Backhaus v Baker

[2017] NZHC 3271

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV 2014-404-1006 [2017] NZHC 3271

BETWEEN

MARK DANIEL BACKHAUS, LINDA

BACKHAUS, MAX DANIEL BACKHAUS AND ERICA ANNE BACKHAUS

Plaintiffs

AND

CHRISTOPHER BAKER First Defendant

ANDREW DAVID SIMKIN Second Defendant

GRANT THORNTON NEW ZEALAND Third Defendant

Hearing:	On the papers
Counsel:	J S Cooper QC for Plaintiffs Self-represented First Defendant M D OʼBrien QC for Third Defendant
Judgment:	20 December 2017

COSTS JUDGMENT OF PETERS J

This judgment was delivered by Justice Peters on 20 December 2017 at 3.15 pm pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date: ...................................

Solicitors:           Heimsath Alexander, Auckland

Claymore Partners Limited, Auckland

Counsel:            J S Cooper QC, Auckland

M D O’Brien QC, Auckland

Copy for:           First Defendant

BACKHAUS v BAKER [2017] NZHC 3271 [20 December 2017]

[1]      This judgment determines costs and disbursements as between the plaintiffs and the first defendant, Mr Baker.

Introduction

[2]      In my judgment of 30 June 2017, I held that Mr Baker was liable to the plaintiffs in respect of the $400,000 loss they suffered on the “Trident investment” but was not liable for all or part of the “Moneylink loan” of $200,000.1

[3]      I also held that the third defendant, GTNZ, was liable for $200,000 of the same loss on Trident and a proportion of the Moneylink loan. The plaintiffs and GTNZ have recently resolved all issues between them, including costs.

[4]      I also ordered Mr Baker (and GTNZ) to pay interest calculated in accordance with the Judicature Act 1908 rate prevailing from time to time and running from the date proceedings were served,2 which the plaintiffs calculate to have been 4 September

2014.3

Mr Simkin

[5]      Mr Simkin, the second defendant, settled with the plaintiffs prior to trial for

$60,000. This judgment determines how that sum is to be applied.

Costs

[6]     As the unsuccessful party, Mr Baker is required to bear the costs and disbursements the plaintiffs incurred in their proceeding against him. The issue is not liability, but quantum.

[7]      By memorandum dated 2 August 2017, the plaintiffs sought orders for costs, including awards of indemnity alternatively increased costs, against each of GTNZ

and Mr Baker.

1      Backhaus v Baker [2017] NZHC 1507.

2 At [241].

3      Plaintiffs’ Memorandum as to costs dated 2 August 2017.

[8]      GTNZ took issue with various aspects of the plaintiffs’ claims and a substantial error  in  the  plaintiffs’ claim  for  a  particular  disbursement.   This  led  to  further memoranda, including a revised schedule of disbursements from the plaintiffs dated

19 September 2017.

[9]      As I have said, the plaintiffs and GTNZ have recently reached a resolution of the issues between them. Mr Baker, however, did not respond to any of the plaintiffs’ memoranda.  Accordingly, by minute dated 8 December 2017, I asked Mr Baker to ensure that he filed and served any response that he wished to make to the plaintiffs’ memoranda  by  2 pm,  13 December  2017.    Mr Baker  filed  a  memorandum  on

13 December 2017. However, it did not address the issues that required determination but rather the merits of the plaintiffs’ proceeding against him.

[10]     By minute dated 12 December 2017, I had advised counsel for the plaintiffs that in the circumstances of this case, I considered Mr Baker’s liability for costs and disbursements should be confined to those that the plaintiffs would have incurred in proceeding in respect of the Trident investment only.  That is because the plaintiffs’ prospects of success against Mr Baker on the Moneylink loan were remote.

[11]     By memorandum  dated  and  served  on  19  December  2017,  the  plaintiffs advised that they considered their costs would have been reduced by up to a third had their proceeding been confined to the Trident investment, and that their disbursements would have been reduced in several material respects.  Importantly, the fees that the plaintiffs paid to their expert accounting witness, Mr John Hagen, would not have been incurred. The effect of these reductions is that the plaintiffs’ costs on a 2B basis were reduced from $105,419.48 to $64,663 and their disbursements from $85,419.48 to

$50,485.73.

[12]     By minute of yesterday’s date, I asked Mr Baker to file any response he wished to make to the plaintiffs’ 19 December 2017 memorandum by 10 am today.  Earlier this morning, by email to the Court, Mr Baker asked me to extend the time for his response until at least mid-January 2018.   Mr Baker referred to various personal matters with which he and his family have had to contend and he also stated that he was required to consider “a lot of detail”.

[13]     I do not propose to delay determination of this matter. First, Mr Baker has had many months to respond to the plaintiffs’ application for costs. Secondly, there can be no dispute as to Mr Baker’s liability for an award of costs, given the outcome of the proceedings. Thirdly, the decisions I have reached as to the claims for indemnity and increased costs are favourable to Mr Baker.

Indemnity costs

[14]     The plaintiffs seek an order that Mr Baker should pay indemnity costs because he acted vexatiously, frivolously, improperly, or unnecessarily in defending the proceeding within the meaning of r 14.6(4)(a). In particular, the plaintiffs submit that the manner in which Mr Baker conducted himself as the plaintiffs’ financial adviser – being the conduct on which liability was founded – was sufficiently egregious to warrant such an award.

[15]     I accept the plaintiffs’ submission that Mr Baker’s conduct fell well below the standard required of a financial adviser of whatever description and he deliberately misled the plaintiffs on at least one occasion.  However, the aspects of Mr Baker’s conduct on which the plaintiffs rely are insufficient on their own to warrant an award of indemnity costs, such an award being reserved for truly exceptional cases as in Bradbury v Westpac Banking Corporation and Vining Realty Group v Moorehouse.4

Increased costs

[16]     The Court may increase the costs otherwise payable under the rules in the following circumstances:

14.6     Increased costs and indemnity costs

…

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

(a)       the nature of the proceeding or the step in it is such that the time required by the party claiming costs would substantially exceed the time allocated under band C; or

4      Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400; and Vining Realty

Group v Moorehouse [2010] NZCA 104, (2011) 11 NZCPR 879.

(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 ... or accept a legal argument; or

...

(v)      failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding; or

...

[17]     The plaintiffs rely on two “offers of settlement”. The first was made in August

2013, before the plaintiffs commenced proceedings, and was in the nature of a letter before action. The plaintiffs proposed that Mr Baker should pay $400,000 plus interest at 10 per cent per annum from the date of loss within seven days, failing which proceedings would be commenced.  The letter did not convey an offer of settlement, let alone one that it was unreasonable for Mr Baker to refuse.

[18]     The second offer is a Calderbank letter dated 18 February 2016, to all three defendants, that is before Mr Simkin settled. The plaintiffs say none of the defendants replied to the letter.

[19]     The letter followed the filing and service of a substantially revised amended statement of claim, very similar to that on which the plaintiffs relied at trial.  In their letter, the plaintiffs postulated that the defendants’ combined liability would be more than $800,000, including interest. The plaintiffs offered to accept $450,000 in full and final settlement, with no order as to costs.

[20]     The plaintiffs submit that the effect of the judgment is that Mr Baker is liable for at least $465,000, taking into account his liability for interest. This does not reflect

the deduction due in respect of Mr Simkin’s funds but even putting that to one side, the amount (if any) by which Mr Baker’s liability exceeds $450,000 is modest.

[21]     Quite aside from that, however, Mr Baker did not lack reasonable justification for rejecting the offer.  The offer was conditional on acceptance by all defendants.  It was not within Mr Baker’s power to accept the offer as it stood, even if he were willing to pay the sum sought.  The letter made no offer to settle with Mr Baker capable of acceptance by him alone. Accordingly, this ground is not made out.

[22]     The other ground on which an increased sum is sought is that Mr Baker contributed unnecessarily to the time or expense of the proceeding by failing:

(a)      to comply with pre-trial timetable orders.  Mr Baker was late in filing an amended statement of defence and brief(s) of evidence and, when his evidence was served, it did not include references to the common bundle of documents.

(b)without reasonable justification to admit known facts.  In this regard Mr Baker asserted various matters in his evidence in chief which he subsequently retracted in cross examination.

[23]     I accept that Mr Baker’s conduct was deficient in these respects but I am not able to conclude that it added to the time or expense of the proceeding in any material way. Given that, I do not have jurisdiction to make an order that Mr Baker should pay increased costs.

Determination

[24]     It follows that Mr Baker is required to pay costs to the plaintiffs on a 2B basis and disbursements. I accept the plaintiffs’ assessment of the extent to which their costs and disbursements would have been reduced as referred to in [11] above.

Mr Simkin’s settlement funds

[25]     Mr Simkin’s liability would have been confined to the Trident investment.5

Given the proportions in which Mr Baker and GTNZ are liable for that loss, the plaintiffs and GTNZ first proposed that $40,000 of Mr Simkin’s $60,000 be allocated to Mr Baker’s liability and the balance to GTNZ.   Mr Baker ’s memorandum of

13 December 2017 did not address this point or the items – principal or interest – to which Mr Simkin’s funds should be allocated.

[26]     However, the position changed yesterday when the plaintiffs advised that they do not object to Mr Simkin’s entire $60,000 being allocated in reduction of Mr Baker’s liability.  I make an order to that effect in the next paragraph.

Orders

[27]     I enter judgment against Mr Baker in the sum of $405,808, which comprises:

(a)       $400,000, being the judgment sum; and

(b)$65,808, being interest in accordance with the judgment, from the date of service of the plaintiffs’ proceeding on Mr Baker; and

(c)       less $60,000, being the sum that Mr Simkin paid to the plaintiffs in settlement of the proceeding against him.

[28]   I also order Mr Baker to pay to the plaintiffs’ costs of $64,663 and disbursements of $50,485.73.

Peters J

5      Backhaus v Baker, above n 1, at [242].