Olsen Consulting Limited v Goodman Fielder New Zealand Limited HC Auckland CIV 2011-404-5622 [2011] NZHC 1842 (22 December 2011)

Last Updated: 16 January 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

_{CIV 2011-404-5622}

BETWEEN OLSEN CONSULTING LIMITED First Plaintiff

AND JUST OURS ENTERPRISES LIMITED Second Plaintiff

AND R S & G M FURNISS LIMITED Third Plaintiff

AND AVINA HOLDINGS LIMITED Fourth Plaintiff

AND SHREEKRISH HOLDINGS LIMITED Fifth Plaintiff

AND D J GOODS TRANSPORT LIMITED Sixth Plaintiff

AND SANVAR HOLDINGS LIMITED Seventh Plaintiff

AND BACHN LIMITED Eighth Plaintiff

AND KGD TRADING LIMITED Ninth Plaintiff

AND GOODMAN FIELDER NEW ZEALAND LIMITED

AND GOODMAN FIELDER NEW ZEALAND LIMITED

Defendant

Hearing: On the papers

Counsel: B J Upton & T K Cunningham-Adams for Plaintiffs

R G Simpson & J Q Wilson for Defendant

_{Judgment: 22 December 2011}

OLSEN CONSULTING LIMITED V GOODMAN FIELDER NEW ZEALAND LIMITED HC AK CIV 2011-

404-5622 22 December 2011

JUDGMENT OF KEANE J [Re Declarations and Costs]

This judgment was delivered by on 22 December 2011 3pm at pursuant to Rule 11.5 of the High Court Rules.

Registrar/ Deputy Registrar

Date:

Solicitors:

Ben.Upton@simpson grierson.com for Plaintiffs

[e-mail] for Defendant

[1] In my decision, dated 23 November 2011, I held that the nine Goodman Fielder contractors, whose case this is, were entitled to some but not all the declarations that they applied for, though not injunctive relief. I invited counsel to settle the declarations that are to be made, having regard to my complete reasons. They have since agreed all but one aspect of those declarations.

[2] As to costs, I invited counsel to resolve them by agreement if it all possible against this consideration:

The contractors may not have succeeded completely in either of their causes of action. But they have succeeded in obtaining, to a large extent, the declaratory relief they have claimed. Goodman Fielder may equally have succeeded in vindicating by and large its interpretation of its power of review but its exercise of that power resulted in inevitably, I consider, in these proceedings and in the outcome, and that too must be weighed in the balance.

Costs have not been agreed and I must now resolve that issue on the submissions I

have received.

Declarations

[3] Counsel have agreed the following declarations regarding reviews of commission fees payable by Goodman Fielder to the nine contractors under the terms of their individual distribution agreements:

1. There must be a review of each Contractor's Commission Fee (as defined) each year unless the Contractor and the defendant agree that none is called for. This review must, at a minimum, involve an exchange of proposals as to the rates to apply for the following year accompanied by an exchange of sufficient information.

2. This review may extend to all inputs, including the wage rates.

However, it may only extend to the margin, which is an element of the costing formula, if both parties choose because it is beyond the

scope of the review. So too any variation to the cost model

categories (or inputs), assuming they can be established reliably.

3. Where on an annual review a Contractor seeks a variation to an input with which Goodman Fielder disagrees, the input will remain as it is, even where that gives rise to a dispute under the Distribution Agreement. Whether the input is to vary will depend on the outcome of the disputes process.

4. Where, by contrast, Goodman Fielder seeks a variation that the Contractor disputes, Goodman Fielder may impose the variation in exercise of its unilateral power of review, which it may exercise at any time, and any change Goodman Fielder makes will take effect even if disputed, subject to 7 below.

5. The unilateral right of review that clause 9.3 reserves to Goodman Fielder is a right in addition to the duty that Goodman Fielder shares with the Contractors to undertake an annual review. It is not dependent on there having been an annual review. It is a right able to be exercised at any time during the term of this agreement, and may even be exercised at the same time as an annual review. It is a right, moreover, not merely to review but to change the Contractors' cost inputs or rates, subject only to any such change being based on Goodman Fielder's costing model. It is a right, furthermore, to impose the change subject only to notice, and despite the Contractors' rights both to raise a dispute and to seek interim curial relief.

6. Goodman Fielder may only exercise that unilateral power to ensure that the Commission Fee paid under its costing model calculation is or remains accurate, by correcting any cost input that was once accurate but has ceased to be or by correcting any patent error.

7. Goodman Fielder may not on a unilateral review under clause 9.3 of the Distribution Agreement vary an input or inputs until it has (i) given the Contractor notice of the proposed change and the reasons why; (ii) the Contractor has had a reasonable opportunity to respond; and (iii) Goodman Fielder has considered the response.

8. The level of consultation required of Goodman Fielder as a result of

7 will need to be commensurate with the proposed change in the input or inputs.

[4] These declarations express, or are consistent with, my decision and I accept ought to be given declaratory effect. There remains the one issue on which counsel have been unable to agree. That concerns the extent to which, as I held in my decision, Goodman Fielder must give notice to the contractor of its decision, once it has made that decision after the period of consultation has passed.

[5] The contractors contend that the declaration called for consistent with my decision is this:

Where Goodman Fielder does decide to make a change to an input or inputs, it must also give the contractor notice of the change. The extent of the notice Goodman Fielder gives the contractor will depend on how significant the change to the input or inputs is. Where the change is insignificant or for the benefit of the Contractor, the notice may be formal (that is, through the mere delivery of notice). Where the change is significant, the notice period will need to be commensurate.

[6] Goodman Fielder opposes this declaration, submitting that I cannot have intended it to give two separate notices before implementing a change to commission rates in exercise of its unilateral power under clause 9.3 because the clause requires only a single notice. It says '... the company may review and revise those rates at any time during the term of this Agreement, by giving notice to the Contractor.'

[7] Goodman Fielder accordingly proposes the following declaration:

The extent of the notice that the defendant gives to the Contractor under declaration 7(i) will depend on how significant the change to the input or inputs is. Where the change is insignificant the notice may be formal only. Where the change is significant, the notice period will need to be commensurate.

[8] The short answer to this issue is this. In my decision I held that, despite the fact that clause 9.3 calls only for notice after Goodman Fielder decides unilaterally to revise a rate, and intends to give that effect, notice before it takes that decision was also implicitly essential. Otherwise, I held, there was always the distinct risk that Goodman Fielder might exercise the power inaccurately and arbitrarily. I did not equate or merge these two duties. Each called, I held, for notice reasonable in terms of its own purpose.

[9] The contractors are, therefore, I consider entitled to the declaration they seek:

that set out in para [5] of this decision.

Cost claims

[10] Costs have not been agreed and the contractors seek those they actually incurred, $31,300, together with $11,820.78 disbursements; an award less than any under scale 2B, which would be $39,856. Goodman Fielder disclaims any liability to pay costs, but would not oppose being ordered to pay $10,000 as a contribution to the contractors' costs.

[11] Costs ultimately lie in the discretion of the Court. All the specific rules governing costs are subject to that paramount principle.[1] But the particular rules will ordinarily apply. The discretion is reserved for 'the unexpected and the unforeseen' case for which the particular rules do not cater.[2]

[12] The usual principle is that the party who fails should pay the costs of the party who succeeds and that any award should reflect the complexity and significance of the proceeding.[3] That principle cannot apply literally here, as I understand to be accepted, since neither the contractors nor Goodman Fielder has succeeded or failed wholly.

[13] Instead the principle on which costs must be assessed is that stated in HCR

14.7(d), which enables the Court to refuse to make any order for costs, or to reduce any award otherwise to be made, where:

although the party claiming costs has succeeded overall, that party has failed in relation to a cause of action or issue which significantly increased the costs to the party opposing costs.

[14] In such a case, the Court of Appeal said in Packing In Ltd (in liq) v Chilcott:[4]

... where in broad terms each party has had similar success, 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 opposing the award the contractors seek Goodman Fielder contends that they are not entitled to any award because, though they will receive a measure of declaratory relief, they failed in their two causes of action alleging particular breaches of fiduciary duty and of contract, and the relief they obtained was granted them on a basis not pleaded in their statement of claim.

[16] The contractors, Goodman Fielder says also, pursued their claim, founded on breach of fiduciary duty, despite the fact that at an early stage it had invited them to withdraw that claim and to focus instead on the issues in contract. The fiduciary duty claim, Goodman Fielder contends, unnecessarily complicated the proceeding.

[17] The contractors, Goodman Fielder says, having not obtained injunctive relief, cannot claim that the undertakings it gave deferring the rates revisions until after 1

December 2011, and agreeing to hold annual reviews with the contractors beforehand, gave them any equivalent benefit. Goodman Fielder advances three reasons:

(a) The contractors failed in their argument as to the nature of Goodman Fielder's unilateral power of review, and Goodman Fielder was not found to be in breach of contract.

(b) Goodman Fielder deferred the revisions taking effect for a month, not for the period that the contractors were seeking, the significantly longer time it would have taken to complete the disputes process.

(c) The contractors refused to participate in discussions concerning the revisions after Goodman Fielder advanced that invitation as early as

12 September 2011.

[18] As to the declarations, Goodman Fielder says, of the eight declarations the contractors sought, two were uncontested, four were resolved in Goodman Fielder's favour, and two resulted in mixed success to the contractors. Indeed Goodman

Fielder was relatively more successful, more especially on the core issues. In such a case the more proper course is to require each party to bear their own costs.[5]

[19] The contractors, Goodman Fielder contends therefore, cannot be entitled to a scale 2B award, let alone an award of their actual costs. They cannot advance their claim as a reduced scale award. Their claim is for an indemnity award carrying that significantly greater onus. On either basis, more especially the latter, their claim must fail apart from the sum conceded.

Conclusions

[20] The contractors' claim for their actual costs is in the strict sense, I accept, a claim to indemnity. But that does not mean that it must meet the heightened standard that usually applies under the rules. Their actual costs lie below a scale 2B award and they are entitled to have it assessed, I consider, as a reduced scale claim.

[21] The contractors, I accept also, and as they themselves accept, cannot claim a full scale award because they did not succeed in establishing that Goodman Fielder was under any fiduciary duty to them, let alone in breach. Nor did they succeed in contract in their narrow interpretation of Goodman Fielder's right to revise their commission rates unilaterally. But they did succeed on a basis that may not have been explicitly pleaded but that did rest, if indirectly and analogically, on their arguments under both heads of claim; on the basis of the principles governing the proper exercise of a unilateral power.

[22] The contractors issued their proceedings only after Goodman Fielder decided unilaterally, without notice beforehand, to revise their commission fees and imposed the revised fees on one week's notice without giving them any reasons or data to support those revisions. Goodman Fielder, furthermore, held to its ability to impose these revised fees immediately the week had expired and, despite the fact that the

_{contractors had invoked the disputes process.}

[23] As a result of the judgment I gave in their favour, Goodman Fielder will no longer be able to exercise its unilateral power in the manner it did. It will now have to consult with contractors before it varies their rates and give them notice after any variation that is commensurate with the scale of the variation. In that sense, the contractors are entitled to say, they achieved their purpose in bringing the proceeding; a purpose that they could not have achieved in any other way. And, in this instant case, they also achieved not insignificant redress.

[24] Before introducing the revision Goodman Fielder agreed to review with each contractor, as on an annual review, their actual circumstances and the extent to which the revision proposed reflected their actual costs. And Goodman Fielder supplied to each its actual calculations and the data on which it relied, which until then it had withheld as confidential; most especially that as to their wage rates and assessed hours. Only then did they begin to have a basis to assess themselves the accuracy of the revisions Goodman Fielder was proposing to make.

[25] Finally, as a result of the issue of the proceedings, Goodman Fielder deferred introducing the revised commission rates, eventually to 1 December 2011, and that in itself was significant. The 13 weeks that elapsed after the August 2011 notices of the revisions made did not give the contractors, as Goodman Fielder maintains, any unmerited 'delay' advantage. That time was no more than was commensurate to the radical scale of the revisions proposed. Had it not been I might have granted the contractors a measure of injunctive relief.

[26] The contractors are, I consider, therefore, entitled to a reduced scale 2B award, assessed against the fact that they did not succeed in their claim as they pleaded it and also that they first began on a wider front than they needed to. They pleaded that, as a result of the cost revision, each had suffered a loss of income and goodwill, a contention that would have required extensive evidence and lengthened the trial. Fortunately that was resolved before it became complicating but it is a factor.

[27] Goodman Fielder is not, I consider, entitled to their actual costs, $31,300, even recognising that a scale 2B award might be $39,856. Conversely, the measure

that Goodman Fielder proposes, $10,000, does not begin to be adequate. The contractors, I consider, should have costs of $20,000. They should also have their

_{disbursements, $11,820.78. that is the award I make.}

P.J. Keane J

---

[1] _{HCR 14.1.}
[2] _{Glaister v Amalgamated Dairies [2004] 2 NZLR 606 at [24].}
[3] _{HCR 14.2(a), (b).}
[4] Packing In Ltd (in liq) v Chilcott [2003] NZCA 124; (2003) 16 PRNZ 869 at [5].

[5] AMP Fire & General Insurance Co (NZ) Ltd v The Earthquake and War Damage Commission

(1983) 2 ANZ Insurances Cases 60 - 529.