CRIFFEL DEER LIMITED v ANZ BANK NEW ZEALAND LIMITED (COSTS) [2022] NZHC 2418 [21 September 2022]

CRIFFEL DEER LIMITED v ANZ BANK NEW ZEALAND LIMITED (COSTS) [2022] NZHC 2418[21 September 2022]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYI TE KŌTI MATUA O AOTEAROATE WHANGANUI-A-TARA ROHECIV-2021-485-384[2022] NZHC 2418BETWEEN CRIFFEL DEER LIMITEDFirst PlaintiffPRIME COMMERCIAL LIMITEDSecond PlaintiffMICHAEL ROBERT GARNHAMThird PlaintiffSBF PROPERTIES LIMITEDFourth PlaintiffAND ANZ BANK NEW ZEALAND LIMITEDDefendantOn the papers:Counsel: C M Stevens, M Robertson and T Mijatov for PlaintiffsM G Colson KC, S V East and S J Leslie for DefendantJudgment: 21 September 2022JUDGMENT OF CHURCHMAN J[Costs][1] In a judgment dated 29 July 2022, I struck out claims made by the plaintiffcompanies (the Garnham Companies) against ANZ Bank (ANZ).1 I then directed theparties, if costs could not be agreed, to file memoranda.[2] ANZ filed a memorandum as to costs on 18 August 2022. However, insteadof filing a costs memorandum within time, counsel for the Garnham Companiessought leave to withdraw. On 30 August 2022, on the basis that counsel had terminated1 Criffel Deer Ltd v ANZ Bank New Zealand Ltd [2022] NZHC 1851.their retainer with the Garnham Companies for failure to pay fees, I granted counselleave to withdraw.2[3] The Registrar was then advised by Mr Garnham that new counsel had beenretained, and that a memorandum on costs was forthcoming. Mr Stephens, counselfor the Garnham Companies, filed a memorandum as to costs on 9 September 2022.Positions of the partiesANZ[4] ANZ seeks indemnity costs of $251,820, or in the alternative, increased costsof 200 per cent. It seeks costs on the following grounds:(a) the relevant facility agreement creates a contractual entitlement toindemnity costs, in the terms of r 14.6(4)(e);(b) the proceeding was improper, frivolous, and vexatious, in the terms ofr 14.6(4)(a);(c) the Garnham Companies contributed unnecessarily to the costs of theproceeding, in the terms of r 14.6(3)(b); and(d) the Garnham Companies refused a reasonable settlement offer, in theterms of r 14.6(4)(b)(v).[5] ANZ submits that Black v ASB Bank Ltd applies.3 In that case, the Court ofAppeal considered costs where a bank with an indemnity for legal costs in loandocumentation is forced to defend a proceeding commenced by a borrower.[6] The relevant facility agreement provides:2 Criffel Deer Ltd v ANZ Bank New Zealand Ltd [2022] NZHC 2175.3 Black v ASB Bank Ltd [2012] NZCA 384.14. CostsThe Borrowers will pay each cost incurred by the Lender in connection with:(c) the exercise, protection, investigation or enforcement of the Lender'srights under a Relevant Document; in each case, on demand and on a full indemnity basis.[7] ANZ alleges that it was required to defend the proceedings brought by theGarnham Companies in the same way as ASB in Black. It says that all of its actionsin the proceeding were reasonable and necessary for quick resolution, and that itshourly rates were reasonable. Senior counsel were engaged, and a significant amountof documentation had to be reviewed. ANZ submits that a costs award ofapproximately $250,000, representing its actual costs, is reasonable in thecircumstances.[8] ANZ submits that on the terms of the substantive judgment, it is clear that theclaims brought by the Garnham Companies were hopeless, owing to the inconsistencybetween Mr Garnham's evidence and the contemporaneous documents. They rely onthe finding that there was no evidence to support his "serious allegation of fraudulentbehaviour". They submit on this basis that r 14.6(4)(a) applies, which also justifies anaward of indemnity costs.[9] If indemnity costs are not available, ANZ seeks to rely on theGarnham Companies' conduct throughout the proceeding to justify an award ofincreased costs. Counsel for ANZ submit:The plaintiffs repeatedly breached procedural rules and took untenable legalpositions on the admissibility of evidence and the standing of a struck offcompany, even after that was pointed out to them in correspondence and courtdocuments. Finally, as above, in advancing this proceeding the plaintiffspursued an argument without merit.(footnotes omitted)[10] ANZ also notes that it provided an open letter dated 24 December 2021,inviting the plaintiffs to withdraw their claim without costs consequences, followingthe filing of its defence. ANZ says there was no reasonable justification for ignoringthe offer, and that therefore increased costs should follow.Garnham Companies[11] The Garnham Companies submit that ANZ is only entitled to ordinary scalecosts on a 2B basis, rather than increased or indemnity costs. They submit that ANZ'sordinary costs of $20,383.75, together with usual disbursements of $1,623.02 arereasonable in the circumstances. In the alternative, the Garnham Companies acceptthat at most the substantive decision might justify an uplift of 150 per cent from scalecosts.[12] The Garnham Companies submit that the claims made by ANZ in theirmemorandum are incorrect, and allege that the ANZ's letter did not amount to asettlement offer. They submit that their conduct was not vexatious, and that theallegations of fraud were not hopeless. In this respect, the Garnham Companiesappeared to challenge the Court's findings in the substantive judgment.[13] As to ANZ's submissions in respect of a contractual entitlement to indemnitycosts, the Garnham Companies submit that the proceeding "was not in connection withthe exercise, protection, investigation, or enforcement of the lender's rights under itsfacility agreement". They say neither was ANZ's application related to any oppositionto any enforcement action being taken by ANZ. The Garnham companies say thatBlack does not apply to the present case as:(a) ANZ was not seeking to protect its rights under the facility agreement,but seeking to avoid scrutiny of its conduct and the evidence which itdid not provide at hearing;(b) the Garnham Companies did not attack ANZ's rights to enforce itssecurities; and(c) the Court in Black only awarded indemnity costs of $91,000 as beingreasonably and properly incurred, in circumstances similar to thepresent case.[14] Finally, the Garnham Companies submit that they initially proposed toundertake mediation with ANZ to resolve the issues between them, but say themediation did not progress because ANZ resiled from its initial willingness toparticipate.Analysis[15] The issue is whether there should be any departure from scale costs. If not, asaccepted by the parties, costs should follow the event, on a 2B basis. There is nodispute as to whether ANZ is entitled to costs. The dispute is about quantum.Indemnity costs[16] Rule 14.6(4)(e) provides that the Court may order a party to pay indemnitycosts if the party claiming costs is entitled to indemnity costs under a contract or deed.It is unique in that it imports no requirement for a party to have behaved in a certainmanner in order to justify an award of indemnity costs.[17] In Black, the Court of Appeal upheld an award of indemnity costs made in theHigh Court, in the sum of $91,413.50, based on a contractual entitlement in thefollowing terms:14.1 Expenses: You will pay each cost and expense (including all legalexpenses on a solicitor and own client basis) sustained or incurred byus in connection with:(c) the exercise of, or in protecting or enforcing or otherwise inconnection with, our rights under this Deed or another transactionrequired or contemplated by this Deed.In each case on demand and on a full indemnity basis.[18] As submitted by ANZ, the facts of Black are largely similar – involving ameritless claim by a debtor against a creditor. The Court considered that ASB had nooption but to defend Mr Black's claims, which constituted an attack on their right toenforce their securities, and involved at least 10 distinct issues.4 ASB's costs4 At [100]."reflected the breadth and complexity of the points raised by Mr Black", and hadalready been decreased by roughly $40,000 by ASB to what they consideredreasonable.5[19] However, r 14.6(4)(e), is not the end of the matter. The Court in Black stated:[77] As this Court held in Frater Williams & Co Ltd v AustralianGuarantee Corporation (NZ) Ltd,6 where there is a contractual right toindemnity costs the question for the Court asked to make an order is: for thenecessary steps, are the costs claimed reasonable in amount? That is becauser 14.6(1)(b) permits the Court to order payment of costs "reasonablyincurred". It follows from the wording of r 14.6(1)(b) that indemnity costs aredetermined with reference to actual costs, but may be less than the actual costsif the Court considers the actual costs were not reasonably incurred.[80] Assessing whether the indemnity costs claimed under a contract arereasonable involves the Court making an objective assessment of thesematters:7(a) what tasks attract a costs indemnity on a proper constructionof the contract;(b) whether the tasks undertaken were those contemplated in thecontract;(c) whether the steps undertaken were reasonably necessary inpursuance of those tasks;(d) whether the rate at which the steps were charged wasreasonable having regard to the principles normallyapplicable to solicitor/client costs; and(e) whether any other principles drawn from the general law ofcontract would in whole or in part deny the claimant its primafacie right to judgment.[20] Therefore, the Court will not simply order that an unsuccessful party pay thesuccessful party's actual costs. It has an overriding discretion to award what isreasonable in the circumstances.5 At [73] and [102].6 Frater Williams & Co Ltd v Australian Guarantee Corp (NZ) Ltd (1994) 2 NZ ConvC 191,873(CA) at 191,886–191,887.7 Frater Williams at 191,887, endorsed in Watson & Son Ltd v Active Manuka Honey Association[2009] NZCA 595 at [20].[21] The terms of the relevant indemnity clause in the facility agreement providesthat the Garnham Companies will cover costs incurred by ANZ in the exercise,protection, or enforcement of its rights, on a full indemnity basis. I am satisfied thatthe proceedings in the present case fall within the terms of that contractual entitlement.ANZ effectively had no option but to defend the claims made by theGarnham Companies, so as to protect and enforce its rights pursuant to the facilityagreement, and the settlement deed.[22] The question then becomes, whether the costs claimed under the indemnityclause are reasonable, having regard to the matters set out by the Court of Appeal inBlack, and the Court's overriding discretion as to costs.[23] Counsel for ANZ have provided a schedule of actual costs, setting out in detailthe costs incurred at each step of the proceeding, the lawyers who performed the work,their hourly rates, and the time they each expended. Their actual costs are calculatedat $251,529.25. That is a figure that is significantly higher than their schedule of scalecosts, which are calculated at $20,383.75.[24] Having regard to the principles normally applicable to the determination ofcosts, the difference between the actual costs claimed and what would be awardedunder the scale costs regime is a relevant factor in determining whether the indemnitycosts claimed are reasonable. An award of indemnity costs in the area of $250,000would effectively constitute a 1,250 per cent increase from scale costs, for a strike outapplication of medium complexity, involving only one and a half days' hearing.[25] I accept that here was a substantial amount of documentation involved in theproceeding, and counsel for ANZ were put to task in searching its records. Further,the engagement of senior counsel to defend ANZ from serious fraud allegations wasappropriate in the circumstances.[26] However, I am not convinced that the award of indemnity costs sought by ANZis in the circumstances, reasonable. I am drawn to this conclusion by reason of thevast difference between the indemnity costs claimed, and what would otherwise beavailable under scale costs. I note that scale costs are intended to approximatelyrepresent two-thirds of a "reasonable fee"8, and also that the " integrity of the scale,with its associated value of predictability and certainty, is not to be lightly discarded".9An award of approximately $250,000 would be a considerable departure from both ofthose principles, notwithstanding the contractual entitlement and the Court's power toaward indemnity costs.[27] Despite the many factual findings the Court was required to make in thesubstantive judgment, essentially the only two issues which required determinationrelated to whether the claims were time barred and/or whether they had been settled.The steps taken by ANZ to show that the relevant representations were not made, orthat their conduct was not oppressive, while best practice, were not strictly necessaryto successfully defend the claims. Accordingly, although ANZ does have a contractualindemnity, I am of the view that the sum claimed by ANZ was not reasonably incurred.[28] Turning then to the question of what costs were reasonably incurred in thecircumstances, the six steps under which ANZ's actual costs were described werebroadly:(a) receipt and review of the claim, and provision of initial advice;(b) review of ANZ files, preparation of evidence and statement of defence;(c) case management;(d) interlocutory matters;(e) preparation of evidence and submissions; and(f) preparation for and appearance at hearing.[29] On consideration of the material provided by ANZ, I am of the view that anorder for reasonable actual costs should take into account a 40 per cent discount from8 Du Preez v Estate of Barbara Anne Doornekamp-Wellman [2022] NZHC 2303 at [7].9 Bradbury v Westpac Banking Corporation (2008) 18 PRNZ 859 at [9]; upheld in Bradbury vWestpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400.the sum claimed by ANZ, being $150,917.55 plus disbursements. That figure takesinto account the contractual indemnity, the plaintiffs' conduct throughout theproceeding, and the fact that it was a "wholly unmeritorious and hopeless claim".10An award of that sum accords with the principle that ANZ is only entitled to costs thatare reasonably incurred and the Court's discretionary power to ensure that the ultimateaward is just in all the circumstances".11 In my view, ANZ went to extreme lengths inassessing its own documentation, in determining whether Mr Garnham's claims hasany merit, in lieu of simply addressing the limitation and settlement deed arguments.Such costs were not reasonably incurred.Result[30] I make an order of indemnity costs in the sum of $150,917.55 plus usualdisbursements.Churchman JSolicitors:Stephens Lawyers, Wellington for PlaintiffsBell Gully, Wellington for Defendant10 Kuwait Asia Bank EC v National Mutual Life Nominees Ltd [1991] 3 NZLR 457 at 460.11 Bradbury, above n 9, at [17].