Farrand Orchards Limited v Kerikeri Irrigation Company Limited
[2022] NZHC 1815
•27 July 2022
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
I TE KŌTI MATUA O AOTEAROA WHANGĀREI-TERENGA-PARĀOA ROHE
CIV-2020-488-000013
[2022] NZHC 1815
BETWEEN FARRAND ORCHARDS LIMITED
First Plaintiff
KERRY ALFRED FARRAND and
KRISTIN JAYNE FARRAND, as trustees of the FARRAND FAMILY TRUST
Second PlaintiffAND
KERIKERI IRRIGATION COMPANY LIMITED
Defendant
Hearing: On the papers
Memoranda by the defendant 23 June and 22 July 2022 Memorandum by the plaintiffs 15 July 2022
Counsel:
M Nicholls for Plaintiffs
J Anderson QC and J G A Day for Defendant
Judgment:
27 July 2022
COSTS JUDGMENT OF VENNING J
This judgment was delivered by me on 27 July 2022 at 11.30 am, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Martin Nicholls Limited, Kerikeri
Law North, Kerikeri
Counsel: J Anderson QC, Auckland
FARRAND ORCHARDS LTD v KERIKERI IRRIGATION CO LTD [2022] NZHC 1815 [27 July 2022]
Introduction
[1] In the judgment dated 13 April 2022 the Court dismissed the plaintiffs’ claim and entered judgment for the defendant.1
[2]As to costs the Court noted:
[229] Costs on a 2B basis would seem appropriate. However, in the event there may be correspondence on the issue of costs which the Court is unaware of, I reserve costs. If there is no relevant correspondence costs can be fixed on the 2B basis. I certify for second counsel. The Registrar is to fix disbursements, including witness expenses.
[3]Unfortunately the parties have not been able to agree costs.
[4] The defendant advises that relevant correspondence regarding costs does in fact exist. The defendant has made two Calderbank offers to settle the proceedings. It seeks costs of $334,858.36 made up as follows:
[a]$300,472.70 (exclusive GST) being indemnity/solicitor and clients costs incurred after the first settlement offer;
[b]$4,780.00 for scale costs incurred prior to the first settlement offer; and
[c]$29,605.66 (exclusive GST) for disbursements.
[5]It calculates costs to scale at $101,993.25.2
[6] The plaintiffs oppose an order for increased or indemnity costs. They submit that a costs award calculated on a 2B scale of $69,847.25 is appropriate. They suggest that until proof of the reasonableness and necessity of certain invoices are provided they cannot submit as to the quantum of disbursements.
1 Farrand Orchards Ltd v Kerikeri Irrigation Company Ltd [2022] NZHC 765.
2 An amended figure in its reply memorandum.
Background to the proceedings and substantive hearing
[7] Ultimately, in the claim heard by the Court, the plaintiffs sued the defendant alleging that on three occasions between 6 October 2016 and 14 January 2019, the defendant breached a contract to supply water to their orchards and caused production losses. They claimed $435,455.32 in damages.
[8] The plaintiffs’ claim was initially pleaded somewhat differently and also included a claim against a second defendant, Anthony Corcoran, the defendant’s manager. It was issued on 2 March 2020.
[9] On 13 July 2020 the defendants made a Calderbank offer offering $10,000.00 to the plaintiffs in full and final settlement. The offer was not accepted.
[10] The defendants subsequently moved for strike out and summary judgment against the plaintiffs.
[11] Associate Judge Bell agreed with the defendants’ application to the extent that Mr Corcoran’s strike out application succeeded. However, the Judge considered that, with amendment, the plaintiffs might have an alternative claim against the remaining defendant. He dismissed the application to strike out or for summary judgment in relation to the claim against the defendant. The plaintiffs then filed an amended statement of claim.
[12]The defendant engaged Ms Anderson QC in December 2020.
[13] After discovery and the briefing of experts, the defendant made a further Calderbank offer of $60,000 to the plaintiffs on 29 October 2021. The plaintiffs again declined to accept the offer.
Indemnity costs/Calderbank offers
[14] The defendant relies on rr 14.10 and r 14.11 to support its claim for indemnity costs. Rule 14.10 provides for what are known as Calderbank offers. Rule 14.11(3) confirms that:3
14.11Effect on costs
(3)Party A is entitled to costs on the steps taken in the proceeding after the offer is made, if party A—
(a)offers a sum of money to party B that exceeds the amount of a judgment obtained by party B against party A; or
(b)makes an offer that would have been more beneficial to party B than the judgment obtained by party B against party A.
[15] I do not consider that the defendant’s reliance on rr 14.10 and 14.11 for indemnity costs is particularly apt in this case. Rule 14.11 provides for the situation where party B (in this case the plaintiffs) have succeeded in part. Both rr 14.11(3)(a) and (b) contemplate the plaintiff succeeding and obtaining a judgment of some kind. In this case the plaintiffs failed entirely. Judgment was entered for the defendant, not the plaintiffs.
[16] I also note that r 14.11 also expressly does not limit rr 14.6 or 14.7. As Heath J noted in Aldrie Holdings Ltd v Clover Bay Park Ltd (No 2), rr 14.10 and 14.11 are independent of the rules relating to increased or indemnity costs.4 The application of r 14.11(3) remains subject to the discretion of the Court.
[17] Given the outcome in the present case, I consider the appropriate focus to be on whether indemnity or increased costs should be awarded under r 14.6, rather than under r 14.11.
[18] I do not consider that the defendants’ claim for (part) indemnity costs under r 14.6(4) can be made out in this case. While the plaintiffs failed, I do not consider it can be said the plaintiffs acted vexatiously, frivolously, improperly or unnecessarily
3 High Court Rules 2016, r 14.11.
4 Aldrie Holdings Ltd v Clover Bay Park Ltd (No 2) [2016] NZHC 1482.
in pursuing the proceeding after the offers. The plaintiffs did not wilfully breach orders of the Court. The other general provisions of r 14.6(c) to (f) do not apply.
Increased costs
[19] Under r 14.6(3)(v) the Court may order a party to pay increased costs if, in this case, the plaintiffs failed without reasonable justification to accept the defendant’s offer of settlement. Generally it may not be considered unreasonable for a plaintiff to reject an offer which is too late or too little, and the reasonableness of the rejection must be assessed at the time of the rejection, not against the subsequent result. The party seeking increased costs (the defendant) needs to establish clearly the failure was unreasonable.5
[20] Mr Nicholls characterised the offers the defendant made to settle as “walkaway” propositions. He noted that, at the time the first offer was made on 13 July 2020, the plaintiffs’ claim was for $400,000.
[21] Mr Nicholls submitted that if the Court was minded to award increased costs the award would more appropriately run from 29 October 2021. However, by that time, the plaintiffs’ claim had survived the strike out and the plaintiffs had not served their evidence on the defendants, nor seen any of the defendants’ evidence, including the defendants’ expert evidence. He submitted the plaintiffs had “reasonable expectations … that a realistic offer would be made”. The plaintiffs counteroffered to settle for $200,000 inclusive of legal costs. That offer was rejected by the defendants.
[22] I accept that, on balance, it could not be said it was unreasonable for the plaintiffs to reject the defendants’ offer to pay $10,000 to settle in July 2020. Following that offer, Associate Judge Bell declined to strike out the plaintiffs’ claims against the defendants, albeit that he required the plaintiffs to make substantial amendments to their claim.
[23] However, the defendant’s offer of $60,000 on 29 October 2021 was a substantial and realistic offer to see the matter resolved. The plaintiffs should have
5 Loktronic Industries Ltd v Diver [2014] NZHC 1189; Samson v Mourant [2016] NZHC 1119;
Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA).
accepted that sum. By that time the parties had undertaken discovery and experts had provided their reports. The plaintiffs should have known of the strength and weaknesses of their case. The letter submitted with the defendant’s offer set out the flaws with the plaintiffs’ case, which in large part were subsequently confirmed by the Court in its judgment. The fact the plaintiffs considered they were entitled to more was a substantial error of judgment on their part.
[24] While the plaintiffs did not act frivolously or improperly in rejecting the offer of $60,000, there was no reasonable justification for them to reject the offer. I accept that, as from the end of October 2021, the defendants are entitled to an increased award of costs. I consider the appropriate uplift to be 50 per cent on scale 2 for costs incurred after 1 November 2021.
Time band C
[25] The defendant initially also sought an uplift to time band C for discovery and inspection. In its reply memorandum it conceded that it now only seeks time band C for inspection.
[26] Having reviewed the relevant documents referred to at trial I do not consider time band C is warranted for inspection. Time band B is to apply to all steps in the proceeding. As noted, the Court has fixed the costs category as category 2.
General steps taken by the defendants
[27] The plaintiffs take issue with the costs for the application for further and better discovery against them. The plaintiffs say they were awaiting documents from third parties. The plaintiffs also submit there is no basis for the defendant to claim for the plaintiffs’ application for further and better discovery. Mr Nicholls also submitted that no allowance should be made for the defendant’s involvement in the preparation of the common bundle.
[28] Again, having reviewed the file and with background knowledge of the issues from the hearing, I accept the successful defendant is entitled to claim for all the above steps. The steps taken by the defendant were necessary and appropriate.
[29] The plaintiffs also take issue with the defendant’s claim for filing joint memoranda and for costs of appearances at a case management conference.
[30] The defendant accepts the point about the case management conference which did not proceed. However, I consider the defendant is entitled to claim costs for its input into the joint memoranda. A successful party may claim for their input into such memoranda. Even a joint memorandum prepared by the other party requires consideration and the obtaining of instructions and approval.6
Summary judgment
[31] The defendants seek costs on the summary judgment application. They seek to rely on comments from NZI Bank v Philpott.7
[32] Mr Nicholls submitted the defendant should not have costs on a 2B basis for the summary judgment when it effectively lost that application in front of Associate Judge Bell.8 He addressed submissions about what occurred at the hearing. I put them to one side. The Court is only prepared to take into account the record from Associate Judge Bell’s judgment.
[33] The outcome was that the defendants’ application for summary judgment/strike out was successful insofar as the claim against Mr Corcoran was dismissed. However, the defendants’ application to strike out the claim against it was dismissed. The Judge made the following observation and direction regarding costs:
[62] My provisional view is that each side has had roughly equal success and there should be no order as to costs. If either side considers that costs should be awarded, they should file a memorandum and the other side should file a response within a further week.
[34] I consider this Court should adopt the Associate Judge’s view that the costs should lie where they fall on that application. Further, I note that the defendant did not take up the Judge’s suggestion that if either party wished to pursue costs they
6 Zhao v He [2020] NZHC 1048 at [7].
7 NZI Bank v Philpott (1990) 3 PRNZ 695.
8 Farrand Orchards Ltd v Kerikeri Irrigation Co Ltd [2020] NZHC 2840.
should file a memorandum. Neither party did. That was the time to seek costs on the summary judgment application.
Hearing/preparation
[35] I allow the 5.75 days sought by the plaintiffs. While Court did not sit on the Monday, the Court directed the parties to spend the day finalising submissions including references to the evidence.
Disbursements
[36] The plaintiffs also challenge the disbursements incurred by the defendant. The disbursements include counsels’ accommodation and the accommodation of Mr Corcoran, who stayed in Whangarei during the hearing.
[37] Save for the point regarding Mr Corcoran who is based at Kerikeri and could have travelled each day as the plaintiffs and their counsel did, I consider the disbursements including the expert witness costs to have been necessary and reasonable. I approve them. There is no reason to suggest the amounts sought are unreasonable. The largest expense was for Ms Scarrow. Ms Scarrow’s evidence and accompanying materials was detailed and was important to the case.
Result
[38] As a result the defendant is entitled to costs in the sum of $110,866.62 calculated on a 2B basis with an uplift of 50 per cent from 1 November 2021 as follows:
Costs to 30 October 2021 (as claimed on a 2B basis but excluding summary judgment costs): $31,548.50
Costs from 1 November 2022 on a 2B basis uplifted by 50%
$79,318.12
$110,866.62
[39] The defendants are also to have disbursements in the sum of $30,726.81 made up of:
Fruition Horticulture $19,246.61 Quest (counsel) $1,749.66 Tonkin & Taylor $6,807.50 Travel/airfares/taxi $1,135.43 Filing fees and incidentals $1,787.61 $30,726.81
Orders
[40] The plaintiffs are jointly and severally liable to the defendant for costs in the sum of $110,866.62 together with disbursements of $30,726.81, in total $141,593.43.
Venning J
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