Reforma Ltd v Brown

[2024] NZHC 1672

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-2190

[2024] NZHC 1672

BETWEEN

REFORMA LIMITED

Plaintiff

AND

DAVID BROWN

First Defendant

DAVID BROWN as Trustee of the Kairara Trust

Second Defendant

Hearing:	23 April 2024 and further submissions 11 and 18 June 2024
Counsel:	D M Hughes / N E Jirkowsky for the Plaintiff J T Burley / E Iliev for the Defendants
Judgment:	24 June 2024

JUDGMENT OF ASSOCIATE JUDGE BRITTAIN

This judgment was delivered by me on 24 June 2024 at 4 pm Pursuant to r 11.5 of the High Court Rules.

…………………..

Registrar/Deputy Registrar

Solicitors/Counsel: Anthony Harper, Auckland

McVeagh Fleming, Auckland

REFORMA LTD v BROWN [2024] NZHC 1672 [24 June 2024]

Introduction

[1]    On 27 May 2024, I delivered an interim judgment in this proceeding, including a direction that the plaintiff file and serve further evidence relevant to quantum. That direction has been complied with, and in this judgment I grant the plaintiff’s application for summary judgment against the defendant and determine quantum. I also deal with costs.

Quantum

[2]    In the interim judgment, I indicated that there would be a reduction in the quantum sought by the plaintiff to allow for interest that has accrued on the potential shortfall on the receiver’s sale of the assets of Kaukapakapa Village Centre Company Ltd (in liquidation) (KVCC) to the plaintiff, Reforma Ltd (Reforma).

[3]    The amount of the interest is $77,903.73, confirmed in the further affidavit of Graham Vial affirmed 31 May 2024.

[4]    Therefore, the quantum of the judgment will be $1,467,939.84, calculated as follows:

(a)the amount claimed by Reforma as at 23 April 2024 of $2,187,760.27;

(b)less deductions for:

(i)$125,794.61, being 50% of the receiver’s costs of $251,589.23, which have not been proved to the required standard;

(ii)$66,121.59,    being    50%    of    Reforma’s    legal    costs    of

$132,243.18, which have not been proved to the required standard;

(iii)$450,000.50, being 50% of the potential shortfall on the sale of KVCC’s assets to Reforma, assessed to be $900,001; and

(iv)$77,903.73, being the interest that has accrued on 50% of the potential shortfall on the sale of KVCC’s assets to Reforma.

Costs

[5]    Reforma seeks costs on an indemnity basis with a discount to reflect partial success, together with actual disbursements.

[6]    Rule 14.6(4)(e) of the High Court Rules 2016 (HCR) 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.

[7]    Clause 4.1 of the guarantee provides that the defendant, Mr Brown, will pay on demand Reforma’s legal expenses on a solicitor/client basis incurred as a result of enforcing Reforma’s rights under the guarantee.

[8]    The Court retains a discretion to determine whether the costs claimed are reasonable.1 The Court must make an objective assessment of the following 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 principles drawn from the general law of contract would in whole or in part deny the claimant its prima facie right to judgment.

1      Black v ASB Bank Ltd [2012] NZCA 384 at [77] and [80].

[9]    Rule 14.7(d) of the HCR provides that the Court may reduce the costs otherwise payable if the successful party has failed in relation to an issue which significantly increased the costs of the party opposing costs.

[10]   Mr Brown argues that any costs awarded in favour of Reforma should be reduced to reflect that Mr Brown succeeded in establishing that he has an arguable defence to part of Reforma’s claim which resulted in the deductions set out in [4] above. However, Reforma has been successful with the majority of its claim.

[11]   For Mr Brown, it is submitted that costs should be awarded based on the proportionality of success,2 justifying a reduction of at least 33%. Reforma acknowledges that a deduction is appropriate to reflect the partial success of the application for summary judgment. Reforma submits that it incurred actual costs in conducting this proceeding of $150,689 plus GST and disbursements and seeks an award of $100,000 exclusive of GST.

[12]   Reforma has provided copies of the supporting invoices, and a spreadsheet prepared by its solicitors analysing the tasks undertaken, the hours engaged, and the fees incurred.3 I am satisfied that the steps taken to enforce the guarantee were reasonable and contemplated by the contract.

[13]   Reforma seeks to recover its actual disbursements, including a fee charged by a quantity surveyor of $27,789.29. Reforma produced evidence in reply from the quantity surveyor.  Reforma  argues  that  this  evidence  was  necessary  to  rebut  Mr Brown’s challenge to the cost of construction paid by KVCC as part of the development project, and therefore funded by the Reforma advance.

[14]   I do not accept that this disbursement was reasonably incurred. It should have been obvious to Reforma that the issue raised by Mr Brown regarding the cost that KVCC incurred in constructing the medical centre prior to the receivership was irrelevant to determination of Reforma’s claim. It was a complaint regarding the

2      Packing In Ltd (in liq) formerly known as Bond Cargo Ltd v Chilcott (2003) 16 PRNZ 869 (CA) at [5].

3      I have disregarded the affidavit of Mr Nolen sworn 11 June 2024.

internal management of KVCC, which is not a defence or a set-off to Reforma’s claim as a lender against Mr Brown as a guarantor.

[15]   This unnecessary work is reflected in the number of hours spent on reply evidence, said to be 102 hours. This amount of time for this task is excessive. I have similar concerns about the 167 hours spent on preparing submissions4 and other preparation for the hearing of an application for summary judgment.

[16]   The award of $100,000 sought by Reforma reflects a discount of approximately 33%, which is at the bottom of the range submitted by Mr Brown. In my view, a further reduction of $10,000 is justified, resulting in an award of costs of $90,000.

[17]Reforma is entitled to recover the following disbursements:

(a)service fee on letter of demand - $276;

(b)filing fee on statement of claim - $1,350;

(c)service fee on proceedings - $276;

(d)Rodgers Reidy reply evidence - $920;

(e)scheduling fee - $1,600;

(f)       total = $4,422.

Orders

[18]The plaintiff’s application for summary judgment is granted.

[19]   I enter judgment for the plaintiff against the first defendant, in his personal capacity and as a trustee of the Kairara Trust, for the amount indisputably due under the guarantee as at 23 April 2024 of $1,467,939.84.

4      Including further submissions after the hearing.

[20]   The defendant shall pay the plaintiff’s costs of $90,000 exclusive of GST together with disbursements of $4,422.

Associate Judge Brittain