Wood v Arthur

[2017] NZHC 1725

NOTE: PURSUANT TO S 35A OF THE PROPERTY (RELATIONSHIPS) ACT 1976, ANY REPORT OF THIS PROCEEDING MUST COMPLY WITH SS 11B TO 11D OF THE FAMILY COURTS ACT 1980.  FOR FURTHER INFORMATION, PLEASE SEE

THE-FAMILY-COURT/LEGISLATION/RESTRICTION-ON-PUBLISHING- JUDGMENTS.

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2017-419-61 [2017] NZHC 1725

IN THE MATTER	of the Property (Relationships) Act 1976
BETWEEN	DEAN ROBERT WOOD Appellant
AND	LINDA RAYLENE ARTHUR Respondent

Hearing:	On the papers
Counsel:	S Chatwin for the Appellant M Vickerman and J Hunter for the Respondent
Judgment:	31 October 2017

COSTS JUDGMENT OF MUIR J

This judgment was delivered by me on Tuesday 31 October 2017 at 4.00 pm

Pursuant to Rule 11.5 of the High court Rules.

Registrar/Deputy Registrar

Date:…………………………

Counsel/Solicitors:

S Chatwin, Chatwin Legal Limited, Hamilton

WOOD v ARTHUR [2017] NZHC 1725 [31 October 2017]

M Vickerman, Barrister, Auckland

J Hunter, Solicitor, Thames

Introduction

[1]      Ms Arthur and Mr Wood were in a relationship from 1984 to January 2013. Following their separation, the Family Court made spousal maintenance orders and orders for the division of relationship property.   Mr Wood appealed to this Court against the second of those decisions, and was partially successful.

[2]      Mr Wood now seeks costs of $30,000.  Ms Arthur opposes his application for costs and submits that costs should lie where they fall.

Background

[3]      On 3 September 2015, Judge Coyle in the Family Court made spousal maintenance orders in favour of Ms Arthur.  The relationship property proceedings then came before Judge Coyle in January 2017.   His subsequent judgment of 15

February 2017 was recalled and reissued on 9 March 2017.  That judgment ordered Mr Wood to pay Ms Arthur the sum of $873,226.74. His Honour also ordered that Mr Wood pay outstanding spousal maintenance of $34,259.19 to Ms Arthur.  Mr Wood appealed against the decision of 9 March 2017, raising the following issues:

(a)      Did Judge Coyle miscategorise a salary of $66,000 per annum (net after tax) as drawings by Mr Wood?

(b)Should the regular weekly payments received by Ms Arthur between separation and dissolution totalling $120,600 plus the sum of $35,051 received by Ms Arthur in 2016 (a total of $155,651) be regarded as a drawing by Mr Wood to pay spousal maintenance to Ms Arthur, or a drawing by Ms Arthur from the partnership?

(c)      Should  the  sum  of  $47,856.67,  being  the  total  rent  paid  by  the partnership to a trust associated with Mr Wood, be regarded as a drawing by Mr Wood or a legitimate expense of the partnership?

(d)In relation to the period from 31 May 2016 onwards, should Ms Arthur receive spousal maintenance of $1,300 per week and/or interest on the adjustment sum at the rate of five per cent per annum?

[4]      In respect of the first issue, Ms Hunter for Ms Arthur accepted that the Family Court judgment was in error. The parties had agreed that Mr Wood would be paid that salary for management of the farm and as a result, it was inappropriate that they be categorised as drawings by Mr Wood.

[5]      In respect of the second issue, the only live matter related to categorisation of the $35,051. I held that the payment of that amount by Mr Wood was to be accounted as a drawing by him to meet a personal liability.

[6]      In respect of the third issue, I held that the lease payment was appropriately regarded as a normal business outgoing of the partnership and should not be accounted as a personal benefit to Mr Wood.

[7]      In respect of the fourth issue, I considered that I did not have jurisdiction to reconsider Mr Wood’s spousal maintenance liability in its entirety. In the Family Court decision under appeal, Judge Coyle made it clear that he was only making a minor variation to his earlier spousal maintenance order. That variation was premised on the fact that when Ms Arthur received her settlement she would be able to meet her reasonable needs from that point onwards.  Only in respect of that variation did a justiciable issue arise on appeal.   I allowed the appeal against the variation of the maintenance order to reflect the fact that Ms Arthur had received $700,000 on 6 April

2017. This was a material change in circumstances such that the ongoing maintenance should be prorated. As for the question of interest, I did not consider it appropriate to make any award of interest.  It was not awarded by the Family Court and Mr Wood’s appeal therefore did not engage it; nor was there any cross-appeal on this point.

[8]      At the conclusion of my interim judgment I invited a consent memorandum specifying the total due to each of the parties applying the principles in my judgment. The parties filed a consent memorandum accordingly.  I then issued a final judgment on 30 August 2017 ordering that from the funds held in Ms Hunter’s trust account, the

sum of $147,882.79 was to be paid to Mr Wood and the sum of $96,405.00 was to be paid to Ms Arthur.

[9]      At [66] of the interim judgment, I expressed my preliminary view as to costs:

In my view there are strong grounds to suggest that costs should lie where they fall in relation to the appeal. Clearly it was an appeal properly brought in relation to the Family Court's categorisation of Mr Wood's earnings, as was conceded by Ms Arthur. In other respects the appeal has been unsuccessful. However, Mr Wood himself acknowledged, even in the absence of a cross- appeal, that the Judge's allowance for non-cash benefits received by him was inadequate. There have in that sense been wins and losses on both sides with the appeal providing a vehicle for better assessment of the respective claims.

[10]     There has since been considerable back-and-forth between the parties on the question of costs.

Submissions

Appellant

[11]     On 12 September 2017, Mr Chatwin for Mr Wood filed submissions seeking costs on both the High Court and the Family Court proceeding.  On 19 September

2017, I issued a Minute declining to set costs in the Family Court. I considered that it was a matter of discretion and in this case, the Family Court was better placed to fix the costs of the hearing that took place before it.

[12]     As for costs on the appeal to this Court, Mr Chatwin submits that a substantial award of costs should be made in favour of Mr Wood.  Mr Chatwin says that if costs were awarded on a 2B basis, they would come to $23,638.  If costs were awarded on a 2C basis, they would come to $40,140.   He seeks costs of $30,000, which is somewhere between category 2B and 2C (although not expressed as increased costs). He also seeks disbursements of $1,820 for court filing fees.

[13]     Mr Chatwin explains in lengthy submissions why Mr Wood should be awarded costs. He makes various allegations as to ways in which Ms Arthur’s conduct has increased Mr Wood’s costs on appeal, and submits that Ms Arthur has effectively received a windfall due to the way in which the matter progressed procedurally.

[14]     Most relevantly, Mr Chatwin points out that on 20 February 2017, Mr Wood made a Calderbank offer to Ms Arthur.  He offered her $800,000 in settlement on a “without prejudice except as to costs” basis.  Ms Arthur did not accept this offer and did not make any counter-offer.  Mr Chatwin submits that all the costs incurred by both parties from 20 February 2017 onwards were caused by Ms Arthur’s unreasonable decision to reject Mr Wood’s Calderbank offer.  He says it should have been apparent to Ms Arthur and her counsel that Ms Arthur had no prospect of

obtaining more than $800,000 on appeal because:

(a)	Ms Arthur agreed in her submissions on appeal that the Family Court made an error in failing to adjust the net assets of the partnership so that
Mr  Wood  was  allocated  a  salary  of  $66,000  for  managing  the partnership business.
(b)	Ms Arthur did not pursue a cross-appeal in relation to the total sum of spousal maintenance due to be paid by Mr Wood.
(c)	Ms Arthur’s argument that the rent paid by the partnership should be regarded as a drawing by Mr Wood rather than a legitimate expense of
the partnership had no prospect of success.  It was “doomed from the start”.
[15]	Mr	Chatwin  says  that  although  Mr  Wood’s  argument  on  the  spousal

maintenance issue failed on appeal, it was not unreasonable for Mr Wood to pursue this argument.  There was a sparsity of case law regarding whether s 32 of the PRA permitted retrospective variation of a spousal maintenance order.

Respondent

[16]     Ms Hunter for Ms Arthur submits that it was Ms Arthur who succeeded overall on  appeal.    Mr  Wood  contended  on  appeal  that  Ms Arthur  was  properly  due

$680,195.47 to finalise all issues. Following the appeal, Ms Arthur has been found to be due $796,405 to finalise all issues.  Ms Hunter cites r 14.2(1)(a) of the High Court Rules 2016: “the party who fails with respect to a proceeding … should pay costs to the party who succeeds”.

[17]     Ms Hunter says that Ms Arthur would not have resisted the appeal had it been confined to the question of Mr Wood’s management salary, which was plainly an error in the Family Court, but it was not confined to that point.  Mr Wood also pursued the s 32 “maintenance issues” that he had unsuccessfully argued in the Family Court. Those arguments were not successful on appeal.

[18]     Ms Hunter sets out at length the circumstances which, in her view, mean that the quantum awarded to Ms Arthur in the Family Court was a “just division of the relationship property”.  I do not propose to traverse those matters in detail as they are not relevant to the question of costs in the High Court, the appeal against the Family Court decision having now been determined.

[19]     In relation to Mr Wood’s Calderbank offer of 20 February 2017, Ms Hunter says that it was not unreasonable to reject the offer.  She notes that the offer was for

$800,000 and came at a time when the parties had already gone to hearing in the

Family Court and were awaiting a decision.   Shortly afterwards, she was awarded

$943,317.44 by Judge Coyle. In the circumstances, it was not unreasonable for her to have rejected the Calderbank offer.  Ms Hunter also takes issue with Mr Chatwin’s characterisation of her argument on the lease point on appeal as “doomed from the start”, noting that it met with approval in the Family Court.

[20]     Ms Hunter recites [66] of my interim judgment and submits that it would be in the interests of justice for costs to lie where they fall.  She points out that costs are discretionary, and submits that the Court’s discretion should be guided by the purposes and principles of the PRA, including the principle that “a just division of relationship property has regard to the economic advantages or disadvantages to the … partners arising from … the ending of their … de facto relationship”.1  In terms of Ms Arthur’s personal circumstances, Ms Hunter says that Ms Arthur’s ultimate settlement sum was substantially reduced by legal costs incurred since separation; she is without a home and her sole income is $560,000 on term deposit earning 3.7 per cent per annum. She

submits that Mr Wood’s financial position is considerably stronger by comparison.

1      Section 1N(c).

[21]     In the alternative, if costs are awarded to Mr Wood, Ms Hunter objects to the following items in the schedule:

(a)       Item 10: Preparation for the first case management conference (0.4 days x $2,230 = $892)

(b)      Item 11: Filing memorandum for first case management conference

(0.4 days x $2,230 = $892)

[22]     She says that a single allowance of 0.2 days ($446) for both Items 10 and 11 would be generous, given that Mr Chatwin’s time record for these matters shows little actual time was spent on them.

[23]     Ms Hunter also submits that the preparation of written submissions (Item 56) should be confined to three days (scale B) not six days (scale C).  She says that there is no justification for an uplift to Category 2C: the appeal did not justify “a comparatively large amount of time”.

[24]     Finally, Ms Hunter objects to any award of increased costs being made in the present case.  She disputes Mr Chatwin’s allegations that her conduct and that of Ms Arthur increased Mr Wood’s costs on appeal. She says that increased costs could only conceivably be awarded if Ms Arthur had unreasonably failed to accept an offer of settlement, and says that Ms Arthur did not “unreasonably” decline  Mr Wood’s Calderbank offer in this case.

Discussion

[25]     By way of summary, Ms Hunter submits that costs should lie where they fall while Mr Chatwin seeks costs of $30,000.  It is not clear how the sum of $30,000 is calculated.  That figure is somewhere between scale 2B and 2C costs.  There is no apparent application for costs on a 2B basis for certain steps and on a 2C basis for others.   Nor does Mr Chatwin expressly seek increased costs.   A more orthodox approach would have been to seek costs on a 2B basis with an uplift of a certain percentage, for one or more of the reasons specified in r 14.6(3) of the High Court

Rules.  I will nevertheless consider whether in terms of r 14.6(3) Mr Wood should be granted increased costs.

[26]     I do not at the outset accept Ms Hunter’s submission that Ms Arthur succeeded overall on the appeal and should not be liable to pay costs on that basis.  Ms Arthur conceded that Judge Coyle had wrongly categorised the $66,000 per annum salary as drawings by Mr Wood.   Further, I held that the lease payments were a legitimate expense of the partnership rather than drawings by Mr Wood.  Ms Arthur succeeded on the spousal maintenance argument based on s 32 of the PRA, but she cannot be regarded as successful overall.

[27]     On the basis of the respective wins and losses I remain of the view that, all things being equal, costs should have properly lain where they fell on the appeal. But they were not equal, primarily as a result of the Calderbank offer of which I am now informed.   That offer was made on 20 February 2017 after receipt of the Family Court’s initial judgment but prior to delivery of the recalled and reissued judgment. It recorded what was by that stage the already agreed position of the parties in relation to Mr Wood’s salary and offered the sum of $800,000 in “full and final settlement” with the prescient observation by counsel that:

In my view this is a very good offer.  Linda will be awarded a lesser sum by the High Court on appeal. Dean will also have a claim for costs.

[28]     And so it transpired with my final judgment providing for a payment in Ms Arthur’s favour of approximately $796,000 which included a component of spousal maintenance for the period 20 February 2017 to 11 August 2017, such that on an “apples for apples” basis the judgment was for approximately $786,000.

[29]     As the Court of Appeal observed Packing In Ltd (in liq) v Chilcott (and as is expressly recognised in r 14.11(1)), the effect of a Calderbank offer is ultimately in the discretion of the Court which must “endeavour to do justice to both sides, bearing in mind all material features of the case”.2   However, I can identify no reasons why the presumptive position identified in r 14.11(3) should not apply with the result that

Mr Wood should be entitled to costs on the appeal.  The offer was made at a point

2      Packing In Ltd (in liq) v Chilcott (2003) 16 PRNZ 869 (CA) at [5].

when there was mutual recognition of error in the Family Court judgment about categorisation of Mr Wood’s salary. As a result there were really only three live issues remaining.  Although only one of those was resolved in Mr Wood’s favour, the offer realistically captured that possible outcome; indeed it was more generous than my ultimate award.

[30]     The offer itself refers to an earlier exchange between counsel during which Ms Hunter is stated to have said that it was best to allow “the justice of the system to play itself out”.  In my view that is what has been allowed to occur without appropriate assessment of the offer. The underlying purpose of r 14.11 is to encourage settlement by imposing costs consequences for non-acceptance of offers higher than ultimate awards.  Mr Wood’s offer should have been accepted.  It was not and as a result he was put to additional solicitor and client costs of $41,175 inclusive of GST.   It is appropriate that there be some allowance towards this.

[31]     As to categorisation, the parties agreed in their memorandum dated 10 April

2017 that Category 2B was appropriate and this was confirmed by Minute of Venning J dated 11 April 2017. There is no reason to depart from that categorisation in respect of what was a routine half day appeal.

[32]     On that basis Mr Wood claims $23,638.00 but this includes two discrete claims of $6,690 for preparation of submissions. He says he was required to prepare a further submission because Ms Arthur filed two sets of submissions in opposition to the appeal, the second after instruction of counsel.

[33]    Schedule 3 of the Rules neither provides for a cost allowance on reply submissions in an appeal context, nor for a second set of submissions in support of appeal and I decline that aspect of the claim accordingly.  To the extent Mr Wood’s costs were exacerbated by the approach adopted by Ms Arthur this is appropriately addressed as a claim for increased costs.

[34]     I do not accept Ms Arthur’s claim that costs in relation to the first case management conference should be abated. While it is a fundamental principle of costs that an award should not exceed the actual costs of the party, this is not to be

approached on a line item basis.  To do so would itself undermine the principles of predictability and expedition which inform all cost calculations. As is apparent from the invoice Mr Chatwin has supplied, a 2B allowance for costs on the appeal will result in an award significantly less than actual costs in relation to overall disposition of the appeal.

[35]     Accordingly on a 2B basis I would allow costs of $16,948.

[36]     The next phase of the inquiry is to determine whether there should be any uplift on this amount in terms of r 14.6(3) which provides for increased costs in certain circumstances. These are identified in r 14.6(3)(b) as follows:

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

…

(b)      the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—

(i)        failing to comply with these rules or with a direction of the court; or

(ii)       taking  or  pursuing  an  unnecessary  step  or  an argument that lacks merit; or

(iii)      failing,  without  reasonable  justification,  to  admit facts, evidence, documents, or accept a legal argument; or

(iv)      failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or other similar requirement under these rules; or

(v)       failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding; or

…

[37]     In my view an uplift of 20 per cent on 2B scale costs is appropriate for the following reasons:

1.I consider the Calderbank offer unreasonably rejected. I am conscious of the fact that unreasonableness must be assessed at the time of the

rejection and not against the subsequent result and, in turn, based on (a) the size and timing of the offer, (b) the reasonable expectation of the party refusing the offer and (c) the parties’ ability at the time of the offer to assess the merits of the case.3   In my assessment there was no proper engagement with the offer reflecting a mindset that justice be allowed to “play itself out”.  Any such engagement would have identified that the offer represented a significant concession on the points which Mr Wood regarded as remaining in contention and was at least worthy of serious consideration.4   I am unpersuaded also by Ms Hunter’s submission that the offer was appropriately rejected having regard to Judge Coyle’s final award of $943,317.44 (on the recalled judgment issued on 9 March 2017).  To the knowledge of both parties such judgment contained an error in relation to categorisation of Mr Wood’s salary.  It is not therefore an appropriate benchmark against which to assess the $800,000 offer.  My ultimate judgment vindicated the generosity of the offer.

2.Mr Wood’s costs were undoubtedly increased by the approach adopted by Ms Arthur to submissions.  The reformulation of approach in the second set of submissions filed by Mr Vickerman (who was only latterly instructed), while understandable in the context of that instruction, necessitated significant further work by the appellant at a point proximate to trial.

3.Prior to the hearing I requested that the parties file a joint memorandum to identify the sums which were agreed and the sums in dispute. Counsel for Mr Wood prepared a first draft which he explains “took many hours due to the complexity of the calculations of Ms Hunter”. This draft was sent to counsel for Ms Arthur four days prior to the hearing.   However, rather than respond to the draft, counsel for Ms Arthur elected to file a new set of submissions.  This represented a

failure to comply with a direction of the Court within the terms of

3      Xu V Liu [2017] NZHC 2137 at [10].

4      It is significant that no Calderbank offer was ever made in response.

r 14.6(3)(b)(i) and is appropriately recognised by way of an order of

increased costs.

Result

[38]     I award costs in favour of Mr Wood and against Ms Arthur in the amount of

$20,337  together  with  disbursements  of  $1,820  as  itemised  in  the  appellant’s submissions dated 12 September 2017.

Muir J