McLeish v Rockhill Limited HC Christchurch CIV- 2010-409-001409
[2011] NZHC 1564
•4 July 2011
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV- 2010-409-001409
BETWEEN ANNE KATHRYN MCLEISH AND THOMAS ARTHUR MCLEISH Appellants
AND ROCKHILL LIMITED First Respondent
ANDPETER HURLEY AND ANN HURLEY Second Respondents
ANDDAN VAN ASCH Third Respondent
Hearing: 4 July 2011 (On the Papers) Counsel: P J Shamy for Appellants
H C Matthews for First and Third Respondents
G Brodie for Second Respondents
Judgment: 4 July 2011
COSTS JUDGMENT OF PANCKHURST J
Introduction
[1] In a judgment dated 5 November 2010 I increased a District Court damages award from $10,000 to $26,000. Interest was also awarded in relation to the increased sum, which Mr Matthews has calculated at $5,146, producing a judgment sum of $31,146. I assume for the purposes of this decision that this figure is not in dispute.
[2] There are a number of significant complications in relation to the delivery of this judgment. Judge MacAskill heard the case in the District Court in February 2010 and delivered a judgment in June of that year. No doubt, on account of the appeal to this Court costs in the District Court were not fixed. However, there
has been correspondence between counsel concerning the quantum of costs in the
ANNE KATHRYN MCLEISH AND THOMAS ARTHUR MCLEISH V ROCKHILL LIMITED AND OTHERS HC CHCH CIV- 2010-409-001409 4 July 2011
District Court ― at least in relation to the costs of Mr and Mrs Hurley. Given that the claim against the Hurleys failed in the District Court, Mr Brodie sought payment of costs from the McLeishs. A resolution of this aspect was not achieved prior to the appeal hearing before me in September 2010.
[3] Subsequent to the delivery of the appeal judgment a number of memoranda were filed by counsel in relation to costs. These rehearsed the arguments for and against costs awards, but also broached whether I had jurisdiction to rule on costs in the District Court as well as in this Court. I remain of the view that I probably do not have jurisdiction with reference to the District Court hearing.
[4] That said, there are several considerations which suggest the need for a pragmatic approach and the memoranda of counsel indicate a desire for a final decision. The McLeishs, through counsel, seek orders that the costs of the Hurleys in both courts be met, in whole or in part, by the unsuccessful defendants (Rock Hill and Mr van Asch), despite the fact that the Hurleys succeeded at both hearings so that the McLeishs would ordinarily be liable for their costs. There is obvious advantage in one judge considering this argument.
[5] There are also practical difficulties. The main Christchurch courthouse remains inaccessible following the February earthquake. Memoranda indicate that the District Court file relevant to this proceeding remains in the building and that “Judge MacAskill has gone on long service leave and has not dealt with these costs, believing that the matter was in the hands of the High Court”.[1]
[1] Costs memorandum of Mr Brodie dated 13 June 2011.
[6] I shall, therefore, consider costs in both courts ― at least to the extent that I am able to do so. In adopting this approach I am also influenced by the circumstance that this litigation has reached a point where legal costs considerably exceed the amount of the judgment obtained by the McLeishs. This adds to the need for a single, and timely, costs judgment.
[7] It is convenient to refer to the McLeishs as the plaintiffs, and to Rock Hill together with Mr van Asch (a director of the company) as the defendants, while the Hurleys will be referred to as such.
The costs sought by the parties
[8] The plaintiffs seek an award in relation to the District Court hearing:
Costs according to scale $23,872.00 Court costs
$950.00.00
Disbursements
$10,441.00
Total
$35,263.00
[9] The claim for disbursements largely comprises an expert’s fee of $9,281.25. With regard to the appeal hearing the plaintiffs claim $5,536.00, inclusive of normal court disbursements. Costs in both courts are calculated on a 2B basis.
[10] Mr Matthews, for the defendant, seeks an award in this court of $4,136.00, likewise calculated on a 2B basis, from the plaintiffs. This claim, made despite the fact that the defendants failed in both courts, is based upon a Calderbank offer. Mr Matthews’ submissions confirm that the defendants also seeks costs from the plaintiffs in relation to the District Court hearing, and on a similar footing. However, there is no calculation of the claim according to scale, although I assume that the amount assessed on a 2B basis would be about $20,000.
[11] Mr Brodie on behalf the Hurleys seeks costs from the plaintiffs:
District Court $22,464.00 High Court
$ 4,136.00
Total
$26,600.00
These amounts are claimed on the footing that the plaintiffs’ claim was unsuccessful in both courts.
Issues requiring determination
[12] There are four main aspects which require consideration in order to address the various cross-claims for costs. The first concerns the Calderbank offer made by the defendants on 9 December 2009. Next I shall discuss the plaintiffs’ costs claim against the defendants, including whether the plaintiffs, despite their success in both courts, failed in relation to an issue which significantly increased the costs incurred by the defendants.
[13] Thirdly, the Hurley’s claims for costs in both courts require separate consideration, both with regard to an argument that the plaintiffs were partly successful on appeal and in relation to the incidence of costs ― whether the plaintiffs, or the unsuccessful defendants, should meet the awards to the Hurleys.
This is in fact the fourth issue; whether the making of a Sanderson[2] order or a
Bullock[3] order is appropriate.
The Calderbank offer
[2] Sanderson v Blyth Theatre Co [1903] 2 QB 533.
[3] Bullock v London General Omnibus Co [1907] 1 KB 264.
[14] Approximately two months out from the District Court hearing the defendants made a Calderbank offer. It fell into two parts which were communicated in separate letters dated 9 December 2009. The first letter was written to both the plaintiffs and the Hurleys. It proposed a settlement on the basis the plaintiffs discontinue their claim, the Hurleys discontinue their cross-claim (for indemnity) against the defendants and that all parties meet their own costs, subject to an all-in payment of $15,000 to the plaintiffs in final settlement. Such settlement was to be promptly implemented, to remain confidential and to proceed without an acknowledgment of liability. The letter asserted that the plaintiffs were unlikely to succeed in their claim and, even if they did, that the damages sought of $100,000 were plainly excessive.
[15] The second letter was sent only to the plaintiffs. It proposed that if the overall settlement was not acceptable, the plaintiffs should at least discontinue as against the Hurleys. The letter included these extracts:
… our clients consider it most unlikely that the plaintiffs will obtain relief against the Hurleys in a form that requires them to undertake any significant works to their property whether by alteration of the roofline … or otherwise.
Our clients consider that if the plaintiffs did have a remedy against the
Hurleys then it is much more likely to be by way of a remedy in damages.
[16] The letter contemplated that the plaintiffs discontinue against the Hurleys, who would in turn discontinue their cross-claim against the defendants; with costs not payable on either discontinuance. The argument was that the plaintiffs’ claim for a mandatory injunction, to compel the Hurleys to modify their roofline, was bound to fail and removal of the Hurleys from the proceeding would significantly narrow the issues and rationalise the costs of the remaining parties. The letter also pointed out that if the plaintiffs’ alternative claim in damages was successful, no purpose was to be served by the Hurleys remaining as a party, since they were likely to be indemnified by the defendants who had the “means to enable them to meet a (damages) judgment”.
[17] Mr Shamy on behalf of the plaintiffs rejected the alternative Calderbank offers. He pointed out that a mandatory injunction was the primary remedy in terms of the restrictive covenant, and also asserted that only “relatively minimal” alterations to the Hurley’s house (as opposed to its demolition) were required and hence that the Hurleys “must be involved” in the District Court hearing. No common ground emerged. Instead the parties readied themselves for the substantive hearing.
[18] Rule 14.10 of the High Court Rules provides that if a Calderbank offer includes payment of a sum of money which exceeds the amount of the judgment subsequently obtained by the plaintiff, or if that offer would have been “more beneficial” to the plaintiff than the judgment obtained, then the defendant is entitled to costs incurred from the date of the offer. Rule 14.11 provides that a Calderbank
offer which “is close to the value or benefit of the judgment obtained by the plaintiff”
may be taken into account in assessing costs.[4]
[4] The relevant District Court Rules are to identical effect.
[19] Mr Matthews submitted:
(i) That the plaintiffs net position, after meeting their possible liability to the
Hurleys for costs of $26,600, was a net gain of $4,545 (judgment of
$31,145 minus $26,600), which was less than the $15,000 offered in the tripartite Calderbank letter. Hence, he submitted, the defendants were entitled to costs against the plaintiffs from 9 December 2009.
(ii) Alternatively, the $15,000 offer should be viewed as “more beneficial” to the plaintiff than the judgment they obtained via a similar process of reasoning.
(iii) Finally, the secondary Calderbank proposal, that the plaintiffs discontinue against the Hurleys and seek only damages from the defendants, would at least have produced an outcome “close to the value or benefit of the judgment obtained by the plaintiffs”. Here, the contention was that the plaintiffs would in due course have obtained judgment for over $31,000 against the defendants, absent a possible liability for substantial costs payable to the Hurleys. Indeed, no costs or a sum of $8,640 (to December 2009) may have been incurred, leaving the plaintiffs better off than their present position.
[20] I do not accept these contentions. The judgment ultimately obtained by the plaintiffs on appeal is for a sum much in excess of the $15,000 offer. Nor, in my view, is it appropriate to erode the judgment sum on account of a possible liability for costs payable to the Hurleys. I shall consider the incidence of that costs liability shortly. But, in any event, if the net worth of the judgment obtained by the plaintiffs is to be assessed by reference to their possible liability for costs to the Hurleys, the plaintiffs’ claim to costs from the defendants must also be brought to account. That claim is for over $40,000. I shall consider shortly whether the full amount claimed
should be awarded. But, regardless, it is clear I think that the plaintiffs are better off following the appeal judgment in this Court than they would have been upon accepting a $15,000 payment.
[21] These factors make it unnecessary for me to consider the arguments advanced by Mr Shamy in relation to the confidentiality clause, the denial of liability and what was termed the “assumed future conduct and compliance” by the Hurleys. There may be some substance in particularly the first two points, but given my view that the plaintiffs are now in a significantly better position than they would have been upon acceptance of the $15,000 settlement offer, I need not concern myself with these aspects.
[22] With regard to the fall-back proposal that the plaintiffs should have discontinued against the Hurleys and confined their case to a claim for damages against the defendants, I do not accept this contention either. Certainly the defendants have been vindicated in their prediction that the grant of a mandatory injunction requiring the Hurleys to effect alterations to their house was “highly unlikely”. Further, the plaintiffs’ decision not to discontinue against the Hurleys has added significantly to the costs of the proceeding. On the other hand, and for reasons which I will discuss later, I do not consider that the plaintiffs’ decision concerning discontinuance was an unreasonable one. To the extent that this decision has impacted in relation to the costs incurred, appropriate adjustments can be made to the costs awards.
The plaintiffs’ costs claim
[23] As noted earlier (paragraphs 8–9) the plaintiffs seek a total of $40,799 on account of costs and disbursements in both courts. Only two points require comment. The costs claim in relation to the District Court hearing includes a two- day allowance for the commencement of proceedings against a third party, Mr van Asch. I do not have knowledge of the circumstances pertaining to this aspect. Without access to the District Court file and the benefit of some further input from counsel, I am unsure as to the appropriateness of the amount claimed. Otherwise, the total costs figure in both courts appears reasonable. The second point concerns
the disbursements claimed by the plaintiffs in the District Court. The figure of
$9,281.25, being the costs of the plaintiffs’ valuer (Mr Dunbar), is significant. However, having regard to the importance and extent of his evidence I accept that this is a properly payable disbursement.
[24] It follows that subject to the reservation I have noted, which counsel should be able to resolve by agreement, I am of the view that the costs and disbursements claimed by the plaintiffs are appropriate. In memoranda filed in this Court Mr Matthews did not comment upon the plaintiffs’ costs calculations. Instead, he argued that costs should be reduced or refused because the judgment sum obtained was exceptionally low and because the plaintiffs failed in relation to an issue which significantly increased the costs of the proceeding. As to the former point, I do not think that the amount awarded as damages on appeal can be characterised as exceptionally low ― even when measured against the damages claimed of $100,000.
[25] A more substantial point is whether the plaintiffs’ failure with reference to obtaining the primary relief sought by them, a mandatory injunction, should sound in relation to costs. I am not persuaded that this failure requires any reduction to the plaintiffs’ entitlement. I accept Mr Matthews’ point that the plaintiffs’ case both in the District Court and on appeal was placed on the footing that an injunction which required the Hurleys to alter the roofline of their house was the primary, and most appropriate, remedy. Certainly, the plaintiffs’ case failed in relation to this issue. It is also the case that valuers called by the plaintiffs and the defendants gave evidence, and were cross-examined, concerning the scope of work required in order to alter the Hurley’s roofline. But such evidence was one part of the competing valuer’s testimony.
[26] Both men gave extensive evidence concerning the market value of the plaintiffs’ property and as to the extent of any diminution in value as a result of interruption to the plaintiffs’ arc of view following the erection of the Hurley’s house. It does not seem to me that the plaintiffs’ focus upon injunctive relief so skewed the proceeding as to warrant my taking the view that their failure to obtain an injunction should result in a reduction of the costs payable by the unsuccessful defendants. In this I am influenced in part by the enforcement clause in the
restrictive covenant applying to the subdivision, which contemplated that “an immediate injunction” prohibiting conduct in breach of the covenant and even necessitating demolition of a structure was an available remedy. It was not therefore surprising that the plaintiffs sought an injunction as their preferred relief. That they failed, and only damages were awarded, does not to my mind justify a denial or the diminution of costs. As I trust the appeal judgment conveys the choice between alternative remedies is a discretionary matter. This consideration, alongside my conclusion that pursuit of an injunction did not have an undue impact on the proceeding, are persuasive.
[27] Subject only to the reservation expressed above, I consider that the plaintiffs are entitled to costs in both courts in the amounts claimed by them.
The Hurley’s costs claim
[28] Mr Brodie contended that the Hurley’s costs in the District Court, $22,464, were agreed between counsel some time ago. Mr Shamy, however, suggested that any earlier agreement was conditional upon the outcome of the appeal which was then pending. It does not seem to me that the appeal has changed matters. I am satisfied that the Hurleys are entitled to costs in the District Court of $22,464 and in this Court of $4,136.
[29] The real issue is who is liable to pay these amounts. The plaintiffs contend that the defendants should pay the costs. They do not accept this.
Is a Sanderson, or a Bullock, order appropriate?
[30] Where the joinder of a defendant who is subsequently successful in resisting liability to the plaintiff, is nonetheless reasonable and proper, a discretion to award the costs of the successful defendant, either directly or indirectly, against the unsuccessful defendant exists. If the unsuccessful defendant is directly ordered to pay the costs of a successful defendant this is termed a Sanderson order; whereas if the successful defendant’s costs are payable by the plaintiff in the first instance, but a
contribution to them is to be made by the unsuccessful defendant, this is termed a
Bullock order.
[31] The leading New Zealand case concerning the making of such orders is Lane Group Limited v DI & L Paterson Limited.[5] The appellant company sold a pie manufacturing business to the respondent company. A dispute arose as to the fairness of the purchase price. In the High Court the purchaser successfully established that misleading financial information supplied in the sale and purchase context led to payment of an inflated price for the business. Damages were awarded,
and the vendor company was also ordered to pay the costs of a successful defendant
― being the real estate firm retained by the vendor, through whom the misleading information was passed. On appeal, this Sanderson order was challenged.
[5] Lane Group Limited v DI & L Paterson Limited (2000) 1 NZLR 129 (CA).
[32] In allowing the appeal against costs and in delivering the judgment of the majority, Tipping J described the relevant principles in the following two extracts:
[84] While it may have been reasonable for the plaintiff to join both defendants, that of itself does not entitle the plaintiff to an order that the unsuccessful defendant should pay the successful defendant’s costs, either indirectly (as a Sanderson order) or directly (as a Bullock order). The reasonableness of the original joinder is certainly a relevant factor. If such joinder was unreasonable the plaintiff cannot seek to pass costs payable by it to the successful defendant over to the unsuccessful defendant. Even if the joinder is reasonable at the outset, the position must also be looked at from the point of view of the unsuccessful defendant. If that party has done nothing to cause or contribute to the joinder of the successful defendant, that will be a point in its favour. The converse also applies. How the proceeding develops may well be relevant. Another factor which may be of moment comes into play if an unsuccessful defendant is found liable for significantly less than the claim made against both itself and the successful defendant. Such a situation will be relevant to the ultimate discretion because the costs payable in that event by the plaintiff to the successful defendant (based on the amount claimed) will be more than the costs payable by the unsuccessful defendant to the plaintiff (based on the amount recovered).
[33] And, at [91] Tipping J added with reference to whether there is a “principle” that an unsuccessful defendant should pay the successful defendant’s costs where that defendant’s joinder was reasonable and proper:
[91] There is in reality no such principle, either on an absolute or on a presumptive basis. Obviously a reasonable and proper joinder of the
successful defendant will be a relevant and sometimes a decisive consideration in the plaintiff’s favour. But against an originally reasonable and proper joinder must be set any relevant factors in favour of the unsuccessful defendant. As mentioned in paragraph [84] above these can include a change in the position since original joinder, how much was recovered as against the amount claimed, whether the unsuccessful defendant caused or contributed to the original joinder, and in the end the overall justice of the matter as between the three parties concerned. It must also be recognised that the solution does not have to be an all or nothing one. It is possible by a Bullock order to require the plaintiff to pay the successful defendant’s costs in full, but to allow the plaintiff to pass on only a proportion of those costs to the unsuccessful defendant.
[34] As these passages demonstrate, a discretionary evaluation is required in order to determine whether either a Sanderson or a Bullock order is appropriate, or whether the plaintiffs should be left to bear the burden of the Hurley’s costs in both courts.
[35] The starting point of the evaluation is whether the joinder of the Hurleys as a second defendant was reasonable and proper both at the beginning, and in light of subsequent developments. I am in no doubt that the original joinder was appropriate. As noted earlier the restrictive covenant contemplated injunctive relief as appropriate. Mr van Asch was required to police the covenant. He had the power to approve, or disapprove, building plans including with reference to the impact of a proposed building upon the view of existing homeowners. He failed to fulfil this obligation with reference to the Hurley’s building plans. In my view the plaintiffs were fully justified in naming the Hurleys as second defendants. It would have been wrong of them to seek an injunction and not name the Hurleys as a defendant, when partial reconstruction of the Hurley’s home was the primary relief sought.
[36] But did the situation change, particularly when the defendants wrote the Calderbank letter which asserted that injunctive relief was highly unlikely and the appropriate course was to discontinue against the Hurleys? This proposition is to be assessed as at the time the plaintiffs had to consider it, not with the benefit of hindsight. The letter suggested that not only was relief requiring physical building alterations to the Hurley’s home unlikely, but that damages, if awarded, would in all likelihood be met by the defendants to the exclusion of the Hurleys. The letter also included the assertion that the defendants had “the means to enable them to meet a judgment”.
[37] Although the defendants were completely vindicated in relation to their assessment of the outcome of the proceeding, I am not of the view that the plaintiffs’ election to still seek injunctive relief against the Hurleys in the District Court was in error. The reasons for this conclusion have already been outlined. The restrictive covenant contemplated injunctive relief, and it was also a remedy which obviated the need to assess damages on a loss of a chance basis. The plaintiffs were entitled to maintain the view that the Hurleys were essential defendants.
[38] Should they have had second thoughts in advance of the appeal hearing, and at least at that point have decided to simply seek increased damages on appeal? It is distinctly arguable that the plaintiffs should have reached this viewpoint. Their case against the Hurleys failed decisively in both courts, although for different reasons. But, since I am satisfied that the making of a Sanderson order would not be appropriate in this instance, this question is largely devoid of significance. Absent a Sanderson order, a broad discretion falls to be exercised.
[39] I see a Bullock order as appropriate in this case. These factors prompt that view. I think that the plaintiffs had little choice but to join the Hurleys as a defendant in the first instance. On the other hand, after the District Court decision it is debateable whether maintaining the claim to injunctive relief was wise. Further, the fact is that the plaintiffs in the end result recovered damages of about one-quarter of the amount which they originally claimed. And, standing back and looking at the overall justice of the case, I am in no doubt that the plaintiffs should meet the lion’s share of the Hurley’s costs with only a moderate contribute from the defendants.
[40] I assess that contribution at 25 per cent of the Hurley’s total costs award of
$26,600. This means that the defendants will contribute the sum of $6,650 towards the Hurley’s costs, in addition to meeting the plaintiffs’ costs once these are settled in
relation to the aspect I have left for counsel to consider and resolve.
Solicitors:
Raymond Donnelly & Co, PO Box 533 Christchurch Mail Centre 8140. DX WP20516 for Appellant
White Fox & Jones, PO Box 1353 Christchurch Mail Centre 8140. Email: [email protected] for First and Third Respondents
Geoff Brodie Barrister, Christchurch for Second Respondents
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