Tadd Management Limited v Weine
[2023] NZHC 1968
•26 July 2023
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2019-485-781
[2023] NZHC 1968
UNDER sections 24–30 and 35 of the Contract and Commercial Law Act 2017 IN THE MATTER OF
the property at 134 Queens Drive, Lower Hutt
BETWEEN
TADD MANAGEMENT LIMITED
Plaintiff
AND
RUTH RENTON WEINE and MICHAEL
DAVID HOFFMAN-BODY as trustees of the Ruth Weine Family Trust
DefendantsAND
NEW ZEALAND CONSULTING ENGINEERS LIMITED
Third Party
On the Papers Counsel:
F Collins and J Perry for the Plaintiff
R J Fowler KC, M Wolff and H Dempsey for the Defendants
Judgment:
26 July 2023
COSTS JUDGMENT OF GWYN J
Solicitors:
Gibson Sheat Lawyers, Wellington Morrison Kent, Wellington
TADD MANAGEMENT LIMITED v [2023] NZHC 1968 [26 July 2023]
Introduction
[1] In this proceeding the plaintiff, as purchaser of a commercial building, brought proceedings for contractual misrepresentation and, in the alternative, common mistake, against the vendors of the building. The claims related to the earthquake rating of the building. The defendant vendors had provided an Initial Seismic Assessment (ISA) of the building to potential purchasers which assessed the building as having a 60%NBS (New Building Standard) rating.1
Judgment
[2] On 5 April 2023 I issued a judgment finding the defendants liable to the plaintiff for contractual misrepresentation and, in the alternative, common mistake.2 I ordered the defendants to pay the plaintiff $592,000, the difference in value between the property as represented and the actual value of the property, together with ancillary costs.
[3]I dismissed the defendants’ claims against the third party.
Costs
[4]The parties have been unable to agree costs. The plaintiff seeks costs of
$97,780.87, being a 50 per cent uplift on category 2B scale costs, together with actual disbursements.
[5] The defendants oppose the application for increased costs and also dispute specific items of costs sought by the plaintiff.
Plaintiff ’s submissions
[6] The plaintiff seeks increased costs under r 14.6(3)(b) of the High Court Rules 2016 (Rules). It submits that a 50 per cent uplift on scale costs from the time the proceeding was initially filed is appropriate.
1 An earthquake risk building is less than 67%NBS; an earthquake prone building is less than 34%NBS: see New Zealand Society for Earthquake Engineering Assessment and Improvement of the Structural Performance of Buildings in Earthquakes (June 2006).
2 TADD Management Ltd v Weine [2023] NZHC 764, (2023) 24 NZCPR 1 [judgment].
[7] The plaintiff says that the defendants throughout the proceeding advanced an argument that lacked merit.3 In particular, the plaintiff says the defendants argued that TADD and its directors should have obtained its own Detailed Seismic Assessment (DSA) of the building prior to purchase.
[8] The judgment found that the timeframe for sale of the property “meant potential purchasers were prevented from making anything other than limited inquiries into the seismic condition of the building.”4 The plaintiff says it is a matter of common sense that the defendants’ argument on this point should never have been pursued.
[9] The plaintiff obtained two DSAs after it had bought the building. The first of those DSAs assessed the building as having an NBS rating of 10%; the second assessed it at 30%NBS. That is, both assessed the building as earthquake prone.
[10] The defendants took issue with the NBS ratings in the plaintiff’s DSAs provided by the plaintiff, leading engineering evidence to the effect that the building was not in fact earthquake prone and the DSAs were flawed.5 The plaintiff says that evidence was based only on a retrospective ISA carried out by the defendants’ expert, who assessed the rating at 43%NBS. The plaintiff says this evidence ignored the fact that the two DSAs obtained after purchase by the plaintiff set out in some detail the reasons for the earthquake prone rating. Further, the ISA was still significantly lower than the 60%NBS represented by the defendants in the marketing materials for the property, and in any event makes the property an earthquake risk.
[11] The plaintiff says that in order to support their contention that the building was not earthquake prone, the defendants ought to have produced their own DSA. There was no prospect of success in persuading the Court that the building was not earthquake prone on the basis of the evidence that the defendants did produce. Making this argument increased TADD’s costs unnecessarily.
3 High Court Rules 2016 [Rules], r 14.6(3)(b)(ii).
4 Judgment, above n 2, at [90] and [193].
5 At [108(b)].
[12] The plaintiff also says that it is entitled to increased costs due to the defendants’ conduct in relation to settlement.6 The defendants made no settlement offers until less than two weeks before trial, at which point they made a Calderbank offer of $20,000. The defendants failed to acknowledge they had any level of risk in the proceeding and did not engage in any meaningful effort to resolve the proceeding.
Defendants’ submissions
[13] The defendants submit that a departure from scale costs is not justified in this case, it not being a compelling case where cause is shown to depart from the usual position.
[14] The fact that a losing party’s case may necessarily contain some flaws does not of itself render the case “hopeless”.7 The defendants submit that the failure of a case, even by a considerable margin, does not warrant awarding increased costs as a matter of course. Even where a court rejects a claim or defence as “clearly unmeritorious” it will award scale costs except in unusual circumstances.8
[15] Similarly, in Billington v Morton,9 the High Court noted that an uplift would be appropriate in circumstances where a substantial failure occurs as a result of an unmeritorious legal position. The Court noted that arguments which are properly argued, but nevertheless are unsuccessful, do not fall into this category.
[16] While r 14.6(3)(d) provides a residual category for increased costs (“some other reason”) this provision is reserved for specific circumstances occurring in the particular proceedings.10 Increased costs are awarded to reflect unreasonable conduct at and in relation to the trial, but are not to be used as a penalty.11
6 Rules, r 14.6(3)(d).
7 Banks v Farmer [2022] NZHC 458 at [29].
8 Diagnostic Medlab Ltd v Auckland District Health Board HC Auckland CIV-2006-404-4724, 23 October 2009 at [23] and [25].
9 Billington v Morton [2018] NZHC 2530 at [59].
10 Willburn Furniture and Restorations Ltd (in liq) v Gledhill [2016] NZHC 549 at [7], citing
Tamihere v Mediaworks Radio Ltd [2015] NZHC 268 at [6].
11 Wilding v Te Mania Livestock Ltd [2018] NZHC 1506 at [176].
[17] In relation to settlement, the defendants say increased costs are inappropriate and would deter defendants from strongly defending their case. In any event, they say “conduct in relation to the settlement” is not a specific circumstance contemplated by r 14.6(3)(d).
Relevant legal principles
[18] The starting point in any costs decision is r 14.1 of the Rules which confirms that all matters relating to costs are at the Court’s discretion. The discretion vested by r 14.1 is wide, but must be exercised subject to the general principles in r 14.2 and the remaining costs provisions.
[19] Rule 14.6 provides for when increased or indemnity costs may be ordered and includes:
14.6 Increased costs and indemnity costs
(1) Despite rules 14.2 to 14.5, the court may make an order—
…
(b) that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party (indemnity costs).
…
(4)The court may order a party to pay indemnity costs if—
(a)the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or
…
(f) some other reason exists which justifies the court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious.
[20]The leading authority on indemnity costs is the Court of Appeal’s decision in
Bradbury v Westpac Banking Corp.12 The Court noted:13
(a)standard scale applies by default where cause is not shown to depart from it;
12 Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400.
13 At [27].
(b)increased costs may be ordered where there is failure by the paying party to act reasonably; and
(c)indemnity costs may be ordered where that party has behaved either badly or very unreasonably.
[21] While recognising that the categories in respect of which the discretion to order indemnity costs were not closed, the Court in Bradbury did identify a number of circumstances where indemnity costs have been ordered:14
(a)the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud;
(b)particular misconduct that causes loss of time to the Court and to other parties;
(c)commencing or continuing proceedings for some ulterior motive;
(d)doing so in wilful disregard of known facts or clearly established law; and
(e)making allegations which ought never to have been made or unduly prolonging a case by groundless contentions, summarised in French J’s “hopeless case” test.
As regards the “hopeless case” category, the Court of Appeal explained:15
[17] The reference to French J’s “hopeless case” test is to an observation made by French J (now Chief Justice of Australia) in J Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA Branch) (No 2) that indemnity costs may be awarded where “a party persists in what should on proper consideration be seen as a hopeless case”. French J relied on an earlier decision in which Woodward J said that it was appropriate to consider awarding indemnity costs “whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success”. Woodward J
14 At [29].
15 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2014] NZCA 348, (2014) 22 PRNZ 322 at [17] (footnotes omitted).
added that such a case must be presumed to have been commenced or continued for an ulterior motive or because of some wilful disregard of the known facts or the clearly established law. In that case the presumed ulterior motive was to pressure the respondents to settle. The other possibility was that the proceeding was pursued for no good purpose at all, due to inertia and carelessness.
[23] The threshold for awards of increased and indemnity costs is high. The party seeking increased and/or indemnity costs has the onus of persuading the Court that the award is justified.16 It has been stated that indemnity costs tend to be reserved for cases where “truly exceptional circumstances exist”.17
[24] The Court in Ben Nevis went on to note that it is not necessary under this category of conduct justifying indemnity costs that there be flagrant misconduct.18
[25] In Mawhiney v Auckland Council, the Court of Appeal considered, in the context of s 166 of the Senior Courts Act 2016, the threshold concept of proceedings that are “totally without merit”.19 The Court relied on English jurisprudence that equates “totally without merit” with the phrases “bound to fail” or, in other words, “hopeless”.20 As the Court of Appeal said in Thecircle.co.nz Ltd v Trends Publishing International Ltd (in liq and in rec):21
It follows that the conclusion a case is hopeless so as to justify an award of indemnity costs is not one that can be based on fine distinctions or complex reasoning…
Is there a basis for indemnity costs?
Defence lacked merit
[26] The defendants argued at hearing that the plaintiff should have obtained its own DSA. As I found,22 it was not feasible for any prospective purchaser to have done so. While I accept that ought to have been plain to the defendants, given their own
16 Strachan v Denbigh Property Ltd HC Palmerston North CIV-2010-454-232, 3 June 2011 at [27].
17 Hedley v Kiwi Cooperative Dairies Ltd (2002) 16 PRNZ 694 (HC) at [8], cited in Diagnostic Medlab Ltd v Auckland District Health Board, above n 8, at [16].
18 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue, above n 15, at [27].
19 Mawhinney v Auckland Council [2021] NZCA 144, [2021] 3 NZLR 519.
20 At [50]–[53].
21 Thecircle.co.nz Ltd v Trends Publishing International Ltd (in liq and in rec) [2021] NZCA 235, (2021) 25 PRNZ 766 at [34].
22 Judgment, above n 2, at [90] and [193].
evidence about the marketing period and the time it would have taken for them to obtain a DSA from the third party, I am not persuaded that its argument on this point resulted in any significant extension to the evidence or submissions.
[27] The second issue raised by the plaintiff is that the defendants disputed the NBS ratings in the DSAs obtained by the plaintiff, and did so on the basis only of their own ISA, obtained retrospectively from their own expert.
[28] Again, I am not persuaded that it was unreasonable for the defendants to do so. Their primary defence was that the ISA provided to potential purchasers was a mere “opinion” and therefore not actionable even if wrong. The defendants also argued that the wide range of engineering opinions on the %NBS rating of the building demonstrated that seismic assessments are by their nature a coarse process and may differ from one assessment to another. In that context, obtaining their own ISA and attempting to dispute the plaintiff’s DSAs cannot, in my view, be characterised as a hopeless argument.
[29] As Asher J said in Nandro Homes Ltd v Datt,23 the fact that an unsuccessful party has been shown to have no seriously arguable case does not mean that the party has acted vexatiously, frivolously, improperly, or unnecessarily in terms of r 14.6(4)(a):
… The lack of a seriously arguable case is not a truly exceptional factor. Litigants frequently have a sincere belief that they have a claim or defence which they should pursue, but find when they go to Court that their case cannot possibly succeed. This is not an unusual circumstance. It should not be regarded as extraordinary in the litigation context that parties pursue claims that fail by a substantial margin. …
[30] These proceedings were not in the capricious or absurd, and therefore truly exceptional, category. As counsel for the defendants note, the Court issued a lengthy judgment in the case and did not reach any specific conclusions that the defendants’ arguments were unmeritorious.
23 Nandro Homes Ltd v Datt HC Auckland CIV-2008-404-6676, 13 July 2009 at [9].
[31] While the defendants were ultimately unsuccessful, I am not persuaded that their defence was so lacking in merit that increased costs should be awarded, or that any particular aspect of their defence was so weak, or consumed so much time, that it should be singled out as warranting an increase in costs.
Increased costs regarding settlement
[32] The plaintiff also seeks increased costs in relation to the defendants’ “conduct in relation to settlement”, under r 14.6(3)(b)(v). The plaintiff does not rely on r 14.10 of the Rules, which specifically relates to written offers of settlement without prejudice as to costs.
[33] Rule 14.6(3)(b)(v) provides that the Court may order a party to pay increased costs if “the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by failing, without reasonable justification, to accept an offer of settlement…”.
[34] The difficulty for the plaintiff is that the rule does not apply to a letter, even if “detailed and intelligent”, sent for the justifiable purpose of trying to stop litigation and save further costs, but not containing any offer. Rejection of such a letter does not constitute a failure to accept an offer of settlement: Nandro Homes Ltd v Datt.24
[35] While the plaintiff’s costs memorandum has appended a letter of 26 October 2022 from the defendants’ solicitors, marked “without prejudice save as to costs”, the plaintiff has not provided any specific offer of settlement to which that letter may be a response.
[36]I do not consider a case for indemnity costs has been made out on that basis.
Disputed costs
[37] The defendants dispute the plaintiff’s entitlement to two categories of costs claimed.
24 At [13].
Double recovery for discovery
[38] The plaintiff has claimed costs under steps 20, 21 and 33A, for list of documents on discovery, inspection of documents and preparation of common bundle, respectively. It also seeks to claim as a disbursement for the services of Streamlined Litigation Services, described as “electronic discovery services and electronic casebook management and hyperlinking”.
[39] Rule 14.12(1)(a) of the Rules identifies a disbursement as “an expense paid or incurred for the purposes of the proceeding that would ordinarily be charged for separately from legal professional services in a solicitor’s bill of costs”. Rule 14.12(2) specifies that a disbursement will be recoverable where it is claimed and verified, and is specific to the conduct of the proceeding; reasonably necessary for the conduct of the proceeding; and reasonable in amount. Where a disbursement satisfies these requirements, the party claiming the disbursement will be entitled to recover the actual fee or expense (not just the deemed two thirds of them, as for costs).25
[40] In Mainzeal Property and Construction Ltd (in liq) v Yan,26 Cooke J adopted a cautious approach to the recovery of external litigation support services. There the Court declined to allow a claim for the costs of a third party electronic document management service as a disbursement, to the extent it was for matters covered by the allowance in the schedule.
[41] In a subsequent decision, Trends Publishing International Ltd (in rec and in liq) v Callaghan Innovation,27 Powell J distinguished the situation in the Mainzeal case, which he characterised as seeking full recovery for litigation support relating to production of the case book. Justice Powell said that, in contrast, in the case before him what was sought was recovery of sums related to the creation of an electronic document management platform and the subsequent use and management of that platform, a distinct cost and one that Cooke J had found fully recoverable.
25 Air New Zealand Ltd v Commerce Commission [2007] NZCA 27, [2007] 2 NZLR 494, (2007) 18 PRNZ 406 at [47]–[48] and [62]; and Scandle v Far North District Council HC Whangarei CIV- 2008-488-203, 31 March 2011 at [34].
26 Mainzeal Property and Construction Ltd (in liq) v Yan [2019] NZHC 1637 at [47].
27 Trends Publishing International Ltd (in rec and in liq) v Callaghan Innovation [2020] NZHC 1626 at [56].
[42] The difficulty here is that it is not clear what is encompassed under the item “Streamlined Litigation Services (electronic discovery services and electronic casebook management hyperlinking)”. It appears that it may encompass both creation and use of an electronic document management platform on the one hand, and the preparation of a casebook, on the other.
[43] If the plaintiff wishes to maintain its claim for this disbursement, in addition to recovery for the steps at 20, 21 and 33A, it must provide more details as to the disbursement and the extent to which, if at all, that claim overlaps with the steps in the scale.
Interlocutory hearing for further and better discovery
[44] The plaintiff seeks to recover for items in relation to an interlocutory hearing. The defendants say they were the successful party in relation to that interlocutory matter and a deduction in costs should be made.
[45] The interlocutory was an application by the defendants for further and better discovery from the plaintiff. The application was opposed and it went to a hearing. At the hearing the parties jointly consented to adjourn the application on the basis the plaintiff would provide the further discovery sought. That consent was recorded in a minute of Isac J on 10 February 2021. The defendants say that the parties’ consent and the minute achieved the result applied for by the defendants. They were the successful party and accordingly are entitled to a reduction in costs.
[46] I have considered Isac J’s minute. It seems from the minute that the position may have been somewhat more nuanced. The Judge noted that: 28
… quite apart from the merits of the application before the Court, the plaintiff will be making further discovery available to the defendants following completion of proposed seismic remediation work this month. Accordingly, I raised with counsel whether there would be greater utility for the parties in adjourning the application to provide a window for further discovery to be provided given that might dispose of the remaining issues between them.
28 TADD Management Ltd v Weine HC Wellington CIV 2019-485-781, 10 February 2021 (Minute of Isac J) at [2].
[47] It is not apparent from this passage whether the plaintiff effectively acceded to the defendants’ original request, or whether the discovery sought in fact became available subsequently
[48] However, I cannot conclude that the plaintiff was successful in resisting the discovery application and I agree that items 23, 24 and 26 should be deducted from the plaintiff’s costs schedule.
Conclusion
[49]The plaintiff is entitled to category 2B scale costs.
[50] The plaintiff is entitled to the disbursements itemised in its Schedule A, save that, it must deduct the steps 23, 24 and 26, in relation to the contested interlocutory application.
[51] In relation to the discovery process, it must deduct the amounts at steps 20, 21, 33A, unless it files a memorandum detailing the delineation as between those steps and the amount claimed by way of disbursement.
Gwyn J
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