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High Court of New Zealand Decisions |
Last Updated: 20 August 2018
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IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
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CIV-2015-419-174
[2018] NZHC 2091 |
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IN THE MATTER
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of breach of contract, tort of deceit, tort of negligence and breach of
fiduciary duty and directors’ duties
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BETWEEN
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JUST DO IT LIMITED
Plaintiff
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AND
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TAUPIRI FARMS LIMITED
First Defendant
CRAIG WILSON KEITH COOMBES, GRANT HARVEY VICTOR COOMBES and HARVEY JOHN
COOMBES
Second Defendants (discontinued)
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Hearing:
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On the papers
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Appearances:
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T M Braun for the Plaintiff
G J Kohler QC for the First Defendant
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Judgment:
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15 August 2018
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JUDGMENT OF WOODHOUSE J
This judgment was delivered by me on 15 August 2018 at 3:30 p.m. pursuant to r 11.5 of the High Court Rules 1985.
Registrar/Deputy Registrar
..........................................
Solicitors / Counsel:
Mr T M Braun, Whitfield Braun Ltd, Solicitors, Hamilton Mr G J Kohler QC, Barrister, Auckland
Mr P Jefferies (defendant’s instructing solicitor), Jefferies Law Ltd, Solicitors, Hamilton
JUST DO IT LTD v TAUPIRI FARMS LTD [2018] NZHC 2091 [15 August 2018]
[1] This judgment determines applications for costs by the first defendant and, separately, the second defendants. Costs are sought by the first defendant having succeeded in the substantive proceeding.1 Costs are sought by the second defendants following discontinuance of the claims against them.
The first defendant’s claim
[2] The first defendant seeks increased costs of $50,000, being costs on a 2B basis of $37,241 increased by approximately 34 per cent to $50,000. There is also a claim for $110 for disbursements.
[3] The plaintiff contends that costs should lie where they fall on the grounds that “both parties were partially successful at trial” and, implicitly, that they enjoyed a similar measure of success. This contention is on the basis that “going into trial the plaintiff had to establish liability and quantum” and the plaintiff “did establish liability”, but failed on quantum.
[4] I do not agree with this argument for two reasons. The first and fundamental reason is that the first defendant succeeded. The authorities make clear that, in general, costs claims should not be complicated with arguments of degrees of success; there is a winner and a loser, and the loser pays costs. I recently summarised the principles as follows:2
- (a) The primary rule is that “the party who fails with respect to a proceeding ... should pay costs to the party who succeeds”;3 that is, costs follow the event. The primacy of this rule has been emphasised in the Supreme Court and Court of Appeal in different ways: “the loser, and only the loser, pays”;4 “[a] fundamental principle applying to the determination of costs in all the general courts in New Zealand is that costs follow the event”;5 “the paramount rule that costs should follow the event”.6
(b) The leading cases emphasise the general need to determine who succeeded and who lost in a straightforward way based on the formal result. The Court of Appeal of England and Wales, dealing with a
1 Just Do It Ltd v Taupiri Farms Ltd [2018] NZHC 1105 at [65]- [67].
2 Lough v Taupo Residential Limited [2018] NZHC 1603 at [20].
3 Rule 14.2(1)(a).
4 Shirley v Wairarapa District Health Board [2006] NZSC 63, [2006] 3 NZLR 523 at [19].
5 Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109, [2013] 1 NZLR 305 at [8].
money claim, said: “In deciding who is the successful party, the most important thing is to identify the party who is to pay money to the other. That is the surest indication of success and failure.”7 When the claim is not for money, or when there is an unsuccessful counterclaim, the same principle applies; the party who fails is the party against whom judgment is entered.
(c) The fundamental rule that costs follow the event is not absolute, but it should not be departed from “unless there are exceptional reasons”.8
[5] In addition, although the defendants, in their statement of defence, formally denied breach of contract, or liability for the original claim for specific performance, they admitted failure to settle and did not advance any affirmative defence on the question of breach of contract. There was no contest, at trial, on liability.
[6] For the plaintiff, Mr Braun submitted that, in the substantive judgment, I had indicated that the plaintiff was partially successful at trial. That is not correct. And the submission now made that costs should lie where they fall is contrary to my formal order, in the substantive judgment, that the first defendant is entitled to costs. There are no grounds for revisiting that decision.
[7] In relation to the 2B scale quantification, the only issues raised for the plaintiff were that the itemisation includes a claim for inspection of three lists of documents when there were only two and, because there was a “relatively small number of documents”, the allowance should be for one list of documents only. The first defendant accepted that the claim for three lists of documents was in error – there were only two lists – but contended that it is appropriate that there should be scale costs for two lists in accordance with the principle that, so far as possible, the determination of costs should be predictable and expeditious.9
[8] I agree with the submission for the first defendant. The result is that the 2B scale should be reduced by $3,345 to $33,896.10 With the claim for increased costs at
$50,000, the increase is approximately 48 per cent.
8 Shirley v Wairarapa District Health Board, above n 4, at [19].
9 High Court Rules 2016, r 14.2(1)(g).
10 The reduction is for 1.5 days at $2,230 a day, being the claim for the third list.
[9] The plaintiff opposes the claim for increased costs. This is based, in part, on the fact that there is a claim by the second defendants for costs in addition to the first defendant’s claim for increased costs. The separate claim for the second defendants, and its relevance to the first defendant’s claim, needs to be addressed, but it is appropriately dealt with after considering the first defendant’s claim for increased costs.
[10] The first defendant seeks increased costs under r 14.6(3) on the grounds that the plaintiff took or pursued an argument that lacked merit and there are other reasons which justify an order for increased costs.11 The submissions in support were, in summary, as follows:
(a) Although the first defendant did breach the contract it forfeited a deposit of $1 million.
(b) The proceeding was without any substantive merit.
(c) The claim was opportunistic as it was launched just before the limitation period expired.
(d) “Absurdly large sums of money were sought” – a capital loss of $2.5 million and interest of around $13 million.
[11] The fact that the claim was issued just within the limitation period is not relevant. The central issue is whether a claim substantially lacking merit was brought and pursued. That, of course, was the first defendant’s second point, and the first and fourth points merge in that question.
[12] Notwithstanding Mr Braun’s submissions to the contrary, I am satisfied that a claim was brought in spite of a distinct lack of merit. The claim for damages based on claimed market values in 2017 – approximately eight years after breach of contract – was contrary to the well established general rule that market value is at the date of breach and there was no evidence to support the alternative date. In addition, even if
11 High Court Rules, r 14.6(3)(b)(ii) and (d).
there were grounds for assessing market value eight years after breach, there was a marked absence of probative evidence to support the losses claimed.12
[13] Although the increase above scale sought by the first defendant has gone from around 34 per cent to 48 per cent, because of the reduction in the scale costs, I am satisfied that an increase of just under 50 per cent is justified. The claim, which turned on damages, was decidedly lacking in merit.
The second defendants’ claim
[14] The second defendants claim $15,000. This was not been quantified by reference to schedules 2 and 3 of the Rules, or otherwise. It is essentially advanced as a reasonable allowance for the second defendants following discontinuance of the claims against them, and which were claims quite different in nature from the claim against the first defendant.
[15] Rule 14.15 is as follows:
14.15 Defendants defending separately
The court must not allow more than 1 set of costs, unless it appears to the court that there is good reason to do so, if—
(a) several defendants defended a proceeding separately; and
(b) it appears to the court that all or some of them could have joined in their defence.
[16] The plaintiff places substantial reliance on this rule to oppose any award of costs to the second defendants, coupled with a submission that, if there were to be an award to the second defendants, in addition to increased costs to the first defendant, there will, in effect, be an overall increase of costs payable by the plaintiff which cannot be justified.
[17] The second defendants were directors of the first defendant company. There were three causes of action against the second defendants relating to the making of the contract for sale and purchase between the plaintiff and first defendant. These were
claims of deceit, negligent misstatement and, as directors under the Companies Act 1993, breach of fiduciary duties, the duty to exercise reasonable skill and care, and the duty relating to incurring of obligations.
[18] Mr Kohler QC, for the second defendants, submitted that, in terms of r 14.15, there is good reason for a separate costs award in favour of the second defendants for the following reasons:
(a) The claims against the second defendants were quite different from the claim against the first defendant and were extensive and more complex.
(b) Given the nature of the claims, and in particular the claim of deceit and breach of fiduciary duties, the claims required careful attention and the instruction of senior counsel.
(c) The claims against the second defendants increased the costs of all of the defendants whether claims for costs are considered jointly or severally.
(d) The claims against the second defendants were maintained for two years and discontinued not long before the substantive hearing commenced.
(e) The late withdrawal of the claims, by discontinuance, demonstrates that the claims lacked merit.
(f) Under r 15.23, “a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant” unless the defendant otherwise agrees or the Court otherwise orders.
[19] The plaintiff opposed any additional award of costs in favour of the second defendants. The principal submissions in support of that argument may be summarised as follows:13
13 For convenience, I have rearranged the order in which Mr Braun made these submissions.
(a) The Court has no jurisdiction under r 14.15 to award additional costs to the second defendants.
(b) To award additional costs, assessed on a 2B basis for the second defendants, would, when coupled with costs to the first defendant, result in increased costs overall of between 64 per cent to 90 per cent above scale, depending on whether there is an allowance for inspection of one, two or three lists of documents.
(c) A lack of merit in the claim against the second defendants is not established simply by the fact that the claims were discontinued.
(d) Abandonment of a cause of action is not a pointer to increased or indemnity costs, citing Bradbury v Westpac Banking Corp.14
(e) The second defendants have not established why or how there were any costs for them separate from those for the first defendant.
[20] I will deal first with Mr Braun’s submissions in opposition, and in the order recorded above.
[21] The submission on jurisdiction was based on the fact that Mr Kohler acted for the first and second defendants. And I note that the same solicitors acted for the first and second defendants. This is relevant to the overall assessment of costs, but it does not mean that the Court does not have jurisdiction to make a separate award of costs to the second defendants. The question is not one of jurisdiction, but whether the Court considers there is good reason to allow more than one set of costs.
[22] In relation to the second submission, referring to percentage increases, if there is an order in favour of the second defendants for $15,000, resulting in a total to the first and second defendants of $65,000, the total will be just over 90 per cent more than the base 2B scale calculation for the first defendant of $33,896. That would be a telling argument against an allowance for the further sum of $15,000 if there is no
14 Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [79].
good reason for a separate award of costs. But if that is the case there will be no separate award at all. The argument directed to percentages does not answer the essential question – is there good reason to allow more than one set of costs?
[23] I agree with the third submission for the plaintiffs – that a lack of merit in the claim against the second defendants is not established simply by the fact that the claims were discontinued. I therefore disagree with Mr Kohler’s submission that the late withdrawal of the claims demonstrates that they lacked merit. But the issue of merit, or lack of merit, in the claims against the second defendants is a red-herring. It would only be relevant if the second defendants were seeking an allowance for costs above scale, but they are not. Mr Braun acknowledged that the scale costs for the second defendants, if assessed separately, would be between $16,725 and $23,415, depending on the number of lists of documents from the plaintiff. As I have concluded that the proper allowance is for two lists of documents, the scale for the second defendants would appear to be around $20,000. The second defendants’ claim is for 25 per cent less - $15,000. These conclusions also dispose of the fourth argument for the plaintiff, relying on Bradbury v Westpac Banking Corp.
[24] The essential issue on the claim by the second defendants is addressed in what I have recorded as the last of the principal submissions for the plaintiff; the submission that the second defendants have not established why or how there were any costs for them separate for those for the first defendant. The principal submissions for the second defendants in that regard are summarised above at [18](a), (b), (c) and (f). I agree with the thrust of those submissions and in consequence I am satisfied that this is a case where there is good reason to allow a second set of costs.
[25] Unlike cases where the Court will not allow a second set of costs, the claims against the second defendants were fundamentally different from the claims against the first defendant, both in terms of the legal nature of those claims and the evidence that would have to be established by the plaintiff to succeed with those claims. The fact that Mr Kohler was acting for the first defendant as well as the second defendants does not have any bearing on the fact that the claims against the two sets of defendants were fundamentally different and, therefore, required analysis by counsel of the fundamentally different aspects of law and fact.
[26] For those various reasons I am satisfied that the second defendants are entitled to a separate award of costs. I am also satisfied that the allowance sought of $15,000 is entirely reasonable given the fact that the scale costs, for what amounts in substance to a separate proceeding against the second defendants, would have been around
$20,000.
Result
[27] There is an order that the plaintiff pay the first defendant a total sum of $50,110 for legal costs and disbursements.
[28] There is an order that the plaintiff pay the second defendants, jointly, a sum of
$15,000 for legal costs.
Woodhouse J
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