IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-725 [2015] NZHC 1572

BETWEEN	MICHAEL DAVID KIDD
Plaintiff	

AND	
ALEXANDER PIETER VAN HEEREN Defendant	

Hearing:	6 July 2015	

Counsel:	
B O'Callahan and E Morrison for Plaintiff
B Latimour and A Wakeman for Defendant	

Judgment:	
7 July 2015	

JUDGMENT OF FOGARTY J As to costs

This judgment was delivered by me on 7 July 2015 at 4.00 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date: ………………………….

Solicitors:	Kirkland Morrison O’Callahan Limited, Auckland
Jones Fee, Auckland

KIDD v VAN HEEREN [2015] NZHC 1572 [7 July 2015]

Introduction

[1]	The plaintiff applied to the Court seeking the remedy of taking of account. This was pleaded as an interlocutory application.  It was successful.1

[2]       An order for costs in favour of the plaintiff was made in these terms:2

The defendant shall pay the plaintiff’s costs of this application.

[3]       The parties have not agreed costs.  A number of issues divide them.   This judgment deals with two issues.   The remaining issues are subject to further submissions.

[4]       The issues deal with in this judgment are:

(a)	Whether the plaintiff is entitled to indemnity costs; and

(b)       Whether  the  order  for  costs  can  include  the  costs  of  the  second amended statement of claim filed on 27 May which preceded the application for the order for account, dated 27 June 2014.

Indemnity costs

[5]       The defendant seeks indemnity costs, relying on High Court Rule 14.6(4)(a)

or (f), which provide:

14.6	Increased costs and indemnity costs

…

(4)	The court may order a party to pay indemnity costs if—

(a)        the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or

…

1	Kidd v van Heeren [2015] NZHC 517.
2	At [172](i).

(f)        some other reason exists which justifies the court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious.

[6]       It is common ground that these proceedings were complex and significant and should be approached as category 3, under High Court Rule 14.3.

[7]       These proceedings had originally commenced in 1996 with the claim that the plaintiff and the defendant were in a worldwide 50/50 partnership.  The defendant applied to have the proceedings struck out or permanently stayed by relying on a written  indemnity  executed  by  both  the  plaintiff  and  the  defendant  and  dated
18 January 1991.   The defendant contended the indemnity constituted a complete defence as it provided for a full and final settlement of all matters between the parties.

[8]       On  21  May  2013,  the  South  Gauteng  High  Court  of  South  Africa (Satchwell J) declared the indemnity to be void and of no force and effect.  She did so having concluded “that there were misrepresentations which were deliberately made (by the defendant) to the plaintiff in order to get him to sign it”.3

[9]       The New Zealand judgment described this as a finding of deceit.4   Relying on this  finding  of  deceit,  the  successful  plaintiff  argued  that  the  defendant  has persistently failed to meet his obligation of utmost good faith to account to his partner for substantial assets and has attempted to relitigate matters that were already decided.  These circumstances fully warrant an award of indemnity costs.   In oral argument, Mr O’Callaghan described the defendant as having acted vexatiously in this regard.

[10]     As the New Zealand judgment records, for the interlocutory application to succeed it requires, as a preliminary step, declarations of the Court that there are partnership assets, or assets jointly owned, in respect of which there needs to be an
account taken.5

3	At [3].
4	At [115].
5	At [4].

[11]     The application before the High Court pleaded that the South African High Court judgment held that the two men were partners and had listed the assets of the partnership as including, but not limited to, thirteen categories.6

[12]     The defendant denied there was an issue estoppel.  That became the principal issue and, effectively, the only issue decided in the High Court judgment.

[13]     There was another ground pleaded:

To the extent that any findings in the judgment of Satchwell J do not give rise to an issue estoppel, it is likely that this Court will come to the same conclusions.7

[14]     The  New  Zealand  High  Court  judgment  did  not  engage  this  alternative pleading.   Rather, it found for the plaintiff on ground that the findings of misrepresentation were necessary to the reasoning of the South African High Court judgment and so gave rise to an issue estoppel in the New Zealand proceedings.

[15]     As the detailed reasoning of the New Zealand High Court judgment should demonstrate, the Court did not find it a straightforward matter to identify issue estoppel.  Issue estoppel could be reasonably argued either way.  The defendant was not acting vexatiously,  frivolously, improperly or unnecessarily in defending the application for the remedy of account by disputing issue estoppel arising from the South African High Court judgment.  He was entitled to test the law in New Zealand.

[16]     In the alternative to HCR 14.6(4)(d), Mr O’Callahan relied upon subcl (4)(f), set out above.   In this regard, he argued that the defendant relied on his deceitful conduct to oppose the application for the remedy of account.

[17]     In Devicich v AMI Insurance Ltd8 the High Court considered the bringing of a  fraudulent  insurance  claim  was  flagrant  misconduct  justifying  the  award  of
indemnity costs. This case is far removed on the facts.

6	At [5].
7	Plaintiff ’s interlocutory application dated 27 June 2014, ground (h).
8	Devicich v AMI Insurance Ltd HC Auckland CIV-2009-404-567, 18 November 2011, [Judge]

[18]     The South African High Court did not award indemnity costs to the plaintiff. I was told from the bar that the reason why not was that Mr van Heeren had not perjured himself in the South African trial.

[19]     Mr O’Callahan’s argument reduces to the proposition that by opposing the justification of issue estoppel, Mr van Heeren was seeking to take advantage of conduct which had been held by the High Court of South Africa to be deliberately misleading, and so a deceit, thereby justifying the award of solicitor/client costs in his ineffectual opposition to the application for the remedy of account.

[20]     The strength of Mr O’Callahan’s argument is that if one presumes that the South African Court was right, then it is a cynical act on the part of Mr van Heeren to challenge the issue estoppel in New Zealand so as to reopen for reconsideration the nature of his conduct at the time the indemnity agreement was signed.  I do not think that argument is open to Mr Kidd.  This is because recognition of either res judicata or issue estoppel per rem judicatum is not founded upon a judgment of a Court that a peer court has made the correct finding and therefore there is no need for a trial.

[21]     The New Zealand judgment explains:9

[93]      It is important to keep in mind that a finding of issue estoppel does not depend upon a critique of Satchwell J’s judgment.  It is an analysis of what were the findings of fact, and mixed law and fact, necessary for her judgment.  The facts that she positively found: an ongoing partnership; and the presence of valuable worldwide partnership assets; after the supposed execution of the 1990 Genan agreement, are the two critical findings which Mr  van  Heeren  seeks  to  contradict.    Satchwell  J  made  these  positive findings,  notwithstanding the qualified finding of ‘not  proven’ as to the disputed Genan agreement.   The relevant fact is that the Judge  did  not consider the not proven Genan sale to disturb her findings of current worldwide partnership assets in [132].

[22]     On the facts of this case, the application of issue estoppel principles was not straightforward.  It was accordingly a legitimate defence for Mr van Heeren to raise.
That being so, neither (4)(a) or (f) apply.

9	At [93].

[23]     For these reasons, I do not think that the plaintiff qualifies to an entitlement for indemnity costs in pursuing the application for the remedy of account.

Scope of cost recovery – second amended statement of claim

[24]     The principal argument by the plaintiff for recovery of costs in respect of the second amended statement of claim is that the application for the taking of account was in effect analogous to an application for a summary judgment.  Analogies are always imperfect.  This one is.  The remedy of taking of account in this case is not a simple exercise.  As the New Zealand judgment records, there may still be an issue
as to whether the partnership is 50/50.10

[25]     These proceedings were originally commenced in 1996.   The proceedings were stayed in New Zealand to enable the defendant to dispute the challenge to the indemnity in the South African jurisdiction.  Following the judgment of the South African High Court in 2013, the same counsel and solicitors who conducted the application for issue estoppel prepared and filed a second amended statement of claim.  That statement of claim patently takes advantage of the findings of fact in the South African  judgment  through  its  pleadings  do  not  mirror  the  South African judgment.  For example, it pleads common ownership in the shares in or assets of Genan Trading.  Whereas, the South African judgment examined the disputed sale of
the shares, finding the sale was “not proven”.11

[26]     Mr O’Callahan argued that although he was seeking costs in the proceeding, akin to a consequence of a summary judgment, he was in fact seeking costs only from the time of filing the second amended statement of claim.   He said that this pleading followed a careful study of the judgment of the South African High Court.

[27]     If and when these proceedings are finally resolved, all costs not recovered can be pursued by either party, depending on the issue.   Therefore, rather than approaching  the  issue  as  framed  by Mr  O’Callahan  as  seeking  all  costs  in  the
proceeding but in fact counting only from the second amended statement of claim, I

10	At 106] and [148].
11	At [88] – [92].

have framed the issue as to whether the order for costs now can include the costs of the second amended statement of claim.

[28]     I consider the filing of the second amended statement of claim after the South African judgment was necessary in order to provide the context for the application for taking of account, as an interlocutory application.  Furthermore, I think that there is a significant overlap in the preparation of the pleadings in the second amended statement of claim and in the preparation of the application for taking of account.  So significant that the two tasks should not be treated separately, as that could involve some double-counting.   It is appropriate that the costs in preparing the second amended statement of claim be taken into account now and allowed.

[29]     Costs are reserved, to be dealt with in the course of the second judgment to come on the balance of the cost issues.