GNLC Limited v Daji HC Auckland CIV-2009-404-8510
[2011] NZHC 1442
•11 October 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2009-404-8510
BETWEEN GNLC LIMITED Plaintiff
ANDYVONNE DAJI First Defendant
ANDREALTIES BUSINESS BROKERS LIMITED
Second Defendant
CIV-2009-404-8514
AND BETWEEN GNLC LIMITED Plaintiff
ANDGAVIN DAJI AND PARVATI BIKLEY AS TRUSTEES OF THE G DAJI FAMILY TRUST NO 2
First Defendants
ANDREALTIES BUSINESS BROKERS LIMITED
Second Defendant
CIV-2009-404-8520
AND BETWEEN GNLC LIMITED Plaintiff
ANDGAVIN DAJI First Defendant
ANDREALTIES BUSINESS BROKERS LIMITED
Second Defendant
Hearing: On the papers
Counsel: A Commons for GNLC Limited
GNLC LTD V DAJI HC AK CIV-2009-404-8510 11 October 2011
L Ponniah for Mrs Yvonne Daji
Mr Daji in person
A Ross and M Wisker for second defendant
Judgment: 11 October 2011 at 11:00 AM
JUDGMENT OF LANG J [on costs]
This judgment was delivered by me on 11 October 2011 at 11 am, pursuant to Rule
11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
[1] On 16 August 2011 I delivered judgment in these proceedings.[1] In each proceeding I made an order requiring the first defendant to specifically perform the contract or contracts that were the subject of the proceeding.
[1] Great Northern Land Company Ltd v Daji (No. 2) HC Auckland CIV-2009-404-8510, 16 August 2011.
[2] I made that order because the first defendants failed to establish that they had been induced to enter into the contracts by misrepresentations made by Mr Truscott, a real estate agent employed by the second defendant, Realties Business Brokers Limited (“Realties”). Realties had acted as the plaintiff’s agent in marketing the properties that the first defendants agreed to purchase. As a consequence, the first defendants were not entitled to cancel the contracts, or to seek damages or compensation in respect of the alleged misrepresentations. This also meant that I was not required to consider the plaintiff’s claim against Realties. Realties was only added to the proceeding after the first defendants alleged that they had been induced to enter into the contracts by misrepresentations made by Realties.
[3] I am now required to determine the issue of costs. In determining that issue four discrete sub-issues arise:
(a) Is GNLC Ltd (“GNLC”) entitled to claim costs in respect of the
proceedings?
(b) Is GNLC entitled to indemnity or increased costs?
(c) Should the first defendants be jointly and severally liable for all costs or should costs be divided equally between them?
(d) Who should be required to contribute towards Realties’ costs?
Is GNLC entitled to an award of costs?
[4] This issue arises because GNLC was not the original plaintiff in each proceeding. Each of the proceedings was originally filed by a company called Great
Northern Land Company Limited (Great Northern”).
[5] After the trial had concluded, but before I delivered my judgment, GNLC applied to be substituted as plaintiff in each of the proceedings. After hearing argument from counsel on 8 and 10 August 2011, I delivered a judgment on
16 August 2011 in which I granted an application by GNLC to be substituted as the plaintiff in each proceeding in place of Great Northern.[2]
[2] Great Northern Land Company Ltd v Daji (No. 1) HC Auckland CIV-2009-404-8510, 16 August 2011.
[6] GNLC was entitled to be substituted as plaintiff in each proceeding because, on 22 June 2011, it entered into an agreement with Great Northern under which it agreed to purchase certain assets from Great Northern (“the 22 June agreement”). These included the sections that the first defendants had agreed to purchase. In addition, Great Northern sold to GNLC:
Any and all benefits in any contract relating to the certificates of title whether or not the due date for performance has passed under those contracts.
[7] Neither GNLC nor Great Northern initially advised any of the defendants of the existence of the 22 June agreement. Instead, by letter dated 24 June 2011 GNLC required Great Northern to prosecute the proceedings “in the name of Great Northern as trustee for and on behalf of GNLC”. In a minute dated 7 July 2011, however, this Court made an order appointing interim liquidators to manage Great Northern’s affairs.[3] This prompted GNLC to advise Great Northern on the same date that it had revoked the requirement that it had imposed in its letter dated 24 June 2011. GNLC also advised Great Northern that it would thereafter proceed in its own name in
respect of all matters that were the subject of the 22 June agreement. This led GNLC to file the application to be substituted as plaintiff in each of the present proceedings. None of the defendants were aware of GNLC’s interest in the proceedings until I directed that GNLC’s application for substitution as plaintiff was to be served on them.
[3] Transfield Services (New Zealand) Ltd v Great Northern Land Company Ltd HC Auckland CIV-
2011-404-3997, 7 July 2011.
[8] Counsel for Mrs Daji contends that GNLC is not entitled to an award of costs in respect of any steps taken in the proceeding prior to the point at which it gave
notice to the defendants of the existence of the 22 June agreement. Given that that
did not occur until after the trial had concluded, he submits that GNLC is not entitled to costs in respect of any steps taken up to and including the trial. He submits that the only party that might be entitled to costs in respect of those steps is Great Northern, and to date its interim liquidators have not seen fit to make a claim for costs.
[9] This submission ignores the effect of the 22 June agreement. Under that agreement GNLC acquired from Great Northern “any and all benefits in any contract” relating to the land that it purchased under the agreement. GNLC thereby became entitled to all of the benefits arising out of the agreements that Great Northern had entered into with the first defendants. One of those benefits was the right to take over and conclude the enforcement of those agreements through the proceedings that Great Northern had already issued. Having done that successfully, GNLC was also entitled to the benefit of any costs to which the plaintiff might be entitled in respect of those proceedings. The fact that GNLC did not incur all of the costs relating to the proceedings is irrelevant. Its ability to make a claim for costs arises because it purchased the right to continue the proceedings from Great Northern.
[10] I am therefore satisfied that GNLC is entitled to stand in the shoes of Great
Northern in relation to the issue of costs.
Should GNLC be entitled to indemnity or increased costs?
[11] GNLC accepts that costs should be ordered on a Category 2 Band B basis in respect of all steps taken up to and including 1 July 2010. Thereafter, however, it contends that it should receive indemnity costs in respect of all steps taken up to and including trial. It accepts, however, that it is not entitled to costs in relation to GNLC’s application to be substituted as plaintiff in the proceedings, because I fixed costs in relation to that application when I determined it.
Indemnity costs
[12] GNLC bases its claim for indemnity costs on the fact that, commencing on 2
July 2010, Great Northern consistently made offers to the first defendants to settle each proceeding so as to avoid the inevitable cost of proceeding to trial. It says that the offers of settlement that Great Northern made to the first defendants were on more favourable terms for the first defendants than those that the vendor could insist upon if it relied upon its rights under each agreement.
[13] Great Northern was entitled under each agreement to charge the purchaser penalty interest on the purchase price for late settlement of the agreement. Great Northern offered to forego any claim for penalty interest if the first defendants would complete the purchase of each agreement. It also offered to allow costs to lie where they fell in relation to each of these proceedings. Furthermore, Great Northern offered to assist the first defendants to obtain finance to permit them to complete the agreements. This included an offer to provide them with vendor finance.
[14] GNLC points out that the first defendants are now plainly in a much worse position than they would have been if they had accepted Great Northern’s offers. They are now required to specifically perform each of the agreements, and the Court’s judgment means that they will be required to pay both penalty interest and costs.
[15] Great Northern made its offers of settlement on a “Calderbank” basis. It advised the first defendants that, if they did not accept the offers and fared no better at trial, Great Northern would bring the existence of the offers to the Court’s attention in relation to the issue of costs. It said that it would use them in support of an argument that the first defendants should be required to pay costs on an indemnity basis
[16] The first defendants spurned all of these offers. They made a counter-offer, but this only extended to an offer to complete of three of the five agreements that were in issue in these proceedings.
[17] Rule 14.6 of the High Court Rules gives the Court jurisdiction to make an order requiring an unsuccessful party to pay increased or indemnity costs to the successful party. It relevantly provides:
14.6 Increased costs and indemnity costs
(1) Despite rules 14.2 to 14.5, the court may make an order—
(a) increasing costs otherwise payable under those rules (increased costs); or
(b) that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party (indemnity costs).
(2) The court may make the order at any stage of a proceeding and in relation to any step in it.
(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.
(4) The court may order a party to pay indemnity costs if—
(a) the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or
(b) the party has ignored or disobeyed an order or direction of the court or breached an undertaking given to the court or another party; or
(c) costs are payable from a fund, the party claiming costs is a necessary party to the proceeding affecting the fund, and the party claiming costs has acted reasonably in the proceeding; or
(d) the person in whose favour the order of costs is made was not a party to the proceeding and has acted reasonably in relation to it; or
(e) the party claiming costs is entitled to indemnity costs under a contract or deed; or
(f) some other reason exists which justifies the court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious.
[18] Rules 14.10 and 14.11 are also relevant in the present context:
14.10 Written offers without prejudice except as to costs
(1) A party to a proceeding may make a written offer to another party at any time that—
(a) is expressly stated to be without prejudice except as to costs;
and
(b) relates to an issue in the proceeding.
(2) The fact that the offer has been made must not be communicated to the court until the question of costs is to be decided.
…
14.11 Effect on costs
(1) The effect (if any) that the making of an offer under rule 14.10 has on the question of costs is at the discretion of the court.
(2) Subclauses (3) and (4)—
(a) are subject to subclause (1); and
(b) do not limit rule 14.6 or 14.7; and
(c) apply to an offer made under rule 14.10 by a party to a proceeding (party A) to another party to it (party B).
(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.
(4) The offer may be taken into account, if party A makes an offer that—
(a) does not fall within paragraph (a) or (b) of subclause (3); and
(b) is close to the value or benefit of the judgment obtained by party B.
[19] The fact that GNLC can point to the existence of Calderbank offers does not necessarily mean that it is entitled to an award of increased or indemnity costs. Rule
14.11(2) makes it clear that costs remain at the discretion of the Court, and that the application of the rule does not limit the effect of r 14.6. As a result, Great Northern must still bring itself within r 14.6 if it wishes to obtain an award of increased or indemnity costs.
[20] I do not consider that the Court would be justified in awarding indemnity costs under any of the sub-clauses set out in r 14.6(4). Although the first defendants may not have acted wisely in refusing to accept Great Northern’s offers, I do not consider that they acted vexatiously, frivolously, improperly or unnecessarily in continuing to defend the proceedings. In the substantive judgment I found that the first defendants did not fabricate their allegations of misrepresentation. Rather, I took the view that, once the first defendants knew that they had no option but to settle the agreements, they viewed their earlier dealings with Mr Truscott in a
different and unfavourable light.[4] For this reason I do not consider that an award of
indemnity costs would be appropriate.
Increased costs
[4] At [111].
[21] I am satisfied, however, that the offers that Great Northern made were eminently reasonable. They were certainly far more favourable to the first
defendants than the terms of the judgments that have now been sealed.
[22] I accept, however, that the first defendants could reasonably have been expected to accept the offer when it was first made in July 2010. At that stage it is unlikely that their solicitors would have had the opportunity to properly consider the first defendants’ allegations in light of the contemporaneous documentation that was so important to the ultimate outcome of this case.
[23] The position was different, however, by 1 May 2011. By that stage the parties had engaged in extensive interlocutory skirmishing. This included discovery, particulars and interrogatories. They had also attended a judicial settlement conference on 25 March 2011, and would have become aware through that process of the strengths and shortcomings of each other’s cases. In particular, the first defendants must have been aware by that stage of the problem posed by the documentation that was produced during the period leading up to, and following, the date upon which they were required to settle each agreement. This did not support their claim that they were under the misapprehension that they would have no difficulty in on-selling each section prior to settlement for not less than $300 per square metre. In a case that would inevitably be determined on a finding of credibility, this was a very significant problem for the first defendants. It meant that they must, or should, have realised that they faced very real risks if they proceeded to trial.
[24] Any reasonable litigant in their position would therefore have sought to minimise the damage that they were likely to suffer. For that reason the first defendants ought to have accepted the offer of settlement that Great Northern made on 11 April 2011. They had the opportunity to do that when Great Northern sent them a deed of settlement for execution on 1 May 2011. Had they signed that deed, their predicament would have been far less dire than it is now. I am therefore satisfied that the first defendants’ refusal to sign the deed of settlement on 1 May
2011 was without reasonable justification in terms of r 14.6(3)(b)(v).
[25] For that reason I direct that GNLC is entitled to an award of increased costs as from 1 May 2011. The increased costs are to be calculated on a Category 2B basis uplifted by 50 per cent.
Should a joint and several award of costs be made against the first defendants?
[26] GNLC is entitled to costs against each of the first defendants on a Category 2
Band B basis in respect of all steps taken in each proceeding up until 1 May 2011. Thereafter, the only remaining steps were preparation for trial and appearance at the trial. Mr Daji appeared in person to defend the claim against him and the claim against the trustees of the G Daji Family Trust No. 2. Mrs Daji appeared through counsel to defend the claim against her. The trial of all three proccedings, however, proceeded on a joint basis.
[27] Had each proceeding been tried separately, the three trials would all have been of approximately the same length as the joint trial that was ultimately held. For that reason there can be no injustice to the first defendants if they are jointly and severally subject to a single award of costs in respect of preparation for trial and the trial itself.
Who should pay the costs of the second defendants?
[28] As indicated above, Realties was only joined to this proceeding after the first defendants made allegations of misrepresentation against Mr Truscott. It was necessary for the plaintiff to join Realties as a defendant so that, if the first defendants’ claims were upheld, it would have a remedy against its agent. I do not accept the submission for Mrs Daji that the plaintiff could have protected itself adequately by calling Mr Truscott as a witness. That would have left the plaintiff without a remedy in the event that the first defendants succeeded in establishing their allegations of misrepresentation. The plaintiff was therefore fully justified in joining Realties as a defendant.
[29] Their allegations having been found to be without substance, the first defendants should be required to meet Realties’ costs. It makes no difference for present purposes that the second defendant is now in liquidation and its defence of the proceeding was conducted by its insurer.
[30] Realties is therefore entitled to a single award of costs calculated on a
Category 2 Band B basis, together with its disbursements.
Orders
[31] I make the following orders:
(a) GNLC is awarded costs against the first defendant in each proceeding on a category 2 Band B basis in respect of all steps taken up to
30 April 2011.
(b)GNLC is awarded costs against the first defendant in each proceeding calculated on a Category 2 band B basis but increased by fifty per cent in respect of all steps taken after 1 May 2011 up to but not including preparation for trial and appearance at trial.
(c) The first defendants are jointly and severally subject to a single award of costs in favour of GNLC in respect of preparation for trial and appearance at trial. Those costs are to be calculated on a Category 2
Band B basis but increased by fifty per cent.
(d)GNLC is entitled to recover its disbursements from the first defendant in each proceeding, those disbursements to be fixed by the Registrar in the event that counsel cannot reach agreement.
(e) The first defendants are also jointly and severally liable in respect of a single award of costs and disbursements in favour of Realties. Those costs are to be calculated on a category 2 Band B basis as set out in
the memorandum of counsel for Realties dated 5 September 2011.
Lang J
Solicitors:
Hornabrook Macdonald Lawyers, Auckland
Keegan Alexander, Auckland Chapman Tripp, Auckland Counsel:
Mr A Commons, Auckland
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