Pure Elite Holdings Limited v PEH New Zealand Limited

[2019] NZHC 2982

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2016-419-000261

[2019] NZHC 2982

BETWEEN

PURE ELITE HOLDINGS LIMITED

First Plaintiff/First Counterclaim Defendant

PEH NEW ZEALAND LIMITED

Second Plaintiff/Second Counterclaim Defendant

EVER HEALTH NEW ZEALAND LIMITED

Third Plaintiff/Third Counterclaim Defendant

AND

BODCO LIMITED

First Defendant/Counterclaim Plaintiff

BRIAN NOEL WAGSTAFF
Second Defendant

/Contd…

Hearing:	On the papers
Judgment:	14 November 2019

JUDGMENT OF WYLIE J

[Costs]

This judgment was delivered by Justice Wylie On 14 November 2019 at 4.00 pm

Pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar

Date:…………………………

PURE ELITE HOLDINGS LTD v BODCO LTD [2019] NZHC 2982 [14 November 2019]

…/Contd…

RICHARD CHEW YOUNG
Third Defendant

RANDOLPH EDWARD CASIMIR VAN DER BURGH

Fourth Counterclaim Defendant

GEOFFREY IAN POLLARD
Fifth Counterclaim Defendant

Introduction

[1]    I refer to my substantive judgment dealing with liability dated 3 September 2019.1 I found that the plaintiffs were not entitled to retain the 51 shares in Danpac (NZ) Ltd (Danpac) which they had acquired from entities controlled by the second defendant, Mr Wagstaff, and the third defendant, Mr Young, or to a 51 per cent shareholding in Danpac, as from 24 December 2014.

[2]In the course of my judgment, I:

(a)declined relief to the plaintiffs in respect of the first two causes of action relied on by them (dealing with ss 87 and 90 of the Companies Act) and the fourth cause of action (dealing with s 174 of the Companies Act);

(b)dismissed the plaintiffs’ third, fifth, sixth and eighth causes of action (dealing respectively with conversion, breach of contract, breach of fiduciary duty and unlawful means conspiracy);

(c)dismissed the two affirmative defences raised by the first defendant, Bodco Ltd (Bodco) (breach of implied terms and breach of contract), and one of its two counterclaims (breach of contract);

(d)found that the other counterclaim brought by Bodco (breach of Fair Trading Act) was made out, but expressed the view that it was unlikely that it had suffered any quantifiable loss as a result;

(e)accepted one of the counterclaims raised by Messrs Wagstaff and Young (voluntary transfer of the shares in contemplation that the heads of agreement would be completed) and made a declaration that the plaintiffs had no right or entitlement to any of the shares in Danpac;

(f)did not find it necessary to go on to consider the other counterclaims raised by Messrs Wagstaff and Young and declined to do so.

1      Pure Elite Holdings Ltd v Bodco Ltd [2019] NZHC 2191.

[3]    I also held that the defendants were entitled to their reasonable costs and disbursements and invited the parties to file memoranda in this regard.

[4]    I have now received those memoranda. The parties have been unable to agree costs. Bodco now seeks increased costs of $173,182, together with disbursements of

$162,526. In the alternative, it seeks scale costs (calculated variously on a 2A, 2B and 2C basis) of $139,918, together with disbursements in the same sums. Messrs Wagstaff and Young seek costs of $121,486 (also calculated on a mixed basis), together with disbursements. Their total claim is $122,644.

[5]The plaintiffs (and the counterclaim defendants) have filed a lengthy reply.

[6]There are a number of issues which require resolution.

Discretion/partial success

[7]    As noted, in my substantive judgment I held that the defendants were entitled to their reasonable costs and disbursements.

[8]    Mr McDonald, for the plaintiffs and counterclaim defendants, seeks to persuade me that this was simply an observation, made in the context of a call for submissions, and against the backdrop that the plaintiffs had, in my judgment, and broadly, failed with respect to the proceeding. He argues that there was no single winner on all material causes of action in the proceeding, and that the significance of each “win or loss” needs separate judicial consideration before other costs principles are applied.

[9]    My finding regarding costs was not an observation made in passing. Nor was it a preliminary view. It was a considered finding, and it can only be reversed on an application for recall (and no such application has been filed) or on appeal.

[10]   In any event, I am not persuaded that my finding was in error. Relevantly, under r 14.1 of the High Court Rules, costs are at the discretion of the Court. That

discretion is not unfettered. It falls to be exercised in accordance with rr 14.2-14.10 and with the principles that underlie those rules.2

[11]   Rule 14.2(1)(a) provides that a party who fails with respect to a proceeding should pay costs to the party who succeeds and the starting point in any given costs application will be to determine which party or parties succeeded.

[12]   In the present case, the principle contest at trial was whether or not the plaintiffs were entitled to the 51 shares they had obtained in Danpac. Each of the causes of action raised by the plaintiffs was directed to that issue, and very substantial damages were claimed on the basis that the shares had been unlawfully taken back by Bodco and by Messrs Wagstaff and Young.  The defendants succeeded on this critical issue. I held that the Danpac heads of agreement was in material respects unenforceable, and that the joint venture between the parties did not entail fiduciary duties, such as to entitle the plaintiffs to relief. As noted, I made a declaration that the plaintiffs have no right or entitlement to any of the shares in Danpac. The defendants did not succeed on all of their counterclaims or, in the case of Bodco, on any of its affirmative defences. Nevertheless, I considered that the defendants were the successful parties and that the plaintiffs were, in all material respects, the unsuccessful parties.

[13]   Accordingly, and in accordance with r 14.2(1)(a), I held that the plaintiffs should pay costs to the defendants.

[14]   I have considered whether it is appropriate to reduce the defendants’ entitlement to costs by a percentage to accommodate the various findings I made. I am not persuaded that it is appropriate to do so. This was a trial where everything turned on the key issue – were the plaintiffs entitled to retain the shares in Danpac – and the consequences which flowed from its determination. I bear in mind the Court of Appeal’s observation that “success on more limited terms is still success”.3

2      Manukau Golf Club Inc v Shoyer Venture Ltd [2012] NZSC 109, [2013] NZLR 305 at [7] and [16]; Glaister v Amalgamated Dairies Ltd [2004] 2 NZLR 606 (CA) at [21]-[24]; Cunningham v Butterfield [2014] NZCA 213 [2014] 22 PRNZ 521 at [60].

3      Weaver v Auckland Council [2017] NZCA 330, (2017) 24 PRNZ 379 at [26]; Okey v Kingsbeer

[2019] NZCA 419.

[15]   I am mindful that my substantive judgment dealt only with liability. Where liability is determined separately, and in advance of quantum, a Judge can award costs following the liability trial, or alternatively, reserve them until after the quantum trial.

[16]   In the present case, I am satisfied that it is appropriate to award costs at this point. My reasoning is as follows.

(a)Bodco does not now seek to pursue its claim for an enquiry into damages in respect of the counterclaim on which it succeeded.

(b)The plaintiffs have appealed my liability judgment to the Court of Appeal. It is likely that the appeal will not be heard for some time. In my view, it is appropriate to deal with the costs following on from the liability hearing, so that the defendants are not held out of the costs they are entitled to pending the appeal.

(c)The Court of Appeal will be able to consider my costs judgment (assuming the same is appealed) at the same time as its deals with the appeal against my liability judgment.

(d)Subject of course to the outcome of the appeal, the damages claim by the plaintiffs cannot survive my liability judgment.

Liability for costs

[17]   The defendants seek costs not only against the plaintiffs, but also against Messrs van der Burgh and Pollard.

[18]   I am not persuaded that Messrs van der Burgh and Pollard should be jointly and severally liable together with the plaintiffs for all costs awarded.

[19]   Messrs van der Burgh and Pollard were two of the principals behind the plaintiffs. They were parties to the proceedings in their personal capacity only as a result of one of the counterclaims brought by Bodco. While I accepted that this counterclaim was made out, as noted above, I expressed the view that it was unlikely

that Bodco suffered any quantifiable loss as a result of representations made by Messrs van der Burgh and Pollard. Bodco has since accepted that view. The counterclaim was, in large part, an incidental issue, arising out of the factual scenario that formed the background for the main issue at trial. It did not add any complexity or time to the substantive proceedings, but rather fell out of them.

[20]   In my judgment it would be contrary to principle to hold that Messrs van der Burgh and Pollard should be jointly and severally liable for the plaintiffs’ costs. The request by the defendants in this regard seems to me to be an attempt to get behind the corporate veil.

[21]   I decline to make a costs award against Messrs van der Burgh and Pollard in their personal capacities.

The costs claimed

[22]   Both Bodco, and Messrs Wagstaff and Young, have attached to their respective costs submissions schedules and invoices, detailing the amounts claimed.

[23]   Under r 14.2, an award of costs should reflect the complexity and significance of the proceeding, and costs fall to be assessed by applying the appropriate daily recovery rate to the time considered reasonable for each step reasonably required in relation to the proceeding or interlocutory application. These matters are addressed in more detail in rr 14.3 to 14.5.

[24]   These proceedings were initially categorised as category 2B proceedings by Associate Judge Doogue, following a joint memorandum filed by the parties on 31 October 2016. The parties agree that category 2 is appropriate. It provides for proceedings of average complexity requiring counsel of skill or experience considered average in the High Court. Had I been asked to do so, I would have been prepared to revisit the categorisation, at least in part. I was not, so I refrain from recategorizing the proceedings for costs purposes.

[25]   In their respective schedules, Bodco and Messrs Wagstaff and Young apply band A to some steps taken, band B to most steps taken and band C to a limited number

of steps. Both claim band C for responding to the plaintiffs’ third amended statement of claim, and Bodco seeks costs calculated on a band C basis for inspecting some 1,180 documents discovered by the plaintiffs.

[26]   I agree that the defendants’ claim to 2C costs is appropriate for responding to the third amended statement of claim. The claim was lengthy and detailed. It ran to some 90 pages, with 275 paragraphs, numerous subparagraphs and additional appendices. It added some 75 pages to earlier statements of claim and four new causes of action. It was a substantial reformulation of the plaintiffs’ claims. I accept that responding to it would have been time consuming. Allowing costs on a 2C basis is, in my judgment, an accurate and reasonable reflection of the time which would have been required for considering the amended claims and filing the statements of defence.

[27]   I am not however persuaded that 2C costs are appropriate for inspecting the 1,180 documents discovered by the plaintiffs. As I understand it, these documents were an additional tranche of documents discovered by the plaintiffs. They were discovered in October 2018. There is no explanation as to why 2C costs are sought in regard to this item. The volume of documents disclosed does not seem to be excessive or unusual in a case of this kind. In my view, 2B costs only should be allowed for this item.

[28]   With one exception, Mr McDonald does not otherwise dispute the other items listed by Bodco and by Messrs Wagstaff and Young in their respective cost schedules.

[29]   The exception is that Mr McDonald maintains that Bodco and Messrs Wagstaff and Young are not entitled to multiple claims for discovery, as a consequence of the plaintiffs discharging their ongoing discovery obligations by discovering in tranches during the course of the proceeding.

[30]   I disagree. The rules allow a claim to be made for inspection – see item 21, sch 3 – and where inspection occurs in tranches because documents have been discovered in tranches, I can see no reason why a party entitled to costs should not be entitled to recover costs for each inspection undertaken.

[31]   Counsel were generally agreed as to the appropriate daily rate to apply. They were also agreed that the daily rates fixed in schedule 2 changed from 1 August 2019. Mr McDonald accepted that it is appropriate that Bodco and Messrs Wagstaff and Young should be entitled to recover at the increased rate as from that date. In some cases, work undertaken at or around that time may need to be apportioned. The parties should be capable of agreeing in this regard.

Second counsel

[32]   I agree with counsel for the defendants that this is an appropriate case for the certification of second counsel. There was a large bundle of documents and numerous and complex legal issues were at play. The hearing was lengthy. It was in part an electronic trial. Second (or in some cases third counsel) was required to operate the computer system.

[33]I certify for second counsel.

Separate representation

[34]   Rule 14.15 provides that the Court must not allow more than one set of costs, unless it appears to the Court that there is good reason to do so, if several defendants defend a proceeding separately and it appears to the Court that all or some of them could have joined in their defence. The aim of course is to minimise costs by shortening the hearing where a joint defence can reasonably be expected.

[35]   I have endeavoured to look at the matters in a realistic way, and to determine whether or not Bodco and Messrs Wagstaff and Young had common or overlapping interests, and if so, to what extent.

[36]   All of the plaintiffs’ claims were made against each of the defendants, and, at the relevant time, Bodco was owned and controlled by interests associated with     Mr Wagstaff and Mr Young. Both were its directors and controlling minds. I also note that all defendants were represented by the same counsel up until the defendants’ application for a defendant summary judgment was dismissed. At that point, the defendants’ then solicitors, advised the defendants that, as the matter was proceeding

to trial, the parties would need to be separately represented. As a result, Bodco instructed separate counsel and the second and third defendants jointly instructed counsel.

[37]   The claims made by the plaintiffs were serious. There were allegations of breach of fiduciary duties and conspiracy. Reputational issues were engaged, particularly for Messrs Wagstaff and Young. Moreover, the defendants had potentially divergent interests. There could have been cross claims between the defendants. The way in which the defendants conducted their respective defences also diverged. By way of example, Bodco admitted that it owed a fiduciary duty to act in good faith with respect to the transactions set out in the Danpac heads of agreement. Messrs Wagstaff and Young denied a joint venture and that they owed fiduciary duties to the plaintiffs. Messrs Wagstaff and Young did not bring any affirmative defences. Bodco did so. The counterclaims brought by the respective defendants did not overlap. The trial was conducted efficiently. There was no repetitive cross-examination on issues already covered by other counsel. There was no significant overlap in the submissions presented. Only one valuation expert was briefed for all defendants.

[38]   In the circumstances, I am not persuaded that the defendants could have joined in their respective defences of the plaintiffs’ claims. I consider that Bodco on the one hand and Messrs Wagstaff and Young on the other are each entitled to a costs award.

Increased costs

[39]Rule 14.6 provides for increased and indemnity costs.

[40]   Both Bodco and Messrs Wagstaff and Young seek increased costs relying on offers of settlement made during the course of the proceedings. They refer to r 14.6(3)(b)(v).

[41]Three settlement offers were made:

(a)On 21 September 2018, the defendants jointly made a settlement offer to the plaintiffs. That offer set out in some detail the basis for the offer. The defendants offered to settle the proceeding with no issue as to costs.

The plaintiffs responded on 26 October 2018. They declined the offer to settle on that basis. They did not make a counter offer.

(b)The parties then proceeded to mediation. The matter did not settle, but shortly thereafter, the defendants (again jointly) made an offer to settle the proceedings by paying $1 million to the plaintiffs. This settlement offer was rejected on 9 June 2019. The plaintiffs acknowledged the proposal and indicated that they remained open to reaching a solution.

(c)On 2 August, after the trial had been running for a week, the defendants made a further offer to settle the proceedings, by consenting to the plaintiffs’ discontinuing the same, with no issue as to costs. Again, this offer was rejected.

[42]   The defendants submit that the plaintiffs’ rejection of the settlement offers was unreasonable. The first offer was made after completion of discovery. They argue that the basis on which the first offer was made substantially aligned with my judgment, and they seek a 25 per cent uplift on costs incurred from that point onwards. They further say that the plaintiffs’ rejection of the second offer made on 7 June 2019 was unreasonable, because all parties then had a clear understanding of the merits of the case, and because the offer would have resulted in a substantially better outcome for the plaintiffs than was achieved at trial. They seek a 50 per cent uplift of costs from that point onwards. In the alternative, the defendants argue that it ought to have been apparent to the plaintiffs after the first week of trial (after the plaintiffs’ key evidence had been tested under cross-examination) that they had failed to establish the necessary factual basis to support their claims. It is argued that rejection of the offer then made was unreasonable. The defendants again submit that a 50 per cent uplift is also appropriate from that date onwards.

[43]   I do not consider that the plaintiffs’ rejection of the first offer made on 26 September 2018 was unreasonable. At that stage, discovery in large part had been completed but the proceedings were at a relatively early stage, and there were a number of matters still to be considered. I do however consider that the plaintiffs’ rejection of the offer made on 7 June 2019 to settle by a $1 million payment was

unreasonable. The plaintiffs’ claim was always speculative – they were seeking damages of some $270 million together with interest, having made a total investment of $51. There was a distinct air of unreality to the claim. In my judgment, it is appropriate to award an uplift of 25 per cent on costs incurred as from 7 June 2019, to recognise that the plaintiffs, without reasonable justification, failed to accept the offer of settlement made by the defendants on that date.

Disbursements

[44]   The only issue taken with the disbursements claimed relates to the experts’ fees. This disbursement is sought by Bodco.

[45]   Expert witnesses’ fees are disbursements  for the purposes of r 14.12  – see   rr 14.12(5) and (6).

[46]   Mr McDonald argued that expert fees should not be allowed at this stage, because the expert evidence obtained by the first defendant played no part in the liability hearing. He put it to me that the first defendant’s expert fees should fall only to be addressed after the quantum hearing. In the alternative, he argued that the amount claimed is excessive, unreasonable and disproportionate.

[47]   Given the findings set out in my liability judgment (and subject of course to the appeal), there will be no quantum hearing. In my view, it is appropriate to permit the defendants to recover their expert fees at this stage.

[48]   Bodco engaged a Mr Lowe from KPMG as an expert witness. Mr Lowe’s invoices are attached to the costs claim made by Bodco. They amount to $162,526.

[49]   I accept the argument for Bodco that the expert fees claimed in this case are reasonable:

(a)The plaintiffs’ claim was for some $270 million plus interest. The total claim came to well over $300 million. A claim of this kind clearly required careful and detailed expert analysis.

(b)As I understand it, the plaintiffs had used a discounted cashflow analysis in calculating the claim for damages. Such analysis is common in damages claims. The assumptions used in such analyses, and the various allowances made in reaching the end valuation, require careful review and expert comment.

(c)The defendants acted jointly in instructing only one valuation expert, thus avoiding duplication and unnecessary cost.

(d)There is no proper basis on which to criticise the fees charged by Mr Lowe. There is no evidence produced by the plaintiffs to support their contention that the fees were excessive or unreasonable. There is nothing in the invoices to justify that assertion.

(e)It is noteworthy that the plaintiffs agreed to additional security for costs to cover the experts’ anticipated fees.

[50]I allow Bodco’s claim to recover its experts’ fees.

[51]   One of Mr Lowe’s invoices included time spent in preparation for and attendance at mediation. Mr Lowe has identified the amount of time spent in this regard. Bodco does not seek to recover this sum. It has been allowed as a deduction in the schedule annexed to its costs memorandum. That is appropriate.

Security for costs

[52]   The plaintiffs paid security for costs into a solicitor’s trust account. The payments made were as follows:

(a)$50,000 for all defendants;

(b)$200,000 for Bodco’s costs; and

(c)$60,000 for Mr Wagstaff and Mr Young’s costs.

[53]   The first defendant has sought an order requiring the solicitors holding the monies to pay $250,000 into Bodco’s nominated bank account on account of the costs order. Mr Wagstaff and Mr Young consent to an order that the shared sum of $50,000 noted in [52](a) above be released to Bodco in partial reduction of any costs awarded in Bodco’s favour.

[54]   Accordingly, I make an order that $250,000 (together with accumulated interest) is to be paid by the solicitors holding the security for costs to such account as shall be nominated by Bodco. The balance of $60,000 (together with accumulated interest) paid as security for Mr Wagstaff’s and Mr Young’s benefit, as referred to in [52](c) above, is to be released to their solicitors, in partial reduction of the costs awarded to them.

Result

[55]   I award costs against the plaintiffs and in favour of both Bodco and Messrs Wagstaff and Young.

[56]   Some adjustment to the schedules produced by the defendants will be required. I anticipate that, with the benefit of this judgment, the parties will be able to reach agreement. If there is any ongoing dispute, the same is to be referred to the Registrar.

Wylie J

Solicitors/counsel:

A S Ross QC, T J Lindsay, E C R Offner, Auckland Norris Ward McKinnon/P J Morgan QC, Hamilton Tompkins Wake, Hamilton