Laura Jane George v Auckland Council NZEmpC Auckland

• Jurisdiction: New Zealand
• Judge: Judge Christina Inglis
• Judgment Date: 18 June 2014
• Court: Employment Court
• Docket Number: ARC 91/10
• Date: 18 June 2014

In the Matter of proceedings removed by special leave

And in the Matter of costs

Between

Laura Jane George

Plaintiff

and

Auckland Council

Defendant

In the Matter of proceedings removed

And in the Matter of costs

Between

Auckland Council

Plaintiff

and

Laura Jane George

Defendant

[2014] NZEmpC 100

ARC 91/10

ARC 124/10

IN THE EMPLOYMENT COURT AUCKLAND

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.

Appearances:

A R Drake, counsel for Ms George

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

COSTS JUDGMENT OF Judge Christina Inglis

Introduction

1 These proceedings involve an unsuccessful claim of unjustified dismissal and disadvantage by Ms George against her former employer, the Auckland Council (the Council), 1 and an unsuccessful claim for breach of contract by the Council against Ms George. Both proceedings were heard together. The parties were encouraged to seek agreement as to costs but have been unable to do so. Both parties now claim costs against each other and have filed extensive submissions and material in support of their respective positions.

2 The background to these proceedings is fully set out in my substantive judgment. 2 The hearing in this Court was at first instance, Ms George having successfully applied for special leave to remove her claim to the Court. The Council's claim against Ms George followed suit soon after.

3 Clause 19(1) of Sch 3 to the Employment Relations Act 2000 (the Act) confers a broad discretion as to costs. It provides that:

The court in any proceedings may order any party to pay to any other party such costs and expenses … as the court thinks reasonable.

4 The discretion to award costs, while broad, is to be exercised in accordance with principle. The primary principle is that costs follow the event. The usual starting point in ordinary cases is 66 per cent of actual and reasonable costs. From that starting point factors that justify either an increase or decrease are assessed.

5 While these principles provide a useful framework for an analysis of costs in relation to Ms George's unsuccessful claim against the Council (in ARC 91/10), the position differs in relation to the Council's unsuccessful claim against Ms George (in ARC 124/10). That is because Ms George's employment agreement contained an indemnification clause. Ms George submits that she is entitled to be fully indemnified for her costs in ARC 124/10.

6 Given the differing costs frameworks it is convenient to deal with each proceeding in turn.

The Council's unsuccessful claim against Ms George (ARC 124/10)

7 Mr Drake, counsel for Ms George, submits that a preliminary issue arises as to whether Ms George is to be indemnified for her actual legal costs and expenses having regard to cl 6 of her employment agreement. The submission appears to have been spurred by correspondence on behalf of the Council taking issue with Mr Drake's contention that the global costs calculation advanced on behalf of the Council in the context of discussions aimed at resolving costs, spanning both proceedings, could not include the costs associated with ARC 124/10 as the Council had had no lawful right to commence the action against Ms George having regard to cl 6.

8 Clause 6 of Ms George's employment agreement provided that:

The [Council] shall indemnify the employee from and against all actions, claims, proceedings, costs and damages incurred or awarded in respect of or arising out of any act or omission or statement by the employee in the course of employment, provided that the indemnity shall not be available for wilful loss, or damage caused by the employee or where the loss or damage is the result of misconduct or an unlawful activity.

9 The Council accepts that Ms George is entitled to a contribution to her costs in ARC 124/10 but does not accept that she is entitled to a contribution on a full indemnity basis. It submits that there was no finding that the indemnity provision precluded the Council from commencing a proceeding against Ms George unless there had been wilful loss or damage resulting from misconduct or unlawful activity. Rather it is said that the question of whether the Council was able to prove that the loss or damage it suffered was the result of wilful misconduct or unlawful damage is a separate issue from whether Ms George is entitled to a full indemnity for all costs and expenses that she has incurred in respect of the claim. In the alternative, it is submitted that if the effect of the Court's substantive judgment is that the Council was precluded from bringing a claim against Ms George unless it could prove wilful loss or damage it does not follow that Ms George is entitled to a full indemnity for the total costs and expenses that she incurred. It is further submitted that the Court is entitled to reduce the amount of costs from a full indemnity basis on public policy grounds or as part of an assessment as to whether the total amount of costs was reasonable.

10 The position can be simply stated. If the Council had proved wilful misconduct or unlawful damage by Ms George the indemnity clause would not have applied. The Council did not prove such misconduct or damage and accordingly the clause does apply. If a claim had been brought against Ms George by a third party, the position would have been the same.

Approach – indemnity costs

11 Mr Clarke submits that the approach to indemnity costs under a contract provided for in the High Court Rules is to be applied in the present case. I accept that, even if the Court is not bound by these Rules in the circumstances, the principles embodied in them, and the jurisprudence which has been developed around them, provide useful guidance.

12 The claim by the Council arose out of alleged acts and omissions by Ms George during the course of her employment. It was not established at trial that Ms George had wilfully caused any loss or damage or that the alleged loss or damage was the result of any misconduct or unlawful activity. On the face of it, cl 6 provides that, in such circumstances, the Council shall indemnify Ms George for any costs incurred by her in defending the claim pursued against her.

13 Mr Drake submits that Ms George is entitled to full indemnity costs pursuant to the Council's obligations under cl 6. A more nuanced approach is required. While it is well accepted that a party can contractually bind itself to pay the other party's full solicitor-client costs, it is equally apparent that the inquiry does not start and stop with an assessment of actual costs. 3 As the Court of Appeal observed in Watson & Son Ltd v Active Manuka Honey Assoc: 4

It is clear in principle and on authority that once it is established that the indemnity is applicable in the circumstances and that, properly construed, it includes solicitor-client costs, no discretion remains available other than on public policy grounds or as part of an assessment by the court as to whether the amount of the solicitor-client costs is objectively reasonable.

14 A number of steps are accordingly required. First, an assessment must be made of the scope of the contractual provision and what costs fall within and outside of it. Second, consideration must be given to whether there are any public policy reasons preventing reliance on the contractual indemnity. If not, the Court must turn to consider whether the costs claimed under the indemnity clause are objectively reasonable. 5

15 I consider the claim for full indemnity costs against the foregoing framework.

What tasks attract indemnity costs under the contract?

16 Clause 6 is broadly worded. It does not distinguish between steps in litigation or seek to impose any parameters around what costs will and will 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 falls within the scope of the clause.

Public policy considerations

17 There are no public policy reasons why the indemnity should not apply. Rather, there are clear public policy reasons why it should apply in the present context. 6

Whether the steps undertaken were reasonably necessary in pursuance of those tasks

18 The Council commenced its claim against Ms George on 21 September 2010, when it filed a statement of problem in the Authority. A statement in reply followed and the proceeding was removed to the Court on the Council's (unopposed) application. The substantive hearing was completed on 5 July 2013. Mr Drake accordingly submits that Ms George was obliged to incur expenses in defending the Council's proceeding between 21 September 2010 and 5 July 2013. I agree. I return to the issue of whether all of the steps taken were necessary below.

19 Assessing the costs incurred in relation to ARC 124/10, as opposed to ARC 91/10, has proved problematic for the parties and presents similar difficulties for the Court. That is because the costs relating to the two proceedings bled into one another, have not been recorded against a particular matter and are not now able to be allocated with any degree of certainty. The problem is compounded by the assessment made...