Glaister v Amalgamated Dairies Ltd

[2004] NZCA 10

IN THE COURT OF APPEAL OF NEW ZEALAND

CA99/03

BETWEENDAVID JOHN GLAISTER, LOMOND MAURICE SEEL AND ROBERT NAREV
Appellant

ANDAMALGAMATED DAIRIES LIMITED
First Respondent

ANDCHALLENGE INVESTMENT COMPANY LIMITED
Second Respondent

Hearing:19 February 2004

Coram:McGrath J
Hammond J
W Young J

Appearances:  A F Grant for the Appellants
J L Land for the Respondents

Judgment:1 March 2004 

JUDGMENT OF THE COURT DELIVERED BY HAMMOND J

Introduction

[1]       We have before us an appeal against certain determinations of Heath J in a costs dispute in a commercial case.  The two judgments under review are a costs judgment delivered by Heath J on 11 March 2003 (now reported as Glaister v Amalgamated Dairies Ltd (2003) 16 PRNZ 536) and a supplementary costs judgment in the same proceeding delivered on 6 May 2003. 

Background

[2]       The case before Heath J involved the interpretation of a clause of the Constitution of the first respondent, Amalgamated Dairies Limited.  That issue had in turn given rise to questions relating to the fair value of the shares in the Company.  There was also a counterclaim by Amalgamated Dairies Limited relating to the treatment of intangibles.  In the event, the proceeding went to trial for eight and a half days.  The respondents were successful in their claim against the appellants.  Judgment was entered for the respondents, on the merits, for $2.5 million.  Interest of $626,177 was also awarded.  The counterclaim (of approximately $5 million) was dismissed.  The merits of the case are now reported in Glaister v Amalgamated Dairies Ltd [2003] 1 NZLR 829.

[3]       In reaching this successful outcome, the appellants incurred actual legal fees of approximately $258,000, and accountancy fees of $54,843.75.

[4]       Heath J assessed costs in favour of the appellants on a 3B basis with the exception of one item (inspection of documents), which was assessed on a 3C basis.  The resulting award for legal fees was $87,210.  This was approximately 33% of the fees actually incurred by the successful appellants.

[5]       In fairness it should be recorded that it has never been suggested that the actual fees incurred by the appellants were unreasonable.  Their broad complaint in this Court is that the award of costs was, in the circumstances of this case, far too low.  They say they should have had an award of something like two-thirds of their reasonable and actual costs.

The issues for determination

[6]       Mr Grant's submissions for the appellant, and the logic of them, can conveniently be stated under three main propositions.  First, he said, the fundamental purpose of the new regime for the assessment of costs in the High Court which came into force on 1 January 2000 is to secure to a successful party two-thirds of the actual and reasonable costs of that party.  Secondly, he argued that the Judge unduly fettered his jurisdiction, and in consequence the first proposition was not properly acted upon.  And, thirdly, that given the way the costs submissions and hearings unfolded in the High Court the appellants had not fairly and appropriately been heard on the issue, principally, of a proper allowance for time for preparation of trial.  As the appellants view things, it was principally the sum awarded under that head which led to a less than appropriate award of costs.  That issue ought therefore to be revisited.

Two-thirds of reasonable and actual costs?

[7]       Mr Grant's proposition that a successful plaintiff in High Court proceedings should have two-thirds of his or her reasonable and actual costs is, we think, plainly misconceived.  But given that this argument is seemingly, on the basis of some High Court authorities which were referred to by counsel, still being advanced in that Court, it is appropriate to revisit, in short form, the present position in New Zealand.  The term "revisit" is used advisedly because we think the issue presently under consideration had been resolved against the stance taken by the present appellants by this Court in Mansfield Drycleaners Ltd v Quinny's Drycleaning (Dentice Drycleaning Upper Hutt) Ltd (2002) 16 PRNZ 662.

[8]       It is useful to begin by putting this issue in its proper context.  A successful plaintiff, naturally enough, takes the stance that if he or she has to remove to a court of law to have his or her rights vindicated, he or she should not thereby be out of pocket.  This, it is sometimes said, is a natural adjunct to the rule of law.  The response to this proposition has varied in the common law jurisdictions.  In the United States of America, the response to this proposition was historically a "no costs" rule (on the grounds that to award costs is to restrict access to justice), although that rule has been substantially eroded in modern federal statutes, many of which have a costs discretion.  In other jurisdictions, costs have been seen as a distinct form of civil remedy:  costs follow the event, and the unsuccessful party must pay the (taxed) costs of the successful party.  This, broadly put, is the approach taken in the United Kingdom.  Then there are a third group of jurisdictions which adopt something of a compromise by allowing the successful party a respectable allowance towards his or her costs, but not a full indemnity.  The advantages and disadvantages of each of these three approaches was canvassed in Hamilton City Council v Waikato Electricity Authority & Ors HC HAM CP21/93 29 September 1993.

[9]       Prior to 1 January 2000 the law in New Zealand was that the High Court had a general discretion as to costs.  Inaccurately, it was sometimes said that that discretion was "unfettered".  The discretion had to be exercised judicially (see Cates v Glass [1920] NZLR 37). Two propositions were paramount. First, costs normally "followed the event": that is, an unsuccessful party paid costs to a successful party. Secondly, costs were routinely awarded on a contribution (or "party and party") basis, rather than an indemnity (or "solicitor and client") basis.

[10]     As to fixing "party and party" costs, the general rule was that there should be a "reasonable contribution" towards the costs of the successful party.  In a much cited and relied upon case, Morton v Douglas Homes Ltd (No 2) [1984] 2 NZLR 620 Hardie Boys J said, "the purpose is not to fix solicitor's and counsel's remuneration, but to impose on the unsuccessful party an obligation to make a reasonable contribution towards the costs reasonably and properly incurred by the successful party" (at 625). And in Kuwait Asia Bank EC v National Mutual Life Nominees Ltd [1991] 3 NZLR 457 this Court said that in both the High Court and this Court, "the guiding principle has been that, except where there is special reason for awarding costs on a solicitor and client basis, orders should be limited to a reasonable contribution towards the successful party's costs on a party and party basis" (at 460).

[11]     This, in turn, led to the difficulties of determining a "reasonable contribution".  The High Court had a broad discretion under r45 of the High Court Rules as they then were, and could look to the former scale of costs under the High Court Rules.  In practice, courts had regard to a wide range of factors.  For one authority which contains a list of the (then) relevant discretionary factors, see Holden v Architectural Finishes Ltd [1997] 3 NZLR 143.

[12]     A practical difficulty was that the former scale under the High Court Rules was obsolete, if it ever really had any worthwhile application to complex commercial litigation (see, for instance, the observations of Henry J in Chase Corporation Ltd v Rank Overseas Holdings Ltd (1988) 1 PRNZ 426).  In fairness to Mr Grant, there were a number of cases in the High Court in which there were awards of something like two-thirds of the reasonable and actual costs in commercial litigation, and these awards were routinely upheld on appeal.  For instance, in Dymocks Franchise Systems (NSW) Pty Ltd v Bingola Enterprises Ltd [1999] 3 NZLR 239 substantial costs of $700,000 were awarded to the successful parties. An award of this character was upheld by the Privy Council : see Dymocks Franchise Systems (NSW) Pty Ltd v Todd [2004] 1 NZLR 289, para [68]). Nevertheless, this two-thirds figure was no more than an imprecise and by no means universal rule of thumb.

[13]     The consequence was that counsel, and therefore litigants, could not establish with an appropriate degree of probability what the costs of pursuing a particular course might be.  A good deal of valuable judicial time was therefore taken up in the almost inevitable costs disputes which followed the issuance of a judgment on the substantive dispute.  It was this unhealthy state of affairs which led ultimately to a comprehensive review of the then operative costs regime.

[14]     The new (and statutory) High Court scheme has at its heart the proposition that a successful party should receive a reasonable contribution towards his or her costs, being two-thirds of the costs deemed (under the new scheme) to be reasonable in a proceeding (or for that matter on an interlocutory application), having regard to the complexity and significance of the matters which were at issue and the time which was reasonably required to be taken.  Rules 47(c) and (d) expressly use the term "considered reasonable", and that reference is to the statutory scheme.  And, r47(e) expressly provides that what is an appropriate daily recovery rate, and a reasonable amount of time, does not depend on the skill or the experience of the actual solicitor or counsel involved or on the costs actually incurred by the party claiming costs.  The only reference which it is necessary to make towards actual costs is to be found in r47(f), namely that "an award of costs should not exceed the costs incurred by the party claiming costs".  This of course reinforces the thesis underlying the new scheme:  that the test is entirely an objective, and not a subjective, one. 

[15]     The point was plainly enough put by this Court in Mansfield Drycleaner's.  There the High Court had considered affidavit evidence about the costs actually incurred by a successful party, and awarded approximately two-thirds of the actual costs.  This Court stated, "we can see no departure [in this case] from any of the cost principles in the Rules other than the subjective rather than the objective starting point."  (at 668 emphasis added)

[16]     These "deemed" costs have nothing to do with actual costs, however reasonable the latter may be.  The deemed costs are established by the Rules Committee, on a national basis, after appropriate consultation.

[17]     In the result, given the mischief the revision of the costs scheme was addressing;  the terms of the High Court Rules themselves;  and the absence of any sound basis to depart from the view of the new High Court Rules this Court has previously taken, there is no basis for the first proposition advanced by Mr Grant.

The discretion to depart from scale

[18]     Rule 46(1) of the High Court Rules continues to provide that all matters relating to costs in the proceeding, or a step in the proceeding, are for the discretion of the trial court.  And r 46(2) provides that the operation of the proceeding rules is subject to the overriding discretion in r46(1).

[19]     In Body Corporate 97010 v Auckland City Council (2001) 15 PRNZ 372 this Court held that although r46 provides the High Court with an overriding discretion, that discretion is generally to be exercised in accordance with the specific rules in r47-48G.  This Court noted that although the general discretion is thereby qualified by the specific rules, the High Court Rules do not cover every eventuality.  Hence, occasionally the Judges will have to resort to the general discretion.  And in Mansfield Drycleaner's this Court said, "while r46 preserves the Court's overriding discretion, there is a strong implication that a Court is to apply the regime in the absence of some reason to the contrary." (at 668)

[20]     Given these plain statements of principle it is surprising that there have been ongoing differences of opinion between some High Court Judges as to the nature of this discretion, and the question of when it is appropriate to have regard to a party's actual costs.  Again, therefore, it is appropriate to restate the principle in straightforward terms. 

[21]     The new costs regime, as between competing parties, is of a regulatory character.  It is important that the integrity of that scheme be maintained, and that if monetary adjustments to the scale are to be made that they be made on a national basis by the Rules Committee.  In fact certain monetary adjustments were made to have effect from 1 January 2004, and there is no present reason to think that the former problem of rate obsolesce will arise. 

[22]     When a departure is to be made from the High Court Rules' allowances, it is necessary that it be done in a particularised, and principled way.  As was observed by this Court during the course of argument, the problem is a familiar one in our jurisprudence – a scheme of general application is laid down, but provision then has to be made for something that is not contemplated within the scheme or which is unfairly recognised by it. 

[23]     The allowances in the High Court Rules may be inappropriate in a given case.  In commercial litigation, the difficulties will usually arise in one of two areas – where there is an unusual volume of discovery;  or where, for some reason, the quite generous allowance of two days preparation for trial for every day of trial is inadequate.

[24]     To put this another way, there is a relatively obvious logic to the monetary allowances in the new Rules and the discretion exists to enable the unexpected and the unforeseen to be fairly accommodated.  It is not a case of r46 having an exclusionary primacy over r47 (or any other rules) : the rules are complementary, and designed to produce an effective whole.

[25]     Against those observations, we return to the present case.  Some further background is necessary.  Heath J was the trial Judge in Foodstuffs (Auckland) Ltd v Progressive Enterprises Ltd & Ors (No 2) HC AK MC680-SW02 13 November 2002.  His Honour there took the view that the discretion under r46 could be exercised on a broad, global basis.  That approach was then criticised in what Heath J described as a "thoughtful" article by Mr Andrew Beck, "Increased Costs Awards" [2002] NZLJ 443. 

[26]     In this case, "[H]aving had the benefit of argument … and having turned [his] mind more closely to the issues which arise …", Heath J said he now agreed with Mr Beck.  The Judge then said: 

Predictability and expeditious determination of costs is the notion which underpins the new costs regime.  Failure to give proper weight to that notion undermines the way in which the Rules operate.  The problem, of course, is that any system has its disadvantages.  A system dealing with costs which is not underpinned by considerations of predictability and expedition requires some form of taxation or revision of actual costs.  This Court is not well placed to make assessments of the reasonableness of actual costs (something which is currently done under costs revision procedure in Part VIII of the Law Practitioners Act 1982).  I am satisfied that it would be an inappropriate exercise of that discretion under r46 to exercise that discretion in a manner inconsistent with the express terms of the costs rule.  To that extent my decision in Foodstuffs should be regarded as having been given per incuriam.  (para [21])

[27]     The Judge then went on to say:

For the reasons I have given I conclude, somewhat reluctantly:

(a)That as a matter of construction it is not possible to give the two-thirds recovery principle set out in r47(d) of the Rules primacy over the principle that the determination of costs should be predictable and expeditious;  and

(b)That it would be an inappropriate exercise of the general discretion under r46 to increase the costs otherwise recoverable under the Rules.

For the purpose of this particular case, as I have held that the proceedings should be regarded as category 3 a rate of $1,900 per day is appropriate in terms of Schedule 2.  I also certify for second counsel for all but one day of the hearing.  The one day for which I do not certify second counsel is 16 October 2002 when Mr Hagen was questioned by me on his evidence.  (paras [22] and [23])

[28]     Mr Grant's complaint was essentially that, having gone too far in the direction of a broad discretion in Foodstuffs, the Judge had now gone too far in the other direction in this case, and unduly written down or fettered the discretion.  There is some force to the criticism.  The discretion exists, and this Court has noted that where Judges are satisfied that is appropriate to do so they ought not to hesitate to resort to the discretion.  But again, it should be noted that in approaching such an exercise it must be a considered and particularised exercise of the discretion, and not simply a matter of putting the global sum under the High Court Rules up against costs actually incurred.

[29]     Having said that, on the facts of this case it appears to us that Heath J in fact went about the quantum issue very much in the manner we have indicated.  He held that the proceeding should be regarded as category 3 at a rate of $1,900 per day.  And in relation to the critical determination of the reasonable time to allow for each step in the proceeding, the Judge held that he was "satisfied, in this particular case," that, generally, 3B should apply, but with a greater allowance in relation to inspection of documents, which was to be assessed on a 3C basis. 

[30]     The burden on an appellant in an appeal of this character is a difficult one.  It must be demonstrated on an issue of this character that the Judge has applied wrong principles of law, or was plainly wrong.  At this point of the exercise, given his involvement with what was a relatively extensive commercial case, the Judge would seem to have been particularly well placed to make the kind of assessment involved. 

[31]     Mr Grant endeavoured to meet that burden by arguing that, given the way the costs issues had unfolded, the Court was in fact denied (by its own hand) from making a proper assessment of the reasonable time which was required for trial preparation in this case.  We therefore turn now to that third issue.

Inappropriate process?

[32]     Some further factual material is required at this point.  At the conclusion of his judgment of 11 March 2003, the Judge expressed the view that costs in favour of the plaintiff should be fixed on a 3B basis save for inspection of documents, which was fixed on a 3C basis.  Counsel were then asked to agree to the quantification of costs, and were to file memoranda if they could not so agree.

[33]     Counsel in fact reached agreement on all but two items, and filed memoranda on those still in dispute.  There was a costs hearing on the 20 February 2003.  Following that hearing, both Mr Grant and Mr Land realised that they had proceeded on a mistaken view that costs were able to be claimed under paragraph 7 which only applies when a proceeding does not got to trial.  On becoming aware of this problem, Mr Grant filed a further memorandum.  Mr Land replied thereto.  Having considered the matter, Heath J held in his supplementary judgment of 6 May 2003 that he agreed with Mr Land that item 7 of the relevant Schedule to the High Court Rules 1985 "does not apply if a trial does not eventuate".  There was, therefore, no entitlement on the part of the plaintiffs to seek costs under item 7.  And further, the Judge indicated that he was not persuaded "that this conclusion" was sufficient to justify reconsideration of the order for costs previously made.  To that extent the Judge rejected Mr Grant's invitation to revisit his prior costs orders.

[34]     We are not at all disposed to interfere with this declinature of the Judge's discretion to revisit the costs order he had previously made.  Several memoranda had been filed;  there had been a costs hearing; the misunderstanding under which counsel had been labouring was clearly identified for the Judge;  the Judge was not inclined to revisit the issue.  It cannot be said that the Judge made an error of principle or was plainly wrong.  Indeed much of the difficulty which has attended this costs dispute has stemmed precisely from counsel for the appellants' misconception of the High Court Rules.  That aside, it seems plain to us that, on the merits, the Judge considered that the allowance of 17 days preparation for trial ought not to be disturbed in favour of the month or so sought by the appellants and which factor (if supportable) would have significantly altered the overall costs awarded.  We are not persuaded the Judge was plainly wrong.

Conclusion

[35]     The appeal is dismissed.  The respondents will have costs of $6,000 on this appeal, together with their disbursements, if necessary as fixed by the Registrar in the usual way.  Those disbursements are to include the reasonable travel and accommodation expenses of Mr Land. 

Solicitors:

Glaister Ennor, Auckland for the Appellants

Kensington Swan for the Respondents