Principal Finance Limited v Halse
[2013] NZHC 3159
•29 November 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-001752 [2013] NZHC 3159
BETWEEN PRINCIPAL FINANCE LIMITED Plaintiff
ANDGRAEME WILLIAM HALSE First Defendant
ANDGRAEME WILLIAM HALSE Second Defendant
ANDQBE INSURANCE (INTERNATIONAL) LIMITED
Third Party
Hearing: On the papers
Appearances: DJ Heaney QC and DJ Clark for Plaintiff
P Dale for Defendants
A Challis and P McKinnon for Third Party
Judgment: 29 November 2013 at 4pm
COSTS JUDGMENT OF TOOGOOD J
This judgment was delivered by me on 29 November 2013 at 4pm
Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
PRINCIPAL FINANCE LIMITED v HALSE [2013] NZHC 3159 [29 November 2013]
[1] For the reasons given below:
(a) I decline the plaintiff’s application for costs on the determination of the preliminary questions;
(b)I direct that the proceeding shall be classified as Category 2B for costs purposes; and
(c) I order that the third party shall pay $20,248.64 towards the defendants’ costs and disbursements on the determination of the preliminary questions.
Background
[2] Principal Finance Limited (“PFL”) has issued the present proceeding against Mr Graeme Halse, a solicitor, who was the sole shareholder and director of the company, his shareholding being in his capacity as sole trustee of the Waikato Trust. It sues Mr Halse and his firm for breaches of solicitor’s duties and also for alleged breaches of his duties as sole director of the company.
[3] The defendants joined QBE Insurance claiming that they were indemnified in respect of the plaintiff’s claims under a professional indemnity insurance policy (“the Policy”). QBE declined to cover and, on the application of the defendants, the Court agreed to answer two preliminary questions concerning the interpretation of the insurance policy, the answers to which would determine whether the defendants were covered in respect of the claims.
[4] On 10 July 2013, I delivered a judgment in this proceeding (“the preliminary questions judgment”)1 in which I decided2 that Mr Halse and his firm were covered under the Policy in respect of three causes of action related to alleged breaches of Mr
Halse’s duties as a solicitor. I also decided,3 however, that Mr Halse was not covered in respect of allegations in the fourth cause of action relating to advice or services provided by him in his capacity as a director of the plaintiff, except to the extent that he was acting in the capacity of a solicitor or barrister in providing the same.
[5] In relation to costs, the judgment contained the following indication:4
[52] Each of the parties has had a measure of success and each may feel entitled to apply for costs. Taking a broad view, without the benefit of submissions from counsel, I estimate that around 80 percent of the argument and hearing time were directed to the issues arising in respect of cl 7.11 on which the plaintiff and the defendants have been successful, and that about
20 percent of the argument related to the fourth cause of action on which the third party QBE has succeeded.
Justification for preliminary question
[6] It was not only desirable but also necessary to determine, prior to the trial, the preliminary issues of the extent of the defendants’ cover under the Policy, if any. First, the Policy provided in clause 8.1 that the insured were prohibited from admitting liability for, settling, or incurring any costs in connection with the claim without the written consent of the underwriters of the Policy. Thus the defendants would not be entitled to defend the claim or settle it, if they were covered.
[7] Second, the underwriters had a right of subrogation under clause 8.1 of the Policy entitling them to take over and conduct, in the name of the defendant, the defence or settlement of any claim at any time. Thus the proper conduct of the defence to the plaintiff ’s claims could not take place until a determination was made about whether the Policy applied to the claims. Third, the liability of the insurer to meet any award of damages in favour of the plaintiff if any part of its claim succeeded would be determined by the extent of cover under the Policy.
[8] Plainly, therefore, the defendant had sound legal reasons for pursuing determination of the preliminary issues.
[9] Although, as a matter of law, it had no interest in the outcome, the plaintiff supported the defendants’ position. It appeared that the plaintiff apprehended that settlement of its claims would be more likely if an insurer was held liable to indemnify the defendants and was in control of the conduct of any defence to the claim. Further, the plaintiff perceived that it would be better placed to enforce any substantial award of damages against an insurer than against the defendants, the claim being for total sums in excess of $1.8 million.
[10] The plaintiff argues that, having successfully supported the defendants’ position for cover in respect of three of the four causes of action, it should be entitled to an award of costs according to the High Court Rules, less a 20 per cent deduction reflecting the assessment that 80 per cent of the hearing time was occupied by legal argument on the main issue upon which the defendants’ and the plaintiff’s arguments succeeded.
[11] The plaintiff also submits that costs should be determined by reference to Category 3C in the High Court Rules on the basis that the argument required counsel to have special skill and experience in the High Court beyond the average skill and experience required for Category 2 proceedings; that the issues were complex and significant, purportedly having some precedent value in respect of similarly worded policies; and that the proceeding concerned a substantial question of whether the third party remained a party to the proceeding.
The defendants’ position
[12] The defendants submitted that costs calculated on a Category 3C basis would be too high but considered that costs calculated on a 2B basis would be inadequate to reflect the nature of the issues and the time and skill required to argue the issues. Both the plaintiff and the defendants argue that the proceeding should be assessed for costs as if it were part of the substantive proceeding.
[13] QBE’s position is, first, that the plaintiff should not receive any award of costs. The insurer says that the application was that of the defendants and that the plaintiff had no legal interest in the preliminary issues, the merits of the plaintiff’s claim against the defendant remaining the same irrespective of the outcome of the argument on cover under the policy. Acknowledging that it did not object to the plaintiff participating in the hearing, the insurer submits nevertheless that it should not be saddled with the costs of representation of the plaintiff as a result of a commercial decision by that party to support the defendants’ position on the preliminary issues.
[14] Second, QBE submits that such costs as are awarded should be assessed on a Category 2B basis. Third, it argues that the resolution of the preliminary question was an interlocutory proceeding with the consequence that costs should be allowed on that basis and not as if the matters at issue formed part of the substantive proceeding.
Issues
[15] The following issues fall to be determined: (a) Is the plaintiff entitled to costs?
(b) How should the proceeding be categorised?
(c) Was resolution of the preliminary questions an interlocutory proceeding or part of a substantive claim?
(d) What items should be allowed in any award of costs?
Is the plaintiff entitled to costs?
[16] The starting point for consideration of the plaintiff’s claim to costs is
r 14.2(a) of the High Court Rules, which provides that the party who fails with
respect to a proceeding or an interlocutory application should pay costs to the party who succeeds. Although the application was made by the defendants, the fact that the plaintiff supported it means that, essentially, it too is a successful party.
[17] However, r 14.1 provides that all matters in relation to costs are at the Court’s discretion. Further, r 14.15 does not permit the Court to allow more than one set of costs (unless it appears to the Court that there is good reason to do so), if:
(a) several defendants defended a proceeding separately; and
(b)it appears to the Court that all or some of them could have joined in their defence.
[18] Rule 14.15 does not apply here but the present situation is analogous so it is helpful to consider the policy and principles of the rule in the exercise of the discretion under r 14.1.
[19] In Norfolk Trustee Company Ltd v Tattersfield Securities Ltd, Priestley J (in the context of the materially identical former r 51) said5 that he discerned a policy requiring courts to exercise some caution before awarding costs, without more, in favour of multiple parties, particularly where there is some overlap of interest in the litigation position of those parties.
[20] That observation was cited in Power v Whakatane District Council, in the context of r 14.15, where Allan J6 considered that the respondents could have shared legal representation. While the Judge held they were entitled to be represented by separate counsel, he concluded that that decision ought not to have adverse consequences for the appellants, who had no control over joinder or representation. For that reason, one set of costs was allowed, to be shared between the respondents.
[21] I did not detect any divergence in the arguments of the plaintiff and the defendants respectively and, while the submissions of Mr Heaney QC on behalf of
5 Norfolk Trustee Company Ltd v Tattersfield Securities Ltd HC Auckland CIV-2004-404-3668, 30
March 2005, at [49]-[51].
6 Power v Whakatane District Council HC Tauranga CIV-2008-470-456, 21 December 2009, at
[13]-[15].
the plaintiff were helpful, as always, they did not add materially to the points made by Mr Dale on behalf of the defendants. Because the plaintiff and the defendants in this case were seeking the same results and ran similar arguments, on the preliminary questions, they could have been jointly represented. The plaintiff’s interests could have been accommodated by its legal advisors offering advice and assistance in the preparation of the defendants’ submissions.
[22] For those reasons, I consider there should be only one award of costs against the third party.
[23] While I have no doubt the defendants were grateful for the plaintiff’s support, their success on the issues decided in their favour was not attributable to the plaintiff’s intervention. The resolution of the preliminary questions did not affect the issues between the plaintiff and the defendants, which remain at large. The plaintiff’s tactical decision to appear in support of the defendants’ application was the plaintiff’s to make, but I do not see in that any reason why the defendants’ proper entitlement to a contribution to their costs should be diminished.
[24] I consider the plaintiff should bear its own costs accordingly.
How should the proceeding be categorised?
[25] The rejection of the plaintiff’s claim for costs means that I do not have to consider its argument that costs should be assessed on a Category 3C basis, a submission not supported by the defendants.
[26] Rule 14.3 provides that the proceedings must be classified as falling within one of the categories specified. Category 2 describes proceedings “of average complexity requiring counsel of skill and experience considered average in the High Court”. Category 3 describes proceedings “that because of their complexity or significance require counsel to have special skill and experience in the High Court”.
[27] The proceeding concerns allegations of professional negligence by a solicitor
and breaches of a director’s duties against a conventional factual background.
Senior and experienced counsel appeared for all parties on the preliminary questions, but that no doubt reflected the importance the parties attached to the issues. I do not consider the proceeding as a whole to be so complex or significant as to require counsel of special skill and experience in the High Court to argue it. The proceeding shall be classified as Category 2.
[28] Rule 14.2(c) provides that costs should be assessed by applying the appropriate daily recovery rate (which is determined in this case, by reference to Schedule 2, to be $1,990.00) to the time considered reasonable for each step reasonably required in relation to the proceeding. Rule 14.5(1) requires the “reasonable time for a step” to be determined by reference to Schedule 3. If “a normal amount of time is considered reasonable”, band B in Schedule 3 will be the
reference.7
[29] The preliminary issues involved in this case concerned the interpretation of a contract and were not particularly complex or significant; the hearing lasted only half a day. I consider a normal amount of time to be reasonable so that a Category 2B basis of calculation is appropriate.
Was resolution of the preliminary questions an interlocutory proceeding or part of a substantive claim?
[30] Whether the determination of the preliminary questions was an interlocutory or substantive matter will have an impact on what items should be allowed in any costs award.
[31] The defendants argue the application for an order directing the determination of preliminary questions was an interlocutory matter but that the preliminary questions concerned the substantive resolution of the issues about the third party’s liability and whether QBE remained a party to the proceedings. QBE says that since the answers to the preliminary questions did not resolve the plaintiff’s substantive
claims, the proceeding was interlocutory.
7 High Court Rules, r 14.5(2)(b).
[32] It is clear that an application for an order directing the determination of a separate question is an interlocutory matter.8 An interlocutory order is defined in r 1.3(a) as:
... an order or a direction of the court that—
(i) is made or given for the purposes of a proceeding or an intended proceeding; and
(ii) concerns a matter of procedure or grants some relief ancillary to that claimed in a pleading ....
[33] The application for determination of the separate questions was said to be upon the grounds that determination of the separate questions would substantially dispose of the issues between the defendants and the third party, and that the only issues then left for trial would be between the plaintiff and the defendants through their insurer, or the defendants.
[34] The preliminary issues judgment confirms the force of this submission, except to the extent that the defendants are left with the burden of defending the claims under the fourth cause of action. But the substantive issues between the defendants and the third parties are resolved.
[35] The proceeding was commenced as a substantive claim by the plaintiff against the defendants for damages for alleged breaches of duty. The joinder of QBE as a third party, however, added a further substantive claim, between the defendants and the insurer, alleging cover under the Policy. That claim could have been brought as a separate proceeding.
[36] I accept the submissions for the defendants and the third party that the application for an order directing the determination of the separate questions was an interlocutory proceeding. Once that order had been made, however, the determination of the preliminary questions was in the nature of a substantive proceeding between the defendants and the third party. The costs recovery items
should be assessed accordingly.
8 See Andrew Beck and Others McGechan on Procedure (online looseleaf ed, Brookers) at [HRPt
10.15.06].
What items should be allowed in any costs award?
[37] Applying the characterisations of this part of the proceeding in [36] as partly interlocutory and partly substantive, the defendant would be entitled to the following
cost items, on a 2B basis:
Item No. Step Quantum calculation
(Schedule 3)
Total
6Third party notice and statement of
claim
2.4 days at $1,990 per day
$4,776
11Filing memoranda for case
management
conference 21 June
2013
0.4 days at $1,990 per day
$796
11Filing memoranda for case
management conference 29
August 2013
0.4 days at $1,990 per day
$796
22Filing interlocutory application for determination of separate questions
0.6 days at $1,990 per day
$1,194
30 Applicant’s
preparation of briefs or affidavits
2.5 days at $1,990 per day
$4,975
31 Applicant’s
preparation of list of issues, authorities and
common bundle
2.5 days at $1,990 per day
$4,975
33Preparation for hearing
3 days at $1,990 per day
$5,970
34Appearance at hearing for sole
counsel
2 x ¼ days at
$1,990 per day
$995
Filing fee on third party notice
$108.80
Item No. Step Quantum calculation
(Schedule 3)
Total
Filing fee on application for determination of separate questions
$725
Total $25,310.80
[38] From this, a 20 per cent reduction is required in accordance with the assessment at [52] of the preliminary questions judgment9 that about 20 per cent of the argument and hearing time related to the point on which the third party succeeded.
Result
[39] For the reasons given above:
(a) I decline the plaintiff’s application for costs on the determination of the preliminary questions;
(b)I direct that the proceeding shall be classified as Category 2B for costs purposes; and
(c) I order that the third party shall pay $20,248.64 towards the defendants’ costs and disbursements on the determination of the preliminary questions.
.................................................
Toogood J
9 Cited above at [5] and accepted by the parties.
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