KNAUF (NEE HARRINGTON) v MARSHALL [2015] NZHC 2718

KNAUF (NEE HARRINGTON) v MARSHALL [2015] NZHC 2718 [3 November 2015]IN THE HIGH COURT OF NEW ZEALANDDUNEDIN REGISTRYCIV-2014-412-137[2015] NZHC 2718BETWEEN RACHAEL LEE KNAUF(NEE HARRINGTON)PlaintiffAND JUSTIN GLENN MARSHALLDefendantHearing: 3 and 4 June 2015Counsel: BC Nevell for the PlaintiffTW Sage for the DefendantJudgment: 3 November 2015COSTS JUDGMENT OF MANDER J[1] Rachael Knauf was unsuccessful in her claim against Justin Marshall under s 25 of the Companies Act 1993 (the Act). Ms Knauf's application under that sectionof the Act arose from her inability to recover an award made by the Employment Relations Authority (ERA) against the company which had employed her, Thunderbird One Ltd (TOL).[2] I held the misdescription of Ms Knauf's corporate employer in her employment contract did not causally contribute to her lost opportunity to enforce her entitlement to compensation. The error relating to the correct identification of Ms Knauf's employer was corrected shortly after she resigned and she and her representatives proceeded on that basis for a long period thereafter. As a result, anycausal connection between Ms Knauf's ultimate loss and the original error wassevered.[3] Mr Marshall, upon the dismissal of Ms Knauf's application for an orderunder the Act, now seeks costs against Ms Knauf. He claims on two alternative bases. He seeks an award of costs and disbursements calculated on a 2B basis. Alternatively, he seeks indemnity costs payable in relation to costs incurred since a Calderbank offer was made on 10 March 2015. Ms Knauf resists any award of costs.[4] The jurisdiction of this Court and the principles to be applied in respect of an award of costs are well established. Costs are at the discretion of the Court. Ordinarily a party who fails with respect to a proceeding should pay the costs to the party who succeeds.1 Relevant to the present claim for costs is where a party makes awritten settlement offer expressed as "without prejudice save as to costs". A party is entitled to costs on the steps taken in the proceeding after the offer is made if the offer exceeds the amount of a judgment obtained against that party, or would have been more beneficial than the judgment obtained against that party.2[5] In his minute of 21 November 2014, Associate Judge Osborne directed that the proceeding was appropriately classified as a Category 2 matter. If an award of costs is appropriate, then it is to be calculated on a 2B basis, as well as disbursements (such as filing fees, counsel's travel and accommodation).3Mr Marshall's claim for costs[6] Mr Marshall submitted that he successfully defended Ms Knauf's applicationand is therefore entitled to an award of costs. These he has calculated on a 2B basisin the sum of $33,361.08 (including filing fees and counsel's travel andaccommodation). He relies on the fundamental proposition that ordinarily costs follow the event, and that he was plainly the successful party in the litigation.[7] Mr Marshall, however, goes further and suggests that because Ms Knauf rejected a Calderbank offer of settlement, indemnity costs should be awarded against her. It is not disputed that Mr Marshall made an offer of $10,000.00 (GST inclusive) to Ms Knauf by letter of 10 March 2015, in full and final settlement of her claim.1 High Court Rules, rr 14.1 and 14.2(a).2 Rules 14.10 and 14.11(3).3 Knauf v Marshall HC Dunedin CIV-2014-412-137, 21 November 2014 (Minute).This offer was rejected by Ms Knauf. Mr Marshall nominates the sum of $39,756.08 as the appropriate sum for indemnity costs, those being actual costs incurred after the time that the offer had been made, including preparation for the hearing and appearances for the two day fixture held in June.[8] It is submitted that because Ms Knauf was unsuccessful in her application, clearly it would have been more beneficial to her if she had accepted the Calderbank offer. Mr Marshall submitted that an award of costs, taking into account the Calderbank offer, is reasonable and appropriate in the circumstances and notes that the figure constitutes less than a 50 per cent increase from 2B costs for those events subsequent to the offer's rejection.Ms Knauf's response[9] Ms Knauf submitted that costs should lie where they fall. She argued that Mr Marshall's actions and the events leading to the making of her application are not tohis credit and this should be reflected in the approach to the issue of costs. Secondly, that the Calderbank offer should not be considered relevant in the circumstances, and thirdly that her financial and emotional position means that a costs award would have disproportionately severe consequences for her.[10] Ms Knauf emphasised that any award of costs remains subject to the overriding discretion of the Court which may take into account the conduct of the successful defendant if that has led to an "injustice", even where the plaintiff may not be able to claim ultimate success. In that regard, reference was made to some of the events during the personal grievance proceeding. In particular, as I described in my judgment "inaccurate, if not false, representations made on behalf of Mr Marshall in March 2010 that the company [TOL] had sold its assets and was essentially wound up".4[11] Further, that a failure by Mr Marshall and his counsel to appear at an ERAhearing did not reflect well on Mr Marshall, and that "Ms Knauf may have cause forsome grievance at the approach taken by Mr Marshall in seeking the de novo hearing4 Knauf v Marshall [2015] NZHC 1717 at [85].before the Employment Court", a step which was not ultimately prosecuted but which caused further delay in Ms Knauf being able to act on her success before the ERA.5[12] I found that the formal advice received by Ms Knauf regarding the name of her employer broke the chain of causation between the misnaming of the company upon which any s 25 application was dependent, and her being unable to enforce the ERA award against Mr Marshall personally. I, however, also observed that the main reason for the delays caused to Ms Knauf in progressing her claim, including a long period during which she lost legal aid funding, resulted from the incorrect representation made on behalf of Mr Marshall that TOL had sold its assets and was essentially wound up. It is apparent that those representations caused Ms Knauf to embark on an unnecessarily and ultimately vain course which sought to make a different company responsible for her personal grievance.[13] I also observed in my judgment that further delay was caused by an adjournment of an ERA hearing as a result of the failure of Mr Marshall and his lawyer to appear, although I made no findings as to why that had occurred, other than to observe that it did not reflect well on Mr Marshall. There are, however, strong parallels between that event and the fact that Mr Marshall sought a de novo hearing before the Employment Court before ultimately discontinuing that proceeding. As noted in my judgment, the reasons identified for that abandonment would have been readily apparent to Mr Marshall long before he discontinued his appeal in January 2014. However, these events were ultimately inconsequential to the issues I had to decide in terms of whether Mr Marshall was personally liable under s 25 of the Act as a result of the misidentification of Ms Knauf's employer inher employment contract.[14] In relation to the Calderbank offer, Ms Knauf submitted that the offer was of no effect because it was based on an erroneous premise. At the time Ms Knauf rejected the offer in March, she was still labouring under a misapprehension from the previous misrepresentations regarding the financial status of TOL, that it had ceased trading back in 2010, having no assets from which any judgment could be satisfied.5 At [95].The Calderbank letter repeated this misrepresentation referring to both TOL and the successor to the company wrongly named as her employer in the employment contract, as being "both shell companies with no assets" since the time Ms Knauflodged her personal grievance.[15] Specific discovery obtained by Ms Knauf in May revealed that TOL'sfinancial position was not as it had been represented by or on behalf of Mr Marshall in 2010, nor in the Calderbank offer itself, but had in fact retained assets and distributed some $98,000.00 to Mr Marshall at the end of the 2013 financial year.[16] Ms Knauf submitted that the thrust of her case changed significantly, focusing on the disadvantage to Ms Knauf from the delays in the ERA proceeding. She submitted that while it may have been unreasonable to refuse the Calderbank offer in March, by the time the particular discovery had been ordered and the true financial circumstances of TOL had become known, the litigation had changed andMr Marshall's Calderbank offer was no longer relevant. She submitted that in thosecircumstances, the Calderbank offer should have no bearing on the question of costs.[17] Finally, it was submitted that Ms Knauf is concerned that she will be bankrupted should she be ordered to pay costs. She has casual employment as a truck driver which earns her some $400 per week, and has very few savings, having already broken into her KiwiSaver funds due to financial hardship. Ms Knauf'shusband is presently facing charges under the Health and Safety in Employment Act, and potentially faces significant financial penalties. It is submitted that a costs award against her would result in consequences that would have a significant impact on Ms Knauf's ability to move on with her life, and a disproportionally severe impacton her.Decision[18] Ms Knauf's application for relief from an award of costs that would ordinarily follow as a result of unsuccessful litigation is largely based on the misrepresentation made on behalf of Mr Marshall that TOL was without assets and essentially wound up. This she submits caused her to embark on an erroneous course in terms of the entity she sought to take her personal grievance against and led her toissue her proceeding under s 25 of the Act on a different basis to that which she ultimately put before the court.[19] While I recognise the inaccuracy, if not the falsity of the representations made on behalf of Mr Marshall regarding the financial status of TOL, there is something of a disconnect in the submission made on behalf of Ms Knauf that she recalibrated her personal grievance claim based on that representation, and subsequently changed her approach to the s 25 application when the true position of TOL was discovered. There ought not be any connection between the representation,false or otherwise, regarding the employer's financial position in the stance beingtaken by Ms Knauf, both in respect of her personal grievance against the identified employer, or for the purposes of an action under s 25 once she was on notice as to who her employer was.[20] Be that as it may, I accept that the proposition put forward in the Calderbank letter regarding the merits of Mr Marshall's defence to the claim effectively repeatedthe earlier misrepresentation that TOL had throughout the personal grievance proceeding been a shell company with no assets. While this was only one of a number of factors relied upon by Mr Marshall in the Calderbank offer, subsequent particular discovery would reveal this stated position to be incorrect. Discovery ofTOL's financial records, once ordered, revealed that the company did have assets at the time the personal grievance claim was on foot.[21] In my view, because of the significant consequences that can flow from a Calderbank offer in terms of liability for costs on an indemnity basis, there is a strict requirement that the content of the letter containing the offer be premised on accurate and correct information.[22] As I have already observed, the reliance by Mr Marshall in making his offer on the asserted fact that TOL at the time Ms Knauf lodged her personal grievance with the ERA was a shell company, was not correct. The subsequent discovery of thecompany's accounts showed that Mr Marshall must have either known this, or at thevery least, was on notice of what was the true position.[23] Accordingly, in my view, it would not be equitable in the circumstances to allow Mr Marshall to rely upon the Calderbank offer. I decline his application for indemnity costs.[24] Ms Knauf seeks further relief based upon the actions of Mr Marshall relating to his conduct in respect of the personal grievance proceeding, and in particular that which I have already canvassed in terms of representations made on his behalf regarding the financial status of TOL. Ms Knauf's counsel has recognised that theconduct of a party in terms of the issue of costs would ordinarily only be relevant to the issue of how the parties acted during the litigation and not before it commenced.6However, he submits on behalf of Ms Knauf that r 14.7(g) of the High Court Rules provides the Court with a wider discretion to refuse costs in situations where some reason exists which justifies the Court refusing costs or reducing costs despite the principle that the determination of costs should be predictable and expeditious. Reference is made to the extreme case where an award of costs could be made in favour of an unsuccessful party.7[25] I have already remarked that I find it unconvincing that the incorrect information provided regarding the financial status of TOL should have led Ms Knauf to alter her position regarding the nomination of her employer for the purposes of her personal grievance claim. I can, however, appreciate her sense of grievance at the course of events which can be sheeted back to the misrepresentation of TOL's financial position. Ms Knauf, believing the company to be without financial resources and having lost legal aid as a consequence, sought to establish that a different entity was her employer. That strategic decision, which had little prospect of success, delayed the finalisation of her claim. As is apparent from my judgment in respect of her application under the Act, that misguided course was compounded in the actions she took in this court.[26] This Court was only ever seized of the s 25 proceeding. The issues before it were limited to whether any personal liability arose from TOL having not been accurately identified in the written employment agreement. The legal principles to be6 Paper Reclaim Ltd v Aotearoa International Ltd [2006] 3 NZLR 199 (CA).7 Body Corporate 97010 v Auckland City Council (2001) 15 PRNZ 372 at [21].applied were not greatly in issue as between the parties and while the application was no doubt brought in good faith and motivated out of frustration at not being able to recover the award made by the ERA, the risks associated with bringing such a claim must have been known to Ms Knauf.[27] Taking all these matters into account, including Ms Knauf's current personaland financial circumstances, I am, in the exercise of my discretion, prepared to extend some relief to Ms Knauf to reduce the costs award that would otherwise have been made on the basis of the 2B scale. That will be reflected in a 25 per cent reduction in the costs that would otherwise have been recovered. In my view, such a reduction represents the extent to which the misrepresentation made on behalf of Mr Marshall, and the sense of grievance which Ms Knauf justifiably may hold in terms of the prolonged and frustrating employment grievance process, formed part of the narrative in the proceeding before this Court.[28] Finally, Ms Knauf has put in issue item 32 of the list of costs claimed by Mr Marshall, namely the defendant's preparation of a list of issues, authorities, and common bundle. It is also submitted that Ms Knauf created the bundle of documents, and no list of issues was required. It is submitted that one day is sufficient for Mr Marshall's bundle of authorities. In the absence of any contrary view, I am prepared to accept that amendment. I also accept that 2.5 days for Mr Marshall's listof documents is excessive, where only 63 documents were discovered by him, although the number of documents ultimately identified does not necessarily reflect the thoroughness with which that exercise may have been undertaken. Again, in the absence of any counter submission, I allow 1.5 days in the known circumstances of this case.Conclusion[29] It follows therefore that Mr Marshall is entitled to an award of costs and disbursements on a 2B basis in the sum of $29,381.08 less 25 per cent. Based on thesubmitted schedule of costs and disbursements, that amounts to $22,035.81. Accordingly, there will be an order that Ms Knauf pay Mr Marshall costs and disbursements in the sum of $22,035.81.Solicitors:Duncan Cotterill, ChristchurchBen Nevell Lawer, Dunedin