Thodey v Che Style Limited
[2021] NZHC 1323
•8 June 2021
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2019-409-000076
[2021] NZHC 1323
BETWEEN PETER LEONARD THODEY
First Plaintiff
AND
SUSAN ANNE THODEY
Second Plaintiff
AND
PETER LEONARD THODEY, SUSAN ANNE THODEY and TIMOTHY JOHN
THODEY as trustees of the PETER THODEY FAMILY TRUST
Third Plaintiffs
AND
SUSAN ANNE THODEY, PETER
LEONARD THODEY, TIMOTHY JOHN
THODEY as trustees of the HOLLICK FAMILY NO. 2 TRUST
Fourth PlaintiffsAND
CHE STILE LIMITED
First Defendant
AND
ADAM VAN ROEVAN
Second Defendant
AND
JOHN GAVIN CONSTRUCTION LIMITED
Third Defendant
AND
TONY HILL
First Third Party
AND
STYLISH TILES LIMITED
Second Third Party
AND
SUZANNE TURLEY LANDSCAPES LTD
Third Third Party
AND
SUZANNE DAWN TURLEY
Fourth Third Party
THODEY v CHE STILE LTD [2021] NZHC 1323 [8 June 2021]
AND SOUTHERN CROSS TILING LIMITED
Fifth Third Party
AND
ISAAC WINDSOR
Sixth Third Party
Hearing: On the papers Counsel:
D J S Parker and D A Fry for First and Second Defendants J Eckford for Third Defendant
K M Graham for First Third Party
Judgment:
8 June 2021
JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 8 June 2021 at 2.00 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Introduction
[1] The first and second defendants and the third defendant (the defendants) made claims against the first third party (Mr Hill) in this proceeding. They have now discontinued their claims.
[2] In reliance upon r 15.23 of the High Court Rules 2016, Mr Hill seeks an award of costs against the defendants.
[3] Primarily the defendants argue that no costs should be awarded as their claims had merit and Mr Hill has benefited from a settlement of the litigation in which the defendants absorbed their own costs to achieve finality.
Background
[4] The first and second named plaintiffs (the Thodeys) purchased a property in Queenstown in 2011 (the property). They entered into an agreement with the third defendant as head contractor, to build a house on the property. The house was built during 2013 and 2014. The first defendant was engaged by the third defendant to undertake exterior tiling at the property. The second defendant is a director of the first defendant.
[5] In 2018, the Thodeys became aware of defects in the exterior tiling at the property. They claimed the defects were caused by inadequacies in the workmanship in the laying of the substrate and the tiles.
[6] On 11 February 2019, the Thodeys filed a statement of claim against the defendants. They did not, and have never, sought relief from Mr Hill in this proceeding.
[7] The defendants joined a suite of third parties including Mr Hill. Broadly, it is alleged Mr Hill, acting in his personal capacity, was either the Thodeys’ representative or project manager for the tiling work and failed to perform his duties with proper care and skill. The defendants sought contribution from Mr Hill as either a joint or
concurrent tortfeasor. The first and second defendants also sought damages directly from Mr Hill on the basis he owed them a duty of care when carrying out the project management work. Mr Hill has, at all times, disputed these claims.
[8] On 20 May 2020, the first and second defendants’ solicitors wrote to Mr Hill’s solicitors on a without prejudice (save as to costs) basis, seeking a financial contribution from Mr Hill to meet the costs of remedial work proposed as part of a settlement of the litigation.
[9] On 29 June 2020, Mr Hill’s solicitors replied, declining to make a financial contribution. Mr Hill considered the proposed sum allocated to him to be arbitrary and excessive. Mr Hill’s position was there was no basis for the third party claims against him, and he invited the discontinuance of those claims. Mr Hill also sought a contribution to his legal costs.
[10] On 24 July 2020, the first and second defendants’ solicitors responded by email opposing Mr Hill’s claim for costs. They proposed to discontinue the claims against Mr Hill on the basis that costs lie where they fall. Mr Hill’s counsel responded by email that same day stating Mr Hill “has firmly instructed that he will not agree to a settlement without compensation for his costs.” The defendants could be under no misapprehension of Mr Hill’s position.
[11] In November 2020, a settlement was reached with contributions being made by the defendants, some of the third parties and a non-party. No additional details of the settlement have been provided to the Court. Mr Hill was not a party to the settlement and made no contribution to it.
[12] On 24 March 2021, a notice of discontinuance of the defendants’ claims against Mr Hill was filed. Mr Hill consented to the discontinuance but has maintained his entitlement to costs.
The law
[13]Rule 15.23 of the High Court Rules 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.
[14] Under r 4.7 a third or subsequent party has the same rights of defence as a defendant to the proceeding.
[15] All issues of costs are discretionary but must be exercised on a principled basis.1 Rule 15.23 creates a presumption in favour of awarding costs to a defendant against whom a proceeding has been discontinued. The presumption is designed to give a predictable outcome upon discontinuance. It avoids any requirement for the defendant to demonstrate the plaintiff acted unreasonably in filing and then discontinuing a proceeding.
[16] The presumption in r 15.23 may be displaced if, in the circumstances, it is just and equitable not to apply it. However, the discontinuing party cannot avoid the presumption by showing that at one point in the proceeding it had reasonable grounds to believe it would be successful.2 The Court’s general discretion in relation to costs can also override the presumption in r 15.23.3
[17] In FM Custodians Ltd v Pati, Associate Judge Abbott stated the principles governing the exercise of the discretion under r 15.23 as follows:4
(a)As the general rule the Court will not consider the merits of the respective cases (unless they are so obvious that they should influence the costs issue).
(b)The Court will consider the reasonableness of the stance of both parties in the proceeding (whether it was reasonable for the plaintiff
1 High Court Rule 2016, r 14.1.
2 Kroma Colour Prints Ltd v Tridonicatco NZ Ltd [2008] NZCA 150 at [12].
3 Janes v Benny [2019] NZHC 2719 at [14], citing Andrew Beck and others (eds) McGechan on Procedure (online ed, Thomson Reuters) at [HR15.23].
4 FM Custodians Ltd v Pati [2012] NZHC 1902 at [11] (footnotes omitted).
to bring and continue the proceeding, and for the defendant to oppose and continue to oppose it, up to the point of discontinuance).
(c)Conduct prior to the commencement of the proceeding may be relevant (for example, if any conduct by a defendant has precipitated the litigation), as may be the reason for discontinuing (for example, where a change of circumstances has made the proceedings unnecessary).
Submissions
Mr Hill
[18] Mr Hill’s position is that he ought never to have been made a party to the claim. He submits the presumption in r 15.23 should apply as there are no circumstances justifying a departure from it. He says since the July 2020 communication between lawyers he has been excluded from further settlement discussions. He seeks 2B scale costs of $30,831 plus disbursements of $1,619.80.
The defendants
[19] The defendants’ position is Mr Hill was not unreasonably joined as a party. They say he was engaged as a professional project manager for the tiling work at the property, failed in a number of aspects related to that role, and was acting in his personal capacity.
[20] They submit the other parties have acted reasonably in settling the litigation, absorbing their own costs and Mr Hill obtained a significant benefit, without having to make any contribution or input to a settlement.
[21] They are critical of Mr Hill’s refusal to co-operate with settlement. It is submitted this Court’s discretion should not be used to penalise those parties that have taken a pragmatic and reasonable approach to settlement, regardless of the respective merits of the claim.
[22] Overall, they argue it would be inequitable for Mr Hill to receive a contribution to his costs and costs should lie where they fall.
[23]They also argue Mr Hill’s claimed costs are excessive.
Discussion
[24] The starting point for consideration of the issues is r 15.23. Mr Hill is prima facie entitled to his costs, unless the Court otherwise orders. The issue is whether it is just and equitable to displace the presumption under the rule. The defendants bear the onus of establishing any such circumstances.5
[25] While the defendants advanced arguments concerning the merits of their claim against Mr Hill that does not take the matter very far. As noted the Court will not speculate on the respective strengths of the parties’ positions unless, exceptionally, the merits are so obvious that they should be taken into account.6 This is not such a case.
[26] The primary argument advanced by the defendants is that it would be unjust that Mr Hill take the benefit of a settlement of the litigation, represented in a saving in any further costs and the risks of the litigation, to which he made no contribution. They have referred me to a number of authorities.
[27] In Body Corporate 81381 v Trebe NZ Ltd (in liq) the plaintiffs wished to discontinue their claim against the first defendant, a company in liquidation.7 The liquidator of the first defendant sought costs upon the discontinuance. The plaintiffs were a body corporate and the owners of 33 residential apartments in a development that had weathertightness issues. The claim was commenced against the first defendant on 20 December 2001 but stayed when the defendant went into liquidation in September 2002. The plaintiff sought leave to continue the proceeding and leave was granted on 14 May 2003. The claim was settled at mediation in June 2003 but the first defendant took no part in the mediation, nor did it contribute to the settlement reached.
[28] The plaintiffs opposed the first defendant’s application for costs on several grounds including that the resurrection and discontinuance of the claim against the first defendant had caused no prejudice to the first defendant or to the creditors of the
5 Yarrall v Earthquake Commission [2016] NZCA 517 at [12].
6 North Shore City Council v Local Government Commission (1995) 9 PRNZ 182 (HC); Soulis v Wellington City Council HC Wellington CIV-2006-485-1164 12 November 2010 at [9].
7 Body Corporate 81381 v Trebe NZ Ltd (in liq) HC, Wellington CIV-2003-485-332, 10 September 2003.
company, but simply returned it to the position it was in prior to leave being granted to the plaintiffs to continue proceedings against it.8 It was argued, to allow costs to the first defendant would be to provide a windfall to the liquidator contrary to the interests of justice.
[29] Master Gendall considered the facts of the case were unusual. He felt the plaintiffs were justified in seeking to continue their case against the first defendant, that the first defendant indirectly benefited from the settlement that was achieved and the first defendant had not been unduly prejudiced by being brought back into the litigation for a short period of time after leave to continue was granted to the plaintiffs. He held that in all the circumstances costs should lie where they fall.
[30] In Vector Gas Ltd v Todd Petroleum Mining Co Ltd, the plaintiff discontinued its claim against the defendants following a settlement with the first defendant.9 The second defendant was not a party to the settlement and sought costs against the plaintiff. The plaintiff argued costs should lie where they fell because it was reasonable for it to bring proceedings against both defendants and the second defendant was only excluded from the settlement because the first defendant’s position made its involvement unnecessary.10 Associate Judge Gendall did not accept that submission and awarded costs to the second defendant. The decision is particularly relevant in this case for two reasons.
[31] First, Associate Judge Gendall considered his earlier decision in Body Corporate 81381 v Trebe NZ Ltd (in liq).11 Importantly, given the first and second defendants’ reliance upon that decision, the Judge said its precedent value was limited, because it involved a unique set of facts. He said:12
It is clear that the presumption of costs on a discontinuance is not displaced merely because the plaintiff acted reasonably in bringing and discontinuing the proceedings. These are relevant factors, but more would be needed in this case to show that a costs award in [the second defendant’s] favour would not be just and equitable.
8 At [24].
9 Vector Gas Ltd v Todd Petroleum Mining Company Ltd HC Wellington CIV-2004-485-1753, 7 December 2010.
10 At [11].
11 At [13] and [14], referring to Body Corporate 81381 v Trebe NZ Ltd, above n 7.
12 At [18].
[32] Second, in awarding the second defendant costs the Judge preferred the approach taken by Duffy J in Dane Developments Ltd v Burford13 over the approach taken in two other cases relied upon by the defendants, namely Body Corporate 200200 v QBE Insurance (International) Ltd14 and Soulis v Wellington City Council.15
[33] Body Corporate 200200 v QBE Insurance (International) Ltd was a significant leaky building claim.16 Following mediation a settlement was reached on the basis that a sum was contributed by various parties to the plaintiffs. The participants settled on the basis that none would claim costs against any other participant. QBE was the 14th defendant and did not participate in the mediation or the settlement. The fourth third party, Wattyl NZ Ltd, against whom claims had been made by several parties including QBE, claimed costs against QBE.
[34] Hugh Williams J held that no case had been made out to compel QBE to meet Wattyl’s costs. The principal reason was that Wattyl was undoubtedly facing claims not only from QBE but other parties and that its expenditure was of significant assistance to it in the settlement process and avoiding it incurring the cost to meet such claims that had or were likely to be made against it had the matter not settled.17 That all participating parties had settled the litigation on the basis of no party contributing to any other party’s costs was only an “additional reason” for reaching the view that Wattyl’s costs application should be dismissed.18
[35] The facts of Body Corporate 200200 are distinguishable from the present case.19 There, Wattyl was facing claims from several parties to the litigation other than the party against whom it was seeking costs. Furthermore, such costs as it incurred were not wasted and were a significant advantage to it in arriving at a settlement. Here, Mr Hill is facing no claims from parties other than the defendants and such costs as he has incurred were not utilised by him in arriving at a settlement to his advantage.
13 Dane Developments Ltd v Burford HC Auckland CIV-2005-404-5655, 24 November 2010.
14 Body Corporate 200200 v QBE Insurance (International) Ltd HC Auckland CIV-2003-404-512, 11 August 2008.
15 Soulis v Wellington City Council HC Wellington CIV-2006-485-1164, 12 November 2011.
16 Body Corporate 200200 v QBE Insurance (International) Ltd, above n 14.
17 At [22].
18 At [23].
19 Body Corporate 200200 v QBE Insurance (International) Ltd, above n 14.
[36] In Soulis v Wellington City Council the plaintiff commenced proceedings against the Wellington City Council and Mr Blades for negligence and misrepresentation in respect of the construction, inspection, and certification of a residential dwelling.20 The Wellington City Council filed a third party claim against Mr and Mrs Gambitsis. Subsequently, Mr Blades also issued a third party notice against Mr and Mrs Gambitsis, as owners of the property. Before trial the claim was settled on the basis of a “global settlement” between the plaintiffs and the first and second defendants. When Mr Blades sought to discontinue his claim against Mr and Mrs Gambitsis agreement was unable to be reached on costs.
[37] Joseph Williams J discussed Body Corporate 200200 and noted that there Hugh Williams J placed significant reliance on the fact that Wattyl’s expenditure “would have been of assistance in the settlement process and in meeting other claims had the matter not been settled” despite the fact the expenditure was largely incurred in meeting QBE’s claim.21 He considered Hugh Williams J’s approach was consistent with the Court’s overriding discretion as to costs and its assessment of what is “just and equitable”.22
[38] Joseph Williams J held Mr and Mrs Gambitsis were not entitled to costs. An important reason for his decision was that such costs as they incurred would have been incurred in response to the claim made against them by the Wellington City Council or would have been of assistance in the settlement process and in meeting the Council’s claim had the matter not settled. For that reason, the facts of the case were, in his view, directly comparable to those in Body Corporate 200200.
[39] A case more closely comparable to the present is Dane Developments Ltd v Burford.23 There, the first and second defendants issued third party notices including against the sixth and seventh third party. All other parties involved in the proceeding reached a settlement and the sixth and seventh third parties maintained they were entitled to the costs on resisting the first and second defendants’ claims. The first and second defendants opposed an award of costs saying that all of the other third parties
20 Soulis v Wellington City Council, above n 15.
21 At [12], citing Body Corporate 200200 v QBE Insurance (International) Ltd, above n 14 at [22].
22 At [13].
23 Dane Developments v Burford, above n 13.
to the proceeding had reached settlement with the defendants on the same basis, that is, no liability as to costs. Criticism was also levelled at the sixth and seventh third parties who did not participate in the settlement conference.24
[40] Duffy J awarded costs to the sixth and seventh third parties and against the discontinuing plaintiff.25 Her Honour stated:
[9] I cannot see why the position of parties who chose to negotiate and resolve their differences in that way should affect the position of the sixth and seventh third parties, and particularly their entitlement to costs. Their absence at any settlement negotiations may well reflect the firm position they took from the outset that they were not liable for any claims made against them.
[10] Persons who dispute liability and who are prepared to go to a hearing to defend themselves against allegations of liability should not, when the other parties reach a settlement without involving them, have to forego their entitlement to costs in circumstances like the present. The first and second defendants have suggested that the sixth and seventh third parties have been difficult in refusing to negotiate a settlement. The sixth and seventh third parties dispute this. I cannot determine contested evidence of this nature without hearing from the parties. However, I see no need to do so as I consider the circumstances are governed by the general principle that the discontinuance of a claim will not avoid liability for costs. The sixth and seventh third parties were not obliged to participate in settlement negotiations. I see no reason why they should be penalised, through denial of costs, simply because they were not prepared to compromise their defence.
[41] In Perpetual Trust Ltd v Mainzeal Property and Construction Ltd the second defendant sought costs following the discontinuance of cross-claims against it by the third defendant.26 One of the arguments advanced for the third defendant was that because all other parties had settled with no issue as to costs it would be inequitable for a costs award to be made in respect of one cross-claim only.
[42] Thomas J distinguished Body Corporate 200200 v QBE Insurance (International) Ltd,27 on the basis that there the costs and expenses in issue would have been of assistance in enabling the claiming party to settle its claims against others in
24 At [8].
25 Dane Developments Ltd v Burford, above n 13.
26 Perpetual Trust Ltd v Mainzeal Property and Construction Ltd [2014] NZHC 286.
27 Body Corporate 200200 v QBE Insurance (International) Ltd, above n 14.
any event.28 She agreed with the general proposition in Dane Developments Ltd v Burford29 and concluded:30
[The third defendant’s] wish that [the second defendant] would take a more generous approach in circumstances where all other parties have settled with no issue as to costs is understandable. However, on a strictly legal approach, [the second defendant] is entitled to its costs and disbursements to the extent that they are properly claimable pursuant to r 14.12.
[43] The defendants contend the approach taken in Body Corporate 20020031 and Soulis v Wellington City Council32 is in line with the objectives of the High Court Rules of the just, speedy and inexpensive determination of proceedings. They argue the approach in Dane Developments Ltd v Burford supports a view that a party is under no obligation to engage in a settlement process and is at odds with the High Court Rules objectives as it encourages parties to take an unreasonable position on settlement and benefit from an unreasonable and uncooperative stance.
[44] I do not accept those submissions. Rule 15.23 is concerned with ensuring a certain and predictable outcome upon discontinuance of a proceeding in circumstances where the Court will usually be in no position to assess the merits of the parties’ respective cases. I do not see why a party who has become involved in litigation against its wishes and considers the claim against it has no merit should be considered unreasonable or uncooperative for not compromising its defence and contributing to a settlement. From the perspective of a litigant in Mr Hill’s position, r 15.23 is entirely consistent with the objectives of the High Court Rules as it may dissuade the tactical joinder of parties to proceedings which seriously complicate, delay and add to the costs of litigation.
[45] In my view, the authorities do not support the defendants’ stance on the facts of this case either. Body Corporate 81381 v Trebe NZ Ltd33 was, as Master Gendall stated, decided on unusual facts. Both Body Corporate 200200 v QBE34 and Soulis v
28 At [17].
29 Dane Developments Ltd v Burford, above n 13.
30 At [22].
31 Body Corporate 200200 v QBE Insurance (International) Ltd, above n 14.
32 Soulis v Wellington City Council, above n 15.
33 Body Corporate 81381 v Trebe NZ Ltd (in liq), above n 7.
34 Body Corporate 200200 v QBE Insurance (International) Ltd, above n 14.
Wellington City Council35 are distinguishable. I prefer, as being consistent with the objectives of r 15.23, the approaches taken in Dane Developments Ltd v Burford36 and Perpetual Trust Ltd v Mainzeal Property and Construction Ltd.37
[46] Applied to this case, Mr Hill has at all times disputed the claims made against him. In the letter of 29 June 2020 counsel stated “[t]he letters proposing settlement do not persuade us that Mr Hill has any liability to [the defendants] in this proceeding.” The letter provides detail of why Mr Hill refutes the claim he performed the role of project manager. He made it perfectly clear that he expected to recover his costs in the proceeding and the defendants were aware of this stance when negotiating settlement. I do not consider it was unreasonable of Mr Hill to decline to participate in settlement negotiations when he was not prepared to compromise his defence. I accept Mr Hill obtained some benefit from the settlement, in the form of the discontinuance of the claims against him, but no doubt that is of only limited solace to him given the significant costs he had already incurred. In any event, I not consider such benefit has he obtained is sufficient reason to justify displacing the presumption under r 15.23. In my view, Mr Hill is entitled to costs.
Quantum
[47] The defendants’ position is that the quantum of the costs is too high. I consider that generally scale 2B costs are appropriate. I have considered the file and there is merit in the defendants’ submissions in the following respects:
(a)I consider that the claims by the defendants were substantially the same as Mr Hill’s defences to them. An allowance of two days for the preparation of the defences is reasonable.
(b)I do not consider an uplift for inspection is appropriate.
35 Soulis v Wellington City Council, above n 15.
36 Dane Developments Ltd v Burford, above n 13.
37 Perpetual Trust Ltd v Mainzeal Property and Construction Ltd, above n 26.
(c)Claims have been made for memoranda prepared by other parties or which were in effect consent memoranda. I allow 1A costs only in respect of the memoranda.
(d)I allow costs of preparing submissions on this application. While there is a view that seeking costs for filing cost memoranda should be discouraged, I accept that in this case that was necessary and there was some research required. However, an allowance of .4 of a day is appropriate.
Result
[48]In the result Mr Hill is entitled to costs against the defendants in the sum of
$19,837.38 Mr Hill is also entitled to reasonable disbursements. All the sums claimed as disbursements are reasonable. The disbursements amount to $1,399.81.
O G Paulsen Associate Judge
Solicitors:
Parker & Associates, Wellington (First & Second Defendants) Parker Cowan, Queenstown (Third Defendant)
Cavell Leitch, Christchurch (First Third Party) cc:
Parker Legal, Auckland (Plaintiff)
Canterbury Chambers/Maciaszek Brown Law, Christchurch (Second Third Party) Fee Langstone, Auckland (Third & Fourth Third Parties)
Macalister Todd Phillips, Queenstown (Fifth Third Party) Anderson Lloyd, Queenstown (Sixth Third Party)
38 High Court Rules, r 14.14 applies.
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