Udderfield Limited v Taranaki Galvanizers Limited

[2017] NZHC 3019

IN THE HIGH COURT OF NEW ZEALAND NEW PLYMOUTH REGISTRY

I TE KŌTI MATUA O AOTEAROA NGĀMOTU  ROHE

CIV-2017-443-000012 [2017] NZHC 3019

BETWEEN

UDDERFIELD LIMITED

Plaintiff

AND

TARANAKI GALVANIZERS LIMITED Defendant

JOHN CHAPMAN First Third Party

MIKE CHILDS BUILDERS LIMITED Second Third Party

JD ENGINEERING LIMITED Third Third Party

VERO INSURANCE NEW ZEALAND LIMITED

Fourth Third Party

Hearing:	5 December 2017 (Determined on the papers)
Counsel:	S W Hughes QC for Plaintiff P J Mooney for Defendant J Morrison for First Third Party N Gillies and H Yiu for Second Third Party N Harding for Third Third Party C Anderson for Fourth Third Party
Judgment:	7 December 2017

COSTS JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

UDDERFIELD LTD v TARANAKI GALVANIZERS LTD COSTS [2017] NZHC 3019 [7 December 2017]

[1]      Udderfield Limited (UL) is a farming company.  In March 2017 it issued this proceeding against Taranaki Galvanizers Limited (TGL) calling TGL to account in relation to the alleged failure of galvanising on some steel structural components which were supplied to a builder, the second third party, Mike Childs Builders Limited, which had contracted with UL to build a substantial cowshed on UL’s farm property.

[2]      In  the statement  of claim  UL pleaded  that the cowshed  was  constructed between March and June 2007. In 2014 UL observed rust appearing at various points in the galvanised steel structure, and commissioned an independent investigation. The conclusion given to UL was that the galvanising of the relevant structural members had been undertaken negligently, and as a result the steel was rusting.

[3]      According to Mr Knowles, a director of UL, he phoned Mr Childs when he noticed the rust and told him of his concerns.   A meeting of the contractors and subcontractors engaged on the project was held, but although discussions went on for some 12 months, there was no discernible progress.   Mr Knowles consulted his lawyers and engaged counsel and this led to the independent report to which I have referred being commissioned.  Counsel wrote to the Chief Executive of TGL on 26

January 2017 informing him of the problem and the advice UL had received in relation to it, and she enclosed an estimate for the cost of repairs for which UL would hold TGL responsible. It was made clear that proceedings would be issued against TGL to recover UL’s losses, not only for remedial work but also for loss of income as a result of drying off cows earlier than would otherwise have been the case, to enable the work to be undertaken.

[4]      After the proceeding was served TGL issued third party proceedings against three other parties involved in the building project, and its insurer.   In July 2017, however, UL became aware that the cowshed had been constructed in 2005 and 2006, not in the period of March to June 2007.  The crucial relevance of this fact was that TGL was incorporated in September 2006 and took over the operation of the business then.   Prior to that, the business was carried out by Taranaki Galvanizers (2003) Limited.  That company was wound up in 2007.  Therefore the proceeding had been issued against a company which did not do the work.  UL discontinued it.

[5]      TGL and the third parties seek costs. Rule 15.23 of the High Court Rules 2016 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.

[6]      The starting-point for a decision on liability for costs is an examination of the conduct of UL and TGL from the time the problem was first observed, to July 2017.

[7]      Understandably, the first step Mr Knowles took was to raise the problem with Mike Childs Builders Limited, whom he contracted for the building of the shed. Shortly thereafter there was a meeting with others involved in the project which included a director of TGL, Mr W F O’Neill.  He attended a meeting onsite in April

2014.  TGL bought the business of Taranaki Galvanizers (2003) Limited shortly after TGL was incorporated in September 2006.   Mr O’Neill was not associated with Taranaki Galvanizers (2003) Limited.

[8]      Mr O’Neill was aware that TGL had undertaken galvanising and steel work on behalf of JD Engineering Limited since it set up business. One of those jobs involved an issue as to the number and location of drainage holes within steelwork which TGL was being called upon to galvanise. At the meeting in April 2014 Mr O’Neill thought that he was being called in to discuss that job, not a separate and completely unrelated job, namely the UL cowshed.  He points out in his affidavit that frequently TGL is asked to undertake work but does not know the project for which that work is destined.

[9]      At that time Mr Knowles of UL and Mr O’Neill of TGL were both in the dark about the date that the work was undertaken. Mr Knowles was of the view that it was in mid-2007, as pleaded.  Mr O’Neill did not know when it was, but seems to have assumed that it was some time after TGL set up business in or about September 2006 as he recalled another job in which he had called into question drainage holes in the steel members, which appeared to be the problem with the beams supplied to UL.

[10]     This mutual error about the date prevailed until July 2017.  When Ms Hughes QC, counsel for UL, wrote to TGL in January 2017 she described the building as having taken place “some time ago”.  In correspondence which ensued no mention was made by either party of the date being other than during the business life of TGL. The statement of claim pleaded dates in 2007.  The statement of defence did not take issue with this.  Nor was any document given by way of initial disclosure from which any other inference might be drawn. TGL issued four sets of third party proceedings. No-one, it seems, turned their minds to actually pinpointing the date on which the work was done until a significant amount of money had been wasted on legal fees and disbursements paid in relation to this case.

[11]     In my opinion there is fault on the part of UL and fault on the part of TGL. First, UL.  At no point prior to July 2017 did UL examine its records or make other enquiries to ascertain when the work was done, which is surprising, especially given

that it was a long time ago and it must have been clear that limitation issues may be on the horizon.   Secondly, it does not seem that a search was carried out on the Companies Register which would have shown the date of incorporation of TGL. That information could then have been cross-referred to the invoices or other documents which had been obtained in order to pinpoint the date the work was done.   In his affidavit Mr Knowles says he thinks that he took all reasonable steps to investigate his claim. Given, however, that it is fundamental to good pleading that the date on which actions called into question took place is accurately stated, and it is an expensive and egregious error to sue the wrong party, I find that there was a significant element of fault on the part of UL in pleading the wrong date and sueing the wrong party.

[12]     There is force, however, in Mr Knowles’ next point, which is that TGL could have raised with him early on, and later through its solicitors, that it was not the correct party to UL’s claim, before the proceeding was issued.  Mr O’Neill went to the site as long ago as April 2014, nearly three years before this claim was commenced.  Whilst it is understandable that he may have confused this job with another which also seems to have had a rusting problem, he too could have checked the records of his company or made other enquiries with a view to finding out whether this was the same job.  It does not seem an unduly onerous enquiry to make, when faced with a claim exceeding

$200,000, to find out whether his company actually did the job called into question. Nor is it unreasonable to conclude that this should have been done.

[13]     That did not occur and as a result the issue of identity was not raised in defence. Nor does it seem any thought was given to this point before four other parties were joined.

[14]     It is not possible, nor in my opinion necessary, to apportion the blame for what occurred between UL and TGL on an emperical basis.  Whilst it is fair to say that the lack of fundamental research on the part of UL triggered the problem, it is not asking much of a defendant to check its own records to see if it is in fact the entity which is responsible for the work called into question when the complaint is first made.

[15]     So far as UL and TGL are concerned I apportion responsibility equally for the purposes of assessing costs and, as between them, costs will lie where they fall.

[16]     There are, however, four third parties all of whom have a claim to costs. Apart from the fourth third party, Vero Insurance, all of these parties were involved in the project.  It is surprising that none of them appear to have found out the date the work was actually done and told UL or TGL as long ago as April 2014 when it seems that everyone was called together to discuss the problem. Be that as it may, all of the third parties were brought into this proceeding as a consequence of the errors of UL and TGL which I have described.

[17]     Rule 15.23 applies to claims by defendants against third parties.  In Money

World New Zealand 2000 Ltd v KVB Kunlun New Zealand Ltd the Court said:1

[31] Having considered these authorities I conclude that in the normal course a successful defendant will have to expect an order for costs in favour of a third party joined by that defendant.

[32] If, however, the result of the plaintiff’s claim is effectively against a third party or if that claim has the inevitable result of further parties being joined, then there is authority to say that the unsuccessful plaintiff should pay the third party’s costs direct.

1      Money World New Zealand 2000 Ltd v KVB Kunlun New Zealand Ltd HC Auckland CIV-2003-

404-2542, 23 September 2005.

[33]  This would seem to imply that 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.

[18]     As UL discontinued, TGL was, in effect, in the position of a  successful defendant and, on the above authority, would therefore have to expect an order for costs in favour of each of the third parties it had joined. This is not, in my view, a case where UL might also have sued any, let alone all, of the third parties itself, because it took the trouble to commission independent analysis of the cause of the problem with the cowshed, and selectively sued in relation to the galvanising on the basis of that advice, rather than suing everyone involved in the project and leaving it to them to sort out where liability lay.

[19]     In essence, therefore, this is in my view a case where the Court has to look at where responsibility lies for the four third parties incurring costs. This stems from the responsibility of UL and TGL in relation to the case being brought in the first place. However, whilst that suggests that UL and TGL should bear equal responsibility for the costs of third parties, there is an additional factor to be taken into account. This is the point just mentioned, the care taken by UL to establish the cause of its loss and focus its proceeding accordingly. TGL was given due notice of that advice but decided to sue the other parties involved in the construction project nonetheless. It also decided to sue its own insurer.

[20]     In my judgment the consequence of these decisions by TGL is that more responsibility lies on TGL than UL for the costs of the third parties.   Again, an emperical assessment is neither required nor possible.  In my judgment responsibility lies with TGL as to two-thirds, and with UL as to one-third, in respect of all the third parties save only for the fourth, TGL’s insurer. In relation to this third party I find that TGL should be liable for costs without contribution from UL.

[21]     I turn now to the quantum of the costs to be awarded.

[22]     The first third party claimed costs from the defendant. A figure of $10,000 has been agreed. This compares with an entitlement to costs for 5.1 days, on scale, which would amount to $11,373, according to counsel for the defendant.  On this basis, I

allow costs to the first third party in the sum of $10,000, apportioned between the plaintiff and the defendant in the manner indicated. I note that counsel for the plaintiff does not take issue with this quantum in her memorandum which was filed some two weeks after the memorandum of counsel for the defendant advising of this figure.

[23] Counsel for the second third party seeks either costs on an increased basis, or alternatively on a 2B basis. The basis for the claim to increase costs is that both the plaintiff’s claim and the third party claims were “meritless” because a complete defence was available. First, it is said that both the plaintiff’s claim and the third party claims were statute-barred under s 393 of the Building Act 2004. Secondly, the defendant had an absolute defence because it did not carry out the work in question, so for that reason should not have issued proceedings against the third party.

[24]     I note that the second third party claims costs for completing discovery and inspecting documents.   If it had confidence in the claimed defences it could have applied to strike out the third party notice, or for summary judgment rather than proceeding with interlocutory steps for which it claims scale fees approaching $9,000.

[25]     On balance I am not satisfied that there should be an increase in scale costs.

[26]     I am not prepared to allow the claim for the memorandum in relation to costs and the affidavit in support of it, in the sum of $2,230, because costs are being assessed up to the point of discontinuance.

[27]     In consequence the sum payable to the second third party is $17,394 in respect of costs, together with a filing fee of $110, a total of $17,504.

[28]     The defendant and the third third party have reached agreement that costs payable to the latter will be $3,500.  I am satisfied this figure is reasonable.

[29]     The fourth third party seeks scale costs of $13,157. This differs from the claim for the second third party because it does not claim for inspection of documents, nor for the filing of a memorandum for a case management conference on 30 August.  I allow costs in the sum of $13,157.

Outcome

[30]     I make the following orders:

1.    As between the plaintiff and the defendant, costs will lie where they fall.

2.    The plaintiff will pay costs:

(a)     To the first third party $3,333.33

(b)     To the second third party $5,834.67

(c)     To the third third party $1,166.67

3.    The defendant will pay costs:

(a)     To the first third party $6,666.67

(b)     To the second third party $11,669.33 (c)     To the third third party $2,333.33

(d)     To the fourth third party $13,157.

J G Matthews

Associate Judge

Solicitors:

Quin Law, New Plymouth
Mooney & Webb, New Plymouth

Rainey Collins, Wellington

Hesketh Henry, Auckland
Neal Russell Harding Thomson, O’Neil & Co, Eltham

Fee Langstone, Auckland