Southland Indooor Leisure Centre Charitable Trust v Invercargill City Council
[2016] NZHC 41
•1 February 2016
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2010-423-000588 [2016] NZHC 41
BETWEEN SOUTHLAND INDOOR LEISURE
CENTRE CHARITABLE TRUST Plaintiff
AND
INVERCARGILL CITY COUNCIL First Defendant
AND
ANTHONY STANLEY MAJOR Second Defendant
AND
OMAHA INVESTMENTS NO. 1
LIMITED
First Third PartyAND
MAURICE JOHN HARRIS Second Third Party
Hearing: On the papers Counsel:
M Ring QC & C J Jamieson for the Plaintiff
D Heaney QC & K B Dillon for the DefendantJudgment:
1 February 2016
JUDGMENT OF JUSTICE DUNNINGHAM RE: COSTS DECISION
[1] In a judgment dated 20 August 2015, I awarded the plaintiff, Southland
Indoor Leisure Centre Charitable Trust (“the Trust”), damages plus interest totalling
$16,998,225.66. I reserved the issue of costs.
[2] The Invercargill City Council (“the Council”), the defendant in the
substantive proceedings, accepts that the Trust is entitled to an award of costs plus
$343,617.08 including GST for the disbursements it claims. However, it argues that the Trust should only receive scale costs of $120,972, being costs calculated on a 2B
SOUTHLAND INDOOR LEISURE CENTRE CHARITABLE TRUST v INVERCARGILL CITY COUNCIL [2016] NZHC 41 [1 February 2016]
basis (including an allowance for second counsel). In contrast, the Trust says it is entitled to 2C costs for some steps in the proceeding, and to an uplift in the costs award under the provisions of High Court Rules 14.6(3) or 14.11(3).
[3] What is at issue, therefore, is whether the Trust is entitled to greater than 2B
costs for any of the reasons outlined in its costs submissions.
The Trust’s position
Claim for 2C costs on some steps
[4] The Trust acknowledges that the case was categorised as a category 2 case and that band B is appropriate for most of the steps taken.1 However, it submits that a band C time allocation ought to apply for steps 30, 31 and 33.2
[5] In the case of step 30 (preparation of briefs of affidavits), it says that a band C allocation is justified by the amount of expert evidence and the complexity of the subject matter which required more time than the allotted band B time of 2.5 days. Similarly, for step 31 (preparation of list of issues, authorities and common bundle), it says the band C allocation of five days is more appropriate than the band B allocation of 2.5 days. Finally, in relation to step 33 (preparation for hearing), it says an allowance of three days is insufficient for a 15 day hearing which addressed complex evidence and a large number of legal issues.
Discovery costs
[6] The Trust also says that more than the usual amount of time was required for discovery, and that this was accepted by all parties.3 The Trust submits that, as it prepared and digitised 10 substantive schedules, four of which were sworn, costs for
the preparation of 10 schedules be provided for. In support of that, the Trust says:
1 Southland Indoor Leisure Centre Charitable Trust v Invercargill City Council HC Invercargill
CIV-2010-425-000588, 31 October 2012 (Minute).
2 As described in Schedule 3 of the High Court Rules.
3 In a joint memorandum of counsel dated 22 March 2013 at para [3].
(a) The Trust was asked by the Council to discover a very large number of documents, many of which were historic and only peripherally related to the Council’s defences and issues of quantum.
(b)The quantum documents sought had little relevance to the issues and counsel did not refer to them in evidence. It was also contrary to the parties’ agreement that, in order to limit unnecessary and burdensome discovery, the Trust would discover “high level” quantum documents in the first instance to enable more focused and specific requests to follow.4
(c) The Trust served its “high level” list on 4 September 2014. Although the parties were directed to discuss and identify the scope and extent of any further discovery which would be required of the Trust by
17 October 2014, in fact no further requests were made of the Trust until 11 March 2015, after which a further five requests were made.
(d)The failure to comply with the agreed protocol and timeframe for requesting further documents resulted in a large volume of work relating to discovery being required of the Trust at a late stage immediately before trial.
(e) Despite initial agreement with the Council that the Council would be the only party to discover its very large building file, the Trust had to discover its public search copy of the Council building file in order ensure the list of these documents was complete.
[7] The Trust says that each of the substantive digitised schedules it had to prepare should be assessed on a band B basis for costs, resulting in a claim for
$49,750 for discovery. The total scale costs claimed by the Trust are $184,652.
4 Joint memorandum of counsel dated 22 July 2014 at para [15].
Uplift on costs
[8] The Trust also says that, in the circumstances, it is entitled to an uplift on scale costs on the basis that the party paying costs has:5
(a) contributed unnecessarily to the time or expense of the proceeding by taking or pursuing an unnecessary step or an argument that lacks merit;
(b)failed without reasonable justification to admit facts, evidence, or accept a legal argument; and
(c) failed, without reasonable justification, to accept an offer of settlement, whether on a Calderbank basis or not.
[9] While acknowledging that an uplift in excess of 50 per cent will be unusual, the Trust asks for a 70 per cent uplift here.6
[10] The Trust’s submission in support of an uplift refers to three distinct matters. First, that the Council failed to respond to two notices to admit facts, being facts it says the Council eventually conceded without opposition. Second, the Council retreated from ten of its legal and factual arguments during trial, despite having declined to do so before trial. Third, it unreasonably failed to respond to a Calderbank offer made on 8 June 2015. In total, the Trust submits that, with the adjustments sought, it should have an award of $323,028.40 in legal costs in addition to disbursements as calculated.
The Council’s position
[11] The Council submits that the Trust is entitled to the appropriately calculated scale costs of $120,972, plus disbursements as calculated.
[12] The Council does not agree that the Trust can claim 2C costs for steps 30, 31 and 33. In relation to step 30, it submits that the preparation costs of the expert
evidence was not complex as much of the expert evidence of Dr Hendrikx,
5 High Court Rules, r 14.6(3)(b)(ii), (iii) and (v).
6 See Holdfast NZ Limited v Selleys Pty Limited (2005) 17 PRNZ 897 (CA).
Mr Wheeler and Dr Hyland was derived from reports those experts generated as part of their engagement by the Department of Building and Housing to assist with that organisation’s investigation into the collapse. Furthermore, the Trust is already claiming the actual costs of the experts’ preparation of their briefs as a disbursement ($284,000), so much of the cost of preparation of the expert briefs is already incorporated into the Trust’s claim for disbursements.
[13] In terms of step 31, it says preparation of the issues, the list of authorities and the common bundle was not extensive. The common bundle was only six volumes which could be fitted into four Eastlight folders.
[14] In terms of step 33, being preparation for hearing, the Council submits that rates for preparation for trial are assessed on the basis of the number of days so the length of the trial is already factored into the rates. It also says that the Council was the only active defendant so that trial preparation “was not complicated by a number of active defendants”.
[15] In terms of the extent of discovery, it makes a number of submissions essentially saying that the requests for discovery were necessary from the Council’s perspective and led to a substantial reduction in the plaintiff’s claim and that all these documents should have been initially discovered by the plaintiff. It says, therefore, that the plaintiff should only be entitled to costs of two schedules, not 10, as part of its scale costs assessment.
[16] The Council also submits that the Trust should not be permitted to claim for preparation and attendance at 22 case management conferences, but rather it should be reduced to a claim for 16 to take into account the “delay by the plaintiff” because it did not pursue the proceedings for two years until the decision in Spencer-on- Byron was issued in August 2012.7
[17] In terms of the matters alleged to justify an increase in costs, the Council observes that the uplift sought for the Council abandoning some of its defences is
“akin to double dipping” as, had the Council pursued those defences and been
7 Body Corporate No 207624 v North Shore City Council [2012] NZSC 83, [2013] 2 NZLR 297.
unsuccessful, there could not be a claim for additional costs. Not pursuing them has shortened the trial and abandonment of a cause of action is not, of itself, a pointer to increased or indemnity costs.
[18] In terms of the failure to admit the facts, it says that this does not automatically lead to an increase in costs and that hearing evidence from Mr Wheeler and Dr Hyland enabled the Court to appreciate the level of difficulty associated with identifying the defects in the trusses.
[19] Finally, in respect of the failure to accept the Calderbank offer made on
8 June 2015, the Council says that the offer was made only 14 days prior to commencement of trial and such a late offer ought to have little impact on costs.8
The Trust filed reply evidence and new evidence during the trial on quantum which significantly reduced the Trust’s claim against the Council, and the amount offered to settle was more than the Trust’s own quantity surveyor agreed the quantum was in a joint memorandum filed on 4 August 2015. Because the Calderbank offer included GST, it says the judgment was for less than the amount the Trust offered to settle for and so no weight ought to be placed on the Trust’s Calderbank offer in awarding costs.
Should the Trust be awarded costs calculated on a band C basis for some steps?
[20] I accept that while the case was categorised as a category 2 case, it was not allocated a band.9 It is therefore appropriate to consider whether some steps should be categorised as band C for the calculation of costs.
[21] In terms of step 30, I acknowledge that some of the evidence as to the causes of collapse was a reiteration of evidence prepared for the Department of Building and Housing investigation. Nevertheless, there was a significant amount of evidence which was prepared specifically for this trial and the issues which arose in it. For example, Dr Hendrikx’s evidence had been developed significantly since the NIWA
report was prepared. Mr Coles’ evidence contained a fresh reassessment of the
8 Strachan v Denbigh Property Limited HC Palmerston North CIV-2010-454-232, 3 June 2011 at
[21].
9 See Minute of Associate Judge Osborne, above n 1.
as-built and as-designed capacity of the stadium roof based on his own calculations and work. Furthermore, the evidence prepared on duties and standard of care of a Council building inspector, and on quantum issues, was extensive and was prepared specifically for this hearing. Given the extent of the evidence prepared for the hearing, I consider that an allowance of 2.5 days under band B would come well short of reflecting the time which is reasonably involved in preparing evidence for such a long hearing. The allowance of five days under band C would be a fairer reflection of the time involved (albeit still likely to be considerably less than actual time involved).
[22] I also accept the Trust’s submission that the costs of briefing are not covered by awarding the witnesses’ expenses as a disbursement. The costs award reflects the solicitors’ time involved in giving guidance, advice and supervision to the experts when preparing their briefs. Again, this supports my view that a band C allocation for step 30 is more appropriate than a band B allocation.
[23] I also accept that, in respect of step 31 (being the preparation of a list of issues, the authorities and a common bundle), this would have been time-consuming. There were a large number of legal issues identified and this list of issues was confirmed by the Council shortly before the hearing. Each of these would need to have been researched and prepared for, which contributed to the large list of authorities, as well as to the extent of documents required to be in the bundle. Again, I am satisfied that a band C allocation is an appropriate reflection of the reasonable time involved in this step.
[24] Finally, in respect of step 33, being preparation for hearing, the Council is incorrect to say that preparation for trial is assessed on the basis of the actual duration of the trial. Step 33 now only allows three days for preparation under band B regardless of the length of the hearing. Given that this was a 15 day hearing, I am satisfied that a band C allocation for trial preparation of five days is warranted and, again, is likely to considerably underestimate actual preparation time involved.
Should the Trust be awarded costs for 10 lists of documents?
[25] The Trust claims for the preparation of, effectively, 10 lists of documents on discovery. While the cost memoranda of the two parties debated the relevance and necessity of the discovery sought, and also the timing of requests for documents, I simply observe that the discovery required of the Trust was extensive and that the claim for costs totalling $49,750 is not disproportionate to the extent of work involved in completing discovery. I therefore accept that the Trust’s claim for
10 allocations of costs awarded on a 2B basis is warranted.
Should the claim for attendance at case management conferences be limited to
16 because of delay by the Trust?
[26] In relation to the Council’s claim that the Trust delayed the litigation and so should not be able to claim for attendance at all case management conferences, the Trust accepts there was some initial delay. It says this was to await the outcome of expert investigations which were resolved by September 2011. It then says that subsequent delays “were in fact at the instigation of the Council, which wished to await the decision of the Supreme Court in Spencer-on-Byron”, which the Trust opposed, and it refers to the memorandum of counsel for the Council dated
16 March 2012.
[27] I am satisfied that any delay at the outset of the proceedings was reasonable and, furthermore, was either prompted, or at least consented to, by the Council. For example, in his minute of 22 March 2012, Associate Judge Matthews recorded that:10
… All counsel agree that because the issues to be determined in that case will have a direct and material bearing on the prospective outcome of this case, the decision of the Supreme Court should be awaited before this case proceeds further.
[28] There is no basis, therefore, for reducing the Trust’s claim for preparation for and attendance at case management conferences.
10 Southland Indoor Leisure Centre Charitable Trust v Invercargill City Council HC Invercargill
CIV-2010-425-000588, 22 March 2012.
Should there be an uplift on scale costs?
[29] The Trust argues that the Council has contributed unnecessarily to the time or expense of the proceeding because the Council:
(a) pursued an unnecessary step or an argument that lacked merit;11
(b) failed, without reasonable justification, to admit facts, evidence, documents or accept a legal argument;12 and
(c) failed, without reasonable justification, to accept an offer of settlement.13
Should the failure to admit facts be reflected in an uplift in legal costs?
[30] The Trust says that on 5 December 2014 it served a notice to admit facts on the Council primarily regarding the defects in the Community Courts’ roof trusses. No response was received and the Trust prepared evidence to prove facts, including the scope of the Community Courts’ truss modification work, the defects in the welding work, the fact the Council did not inspect the trusses before it issued the code compliance certificate (“CCC”), the fact it issued the CCC before it received a PS4 from Mr Major and that Mr Major issued the PS4 without identifying the defects. The Council also required the identification of the defects to be included in the list of issues for trial, and evidence was called from Mr Coles, Mr Wheeler and Dr Hyland, taking some 11 hours of Court time when, in any event, the Council did not dispute any of these facts in trial and admitted them in its opening. The Trust says that the actual costs for those 11 hours of Court time was $17,820 excluding GST, although it notes that the scale cost calculation would need to be reduced by
$6,690 to ensure there is no double counting of this time in the costs calculation.
[31] The Council accepts that failing to admit facts may result in the cost of proving the facts be paid by that party unless a Judge orders otherwise.14 However,
the Council says the notice to admit facts required it admit the entire claim against it
11 High Court Rules r 14.6(3)(b)(ii).
12 High Court Rule 14.6(3)(b)(iii).
13 Rule 14.6(3)(b)(v).
14 Rules 14.6(3)(b)(iii) and 8.47(4).
excluding quantum and identified specific matters in the notice to admit facts which it took issue with. More importantly, though, it says that hearing evidence from Mr Wheeler and Dr Hyland enabled the Court to appreciate the level of difficulty associated with identifying the defects in the trusses and this assisted the Court to conclude that the Council was not required to inspect because it lacked the expertise to do so and was able to delegate this task to the structural engineer engaged by the Trust.
[32] Parties should be encouraged to facilitate the focused and efficient running of the hearing. It is not clear to me why at least some of the facts listed in the notice were not admitted by the Council prior to the hearing. However, I do not consider that all 11 hours of hearing time could have been saved. Whether the facts were agreed or not, it was important to provide some narrative evidence about the process of the truss modification work, the defects in the welding work carried out, and the explanation of how those defects led to the failure of the trusses in the snowfall event. I do not consider that the Court could have had a reasonable understanding of these matters without some narrative evidence from the experts being given on them.
[33] The Trust calculates the actual costs for those 11 hours of Court time totalled
$17,820 and that scale costs should be reduced by $6,690 if these costs are awarded, so the net increase sought is $11,130. I think a fairer reflection is to simply award approximately half of the net claim for an increase by increasing the award of scale costs by $5,565 to reflect the fact that if the Council had admitted those facts when requested to do so, then some, but not all, of that Court time would have been saved.
Was there an unjustified failure to concede facts or legal argument?
[34] The Court minute dated 12 June 2015 confirmed that the Council was relying on all defences pleaded and contained in the list of issues. The Trust prepared its case to address those defences but, by the time the Trust presented its closing submissions, the Council had abandoned 10 of the issues that it had identified but declined to abandon prior to the trial. These issues are listed in a schedule to the costs submissions of the Trust and include:
(a) whether any loss that the Trust would otherwise have been able to recover was extinguished or reduced by its sub-lease;
(b) various issues as to what construction defects were present in the trusses, and the interplay between the snow loading on the roof at the time of the collapse and the defects;
(c) various issues regarding whether the lease or insurance arrangements negated Council liability; and
(d) whether the Trust’s response to events in 2006 could have broken the
chain of causation and created an obstacle to its claim.
[35] The Council notes that abandonment of the cause of action is not, of itself, a pointer to increased or indemnity costs.15 It goes on to say that the Trust breached the Court’s timetable for filing and serving briefs and continued to file briefs in reply, plus supplementary briefs and briefs from new witnesses during the trial, meaning that it was only once the Trust had presented its case in full that counsel was able to make an informed assessment of some of the defences it raised. It also pointed out that much of the Trust’s cross-examination and presentation of evidence related to events from July 1999 to 18 November 2000 when it subsequently
accepted that it could only claim against the Council in relation to the issue of the CCC on 20 November 2001 and not on any negligent acts or omissions which occurred before then, as those acts or omissions (if any) were time-barred. It therefore submits that the Trust contributed to the prolixity of the trial and, by implication, no increased costs are justified.
[36] I accept that there are matters which could have been conceded earlier and which the Trust was required to address in opening, and in evidence, but which were subsequently not pursued by the Council. However, the effect on trial length caused by some of these matters is addressed in the increased costs award for failure to admit facts. The remaining issues did not obviously occupy significant hearing time
as they were primarily legal issues to be argued on evidence which was to be
15 Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400.
adduced in any event. Had they been conceded shortly before hearing, as requested, I do not consider it would have reduced the hearing time in any material way. For these reasons, I do not propose to make any further adjustment to the scale costs award to reflect a failure to concede facts or legal argument.
Was there an unreasonable failure to respond to a Calderbank offer?
[37] The Trust’s final argument for increased costs relies on r 14.11. That provides that a party making an offer of settlement is entitled to costs on the steps taken after the offer is made if the offer:
(a) exceeds the amount of the judgment obtained by the offer in the proceedings; or
(b) would have been more beneficial to the offeree than the judgment the offeree subsequently obtained.16
[38] Even if these two criteria are not met, the offer may nevertheless be taken into account if the offeror makes an offer which is close to the value or benefit of the judgment obtained by the offeree.17
[39] Of course, as the successful party, the Trust is entitled to costs on the steps taken after the offer was made in any event, and a failure to accept a Calderbank offer does not, of itself, warrant an increased award of costs in favour of the offeror. To justify an increased costs award, r 14.6 still requires that the party from whom costs are sought has:
... contributed unnecessarily to the time or expense of the proceeding or a step in it by ... 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 proceedings.
[40] Thus, there are a number of considerations.
16 High Court Rules, r 14.11(3).
17 Rule 14.11(4).
(a) Was there an offer which was more beneficial to the offeree than the judgment subsequently obtained?
(b) If not, was the offer close to the value or benefit of the judgment obtained by the offeree?
(c) Did the Council, without reasonable justification, fail to accept an offer which met the criteria in (a) or (b) above?
(d) Did that failure to accept unnecessarily contribute to the time or expense of the proceeding or a step in it?
[41] The offer was made on 8 June 2015 and said that the Trust was prepared to settle the proceeding on specified terms which included payment to the Trust of
$16.5 million plus GST by 26 June 2015, with each party bearing its own costs. In a schedule to its letter containing the Calderbank offer, the Trust set out the reasons why it would succeed including:
(a) why a duty of care would be established;
(b) why the Council had breached its duty of care;
(c) why the Council’s breach of duty of care had caused the Trust loss;
(d) why the Council’s allegations of contributory negligence would not succeed; and
(e) why the Council’s affirmative defences would not succeed.
[42] The complication in comparing the offer with the judgment is that the offer included the payment of GST whereas the judgment did not. While the Trust’s offer would have involved the Council paying nearly $19 million to the Trust ($16.5 million plus GST), the Council could have claimed back the GST so would have only paid net $16.5 million whereas, under the judgment, with costs and disbursements, it will be required to pay around $17.5 million. Although the Council
says it is in a better position financially by rejecting the Trust’s offer, as it saved
$2 million by going to trial, that incorrectly assumes it must pay, but cannot claim back, the GST component of the payment it made.
[43] Thus, I accept that, on its face, the Calderbank offer would have been more beneficial to the Council than the judgment subsequently obtained against it. The next question is whether the Trust failed, without reasonable justification, to accept that offer, which would have saved the costs involved in a 15 day hearing.
[44] The offer was made only 14 days prior to the commencement of hearing. However, the rule permits an offer “at any time” and I am satisfied this is not a case like Strachan v Denbigh Property Limited where the offer came so late, it should have little or no impact on costs.18
[45] While the Council points out that there was late filing of quantum evidence by the Trust which significantly reduced the Trust’s claim against the Council, referring to briefs filed on 25 June 2015, it is clear from the outcome of the decision that these did not so reduce quantum overall, that the offer was superceded by the evidence. However, I do accept the evidence on quantum was not settled prior to the hearing and the parties were still grappling with the evidence on assessing the costs of rebuilding the stadium as it was (as opposed to the new improved stadium which was built). They were also grappling with the issues of what deduction (if any) should be made for betterment because the Trust had a new building with new fixtures and fittings, instead of a 10 year old building.
[46] In the circumstances, where the Trust’s offer effectively meant the Council had to concede it would lose on every argument, and where the dollar value of the Trust’s loss (if it was successful) was still being calculated by the experts, I cannot conclude that the decision to ignore the settlement offer was sufficiently unreasonable as to warrant an increase in costs, as opposed to an award of costs calculated in accordance with the schedules to the High Court Rules. I would not,
therefore, award an uplift in costs.
18 Strachan v Denbigh Property Ltd, above n 8.
Outcome
[47] The Council is to pay the Trust legal costs totalling $190,217 (being 2B/2C
scale costs as sought, plus an uplift of $5,565) along with disbursements totalling
$343,617.08.
Solicitors:
Young Hunter, Christchurch
Heaney & Co., Auckland.
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