Equity Trust International Limited v Buschuev [2017] NZHC 2868 (22 November 2017)

Last Updated: 29 November 2017

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV 2016-404-706 [2017] NZHC 2868

BETWEEN	EQUITY TRUST INTERNATIONAL LIMITED First Plaintiff
AND	SOUTH PACIFIC CORPORATION LIMITED Second Plaintiff ALEXANDER BUSCHUEV First Defendant OLEG KHMELEV Second Defendant NZ CORPORATE SERVICE LIMITED Third Defendant

Hearing:	On the papers
Judgment:	22 November 2017

_{COSTS JUDGMENT OF DUFFY J}

This judgment was delivered by me on 22 November 2017 at 3.00 pm pursuant to

Rule 11.5 of the High Court Rules.

Registrar/ Deputy Registrar

Solicitors/Counsel:

George Bogiatto, Barrister

Natalie Tabb, Barrister, Auckland

EQUITY TRUST INTERNATIONAL LTD & ANOR v BUSCHUEV & ORS [2017] NZHC 2868 [22 November

2017]

Introduction

[1] The plaintiffs, Equity Trust International Ltd and South Pacific Corp Ltd, brought proceedings against the three defendants alleging that they used confidential information in breach of contract and in breach of their fiduciary duties. On 19 June

2017 the plaintiffs informed this Court that they discontinued their proceedings against all defendants.

[2] The second and third defendants now seek costs of $6,800, calculated on a 2B basis, in reliance on the general rule that a discontinuing plaintiff will be liable for costs. The plaintiffs submit that costs should lie where they fall, and suggest that the plaintiffs should be awarded costs in respect of their successful application for search and discovery orders.

[3] Ms Tabb advises that she no longer acts for the first defendant. The first defendant has taken no steps to file memoranda as to costs. Ms Tabb has filed a memorandum as to costs on behalf of the second and third defendants. The second defendant is now deceased, so Ms Tabb says that his estate will be entitled to any costs award made in his favour. Mr Bogiatto for the plaintiffs submits that Ms Tabb does not have current instructions to act for the deceased second defendant or his personal representatives, and says that her memorandum should accordingly be read as being on behalf of the third defendant only. He presents no evidence for such an assertion. Ms Tabb has filed her costs memorandum on behalf of both the second and third defendants and in the absence of any evidence to the contrary, I am prepared to accept that she acts for both.

Procedural history

[4] The plaintiffs filed a statement of claim on 7 April 2015, and the defendants filed a statement of defence on 7 June 2015.

[5] The plaintiffs then filed a without notice application for search and discovery orders, which was granted by Faire J on 19 April 2016. An independent solicitor,

Mr Aulakh, was appointed to supervise and assist in the implementation of the search and discovery orders and to report to the Court. Ms Tabb challenged the orders on

behalf of the second and third defendants, applying for the orders to be set aside on the grounds that Mr Aulakh lacked the necessary independence. In particular, she said the plaintiffs had failed to disclose that Mr Bogiatto is a shareholder of a company interested in the litigation, and that Mr Aulakh and Mr Bogiatto share an office and Mr Aulakh was until recently employed by Mr Bogiatto. The plaintiffs in turn applied for unless orders in relation to the defendants’ non-compliance with the search and discovery orders, and for further and better particulars of defence.

[6] Whata J heard both these applications on 3 August 2016. On 8 August 2016 he dismissed the defendants’ application to set aside the orders in relation to

Mr Aulakh’s alleged lack of independence.¹ He considered that although Faire J

should have been made aware of the connection between Mr Aulakh and Mr Bogiatto, Mr Aulakh had the requisite independence and experience. Mr Bogiatto’s position provided more cause for concern, in Whata J’s view, given that he had had invoked the Court’s search powers without declaring his apparent interest in the first plaintiff. Whata J ultimately reserved his position on this aspect of the defendants’ application, granting Mr Bogiatto one month to provide a full explanation.

[7] As for the plaintiffs’ application for further discovery, Whata J expressed the view that the plaintiffs’ position was “not watertight”, given the failure to disclose the connection between Mr Aulakh and Mr Bogiatto, and between Mr Bogiatto and the first plaintiff.² He also considered that it was not clear the defendants had failed to comply with discovery orders, given that Muir J had earlier granted an extension of time. He therefore declined to make unless orders. However, he ordered that the first and third defendants were to complete discovery and to provide further and better particulars. The position in respect of the second defendant was reserved pending the appointment of a representative.

[8] In a Minute dated 31 August 2016, Edwards J noted that the proceeding had settled in principle, a draft deed of settlement having been circulated for consideration and execution. She accordingly stayed the timetabling orders made by Whata J on 8

_{August 2016. On 17 October 2016, the proceeding was listed in the Duty Judge list}

¹ Equity Trust International Ltd v Buschuev [2016] NZHC 1799.

² At [21].

but Heath J’s Minute records that it was adjourned to allow settlement discussions to continue.

[9] On 9 December 2016, Mr Bogiatto for the plaintiffs filed a memorandum advising the Court that the matter had not settled as anticipated. His instructions were to continue with the proceeding.

[10] On 19 June 2017, the matter came before me. Mr Bogiatto then advised me that the plaintiffs had discontinued proceedings.

Analysis

[11] Rule 15.23 of the High Court Rules 2016 applies to costs in the context of discontinuance of proceedings:

15.23 Costs

Unless the defendant otherwise agrees or the court otherwise orders, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance.

[12] There is thus a presumption in favour of awarding costs to a defendant against whom a proceeding has been discontinued, unless it is just and equitable not to apply that presumption.³ The onus falls on the plaintiff who has discontinued the proceeding to persuade the Court that the presumption should be displaced.⁴

[13] Mr Bogiatto submits that the plaintiffs decided to discontinue the proceedings as the second defendant had died shortly after the proceedings were served; the third defendant had ceased to trade following the search and discovery orders; and the plaintiffs realised the first defendant lacked financial means. He says it therefore did not make commercial sense and would have wasted court time and resources to continue with the proceedings. He points out that the defendants failed to comply with discovery orders and that settlement discussions came to nothing. In light of what Mr

_{Bogiatto says is the injury the plaintiffs have already sustained at the hands of the}

³ Kroma Colour Prints Ltd v Tridonicatco NZ Ltd [2008] NZCA 150, (2008) 18 PRNZ 973 at [12];

Yarrall v Earthquake Commission [2016] NZCA 517 at [12].

⁴ Yarrall v Earthquake Commission, above n 3, at [12].

defendants, he submits that the Court should exercise its discretion not to award costs to the defendants.

[14] In my view the plaintiffs have not provided any adequate reason to displace the presumption that a discontinuing plaintiff is required to pay costs to the defendant. The fact the plaintiffs realised it no longer made “commercial sense” to continue with the proceedings does not affect their liability for costs. Insofar as the plaintiffs allege breaches of discovery orders by the defendants, the proper avenue for complaint about this would have been to apply to the Court at the time. In any event, as Ms Tabb notes, Muir J granted an extension of time for compliance with discovery obligations on 30

May 2016. In light of that extension, Whata J later noted that “it is not clear that there has been a default” in complying with the discovery obligations.⁵ The Court is not presently in a position to evaluate whether or not the defendants complied with discovery obligations after Whata J’s decision on 8 August 2016 and the reasons for this. Delays in discovery or failures to provide discovery may be explained, for example, by the fact that the parties were engaging in settlement negotiations from late August 2016.

[15] It follows that I am satisfied the second and third defendants are entitled to costs on a 2B basis.

[16] Mr Bogiatto seeks costs in relation to the plaintiffs’ successful application for search and discovery orders, which he says have not yet been dealt with. He phrases his submission in the following way:

Should the Second and Third Defendants pursue their application for costs and disbursements against the Plaintiff, it is submitted that the Plaintiffs be awarded costs on the successful application for search and discovery orders on a 2B basis.

[17] Mr Bogiatto has not quantified or itemised what such costs would be. In any event I do not consider that the plaintiffs are entitled to costs on the search and discovery orders application. Although they were successful in obtaining those orders

_{on an ex parte basis, Whata J later made adverse comments on the application: he}

⁵ At [21].

suggested that Mr Bogiatto should have advised the Court at the time the ex parte application was made of his own connection with the plaintiffs and his connection to Mr Aulakh, the proposed independent solicitor. It appears that the defendants’ application to set aside the orders was not ultimately decided, as Mr Bogiatto was given one month to provide a full and detailed explanation as to the non-disclosure. When the matter again came before the Court, the parties advised that they had settled in principle and were finalising their settlement agreement. In light of the fact that the defendants’ application to set aside the orders was never finally decided, but appeared to have some merit, I am satisfied that costs in relation to the search and discovery orders should lie where they fall. This includes the costs of both parties in relation to the hearing before Whata J on 3 August 2016, in which both parties had some measure of success.

Result

[18] Having deducted the time allocation of 0.2 days for the hearing before Whata J from the defendants’ itemisation of costs, the second and third defendants are awarded costs of $6,244 and disbursements of $110, coming to a total of $6,354. Given that the first defendant has not taken any steps in relation to costs, the first defendant is not awarded costs.

[19] Costs in relation to the ex parte application for search and discovery orders are to lie where they fall.

Duffy J