Clayton v Clayton
[2014] NZHC 3086
•4 December 2014
NOTE: PURSUANT TO S 35A OF THE PROPERTY (RELATIONSHIPS) ACT 1976, ANY REPORT OF THIS PROCEEDING MUST COMPLY WITH SS 11B TO 11D OF THE FAMILY COURTS ACT 1980. FOR FURTHER INFORMATION, PLEASE SEE COURT/LEGISLATION/RESTRICTIONS-ON-PUBLICATIONS.
IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY
CIV-2014-463-000067 [2014] NZHC 3086
IN THE MATTER OF the Property (Relationships) Act 1976 BETWEEN
MARK ARNOLD CLAYTON Appellant
AND
MELANIE ANN CLAYTON Respondent
Hearing: 12 November 2014
(Heard at Wellington)
Counsel:
M J McCartney QC and K E Sullivan for appellant
J R Hosking for respondentJudgment:
4 December 2014
RESERVED JUDGMENT OF DOBSON J
Contents
Introduction ....................................................................................................................................... [1] Background........................................................................................................................................ [3] Appellate approach to costs orders ................................................................................................ [12] Incorrect or inadequately informed perception of success .......................................................... [17] Wrongfully attributing obstructive tactics to Mr Clayton........................................................... [24] Wrongly disregarding Calderbank offers....................................................................................... [33] Failure to consider issues involving the trusts separately ............................................................ [37] Wrong daily rates applied .............................................................................................................. [42] Wrong application of category 3, band C/wrong to award increased costs ............................... [49] Reimbursement of experts’ fees ..................................................................................................... [54] Result ................................................................................................................................................ [66]
CLAYTON v CLAYTON [2014] NZHC 3086 [4 December 2014]
Introduction
[1] This is an appeal from a costs order made by the Family Court at Rotorua in respect of relationship property litigation.1
[2] On 1 May 2014, Judge J F Munro ordered the appellant (Mr Clayton) to pay the respondent (Mrs Clayton) $200,000 on account of costs and $37,471 for disbursements. The Judge also confirmed Mr Clayton’s liability to meet the expenses of an accounting expert, Mr Lyne, and a tax expert, Mr Plunket, who had been retained on behalf of Mrs Clayton. After attributing Mrs Clayton with liability for $25,000 of Mr Lyne’s fees, Mr Clayton was liable for $212,471 of Mr Lyne’s costs. Mr Plunket’s fees were $11,490.32.
Background
[3] The timing of this appeal is somewhat unusual. Judge Munro’s substantive
decision was given on 2 December 2011, after truncated hearings between 6 July and
2 August 2011.2 At Mr Clayton’s request, Judge Munro deferred dealing with the costs issues in relation to the proceeding, notionally until all matters had been finally determined. Mr Clayton then pursued an appeal from the substantive decision. The High Court decision on that appeal was delivered in February 2013, in which Hansen J expressed the view that costs ought to be determined at the completion of each substantive stage of the proceedings.3 Accordingly, Judge Munro invited further submissions on costs in the Family Court. These submissions were received on behalf of Mrs Clayton in July 2013, and on behalf of Mr Clayton and the trusts that were also respondents in the proceedings in October 2013. The Judge then dealt with costs issues on the papers, and her costs judgment was delivered on 1 May
2014.
[4] In the meantime, Mr Clayton pursued a further appeal from Hansen J’s
decision. That appeal was heard by the Court of Appeal in July 2014 and a decision is awaited. Any material reversal by the Court of Appeal of the success Mrs Clayton
1 MAC v MAC [2014] NZFC 2649.
2 MAC v MAC FC Rotorua FAM-2007-063-652, 2 December 2011.
3 Clayton v Clayton [2013] NZHC 301, [2013] 3 NZLR 236.
has achieved thus far is likely to be a telling factor in challenging the costs order made in the Family Court.
[5] The Court of Appeal’s decision on the second appeal was reasonably expected to be available within three or four weeks of the hearing. Accordingly, I raised with counsel at the outset of the hearing on 12 November 2014 what appeared to be the relatively limited utility of proceeding with the present argument when the merits on costs issues may look materially different in light of the pending judgment from the Court of Appeal.
[6] For Mr Clayton, Ms McCartney QC initially agreed with the good sense in adjourning argument on the present appeal. However, she indicated that she could not get instructions to adjourn it on terms that Mr Clayton had to meet Mrs Clayton’s costs of the adjournment.
[7] Ms Hosking indicated that had Mrs Clayton’s solicitors been asked to agree to an adjournment in the week before the hearing, then they would have agreed to do so. However, there had been no communication at all, and Ms Hosking was only aware that Ms McCartney was appearing in the matter when she arrived at Court on the morning of the hearing. Having incurred the costs of final preparation, and travel to Wellington, she submitted that an adjournment in those circumstances should only be on terms that Mr Clayton pay Mrs Clayton’s costs of the adjournment. If there was to be an adjournment on terms that the costs of the adjournment be reserved, then Ms Hosking would not consent.
[8] An impasse resulted. In those circumstances, a very full day’s argument ensued and I am to deal with the grounds of challenge to the Family Court costs judgment without regard to the Court of Appeal’s views on the substantive merits.
[9] The parties are somewhat at odds as to the extent of change resulting from the High Court decision. It did not uphold some of the first instance findings, directing an extent of reconsideration by the Family Court. Ms McCartney placed some reliance on the extent of the difference in outcome as determined by the High Court, but did not treat it as so substantial as to warrant the overturning of the Family
Court costs decision. The High Court judgment was available to the Family Court
Judge when the costs judgment was delivered.
[10] A range of trusts had been joined by Mrs Clayton as respondents to the Family Court proceedings. In addition to Mr Clayton claiming costs for the Family Court proceedings from Mrs Clayton, those respondent trusts also pursued a claim relating to their separate costs. Mr Clayton claimed a total of $694,291 and the corrected amount that the Judge treated the trusts as claiming was $533,944. Both costs claims were dismissed. The Judge treated the costs liability for all respondents as being a matter for Mr Clayton personally, so that she did not attribute liability for
the costs award to the respondent trusts.4
[11] The respondent trusts commenced their own appeal against the costs decision, but that has since been abandoned and the trusts’ claims for costs are not directly relevant to the issues raised on Mr Clayton’s appeal.
Appellate approach to costs orders
[12] The various rules governing awards of costs in New Zealand courts all intend that costs are to be determined on a principled basis, an aspect of which is the importance of the predictability of costs outcomes. Notwithstanding that starting point, costs decisions are quintessentially discretionary. Despite the well-settled principles that should govern awards, the appropriate outcome in each case is necessarily influenced to a large degree by the judge’s nuanced view of the merits, and the manner in which the case was conducted for the respective parties.
[13] The standard for appeals from the exercise of a judge’s discretion requires an appellant to meet criteria that are stricter than those applying on general appeals. To overturn a decision that reflects the exercise of a discretion, an appellant must establish that there was:5
· an error of law or principle;
4 MAC v MAC, above n 1, at [21], [22].
5 Kacem v Bashir [2010] NZSC 112, [2011] 2 NZLR 1 at [32].
· a taking into account of irrelevant considerations;
· a failure to take into account a relevant consideration; or
· that the decision was plainly wrong.
[14] Decisions on costs are among the types of discretionary decisions where the overall appreciation of the trial judge is especially important, thereby placing them among the types of case where the requirement for an appellant to make out one of the four types of error is fundamental. The Court of Appeal has observed that, in exercising the discretion on costs, a court will be influenced by a myriad of details that are difficult to replicate on appeal and consequently appellate courts will be
particularly slow to interfere.6 The Court cited an earlier Court of Appeal decision in
which Cooke P observed that that Court:7
… is always especially reluctant to disturb a decision of a High Court Judge
on a matter as discretionary as that of costs.
[15] The grounds of Mr Clayton’s appeal did not attribute status to them as coming within one or more of the relevant criteria. As the grounds were advanced in two sets of written submissions and in oral argument during the hearing, they can be grouped as follows:
(a) The Judge erred in characterising Mrs Clayton as having been “largely successful”, without quantifying the proportion of the property in respect of which she made claims that were ultimately upheld. This can be coupled with a separate ground to the effect that the Judge erred in not reducing costs to reflect the lack of success by Mrs Clayton. A reduction of five per cent to recognise the extent to which Mrs Clayton had not succeeded was described as “insufficient and unjust”. These criticisms were implicitly on the basis that the
Judge’s assessment in this regard was plainly wrong. If it did not
6 Mansfield Drycleaners Ltd v Quinny’s Drycleaning (Dentice Drycleaning Upper Hutt) Ltd
(2002) 16 PRNZ 662 (CA) at [22].
7 Cited in Mansfield from Thoroughbred and Classic Car Owners Club Inc v Coleman CA203/93,
25 November 1993 at 2.
meet that standard, then it might conceivably be an error of principle, in that assessment of success should arguably only be done on an arithmetic quantification, and not on an overall impression as to the outcome.
(b)The Judge wrongly implied fault on Mr Clayton’s part in pursuing obstructive tactics in response to Mrs Clayton’s claims, so that more issues were at large than was reasonably necessary. A recurring theme of Ms McCartney’s oral argument was that the Judge had wrongly formed an adverse impression of Mr Clayton that was not borne out by an analysis of all the records of the proceedings. That could only be an error in respect of which the Judge was “plainly wrong”.
(c) The Judge wrongly failed to take into account the terms of Calderbank offers exchanged between the parties prior to the substantive hearing. It was argued that the Judge was required to have regard to those offers by the terms of the relevant District Courts Rules. Implicitly, it amounted to a failure to have regard to a relevant consideration. It was submitted that consideration of those terms would have shown that Mr Clayton had adopted a realistic attitude to Mrs Clayton’s claims, and would also have shown that Mrs Clayton appreciated her claims were over-reaching and unrealistic.
(d)The Judge ought to have apportioned the time devoted to addressing issues in relation to the various trusts, the property held by which was the subject of claims by Mrs Clayton, to distinguish that work from the time spent addressing issues in relation to Mr Clayton. The Judge had rejected the need to draw such a distinction because of her finding that all the trusts were under the effective control of Mr Clayton, and that the responses in the litigation on behalf of the trusts were effectively to preserve or pursue his interests. In that context, the lack of apportionment as contended for is a discretionary matter that follows from a factual finding as to the relationship between Mr Clayton and the trusts.
(e) The Judge was allegedly wrong in the daily recovery rate applied to calculate the costs entitlement because the proceedings were governed by the rates preceding those provided in the District Courts Rules
2009. If made out, this would be an error of law. In the course of argument, Ms McCartney accepted that recalculation by reference to earlier rates would not make a significant difference. Although not abandoned, this criticism was not relied on as a material error.
(f) The Judge is alleged to have erred in applying band C of the rates of recovery to all steps in the proceeding, coupled with a criticism that there was no sound basis for an increase in scale costs. Unless there was no basis at all for the Judge’s decision to nominate band C, and then to provide for an increase beyond scale costs, then these grounds of criticism go to the exercise of the Judge’s discretion.
(g)Finally, Mr Clayton criticised the Judge’s order that he be responsible for all but $25,000 of the substantial costs incurred by Mr Lyne, the accounting expert retained for Mrs Clayton. It was argued that significant portions of the time charged by Mr Lyne were directed to claims in relation to assets that were held not to represent relationship property. Further, it was submitted that costs incurred after delivery of the substantive judgment, when Mr Lyne did further work on Mrs Clayton’s instructions, were not reasonably incurred and ought to have been excluded. Mr Clayton also challenged the finding that he should be liable for the costs of Mr Plunket, a specialist tax lawyer. That component of the judgment clearly reflected a discretionary evaluation, and the appellant would need to show that the rulings were plainly wrong.
[16] In considering each of these grounds of appeal, my assessment of the criticisms of the exercise of the Judge’s discretion on costs has to measure the alleged errors against the relatively high threshold that applies.
Incorrect or inadequately informed perception of success
[17] Ms McCartney argued that the proportionate extent of success by Mrs Clayton had to be measured by comparing the breadth of all the claims she made against the lesser respects in which she succeeded. A proportionate award of costs where a claimant has enjoyed success on some issues, but failure on others, should arguably have applied in the present context. Ms McCartney cited the Court
of Appeal’s approach in Health Waikato Ltd v Elmsly.8 In that appeal, the Court
found that, in exercising its costs discretion, the Employment Court was plainly wrong to award costs to Dr Elmsly reflecting success, when the award also constituted a contribution to costs on issues on which he had failed.
[18] There are some parallels between a multi-issue employment dispute, and relationship property litigation in which the relatively complex nature of assets potentially subject to a claim are held in a variety of legal structures. Here, the party distanced from control and intimate knowledge of assets cast the net as widely as possible from the outset, so as not to exclude the prospect of an award in relation to assets, the provenance of which was not clear to her at the time. That is a conventional approach for claimants in such a position, particularly as there are a “suite” of potentially relevant bases of claim under different statutory provisions.
[19] All substantive issues were contested on the basis that Mrs Clayton could not avoid the binding effect of a pre-nuptial agreement, with Mr Clayton denying that she could bring claims under the various heads relied on in relation to the increase in value of his business assets, and the assets held in a variety of trusts that were created at a variety of times.
[20] The overall outcome in the Family Court was that the pre-nuptial agreement was set aside, and Mrs Clayton succeeded in principle in relation to the increase in value of business assets, and to the assets of some, but by no means all, of the trust entities deployed by Mr Clayton.
[21] On a value basis, Ms McCartney described the pool of assets against which Mrs Clayton brought claims as extending to approximately $28 million. In contrast, she had made out claims to assets which, depending on the mode of valuation finally to be adopted, might have a value of $16.5 million to $17.5 million. The prospect remained that the value of the assets in respect of which a claim has been recognised could be materially less than the present projection.
[22] The Judge’s assessment of the outcome as constituting a substantial success for Mrs Clayton was implicitly made by contrasting the findings in her favour with the blanket denials of all those claims on behalf of Mr Clayton at the outset of the hearing. It is also implicit that the Judge was not minded to qualify the extent of success that the Judge attributed to the orders in Mrs Clayton’s favour, as compromising her entitlement to a costs award as the successful party.
[23] In those circumstances, and where it is safe to infer that the detailed status of various assets remained unclear when the substantive hearing got underway, I am not satisfied that the Judge was wrong to make a finding on “substantial success” by Mrs Clayton, without an issue by issue analysis. In the circumstances of this case, I see no error in that approach. To reduce the costs entitlement for Mrs Clayton by some proportionate deduction recognising each issue on which she failed could only proceed from an expectation that she would only pursue forms of claim that were going to succeed. In the circumstances of this litigation, that would be an unreasonable approach to the exercise of the Court’s discretion on costs.
Wrongfully attributing obstructive tactics to Mr Clayton
[24] Unconstrained by any prior personal involvement in this protracted dispute, Ms McCartney argued that the Judge was not justified in making adverse findings in relation to Mr Clayton’s conduct in the litigation. The Judge’s assessment on the point was in the following terms:9
Throughout these proceedings Mr Clayton’s conduct can only be described as obstructive, and it is quite clear that he has embarked on an exercise of causing maximum expense, delay and frustration to Mrs Clayton, with a view to depriving her of entitlement to property which he quite clearly
regards as his own. In relation to the claim that the s 21 Agreement be set aside, Mr Clayton pursued a defence that was entirely without merit. ...
[25] The Judge’s preceding paragraph commented on the discovery process in the
following terms:10
These proceedings were unduly protracted and significantly frustrated by the way in which Mr Clayton conducted his defence. Without traversing the history of the proceedings, suffice to say that there were ongoing and significant delays in terms of discovery, with Mr Clayton being reluctant and, to a degree, obstructive in disclosing relevant information. The problem was such that during the hearing, boxes of documents were “found” that had not been previously discovered and were highly relevant to issues arising out of transactions that took place between 2003 and 2005. There was no realistic reason given for this information not being disclosed earlier. …
[26] Ms McCartney challenged these findings, by reference to the record of timely compliance with orders for discovery and other matters which she suggested demonstrated that Mr Clayton had discharged all obligations in a timely way. Ms Hosking, who has been involved throughout the relevant period for Mrs Clayton, disputed these attempts to re-characterise the manner in which the litigation has been conducted. She submitted that there was ample support for the criticisms relied on by the Judge. By way of example, she referred to an instance in which counsel retained at the time for Mr Clayton, who was located in Wellington, declined to copy the content of two Lever Arch files that had been discovered, on the pretext that counsel’s personal assistant was too busy to copy them, so counsel for Mrs Clayton would have to travel to Wellington in order to inspect the originals.
[27] A further example is Mr Clayton’s stance in relation to a property at 7 Sophia Street, Rotorua. He deposed in an affidavit completed in March 2009 that that property was owned by a trust associated with his sister, denying that he was either a trustee or a beneficiary of the particular trust. It was acknowledged that another entity under his control, the Vaughan Road Property Trust, had lent the purchasing entity $140,000, which was said to be on commercial terms but had not, at the time, been documented. To challenge Mr Clayton’s evidence in relation to that property, Mrs Clayton’s solicitors subpoenaed Mr Clayton’s sister, and established by
questioning her that the relevant property was indeed held by her as a bare trustee for
Mr Clayton.
[28] Mr Clayton’s rejoinder on this point is that the status of that particular property was not relevant to the claims as it was a post-separation acquisition. In the context of proceedings where the Court reasonably expects all parties to provide full disclosure and to deal with the issues with candour, such conduct is indeed obstructive.
[29] Ms McCartney also challenged the criticism implied by the Judge’s reference to boxes of documents having been “found”, as appears in the extract from the Judge at [25] above. However, the circumstances as I was given to understand them appear to have readily justified the Judge’s implicit criticism of the belated discovery of those documents. This aspect of the Judge’s reasoning is one of those that relies most heavily on the nuanced appreciation that a trial judge develops of the reasonableness or otherwise of the conduct of a litigant’s case. There is no suggestion that Mr Clayton’s case was not conducted in accordance with his detailed instructions, and I am not satisfied that there was any error in the Judge’s
characterisation.11
[30] A recurring theme of Ms McCartney’s criticisms of the conduct of Mrs Clayton’s case was that the appropriate bases for claim were misunderstood. She contended that when Mr Clayton was asked directly whether there had been material diversion of what would otherwise have been salary entitlements to acquire equity in his company, he readily accepted that that had occurred to a substantial degree. On Ms McCartney’s argument, it followed that the proper focus from the outset of Mrs Clayton’s claims ought to have been on s 9A of the Property (Relationships) Act 1976. Implicitly, Ms McCartney blamed Mrs Clayton and her
advisers for unduly complicating the proceedings, and inappropriately requiring the
11 Written submissions for Mrs Clayton responding to the appeal included criticisms of the conduct of counsel who had acted for Mr Clayton in the relevant period. That counsel has since died. Given the acknowledgement by present counsel that the case had been conducted throughout in accordance with Mr Clayton’s instructions, there was no need to consider personal criticisms, and it was agreed that they should be disregarded.
issues to extend to other assets, subsequently found not to be vulnerable to claims by
Mrs Clayton.
[31] Ms Hosking disputed that Mr Clayton’s acknowledgement in respect of the treatment of salary entitlements amounted to an acceptance of valid claims by Mrs Clayton under s 9A. Rather, the arguments for Mr Clayton, including in his final submissions in the Family Court, and thereafter also in the High Court, included vigorous rejection of claims under s 9A of the type Ms McCartney characterised as effectively being conceded by Mr Clayton’s answers in evidence. The truth of that contention is borne out by the discussion of Mrs Clayton’s claims
under s 9A in the High Court decision.12
[32] I am not persuaded that the Judge erred in the evaluation of the reasonableness of the conduct of Mrs and Mr Clayton in respectively pursuing and defending claims.
Wrongly disregarding Calderbank offers
[33] Ms McCartney submitted that the Judge was required under rr 4.7 and 4.10 of the District Courts Rules 2009 to take into account certain Calderbank offers made on behalf of Mr Clayton between October and December 2010. The offers were, for the most part, not readily quantifiable in finite terms. It was not contended that Mr Clayton’s last offer should be interpreted as providing an outcome for Mrs Clayton that definitively had a higher value than the measure of success she achieved in the Family Court. Rather, the making of the offers was characterised as demonstrating that Mr Clayton was realistic about his liabilities in the litigation, and ought to have led the Judge to recognise he was seeking a reasonable settlement so that Mrs Clayton could not sustain her assertion that she was not being treated fairly.
[34] The first rule cited in support of this argument, r 4.7 of the District Courts Rules, creates a discretion for the Court to refuse or reduce costs to a party that has succeeded, if their conduct in the proceeding disentitles them to costs, or reduces the
appropriate award in their favour. Such conduct includes where the party claiming
12 Clayton v Clayton, above n 3, at [23]–[44].
costs has contributed unnecessarily to the time or expense of the proceeding, or step in the proceeding, by failing, without reasonable justification, to accept an offer of settlement. Rule 4.10 provides for the making of such offers that are without prejudice except as to costs, and provides that the existence of the offers is not to be communicated to the Court until the question of costs is to be decided.
[35] Rule 4.11 makes it clear that the impact of a Calderbank offer is no more than a factor to be taken into account in the Court’s exercise of its discretion on the question of costs. Subject to preserving the Court’s overall discretion, further provisions in r 4.11 specify that a party that rejects a Calderbank offer and then succeeds for either a lesser sum of money or a less beneficial substantive outcome will not be entitled to costs. Further that the Court may take into account a Calderbank offer, the effect of which would have been to place the party otherwise entitled to costs into a position close to the value or benefit that has subsequently been achieved.
[36] Unless the Judge failed to recognise that the rejection of a Calderbank letter placed Mrs Clayton in a worse position than she has achieved from the Family Court’s substantive decision, there is no error in law or in principle in the Judge not having regard to the Calderbank offers made. The relevance of Calderbank offers for costs purposes is to encourage settlement by treating a party to litigation, who obtains an outcome that is not as advantageous as was available prior to trial by way of Calderbank offer, as not having succeeded in the litigation for costs purposes. Beyond that guiding principle on costs entitlements, there is no mandatory obligation on judges to have regard to the terms on which less generous offers have been made.
Failure to consider issues involving the trusts separately
[37] The Judge addressed this point in the following terms:13
… [Mrs Clayton’s] application for costs does not specify whether costs should be awarded against Mr Clayton personally, or whether any such award should be somehow apportioned between Mr Clayton and the trustees of the respective Trusts in relation to which she was successful. A significant amount of time at the hearing was taken in examining the various Trusts and, in particular, the reason for which the respective Trusts were set
13 MAC v MAC, above n 1, at [21]–[22].
up, and the effect that this had on Mrs Clayton’s entitlement. It is my view that notwithstanding the number of respondents in these proceedings, any award of costs must be made against Mr Clayton personally, as it was his actions in relation to the Trusts that were at issue.
As was made quite clear at the hearing, Mr Clayton regards all of the property, whether that is held in Trusts or companies, as his own property. Over the years Mr Clayton set up numerous Trusts for a variety of purposes inter alia to protect his business interests and to remove assets from the reach of Mrs Clayton. For various reasons, he has wished to distance himself from direct ownership of assets. A significant aspect of the litigation has been to examine his actions in setting up these Trusts and to consider Mrs Clayton’s rights as a result of the decisions that he has made. It is clear that Mr Clayton has ultimate control, either directly or indirectly, over all Trust assets. It is therefore artificial and impracticable to consider the issue of costs in any way other than in relation to Mr Clayton personally.
[38] Ms McCartney argued that the trustees of the trusts, who were separately represented by senior counsel, ought to have been respected as participating in accordance with fiduciary obligations to defend and preserve the trust property for the respective beneficiaries. From that perspective, they were separate litigants. In addition, Mrs Clayton’s claims to assets in a good number of the trusts were not made out. In this regard, if viewed as separate entities from Mr Clayton, the trustees of those trusts could claim to have won in respect of Mrs Clayton’s claims against them.
[39] This aspect of the Judge’s reasoning turns on her factual finding that Mr Clayton exercised ultimate control over the assets of all of the trusts. That appears to have been a conclusion reasonably open to her, and I did not understand Ms McCartney to challenge that initial premise directly. It also appears that in the conduct of the hearing, there was close co-operation and a co-ordinated approach adopted by counsel for the trusts, and for Mr Clayton. For instance, it seems that counsel for the trusts conducted the only cross-examination of Mr Lyne, the accounting expert called for Mrs Clayton.
[40] Where the approach on costs proceeded from the position that the separate legal entities comprising the trusts had been interposed for a range of reasons by Mr Clayton, but were all under his control, then it was within the Judge’s legitimate discretion to combine responsibility for adverse costs and treat all of the respondents together.
[41] Accordingly, that component of the reasoning cannot be shown to be plainly wrong, or reflecting an error in principle.
Wrong daily rates applied
[42] At an earlier point in the proceedings the Judge had accepted that a transitional provision in r 17.2 of the District Courts Rules 2009 applied, so that the cost scale would be that set out in schedule 2 of the District Courts Rules 1992. However, on the present costs application, the Judge reconsidered the scope of the transitional provisions in r 17.2 of the District Courts Rules 2009, coming to the view that the transitional provisions did not apply to the scale costs for Family Court proceedings conducted after the 2009 Rules came into effect. In the event that the Judge was wrong on that approach to interpreting the various provisions, she acknowledged an overriding discretion afforded by s 40 of the Property (Relationships) Act, which enabled her to treat scales of costs, wherever sourced, as no more than a guideline.
[43] Mr Clayton argued that the Judge was wrong to apply the scale from the 2009
District Courts Rules.
[44] The difference in amount is not substantial. The daily rate to May 2010 was
$1,900. From that point until May 2012, the daily rate was $2,200 and thereafter it was $2,300. There are minor variations provided in the successive scales for the periods that are allowed for the taking of various steps in a proceeding. However, by and large these variations tend to cancel each other out.14
[45] If Mr Clayton could make out an error in this component of the approach to calculating the quantum of scale costs, it could not be determinative of the appeal. The Judge correctly recognised that scales operate only as a guide, and in the circumstances of this case the Judge was mindful that applying the scale from the
2009 Rules may not be the correct scale to apply. Further, given that the more objectionable component of the costs decision was to award substantially increased
costs beyond scale, it seems likely that the Judge had an overall figure in mind as the
14 On the calculations attached to Mr Clayton’s submissions, the largest variation between the three scales in category C was 2.75 hours.
appropriate one, with the quantum calculated by reference to scale only being one ingredient in the overall evaluation.
[46] One approach to quantification of scale costs in other contexts where proceedings have spanned the application of more than one version of the scale, is to attribute the time allocation and the daily rate by reference to the scale applying to steps in the proceeding for the time being. In some contexts, that is appropriate to maintain the predictability of costs outcomes. However, that alternative does not mean that the Judge made an error in principle, or was plainly wrong in this case.
[47] I am not satisfied that the Judge erred in this case in applying the scale from the 2009 Rules to all relevant steps in the proceedings. There was no compelling rationale for the scale of costs applying in Family Court proceedings to lag behind the District Court, and the primary purpose of the transitional provisions in the District Court Rules 2009 would be to provide certainty and consistency of procedural rules throughout a proceeding that would otherwise span the application of more than one set of rules.
[48] Accordingly, there is no error in principle or basis on which to find the Judge was plainly wrong in this component of her reasoning.
Wrong application of category 3, band C/wrong to award increased costs
[49] The judgment accepts Mrs Clayton’s claim for 3C costs on the basis that this had been agreed between the parties, without recording any consideration of the appropriateness of that band.15 Ms Hosking submitted that category 3C had been agreed by the parties as appropriate for costs orders, and that the Judge was correct in using that as a reflection of the complexity and amount of time reasonably involved.
[50] However, the judgment was criticised on behalf of Mr Clayton for the lack of individual consideration of the time band required for each of the steps making up
the scale cost calculation. Ms McCartney’s second set of submissions did not deny
15 MAC v MAC, above n 1, at [18].
the existence of an agreement between counsel as to costs. Rather, she argued that this agreement could not exclude the effect of the ruling of the Court of Appeal in Commissioner of Inland Revenue v Chesterfields Preschools Ltd that a party seeking category C costs must demonstrate why a normal amount of time for each particular step would be insufficient.16 Ms McCartney suggested that those steps, which she argued did not involve a band C amount of time, would involve a deduction of some
$4,950.
[51] The requirement that a party seeking band C costs must demonstrate that the normal amount of time for each particular step is insufficient cannot automatically apply where counsel have previously agreed that band C is appropriate for each step in the proceeding. That earlier acknowledgement appears to have been appropriate, and new counsel cannot credibly second-guess that agreement retrospectively in the absence of compelling reasons why the parties should not be bound by it. In any case, given the scale of issues and extent of work clearly involved in all the pre-trial stages, uniform allocation of band C was appropriate.
[52] The second aspect of this criticism was the Judge’s decision to award increased costs, above scale. Mrs Clayton had sought an uplift of 50 per cent for preparation, and either a 50 per cent uplift or indemnity costs in respect of trial.
[53] This consideration was governed by r 4.6.3(b) of the District Court Rules
2009, which provides for an award of increased costs where the party opposing costs has contributed unnecessarily to the time or expense of the proceeding, or steps in it. The Judge was clearly of the view that that provision applied, given her findings of the obstructive conduct of the defence by Mr Clayton.17 Ms McCartney’s criticisms of the decision to award increased costs depended essentially on making out the prior criticism of factual error by the Judge in attributing obstructive tactics to Mr Clayton. Once that finding stands, then this was a clear case in which to award increased costs, and I am satisfied that the manner in which it was evaluated, and the
quantum of increased costs awarded by the Judge, were well within her proper
discretion.
16 Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2010] NZCA 400, (2010)
24 NZTC 24,500 at [161].
17 See [24]–[29] above.
Reimbursement of experts’ fees
[54] At a relatively early stage of the proceedings in the Family Court, Judge Adams made an order that Mr Clayton was to pay the costs of Mr Lyne, retained as an independent accounting expert for Mrs Clayton. Accounts for his work were paid progressively throughout the period. It was submitted for Mr Clayton that in about June 2011, Mr Lyne estimated that his total costs would be $125,000. At the end of the exercise, they totalled $251,342.43. In her costs decision, Judge Munro confirmed the liability of Mr Clayton to meet all of these costs, except for $25,000.
[55] That order is challenged as being unreasonable. Ms McCartney argued that, as an expert, Mr Lyne had an obligation to adhere to the projection he had provided, or otherwise to return to the Court in advance of incurring substantially increased fees, to obtain approval to do so. She also submitted that Mr Lyne had valued all assets across the widest possible bases for Mrs Clayton’s claims, without regard to the responsibility she argued he should have assumed to make his own assessment as to what constituted relationship property, and confine his valuation exercises to those assets. Ms McCartney was particularly critical of Mr Lyne for completing a further affidavit after the hearing and judgment when the experts’ responsibilities were arguably at an end. The costs incurred in relation to that component of his work were some $15,600.
[56] Ms McCartney was critical of Mr Lyne for claiming throughout that he had difficulty obtaining adequate information. She was particularly concerned at the inappropriateness of Mr Lyne addressing difficulties in accessing adequate information in his last, post-judgment, affidavit.
[57] Ms Hosking submitted that the approach to reimbursement of disbursements such as experts’ fees should start from the premise that, provided they are reasonably incurred, disbursements for expert witnesses retained by the successful party should be met in full.18 Ms Hosking submitted that there was ample justification for the Judge’s finding that Mr Lyne’s fees were reasonable. She pointed out that they were
broadly similar to the fees incurred by Mr Dent, the accounting expert retained on behalf of Mr Clayton.
[58] The Judge was influenced in her assessment of the reasonableness of Mr Lyne’s costs by her finding that Mr Lyne’s fees escalated significantly due to on-going difficulties he faced in obtaining information required to undertake the task.19 This is a further respect in which the trial Judge’s intimate awareness of the way contested issues evolved, and in particular the relative importance and quality of evidence from experts, is a matter which it is very difficult for another Judge to
revisit objectively on appeal. The Judge has clearly turned her mind to what are very substantial expenses by way of experts’ fees, and been satisfied that they are reasonable in the circumstances of this case.
[59] Ms McCartney criticises the decision for lack of proportionality when scale costs for the whole proceeding at approximately $125,000 are only half the costs of one accounting expert required to be paid for by the opposing party. Ms McCartney was also critical of the fees charged by Mr Lyne including his time for attending the whole of the hearing, rather than just when other accounting experts were giving their evidence. In other cases, those might well be valid criticisms. However, given the clear view that the Judge took of the difficulties confronting Mr Lyne, and treating that as a dominant factor in justifying the reasonableness of the substantial fees involved, the criticisms raised do not constitute grounds for finding that the Judge was plainly wrong, or that her approach to liability for the costs of this expert was plainly wrong.
[60] Mr Clayton also challenged the Judge’s order that he meet the costs of an expert tax lawyer, Mr Plunket, who was retained on behalf of Mrs Clayton to address a discrete issue that arose in the course of the hearing, but eventually became a non- issue.
[61] The need for expert evidence on a tax matter arose because of evidence given by two witnesses for Mr Clayton. This evidence was to the effect that the consequence of a reconstruction of certain transactions between Mr Clayton and one
of his companies, undertaken by the IRD to effect a re-assessment of income tax liabilities, was that the relevant transactions were to be taken as not having occurred at all. The stance adopted would mean that a reconstruction undertaken under the Income Tax Acts for the purpose of re-assessing Mr Clayton was determinative of ownership of the amounts involved in those transactions. Ms Hosking advised that the stance adopted by counsel for Mr Clayton was consistent with the evidence those witnesses had given.
[62] Mr Plunket was retained to provide opinion evidence that would challenge that claimed consequence of the reconstruction undertaken by the IRD in re- assessing Mr Clayton. Mr Plunket’s opinion was that Mr Clayton’s witnesses were wrong, and that such reconstruction for income tax purposes had no bearing on ownership of the amounts involved in the transactions that had been reconstructed for tax purposes. A brief of Mr Plunket’s evidence was served, and arrangements made for him to give evidence at the hearing in Rotorua. He travelled from Auckland for the purpose of doing so, and only on the morning that his evidence was due to be heard was an acknowledgement provided on behalf of Mr Clayton that Mr Plunket’s opinion would not be contested and that there would no need for him to be called for cross-examination.
[63] After the event, Ms McCartney has sought to argue that the implications of the reconstruction for tax purposes were an irrelevant sideshow all along, so that it was not reasonable for the expense in retaining Mr Plunket to be incurred. Ms McCartney can claim that it is trite law that although a tax avoidance arrangement is void as against the Commissioner,20 it remains legally binding (to the extent that it is binding) on the parties to it. However, it was entirely justified for Mrs Clayton to respond to the claims to the contrary, in the manner that she did.
[64] Ms McCartney’s argument that Mr Plunket’s evidence was unnecessary all along is at odds with the sequence of events as I am satisfied they occurred. They clearly justify the Judge’s decision to allow Mr Plunket’s fees and expenses as ones for which Mr Clayton should be liable.
[65] There is accordingly no basis for interfering with the Judge’s treatment of the
expenses incurred on behalf of Mrs Clayton in retaining experts.
Result
[66] Accordingly, all aspects of the appeal are dismissed. The respondent is entitled to costs on the present appeal, on a 2B basis. There will also be an order for disbursements, including travel expenses for counsel, that are to be settled by the Registrar.
Dobson J
Solicitors:
Tompkins Wake, Hamilton for appellant
Phillips Hosking, Rotorua for respondent