Parkbrook Holdings Limited (in rec and in liq) v Gould HC Auckland CIV 2004-404-3957

[2007] NZHC 1739

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2004-404-3957

BETWEEN  PARKBROOK HOLDINGS LIMITED (IN RECEIVERSHIIP AND IN LIQUIDATION)

Second Plaintiff

AND  LESNAM HOLDINGS LIMITED Third Plaintiff

AND  FIFER RESIDENTIAL LIMITED Fourth Plaintiff

AND  KEVIN FRANCIS GOULD First Defendant

CP 118-IM/03

CIV 2003-404-442

AND BETWEEN             KEVIN FRANCIS GOULD Plaintiff

AND  PAUL GRAEME ALEXANDER First Defendant

AND  PAUL GRAEME ALEXANDER GRAEME ROBERT ANGUS AS TRUSTEES OF THE ALEXANDER FAMILY TRUST

Second Defendants

AND  MYRLE DAWN ALEXANDER AS TRUSTEE OF THE MD ALEXANDER FAMILY TRUST

Third Defendant

AND  COMPARK PROPERTIES LIMITED Fourth Defendant

PARKBROOK HOLDINGS LIMITED (IN RECEIVERSHIIP AND IN LIQUIDATION) AND ORS V KEVIN FRANCIS GOULD HC AK CIV 2004-404-3957  18 May 2007

AND  PROPRUIS HOLDINGS LIMITED Fifth Defendant

AND  MUZBAK CORPORATION LIMITED Sixth Defendant

AND  FIFER RESIDENTIAL LIMITED Seventh Defendant

AND  FLUFFY DUCK LIMITED Eighth Defendant

Hearing:         On the papers

Counsel:        RJ Latton for Plaintiffs in CIV 2004-404-3957 and Defendants in CIV

2003-404-442

AA Lusk QC for First Defendant in CIV 2004-404-3957 and Plaintiff in CIV 2003-404-442

Judgment:      18 May 2007 at 11.00 a.m.

JUDGMENT OF RODNEY HANSEN J As to costs

This judgment was delivered by me on 18 May 2007 at 11.00 a.m., pursuant to Rule 540(4) of the High Court Rules.

Registrar/Deputy Registrar

Date: ………………………….

Solicitors:           Lowndes Associates, P O Box 7311, Auckland for Plaintiffs

Dennis Graham, P O Box 99188, Newmarket for First Defendant

2

Introduction

[1]      The  plaintiffs  in  proceeding  CIV  2004-404-3957  sued  Kevin  Gould,  a barrister, and Denis Graham, a solicitor, for losses resulting from a residential development which ran into difficulties (the negligence proceeding).   They alleged that Messrs Gould and Graham acted negligently.   Messrs Gould and Graham, in turn, sued parties related to the plaintiffs for unpaid fees.

[2]      The claims against and by Mr Graham were settled.  Mr Gould discontinued his claim for fees shortly before trial and admitted liability to the plaintiffs part way through  the  trial.     The  hearing  was  completed  and  a  judgment  delivered  on

1 November 2006 in relation to quantum only.

[3]      I  am  now  asked  to  determine  the  costs  payable  by  Mr  Gould  in  the negligence proceeding and on the discontinued fees proceeding.

Negligence proceeding

Submissions

[4]      The plaintiffs seek an award of indemnity costs or increased costs.  Mr Latton submits that Mr Gould’s conduct in continuing to defend the proceeding until the third day of trial was frivolous and improper.  He points to the fact that Mr Gould had the witness statement of the plaintiff’s sole witness of fact four months before the trial and had ample opportunity to evaluate the merits of the claim before the hearing.  Instead, it is said, he left it until the defence case was underway (and he was giving evidence) before admitting liability.

[5]      The plaintiffs also complain that Mr Gould’s conduct significantly increased the  costs  of  the  proceeding.     His  initial  discovery  is  described  as  woefully inadequate; the plaintiffs were required to obtain orders requiring him to provide discovery in accordance with the Rules.  Then, the plaintiffs say, Mr Gould placed

obstacles in the way of their obtaining copies of documents causing delays and further costs and disbursements.

[6]      The  plaintiffs  complain  of deficiencies  in  Mr  Gould’s  witness  statement which they say significantly  increased their  costs of preparation.   They say the statement could not be read on its own.   It omitted important evidence.   Its inadequacies increased the time taken to prepare cross-examination and meant that much of Mr Gould’s evidence had to be led orally.

[7]      Mr Latton submits that the case for indemnity or increased costs is enhanced by Mr Gould’s position as a senior barrister who  acted for himself until shortly before the trial.  He submits that Mr Gould must have been aware of the significant additional costs he was causing.

[8]      For Mr Gould, Mr Lusk QC submits that Mr Gould’s role in the proceeding does not warrant an award of indemnity or increased costs.  He says that indemnity costs are reserved for rare cases, generally entailing breach of confidence or flagrant misconduct – Prebble v Awatere Huata (No 2) [2005] 2 NZLR 467 (SC). He rejects the claim that Mr Gould acted improperly or frivolously in not admitting liability at an earlier stage. He says the admission of liability came after hearing the plaintiffs’ principal witness give evidence and following an offer from the plaintiffs’ counsel as to the future conduct of the trial.

[9]      Mr Lusk also rejects the contention that Mr Gould’s decision to represent himself justifies indemnity costs.  He says there was nothing improper in Mr Gould’s acting for himself and, whatever the wisdom of his doing so, it was neither misconduct nor an exceptional circumstance warranting an award of indemnity costs.

[10]     Mr Lusk argues that any complaints made by the plaintiffs in relation to particular steps in the proceeding, if upheld, could appropriately be recognised by the time band allocated for that particular step in the proceeding.   If that proves to be inadequate, an order for increased costs can be considered.

Indemnity costs

[11]     Rule 48C(4)(a) permits an order for indemnity costs if a party has:

… acted vexatiously, frivolously, improperly, or unnecessarily in commencing,  continuing,  or  defending  a  proceeding  or  a  step  in  a proceeding …

The threshold to be met before an order for indemnity costs is made, however, a high one: Paper Reclaim v Aotearoa International Limited [2006] 3 NZLR 188; (2006)

11 TCLR 544 (CA).   Truly exceptional circumstances are required, as Goddard J

said in Hedley v Kiwi Cooperative Daries Limited (2002) 16 PRNZ 694 (HC) at [8].

[12]     I  am satisfied  the  required  threshold  has  not  been  reached.    There  was nothing in Mr Gould’s defence of the proceeding which could be characterised as improper or vexatious for the purpose of the Rules.  He was fully entitled to maintain his defence of the proceeding, at least until the plaintiffs’ case had been completed. It is not improper for a defendant to put a plaintiff to proof, even in a relatively straightforward case.   Mr Gould could not be criticised for testing the plaintiffs’ evidence before electing to admit liability.

[13]    Mr Gould’s decision to represent himself until just before trial is not a circumstance which should count against him for the purpose of costs.  His conduct of the proceeding should be judged by the same standards as a represented litigant.

Increased costs

[14]     The application for increased costs must be considered in accordance with Holdfast NZ Limited v Selleys Pty Limited (2005) 17 PRNZ 897 (CA).   The Court laid down the following principles:

a) The correct way to approach an award of increased costs is not to award a percentage of actual costs but to first establish the scale and award an uplift if the time provided by the scale is inadequate: [40] – [42].

b)	The first step accordingly is to categorise the proceeding in terms of r 48 and then to determine the appropriate time band for each step in
the proceeding: [43].
c)	If the party liable for costs had contributed unreasonably to the time or expense of the proceeding or step in the proceeding, and the time required  exceeds  the  amount  provided  under  band  C,  the  normal
response will be to provide for an uplift on scale costs: [43] – [45].
d)	It will be unusual for such an uplift to exceed 50%: [46] – [48].
[15]	The	plaintiffs  seek  increased  costs  to  take  account  of  the  additional

attendances arising out of inadequate discovery by Mr  Gould.    His original list simply listed his files rather than identifying their contents.  I am informed that this was done because the plaintiffs had previously been given access to the files.  The list was, however, non-compliant and an application for further discovery required. However, on the making of an order for a compliant list of documents to be filed and served,  Abbott  AJ  directed that  Mr  Gould  pay costs on  a  2B  basis.    I  accept Mr Lusk’s submission that, costs having been fixed for that step in the proceeding, the plaintiffs cannot seek an order for an increased amount.

[16]     It is not disputed that the inspection and copying of Mr Gould’s documents was a protracted and difficult business.  It was necessary for the defendants to hire a mobile copier so that documents could be copied at Mr Gould’s chambers.   There appears to have been good reason for this.  If Mr Gould had carried out the task it would have taken three days and  involved significant  disruption to  his practice. When the matter was considered by the Faire AJ, he recognised that there were practical issues involved and declined to make an order to enable the parties to find a solution.   Having said that, it is clear that the exercise was time-consuming and should probably be categorised as  band  C.    However, I  am not  persuaded that Mr Gould contributed unnecessarily to the cost of the exercise and no order for increased costs is warranted.

[17]     I accept that Mr Gould’s brief of evidence left much to be desired and would have increased the costs of preparation for the reasons advanced by Mr Latton.  That cannot be compensated for by the allocation of time band C as the same formula – twice the time occupied by the hearing – applies to all time bands.   I consider an uplift  to  be  justified  because  the  deficiencies  in  Mr  Gould’s  brief  will  have contributed unreasonably to the costs of preparation and also because, in terms of r 48C(3)(a),  the  preparation  time  would  have  substantially  exceeded  the  time allocated under  band  C.    The  plaintiffs  prepared  for  a  hearing  on  liability  and quantum.  If it had run its course, and liability had not been admitted when it was, the hearing would have taken longer and the time allowance for preparation would have increased accordingly.   The additional time needed to complete the defence case and for closing submissions on liability, in my estimation, would have been 1-2 days.   All things considered, I conclude that an uplift of 40% on scale costs for preparation is warranted.

Scale costs for other steps

[18]     The plaintiffs ask for scale costs to be determined on a band C basis for the following additional steps in the proceeding:

a)        Commencement of claim (item 1 Schedule 3). b)      List of documents (item 4.5).

c)        Production of documents (item 4.6).

d)       Filing and serving memoranda (item 4.10). e)           Conferences (item 4.11).

[19]     I accept that discovery by the plaintiffs would have been time-consuming and costly, as I understand Mr Lusk to accept, and I categorise that step (item 4.5) as band C.  I have already accepted ([16] above) that inspection (item 4.7) should also be categorised as band C.   Otherwise, I do not see justification for departing from

band B.  I do not think the pleading was of sufficient complexity to warrant a band C categorisation and I do not understand the time involved in the preparation of memoranda and attendance at conferences to have been out of the ordinary.

Discount

[20]     Mr Lusk submits that there should be a discount in scale costs for steps 1-8 in Schedule 3 to take account of the plaintiffs discontinuance of their claim against Mr Graham shortly before the trial began.  He says there is no reason for Mr Gould to  be  lumbered  with  all  of  the  costs  incurred  when  Mr  Graham  was  actively defending the proceeding.   He accepts that Mr Gould was the primary target and submits that a deduction of one-third would appropriately recognise costs incurred in relation to a defendant against whom the plaintiffs elected to discontinue.

[21]     I am persuaded  by Mr  Latton’s response that  no  reduction  is warranted. Messrs Gould and Graham were sued jointly and severally and by r 50 would have been jointly and severally liable for costs unless ordered otherwise.   Furthermore, there is nothing to show that Mr Graham’s joinder added significantly to the cost of the proceeding.   Indeed, costs overall would have been reduced by the settlement with him.  It will have reduced the duration of the hearing and, to a lesser extent, the costs of preparation.   Mr Gould’s exposure to costs is correspondingly (and sufficiently in my view) reduced as a result.

Disbursements

[22]     The plaintiffs claim disbursements of $29,148.88 for the negligence claim. Mr Gould accepts liability for expert witnesses’ fees totalling $12,863.80 and Court fees of $12,600.   I make orders for the payment of those disbursements.   If the parties are unable to agree on remaining disbursements, they must seek a ruling from the Registrar.

Fees proceeding

Submissions

[23]     In the fees proceeding Mr  Gould sought  recovery of fees totalling  some

$200,000  for  services  rendered  in  relation  to  the  residential  development.    He claimed that the defendants, all of whom were associated with the plaintiffs in the negligence proceeding, were liable for each other’s fees and those of the plaintiff, Parkbrook Holdings Limited (In Receivership and In Liquidation), under an implied term of an oral contract.  Mr Gould applied unsuccessfully for summary judgment. The claim was then to be heard at the same time as the negligence proceeding but was discontinued at 9.00 a.m. on the morning of the trial.

[24]     The defendants claim indemnity costs on the basis that Mr Gould had known since affidavits in opposition to the summary judgment application were filed that his claim faced formidable obstacles.  Again, it is submitted that as an experienced legal practitioner he would have been aware of the difficulties he faced and of the additional costs to the defendant and disruption and inconvenience to the Court that would result from his late discontinuance.  He is said to have acted frivolously and improperly in continuing the proceedings.

[25]     In the alternative, counsel submits the defendants were entitled to an award of increased costs as Mr Gould had contributed unnecessarily to the time or expense of the proceeding.  It is submitted that his failure to discontinue at an early stage was in itself sufficient to justify an award.  Included in the additional costs which arose as a result of the late discontinuance was preparation of an agreed bundle of documents amounting to five volumes.

[26]     In opposing an order for indemnity costs, Mr Lusk submits that Mr Gould’s late discontinuance could not be categorised as so exceptional or unreasonable as to warrant an award.  His position as an experienced barrister is again submitted to be irrelevant.  The claim for increased costs is also resisted.  Mr Lusk submits that any

step in the proceeding which involved a comparatively large amount of time would be sufficiently covered by an award based on time Band C.

Discussion

[27]     The  case  for  indemnity  costs  is  no  more  convincing  than  it  was  in  the negligence claim.   A late discontinuance without more, whatever the strength or weakness of the claim, cannot amount to misconduct for the purpose of r 48C(4)(a). Mr Gould’s role as an experienced practitioner who was an advocate in his own cause is not an aggravating factor.

[28]     I do not think there is cause to categorise any step in the proceeding as band C.   As Mr Lusk submitted, this was a straightforward claim for fees.   The pleadings were simple.   The evidence was of narrow compass.   The defendant’s affidavit in opposition to the application for summary judgment was eight pages long.  Mr Gould’s brief of evidence for the trial was five pages.  Band B provides a generous allowance (four days in total) for preparation of evidence for the hearing, including the common bundle.  There were additional costs incurred in discovery but these have been allowed under the negligence claim.

[29]     In my view, the only justification for an order for increased costs is that there is no allowance for preparation under item 8 of Schedule 3 as the case did not proceed  to  a  hearing.     As  discontinuance  was  too  late  to  save  the  costs  of preparation, I consider it reasonable to allow a further two days or $2,900.   That assumes, in the defendant’s favour, that the fees claim would have added a further day to the hearing.

[30]     Disbursements of $645.71 are claimed.   The total sum is not accepted.   As with the negligence claim, I leave any disputed expenses to be determined by the Registrar.

Result

[31]     In the negligence claim, Mr Gould must pay costs on a category 2 band B basis except for items 4.5 and 4.7 (list of documents and inspection of documents) which are categorised as 2C.   Scale costs of preparation (item 8) are increased by

40%. Mr Gould is to pay expert witnesses’ fees of $12,863.80 and Court fees of

$12,600.  Any additional disbursements are to be fixed by the Registrar.

[32]     In the fees claim, Mr Gould must pay costs on a category 2 band B basis and is entitled to increased costs of $2,900 for preparation.   Disbursements are to be fixed by the Registrar.