LMCHB Limited (formerly L&M Coal Holdings Limited) v Buller Coal Limited

[2023] NZHC 1366

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

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

CIV-2021-485-524

[2023] NZHC 1366

BETWEEN

LMCHB LIMITED (formerly L&M Coal Holdings Limited)

Plaintiff

AND

BULLER COAL LIMITED

First Defendant

AND

BATHURST RESOURCES LIMITED

Second Defendant

Hearing:	On the papers
Judgment:	31 May 2023

JUDGMENT OF ISAC J

[Costs]

Introduction

[1]    In this proceeding, L&M sought a declaration that it is entitled to exercise security rights under a deed of guarantee against the first defendant, Buller Coal, in relation to an unpaid performance payment said to be due from Buller Coal’s parent company, Bathurst. The application was heard over one and a half days in Wellington in June 2022.1

[2]    In a judgment of 29 March 2023, I declined L&M’s application.2 In summary, I found that Buller Coal’s obligation under the guarantee was secondary to and

1      The matter was initially set down for a three day hearing, but the issues narrowed in the lead up to trial.

2      LMCHB Ltd v Buller Coal Ltd [2023] NZHC 633. L&M has appealed the decision, and the matter is now before the Court of Appeal.

LMCHB LTD (formerly L&M Coal Holdings Limited) v BULLER COAL LTD [2023] NZHC 1366 [31 May 2023]

contingent on Bathurst’s primary obligation under an agreement for the sale and purchase of shares. Given in earlier proceedings the Supreme Court had found that Bathurst was not liable to pay the performance payment under the agreement for sale and purchase, there had been no Event of Default under the guarantee, and L&M was not entitled to enforce its security rights.3 I also found that L&M’s decision not to bring the present claim as part of its original proceedings was not adequately explained or reasonable in the circumstances. On that basis, even if I had found for L&M on the substantive issues, I would have stayed the proceeding under the rule in Henderson v Henderson.

[3]On the matter of costs, I said:4

Costs should follow the event. My current inclination would be to award Bathurst costs on a 2B basis and to certify for second counsel.

[4]    The parties have been unable to resolve costs between themselves and have filed memoranda.

Costs claimed

[5]The successful defendants, Buller Coal and Bathurst, seek costs on two bases:

(a)first, indemnity costs, being the defendants’ actual costs in the proceeding of $545,988.64 (excluding GST); or

(b)alternatively, scale costs on a 3C  basis of $140,670.50, uplifted by  50 per cent, and disbursements of $10,949.93 (totalling $221,955.68).

[6]    The defendants submit that an award of indemnity or increased costs is appropriate to reflect that L&M’s “duplicative litigation” was an abuse of process and a transparent attempt to “litigate around” the Supreme Court’s judgment. Rather than accept defeat, L&M commenced almost identical proceedings against the same parties. This time, however, L&M sought to appoint receivers to Buller Coal, Bathurst’s subsidiary, to recover the same performance payment which the Supreme

3      Bathurst Resources Ltd v L&M Coal Holdings Ltd [2021] NZSC 85, [2021] 1 NZLR 696.

4      LMCHB Ltd v Buller Coal Ltd, above n 2, at [158].

Court had ruled it could not recover from Bathurst. The defendants highlight my finding that this approach ran counter to the rule in Henderson v Henderson.

[7]    Bathurst also refers to a letter from its solicitors to L&M on 25 August 2021 at the outset of these proceedings. The letter relayed Bathurst’s view that L&M’s new claim constituted an impermissible collateral attack on the Supreme Court’s judgment, and expressly put L&M on notice that indemnity costs would be sought.

[8]    In the event the Court does not consider an award of indemnity costs appropriate, the defendants submit that costs should be ordered on a 3C basis. They argue that applying the 2B scale would result in an award that does not adequately reflect the complex, detailed and time-intensive nature of the proceeding, or the high stakes involved.

[9]In reply, L&M submits that the correct calculation is a total costs award of

$40,554.74, being 2B scale costs of $37,404, plus disbursements of $4,106.74 (less L&M’s costs on this application of $956).

[10]   L&M submits that its behaviour in bringing and conducting the litigation did not begin to approach the high threshold for increased costs, let alone indemnity costs. Instead, scale costs should be awarded on a 2B basis, as indicated in my judgment, and as agreed by the parties in a joint memorandum to the Court.5 L&M seeks its own costs on the costs application, saying the defendants’ application for indemnity costs or 3C scale costs contrary to my indication was unrealistic and unreasonable.

[11]   L&M also challenges the disbursements claimed by the defendants, saying that it should not have to meet all of the costs of the defendants’ experts,6 or the sealing fee

5      In a joint memorandum to the Court dated 13 December 2021, the parties agreed that “the proceeding is appropriately categorised as costs category 2 and is an ordinary defended Part 18 proceeding”.

6      L&M notes that the defendants did not refer to Mr Ruscoe’s evidence at the trial, save for a passing mention in a footnote to their synopsis of submissions. Further, Mr Kettle’s evidence largely related to a second alleged event of default which L&M was forced to abandon as a result of “delayed and incremental provision” by the defendants of relevant information. L&M says the defendants’ delay meant new contested issues emerged late in the piece making the second event of default unsuitable for resolution through the declaratory judgments process. Finally, L&M notes a fee of $524.71 for attendances by Mr Kettle after he filed his affidavit is unexplained.

that L&M itself paid for. L&M suggests that the Court adopt a holistic approach and fix disbursements at $4,106.74.7

Costs principles

[12]   All matters relating to costs are discretionary,8 although that discretion must be exercised on a principled basis. So far as possible the determination of costs should be predictable and expeditious.9 Scale costs apply by default unless cause is shown to depart from them.10

[13]   The Court may make an order increasing scale costs, or depart from the scale entirely, and order that the costs payable are the actual costs incurred by a party (indemnity costs). The threshold for indemnity or increased costs is high, and the onus is on the applicant to show that they are justified.11 The Court’s discretion to award such costs is guided by r 14.6 of the High Court Rules 2016.

[14]   Indemnity costs should only be ordered where there are truly exceptional circumstances, where a party has behaved either exceptionally badly or very unreasonably.12 Misconduct qualifying for indemnity costs will be “flagrant” or “egregious”.13 Illustrating the very high threshold involved, the Court of Appeal in Bradbury v Westpac Banking Corp identified (without prescription) several examples of where indemnity costs have been awarded:14

(a)the making of allegations of fraud knowing them to be false;

7      That figure is comprised of the costs of preparing Mr Kettle’s evidence ($3,915.44) and the filing fees for the statement and amended statement of defence ($191.30), but excludes the costs of  Mr Ruscoe’s affidavit ($6,725), post-filing attendances by Mr Kettle ($524.71), and sealing fee ($43.48).

8      High Court Rules 2016, r 14.1.

9      Rule 14.2(1)(g).
10 Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [6].

11 Strachan v Denbigh Property Limited HC Palmerston North CIV-2010-454-232, 3 June 2011 at [27].

12 Bradbury v Westpac Banking Corp, above n 10, at [27]–[28]; and Hedley v Kiwi Co-operative Dairies Ltd (2002) 16 PRNZ 694 (HC) at [8].

13     Prebble v Awatere Huata (No 2) [2005] 2 NZLR 467 (SC) at [6]; and AFI Management Pty Limited v Lepionka and Company Investments Limited [2018] NZHC 1285 at [17].

14 Bradbury v Westpac Banking Corp, above n 10, at [29], endorsing Hedley v Kiwi Co-operative Dairies Ltd, above n 12, at [11], and Colgate Palmolive Co v Cussons Pty Ltd (1993) 118 ALR 248 at [24].

(b)particular misconduct causing loss of time to the court and other parties;

(c)commencing or continuing proceedings for some ulterior motive;

(d)doing so in wilful disregard of known facts or clearly established law;

(e)making allegations which ought never to have been made or unduly prolonging a case by groundless contentions—that is, persisting in what should on proper consideration be seen to be a “hopeless case”.15

[15]   Generally, increased costs may be ordered where there is a failure by the paying party to act reasonably.16 As the Court of Appeal said in the earlier proceeding between these parties:17

It is not enough that an appeal (and therefore cause of action at first instance) lacks merit. Increased costs will generally not be appropriate where there are “at least available starting points” for the argument — where its pursuit is not “unreasonable” nor “hopeless”. The costs regime should be predictable and litigants with “real arguments presented responsibly” to the courts should not fear an adverse increased costs award if their case fails. The standard costs regime recompenses in the case of normal failure.

Indemnity or increased costs?

[16]   Bathurst submits that L&M’s behaviour in bringing this proceeding falls squarely within r 14.6(4)(a), which provides that indemnity costs may be awarded against a party that has “acted vexatiously, frivolously, improperly, or unnecessarily” in commencing or continuing a proceeding or a step in a proceeding. However, I do not consider that the high threshold for indemnity costs has been reached.

15 The Court of Appeal referred to French J’s statement in J Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WÄ Branch) (No 2) (1993) 46 IR 301 at 303. In Mawhinney v Auckland Council [2021] NZCA 144, [2021] 3 NZLR 519 at [60] the Court of Appeal indicated that “hopeless” connotes being “totally without merit” or “bound to fail”. See also TheCircle.co.nz Ltd v Trends Publishing International Limited [2021] NZCA 235 at [34].

16 Bradbury v Westpac Banking Corp, above n 10, at [27].

17 Bathurst Resources Ltd v L&M Coal Holdings Ltd [2021] NZCA 684 at [16].

[17]   It does not automatically follow from a finding of an abuse of process that indemnity costs should be awarded.18 The focus is on the particular conduct of the party. As noted, misconduct must be egregious or flagrant to qualify for indemnity costs. In my view, L&M’s decision to commence this second proceeding was neither.

[18]   There is undoubtedly a sense of opportunism in L&M’s approach to the current proceeding. Indeed, I was left with the impression that L&M had altered its original view on the enforceability of the guarantee in order to bring this proceeding.19 But it cannot be said that L&M’s case was untenable from the outset or that the claim it brought was totally without merit or bound to fail.

[19]   Further, the Henderson v Henderson point was just one of a number of substantive issues that the Court was required to consider. All of the points raised were properly arguable. For these reasons, I do not consider there is anything in L&M’s conduct in this litigation which would warrant either indemnity or increased costs. That conclusion is not altered by the fact that the defendants placed L&M on notice of their intention to seek indemnity costs. Correspondence of that nature in litigation is common, and hindsight reasoning should be avoided when it comes to the determination of costs.

[20]I turn then to consider the appropriate scale to apply.

The scale costs claim

[21]   The difference between the parties’ positions is significant. The defendants seek costs on a 3C basis of $140,670.50, while L&M suggests 2B costs of $37,404, plus disbursements.

[22]   The central purpose of the costs regime, and the reason for using a scale, is to make the determination of costs predictable and expeditious. This enables parties to engage in litigation with a high degree of confidence about their potential costs

18 Butcher v Body Corporate 324525 [2017[ NZHC 1061 at [26]–[27]; Webster Farm Management Ltd v Dargaville Farms Ltd (in liq) [2020] NZHC 1477 at [85]; and Minister of Education v James Hardie New Zealand [2018] NZHC 2960 at [21].

19 LMCHB Ltd v Buller Coal Ltd, above n 2, at [148]–[149].

recovery or exposure. It also disincentivises unproductive and uneconomic satellite litigation on the issue of costs.

[23]   Here, the parties agreed at an early juncture that this proceeding “is appropriately categorised as costs category 2 and is an ordinary defended Part 18 proceeding”. I consider that was reasonable given the complexity and time required for the proceeding: a declaratory judgment application ultimately requiring one and a half days of argument. By way of contrast, the parties agreed that the previous proceeding in the High Court—which was heard over 12 days and involved a significant amount of evidence—was a complex one that was to be allocated category 3 for cost purposes.20

[24]   The onus is on the defendants to demonstrate that there are special reasons why the Court should re-categorise the proceeding.21 But as L&M points out, if anything the complexity of the proceeding had decreased by the trial, with both sides abandoning arguments and the required hearing time shrinking from three days to one and a half. While the sums at stake were significant and no doubt the actual costs of the parties substantial, there was nothing out of the ordinary that would amount to special reasons justifying costs on a category 3 basis.

[25]   I have therefore concluded that the appropriate categorisation, and daily recovery rate, is 2B.

Recoverable steps, disbursements and costs on the application for costs

[26]   L&M opposes Bathurst’s claim for costs relating to its use of a notice to admit facts. L&M says it was an inappropriate use of the procedure “largely directed as unnecessarily asking LMCHB admit the content of pleadings, judgments and correspondence relating to the prior litigation”. I do not think there is anything in this point. Much of the procedural differences between the parties arose out of L&M’s election to use the declaratory judgments procedure. Having adopted a summary

20 L&M Coal Holdings Ltd v Bathurst Resources Ltd [2018] NZHC 3121 at [8].

21 High Court Rules, r 14.3(2); David Bullock and Tim Mullins The Law of Costs in New Zealand (LexisNexis, Wellington, 2022) at [2.10]; J L Tindall v Far North District Council HC Auckland CIV-2003-488-135, 25 May 2007 at [10]; and Body Corporate 189855 v North Shore City Council HC Auckland CIV-2005-404-5561, 2 October 2008 at [9].

procedure, it is perhaps unsurprising that there would be differences between the parties about the scope of relevant and admissible evidence. Regardless, I see no good reason to deny Bathurst its costs for taking this step.

[27]   Turning to the question of disbursements, L&M objects to the defendants’ claim for expert witness costs. I do not consider L&M’s objections to be well founded.

[28]   In terms of Mr Ruscoe’s evidence, he provided an affidavit addressing L&M’s second cause of action—an allegation of a second Event of Default under the guarantee for non-compliance with an information gathering clause. Mr Ruscoe, a chartered accountant and licensed insolvency practitioner, gave evidence that it is rare for receivers to be appointed for non-monetary defaults, and that he had never seen a secured creditor treat an alleged breach of an information gathering clause alone as an event of default justifying the appointment of receivers. His view was that if L&M were to appoint receivers to Buller Coal based solely on such an alleged default, that would be well outside of reasonable standards of commercial practice in New Zealand.

[29]   Subsequently, L&M abandoned its second cause of action. While it maintains that was due to delay in providing information on the part of the defendants, it might also be seen as a recognition that the cause of action was unlikely to be successful in light of Mr Ruscoe’s evidence. In these circumstances, I see no reason why L&M should not meet the costs of preparing Mr Ruscoe’s evidence.

[30]   Likewise, I see no good basis for opposing the costs of Mr Kettle’s evidence. Mr Kettle provided an affidavit supporting Bathurst’s defence of a Henderson abuse of process, which I upheld.

[31]   I do accept, however, that L&M is not required to reimburse Bathurst for the court fee attaching to sealing the judgment. That is because it is a disbursement that the defendants did not incur.

[32]   As L&M has largely been successful on the costs application, I allow it costs for preparing its memorandum of $956.

Conclusion and result

[33]The defendants’ application for costs is allowed in part.

[34]L&M is to pay the defendants:

(a)costs on a 2B basis of $38,359.50 as set out in the attached schedule; and

(b)disbursements of $10,906.45 (being the amount claimed by Bathurst of

$10,949.93 less the sealing fee paid by L&M).

Isac J

Solicitors:

Gilbert Walker, Auckland for Plaintiff

MinterEllisonRuddWatts, Wellington for Defendants

Appendix

The defendants’ costs on the substantive proceeding
Item	Description	Days	2B Costs ($2,390 per day)
2	Commencement of defence by defendants	2	$4,780.00
10	Preparation for first case management conference (including discussion about discovery)	0.4	$956.00
11	Filing memorandum for first case management conference	0.4	$956.00
20	List of documents on discovery	2.5	$5,975.00
21	Inspection of documents	1.5	$3,585.00
9	Statement of defence to amended statement of claim	0.6	$1,434.00
18	Notice to admit facts	0.8	$1,912.00
30	Preparation of affidavits, list of issues or authorities; and agreeing common bundle	3	$7,170.00
32	Preparation for hearing	3	$7,170.00
34	Appearance at hearing for principal counsel	1.5	$3,585.00
35	Second counsel	0.75	$1,792.50
Subtotal	$39,315.50
Less L&M’s preparation of costs memorandum	-$956.00
Total costs payable	$38,359.50