LSG Sky Chefs New Zealand Limited v Pacific Flight Catering Llimited

[2013] NZHC 43

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-000277 [2013] NZHC 43

BETWEEN  LSG SKY CHEFS NEW ZEALAND LIMITED

Plaintiff

ANDPACIFIC FLIGHT CATERING LIMITED First Defendant

ANDPRI FLIGHT CATERING LIMITED Second Defendant

Hearing:         On the Papers

Counsel:         PG Skelton and A Borchardt for Plaintiff

RB Stewart QC and JK Goodall for Defendants

Judgment:      1 February 2013

COSTS JUDGMENT OF TOOGOOD J

This judgment was delivered by me on 1 February 2013 at 4:45 pm

Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

Solicitors:

Garry Pollak & Co. Limited, Auckland:  [email protected]
Gilbert Walker, Auckland:  [email protected]

Copy:

PG Skelton, Auckland:  [email protected]

JK Goodall, Auckland:  [email protected]

LSG SKY CHEFS NEW ZEALAND LIMITED V PACIFIC FLIGHT CATERING LIMITED HC AK CIV-2011-

404-000277 [1 February 2013]

[1]      In an interlocutory judgment delivered on 3 August 2012,[1] I ruled:

[1] LSG Sky Chefs New Zealand Limited v Pacific Flight Catering Limited & Anor (Judgment

No. 2) [2012] NZHC 1942.

(a)	that affirmative defences based on the concept of passing-on should be struck out;
(b)	that the plaintiff should either comply, or verify by affidavit that it had complied, with an agreement between the parties as to discovery; and
(c)	that aspects of an interlocutory judgment by Faire AJ dealing with discovery would not be reviewed.
[2]	In a	reasons judgment dated 9 August 2012,[2] I reserved the question of costs

[2] LSG Sky Chefs New Zealand Limited v Pacific Flight Catering Limited & Anor (Judgment No.

1) [2012] NZHC 1996.

on the interlocutory applications for memoranda from counsel.

[3]      Counsel for the plaintiff seek costs on a 2B basis as to some aspects of the interlocutory applications, but on a 2C basis for the preparatory steps related to the application to strike out the affirmative passing-on defences.  The defendants oppose the 2C categorisation of the strike out application but do not oppose certification for second counsel at the hearing.

Background

[4]      The plaintiff (“LSG”) won a tender to provide catering services to Singapore Airlines.  As a consequence, 44 employees formerly employed by the defendants (“Pacific”) elected to transfer their employment to LSG under the provisions of Ss 69A and 69F of the Employment Relations Act 2000.  By operation of Part 6A of the Employment Relations Act, their employment entitlements were transferred with them and LSG assumed a liability to pay out accrued benefits valued at $257,809.05

at the date of transfer.

[5]      LSG sued Pacific for restitution of the money paid and to be paid in meeting the transferred entitlements.   It argued that it was a well-established common law rule that where a plaintiff has been compelled by law to pay money which the defendant was ultimately liable to pay, so that the defendant obtained the benefit of the payment by the discharge of his liability, the defendant is held indebted to the plaintiff in the amount of the payment.   The strike-out application concerned affirmative defences pleaded by Pacific that:

(a)      LSG had passed on to Singapore Airlines the burden of meeting the transferred entitlements and had suffered no loss for which restitution should be made; or

(b)If LSG had not passed on the liability, it should have done so under its duty as plaintiff to mitigate its losses.

[6]      The affirmative defences were pleaded in the face of New Zealand authority[3] in which the High Court rejected the defence of passing-on for reasons of principle and on practical grounds.  In essence, the defendants argued that they should be permitted to run their defences on the basis that there was a reasonable prospect that the defences of passing-on would be upheld, at least at appellate level.

[3] Equiticorp Industries Group Limited (In Statutory Management) v Attorney-General (Judgment No. 47) [1998] 2 NZLR 481; Whangarei District Council v Northland Regional Council (1996) NZRMA 445.

[7]      Bearing in mind the central question of whether the defence of passing-on was so clearly untenable that the Court could be certain that it could not succeed, it was necessary for counsel to argue and for the Court to consider the state of the law, not only in New Zealand but also in other Commonwealth jurisdictions, and to review academic discussion of the issue.   Counsel for the defendants placed some reliance  upon  observations  by  the  Court  of Appeal  in  Commissioner  of  Inland

Revenue v Stiassney[4] and by the Privy Council in Waikato Regional Airport Limited

v Attorney-General.[5]

Plaintiff ’s submissions

[4] Commissioner of Inland Revenue v Stiassney [2012] NZCA 93.

[5] Waikato Regional Airport Limited v Attorney-General [2004] 3 NZLR 1 (PC).

[8]      The  plaintiff  submits  that  the  strike  out  application  raised  an  unusually complex   issue   of   law   and   that   time-consuming   preparation   was   required. Realistically, the plaintiff does not seek a 2C categorisation in respect of the hearing itself.

[9]      The plaintiff also submits that the main thrust of the defendants’ discovery application was related to the affirmative defences.  It argues that, although the plaintiff consented to filing a further affidavit as to discovery, the defendants’ discovery application stood or fell on the fate of the affirmative defences.  Similarly, the application review for the interlocutory decision of the Associate Judge could not be pursued if the affirmative defences were struck out.

Defendants’ submissions

[10]     The defendants argue that:

(a)       the plaintiff should recover costs only on the strike out application;

(b)      all  costs  on  the  strike  out  application  should  be  assessed  on  a

Category 2B basis and not a mixed Category 2B and 2C basis; and

(c)       the   plaintiff’s   claim   for   costs   in   the    sum   of   $17,114    plus disbursements is excessive for a hearing that lasted less than one day.

[11]     They submit that the three interlocutory applications were so closely related that they should be treated as one and that the plaintiff should not be entitled to claim costs separately for opposing the defendants’ applications for review and as to discovery.  They also submit that the plaintiff did not wholly succeed in opposing the discovery application because it agreed, in the course of the hearing, to file a further affidavit as to discovery.

[12]     The defendants also argued, in reliance upon a passage in the commentary in

McGechan  on  Procedure  related  to  test  cases  and  novel  points  arising  in  an

otherwise routine proceeding,[6] that a successful party in a routine proceeding which raises a novel issue should be awarded “normal” costs and that the unsuccessful party should not be visited with the higher costs burden resulting from the novelty.

[6] McGechan on Procedure HR Pt 14.17.

[13]     The defendants also argue that, standing back from the calculations to be made under the costs scale, the sum of $17,114 plus disbursements of $725 claimed by the plaintiff is well in excess of any reasonable award of costs for an interlocutory application, the hearing of which occupied less than a full day.  They submit that the Court should exercise its overriding costs discretion under r 14.1 to award a reduced amount.

Discussion

[14]     I am satisfied that the plaintiff was put to unusual additional expense in resisting the affirmative defences. The defendants elected to pursue speculative defences which had been held by the High Court in 1996 and 1998 to be unavailable in New Zealand.   I see no reason why the defendants should not make a costs contribution based upon the reasonable steps taken by the plaintiff to strike out the pleading.

[15]     The proposition that an unsuccessful party should not be visited with the higher costs burden resulting from the novelty of an issue in the proceeding, if applied as a general principle, runs contrary to the time band assessments to be made in accordance with r 14.5 and Schedule 3 and to the principle that “an award of costs should reflect the complexity and significance of a proceeding”.[7] The defendants elected to plead defences the validity of which could be determined only by comprehensive analysis; having failed in that attempt, the defendants should reasonably reimburse the plaintiff for the steps it took to present the Court with its

submissions on a complex issue.

[7] High Court Rules, r 14.2(b).

[16]     The plaintiff’s submissions were comprehensive and helpful in assisting the Court to determine that there was no reasonable prospect that the pleaded defences would be upheld by the New Zealand courts at appellate level.

[17]     The defendants’ applications for review of the Associate Judge’s decision and for further discovery orders were filed separately and required separate responses. Although it is appropriate to regard the hearing as covering all three interlocutory applications, I see no reason not to allow the plaintiff to recover its costs for filing its opposition to the defendants’ two applications as separate heads of costs.   It is appropriate also, for the reasons given, to calculate the time in respect of filing the strike out application and preparing submissions under Category 2C.  Preparation of the bundle, however, should be calculated on a 2B basis.  The plaintiff acknowledges that the time allowed for the appearance of counsel at the hearing and the sealing of the judgment should also be assessed under Category 2B.

[18]     While the result is a significant award of costs on an interlocutory matter, that consequence follows from a straightforward application of the rules to a matter I have found to be complex.  Reducing the amount awarded simply because it might be regarded as unusually high would not represent a principled approach and would

undermine the desirability of costs being predictable.[8]

[8] Ibid, r 14.2(g).

[19]     I award the plaintiff costs of $16,318.00, on the basis that all steps claimed by the plaintiff in its schedule of costs should be assessed under Category 2B except for the filing of the strike out application and the preparation of written submissions, which  should  be  assessed  under  Category  2C.    The  plaintiff  shall  also  have

disbursements of $725.

[20]     I regret that, although the defendants’ memorandum of submissions was filed on 4 September 2012, confusion as to whether costs on the interlocutory matters should be dealt with by Woolford J (who heard the substantive case) or me meant that  the memoranda  of  counsel  were not  referred  to  me for consideration  until

17 January 2013, during the vacation.

.................................................

Toogood J