Svitzer Salvage BV v Z Energy Limited

[2014] NZHC 731

IN THE HIGH COURT OF NEW ZEALAND IN ADMIRALTY

WELLINGTON REGISTRY

CIV-2012-485-452 [2014] NZHC 731

IN THE MATTER

of an admiralty action in personam

BETWEEN

SVITZER SALVAGE BV Plaintiff

AND

Z ENERGY LIMITED First Defendant

SEAFUELS LIMITED Second Defendant

On the papers
Counsel:	L J Taylor QC and J B Orpin for the Plaintiff R Gordon for the First Defendant C R Carruthers QC and P Barratt for the Second Defendant
Judgment:	9 April 2014

JUDGMENT OF GODDARD J AS TO COSTS

This judgment was delivered by me on 9 April 2014 at 3.00 pm, pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:

Izard Weston, Wellington for Plaintiff

Minter Ellison Rudd Watts, Wellington for First Defendant

Jones Fee, Auckland for Second Defendant

SVITZER SALVAGE BV v Z ENERGY LIMITED [2014] NZHC 731 [9 April 2014]

Introduction

[1]     This decision relates to costs following the substantive judgment.   The background is briefly set out.

[2]      The  plaintiff,  Svitzer  Salvage  BV (Svitzer),  was  appointed  salvor  of  the wrecked ship Rena, which ran aground on Astrolabe Reef on 5 October 2011.  As part of the salvage operation, Svitzer sought to hire a bunker tanker to remove fuel and oil from Rena.  The only suitable vessel was the Awanuia, which was owned by the second defendant, Seafuels Ltd (Seafuels) and which, at that time, was on a long term  exclusive  charter  to  the  first  defendant,  Z  Energy  Ltd  (Z  Energy).    With Z Energy’s permission, Svitzer entered into a short term contract with Seafuels for the use of Awanuia.  Svitzer entered into this contract under protest, saying that its terms and conditions were unreasonable.  Ultimately, Awanuia was hired by Svitzer for 43 days.  Svitzer refused to pay some of the amount charged by Seafuels, and sought to have the contract set aside and its terms recast.

[3]      Seafuels applied for strike out and summary judgment in relation to Svitzer’s application and Z Energy applied to be removed as a party under r 4.56 of the High Court Rules.  In a judgment issued on 20 July 2012, Gendall AJ (as he then was) declined both actions.  Seafuels and Z Energy applied for review and filed an appeal against Gendall AJ’s refusal to grant summary judgment.  On 19 September

2012, Svitzer filed an amended statement of claim in which the original two causes of action were recast as three causes of action.  Z Energy was granted leave to file an application for summary judgment in relation to the amended statement of claim.

[4]      In a decision released on 20 December 2013, I granted Z Energy’s application

for summary judgment and directed that Z Energy was entitled to costs.

[5]       Z Energy now seeks increased costs calculated on a 2C basis, with an uplift of 50 per cent.  The parties are agreed that the proceeding is properly categorised as category 2. The remaining issues are:

(a)       whether a band C allocation is appropriate; and

(b)      whether an award of increased costs is appropriate.

Issue 1: Banding

Law

[6]      McGechan on Procedure provides the following guidance:1

Awarding 2B costs for all steps in a case is unobjectionable, because it reflects an average case requiring a normal amount of time for every step. But otherwise, a blanket assessment for banding is not desirable, nor even possible under the Rules.

[7]      If a party seeks other than band B, as is the case here, that party must demonstrate why a normal amount of time for the particular step is insufficient.2

The competing arguments

[8]     Z Energy has submitted that band C is appropriate on the basis of a comparatively large amount of time having been reasonably required for each particular step because:3

(a)      the  case  involved  three  quite  different  (and  in  some  cases  novel)

causes of action against Z;

(b)      Svitzer made ‘blanket’ allegations against both defendants;

(c)       the  hearing  stages  of  the  case  leading  up  to  summary  judgment occupied over a year;

(d)      the summary judgment hearing took two and a quarter days; and

(e)      Svitzer’s  written  submissions  in  opposition  to  the  interlocutory

applications from both Seafuels and Z Energy were 44 pages.

1      McGechan on Procedure (online looseleaf ed, Brookers) at [HR14.5.01].

2      Paper Reclaim Ltd v Aotearoa International Ltd [2007] NZCA 544, 18 PRNZ 743 at [35].

3      High Court Rules, r 14.5.

[9]      Svitzer has made two submissions in response.  The first is that Z Energy has failed to discharge its burden of showing why a band C time allocation is appropriate in relation to each individual step in this proceeding.  Z Energy has identified only generic features of the proceeding as a whole, and none of the features identified are unusual for 2B proceedings, which often involve multiple causes of action, more than one defendant, multi-day hearings and a period of delay between the application for summary judgment and the hearing.   With regard to the length of Svitzer’s submissions, it is said that only the final 14 pages related to Z Energy and, in any event, the length of a plaintiff’s submissions is not a reliable indicator of the amount of time was reasonably required for a defendant to complete all other steps in the proceeding.

[10]     Second,  Svitzer  has  provided  its  own  analysis  as  to  why  band  B  is appropriate for each individual step in the proceeding.

Discussion

[11]     I am not persuaded that the generic features put forward by Z Energy provide a sufficient basis to order band C.  The Court of Appeal was clear in Paper Reclaim Ltd v Aotearoa International Ltd that a party seeking band C is required to demonstrate why a normal amount of time for each particular step is insufficient. Z Energy has not done this.

[12]     In any event, the itemised analysis provided by Svitzer demonstrates that band B allocation is appropriate for each of the steps in this proceeding.

Issue 2: Increased costs

Law

[13]     As the party seeking an award of increased costs, Z Energy has the onus of showing that an award of increased costs is justified.4     Increased costs may be awarded under r 14.6(3)(b) if the party opposing costs has contributed unnecessarily

to the time or expense of the proceeding, including by:

4      Heslop v Cousins HC Christchurch CIV-2005-409-2833, 6 August 2007 at [9].

(a)       taking or pursuing an unnecessary step or an argument that lacks merit; or

(b)      failing, without reasonable justification, to accept a legal argument.

[14]     In Bradbury v Westpac Banking Corporation the Court of Appeal held that an award of increased costs may be made if there has been a “failure by the paying party to act reasonably”.5    In Commissioner of Inland Revenue v Chesterfields the Court held that it is only to the extent that the failure to act reasonably contributes to the time or expense of a proceeding that an uplift from scale is justified.  It follows that in order to receive an uplift from scale, Z Energy must show that:

(a)       Svitzer has failed to act reasonably; and

(b)      that failure contributed to the time or expense of the proceeding.

[15]     Where grounds for an award of increased costs are made out, an uplift of greater than 50 per cent is unlikely. That is because scale costs represent two-thirds of the daily recovery rate that is considered reasonable.  An uplift of 50 per cent therefore gives 100 per cent of what the rules have determined is reasonable for costs

purposes.6

The competing arguments

[16]     Z Energy is seeking an award of increased costs on three grounds.   First, because it was not necessary for it to have been joined as a party to the proceeding. If Svitzer’s case were successful against Seafuels, it would be entitled to full relief without the need for any recourse against Z Energy.

[17]     Second, the duress claim lacked merit.   The alleged implied threat said to have occurred on 13 October 2011 was four days after Svitzer had agreed to the

terms of the contract with Seafuels.

5      Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [27(b)].

6      Holdfast New Zealand Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [45]–[48].

[18]     Third, Svitzer was “never going to be out of pocket” because under SCOPIC,

the greater the costs incurred, the greater the financial return to it as salvor.

[19]     In  response,  Svitzer  says  first  that  it  joined  Z  Energy as  a  party to  the proceedings on the basis of its view that Z Energy’s rights and liabilities might be directly affected by the proceeding.7    Gendall AJ adopted this view in declining to remove Z Energy as a party to the proceeding, finding that Z Energy’s presence was necessary to justly determine all of the issues in the proceeding.  Svitzer says this judgment endorsed its decision to join Z Energy.  It cannot therefore be the case that joining Z Energy amounted to a failure to act reasonably or an unnecessary step warranting an award of increased costs.

[20]     Second, Svitzer says that its duress claim against Z Energy did not lack substantive merit.  It had a sound legal basis supported by English authority.  It also does not accept that the claim must necessarily have failed because the alleged implied threat was made on 13 October 2011.  That is because the contract was not actually signed until after 13 October.   If the implied threat were established, it would have been open to the Court to conclude that Z Energy had played a causative part in Svitzer’s decision to sign the contract.

[21]     Third, Svitzer says that its SCOPIC rights are not relevant to the assessment of costs.  Those rights do not make it unreasonable to bring proceedings in respect of the costs of the salvage operation.  If that were the case, it would allow salvors with SCOPIC rights to be exploited.  In any event, Svitzer is only entitled to remuneration for costs “reasonably incurred” at a “fair rate”.  Accordingly, there was no guarantee that Svitzer would never be out of pocket for costs incurred by it during the salvage operation.

Discussion

[22]     There is some force in Z Energy’s submission that it should never have been joined as a party to the proceeding.  On the other hand, it is difficult to conclude that

Svitzer  failed  to  act  reasonably  after  this  Court  initially  rejected  Z  Energy’s

7      Relying on the Privy Council’s judgment in Penang Mining Co Ltd v Choong Sam [1969] UKPC 16.

application to be removed as a party.  On that basis, I do not consider an award of increased costs is appropriate in this case.

Result

[23]     Z Energy has provided a schedule of costs.  Svitzer is ordered to pay costs to

Z Energy on a 2B basis for each of the steps in that schedule.

Goddard J