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High Court of New Zealand Decisions |
Last Updated: 7 June 2019
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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
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CIV-2014-404-001276
[2018] NZHC 454 |
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BETWEEN
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BUSHLINE TRUSTEES LIMITED and
STEPHEN DANIEL COOMEY as Trustees of Bushline Trust One; and
BUSHLINE TRUSTEES LIMITED and
SHARON LOUISE COOMEY as Trustees of Bushline Trust Two
Plaintiffs
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AND
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ANZ BANK NEW ZEALAND LIMITED
Defendant
ROBERT LEWIS ENGLAND
Third Party
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Hearing:
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[On the Papers]
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Counsel:
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M D Branch and K F Shaw for the Plaintiffs
S M Hunter, M C Sumpter and D T Street for the Defendant A A Challis and D
P Turnbull for the Third Party
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Judgment:
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19 March 2018
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JUDGMENT OF EDWARDS J
This judgment was delivered by Justice Edwards on 19 March 2018 at 3.30 pm, pursuant to
r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors: Harkness Henry, Hamilton
Chapman Tripp, Auckland McElroys, Auckland
BUSHLINE TRUSTEES LTD v ANZ BANK NEW ZEALAND LTD [2018] NZHC 454 [19 March 2018]
Introduction
[1] In 2008, Bushline restructured its lending with ANZ into a $19.46m loan, and entered into interest rate swap agreements to hedge the interest rate payable on that loan. Bushline claimed that ANZ made misrepresentations about the loan and swap agreements and failed to support Bushline through financially difficult times.
[2] In my judgment dated 16 October 2017, I dismissed all five causes of action against ANZ and consequently dismissed ANZ’s claim against the third party, Mr England.1 I subsequently dismissed an application by Bushline to recall the judgment.2
[3] The parties have been unable to reach agreement on costs. Bushline submits that the fixing of costs should be deferred pending the determination of its appeal of the substantive judgment. I consider that costs should be fixed at this juncture so that there is certainty for each party as to their respective positions.
[4] The issues for determination in this costs judgment are as follows:
(a) Should allowance be made for findings of fact made in favour of Bushline?
(b) Should ANZ be allowed to recover for some steps under band C?
(c) Should an uplift from scale be allowed to ANZ, and to Mr England, for the unreasonable rejection of Calderbank offers?
(d) Who should pay Mr England’s costs?
(e) Are the disbursements claimed by ANZ reasonable?
(f) Is the quantum claimed by ANZ correctly calculated?
1 Bushline Trustees Ltd v ANZ Bank New Zealand Ltd [2017] NZHC 2520.
2 Bushline Trustees Ltd v ANZ Bank New Zealand Ltd [2017] NZHC 829.
Should allowance be made for findings of fact made in favour of Bushline?
[5] The general principle is that costs follow the event.3 However, departure from this general principle may be allowed where the party claiming costs has only been partially successful or where each party has had similar success.4
[6] Rule 14.7(d) of the High Court Rules 2016 (Rules) allows the Court to refuse to make an order for costs or to reduce the costs otherwise payable where the party claiming costs has failed in relation to a cause of action or issue which significantly increased the costs of the party opposing costs.
[7] Bushline was successful in establishing that ANZ made misleading statements about interest rate swaps being like a fixed rate loan (the “fixed cost” representation). Bushline submits that this was the driving force behind the proceeding and accordingly costs should lie where they fall.
[8] Establishing that ANZ misled Bushline in relation to interest rate swaps may well have been a matter of significant importance to Bushline. But the subjective importance of an issue for one party to the proceeding is not the basis upon which cost issues are to be determined. Nor should costs be used as a surrogate for damages, or as a means of denouncing misleading conduct which has not otherwise resulted in any liability.
[9] Bushline’s success in relation to the fixed cost representation does not mean that ANZ was only partially successful, or that Bushline had an equal measure of success in the proceeding. The fixed cost representation was the only one of the five representations pleaded which I found had been made and was misleading. Notably, I dismissed Bushline’s claims that ANZ had represented that it would hold margins at
0.70 per cent for five years, and that ANZ had acted deceitfully and fraudulently so as to extend limitation periods and defeat the exclusion clauses governing the interest rate swap and loan transactions. By Bushline’s own admission, these latter two claims were central to Bushline’s case.
3 High Court Rules 2016, r 14.2(1)(a).
[10] However, I accept that the fixed cost representation issue absorbed some time at trial. ANZ disputed that any representations made were misleading. This is despite ANZ’s admission in earlier proceedings brought by the Commerce Commission that it had engaged in misleading and deceptive conduct,5 and Palmer J’s finding in Cygnet Farms Ltd v ANZ Bank New Zealand Ltd that representations in substantially the same terms were misleading.6
[11] Bushline was required to adduce evidence in relation to this issue. That evidence comprised both witness testimony and documentary evidence. It included evidence directed towards non-disclosure of the Market Replacement Risk, which was one aspect of the misleading nature of the fixed cost representation. That particular aspect assumed some prominence in the Fair Trading Act 1986 cause of action.
[12] In the context of the proceeding as a whole, I consider the dispute about the fixed cost representation to have significantly increased Bushline’s costs. There is no mathematical formula by which to determine the quantum of costs incurred in relation to this issue. It is a matter of overall impression. I consider that a 10 per cent reduction in ANZ’s costs would appropriately reflect the fact that ANZ failed in relation to this issue.
Should ANZ be allowed to recover for some steps under band C?
[13] ANZ’s costs calculations have been made in accordance with the category 2 daily recovery rate. This follows the costs categorisation made by Associate Judge Sargisson on 15 October 2014. Most of the costs claimed have been calculated by reference to the time allocations set out in time band B. However, ANZ has calculated its costs for preparation of briefs, and for preparation for the hearing, on a band C basis.
[14] Bushline submits that ANZ’s claim amounts to a retrospective re- categorisation. I do not agree. The categorisation of the claim remains at category 2;
it is only the time allocations for the two steps which are sought to be made on a band C, rather than band B, basis.
[15] In Tindall v Far North District Council, Winkelmann J refused to allow a retrospective categorisation of the proceeding, but considered that a successful defendant should not be bound by a prospective time band categorisation for all steps of the proceeding. Her Honour said:7
Time allocations for the different steps in the proceeding should be fixed by reference to the size of the task involved in each step. There is a substantial risk that a prospective allocation of time for all steps in the proceeding will be unrealistic in all but the most straightforward of proceedings.
[16] The band C allowance for preparation of briefs is reasonable in this case. ANZ prepared briefs for 13 witnesses to respond to a claim which spanned eight years. The band B allowance for preparation of briefs is 2.5 days, whereas the band C allowance is five days. I accept ANZ’s submission that the actual time involved in briefing its witnesses exceeded the band C allowance by a considerable margin.
[17] The band C allowance is also appropriate for trial preparation. The band B allowance for that step is three days whereas the band C allowance is five days. Bushline’s claim was wide-ranging with multiple causes of action and overlapping factual issues. Significant amendments were made to the claim in September 2016 (following the Cygnet hearing) which, I accept, would have increased the trial preparation time required. The five-day time allowance for trial preparation is also proportionate to the duration of the trial, which was 12 days long.
[18] An award of costs on a band C basis for those two steps in the proceeding is reasonable in the circumstances and is allowed accordingly.
Should an uplift from scale be granted to either ANZ or Mr England for the unreasonable rejection of a Calderbank offer?
[19] Both ANZ and Mr England seek a 50 per cent uplift from scale costs because of a refusal to accept a Calderbank offer.
7 Tindall v Far North District Council HC Auckland CIV-2003-488-135, 25 May 2007 at [13].
[20] A Calderbank offer is specifically provided for in r 14.10 of the Rules. Rule 14.6(3)(b)(v) allows a Judge to award increased costs where a party has failed, without reasonable justification, to accept an offer of settlement, whether it is a Calderbank offer or some other offer.
[21] In Bluestar Print Group (NZ) Ltd v Mitchell, the Court of Appeal emphasised that the scarce resources of the courts should not be burdened by litigants who choose to reject reasonable settlement offers, proceed with litigation, and then fail to achieve any more than was previously offered.8
[22] That principle was recently confirmed in Weaver v Auckland Council, where the Court of Appeal said that the focus of r 14.6 is to provide strong disincentives to litigants throwing good money after bad.9
[23] ANZ seeks a 50 per cent uplift on its costs from November 2016. This follows a settlement offer made to Bushline to pay it $1.8m in settlement of its claim. A further offer to pay Bushline the sum of $730,000 was made on 21 December 2016, following the release of the Cygnet judgment.
[24] Bushline submits that an uplift cannot be justified in this case because:
(a) Bushline succeeded on critical aspects, namely whether there had been a misrepresentation and whether there had been misleading and deceptive conduct; and
(b) no offer capable of acceptance was made.
[25] To some extent, the first of these grounds overlaps with the claim that costs lie where they fall or ANZ be awarded reduced costs. Establishing that ANZ had engaged in misleading conduct may well have been important to Bushline, but that alone did not justify rejecting a reasonable settlement offer. ANZ’s offer had to be carefully
8 Bluestar Print Group (NZ) Ltd v Mitchell [2010] NZCA 385, (2010) 7 NZELR 494 at [20].
9 Weaver v Auckland Council [2017] NZCA 330 at [36].
considered in light of the merits of Bushline’s claim and the costs of pursuing it to trial. Pursuing the litigation on one issue only did not provide reasonable grounds on which to reject ANZ’s settlement offers.
[26] As to the second ground of opposition, Bushline submits that the offers made by ANZ were not capable of acceptance because they were subject to the parties signing a written settlement agreement. The terms of the written settlement agreement were not specified in the letters of offer. Bushline submits that presenting the offers in these terms is inconsistent with Calderbank principles. It relies on the decision of Asher J in Rapana v McBride Street Cars Ltd.10 That case concerned an appeal from a costs decision in the District Court in which the Judge had declined to consider a Calderbank offer in assessing costs. The offer at issue in that case was made with a denial of liability and was conditional on a confidentiality clause. Asher J upheld the Judge’s decision, observing that “[a] party wishing to have the benefit of a Calderbank offer should make a monetary offer without significant conditional terms”.11 The fact there was a confidentiality clause meant that the offer made was not more generous than what was achieved at trial.12
[27] There are differences between the offer presented in Rapana and the offers at issue in this case. The offer in Rapana was expressly subject to denial of liability and confidentiality clauses. In this case the offers were subject to the terms being set out in a written settlement agreement but the other terms of that agreement were not specified. Bushline speculates on the terms that may have been included and suggests that the terms which ANZ would likely have required (such as a “no admission of liability” clause) would have been unacceptable to Bushline. I do not consider it appropriate to speculate about terms that may have been included in the agreement, or about whether agreement could have been reached. The reasonableness of refusing to accept a settlement offer must be assessed at the time the offer is declined.
[28] Unlike the position in Rapana, the offers made by ANZ were rejected for reasons other than that they were subject to the parties entering into a written
10 Rapana v McBride Street Cars Ltd [2007] DCR 551 (HC).
11 At [22].
12 At [24].
agreement. Mr and Mrs Coomey responded to ANZ’s first offer by way of email dated 17 November 2016 which said, “your offer of $1.8 million has been rejected, however we would settle for 5.5 million”. Bushline did not respond to the second offer before it lapsed on 16 January 2017. However, on 19 January 2017, Bushline made a separate offer to settle for $3.5m subject to agreeing on the terms of a settlement agreement, with the terms including an acknowledgement of liability. This correspondence suggests that Bushline rejected ANZ’s offers because the payment offered was too low, as opposed to the requirement that there be a written agreement.
[29] Overall, I consider the rejection of ANZ’s settlement offers was unreasonable in the circumstances. Bushline sought substantial damages as part of its claim. The prospects of recovering more than what had been offered needed to be realistically appraised in light of the previous offers made following the Commerce Commission investigation, and in light of the Cygnet decision in December 2016. The parties were in a good position to assess the merits of Bushline’s claim when the offers were on foot. Bushline failed to achieve more than what had been offered by ANZ, and an uplift from scale is accordingly appropriate.
[30] The quantum of the uplift sought (50 per cent) grants ANZ a fair recovery for the steps unnecessarily forced on it.13 ANZ seeks an uplift from the date that the first offer expired (28 November 2016), and I allow the uplift from that date accordingly.
[31] I therefore allow an uplift of 50 per cent on ANZ’s scale costs from the date the first offer expired (28 November 2016).
[32] Mr England also seeks an uplift of 50 per cent above scale due to ANZ’s failure to accept the following settlement offers made by Mr England:
13 Holdfast NZ Ltd v Selleys Pty Ltd [2005] NZCA 302; (2005) 17 PRNZ 897 (CA) at [46]–[47]; cited in Hawke’s Bay Trustee Company Ltd v Judd [2016] NZCA 434 at [8]–[9]. As the Court of Appeal noted in Holdfast, the appropriate daily recovery rate is two-thirds of the “reasonable” daily rate; a 50 per cent uplift therefore brings costs into alignment with the reasonable daily rate for the step taken.
(a) Letter dated 11 August 2016 described by Mr England as a “drop hands” offer.
(b) Letter dated 4 October 2016 containing an offer to pay ANZ $20,000 inclusive of GST (if any).
(c) Letter dated 12 October 2016 containing an offer to pay ANZ $30,000 inclusive of GST (if any).
(d) Letter dated 21 December 2016 containing a “drop hands” offer which was made following the delivery of the Cygnet decision.
[33] ANZ responded to the offer on 4 October 2016 by counter-offering to accept
$100,000. It did not respond to the offer of 12 October 2016 nor the offer of 21 December 2016. It does not appear to have responded to the first offer of 11 August 2016 which lapsed on 18 August 2016.
[34] ANZ opposes an uplift on the grounds that it acted reasonably in rejecting what it characterises as a “token settlement offer” in the context of Bushline’s “very substantial claim”. I do not agree. For the reasons set out in the following section, ANZ’s claim against Mr England was not an inevitable consequence of Bushline’s claim against ANZ.
[35] But even if the joinder of Mr England was initially justified, that did not provide reasonable grounds for declining Mr England’s settlement offers. It was not good enough for ANZ to simply maintain its third-party claim against Mr England whilst Bushline’s negligence claim remained on foot. ANZ was required to consider the merits of its claim against Mr England and its exposure to costs separately. The stronger ANZ’s defence to Bushline’s negligence claim became, the more likely it was that the third-party claim against Mr England would be dismissed. The prospect of that occurring reached a high point after the release of the Cygnet judgment in December 2016.
[36] The failure to respond at all to Mr England’s settlement offers, and the rejection of a reasonable offer of settlement, was unjustified in the circumstances. The offers made by Mr England were ultimately more than what was achieved at trial.
[37] I consider an uplift of 50 per cent on Mr England’s costs from 18 August 2016 (the date the first offer expired) is warranted in these circumstances and I allow for that uplift accordingly.
Who should pay Mr England’s costs?
[38] ANZ submits that Bushline should pay Mr England’s costs. Bushline and Mr England submit that ANZ should bear these costs. In the alternative, Mr England submits that Bushline should pay scale costs and disbursements, but ANZ should pay the uplift for the refusal to accept the Calderbank offers.
[39] In Money World New Zealand 2000 Ltd v KVB Kunlun New Zealand Ltd, Laurenson J reviewed relevant authorities and concluded that in the normal course, a successful defendant should expect an order for costs in favour of a third party joined by that defendant. If, however, the result of the plaintiff’s claim is effectively against a third party or if the claim has the inevitable result of further parties being joined, then the unsuccessful plaintiff may be ordered to pay the third party’s costs directly.14
[40] Whilst I do not consider the initial joinder of Mr England was unreasonable, it cannot be described as an inevitable consequence of Bushline’s claim. The negligence cause of action was only one of five causes pleaded by Bushline against ANZ. The third-party claim against Mr England was as joint tortfeasor in relation to that negligence cause of action. It is possible that Bushline could have succeeded on one of the other causes of action, but failed to establish negligence. In that case, the claim against Mr England would have been dismissed, and ANZ would have been exposed to costs in the ordinary course.
[41] Furthermore, it did not necessarily follow that if the Bank was found liable in negligence, then it must have been due to Mr England’s negligent advice. The nature
of the negligence alleged by Bushline was different to the negligence alleged against Mr England. Bushline’s claim was not, in effect, a claim against Mr England.
[42] This distinguishes this case from Money World and Tindall v Far North District Council.15 In Money World, the defendant had relied on the advice of the third party in cancelling a foreign exchange transaction. The claim concerned losses incurred by the plaintiff following the cancellation. The Judge found that the defendant’s basis for cancelling the transaction was dependent on the advice received from the third party. The defendant could not be criticised for initiating and then persisting with the third-party claim in those circumstances.
[43] In Tindall, the third party was contracted by the defendant to run a sewage plant. The plaintiff’s claim related to unlawful discharge of sewerage. Winkelmann J held that if there had in fact been unlawful discharges of sewerage from the plant, then it was inevitable that the defendant would seek indemnity or contribution from the party contractually obliged to operate that plant on its behalf.16
[44] In addition, ANZ’s claim against Mr England faced significant evidential hurdles. Bushline refused to waive privilege over the advice it had received from Mr England. Accordingly, there was no positive evidence of breach from which to prove Mr England’s negligence. This weakened the justification for maintaining the third party claim against Mr England.
[45] Counsel for ANZ submits that Mr England’s participation at trial was helpful. I agree. But it was not necessary to have Mr England joined as a third party to secure that participation. He could have simply been called as a witness to give his evidence in the ordinary way.
[46] Overall, there are no factors which displace the presumption that a successful defendant bears the costs of a third party joined by that defendant. I consider that ANZ should bear Mr England’s costs in their entirety.
15 Tindall v Far North District Council, above n 7.
16 At [33].
Are the disbursements claimed by ANZ reasonable?
[47] ANZ’s claim for disbursements includes the expert fees for four of the expert witnesses called on behalf of ANZ. An affidavit attaching the invoices of these experts has been provided.
[48] Bushline seeks a reduction in the disbursements claimed by ANZ on the basis that the costs of engaging these experts would not have been incurred had ANZ agreed to a split trial.
[49] Counsel for Bushline referred to the costs decision of Katz J in Auckland Waterfront Development Agency Ltd v Mobil Oil New Zealand Ltd.17 In that case, the plaintiff argued that its preference was to proceed first to determine the correct interpretation of the agreement at issue in that case, with a hearing on quantum to follow only if required. Katz J found the plaintiff’s argument to be flawed. The Judge addressing case management issues had agreed with the defendant that all issues should be brought in one proceeding, and that is what ultimately occurred. Katz J noted that there was no subsequent application to have issues of liability and quantum severed.18
[50] Bushline submits that Mobil may be distinguished because Bushline did apply to have a split trial, which ANZ opposed. I do not agree. Although an application for a split trial was originally made and opposed by ANZ, that application was ultimately withdrawn at the hearing before Hinton J.19 Hinton J’s judgment records that both counsel considered that the release of the Cygnet judgment would most likely narrow the issues in the proceeding and therefore achieve a similar effect to the split trial application.20
[51] Bushline’s counsel submits that the application was withdrawn because it was apparent that Hinton J was not going to grant it anyway. That does not assist Bushline’s argument. ANZ’s disbursements cannot be regarded as unreasonably
18 At [60]–[61].
19 Bushline Trustees Ltd v ANZ Bank New Zealand Ltd [2016] NZHC 1818.
20 At [11]–[14].
incurred when the application for a split trial was withdrawn, and, by all accounts, would have been declined even if it had been pursued.
[52] ANZ has filed an affidavit attaching relevant invoices. I am satisfied that the disbursements claimed by ANZ are reasonably incurred. They are allowed accordingly.
Is the quantum claimed by ANZ correctly calculated?
[53] Bushline challenges the basis upon which ANZ has calculated its scale costs in relation to several steps in the proceeding. Agreement on two of these steps has been subsequently reached. I deal with the remaining issues in dispute below.
[54] First, ANZ claims scale costs for two lists of documents. The second list was provided after the plaintiff sought further and better discovery. This suggests that the documents should have been discovered in the first place. I allow for one list of documents only.
[55] Second, ANZ claims for two counsel at trial. All the parties, including Bushline, were represented by two counsel. The nature and complexity of the case warranted two counsel in my view. I allow for second counsel.
[56] Third, ANZ claims costs for the filing of costs memoranda. The parties have each had a measure of success on their respective costs arguments. I consider that the costs of filing costs memoranda should lie where they fall.
Summary
[57] In summary, I have found that:
(a) A 10 per cent reduction in ANZ’s costs should be made for findings of fact made in favour of Bushline.
(b) ANZ is entitled to recover costs on a band C basis for preparing briefs of evidence and for trial preparation.
(c) A 50 per cent uplift from scale costs from 28 November 2016 is allowed to ANZ. A 50 per cent uplift from scale costs from 18 August 2016 is allowed to Mr England. Both uplifts are allowed for the unreasonable rejection of Calderbank offers by Bushline and ANZ respectively.
(d) ANZ should pay Mr England’s costs.
(e) The disbursements claimed by ANZ are reasonable.
(f) ANZ’s claims for a second list of documents and for costs in relation to costs memoranda are disallowed. ANZ’s claim for second counsel is allowed.
Result
[58] I make orders in accordance with paragraph [57](a)–(f) above.
[59] The application of these findings will determine the final quantum owed by Bushline to ANZ, and from ANZ to Mr England. Any remaining disputes about the quantification of costs should be set out in memoranda filed on or before 16 April 2018.
Edwards J
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