Burnett v Patterson
[2015] NZHC 2344
•25 September 2015
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2014-409-000653 [2015] NZHC 2344
BETWEEN ALEXANDRA JANE BURNETT
Plaintiff
AND
SEAN PATTERSON First Defendant
JOHN DENHOLM PATTERSON Second Defendant
SCIMED LIMITED Third Defendant
Hearing: (Dealt with on the papers) Judgment:
25 September 2015
JUDGMENT OF GENDALL J (As to costs)
BURNETT v PATTERSON [2015] NZHC 2344 [25 September 2015]
[1] In a judgment I issued in this proceeding on 19 August 2015, the claim by the plaintiff essentially succeeded. An order was made as sought requiring the purchase of the plaintiff’s 40% shareholding in the third defendant company by the defendants at a price of $290,000 plus interest.
[2] Regarding costs on this proceeding, at paras [112] and [113] of that
19 August 2015 judgment I stated:
[112] As to costs, counsel requested that I might hear further submissions with respect to these.
[113] Costs are therefore reserved. In the event that the parties are unable to agree between themselves on this issue of costs, then counsel may file memoranda (sequentially) and, in the absence of either party indicating they wish to be heard on the question of costs, I will decide that issue based upon the memoranda filed and the other material before this Court.
[3] Counsel have now indicated that they have been unable to agree on the question of costs and have filed submissions with respect to that issue. Neither has indicated they wish to be heard further on the matter.
[4] I have had an opportunity to consider all the submissions advanced, and now give my decision on the question of costs.
[5] As to costs overall, the plaintiff here seeks an award of costs to her on a category 2B scale basis together with disbursements, all costs and disbursements to be fixed by the Registrar. This is on the basis that she contends she has been the successful party in this proceeding.
[6] Interestingly, the defendants also purport to seek costs on this proceeding, contending instead that they were the “largely successful” party. From the memorandum filed by counsel for the defendants dated 3 September 2015, costs they seek are assessed on a category 2B scale basis (including an allowance for second counsel) at $42,785 and disbursements at a figure of $68,681.94. This amount for disbursements includes an “experts fee” of $66,242.66.
[7] On all of this, r 14.2(1) High Court Rules sets out as a starting point the principle applying to the determination of costs that the party who fails with respect
to a proceeding should pay costs to the party who succeeds. In my view, this is a case where this primary principle that costs follow the event should be applied.
[8] Turning now to address this principle, at the outset I need to say that, notwithstanding their submissions to the contrary, in my judgment it could not be said that the defendants in this case were largely successful at trial. I reject their claim for costs here. The defendants were ordered to purchase the plaintiff's shares at a figure significantly above any earlier offers that had been made by them for the shares. And, as a corollary, their alternative that an order should be made to liquidate the company naturally was unsuccessful. I say this notwithstanding that it must be acknowledged the amount ultimately assessed as fair value for the shares was significantly below amounts claimed by the plaintiff. Nevertheless, I repeat that it is true the defendants did not succeed in their essential argument that either the shares should be valued for a purchase by them at no more than $160,000, or that otherwise an order should be made placing the company into liquidation.
[9] I am of the view that taking all matters into consideration, it was the plaintiff in this proceeding who effectively was successful, although it might be argued perhaps only partially so. In this respect, the approach to be taken where a costs claiming party may have been only partially successful has been outlined by the Court of Appeal in Packing In Ltd (In Liquidation) Formerly Known as Bond Cargo
Ltd v Chilcott1 which states:
[5] In a case such as the present, where in broad terms each party has had similar success, we do not consider it helpful to focus too closely on the question which party has failed and which has succeeded. Costs in a case such as this should rather be based on the premise that approximately equal success and failure attended the efforts of both sides. To that starting point should be added issues such as how much time was spent on each transaction or group of transactions in issue, and any other matters which can reasonably be said to bear on the Court’s ultimate discretion on the subject of costs. In the end, as in all costs matters, the Court must endeavour to do justice to both sides, bearing in mind all material features of the case.
[10] The facts in the case before me, however, differ significantly from those which prevailed in the Packing In Ltd decision. There, costs were awarded to
1 Packing In Ltd (In Liquidation) Formerly Known as Bond Cargo Ltd v Chilcott [2003] PRNZ
869 (CA) at para [5].
liquidators of the respondent where only three of 14 allegedly voidable transactions were ordered not to be set aside. The Master made the setting aside order in relation to the other 11 allegedly voidable transactions but, notwithstanding this, awarded costs to the liquidators of the respondent. That was a clear case of partial success with respect to some specific claims and partial failure with respect to other claims before the Court. That differs from the situation in the present case before me where the plaintiff did succeed in her claim for an order that the defendants purchase her shares, but again this was simply at a fair value she was to achieve for the shares which was significantly lower than she had sought in her pleadings and claim generally.
[11] At this point it is useful to note also the series of calderbank or open offers which were made between the parties in this case. As I understand the position these included:
(a) An offer by the defendants on 9 October 2014 to purchase the
plaintiff’s 40% shareholding in the company for $120,000.
(b)An offer by the plaintiff on 14 November 2014 to sell her shares to the defendants for $950,000.
(c) An open offer made by the defendants on 17 April 2015 (this offer being before the Court) in which they offered either to:
(i)Purchase the plaintiff’s shares for $160,000 plus two payments over a period each of $15,000 subject to the company retaining the PerkinElmer agency; or
(ii)To sell their 60% shareholding in the company to the plaintiff for $450,000.
[12] All of these offers were rejected and this matter proceeded to trial before me commencing on 28 April 2015.
[13] By their Calderbank offers the defendants in particular with their (rather late)
17 April 2015 offer adopted what has been described as “some economic means of
limiting their exposure to the risk of costs” in this case. Although in terms of r 14.10
High Court Rules Calderbank offers can be made at any time, it is clear from the authorities that the later the offer is made the less its impact on costs, and very late offers will have little or no impact – Strachan v Denbigh Property Limited.2
[14] Notwithstanding all of this, the final judgment in favour of the plaintiff in this case exceeded the defendants’ Calderbank offers to purchase her shares which were respectively $120,000, $160,000 or $190,000.
[15] On all of this, the defendants comment unfavourably that the only offer made by the plaintiff to settle this matter was for the purchase of her shareholding at a price of $950,000. This offer they note was more than three times the amount finally determined by this Court to be fair value. The defendants say therefore that because the plaintiff took such an unrealistic position and was so drastically wrong about the value of her shares this significantly contributed to the costs incurred by the parties here.
[16] Weighing up all matters before me in this case, I am of the view that in achieving the judgment she received, the plaintiff was successful in her claim against the defendants, albeit at a substantially reduced figure. She is therefore entitled to an award of category 2B costs as sought but, in an endeavour to do justice to all parties in this case, less an allowance to bear in mind what I see as her contribution in extending the hearing time in this trial because of her broad approach to the proceeding.
[17] In this regard r 14.7 High Court Rules, in dealing inter alia with a reduction in costs states as follows:
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—
2 Strachan v Denbigh Property Ltd (HC) Palmerston North CIV-2010-454-232, 3 June 2011, at
[21].
…
(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;
…
(f) the party claiming costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—
…
(ii) taking or pursuing an unnecessary step or an argument that lacks merit;
…
(g) some other reason exists which justifies the court refusing costs or reducing costs despite the principle that the determination of costs should be predictable and expeditious.
[18] Here the defendants say the plaintiff has effectively failed on a large quantum aspect of her claim. The amount awarded, being $290,000 plus interest is substantially below her claims at trial, first, of something in the order of $550,000 and, later, amounting to around $1,000,000. There can be little dispute about this aspect, although the plaintiff too does complain about the behaviour of the defendants when she contends, first, that great difficulty was experienced with discovery in obtaining any financial or other information from them regarding the company and, secondly, that they thwarted any attempt to engage in an independent valuation of the company being obtained by an independent party.
[19] On all of this, and in an endeavour, in the words of Tipping J in the
Packing In decision:
to do justice to both sides, bearing in mind all material features of the case…
I take the view that the appropriate award of costs the plaintiff should receive here is one calculated on a category 2B basis less a reduction allowance of 20% calculated in terms of r 14.7 High Court Rules. To an extent the plaintiff, although succeeding overall, contributed unnecessarily to the time and expense of hearing this proceeding by pursuing certain steps and arguments that lacked merit and were ultimately rejected. These included unsubstantiated claims of “missed sales”, lengthy and
probably, as it turned out, irrelevant arguments over mis-coding and mis-timing of revenue and expenses, claims over Sean Patterson’s sick leave and illness and a failure to see the commercial reality with the likely CCDHB sale refund. As I see it, all this went some way to extending the four days this trial occupied by something approaching approximately a full day. In my view, it could be said the plaintiff, to some extent here, magnified certain issues in a proceeding which should not have been overly complex and some allowance should be taken into account for this. But, given that I have found the plaintiff ultimately succeeded overall in her claim, I leave on one side arguments that she may have maintained an unrealistic position over share value through the lead-up negotiation process to this hearing.
[20] That said, an order is now made that the plaintiff is entitled to costs and disbursements in this proceeding from the first defendant and the second defendant, jointly and severally. These costs are to be calculated at the rate of 80% of category
2B scale costs for this matter, and the disbursements award is to be 100% of the reasonable disbursements incurred by the plaintiff in this proceeding. Both of these amounts are to be as determined by the Registrar.
...................................................
Gendall J
Solicitors:
Brian Henry, Auckland
Duncan Cotterill, Nelson
0
0
0