Biscuit Creek Forest Ltd v Vallance
[2021] NZHC 1345
•8 June 2021
IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY
I TE KŌTI MATUA O AOTEAROA TE PAPAIOEA ROHE
CIV 2018-454-56
[2021] NZHC 1345
BETWEEN BISCUIT CREEK FOREST LTD
Plaintiff
AND
SIMON FREDERICK VALLANCE and ROSA VALLANCE
Defendants
CIV 2019-435-15 BETWEEN
SIMON FREDERICK VALLANCE and ROSA VALLANCE
PlaintiffsAND
ANDREW PHILIP VALLANCE
Defendant
On the papers Judgment:
8 June 2021
JUDGMENT OF MALLON J
(Costs)
Introduction
[1] These two proceedings, heard together, concerned the rights to an “Owner’s Share” under a Forestry Right:
(a)In one proceeding, the plaintiff (Biscuit Creek) claimed damages for breach of a contract under which it had purported to purchase the Owner’s Share. I entered judgment for the defendants (Simon and Rosa Vallance) on this claim.
BISCUIT CREEK FOREST LTD v VALLANCE [2021] NZHC 1345 [8 June 2021]
(b)In the other proceeding, Simon and Rosa Vallance claimed that Andrew Vallance (the defendant in this proceeding, and the sole director and shareholder of Biscuit Creek) had engaged in misleading and deceptive conduct in relation to the contract to purchase the Owner’s Share. They claimed indemnity costs relating to the first proceeding as compensation for that conduct. I entered judgment for Andrew Vallance on this claim.
[2] In giving judgment on those proceedings, I granted leave for submissions on costs if they could not be resolved by agreement and said:1
[220] For the purposes of costs, I can indicate that my view is that Simon and Rosa Vallance are the successful party although they did not succeed on all the defences they raised. I consider that the counterclaim is best viewed as an adjunct to the affirmative defences on which they did not succeed. …
[3] The parties were unable to agree on costs. Andrew Vallance disagrees with the indication I gave about what I described as “the counterclaim” (being the second proceeding referred to above). There are also some issues about whether a step is category C and about witness fees.
The successful party
The relevant rules
[4] On the issue of who was the successful party on the two proceedings, the following rules are relevant:
(a)Rule 14.2(1)(a): it provides the general principle that “the party who fails with respect to a proceeding or an interlocutory application should pay costs to the party who succeeds”.
(b)Rule 14.7(d) and (f): it provides that, despite r 14.2, the court may refuse or reduce costs if, although the party claiming costs has succeeded overall, that party “has failed in relation to a cause of action or issue which significantly increased the costs of the party opposing
1 Biscuit Creek Ltd v Vallance [2021] NZHC 640.
costs” or they “contributed unnecessarily to the time or expense of the proceeding or step in it by … taking or pursuing an unnecessary step or argument that lacks merit”.
(c)Rule 14.16: which provides:
Claim and counterclaim both established
The court must award costs as if each party had succeeded in an independent proceeding, unless, in the court’s opinion, the justice of the case otherwise requires, if –
(a) the plaintiff succeeds in his or her proceeding; and
(b) the defendant succeeds in a counterclaim.
The first proceeding
[5] I first consider the position if there had been just the first proceeding. There is no issue about who succeeded and failed in this proceeding. Pursuant to r 14.2, as the successful party, Simon and Rosa Vallance are entitled to costs on this proceeding. Biscuit Creek says, however, that costs on this proceeding should be reduced pursuant to r 14.7 because Simon and Rosa significantly increased Biscuit Creek’s costs by unnecessarily pleading thirteen affirmative defences and succeeding on just two of them. Simon and Rosa say they did not significantly increase the costs because the defences were grouped by common issues and they were addressed only briefly in Biscuit Creek’s closing submissions.
[6] The principal issue in the case was whether Simon and Rosa’s Trust, or Simon and Rosa personally, had the right to the Owner’s Share at the time when a contract was entered into with Biscuit Creek to sell the Owner’s Share. Biscuit Creek claimed that Simon and Rosa had that right whereas Simon and Rosa claimed that the right was held by the Trust. Simon and Rosa succeeded on this issue. This in turn raised issues about the enforceability or validity of the contract under which Simon and Rosa had purported to sell the Owner’s Share. I found in favour of Simon and Rosa on two affirmative defences (the contract with Biscuit Creek was of no effect and there was a common mistake). I also found that, even if Biscuit Creek had succeeded in its claim,
it had not established the loss it claimed to have suffered by the failure to settle the contract.
[7]As to the other affirmative defences:
(a)I rejected Simon and Rosa’s affirmative defence that Andrew had induced them to enter into the contract by misrepresenting that they personally owned the Owner’s Share;
(b)I rejected Simon and Rosa’s affirmative defences that the contract to sell the Owner’s Share was not enforceable because it was interdependent with a contract to sell the farm that did not proceed (gentlemen’s agreement, implied term, unilateral mistake, estoppel);
(c)I rejected Simon and Rosa’s affirmative defences that the contract to sell the Owner’s Share had come to an end (for failure of the finance condition) or was otherwise unenforceable (Property Law Act and uncertainty); and
(d)three affirmative defences were ultimately not pursued by Simon and Rosa in closing submissions (frustration, termination by law and failure to tender settlement).
[8] I consider that the number and breadth of the affirmative defences on which Simon and Rosa did not succeed significantly increased the costs of Biscuit Creek. All of them involved legal issues that had to be researched. Most of them had to be addressed in closing submissions. And some of them involved evidence that would not have been necessary (or necessary to the same extent) if they had not been pursued. In this last category was evidence relating to the interdependence defences (how the prices were negotiated and the ongoing discussions between Andrew and Simon about the agreements), failure of the finance condition (Andrew’s financing arrangements at the time the condition was confirmed) and uncertainty/the failure to tender settlement (what was tendered and why that was defective). Pursuant to r 14.7 I consider it would be appropriate to reduce the costs payable to Simon and Rosa on the first proceeding
by 12 per cent because of the affirmative defences that did not succeed or were not pursued. This relatively modest reduction reflects that Simon and Rosa were entirely successful on the principal issue, but takes into account that the misrepresentation and interdependence defences involved not insignificant additional evidence and all of the unsuccessful defences involved legal issues that needed to be researched and/or addressed.
The second proceeding
[9] Having determined what would have been the position if there was just one proceeding, I now consider the costs implications of the second proceeding on which Andrew was the successful party. I described it as an adjunct to the first proceeding because it would not have been brought were it not for Biscuit Creek’s (unsuccessful) proceeding claiming damages for the failure of Simon and Rosa to settle with Biscuit Creek under the contract for the sale of the Owner’s Share and because it involved evidence that overlapped with some of the affirmative defences.
[10] Andrew puts forward three alternative approaches to costs because of this second proceeding:
(a)he submits that there is a strong case for costs of the two proceedings to lie where they fall because the quantum claimed in this second proceeding was probably greater than what Biscuit Creek claimed in the first proceeding and because of the mutual mistake at the time the contract to sell the Owner’s Share was entered into; or
(b)he submits that costs should be based on the premise that each party had approximately equal success, but that there should be an adjustment in favour of Biscuit Creek because of the eleven positive defences that failed or were not pursued and because of (unsuccessful) allegations of dishonest conduct made against Andrew; or
(c)he submits that costs should be awarded to the successful defendants in each proceeding pursuant to r 14.2(1)(a) or with what would occur where a claim and counterclaim both fail by analogy with r 14.16.
[11] I do not accept the first of these alternatives. I do not regard the respective quantum unsuccessfully claimed in each proceeding as an appropriate measure of who was the overall successful party. Nor is the fact that the parties each made a mutual mistake relevant to costs because that mistake was made when the contract was entered into. Following legal advice, Simona and Rosa realised the mistake. It was Biscuit Creek who chose to bring proceedings claiming it was entitled to the Owner’s Share, contending there was no mistake, and seeking enforcement of the contract. Biscuit Creek failed in that claim.
[12] Nor do I accept that the second of these alternatives is the appropriate way to measure who succeeded overall or to determine costs. In the first place, despite Simon and Rosa’s failure on 11 of the affirmative defences, they were the successful party in the first proceeding and a 12 per cent reduction to the costs they would otherwise have on that proceeding appropriately accounts for the defences on which they did not succeed. Secondly, this alternative does not account for the fact that the second proceeding would not have been brought at all had Biscuit Creek not commenced its claim against Simon and Rosa. Thirdly, it does not take into account the substantial overlap in the first proceeding (on the misrepresentation and the four interdependence affirmative defences) with the second proceeding.
[13] It is because of the second and third of those reasons that I consider it is appropriate to consider costs consistent with the approach to costs when the second proceeding is a counterclaim.2 The substantial overlap between the proceedings arose because Andrew was the sole director and shareholder of Biscuit Creek and it was through him, and only him, that the contract for the Owner’s Share was negotiated on behalf of Biscuit Creek. This substantial overlap meant that the costs in resisting the second proceeding were already substantially incurred in the first proceeding.
[14] Rule 14.16 applies where a plaintiff succeeds in his or her proceeding and the defendant succeeds in his or her counterclaim. Here the reverse occurred. Andrew
2 It was not technically a counterclaim because the second proceeding was brought against Andrew whereas the first proceeding was brought against Biscuit Creek.
refers to Medway Oil and Storage Co Ltd v Continental Contractors Ltd as to the appropriate approach when both a claim and counterclaim fail.3
[15] That case involved a claim by sellers of oil for breach of contract by the buyers, who refused to take delivery of the oil. The oil had been delivered later than the delivery date under the contract and the sellers alleged the time for delivery had been extended at the request of the buyers. The buyers denied any extension had been asked for or given and counterclaimed for damages for alleged breaches of the contract. The sellers failed in their claim and the buyers failed on the counterclaim. The trial Judge held that the buyers were entitled to costs in defending the sellers’ claim, and the sellers were entitled only to the costs as they would not have incurred had they not been compelled to meet the counterclaim.
[16] The Court of Appeal overturned this and apportioned costs as between the sellers and the buyers on the common issues between the claim and the counterclaim. The effect of this approach was that the sellers ended up with a substantial award of costs. As was pointed out in the House of Lords, this was even though the buyers “had won on every issue, whether considered as an issue on the claim or on the counterclaim, and only failed in obtaining judgment upon the counterclaim by reason of their being unable to prove any damage from flowing from the breach of contract which they had succeeded in proving”,4 and even though only 10 of the 832 pages of evidence were necessitated by the counterclaim.5 The counterclaim only came to be considered if the buyers had won on the sellers’ claim and even then most of the issues in the counterclaim had already been determined in the sellers’ claim.
[17] The House of Lords overturned the Court of Appeal’s decision and restored the trial Judge’s decision. It held that the proper approach was that a defendant, who has succeeded in her defence but failed in her counterclaim, is entitled to the costs which she has incurred in defeating the claim, but is not entitled to any costs she would not have incurred had she not counterclaimed. The plaintiff is only entitled to such costs as she would not have incurred had she not been compelled to meet the counterclaim.
3 Medway Oil and Storage Co Ltd v Continental Contractors Ltd [1929] AC 88 (HL).
4 At 104, per Lord Carson.
5 At 113, per Lord Shaw.
[18] That approach is appropriate here but on the basis of the scale costs that apply in this jurisdiction. This is because the second proceeding arose only because Biscuit Creek brought the first proceeding seeking to enforce the contract to sell the Owner’s Share. Applying the Medway approach, Simon and Rosa are entitled to costs on the first proceeding as determined above (scale costs for each step in the first proceeding that relates to that proceeding less 12 per cent). Andrew is entitled to the costs he would not have incurred had he not been compelled to meet the second proceeding.
[19] This would mean that Andrew would be entitled to item 2 of Schedule B attached to his submissions of 23 April 2021 (the defence to the claim in the second proceeding) and for any other step that was specific to the defence of the second proceeding. I am unaware what other steps may have been specific to defending the second proceeding apart from some additional trial preparation and hearing time. That additional trial preparation and hearing time would be relatively small given the substantial overlap between the issues on the second proceeding and the misrepresentation and interdependence affirmative defences in the first. A total of
17.5 days is claimed in the first proceeding for preparation of briefs, preparation for trial, trial and second counsel. A small amount of additional work relating to the second proceeding may have arisen in undertaking those steps in the first proceeding. I consider that an appropriate allowance for the additional costs on the second proceeding for these steps would be 1.5 days.
Conclusion on successful party
[20]In summary:
(a)On the first proceeding, Simon and Rosa are entitled to scale costs against Biscuit Creek for that proceeding, excluding any steps that relate to the second proceeding and which would not have been incurred if the second proceeding had not been brought, and less 12 per cent.
(b)On the second proceeding, Andrew is entitled to scale costs against Simon and Rosa for any step in that proceeding that arises only because he had to respond to that proceeding. This includes filing the defence
to the second proceeding and a small portion of the allowance for preparation of briefs, preparation for trial, trial and second counsel that can be said to have been necessary only because the second proceeding had to be responded to. I do not know if there are other steps specific to the second proceeding but anticipate that counsel will be able to resolve that by discussion.
Other issues
Band B
[21] The parties agree this is a category 2 case. They also agree that band B is the appropriate band for most steps. However, Simon and Rosa claim band C for discovery. They do so because they say that discovery involved a comparatively large amount of time. They say this was because they were required to discover documents held by their lawyers involved in the sale of the farm and the Owner’s Share (a further 705 documents on top of the 156 documents they had already discovered) and discovery of these documents was complicated by privilege issues. I am not persuaded that this made discovery a comparatively large task. I consider band B remains appropriate for this step.
Hearing fees
[22] The parties agreed prior to the hearing that they would apportion the hearing fee 60:40 on an interim basis pending the outcome of the trial. A hearing fee is charged on a quarter day basis. I consider the apportionment of the hearing fee should be on the same basis as the overall approach to costs. That is, Simon and Rosa should pay only the hearing fee that represents the additional hearing time caused solely by the second proceeding. That will be a relatively small amount because of the substantial overlap between some of the affirmative defences in the first proceeding and the issues in the second proceeding.
Witness fees
[23] There are three issues concerning witness fees. The first is the amount claimed for Mr Lennard, who was a tax lawyer expert instructed by Simon and Rosa. Biscuit
Creek contends the amount claimed of $24,900 seems excessively high when compared with the fee of $10,000 plus GST charged by its tax expert. Biscuit Creek says it would be prepared to pay $15,000.
[24] I consider the comparison as between Mr Lennard’s fee and that of Biscuit Creek’s expert does not particularly assist in determining whether Mr Lennard’s fee was reasonable. Mr Lennard was required to give evidence at trial whereas Biscuit Creek’s expert was not and Mr Lennard’s invoices therefore include preparation for and attendance at the hearing. Further, Mr Lennard raised the issue of whether the Owner’s Share was a chose in action. This was relevant to Biscuit Creek’s damages claim. I agreed with Mr Lennard’s view about this. Mr Lennard has invoiced Simon and Rosa for $24,900. He has provided the details of his attendances that make up this total. I consider Mr Lennard’s fee is reasonable in amount.
[25] The second issue concerns Mr Guscott’s fee of $3,551. Biscuit Creek resists this disbursement on the basis that Mr Guscott gave evidence as a fact rather than expert witness. I agree with Biscuit Creek that, although Mr Guscott has forestry and valuation expertise, he gave evidence as a fact witness. He recounted what he knew about the creation of the forestry right and his involvement in its later sale. However, that does not determine whether the disbursement should be allowed. Pursuant to r 14.12(1) a disbursement is “an expense paid or incurred for the purposes of the proceeding that would ordinarily be charged for separately from legal professional services in a solicitor’s bill of costs”. Such a disbursement may be approved under r 14.12(2)(a)(i) if it was necessary and specific to the conduct of the proceeding and is of a reasonable amount.6 The cost of a witness who is not giving expert evidence, but is a professional entitled to charge for his or her time, may be recovered as a reasonably necessary disbursement.7
[26] I consider that Mr Guscott’s fee is a disbursement within the meaning of r 14.12(1). His fee was incurred because it was reasonably necessary for him to give evidence in response to Biscuit Creek’s claim. As a professional, he was reasonably
6 High Court Rules 2016, r 14.12(2).
7 Trustpower Ltd v Commissioner of Inland Revenue [2014] NZHC 3072 at [79]–[80]; and Body Corporate 396711 v Sentinel Management Ltd [2012] NZHC 2556 at [30].
entitled to invoice Simon and Rosa for this. His invoice is based on the time involved in preparing for and giving evidence. I agree with Simon and Rosa that it is fair that he be remunerated for his time and that his fee is properly recoverable against Biscuit Creek as a disbursement in the proceeding.
[27] The third issue concerns Mr Gould’s fee of $9,499.50, which relates to his preparation for and attendance at court as a witness for Simon and Rosa. Biscuit Creek resists the claim for this fee on the basis that he gave evidence as a fact witness. I agree that he was a fact witness. He gave evidence about the steps he took on Simon and Rosa’s behalf in relation to the contracts signed with Biscuit Creek and Andrew and the subsequent transactions that were entered into following the later sale of the farm and the Owner’s Share. However, as with Mr Guscott, I consider his fee is within r 14.12(1) and I approve it under r 14.12(2)(a)(i). It is reasonable in amount, it was reasonable that he invoice Simon and Rosa for it, it was specific to the proceeding and his evidence was reasonably necessary to respond to Biscuit Creek’s claim.
Result
[28] Simon and Rosa Vallance are entitled to 2B costs and disbursements on the first proceeding and in accordance with the determinations I have made in this judgment on the issues that were in dispute.
[29] Andrew Vallance is entitled to 2B costs and disbursements on the second proceeding, but only to the extent that such costs and disbursements were additional to the costs and disbursements that arose in the first proceeding.
[30] While I am hopeful the parties will now be able to resolve the figures payable by each to the other as a result of this judgment, they have leave to come back to the Court if necessary but (in the interests of finality) must do so within 10 days of the date of this judgment.
Mallon J
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