Dairyworks Limited v Geraldine Cheese Company Limited

[2022] NZHC 399

IN THE HIGH COURT OF NEW ZEALAND TIMARU REGISTRY

I TE KŌTI MATUA O AOTEAROA TE TIHI-O-MARU ROHE

CIV-2021-476-36

[2022] NZHC 399

BETWEEN

DAIRYWORKS LIMITED

Plaintiff

AND

GERALDINE CHEESE COMPANY LIMITED

First Defendant

AND

MANUKA LAND HOLDINGS LIMITED

Second Defendant

AND

WILLIAM PAUL FITZSIMMONS

Third Defendant

Hearing:	(Determined on the Papers)
Counsel:	P J Woods and T Hutchinson for Plaintiff G M Brodie and P Dalziel for Defendants
Judgment:	9 March 2022

JUDGMENT OF ASSOCIATE JUDGE LESTER

(Costs)

DAIRYWORKS LIMITED v GERALDINE CHEESE COMPANY LIMITED [2022] NZHC 399 [9 March 2022]

[1]    The plaintiff applies for wasted costs resulting from its application for formal proof against the first and second defendants being withdrawn. Leave was granted to the first and second defendants to file a statement of defence out of time. The application is against the first and second defendants only.

[2]    The plaintiff sought judgment by formal proof for over $8.7m (including GST) against the first and second defendants in relation to alleged breaches of contractual warranties given in the sale of a cheese making business. Judgment in the same sum is sought against the third defendant in reliance on a personal guarantee.

[3]    The  background  is   fully   set   out   in   a   Minute   of   Eaton   J   dated   26 November 2021 – where his Honour first dealt with the application for judgment by formal proof.

[4]    His Honour recorded at [11] of that Minute there was no issue regarding service on the first and second defendants as the documents were served at the registered office of the named defendant companies. His Honour, however, was not satisfied personal service on the third defendant had been completed.

[5]    Eaton J identified evidential issues in relation to the claim against the corporate defendants and granted  leave for the plaintiff to  file further  evidence to  address  the evidential  shortcomings  identified.   His  Honour  recorded   at   [26]  of  the   26 November 2021 Minute:

I observe that given the relationship between the parties, the history of engagement and dialogue and the sums involved, it is surprising that the defendants have taken no steps in this proceeding. The failure to do so only enhances my concern that the issue I have raised as regards service must be addressed.

[6]    His Honour’s formal direction was to dismiss the application for formal proof against the third defendant and adjourn the application against the first and second defendants for further evidence.

[7]    His Honour issued a further Minute on 3 December 2021. Personal service of the third defendant was completed on 26 November 2021. As set out in the Minute of 3 December 2021, his Honour’s suspicions about the “deafening silence” from the

defendants given the matters identified by his Honour, noted at [5] above, proved well-founded. The 3 December 2021 Minute records that the third defendant, who is a director of the corporate defendants, had not previously been advised that the proceedings had been served at the registered office of the defendant companies. The Minute records at [8], when the third defendant contacted KPMG, the registered office, they first “denied knowledge of the proceedings but have since confirmed they have located the papers and that they had not been sent to anyone nor had anyone notified anyone about these matters.”

[8]    The third defendant’s solicitor confirmed all defendants wished to defend the proceeding. His Honour timetabled an application to extend time to file the defence. That application was filed. The plaintiff responsibly offered no opposition to the application for leave to file a defence and leave was granted on an unopposed basis on 1 February 2022. However, in advising that the application was not opposed, the plaintiff sought an order for  wasted  costs  on  the  basis  that  it  properly  served  the statement of claim on the first and second defendants.

[9]    I have already noted that Eaton J in his Minute of 26 November 2021, recorded there was no issue as regard to service on the first and second defendants.

[10]   Mr Brodie, counsel for the defendants, does not dispute that service on the corporate defendants may be affected by delivery to the registered office but he challenges whether there was proper service here as the proceedings were not accompanied by full initial disclosure, only an index of initial disclosure documents.

[11]   Mr Brodie also challenges the quality of the evidence provided in support of the application for formal proof and characterises the plaintiff seeking formal proof as being opportunistic. Mr Brodie’s last submission may have carried more sting if the defendants’ solicitor had replied to an invitation to accept service. The High Court Rules 2016 (the Rules) permit an application for formal proof. That the plaintiff availed itself of that right is not of itself grounds to deny its application for wasted costs.

[12]   Finally, it is submitted by Mr Brodie that very little of the work done by the plaintiff in advancing formal proof is wasted as it will be of utility in the future of the proceeding.

[13]   I do not consider the quality of the evidence tendered in support of the formal proof application itself to be material to the costs application. It is true Eaton J had concerns about the evidence filed and his Honour took steps to address that but such will be relevant to the quantum of the wasted costs, not whether such should be awarded. I will return to this point in relation to quantum.

[14]   Mr Brodie submits service of an index of initial disclosure is not sufficient compliance with the Rules. However, in my view, that oversight did not invalidate the service nor did it cause the corporate defendants’ failure to take any steps. Responsibility for that lies elsewhere. Mr Brodie relies on Du v M5 Holdings Ltd, where the notice of proceeding served was defective.1 While the defect was of no consequence in the sense it would not have made any difference to the defendant who chose not to accept and read the documents, nonetheless the fundamental error in the notice was sufficient to mean that formal proof judgment was irregularly obtained. However, it was held that service had been validly effected.

[15]   Here, the principal documents were already held by the defendant. Plaintiff’s counsel submits providing an index of initial disclosure is conventional practice particularly when the bundle is voluminous. While this is a practical step, whether it complies with the Rules is something I need not determine. I do not consider the omission of the documents referred to in the index of initial disclosure invalidates service. The affidavit of service records only an index of initial disclosure was served and his Honour has already held that such was good service. Assuming Mr Brodie is correct and the plaintiff  did not provide proper initial disclosure,  r 8.4(4)  provides  a Judge may make any of the orders in r 7.48 rather than providing that the proceeding is deemed not to have been served.

[16]   While Mr Brodie may well be right that there is a clear explanation for the corporate defendants’ delay in filing a defence and that such arose through no fault of

1      Du v M5 Holdings Ltd [2019] NZHC 2313, (2019) 25 PRNZ 22.

their own, the plaintiff should not bear the costs of an error at the corporate defendants’ registered office. The first and second defendants may well have rights of recovery in that direction in respect of any award of wasted costs.

[17]   Strictly speaking, the corporate defendants have been granted an indulgence. With the corporate defendants properly served, the plaintiff was entitled to apply for formal proof. Whether the defendants believe that was opportunistic or not is not the point. The plaintiff took a step it was entitled to under the Rules.

[18]   I am satisfied there should be an order for wasted costs arising from the aborted formal proof hearing, however, the real issue is quantum.

Quantum

[19]   The plaintiff says in reliance on having properly served the corporate defendants, it took the following steps:

(a)drafting and filing an affidavit of service of the Court documents;

(b)drafting and filing affidavits in support of its application;

(c)preparing the paginated bundle of documents referred to in the affidavits;

(d)having its witness attend the hearing; and

(e)drafting submissions for the formal proof hearing.

[20]Scale costs are sought as follows:

Step	Allocation (days)	Amount
30	Preparing affidavit for formal proof	1	$2,390.00
32	Preparation for hearing	2	$4,780.00
34	Appearance	¼ day	$597.50
TOTAL	$7,767.50

[21]   Assessing wasted costs is very much a matter of impression, it is not an exact science. The evidence the plaintiff prepared in respect of liability and quantum for the formal proof will continue to have some utility.

[22]   Mr Brodie is correct that part of the plaintiff’s costs must relate to its formal proof application against the third defendant, which it was not entitled to make given the third defendant had not been served. While Mr Fitzsimmons is a director of the corporate defendants, service on the companies was not good service on him.

[23]   The amount to be awarded is largely “a matter of impression and best judgment”.2

[24]   While the plaintiff’s memorandum of 15 December 2021 seeks an order of wasted costs on a 2B basis, the written submissions filed in support of the application seek wasted costs on an indemnity basis along with scale costs on this application.

[25]   The plaintiff’s solicitor-client costs for all steps in relation to the formal proof process since 1 October 2021 through to 30 November 2021 were $23,000 plus GST.3 The plaintiff will have recovered the GST payable. It is inevitable that the bulk of the time will have gone into preparing the affidavits and the evidence bundle for the formal proof together with the preparation of submissions and authorities et cetera. I am satisfied the bulk of that work continues to have utility as it represents the basis on which the plaintiff says it was entitled to judgment based on its statement of claim.

[26]   As noted, time spent seeking judgment by formal proof against the third defendant cannot be said to be wasted when the plaintiff was not in a position to seek judgment against the third defendant.

2      Opua  Coastal  Estate  Ltd  (in  liq)  v  Mulholland  [2014]  NZHC  1467  at  [22]  citing Simpson v Hubbard [2012] NZHC 3020 at [28]; and Jeffreys v Morganstern [2013] NZHC 1361 at [34].

3      The plaintiff submits wasted costs are determined on the basis of actual costs rather than scale, relying on Fu Hao Construction Ltd v Landco Albany Ltd HC Auckland CIV-2004-404-6608,  23 May 200at [2], [3] and [7]. However, in Houghton v Saunders [2020] NZHC 265 at [19] the Court referred to “A presumptive scale costs entitlement for the preparation stage of a hearing that is then adjourned is one measure of the extent of potentially wasted costs …”.

[27]   A full scale award would be about one-third of actual costs. The best assessment I can make as a matter of impression is that an award of scale costs will reflect the continuing utility of much of the work done and that no claim can be made for work relating to the third defendant.

[28]   Accordingly, there is a wasted costs award in favour of the plaintiff in the sum of $7,767.50. Costs in respect of the costs application are to lie where they fall.

Associate Judge Lester

Solicitors:

Anthony Harper, Christchurch (for Plaintiff) Peter Dalziel, Temuka (for Defendants)

Copy to counsel:
G M Brodie, Barrister, Christchurch (for Defendants)