Braeburn Dairies Limited v McGregor & White Electrical Limited HC Dunedin Civ-2009-412-000668

[2011] NZHC 2044

IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY

CIV-2009-412-000668

BETWEEN  BRAEBURN DAIRIES LIMITED Plaintiff

ANDMCGREGOR & WHITE ELECTRICAL LIMITED

Defendant

Counsel:         ADG Hitchcock for Plaintiff

R W Raymond and S Isherwood for Defendant

Judgment:      16 December 2011

JUDGMENT OF HON JUSTICE FRENCH

as to Costs

Introduction

[1]      In my decision of 6 October 2011, I dismissed Braeburn’s claim against

McGregor.

[2]      McGregor had used the wrong sort of cable when installing a machine in Braeburn’s dairy shed.  Braeburn alleged that the resulting stray voltage had caused significant health problems in its dairy herd, and loss of milk production.  It sought damages in the sum of $1,185,289.80 or, on an alternative calculation, $1,055,430.  I found that although the stray voltage may well have caused behavioural discomfort responses in the cows, Braeburn had failed to satisfy me it was an operative cause of the losses claimed.  Because of the view I took on causation, it was not necessary for me to consider quantum.

[3]      As regards costs, my expectation was that these would be able to be resolved by agreement.   However, leave was reserved for the filing of submissions in the

event that agreement did not prove possible.

BRAEBURN DAIRIES LIMITED V MCGREGOR & WHITE ELECTRICAL LIMITED HC DUN CIV-2009-

412-000668 16 December 2011

[4]      Unfortunately, the parties were not able to reach agreement on costs, and I am accordingly now required to make an award.

The competing arguments

[5]      It is common ground that because McGregor was successful, it is entitled to costs. What the parties disagree on is the amount of those costs.

[6]      McGregor is seeking a total award of $472,464.97 calculated as follows:

A one-third contribution to costs

to May 2010  $6350.00

Indemnity costs for attendances incurred

in mediation  $4874.00

Scale costs on a 3B basis to first

Calderbank offer on 2 July 2010  $19,197.00

Indemnity legal costs from 2 July 2010  $225,031.43

Disbursements, including all expert costs

as detailed  $214,452.11

Costs on the application for costs  $6500.00

Total  $476,404.54

[7]      Braeburn argues that costs should not include pre-commencement proceeding costs, that all costs should be awarded on a 2B basis and that all of the expert witness fees should be reduced, or in some cases disallowed completely, on the grounds of proportionality and reasonableness.

Costs category and second counsel

[8]      McGregor argues the costs category should be 3B.  I accept that there was a significant volume of factual material, including expert evidence, both scientific and accounting.  On the other hand, the legal issues were straightforward.

[9]      The  parties  had  agreed  to  2B,  and  in  my  view  that  was  an  accurate assessment.

[10]     The volume of material is, however, a sufficiently exceptional feature of the case to justify certification of a second counsel.   The fact Braeburn was only represented by one counsel does not persuade me otherwise.

Pre-commencement costs

[11]     Braeburn  made  a  claim  in  December  2007  which  was  submitted  to McGregor.    In  response,  McGregor  instructed  a  loss  adjustor  to  make  initial enquiries, and also instructed solicitors.

[12]     Proceedings were not issued until August 2009.

[13]     A contribution to costs is sought for the legal fees incurred between April

2008 and May 2009 in dealing with Braeburn’s claim.  The claim is made on the basis that those costs were costs ―incidental  to a proceeding‖  for the purposes of r 4.1. What is sought is a third of actual costs, which amounts to $6530.

[14]     I do not accept that these are costs incidental to a proceeding within the meaning of the Rule.  Surprisingly, there appears to be no authority on point, but in my  view  the  proceeding  must  be  extant  before  costs  can  be  incidental  to  it. Otherwise, such costs would always be recoverable, which cannot be the intention of the Rule.  Certainly, there was nothing unusual or exceptional about the legal work that had to be undertaken to investigate this claim.

Indemnity costs for aborted mediation

[15]     In 2010, the parties agreed to a private mediation.  It was scheduled for 31

May 2010.  On 5 May 2010, Braeburn advised it no longer wished to proceed with the mediation.  McGregor now seeks recovery of indemnity costs of $4874 for what it says was wasted work undertaken in preparing for the mediation.

[16]    For its part, Braeburn submits it was justified in withdrawing from the mediation, because it considered the parties were too far apart for mediation to be beneficial.

[17]     In my view, having committed to the mediation, it was unreasonable and irresponsible for Braeburn to pull out at such a late stage.  Contrary to a submission made by Braeburn, I also accept it was essentially wasted expenditure.

[18]     McGregor is entitled to the costs sought.

Calderbank offers

[19]     Prior to the hearing, McGregor made two settlement offers on a ―without prejudice save as to costs‖ basis.

[20]     The first offer was made in early June 2010, following the aborted mediation. The offer was for $350,000.  Braeburn responded by advising that McGregor should feel  free  to  withdraw  its  offer.    Braeburn  shortly  thereafter  filed  an  amended statement of claim.

[21]     When pressed to say whether it intended to make any reasonable counter- offer, Braeburn made an offer on 1 October to settle for $1m.  At that stage, Braeburn’s  statement  of  claim  sought  damages  of  $941,917,  or  alternatively

$1,056,937.

[22]     On 8 October 2010 McGregor made a further offer, this time for $500,000, expressed to be available for acceptance until 15 October.   The deadline for acceptance passed, and Braeburn made no counter-offer.

[23]     McGregor made no further offers of settlement until during the hearing itself, when it made an offer not to pursue costs if Braeburn discontinued.   Braeburn rejected that proposal outright.

[24]     McGregor  now  relies  on  these  three  offers  to  support  a  claim  for  full indemnity costs, dating from the first Calderbank offer in early July 2010.

[25]     This is opposed by Braeburn on various grounds.  These may be conveniently summarised as follows:

(a)      Braeburn acted reasonably and in good faith throughout.   Its claim was supported by evidence from two expert witnesses.

(b)At the time of the 2010 offers, Braeburn was unaware of the existence of McGregor’s three key expert witnesses and was generally not well informed about McGregor’s case.

(c)      Braeburn was only given seven days in which to accept the second offer.

[26]     I  accept,  as  submitted  by  Braeburn,  that  McGregor  was  slow  to  admit formally that it had breached the contract, and further agree that there was nothing about Braeburn’s conduct of the hearing that could be considered unreasonable. Braeburn’s conduct of the hearing was in fact both proper and efficient.  This was reflected in my judgment, when I recorded my appreciation to counsel for the quality of their respective presentations.

[27]     On the other hand,  I consider that  Braeburn’s  rejection  of the  offers,  in

particular the second offer, was without reasonable justification.

[28]     Although Braeburn may not have had the benefit of information from three of McGregor’s key experts (one of whom, Dr Matthews, was pivotal), it was or should have been aware that stray voltage was a controversial issue, that the literature was at best divided on the subject, and that Deloittes considered that even if causation was established, the loss was only in the vicinity of $350,000.  Importantly, the second offer was for more than that.   It was for $500,000.   Like the first offer, it was accompanied by reasons.

[29]     I  am  satisfied  that  by  the  time  this  second  substantial  offer  was  made, Braeburn knew enough to know it had significant litigation risk.  Or at least it ought to have appreciated it had significant litigation risk.

[30]     I am also satisfied that realistically in the circumstances, seven days gave

Braeburn sufficient time to reflect and take advice, particularly in light of the earlier

offer, which had remained open for more than four weeks before being withdrawn at Braeburn’s suggestion.  As Mr Raymond also points out, Braeburn made no request for an extension of time to consider the offer, nor did it make a counter-offer.

[31]     What happened is not indemnity costs territory.   However, rejection of the second offer does, in my view, warrant an uplift of 25 per cent on scale 2B costs from 16 October 2010 onwards.

Expert costs

[32]     The witness and expert costs claimed are as follows:

Filing fees  $272.00

Subpoena costs  $507.00

Photocopying  $95.94

Courier charges  $40.20

Title searches  $14.09

Process server fees  $287.50

AWS invoice for photocopying  $1257.08

Airfares – Jonathan White,

Lindsay Matthews, Scott McDougall  $4508.46

Accommodation – Jonathan White,

Lindsay Matthews, Scott McDougall  $1389.58

Witness expenses – preparation of brief of evidence, preparation for trial

and time giving evidence – Dr McDougall  $22,414.80

Witness expense – preparation of
brief of evidence, preparation for trial

and time giving evidence – Dr Matthews  $37,547.00

Witness expense – preparation of
brief of evidence, preparation for trial

and time giving evidence – Mr Tacoma  $14,317.50

Witness expenses – preparation of

brief of evidence – Mr Watson  $48,252.03

Witness expenses – preparation of
brief of evidence and time giving evidence

– Mr Munro  $51,671.94

Expert expenses – AECOM Australia Pty Ltd                   $21,136.79

Expert expenses – Mel Eden  $6800.63

Airfares and accommodation for the Invercargill hearing     $3939.57

Total  $214,452.11

[33]     It  is  common  ground  that  my  consideration  of  these  claims  should  be informed by r 14.12(2) and (3), which provide:

(2)      A disbursement must, if claimed and verified, be included in the costs awarded for a proceeding to the extent that it is—

(a)      of a class that is either—

(i)       approved  by  the  court  for  the  purposes  of  the proceeding; or

(ii)      specified in paragraph (b) of subclause (1); and

(b)      specific to the conduct of the proceeding; and

(c)      reasonably necessary for the conduct of the proceeding; and

(d)      reasonable in amount.

(3)      Despite subclause (2), a disbursement may be disallowed or reduced if it is disproportionate in the circumstances of the proceeding.

[34]     Braeburn challenges all of the expert costs, and takes particular exception to the AECOM and Watson costs as being ―completely unreasonable and disproportionate‖.

[35]     AECOM  advised  on  the  testing  methodology  required  to  test  for  stray voltage, while Mr Watson was an electrical expert who applied the methodology at the Braeburn shed.   He did so in the presence of Braeburn’s electrical expert, Mr Empson.   Mr Empson gave unchallenged evidence that Mr Watson had little experience of stray voltage testing, and would not have found stray voltage without Mr Empson’s assistance.

[36]     On the other hand, it was reasonable for McGregor to seek some independent

verification, because Braeburn’s testing had failed to test the actual cabling.

[37]     In all the circumstances, in applying the r 14.12 criteria, I consider the fairest approach is to allow the AECOM disbursement in full, but disallow the costs relating to Mr Watson.

[38]     Braeburn also challenges the costs of Mr Munro, on the ground that his evidence went ―far beyond‖ his expertise.  Mr Munro is an accountant, but purported to give evidence about farming issues, which are said to have been at odds with McGregor’s own mastitis expert.  In Braeburn’s submission, the cost of $51,671.94 for Mr Munro is unreasonable and disproportionate when compared to the probative value, ie the relevant accounting evidence actually put before the Court.

[39]   In my view, Braeburn overstates the position.   Mr Munro made some assumptions on which his calculations were based but these were identified.

[40]     I do not accept there should be any reduction in relation to his costs or those of the other expert witnesses, with the exception of Mr Watson.  The figures may well be on the high side, but reasonableness and proportionality relate not only to the amount of the claim, but also the complexity of the issues and volume of material which the expert must address, as well as the probative value of the expert evidence. On those criteria, the costs are, in my opinion, justified.

[41]     As well as the expert witnesses, costs are also claimed in respect of Mr Eden. He gave expert advice which McGregor says was necessary for it to formulate its case, isolate appropriate expert witnesses from other disciplines, and advise on issues relating to the dairy industry, dairy plant and stray voltage issues.   Although not called as a witness at the trial, in the interests of trying to minimise witnesses, he gave important valuable advice to McGregor to assist it in the defence of its case.

[42]     Braeburn says the Eden costs should not be allowed, and that it is an example of an insured defendant throwing money at the situation.  However, I am satisfied that the claim does meet the r 14.12 criteria.  In this regard, I note that no claim is being made in respect of the loss adjuster.

Outcome

[43]     The calculation is to be on a 2B basis for a 7.5 day hearing, with an uplift of

25 per cent on costs after 16 October 2010. [44]         I certify for second counsel.

[45]     Braeburn must pay indemnity costs of $4874 for attendances incurred for the aborted mediation.

[46]     All disbursement costs are allowed, except for all costs claimed in respect of

Mr Watson.

[47]     Braeburn is to pay costs on the application for costs on a 2B basis.

[48]     In  the event  counsel  are unable to  agree on  the calculation of the costs applying the above rulings, leave is reserved to either party to come back to the Court.

[49]     Should Braeburn default on payment of the costs, leave is also reserved to McGregor to apply to the Court for an order against Mr and Mrs Shore in their personal capacities and/or Braeburn Dairies 2010 Limited.  In April 2010, Braeburn transferred the farm asset to a new company and made no provision for the payment of costs.  Previously, the new company would not undertake to meet any costs award in the event one was made.   In submissions, however, Mr Hitchcock advised that costs will be paid by Braeburn, and it is unnecessary to make any other orders against any other party.

Solicitors:

AWS Legal, Invercargill

Duncan Cotterill, Christchurch