Palmerston North City Council v Hardiway Enterprises Ltd (struck off)

[2018] NZHC 3005

IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY

I TE KŌTI MATUA O AOTEAROA TE PAPAIOEA ROHE

CIV-2011-454-351

[2018] NZHC 3005

BETWEEN

PALMERSTON NORTH CITY COUNCIL

Applicant

AND

HARDIWAY ENTERPRISES LIMITED (STRUCK OFF)

First Respondent

On the papers
Judgment:	20 November 2018

JUDGMENT OF WILLIAMS J

Introduction

[1]    The applicant is Palmerston North City Council (PNCC). It applies pursuant to r 14.8(2) of the High Court Rules 2016 for discharge of my costs award in its substantive application for non-party costs against Mr Fugle.1   PNCC argues that   the order should not have been made because I had found that Hardiway Enterprises Ltd (Hardiway) was no more than a front for Mr Fugle’s own self-interest, and that Hardiway owed PNCC costs in the Land Valuation Tribunal (LVT), High Court and Court of Appeal which (less the $36,000 compensation award) still left PNCC out of pocket by $81,340.51.2 Furthermore, PNCC’s application for non-party costs though unsuccessful, was at least arguable.

1      Palmerston North City Council v Hardiways Enterprises Ltd (Struck Off) [2018] NZHC 1731 at [53].

2      As outlined in the substantive judgment, PNCC was indemnified by the adjoining land-owner in the substantive proceeding, Brian Green Properties Ltd.

PALMERSTON NORTH CITY COUNCIL v HARDIWAY ENTERPRISES LIMITED (STRUCK OFF) [2018] NZHC 3005 [20 November 2018]

[2]    Mr Fugle responded that in fact the costs awarded in his favour had been too low. This was primarily because Mr Fugle had made an offer of settlement whereby he would forego an earlier consent costs order against PNCC of $2,750 (arising from an earlier withdrawn application). In other words, Mr Fugle offered to call it quits and both parties would walk away. Mr Fugle argued that in light of this Calderbank offer now disclosed, the costs award in his favour should be uplifted.

Rule 14.8 of the High Court Rules 2016

1. Rule 14.8 of the High Court Rules states:

14.8     Costs on interlocutory applications

(1)Costs on an opposed interlocutory application, unless there are special reasons to the contrary,—

(a)must  be  fixed  in  accordance   with   these   rules   when the application is determined; and

(b)become payable when they are fixed.

(2)Despite subclause (1), the court may reverse, discharge, or vary an order for costs on an interlocutory application if satisfied subsequently that the original order should not have been made.

(3)This rule does not apply to an application for summary judgment.

[4]    McGechan on Procedure does not explicitly deal with r 14.8(2). It provides however that r 14.8’s rationale is as follows:3

The rule reflects the fact that the merits of particular applications and those of the substantive proceedings are different matters: Chapman v Badon Ltd [2010] NZCA 613, (2010) 20 PRNZ 83 at [12].

…

Further, the rule recognises that the costs of an interlocutory application are best fixed contemporaneously by the judge or associate judge who decides it. Where, for special reasons, costs are reserved, it may be wise to fix their quantum, or at least to record the hearing time involved and perhaps stipulate the appropriate time band (r 14.5).

3      A C Beck and others McGechan on Procedure (online  loose-leaf  ed, Thomson  Reuters)  at [HR 14.8.04].

Categories of Cases

[5]    My review of the relevant cases suggests the rule tends to be used in three circumstances.

Judgment reversed on appeal

[6]    Most cases under r 14.8(2) involve a party seeking to reverse an adverse costs order in the High Court after successfully appealing the interlocutory decision in   the Court of Appeal. Moore J’s decision in Ngāti Hurungaterangi v Ngāti Wāhiao is a recent example.4 Wholesale Distributors Ltd v Songle Supermarkets Ltd, is another.5 There Moore J summarised some applicable principles:

[5] The rule of general application is that a party who succeeds in an interlocutory application should generally receive costs on that application … [however], where a party is successful on an appeal an award of costs will generally follow unless there is a good reason to depart from the general principle.

Failure to mention costs or incorrectly stating position on costs at the hearing

[7]    In Minister of Education v McKee Fehl Constructors Ltd, Thomas J declined to use r 14.8 to remedy counsel’s failure to advise the Court that their client sought costs.6 Thomas J referred to case law on r 14.8(2)’s predecessor:

[6]    The earlier version of r 14.8 was considered in  Crusaders Meats     New Zealand Ltd v New Zealand Meat Board,⁷ where Master Gendall, as he then was, held that the rule allowed an interlocutory costs order to be reversed, discharged or varied only if the Court was satisfied the original costs order should not have been made. He therefore declined to disturb an earlier order that the costs of a partially successful strikeout application should lie where they fall. He noted there was nothing to indicate the order refusing costs should not have been made, given the Judge had heard argument and noted

4      Ngāti Hurungaterangi v Ngāti Wāhiao [2018] NZHC 1991.

5      Wholesale Distributors Ltd v Songle Supermarkets Ltd [2015] NZHC 809. See also Ireland v Grant [2016] NZHC 2752; EBR Holdings Ltd (in liq) v McLaren Guise Associates Ltd [2017] NZHC 1008; and Lee v Lee [2016] NZHC 2357.

6      Minister of Education v McKee Fehl Constructors Ltd [2018] NZHC 1647. See also Moring v Reeves Moses Hudig Mortgage Nominee Company Ltd CA 249/97, 29 September 1998. I note that the opposite result was achieved in Sao Paulo Alpargatas SA v But Fashion Solutions Comercio E Industria de Artigos Em Pele LDA [2013] NZHC 602. In this situation, however, costs had been sought in the pleadings and costs were not dealt with at all in the decision concerning the substantive proceeding.

7      Crusader Meats New Zealand Ltd v New Zealand Meat Board HC Wellington CIV-2002-485-958, 30 September 2003.

that counsel had agreed costs should follow the event and, with both parties having been partly successful, costs should lie where they fall.⁸

Lack of information before the Court when making the costs award

[8]    In Li v Li, Muir J was required to consider whether an increased costs order was appropriate where he was unaware of a potentially unreasonable failure to accept an offer when making the original costs award.9 Muir J reviewed his earlier decision to award costs on a band 2B basis and considered that a modest uplift would be appropriate and varied his earlier order under r 14.8(2).10 Muir J considered that use of r 14.8(2) was appropriate in this context:

[4]   My judgment makes a determination as to costs which the defendants say is final. As the plaintiffs point out, however, r 14.8(2) gives the Court power to vary  an order if satisfied that it  should not have been  made.  If  the plaintiffs can now satisfy me that the original order was inappropriate I have jurisdiction therefore to reconsider it. In this case one of the grounds on which the application for increased costs proceeds is unreasonable failure to accept an offer without prejudice save as to costs of which I was unaware in making my costs order. If satisfied that the failure was unreasonable then this would be one example of where the r 14.8(2) jurisdiction was appropriately engaged.

Application of these categories to Hardiways

[9]    I do not consider r 14.8(2) to be a procedure whereby parties against whom costs are awarded can simply come back for another “bite” at the argument. Finality is important.  But I am, on reflection, sympathetic to PNCC’s  position in light of   the fact I did not provide it with an opportunity to make submissions on costs at     the hearing. It would have been better if PNCC had itself addressed the question of costs at that time, in light of the fact that paragraph (a) of the rule requires me to fix costs when the application is determined. But I do not consider that failure to be fatal to PNCC. That rule does not absolve me of the obligation to hear the parties, and most especially not in the rather unusual circumstances of this case.

[10]   I am satisfied that the order made in my original judgment should not have been made. Had PNCC been provided with an opportunity to submit that because I

8 At [21].

9      Li v Li [2017] NZHC 2984.

10 At [29].

found that Hardiway and Mr Fugle were in substance indistinguishable, costs should not follow the event in this case, I would have attached considerable weight to that submission. It does, on reflection, seem to me to be inequitable for Hardiway to have avoided paying the substantial costs for which it was held to be liable, and then for Mr Fugle (who in commercial if not in legal terms stood in the company’s shoes), to then receive costs in the same proceeding. The more equitable result would be to deduct the costs awarded to Mr Fugle from Hardiways’ costs liability, although with the company now struck off, that is no longer an option.

[11]   I see no merit in Mr Fugle’s Calderbank argument. Rule 14.6(3)(b)(iv) provides that above scale costs may be awarded where the unsuccessful party fails “without reasonable justification” to accept a settlement offer. This would be applicable if PNCC’s application for non-party costs had been hopeless, but it was not. The law was unclear with respect to costs in the LVT,  and the issue as to costs in   the High Court was the inherently elastic question of the effect of PNCC’s delay. As it transpires, counsel for Mr Fugle’s correspondence accurately predicted the result on both points, but I am satisfied that, on the state of the law, PNCC was reasonably justified in rejecting his very low-ball offer.

[12]   I rescind the order at [53] of the substantive judgment and order instead that costs in the substantive application and this application under r 14.8(2), will lie where they fall.

Williams J

Solicitors:

Cooper Rapley Lawyers, Palmerston North for Applicant Jacobs Florentine, Palmerston North for Leslie William Fugle