Spark New Zealand Trading Limited v Victory I.T Limited (in liquidation)

[2020] NZHC 1957

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-2875

[2020] NZHC 1957

BETWEEN

SPARK NEW ZEALAND TRADING LIMITED
Applicant

AND

SPUD CONSULTING LIMITED

First Respondent

AND

MARK LESTER

Second Respondent

CIV-2018-404-2876

BETWEEN

SPARK NEW ZEALAND TRADING LIMITED
Applicant

AND

VICTORY I.T LIMITED (IN LIQUIDATION)

First Respondent

AND

SEAN DAVID BRYAN

Second Respondent

Hearing:

5 August 2020

Appearances:

Z G Kennedy and Y J Lee for the applicant S M Kilian for the 2875 parties

B M Stainton and L M Tawse for the 2876 parties

Date of judgment:

6 August 2020

JUDGMENT OF JAGOSE J

This judgment was delivered by me on 6 August 2020 at 12.00pm.

Pursuant to Rule 11.5 of the High Court Rules.

………………………… Registrar/Deputy Registrar

SPARK NEW ZEALAND TRADING LIMITED v SPUD CONSULTING LIMITED NO 2 [2020] NZHC 1957

[6 August 2020]

[1]                  My 13 March 2020 judgment, reissued 25 June 2020,1 required the respondents promptly to comply with this Court’s prior discovery orders,2 made to assist in the taking of evidence in arbitrations between the applicant (“Spark”) and the respondents (“Spud” and “Victory”) respectively.3 The arbitrations resume hearing(s) next month.

[2] I adjourned Spark’s claims also for fines and costs against Spud and Victory arising out of that non-compliance for subsequent determination. Subject to what I say at [13] below, this is that determination. It requires to be read in conjunction with my earlier judgment. As I made plain then, Spud’s and Victory’s approaches to discovery in this Court were “unwarranted”.4

[3]                  Spud’s and Victory’s approaches since have not been much better. Palmer J’s 5 August 2019 effectively default costs order against Spud remains outstanding (but Shane Kilian said for Spud it will be paid within a few days). Spud’s discoverable bank account records only were provided for inspection in recent days. For Spark, and with the exception of recently identified  invoices  between  Spud  and  Victory,  Zane Kennedy accepted Spud’s discovery now is complete.5 Spud’s recent affidavits remain unsworn in reliance on its director’s contended inability to have their oaths administered in Australia’s Victoria, affected by measures to manage COVID-19’s presence in that community. Victory’s director claims comprehensive loss of company documents during his self-reported but otherwise unevidenced ill-health. Victory now belatedly claims disproportionality in some 400 invoices already ordered discoverable, to discover instead a “sample” and to provide also a copy of a contended summary of the whole. But no application is made to vary the discovery orders,6 or my enforcement

1      Spark New Zealand Trading Ltd v Spud Consulting Ltd [2020] NZHC 515.

2      Spark New Zealand Trading Ltd v Victory I.T CIV-2018-404-2786, and Spark New Zealand Trading Ltd v Spud Consulting Ltd CIV-2018-404-2785, minute, 6 June 2019.

3      Arbitration Act 1996, Sch 1, art 27.

4      Spark New Zealand Trading Ltd v Spud Consulting Ltd, above n 1, at [5].

5      Mr Killian advised he had “confirmed there were no other accounts held by Mr Lester, and Mr Lester himself has now clarified this position”. Mr Lester’s unsworn affidavit confirms “the bank accounts listed in my previous affidavit are the only accounts I was using when in New Zealand”. Those were bank accounts in the name of Spud Consulting Pty Limited, which statements belatedly now have been disclosed. After the hearing, Mr Kennedy filed a memorandum attaching extracts from those statements illustrating payments to “Mark Lester” or “Mark and Karen Lester” during the discovery period, some seemingly disbursing payments from Victory between Spud and Mr Lester. I cannot tell directly from the statements if they establish Mr Lester or Spud has other accounts, but the sums are such as make it implausible the statements there record cash payments. I address the consequences of that uncertainty at footnote 10 and [13] below.

6      High Court Rules 2016, r 8.17.

order, which therefore stand  for  Spud’s  (and  Mr  Lester’s)  and  Victory’s  (and  Mr Bryan’s) performance.

[4]                  The respondents cannot rely on their continuing discovery obligation to excuse prior deficiencies. Rule 8.18 of the High Court Rules 2016 makes it plain the “continuing obligation to give discovery and offer inspection” persists beyond initial compliance with the discovery orders, which neither Spud nor Victory had (or have yet wholly) achieved. Neither can they rely on Spark’s conditional acceptance of their incomplete discovery, which was made without visibility of their additional discoverable documents. In any event, compliant discovery remains the discoverer’s obligation;7 inter-party cooperation and agreement is dispositive only of process.8

[5]                  Although the respondents poorly comprehended their discovery obligations, and their contended reasons for failures otherwise to comply are spurious or otherwise inadequately are evidenced, there remains room for reasonable doubt the respondents knowingly failed without reasonable excuse to comply with the orders.9 Thus, although by a relatively narrow margin, I am not prepared yet to hold the respondents in contempt. There accordingly is no foundation for any fines liability.10

[6]                  I turn to Spark’s applications for costs. For the respondents’ same comprehensions and contentions as to discovery, I also am not prepared yet to hold they are to be taken to have “ignored or disobeyed” this Court’s orders so as to justify indemnity costs.11 That is because their discovery conduct is not quite at the requisite level of impropriety – “rare cases generally entailing breach of confidence or flagrant

7      High Court Rules 2016, rr 8.13–8.16.

8      Rule 8.2(1).

9      As now codified in the Contempt of Court Act 2019, s 16(3)(b). Compare Siemer v Stiassny [2008] 1 NZLR 150 (CA) at [11].

10    For present purposes, I leave aside Mr Kennedy’s recent discovery of Spud’s record of payments to Mr Lester. Given the seriousness of the allegation, I am not prepared to take it as evidence of Mr Lester’s contempt or misconduct without his having an opportunity to respond. But, on its face, Mr Lester’s most recent affidavit risks being found an attempt to obtain judgment in his and Spud’s favour by conscious and deliberate dishonesty; by fraud: Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd [2012] NZSC 94, [2013] 1 NZLR 804 at [29]. I reserve leave to Spark to continue to press its contempt and indemnity costs application on such new evidence (together with that already filed) as it contends to meet the tests I have outlined at [5] and [6].

11 High Court Rules 2016, r 14.6(4)(b).

misconduct”, of “very unreasonable” conduct”12 – although coming perilously close, especially by their continued non-compliance.

[7]                  I have considered if the respondents’ failure to abide by the arbitrator’s discovery orders – without “prospects of defence”,13 or grounds for resistance on the part of Spud,14 or engagement at all by Victory15 – offered “some other reason” to justify indemnity costs “despite the principle that the determination of costs should be predictable and expeditious”.16  But  my  discretion  relates  to  this  proceeding.17  My determination of costs on the present application is not to prevent the arbitrator, on any costs application before him, from concluding Spark may recover the balance of its expenses in this proceeding (including on the present application) as indemnity costs in the arbitration, for example, if incurred in the wake of the respondents ignoring or disobeying his discovery orders to the requisite standard. On the present applications, I only can consider costs of, or incidental to, or of steps in the present proceedings.

[8]                  There can be no argument the respondents have contributed unnecessarily to the time and expense of these proceedings by failing, without reasonable justification, to comply with this Court’s orders, justifying increased costs.18 Such unnecessary contribution logically must be of steps not otherwise required to be taken in the proceedings, or materially in excess of the scale time allowed for each such step to the party claiming costs, such being how costs usually are calculated.19

12 Prebble v Awatere Huata (No 2) [2005] NZSC 18; 2 NZLR 467 at [6]; Bradbury v Westpac  Banking Corporation [2009] NZCA 234; [2009] 3 NZLR 400 at [6] and [28]; Flujo Holdings Pty Ltd v Merisant Company Inc [2018] NZCA 226 at [34]–[35].

13 Spark New Zealand Trading Ltd v Spud Consulting Ltd CIV-2018-404-2785, and Spark New Zealand Trading Ltd v Victory I.T CIV-2018-404-2786, minute, 14 February 2019.

14 Spark New Zealand Trading Ltd, above n 2, at [2].
15 At [4].
16 High Court Rules 2016, r 14.6(4)(f).

17 Rules 14.1 and 14.2.

18 High Court Rules 2016, r 14.6(3)(b)(i) and/or (iv) and/or (d). HCR 14.6(3)(b)(i) inferentially must exclude those matters specified in subpara (iv), for which “reasonable justification” may afford a ground for resistance.

19 High Court Rules 2016, r 14.2(1)(c); see both r 14.6(3)(a) and Holdfast NZ Ltd v Selleys Pty Ltd

(2005) 17 PRNZ 897 (CA) at [43]–[44].

[9]                  Spark bears the burden of establishing such qualification:20 “[c]lear cause must be shown to justify an increase”.21 It has established to my satisfaction the entirety of these proceedings, including on the present applications, has been brought about by the respondents’ failures to comply with, first, the arbitrator’s discovery orders. It all was not required. And that remains the case on the present applications through their failures to comply with Brewer J’s, Toogood J’s, or Palmer J’s discovery and costs orders, or my enforcement order.

[10]              By ‘increased costs’ is meant an uplift from scale, the Court of Appeal accepting the uplift “logically” should not be more than 50 per cent.22 Given my ‘entirety’ point in the previous paragraph, that is the uplift I will apply to the costs to which Spark is entitled on this application.

[11]              For Victory, Lydia Tawse argues for refusal of, or reduction in, costs on account of Victory’s set-off “success” on the application,23 established by my refusal to set aside the respondents’ claims to confidentiality. That is not a justifiable characterisation of my judgment, which expressly identified the real issue then before me was “if the restrictions proposed to protect that claimed confidentiality are warranted”,24 and determined that solidly in Spark’s favour.25

[12]              I mean no disrespect in saying this proceeding appears only “of average complexity requiring counsel of skill and experience considered average in the High Court”.26 However, I do not know what time allocations here are claimed on the present application for what steps. From my observation of the Court file, a comparatively small amount of time is unlikely to be considered reasonable for any of them; and a comparatively large amount of time may be considered reasonable for some of them.27 None seems likely substantially to exceed the time allocated under

20     Corrick v Silich [2018] NZCA 221, (2018) 24 PRNZ 210 at [60].

21     Bradbury v Westpac Banking Corp, above n 12, at [28].

22     Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [46]–[48].

23     High Court Rules 2016, r 14.7.

24     Spark New Zealand Trading Ltd v Spud Consulting Ltd, above n 1, at [4].

25 At [5].

26     High Court Rules 2016, r 14.3(1).

27     Rule 14.5(2).

band C.28 Those particularly appear the case in respect of Spark’s steps taken on the present applications. I would allow also for second counsel.

[13]              If Spark seeks to take up my reservation of leave to it,29 this judgment serves only as an interim result. Nonetheless, compliance remains required with all extant orders. Otherwise Spark should file and serve a single-page table – setting out any contended allowable steps, time allocation, and daily recovery rate – to finalise my award of costs. I will not entertain any response seeking to revisit anything I have decided in this or my prior judgment. Given those decisions, parties may be able to agree the table’s content.

[14]              I therefore direct Spark to file and serve such documents as it elects within five working days of the date of this judgment, with any response and reply to be filed within two working day intervals after service.

—Jagose J

Counsel/Solicitors:

Z G Kennedy Barrister, Auckland MinterEllisonRuddWatts, Auckland Kilian & Associates, Auckland

Stainton Chellew, Auckland

28     Rule 14.6(3)(a).

29     At n 10 above.