Easton Agriculture Ltd v Manawatu-Wanganui Regional Council
| Jurisdiction | New Zealand |
| Judge | The Hon Justice KÓs |
| Judgment Date | 22 December 2012 |
| Neutral Citation | [2011] NZHC 2027 |
| Docket Number | CIV-2008-454-31 |
| Court | High Court |
| Date | 22 December 2012 |
and
[2011] NZHC 2027
Kos J
CIV-2008-454-31
IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY
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.
J O Upton QC with M S Dobson for Plaintiffs
D J Heaney SC with S H Macky for Defendant
JUDGMENT OF The Hon Justice KÓs
(Costs)
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.
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 notAt [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.
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.
There are four issues for determination:
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(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?
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(b) Should scale costs payable by the plaintiffs be reduced?
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(c) What proportion of the defendant's witness fees and expenses ought to be paid by the plaintiffs?
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(d) Should the second plaintiff's receiver, Mr John Fisk, be personally liable for costs?
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.
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.)
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.
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.
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.
The power to award increased costs is found in High Court Rule 14.6. The relevant part of this rule provides:
(3) The court may order a party to pay increased costs if –
…
(b) the party opposing costs 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 14.10, or some other offer to settle or dispose of the proceeding.
The onus is on the party claiming increased costs to persuade the court the award is justified. 4 That party must satisfy the court that the failure to accept the offer of settlement was unreasonable. The reasonableness of a rejection must be assessed at the time of rejection, not just against the subsequent result. 5 If an award of increased costs is made, the correct approach is to uplift from the scale costs. 6
The Council submits the offer made was a better outcome for the plaintiffs than that achieved at trial. As a result of its rejection, significant costs were incurred in defending the claim. Further, it submits the rejection was unreasonable at the time: briefs of evidence had been served, and the defences were canvassed clearly in the offer. A 50 per cent uplift is sought on the steps taken after 3 May 2011. Those steps are $59,220 at scale. A further 50 per cent, or $29,610, would increase costs from the agreed scale sum of $93,000 to $122,610.
The plaintiffs oppose. They submit rejection of the offer was reasonable as, without testing the evidence through cross-examination and expert caucusing, it could not be said there was no seriously arguable case. Critical and important concessions, and consensus, emerged during caucusing. 7 The walk-away offer effectively rejected the existence of any litigation risk for the Council. To put it another way, it ranked the plaintiffs' chances of success “at zero percent”. That was not a reasonable assessment, and the plaintiffs were not unreasonable in taking the view that it was not a reasonable assessment. The plaintiffs also submit the Court should exercise its discretion in their favour for these reasons: the proceedings gave rise to complex factual and legal issues which required resolution; something more than a mere failure of factual or legal argument is necessary to justify increased costs; 8 and allowing increased costs in any case where there is a settlement offer would be inconsistent with the principle of access to justice as it would deter plaintiffs irrespective of the strength of their case. 9
I am satisfied that this is not an appropriate case in which to award increased costs under HCR 14.6(3)(b)(v). Despite the ultimate result, it was not unreasonable for the plaintiffs to reject the defendant's walk-away offer and proceed to trial.
First, the Court is conventionally cautious in awarding increased costs where the successful party had made only a walk-away (or “drop hands”) offer. In Hira Bhana & Co Ltd v PGG Wrightson Ltd 10 a walk-away offer was made by the defendant in August 2004. The proceedings went to trial in late 2005. The plaintiff lost. The Court of Appeal held that it was not unreasonable for the plaintiff to reject the walk-away offer. The credibility of...
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