Naidu v Chandnaani
[2020] NZHC 2056
•14 August 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-001963
[2020] NZHC 2056
BETWEEN DEVENDRA MURTI NAIDU SUKHWINDER SINGH and JASPAL SINGH
Appellants
AND
BHARAT GUL CHANDNAANI
Respondent
Hearing: On the papers Judgment:
14 August 2020
JUDGMENT OF KATZ J
[Costs]
This judgment was delivered by me on 14 August 2020 at 10:30 am Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
Solicitors: Davenports West Lawyers, Auckland
Smith & Partners, Auckland
Counsel: M Locke, Barrister, Auckland
N Scampion, Shortland Chambers, Auckland
NAIDU v CHANDNAANI [2020] NZHC 2056 [14 August 2020]
Introduction
[1] Bharat Chandnaani brought a claim in the District Court in which he alleged that Devendra Naidu, Sukhwinder Singh, and Jaspal Singh had agreed to purchase his shares in JAKS Investments (2014) Limited for $262,500 but had only paid him
$200,000.
[2]Judge G M Harrison granted Mr Chandnaani summary judgment in the sum of
$62,500. Devendra Naidu, Sukhwinder Singh, and Jaspal Singh accepted that they owed Mr Chandnaani a further $50,000, but disputed liability for the remaining
$12,500. They therefore filed an appeal to this Court, in which they challenged their liability to pay that sum.
[3] I upheld the District Court judgment and dismissed the appeal.1 As the successful party, Mr Chandnaani now seeks costs.
[4] The proceeding has previously been categorised as a category 2B proceeding.2 Mr Scampion, (counsel for Mr Chandnaani) submits, however, that costs should be awarded on an indemnity basis or, in the alternative, that they should be increased by 100 per cent. Mr Locke, counsel for the appellants, submits that 2B costs are appropriate.
Procedural history
[5] Mr Chandnaani brought a claim in the District Court, seeking to recover the balance of $62,500 allegedly owing under the share sale agreement. The appellants (who were the defendants in the District Court) conceded that they owed Mr Chandnaani a further $50,000, but advanced the following arguments as to why they did not owe Mr Chandnaani a further $12,500:
(a)(In relation to Mr Naidu only), that he did not sign the share sale agreement, did not agree with its contents, and was not bound by it.
1 Naidu v Chandnaani [2020] NZHC 1286.
2 Minute of Powell J dated 10 December 2019.
(b)That pursuant to a shareholders’ resolution of 19 December 2017, the parties had agreed that Mr Chandnaani would receive only $250,000 instead of the $262,500 referred to in the share sale agreement.
(c)There was a binding settlement in the sum of $50,000.
[6] Judge Harrison rejected all three arguments and gave summary judgment in Mr Chandnaani’s favour, in the sum of $62,500.
[7]The appellants then appealed to this Court. The arguments set out at [5](a) and
(b) above were abandoned in light of overwhelming contemporaneous evidence that made those arguments untenable. The appellants’ written submissions therefore focussed on argument (c).
[8] In Mr Scampion’s written submissions on behalf of Mr Chandnaani, filed in advance of the appeal hearing, he addressed this argument comprehensively. He explained, with reference to the contemporaneous documents and Mr Naidu’s own evidence, why it was not tenable. As a result, in his oral submissions at the appeal hearing, Mr Locke abandoned the argument that there was a binding settlement agreement in the sum of $50,000. This was an appropriate concession in my view, given the contemporaneous evidence. The consequence of this concession, however, was that the appellants had, in effect, conceded that none of the defences that had been advanced in the District Court were tenable.
[9] Matters did not end there, however. Rather, Mr Locke advanced a new argument in his oral submissions at the appeal hearing. He accepted that the appellants (including Mr Naidu) are parties to the share sale agreement, that the share purchase price stated in the agreement is $262,500, and that clause 3(b) of the agreement means exactly what it says, namely:
The vendor [Mr Chandnaani] will be liable for his share of the payments for expenses or any losses suffered by the Company up to the date of signing of this agreement and vendor will not be entitled to any profit or advantage that the company may gain after the date of this agreement and at the same time the vendor will not be liable for any expense/losses Company may suffer after the date of this agreement.
[10] Mr Locke’s new argument, in effect, was that the appellants are entitled to set off any sums owing by Mr Chandnaani pursuant to clause 3(b) against the purchase price for the shares ($262,500) and that it is arguable that Mr Chandnaani has not yet paid his full share of the expenses or losses referred to in clause 3(b).
[11]In my judgment I stated that:
In assessing whether the new defence now being advanced is bona fide and arguable it is relevant, in my view, that the appellants have previously advanced a number of other defences that are completely untenable and directly contradicted by the contemporaneous documents. They have now abandoned those defences. The general impression this leaves is that the appellants in general, and Mr Naidu in particular, are simply casting around for any defence, regardless of how weak it is, or whether it is genuine and bona fide. This procedural history warrants the Court taking a fairly robust and realistic approach to its assessment of the defence now being advanced, for the first time, on appeal. Nevertheless, if the new defence is reasonably arguable, the appeal must be allowed.
[12] I ultimately concluded that the new defence was untenable and dismissed the appeal.
Are indemnity costs appropriate?
[13]The first issue I must determine is whether indemnity costs are appropriate.
Legal principles
[14] Rule 14.6 of the High Court Rules provides that, in certain cases, the court may make an order:
(a)increasing costs otherwise payable under the rules (“increased costs”); or
(b)that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party (“indemnity costs”).
[15] The court may order a party to pay indemnity costs if, amongst other things, the party has acted vexatiously, frivolously, improperly, or unnecessarily in
commencing or continuing a proceeding (or a step in it).3 Indemnity costs awards are rare. Cases where indemnity costs have been awarded include where a party makes allegations of fraud knowing them to be false, or where a proceeding has been commenced or continued for an ulterior motive. Indemnity costs have also been awarded where a party makes allegations which ought never to have been made, or where they unduly prolong a proceeding by making groundless contentions – essentially, the “hopeless case” situation.4
[16] The case law draws a distinction, however, between a “hopeless case and merely pursuing an argument without merit.5 The former can give rise to indemnity costs, while the latter can only give rise to increased costs. Indemnity costs are generally awarded when a party has behaved extremely badly.6 They are exceptional and require exceptionally bad behaviour.7 In Madsen-Ries v Petera, Lang J observed that “the Courts have been careful to restrict the right to claim indemnity damages to situations where the party against whom such damages are awarded has acted in an egregious manner”.8
Should indemnity costs be awarded in this case?
[17] Mr Scampion submits that the appellants advanced entirely unmeritorious arguments on appeal, putting Mr Chandnaani to significant legal costs. He also makes several submissions regarding the appellants’ conduct in the District Court. In my view, however, the conduct of the District Court proceeding is not relevant, save as to provide context for aspects of the appellate process.
[18] Mr Scampion also submits that the appeal was brought for the ulterior motive of avoiding or delaying payment and, further, that the appellants advanced wholly implausible arguments.
3 Rule 14.6(4)(a).
4 Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [29].
5 AFI Management Pty Ltd v Lepionka & Company Investments Ltd [2018] NZHC 1285; Maruha Corporation v Amaltal Corporation Ltd HC Auckland, CIV-2002-404-1773, 12 February 2004.
6 Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [27]-[28]; Prebble v Huata [2005] NZSC 18, [2005] 2 NZLR 467 at [6].
7 Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [29].
8 Madsen-Ries v Petera [2015] NZHC 538 at [120]-[121].
[19] Overall, I do not consider the appellants’ conduct to be so bad or unreasonable as to reach the high threshold of justifying an award of indemnity costs. The appellants certainly pursued unmeritorious arguments. However, the argument advanced orally at the appeal hearing was not entirely hopeless. I accept that Mr Locke’s genuine opinion (which he presumably conveyed to his clients) was that the line of argument advanced at the hearing had some merit.
[20] Nor do I accept that the proceeding was brought for an ulterior motive, in the sense that that term is used in the case law. The appellants appear to have believed, based on the legal advice they received, that they had some prospect (albeit possibly only a weak prospect) of a successful appeal. The delay in having to make payment, if their appeal failed, may well have been an ancillary benefit of pursuing an appeal. The evidence does not suggest, however, that it was their sole or primary purpose.
[21] Overall, I have not been persuaded that the appellants deliberately and wilfully advanced an appeal that they knew to be entirely without merit, for ulterior purposes (or otherwise). Nor have they engaged in other egregious conduct that warrants the exceptional sanction of indemnity costs.
What scale costs are appropriate?
[22] I now turn to consider what costs award would be appropriate on a 2B scale basis, before turning to consider whether an uplift is justified.
[23] Mr Chandnaani has set out the various items of 2B scale costs he seeks. Only two items are in dispute: the initial memorandum of counsel (dated 27 September 2019); and Mr Scampion’s preparation of a supplementary casebook for the appeal.
[24] The appellants did not file their appeal in time. Instead they simply purported to “file” it out of time, without first seeking leave to do so. The Registrar appears to have overlooked that the notice of appeal was out of time, and simply accepted it for filing.
[25] Mr Scampion then filed a memorandum bringing the issue to the attention of the Court and seeking directions. Mr Locke subsequently remedied his earlier
oversight and filed an application for leave to appeal. I heard the leave to appeal application together with the substantive appeal.
[26] Although I ultimately granted leave to appeal, it was entirely proper of Mr Scampion to draw the Court’s attention to the procedural irregularity that had occurred. Mr Chandnaani is therefore entitled to costs in respect of the 27 September 2019 memorandum.
[27] Mr Chandnaani also claims costs (one day) for preparation of the supplementary case on appeal. Mr Scampion submits that the appellants’ casebook was woefully inadequate and did not include all the documents that were necessary for the appeal. Mr Locke, on the other hand, says that Mr Scampion only told him about the additional documents that were needed a week after the appeal bundle was filed, and one working day before the hearing of the appeal.
[28] It is my view that Mr Chandnaani should be awarded 50 per cent of the usual time allocation for preparation of a case on appeal. The original case of appeal was inadequate, resulting in the need to prepare a supplementary bundle of documents. However, due to its supplementary nature, the time involved in preparation of the bundle would have been somewhat less than would normally be required.
[29]Mr Chandnaani’s costs on a 2B scale basis are therefore as follows:
Step
Step Number
Days
Total
Commencement of response to appeal
53
0.5
$1,195
Memorandum seeking directions
11
0.4
$956
Memorandum for first call
11
0.4
$956
Additional memorandum for first call
11
0.4
$956
Appearance at first call
12
0.2
$478
Memorandum for 10 December
11
0.4
$956
Appearance at 10 December
12
0.2
$478
Preparation of written submissions
56
3
$7,170
Preparation of case on appeal
55
0.5
$1,195
Appearance at hearing
57
1
$2,390
Overall Total:
7
$16,730
Is an uplift appropriate?
[30]I now turn to consider whether an uplift from scale costs is warranted.
Legal principles
[31] Amongst other things, increased costs may be ordered where the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by taking or pursuing an unnecessary step or an argument that lacks merit; or failing, without reasonable justification, to accept a legal argument.9 Cost increases above 50 per cent are rare, reflecting that the costs scale in the Rules is set on the basis that it is intended to broadly reflect two-thirds of actual and reasonable costs.
Should increased costs be awarded in this case?
[32] I have set out the key relevant background at [5] to [12] above. In summary, the appellants advanced three potential grounds of defence in the District Court, all of which were untenable. Only one of those three grounds of defence was advanced on appeal. Mr Scampion filed comprehensive submissions in which he carefully analysed the evidence relating to that ground which demonstrated that it was misconceived and contradicted by the contemporaneous evidence. I have no doubt that preparation of those submissions would have been time consuming.
[33] The appellants should have known that the original appeal argument advanced on their behalf was not consistent with the facts, as set out in their own evidence and correspondence. However, it was only after receipt of Mr Scampion’s submissions that a decision was made to jettison the original argument and advance an entirely new proposed defence at the appeal hearing. No advance notice was given of this. In effect, much of the work that had gone into the preparation of Mr Scampion’s written submissions was wasted, because the appellants had advanced a ground of appeal which lacked merit, was contradicted by the contemporaneous evidence, and should never have been pursued. Further, it should have been apparent to the appellants that the original ground of appeal was unmeritorious and required them, in essence, to
9 Rules 14.6(3)(b)(ii) and (iii).
assert facts that they knew to be untrue or incorrect. In my view such conduct justifies a 50 per cent costs uplift.
Disbursements
[34] The disbursement of $50 for sealing the judgment is not contested and is plainly appropriate.
Result
[35] I award Mr Chandnaani costs on a 2B scale basis, uplifted by 50 per cent. This totals $25,095. I also award him $50 in disbursements. The total costs award is therefore $25,145. The appellants are jointly and severally liable for payment of that sum.
Katz J
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