Dobson v Milloy [2014] NZHC 2339 (25 September 2014)

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BETWEEN	KERRY BRYAN DOBSON Plaintiff/Counterclaim Defendant
AND	HUGH MILLOY and HELEN RUTH MILLOY as Trustees of the HUGH MILLOY FAMILY TRUST First Defendants/Counterclaim Plaintiffs HUGH MILLOY and HELEN RUTH MILLOY as Trustees of the HELEN MILLOY FAMILY TRUST Second Defendants/Counterclaim Plaintiffs CLUSEVAU HOLDINGS LIMITED Counterclaim Defendant

Hearing:	(On the papers)
Appearances:	Paul Dalkie and Greg Stringer for the Plaintiff/Counterclaim Defendant Robert Hollyman for the First and Second Defendants/ Counterclaim Plaintiffs
_Judgment:	_{25 September 2014}

This judgment was delivered by on 25 September 2014 at 2:00pm pursuant to Rule 11.5 of the High Court Rules.

[1] On 11 July 2014 I delivered the judgment in these proceedings.¹I made certain findings in respect of the substantive claim.²Based on those findings I invited counsel to address me as to the quantum owed to Mr Dobson and reserved leave for the parties to apply by way of memorandum for the making of formal

[2] On the question of costs I invited counsel to confer. I directed that in the event the parties could not reach agreement they would file and serve memoranda on costs relative to the claim and counterclaim. I would then determine costs on the papers.

[3] Counsel have advised that they are unable to agree in relation to either quantum or costs. In that event I now proceed to determine both issues having received counsel’s memoranda.

[4] Before dealing with the primary issues there is a preliminary matter which must be decided. In support of the Milloy Trusts’ submissions an affidavit made by Mr Hussey, a chartered accountant who gave evidence in the course of the trial, was filed. Mr Dalkie objects to its admission. He submits the trial is finished. He points out both parties have adduced their evidence and closed their cases. Closing submissions have been delivered. He submits that given the narrowness of the issues which the Court sought further assistance on the affidavit should be removed from the file and Mr Hollyman should re-submit his memorandum without reference to the Hussey evidence.

(a) First, while it is correct I did not specifically invite further evidence on the issue of quantum it is plain from the judgment that in light of

the factual findings made, assistance from counsel was sought. I did not limit either of the parties in relation to the form of that assistance.

2014 the case was closed in such a way that further evidence could not be admitted. The judgment makes it plain that while I decided the issues of liability, the question of quantum and costs remained alive. The Hussey affidavit is proffered only in that narrow context and for that specific purpose.

(c) Thirdly, the opinion contained in the affidavit is of substantial help in ascertaining facts that are of consequence to the determination of this aspect of the proceeding.³

(d) Fourthly, as is apparent from this judgment, the reliance I have placed on the additional evidence is limited to discrete issues relevant to this phase of the hearing.

(e) Fifthly, although Mr Dalkie submits that to receive this evidence would breach his client’s right to natural justice, he has not identified any particular prejudice. He has not sought to adduce further evidence on Mr Dobson’s behalf. His submission is that the evidence should not be received. He seeks indemnity costs in relation to this point.

[8] The loan was called up and under the guarantee Mr Dobson was required to sell his home. The proceeds of that sale were applied towards the repayment of the loan.

[9] I made findings of fact on the proper apportionment of the debt and interest. I also made findings on whether an agreement existed between the Reid Trust and Mr Dobson and the effect of contributions from CMW, a company owned by Messrs Reid and Milloy.

Mr Dobson’s liability is therefore 17.33 per cent of $1,553,400, that being $269,204. I note that Mr Dalkie, for Mr Dobson, submits Mr Dobson is liable for 41.33 per cent of $504,056 which was the sum applied to reduce the loan. This calculation is not explained. It is not consistent with my findings on liability.

[11] I also found that Mr Dobson was liable for 17.33 per cent of the CMW term deposit of $117,000 which was applied to reduce the capital. This amounts to

[12] The parties agreed with Viking that it would indemnify them up to 25 per cent of the loan if it was called up. Viking made payments to meet their liability which reduce the liability of Mr Dobson. I discuss this below.

[13] To Mr Dobson’s liability of $289,480 must be added Mr Dobson’s liability

_{relative to the interest. I found he was liable to pay 17.33 per cent
of the total}

⁴This includes the loan facilities set out in the liability judgment at [17](a)-(c) and an additional

[14] Mr Hussey’s evidence is that in the absence of loan statements for the CMW loan he was unable to calculate the interest noting that doing so benefits Mr Dobson’s position. In relation to the Dobson, Reid and Milloy loans (totalling

$1,523,400) Mr Hussey had access only to the statements for the Milloy component. He extrapolated that amount to identify the total amount of the interest charged in relation to the total loan.

[15] If that calculation is taken to 15 February 2012⁸the total interest paid is calculated at $437,767. If that period is extended to June 2013⁹the total interest paid is calculated to be $508,389.

[16] The payments from Viking were used largely as interest payments, made in instalments over time to CMW who in turn used the funds to service the Westpac loan. I found that the interest payments made by CMW benefited all parties equally. However, Mr Dobson was entitled to 17.33 per cent of any Viking payments not applied towards interest.

[17] Mr Dalkie did not consider the total amount of interest owed. Rather, he has calculated the amount of the payments made by Viking to CMW and then calculated the amount owing to Mr Milloy as a result of the $50,000 payment he made towards interest.

required to pay the proportion of interest represented by Mr Milloy’s contribution of

$50,000 as well as that paid by Viking to which he was entitled to a share. This approach is not correct and is inconsistent with the determinations contained in my judgment. I am of the view that the approach adopted by Mr Hussey is the correct

_{one. As Mr Hollyman suggests, I shall take the lesser amount of
$437,767 which}

operates to Mr Dobson’s advantage. Therefore Mr Dobson’s share of the interest is

[19] From this figure, Mr Dobson’s share of the Viking payments used to reduce the interest must be deducted. There is a slight discrepancy between the respective positions of the parties.

[20] Mr Hussey’s evidence is that having reviewed Mr Milloy’s electronic cash books he located eight receipts which appear to have come from Viking. These total

$205,739.37. All but one is consistent with the schedule attached to Mr Dalkie’s submissions which totals $206,500. The discrepancy is explained because the Milloy cash books report a receipt on 11 February 2010 of $39,239.37 whereas Mr Dalkie’s schedule records the same receipt as $40,000. I shall adopt the lower figure. The discrepancy is minor.

[21] Mr Dalkie submits only $54,632 of this amount was actually applied towards payment of interest. In other words Mr Dobson is entitled to 17.33 per cent of the remaining $151,107.36 which amounts to $26,187. Mr Hollyman simply gives the credit for Mr Dobson’s 17.33 per cent which amounts to $35,661. The difference between approaches is a mere couple of hundred dollars.

[22] In my view, given the dispute over what the amount actually paid towards interest is, the simpler calculation is to give Mr Dobson credit for 17.33 per cent of the total Viking amount and reduce the total interest that Mr Dobson is liable for by this amount.

[23] In taking the Viking payments from CMW into account, $14,180 must be added to the amount owed as this was the amount paid by CMW which was applied by the bank to reduce Mr Dobson’s personal mortgage. He has thus already obtained the benefit of this amount.

[24] I also note that both counsel add $8,665 to the amount owed, that being 17.33 per cent of the $50,000 interest payment made by Mr Milloy. However, in my view, this is unnecessary. The interest has already been taken into account as discussed

above when Mr Dobson was required to pay 17.33 per cent of the total interest figure. Adding 17.33 per cent of the $50,000 Milloy payment would result in double counting.

[25] Once this figure has been calculated, it is necessary to deduct the amount applied to the loan from the sale of Mr Dobson’s house. Mr Hollyman submits that the amount paid to Mr Reid’s account should not be included as a result of the Reid- Dobson agreement which is discussed at [79] to [84] of the judgment. I do not accept this submission. I found that the arrangement between Messrs Reid and Dobson stood apart from the guarantee. I concluded that it was appropriate to treat that agreement as an agreement the Reid Trust will pay Mr Dobson what he is owed as a result of his payment in excess of his liability. The approach I adopted was a global one which considered the debt owed over all the facilities. If I was to exclude the amount paid to the Reid interests such an approach would undermine the approach I took in my substantive judgment. It would, instead, focus on the individual interests. In my view it is important to treat the agreement as a basis to divide the final amount owing to Mr Dobson in half.

	Bond Debt	Dobson Share
Bond debt	$1,553,400.00	$269,204.00
Interest	437,767.00	75,865.00
Total debt	$1,991,167.00	$345,069.00
Viking payments	($205,740.00)	($35,661.00)
Mortgage payment		14,180.00
CMW Deposit	117,000.00	20,276.00
Subtotal	$1,902,427.00	$343,864.00

Amount repaid		($504,057.00)
Amount owing by Dobson			($160,193.00)
Amount owing by Milloy interests			$80,096.50

[28] Mr Dalkie submits that Mr Dobson is entitled to indemnity costs in the sum of $233,106.46. Alternatively he submits that Mr Dobson is entitled to increased costs in terms of r 14.6 over and above the usual 2B calculation.

[29] Mr Hollyman submits that Mr Dobson is entitled to neither indemnity costs nor increased costs. He submits that the defendants are entitled to the payment of their actual solicitor and client costs and alternatively seeks an award of increased costs of 2C for certain steps taken in the proceeding plus an uplift of 50 per cent.

[30] In relation to the counterclaim Mr Hollyman submits that costs should lie where they fall.

[31] An award for indemnity costs is made under rr 14.6(1) and (4). The leading authority in relation to indemnity costs is Bradbury v Westpac Banking Corporation.¹⁰The summarised position of costs in New Zealand is as follows:

(a) standard scale applies by default where cause is not shown to depart from it;

(b) increased costs may be ordered where there is failure by the paying party to act reasonably; and

(a) the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud;

(b) particular misconduct causing loss of time to the Court and to other parties;

(e) making allegations which ought never to have been made or unduly prolonging a case by groundless contentions – essentially, the “hopeless case” situation.

[33] The plaintiff’s claim for costs in the sum of $233,106.46 is based on the proposition that I found the parties were bound by the apportionments arising out of either the 2007 and 2009 DOCI documents. In particular, reliance is placed on [73] of the judgment where I found that the parties had conducted themselves as though the DOCI terms continued. Mr Dalkie refers to clause 4.2 which is found in both the

2007 and 2009 DOCIs. This provides that if any guarantor fails to meet its obligations that guarantor must indemnify and keep indemnified the other guarantors from and against all costs, claims, demands, charges, expenses and other liabilities which the other guarantors may incur as a result of that failure.

[34] It is important to recognise that the judgment did not conclude that either of the DOCIs in themselves, were binding. The essence of the judgment is that I found it was the intention of the parties to be bound by the proportions set out in the DOCIs. ¹²Indeed I concluded that neither of the DOCIs were live documents. It follows that clause 4.2 of the DOCIs has no application in the present circumstances.

[35] The defendants submit that the plaintiff should pay indemnity costs. This submission is based on the plaintiff’s ultimately unsuccessful claim that a ‘no loss’ agreement existed. The defendants submit that this issue consumed a significant amount of Court time with the issue ultimately being determined in their favour. However, the Milloy interests did not succeed on the substantive claim. It would be inappropriate to award indemnity costs against the plaintiff.

[36] Furthermore, there is nothing in the actions of either of the parties which was “exceptional” or “exceptionally bad behaviour”¹³so as to justify an award of indemnity costs.

[37] Increased costs is dealt with r 14.6(3). The provisions relied on are as follows:

(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—

(iii) failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument; or

(v) failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule

[38] 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.¹⁴Sargisson AJ in Karam v Parker summarised these as follows:¹⁵

(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.

[39] The plaintiff submits that in the event indemnity costs are not awarded, he is entitled to increased costs by reason of his success on the substantive claim and defeating the counterclaim. In particular, he seeks increased costs in relation to the “foyer incident” which he submits entirely lacked merit. I do not agree. I determined that Mr Milloy was mistaken in relation to what he heard. Once Mr Milloy reported the conversation to his counsel, Mr Hollyman, as an officer of the Court, had no option but to raise it with me given the serious implications it engaged. It was his clear duty to do so. Furthermore, I do not accept that this event contributed unnecessarily to the time or expense of the proceeding in any of the ways set out in r 14.6.3(v).

[40] Mr Dalkie further submits that a relevant factor are the “without prejudice save as to costs” letters and other offers of settlement made to the defendants.

[41] Mr Hollyman submits that the Calderbank offers do not amount to an accurate representation of the correspondence between the parties; the offer was made against the threat of expanded claims. Furthermore, the defendants themselves made an offer to resolve all issues for $104,220.28. The offers made by the plaintiff were for an amount significantly higher than that determined in these proceedings. Against those facts it was not unreasonable for the defendants to decline the offer. In that light the Calderbank offer made by the defendants to the plaintiff was significantly closer to the final quantum ordered. This feature significantly undermines the plaintiff’s claim for increased costs. However, I do not ignore that the evidence concerning the shareholding arrangements was unclear and required a judicial determination. I accept it was difficult to assess quantum and thus what a reasonable offer might look like.

[42] The defendants also seek increased costs but as they did not succeed on the substantive claim such an order would, in my view, be inappropriate.

[43] In my view the proper course is to order that costs lie where they fall. While the plaintiff was successful in his claim he was unsuccessful on the principal argument pursued, namely the existence of the ‘no loss’ agreement. The resolution of this issue dominated the trial and accounted for a significant proportion of the evidence. My decision on that issue adopted the defendants’ submission that the intention of the parties was the determinate in coming to a decision on what a just apportionment should be.

[44] Furthermore, the defendants’ argument in relation to the Dobson-Reid agreement was unsuccessful. Despite this, there was substantial evidence adduced which supported the existence of such an agreement. The argument was a valid one to be raised as was the $50,000 interest payment made by Mr Milloy and Mr Dobson’s contribution to the CMW payment.

[45] Thus though the final result was that the plaintiff was successful in his claim, I am of the view that it would not just for costs to follow the event. I order that costs are to lie where they fall.

[46] In the counterclaim Mr Milloy claimed his interests were owed 50 per cent from the litigation settlement of a company within the MRW corporate structure. That structure was set up by Messrs Reid and Milloy together with a third partner, Mr Wong, who is now no longer involved. Mr Dobson was involved in a trustee or director capacity by many of the trusts and companies but only Mr Reid’s and Mr Milloy’s trusts were the ultimate beneficiaries.

[47] From the evidence it was clear that before Messrs Milloy and Reid fell out there was an expectation on both their parts that Mr Milloy’s interests would receive part of the settlement of the litigation. However, due to the nature and arrangement of the corporate structure it was impossible for Mr Milloy’s interests to claim an interest in the settlement proceeds.

[48] I was satisfied that Messrs Reid and Dobson worked in concert with the purpose to depriving Mr Milloy of his involvement, and thus interests, under the corporate structure. While this conduct is to be condemned, it was largely not in breach of any fiduciary duties. This was due to the complex corporate structure. Only one breach of fiduciary duty was found to be proved but the losses from any breach were not related to the litigation settlement.

[49] Mr Hollyman submits that costs should be ordered in relation to the counterclaim by reason of the adverse findings in relation to Mr Dobson’s conduct. He submits that the only reason the claim did not succeed is that the funds were never transferred to the MRW Trust and thus no breach of trust was involved. Alternatively, he submits that costs should lie where they fall.

[50] I am of the view that it is appropriate for costs to lie where they fall and for the respective parties to meet those costs themselves. Although the counterclaim was largely unsuccessful, the allegations of dishonest conduct were justified on the evidence. The claim failed only by reason of the technical nature of the corporate structure involved.

[52] In relation to both the substantive claim and the counterclaim, I direct that costs should lie where they fall.

High Court of New Zealand Decisions

Dobson v Milloy [2014] NZHC 2339 (25 September 2014)