Bonney v Cottle
[2012] NZHC 2195
•29 August 2012
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2010-404-427 [2012] NZHC 2195
BETWEEN CALVEN DENNIS BONNEY, PATRICIA ANN BONNEY, CST TRUSTEES LIMITED AND MURDOCH HALL TRUSTEE COMPANY LIMITED Plaintiffs
ANDVALERIE JOY COTTLE First Defendant
ANDJOHN GILMOUR MCLINTOCK TRADING AS J G MCLINTOCK & ASSOCIATES
Second Defendant
ANDROBERT GERARDS MEDEMBLIK Third Defendant
Hearing: (ON PAPERS) Appearances: J Mackie for Plaintiffs
G A Keene for Fourth Defendants
Judgment: 29 August 2012
JUDGMENT OF ASSOCIATE JUDGE DOOGUE [ON COSTS]
This judgment was delivered by me on
29.08.12 at 4.30 pm, pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Counsel:
Fortune Manning, P O Box 4138, Auckland -
[email protected]/[email protected]
G A Keene, Barrister, Epsom – [email protected]
Duncan Cotterill, Auckland – [email protected]
BONNEY & ORS V COTTLE & ORS HC AK CIV-2010-404-427 [29 August 2012]
Introduction
[1] The fourth defendants, Robert and Loretta Boler, are seeking costs against the plaintiffs, Calven Bonney, Patricia Bonney, CST Trustees Ltd and Murdoch Hall Trustee Co Ltd. Essentially, the Bolers argue the following:
a) Their total legal bill came to approximately $52,000, inclusive of GST
and exclusive of disbursements.
b)Costs should be apportioned between the Bolers in the following manner:
i) Loretta should be entitled to 25% of the total bill ($13,000);
ii)Robert should be awarded $33,000, “based upon scale costs in the vicinity of $30,000 being apportioned 75% (approximately
$22,500), with an uplift of 50% based on an award of
increased costs”; and
iii)Combined, the Bolers are entitled to a total award in the vicinity of $45,000.
c) That the plaintiffs should face the following costs consequences:
i) indemnity costs in favour of Loretta Boler; and ii) increased costs in favour of Robert Boler.
d)That scale costs should be awarded according to their schedule of costs recoverable as located at tab 17 of their submissions.
e) That they should be awarded costs on cost submissions.
[2] The plaintiffs dispute each of the arguments. They submit that costs should not be apportioned and that neither indemnity nor increased costs should be granted because the Bolers have not shown sufficient cause to depart from scale costs. They submit that scale costs should apply, and that the Bolers are only entitled to
$9,964.00, as described in their amended schedule of costs recoverable at tab 9 of their submissions.
Background
[3] Robert and Loretta Boler were directors of Approved Building Certifiers Limited (ABC), Robert having established the company in the early 1990’s. By the mid-1990’s, other ABC employees were able to sign certifying documentation and the Bolers migrated permanently to Australia. They remained directors of ABC.
[4] In 1999 ABC was appointed to inspect and certify the building work of a house at 12 Ronaki Street, Mission Bay, Auckland. The house was owned by the plaintiffs. A code of compliance certificate was signed by the sixth defendant, Tony Heron, on behalf of ABC.
[5] The Bolers were overseas for the construction period, but Mr Boler’s signature appeared on two monthly reports forwarded by ABC to Auckland City Council. Subsequent to the construction and issuance of the code compliance certificate, ABC went into liquidation.
[6] In late 2010, the plaintiffs commenced a leaky buildings claim that included the Bolers as directors of ABC, as fourth defendants. The Bolers first initiated an interlocutory strike out/summary judgment application to be removed as parties. They did not pursue that application and instead commenced a preliminary question hearing. In relation to that hearing, Judge Sargisson decided against the Bolers on
3 February 2012.
[7] The plaintiffs discontinued the claim against Mrs Boler at the commencement of a judicial settlement conference held on 15 March 2012. They discontinued the claim against Mr Boler on 16 March 2012 after receiving the sixth defendant’s, Mr Heron’s, sworn affidavit. In the affidavit, Mr Heron affirmed that the Bolers had no role in inspecting and certifying the project.
[8] The plaintiffs accept that the Bolers are entitled to costs on discontinuance and had offered to pay $17,917.30. However they reject the level and method of calculation put forward by the Bolers. They do not accept the characterisation of various steps and band allocations in the Bolers schedule of scale costs.
Parties’ positions
[9] The Bolers submit that it should have been apparent to the plaintiffs at the outset of the legal proceeding that neither Robert nor Loretta Boler was involved in the inspection or certification process. They submit that when these proceedings were issued, a number of cases had made it clear that in a situation where a company was found liable in negligence, a director of the company could only be personally
liable if directly involved on site in a hands-on capacity.[1]
[1] Such as Auckland Christian Mandarin Church Trust Board v Canam Construction (1955) Limited & Ors Auckland HC Civ 2008-404-8526, 25 June 2010, Priestley J.
[10] The Bolers contend that the plaintiffs were warned at several important junctures that there was no basis for the claims against them such that they should be removed as defendants. They contend that because the plaintiffs’ refused to withdraw, the plaintiffs should face costs consequences in the form of indemnity and increased costs.
[11] The Bolers submit that it should have been apparent to the plaintiffs at the outset of the legal proceeding that neither Robert nor Loretta Boler was involved in the inspection or certification process. They submit that when these proceedings were issued, a number of cases had made it clear that in a situation where a company was found liable in negligence, a director of the company could only be personally liable if directly involved on site in a hands-on capacity.
[12] They rely upon the fact that they provided information to the plaintiffs that they were resident in Queensland at the time when the purported certifications took place. Secondly, they argue that it was questionable as a legal proposition whether in the circumstances of this case the defendants could be personally liable when it was their company which had been engaged to carry out the certifications.
[13] Further, the defendants provided an explanation of how the apparent signature of the first named defendant appeared on building documentation by
advising that employees of the company had available to them a stamp which would enable them to impress what appeared to be the first named defendant’s signature on to the relevant document
[14] The Bolers contend that the plaintiffs were warned at several important junctures that there was no basis for the claims against them such that they should be removed as defendants. They contend that because the plaintiff’s refused to withdraw, the plaintiffs should face costs consequences in the form of indemnity and increased costs.
[15] In response, the plaintiffs submit that they did not know that the Bolers were in Australia at the time they filed their initial claim. The plaintiffs submit that until Mr Heron swore an affidavit affirming that the Bolers played no part in the inspection and certification process, there was a clear factual dispute as to credibility as to how Robert’s signature came to appear on the monthly reports.
The Rules
[16] It is necessary to make brief reference to the Rules which are applicable to the defendants’ claim for costs. Rather than set out the Rule in its entirety, some of the sub-rules which are relevant will be referred to:
14.6 Increased costs and indemnity costs
(1) Despite rules 14.2 to 14.5, the court may make an order—
(a) increasing costs otherwise payable under those rules
(increased costs); or
(b) that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party (indemnity costs).
(2) The court may make the order at any stage of a proceeding and in relation to any step in it.
(3) The court may order a party to pay increased costs if—
...
(b) the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—
(i) failing to comply with these rules or with a direction of the court; or
(ii) taking or pursuing an unnecessary step or an argument that lacks merit; or
(iii) failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument; or
(iv) failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or other similar requirement under these rules; or
(v) failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding; or
...
(d) some other reason exists which justifies the court making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.
(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; 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.
Compare: 1908 No 89 Schedule 2 r 48C
Increased costs award
[17] The real question in the case is whether the plaintiffs ought to have started the case in the first place against the Bolers, or having started it on reasonable grounds, ought to have abandoned it at an earlier stage.
Indemnity costs award
The assessment of the merits of the plaintiffs’ case
[18] The main part of the cost rules that is engaged by the present application are subparagraphs 4(a) and (f).
[19] The principal issue that bears upon the discretion to depart from a normal award is whether the party against whom increased costs are sought acted reasonably. I understand that the defendants say that question should be answered in the negative for the following reasons.
[20] In this case the defendants say the plaintiffs acted unreasonably because they were not justified in asserting that the defendants were personally liable when it was the company which had contracted to certify the property
[21] Whether or not increased or indemnity costs ought to be awarded is a matter
in the Court’s discretion.
[22] The discretion to award increased costs and indemnity costs is not to be exercised in the claimants favour for no reason other than that the cost payer’s view of the case turned out to be a mistaken one. On the other hand, such an order may be indicated in those cases where a party has persevered with a particular case in an obdurate way and in the face of mounting evidence that a particular view of the facts will all not succeed so that the case is untenable. At the same time, the fact that the
opposing party opposes, and perhaps vehemently, the allegations made, does not give rise to a duty on the party to abandon the case in issue.
[23] Further, the fact that a party wishes to invoke procedures such as discovery before making a decision to drop the case should not, on its own, lead to an award of an increased or indemnity costs. That is because parties to proceedings must be entitled to use the Court’s processes to collect information in order to assist them in reaching a judgment as to whether the opposing party’s case is consistent with the documents. Of course, there must be limits to such rights. It is a matter of degree whether a particular case that has been put forward appears on a reasonable view of it to have sufficient substance to justify the issuing proceedings and their continuation. A case may be so obviously meritless that it should never have been started. Conversely, there may be cases where what is obtained by way of discovery and other interlocutory steps may be such that a sensible pursuing party would be persuaded to abandon the case. I intend to approach matters on the basis that the standard against which the plaintiffs’ actions in this case are to be judged is that of reasonableness.
[24] Taking that approach in this case, I conclude that the fact that the defendants were resident in Australia was not on its own sufficient to signal to the plaintiffs that the case was hopeless. People commonly carry on business on both sides of the Tasman and the ability to transact business over the internet is another factor which deprives the point of the force which the defendants attached to it.
[25] I deal next with the relationship between the defendants and the company. In the background section of the amended statement of claim it is alleged that the fourth defendants were the directors of ABC, a registered and approved building certifier and they were responsible for inspecting the building work at the property. At paragraph 72 of the amended statement of claim it was alleged:
72. The fourth defendants as directors and the controlling wills of
[ABC] …
- owed the plaintiff's duties of care.
[26] What prospects of success this particular cause of action might enjoy was difficult to predict. Whether or not the directors would be found liable would be influenced by the factual position established at trial. The plaintiffs were not without some grounds though for pursuing this cause of action.
[27] It is not a straightforward matter in any case to determine whether the director of a company should be personally liable: see for example Trevor Ivory[2]and the subsequent case of Body Corporate 202254.[3]
[2] Trevor Ivory [1992] 2 NZLR 517 at 526-527.
[3] Body Corporate 202254 v Taylor [2009] 2 NZLR 17.and in particular the judgment of Chambers J.
[28] It was possible that one or both of the defendants might be found liable if they had engaged in the certification process. The fact that the second named defendant’s signature appeared on documentation provided some encouragement to proceed with the cause of action. Even if these signatures were not what it appeared to be, it was still possible that a Court could take the view that being engaged in a system that represented that he had signed documents when he had apparently not done so, may have been sufficient to found liability. The Court is not required to say more than that on a costs application of this kind.
[29] The view I take is that it was not unreasonable for the plaintiffs to pursue the defendants personally. What appears to have brought about a change of mind was when Mr Heron, one of the other defendants, provided affidavit evidence that the defendants did not take any part in the services that ABC provided with respect to certification inspection of the plaintiffs’ property. I understand that shortly after receiving the sworn affidavit the plaintiffs discontinued their claim against the second named defendant.
The warnings that the defendants gave
[30] In his submissions on costs Mr Keene made reference to the fact that on a number of occasions the defendants had written to the plaintiffs warning them that
increased costs would be sought should they persist with the claim against the
defendants. I do not accept that sending letters of this kind strengthened the ultimate claim that the defendants made for increased or indemnity costs.
Conclusion
[31] It has not been demonstrated in my view that the way in which the plaintiffs conducted their claim against the defendants “contributed unnecessarily to the time or expense of the proceeding” in any of the ways thereafter specified in sub rule (b)(iii), (iv) or (v).
[32] I accept that the Rule authorises the Court to make an order for indemnity costs in a case where a proceeding was improperly commenced or improperly continued. Indemnity costs however are directed at egregious behaviour as suggested by the use of the words “vexatiously, frivolously, improperly, or
unnecessarily”. Such an approach is also supported by the consideration that awards of costs under this head will generally be greater than those under sub rule (1). That is to say, the party must have continued proceeding in circumstances where it was plainly wrong and lacking in justification to continue the proceedings so that it is reasonable for the party to be ordered to pay all the costs incurred as a result of its misconduct to the other side.
Costs on costs application
[33] I note that the defendants seek costs on their costs application. I accept that it might be literally possible to claim such costs under the rules given that one side has applied for orders. However, there are already signs that the guiding principle underlying the costs regime, namely that so far as possible the fixing of costs should be predictable and expeditious is being lost sight of. Applications to depart from the default rules are almost routine and litigation over the matter of costs is now becoming a substantial burden on Court time. I consider that it would only encourage such trends if parties were able to claim costs incurred as part of cost disputes. Further, at some point arguments over costs have to stop and if costs on costs applications themselves become contestable, an absurd outcome would result. I decline to make any order as to costs on this application.
J.P. Doogue
Associate Judge
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