McArthur Ridge Investments Limited v Schulz [2015] NZHC 600 (27 March 2015)

Last Updated: 10 June 2015

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV- 2011-409-1680 [2015] NZHC 600

BETWEEN	MCARTHUR RIDGE INVESTMENTS LIMITED Plaintiff
AND	ROBIN ANTHONY SCHULZ Defendant

Hearing:	27 March 2015 (On the papers)
Appearances:	T Shiels for Plaintiff M J Wallace for Defendant
Judgment:	27 March 2015

_{JUDGMENT OF MANDER J}

[1] At the conclusion of my judgment of 12 August 2014, and after finding that an alleged settlement of the dispute had not been reached, I noted that the parties were agreed that costs were to be reserved. The plaintiff, however, now seeks costs. I have received memoranda from the parties regarding this issue.

Indemnity costs

[2] The plaintiff has submitted that it has an entitlement to full solicitor-client costs on the basis that it is entitled to indemnity costs as a contractual right. Alternatively, that indemnity costs are justified because the defendant’s actions in requiring the preliminary question to be determined were vexatious, frivolous and improper.¹

[3] The defendant does not dispute that the terms and conditions of the loan agreements ultimately assigned to the plaintiff provide for the recovery of such costs,

¹ _{High Court Rules, r 14.6(4)(a) and (e).}

MCARTHUR RIDGE INVESTMENTS LIMITED v SCHULZ [2015] NZHC 600 [27 March 2015]

but submits that, notwithstanding that contractual obligation, the Court must still determine under r 146(1)(b) of the High Court Rules (HCR) that the actual costs incurred by a party were reasonably incurred. Whether the indemnity costs claimed under a contract are reasonable will involve the Court making an objective assessment of whether the tasks undertaken were reasonably necessary and were covered by the contract, whether the charge rate(s) was reasonable and where any other general contract law principles should deny the claimant its prima facie right to

judgment.²

[4] The indemnity costs sought by the plaintiff are as follows:

• Counsel’s invoice, 5 August 2014 $17,223.92

• Solicitor’s invoice, 29 May 2014 $9,569.79

• Solicitor’s fees, 11 July 2014 $9,929.90

TOTAL $36,723.61 (GST exclusive)

[5] Scale costs have been calculated by the plaintiff by application of sch 3. Insofar as the schedule can be applied to the hearing of a preliminary or discrete issue, an amount on a 2B basis of $18,606.50 is claimed in the alternative by the plaintiff.

[6] I am satisfied that the terms and conditions of the three credit facilities, the rights in respect of which were assigned to the plaintiff, provide for the recovery by the plaintiff of costs incidental to the enforcement of the loan agreements, including legal fees on a solicitor-client basis incurred in connection with the lender’s (the

_{plaintiff) rights or remedies.}

² Watson & Son Ltd v Active Manuka Honey Association [2009] NZCA 595 at [20], citing Frater Williams & Co Ltd v Australian Guarantee Corporation (NZ) Ltd (1994) 2 NZ ConvC 191,873 at 191,887.

[7] The defendant challenges the reasonableness of the claimed indemnity costs on the basis that it is not possible to discern from the solicitor’s invoices whether the rates and amount charged is reasonable. The plaintiff observes that there appears to be a “considerable doubling up of effort”. The plaintiff refers to the scale calculation as a touchstone for reasonableness on the basis that the scale is intended to be two- thirds of actual costs, and that the sch 3 calculation provided by the plaintiff is “at the very least generous”.

[8] In response to these arguments the plaintiff advises that the solicitor’s costs include effort required to review correspondence in relation to other proceedings that the plaintiff had referred to in his brief of evidence but which were not relevant.

[9] I do not have enough information to undertake any accurate assessment of whether the tasks undertaken by the solicitor were necessary or efficiently carried out. The costs, however, were incurred by the plaintiff and, therefore, in accordance with the contractual obligation on the defendant, available to be recovered from the defendant. Unlike counsel’s invoice, however, the solicitor’s invoices do not provide any indication of the time spent on the tasks listed. It is therefore difficult to gauge the reasonableness of the amount of time spent on each of the tasks which resulted in the total fee sought. No hourly rate is disclosed in the invoices, although that by itself would not be of significance if the amount of time incurred by the solicitors on each of the listed tasks had been disclosed.

[10] In my view, the appropriate course is to allow indemnity costs in respect of counsel’s invoice, amounting to $19,807.50, and two-thirds of the solicitor’s fees in the absence of the Court being able to make an accurate assessment of the solicitors’ costs. This is not to say that the solicitor’s costs were not reasonably incurred, but the identified deficiency in the information supplied in the solicitor’s invoices means the Court is inevitably forced to apply some formula by which it can have confidence that the expenses were reasonably incurred. Two-thirds of the total solicitor’s costs of $19,499.69 is a sum of $12,999.66. When combined with counsel’s fees of $17,223.92 it amounts to $30,223.58.

[11] Having found that there is a contractual basis for the award of indemnity costs, it is not necessary for me to make any finding regarding the alternative basis upon which indemnity costs were sought under r 14.6(4)(a) HCR. I do, however, make the observation that, in my view, the defendant’s case was not so lacking in merit that it could be described as “vexatious, frivolous or improper”.

[12] The defendant argued that the fact the plaintiff had acquired the debt that it sues on for only $30,000 and, as was acknowledged by the plaintiff, for the strategic purpose of putting commercial pressure on the defendant, were matters that could be taken into account. I agree that such background matters may be of relevance to the question of costs. However, in the present case, the entitlement to an award of indemnity costs arises out of the contractual arrangements entered into between the parties, and it has not been contested that the plaintiff is not otherwise entitled to recover its costs in reliance on those contractual terms.

Deferment of costs

[13] The decision the subject of this costs application is under appeal. The defendant submits that while the Court might now fix costs, it would be appropriate for an order to be made that the costs be not payable until the final determination of the proceeding.

[14] The plaintiff acknowledges the extant appeal, but submits there is no reason in principle why, as in the ordinary course, a costs award ought not be made. The plaintiff has indicated that it will consider a practical approach as to whether, pending the appeal, any steps should be taken to enforce the award, and that, in any case, it is open to the defendant to seek a stay of enforcement of the costs award if that is considered necessary.

[15] In my view, there is no reason why the question of costs ought not be determined in the usual way. It will remain open to the defendant to seek a stay of enforcement pending the outcome of its appeal if it considers such a course is necessary. That is a discrete issue which would involve different considerations, about which I am not presently informed.

Increased costs

[16] A further argument put forward by the plaintiff was that, in the absence of the Court being satisfied that indemnity costs were appropriate, increased costs should be imposed. The foundation for that proposition was a submission that both the defendant’s argument, that the proceedings had settled; and the need for a separate hearing, lacked merit. It was argued that the defendant had been put on notice regarding the plaintiff ’s view of the defendant’s position, and that costs should be uplifted by 75 per cent to recognise that assessment.

[17] The defendant, in response, has observed that it was necessary for the plaintiff to call evidence and for the defendant to be cross-examined at the hearing, which it is submitted is inconsistent with its case lacking merit.

[18] I accept the plaintiff’s submission that, once the parties were engaged in arguing the discrete issue and the question put for the Court’s determination, the plaintiff was obliged to put its best case forward, adduce evidence and cross-examine the defendant. The approach I have taken does not require me to resolve the respective arguments of the parties relating to this particular aspect of the costs argument. In terms of the quantum of the award, the plaintiff has, in practicable terms, substantively achieved a 75 per cent uplift of a scale award. I observe, however, but for the contractual obligation rendering the defendant liable to pay indemnity costs, I would not have been minded to have uplifted scale costs, and certainly not by 75 per cent.

Result

[19] The defendant is ordered to pay the plaintiff indemnity costs in the sum of

$30,223.58.

Solicitors:

Van Aart Sycamore Lawyers Ltd, Dunedin

Cordner Hill, Christchurch