FARQUHARSON v FARQUHARSON COSTS JUDGMENT [2021] NZHC 1241

FARQUHARSON v FARQUHARSON COSTS JUDGMENT [2021] NZHC 1241 [31 May 2021]IN THE HIGH COURT OF NEW ZEALANDROTORUA REGISTRYI TE KŌTI MATUA O AOTEAROATE ROTORUA-NUI-A-KAHUMATAMOMOE ROHECIV-2020-463-000035[2021] NZHC 1241IN THE MATTER Of The Family Protection Act 1955BETWEEN DAVID KAHAWAI FARQUHARSONAppellantAND OPAL ADA MARIE FARQUHARSON ASADMINISTRATOR IN THE ESTATE OFIAN CHARLES FARQUHARSONRespondentHearing: On the papersAppearances: J R Hosking for AppellantR D Clark for RespondentJudgment: 31 May 2021JUDGMENT OF PAUL DAVISON J[Re: Costs]This judgment was delivered by me on 31 May 2021 at 2:15 pmpursuant to r 11.5 of the High Court Rules.Registrar/Deputy RegistrarSolicitors:Anderson Creagh Lai, AucklandLewis Lawyers, CambridgeBackground[1] By my judgment delivered on 19 February 2021 I reversed a decision of theFamily Court and awarded Mr David Farquharson (the appellant) 46 per cent of hisfather's estate under the Family Protection Act 1955 (the "FPA").1 The appellant nowapplies for an award of costs against the respondent, Ms Opal Farqharson who is hismother.[2] The appellant seeks a 50 per cent uplift on 2B scale costs in recognition of therespondent having rejected several Calderbank offers.2 He also seeks indemnity costsor alternatively, costs on a 3C scale basis, alleging that the respondent's conduct of theproceedings prolonged and aggravated them.[3] The respondent accepts that costs may be awarded to the appellant given thathis appeal was successful. She does not oppose the proposed 2B costs sought by theappellant. The respondent does however, oppose an award of increased or indemnitycosts.[4] Counsel for the appellant has included the costs relating to the Family Courtproceedings in the appellant's claim for costs in this Court.3 On 18 March 2020,Judge J F Munro declined to make any costs decision prior to the determination of theappeal.4 Mr Farquharson has succeeded on appeal and is entitled to costs in the FamilyCourt.5 However, the measure of costs in the Family Court is a matter appropriatelydealt with in that court.Costs[5] Counsel for the appellant has summarised the costs sought by Mr Farquharsonrelating to the High Court appeal in the table below:1 Farquharson v Farquharson [2021] NZHC 222. At [65]-[66], Mr Farquharson is awarded$200,000, along with a Great Wall motor vehicle valued at $13,500 and electronic equipmentvalued at $2,500.2 See Calderbank v Calderbank [1975] 3 All ER 333 (EWCA).3 Counsel has also included copying of the bundle for the Family Court as a disbursement.4 Farquharson v Farquharson [2020] NZFC 1103.5 See for example Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109, [2013] 1 NZLR305 at [13].Costs in the High CourtStep Description Timeallocation(2B)Costs (2B)Timeallocation(3C)Costs (3C)52 Commencingappeal 1.00 $2,390 3.00 $10,59054 Casemanagement 0.80 $1,912 0.80 $2,82455 Preparation ofCase onAppeal1.00 $2,390 2.00 $7,06056 Preparation ofwrittensubmissions3.00 $7,170 6.00 $21,18057 Appearanceat hearing 0.75 $1,792.50 0.75 $2,647.50Total costs on a 2B basis $15,654.50Increased costs on a 2B basis (50%) $23,481.75Total costs on a 3C basis $44,301.50Disbursements in the High CourtDescription of disbursement CostCopying of case on appeal (735 pages at 20cents per page) $147Copying of bundle of authorities (1035 pagesat 20 cents per page) $207Mileage for travel to settlement conference(420 kilometres at 72 cents per kilometre) $302.40Total disbursements $656.40Appellant's submissions[6] The appellant submits that he should be awarded a 50 per cent uplift on 2Bscale costs as he made Calderbank offers to settle, which the respondent rejectedbefore losing the appeal.6[7] The appellant further submits that costs should be awarded on an indemnitybasis from the estate. The appellant notes that the respondent is not only the soleexecutor of the estate, but that she is also a beneficiary. The appellant says that therespondent's conduct in defending the appellant's claim to protect her interests as abeneficiary, has prolonged and aggravated the course of the proceedings. Accordinglyhe says indemnity costs are justified. Alternatively, costs could be awarded on a 3Cscale basis, applying Wightman v Public Trust7 and AB v RT.86 High Court Rules 2016, r 14.6(3)(b)(v).7 Wightman v Public Trust [2015] NZHC 1091.8 AB v RT [2016] NZHC 1399.Respondent's submissions[8] The respondent accepts that the appellant's appeal having been successful,costs in his favour are to follow. The respondent submits however, that the Courtshould not award either increased or indemnity costs because of the specialcircumstances of the case. Counsel for the respondent notes that Ms Farquharson iselderly, in poor health, and may require full-time care in future. She is not in a positionto meet the direction that Mr Farquharson be paid $200,000 from the estate and alsothe further increased costs claimed. The respondent submits that her continuedoccupation of her present residence at Walnut Place may be disturbed, and that otherfamily members who rely upon her for financial support will be prejudicially affected.Issues[9] The issues are:(a) whether indemnity costs should be awarded;(b) whether costs should be awarded on a 3C scale basis; and(c) if not, whether an uplift on scale costs should be applied.Should indemnity costs be awarded?[10] The Court has a general discretion as to costs.9 This includes making an awardfor increased costs or indemnity costs.10 Relevantly, the justification for doing so isthat the party opposing costs has contributed unnecessarily to the time or expense ofthe proceeding or a step or steps in it, or that some other reason exists which justifiesthe court making an order for increased costs despite the principle that thedetermination of costs should be predictable and expeditious.11[11] Previously a frequently adopted approach to costs in FPA claims was themaking of an order that the solicitor/client costs of all parties were payable out of the9 High Court Rules 2016, r 14.1.10 Rule 14.6(1).11 Rules 14.6(3)(b) and (d).estate.12 The rationale for this approach is that although proceedings under the FPAare civil adversarial claims, in reality the Court's duty is to stand in the shoes of thedeceased to secure the proper discharge of their moral duty to qualifyingbeneficiaries.13[12] However in recent years the trend has shifted towards costs orders being madefollowing the event in such cases.14 In Wightman v Public Trust, Whata J describedthe present approach to costs for FPA claims as follows:15[19] the practice of the Court to award costs on a solicitor client basisout of the estate is not universal and is subject to the proper application of rule14 governing costs[20] the Court is now more cautious about awarding costs out of theestate, particularly where the estate is small, the costs award will have asubstantial effect on beneficiaries and or there is some other disqualifyingfeature that makes payment out of the estate inappropriate. But I do not thinkwe have reached the point where the practice can be ignored, given its recentapplication (for example) by the Supreme Court.[21] the longstanding practice of awarding costs out of the estate on asolicitor client basis is a relevant factor to be taken into account [in]determining whether costs should be paid out of the estate and on what basis.This is consistent with the driving principle of the costs regime that any costsaward should be predictable and expeditious. But whether an award of thisnature should be adopted in any given case will depend (as it does already) onthe circumstances of the estate, the effect of an award on beneficiaries, andthe conduct of the litigation.(Footnotes omitted)[13] The merits of the proceeding and whether they were reasonably brought is alsoa relevant consideration.16[14] The appellant submits that indemnity costs are appropriate in this case.Mr Farquharson was the deceased's only child and the basis for his claim under theFPA was obvious. Further, the respondent's conduct in her capacity as executor of the12 See for example Wood Luxford v Wood [2013] NZSC 153, [2014] 1 NZLR 451; Paewai-Kohe vPaewai [2014] NZHC 3137; Public Trust v Bristow-Brown [2014] NZHC 2497; Woodward vSmith [2009] NZCA 215; and Cartwright v Joseph [2019] NZHC 1093.13 Ormsby v Van Selm [2016] NZHC 484 at [5].14 See for example TB v JB [2014] NZHC 1478, [2015] NZFLR 9; Brain v Harwood [2014] NZHC2067; Fry v Fry [2015] NZHC 2716; and Wightman v Public Trust [2015] NZHC 1091.15 Wightman v Public Trust [2015] NZHC 1091.16 Ormsby v Van Selm [2016] NZHC 484 at [6].estate was significantly influenced by her concern to protect her own personal interestsas a beneficiary. She prioritised her status as an affected beneficiary by refusingsettlement offers, failing to provide information, and debiting legal fees for counselacting for her personally from the funds held by the estate. In contrast,Mr Farquharson paid for his own legal fees personally.[15] The appellant's submissions focus upon and emphasise the merits of his claimin the proceeding and conduct of the litigation. Both of these factors support an awardof indemnity costs. I further add that Ms Farquharson rejected a Calderbank offer tosettle for a sum that would have placed her in a better position than the result of thelitigation (being approximately half of what Mr Farquharson was awarded on appeal).This offer is detailed at [26]. Consistency with the longstanding approach of fullindemnity costs being awarded out of the estate in FPA claims, and the fact that therespondent has already debited her own counsel's fees from the estate funds, supportthe making of an award of indemnity costs in the appellant's favour.[16] Nevertheless, the circumstances of the estate and the effect of an award onbeneficiaries are factors which tell against the making of an award of indemnity costs.The respondent's counsel submits that Ms Farquharson is unable to meet the directionthat Mr Farquharson be paid $200,000 out of the estate as well as an award ofindemnity costs. Such a costs order would be likely to affect her continued occupationof the Walnut Place property in which she has lived since the deceased's death. In thecourse of determining the appeal I expressed the view that it would be inappropriateif the outcome of the appellant's FPA claim had this result.17[17] It is difficult to ascertain the amount of the indemnity costs incurred for theHigh Court appeal (as opposed to the Family Court proceeding). The costs as set outin the appellant's memorandum are summarised in the following table:17 Farquharson v Farquharson [2021] NZHC 222 at [64].Indemnity costsAnderson Creagh Lai $37,150Jo Hosking Barrister from 2019 (FChearing and HC appeal) $33,977.78Total $71,127.78[18] The total balance of the deceased's estate as at 15 September 2020 was$472,147.16.18 A statement of the balance of the deceased's estate dated 23 February2021 states that the remaining cash balance of the estate is now $117,455.96.19Ms Farquharson's legal costs of $72,765 have been withdrawn from the estate overthe course of the proceedings. The non-cash assets of the estate include the WalnutPlace property, valued at $270,000, and the personal property retained by MrFarquharson.[19] It follows that the estate does not have sufficient cash to pay Mr Farquharson'sFPA award without Ms Farquharson selling the Walnut Place property. The appellantsubmits that this is an unfortunate reality of litigation. However, in my view it wouldbe unduly harsh for this to be compounded by Ms Farquharson also having to meet anaward of indemnity costs.20 Inevitably, she would have to find a new place to livewith what money remains leftover. She is presently living off her entitlement as abeneficiary of the estate, and her sole income is her National Superannuation of$22,900 per annum. Mr Farquharson will receive a significant portion of the estateand will not be prejudiced to any significant degree if indemnity costs are not awarded.[20] Here the respondent has already indemnified herself for all of her personallegal fees by arranging for them to be paid for out of the estate. Although the financial18 At [53]. This figure does not count Ms Farquharson's counsel's fees as a liability of the estate.19 This figure includes Ms Farquharson's counsel's fees. Excluding them would yield a value of$190,221 (rounded).20 However, for completeness I note that the respondent received the benefit of a relationshipproperty settlement with the appellant's late father Ian, pursuant to which she retained a house inOpotiki. See: Farquharson v Farquharson [2021] NZHC 222 at [14].consequences of the manner in which the respondent has conducted the proceedingsand incurred substantial legal fees in doing so are of her own making, in thecircumstances I do not consider this to be an appropriate case in which to make anorder for indemnity costs.Should costs be awarded on a 3C scale basis?[21] The appellant submits in the alternative that costs should be awarded on a 3Cscale basis. Wightman v Public Trust and AB v RT were cited as authority for doingso.[22] In Wightman v Public Trust, Whata J awarded costs on a 3C scale basis to fivegrandchildren who each received an award of $150,000 out of their grandfather'sestate, which was in the order of $11,500,000.21 His Honour did so to avoid unfairlytransferring the burden of the other party's adversarial approach to the grandchildren.22However, the actual costs incurred by the grandchildren were 1.8 times the quantumof 3C scale costs.23 The proceedings were therefore more complex than the presentcase, in which 3C scale costs are similar to the actual costs incurred byMr Farquharson.[23] In AB v RT, Brown J followed Wightman v Public Trust in awarding 3C scalecosts to a daughter who successfully received an award of $335,000 from her mother'sestate, which was worth approximately $2,400,000.24 Brown J considered that thedaughter's actual costs and disbursements of $136,433.70 would substantially erodethe amount of the court's award if she received only 2B scale costs of $35,838.25Accordingly, 3C scale costs of $110,763 (not including disbursements) wereawarded.26[24] Both Wightman v Public Trust and AB v RT involved estates which were ofsignificantly greater value than the present case. 3C scale costs were far less21 Wightman v Public Trust [2015] NZHC 1091 at [1] and [25].22 At [25].23 At [23(e)].24 AB v RT [2016] NZHC 1399.25 At [6].26 At [15].prejudicial to the respondents in those cases, as they represented a smaller portion ofthe estate to which they had an entitlement, as compared with Ms Farquharson. In thepresent case, an award of 3C scale costs would be close to the amount of an award ofindemnity costs. They do not reflect the complexity of the proceeding and such a costsaward would cause undue hardship to Ms Farquharson. It follows, in my view, thatthat 3C scale costs are inappropriate, and I accordingly find that costs should beawarded here on a 2B scale basis.Should an uplift on scale costs be applied?[25] The appellant submits that a 50 per cent uplift on 2B scale costs should beawarded for the reasons previously discussed. Specifically, the appellant submits thatas he made Calderbank offers to Ms Farquharson which she rejected, increased costsunder r 14.6(3)(b)(v) of the High Court Rules are therefore appropriate.[26] I agree with the appellant. There were several settlement offers made andexchanged between the parties. The Calderbank offers presented in the earlier stagesof negotiations were for amounts well removed from the actual figure finallydetermined by the Court. Mr Farquharson's final Calderbank offer to Ms Farquharsonmade on 29 October 2018, would if accepted have placed her in a better position thanshe is presently in. That offer was that Mr Farquharson would receive $100,000 plusthe property and money that he had already received and had retained. On appeal,Mr Farquharson was awarded approximately twice that figure. Her rejection of thesettlement offer was without any reasonable justification and unnecessarilycontributed to the time and expense of the proceeding. It resulted in two years ofFamily Court and High Court proceedings to ascertain Mr Farquharson's entitlement.Ms Farquharson's conduct as detailed at [14]-[15] supports this finding. I note thatMs Farquharson may encounter difficulty paying the costs order, including having tosell the Walnut Place property. Nevertheless in my view an order for increased costsstrikes the correct balance between recognising the cost incurred by Mr Farquharsonin remedying his deceased father's breach of moral duty, and avoiding undue prejudiceto Ms Farquharson.Result and costs order[27] I accordingly order that the respondent pay the appellant increased costscalculated on a 2B scale basis uplifted by 50 per cent of $23,481.75, together withdisbursements of $656.40, to be met from the assets of the estate._____________Paul Davison J