Stockco Limited v Denize HC Auckland CIV-2010-404-5668

[2011] NZHC 814

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-5668

IN THE MATTER OF     the Companies Act 1993

BETWEEN  STOCKCO LIMITED Applicant

ANDJOHNATHAN PETER TAPLEN DENIZE Respondents

ANDBRONWYN MAY DENIZE Second Defendant

Hearing:         15 July 2011

Appearances: Mr M Morrison for Applicant

Ms K Dawson for Respondents

Judgment:      15 July 2011

ORAL JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE

Counsel:

Lowndes Jordan, Auckland – by email:  [email protected]

Ms Sandra Grant, Auckland – by email:  [email protected]

STOCKCO LIMITED V DENIZE & ANOR HC AK CIV-2010-404-5668 15 July 2011

[1]     The plaintiff sought summary judgment against the defendant and was successful.  The contract between the parties contained the following provision at cl

1.6 of the Livestock Agreement:

The Farmer indemnifies StockCo against any cost loss or liability or expense whatsoever incurred by StockCo as a result of the Farmer acting except in a strict accord with the authority hereby given.

[2]      The Court of Appeal considered that that provision was sufficiently wide to enable StockCo to recover the costs of Court proceedings to enforce the agreement against the covenantor (“the Farmer”) and the guarantors, the defendants.   I respectfully adopt that conclusion and will approach the application for costs on that footing.

[3]      The costs which are claimed relate to the summary judgment proceedings and an application for stay of judgment and suppression of defendants name in proceedings.   The total amount invoiced to the plaintiff is some $52,410.61; less GST that amounts to $45,417.23 and this is the sum sought to be recovered by the plaintiffs as costs in respect of the two proceedings.

[4]      Costs on an indemnity basis (as this would be referred to in the High Court Rules) are expressly authorised by r 14.6(4)(e).  This refers to the ability to recover costs on a indemnity or actual basis where the party claiming costs is entitled to indemnity costs under a contract or deed.  That is the case in fact which applies here.

[5] The position stated in the Rule accords with what the Court of Appeal had decided in its case of ANZ v Gibson1 which was decided before the promulgation of the current costs Rules.  In ANZ v Gibson the Court of Appeal stated that:2

The undertaking in the guarantee for payment of costs of enforcement on a solicitor/client basis is in my view an extending provision intended to entitle the bank to indemnity with respect to legal expenses properly incurred by it in relation to a recovery action under the guarantee. Clearly that contractual

1 [1986] 1 NZLR 556.

obligation is enforceable unless contrary to public policy and I am unable to see how this contractual arrangement could be said to impede the administration of justice or otherwise be contrary to any discernible public policy considerations. To state the point affirmatively, why should a lender be  out  of  pocket  as  a  result  of  a  failure  to  pay  when  the  parties  have expressly provided that he should be indemnified in the event of default by the other.

[6]      The next issue concerns how the Court approaches fixing the amount of any indemnity claim for costs.

[7]      I intend to be guided by the judgment of Fisher J sitting in the Court of

Appeal in the case of Frater Williams v Australian Guarantee Corporation.3

[8]      In that case the plaintiff sued for the costs of, inter alia, enforcing a rent review in a lease by court action. It based its claim to costs on a clause entitling it to do so.  Fisher J said:4

The Judge inadvertently referred to clause 14.8 rather than clause 2.8 but there is no reason to think that he overlooked the latter. He cited the decision of this Court in ANZ Banking Group (NZ) Limited v Gibson [1986) 1 NZLR

556 and went on to pose the relevant question in the following terms "what is a reasonable amount of costs to be awarded in respect of proper and

necessary  steps  to  resolve  this  issue?"  In  the  event  he  considered  that

conventional  party  and  party  costs  according  to  scale  were  appropriate having regard to the facts that AGC had been unsuccessful on its summary judgment application and that "some of the problems in this case are clearly attributable to the fact that some officers of the plaintiff had the misapprehension that the lease continued to be in force and effect after it had in fact expired".

I respectfully agree with the test posed by Robertson  J so long as it is understood that the word "reasonable" does not import a discretion in the usual sense. The ANZ Banking case supra established that 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-client costs, and whether any other principles drawn from the general law of contract would in whole or in part deny the claimant its prima facie right to judgment. These are all matters of objective assessment.

[9]      Then after referring to the former power of the Law Society to review a bill of costs referred to it for that purpose, Fisher J said:5

If the Court decides to assess the bill itself, there must be room for robust judgment as to the costs considered reasonable in all the circumstances (see, for example, National Bank of New Zealand Limited v Murland (1991] 3

NZLR 86, 100). However, this can not taken to mandate a discretionary approach akin to a Court's assessment of party and party costs. The object is

not to exercise a discretion but rather to assess whether the solicitor-client

costs sought are properly attributable to the exercise contemplated in the original contract and are charged for at a level which would be regarded as

acceptable in a costs revision under the Law Practitioners Act. If the result

happened to equate with party and party costs according to the scale in the

High Court Rules, this could be no more than a coincidence.

[10]     The Court’s power to assess the reasonableness an propriety of costs claimed under a contractual indemnity clause has also recently been confirmed by the Court of Appeal in Watson & Son Ltd v Active Manuka Honey Association.6

[11]     In this case the amount claimed is $45,417.23 (GST exclusive). The plaintiff also seeks costs on a 2B basis for the hearing of the costs application.

[12]     I am satisfied that based on the evidence which has been filed by the plaintiff that the costs claimed were actually incurred, they were properly attributable to the type of events which the parties contract contemplated would follow if there was a breach of contract – namely that proceedings would be taken in the High Court and expensive  litigation  would  follow.   The next  issue concerns whether  they were charged at what is an appropriate level as the parties went contracting must have contemplated.  Costs cannot be recovered for an extravagant prosecution of a legal claim or for time which was wasted.  The overall enquiry is whether the costs that are now sought when compared with the tasks undertaken, the result achieved and other factors were not out of the way from the perspective of the parties to the contract,  In my judgment the sum of $45,417.23 is not unreasonable when viewed in that light.  The plaintiffs had to pursue defendants, who although they had no legal merit whatsoever on their side, contrived to place obstructions in the plaintiff’s path. They must have known that the plaintiff’s legal costs would necessarily be augmented.   The steps that were taken by the plaintiff seem to me to have been

proportional and properly justified in the light of the circumstances with which they were confronted.  Further the evidence of the rates of charge out do not seem to be out of the way to me.  As well the overall result achieved having regard to what was at stake properly justify the amount which the plaintiff’s solicitors had charged it for the litigation.

[13]     I acknowledge that at an earlier stage in this proceeding I expressed a view that a costs award at the levels now sought (in fact it was somewhat higher) was too high.    That  statement  of  view  was  provisional  and  made  before  I  had  sighted evidence of the actual charges and how they were made up.  In the light of further material information and submissions which I have received I am satisfied that the charges are proper ones and I order the defendants to pay costs in the sum sought of

$45,417.23.

[14]     Costs on the hearing of the costs argument are to lie where they fall.

J.P. Doogue

Associate Judge