Laboyrie v Mills
[2020] NZHC 2557
•30 September 2020
IN THE HIGH COURT OF NEW ZEALAND HAMILTON HREGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2018-419-000328
[2020] NZHC 2557
BETWEEN PAULINE CLARE LABOYRIE, WAYNE FRANCIS MILLS,
MARY DIANNE GEMMELL as Trustees of the GALWAY TRUST
First Plaintiffs
PAULINE CLARE LABOYRIE
Second PlaintiffWAYNE FRANCIS MILLS
Third PlaintiffMARY DIANNE GEMMELL
Fourth PlaintiffAND
TERENCE PATRICK MILLS as Executor of the Estate of STEPHEN JOHN MILLS Defendant
Hearing: [On the Papers] Counsel:
S W B Foote QC and K B Arthur for the Plaintiffs M D Branch and K F Shaw for the Defendant
Judgment:
30 September 2020
JUDGMENT OF EDWARDS J
[re Costs]
This judgment was delivered by me on 30 September 2020 at 4.30 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Counsel: S W B Foote Qc, Auckland
K B Arthur, Auckland
Solicitors: Harkness Henry, Hamilton
LABOYRIE v MILLS [2020] NZHC 2557 [30 September 2020]
[1]In my judgment of 6 April 2020:1
(a)The first plaintiffs’ claim for an institutional constructive trust was allowed and all remaining causes of action were dismissed.
(b)The defendant’s counterclaim for conversion was allowed, but an award of damages was not made.
(c)The defendant’s counterclaim for debt in the sum of $30,300 was also allowed. Judgment on this counterclaim was entered by consent.
[2] The plaintiffs seek scale costs (schedule 2B) plus an uplift of 50 per cent for any or all of three Calderbank offers. Disbursements of $14,149 are sought in addition.
[3] The defendant opposes costs on a variety of grounds. Each of those grounds of opposition, and the issues arising, are addressed below.
Who was successful?
[4] In my substantive judgment, I concluded that the plaintiffs were the successful parties and were entitled to an award of costs. The defendant challenges that statement on the basis that the first plaintiffs lost on the first cause of action (express trust), withdrew the proprietary estoppel claim at trial, and the second to fourth plaintiffs lost on the alternative causes of action. The defendant was also partially successful in relation to his claim for debt and in the conversion counterclaim.
[5] None of these submissions alters my view that the first plaintiffs were the successful parties. This was a claim by three siblings to a beneficial interest in a property. They established that interest. Stripped to the essence of the case, it is clear that the three plaintiff siblings were successful.
1 Laboyrie v Mills [2020] NZHC 700.
[6] The three siblings brought their claim in their capacities as trustees, or alternatively in their personal capacities. That is not the same as altogether different plaintiffs advancing different claims, and I do not accept the defendant’s argument on that ground.
[7] Furthermore, the causes of action were posited in the alternative. Those alternatives were premised on different constructions of the same set of facts. Success on one of those causes of action was enough to establish the claim, and meant that the other causes of action did not need to be considered. Contrary to the defendant’s submission, there is no basis for halving the plaintiffs’ costs on the basis that the second to fourth plaintiffs were running an argument that, on the first plaintiffs’ case, could not possibly succeed. Similarly, I see no reason to reduce the costs otherwise payable to the plaintiffs for their failure on certain causes, or the withdrawal of the proprietary estoppel claim at trial.
[8] It is true that the defendant was partially successful in relation to his claim for debt – but that had been admitted by the plaintiffs. The real contest in respect of that counterclaim was in relation to the balance of the debt owed; a claim that the defendant failed to establish. Further, success in establishing a claim for conversion of various keepsakes cannot alter the overall assessment of the winner in this case – particularly since I declined to award damages for that counterclaim.
[9] So, while the plaintiffs did not succeed on all their causes of action, it cannot be said that their failure on these causes, or on other issues at trial, increased the costs of the defendant. The defendant’s reliance on r 14.7 of the High Court Rules 2016 in that regard is misplaced.
[10] The first plaintiffs are accordingly the overall successful parties. Costs follow the event and they are entitled to an award of costs.
What steps should be allowed in the calculation of costs?
[11] The proceeding was categorised as category 2, and the plaintiffs’ costs have been calculated on a schedule 2B basis. The defendant challenges some of the steps claimed.
Second counsel
[12] I am satisfied that second counsel was warranted in this case. Both parties had two counsel at trial. Although the proceeding was of average complexity, it involved numerous issues arising out of the plaintiffs’ causes of action and the defendant’s affirmative defences and counterclaims. I allow for second counsel.
Amended pleadings
[13] The plaintiffs claim for three amended pleadings. The defendants say only one should be allowed. I am satisfied that the plaintiffs’ claim for three amended pleadings is properly made. The pleadings, at least in part, were in response to amendments made by the defendant to his counterclaims.
[14] The defendant makes a separate claim under r 7.7(8) of the High Court Rules for costs incurred in responding to the plaintiffs’ amended pleadings. These costs have been calculated as $20,076.00 plus disbursements of $330.00.
[15] Some of the costs post-date receipt of the third Calderbank offer. For the reasons set out below, I consider that offer was effective. As counsel for the plaintiffs submit, costs cannot be claimed by a defendant who had the opportunity to avoid them. In addition, some of the claims are for defence pleadings to the same statement of claim, and for replies to amended defences to the amended counterclaims. Those are not steps made in response to the plaintiffs’ amended pleading, but to the defendant’s own amended pleading, and should be excluded from the total calculation.
[16] A broad-brush approach to the quantification of these adjustments is warranted rather than a calculation to the last dollar. I allow $10,000 to the defendant for his costs and disbursements under r 7.77.
Should an uplift for the Calderbank offers be allowed?
[17] The plaintiffs made three Calderbank offers on 10 October 2018, 9 August 2019 and 3 September 2019. They seek an uplift of 50 per cent on scale.
[18] I do not consider an uplift is justified for the first offer. It was sent prior to proceedings being filed, and the offer was for payment of $25,000 to the estate in settlement of the dispute. It was reasonable for the defendant to reject this offer at the time it was made, and the sum offered was less than the sum ultimately awarded (by consent) to the defendant on his counterclaim.
[19] The second and third offers fall into a different category. The terms of the second offer were that the house would be sold, and the estate would be paid $136,000 less outstanding expenses and the balance of the mortgage. The third offer was for the plaintiffs to receive 32 per cent of the net proceeds of sale, with the remainder split between the estate and the plaintiffs. The balance of the mortgage was to be deducted from the estate’s 50 per cent share of the remainder.
[20] The defendant says that it was reasonable to reject this offer as the plaintiffs had not yet filed their amended statement of claim incorporating the Pallant v Morgan equity. I accept that the legal vehicle by which the claim might be established is relevant to the assessment of litigation risk. But in this case, the addition to the claim made very little difference to the assessment of the offer. An interest in the property based on an institutional constructive trust was a key plank of the plaintiffs’ claim. The Pallant v Morgan equity amendment was put forward as a species of that particular trust. Although it was another vehicle by which the plaintiffs could establish their claim, it did not materially alter the merits. In this particular case, the state of the pleadings might affect the quantum of any uplift, but it does not mean an uplift should not be applied at all.
[21] I accept the defendant’s submission that it was reasonable for him to test the evidence and challenge the legitimacy of the claims. But that is only one part of the inquiry. What needs to be assessed is whether it is reasonable in all the circumstances to have rejected the settlement offer. That requires the risks and benefits of proceeding to trial to be weighed against the benefits of accepting the offer and bringing the proceeding to an end.
[22] The offers in this case were pragmatic and commercial attempts to resolve a dispute between family members as to the beneficial interest in a relatively modest property. The third offer was particularly generous. The estate, and the defendant personally, would have been much better off had this offer been accepted. I consider an uplift is warranted for steps taken after this offer expired (6 September 2019).
[23] The plaintiffs seek an uplift of 50 per cent. However, I consider an uplift of 25 per cent for steps taken post 6 September 2019 reflects the status of the claim and the relevant circumstances as they existed at the time the offer was rejected. I direct accordingly.
Should the defendant or the estate or both be liable for costs?
[24] The defendant was sued in his capacity as executor of the estate of the parties’ deceased sibling, Stephen Mills. Both parties accept that ordinarily the estate would be liable for costs. However, the plaintiffs say that the defendant should be personally liable for costs to the extent they are unable to be met by the estate.
[25] The point has some importance because the estate has very little funds and it seems unlikely that it will be in a position to meet any or all of a costs award against it. A memorandum filed on behalf of the defendant suggested that the estate’s assets amounted to: the debt of $30,300 owed to it by the first plaintiffs; a motorcycle worth a few thousand dollars, and miscellaneous household effects. Furthermore, defendant’s counsel sought an adjournment of the costs determination on the basis that there were insufficient funds to make submissions on costs.
[26] In the absence of any authorities directly on point, the plaintiffs rely on the principles applying to costs awards against non-parties. Such awards are exceptional. But they may be warranted in cases where a party is funding the litigation and stands to secure a financial benefit. In Arklow Investments Ltd v MacLean, Fisher J put it this way:2
The guiding principle here is that costs orders against third parties are exceptional but that they are warranted in cases where there would otherwise be a situation in which a person could fund litigation in order to pursue his or
2 Arklow Investments Ltd v MacLean HC Auckland CP 49/97, 12 May 2000 at [19].
her own interests and without risk to himself or herself should the proceedings fail or be discontinued.
[27] The plaintiffs say that there is sufficient information to infer that the defendant was funding the litigation. He also had the most to gain as the sole beneficiary of the estate. In effect, the plaintiffs submit, the defendant was funding the litigation to pursue his own interests and he should not be able to shield himself from adverse costs consequences by hiding behind the estate.
[28] Through his counsel, the defendant has confirmed that he has loaned the estate money to pay the mortgage, rates, insurance, maintenance, and “some of the legal costs”. The intention, he says, was to be repaid with assets available to the estate once all legal issues had been resolved. He has also indicated that he felt he had no other option but to defend the proceeding as the executor of the estate, and to make the necessary advances to do so.
[29] It makes sense for the defendant to fund the litigation when it is considered that he stood to gain personally if successful at trial. He was the sole beneficiary under the will and the property was the most valuable asset of the estate. The defendant’s personal interests, and those of the estate, were accordingly aligned. In addition, the defendant had complete control over the direction of the litigation from which he ultimately stood to gain. It would be unfair to allow him to shelter behind an insolvent estate in those circumstances. An order requiring the defendant to personally bear the costs of the proceeding sheets home the consequences of the litigation risks that the defendant chose to run.
[30] On the other hand, the decision to defend the plaintiffs’ claim was reasonable in all the circumstances. The property at the heart of the dispute was left to the defendant under Stephen Mills’ last known will. That will was validated by an order of this Court.3 It was both necessary and reasonable for the defendant, in his capacity as executor of the estate, to defend the claim. As the defendant was sued in his capacity as executor of the estate, it is reasonable for the estate to be liable for any costs.
3 Mills v Laboyrie [2018] NZHC 1368.
[31] Standing back, I consider the plaintiffs’ proposed order strikes a fair balance between these competing interests. The estate should bear the costs of the litigation in the first instance, with the defendant being held personally liable for any residual balance. That reflects the capacity in which the defendant was acting in defending the claim, but it also ensures that the defendant is not immune from the consequences of the decisions he took in defending the plaintiffs’ claim which were ultimately for his personal benefit. An order in those terms is set out below.
Should the debt the plaintiffs owe to the estate be set-off against any costs award?
[32] The plaintiffs seek a declaration that the debt they owe to the estate of $30,300 may be set-off against the costs award. They say that there are mutual debts here owed by the same parties to each other and they rely on the Set-Off Act 1729.
[33] This claim for set-off amounts to a new cause of action and I decline to deal with it in the context of a costs judgment. Nevertheless, I note the expectation of the Court that the parties deal with the mechanics of the various payments due and payable in a sensible and common-sense way.
Result
[34] The first plaintiffs are awarded costs with the quantum to be calculated as follows:
(a)Costs are awarded on a schedule 2B basis.
(b)The claim for second counsel and the three amended pleadings is allowed.
(c)An uplift of 25 per cent for all steps taken after 3 September 2020 is applied.
(d)A deduction of $10,000 shall be made from the total to allow for the defendant’s costs in responding to amended pleadings.
[35] The estate shall be liable for costs in the first instance, with the defendant personally liable for any balance.
Edwards J
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