IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

I TE KŌTI MATUA O AOTEAROA
TAURANGA MOANA ROHE	
CIV-2017-463-30 CIV-2017-463-31 CIV-2017-463-51
[2021] NZHC 1536	

BETWEEN	KATHERINE ELIZABETH PRESTON AND OTHERS
Plaintiffs	
AND	GRANT LEE PRESTON AND OTHERS
Defendants	

Hearing:	On the papers	
Appearances:	IM Hutcheson for the Plaintiffs JM McCleary for the Defendants	
Judgment:	25 June 2021	

JUDGMENT OF FITZGERALD J

This judgment was delivered by me on 25 June 2021 at 3.00pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date…………………………

Solicitors:	Jesperson & Associates, Auckland
Buddle Bentley McClearly Ltd, Whakatane

To:	I Hutcheson, Auckland

PRESTON v PRESTON [2021] NZHC 1536 [25 June 2021]

Introduction

[1]	On 18 December 2019, I delivered a substantive judgment in three proceedings: the 030 proceedings, the 031 proceedings, and the 051 proceedings.1 I largely dismissed Mrs Preston’s claims against Mr Preston. I delivered a costs judgment on 13 May 2020.2 My costs judgment dealt with costs on a “proceeding by proceeding” basis.

[2]	Mrs Preston subsequently appealed to the Court of Appeal. In a judgment delivered on 25 March 2021, the Court of Appeal dismissed Mrs Preston’s appeal in the 051 and 031 proceedings, but granted the appeal in the 030 proceedings. On costs, the Court concluded that:3
Given substantial dismissal of the appeal, and dismissal of the cross-appeal, there will be no order for costs. Any revision of costs in the High Court in light of the modest adjustment made by this judgment is a matter for that Court to consider.

[3]	The parties have not been able to agree on an appropriate adjustment to costs of the proceedings in this Court. This judgment accordingly determines that issue.4

The 030 proceedings – a brief summary

[4]	In the 030 proceedings, a family trust associated with Mrs Preston (HFT) alleged that a family trust associated with Mr Preston (GPFT) breached a contractual agreement to covey to HFT a property at Pauanui (the Property). The Property had been used by Mr and Mrs Preston as a holiday home during the course of their marriage. The obligation to convey arose from a pre-emptive buy-out right exercised by HFT. It was common ground that the value of the Property at the time notice of the exercise of the buy-out right was given (in November 2015) was $337,000. HFT sought specific performance of the conveyance of the Property at that price.

1	Preston v Preston [2019] NZHC 3389. CIV-2017-463-30, CIV-2017-463-31, and CIV-2017-463-
51.
2	Preston v Preston [2020] NZHC 957.
3	Preston v Preston [2020] NZCA 679 at [40].
4	Mrs Preston has applied for and been granted leave to appeal to the Supreme Court on whether the Court of Appeal was correct to dismiss her appeal in relation to her claim under s 182 of the Family Proceedings Act 1980 (part of the 051 proceedings). Given any costs adjustment in this Court relates only to the 030 proceedings, the Supreme Court’s judgment will not affect the costs outcome in those proceedings.

[5]	GPFT accepted that the buy-out right had been exercised by HFT. The parties could not, however, agree on price and as the Court of Appeal noted, they instead “became bogged down over arguments over the accounts [in relation to the Property], chattels and relative contributions”.5

[6]	In my substantive judgment, I concluded that GPFT did not breach the agreement between the two trusts and noted that I would not have awarded specific performance in any event. I also heard detailed evidence and submissions on the partnership accounts relating to the Property and made findings in relation to them. In doing so, I largely accepted accounting evidence given on behalf of GPFT in relation to the revised 2018 accounts.

[7]	On appeal, the Court of Appeal concluded that GPFT had breached the agreement by failing to convey the Property to HFT. In practical terms, this meant that HFT was entitled to a transfer of the Property at the November 2015 price of
$337,000. The Court stated that:6

Post-obligation dickering over the price does not alter the fact that the cl 3(d) process should have produced a November 2015 price of $337,000 well before settlement in April 2016. Post-obligation dickering over the parties’ respective contributions to the property and the accounts are immaterial to the obligations to convey. By cl 4 of the property sharing agreement, those issues were to be dealt with post-settlement, by distribution of the proceeds of sale less repayment of cash contributions. That remains the position.

[8]	On the partnership accounts, the Court noted that my findings on the accounts were not “the subject of material challenge before us, though it was contested in written submissions.”7 The Court did observe in a footnote, however, that given issues concerning contributions and the like were to be dealt with post-settlement:8

It is unnecessary, therefore, for us to resolve the continued disagreement between the parties as to the extent of those contributions, and which were the subject of further submissions, post-hearing. If those remain in dispute, parties may apply to the High Court, albeit bearing in mind the prospect of

5	At [29].
6	At [35].
7	At [32].
8	At fn 35.

increased or indemnity costs being ordered in that forum if common sense does not finally prevail.

(emphasis added)

[9]	I do not know whether the parties’ “continued disagreement” relates to accounts which post-date the 2018 accounts, or also include the earlier accounts (on which I made findings in my substantive judgment).

The parties’ respective positions on the adjustment to costs

[10]	Unfortunately, despite what ought to have been a relatively straightforward revision of costs in light of the Court of Appeal’s judgment, matters became somewhat complicated.

HFT’s submissions

[11]	HFT submits that I ought to reconsider my costs judgment in relation to the 030 proceedings. Counsel for HFT, Mr Hutcheson, notes that HFT’s statement of claim in that proceeding was limited to an alleged breach of contract and a claim for relief by way of specific performance, and that the dispute over the partnership accounts  did  not  in  fact  form  a  part  of  the  pleading  in  those  proceedings.   Mr Hutcheson says that this is reinforced by the Court of Appeal’s judgment on the 030 proceedings, which dealt solely with the question of breach by GPFT and if so, what remedy should follow.

[12]	Mr Hutcheson accordingly submits that HFT was wholly successful in the matters properly before the Court in the 030 proceedings, and that the dispute over the partnership accounts was wrongly brought into issue by GPFT.

[13]	On this basis, Mr Hutcheson submits that the costs award made in favour of GPFT (at [35] to [37] of my costs judgment ($25,422)) plus the 20 per cent increase in scale costs ordered (at [60]) ought to be quashed. He submits that in light of the Court of Appeal’s judgment, HFT should be awarded “full costs” and should also be entitled to an increase in scale costs (of 50 per cent). HFT’s position is that that the costs award on the 030 proceedings should effectively be reversed (with some

relatively minor consequential amendments to reflect that HFT was the plaintiff in those proceedings).

[14]	In support of the claim for 50 per cent increased costs, Mr Hutcheson refers to correspondence from HFT’s solicitors in October 2016 which is said to reflect a proposal for conveyance of the Property which was ultimately endorsed by the Court of Appeal’s judgment.

[15]	Mr Hutcheson accordingly submits that:

The judgment of the Court of Appeal fully endorses the proposal appearing in [HFT’s solicitors] letter dated 11 October 2016 and in failing to accept that proposal, and justify doing so on the issue of partnership accounting, [GPFT] has acted unreasonably thereby justifying an increase in scale costs.

GPFT’s submissions

[16]	Counsel for Mr Preston, Mr McCleary, submits that while the accuracy or otherwise of the partnership accounts did not form a part of HFT’s pleaded case, the history of the 030 proceedings before the High Court makes it clear that both parties proceeded on the basis that the dispute in relation to the accounts was before the Court and for determination at the substantive hearing. Mr McCleary refers to aspects of GPFT’s statement of defence which related to the partnership accounts and HFT’s statement of reply denying that pleading. Mr McCleary also points to a minute of Associate Judge Christiansen which recorded that for the 030 proceedings, “the primary focus is upon the quantification of post-purchase contributions to be taken into account”. This in turn reflected a memorandum of counsel for HFT which had informed the Court that:

The true disagreement between the parties focusses on the quantification of post-purchase contributions to be taken into account in settlement of the transaction. There are also related issues regarding what does and does not form part of the property, allegations that parts of the property, including chattels, have been removed without legal justification.

Counsel are agreed that the issues are sufficiently apparent from the pleadings (although they wish to review the pleading following the completion of discovery).

(emphasis added)

[17]	Mr McCleary also refers to HFT’s written opening submissions at trial which expressly stated that two issues arose in the 030 proceedings, the first being the value date for the conveyance of the Property (determined by whether GPFT had breached the property sharing agreement), and the second being “the extent of adjustments required in relation to current accounts”. Mr McCleary also points to the joint statement of issues filed with the Court of Appeal, which included as an issue for the Court’s determination in the 030 proceedings:

Did the Judge err in finding that Mr Fisher’s 2018 accounts were a numerically accurate reflection of each parties’ contributions to that point in time?

[18]	In these circumstances, Mr McCleary submits that if revised costs on the 030 proceedings are to be assessed solely on the issue of the appropriate valuation date for the conveyance of the Property, that would unfairly disadvantage GPFT, given HFT “willingly acquiesced” to having the issues in respect of the accounts put before the High Court and determined at trial. Counsel submits that GPFT was largely successful in demonstrating that the capital accounts prepared to 2018 were correct, in response to which HFT again put that issue squarely before the Court of Appeal (which in the event did not rule on it).

[19]	On this basis, Mr McCleary submits that while HFT was ultimately successful on the issue of the valuation date for conveyance of the Property, GPFT was successful on the question of the accounts, which has not been altered by the Court of Appeal’s judgment. On that basis, and given the time spent at the  hearing on the  accounts,  Mr McCleary submits that an appropriate outcome on the 030 proceedings is for costs to lie where they fall.

[20]	If I were to conclude a costs  award  ought  to  be made in  favour of HFT,  Mr McCleary submits that there is no proper basis for awarding increased costs. He refers to my earlier costs judgment in which I accepted that GPFT had demonstrated sensible and pragmatic solutions in respect of the disputes about the Property. Counsel also notes the acceptance on behalf of HFT that the property sharing agreement was not an easy document to interpret and GPFT did not act unreasonably in challenging the appropriate valuation date for the conveyance of the property.

HFT’s reply submissions

[21]	Mr Hutcheson submits that the fact that various minutes and counsel’s submissions referred to the accounts issues (wrongly) raised by the defendants does not alter the conclusion that the issues concerning the accounts were irrelevant to the obligation to convey, and thus did not amount to a defence to the claim for specific performance. Counsel submits that HFT addressed the issue of the capital accounts, to the extent it did so, because this was (wrongly) raised by GPFT in its statement of defence.

Discussion

[22]	On the pleaded claim in the 030 proceedings, I am satisfied that, in light of the Court of Appeal’s finding that there was a breach by GPFT of the property sharing agreement, and the dispute over the accounts did not give rise to a defence to that breach, HFT was the successful party overall. Prima facie, therefore, the earlier scale costs award in favour of GPFT in the 030 proceedings ought to be quashed and a “mirror” scale costs award made in HFT’s favour (with consequent and minor adjustments to reflect that the scale costs award is now being made in favour of a plaintiff rather than a defendant).9 That scale costs award totals $28,767.

[23]	In my view, that GPFT declined to accept a pathway to settlement of the conveyance of the Property, with resolution of the accounts to follow separately, as proposed in HFT’s solicitors’ letter of October 2016 (being a proposal which reflects the outcome of the Court of Appeal’s judgment), does warrant an uplift to the scale costs award, though a relatively minor one, and not a 50 per cent uplift.

[24]	In rejecting the claim for a 50 per cent uplift, it is important to recall that uplifts to scale costs award are reserved for unreasonable behaviour.10 It is also important to determine whether any failure to act reasonably contributed to the time or expense of the proceedings.11

9	As set out at [21] of HFT’s costs memorandum dated 25 March 2021.
10	Bradbury v Westpac Banking Group [2009] 3 NZLR 400, (2009) 19 PRNZ 385 (CA) at [27].
11	Commissioner of Inland Revenue v Chesterfields Preschools Limited [2010] NZCA 400 at [165].

[25]	The suggested unreasonable behaviour in this context is declining to “separate out” the conveyance of the Property to HFT from the ongoing dispute over the partnership accounts. It is important that the question of whether it was unreasonable not to accept the October 2016 proposal is to be considered in the circumstances as they existed at the time, and not only by reference to the end result at trial, or in this case, on appeal.12

[26]	I take into account that in 2016, both parties were embroiled in the partnership accounts dispute. I also accept that the property sharing agreement was not particularly elegantly drafted and its interpretation was not straightforward. As also observed in my costs judgment, both HFT and GPFT had engaged in resolution proposals in relation to the Property; this was not, therefore, a case of one party seeking resolution and the other failing to engage at all in that process. Nevertheless, as of October 2016, there was a pathway to resolving at least one of the two disputes between the parties. As the Court of Appeal observed, this ought not to have become bogged down by the “post-obligation dickering”13 over the partnership accounts. And early resolution of the valuation date issue would have avoided costs being expended by both parties on that issue at trial.

[27]	For these reasons, I am satisfied it is appropriate to uplift the scale costs award, though by a smaller amount than as suggested on HFT’s behalf, and do so by awarding a 20 per cent uplift. This brings the scale costs award in HFT’s favour to $34,640.40.

[28]	The next question is whether there should there be any adjustment to this costs award given the focus at the hearing before me on the accuracy or otherwise of the partnership accounts, and that I largely found in GPFT’s favour on that issue. I am of the view there should be. In light of those documents and matters referred to at [16] to [17] above, it is plain that HFT considered that the question of the accounts was an issue before the Court for determination and actively engaged on that issue. Indeed, at the hearing before me, there was no suggestion that the validity or otherwise of the accounts to 2018 was not properly before the Court for determination. If that had been

12	Easton Agricultural Ltd v Manawatu-Wanganui Regional Council HC Palmerston North CIV- 2008-454-31, 22 December 2011 at [12].
13	Preston v Preston [2020] NZCA 679 at [35].

HFT’s position at the time, then presumably it would have made that clear, and at earlier stages of the proceedings, objected to discovery on that topic (discovery being limited to issues arising on the pleadings), as well as to the admissibility of evidence relating to the accounts. It did not do so. And as noted in the extract from counsel for HFT’s memorandum to the Court at [16] above, it appeared that by that time, HFT’s position was that the post-purchase contributions to the Property “were to be taken into account in the settlement of the transaction”. HFT also called its own evidence on the accounts, both from Mrs Preston and from an independent expert, Mr Graeme Smith.

[29]	I do not consider the Court of Appeal’s judgment alters the position. All it concluded was that the dispute over the partnership accounts did not require resolution in order to determine the separate issue of whether GPFT had breached the agreement to convey the Property to HFT. In other words, its decision means that the parties’ failure to agree the partnership accounts did not give rise to a defence on the part of GPFT to the claim of breach. For these reasons, the Court of Appeal’s decision does not address or determine whether the issue over the partnership accounts was properly before the High Court.

[30]	Ultimately, a costs award is intended to reflect a reasonable contribution to a party’s actual costs incurred in participating in a court proceeding. There is no doubt that both parties incurred costs in the 030 proceedings which related to the validity or otherwise of the partnership accounts. As noted earlier, HFT proceeded on the basis that the accuracy of the accounts was to be determined by the Court, and then put this Court’s findings on that issue before the Court of Appeal (though for whatever reason, does not appear to have pursued the issue to any material extent at the appeal hearing). In this context, it would be artificial in my view to ignore the fact that the issue over the accounts was before this Court, that both parties engaged on that issue and GPFT was largely successful on it.

[31]	But despite these views, I do not consider that an appropriate approach is simply to have the two issues (value date for conveyance of the Property and accuracy of the accounts) “cancel each other out” such that costs in the 030 proceedings lie where they fall. The pleaded claim before the Court was whether GPFT had breached

the agreement to convey the Property to HFT. The argument that there was no breach, given the ongoing dispute about the accounts, was incorrect. The accuracy or otherwise of the accounts ought therefore to have been advanced as a separate (counter-)claim by GPFT. Or, given the nature of that dispute, the parties could have agreed to refer the issue to an independent expert for determination.

[32]	Given the manner in which the claims were formulated, therefore, I remain of the view that in light of the Court of Appeal’s judgment, HFT was the successful party overall in the 030 proceedings and a costs award ought to be made in its favour. But reflecting the time spent by both parties at trial on the issue of the accounts, and that for the purposes of r 14.7(d), HFT was not successful on that issue, I consider a reduction to the costs award to be made in HFT’s favour is appropriate. A relatively high level and broad brush approach is all that can now be taken. I consider it appropriate to reduce the costs award by 20 per cent, reflecting that the issue on which HFT was not successful was not an insignificant or minor issue at trial. This reduces the costs award in HFT’s favour to $27,712.32.14 I make an order accordingly.

[33]	On disbursements, I accept Mr Hutcheson’s submission that it is appropriate to deduct the $1,400 hearing fee allocated to the 030 proceedings and awarded to GPFT and instead award that disbursement to HFT. I make an ordering accordingly. I also make an award of $174.99, being the allocated binding costs for the 030 proceedings, brining the total disbursements awarded to HFT in the 030 proceedings to $1,574.99.

[34]	Mr McCleary sought an order pursuant to r 14.17 that any costs payable by “the defendants” are set off against costs payable by “the plaintiff”. Strictly, no order is required to implement set off, that being the effect of r 14.17 (unless the court orders otherwise). Further and in any event, I note that the parties in the 030 proceedings (being the trustees of HFT and GPFT) are not the same as the parties to the 051 and 030 proceedings.

[35]	Plainly however, the Court’s expectation is that, in the absence of a stay being ordered by a court (or agreed), costs awards are to be complied with within a reasonable time after they are made.

14	A 20 percent reduction to the costs award of $34,640.40.

[36]	Finally, and for completeness, from the Court of Appeal’s observations recorded at [8] above, it appears there is an ongoing dispute between the parties as to the accuracy of the partnership accounts. My judgment dealt with the accounts to 2018. The Court of Appeal’s judgment did not alter those findings (despite, it appears, my findings forming a part of the notice of appeal). It is not clear what the Court of Appeal had in mind when it recorded that if the extent of the contributions remained in dispute, the parties “may apply to the High Court”. For my own part, I do not consider it would be possible or appropriate for the parties to seek to “re-litigate” the issue of the accounts to 2018 before this Court, findings having already been made on that issue and which have not been overturned by the Court of Appeal. And if the ongoing dispute relates to the accounts from 2018 up to the time of settlement of the sale of the Property to HFT, I endorse the Court of Appeal’s observations as to common sense needing to prevail, and the possible cost consequences of seeking to bring those matters before the High Court. If a final resolution of the accounts up to settlement cannot be reached, and while it is ultimately a matter for the parties, an appropriate mechanism for resolution might be the appointment of an independent accountant for that purpose.

Fitzgerald J