Stockco Limited v The Big Basin Limited

[2024] NZHC 2438

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2022-409-000014

[2024] NZHC 2438

UNDER

the Arbitration Act 1996

IN THE MATTER

of application to vary the Final Award as to Costs of Hon Nicholas Davidson KC

delivered 21 February 2024

BETWEEN

STOCKCO LIMITED

Applicant

AND

THE BIG BASIN LIMITED

Respondent

Hearing:

19 August 2024

Counsel:

M H L Morrison for Applicant

P A Cowey and K T Mead for Respondent

Judgment:

28 August 2024

JUDGMENT OF RADICH J

[1]        Following a two-week hearing in May 2021, the Hon Nicholas Davidson KC, as an arbitral tribunal, issued in October that year an award in which Big Basin Ltd was found to be liable to StockCo Ltd for over $1.2 million.

[2] The award was for the finance cost of 787 R2 bulls,1 owned by StockCo and farmed by Big Basin.

1      Bulls that are rising to two years of age.

STOCKCO LTD v THE BIG BASIN LTD [2024] NZHC 2438 [28 August 2024]

[3]        StockCo, being largely successful,2 claimed its costs in the arbitration. They comprised over $82,000 as its share of costs for the tribunal itself, legal fees of just over $743,000 and disbursements of just under $43,000.

[4]        The arbitrator awarded StockCo $375,000 in legal costs and $75,000 in disbursements. StockCo says that the costs award amounted to only 51 per cent of its total costs (as fixed by the arbitrator) and was, in all of the circumstances, unreasonable. It applies under cl 6(3) sch 2 of the Arbitration Act 1986 for an order varying the costs award to reflect the costs it had sought.

[5]        Big Basin says that the award was not unreasonable and that the arbitrator has not been shown to have made any errors in the exercise of his discretion.

The underlying dispute

[6]        StockCo is a livestock financier. It provides finance to farmers under the terms of a standard master livestock agreement. As stock lots are delivered to a farm, each transaction is recorded in supplementary agreements and are subject to the overriding terms of the master livestock agreement.

[7] On 2 June 2017, StockCo purchased 519 of the bulls that were the subject of the arbitration in 15 lots, from Alliance Group. Big Basin had not been incorporated at that time. It was incorporated on 14 June 2017. Subsequently, the balance of the stock that was the subject of the arbitration was purchased.3 The master livestock agreement and supplementary agreements were then signed by Big Basin, covering all 24 lots making up the 787 R2 bulls. The debt for the bulls was then recorded by StockCo in Big Basin’s account with it. The amount paid by StockCo to Alliance for the bulls was $1,114,485.79.

[8]        Big Basin defaulted on its obligations under the master livestock agreement and StockCo terminated it on 30 August 2019.

2      The parties are at odds over the extent to which StockCo was successful.

3 Apparently, the 787 R2 bulls had been purchased for the Alliance Group by Mr Bourton, one of Big Basin’s directors, in the first half of 2017 and he had already taken possession of them.

[9]        Big Basin denied liability for the debt relating to the bulls. It claimed that it did not receive them all. It argued that bailment principles, which required delivery, applied as a matter of law and under the master livestock agreement, and that delivery could not be established on the evidence. Stockco denied that it needed to prove delivery.

The arbitral award on liability

[10]      The interim arbitral award was issued on 21 October 2021, following a 10-day hearing. Ultimately, StockCo’s position was upheld on the basis that the parties were bound by the terms of the master livestock agreement and the supplementary agreement under which there was no need to prove delivery.

[11]      In a final award, following submissions on quantum, of 9 March 2023, the total sum awarded, for outstanding stock, was $1,211,835.71 which included penalty interest.

[12]The amount claimed by StockCo was $1,317,790.18.

[13]The arbitrator decided that, in addition, StockCo was to receive a payment of

$300,830.15 (excluding GST). That sum had been held in trust as the sale proceeds of 291 cattle in relation to which a dispute had arisen on whether it should be credited to Big Basin’s facility with StockCo or to a third party. The arbitrator decided that it should be credited to Big Basin and so the amount to be paid by Big Basin was reduced accordingly.

[14]      Another way of looking at the outcome of the arbitral award is through a comparison of the value of the outstanding stock as claimed and as awarded. A table on which the arbitrator based his final award showed:

(a)outstanding stock as at 17 March 2021, as claimed by StockCo, of

$1,515,458.71 (including GST); and

(b)outstanding stock as at 1 December 2022, as awarded by the arbitrator, of $1,056,456.02.

[15]      The difference is the product of both the payment referred to in [13] and other adjustments made by the arbitrator to stock found to be outstanding.

[16]      StockCo holds strong views to the effect that Big Basin was responsible for the arbitration proceeding being as protracted as it was. It refers in its submissions on this application to Big Basin’s claim in bailment as being misconceived, to dishonest evidence having been given for it on bulls not having been delivered and to assertions, also described by StockCo as dishonest, about the accuracy of Big Basin’s livestock records. Significant complaint is made about a failure to call a director who was central to the dispute. It is said that Big Basin conducted the arbitration in such a way as to endeavour to secure a windfall on an opportunistic basis. That, in turn, led to its claim for costs.

The costs award

[17]      The total costs incurred by StockCo in the arbitration proceeding (exclusive of GST) were:

(a)Legal fees of $850,330.31.

(b)Disbursements, invoiced by StockCo’s solicitors (including Tribunal costs and a half share of hearing transcription cost) of $73,635.46.

(c)Disbursements incurred by StockCo directly (including half of the arbitrator’s costs of $48,021.74), of $51,409.18.

[18]      Following adjustments made to remove certain pre-arbitration and post- decision costs from the claim, the legal fees sought by StockCo were reduced to

$743,101.81. Mr Morrison emphasised that, in addition to the adjustments made to the claim as mentioned, a number of the invoices comprising the claim for $743,000 in fees were reduced, from time recorded, when the fees were rendered. Details are provided in comprehensive tables.  A  key example is the charge (excluding GST) of

$99,221 for the 10-day arbitration hearing itself. A reduction of $75,959.50 was made in that invoice over recorded time.

[19]      The balance of the costs claim is the result of fees rendered for commencement and interlocutory steps in the order of $465,000, and for post-hearing steps leading to the final award (including a half-day hearing by teleconference) of just on $138,000.

[20]      In a carefully reasoned decision, the arbitrator adopted a two-stage approach. First, he fixed costs. The costs of the arbitral tribunal itself (as paid by StockCo) were fixed at $82,233.77. Legal fees were fixed at $743,101.81 and disbursements invoiced by  StockCo’s  lawyers  were  fixed  at  $42,810.87.    Accordingly,  total  costs  of

$868,156.45 were fixed.

[21]      The second stage involved the arbitrator determining the portion of those costs that would be awarded, or allocated.

[22]      Big Basin’s position was that StockCo should only recover legal costs of somewhere between $146,000 and $260,000, and $38,000 in disbursements. StockCo sought the full $868,156.45.

[23]      The arbitrator referred to the costs analysis on the part of both parties as having been undertaken with “a forensic exercise of intensity”. It did not, as he put it, need to have been. The arbitrator referred to “failings on the part of both parties, but primarily by Big Basin” leading to the “determined pursuit and defence of what in essence was quite a small sum”.

[24]He then said this:

[74] StockCo on the other hand had a much lesser role in creating this complexity because while it succeeded in contract for the whole of the 787 R2 bulls charged to Big Basin’s account, there is a real possibility that some of those bulls were never in Big Basin’s hands … no one will ever know the truth of this. StockCo has been reluctant to acknowledge its failings. It put itself  in a difficult position by acquiring bulls from Alliance, then being pressured to pay for the balance, when it did not know where they all were but knew only that they were or had been in the hands of Mr Bourton [a Big Basin director] and that some had reached Killermont [Big Basin’s property]. If it followed its own usually sound practice, there would have been no basis for Big Basin to run its flawed case.

[25]      The arbitrator went on to say that he could not minimise the fact that the case that Big Basin ran and pleaded did not align with its actual knowledge of events – a carefully phrased way of expressing a finding of a serious nature.

[26]      Nonetheless, the arbitrator was concerned about the level of StockCo’s costs; its pre-hearing costs in particular. He referred to those costs as a “weighty sum”, falling for “consideration as a matter of proportionality and reasonableness”. On this point, it was said:

[70]  While I accept the thoroughness and detail, and counsel’s mastery of the records available, I conclude there is a distinct lack of proportion in the pre-hearing costs, and overall costs sought, even if the whole of the R2 bull complement was truly at large. There, must be a reflection of the scale of the dispute when weighing proportionality.

[27]Ultimately, the arbitrator referred to four primary points:

(a)StockCo had, it said, succeeded on the principal issue “with Big Basin having some success on lesser issues, with regard to the duplicate bulls, the heifers, and credits derived from processing”.

(b)The arbitration was driven by a false narrative on Big Basin’s part about bulls not having been delivered.

(c)StockCo contributed in part to the uncertainty through shortcomings in its systems and records.

(d)The actual dispute did not warrant such substantial costs as a matter of proportionality, even although the work was done assiduously and to a high standard.

[28]      Accordingly, an award of costs in favour of StockCo was made in a total sum of $450,000 plus GST, being $375,000 for legal costs and $75,000 for disbursements.

An arbitral tribunal’s discretion to award costs

[29]      An arbitral tribunal has a wide discretion in awarding costs and disbursements. The basic principle is that costs follow the event and that an award of costs should reflect an outcome that is reasonable in the circumstances.4

4      Casata Ltd v General Distributors Ltd [2006] NZSC 8 at [107].

[30]      A costs assessment under the High Court Rules 2016 has no place in arbitral proceedings.5 An assessment of what a reasonable contribution to costs should be involves several primary considerations, which are explained by the authors of Williams and Kawharu on Arbitration and may be summarised in the following way:6

(a)Where a party is successful it should be compensated for the loss it has incurred in obtaining the result.

(b)A person who brings a claim in order to recover what they are already entitled to should not have to pay the costs of pursuing that claim.

(c)Accordingly, the successful party should recover at least a reasonable contribution towards its legal and other costs, if not the whole or a very substantial part of its legal and other costs.

(d)Adjustments will be needed though if there is anything in the conduct of the successful party that disentitles it to receive that very substantial part of its costs.

(e)However, the costs claimed must be found to be reasonable in the first place.

(f)Costs should reflect the parties’ relative success and failure in an award.

(g)The arbitral tribunal may take into account the parties’ conduct in the arbitration; both cooperation and non-cooperation.

The High Court’s power to vary an arbitrator’s costs award

[31]      Under cl 6(3) of sch 2 of the Arbitration Act, the Court may vary an arbitral tribunal’s award or allocation of costs “if satisfied that the amount or the allocation of those costs and expenses is unreasonable in all the circumstances”.

5      The Marble & Granite Centre Ltd v Emery HC Auckland M1384/98, 30 September 1998, per Robertson J.

6      David Williams and Amokura Kawharu Williams and Kawharu on Arbitration (2nd ed, Lexis Nexis, Wellington, 2017) at 462–471.

[32]      An unreasonable allocation of costs is an allocation that no reasonable arbitral tribunal could have made. It must be irrational. As the Court of Appeal said in Water Guard NZ Ltd v Midgen Enterprises Ltd, an appeal from a costs decision of the High Court:7

… an appellate court should not interfere unless, in accordance with settled principles, it is satisfied that in exercising his statutory discretion the Judge acted on a wrong principle, failed to take into account some relevant factor, took into account an irrelevant factor, or was plainly wrong.

[33]      An application to vary an arbitrator’s costs is in effect an appeal against the exercise of the arbitrator’s discretion, with a high threshold accordingly. The high threshold reflects the Court’s recognition that an arbitrator is the best-placed person to allocate costs reasonably in an arbitration8 and the desirability of minimising recourse to the Courts in an arbitration process.9

The parties’ arguments

[34]      It is said for StockCo that it was “wholly successful”. The amount it claimed, it says, was $1,663,770.48, which was 93 per cent of the amount awarded. Big Basin says that StockCo’s success rate was just 62 per cent, when regard is had to the figures referred to in [11] and [12] above.

[35]      As foreshadowed in [16] above, StockCo takes considerable issue with the way in which Big Basin conducted the arbitration proceeding. It sees Big Basin’s position on the following points as being untenable and as causative of its own significant costs:

(a)its arguments on the supplementary livestock agreement not being binding;

(b)the application of the law of bailment to the master livestock agreement;

7      Water Guard NZ Ltd v Midgen Enterprises Ltd [2017] NZCA 36 at [11].

8      Gladvale Farms Ltd v Baty [2019] NZHC 249 at [75]; Northland Port Corporation (NZ) Ltd v Flyghtship Construction Ltd HC Auckland CIV-2005-404-5065, 20 December 2005 at [35]. Although these two cases were appeals from a costs award by an arbitrator, rather than applications under cl 6(3) of sch 2 of the Arbitration Act 1996, the comments made on this point are relevant here.

9      Arbitration Act, s5(a); Rosser v Global Construction Services Ltd HC Auckland CIV-2004-404- 2564, 10 August 2004 at [28]. Rosser was an application for leave to appeal a costs award made by an arbitrator, but again the comments on this point are relevant here.

(c)the alleged non-delivery of most of the bulls;

(d)an argument that StockCo loaded the debt on to the Big Basin account in circumstances in which it was liable to Alliance directly for the bulls;

(e)an argument that the bulls referred to in [13] had been bailed to a third party rather than to Big Basin.

[36] It is aggrieved in particular about matters such as these in circumstances in which a Big Basin director agreed under cross-examination that the vast majority of the 787 R2 bulls had in fact been delivered, and when Big Basin’s contractual liability was regarded as being clear.

[37]      The description by StockCo in its submissions of its view on Big Basin’s position is expressed with the regular use of language that is, to say the least, intense in nature. Words such as “dishonest”, “opportunistic”, “irrational”, “unreasonable”, “obstructive” and “misconceived” are used frequently. That is not necessarily helpful. These views, combined with its views on its level of success, lead it to the conclusion that the Tribunal’s costs award was unreasonable; that it was a “flawed exercise” to such a degree as to be irrational and unreasonable such that it should properly be set aside.

[38]      Big Basin, on the other hand, says that StockCo’s success was not absolute, that it contributed to the dispute through not following its own processes, and that the dispute did not warrant the substantial costs it incurred.

Discussion

[39]      I am unable to reach any conclusion other than that the arbitrator’s decision on costs was entirely in order.

[40]      It contains a detailed analysis of the relevant factual background and of the comprehensive submissions made by each of the parties. In StockCo’s case, those submissions would appear to mirror those made in this Court. The arbitrator discussed each of the points raised with the depth of understanding that can only come from

someone who has presided over the proceeding for several years and who has seen primary witnesses in person.

[41]      For example, the arbitrator was able, in a perceptive way, to give insights into a range of relevant dynamics, including on:

(a)The sympathy that was due for Mr and Mrs Thomas (two of Big Basin’s directors) but the need to put that sympathy aside in circumstances in which their default under the master livestock agreement was in issue.

(b)The way in which the Big Basin director, Mr Bourton, who was not called to give evidence, had through his conduct affected their positions adversely.

(c)The way in which Big Basin had “tied itself in knots” over endeavouring to argue non-delivery on the one hand and being at odds over accepting a credit for the 300 disputed bulls on the other.

(d)The untenable dynamic that arose through Big Basin working assiduously from a “false narrative” and going too far with it while StockCo, in response, came to pursue what was a sound case under a simple contract in such a way as to generate costs that raised real proportionality concerns.

[42]      These are insights, supported by the arbitrator’s factual findings, that were well open to him to make.

[43]      With those overarching comments in mind, I turn to consider the reasons for the arbitrator’s final award on costs alongside StockCo’s submissions that they were all unreasonable.

StockCo’s contribution to the underlying issues

[44]      The arbitrator said that, while StockCo had very good systems in place, it did not follow them here. There were inefficiencies in the electronic tracking data for the

animals and an inability on StockCo’s part to identify in all cases which stock were where. As the arbitrator said:

A more diligent application of its own and usual processes would have seen the contractual formation executed with knowledge of which R2 bulls were contracted, where they were located, and not hand it over to Mr Bourton absent the contract with the incorporated Big Basin. It moved swiftly when it realised the contractual pickle it was in, and to which it had contributed.

[45]      There was a real possibility, the arbitrator found, that some of the bulls were never actually in Big Basin’s hands. But, as he said, no one will ever know the truth of this as a result of the issues with the systems that were in place. Having made those findings, the arbitrator did say that all of this could, largely, have been corrected had Mr Bourton been an honest dealer and had Big Basin maintained its own records, as it was obliged to do.

[46]      These findings all align with the factual findings made by the arbitrator in the underlying awards, all of which were open to be made on the evidence.

The level of StockCo’s success

[47]      As has been discussed in [10]–[13] above, the parties are at odds over the level of StockCo’s success and the outcomes can, in financial terms, be measured in different ways. However, it was correct for the arbitrator to say that, while StockCo succeeded on the principal issue, Big Basin did have some success on lesser issues relating, for example, to duplicate bulls, heifers and credits derived from processing. As discussed in [11] and [12] above, the sum, as awarded to StockCo, was less than the amount it claimed, even after accounting for the  fact  that  the  credit  for the  291 unidentified stock was not something that Big Basin had ‘succeeded on’ as such.

The way in which Big Basin conducted its defence

[48]      StockCo is exercised about the ways in which Big Basin went about defending the case and the arguments it put up. The level of its concern is summarised in [16] and [36] above. The arbitrator, while not using language of the type that StockCo has used, has taken comments of this type on board and has reached conclusions that do express concerns about Big Basin’s defences. He has referred, for example, to “flawed

evidence as to delivery”, “its determined pursuit and defence”, the way in which it had failed to match “its knowledge with its pleaded case” and to “its false narrative”.

[49]      There is nothing unreasonable about the way in which the arbitrator drew conclusions on the nature of Big Basin’s case or about the way that they were then factored into his costs assessment.

The proportionality of StockCo’s costs

[50]The arbitrator put the point in this way:

[78] Mr Cowey achieved in this costs exercise some yardage in extracting elements which fell outside scope, and he made a further point which has drawn my attention, the costs incurred for the hearing. It is trite that costs of preparation often, usually do, exceed those of a trial process except in an elongated trial which assumes a life of its own. This weighty sum sought for these costs falls for consideration as a matter of proportionality and reasonableness.

[51]      The arbitrator concluded, on the topic, that there was a “distinct lack of proportion in the pre-hearing costs, and overall costs sought, even if the whole R2 bull complement was truly at large”. There must, he said, be an adjustment for those proportionality issues.

[52]      I agree. While StockCo’s lawyers certainly gave discounts on recorded time (particularly in relation to the arbitration hearing itself as discussed in [18] above), the discounts are from recorded time. That is not to say that the time recorded was reasonable or proportionate or that the invoiced amount was reasonable or proportionate. There was no unfairness in my view in the arbitrator not taking discounts on recorded time into account and there can in my view be no issue with his conclusion that the pre-hearing costs, in particular, were out of proportion with the dispute. It is recognised, as Mr Morrison said, that StockCo needed to spend considerable time dealing with Big Basin’s allegations in response, even if they were regarded as being untenable. But proportionality was required nonetheless.

[53]      Harrison J’s comments in Bradbury v Westpac Banking Corporation are directly on point.10 Drawing on the Judge’s words, it can be said that StockCo’s fees

10     Bradbury v Westpac Banking Corporation (2008) 18 PRNZ 859 at [205].

are of a magnitude which an objective observer would not have expected for this litigation, however egregious Big Basin’s conduct may have been. It is not an observation that is intended as a criticism; StockCo is entitled to incur whatever level of legal costs it considers appropriate. But, standing back and adopting an overview it cannot be said that the arbitrator’s conclusions about the proportionality of StockCo’s fees, and the adjustments he made to the award of costs as a result, are unreasonable.

[54]      In a related way, it can fairly be said, as the arbitrator did, that the approach to the proceeding all round, including costs incurred, lost proportion against the true nature of the dispute.

Outcome

[55]      In the circumstances, the arbitrator’s decision cannot be said to have been unreasonable. StockCo’s application under cl 6(3) of sch 2 to the Arbitration Act is declined.

[56]      Big Basin is entitled to its costs on this application which should be calculated on a 2B basis. There is in my view no case for an approach to costs otherwise than in accordance with the High Court scale – without uplift or reduction – and it is expected that costs should on that basis be able to be agreed. However, in the event that any issue arises, memoranda – which are to be no longer than three pages in length including any schedules – may be exchanged; by the respondent 10 working days after the date of this decision and by StockCo 15 working days after the date of this decision. If memoranda need to be filed, they will be considered on the papers.

Radich J

Solicitors:

Parry Field, Christchurch for Applicant Morrison Partners, Auckland for Respondent