BGC 1990 Limited v ASC Architects Limited

[2013] NZHC 931

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV2011-404-007076 [2013] NZHC 931

BETWEEN  BGC 1990 LIMITED Plaintiff

ANDASC ARCHITECTS LIMITED First Defendant

ANDSUMMIT ROOFING 1998 LIMITED Second Defendant

ANDAUCKLAND COUNCIL Third Defendant

Hearing:         By memoranda

Counsel:         K F Gould for plaintiff

B Martelli for third defendant

Judgment:      1 May 2013

JUDGMENT OF ASSOCIATE JUDGE ABBOTT

This judgment was delivered by me on 1 May 2013 at 2.30pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:

D M Graham, DMG Solicitors, PO Box 99188, Newmarket, Auckland 1149

B Martelli, Heaney & Co, PO Box 105391, Auckland

Counsel:

K F Gould, PO Box 1011, Shortland Street, Auckland 1140

BGC 1990 LIMITED V ASC ARCHITECTS LIMITED HC AK CIV 2011-404-007076 [1 May 2013]

[1]      The third defendant, Auckland Council, has applied for an order for increased costs, after the claim by the plaintiff, BGC 1990 Ltd, was struck out on the Council’s (unopposed) application.

[2]      BGC accepts that scale costs are payable (and does not dispute the items of costs being sought), but opposes the increased costs being sought.  For the reasons I will now give, I accept that the Council is entitled to a 50% increase on scale costs on a 2B basis.

Background

[3]      BGC’s claim against the Council had its genesis in a separate proceeding issued by the Board of Trustees of Epsom Girls Grammar School in respect of two allegedly leaky buildings.  BGC was the builder.  It was sued along with the architect and a roofing company.   BGC settled the Board of Trustees’ claim against it, and then  issued  this  proceeding  against  the  architect,  the  roofing  company  and  the Council on 4 November 2011.

[4]      On 7 November 2011, and immediately after receiving the proceedings, the Council’s  solicitors  wrote  to  BGC’s  solicitors  by email.    They invited  BGC  to discontinue its claim (ahead of a likely application to strike out) on the grounds that the Council did not owe BGC (or any party) a duty of care in respect of commercial developments.  They warned that there would be cost implications if BGC did not discontinue.

[5]      On 15 November 2011, the Council’s solicitors wrote in greater detail to BGC’s counsel, having considered the claim in greater detail.   They said that the pleadings did not disclose a reasonable cause of action against the Council, and again invited BGC to discontinue its claim.  They pointed out that BGC did not fit within the “Hamlin” category of plaintiffs whom the Council might owe a duty of

care, and referred to a “leaky school” case1  where this Court had found that the

1 Mt Albert Grammar School Board of Trustees v Auckland City Council HC Auckland CIV-2007-

404-4090, 25 June 2009, Asher J.

Council did not owe a duty of care to the school in respect of buildings constructed for it.  The solicitors also referred to other authority rejecting the existence of a duty of care by a local authority to owners of non-residential property.  They advised that the Council would be applying to strike out the claim if BGC did not discontinue it, but added that the Council would not seek costs if discontinuance occurred at that point.   However, they also advised that if BGC elected to proceed with its case against the Council, the Council would apply to strike out the claim and seek to recover its full legal and expert costs.  They reserved the right to produce that letter to the Court in support of an application for increased costs, if it was necessary.

[6]      BGC did not respond to either the opening email or the later letter.   The Council filed its statement of defence on 16 December 2011, reiterating its position that it did not owe a duty of care to BGC.

[7]      On 16 January 2012, counsel for the Council telephoned counsel for BGC in a further effort to get BGC to discontinue its claim.  Although there is a difference between the parties on the point, the Council also contends that BGC’s counsel was told that BGC would need to make a proposal on costs as part of any discontinuance at that stage, given work already undertaken on an application to strike out (BGC’s counsel says that he has no recall of this requirement).

[8]      The Council filed an application to strike out the claim and/or for summary judgment, on 23 January 2012.  It was given a first call in a first case management conference for the proceeding on 15 February 2012.   BGC did not file notice of opposition, but filed a memorandum for the conference stating that “after further consideration, BGC 1990 Ltd does not oppose the striking out”.  On the same day BGC’s counsel wrote to the Council’s solicitors advising that BGC would consent to the application to strike out, provided no costs were sought.  The Council’s solicitors responded  immediately  (in  a  letter  headed  without  prejudice  save  as  to  costs) advising that the Council was not prepared to forego costs in light of it having been put to the cost of bringing its application (in particular) notwithstanding the earlier invitations to BGC to discontinue.

[9]      At the case management conference on 15 February 2012, the Court accepted that  it  was  appropriate  to  make  an  order  to  strike  out,  in  the  absence  of  any opposition, and made an order accordingly.  The Court also recorded that there was an issue over costs.  The parties filed memoranda in which the Council sought scale costs (2B) of $6,204, increased by 75% to $10,857, together with disbursements of

$927.81,  and  BGC  said  that  it  should  pay only the scale  costs  of $6,204  with appropriate disbursements.

[10]     The parties subsequently filed further memoranda advising that BGC was placed into liquidation on 6 August 2012, pursuant to a special resolution of shareholders.   The Council had filed a proof of debt seeking its costs from the liquidators, but still sought an order to confirm the amount claimable in the liquidation (and ahead of any payment of a dividend).

Basis for increased costs

[11]   The Council seeks increased costs on the basis that BGC contributed unnecessarily to the time or expense of the proceeding by taking a step that lacked merit or by failing, without reasonable justification, to accept its invitation to discontinue the proceeding before the Council incurred any costs.2   As to the first of these grounds, it relies in particular on its solicitor’s letter of 15 November 2011, which set out in specific terms the reasons that it said that BGC could not succeed.

In respect of the second ground it relies on the two written requests (both of which constituted a Calderbank offer).   It maintains that a 75% increase was appropriate (relying on Jung v Templeton)3 given the clear nature of its offer not to seek costs if the claim was discontinued immediately, and BGC’s unreasonable rejection of that letter.

BGC’s opposition

[12]     BGC  opposes  an  order  for  increased  costs  on  the  basis  that  it  acted responsibly throughout, and the Council acted over-zealously in filing its application

2 Relying on High Court Rules 14.6(3)(b)(ii) and (v).

3 Jung v Templeton HC Auckland CIV-2007-404-5383, 5 February 2010, Venning J.

just seven days after the telephone conversation on 16 January 2012.  It says that the matter could have been addressed adequately at the case management conference scheduled for 15 February 2012.

Issues and determination

[13]     Two issues need to be determined.  The first is whether increased costs are warranted.   The  second  is  whether  the  75%  increase  sought  by the  Council  is appropriate.

[14]     I do not accept BGC’s grounds for resisting an order for increased costs.  The Council acted promptly in putting the reasons  to BGC that its claim could not succeed  (with  explicit  reference  to  authority).    BGC  did  not  act  reasonably  in delaying its response to the offer until shortly before the case management conference, in the knowledge that the Council would have to incur costs in taking steps ahead of that conference.

[15]     Equally, I do not accept that the Council acted over-zealously in bringing its application to strike out.   It gave BGC ample opportunity to consider its position, and in light of the correspondence in November 2012, its decision to issue the application a week after what was described as a “last ditch” attempt to get BGC to discontinue was not unreasonable.  Equally, there was no reason for the Council to leave the matter until it could be discussed at the first case management conference, in light of its view that the matter was so clear (a position that was accepted by BGC ahead of the conference).

[16]     I am not persuaded, however, that an increase of 75% is appropriate.   The Court of Appeal has said4 that where increased costs are awarded, an uplift of more than 50% would generally not be appropriate.  The reason for that is that the daily recovery rates specified in Schedule 2 of the High Court Rules represent two thirds of the daily rate considered reasonable for proceedings of the relevant complexity,

and therefore, an uplift should not generally be greater than 50%.  As the Court of

Appeal stated:5

Any  greater  recovery  than  that  would  mean  the  party  paying  costs  is

contributing to the other party’s choice of special counsel.

[17]     I do not consider that the Council’s reliance on Jung v Templeton assists it.  In that case, the Court awarded 75% uplift in part because some of the costs of the proceeding had already been determined on a 2B basis, and the uplift was ordered only in respect of the balance of the steps (so it was unlikely to have exceeded 50% overall).

[18]     I consider that a fair recovery is provided to the Council by an uplift of 50%.

Decision

[19]     BGC is to pay the Council costs on a scale 2B basis, uplifted by 50%,

amounting to $9,306.  It is also to pay the Council’s disbursements of $927.81.

Associate Judge Abbott