SENSATION YACHTS LIMITED V DARBY MARITIME LIMITED AND ANOR HC AK CIV 2005-404-1908 [2009] NZHC 993 (11 August 2009)

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
                                                                  CIV 2005-404-1908



               BETWEEN                    SENSATION YACHTS LIMITED
                                          Plaintiff

     
         AND                        DARBY MARITIME LIMITED
                                          First Defendant

          
    AND                        RUSSELL MCVEAGH
                                          Second Defendant


Appearances: P D Sills
for Plaintiff
             S S Cook for Defendant

Judgment:      11 August 2009 at 10.30am


                  COSTS JUDGMENT OF
BARAGWANATH J


            This judgment was delivered by me on 11th August 2009 at 10.30am
                       pursuant to r
11.5 of the High Court Rules




                               Registrar/Deputy Registrar




Solicitors/Counsel:
Bell Gully, Auckland
for Plaintiff
Russell McVeagh, Auckland for Defendant

Counsel:
Mr P D Sills, Auckland




SENSATION YACHTS LIMITED V DARBY MARITIME
LIMITED AND ANOR HC AK CIV 2005-404-
1908 11 August 2009

[1]       For reasons that are not now apparent, costs submissions made
by the parties
by memoranda dated as long ago as 30 May to 11 November 2005 in relation to
proceedings I completed by oral judgment
of 7 July 2005 have, regrettably, never
received attention. The file having now been restored to my attention I make the
costs orders
contained in this judgment.


[2]       The plaintiff Sensation Yachts Ltd (Sensation) had contracted with the first
defendant Darby
Maritime Ltd (Darby) to build a 174 foot motor yacht Noble House
under a written Vessel Construction Agreement (VCA) which contained
an
arbitration clause. At all material times Darby wished to take the vessel to sea for
trials preparatory to a delivery voyage to
the Mediterranean where it could take
advantage of high charter rates.        It also sought completion of certain work.
Sensation
sought payment of the balance of its contract price, claiming the work was
fully complete by 13 April 2005. Darby denied the work
had been completed.


[3]       By the date of Sensation's statement of claim of 13 April 2005 the parties had
agreed that the second
defendant Russell McVeagh would hold funds as Escrow
Agent under an Escrow Agreement pending the resolution of some outstanding
issues.


[4]       Sensation claimed in its proceeding that it had performed all work required to
entitle it to payment of $US1,640,649
held by the Escrow Agent, and that Darby was
in breach of contract by refusing to execute certain documents which would satisfy
certification
authorities and which were therefore a contractual condition required to
release the funds. It further sought an order prohibiting
Darby from taking the vessel
to sea until the documents had been issued and a further sum of $US43,090 for fuel
had been paid by
Darby. It claimed ex parte relief.


[5]       On 13 April Simon France J declined to deal with the matter ex parte.


[6]      
The following day Potter J made interim orders by consent:
          (a)   that Noble House      remain at her berth at Westhaven
Marina in
                Auckland;

       (b)    that the parties use their best endeavours to obtain MCA certification;
    
  (c)    that the parties co-operate in obtaining the expert advice of
              Don Brooke to assist an agreed resolution;

      (d)    that Darby file an initial affidavit;
       (e)    that the case should be listed before the Duty Judge on 18 April
2005.


[7]    On 18 April Rodney Hansen J made further orders by consent, keeping the
vessel in her berth and timetabling the filing
of affidavits to permit an early fixture.


[8]    By 26 April the vessel had received the certificates required to allow it to go
to sea. A report from Mr Brooke was awaited. I heard argument that day on
whether:
       (a)    this Court should exercise jurisdiction
under art 9(2)(e) of the First
              Schedule to the Arbitration Act 1996 to grant interim measures of
              protection before or during arbitral proceedings
and (subject to (b))
              order that Darby execute certain documents required to release funds;
       (b)    this Court
should construe the VCA and assess whether it excluded an
              equitable setoff sought by Darby.


I maintained in the meantime
the order that the vessel remain at Westhaven.


[9]    By 29 April the parties had exerted themselves to come up with a sensible
formula that would protect their respective positions pending the result of the
arbitration which was pending. While agreement had
not been reached, they had
prepared a draft document without prejudice to their respective rights to seek a better
result at the
arbitration. On that day, I gave oral judgment according to its terms
while continuing to reserve judgment on the questions in [8]
above.                The oral
judgment provided:

       (a)    for payments to each party out of the escrow account: to Darby of
              $US67,200 plus accrued interest; to Sensation of $US887,841; and for
              $US785,608 to remain in the account;

       (b)    for Darby to provide a bank guarantee or other security of $US250,000
              in respect, inter alia, of Sensation's
claims for additional work;

        (c)   for Mr Brooke to be directed to rule on certain outstanding claims;

        (d)   that
Noble House should remain in the jurisdiction until the guarantee
              referred to in (b) was satisfied, whereupon it might
leave.


[10]    The guarantee was provided on 2 May.


[11]    On 16 May, I delivered judgment on the issues which had been reserved
(see
[8] above). Holding that they should be determined not by this Court but by the
arbitrator, I answered question (a) no; (b)
did not therefore require answer.


[12]    On 7 July I held in favour of Sensation that a certificate by Mr Brooke
authorising payment
to it of $US135,000 (rather than the $US81,000 contended for
by Darby) should receive effect; and that further claims by Sensation
for $US34,000
and by Darby for $US67,000 were matters of which this Court was not seized and
they should properly form part of the
arbitral process.


[13]    On 11 November 2005 counsel submitted a joint memorandum setting out a
detailed chronology of events
from the parties' initial contract of 29 March 2002 and
dealing largely with extra-curial events as potentially bearing on costs.


Submissions


Darby


[14]    Darby calculates costs on a 2B basis as $11,310. Because of urgency it
includes allowance for second
counsel. But it seeks against Sensation an order for
increased costs under rule 48C(3) (now rule 14.6(3)) on the grounds that:


       (a)   the proceeding was premature and unnecessary;

        (b)   Sensation's legal argument was without merit;

       
(c)   Darby had to respond urgently to the proceeding;

        (d)   Sensation failed unreasonably to accept an offer of settlement;

       (e)   Darby's costs were increased by the number of Sensation's affidavits to
             which Darby had to respond;

       (f)   Sensation sought to introduce evidence of without prejudice
             discussions.


Sensation


[15]   Sensation
disputes Darby's claim to costs. It seeks costs for itself on a 2B
basis of $10,730 plus disbursements of $1,700. It claims to be
vindicated by the
form of the order of 29 April.


Discussion


[16]   In Bradbury v Westpac Banking Corporation  [2009] NZCA 234 the basis of
the current costs regime was examined. There as here the case was subject to the
former High Court Rules. The new Rules,
which took effect on 1 February 2009, are
materially the same. The Court of Appeal stated:

       [6] ... While [costs are] expressed
to be at the discretion of the court (r
       46(1), now r 14.1), that general discretion is qualified by the specific costs
  
    rules and is exercisable only in situations not contemplated or not fairly
       recognised by them (Glaister v Amalgamated
Dairies Ltd  [2004] 2 NZLR
       606 (CA)). Ordinarily the loser must pay the winner's costs according to
       scale. The scale reflects the complexity and significance
of the proceeding
       and are assessed at 2/3 of the daily rate set by the Rules Committee (r 47,
       now r 14.2). The rate
is reviewed annually.

       [7] But the court may make an order either increasing scale costs or,
       departing from the scale,
that the costs payable are "the actual costs,
       disbursements and witness expenses reasonably incurred by a party"
       (indemnity
costs) (r 48C, now r 14.6). An order for increased costs is
       permitted by r 48C(3) (now r 14.6(3)) if:

               ...

               (b) the party opposing the costs order has contributed unnecessarily
               to the time or expense of the
proceeding or step in it by--
                   (i) failing to comply with these rules or with a direction of the
             
     court; or
                   (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
                      (iv) failing, without reasonable justification, to comply with an
         
            order for discovery, a notice for further particulars, a notice for
                      interrogatories, or other similar
requirement under these rules; 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

                ...

                (d) some other reason exists which justifies the court making
an
                order for increased costs despite the principle that the determination
                of costs should be predictable
and expeditious.

[17]   While the carefully prepared joint chronology gives substantial detail of
events occurring from the date
of the original VCA of 29 March 2002 until the
judgment of 16 May 2005, nowadays the Court's task when setting costs is not to
perform
a detailed appraisal of the kind required under the former regime from
which New Zealand has departed. Rather than add to the costs
by such process the
rules contemplate a broad evaluation of the case against the quite general criteria of
the rules and that "that
the determination of costs should be predictable and
expeditious".


[18]   Here in substance Darby was the winner. While there were
other facets of
the case the major feature is that Sensation did not succeed in its major claim, to
have this Court determine in
its favour the issues in [8]. So prima facie Darby is
entitled to party and party costs.


[19]   In terms of r 48C(3) I do not consider
that Sensation has "contributed
unnecessarily to the time or expense of the proceeding". Certainly it failed, and on a
fundamental
issue as to forum. The number of affidavits was related to the issues on
which it failed. But to trigger a liability for increased
costs usually requires more
than failure; the paying party must have acted unreasonably. I do not consider that is
established.


[20]   There was debate whether either party or both had unreasonably failed to
accept a settlement offer by the other.        
   The cost and delay of resolving those
differences would require restoration of the case for further argument, a course
which would
run counter to the expedition policy of the rules.

[21]   It is material that Sensation enjoyed certain success.         It obtained
more
following the issue of proceedings that it had received prior to that date. But the
reasons for that limited success include
the fact that it had earlier failed to establish
that it had secured the certificates required to justify payment.


[22]   Viewed
broadly, any justification on the part of Sensation for apprehension
that the vessel would be removed without payment of sums not covered by the
escrow fund, and to gain
a partial acceleration of sums due to it, is distinctly
outweighed by its error in seeking from this Court further relief that was
properly
available only via the agreed arbitral procedures. That ultimately was the major
issue in the case, entailing substantial
argument and ultimate adjudication. It was
different in kind from the other issues which were resolved either by agreement or by
oral judgment. I confirm that overall costs should follow that event.


[23]   While the issues are not altogether simple, they are
not so difficult or
complex as to justify departure from the conventional Category 2 scale. Urgency
might point to a lift in the
time band. But the countervailing factors favouring
Sensation lead me to adopt the standard Band B as well as to decline uplift in
exercise of the Court's ultimate costs discretion in rr 46(1) and 48C(3)(d).


[24]   I have concluded that broad justice will be
done if:

       (a)   Darby is awarded costs on a 2B basis including the claimed allowance
             for second counsel;
   
   (b)   there is no award in favour of Sensation.


[25]   The net result is a costs order of $11,310 plus usual disbursements in
favour
of Darby against Sensation.




___________________________
W D Baragwanath J