Saunders v Winton Stock Feed Ltd [2009] NZCA 148; (2009) 19 PRNZ 342 (24 April 2009)

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Saunders v Winton Stock Feed Ltd [2009] NZCA 148 (24 April 2009); (2009) 19 PRNZ 342

Last Updated: 11 January 2012

IN THE COURT OF APPEAL OF NEW ZEALAND

CA536/2008 [2009] NZCA 148

BETWEEN ARTHUR OWEN SAUNDERS AND ROBERT JOHN SAUNDERS
First Appellants

AND CENTRAL GRAIN & PRODUCE (SOUTHLAND) LIMITED
Second Appellant

AND WINTON STOCK FEED LIMITED
First Respondent

AND IAIN ANDREW NELLIES AND PAUL WILLIAM GERRARD JENKINS
Second Respondents

Hearing: 24 March 2009

Court: Chambers, Randerson and Potter JJ

Counsel: M J Tingey and N F D Moffatt for Appellants
P F Whiteside for Respondents

Judgment: 24 April 2009 at 2 pm

JUDGMENT OF THE COURT

1. The appeal is allowed.
2. The order for costs made on 29 August 2008 of $25,425.17 is quashed.

100. In substitution therefor, an order is made that the appellants must pay the respondents by way of costs the sum of $8,240, plus disbursements of $425.17, a total of $8,665.17. The appellants’ liability is joint and several.

4. With respect to costs in this Court, the respondents must pay the appellants costs for a standard appeal on a band A basis, reduced by a third, plus usual disbursements. The respondents’ liability is joint and several.

_________________________________________________________________________________

REASONS OF THE COURT

(Given by Potter J)

Introduction

[1] The appellants appeal against costs judgments of Chisholm J delivered in the High Court in Christchurch on 11 and 29 August 2008 in CIV 2006-425-390 on the grounds that:

1. Costs should not have been awarded to the first and second respondents on a solicitor/client basis in respect of the appellants’ application to strike out the first and second respondents’ claim against them or, in the alternative, for summary judgment; and
2. The quantum of costs awarded, being $25,000 plus disbursements of $425.17, a total of $25,425.17, is excessive.

[2] The appellants seek that the award of costs be set aside and that costs be fixed on a category 2B basis under the High Court Rules. Alternatively, if this Court upholds costs being awarded on an indemnity basis, they should not exceed $10,000.

Background

[3] The proceeding in CIV 2006-425-390 was commenced on 19 July 2006 in the Commercial List at Auckland. It arises from the supply of grain by Winton Stock Feed Limited, the first respondent, to Southern Arable Specialists Limited (“Southern Arable”) of which the first appellants were directors and shareholders. Southern Arable subsequently went into liquidation. The second respondents are the liquidators of Southern Arable and Winton is a creditor.
[4] The respondents allege there are no assets of Southern Arable to meet the debt of Winton and other liabilities of the company and that the assets of Southern Arable were transferred to the second appellant Central Grain & Produce (Southland) Limited at the expense of the creditors. They also allege that the first appellants breached various duties to the creditors of the company.
[5] In July 2007 Harrison J ruled that the proceeding be transferred from the Commercial List in Auckland to Christchurch, noting that all relevant witnesses lived in the South Island, the amount of the claim was relatively small, $293,996, and there had been excessive interlocutory activity and adjournments.
[6] In a Calderbank letter dated 20 November 2007 the appellants’ solicitors made an offer of settlement. It was expressed to remain open for acceptance until 7 December 2007.
[7] That offer was rejected by the solicitors for the respondents in a letter dated 7 December 2007 but they made a counter-offer on a Calderbank basis. They commented:

It will never be as cheap for the First Defendants to settle as now given the ongoing work and costs being incurred.

[8] There was no response from the appellants. The counter-offer was not withdrawn.
[9] A five day fixture had been allocated in Invercargill to commence on 11 August 2008 which was subsequently changed in January 2008, to 18 August 2008. The setting down date was fixed for 27 June 2008 (changed from 20 June 2008).
[10] On 25 June 2008 the respondents filed and served a third amended statement of claim. They served briefs of evidence on 4 July 2008 in accordance with timetable orders.
[11] On 16 July 2008 the solicitor for the appellants telephoned the solicitor for the respondents and a without prejudice conversation took place.
[12] On 17 July 2008 the solicitors for the appellants wrote to the solicitor for the respondents referring to the counter-offer of 7 December 2007, which on behalf of the appellants they purported to accept.
[13] The appellants claimed that their letter of 17 July 2008 accepting the counter-offer of 7 December 2007 settled the claim. The respondents denied this was so.
[14] The appellants filed an application for striking out of the respondents’ claim or alternatively for summary judgment (“the application”), on the basis that settlement had been reached. The application was heard by Chisholm J on 11 August 2008. He gave an oral judgment on that day dismissing the application. He held the offer had lapsed before 16 July 2008 and was not open for acceptance on that date.
[15] He described as “an extraordinary proposition”, the contention by the appellants that they did not know the respondents were moving towards a hearing and incurring considerable costs in the process (estimated by the respondents to be some $156,000 in legal fees and disbursements). He said at [26]:

... it was common-sense that with the fixture looming the plaintiffs would be preparing for trial and thereby incurring substantial costs.

[16] He said the appellants had the clear message in the letter of 7 December 2007 about the settlement figure increasing if the offer was not accepted and that ongoing costs would devalue the offer.
[17] He further stated at [33] that even if there had been merit in the appellants’ stance, he doubted he would have been prepared to exercise his discretion in favour of granting the application because they:

... have blatantly disregarded the timetable for filing briefs and have apparently not even started to prepare for trial.

[18] Chisholm J then considered whether the trial could proceed on 18 August. He recognised that as he was privy to the offer and counter-offer, it was necessary for another Judge to preside over the trial. Expressing sympathy for the respondents who wanted to proceed with the fixture, he recognised the reality of the situation including that the appellants had not prepared for the fixture, and granted the adjournment.
[19] He then turned to the issue of costs. He recorded that during a telephone conference in the previous week he had warned the solicitors for the appellants that if the application went against them they were likely to face solicitor/client costs. He said the respondents should not have been in the position of having to incur the costs associated with the appellants’ unsuccessful application. He noted the strong opposition of counsel for the appellants, but ordered reasonable solicitor/client costs and disbursements to be paid by the appellants. He said the matter could be referred back to him if costs on that basis could not be agreed.
[20] He next considered an application of counsel for the respondents for wasted expenditure compensation in preparing for the fixture on 18 August 2008. He declined to make such an order. While expressing sympathy with this application, he reserved the issue for determination by the trial Judge. He said that at that time it should be possible for a much more informed assessment to be made.
[21] Counsel were unable to agree costs on the application. In a minute dated 29 August 2008, Chisholm J referred to the extensive memoranda filed on both sides. He noted the claim of $43,580.17 (including disbursements of $425.17) by the liquidators which included accounts from Hugh Rennie QC of $10,125 for an opinion, and Wynn Williams (Peter Whiteside) of $10,530 for the hearing. He noted that Bell Gully for the appellants vigorously opposed any award above $10,000. He then said at [3]:

Having considered the memoranda I fix costs at $25,000 plus disbursements of $425.17 making a total of $25,425.17.

Submissions

[22] Mr Tingey submitted that the appellants’ application was not vexatious, hopeless or unnecessary, so as to justify an award of indemnity costs against them. He said the amended statement of claim filed by the respondents on 25 June 2008, just prior to the setting down date on 27 June 2008, raised three new causes of action and excluded one from the former statement of claim. It increased the amount claimed from approximately $293,000 to approximately $520,000 and so was, he said, a very different claim from that which the appellants had previously faced. The respondents’ briefs of evidence were served on 4 July 2008 and after these had been duly considered, the appellants on 17 July 2008 accepted the offer which they believed was still open to them to accept.
[23] He acknowledged the appellants did not file the briefs of evidence required in terms of the timetable orders on 25 July 2008, but said at that stage the appellants believed a settlement had been reached, and the application had been filed on 23 July 2008. He accepted the respondents have a valid claim for “wasted costs” on the adjournment, but submitted this did not justify the Judge in awarding indemnity costs on the application. He noted that despite counsel asking for reasons, Chisholm J gave no reason for the warning issued at the telephone conference, that if the application was unsuccessful the appellants were likely to face solicitor/client costs (called “indemnity costs” in the High Court Rules). He submitted there was no proper basis for the warning, nor for the award of indemnity costs subsequently made.
[24] Mr Whiteside submitted the Judge was entitled to exercise his discretion to award indemnity costs because the appellants’ application was entirely without merit, and particularly since he had given warning to the appellants in a telephone conference that if the application went against them they were likely to face solicitor/client costs. He submitted the application was “unnecessary” and therefore within the provisions of r 48C(4)(a) of the old High Court Rules (applicable at the time) which provides that the Court may order a party to pay indemnity costs if the party has acted vexatiously, frivolously, improperly or unnecessarily in a step in a proceeding.
[25] He further submitted that the appellants’ application was “a real flyer” and a blatant attempt to avoid trial. He referred to the statements of Chisholm J at [33] of his judgment of 11 August 2008 about blatant disregard by the appellants of timetable orders and that they had not even started to prepare for trial.

Costs – general principles

[26] Costs in this case were determined under the High Court Rules that applied prior to the new rules coming into force on 1 February 2009. Rule 46 provided that all matters relating to costs are at the discretion of the Court. This Court will be very slow to upset costs awards in the High Court which involve an appeal against the exercise of a discretion, and will intervene only if the Judge’s approach was contrary to principle or plainly wrong: Lewis v Cotton [2001] 2 NZLR 21. Mr Whiteside emphasised this principle, and Mr Tingey accepted it.
[27] In Shirley v Wairarapa District Health Board [2006] 3 NZLR 523 the majority in the Supreme Court considered it would almost invariably be wrong to depart from the general principles which apply to the determination of costs under r 47. Rule 47 together with rr 48, 48A and 48B provided for costs to be assessed by applying the appropriate daily recovery rate to the time considered reasonable for each step reasonably required in relation to the proceeding or interlocutory application.
[28] In Prebble v Awatere Huata (No 2) [2005] 2 NZLR 467, the Supreme Court observed at [6] that indemnity costs have not been awarded in New Zealand except in rare cases, generally entailing breach of confidence or flagrant misconduct. The Court confirmed at [10] that in general, orders for costs are to be a reasonable contribution to actual costs and that a reasonable contribution to costs is just in most cases. However, the general approach yields where it does not deliver a just result and in such cases the Court will exercise its discretion to make an order that is just. The Supreme Court endorsed the statement of Cooke P in Kuwait Asia Bank EC v National Mutual Life Nominees Limited [1991] 3 NZLR 457 at 460 (CA):

[The costs scheme] reflects a philosophy that litigation is often an uncertain process in which the unsuccessful party has not acted unreasonably and should not be penalised by having to bear the full party and party costs of his adversary as well as his own solicitor and client costs. If a party has acted unreasonably – for instance by pursuing a wholly unmeritorious and hopeless claim or defence – a more liberal award may well be made in the discretion of the Judge, but there is no invariable practice.

Discussion

[29] Chisholm J did not refer to the grounds upon which he relied for awarding costs on a solicitor/client (indemnity) basis. Counsel were agreed that of the six bases upon which the Court may order indemnity costs under r 48C(4), only that in paragraph (a) could apply, namely that the appellants’ had acted vexatiously, frivolously, improperly or unnecessarily in respect of the application. We do not accept the appellants’ application could be categorised as vexatious, frivolous, improper or unnecessary. The essential issue on the strike out application was whether an open-ended offer, i.e. an offer which did not stipulate a date by which it must be accepted, would lapse after a reasonable time. The appellants took the firm position that a concluded settlement had been reached upon its acceptance of the respondents’ offer of 7 December 2007, which had not been withdrawn. The respondents maintained the offer had lapsed prior to acceptance because it was not reasonable in the circumstances that the offer should be treated as on foot after the lapse of some eight months prior to the purported acceptance. The Judge held in favour of the respondents. But that does not render the appellants’ application wholly unmeritorious or hopeless. Indeed, the issue having arisen, the appellants were entitled to have it determined. Had they been successful, that would have been the end of the proceeding (subject to any appeal).
[30] “Unnecessarily” in r 48C(4)(a) takes its meaning and flavour from the adverbs which precede it: “vexatiously, frivolously, improperly”. To provide a proper basis for indemnity costs, the misconduct must be “flagrant”: Prebble v Awatere Huata at [6]. The appellants’ application did not involve flagrant misconduct. We consider, therefore, that the Judge was wrong to award indemnity costs on the application.
[31] The Judge clearly had concerns about the conduct of the appellants including the fact that they delayed eight months before purporting to accept the respondents’ settlement offer despite the warning in the respondents’ letter of 7 December 2007 about ongoing work and costs being incurred. This no doubt prompted the Judge’s comment that it was “an extraordinary proposition” that the appellants did not know the respondents were moving towards a hearing and incurring subsequent costs. He also had concerns about the inevitability of an adjournment, given the application was filed on 23 July 2008 which necessitated the fixture being vacated at the hearing on 11 August 2008, only a week before the trial was due to start. However, while Mr Whiteside submitted the appellants had an ulterior purpose in the late purported acceptance of the plaintiffs’ counter-offer, namely to secure the adjournment of the trial, the Judge made no finding to that effect.
[32] The Judge declined to order compensation for wasted expenditure in preparing for the 18 August 2008 fixture, as sought by Mr Whiteside. It appears, however, that he carried over into his decision that indemnity costs were payable on the application his proper concerns about the inevitability of the late adjournment. While these concerns were understandable, they were not relevant to the application on which costs were to be determined.

Increased costs

[33] Under r 48C(3) the Court may order a party to pay increased costs under five headings. The Judge did not purport to award increased costs. He ordered that reasonable costs be paid on an indemnity basis. Presumably when he fixed costs at $25,425.17 including disbursements against a claim of $43,580.17 including disbursements, he assessed an amount for indemnity costs he considered reasonable, although he provided no explanation as to how he reached the end figure. Had the Judge considered costs on an increased rather than an indemnity basis, he would have needed to do so in terms of r 48C(3). Sub-paragraph (a) provides for increased costs, to be ordered at the discretion of the Court if:

(a) The nature of the proceeding or the step in a proceeding is such that the time required by the party claiming costs would substantially exceed the time allocated under band C.

[34] We consider there is justification for awarding increased costs to the respondents on the appellants’ application. It was filed only about three weeks before the trial fixture which had been in place since January 2007. It required the respondents urgently to prepare for the hearing of the application on 11 August 2008 on an issue which, while within a confined compass, was not without difficulty.
[35] We consider item 4.13 (preparing and filing opposition to interlocutory application) in the costs schedule should be calculated on a band C basis (two days). The standard allocation under item 4.14 (preparation for the hearing) would be .75 days. In the circumstances of this case, we consider that item should be increased under r 48C(3)(a) to two days. Mr Tingey attached to his submissions a table prepared on a 2B basis. We amend that table in the two respects just mentioned, so that the outcome is as follows:

4.13	Preparing and filing opposition to interlocutory application (2 days x $1600)	3,200.00
4.14	Preparation for the hearing (2 days x $1600.00)	3,200.00
4.15	Appearance at the hearing (.75 days x $1600.00)	1,200.00
4.17	Appearance at mentions hearing (.2 days x $1600.00)	320.00
4.18	Sealing judgment (.2 days x $1600.00)	320.00
	Total	8,240.00

Application for costs on the adjournment

[36] Mr Tingey accepted the respondents would ultimately be entitled to costs flowing from the late adjournment of the trial, given that that adjournment was necessitated by the appellants’ lack of preparedness for trial. Chisholm J ordered these costs to be determined by the trial Judge. In our view, in accordance with r 48E, he should have determined these costs at the same time as fixing the costs on the application. But we take that no further since the correctness of this deferral is not before us.

Result

[37] We allow the appeal and quash the order for costs made by Chisholm J on 29 August 2008 of $25,425.17. We substitute an order for costs in the sum of $8240 plus disbursements of $425.17, a total of $8665.17.

Costs on appeal

[38] The appellants are entitled to costs on the appeal. We award costs for a standard appeal on a band A basis. We reduce those costs by a third on the basis that the amount at stake was “of exceptionally low value” in terms of civil appeals to this Court and that the issues at stake were of little significance: see Court of Appeal (Civil) Rules 2005, r 53F(b) and (c). We order usual disbursements.

Solicitors:
Wynn Williams & Co, Christchurch, for Appellants
Crown Law Office, Wellington