Proclaims Management Limited v Bately
[2024] NZHC 4003
•20 December 2024
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2023-409-000503 [2024] NZHC 4003
BETWEEN PROCLAIMS MANAGEMENT LIMITED
Appellant
AND
SARAH JANE BATELY and JOSEPH LEONARDO COX
Respondents
Hearing: On the papers Appearances:
H D J Holderness for Appellant P J Woods for Respondents
Judgment:
20 December 2024
JUDGMENT OF PRESTON J
(Costs)
This judgment was delivered by me on 20 December 2024 at pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date……………
PROCLAIMS MANAGEMENT LIMITED v BATELY [2024] NZHC 4003 [20 December 2024]
[1] By a judgment dated 11 October 2024 (the October judgment), 1 I essentially dismissed the appeal of Proclaims Management Ltd (Proclaims) against a judgment of Judge Tuohy of 21 August 2023, which dismissed part of Proclaims claim against Ms Bately and Mr Cox (the respondents).2
[2]In respect of costs, I concluded my judgment as follows:
[194]There is no reason why costs should not follow the event.
[195] Save for the modest success in respect of the quantum meruit claim, Proclaims’ appeal has failed. The respondents are entitled to costs on a 2B basis and disbursements as fixed by the Registrar. That will be the order of the Court if no costs memorandum is filed within five working days of not more than three pages in length.
[196] The amount payable to Proclaims under the quantum meruit claim may be deducted form the costs judgment by way of set-off.
[3] Despite the above, Proclaims asserts it achieved in substance equal success alongside the respondents.
[4]For the reasons that I now explain, I do not accept that submission.
Summary of Proclaims’ proceeding and appeal
[5] As set out in the October judgment, Proclaims is an insurance advisory service that assists clients to recover the cost of repairing damage to their homes caused by the Canterbury earthquakes. The respondents engaged Proclaims in June 2018 to provide assistance with their claim against the Earthquake Commission (EQC).
[6] Proclaims, before Judge Tuohy, succeeded in its claim for commission (the “success fee”) on what is known as the under-cap amount, that is the balance of EQC’s statutory liability in respect of earthquake damage to the respondents’ home which were available for them. However, Judge Tuohy dismissed Proclaims’ claim for commission on the “over-cap amount” that may have been available to the respondents from the Government’s ex gratia On-Sold Support Package Programme (OSP).
1 Proclaims Management Ltd v Bately [2024] NZHC 2965.
2 Proclaims & Ors v Bately & Cox [2023] NZDC 12924.
[7] Proclaims also brought in the District Court an alternative action in quantum meruit. Judge Tuohy held that Proclaims had not established a valid claim in quantum meruit and, even if it had, the amount it could have claimed based on the evidence would be no more than $500.
The outcome of the appeal
[8] I dismissed Proclaims’ various arguments that it was entitled to recover commission or compensation in quantum meruit in relation to the OSP. Of the nearly 200 paragraphs that make up the October judgment, over 150 paragraphs deal with the OSP claim pursuant to the contract. That reflects that the greater part of the argument focused on the primary limb of the appeal.
[9] As the extract from the October judgment at [2] above says, Proclaims had modest success in respect of the quantum meruit claim. Having sought to quantify its quantum meruit claim by reference to its rate of commission rather than on a calculation based on hourly rates and value added, I awarded Proclaims the amount Judge Tuohy had concluded would have been an adequate award, being $500.
[10]I will return below to the significance of the award in Proclaims’ favour being
$500.
The competing approaches to costs
[11] Rule 14.1 of the High Court Rules 2016 (the Rules) provides that costs are at the Court’s discretion. While that discretion is not fettered, it must be exercised judicially.3 A fundamental principle that guides the award of costs is that costs should follow the event. The rule is intending to create a framework for determining costs that are both predictable and expeditious.4
[12] The issue in this costs judgment is the effect of both parties having enjoyed some success albeit Proclaims’ success was modest. In those circumstances, the Court’s discretion comes into play.
3 Manukau Golf Club v Shoye Venture Ltd [2012] NZSC 109, [2013] 1 NZLR 305 at [7].
4 High Court Rules 2016, r 14.2(1)(g).
[13] There are two primary streams of authority when it comes to determining success. Davidson J is Dreissen v Earthquake Commission, said:5
[22] …a commonsense approach should be taken as to which party has succeeded, whether in whole or in part…
[23] The fact that a party came up short of what it claimed does not negate a costs order. Success may be reflected in a complete win, or a win in the sense that viewed overall, one party substantially succeeded. There may have been legitimate contest. Often a successful party will not succeed in all respects.6
[24] A costs judgment is not to be reached simply by identifying which party pays money to another. It depends on what was claimed, the position taken in the litigation, and the result. However, where a claimant essentially succeeds by pressing and sustaining litigation, then that claimant should be regarded as the successful party…
(emphasis added)
[14] Accordingly, this requires an holistic view of what the litigation sought to achieve, the position of the parties, the key issues in contest and the overall result.
[15] However, against this nuanced approach, in some cases what might be called an absolute approach is taken where partial success is still treated as success. Essentially, Proclaims seeks to adopt that approach here by saying that while it achieved only modest success in the appeal, nonetheless it was successful and it should therefore be entitled to costs.
[16] The Court of Appeal, in Water Guard NZ Ltd v Midgen Enterprises Ltd, held Water Guard was still the successful party even though it only recovered damages of approximately 15 per cent of what it had originally sought.7 Such did not mean Water Guard lost its status as the successful party, even though it failed on most of its claims that occupied almost 75 per cent of the trial. However, the Court accepted such failure can be recognised in other ways such as reducing costs.
5 Driessen v Earthquake Commission [2016] NZHC 1048, cited with approval in Young v Tower Insurance Ltd [2017] NZHC 482 at [12].
6 Goodwin v Bennetts UK Ltd [2008] EWCA Civ 1658 at [13].
7 Water Guard NZ Ltd v Midgen Enterprises Ltd [2017] NZCA 36.
[17] At the end of the day, both approaches will in many cases achieve the same outcome. Rule 14.7 of the Rules provides that a successful party’s costs may be reduced or refused even though costs following the event is the starting point. The Court of Appeal in Middeldorp v Avondale Jockey Club Inc, referring to Kinney v Pardington said:8
Questions of costs are ultimately a matter of discretion. The exercise often requires assessment of a wide range of factors. The overall objective is to achieve an outcome that best meets the interests of justice in the given case in accordance with any applicable costs rules and consistent with established principles.
(emphasis added)
[18] The Supreme Court, in its subsequent decision to decline leave to appeal, affirmed the approach of determining success “by reference to the factual assessment as to who the successful party was on an overall basis”.9
Why Proclaims considers it is entitled to a “full” award of costs
[19] Proclaims, in its costs submissions, frames its appeal as having two aspects as if they were of equal significance. I consider this a simplistic approach and not an accurate reflection of how the appeal developed.
[20] Proclaims submits that while it was awarded an amount less than was claimed (in fact less than one per cent of its claim for $51,083.36), the award on a quantum meruit basis was a clear and unequivocal overruling of the decision of Judge Tuohy on this aspect of the case. Mr Holderness, counsel for Proclaims, emphasises this separate success, submitting the quantum meruit claim was, in his words, not “ancillary or incidental” to the contractual argument. Counsel submits that having been successful on a standalone aspect of the appeal, costs should follow the event on that aspect of the appeal.
8 Middeldorp v Avondale Jockey Club Inc [2021] NZCA 238 at [3], referring to Kinney v Pardington
[2021] NZCA 174 at [1].
9 Middleldorp v Avondale Jockey Club Inc [2021] NZSC 117 at [17].
[21] The high point for Proclaims is the presumption that some success is still success. As noted at [16], that is only the starting point. If the success is less than sought, costs can be reduced.
[22] I am satisfied here that all the circumstances point to Proclaims not being entitled to an award of costs in respect of its limited success in the appeal.
[23] Rule 14.7 of the Rules sets out the circumstances that can result in a refusal of or reduction in costs. The rule provides the Court may refuse to make an order for costs or may reduce costs if the property or interests at stake were of exceptionally low value (14.7(b)); or the party claiming costs contributed unnecessarily to the time or expense of the hearing by pursuing an argument that lacked merit (14.7(f)(ii)), or failed without reasonable justification to accept an offer of settlement, that is, a Calderbank offer (14.7(f)(v)). All three considerations apply here for a related reason.
Proclaims’ approach to the value of its quantum meruit claim
[24] As recorded in the October judgment, the doctrine of quantum meruit is based on the principle that a party may be entitled to restitutionary relief for the reasonable value of the work or services provided to the other party where the work undertaken falls outside the terms of the contractual relationship.
[25] Judge Tuohy’s obiter comments were that, had Proclaims established a right to quantum meruit, it would have been entitled to no more than $500.
[26] However, on appeal Proclaims persisted with its claim that the quantum of its quantum meruit claim should be assessed at its rate of commission (15 per cent plus GST) of the value of the respondents’ OSP claim, irrespective of the reasonable value of any work it undertook.
[27] This was a fundamental defect in its approach to the quantum meruit claim. So much was clear, in my view, from the approach taken by Judge Tuohy to quantum.
[28] If Proclaims’ work in relation to the OSP was not covered by Proclaims’ contract, it was not entitled to a payment pursuant to quantum meruit on the basis set out in its contract. This was because Proclaims’ success fee based on a 15 per cent commission was not based on the value of its services outside the agreement. Rather, that rate of 15 per cent reflected Proclaims’ no-win no-pay approach.
[29] The awarded sum of $500 was based on evidence from Mr Lester, an insurance claim consultant who specialised in claims for preparation and presentation for insured parties in Christchurch. Proclaims in its evidence in the District Court did not attempt to quantify the value of services on an hourly rate basis, even though such is at the heart of a quantum meruit claim. The issue was ventilated in cross-examination of Mr Hipango. He declined to quantify, or attempt to quantify, the services. On appeal, this remained Proclaims’ stance. As Mr Holderness put it in oral submissions initially, the argument for Proclaims was that “if quantum meruit is made out it leads to [an award of] the success fee. During Mr Holderness’ submissions later in the hearing, I tested this issue again with him. He did not concede the point or offer any alternative quantum based on time, materials and skills, but suggested that perhaps one or two per cent less (than the success fee) would be appropriate.
[30] Proclaims, by persisting in seeking to quantify compensation for quantum meruit on a percentage basis, in my view, pursued an argument that lacked merit in terms of r 14.7(f)(ii) of the Rules. Again, the quantum of such claim had been addressed in detail by Judge Tuohy. In the October judgment, I recited the evidence before the Judge of the limited—and substantially generic—extent of work undertaken by Proclaims in relation to the OSP; the evidence demonstrating rather, that the respondents themselves conducted the work required to progress their OSP claim. Yet, still, Proclaims was unwilling to put an hourly rate on the value of its services. Even if Proclaims had wanted to maintain its quantum claim based on its commission rate, it could have advanced its quantum claim on an alternative basis as a “backup” argument. It did not do so.
Calderbank offer by the respondents
[31] Proclaims’ costs exposure to Judge Tuohy’s conclusion that $500 was an adequate level of compensation if the quantum meruit claim had been made out is highlighted by the Calderbank offer made on 2 February 2024. The respondents offered to pay Proclaims $500 plus GST together with costs of the appeal to that date. The offer was left open for one week. It was not accepted or replied to. The appeal had been filed in September 2023.
[32] Proclaims, in advancing only one basis for the value of its quantum meruit, claim was therefore exposed to the outcome that has eventuated, that is, it succeeded only for the figure identified by Judge Tuohy.
[33]Accordingly, the Calderbank offer came into effect.
[34] Proclaims submits that had it accepted the offer, it would be in a worse position than it is now.10 It is said Proclaims would have to account for the GST amount included in the offer to the Inland Revenue Department. However, the offer was $500 plus GST and so GST was neutral to Proclaims.
[35] Mr Holderness then says that Proclaims would have to pay income tax on the base amount of $500. Mr Holderness says “[b]y contrast Proclaims has now been awarded a non-taxable amount of compensation”. I do not intend to comment on the taxation status of what is in a true sense income to Proclaims, albeit I doubt Mr Holderness’ assertion of the award having tax free status is correct. However, this submission has the appearance of grasping at straws.
[36] Nor I do not accept Mr Holderness’ submission that the respondents’ offer to pay Proclaims “the cost of the appeal to date” was vague. Those costs could have been quantified by virtue of the scale in the ordinary way. The whole point of making the Calderbank offer early was to reflect that minimal steps had been taken at that time and thus, the value of scale costs would be correspondingly low.
10 I note neither r 14.7(f)(v) nor r 14.10 of the High Court Rules expressly provide that the rejected offer must represent a better outcome than that achieved in litigation before it can be taken into account, albeit the relationship between the two is relevant.
[37] Frankly, what amounts to quibbling by Proclaims in respect of the assertion that the quantum meruit award is not taxable (the value of the $500 offer being reduced to $434.78) highlights that Proclaims’ approach to quantum meant that there was only ever a small amount in issue (r 14.7(b)) again because quantum was being assessed on an incorrect basis. Proclaims’ claim to quantum meruit on a commission basis was never sound.
Conclusion in respect of Proclaims’ application for costs
[38] The circumstances I have outlined warrant the refusal of costs to Proclaims. The starting position of costs following the event is cancelled out by the application of factors in r 14.7 of the Rules.
The respondents’ application for costs
[39] Mr Woods, counsel for the respondents, seeks scale costs in respect of steps taken to 2 February 2024 and indemnity costs thereafter. As noted above, 2 February 2024 was the date of the Calderbank offer.
[40] The main focus of the appeal was the OSP issue. No settlement offer was made in respect of the OSP issue save that it was inherent in the Calderbank offer that Proclaims would abandon its appeal in respect of that issue as well.
[41] In other words, the offer in respect of the OSP issue was a “drop hands” or “walk away” offer.
[42] The Court is cautious in awarding or declining costs when the only offer made was a “walk away” or “drop hands” offer. The offer by the respondents was to settle the quantum meruit claim and pay costs in respect of the appeal. While those costs would have covered costs in relation to all aspects of the appeal including the OSP issue, I do not consider that the “walk away” or “drop hands” element of the 2 February 2024 offer warrants an uplift in respect of what was the major part of the appeal.
[43] However, I am satisfied that an award of scale costs is appropriate. It will be recalled that is a conclusion I had tentatively arrived at, at the conclusion of the October judgment as set out at [2] above.
[44] No issue has been taken with Mr Woods’ calculation of scale costs. Mr Woods has included an allowance for a second set of submissions in respect of the issue of whether the appeal had become moot because of the circumstances described in the judgment. I am satisfied that is appropriate. I address this further, below, but record the issue of mootness needed to be addressed and it was not straightforward.
[45] I am also satisfied that it is appropriate to allow for second counsel. Both parties were represented by two counsel with Proclaims having senior counsel leading Mr Holderness.
GST on scale costs
[46] The respondents are not registered for GST. Mr Woods seeks GST on scale costs.
[47] The starting point is that scale costs are GST neutral. The successful party is not required to account for GST and the losing party is not able to claim a GST input credit. An award of scale costs should therefore not allow GST on those costs. This is why scale costs are referred to as GST neutral. GST is simply omitted from the calculations.11
[48] The Court of Appeal in New Zealand Venue and Event Management Ltd v Worldwide NZ LLC noted the Court’s overriding discretion as to making costs includes the power to order increased costs.12 The Court noted that in ordering increased costs, the uplift from scale is not awarding a percentage of actual costs incurred, but in doing so, the court may take into account the costs actually incurred by the successful party, including, where applicable, the GST component on those costs.13
11 New Zealand Venue and Event Management Ltd v Worldwide NZ LLC [2016] NZCA 282, (2016) 23 PRNZ 260 at [7].
12 At [11], citing High Court Rules r 14.6(1)(a) and (3).
13 At [11], citing Commissioner of Inland Revenue v National Insurance Co of New Zealand Ltd
(1999) 19 NZTC 15, 135 (CA) at [57].
[49] The comment that GST may be taken into account was made in the context of awarding increased or indemnity costs. Where indemnity costs are awarded, they will include GST if the successful party is not able to recover the GST component.
[50]Accordingly, where increased or indemnity costs are awarded the Court may
have regard to GST issues but not where scale costs are awarded.
[51] I do not consider increased costs are warranted here in respect of the OSP issue. The OSP was subject to a genuine dispute and nothing about Proclaims’ conduct of that aspect of the litigation would justify increased or indemnity costs in terms of r 14.6(3) or (4) of the Rules. Further, although the appeal was substantially moot on the primary issue of the OSP, Mr Woods submitted it was not, or, if the court found it was, that the issue should be determined in any event in the interests of other similar cases said to be waiting determination in the District Court.
[52] The respondents obtain the benefit of their Calderbank offer in Proclaims being declined costs in respect of its success on the quantum meruit issue.
[53] There is no basis to depart from the usual rule that GST is not part of a scale costs award. Accordingly, costs are awarded in favour of Ms Bately and Mr Cox in terms as recorded at [59] below.
Interest on quantum meruit award
[54] Proclaims also seeks an order that interest is payable on the $500 award in quantum meruit. Mr Holderness submits Proclaims is entitled to interest in accordance with what was sought in its notice of appeal.
[55] Section 25 of the Interest on Money Claims Act 2016 (Act) provides mandatory procedural requirements for a party seeking interest on a judgment sum. That section provides:
25Court may not award interest unless procedural requirements complied with
(1)A court may not award interest under a section of this Act for a period unless the party who claims interest under the section for that period
specifies the section and, as far as possible, the period in that party’s statement or notice of claim or counterclaim.
(2)If a party claims interest under section 17, 18, 22, or 24,—
(a)the party must specify in that party’s statement or notice of claim or counterclaim the amount or rate of interest claimed; and
(b)the court may not award interest—
(i)exceeding the amount claimed under paragraph (a); or
(ii)at a rate exceeding the rate claimed under paragraph (a).
(3)Nothing in this section prevents interest being claimed in a statement or notice of claim or counterclaim in the alternative.
(4)Nothing in this section prevents a court from making an award of interest where the court has at any time made or accepted an amendment to a statement or notice of claim or counterclaim in accordance with the rules of court and where that statement or notice of claim or counterclaim, as amended, complies with the requirements in subsections (1) and (2).
(emphasis added)
[56]Proclaims’ notice of appeal, in relation to its claim in quantum meruit, sought:
(d) The Respondents are to compensate the Appellant on a quantum meruit basis for the work it did on their behalf in respect of their application to the ex-gratia scheme, with quantum being calculated as 15% plus GST of the total achieved by the Respondents from the ex- gratia scheme, plus interest;
(emphasis added)
[57] Proclaims did not fulfil the procedural requirements under s 25 of the Act in its notice of appeal, nor in its second amended statement of claim at the District Court where Proclaims sought interest “pursuant to Part 1” of the Act. There was no application on the appeal to amend the second amended statement of claim, nor was the provision justifying interest on the sum in quantum meruit addressed in submissions prior to or at the hearing of the appeal.
[58] Accordingly, I decline to award interest on the sum of $500 awarded to Proclaims for their claim in quantum meruit.
Result
[59] There is an order for costs in favour of the respondents of $22,944 as per Schedule B to Mr Woods’ memorandum of 18 October 2024. There is an order for costs in favour of the respondents on a 2B basis for their costs memorandum of 18 October 2024.
………………………………………
Preston J
Solicitors:
Shaun Cottrell Law, Christchurch Anthony Harper, Christchurch
Counsel:
P F Whiteside KC, Barrister, Christchurch P Woods, Barrister, Christchurch
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