Water Guard NZ Ltd v Midgen Enterprises Ltd
[2016] NZHC 1546
•8 July 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-000445 [2016] NZHC 1546
BETWEEN WATER GUARD NZ LIMITED
Plaintiff
AND
MIDGEN ENTERPRISES LIMITED First Defendant
DAVID JAMES MIDGEN Second Defendant
Hearing: 5 July 2016 Counsel:
MJ Fisher and HL Hui for Plaintiff
DW Grove for DefendantsJudgment:
8 July 2016
JUDGMENT OF ASHER J
This judgment was delivered by me on Friday, 8 July 2016 at 11 am pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors/Counsel:
Castle/Brown Solicitors, Auckland.
MJ Fisher, Auckland. Dawsons, Auckland.
DW Grove, Auckland.
WATER GUARD NZ LTD v MIDGEN ENTERPRISES LTD [2016] NZHC 1546 [8 July 2016]
Introduction
[1] On 15 September 2015, following a 12 day hearing, I issued a judgment in this matter and another related proceeding.1 In the relevant proceeding I dismissed the plaintiff’s claims against the defendants based on misrepresentation and false and misleading statements. I upheld some of the claims based on an implied term of fitness for purpose and dismissed others.
[2] I directed that there be a damages hearing to assess the loss suffered by the plaintiff in respect of the three defects that I found proven in the implied term of fitness claim. That claim was settled on the morning of the damages hearing on the basis that the defendants would pay the plaintiff the sum of $67,527.97.
[3] When I issued the judgment I reserved costs. It is now necessary to determine those costs.
[4] The defendants claim to have been largely successful in the proceedings and seek costs from the plaintiff. Mr Grove for the defendants goes further and seeks indemnity or increased costs with either a 50 per cent uplift, or a 75 per cent uplift.
[5] Mr Fisher for the plaintiff submits that costs for the substantive hearing should lie where they fall, as both sides had a measure of success. He submits that his client should receive costs on a 2B basis for steps taken toward the damages hearing since the delivery of the judgment, together with four days of hearing fees, certain photocopying and other fees and disbursements. Alternatively, he seeks those costs on a 2C basis.
[6] As is often the case, the actual costs incurred by the parties have been very considerable indeed; far in excess of scale.
Starting point – my overall assessment of success
[7] Before I deal with specific issues, I set out my general assessment of who was successful and the degree of that success.
1 Water Guard NZ Ltd v Midgen Enterprises Ltd [2015] NZHC 2227.
[8] The plaintiff failed totally on the misrepresentation claim, which took just under half of the time for the proceeding, and failed partially on the second part of its claim relating to defects. However, it obtained a modest damages settlement in respect of that claim, as set out above.
[9] The plaintiff did not particularise its damages claims until shortly before the hearing. Its claim ultimately was for $511,100. After I had issued my judgment the claim for damages was amended downwards to $295,806.20 and finally on
17 December 2015 amended again to $108,415.36. The final amount was
$67,527.97. It therefore obtained judgment for approximately 15 per cent of its original claim.
[10] It is my overall perception that the plaintiff was, for the most part, unsuccessful in the proceedings and the defendants successful. This is borne out by the closer analysis that I now set out.
Apportionment of time
[11] I accept Mr Fisher’s helpful analysis of the time allocation on the issues that arose in the trial. Of the 12 day hearing, approximately eight were spent on these proceedings (as distinct from the related claim dealt with in my judgment). Of that time, a little over half (four days) was spent on the defects claim, where the plaintiff was partially successful, and the other time (a little less than four days) was spent on the misrepresentation claim where the plaintiff was totally unsuccessful.
[12] Within the defects claim, two significant defects claims were rejected. It is my view that approximately half of the time devoted to the defects was spent on unsuccessful claims. Thus, approximately one-quarter of the eight day total was spent on successful claims by the plaintiff, and three-quarters of that time was spent on claims in which the plaintiff was unsuccessful.
The Calderbank offers
[13] The defendants made a number of settlement offers prior to the main hearing, none of which were accepted. On 22 August 2014 they wrote suggesting that the
claim in relation to misrepresentation be abandoned immediately, and that all merchantable quality issues be transferred to the District Court where they would be resolved there. On 24 June 2014 they made a Calderbank offer, offering $40,000 in full and final settlement.
[14] On 11 February 2015 they made a Calderbank offer of $50,000 in full and final settlement of all claims. That offer was by way of a credit note on the stock that was to be purchased by the plaintiff. Since there was in fact stock that had to be purchased by the plaintiff, this was a real offer of $50,000.
[15] Thus, r 14.10 of the High Court Rules was invoked as there were written offers without prejudice except as to costs. Rule 14.11 applied. The effect of the making of the offer was, under r 14.11(1), at the discretion of the Court. The more mandatory rule, at r 14.11(3), giving a party an entitlement to costs if that party offers a sum of money that exceeds the amount of the judgment, or an offer that was more beneficial than the judgment, did not apply. This was because the highest offer was $50,000 and the end amount agreed to be paid (the equivalent of a judgment) was $67,527.97. By contrast, r 14.11(4) says that the offer may be taken into account if a party makes an offer which does not fall within r 14.11(3) but is nevertheless “close to the value or benefit to the judgment obtained by …” the other party.
[16] The plaintiff made no offer of settlement, save for an offer on 25 May 2016 to settle for $261,185. This was long after the case had been heard, where the plaintiff, as I have indicated, was on an overview unsuccessful.
[17] A Calderbank offer can lead to cost consequences when it is vindicated by the quantum of damages or the orders made.2 It is a factor to be taken into account in determining whether a party from whom costs are sought has acted reasonably, or has otherwise behaved in a way which requires increased or indemnity costs.3
Despite the fact that r 14.11(3) does not arise here, the presentation of these
2 Nandro Homes Ltd v Datt HC Auckland CIV-2008-404-6676, 13 July 2009 at [13].
3 Macken v Jervis [2015] NZHC 1146 at [24]; Andrew Beck and other McGechan on Procedure
(online looseleaf edition, Westlaw) at [HR14.11.02].
Calderbank offers is relevant to the issue of costs, and a factor in the defendants’
favour.
[18] I place no weight on the defendants’ proposal that the plaintiff discontinue the misrepresentation proceedings. Although the misrepresentation claim was unsuccessful, an early invitation to discontinue without costs is not an effective Calderbank offer in terms of the allocation of costs.4 Most defendants would take that position. To have an effect on costs, a Calderbank offer generally needs to contain an offer that involves an element of genuine compromise.
[19] It is relevant to the assessment of who has behaved reasonably that the plaintiff later, over a year after the $50,000 offer by the defendants, settled for only
$67,527.97. In the meantime, on the information I have before me, hundreds of thousands of dollars were spent on costs (although these included the misrepresentation claim). I consider the offer of $50,000 to have been realistic in that it was within a reasonable negotiation range, indicating good faith on the defendants’ part and a wish to find a commercially realistic settlement. In contrast, no counter-offer was made by the plaintiff. The defendants’ offer was, however, approximately 36 per cent less than the sum ultimately recovered, and was not “close” in terms of r 14.11(4).
[20] The reasonable early offer of the defendants and the lack of response favours a cost award for the defendants against the plaintiff. This is not because r 14.11(4) applies, as it does not. It is because in the end a formulaic approach to costs is not possible in this case, because of the complexities of assessing the parties’ success, and the necessity of a discretionary evaluation. In the modern age of litigation, where settlement is seen as an objective to be encouraged, I see no difficulty in the process of a discretionary assessment in placing at least some weight on one party’s
reasonable approach to settlement, if contrasted to another party’s obduracy.
4 Nandro Homes Ltd v Datt, above n 2, at [13].
Refusal to remove to the District Court
[21] On a number of occasions, the defendants proposed that the misrepresentation claim be discontinued and the defects claims be heard in the District Court. I understand why the plaintiff refused to do this, as it wanted to have the misrepresentation claim heard in the High Court. Nevertheless, the defendants’ proposal has, with hindsight, proved to be reasonable and sensible. If the claim had been made for the defects alone in the District Court the parties’ costs would have been far less. This works in favour of costs for the defendants.
Allegedly vexatious or frivolous claims
[22] Mr Grove argued for increased or indemnity costs, on the basis that the plaintiff had been alleging the equivalent of fraud against the defendant Mr Midgen, because it was being suggested that he was pursuing cash sales and thereby defrauding the Inland Revenue Department.
[23] I do not accept this argument. What the plaintiff was saying was that Mr Midgen had told them the difference between the recorded sales and actual sales was made up of cash sales. The plaintiff’s case was that this representation was an untrue representation. In other words, if the plaintiff was successful there had been no cheating of the Inland Revenue Department. Rather, there had been a misrepresentation to the plaintiff. The plaintiff never alleged fraud against the defendants.
[24] I made a strong credibility finding in favour of Mr Midgen of the defendants, and against Mr Morgan of the plaintiff, and to a lesser extent Mr Cameron in the misrepresentation claim. I found Mr Midgen to be a reasonable person. Not so Mr Morgan.
[25] However, in relation to the misrepresentation claim where documents were relied on, some of the arguments put forward by Mr Fisher, in particular in interpreting an exchange of correspondence, were entirely arguable. I certainly did not regard the plaintiff ’s misrepresentation claims as being so clearly in the utterly hopeless category as to warrant indemnity or indeed increased costs.
Overview
[26] This is not one of those cases where it can be said the plaintiff has been successful, and although it has got much less than it wanted, should still get some costs. The plaintiff has, if the case is looked at in the round, been plainly unsuccessful.
[27] The plaintiff lost on the arguments and evidence that took up three-quarters of the Court hearing. The plaintiff was at fault in not engaging with the Calderbank offers that were made. The proceeding should, as the defendants proposed, have been heard in the District Court. Overall, as I recorded in my judgment, it has been my perception that Mr Midgen, although he was in the wrong in not responding more fulsomely to the defects issues when they arose, has endeavoured to be fair, and has acted in a manner that was commercially understandable and reasonable.
[28] Mr Morgan, to the contrary, has been belligerent in all his dealings with the defendants, and quite unreasonably so. I do not punish him in costs terms for his strenuous pursuit of his claims. But in my overall assessment of costs, in particular in assessing Mr Grove’s submission that the defendants are entitled to a credit for their genuine attempts to settle and Mr Morgan’s lack of response, Mr Morgan’s overall approach and treatment of the defendants weights the costs assessment against him.
[29] I conclude that the defendants should get full costs on a 2B basis for the six days of hearing that concerned the parts of the case on which they won. In respect of the two days that I calculate were spent on plaintiff’s successful defects claims where the defendants lost, I am not going to order positive costs in the plaintiff’s favour because of the plaintiff’s conduct. Costs will lie where they fall for those two days. Thus, the defendants do suffer some costs penalty for the part of the case where they lost, in that they do not get costs for those two days of hearing, although they do not pay costs.
[30] The defendants will get less than full 2B costs for the proceeding overall to recognise their lack of success on the three proven defects, but the deduction is not as much as it could have been for the reasons I have set out above.
[31] As to the costs preparing for the damages hearing, which are not
inconsiderable (Mr Fisher advises that from his client’s perspective they come to
$22,077 on a 2B basis), those costs will lie where they fall. Ultimately the plaintiff obtained a sum of money ($67,527.97). That was much less than was claimed. It is my overall perspective that, if the plaintiff had engaged more reasonably with the defendants, a settlement could have been reached quite quickly, and wasted costs would have been far more limited.
[32] I note that in this regard, after the hearing the plaintiff claimed it was initially seeking the sum of $295,806.20 for the proven defects (five times as much as that ultimately paid), and that it was only last week that the plaintiff reduced its damages claim to $103,000. At the same time the defendants were making an open offer to settle at $50,000, which was much closer to the mark. Again I have the same perception of the plaintiff being far more inflexible and unreasonable, leading to further costs. However, the defendants get no costs for this part of the case, given that the claims arose from the defects for which they were legally responsible.
[33] The costs did not include claims in relation to the injunctive relief and the discontinuance, where costs orders have already been made. I do, however, note that again the plaintiff was found to be at fault and costs orders were made against the plaintiff on those specific issues, consistent with my perception that the plaintiff’s actions have been unreasonable through the course of the proceedings.
Disbursements
[34] In accordance with my finding that the defendants are in general terms entitled to costs against the plaintiff, I grant the defendants their full disbursements, including for their experts. This includes the disbursements for Mr Stephen Hogg. I did not particularly rely on his evidence, but it was nevertheless competently presented, and relevant and reasonably necessary to the proceeding.5
[35] Also consistently with my view that the defendants should be regarded as successful, I do not propose making the orders sought for disbursements for
5 High Court Rules, r 14.12(2).
photocopying costs in relation to the defect claims and hearing fees paid by the plaintiff.
Result
[36] I award the defendants costs (as if for a single party) calculated on a 2B basis, on a six day hearing. The defendants are entitled to their full disbursements for the substantive hearing. Costs following the issue of the judgment on 15 September
2015 are to lie where they fall.
[37] There will be no costs order on this costs argument, as both parties have had a measure of success.
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Asher J
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