LEPIONKA & COMPANY INVESTMENTS LIMITED v GIBSON SHEAT [2023] NZHC 2745

LEPIONKA & COMPANY INVESTMENTS LIMITED v GIBSON SHEAT [2023] NZHC 2745 [29 September2023]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYI TE KŌTI MATUA O AOTEAROATE WHANGANUI-A-TARA ROHECIV-2021-485-301[2023] NZHC 2745BETWEEN LEPIONKA & COMPANYINVESTMENTS LIMITEDPlaintiffAND GIBSON SHEATDefendantAppearances: S J Leslie for the PlaintiffC L Bryant and G J Luen for the DefendantJudgment: 29 September 2023JUDGMENT OF COOKE J(Costs)[1] By judgment dated 27 July 2023 I upheld the defendant's arguments on apreliminary question and gave judgment dismissing the plaintiff's claims.1 I gaveleave to the parties to file memoranda if costs could not be agreed. The parties havebeen unable to agree and the Court is accordingly required to determine costs.[2] There is a very significant difference between the parties. The defendant seeksan award of $281,372.88 plus disbursements of $23,545.66. The plaintiff says theappropriate costs award is $86,620.97. That there should be such a significantdifference between the parties on costs in relation to a proceeding that has beendetermined following a five day hearing is surprising.[3] A large number of issues are raised in the memoranda that have been filed. Theissues raised evidence of a misunderstanding of the costs regime set out in pt 14 of the1 Lepionka & Co Investments Ltd v Gibson Sheat [2023] NZHC 1981.High Court Rules 2016 (the Rules). This misunderstanding is not unusual — it isbecoming increasingly common for there to be applications to depart from a standardaward of costs determined under pt 14. That is a practice that should be discouragedunless there is a clear basis for such departure in accordance with the Rules. Mostcases can be expected to involve costs being calculated on a 2B basis, with perhapssome adjustments to the time bands for some steps. But costs should normally bestraightforward. This case is a striking example of an attempt to depart from theregime set by pt 14, and explains the gulf between the costs assessments made by theparties.The approach to costs in New Zealand[4] The current regime in pt 14 was first introduced by the High Court AmendmentRules 1999. One of the key principles of that regime is set in r 14.2(1)(g) that "so faras possible the determination of costs should be predictable and expeditious". Theprevious regime was more unpredictable.2 The replacement regime prescribed the"principles, formulae and rates that cater for all but the most unusual of cases".3 Thatregime seeks to strike the balance between predictability and fairness.4 It identifies,within the Rules themselves, when and how the costs award is to be arrived at by theapplication of the time allocations sch 3 in accordance with the appropriate dailyrecovery rates in sch 2. In Glaister v Amalgamated Dairies Ltd the High Court said:5Predictability and expeditious determination of costs is the notion whichunderpins the new costs regime. Failure to give proper weight to that notionundermines the way in which the Rules operate. [5] On appeal the Court of Appeal emphasised the discretion that also existedunder the Rules.6 But whilst the discretion exists, as the Supreme Court said in Shirleyv Wairarapa District Health Board the discretion to be exercised is as set out in theRules themselves.72 For an historical summary see David Bullock and Tim Mullins The Law of Costs in New Zealand(LexisNexis, Wellington) at [1.4]–[1.8].3 Mansfield Drycleaners Ltd v Quinny's Drycleaning (Dentice Drycleaning Upper Hutt) Ltd (2002)16 PRNZ 662 (CA) at [27].4 Taylor v Roper [2019] NZHC 16, (2019) 24 PRNZ 373 at [8]–[9].5 Glaister v Amalgamated Dairies Ltd (2003) 16 PRNZ 536 at [21].6 Glaister v Amalgamated Dairies Ltd [2004] 2 NZLR 606 (CA) at [38].7 Shirley v Wairarapa District Health Board [2006] NZSC 63, [2006] 3 NZLR 523 at [17].[6] The predictability of the regime is established by the daily recovery rates setin sch 2 set by categorising the proceedings under r 14.3 which are then applied to thetime allocations in one of the three bands in sch 3 in accordance with r 14.5. There iscapacity for an increased costs award, including indemnity costs in accordance withr 14.6, but only if the standards prescribed by that rule are met. There is also thecapacity for a reduction in the award in accordance with r 14.7, but again only if thestandards for reduction prescribed by that rule are met. There is a residual overridingdiscretion under r 14.1, but it is qualified by the applicable costs rules and it must beexercised consistently with the principles of the regime.8 The correct approach to this"schedular" approach to costs in the rules was summarised by the Court of Appeal inHoldfast NZ Ltd v Selleys Pty Ltd.9[7] Given the schedular approach the Court should only be involved in thedetermination of costs in a limited number of cases. The regime is relativelystraightforward and costs should be able to be settled by the parties in the majority ofcases. Yet it has become increasingly apparent that the Court is being asked to grantuplifts, discounts or exceptions to costs awards almost routinely. The differencebetween the parties in the present case that I referred to in [2] above, and the numberof issues that have been raised is an example of this.[8] I will address the issues that have been raised against that background.Disputes in relation to steps claimed[9] The defendant has made a number of claims in relation to steps set out in sch 3that are disputed by the plaintiff. I address each of those matters.Discovery by defendant[10] The defendant makes a claim under time band C (step 20 – seven days) forproviding its discovery. The plaintiff accepts that that claim should be allowed in thehigher time band. I agree with that assessment.8 Manukau Golf Club Inc v Shoye Ventures Ltd [2012] NZSC 109, [2013] 1 NZLR 305 at [7].9 Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [43]–[48]. See also Bradbury vWestpac Banking Corporation [2009] NZCA 234, 3 NZLR 400.[11] The defendant then seeks further awards for additional discovery it providedunder time band B (2.5 days). I agree with the plaintiff that no additional award isjustified. There may be some circumstances where an additional award forsupplementary discovery by a party might be allowed, but there is no direct provisionfor this in sch 3. An allowance for discovery under time band C already involves ahigh allowance and a party can be expected to have complied with the discoveryobligations when providing discovery in accordance with this step. There is nojustification for granting the defendant further allowances for supplementarydiscovery.Inspection[12] The defendant makes a claim for inspection under time band C (step 21 – sixdays). This is not disputed by the plaintiff. I agree that this is appropriate in the presentcase.[13] The defendant calculates this claim, however, under the daily recovery rate fora category 3 proceeding rather than a category 2 proceeding that the parties had alreadyagreed applied to the proceeding. The plaintiff disagrees with this approach.[14] As both r 14.3(2) and the authorities make clear, a recategorisation of aproceeding is only permitted if there is special reason.10 No special reason exists here,and neither has the defendant attempted to identify one. It is also clear that thecategorisation of a proceeding under r 14.3 applies to a proceeding overall, not to aparticular step in a proceeding. For that reason, a claim by a party to use the higherdaily recovery rate for a particular step is not consistent with the regime prescribed bythe Rules, and it is disallowed.[15] The defendant then makes two further claims for inspection under step 21, onealso calculated on a 3C basis. As indicated above, a further allowance for a step setby sch 3 could be allowed in particular circumstances when there is, in fact, a discreteadditional step in addition to the one already provided for. That could occur when10 Dovey Aviation Consulting Ltd v Attorney-General [2021] NZHC 1224 at [3]–[11]; Tindall v FarNorth District Council HC Auckland CIV-2003-488-135, 25 May 2007 at [10]–[11].further discovery is provided by the other party. Here I accept such an allowance isappropriate, but I do not accept that the defendant can claim for inspection three times.The defendant says that further documents were provided with service of briefs ofevidence, and that a further tranche of documents was provided shortly before thehearing. In those circumstances I allow one more claim for inspection under time bandB, in addition to the first claim under the step under time band C. Both are onlyallowed under category 2 for the reasons explained above.Plaintiff's discovery application[16] The defendant makes a claim under steps 23 and 24 for opposing the plaintiff'sdiscovery application in relation to particular documents. The plaintiff says that thisclaim should not be allowed as its application was essentially successful given that thedocuments were provided.[17] Rule 14.8 requires the cost of interlocutory applications to be determined at thetime they are decided by the Court unless there are special reasons. That did nothappen here as the parties resolved the matter without the Court being required tomake a decision. Given that the application was not argued, and the informationsought by the application was provided, I do not see a basis under which costs couldbe awarded to the defendant for the preparing a notice of opposition, and filing ofsubmissions. Neither would costs have been awarded to the plaintiff on thatapplication for the same reasons. Essentially costs lie where they fall when partiesresolve matters. For these reasons no costs should be allowed for these steps.Trial costs[18] Trial costs are claimed under steps 34 and 35 in the usual way and these arenot disputed by the plaintiff. But in addition the defendant has claimed a furtherallowance for "opening submission" said to be under step 24 or step 40 (1.5 days), for"closing submission" (1.5 days) under the same steps, and also for the preparation ofa chronology under step 11 (0.4 days). This totals an additional 3.4 days.[19] There is no basis for such claims. Steps 34 and 35 cover such aspects of trial.Step 24 is preparing written submissions for an interlocutory application. Step 40 isfor preparing written submissions on an originating application. Step 11 concerns thefiling of a memorandum for a first case management conference. These are examplesof a party not complying with the regime set by sch 3 when making its costs claims.These steps are obviously not allowable.Other claims[20] There are other claims made that are disputed by the plaintiff.[21] The defendant has claimed twice under step 17 for answering interrogatoriesunder time band B (2 x 1 day). The plaintiff issued one set of interrogatories involvingeight questions. The fact the defendant filed two separate affidavits to provide theanswers does not mean that the allocation for the answers should be doubled. I agreethat the answers to the interrogatories are appropriately assessed under time band Binvolving one day.[22] The defendant claims for the first amended statement of defence andcounterclaim dated 5 April 2022. As the plaintiff says, costs for an amended pleadingare not provided for except in response to an amended pleading from the other partywhich is addressed under step 9. This step is disallowed.[23] There is then dispute about various memoranda that were filed. I agree thatthere is no basis for the memorandum dated 7 July 2021, or for a joint memorandumprepared by the plaintiff dated 23 August 2021 to be claimed. I accept, however, thatthe claims for the memoranda of 7 and 9 June 2023 concerning confidentiality can beclaimed by analogy in accordance with r 14.5(1)(b), and they are allowed.Disbursements[24] The plaintiff also disputes some of the disbursements that are claimed by thedefendant under r 14.12. Disbursements are claimed for travel and accommodationcosts associated with briefing of witnesses. Allowing such claims will depend on thecircumstances of the case.11 I allow the disbursements in the present case given thatthe witnesses were in a different city from the defendant's solicitors. I also allow the11 Buis v Accident Compensation Corporation (2010) PRNZ 585 (HC) at [25].relatively modest costs for documentary management services provided by an externalprovider. Such a disbursement can be permitted in addition to the allowances for thesteps in sch 3.12 I accept that band C for discovery and inspection allowances isalready generous, but these external costs were incurred and assisted with documentmanagement.Claim for an uplift[25] The defendant also seeks an uplift of the costs award. The uplift sought is ahigh one — 75 per cent. The plaintiff says there should be no uplift on the costs award.[26] The defendant appears to identify three related reasons for the uplift — that thelitigation concerned a settlement agreement, that the plaintiff should have known thatits claim had no prospect of success, and that the plaintiff should have accepted offersin settlement. The first two arguments engage r 14.6(3)(b)(iii) which provides:14.6 Increased costs and indemnity costs(3) The court may order a party to pay increased costs if—(b) the party opposing costs has contributed unnecessarily to thetime or expense of the proceeding or step in it by—(iii) failing, without reasonable justification, to admit facts,evidence, documents, or accept a legal argument; orDispute concerning settlement agreement[27] The defendant says costs should be increased because this case involved adispute about a settlement agreement. It refers to the decision of the English and WelshHigh Court in Denny v Babaee where it was held that a deliberate breach of asettlement agreement without reasonable justification was a basis for costs censure by12 Mainzeal Property and Construction Ltd (in liq) v Yan and Ors [2019] NZHC 1637 at [100]–[103].the courts.13 But as the plaintiff says, the regime for awarding costs in England andWales is different from the regime in New Zealand. Litigation disputes aboutsettlement agreements are no different from any other disputes.14 If a party pursues ameritless argument in relation to a settlement agreement r 14.6(3)(b)(ii) can beengaged. But the rule is not engaged simply because this is a dispute about asettlement, which is not uncommon. I accordingly reject the argument that an upliftis warranted because this dispute concerned a settlement agreement.Plaintiff's claim lacked merit[28] The second ground is that the plaintiff knew, or should have known that it waslikely to fail. The defendant refers to its summary judgment application. This wasdismissed, but the Associate Judge indicated he did so "not without reservations".15The defendant also says that the subsequent decision of Gendall J agreeing to thepreliminary question should have signalled to the plaintiff that it was not going tosucceed.16[29] I do not accept that these earlier judgments mean that the proceeding fallswithin r 14.6(3)(b)(ii). A party has a right of access to the Court. It does so when ithas an argument that it wants the Court to adjudicate on. If it is unsuccessful it islikely to be obliged to pay costs in accordance with the principle set in r 14.2(1)(a).The rule is not triggered because a party knew that there was a real prospect that itsproceedings could fail. It arises when there is a failure, without reasonablejustification, to accept facts, evidence or a legal argument. That is a high threshold.It will only be in clear cases that the Court uplifts costs under r 14.6(3)(b)(ii) becausethe arguments the party have advanced lacked merit. For example in NR v MR theCourt of Appeal increased a costs award by 50 per cent when the arguments on appealfell within the words of the Rule saying:17In our opinion, the present applications fall readily within those words. Theyare based on issues previously advanced and dismissed as meritless in theHigh Court. The arguments are devoid of merit. Repeating them on appeal13 Denny v Babaee & Ors [2023] EWHC 1490.14 Prattley Enterprises Ltd v Vero Insurance New Zealand Ltd [2016] NZCA 67, [2016] 2 NZLR 750at [132].15 Lepionka & Co Investments Ltd v Gibson Sheat [2022] NZHC 242 at [92].16 Lepionka & Co Investments Ltd v Gibson Sheat [2022] NZHC 1488.17 NR v MR [2014] NZCA 623, (2014) 22 PRNZ 636 at [51] – even here there was a dissent.was an unnecessary step. By taking that course, NR has contributedunnecessarily to the time and expense of the appeal.[30] The words used by the Court of Appeal capture the kind of circumstances thatfall within the rule.[31] If the party had an arguable case the rule is not engaged. In the present case itwas established that the plaintiff had an arguable case — that was the very conclusionreached by the Associate Judge on the summary judgment application. There wereelements that made it apparent that there was a factual dispute that needed to go totrial for a proper determination — for example, a written settlement agreement hadbeen prepared but it was never signed. Moreover, whilst the defendant has prevailed,this was not without some criticism of its conduct in association with the settlement.18The circumstances are well short of a situation where uplifted costs would beappropriate because the party has failed to admit facts, evidence or a legal argumentwithout reasonable justification.Settlement offer[32] A third related basis for the uplift arises from the fact that the defendant madea settlement offer of $150,000 on 9 August 2021. That offer was repeated on25 November 2021 shortly before the hearing of the summary judgment applicationreferred to above. The defendant also refers to an offer that the plaintiff made on5 April 2023 to accept $3.15 million.[33] Under r 14.6(3)(b)(v) there can be an increase of a costs award arising from asettlement offer that was not accepted. The rule provides:14.6 Increased costs and indemnity costs(3) The court may order a party to pay increased costs if—(b) the party opposing costs has contributed unnecessarily to thetime or expense of the proceeding or step in it by—18 Lepionka & Co Investments Ltd v Gibson Sheat, above n 1, at [88].(v) failing, without reasonable justification, to accept anoffer of settlement whether in the form of an offer underrule 14.10 or some other offer to settle or dispose of theproceeding; or[34] In Mainzeal Property and Construction Ltd (in liq) v Yan and Ors I addressedthe approach to this rule in relation to offers made by successful parties and how itdiffered from the rule that applied to offers made which exceed the amount awarded:19Offers made by successful plaintiffs are in a different category from offersmade by unsuccessful defendants that exceed what the plaintiff is entitled to.The latter category is subject to separate rules in rr 14.10 and 14.11 whichcontemplate that a defendant offering more than the plaintiff is entitled to getcosts from the point of the offer. That rationale does not arise in the rejectionof offers made by the plaintiffs. A defendant who defends a proceeding isputting the plaintiff to the cost of it, and normally no increased costs are causedbecause the defendant does not accept an offer to settle for less than is claimed.The principle in r 14.6(3)(b)(v) recognises, however, there will be situationswhere the refusal to settle can demonstrate that the party is acting withoutreasonable justification, and causing unnecessary expense to the claimingparty. It has a similar rationale to the other uplift grounds in r 14.6. A plaintiffmay offer to accept less than it is entitled to try and convince an obduratedefendant not to put the parties to the cost of a trial, and the failure to acceptsuch an offer may justify an uplift. Without seeking to circumscriber 14.6(3)(b)(v) that seems to me what the rule is generally directed to.[35] The same position arises in relation to offers made by successful defendants.They will only relevantly call for a cost uplift if they demonstrate that a party isbehaving unreasonably in the pursuit of the litigation. The fact that a defendant makesan offer to make the plaintiff go away may make business sense for the defendant. Butrejection of such an offer does not mean that the defendant has incurred any more coststhan it would have to incur in defending a proceeding in any event. The position mightbe different if the defendant makes an offer that was generous to the plaintiff where itwas unreasonable for the plaintiff not to accept it to bring the proceedings to an end.But that is not the case here. The plaintiff plainly had an arguable case, and wasentitled to ask the Court to determine it.19 Mainzeal Property and Construction Ltd (in liq) v Yan and Ors, above n 12, at [59]––[60].[36] This approach is reflected in the authorities referred to by the plaintiff. InCraike v Tilsley the Court did not uplift a costs award when the plaintiff was made anoffer of $20,000 on a $1.3 million claim,20 in Sullivan v Welsford Properties Ltd anoffer of $20,000 on a $200,000 claim did not trigger the rule,21 and a similar conclusionwas reached in New Zealand Sports Merchandising Ltd v DSL Logistics Ltd in relationto an offer of less than 20 per cent of the claim.22[37] I accordingly do not accept an uplift is appropriate here. I also note that theclaimed uplift was at a very high level at 75 per cent. In Holdfast NZ v Selleys Pty Ltdthe Court of Appeal explained that the level of any uplift also needed to be inaccordance with the scheme of the rules, and in that case determined the uplift wouldnot be more than 50 per cent. The Court said:23We are not to be taken as saying that an uplift of more than 50% can never bejustified under r 48C(3)(b), as there may be circumstances where the courtconsiders a higher award to be justified. What we are saying is that the aboveapproach is what is logically required by the scheme of the rules, and inparticular by the principles applicable to every determination of costs. Awardsof increased costs must comply with the general principles in r 47, except tothe extent that the specific requirements of r 48C dictate otherwise. Theprinciples in r 47(c) and (d) are clearly modified by r 48C(3)(b), but r 47(e) isnot so modified. Where increased costs (as opposed to indemnity costs) arebeing considered, the focus remains on the notional solicitor or counselappropriate for the category of proceeding, not the actual solicitor or counselinvolved or the costs actually incurred by the party claiming costs.Conclusion[38] For the above reasons many of the defendant's claims are inconsistent with theterms or scheme of the Rules and should not be allowed. To the extent that I have notaddressed matters the claims by the defendant are allowed.[39] The plaintiff sought costs on the preparation of its memorandum addressingcosts, and also a 50 per cent uplift on that award. There are differences in the20 Craike v Tilsley [2012] NZHC 2886 at [6].21 Sullivan v Welsford Properties Ltd [2018] NZHC 129 at [37]–[42].22 New Zealand Sports Merchandising Ltd v DSL Logistics Ltd HC Auckland CIV-2009-404-5548,19 August 2010.23 Holdfast NZ v Selleys Pty Ltd, above n 9, at [48]. The numbering of the rules have since changed.authorities on whether and when costs on costs should be awarded.24 There is noprovision for such an award in sch 3, but costs can be awarded under r 14.5(1)(b) ifthere is reason to do so. That might be so if the costs argument is significant, and/orone party has substantially prevailed on the disputed costs questions.[40] Here there is only a small claim for costs on costs, and I consider that it isappropriate to allow it because the plaintiff has essentially prevailed on almost allissues. I do not award an uplift on those costs, which would largely only havesymbolic significance, notwithstanding my concerns about some of the claims madeby the defendant. But it may become necessary in future cases to begin making moresignificant costs on costs awards in circumstances where the parties require the Courtto determine matters that they should be able to work out for themselves. The presentcase should have been resolved by commencing a calculation on a 2B basis andallowing some steps to be calculated under time band C.[41] The defendant is awarded costs on the basis set out above.Cooke JSolicitors:Bell Gully, Wellington for the PlaintiffHesketh Henry, Auckland for the Defendant24 Compare Body Corporate Administration Ltd v Mehta (No 4) [2013] NZHC 213 at [85] withKhurana Trustee Ltd v Castle backpacker K Road Ltd [2021] NZHC 1315 at [61] and WenzhouHongliang Trading Co Ltd v MSUT Trustee [2020] NZHC 2322 at [16].