Sullivan v Wellsford Properties Ltd

[2018] NZHC 129

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

I TE KŌTI MATUA O AOTEAROA WHANGANUI ROHE

CIV-2016-488-35

[2018] NZHC 129

BETWEEN

PETER ANTHONY SULLIVAN

First Plaintiff

PORT ALBERT INVESTMENTS LIMITED
Second Plaintiff

AND

WELLSFORD PROPERTIES LIMITED

First Defendant

GARRY EDWARD HANNAM
Second Defendant

SUMPTER BAUGHEN CHARTERED ACCOUNTANTS LIMITED (DISCONTINUED)

Third Defendant

Hearing:	On the papers
Counsel:	P J Dale and A J Steel for the Plaintiffs J Golightly for the Defendants
Judgment:	14 February 2018

JUDGMENT OF GORDON J

[As to costs]

This judgment was delivered by me

on 14 February 2018 at 10 am, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Solicitors:           Stafford Klaassen, Auckland

Marsden Woods Inskip & Smith, Whangarei

Counsel:            P J Dale, Auckland

SULLIVAN v WELLSFORD PROPERTIES LTD [2018] NZHC 129 [14 February 2018]

Introduction

[1]                 In my reserved judgment dated 8 December 2017,1 I determined that the plaintiffs failed entirely in their claims against the first and second defendants2 which arose out of a purchase by the second plaintiff of a multi-tenanted commercial property from the first defendant.

[2]I indicated in the judgment that:

[225] My present view is that the defendants as the successful parties are entitled to costs and that costs should be on a category 2B basis. However, a final determination of costs is reserved in the event the parties are not able to agree …

[3]The parties were not able to agree and separate memoranda have been filed.

Respective positions

Defendants’ position

[4]The defendants submit that:

(a)Category 2 applies.

(b)Band C should apply to step 30 (defendants’ preparation of briefs) and step 33 (preparation for hearing).

(c)Otherwise band B should apply, including to a Request to Plaintiffs for Further and Better Particulars dated 15 March 2017 (1 day) and Answer to Plaintiffs’ Request for Further Particulars  dated  28  March  2017 (1 day), under step 36 by analogy with steps 16 and 18.3

(d)Second counsel should be certified.

1      Sullivan v Wellsford Properties Ltd [2017] NZHC 3047.

2      I will use the term ‘the defendants’ to refer to the first and second defendants. As is apparent from the entituling, the plaintiffs’ claim against the third defendant was discontinued (following settlement).

3      See Weaver v HML Nominees Ltd [2016] NZHC 473 at [51].

(e)An uplift from scale of 50 per cent is appropriate on the basis of a Calderbank offer made to the plaintiffs on 16 December 2016.

[5]                 A total sum of $145,877.55 is sought, being costs of $117,298 and disbursements of $28,579.55 as set out in the defendants’ schedule of costs annexed as Annexure A to this judgment.

Plaintiffs’ position

[6]                 The plaintiffs are largely in agreement in relation to the steps on which costs should be allowed to the defendants. However, the plaintiffs oppose the following:

(a)The time allocations claimed for items 10, 11 and 32, submitting that there are errors in the claims.

(b)Band C time allocations for step 30 (defendants’ preparation of briefs) and step 33 (preparation for hearing). It is submitted that band B should apply to all steps.

(c)Certification for second counsel.

(d)The claim for increased costs on the basis of the defendants’ Calderbank offer.

[7]                 The plaintiffs say that the appropriate sum for costs is $64,893 as set out in the plaintiffs’ schedule of costs, which is Annexure B to this judgment.

[8]                 The plaintiffs also oppose the defendants’ claim of $26,350 for expert witness expenses as set out in Annexure A and submit that a reduction of 50 per cent is appropriate so that only $13,175 of Mr Dean’s fee should be awarded as a disbursement.

[9]                 Lastly, the plaintiffs make a submission in relation to the GST component of filing fees.

Categorisation and banding

[10]              In a memorandum for a pre-trial conference dated 2 December 2016, the defendants submitted that “[t]his is a costs 2B matter”. However, it appears that the proceeding was not categorised in the 5 December 2016 conference, nor at any other conferences that followed. Both the plaintiffs and defendants now submit that category 2 is appropriate. I agree. The proceeding is categorised accordingly.

[11]              The parties also agree that band B is appropriate (subject to the plaintiffs’ submission in relation to band C for two steps).

[12]              I also consider that band B is appropriate, subject to my consideration of band C for steps 30 and 33 as set out later in this judgment.

Costs by analogy

[13]              In relation to the claim referred to in [4](c) above, I agree with the statement by Katz J in Weaver v HML Nominees Ltd:4

[51] The rules envisage, however, that some “steps” in the proceeding may not be covered by Schedule 3. In such circumstances rule 14.5(1)(b) provides for the Court to make an allowance for such costs by analogy with Schedule

3. In my view a request for further and better particulars is a “step” in the proceeding that should attract a costs allocation by analogy. I accept the defendants' submission that the appropriate analogy is step 16 in Schedule 3 (notice to answer interrogatories).

[14]The plaintiffs do not take issue with this claim. It is allowed.

[15]I now address the matters in dispute.

Time allocations (items 10, 11 and 32)

[16]              I accept the plaintiffs’ submission that under band B the entitlement for item 10 (preparation for first case management conference (including discussion about discovery)) is 0.4 days, not 0.6 days as claimed by the defendants. The entitlement is therefore $892, not $1,338.

4      Weaver v HML Nominees Ltd, above n 3.

[17]              Under item 11 (filing memoranda for first or subsequent case management conference or mentions hearing), the defendants claim 1.2 hours for preparation of memoranda on 17 June 2016, 29 July 2016 and 5 December 2016. The plaintiffs submit that they prepared the 29 July 2016 memorandum, which is a consent memorandum, in relation to timetable orders. From my examination of the file, the plaintiffs’ submission appears to be correct. The entitlement is therefore 0.8 days being a sum of $1,784, rather than 1.2 days being a sum of $2,676 as claimed.

[18]              The defendants also claim 2.5 days for item 32 (preparation of common bundle). The plaintiffs correctly submit that the allowance is two days for a defendant. The entitlement is therefore $4,460, and not $5,575 as claimed.

Claim for band C for step 30 (preparation of briefs) and step 33 (preparation for hearing)

Step 30 (preparation of briefs)

[19]              The defendants submit that in order to form his opinion, the expert valuer called by the defendants, Mr Nigel Dean, was reasonably provided with information regarding the matters at issue in the proceedings, namely operating expenses terms of 20 relevant leases with a particular focus on the uncertainties in the Caltex leases, extinguishment of the McDonalds’ cap and changes in the physical layout of the premises. Mrs Golightly for the defendants submits that the time required by counsel to brief Mr Dean was comparatively large, namely 23.5 hours.

[20]              Mrs Golightly also says that counsel was required to brief the second defendant, Mr Hannam, who is the sole director and shareholder of the first defendant, and Mr Lea, one of the shareholders of the first defendant. She also says that counsel contributed to the briefing of Ms Foon, an employee of Sumpter Baughen, who are the accountants for the first defendant. Mrs Golightly submits that the actual time to brief witnesses significantly exceeded even band C allocation.

[21]              Dealing first with the briefing of Mr Dean, I accept the plaintiffs’ submission that, as an experienced and senior expert,5 Mr Dean can reasonably have been expected

5      Having an hourly rate of $500 plus GST (recorded in supporting invoices from Mr Dean).

to largely prepare his own evidence with limited input required from counsel. I also accept the plaintiffs’ submission that part of Mr Dean’s brief related to his interpretation of the leases at issue, which in the end was not of any particular assistance to the Court.

[22]              As to the remaining witnesses, their briefs were essentially factual and did not involve technical evidence which might warrant a band C allocation. In my view, band B should be applied to step 30.

[23]              The defendants are therefore entitled to 2.5 days ($5,575) rather than the five days ($11,150) claimed for this step.

Step 33 (preparation for hearing)

[24]              Mrs Golightly submits that a comparatively large amount of time for this particular step was reasonable, due to the length of the trial and because the defendants were required to address four diverse and multi-headed causes of action, on behalf of two separate defendants.

[25]              I agree with Mr Dale for the plaintiffs that the complexity of a proceeding is a question of costs categorisation, rather than banding. Further, although the plaintiffs pleaded four causes of action, they all related to the same underlying factual allegations. In my view, band B should also be applied to this step.

[26]              The defendants are therefore entitled to three days ($6,690) rather than the five days ($11,150) as claimed.

Conclusion

[27]Band B therefore applies to all steps.

Certification for second counsel

[28]              Mrs Golightly notes that both plaintiffs and the defendants were represented at the hearing by two counsel. She submits that this was appropriate for the defendants given the nature of the proceeding and its legal and factual complexity. The plaintiffs

advanced four multi-headed causes of action against two separate defendants which required intense focus upon a number of matters, including complex leases. She submits it was not clear from the pleadings, or from Mr Dale’s written opening synopsis, that the plaintiffs’ main focus was to become cl 18 of the sale and purchase agreement. She submits that this change of focus and the diverse legal issues raised by the plaintiffs before and during the hearing required the assistance of second counsel.

[29]              In opposing certification for second counsel, Mr Dale submits that there was nothing in the nature of this proceeding which justifies such certification. He refers to Nomoi Holdings Ltd v Elders Pastoral Holdings Ltd,6 where Chambers J noted that the primary consideration is whether the nature of the proceeding, or the way the trial was conducted, justifies the losing party having to contribute to junior counsel’s cost.7 Chambers J stated that:

[21] … This case was conducted in the modern way. All evidence-in-chief was given by way of either affidavit or written statement exchanged beforehand. Each side’s legal argument was known in advance to the other side …

[30]              Mr Dale submits that the present proceeding was no different and while senior counsel for the defendants may have been assisted by junior counsel at the hearing, that does not justify the plaintiffs having to meet the cost. Mr Dale submits that the defendants were aware of the nature of the plaintiffs’ claims well in advance of the hearing and they were fully pleaded so that extensive legal research during the trial is unlikely to have been required.

[31]              I accept  Mr  Dale’s  submissions.  The  amended  statement  of  claim  dated 7 February 2017 clearly pleads breach of contract in reliance on cl 18.0 of the sale and purchase agreement. The fact that Mr Dale placed most reliance on this part of the plaintiffs’ claim at the hearing does not change matters, in my view. It was clearly part of the plaintiffs’ case as pleaded and was responded to by the defendants in their statement of defence dated 6 March 2017.

6      Nomoi Holdings Ltd v Elders Pastoral Holdings Ltd (2001) 15 PRNZ 155 (HC).

7 At [21].

[32]I therefore do not certify the defendants’ second counsel.

Increased costs: Calderbank offer

[33]              Relying upon r 14.6(3)(b)(v) of the High Court Rules, the defendants seek a 50 per cent uplift from scale on the basis of a Calderbank offer to the plaintiffs on  16 December 2016, made in full and final settlement. The offer lapsed on 27 January 2017.

[34]              The defendants assessed the value of the offer as at that date as $20,739 on the basis that scheduled costs or steps taken in the proceedings to that date would lie where they fell. This included unpaid costs of $4,906 agreed to be payable by the second plaintiff to the first defendant following settlement and discontinuance of the first defendant’s counterclaim.

[35]              Mrs Golightly submits that discovery by the defendants was complete by the date the offer was made and the plaintiffs also had the benefit of the affidavits of the second defendant and Ms Foon, as well as their own affidavits which had been filed in support of the plaintiffs’ summary judgment application (later withdrawn).

[36]              Mrs Golightly submits that the plaintiffs unreasonably failed to engage with the defendants about compromising their claim.

[37]              Mrs Golightly finally submits that while the defendants accept that the offer was low compared to the plaintiffs’ claim, the plaintiffs did not quantify their loss until they filed their amended statement of claim of 7 February 2017 (the loss was quantified as $428,337.43 together with other categories of costs). She submits the offer reflected the reasonable risk that the plaintiffs would fail to achieve judgment.

[38]              Under r 14.6(3)(b)(v), the reasonableness of a party’s rejection of an offer must be assessed at the time the offer was made and declined, not against the subsequent result. However, the rule does not provide a basis for awarding increased costs where a party does not engage with a Calderbank offer, as submitted by the defendants. Reasonableness will depend on the size and timing of the offer, the reasonable

expectations of the party refusing the offer and on the party’s ability, at the time of the offer, to assess the merits of the case.8

[39]              I accept that the plaintiffs had the ability, at the time of the offer, to assess the merits of the case. However, as regards quantum, the defendants were obviously aware that the plaintiffs’ claim, having been filed in the High Court, would exceed

$200,000.    I accept the plaintiffs’ submission that the offer provided no realistic incentive to settle.

[40]              In Craike v Tilsley, Asher J declined to order increased costs on the claimed basis that the defendants had made a detailed Calderbank offer, holding as follows:9

[6] The Calderbank offer came down in essence to an elaboration of the statement of defence with the weaknesses in the plaintiffs’ case being articulated, accompanied by an offer of $20,000. The $20,000 offer in the order of things was never going to be accepted unless the plaintiffs were prepared to give up. Successful defendants who in letter form record their defences and invite a settlement should not necessarily be in a stronger position than any other defendant who takes the same position without sending a letter.

[41]              The  same  applies  equally  here.     The letter simply elaborated upon the defendants’ defences.

[42]As the Court of Appeal noted in Worldwide NZ LLC v QPAM Ltd:10

[28] … In virtually every case, lawyers for each party will set out in letters their contentions as to the legal position. On the law of averages, half the time the position advocated in such letters will accord roughly with what a court ultimately decides. But that does not mean that a party who has sent such a letter is entitled to increase costs from the date of its prescient letter …

[43]Accordingly, I do not award increased costs.

8      Andrew Beck and others McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR14.6.02(2)(a)(iii)].

9      Craike v Tilsley [2012] NZHC 2886.

10     Worldwide NZ LLC v QPAM Ltd [2009] NZCA 226.

Disbursements

Witness expenses (valuer, Nigel Dean)

[44]              The defendants support their claim for witness  expenses for expert valuer  Mr Dean in the sum of $26,350 by reference to three invoices dated 27 July 2017 ($14,350), 28 August 2017 ($5,000) and 1 November 2017 ($7,000), copies of which are attached the defendants’ memorandum. The plaintiffs oppose the full amount of the claim on the basis that the amount sought is not reasonable.11 Mr Dale submits that based on Mr Dean’s stated hourly rate of $500 plus GST, the claim appears to be for over 52 hours for Mr Dean to prepare and deliver his evidence. Mr Dale submits that as no time sheets or narrations for Mr Dean’s attendances have been provided, without further justification of the steps taken by Mr Dean, the amount claimed is excessive.

[45]              Mr Dale submits that a reduction of 50 per cent is appropriate so that the amount of $13,175 should be awarded as a disbursement.

[46]              The narration in each of the three accounts is very brief. The first invoice of 27 July 2017 records:

Inspection of property, analysis of multiple leases and documents, analysis of operating expenses, valuation and briefs of evidence. Services to 30 June 2017.

[47]The fee calculation records that it is half of the fee in the sum of $14,350.

[48]The narration in the 28 August 2017 invoice is:

To further professional services post 30/06/2017, including review of brief of evidence, and analysis of Telfer Young report.

[49]              The fee calculation detail records 20 hours at $500, namely $10,000. But the claim is for a half share of $5,000.

[50]The third account, dated 1 November 2017, has the narration:

11     See High Court Rules, r 14.12(2)(d).

To [prepare] for court hearing, travel to Whangarei and appearance at High Court.

[51]              The fee calculation is stated as 14 hours at $500, namely $7,000. The full amount of $7,000 is invoiced. There is no 50 per cent apportionment as is the case with the first two invoices. There is no explanation by the defendants for the 50 per cent apportionment in the first two invoices.

[52]              In Auckland Waterfront Development Agency Ltd v Mobil Oil New Zealand Ltd,12 Katz J considered whether the expert disbursements were both reasonably necessary for the conduct of the proceeding and reasonable in amount. As Katz J stated, it is “often necessary in a costs context to take a pragmatic approach to ensure that justice is done between the parties”.13 In that case, Katz J reduced the claim by 30 per cent to account for inefficiencies, duplication, charge out rates that were at the high end of industry norms or unjustified uplifts (including attendances charged  at 50 per cent above normal rates).14 Katz J concluded that while 30 per cent might be on the high side, it was appropriate to err on the side of caution as the claimant carries the burden of proving the reasonableness of its expert disbursements on the balance of probabilities.15

[53]              I adopt a similar approach here. As stated in [21] above, part of Mr Dean’s brief related to his interpretation of the leases involved, which in the end was not of particular assistance. The narrations in the accounts also do not assist me to assess reasonableness. I therefore reduce the claim by 20 per cent.

[54]              Applying a 20 per cent reduction, I award $21,080 in respect of the expert witness disbursements for Mr Dean.

12     Auckland Waterfront Development Agency Ltd v Mobil Oil New Zealand Ltd [2015] NZHC 470.

13 At [53].

14 At [54].

15 At [54].

Filing fees

[55]              Mr Dale also submits that the filing fees claimed by the defendants as disbursements were paid pursuant to the High Court Fees Regulations 2013. More specifically, they were items 12, 13 and 14 of the Schedule to the Regulations.

[56]              The defendants, on the other hand, submit that filing fees are GST neutral and no notional deduction for GST should be made in costs awards. This is incorrect.

[57]              Regulation 24 of the High Court Fees Regulations provides that the fees fixed by the Regulations are GST inclusive. The invoices provided by the High Court on receipt of the filing fee include GST amounts. As the first defendant is GST registered, and will be entitled to an input tax credit for the GST component of these disbursements, a reduction of $204.78 is therefore appropriate.

[58]Applying that reduction, I award $1,365.22 in respect of the filing fees.

Conclusion

[59]The plaintiffs are entitled to costs of $64,893.00 and disbursements of

$23,104.77 totalling $87,997.97 as set out in Annexure C to this judgment.

[60]I make an order accordingly.

Gordon J

Annexure C

Item	Description	Daily Rate	Number of Days	Total
2	Commencement of defence	$2,230.00	2	$4,460.00
10	Preparation for first case management conference	$2,230.00	0.4	$892.00
11	Filing memoranda for first or subsequent case management conference (17 June 2016 and 5 December 2016)	$2,230.00	0.8	$1,784.00
13	Appearance at first case management conference (5 December 2016)	$2,230.00	0.3	$669.00
20	List of documents on discovery	$2,230.00	2.5	$5,575.00
21	Inspection of documents	$2,230.00	1.5	$3,345.00
23	Filing opposition to application for summary judgment	$2,230.00	0.6	$1,338.00
Agreed costs following discontinuance of first defendant’s counterclaim against second plaintiff	$4,906.00
9	Pleading in response to amended statement of claim	$2,230.00	0.6	$1,338.00
11	Filing memorandum for subsequent case management conference (13 March 2017)	$2,230.00	0.4	$892.00
13	Case management telephone conference (14 March 2017)	$2,230.00	0.3	$669.00
30	Preparation of briefs	$2,230.00	2.5	$5,575.00
32	Preparation of common bundle	$2,230.00	2	$4,460.00
33	Preparation for hearing	$2,230.00	3	$6,690.00
34	Appearance at hearing for principal counsel	$2,230.00	8	$17,840.00
36	By analogy to step 16: Request for further and better particulars (15 March 2017)	$2,230.00	1	$2,230.00
36	By analogy to step 18: Answering plaintiffs’ request for further particulars (28 March 2017)	$2,230.00	1	$2,230.00
Total costs	$64,893.00
Disbursements
Ministry of Justice Filing Fees	$1,365.22
Witness expenses	$21,080.00
Office expenses	$659.55
Total disbursements	$23,104.77
Grand total	$87,997.77