Houghton v Saunders
[2020] NZHC 265
•25 February 2020
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2008-409-348
[2020] NZHC 265
BETWEEN ERIC MESERVE HOUGHTON
Plaintiff
AND
TIMOTHY ERNEST CORBETT SAUNDERS, SAMUEL JOHN MAGILL, JOHN MICHAEL FEENEY, CRAIG
EDGEWORTH HORROCKS, PETER DAVID HUNTER, PETER THOMAS and JOAN WITHERS
First DefendantsCREDIT SUISSE PRIVATE EQUITY INCORPORATED
Second Defendant
CREDIT SUISSE FIRST BOSTON ASIAN MERCHANT PARTNERS LP
Third Defendant
On papers Judgment:
25 February 2020
JUDGMENT OF DOBSON J
[Wasted costs on adjournment of stage two hearing]
[1] On 25 October 2019, the plaintiff somewhat belatedly applied for an adjournment of the five week hearing of stage two of this proceeding, scheduled to commence on 4 November 2019.
HOUGHTON v SAUNDERS [2020] NZHC 265 [25 February 2020]
[2] In a judgment issued on 7 November 2019, I provided reasons for granting the adjournment.1 I will not review the reasons set out in that judgment.
[3] In arguing for the adjournment, counsel for the plaintiff acknowledged that any adjournment granted would be subject to an order in favour of the defendants for their wasted costs in preparing for the stage two hearing, effectively right up to the date on which it was scheduled to commence. I directed the parties to file memoranda. I have subsequently received and considered:
· memoranda on behalf of the first defendants, and the second and third defendants, both dated 25 November 2019;
· a memorandum in response on behalf of the plaintiff dated 16 December 2019.
[4] In addition to pursuing their claim for an order for wasted costs, on 29 November 2019 the defendants filed a joint application for costs against Joint Action Funding Limited (JAFL) and Mr Anthony Gavigan (Mr Gavigan). Mr Gavigan has responded on his own behalf, and for JAFL. I deal with that aspect of these issues at [28] to [42] below.
[5] Orders for wasted costs as a condition of granting an adjournment of trials serve a dual purpose:2
· to compensate the parties that are not in default who have genuinely wasted costs; and
· as a sanction to the defaulting party in order to avoid future wastage of costs and judicial and court resources.
1 Houghton v Saunders [2019] NZHC 2906.
2 Robert Osborne and others McGechan on Procedure (online ed, Thomson Reuters) at [HCR 14.16A(1)], Bligh v Earthquake Commission [2017] NZHC 3179 at [11].
Submissions for defendants
[6] Counsel for the first defendants submit that due to the duration of the fixture and the complexity and significance of the issues to be determined, category 3 and band C are appropriate to calculate costs for their stage two hearing preparation. All counsel submit that the 3C allowance for a five week trial based on step 33 in sch 3 of the High Court Rules 2016,3 is 16.25 days, at $3,530, totalling $57,362.50.
[7] However, counsel for the first defendants have submitted that this total would be inadequate. They have suggested that the preparation allowance should be extended to 25 days to reflect one day of preparation for each day in Court, resulting in a base allowance of $88,250. It is then suggested that the costs allowance should be increased by an uplift equal in amount to the base allowance, leading to a sum of
$176,500, then increased to $200,000 to reflect the fact that Mr Magill and Ms Withers are separately defended, requiring separate work, despite a “sensible measure of cooperation”.4 This $200,000 total would be divided by apportioning $120,000 for the first defendants other than Mr Magill and Ms Withers, $40,000 for Mr Magill, and
$40,000 for Ms Withers.
[8] Counsel for the first defendants cited factors which they consider justify the material increase in the costs allowance from the baseline of $57,632.50, including the plaintiff’s inability to proceed on the November hearing date, the duration and significance of the proceeding and the plaintiff’s “unsatisfactory conduct” in the weeks leading up to the hearing, such as the failure to serve an opening submission in accordance with the agreed timetable.
[9] In support of this material increase, the first defendants relied on Fu Hao Construction Ltd v Landco Albany Ltd, which concerned the adjournment of a two week fixture as a result of a default by the plaintiff.5 Venning J awarded increased wasted costs as a result of the plaintiff’s failure to put itself in a position where it was able to proceed. Fu Hao Construction was cited by counsel for the defendants in
3 High Court Rules 2016, sch 3, step 33 (Preparation of briefs, list of issues, authorities, and agreeing common bundle).
4 Memorandum on behalf of first defendants, 25 November 2019, at [20].
5 Fu Hao Construction Ltd v Landco Albany Ltd HC Auckland CIV-2004-404-6608, 23 May 2004 at [4].
support of increased wasted costs being warranted when the adjournment of the hearing resulted from the plaintiff’s inability to proceed.
[10] The first defendants also relied on Holdfast NZ Ltd v Selleys Pty Ltd.6 That litigation related to alleged breaches of the Fair Trading Act 1986, and Holdfast applied to vacate the fixture in order to join a second defendant to the proceedings. The Court of Appeal ruled that the High Court had erred in awarding increased costs to Selleys because Holdfast’s adjournment to join a second defendant was neither an unreasonable step nor an argument that lacked merit. However, the Court of Appeal did accept that there may be circumstances where an uplift of more than 50 per cent for costs can be justified.7 Counsel for the first defendants have submitted that this is such a case, namely due to the “pattern of routine default” by the plaintiff.
[11] Counsel for the second and third defendants raised two potential approaches to quantifying an appropriate wasted costs award. The first approach (option one) contends for a baseline allowance of $94,537.50. This is calculated by adding steps 33, 33A and 33B of sch 3 at band 3C together with step 36 of sch 3 at 2B. The second and third defendants seek either a 50 per cent ($141,806.25) or 75 per cent ($165,440.63) increase to the baseline allowance of $94,537.50.
[12] Counsel for the second and third defendants submit that a 75 per cent increase is warranted for three reasons. The usual guideline that increased costs should not exceed 50 per cent does not apply to wasted costs, adopting this approach results in a modest quantum of costs compared to the actual wasted costs caused by the plaintiff, and it recognises the serious deficiencies in the plaintiff’s conduct.
[13] The second option advanced for the second and third defendants seeks wasted costs based on adding preparation by second and third counsel for the hearing under step 33B of sch 3. The band 3C rate ($3,530) has been claimed for both second and third counsel and both have been allocated 16.25 days, totalling costs of $57,362.50 each. Consequently, the baseline allowance of $94,537.50 is combined with the costs
6 Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [1]–[3].
7 At [48].
for second and third counsel of $57,362.50 each for the 33B preparation work, leading to a total of $209,262.50.
[14] The second and third defendants argue this second option is justified on the following grounds:
(a)First, because the baseline scale costs amount per day is insufficient to recompense the actual daily costs to the second and third defendants of their counsel preparing for the trial.
(b)Second, that the baseline figure ignores the significant wasted costs flowing from the work of supporting lawyers.
(c)Third, that the second and third defendants’ needs differed from the first defendants, in that the first defendants were in a better position to share trial preparation among several separately represented parties, all of whom can advance a separate wasted costs order, whereas the second and third defendants relied on three counsel to complete all trial preparation.
Submissions for the plaintiff
[15] The plaintiff opposes the quantum of wasted costs claimed by the defendants on the basis that they are excessive and unrealistic. Despite my decision that the then pending application for leave to the Supreme Court was not a sufficient ground to grant an adjournment, the plaintiff has submitted that the prospect of the Supreme Court allowing wider scope to Mr Houston’s evidence did make it appropriate for the stage two trial to be adjourned until May 2020.
[16] The plaintiff’s submissions in response were filed before the Supreme Court declined leave. It was submitted that if that proposed appeal was either not entertained or was unsuccessful, then with Mr Houston’s evidence being confined to the scope ordered by the Court of Appeal, which upheld my pre-trial ruling, then the stage two trial ought not to require any more than 15 sitting days. On the basis of a three week hearing, the plaintiff submitted that a sufficient measure of wasted costs for all
defendants would be some $79,000, and even if increased costs were allowed consistently with some precedents, then the amount should not exceed $119,000. The plaintiff submitted there should be no separate award for those of the first defendant directors who are separately represented.
[17] Counsel for the plaintiff relied on Hamilton v Papakura District Council to support their argument in favour of a reduced quantum of wasted costs.8 However, the passage quoted in the submission omitted an important negative in the last phrase in the relevant passage from Smellie J’s judgment. The original statement, as reported, is as follows:9
Counsel submits that the preparation that has taken place so far, particularly because this is a case in which prepared statements have been exchanged, can sit in place and is not lost. There is substance in that but the gearing up of counsel and witnesses and litigants’ employees to deal with the case, putting the time aside and the unscrambling of all that to be geared up again at a later stage, is not a minor undertaking.
[18] Once that “not” is included, the analysis in that case is consistent with more recent decisions recognising that the scope of wasted costs can be significant.
Analysis
[19] A presumptive scale cost entitlement for the preparation stage of a hearing that is then adjourned is one measure of the extent of potentially wasted costs to be reimbursed to parties who have not caused a fixture to be adjourned. The relevance of that measure will depend on the nature of the case, the scale of the hearing that has been adjourned and the length of the warning that those parties have had that preparation should either be scaled back or put on hold. In this case, the competing theories on quantification of loss suffered by subscribers for the Feltex shares have been well-rehearsed and I anticipate that at least the general thrust of the expert evidence the defendants propose to call has been known and developed over a relatively lengthy period of time.
8 Hamilton v Papakura District Council (1997) 11 PRNZ 43 (HC).
9 At 45 (emphasis added).
[20] The defendants have repeatedly sought briefs from the individual claimants where it was anticipated that they would outline the circumstances in which the revelation of the untrue statement would have caused them to reverse their investment decision. It is apparent from previous interlocutory hearings that counsel for the defendants intend to challenge such claims in each case. The stage two issues accordingly justify thorough preparation, relative to the number of days projected for the hearing.
[21] I am unable to accept the projection of plaintiff’s counsel that the exclusion of part of Mr Houston’s expert evidence will result in the hearing being reduced by two weeks. Whilst counsel are in a better position than the Judge to project the likely length of evidence for each witness, with respect I consider that confining Mr Houston’s evidence to the topics I have ruled admissible is most unlikely to reduce hearing time by 40 per cent. To the extent that projected length of hearing is relevant to the assessment of the quantum of wasted costs that have been incurred, I consider it appropriate to project a hearing of the five weeks that were allocated for stage two.
[22] Defendants’ counsel have submitted that the extent of their claims are only modest proportions of the actual costs they have incurred. Throughout this much protracted litigation, the defendants have been thoroughly resourced with numerous juniors and sharing of tasks between a number of senior counsel. Parties liable to meet costs claimed by well-resourced litigants justifiably reject claims to a portion of actual costs incurred where “Rolls Royce standard” representation may arguably have been disproportionate to what was at issue.
[23] In this litigation, there are potentially very large amounts of money, plus reputational issues, at stake. Notwithstanding that, it is a case in which I would be inclined to take less account of the proportion that any award of costs reflected of actuals than might arise in other cases.
[24] A further consideration is the extent to which costs incurred in preparing for a hearing that is then adjourned are genuinely wasted. That extent will vary depending on the scope and nature of factual issues, and the novelty of the legal issues to be determined. In this case, if indeed the stage two hearing proceeds in May 2020, then
given the technical nature of the expert evidence and the range of individual circumstances of the claimants on which the defendants may wish to cross-examine them, I project that a substantial portion of the preparatory work will retain much of its utility for the adjourned hearing little more than six months later. Certainly there will be a need to refresh the work, but it is not a case in which the defendants can claim it is entirely wasted.
[25] The extent of the on-going utility of preparations undertaken for the November 2019 hearing would need to be reconsidered if the adjourned fixture allocated for May 2020 does not proceed.10 That would arise as an incident of whatever decisions need to be made in the event that the May 2020 hearing does not proceed.
[26] There can be no arithmetic formula in projecting the extent of wasted costs in this case. Having reviewed all the matters raised in light of my previous experience with the case, I consider the appropriate order for wasted costs is one in the sum of
$110,000 for all of the first defendants. That sum is to be shared between the majority and the two directors who have elected to be separately represented, as counsel agree between themselves. I order that the second and third defendants are entitled to an award of $100,000 for wasted costs.
[27] I also order the plaintiff to be liable for all of the disbursements claimed as genuinely unavoidable on the late adjournment.
Liability of non-parties for wasted costs
[28] The grounds for the defendants seeking orders that a wasted costs order be made jointly and severally against the plaintiff and JAFL and Mr Gavigan include the significant financial interest that the latter two have in the outcome of the proceeding, Mr Gavigan’s very close involvement in the preparation of the plaintiff’s case and the responsibility assumed by JAFL, of which Mr Gavigan is the alter ego, to secure funding when it is that failure that has caused the plaintiff to seek the adjournment.
10 At the time of preparing this judgment, defendants’ counsel have raised with the Court concerns that indications of lack of progress in the plaintiff’s preparation for the stage two hearing raise the spectre that it may not proceed at that time.
The defendants also rely on my having previously made costs orders jointly and severally against JAFL and Mr Gavigan.11
[29] On 11 December 2019, Mr Gavigan filed a notice of opposition to any order for costs against non-parties and an affidavit in support. Subsequently on 17 January 2020, he filed submissions in support of that opposition.
[30] Both counsel for the plaintiff and Mr Gavigan take the point that the terms in which I dealt with costs in my 7 November 2019 judgment preclude the prospect of a separate order attributing liability for such costs, when quantified, against non-parties.
My judgment dealt with the point in the following terms:12
[44] I further directed that the defendants are entitled to an award for wasted costs. Those are to be quantified by way of memoranda by 25 November 2019. The claimants will have 15 working days in which to respond after service on them of the defendants’ memoranda. I will decide whether the quantum of wasted costs can be settled on the papers, which is my preference, after consideration of all memoranda filed.
[45] If the amount determined for wasted costs is not paid within 10 working days of my order on quantum, then that amount is to apply by way of reduction from the $930,000 to which the claimants are presently entitled, but which has not been reimbursed by the defendants, pending provision of stage two security.
[31] I do not accept that the defendants are precluded from seeking joint and several liability for the wasted costs to which they become entitled. Certainly, the issue of liability for those costs by non-parties is not subject to issue estoppel as has been submitted for the plaintiff.
[32] In his January 2020 submissions, Mr Gavigan takes a measure of comfort from the terms in which the Supreme Court declined the plaintiff’s application for leave to appeal from the Court of Appeal’s decision on the non-admissibility of parts of Mr Houston’s evidence. On the basis of an aspiration that his broader instructions to Mr Houston will eventually be vindicated by the Supreme Court, he seeks to argue that the defendants should not be entitled to a wasted costs award for an adjournment that, on his analysis, was warranted.
11 Houghton v Saunders [2015] NZHC 548 at [28]; Houghton v Saunders [2019] NZHC 2567 at [50]–[52].
12 Houghton v Saunders, above n 1.
[33] Those propositions cannot avail Mr Gavigan when my decision was that the prospect of a further appeal would have been insufficient to grant the adjournment, and the adjournment was granted reluctantly because the claimants were not ready to present their stage two claims.
[34] Mr Gavigan also claims that recent challenges in litigation in the United States to the integrity of Professor Cornell, an expert relied upon by the defendants at the stage one hearing, require a revisiting of earlier costs orders against the plaintiff. Mr Gavigan’s 11 December 2019 affidavit exhibited a letter written by New York attorneys for a litigant that had retained Professor Cornell as an expert in certain litigation. The annexed letter, which is endorsed “Confidential – for settlement purposes” makes allegations that a lack of integrity on Professor Cornell’s part had destroyed the part of the case for the litigant on whose behalf he had been retained, leading to that party failing in the litigation.
[35] On the basis of that allegation, Mr Gavigan contends that Professor Cornell is an unreliable witness of no use to the Court in the present litigation, leading to an entitlement for Mr Houghton to be reimbursed to the extent of about $1 million being the fees paid by the defendants for retaining Professor Cornell which were included in the disbursements ordered against the plaintiff in my costs decision on stage one of the litigation.13 Mr Gavigan then acknowledges that I disallowed the defendants’ claim for part of the fees paid to Professor Cornell, and that the amount awarded as a disbursement was “around $700,000”.
[36] By further memorandum dated 27 January 2020, counsel for all defendants responded to Mr Gavigan’s contentions in respect of Professor Cornell. They disputed that any revisiting of the appropriateness of being awarded a disbursement for Professor Cornell’s fees could have any relevance to the quantification of wasted costs on the adjournment of the stage two hearing. They also recorded that, so far as they are aware, Professor Cornell denies the allegations made against him that are referred to in the correspondence exhibited by Mr Gavigan and that there has not been any finding by any court of any wrong-doing by him.
13 Houghton v Saunders [2015] NZHC 548 at [104].
[37] I am not persuaded that Mr Gavigan can make this argument relevant to the considerations as to whether he and JAFL ought to be jointly and severally liable for the wasted costs that I am quantifying in this judgment.
[38] Mr Gavigan has clearly been closely involved in the detail of preparing the plaintiff’s case throughout, and most relevantly in the work undertaken since the Supreme Court’s substantive judgment. He was the author of the supplementary instructions to Mr Houston that generated the report from Mr Houston to which the defendants took exception. He is also responsible for communications to all the claimants, advising of initiatives being taken with the litigation and setting out the evidence he considers it would be necessary for claimants to give in order to make out a claim for a full refund of their original investment in Feltex.
[39] Mr Gavigan has not disputed the contention on behalf of the defendants that failure to provide adequate funding to pursue stage two amounts to a breach by JAFL of the obligations it assumed to claimants in respect of funding the claims. In one sense at least, it was JAFL’s breach of its obligation to arrange funding that required counsel to advise the Court on 4 November 2019 that those acting for the claimants were prevented by lack of resources from having the case prepared in time for that fixture.
[40] In these circumstances, I am satisfied that it is appropriate to order JAFL and Mr Gavigan to be jointly and severally liable for the extent of the orders for wasted costs and disbursements.
[41] As matters presently stand, the defendants are still protected for those amounts by my earlier order that, in default of payment on behalf of the plaintiff of the extent of security for costs for stage two, they are able to offset such amounts against the plaintiff’s entitlement to the last $930,000 of costs ordered in the plaintiff’s favour as a result of the partial reversal of outcome reflected in the Supreme Court’s substantive judgment. That order contemplated that the stage two hearing would proceed with the security for the defendants’ costs I had earlier ordered being in place. Security has not yet been provided and there are no present indications that it will be.
[42] The ultimate disposition in respect of costs obligations and entitlements remains unclear. Having quantified the wasted costs to which the defendants are entitled, and upheld the defendants’ application that JAFL and Mr Gavigan be jointly and severally liable for the wasted costs order, I stay any enforcement against all of those liable until the fate of the adjourned fixture scheduled to commence on 11 May 2020 is known. In the meantime, the ability of the defendants to offset against the
$930,000 to which the claimants are entitled as provided in [45] of my 7 November 2019 judgment is as far as the current costs issue need be taken.
[43] I adjourn the defendants’ application for costs on their application for quantification of the wasted costs, pending developments. Liability for the costs was not disputed by the plaintiff, and challenges to the quantum claimed have been partially vindicated. My provisional view is that the defendants would be entitled to an award, somewhat reduced from the amount calculated pursuant to the scale.
Dobson J
Solicitors:
Antony Hamel, Dunedin for plaintiff
Gilbert Walker, Auckland for first defendants (other than Mr Horrocks and Ms Withers) Clendons, Auckland for Mr Horrocks
Wilson Harle, Auckland for Ms Withers
Russell McVeagh, Wellington for second and third defendants
Counsel:
C R Carruthers QC and P A B Mills for plaintiff
A R Galbraith QC and D J Cooper for first defendants (other than Mr Magill, Mr Horrocks and Ms Withers)
T C Weston QC for Mr Magill B D Gray QC for Ms Withers
J B M Smith QC and A S Olney for second and third defendants
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