Marley New Zealand Limited v Skellerup Rubber Services [2014] NZHC 1269 (6 June 2014)

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BETWEEN	MARLEY NEW ZEALAND LIMITED Plaintiff
AND	SKELLERUP RUBBER SERVICES LIMITED Defendant PRECISE IRRIGATION LIMITED Former First Third Party

Hearing:	On the papers
Counsel:	R M Gapes for the Plaintiff M C Sumpter and JWJ Graham for the Defendant C A McVeigh QC and H R Catherwood for the Former First Third Party
_Judgment:	_{6 June 2014}

This judgment was delivered by me on Friday 6 June 2014 at 4.30 pm pursuant to Rule 11.5 of the High Court Rules.

M C Sumpter, Chapman Tripp, Auckland JWJ Graham, Chapman Tripp, Auckland C A McVeigh QC, Barrister, Christchurch H R Catherwood, Solicitor, Christchurch

MARLEY NEW ZEALAND LTD v SKELLERUP RUBBER SERVICES LTD [2014] NZHC 1269 [6 June 2014]

[1] In my judgment dated 12 August 2013 I declined Skellerup’s application for review of a decision of Associate Judge Sargisson, in which she had set aside third party notices issued by Skellerup to Precise Irrigation Ltd (Precise) and PGG Wrightson Ltd and dismissed Skellerup's claims against them.¹

I trust that the issue of costs (which are payable by Skellerup on a 2B basis) will be resolved between counsel without the need for the assistance of the Court. But if agreement cannot be reached, memoranda may be filed.

[4] Costs have not, however, been resolved between counsel. That is largely because, notwithstanding what I said in my judgment, Precise now seeks costs from Skellerup on an indemnity or (in the alternative) an increased basis. There is a subsidiary argument about how any 2B payment should be quantified.

[5] The substantive proceedings involved a claim by Marley against Skellerup for breach of contract and in negligence relating to defective irrigation systems supplied by Skellerup to Marley. The damages for which Marley sued comprised monies paid by Marley to settle potential claims made against it by landowners on whose properties the systems had been installed.

[6] Skellerup issued third party notices to various installers of the irrigation systems, including Precise. Skellerup said that negligent installation had contributed to the failures and claimed contribution from the third parties as joint tortfeasors, pursuant to s 17(1) of the Law Reform Act 1936 (the LRA). Precise applied to have the third party notice set aside and was successful before Associate Judge Sargisson

¹Marley New Zealand Ltd v Skellerup Rubber Services Ltd [2013] NZHC 1443 and Marley New

In terms of s 17(1) of the LRA, the relevant requirement is that the “damage” caused by the tortfeasor from whom a contribution is sought (here, the third parties) must be the “same” as that caused by the original tortfeasor (here, Skellerup). There is no magic in those words; they mean what they say.

I acknowledge that Skellerup’s pleading effectively is that any loss and damage suffered by Marley as a result of Skellerup’s negligence was also caused or contributed to by the third parties, i.e. that the loss and damage from Skellerup’s and the third parties’ negligence is the “same”. Ordinarily the Court determining an application to strike out/set aside would proceed on the basis that that allegation is true. But it is not required to do so when the relevant pleaded fact is demonstrably without foundation or incorrect. For the reasons I have already given, I consider that to be the case here.

Rather, and as I have said, the relevant “damage” that must be assumed to have been caused by Skellerup is Marley’s liability as seller of the pipes/irrigation system to the purchasers of the pipes/system. Although negligent installation by the third parties might well have caused or contributed to damage suffered by landowners, it simply could not cause the damage to Marley upon which its claim against Skellerup is based, for the reasons I have already given.

That leads on to one final point which, in my view, further supports the conclusions I have reached. That is that the unusual features and conceptual difficulties of this case arise because of certain choices that have been made by Marley. Those features are that:

It seems to me that in the absence of the first feature, the claim would no doubt have taken a more orthodox shape, namely:

(a) A claim in contract against Marley and (possibly) the installers by the landowners for the defective irrigation systems; and

(i) Skellerup, if there was an indemnity clause in the contract between them; and/or

(ii) (if necessary) the installers, on the basis of their common (contractual) liability to the plaintiff landowners.

In the absence of the second feature noted at [29(b)] above, there would, of course, be no possibility of a contribution claim by Skellerup against the installers as joint tortfeasors under s 17(1)(a).

[8] As these paragraphs of my judgment make clear, it proceeded on the entirely orthodox basis that it was the legal, rather than the factual, tenability of the third party claims that was to be scrutinised.

[9] It is against that background that I turn to consider the costs issues raised by

[10] In seeking costs on an indemnity basis Precise relies on r 14.6(4)(a) and alleges that Skellerup “acted vexatiously, frivolously, improperly, or unnecessarily in commencing [and] continuing” the proceeding. The basis for this allegation is Precise’s contention that Skellerup knew or should have known that there was no evidentiary basis for proceeding against it. That contention is based on 2011 correspondence between Skellerup and a Vietnamese rubber company in the course of which Skellerup appears to accept that the cause of the defects was faulty Z rings that had been supplied to it by that company. Precise says that this correspondence means that Skellerup knew that there was, as a matter of fact, no fault on the part of the installers.

[11] Precise also alleges that Skellerup joined Precise (and other third parties) for an improper purpose, namely an attempt to force those third parties to contribute to a settlement.

[12] I have to say that I am at a loss as to how Precise considers that I am able to deal with these issues. The evidence upon which it relies has not been tested and played no part in my judgment. Indeed, my judgment proceeded on the opposite but orthodox assumption (in a strike out context) that the installers were at fault. Moreover, acceptance by Skellerup that there was a problem with the Vietnamese Z rings does not, in my view, lead inexorably to the conclusion that that problem was the (sole) cause of the defects in the irrigation systems.

[13] In addition, Skellerup’s response to the application for indemnity costs refers in some detail to briefs of expert evidence it has obtained which, on their face, support its contention that problems with installation did contribute to the failure of

the systems. Necessarily, that evidence has also not been sworn and has not been tested.

[14] Irrespective of whether these briefs refer specifically to Precise (as opposed to other installers) and irrespective of when those briefs were prepared, I am both unwilling and unable to make findings about their evidentiary scope or sufficiency in the context of a costs argument. Nor am I prepared to draw from the “evidence” an adverse inference about Skellerup’s motives in issuing the third party notices. In my view there is no proper basis for the contention that r 14.6(4)(a) applies.

[15] It is accepted by Precise and by Skellerup that the approach to determining whether an award of increased costs should be made is as set out in Holdfast NZ Ltd v Selley’s Pty Ltd.²

[16] The first step is to assign to the proceedings the appropriate costs category, which, here, is agreed to be category 2. Next, it is necessary to work out a reasonable time for preparation in relation to each step in the proceeding. Precise’s only submission in that respect is that the nature of the present proceeding was such that the time required to complete the preparation of submissions for the setting aside hearing and on the application for review substantially exceeds the time allocated under band C (r 14.6(3)(a)). The time allocated under band C for the preparation of submissions on an interlocutory application is three days. Precise says an award of five days (setting aside) and four days (review) is warranted. The Court of Appeal in Holdfast said that where it is shown that substantially more time for a particular step

...the appropriate judicial response is to increase the amount of time allocated for the particular step, and then to apply the appropriate daily recovery rate to the time so fixed.

²_{Holdfast NZ Ltd v Selley’s Pty Ltd [2005] NZCA 302; (2005) 17
PRNZ 897 (CA).}

Additional grounds for awarding increased costs are given in r [14.6(3)3(b)]. All these grounds depend on a finding that “the party opposing costs has contributed unreasonably to the time or expense of the proceeding or step in the proceeding”. The conduct justifying increased costs under subcl (3)(b) is to be contrasted with conduct that warrants indemnity costs, as set out in subcl (4)(a) and (b).

[18] But none of the subcl (3)(b) grounds are relied on by Precise. Rather, it relies on r 14.6(3)(c) (the predecessor of which was not discussed in Holdfast) which permits an increase if:

...the proceeding is of general importance to persons other than just the parties and it was reasonably necessary for the party claiming costs to bring it or to participate in it in the interests of those affected...

[19] Precise says that an uplift of 50 per cent is warranted on the basis of this provision.

[20] As far as r 14.6(3)(c) is concerned, I am prepared to accept that Precise took something of a leadership role amongst the third parties in seeking to have the notices set aside. I say that because Precise was the first third party to be joined and also because although the third and fourth third parties had filed applications to set aside they did not participate in the hearings before me and Associate Judge Sargisson. The arguments marshalled and presented by counsel for Precise and counsel for the second third party were therefore effectively made on behalf of the other third parties. I also acknowledge that Precise instructed senior counsel for the purposes of arguing the applications and that Mr McVeigh QC did, in the hearing before me, lead the charge for the third parties. And I accept that the applications to set aside were of considerable moment to the third parties themselves.

[21] Notwithstanding all these matters, however, it does not appear to me that the terms of the relevant rule are engaged here. In particular, the applications were not of general importance to anyone other than the (third) parties concerned. The present is very different from those cases in which an increase under r 14.6(3)(c) has been granted. I decline to order an increase on that basis.

[22] In terms of r 14.6(3)(a), the band C allowance for submissions in relation to both the application to set aside and the application for review is, as I have noted, three days. Taking into account what I have said above about the role played by Precise in the proceedings and the fact that (in my view) the matters at issue were analytically rather subtle and the circumstances were, in some senses, novel, I am prepared to accept that (substantially) more than three days was required to prepare submissions for the initial setting aside hearing. I consider that an increase that is equivalent to two days is warranted, which I will round up (by $20) to $4,000. I do not, however, accept that the same considerations are at play in the review hearing which largely involved a rerun of the earlier arguments. The standard 1.5 days remains, in my view, appropriate.

[23] The upshot is, therefore, that Precise are entitled to 2B costs, but with an increase of $4,000. It is accordingly to that calculation which I now turn.

[24] Very regrettably the parties have not even been able to agree on a 2B scale calculation. Indeed there is a difference of almost 100 per cent between them. Precise’s calculation of 2B costs gives a total of $45,173. Skellerup’s calculation of

2B costs amounts merely to $24,775.50. Skellerup also says that the $1,990 incurred by Skellerup in preparing its costs’ memorandum in response to Precise’s claim should be deducted from that amount because Precise rejected an offer by Skellerup to pay $40,000 to settle the costs’ issues between them.

[25] The specific 2B matters with which Skellerup takes issue are Precise’s claims

⁵Issue appears not to be taken for the full costs claimed in relation to a joint memorandum dated

(b) full costs for five further memoranda filed but which did not relate to specific case management conferences or mentions hearings (0.4 days x 5, totalling $3,980);

(c) costs on the affidavit filed in support of the application to set aside the third party notices, for which Precise accepts no provision is made in Schedule 3 (1.4 days, totalling $2,786);

(d) two claims for inspection of documents when inspection was not required because (Skellerup says) Precise’s application to be removed from the proceedings was well advanced by the time it received documents for inspection (1.5 days x 2, totalling $5,970);

(e) the full costs for discovery (2.5 days, totalling $4,975), in circumstances where (Skellerup says) Precise provided discovery:

(i) after the resolution of Marley’s application for non-party discovery (on a basis said not to have been fully not disclosed to Skellerup); and

[26] Of the disputed items, the last (discovery) requires further explanation. The relevant chronology (which was not set out in either party’s submissions, so has been pieced together from the extensive Court file) appears to be as follows:

(b) On 20 March 2013 Associate Judge Abbott ordered that Precise provide standard discovery by 3 June 2013. The Judge’s minute notes that the scope of the discovery required was nonetheless quite limited. It also makes it clear that a date after the hearing of Precise’s proposed application to set aside the third party notices was deliberately chosen. The Judge reserved leave to Precise to apply for a variation “should

(g) On 9 July 2013 July Marley applied for non-party discovery against the former third parties, including Precise. The application noted that, as a result of the discovery orders made whilst Precise remained a third party, Precise had “already undertaken some but not all of the work to provide discovery”. The scope of the application was comprehensive, and required disclosure of documents falling within six broad categories relating to purchases and installation of Z rings between 2006 and 2009. Marley undertook to pay Precise’s reasonable costs of complying with the non-party discovery order, from the date of the application;

(h) Precise filed a notice of opposition to the application on the grounds that the discovery sought was wider than the discovery it had been required to give whilst it remained a third party;

(k) Precise’s affidavit of documents (comprising approximately 800 documents) was sworn on 22 August 2013 and filed on 27 August

[27] Precise’s counsel has subsequently confirmed that Precise received an agreed figure from Marley for costs of conducting that non-party discovery. Skellerup says that although its lawyers have asked Precise to confirm how much it received for that, Precise has declined to do so. Skellerup therefore alleges that Precise is seeking to “double-dip” on costs for undertaking the non-party discovery. Skellerup submits that it should only be required to pay Precise half of the standard allocation for preparation of the affidavit of documents (1.25 days, totalling $2,487.50).

[28] My determination of the disputed costs items is as follows: (a) no costs for joint memoranda;

(c) no costs on the affidavit filed in support of the application to set aside, which was made (and granted) on legal rather than factual grounds;

⁸It is not clear to me whether the categories of documents required to be discovered by this order

(f) no costs on the notice of opposition to Marley’s application for non- party discovery, which seems to me to have nothing to do with Skellerup or the third party issue.

$24,775.50, the total claimable 2B costs amount to $33,432. To that must be added the $4,000 increase for the preparation of submissions in relation to the setting aside. Given the conclusions I have reached, however, I also agree with Skellerup that

$1,990 should be deducted for the preparation of its costs memorandum. The total

High Court of New Zealand Decisions

Marley New Zealand Limited v Skellerup Rubber Services [2014] NZHC 1269 (6 June 2014)