Williams v Scott

[2019] NZHC 935

REDACTED VERSION OF JUDGMENT SUITABLE FOR PUBLICATION

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2014-404-002105

[2019] NZHC 935

BETWEEN

WILLIAMS

Appellant

AND

SCOTT

Respondent

Hearing:

16 November 2018

Appearances:

S L Robertson QC for the Appellant

S Ambler and E Graddon for the Respondent

Judgment:

30 April 2019

JUDGMENT OF HINTON J

This judgment was delivered by me on 30 April 2019 at 4.30 pm pursuant to Rule 11.5 of the High Court Rules

…………………………………………………………………… Registrar/Deputy Registrar

Counsel:

Suzanne Robertson, QC, Auckland Stephanie Ambler, Barrister, Auckland

WILLIAMS v SCOTT [2019] NZHC 935 [30 April 2019]

[1]                In proceedings under the Property (Relationships) Act 1976 and in regard to final maintenance, Judge McHardy ordered Mr Williams to pay costs to Ms Scott of

$278,731.20 (plus a small amount of interest) and disbursements of $105,568.64.1 The

costs were awarded on a category 3C basis, with the exception of costs for the final maintenance proceeding, which were based on category 2B.2 Materially, the costs also included a 60 per cent uplift.

[2]                This is the appeal  of that decision.  While the relevant decision was dated   15 August 2014, it was formally stayed pending the outcome of the substantive appeals which culminated in a decision of the Supreme Court dated 11 December 2017.3

Uplift for unreasonable refusal of offer

[3]                The key point on appeal is whether the Family Court Judge was right to award increased costs (60 per cent uplift) on the basis that Ms Scott made an offer by letter dated 10 October 2007 that “was reasonable and capable of acceptance” and that “deserved much more serious consideration than it was given by Mr Williams”.

[4]                Ms Robertson, QC for Mr Williams says that the 60 per cent uplift cannot stand, inter alia in light of the findings in the High Court and the Supreme Court that Mr Williams’ “refusal to sell” Property 1 was not unreasonable in light of the conditions attached to the offer by Ms Scott.4 [REFER NOTE]

[5]                I find, for somewhat wider reasons (which were canvassed during the hearing), that the 10 October 2007 letter was not an offer capable of acceptance, nor would a solicitor acting reasonably have advised their client to accept it at the time. This latter

1      Williams v Scott [2014] NZFC 4347.

2      The Family Court Judge also ordered that costs in regard to interim maintenance should lie where they fall.

3      Scott v Williams [2017] NZSC 185, [2018] 1 NZLR 507.

4      Williams v Scott [2014] NZHC 2547, [2015] NZFLR 355 at [179]; Scott v Williams [2017] NZSC 185, [2018] 1 NZLR 507 [62] per Glazebrook J.

NOTE: Real names have not been used in this judgment. The two properties at issue are both in Remuera. To make the anonymised version of this judgment vaguely readable, I refer to them as Property 1 and Property 2. It has also been necessary to remove the letter that is key to this decision, which may make the discussion hard to follow.

point is of course key in the context of the Property (Relationships) Act (the Act). I agree entirely with the Family Court Judge that the reply from the appellant’s counsel was unreasonable, such that there was an unreasonable approach to negotiation, but that is a different matter. The relevant rule, for good reason, does not allow for extra costs for unreasonable negotiation. It is rather more precise. The relevant rule of the District Court Rules provides:5

14.6     Increased costs and indemnity costs

…

(3)The court may order a party to pay increased costs if–

(a)the nature of the proceeding or the step in the proceeding 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 the proceeding by–

(i)failing to comply with these rules or 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, or 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 any 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 proceedings; 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 the proceeding or participate in the proceeding in the interests of those affected; or

(d)some other reason exists that justifies the court making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.

5      District Court Rules 2014, r 14.6.

…

(emphasis added)

[6]                Whether failing to accept an offer is reasonable should be determined at the time the offer is rejected, given that is the point at which the “failure” occurred.6

[7]                Usually an offer of settlement involves a clear-cut proposal of payment of a sum of money, or similarly clear steps. It is usually easy to assess what the offer entails.

[8]                That is not to say that an offer for purposes of r 14.6(3)(b)(v) cannot be something more complex, as was the case here, but it nonetheless has to be an offer that is sufficiently clear as to be capable of acceptance. That was recognised by Judge McHardy in the language used in his finding noted above.

[9]                As a preliminary comment, the October 2007 offer, even if accepted, would not have led to an agreement. The parties would still have required legal advice. In circumstances where it seems the respondent was unrepresented, (although qualified herself as a lawyer) the legal advice would have needed to be comprehensive. This factor alone does not make the offer incapable of acceptance, but it might be relevant in some cases to the reasonableness of a refusal to accept, as acceptance could well lead only to the offer becoming a base for upward negotiation. However, I do not consider this point of particular relevance here.

[10]            In my view, this offer was too uncertain to be fairly capable of acceptance. That alone would make r 14.6(3)(b)(v) inapplicable.

[11]            I attach the 10 October 2007 letter as Appendix 1, so that I do not need to quote from or explain it at length. [LETTER REMOVED]

[12]            The respondent wanted a first call on the sale proceeds of the home at Property 1 in order to fund a new house on the adjoining section, being Property 2. The amount she required for that she states as being “approximately $2 million” to

6      NZ Sports Merchandising Ltd v DSL Logistics Ltd HC Auckland CIV-2009-404-5548, 19 August 2010 at [36]; and Weaver v HML Nominees Ltd [2016] NZHC 473 at [30].

“ensure [she has] enough to build the house and fully finish, landscape and furnish it”. She says she will need to confirm the exact figure when she has more costings.

[13]            There is no basis on which the actual figure could be determined or even have boundaries put around it. That alone is far too vague to be capable of acceptance. It could be said that a reply could propose a limit to the sum of say $2.2 or $2.5 million, but the rule does not talk about failure to reasonably negotiate, and one can readily anticipate the likely response to such a limit. It is quite clear from the letter that the actual limit is to be whatever is required by the respondent to build the house and fully finish, landscape and furnish it. It might also be noted or assumed that $2 million was very unlikely to be sufficient.

[14]It was also quite uncertain as to when the development was to be finished.

[15]            I note also that the maintenance proposal was not clear enough for simple acceptance, given reference to “possible” additional expenditure, though this is not particularly material.

[16]            Even  if  there  were  an  offer   capable  of  acceptance  for  purposes   of      r 14.6(3)(b)(v), I do not consider it was unreasonable to refuse it as at October 2007.

[17]            Had the offer been accepted, there would have been no curb on the amount required for the proposed Property 2 development, and so an adviser to the appellant would have to assume that the sum required could be materially higher than $2 million, say $2.6–$3 million. Those development costs including furnishing could well take up the whole of the net sale price of Property 1. (It seems there was no mortgage on Property 1, but the value was heavily disputed. The appellant was saying it was worth

$2.3–$2.5 million. The respondent said it was worth $3.6 million, but could be worth

$4 million after expenditure of about $100,000. The claimed potential increase would have to be ignored.)

[18]            The full sale proceeds of Property 1 could then be tied up until the eventual sale of Property 2, which again is at a very indeterminate date. It would not be unreasonable to advise the appellant that it could be a matter of four to five years

before a Property 2 development had been completed and the property sold. As I say, there was no obligation on the respondent to complete the property and furnish it within any time period. Meanwhile, the appellant would not have had, or might well not have had, any part of his share of the Property 1 home or the Property 2 section. He would lose the opportunity to participate in the real estate market himself over that four to five-year period. At a minimum, he would receive no interest in the meantime on his entitlement and would (it seems from the letter) ultimately be paid out on the basis of 50 per cent of the net 2008 sale price of Property 1 and 50 per cent of the value of the Property 2 section, assessed at some time in 2008. Assuming the sum due to him for his 50 per cent share of those two properties was, say, $2 million, and allowing for the true cost of that money in 2008 at about seven per cent, then the appellant could be losing as much as $700,000.

[19]            If the Property 2 development were to prove to be unsuccessful, which could never be discounted, the appellant may conceivably not even have received his entitlement on the eventual sale. In any event, for one reason or another, the process of getting to a point where Property 2 was actually sold would be likely to be highly vexed. Contrary to there being a clean break, the parties would be locked into a property development process for some years, and one over which the appellant would have no control.

[20]            As the Supreme Court said, which I noted earlier, the appellant’s “refusal to sell” Property 1 was not unreasonable in light of the conditions attached to the offer by Ms Scott.

[21]            In terms of the maintenance provision, the “third regime” involved the respondent’s receiving a salary of $60,000 per annum, plus maintenance of $7,000 per month and “possible” payment of special expenditure such as overseas trips, and university and hostel fees. The proposal recorded that the arrangement was to continue until the respondent could “increase [her] income earnings to gross $245,000 adjusted for inflation”. The salary was to be paid from the appellant’s firm, but must be treated as a payment from him for this purpose.

[22]            The maintenance proposal has to be read at the time of receipt and it could only be interpreted by an adviser to the appellant as potentially requiring payment to the respondent for life in the sum of $144,000 net per annum (plus extras). Grossed up, that would fairly amount to a total of at least $200,000 per year, but for present purposes I proceed on the basis of the net sum receivable by the respondent. As I understand it, the respondent was aged approximately 48 at  the  time  of  the October 2007 letter. Allowing for a very conservative life expectancy of 75 years, this could involve a total payment in excess of $3.8 million. Even over a 10-year span, the cost would be $1.44 million.

[23]            The maintenance proposal cannot be read down by the respondent’s later evidence as to her expected high earnings. No-one who stood to lose $200,000 gross per annum when their income went above $245,000 gross, adjusted for inflation, would be incentivised to increase their earnings to the tipping point. That is in any event the advice the appellant would have to have been given. The real cost to the appellant of that proposal cannot be based on subsequent evidence from the respondent of what she would have expected to earn, or even on her actual subsequent earnings in circumstances where the “third regime” was not in effect.

[24]            The maintenance proposal also cannot be read down, as Ms Ambler submits, by the suggestion that the appellant could later seek a variation. The respondent made it very clear in the letter that the property and maintenance proposals were a combined package. This was not just maintenance, but also an arrangement in lieu of other capital claims.

[25]            For these reasons, although the offer to accept payment of a top-level car  (say $110,000) in exchange for the law practice, and to make no s 15 claim both seem very reasonable, an adviser considering the letter of 10 October 2007 would not have reasonably expected that a half-share in the value of the law practice would so exceed

$110,000 and a s 15 award would be so great, as to off-set the very significant potential cost and risk involved in the Property 2 development proposal and in the third regime of the maintenance proposal. Neither of the two latter proposals would have borne fruit for the respondent in Court proceedings.

[26]            As I said during the hearing, in my view, if the appellant’s counsel had replied to the October 2007 letter advising that the proposal was accepted, and that had resulted in an agreement, which I consider would have been highly unlikely in any event, then the adviser could well have been sued for negligence.

[27]I therefore do not agree that the offer was unreasonably refused.

[28]            I agree with Judge McHardy that the appellant’s response to the respondent’s letter was in some respects quite unreasonable. It was unreasonable for the appellant or his lawyer to say that he had no further obligation to pay spousal maintenance, and/or that there would be no s 15 payment. But that is not the test under the relevant costs rule. Also, the reality is that both parties’ positions were unreasonable in terms of maintenance/s 15 or the respondent’s quid pro quo proposal.

[29]            So far as the law practice is concerned, it seems from Ms Southwick QC’s letter in reply that little work had been done to assess its value, but she does say that the appellant will comply with providing any records or documents required for that purpose. She also says that a suburban law practice rarely has significant value, which probably would be fair comment, although it proved to be incorrect in this case.

[30]            I have already said that the “unreasonable refusal” test has to be applied as at the date of the offer, but even looking back from the end result, without going into great detail, the ultimate s 15 award was $520,000 and the practice value was assessed as $450,000, plus post-separation super profits of just under $1.1 million, the respondent’s half share being about $775,000. The respondent received no maintenance award and of course did not have the benefit of funds from Property 1 being tied up in an interest-free development of her own at Property 2. Based on my assessment of the offer therefore, even looking back from the end of the road, the offer was not unreasonably refused.

[31]            I have not addressed the question of which test applies on appeal against a costs order under r 14.6(3)(b)(v), but even assuming, as Ms Ambler argues, it is in entirety an appeal against a discretion, I consider the decision to uplift was clearly wrong for the above reasons.

Uplift on broader grounds

[32]            Ms Ambler submits that increased costs should be awarded in any event because, even if the offer was not unreasonably refused, there were also subsequent offers that were refused; there was overall an unreasonable or obstructive approach on the part of the appellant, and it was clearly the view of the Family Court Judge that he considered it appropriate for extra costs to be awarded.

[33]            Ms Ambler points to r 14.6(3)(d) and also submits that the Family Court is not limited to a strict application of the costs rules.  She points to s 40 of the Act and to   r 207 of the Family Court Rules. She also points to a decision of Judge O’Dwyer in the Family Court where the Judge declined to award costs, despite a party having succeeded, inter alia because of the parties’ comparative financial positions.7 However, there is no question that under the District Court Rules, a Judge has a broad discretion to refuse costs, even where a party has been successful. There is no general discretion on the other hand to award increased costs. The cases under r 14.6(3)(d) appear quite limited.

[34]            In Van Selm v Van Selm, Duffy J held that the costs rules apply just the same in proceedings under the Property (Relationships) Act as they do in other proceedings.8

[35]            My view is that there should be some latitude in the application of the costs rules to proceedings under the Act. I also take into account that the Judge  was clearly minded to award increased costs. I do not take into account any subsequent offers that were refused. I understand that at one point the appellant apparently shook on terms, but then refused to sign, but it simply is not possible to fairly assess the various negotiations and offers at this late stage and quite properly, Ms Ambler does not make much of this point.

[36]            However, ultimately the Judge found that indemnity costs were not justified on the basis of obstructive conduct and he did not make a finding that increased costs (below indemnity) were justified on that basis. In fact, he expressly said that the single

7      VTW v ACT FC Queenstown FAM-2006-012-1032, 20 April 2010.

8      Van Selm v Van Selm (2015) 30 FRNZ 163 (HC) at [44].

most significant factor as to why the dispute was not capable of sensible resolution was the appellant’s response to the October 2007 letter, a finding with which I have disagreed. I consider both letters were in material part unreasonable. The Judge’s view as to that early correspondence will have coloured his other comments. I also share the concern expressed by Ms Robertson that a great deal of what is set out in Judge McHardy’s costs decision, which appears to be critical of the appellant, is in fact a record of Ms McCartney’s submissions for the respondent.

[37]            Ultimately, the only basis on which Judge McHardy found that increased costs were available was on the grounds of unreasonable refusal of the October 2007 settlement offer. Although acknowledging Ms Ambler’s thorough submissions, I do not consider there is a sound basis for increased costs on any other ground.

Costs on the maintenance proceedings

[38]            The Judge awarded costs on an overall basis, but there were two separate proceedings, being the relationship property and the maintenance proceedings, and the Judge declined to make any maintenance order in the respondent’s favour.

[39]            Ms Robertson submits that costs should be apportioned, such that no costs should be awarded to the respondent for the maintenance proceedings, and if anything, costs should be awarded in favour of the appellant in that proceeding.

[40]            I agree with Ms Ambler that, in cases such as this, the claim for maintenance and the claim under s 15 go very much hand-in-hand. A party cannot afford to run one argument without the other, and typically, if one succeeds, the other will not.

[41]            This is not so much a case of the respondent having failed in her maintenance claim as a case of her having been very successful in her claim under s 15, and consequently receiving no award in respect of maintenance.

[42]            I consider costs should have been approached on an overall basis, as the Judge did, and therefore reject this point of appeal.

Disbursements, including fee for psychiatric report

[43]            Rather extraordinarily, the respondent called evidence from a psychiatrist as to the appellant’s mental state. This theoretically was designed to assist the Judge to understand why he should not believe the appellant’s evidence with regard to s 15 and related issues. That is as I understand it, in any event. The psychiatrist gave evidence without the benefit of meeting the appellant.

[44]            The Judge let in the psychiatrist’s evidence on a de bene esse basis9 and I gather did not ultimately make a ruling as to whether the evidence was to be admitted or not. That seems, however, to have been an oversight, so I proceed on the basis the evidence was admitted.

[45]            The psychiatrist’s fee for his report of $5,743.50 was included in the disbursements ordered to be paid by the appellant.

[46]Not surprisingly, the appellant appeals that disbursement award.

[47]            I would not have admitted the psychiatrist’s evidence and therefore would not have considered the fee to be appropriately chargeable to the appellant. My strong impression is that this evidence was irrelevant and a dangerous development in a case under the Act. I am also surprised that a psychiatrist would provide such a report where they have never met the person whose mental state they are assessing.

[48]            However, fixing of disbursements and assessment of evidence are very much within the domain of the trial Judge. Judge McHardy has considered the matter specifically before making his award. I therefore do not consider it appropriate to overturn it.

[49]            There were two or three other more minor and standard disbursements that the appellant was ordered to pay which he appeals. These are various invoices for legal advice, and a valuation obtained for a mediation, totalling $2,712. These are relatively

9      De bene esse in this context means to allow the evidence as acceptable at the time it was given, on the basis that, when later more fully examined, it may be allowed or disallowed, depending on the merit of it.

de minimis and are matters which I also consider are appropriately left to the discretion of the Family Court Judge and I make no order in those regards.

Conclusion

[50]            The appeal is therefore allowed insofar as there is to be no uplift on scale costs. I leave it to the parties to make the resulting calculation.

[51]The appeal is otherwise dismissed.

Costs

[52]            The appellant has been substantially successful, but my tentative view is there should be no award of costs in respect of this appeal. The primary argument in respect of the 60 per cent uplift was advanced on a somewhat different footing to the footing on which I have made my finding. This led to Ms Ambler preparing comprehensive schedules to which I have not needed to refer.

[53]            If the appellant wishes nonetheless to pursue costs, he should advise the Registrar and I will make directions.

Hinton J