Daisley v Whangarei District Council
[2022] NZHC 1671
•14 July 2022
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
I TE KŌTI MATUA O AOTEAROA WHANGĀREI-TERENGA-PARĀOA ROHE
CIV-2015-488-109
[2022] NZHC 1671
BETWEEN MALCOLM JAMES DAISLEY
Plaintiff
AND
WHANGAREI DISTRICT COUNCIL
Defendant
On the papers Counsel:
J A Farmer QC and E L Smith for plaintiff
P A Robertson and S M Mautner for defendant
Judgment:
14 July 2022
JUDGMENT OF TOOGOOD J
[Costs]
This judgment was delivered by me on 14 July 2022 at 11 am, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors:
Tailored Legal Solutions Ltd, Dargaville for plaintiff Heaney & Partners, Auckland for defendant
DAISLEY v WHANGAREI DISTRICT COUNCIL [2022] NZHC 1671 [14 July 2022]
Introduction [1]
The claim for costs and disbursements [5]
Principles [7]
Assessment of scale costs and disbursements [9]
Scale costs [10]
Disbursements [11]
Conclusion on scale costs and disbursements [14]
Assessing the issues at trial and the outcome [15]
The nature of the substantive claims [16]
The damages sought [18]
The Council’s defences [19]
The findings [21]
Mr Daisley’s claim for increased and indemnity costs [22]
The claim for increased costs [23]
The claim for indemnity costs [26]
The Council’s response to the claims for increased and indemnity costs [27]
Did the Council adopt an unreasonable approach to the proceeding? [29]
Conclusions on claim for increased costs [46]
The claim for indemnity costs – settlement offers [51] My mid-hearing observations on the merits of the claim [56] Conclusions on costs [62]
The settlement with Mr Daisley’s former lawyer [64]
Introduction
[1] On 10 June 2022, I issued a judgment in this proceeding in which I upheld a claim by Mr Jimmy Daisley for damages against the Whangārei District Council.1 The claim related to the failure of the Council to disclose to Mr Daisley that a rural property in Knight Road near Whangārei, which he acquired in December 2004, enjoyed the benefit of an existing resource consent that permitted commercial quarrying. I found the Council to have been negligent in the storage of its records related to the consent and its failure to locate the records at various times over a five-year period when Mr Daisley requested relevant information. I held also that the Council had been guilty of misfeasance in public office through recklessly misinforming Mr Daisley and others about the existence of the consent and in failing to take steps to make amends after the consent was found.
Judgment was entered for Mr Daisley as follows:2
(a)damages of $4,089,622 for loss of profits;
1 Daisley v Whangārei District Council [2022] NZHC 1372 [the substantive judgment].
2 At [565] and [566].
(b)damages of $90,000 for loss of the value of the property on which the quarry was located;
(c)damages of $50,000 for the recovery of direct costs flowing from the Council’s negligence;
(d)interest on the damages in (a), (b) and (c) (which Mr Robertson quantifies in his submissions as $1,448,500.50 as at 16 June 2022); and
(e)exemplary damages of $50,000.
[3]On that basis, the total sum payable by the Council under the judgment is
$5,728,122.50.
[4] I held that Mr Daisley was entitled to costs and, because the parties have been unable to agree on the costs contribution to be paid, I have now received memoranda from counsel.
The claim for costs and disbursements
[5]Mr Daisley claims a total of $1,386,245.07 in costs and disbursements:
Scale costs on a category 2B basis with a 50 per cent uplift for the period from the commencement of proceedings to 2 March 2021 $210,342.00
Indemnity costs from 2 March 2021
934,058.75
Total disbursements
241,844.32
Total
$1,386,245.07
[6]Mr Daisley’s claim for costs is large by any measure. To put it in context:
(a)the hearing occupied 14 days;
(b)the notes of evidence run to 1,238 pages;
(c)close to 7,000 pages of documentary exhibits were produced;
(d)the losses for which damages were sought were quantified by Mr Daisley’s counsel in closing at $20,945,891; and
(e)the reasons for judgment occupy 193 pages.
Principles
[7] There is no dispute between the parties about the relevant principles for the determination of a costs award under pt 14 of the High Court Rules 2016 (the Rules):
(a)all matters related to costs are at the discretion of the Court;3
(b)a party who fails with respect to a proceeding should pay costs to the party who succeeds;4
(c)costs should be assessed by applying the appropriate daily recovery rate to the time considered reasonable for each step reasonably required in relation to the proceeding;5
(d)an award of costs should not exceed the costs incurred by the party claiming costs;6 and
(e)so far as possible, the determination of costs should be predictable and expeditious.7
[8]Also relevant in this case are the principles set out in r 14.6, as follows:
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
3 High Court Rules 2016, r 14.1(1).
4 Rule 14.2(1)(a).
5 Rule 14.2(1)(c).
6 Rule 14.2(1)(f).
7 Rule 14.2(1)(g).
(b)that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party (indemnity costs).
(2)The court may make the order at any stage of a proceeding and in relation to any step in it.
(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 an argument that lacks merit; or
(iii)failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument; or
…
(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.
Assessment of scale costs and disbursements
[9] The Council resists the claim for increased and indemnity costs but generally accepts the sums claimed as scale costs by Mr Daisley, apart from some specific cost items and disbursements. Seven items of the costs claim are disputed by the Council.
It is pertinent to deal with them first because they are relevant to assessing the significance of pre-trial settlement offers and the calculation of any increased costs.
Scale costs
[10]I deal with each of the disputed items in turn:
(a) 7 September 2017 – Filing of amended statement of claim – $6,690
The Council submits that sch 3 of the Rules, which sets out the time allocations for each step for which costs are recoverable, only allows for recovering costs once for “[c]ommencement of proceedings by plaintiff”. In that regard, the Council refers to r 7.77(8) which provides:
If an amended pleading has been filed under this rule, the party filing the amended pleading must bear all the costs of and occasioned by the original pleading and any application for amendment, unless the Court otherwise orders.
The amended statement of claim, however, was filed at the direction of the Court after the defendants requested further and better particulars. I allow the amount claimed.
(b) 15 November 2017 – Preparation for callover – $892
The Council submits that while the Rules provide for costs to be paid on an appearance at a callover, there is no provision for preparation and that the recovery of costs for preparation must have been purposefully excluded. Mr Daisley does not pursue this claim in the light of the Council’s objection.
(c) 17 November 2017 – Second amended statement of claim – $669
The Council objects to this claim on the basis that the Court did not order the filing of the document and Mr Daisley does not pursue it.
(d) 23 February 2018 – Third amended statement of claim – $6,690
The Council objects to this claim but the document was filed at the direction of the Court following a case management conference in which the parties requested a consent order. I allow that claim.
(e) 16 November 2018 – Fourth amended statement of claim – $6,690
The fourth amended statement of claim was filed following a consent order requiring it made by Hinton J on 24 August 2018 and I allow the claim accordingly.
(f) July 2021 – Preparation of joint expert statements and supplementary
briefs arising from amended statement of defence – $26,887.50
The Council argues that the cost of the preparation of the expert statements and supplementary briefs is subsumed by the claim for preparation based on the time allocation for the length of the hearing. It notes the absence of an express provision in the Rules for additional preparation. I accept, however, Mr Daisley’s submission that the need for supplementary evidence arose after the Council was permitted to amend its defence after the close of pleadings date. Campbell J directed that supplementary briefs could be filed in substitution for, or in addition to, those earlier filed. In response to the Council’s adjusted defence which shifted the focus to the commerciality of the quarry and Mr Patterson’s evidence, five supplementary briefs were filed on 21 February 2021 and 19 supplementary briefs were filed on 12 July 2021. The evidence was relevant and responded appropriately to the case presented by the Council’s witnesses. Moreover, the joint witness statements were prepared in accordance with the usual practice when expert witnesses confer. I allow that item of the claim.
(g) 30 November 2021 – Preparation for reconvened closing days of the
trial (written closing submissions) – $4,780
The Council correctly identifies that Mr Daisley had also claimed for preparation for a full hearing but I accept the submission of counsel for
Mr Daisley that additional work was required in preparing closing submissions because counsel agreed on arrangements to expedite the hearing and accommodate the difficulties presented by COVID-19 response restrictions. Under the unusual arrangements agreed to, some of the Council’s experts were not cross-examined and the issues which might have been raised in cross-examination were instead addressed by submissions. I allow this aspect of the claim.
Disbursements
[11] Some of the disbursements which Mr Daisley seeks to recover are disputed by the Council. First, there is a claim to recover what I understand to be Mr Daisley’s half share of the costs of a mediator ($5,750) and the hiring of a mediation room ($478.29) on 30 September 2020 when the parties agreed to meet in mediation in an attempt to resolve their differences. While mediation is encouraged by the Court, it is not a step in the proceeding. Moreover, the ground on which Mr Daisley seeks to recover his share of the mediation costs involves the disclosure of information related to the conduct of the parties in the mediation, which is privileged information and ought not to be disclosed. I disallow that claim.
[12] Mr Daisley also seeks to recover fees of $3,248.75 paid to Mr Denis Lane, an accountant known to the Court to frequently give evidence as an expert witness on financial matters. Mr Lane was not a witness in the proceeding and his contribution was not identified at trial. Counsel for Mr Daisley indicate, however, that Mr Lane was instructed in the early stages of the case to assist with matters arising from the defendants’ application to strike out the proceeding. It is not clear to me what relevance financial information would have had to that step in the proceeding. The judgment of Associate Judge Christiansen, dated 25 February 2016, does not make any reference to financial matters and deals with the Council’s limitation argument which appears to have been the sole issue.8 Accordingly, I disallow that aspect of the claim.
8 Daisley v Whangārei District Council [2016] NZHC 268 [the strike-out judgment].
[13] There is a claim for $13,212.25 for accommodation for Ms Smith, second counsel for Mr Daisley, who was required to relocate from her practice base in Dargaville to Auckland in July and August 2021 for preparation and trial. The amount includes the cost of hotel accommodation and renting office space in Auckland. The Council agrees to meet Ms Smith’s reasonable accommodation costs but submits that the additional cost of renting serviced office space is not justifiable. First, the Council says that Ms Smith could reasonably have booked a one-bedroom suite in an hotel, which includes a separate living room or office space, for $350 per day instead of the sum of $629 per day which is sought. Second, the Council refers to information suggesting that the serviced office could have been rented for $2,500 a month. Mr Daisley responds by indicating that Ms Smith’s claim is for appropriate accommodation for 24 days, allowing time for the establishment and packing up of her office, at a rate of $150 per day. That is a total of $3,600 compared to the Council’s submission that $2,500 would have been sufficient. Moreover, the accommodation costs were $400 per day as opposed to the Council’s proposition of $350 per day. In the overall scheme of things, the amounts claimed seem to be reasonable. Having regard to the scale of the proceeding, I consider the differences between the parties on Ms Smith’s disbursement claims are inconsequential. I allow the claims.
Conclusion on scale costs and disbursements
[14] The outcome of these considerations is that from the scale costs of $224,057.25 claimed by Mr Daisley, I deduct $1,561, meaning that scale costs allowed total
$222,496.25. Of the disbursements sought in the sum of $241,844.32, I disallow
$9,477.04, leaving a balance of disbursements recoverable of $232,367.28. The total sum of fees and disbursements I consider to be properly recoverable according to scale, therefore, is $454,863.53.
Assessing the issues at trial and the outcome
[15] Assessing the award of costs when increased or indemnity costs are sought and the parties cannot agree requires an evaluation of the disputed issues in the proceeding and the outcome.
The nature of the substantive claims
[16] The nature of Mr Daisley’s claims is summarised at [1] to [16] of the substantive judgment. In brief:
(a)Mr Daisley purchased the Knight Road property principally for the purpose of operating a commercial quarry for the supply of aggregate for use on his farm and in conjunction with his own earthworks contracting business, and to sell quarried minerals commercially to local farmers and other contractors.9 As well, Mr Daisley had discussions with an Auckland-based contractor, Mr Bruce Patterson, about a supply agreement by which Mr Patterson would pay a premium price for aggregate in return for the supply of aggregate on a preferential basis whenever Mr Patterson required it.
(b)A land information memorandum (LIM) Mr Daisley obtained from the Council in November 2004, prior to purchasing the Knight Road property, declared that the Council held no consent affecting the use of the property. Mr Daisley was aware, however, that the quarry on the property had been operated commercially over several decades.
(c)On 21 February 2005, however, an enforcement officer, appointed by the Council under the Resource Management Act 1991 (the RMA) issued an abatement notice directing Mr Daisley to cease the use of the Knight Road property for the disturbance or removal of all material in excess of 500 bank cubic metres (BCM) in any 12-month period. The reasons for the abatement notice included the assertion that the removal of the material from the Knight Road property was neither expressly allowed by a resource consent nor an existing use right. There followed a long-running dispute between Mr Daisley and the Council over Mr Daisley’s right to operate the quarry, which continued until July 2011.
9 In this judgment, as in the substantive judgment, the terms “material”, “metal”, “minerals”, “aggregate” and “rock” are used interchangeably to refer to the organic material extracted from a quarry without specifying, unless relevant, the type of rock concerned.
(d)When the Council issued the first and subsequent abatement notices; when Mr Daisley applied unsuccessfully for a resource consent in 2006; when the Council began enforcement proceedings in the Environment Court in July 2009, and on every other occasion when Mr Daisley sought information about the existence of a resource consent, the Council denied that a resource consent existed and insisted that Mr Daisley’s quarrying was unlawful. Mr Daisley’s inability to exploit the Knight Road property for commercial quarrying resulted in his suffering financial difficulties and he was forced by his bank to place the property on the market for sale.
(e)In late September 2009, while preparing a defence to the enforcement proceedings, a lawyer engaged by Mr Daisley initiated a search of the Council’s archived records for the Knight Road property and located a land use consent that was issued in 1988 and was still current (the 1988 LUC). The 1988 LUC authorised the operation of a quarry for the extraction of red brown rock that was not limited by time and did not expressly limit the quantity of rock that could be extracted. It was common ground between the parties that the consent ran with the land, meaning that, if the Council had kept the record of the 1988 LUC reasonably available and disclosed its existence to Mr Daisley, Mr Daisley would have been entitled to rely on it when he became the owner of the property. The Council’s initial response was to claim that the 1988 LUC was no longer valid. Mr Daisley was forced to sell the property at a price lower than that he would have received if quarrying was a consented activity.
(f)In May 2011, on the basis that the 1988 LUC was a valid consent that continued to apply to the land, the Council granted the purchaser of the Knight Road property from Mr Daisley a variation to the consent authorising the annual removal of 50,000 BCM of material.
(g)The enforcement proceedings against Mr Daisley were not withdrawn by the Council until July 2011.
[17] The statement of claim was filed on 14 August 2015, just a month short of six years after the 1988 LUC was found. Mr Daisley claimed that the Council’s repeated denials that a valid consent existed, and its continued obstruction of his intended quarrying activities between February 2005 and January 2010, were unlawful and in breach of the statutory and common law duties the Council owed to him. He claimed also that Council officers were guilty of misfeasance in public office in that they knowingly and deceptively denied the existence of a valid consent, or were wilfully blind to the existence of the 1988 LUC, and misled the Hearings Commissioner about its existence when Mr Daisley applied for a resource consent in 2006.
The damages sought
[18] The damages sought by Mr Daisley in the fourth amended statement of claim dated 20 November 2018 totalled $25,928,197 before tax, or $38,698,801 as a taxable sum. In closing the plaintiff’s case, however, the total damages claim was reduced to
$20,945,891, made up by claims for:
(a)lost earnings from the quarrying operation;
(b)the loss of a valuable business operation, including goodwill and royalties;
(c)a loss on the value of the Knight Road property; and
(d)the costs associated with resisting the Council’s infringement and enforcement actions.
The Council’s defences
[19] Almost every aspect of Mr Daisley’s claims was denied by the Council in its pleadings and at trial. Although the Council, in closing its case, admitted it was negligent in some respects, it disputed the nature of the duties owed to Mr Daisley. It also asserted that Council officers dealing with Mr Daisley did not know about the 1988 LUC, and did not deliberately mislead Mr Daisley and others about its existence. Its position, in essence, was:
(a)the Council’s repeated denials of the existence of the 1988 LUC resulted from an inadvertent misfiling of the records of the consent in the Council’s archives and that it did not act in breach of any duty of care to Mr Daisley;
(b)the claim was time-barred under s 4 of the Limitation Act 1950 because it was brought more than six years from the date on which the cause of action accrued;
(c)the operation of a commercial quarry on the Knight Road property was never a viable prospect and, if Mr Daisley had carried out quarrying activities in the manner he proposed, he would have lost money on every tonne of aggregate produced;
(d)Mr Daisley did not suffer any compensable loss in any other respect;
(e)the damages claim, if Mr Daisley was entitled to any award, was grossly exaggerated;
(f)Mr Daisley alone was responsible for the predicament in which he found himself, having made a poor business decision to purchase the Knight Road property without first establishing that commercial quarrying was a consented activity and after he had received a LIM that informed him that no consent existed; and
(g)Mr Daisley was negligent in proceeding with the purchase in those circumstances and contributed to his losses to such an extent as to justify a reduction by 80 per cent of such damages as might otherwise have been awarded to him.
[20] The Council also raised a defence of betterment, but it abandoned that defence in a more general challenge to the quantification of the measure of damages attributable to any proved negligence. As well, it seeks an order reducing any damages payable by the Council on account of any sum received by Mr Daisley from the
insurers of his former lawyer who had previously been named as second defendant in the proceeding.
The findings
[21] I found the Council liable in negligence and awarded Mr Daisley damages. I summarised my findings in the substantive judgment in these terms:
[22]The Council owed Mr Daisley common law duties of care to:
(a)exercise reasonable care and skill in keeping the records of resource consents reasonably available for inspection;
(b)exercise reasonable care and skill in the provision of information about such matters; and
(c)conduct reasonably diligent inquiries into the existence of a resource consent whenever that was in issue.
[23] The Council breached its common law duties to Mr Daisley continuously from November 2004 to September 2009 by:
(a)failing to keep a copy of the 1988 LUC in its register of the current files related to the Knight Road property so as to make it “reasonably available at its principal office”;
(b)failing through its officers to conduct diligent searches for the existence of a consent:
(i)on 21 February 2005 when the first abatement notice was issued;
(ii)when Mr Daisley made the 2005 application for resource consent;
(iii)when the Council opposed Mr Daisley’s 2006 application for a resource consent on the grounds that there was no existing consent and required him to publicly notify the application;
(iv)at the time of the subsequent abatement notices and the enforcement application to the Environment Court; and
(v)every time the Council provided Mr Daisley with an incorrect response to a request for information about the existence of a consent.
[24] The Council’s negligence was the real and effective cause of loss suffered by Mr Daisley, including:
(a)loss of profits from his inability to establish a commercial quarrying business;
(b)loss of value of the Knight Road property; and
(c)loss incurred through costs directly related to the consequences of the Council’s negligence.
[25] I have disallowed Mr Daisley’s claims to recover losses of goodwill and the value of the quarrying business.
[26]I have held that Mr Daisley was not contributorily negligent.
[27] I have held that the Council was guilty of misfeasance in public office and that it should pay exemplary damages of $50,000.
[28] I have dismissed the Council’s defence under s 4 of the Limitation Act 1950 that the proceeding was commenced out of time, because:
(a)the cause of action accrued continuously from September 2006 until September 2009; or, alternatively
(b)section 28(b) of the Limitation Act applies with the result that the limitation period did not begin to run until September 2009 when Mr Daisley discovered the Council’s equitable fraud in denying the existence of a valid resource consent.
[29]I have awarded Mr Daisley:
(a)damages of $4,089,622 for loss of profits;
(b)damages of $90,000 for loss of the value of the Knight Road property;
(c)damages of $50,000 for recovery of direct costs incurred as a consequence of the Council’s negligence;
(d)interest to the date of judgment [and thereafter, at a rate of five per cent per annum]; and
(e)exemplary damages of $50,000.
Mr Daisley’s claim for increased and indemnity costs
[22] Mr Daisley seeks an uplift of 50 per cent of scale costs up to 2 March 2021, and indemnity costs on all steps in the proceeding taken after that date.
The claim for increased costs
[23] Of the available grounds for making such awards, the submission for increased costs rests on the proposition that the Council adopted an unreasonable approach to the litigation from the time the statement of claim was issued, in that it:
(a)refused to acknowledge the wrongfulness of its conduct; and
(b)pursued unmeritorious defences.
[24]In particular, it is argued that the Council:
(a)denied unreasonably that it –
(i)owed common law duties of care to Mr Daisley regarding the availability of information about the 1988 LUC and the provision of information to Mr Daisley and others about it; and
(ii)breached any such duties at the relevant times;
(b)unreasonably argued that Mr Daisley’s claims were barred by the Limitation Act, and pursued that defence after its attempt to strike out the proceeding on that basis failed in 2016;
(c)asserted that the quarry was or would be unprofitable so that no damages were claimable in any event and, in doing so –
(i)unjustifiably disregarded the business model Mr Daisley would have adopted if he had not been prevented by the Council’s negligence from doing so, including rejecting the Daisley/Patterson arrangements for the purchase of rock from the quarry; and
(ii)relied on expert opinion that did not have an underlying factual foundation and was based on incorrect factual assumptions about a large-scale commercial quarry.
[25] Put simply, the proposition for Mr Daisley is that the Council should never have disputed its liability to Mr Daisley in negligence and that the trial of the proceeding should have been limited to quantum of damages.
The claim for indemnity costs
[26] The claim for indemnity costs from 2 March 2021 is founded on the continuation by the Council of its purportedly unreasonable approach to the litigation as just described and, particularly, on its rejection of “numerous attempts [by Mr Daisley’s legal advisers] to advance settlement discussions both before and during the trial”. If the Court does not award indemnity costs from 2 March 2021, Mr Daisley seeks a 50 per cent uplift on scale costs from that date.
The Council’s response to the claims for increased and indemnity costs
[27] The Council submits that an uplift or an award of indemnity costs is inappropriate because:
(a)the Council did not contribute unnecessarily to the time or expense of the proceeding, or a step in it, by taking or pursuing an argument that lacked merit or by failing to accept a reasonable settlement offer;
(b)the Council did not act vexatiously, frivolously, improperly or unnecessarily when defending the proceeding;
(c)the proceeding was issued against the Council more than six years after the Council wrongly issued infringement notices and brought enforcement action against Mr Daisley and the Council did not act unreasonably in pursuing its limitation defence;
(d)the Council made appropriate concessions at trial;
(e)the Council was not found to have acted in bad faith;
(f)the plaintiff’s Calderbank offers did not satisfy the principles in r 14.11(3)(b) in that the judgment sum was less than the offers to settle at $8,000,000 (made on 2 March 2021) and $11,250,000 (made on 14 August 2021);
(g)Mr Daisley did not make a Calderbank offer that satisfied r 14.11(4) as the offers made were not close in value to the judgment obtained;
(h)the Council has already been “punished” with an award for exemplary damages for what the Court considered to be the Council’s inappropriate response when the consent was found in 2009;
(i)the Council has at all material times acted on the advice it received from its lawyers and experts; and
(j)the Environment Court was the appropriate forum to “punish” the Council with a costs award for the enforcement proceedings in the Environment Court rather than this proceeding which was defended on reasonable grounds and in good faith.
[28] Mr Robertson submits that the aim of the costs regime under the Rules is to allow two-thirds of costs considered reasonable for the proceeding and that there are good policy reasons for a regime which allows recovery of less than the full amount of costs incurred. Mr Robertson argued, in response to the claim for increased costs due to the Council’s conduct in defending the case, that that issue had already been addressed in the substantive judgment.
Did the Council adopt an unreasonable approach to the proceeding?
[29] The claim for increased costs is founded on the argument that the Council adopted an unreasonable approach to the litigation and that Mr Daisley’s costs were increased by having to address untenable defences and participate in a hearing that was unduly prolonged.
[30] I accept that an award of costs should reflect how parties acted during litigation, not before it.10 I was mindful of that principle, as indicated in the substantive judgment at [339], where I was careful to distinguish the conduct of the Council relevant to exemplary damages from conduct relevant to the question of costs. In the present costs context, I address only the reasonableness of the Council’s defence to the proceeding after 15 August 2015.
[31] Mr Robertson submits that the Council’s response to the pleaded claims was focused on three main areas: limitation, an absence of malice and the amounts claimed. He submits that those issues were reasonable for the Council to raise in its defence. I do not accept, however, that those were the only bases on which the Council resisted Mr Daisley’s claims.
[32] As I recorded at [126] of the substantive judgment, the Council’s formal pleading denied that s 35 of the RMA imposed on the Council an obligation to monitor the exercise of resource consents. The Council pleaded that the section did not give rise to common law duties of care or a cause of action for damages and that legal redress under the RMA and at common law was not available to Mr Daisley. I observed at [127] that it was only in closing the Council’s case that Mr Robertson acknowledged “for the purposes of the case” that:
(a)the Council accepted on the undisputed facts that it owed a common law duty in relation to s 35 of the RMA to keep records of resource consents reasonably available, and that the duty included a duty to make reasonable enquiries to confirm the existence of such a consent;
(b)the Court was entitled to find a similar duty in relation to the LIM applied for by Mr Daisley in 2004, acknowledging that the Council had a duty to exercise reasonable care when issuing a LIM; and
(c)by reference to s 35 of the RMA and s 44A of the Local Government Official Information and Meetings Act 1987, the Council was negligent in failing to have a copy of the 1988 LUC reasonably available and,
10 Paper Reclaim Ltd v Aotearoa International Ltd [2006] 3 NZLR 188 (CA) at [160].
further, that no Council officer searched the Council archives in an effort to locate a consent regarding quarrying on the Knight Road property.
[33] By the time those concessions were made, the evidence had been heard, over 12 days. They did not require the hearing of evidence to justify them. But, in any event, the concessions did not amount to an acceptance of liability. Mr Robertson argued that a claim based on a breach of the duty under s 35 could not be advanced unless Mr Daisley also established a breach of the obligation in s 322 of the RMA for a Council officer issuing an abatement notice to have reasonable grounds for believing that the circumstances justify the service of a notice. His argument, founded on a view of the statutory provisions and policy considerations, is summarised at [156]–[157] of the substantive judgment. I rejected it.11
[34]Moreover, the Council never abandoned or amended its pleadings that:
(a)Mr Daisley lacked standing because the quarrying activities were not undertaken by him but rather by his company, Daisley Contracting Limited, which was not a party to the proceeding;12
(b)the conditions of the 1988 LUC had not been complied with and the consent lapsed in 1990;13
(c)the Council reasonably relied on Mr Barry Drake’s assertions that no formal consent had been issued for quarrying;14
11 The substantive judgment, above n 1, at [158]–[185].
12 It was only in closing the Council’s case that Mr Robertson said the Council abandoned that argument, even though the evidence related to it had been disclosed before the trial.
13 This was a proposition for which the Council never sought to lay a factual foundation and one completely at odds with the Council’s granting of a variation to the 1988 LUC when the purchaser of the Knight Road property applied for it in 2011.
14 Mr Drake was the vendor of the Knight Road property to Mr Daisley; his family had operated the quarry for more than 30 years. The 1988 LUC was issued on the application of lessees of the property, not Mr Drake or his father, the previous owner.
(d)Mr Daisley purchased the property in the express knowledge and understanding that the quarry was not consented,15 and that a resource consent was required, meaning he took on the risk of not obtaining a consent for quarrying;
(e)Mr Daisley knew at the time of the purchase that the LIM recorded there was no consent for mineral extraction and that at no time did he rely on the Council about an entitlement to quarry;16
(f)the Council was not aware, and there was no reasonable basis on which it could be said it ought to have been aware, that the mineral extraction at the Knight Road property was consented and an existing right;17
(g)the onus was on Mr Daisley to establish the lawfulness of the quarry operations;
(h)the benefit (that is, the existence of a valid consent) for which Mr Daisley did not bargain, had not been promised and was not told by the Council he was entitled to receive, amounted to a windfall and was not recoverable; and
(i)it denied that the consequences of a valid consent asserted by Mr Daisley (the establishment of a profitable commercial quarry) would have occurred but for the actions taken by the Council regarding Mr Daisley’s quarrying activity.
[35] The Council maintained throughout the hearing and in its closing argument that Mr Daisley was at fault for having undertaken a risky business venture when faced with a LIM that stated that no resource consent existed, and that Mr Daisley
15 I described this proposition in the substantive judgment at [259] as “remarkable” on the basis that it was not immediately obvious how Mr Daisley could have knowledge and understanding of a state of affairs that did not exist.
16 As with the argument summarised at [34(d)], the assertion is nonsensical; it also addresses an argument not advanced by Mr Daisley, who never relied on the Council’s repeated assertions about the absence of a consent. He challenged them.
17 Yet Mr Robertson properly acknowledged in closing that the Council knew of the existence of the consent “in a corporate sense”; see the discussion at [35] below.
misrepresented the position to the Council by not asserting and proving the existence of a consent. It does not appear to have occurred to the Council that arguing that Mr Daisley was negligent for not accepting and relying upon false information negligently provided by the Council was not only incongruous but the product of a deeply flawed analysis. Nor does it appear to have occurred to the Council that criticism of Mr Daisley for not proving the existence of a consent, the record of which it held and the existence of which it denied whenever Mr Daisley or his advisers enquired, would never be accepted by the Court. Yet it was on the basis of those assertions that the Council argued that:
(a)none of the losses claimed by Mr Daisley were caused by any proved negligence by the Council; or
(b)Mr Daisley was contributorily negligent in proceeding with the purchase and persisting with his claim that he was entitled to operate a quarry to such an extent as to disentitle him to 80 per cent of any recoverable losses.
[36] The extent to which it was necessary for Mr Daisley to address the issues arising from the Council’s pleading because they were either never conceded by the Council or, if conceded, only after all of the evidence had been heard, is demonstrated by the length of the judgment and the description of the issues that it was necessary for the Court to determine. Significantly, none of the arguments summarised above at [33]–[34] succeeded.
[37] Nevertheless, I am not prepared to hold that it was unreasonable of the Council not to admit liability in negligence and to focus the parties’ and the Court’s attention on the quantum of Mr Daisley’s claim.
[38] First, it may seem obvious to a lay observer that the Council ought to be held liable for the consequences of its denial of the existence of a consent that had been granted by the Council’s predecessor and the records of which the Council held. But the liability of the Council to Mr Daisley in tort was not clearly established as a matter of law prior to the trial. As Hinton J noted in an interlocutory judgment dated
27 August 2018 dismissing an application for summary judgment against the Council on the issue of liability, there was a question about whether any action for breach of a statutory duty under the RMA existed.18 Hinton J referred to two decisions of the High Court in which it had been held that there was no action for damages for breach of statutory duty under the RMA and that an affected party was limited to its remedies under the statute.19 Hinton J held that the allegation of a duty of care in the resource management context was novel and that question could only be answered by considering all of the circumstances to see whether there was a proximate relationship and to consider the applicable policy and other considerations. The Judge also touched on whether liability would be confined to circumstances where the prosecution by the Council amounted to a misfeasance or was malicious.20
[39] Although Mr Daisley succeeded in his argument that he was entitled to rely on a common law duty of care founded on the statutory provisions, it could not be said prior to the issuing of the substantive judgment that the Council acted unreasonably in arguing as a matter of law that no cause of action existed.
[40] The question of the whether the Council or, more accurately, the Council’s officers knew of the existence of the consent or should, with reasonable diligence, have been aware that a valid consent existed, was a significant issue at trial. The allegations of malice were relevant both to the cause of action alleging misfeasance in public office and to Mr Daisley’s response to the limitation defence. The Council was entitled to resist Mr Daisley’s allegations of malice. It was held in the substantive judgment that the Council’s officers did not act maliciously but that they were reckless in assuming that Mr Daisley had the burden of proving the existence of the consent and failed to undertake reasonably diligent enquiries into its existence.
[41] The limitation issue was addressed by Associate Judge Christiansen in the strike-out judgment.21
18 Daisley v Whangārei District Council [2018] NZHC 2211 [the summary judgment decision] at [32]–[35].
19 Mawhinney v Waitakere City Council [2007] NZRMA 173 (HC) and Mawhinney v Auckland Council [2013] NZHC 159.
20 The summary judgment decision, above n 18, at [35].
21 The strike-out judgment, above n 8.
[42] The argument for Mr Daisley in opposition to the Council’s reliance on s 4 of the Limitation Act was to invite the Court to conclude, by analogy with judgments of the Court of Appeal in latent building defect cases, that Mr Daisley’s negligence cause of action against the Council did not accrue until the Council’s negligence regarding the 1988 LUC was reasonably discoverable. It was not unreasonable of the Council to resist that proposition. As I explained in the substantive judgment, the Supreme Court’s judgment in Murray v Morel & Co Ltd closed off the possibility that, even in building cases, there was a doctrine of reasonable discoverability that could be applied as a general principle in Limitation Act cases in New Zealand.22 Even though I held at [374]–[380] that, on the application of ordinary principles, the proceeding was issued within the six-year limitation period, that was on a basis not argued by Mr Daisley. I held, that:
[378] … the Council was continuously in breach of its duties regarding information about the consent from the time it issued the erroneous LIM in November 2004 until the discovery of the 1988 LUC in September 2009 … [and] that Mr Daisley suffered continuing damage or loss from September 2006 when the Council required him to notify his 2006 resource consent application until the Council withdrew the enforcement proceedings in the Environment Court in July 2011. … [The cause of action] accrued on a continuing basis from the time the Council opposed the 2006 resource consent application until the discovery of the 1988 LUC in September 2009.
[43] I have given careful consideration to whether it was unreasonable of the Council not to acknowledge that s 28(b) of the Limitation Act provided an obvious basis for a finding that the limitation period did not begin to run until Mr Daisley’s right of action, previously concealed by the Council itself, was discovered. I accepted that there was no evidence that any Council officer knew the 1988 LUC existed and deliberately withheld that information. I do not need to repeat here my discussion of this point at [385]-[398] of the substantive judgment. It is sufficient to repeat what I said at [399]:23
[399] What is particularly relevant is that it was the Council’s negligence [in archiving the records of the consent] and its recklessness in assuming that that Mr Daisley had to prove the existence of the consent, and not making diligent inquiries, that caused the evidence supporting Mr Daisley’s claim to be withheld. It would be wrong to allow the Council to benefit from the expiry of the limitation period when it had been responsible for the state of affairs
22 Murray v Morel & Co Ltd [2007] NZSC 27, [2007] 3 NZLR 721. See the discussion in the substantive judgment, above n 1, at [360]–[373].
23 The substantive judgment, above n 1 (emphasis added).
that led to Mr Daisley’s ignorance of the true position. I find, therefore, that the Council was reckless as to the existence of the 1988 LUC when it undertook little more than a cursory investigation of its records.
[44] But although the Council might be criticised for taking the view that its own negligence afforded it a defence, it was entitled to rely on observations by Associate Judge Christiansen about the uncertainty of both the accrual of the negligence cause of action and the application of a limitation defence. At the conclusion of his discussion of the issues, the Associate Judge said:
[65] Reasonable assumptions have been made on behalf of the Council in advancing a strike out claim at this stage. But, until pleading and discovery obligations have been completed the Court is not in a sufficient position to preclude the availability of a claim. Until then there is no certainty about that time when the cause of action accrued and when considerations of the Limitation Act principles should apply.
[45] It is necessary to address the submission made by Mr Robertson as recorded at [27](j) above about punishing the Council with a costs award for the enforcement proceedings in the Environment Court. I have made it clear that I do not consider the Council’s administrative response to the finding of the 1988 LUC in September 2009 is relevant to costs issues. In any event, ordering the payment of increased costs or indemnity costs is not punitive. The costs regime is entirely compensatory. Where increased costs or indemnity costs are awarded, the principle that no party may recover costs in excess of those actually incurred remains in place. Awarding costs above scale simply reflects the fact that the way the party paying costs has acted in the litigation justifies providing the successful party with a costs contribution that exceeds the statutory estimate of two-thirds of the costs reasonably payable for any step in the proceeding.
Conclusions on claim for increased costs
[46] I am not persuaded, therefore, that the Council was unjustified in resisting Mr Daisley’s arguments about the existence and nature of a cause of action in negligence and in raising a limitation defence, even though the Council’s arguments on both issues failed.
[47] I am persuaded, however, that the Council contributed unnecessarily to the time and expense of the proceeding by pursuing other arguments that lacked merit and failing without reasonable justification to admit facts and accept legal arguments.24 Although I have held that there was no evidence that any Council officer knew of the existence of the 1988 LUC and deliberately misled Mr Daisley and others about its existence, I regard the Council’s litigation approach to the archiving of the records of the 1988 LUC, and the failure of relevant Council officers to locate it at a time when the existence of the consent was in issue, to have been unrealistic. Archiving a valid consent so as to remove it from prompt accessibility was clearly in breach of the Council’s obligation under s 35(3) of the RMA to keep such a record reasonably available. The ease with which Mr Shortland located the consent in 2009 was compelling evidence about the absence of diligent enquiry by other Council officers at relevant times. Moreover, proof that the 1988 LUC was locatable was provided by the Council’s own evidence.25
[48] Three Council officers were identified as having particular engagement with Mr Daisley over his quarrying plans. Mr Barnsley was a central figure but I accept that his whereabouts were unknown to the Council so that he was not reasonably available to give evidence. Moreover, he ceased employment with the Council before the statement of claim was issued so the Council could not have been expected to have sought his views on Mr Daisley’s allegations. I accept also that another Council officer who dealt directly with Mr Daisley, Mr Andrew Lucas, was no longer employed by the Council and was working overseas. Nevertheless, it is reasonable to assume that evidence that he had undertaken diligent enquiries into the existence of the 1988 LUC could have been available to the Council if it existed. More significantly, the Council identified that another Council employee, Ms Katie Hislop, was available and had been approached by the Council in connection with the proceeding. I infer from the absence of any evidence from Ms Hislop to the contrary that she was unable to give evidence of any searches undertaken by Council employees.
24 High Court Rules, r 14.6(3)(ii)–(iii).
25 See the substantive judgment, above n 1, at [187]–[205].
[49] I consider it unreasonable of the Council, therefore, to have failed to acknowledge before trial its negligence in regard to the storage and retrieval of records related to the 1988 LUC, at least from the time when the briefs of evidence had been exchanged. The Council’s continued assertion that Mr Daisley was at fault for not proving the existence of the 1988 LUC was, in my view, simply unfathomable.
[50] Before reaching a final view on the extent to which, if any, the Council’s approach on that issue and on the other arguments summarised above at [34] should result in an award of increased costs, I consider the claim for indemnity costs.
The claim for indemnity costs – settlement offers
[51] Mr Daisley’s claim for indemnity costs is founded on an argument that the Council failed unreasonably to accept the pre-trial settlement offers made on behalf of Mr Daisley.
[52] The proceeding was initially set down for trial in March 2021. On 3 November 2020, the Council’s solicitors wrote to Mr Daisley’s solicitor on a without prejudice save as to costs basis. After traversing the Council’s position on its various defences, including limitation and contributory negligence, the letter recorded:
23. We accept that the council made a mistake when it instigated a prosecution (because it held records that, if referred to, could have meant the prosecution should not have been commenced).
24. The council should have had a proper record of the land use consent on its file and arguably, should have checked its archived quarry files before “setting the law in motion” or in its immediate aftermath. We see there is risk of the court finding a duty of care in this particular situation.
25. The council also accepts that it mistakenly charged Mr Daisley rates for the quarry in Drake Road.
[53] The Council’s solicitors, therefore, offered to settle Mr Daisley’s claim on the payment of $350,000 in full and final settlement, the offer remaining open for acceptance until 30 November 2020 at 5 pm.
[54] The offer was rejected but in a counter-proposal contained in a letter dated 27 November 2020, also on a without prejudice save as to costs basis, Mr Daisley’s
solicitor made a Calderbank offer for full and final settlement in the sum of
$15,000,000, the offer being open for acceptance until 8 January 2021. I have not been provided with the Council’s response to that proposal, if there was one, but on 2 March 2021 a further Calderbank offer was made on behalf of Mr Daisley to settle for the sum of $8,000,000. That offer was open for acceptance until 5 March 2021 at 4 pm. It was not accepted by the Council.
[55] On 9 July 2021, the Council’s solicitors told Mr Daisley’s solicitor that they had no instructions to increase a without prejudice offer made on 3 November 2020 to settle with a payment of $350,000 in total. The Council’s solicitors said:
The recent agreements of experts makes [sic] it impossible for the claimed lost profits to be recovered. The quarry was never going to be profitable.
My mid-hearing observations on the merits of the claim
[56] Counsel for Mr Daisley argue that it is relevant to the claim for indemnity costs that the Council did not move to settle Mr Daisley’s claim after I expressed tentative views, during the hearing on 13 August 2021, on the merits of Mr Daisley’s assertions about the Council’s liability. By that stage, the taking of the evidence of witnesses of fact, both for Mr Daisley and the Council, had been completed and I had heard the evidence of the plaintiff’s expert witnesses on geological and geotechnical issues and quantum (including Mr Robertson’s cross-examination). Before the Court adjourned for the day, I made some informal observations to counsel about the state of the plaintiff’s case and the Council’s anticipated defences. I referred to a number of aspects of the Council’s case on liability that I considered to be of doubtful merit. The Council’s failure to modify its position in light of the observations is relied upon by counsel for Mr Daisley as evidence of what I described in the judgment as the Council’s “obstructive and uncompromising resistance to Mr Daisley’s proper claims after the consent was found in September 2009”.26
[57] I do not consider it would be appropriate to hold that the Council acted unreasonably in resisting the attempts by Mr Daisley’s counsel to engage in without prejudice settlement negotiations over the weekend after I made those informal
26 The substantive judgment, above n 1, at [340].
observations. By that stage, the hearing was well-advanced. The Council was entitled to take the view that I did not clearly identify in my remarks the basis on which the Council might be held liable in tort, and that I did not articulate expressly the reasons I gave in the substantive judgment for rejecting the limitation defence. Moreover, the evidence of the Council’s witnesses as to quantum had not been fully explored by that stage of the hearing and, as I held subsequently, Mr Daisley’s estimate of his compensable losses exceeded the amount ultimately awarded.
[58] It is not clear to me in any event that it would be appropriate for the Court to hold a party at fault for not accepting a proposal to settle merely because the judge hearing the case had expressed tentatively adverse views without hearing the whole case, including counsel’s closing arguments.
[59] I return, therefore, to the argument concerning the Council’s rejection of the offer to settle made by Mr Daisley on 2 March 2021. It is submitted on behalf of Mr Daisley that the failure of the Council to accept that offer should be the trigger for awarding indemnity costs on the basis that the fully inclusive offer of $8,000,000 provided a settlement “which is sufficiently proximate to the award of damages, exemplary damages, interest (in particular) and costs”.
[60] I have held at [14] that the total sum of fees and disbursements that are properly recoverable according to scale amount to $454,863.53. Added to the judgment sum including interest as set out above at [2], the total amount recoverable by Mr Daisley including scale costs and disbursements is $6,182,986.03.
[61] That sum is approximately 75 per cent of the $8,000,000 settlement offer. I do not consider that it is sufficiently close to the amount Mr Daisley said he would accept in settlement to say that the Council was not reasonably justified in rejecting it. Moreover, I am not satisfied that there is any other basis on which indemnity costs should be awarded for that part of the proceeding in respect of which they are claimed. I reject the claim for indemnity costs accordingly.
Conclusions on costs
[62] I return then to the question of whether or not increased costs should be paid. I am satisfied that, although the Council was entitled to defend the arguments about liability and quantum for the reasons already discussed, Mr Daisley’s costs in defending the proceeding and the length of the hearing were increased by the untenable legal and factual issues that I have criticised. The Council thereby contributed unnecessarily to the time and expense of the proceeding by pursuing arguments lacking merit. It is appropriate to address that consequence by uplifting the total scale costs of $222,496.25 by 25 per cent.
[63] Accordingly, I direct the Council to pay to Mr Daisley increased costs in the sum of $278,120.31 and disbursements of $232,367.28, a total sum of $510,487.59.
The settlement with Mr Daisley’s former lawyer
[64] At [567] of the substantive judgment, I noted that Mr Daisley’s claim against his former lawyer, formerly joined as second defendant in the proceeding, was settled by agreement prior to trial and a notice of the discontinuance of that claim was filed. I observed without reference to authority that, to the extent that any sums recovered from the former lawyer included compensation for losses covered by the award of damages against the Council, Mr Daisley is not entitled to recover twice. At that time, I had no information about the terms of the settlement between Mr Daisley and the lawyer. I am no better informed now.
[65] The Council and the former lawyer were concurrent tortfeasors; that is, they were allegedly responsible for different torts or breaches of duty producing, in general, the same losses. As I read the pleaded cases against the defendants respectively, the lawyer was sued because of alleged negligence in the advice given to Mr Daisley about his ability to sue the Council and the consequential delay in issuing the proceeding and because of alleged breaches of fiduciary duty. The damages sought against the lawyer were, in general but not exclusively, the damages Mr Daisley sought to recover from the Council.27
27 Allison v KPMG Peat Marwick [2000] 1 NZLR 560 at [160] per Thomas J, [175] per Keith J, and
[180] per Tipping J.
[66] The general principle in New Zealand law is that the release of one concurrent tortfeasor (the former lawyer) does not release another (the Council). But a plaintiff who brings proceedings against concurrent tortfeasors may not recover any more than the full amount of the loss identified as flowing from the proved torts.28
[67] It is necessary, however, in applying these principles to identify that the losses claimed against concurrent tortfeasors where one has settled and been released are identical and not different losses flowing from different torts. That means that, where a claim against a concurrent tortfeasor has been compromised, the question whether the plaintiff’s claim against another concurrent tortfeasor has been satisfied requires an examination of the statement of claim, the true construction of the settlement agreement with the concurrent tortfeasor who has been released and consideration of the surrounding circumstances.29
[68] Counsel for Mr Daisley say that the causes of action against the former lawyer were separate and distinct from those against the Council, relating to negligence, breach of fiduciary duty and breach of retainer. They say that the separate and distinct claims were capable of an award of damages in a separate assessment of loss arising from the lawyer’s alleged breaches. In particular, they refer to the significant amount of legal costs and associated claims arising as a result of Mr Daisley’s loss of the quarry and business and the lawyer’s failure to handle the matter appropriately. They note that it was not a part of Mr Daisley’s claim before the Court, either in evidence or in closing on quantum, because those matters had been resolved with the former lawyer.
[69] Moreover, counsel say that the former lawyer has not agreed to release details of the without prejudice settlement reached, which is said to be privileged and not capable of disclosure without the necessary consent of all relevant parties. Although an approach has apparently been made to the lawyer’s solicitors in an endeavour to provide the Court with the details, no information is before me at present.
28 Jameson v Central Electricity Generating Board [1999] 2 WLR 141 at 150 per Lord Hope.
29 DB Breweries Ltd v Mainzeal Property and Construction Ltd HC Auckland CP418/96, 26 June 2000 at [88](g).
[70] In those circumstances, I am unable to give any direction about the extent to which the payment of the sums I have held to be payable to Mr Daisley should be reduced on account of the settlement with the former lawyer or their insurers.
Toogood J
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