Northlake Investments Limited v Wanaka Medical Centre Limited
[2020] NZHC 154
•13 February 2020
IN THE HIGH COURT OF NEW ZEALAND INVERCARGILL REGISTRY
I TE KŌTI MATUA O AOTEAROA WAIHŌPAI ROHE
CIV-2018-059-000088
[2020] NZHC 154
BETWEEN NORTHLAKE INVESTMENTS LIMITED
Plaintiff
AND
WANAKA MEDICAL CENTRE LIMITED
Defendant
Appearances: J W A Johnson for Plaintiff
M H L Morrison and J A Zwi for Defendant
Judgment:
13 February 2020
(Determined on the papers)
JUDGMENT OF OSBORNE J
[Costs]
[1] I ordered, having entered judgment for the defendant, that the plaintiff pay the defendant its costs and disbursements, with the quantum reserved for submission.1
[2]The parties’ positions on costs are somewhat apart:
(a)The defendant seeks indemnity costs of $300,000 and disbursements of
$11,739.58 (both figures calculated exclusive of GST) or, alternatively, increased costs of $142,733.94 (based on an uplift of 75 per cent above a scale award) with the same disbursements.
(b)The plaintiff contends that neither indemnity or increased costs would be appropriate and that the defendant is entitled to no more than a scale
1 Northlake Investments Ltd v Wanaka Medical Centre Ltd [2019] NZHC 3443 (Judgment).
NORTHLAKE INVESTMENTS LIMITED v WANAKA MEDICAL CENTRE LIMITED [2020] NZHC 154 [13
February 2020]
award of $64,224. The plaintiff makes no submissions in relation to the defendant’s disbursements.
Scale costs
[3]I will first consider the scale calculation.
[4]The Court categorised the proceeding as a category 2 proceeding.2
[5] Counsel each provided a schedule of scale costs, with Mr Johnson taking issue with a number of items claimed by counsel for the defendant.
[6] The defendant submits that under r 14.5 (determination of reasonable time) band B is appropriate. The exception is the inspection of the plaintiff’s documents, for which band C is sought. On the basis that the plaintiff’s discovery numbered some 3,000 documents, I determine that band B is appropriate for the inspection of documents in this case.
[7] In relation to the items of costs as a whole, I would fix them at $68,349.50, as itemised in Schedule A. The following explanations of items in Schedule A resolve differences between the parties:
(a)Numbers 6 and 8 – Mr Johnson submits that the defendant should not be allowed any recovery for joint memoranda prepared by counsel for the plaintiff. The correct approach, recognising that the defendant’s counsel had to spend comparatively little time on the joint memorandum, is to determine that each of those items is covered by band A.
(b)Number 10 – counsel for the defendant sought particular discovery for a single document (a heads of agreement entered into by the plaintiff). Counsel did so by a seven-page memorandum attaching relevant correspondence and documents. The request for particular discovery
2 High Court Rules 2016, r 14.3(1).
was to be opposed. Counsel for the defendant, by reference to item 24 (preparation of written submissions), claim 1.5 days. Mr Johnson submits that the attendance is more appropriately treated as a memorandum under item 11 (0.4 days). The informal application for discovery (by memorandum) is more appropriately treated by an analogy to item 22 (filing an interlocutory application) which I determine on a band B basis.
(c)Number 12 – the defendant sought a certificate for second counsel at the telephone conference at which the Associate Judge heard submissions on the particular discovery request. I do not certify for second counsel.
(d)Number 14 – this is the item for inspection which I have earlier considered.
(e)Number 15 – item 33 (for preparation of briefs, lists of issues, authorities and agreeing common bundle) allocates one day for each of the first five hearing days (and 0.75 days for the following five hearing days). The defendant therefore correctly calculated 5.75 days based on the six-day hearing. I reject Mr Johnson’s submission that, because the defendant called only four of its seven briefed witnesses, the allocation should be reduced. Item 33 makes a uniform assumption related to the actual hearing time (rather than what the parties may have anticipated).
[8] Accordingly, if costs were to be awarded in accordance with the scale, the sum I would fix would be $68,349.50.
Indemnity costs or increased costs?
The plaintiff’s conduct of its claim – defendant’s submissions
[9] Counsel for the defendant submit that the plaintiff pursued poorly pleaded and unmeritorious claims and failed to abandon the hopeless parts of its case before trial.
It is submitted that the defendant thereby incurred the (unnecessary) expense of preparing at least portions of its defence.
[10] Counsel for the defendant provided an analysis of the outcome on each of the four causes of action, which I summarise:
(a)First cause of action – breach of contract. This cause of action was effectively abandoned by plaintiff’s counsel at the start of the trial but had been the subject of further particulars provided only a month before trial.
(b)Second cause of action – breach of contract. The primary claim for relief (damages based on loss of a chance) was abandoned in the course of the plaintiff’s closing on the final day of trial, leaving the defendant’s preparation of submissions and authorities on that topic no longer relevant. Counsel for the defendant submitted that the plaintiff’s second cause of action could never have succeeded by reason of the very words used by the parties in their heads of agreement, which as the Court found, made the defendant the sole decision-maker of what was workable for and acceptable to the defendant.3
(c)Third cause of action – estoppel. As with the second cause of action, the plaintiff abandoned two of the three pleaded claims for relief (specific performance and expectation damages) on the final day of trial. Counsel submit that the estoppel claim was in any event doomed in the absence of evidence from Chris Meehan, who had been the “directing mind and will” of the plaintiff.4 Counsel note the Court’s conclusion that Northlake’s pleading and estoppel therefore failed at the most fundamental level.5
(d)Fourth cause of action – quantum meruit. Counsel note that, as in the case of the estoppel claim, the plaintiff’s quantum meruit claim failed
3 Judgment, above n 1, at [173]. See also [175] – [177].
4 Judgment, above n 1, at [86].
5 Judgment, above n 1, at [196].
in the absence of any reasonable expectation of payment on the part of the plaintiff.
[11]Mr Morrison submits that collectively the plaintiff’s claims lacked merit.
[12] Mr Morrison submits further that it is open to the Court to conclude that the plaintiff pursued the proceeding for the improper purpose of pressuring the defendant and of sending a message (to the market) that it was adopting an uncompromising approach to its Wanaka development. Mr Morrison refers to Mr Meehan’s direction to his staff to “have a crack at these people”. Mr Morrison submits that the inference of improper pressure is supported by the Court’s conclusion that Mr Meehan had conducted his negotiation as part of a deliberate strategy to “try to procure the lease terms he wanted”.6
[13] Mr Morrison submits that this is an appropriate case for indemnity costs. He recognises that the mere abandonment of a cause of action or head of damages is not in itself a cause for increased or indemnity costs.7 He nevertheless submits that there was a total lack of merit in aspects of the plaintiff’s claim (evidenced by the abandonment of the first cause of action and of relief claimed in the second and third causes of action) and that those matters were improperly and/or unnecessarily pursued in the first place, only to be abandoned at trial (after the defendant’s costs of defence in that regard had been incurred).
[14] Mr Morrison submits in the alternative that increased costs might appropriately be awarded under r 14.6(3)(b)(ii) upon the basis that the plaintiff had taken and had pursued arguments that lacked merit. Mr Morrison seeks an uplift of 75 per cent from scale.
The plaintiff’s conduct of its claim – plaintiff ’s submissions
[15] Mr Johnson submits that the defendant is entitled to no more than scale costs and disbursements.
6 Judgment, above n 1, at [100] – [107].
7 Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [79].
[16] Mr Johnson rejects the proposition that r 14.6(3)(b)(ii) is applicable. He submits in particular that the plaintiff’s claims were far from meritless. He invokes the Court of Appeal’s observation in New Zealand Carbon Farming Ltd v Mighty River Power Ltd that “not every losing argument justifies an award of increased costs”.8
[17] Mr Johnson refers to the Court’s careful analysis of the plaintiff’s claims, occupying 270 paragraphs. He submits that this indicates that the plaintiff’s claims could not be lightly or briefly dismissed.
[18] He submits that the withdrawal of the first cause of action and of certain claims for relief during the trial does not mean that that cause of action or those claims were unnecessary or lacked merit. He adopts the observation of the Court of Appeal in Bradbury v Westpac Banking Corporation that abandonment of the cause of action itself is not a pointer to increased or indemnity costs.9 Mr Johnson submits that the withdrawal of the first cause of action and other claims for relief was a responsible step after evidence was heard. He submits that it is not unusual, where several causes of action are properly pleaded in relation to the same factual matrix, that evidence in the course of the trial indicates that certain causes of action are ultimately more suited than others.
[19] Mr Johnson submits that, because the same factual matrix underlays all of the plaintiff’s claims, all the evidence in preparation remained relevant for the remaining claims.
[20] Mr Johnson submits that Mr Meehan’s absence at trial (not giving evidence) did not mean that the plaintiff’s claims were pursued unnecessarily or lacked merit. He observes that Mr Meehan’s absence was explained by counsel during the trial.
[21] Mr Johnson then turns to the settlement offer made by the defendant, which the plaintiff rejected. He observes that the reasonableness of a party’s rejection of a
8 New Zealand Carbon Farming Ltd v Mighty River Power Ltd [2016] NZCA 624, (2016) 23 PRNZ 789, at [40].
9 Bradbury v Westpac Banking Corporation, above n 7.
settlement offer is to be assessed in the circumstances at the time of the rejection.10 In other words, whether the parties were in a position to assess the merits when the offer was received.11
[22] Mr Johnson submits that it was not unreasonable for the plaintiff to reject the offer as bearing no relation to the damages claimed and being at a level that would never be accepted unless the plaintiff were prepared to give up altogether, citing Loktronic Industries Ltd v Diver.12 Mr Johnson notes that the defendant’s offer of
$30,000 was not sufficient to cover the plaintiff’s costs incurred to that point. Mr Johnson submits that the plaintiff was justified in “not giving up”. He refers to the plaintiff’s correspondence, in which several counter-offers for settlement were made, and in which the solicitors explored what they contended to be the merits of the plaintiff’s claim.
[23] In the event there is to be an uplift on scale costs, Mr Johnson submits that Court of Appeal authority is in favour of any uplift being generally limited to 50 per cent of the scale costs, with anything greater rarely justified. Mr Johnson refers to Broadspectrum (New Zealand) Ltd v Nathan and NR v MR as two instances where the Court of Appeal awarded an uplift of 50 per cent in situations where the appeal was viewed as either meritless or unlikely to succeed.13
[24] Mr Johnson recognises that there are rare examples where an uplift of 75 per cent has been awarded.14 Mr Johnson identifies the impugned conduct in those cases as involving maintenance of a caveat (on probate) for a collateral purpose and deliberate, contemptuous conduct in breach of interim orders. Mr Johnson submits that the plaintiff’s pursuit of this litigation cannot be compared to such conduct.
[25]Mr Johnson then turns to the application for indemnity costs.
10 New Zealand Sports Merchandising Ltd v DSL Logistics Ltd HC Auckland CIV-2009-404-5548, 19 August 2010 at [36].
11 Weaver v HML Nominees Ltd [2016] NZHC 473 at [30].
12 Loktronic Industries Ltd v Diver [2014] NZHC 1189 at [14].
13 Broadspectrum (New Zealand) Ltd v Nathan [2017] NZCA 434, [2017] ERNZ 733 at [58]; NR v MR [2014] NZCA 623, (2014) 22 PRNZ 636 at [50] – [53].
14 Citing Mueller v Hendren (2009) 19 PRNZ 432 (HC) at [29] and Huakiwi Copenhagen Lot 4 Orchard Ltd v Te Moana [2019] NZHC 1582 at [25].
[26] He notes the very high threshold under r 14.6(4)(a). He refers to the Court of Appeal’s recognition that the concept of “unnecessarily” pursuing a proceeding, as adopted in the rule, takes its meaning and flavour from the preceding words “vexatiously, frivolously, improperly”.15 He distinguishes that flavour of “unnecessarily” from that found in “contributed unnecessarily to the time or expense of the proceeding or step” which may justify an award of increased costs under r 14.6(3).
[27] Mr Johnson refers to the Court of Appeal’s description of indemnity costs being “exceptional and require exceptionally bad behaviour. That is why to justify an order for such costs the misconduct must be ‘flagrant’”.16
[28] Mr Johnson submits that the gravamen of the defendant’s claim for indemnity costs is the same as that for increased costs, namely that the plaintiff’s claims were unmeritorious. He submits that the plaintiff’s claims could not be described as “hopeless” and that the plaintiff’s pursuit of its claims fall short of being “exceptionally bad behaviour” or “flagrant misconduct”.
[29] Mr Johnson invites the Court to refuse to draw any inference that the plaintiff brought this proceeding for an improper purpose. He submits that the plaintiff’s pursuit of the proceeding is to be viewed in the context that the defendant caused the plaintiff to incur costs.
[30] Mr Johnson submits that in the context of indemnity costs it is irrelevant that the defendant made a settlement offer. Mr Johnson refers to the express reference to settlement offers under r 14.6(3)(b)(v), which applies to an application for increased costs, not indemnity costs.
15 Bradbury v Westpac Banking Corporation, above n 7, at [26].
16 Tyrion Holdings Ltd v Infrastructure NZ Ltd [2019] NZCA 308 at [74], citing Bradbury v Westpac Banking Corporation, above n 7, at [28] and Prebble v Awatere Huata (No 2) [2005] NZSC 18, [2005] 2 NZLR 467 at [6].
Discussion
Characterisation of the plaintiff ’s conduct in the proceeding
[31] As the plaintiff’s conduct is relevant both in relation to indemnity costs and increased costs, I will first, with the benefit of having been the trial Judge, characterise the plaintiff’s conduct.
[32] I do not view the plaintiff as having behaved either badly or very unreasonably in relation to this proceeding.
[33] While there were some claims for relief which were abandoned in the course of the trial, there remained a fundamental claim extending across all four causes of action (relating to the expenses which the plaintiff had incurred in advancing its medical centre proposal). To pursue this claim did not constitute “distinctly bad behaviour”.17
[34] The most appropriate description of the plaintiff’s claim is that it lacked merit. It does not negate that description that the Court’s judgment ran to 270 paragraphs. The factual history underlying the plaintiff’s claim occupied more than half of the judgment. The first three causes of action failed – as explained in brief reasoning – for basic inability on the part of the plaintiff to establish elements of the causes of action. The fourth cause of action (quantum meruit) engaged the Court in the majority of its reasoning but that was primarily occasioned by the Court’s need to state the law. The quantum meruit claim was equally doomed to fail.
[35] It is relevant in this costs context that Mr Meehan did not give evidence. The absence of evidence from Mr Meehan compounded the weaknesses in the plaintiff’s case because it left the plaintiff without relevant evidence as to its expectations, a critical issue in relation to both the estoppel and the quantum meruit causes of action.
[36] Once the plaintiff knew that it was not calling Mr Meehan at the trial, the arguments on all four causes of action were doomed to fail or, in terms of r
17 Bradbury v Westpac Banking Corporation, above n 7, at [26].
14.6(3)(b)(ii), “lack[ed] merit”. But the plaintiff continued, in going to trial, to pursue those arguments.
[37] I acknowledge that Mr Johnson proffered an explanation from the Bar as to Mr Meehan’s not giving evidence, which lay in his having to attend to other urgent business matters. A witness explained his understanding that there was a settlement in relation to another enterprise which had urgently required Mr Meehan’s attention. The Court was never provided with an adequate explanation as to why, even if Mr Meehan’s presence was to be required elsewhere, arrangements could not have been sought and put in place for his appearance by an audio-visual link or otherwise.
[38] I find the probable inference is that it was considered by Mr Meehan (or another) that his evidence if given would not materially assist the plaintiff on its causes of action.
[39] This inference is an additional (although not strictly necessary) reinforcement of my primary conclusion that the plaintiff’s pursuit of its various arguments lacked merit. It indicates that the plaintiff, properly addressing the elements it would be required to establish on its various causes of action, could have appreciated well before trial the lack of merit in those arguments.
Outcome – indemnity costs
[40] This is not a case which justifies an award of indemnity costs. The plaintiff's conduct in pursuing its claim does not fall within the range of conduct set out in r 14.6(4), as further illustrated in the leading authorities including Bradbury v Westpac Banking Corporation.18
Outcome – increased costs
[41] This is a case which justifies an award of increased costs on the basis that the full range of arguments deployed by the plaintiff lacked merit (in terms of r 14.6(3)(b)(ii)).
18 Bradbury v Westpac Banking Corporation, above n 7.
[42] That is sufficient to justify an award of increased costs. I would not have found increased costs to be justifiable solely by reason of the plaintiff’s rejection of the defendant’s $30,000 offer. The letter of offer has some relevance, however, in relation to setting the level of uplift, because the defendant’s solicitors’ letter of offer succinctly identified the difficulties in the plaintiff’s claim in a way which foreshadowed the Court’s ultimate rejection of each of the causes of action.
[43] I find an uplift of 50 per cent above scale to be appropriate. This is in line with the Court of Appeal judgments cited by Mr Johnson – Broadspectrum (New Zealand) Ltd v Nathan and NR v MR – in which costs were awarded with such an uplift in relation to unmeritorious proceedings.19
[44] This is not a case which has the aggravating features - such as the defendant’s collateral purpose in Mueller v Hendren – which have been found (in rare cases) to justify an uplift greater than 50 per cent.20
[45]As identified at [8] above, the scale costs award would have been $68,349.50.
[46]With an uplift of 50 per cent, I find the appropriate award of costs to be
$102,524.25.
Costs in relation to cost submissions
[47] Pursuant to leave being reserved, counsel filed succinct submissions in relation to costs which have then been determined on the papers.
[48] As the defendant has not been wholly successful in its arguments in submissions in relation to costs, there will be no additional award of costs in relation to the cost submissions.21
Orders
[49]I order:
19 Broadspectrum (New Zealand) Ltd v Nathan, above n 13; NR v MR, above n 13.
20 Mueller v Hendren, above n 14.
21 Paper Reclaim Ltd v Aotearoa International Ltd [2007] NZCA 544, (2007) 18 PRNZ 743 at [62].
(a)The costs and disbursements as awarded in the judgment dated 19 December 2019 are fixed as follows:
(i)costs in the sum of $102,524.25; and
(ii)disbursements in the sum of $11,739.58.
Osborne J
Solicitors:
Wynn Williams, Auckland
Morrison Mallett, Auckland
This judgment was delivered by me on 13 February 2020 at 11.30 am pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
SCHEDULE A
Number HCR item
Band
Days
$ per day
$ total
1 2 B 2 2,230 4,460.00 2 22 B 0.6 2,230 1,338.00 3 11 B 0.4 2,230 892.00 4 11 B 0.4 2,230 892.00 5 10 B 0.4 2,230 892.00 6 11 A 0.2 2,230 446.00 7 11 B 0.4 2,230 892.00 8 11 A 0.2 2,230 446.00 9 15 B 0.5 2,230 1,115.00 10 24 B 0.6 2,230 1,338.00 11 26 NA 0.25 2,230 557.50 12 27 NA 0 2,230 0 13 20 B 2.5 2,230 5,575.00 14 21 B 1.5 2,230 3,345.00 15 33 NA 5.75 2,230 12,822.50 16 33B NA 5.75 2,230 12,822.50 17 34 NA 6 2,230 13,380.00 18 35 NA 3 2,230 6,690.00 19 29 B 0.2 2,230 446.00 TOTAL 68,349.50
0
11
0