AFI Management Pty Limited v Lepionka & Company Investments Limited [2018] NZHC 892

AFI Management Pty Limited v Lepionka & Company Investments Limited [2018] NZHC 892 [1 May 2018]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2015-404-2836[2018] NZHC 892IN THE MATTER of the Property Law Act 2007BETWEEN AFI MANAGEMENT PTY LIMITEDApplicantAND LEPIONKA & COMPANYINVESTMENTS LIMITEDRespondent /continuedHearing: On the papersCounsel: MG Colson and MM Ollivier for defendantsKA Muir for Warren James Ladbrook (non-party)Judgment: 1 May 2018JUDGMENT OF FITZGERALD J[As to costs of non-party discovery application]This judgment was delivered by me on 1 May 2018 at 4 pm,pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDateSolicitors: Bell Gully, AucklandMorgan Coakle, AucklandCIV-2015-404-2168BETWEEN GLW GROUP LIMITEDFirst PlaintiffGARTH BOWKETT PATERSONSecond PlaintiffAND LEPIONKA & COMPANYINVESTMENTS LIMITEDFirst DefendantLEPIONKA & COMPANY LIMITEDSecond DefendantSTEFAN JOZEF JOHN LEPIONKA andNIGEL WARREN HUGHES as trustees ofthe SJ Lepionka Family TrustThird DefendantsSTEFAN JOZEF JOHN LEPIONKAFourth DefendantIntroduction[1] In March 2017, the defendants in these proceedings (the "Lepionka parties")sought non-party discovery against Warren James Ladbrook (and others). Thatapplication, together with several other interlocutory applications, was heard by meon 19 May 2017. By a judgment delivered on 31 May 2017, I declined the Lepionkaparties' application for non-party discovery against Mr Ladbrook.1[2] Mr Ladbrook now seeks his costs of successfully opposing the application,namely indemnity costs of $14,370 (inclusive of disbursements). The Lepionkaparties oppose such an order in Mr Ladbrook's favour, and instead say that costsshould either lie where they fall, be reduced or be paid by the plaintiff ("GLW").Legal principles[3] High Court Rule 8.22(3) provides as follows:8.22 Costs of discovery(3) If an order is made under rule 8.20(2) or 8.21(2), the Judge may, if theJudge thinks it just, order the applicant to pay to the person fromwhom discovery is sought the whole or part of that person's expenses(including solicitor and client costs) incurred in relation to theapplication and in complying with any order made on the application.[4] While r 8.22(3) expressly refers to a non-party's costs when an order is madeunder r 8.21(2) (i.e. an order for non-party discovery to be given), the same matters tobe considered under r 8.22(3) are to be considered when an application for third partydiscovery is opposed and the application does not proceed.2 I can see no reason whya similar approach ought not to apply when the application is opposed, proceeds to ahearing and the respondent is successful in his or her opposition.1 AFI Management Pty Ltd v Lepionka & Company Investments Ltd [2017] NZHC 1176 at [40].2 Air New Zealand Ltd v E-Gatematrix New Zealand Ltd (2007) 18 PRNZ 501 (HC) at [19].[5] It is also clear that r 8.22(3) covers two different stages of an application fornon-party discovery: first, costs in relation to the application itself; and, secondly, thecosts of complying with any order that the non-party give discovery.3[6] When considering costs at the first stage, the court will assess whether the non-party's response to the application was reasonable.4 Further, while costs are alwaysat the discretion of the court, and assuming the non-party's response to the applicationwas reasonable, that party's (reasonable) actual costs ought to be met by the partyseeking non-party discovery. As observed by McGechan J in Clear CommunicationsLtd v Telecom Corp of New Zealand Ltd, "[t]hird parties brought in as by a sidewindshould not be left meeting their own expenses".5 While the Judge's comment wasmade in relation to the costs of the second stage of a non-party discovery application(i.e. the costs of compliance), again, I can see no reason why it ought not to apply tothe non-party's costs of responding to the application itself. Rule 14.6(4)(d) alsoreflects such an approach, namely that the court may order indemnity costs where "theperson in whose favour the order of costs is made was not a party to the proceedingand has acted reasonably in relation to it" (emphasis added).[7] In terms of assessing the quantum of a non-party's application for indemnitycosts, the court remains concerned to ensure that the costs sought are reasonable. Inthis context, the equivalent scale costs and actual costs incurred by other parties inrelation to the same or similar work may be useful references.6 However, as RodneyHansen J observed in Commerce Commission v Cards NZ Ltd, when comparing thenon-party applicant's costs to costs incurred by another non-party faced with the sameor a similar application, the exercise should not become purely mathematical; that is,a precise coincidence of costs is neither required nor expected. Rather "[t]he particularneeds of clients and the different ways in which solicitor and client interact should berecognised".7 I respectfully agree with his Honour's observations.3 Commerce Commission v Cards NZ Ltd HC Auckland CIV 2006-485-2535, 10 December 2009 at[5].4 At [6], referring to Clear Communications Ltd v Telecom Corp of New Zealand Ltd (1994) 8 PRNZ200 (HC) at 202.5 Communications Ltd v Telecom Corp of New Zealand Ltd (1994) 8 PRNZ 200 (HC) at 202.6 Davis v Independent Newspapers Ltd HC Auckland CP 67-SD02, 16 May 2003 at [35]; CommerceCommission v Cards NZ Ltd HC Auckland CIV 2006-485-2535, 10 December 2009 at [12].7 At [23].[8] Finally, in assessing reasonableness, a broad approach will often beappropriate, and the court should not strive to be "too exact"8 or "overly prescriptive".9Ultimately, the court must "view the matter overall in order to consider whether or notthe costs are reasonable in all the circumstances."10SubmissionsMr Ladbrook[9] Counsel for Mr Ladbrook, Mr Muir, submits that costs ought to follow theevent in the ordinary way and, in accordance with the usual approach, Mr Ladbrook'scosts ought to be met in full. Mr Ladbrook was and remains a non-party to theproceedings and his response in opposing the application was reasonable, given theapplication ultimately failed. Mr Muir further submits that Mr Ladbrook's actual costsare reasonable and in line with earlier assessments by this Court of a non-party's costson a non-party discovery application.11 Finally, and in response to several pointsraised on behalf of the Lepionka parties (see below), Mr Muir says there is nothingabout Mr Ladbrook's involvement in this matter which alters his status as a non-party,and Mr Ladbrook responsibly sought to agree some form of voluntary non-partydisclosure with the Lepionka parties but was ultimately unsuccessful. Mr Ladbrookalso objects to certain aspects of the material relied on by the Lepionka parties inopposing his application for costs, given it is not supported by affidavit evidence.The Lepionka parties[10] Mr Colson and Ms Ollivier, counsel for the Lepionka parties, acknowledge thatin the ordinary course, costs ought to follow the event and that non-parties' actual costsare often met in whole or in part. However, they submit Mr Ladbrook is not anordinary "non-party", because he has a close interest in these proceedings, given hisvarious attempts to purchase the underlying property in question. The Lepionka8 Clear Communications Ltd v Telecom Corp of New Zealand Ltd (1994) 8 PRNZ 200 (HC) at 202.9 Commerce Commission v Cards NZ Ltd HC Auckland CIV 2006-485-2535, 10 December 2009 at[33].10 Davis v Independent Newspapers Ltd HC Auckland CP 67-SD02, 16 May 2003 at [31].11 Referring to Master Lang's comments in Davis v Independent Newspapers Ltd at [37].parties further submit that it appears Mr Ladbrook has been in some kind of "advisory"role to GLW from early 2015.[11] Given these matters, the Lepionka parties submit that costs of the non-partydiscovery application ought to lie where they fall. Alternatively, and for largely thesame reasons, the Lepionka parties submit that scale costs only should be awarded.Further, and by way of comparison with costs incurred by another non-party on thesame application, the Lepionka parties submit that if indemnity costs are to be ordered,Mr Ladbrook's costs should be reduced by 50 per cent. Finally, the Lepionka partiessay that because the non-party discovery was sought because of GLW's failings in itsown discovery, any costs ordered ought to be paid by GLW in any event.Discussion[12] There is no doubt Mr Ladbrook had and, it seems, still has, an interest inpurchasing the property which underlies these proceedings. In that sense, he has aninterest in the outcome of the proceedings. I do not consider, however, that his interestin the underlying property somehow "converts" Mr Ladbrook into a party to theseproceedings for costs purposes. There is no suggestion, for example, thatMr Ladbrook is driving or funding GLW's pursuit of the proceedings.[13] Further, while the Lepionka parties say that Mr Ladbrook's role extends to an"advisory" role to GLW since early 2015, that submission is based solely on an emailfrom GLW's solicitor in 2017 explaining why litigation privilege ought to attach toGLW's communications with Mr Ladbrook from early 2015. Counsel forMr Ladbrook has indicated that the contents of that email are considered byMr Ladbrook to be incorrect, and notes that the nature of Mr Ladbrook's role vis-à-visGLW has never been tested or determined by this Court. I do not consider GLW's(untested) description of Mr Ladbrook's role to be an appropriate basis on which to(effectively) treat Mr Ladbrook as a party for the purposes of his costs application.[14] Moreover, even if Mr Ladbrook had been treated as a party (or at least a notwholly disinterested non-party) for cost purposes, the application for discovery againstMr Ladbrook failed. That was on the basis the documents sought were not relevant toan issue arising on the pleadings.12 Accordingly, I do not consider an appropriateoutcome would be to order costs on the application to lie where they fall.[15] Largely for the same reasons as above, nor do I consider it appropriate to orderscale costs only, rather than all or part of Mr Ladbrook's actual costs. He is a non-party to these proceedings. The application against him failed. There is nothing in thematerials before me which persuades me I should exercise my discretion to limitMr Ladbrook's recovery of costs to scale costs only.[16] Accordingly, the sole remaining question is the reasonableness of the costssought by Mr Ladbrook. The Lepionka parties compare Mr Ladbrook's costs($14,370) to the costs incurred by another non-party in opposing the same application($8,050.62). The Lepionka parties say that Mr Ladbrook's costs by comparison areunreasonably high, particularly given his involvement was limited to filing a notice ofopposition, preparing submissions and making brief oral submissions at the hearingbefore me on 19 May 2017.[17] First, I do not consider the mere fact that another party has incurred less costsmeans that Mr Ladbrook's costs are unreasonable. Nevertheless, Mr Ladbrook's costsare some 80 per cent higher than the other non-party's costs on the same application.This does tend to suggest Mr Ladbrook's costs are somewhat on the high side.Secondly, his costs are also approximately 2.5 times the equivalent scale costsallocation.13 While I accept there is debate in some quarters as to whether scale costsprovide a reasonable rate of recovery for a successful party (at least in reasonablycomplex commercial litigation),14 the fact Mr Ladbrook's costs are that much greaterthan scale again suggests they are slightly on the high side.[18] Taking the above matters into account, and that the issues arising on the non-party discovery application were not particularly complex and were confined to a verynarrow set of document requests, I consider a slightly lower figure than $14,370 to be12 AFI Management Pty Ltd v Lepionka & Company Investments Ltd [2017] NZHC 1176 at [37] to[40].13 Scale costs on a 2B basis for defending an interlocutory application such as this are $5686.50.14 As observed in Davis v Independent Newspapers Ltd HC Auckland CP 67-SD02, 16 May 2003 at[35].reasonable. Taking the broad approach outlined at [8] above, I consider an appropriateorder for costs in Mr Ladbrook's favour is one of $12,000.[19] I do not consider it appropriate to order that these costs are payable by GLWrather than the Lepionka parties. GLW has not, it seems, been served with copies ofthe parties' memoranda and therefore has not had an opportunity to make submissionson any such proposal. Further and in any event, I determined that the documentssought by way of discovery from Mr Ladbrook were not relevant to issues to bedetermined in these proceedings. Accordingly, in my 2017 judgment, I declined toorder similar discovery against GLW.15 While GLW's own discovery was clearlydeficient, that fact alone does not provide a sound basis to order GLW to pay the costsof the Lepionka parties' unsuccessful non-party discovery application.[20] Given the outcome of Mr Ladbrook's costs application, the Lepionka partiesought to pay Mr Ladbrook's costs of applying for costs of the non-party discoveryapplication. Mr Ladbrook seeks such costs on a scale basis. There is no step in sch 3to the High Court Rules which covers Mr Ladbrook's application for costs of his costsapplication. However, scale costs can be determined by analogy with Step 11, namelypreparation of memoranda.16 Two (substantive) memoranda seeking costs were filedon Mr Ladbrook's behalf. Taking into account that the second memorandum (dated20 April 2018) addressed in part matters also addressed in the first memorandum(dated 13 June 2017), and that Mr Ladbrook has not been wholly successful on thequantum of costs sought, I consider it appropriate that the Lepionka parties payMr Ladbrook $1,000 towards the costs of his costs application.17Orders[21] There are accordingly orders that the Lepionka parties pay the following costsof Mr Ladbrook:15 AFI Management Pty Ltd v Lepionka & Company Investments Ltd [2017] NZHC 1176 at [72].16 High Court Rules 2016, r 14.5(1)(b).17 Allowing for two memoranda, each of which would be allocated 0.4 days, the $1,000 is just overhalf the amount ordinarily claimable.(a) $12,000, being Mr Ladbrook's reasonable actual costs of the Lepionkaparties' application for non-party discovery; and(b) $1,000 in respect of Mr Ladbrook's costs of this costs application.____________________Fitzgerald J