IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2009-404-6656 [2015] NZHC 316

BETWEEN	BODY CORPORATE
ADMINISTRATION LIMITED Plaintiff	

AND	
CYRUS MEHTA First Defendant

STRATA TITLE ADMINISTRATION LIMITED
Second Defendant	

Hearing:	5 February 2015	

Counsel:	
P J Wright for the Plaintiff
R Thompson for the Applicant/First Defendant
No appearance by or on behalf of the Second Defendant	

Judgment:	
6 March 2015	

JUDGMENT OF HINTON J

This judgment is delivered by me on 6 March 2015 at 4.30 pm pursuant to r 11.5 of the High Court Rules.

..................................................... Registrar / Deputy Registrar

Solicitors:	Madison Hardy, Auckland
James Keat, Auckland
Counsel:	P J Wright, Auckland
R Thompson, Auckland

BODY CORPORATE ADMINISTRATION LTD v MEHTA [2015] NZHC 316 [6 March 2015]

Introduction

[1]       This hearing was over residual costs issues between the first defendant, who is seeking costs, and the plaintiff.

[2]       The litigation history between the parties is complex.   The proceedings go back to October 2009.  Aspects of the proceedings are ongoing, although not, as I understand it, between the plaintiff and first defendant, other than in respect of the costs issues addressed in this judgment.

[3]       The residual costs issues have to be assessed in the light of the interim costs judgment of Allan J dated 15 February 2013.

[4]       Without a full understanding of the proceeding and of the conduct of the case, any detailed assessment of what are very detailed costs claims is obviously difficult.

Background

[5]       The plaintiff and the second defendant are leading providers of secretarial services to body corporates.  The first defendant was employed by the plaintiff until
31 October 2008 when his employment was terminated on the ground that he was thought to be planning a new business to compete with his employer.  Shortly after dismissal, he commenced employment with the second defendant.   The plaintiff became concerned that the first defendant had taken confidential information from it and on 12 October 2009, it commenced proceedings against the defendants.

[6]       The plaintiff successfully sought search orders and interim injunctions on a

‘without notice’ basis against the defendants.

[7]       On 22 April 2010, Allan J heard cross-applications by both parties.   The second defendant applied to discharge the search order.  The plaintiff sought an order “confirming the terms” of the search orders and confirming the interim injunctions until trial.   The second defendant’s application to discharge the search order was refused (“the first application”).

[8]       On 15 December 2010, Allan J heard a fresh application by the defendants for an order discharging the interim injunctions.   By this time the focus of the plaintiff’s  case  had  changed  and Allan  J  held  that  the  balance  of  convenience favoured the defendants.  The defendants were successful in having the injunction that  had  prevented  the  second  defendant  from  competing  with  the  plaintiff, discharged (“the second application”).

Interim costs decision

[9]       Detailed below are the findings of Allan J, so far as relevant.

[10]     Allan  J  held  that  the  plaintiff  had  a  sufficient  basis  for  issuing  the proceedings and seeking the interim orders.1

[11]     He noted the defendants’ intention to pursue a claim against the plaintiff for damages regarding the grant and maintenance of the interim injunctions, relying on the plaintiff’s undertaking.   He said such damages could include additional costs arising out of the time period the injunctions were maintained.2

[12]     Allan J did not consider it appropriate to award increased costs arising simply out of the plaintiff’s decision to obtain and maintain the search orders and injunctions.3

[13]     The plaintiff’s May 2011 Calderbank offer to discontinue the proceeding on a conditional basis was not material to costs as the defendants would not have been better off to accept the offer, nor should (as the plaintiff argued) it have been clear to the defendants from May 2011 that the plaintiff  would discontinue unconditionally. Had it been clear, that might have affected costs on applications subsequent to May
2011.4

[14]     In  fact,  given  the  plaintiff’s  position  that  it  had  in  effect  decided  to discontinue unconditionally as at 3 May 2011, Allan J considered the plaintiff had

1	Body Corporation Administration Ltd v Mehta [2013] NZHC 213 at [61].
2	At [67].

acted unreasonably from that point in not discontinuing and he awarded the defendants an increase of 50 per cent on costs from that date, save for costs on the costs applications.  He noted steps from May 2011 were, chiefly, discovery by the second defendant, filing and pursuit of applications for particular discovery and confidentiality  orders  and  defence  of  the  plaintiff’s  application  for  leave  to
discontinue on terms.5

[15]     Allan J concluded there should be no order for costs on the various costs applications to that point because on the major issue, he had rejected the defendants’ claim for increased/indemnity costs with regard to the whole proceeding (based on their contention that the plaintiff had no proper basis for search warrants in the first place).6

[16]     Allan J rejected the claim by the defendants for band C costs for preparing and filing of their statement of defence.  He said, while the case was not without its complexities, there was no warrant for a band C classification for those first steps and costs would be 2B.  Referring to the 'unders and overs' principle he said:7

[91]      …  Sometimes  the  scale  will  provide  an  over-recovery  for  a particular step, in other cases a party will recover less than might be thought appropriate.   But the over-riding principle in r 14.2(g),  is that as far as possible the determination of costs should be predictable and expeditious.

[17]     Allan J held that the ordinary rule would apply to costs on the April 2010 and December 2010 hearings and consequently BCA ought to have costs on the first judgment and the defendants on the second judgment.8

[18]     Each party had sought increased costs on the two interlocutory applications and  resulting  judgments  and Allan  J  was  unable,  on  the  material  available,  to determine whether increased or indemnity costs were appropriate.  He said he could
not see, on the material available, that either had a credible basis for increased costs,

5	At [83].
6	At [87]

though “there may be a case for an award at a band C level in a particular instance, but a case will need to be clearly made out for that”.9

[19]     The second defendant had sought a 50 per cent uplift for attendances between December 2010 and August 2011 because the defendants had to serve a notice for particulars and then to bring a later application.   Further, the second  defendant asserted the plaintiff was slow with discovery.   However there was no suggestion that the actual steps took longer than allowed by scale and a lot of the work referred to was post-May 2011 and therefore already subject to a 50 per cent uplift on scale.
This claim was therefore refused.10

[20]     Allan J held this was not a case where the defendants should have been required to join in their defence. They were entitled to costs on a separate basis.11

[21]     Delays that had occurred were not entirely the fault of one party or the other and were therefore not material to costs.12

[22]     Allan  J  did  not  fix  a  final  figure  for  costs  and  as  to  outstanding “particularised claims” he directed counsel to file memoranda setting these out (to be not only particularised but supported by evidence).

[23]     Counsel were directed to file a comprehensive table setting out details of costs so that it was not necessary to resort to earlier material.

Costs award based on interim costs judgment alone

[24]     On 22 April 2013 the plaintiff filed a memorandum concluding, at [190], that “the defendants should be awarded the costs set out at Table 3 and 4 attached”. These tables show the total costs to be awarded to the first defendant at $40,802.  In a subsequent memorandum, Mr Wright said that Table 3 was not a concession by the plaintiff  of  what  it  should  pay.     In  the  hearing  before  me,  he  raised  two
counterpoints, one being a set-off for costs claimed by the plaintiff on the April 2010

9	At [96].
10	At [99].

application and the other, a point in connection with “step 35”.   He said that, if wrong on these matters, he accepted the costs award would be $40,802.

[25]     In the April 2013 memorandum, the plaintiff claimed costs against the first defendant on the April 2010 application in the sum of either $9,440 or $20,640. There have been various memoranda filed since.  The plaintiff ’s application for costs against the first defendant does not seem to have been pursued in the memoranda subsequent to April 2013.  Mr Thompson was surprised when that claim was raised by the plaintiff at the hearing before me.  I also had not apprehended such a claim actually being pursued, on my reading of the papers filed.  While it is not crystal clear from the interim costs judgment, my view is that the costs award on the first application can only be against the second defendant, not the first defendant.  That application  was  made  by  the  second  defendant  and  argued  only by the  second defendant.  The plaintiff makes the point that the first defendant did not ever file his own application but rather joined in for purposes of the December 2010 hearing, but but that was clearly a permitted course and does not detract from a conclusion that costs  on  the  first  application  would  only  be  payable  by  the  second  defendant, whereas costs on the second application are clearly payable to both defendants.

[26]     The first defendant says further that he had made it clear to the plaintiff and the second defendant that the second defendant was to be solely responsible for costs on the first application; this was not countered, and costs issues between the second defendant and plaintiff have been settled.

[27]     In all the circumstances, it would be unreasonable for the plaintiff to advance a costs claim against the first defendant on the first application.  I rule against any such claim.

[28]      The second counter-point the plaintiff raised to what would otherwise be an agreed base award of $40,802, was in connection with “step 35” (filing application to strike out).  The first defendant had earlier mounted a claim for indemnity costs on step 35 but acknowledged that the actual cost incurred with regard to this step was less than scale plus a 50 per cent uplift (to which the first defendant was entitled in any event) and so reduced the claim to scale plus 50 per cent.   The plaintiff then

claimed that the first defendant could only recover its actual cost under step 35.  This must  be wrong.   The  basic  awards have  already been  determined  and  the first defendant is entitled to fall back on that.   The fact that the actual cost is less, is covered by the 'unders and overs' principle referred to at [91] of Allan J’s judgment.

[29]     The starting point therefore for a costs award in favour of the first defendant is the sum of $40,802 that appears at tables 3 and 4 of the plaintiff’s memorandum dated 22 April 2013.

[30]     There are then four “particularised claims” (to adopt Allan J’s language),

raised by the first defendant to justify an increase. These are set out below.

Step 19 – preparing affidavits for interlocutory hearing on 15 December 2010 –
claim for band C costs

[31]     Instead of 2B costs for preparing affidavits under item 4.12 for the hearing on

15 December 2010, the first defendant seeks 2C costs on the basis that the affidavits of all parties relied on at the 15 December 2010 hearing, ran to 1,540 pages and the work involved was complex and took a “comparatively large amount of time”.  He says that the affidavits substantively addressed the allegations made by the plaintiff and  that  the  allegations  were  answered  without  seeing  the  documents  that  the plaintiff alleged the first defendant had taken or used.

[32]     Previously, the first defendant had argued for even greater costs for preparing these affidavits, relying by way of analogy on costs for preparation of affidavits for a substantive  hearing.    Reliance  on  the  analogy  had  been  dropped,  in  my  view correctly, given the rule specifically provides for costs for preparing affidavits for an interlocutory hearing.  It would not be possible in those circumstances to draw any
analogy.  Costs by analogy are only available where there is no relevant provision.13

[33]     Where a claim is made under band C, the onus is on the person making the claim to show that a comparatively large amount of time for that step is considered
reasonable.

13	Rule 14.5(1)(b).

[34]     Allan J said that a case would need to be “clearly made out” for a band C award.  I am not satisfied that there is sufficient detail to support a band C award. For example, the first defendant has not provided a breakdown of the 1,540 pages into exhibits, documents prepared by the first defendant for the second application as compared  to  prepared  by the  other  parties,  or  documents  prepared  for  the  first application (not the subject of this costs judgment) but still relied on for the second. While I could closely inspect Volumes A-C, that then gives no opportunity to the plaintiff to respond.

[35]     The costs award in respect of step 19 will remain on a 2B basis.

Step 21 – inspection of documents – claim by analogy

[36]     Schedules 3 and 4 do not include any amount for inspection by the first defendant of its own and the second defendant’s records that had been seized under the search warrant by the plaintiff.   The first defendant says this is a special case where costs should be allowed by analogy to the costs that would be awarded to a party who had obtained discovery and was inspecting records of the other side.

[37]     The ability to obtain costs by analogy comes from r 14.5(1)(b).  There is little authority on that rule.  Nor is there anything in McGechan on Procedure to indicate how regularly or otherwise it is applied.

[38]     Mr Wright made the point (in which I see some merit) that the defendants should not have needed to go through their own documents to see whether there was something that caused them difficulty.  On their own case, they should have known there was not.

[39]     Nonetheless it does seem to me that in a special case such as a search and seizure situation, someone in the position of the first defendant, who was only an employee of the second defendant and who was facing serious claims, might quite reasonably not want to sit on his hands while the plaintiff inspects or has the ability to inspect large numbers of documents held or previously held, particularly by the second defendant.

[40]     In  these circumstances  I consider it is  fair to  draw an  analogy with  the inspection of documents under item 4.7 and I allow the first defendant costs under that category on a 2B basis.

Step 23 – joint memorandum of defendants

[41]     This step relates to a claim for 2B costs by the first defendant in respect of the preparation of a joint memorandum dated 25 January 2011 of the first and second defendants seeking an order for discovery.  The actual application was deferred.  In my view this was nonetheless a reasonable step and costs should be allowed, but only as to 50 per cent or there is a double-up in this instance.

Interest

[42]     The first defendant claims interest on the costs awarded to him.  His claim was in respect of interest on the full amount of any costs award but he accepted in argument that it might be reduced to a claim for interest on the base amount of
$40,802 from the date of discontinuance to present date.

[43]     Mr Wright said that any interest on a costs award could only be dealt with under r 11.27(1) and that the Court does not have inherent or other jurisdiction beyond that rule.  He referred to Chesterfields Preschools Ltd v The Commissioner of Inland Revenue.14

[44]     I agree with that submission.

[45]     Mr Wright also said that  the key reference in  Chesterfields was at [20]. I agree with that submission also.  Paragraph [20] provides as follows:

[20]      We do not agree that there must be an order to pay a specific amount for costs before interest accrues under r 11.27(1). The correct position is that an award of costs accrues interest under r 11.27 if the Court has either:

(a)	Awarded costs in a specific sum; or

(b)	Although not awarding a specific sum, made a costs order in terms that enable the costs to be calculated or determined

14	Chesterfields   Preschools   Ltd   v   Commissioner   of   Inland   Revenue   [2013]   NZCA   44, [2013] 2 NZLR 499.

without reference back to the Court. That might be pursuant to the High Court costs rules, or it might be by some other mechanism stipulated by the Court.

[46]     Mr Wright says that in the interim costs judgment Allan J neither awarded costs in a specific sum nor made a costs order in terms that enabled the costs to be calculated or determined without reference back to the Court.

[47]     I do not agree.  I agree there was no award of costs in a specific sum but there was a costs order that within reason enabled costs to be calculated at least as to a minimum, i.e. the sum of $40,802.

[48]   I consider it consistent with the reasoning of the Court of Appeal in Chesterfields that interest be awarded in this case.  I see no reason to read down [20] of that judgment.

[49]     This is not a run of the mill case where interest might not be applicable.  The amount of costs is not minor.  The discontinuance of the proceedings dates back to
17 April 2012, nearly three years ago and the interim costs decision was two years ago.

[50]     Both counsel addressed me as to reasons for the delay, each saying the delay rested more on the other party.  There have been varying reasons for the delay, some not the fault of either party.  I do not consider either party to be solely responsible. The real point though, as I said to counsel during argument, is that interest is not a penalty.  It simply addresses the passing of time.  It reflects the fact that, in effect, one party has been out of their money and the other has had the use of it.

[51]     I therefore award interest at five per cent per annum to be paid by the plaintiff to the first defendant on the base costs award of $40,802 from 15 February 2013 (date  of Allan J’s  interim  costs  judgment),  to  the  date  that  this  costs  award  is satisfied.    Mr  Thompson  sought  interest  from  the  date  of  discontinuance  but following Chesterfields, it is available only from the date of Allan J’s judgment.

Costs on this costs application

[52]     Finally, the first defendant said he made a Calderbank offer with regard to costs which he wishes to submit and therefore to be heard on the matter of costs on this judgment.  If the first defendant is to make any submission as to costs, he must do so within ten working days of the date of this judgment.  The plaintiff can reply within five working days and I will make a decision on the papers.  It is, of course, a matter for the first defendant but a lot of time has been spent on costs issues already in this proceeding, arguably an undue amount of time, and but for any Calderbank offer and the consequences thereof, I would not be making any award of costs on this costs judgment.  Each of the parties has succeeded on some points and the arguments raised by Mr Wright for the plaintiff were reasonable and fairly arguable.

[53]     Finally, I commend both counsel on their submissions, both written and oral.

Hinton J