Prestige Motors Limited v My Trustee Company (Nikolas and Petra) Limited

[2021] NZHC 849

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-80

[2021] NZHC 849

IN THE MATTER

of Articles 9, 17A and 17B of Schedule 1 to the Arbitration Act 1996 and s 253 of the Property Law Act 2007

BETWEEN

PRESTIGE MOTORS LIMITED

Applicant

AND

MY TRUSTEE COMPANY (NIKOLAS AND PETRA) LIMITED

Respondent

Hearing:	On the papers
Appearances:	J Long and G Morrison for the Applicant D Purusram for the Respondent
Judgment:	21 April 2021

JUDGMENT OF GORDON J

[As to costs]

This judgment was delivered by me on 21 April 2021 at 3 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Solicitors:           DK Law, Auckland

Victorian Lawyers, Papakura, Auckland

Counsel:            G Morrison, Auckland

PRESTIGE MOTORS LTD v MY TRUSTEE CO LTD [2021] NZHC 849 [21 April 2021]

Introduction

[1]                 This is an application for costs by the applicant, Prestige Motors Limited (Prestige).

[2]                 In my judgment dated 22 February 2021, I granted Prestige’s application for urgent interim relief under the Arbitration Act 1996 in relation to its business premises (the premises).1 The application stemmed from the purported cancellation of the lease of the premises by the landlord, the respondent, My Trustee Company Limited (MTC).

[3]                 Prestige seeks increased or indemnity costs under rr 14.6(3) and 14.6(4) of the High Court Rules 2016 (HCR) as follows:

(a)Indemnity costs to be fixed by the Registrar; or

(b)Prestige’s costs on an increased basis, uplifted 50 per cent from 2B scale costs (calculated at $12,428.00), totalling $18,642.00; and

(c)In either case, disbursements of $1,362.27.

[4]MTC opposes any costs award and submits costs should lie where they fall.

Background

[5]                 Prestige brought an originating application for urgent interim measures and relief under arts 9, 17, 17A and 17B of Schedule 1 of the Arbitration Act, arguing that MTC unlawfully purported to terminate its lease with Prestige. Prestige sought orders from the Court to implement measures and relief to restore the status quo and ensure MTC did not take action likely to cause harm or prejudice to any future arbitration.

[6]                 MTC opposed the application. MTC argued that: the cancellation of the lease was valid in light of the circumstances because Prestige failed to comply with the rent covenant in the lease; Prestige caused the premises to become untenantable; and the lease was frustrated.

1      Prestige Motors Ltd v My Trustee Co Ltd [2021] NZHC 237 at [65].

[7]                 In my judgment, I found in favour of Prestige. I held Prestige satisfied the Arbitration Act test for relief: Prestige had an arguable case; would likely suffer harm not adequately remedied by an award of damages if the application was not granted; and the harm that would be suffered if the application was not granted, would outweigh the potential harm to MTC if the application was granted.2 My orders were subject to three conditions, namely: that Prestige cover the costs of inspecting and certifying the premises in respect of electrical works; that Prestige cover the costs of installing an alarm system; and the premises could not be used as a residence.3

Should costs lie where they fall?

[8]                 Prestige was successful in its claim for urgent interim measures and relief regarding the premises. Although I imposed three conditions in the interim relief orders based on matters raised by MTC, Prestige was the successful party. Therefore, Prestige is entitled to costs.4 Costs should not lie where they fall. The issue in this case is the quantum of costs.

Scale costs

[9]                 The costs awarded to a successful party are discretionary pursuant to r 14.1 of the HCR. The HCR provide guidance as to how the discretion might be exercised.5

[10]              Mr Long, for Prestige, submits Prestige is entitled to 2B costs. He sets out the time allocations in a table which I have reproduced and which is annexed to this judgment as “Table A”.

[11]              Mr Purusram, for MTC, accepts that if scale costs are to be awarded, they should be on a 2B basis. However he has prepared a different set of calculations in a table which I have also reproduced and which is annexed to this judgment as “Table B”. Mr Purusram opposes step 41 for the “preparation by applicant of bundle for hearing” in Mr Long’s table because it does not meet the 500-page requirement to

2      Prestige Motors Ltd v My Trustee Co, above n 1, at [50], [55] and [59].

3 At [66].

4      High Court Rules 2016, r 14.2(1)(a).

5      High Court Rules, rr 14.2-14.7.

create an electronic bundle according to the 2019 Practice Note. Mr Purusram adds that Prestige did not file a hard copy of the common bundle.6

Discussion

[12]              Instead of applying the allocations for originating applications, Mr Purusram’s table incorrectly applies the allocations for interlocutory applications. Prestige’s application for interim relief and measures was by way of an originating application. In addition, Mr Purusram’s table does not include some of the disbursements claimed by Prestige.

[13]              Prestige’s  table  for  standard  2B  costs  is  appropriate.  I  do  not  accept  Mr Purusram’s submission regarding step 41. The Practice Note he refers to relates to electronic casebooks and common bundles for trial under r 9.4 of the High Court Rules, not originating application hearing bundles. There is a specific provision for hearing bundles for originating applications, namely step 41.

[14]              I also accept that the process server, printing, copying, binding and USB costs and the courier fees disbursements were reasonably necessary for the conduct of the proceeding and are reasonable in amount.7

[15]              Prestige is entitled to scale costs on a 2B basis in the sum of $12,428.00 together with disbursements of $1,362.27, together totalling $13,790.27.

Indemnity costs

[16]              In claiming indemnity costs, Prestige, relies on rr 14.6(4)(a) and 14.6(4)(f) of the HCR. Rule 14.6 provides:

14.6     Increased costs and indemnity costs

(1)       Despite rules 14.2 to 14.5, the court may make an order—

…

6      2019 Practice Note: The Use of Electronic Common Bundles and Electronic Casebooks in the High Court; HCPN 2019/1 (civ and crim).

7      High Court Rules, r 14.12(2).

(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

(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.

[17]              The standard required to award indemnity costs is very high. Indemnity costs only are awarded in rare cases, commonly involving breaches of confidence or flagrant misconduct.8 Courts generally award indemnity costs when a party has behaved extremely badly.9 The Court of Appeal has outlined situations that could meet the very high threshold, including allegations of fraud despite knowing the claim is false, particular misconduct that causes loss of time to the court and to other parties and making allegations which ought never to have been made (i.e., a “hopeless case”).10 The onus is on the party seeking indemnity or increased costs to prove they should be awarded.11

[18]              Mr Long submits indemnity costs are warranted because MTC has acted vexatiously in defending the proceeding. He says it was pointed out to MTC at an early stage that it had not complied with the mandatory cancellation code in the Property Law Act 2007 (PLA). MTC responded with derogatory comments to Prestige’s lawyers. He points to other conduct by MTC during the dispute, including:

(a)threatening to tow Prestige’s customer’s cars and a number of other disputed facts (some of which occurred before and after the proceeding);

8      Prebble v Awatere Huata (No 2) [2005] NZSC 18, [2005] 2 NZLR 467 at [6].

9      Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [29].

10 At [29].

11     Prasad v Prasad [2016] NZHC 474 at [36]; citing Strachan v Denbigh Property Ltd HC Palmerston North CIV-2010-454-232, 3 June 2011 at [27].

(b)Prestige asking MTC about the legal basis of its arguments and receiving no response;

(c)MTC presenting submissions that were not focused on the legal test to be applied and making a new legal argument of frustration; and

(d)MTC alleging Prestige was involved in criminal activity without evidential foundation.

[19]              Mr Purusram submits a number of the claims in Mr Long’s submissions are still disputed. He submits the factual disputes should be left for determination during arbitration.

Discussion

[20]              I accept that some of the factual allegations referred to by Mr Long are disputed and should be left to arbitration, such as whether MTC threatened to tow Prestige’s customer’s cars off the premises. Further, some of the evidence Prestige relies on occurred before and after the proceeding, so I cannot consider it in the analysis.12 The general principle in costs is that an award should reflect the conduct of parties during the proceeding not before it.13

[21]              The opposition to the claim, while weak was not entirely “hopeless”. MTC’s conduct in advancing a case in opposition was not vexatious or exceptionally bad.

[22]              Similarly the frustration submission was not a “hopeless” one. Although the submission had little merit, it could still be made. It failed because the facts did not meet the test for frustration, rather than because it could be said that MTC intentionally ran the argument knowing it would not succeed.

[23]              MTC’s allegations in its evidence that Prestige had been involved in criminal conduct were irrelevant to the factual and legal issues that needed to be determined.

12 For example, correspondence between the parties from 15 January 2021 where Mr Penney of MTC allegedly used derogatory language when addressing Prestige’s lawyer in correspondence, which occurred before the originating application was filed on 28 January 2021.

13 Paper Reclaim Ltd v Aotearoa International Ltd [2006] 3 NZLR 188 (CA) at [160]

They therefore should not have been included in the evidence, for that reason alone. But making such an allegation which is irrelevant and has no bearing on the proceeding does not reach the high level for indemnity costs.

[24]I decline to award indemnity costs.

Increased costs

[25]              Mr Long submits that in the alternative, r 14.6(1)(a) of the HCR applies, specifically rr 14.6(3)(b)(ii) and 14.6(3)(b)(iii).

[26]              This Court may order increased costs under r 14.6(1)(a) of the HCR where one or more of the provisions in r 14.6(3) is satisfied. Rules 14.6(3)(b)(ii) and 14.6(3)(b)(iii) provide:

…

(3)The party opposing costs has contributed unnecessarily to the time or expense of the proceedings or step in it by—

(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.

[27]              As already noted, when deciding whether to grant increased costs, the Court generally will consider behaviour during litigation, not before it.14 This Court is required to consider the extent to which a failure to act reasonably contributed to the time or expense of the proceeding.15 That extent influences whether an uplift is justified.16

[28]              In NR v MR, the appellant appealed to the Court of Appeal after being told their claims were meritless in the High Court.17 The Court of Appeal characterised the

14     Paper Reclaim Ltd v Aotearoa International Ltd, above n 13, at [160].

15     Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2010] NZCA 400, (2010) 24 NZTC 24,500 at [165].

16 At [165].

17     NR v MR [2014] NZCA 623 at [51].

claims as “devoid of merit” and “unnecessary”.18 The Court uplifted costs by 50 per cent to reflect the unnecessary steps and arguments with a lack of merit.19

[29]              The Court of Appeal in Broadspectrum (New Zealand) Ltd v Nathan held that the appellant’s application for stay was “inherently unlikely to succeed” and thus warranted an award of increased costs of 50 per cent.20

[30]              In Jarden v Lumley General Insurance (NZ) Ltd  the High Court granted  a  25 per cent uplift for a “manifestly exaggerated” claim.21 Mr and Mrs Jarden’s expert could not support their position. Nevertheless, they continued to run the same argument without sufficient evidence on appeal.

[31]              Prestige relies on the same conduct as in [18] to support its claim for increased costs under rr 14.6(3)(b)(ii) and 14.6(3)(b)(iii).

[32]              Mr Purusram submits that MTC’s arguments had merit. In particular, he submits MTC was seriously concerned that Prestige had made the premises untenantable. He also adds that in the circumstances, it is unfair to subject MTC to an increased costs award.

Discussion

[33]              I said in my judgment that MTC made arguments in relation to the PLA that were “not focused on the legal test to be applied”.22 The legal arguments made by MTC in opposition to the application were weak but as I have said, they were not entirely hopeless. The frustration submissions, which were something of a late “add on” by MTC, had little merit. But they were a very minor part of the argument overall and did not add, in any significant way, to the length of the hearing.

18 At [51].

19 At [53].

20     Broadspectrum (New Zealand) Ltd v Nathan [2017] NZCA 434 at [58].

21     Jarden v Lumley General Insurance (NZ) Ltd [2016] NZHC 2820 at [30]; upheld on appeal in

Jarden v Lumley General Insurance (NZ) Ltd [2018] NZCA 6 at [20].

22     Prestige Motors Ltd v My Trustee Co, above n 1, at [14].

[34]              In a similar vein, while the reply affidavit for Prestige included a response denying any involvement in criminal activities, it was not an extensive part of the response.

[35]For the above reasons, I decline to grant an award of increased costs to Prestige.

Conclusion

[36]I award costs of $13,790.27 in favour of Prestige against MTC.

Gordon J

Table A (Claim by Prestige)

Step	Time Allocation	Amount (applying daily recovery rate of $2,390)
Filing application and supporting affidavits	2	$4,780
Case    management     –     memorandum     for mentions hearing (3 February 2021)	0.4	$956
Case management – appearance at mentions hearing (3 February 2021)	0.2	$478
Preparation of written submissions	1.5	$3,585
Preparation by applicant of bundle for hearing	0.6	$1,434
Appearance at hearing for sole counsel	0.5	$1,195
Total	5.2	$12,428

Disbursements	Amount (excluding GST)
Filing fee for originating application	$469.57
Sealing fee for orders	$43.48
Process server fee	$230.00
Printing, copying, binding and USB costs	$555.90
Courier fees	$63.32
Total	$1,362.27

Total costs and disbursements: $13,790.27

Table B (Reformulation of Prestige’s claim by MTC)

Step	Time Allocation	Amount
Filing interlocutory application23	0.6	$1,434.00
Preparation of written submissions24	1.5	$3,585.00
Appearance at hearing of defended application for sole counsel25	0.5	$1,195.00
Sealing order or judgment26	0.2	$478.00
Total	2.8	$6,692.00

Disbursements	Amount (excluding GST)
Application fee	$469.57
Sealing fee for orders	$43.48
Total	$513.05

Total costs and disbursements: $7,205.05

23     Item 22 to Schedule 3 of HCR.

24     Ibid, item 24.

25     Ibid, item 26.

26     Ibid, item 29.