Delegat v Norman [2014] NZHC 1099 (22 May 2014)

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BETWEEN	JAKOV NIKOLA DELEGAT aka JIM DELEGAT AS TRUSTEE OF THE JIM DELEGAT BUSINESS TRUST First Plaintiff BOAT 93 HOLDINGS LIMITED (IN LIQUIDATION) Second Plaintiff
AND	CHRISTOPHER JOHN NORMAN Defendant
AND	JULIE ANNE SALTHOUSE Third Party

Hearing:	On the papers
Appearances:	P J Davison QC, C T Patterson and E J Grove for Plaintiffs G P Blanchard and J P Nolen for Defendant (on substantive claim) D J Chisholm QC, T P Mullins and S L Jackson for Defendant (on application to recall judgment) D G Collecutt for Third Party (on substantive claim) E J L Werry for Third Party (on application to recall judgment)
_Judgment:	_{22 May 2014}

This judgment was delivered by me on Thursday, 22 May 2014 at 4.00 pm pursuant to r 11.5 of the High Court Rules.

Solicitors: Jones Young, Auckland Lowndes Associates, Auckland Simpson Dowsett Mackie, Auckland LeeSalmonLong, Auckalnd

[1] On 17 December 2013, I dismissed the plaintiffs’ application for recall of my judgment given 4 December 2012. Costs were to follow the event. The defendant requests that the Court fix costs in relation to the application for recall on a 3C basis, with uplifts by way of increased costs for time required, lack of merit, plus disbursements. I am also requested to fix costs for the substantive proceeding.

[2] The defendant was put to the cost of instructing new solicitors and counsel. This meant that in the defendant’s submission, a comparatively large amount of time was required for the steps associated with opposing the application. The appropriate costs categorisation and time band is 3C as the factual position was complex and both parties instructed senior counsel. A comparatively large amount of time was required for the steps assocated with opposing the application. It was necessary for Mr Norman’s new counsel to review documentation relating to the trial which was more time consuming than preparing for an ordinary interlocutory application. Scale costs calculated on a 3C basis are $16,905.00.

[3] Mr Norman also seeks increased costs as the nature of the application was such that the time required by him substantially exceeded the time allocated under band C. He seeks an uplift of one day, bringing costs to $20,000. The application was unnecessary and lacking in merit. It ought to have been clear to the plaintiffs that the alleged evidence of perjury was insufficient and the application would not succeed. Mr Norman seeks an uplift under r 14.6(3)(b)(ii) from costs of $20,000 to

[4] In reply to the submission of the plaintiffs that the defendant did not need to engage new counsel if there was no wrongdoing by the defendant’s previous counsel, the defendant submits that the allegations of misconduct required new counsel to be engaged regardless of whether the allegations were true.

[5] The defendant submits that the old Schedule to the High Court Rules should be applied to costs of preparation for trial. The old Schedule governed the proceedings for 23 out of 24 months leading up to trial and the parties would not have foreseen a change in the Schedules when the preparation for trial was commenced. The defendant submits that the approach suggested by the plaintiffs, that preparation done when the old Schedule was in force be assessed based on the old Schedule and preparation done when the new Schedule was in force be assessed based on that Schedule, is inconsistent with the principle that determination of costs should be predictable and expeditious. The new Schedule breaks preparation down into three steps, whereas the old Schedule provided for only one step. There is no way of reconciling this. Alternatively, the defendant argues there should be an uplift on scale for preparation time in reliance on r 14.6(3)(a).

[6] The defendant submits that he should receive costs for commencing two proceedings and states that costs incurred to commence the defences in the current proceeding substantially exceeded the scale costs now being sought for those steps.

[7] The defendant seeks costs in relation to all steps taken in relation to the third party and an order that the plaintiffs be liable for the third party’s costs. The fact that the Court did not determine the third party claim is not relevant to costs in respect of the third party. Where a plaintiff’s claim has the inevitable result of further parties

being joined, an unsuccessful plaintiff will be liable for the third party’s costs.¹

[8] The defendant claims costs for its amended defence filed following trial in response to the third amended statement of claim. The defendant submits he is entitled to increased costs based on a Calderbank offer he made and recommends increased costs of $20,000 would be an appropriate starting point. He also seeks

¹Money World NZ 2000 Ltd v KVB Kunlun NZ Ltd HC Auckland CIV-2003-404-2542, 23

[9] The plaintiffs submit that a departure from scale 2B costs is not warranted. If Mr Norman’s previous counsel engaged in conduct so that they had a conflict of interest with him, then it was their conduct that caused Mr Norman to need to engage new legal representation, and the costs of that should not be visited on the plaintiffs. It was not clear that the recall application would not succeed. In addition, the plaintiffs submit that the involvement of senior counsel is not determinative of the complexity of any given matter and one party should not be responsible for bearing the increased costs of the other party if the other party has chosen to engage more expensive counsel.

[10] The plaintiffs submit that there is no proper basis for them to be liable for costs relating to the third party claim. The plaintiffs’ claim was not “effectively” against Ms Salthouse. They made no claim against her as she was insolvent, and as no party claimed against her under s 301, the Court had no ability to make an order under s 301 that she contribute into the assets of the companies in liquidation. Mr Norman’s claim against Ms Salthouse did not inevitably follow from the plaintiffs’ claim against Mr Norman. A claim for contribution under s 17 Law Reform Act is not available in respect of liability under s 301.

[11] Mr Norman seeks two separate sets of 2B costs in respect of commencing his defence to each of two proceedings brought against him under s 301 Companies Act

1993, plus uplifts. The plaintiffs are concerned that the two days allowed for “commencement of defence” includes an allowance for factual and legal briefing to occur between the defendant and his or her legal representatives. The briefing for each proceeding would have been substantially identical due to the commonality of the proceedings. Mr Norman’s counsel had already been acting for him in proceedings involving substantially the same factual background. It is not unreasonable for the plaintiffs to apprehend that there may have been some overlap between the time spent and it is not unreasonable for them to request actual time

records showing what costs were incurred by the defendant in the commencement of his defences.

[12] Mr Norman’s preparation for hearing occurred while the old Third Schedule to the High Court Rules was replaced with the new Third Schedule. The difference in applying the old rules to applying the new rules is $18,915. A hybrid approach is required, which attempts to apply the two versions of the Third Schedule depending on when the trial preparation work was undertaken. Mr Norman’s counsel has not attempted to apportion the costs.

[13] The plaintiffs submit that Mr Norman seeks an uplift of $20,000 to reflect the fact that he made a Calderbank offer of $800,000. The plaintiffs submit that they made a counter offer of $850,000 which was accepted subject to agreement of terms of a settlement deed. Mr Norman withdrew from that agreement on the Friday prior to commencement of the trial. The plaintiffs submit it is speculative whether Mr Norman would have entered into a settlement in terms of his initial offer, or whether any settlement would have been agreed to. The counter offer of $850,000 being accepted shows that the plaintiffs were acting reasonably in rejecting the $800,000 offer. In the circumstances of this case there are no policy justifications for punishing the plaintiffs by awarding an uplift in costs.

[14] The plaintiffs do not dispute Mr Norman’s recovery of scale costs in relation to the preparation of his statement of defence to the amended statement of claim. The plaintiffs submit that costs are not awarded in respect of costs memoranda.

[15] Rule 14.2(a) of the High Court Rules provides that the party who fails in respect to a proceeding or an interlocutory application should pay costs to the party who succeeds. Rule 14.2(b) proves that an award of costs should reflect the complexity and significance of the proceeding. Rule 14.2(c) provides that costs should be assessed by applying the appropriate daily recovery rate at the time considered reasonable for each step reasonably required in relation to the proceeding. The appropriate daily recovery rate and what is considered a reasonable time for a

step does not depend on the skill or experience of counsel involved, or the time actually spent or costs actually incurred by the party claiming costs (r 14.2(e)).

[16] The “appropriate daily recovery rate” is applied to the categories from r 14.3:

Category 1 proceedings Proceedings of a straightforward nature able to be conducted by counsel considered junior in the High Court.

Category 2 proceedings Proceedings of average complexity requiring counsel of skill and experience considered average in the High Court

Category 3 proceedings Proceedings that because of their complexity or significance require counsel to have special skill and experience in the High Court.

[17] Rule 14.3(2) provides that the categorisation applied to all subsequent determinations of costs in the proceeding, “unless there are special reasons to the contrary”. The fact that an earlier skill categorisation proved inadequate is unlikely of itself to be a “special reason”.²The policy reason for not changing the category part way through a proceeding is that a costs categorisation is likely to have influenced parties’ conduct in the proceeding.³It is possible for a Judge to re- categorise in relation to only one phase of the proceeding.⁴

[18] In J v J, “special reasons” requiring re-categorisation for a later part of the proceeding were that by the time of trial preparation, complex factual and legal issues had arisen which required extensive evidence and complex argument, and continuation of the earlier categorisation would have been “grossly unfair” to the plaintiff.⁵It was not a case where the earlier categorisation would have influenced

parties’ conduct.⁶In Carlin Enterprises Ltd v Fright Aubrey Ltd (in Liq), “special

reasons” were that an Associate Judge categorised the proceedings at a time when

_{the parties had wanted the categorisation deferred so that
categorisation never}

received proper consideration by the parties.⁷The categorisation had not affected the conduct of the parties to the litigation, and the proceedings could not be accurately described as being of “average complexity”. In Ballance Agri-Nutrients Ltd v Ravensdown Fertiliser Co-operative Ltd, “special reasons” were that on appeal the parties adduced a large amount of evidence that had been earlier unanticipated along with new issues relating to that further evidence.⁸

[19] Different time bands may be applied for different steps in the proceedings.⁹

(2) A determination of what is a reasonable time for a step under subclause (1) must be made by reference –

(a) to band A, if a comparatively small amount of time is considered reasonable; or

(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

⁷Carlin Enterprises Ltd v Fright Aubrey Ltd (in Liq) HC Christchurch CIV-2007-409-2030, 27

⁸Ballance Agri-Nutrients Ltd v Ravensdown Fertiliser Co-operative Ltd HC Auckland CIV-2009-

(b) the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by –

[21] In Holdfast NZ Ltd v Selleys Pty Ltd, Chambers J discussed the approach a court should take when assessing increased costs.¹⁰First, the Court should categorise the proceeding. Then the Court should work out a reasonable time for each step in the proceeding. If the time required for a step would substantially exceed the time allocated under band C, a Judge should increase the amount of time allocated for the particular step, and then apply the appropriate daily recovery rate at that time. When a matter in r 14.6(3)(b) is established (r 48C(3)(b) as it was in Holdfast), the Court’s “normal response should be to provide an uplift on scale costs

to what the rules contemplate a reasonable fee for that step to be.” An appropriate

An increase of 50 per cent on scale costs should therefore grant the costs- claiming party a fair recovery for the step unnecessarily forced on it, assuming that the time allocated to the step has been reasonably calculated under the bands or under r 48C(3)(a). Any greater recovery than that would mean that the party paying costs is contributing to the other party’s choice of special counsel.

[22] Increased costs (under r 14.6(3)(b)) may be ordered where there is a failure

[23] As to costs of third parties, where a defendant has properly joined a third party and the plaintiff fails, the plaintiff is ordinarily ordered to pay the costs of both

_{the defendant and the third party.}¹³_{A
successful defendant should only be called
on}

¹⁰_{Holdfast NZ Ltd v Selleys Pty Ltd [2005] NZCA 302; (2005) 17 PRNZ
897 (CA).}

¹²Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [27];

Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2010] NZCA 400, (2010) 24

¹³Shirley v Wairarapa District Health Board [2006] NZSC 63, [2006] 3 NZLR 523 at [22], Money

World NZ 2000 Ltd v KVB Kunlun NZ Ltd HC Auckland CIV-2003-404-2542, 23 September

to meet a third party’s costs if the joinder was unnecessary or was for some reason unjustified.¹⁴

[24] The defendant seeks a re-categorisation for costs on the recall application. In his minute of 6 October 2012, Bell AJ categorised the proceeding as category 2. However, his Honour noted:

... this case may involve more extensive work by way of preparation than is allowed for under the costs scale. The allocation of the category 2 is not to stand in the way of a party later contending that additional costs should be given for above average pre-trial preparation. These may constitute special reasons under s 14.3(2).

[25] Judge Bell’s comment does not apply to costs of the recall application, not

[26] I do not consider that special reasons exist here for re-categorisation. The inadequacy of an earlier categorisation is not of itself a special reason. Instructing new counsel meant that that counsel had to familiarise himself with the case, but did not mean that new issues arose as in Ballance referred to earlier. The recall application was not a “proceeding that because of [its] complexity or significance require[d] counsel to have special skill and experience in the High Court”. However, it is undisputed that the fact that the defendant had to instruct new counsel meant that the time required for opposing the application was more than it would otherwise have been. I therefore allocate 2C costs:

Item	Step	Time allocation (C)	Daily Recovery Rate (2)	Total
23	Filing opposition to interlocutory application	2	$1,990	$3,980.00
24	Preparation of written submissions	3	$1,990	$5,970.00
26	Appearance at hearing for sole or principal counsel	0.5	$1,990	$995.00
27	Appearance at hearing for second counsel if allowed by Court	0.25	$1,990	$497.50
				$11,442.50

[27] I consider that the time taken for preparation would exceed the time allocated under band C. I increase costs by one day, coming to $13,432.50.

[28] Under r 14.6(3)(b), the threshold issue of failure to act reasonably is satisfied. In applying for recall, the plaintiffs did not have an evidential foundation sufficient to establish a prima facie or arguable case of fraud. The alleged fraud did not go to the heart of the judgment. I uplift by a further 25 per cent to $16,790.60.

[29] I allow disbursement claims of $110.00 for filing fee and $226.80 for printing. I disallow the disbursement claimed of $30.00 for Law Society research charges for the same reason as Venning J in Waipareira Investments Ltd v Grant:¹⁵

The defendant takes objection to one item of disbursements claimed by the plaintiff, namely the New Zealand Law Society research disbursement in the sum of $143.75. In Todd Pohokura Ltd v Shell Exploration NZ Ltd Dobson J disallowed a similar claim for legal research other than from the solicitor’s own resources. I agree that as a matter of general principle solicitors would be expected to carry out or absorb the cost of legal research into the fee portion of their bill. To that extent the research is taken account of by the scale and should not be approved as a disbursement.

[30] The plaintiffs’ claim was not effectively against Ms Salthouse, although as the defendant sought contribution from her pursuant to the Law Reform Act should he be found liable, it was inevitable that she be joined. Joinder was not unnecessary or unjustified and as such I order that the plaintiffs pay the costs of Ms Salthouse on a 2B basis.

[31] The plaintiff is correct that in assessing costs a hybrid approach is required, which attempts to apply the two versions of the Third Schedule depending on when the trial preparation work was undertaken. In FM Custodians v Pati, Abbott AJ held that the schedules to the High Court Rules which came into force in 2012 should be interpreted by “adding words to the effect that, in the case of proceedings commenced before the coming into force of the rules (and hence schedules), the new

schedules are only to apply to steps taken after that date ...”.¹⁶The defendant must

calculate costs based on the time spent prior to the coming into force of the new Schedule, and the time spent whilst the new Schedule was in force. I appreciate that it may not be possible to assess this accurately and if the defendant is unable to do so after reviewing its records of time spent, it may allocate time spent whilst the old Schedule was in force and time spent whilst the current Schedule was in force based on a percentage approach.

[32] The defendant made a written offer without prejudice except as to costs for the purposes of r 14.10 High Court Rules. The effect of an offer under r 14.10 is at

_{the discretion of the Court (r 14.11). An offer is not the sole
consideration as all}

¹⁶FM Custodians Ltd v Pati [2012] NZHC 1902 at [39], approach adopted in Philpott v Noble Investments Ltd [2013] NZHC 830 at [30], Freshmax NZ Ltd v Oak Glen Orchards Ltd [2012] NZHC 2910, Yandina Investments Ltd v ANZ National Bank LTd [2012] NZHC 2460, Jasons Travel Media Ltd v Markom PR Ltd [2012] NZHC 2332, and by myself in Body Corporate

relevant circumstances are to be considered.¹⁷Under r 14.6(3)(b)(v), the Court may order a party to pay increased costs if it failed “without reasonable justification” to accept an offer under r 14.10. I consider that the plaintiffs had reasonable justification to refuse the offer, given that the defendant later accepted their counter offer of $850,000, subject to agreement of terms of a settlement deed. I decline to impose increased costs under r 14.6.

[33] I decline to award costs for preparation of costs memorandum. It is not the practice of the Court to award costs on costs.¹⁸

[34] The defendant is to receive costs on the application for recall of $16,790.60 and disbursements of $336.80.

[35] The defendant is to receive costs on a 2B basis for the substantive proceeding including the commencement of both defences, but is to apply the old Schedule to time before the current Schedule came into force, and the current Schedule to time spent following its coming into force. The defendant is to receive costs for his preparation of an amended statement of defence. The defendant is not to receive costs for his costs memorandum.

[36] The defendant is to receive disbursements of $53,873.38 for the substantive

proceeding, as set out in Schedule “A” of the defendant’s costs memorandum of 24

High Court of New Zealand Decisions

Delegat v Norman [2014] NZHC 1099 (22 May 2014)