STRATA TITLE ADMINISTRATION LIMITED V BODY CORPORATE ADMINISTRATION LIMITED CA152/2013 [2014] NZCA 96

STRATA TITLE ADMINISTRATION LIMITED V BODY CORPORATE ADMINISTRATION LIMITED CA152/2013 [2014] NZCA 96 [26 March 2014]IN THE COURT OF APPEAL OF NEW ZEALANDCA152/2013[2014] NZCA 96BETWEENANDSTRATA TITLE ADMINISTRATIONLIMITEDFirst AppellantCYRUS MEHTASecond AppellantAND BODY CORPORATEADMINISTRATION LIMITEDRespondentHearing: 12 March 2014Court: Harrison, White and Venning JJCounsel: M I S Phillipps for First AppellantR J Thompson for Second AppellantP J Wright for RespondentJudgment: 26 March 2014 at 12 pmJUDGMENT OF THE COURTA The appeal is dismissed.B The appellants are ordered to pay the respondent one set of costs for a standard appeal on a Band A basis and usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Harrison J)Introduction[1] Strata Title Administration Ltd (STA) and Body Corporate Administration Ltd (BCA) compete in providing property administration services in Auckland. Cyrus Mehta was employed by BCA as a property administrator until he resigned on 31 October 2008. Shortly afterwards he commenced employment with STA.[2] Nearly a year later BCA issued a proceeding against STA and Mr Mehta in the High Court at Auckland. Various causes of action were pleaded including breach of confidence, misuse of confidential information and conspiracy to injure. BCA sought the remedies of damages, accounting for profits, exemplary damages and permanent injunctions. At the same time the company applied successfully on a without notice basis for a search order and an interim injunction.[3] The search order was carried out at STA's offices and at Mr Mehta's familyhome. Many pages of hard copy material were seized together with entire hard drives of computers; others were cloned over a series of days. As Mr Phillipps notes, not a single confidential BCA document was identified among the seized material. A great deal of interlocutory activity followed, leading Allan J to issue these three judgments:(a) First, on 10 May 2010, dismissing STA's application to discharge thesearch order and adjourning the application to discharge the interim injunction pending inspection of the seized soft copy material;1(b) Second, on 16 March 2011, discharging the interim injunction to the extent that it prohibited STA or Mr Mehta from dealing with BCA'sclients but maintaining it to the extent of prohibiting either STA or Mr Mehta from misusing BCA's confidential information;21 Body Corporate Administration Ltd v Mehta HC Auckland CIV-2009-404-6656, 10 May 2010.2 Body Corporate Administration Ltd v Mehta (No 2) HC Auckland CIV-2009-404-6656, 16 March 2011.(c) Third, on 17 April 2012, granting BCA leave to discontinue with costs to be determined.3[4] On 15 February 2013 the Judge issued a fourth judgment, an interim judgment, running to 115 paragraphs and determining multiple cost applications.4Relevantly to this appeal, he:(a) declined to award STA and Mr Mehta costs on their costs application; and(b) ordered BCA to pay a 50% increase on scale costs – not indemnity costs as STA and Mr Mehta claimed – for interlocutory steps taken during a one year period of the litigation.[5] STA and Mr Mehta appeal against both orders.Background[6] STA and Mr Mehta challenge Allan J's exercise of a statutory discretion whendetermining multiple applications for costs. In order to succeed they must establish that the Judge erred in principle, took into account irrelevant considerations or failed to take into account a relevant consideration, or was plainly wrong. Despite this appellate constraint, Messrs Phillipps and Thompson filed lengthy synopses of submissions, detailing the history of this dispute and its procedural progress over some years. Both effectively invited us to revisit the Judge's findings of fact ondiscrete issues within the context of an overall assessment based on the criterion of fairness. That is not our function when determining an appeal of this nature.[7] Two other factors are relevant. First, the financial parameters of this dispute are very modest. STA and Mr Mehta collectively sought costs of about $220,000.00. BCA countered with a claim for the same items of $140,000.00 plus indemnity costs of $80,000.00. As a result of the interim orders made by Allan J, STA and Mr Mehta should recover about $80,000.00. Mr Phillipps advises that claims for about another3 Body Corporate Administration Ltd v Mehta (No 3) [2012] NZHC 717.4 Body Corporate Administration Ltd v Mehta (No 4) (Costs) [2013] NZHC 213.$75,000 remain for determination in the High Court. On this appeal STA and Mr Mehta seek an extra (a) $20,000.00 being costs on the costs application and (b) $27,000.00 for indemnity costs.[8] Second, Allan J's judgment was interim. While STA and Mr Mehta sealed acopy of the judgment, many of its contents are not in the nature of orders within the rules. Questions of jurisdiction arguably arise but Mr Wright did not press the point, preferring instead to address the merits. Furthermore, Allan J did in fact make formal orders, directing counsel to file supplementary memoranda on a number of questions necessary to enable the Court to complete performance of the function which the parties had requested – that is, to award costs of a fixed amount. Mr Phillipps advises that those memoranda have been filed but, because of this appeal, the outstanding questions have remained in abeyance.[9] Against that background we will now consider the substance of the two grounds of appeal against Allan J's 15 February 2013 decision.Appeal(a) Application for Costs[10] The first ground of appeal by STA and Mr Mehta is that Allan J erred in not awarding them costs on their costs application. The Judge determined that issue as follows:[85] It is now well established that costs may be awarded in respect of an application for costs. An application for costs is to be treated no differently for costs purposes from an ordinary interlocutory application, so costs may be awarded according to scale or on an increased or indemnity basis as appropriate.[86] At an earlier stage of the proceeding, costs memoranda were filed by counsel in compliance with a direction of the Court. Unfortunately they were not referred to me and remained unconsidered until now. Counsel for the defendants now seek costs both in respect of the earlier memoranda and now on the preparation of argument and the 1 October hearing. The defendants appear to claim costs in the round in the sense that the amounts claimed bear some relationship to the amounts actually incurred, rather than the relevant scale.[87] There appears to be no warrant for a departure from the ordinary approach, which would be to start with an assessment according to scale and then to seek to have costs fixed in accordance with category C, in the event that the expenditure of an extraordinary amount of time could be established. Be that as it may, I have concluded that in this case there ought to be no order at all in respect of the various costs applications. That is because, on the major issue, upon which most time and effort was expended, I have rejectedthe defendants' claim for increased or indemnity costs in respect of the whole proceeding, based upon the contention that BCA had no proper basis for obtaining the search orders and injunctions in the first place. Moreover, I have directed below that the defendants file further costs submissions. That will put BCA to further expense. Although the defendants will finish with a substantial award of costs, BCA has enjoyed some success on the costs argument.(Emphasis added, footnote omitted)[11] Mr Phillipps submits that Allan J erred because his reference point, what the Judge described as "the major issue", was wrong. He says the Judge focused wrongly on the underlying question of whether BCA had sufficient grounds to obtain the search order and injunction which was the basis of the claim by STA and Mr Mehta for indemnity costs for the whole proceeding. Instead, Mr Phillipps submits, the major issue for determination by the Judge in this context was which party should pay costs for the one year period from 3 May 2011 and on what basis.[12] We agree with Mr Wright. The judgment when read as a whole answers Mr Phillipps' submission. Following his very detailed recitation of the tortuous procedural history and the various interlocutory applications including those for costs,5 the Judge reviewed the principles and leading authorities.6 The judgment makes plain that STA and Mr Mehta's principal submission was that BCA obtained interim orders without justification in circumstances which were either egregious or unreasonable, entitling them to indemnity costs for the whole proceeding. The Judge succinctly recited that submission as follows:[53] The defendants submit that the plaintiff had no proper basis for seeking and obtaining search orders and injunctions without notice in October 2009, and that their actions in doing so amount to very bad, or very unreasonable, behaviour so as to attract an award of indemnity costs, or alternatively a failure to act reasonably so as to justify the award of increased costs.5 At [3]–[30].6 At [31]–[49].[13] After considering all the evidence and submissions, the Judge rejected STA and Mr Mehta's case in these words:[68] In summary, I do not consider that it would be appropriate to award eitherindemnity or increased costs arising simply out of BCA's decision to seekand obtain the search orders and interim injunctions, and then to maintain them.[14] There can be no arguable suggestion of an error in the Judge's approach. Allhe was saying was that in declining to award costs on the costs application he was taking into account STA and Mr Mehta's failure on this primary challenge, offset by a degree of success on other parts of their applications. He was not bound to decide the application for costs on the costs application by isolating and treating as the determinative factor the result of his separate finding on BCA's conduct in a one year period of the litigation, which is the subject of the second ground of appeal. Allan J's approach was an orthodox and unimpeachable example of the judicial exercise of discretion to act fairly between the parties when determining costs. This ground of appeal must fail.(b) Indemnity Costs[15] The second ground of appeal advanced by STA and Mr Mehta is that Allan J erred by not awarding them indemnity costs for a one year period of the litigation. In considering the contested claims for indemnity costs by both sides the Judge concluded:[83] Against that background, I consider BCA to have acted unreasonably, and that the defendants are entitled to an increase of 50% on the costs to which they would otherwise be entitled for the period following 3 May 2011, save for costs on the costs applications with which I deal separately below. The steps taken during this period comprise chiefly the giving of discovery by STA, the filing and pursuit of applications for particular discovery and inrespect of confidentiality, and the defence of BCA's application for leave todiscontinue on terms.[16] Mr Thompson submits that the Judge erred by awarding increased but not indemnity costs for the relevant period. He says the Judge wrongly failed to find that BCA acted vexatiously, frivolously and improperly or unnecessarily in continuing the proceeding after 3 May 2011. He relies on a letter which BCA'scounsel wrote to counsel for STA and Mr Mehta on that day with an offer todiscontinue the proceeding on the bases that (a) the existing injunction orders would remain in force and (b) costs were to lie where they fell. He emphasises that BCA maintained this position steadfastly for the following year, when proceedings underwent a prolonged and expensive phase of discovery and inspection, but later advised the Court that it had always intended since 3 May 2011 to discontinue without more if STA and Mr Mehta did not agree to its terms.[17] In these circumstances, Mr Thompson says it was an abuse of process for BCA to continue with the proceeding when it always intended to discontinue if it was unable to secure an acceptance of its offer made on 3 May 2011. He says theJudge considered BCA's application for indemnity costs in that period but not theclaim by STA and Mr Mehta for the same remedy.[18] We are not satisfied that the Judge erred. Again the judgment when read as a whole answers Mr Thompson's submission. The Judge recited (a) that STA and Mr Mehta were in fact seeking indemnity costs from 3 May 2011; (b) BCA's counsel's letter and the following steps, again in considerable detail;7 (c) his view expressed to counsel at the hearing on 17 April 2012 that BCA did not have a proper basis for obtaining leave to discontinue while the interim injunction order remained permanently in force;8 and (d) Mr Wright's immediate advice that BCA would inthose circumstances seek to discontinue the proceeding unconditionally.9[19] Allan J later observed:[81] If that was its position, then it ought to have brought the application for leave to discontinue on for hearing much earlier than it did, and then to have obtained leave to discontinue unconditionally in the event that its preferred option was not acceptable to the Court. Moreover, it ought to have made quite clear to the defendants the fact that its ultimate intention was to discontinue in any event. Its failure to do so resulted in the defendants undertaking several steps at significant expense in circumstances where they would not have done so had they been aware ofBCA's true intention.[20] Allan J was plainly aware of and considered the basis for STA and Mr Mehta's claim for indemnity costs over the relevant period. After surveying the7 At [19]–[29].8 At [28].9 At [29].authorities, he was satisfied that awards of indemnity costs will be rare and exceptional; and that, where a case falls on the cusp between indemnity and increased costs, a substantial increase in scale will generally result. In his judgmentBCA's conduct was unreasonable and he made an increased costs order accordingly. But he was not satisfied that BCA's actions were frivolous or vexatious or designed to apply improper pressure.[21] Allan J's judgments disclose his detailed familiarity with this proceeding and its interlocutory history. He was best placed to determine whether BCA's conductsatisfied the necessarily high threshold for an award of indemnity costs. We repeat that, in the absence of an obvious error, it is not our function to interfere with what was essentially a factual evaluation by the High Court Judge. This ground of appeal must also fail.[22] We add that even if we had upheld either or both discrete grounds we would have dismissed the appeal. In exercising his discretion to act fairly between the parties, Allan J was required to fix a global figure for costs after taking all the competing applications into account. He anticipated that further steps would be required for this purpose. However, that process has now been stalled for more than a year while this appeal, which plainly had little prospects of success, was pursued. Not only was the pursuit of this appeal premature, it was also misconceived becauseof a failure to understand the Judge's function.[23] The parties have already consumed an inordinate amount of the resources of the High Court and this Court in determining a series of applications which raise no issues of principle and where the amounts are very modest. The nature and detail of arguments presented on both sides has been quite disproportionate to what is at financial stake. It is to be hoped that with the assistance of objective legal advice the parties are able to adopt a commercially realistic approach to resolution of any outstanding issues between them.Result[24] The appeal is dismissed.[25] STA and Mr Mehta are ordered to pay BCA one set of costs for a standard appeal on a Band A basis and usual disbursements.Solicitors:James Keat, Auckland for the AppellantsMadison Hardy, Auckland for the Respondent