Middleton v Mana Within Ltd

[2025] NZHC 2529

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-2120

[2025] NZHC 2529

BETWEEN

PHILIP GEORGE SAUA MIDDLETON and LEARNER FOCUSED TRAINING LTD
Plaintiffs/Applicants

AND

MANA WITHIN LTD

First Defendant/First Respondent

DOUGLAS THOMAS LEEF
Second Defendant/Second Respondent

BUILDRIGHT RESIDENTIAL LTD

Third Defendant/Third Respondent

Hearing:

On the papers

Appearances:

W Revell and V Hansen for the Plaintiffs/Applicants

N P Tetzlaff for the Second and Third Defendants/Respondents

Judgment:

3 September 2025

JUDGMENT OF GARDINER J

(Costs)

This judgment was delivered by me on 3 September 2025 at 11.00 am pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

Farry Law Limited, Auckland Smith and Partners, Auckland

MIDDLETON v MANA WITHIN LTD [2025] NZHC 2529 [3 September 2025]

Introduction

[1]                 On 18 March 2025, I delivered a judgment declining Mr Middleton and Learner Focused Training Ltd’s without notice interlocutory application for a freezing order, preservation order and/or interim injunctions; and discharging earlier interim orders.1

[2]                 An earlier interlocutory application by Mr Leef to release him from undertakings had been scheduled for hearing on 5 February 2025. At the hearing, orders were made by consent that the undertakings would remain in place until after the plaintiffs’ without notice interlocutory application had been determined (which sought to achieve the same position as the undertakings). The without notice application, which was served on Mr Leef on a Pickwick basis, was heard substantively on 20 February 2025.

[3]                 Mr Leef seeks orders for costs in relation to both the plaintiffs’ application and his application for release from undertakings. He seeks:

(a)indemnity costs of $62,083.33;

(b)in the alternative, increased costs of $29,213.94 (2B scale costs plus an uplift of 50 per cent); or

(c)again, in the alternative, ordinary 2B scale costs of $19,337.44.

[4]                 The plaintiffs oppose Mr Leef being awarded costs on his application, oppose indemnity or increased costs, and say that scale 2B costs should be reduced to reflect Mr Leef’s unreasonable rejection of their settlement offer.

Submissions for Mr Leef

[5]Mr Leef advances the following grounds in support of his application:

1      Middleton v Mana Within Ltd [2025] NZHC 543.

(a)His application for release from undertakings was only necessary because the plaintiffs withheld their consent, despite failing to promptly file proceedings that might justify their continuation.

(b)The plaintiffs’ opposition to his application was frivolous and vexatious, as shown by the complete failure of their application for less onerous injunctive relief.

(c)Steps taken by the plaintiffs to adjourn the hearing in December 2024 were vexatious and improper, including misleading the Court about the parties’ discovery obligations.

(d)Mr Leef was put to the unnecessary time and expense of responding to evidence that was excessive and largely irrelevant.

(e)The plaintiffs’ interlocutory application was frivolous and vexatious — as well as, evidently, conceptually flawed and meritless — and was improperly intended to delay Mr Leef’s release from his undertakings.

(f)The plaintiffs failed to comply with their disclosure obligations for the without notice interlocutory application, causing Mr Leef to incur costs relating to urgently correcting the errors to avoid adverse orders based on incomplete or misleading material provided by the plaintiffs.

Submissions for the plaintiffs

[6]                 Mr Middleton says that the application for release from the undertakings was resolved by consent, with encouragement from the Court. As there was no determination by the Court, costs should lie where they fall.2

[7]                 To the extent that Mr Leef is entitled to costs on the plaintiffs’ without notice application, these should be 2B scale costs reduced by 50 per cent in the amount of

$4,226.75.  Although he was successful in that none of the orders sought were made,

2      Lepionka & Co Investments Ltd v Gibson Sheat [2023] NZHC 2745 at [17].

Mr Leef would not have been put to the cost of defending the application if he had accepted the settlement offer dated 24 January 2025. That is because the Ministry of Social Development (MSD) completed its audit on the day that the judgment was released. Mr Leef would have been in the same position he was in following the judgment had he accepted the offer.

[8]                 Mr Middleton disputes that indemnity or increased costs are appropriate because:

(a)The plaintiffs did not file a statement of claim as there were undertakings in place which preserved the position. It was only when Mr Leef’s release from the undertakings became a real possibility that proceedings were filed.

(b)Mr Middleton maintains that the attempt to defer the 5 February 2025 hearing was necessary due to Mr Leef’s failure to comply with discovery orders.

(c)Mr Middleton disputes that the evidence he relied on for both applications were excessive. All four of his previous affidavits were relevant to the issue of whether Mr Leef should be released from the undertakings.

(d)The proceedings cannot be characterised as meritless when the claims in the statement of claim have not yet been tested in a substantive hearing.

(e)Mr Middleton denies that the plaintiffs failed to comply with their disclosure obligations. If the Court does not agree that was the case, the defendants have not suffered any loss because of failure as no orders were made.

Legal principles

[9]                 Ordinarily, costs are to be paid to the successful party according to a scale which reflects the complexity and significance of the proceeding. But there are circumstances where the court may depart from the scale.

[10]             One example is increased or indemnity costs. The Court’s jurisdiction to award increased or indemnity costs is derived from r 14.6 of the High Court Rules 2016:

14.6     Increased costs and indemnity costs

…

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

…

(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)…

(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

…

(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)…

(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.

[11]             In terms of increased costs, any percentage uplift should be awarded only to the extent to which a failure to act reasonably contributed to the time and or expense of the proceeding.3

[12]             Indemnity costs are awarded where a party has behaved “badly or very unreasonably”.4 Unreasonableness is determined by the conduct of the party against whom costs are sought.5 They may also be awarded when a party’s case was obviously ‘hopeless’, meaning ‘totally without merit’ or ‘bound to fail’.6

[13]             The court also has discretion to adjust scale costs by way of reduction. This can be done in circumstances where a party has contributed unnecessarily to the time or expense of a proceeding, for example, by failing to accept an offer of settlement without reasonable justification.7

Analysis

Costs on Mr Leef ’s interlocutory application for release of undertakings

[14]             In my view, the plaintiffs should pay Mr Leef’s costs in relation to his interlocutory application for release from his undertakings. The application was resolved by consent, but Mr Leef was left with little choice but to agree to this at the 5 February hearing. At that hearing, the Court was faced with two interlocutory applications that essentially mirrored each other: one to remove the undertakings and the other to replace them with orders very similar to the undertakings (if removed). A decision was made to hear the plaintiffs’ application and treat Mr Leef’s as resolved by consent. But by that stage, Mr Leef had incurred costs in relation to his interlocutory application which he should not have to bear given that he would have

3      Commissioner  of  Inland  Revenue  v  Chesterfields  Preschools  Ltd  [2010]  NZCA  400, (2010) 24 NZTC 24,500 at [165].

4      Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [27]–[28].

5      Body Corporate 166,208 v York Trustees Ltd [2021] NZHC 1974 at [18].

6      TheCircle.co.nz Ltd v Trends Publishing International Ltd (in liq and rec) [2021] NZCA 235 at [34].

7      High Court Rules 2016, r 14.7(f).

been successful had his application been determined. I find therefore that Mr Leef is entitled to his costs for steps taken in relation to his application for release of undertakings.

Indemnity or increased costs

[15]I consider that an order for indemnity costs is appropriate here.

[16]             On 15 September 2023, the plaintiffs filed an earlier without notice pre-commencement application for an interim injunction, freezing order and preservation order over the $1.1 million in MWL’s bank account, on the basis that MWL had failed to pay invoices rendered by the plaintiffs valued at $194,129. The plaintiffs indicated that they intended to file a statement of claim alleging breach of contract and claiming this and further amounts to be invoiced to MWL. On 22 September 2023, Walker J dealt with the application on the papers and made orders restraining the directors from dealing with MWL’s funds up to $194,129 and for the plaintiffs to file a statement of claim.8

[17]               The parties then agreed a holding position while they attempted to resolve their differences. This involved Mr Leef undertaking not to deal with MWL’s funds other than to pay MWL’s trainees and not to correspond with the MSD about MWL, in each case without the prior written consent of Mr Middleton or pursuant to a Court order. On that basis, the proceeding was stayed.9

[18]             When the parties could not reach agreement, on 5 December 2023, Mr Leef applied by memorandum to be released from his voluntary undertakings. He was concerned that the prohibition on him speaking to the MSD was preventing him from engaging with the agency about their audit into the affairs of MWL and was damaging his reputation. In an affidavit filed with the memorandum, he confirmed that he would not  deal  with  MWL’s funds  other  than  to  pay  his  consultancy   firm,   Buildright Residential Ltd (BRL), $145,000 (plus GST) for services it rendered to

8      Middleton v Mana Within Ltd HC Auckland CIV-2023-404-2120, 22 September 2023 (Minute of Walker J).

9      Middleton v Mana Within Ltd HC Auckland CIV-2023-404-2120, 3 October 2023 (Minute of Fitzgerald J).

MWL up to 31 October 2023; and he would not unilaterally return any unused funds to the MSD.

[19]             The Court required Mr Leef to make a formal application for release, which he eventually made in October 2024.10 He says that he did not apply earlier because he did not have the funds to pay the legal fees that an application would incur.

[20]             The plaintiffs’ eventual statement of claim bears very little resemblance to the prospective claim described in September 2023, as grounds for the without notice orders sought. The plaintiffs’ only claim to the funds in MWL’s bank account is for the modest amount of $51,000 (the fifth cause of action in quantum meruit). Despite that, the plaintiffs sought, in their without notice application filed with the statement of claim, orders preventing Mr Leef from dealing with the entirety of MWL’s funds (by then, around $1 million).

[21]             The judgment concluded that the application with respect to MWL’s funds was, for this and other reasons, fundamentally flawed. The plaintiffs’ claims were (aside from the fifth cause of action) against Mr Leef, not MWL, and did not provide a sound basis for restraining MWL’s bank account. There was no risk of Mr Leef dissipating MWL’s funds, as BRL only claimed to be owed $145,000 (a debt that was not disputed by the plaintiffs) and Mr Leef had confirmed he would not unilaterally return MWL funds to MSD. In any event, it can be assumed that the MSD would only seek to recover amounts to which MWL was not entitled under the funding arrangements.

[22]             Against this backdrop, the only purpose of the plaintiffs’ application with respect to the bank account could have been to prevent BRL from being paid for services it had rendered to MWL, pending the outcome of the MSD audit. That was an ulterior purpose.11

[23]             The judgment also concluded that the injunction seeking to restrain Mr Leef from communicating with the MSD without Mr Middleton present, or as permitted by the Court, was improper in circumstances where MSD was conducting an audit of

10     Middleton v Mana Within Ltd HC Auckland CIV-2023-404-2120, 7 December 2023 (Minute of Venning J).

11     Middleton v Mana Within Ltd, above n 1, at [35]–[36].

MWL and its use of public funding. Mr Leef only offered this undertaking as a short-term measure to allow settlement discussions in late 2023. As noted, those discussions were not fruitful, and Mr Leef was entitled to seek release from them. Accordingly, I consider the plaintiffs’ opposition to his application, and their own application for an injunction on the same terms, to have been unreasonable and questionable in motive.

Reduced costs

[24]             I reject the plaintiffs’ submission that any costs awarded to Mr Leef should be reduced because he rejected their offer of settlement made on 24 January 2025. It was not unreasonable for Mr Leef to refuse the settlement offer, which involved him agreeing to maintain his undertakings until the MSD resolved the audit; and adjourning the substantive proceedings until further notice (in other words, to agree to the status quo). For the reasons I have given, there was no proper basis for Mr Leef to continue to be subject to these undertakings.

Result

[25]I order the plaintiffs pay Mr Leef indemnity costs of $62,083.33 along with

$892.44 in disbursements.

Gardiner J