Mao v Best Capital Limited

[2021] NZHC 2685

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-2197

[2021] NZHC 2685

BETWEEN

JIAWEN MAO

First Plaintiff

LIANSEN MAO
Second Plaintiff

YINTIAN CO LIMITED
Third Plaintiff

AND

BEST CAPITAL LIMITED
First Defendant

HYUN BIN KIM

Second Defendant

DUK YOUNG LEE

Third Defendant

Hearing:	On the papers
Counsel:	CE Lewis for the defendants
Judgment:	7 October 2021

COSTS JUDGMENT OF ASSOCIATE JUDGE SUSSOCK

This judgment was delivered by me on 7 October 2021 at 3.30pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

JC Legal, Auckland Hesketh Henry, Auckland

MAO v BEST CAPITAL LIMITED [2021] NZHC 2685 [7 October 2021]

Introduction

[1]                 In my judgment dated 1 April 2021 I granted the defendants’ application to strike out all three of the causes of action pleaded by the plaintiffs so that the amended statement of claim was struck out in its entirety.

[2]                 I further held that the defendants, having succeeded in their application, were entitled to costs and that they ought to be awarded on an indemnity basis because the proceedings were an abuse of process and had the ulterior motive of being brought to delay bankruptcy proceedings.

Background

[3]The proceedings related to two Auckland properties.

[4]                 The allegations in relation to the first property in Chester Avenue were made after the plaintiffs failed to defend District Court proceedings and after having paid the default judgment.

[5]                 The plaintiffs then alleged in respect of the second property in Fairburn Road that the defendants, as mortgagee, had breached a duty of care by not selling the property. Not only is the law clear that there is no such duty of care on a mortgagee, the first plaintiff had been found guilty of serious breaches of the Resource Management Act 1991 in respect of that property, including dumping asbestos and other rubbish and failing to respond to six enforcement orders.

[6]                 Before the hearing of the strike-out application, the plaintiffs had been directed to amend their pleadings several times. Despite this, the plaintiffs’ pleading still failed to plead essential facts to support the allegations made.

[7]                 In the circumstances, an order for indemnity costs reasonably incurred was made, including for the amendment to the application to strike out necessitated by the amendments to the statement of claim.

[8]                 I directed the parties to confer and attempt to agree quantum. They have been unable to do so and so a memorandum together with an affidavit in support has been filed on behalf of the defendants. No memorandum has been filed on behalf of the plaintiffs, but they have had sufficient opportunity to respond. I therefore determine quantum in the absence of any memorandum from the plaintiffs.

Relevant costs provision

[9]                 Rule 14.6 of the High Court Rules 2016 provides for indemnity costs to be awarded, stating that:1

“a court may make an order … that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party. The court can make an order at any stage of a proceeding and in relation to any step in it.”

[10]             When determining quantum, the important words in this rule are “reasonably incurred”.

[11]             The defendants rely on Crown Money Corporation Ltd v Grasmere Estate Trustco Ltd where the High Court outlined that for the Court to make an appropriate cost order, the claimant should provide certain information. This information included a sufficient description of the work undertaken, the hourly rates charged, the GST registration status and any additional evidence relied upon to show that the amount charged is reasonable.2

[12]             The defendants further sought to rely on the factors set out in Black v ASB Bank Ltd.3 Those five factors were listed in the context of the entitlement to indemnity costs arising under a contract. However, the third and fourth factors appear relevant where costs are awarded on an indemnity basis because a party has acted improperly in commencing and conducting a proceeding. The third and fourth factors are (with adjustment because there is no contractual basis):

1      High Court Rules 2016, r 14.6(1)(b).

2      Crown Money Corporation Ltd v Grasmere Estate Trustco Ltd (2008) 19 PRNZ 591 at [14].

3      Black v ASB Bank Ltd [2012] NZCA 384 at [80].

(a)whether the steps undertaken were reasonably necessary in pursuance of [the litigation]; and

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

Were the steps undertaken reasonably necessary in pursuing the litigation?

[13]             A substantial affidavit has been filed by a legal secretary employed by the solicitors for the defendants..

[14]             The affidavit sets out a summary of the work carried out by Hesketh Henry between October 2019 and 19 November 2020 as follows:

(a)reviewing the statement of claim and several amended statements of claim;

(b)drafting various joint memoranda of counsel;

(c)drafting an interlocutory application and accompanying affidavit to strike out the plaintiffs’ statement of claim;

(d)drafting and filing amended strike out applications;

(e)reviewing the plaintiffs’ notices of opposition to the strike out applications;

(f)reviewing the plaintiffs’ discovery application;

(g)drafting a notice of opposition to the plaintiffs’ discovery application;

(h)correspondence with the plaintiffs’ solicitors JC Legal;

(i)drafting the applicants’/defendants’ synopsis of submissions;

(j)preparing the synopsis bundle;

(k)preparation for and attendance at the hearing of the strike out application; and

(l)reporting to their clients throughout.

[15]             These steps all appear appropriate in the context of the litigation. I have set out in some detail in the substantive judgment the extent of the procedural steps that took place in this proceeding prior to the strike-out judgment being delivered. Although I was not involved in all of those steps, many of them were relevant to the strike-out application as earlier directions had been made requiring the plaintiff to amend the claim and so forth.

Was the rate at which the steps were charged reasonable having regard to the principles normally applicable to solicitor/client costs?

[16]               Although the affidavit is comprehensive in attaching all invoices and schedules of attendances for each month from November 2019 through to November 2020 when the hearing of the strike-out application was held, it does not assign values to each of the steps listed as having been undertaken.

[17]             In the interests of ensuring that the award of costs is as expeditious as possible in the circumstances, I proceed by comparing the costs claimed with an estimate of the likely 2B scale costs. This was the approach adopted in Tea Custodians (Bluestone) Ltd v Barnett where Associate Judge Gendall held:4

[21] “I must also consider whether the rates charged are reasonable. As was the case before Williams J in Apatu v Apatu HC Napier CIV-2007-441-823, 3 November 2011 at [32] in order to determine whether costs are reasonable, where there is no breakdown of hours, a necessary approach will be to compare the claim against scale costs. As noted above, the total costs claimed here are $12,347.34 … Applying the principle that scale costs are designed to represent roughly two-thirds of average actual costs, that indicates that the plaintiff’s actual costs are within the range of what is considered reasonable for a case such as this. Indeed, I consider that $10,528.00 would reflect a proper quantum for category 2B costs on these proceedings …”

4      Tea Custodians (Bluestone) Ltd v Barnett HC Auckland CIV-2011-485-17, 6 December 2011 at [21].

[18]My calculation of likely scale costs in this case amounts to approximately

$19,598.00. This figure is more than two-thirds of the $25,626.35 in costs claimed on behalf of the defendants. This cross-check supports a finding that the costs claimed have been reasonably incurred.

[19]             Helpfully, the affidavit filed does break down the work completed between the various levels of solicitor. This break down indicates that nearly 60 per cent of the work was completed at the solicitor (one year PQE) or law graduate level.

[20]             Following the release of my decision, the solicitors for the defendants wrote to the solicitors for the plaintiffs and demanded payment of their costs based on my order awarding costs on an indemnity basis.

[21]             No amount was paid and nor was any substantive response received from the plaintiffs.

[22]             Following the demand being made, considerable effort appears to have been made to review each line item in the schedules of attendances and subtract any that they did not consider could be properly claimed (as well as redacting any privileged information).

[23]             The affidavit further attaches a report from the New Zealand Law Society setting out the average charge-out rates for lawyers as at July 2016 and adjusts those to 2020 rates using a CPI adjustment calculator from the Reserve Bank website. The average charge-out rate on that basis was approximately $335 for Auckland based solicitors. It is submitted on behalf of the defendants that the fact that the average charge-out rate across this file was only $263.13 (excluding GST) further supports a finding that the costs are reasonable. I do not regard this as providing much support because the average charge out rate for a solicitor does not reveal the appropriate mix of senior and junior lawyers on a file. The break-down between the various levels of solicitors working on the file as referred to above does however appear reasonable.

Conclusion

[24]             Considering all of the information provided and having completed the cross- check of scale costs, I consider that the costs sought were reasonably incurred in this case.

[25]             An award of indemnity costs will include GST if the successful party is not able to recover the GST component.5 The affidavit confirms that the defendants are not GST registered. The costs award is required therefore to include GST. I record that the GST figure for 4 November 2020 in the table in the affidavit ought to be

$371.07, so that the subtotal for GST is $3956.50. The total of $30,333.31 claimed is not affected.

Result

[26]             The plaintiffs are to pay the defendants indemnity costs of $25,626.35 plus disbursements of $750.46 plus GST on both of $3,956.50 for a total of $30,333.31.

Associate Judge Sussock

5      New Zealand Venue and Event Management Ltd v Worldwide NZ LLC [2016] NZCA 282 at [13].