Oceania Furniture Limited v Debonaire Products Limited HC Wellington CIV 2008-485-1701

[2010] NZHC 1882

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2008-485-1701

BETWEEN  OCEANIA FURNITURE LIMITED Plaintiff

ANDDEBONAIRE PRODUCTS LIMITED Defendant

Hearing:         On the papers

Appearances: J J Delany for the plaintiff

R C Laurenson for the defendant

Judgment:      16 September 2010

JUDGMENT OF CLIFFORD J

ON APPLICATION OF RR 11.23-11.25 AND COSTS

[1]      The  plaintiff,  Oceania  Furniture  Limited,  and  the  defendant,  Debonaire Products Limited, were parties to a contract (“the Supply Agreement”) whereby Oceania procured MDF furniture componentry from China as ordered by Debonaire and on-sold that componentry to Debonaire.   Debonaire assembled furniture from that componentry and sold that furniture to retailers in New Zealand.

[2]      During 2007, Oceania faced difficulties procuring such componentry.   In turn, that caused supply problems for Debonaire in New Zealand.  A dispute arose. As a result, Oceania sued Debonaire for unpaid product, (contractual) default interest and legal costs.  Debonaire counterclaimed for loss of profits and other amounts.

[3]      On 3 December 2008, Associate Judge Gendall awarded Oceania summary judgment against Debonaire for $328,572.53, representing unpaid purchase moneys

OCEANIA FURNITURE LIMITED V DEBONAIRE PRODUCTS LIMITED HC WN CIV-2008-485-1701  16

September 2010

owed to Oceania by Debonaire for ten container loads of furniture componentry supplied to Debonaire by Oceania under the Supply Agreement.

[4]      In the same decision, the Judge:

a)       stayed Oceania’s enforcement of that summary judgment, pending “further  order  of  this  Court  once  the  Defendant’s  counter-claim against the Plaintiff is properly resolved”;

b)        declined to enter judgment for Oceania as regards default interest; and

c)       awarded  costs,  subsequently  quantified  at  $10,607.00  in  an  order sealed  on  17 December  2008,  against  Debonaire  on  the  summary judgment on a 2B basis.

[5]      In a hearing which took place before me in May last year, Debonaire pursued its counterclaims against Oceania, and Oceania its claims for contractual default interest and legal costs in terms of the provisions of the Supply Agreement.  I note Debonaire had by then paid the 2B costs awarded against it.

[6]      I delivered a substantive judgment on 27 August 2009.  I found that:

a)       Oceania  was  liable  to  Debonaire  for  contractual  damages  for  the direct profit Debonaire lost as a result of Oceania’s non-delivery of some seven containers of componentry.   As Debonaire had claimed for a general loss of profits, there was however insufficient evidence to enable me to fix finally the quantum of that direct profit.

b)Oceania was also liable to pay Debonaire $67,998.02 for what were known as the subset claims.

c)       Debonaire was not liable to pay contractual default interest to Oceania on the amounts owing for which it had obtained summary judgment at the rate stipulated in the Supply Agreement, 30 percent per annum, as that would be a penalty.  Debonaire was, however, liable to pay pre- and post-judgment interest in the normal course.  I did not attempt to quantify the amount of that interest.

d)       Debonaire  was  also  liable  to  pay  Oceania  an  additional  sum  of

$27,358.00  in  respect   of  contractual  legal   costs  on  Oceania’s successful summary judgment application.

[7]      I invited further submissions on the quantification of Debonaire’s entitlement to damages, on the overall effect of the counterclaim rules and on the question of costs.

[8]      I heard the parties on the question of the quantum of damages, and related issues, on 20 May 2010.  I subsequently delivered a damages decision on 11 June

2010, certain minor details of which I corrected in a minute of 20 June 2010, the combined effect of which was:

a)       Debonaire’s damages entitlement for goods ordered but not supplied was quantified at $179,303.78 which, together with pre-judgment interest to 27 August 2009 of $31,119.38, rendering Oceania liable to Debonaire as at that date for $210,423.16.

b)        I reduced my award of contractual legal costs in Oceania’s favour to

$16,751.00.

c)       I concluded that Debonaire was not entitled to pre-judgment interest on the subset claims’ damages award.

[9]      During   the   damages   hearing   I   took   Debonaire   to   accept   Oceania’s quantification of Oceania’s pre and (as at 27 August 2009) post judgment interest entitlement at $35,642.04 and $22,952.92 respectively.  This resulted in the amount owing to Debonaire on its summary judgment being, as at that date, $386,510.49.

[10]     On that basis, in my damages judgment, as amended by the minor corrections

I made in my 20 June minute, I:

a)       concluded  –  effectively  applying  r 11.23  as  between  Debonaire’s damages counterclaim and Oceania’s contractual legal costs claim – that the result of my substantive judgment was that as at the date

thereof  (27  August  2009)  Oceania  owed  Debonaire  $260,770.42 (excluding costs);

b)observed that applying, as would seem appropriate, a simple set-off between that amount and the amount ($386,510.49) owed by Debonaire to Oceania on that day meant that as at 27 August 2009, the  date  of  my  substantive  judgment,  Debonaire  owed  Oceania

$125,740.07.

[11]     I finally noted that interest would accrue on that “judgment sum” at 8.4 per cent until payment.

[12]     That overall result can be demonstrated as follows:

Overall position as at 27 August 2009

Summary judgment

1.	Judgment sum	$328,572.53
2.	Pre-judgment interest (i.e. to 3 December 2008)	$35,642.04
$364,214.57
3.	Interest  on  $364,214.57  from  4  December  2008 August 2010	to  27	$22,952.92

Total owing by Debonaire to Oceania pursuant to Summary

Judgment (excluding contractual costs) as at 27 August 2010  $386,510.49

Substantive judgment

1.    Owing by Oceania at 27 August 2009:

(a)    Damages award  $179,303.78 (b)     Pre-judgment interest (i.e. to 27 August 2009)  $31,119.38 (c)     Subset claims          $67,098.26

$277,521.42

2.    Owing by Debonaire at 27 August 2009: contractual costs

$16,751.00

3.    Judgment sum (R 11.23) (owed by Oceania to Debonaire)                 $260,770.42

Overall position as at 27 August 2010

Debonaire owes Oceania  $125,740.07

[13]     I reserved leave for either party to make further submissions if they disagreed with my analysis.  I did that because, although the question of the counterclaim and

set-off rules had been outlined in the parties’ written submissions to me, the matter had not received any real attention at the hearing which had been dominated by the issue of the quantification of Debonaire’s damages claim against Oceania.

[14]     Oceania asked that I not address the question of costs until Oceania had had the opportunity to consider whether a Calderbank offer Oceania provided to Debonaire on 2 April affects costs.  Accordingly, I did not rule on costs.

[15]     In response to my damages judgment, Mr Delany on behalf of Oceania filed a memorandum on 29 June 2010.   That memorandum principally addressed the approach I had adopted in my damages judgment as to the overall effect of Associate Judge Gendall’s summary judgment and my substantive judgment.  Mr Delany also made a brief submission on the effect of Oceania’s Calderbank offer.

[16]     On 1 July 2010 Mr Laurenson filed a memorandum on behalf of Debonaire. Mr Laurenson addressed the issue of the overall effect of Associate Judge Gendall’s summary judgment and my substantive judgment.  He generally sought 2B costs for Debonaire – on the basis that it had essentially succeeded in its counterclaim – but asked that costs on a 3B basis be awarded as regards the preparation for and conduct of  the  hearing.     Finally,  Mr  Laurenson  responded  negatively  to  Mr Delany’s suggestion that Oceania’s Calderbank offer should have an effect on the outcome.

[17]     I then commenced the task of preparing this judgment.  In the course of doing so, on 22 July 2010, I issued a second post-judgment minute.  In it I noted that at that point I only had Mr Delany’s general submission as to the relevance of the Calderbank offer made, and Mr Laurenson’s general application for an order for 2B costs, which was not quantified.  As I said, I did not want to have to deal later with an argument as to the quantification of costs payable by Oceania to Debonaire. Accordingly, I requested Mr Laurenson to submit a costs schedule that he considered appropriate and from Mr Delany any comments thereon.  I asked for that additional material to be filed no later than Friday 25 July.

[18]     On 6 August Mr Laurenson, on behalf of Debonaire, submitted a further extensive memorandum revising the basis upon which he now sought an order for costs.  By reference to what he said was a Calderbank offer dated 9 June 2008 made on behalf of Debonaire to Oceania through counsel, which he had overlooked in his

previous costs application, at this very late stage he said that Debonaire was entitled to all its costs from the inception of the proceedings issued by Oceania.   I do not propose to comment on the obvious lateness of this application, and the inconvenience associated with it.   I only pause to note that I had issued my post- judgment minute of 22 July to avoid, “if at all possible, any further issues as regards the determination of the overall outcome between Oceania and Debonaire”.  It was to say the least disappointing that a substantive new issue was raised in response to that minute.  I do acknowledge, however, that Mr Laurenson did include a schedule of costs as requested in that minute of 22 July.

[19]     Mr Delany provided a further memorandum on 16 August 2010.  In it he set out Oceania’s basic position that the appropriate costs category continued to be 2B, that Debonaire’s 9 June Calderbank offer did not come within r 14.10, that some of the witnesses’ disbursements were not properly claimable and that reduced costs were  appropriate in all the circumstances.   Disappointingly, Mr Delany did not respond to my invitation to comment in any detail on the schedule of costs that Mr Laurenson had prepared.   Rather, he suggested that the Court issue yet a further minute, taking the above matters into consideration, asking the defendant to submit a detailed claim for costs on a 2B basis and for me to then rule on costs and quantum.

[20]     It perhaps goes without saying that it is that very possibility that I had sought to avoid by issuing my second post-judgment minute on 22 July 2010.

[21]     Be that as it may, and on the basis of those materials, I now address the written submissions I have received on the correctness of my indicated approach to the  overall  result  of  Associate  Judge  Gendall’s  summary  judgment  and  my substantive judgment and on the question of costs.

The overall result

[22]     For  Debonaire,  Mr  Laurenson  in  his  further  submissions  accepted  the approach I had indicated in my damages judgment on this issue.

[23]     For Oceania, Mr Delany disagreed with approach, essentially on the question of  the  date  at  which  amounts  owing under  the  respective  judgments  should  be

calculated to effect a “set-off”.  Notwithstanding that in his written submissions for the purposes of the damages hearing Mr Delany had suggested (and I subsequently adopted the approach) that those amounts be calculated at 27 August 2009, Mr Delany now submitted that those amounts should be calculated as 11 June 2010, namely the date of my damages decision.

[24]     Due to the simple arithmetic effect of interest accruing on the larger amount owing to Oceania under its summary judgment – relative to the smaller amount owing to  Debonaire under my substantive judgment –  for  a longer period, that approach  results  in  the overall  amount  payable  by Debonaire  to  Oceania  being slightly greater than I calculated.

[25]      In response to Mr Delany’s new position, Mr Laurenson remains of the view that the appropriate date for calculation for set-off purposes is 29 August 2009, but notes – correctly in my view – that if I adopt Mr Delany’s submission then interest must also accrue on the amounts owed by Oceania to Debonaire during the period 27

August  2009  to  11  June  2010,  contrary  to  the  way  in  which  Mr  Delany  had calculated the overall outcome.

[26]     On  further  reflection,  I  have  concluded  that  the  date  now  proposed  by Mr Delany for these calculations, 11 June 2010, should be adopted.  I do so, not only by reference to the reasons suggested by Mr Delany but also, and principally, by reference  to  the  terms  upon  which  the  original  summary judgment  awarded  by Associate Judge Gendall was stayed.   Execution of that summary judgment was stayed by Associate Judge Gendall “pending further order of this Court once the defendant’s counter-claim against the plaintiff is properly resolved”.  In my view, the proper resolution of Debonaire’s counterclaim against Oceania only occurred when I had resolved the question of the quantum of the damages to which it was entitled. As  Oceania  was  stayed  from  executing  its  summary  judgment  until  that  had occurred, I consider it appropriate that – for the purposes of determining the overall result of these proceedings as between Oceania and Debonaire -  it is until that date that Oceania should be entitled to accrue interest on the summary judgment amount.

[27]     I remain of the view, however, contrary to the basis upon which Mr Delany approached these calculations, that the appropriate way to account for my judgment on  Oceania’s  claim  for  contractual  legal  costs  is  to  apply  a  r 11.23  claim  and

counterclaim procedure as between the amounts owing by Oceania to Debonaire on Debonaire’s damages and subset claims, and the amounts owing by Debonaire to Oceania in respect of contractual costs.

[28]     The overall result of that approach can be demonstrated as follows:

Overall position as at 11 June 2010

Summary judgment

1.	Judgment sum	$328,572.53
2.	Pre-judgment interest (i.e. to 3 December 2008)	$35,642.04
$364,214.57
3.	Interest on $364,214.57 from 4 December 2008 11 June 2010 (554 days)	to	$46,435.86

Total   owing   by  Debonaire   to   Oceania   pursuant   to

Summary Judgment as at 11 June 2010  $410,650.43

Substantive judgment

1.    Owing by Oceania at 27 August 2009:

(a)	Damages award	$179,303.78
(b)	Pre-judgment interest (i.e. to 27 August 2009)	$31,119.38
(c)	Subset claim	$67,098.26
$277,521.42

2.	Owing by Debonaire at 27 August 2009: contractual
costs	$16,751.00
3.	Judgment sum (R 11.23)	$260,770.42

4.    Interest on $260,770.42 from 7 August to 11 June

2010 (288 days) (daily rate $60.01)         $17,283.72

Total owing by Oceania to Debonaire as at 11 June 2010                  $278,054.14

Overall position as at 11 June 2010

Debonaire owes Oceania as at 11 June 2010  $132,596.29

[29]     I  therefore  give  judgment  against  Debonaire  in  Oceania’s  favour  as  at

11 June 2010 for the amount of $132,596.29.   Interest will accrue on that amount until satisfaction at the Judicature Act rate of 8.4%.

[30]     In doing so I make the following observations:

a)       Both Debonaire and Oceania approached this determination of the overall position between the parties on the basis of, in general terms, the application of the set-off principles set out in r 11.25.  Set-off with leave of the Court, a response to the strictness of previous pleading rules, applies to cross-judgments.   Such set-off is described in McGechan at [HC11.25.01], on the authority of Eclipse Dairy Co Ltd

v Thompson,[1]  as applying “both to judgments arising from separate

[1] Eclipse Dairy Co Ltd v Thompson [1929] NZLR 513

proceedings, and judgments and proceedings comprising claim and counterclaim on difference subject-matter”.  Smith J, in that case, put the position as follows:[2]

[2] At 516.

I  am  of  opinion  that  Rule 302  applies  to  judgments  in independent  actions,  and  that  claim  and  counterclaim  not arising out of the same subject-matter are to be regarded as independent actions.

On that basis it is not clear to me that, strictly speaking, a r 11.25 set- off is necessary here as it seems reasonably clear that the claims and counterclaims between Oceania and Debonaire arose out of the same matter, and in the course of the same proceedings, thereby making the matter more one for resolution under rr 11.23 and 11.24.  Having said that, however, there was here the need to respond fairly to Oceania’s summary judgment success in this proceeding, and the stay applied to the execution of that judgment.  It is principally with reference to that consideration  that  I  have  adopted  the  approach  set  out  in  this judgment.

b)In his most recent submissions Mr Laurenson drew my attention to the authority of Smellie J in Equiticorp Industries Ltd (In Statutory Management) v The Crown (no. 3) (Judgment No. 51).[3]   By reference

[3] Equiticorp Industries Ltd (In Statutory Management) v The Crown (no. 3) (Judgment No. 51) [1996] 3 NZLR 690 at 706.

to the way I have approached the calculation of pre- and post- judgment interest, I note that in that case Smellie J concluded that “where the entitlement to the pre-judgment interest is itself the subject of a separate judgment, then interest entitlement under r 11.27 runs from the date of that separate judgment”.  If applied here, that would mean that pre-judgment interest on Oceania’s summary judgment would apply up until the date (27 August 2009) of my substantive judgment, in which I awarded it pre-judgment interest.  The difference would be one of the compounding effect of post-judgment interest on pre-judgment interest.  I have not calculated that effect, but intuit that it would be reasonably small.   Moreover, as throughout the parties have accepted the approach I have adopted, I do not think that in the context of these difficult and extended proceedings it is necessary to introduce a further complication.

Costs – Calderbank offers

By Oceania

[31]     By letter of 2 April 2009, the solicitors for Oceania, which then had its summary judgment award of $328,572.53 and was facing Debonaire’s counterclaim, quantified at that time at $575,000 and its claims for credits (which later became known as the subset claims) of $67,098.26, offered, without prejudice except as to costs, settlement by the payment by Debonaire to it of $200,000.  It was, in effect, offering Debonaire the settlement of its counterclaim and sub-set claims for the sum of $128,572.53.

[32]     That offer is clearly properly characterised as a Calderbank offer in terms of r 14.10.

[33]     In terms of r 14.11, the effect if any of the making of such an offer is at the discretion of the Court.  Subject to that, and in terms of the offer made by Oceania, if Oceania had offered a sum of money to Debonaire that exceeded the amount of the judgment obtained by Debonaire against Oceania, or that offer would have been more  beneficial  to  Debonaire  than  the  judgment  obtained  by Debonaire  against

Oceania, Debonaire would be entitled to costs on the steps taken in the proceedings after the date of that offer, namely 2 April 2009.

[34]     Furthermore, even if the offer made does not meet those criteria, it may be taken into account in determining costs if it is close to the value or benefit of the judgment obtained by Debonaire against Oceania.

[35]     As recorded above:

a)       Associate Judge Gendall awarded Oceania summary judgment against Debonaire  for  $328,573.53,  questions  of  pre  and  post-judgment interest aside, an issue to which I return.

b)Debonaire, in turn, succeeded in its bare bones counterclaim (damages for goods ordered but not supplied) in the amount of $179.303.78 together with its successful sub-set claims of $67,098.26, a sum totalling $246,402.04.

c)       This is to be compared to the effective offer by Oceania to settle those claims at $128,572.53.

[36]     On that basis, I do not consider that Oceania’s Calderbank offer brings it within either of paragraphs (a) or (b) of subclause (3) of r 14.11.

By Debonaire

[37]     On  9  June  2008,  and  before  proceedings  were  issued,  Debonaire  –  in response to an offer received from Mr Delany – offered to settle all matters at large between it and Oceania by the payment to Oceania of $100,000.   This letter was expressed to be without prejudice as to costs.  As can be seen from [35], the bare bones judgment in Oceania’s favour at summary judgment is $328,573.53. Debonaire’s bare bones judgment is $246,402.04.  The difference between the two judgments, in terms of the amount payable by Debonaire to Oceania with reference to those two amounts, is $82,171.49.

[38]     On that basis, Debonaire’s Calderbank offer does bring it within paragraph (a) of r 14.11(3).  Mr Laurenson has therefore submitted that Debonaire should be entitled to all costs, in effect on an indemnity basis, from that point onwards, including   the   costs   of   defending   Oceania’s   successful   summary   judgment application.   Mr Delany’s first submission is that Debonaire’s offer was not a Calderbank offer because, at the time, proceedings had not been issued.  In making that submission Mr Delany pointed to the text of r 14.10(1), which provides that “a party to a proceeding may make a written offer to another party”.  In my judgment, it would be an unnecessarily narrow interpretation of r 14.10, given in particular the policy behind the rules that apply to Calderbank offers, to hold that a party to proceedings subsequently issued could not rely – in terms of r 14.10 – on a clear without prejudice except as to costs offer made prior to proceedings being issued, but clearly when proceedings were in contemplation as was the case here.

[39]     I therefore find that Debonaire’s offer can be considered in terms of r 14.10. [40]     Mr Laurenson in effect sought indemnity costs.

[41]     In my view a successful Calderbank offer does not in and of itself give rise to an entitlement to indemnity or increased costs.  Any such entitlement depends upon the separate provisions in r 14.6.  In my judgment, that conclusion is confirmed by the provision of r 14.11(2)(b), which provides that the entitlement under r 14.11(3) “do not limit rule 14.6 or rule 14.7”.  I think that makes clear that the costs a party may be entitled to under r 14.11(3) are scale costs, but that such a party may also apply for indemnity costs in appropriate circumstances.  I do not consider that the circumstances which might entitle a party to indemnity or increased costs exist in these proceedings.   As my substantive judgment shows, this case – particularly as regards Debonaire’s counterclaim – gave rise to complex factual and legal issues. The resolution of those issues, albeit in Debonaire’s favour at the end of the day, does not in my view in any way suggest that Oceania acted so inappropriately in bringing the proceeding that an award of indemnity or increased costs should follow.

[42]     In my view, however, what Debonaire’s Calderbank offer does mean is that it is entitled to costs, in effect on its counterclaim, from the commencement of the proceedings.      Although   Mr   Laurenson   submitted   that   this   should   include Debonaire’s costs in respect of the application for summary judgment, the award of

costs was there made on the basis of a contractual indemnity.  Mr Laurenson made no submissions as to why an award of costs at scale in the Court’s discretion, albeit on the basis of a Calderbank offer, can override a contractual entitlement of that nature.   Accordingly, I consider the appropriate outcome is that the award of contractual legal costs in Oceania’s favour stands, and that Debonaire does not get scale costs with respect to the summary judgment application itself.

[43]     I also note that in my view assessing the Calderbank offers without taking account of the subsequent accrual of interest is the appropriate way to proceed in terms of the principles applying to such offers.   That is, the principle relates to assessing the value of the offer made relative to the ultimate outcome.  The value of the offer made reflects an amount that would be payable at the time, and therefore excludes the separate identification of pre or post-judgment interest considerations. Here, Oceania sought and obtained summary judgment.  That interest accrued on that amount whilst Debonaire’s counterclaim was heard in my view should not affect the assessment of Debonaire’s Calderbank offer in terms of the High Court Rules.

[44]     I venture the view that, in the circumstances, and as Schedule 3 provides a separate time allocation for the filing of a counterclaim (at 3.1), and that Debonaire’s pursuit of its counterclaim – at least as I understand the history of this matter – did not really commence until Oceania’s summary judgment application had been dealt with, Debonaire’s success on its counterclaim may at the end of the day mean that reliance on its earlier Calderbank letter does not greatly change matters.

Categorisation

[45]     In my view, these are properly categorised as 2B proceedings.  I note in this context my acknowledgement that some difficult factual and legal issues were involved.   That in my view does not result in the proceedings overall not being categorised as 2B for costs purposes.  Furthermore – and with some hesitation given the advanced stage this proceeding has now reached – I venture the view that a number of those complications, particularly legal, could have been avoided if Debonaire’s  counterclaim  had  been  framed  as  an  action  for  damages  for  non- delivery in terms of s 52(2) of the Sale of Goods Act 1908, rather than as a general

loss of business profits claim.  That is, after all, the basis upon which I awarded it damages at the end of the day.

[46]     Nor, for similar reasons, do I consider there is any ground for scale costs otherwise payable to be reduced as Mr Delany submitted.

[47]     I therefore award scale costs in favour of Debonaire on a 2B basis in terms of its successful counterclaim.

[48]     In  terms  of  other  matters  raised  by  Mr  Delany,  I  make  the  following comments:

a)       I do not consider that disbursements should be payable as regards Mr Lazelle’s so-called expert evidence.   At the end of the day, this was of little or no help to the Court and – as I think I observed during the course of the trial – it seemed to me that Mr Lazelle frequently sought  to  proffer  views  that  went  beyond  any expertise  he  might properly claim.

b)        Mr Delany is right in terms of his comment on GST on disbursements.

[49]     I note finally that – as matters have transpired – I think costs in terms of this extended post-judgment process should lie where they fall, and I so order.

[50]     I hope now that, on the basis of this judgment, the parties will be able to agree on schedule 2B costs.  If that proves not to be the case, they may of course file further submissions.

“Clifford J”

Solicitors:   Cooper & Co, P O Box 13009, Wellington for the plaintiff

(Counsel J J Delany – [email protected])

Gillespie Young Watson, P O Box 30940, Lower Hutt for the defendant

(Counsel: R C Laurenson – [email protected])