Weaver v HML Nominees Ltd
[2016] NZHC 473
•18 March 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-003130 [2016] NZHC 473
BETWEEN ANN-LOUISE EVELYN CHANTAL
WEAVER AND GRAHAM WILLIAM ANDERSON
Plaintiffs
AND
HML NOMINEES LIMITED First Defendant
HELEN MARTHA MOORE Second Defendant
Continued…
Hearing: On the papers Counsel:
T J Rainey and J Heard for plaintiffs
D R Bigio and C I Hadlee for first and second defendants
D J Barr and S S R Meares for third defendant
N J Scampion for second third party and seventh third partyJudgment:
18 March 2016
JUDGMENT OF KATZ J [Costs]
This judgment was delivered by me on 18 March 2016 at 4:45pm pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
Solicitors: Rainey Law, Auckland LeeSalmonLong, Auckland Simpson Grierson, Auckland Wilson Harle, Auckland
Counsel: D R Bigio, Shortland Chambers, Auckland
N J Scampion, Shortland Chambers, Auckland
Copy to: V Toon, Corporate Restructuring Limited, Auckland
WEAVER & ANDERSON v HML NOMINEES LIMITED & ORS [2016] NZHC 473 [18 March 2016]
AUCKLAND COUNCIL
Third Defendant
STONESCAPES LIMITED (IN LIQUIDATION)
First Third Party
FLEXCO (NZ) LIMITED
Second Third Party
ASHTON MITCHELL ARCHITECTS LIMITED (DISCONTINUED)
Third Third Party
BUILDING CODE CONSULTANTS LIMITED (DISCONTINUED)
Fourth Third Party
KELVIN LEONARD WALLS (DISCONTINUED)
Fifth Third Party
COOPER ROOFING COMPANY (DISCONTINUED)
Sixth Third Party
FLEXCO (NZ) LIMITED
Seventh Third Party
MOHAN ROOFING SERVICES LIMITED
Eighth Third Party
POINT CONSTRUCTION LIMITED (DISCONTINUED)
Ninth Third Party
STONESCAPES LIMITED (IN LIQUIDATION)
Tenth Third Party
JACKSON CLAPPERTON AND PARTNERS LIMITED (DISCONTINUED)
Eleventh Third Party
Introduction
[1] The plaintiffs, Ann-Louise Weaver and Graham Anderson, own a property in St Mary’s Bay, Auckland. They issued proceedings seeking to recover losses they allegedly suffered as a result of the failure of remedial work undertaken by the previous owner of the property, HML Nominees Limited (“HML”), in 2005 and
2006. HML is the corporate trustee of Helen Moore’s family trust. The house was originally built as Mrs Moore’s family home in 1997.
[2] On 28 August 2015 I delivered judgment in the proceedings (“Judgment”).1
The plaintiffs succeeded against Auckland Council (in tort) and HML (in contract) in respect of one of their major claims, relating to the defective stone cladding, but were otherwise largely unsuccessful. The Council succeeded in its third party claim against the stonemason, Stonescapes Limited (in liquidation) (“Stonescapes”). Third party claims against Flexco Limited, brought by the Council and Mrs Moore, both failed.
[3] I must now determine costs issues between the following parties: (a) the plaintiffs and the Council;
(b) Flexco and the Council;
(c) Flexco and HML/Mrs Moore; and
(d) Stonescapes and the Council.
[4] Costs issues between the plaintiffs and HML/Mrs Moore, and between
HML/Mrs Moore and the Council, have been resolved directly between those parties.
1 Weaver v HML Nominees Ltd [2015] NZHC 2080.
Costs as between the plaintiffs and the Council for the period prior to the
making of the defendants’ Calderbank offer
[5] On 20 November 2014 the defendants made a Calderbank offer to the plaintiffs, which was not accepted. It is therefore necessary to consider the issue of costs between the plaintiffs and the Council for two separate periods, one preceding the making of the Calderbank offer, and the other following it.
[6] Costs for the period up to 20 November 2014 fall to be assessed in accordance with the usual costs principles. Courts have a wide discretion when determining issues of costs. That discretion, however, is qualified by the specific costs rules set out in the High Court Rules.2 The overriding consideration when exercising the discretion to award costs is that the costs award ought to do justice between the parties.3
[7] The general principle is that costs will be awarded to the successful party.4
It is not always straightforward, however, to determine which party was successful, particularly in complex multi-party proceedings. An assessment of which party was successful requires both a consideration of which party won the principal contests of law and fact and a realistic appraisal of the end result, rather than focusing on who
initiated what step and the extent to which that step succeeded or failed.5
[8] The plaintiffs submit that they are, overall, the successful party in the litigation and are therefore entitled to their costs. They seek scale costs, together with disbursements. The Council, on the other hand, submits that it and the plaintiffs had roughly equal measures of success and failure in the litigation and that costs should therefore lie where they fall for the period preceding the making of the
Calderbank offer.
2 Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109, [2013] 1 NZLR 305 at [7].
3 Packing In Ltd (In Liq) v Chilcott (2003) 16 PRNZ 869 (CA) at [5] per Tipping J.
4 High Court Rules, r 14.2.
5 Lawrence v Glynbrook 2001 Ltd [2015] NZHC 1005 at [8].
[9] The special damages claimed against the Council, as set out in the plaintiffs second amended statement of claim, totalled $186,682.40. The largest heads of loss related to the following alleged defects:
(a) stone cladding remedial costs ($89,892.96); (b) front entrance ($32,697.60);
(c) garage roof ($15,230.33); and
(d) garage wall cladding ($15,295.73).
[10] In addition the plaintiffs sought general damages of $25,000 per plaintiff
($50,000), plus interest and costs.
[11] The plaintiffs were successful against the Council in respect of the stone cladding remedial costs ($89,892.96). The sum of $6,513.26 was also awarded, in respect of associated professional and Council fees. A further $2,118.98 was awarded in respect of a claim relating to the chimney. The total special damages awarded against the Council were accordingly $98,525.20, which comprised around
53 per cent of the special damages claimed against it in the second amended statement of claim. In addition the Council was ordered to pay $10,000 in general damages. The plaintiffs were therefore awarded just under half of the total damages they claimed against the Council in their pleading.
[12] It is difficult to be precise as to how much preparation and hearing time related to the claims in respect of which the plaintiffs were successful, as opposed to those in respect of which they failed (or which were abandoned). Broadly speaking, however, I estimate that approximately half the evidence and hearing time related to the stone cladding claim. Very little evidence or hearing time was taken up with the chimney claim.
[13] In my view, taking a realistic appraisal of the end result, the plaintiffs and the Council had a broadly equal measure of success in the litigation. While the plaintiffs succeeded on their single largest claim, extensive time was also spent in relation to
other claims and issues in respect of which the plaintiffs were unsuccessful, or which they abandoned.
[14] In Packing In Ltd (in liq) v Chilcott, the Court of Appeal dealt with the appropriate approach where each party has had similar success:6
… we do not consider it helpful to focus too closely on the question which party has failed and which has succeeded. Costs in a case such as this should rather be based on the premise that approximately equal success and failure attended the efforts of both sides. To that starting point should be added issues such as how much time was spent on each transaction or group of transactions in issue, and any other matters which can reasonably be said to bear on the Court’s ultimate discretion on the subject of costs. In the end, as in all costs matters, the Court must endeavour to do justice to both sides, bearing in mind all material features of the case.
[15] In all the circumstances of this case, I am satisfied that an order for costs to lie where they fall would best do justice as between the plaintiffs and the Council for the period preceding the making of the Calderbank offer. Roughly equal success and failure attended the efforts of both sides and approximately equal time was spent on the issues on which the plaintiffs succeeded and the issues on which they failed.
Costs between the plaintiffs and the Council for the period following the
Calderbank offer
[16] I now turn to consider costs for the period following the making of the
Calderbank offer.
[17] Where a Calderbank offer is made the Court has the discretion to consider it when making an order as to costs.7 Where an offer exceeds the amount awarded at trial, the party that made the offer may be awarded costs (including increased costs in appropriate cases) from the date of the offer. All relevant circumstances must be considered,8 including whether rejection of the Calderbank offer was reasonable.9
The underlying purpose of the rules relating to Calderbank offers is to recognise the
6 Packing In Ltd (in liq), above n 3, at [5].
7 Rule 14.11.
8 Gauld v Waimakariri District Council [2014] NZHC 956 at [24] – [28].
9 Money World New Zealand 2000 Ltd v KVB Kunlun New Zealand Ltd HC Auckland
CIV-2003-404-2542, 23 September 2005 at [58].
cost efficiencies gained by way of making offers to settle in advance of the hearing of the case.
The parties’ positions
[18] The Council seeks scale costs from the date of expiry of the Calderbank
($34,825) together with a 50 per cent uplift ($17,412.50), and disbursements of
$28,269.76. The plaintiffs, on the other hand, submit that if an alleged minor “error” in the Judgment is taken into account, they did beat the Calderbank offer at trial, albeit only just. Alternatively, the plaintiffs submit that they only fell short marginally and that in the circumstances it would not be just to award costs to the Council. Rather, the plaintiffs submit that they should be awarded scale costs, or costs should lie where they fall.
The Calderbank offer
[19] On 19 March 2014 the parties participated in a case management conference before me, via teleconference. The parties were strongly urged to explore settlement, particularly given that the quantum in dispute was modest relative to the likely costs of multi-party litigation. Although the defendants were keen to attend mediation, the plaintiffs were not. They indicated, however, that they would be willing to consider any written settlement offers the defendants may wish to put forward. My Minute following the case management conference further urged the plaintiffs to consider alternative dispute resolution, in the following terms:
… the sum in dispute (which I understand to be approximately $200,000) is not particularly large, relative to the number of parties involved. All parties, including the plaintiffs, may find that the costs of litigation are disproportionate to the sum in dispute. In such circumstances there are obvious benefits to some form of alternative dispute resolution process being explored. The plaintiffs may wish to reflect on this issue further, prior to the next case management conference.
[20] The plaintiffs apparently remained unwilling to participate in mediation. As a result, in order to try and progress settlement, a joint settlement offer was put to them by the defendants and some of the third parties, in the sum of $197,500. That sum would likely have covered the entirety of the remedial costs claimed, albeit with no allowance for interest or costs. The plaintiffs elected not to respond to the settlement
offer and it expired on 3 December 2014, without any discussion or dialogue occurring in relation to it.
The costs consequences of the Calderbank offer
[21] Interest and costs are taken into account when calculating the judgment sum and whether a Calderbank offer was less or more than that sum.10 Obviously, the parties did not know, at the time of filing their costs submissions, what costs award (if any) might be made in respect of the period preceding the making of the Calderbank offer. As a result, for the purposes of their submissions, they both simply factored in scale costs for that period (although they differed in some respects
as to the precise quantification of such costs). This was without prejudice, of course, to the Council’s primary submission, which was that costs should lie where they fall for the period prior to the making of the Calderbank offer. For the reasons outlined above, I ultimately accepted that submission.
[22] When scale costs up to 20 November 2014 are deducted from the judgment sum, the relevant sum is $161,727.70 on the Council’s estimate and $164,931.58 on the plaintiffs’ estimate. Either sum is significantly less than the Calderbank offer of
$197,500. In addition, in accordance with my view that costs should lie where they fall for the period prior to the making of the Calderbank offer, the disbursements claimed by the plaintiffs for that period (totalling $36,710.74) should also be excluded from the judgment sum. I note that the most significant disbursements incurred during this period related to the preparation of expert evidence. That evidence, however, included extensive evidence relating to issues in respect of which the plaintiffs were unsuccessful, or which the plaintiffs eventually abandoned.
[23] On any analysis, it is clear that the plaintiffs fell short of beating the Calderbank offer at trial by a significant margin. The plaintiffs’ failure to accept the Calderbank (or even enter into any dialogue in relation to it) was unreasonable in all
the circumstances. As the Court of Appeal observed in Moore v McNabb:11
10 Sharp Tudhope v McEwan (2003) Ltd [2010] NZCA 166, (2010) 20 PRNZ 664 at [9] – [10].
11 Moore v McNabb (2005) 18 PRNZ 127 (CA) at [58]. See discussion at [56] to [63].
[I]t is a requirement of fairness that litigants — particularly defendants — have some economic means of limiting their exposure to the risk of costs; and secondly the Court itself must ensure that a procedure of this character operates as an effective encouragement to settle.
[24] The defendants were clearly keen to settle and were willing to attend mediation or engage in settlement dialogue. The plaintiffs were strongly encouraged by the Court to explore settlement, particularly given that the quantum claimed was modest (at the lower end of the High Court’s jurisdiction) and the litigation was multi-party and relatively complex.
[25] Although unwilling to attend mediation, the plaintiffs indicated a willingness to consider any written offers. The defendants acted on that indication and made an offer. Given the number of parties and the complexity of the litigation it is likely that considerable effort went into negotiating and formulating that offer. The plaintiffs chose, however, not to respond to it. That was, of course, their right. They obviously felt deeply aggrieved regarding the defects in the property (as was apparent during the Court hearing). They wished to have their day in Court, despite the inevitable risks involved. They were entitled to do so. Given, however, that they received a reasonable settlement offer pre-trial, they must now bear the costs consequences of that decision.
[26] I do not accept the plaintiffs’ submission that it was reasonable for them to reject the Calderbank offer on “public interest” grounds, in order to hold the Council to account, or to obtain a judicial decision concerning the effect of Department of Building and Housing determinations on civil proceedings. Neither of those matters justified the plaintiffs’ failure to engage in settlement dialogue or accept what was a reasonable settlement proposal.
[27] The Council is therefore entitled to at least scale costs for the period following the making of the Calderbank offer. The Council estimates scale costs for that period, on a 2B basis, at $34,825.00. I note that this estimate is a conservative one. The Council does not seek a Band C allocation for any steps.12 Nor does it
seek costs for the appearance of second counsel at the hearing, despite the
12 As set out at [46] below, Flexco sought, and was awarded, a Band C allocation for trial preparation.
complexity of the litigation and the fact that junior counsel did appear for the
Council at the hearing.
[28] The Council also seeks disbursements of $28,269.76. In my view $12,995 should be deducted from this sum, however, as those costs relate to an expert witness, Mr Grayson, who was not ultimately called to give evidence at trial. There is insufficient information before me to justify allowing this disbursement, notwithstanding Mr Grayson’s failure to give evidence at trial. The appropriate disbursement figure is accordingly $15,274.76.
Should increased costs be awarded for the period following the Calderbank offer?
[29] The Council seeks a 50 per cent uplift on scale costs for the period following the Calderbank, on the basis that:
(a) the plaintiffs rejected (and failed to even respond to) a reasonable settlement offer;13 and
(b)the plaintiffs unreasonably pursued a claim in relation to the building consent.14
[30] A successful Calderbank offer does not of itself give rise to an entitlement to increased or indemnity costs, as this remains at the Court’s discretion. There are good policy reasons, however, why the making of a successful Calderbank offer will often lead to an award of increased costs.15 Regard must be had to the factors in r
14.6,16 as with any increased costs application. Rule 14.6(3)(b)(v) provides that
increased costs may be awarded where a party fails to accept an offer of settlement without reasonable justification with the result that they contribute unnecessarily to the time or expense of the proceeding or step in it. Each case is necessarily fact
specific. The assessment of whether increased costs should be awarded, and the
13 Rule 14.6(2)(b)(v).
14 Rule 14.6(2)(b)(ii).
15 Junior Farms Ltd v Commissioner of Inland Revenue (No 2) (2011) 25 NZTC 25,754 (HC)
at [18].
16 At [19].
extent of any increase, can be impacted by a number of factors. These include
(but are not limited to):
(a) the size of the offer relative to the actual costs of counsel;17
(b) the amount of the claim; 18
(c) the reasonable expectations of the party that refuses the offer; 19
(d) the amount of preparation for trial already undertaken;20
(e) whether the proceeding concerns an uncertain area of law;21
(f) whether the parties were in a position to assess the merits when the offer was received;22
(g)the information available to the party who receives the offer and the extent to which they can to assess the offer. 23
(h) the timing of the offer;24
(i) the conduct of the offeror.25
[31] I have already found that the settlement offer was a reasonable one. It was made after the proceedings had been underway for some time and extensive trial preparation had been undertaken. The plaintiffs should therefore have been well placed to undertake a realistic assessment of the offer, in conjunction with their
expert consultants and legal advisers.
17 Gilbert v Shanahan (1997) 12 PRNZ 185 (HC).
18 McDonald v FAI (NZ) General Insurance Co Ltd (2002) 16 PRNZ 298 (HC) at [17].
19 At [17].
20 Reynolds v Calvert [2015] NZHC 870.
21 Blanchett v RBI Ltd [2014] NZHC 2450.
22 Honey Bees Preschools Ltd v 127 Hobson Street Ltd [2015] NZHC 821.
23 McDonald v FAI (NZ) General Insurance Co Ltd, above n 18, at [17].
24 Strachan v Denbigh Property Ltd HC Palmerston North CIV-2010-454-232, 3 June 2011.
Rodgers v Advanced Creative Technologies Ltd [2013] NZHC 1095.
25 Watson v Whitehead [2015] NZHC 1679.
[32] The conduct of the offerors was reasonable in all the circumstances. On the other hand, the plaintiffs’ refusal to engage in any settlement dialogue, or to respond to the settlement offer, was unreasonable, particularly given the strong indication from the Court that settlement should be explored. As a result of the plaintiffs’ failure to accept what has proved to be a very reasonable settlement offer, the Council was forced to continue to incur significant legal costs. Such costs were no doubt significantly in excess of scale costs.
[33] The Council also submits that increased costs are appropriate to reflect the plaintiffs’ unreasonable pursuit of a claim in relation to the building consent that was belatedly abandoned during the plaintiffs’ closing submissions. The building consent claim was not supported by the plaintiffs’ own expert evidence.
[34] Both of these matters justify an increase in costs, although the more significant issue is the plaintiffs’ failure to accept a reasonable settlement offer. In my view a 50 per cent uplift appropriately reflects that the plaintiffs’ conduct needlessly prolonged the proceedings and caused the Council to incur unnecessary expense. The appropriate award of costs in favour of the Council for the period following the making of the Calderbank offer is accordingly $52,237.50, together with disbursements of $15,274.76 ($67,512.26 in total).
Costs liability of the Council, HML and Mrs Moore to Flexco
[35] The Council, HML and Mrs Moore all issued third party claims against
Flexco.
The Council’s third party claim against Flexco
[36] The plaintiffs pleaded that the Council owed them a duty to exercise reasonable skill and care in processing the building consent application for the remedial work and issuing the building consent. The Council was said to have breached its duty by issuing the building consent when the plans and specifications were insufficient to satisfy a reasonably skilled and prudent council officer that the remedial work would comply with the requirements of the building code, if properly completed in accordance with the plans and specifications.
[37] I held that the Council was negligent, in that it should have made further inquiries regarding the proposed stone cladding system before issuing the building consent. However, its failure to do so was not causative of any loss, as the plaintiffs appeared to accept in their closing submissions. That is because the parties’ experts were in agreement that the proposed stone cladding system (using the Flexi-Seal System), if installed correctly, would have met the requirements of the building code.
[38] The Council joined Flexco as a third party. Flexco is the supplier of the Flexi-Seal System. At the request of the stone supplier, Flexco arranged for a letter to be provided to the Council in support of the building consent application, explaining the Flexi-Seal System. In its third party claim against Flexco (in negligent mis-statement) the Council claimed that it issued the building consent in reliance on Flexco’s letter. It argued that if its approval of the stone cladding system had caused loss, then it should be entitled to a contribution from Flexco, which had, in effect, certified that the stone cladding system proposed would comply with the requirements of the building code. If the system was defective, the Council submitted, then Flexco’s advice must have also been defective.
[39] The plaintiffs’ claim against the Council in relation to the issue of the building consent failed, as I found that the stone cladding system proposed in the building consent application would have worked. There was therefore no causative link between the issuing of the building consent and the plaintiffs’ loss.
[40] The third party claim against Flexco also necessarily failed. Flexco were not negligent in relation to the statements that it made to the Council regarding the Flexi-Seal System.
HML and Mrs Moore’s third party claims against Flexco
[41] HML and Mrs Moore also issued third party claims against Flexco in negligence. In particular, they pleaded that Flexco owed duties to HML and the plaintiffs (as subsequent purchasers of the property) to:
(a) identify whether Flexi-Seal membrane and Flexi-Seal adhesive had been applied as required by the building consents; and
(b)identify what work should be undertaken to ensure that there would be no further loosening of the stone veneer.
[42] Flexco was alleged to have breached these duties, causing or contributing to the defects in the property.
[43] I held that Flexco (a distributor) did not owe the pleaded duties of care. Even if it did, however, it had not breached them. I concluded that it was:
…difficult to see what more Flexco could have done to alert Ms Moore to the fact that there were serious systemic problems with the stone cladding work, or that the waterproofing membrane that was used may well not be Flexi-Seal.
What costs is Flexco entitled to recover on a scale basis?
[44] Both the Council and HML accept that Flexco, which is a small husband and wife owned company, is entitled to an award of costs. They submit, however, that any award should be on a scale basis. I will therefore first consider what scale costs would be appropriate, before turning to consider whether an award of increased costs, as sought by Flexco, is appropriate.
[45] It was common ground that the proceedings are Category 2 proceedings, and that Band B is appropriate for most steps. The key disputes are:
(a) whether some steps in the proceeding should attract costs on a Band
C basis; and
(b)whether Flexco should be awarded costs in respect of a number of “steps” in the proceedings it has claimed for, which fall outside of steps specifically set out in Schedule 3 to the High Court Rules.
I will consider each issue in turn.
[46] Flexco submitted that a number of items should attract costs on a Band C basis. In my view, however, Band B is appropriate for most steps, on the basis that a “normal” amount of time for most steps would have been required. I do, however, allow Band C for trial preparation (item 33 – five days), given that it was a ten day trial (initially scheduled to be longer) involving multiple parties and included extensive and complex evidence, including expert evidence.
[47] Flexco also seeks costs for a number of additional “steps” that are not included in the steps listed in the Schedule to the High Court Rules. By way of example, it seeks a costs allocation in respect of items such as reading and considering pleadings filed by other parties, reading and considering notices of discontinuance filed by other parties, reading and considering correspondence, telephone calls with other counsel, reading and considering other parties’ memoranda, reading and considering other parties briefs of evidence and so on.
[48] The defendants challenge Flexco’s entitlement to the additional items claimed, save that they accept that it is appropriate that an allocation of costs be made in respect of Flexco’s requests for further and better particulars from the Council and HML/Mrs Moore respectively.
[49] Flexco’s claim to a costs allocation in respect of a large list of (on the whole) relatively minor attendances is misconceived and cuts across the costs regime set out in the High Court Rules. In effect Flexco is seeking a separate costs allocation in respect of ground work which is generally ancillary or preparatory to the recognised “steps” set out in Schedule 3. I am not satisfied, with one exception, that the claimed items are sufficiently significant for an allocation based on an analogy under rule
14.5.1(b) to be appropriate.
[50] As the Supreme Court observed in Manukau Golf Club Inc, since complex costs regimes were inserted into the High Court Rules, there is a presumption that the exercise of the Court’s discretion to award costs will be aligned with the rules.26
Schedule 3 to the High Court Rules provides a framework for assessing a reasonable
contribution towards a party’s costs. It focuses on “steps” in the proceeding rather
than the type of daily attendances that would normally be recorded in a lawyer’s time sheets (as are set out in Flexco’s costs schedule). Such types of day to day attendances are, in effect, subsumed in the high level steps in the proceedings that are set out in Schedule 3. Hence, for example, rather than a party claiming a costs allocation for reading each of the opposing party’s briefs of evidence, Schedule 3 envisages one “global” claim, for trial preparation.
[51] The rules envisage, however, that some “steps” in the proceeding may not be covered by Schedule 3. In such circumstances rule 14.5(1)(b) provides for the Court to make an allowance for such costs by analogy with Schedule 3. In my view a request for further and better particulars is a “step” in the proceeding that should attract a costs allocation by analogy. I accept the defendants’ submission that the appropriate analogy is step 16 in Schedule 3 (notice to answer interrogatories).
[52] Subject to allowing a Band C allocation for trial preparation (an additional two days), I am satisfied that Schedule A to the costs submissions of HML/Mrs Moore (dated 9 October 2015) accurately sets out the appropriate quantum of Flexco’s costs. The appropriate quantum of the scale costs award in favour of Flexco is accordingly $65,272.
Should increased costs be awarded
[53] Flexco seeks a 50 per cent uplift on scale costs on the basis that the defendants contributed unnecessarily to the time or expense of the proceeding (or a step in it) by:27
(a) failing, without reasonable justification, to accept an offer of settlement;
(b)taking or pursuing an unnecessary step or an argument that lacked merit.
I will consider each issue in turn.
[54] On 4 April 2014 Flexco made a Calderbank offer, seeking that the defendants meet its costs in the sum of $30,447. This was considerably more than Flexco’s costs entitlement at that time on a scale costs basis, which would have been approximately $17,000. The offer was rejected.
[55] On 28 November 2014 Flexco made a further Calderbank offer. It advised that it would settle if the defendants met its costs in the sum of $45,000. If the defendants had simply discontinued as at that date, however, scale costs (for steps relating to all defendants) would have been significantly less than that sum.
[56] Flexco argued that it would have been entitled to increased costs and that it was therefore unreasonable for its Calderbank offers to be rejected. In my view, however, as at 4 April 2014 and 28 November 2014 it was not unreasonable for the defendants to reject Flexco’s Calderbank offers, given that they would have required them to pay very significantly more than scale costs. Based on the information available to them at the time the defendants should have been aware that their claims against Flexco were relatively weak. The proceedings were complex, however, and as at the date of the Calderbank offers the defendants were not realistically at risk of costs that were almost double scale costs, particularly given that it is only in the most exceptional circumstances that an increase of 50 per cent above scale costs could
ever be warranted.28
[57] The Calderbank offers are therefore irrelevant for present purposes. Flexco is not entitled to increased costs on the basis that the defendants rejected a reasonable settlement offer.
[58] I therefore now turn to consider whether increased costs should be awarded on the basis that the defendants (or any one of them) contributed unnecessarily to the time or expense of the proceeding, or a step in it, by taking or pursuing an unnecessary step or an argument that lacked merit.
[59] As against the Council, Flexco argued that there was no evidence to support the Council’s primary claim against Flexco at trial. I accept that submission. Indeed ultimately the Council’s own expert gave evidence that the stone cladding system (using the Flexi-Seal System) would have worked if it has been implemented in accordance with the building consent. There was accordingly no basis on which the Council’s negligent mis-statement claim against Flexco could have succeeded. It is therefore appropriate that an increased award of costs should be made against the Council. In my view an uplift of 50 per cent is appropriate against the Council.
[60] As against HML/Mrs Moore, Flexco argued that they contributed unnecessarily to the time or expense of the proceedings because (as found in the Judgment):
(a) Mrs Moore was told what the defects were;
(b)Mrs Moore was told the underlying issues were systemic and knew there was a risk the problems would become widespread;
(c) Mr Harvie and Mr Riedstra told Mrs Moore that the product was not
Flexi-Seal; and
(d) Mrs Moore was told what should be done to remedy the defects.
[61] These factual findings underpinned my conclusion that Flexco had not been negligent in its dealings with HML/Mrs Moore. Essentially I preferred the evidence of Messrs Harvie and Riedstra (for Flexco) to that of Mrs Moore.
[62] Determining factual disputes is a necessary part of the decision making process. It does not follow, however, that increased costs should be awarded against HML/Mrs Moore because I ultimately rejected key aspects of Mrs Moore’s account of what had happened at the relevant meetings. In my view the threshold for an increased costs award against HML/Mrs Moore has not been reached.
How should Flexco’s costs be apportioned between the Council, HML and
Mrs Moore?
[63] All three defendants issued unsuccessful third party claims against Flexco. HML and Mrs Moore were jointly represented and their third party claims mirrored each other. For costs purposes I therefore approach the matter on the basis that there were, in effect, two third party claims against Flexco, one by HML/Mrs Moore and one by the Council.
[64] Where two or more defendants have joined the same third party and each has been unsuccessful, an apportionment of the third parties’ costs between the unsuccessful defendants is necessary. Both sets of defendants submitted that the other party should bear the majority of the costs, on the basis that Flexco’s defence and evidence was primarily directed to the other parties’ claim. I am satisfied, however, that a 50/50 apportionment reflects the likely work Flexco had to undertake in meeting each party’s case.
[65] Although the “default” position where two defendants have joined the same third party is that liability is joint and several between the defendants, I am not satisfied that such a course is appropriate in this case given that the third party claims of HML/Mrs Moore and the Council were entirely discrete and, further, I have awarded increased costs against the Council (only). Joint and several liability is, however, appropriate as between HML and Mrs Moore (given that their claims were mirror claims that I have effectively treated as one claim).
[66] The net result is that:
(a) HML and Mrs Moore are jointly and severally liable to Flexco for costs of $32,636 (being 50 per cent of scale costs of $65,272). As between HML and Mrs Moore they are each responsible for half of those costs ($16,318).
(b) The Council is liable to Flexco for costs of $48,954 ($32,636 with a
50 per cent uplift.)
Should the plaintiffs be required to meet the Council’s costs liability to Flexco?
[67] The Council submits that the plaintiffs should be required to meet its costs liability to Flexco.
[68] The relevant principles as to when a plaintiff should be required to meet the costs of a third party are set out in Money World New Zealand Ltd v KVB Kunlun New Zealand Ltd:29
[31] … 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.
[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.
…
[41] The sole reason why [the defendant] joined [the third party] was because it had been sued by [the plaintiff]. Having been sued, [the defendant] was entitled to protect its position by calling into account, if necessary, the advice of [the third party], which it had relied on.
[69] I have summarised at [36] to [40] above the plaintiffs’ building consent claim and the Council’s associated third party claim against Flexco. Given that context, it is my view that the plaintiffs should bear some responsibility for Flexco’s costs. If they had not filed and then pursued the misconceived building consent claim right through to the conclusion of trial (it was conceded on page 100 of the plaintiffs’
103 page closing submissions), Flexco’s costs in relation to the Council’s third party claims would have been entirely avoided. The building consent claim was pursued despite the plaintiffs’ own expert taking the view in evidence (and pre-trial reports) that had the building work been undertaken in accordance with the consent, it would not have been defective. It should therefore have been clear to the plaintiffs from the outset that there could be no causative link between the issue of the building consent
and any loss they had incurred.
29 Money World New Zealand 2000 Ltd v KVB Kunlun New Zealand Ltd, above n 10.
[70] I also note that the Council advised the plaintiffs prior to trial (on 2 December 2014 and 19 December 2014) that, if the building consent claim was pursued, the Council would seek an order that the plaintiffs meet any costs awarded in respect of its third party claim against Flexco.
[71] The Council, however, should also bear some responsibility for Flexco’s costs. It was initially reasonable for the Council to join Flexco, in light of the plaintiffs’ building consent claim. There is a clear logical nexus between the plaintiffs’ building consent claim and the Council’s third party claim against Flexco. Following the completion of discovery and the exchange of evidence, however, the Council should have realised that its third party claim against Flexco was flawed and could not succeed.
[72] Taking all of these matters into account, it is my view that the interests of
justice require that the Council’s scale costs liability to Flexco should be apportioned
50/50 between the Council and the plaintiffs. The 50 per cent uplift should be paid solely by the Council, as it is attributable to the Council’s own conduct in pursuing a third party claim against Flexco that it did not have the evidence to prove. The plaintiffs’ related building consent claim against the Council was similarly flawed, but they have already been “penalised” for that by way of an increased costs award in favour of the Council, as set out at [34] above. The net effect is that the Council is liable to pay Flexco’s costs in the sum of $48,954, but is entitled to recover a contribution of $16,318 in respect of this sum from the plaintiffs.
Costs as between the Council and Stonescapes
[73] The Council succeeded in its claim against Stonescapes (in liquidation). There is no reason why costs should not follow the event.
[74] Stonescapes did not defend matters at the hearing. The Council accordingly seeks costs only in relation to commencing the third party claim against Stonescapes and its application to proceed against Stonescapes in liquidation. Costs are ordered in respect of those matters, in the sum of $8,070.00, as set out in Annexure H to the Council’s submissions.
Summary and conclusion
[75] As between the plaintiffs and the Council, I have concluded that:
(a) For the period prior to the Council’s Calderbank offer of
20 November 2014 costs should lie where they fall, given that approximately equal success and failure attended the efforts of both sides and that roughly equal time was spent on the issues on which the plaintiffs succeeded and the issues on which they failed.
(b)For the period following the plaintiffs’ rejection of the Calderbank offer the Council is entitled to scale costs on a 2B basis with a 50 per cent uplift ($52,237.50), together with disbursements of $15,274.76 ($67,512.26 in total).
[76] In terms of Flexco’s costs:
(a) HML and Mrs Moore are jointly and severally liable to Flexco for costs of $32,636, being 50 per cent of scale costs of $65,272. As between HML and Mrs Moore they are each responsible for half of those costs ($16,318).
(b) The Council is liable to Flexco for costs of $48,954 ($32,636 with a
50 per cent uplift). The Council are, however, entitled to be reimbursed by the plaintiffs for one third of that sum ($16,318).
[77] Finally, as between the Council and Stonescapes, Stonescapes is liable to
meet the Council’s costs in the sum of $8,070.00.
Result
[78] I make the following orders:
(a) The plaintiffs are liable to pay the Council’s costs in the sum of $52,237.50, together with disbursements of $15,274.76 ($67,512.26 in total).
(b) HML and Mrs Moore are jointly and severally liable to pay Flexco’s
costs in the sum of $32,636.
(c) The Council is liable to pay Flexco’s costs in the sum of $48,954.
The Council is entitled to recover a contribution of $16,318 in respect of this sum from the plaintiffs.
(d) Stonescapes (in liquidation) is liable to pay the Council’s costs in the
sum of $8,070.00.
Katz J
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