Reynolds v Calvert
[2015] NZHC 870
•29 April 2015
IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY
CIV-2012-412-000910 [2015] NZHC 870
BETWEEN GRANT BRUCE REYNOLDS as
liquidator of JAMES DEVELOPMENTS LIMITED (in liquidation)
Plaintiff
AND
HILARY JANE CALVERT and HGW TRUSTEES LIMITED as Trustees of Frongopoulos Trust of Dunedin
First Defendants
AND
CHRIS JAMES Second Defendant
Hearing: 29 April 2015 (On the papers) Appearances:
M J McCartney QC and A Sorrell for Plaintiff
M R Sherwood King and M Gilkinson for DefendantsJudgment:
29 April 2015
JUDGMENT OF DUNNINGHAM J RE: COSTS DECISION
[1] In a decision issued on 9 March 2015, I gave judgment in the plaintiff’s
favour against the first defendants in the sum of $740,000 plus interest1 from
27 June 2012.2
[2] In summary, I held that the plaintiff had a contractual right to recover the sum of $740,000 from the first defendants, along with interest from the date of demand, and that claim was not statute-barred. Because the contractual claim succeeded, the alternate cause of action against the first defendant alleging a constructive trust over
the trust property failed. The various claims against the second defendant also failed
1 At the prescribed rate under the Judicature Act 1908.
2 Reynolds v Calvert [2015] NZHC 400.
REYNOLDS v CALVERT [2015] NZHC 870 [29 April 2015]
because the continued existence of the contractual right meant there had been no loss to the plaintiff caused by the second defendant’s defaults.
[3] I reserved the issue of costs. The parties have not been able to agree on costs and have reverted to the Court for a determination on the plaintiff’s entitlement to costs.
The proceedings
[4] The question of costs has been complicated by the drawn out procedural history of the claim. There was an unsuccessful summary judgment application by the plaintiff, there have been numerous interlocutory applications in relation to discovery (including seeking further and better discovery, non-party discovery, challenging claims to privilege and seeking that the Court inspects certain documents), and there have been notices to answer interrogatories, and to admit facts issued against the first and second defendants.
The plaintiff ’s position
[5] The plaintiff’s starting point is that he is entitled to costs on a 2B basis, except for the steps related to the inspection of documents, the summary judgment preparation and the trial preparation. Costs for these steps are sought on a 2C basis.
[6] He then also seeks an uplift of between 50 and 100 per cent for costs incurred after delivery of the summary judgment decision on 21 May 2013. The reasons for seeking an uplift include that:
(a) the case involved actual fraud relying on findings in my judgment;
(b)the second defendant was the “ultimate controlling and funding hand behind the first defendants”;
(c) the defence case was “meritless” given my findings that the first defendant received advice from his accountant that the “re-documentation” of the advance as a repayment of debt would not
be effective, and where it was only because of the defendants’ claims of honest belief, that Associate Judge Osborne felt unable to give summary judgment to the plaintiff;3
(d)the defendants repeatedly failed to comply with the rules and with directions made as to discovery, resulting in applications for further and better discovery, and for the Court to inspect certain documents;
(e) the defendants’ failed to accept the plaintiff’s Calderbank offer of
$850,000 including all interest and costs;
(f) scale costs would not reflect the costs actually incurred, particularly where the case was one “crying out for settlement”, as was the case in Concrete Structures (NZ) Ltd v NZ Wind Farms Ltd.4
[7] In summary, applying the 100 per cent uplift and including disbursements totalling $38,799.52, the plaintiff seeks a total of $388,959.92 in costs.
[8] The plaintiff also sought that any costs order was made “jointly and severally against the first defendants and the second defendant”, despite the fact the judgment was only entered against the first defendant. The grounds for arguing this was that:
(a) the second defendant, Mr James, was the “controller and funder of the
defence”;
(b) a successful defence was for his benefit; and
(c) in those circumstances the reasoning in Dymocks Franchise Systems
(NSW) Pty Limited v Todd (No. 2) applied, allowing the funding party to be liable for costs.5
3 Reynolds v Calvert [2013] NZHC 1159 at [77].
4 Concrete Structures (NZ) Ltd v NZ Wind Farms Ltd [2014] NZHC 2818 at [7].
5 Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2004] UKPC 39, [2005] 1 NZLR
145.
The defendants’ position
[9] In contrast the defendants argue that a modest award of schedule costs is all that is warranted. In support of that submission they say:
(a) the plaintiff was only successful on one cause of action;
(b)even in relation to the claim which succeeded, some of his arguments as to when the advance was made, the nature of the advance and whether there was acknowledgment of the debt, were unsuccessful;
(c) costs on the summary judgment proceedings should not be allowed when the plaintiff was on notice of the limitation defence before he swore an affidavit in support of his application asserting the defendants had no defence;
(d)the actual case was a simple debt case involving a limitation defence which could have been concluded in three days not the five it took;
(e) the plaintiff amended his statement of claim on at least four occasions, including on the morning of the main hearing where leave was required, and where most of the amendments, including the addition of Mr James as a party, were ultimately irrelevant or unsuccessful;
(f) While the plaintiff makes much of the convoluted discovery process, most of the plaintiff’s complaints about that process were unnecessary or were irrelevant to assisting the plaintiff’s case or damaging the defendants’ case, as is required by the modern test for discovery;
(g)the plaintiff’s conduct of the litigation has been characterised by delays and the repeated seeking of extensions of time, including seeking an indulgence from the Court of Appeal in order to bring an appeal. Even the plaintiff’s non-compliance with my direction limiting costs submissions to five pages is indicative of the plaintiff’s failure to conduct the litigation in an efficient and compliant way.
Legal principles applying
[10] The legal principles applying to an award of costs are well understood. They can be summarised as follows:
(a) costs are at the discretion of the Court;6 however
(b)any departure from the prescribed costs regime in the High Court Rules must be a considered and particularised exercise of the discretion having regard to the principles in rr 14.2 to 14.5; and
(c) the particular reasons which might justify an increase or decrease from costs calculated under the prescribed costs regime, are set out in rr 14.6 and 14.7.
[11] Applying these principles, the issues I need to consider are:
(a) To what extent can the plaintiff be said to be the successful party?
(b)What skill classification and time classification should apply in determining what costs the successful party can claim?
(c) Are there any steps where costs are reserved, where the plaintiff is not entitled to recover costs?
(d)Are there any grounds under r 14.6 which mean the plaintiff is entitled to an uplift in costs?
(e) Is the plaintiff entitled to the disbursements sought?
(f) Should the plaintiff be entitled to claim costs jointly and severally from the first and second defendants despite judgment not being
entered against the second defendant?
6 High Court Rules, r 14.1
What is the appropriate daily recovery rate and time classification?
To what extent was the plaintiff the successful party?
[12] There is no doubt that the plaintiff was successful in its claim for repayment of $740,000 plus interest. However, as the defendant has pointed out, the plaintiff failed on five of its six causes of action, and on all bar one of its responses to the plaintiff’s pleaded limitation defence.
[13] It is clear from the judgment that the claim asserting a constructive trust was inconsistent with the successful contractual claim and the success of one inevitably meant the failure of the other. The other causes of action pleaded failed because the right to recover funds in contract meant no loss had been established.
[14] It is, of course, not unusual to plead multiple causes of action, where they are alternate routes to the desired outcome depending on factual findings made by the Court. In this case, all the claims related to recovery of the $740,000 and it is not a case such as Packing in Ltd (in liquidation) v Chilcott, where the plaintiff failed on some applications and succeeded on others, meaning there had been equal success or
failure on both sides. 7 In the present case, all the causes of action related to recovery
of the sum of $740,000 plus interest, and the plaintiff succeeded in that claim (albeit being awarded interest as a significantly lesser rate than claimed). I therefore see no reason to depart from the presumption that the plaintiff is the successful party. The time taken to pursue the various alternate causes of action which were unsuccessful, is better addressed in considering the claims for an increase from scale costs.
[15] The plaintiff accepts that scale costs calculated on a 2B basis should apply for all steps except inspection, summary judgment preparation and trial preparation which are submitted should be on a 2C basis because they were more time consuming than would ordinarily be the case.
[16] I accept that each of these steps may, indeed, have been more time consuming than is ordinarily the case, but I also accept the defendants’ submissions that the time
required reflected, at least in part, the plaintiff’s approach to the issues, rather than
7 Packing in Ltd (in liquidation) v Chilcott (2003) 16 PRNZ 958.
the defendants’ conduct in the litigation. The extent of the plaintiff’s challenges to the scope of the defendants’ lists and the manner in which the lists had been compiled were not always warranted and did not always keep in mind the modern test for discovery. It is appropriate, therefore, for each application to generate an entitlement to costs, but I consider it should be a 2B entitlement, not a 2C entitlement.
[17] Similarly, in terms of the claim for 2C costs in relation to preparation for the summary judgment hearing and the substantive hearing, I accept that the plaintiff’s preparation would have been time consuming, at least in respect to the substantive hearing, because he pursued a plethora of causes of action, the majority of which were unsuccessful. Again, I think the best way to reflect this is to simply award costs on a 2B basis for preparation, as that better reflects the time which was reasonably spent on pursuing the cause of action which was ultimately successful.
[18] In respect of the claim for 2C costs for the summary judgment application, I take into account that it was unsuccessful, although, as Associate Judge Osborne observed, “Mr Miller’s answers at his examination on 8 June 2012, both in relation to whether he thought the re-documentation would “stand up” or “stack up” and whether the re-documentation was “just a device to get it off the balance sheet for the purpose of the liquidation” must leave the defendant seriously exposed to an
adverse factual finding in relation to fraud at a trial”. 8 Because the concealment of
the right of action by fraud involved factual disputes which he could not resolve on a summary judgment proceeding, he did not enter summary judgment but he reserved the issue of costs.
[19] The plaintiff now says that because “the plaintiff’s claim would have succeeded at summary judgment had the defendants not led untruthful evidence”, and the plaintiff was forced to incur costs in proceeding to trial, he should be awarded costs on the summary judgment application even though it was not
successful.
8 Reynolds v Calvert [2013] NZHC 1159 at [44].
[20] While I have the sympathy for the plaintiff in that Judge Osborne’s concerns about the fragility of the defences being run were ultimately confirmed in the substantive hearing, the very fact that there were factual findings to be made and identified defences raised, made the application for summary judgment a doubtful enterprise. The time taken to prepare for it was no doubt as a consequence of the extensive factual material which needed to be traversed as well as the need for lengthy submissions to address the issues arising on summary judgment.
[21] In such circumstances, it must have been obvious to the plaintiff that an application for summary judgment would be complex and at risk of failure. In those circumstances, and in the exercise of my discretion, I consider it is appropriate that costs lie where they fall on that application.
Are there grounds for increased costs?
[22] The plaintiff says that scale costs do not reflect the costs incurred by the plaintiff as a consequence of the defendants’ actions. Here, the plaintiff argues that this is a case which should have settled particularly because the defendants “had no grounds to assert on oath that the revisions of JDL’s accounts had been made “in full consideration of the law””.
[23] However, that is to assume that the factual findings in the case were so inevitable that a defence could not responsibly have been mounted. I do not think that is the case here. In fact, the defendants ran a very confined defence of the claims. They acknowledged that the “recoding” of the loan in the Trust’s and company’s accounts was ineffective and simply argued that a limitation defence applied.
[24] Furthermore, the recoding was done following meetings involving both the defendants’ accountants and lawyers. It was not until evidence was heard from those parties, at trial, that it became apparent that none of those professional advisers had actively advised the recoding would be effective. For these reasons, I cannot categorise the proceedings as so obviously requiring settlement that an uplift is justified in any costs award.
The effect of the Calderbank offer.
[25] The plaintiff also relies on his Calderbank offer to justify an uplift in costs, saying this constitutes an offer to settle that would have been more beneficial to the defendants than the judgment obtained by the plaintiff against the defendants and where there was a failure, without reasonable justification, to accept that offer.
[26] In this case, the liquidator says it proposed an offer to accept $850,000 including all interest and costs, and that offer was made on 8 July 2014. The resulting judgment was $740,000 plus interest from 27 June 2012 which is calculated at $99,849.32. Scale costs at that point, without an uplift to increase costs or indemnity costs, totalled $143,120.80. The plaintiff therefore says the Calderbank offer to settle at $850,000 was an offer more advantageous to the defendants than the
outcome of the judgment.9 The plaintiff says it was therefore unreasonable to object
that offer of settlement given the defendants’ knowledge of the facts and weakness of their case.
[27] However, the defendants argue that the offer was only made on the basis that Chris James and Heriot Holdings Limited withdrew their claims from the liquidation. Chris James was owed $609,987 and Heriot Holdings Limited was owed $301,293 by James Developments Limited. Proofs of debt have been lodged. The defendants say, therefore, that the plaintiff was effectively asking them to settle the litigation for some $1.76 million rather than $850,000.
[28] The defendants’ approach does require an expansive approach to what constitutes a benefit to the defendants, given that Heriot Holdings Limited is not a defendant and the claims in the liquidation are of no direct benefit to the first defendants. Furthermore, given the significant claim by Mana Property Trustee Limited in the liquidation, there could be no realistic expectation that the debts owed to Chris James and Heriot Holdings Limited would be recovered, or even that a reasonable proportion would be repaid. I simply have no evidence of what amount, if any, of the sum repaid by the first defendants, will be available to repay creditors
such as Mr James, Mana and Heriot Holdings Limited after the costs of the
9 As described in r 14.11 of the High Court Rules.
liquidation are met. In all the circumstances, I therefore do not have sufficient evidence to determine whether the Calderbank offer represented a better outcome for the defendants than was achieved in the litigation.
[29] However, I do consider the offer falls within the category described in r 14.11(4) of the High Court Rules where it could at least be described as “close to the value or benefit of the judgment obtained by party B”. The offer was made after preparation of briefs, but before the specific preparation for trial, and I think warrants a 50 per cent uplift for all steps taken after 8 July 2014.
Disbursements
[30] No issue was taken as to the disbursements sought by the plaintiff. I accept that, on their face, they are specific to the conduct of the proceeding, reasonably necessary for it and are reasonable in amount.10 Accordingly, I confirm the listed disbursements in the plaintiff’s schedule of costs are all allowed.
Should the costs award be made jointly and severally against both the first defendants and the second defendant?
[31] Judgment was only entered against the first defendant, the trustees of the Frongopoulos Trust. However, the plaintiff seeks to have any costs orders made jointly and severally against the first defendants and the second defendant, Mr James. This submission relies on the principle in Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No. 2)11 and affirmed in Mana Property Trustees Ltd v James
Developments Limited,12 where it was held that a non-party may be the subject of a
costs award in circumstances where the non-party controlled the proceeding and funded it, or is to benefit from it. The rationale for such an order, articulated by the Privy Council in Dymocks, is that “[t]he non-party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice
for his own purposes”.13
10 High Court Rules, r 14.12.
11 Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No. 2), above n 5.
12 Mana Property Trustees Ltd v James Developments Limited [2010] NZSC 124, [2011] 2 NZLR
25.
13 At [25](3).
[32] The defendants’ response is to say that the authority cited by the plaintiff does not establish that a defendant who was joined during the course of a proceeding can or should be held liable for costs against the initial defendant. In this case, Mr James was found to have no liability and was entitled to defend himself before the Court. Finally, the plaintiff has failed to point to any evidence which in fact establishes that Mr James funded the first defendant.
[33] In turn, the second defendant suggests that Mr James is entitled to costs as the successful defendant.
[34] I accept the defendants’ submissions that none of the evidence referred to goes so far as to establish that Mr James was the funder of the defence while, of course, a successful defence was for his benefit, that is the case for any defendant in litigation. The parallels the plaintiff makes with the circumstances of a non-party to litigation are therefore irrelevant. In short, the basis on which the plaintiff seeks a costs order against Mr James is not sustainable.
[35] However, I am equally satisfied that it is not appropriate, in the circumstances, to make an award in Mr James’ favour. It is clear that I found he breached various duties he owed to the company, and played an instrumental role in the fraudulent recoding of the debt owed to the company, as a repayment of loans. Had I not found the loan to be repayable, there would have been a loss to the company which Mr James would have had to shoulder. In these circumstances, I make no award of costs in favour of Mr James, but the costs award I have made in the plaintiff’s favour is made against the first defendant.
Outcome
[36] Accordingly, I order:
(a) Costs are awarded to the plaintiff, on a 2B basis, except:
(i)costs are to lie where they fall on the summary judgment application; and
(ii)costs incurred on steps taken following the making of the Calderbank offer on 8 July 2014 are subject to a 50 per cent uplift.
(b) There is no costs award against the second defendant.
Solicitors:
Whitlock & Co. Auckland
MacKay & Gilkison, Wellington
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