Hi-Tec Property Developments Limited v Phi Construction Limited

[2020] NZHC 2719

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV 2020-404-000093

[2020] NZHC 2719

BETWEEN

HI-TEC PROPERTY DEVELOPMENTS LIMITED
Plaintiff

AND

PHI CONSTRUCTION LIMITED

First Defendant/First Counterclaim Plaintiff

AND

ICLP LIMITED

Second Defendant/Second Counterclaim Plaintiff

AND

STEVEN JOHN PALMER

Counterclaim Defendant

Hearing:

15 October 2020

Appearances:

E J Grove for the Plaintiff

W A McCartney for the First and Second Defendants

Judgment:

15 October 2020

JUDGMENT OF CAMPBELL J

This judgment was delivered by me on 15 October 2020 at 4.30pm Pursuant to Rule 11.5 of the High Court Rules

…………………………

Registrar/Deputy Registrar

Solicitors/Counsel:

Lateral Lawyers, Auckland Eden Chambers, Auckland Duncan King Law, Auckland

HI-TEC PROPERTY DEVELOPMENTS LIMITED v PHI CONSTRUCTION LIMITED [2020] NZHC 2719

[15 October 2020]

Introduction

[1]                  The plaintiff is a construction company. The first and second defendants are property developers. They engaged the plaintiff to carry out construction work on several of their property developments.

[2]                  The plaintiff sues the defendants for amounts that it claims are owing for construction work that it carried out for, and invoiced to, the defendants. The plaintiff says that the work was done under an oral contract, the terms of which were that the plaintiff would be paid on a “charge-up basis” according to “approximate” hourly rates and a 20 per cent margin on materials.  The plaintiff claims about $368,000 is owing.

[3]                  The defendants see things differently. They say that there were fixed price contracts, and that the plaintiff has overcharged them. The overcharging has allegedly been such that not only do they not owe anything to the plaintiff, they have overpaid the plaintiff by more than $800,000. The defendants have counterclaimed against the plaintiff, and against the plaintiff’s director, Mr Palmer, for the alleged overpayment.

Applications for security for costs

[4]                  Each side has applied for security for costs. The plaintiff has applied for an order that the defendants pay a sum of $25,000 as security for costs in respect of its counterclaim. The defendants have elected, they say for pragmatic reasons, not to argue that application. They consent to an order.

[5]                  The defendants have applied for an order that the plaintiff pay a sum of $90,000 as security in respect of its claim. The plaintiff opposes the application. However,  Mr Grove, who appeared for the plaintiff, told me that the plaintiff was not contesting that the threshold for ordering security was established.1 Only the quantum of the security was in issue. That was a sensible acknowledgment, given the affidavit evidence.

1      That is, there are reasonable grounds to believe that the plaintiff will be unable to pay the costs of the defendants if the plaintiff is unsuccessful in its claim.

[6]                  Mr McCartney, who appeared for the defendants, referred me to a schedule of estimated costs to support the defendants’ application that security be in the sum of

$90,000. That schedule shows estimated costs of about $60,000 calculated on a 2B basis, plus likely expert fees of $30,000. The estimated costs are based on the assumption that a five-day hearing will be required. There is also allowance for one interlocutory application, as well as the usual case management steps.

[7]                  Mr McCartney acknowledged as “fair” the plaintiff’s submission that other than in exceptional cases, security is typically ordered on the basis of two-thirds of estimated costs. He therefore adjusted the defendants’ position to $60,000.

[8]                  The plaintiff’s position was that security in the sum of $30,000 was appropriate. The following were the points of dispute.

[9]                  First, Mr Grove queried the allowances for an interlocutory application and for all the case management steps. In my view those allowances are appropriate. In making a cost estimate, it is reasonable to assume that there will be at least one application in a proceeding of this nature, and that the usual case management steps will occur.

[10]              Secondly, Mr Grove said that the defendants were effectively seeking security for steps that would, to a large extent, be attributable to their counterclaim. Mr Grove submitted that the defendants were entitled only to security for the costs of defending the plaintiff’s claim, not to security for the costs of pursuing their counterclaim. He said that half the estimated costs should be regarded as attributable to the counterclaim. On that basis, he said that half of $60,000, being $30,000, was appropriate security.

[11]              Mr Grove is correct that the defendants cannot have security for the costs of pursuing their counterclaim. But where, or to the extent that, a counterclaim does not add anything to the matters that the plaintiff will have to prove in any event, the existence of the counterclaim does not of itself provide a reason for reducing the security that would otherwise be ordered.2

2      Oraka Technologies Limited v Geostel Vision Limited CIV 2005-419-809, 13 December 2007, Associate Judge Faire at [35]–[37].

[12]              In this case the defendants’ counterclaim is largely a corollary of their defence to the plaintiff’s claim. For the plaintiff to succeed in its claim, it will have to prove that it was contractually entitled to charge the amounts that it did in its allegedly unpaid invoices. To do that, the plaintiff will have to prove that it contracted on a “charge-up basis.”3 In trying to prove that, it will be faced with the defendants’ contrary contention that the contracts were for fixed prices. That contention is also the basis of the defendants’ counterclaim. This means that the defendants’ counterclaim adds little to the matters that the plaintiff will have to prove in any event.

[13]              The exception to that analysis is that the defendants’ counterclaim goes further than the defence to the plaintiff’s claim, by seeking repayment of amounts overpaid as a result of the alleged overcharging. That will require the parties to traverse matters that will not have to be traversed in dealing with the plaintiff’s claim. My assessment is that about one-third of the hearing time (and other steps) will be attributable to the counterclaim in that way. I will adjust the security accordingly.

[14]              Mr Grove’s third point was that there should be a reduction in the security that would otherwise be ordered because there was evidence that the defendants were using this application to hinder the plaintiff’s pursuit of its claim. I am not going to make a reduction on that basis. There has been a serious breakdown in the relationship between the parties, and it is not unusual in such a situation for the parties to say that they will firmly assert their legal rights and remedies. Each side appears to have done so here.

[15]              In light of the above, in my view the appropriate security to be ordered on the defendants’ application is $40,000. I have calculated this by deducting one-third from the defendants’ (adjusted) starting position of $60,000. That deduction is to reflect the extent to which the defendants’ estimate reflects costs attributable to the counterclaim.

Result

[16]On the plaintiff’s application I order, by consent, that:

3      It may, depending on the contract terms, also have to prove that the hours that it invoiced were fair and reasonable for the work done.

(a)The first defendant and second defendant (as counterclaim plaintiffs) jointly and/or severally pay into court security for the plaintiff’s costs in defending the counterclaim in the sum of $25,000; and

(b)The counterclaim be stayed until such security has been given.

[17]On the defendants’ application I order that:

(a)The plaintiff pay into court security for the defendants’ costs in defending the plaintiff’s claim in the sum of $40,000; and

(b)The plaintiff’s claim be stayed until such security has been given.

[18]              I encourage the parties to reach agreement on the costs of these two applications. If an agreement is not reached by 29 October 2020, the parties may file memoranda. The plaintiff is to go first, with a memorandum of no more than two pages (excluding any attachments) by 3 November 2020. The defendants are to follow with a similarly brief memorandum by 6 November 2020.

Campbell J