BLUESKIN BAY FOREST HEIGHTS LIMITED v PATERSON PITTS PARTNERS LIMITED HC DUN CIV-2010-412-000460

BLUESKIN BAY FOREST HEIGHTS LIMITED v PATERSON PITTS PARTNERS LIMITED HC DUN CIV- 2010-412-000460 [30 July 2013]IN THE HIGH COURT OF NEW ZEALANDDUNEDIN REGISTRYCIV-2010-412-000460[2013] NZHC 1890BETWEEN BLUESKIN BAY FOREST HEIGHTSLIMITEDPlaintiffAND PATERSON PITTS PARTNERSLIMITEDDefendantAND DUNEDIN CITY COUNCILThird PartyCounsel: P M James and A Riches for the PlaintiffM E Parker and A J Nash for the DefendantNo appearance for the Third PartyJudgment:(on the Papers)30 July 2013JUDGMENT OF HON JUSTICE FRENCHas to costsIntroduction[1] In my decision of 3 September 2012, I dismissed Blueskin's claim againstPaterson Pitts.1[2] Blueskin had engaged Paterson Pitts (a resource management specialist) to assist it with a rural residential subdivision and in particular to apply on its behalf for the necessary resource consents. At the time, the consent authority (the Dunedin City Council) was administering both a Transitional District Plan and a notified Proposed District Plan. The Council and planning practitioners operated on the basis that the key planning document was the Proposed Plan and that the1 Blueskin Bay Forest Heights Ltd v Paterson Pitts Partners Ltd [2012] NZHC 2252.Transitional Plan was outdated and irrelevant. Any consent required under the Transitional Plan was largely considered a technicality if the activity was permitted under the Proposed Plan.[3] The lot size of the Blueskin subdivision (six to nine hectares) was such that although a land use consent was required under the Transitional District Plan, it was not required under Variation 9A of the Proposed Plan. Paterson Pitts did not apply for a land use consent. It only applied for a subdivision consent, which the Dunedin City Council duly granted in September 2004. Had formal application been made for a land use consent as well, the application would have been granted on a non-notified basis and without any conditions being imposed. Subsequently, in November 2004, the Environment Court allowed an appeal against Variation 9A and reinstated a minimum area rule of 15 hectares per lot into the Proposed Plan. The change meant that Blueskin required a land use consent under both plans.[4] For at least a year after the Environment Court decision, the Councilcontinued to look favourably on subdivisions similar to Blueskin's, and in particularcontinued to rubber stamp applications for land use consents.[5] Blueskin did not, however, apply for its land use consent until September 2007. By that time, there had been a distinct change of approach on thepart of the Council. The Council required Blueskin's application to be notified and then following a hearing declined to grant the consent. Blueskin appealed to the Environment Court. The appeal was allowed and a land use consent eventually granted in May 2010, but on conditions.[6] Blueskin alleged that Paterson Pitts had been negligent in failing to obtain the land use consent in 2004 and that as a result of that negligence Blueskin had suffered various losses. These included the additional costs incurred in obtaining the land use consent, the costs of complying with the conditions imposed by the Environment Court and losses associated with the sale of the lots. The total amount of the damages claimed including interest was $862,648.[7] Paterson Pitts issued third party proceedings against the Council. However, I was advised that those proceedings had been settled. The Council did not take any part in the hearing.[8] In my judgment, I found that Paterson Pitts had breached the duty of care it owed Blueskin in failing to apply for a land use consent in June 2004, in failing to advise Blueskin of the implications of the Environment Court decision and in failing to advise Blueskin that it did not have a land use consent and needed to apply for one. However, I also found that Blueskin had been aware for two years prior to making its belated application for a land use consent that it needed one. I found that Blueskin knew it needed a land use consent as early as 2005, but had made a deliberate decision to defer applying for one for commercial reasons and also because of assurances given its director(s) by the Council. In those circumstances, I considered that the operative effect of Paterson Pitts' negligence was spent and anycausal link between that negligence and the losses claimed was broken. I also held that the same outcome would be reached if the analysis was in terms of Blueskin'sduty to mitigate its loss. I concluded that Blueskin was entirely the author of its own misfortune or if anyone else was to blame it was the Council officers for giving assurances they should not have given and/or the Council for failing to honour those assurances.[9] Because of my factual findings, it was unnecessary for me to consider quantum, but I indicated that I considered some aspects of the claim were problematic.[10] As regards costs, my expectation was that these would be able to be resolved by agreement. However, leave was reserved for the filing of submissions in the event agreement did not prove possible.[11] Unfortunately the parties were not able to reach agreement on costs and some considerable time after delivery of the judgment, I was asked to make an award.The issue[12] It is common ground that because Paterson Pitts was successful, it is entitled to costs and that under the scale the appropriate costs category is 2B.[13] What is in dispute is whether Paterson Pitts is entitled to indemnity costs or increased costs. Certification for second counsel is not sought.The competing arguments[14] Paterson Pitts claims indemnity costs of $163,905.09 pursuant to r 14.6(4)(a) of the High Court Rules. It contends that Blueskin has acted vexatiously, frivolously, improperly or unnecessarily in its conduct of the litigation. Alternatively, Paterson Pitts seeks costs on a 2B basis with an uplift of 50 per cent for all steps taken until 16 May 2012, being the date of a settlement offer, and thereafter at 75 per cent, pursuant to r 14.6(3)(b)(iii) and (v).[15] In support of both applications, Paterson Pitt relies on three specific matters:(a) the fact I found the evidence of Blueskin's director was not credible when he testified it was only in 2007 that he first realised Blueskin needed a land use consent;(b) Blueskin's failure to join the Council as a defendant; and(c) Blueskin's rejection of three Calderbank offers.[16] For its part, Blueskin contends that its case was reasonably arguable and properly brought to trial. It emphasises that it was successful in establishing Paterson Pitts had been negligent, something which Paterson Pitts had unreasonably denied. It also points out that it failed on the issue of causation, not on the basis ofany facts accepted by Blueskin, but because I rejected the director's testimony as tothe date on which he discovered the need to apply for land use consent. Blueskinsubmits that simply because the director's version of events was not ultimatelyaccepted does not mean it was improper to advance that version.Discussion[17] In my view, an adverse finding of credibility should not of itself bring a case into the categories of flagrant misconduct or hopeless case such as would justify awarding indemnity costs.2 Were it so, indemnity costs would be awarded as a matter of routine. Nor in my view can the failure to join the Council be considered as grounds for indemnity costs. While it might have been prudent to join the Council, it would not have been an entirely straightforward claim. Indemnity costs are properly reserved for the most exceptional of cases which this was not.[18] Similarly, I am not persuaded that either of those two matters constitutes a failure to admit facts, evidence or accept a legal principle without reasonable justification for the purposes of r 14.6(3)(b) warranting increased costs.[19] Where I consider Paterson Pitts is on stronger ground, however, is in relation to its claim for increased costs on account of Blueskin's rejection of settlementoffers.[20] Patterson Pitts made three "without prejudice save as to costs" offers ofsettlement. The first offer was made on 16 May 2012 and was for $365,000. Blueskin rejected the offer and did not make any counter offer. On 7 June 2012, Paterson Pitts supplied Blueskin with new valuation evidence and renewed its offer, which was again rejected without any counter offer being made. On 19 July 2012, Blueskin offered to settle for $703,000, which was not acceptable to Paterson Pitts. Paterson Pitts did however increase its previous offer from $365,000 to $450,000 on 20 July 2012. This was rejected by Blueskin, who advised it was only prepared tosettle for $703,000 "or something close".2 See the discussion in Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400.[21] As submitted by Blueskin, a successful Calderbank offer does not in and of itself give rise to an entitlement to increased costs. The issue is whether the offer was rejected without reasonable justification.3 I also accept that reasonableness is to be determined at the time the offers are made, not in hindsight.4[22] However, in my view, at the time the offer of $365,000 was made, Blueskin must have known or ought to have known that it had a significant litigation risk, such that it was irresponsible and unreasonable not to accept. My adverse finding of credibility was based in large part on previous inconsistent written statements made by the Blueskin director. The existence of those statements and the significant litigation risk they represented must have been known to Blueskin. Further, when Paterson Pitts supplied its valuation evidence, Blueskin must or should have been aware of the deficiencies in its own valuation evidence. On any objective evaluation of that evidence, those deficiencies made it highly likely that even on the best case scenario Blueskin would recover significantly less than the full amount of its claim.[23] What happened is not indemnity costs territory. However, the failure to accept the offers was, in my assessment, without reasonable justification for the purposes of r 14.6(3)(b)(v). Increased costs are warranted.[24] Paterson Pitts sought an uplift of 75 per cent. However, in my judgment, that is too high. I am satisfied that in all the circumstances the failure to accept the offers warrants an uplift of 25 per cent on scale 2B costs, dating from the date of the first offer, namely 16 May 2012.Outcome[25] Blueskin is ordered to pay costs to Paterson Pitts on a 2B basis, with an uplift of 25 per cent on scale costs for all steps taken after 16 May 2012 together with usual disbursements and witness expenses. Leave is reserved for the parties to come3 High Court Rules, r 14.6(3)(b)(iii).4 New Zealand Sports Merchandising Ltd v DSL Logistics Ltd HC Auckland CIV-2009-404-5548, 19 August 2010.back to me if agreement cannot be reached on the amount of the disbursements and expenses.Solicitors:Saunders & Co, Christchurch for PlaintiffMichael & Parker, Queenstown for DefendantDuncan Cotterill, Christchurch for Third Party