Easton v The New Zealand Guardian Trust Co Ltd

[2016] NZHC 3011

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2015-485-9 [2016] NZHC 3011

IN THE MATTER	of the Trustee Act 1956
BETWEEN	IAN CHARLES EASTON Plaintiff
AND	THE NEW ZEALAND GUARDIAN TRUST COMPANY LIMITED Defendant

Hearing:	On the papers
Counsel:	J O Upton QC for Plaintiff L J Taylor QC for Defendant
Judgment:	13 December 2016

JUDGMENT OF ELLIS J Costs

I direct that the delivery time of this judgment is

11 am on the 13th day of December 2016

EASTON v THE NEW ZEALAND GUARDIAN TRUST COMPANY LIMITED [2016] NZHC 3011 [13 December 2016]

[1]      On 27 April 2016 I declined leave to Mr Easton to amend his statement of claim after the close of pleadings date.1

[2]      On 2 June 2016 the Court of Appeal upheld that decision.2

[3]      On 14 June 2016 Mr Easton discontinued the proceedings.   His signalled intention was that he would file a fresh claim reflecting the amendments that he had sought to make earlier.3

[4]      There remains an issue about costs on the discontinuance.  Submissions have been filed.  Counsel are agreed that the issue may be determined on the papers.

[5]      The two principal questions that require determination are:

(a)       should costs be determined now, or await the outcome of the fresh proceedings; and

(b)      if they are to be determined now, what is the appropriate quantum?

Indemnity or increased costs are sought.

[6]      I do not propose to set out the background further.  If necessary this decision should be read in conjunction with my April judgment.

Should costs be determined now?

[7]      Rule 15.23 provides:

Unless the defendant otherwise agrees or the court otherwise orders, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance.

[8]      Mr Easton says that this presumption should be displaced because:

1      Easton v The New Zealand Guardian Trust Co Ltd [2016] NZHC 798.

2      Easton v The New Zealand Guardian Trust Co Ltd [2016] NZCA 243.

3      That claim has since been filed: CIV 2016-485-963.

(a)       the defendant (GT) is using rent paid by him to meet its legal costs;

and

(b)there can be no assessment of whether costs incurred in relation to the discontinued proceeding have been “wasted” costs until the outcome of the new proceeding is known.

[9]      As to the first issue, Mr Upton QC says that GT has taken its costs out of rental paid by the plaintiff to the Moutoa Trust (the MT) and so is not, itself, out of pocket.  He says that a pre-emptive Beddoe application should have been made and that, given it has not, GT should bear its own costs.4

[10]     In my view that submission is misconceived.

[11]     First, to the extent that Mr Easton is right when he says that GT has wrongly been reimbursing its litigation costs out of MT funds (which no doubt include the rent payments) then that is a matter which can be separately pursued by him.  Indeed I note that is precisely what he is doing in his new claim; the eighth cause of action relates to precisely that matter.  Any issue that exists on that front does not form a basis for the Court to defer making a costs order now.

[12]     Relatedly, even accepting that a Beddoe application should have been made, such an application does not ordinarily deal with costs between the parties in the main proceeding.  In hostile trust litigation (which, as Mr Upton rightly accepts, this is) costs should follow the event in the usual way.5    Moreover, it is clear from the case law that Beddoe orders will not be granted where the actions of the trustee are being  challenged  as  a  breach  of  trust,  as  was  the  case  in  the  discontinued proceedings.

[13]     Nor do I consider the possibility that the defendant’s costs have not been

wasted by virtue of the fresh proceeding is a reason for deferring a decision about costs on the discontinuance.   As Mr Taylor QC said, although the alleged facts

4      Re Beddoe [1893] 1 Ch 547 (CA).

5      Woodward v Smith [2014] NZHC 407; [2014] 3 NZLR 525 (summarising the principles from

Re Buckton [1907] 2 Ch 406 (Ch)) at [23].

underlying the old and the new proceeding are essentially the same, the breaches of trust alleged in the new proceeding are different from the allegations in the discontinued proceeding.6   And Mr Easton’s counsel has himself acknowledged that the discontinued proceeding failed to state the real dispute between the parties and was advanced on an incorrect basis.

[14]     Importantly, to the extent that there are, ultimately, some cost savings in relation to steps in the new proceedings as a result of steps already taken in the discontinued one (discovery perhaps being an obvious example) then that can be taken into account if and when costs in the new proceeding are assessed.

[15]     I therefore consider that there is no reason why costs on the discontinuance should not be determined now, and I do that below.

Quantum

[16]     In a minute dated 28 April 2015, Associate Judge Smith recorded that the parties agreed at the outset that this was a category 2 proceeding.   In my view band B is the appropriate starting point for all steps.   Based on the defendant’s calculations, 2B costs would total $21,185.  No issue has been taken with that.

[17]     But GT has sought costs:

(a)       on an increased basis for steps up to and including 12 February 2016;

and

(b)      on an indemnity (or alternatively increased) basis for all steps from

13 February onwards (with one specified 2B exception, which does not require to be addressed here).

[18]     I consider the submissions in relation to each of the two periods in turn.

Steps up to and including 12 February 2016

[19]     Essentially Mr Taylor submits that a 50 per cent uplift is appropriate because the claims were “always hopeless” and Mr Easton should have recognised that.   I have some sympathy with that position; there appears from the outset to have been a misunderstanding as to certain quite fundamental matters.  By way of example only, the claim failed to recognise that Mr Easton and the various corporate entities associated with him and his family were, in law, distinct.  Similarly, a pleading that the company and accounting structures adopted were “inappropriate” or “wrong” was always going to be problematic.

[20]     I also record that I am unable to accept Mr Upton’s submission that the claim was  not  “hopeless”  because Mr  Easton  has  always  had  a  legitimate  underlying (albeit not properly articulated) complaint.  Even if I were to accept that proposition (which is principally based on a very unusual clause in an expired lease agreement) I agree with Mr Taylor that a claim’s merit (or absence of merit) is to be assessed on the basis of the pleadings, not what might have been.

[21]     Be all that as it may, however, I am prepared to accept that the penny did not begin to drop for Mr Easton until after he had received the brief from his expert accountant, Mr McGlinn, just before Christmas in 2015.  I am also prepared to allow that it might have taken Mr Easton and his counsel a little time to get their heads around his evidence, and its implications for their claim.   Accordingly I do not propose to award any increase on 2B costs as calculated by the defendant (totalling

$21,185) up until 13 February.

Steps after 13 February 2016

[22]     From 13 February onwards, however, GT seeks indemnity costs in reliance on r 14.6(4)(a).7    In particular, GT says that from that date it was improper and/or unnecessary for Mr Easton to continue with the proceeding on the basis of the claim as it was then drafted and that the key (and now abandoned) breach of trust allegations in it should have been withdrawn.  Mr Easton should have sought leave

to file a new statement of claim that contained only the allegations now contained in the new statement of claim.  If he had done so (it is said) the defendant would have been saved the significant cost of responding to the existing allegations.

[23]     More specifically, GT says:

(a)      on  12  February  2016,  Mr  Easton  served  two  briefs  of  evidence, including that of Mr McGlinn, on the defendant.   In his covering email, Mr Easton’s counsel signalled the need to amend the statement of claim;

(b)it must at that point have been apparent to Mr Easton that he could not proceed with the existing claim and that he wished to advance his case on the basis of quite different allegations;8

(c)      when  Mr  Easton  filed  his  application  for  leave  to  amend  his pleadings, he did not signal that he intended to withdraw the existing claims.  Rather, it appeared that he wished to proceed to trial on both the new and the old allegations;

(d)      as a result, once the application for leave to amend was dismissed (on

27 April 2016), GT was put to the cost of responding to the old (unamended) claim.   It did so by preparing and then serving five briefs of evidence. Thus:

(i)       four briefs were served on 10 May 2016; and

(ii)      one brief was served on 16 May.

(e)       it was only after those briefs of evidence that Mr Easton:

8      Mr Easton’s counsel has since acknowledged that the existing allegations in the second amended statement of claim were "defective" in that they did not state the "real issue" between the parties. At one point he said that to require Mr Easton to proceed with these allegations "will cause him a real and irremediable injustice".

(i)filed a notice of appeal against the decision refusing leave to amend (on 20 May 2016); and

(ii)informed the Court of Appeal (and GT) during the hearing of the  appeal   that   if   the   appeal   was   dismissed   he  might discontinue the present claim and begin again making the new allegations (on 26 May 2016).

(f)      if Mr Easton had indicated to the defendant on 12 February 2016 that he was unlikely to proceed with the existing allegations in his second amended statement of claim, the costs incurred  between then and

16 May would not have been wasted.

[24]     Mr  Taylor  says  that  the  foregoing  is  compounded  by  the  fact  that,  on

1 February 2016, the defendant’s lawyer sent Mr Easton a Calderbank letter.  That letter (which I have seen):

(a)      summarised why the allegations in the second amended statement of claim  could  not  succeed.     That  summary  was  consistent  with Mr McGlinn’s   evidence,   which   was   subsequently   served   on

12 February 2016;

(b)offered to agree that costs could lie where they fell if Mr Easton discontinued his claim; and

(c)      put  Mr  Easton  on  notice  that  if  the  offer  (which  was  open  for acceptance until 12 February 2016) was not accepted, the defendant would seek increased or indemnity costs.

[25]     Mr Upton’s response was, again, that had the claim been properly pleaded, it would not have lacked merit.  I have recorded my rejection of that submission above. Mr Upton also said that Mr Easton’s fundamental (but, as at 13 February, unpleaded) position has remained unchanged and is supported by Mr McGlinn’s evidence.  I am unable to accept that, either.   Rather, the point is that the criticisms of the claim

contained in the Calderbank letter were supported by Mr McGlinn’s evidence (which Mr Easton had in his possession at the time he received the letter) but there was a failure to recognise that.  So while the indemnity costs threshold is high, I consider it is met here.  It was, quite simply, unreasonable to continue with the claim as pleaded from this point onwards.  The defendant is entitled to indemnity costs in the sum of

$38,103.14.

Result

[26]     For the reasons I have given, Mr Easton is to pay to GT:

(a)       costs for the period up until 12 February 2016, in the sum of $21,185; (b)     costs for the period 13 February onwards, in the sum of $38,103.14;

and

(c)       disbursements of $387.34.

[27]     Given that the facts giving rise to the proposed new claim are substantially the same as the facts giving rise to the discontinued claim r 15.24 would, ordinarily, preclude Mr Easton from commencing a new claim unless and until he has paid these costs.  Because there has been some delay in finalising this judgment, however, the new claim has already been filed.   However I agree with Mr Taylor that an application of the rule by analogy is appropriate here; Mr Easton should not be permitted to take any further steps in CIV 2016-485-963 until he has paid the costs awarded against him in the discontinued proceedings, including the costs awarded against him in the Court of Appeal.  A copy of this judgment should therefore be

placed on the CIV 2016-485-963 file.

Solicitors:           Lawler & Co, Auckland, for Plaintiff.

Counsel Instructed: J O Upton QC

Carlile Dowling Lawyers, Napier, for Defendant

Counsel Instructed: L J Taylor QC

“Rebecca Ellis J”