Herron v Wallace
[2016] NZHC 2427
•12 October 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-1806 [2016] NZHC 2427
BETWEEN STUART WALTON HERRON
Plaintiff
AND
WAYNE ANDREW WALLACE First Defendant
SHADES OF AUTUMN LIMITED Second Defendant
BELMONT LIFESTYLE VILLAGE LIMITED
Third defendant
Hearing: On the papers Counsel:
CT Patterson and DW Grove for plaintiff
JE Hodder QC and CF Fife for first and third defendantsJudgment:
12 October 2016
JUDGMENT OF FAIRE J [Costs]
This judgment was delivered by me on 12 October 2016 at 2:30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Skeates Law, Auckland (G Skeates) Chapman Tripp, Auckland
Herron v Wallace [2016] NZHC 2427 [12 October 2016]
Table of Contents
Introduction ............................................................................................................[1] The plaintiff’s claim ...............................................................................................[3] The appeal and the stay and recall applications .....................................................[4] The remaining costs issues ...................................................................................[17] The recall of the costs order made on 19 November 2015 ..................................[18] Foundation for the indemnity costs claim ............................................................[22] Broad breakdown of indemnity costs claim .........................................................[24] The defendants’ opposition to the indemnity costs claim ....................................[28] The indemnity costs claim analysed ....................................................................[29] Summary of the position ......................................................................................[44] Conclusion............................................................................................................[47] Orders ...................................................................................................................[48]
Introduction
[1] On 27 May 2016, I delivered a reserved judgment in which 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.
[2] Memoranda in support, opposition and reply have been filed.
The plaintiff ’s claim
[3] The plaintiff has sought:
1 Herron v Wallace [2016] NZHC 1129.
(a) Release of security for costs paid to the Registrar in the sum of
$15,000;
(b) Recall of a costs order I made on 19 November 2015, which provided:
I order:
…
b)That the defendants pay costs of the application based on Category 2 Band B and disbursements as fixed by the Registrar. Such costs to be paid within ten working days of the service of a sealed copy of this order on the address for service of the defendants; and
c)That the defendants shall pay the hearing fees for the resumed trial, which will commence at 10 am on 4 April
2016 in accordance with the Registrar’s directions.
(c) An order that the first and third defendants pay the plaintiff’s actual costs, disbursements and witnesses’ expenses in the sum $856,650.51 in reliance on r 14.6(1)(b) in conjunction with r 14.6(4)(e) or, in the alternative, increased costs in reliance on r 14.6(1)(a).
The appeal and the stay and recall applications
[4] On 8 June 2016, the first and third defendants filed an application for stay of execution. The grounds relied upon where the filing of an appeal in respect of my judgment.
[5] On 10 June 2016, the plaintiff filed a memorandum seeking an order for costs.
[6] Also on 10 June 2016, I issued a minute calling a conference to deal with the application for stay for 22 June 2016.
[7] On 15 June 2016, the defendants filed an amended application for stay which sought a recall of my judgment and also signalled that a new proceeding seeking the recall of my judgment had been filed.
[8] Counsel conferred and filed a memorandum on 20 June 2016, recommending directions for the disposal of the amended application for stay. I issued a minute on
21 June 2016 which gave directions in reliance on counsel’s memorandum and fixed a date of hearing for the amended application for 21 September 2016.
[9] On 22 June 2016, the plaintiff filed an affidavit in support of his request for costs. A draft of the affidavit had been filed with the plaintiff’s counsel’s memorandum of 10 June 2016.
[10] On 24 June 2016, counsel for the defendants filed a memorandum in answer
to the plaintiff’s memorandum on costs.
[11] On 8 July 2016, the plaintiff’s counsel filed a memorandum in reply on the
question of costs. That was accompanied by an affidavit from A Bragg.
[12] The matter was not immediately referred to me. I issued a minute on
2 August 2016 as I was about to leave the Court on leave and recorded that I did not have the benefit of all the material that I needed to fully consider the question of costs and what the appropriate time for determination of costs was. I noted the following points:
(a) The request for the release of security for costs was not specifically addressed in the memorandum filed by the defendants;
(b)I noted the defendants’ submission that the question of costs should be deferred pending the determination of the defendants’ application for stay or recall; and
(c) The defendants’ counsel was asked to confirm that the security paid was $15,000. I gave my preliminary view that the security should be released to the plaintiff and invited counsel for the defendants to advise if counsel disagreed with that position. I also requested further information which did not appear in the material that had been made available to me.
[13] Memoranda were then received from counsel. As a result, I issued a minute on 16 August 2016 in which I recorded that the central issue at the 21 September
2016 hearing would be the conduct of the parties and, because of that, I determined that it was appropriate to reserve the question of costs until that matter had been considered. On the question of security for costs, I ordered that the $15,000 security for costs which had been paid in, be paid to the plaintiff.
[14] With this judgment, there will be issued a judgment on the first and third defendants’ amended application for recall and rescission of part of my judgment or, alternatively, staying execution of the judgment pending determination of a new proceeding issued by the defendants against the plaintiff, on the issue which was the subject of recall and, also, dealing with the defendants’ application for stay pending appeal.
[15] The recall, rescission and partial rehearing and application for stay pending the determination of the new proceeding, was declined in that judgment. An order granting a stay on conditions pending the determination of the appeal from my judgment of 27 May 2016 was made.
[16] Apart from the question of costs on the recall, rescission and stay pending determination of a rehearing or the new proceedings, the remaining issues pending the appeal to the Court of Appeal is the question of costs on my judgment of 27 May
2016. I now consider that issue.
The remaining costs issues
[17] In view of the order made on 16 August 2016 releasing the security for costs to the plaintiff, the remaining matters requiring analysis in this judgment are:
(a) Whether I should recall the order for costs made in the minute of
19 November 2015; and
(b) The appropriate costs order following my judgment of 27 May 2016.
In this respect the plaintiff seeks an indemnity costs order.
The recall of the costs order made on 19 November 2015
[18] The order I made on 19 November 2015 followed the plaintiff’s counsel’s advice that the plaintiff no longer opposed the defendants’ application to file and serve an amended statement of defence. The defendants were essentially successful in that application. They achieved that success by being granted an indulgence, namely the ability after the commencement of the hearing of the application to file evidence in support of the amendment before determination of the application. It also came very late in the case and in a period between the two substantive hearings of the proceeding. Although not expressed in my minute, I regarded the position as one where the general discretion to order costs should be exercised and that the appropriate way to meet the situation was for the defendants to pay costs on a Category 2 Band B basis in respect of the application, together with disbursements as fixed by the Registrar even though, as a result of the indulgence, the defendants succeeded with their application.
[19] That exercise should be capable of analysis to the satisfaction of the Registrar so that order can be sealed. I had fixed the category. Each step for the application is referred to in Schedule 3. Finalisation of my order is a matter that can be dealt with by the Registrar.
[20] I am not satisfied that there is any proper basis for interfering with the order I made on 19 November 2015. The request to review it has been made well outside the time specified in r 7.49 for the rescinding of an interlocutory order, although I regard the timing of the request as being incidental to my decision to refuse the plaintiff’s request.
[21] Accordingly, that part of the plaintiff’s memorandum seeking costs, dealing
with the recall of the order made on 19 November 2015 is refused.
Foundation for the indemnity costs claim
[22] The Sidmouth Settlement Deed contained the following provision in clause
12:
Wayne Wallace, Shades of Autumn Limited and Belmont Lifestyle Village Limited execute this Agreement as principal parties and each guarantee that the other will perform all of that other party’s obligations pursuant to this Agreement. In the event one party is in breach of this Agreement Stuart Herron shall be entitled to require any other party to this Agreement to perform the obligations of the party in breach as if party were principally required to perform that obligation. All parties to this Deed indemnify Stuart Herron from any losses suffered by Stuart Herron and agree to pay Stuart Herron’s legal costs on an indemnity (solicitor-client basis) in enforcing this Agreement in the event of any breach of it by any party …
[23] The Sidmouth Settlement Deed is the Deed on which I found the defendants liable to pay the plaintiff the sum of $966,531.92.
Broad breakdown of indemnity costs claim
[24] The plaintiff seeks costs, including disbursements, of $856,650.51. That includes GST. The plaintiff is not registered for GST purposes and is therefore entitled to no GST input credit. The amount claimed represents the amount he has been invoiced for legal services and he expects is the overall nett amount that he must pay.
[25] The amount claimed includes a 75 per cent uplift fee. The base fee is
$571,798.44. That has been the subject of invoices covering 14 fee earners including counsel, Mr Patterson. The other 13 are staff employed either by Mr Patterson or, more latterly, by a limited liability company which bears his name. Hourly rates charged vary from Mr Patterson’s current rate of $525 per hour down to $120 per hour for some fee earners.
[26] The uplift arises from an agreement made between the plaintiff and counsel, Mr Patterson. It arose because the plaintiff says he was having difficulty in paying counsel’s fees on a progress basis. The agreement provides that a 75 per cent uplift would be payable on the sealing of a judgment or agreement or offer to settle. The consideration for the fee uplift was said to be Mr Patterson’s agreement not to require payment of the fees as invoices were issued and, on the other hand, continuing to act for Mr Herron on a conditional basis. The amount of the uplift is
$284,852.07.
[27] There is a further aspect, and that is it appears that a second arrangement concerning fees was made whereby a 10 per cent discount was given on the basis that the discount would be reversed on a successful outcome. The amount for which an invoice has been issued in respect of that matter is $14,387.96. That is included in the total sum claimed.
The defendants’ opposition to the indemnity costs claim
[28] I extract from counsel’s memorandum the following matters in opposition. Now that a judgment on the recall/rescission/stay application has been given, the issues that I have extracted are issues which were not specifically dealt with in that judgment. Thus, the remaining matters in opposition are, in summary, as follows:
(a) A number of attendances which the plaintiff’s counsel has invoiced the plaintiff for are not directly related to enforcing the Sidmouth Settlement Deed, or have been the result of unsuccessful steps taken by the plaintiff in this proceeding as he attempted to enforce the Sidmouth Settlement Deed;
(b)The plaintiff has succeeded in a minority of the matters which he made the subject of his claim, which represents approximately 20 per cent in value of the amount claimed. The importance of this position, in this particular case, is that the plaintiff’s claims were all additional claims not alternative claims. Each had to be separately analysed. A success or failure in one did not necessarily pre-determine the position with respect to another issue. Therefore, by the application of r 14.7(d) a reduction in costs because of the failure in relation to a cause of action or issue which significantly increased the costs of the party opposing costs is claimed to be justified;
(c) The quantum of indemnity costs claimed is disproportionate to the amount for which the judgment was entered;
(d)There has been non-compliance with continuing discovery obligations which, I interpolate, justifies adjustment having regard particularly to r 14.7(f)(i) and (iv); and
(e) The fee of $284,852.07, being the uplift fee, is not within the indemnity cost clause’s plain and ordinary meaning. At the time of execution of the Sidmouth Settlement Deed such arrangements would probably have been unenforceable as contrary to public policy. That position changed with the passage of the Lawyers and Conveyancers Act 2006. Nevertheless, it is claimed that Mr Wallace could not have reasonably contemplated a liability for such an uplift.
The indemnity costs claim analysed
[29] The claim made is based on an express provision in the Sidmouth Settlement Deed. It therefore engages r 14.6(1)(b) and (4)(e). In short, the Court must determine what costs payable by the plaintiff in terms of the deed have been reasonably incurred.
[30] I must assess whether the tasks undertaken were:2
(a) Reasonably necessary;
(b) Covered by the contract clause;
(c) Whether the rate was reasonable; and
(d)Whether any other general contract law principals deny the claimant a right of recovery.
[31] In Watson & Son Ltd v Active Manuka Honey Association the Court of
Appeal, after reviewing the authorities, concluded:3
2 Watson & Son Ltd v Active Manuka Honey Association [2009] NZCA 595.
3 At [35].
It is clear in principle and on authority that once it is established that the indemnity is applicable in the circumstances and that, properly construed, it includes solicitor–client costs, no discretion remains available other than on public policy grounds or as part of an assessment by the court as to whether the amount of the solicitor – client costs is objectively reasonable …
The Court earlier endorsed the principles referred to by Fisher J in a judgment of the Court of Appeal in Frater Williams & Co Ltd v Australian Guarantee Corporation (NZ) Ltd:4
The ANZ Banking case … established that in principle one party may contractually bind itself to pay the other party’s full solicitor–client costs. In such a case the Court must decide what tasks attract a costs indemnity on a proper construction of the contract, whether the task undertaken in the instant case was one of those contemplated in the contract, whether the steps taken were reasonably necessary in pursuance of that task, whether the rate at which they were then charged was reasonable having regard to the principles normally applicable to solicitor–client costs, and whether any other principles drawn from the general law of contract would in whole or in part deny the claimant its prima facie right to judgment. These are all matters of objective assessment.
[32] Steps have been taken in this particular proceeding where this court has made rulings adverse to the plaintiff’s position. The plaintiff failed on a summary judgment application which resulted in Associate Judge Bell ordering the plaintiff to pay costs and disbursements of $5,234.50 on 18 October 2013. Without any explanation from any of the parties in this case, I am driven to the conclusion that costs incurred in respect of that particular application, in view of the Judge’s conclusion, are not reasonably incurred and that aspect must be excluded from any recovery.
[33] The next matter is that the defendants successfully applied for and obtained security for costs. That also resulted in an order for costs against the plaintiff in the sum of $5,524.50. Again, for the same reasons as apply in the summary judgment application and because I have had no information to suggest otherwise, I conclude that the costs incurred in opposing the application for security for costs are not costs reasonably incurred and must therefore be excluded from that which can be
recovered under the indemnity costs provision.
4 Frater Williams & Co Ltd v Australian Guarantee Corporation (NZ) Ltd (1994) 2 NZ ConvC
191,873 (CA) at 191,887.
[34] A more difficult area relates to the steps taken and which led to the making of an order on an unopposed basis in November 2015. That matter related to the defendants’ application to file an amended pleading. I ordered costs in favour of the plaintiff although the defendants had been successful. I concluded that the defendants were seeking an indulgence and the plaintiff was entitled to some recovery. It would be wrong, however, having ordered costs to also allow the recovery of indemnity costs for attendances in relation to that matter. The reason for that is obvious. It would involve double recovery for attendances in respect of the same matter.
[35] The defendants next raise a number of matters which, on their face, appear unrelated to costs incurred in specifically enforcing the agreement. They are the following:5
37.1 dealings between the plaintiff and the Official Assignee, and
correspondence with Meredith Connell on the Assignee’s behalf;
37.2 correspondence to/from Minter Ellison “re Christine Herron
bankruptcy”;
37.3research on the doctrine of the undisclosed principal, and on agency matters generally – apparently relating to the plaintiff’s (now abandoned) contention that he entered the Sidmouth Settlement Deed on behalf of the Churchside Trust;
37.4 discussions with staffers at the Insolvency and Trustee Service; and
37.5advice to the plaintiff on the Trustee Act 1956, reviewing trust deeds, and corresponding with the plaintiff about his “appointment as a trustee”.
[36] The plaintiff’s response to this submission is that even if the steps referred to were not justified, they are trifling in an overall assessment of the matter when compared to the costs’ impact of steps taken by the defendants. That last aspect confuses the assessment that has to be made. The issue is not whether they need to be considered in relation to a step taken by the defendants which was properly opposed by the plaintiff. That aspect is clearly covered by the indemnity and, in fact, is covered by the charges that were made. What is required, however, is what part of
the costs that were charged to the plaintiff relate to these other matters and must
5 First and third defendants’ costs memorandum of 24 June 2016.
therefore be deducted from the total claimed because they do not fit strictly within the indemnity provided in the Sidmouth Settlement Deed.
[37] Unlike Harrison J in Bradbury v Westpac Banking Corporation, I have not been provided with schedules of scale costs or a breakdown of any analysis of the actual costs and expenses taken in respect of each of the important steps in the proceeding.6 His Honour’s judgment had attached to it,
(a) a scale cost breakdown showing the equivalent entries contained in the now Schedule 3 of the High Court Rules;
(b) a breakdown and analysis of actual costs; and
(c) a summary of the hourly rates charged in respect of each lawyer who worked on the file.
[38] Another aspect that I have not been assisted with is any evidence that supports, in this case, the reasonableness of the uplift fee. The concern I have in this respect is that the only reason for the uplift fee was non-payment at the normal charged rates. Yet another area that is difficult to analyse without more information is whether any of the actual costs incurred relate only to some of the causes of action or parts of a claim where the plaintiff was unsuccessful and in circumstances where the proof related to just that unsuccessful part or cause of action.
[39] The gap in the information available to the Court is quite significant and is not something which can be justly approached on a broad brush approach.
[40] In my judgment in Crown Money Corporation Ltd v Grasmere Estate Trustco
Ltd I set out what material should be placed before the Court when determining what are reasonable costs in the circumstances.7
6 Bradbury v Westpac Banking Corporation (2008) 18 PRNZ 859 (HC).
7 Crown Money Corporation Ltd v Grasmere Estate Trustco Ltd (2008) 19 PRNZ 591 (HC) at
[14].
[41] The dilemma, then, is what to do when faced with an absence of evidence upon which a judgment could be founded. The authors of McGechan refer to the options available to a party seeking a detailed vetting of the reasonableness of costs and refer to three options:8
… requesting the judge to order indemnity costs subject to taxation; seeking agreement to refer the claim to a suitably qualified practitioner to vet its reasonableness; reference of the costs invoices to the New Zealand Law Society under the complaints procedure in s 132(2) of the Lawyers and Conveyancers Act 2006.
[42] I comment on those three options. Dealing with the reference under s 132(2) of the Lawyers and Conveyancers Act 2006, there would seem to be jurisdiction for the defendants in this case to lay the appropriate complaint to consider the matter, although there is no reference in the Act to the Court having the power to do so on behalf of the defendants.
[43] With respect to the first alternative, that is that I order that the indemnity costs be subject to taxation. Provision is made for that in Part 14, Subpart 2 of the High Court Rules. That would shift the burden to the Registrar.
[44] A further option is the appointment by the Court of an expert pursuant to Part
9, Subpart 5. Such a person would have to be agreed upon by the parties or, failing agreement, the Court would have to appoint the expert concerned from a list of persons named by the parties.9
Summary of the position
[45] The plaintiff is not entitled to indemnity costs for legal services performed in respect of the following matters:
(a) Those matters discussed in paragraph [35] of this judgment, namely:
37.1dealings between the plaintiff and the Official Assignee, and correspondence with Meredith Connell on the Assignee’s behalf;
8 Andrew Beck and others McGechan on Procedure (looseleaf ed, Brookers) at [HR14.6.03(3)].
9 Rule 9.36(3).
37.2correspondence to/from Minter Ellison “re Christine Herron bankruptcy”;
37.3research on the doctrine of the undisclosed principal, and on agency matters generally – apparently relating to the plaintiff’s (now abandoned) contention that he entered the Sidmouth Settlement Deed on behalf of the Churchside Trust;
37.4 discussions with staffers at the Insolvency and Trustee
Service; and
37.5advice to the plaintiff on the Trustee Act 1956, reviewing trust deeds, and corresponding with the plaintiff about his “appointment as a trustee”;
(b) The failed summary judgment application;
(c) The opposition to the security for costs application; and
(d)The steps taken to oppose the amendment of pleadings pursuant to the order made in November 2015.
[46] In addition, there is insufficient evidence available to the Court to determine:
(a) The reasonableness of the uplift fee charged in the circumstances. I would expect the party seeking the Court’s approval of such a fee to present evidence of what generally applies, if anything, in legal practice generally with this type of issue; and
(b)Whether the charges for steps taken in this proceeding when considered against the list of steps in Schedule 3 are reasonable and whether the time allowance claimed in respect of those steps are also reasonable.
Conclusion
[47] To cover the position, I shall order that an expert be appointed to report on the matters referred in [45] and [46] of this judgment. To achieve that appropriate directions must be made pursuant to rr 9.36, 9.37 and 9.38 of the High Court Rules. Those rules provide:
9.36 Appointment of court expert
(1) In a proceeding that is to be tried by Judge alone and in which a question for an expert witness arises, the court may at any time, on its own initiative or on the application of a party, appoint an independent expert, or, if more than 1 such question arises, 2 or more such experts, to inquire into and report upon any question of fact or opinion not involving questions of law or of construction.
(2) An expert appointed under subclause (1) is referred to in this rule and in rules 9.37 to 9.42 as a court expert.
(3) A court expert in a proceeding must, if possible, be a person agreed upon by the parties and, failing agreement, the court must appoint the court expert from persons named by the parties.
(4) A person appointed as an independent expert in a proceeding under rule 9.44(3) may not be appointed as a court expert unless the parties agree.
(5) In this rule, expert, in relation to a question arising in a proceeding, means a person who has the knowledge or experience of, or in connection with, that question that makes that person's opinion on it admissible in evidence.
9.37 Submission of question to court expert
The question to be submitted to the court expert and the instructions (if any) given to the court expert must, failing agreement between the parties, be settled by the court.
9.38 Report of court expert
(1) The court expert must send his or her report to the court, together with whatever number of copies the court directs.
(2) The Registrar must send copies of the report to the parties or their solicitors.
(3) The court may direct the court expert to make a further or supplemental report.
(4) Any part of the court expert's report not accepted by all the parties must be treated as information furnished to the court and given appropriate weight
Orders
[48] I order as follows:
(a) Within five working days of this judgment, counsel shall either file and serve a joint memorandum providing the name of a lawyer who
holds a current practising certificate as a barrister or as a barrister and solicitor, who will be able to complete a report on the matters set out in [45] and [46] of this judgment in a timely manner; or, if counsel cannot agree on the name of such person, counsel shall each file and serve a memorandum with the names of at least two lawyers who hold a current practising certificate as a barrister or as a barrister and solicitor and who are available to complete a report on the matters set out in [45] and [46] of this judgment in a timely manner;
(b)Also within five working days of this judgment, counsel shall submit for the Court’s consideration their respective drafts of the specific questions to be answered by the expert and which cover the matters raised in [45] and [46] of this judgment. Counsel are invited to confer. However, if agreement cannot be reached, separate memoranda must be filed and served within five working days of the date of this judgment;
(c) Leave is reserved to apply for any further order or direction that is required; and
(d) Costs in respect of this judgment are reserved.
JA Faire J
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