Body Corporate 200012 v Naylor Love Construction Limited

[2018] NZHC 569

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2017-404-2508

[2018] NZHC 569

BETWEEN

BODY CORPORATE 200012

Appellant

AND

NAYLOR LOVE CONSTRUCTION LIMITED

Respondent

Hearing:	27 March 2018
Appearances:	T J Rainey for Appellant C J Booth for Respondent
Judgment:	29 March 2018

JUDGMENT OF LANG J

[on appeal against order as to costs]

This judgment was delivered by me on 29 March 2018 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date……………

BODY CORPORATE 200012 v NAYLOR LOVE CONSTRUCTION LTD [2018] NZHC 569 [29 March 2018]

[1]                 Body Corporate 200012 (the body corporate) is the body corporate responsible for administering the affairs of an apartment complex located in Mt Eden. It engaged the respondent, Naylor Love Construction Limited (Naylor Love), to carry out remedial work under a construction contract to remedy weathertightness defects found in the apartments.

[2]                 The contract has not been without its difficulties. The present appeal arises out of a dispute that was resolved by an adjudicator’s determination issued on 17 January 2017. Naylor Love sought to enter the determination as a judgment of the District Court as permitted under subpart 2 of Part 4 of the Construction Contracts Act 2002 (the CCA). The body corporate opposed the application, but in a reserved judgment delivered on 5 July 2017 Judge G M Harrison entered the adjudicator’s determination as a judgment of the District Court in the sum of approximately $2.84 million.1

[3]                 In a subsequent judgment delivered on 25 September 2017, the Judge awarded Naylor Love its actual and reasonable costs in the sum of $72,631.2 The body corporate appeals against that decision.

The statutory scheme

[4]                 The appeal raises the issue of the appropriate interpretation of s 59 of the CCA, which provides as follows:

59 Consequences of not complying with adjudicator's determination under section 48(1)(a)

(1)The consequences specified in subsection (2) apply if a party to the adjudication fails, before the close of the relevant date, to pay the whole or part of the amount determined by an adjudicator.

(2)The consequences are that the party who is owed the amount (party

A)  may do all or any of the following:

(a)recover from the party who is liable to make the payment (party B), as a debt due to party A, in any court,—

(i)      the unpaid portion of the amount; and

1      Naylor Love Construction Ltd v Body Corporate 200012 [2017] NZDC 14435.

2      Naylor Love Construction Ltd v Body Corporate 200012 [2017] NZDC 21263.

(ii)     the actual and reasonable costs of recovery awarded against party B by that court:

(b)if party A is a party who carries out construction work under a construction contract, serve notice on party B of party A's intention to suspend the carrying out of construction work under the contract:

(c)apply for the adjudicator's determination to be enforced by entry as a judgment in accordance with subpart 2 of Part 4.

…

[5]                 An adjudicator’s determination may be entered as a judgment of the District Court under Subpart 2 of Part 4 of the Act. Section 73 of the Act provides:

73     Enforcement of adjudicator's determination

(1)     …

(2)A plaintiff may apply for an adjudicator's determination to be enforced by entry as a judgment in accordance with this subpart.

(3)The application—

(a)     may be made to the District Court; and

(b)must be made in the manner provided by the rules of that court (if any).

(4)Either before or immediately after making the application, the plaintiff must serve on the defendant—

(a)     a copy of the application; and

(b)a statement setting out the consequences for the defendant if the defendant takes no steps in relation to the application.

(5)Despite subsection (2), a plaintiff in whose favour a determination has been made may only apply for that determination to be enforced by entry as a judgment—

(a)if any conditions imposed by the adjudicator have been met; and

(b)after the date (if any) specified in the adjudicator's determination for compliance.

[6]                 Section 74 prescribes the procedure to be followed when an adjudication debtor seeks to oppose an application under s 73. It requires the debtor to file an

application under s 74(1) for an order that entry of the determination as a judgment be refused.

[7]                 The body corporate and Naylor Love entered into the construction contract in August 2013. It is therefore governed by the provisions of the CCA that were in force at that time, and is not affected by several amendments to the Act that came into force during 2015. One of these was the addition of two new grounds on which an adjudication debtor could oppose an application under s 73. At the relevant time s 74(3) of the CCA permitted a debtor to oppose the entry of a determination as a judgment in three specified situations. These were where the debt had been paid,3 where the contract in question was not a construction contract4 and where a condition imposed by the adjudicator in the determination had not been met.5

[8]                 An adjudicator’s determination may be registered as a judgment of the District Court even though it is for a sum exceeding that for which the District Court has jurisdiction in civil cases under s 29 of the District Courts Act 1947.6 Furthermore, the Court of Appeal has confirmed the District Court is not required to conduct an oral hearing where the adjudication debtor opposes a determination being registered as a judgment of that Court.7 This no doubt reflects the fact that the debtor may only oppose the application on very limited grounds.

The Judge’s decision

[9]                 The Judge gave his reasons for ordering indemnity costs in the following paragraphs of his decision:

Costs

[10]Section 59(2) of the Construction Contracts Act 2002 provides:

(2)The consequences are that the party who is owed the amount (party

A)  may do all or any of the following:

3      Section 74(2)(a).

4      Section 74(2)(b).

5      Section 74(2)(c).

6      Laywood v Holmes Construction Wellington Ltd [2009] NZCA 35, [2009] 2 NZLR 243 at [31] and [67]. The District Courts Act 1947 has now been repealed and replaced by the District Court Act 2016, but s 29 of the District Courts Act 1947 remained applicable to the Judge’s decisions by virtue of the transitional provision in cl 5, sch 3 of the District Court Act 2016.

7      Laywood v Holmes Construction Wellington Ltd, above n 6, at [44].

(a)recover from the party who is liable to make the payment (party B), as a debt due to party A, in any court,—

(i)      the unpaid portion of the amount: and

(ii)     the actual and reasonable costs of recovery awarded against party B by that court: …

[11]This is in exactly the same terms as s 23(2)(a)(ii) of that Act which permits a payee to recover from a payer “the actual and reasonable costs of recovery against [the payer] by that court”.

[12]It is clear that the legislature intended the same right of costs recovery to apply whether a payer initiated a claim in this Court to recover an amount payable under the Construction Contracts Act, as for the registration of an Adjudicator’s determination.

[13]In Auckland Waterproofing v TPS Consulting Limited,⁸ Duffy J said at [69];

When I take into account the Act’s policy and purpose, I am driven to conclude that Parliament intended all payees to be able to pursue recovery of s 23 debts through court process and, provided the quantum of those costs was reasonable and not excessively high, to obtain the actual cost of doing so. It follows that “reasonable” in s 23 can only relate to an assessment of the quantum of the legal fees incurred in obtaining summary judgment for the purpose of seeing if they are within the range of fees that are reasonably charged for work of that type. Once the recovery costs are seen to come within the range of amounts usually charged for work of that type they are recoverable under s 23.

[14]               Applying that reasoning to the claim for costs in this case it is clear that Naylor Love is entitled to recover its actual costs provided they are reasonable.

[15]               The solicitors for Naylor Love have broken down their claim for costs into eight parts, some of which are not contested by the body corporate. I have assessed the amounts claimed. Taking into account the complexity of the proceeding, and the significant sums of money involved it seems to me that the actual costs claimed of $72,631 are reasonable and within the range of fees that are reasonably charged for the type of work that was carried out.

(footnote number adjusted)

8      Auckland Waterproofing Ltd v TPS Consulting Ltd (2007) 18 PRNZ 797 (HC).

The arguments

The body corporate

[10]              The Judge appears to have accepted at [12] of his decision that the CCA permitted an adjudication creditor to obtain recovery of actual and reasonable costs both where it initiated recovery action under s 59(2)(a) and where it registered the determination as a judgment under s 59(2)(c). He likened the latter to the position under s 23(2)(a)(ii). That section permits a contractor to recover the actual and reasonable costs incurred in recovering the debt created where the other party fails to serve a payment schedule responding to a payment claim within the period specified. The Judge did not explain why he considered Parliament intended an application to register a judgment under s 73 to have the same consequences, and the body corporate challenges his conclusion on that issue.

[11]              The body corporate points out that, where a party (the adjudication debtor) fails to pay the amount awarded against it in a determination, the other party (the adjudication creditor) may take any or all of three steps. First, it may recover the outstanding payment  from  the  adjudication  debtor  as  a  debt  due  in  any  Court: s 59(2)(a). Secondly, it may serve notice of its intention to suspend any further construction work under the contract: s 59(2)(b). Thirdly, it may apply for the Adjudicator’s decision to be enforced by entry as a judgment under subpart 2 of Part 4: s 59(2)(c).

[12]              The body corporate accepts that, where the adjudication creditor chooses the recovery option under s 59(2)(a), it will be entitled to recover the actual and reasonable costs of recovery awarded by the Court against the party in default. In the present case, however, it says Naylor Love could not sue the body corporate in the District Court for the outstanding balance because the adjudicator’s award exceeded the limit of the District Court’s civil jurisdiction as prescribed in s 29 of the District Courts Act 1947. Naylor Love would therefore have been required to bring recovery proceedings under s 59(2)(a) in the High Court.

[13]              Where the adjudication creditor elects to apply for the adjudicator’s determination to be entered as a judgment in terms of s 59(2)(c), the body corporate

contends there is no entitlement under that subsection to recover actual and reasonable costs. Instead, the adjudication creditor may only obtain costs awarded in accordance with the principles that apply to costs in civil proceedings in the District Court.

Naylor Love

[14]              For Naylor Love, Mr Booth points out that a recurring theme throughout the CCA is the ability of a creditor under a construction contract to obtain recovery of its actual and reasonable costs where it is entitled to recover sums due under the contract. It says the same rights apply to any recovery action, including an application under ss 59(2)(c) and 73 to register a determination as a judgment. In addition, he contends that s 59(2)(a)(ii) can be construed as a “stand alone” provision that applies even in cases that do not amount to recovery proceedings under s 59(2)(a).

Decision

[15]              Mr Booth relied for his first argument on the following passage from the judgment of Asher J in the High Court in Laywood:9

[16]               Mr Hughes for Holmes submitted that s 29 of the District Courts Act was irrelevant, as it did not limit the District Court’s jurisdiction because the enforcement of an adjudication determination was not a proceeding where there was a “debt demand or damages”. I am by no means certain that s 29 can be so narrowly construed. An application to enforce an adjudicator’s determination under s 73(1) must relate to an amount of money and any costs and expenses. Once an adjudicator makes a determination, the amount of that determination can be properly regarded as a debt, and, viewed broadly, the proceeding can be seen as a proceeding for a debt.

(Emphasis added)

[16]   Applying these conclusions Mr Booth submits that an application to register a determination as a judgment under s 73 constitutes a recovery proceeding in terms of s 59(2)(a). As a result, an adjudication creditor who utilises the s 73 procedure is permitted to recover its actual and reasonable costs of recovery.

[17]   The observations made by Asher J in Laywood at first instance must, however, be viewed in context. In that case his Honour was considering a submission that an

9      Laywood v Holmes Construction Wellington Ltd [2008] 2 NZLR 493 (HC).

application under s 73 of the Act did not engage s 29 of the District Courts Act 1947 because it did not involve a proceeding relating to a “debt, demand or damages”. Asher J rejected this submission on the basis that a sum awarded in an adjudicator’s determination can be regarded as a debt. Viewed broadly, therefore, an application to register a determination as a judgment could constitute a proceeding relating to a debt. Asher J ultimately held that the District Court had the jurisdiction to enter a determination as a judgment in excess of the limit prescribed by s 29 not because the application failed to engage s 29 but because s 73 of the CCA conferred that exclusive jurisdiction on it.10 I do not consider the observations made by Asher J in relation to these issues support the proposition that an application under s 73 constitutes a recovery proceeding for the purposes of s 59(2)(a).

[18]   I also reject Mr Booth’s alternative argument that s 59(2)(a)(ii) is a stand alone provision that applies to all forms of recovery proceeding. Section 59(2)(a)(ii) is inextricably linked to the remainder of s 59(2)(a). This is demonstrated by the use of the words “by that court” in s 59(2)(a)(ii). Those words cannot stand alone. They necessarily relate back to the words “in any court” in s 59(2)(a). Section 59(2)(a) as a whole can properly be described as a stand alone section but the individual components of it cannot.

[19]   I acknowledge that other provisions in the CCA expressly permit a creditor under a construction contract to recover actual and reasonable costs of recovering sums due under the contract but I do not consider this assists Naylor Love. This takes the argument for Naylor Love no further. It merely serves to underscore the fact that in certain situations Parliament has seen fit to allow recovery of such costs. It has not seen fit to do so in the case of an application to enforce an adjudicator’s determination as a judgment of the District Court.

[20]   I also see little relevance in the fact that the courts have been prepared to award actual and reasonable costs in cases where an adjudication debtor has applied

10 At [26].

unsuccessfully to stay liquidation proceedings,11 and to set aside a statutory demand12 or bankruptcy notice,13 where the proceedings are based on the debt created by a determination. The courts have done so in those cases without undertaking any analysis as to how s 59(2)(a)(ii) is engaged. In any event, there is a respectable argument that such proceedings amount to recovery proceedings in terms of that subsection. That issue is different to the question raised by the present case, which relates to the interpretation of a different subsection within the same section.

[21]   I consider the meaning of s 59 to be plain and unambiguous. Where the adjudication creditor chooses to go down the recovery route under s 59(2)(a), it will be able to recover its actual and reasonable costs in doing so. Where it chooses to go down the enforcement route under s 59(2)(c), the provisions of s 59(2)(a)(ii) do not apply. Instead, costs will be at the discretion of the District Court in the usual way.14 This means the court may make an award of costs under the applicable scale, or it may make an award of increased or indemnity costs under r 14.6 of the District Court Rules 2014. Had Parliament intended to extend the costs regime under s 59(2)(a) to applications under s 59(2)(c) it would have been a simple matter for the section to make that clear. I do not consider it possible to infer that this must be the case.

[22]   The Court of Appeal observed in Laywood that in enacting ss 73 and 74 Parliament “created a special regime for the enforcement of adjudicators’ determinations”, and conferred exclusive jurisdiction on the District Court in respect of it.15 The Court also pointed out that the wording used in s 73 is materially different to that used in s 59(2)(a).16 These observations confirm the two procedures are distinct and do not overlap. There is no principled basis on which the courts can apply the costs regime prescribed for proceedings under s 59(2)(a) to cases that invoke s 59(2)(c).

11     Kariiti Ltd v Donovan Drainage & Earthmoving Ltd HC Whangarei CIV-2010-488-613, 19 November 2010.

12     Watts & Hughes Construction Ltd v Complete Siteworks Company Ltd [2014] NZHC 2600, (2014) 22 PRNZ 238.

13     Re BRC Ltd, ex parte Patel HC Wellington CIV 2011-485-1322, 11 November 2011.

14     District Courts Rules 2014, r 14.1.

15     Laywood v Holmes Construction Wellington Ltd above n 6, at [24].

16 At [22].

[23]   Parliament has seen fit to give adjudication creditors the choice of two methods of enforcing an adjudicator’s determination through the courts. Under s 59(2)(a), the adjudication creditor can recover the debt in either the High Court or the District Court depending on the quantum of the adjudicator’s award. In that event there is no statutory restriction on the grounds the adjudication debtor may advance in defence of the creditor’s claim. If the defence fails, however, the debtor will be required to reimburse the creditor for the actual and reasonable costs incurred in bringing the claim. Alternatively, the creditor can use the fast track procedure under ss 59(2)(c) and 73. In that event it obtains the advantage of restricting the grounds on which the debtor can oppose the application. Correspondingly, however, there is no right to obtain an order for actual and reasonable costs of recovery.

[24]   It follows that the appeal must be allowed and the matter remitted to the District Court for reconsideration of the issue of costs. It is therefore not strictly necessary for me to deal with the body corporate’s alternative argument, which is that the costs Naylor Love seeks to recover are not reasonable. In case Naylor Love should apply for indemnity costs, however, I propose to make some observations about that issue.

Were the costs claimed by Naylor Love reasonable?

[25]   The body corporate contends the costs claimed by Naylor Love are not reasonable for several reasons. First, it says that many of the attendances for which costs were claimed are likely to have related to other matters on which Naylor Love’s solicitors were working during the period for which costs are claimed. The body corporate has not seen the invoices rendered to Naylor Love. It says these will need to be obtained before the court could confirm that the costs Naylor Love has claimed relate to the application to enforce the determination as a judgment of the District Court.

[26]   The body corporate also claims much of the time taken to complete steps taken in the application was excessive. By way of example, Naylor Love’s solicitors have claimed 75 hours for preparing for the hearing in the District Court. They also claimed nine hours for preparing the application itself, which is a very simple document. I annex as an appendix to this judgment a table prepared by Mr Rainey for the body

corporate showing the amounts claimed by Naylor Love and the amounts the body corporate accepts would be reasonable in relation to the same steps.

[27]   The Judge dealt with this issue very briefly at [15] of his decision, and with little or no analysis. I consider a far more focussed examination of the costs claimed will be required if the issue of indemnity costs needs to be reconsidered in the District Court. The focus must obviously be on the work undertaken in relation to the application to register the judgment and not on matters that go beyond that application. The Court will also need to determine whether the time spent on individual steps was justified and reasonable bearing in mind the submissions made by the body corporate.

[28]   Those issues are appropriately dealt with by the Judge, who heard the application and will be best placed to determine the reasonableness or otherwise of the costs incurred having regard to the issues that the application raised.

Result

[29]   The appeal is allowed and the order for costs made in the District Court is set aside. The issue of costs is remitted to the District Court for determination in accordance with the usual principles relating to costs in civil proceedings in the District Court.

Lang J

Solicitors:

Rainey Law, Auckland Kensington Swan, Auckland

APPENDIX

Category	Actual Costs Claimed	Reasonable Costs
Preparing the application for adjudicators determination to be enforced by entry as judgment (Part 1)	23.6 hours @ an average of $389.06 per hour being $9,182.00	5 hours @ say $450 per hour or $2,250.00
Service (Part 2)	2.2 hours @$410.00 per hour being $902.00	2.2 hours @ $410 being $902.00
Memorandum             seeking immediate entry of judgment (Part 3)	9.2 hours @ an average of      $538.31      being $4,952.00	4 hours @ say $450 per hour $1,800
Preparing the opposition to the application to decline to enforce part of the determination by entry of judgment and affidavit in support (Part 5)	17.1 hours @ an average of      $478.45      being $8,181.50	10 hours @ 450.00 per hour being $4,500.00
Communications (Part 4)	3.1 hours @ an average of      $538.06      being $1,668.00	3.1 hours at $450 per hour being $1,395.00
Miscellaneous research and attendances (Part 6)	0.9 hours @ an average of      $436.00      being $393.00	0.9 hours @ an average of      $436.00      being $393.00
Preparation of submissions for the hearing (Part 7)	75.3 hours @ an average of $511.20 per hour being $38,494.00	20 hours @ an average of $450.00 per hour or $9,000.00
Attendance   at   the   hearing (Part 8)	16.6 hours @ an average of      $533.61      being $8,858.00	10 hours @ an average of $450.00 per hour or $4,500.00