Mansfield Drycleaners Ltd v Quinny's Drycleaning (Dentice Drycleaning Upper Hutt) Ltd

IN THE COURT OF APPEAL OF NEW ZEALAND

CA 296/01

BETWEEN	MANSFIELD DRYCLEANERS LIMITED
Appellant

AND	QUINNY’S DRYCLEANING (DENTICE DRYCLEANING UPPER HUTT) LIMITED
Respondent

Hearing:	17 July 2002
Coram:	Keith J Fisher J Salmon J
Appearances:	E W Gartrell and D M McKnight for Appellant J C Gwilliam for Respondent
Judgment:	23 September 2002

JUDGMENT OF THE COURT DELIVERED BY FISHER J

Introduction

The appellant (“Mansfield”) appeals against a costs order of $15,000 and disbursements which Heron J ordered it to pay to the respondent (“Quinny”). The question of principle raised by the appeal is whether and in what circumstances courts are free to depart from the inter-party costs regime provided for in the High Court Rules.

Factual background

Mansfield and Quinny were competing drycleaning companies. On 28 February 2000 Mansfield brought proceedings against Quinny claiming an injunction and damages for the alleged plundering of Mansfield’s business connections and goodwill. Breach of confidence, breach of fiduciary duty, and breach of contract were pleaded. Mansfield also sought an ex parte interim injunction to restrain Quinny from dealing with Mansfield’s clients. The interim injunction was granted ex parte on the following day.
On Quinny’s application Heron J discharged the interim injunction on 30 March 2000. Quinny undertook not to enter into any commercial relationships with Mansfield’s other customers until further order of the Court. The arrangement was subject to an early trial. Quinny’s contention is that from this point Mansfield realised that it would be unable to obtain an injunction or damages and did all it could to stop the matter from coming to trial.
On 17 April 2000 a judicial conference was held at which the parties agreed that the case was ready for hearing. A timetable was made for the exchange of discovery and briefs of evidence. A two-day substantive trial was set down for 17 and 18 May 2000.
Discovery and briefs having been exchanged, the matter came before Heron J for trial on 17 May 2000. The trial was adjourned on Mansfield’s application. Mansfield wanted further discovery and interrogatories. The Judge recorded the acknowledgement by counsel for Mansfield that “against the background of the history of this matter no interim orders can be continued and they are accordingly discharged.” He continued:
Mr Williams who has put a great deal of effort into readying the defendant for trial in this case, and who comes to the case late in the piece, is naturally concerned that this application for adjournment is simply an indication of reluctance on the plaintiff’s part to front what might be a difficult case. The Court acknowledges the defendant’s position in getting ready for trial at short notice, and only to be met for this last minute application.
The matter must be progressed and it will be adjourned sine die but any further interlocutory proceedings are to be brought within 21 days. The defendant in all the circumstances in my view, is entitled to an order for costs now. I reject Mr Billington’s request that costs be reserved. It seems to me that the overall balance of convenience requires an order for costs in favour of the defendant. That in itself will act as some spur, I would hope, to a proper progress of this case.
If the plaintiff on proper reflection considers that it cannot pursue its action in damages, although I am informed it has briefed a chartered accountant to prepare such a claim, then the defendant may return to the court and seek an order for costs which reflects the proceedings overall and not just the nugatory preparation required for today’s fixture.
Accordingly the matter is adjourned. The interim orders are discharged. The plaintiff is ordered to pay costs in the sum of $1,500.00
Little happened to progress the matter until Mansfield applied to have the proceedings removed into the District Court. By a minute of 13 September 2000 Heron J directed that the case was to remain in the High Court and that it was to be set down for hearing. He directed that the parties file a joint memorandum or seek a conference.
This led to a reserve fixture for a two day hearing commencing 26 March 2001. The fixture did not proceed due to the unavailability of Mansfield’s counsel and the priority of another fixture on the allocated day.
Nothing seems to have happened over the next few months. Becoming dissatisfied with the lack of progress, Quinny applied on 10 August 2001 for detailed orders to bring the matter to trial. At a directions conference on 4 September 2001 Master Thompson made the following orders:
1.   THAT any further evidence to be adduced on or behalf of the Plaintiff at trial be comprised in written briefs to be served on the Defendant on or before 14 days from the date of these directions.
2.   THAT the Defendant serve on the Plaintiff any written briefs of evidence in response on or before 14 days after service on the Defendant of the Plaintiff’s further briefs of evidence as per paragraph 1 above.
3.   THAT the Plaintiff file and serve a second amended statement of claim within 14 days from the date of these directions particularising and specifying the damages allegedly suffered and claimed in this proceedings and withdrawing its claim for an injunction.
4.   THAT the Defendant file a statement of defence to the second amended statement of claim within 14 days from the date of being served with the second amended statement of claim as aforesaid.
5.   THAT an agreed bundle of documents be filed within four weeks of the date of these directions.
6.   THAT all evidence in chief at trial proceed by way of existing affidavits that have been filed, together with further signed briefs of evidence.
7.   THAT hearing time be confined to cross examination, interpolation of additional material as evidence in chief and legal submissions.
8.   THAT a three day hearing for this matter be confirmed.
9.   THAT if the Plaintiff fails to comply with these directions, the Defendant is given leave to apply for a hearing on the overall costs of these proceedings including the initial injunction proceedings.
The amendment to Mansfield’s pleading was necessary because it was common ground that an injunction was no longer feasible and damages had not been particularised. It will be noted that Mansfield was to file its second amended statement of claim and serve any additional briefs by 18 September 2001. Quinny was given leave to apply for costs if Mansfield failed to comply.
18 September 2001 came and went without compliance by Mansfield. On 26 September 2001 Quinny filed the costs application contemplated by the Master. An affidavit in support detailed Quinny’s costs to date. They came to $24,957.50 plus disbursements and experts’ fees.
The costs application came before the Master on 19 October 2001. By that stage Mansfield had still not filed its second amended statement of claim or served its briefs of evidence. The Master adjourned the costs application to 12 November 2001.
On 12 November 2001 Quinny’s costs application came before Heron J. On the morning of the hearing counsel for Mansfield filed the required second amended statement of claim and provided Quinny’s counsel with seven additional briefs of evidence. Both counsel thought that the application would be called in the Master’s list. When the case was called before Heron J counsel were in the Master’s courtroom. At that stage Heron J had no explanation for their absence. A brief exchange followed between Heron J and the brother of Quinny’s proprietor.
Counsel arrived before Heron J later that morning. Having heard their submissions Heron J gave a ruling. After reviewing the history Heron J said:
Having regard to all the circumstances and the cold hard fact that these parties were competitive in the market place, notwithstanding the particular situation that they got themselves into following the fire, In any event, this failure to meet the Master’s directions and generally the unwillingness it seems to me, to get on with the case, is a matter of concern. Whilst I do not have any direct evidence of the facts, I have heard representation from one of the parties as to the stress that such a delay is causing. Whether that is correct or not, it is not difficult to contemplate that might well happen.
Mr Gartrell urges on me with some merit I suppose, that in many ways this delay from the date of the Master’s order is not particularly serious. It is a couple of months, if that. In the scale of things and having regard to particular difficulties that he has had in his office, it should be overlooked on this occasion. I am not prepared to overlook it in the circumstances of this case because of the background, to which I have already referred. I think it is appropriate to award party and party, costs to be paid now. Both these parties are commercial enterprises and as far as I am aware, they are perfectly capable of making commercial arrangements for the payment of costs in the meantime. The figure I fix upon is $15,000, which the plaintiffs are to pay to the defendants for in particular the interim injunction proceedings.
These costs will become costs in the proceedings. If the plaintiff wins, at the end of the day the costs will have to be repaid, but it seems the only way the court can reflect its concern, and indeed the defendant’s concern, that the case should be brought to a rapid conclusion.
I have some concerns about the final intention of the plaintiff to do this, and if damages are being pursued as some sort of harrying exercise designed to wear down the defendant, then the appropriate course is to mark the Court’s disapproval of that by the order for payment.
There will be an order that the plaintiff pay the defendants costs of $15,000 together with all approved disbursements. There will be no further steps taken by the plaintiff until those costs have been paid.

Issues on appeal

Mansfield appeals from the costs award and its associated stay. No independent ground was advanced in respect of the stay and we concentrate on the costs. The costs are challenged on the grounds that there was a denial of natural justice in that the Judge was influenced by a discussion in the absence of counsel; that the circumstances did not warrant the award of any costs at all; that no reference was made to the High Court Rules governing costs; that the quantum was excessive; and that no allowance was made for the fact that Mansfield ultimately complied with the Master’s directions.

Scope of the costs awarded

A preliminary point concerns the intended scope of the costs awarded. In the directions of 4 September 2001 the leave reserved to Quinny was to apply for “the overall costs of these proceedings including the initial injunction proceedings.” Quinny’s application sought “an order setting costs in favour of the defendant against the plaintiff for the whole of these proceedings to date”, although also seeking the costs incurred in respect of the initial injunction proceedings in the alternative. After some remarks about costs which do not seem to be confined to the interim injunction, the Judge fixed costs “which the plaintiffs are to pay to the defendants for in particular the interim injunction proceedings.”
Without abandoning the possibility that additional costs would be payable for matters other than the interim injunction, Mr Gwilliam accepted that in combination with the earlier award of $1500, the costs awarded by Heron J would have been reasonable for the overall proceedings down to that date. We proceed on the basis that that is what the Judge had in mind.

Breach of natural justice

Mr Gartrell referred to statements by the brother of Quinny’s proprietor when the case was first called in Court. Apparently the brother suggested that Mansfield was deliberately delaying the proceedings and that this was causing stress to Quinny’s proprietor. Mr Gartrell submitted that it was this that prompted Heron J to say in his judgment that there appeared to be an unwillingness on Mansfield’s part to get on with the case and that “whilst I do not have any direct evidence of the facts, I have heard representation from one of the parties as to the stress that such a delay is causing. Whether that is correct or not it is not difficult to contemplate that might well happen.” Mr Gartrell submitted that the Judge was in error in that the statement came from Mr Quinn’s brother, who was not a party to the proceeding, that there was “no jurisdiction” to hear such evidence, and that the absence of counsel gave rise to a denial of natural justice.
The case was formally called in open Court at a time when it was open to any party to make representations to the Judge. At that time there was no explanation for counsel’s absence. In their absence there was nothing improper in hearing directly from other sources representing the parties. The affidavit filed in support of Quinny’s application for costs had also included reference to the adverse effect that the ongoing litigation was having on the viability of Quinny’s business.
When counsel later arrived Heron J disclosed to them the representations that he had already received. Counsel for Quinny covered the same ground. Counsel for Mansfield had every opportunity to contradict these contentions. There was no denial of natural justice.
In his judgment Heron J referred to the representations but did so only in passing. He did so by way of reinforcement to the usual assumption that ongoing litigation will be a source of mounting cost and stress to the proprietor of a small business. This ground of appeal fails.

No justification for a costs award

Mr Gartrell submitted that at that stage in the proceedings it was not appropriate to order Mansfield to pay costs.
Whether to award costs, and in what sum, requires the exercise of a judicial discretion. In exercising the discretion the court concerned will be influenced by a myriad of details that are difficult to replicate on appeal. Consequently appellate courts will be particularly slow to interfere. As Cooke P said in Thoroughbred and Classic Car Owners’ Club Inc v Coleman (25 November 1993, CA 203/93) at 2):
It is unusual for an appeal to be brought to this Court on costs only and only rarely could an appeal succeed in this field, for this Court is always especially reluctant to disturb a decision of a High Court Judge on a matter as discretionary as that of costs.

That is not to say that an appellate court will decline to intervene if it can be shown that the costs award was made without jurisdiction or was plainly wrong even bearing in mind the advantages of the first instance judge.

In the present case Mr Gartrell advanced a number of arguments in support of the contention that no costs award was justified. First, he submitted that the delay was not excessive. We cannot agree. The latest default was to be assessed against a history of earlier delay.
Mr Gartrell next submitted that costs ought to have been reserved until after trial. We think that in a case where the plaintiff has consistently failed to prosecute its claim it is well within the discretion of the Court to order the plaintiff to pay the defendant’s costs down to the date of the order particularly where, as here, the payment is merely in the nature of a security. The costs award was provisional. It would be repayable in whole or in part if Mansfield ultimately won at trial. In the meantime its payment would be an incentive for Mansfield to bring the matter to an expeditious conclusion. Given the history it was appropriate that the risk of non‑recovery of costs should fall on Mansfield rather than Quinny.
Mr Gartrell next submitted that there was no default given that the second amended statement of claim was filed, and briefs served, within the time allowed by the Master on 29 October 2001. We do not interpret the record in that way. By the time the matter came before the Master on 29 October 2001 Mansfield was clearly in default of the directions of 4 September 2001. The fact that the Master then adjourned the costs application did not mean that Mansfield was excused for the default that had already occurred. Nor did it mean that the timetable had been varied. The most that could be said is that Mansfield might have some reasonable expectation that if it complied with the earlier directions by the date to which the costs application had been adjourned, that fact would be taken into account when the costs application fell for determination.
Mr Gartrell referred next to staff turnover within his firm at critical times during the timetabling period. It was in the Judge’s discretion to take such matters into account. No doubt he would have done so had the difficulties arisen at an earlier stage in the proceedings. However, we think that given the procedural history the Judge was well entitled to take the view that professional difficulties encountered by Mansfield’s advisers had to take second place to procedural fairness between the parties. Mansfield and its advisers had been expressly put on notice that failure to meet the timetable could attract costs. Faced with that threat many small firms would have briefed a barrister. We can see no ground for interfering with the Judge’s decision to award costs.

No reference to High Court Rules

The next ground of appeal was that in awarding costs the Judge disregarded the High Court Rules. The High Court Amendment Rules 1999 introduced a new regime for the award of party and party costs in the High Court. Rules 46 to 53 and the 2^nd and 3^rd Schedules to the Rules together prescribe principles, formulae and rates that cater for all but the most unusual of cases. While R 46 preserves the Court’s overriding discretion, there is a strong implication that a Court is to apply the regime in the absence of some reason to the contrary: Body Corporate 97010 v Auckland City Council (30 August 2001 CA 234/00). We do not think that a Court should hesitate to depart from the regime where appropriate but we agree that some articulation of the reason for doing so is to be expected, however succinct. If no reason is given it will expose the award to close appellate scrutiny.
In the present case the Judge’s thesis was that having displayed an unacceptable level of default and delay in prosecuting its claim, Mansfield ought to pay Quinny’s costs to date. He was clearly not contemplating indemnity costs. The affidavit evidence before him showed actual costs of $24,957.50 excluding disbursements and experts’ fees. Taking into account the earlier award of $1,500, the award of $15,000 approximated to two‑thirds of actual costs. We can see no departure from any of the cost principles in the Rules other than the subjective rather than objective starting point.
The usual award would have been scale costs subject to any special adjustments that the occasion seemed to demand. No reason for departing from that approach was expressed and we can see none. One of the principal advantages of expressing costs in terms of the Rules is that it would have saved the parties from the argument that followed over the actual costs that formed the background to the award. There is dispute over the reasonableness of those costs and the way in which they ought to be allocated between different sections of the litigation. Costs according to scale moves the focus from an examination of the costs actually charged to the costs which are deemed to have been reasonable in all the circumstances. The relevant objectives are efficiency in the conduct of litigation and consistency and expedition in the process of assessment (see in particular R 47(e) and (g)). All the Judge had to say here was “costs to date on a 2B basis”.
The fact that the Judge took a different path is not of itself a reason for interfering with his award, particularly if application of the scale would not have produced a better outcome for the appellant. Mr Gartrell accepted that in applying the rules to this case, skill category 2 (proceedings of average complexity requiring counsel of skill and experience considered average in the High Court) and time-band B (normal amount of time) would have been appropriate.

On a 2B basis the Third Schedule time allocations for the defence would have included commencement of defence (2 days), pleading in response to amended statement of claim (.6), answer to interrogatories (1), discovery list (1.5), production for inspection (1), inspection (1.5), two judicial conference appearances (.6), preparing two interlocutory applications (1.2), preparing opposition to interlocutory application (.6), preparation and appearance at defended interlocutory applications (say 2), appearance at call-over (.2), preparing affidavits and briefs for trial (2), and preparation of lists etc (2), a total of 16.2 allocated days. At the prescribed rate of $1,300 per day, the 16.2 allocated days would have yielded total scale costs of $21,060 plus disbursements.
The scale costs of $21,060 plus disbursements exceeds the $16,500 plus disbursements allowed by Heron J (earlier award $1,500, current award $15,000). Accordingly it could not be said that the appellant was disadvantaged by the way in which the Judge went about arriving at the quantum of costs.

Allowance for ultimate compliance

The only remaining question is whether the Judge ought to have reduced the costs given the fact that Mansfield did ultimately comply. On that subject the Judge said “nothing has been done until today and only following the defendant’s application of 26 September for costs”. Clearly he was aware that Mansfield had ultimately complied. He decided that costs should be ordered in any event. The question is whether we should interfere with the exercise of his discretion in that respect.
We think that many judges would have reduced the costs otherwise payable in recognition of Mansfield’s ultimate compliance. However, we bear in mind the facts that the Judge was well aware of the compliance, that he was intimately acquainted with the procedural history, that the way in which he approached this aspect of the discretion did not conflict with anything in the High Court Rules, that there remained a substantial margin between the costs awarded and those which could have been justified on a 2B basis, that there was the potential for awarding increased costs under R 48C(3)(b), and that the award was a provisional one only. In those circumstances we are not persuaded that an appellate court would be justified in interfering with the very broad discretion that a judge has over costs.

Result

The appeal is dismissed. The appellant must pay the respondent’s costs in this Court in the sum of $3,500 plus disbursements.

Solicitors
E W Gartrell, Wellington for Appellant
J Gwilliam & Co, Upper Hutt for Respondent

[2002] NZCA 277

23 September 2002