Brkic v White [2018] NZHC 2868 (6 November 2018)

Last Updated: 16 November 2018

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2015-404-003066 [2018] NZHC 2868

BETWEEN	GORDON BRKIC, EMILIJA BRKIC and NAGI FALTAUS Plaintiffs
AND	CAROLINE RUTH WHITE, CRUMMER TRUSTEES NO. 82 LTD and MARK DONALD STALKER as Trustees of the GRAFTON ROAD TRUST Defendants

Hearing:	(On the papers)
Counsel:	Phillip Rice for the Plaintiffs Lawrence Herzog for the Defendants
Judgment:	6 November 2018

_{[COSTS] JUDGMENT OF MOORE J}

This judgment was delivered by me on 6 November 2018 at 3:00 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/ Deputy Registrar

_Date:

BRKIC & ORS v WHITE & ORS [2018] NZHC 2868 [6 November 2018]

Introduction

[1] On 18 June 2018 I entered judgment for the plaintiffs, and ordered that the defendants repay the loan sum of $109,820 together with interest.¹

[2] The defendants raised two matters in defence: that the loan agreement and associated agreement for sale and purchase were the product of fraudulent misrepresentation, or fraudulent alteration. The first defence was abandoned at hearing, and I rejected the second in my judgment.

[3] I indicated 2B costs were appropriate.² The plaintiffs have now filed a memorandum seeking $166,666.37 in indemnity costs and disbursements based on cl

14 of the loan agreement, which provides:

“14 COSTS

The borrower shall pay to the Lender on demand the amount of all reasonable costs, charges and expenses (including legal fees and disbursements calculated on a solicitor and own client basis) incurred by the Lender in connection with the negotiation, preparation, execution, enforcement and administration of this Deed and the Security Documents.”

[4] The defendants oppose the award of indemnity costs. This judgment resolves that dispute.

Indemnity costs principles

[5] Where the party claiming costs is entitled to indemnity under a contract or deed, the court may order the other party to pay indemnity costs.³ The approach to be taken was set out in Black v ASB Bank Ltd, and is summarised below:⁴

(a) An order for indemnity costs pursuant to a contractual provision is distinct from an order for indemnity costs under other parts of r 14.6(4).

¹ Brkic v White [2018] NZHC 1458.

² At [85].

³ High Court Rules 2016, r 14.6(4)(e).

⁴ Black v ASB Bank Ltd [2012] NZCA 384 at [77]- [99].

(b) Namely, while indemnity costs arising out of a contractual right must be “reasonable”, “reasonable” does not import a discretion in the usual sense. Assessing whether indemnity costs claimed under a contract are reasonable involves the Court making an objective assessment of:

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

(ii) whether the tasks undertaken were those contemplated in the contract;

(iii) whether the steps undertaken were reasonably necessary in pursuance of those tasks;

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

(v) 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.

(c) The time and other pressures on judges and associate judges leave “room for robust judgment as to the costs considered reasonable in all the circumstances”.⁵ A liable party seeking a detailed vetting of reasonable has three avenues:

(i) requesting the judge to order indemnity costs subject to taxation;

(ii) seeking agreement to refer the claim to a suitably qualified practitioner to vet it for reasonableness; or

5. Frater Williams & Co Ltd v Australian Guarantee Corp (NZ) Ltd (1994) 2 NZ ConvC 191,873 (CA) at 191,887.

(iii) reference of the costs invoices to the New Zealand Law Society under the complaints procedure in s 132(2) of the Lawyers and Conveyancers Act 2006.

Are the plaintiffs entitled to costs?

[6] I have little doubt cl 14 entitles the plaintiffs to an award of legal costs on an indemnity basis. It explicitly refers to entitlement to legal fees and disbursements calculated on a solicitor-client basis. The only real question is whether the clause captures legal costs incurred in respect of litigation brought to enforce the loan agreement. Unlike other indemnity clauses, for example that in Watson & Son Ltd v Active Manuka Honey Association, cl 14 does not refer to indemnity for costs related to “actions and damages that may result”.⁶ But in my view reference to “enforcement”, read in light of the reference to “legal fees and disbursements”, plainly contemplates the possibility of enforcement by litigation, and indemnity for those costs. Mr Herzog, for the defendants, did not dispute that this was the correct interpretation.

Have the plaintiffs claimed reasonable costs arising from the indemnity?

[7] Mr Herzog instead focused his submissions on whether the quantum claimed was reasonable. He argued that in the absence of itemised fee statements and time records to support the reasonableness of its fees claimed, the plaintiffs had failed to discharge the onus of establishing the reasonableness of the fees sought, and should only be awarded costs on a 2B basis. He added that the amount claimed clearly exceeds what is reasonable.

[8] Mr Rice for the plaintiffs submitted the amount claimed is reasonable when regard is had to:

(a) the seriousness of the allegations made, namely misrepresentation and fraud by a professional person (Mr Faltaus, the third plaintiff);

_{(b) the factual complexity of the case, which was heard over three days;}

⁶ Watson & Son Ltd v Active Manuka Honey Association [2009] NZCA 595 at [27].

(c) the extent of the defendants’ discovery (3,500 pages) and the trial bundle, which comprised seven volumes;

(d) the wasted costs incurred by the defendants’ late application to adjourn the trial date to join another party; and

(e) the wasted costs incurred by the defendants’ abandonment at trial of the allegations of misrepresentation.

[9] In terms of the five criteria listed in Black v ASB Bank Ltd, the only criteria upon which it is possible to question the schedule of costs claimed is whether the steps undertaken were reasonably necessary in pursuance of those tasks, and relatedly whether the amount of time spent on each step was reasonably necessary.

[10] Mr Rice has provided a schedule which categories the costs claimed as follows:

(a) $4,312.50 – initial meeting with client, drafting summary judgment proceedings;

(b) $25,122.50 – considering defendants’ affidavits, drafting affidavits in reply, drafting a notice of opposition to application for security for costs, drafting submissions for the summary judgment application;

(c) $9,271.88 – considering a further affidavit of defendants, preparing for and attending hearing;

(d) $46,000 – considering the decision of Associate Judge Sargisson, drafting a memorandum for a case management conference, arranging a new instructing solicitor at the insistence of the defendants, preparing an affidavit of plaintiffs’ documents, inspecting the defendants’ documents, contacting possible witnesses, preparing briefs of evidence, appearing at a chambers hearing, considering the statement of defence and counterclaim, drafting the request for further and better particulars, and considering the defendants’ further and better particulars;

(e) $32,290.62 – considering the defendants’ further documents, preparing bundles, applying to the High Court to inspect the court file on a related proceeding, preparing a chronology, preparing opening submissions and other trial preparation, opposing the defendants’ application to adjourn the trial, preparing a memorandum on wasted costs, extensive correspondence with the defendants’ counsel and the High Court; and

(f) $34,500 – considering the amended statement of defence and counterclaim, considering the defendants’ expert and lay evidence, preparing for and attending trial, preparing further submissions called for by the Judge, considering the judgment and preparing a memorandum on costs.

[11] I am satisfied the steps taken were reasonably necessary, with two exceptions. First, following the defendants’ adjournment application, Downs J awarded the plaintiffs wasted costs of $8,028 on a 2B basis. It is apparent that at least part of the costs set out at [10](e) relate to the same steps. A reduction is required to account for that duplication.

[12] Secondly, I am not prepared to award indemnity costs for the final two steps referred to: considering the judgment and preparing a memorandum as to costs. Neither step was reasonably necessary in pursuance of enforcement of the loan agreement.

[13] Taking a robust approach, I determine that a reduction of $20,000 is appropriate to reflect the foregoing.

[14] There is one further problem with the quantum claimed. GST has been claimed in respect of each invoice. As the Court of Appeal has recently said:⁷

“An award of indemnity costs will include GST if the successful party is not able to recover the GST component. Conversely, it will not include GST if the successful party is able to recover the GST component. Usually this will simply depend on whether the successful party is GST—registered. ...

⁷ New Zealand Venue and Event Management Ltd v Worldwide NZ LLC [2016] NZCA 282, (2016)

[2016] NZCA 282; 23 PRNZ 260 at [13]- [15] (footnotes omitted).

The rationale for this rule is straightforward: awarding GST-inclusive indemnity costs to a successful party that is GST-registered would usually result in double recovery of the GST component. Conversely, failing to award GST to a successful party that is not GST-registered means it would not achieve full recovery.

Indemnity costs are treated differently to scale costs in relation to GST because an award of indemnity costs aims to provide the successful party with full recovery (or at least something very close to it), rather than merely a reasonable contribution to its costs. There cannot be a proper determination of the full recovery amount without knowing the GST liabilities of the successful party.”

[15] Where there is no indication by the successful party that it is not able to recover GST, the court will follow its usual practice of awarding indemnity costs on the basis the successful party is GST-registered and entitled to a GST input credit.⁸ Here there has been no indication that the plaintiffs, previously the owners of a commercial unit in Auckland which they intended to lease to the first plaintiff’s company, are not GST- registered. Therefore the GST component of the costs claimed should also be removed.⁹ This amounts to a reduction of $19,760.55.

[16] Finally, I have reviewed the disbursements claimed, and am satisfied they are reasonable, exclusive of GST.¹⁰

Result

[17] The plaintiffs are awarded indemnity costs, in the sum of $111,736.95.

[18] The plaintiffs are entitled to disbursements, exclusive of GST, to be fixed by the Registry.

_{Moore J}

⁸ At [12] and [16].

⁹ In calculating the final award of costs, I have removed the GST component before reducing by

$20,000. That reduction takes into account the removal of GST from the relevant invoices.

¹⁰ New Zealand Venue and Event Management Ltd v Worldwide NZ LLC, above n 7, at [17].