Easton Agriculture Ltd v Manawatu-Wanganui Regional Council

JurisdictionNew Zealand
CourtHigh Court
JudgeThe Hon Justice KÓs
Judgment Date22 Dec 2012
Neutral Citation[2011] NZHC 2027
Docket NumberCIV-2008-454-31

[2011] NZHC 2027

IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY

Kos J

CIV-2008-454-31

Between
Easton Agriculture Limited
First Plaintiff

and

Eveleigh Farming Company Limited (In Receivership)
Second Plaintiff
and
Manawatu-Wanganui Regional Council
Defendant
Counsel:

J O Upton QC with M S Dobson for Plaintiffs

D J Heaney SC with S H Macky for Defendant

Costs decision relating to unsuccessful negligence claim taken by plaintiffs — proceedings related to a floodway stopbank which failed and resulted in flooding of plaintiffs croplands — High Court found respondent owed a duty of care to monitor and maintain flood way stopbanks which it had breached, but that failure of stopbank was caused by independent factors for which defendant not liable — whether defendant entitled to increased costs under r14.6 High Court Rules (increased costs) because plaintiffs failed to accept a pre-trial walk-away offer — whether costs payable by plaintiffs should be reduced under r14.7(d) (party had succeed overall but failed in relation to an issue) — what proportion of the defendant's witness fees should be paid by the plaintiffs — whether receiver of second plaintiff should be personally liable for costs.

The issues were: whether the Council was entitled to increased costs under r14.6(3)(b)(v) High Court Rules (“HCR”) (increased costs — failing, without reasonable justification, to accept an offer of settlement) because the plaintiffs failed to accept a pre-trial walk-away offer; whether the costs payable by plaintiffs should be reduced under r14.7 HCR (reduction in costs — although the party claiming costs has succeeded overall, that party has failed in relation to a cause of action or issue which significantly increased the costs of the party opposing costs); what proportion of the defendant's witness fees should be paid by the plaintiffs; and whether receiver of second plaintiff should be personally liable for costs.

Held: This was not an appropriate case for increased costs. The Council had to establish that the failure to accept the settlement offer was unreasonable. The unreasonableness of a rejection had to be assessed at the time of rejection, and not just against the subsequent result. The Court was conventionally cautious in awarding increased costs where the successful party had made only a walk-away offer. Such offers effectively valued the opponent's claim, prospects of success and their own litigation risk at nil. It was rare where it would be unreasonable for a plaintiff to take a more optimistic view of their own prospects than zero percent. As the case stood, it could not be said that the plaintiffs' prospects of success were nil. The plaintiffs had had a good case that the Council had acted negligently. The issue of causation had been complicated; the council's litigation risk had not been insignificant. It had not been unreasonable for the plaintiffs to have rejected the walk-away offer.

There should be no reduction in scale costs for the plaintiffs. It made no difference that the plaintiffs had succeeded on some essential steps in their negligence claim, as they had failed on the final step. There was nothing out of the ordinary about the conduct of either party which justified a variation of the usual rule that costs followed the event.

Witness expenses, including expert witness fees, were recoverable as a disbursement pursuant to r14.12 HCR (disbursements). Each of the Council's witnesses had made helpful contributions to the analysis of the technically difficult issue of causation. Even though the Council had been unsuccessful on two issues within the head of negligence, that evidence had still been specific to and necessary for the conduct of the proceedings. The evidence of the forensic accounting witness had been less helpful and a reduction would be made in respect of his fee.

The liability of the receiver here would be as a non-party. The fact that a company had entered receivership during the course of a proceeding did not mean that the receiver was substituted as the party liable for costs as the company continued to exist. An application on notice to the receiver had to be made, and the non-party was entitled to be heard.

The Council was entitled to scale costs on a category 2B basis. It was not entitled to increased costs on the basis the plaintiff's rejected the walk-away offer. It was entitled to witness and non-witness disbursements. Leave was given for the Council to apply formally for costs against the receiver.

JUDGMENT OF The Hon Justice KÓs

The Hon Justice KÓs

(Costs)

Introduction
1

On 17 February 2004 a floodway stopbank on the Manawatu River, near Foxton, failed. Nearby croplands owned by the plaintiffs were flooded. The plaintiffs brought proceedings against the defendant Council in negligence, private nuisance, Rylands v Fletcher and breach of statutory duty.

2

My judgment of 7 September 2011 1 determined that s 148(1) of the Soil Conservation and Rivers Control Act 1941 excluded claims against the Council other than in negligence. I found the Council owed the plaintiffs a duty of care in monitoring and maintaining the floodway stopbanks. I found, also, that the Council had breached that duty by failing to identify and repair a gap between a road bridge and the stopbank crest, in which cement bags had been inserted as a seal. The

plaintiffs' case had very much, indeed almost exclusively, focused on that gap as causative of the stopbank failure. 2 However, the plaintiffs failed ultimately to prove that the presence of the gap (or any other deficiency attributable to the Council) caused the failure that occurred in the stopbank. Rather, the failure was caused by factors independent of the gap for which the Council could not have been liable. The bank was failing immediately upstream of the bridge some hours before the bank gave way altogether. That occurred some 6–10 metres downstream of the bridge. The floods that damaged the plaintiffs' crops would, therefore, have occurred regardless of whether the gap under the bridge was present or not.
3

At [226] of my judgment I held the Council was entitled to costs on a category 2 basis. If the parties were unable to agree to costs, counsel were to file memoranda.

4

Some agreement has been reached. The parties have agreed scale costs calculated on a category 2 band B basis would total $93,000. 3 They appear to have agreed that band B is appropriate overall. The parties have also agreed on the defendant's non-witness disbursements, calculated at $11,746.

Issues
5

There are four issues for determination:

  • (a) Is the successful defendant entitled to an uplift on scale costs (i.e. increased costs) on the basis of the plaintiffs' refusal to accept a pre- trial settlement offer?

  • (b) Should scale costs payable by the plaintiffs be reduced?

  • (c) What proportion of the defendant's witness fees and expenses ought to be paid by the plaintiffs?

  • (d) Should the second plaintiff's receiver, Mr John Fisk, be personally liable for costs?

Issue One – Increased Costs
6

On 19 April 2011 – following the exchange of evidence but six weeks before trial — the Council wrote to the plaintiffs. The letter made a walk-away offer to settle. The letter stated:

The primary purpose of this letter is to set out for you the council's position regarding the claims in some detail so that you and your clients can make a sensible and informed appraisal of their prospects of success at trial.

The secondary purpose of this letter is to illustrate to the trial judge, if that becomes necessary, that the council has taken a responsible approach to the claims made in setting out its position and that if the council is put to the expense of having to defend its position at the hearing that the council ought to be awarded increased costs.

7

The letter went on to set out the Council's position regarding the plaintiffs' claims. Ultimately it was correct in its prediction as to the application of s 148, but wrong as to whether it had breached its duty of care to the plaintiffs. (It seemed, by omission, to accept that it owed such a duty.)

8

As to causation, the letter said:

Your clients and their experts have to date made much of whether or not a gap existed between the top of the stop bank and the underside of the Whirokino trestle bridge. There is no evidence of the existence of a gap.

Even if there was some evidence of a gap, that provides no assistance whatsoever to your clients. That is because the council's inspection and maintenance regime was more than adequate and as you can see from the evidence, the council was not aware of the existence of any gap.

Furthermore, the situation with the underside of the bridge did not cause the stop bank breach to occur as is clear from the evidence. The stop bank breach occurred approximately 6 metres downstream from the centreline of the bridge.

9

The letter finished in this way:

There is no prospect that your clients will succeed against the Council.

Between now and the end of the hearing, the Council will incur significant legal and expert costs in running its defence of your clients' claims. On a 2B basis, as at today the council is entitled to an award of costs in its favour of $32,524.00.

We are instructed by the council that it would agree to your clients' discontinuing their claims on the basis that the council will not seek costs from your clients. This offer must be accepted prior to 5pm on 28 April 2011.

As noted above, we are instructed that if your clients choose not to discontinue their claims then we are instructed to place this letter before the trial judge when the matter of costs is dealt with in support of an award of increased costs in favour of the council.

10

The offer expired without any substantive response from the plaintiffs on 3 May 2011. The Council now seeks increased costs on the basis of this refusal.

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