Criffel Deer Limited v ANZ Bank New Zealand Limited
[2022] NZHC 2418
•21 September 2022
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2021-485-384
[2022] NZHC 2418
BETWEEN CRIFFEL DEER LIMITED
First Plaintiff
PRIME COMMERCIAL LIMITED
Second PlaintiffMICHAEL ROBERT GARNHAM
Third PlaintiffSBF PROPERTIES LIMITED
Fourth PlaintiffAND
ANZ BANK NEW ZEALAND LIMITED
Defendant
On the papers: Counsel:
C M Stevens, M Robertson and T Mijatov for Plaintiffs M G Colson KC, S V East and S J Leslie for Defendant
Judgment:
21 September 2022
JUDGMENT OF CHURCHMAN J
[Costs]
[1] In a judgment dated 29 July 2022, I struck out claims made by the plaintiff companies (the Garnham Companies) against ANZ Bank (ANZ).1 I then directed the parties, if costs could not be agreed, to file memoranda.
[2] ANZ filed a memorandum as to costs on 18 August 2022. However, instead of filing a costs memorandum within time, counsel for the Garnham Companies sought leave to withdraw. On 30 August 2022, on the basis that counsel had terminated
1 Criffel Deer Ltd v ANZ Bank New Zealand Ltd [2022] NZHC 1851.
CRIFFEL DEER LIMITED v ANZ BANK NEW ZEALAND LIMITED (COSTS) [2022] NZHC 2418
[21 September 2022]
their retainer with the Garnham Companies for failure to pay fees, I granted counsel leave to withdraw.2
[3] The Registrar was then advised by Mr Garnham that new counsel had been retained, and that a memorandum on costs was forthcoming. Mr Stephens, counsel for the Garnham Companies, filed a memorandum as to costs on 9 September 2022.
Positions of the parties
ANZ
[4] ANZ seeks indemnity costs of $251,820, or in the alternative, increased costs of 200 per cent. It seeks costs on the following grounds:
(a)the relevant facility agreement creates a contractual entitlement to indemnity costs, in the terms of r 14.6(4)(e);
(b)the proceeding was improper, frivolous, and vexatious, in the terms of r 14.6(4)(a);
(c)the Garnham Companies contributed unnecessarily to the costs of the proceeding, in the terms of r 14.6(3)(b); and
(d)the Garnham Companies refused a reasonable settlement offer, in the terms of r 14.6(4)(b)(v).
[5] ANZ submits that Black v ASB Bank Ltd applies.3 In that case, the Court of Appeal considered costs where a bank with an indemnity for legal costs in loan documentation is forced to defend a proceeding commenced by a borrower.
[6]The relevant facility agreement provides:
2 Criffel Deer Ltd v ANZ Bank New Zealand Ltd [2022] NZHC 2175.
3 Black v ASB Bank Ltd [2012] NZCA 384.
14. Costs
The Borrowers will pay each cost incurred by the Lender in connection with:
…
(c)the exercise, protection, investigation or enforcement of the Lender's rights under a Relevant Document; …
in each case, on demand and on a full indemnity basis.
[7] ANZ alleges that it was required to defend the proceedings brought by the Garnham Companies in the same way as ASB in Black. It says that all of its actions in the proceeding were reasonable and necessary for quick resolution, and that its hourly rates were reasonable. Senior counsel were engaged, and a significant amount of documentation had to be reviewed. ANZ submits that a costs award of approximately $250,000, representing its actual costs, is reasonable in the circumstances.
[8] ANZ submits that on the terms of the substantive judgment, it is clear that the claims brought by the Garnham Companies were hopeless, owing to the inconsistency between Mr Garnham’s evidence and the contemporaneous documents. They rely on the finding that there was no evidence to support his “serious allegation of fraudulent behaviour”. They submit on this basis that r 14.6(4)(a) applies, which also justifies an award of indemnity costs.
[9] If indemnity costs are not available, ANZ seeks to rely on the Garnham Companies’ conduct throughout the proceeding to justify an award of increased costs. Counsel for ANZ submit:
The plaintiffs repeatedly breached procedural rules and took untenable legal positions on the admissibility of evidence and the standing of a struck off company, even after that was pointed out to them in correspondence and court documents. Finally, as above, in advancing this proceeding the plaintiffs pursued an argument without merit.
(footnotes omitted)
[10] ANZ also notes that it provided an open letter dated 24 December 2021, inviting the plaintiffs to withdraw their claim without costs consequences, following
the filing of its defence. ANZ says there was no reasonable justification for ignoring the offer, and that therefore increased costs should follow.
Garnham Companies
[11] The Garnham Companies submit that ANZ is only entitled to ordinary scale costs on a 2B basis, rather than increased or indemnity costs. They submit that ANZ’s ordinary costs of $20,383.75, together with usual disbursements of $1,623.02 are reasonable in the circumstances. In the alternative, the Garnham Companies accept that at most the substantive decision might justify an uplift of 150 per cent from scale costs.
[12] The Garnham Companies submit that the claims made by ANZ in their memorandum are incorrect, and allege that the ANZ’s letter did not amount to a settlement offer. They submit that their conduct was not vexatious, and that the allegations of fraud were not hopeless. In this respect, the Garnham Companies appeared to challenge the Court’s findings in the substantive judgment.
[13] As to ANZ’s submissions in respect of a contractual entitlement to indemnity costs, the Garnham Companies submit that the proceeding “was not in connection with the exercise, protection, investigation, or enforcement of the lender’s rights under its facility agreement”. They say neither was ANZ’s application related to any opposition to any enforcement action being taken by ANZ. The Garnham companies say that Black does not apply to the present case as:
(a)ANZ was not seeking to protect its rights under the facility agreement, but seeking to avoid scrutiny of its conduct and the evidence which it did not provide at hearing;
(b)the Garnham Companies did not attack ANZ’s rights to enforce its securities; and
(c)the Court in Black only awarded indemnity costs of $91,000 as being reasonably and properly incurred, in circumstances similar to the present case.
[14] Finally, the Garnham Companies submit that they initially proposed to undertake mediation with ANZ to resolve the issues between them, but say the mediation did not progress because ANZ resiled from its initial willingness to participate.
Analysis
[15] The issue is whether there should be any departure from scale costs. If not, as accepted by the parties, costs should follow the event, on a 2B basis. There is no dispute as to whether ANZ is entitled to costs. The dispute is about quantum.
Indemnity costs
[16] Rule 14.6(4)(e) provides that the Court may order a party to pay indemnity costs if the party claiming costs is entitled to indemnity costs under a contract or deed. It is unique in that it imports no requirement for a party to have behaved in a certain manner in order to justify an award of indemnity costs.
[17] In Black, the Court of Appeal upheld an award of indemnity costs made in the High Court, in the sum of $91,413.50, based on a contractual entitlement in the following terms:
14.1 Expenses: You will pay each cost and expense (including all legal expenses on a solicitor and own client basis) sustained or incurred by us in connection with:
…
(c) the exercise of, or in protecting or enforcing or otherwise in connection with, our rights under this Deed or another transaction required or contemplated by this Deed.
In each case on demand and on a full indemnity basis.
[18] As submitted by ANZ, the facts of Black are largely similar – involving a meritless claim by a debtor against a creditor. The Court considered that ASB had no option but to defend Mr Black’s claims, which constituted an attack on their right to enforce their securities, and involved at least 10 distinct issues.4 ASB’s costs
4 At [100].
“reflected the breadth and complexity of the points raised by Mr Black”, and had already been decreased by roughly $40,000 by ASB to what they considered reasonable.5
[19]However, r 14.6(4)(e), is not the end of the matter. The Court in Black stated:
[77] As this Court held in Frater Williams & Co Ltd v Australian Guarantee Corporation (NZ) Ltd,6 where there is a contractual right to indemnity costs the question for the Court asked to make an order is: for the necessary steps, are the costs claimed reasonable in amount? That is because r 14.6(1)(b) permits the Court to order payment of costs “reasonably incurred”. It follows from the wording of r 14.6(1)(b) that indemnity costs are determined with reference to actual costs, but may be less than the actual costs if the Court considers the actual costs were not reasonably incurred.
…
[80] Assessing whether the indemnity costs claimed under a contract are reasonable involves the Court making an objective assessment of these matters:7
(a)what tasks attract a costs indemnity on a proper construction of the contract;
(b)whether the tasks undertaken were those contemplated in the contract;
(c)whether the steps undertaken were reasonably necessary in pursuance of those tasks;
(d)whether the rate at which the steps were charged was reasonable having regard to the principles normally applicable to solicitor/client costs; and
(e)whether any other principles drawn from the general law of contract would in whole or in part deny the claimant its prima facie right to judgment.
[20] Therefore, the Court will not simply order that an unsuccessful party pay the successful party’s actual costs. It has an overriding discretion to award what is reasonable in the circumstances.
5 At [73] and [102].
6 Frater Williams & Co Ltd v Australian Guarantee Corp (NZ) Ltd (1994) 2 NZ ConvC 191,873 (CA) at 191,886–191,887.
7 Frater Williams at 191,887, endorsed in Watson & Son Ltd v Active Manuka Honey Association
[2009] NZCA 595 at [20].
[21] The terms of the relevant indemnity clause in the facility agreement provides that the Garnham Companies will cover costs incurred by ANZ in the exercise, protection, or enforcement of its rights, on a full indemnity basis. I am satisfied that the proceedings in the present case fall within the terms of that contractual entitlement. ANZ effectively had no option but to defend the claims made by the Garnham Companies, so as to protect and enforce its rights pursuant to the facility agreement, and the settlement deed.
[22] The question then becomes, whether the costs claimed under the indemnity clause are reasonable, having regard to the matters set out by the Court of Appeal in Black, and the Court’s overriding discretion as to costs.
[23] Counsel for ANZ have provided a schedule of actual costs, setting out in detail the costs incurred at each step of the proceeding, the lawyers who performed the work, their hourly rates, and the time they each expended. Their actual costs are calculated at $251,529.25. That is a figure that is significantly higher than their schedule of scale costs, which are calculated at $20,383.75.
[24] Having regard to the principles normally applicable to the determination of costs, the difference between the actual costs claimed and what would be awarded under the scale costs regime is a relevant factor in determining whether the indemnity costs claimed are reasonable. An award of indemnity costs in the area of $250,000 would effectively constitute a 1,250 per cent increase from scale costs, for a strike out application of medium complexity, involving only one and a half days’ hearing.
[25] I accept that here was a substantial amount of documentation involved in the proceeding, and counsel for ANZ were put to task in searching its records. Further, the engagement of senior counsel to defend ANZ from serious fraud allegations was appropriate in the circumstances.
[26] However, I am not convinced that the award of indemnity costs sought by ANZ is in the circumstances, reasonable. I am drawn to this conclusion by reason of the vast difference between the indemnity costs claimed, and what would otherwise be available under scale costs. I note that scale costs are intended to approximately
represent two-thirds of a “reasonable fee”8, and also that the “ integrity of the scale, with its associated value of predictability and certainty, is not to be lightly discarded”.9 An award of approximately $250,000 would be a considerable departure from both of those principles, notwithstanding the contractual entitlement and the Court’s power to award indemnity costs.
[27] Despite the many factual findings the Court was required to make in the substantive judgment, essentially the only two issues which required determination related to whether the claims were time barred and/or whether they had been settled. The steps taken by ANZ to show that the relevant representations were not made, or that their conduct was not oppressive, while best practice, were not strictly necessary to successfully defend the claims. Accordingly, although ANZ does have a contractual indemnity, I am of the view that the sum claimed by ANZ was not reasonably incurred.
[28] Turning then to the question of what costs were reasonably incurred in the circumstances, the six steps under which ANZ’s actual costs were described were broadly:
(a)receipt and review of the claim, and provision of initial advice;
(b)review of ANZ files, preparation of evidence and statement of defence;
(c)case management;
(d)interlocutory matters;
(e)preparation of evidence and submissions; and
(f)preparation for and appearance at hearing.
[29] On consideration of the material provided by ANZ, I am of the view that an order for reasonable actual costs should take into account a 40 per cent discount from
8 Du Preez v Estate of Barbara Anne Doornekamp-Wellman [2022] NZHC 2303 at [7].
9 Bradbury v Westpac Banking Corporation (2008) 18 PRNZ 859 at [9]; upheld in Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400.
the sum claimed by ANZ, being $150,917.55 plus disbursements. That figure takes into account the contractual indemnity, the plaintiffs’ conduct throughout the proceeding, and the fact that it was a “wholly unmeritorious and hopeless claim”.10 An award of that sum accords with the principle that ANZ is only entitled to costs that are reasonably incurred and the Court’s discretionary power to ensure that the ultimate award is just in all the circumstances”.11 In my view, ANZ went to extreme lengths in assessing its own documentation, in determining whether Mr Garnham’s claims has any merit, in lieu of simply addressing the limitation and settlement deed arguments. Such costs were not reasonably incurred.
Result
[30] I make an order of indemnity costs in the sum of $150,917.55 plus usual disbursements.
Churchman J
Solicitors:
Stephens Lawyers, Wellington for Plaintiffs Bell Gully, Wellington for Defendant
10 Kuwait Asia Bank EC v National Mutual Life Nominees Ltd [1991] 3 NZLR 457 at 460.
11 Bradbury, above n 9, at [17].
3
5
0