Mike Pero (New Zealand) Limited v Krishna
[2016] NZHC 2007
•29 August 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-1508 [2016] NZHC 2007
BETWEEN MIKE PERO (NEW ZEALAND)
LIMITED Applicant
AND
KRISH KRISHNA AND VEENA ROHINI KRISHNA
First Respondents
MORTGAGE SUITE LIMITED Second Respondent
Hearing: On the papers Counsel:
RB Stewart QC and S Barker for applicant
KM Quinn and SM Thompson for respondentsJudgment:
29 August 2016
JUDGMENT OF FAIRE J
This judgment was delivered by me on 29 August 2016 at 12:45 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Buddle Findlay, Wellington
Heimsath Alexander, Auckland (A Hansen)
Mike Pero (New Zealand) Limited v Krishna [2016] NZHC 2007 [29 August 2016]
Contents
The application .......................................................................................................[1] My judgment ..........................................................................................................[4] The link between the two substantive applications .............................................. [11] The principles applicable in awarding costs ........................................................[12] Classification of the proceedings .........................................................................[15] The appropriate band............................................................................................[16] Increased cost principles ......................................................................................[19] Indemnity cost principles .....................................................................................[21] The claim for indemnity costs ..............................................................................[24] The claim for increased costs ...............................................................................[37] Scale costs ............................................................................................................[45] Orders ...................................................................................................................[52]
The application
[1] The respondents seek costs arising from the determinations made in my judgment of 10 June 2016. They seek indemnity costs, or increased costs, or scale costs in respect of the application for an arrest warrant and contempt order, and in respect of the applications referred to in my judgment as preliminary matters.
[2] The indemnity costs sought total $65,205. In the alternative, increased costs of $33,450 are sought, being an uplift on scale costs calculated on a 2B basis of
$22,300. In the event indemnity costs or increased costs are not allowed, costs according to scale in the sum of $22,300 are sought. In addition, disbursements of
$1,192.66 are sought.
[3] Although my judgment dealt with the respondents’ application to rescind or
vary orders made by Hinton J, the respondents submit that no order for costs should
be remade in respect of that application, and in respect of which the respondents were unsuccessful.
My judgment
[4] My judgment dealt with five applications. There were two substantive applications.
[5] The first substantive application is the applicant’s application for an arrest warrant and contempt orders against Mr Krishna.
[6] The second substantive application is the first respondents’ application to rescind or vary orders made by Hinton J on 3 July 2016. The orders made by Hinton J were the basis for the orders sought in the first substantive application.
[7] I refused both substantive applications with the consequence that the applicant failed on the first substantive application, and the respondents failed on the second substantive application.
[8] My judgment dealt with what I described as preliminary matters as well. The first preliminary matter arose from an application made by the respondents seeking orders:
(a) That certain affidavits filed by the applicant be ruled inadmissible;
and
(b)That a notice to produce documents issued under r 8.32 need not be complied with.
The second application was an application by the applicant seeking leave to cross- examine the first-named respondent.
[9] The respondents were successful in respect of each issue raised by the preliminary matters that I have referred to. In short, I ordered that the affidavits were
inadmissible, that the notice issued under r 8.32 need not be complied with, and that leave to cross-examine the first-named respondent was declined.
[10] I reserved costs and directed that if the parties could not agree memoranda in support, opposition and reply were to be filed. Memoranda have been filed. I have issued minutes and sought clarification in respect of the indemnity cost position from the applicant’s solicitors and will refer to that in this judgment.
The link between the two substantive applications
[11] The application for the arrest order and contempt order was filed on
28 January 2016. The notice of opposition to that application and the application to rescind or vary Hinton J’s orders (the second substantive application), were filed together on 18 February 2016. The substantial affidavit of the first-named respondent in opposition was also the affidavit filed in support of his application to rescind. Understandably, they had to be heard together.
The principles applicable in awarding costs
[12] 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 Supreme Court endorsed this view in Manukau Golf Club Inc v Shoye Venture
Ltd.3
[13] The test to be applied is entirely an objective and not a subjective one. Save in respect of indemnity costs, the only reference which it is necessary to make to
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 Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109; [2013] 1 NZLR 305 (SC).
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.4 To that must be added “… if a Judge is considering the possibility of making an award of indemnity costs, the actual level of costs incurred might be of some relevance”. Health Waikato Ltd v Elmsly5
[14] 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.
Classification of the proceedings
[15] Counsel agree that Category 2, as defined in r 14.3, is the appropriate classification for all aspects of this proceeding. In short, the proceedings were of average complexity requiring counsel of skill and experience considered average in the High Court. Accordingly, I adopt that categorisation for the proceedings.
The appropriate band
[16] With the exception of the allowance for preparation of the opposition to the application for an arrest warrant and contempt orders, counsel agree that the reasonable time allowance for each step referred to in Schedule 3 of the High Court Rules should be Band B in terms of r 14.5.
[17] I will discuss the preparation of the opposition to the application for an arrest warrant and contempt orders separately. Apart from that specific aspect, and to the extent that scale costs are appropriate, I adopt Band B as providing the reasonable
time for each step that was taken in relation to the proceedings.
4 Glaister v Amalgamated Dairies Ltd, above n 1, at 610[14].
5 Health Waikato Ltd v Elmsly (200)] 17 PRNZ 16 (CA) at [50].
[18] Rule 14.6 sets out the circumstances where increased or indemnity costs can be awarded.
Increased cost principles
[19] 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.
[20] 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.6 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.
Indemnity cost principles
[21] 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
6 Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA).
(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
(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.
[22] 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).7 The Court emphasised the need to examine the specific grounds set out in the Rule for ordering indemnity costs.
[23] In Hedley & Ors v Kiwi Co-operative Dairies Ltd it was said:8
[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.9
There the court said the conduct must be flagrant and made the following further observations:
… While recognising that the categories in respect of which the discretion may be exercised are not closed (see r 14.6(4)(f)), it listed the following circumstances in which indemnity costs have been ordered:
(a) the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud;
(b) particular misconduct that causes loss of time to the court and to other parties;
(c) commencing or continuing proceedings for some ulterior motive;
(d) doing so in wilful disregard of known facts or clearly established law;
7 Paper Reclaim Limited v Aotearoa International Limited [2006] 3 NZLR 188 (CA).
8 Hedley & Ors v Kiwi Co-operative Dairies Ltd (2002) 16 PRNZ 694 at [8].
9 Bradbury v Westpac Banking Corporation.[2009] 3 NZLR 400; (2009) 19 PRNZ 385 (CA).
(e) making allegations which ought never to have been made or unduly prolonging a case by groundless contentions, summarised in French J’s “hopeless case” test.
[30] Each of these concerns conduct which would fall within r 14.6(4). A sixth instance given by Sheppard J, imprudent refusal of an offer of compromise, does not fall under the indemnity costs rule but may justify increased costs under r 14.6(3)(b)(c).
The claim for indemnity costs
[24] For reasons set out in [11] of my minute of 16 August 2016, I will consider in this judgment only whether there is a foundation for indemnity costs and not what is a reasonable amount.
[25] The matters advanced on behalf of the respondents are six in number, although the respondents seems also to include their successful result in what I described as the preliminary matters as also justifying an allowance for indemnity costs.
[26] The six matters listed are:
(a) The customer contact allegations never should have been made in the first place;
(b)The applicant unduly prolonged the contempt application with groundless contentions;
(c) The seriousness of the allegations made by the applicant;
(d)The allegations relied upon by the applicant at the hearing were equally groundless;
(e) An offer to settle; and
(f) Commencing or continuing proceedings for some ulterior motive.
[27] The last two matters advanced can be disposed of shortly. Any allegation of a failure to accept an offer of settlement is almost invariably dealt with as, at the most, a ground for increased costs.10 Accordingly, this factor does not justify any claim for indemnity costs.
[28] The last matter referred to, that the proceeding was commenced or continued for some ulterior motive is now considered.
[29] There were at least some grounds of suspicion regarding customer contact and the genuineness of Mr Krishna’s move to Hamilton, as well as his website. I do not consider the fact that the offer to settle was not immediately accepted adds anything or, for that matter, forms a basis for inferring some ulterior motive on behalf of the applicant. I have carefully considered all that Mr Quinn has advanced in relation to this matter and cannot find a basis for a conclusion, on this matter, that the applicant’s conduct has been flagrant or of that serious kind that would justify an award of indemnity costs in respect of this matter.
[30] I return to the first four matters.
[31] Dealing, firstly, with the customer contact allegation, whilst the evidence in the end did not justify the applicant proceeding on this matter, there was at least grounds for suspicion. In addition, when one looks at the proposed move to Hamilton it did not, by itself, indicate that Mr Krishna would not operate in the restricted area. This, like the first aspect, is just one of the matters that the applicant failed on, but viewed collectively with the other matters, does not indicate some flagrant breach on the applicant’s part.
[32] The second ground simply alleges that the matter was pursued with groundless contentions. This really does not add anything to what I have already analysed. This is simply a case where the applicant failed.
[33] In respect of the allegation that the allegations made by the applicant were serious, there is no doubt about this but I cannot find anything in the action taken by
10 Bradbury v Westpac Banking Corporation, above n 9 at [30].
the applicant that would justify some condemnation by the court for the steps that it was taking. It simply took the application and lost.
[34] The same applies with respect to the fourth ground.
[35] In my view, there is no basis made out in this case for an order for indemnity costs in relation to the hearing of the first substantive application, which sought an arrest warrant and a contempt order. Nor do I find that there is any justification for the award of indemnity costs in relation to the disposal of the two applications which involved three discrete matters and which I described as the preliminary matters.
[36] Accordingly, I rule that this case does not justify an award of indemnity costs.
The claim for increased costs
[37] Both applicant and respondents failed with their respective substantive applications. There is one difference, in my view, between the two applications and that is the amount of material that was prepared on the respondents’ behalf to oppose the application for an arrest warrant and a contempt order.
[38] As I have set out, an application for increased costs requires a four-staged analysis. I have already recorded that the appropriate category for the proceeding is Category 2. With the exception of the preparation of the opposition to the applicant’s application, I consider that all the remaining steps are appropriately covered by Band B.
[39] The two applications which I have described as the substantive applications are, in effect, applications on the original proceeding, which was brought before Hinton J. That is the main proceedings, as I explained in my judgment. These two substantive applications are, in essence, interlocutory in nature. That is the approach that counsel have adopted in their cost memoranda and, in my view, is the correct one. It is in line with position that I now need to consider, namely, the appropriate parts of Schedule 3 which apply.
[40] The matter from the respondents’ perspective was a serious matter, which required briefing of deponents and the completion of affidavits. Accordingly, the filing and preparation of the opposition to the applicant’s substantive application justifies a Band C designation in terms of Item 23 of Schedule 3. Apart from that adjustment, I do not see any reason to depart from the normal cost position that would apply for the rest of the steps taken
[41] That, then, leads me to the fourth step which requires me to stand back and look at the costs award and determine whether any of the matters set out in subs 3(b) can be applied. Counsel for the respondents advanced three specific matters which he submitted might justify increased costs, namely:
(a) Taking or pursuing an unnecessary step or argument that lacks merit;
(b)Failing without reasonable justification to admit facts or accept a legal argument; and
(c) Failing without reasonable justification to accept an offer of settlement.
[42] I deal with the first two matters. Neither, in my view, was justified in this case. All that occurred was that applicant failed in respect of its application.
[43] I pass to the third matter, the reference to the offer of settlement. That is a reference to paragraph 90 of the affidavit of the first respondent, sworn on
18 February 2016. I have already referred to the fact that this is an affidavit entitled as being in opposition to the first substantive application and in support of the second substantive application. What the first respondent recorded there was the following:
I consider that in light of the evidence I have filed, including affidavits from third parties, it is obvious that I am not in breach of the restraint of trade. I am willing to make an open offer now that if MPNZ discontinues this proceeding following receipt of the affidavits today, I will not seek costs. However, if MPNZ do not discontinue, despite the evidence and explanations provided, I will be seeking indemnity costs.
[44] When one considers this provision, it is immediately apparent that it does not relate to the respondents’ application. It was simply an offer that costs would not be sought if the applicant withdrew its application. I am not persuaded that this justifies the application of r 14.6(3)(b)(v) in this case.
Scale costs
[45] I am therefore left with this position. In relation to the substantive application, save for the question of the opposition and preparation of the defence, the success of one party in one application but failure in the other cancels out the need to make any order. The one exception occurs in relation to the preparation of the defence of the application for an arrest warrant and contempt order. As I have already said, in my view, Band C is justified in this case.
[46] When I consider the appropriate allowance for opposing the respondents’ substantive application, I am left with the position that all that could be justified would be a Band B designation for the commencement of the defence to it. That leads to the position that the respondents have a justification for an allowance of 1.4 days, based on the allowance for Category 2, that being the difference between Band C and Band B of Item 23.
[47] That, however, does not end the matter. The respondents were successful in the two interlocutory applications which dealt with three discrete matters. I do not make any separate allowance for hearing time, because the matters were concluded in the one judgment. However, I am satisfied that the respondents should be given credit for the filing of the one interlocutory application and the filing of a notice of opposition in respect of the second. In short, a total of 1.2 days should be allowed.
[48] That analysis leads to the position, when Schedule 2 is applied, that the respondents are entitled to a cost order of $5,798.
[49] When I stand back and look at the overall position, taking into account the stance adopted by both parties, I am satisfied that the analysis I have carried out produces the appropriate cost figure which should be allowed in this case. Accordingly, I will adopt that figure in the order that I will make.
[50] In addition, the respondents are entitled to the disbursements incurred in filing one interlocutory application. There should be no fee in respect of the filing of a notice of opposition by the application of Item 14 of the Schedule to the High Court Fees Regulations 2013. If I am wrong, the Registrar may include a disbursement being the filing fee on the notice of opposition.
[51] In the analysis that I have carried out, I make no allowance for second counsel. I accept that the party was entitled to have second counsel appear but, in my view, the case did not justify an allowance for same. In addition, I have made no allowance for the preparation of the costs memoranda. Although the respondents have been partially successful, the analysis that has been required to be carried out in relation to the claim makes it clear to me that costs in relation to the steps taken to fix costs should be left on the basis that they lie where they fall. That is why no separate allowance is made for the preparation of the costs memoranda.
Orders
[52] Accordingly, I order that the applicant pay costs to the respondents in the sum of $5,798, plus disbursements in the area that I have identified, as fixed by the
Registrar.
JA Faire J
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