FA’AGUTU v DERHAMY [2020] NZHC 1374

FA'AGUTU v DERHAMY [2020] NZHC 1374 [19 June 2020]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2017-404-1071[2020] NZHC 1374BETWEEN FA'ASOLO FA'AGUTUFirst PlaintiffAND THE ESTATE OF HAMSAT ALISecond PlaintiffAND SEYED MOHAMMAD TAGHIDERHAMYFirst DefendantAND MT ALBERT ACCOUNTANTS LIMITEDSecond DefendantOn the papersAppearances: A Kashyap, S Raju and S Yong for PlaintiffsB Murray for DefendantsJudgment: 19 June 2020JUDGMENT OF WALKER J[INTEREST AND COSTS]This judgment was delivered by me on 19 June 2020 at 3.30 pmPursuant to Rule 11.5 High Court RulesRegistrar/Deputy RegistrarIntroduction[1] On 6 March 2020, I delivered an interim substantive judgment in favour of theplaintiffs.1 I awarded damages in the sum of $288,000 (Primary Sum) plus interest,and general damages of $10,000. I also directed the second defendant to account tothe plaintiffs for interest in respect of money received from the plaintiffs, but whichhad been returned to the first plaintiff in instalments between December 2014 andJanuary 2018 (Secondary Sum).[2] I reserved three issues for subsequent determination. The three issues were therate and period in respect of which interest is payable, costs and the status of the profitreceived by the first defendant from the Mudharaba transaction. I invited submissionsfrom the parties on these issues.[3] The various memoranda filed on behalf of the parties ultimately narrowedthese remaining issues for determination. The third issue – the question of potentialdisgorgement of profit is not pursued by the plaintiffs. I say no more about it.[4] This further judgment determines costs and interest. As to interest, I intendonly to direct the parties as to the applicable approach in view of the on-goingpayments by the defendants in reduction of the award of damages. It is for the partiesto confer and agree on the calculation of the sums in accordance with this judgmentand to advise the Court accordingly to enable final judgment to be sealed.[5] This judgment also deals with an application for costs by the defendants inrespect of the plaintiffs' application for a charging order over the sale of the firstdefendant's properties after issue of my interim substantive judgment. Thatapplication, initially made without notice, was withdrawn by the plaintiffs.2 Theparties agreed that the question of these costs should be dealt with in conjunction withthe remaining issues in the substantive proceeding.1 Fa'agutu v Derhamy [2020] NZHC 404.2 Refer Minute of Whata J dated 1 May 2020.Interest on the Primary Sum[6] The first question is as to the rate of interest payable on the Primary Sum andthe date from which interest is payable.[7] The plaintiffs submit that the statutory rate of interest under the Judicature Act1908 should apply. The maximum rate of interest payable in accordance with theJudicature Act 1908 is discretionary and is not to exceed the prescribed rate. Themaximum rate is 5 per cent.3[8] The defendants contend that the interest rate ought to be consistent with therate that the plaintiffs would have earned had their savings remained in the BNZ termdeposit account which was the source of funds for the Mudharaba transaction. Theplaintiffs did not challenge the accuracy of these rates. I accept the defendants'contention that these rates most accurately represent the real opportunity cost for theplaintiffs.[9] In my view the appropriate rates are as set out in the table in [8] below andshould be applied on the basis that the interest earned annually is reinvested at thesame term deposit rates.[10] I also accept that it is appropriate that interest payable is to be calculated from1 February 2015, being the day after the maturity date of the BNZ term deposit, toprevent any "double dipping". This was properly conceded by the plaintiffs.[11] The applicable interest rates then are:1 February 2015 4.5%1 February 2016 3.5%1 February 2017 3.25%1 February 2018 3.5%1 February 2019 3.55%1 February 2020 2.88%3 This proceeding was commenced before the Interest on Money Claims Act 2016 came into force.[1] The defendants argue that they should not have to pay interest for the two-yearperiod from January 2016 to January 2018, as the plaintiffs slept on their rights in thisperiod. I do not accept this contention. This delay can be explained. The first plaintifffound herself "in the defendants' hands", seeking explanations, payments andresolution over that time. I place no weight on the plaintiffs' so-called delay in filingand serving the proceedings but in any event, such a delay does not in principle supportthe argument for an interest free period. Rather, the delay benefitted the defendants.Interest on the Secondary Sum[2] In my assessment, the interest rate applicable on the Secondary Sum must alsoreflect the defendants' use of money over the period of repayment since it was neverpaid to APS but remained in the defendants' control. I therefore direct that theappropriate interest rate is the maximum prescribed rate of 5%. This is to be calculatedon a simple (not compounding) basis on the outstanding balance between the dateseach payment has been made by the defendants in reduction of the sum owing. Thestart date for the calculation of interest is also 1 February 2015.4Application of funds paid by defendants after interim judgment[3] I direct that amounts paid by the defendants after the judgment, as recorded inthe memoranda of counsel for the defendants dated 25 May 2020 and 18 May 2020,be applied first to any interest and the surplus to the base amounts payable pursuant tothe judgment, being the Primary Sum and general damages. Thereafter, the amountspaid may be applied towards costs.Costs on application for charging order[4] The defendants seek costs in respect of the application for charging orderinitially filed by the plaintiffs on a without notice basis. Whata J directed as follows:5I am not satisfied the application for charging orders in respect of an as yetunsealed judgment debt should proceed without notice. Rather, I direct that atelephone conference is to be convened as soon as is practicable in the4 This is largely consistent with the proposal by the plaintiffs in counsel's memorandum dated 30March 2020.5 Minute of Whata J dated 25 March 2020.expectation that suitable arrangements for the preservation of sufficient assetsor funds to cover the judgment debt will be agreed pending a full opposedhearing.[5] The defendants argue that the application was unnecessary, baseless and overlybroad. They seek 2B costs for "steps" taken on the basis these steps were analogousto the preparation and filing of a formal notice of opposition and evidence in support.They also seek an uplift of $2,000 by way of increased rather than indemnity costs.6[6] The defendants seek a total of $5,346.00 comprising 1.4 days in accordancewith Schedule B and the uplift to be off-set against the costs payable to the plaintiffson the substantive judgment.[7] The plaintiffs contend that the application for charging order was made in goodfaith. They say the circumstances were that the first plaintiff was served with a noticeto vacate the home at Kivell Close without explanation and/or reassurances that therewould be any security in respect of the sums owing to her.[8] In my view, some of the defendants' criticism of the application is warrantedbut I am not prepared to increase the cost award. The defendants are entitled to anaward of costs of $3,346.00 to be offset against the cost award in favour of theplaintiffs.7Costs on the substantive judgment[9] This is a Category 2B proceeding.[10] The first plaintiff obtained a grant of legal aid from 2 May 2019. This grantwas intended to cover hearing preparation and trial attendance, although, as ittranspired, the former was capped at a level below actual preparation days permittedby the Schedule in the High Court Rules.[11] The plaintiffs seek $42,303 plus disbursements as scale costs plus an uplift of$5,975.00 on the following basis:6 The plaintiffs did not apparently receive legal aid for this application.7 High Court Rules, r 14.17.(a) Costs on a 2B basis for all steps before the receipt of legal aid coverage;(b) Reduced costs for hearing preparation (step 33B) taking into accountcoverage permitted by legal aid but with a top up for actual permittedpreparation days;(c) An uplift to reflect additional attendances in connection with theplaintiffs' application for further discovery and resulting inspection ofdocuments.[12] No scale costs are sought with respect to the hearing because of the coverageby legal aid.[13] The legal aid coverage and disbursements sum is $14,009.74.8 This isadditional to the costs claim in [11] above.[14] The defendants properly accept the steps set out in the plaintiffs' memorandumof 30 March 2020 save for the following:(a) The claim for costs in respect of answers for further particulars and inrespect of the amended statement of claim.(b) A sum for costs opposing the defendants' application for security forcosts.(c) Any entitlement to claim for preparation on an aided and non-aidedbasis (the additional preparation time).(d) Any uplift in respect of further discovery or non-party discovery.[15] The defendants submit that the appropriate award of costs is $46,563.74,inclusive of the sum to be repaid to Legal Aid.8 This must be repaid to Legal Aid.[16] I accept the defendants' position on points (a), (b) and (d) in [14] above. I setout my reasons.[17] Rule 7.77(8) of the High Court Rules 2016 provides that if an amendedpleading has been filed, the party filing the amended pleading must bear all the costscaused by the original pleading and any application for amendment, unless the courtorders otherwise. The additional particulars sought by the defendants were bothreasonable and necessary given the deficiencies and gaps in the plaintiffs' firststatement of claim dated 21 February 2017. An example of this deficiency was thatthe plaintiffs made broad allegations around dishonest, misleading and deceptiveactions and of unconscionable conduct that were not explained or particularised. Theplaintiffs cannot claim costs associated with the filing and preparation of the amendedstatement of claim.[18] This removes the time allocation for answering further particulars and filingan amended statement of claim from the plaintiffs' cost schedule.9[19] I am not satisfied that an award of costs is warranted in relation to thepreparation of submissions opposing the application for security of costs. Agreementon security for costs does not unequivocally signal that the defendants' applicationwas justified. It may just as easily represent a pragmatic decision by the plaintiffs incircumstances where straitened financial circumstances were due to the defendants'actions. However, there were opportunities to resolve the defendants' applicationwithout necessitating preparation time. I remove the plaintiffs' costs of 1.5 dayspreparation.[20] The plaintiffs seek $2,390.00 for the preparation of the hearing which Iapprehend is to top up the legal aid contribution. The defendants say that the plaintiffscannot claim costs for preparation on both an aided and non-aided basis, relying onTaunoa v Attorney-General.109 Costs schedule attached to plaintiffs' memorandum dated 30 March 2020.10 Taunoa v Attorney-General [2004] 8 HRNZ 53.[21] As a general rule, a successful legally aided party is entitled to the full sum ofthe legal aid grant, provided this is the same or less than the appropriate costs awardcalculated on a scale basis. The question in this case is whether the plaintiffs canrecover more than the legal aid grant. I do not read Taunoa as stating that the grant oflegal aid acts as a "cap" to the total amount of costs recoverable by the successful,legally aided party. The answer must depend on whether the plaintiffs actually incurredcosts in excess of the legal aid grant since the costs regime expressly provides in r 14.2that:(f) An award of costs should not exceed the costs incurred by the partyclaiming costs.[22] There are examples of cases where the total costs awarded equal the total legalaid grant plus any personal contribution of the parties.11 In my view, that is theapproach that should be adopted in this case. The plaintiffs are entitled to claim theadditional $2,390.00 over and above the legal aid grant for the preparation of thehearing provided this cost was incurred.[23] Finally, I agree with the defendants that there is insufficient justification for anuplift in respect of the application for further and better discovery and non-partydiscovery. All the plaintiffs note is that this is an uplift of 2.5 days for additionalattendances surrounding the obtaining of further discovery and inspection from thedefendants. I reject the proposed uplift for 2.5 days attendance.Summary of costs to plaintiffs[24] In conclusion, I award costs and disbursements of $48,953.74 inclusive of thelegal aid component. I deduct from this award the sum of $3,346.00 awarded in favourof the defendants in relation to the charging order. The final order of costs in favourof the plaintiffs is $45,607.74.11 See, for example, Para Franchising Ltd v Laverty HC Napier CIV-2005-441-652, 2 March 2007at [26].[25] Both parties have had a measure of success in respect of the costs and interestissues. Costs in respect of these are to lie where they fall......................................................Walker J