Chip N Repair Limited v IAG New Zealand Limited
[2023] NZHC 3028
•30 October 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-004-1415
[2023] NZHC 3028
BETWEEN CHIP N REPAIR LIMITED
Plaintiff
AND
IAG NEW ZEALAND LIMITED
Defendant
Hearing: On the papers Counsel:
G Shand for the Plaintiff
D J Friar and S R Hiebendaal for the Defendant
Judgment:
30 October 2023
COSTS JUDGMENT OF HARVEY J
This judgment is delivered by me on 30 October 2023 at 12.30 pm pursuant to r 11.5 of the High Court Rules.
.....................................................
Registrar / Deputy Registrar
Solicitors:
Grant Shand, Barristers & Solicitors, Auckland Bell Gully, Auckland
CHIP N REPAIR LTD v IAG NEW ZEALAND LTD [2023] NZHC 3028 [30 October 2023]
Introduction
[1] Chip N Repair Limited is a windscreen repair service. It alleged that IAG New Zealand Limited breached s 13(i) the Fair Trading Act 1986.1 CNR claimed that IAG did so by misrepresenting during a phone call to a policy holder that his windscreen repair had to be completed by IAG’s preferred repairers when the practice is that policy holders can choose any service provider. As a result, CNR claimed that it has suffered a loss of $1,098.25. CNR also alleged generalised losses estimated at $24,674 from other clients affected by similar claimed misrepresentations.
[2] On 18 August 2022, IAG’s summary judgment application against CNR was granted, the Court being satisfied that there was a complete defence to the plaintiff’s cause of action in the statement of claim.2
[3] Costs memoranda were soon exchanged by counsel. IAG seeks both scale and indemnity costs while CNR opposed any costs award being made. In addition, IAG sought costs for CNR’s application regarding an amended statement of defence.3 Unfortunately, due to various difficulties, including administrative oversight within the registry, that is where matters lay until very recently. The long delay and resulting inconvenience to the parties in disposing of the costs applications is regretted.
Submissions
IAG
[4] Mr Friar submitted that IAG was entitled to firstly, 2B scale costs and disbursements up to and including the filing of its summary judgment application and evidence in support on 29 November 2021 in the sum of $3,438. Secondly, he contended that IAG was entitled to indemnity costs of $63,624.25 plus disbursements of $347.83 for all substantive steps after 29 November 2021, on two principal grounds.
[5] First, once the evidence had been filed, it should have been clear to CNR that it had no prospects of success. The relevant audio recording and transcript provided
1 Referred to for convenience as CNR and IAG respectively.
2 Chip N Repair Ltd v IAG New Zealand Ltd [2022] NZHC 2047.
3 On 7 March 2022 Wylie J directed that this application be determined by the trial judge.
by IAG established beyond doubt, according to counsel, that IAG did not make the misrepresentation claimed. Even so, CNR persisted with its claim as to misrepresentation when it should have withdrawn it on the basis of the available evidence.
[6]Secondly, in spite of that, CNR made “an extortionate” settlement offer to IAG
— that it would be appointed one of IAG’s approved repairers while seeking $50,000, twice that sought in the proceeding. IAG argued the clear inference from that settlement offer is that CNR’s ulterior motive in commencing the proceeding was to secure appointment of itself as one of IAG’s network of preferred repairers.
[7] IAG argued that indemnity costs are warranted because CNR acted vexatiously, frivolously, improperly or unnecessarily in commencing and continuing proceedings when it knew that its claim is not based on fact and was contrary to the evidence. CNR then unduly prolonged the proceedings by its unreasonable conduct including requiring an amended statement of defence and by its pursuit of a hopeless case. This has led to unnecessary and wasted costs, according to counsel. Mr Friar reiterated that CNR’s proposals revealed its ulterior motive in pursuing such a hopeless case. Had CNR succeeded, then it could never have secured the remedies it was attempting to draw out of IAG in its proposed settlement offer.
[8] If the Court is unpersuaded as to indemnity costs, then Mr Friar submitted that increased costs were justified. A detailed schedule of calculations was provided. In addition, counsel cited the Court of Appeal decisions NR v MR and Broadspectrum (New Zealand) Ltd v Nathan in support.4 In short, a meritless argument for the purposes of r 14.6(3)(b)(ii) justifies increased costs because costs should not be incurred when opposing a hopeless argument. Further, Mr Friar argued that an uplift of 50 per cent is appropriate in the circumstances which resulted in a calculation of
$14,478 plus disbursements.
[9] As noted, IAG also sought costs regarding CNR’s application that it file an amended statement of defence. Mr Friar submitted that CNR was liable for increased
4 NR v MR [2014] NZCA 623 (2014) 22 PRNZ 636 at [52]; and Broadspectrum (New Zealand) Ltd v Nathan [2017] NZCA 434 at [57].
costs on this application because it was premature and unnecessary and arose out of CNR’s failure to agree a sensible timetable. According to IAG, it had committed to filing an amended statement of defence by 1 December 2021. CNR then proposed a two-week standstill to consider settlement options. After IAG informed CNR it would be defending the claim, CNR refused to agree to a timetable. IAG informed CNR it would be filing an amended statement of defence per the proposed timetable. Notwithstanding this communication, CNR applied for orders that IAG file and serve and amended statement of defence. After IAG did so in accordance with the proposed timetable, CNR indicated it would not pursue said application.
CNR
[10] Mr Shand submitted that CNR commenced the proceeding seeking justice for independent windscreen repairers. He contended that IAG has since changed its handling of claims with its automated phone system now giving customers the chance to use an independent repairer. This was a change in IAG’s behaviour which, Mr Shand argued, could be seen as providing an element of success for CNR. In addition, counsel contended that the Court could view the proceeding as being for the benefit of the community. In any event, should costs be awarded, CNR asks that the fact that it is a small business against a billion dollar insurance company be considered.
[11] In addition, Mr Shand submitted that any costs awarded to IAG should be on the District Court’s scale for all steps as a category 2 proceeding. Counsel also rejected all of IAG’s submissions on indemnity costs. IAG, according to counsel, did make representations that were arguably misleading and in support, Mr Tuhoro provided two affidavits. CNR did not consider its case was hopeless. Even though the Court decided that the pleaded misrepresentation was unproven, that does not, counsel argued, make the facts false.
[12] Mr Shand pointed out that CNR did not oppose the transfer application. He submitted that after CNR filed the amended defence application, IAG filed its amended statement of defence which included the information CNR had requested. Counsel contended this meant the application was justified and successful.
[13] Mr Shand contended that CNR did not bring the proceeding for an ulterior purpose. It did not act improperly. CNR was entitled to make an offer of settlement which IAG was equally entitled to reject. It could have made its own offer but elected not to do so. In any event, counsel argued that the claimed costs of $63,624.25 are excessive and unsupported by time cost breakdowns. Scale costs on a 2B basis would be $9,652. As to increased costs, CNR contended that the claim is not substantiated and grounds for an increase are not made out.
[14] Finally, Mr Shand submitted that small businesses should not be dissuaded from using the Court to resolve disputes. The proceeding benefitted CNR and other independent repairers by IAG altering its processes around windscreen claims. In summary, counsel contended that there should be no award of costs. If there is, CNR should receive $1,719 for the application for IAG to file an amended statement of defence. Any award to IAG should be on a 2B basis.
Legal principles
[15] Pursuant to r 14.6(1), the Court may make an order increasing costs otherwise payable. The core principle remains that costs are at the discretion of the Court. Scale costs are assessed by applying the appropriate daily recovery rate to the time considered reasonable for each step reasonably required in relation to the proceeding or interlocutory application.5 The “appropriate daily recovery rate” is applied to the categories from r 14.3:
Category 1 proceedings Proceedings of a straightforward nature able to be conducted by counsel considered junior in the High Court. Category 2 proceedings
Proceedings of average complexity requiring counsel of skill and experience considered average in the High Court
Category 3 proceedings
Proceedings that because of their complexity or significance require
counsel to have special
5 High Court Rules 2016, r 14.2(1)(c).
[16] As set out in r 14.3(2), the Court may at any time determine in advance a proceeding’s category, which applies to all subsequent determinations of costs in the proceeding unless there are special reasons to the contrary.6
[17]Different time bands may be applied for different steps in the proceedings:7
14.5 Determination of reasonable time
(1)For the purposes of rule 14.2(c), a reasonable time for a step is –
(a) the time specified for it in Schedule 3; or
(b) a time determined by analogy with that schedule, if Schedule 3 does not apply; or
(c) the time assessed as likely to be required for the particular step, if no analogy can usefully be made.
(2)A determination of what is a reasonable time for a step under subclause (1) must be made by reference –
(a) to band A, if a comparatively small amount of time is considered reasonable; or
(b) to band B, if a normal amount of time is considered reasonable; or
(c) to band C, if a comparatively large amount of time for the particular step is considered reasonable.
[18]As to increased and indemnity costs, r 14.6 provides:
14.6Increased costs and indemnity costs
…
(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;
(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;
6 Rule 14.3(2).
7 See Houghton v Saunders [2013] NZHC 3452 at [28].
(iv)failing, without reasonable justification, to comply with an order for discovery …
[19] Increased costs may be ordered where the unsuccessful party has failed to act reasonably.8 In Commissioner of Inland Revenue v Chesterfields Preschools Ltd, it was confirmed that the Court must consider the extent to which the failure to act reasonably has contributed to the time or expense of the proceeding, and only to that extent will a percentage uplift be justified.9 In Holdfast NZ Ltd v Selleys Pty Ltd, the Court of Appeal held that when calculating increased costs, an increase of 50 per cent on scale costs should grant the costs-claiming party a fair recovery for any unnecessary steps caused by the unsuccessful party.10
[20] Uplifts claimed on the basis that the proceeding as a whole was unnecessary are applied to all steps. In Broadspectrum (New Zealand) Ltd v Nathan, the Court of Appeal confirmed its earlier statement in NR v MR that in cases where increased costs are granted on the basis that the proceedings were unmeritorious:11
[52] In a case such as this, we do not consider that there needs to be a blow by blow comparison between time properly taken in respect of a particular step and the appropriate uplift for each such step. All of the steps that have been necessary to oppose the application are steps that should not have been necessary and have been taken at a cost that it should not have been necessary to incur.
Discussion
[21] It is trite law that costs follow the events and that the successful party will be entitled to costs. Here, IAG was successful. While my initial indication to the parties was that costs should lie where they fall, as IAG now seek costs, I accept that it is entitled to an award. There may be some moment in Mr Shand’s submission that IAG’s practices did change as a direct or indirect result of the proceedings. However, although Mr Ale from CNR filed an affidavit setting out the new phone options encountered when calling IAG’s providers, there is no evidence this change was prompted by the proceedings.
8 Bradbury v Westpac Banking Corp [2009] 3 NZLR 400, (2009) 19 PRNZ 385 (CA) at [27].
9 Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2010] NZCA 400 at [165].
10 Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [47].
11 NR v MR [2014] NZCA 623, (2014) 22 PRNZ 636 at [52]; cited in Broadspectrum (New Zealand) Ltd v Nathan [2017] NZCA 434 at [57].
[22] Accordingly, I take no issue with IAG’s proposal that they be awarded 2B costs on the District Court scale for steps taken up to the filing of evidence on 29 November 2021, amounting to $3,438.00. Disbursements of $347.83 are also uncontroversial.
[23] That said, I am not persuaded that indemnity costs are justified, notwithstanding counsel’s arguments. CNR’s claim was not frivolous, vexatious or improper notwithstanding the production of the phone call by IAG. CNR’s arguments did not succeed but its conduct in defending the summary judgment and/or pursuing its claim did not rise to the level deserving of an award of indemnity costs.
[24] It is also a fair point that, on the one hand, costs should not be so prohibitive as to disincentivise the use of the civil court system to resolve disputes. On the other hand, a party should not have to expend significant sums defending futile or hopeless claims. The Court must take account of a party’s conduct during the litigation to assess whether it had acted unreasonably or has continued to purse an ultimately hopeless case that it knew or out to have known would likely prove unsuccessful.
[25] CNR, once receiving the evidence from IAG, pivoted away from relying on the phone call and pointed to other evidence that had not been sufficiently particularised or presented. It did not amend its claim despite ample time to do so. Because of this I found in the substantive judgment if it was to pursue those claims it would need to do so by a new statement of claim. I am satisfied that there should be a modest increase of costs for the steps following the filing of summary judgment. At a 2B scale those costs amount to $6,214. I consider an increase of 20 per cent reflects the unnecessary time and expense contributed by CNR, amounting to $7,456.80.
[26] As to CNR’s application that IAG file an amended statement of defence, I accept that ultimately IAG is entitled to costs because it successfully resisted the parts of the application requiring particulars it said were irrelevant and unnecessary. If CNR had waited to receive the amended statement it may have transpired that its application was unnecessary. I do not consider increased costs are appropriate. If it were not for CNR being on notice that IAG would shortly file an amended statement of defence I would have found that costs should lie where they fall. An award of costs in favour of IAG on a 2B basis therefore is a just result between parties. I do not allow costs for
IAG’s letter of response to CNR’s notice because its contents duplicate material in the notice of opposition. Therefore $764 is awarded in favour of IAG for this application.
[27] Overall, I consider that costs award of $11,658, that takes account of both parties’ claims concerning the amended statement of defence, and all other matters, plus disbursements of $347 is justified.
Decision
[28] Chip N Repair Ltd must pay IAG New Zealand Ltd $11,658 plus $347 in disbursements.
Harvey J
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