Harris Group Limited v Gulliver's Pacific Limited [2019] NZHC 1539 (2 July 2019)

Last Updated: 5 July 2019

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2018-404-2358 [2019] NZHC 1539

BETWEEN	HARRIS GROUP LIMITED Plaintiff
AND	GULLIVER’S PACIFIC LIMITED First Defendant HELLOWORLD TRAVEL SERVICES (NZ) LIMITED Second Defendant

Hearing:	On the papers
Appearances:	D A Campbell and R F Leggett for the Plaintiff D McGill for the Defendants
Judgment:	2 July 2019

JUDGMENT OF GAULT J

(Costs)

This judgment was delivered by me on 2 July 2019 at 4 p.m. pursuant to r 11.5 of the High Court Rules 2016.

Registrar/Deputy Registrar

..........................................

Solicitors:

Mr D A Campbell and Mr R F Leggett, Kensington Swan, Auckland Mr D McGill, Duncan Cotterill, Auckland

HARRIS GROUP LTD v GULLIVER’S PACIFIC LTD [2019] NZHC 1539 [2 July 2019]

[1] The plaintiff seeks indemnity costs following its application for summary judgment, which was otherwise settled.

[2] The parties consented to timetabling directions and for costs to be determined on the papers unless the Court wished to hear from counsel.

Background

[3] The plaintiff was a conference and incentives management consultant to the first defendant, which is owned by the second defendant.

[4] On 26 March 2018 the parties entered into a deed terminating their relationship. Relevantly, the deed required the first defendant:

(a) to make a payment to the plaintiff by 30 September 2018; and

(b) calculate the NPBT (net profit before tax) of the conference and incentives business and provide financial records needed to determine the calculation by 30 October 2018 (with a further payment due depending on the NPBT).

[5] The deed contained an indemnity provision, which provided that:

If any party defaults (Defaulting Party) for any reason in payment of any amount under this Deed or the Go C&I Agreement (as varied by this Deed) on the due date (time being strictly of the essence), the Defaulting Party shall, upon demand, pay to the party entitled to receive the amount interest at 14% per annum calculated on a daily basis on the amount so unpaid from the due date until payment, but without prejudice to any of the other party’s other rights or remedies under this Deed or the Go C&I Agreement or otherwise in respect of the default. The Defaulting Party shall indemnify the party entitled to receive such amount for all costs of enforcement (including legal fees on a solicitor-client basis).

[6] On 1 October 2018 the defendants’ solicitors wrote to advise the plaintiff that the first defendant refused to make the payment due on 30 September 2018 on the basis that the plaintiff had allegedly acted in bad faith and breached certain provisions of the deed.
[7] On 4 October 2018 the plaintiff’s solicitors responded denying any contravention of the deed, making demand for payment and threatening proceedings.

[8] On 8 October 2018 the plaintiff’s solicitors followed up by email. That email indicated that there was no reason to delay drafting proceedings because the defendants had provided full indemnities to the plaintiff for any costs incurred in enforcing the deed.

[9] On 9 October 2018 the defendants’ solicitors responded advising that the first defendant was in the process of transferring the funds demanded into the defendants’ solicitor’s trust account pending the defendants’ enquiry into compliance with the deed. That letter stated that there were significant issues to be resolved and that it would be premature to issue proceedings.

[10] On Friday 12 October 2018 the plaintiff’s solicitors wrote again denying any contravention of the deed, making demand and reiterating the threat of proceedings with a deadline of Monday 15 October 2018.

[11] On 15 October 2018 the defendants again communicated to the plaintiff their position that proceedings were unnecessary to resolve the dispute. They advised they were holding the sum on trust.

[12] On 19 October 2018 the plaintiff issued proceedings alleging breach of the deed and claiming summary judgment.

[13] The first defendant did not provide the NPBT calculation or supporting financial records by 30 October 2018. The plaintiff amended its statement of claim and application for summary judgment to address this on 3 December 2018.

[14] On 10 December 2018, the day before the first call of the application for summary judgment, the first defendant transferred the payment due together with interest and $9,366 on account of scale costs. It also provided the NPBT calculation (without supporting financial records).
[15] Before the next call in February 2019, the first defendant agreed to provide the records sought. Some information was provided later in February 2019. The remaining information was provided on 5 April 2019.

Submissions

[16] The plaintiff submits that it is entitled to indemnity (solicitor/client) costs excluding GST pursuant to the deed in respect of three matters:

(a) initiating summary judgment proceedings and attendances until payment following the first defendant’s failure to make payment due under the deed ($32,391.67);

(b) attendances seeking information and continued attendances in relation to the proceeding following the first defendant’s failure to provide financial information in respect of its obligation to make a further payment under the deed ($22,149.33); and

(c) its costs submissions ($10,389).

[17] The plaintiff submits these solicitor/client costs totalling $64,930 are reasonable. After deducting the $9,366 already paid, the plaintiff seeks $55,564 plus disbursements of $1,173.91.

[18] The defendants submit that costs should lie where they fall because:

(a) the proceeding was unnecessary and no court order was required;

(b) alternatively, costs may be awarded on a 2B basis because the indemnity provision does not apply; and

(c) even if indemnity costs are payable on some or all of the proceeding, the costs were not reasonably incurred.

Legal principles

[19] There is no real dispute as to the applicable legal principles. Rule 14.6 provides for increased and indemnity costs. Where there is a contractual right to indemnity costs the question for the Court asked to make an order is: for the necessary steps, are the costs claimed reasonable in amount?¹ That is because r 14.6(1)(b) provides that the Court may make an order that the costs payable are the actual costs, disbursements and witness expenses reasonably incurred by a party (indemnity costs). Rule 14.6(4)(e) provides that the Court may order a party to pay indemnity costs if the party claiming costs is entitled to indemnity costs under a contract or deed. Indemnity costs under this limb are not related to the party’s behaviour. In Black v ASB Bank Ltd the Court of Appeal stated:²

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;

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

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

(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.

[20] The party claiming increased or indemnity costs carries the onus of persuading the Court that the award is justified.

[21] The time and other pressures on Judges leave room for robust judgment as to the costs considered reasonable in all the circumstances.³

¹ Black v ASB Bank Ltd [2012] NZCA 384 at [77].

² At [80] (footnote omitted).

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

Decision

[22] I first consider what tasks attract a costs indemnity on a proper construction of the deed. The deed applies to defaults in “payment of any amount” and provides that the defaulting party shall indemnify the party entitled to receive such amount for all costs of enforcement (including legal fees on a solicitor/client basis). I consider this is a clear example of the principle that one party may contractually bind itself to pay the other party’s full solicitor/client costs.⁴ Letters of demand and court proceedings to recover the amount due are clearly enforcement tasks, the costs of which attract the costs indemnity (including legal fees on a solicitor/client basis). I also consider these tasks undertaken were contemplated in the deed.

[23] However, the reference in the indemnity to defaults in “payment of any amount” indicates that, on its face, the indemnity does not apply to non-money obligations under the deed. The NPBT obligation gave rise to an obligation to pay a further amount depending on the NPBT that is determined. However, that dispute is apparently ongoing and the subject of an expert determination and, in any event, the relevant claim in the amended pleading seeks specific performance in relation to provision of the NPBT calculation and financial records and not any further payment.

[24] Therefore, even though I can see no basis for the first defendant’s delay in providing the NPBT calculation and financial records, I consider that under the indemnity the plaintiff is not entitled to solicitor/client costs of attendances seeking the NPBT and records and the continued attendances in relation to the proceeding occasioned by that claim. These were not tasks attracting a costs indemnity contemplated in the deed. While I considered making an award of scale costs in relation to these steps, on balance I decline to do so on the basis that there is no entitlement to costs as the matter was resolved by agreement.

[25] I turn to whether the steps undertaken within the scope of the indemnity were reasonably necessary. The defendants submit that the proceeding was unnecessary and point to the early indication in correspondence from the plaintiff’s solicitors that there was no reason to delay drafting the proceeding because the defendants had

⁴ Black v ASB Bank Ltd [2012] NZCA 384 at [78].

indemnified the plaintiff for costs incurred in relation to enforcing the deed, and the response from the defendants’ solicitor that the funds had been placed into the defendants’ solicitor’s trust account pending the defendants’ enquiry into compliance with the deed.

[26] The submissions indicate a factual dispute as to whether proceedings were necessary to obtain payment. I consider it is unnecessary to determine that factual issue, particularly on the limited basis of written submissions attaching inter-solicitor correspondence. Even assuming the plaintiff was more proactive than it might have been without the indemnity and the defendants’ payment into trust pending an enquiry was a reasonable and pragmatic approach, the defendants ran the risk that enforcement costs in relation to any default would be payable on a solicitor/client basis. The plaintiff’s evidence indicates that payment was due and the defendants’ initial basis for not paying did not materialise into any defence and/or counterclaim. In those circumstances, even though no court order was ultimately required, I consider the defendants were a party in default in terms of the indemnity provision. It would be different if the evidence indicated there was no default.

[27] Therefore, I consider that pursuant to the indemnity the plaintiff is entitled to receive the reasonable solicitor/client costs of commencing and continuing this proceeding until payment. I still must assess whether the steps undertaken were reasonably necessary and whether the rate at which the steps were charged was reasonable. I deal with these remaining issues together. Asking the court to deal with this matter on the papers necessarily calls for a robust judgment as to the costs considered reasonable in all the circumstances.

[28] I do not doubt that substantial attendances were required to commence and progress the proceedings. I note the invoiced fees of the plaintiff’s solicitors on a pure time and attendance basis would have amounted to $83,828 but were written down by the solicitors to $64,930. That is relevant to my assessment of their reasonableness. As is the $48,059.95 solicitor/client costs of the defendants’ solicitors. I do not consider the hourly rates of the plaintiff’s solicitors are unreasonable. I consider the write down adequately addresses the concern that the number of personnel involved indicates some level of duplication. Even so, the amount claimed is high given the
steps actually taken in the proceeding. As the examples included in the Court of Appeal’s judgment in Black v ASB Bank Ltd indicate, $64,930 would be commensurate with some awards of indemnity costs in a summary judgment that proceeded to a hearing.⁵ This matter did not proceed past calls in the summary judgment list. It did, however, involve substantial correspondence as well as an amended pleading.

[29] The defendants’ challenge to the reasonableness of the plaintiff’s solicitor/client costs focused first on the extent of the correspondence relating to the scope of the financial information and secondly on the amount claimed for costs on costs. The first issue no longer arises given my conclusion on the scope of the indemnity.

[30] The solicitor/client costs for the steps undertaken in pursuance of the payment obligation were $32,391.67. Overall, I consider these were reasonably incurred.

[31] In relation to costs on costs, costs may be awarded on an application for costs. I consider seeking costs, at least in relation to default in payment of an amount, is a task attracting the costs indemnity and contemplated in the deed. Here, the application for indemnity costs required an affidavit. Nevertheless, I consider the costs claimed for this step in the proceeding, reflecting my conclusion in relation to the scope of the indemnity and the number of lawyers involved, should be reduced to $5,000.

Result

[32] The plaintiff is awarded indemnity costs reasonably incurred of $37,391.67 plus disbursements of $1,173.91.

⁵ Black v ASB Bank Ltd [2012] NZCA 384 at [105]- [107].

Gault J