Daisley v Ark Contractors Limited

[2020] NZHC 1672

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

I TE KŌTI MATUA O AOTEAROA WHANGĀREI-TERENGA-PARĀOA ROHE

CIV-2015-404-002799

[2020] NZHC 1672

BETWEEN

MALCOLM JAMES DAISLEY

First Plaintiff

AND

SDD LIMITED

Second Plaintiff

AND

ARK CONTRACTORS LIMITED

First Defendant

AND

PAUL GERRARD KELLER and KAREN ELIZABETH KELLER

Second Defendants

AND

THOMSON WILSON LAW (a firm)

Third Defendant

On papers

Appearances:

E Smith for Plaintiff

J Browne and C Martin for First and Second Defendants V Wethey and H Birch for Third Defendant

Judgment:

13 July 2020

JUDGMENT OF WALKER J

[AS TO COSTS OF THIRD DEFENDANT]

This judgment was delivered by me on 13 July 2020 at 3.30 pm Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

DAISLEY v ARK CONTRACTORS LIMITED [2020] NZHC 1672 [13 July 2020]

Introduction

[1]        On 23 April 2020, I issued my substantive judgment.1 Among other determinations, I dismissed the plaintiffs' claims against the third defendant.

[2]        The parties have been unable to agree on costs. I have now received comprehensive memoranda as to costs.

[3]        The third defendant seeks a combination of 2B costs and indemnity costs from 10 October 2018, being the date on which the third defendant made a "drop hands" offer. By this I mean an offer that the third defendant would not pursue costs if the plaintiffs discontinued the claims against the third defendant. As a fall-back, the third defendant seeks a 50 per cent uplift for steps taken from the same date.

[4]        The plaintiffs oppose indemnity costs. They submit the threshold for an order of indemnity costs is high, rarely reached and not warranted in the circumstances of this case. The plaintiffs concede, however, that an uplift from schedule costs may be arguable. This is a proper concession. The plaintiffs submit that if so, it should be limited to a 25 per cent uplift. The plaintiffs also oppose certification of second counsel.

[5]        There is no challenge in respect of the schedule provided by the third defendant which sets out the steps in the proceedings. I return to this below.

[6]        The contest between the parties is therefore focused on two main issues: whether there should be an uplift or an award of indemnity costs, and certification for second counsel.

[7]        Costs are to be fixed in accordance with Part 14 of the High Court Rules 2016. The principles are relatively well established. There is an overriding discretion, but it is to be exercised within the framework of the costs regime to provide certainty to parties. The rules themselves provide for departure from Schedule costs and for indemnity costs in prescribed circumstances.

1      Daisley v Ark Contractors Limited [2020] NZHC 793.

Certification for second counsel

[8]        The third defendant submits the claim for second counsel is appropriate and justified in the circumstances. Ms Wethey points to factors including the logistics of Auckland based counsel conducting a trial in Whangārei and the length of the trial.2 The first and second defendants entered appearances for two counsel; the plaintiffs were represented by one counsel only.

[9]        The factual and legal issues between the plaintiffs and third defendant were relatively narrow in the context of the proceedings as a whole. They were not of a high degree of complexity. However, the claims by the plaintiffs raised serious allegations against the firm and professional and personal reputational issues were at stake.

[10]      I therefore agree with Ms Wethey. I certify for second counsel, but with the adjustment set out below.

Increased or indemnity costs

[11]      Rule 14.6 of the High Court Rules provides for increased and indemnity costs. As relevant, r 14.6 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).

(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-

…

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

2      The proceeding was filed in Auckland but transferred.

(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

…

(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.

[12]      The third defendant relies on an offer of settlement in the form of withdrawal of  the  claims  against  the   third   defendant   with   no   cost   consequences.   On 10 October 2018, solicitors for the third defendant sent a letter to the plaintiffs' counsel setting out in detail why the claims against Thomson Wilson had no legal merit and were factually incorrect. Counsel advised the plaintiffs that the third defendant was prepared to bear its own costs if the plaintiffs discontinued. If the claim was not discontinued, they would seek indemnity costs in the event the claim ultimately failed.

[13]      A second without prejudice letter  was  sent  to  the  plaintiffs'  solicitor  on 13 June 2019. The offer of bearing its own costs if the plaintiffs discontinued against the third defendant was revived.

[14]      A third without prejudice letter was sent on 5 August 2019. By this time the plaintiffs had been served with the third defendant's briefs of evidence, including an expert brief from Ian Haynes which provided independent support for the defendants' case.

[15]      On 12 August 2019, the plaintiffs responded to that proposal. The offer contained in that letter was, with respect, unrealistic.

[16]      A final settlement offer was made by the third defendant to the plaintiffs on 21 August 2019, explaining in detail the level of costs which would be claimed if the trial went ahead. At that point in time, the third defendant offered to accept $45,000 for costs on discontinuance. This represented the sum for security for costs paid by the plaintiffs.

[17]      The plaintiffs' response dated 27 August 2019 comprised a counter-offer tied to an overall settlement by the first and second defendants.

[18]      The third defendant argues that the rejection of these offers was unreasonable. Moreover, the essential basis for the discontinuance proposal made by the third defendant broadly aligns with my reasons for judgment. They therefore seek indemnity costs from the point of the first "drop-hands" proposal in October 2018.

[19]      I accept that the correspondence in October 2018 was significant. Given the passage of time since the events at issue, it must have been apparent that the contemporaneous record would be the most reliable evidence, and the briefs of evidence would be heavily reliant on this material. In short, that offer did not come so early in the proceeding that it was reasonable to reject it.

[20]      The first plaintiff's steadfast belief that the third defendant contributed to his failed expectations for the commercial venture did not translate into a sustainable cause of action based on the contemporaneous evidence. However, I am not satisfied that this justifies indemnity costs from the decisive October date rather than an uplift. Indemnity costs are relatively rare and should be reserved for the most egregious instances of vexatious, improper, frivolous or unnecessary proceedings. This case is not such an example.

[21]      In my assessment, a 50 per cent uplift on Schedule 2B costs is warranted from 31 October 2018. This reflects a reasonable period for the plaintiffs to have considered and reflected on the proposal. (It does not appear from the costs schedules produced that this choice of date impacts the costs assessment.)

[22]      In paragraph [10] I certified for second counsel. However, it is appropriate that there is no uplift on second counsel's appearance at trial. In my view this strikes the appropriate balance between the justification for second counsel and the nature of the third parties' involvement in the trial itself.

Prevailing daily rate

[23]      A point not taken is that the costs schedule submitted by the third defendant applies a daily rate of $2,390. This rate only applied from 1 August 2019.3 Notably the 2019 amendment did not prescribe any savings or transitional provisions. The usual approach is that the cost schedules should be applied prospectively only.4 For this reason, I set out below the approach to be applied in my judgment. The parties ought to be able to reach agreement as to the end result.

Conclusion

[24]      I make the following orders and directions for costs in favour of the third defendant. This relies on the schedule produced by the third defendant, subject to adjustment of the daily rates:

(a)2B costs for steps up to 1 August 2019 at the then prevailing daily rate of $2,230.

(b)2B costs for steps after 1 August 2019 at the daily rate of $2,390, including for second counsel.

(c)A 50 per cent uplift on each step undertaken from 31 October 2018 with the exception of (35) – appearance at hearing for second counsel in respect of which there is no uplift.

3      Schedule 2 was replaced as from 1 August 2019, by r 11 High Court Amendment Rules 2019.

4      EA v Rennie Cox Lawyers (No. 3) [2020] NZHC 1372; Delegat v Normal [2014] NZHC 1099 at [31].

(d)Disbursements of $20,470.68.

[25]      I direct the Registrar to release to the third defendant the sum of $45,000 paid into Court as security for costs in respect of the claim against the third defendant. This sum is to be set-off against the costs order.

.........................................

Walker J