SMITH v PRAIN [2020] NZHC 1766

SMITH v PRAIN [2020] NZHC 1766 [22 July 2020]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYI TE KŌTI MATUA O AOTEAROAŌTAUTAHI ROHECIV-2014-409-549[2020] NZHC 1766BETWEEN GREGORY ROBERT SMITH AND COLINPETER STOKESPlaintiffsAND NOBLE INVESTMENTS LIMITEDRemoved First DefendantAND APPLE FIELDS LIMITEDRemoved Second DefendantAND JUSTIN WILLIAM PRAINThird DefendantAND CARDNO (NZ) LIMITEDFourth DefendantHearing: On the papersCounsel: G D Stringer for Mr SmithMr CP Stokes (self-represented)P B McMenamin for Third DefendantH J Dempsey and M R C Wolff for Fourth DefendantJudgment: 22 July 2020JUDGMENT OF ASSOCIATE JUDGE LESTERThis judgment was delivered by me on 22 July 2020 at 4.30pmpursuant to Rule 11.5 of the High Court RulesRegistrar/Deputy Registrar22 July 2020[1] Justin William Prain (Mr Prain) and Cardno (NZ) Limited (Cardno),successfully applied to have the claim against them struck out on the grounds that theplaintiffs' (Messrs Smith and Stokes) proposed sixth amended statement of claim didnot disclose reasonably arguable causes of action against them.1[2] The causes of action which were struck out, were in deceit against Mr Prainand Cardno and in negligence against Cardno. In my judgment of 5 June 2020,I concluded that had I dismissed the strike-out application, I would have granted thealternative application brought by Mr Prain and Cardno to dismiss the proceedingcommenced in 2014, making allegations going back to 2007, for want of prosecutionunder r 15.2 of the High Court Rules 2016.[3] The deceit causes of action were struck out as they failed to plead all of theelements of that cause of action, and in particular, failed to plead more than bareallegations of dishonesty.[4] The negligence cause of action was struck out as the duty alleged amounted toa duty to ensure that the first defendant, Noble Investments Limited, (now struck offthe Companies Office Register), met its contractual obligations to the plaintiffs undera contract it made with the plaintiffs in 2002.[5] Mr Prain and Cardno now apply for increased costs.[6] One of the plaintiffs, Mr Smith, in submissions prepared by Mr Stringer whorepresented both plaintiffs in the strike-out application, accepts costs should followthe event, but resists any increase in costs from a 2B basis.1 Smith v Prain [2020] NZHC 1236.[7] Mr Stokes has filed costs submissions representing himself, in which hesubmits:(i) there should be no order for costs; or(ii) that in fact costs should be awarded against the successful defendants'counsels: for pursuing their case, despite the [sic] must or shouldhave known the evidence and confession of false affidavits,must mean intent, or;(iii) Mr Stringer should be liable for the plaintiffs' costs:for negligently striking out their Amended Fifth Statementof Claim, and replacing it with a deficient one that could notbe fixed.Liability for costs[8] While all matters in respect of costs are at the discretion of the court, thediscretion is not unfettered. McGechan on Procedure notes there is a strongimplication that the court is to apply the costs regime in the High Court Rules in theabsence of some reason to the contrary.2[9] One of the general principles applying to the determination of costs is thata party who fails in respect of a proceeding or an interlocutory application must paycosts to the party who succeeds.[10] McGechan characterises the principle that costs follow the event as the primaryprinciple in relation to costs.3 That primary principle applies unless there areexceptional reasons.2 Andrew Beck (ed) McGechan on Procedure (online looseleaf ed Thomson Reuters)at [HR14.1.02(1)].3 At [HR14.2.01(1)].[11] In submitting the primary principle should not apply here, Mr Stokes relies onr 14.7 of the High Court Rules, which provides:14.7 Refusal of, or reduction in, costsDespite rules 14.2 to 14.5, the court may refuse to make an order for costs ormay reduce the costs otherwise payable under those rules if—(e) the proceeding concerned a matter of public interest, and the partyopposing costs acted reasonably in the conduct of the proceeding;[12] Mr Stokes argues there was a public interest element here as at one point, DeltaUtility Service Ltd (Delta), which is an infrastructure contracting company owned bythe Dunedin City Council, was a defendant and investigation of its role was a matterof public interest.[13] Delta was the sixth defendant in this proceeding. It brought an application forsummary judgment as a defendant and/or an application to strike-out the claim againstit. Those applications were dealt with by Associate Judge Matthews in a judgmentdelivered on 23 November 2017.4[14] The cause of action against Delta was in deceit. Evidence Mr Stokes gave inthat application was referred to by Judge Matthews as lacking credibility and as beinginconsistent with contemporary documentation.5 Accordingly, the Court enteredsummary judgment for Delta. The learned Judge observed that had he not grantedsummary judgment, he would have made a striking-out order as well.[15] Accordingly, Mr Stokes' proposition that this litigation involved matters ofpublic interest, is not sustainable.[16] McGechan, in respect of r 14.7(e), notes that before the public interest factorcan be relevant, the proceeding must "have merit and involve a matter of genuinepublic interest and importance beyond the interests of the particular unsuccessful4 Smith v Noble Investments Ltd [2017] NZHC 2885.5 At [102].litigant."6 The claim involving Delta did not have merit, it being dismissed ona summary basis.[17] Accordingly, I reject Mr Stokes' submission that there is a basis for notapplying the primary principle that costs follow the event.Indemnity costs[18] Counsel for Cardno seeks indemnity, or in the alternative, increased costs.[19] In respect of indemnity costs, r 14.6(3)(b)(v) is relied on, being a failure toaccept a Calderbank offer or, in the alternative, in reliance on the proposition that thedefendants acted vexatiously, frivolously improperly or unnecessarily in commencingcontinuing the proceeding under r 14.6(4).[20] The defendants say the plaintiffs' claim had no prospect of success and that theplaintiffs acted unreasonably by pursuing a wholly unmeritorious and hopeless claim.7The particular defendants' counsel rely on the Court of Appeal decision inBradbury v Westpac Banking Corp that making allegations of fraud without properfoundation is a factor that may warrant indemnity costs.8Calderbank offer[21] Cardno's counsel recognises the difficulty this submission faces as theCalderbank offer made was, in reality, a walk-away settlement offer.[22] A Calderbank letter was sent on 12 March 2015, and offered that ifthe plaintiffs discontinued their proceedings, Cardno would forego any entitlement ithad to scale costs. There was no response to that offer which was open for 10 workingdays.6 McGechan on Procedure, above n 2, at [HR14.7.91(c)].7 Bradbury v Westpac Banking Corp (2008) 18 PRNZ 859 (HC) at [11].8 Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400.[23] Counsel for Cardno submits that, in the circumstances of this case, thewalk-away offer should be given weight and, indeed, it is categorised by Cardno beinggenerous, given the plaintiffs' claim against Cardno was so frivolous.[24] I do not consider the circumstances of this case warrant departing from thecourt's reluctance to award increased costs based on walk-away settlement offers.9[25] At the time of the 12 March 2015 offer, there was no deceit pleading againstCardno. The offer by Cardno was not repeated after 12 March 2015. As Mr Stringernotes, the offer was made only seven months into the proceeding. It was, in substance,not an offer to settle, but an invitation to the plaintiffs to abandon their claim.[26] I agree with Mr Stringer's submissions that the offer has the characteristics ofa walk-away offer which the Court of Appeal has cautioned against giving weight toin Hira Bhana & Co Ltd v PGG Wrightson Ltd.10[27] I find that the plaintiffs non-response to the 12 March 2015 offer does notwarrant indemnity costs.[28] In Bradbury v Westpac Banking Corp, the Court of Appeal confirmed theimportance of the predictability of costs created by the costs regime, but recognisedindemnity costs could be ordered where a party was guilty of flagrant misconduct.11The relevant example given is where allegations of fraud are made knowing them tobe false.12[29] At the outset of this litigation, the plaintiffs had what, to me, as a matter of firstimpression, seemed to be reasonably arguable causes of action against the companythey contracted with in 2002. However, with that company placed into liquidation on20 December 2017 and then removed from the Companies Office Register, theplaintiffs were left with defendants with whom they did not have a contractualrelationship.9 Hira Bhana & Co Ltd v PGG Wrightson Ltd [2009] NZCA 342.10 Above n 8.11 Bradbury v Westpac Banking Corp, above n 8.12 At [29].[30] The plaintiffs originally pleaded a claim in contract against Cardno, or that isat least how Cardno took the pleading, as it challenged the viability of such a cause ofaction in its 12 March 2015 letter. That the plaintiffs then dropped any suggestionof a contractual claim, shows them taking on board the points being raised by Cardno,but against that is the plaintiffs then raising claims in deceit without being able to pleadthe normal particulars required in dishonesty.[31] In my view, the pursuit by the plaintiffs of their claim, while unreasonable, didnot have the element of what the Court of Appeal called "distinctly bad behaviour".13[32] As the Court of Appeal noted in Bradbury:14Indemnity costs, which depart from the predictability of the RulesCommittee's regime, are exceptional and require exceptionally bad behaviour.That is why to justify an order for such costs the misconduct must be"flagrant": Prebble v Awarere Huata (No 2) [2005] 2 NZLR 467 at [6] (SC).[33] While the basis of the strike-out application in respect of the deceit cause ofaction included a deficiency in the pleading of particulars of dishonesty, I do notconsider that such means the plaintiffs made allegations of dishonesty, knowing themto be false. I do not consider the plaintiffs were acting in bad faith.[34] While at times the plaintiffs were self-represented, and as I recorded in thestrike-out judgment, they were urged to take advice. At the outset of the proceedingthey were represented by experienced counsel and in respect of the strike-outapplication they also engaged experienced counsel. Engaging counsel does not ofitself mean there is immunity from indemnity costs, but I am not convinced that theplaintiffs brought their deceit causes of action knowing them to be false.[35] The second element justifying indemnity costs in Bradbury was that theplaintiff in that case commenced and continued the proceedings for an impropermotive.15 The defendants do not submit that factor is present here.13 At [26].14 Bradbury, above n 8 at [28].15 At [81].[36] I find that indemnity costs are not justified in this case.Increased costs[37] The defendants seek increased costs in the alternative. Even if the plaintiffswere not acting improperly, that is, that they knew their case had no prospect ofsuccess, increased costs are appropriate in circumstances where the plaintiffs shouldhave known their case had no merit or prospect of success.16[38] The defendants say it should have been clear to the plaintiffs that in the yearssince the proceedings were commenced, their claim could not succeed.[39] To the extent that the plaintiffs' original pleading included a claim in contractagainst Cardno, the plaintiffs recognised Cardno's arguments as such was abandoned.In the strike-out judgment, a full chronology was set out which identified numerousdelays by the plaintiffs and numerous failures by them to comply with directions ofthe court. This is a factor that may be taken into account in considering increasedcosts under r 14.6(3)(b)(i), that is, failing to comply with a direction of the court.[40] I also consider it relevant to the issue of indemnity costs that in relation toMr Prain, the sixth amended statement of claim resurrected pleadings from previouslyabandoned earlier variations of the claim. Mr McMenamin, counsel for Mr Prain,noted the sixth amended statement of claim incorporated matters raised in the thirdamended statement of claim, which had been subject to a notice of particulars issuedby him, but which was overtaken by a further amended statement of claim.[41] That the strike-out was run on the sixth (and on one count, the seventh) versionof the amended statement of claim and that it recycled parts of previously criticisedstatements of claim, in my view, points to the claim being unreasonably pursued.[42] The defendants had previously identified their concerns with the deceit causesof action and such were front and centre in the submissions in support of the strike-out.The reality is the plaintiffs did not have a reply to those points. I am satisfied that the16 Cross v Queenstown Lakes District Council [2016] NZHC 2772 at [12].plaintiffs' unreasonable approach to the litigation against the third and fourthdefendants contributed to an increase in their costs.[43] In respect of a proceeding where the argument lacked merit and was inherentlyunlikely to succeed, increased costs apply to all steps.17 I keep in mind however thatthe deceit claim was not in the initial versions of the claim. Against that, in the originalpleading against Mr Prain and Cardno, it was in contract.[44] The correct approach from an uplift from scale is to start with scale. It iscommon ground, save for Mr Stokes, that 2B costs would be the appropriate startingpoint.[45] Cardno calculates its scale costs at $62,618.[46] Mr McMenamin has calculated his scale costs at $61,901.[47] I note both counsel have used the current daily recovery rate of $2,390. Thedaily rate changed on 1 July 2015 and again on 1 August 2019. In order to give effectto costs being predictable, which is one of the objectives of the costs regime, in myview the daily rate prevailing at the time a step is taken should be used to calculate theamount claimed for each step.[48] The defendants, adopting the latest and higher rate for all steps from the outset,results in an increase over 2B costs if such were calculated according to whatI consider is the correct approach to the calculation of costs that span changes in thedaily recovery rate.[49] I am conscious the amount involved is not likely to be significant and I do notwish to create unnecessary costs. I propose to deal with the issue in a broad brushway.[50] Cardno seeks an increase of costs of 50 per cent to arrive at a figure of $93,927.17 See McGechan on Procedure, above n 2, at [HR14.6.02(2)].[51] An increase beyond 50 per cent above scale costs is unlikely given the dailyrecovery rate is two-thirds of the daily rate considered reasonable for the particularproceeding. Accordingly, Cardno in a practical sense seeks the maximum uplift likelyto be ordered.[52] Mathematical certainty is not possible. Approaching matters in the round,I conclude that increased costs of 40 per cent are appropriate in respect of Cardno'sapplication.[53] Mr Prain also seeks increased costs and I adopt the same approach in relationto his application.Orders[54] Accordingly, there is an order of costs in favour of Cardno in the sum of$87,665.20 plus disbursements of $2,320 (these were not challenged by thedefendants).[55] In respect of the costs claimed by Mr Prain, there is an award of costs for$86,661.40 plus disbursements to be fixed by the Registrar.[56] There is some suggestion that Mr Prain's actual costs may have been less than$86,661.40. If that is the case, then pursuant to r 14.2(1)(f) of the High Court Rules,only costs actually incurred can be recovered.[57] Each costs awards are pursuant to r 14.14 joint and several awards against thedefendants.[58] That leaves the suggestion by Mr Stokes that defendants' counsel should bearsome responsibility for the costs. The basis of this is set out at [7] above. This wasan inappropriate allegation by Mr Stokes against counsel for the defendants. There isno basis for his allegations and they are rejected.[59] That leaves the claim by Mr Stokes that his counsel who ran the strike-outapplication should be liable for costs. This application concerns costs between theparties. Issues between Mr Stokes and his counsel are not issues to be determined inthis proceeding.[60] I do not make a separate costs order in respect of the fixing of costs. I considerthey are absorbed in the broad brush approach I have adopted.__________________________________Associate Judge LesterSolicitors:Inder Lynch, Papakura (for the Plaintiffs)K J McMenamin & Sons, Christchurch (for Third Defendant)Morrison Kent, Wellington (for the Fourth DefendantCopy to: Mr C P Stokes (Self-represented plaintiff)