Erni v Brooky

[2021] NZHC 1075

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2019-419-105

[2021] NZHC 1075

BETWEEN

PETER MICHAEL ERNI AND BETTY MERLE ERNI
Plaintiffs

AND

KATRINA JEAN BROOKY

Defendant

Hearing:	On the papers
Appearances:	J K Gilby-Todd & M D Branch for Plaintiffs K J Patterson for Defendant
Judgment:	13 May 2021

JUDGMENT OF PAUL DAVISON J

[Re: Costs]

This judgment was delivered by me on 13 May 2021 at 4:30 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:

Harkness Henry, Hamilton Grantham Law, Hamilton

ERNI AND v BROOKY [2021] NZHC 1075 [13 May 2021]

Background

[1]                 The plaintiffs brought this proceeding against the defendant seeking to recover sums they had advanced to her as loans. The trial took place on 29 and 30 June 2020. By judgment dated 24 November 2020, I found for the plaintiffs and entered judgment in their favour in the sum of $574,009.37 together with interest and costs.1

[2]                 Counsel for the plaintiffs submits that as the successful party, at a minimum the plaintiffs are entitled to 2B costs together with reasonable disbursements. However counsel further submits that the plaintiffs’ costs should be uplifted on account of the defendant’s rejection of their two settlement offers. Counsel for the defendant accepts that the plaintiffs are entitled to 2B costs but submits that the Court should not uplift the costs above scale 2B costs.

Law

[3]                 Pursuant to r 14.6(3)(b)(v) of the High Court Rules 2016, the Court has the power to make an order for increased costs if the party opposing costs has contributed unnecessarily to the time or expense of the proceeding, or step in it, by failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under r 14.10 or some other offer to settle or dispose of the proceeding. The offers made by the plaintiffs do not fall within the scope of r 14.10 but rather were “other offer[s] to settle or dispose of the proceeding”.2

[4]                 The Court of Appeal in Bradbury v Westpac Banking Corp said as regards the costs provisions in the High Court Rules that:3

The distinction among our three broad approaches: standard scale costs; increased costs; and indemnity costs may be summarised broadly:

(a)standard scale applies by default where cause is not shown to depart from it;

(b)increased costs may be ordered where there is failure by the paying party to act reasonably; and

1      Erni v Brooky [2020] NZHC 3116.

2      High Court Rules 2016, r 14.6(3)(b)(v).

3      Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] NZLR 400 at [27] and [28].

(c)indemnity costs may be ordered where that party has behaved either badly or very unreasonably.

[5]                 In relation to Calderbank offers, I note Asher J’s observations in Water Guard NZ Ltd v Midgen Enterprises Ltd:4

[17]      A Calderbank offer can lead to cost consequences when it is vindicated by the quantum of damages or the orders made. It is a factor to be taken into account in determining whether a party from whom costs are sought has acted reasonably, or has otherwise behaved in a way which requires increased or indemnity costs…

[18]      …To have an effect on costs, a Calderbank offer generally needs to contain an offer that involves an element of genuine compromise…

[19]      …indicating good faith on the [offeror’s] part and a wish to find a commercially realistic settlement…

[20]      The reasonably early offer of the defendants and the lack of response favours a cost award for the defendants against the plaintiff.

Submissions

For the plaintiffs

[6]                 Counsel for the plaintiffs submits that the plaintiffs responsibly attempted to settle their claim at an early stage. Their efforts can be summarised as follows:

(a)On 27 February 2019, the plaintiffs offered on an open basis not to issue proceedings if the defendant paid them $288,400 in respect of the truck loans and recommenced making the weekly $250 payments in respect of the house loans. In the letter containing their offer the plaintiffs sought a response by 8 March 2019. The following day, on 28 February, the deadline was extended to 15 March 2019, following an email exchange between the parties’ solicitors. On 19 March 2019, the defendant responded stating that any proceedings issued would be met by her making a counterclaim.

(b)On 10 March 2020, the plaintiffs made a Calderbank offer to fully and finally settle the proceedings on the basis of payment by the defendant

4      Water Guard NZ Ltd v Midgen Enterprises Ltd [2016] NZHC 1546 (citations omitted).

to them of $372,717 by 24 March 2020. The deadline was extended to 6 April 2020 as a result of another email exchange between the parties’ legal representatives. The defendant did not respond to the offer.

[7]                 Counsel for the plaintiffs submits that the plaintiffs took a pragmatic approach to settlement. Their first offer, on 27 February 2019, was made at an early opportunity and before any proceedings had been commenced. It amounted to an offer not to pursue recovery of the house loans if the defendant repaid the truck loans and recommenced the agreed weekly payments on the house loans. Further, their second offer amounted to a concession of more than $200,000 (being approximately 35 per cent of their total claim) in order to avoid the economic and personal strain that progressing to a full trial would bring. By the time this second settlement proposal was made the plaintiffs had already served their evidence, and accordingly the defendant was then in a position to assess the case being advanced against her on that basis.

[8]                 The plaintiffs submit that the defendant’s rejection of their settlement offers was unreasonable. Counsel also notes my finding that “[t]he defendant’s evidence and version of events is simply implausible and lacking credibility in a number of respects.”5 In addition, at the time of the second offer, the defendant had filed and served a statement of defence in which she admitted the truck loans were advanced. It was only in an about-turn in her evidence that she claimed the money was an advance on her inheritance.

[9]                 Counsel for the plaintiffs submits that an award of a 50 per cent uplift on all scale costs would be consistent with the approach adopted in Holdfast NZ Ltd v Selleys Pty Ltd, where the Court of Appeal held that “[a]n increase of 50% on scale costs should… grant the costs-claiming party a fair recovery for the step unnecessarily forced on it, assuming that the time allocated to the step has been reasonably calculated”.6 However the plaintiffs also acknowledge that a 50 per cent uplift on all scale costs would produce an amount which would exceed their actual costs, and accordingly they submit that scale 2B costs should be awarded for the steps taken prior

5      Erni v Brooky [2020] NZHC 3116 at [72].

6      Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [47].

to the date of their Calderbank offer, and that a 50 per cent uplift of scale 2B costs should  be  awarded  for  the steps thereafter.  Calculated on that basis they seek

$45,290.50 in total for costs, and $6,354.08 for disbursements.7

For the defendant

[10]            Counsel for the defendant submits that she did not act unreasonably in rejecting the plaintiffs’ settlement offers. In particular, counsel submits that the defendant had been confident that one of the plaintiffs (her grandfather, Mr Erni) would confirm her version of events. Further, she expected that both plaintiffs would come to share her view that the loans were advanced as an early inheritance once they heard her version of events stated under oath in Court. The defendant submits that Mr Erni’s decision not to give evidence contributed to the judgment result.

[11]            The defendant does not accept that the plaintiffs took a pragmatic approach to settlement. In relation to the first offer, counsel for the defendant submits that it was unreasonable to expect the defendant to accept that the money advanced for both the truck and the property was loaned rather than gifted, and to then pay back the entire truck loan forthwith.

[12]            Counsel for the defendant also submits the plaintiffs should have provided invoices as evidence of the costs they incurred.

[13]            Finally, counsel submits that to award an uplift from scale 2B costs would be contrary to the spirit of the costs regime, which promotes the award of contributions towards costs rather than full indemnification.

Discussion

[14]            I am satisfied that the defendant’s rejection of the plaintiffs’ settlement offers was unreasonable and that by causing additional and unnecessary legal expenses being incurred it does warrant an uplift of 50 per cent on the costs incurred by the plaintiffs for the steps they took following the date of their second offer.

7      Counsel’s Schedule contains a calculation error for the sum costs for steps incurred before 10 March 2020.

[15]            If the defendant had accepted the plaintiffs’ initial settlement offer of 27 February 2019, she would have paid $288,400 for the truck loans and continued to pay off the house loan by $250 instalments. As a result of my judgment delivered following the trial she is ordered to pay $305,762.37 for the truck loans plus interest of five per cent,8 and the house loan plus interest of five per cent.9 She has also incurred legal costs in defending the proceeding. Accordingly, if she had accepted the plaintiffs’ initial offer she would have had $17,362.37 less to pay for the truck loans, and would also not have had to pay for the interest on each loan, nor her legal costs, nor the legal costs of the plaintiffs.

[16]            If the defendant had accepted the plaintiffs’ second settlement offer dated 10 March 2020, she would have paid $372,717 in full and final settlement. My judgment orders her to pay $574,009.37 plus interest, some $201,292.37 more than what was proposed by way of settlement.

[17]            The assessment of whether or not the defendant’s rejection of the offers was reasonable must be made having regard to the circumstances prevailing at the time the offer was made, and not by comparison with the ultimate result.10 Factors which inform my assessment of the reasonableness of her conduct at the time include:

(a)The timing of the offers: the first offer was made at an early stage before any legal proceedings had been commenced; and the second was made after the plaintiffs had served their trial evidence. The first offer having been made before proceedings were issued shows that the plaintiffs were genuinely seeking to resolve their dispute with their grand-daughter on reasonable terms which would have avoided the cost and inevitable anxiety and distress of proceeding with a civil dispute in court between family members. Their second offer, made after the plaintiffs had served their evidence, significantly reduces the strength of the defendant’s claim to have been surprised by the evidence

8      At [123](c) and (d).

9      At [123](a) and (b).

10     AC Beck and others McGechan on Procedure (online ed, Thomson Reuters) at [HR14.6.02(3)(a)(iii)].

presented by the plaintiffs at the trial and the outcome as ultimately determined by my judgment.

(b)The plaintiffs’ extension of time of the settlement offers: the plaintiffs extended the initial deadlines for a response to each of their offers. The defendant did not respond at all to the second offer, despite requesting the extension. This approach shows that the plaintiffs approached the possibility of settlement in a constructive spirit of compromise, when such an approach was entirely lacking in the case of the defendant.

(c)The weaknesses in the defendant’s case: as I said in my judgment, “[t]he defendant’s evidence and version of events [was] simply implausible and lacking in credibility in a number of respects.”11 The defendant must have understood, or been wilfully blind to, the flaws in her evidence. In my view once the defendant had the full picture of the plaintiffs’ case as evident from the pleadings and their evidence as served on her before trial, it was unreasonable for her to reject the settlement offers of the plaintiffs,.

Result

[18]I make the costs orders. Ms Brooky is to pay to the plaintiffs:

(a)The costs of the plaintiffs incurred on steps taken prior to 10 March 2020 on a 2B basis. As quantified in the Schedule to the plaintiffs’ costs memorandum, this figure comes to $21,271.00

(b)The costs of the plaintiffs incurred on steps taken post 10 March 2020 in the sum of $24,019.50, which reflects a 50 per cent uplift on 2B costs for those steps.

(c)$6,354.08 for the plaintiffs’ disbursements.

Paul Davison J

11 At [72].