Skelton v Barfoot & Thompson Limited [2016] NZHC 2872 (30 November 2016)

Last Updated: 12 January 2017

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-404-002049 [2016] NZHC 2872

BETWEEN	BEVIN HALL SKELTON Plaintiff
AND	BARFOOT & THOMPSON LIMITED Defendant

Hearing:	(On the papers)
Counsel:	Plaintiff in Person Timothy Rea and Chen Tiang for the Defendant
Judgment:	30 November 2016

_{COSTS JUDGMENT OF MOORE J}

This judgment was delivered by me on 30 November 2016 at 2:00 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/ Deputy Registrar

_Date:

SKELTON v BARFOOT & THOMPSON LIMITED [2016] NZHC 2872 [30 November 2016]

[1] Although it has been referred to me quite recently, this matter has a long and somewhat tortured history. Proceedings have been afoot since 19 August 2014. This costs application itself has been outstanding since May of this year because of what appears to have been a procedural oversight. A delay of this length is certainly unsatisfactory.

Background

[2] By way of summary, the plaintiff, Mr Skelton, is the sole trustee of the B H Skelton Children’s Trust (“the Trust”), the former registered proprietor of a property at 57C Norwood Road, Bayswater, Auckland.

[3] This property is an apartment which had once been part of a single section owned by the Trust. It was subdivided into two sections and a duplex in 2003.

[4] Two of the resulting sections, as well as the other apartment, were marketed and sold by R A Keegan on behalf of the Trust. Mr Keegan was a commission agent employed by the defendant, Barfoot & Thompson Limited (“Barfoot & Thompson”) at a number of its branches. He had acted for Mr Skelton and the Trust in relation several other sales and purchases over the years and it appears the parties had enjoyed a successful and harmonious relationship for some time.

[5] However, this soured in 2012 when Barfoot & Thompson and Mr Keegan were engaged to market and sell the remaining apartment. At that stage, Mr Skelton and the Trust were in a perilous financial situation and it seems Mr Skelton was barely able to meet the monthly repayment obligations to the bank which held a mortgage over the property.

[6] A contract of agency was signed between the parties on 10 April 2012 (“the first agreement”) and an auction date was set for 17 May. The period of sole and exclusive agency was due to end on 17 July or sixty one days after the auction date. After that, Barfoot & Thompson would be appointed as an agent under a general authority which either party had the right to cancel at any time provided they gave seven days’ notice.

[7] However, the auction did not go ahead. It seems that was for two reasons. First, Mr Skelton became involved in a dispute with a third party, Chuck Bird, who had loaned him a sum of money to carry out developments on the property. As a result of this dispute Mr Bird registered a caveat over the property. Secondly, Mr Skelton was also engaged in a separate dispute with his solicitor, Charles Howcroft, in relation to the management of the Trust which owned the property. Mr Skelton was dissatisfied with this and continued to believe that the auction was unnecessarily abandoned.

[8] Consequently, a new contract of agency was signed dated 13 June 2012 (“the second agreement”). A new auction date of 19 July was also set. Under this agreement, the period of sole and exclusive agency was to run to 19 September. As before, after this period expired Barfoot & Thompson would be appointed under a general authority which either party could cancel at any time provided they gave seven days’ notice. The agreement also contained a provision providing either party the right to cancel the sole agency after 90 days.

[9] It appears, and the vagueness of Mr Skelton’s amended statement of claim requires me to use that word, that Mr Skelton took issue with the circumstances which surrounded the signing of this agreement. He seemed to argue that prior to the signing of the second agreement Mr Keegan misleadingly informed him that the sole and exclusive agency would end at the date of the new auction rather than on

19 September. He also claimed that the 90 day provision was not part of the first agreement and that he was not aware of it.

[10] Barfoot & Thompson on the other hand claimed no such representation was made to Mr Skelton by Mr Keegan and that the 90 day provision was part of the first agreement. Barfoot & Thompson further argued that prior to signing the second agreement, Mr Skelton was given the opportunity to obtain independent legal advice and that he did so having signed it in the presence of a solicitor, John Baratt-Boyes. Mr Skelton accepted that he was told to seek independent legal advice but stated that he ultimately decided against this preferring to rely on Mr Keegan’s undertakings.

[11] It is common ground that following the signing of the second agreement, Mr Keegan and Barfoot & Thompson carried out an extensive marketing campaign around the property.

[12] Mr Skelton alleged that Mr Keegan made statements in the course of this marketing campaign which were inappropriate, misleading and derogatory of the property. I will return to this claim later. However, I note that Mr Skelton made a complaint to the manager of Barfoot & Thompson’s Epsom Agency, Pamela Erceg, who declined to take any action.

[13] The auction took place on 19 July 2012. However, there were no registrations of interest let alone bids.

[14] Apparently displeased with Mr Keegan’s marketing of the property, Mr Skelton purported to give Barfoot & Thompson seven days notice of his intention to cancel its agency. He also approached several other real estate agencies on the North Shore in respect of the property. However, after it was pointed out to him that Barfoot & Thompson had sole and exclusive agency until at least 19 September, none of the rival agencies were willing to assist in marketing and selling the property.

[15] At this point, Mr Skelton contacted the manager of Barfoot & Thompson’s Devonport branch, Dean Wotherspoon who, after clearing the matter with Mr Keegan, arranged for the property to be advertised through its branch and for additional open homes to be conducted. Mr Skelton alleged that Mr Wotherspoon refused to hold a second auction in respect of the property on instruction from Mr Keegan. Barfoot & Thompson countered that Mr Keegan had already entered into serious negotiations with a prospective buyer at this point and had received at least one written offer.

[16] However, it appears that Mr Skelton’s financial difficulties had already reached something of a tipping point. Mr Keegan, it is accepted, demanded payment of the marketing fees incurred to date. Mr Skelton alleged that he did so knowing

that this would prevent Mr Skelton from meeting the monthly mortgage payments on the property.

[17] After missing a number of these payments, Mr Skelton received a notice from his bank stating that he had 28 days in which to secure an unconditional sale, at which point proceedings would be initiated to proceed to a mortgagee sale.

[18] Mr Skelton requested that Mr Keegan hold another auction but Mr Keegan refused. He then organised for viewings to take place by appointment only, rather than by way of an open home. It seems that a number of open homes did in fact take place organised through Barfoot & Thompson’s Devonport office.

[19] Regardless, a sale and purchase agreement was eventually arranged between Mr Skelton and the party which had made the earlier written offer. This was concluded on 6 September 2012, for a sale price of $827,000.

[20] Mr Skelton claimed that he accepted this offer only because the prospect of an impending mortgagee sale required him to in order to mitigate his losses. A later valuation of the property, arranged at his cost, valued the property at $1,000,000.

Procedural history

[21] Plainly aggrieved at the conduct and result of the sale, Mr Skelton lodged a complaint against Barfoot & Thompson and three of its licensed agents with the Real Estate Agents Authority. In a decision issued on 29 November 2013 the Complaints Assessment Committee decided to take no further action. Mr Skelton immediately appealed this decision to the Real Estate Agents Disciplinary Tribunal.

[22] On 19 August 2014, Mr Skelton filed the present proceedings and presented

Barfoot & Thompson with two volumes of documents by way of initial disclosure.¹

The statement of claim made a series of allegations against Barfoot & Thompson

(and Messrs Keegan and Wotherspoon and Ms Erceg in particular) as well as his former solicitor Mr Howcroft. These were extraordinary in substance and

¹ It appears the defendant was only served on 30 October 2014.

incomprehensible in form. Certainly no cause(s) of action could be readily identified. The essence of the claim appears to have been that:

(a) Mr Howcroft was the solicitor responsible for executing the previous sales and purchases of property organised between Mr Skelton and Mr Keegan, and that Mr Keegan had failed to account to Mr Howcroft for deposits and commissions in relation to these deals;

(b) Mr Howcroft had negligently failed to keep correct records and ensure that Mr Keegan and/or Barfoot & Thompson did account for monies owed in relation to these deals;

(c) unauthorised payments were made by Mr Howcroft from the Trust’s

accounts to Mr Bird;

(d) Mr Skelton was misled by Barfoot & Thompson into signing a sole and exclusive agency agreement or misled in terms of the length of the sole and exclusive agency period;

(e) Barfoot & Thompson or its agents intentionally misled potential buyers in marketing the property claiming that there were serious flaws in the title to the property and that it suffered from weather tightness issues which would require $300,000 in repairs;

(f) Barfoot & Thompson contacted more than 30 valuers and successfully discouraged them from accepting requests from Mr Skelton to value the property, with the consequence Mr Skelton was forced to contact a specialist forensic valuer;

(g) Barfoot & Thompson intentionally withheld offers from Mr Skelton and did not make a genuine or serious attempt to market the property so as to ensure that it could be sold at a loss to a “chosen buyer”;

(h) Barfoot & Thompson pressured Mr Skelton to sell the property at a

below market value to the “chosen buyer” by intentionally forcing out

the tenants so that Mr Skelton would be deprived of rent money and would be unable to meet the mortgage payments on the property; and

(i) Barfoot & Thompson’s actions eventually forced Mr Skelton to sell

the property for around $150,000 less than its market value.

[23] Mr Skelton states that he was informed by Doogue AJ in callover that his statement of claim was deficient and that amendments were necessary if the case was to proceed.

[24] At some point in September 2014, Mr Skelton abandoned his appeal to the

Real Estate Agents Disciplinary Tribunal.

[25] A statement of defence was filed on 4 December 2014, and initial disclosure was commenced by Barfoot & Thompson on the same date.

[26] The first case management conference took place on 29 April 2015 again before Doogue AJ. Mr Skelton indicated that he wanted to file an amended statement of claim as well as an application for non-party discovery in respect of Mr Howcroft. His Honour directed him to file the former by 13 May and the latter by 27 May and also made an order for standard discovery.

[27] Mr Skelton appears to have taken advice on what he describes as “an informal basis” from an unnamed barrister as and when the Trust could afford. This barrister provided some guidance in drafting which allowed Mr Skelton to file an amended statement of claim dated 13 May.² This document was an improvement on what preceded it. It appeared to disclose two causes of action: breach of the contract of agency on the part of Barfoot & Thompson and its agents in misleading

Mr Skelton and in conducting the marketing and sale of the property, and what was termed “misappropriation of funds” on the part of Messrs Keegan and Howcroft in relation to past property transactions. The majority of the extraordinary claims in the

_{first statement of claim were, however, repeated.}

² The defendant alleges that it was served with various versions of this amended statement of claim on 13 and 19 May, however, it appears that these were simply draft and final versions of the same document. Only one copy was ever filed with the Court dated 13 May 2015.

[28] Mr Skelton concedes, however, that this barrister indicated to him that “on

the hard evidence available the case had little chance of success.”

[29] Barfoot & Thompson filed a memorandum with the Court on 5 June 2015 in advance of the second case management conference scheduled for 11 August 2015. This memorandum advised of its intention to either apply for summary judgment or to strike out the amended claim.

[30] On 11 June 2015, Mr Skelton filed a notice of discontinuance. Barfoot & Thompson also filed its statement of defence to the amended statement of claim on the same date. Despite some prompting on the part of Barfoot & Thompson the issue of costs remained unresolved.

Submissions in relation to costs

[31] A series of memoranda and reply memoranda were filed on the subject of costs between March and May 2016.³

[32] Barfoot & Thompson has advised that its scale costs, calculated on a

2B basis, amounted to $8,920 whereas the actual costs incurred were $17,495 plus

$270.60 in disbursements. Barfoot & Thompson seeks indemnity costs in relation to these proceedings under r 14.6(1)(b) of the High Court Rules arguing that Mr Skelton acted vexatiously, frivolously, improperly or unnecessarily in commencing and continuing the proceeding up until 11 June 2015.

[33] It submits that the allegations contained in his statement and amended statement of claim were without any factual basis whatsoever and that he knew them to be untrue. The case was hopeless from the beginning and this alone is enough to justify an award of indemnity costs. Barfoot & Thompson also submits that Mr Skelton had an ulterior motive for bringing the proceedings in that it served as a “fishing expedition” for him to obtain information and documents in relation to his

_{former solicitor Mr Howcroft. In the alternative, it seeks a 90 per cent uplift on scale}

³ The defendant filed a memorandum on 24 March and a reply memorandum on 6 May.

Mr Skelton filed his own memorandum and reply memorandum on 27 April and 23 May respectively.

costs pursuant to r 14.6(3)(b)(ii). Finally, Barfoot & Thompson submits that the Court should exercise its discretion to also award costs in relation to the preparation of memorandum in support of the present costs application.

[34] Mr Skelton claims that a portion of the costs sought by Barfoot & Thompson relate to appearances its counsel made in defending the complaint before the Complaints Assessment Committee and that these cannot now be recovered. He also argues that much of the material in the High Court proceedings had already been put before the Complaints Assessment Committee and that little or no additional research was required to respond to it. He states that the High Court proceedings were “only tentative” and that they were discontinued once the procedural complexities became apparent to him. He submits that Barfoot & Thompson’s solicitors were made aware of his intention to discontinue the proceedings in an effort to contain costs but that its statement of defence was still filed unnecessarily

on 11 June 2016.⁴

[35] Mr Skelton submits that Barfoot & Thompson was not successful in the present proceeding and that the proceedings were not settled. Likewise he claims that they were not discontinued unilaterally but rather abandoned by both sides.

[36] Mr Skelton advises that, as of 23 May 2016, he has no prospects of meeting a costs order in respect of the present matter. He submits that he has brought an application for pre-commencement discovery against Mr Howcroft with a view to filing a separate proceeding against him. Only if he is successful in this proceeding would he be in a position to pay costs to Barfoot & Thompson. He submits that if a costs order was made and recovery action pursued by Barfoot & Thompson prior to the resolution of the separate claim against Mr Howcroft he would be bankrupted and the separate claim would inevitably be abandoned by the Official Assignee. Barfoot & Thompson would be unable to recover costs in the event of this

_happening.

4. Mr Skelton’s memorandum refers to 11 April 2016, however, this appears to be a simple mistake.

Analysis

[37] The general principles in relation to costs are well known and are set out in r 14.2 of the High Court Rules. These are at the discretion of the Court.⁵ The party who fails in respect of a proceeding should pay costs to the party who succeeds.⁶

Where a party discontinues a proceeding, it must pay the other party the costs of and incidental to the proceeding, up to and including the discontinuance unless Barfoot

& Thompson otherwise agrees or the Court otherwise orders.⁷

[38] I do not accept Mr Skelton’s claim that there was no successful party or that both parties abandoned the proceeding. The proceeding was, and could only have been, discontinued by Mr Skelton alone pursuant to the notice of discontinuance he filed on 11 June 2015. Plainly this was because he had ascertained that his prospects of success were minimal and that an imminent application for summary judgment or strike out was likely to succeed. Barfoot & Thompson is prima facie entitled to costs in respect of this matter and there is no basis for me to order otherwise.

[39] The real issue for determination is whether these should be scale, increased or indemnity costs. The difference between the three was described by the Court of Appeal in Bradbury v Westpac Banking Corporation:⁸

“(a) standard scale applies by default where cause is not shown to depart from it;

(b) increased costs may be ordered where there is failure by the paying party to act reasonably; and

(c) indemnity costs may be ordered where that party has behaved either

_{badly or very unreasonably.”}

⁵ _{High Court Rule 14.1.}

⁶ _{Rule 14.2(a).}

⁷ _{Rule 15.23.}

⁸ Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [27].

[40] The threshold that must be met before an award of indemnity costs is made is a high one.⁹ Rule 14.6(4) sets out the following guidance in relation to the use of indemnity costs:

“14.6 Increased costs and indemnity costs

...

(4) The Court may order a party to pay indemnity cost if —

(a) the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or

(b) the party has ignored or disobeyed an order or direction of the court or breached an undertaking given to the court or another party; or

(c) costs are payable from a fund, the party claiming costs is a necessary party to the proceeding affecting the fund, and the party claiming costs has acted reasonably in the proceeding; or

(d) the person in whose favour the order of costs is made was not a party to the proceeding and has acted reasonably in relation to it; or

(e) the party claiming costs is entitled to indemnity costs under a contract or deed; or

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

[41] In Bradbury, the Court of Appeal endorsed indemnity costs being awarded in the following, non-exclusive, circumstances:¹⁰

“(a) the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud;

(b) particular misconduct that causes loss of time to the court and to other parties;

(c) commencing or continuing proceedings for some ulterior motive;

(d) doing so in wilful disregard of known facts or clearly established law;

⁹ _{Paper Reclaim Ltd v Aotearoa International Ltd [2006] 3 NZLR 188 (CA).}

10. Bradbury v Westpac Banking Corporation, above n 8, at [29]; based on the circumstances adopted by Goddard J in Hedley v Kiwi Co-operative Dairies Ltd (2002) 16 PRNZ 694.

(e) making allegations which ought never to have been made or unduly prolonging a case by groundless contentions, summarised in French J's “hopeless case” test.”

[42] The “hopeless case” test the Court referred to was summarised in the following terms:¹¹

“Although there is said to be a presumption in such cases that the action was commenced or continued for some ulterior motive or in wilful disregard of known facts or clearly established law, it is not a necessary condition of the power to award such costs that a collateral purpose or some species of fraud be established. It is sufficient in my opinion to enliven the discretion to award such costs that, for whatever reason, a party persists in what should on proper consideration be seen to be a hopeless case.”

[43] I accept Barfoot & Thompson’ssubmission that Mr Skelton made a number of extraordinary and unsupportable allegations of dishonest or improper behaviour on the part of its agents. I have summarised just a few of these at [22]. Needless to say this is little more than a sample. Mr Skelton made and maintained a number of other highly inflammatory and patently unnecessary claims, including that:

(a) Mr Howcroft had suffered a psychiatric collapse and had negligently and/or fraudulently overseen the affairs of the Trust and property transactions between Mr Skelton and Mr Keegan;

(b) Barfoot & Thompson and its agents had taken advantage of Mr Howcroft’s infirmity and/or deliberately colluded with him at Mr Skelton’s expense;

(c) Barfoot & Thompson then worked with Mr Howcroft and Mr Bird to cover up this improper behaviour.

[44] These allegations went directly to the integrity and capability of Barfoot & Thompson and its agents and were, on any view, deleterious to the professional reputation of these parties. No evidence was proffered in support and none could have been. In the words of the Court of Appeal in Bradbury, these allegations ought

_{never to have been made.}

¹¹ J Corp Pty v Australian Builders Labourers Federation Union of Workers (WA Grant) (No 2)

[1993] FCA 70; (1993) 46 IR 301 at 303.

[45] Mr Skelton’s statement of claim and amended statement of claim also made extensive reference to the Real Estate Agents Act (Professional Conduct and Client Care) Rules 2012 and addressed largely the same material that had been the subject of the decision of the Complaints Assessment Committee. By Mr Skelton’s own admission “there was nothing new in the proceedings in the High Court.”

[46] These factors, in combination with the vague and ill-considered form the pleadings took, made this a “hopeless case” of the sort described in the passage above. This would have been clear to Mr Skelton, both from the advice provided to him by Doogue AJ and from the advice he acknowledges he received from his unnamed barrister to the effect that the case had little chance of success. It can be no excuse that the High Court proceedings were, to borrow Mr Skelton’s own term, “tentative.” The proceedings were filed and prosecuted for a significant period and in defence Barfoot & Thompson was required to take active steps and file documentation in reply.

[47] I am therefore satisfied that this is an appropriate case in which to award indemnity costs.

[48] I do not accept Mr Skelton’s claim that any of the costs claimed relate to work carried out in preparation of the case before the Complaints Assessment Committee. Barfoot & Thompson has provided the relevant invoices and I accept its submission that the earliest of these is dated more than a year after the Complaints Assessment Committee released its decision and just after the High Court proceedings had commenced. I also do not accept the submission that Barfoot & Thompson cannot claim costs in relation to its final statement of defence. This may have been filed on the same day as the notice of discontinuance but undoubtedly work was carried out in preparing it well before it was confirmed that the proceedings would be discontinued.

[49] I am satisfied that the full amount sought, being $17,495 plus $270.60 in disbursements, should be awarded. I am further satisfied that I have the discretion to award costs in respect of this costs application,¹² which total $1,338, and that it is appropriate to exercise this discretion in favour of Barfoot & Thompson, whose application has succeeded in its entirety. This brings the total award to $19,103.60.

[50] I note the plaintiff ’s submission that, pending the determination of any potential claim against Mr Howcroft, he has no funds with which to meet a costs order and that being forced to do so will result in his bankruptcy and a resultant inability to recover on the part of Barfoot & Thompson. This submission was last made on 23 May 2016. I have no information on whether the position has changed in the interim or how far the separate claim, if one was ever actually filed, has now advanced.

[51] Despite this the correct course in the circumstances is to make the costs orders which I have found that Barfoot & Thompson is legally entitled to. If, when,

_{and how it is best to enforce these orders is a matter for Barfoot & Thompson.}

Moore J

Solicitors:

Glaister Ennor, Auckland

Copy to:

_{The Plaintiff}

¹² Body Corporate Administration Ltd v Mehta (No 4) [2013] NZHC 213; accepted by the Court of

Appeal in Strata Title Administration Ltd v Body Corporate Administration Ltd [2014] NZCA

96.