Swenson v Lawton

[2023] NZHC 687

IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY

I TE KŌTI MATUA O AOTEAROA TE PAPAIOEA ROHE

CIV-2021-454-10

[2023] NZHC 687

IN THE MATTER

of the Estate of Trudy Anne Lawton

UNDER

the enforcement of a section 21A Property (Relationships) Act 1976 agreement

BETWEEN

KAREN SWENSON AND

ANTHONY HARVEY SWENSON
Plaintiffs

AND

GRANT MATTHEW LAWTON

Defendant

CIV-2021-454-35

IN THE MATTER

of the Estate of Trudy Anne Lawton

UNDER

the Family Protection Act 1955

BETWEEN

GRANT MATTHEW LAWTON

Plaintiff

AND

KAREN IVY SWENSON AND ANTHONY HARVEY SWENSON

Defendants

CIV-2021-454-42

IN THE MATTER

of the Estate of Trudy Anne Lawton

UNDER

the Property (Relationships) Act 1976

BETWEEN

GRANT MATTHEW LAWTON

Plaintiff

AND

KAREN IVY SWENSON AND ANTHONY HARVEY SWENSON

Defendants

SWENSON v LAWTON [2023] NZHC 687 [30 March 2023]

Hearing:	On the Papers
Counsel:	G P Mason for Mr and Mrs Swenson G A Paine for Mr Lawton
Judgment:	30 March 2023

JUDGMENT OF ISAC J

[Costs]

Introduction

[1]    This proceeding (really a combination of three related proceedings) concerned the estate of the Ms Trudy Lawton. At its centre was a relationship property agreement between Trudy and Mr Grant Lawton under which Grant had promised to pay to Trudy’s estate half of the proceeds of her life insurance  policy. When Trudy died,  Mr Lawton refused to pay Trudy’s share of the insurance proceeds to the executors, Mr and Mrs Swenson. As a result, they applied to the Court to enforce the agreement. In response, Mr Lawton sought to have the agreement set aside. In addition, he sought maintenance from Trudy’s estate under the Family Protection Act 1955.

[2]    In a judgment of 19 December 2022, I determined all of the issues in favour of the executors and ordered Mr Lawton to pay half of the insurance proceeds together with interest.1 On the matter of costs, I observed:2

… Mr Lawton would also appear to be liable for the executors’ reasonable solicitor-client costs pursuant to cl 2.15 of the agreement. If costs cannot be settled between the parties, memoranda may be filed and I will determine the issue on the papers.

[3]    The executors now seek solicitor and client costs in the sum of $99,150.14 (including disbursements of $10,109.45).

[4]Mr Paine’s submissions in reply were brief:

Notwithstanding the somewhat  peculiar  wording  in  the  Agreement,  if  Mr Lawton has a liability to make payment of the estate costs, then he requests

1      Swenson v Lawton [2022] NZHC 3544.

2 At [71].

that the accounts be referred to the New Zealand Law Society for a cost revision.

He requests that the court direct that the accounts be forwarded to a cost reviewer nominated by the New Zealand Law Society so that if he has any liability, the amount to be paid will be deemed to be fair and take into account the principles in Chapter 9 of the Lawyers and Conveyancers Act (Lawyers Conduct and Client Care) Rules 2008.

[5]Mr Paine did not otherwise challenge the reasonableness of the costs claimed.

Costs revision

[6]    It is convenient to first deal with Mr Paine’s request that the court order the costs be referred for review. The short answer is that the Court does not have that power.

[7]    In Black v ASB Bank Ltd, the Court of Appeal explained that a liable party seeking a detailed vetting of the reasonableness of costs has three options:3

(a)request that the judge order indemnity costs subject to taxation;

(b)seek agreement to refer the claim to a suitably qualified practitioner to vet its reasonableness; or

(c)refer the costs invoices to the New Zealand Law Society under the complaints procedure in s 132(2) of the Lawyers and Conveyancers Act 2006.

[8]In relation to the third option, s 132(2) provides:

Any person who is chargeable with a bill of costs, whether it has been paid or not, may complain to the appropriate complaints service about the amount of any bill of costs rendered by a practitioner or former practitioner or an incorporated firm or former incorporated firm (being a bill of costs that meets the criteria specified in the rules governing the operation of the Standards Committee that has the function of dealing with the complaint).

3      Black v ASB Bank Ltd [2012] NZCA 384 at [81]–[84]. See Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at [HR14.6.03(3)(e)(iv)].

[9] While the previous legislation—s 146 of the Law Practitioners Act 1982— empowered a court to order that “a bill of costs be referred to the appropriate District Law Society for revision by the District Council”, that legislation has been repealed and replaced by the Lawyers and Conveyancers Act.4 The current regime treats complaints about bills of costs as complaints about a lawyer’s conduct. It does not contain a corresponding provision to s 146 in the previous Act.5 And on its plain terms, s 132(2) limits the class of person who can seek a review to “any person who is chargeable with a bill of costs”.

[10]It follows that I am unable to refer the costs claimed for review as sought.

[11]I now turn to consider the claim for indemnity costs.

Legal principles and the issues

[12]   The court may order a party to pay indemnity costs if they are entitled to them under a contract.6 Whether such an entitlement arises is a matter of contractual interpretation.7 The entitlement must be “plainly and unambiguously expressed”.8

[13]   An order for indemnity costs is limited to the costs and disbursements that are actually and reasonably incurred by a party.9 The leading authority on the reasonableness of indemnity costs claimed under a contract is the Court of Appeal’s decision in Black v ASB Bank Ltd.10 The position is distinctly different from orders under either of r 14.6(4)(a) or (b), which concern indemnity costs imposed for a party’s bad behaviour. The word “reasonable” in r 14.6(1)(b) does not import a discretion in the usual sense—the principle that a party may contractually bind itself to pay

4      At [84]–[87].

5      In Emery v Thorn [2019] NZHC 278 at [7], the party opposing costs recognised this difficulty and sought the opportunity to make a referral under the complaints procedure in the Act. Woolford J preferred to decide the matter on the papers and avoid further costs and delays.

6      High Court Rules 2016, r 14.6(4)(e).

7      Synlait Milk Ltd v New Zealand Industrial Park Ltd [2020] NZSC 157, [2020] 1 NZLR 657 at [192].

8      Newfoundworld Site 2 (Hotel) Ltd v Air New Zealand Ltd [2018] NZCA 261, [2018] NZCCLR 22 at [84], citing Re Adelphi Hotel (Brighton) Ltd [1953] 1 WLR 955 at 961 (Ch).

9      High Court Rules, r 14.6(1)(b).

10 Black v ASB Bank Ltd, above n 3, at [77]—[99]. A summary of the principles, as endorsed in Regan v Brougham [2020] NZCA 173 at [14], can be found in McGechan on Procedure, above n 3, at [HR14.6.03(3)(e)].

another’s full solicitor-client costs is firmly established.11 Finally, the time and other pressures on judges and associate judges leave “room for robust judgment as to the costs considered reasonable in all the circumstances”.12

[14]It follows that there are two issues:

(a)Does the agreement provide a right to recover indemnity costs?

(b)If it does, are the costs claimed by the executors reasonable?

Is there a contractual entitlement to indemnity costs?

[15]   In this case, the executors rely on cl 2.15 of the agreement. That clause provides:

In the event that Grant fails to maintain his obligations as set out in this Agreement … then the consequential financial cost arising from such failure shall be recoverable as a debt from Grant by Trudy or by the Executors of her Estate.

(emphasis added)

[16]   While Mr Paine described the wording of the clause as “somewhat peculiar” and appeared to doubt whether it imposes liability on Mr Lawton to the estate, I consider the clause clearly confers on the executors a right to indemnity costs. In essence, Grant’s primary obligations under the agreement were the payment of three lump sums to Trudy (or her estate) at various times:13

(a)$160,000 on settlement of the agreement;

(b)$116,500 of his superannuation when he became eligible for it; and

11     ANZ Banking Group (NZ) Ltd v Gibson [1986] 1 NZLR 556(CA). As the Court of Appeal noted in Beecher v Mills [1993] MCLR 19 (CA), “anything less than a full indemnity for costs properly incurred must leave the indemnitee with part of the liability for which the indemnifier is prima facie responsible. In the absence of a contrary indication it is not to be assumed that the parties intended such a result”.

12 Frater Williams & Co Ltd v Australian Guarantee Corp (NZ) Ltd (1994) 2 NZ ConvC 191,873 (CA) at 191,887.

13 Swenson v Lawton, above n 1, at [13], [14] and [16].

(c)half of the proceeds of Trudy’s life insurance (being $215,600) when he received it.

[17]   These payments were required to give effect to the agreement and complete the division of the couple’s relationship property. Given her health issues, high care needs and short life expectancy, Trudy was particularly vulnerable to non-payment of the agreed sums. It is therefore unsurprising that the drafters included machinery in the agreement directed to ensuring Grant upheld his end of the bargain. Having regard to the structure and context of the agreement, the clear purpose of cl 2.15 was to incentivise the prompt observance by Grant of his payment obligations and, in the event of a breach, to ensure that Trudy or her estate would not bear the financial burden of enforcing her rights.

[18]   In light of this, I consider that a reasonable person would understand the plain and natural meaning of the words “consequential financial cost” to include all financial costs incurred in enforcing Grant’s obligations under the agreement when he was in breach of them. This would include the actual solicitor costs of pursuing the obligation. Nothing in the language, context or purpose of the agreement requires the words to be limited in any other way.

[19]   Had Grant wished to challenge the relationship property agreement but not expose himself to indemnity costs, he could have paid the insurance proceeds as required to the estate and then challenged the agreement. His decision to proceed with a self-help remedy first had the consequences that the agreement was designed to address.

Were the costs incurred by the executors reasonable?

[20]   The next issue is whether the costs claimed by the executors were reasonable. As the Court of Appeal observed in Regan v Brougham, assessing the reasonableness of indemnity costs claimed under a contract requires the Court to consider two things:14

14     Regan v Brougham, above n 10, at [12].

(a)whether the tasks undertaken were reasonably necessary; and thus within the contractual indemnity; and

(b)whether the costs claimed for undertaking those tasks were reasonable, both in terms of the hours expended and the hourly charge rate(s).

[21]   The first question then is whether the costs incurred were within the terms of the contractual indemnity. As noted, this proceeding is comprised of three separate proceedings consolidated into one:

(a)an application by the executors to enforce the agreement;

(b)an application by Mr Lawton to have the agreement set aside under    s 21J of the Property (Relationships) Act 1976; and

(c)a claim by Mr Lawton under the Family Protection Act.

[22]   Clause 2.15 indemnifies the executors  for  financial  costs  “arising  from” Mr Lawton’s failure to maintain his obligations under the agreement. It therefore covers the costs incurred by the executors enforcing Mr Lawton’s obligation. However, the same cannot be said for the costs incurred in relation to Grant’s proceedings challenging the agreement and seeking maintenance from Trudy’s estate. While they relate to the agreement, neither arises from a breach of it by Mr Lawton. That is not to say the executors acted unreasonably in defending those applications, but simply that the indemnity does not respond to those steps.

[23]   Accordingly, the executors are entitled to indemnity costs in relation to the first proceeding, and scale costs in relation to the second and third proceedings. Given the intermingled nature of the three proceedings, I am currently unable to determine which costs are subject to the indemnity and which are not and, therefore, whether the costs claimed are reasonable. I would observe, however, that both the hourly rate and the total costs charged to the estate seem to me to be entirely reasonable. I note also that the executors took on the responsibility of preparing the electronic bundle at short notice.

[24]   I therefore direct the parties to endeavour to resolve the question of costs based on the conclusions in this judgment within 20 working days of the date of this judgment. In the event that they are unable to do so, leave to apply is reserved. Should it become necessary to apply for further orders, I may also be inclined to award costs in relation to fixing costs.

Conclusion and result

[25]Mr Lawton is liable to pay to the executors:

(a)the executors’ reasonable solicitor-client costs incurred in enforcing Mr Lawton’s obligations under the agreement (CIV-2021-454-10);

(b)scale costs on a 2B basis in relation to the other two proceedings (CIV-2021-454-35 and CIV-2021-454-42); and

(c)the executors’ reasonable disbursements as fixed by the Registrar.

[26]Leave to apply is reserved.

Isac J

Solicitors

Paul Lyall Barrister & Solicitor, Palmerston North for Executors