Wellington Developments Limited v FMS Construction Limited
[2024] NZHC 592
•19 March 2024
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2023-485-000803
[2024] NZHC 592
UNDER the Arbitration Act 1996 and the High Court Rules 2016 IN THE MATTER OF
an application for an interim injunction to restrain the calling of a specific security deed pending an arbitration
BETWEEN
WELLINGTON DEVELOPMENTS LIMITED
Applicant
AND
FMS CONSTRUCTION LIMITED
Respondent
Hearing: (On the papers) Counsel:
J R Sumner and F B Q Collins for Applicant M R C Wolff for Respondent
Judgment:
19 March 2024
JUDGMENT OF LA HOOD J
(Costs)
[1] By judgment dated 29 January 2024, I granted Wellington Developments Ltd’s (WDL) application for interim measures under s 17B of the Arbitration Act 1996, preventing FMS Construction Ltd (FMS) from enforcing a security deed by taking possession of excavators, pending completion of a dispute resolution process. I indicated a preliminary view that the applicant is entitled to costs on a 2B basis, but gave the parties leave to file memoranda if they disagreed.
WELLINGTON DEVELOPMENTS LTD v FMS CONSTRUCTION LTD [2024] NZHC 592 [19 March 2024]
[2] The parties have been unable to agree and the Court is accordingly required to determine costs.
[3] WDL seeks costs and disbursements totalling $26,685.75 on the following basis:
(a)scale costs on a 2B basis totalling $16,490.50;
(b)a 50 per cent uplift on scale costs amounting to $8,245.25; and
(c)disbursements totalling $1,950.00.
[4]FMS’s position is:
(a)WDL took excessive and unnecessary steps by commencing the proceedings on an urgent basis and should not be able to recover the costs associated with these steps.
(b)There is no basis for costs to be uplifted and costs should be awarded on a 2B basis for costs reasonably incurred and not those incurred due to the taking of excessive and unnecessary steps in respect of urgency.
(c)The applicant is therefore only entitled to costs of $11,471.50 and disbursements of $550.00, totalling $12,021.50.
Costs principles
[5] Costs are at the discretion of the Court, which must be exercised in accordance with the settled principles and provisions of pt 14 of the High Court Rules 2016.
[6] I note the following observations of Cooke J in Lepionka & Company Investments Ltd v Gibson Sheat:1
[3] A large number of issues are raised in the memoranda that have been filed. The issues raised evidence of a misunderstanding of the costs regime
1 Lepionka & Company Investments Ltd v Gibson Sheat [2023] NZHC 2745.
set out in pt 14 of the High Court Rules 2016 (the Rules). This misunderstanding is not unusual — it is becoming increasingly common for there to be applications to depart from a standard award of costs determined under pt 14. That is a practice that should be discouraged unless there is a clear basis for such departure in accordance with the Rules. Most cases can be expected to involve costs being calculated on a 2B basis, with perhaps some adjustments to the time bands for some steps. But costs should normally be straightforward...
…
[7] Given the schedular approach the Court should only be involved in the determination of costs in a limited number of cases. The regime is relatively straightforward and costs should be able to be settled by the parties in the majority of cases. Yet it has become increasingly apparent that the Court is being asked to grant uplifts, discounts or exceptions to costs awards almost routinely...
[7] WDL seeks a 50 per cent uplift on scale costs pursuant to r 14.6(3) of the High Court Rules 2016. Under r 14.6(3) the Court may order a party to pay increased costs if––
(b)the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—
…
(ii) taking or pursuing an unnecessary step or an argument that lacks merit; or
(iii) failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument; or
...
(v) failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding; or
...
Uplift on the basis of failure to accept settlement offers – r 14.6(3)(b)(v)
[8] WDL seeks an uplift on the basis of: a failure to accept reasonable settlement offers outlining its claim in correspondence and explaining why WDL’s prospects of success were minimal; seeking to have the matter adjudicated through arbitration and adjudication; forewarning through correspondence that it would seek injunctive relief
if FMS sought to enforce the security deed; and making two offers of settlement without the need for a hearing to proceed that would have maintained the respondent’s security position and would have significantly reduced the costs for both parties.
[9] Cooke J addressed the application of r 14.6(3) to offers made by successful parties in Mainzeal Property and Construction Ltd (in liq) v Yan and Ors:2
[59] Offers made by successful plaintiffs are in a different category from offers made by unsuccessful defendants that exceed what the plaintiff is entitled to. The latter category is subject to separate rules in rr 14.10 and 14.11 which contemplate that a defendant offering more than the plaintiff is entitled to get costs from the point of the offer. That rationale does not arise in the rejection of offers made by the plaintiffs. A defendant who defends a proceeding is putting the plaintiff to the cost of it, and normally no increased costs are caused because the defendant does not accept an offer to settle for less than is claimed.
[60] The principle in r 14.6(3)(b)(v) recognises, however, there will be situations where the refusal to settle can demonstrate that the party is acting without reasonable justification, and causing unnecessary expense to the claiming party. It has a similar rationale to the other uplift grounds in r 14.6. A plaintiff may offer to accept less than it is entitled to try and convince an obdurate defendant not to put the parties to the cost of a trial, and the failure to accept such an offer may justify an uplift.
[10] Adopting the principles articulated by Cooke J in Mainzeal and reiterated in Lepionka,3 I do not accept that any of the matters WDL raise reach the level required for an uplift. I do not consider this is a situation where refusal to settle demonstrates that the party was acting without reasonable justification. This is a situation where FMS had an arguable case and was entitled to ask the Court to determine whether interim measures were appropriate.
Uplift on the basis of lack of merit – r 14.6(3)(b)(ii)
[11] Under this head, WDL refers to a number of my findings rejecting FMS’s case and finding in favour of WDL, as well as Ellis J’s decision to grant WDL’s application for leave to file additional evidence over FMS’s opposition.
2 Mainzeal Property and Construction Ltd (in liq) v Yan [2019] NZHC 1637 at [59]–[60].
3 Lepionka & Company Investments Ltd v Gibson Sheat, above n 1, at [34]–[35].
[12] The fact that I did not accept FMS’s submissions in opposition to WDL’s application does not trigger the application of this rule. As Cooke J said in Lepionka, it only arises “when there is a failure, without reasonable justification, to accept facts, evidence or a legal argument” and this is a high threshold.4 The rule is to be seen in the context that a party has a right of access to the Court. It only applies in clear cases where a party has advanced arguments which lack merit.5 This is not a case where FMS’s opposition was devoid of merit or otherwise so clearly lacking that an uplift is required. It had an arguable case and the rule is therefore not engaged.6
Respondent’s claim of unnecessary urgency
[13] A similar approach can be taken to FMS’s submission that no costs should be awarded in respect of steps taken to have the application determined in December due to Ellis J’s decision that it could be heard in January 2024. Ellis J’s decision of 19 December 2023 held:7
[3] The applicant has sought without notice injunctive relief preventing the respondent from taking further enforcement steps and undoing the steps that have already been taken. It very properly served the respondent with the application and related documents on a Pickwick basis, and I held a telephone conference with counsel this afternoon.
[4] As things presently stand, I am not prepared to grant any interim relief (even on a Pickwick basis) today. The applicant does not immediately need the diggers, although Mr Collins advises that the need for them will become urgent in the new year. As well, Mr Woolf accepted that before the respondent could sell the diggers, the PPSA requires 20 working days’ notice to be given to the applicant. Given the wider context of the Arbitration Act 1996 there may, as well, be a real issue about whether the statutory prerequisites for interim measures under s 17B of the first schedule to that Act are met. The short point is that a proper hearing will be required.
[14] I do not accept that Ellis J clearly stated that urgency was unnecessary. The competing interests were assessed, and Ellis J determined that she was not prepared to grant interim relief on 19 December as things presently stood. If things could not be resolved an urgent hearing could be sought in the New Year, which is what occurred.
4 At [29].
5 At [29]; And see NR v MR [2014] NZCA 623, (2014) 22 PRNZ 636 at [51].
6 Lepionka & Company Investments Ltd v Gibson Sheat, above n 1, at [31].
7 Wellington Developments Ltd v FMS Construction Ltd HC CIV-2023-485-803, 19 December 2023 (Minute).
Given the WDL’s success at that urgent hearing in the New Year, it is properly able to claim the costs of the steps it took to achieve that result.
Certification for second counsel
[15] I accept it is appropriate to certify for second counsel in the sum of $575.50 for appearance at the hearing, given both parties were represented by two counsel and the urgency of the application.
Conclusion
[16] I order that FMS is to pay WDL’s costs on a 2B basis for all of the items set out in Schedule 1 of WDL’s memorandum of 12 February 2024, totalling $16,490.50 plus disbursements of $1,950.00. I decline the uplift sought by WDL and reject the respondent’s submission that reduction is required to reflect an unreasonable approach to urgency by the applicant.
[17]Finally, I note that FMS disputes an office service charge disbursement of
$1,400 on the basis that it is vague and unreasonably disproportionate to ordinary administrative office costs. I agree it is vague, but given there is no claim for photocopying and printing and the volume of documents involved in the case, I allow a service charge of $700.00.
La Hood J
Solicitors:
Ford Sumner, Wellington for Applicant Morrison Kent, Wellington for Respondent
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