v ASB Bank Ltd noted that normally it will not be feasible for the Court to make a detailed assessment of the reasonableness of the indemnity costs claimed under a contract, and that there is room for robust judgment as to the costs considered reasonable in all circumstances.32 Where the party liable to pay indemnity costs is not content with that robust judgment, and indicates it seeks a detailed vetting of reasonableness, there are three avenues open to the Court.33

[59]              Mr Black has not explicitly indicated that which of these steps he would prefer to be followed. He seeks a reduction of costs in a robust way by 50 to 75 per cent due to the matters discussed above and because of the plaintiff’s failure to observe discovery directions. In essence though his submissions suggest a detailed vetting of the costs claimed. His central submission is the plaintiff has failed to provide sufficient or proper analysis, definition or other grounds for the court to ascertain the reasonableness of the costs claimed.

31 At [16].

32     Black v ASB Bank Ltd, above n 9, at [81], citing Frater Williams & Co Ltd v Australian Guarantee Corp (NZ) Ltd, above n 10, at 191,887.

33 See [21](c) above.

[60]              I have spent considerable time weighing which course I should take. My initial preference was to avoid a global discount, given the plaintiff’s contractual right to indemnity costs.

[61]              But I have formed the view that this is the most desirable option in the circumstances. I do not consider referring this matter to a Registrar for taxation is the appropriate response, given the complexity of the costs claimed, and the overlap between indemnity costs and 2B costs, which is terrain better traversed by a Judge.

[62]              As for the appointment of a suitably qualified practitioner who may vet the reasonable of the costs award and referral to the Law Society, these scenarios give rise to the issue of who should pay for the cost of vetting. This factor is an unnecessary complication and risks introducing an element of unfairness. I am also conscious that any practitioner and the Law Society would face many of the same issues as the Registrar: in particular, it may be difficult to unpick which aspects of the legal costs incurred relate to matters covered by the indemnity and which are to be fixed by reference to scale costs. Moreover, taking any of these three options would require me to adjourn the costs application on the counterclaim until the question of indemnity costs had been resolved, imposing further delay on the resolution of this protracted matter.

[63]I shall consider costs on the counterclaim before fixing a global reduction.

Is JNJ entitled to costs against General Goods on the counterclaim?

[64]              As noted, costs on a 2B basis are also claimed in respect of the counterclaim brought by General Goods and the other defendants. The claimed costs are particularised in Appendix B to this judgment.

[65]              Given the overlap identified at [52] and [54] above, substantial reduction in the costs claimed in respect of the counterclaim is necessary.   By way of example,     Mr Dalkie’s costs for appearances over 10 days are claimed on a 2B basis against General Goods. Given a number of those days were occupied by JNJ’s claim against the other defendants, and are covered by the cl 14.1(b) indemnity, 2B costs for 10 full days are not claimable. 2B costs are only available for the time spent on the

counterclaim, as indemnity costs are only available for the time spent advancing JNJ’s claim.

[66]              Moreover, of the $10,072.50 claimed against General Goods in disbursements relating to Mr Lowther’s fees, I note the general rule is only two thirds of expert witness fees are claimable.34

[67]              Because of the orders I have made in respect of the indemnity costs against the other defendants, and the overlap with those costs, I have determined that the best approach is to make a robust judgment as to the costs reasonable in the circumstances. And given the deficiencies I have identified, a global discount in the order of 70 per cent is appropriate.

Result

[68]              JNJ is entitled to indemnity costs in relation to its claim against Kent Sing, Mr Thai and Ms Wu from 19 February 2016. It is also entitled to scale costs on a 2B basis against General Goods. But because of the deficiencies I have identified, I reduce those costs awards in a global way by 70 per cent.

[69]              JNJ is  entitled  to  $61,146.18  in  costs  and  disbursements  arising  under  cl 14.1(b) claimable against Kent Sing, and Mr Thai and Ms Wu as guarantors.

[70]              JNJ is entitled to $21,491.10 in costs and disbursements associated with the counterclaim.

Moore J

Solicitors/Counsel: Mr Dalkie, Auckland Mr Black, Auckland

34     Progressive Enterprises Ltd v North Shore City Council (2005) 17 PRNZ 919 (HC) at [27].

Appendix A – Claimed indemnity costs

Description	Date	Fees/costs	Disbursements
Counsel’s fees35
Reading papers, preparing a memo, appearing, list of documents, correspondence engagement in various conferences: 22.4 hours	24 February 2016	$10,304.00	$0
Appearance, memo preparation: 11.75 hours	11 April 2016	$5,405.00	$92.00
Application and affidavit of discovering, filing and serving: 10.5 hours	3 May 2016	$4,830.00	$0
Emails, discovery conference and correspondence: 2.5 hours	31 May 2016	$1,150.00	$0
Emails, conference on discovery, attendance at hearing and associated preparation: 11.4 hours	27 June 2016	$4,324.00	$0
Reading counterclaim, bundle preparation, hearing preparation: 16.25 hours	22 July 2016	$7,705.00	$69.96
Discovery conference, reading documents, correspondence: 4 hours	28 August 2016	$1,840.00	$0
Drafting witness statements, correspondence with defendants including teleconferences: 28.5 hours	20 September 2016	$13,110.00	$0
Reading documents and preparing a bundle, considering evidence rules and content for bundle,	14 October 2016	$8,740.00	$0

35     Mr Dalkie charged $400 per hour for each step taken.

Description	Date	Fees/costs	Disbursements
correspondence with defendants: 19 hours
Correspondence on unpaid bills, preparation and appearance, two conferences: 7.25 hours	30 November 2016	$3,335.00	$0
Reading defendants’ statements, conferences, drafting witness statement, document management, emails: 22.25 hours	23 December 2016	$7,935.00	$246.45
Supplementary bundle ordering and filing, preparing opening and chronology, amended statement of claim, reply to counterclaim and notice to produce, correspondence with a witness, other correspondence: 32 hours	27 January 2017	$14,450.00	$27.89
Finalising opening and preliminary research, conferences with witnesses, subpoena, notes on evidence, correspondence: 35.5 hours	10 February 2017	$16,150.00	$0
Cross-examination notes, correspondence, opening and other trial preparation, appearances over five days: 77.5 hours	28 February 2017	$35,650.00	$0
“Fixed fee”	29 May 2017	$20,700.00
Fee for writing a reply	12 July 2017	$4,600.00
Solicitors’ fees36
Simpson Western: reviewing documents, meetings, conferences,	31 October 2014	$11,029.25

36 Although not apportioned in this way by Mr Dalkie in his submissions, it is apparent that $300 of the fees charged by Dyer Whitechurch, and $280.95 of the fees charged by Simpson Western, were in fact disbursements.

Description	Date	Fees/costs	Disbursements
statement of claim preparation, emails, reviewing documents.
Dyer Whitechurch: meetings, attendances, drafting applications and affidavits, correspondence.	15 March 2016	$2,990.00
Dyer Whitechurch: Attendances, correspondence, reviewing material including statement of defence and witness statements.	19 April 2017	$3,335.00
Dyer Whitechurch: discovery and interlocutory matters, attendances, further reviewing trial material, legal research, reviewing closing, trial preparation.	11 July 2017	$3,565.00
Dyer Whitechurch: attendances, correspondence.	7 February 2018	$2,817.50
Other Disbursements
Expert witness’ fees (John Lowther)	23 December 2016	$0	$6,037.50
Expert witness’ fees (John Lowther)	26 June 2017	$0	$4,025.00
Filing fee on proceeding	22 January 2015	$0	$1,450.00
Filing fee on application for summary judgment	22 January 2015	$0	$600.00
Filing fee on application for discovery	19 April 2016	$0	$600.00
Filing fee on setting of application	(uncertain)	$0	$1,600.00
Setting down fee	10 February 2017	$0	$14,400.00
From barrister’s fee notes	(uncertain)	$0	$436.30
$183,964.75	$29,159.00

Appendix B – Costs claimed against General Goods on a 2B basis37

Item	Description	No of days	Total
26	Appear on mention of application to join	0.2	$446.00
9	Defence to 2nd amended counterclaim	0.6	$1,338.00
9	Defence to 3rd amended counterclaim	0.6	$1,338.00
21	Inspection of documents	1.5	$3,345.00
30	Plaintiff’s preparation of briefs/affidavits	2.5	$5,575.00
31	Preparation of list of issues, authorities and common bundle	2.5	$5,575.00
33	Preparation for hearing	3	$6,690.00
34	Appearance at hearing (1/4 day on 10 April 2017)	0.25	$557.50
34	Appearance at hearing	10	$22,300.00
21.15	$47,164.50
Disbursements
Setting down fee			$14,400.00
Expert witness’ fees (John Lowther)			$10,072.50

37     The appropriate daily rate of recovery for category 2 matters is $2,230.