Prasad v Parai

[2012] NZHC 3587

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-003530 [2012] NZHC 3587

UNDER  the District Courts Act 1947

IN THE MATTER OF     an appeal against the judgment of the

District Court at Manukau in CIV 2008-
092-2598 given on 24 May 2012

BETWEEN  DEO PRASAD Appellant

ANDPUKERUA PARAI, PI ELISAIA, FRANK RODNEY STOWERS,

CAREN JANE RANGI, LOUISA RYAN, TRUSTEES OF THE PACIFIC ISLAND HOMECARE SERVICES TRUST Respondents

Hearing:         20 December 2012 (On the Papers)

Appearances: M R T Colthart for the Appellant

A H J Commons for the Respondents

Judgment:      20 December 2012

JUDGMENT OF DUFFY J [Re Costs]

This judgment was delivered by Justice Duffy on 20 December 2012 at 4.00 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

PRASAD v PARAI and ORS HC AK CIV-2012-404-003530 [20 December 2012]

Background

[1]      The appellant, Mr Deo Prasad, was a trustee and employee of Pacific Island

Homecare Services Trust (the Trust) from 1995 until May 2010.

[2]      In the course of his employment, while still a trustee, the appellant entered into an agreement to purchase a property at Papatoetoe.  The deposit was met by a Trust cheque.  The property was then on-sold.  A net gain $47,410.50 accrued.  The appellant accounted to the Trust a profit of $500 and retained the balance for himself. The Trust sought for him to disgorge the remainder of the profit.

[3]      On 31 October 2012, I dismissed an appeal from the District Court that found the appellant liable to disgorge his profits.

Respondent’s submissions on costs

[4]      The respondents have drafted the following calculation of costs at a 2B scale:

Item  Particulars  Days      Amount

10.1

10.2

10.3

Attendance at teleconference on 24 September 2012

Preparation for appeal

Appearance at hearing

TOTAL

0.2

1

1

$     376.00

$   1,880.00

$   1,880.00

$   4,136.00

[5]      The scale also makes allowance for a claim for preparation of submissions.  I consider that costs for the preparation of written submissions should also be taken into account.  On a 2B scale, that would amount to three days (see sch 3, item 56 of the High Court Rules). This brings total scale costs to $9,776.00.

[6]      The respondents seek costs above the 2B scale because they submit that: (a) The appellant took arguments that lacked merit (r 14.6(3)(b)(ii));

(b)It was necessary for the respondents to participate in and oppose the appeal;

(c)       The appellant acted improperly in pursuing the appeal when the facts and the law indicated it had no merit (r 14.6(4)(a)); and

(d)The appellant was a trustee who owed but wilfully and dishonestly breached fiduciary duties.

[7]      The respondents submit that their actual costs were:

Item  Particulars  Amount

11.1

11.2

11.3

Part of 31 July 2012

30 September 2012

2 November 2012

TOTAL

$   1,000.00

$   3,904.25

$   5,393.25

$  10,297.50

Appellant’s submissions on costs

[8]      The  appellant  submits  that  it  is  not  clear  whether  the  respondents  seek increased costs or indemnity costs.   He says that it was inevitable that when an appeal is dismissed, the arguments advanced will be determined to lack merit, so that in itself does not mean increased costs should be awarded.   To the extent the respondents rely on r 14.6(3)(c), the appellant says that only applies where there are issues of public importance.  The appellant does not accept that it acted improperly in appealing the District Court decision as it was necessary to do so in order to clear the appellant’s name.   Finally, the appellant does not accept that his conduct was wilful or dishonest.

Relevant law

[9]      The relevant rule of the High Court Rules is r 14.6:

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).

(2)      The court may make the order at any stage of a proceeding and in relation to any step in it.

(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.

(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

(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.

[10]     Bradbury  v  Westpac  Banking  Corp  [2009] 3 NZLR 400 (CA) at [27]

discusses the difference between standard costs, increased costs and indemnity costs:

(a)       standard scale applies by default where cause is not shown to depart from it;

(b)      increased costs may be ordered where there is failure by the paying party to act reasonably; and

(c)       indemnity costs may be ordered where that party has behaved either badly or very unreasonably.

[11]     As the appellant noted, it is unclear whether the respondents are claiming increased costs or indemnity costs, I will consider both.

Increased costs

[12]     The correct approach to awarding increased costs was set out in Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [43]–[48]:

(a)       Categorise the proceeding under r 14.3;

(b)Work out a reasonable time for each step in the proceeding under r 14.5;

(c)       Where appropriate, the applicant should apply for extra time for a particular step under r 14.6(3)(a);

(d)Step back and look at the costs award the applicant could be entitled to at this point.  If the applicant considers it could argue for additional costs under r 14.6(3)(b), it should do so, but any increase above 50 per cent on the costs produced by steps 1 and 2 is unlikely.

[13]     According  to  Paper  Reclaim  Ltd  v  Aotearoa  International  Ltd  [2006]  3

NZLR  188  (CA)  at  [160],  when  determining  whether  a  party has  failed  to  act reasonably, this must be in relation to the proceeding.  Earlier conduct could never be relevant.  As stated in Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2010] NZCA 400 at [165], the Court should consider the extent to which the failure to act reasonably contributed to the time or expense of the proceeding and adjust costs to that extent only.

Indemnity costs

[14]     It is well-established that pursuit of a hopeless case may well justify an order for indemnity costs under r 14.6(4)(a): Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 401 (CA) at [29].

[15]     In Fletcher v Eden Refuge Trust [2012] NZCA 124, [2012] 2 NZLR 227, the

Court of Appeal stated at [91] that:

Once it was accepted, as Mr Wood did, that the High Court factual findings, which justified Mr Fletcher's liability for dishonest assistance, were not realistically open to challenge on appeal, the appeal was inevitably doomed to  fail.  Neither  of  the  grounds  raised  by  Mr  Wood  for  challenging  the High Court finding of liability for dishonest assistance was going to survive examination in this Court. Indeed, having heard Mr Wood's submissions on these   grounds,   it   was   unnecessary   for   us   to   call   on   counsel   for Mr MacDonald  and  the  Attorney-General  to  respond.  The  appeal  was therefore a hopeless one which warrants orders for indemnity costs against Mr Fletcher ...

[16]     Indemnity costs are calculated not from the costs rules, but by reference to actual costs.  In Bradbury at [209], the Court said:

In my judgment the appropriate course for assessing what actual costs were reasonably incurred is to (1) determine whether a particular item of expenditure is reasonably incurred – for example, preparation of a statement of defence; (2) fix what would be a reasonable allocation of actual costs, measured by reference to an appropriate time taken and allowing for the

significance and complexity of the category of work; and (3) quantify the costs by reference to a median hourly rate reasonably applicable to it.

Analysis

[17]     This case was not a contentious case where a difficult point of law was to be resolved on appeal.  It was merely challenging the trial Judge’s findings of fact.  At [19] of Prasad v Parai [2012] NZHC 2858, I said:

Mr Prasad has not pointed to any convincing evidence or legal argument that could lead me to conclude that the Judge’s factual findings were wrong. Nor can I see anything that would lead me to this view.

[18]     I also stated at [24] that:

My own view is that the inferences to be drawn from the most favourable view of the facts for Mr Prasad do not lead to a conclusion in his favour.

[19]     This is a classic example of an appeal that was doomed to fail because the trial Judge’s findings were not realistically open to challenge.  Further, even if the factual findings differed, Mr Prasad would still have been liable to repay the profit, especially given that he had agreed to disgorge the profits by contract, the validity of which was not realistically open to question.   So, this fits within r 14.6(3)(b)(ii), where the appellant has taken unnecessary steps that lack merit; indeed, the entire appeal could be characterised as an “unnecessary step”.

[20]     I therefore consider that the initiating of the appeal proceedings justifies an award of costs above scale.

[21]     Although the substantive facts involve breaches of trust and fiduciary duties, I do not think that there was such flagrant misconduct when it comes to the appeal itself that would warrant indemnity costs.  There was nothing exceptional about the appellant’s  conduct  beyond  the unnecessary nature of the appeal.    However,  as increased  costs  would  reach  the  amount  of  actual  costs,  there  is  no  material difference whether I award increased costs or indemnity costs.   I consider that the meritless basis of the appeal warrants something more than scale costs.  Given the narrow margin between scale costs and actual costs, I propose to increase the scale costs to the level of actual costs.

Result

[22]     The respondents are entitled to increased costs of $10,297.50 and reasonable disbursements, which are to be determined by the Registrar, if no agreement can be reached.

Duffy J

Counsel:     M R T Colthart P O Box 535 Shortland Street Auckland 1140 for the Appellant A  H  J  Commons  P  O  Box  1804  Shortland  Street Auckland  1140  for  the Respondents

Copies To:   Mike Lucas Law Firm (M A Lucas) P O Box 75144 Manurewa Manukau 2243 (DX EP76006)

Hornabrook   Macdonald   Lawyers   (A   G   Macdonald)   P   O   Box   91845

Victoria Street West Auckland 1142 (DX CP21015)