Asphalt Supply Company Limited v Cole John Limited
[2022] NZHC 1196
•26 May 2022
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2021-419-000204 [2022] NZHC 1196
BETWEEN ASPHALT SUPPLY COMPANY LIMITED
Appellant
AND
COLE JOHN LIMITED
Respondent
Hearing: 3 May 2022 Appearances:
A M Swan for the Appellant
J Shaw and N G Scrivener for the Respondent
Judgment:
26 May 2022
JUDGMENT OF HINTON J
This judgment was delivered by me on Thursday 26 May 2022 at 3.00 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date:…………………………
Counsel/Solicitors:
A M Swan, Barrister, Auckland Whitlock & Co, Auckland
J Shaw,
Norris Ward McKinnon, Hamilton
ASPHALT SUPPLY COMPANY LTD v COLE JOHN LTD [2022] NZHC 1196 [26 May 2022]
[1] Asphalt Supply Company Limited (ASCO) appeals a costs decision of Judge Wilson QC dated 2 August 2021 granting Cole John Limited (Cole John) costs on a 2B basis together with a 25 per cent uplift and further additional allowances.1
Background
[2] In early 2018, ASCO commenced a contractual claim against Cole John claiming $80,040, being the amount invoiced by ASCO in respect of certain asphalt works carried out on Cole John’s commercial property in Manukau. Cole John filed a defence and counterclaim, claiming negligence. A second counterclaim for breach of contract was later added.
[3] On 15 September 2020, three weeks before trial, ASCO discontinued its claim in contract and substituted it with an affirmative defence of equitable set-off for the same sum of $80,040 claimed for breach of contract.
[4] Following ASCO’s amendment Cole John’s second counterclaim was replaced with a different counterclaim for breach of warranty. At this point an estoppel counterclaim was also added (but was not pursued at trial). Cole John’s counterclaim was for the sum of $130,129.65, being the cost of remedying what was said to be defective work.
[5] By judgment dated 8 December 2020 Judge Wilson awarded Cole John damages of $130,129.65 on the basis of breach of warranty but also for breach of duty of care (negligence).2 The Judge held that ASCO was not entitled to a set-off saying only:3
[ASCO] is not entitled to set off against that sum the balance of the contract price with Mr Yiakop namely $80,040.00 which was due on completion because ASCO never completed the contracted work: in fact, [ASCO] refused to do so.
1 Asphalt Supply Company Limited v Cole John Limited [2020] NZDC 13455.
2 Asphalt Supply Company Limited v Cole John Limited [2020] NZDC 22608.
3 At [61].
[6] On appeal by ASCO, Campbell J allowed the set-off and substituted the District Court’s judgment for a lower award of $50,089.65.4 He dismissed ASCO’s other grounds of appeal and did not find it necessary to address ASCO’s argument with regard to duty of care. Campbell J concluded by saying that his provisional view was that costs on the appeal should lie where they fall. He said that was not intended to indicate anything about costs in the District Court where “different considerations may apply”.
[7] Despite Campbell J’s provisional view, Cole John (perhaps surprisingly not ASCO) sought costs. ASCO was content for costs to lie where they fell. On 29 June 2021 Campbell J issued his costs judgment, finding that ASCO was the successful party, given it had succeeded in reducing the damages award by about two-thirds.5 However, given ASCO had also failed on a number of appeal points that took up significant time, the Judge considered it could alternatively be said the parties enjoyed success in equal measure. Consequently he declined to make any order for costs.
[8] Judge Wilson then gave his costs judgment dated 2 August 2021, the judgment under appeal.6 Features of that judgment included:
(a)Costs were awarded in full to Cole John. There was no allowance made for the success of ASCO on its set-off and the consequential partial success of Cole John.
(b)Cole John was awarded a 25 per cent uplift because ASCO had pursued a meritless claim for breach of contract and because ASCO had repeatedly failed to meet its obligations which led to inevitable delays and additional costs.
(c)Cole John was allowed preparation costs based on a three day hearing although the hearing itself was two days as the Court had reduced it down from three days on 17 September 2020.
4 Asphalt Supply Company Limited v Cole John Limited [2021] NZHC 1257.
5 Asphalt Supply Company Limited v Cole John Limited [2021] NZHC 1567.
6 Asphalt Supply Company Limited v Cole John Limited, above n 1.
(d)Cole John was awarded $5,253.00 for a supplementary list of documents, production and inspection of the same.
(e)As an ancillary point, in response to a contention by ASCO that the judgment sum was not payable until remedial work had been completed, Judge Wilson said that the judgment sum was payable “now”.
[9] Following the District Court costs judgment, on 12 October 2021 Cole John sealed judgment for $129,935.49 being the judgment sum of $50,089; costs of
$51,041.75 and disbursements of $23,112.32; interest of $5,691 under s 9 of the Interest on Money Claims Act 2016 (IMC) up to 1 October 2021; plus interest from that date until payment (to be quantified).
Issues on appeal
[10]The following issues arise:
Costs
(a)Is a reduction in costs appropriate given the successful set-off and/or Cole John’s partial success?
(b)Was the 25 per cent uplift warranted?
(c)Was Judge Wilson correct in awarding:
(i)preparation time on a three day basis; and
(ii)additional discovery costs?
Other
(d)Did Judge Wilson have jurisdiction in giving his costs judgment to “find” that there was no legal basis for ASCO’s contractual claim and/or that the judgment sum was payable immediately?
(e)Is Cole John entitled to interest as sealed?
Reduction for partial success
[11] Mr Swan for ASCO does not dispute that Cole John was the successful party and that it was entitled to costs on a 2B basis. However, he considers the Court should have applied r 14.7(f) of the District Court Rules (DCR) which provides that the Court may refuse to make an order for costs or may reduce the costs if some other reason justifying refusal or reduction exists. He says that costs should have been reduced by two-thirds given Cole John’s success overall was reduced by two-thirds of its claim, and ASCO’s set-off was entirely successful.
[12]Mr Swan notes the following passage from Laws of New Zealand:7
Where a defendant succeeds in establishing a set-off equal to or exceeding the plaintiff’s claim, then subject to the Court’s overriding discretion, he is generally entitled to judgment with costs. … If the defendant proves a set-off for less than the plaintiff’s claim, judgment will be entered for the plaintiff for the balance. The plaintiff’s costs will be assessed on the basis of the amount actually recovered. That is, on the difference between the amount claimed and the amount the defendant has succeeded in setting off.
[13] The authors of Laws of New Zealand in turn cite Lund v Campbell, also cited by Judge Wilson, where the Court held in a case of a claim and counterclaim, that costs should be awarded to each party in proportion to their success.8
[14] Relying on these authorities, Mr Swan argues that where the “amount actually recovered” is two-thirds of the claim, costs should be so apportioned.
[15]He also relies on the following:
(a)In Packing In Ltd (In Liq) v Chilcott the Court viewed a situation where approximately equal success and failure attended the efforts of both sides.9 The Court found that in those circumstances success and failure
7 Christine French Laws of New Zealand Set-Off and Counterclaim (online ed) at [111] (citations omitted).
8 Lund v Campbell (1885) 14 QBD 821 (CA).
9 Packing In Limited (In Liq) v Chilcott (2003) 16 PRNZ 869 (CA).
is best assessed by stepping back and adopting a realistic appraisal of the end result.
(b)In Body Corporate 199883 v Auckland Council the Court found in circumstances where there were limited terms of success that the proper approach would be to see whether there is any reason to exercise judicial discretion pursuant to r 14.7, that is to refuse to make an order for costs or to reduce the costs otherwise payable to the successful party.10
(c)In Water Guard NZ Ltd v Midgen Enterprises Ltd the Court stated that limited success and unreasonable behaviour can be sufficiently provided for by reducing costs against the losing party, even to zero if necessary.11
[16] I am not helped by the passage from the Laws of New Zealand or the decision in Lund. Lund involved a successful counterclaim where the applicable rule is different.12 Even in such a case costs are not assessed in proportion to “the amount actually recovered”. Such an approach would also undermine the discretion of the Court to fix costs under DCR r 14.1.
[17] In the case of a set-off or successful partial defence, the party who receives the judgment usually receives full costs, even if the dollar sum recovered is materially less than claimed. As has often been said, partial success is still success. Reduction in costs follows more often when material time has been spent arguing an issue on which the successful party has failed,13 or where the dollar sum recovered is particularly modest.14 However, the Court does have a general discretion under DCR, r 14.7(f) to reduce costs of the successful party.
10 Body Corporate 199883 v Auckland Council [2017] NZHC 2455.
11 Water Guard NZ Ltd v Midgen Enterprises Ltd [2017] NZCA 36 at [13] and [15].
12 See District Court Rules 2014, r 14.15 and High Court Rules 2016, r 14.16 which provide that if the plaintiff succeeds in their proceeding and the defendant succeeds in a counterclaim costs are to be awarded as if each party had succeeded in an independent proceeding unless the justice of the case otherwise requires.
13 As was the case in Body Corporate 199883 v Auckland Council, above n 10; and see Water Guard NZ Ltd v Midgen Enterprises Ltd, above n 11, at [13].
14 Curly Ltd v Harvey Norman Stores HC Auckland M 29-IM02 24 May 2002 at [19].
[18] I agree with Mr Swan (and disagree with the submission for Cole John) that the issue of the possible effect on costs of ASCO’s successful set-off (which was opposed by Cole John) and/or Cole John’s limited success, was not considered by Judge Wilson. I therefore need to address it.
[19] Both parties seem to be agreed that the time spent on the equitable set-off issue was relatively limited. Nonetheless, the issue was significant and successful. It resulted in a reduction of over two-thirds of the amount sought by Cole John. Although not a counterclaim, which could have had a material effect on costs, the argument was in some ways akin to a counterclaim. The final judgment sum was a relatively modest amount, equating almost to the costs award. I do not ignore the fact that the proceeding was instigated by ASCO (and that ASCO sadly declined a fleeting opportunity to abandon it). Nevertheless, in the interests of fairness overall, I consider there should have been a small reduction of 20 per cent on the costs awarded to Cole John.
25 per cent uplift
[20] As noted above Judge Wilson uplifted the costs awarded to Cole John by 25 per cent on the basis of ASCO’s misconceived contractual claim and failure to comply with the Court’s rules and directions.
[21]I do not consider an uplift was justified on either basis.
[22] First, it was wrong in any event for the Judge to calculate the uplift on the basis of the total award. Such an uplift is only available when, in terms of DCR, r 14.6(3)(b) a party opposing costs has contributed unnecessarily to the time or expense of the proceeding, as opposed to a step in the proceeding. Here it cannot be said that these matters added in a material way to the time of the proceeding.
[23] Focusing on each step, little time would have been spent by Cole John on the cause of action in contract given there was no contract. As both parties agreed, the focus of the case from the outset was on Cole John’s counterclaim that the work carried out was defective. This involved inter alia both sides retaining experts and significant disbursements being awarded to Cole John. I would particularly doubt that material
extra time or expense was incurred on the contract claim (as opposed to the time allowance for each step) and do not consider that has been established. The Judge referred in this regard to Cole John’s submissions on costs but those submissions do not provide evidence of any significant additional work. Further, even though ASCO’s claim in contract was not withdrawn until some weeks before the trial, it was substituted with the affirmative defence of set-off in the same sum. I agree with Mr Swan that involved a change to the legal basis of the case (set-off instead of contract) rather than in substance. Finally on this point, I note a not dissimilar late amendment was made by Cole John in its pleading of estoppel, which was not advanced.
[24] The failures by ASCO in meeting timetable and discovery orders were identified in Cole John’s costs submissions. On 5 July 2018 Judge Marshall, by consent of the parties, made timetabling orders that ASCO had to file its defence by 19 July or Cole John could proceed to formal proof. ASCO’s explanation for the delay was that its representative was overseas. Then on 5 September 2018, Judge Menzies made a direction that ASCO was to provide discovery by 24 September and unless it did so Cole John could proceed by way of formal proof. However, the minute also addressed dates for filing willsay statements ahead of a joint settlement conference. Last, a joint memorandum was filed on 5 August 2020 seeking timetabling orders by consent, which included an unless order for the counterclaim to be set down for formal proof unless ASCO complied.
[25] I agree with Mr Swan that those failures to comply with the directions did not warrant a 25 per cent uplift, even in respect of the specific steps referred to. Cole John had already been awarded costs for the filing of the three memoranda and the conferences it attended in relation to these timetabling steps. I agree that to further penalise ASCO for these three instances is out of proportion to the failures of ASCO to comply with directions, which, despite the appearance of the unless order (by consent), seem relatively minor.
[26] I also note that delays caused in the case likely related primarily to the joint expert report and COVID-19. This is recorded in a joint memorandum dated 1 May 2020.
[27] In summary, I find that the uplift in costs by 25 per cent was in error and no uplift was warranted. The change in pleading had little or no effect on the course of the proceeding. The delays in meeting timetable obligations caused no prejudice to Cole John and any time taken to deal with the breaches was minimal in the overall proceeding and compensated by the standard award of costs.
Allowance for three days preparation
[28] As noted above, Cole John was awarded preparation time on a three day basis even though the trial was two days. The total amount claimed by Cole John on a three day basis was $11,460: $3,820 greater than for two days preparation.
[29] At [22] of the costs judgment Judge Wilson noted that on 2 September 2020 the hearing was set down for three days and in the following paragraph he expressed the view that “the hearing did not go into a third day in large part because ASCO made a late decision not to call some expected witnesses”.
[30] This statement was not strictly correct. The Court had set the matter down for three days on 2 September 2020 but following the discontinuance by ASCO of its claim on 16 September 2020 the parties reconsidered the trial time and the following day the hearing time was reduced to two days.
[31] At that time ASCO filed a memorandum dated 16 September that signalled it was unlikely it would call any evidence. Mr Swan submits that was largely because the experts had already agreed on the remedial work to be carried out and the issue for ASCO was essentially its liability for that defective work. That may be so but ASCO’s actual memorandum records that providing Cole John reduced its claim ASCO was unlikely to call any evidence. Cole John did not reduce its claim.
[32] ASCO nonetheless only called one witness. That decision seems to have been a very late decision; Cole John was apparently not notified of this until the hearing. Presumably Cole John would have at least had to prepare cross-examination for the two extra witnesses.
[33] Although the Judge’s reasoning may have been somewhat incomplete it does seem that Cole John’s preparation would have been greater than required for the two day hearing, inter alia because the witnesses were not called.
[34] Further, this is a matter that very much falls into the domain of the Judge hearing the case.15 He clearly considered three days allowance for preparation to be reasonable and I do not consider the allowance he made can be said to be wrong.
Costs for additional discovery
[35] Cole John claimed additional costs of $5,253 for a supplementary list of documents, production and inspection of same.
[36] Judge Wilson found that ongoing discovery is a necessary step to proceed to trial and awarded the additional sum.
[37] Cole John provided two lists of documents. The first was on 9 August 2018 and the second (supplementary) list was on 10 February 2020. Significantly, most of the documents (42 out of 69) in the supplementary list predated the first list of documents. If they were relevant, they should have been included in that first list.16
[38] The balance of the documents listed in the supplementary list were largely photos taken after the first list of documents along with five other documents, including a quote, Council records and a liquidator’s report.
[39] While in appropriate circumstances a successful party may be eligible for costs for ongoing discovery, in the circumstances of this case I do not consider an additional award of costs to be justified.
15 See Water Guard NZ Ltd v Midgen Enterprises Ltd, above n 11, at [11].
16 Cole John did contend in written submissions that the second discovery was the result of one of ASCO’s briefs putting the conduct of Cole John’s former solicitor in issue. That point was not pursued orally and I would find it difficult to follow how such an issue was relevant. It does not seem to have been argued before the Judge.
Finding by Judge Wilson that judgment sum is payable now
[40] ASCO complains about paragraphs [13] and [27] in the costs judgment which state:
(i)I find that there was no legal basis for ASCO’s contractual claim as there never was any contract between ASCO and Cole John; and
(ii)The judgment sum is payable now.
[41] As I understand it Mr Swan’s concern here is connected to enforcement and interest issues.
[42] Mr Swan says that the District Court Judge is functus officio after delivery of the substantive judgment and that he had no jurisdiction to add to or change the effect of the judgment.
[43] I agree with Mr Swan’s statement of the law, but disagree that the substantive judgment was in any way changed. First, it was implicit in ASCO’s withdrawal of its claim for breach of contract that it accepted there was no legal basis for a claim framed in that way and it would be absurd to contend otherwise. Secondly, the effect of the substantive judgment of Judge Wilson is that judgment was entered. It was therefore payable as from that date, subject to the reduction in the judgment sum following the appeal.
[44] I accept that the paragraph at the end of the District Court judgment, on which Mr Swan relies (where the Judge refers to the need for the parties to confer on remediation costs), was confusing. It seems to have been a last minute (and incorrect) observation on the part of the Judge. It does not detract from the fact that judgment was entered at that time.
Interest
[45] In Cole John’s third amended statement of counterclaim, it sought interest under s 9 of the IMC.
[46] Neither of the District Court judgments refers to interest but, as noted, the sealed judgment includes interest of $5,691.77 down to 1 October 2021 and interest thereafter until payment.
[47] ASCO complains that Cole John has not provided its interest calculations under the IMC despite requests and that the interest sum for which judgment was sealed must be incorrect.
[48] ASCO also claims that Cole John failed to plead s 10 of the IMC and that Cole John is therefore not entitled to an award of interest.
[49] This is not a matter which falls into the domain of this appeal, which is an appeal against the costs judgment of Judge Wilson. The judgment did not relate to interest on the judgment sum. In any event, I expect counsel to be well capable of resolving this matter between them and I would be unimpressed if that were not possible.
[50] In the course of the hearing I pointed out that the interest calculation appears to be incorrect. Absent a court order, interest can only be awarded on the (ultimate) judgment sum of $50,089 from the date of the District Court judgment, namely 8 December 2020. It is difficult therefore to see how interest has reached the amount claimed, by 1 October 2021. That would be in excess of 10 per cent per annum.
Result
[51] For the above reasons the appeal is allowed. The costs judgment is set aside and costs are to be recalculated on the basis of the findings above.
[52] ASCO is the successful party on the appeal, all things considered, and is entitled to costs on a 2B basis. I do not need further submissions in that regard as all relevant submissions are already before me.
Hinton J
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