NZ Vee Eight Entrants Group Association Limited v Petch [2012] NZHC 3171 (27 November 2012)

Last Updated: 10 December 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-000740 [2012] NZHC 3171

BETWEEN NZ VEE EIGHT ENTRANTS GROUP ASSOCIATION LIMITED

Plaintiff

AND MARK JAMES WAYNE PETCH First Defendant

AND GARRY ALLAN PEDERSEN Second Defendant

AND WAYNE ANDERSON Third Defendant

AND CHRISTOPHER JOHN ABBOT Fourth Defendant

AND JOHN DONALD MCINTYRE Fifth Defendant

Hearing: (On the papers)

Counsel: T Cooley and L Van for Plaintiff

J Miles QC and S Trafford for Defendants

Judgment: 27 November 2012

JUDGMENT OF WOOLFORD J [As to costs]

This judgment was delivered by me on Tuesday, 27 November 2012 at 2:15 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:

Kensington Swan, Barristers and Solicitors, Auckland

J G Miles QC, Auckland

S Trafford, Barrister, Auckland

NZ VEE EIGHT ENTRANTS GROUP ASSOC LTD V PETCH HC AK CIV-2012-404-000740 [27 November

2012]

Introduction

[1] This is a judgment on costs following my judgment of 13 September 2012,[1] which dealt with three interlocutory applications (one by the plaintiff for joinder of a sixth defendant, and two by the defendants for an order for security for costs and a stay of proceedings pending the disclosure of the plaintiff’s litigation funding agreements).

[2] Briefly by way of background, the plaintiff, NZ Vee Eight Entrants Group Association Limited (VEEGA), alleges that the defendants breached statutory and fiduciary obligations owed to it when they allegedly misappropriated intellectual property relating to the design of a new competitive racing car (colloquially called “the car of tomorrow”). The defendants were at all material times directors of the plaintiff company. Three of the defendants incorporated another company, V8

Supertourers Limited (V8), to which company the plaintiff’s intellectual property was allegedly transferred. The defendants were also (at various material stages) directors of V8, the company the plaintiff applied to join as the sixth defendant.

Result and subsequent events

[3] All three applications were heard on 3 September 2012 and were successful. In respect of the plaintiff’s application, I made an order joining V8 as the sixth defendant, along with other ancillary orders relating to filing of documents and discovery. In respect of the defendants’ applications, I ordered that the plaintiff was to pay $50,000 into Court by way of security. Finally, I ordered a stay of proceedings until the plaintiff disclosed the details of the funding arrangements to

_{the defendants and the Court.}[2]

[4] My orders did not specify a deadline for disclosure of the plaintiff’s funding arrangements, and the defendants sought a further direction fixing the time in which the plaintiff was required to make such disclosure. At a teleconference on

28 September 2012, Mr Cooley, for the plaintiff, advised that the information could be provided within 10 working days. I made directions on 28 September accordingly, and the information was provided to the defendants on the tenth working day.

[5] I have now received memoranda from both sides on the issue of costs.

Submissions

Defendants

[6] Mr Miles QC, for the defendants, seeks costs on a 2B basis in respect of both its interlocutory applications and for the teleconference. He also seeks increased costs, with an uplift of 50 per cent to reflect the fact that the plaintiff acted unreasonably in:

(a) Continuing to refuse disclosure of its litigation funding agreement, despite the release the week prior to the hearing of the Court of Appeal’s decision in Contractors Bonding Ltd v Waterhouse, which changed the law to require disclosure of funding agreements to both the Court and the non-funded party (the prior position being that only

disclosure to the Court was necessary).[3]

(b) Maintaining that its impecuniousness was caused by the defendants, when the evidence clearly demonstrated otherwise; and

(c) Failing to disclose its litigation funding agreements, or to provide a date for disclosure of those agreements prior to the teleconference and the further directions. The teleconference could have been avoided

had the plaintiff indicated its intent to disclose, and it had ample time to so indicate.

[7] Costs on a 2B basis are calculated at $8,955. Applying a 50 per cent uplift to this figure brings the total costs sought to $13,432.50. Mr Miles’ submissions do not address costs on the joinder application.

Plaintiff

[8] Mr Cooley submits that, when the outcomes of three applications are considered in the round, costs should lie where they fall. He addresses each application discretely to support this proposition and also, in the event that I do not agree with his principal submission, makes alternative submissions as to the nature and quantum of costs in respect of each of the three applications. I set out those submissions when I deal with each application below.

Overall approach to costs

[9] The Court has a general discretion over costs matters.[4] Rule 14.2(a) of the High Court Rules (which is subject to this discretion) states the general rule that the party who fails with respect to a proceeding or an interlocutory application should pay costs to the party who succeeds.

[10] Rule 14.8 deals with costs in interlocutory applications. It provides that the costs of an opposed interlocutory application (other than for summary judgment) are to be fixed in accordance with the costs rules, unless there are special reasons to the contrary (which, in this case, there are not).

[11] Mr Cooley submits that, contrary to the general rule, this is a case where the costs-claiming party has only been partially successful, or where each party has had similar success. The Court of Appeal has said that, in those cases, a strict focus on success and failure is unhelpful. Rather, the Court should factor in time

considerations and any other relevant matters to reach an outcome which reflects justice to both sides, bearing in mind the essential features of the case.[5]

[12] I am not persuaded that, in the context of three interlocutory applications, the plaintiff (who was unsuccessful in two of those three applications) can be described as having had “similar success” to the defendants. Further, this is not a case where one party has succeeded on various causes of action and failed on others, so as to be “partially successful” in respect of one application. Each interlocutory application was discrete and targeted at a sole issue. Accordingly, from a costs perspective, I consider that each application should be treated separately.

Increased costs

[13] Rule 14.6(3) is relevant:

(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.

Legal principles

[14] All the grounds for increased costs given in r 14.6(3) are predicated on actions by the defendant that increase the costs of a proceeding once issued. In Bradbury v Westpac Banking Corp, the Court of Appeal stated that “increased costs may be ordered where there is failure by the paying party to act reasonably”.[6] The Court must consider the extent to which that failure to act reasonably contributed to the time or expense of the proceeding. Only to that extent can any percentage uplift from scale costs be justified.[7]

[15] The steps the court is to take when considering whether to order increased costs are set out in the Court of Appeal’s decision in Holdfast NZ Ltd v Selleys Pty Ltd.[8] In summary:

(a) The first step is to categorise the proceeding in terms of r 14.3 and specifically whether it is a category 1, 2 or 3 proceeding.

(b) The second step is to work out a reasonable time for each step in the proceeding, applying the appropriate time band under r 14.5. Band C is considered appropriate where a “comparatively large amount of time is considered reasonable” for the particular step. It is possible to exceed the time allowed by Band C for a particular step where the claimant can show that a step in the proceeding was such that the time required would substantially exceed the time allowed under that band:

_{r 14(3)(a).}

(c) The third step is to consider whether there are additional grounds for increasing costs as set out in r 14.6(3)(b) all of which depend on a finding that the opposing party has “contributed unreasonably to the time or expense of the proceeding or step” in the proceeding.

(d) The final step requires the Court to step back and look at the costs award that a claimant would be entitled to at this point. The Court of Appeal said that any increase above 50% on scale costs produced in the above steps was unlikely. The reason is that the daily recovery rate is two-thirds of the daily rate considered reasonable (in theory at least) under the statutory costs regime.

The joinder application

[16] The plaintiff seeks costs on a 2B basis and increased costs (with a 50 per cent uplift) for the defendants’ unreasonable conduct in this proceeding. Mr Cooley submits that the defendants failed to advise the plaintiff that they no longer intended to oppose the joinder application until the day the plaintiff’s submissions were to be filed. The plaintiff therefore was put to the expense of filing its application and preparing submissions for the hearing. Joinder was a necessary step in the proceeding.

[17] The plaintiff applied on 12 June 2012 for joinder of V8 on the basis that, at all material times, the defendants were also directors of that company, and that V8’s presence was necessary to enable this Court to adjudicate on issues raised in the proceeding. Mr Ross swore a one-page affidavit in support of this application. On

26 June 2012, the 3 September hearing date was allocated.

[18] The defendants filed a notice of opposition on 16 July 2012, arguing that the evidence relating to V8 did not support the causes of action the plaintiff alleged. Mr Petch swore a two-page affidavit in support. This prompted Mr Ross to reply with a one-page affidavit sworn on 31 July. On 29 August (almost a month later and on the day the plaintiff’s submissions were to be filed), the defendants withdrew

their opposition. Mr Cooley submits that this late withdrawal was unreasonable and warrants increased costs.

[19] As with joinder of plaintiffs, the essential requirement when a defendant is sought to be joined is that there is some entitlement to relief against that person arising from the same transaction, event, instrument or enactment which supports the claim against the already-named defendants. Notwithstanding that the traditional approach to joinder of defendants is a liberal one,[9] joinder is not granted by the Court to an applicant as of right. The onus is on the party applying, in this case the plaintiff, to make a formal application for joinder and to support that application with evidence.

[20] Turning to the present case, this was not a situation where evidence came to light after the filing of proceedings such that joinder of V8 as a defendant became necessary at that (later) stage. The plaintiff was aware of the defendants’ legal relationship with V8 (the defendants being at all material times directors of that company) at the time it commenced proceedings on 15 February 2012. Indeed, the plaintiff’s statement of claim alleges that the defendants misappropriated its property by transferring the “car of tomorrow” design to V8 in breach of fiduciary and statutory obligations.

[21] The proper course was to name V8 as a defendant from the outset. It is disingenuous of the plaintiff to seek increased costs when it put the defendants to the burden of considering its joinder application. Taking a step back, were it not for the defendants’ equally unpromising objection to joinder and its late withdrawal of that objection, I would be inclined to award costs against the plaintiff on this application, notwithstanding its success. However, in all the circumstances I consider that costs in respect of the joinder application should lie where they fall. I decline to make

_{the award sought by the plaintiff.}

The security for costs application

[22] Mr Miles seeks increased costs on the ground that the plaintiff maintained that its impecuniousness was caused by the defendants, when the evidence clearly demonstrated otherwise. Mr Cooley submits that this was one of numerous grounds raised in opposition to the security for costs application, and it was not unreasonable for the plaintiff to pursue it at the hearing.

[23] I consider that the defendants as the successful party are entitled to costs on a

2B basis in respect of this proceeding. The core issue is whether the defendants are entitled to increased costs on the basis that the plaintiff pursued an unmeritorious argument, namely its insistence that the defendants caused its impecuniousness. This was one of three grounds the plaintiff raised in opposition to a security for costs order.

[24] According to Mr Fine (a director of the firm of accountants acting for the plaintiff) the deterioration of the plaintiff ’s financial position was caused by the defendants’ actions in relation to the “car of tomorrow” and its related intellectual property. My view was that the plaintiff did not earn income in the relevant period because it failed to field enough cars in its series. I attributed this failure to V8’s setting up of the new racing series. While this fact would not substantiate a claim against the defendants, the plaintiff submitted that the transfer of the “car of tomorrow” intellectual property was a major contributing factor to the success of V8’s series. On the other hand, Mr Petch considered that the new series’ success was inevitable, given the poor management of the plaintiff’s series.

[25] At [25], I noted the defendants’ argument that the plaintiff was not, and had never been, a commercial trading entity. It was merely the conduit for entrants’ appearance fees. Although the plaintiff has other revenue streams, I concluded that it could not be considered a normal commercial entity intended to make and retain profit. Accordingly, I was not satisfied (at [29]) that the plaintiff’s impecuniousness was a direct and inevitable result of any breaches of duty (statutory or fiduciary) on the defendants’ part.

[26] Mr Miles submits that my conclusion at [29] “clearly demonstrates” that the plaintiff acted unreasonably in pursuing the argument. That is not so. Earlier in my judgment, at [21], I stated:

As to the strength of the claim, counsel for VEEGA took me through the amended statement of claim and the relevant documentation which supported VEEGA’s case that the COT intellectual property belonged to it. Having reviewed the documentation, I have formed the impression that VEEGA’s case cannot be described as wholly without merit. There appears to be an arguable basis for the claim. However, the defence also appears to me to be legitimate and credible. I am unable in the context of an interlocutory application to make a more detailed assessment of the merits of the claim.

[27] Whether the defendants caused the plaintiff to suffer loss will be a central issue when the substantive claim is determined. I was required to consider this argument in the narrower context of an interlocutory application for security for costs and expressly recorded this position. The plaintiff cannot be said to have contributed unnecessarily to the time or expense of the proceeding when it raised in opposition to an interlocutory application one of the core planks of its substantive claim (the merits of which I was unable to determine in an interlocutory context, but which I considered had an arguable basis).

[28] Accordingly, I decline to make an order for increased costs. I award costs to the defendants, noting that they not entitled to the costs they claim for the preparation of the bundle of documents for the hearing, which the plaintiff prepared at its own expense after the defendants failed to include one.

The stay application

[29] Regarding the stay application, Mr Cooley submits that plaintiff accepted in its notice of opposition and affidavit in support that it may be required to disclose its funding arrangements to the Court. At the date the notice of opposition was filed, the legal position was that disclosure of a funding agreement was to be made to the Court alone. Mr Cooley submits that the defendants did not act unreasonably in opposing the stay application on the basis that it was not required to disclose its funding arrangements to the defendants.

[30] Contractors Bonding Ltd v Waterhouse altered this position, requiring disclosure to both the Court and to the non-funded party, but that judgment was not delivered until 31 August 2012 (a Friday). Mr Cooley says that the plaintiffs only became aware of the decision at the commencement of the hearing on 3 September

2012, the following Monday.

[31] The defendants are entitled to costs on a 2B basis in respect of this application. In terms of increased costs, I do not consider that the plaintiff acted unreasonably. All it did was to pursue in the lead up to the hearing an argument regarding litigation funding based on the law at the time. Indeed, the state of this area of law is by no means clear, the Supreme Court having recently granted leave to appeal the Court of Appeal’s decision.[10] The key issues in that appeal will be whether the appellants should have been ordered to disclose its litigation agreement to the respondents and, if so, on what terms.

The teleconference

[32] Finally, the defendants also seek increased costs on the 28 September teleconference. Mr Cooley resists an increased costs award and submits that costs should lie where they fall. The teleconference was not a case management conference in terms of the High Court Rules. As the plaintiff had not breached any order, an award of costs would be unreasonable.

[33] On 25 September, the defendants by way of a memorandum to the Court urgently requested the teleconference to seek further directions as to the timeframe in which the plaintiff was to disclose its funding arrangements. Mr Cooley says he was unable to file a memorandum in response prior to the conference as he had not taken instructions. Three days later at the conference, which lasted for approximately 10 minutes, he was able to advise that the information sought could be provided within

_{10 working days (which it was).}

[34] I take the view that the teleconference should be considered an extension of the stay application, such that the defendants are entitled to costs on the same 2B basis. In a technical sense, the proceeding[11] was at an end once my 3 September orders were sealed (sealing having taken place on 13 September). However, the teleconference was exclusively sought to clarify matters raised in that proceeding and was confined to those issues.

[35] While costs incidental to a proceeding may be awarded (r 14.1(b)) increased costs may only be awarded in relation to a proceeding or any step in it. While I am prepared to treat the teleconference as part of the proceeding for costs purposes, I am not inclined to award increased costs against the plaintiff. In terms of unreasonable conduct, as Mr Cooley submits, the plaintiff did not breach any Court order by not disclosing the information sought prior to the teleconference. While expeditious disclosure of its funding arrangements would have avoided the teleconference, the time lapse was not in my view an unreasonable delay on the plaintiff’s part.

Result

[36] I accordingly make the following orders:

(a) On the joinder application, costs are to lie where they fall.

(b) On the security for costs application and the stay application (including the teleconference), the defendants are entitled to 2B costs on the basis of the time allowances set out in the schedule to Mr Miles’ memorandum of 3 October 2012, with one exception. From the 0.6 days claimed for the preparation of bundles for the defendants’ two applications, I deduct 0.3 days for the preparation of the security for costs application bundle, which the plaintiff prepared at its own expense.

.....................................

_{Woolford J}

---

[1] _{NZ Vee Eight Entrants Group Association Ltd v Petch [2012] NZHC 2350.}

[2] These were to include: the identity of each funder of the litigation and the amount they contributed; details of the contractual arrangement between VEEGA and the funders (including any conditions relating to the litigation); details of any connections the individual funders had with MSNZ and/or TMC; the terms on which the funding could be withdrawn; and the consequences of withdrawal.
[3] Contractors Bonding Ltd v Waterhouse [2012] NZCA 399
[4] High Court Rules, r 14.1.
[5] Packing In Ltd (in liquidation) v Chilcott [2003] NZCA 124; (2003) 16 PRNZ 869 (CA) at [5].
[6] Bradbury v Westpac Banking Corp [_{2009] 3 NZLR 400 (CA) at [27].}
[7] Commissioner of Inland Revenue v Chesterfields Preschools Ltd [_{2010] NZCA 400 at [165].}
[8] Holdfast NZ Ltd v Selley Pty Ltd (2005) 17 PRNZ 879 (CA) at [43]-[48].

[9] Westfield Freezing Co Ltd v Sayer & Co (NZ) Ltd [1972] NZLR 137 (CA) at 143.

[10] Waterhouse v Contractors Bonding Ltd [2012] NZSC 98.

[11] “Proceeding” in the High Court Rules means “means any application to the court for the exercise of the civil jurisdiction of the court other than an interlocutory application”. However, r 14.8 essentially converts interlocutory applications into “proceedings” for the purposes of costs.