Laura Jane George v Auckland Council NZEmpC Auckland

JurisdictionNew Zealand
CourtEmployment Court
JudgeJudge Christina Inglis
Judgment Date18 June 2014
Docket NumberARC 91/10
Date18 June 2014

[2014] NZEmpC 100


ARC 91/10

ARC 124/10

In the Matter of proceedings removed by special leave

And in the Matter of costs

Laura Jane George
Auckland Council

In the Matter of proceedings removed

And in the Matter of costs

Auckland Council
Laura Jane George

A R Drake, counsel for Ms George

T L Clarke and E J Coats, counsel for Auckland Council

Application for costs for unsuccessful claims by both parties against each other following dismissal in separate but related proceedings — hearing had lasted 10 days — employee's agreement contained indemnification clause — employee's agreement contained an indemnity clause — employer claimed costs of over $200,00 and had been represented by two counsel — employee had been concerned about damage to her professional reputation and her ability to explain the situation to third parties and had refused Calderbank offers which did not address this concern — whether the indemnity clause applied — whether the costs were reasonable — whether it had been reasonable for the employee to refuse the Calderbank offers.

Held: The discretion to award costs, while broad, had to be exercised in accordance with principle. The primary principle was that costs followed the event. The usual starting point in ordinary cases was 66 per cent of actual and reasonable costs. From that starting point factors that justified either an increase or decrease were assessed.

While these principles provided a useful framework for an analysis of costs in relation to G's unsuccessful claim against the Council), the position differed in relation to the Council's unsuccessful claim against G because her employment agreement contained an indemnification clause.

Costs in Claim against G:

(1) Indemnity clause: The indemnity clause provided that if the Council had proved wilful misconduct or unlawful damage by G the clause would not apply. The Council did not prove such misconduct or damage and accordingly the clause did apply. If a claim had been brought against G by a third party, the position would have been the same.

The approach to indemnity costs under a contract provided for in the High Court Rules provided useful guidance. On the face of it, cl 6 provided that in these circumstances, the Council was to indemnify G for any costs incurred by her in defending the claim pursued against her. However a nuanced approach was required. While it was well accepted that a party could contractually bind itself to pay the other party's full solicitor-client costs, the inquiry did not start and stop with an assessment of actual costs ( Gibson v ANZ Banking Group (NZ) Ltd).

A number of steps were required. First, the scope of the contractual provision and what costs fell within and outside of it had to be assessed. Secondly, it was necessary to consider whether there were any public policy reasons preventing reliance on the contractual indemnity. If not, the Court had to turn to consider whether the costs claimed under the indemnity clause were objectively reasonable ( Black v ASB Bank Ltd).

Clause 6 was broadly worded. It did not distinguish between steps in litigation or seek to impose any parameters around what costs would and would not be indemnified, other than (for the purposes of this claim) that the costs must have been incurred in respect of, or arising out of, any act or omission by the employee in the course of employment. Legal defence of the claim fell within the scope of the clause.

There were no public policy reasons why the indemnity should not apply. Rather, there were clear public policy reasons why it should apply in the present context.

(2) Whether the steps undertaken were reasonably necessary: Assessing the costs incurred in relation to the Council's claim, as opposed to G's claim, was problematic because the costs relating to the two proceedings bled into one another, had not been recorded against a particular matter and were not now able to be allocated with any degree of certainty. The problem was compounded by the assessment as to which percentage of costs related to each proceeding (G attributed 65 per cent of the total costs to the Council's claim against her where the Council attributed 50 per cent).

On balance a 50/50 split between the proceedings more accurately reflected the reality of where the legal costs lay.

G adopted something of a belt and braces approach to the defence of the claim against her, and mounted a number of arguments against liability. The fact that these arguments did not succeed did not, in itself, mean that she ought not to be entitled to the costs associated with them. They could not reasonably be characterised as spurious or otherwise devoid of merit. G was entitled to treat the claim against her very seriously.

The fact that G was an unsuccessful party on a number of interlocutory matters did not, of itself, mean that the costs associated with pursuit of the applications ought to be excluded. A deduction in costs was not warranted. Each of these matters directly related to a defence of the claim and, while unsuccessful, were not unreasonably pursued in the circumstances.

Costs in Claim against Council:

The costs incurred by the Council include the costs associated with G's application to the Authority on 5 March 2010 and the costs associated with attending two mediations. The Council sought costs associated with the second mediation. The Council had opposed (albeit not actively) G's application seeking special leave to remove the matter to the Court.

The Council was represented by two counsel. This was not reasonable in the context of what was ultimately a factually orientated personal grievance claim. While the Council's claim against G might in combination with G's claim against it have justified two counsel, it was not appropriate to have regard to that factor in assessing reasonable costs in this claim. Such an approach would effectively reward the Council for having complicated the litigation by commencing and pursuing a second proceeding, which inflated the timeframes involved and the overall complexity of the matters before the Court.

It was the prerogative of each party to decide the level of representation it considered appropriate but those choices could not automatically be visited on the unsuccessful party. While the Council submitted that the rate effectively represented a “blended rate”, which was a lower hourly rate than the costs of senior counsel, the case did not reasonably required the application of services at such a high hourly rate.

A starting point of costs of over $200,000 was not reasonable having regard to the nature and scope of the hearing, including the steps that were required to be taken in relation to it and the hearing time involved. By way of cross check, costs according to the High Court scale would likely result in a figure substantially less, although there were difficulties with attempting to directly translate scale costs to the costs associated with litigation in this Court.

G's claim was largely factually orientated, although it did raise a number of legal issues, some of which were novel. The claim called into question the integrity of a number of other employees of the Council, which it was entitled to treat seriously. This was reinforced by the range and quantum of remedies sought on G's behalf. However, this was not the sort of case that reasonably required a gold plated response. And ultimately it was decided on the facts.

A starting point of around $60,000 would be appropriate.

Insufficient information was presented to support G's submissions for a discount based on her financial position. While such information was relevant to an assessment of financial position in the context of an application for cost, an adjustment could not be made based on the information before the Court in the present case.

Ultimately, Calderbank offers were a discretionary factor for the Court in determining an appropriate costs award and the making of such an offer did not in itself automatically result in a more favourable award of costs. An offeror had the burden of persuading the Court to exercise its costs discretion in their favour.

The Council characterised its August 2011 offer as a “drop hands” offer. However the offer could be reduced to a proposal that neither party would pursue their claim in the Employment Court and that all matters would be at an end. It was in the nature of a “walk away” offer ( O'Hagan v Waitomo Adventures Ltd and Easton Agriculture Ltd v Manawatu-Wanganui Regional Council).

The Council's offer clearly assessed G's prospects of success in her claim as zero, although it rated its own chances on the breach of contract claim more highly. It was not unreasonable for G to place a higher value on her prospects than zero. Nor was it unreasonable for her to reject the offer in any event. While G ought to have appreciated the risks associated with her personal grievance claim, it was evident that she was extremely concerned about reputational issues, as reflected in the offer subsequently advanced on her behalf. G's reputational concerns were not addressed in the Council's offer and nor did it include a financial component for costs.

The Council's offers in February and March 2013 were generous from a financial perspective. However an oblique reference to uncertainty around the reasons for G's dismissal was insufficient to address G's primary concerns about damage to her professional reputation and her ability to explain the situation to third parties. The terms of settlement did not offer her the public vindication she reasonably sought and which she could, and later did, obtain through a Court judgment. It was not unreasonable of G to reject the offer.

Council to pay G the sum of:

  • • $134,000 on its claim against her.

  • • $1,500 in relation to the...

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