Taranaki Galvanisers Limited v Udderfield Limited
[2018] NZCA 297
•7 August 2018 at 4.00 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA739/2017 [2018] NZCA 297 |
| BETWEEN | TARANAKI GALVANISERS LIMITED |
| AND | UDDERFIELD LIMITED |
| AND | JOHN CHAPMAN |
| AND | MIKE CHILDS BUILDERS LIMITED |
| AND | J D ENGINEERING LIMITED |
| Hearing: | 25 June 2018 |
Court: | Williams, Simon France and Wylie JJ |
Counsel: | P J Mooney for Appellant |
Judgment: | 7 August 2018 at 4.00 pm |
JUDGMENT OF THE COURT
AThe appeal is allowed in part. The first respondent is to pay the appellant’s costs in the High Court. There is no change to the orders made in relation to the third parties.
BThe first respondent must pay the appellant’s costs for a standard appeal on a band A basis together with usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by Simon France J)
This is an appeal against a costs ruling.[1]
Facts
[1]Udderfield Ltd v Taranaki Galvanisers Ltd [2017] NZHC 3019.
Udderfield Ltd (Udderfield) had a cowshed constructed, it believed, in 2007. In 2014 there were signs the steel framing was failing due to rust deterioration. The steel had been supplied by J D Engineering, galvanised (it seemed) by Taranaki Galvanisers Ltd (Galvanisers) and installed by Mike Childs Builders Ltd.
An on‑site meeting of the interested parties was held in 2014 when the problem emerged. Galvanisers attended. Galvanisers believed the problem was a lack of drainage holes which, if so, would be attributable to J D Engineering, or whoever directed them to prepare the steel in that way. The discussions continued with no resolution. Eventually Udderfield obtained an engineering report which laid the blame on the galvanising work (not the lack of drainage holes).
Udderfield sued Galvanisers. It pleaded the shed was constructed in March to June 2007. It pleaded the defects identified in its building report and alleged negligence in the galvanising work.
Galvanisers filed a statement of defence. It pleaded it was unsure about the month of construction but went on to plead facts about the job. It said it had raised at the time the need for drainage holes but had been told to carry on and galvanise what it had been given. This it did. It pleaded its contractual relationship was with J D Engineering and it owed no duty of care to Udderfield.
Galvanisers then added as third parties the designer, steel supplier, builder, and insurance company.
Galvanisers were the wrong defendant
When Galvanisers were first contacted in 2014, they were not immediately able to recognise the particular 2007 job. This in part reflects the nature of their work. They receive the steel, galvanise it, and return it to the supplier. They are not otherwise part of the overall building enterprise. However, Galvanisers recalled a 2008 occasion where they had galvanised steel for a cowshed at the request of J D Engineering where this rusting problem due to inadequate drainage had arisen. Galvanisers formed the view that Udderfield had its dates wrong, and concluded the complaint related to this 2008 job. Galvanisers therefore participated in the discussions from 2014 onwards in the belief it was its work under challenge, and as noted filed a statement of defence.
As it transpires, invoices were subsequently located that showed the galvanising work was done in mid‑2006. This is significant for two reasons:
(a)Galvanisers did not exist then. There was a predecessor, Taranaki Galvanisers (2003) Ltd, which also did galvanising work for J D Engineering, but Galvanisers was only incorporated in September 2006.[2] It cannot have done the work. Advised of this, Udderfield discontinued.
(b)The statement of claim was filed in March 2017. Mr Knowles, the farmer behind Udderfield, remains adamant the shed was built in 2007, as pleaded. Whatever the case as regards that, it is common ground the galvanising work was done in 2006. Section 393 of the Building Act 2004 (a 10 year limitation provision) means Udderfield was too late, regardless of who it sued.
[2]Taranaki Galvanisers (2003) Ltd had been wound up in 2007.
The issue of costs on the discontinuance was referred to the High Court for decision.
Decision under appeal
Associate Judge Matthews noted that r 15.23 of the High Court Rules 2016 governed the matter.[3] It provides:
15.23 Costs
Unless the defendant otherwise agrees or the court otherwise orders, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance.
This presumption may be displaced when it is just and equitable to do so. The Associate Judge accordingly reviewed the unusual facts to determine if departure was appropriate.
[3]Udderfield Ltd v Taranaki Galvanisers Ltd, above n 1, at [5] and [17].
His Honour noted there was fault on both sides.[4] Each of Udderfield and Galvanisers had failed to make the inquiries it could have to clear up the error.[5] The failures had persisted for three years since the matter was first raised and it was appropriate that each bore their own costs.[6]
[4]At [11].
[5]At [11]–[13].
[6]At [15].
As regards the third parties, Associate Judge Matthews noted it was also surprising none of them had found out when the work was actually done.[7] However, they were all added to the proceedings as a result of the same errors being made by Udderfield and Galvanisers.[8] It was noted that the effect of r 15.23 was that in the normal course of events, Galvanisers, as the party joining the third parties, could expect to pay.[9]
[7]At [16].
[8]At [16].
[9]At [18].
Associate Judge Matthews accepted that Udderfield could not have been expected to sue the third parties, as it had identified the cause of the defect and was specific in its litigation target.[10] However, its core error was still an operative factor in the third parties being joined and so it should meet some of the costs.[11] Udderfield was required to meet one‑third of the third parties’ costs, with Galvanisers meeting the rest.[12]
[10]At [18].
[11]At [19].
[12]At [20].
Galvanisers appeals both aspects. It contends that the presumption was wrongly displaced and it should have had its costs from the discontinuing party in the normal way. As regards the third parties, it contends the nature of Udderfield’s error (wrong defendant) and the futility of the proceeding (outside the limitation period) means Udderfield should have met all those costs.
We proceed to our decision. The submissions of the parties are reflected in it to the extent necessary.
Decision
This is an appeal from the exercise of a discretion.[13] However, we note in this case the Associate Judge was in no better position than we are, and the issue was governed by a firm presumption. In Yarrall v Earthquake Commission this Court recently noted:[14]
[12] … Rule 15.23 imposes an obligation on a plaintiff who discontinues a proceeding to pay the defendant’s costs, unless the defendant agrees or the court orders otherwise. This Court has recognised the discretion to order “otherwise” may be exercised where it is “just and equitable”.[15] The onus is on the discontinuing plaintiff to persuade the court to exercise that discretion.[16] The presumption is not lightly displaced.[17]
[13]High Court Rules 2016, r 14.1.
[14]Yarrall v Earthquake Commission [2016] NZCA 517, (2016) 23 PRNZ 765.
[15]Kroma Colour Prints Ltd v Tridonicatco NZ Ltd [2008] NZCA 150, (2008) 18 PRNZ 973 at [12] and [29].
[16]Powell v Hally Labels Ltd [2014] NZCA 572 at [21]; and Earthquake Commission v Whiting [2015] NZCA 144, (2015) 23 PRNZ 411 at [68].
[17]Powell v Hally Labels Ltd, above n 16, at [20].
Against that background we consider the Associate Judge erred in his conclusion that the presumption had been displaced. The matters relied on by Udderfield are all matters where it is said Galvanisers could have made inquiries in order to reveal the fundamental mistake Udderfield was making in failing to itself check it was suing the correct defendant.
We agree that one can identify steps that could have been taken by either party to bring the mistake to light earlier. However, Galvanisers did not induce the error, and comparing levels of fault is not necessary. Nothing attributed to Galvanisers, in our view, displaces the presumption that the discontinuing party pays the costs. The stark reality is that Udderfield has sued an entity that did not do the impugned work and indeed did not exist at the time the work was done. We also place weight on the reality that now the correct date is known, the proceedings were out of time from the outset.[18]
[18]Building Act 2004, s 393.
The fundamental responsibility on a plaintiff is to plead the facts that establish the liability of the defendant. Here, Udderfield initiated proceedings on the basis of a report that said the galvanising work was at fault. However, the pleadings do not identify the date on which this work was done, talking instead about construction of the cowshed generally. This failure to focus on when what is said to have been the negligent work was done has proved important. A check of Galvanisers’ public records would have revealed its date of incorporation and alerted Udderfield to the importance of identifying the time that work was done. That has proved a crucial oversight since discovery of the actual date of the galvanising work has disclosed two key defects — the wrong defendant and a limitation problem.
In these circumstances, we consider the standard rule under r 15.23 properly applies, and it was a clear error to find the presumption displaced. We accordingly allow this aspect of the appeal and make an order that in the High Court Udderfield is responsible for Galvanisers’ costs. We note from the memoranda filed in the High Court that Galvanisers’ actual costs are less than scale costs. Unless there is an issue as to reasonableness, Galvanisers is entitled to its actual costs and disbursements.
We turn next to the third parties. It is common ground that they are entitled to their costs. Also, the logic of the previous discussion is that, pursuant to r 15.23, Galvanisers is responsible. Udderfield’s discontinuance did not bring these proceedings to an end,[19] so Galvanisers has discontinued as regards the third parties.
[19]High Court Rules, r 15.25.
However, there is authority to say that unless the third party joinder was unnecessary or improper, the unsuccessful plaintiff should ordinarily meet these costs. In Shirley v Wairarapa District Health Board, the Supreme Court endorsed this statement from Money World NZ 2000 Ltd v KVB Kunlun NZ Ltd:[20]
[33] … a successful defendant should only be called on to meet a third party’s costs if the joinder was unnecessary or was for some other reason unjustified.
[20]Shirley v Wairarapa District Health Board [2006] NZSC 63, [2006] 3 NZLR 523 at [22], citing Money World NZ 2000 Ltd v KVB Kunlun NZ Ltd HC Auckland CIV‑2003‑404‑2542, 23 September 2005.
To like effect, in Shirley the Court had observed:
[22] … We think it more likely that when, as here, a defendant has properly joined a third party and the plaintiff fails, the plaintiff would be ordered to pay the costs of both the defendant and the third party.
(footnotes omitted.)
It seems then that Udderfield should meet these costs unless the joinder of the third parties was improper or unnecessary. There is no suggestion it was improper. As for unnecessary, it very much depends on the lens through which one looks. If focusing on the third parties who were joined, these were the correct third parties. They were all actually involved with the project and were connected to the factual issue — the failing steel framework.
If, however, one goes back a step further, then it was unnecessary for the reasons discussed. Galvanisers was not the correct defendant and could have ascertained this with greater endeavour (as it subsequently did). Equally, however, the situation has come about because of Udderfield’s mistakes in suing, out of time, the wrong defendant.
Mr Mooney, for Galvanisers, suggested Galvanisers was under pressure because of potential limitation issues, but we do not accept that can be so. At the time of joining the third parties, in March 2017, Galvanisers believed the work had been done in 2008. On that reckoning, there was a year. Of more strength is the observation that the High Court Rules say a third party notice must be issued within 10 working days of the filing of the statement of defence,[21] but countering that is the reality that Galvanisers had been alerted to the issue in 2014.
[21]High Court Rules, r 4.4(2)(a).
This is an issue on which reasonable minds can differ. We do not consider the Associate Judge has made any error of principle and what is at issue is his assessment of whether joinder was unnecessary, and if so, the impact of that. That falls very much within the discretionary aspect of the costs regime, and we see no basis to interfere on appeal. This aspect of the appeal is dismissed.
Result
The appeal is allowed in part. Udderfield is to pay Galvanisers’s costs in the High Court.
There is no change to the orders made in relation to the third parties.
As regards this Court, Galvanisers has been successful on the major issue. Udderfield must pay Galvanisers costs for a standard appeal on a band A basis together with usual disbursements.
Solicitors:
Mooney & Webb, New Plymouth for Appellant
Quin Law, New Plymouth for First Respondent
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