Wallace Corporation Limited v International Marketing Corp Ltd HC Auckland CIV 2003-404-7227

[2005] NZHC 1232

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2003-404-7227

BETWEEN

WALLACE CORPORATION LIMITED

Plaintiff

AND

INTERNATIONAL MARKETING CORP LTD

Defendant

Hearing:         24 February 2005

Appearances: J Long for Plaintiff

P V Shackleton for Defendant Judgment:  28 February 2005

JUDGMENT OF HEATH J

Solicitors:

Lee Samon Long, PO Box 2026, Shortland Street, Auckland Martelli McKegg Wells & Cormack, PO Box 5745, Auckland

WALLACE CORPORATION LIMITED V INTERNATIONAL MARKETING CORP LTD HC AK CIV 2003- 404-7227 [28 February 2005]

Introduction

[1]   Wallace Corporation Ltd owns and operates a meat processing plant at Thames. When it acquired that plant it wanted to continue a commercial relationship with International Marketing Corporation Ltd that the vendor of the plant had developed. Ultimately, after protracted negotiations, arrangements were put in place for the sale of meat products from Wallace to International Marketing Corporation.

[2]   The relationship broke down through non-payment of invoices by International Marketing Corporation. Proceedings were issued by Wallace to recover the amount  it alleged to be owed, based on terms and conditions of sale alleged to have been agreed between the parties.

[3]   An application for summary judgment was filed. Prior to the allocated hearing date, Wallace withdrew its application for summary judgment. Wallace accepted  that the International Marketing Corporation’s affidavits raised factual issues inappropriate for determination on a summary judgment application.

[4]   The application for summary judgment was withdrawn. A timetable to dispose  of the substantive proceeding was proposed. Orders were made in the terms proposed.

[5]   Subsequently, International Marketing Corporation sought costs on the withdrawn application for summary judgment. Regrettably, for reasons into which it is unnecessary to go, the memoranda filed appear to have been mislaid with the consequence that costs issues were not determined by an Associate Judge for some 10 months.

[6]   The application for costs was resolved by Judge Sargisson in a judgment delivered on 8 February 2005. She awarded costs in favour of International Marketing Corporation on an indemnity basis totalling $4738.50. Wallace seeks review of the Associate Judge’s order.

Grounds of review application

[7]   Mr Long puts Wallace’s application for review on two bases:

a)The Judge erred in deciding to award costs on the withdrawn application for summary judgment because the order was contrary to the principle laid down in NZI Bank Ltd v Philpott [1990] 2 NZLR 403 (CA).

b)Even if the Judge were right to award costs, she erred in awarding costs on an indemnity basis.

[8]   Mr Shackleton supports the award of costs for the reasons given by the Judge. In addition, he raises a jurisdictional issue. Mr Shackleton submits that this Court lacks jurisdiction to review the Associate Judge’s decision because costs were awarded in the course of determining a summary judgment application; therefore Her Honour’s order can only be the subject of an appeal to the Court of Appeal.

Jurisdictional issue

[9]   Mr Shackleton submits that the Associate Judge exercised powers of the Court on the application for summary judgment and that the order for costs was made incidental to that jurisdiction: s26I(1) and (3) Judicature Act 1908. He submits that the only redress is by appeal to the Court of Appeal under s26P(2) of that Act.

[10]      Mr Long, in reliance on a judgment of Venning J in Miller Design Ltd v PW Hotel Ltd (High Court, Auckland, CP872-IM02, 6 June 2003) submitted that the order for costs was amenable to review for the reasons given by Venning J.

[11]      In paras [13]-[15] of his judgment, Venning J dealt with the jurisdictional issue. Using the Associate Judges’ prior title of Masters, he said:

[13]     Next, s 26I (2) of the Judicature Act 1908 which identifies the specific provisions of the Companies Act 1993 over which Masters have jurisdiction does not refer to an application under s 288 (5). That may well be an

oversight. Masters clearly ought to have jurisdiction in relation to such applications for leave given the expertise and knowledge Masters have in relation to liquidation issues but as the legislation stands it does not appear there is jurisdiction.

[14]   Further, and in any event, the substantive application for leave was either withdrawn or dismissed as a consequence of the consent memorandum filed on 17 December 2002. The application before the Master in relation to costs was brought before the Court by way of interlocutory application for costs pursuant to the leave reserved in the consent memorandum. As a decision on an interlocutory application the decision is amenable to review.

[15]   Finally, I observe that it would be an unusual result if the legislation was to be interpreted in such a way that a party in the applicant’s position was required to appeal a decision made on the papers declining to award costs to the Court of Appeal.

[12]      With respect, I agree with Venning J and adopt his reasons. In essence, they reflect the fact that the costs order was made in chambers as part of the Associate Judge’s chambers’ jurisdiction.

[13]      As the costs application in this case was made subsequent to withdrawal of the summary judgment application, I find that there is jurisdiction to entertain the present application.

Was the cost order wrong in principle?

[14]      While, ordinarily, costs on interlocutory applications are to be fixed when the application is determined, summary judgment applications brought by plaintiffs are an exception to that rule: see r48E(3) of the High Court Rules. Thus, the previous practice of reserving costs on an unsuccessful plaintiff’s application for summary judgment was not disturbed by the new costs regime introduced by 1999 amendments to the Rules. What follows is a discussion of that practice. Nothing I say is intended to apply to a defendant’s application for summary judgment to which different considerations are relevant.

[15]      In NZI Bank Ltd v Philpott the Court of Appeal considered whether an order for costs in favour of a successful defendant on a summary judgment application ought to be upheld. The Court of Appeal allowed the appeal and vacated the order

for costs.    Its reasons for so doing were set out in the judgment of the Court, delivered by Heron J, at 405-406:

Having regard to the difficulty in determining those matters until the case itself is concluded, in many cases the best course will be for the Judge or Master to reserve the question of costs until the litigation is determined. In some cases (and this may be one) the impecuniosity of the defendants may mean the plaintiff will not proceed to the more expensive contested hearing having failed at the summary judgment level. That does not mean that a defendant who feels he is entitled to costs is prevented from bringing the matter before the Court and having the question argued and obtaining an order if necessary. We repeat however that the incidence of costs is best settled when the result of the litigation is known. Hence the widespread practice as we see it of reserving costs in such situations. The Master may well indicate for the trial Judge the extent and duration of the argument on the application.

The overseas practice confirms the view that we have taken. The Supreme Court Practice, 1988, vol 2, p 158 notes two observations on Ord 14 applications which are relevant to our practice:

I wish it to be known as a practice rule that the proper course for a master to take if he considers that in a summons under Order 14 it is clear that the plaintiff knew that there was an arguable defence to the claim, is to dismiss the application with costs.'" (Lord Goddard CJ, Pocock v ADAC Ltd [1952] 1 TLR 29, 34).

Sometimes a plaintiff resorts to Order 14, not with any expectation of success, but in order to compel or induce the defendant to disclose on oath the nature of the defence; this is not legitimate but is an abuse of the process of the Court, and in such case the application should be dismissed." (Vaughan Williams and Buckley LJJ in Symon & Co v Palmer Stores (1903) Ltd [1912] 1 KB 259).

The English position appears to be, that if leave to defend is given, costs in those proceedings become costs in the cause and as such there is no subsequent power of the trial Judge to deprive the successful party of those costs, even though the Judge may subsequently be in the best position to determine whether the case was one that was properly brought under the summary judgment procedure. Consequently, the best practice will be in most cases, to reserve the costs rather than make them costs in the proceedings, when they will have to follow the event.

[16]There are three good reasons why this practice is desirable.

a)The first is that the summary judgment procedure has been beneficial in accelerating the passage of civil litigation through the Courts. In doing so, it has promoted earlier settlement of disputes. The risk of a large order for costs on an unsuccessful summary judgment application (whether after argument or earlier withdrawal) could act

as a deterrent to plaintiffs to use a quick and effective means of obtaining relief where, at the outset at least, there appears to be no defence to the claim. See NZI Bank Ltd v Philpott at 406-407.

b)The second reason is the corollary of the first. If a large order for  costs were made in favour of a defendant who has successfully resisted an application for summary judgment (whether by judicial decision or withdrawal of the application) any costs of preparing for a defended hearing would be subsidised by the unsuccessful party. That is because costs involved in preparing evidence in opposition to an application for summary judgment will not be wasted if the dispute were to go to trial. Accordingly, if the dispute were likely to go to a defended hearing costs should ordinarily be reserved. If the plaintiff subsequently discontinues its claim costs for the summary judgment proceeding will be capable of being claimed by the successful defendant.

c)The third reason is allied to the first. If awards of costs are made readily on a withdrawn application, that would provide a disincentive for a party to take the responsible step of withdrawing rather than taking its chances on a hearing of the summary judgment application.

[17]     Clearly, there is jurisdiction to make an order for costs on a withdrawn application for summary judgment. In each case the question will be whether it is appropriate for such an order to be made having regard to the principle established in NZI Bank Ltd v Philpott.

[18]      A corner stone of the summary judgment proceeding is the need for a duly authorised representative of a corporate plaintiff to depose, in the affidavit in support of the application, that he or she verifies the allegations set out in the Statement of Claim to which it is alleged there is no defence and his or her belief that there is no defence and the grounds of that belief: r138(5)(b) High Court Rules. Those obligations are summarised in McGechan on Procedure HR138.06 and HR138.07 as follows:

HR138.06 Verification of allegations

The rule requires verification of the allegations in the statement of claim because the affidavit is the evidence on the basis of which judgment is granted. However, the plaintiff is not required to prove the claim with the same precision as would be required at trial; it is sufficient to assert and verify the claim in general, supplying any documentation necessary to support it: AGC (NZ) Ltd v McBeth [1992] 3 NZLR 54; (1992) 4 PRNZ 544
(CA). See also: Symon & Co v Palmers’ Stores (1903) Ltd [1912] 1 KB 259 (CA), at p 266; Evans Deakin & Co Pty Ltd v Kaiser Engineers & Constructors Inc [1968] Qd R 379, at p 382. Verification is not required where application is made by the defendant.

HR138.07 Grounds for belief

In Foodstuffs (Auckland) Ltd v Schweiger [1986] 1 NZLR 463; (1986) 1 PRNZ 173, Barker J observed that because the rules impose limitations on the ordinary right of a defendant to defend, they should be complied with reasonably strictly.

In Achilles Restaurant (1988) Ltd v Achilles Restaurant Ltd 21/11/89, CA194/89, where on appeal the appellants took the point, not raised directly in the High Court, that the respondent’s affidavit in support of its claim did not depose to the grounds of its belief that the appellants had no defence, the Court of Appeal was not satisfied, having regard to the affidavit in support  of the simple claim for debt under the debenture, that there was any breach of r 138(5)(b). However, the Court said that even if there were a breach of the rule, in the ordinary course there would have been an opportunity to put it right in the High Court and that had been denied to the respondent by the course adopted by the appellants. Furthermore, once the alleged defence of set-off was set up, the respondent’s grounds for saying that it was not a defence were fully canvassed in the affidavit in reply.

A statement as to the source of information contained in the affidavit concerning the defendant having no defence will probably not amount to the provision of grounds of belief: Concorde Enterprises Ltd v Anthony Motors (Hutt) Ltd [1976] 1 NZLR 741, at p 746; but see also Phillips v Mineral Resources Developments Pty Ltd [1983] 2 Qd R 138, at p 145.

[19]      Both the rationale behind the rule of practice set out in NZI Bank Ltd v Philpott and the need for a deponent to verify allegations and confirm a genuine belief that there is no defence, point to the need for caution in making any order as to costs on an unsuccessful application for summary judgment.

[20]      In effect, orders for costs may only be made if there is reason to believe that there has been no genuine verification of facts by the plaintiff and there are no grounds for a stated belief that there is no defence. That expresses, in a slightly different way, the points made in NZI Bank Ltd v Philpott where, in citing the English authorities, the Court of Appeal made it clear that an order for costs ought

usually only to be made if the plaintiff knew there was an arguable defence to the claim.

[21] In this particular case Judge Sargisson reviewed the affidavits filed on the application for summary judgment and concluded that “the documents produced by the defendant contain several sufficient and significant indications that the plaintiff was aware that there was a bona fide question to be determined”: para [14].

[22]      With respect to the learned Associate Judge, that does not go far enough. There must be evidence sufficient to impugn the oath of the duly authorised representative that he or she believes there is no defence. On my assessment of the evidence on which the Judge relied, that standard was not met. All that is clear is  that the parties had a different appreciation of the effect of arrangements made between them. And that is what is in contest at the trial of the proceeding to be held in April 2005.

[23]      In my view, the Judge’s reasons did not justify a departure from the normal position that, when a plaintiff’s application for summary judgment is declined, costs should be reserved.

Indemnity costs

[24]      Strictly speaking, it is unnecessary for me to address this issue as I have held that costs ought not to have been ordered.

[25]      However, I add that even if the Associate Judge had been justified in holding that costs ought to be awarded against the unsuccessful plaintiff she ought not to have awarded indemnity costs. Based on the criteria set out in r48C(4) of the High Court Rules indemnity costs were not justified.

[26]      Nor did the Associate Judge analyse the question of indemnity costs in light of r48C. That analysis ought to have been undertaken before any award of  indemnity costs was made. While the Judge relied on a letter that indicated that indemnity costs would be sought if an application for summary judgment were

unsuccessful, that was not, in the absence of a good reason for challenging the bona fides of the summary judgment application, a sufficient reason to award indemnity costs under r48C(4)(f) of the Rules.

Conclusion

[27]      I hold that the learned Associate Judge erred in awarding costs on the withdrawn application for summary judgment for the reasons I have given.

[28]      The application to review the Associate Judge’s order is granted. The award of costs is set aside. In lieu thereof, there will be an order that costs be reserved pending the outcome of the litigation. No order for costs is made on the application for review.

[29]I thank counsel for their helpful memoranda and their oral submissions.

P R Heath J

Delivered at 3pm on 28 February 2005.