MSM Enterprises (PTE) Limited v Nautilus Family Trust Limited [2014] NZHC 986 (13 May 2014)

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BETWEEN	MSM ENTERPRISES (PTE) LIMITED Plaintiff
AND	NAUTILUS FAMILY TRUST LIMITED First Defendant MURALI GANESH KODOOR Second Defendant GEETA MURALI GANESH Third Defendant

Hearing:	On the Papers [Final Submissions Received on 21 March 2014]
Counsel:	B O'Callahan and N J Carter for the Plaintiff in Proceeding CIV-2013-404-004309, and for the Third Defendant in Proceeding CIV-2013-404-004495 M A Karam for the Defendants in Proceeding CIV-2013-404-004309, and for the Plaintiff in Proceeding CIV-2013-404-004495
_Judgment:	_{13 May 2014}

MSM ENTERPRISES (PTE) LTD v NAUTILUS FAMILY TRUST LTD [2014] NZHC 986 [13 May 2014]

This judgment was delivered by Justice Duffy on 13 May 2014 at 4.00 pm, pursuant to

[1] In February this year, I delivered a judgment granting MSM Enterprises (PTE) Limited (“MSM”) summary judgment in its claim against the Nautilus Family Trust Limited (“Nautilus”), Murali Kodoor and Geeta Ganesh. I also dismissed the interim injunction application that Nautilus had brought against MSM in a separate proceeding. Both proceedings concerned whether MSM could proceed under a second mortgage security and the Property Law Act 2007 to enforce its security for an unpaid mortgage debt that Nautilus owed to MSM. Mr Kodoor and Ms Ganesh had guaranteed the payment of this debt.

[2] As they are affected in the same way by the costs application, I shall refer collectively to Nautilus, Mr Kodoor and Ms Ganesh as the Nautilus parties.

[3] Given its success in both proceedings, MSM now seeks solicitor-client costs against the unsuccessful parties. In doing so, MSM relies on cl 12 of the loan agreement, which entitles MSM to recover solicitor-client costs incurred by MSM in relation to, inter alia, the protection of MSM’s security interest under the agreement, or the enforcement of any of MSM’s rights under the agreement.

[4] MSM’s costs application falls for consideration under r 14.6(4)(e) of the High Court Rules. Where this rule is applicable, the Court applies ordinary principles of contract to determine whether the costs incurred are covered by the contract. Subject to the requirement that indemnity costs must be reasonably incurred and are not against public policy, the Court does not have discretion to reduce the costs sought.

[5] Clause 12 of the loan agreement, signed and dated on 21 June 2011, provides:

(ii) costs on default: legal services arising from or relating to any default under this contract or the enforcement or exercise or attempted enforcement or exercise of any of the lender’s rights, remedies and powers under this contract (including the giving or attempted giving of any notice under

(iv) legal costs of lender: legal services relating to the protection of the lender’s security interest taken in conjunction with this contract (including the investigation of any claim relating to the land which might affect that interest).

[6] The Nautilus parties do not accept that the costs claimed are reasonable or that they come within the terms of the contractual provision.

[7] It is submitted that a suitably qualified and experienced practitioner is required to:

(a) provide evidence as to the ambit of the contractual clause; (b) assess the reasonableness of each item charged for; and

[8] The Nautilus parties intend to engage an expert for this purpose so it can fully set out its challenges to the costs claimed by MSM.

[9] Alternatively, they contend that one of the three steps suggested by the Court of Appeal in Black v ASB Bank Ltd [2012] NZCA 384 should be implemented.

(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.

(e) the party claiming costs is entitled to indemnity costs under a contract or deed.

[11] The principle that one party may contractually bind itself to pay the other full solicitor-client costs is established in Gibson v ANZ Banking Group (NZ) Ltd [1986]

[13] In Watson & Son Ltd, Randerson J set out the questions that are relevant to cost applications under r 14.6(3)(e):

[20] The relevant principles were reiterated in succinct terms by Fisher J in the judgment of this Court in Frater Williams & Co Ltd v Australian Guarantee Corporation (NZ) Ltd (1994) 2 NZ ConvC 191,873 at 191,887:

The ANZ Banking case ... established that in principle one party may contractually bind itself to pay the other party's full solicitor-client costs. In such a case the Court must decide what tasks attract a costs indemnity on a proper construction of the contract, whether the task undertaken in the instant case was one of those contemplated in the contract, whether the steps taken were reasonably necessary in pursuance of that task, whether the rate at which they were then charged was reasonable having regard to the principles normally applicable to solicitor-client costs, and whether any other principles drawn from the general law of contract would in whole or in part deny the claimant its prima facie right to judgment. These are all matters of objective assessment.

[21] A number of cases were cited to us in relation to indemnity clauses of this type but the result inevitably depends upon the true interpretation of the provision at issue and its application to the circumstances of the case. We

agree with Panckhurst J that a provision of this type is to be interpreted upon ordinary principles of construction which require consideration of the language used in the context of the agreement as a whole in its factual matrix. If it is established that the provision for indemnity costs is applicable in the circumstances, then it is enforceable in accordance with its terms unless public policy considerations require a different result. The amount of any costs so awarded must be objectively reasonable.

[14] Wild J in Black v ASB Bank Ltd has succinctly summarised the relevant questions a Judge should consider:

[80] Assessing whether the indemnity costs claimed under a contract are reasonable involves the Court making an objective assessment of these matters:

(a) what tasks attract a costs indemnity on a proper construction of the contract;

(d) whether the rate at which the steps were charged was reasonable having regard to the principles normally applicable to solicitor/client costs; and

(e) whether any other principles drawn from the general law of contract would in whole or in part deny the claimant its prima facie right to judgment.

[15] Rule 14.1(1) provides that “all matters are at the discretion of the court if they relate to costs”. Rule 14.1(2) provides that rr 14.2 to 14.10 are subject to r 14.1(1).

[16] However, despite the wide discretion that this rule gives to the Court, the Court of Appeal in Watson & Son Ltd has made it clear that there is no discretion when the parties have contractually provided for costs:

[35] It is clear in principle and on authority that once it is established that the indemnity is applicable in the circumstances and that, properly construed, it includes solicitor-client costs, no discretion remains available other than on public policy grounds or as part of an assessment by the court as to whether the amount of the solicitor-client costs is objectively reasonable ...

[36] ... In the absence of any countervailing public policy considerations, the court is concerned only with assessing the reasonableness of the amount of the solicitor-client costs incurred.

[17] Clause 12 expressly provides for legal costs that are incurred from or related to any default under the loan agreement. The proceedings brought concerned whether MSM could enforce its security for the unpaid mortgage debt. This type of action is covered by cl 12(a)(iv): “legal services relating to the protection of the lender’s security interest”.

[18] Nautilus expressed doubt as to whether cl 12 covered costs incurred by MSM in its capacity as defendant on an application for an interim injunction. I consider that cl 12 is drafted in very broad language so that it would encapsulate all costs incurred that is related to a default under the loan agreement. The Court of Appeal in Official Assignee v Haines House Removals Ltd [2013] NZCA gave effect to the similarly broad wording of an indemnity clause. In particular, a literal interpretation of the words “relating to” was taken to mean “a connection or link”: [16]. Defending the application for an interim injunction was clearly connected and linked to MSM’s enforcement or exercise of any of its rights under the loan agreement, or the protection of its security interest.

[19] I am unable to assess whether the steps taken were reasonably necessary and the reasonableness of the solicitor-client costs: questions (c) and (d) in [80] of Black v ASB Bank Ltd.

[20] Where the party liable to pay the indemnity costs is not content with the Court’s assessment of the reasonableness of the costs, Black v ASB Bank Ltd proposes three options at [82]-[84]. They are set out in the Nautilus parties’ memorandum at [8]. The Nautilus parties have also set out a proposed procedure at [7] of its memorandum on costs.

[21] MSM has not made any response to the above proposals. Before I determine which of the above proposals for determining the reasonableness of the costs sought is to be followed, I consider that MSM should have an opportunity to comment on this choice.

[22] MSM has 14 days from the date of delivery of this decision to file submissions on the approach to be taken to determine the quantum of the costs award.

[23] Pursuant to r 14.6(4)(e), MSM is entitled to an award of solicitor-client costs. [24] The quantum of the costs award will be determined following receipt of

High Court of New Zealand Decisions

MSM Enterprises (PTE) Limited v Nautilus Family Trust Limited [2014] NZHC 986 (13 May 2014)