Warren Metals Ltd v Grant

[2015] NZHC 2462

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2015-404-1090 [2015] NZHC 2462

BETWEEN

WARREN METALS LIMITED

Appellant

AND

DAMIEN GRANT AND STEVEN KHOV Respondents

Hearing:	30 September 2015
Appearances:	S S Khan & R L White for the Appellant R M Dillon for the Respondents
Judgment:	8 October 2015

JUDGMENT OF NATION J

[1]      This is an appeal against a judgment of District Court Judge Harvey declining to award costs in favour of the appellant after it succeeded on a claim for $45,000 in the District Court.1   He ordered that costs should lie where they fell.

Background

[2]      The appellant (Warren Metals) had for a number of years been purchasing scrap metal from businesses run by Mr William Conway.  One of those businesses was associated with the company 123 Metals Limited.   The principal of Warren Metals was Mr Halloran.  Mr Conway and Mr Halloran had done business together for some 50 years. They operated on a high degree of mutual trust, usually on a cash basis, with little documentation and with little regard for Mr Halloran’s need to

account to different companies for what they were doing together.

1      Warren Metals Ltd v Grant [2015] NZDC 6073.

WARREN METALS LTD v GRANT & KHOV [2015] NZHC 2462 [8 October 2015]

[3]      Mr Grant and Mr Khan (the liquidators) were appointed liquidators of 123

Metals Limited in May 2008 and as liquidators or administrators of two associated companies soon afterwards.

[4]      At the time 123 Metals Limited went into liquidation, at its premises was a metal press.  Warren Metals claimed it was the owner of the press.  The liquidators, partly because of where the press was located and partly because of information which they believed they had been given by certain people, treated the press as belonging to 123 Metals Limited.  At a time when Warren Metals was still asserting that it owned the press, the liquidators arranged for the press to be sold for scrap.

[5]      Mr Halloran and Mr Conway had an arrangement whereby Warren Metals would on occasions provide Mr Conway or his companies with cash as a credit against the cost of scrap metal which one of those companies would supply to Warren Metals.   Not long before the various companies went into liquidation, Mr Halloran provided $40,000 in cash to Mr Conway pursuant to such an arrangement. At the time, in accordance with their usual arrangements, they understood that scrap metal of approximately that value would be supplied to Warren Metals.  It would be put in containers which would be weighed.   The cost of that metal, based on the weight, would then be calculated with Warren  Metals being debited or credited accordingly.

[6]      The liquidators were appointed before the supply of metal had taken place. Warren Metals had to  obtain the metal to  fulfil a valuable order from a major overseas client.  The liquidators claimed that the $40,000 had to be treated simply as an advance to the company and that Warren Metals was in the same position as any creditor.  The liquidators thus claimed they could not simply provide Warren Metals with metal to the value of $40,000.  They agreed to provide the required metal only with a further payment to them of $32,337.90.  Because of the economic pressure it was under with the order which it had to meet, Warren Metals paid that sum.

[7]      In November 2008 Warren Metals issued proceedings, suing the liquidators for the loss it had suffered by reason of the destruction of the press.  It also sued the liquidators for $40,000 for the metal which it had not received.

[8]      The  liquidators  defended  the  claims  on  various  grounds.    One  of  those grounds was that, because they were involved as liquidators, the District Court had no jurisdiction and the claim should have been brought in the High Court.

[9]      In an oral judgment on 6 August 2012, Judge D M Wilson QC struck out the claim against the liquidators on the basis the District Court had no jurisdiction to hear the case.2    In a judgment of 20 February 2013, on appeal, Asher J in the High Court allowed Warren Metals’ appeal and ordered the proceedings to be heard in the District Court.3    It was apparent from his judgment and from submissions that had been made to him that counsel for Warren Metals recognised they would need to amend the statement of claim.

[10]     Warren Metals filed an amended statement of claim on 15 May 2013.   In relation to the metal press, its claims were in conversion, detinue, negligence, breach of bailment  and  breach  of the Fair Trading Act  1986.   Warren  Metals  claimed damages of $40,000 and exemplary damages of $20,000.

[11]     In relation to the $40,000 which it had paid for the metal, Warren Metals claimed $32,337.90 for the amount the liquidators had required it to pay to obtain delivery of the metal.  Its claims were for conversion, detinue and quantum meruit for unjust enrichment.  The claim was for $32,337.90 or alternatively $40,000.  A statement of defence to the second amended statement of claim was filed on 10 June

2013.

[12]     By an email of 12 September 2014, Warren Metals’ solicitors, in a letter to the liquidators’ solicitor “without prejudice save as to costs”, referred to the fact “this matter has recently been set down for a firm hearing” and offered to accept $45,000 in full and final settlement of the matter.  The liquidators’ lawyer responded by email on 19 September 2014, also “without prejudice save as to costs”, advising the liquidators would accept $60,000 in full and final settlement of the matter.   By a letter of 7 November 2014, again  “without prejudice save as  to costs”, Warren

Metals offered to accept $38,000 in full and final settlement, the offer remaining

2      Warren Metals Ltd v Grant DC Auckland CIV-2008-044-002726, 6 August 2012.

3      Warren Metals Ltd v Grant [2013] NZHC 263.

open until close of business on 12 November 2014.  There was no response to that offer.

[13]     Counsel advised that on 17 November 2014 they received notice of the trial date 3 March 2015.

[14]     The hearing proceeded over four days during the period 3-6 March 2015. Judge Harvey gave his decision on 16 March 2015.  As far as the claim in respect of the press was concerned, he found Warren Metals could not succeed on the basis of a breach of the Fair Trading Act but found for Warren Metals in conversion, bailment and negligence, giving judgment for them in the sum of $45,000.

[15]     In relation to the container of metal, Judge Harvey found that property in the metal had not passed at the time the liquidators were appointed so that at that time the metal still belonged to the company.  He found for the liquidators in relation to the claim over the metal in respect of each cause of action which had been pleaded. In  his  judgment,  he  said  his  preliminary  observation  was  that,  because Warren Metals had been successful in respect of one aspect of the claim and the liquidators successful in respect of another, costs should lie where they fell but said the parties

could file memoranda if the issue of costs was to be pursued.4

[16]   Warren Metals filed a memorandum seeking actual costs of $32,082.63 including GST and disbursements for steps in the proceedings after Warren Metals’ settlement offer of 7 November 2014 or, alternatively, scale costs on a 2B basis of

$22,475.  Costs were sought relying on rejection of the offers which had been made by Warren Metals to settle the matter before the hearing.

[17]     The liquidators opposed an award of costs on the basis they had succeeded in respect of five of eight causes of action pleaded against them.   Counsel said the liquidators had incurred costs of nearly $42,000 in dealing with the pleadings before they were amended following the hearing of the appeal in the High Court.  Mr Dillon also submitted that the liquidators could be entitled to five-eighths of the scale costs given  the  causes  of  action  in  respect  of  which  they  had  been  successful.    He

submitted for the liquidators that, on that basis, it was appropriate for costs to lie where they fell but if the Judge was not of that view then costs should be awarded to the liquidators on the causes of action in respect of which they were successful.  This would result in a balance due to the liquidators for costs which should be off-set against the damages for which judgment had been given.

[18]     Judge Harvey gave his decision on costs a short time later.5   In that decision, he referred to the tentative view he had expressed and the offers which had been made for settlement.  He referred to the provisions as to increased costs in r 14.10 of the District Court Rules and r 14.11 of the High Court Rules.  He summarised briefly the submissions made for each party.  He said r 14.11 indicated that costs awarded on a Calderbank basis are at the discretion of the Court.  He said that, while there was a certain attraction to the argument that costs should be apportioned on the basis of a success rate on causes of action, there was only a $5,000 difference between the two claims which was why he had earlier indicated that costs should lie where they fell. The Judge then concluded:

[11]     Whilst I am aware that careful consideration should be given to ensuring that Calderbank offers are not lightly ignored and that the proposals made by the plaintiff were genuine attempts to resolve the matter before trial nevertheless I consider that a fair outcome in this particular case, given that plaintiff and defendant were both partially successful, given that the amounts involved are almost equal, that costs in this matter should lie where they fall and I order that costs lie where they fall.

Submissions

[19]     Mr Khan, for Warren Metals, submitted that the Judge had made an error in principle in not having sufficient regard to the settlement offer which had been made and  in  failing  to  give  adequate  reasons  for not  taking the settlement  offer  into account.

[20]     Mr Dillon stressed that the Judge had a discretion as to the award he would make, had referred to the settlement offer in his decision and had been made fully aware of it through the costs submissions which had been made for each party.  He submitted that this Court could not interfere with the Judge’s decision simply on an

alternative view as to what might have been “fair”.  He also submitted that an offer from a plaintiff as to what it would accept, rather than from a defendant as to what it would pay, was not in the nature of a Calderbank offer as referred to in the rules.

Discussion

[21]     Both parties accept that this appeal is from the exercise of a discretion.  An appellate Court may interfere with a Court’s decision only where it is satisfied:6

The Judge who made the order acted on a wrong principle, or failed to take into account some relevant matter, or took account of some irrelevant matter, or was plainly wrong.

[22]     Counsel for both parties accepted it was reasonable for the Judge to proceed on the basis that attendances and the demands on counsel and the Court’s time with regard to the two claims were approximately equal despite the different causes of action which had been pleaded in respect of each.

[23]     Because Warren Metals was seeking costs only in respect of steps taken after its final settlement offer, the parties were each bearing their own costs in respect of both claims for all steps taken in the District Court before that settlement offer. Judge Harvey had to consider whether costs should be borne in the same way in respect of steps taken after that settlement offer had been made and rejected.  He had tentatively indicated that the costs should lie where they fell when he indicated in his judgment that each party had approximately equal success.  In his decision on costs, he reiterated this consideration of the parity of success.

[24]     What I have to consider is whether he made an error in principle in giving inadequate weight to the settlement offer which had been made.

[25]     Although costs orders involve the exercise of a discretion, the discretion is to be exercised in a principled manner and in conformity with the relevant rules.7

6      Shirley v Wairarapa District Health Board [2006] NZSC 63, [2006] 3 NZLR 523 at [15].

7      At [15]; Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109, [2013] 1 NZLR 305 at

[7].

[26]     The Court of Appeal  has observed with regard to the High Court Rules regarding costs that, while the Court has an overriding discretion, there is a strong implication that a Court is to apply the regime in the absence of some reason to the contrary. The Court has said:8

We do not think that a Court should hesitate to depart from the regime where appropriate but we agree that some articulation of the reason for doing so is to be expected, however succinct.  If no reason is given, it will expose the award to close appellate scrutiny.

[27]     The District Court Rules and the equivalent High Court Rules are intended to encourage parties to make realistic assessments of the benefits of going to trial and to encourage settlement on the basis of realistic assessments and reasonable proposals.9    Consistent with that, the rules make it clear that there will usually be cost consequences if such an offer is rejected.

[28]     District Court Rules 14.10 and 14.11 state:

14.10   Written offers without prejudice except as to costs

(1)   A party to a proceeding may at any time make to any other party to the proceeding a written offer 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.

14.11    Effect on costs

(1)   The effect (if any) that the making of an offer under rule 14.10 has on the question of costs is at the discretion of the court.

(2)   Subclauses (3) and (4)—

(a)   are subject to subclause (1); and

(b)   do not limit rule 14.6 or 14.7; and

8      Mansfield Drycleaners Ltd  v  Quinny’s Drycleaning (Dentice Drycleaning Upper Hutt) Ltd (2002) 16 PRNZ 662 (CA) at [27]; Manukau Golf Club Inc v Shoye Venture Ltd, above n 7, at [7].

9      Shoye Venture Ltd v Wilson [2014] NZHC 1636, (2014) 22 PRNZ 219 at [32] per Duffy J.

(c)   apply to an offer made under rule 14.10 by a party to a proceeding (party A) to another party to it (party B).

(3)   Party A is entitled to costs on the steps taken in the proceeding after the offer is made, if party A—

(a)   offers a sum of money to party B that exceeds the amount of a judgment obtained by party B against party A; or

(b)   makes an offer that would have been more beneficial to party B than the judgment obtained by party B against party A.

(4)   The offer may be taken into account if party A makes an offer that—

(a)   does not fall within subclause (3)(a) or (b); and

(b)   is close to the value or benefit of the judgment obtained by party B.

[29]     In this instance, a responsible and realistic proposal was made for settlement with Warren Metals indicating it would accept $38,000.  That offer was realistic and responsible because Warren Metals was willing to accept an amount less than it was held ultimately to be entitled to.  It was an amount less than the value of the press which it had been deprived of, a loss which the Court held the liquidators were liable for.

[30]     The offer to accept that amount was made some four months before the hearing began.  It was not made at a time when the parties were committed to the intense preparation that was required for the hearing and the steps in respect of which Warren Metals is seeking costs.

[31]     Had the offer not been made, it may well have been reasonable for the Judge to conclude that, because the parties had been equally successful in the proceedings, costs should lie where  they fell.   However,  this offer was made.   Had it been accepted, that would have brought the proceedings to an end.  Warren Metals would not have incurred the costs it did in pursuing the claim on which it was ultimately successful.  The liquidators would not have incurred the costs they did in resisting the claim on which they were successful.   In the context of an offer having been made,  it  could  also  be  said  that  Warren  Metals  was  more  successful  than  the

liquidators because it obtained judgment for an amount greater than it was willing to accept with its settlement offer.

[32]     Mr Dillon suggested the settlement offer made for Warren Metals could not be considered a true Calderbank offer because, in terms of r 14.11, it was not an offer from one party to pay to another party of an amount that exceeds the amount for which judgment is ultimately given.  He suggests the Calderbank scenario envisaged offers made by defendants, not those made by plaintiffs.  He submitted that this was important because “plaintiffs are encouraged to proceed to trial on sustainable causes of action, and defendants are encouraged to consider those causes of action and to respond to them appropriately”.

[33]     I do not consider the rules are to be applied in that way.  Rule 14.10 permits either party to make a written offer which is expressly without prejudice except as to costs.  Rule 14.11 deals with the effect of such an offer on costs.  Rule 14.11(2) says that rr 14.11(3) and (4) are to apply to any offer made under r 14.10.

[34]     Rules 14.11(3) and (4) thus apply to an offer made by either party.

[35]     The effect  of  rr  14.11(1) and  14.11(3)(b) is  that,  subject  to  the ultimate exercise of discretion, a party will be entitled to costs on steps taken in the proceedings after an offer is made if the acceptance of the offer “would have been more beneficial” to the other party than the judgment that was ultimately obtained against that party.

[36]     In  this  case,  acceptance  of  the  offer  would  have  avoided  both  parties incurring  time  and  expense  in  dealing  with  the  claims  that  were  pursued. Acceptance of the offer  would  also  have  avoided  the parties incurring  costs  in respect of the claim on which Warren Metals was successful.

[37]     Mr Dillon also submitted that, in this instance, the liquidators had incurred costs on the claim in respect of which they were successful after Warren Metals had been on notice from the judgment of the High Court on appeal that it could face difficulties in relation to that claim.

[38]     Having read Asher J’s judgment, I do not consider that he expressed such an opinion, assuming the statement of claim was amended to reflect the evidence which Warren Metals had indicated through will say statements it would be putting before the Court.  His Honour said:10

[41]      If  the  facts  relied  on  by  Mr  Khan  are  proven,  then  there  is  an arguable cause of action available to Warren Metals based on conversion or detinue against the liquidators for refusing to provide the containers of metal worth $40,000.  There may also be a claim based on quantum meruit for the unjust enrichment of the liquidators in relation to the second payment of

$32,337.90, a payment for the metal which was in fact at that point already owned by Warren Metals.

[39]     Given the criticism Mr Dillon made in relation to Warren Metals continuing with a claim in the face of what he said was a comment from the High Court that the prospects of success on that claim were limited and his submission that this was relevant in considering cost issues, I do note that in his decision Judge Harvey referred to the liquidators pleading by way of defence, with regard to the press, that the liquidators’ decision regarding ownership could not be challenged in the District Court and Warren Metals was estopped or statutorily barred from asserting that it had any interest in the press.  He referred to a similar pleading in relation to the claim over the metal.  Both these defences were carefully dealt with by Asher J in the High Court.  They had to be because it was on the basis of those pleaded defences that the proceedings had originally been struck out.  Asher J carefully explained why those defences would not be available.   It is nevertheless apparent from Judge Harvey’s decision that the liquidators continued to try and rely on them.  Judge Harvey dealt with those defences in his decision.  Warren Metals must have been put to further cost through their solicitors having to deal with those defences before Judge Harvey.

[40]     The Court of Appeal has said:11

[5]       In a case such as the present, where in broad terms each party has had similar success, we do not consider it helpful to focus too closely on the question which party has failed and which has succeeded.  Costs in a case such as this should rather be based on the premise that approximately equal success and failure attended the efforts of both sides.  To that starting point should be added issues such as how much time was spent on each transaction or group of transactions in issue, and any other matters which can reasonably

10     Warren Metals Ltd v Grant, above n 3.

11     Packing in Ltd (in liq) formerly known as Bond Cargo Ltd v Chilcott (2003) 16 PRNZ 869 (CA).

be said to bear on the Court’s ultimate discretion on the subject of costs.  In the end, as in all costs matters, the Court must endeavour to do justice to both sides, bearing in mind all material features of the case.

[41]     Judge Harvey would have had a better appreciation of all the details of the case than this Court can have on an appeal but he has put to one side what I consider was one of the most material features with regard to costs issues, namely the Calderbank offer.

[42]     Judge Harvey did not explain why he was not taking the Calderbank offer into account other than to say that, because each party had been equally successful, it was “fair” that costs should lie where they fell.   The final paragraph of his costs decision indicates he chose to ignore the settlement offer.  I consider that he made an error in principle in doing so.   I also consider he made an error in principle in reaching a decision as to what he considered “fair” rather than on a principled basis with due regard to the rules.  On that basis I allow the appeal and set aside the orders he made.

[43]     Having set aside the order, I have considered what order should be made on the basis of the submissions as to costs that were made both to Judge Harvey and on this appeal.  I consider Warren Metals was entitled to costs on a 2B basis for steps in the proceedings taken after its offer of 7 November 2014.   Given that it chose to continue with the proceedings in relation to the claim on which it was unsuccessful, I do not consider it would have been appropriate to award Warren Metals increased costs.   I note also that it is unusual for a successful party to be entitled to full indemnity costs, rather than a proportionate increase on normal scale costs.

[44]     I accordingly set aside the orders made by the District Court Judge and in substitution make an order that Warren Metals is entitled to costs in respect of the District Court proceedings in the sum of $22,475 together with disbursements as fixed by the Registrar of the District Court.

[45]     I indicate provisionally that Warren Metals is entitled to costs in respect of this appeal.  In submissions for the liquidators, Mr Dillon suggested they would be entitled to costs on a 2B basis.  My provisional view is that, given its success on this

appeal, Warren Metals should be entitled to costs on a 2B basis.    If there is no agreement over this, a memorandum as to costs for Warren Metals is to be filed by

24 October 2015.  A memorandum in response is to be filed by 6 November 2015. Each memorandum is to be no longer than two pages.

Solicitors:

Fortune Manning, Auckland
Queen City Law, Auckland.