The Vintage Aviator Limited v DeMarco
[2022] NZHC 334
•3 March 2022
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2017-485-001027
[2022] NZHC 334
BETWEEN THE VINTAGE AVIATOR LIMITED
First Plaintiff
PETER ROBERT JACKSON FRANCES ROSEMARY WALSH and
PHILIPPA JANE BOYENS (as trustees of Film Property Trust)
Second PlaintiffAND
EUGENE JOHN DEMARCO including as trustee of the Airtight Trust (bankrupt)
First Defendant
THE OLD STICK & RUDDER CO LIMITED (IN LIQ)
Second Defendant
Hearing: On the papers Appearances:
T Smith, B Scott and J Henderson for the Plaintiffs
G Neil and M L Hindriksen (for the Official Assignee) for the First and Second Defendants
Judgment:
3 March 2022
JUDGMENT OF GRICE J
(Costs)
THE VINTAGE AVIATOR LIMITED v DEMARCO [2022] NZHC 334 [3 March 2022]
Contents
Introduction[1]
Background[7]
Procedural background[17]
The substantive decisions[22]
Positions on costs [33]
Costs principles[43]
Analysis[55]
Increased costs claimed by plaintiff[59]
The defendant’s claim for costs[73]
Conclusion [81]
Introduction
[1] The first plaintiff, The Vintage Aviator Ltd (TVAL), applies for costs following its success in obtaining judgment on a number of causes of action against the defendants.1
[2] The claims arose from commercial arrangements entered into between the plaintiffs and Mr DeMarco, who was also an employee of TVAL. Mr DeMarco was the director and shareholder of the second defendant, The Old Stick & Rudder Co Ltd (in liquidation) (OSRC).
[3] Just before the matter went to trial Mr DeMarco was adjudicated bankrupt and OSRC went into liquidation. Mr DeMarco was adjudicated bankrupt on 14 July 2021 on an unrelated matter.2 The adjudication in bankruptcy was unsuccessfully appealed.3
[4] The Official Assignee as administrator of the estate of Mr DeMarco and the liquidator of OSRC stepped in to run the present proceeding to its conclusion. The liquidator/Official Assignee however was not substituted personally.4 Therefore the costs are sought between the original parties to the proceedings.
[5] Until the bankruptcy/liquidation the defendants were represented by Mr Fraser. Subsequently the Official Assignee instructed Mr Neil to appear to argue the matters in dispute for the defendants.
[6] The proceeding arose from the actions of Mr DeMarco and his company, the second defendant, outside the employment relationship. Sir Peter Jackson, a director of the first plaintiff and a trustee of the second plaintiff, knew Mr DeMarco as a talented aviator and dealer in replica aircraft and aircraft parts. Mr DeMarco was appointed as production manager of TVAL. However, Mr DeMarco embarked on a course of conduct which involved selling some of TVAL’s aircraft and secretly taking
1 The Vintage Aviator Ltd v DeMarco [2021] NZHC 3096 [the substantive judgment].
2 Anderson v Demarco [2021] NZHC 1757.
3 DeMarco v Anderson [2021] NZCA 476.
4 References to the Official Assignee in the bankruptcy of Mr DeMarco include in his capacity as liquidator of ORSC.
the proceeds of sale as well as a number of other transactions undertaken to the benefit of the defendants in breach of their obligations to the first plaintiff.
Background
[7]The background is set out in the substantive judgment as follows.5
[8] Mr DeMarco, a United States citizen resident in New Zealand, was employed for many years as the production manager of TVAL, a company established by Sir Peter Jackson and Dame Fran Walsh to restore and to manufacture reproductions and replicas of World War I aircraft. Mr DeMarco was given a large degree of autonomy by his employer.
[9] Mr DeMarco sold three of his employer’s aircraft, retaining the proceeds of sale. As a result, Mr DeMarco was convicted on charges of theft by a person in a special relationship following a jury trial in the High Court at Wellington on 5 December 2019.6 Mr DeMarco received a sentence of two years and five months’ imprisonment.7
[10] The plaintiffs initially filed proceedings relying on the factual matters which had given rise to the convictions. Subsequently, having obtained the records of investigation from the Serious Fraud Office (SFO), further claims were pleaded. The further claims in general relate to the sale by Mr DeMarco of TVAL’s property, including aircraft parts and other items, and failure to account to TVAL for the proceeds of sale. He also used the first plaintiff’s property for gain without its authority and exposed TVAL to liability, without authority and against its express instructions.
[11] Mr DeMarco was also charged in relation to his sale of an aircraft (the P-40)8 to Mr Wulff. The dealings that Mr DeMarco had with Mr Wulff concerning the P-40
5 The substantive judgment, above n 1, at [28]–[42].
6 R v DeMarco [2019] NZHC 3209. Mr DeMarco was, in the same trial, convicted on other charges of obtaining by deception involving a sale of an aircraft to Mr Wulff.
7 At [51].
8 A Curtiss P-40E Kittyhawk aircraft with nationality and registration mark combination ZK-RMH and serial number 41-25158.
also involved a Corsair vintage aircraft. These aircraft were subject to security charges in favour of the second plaintiff, the Film Property Trust (the FPT), a trust associated with Sir Peter Jackson and Dame Fran Walsh.
[12] Mr Wulff also brought civil proceedings, which were to be heard at the same time as the present claims. However, due to Mr DeMarco’s adjudication in bankruptcy and the liquidation of the second defendant immediately before this trial was due to commence, the proceedings involving Mr Wulff were dealt with separately.9
[13] Mr Wulff obtained judgment by way of formal proof against the defendants and was awarded costs on a 2B basis.10 The Official Assignee following his appointment in July 2021 negotiated with Mr Wulff, resulting in no contest on behalf of the defendants on the claims brought by Mr Wulff.
[14] As a result of the involvement of the Official Assignee, the conduct of this proceeding became more focused. Mr Neil for the Official Assignee was able to proceed and focused his arguments on the claims to charge the Corsair aircraft which was owned by one or other of the defendants. To establish a charge was important following the insolvency of the defendants because the effect would be to take that property out of the defendants’ bankrupt/liquidated estate and so diminish the amount available for distribution to the other creditors.
[15] Before the involvement of the Official Assignee, Mr DeMarco’s defence had been scattergun and he had raised a number of defences, which were largely unsuccessful.
[16] The defences raised by the Official Assignee in his submissions were successful. These related to defeating the third claim (for tracing) and limiting the ambit of the fourth claim (for subrogation).
9 Wulff v DeMarco HC Te Whanganui-a-Tara | Wellington CIV-2018-485-417.
10 Wulff v DeMarco [2021] NZHC 3353.
Procedural background
[17] The defendants were debarred from defending this action in June 2021. The debarring order was made due to the defendants’ failure to provide adequate discovery and subsequent non-compliance with an order to do so.11 There had also been a number of other interlocutory applications, including a successful application striking out the defendants’ counterclaim and parts of the statement of defence.12
[18] On the day of Mr DeMarco’s adjudication, an application by the defendants to stay the proceedings pending the appeals against the debarring order had been heard and the decision reserved.13 In the course of oral argument on that matter, Mr DeMarco had also sought a stay pending the determination of appeals against his convictions (which had been filed out of time) and against orders striking out Mr DeMarco’s counterclaim and parts of the statement of defence. All applications were dismissed.14
[19] Leave was granted to continue the proceedings following the bankruptcy of Mr DeMarco.15 The second defendant was put into liquidation on 27 July 2021 and the Official Assignee as liquidator agreed to the continuation of the causes of action against the company.16
[20] The proceeding had initially been set down for a four-week trial, with the Wulff proceedings to run at the same time. This was subsequently shortened to a three-week trial due to commence on 12 July 2021. In view of the application for leave to appeal the debarring judgment, the matter did not commence on that date. The bankruptcy and liquidation of the defendants then overtook matters.
[21] The plaintiffs’ evidence was filed in affidavit form with the witnesses available by audio visual link if required for further questions. The hearing consisted of legal
11 The Vintage Aviator Ltd v DeMarco [2021] NZHC 1476 (the debarring judgment).
12 The Vintage Aviator Ltd v DeMarco [2021] NZHC 847 (the strike out judgment).
13 The debarring judgment, above n 11.
14 The Vintage Aviator Ltd v DeMarco [2021] NZHC 2467 (the leave to appeal and stay judgment).
15 The Vintage Aviator Ltd v DeMarco [2021] NZHC 1911, as provided under s 76(2) of the Insolvency Act 2006.
16 Pursuant to s 248(1)(c) of the Companies Act 1993.
argument on tracing and subrogation. The balance of TVAL’s claims were dealt with by way of formal proof.
The substantive decisions
[22] This proceeding was heard separately to the Wulff claims, which were heard on 10 August 2021.17
[23] The first plaintiff18, TVAL, largely succeeded in its money claims.19 It obtained judgment on the first and second causes of action, which were claims based on the defendants’ sale of TVAL’s aircraft and their keeping the proceeds. That judgment sum together with interest and other amounts relating to the first and second causes of action totalled just under $1 million.20
[24] The fifth to seventh and ninth to 18th causes of action related to allegations of other commercial transactions that the defendants had wrongfully undertaken at the expense of the plaintiffs.
[25] The Official Assignee did not oppose the plaintiff’s claims on these causes of action. Mr Neil for the defendants was granted leave to withdraw for the part of the hearing that dealt with those causes of action. All claims had been contested by the defendants before the bankruptcy/liquidation. The defendants’ lawyer at that time had filed submissions in relation to the claims which I referred to in the course of my judgment.
[26] The 11th cause of action, which was a claim for a secret commission, did not succeed. Two claims had been abandoned. The total judgment on those remaining causes of action amounted to approximately $1.7 million dollars. The submissions on those took just under a half day of hearing time.
17 Wulff v DeMarco [2021] NZHC 3110.
18 Where I refer to “plaintiff” (singular) I am referring to the First Plaintiff.
19 The substantive judgment, above n 1.
20 At [491].
[27] The balance of the hearing time, just over a day and a half, was largely devoted to the arguments on the third and fourth causes of action. The defendants were successful in their arguments on those issues.
[28] One cause of action by the second plaintiff had been abandoned.21 The third cause of action, the only claim ultimately pursued by the second plaintiff, was unsuccessful. That was a claim for tracing. I outlined the third cause of action and dismissed it as follows:
[127] The third cause of action is a claim by the FPT. It says it received the repayment money funds subject to the prior equitable interest of TVAL and so the loan to the FPT has not been repaid. TVAL can therefore recover those funds from the FPT. This would leave the FPT loan unpaid and allow it to have recourse to its Specific Security Deed and term loan to enforce the terms of those against Mr DeMarco/OSRC. It could therefore regain the security over the Corsair for all amounts outstanding under the terms of the loan.
[128] In summary, the FPT’s argument is that $720,000 of the funds paid to the FPT are held by it subject to a constructive trust for TVAL. These funds can be traced by TVAL into the funds paid to the FPT and TVAL is entitled to recover those funds as it has a proprietary interest in those funds. That proprietary interest takes priority over the legal interest in the funds acquired by the FPT on the repayment of the loan.
[129] The Official Assignees takes a different view. He says he accepts there was a constructive trust over the $720,000 in the hands of Mr DeMarco/OSRC. However, he says once that $720,000 was paid to the FPT and accepted by it in repayment of the loan, the security was discharged. The funds cannot be traced into a debt repayment. The Official Assignee points to the general rule that tracing a proprietary interest ends when the funds are used to pay a debt.
…
[169] In summary the FPT lent money on commercial terms to Mr DeMarco/OSRC.22 That loan was repaid to the FPT trust account held by its lawyer. The lawyer then paid the money on to the FPT by depositing it into its bank account. The subsequent use of the money in the bank account was not the subject of evidence. The trust account records for the repayment transaction were produced. The debt was a liability of the ATT and repaid on behalf of that trust by Mr DeMarco who was also a personal guarantor and/or OSRC. The liability to the FPT has now ceased to exist and there is nothing to trace into.
[170]The third cause of action (tracing) fails.
21 The 12th cause of action.
22 Although the loan was initially advanced to Airtight Trust.
[29] The fourth cause of action was a claim by TVAL to be subrogated to a loan agreement which the FPT had earlier entered with Mr DeMarco granting security over the aircraft to which TVAL sought to be subrogated. The loan security was discharged following repayment of the loan to the FPT with the defendants funding the repayment to the extent of $720,000 the ill-gotten sale proceeds of TVAL property.
[30] Mr Neil acknowledged that TVAL was entitled to subrogate to the FPT loan but disagreed it should be on the exact terms of the FPT security or that it could charge any more than the sum of $720,000.
[31] The defendants’ argument succeeded and I ordered an equitable charge over the Corsair in favour of TVAL as a result of subrogation for the amount of $720,000, which represented the TVAL money which had been used to discharge Mr DeMarco’s obligations to FPT earlier secured over the Corsair.23
[32] The value of the Corsair was estimated to be in the region of $2,700,000 (in a 2015 valuation).24
Positions on costs
[33] TVAL was the successful plaintiff overall. The FPT, the second plaintiff, did not succeed in the only claim it pursued, the third cause of action (tracing) described above.
[34]The costs items sought by the plaintiff include:
(a)Scale costs on a 2B basis together with disbursements.
(b)Specified steps to be classified as Band C for the purpose of determining a reasonable time under r 14.5 of the High Court Rules on the grounds that a comparatively large amount of time for the particular step was reasonable. These steps are:
23 The substantive judgment, above n 1, at [221].
24 At [53].
(i)The commencement of the proceeding by the plaintiff.
(ii)Item 20, which is the list of documents on discovery.
The plaintiff says the breadth of issues before the Court in the proceeding covering some 18 causes of action justified a further time allocation. Some of the claims required considerable investigation and preparation. Similarly, discovery was extensive and amounted to the plaintiffs discovering 3,357 documents.
(c)Preparation for three weeks’ trial, being the time for which it was originally set down. Nine briefs of evidence were prepared and filed by the plaintiffs, totalling 167 pages. The briefs then required conversion into affidavit form following the successful debarring application, for which additional time is sought.
(d)Certification of second counsel in relation to the interlocutory judgments, being: strike out and summary judgment (4 March 2021); request for directions allowing matter to proceed by way of formal proof — enforcement of unless order (15 June 2021); defendants’ application for leave to appeal stay (14 July 2021); plaintiffs’ application for leave to continue proceeding under s 76(2) of the Insolvency Act 2006 (15 July 2021); and the formal proof hearing (29– 30 July 2021.)
(e)Increased costs due to the defendants contributing unnecessarily to the time or expense of the proceedings.25
(f)Increased costs for failure to accept reasonable offer of settlement. A Calderbank offer was made on 13 May 2021.
(g)Indemnity costs due to the defendants acting vexatiously, frivolously, improperly or unnecessarily in commencing, continuing or defending a
25 High Court Rules 2016, r 14.6(3)(b).
proceeding or a step in a proceeding as well as ignoring or disobeying an order or a direction of the Court.26
[35] The plaintiff also seeks costs on the interpleader proceeding but these are to be pursued separately.
[36] As for the disbursements, expert witness fees for two witnesses are sought. These are to Beattie Varley Ltd, forensic accountants, in the sum of $21,800, and for Tony Ditheridge, a valuation expert, in the sum of $8,582.41. No objection as to the level of these disbursements is raised on behalf of the defendants.
[37] The plaintiff supplied with the memorandum on costs a copy of a “without prejudice save as to costs” settlement letter dated 13 May 2021. The settlement proposed was made to settle both the Wulff claim and the present proceeding. The plaintiff also supplied a time printout which it says is a record of the time incurred in responding to meritless pleading. The dollar cost of time recorded on that printout is
$63,411.43.
[38] Mr Neil for the defendants acknowledges that TVAL is overall the successful party and an award of costs in its favour would be consistent with r 14.2(1)(a) of the High Court Rules 2016, which provides that a party who fails with respect to a proceeding or an interlocutory application should pay costs to the party who succeeds, as a matter of general principle.
[39] However, Mr Neil points out that the second plaintiff was wholly unsuccessful. It had advanced the third cause of action, which was dismissed, and the 12th cause of action, which was withdrawn before trial.27 Therefore, the defendants make a costs claim against the second plaintiffs. The Official Assignee also submits that some credit by way of reduction in the costs awarded to TVAL should be made as the defendants were successful in all aspects on the causes of action that were contested at the formal proof hearing. The defendants were put to significant cost in doing so. Mr Neil submits that the costs were unnecessarily incurred and the matter should not
26 Rule 14.6(4)(a).
27 The substantive judgment, above n 1, at [24].
have been pursued by the plaintiff in light of the defendants pointing out the correct position, which was the same as that pursued before the Court.
[40] The Official Assignee seeks an uplift on scale costs in the costs claim against the second plaintiffs on the basis the third cause of action was misconceived and against the long-established precedent that one cannot trace through the repayment of a debt. He said this was communicated to the second plaintiffs on 26 July 2021 and it was unreasonable for them to pursue the claim in those circumstances. An uplift of 50 per cent on scale costs is claimed.
[41] Mr Neil for the defendants indicated that on the face of the information from the plaintiff, the formulation of the costs sought by TVAL presented as reasonable. However, he said he was not involved in the proceeding until just before the hearing and therefore he was not able to verify all attendances claimed nor provide the defendants’ perspective on their failures to comply with procedural steps or communications with the plaintiffs.
[42] The plaintiff replies to those submissions by saying that the Official Assignee personally has not been substituted — it is the original defendants who are the parties to the costs application. The plaintiff also says that given their joint representation the Court should not be required to separately consider costs against individual plaintiffs and defendants but is entitled to make such an award as is necessary to do justice to the parties in its discretion. For that reason, the plaintiffs did not seek a separate costs award against the second defendant. The plaintiffs also reject the claim that they were unreasonable in rejecting the Official Assignee’s arguments by pursing the third cause of action and a subrogation claim for a more extensive and substantially larger amount than the $720,000 charge by way of subrogation conceded over the Corsair.
Costs principles
[43] The general principles applying to the determination of costs are set out in the High Court Rules. Rule 14.2 provides as relevant:
14.2Principles applying to determination of costs
(1)The following general principles apply to the determination of costs:
(a) the party who fails with respect to a proceeding or an interlocutory application should pay costs to the party who succeeds:
(b) an award of costs should reflect the complexity and significance of the proceeding:
(c) costs should 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:
(d) an appropriate daily recovery rate should normally be two-thirds of the daily rate considered reasonable in relation to the proceeding or interlocutory application:
(e) what is an appropriate daily recovery rate and what is a reasonable time should not depend on the skill or experience of the solicitor or counsel involved or on the time actually spent by the solicitor or counsel involved or on the costs actually incurred by the party claiming costs:
(f) an award of costs should not exceed the costs incurred by the party claiming costs:
(g) so far as possible the determination of costs should be predictable and expeditious.
…
[44] Proceedings must be placed into one of three categories. The present proceedings are in category 2. This is for proceedings of average complexity requiring counsel of skill and experience considered average in the High Court.28
[45] An allowance for second and subsequent counsel may be allowed under sch 3 of the High Court Rules.29
[46] The determination of reasonable time is also set out in sch 3 to the Rules. Band B is appropriate for a step for which it is considered reasonable to take a normal amount of time.30 Band C is appropriate if a comparatively large amount of time for the particular step is considered reasonable.31
28 High Court Rules, r 14.3(1).
29 Item 27.
30 Rule 14.5(2)(b).
31 Rule 14.5(2)(c).
[47] Increased costs and indemnity costs claims are to be considered under r 14.6. This provides:
14.6Increased 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) …
(d) …
(e) …
(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.
[48] Rule 14.7 deals with the refusal of or reduction in costs insofar as relevant as follows:
14.7Refusal of, or reduction in, costs
… the court may refuse to make an order for costs or may reduce the costs otherwise payable under those rules if—
(a) …
(b) …
(c) …
(d) although the party claiming costs has succeeded overall, that party has failed in relation to a cause of action or issue which significantly increased the costs of the party opposing costs; or
(e) …
(f) the party claiming 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 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, or documents, or accept a legal argument; or
(iv)…
(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
(g) some other reason exists which justifies the court refusing costs or reducing costs despite the principle that the determination of costs should be predictable and expeditious.
[49] Additionally, relevant to this matter a written offer made “without prejudice except as to costs” may have an effect on the question of costs at the discretion of the Court. Generally Party A is entitled to costs on the steps taken in the proceedings after an offer is made if Party A makes an offer that would have been more beneficial to Party B than the judgment obtained by Party B against Party A.32
[50] Costs on interlocutory applications are usually awarded at the time of hearing of the interlocutory application, as the merits of a particular application and those of the substantive proceeding are different matters.33
[51] In this case it appears that the costs were not awarded in relation to all of the earlier interlocutory applications. The various applications immediately before trial were heard by me; however, earlier applications were heard by Johnston AJ. The plaintiff has sought that all costs be determined by me. In the circumstances, given the substantial involvement I have had in relation to the management of this matter to trial and the interlocutory applications immediately preceding the hearing which required consideration of the earlier interlocutory decisions, as well as the lack of availability of the Associate Judge to consider the costs in a timely manner due other commitments, it is appropriate I determine them.34
[52] While the Court retains a discretion as to costs, that discretion should normally be exercised in accordance with the principles set out in the Rules.35 If there is a departure from the costs regime set out in the Rules some articulation of the reason for
32 Rule 14.11(3)(b).
33 Andrew Beck and others McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR14.8.04].
34 Rule 14.9 of the High Court Rules provides costs may be determined by a Judge other than the one who heard the matter to which the costs relate, if he or she is not available conveniently to make the determination.
35 Mansfield Drycleaners Ltd v Quinny’s Drycleaning (Dentice Drycleaning Upper Hutt) Ltd (2002) 16 PRNZ 662 at [27].
doing so is expected; otherwise, the award will be exposed to close appellate scrutiny.36
[53] Because the regime and the rules are designed to provide a predictable and efficient method of determining costs, the Court of Appeal has noted that it is not routine for the Judge dealing with costs to be required to “unpick what happened” in the proceeding in detail.37 That is also the reason for the provision of standardised costs schedules.
[54] In making an assessment of the appropriate costs award, particularly in a case such as this, a balancing exercise taking into account all the circumstances must be undertaken.
Analysis
[55] This case is unusual in that the approach taken by the defendants from the date of the filing of the proceeding until 15 July 2021(when the Official Assignee took over the conduct of the proceeding) was entirely different to that which followed. As I have mentioned earlier, the issues became more focused once the Official Assignee took over. This in part may be attributable to the fact that the insolvency of the defendants meant claims to changes over property became more important to both parties.
[56] I first deal with the plaintiffs’ application. I accept it is appropriate to deal with the claims of the first and second plaintiff as one for the purposes of the TVAL costs as the plaintiffs have been represented by the same counsel and the claims run together. However, the award I make is in favour of the first plaintiff only.
[57] The fact that Mr Wulff’s proceeding was to be heard in tandem does not lead to any difficulty, as the evidence on his claims was separate.
[58]I deal with the plaintiff’s claims in general as follows:
36 At [27].
37 Weaver v Auckland Council [2017] NZCA 330, (2017) 24 PRNZ 379 at [24].
(a)Costs on a 2B basis: this is an appropriate starting point. I award costs on a 2B basis generally together with the disbursements as claimed.
(b)As to the commencement of proceeding by plaintiff and item 20, the list of documents on discovery: I accept TVAL’s argument that it is reasonable to allocate time on a Band C basis due to the breadth of issues in the proceedings. This included 18 causes of action. Causes of action one to four involved the same factual background based on the misappropriation of aircraft from TVAL by the defendants. The preparation required was evident from the pleadings themselves, the submissions and the evidence. The amount of investigatory work necessary was also apparent. Discovery was also an unusually extended and significant process. The plaintiffs said it involved 3,357 documents. A Band C allowance is appropriate for both of those steps.
(c)For leave to appeal to the Court of Appeal of the debarring judgment and the defendants’ application for stay of proceedings, costs have already been awarded on a 2B basis together with a certificate for second counsel in favour of the plaintiffs.38
(d)In relation to the strike out application, the Associate Judge noted that he had not heard from counsel so reserved costs.39 He noted that if counsel were unable to resolve costs memoranda should be filed in the usual way. That judgment was delivered on 21 April 2021. I award 2B costs on that matter.
(e)In the debarring judgment delivered on 21 June 2021 the Associate Judge noted that he had not heard from counsel in relation to costs so reserved them. His preliminary view was that the applicants were entitled to their costs on a 2B basis and directed the filing of
38 The leave to appeal and stay judgment, above n 14, at [107].
39 The strike out judgment, above n 12, at [140].
memoranda if costs could not be resolved.40 In relation to this matter I consider an uplift is appropriate and refer to that below.
(f)The plaintiff also seeks costs for the preparation of evidence as if the matter was a three-week witness hearing, as it was set down for that period. The briefs of evidence included nine briefs totalling 167 pages which were directed to be filed and served, before the matter was converted to a formal proof hearing following the debarring judgment delivered on 21 June 2021. The trial had been set down to commence on 12 July 2021. In light of the fact that the plaintiff was required to prepare the briefs of evidence for the three-week hearing and to subsequently convert those briefs to affidavits for the formal proof hearing, costs are allowed for the preparation of evidence for a three-week witness hearing as sought. A further amount of $1,195.00 for the conversion of briefs of evidence into affidavits, being the equivalent of a half day calculated at the daily rate, is also allowed.
(g)The plaintiff also seeks an allowance for second counsel for the interlocutory hearings and the formal proof hearing on 29–30 July 2021. Second counsel was necessary in this case to manage the documents and assist senior counsel in the court room during the hearings. In particular this involved locating documents efficiently and following up on requests from the Court to obtain further information or calculations where were provided in a timely manner. A certificate for second counsel is allowed as sought.
Increased costs claimed by plaintiff
[59] Increased costs are sought by the plaintiff on two grounds. The first relates to the conduct of the defendants up until bankruptcy/liquidation. The allegation is that the DeMarco interests failed to comply with the High Court Rules or directions of the Court, took unnecessary steps and made arguments that lacked merit, and without
40 The debarring judgment, above n 11, at [45].
reasonable justification failed to comply with an order for discovery. The second ground relates to an offer of settlement made by the plaintiffs and Mr Wulff.
[60] In relation to the first ground (non-compliance with rules) the issues relating to conduct of the defence by the DeMarco interests have been set out in earlier interlocutory judgments. In particular, the debarring judgment indicates that Mr DeMarco took a cavalier approach to discovery and court directions, which led to delays and created significant difficulties for the plaintiffs in the conduct of the proceedings.
[61] The defendants are the subject of a debarring order because of their failures in discovery. There were other failures that the plaintiffs point to as compounding the non-compliance, including:
(a)the five-month delay in filing a statement of defence;
(b)a six-month delay in attempting to provide discovery;
(c)filing discovery affidavits which did not comply with the High Court Rules and failed to discharge the defendants’ discovery obligations.
[62] The debarring judgment relates to the non-compliance by the defendants in relation to discovery.41 It was the significant nature of the non-compliance in the face of time allowed to comply that would justify an order for increased costs under r 14.6(3)(b). The DeMarco interests contributed unnecessarily to the time or expense of the proceeding or steps in the proceedings not only in discovery but as outlined above.
[63] The failure to comply was addressed by the debarring order insofar as it related to the further conduct of the proceeding. The debarring order meant the proceeding did not run the full three weeks that otherwise would have been the case and also ensured no further delays were encountered due to the defendants’ failure to disclose. However, in addition, I consider a costs uplift is appropriate to recognise the
41 At [17]–[35].
intentional and consistent failures to comply. The higher end of the range for such an increase is generally taken as in the vicinity of 50 per cent. I do not consider this case justifies such a high uplift. However, the defendants’ behaviour deviated from what is expected of a litigant in these circumstances. I allow a 10 per cent uplift on the 2B costs on the debarring application.
[64] In addition, increased costs are sought due to the failure to accept a reasonable offer of settlement. On 13 May 2021, the parties in the TVAL and the Wulff proceedings made a joint offer to settle without prejudice to save as to costs. While the offer was a joint offer on behalf of the plaintiffs in two proceedings, not just these proceedings, on the face of the letter the settlement would have been highly advantageous to Mr DeMarco. In essence it would have:
(a)Resolved Mr DeMarco’s indebtedness to a judgment debtor for
$323,441 (the Anderson debt), which would have resulted in Mr DeMarco not being declared bankrupt as a result of non-payment of that debt.
(b)Given Mr DeMarco a further material monetary sum from the plaintiffs ($183,000 in total from both sets of plaintiffs).
(c)Transferred the Corsair to TVAL when the Corsair was otherwise going to be the subject of a forced sale by FPT or the Official Assignee. In addition, there was likely only going to be a small number of potential buyers, due in part to a heritage order on the aircraft meaning it must stay in New Zealand.
[65] At the time of the making of that offer it was advantageous to the plaintiffs. Subsequent events, including Mr DeMarco’s bankruptcy, mean the Corsair transfer ultimately might have been more beneficial to TVAL.
[66] Overall the value of the proposal to the plaintiffs, taking the Corsair at the 2015 valuation of $2,700,000, means the proposal in May 2021 amounted to an offer to pay Mr DeMarco approximately $500,000 (between Mr Wulff and the plaintiffs, meaning
half of that or approximately $250,000 was attributable to the plaintiffs) in exchange for a Corsair aircraft valued 6 years ago at $2,700,000. That is likely to be a low valuation of the aircraft for present purposes given the passing of time.
[67] In summary, taking a broad brush approach, in monetary terms Mr DeMarco would have lost the Corsair ($2.7 million dollars) and repaid TVAL (approximately
$2 million) as well as benefited by payments from the plaintiffs amounting to approximately $250,000. The effect of the offer may have also saved Mr DeMarco from bankruptcy on the Anderson debt.
[68] I consider an uplift of 5 per cent is appropriate to take into account the failure of the defendants to properly consider and respond to the offer which was reasonable in the circumstances. This is by way of uplift on the costs on a 2B basis from 1 July 2021 but limited to those costs which are not already subject to an uplift. That allows a period of two weeks for the defendants to have considered the offer.
[69] The plaintiff also seeks indemnity costs of $60,915 incurred in responding to an October 2020 statement of defence and counterclaim. This was the statement of defence and counterclaim that was struck out in the judgment of Johnston AJ dated 21 April 2021.42 The indemnity costs are sought on the basis of the nature of the allegations made in the October 2020 statement of defence and counterclaim. The plaintiffs submit that the pleading was a meritless defence and counterclaim which:
(a)caused loss of time to the Court and other parties, including Court resources required to determine the plaintiffs’ application for strike out and summary judgments;
(b)was made in wilful disregard of known law regarding economic torts which plainly establishes there was no feasible cause of action;
(c)was made in wilful disregard of the first defendant’s previous criminal conviction; and
42 The strike out judgment, above n 12.
(d)made allegations against Sir Peter Jackson that should not have been made, including that:
(i)he “falsely” claimed that TVAL was ultimately entitled to any proceeds of sale of the three TVAL aircrafts; and
(ii)he caused unparticularised “interference” in the defendants’ business dealings in Jordan.
[70] The plaintiffs submitted that the conduct of the defendants in pursing the meritless pleading was frivolous and vexatious, in particular that the claims against Sir Peter Jackson personally were a transparent attempt to deter. They say this deserves an award of indemnity costs. They point to the comments of Venning J in Huljich v Huljich that Court resources are scarce, and that frivolous or vexatious cases draw on those resources as well as forcing the parties to respond to the claims.43 His Honour noted that while the party may have access to the Court and may pursue such proceedings “they should face the cost consequences of pursuing such frivolous and vexatious proceedings.”44
[71] In this case I have already indicated costs are awarded on a 2B basis together with certification for second counsel in relation to the interlocutory application to strike out and for summary judgment. The behaviour outlined at [69] calls for a tangible message by the Court as to the unacceptability of conducting litigation in that manner. The most appropriate way of approaching this is to allow an uplift on those costs, rather than ordering indemnity costs, which are difficult for the Court to assess objectively without further evidence or a critique by the defendants. Sufficient indication of the unacceptability of the behaviour can be given by the Court allowing an uplift of 10 per cent on 2B costs in relation to the strike out application.
[72] The fees of two experts are claimed as disbursements. The fees appear reasonable in terms of the briefs they provided. The Official Assignee, while not being involved at the time the briefs were provided, has nevertheless indicated the claims in
43 Huljich v Huljich [2019] NZHC 565 at [18].
44 At [18].
general terms appeared reasonable. No other issue arises in relation to the disbursements claim. Accordingly, disbursements are awarded as sought.
The defendant’s claim for costs
[73] That TVAL was overall successful is reflected in the costs award in its favour. However, the second plaintiff was totally unsuccessful in both of its claims. The 12th cause of action by that plaintiff was discontinued and it failed in the third cause of action (tracing), which was dismissed. It is appropriate that the defendants are awarded costs against the second plaintiff only.
[74] I have not made any adjustments in relation to the involvement of the second plaintiff in my award of costs in favour of TVAL, as to do so would be virtually impossible.
[75] Recognition of the defendant’s successful defence of the third cause of action is justified. I consider the most appropriate manner of recognising that is by an award of costs to cover the period from 15 July 2021 to the date of delivery of the judgment.
[76] The Official Assignee has sought costs on a 2B basis with an uplift of 50 per cent. He says the uplift is justified as counsel set out the position on the argument on the third cause of action prior to the hearing, which was not accepted by the plaintiffs’ lawyers.
[77] The defendants say the third cause of action was misconceived and against the long-established precedent that one cannot trace through repayment of a debt. The Official Assignee says this was communicated to the plaintiffs in a letter dated 26 July 2021 which was followed up in discussions between the lawyers.
[78] I do not consider an uplift is justified. The area of law under consideration is complicated and in a developing area. The focus was only brought to bear on the arguments once the Official Assignee took over the litigation. The plaintiffs’ arguments, although unsuccessful, were not without merit. This is not a case where an argument was pursued which was doomed to failure. The analysis in my judgment
indicates the knotty issues raised and does not dismiss the second plaintiff’s arguments out of hand.
[79] Accordingly, costs are awarded against the second plaintiff in favour of the defendants on a 2B basis as claimed together with disbursements as claimed.
[80] I make no adjustment to the TVAL award of costs nor do I make any award in relation to the discontinuance of the FPT claim. Standing back and looking at the award of costs in totality as a matter of fairness, I do not consider any further adjustments are necessary in the circumstances.
Conclusion
[81] I award costs and disbursements in favour of the first plaintiff and the defendants as indicated above.
[82] As a number of the broad-brush adjustments I have made in reaching the cost determination were not part of the calculations by the parties in their memoranda, if any matters arise that require further consideration due to the adjustments I have indicated counsel have leave to file further memoranda on or before 10 days from the date of this judgment.
Grice J
Solicitors:
Chapman Tripp, Te Whanganui-a-Tara | Wellington for the first and second plaintiffs. Meredith Connell, Te Whanganui-a-Tara | Wellington for the defendants.
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