Dold v Murphy
[2019] NZHC 2102
•26 August 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2016-404-003226 [2019] NZHC 2102
BETWEEN ROGER MURRAY LORIMER DOLD
First Plaintiff
ROGER MURRAY LORIMER DOLD, PENELOPE ANNE DOLD and
KEVIN DAVID PITFIELD as Trustees of THE DOLD TRUST
Second Plaintiffs
AND PETER JAMES MURPHY
First Defendant
LUBERON NOMINEES LIMITED
Second Defendant
SIENA CONSULTANTS LIMITED
Third Defendant
Hearing: [On the Papers]
Counsel:D J Heaney QC and K B Dillon for the Plaintiffs S O McAnally and N W Coyle for the Defendants
Judgment: 26 August 2019
JUDGMENT OF EDWARDS J
[re Costs]
This judgment was delivered by me on 26 August 2019 at 12.30 pm pursuant to r 11.5 of the High Court Rules.
Deputy Registrar
Counsel: D J Heaney QC, Auckland
K B Dillon, Auckland
Solicitors: Cameron Fleming and Associates Ltd, Auckland Keegan Alexander, Auckland
DOLD v MURPHY [2019] NZHC 2102 [26 August 2019]
[1] In my judgment dated 31 May 2019, I dismissed the plaintiffs’ claim and confirmed that the defendants were entitled to costs.1 The parties have been unable to agree on the quantum of those costs. There are four issues to be determined:
(a)Should band C be allowed for the commencement of a defence and discovery?
(b)Should an uplift be applied for the plaintiffs’ refusal to accept the defendants’ settlement offer dated 6 July 2017?
(c)Should costs be awarded in relation to the application for leave to serve summonses on the witnesses in Australia?
(d)How should the costs of the defendants’ discontinued counterclaim be taken into account?
Should band C be allowed for the commencement of a defence and discovery?
[2] The defendants claim band C for the commencement of their defence, lists of documents and inspections of those documents.
[3] The defendants submit that the statement of claim was lengthy, and it required the defendants to plead to matters harking back to at least 2001. The wide-ranging issues raised in that claim also required the defendants to: compile an initial affidavit of documents comprising 453 open documents, conduct a search of 14,000 files, and list a further 987 open documents, including those held by third parties.
[4] There is some force in the defendants’ submission that the statement of claim contained references to factual matters, many of which were irrelevant to the core issues in dispute. Nevertheless, I do not consider that the time required to plead a defence to those matters, or to provide discovery, required a “comparatively large amount of time” in the circumstances. A “normal amount of time” as provided for in band B is reasonable for these steps.
1 Dold v Murphy [2019] NZHC 1232.
Should an uplift be applied for the plaintiffs’ refusal to accept the defendants’ settlement offer dated 6 July 2017?
[5] On 6 July 2017, the defendants, through counsel, wrote to the plaintiffs’ counsel offering to settle the proceeding with a payment of $1,000 in full and final settlement of all claims.
[6] I do not consider the failure to accept this settlement offer was made “without reasonable justification”.2 The claim had been on-foot for some six months by the time this offer was made. The costs associated with the proceeding up until this point would have exceeded the $1,000 offered by some margin. In the context of a claim for AUD$2m, and a counterclaim for sums in excess of that sum, the offer of $1,000 was not a genuine nor reasonable offer.
[7] The defendants are not entitled to an uplift for the refusal to accept the settlement offer.
Should costs be awarded in relation to the application for leave to serve summonses on the witnesses in Australia?
[8] The plaintiffs accept that costs for the originating application for leave to issue summonses to witnesses in Australia should be awarded to the defendants, but submit that the time allocation should be assessed in accordance with band A. That is because the application was in relation to two witnesses, but only one witness gave evidence. That evidence was, in the plaintiffs’ submission, “de minimis” and was not referred to in the judgment at all.
[9] I consider the time and cost allowed in schedule 2B for this step is reasonable in the circumstances. The defendants only claim for one originating application despite that application relating to two witnesses. The application was reasonably made given that the events in dispute occurred in Australia, and involved allegations necessitating evidence from the solicitor involved with the transaction. The fact that the evidence was not ultimately relied on, nor referred to in the judgment, does not justify a reduction in the costs allowed for this step.
2 High Court Rules 2016, r 14.6(3)(b)(v).
[10] The costs of issuing the originating summons and providing a supporting memorandum are allowed for on a schedule 2B basis.
How should the costs of the defendants’ discontinued counterclaim be taken into account?
[11] The defendants discontinued their counterclaim against the plaintiffs after the evidence had been completed and at the outset of closing submissions.3 The (rebuttable) presumption is that a party who discontinues a proceeding must pay costs to the other party up to and including the discontinuance.4 The defendants accept that this principle applies in this case. The issue is how the counterclaim costs should be assessed and reflected in the final costs award.
[12] Rule 14.16 governs the award of costs where both a claim and counterclaim are established. That rule provides:
14.16Claim and counterclaim both established
The court must award costs as if each party had succeeded in an independent proceeding, unless, in the court's opinion, the justice of the case otherwise requires, if—
(a)the plaintiff succeeds in his or her proceeding; and
(b)the defendant succeeds in a counterclaim.
[13] On a strict interpretation of r 14.16, this rule would not apply as the plaintiffs did not succeed in its proceeding and the defendants did not succeed in its counterclaim. However, I respectfully agree with Clifford J’s assessment of that approach as being “too technical”.5 The rule has general application where both a claim and counterclaim have failed, as is the case here. The fact that the counterclaim was discontinued, as opposed to being dismissed, is also immaterial – at least to the overall approach to be adopted in relation to costs. The end result is the same as if the counterclaim had failed.
3 A third counterclaim against the original third plaintiff, Mr Jacobs, was resolved by agreement and discontinued on 5 June 2018.
4 High Court Rules 2016, r 15.23.
5 Sandford Ltd v The Chief Executive of the Ministry of Fisheries HC Wellington CIV-2009-485- 379, 18 February 2010 at [14].
[14] The plaintiffs submit that the claim and counterclaim should be assessed independently, with one off-setting the other. They have produced a table of costs calculated on a mostly schedule 2B basis with schedule 2C claimed for some steps. Where one set of costs has been incurred (e.g. for the trial), the plaintiffs have claimed the full sum as being entirely attributable to the counterclaim. If the plaintiffs’ submissions on both the claim and counterclaim are accepted, the net result would be an award of costs in favour of the plaintiffs.
[15] That result sits uneasily with the defendants’ successful defence of the plaintiffs’ claim and the primary principle that costs should follow the event.6 Neither does it account for the overlap between the claim and counterclaim and the reality that, in many respects the costs incurred in defending the counterclaim were the same as those in bringing the claim.
[16] In Medway Oil and Storage Ltd v Continental Contractors Ltd, the House of Lords considered the approach to be taken to costs where both a claim and counterclaim failed.7 The House of Lords held that the defendant’s costs of the action should be allowed as if there had been no counterclaim, and only the extra costs occasioned by the counterclaim would be allowed to the plaintiffs, that is, the amount by which the costs had been increased by the counterclaim.8
[17] In that case, the Court of Appeal had taken an apportioning approach where there were issues common to both the claim and counterclaim. In overruling the Court of Appeal, the House of Lords considered that the principle they had outlined was both intelligible and capable of being easily applied.9
[18]The Medway decision has been followed in numerous New Zealand cases. In
N-Tech Ltd v Abooth Ltd,10 Kós J (as he then was) applied the Medway rule to a case
6 High Court Rules 2016, r 14.2(1)(a).
7 Medway Oil and Storage Ltd v Continental Contractors Ltd [1929] AC 88 (HL).
8 At 105.
9 At 98. To the extent that the commentary in McGechan on Procedure (HR 14.16.02(e)) suggests that the House of Lords’ decision stands for the principle that where there is common evidence, an apportionment of costs is generally required, then I respectfully disagree. That approach, adopted by the Court of Appeal, was expressly overruled by the House of Lords.
10 N-Tech Ltd v Abooth Ltd [2012] NZHC 1167.
where both the claim and counterclaim had been discontinued. His Honour considered it appropriate to follow that approach for the following reasons:
[151] In principle it is proper to follow the decision of the House of Lords in Medway Oil here. First, it is a rule of substantial antiquity, restoring undiminished as it did the even older rule in Saner v Bilton. It was therefore the predictable approach on which the parties might have based their decisions to initiate, enlarge and then compromise this litigation. Secondly, the decision reflects expressly a preference for substance over form. Such an approach is consonant with a proper approach to costs in this day and age. Thirdly, I do not accept that Medway Oil can be distinguished on the basis Mr Walker suggested. It is immaterial that what had happened there was that claims and counterclaims failed by judgment rather than abandonment. The operative effect is the same. Further, the very point made by the House in taking a marginal costs approach to the counterclaim was that in that case (as in this) the issues were substantially common as between claim (including defences) and counterclaim.
(footnote omitted)
[19] The application of the Medway rule is consistent with the objectives of the costs regime, which are to achieve predictability, consistency and expediency in the determination of costs.11 Those objectives were also reflected in Newbrook v Marshall, where Chambers J observed that there must be an element of practicality about the assessment of costs where both a claim and counterclaim has failed. His Honour said “it would become thoroughly uneconomic if each mixed step had to be analysed as to whether it was principally concerned with the claim or principally concerned with the counterclaim.12
[20] Applying these principles to this case, the starting point is a proper analysis of both the claim and counterclaim and the issues in dispute. The issues in dispute concerned Mr Murphy’s demand for AUD$4m before selling his shares. Claims in relation to the shares that Mr Murphy received as consideration for the sale were another, if not somewhat subsidiary, issue.
[21] There were two counterclaims pursued at trial. One of those counterclaims was in deceit. The defendants claimed that the plaintiffs did not have any intention of paying the additional AUD$4m they had agreed to pay to Mr Murphy. Damages in the sum of AUD$3,312,606 and an indemnity of up to AUD$9,248,072 were sought
11 High Court Rules 2016, r 14.2(1)(g).
12 Newbrook v Marshall HC Rotorua CP 26/94, 11 September 2001 at [17]–[19].
by way of relief. The other counterclaim was brought under s 174 of the Companies Act 1993 in relation to the way the plaintiffs had used company funds to meet the costs of income protection insurance and private vehicle expenses.
[22] It is true that the damages sought in respect of the counterclaim were well in excess of those sought in the claim. But the quantum of damages was not an issue that received any attention at trial and the value of the claims and counterclaims holds little weight in identifying the issues in dispute. Nor do I accept the plaintiffs’ submission that this was a case where either party could have started first and that it was a simple matter of timing that the plaintiffs commenced first.
[23] Properly analysed, I consider the key issues in dispute arose out of the claim, in particular the claim relating to Mr Murphy’s demand. The plaintiffs commenced their claim first. It was evident that Mr Dold’s indignation at the way this demand had been made, even more than the quantum in dispute, was the catalyst for the claim. I have no doubt that if the plaintiffs had not commenced their proceeding, the defendants’ counterclaims would never have eventuated.
[24] In terms of pleading, the defendants’ defence to the plaintiffs’ claim included an affirmative defence of estoppel. In that sense, the deceit counterclaim was, to borrow a phrase from Kós J, “parasitic on the affirmative defence to the claim”.13 If the claim failed, then the counterclaim fell away.
[25] The second counterclaim, under s 174 of the Companies Act 1993, was, however, legally and factually distinct. It may only have been pleaded as a tactical response to the claim, but it is the legal character of that counterclaim that is important in assessing costs.
[26] The application of the Medway rule to this case means that the plaintiffs are only entitled to the extra costs occasioned by the s 174 counterclaim. In practical terms, that is represented by a discount of the costs otherwise awarded to the defendants for successfully resisting the plaintiffs’ claim. The issue is the quantum of that discount.
13 N-Tech Ltd v Abooth Ltd [2012] NZHC 1167 at [148].
[27] The s 174 counterclaim took up very little time at trial. It did not require additional witnesses to be called, and there was limited cross-examination directed towards the issues raised by this counterclaim. I was not referred to numerous documents in the common bundle relating to this counterclaim.
[28] Nevertheless, the plaintiffs submit that defending the counterclaims has caused them to incur significant cost. In particular, they say:
(a)the defence to the counterclaim should be calculated on a schedule 2C rather than 2B basis;
(b)the defendants adopted a “scorched earth” policy in relation to discovery on the counterclaims;
(c)the counterclaims lacked merit, and the counterclaim under s 174 of the Companies Act 1993 was for a minimal amount; and
(d)the discontinuance occurred at the end of trial and only when the plaintiffs had prepared closing submissions addressing those counterclaims.
[29] The impact (if any) of each of these complaints on the quantum of the discount to be applied to the defendants’ costs award is considered in turn.
[30] I consider that the plaintiffs should be allowed the costs of filing a statement of defence to the counterclaims. However, for much the same reasons as I rejected the defendants’ claim for an uplift in the filing of a statement of defence, I am not persuaded that the costs for that step should be calculated on a schedule 2C, rather than 2B basis. The time allocations in schedule 2B provide a reasonable time estimate of the time required to plead to the counterclaim.
[31] The plaintiffs’ submissions in relation to discovery drew heavily on a judgment of Bell AJ in relation to an application by the defendants for further and better
discovery.14 The plaintiffs claim that they had to file six affidavits in relation to discovery, and they seek an allowance for all six affidavits.
[32] Many of the issues raised by the plaintiffs in this context were finally determined by Bell AJ in his judgment. And, insofar as those issues impact on costs, then they were resolved by agreement.15 The plaintiffs now appear to disavow any such agreement. But that cannot assist them. That is because the Judge indicated that the defendants were entitled to the costs of that hearing, but on a reduced basis.16
[33] Further, the plaintiffs have not provided me with information about the broader context in which the six affidavits of documents were filed. I am not, therefore, in a position to assess whether this is a factor which should lead to a greater allowance for the counterclaim costs, and therefore a greater discount from the overall costs award.
[34] As to the merits of the counterclaim, the general rule is that a court will not consider the merits unless they are so obvious that they should influence the costs outcome.17 Although I heard evidence relevant to both counterclaims, I did not have the advantage of receiving legal submissions on those claims. I do observe, however, that the sums involved in the s 174 counterclaim appeared minor in the overall scheme of the litigation. My general impression at trial was that the counterclaim had a tactical objective, rather than being a genuine matter in dispute.
[35] As to the fourth and final submission, a discount from the final award of costs will compensate the plaintiffs for their wasted costs in preparing closing submissions addressing the counterclaims.
[36] That just leaves the quantum of the reduction to be applied. The defendants say that a discount of 10 per cent would be “unduly generous”. I do not agree. I consider such a discount to be a fair and reasonable approximation of the extra costs (including disbursements) incurred by the plaintiffs attributable to the counterclaims.
14 Dold v Murphy [2018] NZHC 994.
15 A joint memorandum of counsel filed on 13 August 2018 records agreement between the parties resolving an intended review of that judgment with “no issues as to costs on the judgment”.
16 Dold v Murphy [2018] NZHC 994 at [93].
17 McGechan on Procedure (online loose-leaf ed, Thomson Reuters) at [15.23.01(c)(i)].
[37] The plaintiffs are allowed the costs of filing a statement of defence to the counterclaim. The remainder of the costs occasioned by the counterclaim are accounted for by applying a 10 per cent discount to the costs and disbursements award in favour of the defendants.
Result
[38] The defendants are entitled to an award of schedule 2B costs and disbursements calculated in accordance with this judgment (defendants’ cost award).
[39] The plaintiffs are allowed the full costs of filing a statement of defence to the counterclaim. That cost shall be deducted from the defendants’ cost award, with a further 10 per cent deducted to reflect the costs and disbursements incurred by the plaintiffs arising out of the discontinued counterclaims.
[40] Both parties have had a measure of success in their respective cost claims. The costs related to the costs applications shall lie where they fall.
Edwards J
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