Lepionka & Company Investments Ltd v Gibson Sheat

[2023] NZHC 2745

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2021-485-301

[2023] NZHC 2745

BETWEEN

LEPIONKA & COMPANY INVESTMENTS LIMITED

Plaintiff

AND

GIBSON SHEAT

Defendant

Appearances:

S J Leslie for the Plaintiff

C L Bryant and G J Luen for the Defendant

Judgment:

29 September 2023

JUDGMENT OF COOKE J

(Costs)

[1]    By judgment dated 27 July 2023 I upheld the defendant’s arguments on a preliminary question and gave judgment dismissing the plaintiff’s claims.1 I gave leave to the parties to file memoranda if costs could not be agreed. The parties have been unable to agree and the Court is accordingly required to determine costs.

[2]    There is a very significant difference between the parties. The defendant seeks an award of $281,372.88 plus disbursements of $23,545.66. The plaintiff says the appropriate costs award is $86,620.97. That there should be such a significant difference between the parties on costs in relation to a proceeding that has been determined following a five day hearing is surprising.

[3]    A large number of issues are raised in the memoranda that have been filed. The issues raised evidence of a misunderstanding of the costs regime set out in pt 14 of the

1      Lepionka & Co Investments Ltd v Gibson Sheat [2023] NZHC 1981.

LEPIONKA & COMPANY INVESTMENTS LIMITED v GIBSON SHEAT [2023] NZHC 2745 [29 September 2023]

High Court Rules 2016 (the Rules). This misunderstanding is not unusual — it is becoming increasingly common for there to be applications to depart from a standard award of costs determined under pt 14. That is a practice that should be discouraged unless there is a clear basis for such departure in accordance with the Rules. Most cases can be expected to involve costs being calculated on a 2B basis, with perhaps some adjustments to the time bands for some steps. But costs should normally be straightforward. This case is a striking example of an attempt to depart from the regime set by pt 14, and explains the gulf between the costs assessments made by the parties.

The approach to costs in New Zealand

[4]    The current regime in pt 14 was first introduced by the High Court Amendment Rules 1999. One of the key principles of that regime is set in r 14.2(1)(g) that “so far as possible the determination of costs should be predictable and expeditious”. The previous regime was more unpredictable.2 The replacement regime prescribed the “principles, formulae and rates that cater for all but the most unusual of cases”.3 That regime seeks to strike the balance between predictability and fairness.4 It identifies, within the Rules themselves, when and how the costs award is to be arrived at by the application of the time allocations sch 3 in accordance with the appropriate daily recovery rates in sch 2. In Glaister v Amalgamated Dairies Ltd the High Court said:5

Predictability and expeditious determination of costs is the notion which underpins the new costs regime. Failure to give proper weight to that notion undermines the way in which the Rules operate. …

[5]    On appeal the Court of Appeal emphasised the discretion that also existed under the Rules.6 But whilst the discretion exists, as the Supreme Court said in Shirley v Wairarapa District Health Board the discretion to be exercised is as set out in the Rules themselves.7

2      For an historical summary see David Bullock and Tim Mullins The Law of Costs in New Zealand

(LexisNexis, Wellington) at [1.4]–[1.8].

3      Mansfield Drycleaners Ltd v Quinny’s Drycleaning (Dentice Drycleaning Upper Hutt) Ltd (2002) 16 PRNZ 662 (CA) at [27].

4      Taylor v Roper [2019] NZHC 16, (2019) 24 PRNZ 373 at [8]–[9].

5      Glaister v Amalgamated Dairies Ltd (2003) 16 PRNZ 536 at [21].

6      Glaister v Amalgamated Dairies Ltd [2004] 2 NZLR 606 (CA) at [38].

7      Shirley v Wairarapa District Health Board [2006] NZSC 63, [2006] 3 NZLR 523 at [17].

[6]    The predictability of the regime is established by the daily recovery rates set in sch 2 set by categorising the proceedings under r 14.3 which are then applied to the time allocations in one of the three bands in sch 3 in accordance with r 14.5. There is capacity for an increased costs award, including indemnity costs in accordance with  r 14.6, but only if the standards prescribed by that rule are met. There is also the capacity for a reduction in the award in accordance with r 14.7, but again only if the standards for reduction prescribed by that rule are met. There is a residual overriding discretion under r 14.1, but it is qualified by the applicable costs rules and it must be exercised consistently with the principles of the regime.8 The correct approach to this “schedular” approach to costs in the rules was summarised by the Court of Appeal in Holdfast NZ Ltd v Selleys Pty Ltd.9

[7]    Given the schedular approach the Court should only be involved in the determination of costs in a limited number of cases. The regime is relatively straightforward and costs should be able to be settled by the parties in the majority of cases. Yet it has become increasingly apparent that the Court is being asked to grant uplifts, discounts or exceptions to costs awards almost routinely. The difference between the parties in the present case that I referred to in [2] above, and the number of issues that have been raised is an example of this.

[8]I will address the issues that have been raised against that background.

Disputes in relation to steps claimed

[9]    The defendant has made a number of claims in relation to steps set out in sch 3 that are disputed by the plaintiff. I address each of those matters.

Discovery by defendant

[10]   The defendant makes a claim under time band C (step 20 – seven days) for providing its discovery. The plaintiff accepts that that claim should be allowed in the higher time band. I agree with that assessment.

8      Manukau Golf Club Inc v Shoye Ventures Ltd [2012] NZSC 109, [2013] 1 NZLR 305 at [7].

9      Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [43]–[48]. See also Bradbury v Westpac Banking Corporation [2009] NZCA 234, 3 NZLR 400.

[11]   The defendant then seeks further awards for additional discovery it provided under time band B (2.5 days). I agree with the plaintiff that no additional award is justified. There may be some circumstances where an additional award for supplementary discovery by a party might be allowed, but there is no direct provision for this in sch 3. An allowance for discovery under time band C already involves a high allowance and a party can be expected to have complied with the discovery obligations when providing discovery in accordance with this step. There is no justification for granting the defendant further allowances for supplementary discovery.

Inspection

[12]   The defendant makes a claim for inspection under time band C (step 21 – six days). This is not disputed by the plaintiff. I agree that this is appropriate in the present case.

[13]   The defendant calculates this claim, however, under the daily recovery rate for a category 3 proceeding rather than a category 2 proceeding that the parties had already agreed applied to the proceeding. The plaintiff disagrees with this approach.

[14]   As both r 14.3(2) and the authorities make clear, a recategorisation of a proceeding is only permitted if there is special reason.10 No special reason exists here, and neither has the defendant attempted to identify one. It is also clear that the categorisation of a proceeding under r 14.3 applies to a proceeding overall, not to a particular step in a proceeding. For that reason, a claim by a party to use the higher daily recovery rate for a particular step is not consistent with the regime prescribed by the Rules, and it is disallowed.

[15]   The defendant then makes two further claims for inspection under step 21, one also calculated on a 3C basis. As indicated above, a further allowance for a step set by sch 3 could be allowed in particular circumstances when there is, in fact, a discrete additional step in addition to the one already provided for. That could occur when

10     Dovey Aviation Consulting Ltd v Attorney-General [2021] NZHC 1224 at [3]–[11]; Tindall v Far North District Council HC Auckland CIV-2003-488-135, 25 May 2007 at [10]–[11].

further discovery is provided by the other party. Here I accept such an allowance is appropriate, but I do not accept that the defendant can claim for inspection three times. The defendant says that further documents were provided with service of briefs of evidence, and that a further tranche of documents was provided shortly before the hearing. In those circumstances I allow one more claim for inspection under time band B, in addition to the first claim under the step under time band C. Both are only allowed under category 2 for the reasons explained above.

Plaintiff ’s discovery application

[16]   The defendant makes a claim under steps 23 and 24 for opposing the plaintiff’s discovery application in relation to particular documents. The plaintiff says that this claim should not be allowed as its application was essentially successful given that the documents were provided.

[17]   Rule 14.8 requires the cost of interlocutory applications to be determined at the time they are decided by the Court unless there are special reasons. That did not happen here as the parties resolved the matter without the Court being required to make a decision. Given that the application was not argued, and the information sought by the application was provided, I do not see a basis under which costs could be awarded to the defendant for the preparing a notice of opposition, and filing of submissions. Neither would costs have been awarded to the plaintiff on that application for the same reasons. Essentially costs lie where they fall when parties resolve matters. For these reasons no costs should be allowed for these steps.

Trial costs

[18]   Trial costs are claimed under steps 34 and 35 in the usual way and these are not disputed by the plaintiff. But in addition the defendant has claimed a further allowance for “opening submission” said to be under step 24 or step 40 (1.5 days), for “closing submission” (1.5 days) under the same steps, and also for the preparation of a chronology under step 11 (0.4 days). This totals an additional 3.4 days.

[19]   There is no basis for such claims. Steps 34 and 35 cover such aspects of trial. Step 24 is preparing written submissions for an interlocutory application. Step 40 is

for preparing written submissions on an originating application. Step 11 concerns the filing of a memorandum for a first case management conference. These are examples of a party not complying with the regime set by sch 3 when making its costs claims. These steps are obviously not allowable.

Other claims

[20]There are other claims made that are disputed by the plaintiff.

[21]   The defendant has claimed twice under step 17 for answering interrogatories under time band B (2 x 1 day). The plaintiff issued one set of interrogatories involving eight questions. The fact the defendant filed two separate affidavits to provide the answers does not mean that the allocation for the answers should be doubled. I agree that the answers to the interrogatories are appropriately assessed under time band B involving one day.

[22]   The defendant claims for the first amended statement of defence and counterclaim dated 5 April 2022. As the plaintiff says, costs for an amended pleading are not provided for except in response to an amended pleading from the other party which is addressed under step 9. This step is disallowed.

[23]   There is then dispute about various memoranda that were filed. I agree that there is no basis for the memorandum dated 7 July 2021, or for a joint memorandum prepared by the plaintiff dated 23 August 2021 to be claimed. I accept, however, that the claims for the memoranda of 7 and 9 June 2023 concerning confidentiality can be claimed by analogy in accordance with r 14.5(1)(b), and they are allowed.

Disbursements

[24]   The plaintiff also disputes some of the disbursements that are claimed by the defendant under r 14.12. Disbursements are claimed for travel and accommodation costs associated with briefing of witnesses. Allowing such claims will depend on the circumstances of the case.11 I allow the disbursements in the present case given that the witnesses were in a different city from the defendant’s solicitors. I also allow the

11     Buis v Accident Compensation Corporation (2010) PRNZ 585 (HC) at [25].

relatively modest costs for documentary management services provided by an external provider. Such a disbursement can be permitted in addition to the allowances for the steps in sch 3.12 I accept that band C for discovery and inspection allowances is already generous, but these external costs were incurred and assisted with document management.

Claim for an uplift

[25]   The defendant also seeks an uplift of the costs award. The uplift sought is a high one — 75 per cent. The plaintiff says there should be no uplift on the costs award.

[26]   The defendant appears to identify three related reasons for the uplift — that the litigation concerned a settlement agreement, that the plaintiff should have known that its claim had no prospect of success, and that the plaintiff should have accepted offers in settlement. The first two arguments engage r 14.6(3)(b)(iii) which provides:

14.6     Increased costs and indemnity costs

…

(3)       The court may order a party to pay increased costs if—

…

(b)the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—

…

(iii)failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument; or

…

Dispute concerning settlement agreement

[27]   The defendant says costs should be increased because this case involved a dispute about a settlement agreement. It refers to the decision of the English and Welsh High Court in Denny v Babaee where it was held that a deliberate breach of a settlement agreement without reasonable justification was a basis for costs censure by

12     Mainzeal Property and Construction Ltd (in liq) v Yan and Ors [2019] NZHC 1637 at [100]–[103].

the courts.13 But as the plaintiff says, the regime for awarding costs in England and Wales is different from the regime in New Zealand. Litigation disputes about settlement agreements are no different from any other disputes.14 If a party pursues a meritless argument in relation to a settlement agreement r 14.6(3)(b)(ii) can be engaged. But the rule is not engaged simply because this is a dispute about a settlement, which is not uncommon. I accordingly reject the argument that an uplift is warranted because this dispute concerned a settlement agreement.

Plaintiff ’s claim lacked merit

[28]   The second ground is that the plaintiff knew, or should have known that it was likely to fail. The defendant refers to its summary judgment application. This was dismissed, but the Associate Judge indicated he did so “not without reservations”.15 The defendant also says that the subsequent decision of Gendall J agreeing to the preliminary question should have signalled to the plaintiff that it was not going to succeed.16

[29]   I do not accept that these earlier judgments mean that the proceeding falls within r 14.6(3)(b)(ii). A party has a right of access to the Court. It does so when it has an argument that it wants the Court to adjudicate on. If it is unsuccessful it is likely to be obliged to pay costs in accordance with the principle set in r 14.2(1)(a). The rule is not triggered because a party knew that there was a real prospect that its proceedings could fail. It arises when there is a failure, without reasonable justification, to accept facts, evidence or a legal argument. That is a high threshold.  It will only be in clear cases that the Court uplifts costs under r 14.6(3)(b)(ii) because the arguments the party have advanced lacked merit. For example in NR v MR the Court of Appeal increased a costs award by 50 per cent when the arguments on appeal fell within the words of the Rule saying:17

In our opinion, the present applications fall readily within those words. They are based on issues previously advanced and dismissed as meritless in the High Court. The arguments are devoid of merit. Repeating them on appeal

13     Denny v Babaee & Ors [2023] EWHC 1490.

14     Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd [2016] NZCA 67, [2016] 2 NZLR 750 at [132].

15     Lepionka & Co Investments Ltd v Gibson Sheat [2022] NZHC 242 at [92].

16     Lepionka & Co Investments Ltd v Gibson Sheat [2022] NZHC 1488.

17     NR v MR [2014] NZCA 623, (2014) 22 PRNZ 636 at [51] – even here there was a dissent.

was an unnecessary step. By taking that course, NR has contributed unnecessarily to the time and expense of the appeal.

[30]   The words used by the Court of Appeal capture the kind of circumstances that fall within the rule.

[31]   If the party had an arguable case the rule is not engaged. In the present case it was established that the plaintiff had an arguable case — that was the very conclusion reached by the Associate Judge on the summary judgment application. There were elements that made it apparent that there was a factual dispute that needed to go to trial for a proper determination — for example, a written settlement agreement had been prepared but it was never signed. Moreover, whilst the defendant has prevailed, this was not without some criticism of its conduct in association with the settlement.18 The circumstances are well short of a situation where uplifted costs would be appropriate because the party has failed to admit facts, evidence or a legal argument without reasonable justification.

Settlement offer

[32]   A third related basis for the uplift arises from the fact that the defendant made a settlement offer  of  $150,000  on  9 August  2021.  That  offer  was  repeated  on 25 November 2021 shortly before the hearing of the summary judgment application referred to above.  The  defendant  also  refers to  an offer that the plaintiff made on 5 April 2023 to accept $3.15 million.

[33]   Under r 14.6(3)(b)(v) there can be an increase of a costs award arising from a settlement offer that was not accepted. The rule provides:

14.6     Increased costs and indemnity costs

…

(3)       The court may order a party to pay increased costs if—

…

(b)the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—

18     Lepionka & Co Investments Ltd v Gibson Sheat, above n 1, at [88].

…

(v) failing, without reasonable justification,  to  accept  an offer of settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding; or

…

[34]   In Mainzeal Property and Construction Ltd (in liq) v Yan and Ors I addressed the approach to this rule in relation to offers made by successful parties and how it differed from the rule that applied to offers made which exceed the amount awarded:19

Offers made by successful plaintiffs are in a different category from offers made by unsuccessful defendants that exceed what the plaintiff is entitled to. The latter category is subject to separate rules in rr 14.10 and 14.11 which contemplate that a defendant offering more than the plaintiff is entitled to get costs from the point of the offer. That rationale does not arise in the rejection of offers made by the plaintiffs. A defendant who defends a proceeding is putting the plaintiff to the cost of it, and normally no increased costs are caused because the defendant does not accept an offer to settle for less than is claimed.

The principle in r 14.6(3)(b)(v) recognises, however, there will be situations where the refusal to settle can demonstrate that the party is acting without reasonable justification, and causing unnecessary expense to the claiming party. It has a similar rationale to the other uplift grounds in r 14.6. A plaintiff may offer to accept less than it is entitled to try and convince an obdurate defendant not to put the parties to the cost of a trial, and the failure to accept such  an  offer   may   justify  an   uplift.  Without   seeking  to  circumscribe r 14.6(3)(b)(v) that seems to me what the rule is generally directed to.

[35]   The same position arises in relation to offers made by successful defendants. They will only relevantly call for a cost uplift if they demonstrate that a party is behaving unreasonably in the pursuit of the litigation. The fact that a defendant makes an offer to make the plaintiff go away may make business sense for the defendant. But rejection of such an offer does not mean that the defendant has incurred any more costs than it would have to incur in defending a proceeding in any event. The position might be different if the defendant makes an offer that was generous to the plaintiff where it was unreasonable for the plaintiff not to accept it to bring the proceedings to an end. But that is not the case here. The plaintiff plainly had an arguable case, and was entitled to ask the Court to determine it.

19     Mainzeal Property and Construction Ltd (in liq) v Yan and Ors, above n 12, at [59]––[60].

[36]   This approach is reflected in the authorities referred to by the plaintiff. In Craike v Tilsley the Court did not uplift a costs award when the plaintiff was made an offer of $20,000 on a $1.3 million claim,20 in Sullivan v Welsford Properties Ltd an offer of $20,000 on a $200,000 claim did not trigger the rule,21 and a similar conclusion was reached in New Zealand Sports Merchandising Ltd v DSL Logistics Ltd in relation to an offer of less than 20 per cent of the claim.22

[37]   I accordingly do not accept an uplift is appropriate here. I also note that the claimed uplift was at a very high level at 75 per cent. In Holdfast NZ v Selleys Pty Ltd the Court of Appeal explained that the level of any uplift also needed to be in accordance with the scheme of the rules, and in that case determined the uplift would not be more than 50 per cent. The Court said:23

We are not to be taken as saying that an uplift of more than 50% can never be justified under r 48C(3)(b), as there may be circumstances where the court considers a higher award to be justified. What we are saying is that the above approach is what is logically required by the scheme of the rules, and in particular by the principles applicable to every determination of costs. Awards of increased costs must comply with the general principles in r 47, except to the extent that the specific requirements of r 48C dictate otherwise. The principles in r 47(c) and (d) are clearly modified by r 48C(3)(b), but r 47(e) is not so modified. Where increased costs (as opposed to indemnity costs) are being considered, the focus remains on the notional solicitor or counsel appropriate for the category of proceeding, not the actual solicitor or counsel involved or the costs actually incurred by the party claiming costs.

Conclusion

[38]   For the above reasons many of the defendant’s claims are inconsistent with the terms or scheme of the Rules and should not be allowed. To the extent that I have not addressed matters the claims by the defendant are allowed.

[39]   The plaintiff sought costs on the preparation of its memorandum addressing costs, and also a 50 per cent uplift on that award. There are differences in the

20     Craike v Tilsley [2012] NZHC 2886 at [6].

21     Sullivan v Welsford Properties Ltd [2018] NZHC 129 at [37]–[42].

22     New Zealand Sports Merchandising Ltd v DSL Logistics Ltd HC Auckland CIV-2009-404-5548, 19 August 2010.

23     Holdfast NZ v Selleys Pty Ltd, above n 9, at [48]. The numbering of the rules have since changed.

authorities on whether and when costs on costs should be awarded.24 There is no provision for such an award in sch 3, but costs can be awarded under r 14.5(1)(b) if there is reason to do so. That might be so if the costs argument is significant, and/or one party has substantially prevailed on the disputed costs questions.

[40]   Here there is only a small claim for costs on costs, and I consider that it is appropriate to allow it because the plaintiff has essentially prevailed on almost all issues. I do not award an uplift on those costs, which would largely only have symbolic significance, notwithstanding my concerns about some of the claims made by the defendant. But it may become necessary in future cases to begin making more significant costs on costs awards in circumstances where the parties require the Court to determine matters that they should be able to work out for themselves. The present case should have been resolved by commencing a calculation on a 2B basis and allowing some steps to be calculated under time band C.

[41]The defendant is awarded costs on the basis set out above.

Cooke J

Solicitors:

Bell Gully, Wellington for the Plaintiff Hesketh Henry, Auckland for the Defendant

24 Compare Body Corporate Administration Ltd v Mehta (No 4) [2013] NZHC 213 at [85] with Khurana Trustee Ltd v Castle backpacker K Road Ltd [2021] NZHC 1315 at [61] and Wenzhou Hongliang Trading Co Ltd v MSUT Trustee [2020] NZHC 2322 at [16].