Detection Services Ltd v Pickering
[2019] NZHC 638
•29 March 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2015-404-003135
[2019] NZHC 638
BETWEEN DETECTION SERVICES LIMITED
First Plaintiff
DETECTION SOLUTIONS LIMITED
Second PlaintiffDETECTION SERVICES PTY LIMITED
Third PlaintiffDETECTION SOLUTIONS PTY LIMITED
Fourth PlaintiffSTEPHEN CARL JOHN SIMMONS
Fifth Plaintiff
AND
CHRISTOPHER LORRAINE PICKERING
First Defendant
AQATAR LIMITED
Second DefendantJAKE VAN DER PEYL
Third Defendant
Hearing: On the papers Appearances:
M Corlett QC and R Butler for the Plaintiffs
A Barker QC and J Grimmer for the Defendants
Judgment:
29 March 2019
JUDGMENT OF WOOLFORD J
[As to costs]
This judgment was delivered by me on Friday, 29 March 2019 at 2:00 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
DETECTION SERVICES LIMITED v PICKERING [2019] NZHC 638 [29 March 2019]
Introduction
[1] On 14 December 2018, I gave judgment dismissing the plaintiffs’ claim. I also dismissed the defendants’ counterclaim. I directed that costs on a 2B basis should follow in the case of both the plaintiffs’ claim and the defendants’ counterclaim. I also directed that if the parties are unable to agree memoranda should be filed by 31 January 2019. The parties have been unable to agree.
The law
[2] When a claim and counterclaim both fail, each party is in principle allowed the costs of defeating the other’s claim. This principle is subject to the proviso that where the failed claim and counterclaim both involved common evidence an apportionment of costs is generally required.
[3] The approach taken by Kós J in N-Tech Ltd v Abooth Ltd is that where there is evidence common to both the claim and counterclaim,1 the Court will allow the defendant the costs of defeating the claim as if there had been no counterclaim, and then allow the plaintiff only the extra costs occasioned by the counterclaim.
Settlement negotiations
[4] The parties tried to settle this dispute between June and September 2017. I am advised that in basic terms, there was an agreement in principle to what could be termed a “walk away” settlement. The sole remaining issue was over what would happen to the leak detection system physically built and paid for by the defendants. The fifth plaintiff, Mr Simmons, said he wanted the equipment. The first defendant, Mr Pickering, said he had no objection to Mr Simmons having the equipment, but some payment should be made for it. The parties agreed in principle to a payment of
$20,000 for the equipment. A concluded agreement could not however be reached. Negotiations broke down over exactly what equipment would be transferred and other subsidiary terms of any settlement.
1 N-Tech Ltd v Abooth Ltd [2012] NZHC 1167 at [144]-[148].
[5] The defendants confirmed at the end of the settlement negotiations that they would settle the claim on the following basis:
Mr Pickering’s position is that Mr Simmons wants the equipment that Mr Pickering paid to produce, then he should pay something for that. So he is prepared to let him have what is at MCL [the third party warehouse where the equipment was stored], on the basis I have outlined in my earlier emails, in return for a payment of $20,000.
If he doesn’t want the equipment, then Mr Pickering will agree to a “walk away” settlement, with no party making any payment to the other, and Pickering will collect what ever MCL hold.
[6]This is the exact result at trial. I held:2
The plaintiffs’ claim is dismissed. The defendants’ counterclaim is also dismissed. The leak detection system which Mr Pickering paid for and which remains in storage is Mr Pickering’s to dispose of as he sees fit. It may still have some value in whole or in its parts.
Plaintiffs’ submissions
[7] The plaintiffs seek costs on a 2B basis for both the claim and counterclaim. The plaintiffs submit they were the successful party overall, on the basis that:
(a)Limited success is still success relevant for the purposes of assessing costs.3 The plaintiffs succeeded in their claim that there was a fiduciary relationship between the parties and that the first defendant breached the fiduciary duty he owed to the first plaintiff.
(b)Their claim was dismissed because of the “clean hands” doctrine. The plaintiffs compare this to judicial review cases where the applicants successfully make out the grounds for judicial review, but relief is declined on a discretionary basis. The plaintiffs cite Justice Fitzgerald’s preliminary view as to costs in Mills v Far North District Council as authority that costs may be awarded to applicants in those circumstances.4
2 Detection Services Limited v Pickering [2018] NZHC 3310 at [92].
3 Weaver v Auckland Council [2017] NZCA 330 and Water Guard NZ Ltd v Midgen Enterprises Ltd
[2017] NZCA 36.
4 [2018] NZHC 2082 at [208].
(c)They were successful in defending the counterclaim, because there was a complete dismissal of that claim.
[8] Alternatively, the plaintiffs seek that costs should lie where they fall. Both parties have subsequently appealed the High Court decision on different grounds. The plaintiffs submit that the defendants are wrong to assert they were the successful party when they are appealing the dismissal of their counterclaim.
[9] However, if Court grants the defendants costs on the plaintiffs’ claim, the plaintiffs dispute the defendants’ calculation of costs, for the following reasons:
(a)The trial was not complex enough to warrant an increase on item 33, from three days in the High Court Rules Schedule 3 to six and a half days;
(b)The trial was not complex enough to warrant second counsel – there were only three witnesses, the trial was short and second counsel for the defendants did not play an active role at trial;
(c)Mr Walker’s fees are not a properly recoverable disbursement. The burden of bearing his costs should lie with the defendants, because they failed to put Mr Walker’s brief to the plaintiffs’ expert. The plaintiffs submit that:
This is not a case where the expert evidence was dispensed with because the plaintiffs’ claim could not succeed or there was a complete lack of evidence to support damages.
(d)Increased costs for failing to accept a settlement offer are not necessary. The settlement correspondence does not amount to a reasonable settlement offer capable of being accepted, because the defendants were not transparent in settlement discussions. The plaintiffs’ rejection of
$20,000 for the InScan system held at MCL was reasonable in the circumstances because the plaintiffs were unclear exactly what was held at MCL and what was held elsewhere;
(e)A further uplift in costs is not necessary.
Defendants’ submissions
Who was the successful party?
[10] The defendants submit that they were the successful party. The defendants submit that this matter is not similar to ‘partial success’ cases like Weaver v Auckland Council.5 In that case, the plaintiff did not succeed on every one of its claims, whereas here the plaintiffs’ case succeeded on some elements of the causes of action that they claimed, but failed in establishing the most important parts. Similarly, the defendants submit that this case is not similar to public law cases where the Court refuses to grant relief for policy reasons external to the circumstances of the individual claimants. The plaintiffs’ claims failed for reasons related to the substance of its causes of action.
[11] The defendants submit that the fact they are appealing the High Court decision does not mean they did not succeed. The defendants’ appeal was only lodged after the plaintiffs’ appeal and was by way of cross appeal. The defendants’ appeal is that the plaintiffs were only required to pay for the physical componentry of the inScan system.
[12] The defendants submit that the plaintiffs should not be awarded costs in relation to the counterclaim, on the basis that the counterclaim evidence was wholly “parasitic” on their evidence and the counterclaim was only raised in response to the plaintiffs’ claim.
Consequence of the settlement negotiations
[13] The defendants offered either $20,000 for the equipment at MCL or a ‘walk away’ settlement. The result at trial was the same as the ‘walk away’ offer.
[14] The defendants submit that this is a further reason to not allow the plaintiffs’ costs on the counterclaim and that the settlement offer should result in some costs in their favour under r 14.10 High Court Rules 2016.
5 Weaver v Auckland Council [2017] NZCA 330.
Claim for increased costs
[15] The defendants claim an uplift in scale costs of 50 per cent for the plaintiffs, based on r 14.6(3)(b) High Court Rules 2016:
(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;
…
[16] For an uplift under r 14.6(3)(b)(ii), the defendants submit that the plaintiffs’ damages claim lacked any merit, as they produced no evidence at trial to support their claim and overstated quantum.
[17] For an uplift under r 14.6(3)(b)(v), the defendants submit that the plaintiffs failed without reasonable justification to accept their offer of settlement. The defendants note that the settlement negotiations took place over an extended period and both counsel made significant effort to resolve the matter. The defendants further submit that the lack of clarity regarding the terms of the $20,000 offer does not matter, because the relevant settlement offer was the ‘walk away’ offer (since this matched the result at trial). The defendants emphasize this offer occurred after years of litigation, when both sides fully understood the issues between them.
[18] Additionally, the defendants claim an uplift on their preparation for trial costs from three days to six and a half days. The defendants base this on the fact that it would be unrealistic to spend only three days preparing for a seven-day trial, considering the cross-examination of each of the main witnesses took over one day and the submissions filed by the parties were extensive.
Disbursements relating to Mr Walker
[19] The defendants submit that an award for Mr Walker’s evidence is valid, as it was appropriate to engage an expert on quantum issues for such a significant claim, relating largely to consequential losses. They submit that Mr Walker’s evidence was not required because it was clear that the plaintiffs’ claim could not succeed, owing to the lack of evidence to support their claim for damages.
[20] Overall, the defendants seek costs of $92,823.75 (2B costs with 50 per cent uplift) and disbursements of $48,525.
Issues
Who should be awarded costs in relation to the claim?
[21] The primary principle of costs is that they follow the event.6 The plaintiffs submit that they achieved limited success in their claim, which coupled with their success in defeating the counterclaim, makes them the overall successful party. Weaver v Auckland Council set out that “success on more limited terms is still success”, meaning that when a party does not succeed in every aspect of their claim, the usual costs rules still apply, and the unsuccessful party should cover their costs.7 The plaintiffs were, however, not successful in their claim at all, so Weaver is not relevant.
[22] The plaintiffs’ claim did not succeed because of the application of the clean hands doctrine. The plaintiffs compare this to parties who did not succeed in judicial review claims for public policy reasons.8 On this basis, the plaintiffs submit they can
6 High Court Rules 2016, r 14.2(1).
7 [2017] NZCA 330 at [26].
8 Mills v Far North [2018] NZHC 2082 at [208].
be awarded costs for the claim. However, in this case, the court declined to award relief because of the plaintiffs’ own impropriety. I am of the view that the application of the clean hands doctrine provides no reason why the normal costs rules should not be followed.
[23]Costs should be awarded to the defendant for the claim, as the successful party.
Who should be awarded costs in relation to the counterclaim?
[24] In N-Tech Ltd v Abooth Ltd, most of the contested issues were common to the claim and counterclaim.9 Similarly, in this proceeding, the affirmative defence formed the basis of the defendants’ counterclaim.10 This would suggest that the counterclaim did not raise any material cost for the plaintiffs. N-Tech Ltd set out that such a counterclaim has little relevance to the assessment of costs between parties:11
The costs associated with the counterclaim issues were all ones the plaintiffs would have had to meet in responding to the affirmative defences to the claim. Those defences must be taken by discontinuance to have succeeded. There is no just basis for apportionment in this case.
[25] Further, the effect of the defendants’ settlement offer must be considered. The effect of settlement offers is set out in r 14.11 of the High Court Rules 2016. Rule 14.11(3) covers offers which exceed the result achieved in trial and r 14.11(4) covers offers that were not better than the result achieved at trial, but were close to the value of that result.
[26] The defendants’ offer of $20,000 can be ignored because the terms were unclear – the plaintiffs were not sure what was stored at MCL. The defendants conceded that only the ‘walk away’ offer is relevant, as it matched the result of the proceedings. Therefore, r 14.11(4) applies. Such an offer may, rather than must, be taken into account in fixing costs.12 Craig v Donaldson set out that rather than entitling the unsuccessful party to costs, r 14.11(4) enables the court to discount or cancel out the costs that the successful party would otherwise be entitled to.13
9 [2012] NZHC 1167 at [155].
10 Detection Services Ltd v Pickering [2018] NZHC 3310 at [77].
11 [2012] NZHC 1167 at [163].
12 Aldrie Holdings Ltd v Clover Bay Park Ltd [2016] NZHC 1482 at [24].
13 [2012] NZHC 3100 at [17].
[27] The fact that the counterclaim primarily involved the evidence related to the claim, combined with the effect of the defendants’ settlement offer, justifies awarding no costs to the plaintiffs for the counterclaim.
Should the defendants receive an uplift for the preparation for trial?
[28] I earlier directed that costs should be allocated on a 2B basis. Schedule 3 of the High Court Rules 2016 allocates three days to preparation for trail under band B. Under band C, five days are allocated for trail preparation. The defendants seek costs for six and a half days in relation to this step. Rule 14.6(3)(a) provides that increased costs can be awarded where the nature of the proceeding or the step in it is such that the time required by the party claiming costs would substantially exceed the time allocated under band C.
[29] It would be unusual to award costs for this step that are significantly greater than the usual costs for this step in even a band C proceeding. In my view, there is no sufficient reason to depart from a 2B allocation of time.
Should the defendants receive an overall uplift?
[30] The party claiming increased costs has the onus of persuading the court they are justified.14
[31] For r 14.6(3)(b)(ii) the lack of merit in the plaintiffs’ claim must have been both obvious and incontrovertible, so that there was no possibility that the Court might form a different view.15 Therefore, something more than a mere failure of a factual or legal argument is necessary for there to be increased costs.16 The court dismissed the plaintiffs’ claim, but it did find that a fiduciary relationship existed between the parties which had been breached by the defendant. Therefore, the plaintiffs’ claim was not undeniably lacking in merit. An uplift is not justified under r 14.6(3)(b)(ii).
14 Strachan v Denbigh Property Ltd HC Palmerston North CIV-2010-454-232, 3 June 2011.
15 N-Tech Ltd v Abooth Ltd [2012] NZHC 1167 at [97] and [108].
16 Nandro Homes Ltd v Datt HC Auckland CIV-2008-404-6676, 13 July 2009 at [11].
[32] Rule 14.6(3)(b)(v) must also be considered. The rationale behind awarding increased costs to a party who fails, without reasonable justification, to accept an offer of settlement is that:17
The scarce resources of the Courts should not be burdened by litigants who choose to reject reasonable settlement offers, proceed with litigation and then fail to achieve any more than was previously offered.
[33] The defendants’ offer matched the end result of the proceedings. If it had been accepted it would have saved both parties the costs and difficulty of the proceedings. Nevertheless, the reasonableness of an offer must be assessed at the time it was made, not against the end result of the trial.18 Weaver v HML Nominees Ltd listed factors that may determine whether increased costs for a 14.10 offer should be awarded, including the reasonable expectations of the refusing party and the information available to them at the time.19 In the context of the extended settlement negotiations between the parties, when the sole issue was what would happen to the equipment built by the defendants, it is doubtful the plaintiffs could reasonably have hoped to achieve a better outcome than the ‘walk away’ offer.
[34]On this basis, a 25 per cent uplift on the defendants’ costs is justified.
Disbursements relating to Mr Walker
[35] The two parties disagree as to why Mr Walker’s evidence was not put to the plaintiffs’ expert. It is reasonable for the defendants to have employed an expert to respond to the plaintiffs’ expert’s assessment of the quantum of the damages sought by the plaintiff. It became unnecessary for Mr Walker to be called because the plaintiffs’ claim for damages lacked any evidential basis. Therefore, the fact that Mr Walker was not called does not preclude the defendants from recovering his fees.
[36]Mr Walker’s fees are recoverable.
17 BlueStar Print Group (NZ) Ltd v Mitchell [2010] NZCA 385, (2010) 9 NZELC 93,588 at [20].
18 New Zealand Sports Merchandising Ltd v DSL Logistics Ltd HC Auckland CIV-2009-404-5548, 19 August 2010 at [36].
19 [2016] NZHC 473 at [30].
Second counsel
[37] The defendants seek costs for a second counsel in this proceeding. For a category 2 proceeding, it must be asked whether the hearing could have been conducted by principal counsel only.20 I am of the view that this proceeding was not sufficiently complex to make second counsel necessary, even if second counsel were helpful to the defendants.
[38]Costs for second counsel are declined.
Result
[39] I award the defendants costs of $ 58,537.50 (2B costs not including costs for second counsel, with a 25 per cent uplift) and disbursements of $48,525.
[40]I decline to award the plaintiffs costs for the counterclaim.
Woolford J
Solicitors: MacKenzie Elvin Law, Tauranga
Langton Hudson Butcher, Auckland
Counsel:M Corlett QC, Auckland R Butler, Auckland
A R Barker QC, Auckland J Grimmer, Auckland
20 OM Hardware Ltd v Body Corporate 303662 [2015] NZHC 574 at [18].
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