MacKenzie v MacKenzie

[2018] NZHC 2292

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2014-419-415

[2018] NZHC 2292

BETWEEN

MALCOLM OWEN MACKENZIE

Plaintiff

AND

MALCOLM OWEN MACKENZIE, IAN SCOTT MACKENZIE, BARRY ANDREW MACKENZIE and MARION ANNE LINES

Defendants

Hearing:	On the papers
Counsel:	R O Parmenter for the Plaintiff P J Wright for the Defendants
Judgment:	31 August 2018

JUDGMENT OF PALMER J

[Costs]

This judgment is delivered by me on 31 August 2018 at 3.00 pm pursuant to r 11.5 of the High Court Rules.

.....................................................

Registrar / Deputy Registrar

Counsel/Solicitors:

P J Wright, Barrister, Auckland Sellar Bone, Auckland

R O Parmenter, Barrister, Auckland Daniel Overton & Goulding, Auckland

MACKENZIE v MACKENZIE [2018] NZHC 2292 [31 August 2018]

Summary

[1]                   Mr Malcolm MacKenzie initiated proceedings against the executors of his father’s estate in 2014. He consented to judgment on the second day of trial, in July 2018, on the basis of his own testimony under cross-examination. I award indemnity costs to the executors from the point at which Mr MacKenzie’s brief of evidence was due to be served and costs on a 2B basis otherwise.

The proceeding

[2]                   In this proceeding, Mr Malcolm MacKenzie (Mr MacKenzie) alleged his late father, Mr Don MacKenzie (his father), made an unfulfilled testamentary promise to him:

(a)In order to protect ownership of his house from business risk in 1981, Mr MacKenzie sold his property to his father in a “warehouse” agreement for safekeeping.

(b)In 1991, his father sold the property without consulting Mr MacKenzie.

(c)His father later said Mr MacKenzie would get “like for like” under his will if not sooner, as long as Mr MacKenzie cared for him in his final years, which he did from 2006 to 2012.

[3]                   His father died in December 2013. In 2014, Mr MacKenzie issued two sets of proceedings against the executors of the estate, himself and his siblings, the defendants. They concerned a trust and the estate. The parties put the proceedings on hold pending investigations of transactions between the estate and Pencarrow trust established by their father. In 2016 the trust claim was settled and Mr MacKenzie discontinued one of the causes of action in the estate proceeding. He pursued the second cause of action in the estate proceeding, for damages for breach of the alleged testamentary promise. The executors defended the claim on the basis his father paid Mr MacKenzie full consideration for the property and he had been more than sufficiently compensated for the alleged testamentary promise.

[4]                   In 2017, there was an interlocutory dispute over discovery applications by both sides.1 Costs on the executors’ application were awarded to the executors on a 2B basis and costs were reserved on Mr MacKenzie’s application.2 Mr MacKenzie’s discovery application was dismissed in 2018. In 2018 there was also an interlocutory dispute which set aside Mr MacKenzie’s issuance of subpoenas to his siblings and awarded them costs on a 2B basis.3

[5]                   Both sides made “Calderbank” offers, without prejudice save as to costs. On 7 May 2018, the executors offered that Mr MacKenzie could have an award of

$250,000 from the estate, with costs lying where they fell, to settle the proceeding. On 16 July 2018 Mr MacKenzie responded with a Calderbank offer to settle the proceeding for payment of $400,000 with costs lying where they fell. On 18 July 2018, the executors rejected Mr MacKenzie’s offer but made a Calderbank offer to settle the proceedings for $150,000.

[6]                   The trial commenced on Monday 23 July 2018. It ended on the morning of Tuesday 24 July 2018 during Mr MacKenzie’s testimony. Under cross-examination by Mr Wright, Mr MacKenzie was taken through records of transfers of funds from his father to him. He accepted he had received funds from his father equivalent to the amount he had alleged had not been given to him for the property and he conceded his father’s alleged testamentary promise to him only related to the proceeds of sale of that property.4 After a brief adjournment his counsel, Mr Parmenter, advised he was instructed to consent to judgment in favour of the defendants with costs being reserved. I ordered accordingly.

Relevant law of costs

[7]Rule 14.6 of the High Court Rules 2016 provides, relevantly:

14.6     Increased costs and indemnity costs

(1)Despite rules 14.2 to 14.5, the court may make an order—

1      MacKenzie v MacKenzie [2017] NZHC 2893.

2      At [23]–[24].

3      MacKenzie v MacKenzie [2018] NZHC 1744 at [52].

4      Notes of Evidence 92/22 to 93/6.

(a)increasing costs otherwise payable under those rules (increased costs); or

(b)that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party (indemnity costs).

(2)The court may make the order at any stage of a proceeding and in relation to any step in it.

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

(a)the nature of the proceeding or the step in it is such that the time required by the party claiming costs would substantially exceed the time allocated under band C; or

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

…

(ii)taking or pursuing an unnecessary step or an argument that lacks merit; or

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

(iv)failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or other similar requirement under these rules; or

(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

…

(d) some other reason exists which justifies the court making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.

(4)The court may order a party to pay indemnity costs if—

(a)the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or

…

(f) some other reason exists which justifies the court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious.

[8]                   In Bradbury v Westpac Banking Corporation in 2009, the Court of Appeal endorsed the following, non-exhaustive, circumstances in which indemnity costs have been ordered:5

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

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

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

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

(e)making allegations which ought never to have been made or unduly prolonging a case by groundless contentions, summarised in French J’s “hopeless case” test.

[9]                   “French J’s ‘hopeless case’ test” was expressed by the Chief Justice of Australia in J-Corp Pty Ltd v Australian Builders Labourers’ Federation Union of Works (WA Branch) No 2, about a case he described as “paper-thin”, as: “It is sufficient, in my opinion, to enliven the discretion to award such costs that, for whatever reason, a party persists in what should on proper consideration be seen to be a hopeless case”.6

[10]               The Court of Appeal in Bradbury also said the Court may order increased costs “where there is a failure by the paying party to act reasonably” to the extent that increased the time or expense of a proceeding.7 Increased costs should not usually exceed 50 per cent of scale costs.8

[11]               Rule 14.8 provides that costs on an opposed interlocutory application must be fixed when the application is determined but the court may reverse or vary such an order if satisfied the original order should not have been made.

5      Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [29], citing

Hedley v Kiwi Co-operative Dairies Ltd (2002) 16 PRNZ 694 (HC).

6      J-Corp Pty Ltd v Australian Builders Labourers’ Federation Union of Works (WA Branch) No 2(1993) 46 IR 301 (FCA).

7      Bradbury v Westpac Banking Corp, above n 5, at [27]; see also Commissioner of Inland Revenue v Chesterfields [2010] NZCA 400, (2010) 24 NZTC 24,500 at [165].

8      Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [46]–[48].

Submissions on costs

Executors’ submissions

[12]               The executors seek a costs award for the whole proceeding, including further awards for the interlocutory applications for which scale costs have already been awarded. They seek either indemnity costs of $286,177.50 (GST incl) plus costs for junior counsel totalling $29,336.75 (GST incl) and disbursements of $13,948.62 or, alternatively, costs on a 2B basis totalling $77,325 increased by 50 per cent to total

$115,987.87. As a further alternative, they seek indemnity costs for various stages of the proceeding, including all the discovery applications and following their first Calderbank offer. Mr Wright submits the level of the indemnity costs incurred is reasonable given the extent of the historical material they were required to review and the discovery applications they were required to bring. He submits the costs awarded for the discovery application fixed a daily recovery rate but not the relevant timeframe.

[13]The executors seek costs on the basis:

(a)Mr MacKenzie’s admission he had never been promised anything for looking after his father meant he had no testamentary promises claim;

(b)Mr MacKenzie’s claim for compensation for the property was not legally available; and

(c)Mr MacKenzie had not paid for the property, was fully compensated for it at the time of its purchase and received amounts from his father during his lifetime and in his will of $520,991 and from the Pencarrow Trust of $942,097 meaning there was no basis for a claim for his services after 2006.

[14]               Mr Wright, for the executors, submits Mr MacKenzie capitulated during cross- examination on the two key issues of whether there was an effective testamentary promise and whether there was an underlying unpaid historical debt. He submits that indicates Mr MacKenzie’s case was hopeless. He submits there was no corroboration of Mr MacKenzie’s claims to the contrary on either issue and alleges Mr MacKenzie

had deliberately attempted to prevent the executors gaining access to the directly relevant accounting records. He submits Mr MacKenzie’s evidence under cross- examination completely contradicted his evidence-in-chief. He submits if Mr MacKenzie had prepared for his claim properly he would have discontinued.

Malcolm’s submissions

[15]Mr Parmenter, for Mr MacKenzie, submits:

(a)I did not hear all the evidence so cannot conclude the claim was hopeless. The totality of the evidence made out a case, subject to my discretion as to quantum, and “it is not impossible that careful re- examination could have repaired some of the damage”.

(b)I could see Mr MacKenzie’s answers as mistakes rather than an attempt to defraud his family. Mr MacKenzie swore an affidavit on 8 March 2018 rejecting the allegation he had deliberately attempted to prevent access to accounting records.

(c)I should encourage parties to make pragmatic decisions as to whether to continue litigation rather than compelling continuation in order to avoid indemnity costs.

(d)If indemnity costs are awarded they must be reasonable, which the costs claimed are not. That should be assessed by the Law Society — a suggestion roundly opposed by Mr Wright as unprecedented and undesirable.9 I will also need to consider that costs have already been awarded for the two interlocutory applications. Nothing justifies costs beyond a 2B basis. Juniors’ costs are not an appropriate disbursement when they do not appear in court.

(e)Regarding the Calderbank offers, Mr MacKenzie would have borne a share of the costs of settlement as one of the four residuary beneficiaries

9      Referring to Hannam v Herd HC Auckland CIV-2008-404-5195, 16 December 2010.

of the estate. Mr MacKenzie cannot be criticised for not accepting an offer if he thought he could do better in court.

Decision

[16]               Mr MacKenzie made a poor choice in bringing and pursuing this proceeding. He consented to judgment for the defendants on the basis of his own testimony under cross-examination. One of the two factors relevant to that was the nature of his father’s alleged testamentary promise. That was clearly within his own knowledge. Even if he did not appreciate its legal significance, in preparing for trial he should have disclosed it to his counsel and received advice about its legal significance. The other factor was the payment by his father of the funds he claimed his father owed him for the property. Under cross-examination, he said he had not, before trial, been through the documentation that demonstrated that.10

[17]               The poorness of Mr MacKenzie’s choice is reinforced by his rejection of two Calderbank offers which would have given him substantial payments. As it is, he is left with nothing to show for this proceeding and a costs award to pay.

[18]               There is no evidence Mr MacKenzie acted with malice in bringing the proceeding. My impression, from his evidence, is that he had a genuine grievance against his father who appears, on the basis of the evidence I heard, to have treated him badly at times. But in failing to discuss the above two factors with his counsel before trial Mr MacKenzie acted unnecessarily in continuing the proceeding at considerable cost to the estate. That is a ground on which I may order him to pay indemnity costs, under r 14.6(4)(a), or increased costs under r 14.6(3)(b)(ii) or (iii). His failing, without reasonable justification, to accept either Calderbank offer, is also a ground for ordering increased costs under r 14.6(3)(b)(v).

[19]               If litigants pursue legal proceedings they must at least act with reasonable care in doing so. Neither the Court nor defendants should have to put up with unnecessary litigation and its attendant direct and opportunity costs. That is what this was. That

10     Notes of Evidence 59/10–15.

should have been evident from at least the time of the preparation of Mr MacKenzie’s brief of evidence which was due to be served on 3 April 2018.

[20]               Accordingly, I award indemnity costs and disbursements to the executors for all steps in the trial subsequent to service of Mr MacKenzie’s brief of evidence (including any junior barristers’ costs for that period), including the executors’ interlocutory application to set aside subpoenas. I do not consider the costs charged to the executors are excessive given the nature of the work involved and its evident pay-off. For the steps before that, including Mr MacKenzie’s interlocutory discovery application, I award costs to the executors on a 2B basis plus disbursements. (Junior barristers’ fees are not to be treated as disbursements for that period). I do not disturb the 2B costs awarded to the executors for their interlocutory discovery application.

Palmer J