NORTHLAKE INVESTMENTS LIMITED v WANAKA MEDICAL CENTRE LIMITED [2020] NZHC 154

NORTHLAKE INVESTMENTS LIMITED v WANAKA MEDICAL CENTRE LIMITED [2020] NZHC 154 [13February 2020]IN THE HIGH COURT OF NEW ZEALANDINVERCARGILL REGISTRYI TE KŌTI MATUA O AOTEAROAWAIHŌPAI ROHECIV-2018-059-000088[2020] NZHC 154BETWEEN NORTHLAKE INVESTMENTS LIMITEDPlaintiffAND WANAKA MEDICAL CENTRE LIMITEDDefendantAppearances: J W A Johnson for PlaintiffM H L Morrison and J A Zwi for DefendantJudgment: 13 February 2020(Determined on the papers)JUDGMENT OF OSBORNE J[Costs][1] I ordered, having entered judgment for the defendant, that the plaintiff pay thedefendant its costs and disbursements, with the quantum reserved for submission.1[2] The parties' positions on costs are somewhat apart:(a) The defendant seeks indemnity costs of $300,000 and disbursements of$11,739.58 (both figures calculated exclusive of GST) or, alternatively,increased costs of $142,733.94 (based on an uplift of 75 per cent abovea scale award) with the same disbursements.(b) The plaintiff contends that neither indemnity or increased costs wouldbe appropriate and that the defendant is entitled to no more than a scale1 Northlake Investments Ltd v Wanaka Medical Centre Ltd [2019] NZHC 3443 (Judgment).award of $64,224. The plaintiff makes no submissions in relation tothe defendant's disbursements.Scale costs[3] I will first consider the scale calculation.[4] The Court categorised the proceeding as a category 2 proceeding.2[5] Counsel each provided a schedule of scale costs, with Mr Johnson taking issuewith a number of items claimed by counsel for the defendant.[6] The defendant submits that under r 14.5 (determination of reasonable time)band B is appropriate. The exception is the inspection of the plaintiff's documents,for which band C is sought. On the basis that the plaintiff's discovery numbered some3,000 documents, I determine that band B is appropriate for the inspection ofdocuments in this case.[7] In relation to the items of costs as a whole, I would fix them at $68,349.50, asitemised in Schedule A. The following explanations of items in Schedule A resolvedifferences between the parties:(a) Numbers 6 and 8 – Mr Johnson submits that the defendant should notbe allowed any recovery for joint memoranda prepared by counsel forthe plaintiff. The correct approach, recognising that the defendant'scounsel had to spend comparatively little time on the jointmemorandum, is to determine that each of those items is covered byband A.(b) Number 10 – counsel for the defendant sought particular discovery fora single document (a heads of agreement entered into by the plaintiff).Counsel did so by a seven-page memorandum attaching relevantcorrespondence and documents. The request for particular discovery2 High Court Rules 2016, r 14.3(1).was to be opposed. Counsel for the defendant, by reference to item 24(preparation of written submissions), claim 1.5 days. Mr Johnsonsubmits that the attendance is more appropriately treated as amemorandum under item 11 (0.4 days). The informal application fordiscovery (by memorandum) is more appropriately treated by ananalogy to item 22 (filing an interlocutory application) which Idetermine on a band B basis.(c) Number 12 – the defendant sought a certificate for second counsel atthe telephone conference at which the Associate Judge heardsubmissions on the particular discovery request. I do not certify forsecond counsel.(d) Number 14 – this is the item for inspection which I have earlierconsidered.(e) Number 15 – item 33 (for preparation of briefs, lists of issues,authorities and agreeing common bundle) allocates one day for each ofthe first five hearing days (and 0.75 days for the following five hearingdays). The defendant therefore correctly calculated 5.75 days based onthe six-day hearing. I reject Mr Johnson's submission that, because thedefendant called only four of its seven briefed witnesses, the allocationshould be reduced. Item 33 makes a uniform assumption related to theactual hearing time (rather than what the parties may have anticipated).[8] Accordingly, if costs were to be awarded in accordance with the scale, the sumI would fix would be $68,349.50.Indemnity costs or increased costs?The plaintiff's conduct of its claim – defendant's submissions[9] Counsel for the defendant submit that the plaintiff pursued poorly pleaded andunmeritorious claims and failed to abandon the hopeless parts of its case before trial.It is submitted that the defendant thereby incurred the (unnecessary) expense ofpreparing at least portions of its defence.[10] Counsel for the defendant provided an analysis of the outcome on each of thefour causes of action, which I summarise:(a) First cause of action – breach of contract. This cause of action waseffectively abandoned by plaintiff's counsel at the start of the trial buthad been the subject of further particulars provided only a month beforetrial.(b) Second cause of action – breach of contract. The primary claim forrelief (damages based on loss of a chance) was abandoned in the courseof the plaintiff's closing on the final day of trial, leaving the defendant'spreparation of submissions and authorities on that topic no longerrelevant. Counsel for the defendant submitted that the plaintiff'ssecond cause of action could never have succeeded by reason of thevery words used by the parties in their heads of agreement, which asthe Court found, made the defendant the sole decision-maker of whatwas workable for and acceptable to the defendant.3(c) Third cause of action – estoppel. As with the second cause of action,the plaintiff abandoned two of the three pleaded claims for relief(specific performance and expectation damages) on the final day oftrial. Counsel submit that the estoppel claim was in any event doomedin the absence of evidence from Chris Meehan, who had been the"directing mind and will" of the plaintiff.4 Counsel note the Court'sconclusion that Northlake's pleading and estoppel therefore failed atthe most fundamental level.5(d) Fourth cause of action – quantum meruit. Counsel note that, as in thecase of the estoppel claim, the plaintiff's quantum meruit claim failed3 Judgment, above n 1, at [173]. See also [175] – [177].4 Judgment, above n 1, at [86].5 Judgment, above n 1, at [196].in the absence of any reasonable expectation of payment on the part ofthe plaintiff.[11] Mr Morrison submits that collectively the plaintiff's claims lacked merit.[12] Mr Morrison submits further that it is open to the Court to conclude that theplaintiff pursued the proceeding for the improper purpose of pressuring the defendantand of sending a message (to the market) that it was adopting an uncompromisingapproach to its Wanaka development. Mr Morrison refers to Mr Meehan's directionto his staff to "have a crack at these people". Mr Morrison submits that the inferenceof improper pressure is supported by the Court's conclusion that Mr Meehan hadconducted his negotiation as part of a deliberate strategy to "try to procure the leaseterms he wanted".6[13] Mr Morrison submits that this is an appropriate case for indemnity costs. Herecognises that the mere abandonment of a cause of action or head of damages is notin itself a cause for increased or indemnity costs.7 He nevertheless submits that therewas a total lack of merit in aspects of the plaintiff's claim (evidenced by theabandonment of the first cause of action and of relief claimed in the second and thirdcauses of action) and that those matters were improperly and/or unnecessarily pursuedin the first place, only to be abandoned at trial (after the defendant's costs of defencein that regard had been incurred).[14] Mr Morrison submits in the alternative that increased costs might appropriatelybe awarded under r 14.6(3)(b)(ii) upon the basis that the plaintiff had taken and hadpursued arguments that lacked merit. Mr Morrison seeks an uplift of 75 per cent fromscale.The plaintiff's conduct of its claim – plaintiff's submissions[15] Mr Johnson submits that the defendant is entitled to no more than scale costsand disbursements.6 Judgment, above n 1, at [100] – [107].7 Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [79].[16] Mr Johnson rejects the proposition that r 14.6(3)(b)(ii) is applicable. Hesubmits in particular that the plaintiff's claims were far from meritless. He invokesthe Court of Appeal's observation in New Zealand Carbon Farming Ltd v Mighty RiverPower Ltd that "not every losing argument justifies an award of increased costs".8[17] Mr Johnson refers to the Court's careful analysis of the plaintiff's claims,occupying 270 paragraphs. He submits that this indicates that the plaintiff's claimscould not be lightly or briefly dismissed.[18] He submits that the withdrawal of the first cause of action and of certain claimsfor relief during the trial does not mean that that cause of action or those claims wereunnecessary or lacked merit. He adopts the observation of the Court of Appeal inBradbury v Westpac Banking Corporation that abandonment of the cause of actionitself is not a pointer to increased or indemnity costs.9 Mr Johnson submits that thewithdrawal of the first cause of action and other claims for relief was a responsiblestep after evidence was heard. He submits that it is not unusual, where several causesof action are properly pleaded in relation to the same factual matrix, that evidence inthe course of the trial indicates that certain causes of action are ultimately more suitedthan others.[19] Mr Johnson submits that, because the same factual matrix underlays all of theplaintiff's claims, all the evidence in preparation remained relevant for the remainingclaims.[20] Mr Johnson submits that Mr Meehan's absence at trial (not giving evidence)did not mean that the plaintiff's claims were pursued unnecessarily or lacked merit.He observes that Mr Meehan's absence was explained by counsel during the trial.[21] Mr Johnson then turns to the settlement offer made by the defendant, whichthe plaintiff rejected. He observes that the reasonableness of a party's rejection of a8 New Zealand Carbon Farming Ltd v Mighty River Power Ltd [2016] NZCA 624, (2016) 23 PRNZ789, at [40].9 Bradbury v Westpac Banking Corporation, above n 7.settlement offer is to be assessed in the circumstances at the time of the rejection.10 Inother words, whether the parties were in a position to assess the merits when the offerwas received.11[22] Mr Johnson submits that it was not unreasonable for the plaintiff to reject theoffer as bearing no relation to the damages claimed and being at a level that wouldnever be accepted unless the plaintiff were prepared to give up altogether, citingLoktronic Industries Ltd v Diver.12 Mr Johnson notes that the defendant's offer of$30,000 was not sufficient to cover the plaintiff's costs incurred to that point.Mr Johnson submits that the plaintiff was justified in "not giving up". He refers to theplaintiff's correspondence, in which several counter-offers for settlement were made,and in which the solicitors explored what they contended to be the merits of theplaintiff's claim.[23] In the event there is to be an uplift on scale costs, Mr Johnson submits thatCourt of Appeal authority is in favour of any uplift being generally limited to 50 percent of the scale costs, with anything greater rarely justified. Mr Johnson refers toBroadspectrum (New Zealand) Ltd v Nathan and NR v MR as two instances where theCourt of Appeal awarded an uplift of 50 per cent in situations where the appeal wasviewed as either meritless or unlikely to succeed.13[24] Mr Johnson recognises that there are rare examples where an uplift of 75 percent has been awarded.14 Mr Johnson identifies the impugned conduct in those casesas involving maintenance of a caveat (on probate) for a collateral purpose anddeliberate, contemptuous conduct in breach of interim orders. Mr Johnson submitsthat the plaintiff's pursuit of this litigation cannot be compared to such conduct.[25] Mr Johnson then turns to the application for indemnity costs.10 New Zealand Sports Merchandising Ltd v DSL Logistics Ltd HC Auckland CIV-2009-404-5548,19 August 2010 at [36].11 Weaver v HML Nominees Ltd [2016] NZHC 473 at [30].12 Loktronic Industries Ltd v Diver [2014] NZHC 1189 at [14].13 Broadspectrum (New Zealand) Ltd v Nathan [2017] NZCA 434, [2017] ERNZ 733 at [58]; NR vMR [2014] NZCA 623, (2014) 22 PRNZ 636 at [50] – [53].14 Citing Mueller v Hendren (2009) 19 PRNZ 432 (HC) at [29] and Huakiwi Copenhagen Lot 4Orchard Ltd v Te Moana [2019] NZHC 1582 at [25].[26] He notes the very high threshold under r 14.6(4)(a). He refers to the Court ofAppeal's recognition that the concept of "unnecessarily" pursuing a proceeding, asadopted in the rule, takes its meaning and flavour from the preceding words"vexatiously, frivolously, improperly".15 He distinguishes that flavour of"unnecessarily" from that found in "contributed unnecessarily to the time or expenseof the proceeding or step" which may justify an award of increased costs underr 14.6(3).[27] Mr Johnson refers to the Court of Appeal's description of indemnity costsbeing "exceptional and require exceptionally bad behaviour. That is why to justify anorder for such costs the misconduct must be 'flagrant'".16[28] Mr Johnson submits that the gravamen of the defendant's claim for indemnitycosts is the same as that for increased costs, namely that the plaintiff's claims wereunmeritorious. He submits that the plaintiff's claims could not be described as"hopeless" and that the plaintiff's pursuit of its claims fall short of being"exceptionally bad behaviour" or "flagrant misconduct".[29] Mr Johnson invites the Court to refuse to draw any inference that the plaintiffbrought this proceeding for an improper purpose. He submits that the plaintiff'spursuit of the proceeding is to be viewed in the context that the defendant caused theplaintiff to incur costs.[30] Mr Johnson submits that in the context of indemnity costs it is irrelevant thatthe defendant made a settlement offer. Mr Johnson refers to the express reference tosettlement offers under r 14.6(3)(b)(v), which applies to an application for increasedcosts, not indemnity costs.15 Bradbury v Westpac Banking Corporation, above n 7, at [26].16 Tyrion Holdings Ltd v Infrastructure NZ Ltd [2019] NZCA 308 at [74], citing Bradbury v WestpacBanking Corporation, above n 7, at [28] and Prebble v Awatere Huata (No 2) [2005] NZSC 18,[2005] 2 NZLR 467 at [6].DiscussionCharacterisation of the plaintiff's conduct in the proceeding[31] As the plaintiff's conduct is relevant both in relation to indemnity costs andincreased costs, I will first, with the benefit of having been the trial Judge, characterisethe plaintiff's conduct.[32] I do not view the plaintiff as having behaved either badly or very unreasonablyin relation to this proceeding.[33] While there were some claims for relief which were abandoned in the courseof the trial, there remained a fundamental claim extending across all four causes ofaction (relating to the expenses which the plaintiff had incurred in advancing itsmedical centre proposal). To pursue this claim did not constitute "distinctly badbehaviour".17[34] The most appropriate description of the plaintiff's claim is that it lacked merit.It does not negate that description that the Court's judgment ran to 270 paragraphs.The factual history underlying the plaintiff's claim occupied more than half of thejudgment. The first three causes of action failed – as explained in brief reasoning –for basic inability on the part of the plaintiff to establish elements of the causes ofaction. The fourth cause of action (quantum meruit) engaged the Court in the majorityof its reasoning but that was primarily occasioned by the Court's need to state the law.The quantum meruit claim was equally doomed to fail.[35] It is relevant in this costs context that Mr Meehan did not give evidence. Theabsence of evidence from Mr Meehan compounded the weaknesses in the plaintiff'scase because it left the plaintiff without relevant evidence as to its expectations, acritical issue in relation to both the estoppel and the quantum meruit causes of action.[36] Once the plaintiff knew that it was not calling Mr Meehan at the trial, thearguments on all four causes of action were doomed to fail or, in terms of r17 Bradbury v Westpac Banking Corporation, above n 7, at [26].14.6(3)(b)(ii), "lack[ed] merit". But the plaintiff continued, in going to trial, to pursuethose arguments.[37] I acknowledge that Mr Johnson proffered an explanation from the Bar as to MrMeehan's not giving evidence, which lay in his having to attend to other urgentbusiness matters. A witness explained his understanding that there was a settlementin relation to another enterprise which had urgently required Mr Meehan's attention.The Court was never provided with an adequate explanation as to why, even if MrMeehan's presence was to be required elsewhere, arrangements could not have beensought and put in place for his appearance by an audio-visual link or otherwise.[38] I find the probable inference is that it was considered by Mr Meehan (oranother) that his evidence if given would not materially assist the plaintiff on its causesof action.[39] This inference is an additional (although not strictly necessary) reinforcementof my primary conclusion that the plaintiff's pursuit of its various arguments lackedmerit. It indicates that the plaintiff, properly addressing the elements it would berequired to establish on its various causes of action, could have appreciated well beforetrial the lack of merit in those arguments.Outcome – indemnity costs[40] This is not a case which justifies an award of indemnity costs. The plaintiff'sconduct in pursuing its claim does not fall within the range of conduct set out in r14.6(4), as further illustrated in the leading authorities including Bradbury v WestpacBanking Corporation.18Outcome – increased costs[41] This is a case which justifies an award of increased costs on the basis that thefull range of arguments deployed by the plaintiff lacked merit (in terms of r14.6(3)(b)(ii)).18 Bradbury v Westpac Banking Corporation, above n 7.[42] That is sufficient to justify an award of increased costs. I would not have foundincreased costs to be justifiable solely by reason of the plaintiff's rejection of thedefendant's $30,000 offer. The letter of offer has some relevance, however, in relationto setting the level of uplift, because the defendant's solicitors' letter of offer succinctlyidentified the difficulties in the plaintiff's claim in a way which foreshadowed theCourt's ultimate rejection of each of the causes of action.[43] I find an uplift of 50 per cent above scale to be appropriate. This is in line withthe Court of Appeal judgments cited by Mr Johnson – Broadspectrum (New Zealand)Ltd v Nathan and NR v MR – in which costs were awarded with such an uplift inrelation to unmeritorious proceedings.19[44] This is not a case which has the aggravating features - such as the defendant'scollateral purpose in Mueller v Hendren – which have been found (in rare cases) tojustify an uplift greater than 50 per cent.20[45] As identified at [8] above, the scale costs award would have been $68,349.50.[46] With an uplift of 50 per cent, I find the appropriate award of costs to be$102,524.25.Costs in relation to cost submissions[47] Pursuant to leave being reserved, counsel filed succinct submissions in relationto costs which have then been determined on the papers.[48] As the defendant has not been wholly successful in its arguments insubmissions in relation to costs, there will be no additional award of costs in relationto the cost submissions.21Orders[49] I order:19 Broadspectrum (New Zealand) Ltd v Nathan, above n 13; NR v MR, above n 13.20 Mueller v Hendren, above n 14.21 Paper Reclaim Ltd v Aotearoa International Ltd [2007] NZCA 544, (2007) 18 PRNZ 743 at [62].(a) The costs and disbursements as awarded in the judgment dated 19December 2019 are fixed as follows:(i) costs in the sum of $102,524.25; and(ii) disbursements in the sum of $11,739.58.Osborne JSolicitors:Wynn Williams, AucklandMorrison Mallett, AucklandThis judgment was delivered by me on 13 February 2020 at 11.30 am pursuant to Rule 11.5of the High Court RulesRegistrar/Deputy RegistrarDate:SCHEDULE ANumber HCR item Band Days $ per day $ total1 2 B 2 2,230 4,460.002 22 B 0.6 2,230 1,338.003 11 B 0.4 2,230 892.004 11 B 0.4 2,230 892.005 10 B 0.4 2,230 892.006 11 A 0.2 2,230 446.007 11 B 0.4 2,230 892.008 11 A 0.2 2,230 446.009 15 B 0.5 2,230 1,115.0010 24 B 0.6 2,230 1,338.0011 26 NA 0.25 2,230 557.5012 27 NA 0 2,230 013 20 B 2.5 2,230 5,575.0014 21 B 1.5 2,230 3,345.0015 33 NA 5.75 2,230 12,822.5016 33B NA 5.75 2,230 12,822.5017 34 NA 6 2,230 13,380.0018 35 NA 3 2,230 6,690.0019 29 B 0.2 2,230 446.00TOTAL 68,349.50