Williams v Scott
[2018] NZHC 1979
•6 August 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2014-404-555
[2018] NZHC 1979
UNDER The Property (Relationships) Act 1976 BETWEEN
WILLIAMS
Appellant
AND
SCOTT
Respondent
Hearing: On the papers Appearances:
S Robertson QC for Appellant S Ambler for Respondent
Judgment:
6 August 2018
JUDGMENT OF LANG J
[on costs]
This judgment was delivered by me on 6 August 2018 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date……………
WILLIAMS v SCOTT [2018] NZHC 1979 [6 August 2018]
[1] On 17 October 2014, Faire J delivered a judgment1 (the substantive judgment) allowing in part an appeal against a decision given by Judge McHardy in the Family Court.2 This determined issues relating to the division of relationship property between Ms Scott and Mr Williams.3
[2] Justice Faire subsequently granted Mr Williams and Ms Scott leave to file a second appeal to the Court of Appeal against aspects of the High Court judgment (the leave judgment).4 The Court of Appeal largely upheld the High Court judgment.5 Ms Scott then obtained leave to appeal to the Supreme Court.6 The Supreme Court allowed the appeal and set aside several of the orders made in the High Court and confirmed by the Court of Appeal.7
[3] Justice Faire elected not to determine the issue of costs in this Court until the outcome of the appeal process was known. Costs in this Court therefore remain unresolved. The Supreme Court directed that this Court was to fix those costs having regard to the outcome of the hearing in the Supreme Court.8
[4] The parties have been unable to reach agreement regarding the incidence and quantum of costs payable in this Court. It is therefore necessary for the Court to determine those issues in relation to both the substantive judgment and the leave judgment.
[5] Justice Faire has now retired. As a result, the proceeding has been referred to me as Duty Judge to determine the issue of costs.
1 Williams v Scott [2014] NZHC 2547, [2015] NZFLR 355.
2 Williams v Scott [2014] NZFC 7616.
3 These are not the real names of the parties. Judge McHardy directed that the parties to the proceeding in the Family Court were to be called Mr Williams and Ms Scott. All subsequent judgments have referred to them by these names.
4 Williams v Scott [2014] NZHC 3385.
5 Scott v Williams [2016] NZCA 356, [2016] NZFLR 499.
6 Scott v Williams [2016] NZSC 149.
7 Scott v Williams [2017] NZSC 185, [2018] 1 NZLR 507.
8 Scott v Williams, above n 7, at [275].
A The substantive judgment Issues
[6]I consider the following issues need to be determined:
1.Who is entitled to costs as the successful party in this Court?
2.Should any allowance be made to reflect issues on which the unsuccessful party succeeded?
3.Should the successful party receive an award of increased costs?
4.What is the appropriate cost categorisation for this proceeding?
Who is entitled to costs as the successful party in this Court?
[7] Although costs are at the discretion of the Court,9 the principles set out in r 14.2 of the High Court Rules 2016 guide the exercise of the discretion. To the forefront of these is the principle that the unsuccessful party should pay costs incurred by the successful party.10
[8] I do not consider the identity of the successful party can be identified by examining the outcome of every point raised by the appeal. Instead, I propose to determine which party succeeded in relation to the major issues raised by the appeal. Where the Supreme Court reversed or modified the conclusion reached in this Court on any issue, the Supreme Court’s conclusion must replace that of this Court.
[9] I take the reader of this judgment to be familiar with the issues traversed in the Courts above and below. I therefore do not propose to describe those in the present judgment. Instead I use the table annexed as an Appendix to this judgment to summarise the principal issues and how they were determined as the case proceeded through the courts. The column on the right side of the table identifies the party who I consider succeeded in relation to each issue.
9 High Court Rules 2016, r 14.1.
10 High Court Rules 2016, r 14.2(1)(a).
[10] The table demonstrates that Ms Scott succeeded in relation to virtually all of the major issues raised by Mr Williams’ appeal in this Court. Furthermore, I consider the ultimate outcome relating to the Remuera properties to be of considerable significance. It represents a major issue on which Ms Scott ultimately succeeded notwithstanding the fact that it did not result in any additional benefit to her in monetary terms.
[11] The only issue in relation to which Ms Scott failed was the value of the award made under s 15 of the Property (Relationships) Act 1976 (the Act). This was ultimately reduced from $850,000 to $520,000.
[12] Ms Scott’s measure of success in relation to the major issues raised by the appeal is such that I consider her to be the successful party in relation to it. Mr Williams is therefore required to contribute to Ms Scott’s costs on the appeal.
[13] Mr Williams was the successful party on the cross-appeal because Ms Scott failed in this Court on each of the issues that were the subject of the cross-appeal. MrWilliams is therefore entitled to an award of costs and disbursements in relation to the cross-appeal.
Should an allowance be made to reflect the issues on which Mr Williams succeeded?
[14] The major issue on which Mr Williams ultimately succeeded in this Court related to the award under s 15 of the Act. The award of $850,000 made by the Family Court in favour of Ms Scott was ultimately reduced to $520,000 by the Supreme Court. The issues underlying this issue also occupied a considerable portion of the judgment in this Court.
[15] The issue relating to maintenance was also significant because Ms Scott was seeking the sum of approximately $270,000 under this head. Justice Faire agreed with Judge McHardy that Mr Williams should not be required to pay maintenance because of the amount she was to receive under s 15 of the Act.11
11 Williams v Scott, above n 1, at [214].
[16] Finally, another significant issue in this Court related to observations Judge McHardy had made about Mr Williams’ conduct. That issue occupied ten paragraphs of the judgment, in which Faire J criticised aspects of Judge McHardy’s reasoning on this point. The issue did not have any appreciable effect on the outcome of the appeal in monetary terms, but I consider it should be taken into account in assessing costs. I consider the tenor of Faire J’s judgment is to the effect that Mr Williams succeeded on the issue, although it did not ultimately affect the division of property.
[17] Taking these factors into account I consider any award of costs in favour of Ms Scott should be reduced by 15 per cent to reflect the issues on which Mr Williams succeeded in this Court.
Should Ms Scott receive an award of increased costs?
[18] Ms Scott advances this argument on three bases. First, she contends Mr Williams added unnecessarily to the costs of the appeal by pursuing arguments that had no merit.12 Secondly, she contends Mr Williams failed unreasonably to accept an offer of settlement that she put forward prior to the appeal being heard.13 Thirdly, she contends she should receive an uplift of 15 per cent to reflect the fact that she has not been able to claim GST input deductions in relation to her legal costs.
Did Mr Williams pursue arguments that had no merit?
[19] Ms Ambler for Ms Scott argues under this head that several of Mr Williams’ points “lacked all merit, were opposed and were never going to succeed”. In particular, Ms Ambler submits that Mr Williams’ argument that the s 15 award should be restricted to $50,000 had no merit and could never succeed. She also criticised the stance Mr Williams took in relation to the value of the legal practice and the interest awarded on the super profits to be earned by the law practice.
[20] I acknowledge it is arguable that Mr Williams’ stance in relation to the first two of these issues may have been unreasonable, but this did not contribute unnecessarily
12 High Court Rules 2016, r 14.6(3)(b)(ii).
13 High Court Rules, r 14.6(3)(b)(v).
to the overall cost of the appeal. The quantum of the s 15 award and the value of the law practice were highly contestable issues from the outset. This is demonstrated by the fact that all four courts adopted significantly different figures for the former, whilst the Family Court and Supreme Court both differed from the High Court and Court of Appeal in relation to the latter. The same can be said in relation to the issue of whether the Remuera properties should be sold or vested in Ms Scott. The issue of interest on the super profits was never a major focus of the appeal. Furthermore, Mr Williams never challenged the Family Court decision in relation to the quantum of super profits to be derived from the law practice.
[21] I do not consider the stance taken by Mr Williams in relation to these issues contributed unnecessarily to the costs of the appeal because the issues were complex and justified appellate scrutiny. I decline to award increased costs under this head.
Failure without reasonable justification to accept an offer of settlement
[22] A party can be required to pay increased costs where he or she fails without reasonable justification to accept an offer of settlement made prior to trial.14 Under this head Ms Scott argues that Mr Williams failed without reasonable justification to accept an offer her counsel made in a letter dated 1 July 2014 to Mr Williams’ counsel. In that letter, made without prejudice save as to costs, Ms Scott offered to settle matters on the following basis:
(a)The appeal and cross-appeal would be withdrawn with no order as to costs.
(b)Costs in relation to the hearing in the Family Court would be determined by Judge McHardy.
(c)The offer was open for acceptance until noon on Friday 4 July 2014.
[23] As will be obvious, the settlement offer required both parties to accept the findings and orders made by Judge McHardy in the Family Court. The principal of
14 High Court Rules, r 14.6(3)(b)(v).
these were that the Remuera properties were to be vested in Ms Scott, the law practice was to be valued at $450,000, the super profits from the law practice were assessed at
$1,093,000 and Ms Scott was to receive an award under s 15 in the sum of $850,000. In addition to these outcomes, the offer required Mr Williams to accept Judge McHardy’s decision dismissing his claim under s 18B for post-separation contributions to the Omaha property.
[24] The offer of settlement required Ms Scott to accept the dismissal of her claim under s 18B in relation to post-separation contributions to the Remuera properties and her claim under s 18C for compensation in relation to the loss of value in the Omaha property. She was also required to accept the Judge’s decision that she was not entitled to maintenance, and that the Remuera properties were to be valued as at the date of hearing. She would, however, retain her entitlement to interest on the sum payable under s 15. Although the Family Court only awarded interest on the s 15 sum from the date of judgment to the date of payment,15 the Supreme Court later declined to award interest at all.16
[25] As matters transpired, Mr Williams would have been wise to accept the offer in relation to all major items other than the s 15 award. The Supreme Court ultimately reinstated the orders made in the Family Court in relation to all issues other than the s 15 award. The appeal process provided him with a significant benefit, however, in the form of a $330,000 reduction in the amount payable under s 15. That fact alone suggests he was justified in not accepting Ms Scott’s offer.
[26] The ultimate result is not, however, the issue. The issue is whether, at the time Mr Williams rejected the offer, he acted without reasonable justification in doing so. The strongest argument against an award of increased costs under this head is that, as I have already observed, the value of the law practice and the s 15 award were highly contestable issues. I therefore do not consider Mr Williams acted unreasonably in pursuing his appeal on those issues or in relation to the sale of the Remuera properties. This fact is demonstrated by the level of success he subsequently achieved in relation to those issues in both the High Court and Court of Appeal.
15 At [367].
16 See Scott v Williams [Interest] [2018] NZSC 37, [2018] NZLR 633.
[27] I am therefore not prepared to award Ms Scott increased costs because Mr Williams failed to accept the settlement offer made on 1 July 2014.
Adjustment for GST
[28] Ms Scott is not registered for GST. She therefore has no ability to claim input tax in relation to her legal costs. She contends Mr Williams should pay a 15 per cent uplift to reflect that fact.
[29] This is a novel argument because it is now well established that awards of costs according to scale are GST neutral. The successful party is not required to account for output tax and the losing party is not permitted to claim input credits.17 Furthermore, legal costs incurred in undertaking relationship property proceedings would never be incurred in the carrying on of a taxable activity. It is therefore difficult to see how a party to such proceedings would ever be in a position to claim input credits in relation to legal costs.
[30] The issue of GST may become relevant where the Court decides to make an increased award of costs because the actual costs incurred by the successful party may be relevant to the quantum of the award. Those costs may be affected by the ability of the party seeking costs to recover GST input credits. I do not consider, however, that the inability of a successful party to claim such credits of itself justifies an award of increased costs.
[31] Counsel for Ms Scott has not cited any authority to support her submission that costs should be increased in the present context to provide an adjustment for GST. I therefore decline to make any order for increased costs under this head.
How should the proceeding be categorised for costs purposes?
[32] The appeal was first listed for mention in this Court on 8 April 2014. At that time Andrews J allocated the appeal a fixture commencing on 8 July 2014 and tentatively classified it as a category 2 proceeding for costs purposes. The appeal
17 New Zealand Venue and Event Management Ltd v Worldwide NZ LLC [2016] NZCA 282, (2016) 23 PRNZ 260 at [7].
could not be completed within the three days allocated and it was necessary for two further days to be allocated to enable it to be completed.
[33] Ms Scott contends the complexity of the issues raised by the appeal justifies it now being classified as a category 3 proceeding for costs purposes. For Mr Williams, Ms Robertson QC accepts that category 3 is appropriate. I agree with counsel on this point given the complexity of the issues raised by the appeal.
The end result
[34] Ms Scott is entitled to costs calculated on a category 3 basis together with disbursements as fixed by the Registrar in relation to the substantive appeal. Band B is to be used in relation to all steps other than the steps taken to settle the issues, preparation for the substantive hearing and appearance at the hearing. Band C is to apply to those steps.
[35] Mr Williams is entitled to costs calculated on a category 3 basis together with disbursements as fixed by the Registrar in relation to the cross-appeal. The issues in the cross-appeal were much more limited than those raised by the appeal. Band B is therefore to apply to all steps taken in relation to the cross-appeal.
B The leave judgment
[36] On 25 November 2014 Faire J heard argument on the applications by Ms Scott and Mr Williams for leave to appeal and cross-appeal respectively to the Court of Appeal. He also heard argument in relation to an application by Ms Scott for an order staying execution of the substantive judgment and an application by Mr Williams for an order recalling and correcting that judgment. The Judge was also required to determine an application by Mr Williams for an order striking out passages in an affidavit Ms Scott had filed in support of her application for an order staying execution of the judgment.
[37] The Judge issued the leave judgment on 22 December 2014. He declined Mr Williams’ application for an order recalling and correcting alleged errors in the
substantive judgment.18 He granted Ms Scott leave to appeal on specified grounds of appeal relating to four assets. These were the orders for the sale of the Remuera properties, the valuation of the law practice, the quantum of the s 15 award and the issue of maintenance. He declined Mr Williams’ application for leave to cross-appeal.
[38] The fact that the Judge granted Ms Scott leave to appeal against the order that the Remuera properties be sold led the parties to agree that execution of that order should be stayed on terms. This agreement effectively disposed of the application for orders striking out passages of Ms Scott’s affidavit.
[39] Viewed overall, Ms Scott was the successful party in relation to the issues determined by the leave judgment. She is therefore entitled to costs calculated on a Category 3 basis together with disbursements as fixed by the Registrar in relation to all steps taken in relation to the hearing that led to the leave judgment.
[40] In terms of band allocation, Band B is to apply to all steps taken other than preparation for the hearing and appearance at the hearing on 25 November 2014. Band C is to apply to those steps.
Costs on costs
[41] Ms Scott seeks an order for costs in her favour in relation to the memoranda filed in relation to the issue of costs. I decline to make that order. Both parties have succeeded on some points and failed on others. Overall the honours have been evenly shared.
Leave reserved
[42] Counsel should now be able to resolve the quantum of costs without further assistance from the Court. Should that not prove to be the case, the dispute should be referred for determination in the first instance to the Registrar (Mr Tony Mortimer).
18 Williams v Scott, above n 4.
If either party does not agree with the Registrar’s decision leave is reserved to refer the matter back to me for determination on the papers.
Lang J
Solicitors:
North Harbour Law, Orewa Tompkins Wake, Hamilton Counsel:
S Robertson QC, Auckland
APPENDIX
APPEAL
| Issue | Family Court | High Court | Court of Appeal | Supreme Court | Successful party in the High Court in light of Supreme Court decision |
| Remuera Properties | Properties vested in Ms Scott | Ordered properties to be sold | High Court decision upheld | Properties vested in Ms Scott | Ms Scott |
| The value of the law practice | Law practice valued at a multiple of 3 - $450,000 | Law practice valued at a multiple of 2 - $300,000 | High Court decision upheld | Law practice valued at a multiple of 3 - $450,000 | Ms Scott |
| Super profits from law practice | Super profits assessed at $1,093,000 | Family Court decision upheld | Not appealed | Not appealed | Ms Scott |
| Section 15 award | $850,000 | $280,000 | $470,000 | $520,000 | Mr Williams |
| Section 18B claim by Mr Williams in respect of post- separation contributions | Claim dismissed | Family Court decision upheld | Not appealed | N/A | Ms Scott |
CROSS-APPEAL
| Issue | Family Court | High Court | Court of Appeal | Supreme Court | Successful party in the High Court in light of Supreme Court decision |
| Section 18C claim by Ms Scott for compensation for loss of value of Omaha property | Claim dismissed | Family Court decision upheld | Not appealed | N/A | Mr Williams |
| Section 18B claim by Ms Scott for post-separation contributions to Remuera properties | Claim dismissed. | No evidence of post- separation contributions [3(p)], [195], [197] | Not appealed | N/A | Mr Williams |
| Claim by Ms Scott for spousal maintenance | Claim dismissed (other than adjustment of $42,031.91 to reflect non-payment of rates by Mr Williams) | Family Court decision upheld | High Court decision upheld | Not appealed | Mr Williams |
| Claim by Ms Scott that the Remuera properties should be valued at date of separation rather than date of hearing | Hearing date valuation used | Issue not relevant given order for sale | Not determined | Hearing date valuation upheld | Mr Williams |
| Claim by Ms Scott for interest on s 15 award | Interest to be paid from date of FC decision to date of payment [367] | No interest [170] | No interest (see [178] of SC decision) | No interest (see Scott v Williams [Interest] [2018] NZLR 633) | Mr Williams |
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