RD1 Limited v McKinnon

[2013] NZHC 219

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-003499 [2013] NZHC 219

UNDER  the District Courts Act 1947

BETWEEN  RD1 LIMITED Appellant

ANDIAN JAMES MCKINNON Respondent

Hearing:         13 February 2013 (On the Papers)

Counsel:         M D Branch and S J Rawcliffe for the Appellant

M J Smyth for the Respondent

Judgment:      15 February 2013

JUDGMENT (NO 2) OF DUFFY J [Re Costs]

This judgment was delivered by Justice Duffy on 15 February 2013 at 4.00 pm, pursuant to

r 11.5 of the High Court Rules

Registrar/Deputy Registrar
Date:

Counsel:     M  J  Smyth  P  O  Box  91053  Victoria  Street  West Auckland  1142  for  the

Respondent

Solicitors:    Harkness  Henry  Private  Bag  3077  Waikato  Mail  Centre  Hamilton  3240 (DX CP20015) for the Appellant

RD1 LTD v MCKINNON HC AK CIV-2011-404-003499 [15 February 2013]

[1]      On  4  November  2011,  I  allowed  the  appeal  against  the  decision  of  the District Court at Auckland and held that judgment be entered against the respondent in the sum of $30,057.48.  I granted leave to the parties to file further submissions regarding any claim for further interest and costs.

[2]      The  respondent  was  directed  to  file  any  submissions  in  response  to submissions  filed  by  the  appellant  within  10  working  days  of  receipt  of  the appellant’s submissions.  The appellant filed and served submissions on costs, along with two supporting affidavits, on 21 November 2011. The respondent did not file or serve  any  submissions  on  costs  within  the  timeframe  specified  in  the  appeal judgment.

[3]      However,  counsel  for  the  respondent  corresponded  with  counsel  for  the appellant in relation to costs.  There was a dispute regarding costs sought in relation to two invoices.  Further, it seems that the respondent faces difficulty in meeting the debt that I found he owed to the appellant.  Throughout 2012, the parties attempted to reach an agreed position that would see the appellant paid to its satisfaction. Unfortunately, the parties could not reach any such agreement.

[4]      On 8 November 2012, the appellant filed a further memorandum in respect of interest and costs.  In that memorandum, the appellant requested judgment in terms of its earlier submissions on interest and costs, albeit with the removal of the two disputed invoices, in respect of which it had decided to abandon pursuit for payment, in order to expedite matters.  The appellant also drew to the Court’s attention a need to reduce the judgment sum by $3,000 to reflect payments received from the debtor, MJ Fencing.  Accordingly, that left the appellant seeking the following sums (as set

out in the memorandum of 8 November 2012):

(a)    Judgment sum

(b)    Less payments received

(c)    Interest

(d)   Costs (not including invoices 78077 and 78830)

Total

$30,057.46

-  $  3,000.00

$10,621.17

$30,317.92

$67,996.55

[5]      On 6 December 2012, the respondent filed submissions in response.  Those submissions set out the background, which explained why there had been a delay in the parties pursuing a cost judgment in this Court.   The respondent made no submission in relation to the interest calculation as set out in the appellant’s submissions.    Nor  was  there  a  dispute  as  to  the  judgment  sum,  less  payments received.  I am satisfied, therefore, that the appellant is entitled to judgment in the sum  of $27,057.46  (being the  judgment  sum,  less  payment  received)  and  I am satisfied that the appellant is entitled to interest of $10,621.17.

[6]      The respondent disputes the appellant’s entitlement to an award of indemnity costs in the sum of $30,317.92.

[7]      The appellant relies upon High Court Rule 14.6(4), which provides:

The Court may order a party to pay indemnity costs if –

(e)       The  party  claiming  costs  is  entitled  to  indemnity  costs  under  a contract or deed.

[8]      The appellant relies on the terms of the personal guarantee on which the respondent was found liable, in particular, clause 5(c), which provides:

The respondent must, immediately pay all costs (including legal costs) incurred by us [the appellant] in collecting or attempting to collect your overdue payments.

[9]      The respondent concedes that costs properly follow the event and, therefore, he has a liability to the appellant for a contribution to its costs.   He disputes the quantum of costs to be awarded.   The respondent argues that by using the word “may”, r 14.6(4) preserves the discretion of the Court to make a decision based upon the individual facts of each case.  The respondent refers to the relevant principles in relation to indemnity costs set out in the judgment of the Court of Appeal in Watson

& Son Ltd v Active Manuka Honey Association [2009] NZCA 595 at [20] where the

Court said:

In principle one party may contractually bind itself to pay the other party’s full solicitor – client costs.  In such a case, the Court must decide what tasks attract a costs indemnity on a proper construction of the contract, whether the task undertaken in the instant case was one of those contemplated in the contract, whether the steps taken were reasonably necessary in pursuance of

that task, whether the rate at which they were then charged was reasonable having regard to the principles normally applicable to solicitor/clients costs, and whether any other principles drawn from the general law of contract would in whole or part deny the claimant its prima facie right to judgment. These are all matters of objective assessment.

[10]     The respondent submits, therefore, that the assessment of costs requires a three-step approach, namely:

(a)       Analysis  of  the  task  undertaken  to  decide  whether  it  was  a  task contemplated by the contract;

(b)Analysis of whether the step was reasonably necessary in pursuance of the task; and

(c)      Whether the rate applied to the step is reasonable.

[11]     The respondent argues that once this three-step analysis has been undertaken, the Court must look to see whether there are any other principles of the general law of contract which would deny the appellant its right to claim indemnity costs.

[12]     Applying these principles to the present case, the respondent argues first that in order to lay claim to indemnity costs, the contract must be “plainly and unambiguously expressed”: see ANZ Banking Group (NZ) Ltd v Gibson [1986] 1

NZLR 556 (CA).

[13]     The respondent argues that clause 5(c) of the guarantee has a more restricted scope than that contended for by the appellant.  The respondent acknowledges that clause 5(c) would permit indemnity costs for fees incurred with debt  collection agents, the issue of proceedings in the District Court and the subsequent obtaining of either default or summary judgment (and enforcement action where necessary).  He accepts that those tasks are properly concerned with the collection of an overdue payment  and  the  unwillingness  of  a  debtor  to  pay.    However,  he  submits  that clause 5(c) does not contemplate a trial in the District Court or any subsequent appeal when the issue in dispute is the interpretation of the terms of the appellant’s guarantee.   The respondent submits that such disputes fall outside the reasonable

contemplation of the parties when the contract was entered into as attracting a claim for indemnity costs.   Thus, the respondent attempts to distinguish between debt collection and disputed interpretation.   The respondent submits, therefore, that all steps taken by the appellant beyond obtaining default judgment against him should properly be payable on a scale basis in accordance with the High Court Rules 14.2 to

14.5.

[14]     I do not accept the respondent’s argument.   I consider that clause 5(c) is sufficiently wide  enough  to  encompass  the  circumstance  where  the  appellant  is forced to go to trial, or on appeal in order to obtain payment under the guarantee. The purpose of clause 5(c) was to enable the appellant to recover the costs it incurred in enforcing the guarantee.  Where the attempt at enforcement of the guarantee has been hindered by the respondent raising unsuccessful arguments regarding interpretation of the guarantee, it seems to me that this is necessarily part of the enforcement.  The respondent argues that there is a distinction between disputing the interpretation of the guarantee and the circumstance of the unwillingness of a debtor to pay.   In each circumstance, the debtor is unwilling to pay.   I accept that in the circumstances where a guarantee is poorly and ambiguously drafted, there may be grounds for taking the view that indemnity costs should not be awarded to the party who was responsible for drafting the document and who has created the ambiguity or dispute.  But that is not the case here.

[15]     I now turn to deal with quantum.  The respondent disputes the quantum of the claim for indemnity costs on the basis that the invoices provided do not provide sufficient information.  I have looked at the claim for costs and the affidavit evidence in support of the claim.  It seems to me that the costs incurred are reasonable.  They cover legal services in the District Court and in this Court.  I consider that the sum of

$30,317.92 is an adequate and reasonable reflection of the costs likely to be incurred following trial in the District Court and appeal to this Court.

[16]     The  respondent  submits  that  the  costs  should  not  be  seen  as  reasonable because  the  costs  exceed  the  judgment  sum;  the  respondent  submits  that  this supports the inference the rate was not reasonable.  I do not accept that argument.

[17]     The appellant was entitled to pursue its rights under the guarantee.   The respondent assumed the risk of an indemnity cost owed through clause 5(c).   In terms of the residual discretion available to me, I am satisfied that it is appropriate to award indemnity costs here.

[18]     In its reply submission, the appellant reduced the sum of the costs it sought to exclude items for which it accepted the respondent’s argument for exclusion.  This reduces the sum for indemnity costs to $28,397.62.  The appellant is awarded this sum as indemnity costs.

[19]     In its reply submission, the appellant sought interest under r 11.27 from the date of judgment until payment.  Rule 11.27 provides that a judgment debt carries interest from the time judgment is given until it is satisfied.  Interest is payable as of right under the rule.  The only discretion the Court exercises in this regard relates to determining the appropriate rate of interest and whether it will be at the rate provided in the rate in the Judicature (Prescribed Rate of Interest) Order 2011 (or its predecessor, should that have been in force at the relevant time) or something less than that.

[20]     I see no reason here to depart from the prescribed rate.  However, I am aware that the appellant only raised its right to interest under r 11.27 for the first time in its reply submission.  The respondent has not, therefore, had an opportunity to comment on  the  limited  question  of  whether  the  prescribed  rate  should  be  applied  or something less than that. The respondent is entitled to an opportunity to comment on this issue.   He has 10 working days from the receipt of this judgment to file submissions on this question.  If he does not do so within that timeframe, the rate of interest will be the applicable rate provided in the relevant Order made under the Judicature Act.

[21]     The appellant has also sought costs for making the application for costs. Whilst the quantification of this application could not have been known until the time for making reply submissions, the idea of seeking costs for this exercise, and the appropriate scale at which such costs are to be determined should have been notified to the respondent at the time the appellant first sought costs.  The choice of

the appropriate scale and quantification of such costs is something on which the respondent is entitled to be heard.  I consider that it is too late to raise this matter for the first time in a reply submission and, for this reason, the application is declined.

[22]     The appellant’s entitlement to interest post-judgment provides a proper basis for  permitting  it  to  be  raised  late,  with  the  respondent  then  being  given  an opportunity to be heard.  But an award of costs is discretionary.  Whilst the general principle is that costs follow the event, if a party seeking costs fails to comply with proper procedure, that is a factor that can tell against the usual award of costs.  It has done so here.

Result

[23]     The appellant is awarded:

(a)       Judgment in the sum of $27,057.46; (b)           Interest of $10,621.17; and

(c)       Indemnity costs of $28,397.62.

Duffy J