Northland Coastal Developments Limited v Twce (2014) Limited
[2014] NZHC 2638
•28 October 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-1669 [2014] NZHC 2638
BETWEEN NORTHLAND COASTAL
DEVELOPMENTS LIMITED First Plaintiff
HELENA BAY HOLDINGS LIMITED Second Plaintiff
AND
TWCE (2014) LIMITED Defendant
On the papers Counsel:
JK Stewart for plaintiffs
JP Golightly for defendantJudgment:
28 October 2014
JUDGMENT OF FAIRE J
Solicitors: MinterEllisonRuddWatts, Auckland
Marsden Woods Inskip & Smith, Whangarei
Northland Coastal Developments Limited v Twce (2014) Limited [2014] NZHC 2638 [28 October 2014]
Contents
The application .......................................................................................................[1] Background ............................................................................................................[8] The issues raised in counsel’s submissions ................................................................
The appropriate jurisdiction [19]
Are the plaintiffs entitled to an increase in costs under the District
Court scale? [24]
What is the effect of the Calderbank letter offering settlement of costs? [30] Orders ...................................................................................................................[36]
The application
[1] The plaintiffs applied for summary judgment in the sum of $59,255.55, together with interest in accordance with s 87 of the Judicature Act 1908. The claim alleged that payment had been made to the defendant by mistake.
[2] The application was to be called on 9 September 2014. Prior to that date, counsel for the plaintiffs filed a memorandum advising that the claim and interest had been paid, but that the parties were unable to agree on costs. The plaintiffs sought indemnity costs initially but now seek increased costs with an uplift of 50 per cent on the High Court 2B scale. The plaintiffs originally sought an oral hearing and directions for the filing of memoranda.
[3] Counsel for the defendant filed a memorandum confirming the payment of the claim and that interest had been settled, but confirmed that the issue of costs and disbursements were outstanding. The defendant invited the Court to determine costs and disbursements based on the District Court scale and based on memoranda to be filed.
[4] I issued a minute following receipt of counsel’s memorandum. At that stage,
the plaintiffs’ application sought indemnity costs. My minute provided:
[1] I thank counsel for their respective memoranda.
[2] I note that the position has settled and that the only outstanding issue is one of costs. In those circumstances, it is appropriate that I dismiss the proceeding with costs reserved.
[3] With respect to costs, and having regard to the amount in issue, I do not consider an oral hearing is justified. The matter should well able to be handled in memoranda. To the extent that indemnity costs are sought I refer counsel to my judgment in Crown Money Corporation Ltd v Grasmere Estate Trustco Ltd & Anor 19 PRNZ 591 which will give counsel guidance as to what is required in respect of indemnity costs.
[4] I consider that counsel should first have an opportunity of agreeing on a figure. If there is no agreement, the plaintiffs shall file and serve by 15 September 2014 submissions in support. The defendant shall file and serve by 22 September 2014 submissions in opposition. The plaintiffs shall file and serve any submissions in reply by
29 September 2014.
[5] This proceeding shall be removed from the list on 9 September
2014. Appearances at that time are excused.
[5] The plaintiffs have brought this proceeding pursuant to s 94A of the Judicature Act for relief in respect of a payment made by the plaintiffs to the defendant under mistake. The plaintiffs allege that the defendant was aware of the mistake and was unable to point to any entitlement to the funds. Nevertheless, the defendant refused to return the funds. The plaintiffs’ memorandum now confirms that the plaintiffs seek increased costs only.
[6] The plaintiffs’ counsel outlines the key features which the plaintiffs say
justify the order for costs sought as follows:
(a) The defendant was not entitled to the mistaken payment (payment) of
$59,255.55 yet refused to return it;
(b)The plaintiffs had no option but to commence the proceeding to obtain repayment;
(c) The defendant repeatedly asserted from the date of the payment that it was entitled to withhold it until its commercial dispute with Gray Williamson Limited (GWL) in relation to the payment was resolved. Such a dispute did not concern the plaintiffs;
(d)The plaintiffs’ payment was the subject of a payment claim under the Construction Contracts Act 2002 (CCA) due and owing to GWL by the plaintiffs. Parties cannot contract out of the CCA and therefore the plaintiffs were still liable to GWL for the payment. Accordingly, the plaintiffs had no other option but to commence the proceeding for the payment to protect its position;
(e) The defendant did not advance any credible legal basis for withholding the payment. In its notice of opposition, the defendant did not assert any valid grounds of defence. In the defendant’s correspondence, it broadly asserted that it was entitled to the payment, for work carried out and materials supplied by the defendant, but it provided no evidence as to its entitlement and confirmed that it could not provide any invoices for those works and materials:
(f) The defendant’s solicitors did not provide appropriate undertakings in respect of the payment in a timely manner; and
(g)Increased costs should be awarded in order to deter parties from retaining funds to which they are not entitled and pursuing meritless arguments in defence.
[7] Counsel for the defendant submits that the District Court was the proper forum for this proceeding and that having regard to r 14.13 of the High Court Rules, the plaintiffs’ costs must not exceed the costs and disbursements that the plaintiffs would have recovered in the District Court. In addition, the defendant opposes any uplift by way of increased costs and submits that the defendant’s conduct in all the circumstances was not unreasonable. Further, the defendant submits that even if there was an issue of unreasonableness about the stance taken by the defendant, it did not arise in these proceedings. In short, it is submitted that pre-commencement unreasonable conduct cannot provide grounds for an uplift of scale costs. In addition, the defendant says the plaintiffs did not accept a 12 August 2014 open offer to settle costs and disbursements on the basis of District Court costs and High Court disbursements. In addition, the plaintiffs did not accept a 28 August 2014
Calderbank Offer to settle the issue of costs and disbursements on the basis of
District Court costs and High Court disbursements.
Background
[8] The first plaintiff is the head contractor under a construction contract for the development of Helena Bay Lodge at 1948 Russell Road, Helena Bay, Hikurangi. The second plaintiff is the registered proprietor of the Helena Bay Lodge and is the entity that payments relating to works at Helena Bay Lodge are processed through.
[9] The first plaintiff entered into a subcontract for plumbing services work with the defendant. Between July 2011 and March 2014, the defendant undertook various plumbing services work at the Helena Bay Lodge pursuant to the subcontract. The defendant issued invoices to the first plaintiff. These were authorised by the first plaintiff and processed through the second plaintiff.
[10] In about March 2014, the defendant sent a letter to the first plaintiff advising that:
(a) The defendant was changing ownership;
(b) The new owners would by Royce Gray and Mike Williamson; (c) The new owners would trade as Waterco Plumbing 2014; and
(d) The plaintiffs were to close the existing defendant’s account on
31 March 2014.
[11] In April 2014, Gray Williamson Ltd trading as Waterco Plumbing 2014 undertook plumbing services work pursuant to the subcontract at Helena Bay Lodge. On 30 April 2014, Gray Williamson Ltd issued the first plaintiff with six invoices and a statement totalling $59,255.55 for plumbing services work undertaken at the Helena Bay Lodge between 1 April 2014 and 30 April 2014.
[12] The payments were authorised for payment by the first plaintiff on 19 May
2014. On 20 May 2014, the second plaintiff processed the payment for the invoices, but it paid $59,255.55 into the bank account of the defendant instead of the bank account of Gray Williamson Ltd as a result of a mistake.
[13] On 22 May 2014, upon discovering the mistake in payment the plaintiffs sought the return of the mistaken payment from the defendant. On 23 May 2014, the defendant, through one of its directors, advised that the mistaken payment was held by the defendant’s solicitors in the firm’s trust account.
[14] On 30 May and 18 June 2014, the plaintiffs sought, through their solicitors: (a) The return of the mistaken payment by the defendant; and
(b)An undertaking from the defendant’s solicitors that the mistaken payment would not be dispersed without written agreement from the plaintiffs, or a court order.
[15] On 24 June 2014, the defendant’s solicitors provided an undertaking that the mistaken payment would not be dispersed except with the agreement of either of the plaintiffs, or a court order. This proceeding was filed by the plaintiffs on 3 July
2014.
[16] The problem in this case has arisen out of the sale of the defendant’s business. That sale settled on 31 March 2014. It was a term of the sale agreement that work undertaken and materials ordered before that date would be invoiced to clients by the defendant. The defendant says that that term was varied on settlement so that Gray Williamson Ltd, the purchaser, would instead invoice customers and account to the defendant for the value. That issue is now the subject of a dispute between the defendant and Gray Williamson Ltd.
[17] There are extant proceedings in the Whangarei District Court between Gray
Williamson Ltd and the defendant. One of the issues in those proceedings is the
entitlement to the funds which were the subject of the invoice which produced the payment in this case.
[18] What is very clear from the above summary, however, is that there is, in fact, no contractual entitlement on the part of the defendant to receive from the plaintiffs, the payment of $59,255.55. That now has been recognised by the position adopted by the defendant in making the payment, including interest.
The issues raised in counsel’s submissions
The appropriate jurisdiction
[19] The first issue relates to the appropriate jurisdiction for the filing of this proceeding. That inquiry is necessary because of the provisions of r 14.13 of the High Court Rules which provides:
14.13 Proceedings within jurisdiction of District Court
Costs ordered to be paid to a successful plaintiff must not exceed the costs and disbursements that the plaintiff would have recovered in the District Court if the proceeding could have been brought there, unless the court otherwise directs.
[20] Counsel for the defendant referred to the judgment of Thomas J in Moodie v
Lane.1 In that case, his Honour said:2
Solicitors and counsel should therefore consider, almost as a matter of course, whether any particular claim should be brought in the District Court, and not this Court…. Regard should be had to such factors as -
- the nature of the case;
- the complexity of the case;
- whether the case is of general or public importance;
- the amount in issue;
- the likely length of the hearing; and
- the financial resources of the parties.
Further:3
Where the case is straightforward, and the amount in issue is not substantial, it will therefore be appropriate for every reasonable endeavour to be made by solicitors and counsel to have the proceeding heard and resolved in the
1 Moodie v Lane HC Auckland CP1484/87, 18 September 1990.
2 At 4.
3 At 5.
District Court. Apart from the fact that this course will in all probability be in the best financial interests of both parties, it is necessary that it be fully considered if solicitors and counsel are to properly discharge their duty to this Court.
[21] The reasons advanced by the plaintiffs for bringing the proceedings in the
High Court are:
(a) That there was no justification for the defendant retaining the funds, as the funds did not belong to them;
(b)The defendant’s actions in the circumstances were “against conscience”;4
There was no justification for refusing to pay funds for the purpose of separate negotiation with a third party;5 and
(c) There was a concern as to the appropriateness of an undertaking given regarding the dispersing of the funds pending resolution of the dispute.
[22] I do not regard any of the reasons advanced by the plaintiffs as justifying the issue of this proceeding in the High Court. No new law was required to be identified and applied. The right to apply for summary judgment in the District Court exists and is confirmed by an amendment to the District Court Rules which came into effect on 1 July 2014, which is before the issue of the proceeding in this case. What has happened here totally lacks proportionality. All of the issues that are required to be resolved could quite easily be determined in the District Court.
[23] I conclude therefore that this proceeding should have been issued in the District Court and that costs therefore should be limited to an amount which does not exceed the costs and disbursements that the plaintiffs would have recovered in the
District Court, if the proceeding had been brought there.
4 Thomas v Houston Corbett & Co [1969] NZLR 151 (CA) at 161.
5 Westpac New Zealand Ltd v Hui HC Auckland CIV-2009-404-2808, 14 July 2009 at [5](f).
Are the plaintiffs entitled to an increase in costs under the District Court scale?
[24] The second issue relates to the question of whether the plaintiffs are entitled to increased costs.
[25] Part 14 of the District Court Rules 2014 mirrors Part 14 of the High Court Rules, both of which deal with the question of costs. Provision is made for increased costs in r 14.6 in both Parts. Rule 14.6(3) provides:
14.6 Increased costs and indemnity costs
…
(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.
[26] It is unnecessary in this case to review the exercise of the discretion under the
rule. Suffice to say, I take account of and apply the Court of Appeal’s guidance on
this topic in Holdfast NZ Ltd v Selleys Pty Ltd.6 I am satisfied that this is a
Category 2 case and that the steps that were taken are appropriately Band B steps.
[27] It is necessary to consider the defendant’s submission that an order for
increased costs does not apply to conduct pre-issue of the proceedings.
[28] In Paper Reclaim Ltd v Aotearoa International Ltd the Court of Appeal observed that it was wrong to take into account pre-issue proceedings conduct.7 The reason for that is if that conduct was wrongful then a remedy, possibly in damages if appropriate, should be pleaded in the statement of claim. There may be other remedies, one of which is interest. The principle is that it is wrong to take into account for the purposes of any increased cost order, a submission that alleges pre-
issue conduct as the justifying factor. That statement of principle applies to this case. The notice of opposition to the summary judgment application makes it clear that only partial interest and costs were the matters that were opposed.
[29] What the plaintiffs complain of does not fall within any of the specific provisions of r 14.6(3). I conclude, therefore, that increased costs are not justified.
What is the effect of the Calderbank letter offering settlement of costs?
[30] On 28 August 2014, the defendant’s solicitors sent a written communication to the plaintiffs’ solicitors. Relevant for the purposes of this cost argument is the final paragraph, which provides:
Regarding costs and disbursements, we point to HCR 14.13. We repeat our client’s offer to pay District Court schedule costs and High Court disbursements on the grounds that our fees in arguing costs are likely to amount to more than the difference in filing fees, particularly if the Court allows oral argument as you are instructed [to] seek. This offer will remain open until the discontinuance is filed. In the event that it is not accepted, we will ask for indemnity costs on the costs application.
[31] Rule 14.10 provides:
14.10 Written offers without prejudice except as to costs
6 Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA).
7 Paper Reclaim Ltd v Aoteroa International Ltd [2006] 3 NZLR 188 (CA) at [160].
(1) A party to a proceeding may make a written offer to another party at any time that—
(a) is expressly stated to be without prejudice except as to costs;
and
(b) relates to an issue in the proceeding.
(2) The fact that the offer has been made must not be communicated to the court until the question of costs is to be decided.
[32] Rule 14.11 provides:
14.11 Effect on costs
(1) The effect (if any) that the making of an offer under rule 14.10 has on the question of costs is at the discretion of the court.
(2) Subclauses (3) and (4)—
(a) are subject to subclause (1); and
(b) do not limit rule 14.6 or 14.7; and
(c) apply to an offer made under rule 14.10 by a party to a proceeding (party A) to another party to it (party B).
(3) Party A is entitled to costs on the steps taken in the proceeding after the offer is made, if party A—
(a) offers a sum of money to party B that exceeds the amount of a judgment obtained by party B against party A; or
(b) makes an offer that would have been more beneficial to party B than the judgment obtained by party B against party A.
(4) The offer may be taken into account, if party A makes an offer that—
(a) does not fall within paragraph (a) or (b) of subclause (3); and
(b) is close to the value or benefit of the judgment obtained by party B.
[33] The conduct in refusing payment where there was simply no entitlement to retain the moneys is certainly conduct that might well have justified an order for indemnity costs. That was expressly disallowed, however, in the plaintiffs’ counsel’s memorandum. Instead, the plaintiffs took the position that they would simply seek increased costs. Having said that, what has made it necessary to issue proceedings in
this case is the conduct of the defendant in refusing to pay back something that it had no entitlement to retain.
[34] In those circumstances, and in the exercise of the discretion placed in the Court pursuant to r 14.1, I am satisfied that it would be wrong to make any cost order allowance in favour of the defendant and in respect of the submissions filed with the Court relating to costs.
[35] In short, I am not prepared to isolate the cost issues from the general position that has arisen and has caused this proceeding to issue. In addition, I must say that it is of particular concern to the Court that a claim of this size has generated the claims and counterclaims on the question of costs that have arisen. That is so, particularly, when the issue essentially arose from the issuing of the proceeding and little more. I say that because, following the service of the proceedings, the principle sum claimed was paid. For that reason, the orders that I make expressly exclude any costs relating to the preparation of costs memoranda.
Orders
[36] I order that the defendant pay the plaintiffs’ costs based on Category 2
Band B in accordance with the District Court Rules for the preparation and filing and service of a statement of claim and application for summary judgment, and the preparation of a memorandum advising the Court of the settlement of same.
[37] In addition, the defendant shall pay disbursements in accordance with the
District Court Rules as fixed by the Registrar.
[38] In the event that there is any dispute as to the arithmetic, counsel shall file and serve memoranda in support, opposition and reply at five-day intervals. Same
shall be referred to me and I will fix the arithmetic sum due to be paid.
JA Faire J
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