Northwest Developments Limited v Zhang
[2020] NZHC 2225
•28 August 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA
TĀMAKI MAKAURAU ROHE
CIV-2017-404-936
[2020] NZHC 2225
BETWEEN NORTHWEST DEVELOPMENTS LIMITED
PlaintiffAND
CHENG ZHANG, JIN KUK JUNG and PILL SOON SO
Defendants
Hearing: On the papers (and telephone conference on 26 August 2020) Counsel
M J Fisher and J J Yoon for the Plaintiff J Burley and S Pala for the Defendants
Judgment:
28 August 2020
JUDGMENT OF GAULT J
(Costs)
This judgment was delivered by me on 28 August 2020 at 3:00 pm pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
……………………………………
Solicitors / Counsel:
Mr M J Fisher and Mr J J Yoon, Barristers, Auckland
Mr C Girven (plaintiff’s instructing solicitor), Castle Brown, Auckland Mr J Burley and Ms S Pala, McVeagh Fleming, Auckland
NORTHWEST DEVELOPMENTS LIMITED v ZHANG, JUNG and SO [2020] NZHC 2225 [28 August 2020]
[1] In my judgment dated 28 May 2020,1 I concluded that the plaintiff is entitled to costs against the defendants in the CIV-2017-404-936 proceeding, subject to any agreement as to costs in the partial resolution.
Plaintiff’s cost claim
[2] The plaintiff claims solicitor and client costs pursuant to cl 42(b) of the Five Owners’ Agreement in respect of steps taken to require the defendants to pay the infrastructure costs, and scale costs on a 2B basis in respect of steps taken to require the defendants to pay damages for breach of contract.
[3] Mr Fisher, for the plaintiff, submits that it is not possible to distinguish with precision between these categories because many of the steps taken were required in the pursuit of both heads of relief. In short, there is a substantial degree of overlap. In those circumstances, he submits a broad-brush approach is required to achieve a realistic and robust apportionment of costs as between costs payable under cl 42(b) of the Five Owners’ Agreement and costs payable under the High Court Rules (HCR). He proposed what he described as a conservative methodology:
(a)identify the steps taken by the plaintiff’s legal advisors in recovering the sums sought in the prayer for relief in the statement of claim and quantify the professional fees incurred;
(b)quantify the amount payable under the Five Owners’ Agreement (i.e. the amount payable for infrastructure costs, for default interest, and provisionally for professional fees2);
(c)quantify the amount payable in damages plus interest;
(d)by reference to the figures derived in paragraphs (b) and (c) above, adopt the formula [ (푏푏) ], input the applicable figures, and then
(푏푏)+(푐푐)
express the resulting fraction as a percentage;
(e)discount the amount quantified in paragraph (a) by applying the percentage in paragraph (d) to arrive at the amount of professional expenses payable under clause 42(b) of the Five Owners’ Agreement;
(f)next, identify the steps and calculate the costs payable to determine costs under the HCR on Category 2 and Band B basis;
1 Northwest Developments Ltd v Zhang [2020] NZHC 1151.
2 The professional fees are provisional in the sense that the amount is the gross amount of fees incurred before applying the percentage discount explained in paragraphs (c), (d) and (e).
(g)discount the amount quantified in paragraph (f) by applying the formula [100% minus the percentage in paragraph (d)] to arrive at the amount of costs payable under the HCR.
[4]Applying that methodology:
(a) = $357,891 excluding GST;
(b) = $2,046,187.32 (including the provisional amount for professional fees in (a));
(c) = $1,413,609.81 (with interest to 12 June 2020);
(d) = 59 per cent;
(e) = $211,155.69 (the amount of professional expenses payable under cl 42(b) of the Five Owners’ Agreement;
(f) = $109,501; and
(g) = 41 per cent of $109,501 = $44,895.41 (costs payable under the HCR in respect of steps taken to require the defendants to pay damages for breach of contract).
[5] Thus, the plaintiff claims $256,051.10, that is $211,155.69 plus $44,895.41.
[6]The plaintiff also seeks disbursements of $25,963.80 excluding GST.
Defendants’ response
[7] Mr Burley, for the defendants, accepts that the plaintiff is entitled to solicitor and client costs pursuant to the Five Owners’ Agreement (in respect of the infrastructure claim) and scale costs for the balance of the proceedings. He also accepts that there are difficulties in attributing which steps applied to each head of claim, and that it is an almost impossible job to separate the two. While noting that an apportionment based on 59 per cent / 41 per cent is somewhat of a crude assessment,
it is accepted to be a reasonable percentage approach even though costs are not always incurred in direct proportion to the amount recovered.
[8] The defendants however dispute some aspects of the solicitor and client costs incurred:
(a)a number of claimed attendances relate to the third parties;
(b)increases in hourly rates are not accepted;
(c)time taken for some tasks is said to be excessive; and
(d)Mr Burley queries whether a fair and proper fee has been charged and suggests a costs revision.
[9] Mr Burley also submits that as the defendants admitted liability for the infrastructure costs on day one of the trial, the plaintiff should only be able to recover 59 per cent of actual costs up to and including the start of the trial. 41 per cent of scale costs should remain the same, but the entire trial time related to damages.
[10]Finally, Mr Burley also took issue with some items of scale costs.
[11] Mr Burley submits that “in the round” the appropriate order for costs should be $160,000.
Discussion
[12] Clause 42(b) of the Five Owners’ Agreement provides for payment of all “validly incurred professional expenses (including costs on a solicitor and client basis)” in respect of steps taken to require the defaulting party to pay, together with any associated reasonable costs. Ordinarily, indemnity costs are determined with reference to actual costs, but may be less if the Court considers the actual costs are unreasonably high. I do not consider the reference to “validly” rather than “reasonably” in clause 42(b) limits the Court’s role in relation to the reasonableness of the costs incurred.
[13] I also accept, as Mr Burley submitted, that the factors to be taken into account in determining the reasonableness of a fee include the factors set out in r 9.1 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008. However, I do not consider it is appropriate to refer the matter to the Law Society for an assessment of a fair and proper fee in all the circumstances. The Court of Appeal has stated that “[w]here there is a dispute as to reasonableness of indemnity costs, the trial court should make the decision as to the reasonableness of the costs claimed”.3
[14]As the Court of Appeal has also said:4
In such a case the Court must decide what tasks attract a costs indemnity on a proper construction of the contract, whether the task undertaken in the instant case was one of those contemplated in the contract, whether the steps taken were reasonably necessary in pursuance of that task, whether the rate at which they were then charged was reasonable having regard to the principles normally applicable to solicitor-client costs, and 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. These are all matters of objective assessment.
[15] Here, there is no dispute as to the scope of the indemnity, nor as to the robust apportionment methodology. The only apportionment issue concerns Mr Burley’s submission that the plaintiff should only be able to recover 59 per cent of actual costs up to and including the start of the trial because the defendants admitted liability for the infrastructure costs on day one of the trial. The defendants did admit liability for the infrastructure costs albeit I recorded that the indication on day one of trial was that the scope of admissions was to be finalised and that occurred later, in the defendants’ opening.5 More importantly, the admission was limited to the principal sum – contractual interest on that sum remained in dispute. Therefore, I do not consider that the plaintiff should only be able to recover the appropriate proportion of actual costs up to and including the start of the trial.
3 Edel Metals Group Ltd v Geier Ltd [2018] NZCA 494 at [64].
4 Frater Williams & Co Ltd v Australian Guarantee Corporation (NZ) Ltd (1994) 2 NZ ConvC 191,873 (CA) at 191,887. See also Watson & Son Ltd v Active Manuka Honey Association [2009] NZCA 595 at [20].
5 Northwest Developments Ltd v Zhang [2020] NZHC 1151 at [39] and [45].
[16] Turning to the disputed aspects of the plaintiff’s solicitor and client costs incurred, I convened a telephone conference and counsel helpfully addressed my remaining questions.
[17] Dealing first with the claimed attendances relating to the third parties (Sanli), Mr Burley identified that a small number of attendances specifically related to Sanli. Mr Burley may well be correct that other attendances also in part related to Sanli. As Mr Fisher submitted, there was no claim by the plaintiff against Sanli. The defendants resisted the plaintiff’s claim at least in part on the basis they had sold to Sanli, which raised an issue of equitable priority. The defendants’ position, and their third party claim against Sanli, meant that the claims were inextricably linked. Attendances related to Sanli were properly incurred in the proceeding, in which the plaintiff was seeking to enforce the Five Owners’ Agreement. But indemnity costs apply only to steps taken to require the defendants to pay the infrastructure costs. Rather than excluding specific items related to Sanli, it would be fairer to adjust the 59 / 41 per cent apportionment. In the circumstances, I consider the fairest way to reflect this is to reduce the solicitor and client costs proportion from 59 per cent to 50 per cent on the basis that approximately half the costs were likely incurred pursuing the infrastructure costs and interest.
[18] Mr Burley accepts the hourly rates as at May 2017 but not subsequent increases for Mr Fisher and Mr Ng. While their rates have increased significantly since May 2017, I do not consider they are unreasonable. In particular, it is common for the hourly rate of junior lawyers to increase with experience separately from inflation.
[19] Mr Burley referred to five instances of what he submitted was inordinate time for tasks:
(a)1.5 hours at $500 per hour to organise proceedings for service;
(b)seeking 11 and 12 hours on days of trial (Mr Burley refers to a charging convention that days in court should not see hours claimed exceed 10 hours);
(c)preparing for discovery and review of documents – junior barrister took 66 hours;
(d)53 hours by junior barrister for discovery plus 152 hours by law clerk; and
(e)38 hours for drafting opening submissions.
[20] In the absence of further information, it is not possible to make a detailed determination as to the reasonableness of each item. As the Court of Appeal also said, there must be room for robust judgment as to the costs considered reasonable in all the circumstances.6 Organising service was complicated by the application for interim injunction. It might have been delegated in part, but Mr Fisher explained that no time at all has been claimed for instructing solicitors for this item or otherwise. The $750 claimed is not excessive. In relation to discovery and other document review, this was a complex and hard-fought dispute. Given the extent of documentation included in the trial bundle, I expect discovery would have been a significant exercise. Mr Fisher explained approximately 2,500 documents were reviewed for the plaintiff’s discovery, with approximately 1,000 listed. The time also includes reviewing the documents of the defendants and Sanli. I do not consider the time was excessive. The apportionment adjustment addresses the Sanli component.
[21] Opening submissions for trial were comprehensive and helpful. Given the complexity of the matter (which only narrowed during trial), I do not consider the time spent by a junior preparing them was unreasonable – Mr Fisher would have spent more time otherwise. At trial, I am not surprised that counsel spent 11 or 12 hours per day and, if there was no such charging convention or arrangement between the plaintiff and its solicitors and counsel, I do not consider they are precluded from charging for actual time and attendance.
[22] Accordingly, the amount of professional expenses payable under cl 42(b) of the Five Owners’ Agreement is $178,945.50.7
6 Frater Williams & Co Ltd v Australian Guarantee Corp (NZ) Ltd (1994) 2 NZ ConvC 191,873 (CA) at 191,887.
7 50 per cent of $357,891 excluding GST.
[23]In relation to the disputed items of scale costs:
(a)Items 33 and 33B are not alternatives. Items 33 to 33B relate to preparation for a witness hearing whereas items 30 to 32 relate to preparation for an affidavit hearing.
(b)Item 24 relates to preparation of submissions for interlocutory hearings, not opening and closing submissions for trial. I agree with Mr Burley that the item 24 claims relating to submissions for trial, totalling
$7,170, should be excluded.
[24] Accordingly, the costs payable under the HCR in respect of steps taken to require the defendants to pay damages are $51,165.50.8
Result
[25]The plaintiff is entitled to costs of $230,111 plus disbursements of $25,963.80.
Gault J
8 50 per cent of ($109,501 – $7,170).
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3
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