Hughes v Fea
[2018] NZHC 2716
•19 October 2018
IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY
I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE
CIV-2016-425-13
[2018] NZHC 2716
BETWEEN JOHN STANLEY HUGHES AND IRMA AINSLIE HUGHES
AppellantsAND
DUNCAN VERNHAM FEA AND PETER HEENAN
Respondents
Hearing: (On the papers) Counsel:
C S Withnall QC and C J G Lucas for the Appellants D M Lester for the Respondents
Judgment:
19 October 2018
JUDGMENT OF NICHOLAS DAVIDSON J
A. BACKGROUND
[1]These proceedings have a long and tortuous history.
[2] The appellants Mr and Mrs Hughes, sued the respondent receivers for damages arising from conversion or unlawful interference with tulip bulbs, to which they claimed ownership. They had leased bulbs to Global Bulbs Limited (“Global”) on terms which required bulbs to be replaced, to preserve their capital stock. Global went into receivership.
HUGHES v FEA AND HEENAN [2018] NZHC 2716 [19 October 2018]
[3] Before the fixture in the District Court, a preliminary point went to the High Court and judgment was delivered by Lang J, who held that:1
[27] For the reasons set out above I have concluded that the lease [(of bulbs)] did not create a security interest in terms of the Act in respect of the original or replacement bulbs. The lease did, however, create such an interest in respect of any proceeds of sale of bulbs in circumstances where Global Bulbs did not honour its obligation to replace those bulbs.
[4] The appellants had only limited success in the District Court.2 They established conversion by the respondents, but their claim to damages was essentially rejected for lack of evidence as to which bulbs belonged to them, and the market value of such bulbs. They appealed to the High Court.
[5] By interim judgment of 14 December 2016,3 this Court directed a further hearing to determine the loss which Mr and Mrs Hughes had sustained by the conversion of the bulbs. The judgment recorded:4
If they belonged to the appellants, then they should have the entire proceeds of sale and interest. The costs of sale by the receivers that would not have fallen on the appellants should not be brought to account.
[6] By final judgment save as to costs of 7 December 2017,5 this Court held that Mr and Mrs Hughes were entitled to the proceeds of sales made by the receivers of
$72,000.00, (adjusted by Minute of 11 April 2018 to $76,707.00) with interest at Judicature Act 1908 rates from receipt of the proceeds of sale by the receivers. Costs were reserved.
Interest and Costs
[7] The appellants claim $203,218.97 including interest to 31 August 2018 made up as follows:
(i)The judgment sum of $76,707.00
1 Hughes v Fea [2013] NZHC 2863.
2 Hughes v Fea DC Invercargill CIV-2010-025-348, 17 December 2015.
3 Hughes v Fea [2016] NZHC 3043.
4 At [160].
5 Hughes v Fea [2017] NZHC 3037.
(ii)Interest on judgment sum to 31 August 2018 of $36,387.806
(iii)Interest at 5% on judgment sum from [* to be calculated] 31 August 2018 to date of payment of
(iv)Costs in the sum of $90,124.27 as set out in a spreadsheet (the Schedule
to this judgment).
Interest
[8] Mr Lester for the respondents submits an award of interest was made without any submissions for either party, and there was an express disavowal by the appellants of a claim to interest in their notice of claim filed in the District Court. He says this is a “classic recall situation” because interest was not sought, and it was not argued.
[9] The appellants (as plaintiffs in the District Court) had responded to the question “are you claiming interest?” by saying that they were not. Mr Lester submits that “having expressly eschewed an interest claim, such cannot be awarded”. Apart from that “eschewal” he did not say why that should be the case, except that interest not being claimed was a “formal concession by the plaintiffs” and there has been no application to amend the pleading.
[10] I accept that interest was awarded without any submissions, and it was not pleaded. If I had to recall the judgment which awarded interest (without quantification) I would, but the interest argument is addressed in full in this judgment. There has already been too much litigation; another round is not necessary (at least in this Court).
[11] Mr Withnall QC for the appellants submits that when proceedings were issued in the District Court on 24 June 2010, no one could have foreseen the years of litigation that lay ahead, and Mr and Mrs Hughes should not be taken to have put aside in all eventualities a claim to interest. Their position at the time of filing only reflected the limited steps taken to that point, and did not bind them for the litigation that followed.
6 The interest is calculated at 8.4 per cent until 2011 and at five per cent since then, pursuant to the respective Judicature (Prescribed Rate of Interest) Orders.
[12] Since 24 June 2010, the proceedings have made their way through the District Court to the High Court on the preliminary point, to a substantive hearing and judgment in the District Court, and have been appealed to this Court, where the interim and final judgments have been delivered, save as to fixing the application of interest and costs.
[13] Mr Withnall says that the respondents are taking a legalistic approach to interest, anchoring their case on the question and answer in the notice of claim form and the pleading. Delays were caused by the interlocutory argument which went before Lang J and the evidential difficulty in establishing the loss suffered by the appellants. Interest simply reflects the wrongful retention of the proceeds of sale of converted bulbs, so the appellants should have interest compensate for that. The sale proceeds of the bulbs are traceable to the receipt of various sums by the receivers and such sums should carry interest.
[14] Mr Withnall says that interest has now been determined by judgment, and cannot be revisited. In any event, he says the Court’s approach taken was principled and part of the means generally used to compensate a plaintiff for loss. He refers to Day v Meadin which Somers J observed that:7
… the general purpose for which the power was conferred on the Court was to enable proper compensation to be given to the plaintiff. So long as he is out of the debt or damages the plaintiff is unable to obtain those advantages which possession of the money to which he is entitled would afford him. The corollary is that the defendant who has had the money, but ex hypothesi ought not to have had it, enjoys its use; he may have put it out at interest or otherwise have profitability employed it, or, if he needed to borrow in order to pay he has saved the interest he would have incurred in such borrowing. In times of inflation these matters have particular force ...
Upon these considerations I would conclude that generally justice may require interest to run from the date the cause of action arose down to judgment, for it is from that date that the plaintiff's entitlement to the debt or damages arises.
[15] Overall, Mr Withnall says that reference in the notice of claim to there being no claim to interest does not direct the result here as no estoppel is raised, and the general object of s 87 Judicature Act 1908 in making an award of interest is to achieve just compensation.
7 Day v Mead [1987] 2 NZLR 443 (CA) at 463. See also Williams v Kirk [1988] 1 NZLR 452 (CA).
Discussion and conclusion as to interest
[16] Section 87 of the Judicature Act empowers the Court to award interest on debts and damages and remains in force for all cases up to those commenced after 1 January 2018. Section 87 empowers the Court to award interest up to the prescribed rate in any proceedings for the recovery of any debt or damages proscribes interest on interest, and defines the prescribed rates. The Court has a discretion whether to award interest at all, whether pleaded or not, and if so, to order that it apply to any part of the debt or damages, for the whole or any part of the period between the date when the cause of action arose and the date of judgment. It may fix interest at the maximum prescribed rate, or some lower rate. The power to award interest is discretionary as the justice of the case requires.8
[17] The basic approach is that in a case like this where a defendant has had the use of money which should have been available to a plaintiff, then interest is a factor in compensation. It does not depend on proof of the plaintiff’s loss or the defendant’s gain, but it assumes both.9 There is no fixed rule as to the commencement date for interest, but it will often run from the date the cause of action arose to the date of judgment, although in tort it will often be delayed until the date of issue of the proceeding.10 There is a strong case for an award of interest when someone has obtained property of another by conversion, and converted that to money.
[18] There is nothing in the history of this litigation or in the argument to suggest that the respondents were prejudicially affected in any way by there being no formal claim to interest when the proceedings were filed. It would normally be ordered in a case such as this. Counsel relies on the formality of the notice of claim. In my view, this principal submission for the respondents only has force if such formality is to attach to the notice of claim that interest should on that basis be denied.
[19] Had it been necessary, I would grant leave for the appellants to amend their pleadings to claim interest, as I see no disadvantage to the respondents whatsoever.
8 Worldwide NZ LLC v NZ Venue and Event Management Limited [2014] NZSC 108 [2015] 1 NZLR 1 at [70] and [76]; Wilson v Horton Limited v Attorney-General [1997] 1 NZLR 513 (CA) at 530.
9 Westpac New Zealand Ltd v Map & Associates Ltd [2010] NZCA 404 at [69].
10 Wilson & Horton Limited v Attorney-General, above n 8, at 530.
Otherwise, it was entirely within the power of the Court to award interest as a compensatory mechanism, having determined that money which belonged to the appellants was the result of unlawful conversion by the respondent receivers. Interest should follow as night follows day in this setting of conversion. The claim to interest does not need to be pleaded.
[20] I award interest as claimed, together with the five per cent daily rate up to the date of payment. If there is any issue about the precise figure, I grant leave for the parties to revert for an order to be made.
Costs
[21] The task of the Court when addressing costs is to evaluate the parties’ relative success or failure in respect of the various elements of the proceedings, including preliminary points, interlocutories, the substantive proceeding and any appeals.
[22] Who pays whom under the judgment is the central question as to who should pay costs but the answer does not dictate the costs award. Mr Lester submits that while the appellants’ arithmetical calculation in the Schedule is not challenged, the appellants are not entitled to costs for each stage of the proceedings as they seek, and they did not succeed at each stage of the proceeding. First, he says that their case for damages in the District Court in substance failed as they obtained a very much reduced judgment on a basis not advanced by them in any hearing. They sought far more. The respondents essentially succeeded against the appellants in the way in which loss was assessed in the District Court and the High Court.
[23] In the District Court, damages were claimed on the basis of an expert evaluation of the value of the bulbs in a market which the Judge held to be non-existent, at least not proved to exist. A conversion claim simply based on the sales achieved by the receivers would have been straightforward. Mr Lester says costs in the District Court should lie where they fall.
[24] With the Court’s accession, Mr Lester says the appellants were then granted an indulgence to recast their claim in a very different way for the final judgment, and succeeded, for about a third of their original claim. He makes a muted complaint that
the appellants were granted a further indulgence by not bringing to account costs incurred in harvesting bulbs sold. This, in my view, was almost impossible to calculate. The claim as made was discounted to come within the jurisdiction of the District Court. The $76,707.00 awarded is otherwise set against the claim advanced in evidence, somewhere between $309,000.00 and $410,000.00.
[25] In summary, Mr Lester says that costs should be awarded to the respondents for the “first appeal”, as the appellants succeeded only on a ground not pleaded until late in the day, which means they should not get costs for earlier hearings. Costs before Lang J should not be ordered according to Mr Lester because they have already been dealt with.
Discussion
[26] While the appellants succeeded overall, it is to a far lesser extent than they claimed, and the proceedings were much prolonged because they pressed a case for damages they simply could not prove. I accept Mr Lester’s submission in this respect. However, they first had to prove conversion of the bulbs sold by the receivers, and that was contested.
[27] The discretion given the Court as to costs is not unfettered, and qualified by specific cost rules in 14.2 – 14.10 of the High Court Rules. In general, the party which fails with respect to a part of the proceeding should pay costs to the party who succeeds. Rule 14.7 provides for circumstances where the Court may refuse to make an order for costs or reduce costs otherwise payable, including r 14.7(d) where one party claiming costs has succeeded overall, but has failed in relation to a cause of action or issue which significantly increased the costs of the party opposing the costs order. Rule 14.7(d) was invoked in Weaver v Auckland Council.11 The time engaged on the successful appellants unsuccessful argument on one issue led to a 50 per cent reduction in costs claimed.
[28] Under r 14.7(f), where a party claiming costs has contributed unnecessarily to the time or expense of the proceeding by taking an unnecessary step or making an
11 Weaver v Auckland Council [2017] NZCA 330 at [26].
argument that lacks merit, that is a relevant factor. Rule 14.7(g) also provides for circumstances where “some other reason exists which justifies the Court refusing costs or reducing costs …”
[29] Disbursements reflect some of the same principles, as to when costs orders may be adjusted depending on the conduct and outcome of litigation. For a disbursement to be recoverable, it must be “reasonably necessary”, “reasonable in the amount”, and “not disproportionate in the circumstances of the proceeding” (rr 14.12(2) and 14.12(3)).
[30] In the end, the appellants succeeded, but to get there they advanced a damages argument which failed until resuscitated in a different way with the encouragement of the Court’s interim judgment. Theirs was an elevated damages claim, and suffered from a lack of evidence to prove a market for the bulbs. In the end, they achieved judgment for a relatively modest sum simply based on the proceeds of sales made by the receivers.
[31] This is not a case where the Court can easily break down the components of the case for the costs analysis. Overall, the appellants succeeded in conversion, but for a much lesser sum than they claimed. A great deal of time was spent in advancing a damages claim and on appeal which was not supported on the evidence. They should not be awarded most of the costs they seek because that would not reflect the overall “standing back” assessment of success or failure in these proceedings.
[32] The just and equitable way to fix costs here is to recognise all the above factors so that the appellants are entitled to some, but limited costs. A rounded approach is called for. I conclude that the appropriate measure of costs is $30,000.00, inclusive of disbursements and which includes the costs fixed by the Registrar of $12,351.90.
Disposition
[33] I award costs to the appellants in the sum of $40,000.00 inclusive of disbursements (and inclusive of the costs and disbursements approved by the Registrar), and interest as sought. I reserve leave to the parties to request that sum to be fixed if needed.
……………………………………….
Nicholas Davidson J
Solicitors:
Lucas and Lucas Limited, Dunedin Preston Russell Law, Invercargill
cc counsel:
C S Withnall QC, Dunedin
D M Lester, Barrister, Christchurch
SCHEDULE
nllng mcmorma#m for $@ond QC
0
5
0