The Big Basin Limited v Stockco Limited
[2023] NZHC 2130
•10 August 2023
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2022-409-14
[2023] NZHC 2130
BETWEEN THE BIG BASIN LIMITED
Plaintiff
AND
STOCKCO LIMITED
Defendant
Hearing: On the papers Appearances:
P A Cowey and F A Trowbridge for Plaintiff M H L Morrison and J A Zwi for Respondent
Judgment:
10 August 2023
Reissued:
14 August 2023
JUDGMENT OF DUNNINGHAM J RE: COSTS
This judgment was delivered by me on 10 August 2023 at 10 am, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
THE BIG BASIN LIMITED v STOCKCO LIMITED [2023] NZHC 2130 [10 August 2023]
Introduction
[1] StockCo Ltd (StockCo) was the successful party in an arbitration against Big Basin Ltd (Big Basin). The arbitral award found that Big Basin owed StockCo for the debt and related costs associated with financing 787 bulls under the Master Livestock Agreement (MLA) entered into by the parties and a supplementary agreement.
[2] In a judgment dated 17 May 2022 I declined an application for leave to appeal the arbitral award by Big Basin.1 I subsequently declined leave to appeal that decision to the Court of Appeal.2
[3] StockCo has since applied for indemnity costs against Big Basin on both applications, saying the MLA provides for indemnity costs, and Big Basin’s case was “hopeless” and justified an indemnity costs award.3
[4] Big Basin disputes these claims and argues that costs on a 2B basis should be awarded. It also says that the costs claimed by StockCo as indemnity costs are miscalculated and unreasonable and should be altered if indemnity costs are awarded.
The proceedings
[5] Big Basin applied for leave to appeal the arbitral award on six questions of law. The first three questions related to whether the arbitrator, Hon Nicholas Davidson QC, failed to consider bailment principles in making his decision. I held that as StockCo pursued its claim as an action in contract, not in bailment, there was no need to prove the elements of bailment, including the delivery of bulls.4 In terms of the delivery of bulls, I held that the arbitrator was consistent in his finding that at least 720 bulls were delivered. Furthermore, this was a factual finding and not amenable to appeal.5
1 The Big Basin Ltd v StockCo Ltd [2022] NZHC 1020.
2 The Big Basin Ltd v StockCo Ltd [2022] NZHC 3010.
3 Under High Court Rules 2016, r 14.6(4)(a).
4 The Big Basin Ltd v StockCo Ltd, above n 1, at [29].
5 At [37]–[38].
[6] The fourth question of law was whether the arbitrator erred in finding that any director could bind Big Basin under the directors’ certificate. While I acknowledged this was a question of law, I held it was not strongly arguable. The directors’ certificate, which was signed by all four directors of Big Basin, confirmed that the directors authorised the execution of all documents listed in the schedule. There was only one entry in the schedule, which was the MLA and supplementary agreement(s).6 I held the most logical reading is that the directors’ certificate gave any director the authority to sign the MLA and supplementary agreement.7 Given the evidence that two directors authorised agreement to the supplementary agreement, even if this claim was successful, it would not materially change the outcome of the proceedings.8
[7] The fifth question was whether the arbitrator was wrong to say that, if the MLA and supplementary agreement were not enforceable, the terms on which more than 673 bulls were delivered would have been the same as the contractual documents provided. I held that this comment by the arbitrator was obiter and there would be no utility in allowing Big Basin to pursue this alleged error of law.9
[8] Finally, the sixth question of law was whether the arbitrator erred in assessing that Big Basin could be liable for unascertained goods (that is, bulls which were never identified as being delivered). I held that this claim was mistakenly premised on StockCo advancing a claim in bailment, rather than contract.10 Furthermore, the arbitrator made a factual finding that at least 720 of the bulls were delivered and so the claim could only apply to 67 of the bulls which would not be enough to substantially affect Big Basin’s rights.11
[9] When Big Basin subsequently applied to the High Court for leave to appeal the decision to decline leave to the Court of Appeal, it pursued all the questions of law bar the fifth one. In my judgment dated 17 November 2022, I declined the application saying:12
6 At [49].
7 At [51].
8 At [53].
9 At [59].
10 At [66]–[67].
11 At [71].
12 The Big Basin Ltd v StockCo Ltd, above n 2.
[27] I am satisfied that none of the five questions of law being pursued in this application have been shown to raise a question of law which is capable of bona fide and serious argument involving some interest, public or private, of sufficient importance to outweigh the cost and delay of a further appeal. In making that judgment, I also bear in mind the context of the proposed appeal, which is that it relates to an arbitral award which should, in the normal circumstances, conclude the dispute between the parties.
The costs application
[10] StockCo submits it is entitled to indemnity costs on both applications on the following grounds:
(a)the MLA provides StockCo is entitled to indemnity costs under cls 1.2(e), 3.6, 11 and 13; and
(b)the applications were “hopeless”.
[11] StockCo calculates indemnity costs at $68,422.07 including GST13 for the original leave decision and at $19,294.40 excluding GST for the application to appeal the decision to the Court of Appeal. StockCo also seeks costs on a 2B basis for its applications for costs.
[12] If the Court is not minded to award indemnity costs, StockCo submits it should get increased costs.14
The law
[13] Rule 14.1 of the High Court Rules 2016 provides that all matters relating to costs of a proceeding are at the discretion of the Court. StockCo claims indemnity costs under r 14.6 of the High Court Rules which relevantly provides:
(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
13 StockCo amended this figure after the memorandum dated 27 June 2022 was filed for Big Basin. StockCo recalculated their actual costs at $50,963.90 excluding GST and taking into account the discount provided for certain parts of the proceedings.
14 While it only expressly claimed increased costs on the second application it is implicit in its claim that if indemnity costs are not awarded, increased costs should be.
…
(e)the party claiming costs is entitled to indemnity costs under a contract or deed; or
…
The claim for indemnity costs under r 14.6(4)(e) and the provisions of the MLA
[14] Whether a contract entitles a party to indemnity costs under r 14.6(4)(e) is a matter of contractual interpretation.15 The entitlement must be plainly and unambiguously expressed.16 A general provision to recover costs in a contract may not extend to legal costs.17 It may extend to cover legal costs if the provision is explicit that it covers legal costs or where the wording of the contract suggests such an indemnity is contemplated.18
[15] StockCo claims indemnity costs under four clauses of the MLA. Each of these clauses is considered in turn.
Clause 3.6
[16]Clause 3.6 of the MLA provides:
3.6. You indemnify StockCo against any cost, loss or liability or expense whatsoever incurred by StockCo as a result of you acting in any manner except in strict accord with the authority hereby given.
[17] Clause 3 is headed “Stock Procurement and Ownership” and covers Big Basin’s obligations to acquire stock as an agent of StockCo, and to arrange for the payment and identification of the stock. The subclause immediately preceding cl 3.6 states:
3.5 StockCo appoints you to act as its agent for the purchase of (sic) acquisition of the Stock within the price and within the time and according to the strict specifications specified by StockCo.
15 Synlait Milk Ltd v New Zealand Industrial Park Ltd [2020] NZSC 157, [2020] 1 NZLR 657 at [192].
16 Re Adelphi Hotel (Brighton) Ltd [1953] 1 WLR 955 (Ch) at 961; ANZ Banking Group (NZ) Ltd v Gibson [1986] 1 NZLR 556 (CA) at 566; Watson & Son Ltd v Active Manuka Honey Association [2009] NZCA 595 at [17]; and Newfoundworld Site 2 (Hotel) Ltd v Air New Zealand Ltd [2018] NZCA 261, [2018] NZCCLR 22 at [84].
17 Newfoundworld Site 2 (Hotel) Ltd v Air New Zealand Ltd, above n 16, at [84].
18 At [85]–[87].
[18] StockCo argues that the “authority” referred to in cl 3.6 is the authority to acquire stock on StockCo’s behalf but argues that authority comes with associated obligations which are provided for throughout the MLA, and any breach of those obligations would trigger the indemnity provision in cl 3.6.
[19] In support of this argument, it cites the case of Denize v StockCo where the Court of Appeal interpreted an equivalent clause (cl 1.6).19 In that case, the appellants breached their obligation under the contract to buy stock on StockCo’s behalf. The Court considered this meant they had not acted in strict accord with the authority given to it under the stock agreement, and StockCo was therefore entitled to indemnity costs in relation to all of the resulting litigation, including the appeal and applications to the Court of Appeal.20
[20] Big Basin argues cl 3.6 only covers costs, losses, liabilities and expenses resulting from the agency relationship between the farmer and StockCo which is established in cl 3. The phrase “authority hereby given” would therefore relate to the authority given in cls 3.1 and 3.5 for the farmer to act as the agent of StockCo to procure stock.
[21] Big Basin distinguishes Denize v StockCo on the basis that in this case, the breaches were in relation to the failure to deliver the stock for processing and the failure to make payment to StockCo, not a failure to procure stock in breach of the authority given under the agency contract, as was the case in Denize. The Court of Appeal in Denize concluded:21
The authority to buy stock on Stockco’s behalf is a fundamental obligation within the stock agreement, and Spotburn accepted the advance from Stockco on the clear basis that it would use it to buy stock that would belong to Stockco. It did not do so, and thus did not act in strict accord with the authority given to it under the stock agreement. In our view, cl 1.6 is clearly engaged and entitles Stockco to indemnity costs in relation to all of the present litigation, including the present appeal and applications in this Court.
[22] Big Basin submits the breaches here were not related to the agency arrangement between the parties but rather, with Big Basin’s contractual obligations
19 Denize v StockCo Ltd [2011] NZCA 192 [Denize CA Decision].
20 At [33].
21 At [33].
to make payment under the contract. This would mean that cl 3.6 is not clearly engaged under the wording of that clause, and it would be inappropriate to award indemnity costs on that basis.
[23] StockCo argues this narrower interpretation is not commercially viable because under that interpretation, after StockCo advanced the purchase price of the stock to the farmers, it is left exposed financially and reliant on the farmer to meet the obligations relating to the stock being safely farmed, identified and delivered for processing.
[24] StockCo argues that even if cl 3.6 is limited in scope, it still enables it to claim indemnity costs because Big Basin failed to keep the stock identifiable and failed to supply StockCo with the correct details under cl 3.3. It says this complicated, delayed and increased the costs of StockCo’s contractual debt claim and formed the basis of Big Basin’s meritless defence, for if Big Basin had complied with its obligations under cl 3.3, then there would have been no dispute about whether the bulls had been bailed or ascertained.
Discussion
[25] As set out at [14] above, the question of whether indemnity costs are available is a question of interpretation. The ambit of cl 3.6 is to cover losses arising from breaches of the farmer’s authority to act as agent for StockCo as that is the context of cl 3. It is broadly enough worded to cover legal costs in that context as was confirmed in Denize.22 However, I do not accept the argument that a narrow interpretation of cl 3.6 which confines it to that context is not commercially viable. The farmer’s obligations and remedies for their breaches are set out at later points in the contract, such as cls 8 (Stock Losses), 9 (Delivery of Stock and Payment) and 11 (Default and Remedies). It is inaccurate to say that StockCo is left exposed financially if a narrow interpretation of cl 3.6 is adopted.
[26] The real issue is whether StockCo’s claim is for a breach of the “authority” referred to in cl 3.6, rather than a simple failure to pay StockCo under the terms of the
22 At [33].
agreement. In my view, the latter is not covered by cl 3.6 and this is not a case like Denize where indemnity costs inevitably follow. I accept that the failure to keep stock identified, which is one of the obligations in cl 3, complicated the claim because it was a factor relied on to support some of the proposed grounds of appeal. However, the breach of that obligation was not the foundation of StockCo’s contractual debt claim before the arbitrator, which makes it strained to say that all legal costs flowing from the High Court applications to appeal the arbitrator’s decision were “as a result of” that breach, as compared to the breaches of the obligations to deliver the stock for processing and make payments.
[27] As this is not a claim for breach of the authority granted under cl 3, but a simple debt claim, indemnity costs are not available under cl 3.6.
Clause 11
[28]StockCo claims both cls 11.2 and 11.4 entitled it to claim indemnity costs:
11.2If you are in default of this Agreement then we are entitled as of right without prior notice to enter the Land or any other property where we believe the Stock may be located and repossess the Stock AND at our discretion and without prejudice to the foregoing rights we may elect to give you notice at any time:
11.2.1to remedy the default to our satisfaction within 14 days in cases where we deem the default is capable of remedy and failing your remedying such default to our satisfaction to immediately deliver up possession of the Stock to us
AND you must indemnify us for any costs, loss, expense or liability in exercising our rights under this clause.
AND we are entitled in any event as of right to terminate this Agreement with effect from any date specified by us as a result of default under clause 11.1.
…
11.4 In the event of termination pursuant to clause 11.2 and without diminution of any or all the remedies provided by virtue of clause 11.2, in the event that you have sold or disposed or otherwise parted with the possession of any of the Stock then we at our option are entitled to elect to make demand upon you a sum equal to all the aggregate of the sums set forth in clause [9] insofar as they are applicable together with penalty interest at a rate 6% above the rate set out in the Schedule calculated from the date of purchase together with the costs and
expenses and You shall be bound upon receipt of such notice to make payment immediately to us.
[29] Clause 11.4 is engaged as StockCo terminated the MLA under cl 11.2 after Big Basin failed to make payments and failed to deliver the stock. Both these failures are defined as being in default under cls 11.1.1 and 11.1.2. StockCo then elected, under cl 11.4, to pursue a liquidated debt claim. Under that clause, StockCo was entitled to include “the costs and expenses” in their demand.
[30] StockCo cites the High Court decision of StockCo v Denize where Associate Judge Doogue considered an equivalent clause in that contract (cl 8.3) and held it indemnified StockCo even where there was no cost to recovering the stock because it had not been purchased.23 Associate Judge Doogue said:
[39] But the other option of StockCo under clause 8.3 is to “ … elect to make demand upon the Farmer [of] a sum equal to all the aggregate of the sums set out in clause 6.6 insofar as they are applicable together with … the costs and expenses and the Farmer shall be bound upon receipt of such notice to make payment immediately to StockCo”. The text, in my view, supports the view that costs and expenses which fall within the clause include those of enforcing the demand which clauses 8.3 and 8.2 entitle StockCo to make. The expression “costs and expenses” does not require to be read down in any way and therefore would include the actual out-of-pocket expenses incurred by StockCo in bringing proceedings.
[31] The Court of Appeal noted that to have the right to elect under that clause, the farmer must have “sold or disposed or otherwise parted with the possession of the Stock”.24 The Court considered the farmer’s actions in that case of failing to complete the purchase of the stock may have amounted to “parting with possession” of the stock. The Court noted it would be incongruous if the farmer’s failure to abide by a fundamental requirement of the agreement would have less serious consequences in terms of exposure to costs than a disposal of stock otherwise than in terms of the agreement. However, the Court of Appeal considered it was not necessary to resolve the interpretation of cl 8.3 because it was satisfied cl 1.6 of that agreement (equivalent to cl 3.6 in the MLA) entitled StockCo to indemnity costs.25
23 StockCo Ltd v Denize HC Auckland CIV-2010-404-5668, 22 February 2011 [Denize HC Decision], at [38].
24 Denize CA Decision, above n 19, at [31].
25 At [32].
[32] Big Basin submits that as the Court of Appeal did not decide this issue, it is open for this Court to depart from the decision made in the High Court by Associate Judge Doogue. It submits that the wording of the clause requires StockCo to include the costs and expenses in the notice of demand, and those costs and expenses must be immediately paid to StockCo. Big Basin therefore submits that legal costs at that point would be future costs and therefore could not be demanded at that point.
[33] StockCo argues this is not the natural meaning of the wording of the contract, as the contract says that StockCo will make a demand “a sum equal to all the aggregate of the sums set forth in clause [9]” together with the penalty interest, costs and expenses. It submits that the wording “together with” makes it clear that these costs are in addition to the sum demanded in the notice. This is necessary because the penalty interest and the costs cannot be calculated at the point the notice is given, as the delay in payment and costs required to enforce the demand are unknowable.
Discussion
[34] I agree with Big Basin that the wording in cl 11.2 of “you must indemnify us for any costs, loss, expense or liability in exercising our rights under this clause” does not entitle StockCo to indemnity costs for the proceedings. The clause relates to costs associated with taking possession of the stock where the farmer is in breach of the agreement or the costs of StockCo providing notice to the farmer to remedy their default. Neither of those things occurred in this case. There are no costs flowing from the repossession of stock or the giving of notice, and there is nothing for StockCo to claim costs for under cl 11.2. I agree, though, that the wording of the clause indicates that the costs and expenses payable do not need to be quantified when the notice of demand is served on the farmer.
[35] I note that Associate Judge Doogue said in Denize there is no need to read down the wording “costs and expenses” in the clause and that legal costs are included in that phrasing.26 However, this statement does not sit easily with the subsequent
26 Denize HC Decision, above n 23, at [39].
Court of Appeal decision in Newfoundworld Site 2 (Hotel) Ltd v Air New Zealand Ltd.27 In that case, the Court of Appeal stated:
[84] In any case, we are not persuaded that a general right to be indemnified for “costs” associated with a breach of contract extends to solicitor/client costs even if such costs could be categorised as “related”. The clause refers to costs, not legal costs. And it does not extend the indemnity to solicitor/client costs. The latter point is relevant because in New Zealand, legal costs are as a rule recoverable on a party/party basis, calculated by reference to the High Court Rules 2016. Rule 14.6(4)(e) provides that the court may order a party to pay indemnity costs if “the party claiming costs is entitled to indemnity costs under a contract or deed”. However, such an entitlement must be “plainly and unambiguously expressed”.
(footnote omitted)
[36] Although not purporting to change the law, the Court of Appeal’s reasoning indicates that simply using the word “costs” will not make a contract sufficiently plain and unambiguous to justify an indemnity costs award under r 14.6(4)(e) of the High Court Rules. The Court went on to provide examples of cases where legal costs were awarded where the clause in the agreement was either explicit that legal costs were covered or where cover for legal costs was a necessary implication of the contractual language.28 It concluded that the clause in that case, which simply provided an indemnity for all “losses, damage and costs” arising from a breach of the agreement, did not confer a right to be indemnified for legal costs.
[37] Clause 11.4 provides for the cover of “costs and expenses”. This is not in my view plain and unambiguous enough to justify the award of indemnity costs under r 14.6(4)(e). The cases cited by the Court of Appeal in Newfoundworld Site 2 (Hotel) Ltd v Air New Zealand Ltd used language such as “actions or damages” and “all such actions claims or judgements”.29 In Waimauri Ltd v Mahon, Muir J held a party was entitled to indemnity costs under a contract providing for “all losses, claims, demands, liabilities, payments, charges and expenses”.30 Those clauses are more explicit than cl 11.4, as they clearly contemplate legal proceedings by using terms like “actions”, “damages”, “claims” and “judgments”. Clause 11.4 does not use this language.
27 Newfoundworld Site 2 (Hotel) Ltd v Air New Zealand Ltd, above n 16.
28 At [85]–[87].
29 At [86] citing Watson & Son Ltd v Active Manuka Honey Assoc [2009] NZCA 595 at [22] and
Beecher v Mills [1993] MCLR 19 (CA).
30 Waimauri Ltd v Mahon [2020] NZHC 2310 at [11].
Accordingly, I do not consider the right to indemnity costs in these proceedings arises from cls 11.2 and 11.4.
Clause 1.2(e)
[38] For the same reason that the above clauses are not explicit enough, StockCo is unable to claim indemnity costs under cl 1.2(e). That clause provides:
1.2 The Parties agree and covenant with each other that you will:
…
(e) Be liable to StockCo for the aggregate cost price of all Stock including all Stock subsequently acquired, interest on that amount until it is repaid, and the costs and charges and any other money due under this Agreement.
That provision is not plain and unambiguous enough to encompass a claim for legal costs.
Clause 13
[39] The final clause under which StockCo claims indemnity costs is cl 13, which provides:
13. Indemnity
You will keep us indemnified against distress, execution or other claim upon any of the Stock and in respect of any other outgoings in respect of the Stock or the land which are not specifically the responsibility of us in terms of this Agreement.
[40] This clause, in contrast to cl 11, does use the word “claim”, which on an initial reading could suggest a reference to legal claims. However, this clause appears to be a broad indemnity provision geared towards the maintenance of StockCo’s property rights in the stock and protection from third party claims against the stock. This can be seen in the wording of the clause as it refers to the “distress” or “execution” of the stock. It also refers to “any other outgoings” in respect of the stock or land. The phrase “which are not specifically the responsibility of us in terms of this Agreement” makes it clear that it is a catch-all provision for anything that goes wrong with the stock in the farming process which could result in a claim against StockCo or affect
StockCo’s rights to the stock. It does not unambiguously refer to a legal claim made to a court for non-performance of the contract itself.
Conclusion
[41] The clauses relied on by StockCo either relate to circumstances which have not arisen here or are not sufficiently plain and unambiguous to justify awarding indemnity costs under r 14.6(4)(e) of the High Court Rules.
The claim for indemnity costs under r 14.6(4)(a) on the basis that Big Basin’s case was “hopeless”
Law
[42] In Bradbury v Westpac Banking Corp, the Court of Appeal held that indemnity costs can be awarded in the following scenarios:31
(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; or
(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.
[43] This “hopeless case” test is as explained by the Court of Appeal in Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue:32
[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”.33 French J relied on an earlier decision in which Woodward J said that it was appropriate to consider
31 Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [29].
32 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2014] NZCA 348, (2014) 22 PRNZ 322.
33 J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA Branch) (No 2) (1993) 46 IR 301 (FCA) at 303.
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”.34 Woodward J 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.
[44] Where an application for indemnity costs is based on the “hopeless case” criterion, it is not necessary to provide flagrant misconduct.35
[45] The conclusion that a case is so hopeless as to justify an award for indemnity costs should not be one made on fine distinctions or complex reasoning.36 In other words, it should be clear that the case was bound to fail.
[46] In this case, StockCo submits that Big Basin’s application for leave and then for leave to appeal that decision were “hopeless” cases and meet the threshold for awarding indemnity costs under r 14.6(4)(a). In asserting that, StockCo emphasises the context in which these applications were made. There is a high bar for obtaining leave to appeal an arbitral award under sch 2 cl 5(1)(c) of the Arbitration Act 1996. StockCo points out that there are effectively three hurdles that Big Basin needed to clear in order for the leave application to succeed. These are:
(a)identifying errors of law in the interim award;
(b)satisfying this Court that the question of law “could substantially affect the rights of 1 or more of the parties”;37 and
(c)persuading the Court to exercise its discretion to grant leave, which primarily required Big Basin to show it had a “very strongly arguable case that the arbitral tribunal has erred in law”.38
34 Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 (FCA) at 401.
35 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue, above n 32, at [27].
36 TheCircle.co.nz Ltd v Trends Publishing International Ltd (in liq and rec) [2021] NZCA 235, (2021) 25 PRNZ 766 at [34].
37 Arbitration Act 1996, sch 2 cl 5(2).
38 Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd [2000] 3 NZLR 318 (CA) at [54(d)].
[47] StockCo, essentially for the reasons set out in my decisions, submits that both applications were “hopeless”. In each case, StockCo cites the findings in my judgments which demonstrate, in its view, that neither application was capable of succeeding. For example, I described the argument that the elements of bailment needed to be established for the claim to succeed as having “no real merit”.39
[48] Big Basin rejects these criticisms, noting that StockCo carries the onus of persuading the Court that an award of indemnity costs on this basis is justified.40 Big Basin rejects the allegation that its primary motivation in seeking leave to appeal was to delay finalisation of the interim award. It says such an allegation is speculative, not supported by evidence, and wrong. In support it notes that the application for leave to appeal did not have the inevitable effect of staying the arbitration. Rather, the arbitrator exercised his discretion to stay the final award pending resolution of the leave application.
[49] In response to the allegation the case was hopeless, Big Basin says the fact it did not succeed is not sufficient to show it was hopeless. It points to the fact that on the initial leave application I accepted that question four was arguable.41 Big Basin argues that StockCo’s submission is tantamount to asserting that an unsuccessful application for leave to appeal an arbitral award would attract indemnity costs simply by virtue of being unsuccessful. It also goes on to say that if Big Basin’s first application was so obviously hopeless, it begs the question of why StockCo incurred costs of $68,000 defending it.
Discussion
[50] For an award of indemnity costs to be made, the case must meet the threshold of being a “hopeless case” as outlined in [42] and [43] above. That is a high threshold. It really means that the proceedings are “totally without merit”.42 An example of where this threshold was not met is the TheCircle.co.nz case. In that case, there was a clear finding that the respondent, Trends Publishing, had no basis for asserting that
39 The Big Basin Ltd v StockCo Ltd, above n 1, at [34].
40 Strachan v Denbigh Property Ltd HC Palmerston North CIV-2010-454-232, 3 June 2011 at [27].
41 Big Basin Ltd v StockCo, above n 1, at [52].
42 TheCircle.co.nz Ltd v Trends Publishing International Ltd (in liq and rec), above n 36, at [34] citing Mawhinney v Auckland Council [2021] NZCA 144, [2021] 3 NZLR 519.
any of the expenditure claimed was eligible research and development (R & D) expenditure under the funding agreement in question, and it was largely on this basis that, in the High Court, the funding party was held to be entitled to indemnity costs. In the Court of Appeal, it was accepted that it was “hopeless for Trends to try and prove that all the expenditure on which it had based its claim for grant payments constituted Eligible R & D Expenditure”.43 However, the Court thought it was available to Trends to argue that the conduct of the funding party “affected the interpretation of the Funding Agreement and of Trends’ entitlements thereunder”.44
[51] Despite the fact that the focus at trial was described as “misguided”, with Trends attempting to argue what it “simply could not prove”,45 the Court of Appeal held that the overall case could not be said to fall within the category of “hopeless”.46
[52] In my view, Big Basin’s arguments were similarly mixed. Although its attempt to graft bailment principles onto a straightforward debt claim could perhaps be described as hopeless, the argument raised over interpretation of the directors’ certificate was clearly arguable. Furthermore, to the extent I found that the arbitrator’s factual findings meant any potential error would not substantially impact the rights of one or more of the parties, that involved a question of fact and degree. It did not mean the case was entirely hopeless.
[53] The cases make it clear that indemnity costs are only available for cases that are presumed to have been commenced or continued for an ulterior motive or where there has been wilful disregard of the known facts or the clearly established law,47 I am not satisfied this case meets that threshold and I decline to award indemnity costs.
The claim for increased costs
[54] In the event this Court declines to award indemnity costs under r 14.6(4)(a), StockCo seeks increased costs at an uplift of 100 per cent from scale to reflect the hopelessness of the application for leave to appeal the High Court decision. Given it
43 At [43].
44 At [43(c)].
45 At [44].
46 At [55].
47 Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue, above n 32, at [17].
sought indemnity costs on both applications, I consider there is scope to consider an award of increased costs on both applications.
[55]Increased costs are available under r 14.6(3). That provides that:
(3)the court may order a party to pay increased costs if–
(a)the nature of the proceeding or the step in it is such that the time required by the party claiming costs would substantially exceed the time allocated under band C; or
(b)the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—
(i)failing to comply with these rules or with a direction of the court; or
(ii)taking or pursuing an unnecessary step or an argument that lacks merit; or
(iii)failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument; or
(iv)failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or other similar requirement under these rules; or
(v)failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding; or
(c)the proceeding is of general importance to persons other than just the parties and it was reasonably necessary for the party claiming costs to bring it or participate in it in the interests of those affected; or
(d)some other reason exists which justifies the court making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.
[56] In seeking increased costs in the event I do not award indemnity costs, it appears that StockCo relies on the same arguments it advanced in support of indemnity costs. Those arguments would particularly fall within r 14.6(3)(b)(ii) which involves the party opposing costs having contributed unnecessarily to the time and expense of the proceeding by pursuing an argument that lacks merit.
[57] In my view, there are clear grounds for awarding increased costs on this basis for both applications. Big Basin’s applications for leave to appeal raised multiple grounds, several of which I have found were without merit. I accept that it would have taken significant time on StockCo’s behalf to consider and rebut each ground, and this would not have been required if the applications for leave to appeal was more focused. As StockCo points out, although its position has always been that issues such as bailment are irrelevant, it still had to research and make submissions on these issues for the purpose of the leave application. I am satisfied that StockCo is entitled to 2B costs with a 30 per cent uplift.
[58] Given the costs award is referenced to scale costs, rather than actual costs, I do not need to consider the challenges raised by Big Basin to the actual costs (including arguments as to claiming GST and quantum for attendances).
Costs on the costs applications
[59]StockCo claimed costs for both costs applications made before this Court.
[60] The Court has said it is generally reluctant to awards costs on costs applications as they are often dealt with through memoranda.48 However, other cases note that an application for costs is to be treated no differently for costs purposes from an interlocutory application.49 Woodhouse J in Gibson v Official Assignee of New Zealand appropriately noted that costs on costs are ultimately a matter of discretion.50
[61] Here, I consider both parties have had a measure of success. Big Basin has successfully resisted an award of indemnity costs, but StockCo has succeeded in obtaining significantly more than 2B costs.
[62]Accordingly, costs on this costs application are to lie where they fall.
48 See Neal v Neal [2022] NZHC 2625 at [33]; Jeffreys v Morgenstern [2013] NZHC 1361 at [40]; Barry Park Investments Ltd v Body Corporate Number 95388 [2016] NZHC 1527 at [25]; Epsom Woods Ltd v Waitakere Farms Ltd [2020] NZHC 3137 at [4]; Norrie v Crown Range Holdings Ltd [2022] NZHC 898 at [28]; DGL Manufacturing Ltd (formerly Chempro NZ Ltd) v Simmonds [2022] NZHC 1434 at [18]; and Legler v Formannoij [2022] NZHC 1804 at [12].
49 See Body Corporate Administration Ltd v Mehta (No 4) [2013] NZHC 213 at [85].
50 Gibson v Official Assignee of New Zealand [2015] NZHC 3200 at [14].
Result
[63]Big Basin is to pay 2B costs with a 30 per cent uplift on:
(a)the application for leave to appeal the arbitral award; and
(b)the application for leave to appeal the leave decision to the Court of Appeal.
Solicitors:
Parry Field Lawyers Ltd T/A Parry Field, Christchurch Morrison Mallett, Auckland
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