Body Corporate 170812 v Auckland City Council HC Auckland CIV 2003-404-007259
[2008] NZHC 2476
•4 August 2008
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2003-404-007259
BETWEEN BODY CORPORATE 170812
First Plaintiff
AND B WIDJAJA & ORS Second Plaintiffs
ANDAUCKLAND CITY COUNCIL First Defendant
ANDDAINTY ALDERTON & ASSOCIATES Second Defendant
ANDMANSON DEVELOPMENTS LIMITED Third Defendant
ANDWATER WORKS LIMITED Third Party
Hearing: 24 August 2006
Counsel: G J Turner for third defendant
N W Ingram QC for second third party
Judgment: 4 August 2008 at 2:45pm
JUDGMENT OF ASSOCIATE JUDGE ABBOTT
This judgment was delivered by me on 4 August 2008 at 2:45pm pursuant to Rule 540(4) of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Fortune Manning, PO Box 4139, Auckland for third defendant
King Gerrard Partners, PO Box 327, Pukekohe for second third party
BODY CORPORATE 170812 AND ANOR V AUCKLAND CITY COUNCIL AND ORS HC AK CIV 2003-
404-007259 4 August 2008
[1] The second third party, Franklin Plumbers and Builders Supplies Limited (Franklin) has applied for costs following discontinuance by the third defendant Manson Developments Limited (Manson) of a third party claim against Franklin.
[2] Manson is the developer and head contractor of an 87-unit residential apartment complex in Wakefield Street, Auckland (the Embassy Apartments). The owners of the units are suing Manson (and others) for the costs of remedying alleged defects in construction.
[3] One of the alleged defects is a failure of the water pipes within the building due to corrosion. The water pipes were supplied by Franklin (a wholesaler of plumbing supplies), but installed by another party. Manson joined Franklin as a third party, claiming a contribution for indemnity from Franklin as a joint tortfeasor by reason of its supply of the water pipes.
[4] Franklin sought particulars of the claim against it on several occasions. Eventually it applied to dismiss Manson’s claim or set aside the third party notice. There were two main grounds for the application. The first was that Manson had failed to plead a tenable basis in law upon which Franklin could be said to owe the plaintiff owners a duty of care in tort. The second was that Manson had failed to plead facts which could amount to a breach of any duty of care. Franklin also sought indemnity costs.
[5] Manson discontinued its claim before Franklin’s application was heard. Franklin seeks costs as a result of that discontinuance, on an indemnity basis. Franklin says that the claim against it had no hope of success and should not have been commenced, or continued for as long as it was. In the alternative, Franklin seeks increased costs. Manson accepts that Franklin is entitled to an award of costs following the discontinuance, but says that there is no basis for indemnity or increased costs. It says that an award on a 2B basis is appropriate.
[6] The issues for the Court on this application are whether Franklin has made out a case for an award of indemnity or increased costs and, if so, how it should exercise its discretion in the circumstances of the case. If the claim for indemnity or
increased costs is not made out, the Court must determine the appropriate cost category and time band for the various steps in the proceeding.
History of the claim
[7] The plaintiffs commenced their proceeding in late December 2003. They claimed remedial costs estimated at $1,000,000 to repair defects resulting in water ingress to the building and $200,000 to repair the defective water pipes. The plaintiffs also claimed loss of value to their units and consequential costs (such as professional fees) in amounts to be quantified, and general damages of $1,720,000. The claims other than the direct remedial costs were not apportioned as between the defective water pipes and the other defects.
[8] Manson filed a statement of defence in February 2004 and engaged a building consultant to provide it with expert advice. It promptly joined the sub- contractor who installed the pipework as a third party. At the first case management conference a direction was made that any further third parties be joined by mid June
2004. Ahead of a case management conference in September 2004, counsel for Manson sought extension of time for doing so. That was overlooked in the conference but Manson issued its claim against Franklin in October 2004 (within the extended time period that it had sought). Formal leave for the joinder was given (over the objection of counsel for Franklin) when the proceeding had its next conference in December 2004.
[9] Franklin had not filed a statement of defence by the time of the December conference. It sought provision of particulars by both the plaintiffs and Manson ahead of doing so.
[10] Franklin learnt shortly after the December conference that some remedial work had already been undertaken, and pipes had been removed from the building. It instructed a building consultant to investigate and report on the extent of work undertaken and the condition of remaining pipework. Early in 2005, it engaged an expert metallurgist based in Australia to investigate the cause of the corrosion.
[11] Both the plaintiffs and Manson responded to the requests for particulars, and Manson had filed its statement of defence, before the matter next came before the Court (in a further case management conference on 20 April 2005).
[12] Counsel for Franklin, Dr Ingram, raised a number of matters at the April conference. He said that the particulars of Manson’s claim were inadequate. He focused particularly on the acts or omissions by Franklin which were said to constitute the breach of any duty of care (having previously sought particulars of both the alleged duty of care and its breach in December 2004). He also raised issues about the plaintiffs’ discovery and sought preservation of pipes being removed from the building. Orders were made for filing of amended statements of claim by both the plaintiffs and Manson. A timetable was set for a contested application for discovery as between Franklin and the plaintiffs (mainly in relation to quantum of the claim). An interim preservation order was made in respect of pipes removed in the course of remedial work. Arrangements were also made for a site visit by experts in the week after the conference, and for Manson’s experts to obtain access to the site for the purpose of destructive testing. The Court accepted that Franklin should not be required to provide discovery before further particulars of the claim were given to it (in the form of the amended statements of claim).
[13] Franklin’s metallurgist inspected the building with Franklin’s lawyers and building expert following the conference. On the recommendation of its metallurgist Franklin later arranged for the taking of water samples and testing by an expert microbiologist. The expert completed his investigations in October 2005.
[14] Manson instructed an expert metallurgist on 21 April 2005, the day after the April conference. There is no evidence as to the date that he first visited the site (it appears that he based his initial report on analysis of reports of the plaintiffs’ experts). He did not complete his investigations until early 2006.
[15] Franklin’s application for discovery was heard and determined in mid June
2005, and a further case management conference held at the end of that month. The plaintiffs had filed their amended statement of claim by that time, but Manson was still seeking further particulars ahead of filing its amended statement of claim against
Franklin. The Court’s minute recorded that retirement of Manson’s claim against Franklin could only be carried out when the plaintiffs’ discovery had been received. The need for the metallurgist’s report was not mentioned in Manson’s memorandum, nor recorded as a ground for seeking further time. A revised timetable was set for Manson to file its amended statement of claim by 31 August 2008.
[16] Manson failed to file its amended statement of claim as ordered. Franklin filed an application to dismiss the third party claim for non-compliance, and to set aside the third party notice on the grounds that it failed to disclose a reasonable cause of action.
[17] Franklin’s application came before the Court on 9 December 2005. Manson had not filed a notice of opposition by that date. It sought an extension of time for filing its amended claim against Franklin, and an order that Franklin provide discovery. Counsel for Manson informed the Court that it had not filed the amended claim because its expert metallurgist had not completed his investigations, and Manson wished to establish who had supplied fittings for connecting pipes, because those fittings appeared to be incompatible with the galvanised iron pipe. He submitted that there was a tenable argument for a breach of duty of care in that Manson had submitted drawings for the building to Franklin for the take off of requisite materials, and Franklins had a duty to select pipes and fittings that were compatible. The discovery was being sought to establish what materials Franklin had in fact supplied.
[18] Manson was given further time to serve a notice of opposition and a further hearing date was set to establish whether a defended hearing would be needed. Manson did not file notice of opposition. It discontinued its claim against Franklin shortly before that further hearing.
The pleading against Franklin
[19] The relevant parts of Manson’s claim against Franklin read:
1. In this proceeding the plaintiffs have claimed:
(a) That the third defendant [Manson], in its capacity as contractor and developer, owed the plaintiffs a duty of care to construct the Embassy Apartments to a proper and workmanlike standard.
(b)That the third defendant breached the duty in that the apartments were constructed in such a way that they contain defects.
(c) The defects are specified in paragraph 10 of the statement of claim. …
…
5.In or about late 1994 or early 1995 the third defendant entered into a contract with the first third party to determine the finite design, fittings, and method of installation of the plumbing works to be undertaken and to effect all of same.
6.The third defendant subsequently contracted with the second third party [Franklin] to supply the waterpipes for the Building.
…
8.If the breach of duty of care as set out in paragraph 1 above is established (which is denied), then the third defendant is entitled to a contribution/indemnity from the second third party as a joint tortfeasor pursuant to section 17 of the Law Reform Act 1936.
[20] The plaintiffs’ claim against Manson pleaded the defects relating to the waterpipes as follows:
10.In 2002, the various owners within the Embassy Apartments noticed defects to the apartments, such defects being:
…
(k) there is scalloping and corrosion on the waterpipes, the likely cause of which is micro-biologically influenced corrosion, Galvanic corrosion and/or stray current corrosion caused by copper and steel touching;
…
12.As a result of the defect referred to in sub-paragraph (k) above, various portions of the pipe work are being repaired or replaced (“the pipe repairs”). …
[21] The plaintiffs gave particulars of the leaking pipes (identifying their location and the nature of the failure as a pin hole leak in most cases) in March 2005, and amended its statement of claim in May 2005 to provide particulars of the pipe repairs
that had been, or were to be, undertaken. There was also no further pleading of Manson’s claim against Franklin prior to discontinuance. There was no further pleading as to the cause of the corrosion.
The claim for indemnity costs
[22] Dr Ingram, contended that Manson’s claim was hopeless from the outset. The third party claim was brought on the basis that Franklin was a joint tortfeasor with Manson. The only allegation by the plaintiff affecting Franklin was that the water pipes which Franklin supplied for use in the building had corroded. He submitted that this could not make Franklin a joint tortfeason (it owed no duty of care, and there was nothing alleged which amounted to a breach of any duty. He argued that if Manson had investigated the claim properly before issuing the claim against Franklin the likelihood was that none of the costs now claimed would have been incurred.
[23] Franklin has paid $175,604.02 in costs. This sum comprises:
a) Solicitors fees: $51,637.50 b) Senior counsel’s fees: $66,437.77 c) Junior counsel’s fees: $22,480.14 d) Expert’s fees: $33,506.61 e) Disbursements: $1,542.00
Dr Ingram justified those substantial costs claimed on the grounds that it was reasonable for Franklin to have responded to the claim as vigorously as it did in light of the potential risk to it (not just on this building but also on three other apartment buildings where it had supplied product to Manson) and Manson’s dilatoriness in investigating the cause of the corrosion.
[24] Mr Turner, acting for Manson, argued that this was not one of the exceptional cases where indemnity costs were warranted. He argued that there was a sufficiently proximate relationship between Franklin and the plaintiffs to provide an arguable legal basis for a duty of care to the plaintiffs in respect of the supply of pipe, and there was a reasonable basis at the time of the joinder (in reports by the plaintiffs’ experts) for taking the view that the corrosion was due to defects in the pipes. He said that Manson discontinued as soon as their investigations revealed that the cause of the corrosion could be other than defects in the pipes or electrolysis resulting from different metals in the pipe and connecting fittings. He also took issue with the level of costs incurred in relation to the amount of the claim.
The principles for awarding indemnity costs
[25] The Court’s power to award indemnity costs is to be found in r 48C(4) of the
High Court Rules. The relevant portions of that rule read:
(4) The Court may order a party to pay indemnity costs if—
(a)The party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or
(b)The party has ignored or disobeyed an order or direction of the Court or breached an undertaking given to the Court or another party to the proceeding; or
…
(f) Some other reason exists which justifies the Court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious.
[26] Franklin also relies on the general discretion of the Court in relation to costs in r 46, the relevant parts of which read:
46 Costs at discretion of Court
(1)All matters relating to the costs of and incidental to a proceeding or a step in a proceeding are at the discretion of the Court.
(2) Rules 47 to 48G apply subject to subclause (1).
The general discretion under r 46, however, is exercisable only in situations not contemplated by the specific costs rules (rr 47-48G) or which are unfairly recognised by them: Glaister v Amalgamated Dairies Ltd [2004] 2 NZLR 606. In Glaister the Court of Appeal commented (at para 24):
… the discretion exists to enable the unexpected and the unforeseen to be fairly accommodated. It is not a case of r 46 having an exclusionary primacy over r 47 (or any other rules) : the rules are complementary, and designed to produce an effective whole.
[27] The Court does not award indemnity costs lightly. They tend to be awarded where truly exceptional circumstances exist: Hedley v Kiwi Co-operative Dairies Limited (2002) 16 PRNZ 694. In Hedley, Goddard J found assistance in a decision of the Federal Court of Australia, Colgate Palmolive Co v Cussons Pty Ltd (1993)
118 ALR 248 where that Court set out principles for guiding the exercise of its discretion, and identified a number of circumstances warranting the exercise of the discretion. Although not all have relevance to the present case, they are a guide to what is needed to reach the level of an exceptional case (the following summary is taken from the headnote in Colgate):
… Circumstances warranting the exercise of the discretion to award indemnity costs include:
(a) the making of allegations of fraud knowing them to be false, and the making of irrelevant allegations of fraud;
(b)evidence of particular misconduct that causes loss of time to the court and other parties;
(c) the fact that the proceedings were commenced for some ulterior motive;
(d)the fact that the proceedings were commenced in wilful disregard of known facts or clearly established law;
(e) the making of allegations that ought never to have been made or the undue prolongation of a case by groundless contentions;
(f) an imprudent refusal of an offer to compromise; and
(g) an award of costs on an indemnity basis against a contemnor.
[28] In formulating the principles in Colgate, Sheppard J reviewed earlier Australian authorities, and (at 254) cited the following passages from two of those authorities which were relied upon by Dr Ingram:
I believe that it is appropriate to consider awarding “solicitor and client” or “indemnity” costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion.
(Fountain Selected Meats (Sales) Pty Ltd v International Produce
MerchantsPty Ltd (1988) 81 ALR 397, 401
at 255)
Although there is said to be a presumption in such cases that the action was commenced or continued for some ulterior motive or in wilful disregard of known facts or clearly established law, it is not a necessary condition of the power to award such costs that a collateral purpose or some species of fraud be established. It is sufficient, in my opinion, to enliven the discretion to award such costs that, for whatever reason, a party persists in what should on proper consideration be seen to be a hopeless case.
(J-Corp Pty Ltd v Australian Builders Labourers Federation Union of
Workers (Fed C of A, 19 Feb 1993, unreported))
These authorities underscore the point made in the recent decision of the Court of Appeal in Paper Reclaim Ltd v Aotearoa International Ltd [2006] 3 NZLR 188 that the threshold is a high one.
Discussion regarding indemnity costs
[29] Dr Ingram’s first point was that there was no legal basis upon which Franklin could owe the plaintiffs a duty of care, and that it could not therefore be a joint tortfeasor with Manson. This was because the only allegation by the plaintiff affecting Franklin was that the water pipes, which Franklin supplied for use in the building, had corroded. Dr Ingram stated that the furthest that this could be taken was a claim of failure to take care in the performance of the contract for supply, and that that duty was essentially contractual and could not be owed to the plaintiffs as they were not a party to the contract : Rolls Royce NZ Ltd v Carter Holt Harvey Ltd [2005] 1 NZLR 324 (at para [66]).
[30] Mr Turner argued that there was a legal basis, as Manson had pursued its claim on the ground that Franklin had been given the plans to determine what materials were needed and by providing the galvanised pipe had represented that it was the appropriate product for the work. As such, and although it was not pleaded in these terms, it could be construed as negligent advice (which the Court of Appeal in Rolls Royce had left open as a possible cause of action on similar facts).
[31] Although the claim was not explicitly pleaded in the way put forward by Mr Turner, and there was no evidence given by Manson to support the factual basis for it (that Franklin had been asked to determine the materials off the plans), I am not persuaded that there was no arguable legal basis for the claim when it was first filed. The fact that Franklin did not immediately apply to strike-out supports this view. Dr Ingram justified its decision not to do so on the ground that it wished to establish that there was no possible means of pleading the claim (by seeking further particulars) before taking that step. That further supports my view that at least at the outset there was a possible legal basis for it. Moreover, Franklin’s pursuit of discovery from the plaintiffs in early to mid 2005 indicates acceptance that there was an arguable case to answer at that point.
[32] Dr Ingram’s second point, on which he placed most weight in his submissions, was that there was no factual basis pleaded or available to Manson for alleging a breach of any duty of care arising out of its supply of the pipes. He argued that Manson could and should have identified the causes of the corrosion before it issued the claim against Franklin. Instead, Manson only instructed an expert metallurgist on 21 April 2005.
[33] Mr Turner argued that there was a factual basis for the claim against Franklin. He submitted that there was a sufficient basis in the reports of the plaintiffs’ experts on the failure of the pipes. One of the reports of the plaintiffs’ experts was referred to in Franklin’s experts’ report. This report stated that corrosion was the cause. The corrosion was attributed to microbiological influences, differential aeration and use of dissimilar metals. The report did not identify how those factors resulted in the corrosion that was found. Mr Turner also said that it was reasonable for Manson continue the claim until its expert had completed his
investigations, and that was done as quickly as possible taking into account constraints in access to the pipe remaining in the building. The experts’ report was not received before the date that Manson had to file its amended statement of claim (25 May 2005) and the expert’s investigations took until early 2006 to complete.
[34] I am satisfied there was a factual basis to support the issue of the claim. It clearly required further investigation, but that is not unusual. It does not make the case exceptional for the purpose of indemnity costs. I do not accept that the expert metallurgist’s report should have been obtained before the claim was issued to ensure that there was a sufficient factual basis for it. Manson had access to the plaintiffs’ experts’ reports, one of which at least provided a factual starting point for the claim. Manson’s expert is said to have initially supported defective pipes as the cause (based on the evidence produced by the plaintiffs’ experts), but after inspection came to the view that a better or additional cause was incompatibility of the metals in the pipe as against the fittings. Manson’s understanding was that Franklin supplied both – giving rise to a further aspect of allegedly negligent advice. Accordingly, even if Manson had sought advice from its own expert earlier, it seems likely that that advice initially would have justified issuing the claim on the basis of these views.
[35] Dr Ingram was critical not only of the delay in engaging the expert, but also of the time that it took to complete investigation. I will take both matters into account on time banding and increased costs, but do not see that they justify indemnity costs in light of the plaintiffs’ experts’ advice. I also note that it took Franklin’s expert metallurgist approximately the same time as Manson’s expert to provide a final report (Franklin’s expert was engaged in about February 2005 and reported in October 2005; Manson’s expert was engaged in April 2005 and reported finally in about January 2006).
[36] It is now necessary to address Manson’s failure to provide particulars of the duty of care for acts and omissions comprising breach. Dr Ingram argued that indemnity costs were warranted because of Manson’s failure to respond properly to the requests, and subsequent directions of the Court to file amended pleadings with the particulars, or discontinue the claim. He made a similar criticism in relation to
Manson’s failure to file notice of opposition to the application to strike out as directed in late 2006. Mr Turner submitted that Mansons provided particulars to the extent that they could having regard to the state of the plaintiffs’ claim against it, lack of records due to passage of time, the timing of discovery from other parties, and difficulties in access to the defective pipe resulting in delay in delivery of its experts final report.
[37] I do not regard Manson’s failure to reply comprehensively to the request for particulars (including the amendment of its statements of claim) as a deliberate disregard of obligations, including the directions of the Court. I am satisfied from the Court record that Mansons was endeavouring to comply with its obligations, and indemnity costs are not warranted on this basis.
[38] Franklin has not persuaded me that Mansons acted vexatiously, frivolously, improperly, or unnecessarily either in commencing or continuing the proceeding for as long as it did. Nor do I find that it has wilfully ignored or disobeyed the directions of the Court so as to justify indemnity costs.
[39] Dr Ingram argued additionally that I should recognise the significant expenditure to which Franklin had been put and exercise my discretion under r 46 to award indemnity costs. He pointed to a number of factors present in this case which he argued were unexpected and unforeseen and which the standards costs regime does not fairly recognise. They include Manson’s delay in issuing this claim without taking steps to preserve pipe samples, placing sole reliance on the plaintiffs’ experts and not engaging its own expert and, “the shifting sands” of its claim from alleged negligent supply of defective pipe to alleged negligent advice as to compatibility of pipe and fittings. Dr Ingram submitted that Franklin’s vigorous (and costly) response was justified by these steps and warranted departure from the standard regime. Whilst I accept that these are factors which I should take into account on time banding and increased costs, I do not regard them as so unexpected or unforeseen as to warrant use of r 46 to award indemnity costs where the case does not otherwise amount to a “truly exceptional one”.
Cost category and time banding
[40] Dr Ingram submitted that the complexity and significance of this case warranted categorisation under r 48 as a category 3 proceeding, and that a combination of factors meant that a comparatively large amount of time was warranted for the steps in the proceeding so as to require C banding under r 48B.
[41] Dr Ingram argued that the complexity and significance of this case warranted classification under r 48 as a category 3 proceeding. Dr Ingram submitted that there were several aspects to Manson’s claim which made it particularly complex. He said that there was a novel legal issue on the question of duty of care, the cause of the corrosion was a highly technical matter requiring extensive expert investigation, and there were potentially complicated issues over apportionment of consequential losses and general damages.
[42] Mr Turner argued that there was no particular complexity to Manson’s claim which took it beyond a standard negligence claim. He said that the case was capable of being handled by a counsel of average skill and experience even if Franklin chose to engage senior counsel. He pointed out that Franklin had been awarded costs on its discovery application against the plaintiffs on a category 2 basis.
[43] A category 3 classification requires the proceeding to have a level of complexity that requires counsel of special skill or experience. I do not regard the proceeding as a whole as having had a complexity requiring counsel of special skill or experience (the criterion under r 48). It is basically a building dispute. The fact that there are 85 plaintiffs, with individual claims for losses and general damages, and multiple defendants makes it time intensive rather than complex. The claim as pleaded did appear to raise a novel duty of care. However, as identified by Mr Turner in submissions it was no more than a potential negligent misstatement case (which would ultimately be decided on its facts). The issue of duty of care was capable of being argued by counsel of average skill and experience. The technical issues over the cause of corrosion, whilst they took some time to unravel (and were of scientific interest at least to Franklin’s expert) did not require specialised skill or experience to present. The specialised skill and experience required was that of the
expert, rather than counsel, and the experts’ costs can be addressed independently. Nor was there anything out of the ordinary about the issues raised by the damages being sought.
[44] Dr Ingram also submitted that the significance of the claim to Franklin was a reason for category 3 classification. He referred both to the potential quantum of the claim and the wider implications of the claim to Franklin’s business. He said that the repair costs of $200,000 were an estimate only (and there was still a significant amount or paperwork still to be replaced when Franklin was joined), the consequential losses were unidentified, and the overall general damages were very large. He added that Franklin regarded itself as a mere supplier of materials rather than an adviser on them; and had also supplied pipe for three other large buildings, one of which was already subject to litigation.
[45] I have no doubt that Franklin was concerned by this claim and its possible consequences. However, on its own this does not make Franklin any different to any commercial party facing a substantial claim in relation to some aspect of its business.
[46] The plaintiffs’ claim has been classified as category 2. Whilst individually the factors identified by Dr Ingram might not justify a reclassification for the Manson claim, I consider it appropriate to consider their collective effect, especially in the context that Manson eventually decided that the claim was unsustainable. Franklin was presented with a claim alleging a duty of care, said to arise merely out of supply of defective pipes. Neither the legal basis for the duty of care nor the acts or omissions which were said to give rise to it were pleaded. The claim had been running for 8 months at that time. The cost of repair was no more than an estimate, and there was an unspecified exposure for consequential losses (including professional fees). There was also a significant general damages claim, and no indication of how that might be apportioned. The claim had wider ramifications in that Franklin had similarly supplied pipe to Mansons for use in other buildings. In my view that combination of factors justified engagement of counsel with particular skill and expertise to investigate the claim. He immediately pursued the perceived deficiencies, identifying a need to get to the root cause of the corrosion and problems in that respect because defective pipes had already been removed. Manson’s
inability to respond adequately, and its delays in engaging its own expert, culminating in the strike out application, were justification for a higher level of skill and experience than the norm.
[47] I do not overlook the fact that the proceeding as a whole had already been given a category 2 classification (before Franklin’s joinder) and category 2 costs had been recognised as appropriate for Franklin’s application for further discovery from the plaintiffs. This does not stop me from reclassifying Manson’s claim, particularly in light of its discontinuance. I can accept readily that category 2 costs could be appropriate to the specific discovery application. I am satisfied, however, that the matters I have identified are sufficient reason for reclassifying the rest of the Manson claim as category 3.
[48] I turn now to consider time banding. Dr Ingram submitted that the combination of factors meant that a comparatively large amount of time was warranted for the steps in the proceeding so as to require C banding: r 48B. Mr Turner submitted that this was a normal third party claim, warranting no more than B banding. I am not persuaded that that is the case. Quite apart from the pleading issues already mentioned, there were considerable difficulties investigating the facts of the claim. This was due to the lapse of time since the pipes have been supplied, records having been destroyed and a critical witness (the person handling the Manson orders) having died. Preliminary remedial work had also been undertaken, resulting in the removal of the defective pipes. In those circumstances I can accept that there was more time required than in a normal case to come to an initial view on the claim, and to pursue the deficiencies in pleading. I accept that this involved more time than normal in rapid briefing of experts (both to investigate the state of the remedial work and hence availability of defective pipes) and the root cause of the corrosion. I consider that a C banding is justified for all steps up to and including the case management conference in April 2005, and for filing, preparation and appearances on the application to strike out. I note, however, that there is no difference between B and C banding in respect of preparation for or appearance on the application.
[49] Franklin seeks increased costs both on the basis that the nature of the proceeding was such that the time required exceeded C banding, and on the grounds that Manson contributed unnecessarily to the time and expense. I am not persuaded that either the nature of the claim, or any particular step in it, were such that any step required time substantially exceeding the C band allocation. Dr Ingram pointed to the fact that there had been considerable time spent in the instruction of experts and receiving their reports. There is no separate allowance for this in the scale nevertheless, I consider that there is adequate allowance for their instruction in the C banding for commencement of the defence, and for consideration of the reports in the C banding allowed for filing the application for strike out.
[50] The last aspect to consider is whether Manson contributed unnecessarily to the time and expense of the claim. Franklin’s argument, in essence, is that Manson failed to analyse its case in a timely manner, and to recognise that it was hopeless. I have already found that these arguments do not provide a basis for indemnity costs. Similarly, I take the view that Manson had a sufficient, even if tenuous, basis for initiating the claim and was not intentionally avoiding Franklin’s request for particulars. However, if Manson had put itself into a position to finalise particulars of its claim earlier, the claim might have been discontinued before the application to strike out was made. I consider that Manson could have engaged its expert earlier, and had it done so it is likely that the claim would have been discontinued before Franklin felt the need to bring its application to strike out. In this respect, I note there was no evidence from Manson as to the delay in instructing its expert, or as to delays in reporting, or as to timing of the differing views he reached. In the absence of that evidence, and looking at the matter as a whole, I accept that Manson did contribute unnecessarily to the expense of the application to strike out. I uplift the time allocation for filing the application to strike out by 50%.
[51] There is no separate item in the schedule dealing with the costs of experts. Mr Turner argued that they had been engaged prematurely and unnecessarily (he said the building consultant was not needed, and the engagement of an Australian metallurgist was added unnecessarily to time and travel costs).
[52] I do not accept that they were engaged prematurely. It was quite appropriate to engage the building consultant to investigate the state of remedial work. It was also appropriate in the circumstances of the case to engage the metallurgist. I do not accept the criticism over engagement of an Australian expert. Counsel for Mansons commented on the difficulty of locating a New Zealand expert at the April 2005 conference. It was also reasonable for Franklin to pursue its metallurgist’s advice as to seeking reports from a microbiologist and water quality expert. I find that all of the expert costs were reasonably incurred, and should be allowed.
Decision
[53] I find that Franklin has not established a case for indemnity costs. It has not persuaded me that Mansons acted vexatiously, frivolously, improperly or unnecessarily either in commencing or continuing the proceeding for as long as it did. I also find that Mansons did not wilfully ignore or disobey the direction of the Court so as to justify indemnity costs.
[54] I find that a higher level of skill and experience of counsel was required in the circumstances of the case, so as to warrant categorisation under r 48 as a category 3 proceeding (save for costs already awarded).
[55] I find that a C banding is justified for all steps up to and including the case management conference in April 2005, and in respect of the application to strike out.
[56] I find that Manson did contribute unnecessarily to the expense of the application to strike out and uplift the time allocation for the application to strike out by 50%.
[58] As the successful party overall, Franklin is entitled to its costs of and incidental to this application, but on a 2B basis together with disbursements as fixed
by the Registrar.
Associate Judge Abbott
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