Herron v Wallace
[2016] NZHC 2869
•1 December 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-1806 [2016] NZHC 2869
BETWEEN STUART WALTON HERRON
Plaintiff
AND
WAYNE ANDREW WALLACE First Defendant
SHADES OF AUTUMN LIMITED Second Defendant
BELMONT LIFESTYLE VILLAGES LIMITED
Third Defendant
Hearing: On the papers Counsel:
CT Patterson and RA Dellow for plaintiff
JWJ Graham and CF Fife for defendantsJudgment:
1 December 2016
JUDGMENT OF FAIRE J
This judgment was delivered by me on 1 December 2016 at 3:30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Skeates Law Lt, Auckland (G Skeates) Chapman Tripp, Auckland
Herron v Wallace [2016] NZHC 2869 [1 December 2016]
Introduction
[1] This judgment deals finally with the question of costs following a reserved judgment I delivered on 27 May 2016. In that judgment I entered judgment for the plaintiff against the first and third defendants for $966,531.93.1 I reserved costs and gave directions covering that aspect. Memoranda in support, opposition and reply were filed.
[2] On 12 October 2016, I delivered an interim judgment dealing with several issues including the question of costs.2 Costs could not be finalised in that judgment for reasons which were set out in it. However, I gave several rulings and directions. That judgment must be read as part of the determination I make on the question of costs in this judgment.
[3] Further conferences with counsel were held. That resulted in my making an order on 2 November 2016 appointing an expert, Mr Mark Russell barrister of Christchurch, pursuant to r 9.36. I gave directions as to the material that he was to be provided with. In addition, I ordered that he investigate and provide answers to the questions set out in the schedule to a joint memorandum of counsel dated
2 November 2016. The relevant parts of that schedule that Mr Russell was required
to report on are annexed to this judgment and are marked as “Schedule A”.
[4] In anticipation of Mr Russell’s appointment I had previously ordered, on
27 October 2016, that the plaintiff was to file and serve a memorandum:
(a) …from its cost records, a schedule of costs for which indemnity cover is claimed, with that claim omitting any steps or cost items which have not been allowed (listed at paragraph [45] of the 12
October 2016 Costs Judgment), and identifying for each step:
(i) The total actual costs of plaintiff’s counsel;
(ii) The total aggregate time incurred by all plaintiff’s counsel’
and
(iii) The total time and hourly rate for each lawyer ;
1 Herron v Wallace [2016] NZHC 1129.
2 Herron v Wallace [2016] NZHC 2427 [Interim Cost Judgment].
The plaintiffs will also set out the High Court Rules Schedule 3 time and cost allowances next to the relevant step in the Costs claim.
(b) The defendants will, by 18 November 2016, file and serve a memorandum in response to the plaintiff’s memorandum and may include an adjusted value for the schedule accounting for any disputed items.
Mr Russell’s report
[5] Mr Russell has provided the Court with his report on the questions set out in the schedule. It is annexed and marked as “Schedule B”. I am grateful to him for his report particularly as the timeframe for its completion was small and was dictated by my retirement as a High Court Judge and the need to complete a costs judgment accordingly.
[6] Mr Russell, in his report, has recorded:
(a) The material provided to him by counsel;
(b)The format agreed with counsel for the plaintiff ’s materials and the defendants’ response; and
(c) That he would deal with the indemnity costs in the tranches set out in the plaintiff’s materials which broadly, although not exactly, corresponded with Schedule 3 categories.
I endorse and approve of that approach having considered the material supplied by counsel.
[7] I also endorse Mr Russell’s summary of the broad steps of the investigation
on which I required his assistance with, namely that:
(a) He ascertain whether (or the extent to which) the costs in respect of which the plaintiff claims indemnity cover are appropriate and in particular whether (or the extent to which) any of the costs claimed are in respect of any of the “excluded items” which were summarised
by the Court in paragraphs 35 and 45 of the Interim Costs Judgment and in Question 2 of Schedule A;
(b)He undertake his “fairness and reasonableness” assessment of the claimed costs (after any adjustments have been made to remove such “excluded items”), taking into account the factors referred to under Question 4 of Schedule A; and
(c) He then opine about the uplift fee as per Questions 6-8 of Schedule A.
Mr Russell’s conclusions on the questions in Schedule A
[8] In respect of question 1, Mr Russell reports that he has reviewed all the invoices and time records provided as part of the plaintiff’s materials. He advises that the content of the narrations in the invoices closely reflect the content of the entries in the time records. It is helpful that I record here the summary of the costs and disbursements exclusive of GST for the 10 tranches that the plaintiff’s claim has been broken down to. They are:
Tranche 1 $20,256.14
Tranche 2 $5,839.90
Tranche 3 $11,376.74
Tranche 4 $16,957.88
Tranche 5 $5,636.66
Tranche 6 $54,981.69
Tranche 7 $3,295.93
Tranche 8 $5,060.24
Tranche 9 $10,942.50
Tranche 10 $258,817.84
The total of the plaintiff’s claim, excluding GST, in revised form and not counting any question of an uplift is $393,165.52. If GST is added to that figure the total becomes $452,140.35. There is a difference of $166.52 between the totals contained in the plaintiff’s memorandum, which appear to arise by a slight alteration to disbursements but are, in the circumstances of the case, de minimus.
[9] In respect of question 2(a), Mr Russell deals with tranches 1 and 2 separately and records deductions in answer to this question in respect of tranche 1 of $10,120 and in respect of tranche 2 of $2,500. Answers to this question in relation to tranches 3 to 10 are dealt with in his treatment of questions 2(b) and 4 and accordingly I will return to them at that time.
Questions 2(b), 4 and 5
[10] In relation to question 2(b), I exclude all the costs contained in Mr Russell’s table and contained in pages 7 and 8 of his report. I find that each item recorded by reference to Mr Russell’s notation is a matter which is not within the indemnity clause. However the table contains a minor mathematical error. The subtotal for tranche 9 should be $5,500. The result is there must be deducted from the summary mentioned in the answer to question 1, a total of $23,000. This, however, is picked up in the answer to question 4, which I will now deal with.
[11] In relation to question 4, I adopt and therefore do not repeat Mr Russell’s summary of the law and his general observations. I am, indeed, indebted to him for the significant analysis which has been carried out in relation to the plaintiff’s claims. Having regard to the conclusion I have reached, it is appropriate that I record that I adopt in total the deductions under the column “Total incl of 2(b)”, which is $91,285 when the error above is corrected.. There needs to be an additional global deduction made to that for the reasons which are recorded in Mr Russell’s report so that the total deduction is $101,285.
[12] The result of that assessment is the costs and disbursements, exclusive of GST, which I find are appropriate and therefore covered by the indemnity clause, total $291,880.52. To that sum must be added GST on the total sum, but subject to
the reservation I refer to later in this judgment. In short, the figure inclusive of GST
is $335,662.60.
[13] In respect of question 3 and a comparison with the High Court Rules
Schedule 3 costs, I accept Mr Russell’s proposition that a comparison to Schedule 3
Category 2 Band B time and cost allowance is of limited relevance in the context of an order for indemnity costs. In so doing he cites the comments of Harrison J in Bradbury v Westpac Banking Corporation to that effect.3 The plaintiff’s memorandum helpfully sets out a summary of attendances at scale rates, which I
now repeat:
Scale
Total
$
2B
84,294.00
2C
160,114.00
3A
75,600.00
3B
111,900.00
3C
224,100.00
Questions 6 to 8
[14] My interim judgment of 12 October 2016 did not undertake an analysis of the contractual position relative to the question of whether or not a clause in the Sidmouth Settlement Deed contemplated a liability being imposed on the defendants by way of a premium or top up of normal solicitor/client costs. Before any question of an uplift can be considered, there is a need to determine whether same was within the contemplation of the parties when they entered into the Sidmouth Settlement Deed in October 2005. At the time of entry into the Sidmouth Settlement Deed, conditional fee arrangements were unenforceable in New Zealand for public policy
reasons.4
3 Bradbury v Westpac Banking Corporation (2008) 18 PRNZ 859 (HC).
4 Kain v Wynn Williams [2013] NZSC 26 at [2].
[15] The defendants submit, correctly in my view, that in the circumstances of the case a success uplift or premium is not covered by the words “costs” on a “solicitor/client” basis. The possibility that such a premium might be charged by a legal practitioner was introduced for the first time by the Lawyers & Conveyancers Act 2006.
[16] In reaching the conclusion I have, I record that the question I must consider is: what recovery did the parties expressly or impliedly intend under the indemnity clause at the time they entered into their contract? This question is a question of contract interpretation and simply requires the application of the ordinary principles
of contract construction.5 In short, what would a reasonable and properly informed
bystander consider the parties intended the provision in their contract to mean?6 I accept the defendants’ submission that the interpretative exercise which I am required to carry out involves an assessment of both the text and purpose. First, when one considers the plain and ordinary meaning of the relevant provision which, in this case is the indemnity provision. Second, what the parties’ intentions were assessed by reference to the background and circumstances in which they were involved at the time of the contract.7 The arrangement entered into by the plaintiff with his solicitors would not have been contemplated and I am sure would not have been entertained by the solicitors at the time the contract was entered into given the legal status of premiums at that time..
[17] On the matter of interpretation therefore I conclude that the provision in the Sidmouth Settlement Deed did not include an uplift or premium as part of solicitor/client costs. It is unnecessary for me to investigate the matter further or, indeed, to record the helpful analysis of the position had a different view been reached, which was set out by Mr Russell. In recording this, Mr Russell was very careful to record that he does not enter into an expression of an opinion on the
interpretative exercise. That is a matter solely for myself.
5 Watson & Son Ltd v Active Manuka Honey Association [2009] NZCA 595 at [21].
6 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [19].
7 Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 (HL)
28 at 912-913 per Lord Hoffman; Boat Park Ltd v Hutchinson [1999] 2 NZLR 74 (CA) at 82.
[18] Although it is unnecessary to record the position, it is noteworthy there was no attempt in the initial pleadings to record any reference to an uplift or premium.
[19] Subject to the caveat I record in relation to GST, the plaintiff may seal an order for costs in the sum of $335,662.60.
The GST position
[20] Mr Russell’s calculations were GST exclusive although an allowance for
GST was not excluded by any of his conclusions. The plaintiff, in his affidavit of
9 June 2016, swears to the fact that he is not registered for GST purposes. He might have gone a little bit further and confirmed that no GST input credit had been claimed by him or by his related entities on any amounts or items included in the cost claim. Because the defendants have raised the issue, out of an abundance of caution, I order that this judgment shall not be sealed until the plaintiff has certified to the Registrar that no GST input credits have been claimed by him or by his related entities on any of the amounts or items included in the cost claim in this proceeding. Subject to that caveat, the conclusions recorded in this judgment may be sealed and, if necessary, appropriately enforced.
Costs in relation to this application for costs
[21] In my minute of 2 November 2016, I ordered:
[6] The costs of Mr Russell in the first instance shall be paid in accordance with s 99A(1)(b) of the Judicature Act 1908 or any section passed in substitution for it. It is likely that the ultimate liability for payment of Mr Russell’s costs, however, will be the subject of a specific order made pursuant to r 9.41.
[22] Mr Russell’s costs are part of the steps required to be taken by the plaintiff and are covered by the indemnity provision in the Sidmouth Settlement Deed. Accordingly, I order that the defendants reimburse the Chief Executive of the Department for Courts for payments made by the Chief Executive in respect of Mr Russell’s costs.
[23] The plaintiff sought costs on a 2B basis with a 50 per cent uplift for submissions in respect of this judgment. Although allowances for preparation of cost memoranda have been allowed in a number of cases,8 I do not make a further allowance for this item in this case. That is because there has been a significant reduction in the amount allowed from the amount claimed and because the plaintiff’s
case could not be properly analysed without the assistance of Mr Russell’s report.
JA Faire J
8 Auckland Regional Council v Arrigato Investment Ltd (2002) 16 PRNZ 217 (HC), Parsot v
Greig Developments Ltd (2008) 18 PRNZ 995 (HC)
SCHEDULE “A”
Revised reasonableness assessment questions (agreed by parties
1.
Identification of costs on each step
For each step identified in the plaintiff’s costs claim, what were:
(a) The total actual costs of plaintiff’s counsel;
(b) The total aggregate time incurred by all plaintiff’s counsel; and
(c) The total time and hourly rate for each lawyer; In relation to that step?
2.
Excluded costs and costs not within indemnity
Please identify any costs or step, or on any item making up part of a claimed step, which in your expert view relate to:
(a) An excluded matter in terms of para [35] of Hon Justice Faire’s 12
October 2016 Costs Judgment; or
(b) A matter not strictly fitting within the indemnity under the applicable Indemnity Clause in the Sidmouth Settlement Deed (clause 12, reproduced in Schedule 2 to this memorandum).
These excluded steps or costs may be those which relate to:
(i) The plaintiff’s unsuccessful claim to recover a $600,000 sum,
plus interest, said to be owed under the “SH9” agreement;
(ii) The plaintiff ’s alternative (ultimately withdrawn) “implied term”
cause of action against the defendants;
(iii) The plaintiff’s unsuccessful claims for contractual interest on the Sidmouth Settlement Deed debt, which were not accepted by the Court because the plaintiff had made no demand(s) for interest;
(iv) The plaintiff’s evidential objections raised at the April 2016
resumed hearing which were largely unsuccessful; or
(v) Any other matter for which costs are not recoverable under the indemnity, insofar as the costs in issue:
(A) Are unrelated to the Sidmouth Settlement Deed or the defendants’ alleged breaches of that deed, or the plaintiff’s enforcement of the deed, and so are not strictly covered by
the indemnity; and/or
(B) Are otherwise unrecoverable under the indemnity, because the applicable costs were incurred on a step in which the plaintiff was either:
(1) Unsuccessful (and so the applicable step was not in “enforcement” of the Sidmouth Settlement Deed, as contemplated by [38] of the Costs judgment); or
(2) Was not reasonably undertaken (para [37] of the
Costs Judgment); or
(3) Would not reasonably have been required if the plaintiff only advanced his successful causes of action.
Where any such costs are identified, please:
(c) Specify and quantify the excluded costs; and
(d) Deduct any such excluded costs from the total time identified at Q1 for the applicable step (giving the adjusted costs for the revised step).
3.
Comparison to HCR schedule costs
What is the time allowance in Schedule 3 of the High Court Rules for each of the steps for which costs (and adjusted costs, if applicable) have been calculated under Q1 and Q2?
4.
Fairness and reasonableness assessment
Are the plaintiff ’s total costs for the applicable step (Q1) fair and reasonable costs, with fairness and reasonableness to be determined by reference to, inter alia:
(a) The time allowed for the applicable step in Schedule 3 of the High Court
Rules; and
(b) The Lawyers: Conduct and Client Care Rules 2008 (R9) and the reasonable fee factors in those rules (R9.1); and
(c) The circumstances of this case.
Where, under Q2, adjusted costs have been identified for a step or steps, please also assess the fairness and reasonableness of the plaintiff’s adjusted costs, by reference to the same factors.
5. Proposed alternative values if costs found to be unreasonable
If, under Q4, you consider the plaintiff ’s costs for the particular step are not fair and reasonable, then what do you consider to be a fair and reasonable cost for the applicable step, with fairness and reasonableness again to be determined by reference to the factors set out at Q4?
6.
Uplift (conditional fee arrangement) (alternative assessments)
Is it ever fair and reasonable for a lawyer to charge a client an uplift fee on the conditions set out in Chris Patterson Barrister Limited’s contingency terms of engagement?
7.
If yes to Q6, which, in your expert view in the circumstances applying to this matte, was a fair and reasonable percentage uplift to charge?
8.
Separately and in the alternative to questions 6 and 7, is the uplift in this case fair and reasonable in circumstances where:
(a) The uplift was triggered where that plaintiff succeeded on approximately
15% of his original claims; and/or
(b) The 75% uplift arrangement arose because the plaintiff was having
difficulty paying counsel’s fees on a progress basis?
For clarity, in Questions 5 to 8, “fair and reasonable” is to be determined with reference to the Lawyers: Conduct and Client Care Rules 2008 ($9 and to the reasonable fee factors in those rules (R9.1)).
0
5
0