BUSHLINE TRUSTEES LTD v ANZ BANK NEW ZEALAND LTD [2018] NZHC 454

BUSHLINE TRUSTEES LTD v ANZ BANK NEW ZEALAND LTD [2018] NZHC 454 [19 March 2018]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2014-404-001276[2018] NZHC 454BETWEEN BUSHLINE TRUSTEES LIMITED andSTEPHEN DANIEL COOMEY as Trusteesof Bushline Trust One; andBUSHLINE TRUSTEES LIMITED andSHARON LOUISE COOMEY as Trusteesof Bushline Trust TwoPlaintiffsAND ANZ BANK NEW ZEALAND LIMITEDDefendantROBERT LEWIS ENGLANDThird PartyHearing: [On the Papers]Counsel: M D Branch and K F Shaw for the PlaintiffsS M Hunter, M C Sumpter and D T Street for the DefendantA A Challis and D P Turnbull for the Third PartyJudgment: 19 March 2018JUDGMENT OF EDWARDS J[re Costs]This judgment was delivered by Justice Edwardson 19 March 2018 at 3.30 pm, pursuant tor 11.5 of the High Court RulesRegistrar/Deputy RegistrarDate:Counsel: S M Hunter, AucklandSolicitors: Harkness Henry, HamiltonChapman Tripp, AucklandMcElroys, AucklandIntroduction[1] In 2008, Bushline restructured its lending with ANZ into a $19.46m loan, andentered into interest rate swap agreements to hedge the interest rate payable on thatloan. Bushline claimed that ANZ made misrepresentations about the loan and swapagreements and failed to support Bushline through financially difficult times.[2] In my judgment dated 16 October 2017, I dismissed all five causes of actionagainst ANZ and consequently dismissed ANZ's claim against the third party,Mr England.1 I subsequently dismissed an application by Bushline to recall thejudgment.2[3] The parties have been unable to reach agreement on costs. Bushline submitsthat the fixing of costs should be deferred pending the determination of its appeal ofthe substantive judgment. I consider that costs should be fixed at this juncture so thatthere 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 ofBushline?(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, forthe 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 fromthis general principle may be allowed where the party claiming costs has only beenpartially 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 refuseto make an order for costs or to reduce the costs otherwise payable where the partyclaiming costs has failed in relation to a cause of action or issue which significantlyincreased the costs of the party opposing costs.[7] Bushline was successful in establishing that ANZ made misleading statementsabout 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 accordinglycosts should lie where they fall.[8] Establishing that ANZ misled Bushline in relation to interest rate swaps maywell have been a matter of significant importance to Bushline. But the subjectiveimportance of an issue for one party to the proceeding is not the basis upon which costissues are to be determined. Nor should costs be used as a surrogate for damages, oras a means of denouncing misleading conduct which has not otherwise resulted in anyliability.[9] Bushline's success in relation to the fixed cost representation does not meanthat ANZ was only partially successful, or that Bushline had an equal measure ofsuccess in the proceeding. The fixed cost representation was the only one of the fiverepresentations 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 at0.70 per cent for five years, and that ANZ had acted deceitfully and fraudulently so asto extend limitation periods and defeat the exclusion clauses governing the interestrate swap and loan transactions. By Bushline's own admission, these latter two claimswere central to Bushline's case.3 High Court Rules 2016, r 14.2(1)(a).4 Andrew Beck and others McGechan on Procedure (looseleaf ed, Thomson Reuters) at[HR14.2.01(1)(b)]; citing Packing In Ltd (in liq) v Chilcott (2003) 16 PRNZ 869 (CA) at [5].[10] However, I accept that the fixed cost representation issue absorbed some timeat trial. ANZ disputed that any representations made were misleading. This is despiteANZ's admission in earlier proceedings brought by the Commerce Commission thatit had engaged in misleading and deceptive conduct,5 and Palmer J's finding inCygnet Farms Ltd v ANZ Bank New Zealand Ltd that representations in substantiallythe same terms were misleading.6[11] Bushline was required to adduce evidence in relation to this issue. Thatevidence comprised both witness testimony and documentary evidence. It includedevidence directed towards non-disclosure of the Market Replacement Risk, which wasone aspect of the misleading nature of the fixed cost representation. That particularaspect 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 thefixed cost representation to have significantly increased Bushline's costs. There is nomathematical formula by which to determine the quantum of costs incurred in relationto this issue. It is a matter of overall impression. I consider that a 10 per cent reductionin ANZ's costs would appropriately reflect the fact that ANZ failed in relation to thisissue.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 2daily recovery rate. This follows the costs categorisation made by Associate JudgeSargisson on 15 October 2014. Most of the costs claimed have been calculated byreference to the time allocations set out in time band B. However, ANZ has calculatedits costs for preparation of briefs, and for preparation for the hearing, on a band Cbasis.[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;5 Commerce Commission v ANZ Bank New Zealand Ltd [2015] NZHC 1168, (2015) 14 TCLR 71at [4], [8] and [12]–[13].6 Cygnet Farms Ltd v ANZ Bank New Zealand Ltd [2016] NZHC 2838, [2017] 2 NZLR 538 at [57]–[58], [156]–[158] and [170].it is only the time allocations for the two steps which are sought to be made on aband C, rather than band B, basis.[15] In Tindall v Far North District Council, Winkelmann J refused to allow aretrospective categorisation of the proceeding, but considered that a successfuldefendant should not be bound by a prospective time band categorisation for all stepsof the proceeding. Her Honour said:7Time allocations for the different steps in the proceeding should be fixed byreference to the size of the task involved in each step. There is a substantialrisk that a prospective allocation of time for all steps in the proceeding will beunrealistic in all but the most straightforward of proceedings.[16] The band C allowance for preparation of briefs is reasonable in this case. ANZprepared briefs for 13 witnesses to respond to a claim which spanned eight years. Theband B allowance for preparation of briefs is 2.5 days, whereas the band C allowanceis five days. I accept ANZ's submission that the actual time involved in briefing itswitnesses exceeded the band C allowance by a considerable margin.[17] The band C allowance is also appropriate for trial preparation. The band Ballowance 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 overlappingfactual issues. Significant amendments were made to the claim in September 2016(following the Cygnet hearing) which, I accept, would have increased the trialpreparation time required. The five-day time allowance for trial preparation is alsoproportionate 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 isreasonable in the circumstances and is allowed accordingly.Should an uplift from scale be granted to either ANZ or Mr England for theunreasonable rejection of a Calderbank offer?[19] Both ANZ and Mr England seek a 50 per cent uplift from scale costs becauseof 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 aCalderbank offer or some other offer.[21] In Bluestar Print Group (NZ) Ltd v Mitchell, the Court of Appeal emphasisedthat the scarce resources of the courts should not be burdened by litigants who chooseto reject reasonable settlement offers, proceed with litigation, and then fail to achieveany more than was previously offered.8[22] That principle was recently confirmed in Weaver v Auckland Council, wherethe Court of Appeal said that the focus of r 14.6 is to provide strong disincentives tolitigants throwing good money after bad.9ANZ's claim[23] ANZ seeks a 50 per cent uplift on its costs from November 2016. This followsa settlement offer made to Bushline to pay it $1.8m in settlement of its claim. A furtheroffer to pay Bushline the sum of $730,000 was made on 21 December 2016, followingthe 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 beena misrepresentation and whether there had been misleading anddeceptive 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 liewhere they fall or ANZ be awarded reduced costs. Establishing that ANZ had engagedin misleading conduct may well have been important to Bushline, but that alone didnot justify rejecting a reasonable settlement offer. ANZ's offer had to be carefully8 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 totrial. Pursuing the litigation on one issue only did not provide reasonable grounds onwhich to reject ANZ's settlement offers.[26] As to the second ground of opposition, Bushline submits that the offers madeby ANZ were not capable of acceptance because they were subject to the partiessigning a written settlement agreement. The terms of the written settlement agreementwere not specified in the letters of offer. Bushline submits that presenting the offersin these terms is inconsistent with Calderbank principles. It relies on the decision ofAsher J in Rapana v McBride Street Cars Ltd.10 That case concerned an appeal froma costs decision in the District Court in which the Judge had declined to consider aCalderbank offer in assessing costs. The offer at issue in that case was made with adenial of liability and was conditional on a confidentiality clause. Asher J upheld theJudge's decision, observing that "[a] party wishing to have the benefit of a Calderbankoffer should make a monetary offer without significant conditional terms".11 The factthere was a confidentiality clause meant that the offer made was not more generousthan what was achieved at trial.12[27] There are differences between the offer presented in Rapana and the offers atissue in this case. The offer in Rapana was expressly subject to denial of liability andconfidentiality clauses. In this case the offers were subject to the terms being set outin a written settlement agreement but the other terms of that agreement were notspecified. Bushline speculates on the terms that may have been included and suggeststhat the terms which ANZ would likely have required (such as a "no admission ofliability" clause) would have been unacceptable to Bushline. I do not consider itappropriate to speculate about terms that may have been included in the agreement, orabout whether agreement could have been reached. The reasonableness of refusing toaccept 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 forreasons other than that they were subject to the parties entering into a written10 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 dated17 November 2016 which said, "your offer of $1.8 million has been rejected, howeverwe would settle for 5.5 million". Bushline did not respond to the second offer beforeit lapsed on 16 January 2017. However, on 19 January 2017, Bushline made a separateoffer to settle for $3.5m subject to agreeing on the terms of a settlement agreement,with the terms including an acknowledgement of liability. This correspondencesuggests that Bushline rejected ANZ's offers because the payment offered was toolow, as opposed to the requirement that there be a written agreement.[29] Overall, I consider the rejection of ANZ's settlement offers was unreasonablein the circumstances. Bushline sought substantial damages as part of its claim. Theprospects of recovering more than what had been offered needed to be realisticallyappraised in light of the previous offers made following the Commerce Commissioninvestigation, and in light of the Cygnet decision in December 2016. The parties werein a good position to assess the merits of Bushline's claim when the offers were onfoot. Bushline failed to achieve more than what had been offered by ANZ, and anuplift from scale is accordingly appropriate.[30] The quantum of the uplift sought (50 per cent) grants ANZ a fair recovery forthe steps unnecessarily forced on it.13 ANZ seeks an uplift from the date that the firstoffer 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 datethe first offer expired (28 November 2016).Mr England's claim[32] Mr England also seeks an uplift of 50 per cent above scale due to ANZ's failureto accept the following settlement offers made by Mr England:13 Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [46]–[47]; cited in Hawke's BayTrustee Company Ltd v Judd [2016] NZCA 434 at [8]–[9]. As the Court of Appeal noted inHoldfast, the appropriate daily recovery rate is two-thirds of the "reasonable" daily rate; a 50 percent 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 "drophands" offer.(b) Letter dated 4 October 2016 containing an offer to pay ANZ $20,000inclusive of GST (if any).(c) Letter dated 12 October 2016 containing an offer to pay ANZ $30,000inclusive of GST (if any).(d) Letter dated 21 December 2016 containing a "drop hands" offer whichwas 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 of21 December 2016. It does not appear to have responded to the first offer of 11 August2016 which lapsed on 18 August 2016.[34] ANZ opposes an uplift on the grounds that it acted reasonably in rejecting whatit characterises as a "token settlement offer" in the context of Bushline's "verysubstantial 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'sclaim against ANZ.[35] But even if the joinder of Mr England was initially justified, that did notprovide reasonable grounds for declining Mr England's settlement offers. It was notgood enough for ANZ to simply maintain its third-party claim against Mr Englandwhilst Bushline's negligence claim remained on foot. ANZ was required to considerthe merits of its claim against Mr England and its exposure to costs separately. Thestronger ANZ's defence to Bushline's negligence claim became, the more likely it wasthat the third-party claim against Mr England would be dismissed. The prospect ofthat occurring reached a high point after the release of the Cygnet judgment inDecember 2016.[36] The failure to respond at all to Mr England's settlement offers, and the rejectionof a reasonable offer of settlement, was unjustified in the circumstances. The offersmade 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 forthat uplift accordingly.Who should pay Mr England's costs?[38] ANZ submits that Bushline should pay Mr England's costs. Bushline andMr England submit that ANZ should bear these costs. In the alternative, Mr Englandsubmits that Bushline should pay scale costs and disbursements, but ANZ should paythe 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, asuccessful defendant should expect an order for costs in favour of a third party joinedby that defendant. If, however, the result of the plaintiff's claim is effectively againsta 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, itcannot be described as an inevitable consequence of Bushline's claim. The negligencecause of action was only one of five causes pleaded by Bushline against ANZ. Thethird-party claim against Mr England was as joint tortfeasor in relation to thatnegligence cause of action. It is possible that Bushline could have succeeded on oneof the other causes of action, but failed to establish negligence. In that case, the claimagainst Mr England would have been dismissed, and ANZ would have been exposedto costs in the ordinary course.[41] Furthermore, it did not necessarily follow that if the Bank was found liable innegligence, then it must have been due to Mr England's negligent advice. The nature14 Money World New Zealand 2000 Ltd v KVB Kunlun New Zealand Ltd HC Auckland CIV-2003-404-2542, 23 September 2005 at [31]–[32].of the negligence alleged by Bushline was different to the negligence alleged againstMr 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 NorthDistrict Council.15 In Money World, the defendant had relied on the advice of the thirdparty in cancelling a foreign exchange transaction. The claim concerned lossesincurred by the plaintiff following the cancellation. The Judge found that thedefendant's basis for cancelling the transaction was dependent on the advice receivedfrom the third party. The defendant could not be criticised for initiating and thenpersisting with the third-party claim in those circumstances.[43] In Tindall, the third party was contracted by the defendant to run a sewageplant. The plaintiff's claim related to unlawful discharge of sewerage. Winkelmann Jheld that if there had in fact been unlawful discharges of sewerage from the plant, thenit was inevitable that the defendant would seek indemnity or contribution from theparty contractually obliged to operate that plant on its behalf.16[44] In addition, ANZ's claim against Mr England faced significant evidentialhurdles. Bushline refused to waive privilege over the advice it had received fromMr England. Accordingly, there was no positive evidence of breach from which toprove Mr England's negligence. This weakened the justification for maintaining thethird 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 securethat participation. He could have simply been called as a witness to give his evidencein the ordinary way.[46] Overall, there are no factors which displace the presumption that a successfuldefendant bears the costs of a third party joined by that defendant. I consider that ANZshould 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 expertwitnesses called on behalf of ANZ. An affidavit attaching the invoices of these expertshas been provided.[48] Bushline seeks a reduction in the disbursements claimed by ANZ on the basisthat the costs of engaging these experts would not have been incurred had ANZ agreedto a split trial.[49] Counsel for Bushline referred to the costs decision of Katz J inAuckland Waterfront Development Agency Ltd v Mobil Oil New Zealand Ltd.17 In thatcase, the plaintiff argued that its preference was to proceed first to determine thecorrect interpretation of the agreement at issue in that case, with a hearing on quantumto follow only if required. Katz J found the plaintiff's argument to be flawed. TheJudge addressing case management issues had agreed with the defendant that all issuesshould be brought in one proceeding, and that is what ultimately occurred. Katz Jnoted that there was no subsequent application to have issues of liability and quantumsevered.18[50] Bushline submits that Mobil may be distinguished because Bushline did applyto have a split trial, which ANZ opposed. I do not agree. Although an application fora split trial was originally made and opposed by ANZ, that application was ultimatelywithdrawn at the hearing before Hinton J.19 Hinton J's judgment records that bothcounsel considered that the release of the Cygnet judgment would most likely narrowthe issues in the proceeding and therefore achieve a similar effect to the split trialapplication.20[51] Bushline's counsel submits that the application was withdrawn because it wasapparent that Hinton J was not going to grant it anyway. That does not assistBushline's argument. ANZ's disbursements cannot be regarded as unreasonably17 Auckland Waterfront Development Agency Ltd v Mobil Oil New Zealand Ltd [2015] NZHC 470,(2015) 23 PRNZ 200.18 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 thedisbursements claimed by ANZ are reasonably incurred. They are allowedaccordingly.Is the quantum claimed by ANZ correctly calculated?[53] Bushline challenges the basis upon which ANZ has calculated its scale costs inrelation to several steps in the proceeding. Agreement on two of these steps has beensubsequently reached. I deal with the remaining issues in dispute below.[54] First, ANZ claims scale costs for two lists of documents. The second list wasprovided after the plaintiff sought further and better discovery. This suggests that thedocuments should have been discovered in the first place. I allow for one list ofdocuments only.[55] Second, ANZ claims for two counsel at trial. All the parties, includingBushline, were represented by two counsel. The nature and complexity of the casewarranted two counsel in my view. I allow for second counsel.[56] Third, ANZ claims costs for the filing of costs memoranda. The parties haveeach had a measure of success on their respective costs arguments. I consider that thecosts 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 offact made in favour of Bushline.(b) ANZ is entitled to recover costs on a band C basis for preparing briefsof evidence and for trial preparation.(c) A 50 per cent uplift from scale costs from 28 November 2016 is allowedto ANZ. A 50 per cent uplift from scale costs from 18 August 2016 isallowed to Mr England. Both uplifts are allowed for the unreasonablerejection 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 relationto costs memoranda are disallowed. ANZ's claim for second counselis 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 byBushline to ANZ, and from ANZ to Mr England. Any remaining disputes about thequantification of costs should be set out in memoranda filed on or before 16 April2018.___________________Edwards J