Terra Firma Resources Limited v Hendry
[2024] NZHC 3201
•31 October 2024
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2022-419-000090 [2024] NZHC 3201
BETWEEN TERRA FIRMA RESOURCES LIMITED
Plaintiff
AND
CHRISTINE ELIZABETH HENDRY and HAROLD LEONARD GASKELL
Defendants
On the papers Counsel:
T M Braun for Plaintiff
P A Depledge for Defendants
Judgment:
31 October 2024
JUDGMENT OF VAN BOHEMEN J
[on costs]
This judgment was delivered by me on 31 October 2024 at 3 pm pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar
……………………………..
Counsel/Solicitors:
Braun Bond & Lomas Limited, Hamilton Brook Law, Hamilton
P A Depledge, Hamilton
TERRA FIRMA RESOURCES LTD v HENDRY [2024] NZHC 3201 [31 October 2024]
[1] In a judgment dated 15 April 2024, I found, as alleged by the plaintiff, Terra Firma Resources Ltd (TFR), that the agreement for the sale and purchase of land at 181 Tregoweth Lane on the outskirts of Huntly (the Agreement ) between TFR and the defendants, Christine Hendry-Gaskell and Harold Gaskell, was entered into on the basis of a common mistake.1 The common mistake was that the description of the land to be sold omitted reference to Lot 1 DP 35743 — SA23B/1355 (Lot 1), being a rectangular section comprising 1335 m2, which the parties had agreed would be included in the sale.
[2] In accordance with s 24(1) of the Contract and Commercial Law Act 2017, I directed that the Agreement be rectified to include reference to Lot 1, and directed the defendants, at their cost and for no consideration, to transfer Lot 1 to TFR.2
[3] I held that, as the successful party, TFR was entitled to costs and said that, ordinarily, I would order costs on a 2B basis, and directed the parties to try to agree costs between them. However, in case TFR wished to seek costs on some other basis, or the parties were unable to agree, I reserved leave for TFR to apply for costs on some other basis and for the Gaskells to reply.3
[4]Counsel for both parties filed memoranda dated 29 August 2024.
[5] Mr Braun, counsel for TFR, submits that TFR should be awarded costs on a 2B basis, calculated to be $46,844.00, plus:
(a)an uplift of 100 per cent, producing a total of $84,128.00; or,
(b)in the alternative, an uplift of 50 per cent on all steps taken to 6 September 2023 and an uplift of 100 per cent on all steps taken after that date, producing a total of $79,826.00.
[6]Mr Braun also submits that TFR should be awarded disbursements of
$15,844.92.
1 Terra Firma Resources Ltd v Hendry [2023] NZHC 806 [the Substantive Judgment].
2 At [116].
3 At [117].
[7] Mr Depledge, counsel for the defendants, submits that costs should lie where they fall or, in the alternative, that TFR should be awarded costs on a 2B basis but with the deduction of TFR’s claim of $3,585.00 for second counsel, producing a total of
$43,259.00.4
[8]The reasons for the different approaches are that:
(a)Mr Braun says the defendants unreasonably rejected settlement offers made by TFR on 23 December 2021, before the proceeding was filed, and on 6 September 2023, before the hearing began, and says that, if either offer had been accepted, the defendants would have achieved a better outcome than that directed by the Court.
(b)Mr Depledge says TFR shares responsibility for the mistake and makes no provision for the defendants not accepting TFR’s offers.
Applicable principles on costs
[9] As stated by the Supreme Court in Manukau Golf Club Inc v Shoye Venture Ltd, and by the Court of Appeal in Bradbury v Westpac Banking Corp, and as reflected in the High Court Rules 2016 (the Rules), it is a fundamental principle that costs follow the event.5
[10] While all matters relating to costs are at the discretion of the Court,6 that general discretion is qualified by the specific costs provisions in the Rules and is exercisable only in situations not contemplated or not fairly recognised by the Rules. Ordinarily, the unsuccessful party pays the successful party costs according to the scale set out in the Rules.7 The scale reflects the complexity and significance of the
4 Mr Depledge’s memorandum also said a deduction should be made for another step which is not claimed by the TFR.
5 Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109, [2013] 1 NZLR 305 at [8]; Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [6]; High Court Rules 2016, r 14.2(1)(a).
6 High Court Rules, r 14.1(1).
7 Rule 14.2(1)(a).
proceeding and is assessed at two-thirds of the daily rate considered reasonable in relation to the proceeding.8
[11] Rules 14.6(1) and (2) provide that the Court may make an order for increased costs or indemnity costs and may make the order at any stage in the proceeding and in relation to any step in the proceeding.
[12] Under r 14.6(3)(b)(v), the Court may order a party to pay increased costs if the party has contributed unnecessarily to the time or expense of the proceeding by failing, without reasonable justification, to accept an offer of settlement, whether in the form of an offer under r 14.10 or some other offer to settle or dispose of the proceeding.
[13]Rule 14.10 provides:
14.10 Written offers without prejudice except as to costs
(1)A party to a proceeding may make a written offer to another party at any time that—
(a)is expressly stated to be without prejudice except as to costs; and
(b)relates to an issue in the proceeding.
(2)The fact that the offer has been made must not be communicated to the court until the question of costs is to be decided.
[14] In Bradbury, the Court of Appeal summarised the circumstances where scale costs, increased costs, and indemnity costs might be ordered as follows:9
(a)standard scale applies by default where cause is not shown to depart from it;
(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.
8 Bradbury v Westpac Banking Corporation , above n 5, at [6]; High Court Rules, r 14.2(1)(d).
9 Bradbury v Westpac Banking Corporation , above n 5, at [27].
Questions for consideration
[15] Given the above rules and the positions of the parties as set out in the memoranda of counsel, two questions arise for consideration:
(a)Did TRP contribute to the mistake such that no order for costs should be made?
(b)If an order for costs is to be made, did the defendants fail without reasonable justification to accept an offer of settlement such that an order for increased costs should be made?
[16]I consider each question below.
Did TRP contribute to the mistake such that no order for costs should be made?
[17] There is no doubt that TFR contributed to the mistake. The mistake was the consequence of a series of errors and omissions, which included:
(a)the failure of both parties to ensure that the Agreement reflected the discussions between the defendants and the Smith family members when the Smiths visited the Lot on 3 April 2021;
(b)the failure by the defendants’ real estate agent to ensure that the Agreement reflected the terms of the offer made by Lincoln Smith, a director and shareholder of TFR, on 6 April 2021;
(c)the failure by Lincoln Smith and Lucy Smith to ensure that that the Agreement reflected the terms of the offer made by Lincoln Smith; and
(d)the waiver by TFR of the solicitors’ approval clause in the Agreement to accommodate the defendants’ wish to bring forward the settlement.
[18] TFR were involved in three of those errors and omissions and so contributed to the mistake.
[19] However, the fact that TFR contributed to the mistake does not mean that it was not the successful party in the proceeding. Nor does it provide a basis for departing from the fundamental principle that costs follow the event.
[20] The proceeding was brought because, after the omission of Lot 1 came to light, the defendants failed to transfer Lot 1 to TFR. The fact the defendants brought the omission to TFR’s attention is of no consequence. Nor is the fact that the TFR asked that the defendants pay any legal fees for the transfer of the omitted lot. The proceeding was brought because, after TFR asked that the defendants pay any legal fees for the transfer, the defendants decided to attempt to retain Lot 1. TFR was undoubtedly the successful party in the proceeding.
[21] For these reasons I am satisfied that TFR is entitled to costs and, as both parties accept, those costs should be assessed at least on a 2B basis.
Did the defendants unreasonably fail to accept an offer of settlement?
[22] Mr Braun refers to two offers — one on 23 December 2021, before the proceedings commenced (the first offer), and one on 6 September 2023, a month before the hearing (the second offer).
The first offer
[23] The first offer was in an email dated 23 December 2021 from Mr Braun to Mr Brook, the solicitor for the plaintiffs. It referred to earlier discussions about the respective strength of the parties’ legal positions. It then stated:
My instructions are to issue proceedings to compel your clients to transfer the title in question at no cost, and to seek legal costs for that on an increased/indemnity basis. Before thoseproceedings are issued, my client has asked me to attempt to avoid litigation one last time, and they are willing to pay your clients $20,000 in compensation for any legal and other costs incurred. That would be on the basis that the title is transferred at no further cost to my client, and that this is in full and final settlement of all issues between the parties relating to the failure to include the title in the original transfer.
[24] The email concluded by advising that, if the offer was not accepted, proceedings would issue in the New Year; that the offer was open for acceptance until
18 January 2022, after which it would lapse; and that the email would be relied upon in support of an application for increased costs.
[25] It is apparent that the offer was not in the form provided in r 14.10. It was not expressly stated as being without prejudice as to costs. However, it clearly related to an issue in the proceeding, it was an offer to settle or dispose of the proceeding, and it stated that it would be relied upon in support of an application for increased costs. It is clearly an offer within the scope of r 14.6(3)(b)(v).
[26] In the Substantive Judgment, I found, on the balance of probabilities, that the defendants had told the Smiths that Lot 1 was to be included in the sale, and I concluded that the defendants had not been truthful in the evidence they gave before the Court.10 In refusing the first offer and in attempting to retain Lot 1, the defendants were being opportunistic and unreasonable because they knew it had been the common intention of TFR and themselves that Lot 1 was to be included in the sale.
[27] I am satisfied, therefore, that the defendants acted unreasonably in not accepting the offer. They were also on notice that the offer would be relied on in support of a claim for increased or indemnity costs. Had they accepted the offer, both parties would have avoided the costs of the proceeding, and the defendants would have received an amount probably sufficient to have covered the costs relating to the transfer of Lot 1. In other words, they would have achieved a better result from their perspective than they achieved under the Substantive Judgment.
[28] In Holdfast NZ Ltd, the Court of Appeal said that an increase of 50 per cent on scale costs should grant a costs-claiming party a fair recovery for the step unnecessarily forced on it, assuming that the time allocated to the step has been reasonably calculated under the bands. However, the Court went on to say that it should not be taken as saying that an uplift of more than 50 per cent can never be justified, as there may be circumstances where a Court considers a higher award to be justified.11
10 Substantive Judgment, above n 1, at [72].
11 Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [47]–[48].
[29] In the circumstances of this case, I am satisfied that an uplift of 50 per cent on TFR’s costs incurred after the first offer is appropriate. Given that the defendants were relying on what was stated in the Agreement, I do not consider that this is a case that warrants an uplift of more than 50 per cent. In particular, I do not consider it can be said that the defendants acted badly or very unreasonably.
The second offer
[30] The second offer was made in response to an offer by the defendants and was the subject of a further offer from the defendants.
[31]Briefly, the sequence of events was as follows.
[32] On 24 August 2023, Mr Depledge wrote an email to Mr Braun and Ms Field, a solicitor in Mr Braun’s firm, in which Mr Depledge summarised what was effectively the defendants’ position at trial: that there had been no discussion of selling Lot 1 when the Smiths visited the Property and no intention that Lot 1 be included in the sale. He then asserted that, although the Lot had a rateable value of $140,000, the defendants believed TFR could sell Lot 1 for $300,000, and that the defendants had had a buyer express interest for $390,0000. Despite this, the defendants would sell Lot 1 to TFR for $98,000. The email stated that it would be produced with submissions on costs following judgment.
[33] Ms Field replied by an email dated 6 September 2023 making the second offer. The email proposed that the defendants transfer Lot 1 to TFR at no cost; that TFR would pay all conveyancing costs associated with the transfer; that TFR would discontinue the proceeding; and that costs would lie where they fall.
[34] On 5 October 2023, Mr Depledge responded with what he described as an offer in full and final settlement, under which the defendants would transfer Lot 1 to TFR for $70,000; TFR would pay all conveyancing costs; TFR would discontinue the proceeding; and costs would lie where they fall. No response to this email is in evidence.
[35] Mr Braun submits that the defendants’ failure to accept the second offer was another example of unreasonable rejection of TFR’s offer to settle the proceeding and warrants an uplift of 100 per cent on scale costs from the date of the offer. Mr Depledge says the defendants did not view the second offer as an offer at all, other than an offer to pay the conveyancing costs.
[36] I do not accept that the second offer was not an offer. However, whatever the conveyancing costs might have been, the second offer was, from the defendants’ perspective, no better than the first offer they had already rejected. Therefore, I see no basis for increasing the uplift based on the rejection of the second offer.
Result
[37] The plaintiffs are entitled to scale costs calculated on a 2B basis, uplifted by 50 per cent for the defendants’ unreasonable behaviour in seeking to take advantage of what they knew to be a mistake, and in unreasonably rejecting the first offer.
[38] I agree with Mr Depledge that costs of second counsel should not be included. This results in total scale costs of $43,259.00, before any uplift is applied. However, I accept that the disbursements claimed by TFR are appropriate and reasonable.
[39] I order the defendants to pay the plaintiff costs of $64,888.50 (exclusive of GST) plus disbursements of $15,844.92.
G J van Bohemen J
0
4
1