Barbalich v Leaders Real Estate (1987) Limited

[2015] NZHC 593

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV 2013-485-974 [2015] NZHC 593

BETWEEN

ELIZABETH JANET BARBALICH

Plaintiff

AND

LEADERS REAL ESTATE (1987) LIMITED

First Defendant

NICHOLAS LIAM DENIS REEVE Second Defendant

On the papers
Judgment:	27 March 2015

JUDGMENT OF MALLON J (Costs)

The issues

[1]      I refer to my judgment on the plaintiff’s claim which found in favour of the defendants.1   The parties are agreed that the defendants are entitled to a costs order. They disagree as to the amount.

[2]      There is no disagreement that 2B is the appropriate costs category.  The main issue is whether costs should be increased because the plaintiff declined to accept

three settlement offers made by the defendants.2   The plaintiff says that costs should

1      Barbalich v Leaders Real Estate (1987) Ltd [2014] NZHC 3383.

2      The plaintiffs are correct that the defendants’ claim for increased costs is to be considered under r 14.6(3)(b)(v) of the High Court Rules.  Rules 14.10 and 14.11 provide an entitlement to costs (subject to the Court’s discretion), where a settlement offer exceeds the judgment, for the steps taken after the settlement offer was made.  These rules provide an unsuccessful party with some

protection against an order for costs. A successful party, however, is entitled to costs for all steps

reasonably required in relation to the proceeding pursuant to r 14.2(c).  A successful party can claim increased costs pursuant to r 14.6(3)(b)(v) where the losing party “has contributed unnecessarily to the time or expense of a proceeding or step in it” by “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”.

BARBALICH v LEADERS REAL ESTATE (1987) LIMITED [2015] NZHC 593 [27 March 2015]

not be increased because she did not act unreasonably in rejecting the offers.  The other  issue  is  whether  any  costs  should  be  reduced  because  of  the  defendants’ failures in attending to discovery.

The offers

[3]      The proceeding was  commenced  on  28  May 2013.    The plaintiff was  a purchaser of a property.  She brought a claim against the real estate agent for alleged misrepresentation during the tender process.  The claim was brought under the Fair Trading Act.  Damages of $250,000 were sought.

[4]      Discovery was initially carried out in December 2013.3   On 14 February 2014 the defendants’ solicitors made a without prejudice offer to pay $15,000 (inclusive of GST) in settlement on a confidential basis and with no admission as to liability (the first offer).  The letter set out in brief terms why the defendants considered they had no liability, including that Mr Reeve rejected that he had misled the plaintiff and that there were “significant  issues  in  respect  of  causation  and  loss.” The letter also proposed mediation if the settlement offer was not acceptable.   This offer and the mediation proposal were rejected on 16 February 2014 on the basis that the offer made suggested to the plaintiff that the defendants were “not serious about wishing to settle this matter before trial” and therefore there was “no point engaging in mediation at this point.”

[5]      On 18 February 2014 timetable directions were made for the exchange of briefs.  On 4 March 2014 an amended statement of claim was filed.  On 24 March

2014 the defendants’ solicitors made a second without prejudice offer to pay $25,000 (inclusive of GST) in full and final settlement (the second offer). The letter set out in more detail why the defendants considered they had no liability.  It addressed why the defendants considered the plaintiff would not succeed in establishing that the alleged misrepresentations were made.  It also set out why the defendants faced “not

insignificant hurdles” on quantum and causation. That included the following:

3      Subsequently it became apparent that the defendants had not provided full discovery.  Further discovery was necessary as is discussed later in this judgment.

… It was quite clear that your client wanted to purchase the property.  There is no evidence to suggest that the vendors would have accepted a lower offer. It makes no difference from a loss perspective whether your client would have been prevented from purchasing the property either by interest from the other parties, or reluctance on the part of the vendors to sell for a lower price.

[6]      The plaintiff’s counsel replied on 8 April 2014.  The response was that the offer indicated that the defendants were “not seriously interested in resolving this matter  before  trial,  nor  in  making  amends  for  their  wrongdoing.”    The  main difference was said to be that the plaintiff knew the defendants made statements which were not true.  The response said that “[u]nless and until Mr Reeve is willing to admit to what he said; albeit perhaps on a confidential and without prejudice basis, there is unlikely to be any prospect of a settlement.”  The response did not address the causation hurdle set out above.

[7]      The trial was scheduled to commence on 4 August 2014.  Shortly before trial, by letter dated 29 July 2014, the defendants made an offer of $50,000 (inclusive of GST) in full and final settlement (the third offer).   The offer was made “without prejudice save as to costs”. With that letter the defendants’ solicitors advised that:

… the sticking point in settlement negotiations has always been the requirement for Mr Reeve to apologise.  My instructions are that Mr Reeve did not mislead Mrs Barbalich and given those instructions the provision of an apology is simply not appropriate.

[8]      The third offer was rejected later that day.   The plaintiff’s counsel advised that the plaintiff “knows that she was lied to” and that if the defendants were not willing to admit it then she was “looking forward to the chance to have it proved in Court and to obtain vindication that way”.   The plaintiff’s counsel also advised that the plaintiff was willing to consider offers that did not include an admission of liability but the offer would need to be at a level that gave her an incentive to do so. He referred to offers from the plaintiff that had been made to settle for $200,000 and then for $125,000, and that the plaintiff felt that the defendants had not demonstrated a similar commitment to compromise.  No settlement was reached.

[9]      The defendants submit that the plaintiff ’s rejection of each of the three offers

was unreasonable.  The defendants say that the first and second offers were made

when the plaintiff could objectively assess the merits of her case and were at a level above costs incurred at the time that the offers were made.  The defendants note that the plaintiff had five days to consider the third offer and, had it been accepted, it would have saved the costs of trial preparation in the days immediately prior to trial together with the two and a half hearing days.   The defendants submit that they should have costs on a 2B basis up to the date of the first offer and, from then on, increased costs.  The defendants do not propose a particular percentage uplift that is appropriate.  Rather they note that 2B costs up to the time of the first offer amounted to $13,532, and after that point they amounted to $25,671 as compared with actual costs of $75,653.50 for that same period.

[10]     The plaintiff submits that she did not act unreasonably in rejecting the offers. She says that the offers were not far different from “walk-away offers” and were less than the legal fees the defendants had themselves incurred at the relevant points in the proceeding.  She says that she did not refuse to negotiate.  Her position was that she was willing to compromise for less than the amount she had claimed but any smaller settlement would need to be accompanied by an acknowledgement of fault by the defendants.  Her position was based on her honestly held view that she had been lied to.  She submits that it is legitimate to pursue litigation for the purposes of vindication even where damages may not be awarded.

[11]     The correspondence shows that the stumbling block for settlement was the plaintiff’s belief she had been lied to and her wish that the defendants admit that. The defendants were not willing to admit something that they did not accept had occurred.  Given the difference of views about what had occurred I expect that it was frustrating to the defendants that the plaintiff did not wish to engage on the issue of causation and loss.  The defendants correctly identified this as problematic for the plaintiff  regardless  of  whether  she  could  establish  that  the  claimed misrepresentations had been made.  The second offer, which was made at an early stage, correctly identified the basis on which I determined this issue against the plaintiff, namely that the plaintiff’s offer had to be acceptable to the vendor and the vendor was not willing to sell for a lower price.

[12]     However the plaintiff had an honestly held belief that the misrepresentations were made and that this was why she made the offers to purchase the property at the level she did.  There were grounds for testing the vendors’ evidence about the price at which they were willing to sell.  This was a case which fell to be determined on the Court’s assessment of credibility and reliability both as to whether the misrepresentations were made and (if they were made) what would have occurred had they not been made.   It was not unreasonable in those circumstances for the plaintiff to proceed to trial for the Court to make that determination.  I am therefore not  persuaded  that  the  plaintiff  was  acting  unreasonably  when  she  rejected  the

offers.4

[13]     In coming to that view it is relevant that the offers made to the plaintiff were not far off from “walk-away” offers.  For her part, she was willing to compromise her claim to some extent and to forgo the apology she sought (albeit only if a significant settlement sum was offered).  I also accept that the plaintiff was, as her counsel submits, close to being a model litigant in the way the claim proceeded to trial.    Issues  were  agreed  at  an  early  stage,  certain  parts  of  the  claim  were discontinued to further narrow the issues, and the proceeding was kept on track for trial despite some discovery failings and late compliance with timetable directions on the part of the defendants.

[14]     I therefore decline the claim for increased costs.

Discovery

[15]     The defendants have calculated that costs on a 2B basis total $39,203.  There is no dispute that 2B is the appropriate category nor as to the defendants’ calculation on that basis.  Included in this sum is $7,960 for discovery ($4,975 for preparing the defendants’ list of documents and $2,985 for inspecting the plaintiff ’s documents). The plaintiff submits that the costs awarded to the defendants should be reduced by

$7,960 because of the defendants’ failures in making full discovery at the outset.

4      Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [29]; Easton Agriculture Ltd v

Manawatu-Wanganui Regional Council HC Palmerston North CIV-2008-454-31, 22 December
2011 at [12].

[16]     The exchange of documents was directed to take place by 5 November 2013. The defendants’ list of documents was filed on 11 November 2013.   Following correspondence on behalf of the plaintiff, a second list of documents was sworn on

16 December 2013.  Plaintiff’s counsel again queried the completeness of discovery. On 18 July 2014 a third list of documents was provided.  Further documents going beyond that list were provided on 31 July 2014 just days before the hearing.

[17]     I accept that the ongoing incomplete discovery caused unnecessary additional cost to the plaintiff.5   I consider that it is appropriate to reduce the order for costs on this basis.  However the reduction sought by the plaintiff is, in my view, too great. The  defendants  are  entitled  to  claim  for  inspecting  the  plaintiff’s  documents ($2,985).  Disallowing the defendants’ claim for preparing their list of documents is in my view a suitable proxy for the increased costs caused to the plaintiff by the discovery failings.

Result

[18]     Accordingly  I  order  costs  of  $34,228  payable  by  the  plaintiff  to  the defendants.

Mallon J

5      High Court Rules, r 14.7(f)(i).