Body Corporate 338356 v Endean
[2013] NZHC 2768
•22 October 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2010-404-001415 [2013] NZHC 2768
BETWEEN BODY CORPORATE 338356
First Plaintiff
DANIEL JAMES HALASKA & ORS Second Plaintiffs
ANDWILLIAM ARTHUR ENDEAN, JOHN EDWARD ENDEAN AND CHRISTINE HEATHER ENDEAN
First Defendants
CLARK BROWN ARCHITECTS LIMITED
Second defendant
Hearing: By Memoranda
Counsel: P H Biddle for plaintiffs
M L Thornton for first defendant
J A McKay/K Kemp for fourth defendant
S R Judd for fifth defendant/second third party
Judgment: 22 October 2013
JUDGMENT OF ASSOCIATE JUDGE ABBOTT
This judgment was delivered by me on 22 October 2013 at 3.30pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors:
P Biddle, Price Baker Berridge, P O Box 21463, Henderson, Waitakere
M Thornton, PO Box 91441, Victoria Street West, AucklandJ A McKay/K Kemp, Chapman Tripp Sheffield Young, PO Box 2206, Auckland
J Appelby, Ladbrook Law Limited, PO Box 37633, Parnell, Auckland
Counsel:
S Judd, Barrister, P O Box 3320, Shortland Street, Auckland
BODY CORPORATE 338356 v ENDEAN [2013] NZHC 2768 [22 October 2013]
ANDAUCKLAND CITY COUNCIL Third Defendant
ANDJAMES HARDIE NEW ZEALAND LIMITED
Fourth Defendant/First Third Party
ANDRUDNEV DOOR SYSTEMS NORTH ISLAND LIMITED
Fifth Defendant/Second Third Party
ANDGRAHAM HENRY WILLIAM WHITE Sixth Defendant
ANDBOSTICK (AUSTRALIA) PTY LIMITED Third Third Party
ANDBONDOR NEW ZEALAND LIMITED Fourth Third Party
[1] On 27 March 2013, the second third party (Rudnev) was awarded summary judgment against the plaintiffs, the first defendants and the fourth defendant, dismissing claims that all three parties had brought against it in this proceeding. As a consequence, Rudnev seeks an order for costs against all three parties.
[2] The three unsuccessful claims were part of a leaky building dispute arising out of the construction of a multi-storey building in St Pauls Street, Auckland, known as St Pauls Apartments. One of the plaintiffs’ allegations was that panels used to clad the building were installed negligently, resulting in moisture ingress. Each of the unsuccessful claims was premised upon an allegation that Rudnev had a part in the defective installation. Summary judgment was awarded against each of the claimants after a finding that there was no arguable basis for that allegation.
[3] Rudnev seeks an order for indemnity costs totalling $51,811.25 on the grounds that the plaintiffs and first defendants, and to a lesser extent the fourth defendant, caused it to incur costs unreasonably and unnecessarily by persisting with their claims (or, in the case of the fourth defendant, by bringing its claim at a later date) when Rudnev had told them, before it had taken any steps, that it had had no part in the installation of the cladding. It seeks orders apportioning its costs between the respondent parties.
[4] The three respondent parties say that there is no case for indemnity costs. The plaintiffs and the fourth defendant did not oppose the application for summary judgment. They say that no costs should be awarded against them at all because Rudnev did not incur any costs in responding to their claims additional to the costs of responding to the first defendants’ claim. The fourth defendant contends that Rudnev has not shown that it had in fact incurred any significant cost at all in responding to its cross-claim, which was filed after most of the interlocutory steps had already been taken.
Procedural history
[5] The plaintiffs are the owners of units in St Pauls Apartments. They commenced this proceeding in March 2010. They have alleged defective installation of the cladding from the outset.
[6] The first defendants are trustees of family trusts that owned the land and carried out the development. On 1 December 2011, after the plaintiffs filed an amended statement of claim in which they quantified their losses in excess of $9 million, the first defendants joined James Hardie New Zealand Ltd as first third party and Rudnev as second third party, pleading that they took part in the design, manufacture, installation and supervision of the installation of the cladding.
[7] On 20 December 2011 the plaintiffs added James Hardie New Zealand Ltd and Rudnev (and another party) as further defendants, without adding to their previous particulars relating to cladding defects.
[8] On 26 January 2012, Rudnev’s solicitors wrote to the solicitors for the plaintiffs and for the first defendants (and copied the correspondence to the solicitors for James Hardie), pointing out that Rudnev had had no part in the installation of the cladding, and had been engaged on a labour-only basis merely to manufacture the panels to specifications provided to it. In particular, there was no pleading (and still is none) that manufacture of the panels contributed to the defects or damage.
[9] Rudnev’s correspondence was headed “without prejudice save as to costs”. Although it does not state a specific settlement proposal, the correspondence refers to prior discussions and was clearly aimed at having the plaintiffs and the first defendants withdraw the claims before any further costs were incurred. The letter was accompanied by a draft affidavit setting out Rudnev’s case.
[10] The letter did not have the desired effect of withdrawal of the claims, and Rudnev remained in the proceeding. It filed statements of defence to both claims and undertook discovery and inspection. Inspection was largely complete by July
2012. The plaintiffs filed a further amended statement of claim in June 2012
(retaining Rudnev as a defendant). The quantum of the claim was reduced slightly, but was still well in excess of $8 million.
[11] James Hardie amended its defences, added a claim against a further third party (a company that had acquired its cladding business in 2003 and carried out cladding services from May 2003 onwards), and on 31 October 2012 issued cross claims against each of the other defendants (excluding the third defendant, as the plaintiffs had discontinued against it).
[12] On 6 December 2012 Rudnev applied for summary judgment against the plaintiffs, the first defendants and James Hardie on their respective claims. The application was supported by evidence which effectively mirrored but expanded upon the information given to the other parties in the letter of 26 January 2012.
[13] The plaintiffs and James Hardie did not oppose the application. The first defendant did, and the application was heard and determined in March 2013. As previously mentioned, Rudnev was granted summary judgment dismissing all three claims.
The claim for indemnity costs
[14] Rudnev contends that it is entitled to indemnity costs for two reasons. First, the respondents should not have commenced their claims when they had no evidence that Rudnev had any part in the installation. Secondly, the plaintiffs and the first defendants should have discontinued their claims (and the fourth defendant, James Hardie, should not have issued its cross-claim) following receipt of the letter of 26
January 2012 in which Rudnev had set out its role in explicit terms. Rudnev says that the indemnity costs are warranted on the basis of wilful disregard of known facts or on the basis that the claims were hopeless from the outset and all three parties should have known that.1 It also says that the letter of 26 January 2012, written “without prejudice as to costs” is a further factor that the Court can take into
account.2
1 Relying on Bradbury v Westpac Banking Corporation [2009] NZCA 234; [2009] 3 NZLR 400 at
[29] and [73].
2 Under the High Court Rules, rr 14.10 and 14.11.
[15] Rudnev further says that the costs sought (comprising its solicitors fees, its counsels fees, and disbursements) were all reasonably incurred, particularly having regard to the seriousness of the claim being made against it (reflected in the size of the claim).
[16] All three respondent parties say that the circumstances do not meet the criteria for an award of indemnity costs. They all say that they acted reasonably in bringing and continuing their claims:
(a) The first defendants say that only limited information was available as to the parties that had been involved in the construction process (the head contractor had been put into liquidation and the liquidator, given the passage of time, had destroyed most documents), and that they had some evidence that Rudnev had been involved in the cladding (although they did not know the detail of that involvement). They say they were also working under time constraints (Rudnev had completed its work in November 2002) and did not wish to get caught with possible limitation issues. They say the full facts as to installation of cladding were not available until the fourth third party (who was the purchaser of the cladding business from James Hardie in
2003) provided its discovery in February 2013.
(b)The plaintiffs also rely on information given to them that Rudnev had a part in the cladding process (they say the information was provided to them by the first defendants, without identifying what that information was). They repeat the first defendants’ points that limited information had been available because of the liquidation of the head contractor, and the concern about the impending expiry of the 10 year limitation period, and the need still to obtain discovery from other parties.
(c) The fourth defendant (James Hardie) says that at the time it issued its cross-claim, there was still no information available to establish affirmatively that Rudnev did not have a role in installing the panels,
and noted that information was still being sought from other parties (in particular the third party to whom it had sold the cladding business). It also points out that discovery had been largely completed in July, yet Rudnev had taken no steps to seek dismissal of the claims by the first defendants and the plaintiffs by the time that it issued its cross-claim.
[17] All respondent parties submitted that these circumstances did not cross the very high threshold required for indemnity costs, referring to the Court of Appeal’s comments in Bradbury v Westpac Banking Corporation that indemnity costs were meant to reflect where a party behaved either badly or very unreasonably,3 and the comments of the Supreme Court that the offending misconduct must be “flagrant”.4
[18] They argued that the pursuit of a claim with little or no prospect of success was not of itself sufficient to justify indemnity costs.5
[19] All respondents also argued that the 26 January 2012 letter did not affect the overall cost assessment as it did no more than put forward a case for withdrawal of the claims, which did not amount to an offer to settle.
[20] The Court’s power to award indemnity costs is now to be found in r 14.6(4) of the High Court Rules. The material parts of that rule for the purpose of the present application are:
(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
...
(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.
3 Bradbury v Westpac Banking Corporation, above n 1.
4 Prebble v Awatere Huata (No.2) [2005] 2 NZLR 467 (SC) at [6].
5 Relying on Bonney v Cottle [2012] NZHC 2195 at [19] and Saffioti v Auckland Council [2013] NZHC 722 at [5].
[21] I accept that the first defendants and the plaintiffs had a basis for commencing their claims, and that there were difficulties for them in obtaining reliable information as to who did what in the installation of the cladding. Indeed, this is recognised by Rudnev’s solicitors in their letter of 26 January 2012. However, it is clear that they chose to persist with their claims in the face of the explicit advice given to them by Rudnev that it had played no part in the installation (indeed, Rudnev identified the contractor who had done the installation). The question for the Court is whether the decision of these parties to persist with their claims when there was uncertainty as to who was responsible for the cladding, and in face of the explicit information produced by Rudnev, constitutes the “flagrant” misconduct generally accepted as being required for an award of indemnity costs.
[22] The terms of the 26 January 2012 letter are instructive in that respect. It was clearly written to persuade the first defendants and the plaintiff to withdraw their claims, and addressed not only the plaintiffs’ pleading of involvement in installation, but also the first defendants’ more general allegation of involvement in the design, manufacture, installation or supervision of installation of the cladding. Although Rudnev’s solicitors pointed out (correctly) that there was then no pleading of defects arising from the manufacturer, it seems that they too were uncertain at that point as to what the defects were in respect of the cladding, and the extent to which they might have caused damage. This may well have been the reason that Rudnev went through the discovery process, before applying for summary judgment, rather than proceeding immediately with an application to strike out as indicated in the 26
January 2012 letter.
[23] I consider that the first defendants and the plaintiffs took a risk in maintaining their claims in the face of the information that Rudnev had given them, and that this can fairly be categorised as an error in judgment (particularly given that there was so little other information available as to Rudnev’s role), but in my view it does not fall into the kind of misconduct contemplated by the Court of Appeal in Bradbury v
Westpac Banking Corporation6 or by the Supreme Court in Prebble v Huata.7
6 Bradbury v Westpac Banking Corporation, above n 1.
7 Prebble v Awatere Huata (No.2), above n 4.
[24] I do not put any significant weight on the other points raised by the respondents, namely their perception of an impending limitation period and whether the January 2012 letter contained an offer to settle. The first defendants and the plaintiffs appear to have issued their claims well before the 10 year limitation period expired but,8 even so, that fact is not enough to shift the balance on the key question of whether this was flagrant misconduct (the point may be more material to the fourth defendant’s position). I also accept the respondents’ argument that the 26
January 2012 letter did not amount to an offer to settle, but again I do not regard that as material. The significance of the letter is in the information that is put before the respondents. As I have already stated, I do not regard that information as sufficient to meet the test for indemnity costs. Further, even if the letter can be categorised as a settlement offer, that does not of itself give rise to an entitlement of increased or indemnity costs – that question still comes down to consideration of the entitlement
under r 14.6.9
[25] Counsel for Rudnev pressed the argument that this was a “hopeless” case. In retrospect it goes close, but that conclusion must still be made from the perspective of what was known at the time. The determination that the respondents did not have an arguable case ultimately was reached after the material facts were clearly established in sworn affidavits. Although falling short of the misconduct required by r 14.6(4)(a) for indemnity costs, the decision of the plaintiffs and the first defendants to continue with their claims despite the lack of any direct evidence as to Rudnev’s role, and in face of Rudnev’s statements in the letter of 26 January 2012 is sufficient to provide a basis for a claim for increased costs under r 14.6(3)(b)(iii) and (v) once the appropriate award according to scale is established. Those parties failed to act
reasonably in making their decisions.10
The appropriate award of costs
[26] Counsel for Rudnev focused his submissions on its claim for indemnity costs. However, by way of illustration of the reasonable amount of the costs being sought,
he put forward a range of calculations of cost based on the various scales in Schedule
8 Rudnev completed its work on the cladding in November 2002.
9 Junior Farms Ltd v Commissioner of Inland Revenue (No.2) HC Auckland CIV 2009-404-2870, 5
October 2011 at [17].
10 Bradbury v Westpac Banking Corporation, above n 1, at [27].
3 to the High Court Rules, including a contention that an award on a category 3, time band C basis was warranted.
[27] All respondents challenge both contentions. Dealing first with the suggestion that costs category 3 should be used, they point to the fact that the case was given a category 2 classification at an early case management conference, and argued that there was no basis advanced for changing that classification.
[28] I am not persuaded that this claim should be reclassified. It is for Rudnev to seek reclassification. It has not done so and there is nothing apparent from the nature of the case to justify a reclassification11. There is no reason to distinguish this case from other multi-party leaky building cases where a category 2 classification has been considered appropriate.12
[29] In relation to the appropriate time allocation, counsel for Rudnev made the general submission that the Court could take into account that Rudnev had to respond to three separate claims and to complete discovery in respect of multiple other parties, by allocating costs on a time C band basis. However, other than by pointing to Rudnev’s actual costs, he did not show where more time was required than is allocated under a time B allocation for the various items of claimable costs.
[30] Conversely, the plaintiffs maintain that there was virtually no additional time required to respond to their claim than was needed to answer the first defendants’ claim, and the fourth defendant contended that there were no additional costs at all incurred in responding to its cross-claim given that virtually all work was done ahead of the cross-claim and there was nothing in the cross-claim to warrant any separate treatment in the preparation of the summary judgment application.
[31] I will deal with the various arguments under the following headings:
(a) The level of duplication between the first defendants’ and the plaintiffs’ claims;
11 Refer Tindall v Far North District Council HC Auckland CIV 2003-488-135, 25 May 2007 at [7] –
[9], [12].
12 See for example Body Corporate 205055 v Prodesigners Architects Ltd [2012] NZHC 2721.
(b)Whether any additional costs were incurred in respect of the fourth defendant;
(c) Where the costs should fairly fall in relation to the summary judgment application; and
(d) Whether costs should be awarded on the dispute over costs.
Common aspects of costs
[32] The appropriate starting point is that the first defendants and the plaintiffs brought discrete claims, but founded on a common allegation as to defective installation of cladding. Rudnev is entitled to costs on each claim, but allowing for the fact that its investigation of facts would be common to both. The same can be said about its own discovery, and about preparation for and attendance at case management conferences.
[33] I can accept that there may have been a small additional amount of time required to address the two claims separately for the purpose of preparing the separate statements of defence, warranting an uplift on time on a standard band B allocation. I consider that that uplift should be 50 percent, and that the appropriate methodology is to divide the total uplifted time between the first defendants and the plaintiffs in a ratio of 60:40 in respect of the time for commencement of the defence. I do not see any need to uplift the time for preparation of Rudnev’s affidavit of documents or attendance at case management conferences.
[34] Rudnev had to address the discovery by the other parties in the proceeding separately. Given the number of parties involved, an uplift is again justified. I consider the appropriate uplift is 50 percent, as although it was concerned only with the allegations of cladding defects, there would still have been additional time involved in separating out potentially relevant documents from the wider discovery given by the other parties. I find that this item of costs should be divided equally between the first defendants and the plaintiffs (I exclude the fourth defendant as discovery was largely complete by the time the cross-claim was brought).
Costs attributable to the cross-claim
[35] The fourth defendant’s cross-claim followed the work that Rudnev had to do to respond to the claims by the other parties, and followed discovery, inspection and the first of the case management conferences for which Rudnev is entitled to claim. The only work undertaken following the cross-claim was the filing of a statement of defence to the cross-claim, attendance at a further case management conference, and the preparation of the application for summary judgment.
[36] The fourth defendant points out that the cross-claim did not raise a new cause of action, and did not plead any particulars going beyond those pleaded in the plaintiffs’ and first defendants’ claims. It also notes that there is no requirement under the rules for filing of a defence to a cross-claim unless an affirmative defence is being raised, which is not the case here. The fourth defendant also points out that it did not take any steps to oppose the application for summary judgment.
[37] I accept that Rudnev would not have been required to incur any significant cost in responding to the fourth defendant’s cross-claim (it added nothing to the claim that Rudnev had already had to face), and the same applies to the application for summary judgment. Nevertheless, some attention had to be given to the cross- claim (particularly given Rudnev’s intention to apply for summary judgment). Nothing further would have been required for attendance at the second case management conference.
[38] I consider the appropriate outcome in respect of the claim against the fourth defendant is to allow 40 percent of the time allowance for commencing a defence (plus the Court filing fee), as an appropriate measure in respect of all claimable items other than the application for summary judgment which I will deal with next. I take into account the very abbreviated form of the statement of defence in reaching this view.
Costs of summary judgment application
[39] All three respondents had the opportunity to withdraw their claims before
Rudnev brought its application, but chose not to do so. To that extent I consider that
Rudnev should be entitled to recover the cost of preparing its application from all three respondents, on an equal basis. However, as the plaintiffs and the fourth defendant did not take any steps to oppose, the costs of the defended hearing (preparation for and attendance at) are clearly for the first defendants only.
[40] Given that the information that Rudnev had earlier supplied in the letter of 26
January 2012 applied to all claims, I consider that the decisions to persist with claims (or in the case of the fourth defendant, to bring its cross-claim) after no further evidence emerged in discovery contributed unnecessarily to Rudnev’s costs, and there should be an uplift of 50 percent on the cost of bringing the application (spread between all three) and on the costs of preparing for and arguing the application (in respect of the first defendants only).
Costs on the dispute over costs
[41] I am not prepared to award costs for resolving the issues over costs. In that respect I adopt, with respect, the approach taken by the Court in Bonney v Cottle.13
Calculation of costs
[42] In summary, I find that the respondents should pay costs to Rudnev as follows:
(a) The first defendants
Step Time allocation on band B basis (days)
Increase under r
14.6(3)(b)
and total increased time allocation
Value on category 2 basis ($1990 per day)
Share
(percent)
Amount
Commencing defence 2 50% = 3 5,970.00 60% 3,582.00
Preparation for case management conference 4 September 2012
Appearance at case management conference 4 September 2012
Preparation for case management conference 11 December 2012
Appearance at case management conference 11 December 2012
0.4 Nil 796.00 50% 398.00
0.3 Nil 597.00 50% 298.50
0.4 Nil 796.00 50% 398.00
0.3 Nil 597.00 50% 298.50
13 Bonney v Cottle, above n 5, at [33].
Discovery 2.5 Nil 4,975.00 50% 2,487.50
Inspection 1.5 50% =
2.25
4,477.50 50% 2,238.75
Filing interlocutory application 0.6 50% = 0.9 1,791.00 33.3% 597.00
Preparing submissions 1.5 50% =
2.25
4477.5 100% 4,477.50
Preparing bundle 0.6 50% = 0.9 1,791.00 100% 1,791.00
Appearance at hearing 0.5 50% =
0.75
1,492.50 100% 1,492.50
Total 18,059.25
(b) The plaintiffs
Step Time allocation on band B basis (days)
Increase under r
14.6(3)(b)
and total increased time allocation
Value on category 2 basis ($1990 per day)
Share
(percent)
Amount
Commencing defence 2 50% = 3 5,970.00 40% 2,388.00
Preparation for case management conference 4 September 2012
Appearance at case management conference 4 September 2012
Preparation for case management conference 11 December 2012
Appearance at case management conference 11 December 2012
0.4 Nil 796.00 50% 398.00
0.3 Nil 597.00 50% 298.50
0.4 Nil 796.00 50% 398.00
0.3 Nil 597.00 50% 298.50
Discovery 2.5 Nil 4,975.00 50% 2,487.50
Inspection 1.5 50% =
2.25
4,477.50 50% 2,238.75
Filing interlocutory application 0.6 50% = 0.9 1,791.00 33.3% 597.00
Total 9,104.25
(c) The fourth defendant
Step Time allocation
Decrease or increase
Value on category 2 basis ($1990 per day)
Share
(per cent)
Amount
Commencing defence 2 Reduce to
40% = 0.8
Filing interlocutory application 0.6 Increase
by 50% =
0.9
1,592.00 100% 1,592.00
1,791.00 33% 597.00
Total 2,189.00
Decision
[43] For the reasons I have given I make an order that the respondents pay costs to
Rudnev as follows:
(a) The first defendants are to pay costs of $18,059.25 as set out in para
[42] (a) above, together with disbursements as fixed by the Registrar.
(b) The plaintiffs are to pay costs of $9,104.25 as set out in para [42] (b)
above, together with disbursements as fixed by the Registrar.
(c) The fourth defendant is to pay costs of $2,189.00 as set out in para [42] (c) above, together with disbursements as fixed by the Registrar.
Associate Judge Abbott
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