Bathurst Resources Ltd v L&M Coal Holdings Ltd
[2021] NZCA 684
•16 December 2021 at 11 am
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA483/2018 [2021] NZCA 684 |
| BETWEEN | BATHURST RESOURCES LIMITED |
| AND | L&M COAL HOLDINGS LIMITED |
| Court: | Kós P, Gilbert and Goddard JJ |
Counsel: | J E Hodder QC, R J Gordon and A S Kirk for Appellants |
Judgment: | 16 December 2021 at 11 am |
JUDGMENT OF THE COURT
AThe respondent is to pay the first appellant $104,346 costs in the High Court, plus disbursements of $90,368.
BThe respondent is to pay the first appellant $43,507 costs in this Court, plus disbursements of $10,933.
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REASONS OF THE COURT
(Given by Kós P)
Bathurst acquired coal mining rights on the West Coast of New Zealand’s South Island from L&M. Part of the purchase price was deferred. Two performance payments, each of US$40 million, were payable when 25,000 tonnes, and then one million tonnes, of coal had been shipped from the permit areas.
Although more than 50,000 tonnes of coal were mined by Bathurst from the permit areas, it said this did not trigger the first performance payment obligation. It said the coal was not “shipped” from the permit areas as required by cl 3.4 of the sale agreement.
Bathurst mothballed the mining operation. It denied any present liability for the first performance payment. It said cl 3.10 of the sale agreement enabled it to postpone that payment so long as it paid royalties at a higher 10 per cent rate on the coal it sold.
The High Court found against Bathurst on the meaning of cl 3.4.[1] So too did this Court[2] and (unanimously) the Supreme Court.[3] The High Court and this Court also found against Bathurst on the meaning of cl 3.10. But on appeal, a majority of the Supreme Court found for the Bathurst on that issue.
[1]L&M Coal Holdings Ltd v Bathurst Resources Ltd [2018] NZHC 2127, [2020] NZCCLR 11 [High Court judgment].
[2]Bathurst Resources Ltd v L&M Coal Holdings Ltd [2020] NZCA 113, [2020] NZCCLR 26 [Court of Appeal judgment].
[3]Bathurst Resources Ltd v L & M Coal Holdings Ltd [2021] NZSC 85 [Supreme Court judgment].
In the High Court, L&M also advanced an alternative cause of action alleging that cl 3.10 created a unilateral contractual discretion in favour of Bathurst which must be exercised only for the proper contractual purposes for which it was created — and which, it alleged, Bathurst used for an improper purpose.[4] The High Court found against L&M on this issue.[5] Though L&M supported the High Court judgment on different grounds before this Court, this Court did not address the issue. The Supreme Court indicated it would have agreed with the High Court.[6]
[4]High Court judgment, above n 1, at [191]–[196].
[5]At [211].
[6]Supreme Court judgment, above n 3, at [279].
The Supreme Court noted costs should follow the event, but ordered costs be “slightly discounted” as L&M succeeded in relation to the interpretation of cl 3.4.[7] Although unquantified, the slight discount given was approximately 15 per cent on standard civil costs for a two-day appeal with allowance for two counsel. As a result, costs of $30,000 were awarded, with costs in the courts below to be re-determined there. As Dobson J has retired from the High Court, this Court will fix costs in both Courts, exercising the powers prescribed in s 103 of the Senior Courts Act 2016.
The positions of the parties
[7]At [231].
The parties agree Bathurst is entitled to scale costs in the High Court on a category 3B basis, save for costs for preparing for the hearing which are to be calculated on a category 3C basis. Two areas of disagreement arise.[8] First, Bathurst seeks costs on a category 3C basis for the inspection of documents rather than a category 3B basis. Secondly, Bathurst seeks a 50 per cent increase in scale costs in the High Court whereas L&M seeks a 40 per cent reduction in scale costs in that Court.
[8]A further issue as to payment of scale costs for an interlocutory application for further particulars in the High Court has been settled between the parties.
The parties also agree that Bathurst is entitled to costs in this Court for a complex appeal on a band B basis. But Bathurst seeks a 20 per cent uplift in costs in this Court whereas L&M seeks a 40 per cent reduction in costs in this Court.
L&M does not dispute Bathurst’s claimed disbursements in both Courts totalling $101,301.32.
Issues
Three issues fall to this Court for determination:
(a)the appropriate categorisation of the inspection of documents step in the High Court;
(b)whether L&M’s pursuit of its improper purpose argument justifies increased costs in either or both Courts;
(c)whether Bathurst’s unsuccessful argument as to the meaning of cl 3.4 justifies reduced costs in either or both Courts.
Categorisation of inspection of documents in the High Court
In its judgment determining costs due to L&M, the High Court had awarded L&M costs on this step assessed on a 3C basis. But this — as well as a 20 per cent uplift — reflected that Bathurst’s conduct in discovery and provision of documents for inspection meant that L&M’s solicitors were necessarily required to attend to the task in an inefficient manner.[9]
[9]L&M Coal Holdings Ltd v Bathurst Resources Ltd [2018] NZHC 3121 [High Court costs judgment] at [12].
No equivalent adverse findings were made as to L&M’s conduct. Bathurst does not explain why 3C costs are justified with respect to the time and complexity of its document inspection process. We therefore order costs for this step be calculated on a 3B basis.
Does L&M’s pursuit of its improper purpose argument justify increased costs?
Bathurst submits L&M failed in its improper purpose argument and that its pursuit of the argument caused Bathurst significant extra cost. As to the High Court, Bathurst submits a 50 per cent increase is appropriate. One witness for each of Bathurst and L&M gave evidence devoted solely to the issue. Together with cross-examination of other witnesses on the issue, at least five of twelve full hearing days were devoted to evidence relevant to the issue at trial. Forty per cent of L&M’s closing submissions at trial also addressed the issue. This was unnecessary as the claim was always going to turn on issues of contractual interpretation.
As to costs in this Court, Bathurst submits a 20 per cent increase is appropriate. A quarter to one third of one of three hearing days and 20 per cent of L&M’s written submissions were devoted to this issue. Bathurst also had to file further written submissions after the hearing.
Discussion
A court may award increased costs where the party liable to pay costs has contributed unnecessarily to the time or expense of the appeal or step in it by taking or pursuing an unnecessary step or an argument that lacks merit.[10] However, the exercise of that jurisdiction requires a little further explanation.
[10]High Court Rules 2016, r 14.6(1)(a) and (3)(b)(ii); and Court of Appeal (Civil) Rules 2005, r 53E(1)(a) and (2)(b)(ii).
Generally, increased costs may be ordered where there is a failure by the paying party to act reasonably.[11] It is not enough that an appeal (and therefore cause of action at first instance) lacks merit. Increased costs will generally not be appropriate where there are “at least available starting points” for the argument — where its pursuit is not “unreasonable” nor “hopeless”.[12] The costs regime should be predictable and litigants with “real arguments presented responsibly” to the courts should not fear an adverse increased costs award if their case fails.[13] The standard costs regime recompenses in the case of normal failure.
[11]Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [27(b)].
[12]New Zealand Carbon Farming Ltd v Mighty River Power Ltd [2016] NZCA 624, (2016) 23 PRNZ 789 at [39].
[13]At [40].
Pursuit of the improper purpose argument undoubtedly took some time at trial, and Dobson J considered L&M (successful before him) should receive reduced costs because of it; a reduction of 20 per cent.[14] He considered the argument “caused substantial diversion and ultimately generated more heat than light”.[15] We accept Dobson J was well-placed to assess the significance of the argument in the High Court. It does not however follow that because L&M received a reduction in costs in the High Court because of this argument, Bathurst must receive increased costs now the tables are turned. The applicable principles are different: compare the preceding paragraph with [25] below.
[14]High Court costs judgment, above n 9, at [18].
[15]High Court judgment, above n 1, at [228].
The argument was flawed for the reason identified by Dobson J: if Bathurst succeeded on its interpretation of cl 3.10, it would be exercising a power as of right, rather than as a matter of contractual discretion.[16] Though the Supreme Court considered it “clear” the rights under cl 3.10 could not be classed as a contractual discretion,[17] we consider there was an available starting point for the improper purpose argument, both in terms of the alleged contractual discretion and alleged improper purpose. It was not hopeless, nor unreasonable, to advance it in the manner L&M did so. It is markedly different to arguments — wholly without merit and that should never have been advanced — made in recent proceedings in this Court that attracted increased costs.[18] Ordinary costs are appropriate to recompense Bathurst here. Those ordinary costs will of course reflect the hearing time required to deal with the improper purpose argument.
[16]At [225].
[17]Supreme Court judgment, above n 3, at [279].
[18]Pickering v Detection Services Ltd [2021] NZCA 382 at [78]; and Taylor v Asteron Life Ltd [2020] NZCA 354, [2021] 2 NZLR 561 at [177].
In this Court the issue occupied significantly less time — only two pages of Bathurst’s 29 full pages of submissions and reply submissions, and at most 10 per cent of the hearing time. Ordinary costs are also appropriate to recompense Bathurst here.
Conclusion
L&M’s pursuit of its improper purpose argument does not justify increased costs.
Does Bathurst’s unsuccessful argument as to the meaning of cl 3.4 justify reduced costs?
L&M submits Bathurst’s unsuccessful argument concerning the interpretation of cl 3.4 justifies a reduction in costs payable to Bathurst to reflect the degree of success L&M had in the proceedings. The interpretation of cl 3.4 was one of the two major issues to be determined and was commercially significant as it meant the first performance payment obligation was triggered. Reduced costs avoid an absolute approach this Court has previously considered undesirable.
Further, Bathurst’s argument regarding cl 3.4 put L&M to significant cost. In the High Court, roughly 40 per cent of Bathurst’s and 20 per cent of L&M’s written submissions dealt with cl 3.4. In this Court, those proportions were 35 per cent and 30 per cent respectively. L&M also bore considerable cost in reviewing the substantial amount of evidence Bathurst adduced on the cl 3.4 issue.
L&M submits a reduction of 40 per cent is broadly consistent with the time and pages dedicated to submissions on this issue in both Courts and reflects L&M’s success on one of two major issues.
For its part, Bathurst makes no submissions on the question of reduced costs.
Discussion
A court may reduce the costs otherwise payable if, although the party claiming costs has succeeded overall, that party has failed in relation to an issue which significantly increased the costs of the party opposing costs.[19] In assessing the question of reduced costs, there is no requirement the unsuccessful argument be unreasonable. Rather reduced costs account for the time and resources an unsuccessful party must expend to meet ultimately unsuccessful arguments by the successful party that increased the unsuccessful party’s costs.[20] An assessment of comparative hearing time and any other relevant matters may be necessary to do justice to both sides, taking into account a realistic appraisal of the end result.[21] But a court should not usually unpick what happened in substantial detail.[22]
[19]High Court Rules, r 14.7(d); and Court of Appeal (Civil) Rules, r 53F(d).
[20]See Weaver v Auckland Council [2017] NZCA 330, (2017) 24 PRNZ 379 at [23] and [26].
[21]Packing In Ltd (in liq) v Chilcott (2003) 16 PRNZ 869 (CA) at [5]–[6].
[22]Weaver v Auckland Council, above n 20, at [24].
The interpretation of cl 3.4 was a significant issue between the parties in that it triggered the first performance payment. But Bathurst’s success on the cl 3.10 issue meant it does not have to make that first performance payment. L&M’s success has no economic effect between the parties. However, its success on the cl 3.4 issue remained significant given the time and expense it was put to in order to head off Bathurst’s proposed interpretation — essential effort, we note, as the issue would have been wholly dispositive if decided in favour of Bathurst. As the Supreme Court recognised, this warrants some reduction in costs.[23]
[23]See [6] above.
We consider the discount applied by the Supreme Court of approximately 15 per cent should be applied also in both Courts below.
Conclusion
Bathurst’s unsuccessful argument as to the meaning of cl 3.4 justifies reducing costs by 15 per cent in both Courts.
Result
L&M is to pay Bathurst costs in the High Court on a category 3B basis, save for preparation for the hearing which are calculated on a category 3C basis, reduced by 15 per cent — totalling $104,346 — plus disbursements of $90,368.
L&M is to pay Bathurst costs in this Court for a complex appeal on a band B basis reduced by 15 per cent — totalling $43,507 — plus disbursements of $10,933.
Solicitors:
MinterEllisonRuddWatts, Wellington for Appellants
Chapman Tripp, Wellington for Respondent
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