Tasty Fresh Produce Limited (in liquidation) v Madsen-Ries
[2017] NZHC 1448
•28 June 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-3327 [2017] NZHC 1448
UNDER the Companies Act 1993 IN THE MATTER
of the liquidation of Tasty Fresh Produce
Limited (in liquidation)BETWEEN
TASTY FRESH PRODUCE LIMITED (IN LIQUIDATION)
First Plaintiff
VIVIENE JUDITH MADSEN-RIES and HENRY DAVID LEVIN as liquidators of TASTY FRESH PRODUCE LIMITED (IN LIQUIDATION)
AND
JIMMY LOWE First Defendant
Cont …
Hearing: On the papers Appearances:
P Murray and R Thompson for the Plaintiffs
M Colthart for the Second Defendant
S McAnally and L Cooney for Third, Fourth and Fifth
Defendants
K Harkess for Third PartyJudgment:
28 June 2017
JUDGMENT OF WOODHOUSE J (APPLICATION FOR WASTED COSTS)
This judgment was delivered by me on 28 June 2017 at 11:00 a.m. pursuant to r 11.5 of the High Court Rules 1985.
Registrar/Deputy Registrar
……………………………………
TASTY FRESH PRODUCE LTD (IN LIQUIDATION) v LOWE [2017] NZHC 1448 [28 June 2017]
Cont …
STEPHEN LOWE Second Defendant
VANESSA RONDA LEAVER as trustee of the KIRK LOWE FAMILY TRUST
Third Defendant
EUAN CHARLES LAWRIE and PUKEKOHE LAW OFFICE TRUSTEE COMPANY LIMITED as trustees of the KIRK LOWE FAMILY TRUST
Fourth Defendants
VANESSA RONDA LEAVER Fifth Defendant
ANDCARPENTER PRATT CHARTERED ACCOUNTANTS LIMITED
Third Party
[1] This proceeding was set down for a five day hearing commencing on 7
November 2016. Following a telephone conference on 1 November 2016 the fixture was vacated.
[2] The plaintiffs, the third to fifth defendants (who are defending jointly), and the third party (collectively the applicants), seek orders against the second defendant for wasted costs on the grounds that the adjournment was required because of defaults by the second defendant.1 The second defendant opposes the applications on the grounds that the predominant reason for the adjournment was belated recognition by all parties that the five days allocated for the trial was inadequate by a substantial margin; at the conference all counsel agreed that a new fixture for 10 days was required.
Procedural background
[3] All dates in the following summary are in 2016. For this reason dates are recorded without reference to the year.
[4] The five day fixture was allocated on 25 February. The estimate of five days was recorded in a memorandum for the plaintiffs. No issue was taken with that estimate by the defendants. The third party had not at that date been joined, although the third to fifth defendants, who joined the third party, had indicated a possibility of doing so some eight months earlier. The only record of any assessment of the number of witnesses and the nature of their evidence was in a memorandum for the plaintiffs in February recording that there would be one witness of fact and one expert. The estimate of five days was noted as a “preliminary view”.
[5] By memorandum of 18 March the plaintiffs and the defendants recorded proposed consent orders for joinder of the third party and pre-trial directions. The
pre-trial directions, made by consent on 23 March, were:
1 No steps have been taken by the first defendant.
(a) Close of pleadings on 1 July.
(b) Plaintiffs to serve briefs and initial index of documents by 15 July.
(c) Defendants to serve briefs and initial index of documents by 12
August.
(d) Third party to serve briefs and initial index of documents by 9
September.
(e) Plaintiffs to serve any reply briefs by 23 September.
(f) Plaintiffs to serve finalised index of documents by 7 October.
(g) Plaintiffs to file and serve a common bundle of documents by 21
October.
(h) Plaintiffs to file and serve synopsis of opening and chronology by 28
October.
(i) Defendants to file and serve synopsis of opening and response to
plaintiffs’ chronology by 1 November.
(j) Third party to file and serve synopsis of opening and response to
plaintiffs’ chronology by 3 November (subsequently extended to 4
November).
[6] The plaintiffs’ briefs were served on 15 July, those of the third to fifth defendants on 16 August, and of the third party on 9 September. The plaintiffs prepared the common bundle on the basis of the plaintiffs’ own index of documents and those served by the third to fifth defendants and the third party. The common bundle was filed and served on 21 October.
[7] Any briefs of evidence for the second defendant were due on 12 August. On
11 September, counsel then acting for the second defendant advised that the second defendant did not intend to file any evidence. At the pre-trial conference on 28
September the second defendant’s counsel confirmed the position, but also advised that the second defendant nevertheless maintained his defence.
[8] The plaintiffs considered that the second defendant could give relevant evidence. The plaintiffs issued a subpoena for the second defendant to appear to give evidence, but also took steps to endeavour to obtain a brief from the second defendant.
[9] It appears that the second defendant’s present counsel, Mr Colthart, was instructed soon after the subpoena was issued, on 26 September. Events from the beginning of October are conveniently recorded in a simplified chronology:
7 October: The second defendant advised that he would provide a brief.
11 October: The second defendant advised that he intended to seek leave to file an amended statement of defence.
19 October: The second defendant advised that there would be a brief from an expert witness for the second defendant.
21 October: Plaintiffs filed and served a common bundle of documents in accordance with the timetable and advice received only from the third to fifth defendants and third party in respect of documents.
21 October: Unsigned brief of evidence of the second defendant was served with a signed copy served on 26 October.
26 October: Plaintiffs filed and served a memorandum seeking a telephone conference to address difficulties arising from the late steps taken by the second defendant. Memoranda for the other parties were filed and served.
27 October: Minute issued convening a telephone conference on 1
November and giving directions to the second defendant.
28 October: Service of brief of second defendant’s expert and draft of
proposed amended statement of defence.
31 October: Second defendant filed and served an application for leave to file the statement of defence.
[10] I presided at the telephone conference on 1 November 2016 which led to the adjournment. At the beginning of the conference Ms Harkess, counsel for the third party, advised that the third party sought an adjournment for three reasons, as follows:
(a) The second defendant’s brief had introduced new evidence which
might require a response for the third party.
(b)The proposed expert brief for the second defendant could not be responded to in the time then available particularly (as I understood it) because the expert’s brief went substantially further than the expert briefs that had been exchanged (for the plaintiffs and for the third to fifth defendants).
(c) Ms Challis, as senior counsel instructed for the third party, would not be able to appear in the trial commencing on 7 November because of a personal matter and it was not possible to brief other counsel.
[11] I discussed with counsel the length of time required for a new fixture. This resulted in agreement that 10 days were required. The plaintiffs did not oppose an adjournment, the third to fifth defendants abided the Court’s decision on the question of an adjournment, and the second defendant accepted that an adjournment was justified.
[12] I was satisfied that an adjournment was required and the fixture was vacated. A new fixture was allocated for 10 days commencing on 3 July 2017.
[13] Further directions and orders were made, including leave granted to the second defendant to file and serve an amended statement of defence in the form that had been filed and served in draft and to serve out of time the briefs of the second defendant and of the second defendant’s expert.
The claims
[14] The claims of each of the applicants for legal costs said to have been wasted were based on the 2B scale. It will assist to record the categories of work in respect of which claims are made, setting these out in an essentially chronological order.
Item 1: Preparation of briefs: claim by plaintiffs only: 2.5 days reduced to 50% of scale: $2,878.50.
Item 2: Preparation for and attendance at pre-trial conference on 28
September: claims by third to fifth defendants and third party only: 0.5 days at 100% of scale: $1,115.00.
Item 3: Preparation of list of issues, authorities and common bundle of documents: claims by all applicants at 50% of scale: plaintiffs for 2.5 days reduced to $2,787.50; other applicants for 2 days reduced to $2,230.00.
Item 4: Preparation for hearing: claims by all three applicants – plaintiffs at 50% of scale – 3 days reduced to $3,345.00: third to fifth defendants and third party at 100% of scale – 3 days at
$6,690.00.
Item 5: Memoranda for 1 November conference. Claims by all applicants at 100% of scale: 0.4 days at $892.00.
Item 6: Attendance for 1 November conference: claims by all applicants at 100% of scale: 0.3 days at $669.00.
[15] The plaintiffs also claim $5,534.38 being 50% of the fees charges to the plaintiffs by an expert witness. The grounds on which this claim is made were stated as follows:
Mr Killick is engaged in part to provide evidence as an expert director on whether the defendants breached their duties. The new elements of the first affirmative defence [of the second defendant] appear to be aimed at providing the defendants with a complete defence to all the causes of action for breaches of director’s duties. This will require Mr Killick to reconsider his analysis of each breach of duty alleged by the plaintiffs.
[16] The claims of the third to fifth defendants itemised at [14] are advanced as the minimum. There is a further submission that the costs should be increased by
50% pursuant to r 14.6(3)(b)(i) on the grounds that the second defendant had contributed unnecessarily to time or expense by failing to comply with directions, his defaults were flagrant and they justified a punitive element.
[17] The totals claimed, in summary, are:
(a) Plaintiffs for legal costs: $10,481.
(b) Plaintiffs for expert’s fees: $5,534.38.
(c) Third to fifth defendants for legal costs: $11,596 increased by 50% to
$17,394.
(d) Third party for legal costs: $11,596.
Evaluation
[18] I received comprehensive and helpful memoranda from counsel for each of the applicants and from Mr Colthart for the second defendant. The memoranda of Mr Murray for the plaintiffs and Mr McAnally and Mr Cooney for the third to fifth defendants included citation of a number of authorities. I have taken account of the observations in the cases cited, but it is unnecessary to review them in this judgment other than to note two points of general principle of relevance. The first is that the recoverable costs are only those that are directly thrown away or wasted, at least in part, because the work will have to be redone again for the purposes of the trial and
on a re-focussed basis.2 The second point is that, where the applicant establishes that costs have been wasted, determination of the amount “to a large extent can only be a matter of impression and judgment”.3
[19] An essential premise underpinning the applicants’ claims is that the main reason for the fixture being vacated was the default by the second defendant. An element of that is a proposition, clearly articulated for the third party at the conference on 1 November, that when the second defendant’s briefs were finally received there was inadequate time to respond for a trial commencing a few days later. A similar proposition may be made in respect of the belated filing of the amended statement of defence of the second defendant.
[20] For the second defendant, Mr Colthart’s primary argument was that no award was justified. He submitted that “in reality” there were three grounds for the adjournment: (1) the matter just noted; (2) the personal difficulty for senior counsel for the third party; and (3) a late recognition by all parties that the five days allocated for the trial was insufficient and 10 days was a more realistic estimate. Mr Colthart submitted:
… whilst the second defendant must accept that the late filing of his evidence was a cause of the adjournment, he does not accept that it was the sole or even the predominant cause.
(Mr Colthart’s emphasis)
[21] He submitted further that each of the three grounds summarised above could have resulted in an adjournment, but the most significant cause was “the belated revision to the trial estimate”. He also noted that the provision of a formal brief by the second defendant was not a reason for a revision of the hearing time estimate because, before the brief was provided, the plaintiffs were going to adduce evidence from the second defendant.
[22] There was an alternative argument that, if the Court determined that the second defendant’s late filing of evidence “was an operative cause of the
adjournment” justifying an award, the allowance for all claims should be at 16.7% of
2 Jeffreys v Morgenstern [2013] NZHC 1361 at [37].
3 Simpson v Hubbard [2012] NZHC 3020. Followed in Jeffreys v Morgenstern, above n 2, at [34].
scale for legal costs. In respect of the plaintiffs’ claim for expert’s costs, Mr Colthart submitted that the issue in that regard should be reserved until after trial.
[23] For the reasons that follow I am not persuaded by Mr Colthart’s argument that there should be no order against the second defendant.
[24] Mr Colthart’s argument is directed to reasons for the adjournment on 1
November. This addresses the wrong issue. The steps taken very belatedly by the second defendant precipitated the 1 November conference and this led to the adjournment for a number of reasons. But the real issue is whether the defaults by the second defendant, which had occurred over two months earlier, led to the applicants incurring costs which will be wasted, in whole or in part.
[25] The date from which the second defendant’s liability is to be assessed is 12
August when his briefs were due. Had the briefs of the second defendant himself and of his expert been served on or about 12 August there could have been no repercussions in costs for the second defendant.
[26] There is also the second defendant’s amended statement of defence. The other parties did not have notice of this, in a draft, until 28 October. Strictly speaking, an amended statement of defence was due by 30 June. However, the plaintiffs filed an amended statement of claim on 30 June. The third to fifth defendants sought to file an expanded statement of defence to the plaintiffs’ amended statement of claim. This was opposed by the plaintiffs for a period, but they withdrew their opposition on 19 August. It is reasonable to assume that the second defendant, had he got his house in order earlier, would have been able to file the amended statement of defence which he eventually filed by around the same date.
[27] If the second defendant had taken the necessary steps by around 12 August, it is to be assumed that all counsel would, by early September at the latest, have turned their minds to the adequacy of the five day estimate and readily come to the conclusion that they all readily came to on 1 November – five days was quite inadequate and 10 days was required. The parties would have been bound at that
time to apply for the fixture to be vacated and it is to be assumed that it would have been vacated in early September.
[28] What this analysis makes clear, in my judgment, is that, had the second defendant taken the steps he belatedly took by the stipulated date, a number of steps taken by the applicants after 12 August would not have been taken over the period to
1 November, or at all. This, in my judgment, is the determinative point, not a determination as to why, in the circumstances that existed on 1 November, the fixture was vacated on that date.
[29] It remains to consider whether: (1) each of the categories of work in respect of which claims are made is work undertaken in the period following the default by the second defendant through to 1 November; (2) in respect of those categories of work whether costs incurred have been wasted in whole or in part; and (3) to assess quantum. The subheadings refer to the numbered items at [14] above, referring to the categories of work in respect of which claims are made.
Item 1: preparation of briefs
[30] The plaintiffs’ briefs, and the initial index of documents, had to be prepared by 15 July and therefore without any knowledge of defendants’ briefs. The second defendant’s amended statement of defence may have required further evidence and in some circumstances that might justify some allowance for wasted costs. However, because the plaintiffs filed an expanded amended statement of claim on the day pleadings closed and, more particularly, because the plaintiffs in the end consented to late filing of an amended defence by the third to fifth defendants, and because there was provision for filing of reply briefs by the plaintiffs, more work on briefs of evidence would have been required for the plaintiffs even if the second defendant had filed his briefs and amended statement of defence by mid-August. The scope of that work is also uncertain. This claim is disallowed at this stage. Leave is reserved to the plaintiffs to claim for additional costs at the conclusion of the hearing.
Item 2: 28 September pre-trial conference
[31] The claims by the third to fifth defendants and the third party are allowed, subject to assessment of quantum.
[32] The claim is made on the basis that the parties would be required to attend a further pre-trial conference. The claim is allowed at 100% of scale; that is, $1,115 for each party. Although there was no claim by the plaintiffs for this item, I consider that it is appropriate to allow a similar amount for the plaintiffs’. This is because I have disallowed the claim for the briefs even though there was no objection to that claim as such by the second defendant, and I also expect that the omission of the claim was an oversight on the part of the plaintiffs’ counsel when going through the detail of matters such as this.
Item 3: lists of issues and authorities and common bundle of documents
[33] I accept that there will be some wasted costs, but judging the quantum as best as can be done, I consider the claims at 50% of scale are too high. These items are allowed at 25% of scale.
Item 4: preparation for hearing
[34] Some allowance is justified for all claimants. There is a marked discrepancy between the plaintiffs, who seek 50% of scale, and the third to fifth defendants and third party, who seek 100% of scale. Making full allowance for what is involved in having to undertake preparation for a second time, and months after the first preparation, I consider that 100% of scale is too high. I consider that 50% of scale, as claimed by the plaintiffs, is reasonable and there is an allowance for all claimants on that basis.
Items 5 and 6: memoranda for and attendance at 1 November conference
[35] These are examples of totally wasted costs arising from defaults by the second defendant. The claims of the three applicants are allowed in full.
Plaintiffs’ expert’s fees
[36] The second defendant’s position was that this claim by the plaintiffs should be reserved for consideration following judgment. He advanced three reasons which were, in summary:
(a) There were objections to the admissibility of much of the expert’s evidence by the third to fifth defendants and these were still to be determined.
(b)If admissible there is still an issue as to whether the evidence would be of assistance to the Court.
(c) The expert’s brief had to be completed in any event.
[37] I consider that this claim, as with the plaintiffs’ claim for preparation of briefs, should be disallowed at this stage, but reserving leave to the plaintiffs to claim for additional costs at the conclusion of the hearing. My reasons are, in broad terms, similar to those relating to the plaintiffs’ claim for wasted costs in preparation of the briefs.
Claim of third to fifth defendants for increased costs
[38] For reasons recorded in assessing quantum for individual items, I disallow the claim of the third to fifth defendants for a global increase of 50%.
Result
[39] There are the following orders:
(a) The second defendant is to pay to the plaintiffs, the third to fifth defendants and the third party costs to be assessed as specified at [31] to [35] above.
(b)The second defendant is not required to make payment pending further order of this Court following determination of the substantive claim.
(c) Leave is reserved to the plaintiffs to apply for an order for payment of wasted costs, or increased costs, in respect of preparation of briefs of evidence of the plaintiffs and fees incurred with the plaintiffs’ expert arising out of the defaults of the second defendant referred to in this judgment.
(d)Each of the applicants is entitled to costs of $892 on their respective applications for wasted costs.
Woodhouse J
Solicitors:
Mr P Murray and Ms R Thompson, Meredith Connell, Solicitors, Mr M Colthart, Barrister, Auckland
Mr G Litchfield (second defendant’s instructing solicitor), Complete Legal Ltd, Solicitors, Pukekohe
Mr S McAnally and Mr L Cooney, Keegan Alexander, Solicitors, Auckland
Ms A Challis and Ms K Harkess, McElroys, Solicitors, Auckland
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