THE BABY HAMMOCK COMPANY LIMITED V A J PARK LAW HC AK CIV-2008-404-003581

THE BABY HAMMOCK COMPANY LIMITED V A J PARK LAW HC AK CIV-2008-404-003581 [17 May 2012]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2008-404-003581[2012] NZHC 1061BETWEEN THE BABY HAMMOCK COMPANYLIMITEDPlaintiffAND A J PARK LAWDefendantHearing: On the papersCounsel: CR Pidgeon QC and RS Pidgeon for PlaintiffBB Brown QC, DH McLellan and MC Atkinson for DefendantJudgment: 17 May 2012JUDGMENT OF RODNEY HANSEN JAs to costsThis judgment was delivered by me on 7 May 2012 at 3.00 p.m .,pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate: .Solicitors: Regent Law, P O Box 204, Whangarei 0140 for Plaintiff (Mr L MacBrayne)Jones Fee, P O Box 1801, Shortland Street, Auckland 1140 for Defendant (Ms P Fee)Introduction[1] The plaintiff claimed the defendant, a firm of patent attorneys, gave negligent advice in relation to a baby hammock it developed and, in acting for another New Zealand manufacturer of baby hammocks, breached fiduciary duties owed to the plaintiff. In my judgment delivered on 13 July 2011, I rejected the plaintiff's claimfor negligence and breach of fiduciary duty. I found that the defendant was entitled to costs. As the parties have been unable to agree, I am now required to fix costs.[2] The differences between the parties concern the defendant's claim that costsfor preparation and trial should be on a category 3 band C basis and there should be costs awarded for a second junior counsel. The plaintiff also resists the defendant'sapplication for increased costs.The applicable scale[3] The defendant seeks costs on a 2B basis for pre-trial steps and on a 3C basis for trial preparation and attendance at trial. Higher costs for trial preparation and trial are sought to recognise the complexity of the preparatory and trial stages of the proceeding which justified instructing senior counsel. The defendant also maintains that two junior counsel were warranted. The defendant points to the quantum of damages claimed – compensatory damages in excess of $53m and exemplary damages of $1m; the complexity of the case which necessitated cross-examination of expert witnesses on US patent law, accounting and legal ethical and fiduciary obligations; and because preparation entailed an intensive and extensive review of a substantial number of documents under extreme time pressure. Some 22,000 documents were discovered by the plaintiff only a few months prior to trial.[4] The categorisation of proceedings according to the level of skill required is governed by r 14.3. Subparagraph (2) provides:The court may at any time determine in advance a proceeding's category,which applies to all subsequent determinations of costs in the proceeding, unless there are special reasons for the contrary.[5] The intention is that proceedings should be categorised at an early stage with thought and care,1 and that the costs categorisation is not departed from without good reason. That is because, as Fisher J explained in Capital Property Ltd v Cook:2It can be expected that in choosing how to conduct the proceedings the parties will have been influenced by the advance indication as to the level at which costs would ultimately be addressed.Where application for reallocation is made after a lengthy trial and after judgment, the Court will scrutinise closely the special reasons relied upon for a retrospective reclassification.3[6] It appears that the proceeding was never categorised for costs purposes. However, in his judgment of 24 March 2010 dealing with applications for production of documents and for non-party discovery, in holding that the defendant and the non- party were entitled to an award of costs, Lang J said:4My initial impression is that costs on a category 2B basis would be appropriate. If any counsel wishes to advocate a different approach, he should file a memorandum to that effect within 7 days. I will then given further directions to deal with the issue by the filing of further memoranda.Neither party sought to take the matter further.[7] I do not consider that the 2B categorisation made at that stage presents any obstacle to my categorising the proceeding as category 3 for the purpose of preparation and trial. The issue was not then the subject of argument and, in the context in which the determination was made, the categorisation was appropriate. It is not surprising that neither party sought to be heard. It may be that, had counsel addressed themselves to the skill categorisation of the proceeding, category 2 may not have been regarded as appropriate. Whether or not that is the case, as the proceeding moved towards trial, it grew in complexity and in a manner that could not have been foreseen. This led to the defendant engaging senior counsel towards the end of 2010. While it was, in a sense, an orthodox claim for negligence and1 McGechan on Procedure (online looseleaf ed, Brookers) at [HR14.3.01].2 Capital Property Ltd v Cook HC Auckland CP257-IM-02, 3 February 2003 at [12].3 Tindall v Far North District Council HC Auckland CIV-2003-488-135, 25 May 2007 at [10].4 The Baby Hammock Co Ltd v AJ Park Law HC Auckland CIV-2008-404-3581, 24 March 2010at [41].breach of fiduciary duty by a professional adviser, the claim had elements which required counsel with special skill and experience.[8] The allegation of breach of fiduciary duty was serious and potentially highly damaging to the defendant. The damages claimed were unusually high. The way in which the claim was prosecuted by the plaintiff required expert evidence on American as well as New Zealand patent law and introduced a claim for compensatory damages, supported by an American expert witness, based on accounting concepts not commonly encountered in the New Zealand jurisdiction. I am satisfied that it is appropriate to classify the proceeding as category 3 for the purpose of preparation and trial.[9] The earlier categorisation of time band B applied only to the interlocutory step then undertaken. It is not binding for the purpose of preparation. As was said by Winkelmann J in Tindall v Far North District Council5 and again in Great Barrier Airlines Freight Operations Ltd v Great Barrier Air Ltd,6 time allocations for the different steps in a proceeding should be fixed by reference to the size of the task involved.[10] I am satisfied that preparation for trial involved a comparatively large amount of time and should properly come under band C. I have particular regard to the large volume of documents discovered by the plaintiff only a short time before trial which required intensive and extensive review under extreme time pressure. There were further potentially important and controversial emails provided only two days before the commencement of trial,7 which would have added to the pressure on the defendant. In addition, the defendant was ultimately required to take responsibility for compiling the common bundle of documents.[11] These considerations also lead me to the view that it is appropriate that I certify for a second and subsequent counsel.5 Tindall v Far North District Council at [13].6 Great Barrier Airlines Freight Operations Ltd v Great Barrier Air Ltd HC Auckland CIV-2007-404-5710, 3 July 2008 at [14].7 Discussed at [41] – [47] of my judgment.Increased costs[12] The defendant seeks increased costs by way of a 50 per cent uplift on both 2B and 3C schedule costs on the grounds that:(a) The nature of the proceeding was such that the time required by the defendant substantially exceeded the time allocated under band C (r 14.6(3)(a));(b) The plaintiff contributed unnecessarily to the time and expense of the proceeding by:(i) Taking or pursuing an unnecessary step or an argument that lacked merit ( r 14.6(3)(b)(ii));(ii) Failing, without reasonable justification, to comply with an order for discovery (r 14.6(3)(b)(iv)); and(iii) Failing, without reasonable justification, to accept an offer of settlement (r 14.6(3)(b)(v));(c) Adverse findings made in relation to the credibility of the plaintiff'switnesses justifies an order for increased costs despite the principle that the determination of costs should be predictable and expeditious (r 14.6(3)(d)).[13] I am not persuaded that increased costs are justified on the first and last of the grounds relied on by the defendant. I have not been provided with sufficient data to enable me to conclude that the time required by the defendant for preparation would substantially exceed the time allocated under band C. Although I found that the emails were not authentic and, in other respects, made adverse findings as to thecredibility of some of the plaintiff's witnesses, in the context of the claim overall, I do not accept that those findings are of sufficient moment and gravity to warrant an order for increased costs.[14] I am, however, satisfied that the plaintiff contributed unnecessarily to the time and expense of the proceeding. The plaintiff failed to meet its obligations with regard to preparation of the common bundle, the provision of signed briefs and discovery of documents. For the most part, these defaults are reflected in the band C categorisation for preparation and trial. The factor which made by far the greatest unnecessary contribution to the time and expense of the proceeding was the plaintiff's failure, without reasonable justification, to accept an offer of settlement.[15] On 18 August 2010, the defendant's solicitors wrote a Calderbank letter in which it offered to pay $75,000 in full and final settlement. The letter commented in detail on the plaintiff's claim and the reasons why the defendant contended it would fail. A second Calderbank letter offering $350,000 was sent on 22 December 2010.[16] The plaintiff's claim failed at every turn. I found the defendant was notnegligent because it was not in a position at the relevant time to advise the plaintiff in relation to the baby hammock components in issue. I found that even if the defendant had been negligent, its negligence could not have led to loss. I found that there was no breach of fiduciary duty and, again, even if there had been, the plaintiff would not have suffered loss as a result of the breach. Finally, I found the bases of the claims for both compensatory and exemplary damages to be misconceived.[17] There were not reasonable grounds for the plaintiff to reject the offers. The fact that the sums offered did not cover the plaintiff's costs at the time they were made is irrelevant. When the offers were made, the plaintiff was well placed to assess the strengths and weaknesses of its case. The difficulties it faced were fairly laid out in the letter of 18 August 2010. The plaintiff could and should have accepted one or other of the offers and so avoided the greater part of the costs incurred by the defendant.[18] The plaintiff has sought an increase of 50 per cent on both the 2B costs for pre-trial steps and the 3C costs for trial preparation and attendance at trial. However, I consider the increase should be confined to 3C costs for trial preparation and attendance at trial. Most of the 2B costs relate to steps which preceded the actions principally relied on to justify an award of increased costs.Disbursements[19] The defendant seeks reimbursement of filing fees, photocopying costs and theexpert witnesses' fees of the solicitor and accountant called as expert witnesses. I approve the filing fees and photocopying costs claimed. I have not been provided with evidence of the costs of the expert witnesses. They are approved subject to verification by the Registrar.Result[20] The defendant is entitled to costs for interlocutory steps on a category 2 band B basis and for preparation and trial on a category 3 band C basis. I certify for second and subsequent counsel. Scale costs are increased by 50 per cent.[21] The plaintiff must pay the defendant's disbursements of $693.33 for filingfees, photocopying costs of $5,917 and, subject to verification by the Registrar of the amounts claimed, $46,933.62 for the fee of Mr Hawkins and $74,648.08 for the fee of Mr Hagen.