Spooner Commercial Limited v A1 Commercial Services Limited (k/a Cambridge Carpet Cleaning Limited)

[2015] NZHC 549

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV-2014-419-000234 [2015] NZHC 549

UNDER

Part 20 of the High Court Rules

IN THE MATTER

of an appeal from the District Court

BETWEEN

SPOONER COMMERCIAL LIMITED First Appellant

KAREN LINDA SPOONER Second Appellant

AND

A1 COMMERCIAL SERVICES LIMITED (NOW KNOWN AS CAMBRIDGE CARPET CLEANING LIMITED)

Respondent

Hearing:	On the papers
Appearances:	M Branch and K Lomas for Appellants E J Hudson for Respondent
Judgment:	24 March 2014

JUDGMENT OF WOOLFORD J [As to costs]

This judgment was delivered by me on Tuesday, 24 March 2015 at 4.00 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:           Harkness Henry, Lawyers, Hamilton

Counsel:            Elliot Hudson, Barrister, Hamilton

SPOONER COMMERCIAL LIMITED v A1 COMMERCIAL SERVICES LIMITED (NOW KNOWN AS CAMBRIDGE CARPET CLEANING LIMITED) [2015] NZHC 549 [24 March 2014]

Introduction

[1]      The appellants, Spooner Commercial Limited and Karen Spooner, seek costs following their appeal against a District Court quantum judgment.1   The respondent, A1 Commercial Services Limited, submits that costs for the appeal should lie where they fall.  There is an additional dispute over the costs to be awarded for the District Court quantum hearing.

Background

[2]      The background is set out in full in my judgment dated 21 November 2014. In brief, the second appellant, Ms Spooner, the proprietor of the first appellant, sold a Hamilton-based carpet cleaning business known as A1 Cleaning Services (A1) to a Mr  and  Mrs  Holden  for  $282,500.    The  Holdens  purchased  A1  through  the respondent company.   The parties entered their agreement on 4 March 2010 and settled on 15 March 2010.  The main assets of the business were its multiple fixed- term  and  open-term  cleaning  contracts  with  a  number  of  large  businesses  in Hamilton.  Under the agreement the intangible assets of A1 – namely, the cleaning contracts and the rest of A1’s inherent goodwill – was valued at $261,300.

[3]      Shortly after the settlement date A1 lost two major client contracts  with Bettle Advertising and WEL Networks.  Those contracts, worth a total of $7,267.75 per month, constituted 23 per cent of the represented monthly turnover of $31,008. At trial, the respondent successfully proved that the appellants failed to provide all relevant information (such as the fact Bettle Advertising had complained about the service provided by A1 and that WEL Networks had indicated it intended to put its

contract up for review) in breach of its obligations under the contract.2

[4]      On appeal Wylie J made an additional finding that Mrs Spooner’s conduct,

examined objectively, was misleading and deceptive.  He remitted the matter of the appropriate quantum of damages back for determination at the District Court.3

1      Spooner Commercial Limited v A1 Commercial Services Limited [2014] NZHC 2911.

2      A1 Commercial Services Limited v Spooner Commercial Limited DC Hamilton CIV-2011-019-

1039, 10 August 2012.

3      A1 Commercial Services Limited v Spooner Commercial Limited [2012] NZHC 796.

[5]     At the District Court Judge Spiller adopted the revenue-based approach advocated by the respondent’s expert witness, Mr Dobson, who replaced the respondent’s preceding witness, Mr Fieldes.   He set damages at $50,114.00, being the loss  in  the value of A1’s  goodwill.4      In  doing so  he  rejected the  evidence provided by the appellants’ expert witness, Mr Braithwaite.

[6]      On  appeal  I  considered  that  sum  overstated  the  loss  suffered  by  the respondent.5   It did not, for example, factor in the likelihood that the contracts would have been terminated anyway, nor the likelihood that they would have continued. Overall I preferred Mr Braithwaite’s evidence, subject to a number of adjustments and  consideration  of  not  only what  was  the  right  method,  but  the  right  result. Mr Dobson’s evidence, in contrast, calculated damages at the wrong time and did not adequately respond to the criticisms put to Mr Fieldes’ evidence by Wylie J on appeal.    I  concluded  that  the  market  value  of  the  business  was  no  more  than

$250,000 at the time of contract.  That calculation valued A1’s loss at $32,500.  This award fell in between the appellants’ and respondent’s submissions as to the correct assessment of loss, being $16,770.53 and $50,114.00 respectively.

Costs on the appeal

[7]      The appellants’ position is that they were the successful parties on appeal and costs should follow the event.  They seek costs on a 2B basis plus disbursements, a total of $12,921.6

[8]      The respondent submits the appellants were only partially successful, and therefore costs should lie where they fall.   In further submissions the appellants accept that they were only partially successful, but that does not necessarily mean r 14.2(a)  of  the  High  Court  Rules  has  no  application.    That  is  because  the respondent’s main submission was that this Court should not disturb the District Court’s finding that Mr Dobson’s assessment of loss was preferable.  The appellants

claim this means the respondent had no success at all.

4      A1 Commercial Services Limited v Spooner Commercial Limited DC Hamilton CIV-2011-019-

1039, 12 May 2014.

5      Spooner Commercial Limited v A1 Commercial Services Limited, above n 1.

6      It is notable that the appellants’ costs on appeal equate to a significant portion of the reduction in

liability they ultimately received ($17,614).

[9]      In my assessment it is clear the appellants were only partially successful on appeal.   The appellants were successful in the sense that it was accepted by this Court  that  Mr  Braithwaite’s  approach  gave  a  better  approximation  of  the  loss suffered by the respondent, somewhat because Mr Dobson’s assessment did not adequately respond to the difficulties identified by Wylie J in Mr Fieldes’ evidence. However, this Court also accepted that what was important was not the right method, but  what  is  the  right  result.    Here  I  rejected  the  appellants’  submission  that

$16,770.53 was sufficient to make right the loss of business suffered by the respondent.    Rather, in my assessment that claim clearly undervalued the respondent’s loss by a considerable margin, being just over half the substantive result I reached in fixing damages at $32,500.

[10]     From that general position it is incorrect to surmise the respondent had no success at all in the proceeding, as is submitted by the appellants.  That is to put the matter too forcefully.   The respondent received an award of $32,500 in damages, which is in fairness a third less than that received in the District Court, but almost double the quantum sought by the appellants on appeal.  In those circumstances I do not consider the respondent had no success, and since each party had some degree of success there is good reason to depart from the general principle that costs should follow the event.  In order to do justice to both sides, and bearing in mind that in a quantum case it is the substantive result reached that matters most, I consider costs should lie where they fall.

District Court costs

[11]     In my substantive judgment I acquiesced to the appellants’ request that the District Court costs should be determined by this Court in light of its determination of the matter.

[12]     The  appellants  accept  the  respondent  is  entitled  to  costs  in  relation  to obtaining the finding of liability.  That entitlement totals $9,190 plus disbursements of $1,204.10.

[13]     However, the appellants submit that costs in relation to the quantum hearing should be neutral, that they should be entitled to recover Mr Braithwaite’s costs in

relation to that hearing, and the respondent should not be entitled to recover any

contribution to Mr Dobson’s costs.

[14]     The respondent argues that given this Court’s findings it would have been entitled to costs in the District Court for the quantum hearing.   That this Court rejected Mr Dobson’s methodology and only partially accepted Mr Braithwaite’s is not determinative of the issue of whether or not the respondent was successful. Rather the respondent was successful, having been awarded damages in the sum of

$32,500.

[15]     I agree with the appellants that the evidence adduced by the respondent did not adequately respond to the criticisms made by Wylie J on appeal.  Mr Dobson’s approach proceeded to seek damages in the quantum hearing using the exact same methodology as that originally provided by Mr Fieldes.  In light of that abject failure the respondent rightly accepts that it would be inappropriate for it to be awarded Mr Dobson’s fees for that hearing.  There is to be no contribution by the appellants to Mr Dobson’s costs.

[16]     Having regard to the District Court judgment in light of my judgment, the respondent can be considered the successful party.  However, it is fair to say that it would have been only partially successful, having argued that it was entitled to

$50,114, but ultimately in receipt of only $32,500 in costs, based on the evidence of the appellants’ expert witness, Mr Braithwaite, and not Mr Dobson.  The quantum hearing was also partially necessitated due to the problems in the evidence put forward by the respondent through Mr Fieldes, meaning Wylie J had no footing on which to adequately grant costs.   Mr Dobson perpetuated this problem by not addressing on appeal the criticisms put to Mr Fieldes’ evidence by Wylie J.

[17]     Taking  those  factors  into  consideration  I consider  costs  for  the  quantum hearing should lie where they fall.

[18]     The    appellants    request    a    contribution    from    the    respondent    for Mr Braithwaite’s costs at the quantum hearing.  Although I would normally consider Mr Braithwaite’s and Mr Dobson’s costs should also lie where they fall, following

the result reached, in this case I consider Mr Dobson’s failure to adequately respond to the criticism put to Mr Fieldes’ approach as important.   On appeal, I rejected Mr Dobson’s  approach  as  based  on  the  incorrect  premise  that  costs  should  be determined at the time of judgment, rather than at the time of contract.  Although I considered  the  inputs  mooted  by  Mr  Braithwaite  in  his  methodology  were  not entirely correct, his approach was the only method left available to this Court for calculating quantum, and in light of Wylie J’s judgment it was the right method to employ.  It was evidence both necessary and specific to the conduct of the quantum hearing and ultimately accepted by this Court.

[19]     In those circumstances I consider that the appellants are entitled to recover a half portion of Mr Braithwaite’s costs that were incurred in respect to the quantum hearing.    His  costs  for  that  hearing  amount  to  $4180.25.    Given  the  depth  of Mr Braithwaite’s evidence I accept a third portion of his costs incurred at the first hearing fairly represents time that would have been spent familiarising himself with the file if he did not have the necessary background.  The total costs are $5,478.37.  I consider the appellants are entitled to recover half that sum, namely $2,739.185, from the respondent.

Result

[20]     Costs on the appeal (CIV-2014-419-234) are to lie where they fall.

[21] Costs on the liability hearing (CIV-2011-019-1039) are to be awarded to the respondent on the basis set out at [12] above.

[22]     Costs on the quantum hearing (CIV-2011-019-1039) are to lie where they fall. The respondent is to contribute $2,739.185 to the appellants for Mr Braithwaite’s costs.

……………………………….

Woolford J