Murphy v Amtech Construction Limited

[2015] NZHC 1951

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

CIV-2014-441-7 [2015] NZHC 1951

BETWEEN

DIANA LINDSAY MURPHY AND

JOHN LAURENCE ARMSTRONG Plaintiffs

AND

AMTECH CONSTRUCTION LIMITED First Defendant

RICHARD ALLYN LEWERS Second Defendant

AILSA HENDERSON ROBERTSHAWE, JAMES PATRICK GALLAGHER, AMANDA RUTH ROBERTSHAWE, LUCY BELINDA ROBERTSHAWE and JAMES ALAN SCOTLAND

Third Defendants

AILSA HENDERSON ROBERTSHAWE Fourth Defendant

Hearing:	On the papers
Counsel:	WA McCartney for plaintiffs and first and second defendants NT Gray for third and fourth defendants
Judgment:	17 August 2015

JUDGMENT OF FAIRE J

Solicitors:           Davidson Armstrong & Campbell, Waipukurau

Sainsbury Logan & Williams, Napier

Murphy v Amtech Construction Limited [2015] NZHC 1951 [17 August 2015]

[1]      This judgment deals with the third and fourth defendants’ claim for costs following the plaintiffs’ discontinuing their claim against them.  The third and fourth defendants were represented by the same solicitors and counsel.  Costs are dealt with on the basis that one party is entitled to costs.

[2]      The plaintiffs reached agreement with the first and second defendants.  That agreement included the question of costs.  I was advised by counsel for the third and fourth defendants that there was no opposition to my granting leave in terms of r 15.20 to the plaintiffs discontinuing in respect of the first and second defendants. Accordingly,  on 25 March 2015,  I granted leave to the plaintiffs to  discontinue against the first and second defendants.

[3]      The plaintiffs advised an intention to discontinue against the third and fourth defendants and have now done so.  On 25 March 2015 I directed that if the parties were unable to agree then memoranda dealing with costs were to be filed and served in support, opposition and reply at 10-day intervals.

[4]      Mr Gray  advised  that  the  third  and  fourth  defendants  intended  to  seek increased costs and would be filing evidence.   Otherwise, he confirmed that the directions  that  I made  that  provided accommodation  for the Easter break,  were acceptable to him and his clients.

[5]      Unfortunately, the timetable I directed has not been adhered to.  However, all memoranda required, together with responses to questions that I had raised appear now to have been filed.

Costs on discontinuance

[6]      Where a notice of discontinuance is filed, the normal position is covered by hcr 15.23 which provides:

15.23   Costs

Unless the defendant otherwise agrees or the court otherwise orders, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance.

[7]      In Kroma Colour Prints Ltd v Tridonicatco NZ Ltd the Court of Appeal summarised the general approach to be applied in considering applications for costs where a notice of discontinuance has been filed.1    Importantly, the court does not speculate on the merits of a case it has not heard.  That aspect would only influence the court’s decision on costs in exceptional cases where the merits are clear.

[8]      Normally, from here I would proceed to analyse the claim for costs applying

Part 14 of the High Court Rules.

[9]      The position is not that simple. The following issues have been raised: (a)    The third and fourth defendants’ claim for increased costs;

(b)      The plaintiffs’ claim that costs have been agreed;

(c)       What costs, if any should be ordered in relation to a withdrawn strike out application;

(d)What position should be adopted having regard to the fact that an amended statement of claim has been filed; and

(e)       Adjustments to the third and fourth defendants’ 2B Schedule.

I shall deal with these additional matters.

Alleged agreement on costs

[10]     This can be disposed of shortly.  There was no unqualified acceptance of the third and fourth defendants’ offer to accept 2B costs.  In short, the offer had not been accepted according to its terms.  A contract is therefore not formed.2   Accordingly, I

find that there was no agreement on costs.

1      Kroma Colour Prints Ltd v Tridonicatco NZ Ltd (2008) 18 PRNZ 973 (CA).

2      Reporoa Stores Ltd v Treloar [1958] NZLR 177 (CA).

Costs on withdrawal of strike out application

[11]     The third defendants’ application to strike out the proceeding was withdrawn following comments made by Kos J in his minute of 29 August 2014, in which his Honour indicated that the application was unlikely to proceed.  No orders for costs were made by his Honour.

[12]     The application accordingly was not formally determined on the merits.  But for comments  that  I will  make later  in  this  judgment  concerning the  plaintiffs’ position by introducing a fraud allegation, I would have been minded to make some allowance for the plaintiffs because the third defendants withdrew the application.  I am not so minded to make that allowance, because the application was directed at the fraud pleading.

[13]     The  third  defendants  also  seek  costs  on  this  application.     The  third defendants,  however,  have  withdrawn  the  application  as  a  result  of  Kos J’s comments.  Weighing the matter up, my view is that no allowance either way should be made for costs in relation to the strike out application and the papers filed in opposition to it.

[14]     I proceed on that basis.

The amended pleading

[15]     When  considering  this  issue  it  is  necessary  to  briefly  refer  to  some background.

[16]     The plaintiffs’ claim initially against the third defendants was for breach of a sale and purchase contract and, in particular, the warranty terms contained in clause

6.2(5).  The plaintiffs complained that building defects had caused the building to leak.   The initial leak was fixed by the original builders at the third defendants’ request.  The third defendants later sold the property to the plaintiffs.  The plaintiffs lived in the property for some five years, then discovered it leaked.  They sued the third defendants under the sale and purchase agreement.   The third defendants challenged the claim as being time-barred.  The plaintiffs’ response was to allege,

first in correspondence, that the third defendants had fraudulently concealed the defects and then sold the apartment to the plaintiffs.

[17]     Correspondence took place.   The plaintiffs, however, elected to pursue the third defendants and advanced a pleading alleging fraudulent concealment of the defects.  It is apparent, therefore, that although the damages aspect of the claim did not change, the liability aspect did significantly change.

[18]     Rule 7.77 applies where an amended pleading is filed.  For the purposes of this cost analysis, r 7.77(8) provides:

7.77     Filing of amended pleading

…

(8)       If an amended pleading has been filed under this rule, the party filing the amended pleading must bear all the costs of and occasioned by the original pleading and any application for amendment, unless the court otherwise orders

[19]    In calculating costs based on Category 2 Band B, the third and fourth defendants’ make a claim based on Item 2 of Schedule 3 to the High Court Rules as if the claim was commenced completely on two occasions.  In short, they increase the two day allowance by two.

[20]     Dealing with this problem in this case provides no precise mathematical answer.  However, applying r 7.77, I am of the view that some credit has to be given for the fact that not all of the defence to the claim has to start again with the amended pleading.  I have mentioned the fact that quantum essentially did not change.  In my view, achieving the appropriate balance here would be to allow an allowance of three days,  that  is,  an  allowance  for  commencement  of  the  defence  and  for  the amendments to the pleadings.

[21]     I therefore proceed by making that allowance.

Adjustment for a case management conference

[22]     Counsel are agreed that the initial claim by the third defendants of .5 of a day should be reduced to .3 of a day.

[23]     I proceed on that basis.

Cross-claim against defendants

[24]     Reference is also made to cross-claim allowances involving defendants.  The allowance claimed by the third defendants, in my view, is proper and arises from the very fact that the claim itself was brought.

Costs calculated on a 2B basis

[25]     I therefore conclude that if the costs were to be considered on a 2B basis, the appropriate position is as follows:

Item 2	Commencement of defence and allowing for amendments of pleadings	3 days
Item 5	Cross notice between defendants	1.2 days
Item 10	Preparation for first case management conference	.4 day
Item 11	Filing memorandum for first or subsequent case management conference	.4 day
Item 13	Appearance at first case management conference	.3 day
Item 14	Preparation for an appearance issues conference	.3 day
Total     5.6 days x $1,990             $ 11,144

Claim for increased costs

[26]     In analysing the third defendants’ claim in this regard it is appropriate that I record the primary position set out in the High Court Rules recognising that the court nevertheless retains an overall discretion.

The principles applicable in awarding costs

[27]     Rule 14.1 gives the Court a discretion to order costs in relation to a step taken in a proceeding.  That discretion is generally to be exercised in accordance with the specific rules contained in rr 14.2-14.10: Glaister v Amalgamated Dairies Ltd.3    In Mansfield Drycleaners  Ltd v Quinny’s Drycleaning (Dentice Drycleaning Upper Hutt) Ltd the Court of Appeal said of the costs regime contained in what is now rr 14.2-14.10 that:4

there is a strong implication that a Court is to apply the regime in the absence of some reason to the contrary

The test to be applied is entirely an objective and not a subjective one.   The only reference which  it is necessary to make towards actual costs is to be found in r 14.2(f), namely that an award of costs should not exceed the costs incurred by the party claiming the costs: Glaister v Amalgamated Dairies Ltd.5  These principles were endorsed by the Supreme Court.6

[28]     Rule 14.2 lists the principles applying to determination of costs. Subrule (a) affirms the principle that the losing party should pay the costs to the successful party. Subrule (b) requires that the costs reflect the complexity and significance of the proceedings.   By inference it refers to the categorisation of a proceeding which is provided for in r 14.3.  Subrule (c) requires a consideration of each step for which costs are sought and an application of the daily rate having regard to the appropriate band which is to be applied after a consideration of r 14.5(2) and Schedule 3 to the High Court Rules.

[29]     Rule 14.6 of the High Court Rules provides:

14.6     Increased costs and indemnity costs

(1)      Despite rules 14.2 to 14.5, the court may make an order—

(a)      increasing   costs   otherwise   payable   under   those   rules

(increased costs); or

3   Glaister v Amalgamated Dairies Ltd [2004] 2 NZLR 606(CA) at [19].

4   Mansfield Drycleaners Ltd v Quinny’s Drycleaning (Dentice Drycleaning Upper Hutt) Ltd (2002)

16 PRNZ 662 (CA) at [27].

5   Glaister v Amalgamated Dairies Ltd, above n 3, at [14].

6   Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109.

(b)       that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party (indemnity costs).

(2)      The court may make the order at any stage of a proceeding and in relation to any step in it.

(3)      The court may order a party to pay increased costs if—

(a)       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; or

(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; or

(c)       the proceeding is of general importance to persons other than just the parties and it was reasonably necessary for the party claiming costs to bring it or participate in it in the interests of those affected; or

(d)       some other reason exists which justifies the court making an order for increased costs despite the principle that the determination  of  costs  should  be  predictable  and expeditious.

(4)       …

[30]     In Holdfast New Zealand Ltd v Selleys Pty Ltd the court set out the approach to be adopted in determining whether to order increased costs as follows:7

1.        Categorise the proceeding under r 14.3;

2.Pick out a reasonable time for each step in the proceeding, pursuant to r 14.5. That involves considering the three time bands A, B and C;

3.Consider whether a step in the proceeding would substantially exceed the time allocated under Band C (r 14.6(3)(a)); and finally

(a)      Step back and look at the cost award and determine whether any additional costs should be awarded.  Generally, an increase of 50 per cent on scale costs will give the claiming party a fair recovery for any step that is unnecessarily forced on it.

[31]     I am satisfied that this is a Category 2 proceeding having regard to r 14.3.

[32]     I am satisfied that the allowance for the steps claimed, which I have already indicated, fit within Band B as defined by r 14.5.

[33]     I have made an adjustment for the amended pleaded applying r 7.77.

[34]     Counsel have provided me with the correspondence that led up to the fraud allegation being made.  The fraud allegation was challenged right from the outset by the third defendants as being without any basis.  The third defendants requested the plaintiffs to produce evidence to support the claim.   None was provided and eventually the claim was discontinued.  The third defendants say that the plaintiffs acted improperly by bringing and maintaining a claim which had no proper foundation  for  it.    In  terms  of  r. 14.6(3)(b)(ii),  the  plaintiffs  were  pursuing  an argument that lacked merit.

[35]     There are numerous authorities that have emphasised that allegations of fraud pose a heavy responsibility on those advancing them.8    Moreover, the courts have

to justify that course.9

[36]     I now look back at the position which applies if I allow a 50 per cent increase on the 2B costs that I have fixed. The answer is $16,716.

[37]     In my view, that is a fair recovery and is an appropriate result in this case.

[38]     There are two additional matters, however, that  I add.   The actual  costs charged by counsel to the third and fourth defendants were $21,772.39.  Rule 14.2(f) accordingly provides no bar to an award of costs in the sum of $16,716.

[39]     The second matter that I briefly refer to is the claim made by Mr McCartney of improper conduct in the exchanges that have taken place between counsel.  I am not satisfied on what has been provided to me that I should make any adjustment in this case. That does not imply, however, that if Mr McCartney should wish to pursue the matter further, that I have come to any formal view on whether there has been a breach of the Crimes Act in this case, or not.  The short answer is that I have not, and I have not taken the allegation into account in fixing costs in this case.

Disbursements

[40]     There is no reason to depart from the normal position that disbursements should be fixed by the Registrar, save that disbursements in respect of the filing of the strike out application should not be allowed in view of the fact that I have made no award of costs in the defendants’ favour in relation to that application.  Subject to that clarification, disbursements must be fixed by the Registrar.

Orders

[41]     I order that the plaintiffs pay the third and fourth defendants’ costs of $16,716

plus disbursements, having regard to the clarification I have made in this judgment,

9      Carter Holt  Harvey  Ltd  v  Commerce Commission  [2009] NZCA 40; Bradbury v  Westpac

Banking Corp [2009] 3 NZLR 400.

JA Faire J