DHC Assets Limited
[2023] NZHC 771
•5 April 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2017-404-307
[2023] NZHC 771
UNDER The Companies Act 1993 BETWEEN
DHC ASSETS LIMITED
Plaintiff
AND
ANTONY IVO ARNERICH
Defendant
Hearing: On the papers Counsel:
F J Thorp and L J Turner for Plainitff
J D McBride and A J Steel for Defendant
Judgment:
5 April 2023
JUDGMENT OF PAUL DAVISON J
[Re: Costs]
This judgment was delivered by me on 5 April 2023 at 4pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Duthie Whyte, Auckland Doug Cowan, Auckland
DHC ASSETS LIMITED v ANTONY IVO ARNERICH [2023] NZHC 771 [5 April 2023]
[1] This judgment relates to the plaintiff DHC Assets Limited’s (DHC) application for increased costs following the judgment delivered on 13 June 2022 in which the plaintiff succeeded in its claim against the defendant for time-related costs and contractual interest thereon.1 At the conclusion of that judgment I noted that DHC as the successful party is entitled to an award of costs, and I directed the parties to file and serve costs memoranda, following which I would determine the award of costs to DHC on the papers.2
[2] In their costs memorandum counsel for DHC seek an award of costs and disbursements totalling $86,051.87. That sum being comprised of scale costs of
$31,428.50 uplifted by 50 per cent to $47,142.75, and disbursements totalling
$39,549.12.3
[3] The defendant, Mr Arnerich, accepts the plaintiff’s claim for disbursements. However, Mr Arnerich disputes a number of the costs steps claimed by the plaintiff. He submits that the appropriate scale 2B costs calculation is $17,208 and therefore the total costs, together with disbursements, is $56,757.12.
The plaintiff ’s submissions
[4] Counsel for the plaintiff notes that in the previous costs judgment delivered on 29 April 20204 the Court awarded DHC a 50 per cent uplift of scale costs in relation to all steps in the proceeding in recognition of the manner in which the defendant conducted the proceedings which resulted in the plaintiff and its legal representatives spending more time than would otherwise have been required on issues of pleading, discovery, trial preparation and the conduct of the trial itself.5 A further factor justifying increased costs was the defendant’s rejection of a settlement offer without reasonable justification.
[5] The plaintiff submits that the reasons identified by the Court in its decision awarding a 50 per cent uplift of scale costs, also apply in relation to the plaintiff’s
1 DHC Assets Ltd v Arnerich [2022] NZHC 1381 at [128] [13 June 2022 judgment].
2 At [129].
3 The plaintiffs schedule contains an incorrect total for the disbursements of $38,909.12.
4 DHC Assets Ltd v Arnerich [2020] NZHC 1133 [29 April 2020 costs judgment].
5 At [56]–[66].
costs in relation to the hearing on 13 and 14 December 2021 and matters covered in the judgment delivered on 13 June 2022.
[6] The plaintiff submits that although the matters remitted back to the High Court by the Court of Appeal were clearly defined,6 the defendant repeatedly challenged the scope of the issues remitted back to the High Court, contending that the Court should enquire into all quantum issues. The plaintiff notes that as part of his approach, the defendant continued to refuse to accept the binding nature of the Adjudicator’s Determination, notwithstanding that the defendant’s position on that issue was one of the reasons justifying the plaintiff being awarded increased scale costs. The plaintiff notes that notwithstanding the Court’s finding that the Adjudicator’s Determination was no longer challengeable, and that ruling being upheld by the Court of Appeal, the High Court was once again required to address that issue.7
[7] The plaintiff submits that further aspects of the defendant’s conduct of the litigation that added to the scope of the disputed issues and consequently the plaintiff’s costs were the position taken by the defendant regarding interest, and the defendant’s rejection of an offer of settlement without reasonable justification. As regards the settlement offer, the plaintiff notes that on 5 October 2017, DHC offered to settle all its claims for the sum of $450,000 (plus GST if any). The plaintiff says that as at October 2017 it was conservatively owed approximately $760,000, which serves to illustrate that rejection of the settlement offer by the defendant was without reasonable justification.
[8] The plaintiff submits that a series of further settlement offers made by DHC were also rejected by the defendant without reasonable justification. The plaintiff notes that on 25 August 2017 it offered to consent to an award that it was entitled to payment by Vaco Investments (Lincoln Road) Ltd of $175,000 (together with interest on the GST excusive amount at the contractual rate from 4 May 2013) in addition to the Adjudicator’s Determination. The plaintiff notes that the Court subsequently awarded DHC the sum of $191,386.98 in respect of that part of its claim. Subsequently on 29 November 2019 DHC offered to accept the sum of $1,108,226.16
6 Arnerich v DHC Assets Ltd [2021] NZCA 225, [2021] NZCCLR 25 at [191].
7 13 June 2022 judgment, above n 1, at [66] and [116].
in settlement of all claims it had made in the proceeding. Then on 4 September 2020, DHC offered to accept $900,000 (including GST of $33,687.33) in settlement of its claims. At that time the plaintiff says it was owed around $1,328,000. The plaintiff notes that each of those settlement offers were rejected by the defendant.
[9] Relying on Wilburn Furniture and Restoration Ltd (in liq) v Gledhill, and Mako Holdings Ltd (in liq) v Crimp,8 counsel for the plaintiff submits that where a director breaches duties owed to a company and a creditor of the company is then forced to issue proceedings against the director in order to vindicate its claim, indemnity or increased costs in respect of the whole of the creditor’s proceeding may be awarded. Counsel for the plaintiff note that the plaintiff’s actual costs incurred in relation to the proceedings determined by the judgment of 13 June 2022 exceed the amount of the costs sought including a 50 per cent uplift.
[10] In relation to disbursements, the plaintiff notes that in the previous cost judgment the Court disallowed the plaintiff’s claim for disbursements in respect of 50 per cent of the fees of its expert witnesses Daniel Johnson and Ray Bryant on the basis that while their evidence was relevant to the matters determined in the plaintiff’s favour, the plaintiff’s claim for time-related costs was not upheld.9 The plaintiff’s say that as its time-related costs claim has now been upheld, it reinstates its claim to the remaining 50 per cent of those expert witnesses’ costs.
Mr Arnerich’s position as to costs
[11] Counsel for the defendant notes that Mr Arnerich accepts that an award of costs to the plaintiff calculated in accordance with scale 2B is appropriate. He disputes some of the steps for which costs are claimed but accepts that an order for scale 2B costs of $17,208 rather than $31,428.50 is appropriate. Counsel for the defendant has filed a schedule listing the steps in the proceeding in respect of which the plaintiff claims costs, and identifying those which are disputed with a brief note of the basis of the dispute.
8 Wilburn Furniture and Restorations Ltd (in liq) v Gledhill [2016] NZHC 549; and Mako Holdings Ltd (in liq) v Crimp HC Invercargill CP 23/99, 28 November 2000.
9 29 April 2020 costs judgment, above n 4, at [74]–[78].
[12] Counsel for the defendant submits that the fact that the defendant rejected the plaintiff’s settlement offers which were subsequently exceeded at trial does not of itself demonstrate that rejection of the offers was without reasonable justification. Counsel submits that increased costs will generally not be appropriate where there are at least available starting points for the arguments being advanced by the rejecting party, or where its pursuit of the position being taken is not hopeless or unreasonable.
[13] Counsel for the defendant distinguishes the cases relied on by the plaintiff from the present as being cases involving gross breaches of directors’ duties and small amounts of money. Counsel notes a number of more recently decided cases where costs have been determined on a scale 2B basis.10
Discussion
[14] Rule 14.2(1) of the High Court Rules 2016 sets out the general principles applicable to the determination of costs, including that the party who fails with respect to a proceeding should pay costs to the party who succeeds.11 The plaintiff is clearly entitled to an award of costs having succeeded in its claim against the defendant.
[15] Although the plaintiff in its submissions has referred to Mako Holdings Ltd where indemnity costs were awarded against directors pursued by creditors under s 301 of the Companies Act 1993, indemnity costs are not being sought by DHC.
[16] Rule 14.6 confers the power on the Court to award increased costs where the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or to a step in it by any of the conduct described in r 14.6(3)(b). Here, the plaintiff’s argument for increased costs is based on the proposition that the defendant, by rejecting a succession of offers of settlement without reasonable justification, has contributed unnecessarily to the costs incurred by the plaintiff by its preparation for and conduct of the hearing held in December 2021.
10 Citing Independent Carpets Ltd (in liq) v Carpet Call 2000 NZ Ltd [2020] NZHC 2757; Dempsey Wood Civil Ltd v Gapes [2021] NZHC 2362; Debut Homes Ltd (in liq) v Cooper [2022] NZHC 1302; Probitas Systems Ltd (in liq) v Clark [2022] NZHC 1219; and New Zealand Labour Enterprises Ltd v Sembhi [2021] NZHC 986.
11 High Court Rules 2016, r 14.2(1)(a).
[17] Rule 14.6(3)(b)(v), provides that the court may order a party to pay increased costs where the party opposing costs has contributed unnecessarily to the time or expense of the proceeding by:
(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; …
[18] The dispute which was the subject of the hearing held on 13 and 14 December 2021 and determined by the judgment of 13 June 2022, was in effect a continuation of the dispute determined by the first substantive judgment delivered on 2 October 2019.12 However, while the hearing of the issues determined by the 2019 judgment occupied 11 court sitting days, the hearing of the dispute as to whether the plaintiff was also entitled to recover the amount of its time-related costs and related contractual interest from the defendant, occupied just two sitting days for the hearing of submissions. The manner in which the defendant conducted the hearing itself did not unnecessarily contribute to the costs incurred by the plaintiff.
[19] Therefore the issue here is whether an award of increased costs is justified by reason of the defendant’s failure to accept the plaintiff’s several settlement offers without reasonable justification.
[20] On 5 October 2017 DHC’s solicitors, Duthie Whyte wrote to the defendant’s solicitor, Mr Cowan, making an offer to settle the dispute on the basis of a payment by the defendant to DHC of $450,000 plus GST if any. The settlement offer was made on a “without prejudice save as to costs” basis. In my costs judgment of 29 April 2020, I found that the defendant’s rejection of that settlement offer was without reasonable justification.13 I said:
[62] I also find that the defendant’s rejection of the plaintiff’s settlement offer of 5 October 2017 was without reasonable justification. An assessment of whether the defendant’s failure to accept the settlement offer was without reasonable justification is appropriately focussed on the circumstances at the time the offer was made and the considerations applicable at that time which inform the issue of whether rejection of the offer was reasonably justified.
12 DHC Assets Ltd v Arnerich [2019] NZHC 1695.
13 29 April 2020 costs judgment, above n 4, at [62]–[65].
[63] The adjudicator’s determination was delivered on 12 October 2016 and had found that the plaintiff was entitled to payment from Vaco of
$300,763.12 together with interest at a daily rate. On 15 March 2017 the High Court made orders granting the plaintiff leave to commence arbitration proceedings against Vaco (In Liquidation), and to apply to the District Court for the adjudicator’s determination to be enforced by entry of judgment against the company. By the end of October 2017 the total sum payable to the plaintiff pursuant to the adjudicator’s determination, including accrued interest, was $424,000. The plaintiff’s costs to that date if calculated pursuant to Category 2 were approximately $35,000 together with disbursements.
[64]I consider that the settlement offer was reasonable and the amount of
$450,000 was calculated in accordance with a realistic assessment of the respective merits of the parties’ positions at the time and represented a compromise between the parties’ earlier respective settlement proposals. The amount of $450,000 was close to but less than the amount to which the plaintiff had been found entitled by the adjudication determination once legal costs and disbursements were added. In my view, a settlement for that sum would have represented a realistic and sensible compromise and resolution of the dispute, but which required the defendant to accept that he was personally liable for the amount. Had the offer been accepted in October 2017 the plaintiff would have avoided incurring the significant legal costs and the application of considerable time and resources required to pursue its claim at trial.
[65] I find that the defendant’s failure to accept the plaintiff’s October 2017 settlement offer is a further aspect of the defendant’s conduct of the proceeding that justifies awarding the plaintiff an uplift of costs.
(footnotes omitted)
[21] Had the matter been settled in October 2017, none of the costs incurred subsequently, including the plaintiff’s costs in proceeding at the hearing in December 2021 and determined by the judgment of 13 June 2022 would have been incurred. I therefore find that the defendant’s failure to accept that offer of settlement contributed unnecessarily to the plaintiff incurring subsequent legal costs, and justifies an award of increased costs.
[22] On 29 November 2019 the plaintiff made another offer to settle the dispute. On this occasion the plaintiff offered to accept the sum of $1,108,226.16 in full settlement of all its claims in order to resolve the entire dispute between the parties. The proposed settlement sum was made up of the amount awarded to the plaintiff by the judgment of 2 October 2019 together with compound interest thereon: ($543,021.56); $323,729.40 being the mid-point of the parties’ competing cost claims in the ‘307’ proceeding; $26,043 being the mid-point of the parties’ competing costs claims in the ‘1926’ proceeding; and $215,432.19 being 50 per cent of the plaintiff’s
time-related costs claims. The basis on which the settlement sum was calculated including an explanation of the concessions being made by the plaintiff was clearly explained in the letter conveying the settlement offer sent by DHC’s solicitors. Having regard to the concessions made by the adoption of mid-point amounts and the 50 per cent reduction of the time-related cost claims, the settlement proposal was objectively and patently reasonable. In my view the defendant’s rejection of that settlement proposal was a failure without reasonable justification to accept an offer of settlement that contributed unnecessarily to the plaintiff incurring subsequent legal costs, and further justifies an award of increased costs.
[23] And on 4 September 2020 the plaintiff made a further offer of settlement on the basis that it would accept “the reduced sum of $900,000 (including GST of
$33,687.33) … on the basis that DHC accepts that it will have to account to the IRD for the GST component of that sum.” Again the offer was made on a “without prejudice save as to costs basis”. In the letter setting out and explaining the basis of the offer, the plaintiff’s solicitors said:
Even if Mr Arnerich was to pay the amount currently outstanding under the Judgment ($511,465.82 (including GST of $33,687.33)) plus the reduced amount which would be owing under the Costs Judgment if costs had been calculated scale, rather than with a 50% uplift ($268, 059.06), plus 50% of the lower of the two alternate [time-related costs] Claims being advanced by DHC ($196,931.25), the total amount owing by Mr Arnerich as at 31 August 2020 would be $976,465.13.
[24] This offer once again involved the plaintiff making a significant concession as against what it considered was its legal entitlement. In my view the defendant’s rejection of the offer was another failure to accept a settlement without reasonable justification and by doing so he unnecessarily contributed to the time and legal costs incurred by the plaintiff thereafter.
[25] I am accordingly satisfied that the plaintiff has met the criteria in r 14.6(3)(b)(v) warranting an award of increased costs. As I have said, had the initial 5 October 2017 offer of settlement at $450,000 been accepted by the defendant, none of the subsequent legal costs would have been incurred. There were two further offers of settlement which were also rejected by the defendant without reasonable justification and which had the same consequences of contributing to unnecessary time
and expense being incurred by the plaintiff. Having regard to the defendant’s conduct and its effect on the plaintiff in terms of the time required to participate in the proceeding and the expense incurred, I find that an uplift of 50 per cent of scale 2B costs is appropriate.
[26] Having considered the costs steps disputed by the defendant, I find that it is appropriate to disallow:
(a)The $956.00 claimed for drafting a joint memorandum seeking consent orders, which was not filed.
(b)The $2,390 claimed for the preparation of a costs memorandum.
(c)The $1,195 claimed for the slip rule memorandum.
[27] The effect of those disallowed costs claims reduces the calculation of scale 2B costs to $26,887.50. The 50 per cent uplift is therefore $13,443.75, and the total
$40,331.25. I also allow the plaintiff’s disbursements totalling: $39,549.12.
Result
[28]I make an order that the defendant is to pay costs to the plaintiff in the sum of
$79,880.37.14
Paul Davison J
14 The sum being comprised of legal costs of $40,331.25 and disbursements of $39,549.12.
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