Sze v Fletcher Residents Limited Trading as Fyfe Homes HC Auckland CIV 2006-404-006731

[2008] NZHC 2422

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2006-404-006731

BETWEEN  KING FEI SZE Plaintiff

ANDFLETCHER RESIDENTIAL LIMITED TRADING AS FYFE HOMES

First Defendant

ANDPHILLIPS FOX Second Defendant

Hearing:         by Memoranda

Counsel:         K G Davenport for Plaintiff

K A Muir for Second Defendant

Judgment:      28 July 2008 at 2:30pm

COSTS JUDGMENT OF ASSOCIATE JUDGE ABBOTT

This judgment was delivered by me on 28 July 2008 at 2:30pm pursuant to Rule 540(4) of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:

Sellars & Co, PO Box 8, Wellsford for the Plaintiff

Morgan Coakle, PO Box 114, Auckland for the Defendant

KING FEI SZE V FLETCHER RESIDENTIAL LIMITED TRADING AS FYFE HOMES AND ANOR HC AK CIV 2006-404-006731 28 July 2008

[1]      The second defendant (Phillips Fox) applies for cost following the plaintiff’s claim against it being struck out.   Indemnity costs of $25,486 are sought on the ground that offers were made throughout the proceeding to let costs lie where they fall if the claim was withdrawn.  Those offers were made without prejudice to costs.

[2]      The plaintiff (Ms Sze) opposes indemnity costs on the grounds that it was reasonable to argue the strike out application.  She accepts that costs on a 2B basis are payable.   She contends that costs on a 2B scale amount to $11,960 as against

$12,880 calculated by Phillips Fox.

Background

[3]      This proceeding involves a claim for damages in respect of a property which Ms Sze had built for her in 1996.  When Ms Sze came to sell the property, she found that a code compliance certificate had not been issued, and extensive work is now required to obtain one.  Ms Sze has sued the builder (as first defendant) and Phillips Fox who were acting for her at the time that she took possession of the property.

[4]      Phillips Fox successfully applied to strike out the claim against it, after Ms Sze had twice amended the claim to address limitation issues.  In giving judgment I indicated that Phillips Fox was entitled to costs on a 2B basis, but reserved the right to apply if agreement could not be reached on quantum.   Phillips Fox has now applied  for  indemnity costs  on  the  grounds  that  immediately  after  issue  of  the proceeding, and on three further occasions up until the time that it commenced preparation for the strike out application, it offered to let costs lie where they fall if Ms Sze withdrew her claim against it.   Those offers were made without prejudice save as to costs.

Principles

[5]      The starting point with respect to all issues as to costs is that they are at the discretion of the Court:  Rule 46 High Court Rules.

[6]      The  Rules  make  provision  for  settlement  offers  made  without  prejudice except as to costs in Rules 48G and 48GA.

[7]      Rule 48 G reads:

48G     Written offers without prejudice except as to costs

(1)A party to a proceeding may at any time make to any other party to the proceeding a written offer that—

(a)       is expressly stated to be without prejudice except as to costs;

and

(b)       relates to an issue in the proceeding.

(2)The fact that the offer has been made must not be communicated to the Court until the question of costs is to be decided.

48GA  Effect on costs

(1)The effect (if any) that the making of an offer under rule 48G has on the question of costs is at the discretion of the Court.

(2)      Subclauses (4) and (5)—

(a)       apply subject to subclause (1); and

(b)       do not limit rules 48C or 48D.

(3)Subclauses (4) and (5) apply to an offer made under rule 48G by a party to a proceeding (party A) to another party to the proceeding (party B).

(4)      If party A—

(a)offers a sum of money to party B that exceeds the amount of a judgment obtained by party B against party A; or

(b)makes an offer that  would  have  been  more  beneficial to party B than the judgment obtained by party B against party A,—

the principle to be applied in determining costs is that party A is entitled to costs on the steps taken in the proceeding after the offer is made.

(5)If an offer made by party A does not fall within paragraph (a) or paragraph (b) of subclause (4), but is close to the value or benefit of the judgment obtained by party B, the principle to be applied in determining costs is that the offer may to be taken into account.”

[8]      Rule 48GA (1) confirms that the effect of any offer under Rule 48G is at the discretion  of  the  Court.    The  rest  of  that  Rule  is  not  relevant  to  the  present application.

[9]      A Rule 48G offer does not stand alone.  All surrounding circumstances must be  considered:    McDonald  v  FAI  (NZ)  General  Insurance  Co  Limited  (2002)

16 PRNZ 298; Li v Choi, HC Akl CIV 2006-404-5230, 15 December 2006, Keane J;

McGechan on Procedure HR 48GA.01.

Discussion

[10]     Phillips Fox made its first offer on 1 December 2006.  At that stage it had incurred only $1,400 in costs, and was still to file its statement of defence.  It invited withdrawal of the claim on the grounds that it was statute barred.   Three further offers were made on 23 January 2007 (after Ms Sze filed her first amended statement of claim), 3 May 2007 (after the Supreme Court issued its decision Murray v Morrell

& Co Ltd [2007] NZSC 27 ruling out any general principle of reasonable discoverability), and finally on 4 September 2007 (by which time Ms Sze had filed her second amended statement of claim and Phillips Fox had filed its application to strike out but had still to prepare fully for it). At 4 September 2007 Phillips Fox’s costs were only $10,847.

[11]     Phillips Fox says that indemnity costs are warranted on the basis that it gave Ms Sze full details of the grounds on which it said that the claim could not succeed (including authorities relied upon), the offers to settle were made early and with ample  time  for  them  to  be  considered,  none  of  the  causes  of  action  ultimately pleaded was successful, and the application for strike out should not have been necessary.

[12]     Counsel for Ms Sze submits that although her client was unsuccessful, it was not unreasonable for Ms Sze to argue the various points, and she had responded to each of Phillips Fox’s offers explaining why the offers were not being accepted (essentially foreshadowing the arguments presented at the hearing of the application for strike out).

[13]     There is no question over the fact that I can, and should, take the offers into account.  They meet the various requirements of Rule 48G.  They were in writing, the basis for them was clear, they were made well before the strike out application, and Ms Sze had more than a reasonable time to consider them:   Health Waikato Limited v Van Der Sluis (1997) 10 PRNZ 514 (CA).

[14]     I accept that limitation issues in construction cases can be difficult, and that although unsuccessful, Ms Sze’s arguments on the limitation points were capable of argument.  It was not necessarily a hopeless case at the outset.  I do not take the same view of the claims advanced in mistake or for breach of fiduciary duty, but that is not where the real dispute between the parties lay.   By the time of the fourth offer (4 September 2007), however, Ms Sze had the benefit of the decisions in Davys Burton v Thom [2007] NZCA 215 and Murray v Morrell & Co Ltd and full details of Phillips  Fox’s  opposing arguments.    In  light  of  that  I must  give  weight  to  the settlement offer.  Ms Sze ought to have appreciated, at that point, that her prospects of success were low.

[15]     Weighing all of these factors I consider that a fair result is achieved by applying rr 48C (3)(b)(ii) and (iii) and allowing an increase of 50% on the 2B scale costs.

[16]     Phillips Fox has claimed costs for preparing a request for further particulars by analogy to preparation of an interlocutory application.  That was a relatively brief document, and did not involve drafting of an affidavit.  I accept the submission for Ms Sze that that should be calculated by analogy to preparation of a memorandum (item 4.10 in schedule 3).  Phillips Fox also claim an appearance for second counsel. I do not accept that that is justified.  In all other respects I accept the schedule of 2B costs attached to the memorandum of counsel for Phillips Fox.  The net effect is 2B costs totalling $12,000 (the sum of $12,880 set out in the schedule less $880 for the items that I have not allowed).

Decision

[17]     Phillips Fox is entitled to costs in the sum of $18,000, being costs of $12,000 on a 2B basis increased by 50% pursuant to r 48C(3)(ii) and (iii).

Associate Judge Abbott