Naylor Love Construction Limited v Body Corporate 200012
[2020] NZHC 2260
•2 September 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-105
[2020] NZHC 2260
BETWEEN NAYLOR LOVE CONSTRUCTION LIMITED
ApplicantAND
BODY CORPORATE 200012
First Respondent
AND
TOMAS KENNEDY-GRANT QC
Second Respondent
VMR Hearing: 15 May 2020 Appearances:
J G Miles QC, C J Booth and L H Rozendaal for the applicant T J Rainey, G R Grant and B M Foster for the first respondent Appearance excused for the second respondent
Date of judgment:
2 September 2020
JUDGMENT OF PALMER J
This judgment was delivered by me on Wednesday, 2 September 2020 at 3.00pm.
Pursuant to Rule 11.5 of the High Court Rules.
………………………… Registrar/Deputy Registrar
Counsel/Solicitors:
Julian Miles QC, Auckland
T J Rainey Barrister, AucklandDentons Kensington Swan, Auckland Rainey Law, Auckland
NAYLOR LOVE CONSTRUCTION LTD v BODY CORPORATE 200012 [2020] NZHC 2260 [2 September
2020]
What happened?
[1] Naylor Love Constructions Ltd (Naylor Love) entered into a construction contract with Body Corporate 200012 (the Body Corporate) to carry out remedial works to the Mt View Village in Mt Eden, Auckland. Naylor Love referred two disputes to two separate adjudications under the contract. Naylor Love was successful in both adjudications and was awarded over $4 million (GST incl).
[2] On 22 December 2016, the Body Corporate referred the issues in the first adjudication to arbitration by Mr Tomas Kennedy-Grant QC. On 15 February 2017, Naylor Love referred further issues in the first adjudication to the same arbitrator. On 17 July 2017, Naylor Love separately referred additional issues, largely from the second adjudication, to arbitration. The Arbitrator, by consent, consolidated the two arbitral proceedings but dealt with them largely as separate proceedings heard together.1 Evidence was filed by both parties in respect of each proceeding. They agreed the second proceeding would follow the first.
[3]On 24 June 2019, the Arbitrator found:
(a)In the first arbitration, the Body Corporate was entitled to recover
$1,835,993.76, approximately half of the $3,749,130.90 it had sought to recover after having to pay it to Naylor Love by adjudication. The Body Corporate was successful in six out of its 18 claims and failed on the rest.
(b)In the second arbitration, Naylor Love was awarded $305,604.36 of the
$3,650,832.28 it was claiming. Naylor Love was successful in three of its 12 claims, failed on six and three did not need to be considered. One of the claims on which Naylor Love succeeded resulted in the Body Corporate later paying a further $50,000 to Naylor Love.
1 Email from Tomas Kennedy-Grant to Usha Keller, regarding arbitration between Naylor Love and the Body Corporate (18 May 2017), in Affidavit of Justin John Harrison Storm, 29 January 2020 [Storm] at exhibit JS5.
[4] The parties disagreed on who had succeeded for costs purposes. The Arbitrator treated the two arbitrations as one and concluded the Body Corporate was the successful party globally and was entitled to all its costs and disbursements of
$1,138,156.02, reduced by 30 per cent for the issues on which it was not successful. Accordingly, on 26 October 2019, Naylor Love was ordered to pay the Body Corporate
$750,000 (GST incl) in costs. On 15 November 2019, the Arbitrator increased the costs to $800,000 (GST incl). In his 26 October decision, the Arbitrator said:2
I come to this conclusion for the following reasons:
(a)Following the two Adjudications the Body Corporate paid
$4,853,739.59 (inclusive of GST and interest), as calculated by the Body Corporate;
(b)As a result of my findings in my First Award and this Award, Naylor Love was only entitled to be paid $2,489,948.49 (including GST), as per Schedule One to the Body Corporate’s original submissions;
(c)Two adjustments must be made to this figure:
(i)There must be added the sum of $222,921.75 in respect of the retentions (see Schedules One and Two to Naylor Love submissions in opposition);
(ii)There must be deducted the net interest payable to the Body Corporate in terms of paragraph 44 of this Award, viz
$299,307.65;
(d)The result of those adjustments is that the amount (inclusive of GST but excluding interest) to which Naylor Love is entitled in terms of my Awards is $2,413,562.59;
(e)In addition, Naylor Love was unsuccessful in the alternative or additional claims it brought in the Arbitration (NL claims 4, 6, 7 and 11);
(f)Counterbalancing this, the Body Corporate was unsuccessful in its claims 2, 4, 6, 11 (relating to the Hope Construction disruption claim), 12 and 14-18;
[5]Naylor Love applies to set aside the costs award of $800,000.
2 Body Corporate 200012 v Naylor Love Construction Ltd (Second (Final) Award) T Kennedy- Grant QC, 26 October 2019 at [59], found in Storm at exhibit JS21.
Relevant law of varying an arbitrator’s decision
[6] There is no disagreement between the parties on the relevant legal principles. One of the purposes of the Arbitration Act 1996 is to redefine and clarify the limits of judicial review of the arbitral process and of arbitral awards. Under s 6(2), sched 2 of the Act applies. Clause 6 of sch 2 provides:
6 Costs and expenses of an arbitration
(1)Unless the parties agree otherwise,—
(a)the costs and expenses of an arbitration, being the legal and other expenses of the parties, the fees and expenses of the arbitral tribunal, and any other expenses related to the arbitration shall be as fixed and allocated by the arbitral tribunal in its award under article 31 of Schedule 1, or any additional award under article 33(3) of Schedule 1; or
…
(3)Where an award or additional award made by an arbitral tribunal fixes or allocates the costs and expenses of the arbitration, or both, the High Court may, on the application of a party, if satisfied that the amount or the allocation of those costs and expenses is unreasonable in all the circumstances, make an order varying their amount or allocation, or both. The arbitral tribunal is entitled to appear and be heard on any application under this subclause.
…
(5)An application may not be made under subclause (3) after 3 months have elapsed from the date on which the party making the application received any award or additional award fixing and allocating the costs and expenses of the arbitration.
(6)There shall be no appeal from any decision of the High Court under this clause.
[7] The Law Commission’s Report on Arbitration that recommended the Act makes clear the threshold is high:3
Nevertheless, an application for review will need to establish that the order is an irrational one, that no reasonable arbitral tribunal could have made. The High Court may be expected to exercise its review power sparingly as the matter is within the discretion of the arbitral tribunal, and the trust of the draft Act is against unnecessary intervention by a court.
3 Law Commission Arbitration (NZLC R20, 1991) at 227.
[8] There are many cases about costs. I refer to those cited by counsel. Mr Miles QC, for Naylor Love, relied on:
(a)Packing In Ltd v Chilcott, in which the Court of Appeal considered that where each party has had similar success, it is not helpful to focus on the question of which party has failed and which has succeeded. Rather, costs should be based on the premise that “equal success and failure attended the efforts of both sides”, and the Court should endeavour to do justice to all sides.4
(b)Shirley v Wairarapa District Health Board, in which the Supreme Court held that, although the awarding of costs is discretionary, it is not unprincipled, and the discretion should be exercised in line with the principle that costs should follow the result.5
(c)Water Guard NZ Ltd v Midgen Enterprises Ltd, in which the Court of Appeal set aside a costs award because the trial Judge failed to give sufficient weight to one party’s ultimate success on certain claims, and therefore failed to give effect to the principle that costs ought to follow the event. 6 The Court held costs should lie where they fell in accordance with “the overall justice of the case”.7
(d)Weaver v Auckland Council, in which the Court of Appeal held it was not necessary for the trial Judge to have divided the costs issues between pre and post-Calderbank phases of the litigation.8 It held that, although the appellants had only succeeded on half of their claim, “success on more limited terms is still success”, and therefore the usual rule that costs follow the event should apply.9 The Court held that Packing In was not authority for the proposition that judges need to unpick damages claims in detail, and noted that case involved equally
4 Packing In Ltd (in liq) v Chilcott CA33/03, 24 June 2003.
5 Shirley v Wairarapa District Health Board [2006] NZSC 63, [2006] 3 NZLR 523 at [16] and[19].
6 Water Guard NZ Ltd v Midgen Enterprises Ltd [2017] NZCA 36 at [13].
7 At [18].
8 Weaver v Auckland Council [2017] NZCA 330 at [18].
9 At [26].
successful claimants and counter-claimants, whereas the appellants in Weaver were the only party to have succeeded by any “realistic appraisal”.10
[9]Mr Rainey, for the Body Corporate, relied on:
(a)Rosser v Global Construction Services Ltd, in which Randerson J essentially treated an appeal of an arbitrator’s decision on costs as an appeal of an exercise of discretion, requiring an error of principle, lack of balance, proportionality or equity, or unreasonableness to be overturned.11
(b)Young v Kerr Construction (Whangarei) Ltd, in which Paterson J held that the arbitrator’s award gave the impression that the arbitrator considered justice required a departure from the position that both parties should be awarded costs, and this was a view to which he was entitled to come to having regard to the history of the dispute.12
[10] The leading text of Williams and Kawharu on Arbitration notes that, where a party is successful on some points but not others, “in order to determine the relevant event for the purposes of entitlement to costs, the tribunal may look to the overall winner of the arbitration” and adjust the award to reflect the degree of success.13
Submissions
[11]Mr Miles, for Naylor Love, submits:
(a)The appellate courts in Shirley and other decisions have overturned the global approach, holding that “unless there are exceptional reasons”, “the loser, and only the loser, pays”.14 He submits the Arbitrator
10 At [24]-[26].
11 Rosser v Global Construction Services Ltd HC Auckland, CIV-2004-404-2564, 10 August 2004. See also Gladvale Farms Ltd v Baty [2019] NZHC 249 per Nation J.
12 Young v Kerr Construction (Whangarei) Ltd (2002) 16 PRNZ 311 (HC) at [16].
13 David Williams and Amokura Kawharu Williams & Kawharu on Arbitration (LexisNexis, Wellington, 2011) at [16.8.1].
14 Shirley v Wairarapa District Health Board [2006] NZSC 63, [20016] 3 NZLR 523 at [19].
conflated and netted out the results of both arbitrations and fixed a global award that failed to reflect the actual findings of either of the arbitral awards.
(b)However, the Body Corporate was only successful in around half (49 per cent) of its claims in the first arbitration by value and in the second arbitration, Naylor Love succeeded in three out of 12 claims, recovering 10 per cent of what it claimed.
(c)The proper starting point for the award of costs would be the actual costs incurred by the Body Corporate in respect of the first arbitration, and by Naylor Love in respect of the second arbitration, less a reduction reflecting their failures to succeed on all issues.
(d)An analysis by Mr Storm, the Group Risk Manager of Naylor Love, suggests that 61 per cent of the hearing time should be attributed to the first arbitration and 39 per cent to the second arbitration. So the successful parties’ total costs can be split according to the same proportion. Both parties were approximately 50 per cent successful in the first arbitration and Naylor Love was approximately 10 per cent successful in the second arbitration.
(e)With appropriate reductions for the parties’ failures, this amounts to approximately $347,150 (50 per cent of $694,300) for the Body Corporate for the first arbitration; and approximately $66,300 (10 per cent of $663,000) for Naylor Love for the second arbitration. Accordingly, these amounts should be netted off and a refund awarded to Naylor Love.
[12] Mr Rainey, for the Body Corporate, opposes any variation of the $800,000 costs award because it was reasonable and expressly followed relevant principles:
(a)The award was made by a highly experienced arbitrator who saw and heard the witnesses, considered the submissions, had the flavour of the case and gave reasons.
(b)The Arbitrator correctly held the Body Corporate was the successful party overall because it won 9 of its 18 claims and 8 of Naylor Love’s 12 claims. Naylor Love won $305,000 of its claims for $4.9 million. The Body Corporate received $1.84 million of the $3.8 million it sought. The net result was that Naylor Love had to pay the Body Corporate $2,078,788.17 plus net interest of $299,307.65. Naylor Love’s limited success was reflected in the 30 per cent discount imposed.
(c)Naylor Love complains that the Arbitrator should have adopted a strict technical or numerical analysis but that overlooks the following points: the Body Corporate was more successful than Naylor Love; the Body Corporate won the majority of claims in its own arbitration; the 30 per cent deduction of $338,152 was far greater than the credit of $70,000 that Naylor Love seeks; Naylor Love’s success on 10 per cent of its own claims means it cannot be considered the “winner” on any rational basis; the costs award lines up with facts, accords with principle and was valid and reasonable in all the circumstances.
(d)The Arbitrator did not ignore the fact there were two arbitrations. But the two proceedings were formally consolidated, case managed and heard together with witnesses giving evidence once. The Arbitrator did not distinguish between the two arbitrations when setting his fees and neither did either set of counsel.
(e)Mr Storm’s analysis of the numbers of pages of transcript relevant to each claim is not helpful or conclusive and does not indicate the time spent at the hearing or the costs expended by the parties on each claim.
Should I vary the Arbitrator’s decision?
[13] Costs follow the event. The key difference between the parties is whether there was one event here, or two. It is difficult to escape from the fact that the two arbitrations were formally consolidated with the consent of the parties. They were case managed and heard together with witnesses giving evidence once. Accordingly, I consider it was reasonable for the consolidated arbitrations to be treated as one event. That is how they were treated for costs purposes by the experienced Arbitrator, as well as for fee purposes by both the Arbitrator and, apparently, by counsel.
[14] At adjudication, Naylor Love was successful in being awarded over $4 million. At arbitration, the Body Corporate was awarded $1,580,389.40 in total. That comprised $1,835,993.76 being awarded to the Body Corporate in the first arbitration and $355,604.36 being awarded to Naylor Love in the second arbitration. Overall, the Body Corporate was successful on any realistic measure. It is reasonable for it to be awarded costs overall, discounted by recognition that Naylor Love enjoyed some success too.
[15] I am not persuaded that the case law referred to by Mr Miles has overturned the approach taken by the Arbitrator. Rather the case law emphasises the importance of the principle that costs follow the event, judges do not need to unpick claims in detail and a realistic appraisal of success need to be taken.
[16] I am also not persuaded that Mr Storm’s analysis of hearing time adds anything to the calculation of costs, which follow the result not the time expended. Rather, the need to make a calculation in order to estimate a split in the hearing time between the two arbitrations illustrates that there was one event, not two.
[17] The Arbitrator’s award of costs reflected the approach recommended in Williams and Kawharu. Under cl 6(3) of sch 2 of the Act, I am not satisfied the Arbitrator’s allocation of costs is unreasonable.
Result
[18] I decline the application to set aside the costs award. I award costs in respect of the application to Body Corporate 200012 on a 2B basis and reasonable disbursements.
Palmer J
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