Gibson v Stockco Limited HC Auckland CIV-2009-404-7120
[2011] NZHC 798
•14 June 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2009-404-7120
UNDER Section 34 of the Receiverships Act 1993
IN THE MATTER OF Plateau Farms Ltd, Ferry View Farms Ltd, Hillside Ltd and Taharua Ltd (all in Receivership)
BETWEEN B J GIBSON AND M P STIASSNY Applicants
ANDSTOCKCO LIMITED First Respondent
ANDNUGEN FARMS LIMITED Second Respondent
ANDA J CRAFAR Third Respondent
ANDR S CRAFAR Fourth Respondent
ANDG W CRAFAR Fifth Respondent
Hearing: 18 April 2011
Counsel: SCDA Gollin and A Simkiss for Applicants
B D Gustafson for First Respondent
Judgment: 14 June 2011 at 11:30 AM
JUDGMENT OF WHITE J [Costs]
This judgment was delivered by me on 14 June 2011 at 11.30 am pursuant to Rule 11.5 of the High Court Rules. Registrar/Deputy Registrar
Date: ………………….
GIBSON & STIASSNY V STOCKCO LTD HC AK CIV-2009-404-7120 14 June 2011
Solicitors: Minter Ellison Rudd Watts, PO Box 3798, Auckland 1140
Lowndes Jordan, PO Box 5966, Auckland 1141
Counsel: R B Stewart QC, PO Box 2302, Auckland 1140
F M R Cooke QC, PO Box 1530, Wellington 6140
W G Manning, PO Box 5844, Wellesley Street, Auckland 1141
[1] At the conclusion of my judgment of 17 December 2010 I said:
[270] As the Receivers have succeeded on three of the four principal issues and also in part on the fourth principal issue, my provisional view is that they should be entitled to an order for a substantial proportion of their costs on a category 3 basis with disbursements to be fixed by the Registrar. If the parties are unable to agree, however, the Receivers may file and serve a memorandum by 28 January 2011 and StockCo may reply by 11 February
2011.
[2] As the parties were unable to agree on the question of costs, the following memoranda were provided:
(a) Memorandum for the Receivers dated 28 January 2011 seeking an order for costs totalling $389,852.50 plus disbursements as fixed by the Registrar, including expert fees for Mr Dean Nikora, on the basis that the proceeding is a category 3 matter, band C is justified for a number of specified items, there should be an allowance for second and third counsel, and an uplift of 50% in respect of a number of specified items.
(b)Memorandum for the Receivers dated 8 February 2011 explaining that criticism of StockCo’s conduct in their first memorandum was not directed at StockCo’s solicitor and chairman, Mr Andrew Morrison.
(c) Memorandum for StockCo dated 11 February 2011 opposing the Receivers’ costs application on the grounds that the costs should not be ordered when the proceeding was not an ordinary commercial proceeding, StockCo was successful in respect of 466 dairy cows, there was no conduct justifying any uplift in scale costs, Mr Nikora was not an expert witness, the costs of the Receivers’ failed application for the sale of stock should be deducted, and the Receivers could not claim for steps not undertaken in the proceeding.
(d)Memoranda for the Receivers dated 1 March 2011, one in reply to the memorandum for StockCo and the other advising the Court of an admissibility issue relating to certain “without prejudice” correspondence referred to in the first memorandum which was therefore not seen by me at that stage.
(e) Memorandum for the Receivers dated 15 March 2011 advising that the parties had agreed to file brief separate memoranda on the admissibility issue.
(f) Memorandum for StockCo dated 22 March 2011 with submissions on the admissibility issue.
(g)Memorandum for the Receivers dated 24 March 2011 with submissions on the admissibility issue.
(h)Memorandum for the Receivers dated 24 March 2011, being the memorandum for the Receivers dated 1 March 2011, but in redacted form.
[3] In the course of the hearing on 18 April 2011 in relation to the question of the admissibility of the “without prejudice” correspondence it became apparent that it would not be necessary to determine the question if StockCo amended paragraph 4.3 of its memorandum of 15 March 2011 to delete the following words after
$2,000,000:
more than it would have got had it not opposed the application for directions.
[4] On the basis that StockCo agreed to amend paragraph 4.3 by deleting these words, the Receivers agreed that there was no need for the Court to consider the “without prejudice” correspondence question.
[5] This meant that the following issues remained for determination in respect of which further submissions were made at the hearing:
(a) What is the appropriate category for the proceeding?
(b)What is the appropriate time band or bands for the individual steps claimed by the Receivers?
(c) Should there be an uplift of 50% in respect of any items claimed by the Receivers?
(d)Should there be a deduction of 50% to reflect the nature of the proceeding and StockCo’s limited degree of success?
(e) Was Mr Nikora an expert witness?
[6] I consider each issue and the submissions for the parties in relation to each issue in turn.
The appropriate category
[7] The Receivers agreed with my provisional view that category 3 was appropriate. StockCo submitted that category 2 was appropriate because:
(a) There was nothing that lifted this case beyond being a proceeding of average complexity requiring counsel of skill and experience considered average in the High Court. The Personal Property Securities Act 1999 is currently one of the most predominant pieces of legislation in the practice of commercial law. All lawyers giving commercial advice need to be aware of its terms and interpretation. All major law firms have expertise in their commercial and litigation departments in dealing with it.
(b)Counsel has been unable to find any Personal Property Securities Act case where the successful party has been awarded category 3 costs in the High Court or costs under the “Complex Appeal” category in the Court of Appeal.
(c) The Personal Property Securities Act aspect of this case did not require any special skill that lifted this case into category 3. The case it is most analogous to would be Motorworld Ltd (in Liquidation) v Turners Auctions Ltd.[1]
[1] Motorworld Ltd (in Liquidation) v Turners Auctions Ltd HC Auckland CIV-2007-404-6558,
17 February 2010.
(d)The duration of the case here was longer than any of the cases cited, but that is of itself not a reason to lift the category from category 2 to category 3. The time allocations for trial and preparation under any of the bands deal with duration of hearing and associated preparation.
(e) The witnesses did not produce evidence that required counsel to have particular experience or knowledge. No counsel had, prior to the case, expertise in the dairy industry and none was required that could not be picked up from clients and expert witnesses.
[8] For the following reasons, which include those advanced for the Receivers in response, I am satisfied that this proceeding should be classified as falling within category 3 under rule 14.3 of the High Court Rules, namely a proceeding that because of its complexity and significance required counsel to have special skill and experience in the High Court.
[9] First, while the Personal Property Securities Act 1999 may be “currently one of the most predominant pieces of legislation in the practice of commercial law”, this proceeding was neither “straightforward” nor of merely “average complexity”. It involved a series of commercial negotiations and transactions relating to one of New Zealand’s largest dairy farming operations, a substantial number of livestock and relatively large amounts of money, giving rise to a range of complex factual and legal issues which were the subject of extensive affidavit evidence, a three week hearing where both the parties were represented by senior counsel, the cross- examination of 17 witnesses and comprehensive submissions on the facts and the law, ultimately resulting in a 270 paragraph judgment. The complexity and
significance of the proceeding may be seen from the nature and scope of StockCo’s
claims and the issues determined in the judgment: cf [128], [130]-[131], [149]-[157], [167]-[172], [175]-[176], [183]-[205], and [208]-[264].
[10] Second, the nature and scope of the issues in this proceeding not only reflect its complexity and significance but also provide the basis for distinguishing it from the cases referred to by StockCo which were not classified as category 3. The present proceeding was not an ordinary dispute under the Personal Property Securities Act.
[11] Third, while the retention of senior counsel is not of itself necessarily determinative of the level of complexity and significance of a proceeding, in this case the fact that both parties retained senior counsel did reflect the fact that the nature and scope of the issues in the proceeding required counsel to have special skill and experience in the High Court.
[12] Fourth, the fact that counsel may not have had previous expertise in the dairy industry is not relevant to the question of classification of this proceeding for costs purposes. Many proceedings classified as category 3 are likely to involve novel factual and legal issues. This case was no exception. The special skill and expertise of both senior counsel enabled the Court to hear and determine the proceeding expeditiously.
The appropriate time bands
[13] Rule 14.5 of the High Court Rules provides:
14.5 Determination of reasonable time
(1) For the purposes of rule 14.2(c), a reasonable time for a step is—
(a) the time specified for it in Schedule 3; or
(b) a time determined by analogy with that schedule, if Schedule
3 does not apply; or
(c) the time assessed as likely to be required for the particular step, if no analogy can usefully be made.
(2) A determination of what is a reasonable time for a step under subclause (1) must be made by reference—
(a) to band A, if a comparatively small amount of time is considered reasonable; or
(b) to band B, if a normal amount of time is considered reasonable; or
(c) to band C, if a comparatively large amount of time for the particular step is considered reasonable.
[14] There is no dispute that once the proceeding has been classified as category 3 it is then necessary to consider the steps taken in the proceeding separately for the purpose of determining the appropriate time banding under rule 14.5: McLachlan v Mercury Geotherm Ltd (In Receivership).[2]
[2] McLachlan v Mercury Geotherm Ltd (In Receivership) CA 117/05, 4 December 2006 at [62]-[64].
[15] The Receivers have provided a schedule setting out each step taken in the proceeding and identifying the appropriate time band claimed for each step, being bands B or C, and calculating the appropriate time for the item in accordance with Schedule 3 of the High Court Rules or by way of analogy.
[16] StockCo opposes the claims based on band C and also a number of specific items on the grounds that they should not have been included. It was submitted for StockCo that the proceeding was not so complex and time-consuming as to demand the frequent application of band C to steps in the proceeding. It was also submitted for StockCo that the Receivers were not entitled to claim costs for their failed application for orders that the stock be sold prior to the determination of their application under s 34 of the Receiverships Act 1993 and that they could not claim for steps not undertaken in the proceeding such as the preparation of a list of documents or preparing for inspection when those activities were not carried out.
[17] As between bands B and C, the issue is whether “a normal amount of time” or a “comparatively large amount of time for the particular step” is considered reasonable: rule 14.5(2)(b) and (c). In the absence of any suggestion for StockCo that time band C claimed by the Receivers for the particular items did not reflect, or overstated, the actual time involved, I consider that times based on the bands claimed in terms of Schedule 3 and by analogy were reasonable and justified by the complexity and significance of the proceeding.
[18] I do not accept the submission for StockCo that the Receivers are not entitled to claim for discovery and inspection because no formal list of documents was prepared. I accept that there was in fact discovery and inspection of documents on an informal basis and that the Receivers were therefore entitled to claim for these items by way of analogy.
[19] I agree, however, with StockCo that the costs of the Receivers’ failed application for orders that the stock be sold prior to the determination of their application under s 35 of the Receiverships Act 1993 should be deducted from the award of costs in their favour. The Receivers accepted that StockCo was entitled to set-off these costs against those awarded against it in the principal proceeding. I address the quantum of the costs to be set-off later in this decision.
Increased costs
[20] The Receivers have sought an uplift of 50% in respect of certain items in their schedule of costs. The application is made under rule 14.6(3) of the High Court Rules which provides:
14.6 Increased costs and indemnity costs
.....
(3) The court may order a party to pay increased costs if—
(a) the nature of the proceeding or the step in it is such that the time required by the party claiming costs would substantially exceed the time allocated under band C; or
(b) the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—
(i) failing to comply with these rules or with a direction of the court; or
(ii) taking or pursuing an unnecessary step or an argument that lacks merit; or
(iii) failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument; or
(iv) failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice
for interrogatories, or other similar requirement under these rules; or
(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; or
(c) the proceeding is of general importance to persons other than just the parties and it was reasonably necessary for the party claiming costs to bring it or participate in it in the interests of those affected; or
(d) some other reason exists which justifies the court making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.
[21] It was initially submitted for the Receivers that increased costs should be awarded because:
(a) StockCo had acted unreasonably in misleading the Receivers as to their intentions and by their actions in removing cows from the Crafar farms while they were in receivership which necessitated the urgent application for an interim injunction by the Receivers;
(b)StockCo’s failure to provide full evidence in relation to the tagging of the livestock until very close to trial was unreasonable and justified increased costs; and
(c) StockCo’s continued pursuit of its claim based on blue tags and pink tags was a pattern of misleading conduct which caused the Receivers to incur additional costs in preparation for trial.
[22] In the course of argument, however, the Receivers accepted that they could not pursue their application for increased costs in respect of StockCo’s conduct before the commencement of the proceeding. Their concession recognised the well- established principle that costs are to reflect how parties acted during litigation, not
before it: Paper Reclaim Ltd v Aotearoa International Ltd.[3]
[3] Paper Reclaim Ltd v Aotearoa International Ltd [2006] 3 NZLR 188 (CA) at [160].
[23] For the following reasons, which include those advanced for StockCo in response, I do not consider that there should be an increased costs order under rule
14.6(3).
[24] First, I am not prepared to make findings of “unreasonable conduct” against StockCo on the basis of the evidence before the Court and the submissions for the Receivers. There is no evidence of “unreasonable” conduct by StockCo in relation to the conduct of the proceeding: cf Bradbury v Westpac Banking Corporation [4] and Paper Reclaim Ltd v Aotearoa International Ltd at [60]. In particular, there is no evidence of any of the species of unreasonable conduct listed in rule 14.6(3)(b) or of any unreasonable conduct going beyond those examples of the nature envisaged by rule 14.6(d).
[4] Bradbury v Westpac Banking Corporation [2009] 3 NZLR 400 (CA) at [27].
[25] Second, the matters raised for the Receivers are matters explicable by the cut and thrust of commercial litigation of this nature which was conducted against a changing and developing factual background. The fact that the Receivers have substantially succeeded in the proceeding does not mean that StockCo’s conduct in defending the case was “unreasonable”.
[26] Third, both parties were required to pursue the various interlocutory steps, including informal discovery and inspection, and preparation of affidavit evidence, under pressures of time and, in the case of StockCo, on the basis of information provided by Mr Allan Crafar which was ultimately discovered to be incorrect. There is in my view no reason why in these circumstances responsibility for the effects of these pressures and Mr Crafar’s errors should be visited solely on StockCo.
[27] Fourth, the fact that the Receivers were successful on three of the four principal issues and in part only on the fourth issue supports my view that there should be no increased costs order in this case.
Reduced costs
[28] StockCo’s seeks an order for a reduction in costs of between 33% to 50%
under rule 14.7(g) of the High Court Rules which provides:
14.7 Refusal of, or reduction in, costs
Despite rules 14.2 to 14.5, the court may refuse to make an order for costs or may reduce the costs otherwise payable under those rules if-
.....
(g) some other reason exists which justifies the court refusing costs or reducing costs despite the principle that the determination of costs should be predictable and expeditious.
[29] It was submitted for StockCo that the costs award should be reduced in this case because:
(a) The position was both factually and legally uncertain to all parties when the proceeding was issued and the parties prepared for hearing;
(b)The Receivers were required to bring the application to discharge their duties under s 18 of the Receiverships Act 1993;
(c) The nature of the application for directions under s 34 of the Receiverships Act 1993 is inquisitorial and StockCo provided the necessary contra position to the banks and the Receivers so that the directions could be given;
(d)The true position could only be determined by weighing the evidence from the Crafars and Mr Blackman, and that could only occur after their evidence was given and their evidence was obtained not by the Receivers but by StockCo;
(e) StockCo was misled by the Crafars into believing the 750 Nugen stock were ascertained and not subject to another security (see Mr Blackman’s solicitors’ certificate) and that the 4,000 heifers could be sold in the ordinary course of business. It would be unjust to now
visit full costs on an application that unravelled part of the Crafar
Gordian Knot but to StockCo’s disadvantage; and
(f) StockCo succeeded in part in relation to stock purchased by Nugen from third parties funded by StockCo.
[30] For the following reasons, which include those advanced for the Receivers in response, I do not consider that there should be a reduction in the award of costs as sought by StockCo.
[31] First, while the proceeding was in form an application for directions by the Receivers under s 34 of the Receiverships Act 1993, it became in substance a commercial trial of the factual and legal issues raised as a result of StockCo’s claims to priority to the livestock: judgment of 17 December 2010 at [127]-[128]. This proceeding was not a simple or straightforward inquiry by receivers for the court to determine priority between creditors or classes of creditors over assets held by the receivers as was the position in the decisions referred by StockCo.
[32] Second, StockCo did not simply arrange for the evidence of the Crafars and Mr Blackman to be provided to the Court, but took a fully adversarial approach in challenging the Receivers’ position, adducing a range of evidence, cross-examining the witnesses for the Receivers and making comprehensive submissions in support of its claims.
[33] Third, the Receivers were successful on three of the four principal issues and in part on the fourth issue, namely the identification issue, which was narrowed as a result of the clarification provided in a joint memorandum from the parties and which led to StockCo establishing its claim in respect of 466 of the 5,604 cows it claimed: judgment at [208]-[265]. This relatively minor level of success on the part of StockCo on an issue which in the end the parties were able to resolve to a significant extent in their joint memorandum does not in my view mean that the Receivers’ recovery of their costs should be reduced. This was not a case where there has been only minor success by the Receivers or equality of success: cf
Packing In Ltd (In Liquidation) formerly known as Bond Cargo Ltd v Chilcott.[5] I have also already recognised the fact that the Receivers were not totally successful in declining their application for an increased costs order.
Mr Nikora as an expert witness
[5] Packing In Ltd (In Liquidation) formerly known as Bond Cargo Ltd v Chilcott (2003) 16 PRNZ 869 (CA) at [5].
[34] The Receivers have claimed $13,929.37 as a witness fee for Mr Nikora, together with disbursements relating to his travel and accommodation for the hearing. StockCo opposed this claim on the ground that Mr Nikora was an employee or contractor of the Receivers and was therefore not qualified as an independent expert witness.
[35] For the following reasons, which include those advanced for the Receivers, I consider that they are entitled to claim for the fees incurred in respect of Mr Nikora as an expert witness.
[36] First, Mr Nikora was an experienced Hawkes Bay dairy farmer retained by the Receivers as an independent consultant: judgment at [17]. His evidence comprised an analysis of the Crafar farms’ financial, accounting and livestock records in order to provide the Court with an understandable explanation of those documents in the context of dairy farming practice. While his evidence was about facts, the facts as discerned through the documentation would not have been understandable to anyone who did not have special skill and expertise.
[37] Second, Mr Nikora’s evidence was therefore “expert evidence” within the definitions of “expert” and “expert evidence” in s 4 of the Evidence Act 2006 and rule 1.3 of the High Court Rules. He was a person with specialised knowledge or skill based on his experience: cf McIntyre v Nemesis DKL Ltd.[6]
[6] McIntyre v Nemesis DKL Ltd (2008) 19 PRNZ 156 (HC) at [13].
[38] Third, there was no challenge to the admissibility of his evidence: cf s 25 of the Evidence Act 2006 and rule 9.43 of the High Court Rules.
[39] Fourth, a lack of independence would not have been fatal because the issue of independence goes to weight: McIntyre v Nemesis DKL Ltd at [14] and CIR v BNZ Investments Ltd.[7]
[7] CIR v BNZ Investments Ltd [2009] NZCA 47; (2009) 24 NZTC 23,387 at [21]-[25].
[40] In terms of rule 14.12(2) and (3) of the High Court Rules the Receivers are therefore entitled to recover as a disbursement the actual fees and expenses incurred in respect of the evidence of Mr Nikora. It was not suggested by StockCo that his fees and expenses were not reasonably necessary for the conduct of the proceeding or not reasonable in amount.
Result
[41] I confirm my provisional view that the Receivers are entitled to an order for their costs on a category 3 basis. Their costs for individual steps should be calculated on the basis of bands B and C as identified in Schedule A attached to the memorandum for the Receivers dated 28 January 2011. The Receivers are also entitled to the disbursements in Schedule B, including the fee and disbursements for Mr Nikora. There will be a certificate for second and third counsel.
[42] StockCo is entitled to set-off the costs awarded in its favour following the Receivers’ unsuccessful application for sale orders: see judgment of 5 July 2010 at [55]. An order was made for 2B costs with disbursements to be fixed by the Registrar. There will be a certificate for second counsel.
[43] The application by the Receivers for an increased costs order is declined.
[44] The application by StockCo for a reduced costs order is declined.
Costs
[45] As both parties have had relatively similar levels of success and failure on their applications, costs in respect of the applications determined in this judgment
should lie where they fall.
D J White J
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