NZ PROPERTIES LIMITED AND MICHAEL JOHN MILLAR INVESTMENT SERVICES LIMITED PAUL JOHN MEPHAN CONTINUED…
[2024] NZHC 2679
•17 September 2024
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
I TE KŌTI MATUA O AOTEAROA WHAKATŪ ROHE
CIV-2020-442-62
[2024] NZHC 2679
UNDER the Companies Act 1993 IN THE MATTER OF
breaches of director’s duties and breaches of contract
BETWEEN
FIRST NZ PROPERTIES LIMITED
Plaintiff
AND
MICHAEL JOHN MILLAR
First Defendant
INVESTMENT SERVICES LIMITED
Second DefendantPAUL JOHN MEPHAN
Third Defendant
CONTINUED…
On the Papers Counsel:
B M Nathan and N S P Laing for the Plaintiffs in CIV-2020-442-62/64
K P Sullivan and J Verbiesen for the Plaintiff in CIV-2020-442-63 M J Radich and S A Wadworth for the Defendants
Judgment:
17 September 2024
COSTS JUDGMENT OF GWYN J
Solicitors:
Duncan Cotterill, Nelson Radich Law, Blenheim
Gillespie Young Watson, Lower Hutt
FIRST NZ PROPERTIES LIMITED v MILLAR (COSTS) [2024] NZHC 2679 [17 September 2024]
CIV-2020-442-63 BETWEEN
SPRINGS ROAD PROPERTY LIMITED
PlaintiffAND
MICHAEL JOHN MILLAR
First Defendant
INVESTMENT SERVICES LIMITED
Second DefendantPAUL JOHN MEPHAN
Third Defendant
CIV-2020-442-64 BETWEEN
SUPERSTORE PROPERTIES LIMITED
PlaintiffAND
MICHAEL JOHN MILLAR
First Defendant
INVESTMENT SERVICES LIMITED
Second Defendant
Overview
[1] This is an application for indemnity or increased costs by all three plaintiffs. The defendants submit that 2B scale costs should be awarded and they dispute one of the steps proposed to be included in the costs award.
The substantive proceeding
[2] This proceeding1 was a consolidated claim brought by each of three related companies which own various commercial properties leased to third parties. Those property companies were First NZ Properties Ltd (First NZ), Springs Road Property Ltd (Springs Road), and Superstore Properties Ltd (Superstore).
[3]The property companies brought claims against:
(a)Investment Services Ltd (ISL), which operates as a commercial property and investment manager, and performed property management services for the plaintiff companies;
(b)Michael Millar, who is a former director of the plaintiff companies and a director of ISL; and
(c)Paul Mephan,2 who was a director of the property companies for a period between 2018 and 2020.
[4]First NZ pleaded the following causes of action:
(a)In respect of Mr Millar: breach of fiduciary duty; breach of s 131 of the Companies Act 1993; breach of s 137 of the Companies Act; unjust enrichment; and knowing receipt. It succeeded in establishing breach of fiduciary duty and breach of ss 131 and 137 of the Companies Act.3
1 First NZ Properties Ltd v Millar [2024] NZHC 1225.
2 In CIV-2020-442-62 and CIV-2020-442-63.
3 First NZ Properties Ltd v Millar, above n 1, at [261], [268] and [274]. For the conclusions on unjust enrichment and knowing receipt, see [312] and [303] respectively.
(b)In respect of ISL: breach of contract; negligence; and unjust enrichment. It established all three causes of action.4
(c)In respect of Mr Mephan: breach of fiduciary duty; breach of s 131 of the Companies Act; and breach of s 137 of the Companies Act. It established all three causes of action.5
[5]Superstore pleaded the following causes of action:
(a)In respect of Mr Millar: breach of fiduciary duty; breach of s 131 of the Companies Act; breach of s 137 of the Companies Act; and knowing receipt. It established all causes of action except knowing receipt.6
(b)In respect of ISL, knowing receipt. It established this cause of action.7
[6]Springs Road pleaded the following causes of action:
(a)In respect of Mr Millar: breach of fiduciary duty; breach of s 131 of the Companies Act; breach of s 137 of the Companies Act; and knowing receipt. It established all causes of action except knowing receipt.8
(b)In respect of ISL, knowing receipt. It established this cause of action.9
(c)In respect of Mr Mephan: breach of fiduciary duty; breach of s 131 of the Companies Act; and breach of s 137 of the Companies Act. It was unsuccessful on all causes of action.10
[7] Subject to noting that double recovery is not permitted,11 the High Court concluded that:12
4 At [186], [205]–[211] and [309]–[313].
5 At [288].
6 At [337] and [341].
7 At [341].
8 At [380] and [386].
9 At [386].
10 At [384].
11 At [455].
12 At [452]–[454]. See also [451] where the Court ordered interest on all sums.
(a)First NZ is entitled to judgment in the following amounts:
(i)$1,420,692.73 plus GST against Mr Millar;
(ii)$1,420,692.73 plus GST against ISL; and
(iii)$450,000 plus GST against Mr Mephan.
(b)Superstore is entitled to judgment in the following amounts:
(i)$656,394.52 plus GST against Mr Millar; and
(ii)$656,394.52 plus GST against ISL.
(c)Springs Road is entitled to judgment in the following amounts:
(i)$371,822.63 plus GST against Mr Millar; and
(ii)$371,822.63 plus GST against ISL.
[8] A counterclaim by the second defendant (ISL) against all three plaintiffs pleaded repudiation. The affirmative defences, pleaded by all three defendants, which were all unsuccessful, included indemnity and limitation of liability, deeds of indemnity, estoppel, and quantum meruit.
[9] The Court recorded its expectation that the parties should be able to agree on costs, but indicated its view that the plaintiffs are entitled to 2B costs on their successful claims.13
[10] The parties have not been able to agree costs and now seek a determination from the Court.
13 At [546].
Submissions
First NZ and Superstore
Steps claimed
[11] First NZ and Superstore note that application of the 2B scale is not straightforward because the proceeding was a consolidated set of three proceedings and, while there was some commonality, the transactions and management agreements were specific to each plaintiff company and required separate consideration.
[12] First NZ and Superstore each seek scale costs for commencing the proceedings (step one), filing replies (step three) and filing defences to the second defendant’s counterclaims (step two). Costs are claimed under step nine for filing amended defences to the second defendant’s amended counterclaims, on two occasions.
[13] Costs under step 11 are claimed for First NZ and Superstore’s proactive case management of the proceedings, including filing joint memoranda in advance of case management conferences and callovers, such that directions were made by consent and appearances were not required.
[14] Further costs are claimed under step 11 for joint and separate memoranda filed throughout the proceedings to update the Court of changes which required directions or alterations to the timetable. Because there was one case management process for the consolidated proceedings, First NZ and Superstore submit that the costs for this step should be apportioned between the plaintiffs equally.
[15] Under step 20, First NZ and Superstore submit that each plaintiff should recover scale costs because they discovered separate lists of documents.
[16] First NZ and Superstore claim costs against ISL for the interlocutory application for particular discovery (step 22) and obtaining interlocutory judgment by consent (step 28). Because the work required of the three plaintiffs was the same, First NZ and Superstore submit that the scale costs for steps 22 and 28 should be $717 for each of the three plaintiffs.
[17] First NZ and Superstore submit that although only one bundle of documents was prepared, it was extensive, containing essentially three bundles relating to each claim. They seek costs under step 33A for each plaintiff to reflect the time reasonably required for this step. In response to the defendants’ submissions, First NZ and Superstore say that step 33A exists to provide an “additional allowance” for the party who prepared the bundle, despite the requirement to cooperate in agreeing the index for the bundle. Preparing the bundle was a substantial exercise.
[18] Costs for second counsel are sought under step 35 given the duration and complexity of the proceeding, and the active role of both counsel in the hearing.
[19] Under steps 33, 33B, 34 and 35, the costs sought reflect the hearing time of eight days. Because each claim required different amounts of preparation and hearing time, First NZ and Superstore submit that it is fairest to apportion costs pro rata based on the proportion of each judgment to the total. This would amount to 58 per cent to First NZ ($36,734.30), 27 per cent to Superstore ($17,100.45) and 15 per cent to Springs Road ($9,500.25).
Indemnity or increased costs
[20] Mr Nathan and Mr Laing, for First NZ and Superstore, seek indemnity costs,14 because of an early Calderbank offer of $3,100,000 in December 2020, prior to commencing proceedings, which the defendants rejected, and the defendants’ subsequent conduct of the hearing. In the alternative, First NZ and Superstore seek increased costs.
[21] First NZ and Superstore submit that the Court’s discretion weighs in favour of indemnity costs. The defendants unreasonably rejected the settlement offer which had more favourable terms for them than the Court’s judgment. In light of that, the defendants acted unreasonably by defending the proceedings.
14 “Costs on a solicitor-client basis”, as sought in the plaintiffs’ submissions, is an alternative term for indemnity costs: see David Bullock and Tim Mullins The Law of Costs in New Zealand (LexisNexis, Wellington, 2022) at 65.
[22] Further, the defendants conducted their defence and counterclaim unreasonably. In particular, the defendants:
(a)Required three lay witnesses engaged by the plaintiff companies to appear at the hearing but elected, without explanation, not to call those witnesses. The plaintiffs incurred the cost of preparing cross- examination and submissions on the reasonable assumption that the defendants would call those witnesses.
(b)Objected to the inclusion of material in the bundle of documents, requiring the plaintiffs to apply for admission of those documents, but then the defendants did not offer any submissions about their objection to the material and consented to the inclusion of the documents.
(c)Advanced affirmative defences for which they failed to lead evidence and present closing submissions. The plaintiffs were accordingly unreasonably put to the cost of preparing a response to the affirmative defences.
[23] First NZ and Superstore submit that the extent of the defendants’ unreasonableness was such that the plaintiffs should be awarded indemnity costs and disbursements. In the alternative, for the same reasons, First NZ and Superstore seek an award of increased costs is appropriate.
[24] The plaintiffs seek disbursements totalling $148,438.85 excluding GST for First NZ, and $41,904.54 excluding GST for Superstore.
Springs Road
[25] Since trial, Springs Road has been placed into liquidation and is represented separately.
[26] Mr Sullivan, for Springs Road, supports and adopts the reasoning, including the pro rata calculation, set out in the costs submission filed by First NZ and Superstore.
[27] Against Mr Millar and ISL, Springs Road seeks a cost award for actual legal fees of $140,591.83 excluding GST from the date proceedings were filed (16 December 2020) until the end of trial and 2B costs prior to filing of $7,170. With the pro rata adjustments, the costs award to Springs Road would be $45,075.40. Disbursements incurred by Springs Road totalled $33,763.64. In the alternative, Springs Road seeks increased costs.
[28]Springs Road does not claim costs against Mr Mephan.
The defendants
[29] Ms Radich and Ms Wadworth, for the defendants, oppose the costs sought by the plaintiffs and submit that costs should be fixed on a 2B basis against Mr Millar and ISL only. Mr Mephan should not be liable for costs given he successfully defended the claims against him by Springs Road and Springs Road does not seek costs against him.
[30]The defendants oppose an uplift to increased costs.
[31] As to the Calderbank offer, the defendants note it was made prior to the commencement of proceedings and concerned claims which were not advanced at trial, and were materially different in quantum and substance to those that were eventually pleaded. The defendants rely on Paper Reclaim Ltd v Aotearoa International Ltd where the Supreme Court said that in assessing costs, “Conduct prior to the commencement of the proceeding is not misconduct in defending the proceeding or a step in the proceeding.”15 Their rejection of the settlement offer before the plaintiffs filed the proceeding cannot be considered exceptionally bad behaviour such that indemnity costs would be justified.
[32] In response to the plaintiffs’ submission about the conduct of trial. the defendants say they conducted the trial fairly. They advised the plaintiffs at the outset of the trial of their decision not to call the summonsed witnesses.
15 Paper Reclaim Ltd v Aotearoa International Ltd [2007] NZSC 26, [2007] 3 NZLR 169 at [41].
[33] The defendants also say that the plaintiffs’ position regarding costs, as it is advanced now, is materially different to what was pleaded at all junctures during the proceeding, when the plaintiffs sought costs on a 2B basis. If the plaintiffs had genuinely believed they were entitled to indemnity or increased costs on the basis of the rejected settlement offer, they should have amended their pleadings to put the defendants on notice.
[34] The defendants submit that the plaintiffs have not disclosed any material to support an assessment of whether the indemnity costs were actual and reasonable.
[35] Costs should be awarded on a 2B basis. The defendants agree with the plaintiffs’ scale costs calculations, except that they dispute the costs for bundle preparation under step 33A because the defendants were involved with this step, leading to the plaintiffs filing one common bundle.
Relevant law
[36] Increased and indemnity costs are governed by r 14.6 of the High Court Rules 2016. It provides:
14.6 Increased costs and indemnity costs
(1)Despite rules 14.2 to 14.5, the court may make an order—
(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—
(i)failing to comply with these rules or with a direction of the court; or
(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
(c)the proceeding is of general importance to persons other than just the parties and it was reasonably necessary for the party claiming costs to bring it or participate in it in the interests of those affected; 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
(b)the party has ignored or disobeyed an order or direction of the court or breached an undertaking given to the court or another party; or
(c)costs are payable from a fund, the party claiming costs is a necessary party to the proceeding affecting the fund, and the party claiming costs has acted reasonably in the proceeding; or
(d)the person in whose favour the order of costs is made was not a party to the proceeding and has acted reasonably in relation to it; or
(e)the party claiming costs is entitled to indemnity costs under a contract or deed; 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.
[37] In AFI Management Pty Ltd v Lepionka and Co Investments Ltd, Fitzgerald J explained r 14.6 as follows:16
[15] The Court also has a discretion to award indemnity costs.17 Indemnity costs may be awarded if “the party [against whom costs are sought] has acted vexatiously, frivolously, improperly, or unnecessarily in commencing,
16 AFI Management Pty Ltd v Lepionka and Co Investments Ltd [2018] NZHC 1285 (emphasis added).
17 Rule 14.6(1)(b) and (4).
continuing, or defending a proceeding or a step in the proceeding”.18 Indemnity costs may also be awarded if some other reason exists justifying the imposition of indemnity costs.19
[16] In Bradbury v Westpac Banking Corp, the Court of Appeal explained that indemnity costs may be awarded where a party has behaved either badly or very unreasonably.20 It contrasted the jurisdiction to grant increased costs, being directed to simple unreasonableness, with the jurisdiction to grant indemnity costs, being directed to “distinctly bad behaviour”.21 Examples of the latter were:22
(a)making allegations of fraud knowing them to be false;
(b)particular misconduct causing loss of time to the Court and other parties;
(c)commencing or continuing a proceeding for some ulterior motive;
(d)doing so in wilful disregard of known facts or clearly established law; and
(e)making allegations which ought never to have been made or unduly prolonging a case by groundless contentions – i.e. persisting in what should on proper consideration be seen to be a “hopeless case”.
[17] As is evident from the above, indemnity costs are reserved for egregious conduct.
[38] In another 2018 decision, Fitzgerald J observed that increased and/or indemnity costs are properly limited to a small pool of cases, despite the increasing number of applications for costs of such a nature. The Judge said:23
It is, in my view, becoming increasingly common for successful parties in commercial litigation (not confined to this proceeding) to seek increased and/or indemnity costs. That is often on the basis the party has been successful, but without detailed or significant analysis of why the other party’s conduct appropriately falls within those relatively limited circumstances in which increased and indemnity costs are appropriate. In relation to indemnity costs in particular, the threshold is indeed high.
[39] Similarly, in a more recent decision, Cooke J noted in Lepionka & Co Investments Ltd v Gibson Sheat:24
18 Rule 14.6(4)(a).
19 Rule 14.6(4)(f).
20 Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [27].
21 At [26].
22 At [29].
23 Minister of Education v James Hardie New Zealand [2018] NZHC 2960 at [7].
24 Lepionka & Co Investments Ltd v Gibson Sheat [2023] NZHC 2745 at [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.
[40] I assess the application for indemnity or increased costs against that background.
[41] Rules 14.10 and 14.11 (described in a previous case as “the Calderbank rules”) are independent of r 14.6.25 They allow the Court to take into account offers made to settle without prejudice as to costs. Under r 14.11(4) costs remain at the discretion of the Court. In a previous decision, Katz J said:26
[30] A successful Calderbank offer does not of itself give rise to an entitlement to increased or indemnity costs, as this remains at the Court’s discretion. There are good policy reasons, however, why the making of a successful Calderbank offer will often lead to an award of increased costs. Regard must be had to the factors in r 14.6, as with any increased costs application. Rule 14.6(3)(b)(v) provides that increased costs may be awarded where a party fails to accept an offer of settlement without reasonable justification with the result that they contribute unnecessarily to the time or expense of the proceeding or step in it. Each case is necessarily fact specific. The assessment of whether increased costs should be awarded, and the extent of any increase, can be impacted by a number of factors. These include (but are not limited to):
(a)the size of the offer relative to the actual costs of counsel;
(b)the amount of the claim;
(c)the reasonable expectations of the party that refuses the offer;
(d)the amount of preparation for trial already undertaken;
(e)whether the proceeding concerns an uncertain area of law;
(f)whether the parties were in a position to assess the merits when the offer was received;
(g)the information available to the party who receives the offer and the extent to which they can to assess the offer.
(h)the timing of the offer;
(i)the conduct of the offeror.
25 High Court Rules 2016, r 14.11(2)(b); and see Aldrie Holdings Ltd v Clover Bay Park Ltd (No 2)
[2016] NZHC 1482 at [38] (emphasis in original).
26 Weaver & Anderson v HML Nominees Ltd [2016] NZHC 473 (footnotes omitted).
Discussion
Should indemnity costs be awarded?
[42] In my view, this is not an appropriate case for awarding indemnity costs. As the High Court has previously emphasised, the threshold for such costs is very high. I am not satisfied that the defendants’ conduct in defending the claims and advancing the counterclaim and affirmative defences was such “egregious conduct”27 that indemnity costs would be justified. The defendants successfully defended several causes of action.
Should increased costs be awarded?
[43] In the alternative, the plaintiffs seek increased costs, relying on both the defendants’ conduct at trial and their rejection of the Calderbank offer.
Conduct at trial
[44] As to conduct at trial, the plaintiffs say they were notified only on the day that the three witnesses of fact referred to at [22](a)] above would not be called. I note the Court has no record of the defendants advising in advance that the witnesses would not be called. I am prepared to infer that, as the plaintiffs submit, they were not advised in advance.
[45] As to the defendants’ conduct of their counterclaim and affirmative defences, I observe that the defendants did advance their counterclaim (that the plaintiffs had by their conduct repudiated the relevant agreements) at hearing and I ruled on it.28 Two affirmative defences pleaded — estoppel and quantum meruit — were not advanced at trial.29
Rejection of Calderbank offer
[46] The High Court Rules provide for Calderbank offers in r 14.10. The Court of Appeal in Bradbury v Westpac Banking Corp observed that “imprudent refusal of an
27 AFI Management Pty Ltd v Lepionka and Co Investments Ltd, above n 16, at [17].
28 First NZ Properties Ltd v Millar, above n 1, at [421]–[450].
29 In relation to estoppel see [446]; in relation to quantum meruit see [449]–[450].
offer of compromise, does not fall under the indemnity costs rule but may justify increased costs under r 14.6(3)(b) and (c).”30
[47] Rule 14.6(3)(b)(v) allows the Court to award increased costs where a party has failed, without reasonable justification, to accept an offer to settle the proceeding — this includes Calderbank offers.31
[48] The justification behind awarding increased costs for unreasonable rejection of Calderbank offers has been explained by the Court of Appeal as:32
It has been repeatedly emphasised that the scarce resources of the Courts should not be burdened by litigants who choose to reject reasonable settlement offers, proceed with litigation and then fail to achieve any more than was previously offered. Where defendants have acted reasonably in such circumstances, they should not be further penalised by an award of costs in favour of the plaintiff in the absence of compelling countervailing factors.
[49] As the authors of Sim’s Court Practice observe, “A Calderbank offer does not, of itself, give rise to an entitlement to increased (or indemnity) costs — it is at the Court’s discretion [under r 14.11].”33 Further, “The later an offer is made, the less its impact on costs”. I note that here the plaintiffs made the offer very early.
[50]Rule 14.10 is expressed to apply to “A party to a proceeding … at any time that
… relates to an issue in the proceeding.” Whether the plaintiffs can rely on r 14.10 therefore depends on whether they made the Calderbank offer at a time when there was a “proceeding” to which the offer related.
[51] The High Court Rules defines “proceeding” as “any application to the court for the exercise of the civil jurisdiction of the court other than an interlocutory application”.34 The plaintiffs made the Calderbank offer before filing the proceeding.
(a)On 16 November 2020 the plaintiffs provided Mr Millar and ISL with a letter outlining their claims and draft statements of claim.
30 At [30].
31 Bushline Trustees Ltd v ANZ Bank New Zealand Ltd [2018] NZHC 454 at [20].
32 Bluestar Print Group (NZ) Ltd v Mitchell [2010] NZCA 385, (2010) 7 NZELR 494 at [20], recently cited with approval in Bushline Trustees Ltd v ANZ Bank New Zealand Ltd, above n 31, at [21].
33 Laura O’Gorman (ed) Sim’s Court Practice (online ed, LexisNexis) at [14.11.3].
34 High Court Rules, r 1.3(1).
(b)On 8 December 2020 the plaintiffs wrote to the defendants’ counsel making a Calderbank offer to settle all matters for $3,100,000 including any GST.
(c)On 16 December 2020 the defendants rejected the Calderbank offer.
(d)On 17 December 2020 the plaintiffs filed their notice of proceeding and statement of claim in the High Court.
[52] I think the Paper Reclaim case referred to by the defendants is distinguishable on its facts because there the issue was whether the trial Judge was correct to take account of the defendants’ conduct dating back several years before the commencement of proceedings.
[53] However, it might be argued that here there was no “application to the court for the exercise of the civil jurisdiction” because the plaintiffs made the offer on the basis of the draft statement of claims, prior to filing their proceeding. Some previous authority has considered this issue.
[54] In Moore v McNabb,35 the Court of Appeal considered an appeal against an award of 2B costs, reduced by 50 per cent because of a failure to accept a Calderbank offer, made in advance of filing the proceeding.36 The Court explained the usual principles of costs,37 including that plaintiffs should have “protection where defendants decline reasonable settlement offers”,38 “the Court is not duty bound to give the defendant who is ‘successful’ (in the sense of making an offer which beats the sum awarded) a costs order”39 and “a ‘successful’ defendant may still be deprived of costs if the Court concludes that he or she should share the responsibility for the failure to reach a compromise”.40
35 Moore v McNabb CA175/04, 22 September 2005.
36 See [45]–[49].
37 At [53]–[60].
38 At [56].
39 At [59].
40 At [60].
[55]The Court observed that:41
We would have taken some persuading that these principles do not apply to a case of the character presently before us, but in the event Ms Sewell [for the party who had been awarded costs in the High Court] did not mount that argument. Essentially she accepted that the Calderbank principles apply with equal force in the present case.
[56] Apparently for that reason, the Court was not required to engage with the interpretation question raised by the pre-filing timing of the Calderbank offer noted above. In my view, the relevance of that case is limited by the difference in the facts. There, each party had made a Calderbank offer to the other, and rejected the offer they had received. Both parties’ offers were in broadly similar terms.42 The Court concluded that costs should lie where they fall.43
[57] In Oceania Furniture Ltd v Debonaire Products Ltd,44 the High Court determined costs in respect of a contractual dispute decision. Before the proceedings were issued, the defendant had made an offer to settle in a letter expressed to be without prejudice as to costs.45 Justice Clifford concluded:46
… Mr Delany’s first submission is that Debonaire’s offer was not a Calderbank offer because, at the time, proceedings had not been issued. In making that submission Mr Delany pointed to the text of r 14.10(1), which provides that “a party to a proceeding may make a written offer to another party”. In my judgment, it would be an unnecessarily narrow interpretation of r 14.10, given in particular the policy behind the rules that apply to Calderbank offers, to hold that a party to proceedings subsequently issued could not rely
– in terms of r 14.10 – on a clear without prejudice except as to costs offer made prior to proceedings being issued, but clearly when proceedings were in contemplation as was the case here.
I therefore find that Debonaire’s offer can be considered in terms of r 14.10.
[58] Similarly, in Howarth v Howarth,47 the parties exchanged four offers to settle before the commencement of proceedings.48 The last Calderbank offer was made by
41 At [61].
42 At [64].
43 At [67]. See also [68].
44 Oceania Furniture Ltd v Debonaire Products Ltd HC Wellington CIV-2008-485-1701, 16 September 2010.
45 At [37].
46 At [38]–[39].
47 Howarth v Howarth [2022] NZHC 602.
48 See [9].
the plaintiffs, as a counter-offer to a previous offer from the defendant. The defendant rejected the plaintiff’s counter-offer and then withdrew his former offer when the plaintiffs filed the proceedings.49 The Court acknowledged that the Calderbank offer was made before the proceedings were issued but went on to consider the effect of the offer in the usual way for offers made during the course of the proceeding.50
[59] Justice Brewer found that the requirements of r 14.10 were satisfied in that the offer was:51
(a)clearly and unambiguously stated;
(b)capable of contractual acceptance; and
(c)more beneficial (or close in benefit) to the other party than the judgment actually obtained.
[60] The Court concluded that there was an operative Calderbank offer giving rise to a presumptive entitlement to costs under r 14.11(3)(a).52
[61] I respectfully agree with the reasoning of Clifford J in Oceania Furniture v Debonaire Products Ltd that it would be an unnecessarily narrow interpretation of r 14.10 to exclude Calderbank offers made before the filing of proceedings from attracting the application of the usual rules and principles. Here the offer was made, as the plaintiffs put it, in the shadow of proceedings. The plaintiffs provided detailed draft statements of claim to the defendants before making the Calderbank offer. The plaintiffs filed the proceedings the day after the Calderbank offer was rejected.
[62] The Calderbank offer was clearly and unambiguously stated. The defendants say that the claims advanced at trial were somewhat different in substance and amount from those on which the Calderbank offer was based. The draft statement of claim identified the gain fees and property management fees as key elements of the claims.53 The offer also referred to unrecovered fraud and mismanagement of First NZ’s imputation credit account.
49 At [10].
50 See [23]–[31].
51 At [24].
52 At [30].
53 See First NZ Properties Ltd v Millar, above n 1, at [47], [108], [145]–[163], [176]–[185], [188],
[207]–[212], [288] and [289].
[63] I accept that the substance of the claims and the amounts claimed did change as between the Calderbank offer and the claims presented at trial. That was so because, first, the Calderbank offer was made on 8 December 2020 and the trial took place in May 2023. In the intervening period there had been a partial settlement of the fraud and imputation credit account claims — the plaintiffs advise that in February 2022 the defendants paid the plaintiffs $1,477,127.50 in settlement of the unrecovered fraud and imputation credit account aspects of the plaintiffs’ claims. This reduced the quantum, and the discovery by the plaintiffs of further irregularities and incorrect payment of management fees increased the quantum claimed. I also accept the plaintiffs’ submission that because of the control exercised by the defendants over the plaintiff companies, the plaintiffs had only limited access to the relevant facts and evidence until full discovery was provided by the defendants.54 I accept that the substance of the claims set out in the Calderbank offer were sufficiently similar to those ultimately advanced at trial and accepted by the Court.
[64]The offer was capable of contractual acceptance.
[65] The Calderbank offer was clearly more beneficial to the defendants than the judgment obtained by the plaintiffs.55 The Calderbank offer was for $3,100,000. The Court awarded judgment in favour of the three plaintiffs of $2,816,246.36 including GST, plus interest which totalled $1,000,067.25 as at 24 May 2024.
[66] When the settlement amount referred to at [63] above is included, the outcome for the defendants, having rejected the Calderbank offer, is a total liability of
$5,293,441.11. As a result of refusing the Calderbank offer of $3,100,000 in December 2020, the defendants are more than $2,100,000 worse off. In addition, the defendants would, if they had accepted the offer, have avoided substantial legal costs and disbursements.
[67] Pre-discovery, the defendants necessarily had a broader and more detailed knowledge of the issues underlying the plaintiffs’ claims, than the plaintiffs did. That
54 On 3 September 2021, 1 July 2022, 17 October 2022 and 5 April 2023.
55 Body Corporate S73368 v Otway [2018] NZCA 612, (2018) 20 NZCPR 477 at [80], applied in subsequent cases including Howarth v Howarth, above n 47, at [24] and [25].
knowledge is relevant to their assessment, at the time, of whether the offer was reasonable. I conclude that the defendants’ rejection of the Calderbank offer, assessed at the time the offer was made, was unreasonable.
[68] Finally, I do not think there can be anything in the defendants’ argument that the plaintiffs sought costs on a 2B basis during the proceeding and should therefore be prevented from now seeking costs on a different basis. The plaintiffs would have been in breach of r 14.10(2) if they had amended the pleadings to refer to the intention to rely on a Calderbank offer for an increased award of costs. In addition, as the plaintiffs note, the grounds for increased or indemnity costs are in part based on the defendants’ conduct during the proceedings.
[69] Considered in the round, I conclude that the defendants’ conduct of the hearing as described at [44]–[45] above, together with what I have found was an unreasonable rejection of the Calderbank offer, make it appropriate to award increased costs to the plaintiffs from 17 December 2020.
[70] The Court of Appeal in Holdfast NZ Ltd v Selleys Pty Ltd,56 set out the correct approach to calculating increased costs. It said:57
An order for increased costs is defined in r 48C(1)(a) as an order “increasing costs otherwise payable under [rr 47-48B]”. Rules 47-48B establishes the scale; thus, the court uplifts from scale. It is not a question of awarding a percentage of actual costs.
[71]And further:58
…The correct approach to an award of costs is this. The first step is to categorise the proceeding in terms of r 48.
The next step in the costs formulation is to work out a reasonable time for each step in the proceeding: r 48B. There are three time bands, A, B and C. Band C is appropriate where a “comparatively large amount of time is considered reasonable for the particular step. It is possible to get a greater time allocation for the particular step if the costs-claiming party can show that “the step in the proceeding [was] such that the time required by the party claiming costs would substantially exceed the time allocated under Band C”: r 48C(3)(a). Where
56 Holdfast NZ Ltd v Selleys Pty Ltd CA200/04, 6 December 2005.
57 At [40]. The rules referred to relate to the predecessor legislation, Judicature Act 1908, sch 2. In the High Court Rules 2016, those rules are replaced in substantially similar terms as follows: r 47 is now r 14.2, r 48B is now r 14.5 and r 48C is now 14.6.
58 At [43]–[44]
that is shown, the appropriate judicial response is to increase the amount of time allocated for the particular step, and then to apply the appropriate daily recovery rate to the time so fixed. …
Additional grounds for awarding increased costs are given in r 48C(3)(b). All these grounds depend on a finding that the party opposing costs has contributed unreasonably to the time or expense of the proceeding or step in the proceeding”. The conduct justifying increased costs under subcl (3)(b) is to be contrasted with conduct that warrants indemnity costs, as set out in subcl (4)(a) and (b).
Where subcl (3)(b) conduct is made out, the court’s normal response should be to provide an uplift on scale costs to what the rules contemplate a reasonable fee for that step to be. …
An increase of 50% on scale costs should therefore grant the costs-claiming party a fair recovery for the step unnecessarily forced on it, assuming that the time allocated to the step has been reasonably calculated under the band or under r 48C(3)(a). …
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 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. …
[72] Here, I have already indicated that 2B costs are appropriate. Applying the Court of Appeal’s process to that starting point, I conclude that a 40 per cent uplift on scale costs is appropriate in respect of all plaintiffs’ costs against the first and second defendants after the proceeding was filed. 2B costs are to apply to steps incurred prior to filing of the proceeding. The costs are to be pro-rated as between the plaintiffs in the proportions set out at [19] above.
[73] Superstore had no claims against Mr Mephan. Springs Road was unsuccessful in its claims against Mr Mephan and does not seek costs against him. The first plaintiff, First NZ was successful in its claim against Mr Mephan in respect of the Symonds St gain fee, in an amount of $450,000, plus GST. It was not successful in relation to the other claims. Mr Mephan argued that, because he was successful in defending the claims brought against him by Springs Road, no award of costs should be made against him. However, that ignores the fact that these were three consolidated proceedings which required the preparation of specific pleadings and submissions by
each plaintiff. I conclude that First NZ is entitled to costs against Mr Mephan on a 2B basis.
[74] I accept that all steps in the plaintiffs’ costs schedules, and disbursements are reasonable and necessary.
[75] I agree with the plaintiffs that step 33A exists to provide an additional allowance for the party who prepared the bundle, notwithstanding the cooperation of the defendants in agreeing the index. For that reason, the plaintiffs are entitled to costs for step 33A.
Result
[76] First NZ and Superstore are entitled to 2B costs to the point of filing proceedings, and thereafter increased costs (applying a 40 per cent uplift), against ISL and Mr Millar.
[77] Springs Road is entitled to increased costs against ISL and Mr Millar from the date proceedings were filed until the end of trial, and 2B costs prior to filing.
[78] For steps 33, 33B, 34 and 35 the costs are to be pro-rated as between them in the proportions nominated by the plaintiffs. That is, First NZ 58 per cent, Superstore 27 per cent and Springs Road 15 per cent.
[79]First NZ is entitled to 2B costs against Mr Mephan.
Gwyn J
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