Samson Corporation Limited v Thermosash Commercial Limited

[2024] NZHC 51

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-379

[2024] NZHC 51

BETWEEN

SAMSON CORPORATION LIMITED

Plaintiff

AND

THERMOSASH COMMERCIAL LIMITED

Defendant

AURECON AUSTRALIA PTY LIMITED
First Third Party

AURECON NEW ZEALAND LIMITED

Second Third Party

Hearing:

On the papers

Appearances:

G J Christie, J-A R J Knight and C A Smith for Plaintiff R M Keane and S G T Ma Ching for Defendant

K R Shanks and A R Tosh for Third Parties

Judgment:

1 February 2024

JUDGMENT OF O’GORMAN J

This judgment was delivered by me on 1 February 2024 at 3 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors/Counsel:

Simpson Grierson, Auckland Lee Salmon Long, Auckland Wotton & Kearney, Auckland

G J Christie, Barrister, Auckland

SAMSON CORPORATION LIMITED v THERMOSASH COMMERCIAL LIMITED [2024] NZHC 51 [1

February 2024]

Introduction

[1]    In an interlocutory application dated 29 November 2023, the defendant in the substantive proceeding, Thermosash Commercial Ltd (the applicant), applied for orders to determine disputed issues about inspection and evidence preservation during the course of remedial works on the building that is the subject of this proceeding. On 8 December 2023, the applicant sought an urgent hearing of  that application.  On   12 December  2023,   the   Court   allocated   a   two-hour   fixture   for   Monday,   18 December 2023.

[2]    On the afternoon of 16 December 2023, the parties filed a joint memorandum advising that they had reached a consent position on all issues except costs, so the hearing on 18 December 2023 was no longer required. I made orders by consent for an inspection and evidence preservation protocol, and requiring the respondent to provide the applicant with timing information about the remediation works. On the issue of costs, I set a timetable for the parties to file memoranda. Those cost memoranda have now been filed and referred to me for determination.

Substantive proceeding

[3]    The substantive proceeding is about Xlerplate decorative steel cladding panels (Xlerplate Panels) on the building known as “Ironbank” at 150 Karangahape Road. The plaintiff owns the Ironbank building. The defendant was engaged under a subcontract under which it designed, manufactured, and installed the Xlerplate Panels. The defendant has joined the third parties, Aurecon Australasia Pty Ltd and Aurecon New Zealand Ltd (together Aurecon), on the basis that Samson engaged Aurecon as façade consultants and Aurecon issued producer statements for the cladding panels during the building consent process.

[4]    The plaintiff alleges that the Xlerplate Panels are defective and that the defects, and “failed and incomplete repair work” by the defendant, have caused damage to the building. The plaintiff claims against the defendant for breach of the guarantee, in negligence, and for breach of the Fair Trading Act 1986.

[5]    The defendant denies the plaintiff’s claims. It alleges that the plaintiff has not properly maintained the building since it was built and has failed to carry out regular maintenance and cleaning of the Xlerplate Panels, such maintenance and cleaning being conditions of its guarantee.

[6]    In 2017, Samson Corporation Ltd (Samson) made demands under the subcontract guarantee, requesting that Thermosash carry out repairs designed by Grayson Wagner. In May 2021, Thermosash carried out a fixing survey at that time, replaced fixings and did other works. The parties differ on how this phase of work is characterised. Thermosash says it disputed the analysis by Grayson Wagner and denied any liability under the guarantee throughout that process.

[7]    Samson filed the present proceedings against Thermosash on 10 March 2023. After the parties failed to reach an agreement about remedial works, on 20 June 2023 Samson advised that it would be undertaking remediation work to one elevation of the building. Thermosash (through its lawyers LeeSalmonLong) asked to be informed of any repairs in advance, to have an independent expert be able to observe and carry out independent assessments, tests and/or sampling. This was necessary because the repairs destroy relevant evidence. As described further below, the cost issues arise from a failure of the parties to agree an evidence preservation and inspection protocol until shortly before the hearing of the opposed interlocutory application.

Costs on interlocutory applications

[8]    Rule 14.8 of the High Court Rules 2016 creates a presumption that costs on opposed interlocutory applications are to be fixed by the court when the application is determined. In Chapman v Badon Ltd the Court of Appeal said:1

[12]… Apart from applications for summary judgment, the general approach to costs in respect of interlocutory applications is that they are dealt with at the time the applications are determined rather than being held over until the outcome of the proceedings is known. This reflects the fact that the merits of particular applications and the merits of the substantive proceedings are different matters.

1      Chapman v Badon Ltd [2010] NZCA 613, (2010) 20 PRNZ 83 (footnote omitted).

[9]    Interlocutory applications are “determined” for the purpose of the above rule when the court decides them, or alternatively when they are withdrawn.2

[10]   By analogy with r 15.23, the default position is that the applicant who withdraws an application is required to pay costs unless the court orders otherwise.3 Exceptions  are  based   on  an  assessment  of   who  was  the  successful  party.     In Obrecht v Earthquake Commission, the second defendants sought to strike out a claim because it did not plead a valid cause of action. On the morning of the hearing, the plaintiffs amended their claim and the strike out application was therefore discontinued. Gendall J considered that the second defendants had effectively been successful and ordered the plaintiffs to pay costs.4

[11]   When the Court is asked to exercise its discretion to order costs on a withdrawal or discontinuance, the Court does not normally consider the merits of the respective cases, unless they are so obvious that they should influence the costs outcome.5 That is particularly the case where increased costs are sought.6

[12]Costs on costs are unusual and the Court is reluctant to award them.7

Rules for preservation and inspection

[13]   The High Court Rules provide broad powers for the Court to make orders for the preservation and inspection of property under rr 7.55 and 9.34.

[14]Rule 7.55 provides:

7.55 Preservation of property

(1)A Judge may at any stage in a proceeding make orders, subject to any conditions specified by the Judge, for the detention, custody, or preservation of any property.

2      Ip v Ip [2016] NZHC 528 at [12]; Winton v Winton [2018] NZHC 486 at [15]–[17]; Peterberic v Eady [2020] NZHC 2079 at [7]; and SKP Incorporated v Auckland Council [2019] NZHC 1665 at [5].

3      Ip v Ip, above n 2, at [16] and [19].

4      Obrecht v Earthquake Commission [2015] NZHC 555 at [25].

5      Peterberic v Eady, above n 2, at [8].

6      Ip v Ip, above n 2, at [21].

7      Jeffreys v Morgenstern [2013] NZHC 1361 at [40]; Barry Park Investments Ltd v Body Corporate Number 95388 [2016] NZHC 1527 at [25]; and SKP Incorporated v Auckland Council, above n 2, at [9].

(2)An order may authorise a person to enter any land or to do any other thing for the purpose of giving effect to the order.

(3)The Judge may order that a fund be paid into court or otherwise secured if the proceeding concerns the right of a party to the fund.

(4)The Judge may treat an application under this rule as an application for directions under rule 7.43A and give directions accordingly.

[15]   The rule can be invoked to preserve property that is necessary evidence.8 The requirements are:

(a)the existence of property that can be preserved;

(b)the property must constitute necessary evidence for trial; and

(c)a good reason for making an order.

[16]   Orders under r 7.55 are discretionary. The risk of dissipation or destruction of property is not a mandatory requirement, but an important matter to consider.9 The Court has a broad discretion as to the form of preservative technique to be applied.10

[17]Rule 9.34 provides:

9.34 Order for inspection, etc

(1)The court may, for the purpose of enabling the proper determination of any matter in question in a proceeding, make orders, on terms, for—

(a)the inspection of any property:

(b)the taking of samples of any property:

(c)the observation of any property:

(d)the measuring, weighing, or photographing of any property:

(e)the conduct of an experiment on or with any property:

(f)the observation of a process.

8      Ansell v State Insurance Ltd (1996) 10 PRNZ 133 (HC) at 143.

9      Lewis v Poultry Processors (Holdings) Ltd (1988) PRNZ 167 (HC) at 174.

10     Stephen Kós J Remedies – A to Z of New Zealand Law (online ed, Thomson Reuters) at [51.7.5].

(2)An order may authorise a person to enter any land or do anything else for the purpose of getting access to the property.

(3)In this rule, property includes any land and any document or other chattel, whether in the control of a party or not.

[18]   Under r 9.34, orders may only be made where necessary to enable proper determination of any question in the proceeding. Once that jurisdictional threshold is reached, the Court’s power to make such orders is discretionary.11

The disputed protocol issue

[19]   Schedule 1 of the interlocutory application dated 29 November 2023 was an evidence preservation and inspection protocol, which had been largely agreed subject to a disputed clause sought by Samson, namely:

Sharing of results: Samson and Thermosash agree to share the results of any invasive or destructive testing or sampling carried out by their respective experts.

[20]   Samson’s  reason  for  this  clause  was  explained  in  a  letter  from  Simpson Grierson dated 21 November 2023:

Our insistence on this point is based on your client’s request to remove pieces of Xlerplate Panels and their fixings for offsite testing. In circumstances where your client is requesting to remove our client’s property for offsite testing, we consider that it would be highly unusual for the parties to not agree to share the results of such testing. For the avoidance of doubt, that would not require any subsequent expert analysis of the tests to be shared – just the test result data.

[21]   The disputed issues concerning the protocol, and now the cost issues, centre on:

(a)whether litigation privilege applies to expert investigation and testing conducted for the dominant purpose of a proceeding; and

11     Tyco Flow Pacific Pty Ltd v Grant HC Auckland CIV-2003-404-4121, 18 March 2005 at [40]-[44]; and Trott v Barnett [2017] NZHC 478, [2017] NZAR 445 at [20].

(b)if so, whether Thermosash could be required to waive such privilege for the purposes of finalising the evidence preservation and inspection protocol.

[22]The parties referred to three cases.

[23]   In Metlifecare Retirement Villages Ltd v James Hardie New Zealand Ltd,12 the plaintiff Metlifecare Retirement  Villages  Ltd  (Metlifecare)  claimed  that  the James Hardie business (or companies within it) (James Hardie) were responsible for producing exterior cladding and systems, including Harditex and Monotek cladding systems. Metlifecare alleged that information published by the defendants about the use of those cladding products and systems did not adequately disclose defects and risk characteristics, with the alleged result that the systems were not weathertight in New Zealand conditions and did not comply with applicable legal and building standards. In one of the interlocutory applications, James Hardie cross-applied against Metlifecare for inspecting and testing information from the plaintiff’s experts. Metlifecare opposed the orders on the basis that it was entitled to prepare its case as it sees fit, protected by litigation privilege and free from oversight and scrutiny.13 It said it could not be compelled to waive privilege and was under no obligation to disclose its testing programme, to the extent that it formed part of the preparation of its evidence. Rule 9.34 does not create any jurisdiction to override privilege.

[24]   Venning J accepted the legal principles advanced by counsel for Metlifecare that privilege would usually be retained in their respective experts’ analysis.14 However, in that case the parties had already agreed a specific waiver as part of a protocol.15 The parties had mutually waived privilege over data obtained by the experts through an inspection and testing process (such as moisture readings, photographs, measurements etc). In contrast, the parties expressly retained privilege over all analysis carried out by their respective experts, including any notes taken or material prepared onsite. In the context of that protocol, the experts acting for the James  Hardie  entities  could  validly  seek  an  order  under  r  9.34  to  observe  the

12     Metlifecare Retirement Villages Ltd v James Hardie New Zealand Ltd [2022] NZHC 511 at [137].

13 At [121].

14 At [137].

15     At [128] and [137].

preparatory tests, without forcing Metlifecare to waive its privilege. The base data and information were to be shared in accordance with the waiver in the protocol. Privilege was in the analysis obtained from the data, and the reports the experts made to their respective clients as to the results of that testing. Venning J also directed that the experts acting for the James Hardie entities were entitled to be notified of and attend any inspections and testing, including preparatory testing by the plaintiff’s experts of the plaintiff’s properties conducted in accordance with the joint protocol, if they involved invasive investigations (being investigations that involve the opening of the building envelope and any associated dye testing).16

[25]   Test data was shared in another case, Body Corporate 351522 v Queenstown Lakes District Council.17 In that case, the Council sought orders to allow it to inspect the defendant’s building by carrying out testing, including invasive testing, taking samples, and installing monitoring devices internally and externally on the property. The terms proposed by the Council were that it would share testing and monitoring data on a monthly basis. The respondents agreed to testing and monitoring on those terms.

[26]   In Body Corporate 323716 v Manson Developments Ltd, Manson was the defendant in a leaky building claim.18 A three-week trial was set down for 13 June 2016, preceded by mediation scheduled for 10 May 2016. Even though the request was made close to trial, Manson wanted to test a proposed remediation as an alternative to the claimed cost for replacing defective tiling. The defendant’s alternative was to remove the tiles, make them weathertight using a grouting and waterproofing process, then reapply them. Manson wanted to try this on a small number of tiles, then test the watertightness of the newly re-tiled area. Lang J was satisfied that Manson should be permitted to do this testing under r 9.34, despite opposition from the plaintiff. The Court directed that the testing be completed no later than 27 April 2016,  with the report to  be provided to the plaintiffs no  later than    29 April 2016.

16 At [144].

17     Body Corporate 351522 v Queenstown Lakes District Council [2013] NZHC 559.

18     Body Corporate 323716 v Manson Developments Ltd [2016] NZHC 728.

Party positions on costs

[27]   Thermosash seeks scale costs on a 2B basis in the sum of $10,277, an uplift of 150 per cent for the plaintiff’s unreasonable conduct, and disbursements of $2,760 for filing fees and those of an expert witness. It makes the following submissions:

(a)The applicant succeeded on both applications, with determinations made wholly in their favour (by consent). The differences between the protocol as initially sought compared with that ultimately agreed are immaterial. Accordingly, the default rule applies that costs of the interlocutory application should be determined now, in favour of the successful party.

(b)Urgency was required in order for the substantive application to have utility, and because work commenced without the plaintiff providing the indicated four-week notice period.

(c)An uplift is appropriate because the respondent took an unreasonable position that lacked merit. It is axiomatic that testing carried out for the purpose of the proceeding attracts litigation privilege, as recognised in s 56(2)(d) of the Evidence Act 2006 and the cases referred to above. The plaintiff has also been unreasonable in shortening the advance notice it provided for remedial works and failing to provide sufficient forward-looking information.

(d)The respondent was unreasonable in failing to record the applicant’s position on costs in the joint memorandum.

[28]   The plaintiff submits that costs should be reserved and determined at the conclusion of the proceeding when the issue on the sharing of test results is determined and having regard to the outcome of the decision at that time. The plaintiff makes the following submissions:

(a)The fact that consent orders were made does not equate with the applicant succeeding. The plaintiff simply agreed to the protocol

without sharing of test results at this time to avoid unnecessary argument and to enable the protocol to be implemented forthwith.

(b)The urgency described by the defendant is a fiction. The defendant’s conduct has not reflected any urgency, taking two months to provide an initial draft of the protocol and a further two months to respond to the plaintiff’s amendments. Since the parties agreed the protocol, the defendant’s experts have not been onsite or proposed any invasive testing.

(c)Certain items fall outside the scope of the interlocutory application, namely:

(i)the    case    management    conference    memorandum    dated 4 December 2023; and

(ii)the memorandum on costs dated 15 December 2023.

(d)There are no grounds for uplift, consistent with the comments of Associate Judge Gardiner in the case management conference and subsequent minute that this is not a simple and straightforward matter. The plaintiff has acted reasonably and has gone to lengths to ensure that the defendant and its experts could observe the remedial works and, once an expert protocol was agreed, carry out invasive testing and investigations.

Analysis

[29]   I accept that the presumption in r 14.8 applies and costs on an opposed interlocutory application should be fixed now that the application has been determined. This is not a situation where the trial judge will be in a better position to determine costs fairly, because the merits of the interlocutory application and substantive proceedings are different matters.

[30]   I agree with the submissions of the respondent that there is a difference between:

(a)whether litigation privilege applies to expert investigation and testing conducted for the dominant purpose of a proceeding, prior to any witness evidence being exchanged; and

(b)obligations that arise under the code of conduct in sch 4 to the High Court Rules, which contains a general duty in cl 3(g) to describe any examinations, tests, or other investigations on which the expert witness has relied. That applies when evidence is exchanged and does not support a determination at this juncture that privilege is or must be waived during the process of carrying out any such tests or investigations.

[31]   The trial judge may have visibility about the sharing of test results as part of evidence exchange and will determine the ultimate outcome on the substantive issues, but those are not logically the same as whether litigation privilege applies at an earlier stage of the proceeding. Now that the protocol has been agreed, there is no reason for the trial judge to consider these earlier procedural issues.

[32]   I did not have the advantage of a full merits hearing of the opposed interlocutory application, so I acknowledge that caution should be exercised in those circumstances. However, for the purposes of r 14.8, the presumptive position when consent orders are made is that the applicant was the successful party. In my view,  that is consistent with the legal position in s 56(2)(d) of the Evidence Act and cases in which courts have acknowledged that privilege would usually be retained in their respective experts’ analysis, prior to the evidence exchange phase. I accept that in some cases parties have agreed to the sharing of test results earlier for pragmatic reasons, and in appropriate cases the Court in its discretion has fashioned orders that accommodate the needs of both parties and their experts when invasive or destructive testing is required. I see those joint testing processes as distinguishable on the facts. Overall, I accept the applicant’s submissions that it should be treated as the successful party on the interlocutory application for the purposes of r 14.8.

[33]   I am not prepared, however, to classify the respondent’s position as so unreasonable as to justify an uplift. In a situation where the hearing of an opposed application does not take place, it is difficult to justify any uplift unless the lack of merit is both obvious and incontrovertible, and the paying party’s conduct was patently unreasonable.19 I do not consider that this very high threshold is met. Furthermore, cost orders of this type risk discouraging parties from resolving applications without proceeding to a full hearing.

[34]   In terms of the arguments about urgency, I consider that it was appropriate to seek to achieve certainty about the protocol prior to the court holiday, given that agreement had not been reached after many months of exchanges between the parties and ongoing remedial work was planned over that period. I do not engage on any arguments seeking to allocate blame for the delays.

[35]In terms of the two steps referred to in [28(c)] above:

(a)I consider that costs are appropriately awarded for the 4 December 2023 memorandum. While it was prepared for the case management conference, it solely addressed protocol issues. It was appropriate for the applicant to have raised these issues at the conference, and the fact that timetable orders were made for a formal application to be filed does not preclude this step being awarded as part of the overall process for determining the dispute. When costs are awarded to the “successful” party, such assessments are made “in the round” rather than focusing on the extent to which that step succeeded or failed.20

(b)I do not award costs for the memorandum on costs dated 15 December 2023. As referred to above, the court discourages costs on costs applications. I am also not satisfied that the default time allocation would have been incurred.

19 Ip v Ip, above n 2, at [21].

20  Lawrence v Glynbrook 2001 Ltd [2015] NZHC 1005 at [6]–[8], referencing Phoenix Organics Ltd v RD 2 International Ltd (No 2) HC Auckland CIV-2005-404-5070, 21 December 2005; and Packing In Ltd (in liquidation) v Chilcott (2003) 16 PRNZ 869 (CA) at [18]–[20].

Result

[36]   Accordingly, I award costs to Thermosash Commercial Ltd as applicant on a 2B basis (no uplift) in the amounts set out in Schedule 2 of the memorandum for the defendant but excluding the costs memorandum. Therefore, the total awarded is:

(a)$9,321 for the steps/items; and

(b)$2,760 for disbursements.

O’Gorman J