Samson Corporation Limited v Macrennie Commercial Construction Limited [2014] NZHC 1934 (15 August 2014)

Last Updated: 20 August 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-2416 [2014] NZHC 1934

BETWEEN	SAMSON CORPORATION LIMITED Plaintiff
AND	MACRENNIE COMMERCIAL CONSTRUCTION LIMITED Defendant
AND	JAWA STRUCTURES LIMITED First Third Party
AND	VERTRANS ASSOCIATES (NZ) LIMITED Second Third Party
AND	SHANDONG TADA AUTO-PARKING COMPANY LIMITED Third Third Party
AND	SUSAN NANETTE HERBERT AND HG INDEPENDENT TRUSTEES LIMITED Fourth Third Party

On The Papers:	14 August 2014
Judgment:	15 August 2014

_{JUDGMENT (NO. 2) OF ASSOCIATE JUDGE SMITH - COSTS}

[1] In a reserved decision delivered on 30 May 2014, I upheld the fourth third parties’ (the Herbert Trustees’) application for summary judgment on the claims made against them by the defendant (Macrennie). I invited counsel to file memoranda if costs could not be agreed.

[2] The parties could not agree on costs, and memoranda have now been filed. I

_{now give judgment on the Herbert Trustees’ costs application.}

SAMSON CORPORATION LIMITED v MACRENNIE COMMERCIAL CONSTRUCTION LIMITED [2014] NZHC 1934 [15 August 2014]

The costs regime in the High Court Rules

[3] Rule 14.1 of the High Court Rules, confers on the Court an overriding discretion as to the appropriate costs order. Subject to that discretion, r 14.2 sets out a number of general principles to be applied in the determination of costs. The following principles are relevant to the court’s consideration of costs in this case:

(i) The party who fails in the proceeding should pay the costs of the party who succeeds.¹

(ii) The award of costs should reflect the complexity and significance of the proceeding.²

(iii) Costs should be assessed by applying the appropriate daily recovery rate to the time considered reasonable for each step reasonably required in the relation to the proceeding.³

(iv) What is a reasonable time for a particular step in a proceeding should not depend on the skill or experience of the solicitor or counsel involved or on the time actually spent by the solicitor or counsel involved or on the costs actually incurred by the

party claiming costs.⁴

[4] Appropriate daily recovery rates are set out in Schedule 2 to the High Court Rules. The recovery rates are divided into three categories, which reflect the differing levels of complexity or significance a case or a step in a case, may have. A higher level or complexity or significance may place a case in category 3, in which case the successful party is likely to recover costs based on the higher category 3 daily recovery rate. A very simple case may be treated for costs purposes as a category 1 case, in which the lower daily recovery rate set out in Schedule 2 will

_{apply. Most cases are in the middle category, category 2.}

¹ _{High Court Rules, r 14.2(a).}

² _{High Court Rules, r 14.2(b).}

³ _{High Court Rules, r 14.2(c).}

⁴ High Court Rules, r 14.2(e).

[5] That is the position in this case. At a case management conference on 23

October 2013, Associate Judge Doogue directed that the proceeding should be treated as “category 2 for costs purposes”. The parties accept that that remains the position.

[6] The times considered reasonable for taking specified steps in a proceeding are set out in Schedule 3 to the High Court Rules. There are three separate time bands which may be allocated to a step in the proceeding: band A applies if a comparatively small amount of time is considered reasonable for the step, band B applies if a normal amount of time is considered reasonable for the step, and band C applies if a comparatively large amount of time is considered reasonable for the step. The schedule identifies a number of steps likely to be taken in most proceedings, and for each step allocates bands A, B and C time allocations. The time allocations for band B are longer than those for band A , and band C allocations are longer than those allocated for either band A or band B. It is for the Court to decide the appropriate band for each step in the proceeding.

[7] Scale costs to which a party is entitled are derived by multiplying the relevant time allocation for each step (expressed in days or fractions of a day) by the daily rate for the appropriate category set out in Schedule 2.

[8] There is provision in r 14.6 for the Court to award a successful party increased costs (i.e. costs in excess of scale costs), or indemnity costs, in particular circumstances which are set out in that rule.

The issues for determination

(i) Macrennie says that no costs should be awarded at all for some of the steps taken by the Herbert Trustees in the proceeding;

(ii) For some of the steps they took in the proceeding, the Herbert Trustees say that costs should be awarded on the basis of band C of the time allocations in Schedule 3 to the High Court Rules. They say that a comparatively large amount of time was reasonable for those steps. Macrennie opposes that submission,

saying that no more than a normal amount of time was reasonable for those steps. Macrennie says that the appropriate Schedule 3 time band for all steps is band B.

(iii) The Herbert Trustees apply for a 50 per cent increase on scale costs, on the basis that Macrennie 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. Macrennie opposes the claim for increased costs.

[9] It will be convenient to deal with the last of those issues first. In my view there is no basis for an increased costs order, and I can deal with the point quite shortly. I will then consider Macrennie’s claims that there should be no costs award at all in respect of certain steps taken by the Herbert Trustees in the proceeding, and finally deal with the “band C versus band B” dispute.

Is there a basis for a 50 per cent costs uplift?

[10] Rule 14.6 provides in relevant part:

The court may order a party to pay increased costs [i.e. costs in excess of scale 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: ...

[11] In Bradbury v Westpac Banking Corporation, the Court of Appeal referred to the distinction between the three broad approaches to costs which are contained in the High Court Rules, namely standard scale costs, increased costs, and indemnity costs.⁵ Standard scale costs will apply by default where cause is not shown to depart from the scale. Increased costs may be ordered where there is a failure by the paying

_{party to act reasonably; indemnity costs may be ordered where that party has}

⁵ Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009[ 2 NZLR 400.

behaved either badly or very unreasonably (my emphasis). ⁶ Clear cause must be shown to justify an increase.⁷

[12] In this case, the Herbert Trustees submit that Macrennie pursued its third party claims against them with disregard for known facts (the relevant emails were never in dispute), and/or with disregard for clearly established law. The law which Macrennie is said to have disregarded is settled law in the area of estoppel. They say that is was clear from the outset that Macrennie’s claim lacked merit, and should not have been pursued, and they also point to extensive early efforts made by their legal advisors to persuade Macrennie’s solicitors as to the strength of their defence to Macrennie’s claims. Macrennie should have appreciated from the outset that Mr Carter’s emails created a total bar to Macrennie’s claims.

[13] In my view the circumstances fall far below the standard required to justify an order for increased costs. First, the Herbert Trustees did not succeed on two of their substantial arguments for summary judgment. On the fundamental issue of interpretation of the deed of guarantee, I found for Macrennie. I also regarded the case as inappropriate for summary judgment on the novation, and “variation discharging the guarantee” arguments.

[14] Where the Herbert Trustees succeeded was on their argument based on estoppel by common assumption or representation, evidenced by the emails which passed between the parties prior to the execution of the guarantee. The interpretation of those emails was by no means a simple exercise, and I am satisfied that Macrennie did not act unreasonably in pursuing the arguments it ran in opposition to the estoppel claims. The reason I considered that the estoppel claims were suitable for resolution at summary judgment stage was not that they were simple claims, where the result was a foregone conclusion, but instead because it was clear that no further evidence could be produced at trial which would assist in the resolution of

the estoppel argument.⁸ The issues could be dealt with on the affidavits in the

_{summary judgment application as easily as they could at trial.}

⁶ _{Bradbury v Westpac Banking Corporation, above n 5, at [27].}

⁷ _{At [28].}

⁸ There were no relevant oral communications between the parties, and the parties had had

discovery of each other’s documents.

[15] In those circumstances there is no question of Macrennie having acted unreasonably in pursuing its opposition. The claim for increased costs is accordingly refused.

Macrennie’s claims that no costs should be awarded for certain steps taken by

the Herbert Trustees

[16] The Herbert Trustees claim $9,552 for filing an amended statement of defence and counterclaim. That sum is calculated on a category 2 (band C basis), treating the amended statement of defence as a counterclaim. Macrennie submits that a proper and fully particularised defence and counterclaim should have been filed by the Herbert Trustees at the outset. Further, it says that the filing of an amended statement of defence is not a step prescribed in Schedule 3 to the High Court Rules, at least where the amended defence has not been filed in response to an amended statement of claim (there was no amended statement of claim filed in this case by Macrennie).

[17] Although the Herbert Trustees’ amended defence was not filed in response to any amended pleading filed by Macrennie, I do not accept the submission that the Herbert Trustees are not entitled any costs on it. Under r 14.5, if Schedule 3 does not specifically provide for a particular step, but the Court in its discretion considers that costs should be awarded for the step, the Court may determine, by analogy with Schedule 3, an appropriate time for the taking of that step. In this case, the statement of defence originally filed by the Herbert Trustees in August 2013 was a relatively brief document. The affirmative defences were only set out in detail in the amended defence filed on 22 October 2013, after the plaintiff and Macrennie had filed their lists of documents. Further, the amended statement of defence sought relief by way of declaratory orders and an order for rectification, and on that basis I think it may properly be treated as having included a counterclaim. Schedule 3 does contain a time allocation for the filing of a counterclaim by a defendant.

[18] Finally in respect of the amended defence/counterclaim, it was a helpful document, in that it served to clarify the Herbert Trustees’ claims on their summary judgment application.

[19] In all of those circumstances, I reject Macrennie’s submission that there

should be no costs on the amended statement of defence.

[20] The other ground upon which Macrennie argued (faintly) that there should be no award of costs was discovery and inspection. It seems that there was no formal order requiring the Herbert Trustees to provide discovery, or directing or entitling them to inspect other parties’ documents. There is no merit in that argument. Under r 8.5, the Judge must make a discovery order for a proceeding unless he or she considers that the proceeding can be justly disposed of without any discovery. The discovery order is to be made at the first case management conference, unless there is a good reason for making it later.

[21] I see nothing in Associate Judge Doogue’s minute of the 23 October 2013 conference to suggest that he considered that the proceeding could be justly disposed of without discovery from the Herbert Trustees. The omission to make any formal order seems more likely to have been because none was considered necessary, as the Herbert Trustees indicated earlier that they would provide discovery. Furthermore, I consider it was wholly reasonable for the Herbert Trustees to complete discovery and inspection as a necessary step in the prosecution of their application for summary judgment. If they had not provided discovery, they would inevitably have been met with argument at the hearing that summary judgment was not appropriate because all of the relevant facts were not on the table.

[22] The Herbert Trustees are entitled to costs for providing discovery, and also for their time spent inspecting other parties’ documents. It was wholly appropriate for them to carry out full inspection.

Appropriate time allocation for procedural steps – band B or band C?

[23] Details of the Herbert Trustees’ cost claims for each step, with category and

time band claimed, are as follows:

(i) Statement of defence (2B) $3,980

(ii)	Amended stat. defence/counter claim 23.10.13 (2C)	$9,552
(iii)	Preparation for case management conference on 24 October 2013 (2C)	$1,990
(iv)	Filing memorandum for case management conference on 24 October 2013 (2C)	$1,990
(v)	Appearance at case management conference on 24 October 2013 (2C)	$1,393
(vi)	Preparing list of documents on discovery (2C) 8 days x $1990 =	$13,930
(vii)	Inspection of documents (2C) 6 days x $1990 =	$11,940
(viii)	Filing interlocutory application for summary judgment 14 November 2013 (2C)	$3,980
(ix)	Filing memorandum for case management conference on 12 December 2013 (2B)	$796
(x)	Preparation of written submissions (2C)	$5,970
(xi)	Preparation of bundle for hearing (2C)	$1,990
(xii)	Appearance at hearing (1 day)	$1,990
(xiii)	Sealing judgment	$398
Total		$59,899

[24] There is no dispute over the steps for which the Herbert Trustees have claimed on a 2B basis, or where there is no difference between the band B and band C time allocations – items (i), (ix), (xii), and (xiii). Costs will be awarded on those items as claimed.

[25] I accept Macrennie submissions that if a party wants costs on other than band B, that party must demonstrate why a normal amount of time for the particular step would be insufficient.⁹

[26] Considering the relevant memoranda and conference minutes, I am not persuaded that a “normal amount of time” was insufficient for the various steps concerned with case management conferences (claim numbers (iii), (iv), (v), and (ix)). I accept Macrennie’s submission that costs on those steps should be assessed on a 2B basis.

[27] Turning to the claims for discovery and inspection, the Herbert Trustees claim under band C eight days for providing their documents list, and six days for inspecting other parties’ documents. I note that band C in Schedule 3 allows seven days for a party’s own discovery list; however a supplementary list was filed by the Herbert Trustees in this case, and I expect the additional day has been claimed to allow for that additional step.

[28] The Herbert Trustees say that compliance with their discovery obligations was very time consuming, onerous, and included thousands of pages of emails and attachments. On inspection, they say that every single document had to be inspected, even if it was irrelevant to Macrennie’s claim against them, in order to check if it prejudiced or assisted their summary judgment application.

[29] Macrennie submits that the discovery and inspection required was not outside the normal time range expected in a category 2 proceeding.

[30] In my view the Herbert Trustees have not shown that discovery of their own documents required more than a normal amount of time for that step. They say that

their discovery consisted of 1,174 pages, but no doubt there were considerably fewer complete documents, and not all would have needed detailed or lengthy consideration. I cannot see any justification for an allowance of the band C period of

7 days for the task, let alone the 8 days claimed. It may be that more time was required than the 2.5 days provided in Schedule 3 for discovery and inspection on a band B basis, but there will always be cases where the required time will fall somewhere between the band B and band C allocations, and one of the functions of

the costs regime in the High Court Rules is to achieve a degree of predictability. ¹⁰ A

price may have to be paid for that predictability, and the price is that in some cases the scale costs will be less than what might have been strictly justifiable on a straight time multiplied by daily rate basis. In the end, I consider that the Herbert Trustees’ discovery was a “middle of the road” category 2 step, where the volume of documents does not justify a band C time allocation. Accordingly, for the Herbert Trustees’ item (vi), band B is the appropriate time allocation.

[31] I think similar considerations apply to the claim for inspection costs.

Macrennie submits that all parties’ discovered documents could be placed in 16

Eastlight folders, and that only two of those folders were required for the “core” documents. That submission was not challenged in the Herbert Trustees’ reply memorandum. In those circumstances I am not persuaded that a “normal amount of time” for inspection was insufficient. Costs for inspection will accordingly be calculated under band B.

[32] I do not consider that steps (viii), (x), and (xi), relating to the filing of the summary judgment application and preparation for the hearing, justify a band C time allocation. The claim against the Herbert Trustees was for a sum of approximately

$667,250, and although that is a large sum, the size of the claim is not such as to justify, on its own, time allocations greater than those available under band B. The Herbert Trustees say there was some urgency in getting the application and supporting affidavit prepared and filed by the date directed by the Associate Judge (14 November 2013), but by the time that timetable direction was made on

24 October 2013 the Herbert Trustees’ advisors were already fairly well down the

track in developing their arguments: their detailed amended statement of defence and counterclaim had been filed on 22 October 2013. It does not appear from the Associated Judge’s minute of the October conference that the Herbert Trustees sought more time to file the summary judgment application than that which the Associate Judge allowed. I am not persuaded that more than a normal amount of time was required for each of items (viii), (x) and (xi). The Herbert Trustees will be awarded costs for those items calculated under time band B.

[33] The remaining matter to address is the question of costs on the Herbert Trustees’ amended statement of defence (cost claim item (ii)). As indicated in paragraphs [18] – [20] above, I consider that the Herbert Trustees are entitled to costs on both the original defence and the amended defence/counterclaim. But I am not satisfied that a band C time allocation is appropriate of either of these steps. The Herbert Trustees accept that band B is appropriate for filing the first statement of defence. While the amended statement of defence and counterclaim was certainly more detailed, it is not apparent to me that more than a “normal” amount of additional time was required to complete this pleading, in addition to the two days allocated for the original defence. Some time allocation should be made for the amended defence and counterclaim, and in my view the appropriate time allocation is 1.6 days, being the Schedule 3 time allocation for a counterclaim under band B.

Disbursements

[34] The Herbert Trustees claim the following disbursements:

Printing & Stationary (GST inclusive) $999.93

Court costs $1,820.00

Courier to High Court, service to other parties $128.66

Postage to China service of documents on

Third Third Party $127.97

Total $3,076.56

[35] Macrennie has not challenged this claim, and there will accordingly be judgment in favour of the Herbert Trustees for disbursements in the sum of

$3,076.50 as claimed.

Summary of orders

[36] I award the Herbert Trustees costs against Macrennie in the total sum of

$25,870, made up as follows:

(i) Statement of defence (2B) $3,980

(ii) (iii)	Amended statement of defence/counterclaim (2B) Preparation for case management conference	$3,184
	on 24 October 2013 (2B)	$796
(iv)	Filing memorandum for case management
	conference on 24 October 2013 (2B)	$796
(v)	Appearance at case management conference
	on 24 October 2013 (2B)	$597
(vi)	Preparing list of documents on discovery
	(2B) – 2.5 days	$4,975
(vii)	Inspection of documents (2B) – 1.5 days	$2,985
(viii)	Filing interlocutory application for summary judgment (2B) – 0.6 days	$1,194
(ix)	Filing memorandum for case management conference on 12 December 2013 (2B)	$796
(x)	Preparation of written submissions (2B) – 1.5 days	$2,985

(xi)	Preparation of bundle of documents for hearing (2B) – 0.6 days	$1,194
(xii)	Appearance at hearing of summary judgment application (1 day)	$1,990
(xiii)	Sealing judgment	$398
Total		$25,870

[37] There will accordingly be judgment for the Herbert Trustees against

Macrennie for costs and disbursements in the total sum of $28,946.56.

Associate Judge Smith