Detection Services Limited v Pickering

[2021] NZHC 4322

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2015-404-003135

[2021] NZHC 4322

BETWEEN

DETECTION SERVICES LIMITED

First Plaintiff

DETECTION SOLUTIONS LIMITED

Second Plaintiff

DETECTION SERVICES PTY LIMITED
Third Plaintiff

DETECTION SOLUTIONS PTY LIMITED

Fourth Plaintiff

STEPHEN CARL JOHN SIMMONS
Fifth Plaintiff

AND

CHRISTOPHER LORRAINE PICKERING

First Defendant

…/cont

Hearing:	On the papers
Appearances:	M Corlett QC and R Butler for the Plaintiffs G B Lewis and S Zellman for the Defendants
Judgment:	13 December 2021

JUDGMENT OF WOOLFORD J

[As to costs]

This judgment was delivered by me on Monday, 13 December 2021 at 4:15 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

DETECTION SERVICES LIMITED v PICKERING [2021] NZHC 4322 [13 December 2021]

AQATAR LIMITED

Second Defendant

JAKE VAN DER PEYL
Third Defendant

Solicitors:           MacKenzie Elvin Law, Tauranga

Grimshaw & Co, Auckland

Counsel:M Corlett QC, Auckland R Butler, Auckland

[1]    This longstanding claim is now complete. On 17 April 2020, the Supreme Court refused leave sought by the defendants1 to appeal against the liability judgment of the Court of Appeal dated 21 November 2019,2 in which the Court of Appeal overturned a liability judgment of the High Court dated 14 December 2018.3 Then on 16 August 2021,4 the Court of Appeal dismissed the defendants’ appeal against the damages judgment of the High Court dated 15 October 2020.5 All that remains is the question of costs in the High Court, both for the 6.5 day hearing on liability between 10 and 19 September 2018 and the one day hearing on damages on 21 September 2020.

[2]    Following the liability judgment, I issued a costs judgment on 29 March 20196 which awarded the defendants costs of $58,537.50 and disbursements of $48,525 (totalling $107,062.50) on the basis that the plaintiffs had failed in their liability claim. The Court of Appeal overturned my liability judgment directing that the proceeding be remitted to the High Court to determine the quantum of damages payable by the defendants to the plaintiffs. It also directed that costs in the High Court were to be reassessed in light of its judgment.

Plaintiffs’ submissions

[3]    The plaintiffs refer to r 14.2(1)(a) of the High Court Rules 2016 which provides that the party who fails should pay costs to the party who succeeds. They submit that this principle prevails in the present case, particularly in light of the earlier costs judgment.

[4]    The plaintiffs calculate scale costs and disbursements to be $83,770, but submit that there should be an uplift to reflect their attempts to settle the damages claim. They note that the Court has jurisdiction under r 14.6(3)(b)(v) to award increased costs if a defendant has failed to accept an offer of settlement without reasonable justification.

1      Pickering v Detection Services Pty Ltd [2020] NZSC 35.

2      Detection Services Pty Ltd v Pickering [2019] NZCA 575.

3      Detection Services Ltd v Pickering [2018] NZHC 3310.

4      Pickering v Detection Services Pty Ltd [2021] NZCA 382.

5      Detection Services Ltd v Pickering [2020] NZHC 2705.

6      Detection Services Ltd v Pickering [2019] NZHC 638.

[5]    Following  the  refusal  of  leave  to   appeal   by   the   Supreme   Court  on 17 April 2020, the plaintiffs tried to resolve the question of damages. The plaintiffs wrote to the defendants on 21 April 2020, 28 April 2020, 4 May 2020 and 11 May 2020. Finally, and most importantly, the plaintiffs sent an offer of settlement to the defendants on 21 August 2020. The plaintiffs offered to settle the proceeding in exchange for the payment of $200,000 (inclusive of GST, interest and costs) by the defendants. This proposed settlement sum is less than the amount awarded in the damages judgment, which was $240,075.59.

[6]    After outlining its approach to calculation of the settlement offer, counsel for the plaintiffs stated in the letter of 21 August 2020:

We suggest the above approach is not only reasonable but robust and reduces litigation risk for all parties. It is open for acceptance until 4pm 28 August 2020, failing which our clients reserve the right to place this letter before the Judge in relation to costs. We trust that will not be necessary.

[7]    The offer was not accepted. In fact, it was not even acknowledged. Instead, the defendants elected to proceed to the damages hearing. The plaintiffs succeeded at the damages hearing for the same reasons as was set out in the offer, according to the plaintiffs.

[8]    Having tried to engage in settlement negotiations and having made the offer on 21 August 2020, the plaintiffs submit they are justified in seeking indemnity costs for the steps taken after the offer was made. Those costs total $37,375.

[9]    In summary, the plaintiffs seek scale costs from the commencement of the proceedings up until 20 August 2020 of $58,267. They also seek indemnity costs for the steps taken since their offer to settle expired on 28 August 2020. These costs are

$37,375. Finally, the plaintiffs seek disbursements of $16,660. The plaintiffs note that the costs sought by them are similar to those originally awarded to the defendants.

Defendants’ submissions

[10]   At the outset, the defendants point to the difference between the damages originally sought by the plaintiffs and the damages finally awarded. They note that in

closing of the original trial on 19 September 2018, the plaintiffs sought the following damages:

(a)AU$319,171.53    in    componentry    costs,    with    a    deduction   of NZ$161,818.66 for Mr Pickering’s costs;

(b)Between AU$452,900 and AU$620,175 in labour costs;

(c)NZ$1,983,565 in lost profit.

[11]In the damages judgment, I determined that the damages payable were:

(a)NZ$117,350.59 in componentry costs;

(b)NZ$122,725 in labour costs;

(c)No award for any loss of profits.

[12]   The defendants acknowledge that the starting point on an application for costs is to consider which party was successful. The successful party is ordinarily entitled to costs. The Court may, however, in terms of r 14.7, refuse to make an order for costs or may reduce the costs otherwise payable to a party which has pursued an unnecessary step or an argument that lacks merit. In Water Guard NZ Ltd v Midgen Enterprises Ltd,7 the Court of Appeal disagreed with the High Court’s finding that the plaintiff in that case had lost the status of being the successful party because it had failed on most of its claims, which had occupied most of the trial. It held that the level of success a party enjoyed could be reflected in other ways, such as reducing the costs otherwise payable or ordering that costs should lie where they fall. The Court of Appeal in Water Guard found that while the plaintiff was, strictly speaking, the successful party, costs should lie where they fall. Relevant to the Court’s decision were declined settlement offers, time spent on unsuccessful arguments and the fact that the party failed on most of its claims.

[13]   In this case, the defendants note that the Court awarded the plaintiffs approximately 10 per cent of the damages sought in closing. They submit the plaintiffs clearly pursued arguments that lacked merit and expended significant Court time for limited or no success.

7      Water Guard NZ Ltd v Midgen Enterprises Ltd [2017] NZCA 36.

[14]   The defendants’ counterclaim for reimbursement of componentry costs plus time spent on development and their opposition to the declaration sought by the plaintiffs in relation to the prototype system also succeeded. This success amounted to a credit of $201,818.66, plus the prototype system itself. If anything, this exceeds the value of the damages awarded to the plaintiffs. In light of the above, the defendants submit that the costs should lie where they fall.

[15]   In the alternative, if it is considered that the plaintiffs were successful overall (which is denied) the defendants submit that they were largely unsuccessful, given that the damages ordered were a very small proportion of the damages sought in closing, and they only succeeded in two out of three heads of loss claimed. The plaintiffs also pursued a loss of profits claim which was completely without merit, failed to provide any evidentiary basis for calculation of labour costs and were required to credit Mr Pickering for reimbursement of his costs in accordance with the defendants’ counterclaim. These matters consumed a significant portion of the hearing time. The defendants also achieved a measure of success and the Court ruled that they could retain the prototype leak detection system despite longstanding attempts by the plaintiffs to prevent this.

[16]   In light of the above, the defendants submit that - as an alternative to costs lying where they fall - a reduction of 75 per cent of scale costs sought by the plaintiffs would be appropriate. If the Court considers costs ought to be paid to the plaintiffs, costs would thereby be fixed as:

(a)$16,777.20 in scale costs; and

(b)$16,600 in disbursements.

Discussion

[17]   The plaintiffs were the successful party. They succeeded in two of the three claimed heads of damages. Although they were awarded only a small proportion of the damages they sought, “success on more limited terms is still success”.8

8      Weaver v Auckland Council [2017] NZCA 330 at [26].

[18]   The loss of profits claim on which the plaintiffs failed was an additional claim which flowed from the plaintiffs’ claims for breach of fiduciary duty and estoppel by representation. Plaintiffs’ counsel summarised the loss of profits claim in two paragraphs in his opening synopsis at trial.

[19]   No account need be taken of the defendants’ counterclaim as it was dismissed in the High Court. The defendants’ cross-appeal against the dismissal of the counterclaim also failed in the Court of Appeal, although the Court of Appeal noted that the amount that would have been payable to the defendants may need to be taken into account in the assessment of any damages. It was taken into account. The counterclaim did not therefore raise any different issues or markedly contribute to the length of the trial. The cost and time involved in building the prototype and its substitute were front and centre in the trial.

[20]   The High Court Rules provide that, as far as possible, the determination of costs should be predictable and expeditious.9 I therefore see no reason to depart from scale costs except for the offer of settlement made on 21 August 2020, a month prior to the damages hearing.

[21]Scale costs in respect of both hearings amounts to $67,110, comprising

$58,267 up to the offer of settlement and $8,843 after the offer of settlement. The plaintiffs seek scale costs of $58,267 up to the offer of settlement, but indemnity costs of $37,375 after the offer of settlement.

[22]   Rule 14.6(3)(b)(v) of the High Court Rules provides that the Court may order a party to pay increased costs if the party opposing costs has contributed unnecessarily to the time and expense of a proceeding or step in it by failing without reasonable justification to accept an offer of settlement.

[23]   Increased costs are differentiated from indemnity costs, which may be ordered to be paid if a party has acted vexatiously, frivolously, improperly or unnecessarily or

9      High Court Rules 2016, r 14.2(1)(g).

has ignored or disobeyed an order or direction of a Court or breached an undertaking.10 The rule relied upon by the plaintiffs allows increased costs, not indemnity costs.

[24]   In the circumstances of this case, I am satisfied that substantial increased costs should be paid by the defendants in respect to the rejection of the offer of settlement. The offer was a reasonable one. The plaintiffs offered to settle the proceedings in exchange for the payment of $200,000 (inclusive of GST, interest and costs) by the defendants to the plaintiffs. In my damages judgment of 21 September 2020,11 I ordered the defendants to pay the sum of $240,075.59 to the plaintiffs. The settlement offer was made a month before trial, which gave the defendants sufficient time to assess its reasonableness. The defendants were also well able, in my view, to assess the merits of the settlement offer given the liability hearings before both the High Court and the Court of Appeal.

[25]   In the circumstances, I uplift the scale of costs of $8,843 by 100 per cent to reach a figure of $17,686, which is still less than half of the indemnity costs sought.

Result

[26]   The first and second defendants are to pay the plaintiffs the sum of $92,613.00, comprising as follows:

$58,267.00	2B costs up to 21 August 2020
$17,686.00	2B costs from 21 August 2020 plus 100 per cent
$16,660.00	Disbursements
$92,613.00

Woolford J

10     High Court Rules, r 14.6(4).

11     Detection Services Ltd v Pickering, above n 5.