Waimauri Ltd v Mahon
[2020] NZHC 2310
•4 September 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-000454
[2020] NZHC 2310
BETWEEN WAIMAURI LIMITED
Plaintiff/First Counterclaim Defendant
TIMOTHY LAIRD EDNEY
Second Counterclaim DefendantWAIKORO LIMITED
Third Counterclaim DefendantAND
NEVILLE CHRISTOPHER MAHON
First Defendant
BEACH ARENA LIMITED
Counterclaim Plaintiff
Hearing: 21 August 2020 Counsel:
D Chisholm QC and M J Lenihan for Waimauri Ltd, Edney and Waikoro Ltd
A Glenie for Mahon and Beach Arena Ltd
Date:
4 September 2020
COSTS JUDGMENT OF MUIR J
This judgment was delivered by me on Friday 4 September 2020 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date:…………………………
Counsel:
D Chisholm QC, Barrister, Auckland M J Lenihan, Barrister, Auckland
A Glenie, Glenie Legal, Auckland
Solicitors:
Brown Partners, Auckland (J Brown)
WAIMAURI LIMITED v MAHON [2020] NZHC 2310 [4 September 2020]
Introduction
[1] In my substantive judgment1 I gave judgment in favour of the plaintiff (Waimauri) against the defendant Mr Mahon in the amount of $394,245.74 plus interest. I did so on the basis of a loan agreement with Beach Arena Ltd (BAL) of which Mr Mahon was guarantor. Such interest, calculated at the contractual default rate of 18 per cent, totalled $437,639.42 as at 29 May 2020.
[2] By comparison the amount sought in the statement of claim dated 14 March 2018 (including interest to the date of filing) was $2,420,925.22. Ongoing interest was claimed at 18 per cent.
[3]By way of further comparison, the plaintiff claimed in opening an amount of
$1,382,289.29 plus interest. The reduction from the sum pleaded reflected recognition that the compound interest calculation which informed the prayer for relief in the statement of claim was unsustainable.
[4]My judgment also dismissed BAL’s counterclaims. These were:
(a)For the sum of $4,100,000 less the sum secured under the loan agreement.2
(b)Alternatively, $766,295.18 on a quantum meruit claim.
[5] I reserved costs, noting an intention by the plaintiff to seek an indemnity award pursuant to relevant provisions in the loan agreement.
[6] I have now received written submissions and, because of the sums involved, agreed to hear from counsel on 21 August 2020.
[7] The plaintiff seeks an award in the amount of $315,839.12, being approximately 74 per cent of its actual costs of $426,690.86.
1 Waimauri Ltd v Mahon [2020] NZHC 1170.
2 Nominally $442,682.92 although in fact a lesser sum, as discussed in my judgment.
[8]The defendant says:
(a)the contractual indemnity does not respond;
(b)if it does, it is limited to costs incurred in respect of the claim and defence but not the counterclaim;
(c)the maximum amount which should be awarded on the indemnity claim is $55,271.86. However, even this sum should be largely or fully abated because of substantial overreach by the plaintiff in terms of the claim brought by it and the fact that, if it had confined itself to its contractual entitlements, the matter would have resolved long before trial;
(d)if the contractual indemnity does not respond to the claim and defence, then scale costs should be no more than $32,647.32. But again this sum should be abated on account of the plaintiff’s conduct; and
(e)in respect of the counterclaim the maximum scale award should be
$55,469.3 But this sum should likewise be abated “as the counterclaims would likely never have been brought if the plaintiff had only claimed
$394k in fact due”.
The issues
[9]These appear to be as follows:
(a)Does the contractual indemnity respond at all?
(b)If it does respond, to what elements of the claim and counterclaim does it do so?
(c)To what extent is the plaintiff’s “overreach” relevant to its claim for indemnity costs.
3 The written submission at para [20(b)] identifies $68,165.15 but this is inconsistent with the schedule attached.
(d)Are the costs claimed under the indemnity “reasonable” in regard to the factors identified by the Court of Appeal in Black v ASB Bank Ltd.4
(e)In respect of any part of the claimed defence or counterclaim not covered by the indemnity, what is the quantum of scale costs and is any reduction from them appropriate having regard to the principles within which the Court’s overall discretion operates?
Does the contractual indemnity respond at all?
[10] Rule 14.6(4)(e) of the High Court Rules 2016 provides that the Court may order a party to pay indemnity costs if:
(e)the party claiming costs is entitled to indemnity costs under a contract or deed.
[11] The plaintiff’s claim for indemnity costs is based on cl 11.1 of the loan agreement. This provides:
11.1Borrower and Guarantor indemnity
The Borrower and Guarantor each indemnify, and agree to save harmless, the Lender from and against all losses, claims, demands, liabilities, payments, charges and expenses which may be made against or incurred by the Lender arising from or relating to this Agreement or the Security Documents, or the exercise by the Lender of any rights, powers or remedies under this Agreement or the Security Documents, and further from and against any losses, costs or expenses which the Lender sustains or incurs from any reason or cause whatever and as a consequence of, but not limited to:
(a)the occurrence of any Event of Default;
(b)any action or non-action by the lender in the enforcement of or protection of its rights or remedies under this Agreement or the Security Documents; or
(c)the operation of any statute, bylaw or regulation affecting this Agreement or any Security Document.
[12] The plaintiff claims that this clause is “clearly sufficient to impose liability on a solicitor/client basis”. The defendant relies on established authority that an
4 Black v ASB Bank Ltd [2012] NZCA 384 at [80].
entitlement to indemnity costs must be “plainly and unambiguously expressed”.5 He says that the clause does not specifically refer to legal costs, still less legal costs on the solicitor/client basis. He relies in particular on the decision of the Court of Appeal in Newfoundworld Site 2 (Hotel) Ltd v Air New Zealand Ltd.6
[13] In that case Newfoundworld contracted to provide accommodation services to Air New Zealand’s ground crew. It wrongly invoiced Air New Zealand for early check-in charges. Air New Zealand sought recovery of the overpayments and indemnity costs under a contractual provision by which Newfoundworld indemnified it “against all losses, damage and costs … (excluding any consequential or indirect losses, damages, or costs) arising out of or related to a breach” of the contract.
[14] The Court of Appeal held that Air New Zealand was not entitled to an indemnity for solicitor/client legal costs.7 It did so on the primary basis that legal costs were consequential or indirect and so fell within the exclusion in the clause. The Court did, however, make the obiter observation that:8
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 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”.
(footnotes omitted)
[15] Significantly, however, the Court of Appeal went on to distinguish two earlier Court of Appeal authorities Beecher v Mills9 and Watson & Son Limited v Active Manuka Honey Association,10 in the following terms:
5 Re Adelphi Hotel (Brighton) Limited [1953] 1 WR 955 at 961 (Ch).
6 Newfoundworld Site 2 (Hotel) Ltd v Air New Zealand Ltd [2018] NZCA 261, [2018] NZCCLR 22.
7 At [82].
8 At [84]
9 Beecher v Mills [1993] MCLR 19 (CA).
10 Watson & Son Limited v Active Manuka Honey Association [2009] NZCA 595.
[86] Likewise in Watson & Son Ltd v Active Manuka Honey Assoc, the indemnity was against all “actions and damages that may result from the licencee’s operations”. This Court said that the use of the term “actions or damages” plainly contemplated the possibility of court proceedings which might result in the Association incurring legal costs. The Court was satisfied that, as a matter of construction, the recovery of solicitor/client costs was necessarily implied. In reaching that view, the Court relied upon the decision in Beecher v Mills which involved a claim for legal costs under an indemnity given to the vendor in an agreement for sale and purchase of shares in a company. As with the clause in Watson, the clause in Beecher referred specifically to the possibility of a claim by a named party but made no specific reference to legal costs. The Court was satisfied in that case that it was a necessary implication of the clause that solicitor/client costs did fall within the indemnity.
[16] In the present case the operative terms of the indemnity are against all “payments, charges and expenses”.
[17] The defendant draws an analogy with the reference to “all … costs” in Newfoundworld and says that the absence of explicit reference to solicitor/client costs in this case is fatal for the reason that the asserted claim is not plainly and unambiguously expressed. He draws a comparison with cl 6.5 of the loan agreement which provides:
6.5 Legal fees
The Borrower agrees, at the direction of the Lender, to pay all legal fees incurred by the Lender in connection with the preparation, negotiation, execution and completion of this Agreement.
[18] He says that the express recognition of “legal fees” in cl 6.5 and omission of that phrase in cl 11.1 is a proper basis for inferring that solicitor/client legal costs were not among those intended to be captured by the references to “payments, charges and expenses” or “costs and expenses”. In a similar vein, he refers to the very explicit wording in the Waimauri/BAL lease to “Landlord’s legal costs (as between lawyer and client) of and incidental to the enforcement of the Landlord’s rights …”.
[19] I do not accept the defendant’s arguments. The reference to “payments, charges and expenses” in cl 11.1 must be considered in the context of the clause as a whole, and in particular the further words “which may be made against or incurred by the Lender arising from or relating to this Agreement or the Security Documents, or the exercise by the Lender of any rights, powers, or remedies under this
Agreement…”. In addition, there is an indemnity against expenses which the lender “sustains or incurs … as a consequence of … any Event of Default [or] any action or non-action by the lender in the enforcement of or protection of its rights or remedies
…”.
[20] The clause therefore goes substantially further than that in Newfoundworld. The references to “exercise of rights, powers, or remedies”, “event of default” and “action in the enforcement of or protection of its rights” plainly contemplate the possibility of court proceedings which may result in the lender incurring legal costs. As such, the case is far closer to Active Manuka Honey Association and Beecher v Mills.
[21] Nor do I think a comparison with cl 6.5 assists. That clause is focused on the recovery by the landlord of one particular disbursement – legal fees incurred in preparation of the lease. Realistically the disbursement cannot be otherwise described, so the reference to “legal fees” is unexceptional. I contrast that with cl 11.1 which endeavours to capture all costs or expenses associated with action in the enforcement of rights and remedies. This could include process servers’ costs, experts’ costs and a myriad of other disbursements not captured within the concept of “legal costs”. More generic wording is predictable in that context. I accept that the “belt and braces” approach would have been to include in parenthesis after the reference to “costs or expenses” the words “including legal costs on a solicitor and client basis”, but I do not consider, as a matter of construction, that solicitor and client costs are necessarily irrecoverable absent those words. Nor do I consider provisions in a separate contract, between different parties (such as the lease) useful in terms of the exercise I am required to undertake.
[22] I conclude, as a matter of construction, that the recovery of solicitor/client costs was necessarily implied by the terms of the clause.11
11 See also Kent Sing Trading Company Ltd & Ors v JNJ Holdings Ltd [2019] NZCA 388 at [131], where the Court of Appeal allowed a claim of indemnity costs against a lessee in circumstances where the lease provided that the lessee “shall pay ... all costs, charges and expenses for which the lessor shall become liable in consequence of or connection with any breach or default by the lessee in the performance or observance of any of the terms, covenants and conditions of this lease”. The Court held that the “wide wording” of the clause entitled the lessor to indemnity costs.
Does the indemnity apply to all of the plaintiff’s costs?
[23] These proceedings involved (1) a claim, (2) a defence based on an alleged variation agreement (or estoppel equivalent) in terms that if the plaintiff received a reasonable offer for the relevant properties the “slate would be wiped clean” and (3) a counterclaim for the uplift over option price which the plaintiff received on sale of the property (or alternatively in quantum meruit reflecting monies spent on the property by the defendant’s interests during its occupation).
[24] On the assumption the indemnity applies at all, the defendant does not dispute its application to costs incurred in prosecution of the claim and in resisting the defence.12 He says, however, that the indemnity does not apply to costs associated with defence of the counterclaim. Whether it does is again a matter of construction of cl 11.1.
[25] In my view costs in defence of the counterclaim cannot be said to relate to exercise by the plaintiff of its rights and remedies under the loan agreement. These words are apt to capture its claim, only.
[26] Nor on any basis which might be considered plain and unambiguous could such costs be said to be a “consequence of [any] event of default”. The costs, which in my view fall in that category, are those which flow predictably from such an event
– being the costs of recovery of any sum outstanding, including costs expended in rebutting any defence. Insofar as the counterclaim sought recovery of the uplift on sale of the property or sums expended in its improvement, it stood outside the loan agreement. In defending it the plaintiff was not incurring costs “as consequence of … the occurrence of any Event of Default”. It was simply meeting a case which could have been brought independently.
[27] Similarly, the entitlement to recover expenses in consequence of “any action or non-action by the Lender in enforcement of or protection of its rights… remedies
12 Subject to its further submission that these should be either abated or extinguished in the manner indicated.
under this Agreement …” does not in my view respond to the uplift or quantum meruit claims.
[28] The position is made slightly more complex by the fact the defendant pursued both “clean slate” and “uplift” arguments. In reality, however, it does not affect the analysis because in his uplift claim the defendant gave credit for whatever sum was ultimately held to be owing under the loan agreement, so the “clean slate” argument can be seen as a defence to the claim and the (net) uplift claim in the independent manner I have described.
[29] If that is the case, and assuming costs expended in defence of the counterclaim are not recoverable under the indemnity, the key question is what percentage of the total costs should be attributed to the claim and its defence on the one hand, and to defence of the counterclaim on the other.
[30] This is not an exact science and any attempt at a formula based on the number of pages devoted to respective parts of the closing submissions (as the plaintiff suggests) is of only marginal assistance. Likewise, in my view any formula which compares the plaintiff’s actual recovery under the loan agreement ($394,245) with the (gross) uplift of $4,1000,000. Ultimately as trial Judge I must make the best assessment I can, taking into account:
(a)The interrelationship of the “clean slate” and “uplift” arguments.
(b)The significant focus during and in the immediate aftermath of the trial on what sum was owing under the loan agreement including:
(i)evidence and extensive argument on whether Mr Edney could “roll” debt owing by BAL to Waikoro Limited into the Waimauri loan; and
(ii)multiple submissions subsequent to trial and in response to the Court’s identification of a $71,000 accounting error in the plaintiff’s claim. I accept Mr Glenie’s submission that the
plaintiff’s resistance to the seemingly inevitable consequences of such an error led to a “regrettable number of memoranda”
[31] I accept as fair the defendant’s proposed attribution of one third of the plaintiff’s costs to claim, one third to defence and one third to counterclaim. In doing so I must necessarily exercise the “robust” jurisdiction available to me in this context. The result would potentially be to bring two thirds of the plaintiff’s solicitor/client costs within the indemnity and for costs on the counterclaim to be assessed in accordance with the scale. If anything, such approach tends in my view to be slightly generous to the plaintiff. Both counterclaims were evidence rich and the subject of extensive submission.
What discretion exists in respect of awards of indemnity costs – the Plaintiff’s alleged “overreach”?
[32] As indicated, both entitlement to and extent of recovery under an indemnity costs provision is a matter of contractual interpretation. Where the contract does provide for such recovery there is no discretion in the usual sense in terms of quantum of award. To recognise such a discretion would be to undermine what has been contractually provided for. Thus in Beecher v Mills13 the Court of Appeal observed:
In the case of a contract it must in the end be a matter of determining what recovery is expressly or impliedly intended. In principle, anything less than a full indemnity for costs properly incurred must leave the indemnitee with part of the liability for which the indemnifier is prima facie responsible …. In the absence of a contrary indication it is not to be assumed that the parties intended such a result. Nor can there ordinarily be any room for the exercise of a judicial discretion to order less costs and thereby erode the contractual protection the indemnity was intended to provide. A contractual obligation of that kind is enforceable unless contrary to public policy and, as in ANZ Banking Group(NZ) Ltd v. Gibson [1986] 1 NZLR 556, we are unable to see how requiring the Beechers in this case to meet all costs (calculated on a solicitor/client basis) properly incurred by Mr Mills in relation to the performance of the indemnity under clause 20 could be said to impede the administration of justice or otherwise be contrary to any discernible public policy considerations.
[33] Although, as I will discuss shortly, indemnity costs must be reasonable and the Courts have recognised a number of factors in that assessment, this does not, as
13 Beecher v Mills [1993] MCLR 19 (CA) at 25.
Fisher J observed in Frater Williams & Co Ltd v Australian Guarantee Corporation (NZ) Ltd,14 “import a discretion in the usual sense”. Although his Honour went on to say, a court may, in assessing reasonableness, exercise a robust judgment.
… this can not be taken to mandate a discretionary approach akin to a Court’s assessment of party and party costs. The object is not to exercise a discretion but rather to assess whether solicitor-client costs sought are properly attributable to the exercise contemplated in the original contract and are charged for at a level which will be regarded as acceptable in a costs revision under the Law Practitioners Act.
[34] Beecher and Frater were both applied by the Court of Appeal in Watson & Son Ltd v Active Manuka Honey Association:15
[35] It is clear in principle and on authority that once it is established that the indemnity is applicable in the circumstances and that, properly construed, it includes solicitor—client costs, no discretion remains available other than on public policy grounds or as part of an assessment by the court as to whether the amount of the solicitor — client costs is objectively reasonable: …
[36] Fisher J was referring to the Law Practitioners Act 1982, which is no longer in force. However, it is clear from his remarks that a discretion in the usual sense does not exist in this context. In the absence of any countervailing public policy considerations, the court is concerned only with assessing the reasonableness of the amount of the solicitor—client costs incurred.
[35] I am unable to identify any public policy grounds which would justify me declining the plaintiff’s claim to indemnity costs. Mr Glenie refers, in his written submissions, to the plaintiff’s “blood thirsty approach throughout this case” and to a “history of wild aggression”. In my substantive judgment I was direct in my criticism of Waimauri’s Mr Edney, who, I said, had variously acted with “hubris” and in breach of “normative standards of fair play”.16 Nevertheless, I considered Waimauri’s claim under the loan agreement made out (albeit at a significantly reduced level) and that the counterclaim must fail.
[36] Mr Glenie was unable to refer me to any authority which would elevate this Court’s criticisms of Mr Edney to the level of a public policy objection to recovery of indemnity costs. That Mr Edney choses to act in a particularly hard-headed and
14 Frater Williams & Co Ltd v Australian Guarantee Corportation (NZ) Ltd (1994) 2 NZConvC 191, 873 at [13].
15 Watson & Son Ltd v Active Manuka Honey Association [2009] NZCA 595 at [35] and [36].
16 Waimauri Ltd v Mahon [2020] NZHC 1170 at [126] and [128].
unsympathetic way is ultimately a matter for him but it must, in my view, be a very rare case where a court regards enforcement of contractual rights (however strictly and uncompassionately pursued) as a breach of public policy. I am not prepared to go that far.
[37] In oral argument Mr Glenie advanced a variant on this theme by saying that if the right to indemnify solicitor/client costs derives impliedly from cl 11.1, a further implication could be made that Waimauri should act reasonably and fairly in any recovery. In my view that would involve implying a term well beyond the limits of what the authorities permit. It would mean (effectively) that notions of “fair play” or perhaps even civility were properly imported into the contract. Again, I am not prepared to go that far.
[38] A related issue is whether, the fact that the plaintiff’s ultimate recovery was significantly less than that sought by it, there is a proper basis for the Court to discount solicitor/client costs. Two recent cases address this issue.
[39] In Herron v Wallace & Ors,17 Mr Herron was successful in the High Court and initially awarded damages in the amount of $966,531. These were, however, reduced to $291,531 on appeal. The deed under which Mr Herron sued provided for solicitor/client costs.
[40] In respect of the High Court hearing, Faire J awarded costs of $291,880.52 (GST exclusive) against an indemnity claim of $393,165.52. Following the Court of Appeal judgment, the matter reverted to Hinton J to decide, inter alia, what, if any, reduction should be made to the plaintiff’s indemnity costs award. Her Honour stated:18
The leading case on solicitor/client costs is the Court of Appeal’s decision in Black v ASB Bank Ltd.19 The Court noted that when indemnity costs are claimed on a solicitor/client basis under a contractual provision, the Court must undertake a different analysis than it would when awarding indemnity costs in its discretion … The Court must assess what the necessary steps to
17 Herron v Wallace & Ors [2018] NZHC 2638.
18 At [25].
19 Black v ASB Bank Ltd [2012] NZCA 384.
the claim are, and whether the costs claimed for those steps are reasonable.20 The word “reasonable” here does not, however, import the same discretion as in other costs claims. Assessing costs claimed under a contractual entitlement involves the Court considering whether the tasks undertaken were reasonably necessary and were covered by the contract, whether the charge rates were reasonable, and whether any other general contract law principles deny the claimant its prima facie right to judgment.21 As such, the analysis is more strictly in favour of the party claiming indemnity costs.
[41]Her Honour then went on to note:22
While it is arguably open to me to consider whether costs should be on an indemnity basis in light of the much lower judgment sum and alleged public policy concerns, I did not take Mr Corlett to press that course. I was also provided with no authority to support overriding of the contractual indemnity provision. Further, I note that in ANZ Banking Group (NZ) Ltd v Gibson, the Court of Appeal made it clear that an indemnity clause such as clause 12, which merely regulates the rights of the parties, would not “tend to divert the course of justice”.23
[42] Her Honour did, however, accept the defendant’s submission that there should be a reasonable deduction from the sum awarded by Faire J and taking a “robust approach” did so by 30 per cent.
[43] In Kent Sing Trading Company Ltd & Ors v JNJ Holdings Ltd,24 the plaintiff was awarded damages of $215,048.42. Indemnity costs were claimed in the amount of $203,820.59. The trial Judge accepted that a contractual indemnity applied but awarded the plaintiff $61,146.18 only in respect of its claim.25 The plaintiff appealed the cost decision. The Court of Appeal held:
[132] … Given the obligation to pay indemnity costs is contractual, the Court’s discretion is more limited. This Court has observed:26
“In principle, anything less than a full indemnity for the costs properly incurred must leave the indemnitee with part of the liability for which the indemnifier is prima facie responsible… In the absence of a
20 Black v ASB Bank Ltd [2012] NZCA 384 at [77]. See further Frater Williams & Co Ltd v Australian Guarantee Corporation (NZ) Ltd (1994) 2 NZ ConvC 191,873 (CA) at 191,886– 191,887.
21 Black v ASB Bank Ltd [2012] NZCA 384 at [80]; and Watson & Son Ltd v Active Manuka Honey Association [2009] NZCA 595 at [20].
22 Herron v Wallace & Ors [2018] NZHC 2638 at [31].
23 ANZ Banking Group (NZ) Ltd v Gibson [1986] 1 NZLR 556 (CA) at 571.
24 Kent Sing Trading Company Ltd & Ors v JNJ Holdings Ltd [2019] NZCA 388.
25 He also awarded costs on a counterclaim by a non-party to the lease on a scale basis.
26 Beecher v Mills [1993] NCLR 19 at [25].
contrary indication it is not to be assumed that the parties intended such a result.”
[133] This Court has also said it is incorrect to assess reasonableness solely by a comparison of costs charged against the sum at stake.27
[44] In summary, the cases do not establish a public policy requirement to abate solicitor/client costs awards to reflect what is considered a reasonable correlation between costs incurred and sum claimed. Nevertheless, provided the analysis is not being driven solely by the correlation, there is room for the issue to be considered within the criteria for assessing reasonableness identified in Black v ASB Bank Ltd.28 Particularly in terms of whether the tasks undertaken were reasonably necessary, were contemplated in the contract and whether the legal team engaged was one appropriate in the context. Moreover, the final assessment is one where a Judge should stand back from microscopic analysis.
Assessment under the criteria in Black v ASB Bank Ltd
[45] As identified by Hinton J in Herron v Wallace29 the relevant factors identified in Black v ASB Bank Ltd for assessing reasonableness of costs claimed are:30
(a)What tasks attract the costs indemnity on a proper construction of the contract.
(b)Whether the tasks undertaken were those contemplated in the contract.
(c)Whether the steps undertaken were reasonably necessary in pursuance of those tasks.
(d)Whether the rate at which the steps were charged were reasonable.
(e)Are there any other principles which would deny the indemnitee its prima facie right to judgment.
27 Edel Metals Group Ltd v Geier Ltd [2018] NZCA [2018] NZCA 494 at [62].
28 Black v ASB Bank Ltd [2012] NZCA 384 at [80].
29 Herron v Wallace & Ors [2018] NZHC 2638 at [25] and [62].
30 Black v ASB Bank Ltd [2012] NZCA 384 at [80].
[46] The defendant’s principal argument in respect of these factors is that on its proper construction the contractual indemnity did not extend to costs incurred in pursuing claims in excess of the sum awarded. A related submission is that although the hourly rates charged by the plaintiff’s Queens Counsel and Senior Junior (cumulatively $1,100 per hour) were not unreasonable in themselves, the sum to which the plaintiff was legitimately entitled ($394,245.74) was one appropriately pursued by a less experienced, and therefore expensive, legal team.
[47] Mr Glenie emphasises that the principal sum awarded ($394,245.74) was approximately only 30 per cent of the principal sum sought by the plaintiff in opening ($1,382,289.29). He correctly identifies that the difference (approximately $988,000) was comprised substantially ($919,000) of sums which were not advanced by Waimauri under the loan agreement but rather were advanced by Waikoro Ltd to BAL and then “rolled” by Mr Edney into the Waimauri loan in an attempt to access the guarantee given by Mr Mahon. In my substantive judgment I held that in doing so Mr Edney acted unilaterally and over Mr Mahon’s objections. I found that “none of the converted sums are recoverable under the loan agreement”.31
[48] The balance of the $988,000 difference was comprised of a sum which, during the course of preparing the judgment, I identified as having been double-counted under the Waimauri loan agreement. Multiple memoranda followed. The plaintiff did not dispute the error but contended for various offsets which I ultimately rejected, except in respect of a sum of accumulated interest.32
[49] The relevant inquiry is therefore whether the sums expended in pursuit of these disallowed claims are, as a matter of construction, properly within the cl 11.1 indemnity.
[50] I do not consider such costs can correctly be regarded as incurred in consequence either of “any Event of Default” or “any action … by the Lender in the enforcement of or protection of its rights…”. There was no right under the Waimauri
31 Waimauri Ltd v Mahon [2020] NZHC 1170 at [177].
32 Being $23,523.11.
loan agreement to recover sums advanced by Waikoro, and for which neither BAL nor Mr Mahon had accepted a liability to Waimauri. I held accordingly.
[51] Likewise, Waimauri’s claim to recover the double-counted sum did not involve expenditure in the enforcement or protection of any right.
[52] Nor am I persuaded that the costs incurred in respect of any of these claims were incurred “by the Lender arising from or relating to this Agreement…”. The effect of my judgment is that the attempted recoveries lay outside the agreement. Alternatively, if any ambiguity arises, it is, in my view, appropriately resolved against the lender on the contra proferentum principle.
[53] The plaintiff suggests that these and any associated issues are appropriately recognised by its proposed 20 per cent discount from actual costs incurred. The defendant says that the discount should be 70 per cent based on a formula of the principal sum recovered compared to the principal sum sought in opening.
[54] I cannot accept the defendant’s approach because it implicitly recognises an arithmetic correlation between time expended by counsel and ultimate recovery. That may be so in respect of the post-trial attendances relating to the double-counted sum. But there is, in my view, an artificiality in suggesting that the trial (and associated preparation) would have been truncated by 70 per cent if the plaintiff had confined itself to its legitimate claims.
[55] Mr Glenie says that had it done so “the defendants (sic) would not have been forced to pursue the counterclaims” and that the plaintiff’s overreach “dispelled any prospect of prompt and pragmatic settlement”. But that is speculative. As the plaintiff submits, Mr Mahon could have freely paid the amount ultimately awarded at any time or could have made either an open offer or Calderbank offer to do so. I take into account also that Mr Mahon and Mr Edney now have a long history of litigation. Their respective positions are entrenched and seemingly personal. My assessment is that any claim under the loan agreement, even at the level ultimately awarded, plus interest, would have been met with strong resistance by Mr Mahon.
[56] Similar considerations inform my response to Mr Glenie’s submissions about the hourly rates. It is again, in my view, artificial to suggest the claim could have been pursued by a junior legal team on the assumption it was a straight forward debt recovery. From the outset, when demand was first made under the guarantee, Mr Mahon made his position clear that the parties had orally agreed to “wipe the slate clean” in the event of an ultimate sale which realised a net price sufficiently above the option price.33 In my assessment, that was always an argument he would have sought to run, whether the claim was for $394,000 plus interest, $1,382,000 plus interest, or indeed the sum initially sought in the statement of claim. And it was in exploration of that alleged oral agreement that much of the trial was devoted.
[57] By the same token however, I consider that the plaintiff’s proposed 20 per cent discount does not fairly capture the excess attendances associated with those parts of the plaintiff’s claim which fell outside the loan agreement. There was significant evidence and argument about whether the defendant should be estopped from denying Mr Edney’s ability to “roll” the Waikoro debt into the Waimauri loan, about whether the loan agreement (and associated security documents) allowed for recovery, irrespective of Mr Mahon’s consent and about recoverability of the double-counted sum.
[58] Necessarily, the discount I adopt is not one amenable to precise or arithmetic calculation and some robustness is required. In my view a discount of 40 per cent is justified. It is broadly in line with the cumulative discounts (48 per cent) allowed for by the trial Judge and Hinton J in Herron v Wallace34 and it recognises, as best able, my assessment as trial Judge of the extent to which the plaintiff’s costs were absorbed in pursuit of claims which were irrecoverable in terms of the loan agreement. In particular, I consider that the trial itself was likely to have been extended by one to two days on this account and that the post-trial attendances (for which the plaintiff claims two days approximately) were again largely focused on the pursuit of irrecoverable sums. In broad terms a 40 per cent discount captures the necessary
33 There were some particular nuances to this argument which I discuss at [118] to [124] of my principal judgment.
34 Herron v Wallace & Ors [2018] NZHC 2638.
allowances, taking into account the fact that the trial was of 10 days’ duration. If anything it tends, in my view, to slightly to favour Mr Mahon.
[59] On the approach I have adopted (which is to attribute two thirds of total costs to the claim and defence) and on the basis of the plaintiff’s schedules and invoices identifying total claimed costs including disbursements of $378,799.1535 (excluding GST),36 the appropriate calculation is therefore ($378,799.15 x 2/3) x 0.6 =
$151,519.66. However, the disbursements identified by the plaintiff include $1,720 of filing fees directly attributable to the counterclaim. If I eliminate those from the calculation and deal with them separately in the context of the counterclaim (where full and not two thirds recovery is appropriate) the calculation is, on a GST exclusive basis, ($377,079.15 x 2/3) x 0.6 = $150,831.66. That is the sum I award for indemnity costs. I note that an add back will be necessary, when I come to assessing the counterclaim costs, for one third of the hearing fees as these are included in the plaintiff’s list of disbursements.
[60] For completeness, I note that I do not consider such an award out of all proportion to Waimauri’s legitimate interests in ensuring performance of the terms of the loan agreement. I do not therefore regard the penalty argument which Mr Glenie advances on the strength of the final factor recognised in Black v ASB Bank Ltd37 as applicable. His submission was premised on a recovery under the indemnity clause “which approach[ed] the principal due”. An award of costs in the amount indicated is 40 per cent only of the principal sum awarded in my judgment and less than 20 per cent of the award plus interest.
The Calderbank “offer”
[61] On 2 March 2020, which was the day before the trial commenced,38 a letter without prejudice except as to costs was sent by the defendant to the plaintiff. It was
35 I have deducted the $16,000 hearing fees refund, which Mr Chisholm QC noted in oral argument had now been received.
36 As the plaintiff acknowledges, the calculation appropriately proceeds on a GST exclusive basis because of Waimauri’s GST registration status. See New Zealand Venue and Event Management Ltd v Worldwide New Zealand LLC [2016] NZCA 282, (2016) 27 NZTC 22-058 at [17].
37 Black v ASB Bank Ltd [2012] NZCA 384.
38 Its commencement was delayed to Tuesday 3 March on account of the ill health of the defendant’s junior counsel.
confined to the quantum of the plaintiff’s claim and proposed that the plaintiff “not seek in the proceeding” any amount in excess of that originally advanced under the loan agreement (that is excluding the sums unilaterally rolled into the loan by Mr Edney). A term of the “offer” was that the plaintiff accept liability for the costs incurred by the defendant in respect of the additional claims between 14 March 2018 and acceptance.
[62] Had the “offer” been accepted, the plaintiff would have in fact recovered a greater sum than ultimately awarded (on account of my late identification of the double-counting issue). As such r 14.11(3)(6) is engaged.
[63] Rule 14.11 provides that the effect of a Calderbank offer on any award of costs is at the discretion of the Court. In Aldrie Holdings Ltd v Clover Bay Park Ltd (No 2)39 Heath J held that the Calderbank rules are “independent of those relating to increased costs [under r 14.6]”. In my view the prospect that a contractual indemnity award might be mitigated by a Calderbank offer is consistent both with the public policy reasons which underscore r 14.10 and the public policy exception constantly recognised in the indemnity costs context.
[64] Mr Glenie argues that an allowance of $22,400 (excluding GST) should be made on account of the offer which he calculates by reference to two days preparation time and two days hearing time for defence counsel. He also says that hearing fees of
$6,400 could have been avoided.
[65] There are in my view two difficulties with the “offer”. Firstly it came very late.40 Moreover, in its terms, it was simply an invitation to accept the extent of liability admitted in the statement of defence and to pay costs. It was not in the nature of an offer of compromise in any real sense. However, as indicated, I accept that the trial was made more attenuated than necessary by pursuit of irrecoverable claims and that this approach persisted in the post-trial period.
39 Aldrie Holdings Ltd v Clover Bay Park Ltd (No 2) [2016] NZHC 1482 at [38].
40 See for example Strachan v Denbigh Property Ltd HC Palmerston North CIV-2010-454-232, 3 June 2011, at [21], where an offer made on 30 November for a liquidation hearing on 2 December was disregarded for costs purposes.
[66] In my view the effect of the “offer” is adequately provided for in the 40 per cent discount which I have built into my calculations on account, inter alia, of the plaintiff’s pursuit of claims not provided for under the loan agreement. I do not therefore make any discrete allowance under r 14.11(1).
The counterclaim – calculation of scale costs
[67] Each of the plaintiff and defendant have submitted schedules setting out their respective calculations, on the assumption scale costs are applicable to the counterclaim. Annexed to this judgment is my own schedule reflecting what I regard to be an appropriate allowance. I make the following comments:
(a)My calculations are premised on the division previously identified between claim, defence and counterclaim – that is allocating one third of trial time to the counterclaim.
(b)All calculations proceed on a 2B basis which I regard as appropriate. The trial was reasonably lengthy but essentially factual. It was a proceeding of average complexity for this Court. Each of the steps required attendances of average duration. The plaintiff does not contend otherwise.
(c)Some of the attendances are calculated by reference to the daily rate applicable to 31 July 2019 ($2,230 per day) and some at the rate applicable thereafter ($2,390 per day). I have identified each attendance as either “Pre” or “Post” this change.
(d)In respect of Item 11 (memorandum for first and subsequent case management conferences or mentions) the plaintiff identifies 11 such memoranda making for a total claim of 4.8 days. I accept the defendant’s submission that the memoranda of 13, 14, and 26 February 2020 should be disallowed. The memorandum of 13 February “sought clarification of matters” in a previous minute of Downs J. His Honour declined to provide such clarification. The memorandum of 14 February 2020 simply indicated that a telephone conference was no
longer required. The memorandum of 26 February was a joint memorandum prepared by the defendant’s counsel in relation to a medical issue concerning the defendant’s junior counsel. No award is appropriate in that respect. In respect of the eight memoranda for which an award is appropriate, a two thirds discount has then been applied on the basis that (in the round) the one third claim, one third defence, one third defence to counterclaim split is appropriate in respect of these filings.
(e)In respect of Item 12 the plaintiff seeks amounts for two mentions, hearings or callovers, being 28 February 2020 and 20 March 2020. I disallow the claim for the conference on 20 March 2020, which related to a possible contempt (resolved by agreement) and not to the counterclaim.
(f)In respect of Items 23, 24 and (part of) 26, although the point is not raised in the defendant’s submissions, I consider a two thirds discount is appropriate because the application to consolidate proceedings was relevant not only to the counterclaim but to the claim and defence. That is not the case in respect of the second claim under Item 26 (appearance at hearing on application for further and better discovery), which related to the counterclaim only.
(g)In respect of Item 34 I have disallowed the plaintiff’s claim for post- trial attendances (two days). The post-trial attendances related almost exclusively to the claim (including the double-counting issue) and the “clean slate” defence. Only in peripheral ways did they engage the counterclaims. However, the structure of this judgment allows some recovery by the plaintiff for post-trial attendances, albeit that the nature of these attendances is one of the factors that has been taken into account in the discount applied at [58] to the indemnity claim.
(h)In relation to the disbursements claim, and although not identified in either submission, I consider it appropriate to add back an allowance
for one third of the hearing fees, being those attributable to the counterclaim. It is necessary to approach the calculation on this basis because of the way in which the plaintiff has “grossed up” its indemnity claim to a combined figure for costs and disbursements – a figure which then needed to be discounted, first by 33 per cent (reflecting the fact that the defence to the counterclaim is not, on my approach, covered by the indemnity) and then by 40 per cent on a Black v ASB Bank Ltd basis.41
(i)I have rounded time allocation and dollar calculations where appropriate. I note that in respect of preparation for the hearing, appearance at the hearing and the hearing itself, the rounding up (from
3.33 days to 3.5 days) is consistent with the approach adopted by the defendant in his submissions.
(j)I reject the defendant’s submission that scale costs, as calculated, should be fully or partially abated on the grounds that “the counterclaims would never likely have been bought if the plaintiffs had only claimed the $394k in fact due”.42 I refer to my discussion in para
[55] above.
(k)The disbursements calculation proceeds on a basis net of GST for the reasons referred to in footnote 36 above.
[68] In the result, I award costs and disbursements on the counterclaim in favour of the counterclaim defendants in the amount of $56,178.09.
Result
[69] I award costs in favour of the plaintiff and against the first defendant in the amount of $150,831.66.
41 Black v ASB Bank Ltd [2012] NZCA 384.
42 Defendant’s submissions para [20(b)].
[70] I award costs in favour of the first and second counterclaim defendants and against the counterclaim plaintiff in the amount of $56,178.09 as calculated in accordance with the attached schedule.
Muir J
SCHEDULE OF SCALE COSTS AND DISBUREMENTS – COUNTERCLAIM (CC)
Item Step Allocation (Days) Pre – Post Change to Schedule 2 Amount 2 Commencement Defence. 2 Pre $ 4,460.00 9 Pleadings in response to amended CC. 2 x 0.6 1 Pre (8.3.19),
1 Post (21.2.20)
$ 2,772.00 11 Filing memoranda for first or subsequent case management conferences. 8 x 0.4 1 Pre (29.1.19)
7 Post (27.11.19,
17.12.19, 24.1.20,
3.2.20, 7.2.20,
27.2.20, (x2)
2.3.20)$7,584 x 1/3
=$ 2,528.00
12 Appearance at mentions or callover 28 February 2020. 0.2 Post $478 x 1/3
=$ 159.00
22 Filing interlocutory applications:
1. Security for costs on CC (25 October 2019).
2. Surety for costs on CC (3 December 2019).
3. Application for further and better discovery CC (19 February 2020),
3 x 0.6 1 Pre (25.10.18)
2 Post (31.12.19,
and 19.2.20)$ 4,206.00 23 Opposition to interlocutory application for consolidation and adjournment. 0.6 Post $1,434 x 1/3
=$ 478.00
24 Preparation submissions. Application for consolidation and adjournment 1.5 Post $3,585 x 1/3
=$ 1,195.00
25 Appearance at defended application for:
1. Consolidation and adjournment.
2. Application for further and better discovery (CC).
0.25
0.25
Post Post
$597 x 1/3
=$ 199.00
$ 597.00
Item Step Allocation (Days) Pre – Post Change to Schedule 2 Amount 33 Preparation of briefs (10 hearing days with 1/3 allocation to CC). 3.33
(rounded to 3.5)
Post $ 8,365.00 33B Preparation of hearing (10 hearing days with 1/3 allocation to CC). 3.33
(rounded to 3.5)
Post $ 8,365.00 34 Appearance at hearing (10 hearing days with 1/3 allocation to CC. 3.33
(rounded to 3.5)
Post $ 8,365.00 35 Appearance at hearing, second counsel (50 per cent of Item 34). 1.75
(from 3.5 rounded in respect of Item 34.)
Post $ 4,183.00 Total: $45,872.00 Disbursements
No Item Amount 1 Filing fee – statement of defence to counterclaim $ 110.00 2 Filing fee – statement of defence to first amended counterclaim $ 110.00 3 Filing fee – statement of defence to second amended counterclaim – not claimed as may not have been paid 4 Filing fee – security for costs application 25 October 2018 $ 500.00 5 Filing fee – second security for costs application 3 December 2019 $ 500.00 6 Filing fee – application for further and better discovery $ 500.00 7 1/3 hearing fees of $30,400 $10,132.00 Total GST inclusive
Total GST exclusive
$11,852.00
$10,306.09
Total costs + disbursements
$56,178.09
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