Body Corporate 183523 v Tony Tay & Associates Limited HC Auckland CIV 2004-404-4824

[2009] NZHC 2581

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2004-404-4824

BETWEEN  BODY CORPORATE 183523

First Plaintiff

ANDGRACE LEE & ORS Second Plaintiff

ANDTONY TAY & ASSOCIATES LIMITED First Defendant

ANDROBIN FRANK SEARS TRADING AS ALL TRADES

Second Defendant

ANDTONY MENG HIANG TAY Third  Defendant

AND  GRAHAM TAYLOR

Fourth  Defendant (Discontinued)

Appearances: M C Josephson and G J Beresford for the Plaintiff

A M Swan for the Third Defendant

Judgment:      4 December 2009

RESERVED COSTS JUDGMENT OF PRIESTLEY J

This judgment was delivered by me on 4 December 2009 at 11.30 am pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date:………………………….

Counsel/Solicitors:

Grimshaw & co, P O Box 6646, Auckland 1001. Fax: [phone]

Email: [email protected]
A M Swan, P O box 5444, Wellesley Street, Auckland 1001. Fax: [phone]

Email: [email protected]

BODY CORPORATE 183523 AND ANOR V TONY TAY & ASSOCIATES LTD AND ORS HC AK CIV

2004-404-4824  4 December 2009

[1]      All the parties in this proceeding were involved in litigation arising out of the design and construction of a leaky building.

[2]      My  judgment  dated  30  March  2009  contained  my  factual  findings,  the relevant law, and the result.   The plaintiffs were successful against the first and second defendants.  The first defendant had been barred from advancing its defence because of failure to comply with discovery and inspection orders.   The second defendant failed to appear.

The third defendant.

[3]      The proceeding began in September 2004.   The third defendant was not joined by the plaintiffs until 6 July 2007.

[4]      The third defendant clearly, on the evidence, was a director and a shareholder in the first defendant.  He was similarly interested in the developer of the building site, Heritage International Group Limited.

[5]      The rationale of the plaintiffs’ case against the third defendant was:

•    That he had described himself as a developer and an architect.

•That through the first defendant he had organised the design of the building and its construction.

•That he had reported to the developing company Heritage about construction progress.

•    That he had signed the practical completion certificate for the building.

•    That he had personally profited from the development.

[6]      These matters were regarded by the plaintiffs as highly relevant to the third defendant’s joinder.  Additionally, between the start of the proceeding and mid 2007 the first defendant joined six third parties and had begun to divest itself of assets.  On this  latter  point,  when  being  cross-examined  during  trial,  the  third  defendant admitted that a commercial building which housed the first defendant but which he had owned had been transferred by him to a family trust a month after he had been joined.

Costs issues

[7]      The plaintiffs were totally successful against both the first defendant and the second defendant both of whom were unrepresented at trial.   Judgment has been entered against those parties, the judgment sum including appropriate costs.

[8]      Because the plaintiffs failed against the third defendant he was prima facie entitled to costs.  The appropriate costs entitlement of the third defendant against the plaintiffs has been agreed at $45,270.

[9]      The plaintiffs have lodged an appeal (as I understand it most, if not all, of the leaky building judgments delivered in the High Court at Auckland over the past two years  are  currently pending in  the  Court  of  Appeal),  against  that  aspect  of  my judgment which declined relief against the third defendant.

[10]     Rather than await the outcome of the appeal the parties want the issue of the third defendant’s costs to be resolved now.   The third defendant’s position is the agreed costs sum should be paid in the normal way.  The plaintiffs’ position is that I should make a Sanderson order (the nomenclature being derived from Sanderson v Blyth Theatre Company [1903] 2 KB 533 (CA)) or in the alternative a Bullock order (the name being derived from Bullock v London General Omnibus Co [1907] 1 KB

264 (CA)).

[11]     Sanderson v Blyth Theatre Company is authority for the general proposition that a Rule conferring a discretion on a judge to order costs permitted the court, in a proper case, to order an unsuccessful defendant to pay the costs of a successful defendant.  Similarly the plaintiff could be ordered to pay the costs of the successful defendant and add those costs to the costs which could be recovered from an unsuccessful defendant.   In Sanderson the plaintiff had been claiming from two defendants in the alternative.

[12]     Sanderson  was  one  of  the  many  authorities  considered  by  the  Court  of Appeal in Lane Group Limited v D I & L Paterson Limited [2000] 1 NZLR 129. During the course of a trial where misleading conduct was alleged under the Fair Trading Act 1986, the plaintiff elected to be nonsuited against one of the defendants. The plaintiff succeeded against the remaining defendants. The trial judge made a Sanderson order directing the unsuccessful defendant to pay the costs of the defendant on the nonsuit.

[13]     The  Court  of  Appeal  (by  a  majority,  there  being  a  lengthy  dissenting judgment by Thomas J) allowed the appeal in part, reducing the costs payable by the unsuccessful defendant to the successful (the nonsuited) defendant by 80%.  Tipping J said at [94]:

In broad terms the difference should be carried by Paterson Ltd. In all these circumstances I consider that a Sanderson order directing Lane Group to pay all Fisken's costs was inappropriate. The situation called for a Bullock order whereby Paterson Ltd was able to pass on a proportion only of Fisken's costs to Lane Group, it carrying the remainder. I consider there should be some contribution by Lane Group to Fisken's costs, on account of the fact that it cannot be said the original joinder of Fisken was unreasonable and improper. Nevertheless the overall balance of all the relevant discretionary factors must substantially favour Lane Group. The most it would be reasonable for Lane Group to have to contribute is 20 per cent of Fisken's costs, ie. the sum of

$7,300.

[14]     However, the entire Court agreed with the proposition that there was no rule or general principle which governed the question of costs between a successful and unsuccessful defendant, which remained always a discretionary matter for the judge.

[15]     The Court further held that a reasonable and proper joinder of the successful defendant would be a relevant, and sometimes decisive, consideration in the plaintiff’s favour.  The many variants which must inform a discretion were broadly expressed by Tipping J at [84]:

While it may have been reasonable for the plaintiff to join both defendants, that of itself does not entitle the plaintiff to an order that the unsuccessful defendant should pay the successful defendant's costs, either directly (as a Sanderson order) or indirectly (as a Bullock order). The reasonableness of the original joinder is certainly a relevant factor. If such joinder was unreasonable the plaintiff cannot seek to pass costs payable by it to the successful defendant over to the unsuccessful defendant. Even if the joinder is reasonable at the outset, the position must also be looked at from the point of view of the unsuccessful defendant. If that party has done nothing to cause or contribute to the joinder of the successful defendant, that will be a point in its favour. The converse also applies. How the proceeding develops may well be relevant. Another factor which may be of moment comes into play if an unsuccessful defendant is found liable for significantly less than the claim made against both itself and the successful defendant. Such a situation will be relevant to the ultimate discretion because the costs payable in  that  event  by  the  plaintiff  to  the  successful  defendant  (based  on  the amount claimed) will be more than the costs payable by the unsuccessful defendant to the plaintiff (based on the amount recovered).

[16]     Factors on which the plaintiff relies in seeking a Sanderson order are:

•    The joinder by the first defendant of six third parties between 2004 and 2007.

•The plaintiffs’ perception that the first defendant was divesting itself of its assets.

•The clear personal involvement of the third defendant during the construction of the defective building, and in particular his association with the developer, Heritage, and his signing of the certificate of practical completion.

•    The nature of some of the first defendant’s pleadings.

•The general insolvency risk of existing defendants, coupled with the impending expiration of the ten year limitation period contained in the Building Act 2004.

•The risks inherent in what was seen to be the first defendant’s impending insolvency.

[17]     For the third defendant Mr Swan submitted that the only evidential basis for joining  the  third  defendant  was  his  signature  on  the  certificate  of  practical completion.   He noted  that the first defendant had taken no active steps in the proceeding after its defence was struck out in mid 2008 and that, so far as the trial itself was concerned, it was essentially a contest between the plaintiff and the third defendant.    Certainly  the  plaintiffs’  case  at  trial  against  the  first  and  second defendants proceeded akin to formal proof.

[18]     Mr Swan observed that Venning J had been faced with a similar situation in

Body Corporate No. 189855 & Ors v North Shore City Council & Ors (HC AK CIV

2005-404-5561 2 October 2008 (Byron Avenue).  In that case the plaintiff sought, unsuccessfully, Sanderson orders and Bullock orders in respect of the successful defendants.  The Judge declined to make a Sanderson order.  He observed that the plaintiff had chosen to join the successful defendants directly and the focus of the hearing, so far as those defendants were concerned, was on the plaintiffs’ claim against them rather than on a cross-claim.   He considered that, given the way the case had evolved, a Sanderson order was inappropriate (at [32]).

[19]   However, the Judge considered a modified form of Bullock order was appropriate allowing the plaintiff to recover a portion of its costs against the unsuccessful first defendant.

[20]     Focussing on the factors identified by Tipping J in Lane Group Limited I consider the plaintiffs’ joinder of the third defendant was perfectly proper and reasonable.  Certainly, on the pleadings, there was a sound basis to claim against the third  defendant  in  person  in  addition  to  the  plaintiffs’  claim  against  the  first defendant.  Nor do I consider the plaintiffs’ perception of the impecuniosity of the first defendant was fanciful.

[21]     However,  as  the  trial  unfolded  and  the  evidence  was  tested,  it  became apparent, for the reasons set out in my judgment (assuming they survive an appeal),

that the justification for lifting the corporate veil in respect of the third defendant, and  in  particular  his  very  limited  personal  involvement  in  the  design  and construction of the defective building, did not cross the critical threshold of establishing the third defendant’s personal liability.

[22]     In short the joinder of the third defendant, although proper and explicable, does not lead to a situation where, in the exercise of my discretion, I should make a Sanderson order.

[23]     However, I do consider that a portion of the third defendant’s costs to which he is entitled should be recoverable by the plaintiffs from the first defendant.   I consider the appropriate proportion, to be the subject of a Bullock order, is approximately 50%.   I reach this conclusion in the light of the third defendant’s dominant position in the relationship between Heritage and the first defendant, and also in the light of my perception that he alone made the decisions to diminish the first defendant’s financial worth.

Result

[24]     Accordingly I order;

a)        The plaintiffs are to pay the third defendant’s costs of $45,270.

b)In addition to the costs the plaintiffs’ are entitled to recover from the first defendant, there is a Bullock order entitling the plaintiffs to recover an additional $22,500.

Additional comment

[25]     As I understand counsel’s submissions, it is accepted that the obligation of the plaintiffs to pay the third defendant’s costs is to be stayed pending determination

of the appeal.   If I am mistaken in that, or if there is some disagreement, leave is reserved.

.......................................… Priestley J