Pickering v Detection Services Limited
[2021] NZCA 382
•16 August 2021 at 11.00 am
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA649/2020 [2021] NZCA 382 |
| BETWEEN | CHRISTOPHER LORRAINE PICKERING |
| AND | DETECTION SERVICES LIMITED |
| Hearing: | 26 July 2021 |
Court: | Goddard, Thomas and Wylie JJ |
Counsel: | I C Bassett and S N Zellman for Appellants |
Judgment: | 16 August 2021 at 11.00 am |
JUDGMENT OF THE COURT
AThe appeal is dismissed.
BThe appellants must pay the respondents costs for a standard appeal on a band A basis, increased by 25 per cent, with usual disbursements. We certify for second counsel.
____________________________________________________________________
REASONS OF THE COURT
(Given by Goddard J)
Background
The joint venture
Mr Simmons is the founder of the Detection Services group of companies, which specialises in detecting leaks in water pipes. The group includes the four respondent companies. We will refer to Mr Simmons and the companies collectively as “Detection Services”.
Mr Pickering has expertise in computer software development. He is the founder of the second appellant, Aqatar Ltd (Aqatar).
Detection Services and Mr Pickering entered into a joint venture to develop a new computer-controlled leak detection system.
The prototype
A prototype for the leak detection system was designed and built by Mr Pickering, with some input from Detection Services. Mr Pickering met the cost of the development from his own resources.
By mid-2011 the prototype was ready to be shipped to Detection Services (in Australia) for testing and further refinement. The parties intended that it would then be put to commercial use by Detection Services.
The relationship breaks down
In mid-2011 Detection Services sought urgent delivery of the prototype. However Mr Pickering claimed sole ownership of the entire system, and refused to deliver it to Detection Services until agreement was reached on price and other terms governing its future use. No agreement was reached. The relationship broke down irretrievably. Mr Pickering placed the system in storage, where it remains.
Detection Services subsequently developed a new leak detection system, which differed in a number of respects from the system developed by Mr Pickering.
High Court proceedings
In 2015 Detection Services issued proceedings against Mr Pickering and Aqatar in the High Court. Detection Services claimed the costs of developing their new system, and profits said to have been lost in the interim while that new system was developed. Mr Pickering and Aqatar counterclaimed in contract for the costs they incurred in developing the original system.
At trial in the High Court, all of these claims were dismissed.[1] Woolford J accepted that there was a joint venture between the parties to design and build a leak detection system for use by Detection Services.[2] The terms of the joint venture included:[3]
(a)The leak detection system would be jointly owned by the parties throughout the development process.
(b)Mr Pickering would retain intellectual property rights to the initial phase of development, being the computer software and interface.
(c)Mr Pickering would fully disclose all third-party costs incurred in developing the system, which would be paid for by the Detection Services group.
(d)Mr Pickering would be entitled to reasonable recompense for his time and effort in developing the system.
(e)The completed system would be available for the exclusive use by Detection Services.
[1]Detection Services Ltd v Pickering [2018] NZHC 3310, [2019] NZAR 515 [High Court judgment].
[2]At [26].
[3]At [38].
The Judge was satisfied that the parties reposed trust and confidence in one another and owed fiduciary obligations to each other in the context of this joint venture.[4]
[4]At [40].
The Judge found that Mr Pickering had breached his obligations in respect of the joint venture.[5] However the Judge refused relief on the ground that Detection Services did not come to equity with clean hands: its conduct had contributed to the breakdown of the parties’ relationship.[6]
[5]At [63].
[6]At [66].
The Judge dismissed Mr Pickering’s counterclaim for payment of the costs he had incurred. He was not entitled to reimbursement for those costs because he had failed to supply the underlying invoices before the contract was terminated and his right to payment was irretrievably lost.[7] And in any event, he could not expect payment for a system he had wrongly refused to deliver.[8]
The first appeal
[7]At [82].
[8]At [84].
Detection Services appealed to this Court. Mr Pickering/Aqatar cross‑appealed.
The terms of the joint venture found by the Judge, set out at [9] above, were not contested on appeal.[9] As this Court noted, the positive obligations in subparagraphs (c) to (e) were not fiduciary in nature. They were terms agreed between the parties which were best seen as contractual in nature.[10]
[9]Detection Services Pty Ltd v Pickering [2019] NZCA 575 [Court of Appeal judgment] at [33].
[10]At [33].
Detection Services’ appeal was allowed.[11] This Court found that Mr Pickering had breached his obligations under the joint venture by refusing to ship the prototype to Detection Services in Australia so it could be exploited commercially.[12] The High Court had erred in denying relief on the basis of the clean hands maxim.[13]
[11]At [68].
[12]At [38].
[13]At [56].
The proceeding was remitted to the High Court to determine the quantum of damages payable to Detection Services.
The cross-appeal was dismissed. However this Court noted that the amount that would have been payable to Mr Pickering “may need to be taken into account in the assessment of any damages”.[14]
Compensation judgment
[14]At [64].
A further hearing then took place before Woolford J in the High Court to determine the amount of compensation payable to Detection Services. Detection Services claimed compensation under three heads: componentry costs, labour costs, and loss of profits. Detections Services accepted that an allowance had to be made for the amount that would have been payable to Mr Pickering if the prototype had been delivered: $200,415.45 made up of componentry costs of $160,415.45 and labour costs of $40,000.[15] So in order to recover compensation, Detection Services needed to establish that it had incurred loss in excess of that amount.
[15]Detection Services Ltd v Pickering [2020] NZHC 2705 [Compensation judgment] at [9] and [16]. All dollar figures are in NZD unless otherwise specified.
Detection Services argued that compensation should be assessed on the generous basis that applies to equitable compensation for breach of fiduciary obligations. However as the Judge noted, this Court held that Mr Pickering’s failure to deliver the system, while arising within a fiduciary relationship, was not a breach of a fiduciary obligation.[16] The claim for damages was essentially a standard breach of contract claim. The Judge proceeded on the basis that there was no reason to apply a different approach to the assessment of damages than would otherwise apply to a contract claim.[17]
Componentry costs
[16]At [8], referring to Court of Appeal judgment, above n 9, at [41].
[17]At [8].
At trial Detection Services made a (revised) claim for componentry costs of AUD 319,171.53.[18] The componentry costs were itemised in a schedule produced by Mr Simmons. Some of the relevant invoices were included in the common bundle of documents. Further invoices were produced, and added to the bundle, during the course of trial.
[18]At [10].
The Judge found that the leak detection system built by Detection Services was largely completed by mid to late-2012. He allowed claims for costs included in invoices dated up to and including 11 January 2013, but not subsequent invoices.[19] He also disallowed invoices for items which were not part of the original system built by Mr Pickering.[20]
[19]At [12].
[20]At [13].
The remaining costs totalled $277,766.04. That was the loss that could be attributed to Mr Pickering’s fault. From this sum, it was necessary to deduct $160,415.45 (the amount that Detection Services would have had to pay for component costs if the prototype had been delivered). That left an amount of $117,350.59 payable by Mr Pickering to Detection Services in respect of componentry costs.[21]
Labour costs
[21]At [14]–[15].
Detection Services put forward a range of possible approaches to the assessment of the labour costs they incurred to build a replacement leak detection system. No timesheets had been kept in respect of this work, and there was no other documentary evidence to substantiate the number of hours claimed.[22]
[22]At [17]–[22].
The Judge considered that despite this lack of evidence, the Court could not be absolved from making an assessment of the likely time involved in building the replacement system. The Court approached this exercise by adopting, as a reasonable estimate of the time required to design and build such a system, Mr Pickering’s estimate of the time he himself spent in developing the original system: 1,415 hours. Detection Services claimed $115 per hour for the time of the relevant staff, which the Judge considered was “not unreasonable”.[23] On this basis, the Judge assessed the relevant labour costs at $162,725, from which $40,000 had to be deducted (the sum agreed between the parties as payable for Mr Pickering’s time). That left a balance of $122,725 for labour costs payable by Mr Pickering to Detection Services.[24]
Loss of profits
[23]At [24]–[25].
[24]At [25].
Detection Services’ claim for loss of profits was dismissed. Detection Services had not established a sufficient factual basis for that claim.[25]
Result
[25]At [35].
The Judge awarded compensation to Detection Services of $240,075.59, made up of the sum for componentry costs and the sum for labour costs.[26]
The appeal to this Court
[26]At [36].
Mr Pickering appeals to this Court from the compensation judgment. He submits that Detection Services failed to establish any recoverable loss over and above the amount they were required to pay Mr Pickering.
Mr Pickering’s notice of appeal and written submissions raised five main issues.
First, Mr Pickering argued that he had no obligation to deliver a prototype of a particular standard/quality. Thus, he said, Detection Services was not entitled to be put in the position in which it would have been if Mr Pickering had produced a good quality, commercially viable prototype. To the contrary, the prototype that Mr Pickering had developed was seen by Detection Services as a “dud” or commercially not viable. So Detection Services was actually better off as a result of the prototype not being delivered, and not being required to pay some $200,000 for a prototype of no commercial value to them.
Second, Mr Pickering argued that Detection Services were only entitled to the cost of replicating Mr Pickering’s prototype. They were not entitled to recover the cost of developing a different leak detection system. Because Detection Services were familiar with Mr Pickering’s prototype, they could readily have reproduced that prototype at costs that were likely to be less than Mr Pickering’s original costs.
Third, Mr Pickering argued that the cost to Detection Services of building its own prototype was not a loss, but rather “mere capital expenditure”. That capital expenditure had produced a capital asset in the hands of Detection Services. The High Court erred by failing to require Detection Services to prove the amount of its loss, and precluding Mr Pickering from identifying and seeking to set off the betterment component of Detection Services’ total expenditure.
Fourth, Mr Pickering argued that the High Court erred by relying on invoices which had not been admitted into evidence, as they had been included in the common bundle only during closing submissions by counsel for Detection Services.
Fifth, Mr Pickering argued that the High Court erred by making an award for labour costs. The costs claimed by Detection Services were based on guesswork. The number of hours adopted was speculative. The hourly rate adopted assumed that revenue-earning work was available to Detection Services, and was turned away. There was no evidence of this.
At the hearing of the appeal, the second of the arguments outlined above was abandoned. Mr Bassett, counsel for Mr Pickering, accepted that it was not open to Mr Pickering to argue that Detection Services should have mitigated its losses by building a replica of the system designed by Mr Pickering, in circumstances where Mr Pickering claimed sole ownership of relevant intellectual property rights. We therefore need not consider this argument. However the respondents were required to address it in their written submissions. We return to this below at [78] in the context of costs.
The breach by Mr Pickering
Before turning to the specific issues raised by Mr Pickering, it is helpful to clarify the nature and content of the obligation that Mr Pickering owed to Detection Services, and breached.
We accept Mr Pickering’s submission that the claim for compensation should be approached on the same basis as a claim for damages in contract. That was common ground before us.
We also accept Mr Pickering’s submission that his obligations under the joint venture arrangement did not extend to the production and delivery of a leak detection system of a particular quality. If he used his best endeavours, but was ultimately unsuccessful in producing a workable leak detection system, he would not have breached any relevant obligation.
It was common ground before us that, as Mr Pickering pointed out in his letter to Detection Services dated 7 June 2011, he gave no warranties or guarantees with the equipment. It was “a prototype development, now to be completed by Detection Services”.
However Mr Pickering did in fact produce a prototype. The breach for which compensation must be assessed is his failure to deliver that prototype to Detection Services in mid-2011.
That prototype had not been tested in operation in a “live” setting, in a pipe containing water under pressure. But as Mr Pickering explained in the 7 June 2011 letter to Detection Services, it was “currently working in a dry environment as it sits”. Further development steps needed to be taken, which Mr Pickering identified in that letter, including pressure testing. And as Mr Pickering went on to note, several capabilities and features had been designed into the software but had not been fully implemented.
We accept Mr Pickering’s submission that when assessing compensation it is important to bear in mind that his breach consisted of failure to deliver the prototype in its current state in mid-2011, not failure to deliver a leak detection system that was complete in all respects and ready for immediate commercial use. We approach the appeal on that basis.
Relevant mitigation principles
The assessment of damages is a matter of fact. As Tipping J said in Marlborough District Council v Altimarloch Joint Venture Ltd:[27]
There are no absolute rules in this area, albeit the courts have established prima facie approaches in certain types of case to give general guidance and a measure of predictability. The key purpose when assessing damages is to reflect the extent of the loss actually and reasonably suffered by the plaintiff.
[27]Marlborough District Council v Altimarloch Joint Venture Ltd [2012] NZSC 11, [2012] 2 NZLR 726 at [156]. See also [23]–[27] per Elias CJ and [157]–[158] per Tipping J.
Detection Services did not attempt to formulate a claim based on the market value of the prototype that Mr Pickering failed to deliver in 2011. It would have been difficult, if not impossible, to estimate that value. Rather, Detection Services claimed compensation by reference to the costs it incurred in developing a replacement system which would serve the same commercial purpose.
The amount claimed can be thought of as the cost of curing the breach, by putting Detection Services in the same position as they would have been in if the contract had been performed, so far as practicable. Alternatively, it can be seen as a claim for the cost of mitigating the loss caused by non-delivery of the prototype. Because what was developed by Detection Services was not the very thing that Mr Pickering failed to deliver, we consider that an analysis based on mitigation principles is more illuminating. Detection Services are entitled to recover by way of compensation the costs that they reasonably incurred for the purpose of avoiding or reducing the loss that they suffered as a result of not receiving the prototype in
mid-2011.[28] Losses and expenses incurred in mitigation may be recovered even though the resulting damage is in the event greater than it would have been if the mitigating steps had not been taken, so long as those steps were reasonable.[29][28]James Edelman McGregor on Damages (21st ed, Sweet & Maxwell, London, 2021) at [9-005] and [9-102].
[29]At [9-103].
Mitigation does not necessarily involve a plaintiff putting themselves in an identical position to that which they would have been in if the contract had been performed, where that is not reasonably practicable. There are many cases in which a plaintiff has recovered the cost of obtaining a substitute for performance which differed from what the defendant had promised to deliver.
So for example, in Hinde v Liddell the defendants failed to deliver grey shirtings to the plaintiff.[30] The plaintiff could not find identical shirtings, so acquired slightly superior grey shirtings at a higher price. The Court found that the plaintiff could recover damages for acquiring the higher-priced substitutes.
[30]Hinde v Liddell (1875) LR 10 QB 265.
To take a more recent example, in Thai Airways International Public Co Ltd v KI Holdings Co Ltd, the defendant contracted to deliver aircraft seats to Thai Airways for certain aircraft.[31] Some of the seats were delivered late, and others were not delivered at all. Thai Airways took various steps in mitigation, including ordering different (and lighter) replacement seats from other suppliers at a higher cost. Thai Airways was entitled to recover the cost of those superior replacement seats. The defendant was entitled to offset against that higher cost the fuel savings to Thai Airways that resulted from the lighter seats.[32]
[31]Thai Airways International Public Co Ltd v KI Holdings Co Ltd [2015] EWHC 1250 (Comm), [2016] 1 All ER (Comm) 675.
[32]At [143]–[144] and [152].
These principles were applied by the Supreme Court in Marlborough District Council v Altimarloch Joint Venture Ltd.[33] The plaintiff purchased a rural property for development as a vineyard, in reliance on representations that the land came with resource consents to take up to 1,500 cubic metres of water per day for irrigation. The consents that were in fact attached to the land fell substantially short of this. The plaintiff purchaser claimed against (among others) the vendor under s 6 of the Contractual Remedies Act 1979, under which the representation in relation to the water rights was treated as a term of the contract. The plaintiff was entitled to recover from the vendor the cost of curing the breach (or, put another way, mitigating its consequences) by acquiring further water rights and constructing a dam to store water, even though the cost of doing so substantially exceeded the reduction in value of the property caused by the shortfall in water rights.[34]
[33]Marlborough District Council v Altimarloch Joint Venture Ltd, above n 27.
[34]At [66] per Blanchard J, [167]–[171] per Tipping J and [191]–[194] per McGrath J.
In the present case, Detection Services are entitled to recover the reasonable costs of the steps they took to put themselves in the position they would have been in had Mr Pickering delivered the prototype he had developed and built. That is, they are entitled to recover the reasonable costs of designing and building an alternative system to perform the same commercial function, up to an equivalent stage of development.
The argument that the prototype was a dud/not commercially viable
Mr Bassett argued that it was possible that the prototype was a dud, in the sense that it did not work under mains water pressure and was not capable of being developed into a viable leak detection system. Detection Services had not proved that this was not the case. It followed that Detection Services had not proved that it was worse off. Indeed it was arguably better off.
This argument was not advanced in the High Court. To the contrary, Mr Pickering pleaded that he had developed “a working prototype”. In his evidence at trial he described it as “a very capable system”. He said that every attempt “has been made to use best practice in the design approach to produce a system that is world class”.
Mr Pickering did attempt to establish at trial that Detection Services considered his prototype was not commercially viable, and had sought to develop a completely different system rather than produce a substitute for his system. Mr Bassett drew our attention to a number of emails in which either Mr Simmons or Mr Caunter (an engineer employed by Detection Services) expressed reservations about the state of readiness of the prototype. Mr Caunter at one point described the system as “something that probably won’t work”.
The high point of this argument is an email Mr Simmons sent to a third party, Hydrosave Pipeline Technologies Ltd, who was a potential customer for a leak detection system. Mr Simmons referred to Mr Pickering’s refusal to deliver the prototype, and said “in the meantime we are rebuilding”. He went on to say:
In hindsight [Mr Pickering] has done us a huge favour as the system has so many flaws (As I have since found out) we would have had to rebuild a very significant portion of it all again, as well, funny how things happen for a reason we have the opportunity to add some exciting components to the system that require a complete rebuild of the launch and drive gear so Pickering’s very dirty actions has actually helped us considerably.
This criticism of the prototype falls short of suggesting it was a dud. And the context is important: Mr Simmons was writing to a potential customer who had also had contact with Mr Pickering, and with respect to whom Mr Pickering was a potential competitor to supply a leak detection system. It is unsurprising that Mr Simmons was less than complementary about Mr Pickering’s prototype in those circumstances.
Mr Simmons was cross-examined about these emails. He accepted there were remaining operational issues with the prototype, but said he knew how to resolve them. It was 95 per cent complete.
In light of this evidence, the Judge was entitled to proceed on the basis that the prototype required more work, but was substantially complete. We do not consider that the evidence establishes that the prototype was a dud, or that Detection Services considered that it was of no value to them.
As already noted, Mr Bassett was on firmer ground with his submission that the prototype was not commercially viable, in the sense that it was not fully tested and ready for commercial use. That was common ground. The incomplete state of development of the prototype needed to be taken into account when assessing what costs Detection Services could reasonably incur in order to put itself in the position in which it would have been, had the prototype been delivered.
It would in principle have been open to Mr Pickering to argue that the system developed by Detection Services was superior to, and more valuable than, his prototype, with the result that an allowance needed to be made for betterment. In certain cases, betterment may be set off against the primary loss suffered by a plaintiff. This reflects the general principle that in assessing damages one must balance loss and gain.[35]
[35]British Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673 (HL) at 688–689; and Edelman, above n 28, at and [9-108], discussing Herrmann v Withers LLP [2012] EWHC 1492 (Ch).
But it is well established that where a defendant claims that a plaintiff has derived a benefit which should be taken into account when assessing damages, the defendant must prove the extent of that benefit.[36]
[36]Thai Airways International Public Co Ltd v KI Holdings Co Ltd, above n 31, at [87]–[92]; and J & B Caldwell Ltd v Logan House Retirement Home Ltd [1999] 2 NZLR 99 (HC) at 108–109.
In the High Court counsel for Mr Pickering took Mr Simmons to particular invoices which were said to amount to betterment, in the sense that they related to components beyond the scope of the prototype. Mr Simmons agreed with some of the suggested adjustments. Detection Services’ claim for damages was adjusted in closing to reflect this. The Judge made these deductions and some further deductions. Critically, the Judge identified the cut-off point for recovery of the cost of components as the point at which the Detection Services leak detection system was “largely completed”.[37] The Judge was careful not to allow costs to be claimed in respect of development beyond the (incomplete) stage reached by Mr Pickering’s prototype.
[37]Compensation judgment, above n 15, at [12].
However Mr Pickering did not advance any more ambitious betterment argument to the effect that the value of the replacement system exceeded the value of the prototype, or that the replacement system would generate greater revenue for Detection Systems than could have been achieved based on his design. There was no pleading or argument to this effect in the High Court. Nor (as a result) was there any evidence addressed to this issue. In those circumstances, that more ambitious argument is not open before this Court on appeal.
Capital expenditure rather than loss?
Mr Bassett submitted that the expenditure by Detection Services produced a new system owned by Detection Services. Detection Services had incurred capital expenditure, but this had produced a corresponding capital asset. There was no loss.
If Mr Pickering had delivered the prototype to Detection Services, Detection Services would have owned that prototype. Certain intellectual property rights would have remained with Mr Pickering. But as a result of Mr Pickering’s failure to deliver the prototype, Detection Services were deprived of a capital asset. It incurred expenditure in replacing that asset. The mere fact that Detection Services ended up with a capital asset does not disqualify them from making a claim for the costs they reasonably incurred in order to replace the asset of which they had been wrongfully deprived.
As already explained, it might have been possible for Mr Pickering to seek to establish that the asset obtained by Detection Services was more valuable than the prototype, and that some allowance for betterment should be made in those circumstances. But no such argument was advanced in the High Court: it cannot be advanced for the first time on appeal. Nor is there any evidence before this Court on the basis of which such an argument could be considered.
Cost of components
In the course of argument, Mr Bassett abandoned the submission that component costs should all have been disallowed as they related to Detection Services building an entirely new leak detection system, rather than a replica of Mr Pickering’s prototype. That left a challenge to certain specific componentry costs, on the basis that although they were included in Mr Simmons’ schedule, they were not supported by any invoice or other documentary evidence. Mr Bassett also argued that a number of invoices that were before the High Court at the damages hearing were not properly in evidence, as they had been included in the common bundle only during closing submissions by counsel for Detection Services. Mr Bassett submitted that in those circumstances the costs to which those invoices related should have been disallowed.
There is nothing in this argument. The Court was entitled to accept Mr Simmons’ evidence that certain costs had been incurred by Detection Services. It was not necessary for each cost item to be supported by an invoice, or some other documentary evidence.
The argument in relation to the invoices that were provided in the course of closing is especially devoid of merit. The transcript from the damages hearing records an acknowledgement by Mr Barker QC, counsel for Mr Pickering in the High Court, that those invoices had been discovered by Detection Services. It appears they were not included in the common bundle as the result of a photocopying error. The transcript records Mr Barker’s confirmation to the Court that at trial he “raised no objection to this going in”.
Mr Bassett endeavoured to argue that this reference meant there had been no objection to the invoices going into the common bundle, but that they had not gone into evidence as they had not been referred to by counsel or any witness prior to closing. That cannot be right. It would have been meaningless for Mr Barker to consent to documents going into the common bundle in closing, but not into evidence: that would have been a futile step. Rather, it is plain that when the invoices were produced in the course of Mr Corlett QC’s closing, Mr Barker (quite reasonably) made no objection to them going into evidence.
In summary, the Judge was careful to confine the costs recovered for components to costs incurred in order to produce a system that was largely completed, not a fully complete and commercially operational system. The evidence before the Judge was sufficient for that purpose. None of the challenges to his assessment of the amount recoverable for the cost of components is made out.
Labour costs
Mr Bassett submitted that the amount awarded for labour costs was not supported by any adequate evidence and involved guesswork. Detection Services had produced a number of widely varying estimates of the hours it spent developing a replacement system. The estimates were inherently unreliable. The approach ultimately adopted by the Judge, based on the time Mr Pickering spent on development, was inappropriate. Nor was there a proper evidential basis for the hourly rate of $115 per hour adopted for Mr Caunter’s time.
Plainly Detection Services did incur substantial labour costs in developing a replacement leak detection system. There were no records from which an exact calculation could be made. But that did not absolve Mr Pickering from liability to pay damages. The Court was entitled — indeed, required — to adopt a pragmatic approach to quantifying the loss as best as it could on the basis of the information available.[38]
[38]Edelman, above n 28, at [10-002].
Mr Bassett’s complaint that it should have taken Detection Services less time to develop a replica system, because it was familiar with the work that had already been done, cannot survive his acceptance that it was not necessary for Detection Services to attempt to create a replica system.
We consider that it was open to the Judge, adopting a pragmatic approach, to assess Detection Services’ loss on the basis of an estimate of around 1,415 hours of labour costs.
Mr Simmons gave evidence that if Mr Caunter had not spent time on development of a replacement system, he could have been carrying out work for clients at a charge out rate in excess of $115 per hour. The Judge was entitled to accept this evidence, which was not seriously challenged in cross-examination.
The challenge to the labour costs awarded by the Judge also fails.
Costs
It was common ground that costs should follow the event, and that the starting point should be an award of costs for a standard appeal on a band A basis.
Mr Corlett submitted that increased costs should be awarded, as the arguments advanced on appeal lacked merit. Detection Services had been put to costs that it should not have had not incur.
Increased costs may be awarded where a party has contributed unnecessarily to the time or expense of the appeal, or a step in the appeal, by taking or pursuing an unnecessary step or an argument that lacks merit.[39] In the present case, the argument that Detection Services could not recover the cost of building a replacement system that differed from the prototype, and could only recover the cost of reproducing that prototype, was wholly lacking in merit. It was abandoned at the hearing. But it should never have been advanced. The cost of responding to that argument was wholly wasted. Similarly, the argument about the invoices produced in the course of closing submissions was wholly without merit, and should not have been advanced.
[39]Court of Appeal (Civil) Rules 2005, r 53E(2)(b)(ii).
In these circumstances, we consider that a modest increase in costs of 25 per cent is justified.
Result
The appeal is dismissed.
The appellants must pay the respondents costs for a standard appeal on a band A basis, increased by 25 per cent, with usual disbursements. We certify for second counsel.
Solicitors:
Grimshaw & Co, Auckland for Appellants
Mackenzie Elvin Law, Tauranga for Respondents
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