IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE	
CIV-2017-404-2814
[2019] NZHC 2006	

UNDER	the Declaratory Judgments Act 1908	
BETWEEN	NEW ZEALAND ELECTRICAL INSTITUTE (INCORPORATED)
Plaintiff	
AND	WESTPAC NEW ZEALAND LIMITED
First Defendant	
	ALAN CUTHBERT
Second Defendant	
	JOHN HUTTON
Third Defendant	
	ROGER WHITTAKER
Fourth Defendant	

Hearing:	On the papers	
Counsel:	C T Patterson for Plaintiff
L K McKeown for Second to Fourth Defendants	
Judgment:	15 August 2019	

JUDGMENT OF COOKE J
(Costs)

[1]	By judgment dated 19 June 2019 I dismissed the plaintiff’s claim for declarations that a particular Westpac Bank account was the property of the plaintiff, and that the plaintiff was entitled to obtain control of the account.1 The second to fourth defendants have sought costs, including a claim for indemnity or increased costs

1	New Zealand Electrical Institute Inc v Westpac New Zealand Limited [2019] NZHC 1407, [2019] NZAR 1240.
NEW ZEALAND ELECTRICAL INSTITUTE (INC) v WESTPAC NEW ZEALAND LTD [2019] NZHC 2006
[15 August 2019]

from a particular date from which it made settlement offers on a without prejudice except as to costs basis. The plaintiff accepts the calculation of scale costs to that date but opposes the award of indemnity or increased costs.

Relevant principles

[2]	Rule 14.6 of the High Court Rules 2016 provides:

(3)      The court may order a party to pay increased costs if—

…

(b)	the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—

…

(v)	failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule
14.10 or some other offer to settle or dispose of the proceeding; or

…

[3]	In the list of grounds for an award of indemnity costs under r 14.6(4) there is no equivalent provision. It is possible, however, that where a party has failed to accept an offer of settlement, r 14.6(4)(a) or (f) could apply on the basis that the principles under those provisions are influenced by an unjustified rejection of settlement. If so, the approach set out by the Court of Appeal in Holdfast NZ Ltd v Selleys Pty Ltd would apply.2

[4]	In Worldwide NZ LLC v QPAM Ltd the Court of Appeal set aside a High Court order of increased costs.3 In doing so Chambers J said for the Court:

[28] … In virtually every case, lawyers for each party will set out in letters their contentions as to the legal position. On the law of averages, half the time the position advocated in such letters will accord roughly with what a court ultimately decides. But that does not mean that a party who has sent such a letter is entitled to increased costs from the date of its prescient letter. That would drive a coach and four through the standard costs regime.

2	Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA).
3	Worldwide NZ LLC v QPAM Ltd [2009] NZCA 226.

[5]	The High Court has followed that approach in other decisions.4 In Worldwide the Court of Appeal also accepted a submission there was no logical or principled basis for the Judge to treble the 2B recovery rate.5 It indicated that such a measure was contrary to the decision of the Court in Holdfast NZ Ltd.6

[6]	There is an awkwardness in the way r 14.6(3)(b) is expressed, as it refers to the rejection of settlement offers contributing unnecessarily to the time and expense of the proceeding. In Mainzeal Property and Construction Ltd (in Liq) v Yan (No 2) I addressed the overall approach under the rule in the following way:7
[59]	Offers made by successful plaintiffs are in a different category from offers made 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 which contemplate that a defendant offering more than the plaintiff is entitled to get costs from the point of the offer. That rationale does not arise in the rejection of offers made by the plaintiffs. A defendant who defends a proceeding is putting the plaintiff to the cost of it, and normally no increased costs are caused because the defendant does not accept an offer to settle for less than is claimed.

[60]	The principle in r 14.6(3)(b)(v) recognises, however, there will be situations where the refusal to settle can demonstrate that the party is acting without reasonable justification, and causing unnecessary expense to the claiming party. It has a similar rationale to the other uplift grounds in r 14.6. A plaintiff may offer to accept less than it is entitled to try and convince an obdurate defendant not to put the parties to the cost of a trial, and the failure to accept such an offer may justify an uplift. Without seeking to circumscribe r 14.6(3)(b)(v) that seems to me what the rule is generally directed to.

[7]	The observations apply equally to offers made by successful defendants.

The present case

[8]	In the present case there is no dispute that the second to fourth defendants should be awarded costs on a 2B basis through to 4 June 2018, involving an award of costs of $4,570. However, the second to fourth defendants seek indemnity or increased costs from 5 June 2018 to 5 June 2019 on the basis that:

4	Craike v Tilsley [2012] NZHC 2886; and Sullivan v Wellsford Properties Ltd [2018] NZHC 129 at [40]–[43].
5	Worldwide NZ LLC v QPAM Ltd, above n 3, at [36].
6	At [36].
7	Mainzeal Property and Construction Ltd (in Liq) v Yan (No 2) [2019] NZHC 1637.

(a)	By letter dated 5 June 2018 the second to fourth defendants offered to settle the proceedings by a payment to the plaintiff in the amount of
$5,000;

(b)	That the plaintiff’s claims were ill-conceived from the outset, and involved a series of vague and unsubstantiated allegations;

(c)	That the plaintiffs put improper pressure on the defendant by making allegations that they would pursue further claims against them in relation to amounts removed from the account, including allegations that the second to fourth defendants had breached freezing orders made by the Court in relation to those funds when no such orders had been made.

[9]	The plaintiff says the basis for awarding indemnity or increased costs as set out in Worldwide NZ LLC and Holdfast is not satisfied. It says that there is no basis to conclude that any increased time or costs of the proceedings for the second to fourth defendants was caused by a failure to accept the offers, that the offers were very small in amount, and that the reference to breach of the freezing orders was a slip and was referring to Westpac Bank freezing the account. It also raises issues about the calculation of indemnity costs, including that the costs of an unsuccessful interlocutory application and private settlement discussions should be excluded.

Analysis

[10]	I accept that the plaintiff had very little grounds for commencing the proceeding. Ultimately its claims failed for numerous interrelated reasons. But a defendant is not entitled to increased costs simply because the plaintiff pursues an unmeritorious claim. Equally the fact that a defendant has made an offer in those circumstances that has been rejected does not in itself justify increased or indemnity costs. There has to be very good reason before a Court would take that step.

[11]	I do not accept Mr Patterson’s submission that an applicant must demonstrate some additional time or legal expenditure arising from a failure to accept the offer, however. It seems to me that the inclusion of the unreasonable rejection of settlement

offers within r 14.6(3)(b) is directed to a situation where the costs of the proceeding overall have become unreasonably incurred because the plaintiff persists notwithstanding the terms of the settlement offer. As I explained in Mainzeal the rationale of the rule needs to be understood on that basis.

[12]	The key point here is the reference in the rule to a lack of reasonable justification for not settling. The pursuit of the proceedings by themselves would not justify either an award of indemnity costs, or increased costs, notwithstanding that the plaintiff’s claims were ultimately demonstrated to be without foundation. But, here when the second to fourth defendants offered to settle by a payment to the plaintiff of
$5,000 on 5 June 2018 it was apparent that the proceedings were hopelessly uneconomic as the amount of money in the account was minimal — a factor that I emphasised in the substantive judgment.8 In those circumstances it was incumbent upon the plaintiff to reflect on the appropriateness of continuing with the litigation. That was particularly pertinent bearing in mind that both sides would incur significant expenditure, paid for by funds raised from contributing members.

[13]	When putting forward its offer to settle for a payment of $5,000 on 5 June 2018, the solicitors for the second to fourth defendants not only set out the reasons why it contended the claim had no foundation, but they advised:

… even in the unlikely event it is successful, the cost of doing so will be significant and will far outweigh the amount of money in issue.

[14]	The second to fourth defendants indicate that the plaintiff did not respond substantively to this offer. On 7 February 2019 counsel for the plaintiff made a counter-offer, however. When doing so counsel expressly recorded that the balance in the account was only $237.82. The plaintiff’s proposal was that the proceedings would be settled by a payment by the defendants of $60,000, reflecting $50,000 relating to money removed from the account, and $10,000 towards legal costs. The justification for proceeding that way was set out in the following terms:

12.	Unless these proceedings can be resolved, we will be amending our client’s claim to seek that your clients personally account for the funds withdrawn from the Wellington Account, and will also be seeking

8	New Zealand Electrical Institute Inc v Westpac New Zealand Ltd, above n 1, at [3]–[5].

further and better discovery from your clients in relation to the inadequacies in the disclosed documentation discussed above.

13.	Furthermore, in light of the clearly obstructive behaviour of your clients in refusing to consent to their identities being disclosed in these proceedings, and the intentional stripping of the Wellington Account of funds, we will in these proceedings be seeking indemnity costs as against your clients.

[15]	This was responded to by the second to fourth defendants later that month offering $1,000 to settle the case, which was in turn responded to by the plaintiff offering to accept $50,000 (i.e. a reduction of $10,000).

[16]	The threatened amendments to the statement of claim were not made by the plaintiff. So the plaintiff continued to advance a claim, as pleaded, where the amount in issue could only be $237.82.

[17]	This seems to  me  to  be  a  situation  that  is  within  the  intended  reach  of r 14.6(3)(b)(v). With such a trivial amount in issue, a defendant can do little more than make an offer in settlement that seeks to avoid obviously wasted expenditure (on both sides). The second to fourth defendants did exactly that — by offering to pay
$5,000, later reduced to $1,000. They did so on the basis of forgiving any claim for costs. It seems to me that the rule is directed to that type of situation — where a defendant is doing all that it can to respond to a claim that should not be pursued, but a plaintiff is obdurately declining to settle.

[18]	I do not accept Mr Patterson’s point that the offer was not capable of acceptance because it was on terms that the defendants personally retain ownership and use of the funds, and that the plaintiff could not agree to this as it would involve allowing the money to be taken personally, rather than for the Wellington Branch. I do not read the terms of settlement as requiring a transfer of personal ownership away from the Wellington Branch. If there was any uncertainty about this, it could easily have been clarified.

[19]	I accept, however, it would be wrong to award indemnity costs, not only because the failure to accept an offer is not within the list of grounds for awarding indemnity costs in r 14.6(4), but also because of the caution expressed by the Court of

Appeal in Holdfast, and Worldwide NZ LLC. I also accept that it may have been possible that the plaintiff contemplated that this proceeding would be a stepping stone for further proceedings to seek recovery of moneys distributed from the account by the second to fourth defendants. Although if that was the overall plan, it should really have been raised in the present proceedings. The fact that it was not suggests it was appreciated that such further claims had very little foundation. And in the end, when determining costs, the Court must address the claim that was pursued by the plaintiffs.

[20]	I also bear in mind that the Court of Appeal was critical of the High Court in Worldwide NZ LLC for trebling the 2B award. In the circumstances it seems to me that the appropriate approach is to increase the second to fourth defendants scale award for the relevant period by a percentage uplift.

[21]	In considering the percentage uplift I bear in mind the importance of the award of costs not exceeding the second to fourth defendants’ actual legal expenditure. I also note the plaintiff’s point that some of the legal expenditure was associated with an unsuccessful interlocutory application and settlement discussions, which would not normally be included in an indemnity award or associated costs assessment.

[22]	In the circumstances I conclude that an uplift of approximately 33 per cent is warranted. The plaintiff accepts that the scale costs calculation for the period 5 June 2018 onwards is $32,335. An uplift of 33 per cent on that figure is approximately
$10,670. Accordingly the second to fourth defendants are entitled to a total of $47,575 representing:

(a)	$4,570 for 2B costs through to 4 June 2018;

(b)	$32,335 for 2B costs from 5 June 2018;

(c)	$10,670 in increased costs under r 14.6(3)(b)(v).

Cooke J