Smith v Prain
[2020] NZHC 1766
•22 July 2020
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2014-409-549
[2020] NZHC 1766
BETWEEN GREGORY ROBERT SMITH AND COLIN PETER STOKES
Plaintiffs
AND
NOBLE INVESTMENTS LIMITED
Removed First Defendant
AND
APPLE FIELDS LIMITED
Removed Second Defendant
AND
JUSTIN WILLIAM PRAIN
Third Defendant
AND
CARDNO (NZ) LIMITED
Fourth Defendant
Hearing: On the papers Counsel:
G D Stringer for Mr Smith
Mr CP Stokes (self-represented)
P B McMenamin for Third Defendant
H J Dempsey and M R C Wolff for Fourth DefendantJudgment:
22 July 2020
JUDGMENT OF ASSOCIATE JUDGE LESTER
This judgment was delivered by me on 22 July 2020 at 4.30pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar 22 July 2020
SMITH v PRAIN [2020] NZHC 1766 [22 July 2020]
[1] Justin William Prain (Mr Prain) and Cardno (NZ) Limited (Cardno), successfully applied to have the claim against them struck out on the grounds that the plaintiffs’ (Messrs Smith and Stokes) proposed sixth amended statement of claim did not disclose reasonably arguable causes of action against them.1
[2] The causes of action which were struck out, were in deceit against Mr Prain and Cardno and in negligence against Cardno. In my judgment of 5 June 2020, I concluded that had I dismissed the strike-out application, I would have granted the alternative application brought by Mr Prain and Cardno to dismiss the proceeding commenced in 2014, making allegations going back to 2007, for want of prosecution under r 15.2 of the High Court Rules 2016.
[3] The deceit causes of action were struck out as they failed to plead all of the elements of that cause of action, and in particular, failed to plead more than bare allegations of dishonesty.
[4] The negligence cause of action was struck out as the duty alleged amounted to a duty to ensure that the first defendant, Noble Investments Limited, (now struck off the Companies Office Register), met its contractual obligations to the plaintiffs under a contract it made with the plaintiffs in 2002.
[5]Mr Prain and Cardno now apply for increased costs.
[6] One of the plaintiffs, Mr Smith, in submissions prepared by Mr Stringer who represented both plaintiffs in the strike-out application, accepts costs should follow the event, but resists any increase in costs from a 2B basis.
1 Smith v Prain [2020] NZHC 1236.
[7] Mr Stokes has filed costs submissions representing himself, in which he submits:
(i)there should be no order for costs; or
(ii)that in fact costs should be awarded against the successful defendants’ counsels:
… for pursuing their case, despite the [sic] must or should have known the evidence and confession of false affidavits, must mean intent, …
or;
(iii)Mr Stringer should be liable for the plaintiffs’ costs:
…for negligently striking out their Amended Fifth Statement of Claim, and replacing it with a deficient one that could not be fixed.
Liability for costs
[8] While all matters in respect of costs are at the discretion of the court, the discretion is not unfettered. McGechan on Procedure notes there is a strong implication that the court is to apply the costs regime in the High Court Rules in the absence of some reason to the contrary.2
[9] One of the general principles applying to the determination of costs is that a party who fails in respect of a proceeding or an interlocutory application must pay costs to the party who succeeds.
[10] McGechan characterises the principle that costs follow the event as the primary principle in relation to costs.3 That primary principle applies unless there are exceptional reasons.
2 Andrew Beck (ed) McGechan on Procedure (online looseleaf ed Thomson Reuters) at [HR14.1.02(1)].
3 At [HR14.2.01(1)].
[11] In submitting the primary principle should not apply here, Mr Stokes relies on r 14.7 of the High Court Rules, which provides:
14.7 Refusal of, or reduction in, costs
Despite rules 14.2 to 14.5, the court may refuse to make an order for costs or may reduce the costs otherwise payable under those rules if—
…
(e)the proceeding concerned a matter of public interest, and the party opposing costs acted reasonably in the conduct of the proceeding;
[12] Mr Stokes argues there was a public interest element here as at one point, Delta Utility Service Ltd (Delta), which is an infrastructure contracting company owned by the Dunedin City Council, was a defendant and investigation of its role was a matter of public interest.
[13] Delta was the sixth defendant in this proceeding. It brought an application for summary judgment as a defendant and/or an application to strike-out the claim against it. Those applications were dealt with by Associate Judge Matthews in a judgment delivered on 23 November 2017.4
[14] The cause of action against Delta was in deceit. Evidence Mr Stokes gave in that application was referred to by Judge Matthews as lacking credibility and as being inconsistent with contemporary documentation.5 Accordingly, the Court entered summary judgment for Delta. The learned Judge observed that had he not granted summary judgment, he would have made a striking-out order as well.
[15] Accordingly, Mr Stokes’ proposition that this litigation involved matters of public interest, is not sustainable.
[16] McGechan, in respect of r 14.7(e), notes that before the public interest factor can be relevant, the proceeding must “have merit and involve a matter of genuine public interest and importance beyond the interests of the particular unsuccessful
4 Smith v Noble Investments Ltd [2017] NZHC 2885.
5 At [102].
litigant.”6 The claim involving Delta did not have merit, it being dismissed on a summary basis.
[17] Accordingly, I reject Mr Stokes’ submission that there is a basis for not applying the primary principle that costs follow the event.
Indemnity costs
[18]Counsel for Cardno seeks indemnity, or in the alternative, increased costs.
[19] In respect of indemnity costs, r 14.6(3)(b)(v) is relied on, being a failure to accept a Calderbank offer or, in the alternative, in reliance on the proposition that the defendants acted vexatiously, frivolously improperly or unnecessarily in commencing continuing the proceeding under r 14.6(4).
[20] The defendants say the plaintiffs’ claim had no prospect of success and that the plaintiffs acted unreasonably by pursuing a wholly unmeritorious and hopeless claim.7 The particular defendants’ counsel rely on the Court of Appeal decision in Bradbury v Westpac Banking Corp that making allegations of fraud without proper foundation is a factor that may warrant indemnity costs.8
Calderbank offer
[21] Cardno’s counsel recognises the difficulty this submission faces as the Calderbank offer made was, in reality, a walk-away settlement offer.
[22] A Calderbank letter was sent on 12 March 2015, and offered that if the plaintiffs discontinued their proceedings, Cardno would forego any entitlement it had to scale costs. There was no response to that offer which was open for 10 working days.
6 McGechan on Procedure, above n 2, at [HR14.7.91(c)].
7 Bradbury v Westpac Banking Corp (2008) 18 PRNZ 859 (HC) at [11].
8 Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400.
[23] Counsel for Cardno submits that, in the circumstances of this case, the walk-away offer should be given weight and, indeed, it is categorised by Cardno being generous, given the plaintiffs’ claim against Cardno was so frivolous.
[24] I do not consider the circumstances of this case warrant departing from the court’s reluctance to award increased costs based on walk-away settlement offers.9
[25] At the time of the 12 March 2015 offer, there was no deceit pleading against Cardno. The offer by Cardno was not repeated after 12 March 2015. As Mr Stringer notes, the offer was made only seven months into the proceeding. It was, in substance, not an offer to settle, but an invitation to the plaintiffs to abandon their claim.
[26] I agree with Mr Stringer’s submissions that the offer has the characteristics of a walk-away offer which the Court of Appeal has cautioned against giving weight to in Hira Bhana & Co Ltd v PGG Wrightson Ltd.10
[27] I find that the plaintiffs non-response to the 12 March 2015 offer does not warrant indemnity costs.
[28] In Bradbury v Westpac Banking Corp, the Court of Appeal confirmed the importance of the predictability of costs created by the costs regime, but recognised indemnity costs could be ordered where a party was guilty of flagrant misconduct.11 The relevant example given is where allegations of fraud are made knowing them to be false.12
[29] At the outset of this litigation, the plaintiffs had what, to me, as a matter of first impression, seemed to be reasonably arguable causes of action against the company they contracted with in 2002. However, with that company placed into liquidation on 20 December 2017 and then removed from the Companies Office Register, the plaintiffs were left with defendants with whom they did not have a contractual relationship.
9 Hira Bhana & Co Ltd v PGG Wrightson Ltd [2009] NZCA 342.
10 Above n 8.
11 Bradbury v Westpac Banking Corp, above n 8.
12 At [29].
[30] The plaintiffs originally pleaded a claim in contract against Cardno, or that is at least how Cardno took the pleading, as it challenged the viability of such a cause of action in its 12 March 2015 letter. That the plaintiffs then dropped any suggestion of a contractual claim, shows them taking on board the points being raised by Cardno, but against that is the plaintiffs then raising claims in deceit without being able to plead the normal particulars required in dishonesty.
[31] In my view, the pursuit by the plaintiffs of their claim, while unreasonable, did not have the element of what the Court of Appeal called “distinctly bad behaviour”.13
[32]As the Court of Appeal noted in Bradbury:14
Indemnity costs, which depart from the predictability of the Rules Committee’s regime, are exceptional and require exceptionally bad behaviour. That is why to justify an order for such costs the misconduct must be “flagrant”: Prebble v Awarere Huata (No 2) [2005] 2 NZLR 467 at [6] (SC).
[33] While the basis of the strike-out application in respect of the deceit cause of action included a deficiency in the pleading of particulars of dishonesty, I do not consider that such means the plaintiffs made allegations of dishonesty, knowing them to be false. I do not consider the plaintiffs were acting in bad faith.
[34] While at times the plaintiffs were self-represented, and as I recorded in the strike-out judgment, they were urged to take advice. At the outset of the proceeding they were represented by experienced counsel and in respect of the strike-out application they also engaged experienced counsel. Engaging counsel does not of itself mean there is immunity from indemnity costs, but I am not convinced that the plaintiffs brought their deceit causes of action knowing them to be false.
[35] The second element justifying indemnity costs in Bradbury was that the plaintiff in that case commenced and continued the proceedings for an improper motive.15 The defendants do not submit that factor is present here.
13 At [26].
14 Bradbury, above n 8 at [28].
15 At [81].
[36]I find that indemnity costs are not justified in this case.
Increased costs
[37] The defendants seek increased costs in the alternative. Even if the plaintiffs were not acting improperly, that is, that they knew their case had no prospect of success, increased costs are appropriate in circumstances where the plaintiffs should have known their case had no merit or prospect of success.16
[38] The defendants say it should have been clear to the plaintiffs that in the years since the proceedings were commenced, their claim could not succeed.
[39] To the extent that the plaintiffs’ original pleading included a claim in contract against Cardno, the plaintiffs recognised Cardno’s arguments as such was abandoned. In the strike-out judgment, a full chronology was set out which identified numerous delays by the plaintiffs and numerous failures by them to comply with directions of the court. This is a factor that may be taken into account in considering increased costs under r 14.6(3)(b)(i), that is, failing to comply with a direction of the court.
[40] I also consider it relevant to the issue of indemnity costs that in relation to Mr Prain, the sixth amended statement of claim resurrected pleadings from previously abandoned earlier variations of the claim. Mr McMenamin, counsel for Mr Prain, noted the sixth amended statement of claim incorporated matters raised in the third amended statement of claim, which had been subject to a notice of particulars issued by him, but which was overtaken by a further amended statement of claim.
[41] That the strike-out was run on the sixth (and on one count, the seventh) version of the amended statement of claim and that it recycled parts of previously criticised statements of claim, in my view, points to the claim being unreasonably pursued.
[42] The defendants had previously identified their concerns with the deceit causes of action and such were front and centre in the submissions in support of the strike-out. The reality is the plaintiffs did not have a reply to those points. I am satisfied that the
16 Cross v Queenstown Lakes District Council [2016] NZHC 2772 at [12].
plaintiffs’ unreasonable approach to the litigation against the third and fourth defendants contributed to an increase in their costs.
[43] In respect of a proceeding where the argument lacked merit and was inherently unlikely to succeed, increased costs apply to all steps.17 I keep in mind however that the deceit claim was not in the initial versions of the claim. Against that, in the original pleading against Mr Prain and Cardno, it was in contract.
[44] The correct approach from an uplift from scale is to start with scale. It is common ground, save for Mr Stokes, that 2B costs would be the appropriate starting point.
[45]Cardno calculates its scale costs at $62,618.
[46]Mr McMenamin has calculated his scale costs at $61,901.
[47] I note both counsel have used the current daily recovery rate of $2,390. The daily rate changed on 1 July 2015 and again on 1 August 2019. In order to give effect to costs being predictable, which is one of the objectives of the costs regime, in my view the daily rate prevailing at the time a step is taken should be used to calculate the amount claimed for each step.
[48] The defendants, adopting the latest and higher rate for all steps from the outset, results in an increase over 2B costs if such were calculated according to what I consider is the correct approach to the calculation of costs that span changes in the daily recovery rate.
[49] I am conscious the amount involved is not likely to be significant and I do not wish to create unnecessary costs. I propose to deal with the issue in a broad brush way.
[50]Cardno seeks an increase of costs of 50 per cent to arrive at a figure of $93,927.
17 See McGechan on Procedure, above n 2, at [HR14.6.02(2)].
[51] An increase beyond 50 per cent above scale costs is unlikely given the daily recovery rate is two-thirds of the daily rate considered reasonable for the particular proceeding. Accordingly, Cardno in a practical sense seeks the maximum uplift likely to be ordered.
[52] Mathematical certainty is not possible. Approaching matters in the round, I conclude that increased costs of 40 per cent are appropriate in respect of Cardno’s application.
[53] Mr Prain also seeks increased costs and I adopt the same approach in relation to his application.
Orders
[54]Accordingly, there is an order of costs in favour of Cardno in the sum of
$87,665.20 plus disbursements of $2,320 (these were not challenged by the defendants).
[55]In respect of the costs claimed by Mr Prain, there is an award of costs for
$86,661.40 plus disbursements to be fixed by the Registrar.
[56]There is some suggestion that Mr Prain’s actual costs may have been less than
$86,661.40. If that is the case, then pursuant to r 14.2(1)(f) of the High Court Rules, only costs actually incurred can be recovered.
[57] Each costs awards are pursuant to r 14.14 joint and several awards against the defendants.
[58] That leaves the suggestion by Mr Stokes that defendants’ counsel should bear some responsibility for the costs. The basis of this is set out at [7] above. This was an inappropriate allegation by Mr Stokes against counsel for the defendants. There is no basis for his allegations and they are rejected.
[59] That leaves the claim by Mr Stokes that his counsel who ran the strike-out application should be liable for costs. This application concerns costs between the
parties. Issues between Mr Stokes and his counsel are not issues to be determined in this proceeding.
[60] I do not make a separate costs order in respect of the fixing of costs. I consider they are absorbed in the broad brush approach I have adopted.
Associate Judge Lester
Solicitors:
Inder Lynch, Papakura (for the Plaintiffs)
K J McMenamin & Sons, Christchurch (for Third Defendant) Morrison Kent, Wellington (for the Fourth Defendant
Copy to: Mr C P Stokes (Self-represented plaintiff)
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