Bloor v IAG New Zealand Limited HC Rotorua CIV-2004-463-000425

[2011] NZHC 371

IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY

CIV-2004-463-000425

BETWEEN  ALAN DOUGLAS BLOOR First Plaintiff

ANDTANEATUA LIQUOR CENTRE LIMITED

Second Plaintiff

ANDSUNLINE INVESTMENTS LIMITED Third Plaintiff

ANDIAG NEW ZEALAND LIMITED Defendant

Counsel:         D G Chesterman and M King for the plaintiffs

I G Hunt and K Welsford for the defendant

Judgment:      3 February 2011

JUDGMENT OF STEVENS J

(Costs, post-judgment interest and further damages)

This judgment was delivered by me on Thursday, 3 February 2011 at 11am pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors/Counsel:

Sharp Tudhope, Private Bag 12020, Tauranga Mail Centre, Tauranga 3143.

Young Hunter, PO Box 929, Christchurch 8140. Email:  [email protected] D G Chesterman, Bankside Chambers, Level 22 Lumley Centre, Auckland, 1010. Email: [email protected]

ALAN DOUGLAS BLOOR V IAG NEW ZEALAND LIMITED HC ROT CIV-2004-463-000425 3 February

2011

[1]      The parties have been unable to agree on the question of costs.  Pursuant to leave reserved, memoranda have been filed summarising the respective positions.

[2]      The plaintiffs have applied for indemnity or increased costs, and several additional costs and other issues (including interest and further damages) remain unresolved.

Background

[3]      The first plaintiff owned a combined commercial and residential property in the Bay of Plenty, which he, along with the second plaintiff, insured with the defendant.    In  February 2003,  the building was  totally destroyed  by fire.   The plaintiffs claimed insurance, but the defendant declined the claims on the grounds of material  non-disclosure.   The plaintiffs initiated  proceedings,  alleging  breach  of contract, misrepresentation, and breach of the Fair Trading Act 1986.  The defendant denied liability and raised an affirmative defence, namely material non-disclosure in breach of the terms of the insurance policy.

[4]      By judgment dated 19 March 2010, I found for the plaintiffs on the first cause of action, holding that the plaintiff was entitled to recover $260,000 for building replacement,  along  with  other  amounts  claimed,  including  penalty  interest  and general damages.

[5]      However, judgment was entered for the defendant on the misrepresentation and Fair Trading Act causes of action.  No orders were necessary in respect of the fourth course of action, which was a contract claim by the second and third plaintiffs.

[6]      I held that the plaintiffs were entitled to costs and anticipated that the parties would be able to agree on costs.  That has not happened.  I imposed a limit of four pages on submissions as to costs.   The parties have not complied, instead filing lengthy submissions.

[7]      It  is  not  disputed  that the  plaintiffs  are  entitled  to  costs  on  a  2B  basis. However,  several  of  the  plaintiffs’ claims  for  costs  are  still  unresolved.    The defendant has paid $100,000 towards the plaintiffs’ costs.

[8]      The plaintiffs seek:

(a)       indemnity  or  increased  costs  plus  actual  disbursements  totalling

$191,134.97; or

(b)scale costs on a 2B basis, actual costs for further steps taken, and disbursements totalling $177,222.20; or

(c)       scale costs on a 2B basis, plus an allowance for additional steps taken, and disbursements.

[9]      Counsel have agreed that the scale costs on a 2B basis amount to $98,111.1

However, the defendant disputes the plaintiffs’ claim for other than scale costs.  The defendant accepts an obligation to pay $43,127.71 of the plaintiffs’ total claim for disbursements of $45,833.40. The balance is in dispute.

[10]     The issues still disputed comprise:

(a)       the plaintiffs’ claim for indemnity and/or increased costs;

(b)      the plaintiffs’ claim for additional costs;

(c)       whether the costs should be reduced because of the causes of action on which the plaintiffs did not succeed, and, if so, by how much; and

(d)      the disbursements properly claimable.

1      The calculation of scale costs is complicated by the change in scale daily rates that occurred while proceedings were underway.

[11]     The  plaintiffs  seek  indemnity  or  increased  costs  on  the  basis  of  the defendant’s refusal of their r 14.10 Calderbank offer.  The plaintiffs offered to settle for damages and interest of $791,724.62 plus $105,000 legal costs and $9,583.69 other costs.   The plaintiffs effectively offered to waive their claim for actual replacement costs.  The offer was sent at 3:48 pm on Friday 1 May 2009 and was said  to  expire  at  9:00  am  on  Monday 4  May  2009,  which  was  when  the  trial commenced.  For completeness, I note that the total amount of the judgment award was $881,658.97.

[12]     Rule 14.6 of the High Court Rules deals with indemnity and increased costs. It relevantly provides:

14.6     Increased costs and indemnity costs

(1)      Despite rules 14.2 to 14.5, the court may make an order—

(a)   increasing costs otherwise payable under those rules (increased costs); or

(b)   that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party (indemnity costs).

(2)      The court may make the order at any stage of a proceeding and in relation to any step in it.

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

...

(b)   the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—

...

(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

…

(c)   the proceeding is of general importance to persons other than just the parties and it was reasonably necessary for the party

claiming costs to bring it or participate in it in the interests of those affected; or

(d)   some other reason exists which justifies the court making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.

(4)      The court may order a party to pay indemnity costs if—

(a) the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or

...

(f)   some other reason exists which justifies the court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious.

[13]     In summary, ―increased costs may be ordered where there is failure by the paying party to act reasonably‖.2   Where a Calderbank offer is unreasonably refused, increased costs may apply under r 14.6(3)(b)(v).  The reasonableness of refusing a Calderbank offer is to be assessed as at the time of the offer, in that context, not by comparison to the eventual judgment awarded.3     Indemnity costs are generally appropriate where a party has acted very badly or very unreasonably.4    They are an exception to the normal New Zealand costs regime.5   A high threshold applies.

The parties’ submissions

[14]     The plaintiffs submit that the defendant’s refusal to accept their Calderbank

offer justifies indemnity or increased costs.

[15]     The defendant submits that it should not be required to pay indemnity or increased costs as:

(a)       The  offer  was  effectively open  for  a  very short  time,  namely 72 minutes of the business day during which Mr Hunt, senior counsel for

2      Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [27].

3      New Zealand Sports Merchandising Ltd v DSL Logistics Ltd HC Auckland CIV-2009-404-5548,

19 August 2010 at [37].

4      Bradbury v Westpac Banking Corporation at [27].

5 Ibid at [6].

the defendant, was in Australia.   It was unreasonable to expect the defendant to consider fully an offer made immediately before trial.

(b)At the time of the offer, the plaintiffs had breached timetable orders, filed no reply, filed a further amended statement of claim, and had failed to comply fully with their discovery obligations.  Accordingly, the defendant could anticipate judgment for its affirmative defence.

(c)      The question of settlement was not raised during trial, informally or otherwise.    After  9:00  am  on  Monday  4  May  2009,  no  formal reference was made to the Calderbank offer.  There was no suggestion that it remained open for any further period.

(d)The  case  is  comparable  with  a  number  of  authorities  where  a Calderbank offer was presented with an unreasonably short opportunity to respond, and where increased costs were not awarded.6

(e)      The plaintiffs’ Calderbank offer was nothing more than an attempt to settle for the full amount claimed.   According to Sanson v Parvel Marketing Ltd, a party should not be able to improve its costs position by seeking approximately the full amount claimed with a nominal but unrealistic Calderbank offer.7

[16]     In reply, the plaintiffs submit:

(a)      The defendant’s criticism of their failure to comply with timetable orders is not accurate.  The plaintiffs filed only two briefs late, not all. The plaintiffs provided its list of documents for discovery on 5 March

2009, though noting that some further documents had been located. Only six weeks later, two weeks before trial, did the defendant request

those further documents.

6      Oraka Technologies Ltd v Geostel Visual Ltd HC Hamilton CIV-2005-419-809, 22 April 2010; Levin v Ikiua (No 2) HC Auckland CIV-2007-404-6810, 7 December 2009; Re Rogers HC Auckland CIV-2008-404-5637, 29 April 2009.

7      Sanson v Parval Marketing Ltd HC Auckland CIV-2006-404-7231, 7 July 2008 at [30].

(b)      Mr  Hunt’s  travel  to  Australia  is  his  own  decision  and  of  little

relevance.  He was, in any event, able to consider and reject the offer.

(c)      The offer was a true Calderbank offer, not an attempt to demand settlement for the full sum claimed to improve the plaintiffs’ costs position.    Some  $370,000  of  the  damages  claimed  was  waived. Sanson may be distinguished.

(d)Under the transition provisions of the High Court Rules, the plaintiffs’ failure  to  file  a  reply to  affirmative  defences  would  not  result  in judgment being entered for such defence.

(e)      The  defendant  was  able  fully  to  consider  and  respond  to  the Calderbank offer, notwithstanding the alleged  time pressure.   The decisions referred to at [15](d) are all distinguishable.

Discussion

[17]     First, this is not an appropriate case for a claim of indemnity costs. Although the plaintiffs claim actual costs as appropriate under the heading of indemnity costs, I am not satisfied that the defendant’s conduct was very unreasonable or very bad. Indeed, the plaintiffs do not so contend.  There is nothing in the present case that is comparable to, for example, the making of false allegations of fraud,  particular misconduct, or unduly prolonging proceedings with hopeless claims.8

[18]     Second, I am not satisfied that the plaintiffs’ Calderbank offer is sufficient to justify increased costs under r 14.6(3)(b)(v).  While the defendant clearly considered the offer, it did so under extreme time pressure, and the amount claimed was approximately equivalent  to  the amount  claimed under the successful  causes of action.  There is a public interest – and, indeed, a private interest – in encouraging parties to settle before trial.  However, a party that is ultimately unsuccessful is still entitled to its day in court.  There is a countervailing public interest in not unduly

discouraging potentially meritorious claims.  Here, the defendant reasonably rejected

8      Compare with Hedley v Kiwi Co-op Dairies Ltd (2002) 16 PRNZ 694 (HC) at [11].

the causes of actions that did indeed fail, and elected to continue to trial rather than paying the full amount of the other causes of action.  In the overall context, only two days before trial, with one hour of the working week remaining, and with the plaintiffs in breach of timetable orders and having not filed a reply, I do not consider that the defendant acted unreasonably in rejecting the offer.

[19]   Accordingly, I award the plaintiffs scale costs, rather than increased or indemnity costs.

Additional costs

[20]     The plaintiff claims additional costs for steps in the proceeding, in addition to the scale costs.   The plaintiff relies on item 11 of Schedule 3 of the High Court Rules, which allows the Court to award costs for ―Other steps in the proceeding not specifically mentioned‖.  The additional costs claimed are:

(a)       $15,420 for the preparation of written closing submissions, being the actual costs incurred by the plaintiff;

(b)      $1,978 for the preparation and filing of a memorandum as to interest; (c)      $4,950 for the preparation and filing of memoranda as to costs;

(d)$4,000 for the costs incurred by the plaintiff in responding to the defendant’s application for recall.

[21]     Each of these claims must be discussed in turn.

Preparation of written closing submissions

[22]     The   plaintiff   claims   $15,420   for   the   preparation   of   written   closing submissions.  This is the actual cost incurred, equating to 9.6 days on a category two basis.   The plaintiffs submit that counsel was required to consider voluminous submissions and other documents.  The Legal Services Agency (―LSA‖) granted 90

hours, or 15 days, which the plaintiffs submit is appropriate.   In addition, nine months passed between the filing of closing submissions and hearing of closing argument, so counsel had to review the documents.  It is submitted that indemnity costs  are  appropriate  as  the  defendant  filed  extensive  closing  submissions  and rejected the plaintiffs’ Calderbank offer.

[23]     The defendant submits that there is no basis for the claimed costs.  Indemnity costs are not justifiable by the Calderbank offer or by the defendant having filed closing  submissions.     Further,  the  calculation  of  9.6  days  is  arbitrary  and unjustifiable under the Rules, being no more than the actual costs divided by the applicable  daily  rate.    The  LSA allowance  of  15  days  is  unusual,  even  in  the circumstances of this case.   Further, the preparation of closing submissions is part and parcel of the preparation of any hearing.  Scale costs include an allowance of two days’ preparation for each day of presentation.   Closing submissions are the norm in disputes of this nature, and are allowed for under the scale costs. Accordingly, this is not an item ―not specifically mentioned‖ in Schedule 3.

[24]     I do not consider it appropriate to award indemnity costs.   I have already considered the Calderbank offer.   The filing of lengthy closing submissions is inevitable in a proceeding of this complexity, particularly where, as here, because of inadequate time estimates by the parties, the hearing had to be split into two parts. Filing submissions in such circumstances is not necessarily conduct that justifies an award of indemnity costs under r 14.6.

[25]     Further, I note that, in calculating the time, the plaintiffs have proceeded on an entirely erroneous basis.   Parties are not to start from their actual costs and arbitrarily calculate an amount of time spent when claiming scale costs.  The scale sets a daily rate, from which the costs may be calculated.  As a matter of principle, under r 14.2(d), the appropriate daily rate is normally two thirds of the daily rate considered reasonable for that task.  Even in the event that I had awarded increased costs, the correct  approach would be to uplift from the scale costs, rather than working back from actual costs.9     Only if one of the threshold requirements in r

14.6(4) were met, justifying indemnity costs (which it is not), would the plaintiffs’

9      Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA).

approach be defensible.   Even then, the plaintiffs should not have artificially calculated a nominal amount of time by dividing their actual costs by the scale daily rate.

Preparation and filing of memorandum as to interest

[26]     The plaintiffs seek costs of $1,978.00 for their filing of a memorandum as to interest.  They filed this memorandum at my request.  The time claimed, 1.2 days, is another division of the actual costs incurred.   Again, this is the wrong approach. That said, this was a step in the proceeding ―not specifically mentioned‖.  An award of costs is appropriate.   The defendant offered one day’s scale costs, then $1,600. Although noting that this is perhaps overly generous, given that preparing and filing an interlocutory application including affidavits is allocated 0.6 of one day, I adopt the defendant’s submissions.

[27]     Accordingly,  I award $1,600 in costs for the preparing and filing of the

plaintiffs’ memorandum as to interest.

Preparation and filing of memoranda as to costs

[28]    The plaintiffs claim $4,950 for the preparation and filing of their three memoranda as to costs.   The plaintiffs submit that these were necessary as costs issues were significant and disputed.   The defendant submits that costs for memoranda seeking costs are inappropriate as those memoranda are for the benefit of the party seeking costs, and that by email dated 29 March 2010 it invited counsel for the plaintiffs to discuss costs to avoid the filing of memoranda.  Counsel for the plaintiffs  submits  that  this  email  was  in  reply  to  a  question  as  to  whether  the defendant would oppose increased costs, and that it also dealt with other matters, including a possible appeal.

[29]     In some cases, an award of costs may be appropriate for a memorandum as to costs, especially where the filing of a memorandum has been ordered by the Court. There should be some economic incentive to encourage unsuccessful litigants not to refuse unreasonably to pay costs.  But there should also be an economic incentive for

successful  litigants  to  approach  costs  reasonably,  to  negotiate, and  not  to  make unduly aggressive or premature costs applications.10

[30]     I consider that the plaintiffs’ initial costs memorandum was premature.  As counsel noted, the email correspondence that predated it included reference to a possible  appeal.     Counsel  for  the  defendant  quite  reasonably  refused  to  pay indemnity or increased costs.

[31]     Accordingly, I award no additional costs for the plaintiffs’ costs memoranda.

Response to defendant’s application for recall

[32]     The plaintiffs claim costs of $4,000 for steps taken to oppose the defendant’s application for recall.  The defendant accepts that its application was without merit, but contends that it raised a valid issue as to the party to whom the judgment debt should  be paid.   The defendant  accepts  that  it  should  contribute towards costs. However, it disputes the quantum, on the basis that $4,000 represents the plaintiffs’ actual costs and the time claimed, 2.1 days, was simply the actual costs divided by the daily rate.   Further, the defendant submits that a reduction in costs would be appropriate, as the recall application raised a relevant issue that needed to be dealt with. The defendant offers $1,880 towards costs, before any such reduction.

[33]     I  find  that  a  reasonable  award  of  costs,  by  analogy  to  interlocutory applications listed in Schedule 2, would be one day, or $1,880.  Given that the recall application was filed outside the appeal period, raised new arguments, covered much ground other than the identification issue, and necessitated extensive work in response, I am not prepared to allow a reduction in costs.

Reduction in costs

[34]     The defendant applies, under r 14.7, for a reduction of the plaintiffs costs. Rule 14.7 relevantly provides:

10     See NZ Sports Merchandising Ltd v DSL Logistics Ltd CIV 2009-404-5548, 19 August 2010 at

[25].

14.7  Refusal of, or reduction in, costs

Despite rules 14.2 to 14.5, the court may refuse to make an order for costs or may reduce the costs otherwise payable under those rules if—

...

(d)   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 costs; or

(f)   the party claiming costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—

(i)    failing to comply with these rules or a direction of the court;

or

(ii)  taking or pursuing an unnecessary step or an argument that lacks merit; or

(iii) failing,   without   reasonable   justification,   to   admit   facts, evidence, or documents, or accept a legal argument; or

(iv) failing, without reasonable justification, to  comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or other similar requirement under these rules; or

…

[35]     The defendant submits that:

(a)      The plaintiff belatedly offered to abandon the second and third causes of action in its Calderbank letter.   Those causes of action were unsuccessful, and that outcome was inevitable.   Had the plaintiffs properly complied with their discovery obligations, those causes of action would have been struck out by Associate Judge Abbott in his decision of 2 July 2007.11

(b)The continued prosecution of those causes of action significantly extended the length of the hearing.

11     Bloor v IAG New Zealand Ltd HC Rotorua CIV-2004-463-425, 2 July 2007.

(c)      The plaintiffs further attempted to pursue a submission that the terms of the policy were not limited to $260,000, notwithstanding Associate Judge Abbott’s finding that they were.

(d)      The plaintiffs failed to comply with timetable orders.

(e)       A deduction of seven days’ scale costs, or $11,200, is appropriate.

[36]     In reply, the plaintiffs submit that:

(a)      It was not obvious that the claims for actual replacement cost should not have been pursued.   The Court accepted that the clause of the policy was not well worded.

(b)The Court expressed interest in the misleading and deceptive conduct element of the case and noted that it was not bound by Associate Judge Abbott’s decision.

[37]     I am satisfied that some reduction in the cost payable to the plaintiffs is appropriate.  However, a reduction equivalent to seven days’ scale costs is excessive. I consider that a reasonable reduction, having regard to the time taken in dealing with the second and third causes of action, is three days, or $4,800.

Disbursements

[38]     The plaintiffs claim disbursements of $45,833.40.  The defendant accepts that it is obliged to pay disbursements of $43,127.71, but disputes items 33, 38 and 39, on  the  grounds  that  they  related  to  Ms  Wacker’s  evidence,  which  was  wholly directed at an issue on which the plaintiffs’ claim failed.   I accept the defendant’s submission on this aspect.   A party is entitled to disbursements under r 14.12 for reasonable expenses incurred pursuant to a relevant issue in the proceedings.  I agree

with the view expressed in McGechan that limits disbursements claimable to those relating to issues on which the party succeeded.12

[39]     Accordingly, disbursements are awarded in the sum of $43,127.71.

Post-judgment interest and further damages

[40]     The plaintiff seeks post-judgment interest because of the delay in payment of the judgment debt.  Judgment was delivered on 19 March 2010.  On 26 March the plaintiff sent a draft court order to the defendants, showing a judgment amount of

$881,658.97.  On 8 June, 81 days later, using the plaintiff’s date, the defendant paid

$316,880.44  and  specifically  withheld  the  principal  of  the  mortgage  ($155,000, which it said it would only pay to the mortgagee), damages for penalty interest ($174,950.06) and pre-judgment interest ($234,828.45).   The withheld amount totalled $564,778.51 and was finally paid on 17 August, 152 days after judgment.

[41]     Accordingly, the plaintiff seeks:

(a)      $5,906.00, being interest on $316,880.44 at 8.4% p.a. (the prescribed rate under s 87 of the Judicature Act 1908) for 81 days;

(b)      $5,422.00, being interest on $155,000 at the same rate for 152 days;

and

(c)      $10,743.36, being an additional damages award to compensate for further penalty interest incurred between judgment and payment at a rate of $70.68 per day,  applying the same rate as  the substantive judgment rate.

[42]     The defendant submits that these amounts claimed should simply lie where they fall.  It points to the many memoranda filed on the issue of to whom much of the award should be paid.  Most of these memoranda, by agreement of the parties,

were  not  placed  before  me  because  the  issues  they  address  have  largely  been

12     McGechan on Procedure (looseleaf ed, Brookers) at [HR14.12.01].

resolved.   The defendant relies on the fact that the plaintiff acquiesced in the defendant   paying   $327,950.08   directly  to   the   mortgagee   as   supporting   the correctness of its decision to withhold part of the sum.  In this light, it submits it is unfair to penalise the defendant by awarding interest.

[43]     The plaintiffs submit in reply that they did not give up the legal right to receive payment directly, but merely made a pragmatic decision to have the money paid to the mortgagee to end the dispute.

[44]     Rule 11.27 of the High Court Rules provides that a judgment debt carries interest, at the rate prescribed by s 87 of the Judicature Act, from the time judgment is  given  until  it  is  satisfied.    I see  no  reason  to  exercise  my discretion  in  the defendant’s favour by ordering that it does not have to pay post-judgment interest.

[45]     There has been no explanation of the 81-day delay in paying the $316,880.44. In  accordance  with  r  11.27,  the  defendant  must  pay  post-judgment  interest  of

$5,906.00.

[46]     Nor has there been any satisfactory explanation in the delay in paying the mortgage principal of $155,000.   It is unfortunate, as the counsel for the plaintiffs observes, that the defendant relies on the earlier dispute as to the party to whom some of the judgment debt was payable, the parties having agreed that most of the earlier memoranda filed should not be placed before me.  As it is, there is nothing before   me   which   excuses   the   defendant’s   delay   in   paying   the   $155,000. Accordingly, I direct that, under r 11.27, the defendant must pay $5,422.00 in interest on this sum.

[47]     Finally, there is also the matter of the loss the plaintiffs have incurred in penalty interest since judgment.  The defendant is liable to pay the claimed amount of $10,743.36 on the same basis as the principles discussed at [141]–[166] of the substantive judgment and I so order.

Result

[48]     I award the plaintiffs the sum of $161,990.07, comprising:

(a)       scale costs of $98,111 reduced by $4,800, coming to $93,311; (b)      additional costs of $3,480;

(c)       disbursements of $43,127.71;

(d)      post-judgment interest of $11,328; and

(e)       further damages of $10,743.36.

[49]     From this sum, the amount of $100,000 already paid by the defendant is to be deducted, leaving $61,990.07 outstanding.

Stevens J