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Carson v Lee [2023] NZHC 1928 (21 July 2023)

Last Updated: 28 July 2023

JUDGMENT OF ASSOCIATE JUDGE SUSSOCK

[Costs]

This judgment was delivered by me on 21 July 2023 at 4.15 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Solicitors:

N Tabb, Barrister & Solicitor, Auckland W Revell, Farry Law, Auckland

CARSON v LEE [2023] NZHC 1928 [21 July 2023]

Introduction

[1] The defendants seek indemnity costs following my decision striking out Farry Law as the second defendant to these proceedings.¹ Indemnity costs are sought not only against the plaintiffs but against a non-party to the proceeding, Mr Matthew Blomfield, and against plaintiffs’ counsel, Ms Tabb.

[2] The parties agree that the plaintiffs ought to be liable, jointly and severally, for costs. In addition, they agree that the quantum of 2B scale costs is $7,648.00, although not on whether 2B costs ought to be awarded.

[3] The issues that are disputed are whether indemnity or increased costs are appropriate and whether non-party costs orders ought to be made against Mr Blomfield, the sole director and shareholder of the second named plaintiff, or the plaintiffs’ counsel, Ms Tabb.

[4] Very lengthy memoranda have been filed on behalf of both sides. I set out the relevant costs principles below before considering each of the disputed issues.

Relevant costs principles

[5] The starting point in any costs decision is r 14.1 of the High Court Rules 2016 which confirms that all matters relating to costs are at the court’s discretion. The discretion vested by r 14.1 is wide but must be exercised subject to the general principles in r 14.2 and the remaining costs provisions.

[6] Rules 14.3 to 14.5 provide for the calculation of scale costs through the categorisation of proceedings, appropriate daily recovery rates and the determination of a reasonable time for each step for the purposes of r 14.2(1)(c) by reference to the time specified in sch 3 of the High Court Rules.

[7] Rule 14.6 provides for when increased or indemnity costs may be ordered and relevantly includes as follows:

¹ Carson v Lee [2023] NZHC 323.

14.6 Increased costs and indemnity costs

• (1) Despite rules 14.2 to 14.5, the court may make an order—

(a) increasing costs otherwise payable under those rules (increased costs); or

(b) that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party (indemnity costs).

(2) ...

• (3) The court may order a party to pay increased costs if—

(a) ...

(b) the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—

...

(ii) taking or pursuing an unnecessary step or an argument that lacks merit; or

(iii) failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument; or

...

• (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

...

(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.

[8] In Bradbury v Westpac Banking Corp, the Court of Appeal summarised the principles applying to the award of indemnity costs as follows:²

We therefore endorse Goddard J’s adoption in Hedley v Kiwi Co-operative Dairies Ltd at [11] of Sheppard J’s summary in Colgate v Cussons at [24]. While recognising that the categories in respect of which the discretion may be exercised are not closed (see r 14.6(4)(f)), it listed the following circumstances in which indemnity costs have been ordered:

2. Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [29] (citations omitted).

   (a) the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud;

(b) particular misconduct that causes loss of time to the court and to other parties;

(c) commencing or continuing proceedings for some ulterior motive;

(d) doing so in wilful disregard of known facts or clearly established law;

(e) making allegations which ought never to have been made or unduly prolonging a case by groundless contentions, summarised in French J’s “hopeless case” test.

Should indemnity costs be awarded?

[9] The summary from Bradbury v Westpac Banking Corp referred to above emphasises that an award of indemnity costs requires very serious conduct. In my judgment I indicated a preliminary view that I did not consider that I had sufficient evidence to make findings of improper purpose in joining Farry Law as a defendant.³ I reached the view that while Mr Blomfield had said in his evidence that Farry Law acted for both Trusts, that was not borne out by the contemporaneous correspondence. However I prefaced this finding with the caution that I was “conscious that the evidence has not been tested but it appears to show as follows”.⁴

[10] No further evidence has been filed since the judgment on behalf of the first defendant to support the allegation of improper purpose, with counsel expressly referring in their costs memorandum to my comment that I had insufficient evidence to such a finding of improper purpose, before submitting that the discussion of the evidence in their costs memorandum provides a basis for the Court to find such a motive. That discussion does not refer to the caution in the judgment referred to above and asks me to draw inferences which I am not prepared to do in the circumstances.

[11] The allegation that Farry Law had acted for both trusts and was therefore in a position of conflict in continuing to act is a serious allegation. The hearing was not however to test the circumstances in which that allegation was made but instead to consider whether Farry Law ought to remain as a party. As my judgment recorded, the

³ Carson v Lee, above n 1, at [78].

⁴ At [59].

defendants submitted that I did not need to decide whether Farry Law was named as a party to prevent them from acting for the first defendant.⁵ And I did not.⁶ I do not consider that it would be just to award costs on an indemnity basis in these circumstances.

Should increased costs be awarded?

[12] Increased costs are however appropriate on the basis that the plaintiffs have contributed unnecessarily to the time or expense of the proceeding by failing without reasonable justification to accept a legal argument (r 14.6(3)(iii)) or taking or pursuing an unnecessary step or an argument that lacks merit (r 14.6(3)(ii)).

[13] The defendants set out their position in correspondence prior to the filing of the strike-out application referring in detail to the terms of the undertaking provided by Farry Law. When the claim against Farry Law was not withdrawn, the application for strike out similarly went into significant detail about the undertaking and how Farry Law was obliged to disburse the proceeds only pursuant to either a joint instruction from the parties or to a court order. Furthermore, the application expressly sought costs on the basis that it was an abuse of process to name Farry Law as a party and against both Mr Blomfield and the plaintiffs’ counsel.

[14] Despite this, the plaintiffs opposed the application for strike out. In doing so the plaintiffs relied on cases either where there was no solicitor’s undertaking or it was not clear whether undertakings had been given and the law firms involved did not oppose being named as a party.

[15] The offer made in the letter sent on behalf of the defendants prior to the strike- out application being filed was for the plaintiff to withdraw the proceeding against the second defendant on the basis that costs would lie where they fall. The letter recorded that if a strike-out application was necessary then in addition to an application to strike out Farry Law as a party, there would be an application for solicitor/client costs. The letter does not fall within rr 14.10 and 14.11 of the High Court Rules, which apply to

⁵ At [5].

⁶ At [78].

written offers sent on a without prejudice basis except as to costs, because the letter was sent on an open basis. However, it is appropriate to take this letter into account in exercising my discretion.

[16] Counsel for the first defendants submits that if indemnity costs are not awarded then increased costs with 100 per cent uplift ought to be awarded. Ordinarily an uplift of more than 50 per cent is not made on the basis that 2B costs are intended to represent a contribution of two thirds of reasonable costs. In this case, invoices have been provided establishing that the total costs spent amounted to $27,468.57. Counsel for the plaintiff submits these costs are excessive, saying that it was unreasonable for the first defendants to have three lawyers in court on the application, including Mr Bob Hollyman KC. Where a law firm is the subject of an application however and particularly where an allegation has been made that it is acting in conflict, it is usual for a Kings Counsel to be instructed. I do not therefore consider instructing a Kings Counsel to have been unreasonable.

[17] In the circumstances of this case, however, where no findings of improper purpose have been reached, there is no basis for a 100 per cent uplift. I instead award costs on a 2B basis with a 50 per cent uplift on the basis that opposing strike out represented a serious failure without reasonable justification to accept a legal argument. 2B costs with a 50 per cent uplift amounts to $11,472.00 (plus disbursements).

Should an award be made against Mr Blomfield or counsel for the plaintiff personally?

[18] I do not consider I am in a position to make awards against Mr Blomfield or Ms Tabb personally although I consider that the opposition to the strike-out application was misconceived. As I said in my judgment, I do not consider that I have sufficient evidence of ulterior purpose⁷ or of gross negligence by counsel,⁸ would be as required. As I refer to above, my finding that the contemporaneous evidence did not support the

7. See Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2004] UKPC 39, [2005] 1 NZLR 145 at [25].

⁸ Harley v McDonald [2001] UKPC 18, [2002] 1 NZLR 1 at [55].

position that Farry Law acted for both trusts was prefaced with the comment that the evidence had not been tested.

[19] In these circumstances I consider that the award of increased costs with 50 per cent uplift against the plaintiffs sufficiently meets the interests of justice as between the parties.

Result

[20] The plaintiffs are to pay costs to the first defendants on a 2B basis with a 50 per cent uplift amounting to $11,472.00 plus disbursements of $500.00.

Associate Judge Sussock