ASPHALT SUPPLY COMPANY LTD v COLE JOHN LTD [2022] NZHC 1196

ASPHALT SUPPLY COMPANY LTD v COLE JOHN LTD [2022] NZHC 1196 [26 May 2022]IN THE HIGH COURT OF NEW ZEALANDHAMILTON REGISTRYI TE KŌTI MATUA O AOTEAROAKIRIKIRIROA ROHECIV-2021-419-000204[2022] NZHC 1196BETWEEN ASPHALT SUPPLY COMPANY LIMITEDAppellantAND COLE JOHN LIMITEDRespondentHearing: 3 May 2022Appearances: A M Swan for the AppellantJ Shaw and N G Scrivener for the RespondentJudgment: 26 May 2022JUDGMENT OF HINTON JThis judgment was delivered by me on Thursday 26 May 2022 at 3.00 pmpursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate:Counsel/Solicitors:A M Swan, Barrister, AucklandWhitlock & Co, AucklandJ Shaw,Norris Ward McKinnon, Hamilton[1] Asphalt Supply Company Limited (ASCO) appeals a costs decision of JudgeWilson QC dated 2 August 2021 granting Cole John Limited (Cole John) costs on a2B basis together with a 25 per cent uplift and further additional allowances.1Background[2] In early 2018, ASCO commenced a contractual claim against Cole Johnclaiming $80,040, being the amount invoiced by ASCO in respect of certain asphaltworks carried out on Cole John's commercial property in Manukau. Cole John fileda defence and counterclaim, claiming negligence. A second counterclaim for breachof contract was later added.[3] On 15 September 2020, three weeks before trial, ASCO discontinued its claimin contract and substituted it with an affirmative defence of equitable set-off for thesame sum of $80,040 claimed for breach of contract.[4] Following ASCO's amendment Cole John's second counterclaim was replacedwith a different counterclaim for breach of warranty. At this point an estoppelcounterclaim was also added (but was not pursued at trial). Cole John's counterclaimwas for the sum of $130,129.65, being the cost of remedying what was said to bedefective work.[5] By judgment dated 8 December 2020 Judge Wilson awarded Cole Johndamages of $130,129.65 on the basis of breach of warranty but also for breach of dutyof care (negligence).2 The Judge held that ASCO was not entitled to a set-off sayingonly:3[ASCO] is not entitled to set off against that sum the balance of the contractprice with Mr Yiakop namely $80,040.00 which was due on completionbecause ASCO never completed the contracted work: in fact, [ASCO] refusedto do so.1 Asphalt Supply Company Limited v Cole John Limited [2020] NZDC 13455.2 Asphalt Supply Company Limited v Cole John Limited [2020] NZDC 22608.3 At [61].[6] On appeal by ASCO, Campbell J allowed the set-off and substituted theDistrict Court's judgment for a lower award of $50,089.65.4 He dismissed ASCO'sother grounds of appeal and did not find it necessary to address ASCO's argument withregard to duty of care. Campbell J concluded by saying that his provisional view wasthat costs on the appeal should lie where they fall. He said that was not intended toindicate anything about costs in the District Court where "different considerations mayapply".[7] Despite Campbell J's provisional view, Cole John (perhaps surprisingly notASCO) sought costs. ASCO was content for costs to lie where they fell. On29 June 2021 Campbell J issued his costs judgment, finding that ASCO was thesuccessful party, given it had succeeded in reducing the damages award by abouttwo-thirds.5 However, given ASCO had also failed on a number of appeal points thattook up significant time, the Judge considered it could alternatively be said the partiesenjoyed success in equal measure. Consequently he declined to make any order forcosts.[8] Judge Wilson then gave his costs judgment dated 2 August 2021, the judgmentunder appeal.6 Features of that judgment included:(a) Costs were awarded in full to Cole John. There was no allowance madefor the success of ASCO on its set-off and the consequential partialsuccess of Cole John.(b) Cole John was awarded a 25 per cent uplift because ASCO had pursueda meritless claim for breach of contract and because ASCO hadrepeatedly failed to meet its obligations which led to inevitable delaysand additional costs.(c) Cole John was allowed preparation costs based on a three day hearingalthough the hearing itself was two days as the Court had reduced itdown from three days on 17 September 2020.4 Asphalt Supply Company Limited v Cole John Limited [2021] NZHC 1257.5 Asphalt Supply Company Limited v Cole John Limited [2021] NZHC 1567.6 Asphalt Supply Company Limited v Cole John Limited, above n 1.(d) Cole John was awarded $5,253.00 for a supplementary list ofdocuments, production and inspection of the same.(e) As an ancillary point, in response to a contention by ASCO that thejudgment sum was not payable until remedial work had beencompleted, Judge Wilson said that the judgment sum was payable"now".[9] Following the District Court costs judgment, on 12 October 2021 Cole Johnsealed judgment for $129,935.49 being the judgment sum of $50,089; costs of$51,041.75 and disbursements of $23,112.32; interest of $5,691 under s 9 of theInterest on Money Claims Act 2016 (IMC) up to 1 October 2021; plus interest fromthat date until payment (to be quantified).Issues on appeal[10] The following issues arise:Costs(a) Is a reduction in costs appropriate given the successful set-off and/orCole John's partial success?(b) Was the 25 per cent uplift warranted?(c) Was Judge Wilson correct in awarding:(i) preparation time on a three day basis; and(ii) additional discovery costs?Other(d) Did Judge Wilson have jurisdiction in giving his costs judgment to"find" that there was no legal basis for ASCO's contractual claim and/orthat the judgment sum was payable immediately?(e) Is Cole John entitled to interest as sealed?Reduction for partial success[11] Mr Swan for ASCO does not dispute that Cole John was the successful partyand that it was entitled to costs on a 2B basis. However, he considers the Court shouldhave applied r 14.7(f) of the District Court Rules (DCR) which provides that the Courtmay refuse to make an order for costs or may reduce the costs if some other reasonjustifying refusal or reduction exists. He says that costs should have been reduced bytwo-thirds given Cole John's success overall was reduced by two-thirds of its claim,and ASCO's set-off was entirely successful.[12] Mr Swan notes the following passage from Laws of New Zealand:7Where a defendant succeeds in establishing a set-off equal to or exceeding theplaintiff's claim, then subject to the Court's overriding discretion, he isgenerally entitled to judgment with costs. If the defendant proves a set-offfor less than the plaintiff's claim, judgment will be entered for the plaintiff forthe balance. The plaintiff's costs will be assessed on the basis of the amountactually recovered. That is, on the difference between the amount claimed andthe amount the defendant has succeeded in setting off.[13] The authors of Laws of New Zealand in turn cite Lund v Campbell, also citedby Judge Wilson, where the Court held in a case of a claim and counterclaim, that costsshould be awarded to each party in proportion to their success.8[14] Relying on these authorities, Mr Swan argues that where the "amount actuallyrecovered" is two-thirds of the claim, costs should be so apportioned.[15] He also relies on the following:(a) In Packing In Ltd (In Liq) v Chilcott the Court viewed a situation whereapproximately equal success and failure attended the efforts of bothsides.9 The Court found that in those circumstances success and failure7 Christine French Laws of New Zealand Set-Off and Counterclaim (online ed) at [111] (citationsomitted).8 Lund v Campbell (1885) 14 QBD 821 (CA).9 Packing In Limited (In Liq) v Chilcott (2003) 16 PRNZ 869 (CA).is best assessed by stepping back and adopting a realistic appraisal ofthe end result.(b) In Body Corporate 199883 v Auckland Council the Court found incircumstances where there were limited terms of success that the properapproach would be to see whether there is any reason to exercisejudicial discretion pursuant to r 14.7, that is to refuse to make an orderfor costs or to reduce the costs otherwise payable to the successfulparty.10(c) In Water Guard NZ Ltd v Midgen Enterprises Ltd the Court stated thatlimited success and unreasonable behaviour can be sufficientlyprovided for by reducing costs against the losing party, even to zero ifnecessary.11[16] I am not helped by the passage from the Laws of New Zealand or the decisionin Lund. Lund involved a successful counterclaim where the applicable rule isdifferent.12 Even in such a case costs are not assessed in proportion to "the amountactually recovered". Such an approach would also undermine the discretion of theCourt to fix costs under DCR r 14.1.[17] In the case of a set-off or successful partial defence, the party who receives thejudgment usually receives full costs, even if the dollar sum recovered is materially lessthan claimed. As has often been said, partial success is still success. Reduction incosts follows more often when material time has been spent arguing an issue on whichthe successful party has failed,13 or where the dollar sum recovered is particularlymodest.14 However, the Court does have a general discretion under DCR, r 14.7(f) toreduce costs of the successful party.10 Body Corporate 199883 v Auckland Council [2017] NZHC 2455.11 Water Guard NZ Ltd v Midgen Enterprises Ltd [2017] NZCA 36 at [13] and [15].12 See District Court Rules 2014, r 14.15 and High Court Rules 2016, r 14.16 which provide that ifthe plaintiff succeeds in their proceeding and the defendant succeeds in a counterclaim costs areto be awarded as if each party had succeeded in an independent proceeding unless the justice ofthe case otherwise requires.13 As was the case in Body Corporate 199883 v Auckland Council, above n 10; and see Water GuardNZ Ltd v Midgen Enterprises Ltd, above n 11, at [13].14 Curly Ltd v Harvey Norman Stores HC Auckland M 29-IM02 24 May 2002 at [19].[18] I agree with Mr Swan (and disagree with the submission for Cole John) thatthe issue of the possible effect on costs of ASCO's successful set-off (which wasopposed by Cole John) and/or Cole John's limited success, was not considered byJudge Wilson. I therefore need to address it.[19] Both parties seem to be agreed that the time spent on the equitable set-off issuewas relatively limited. Nonetheless, the issue was significant and successful. Itresulted in a reduction of over two-thirds of the amount sought by Cole John.Although not a counterclaim, which could have had a material effect on costs, theargument was in some ways akin to a counterclaim. The final judgment sum was arelatively modest amount, equating almost to the costs award. I do not ignore the factthat the proceeding was instigated by ASCO (and that ASCO sadly declined a fleetingopportunity to abandon it). Nevertheless, in the interests of fairness overall, I considerthere should have been a small reduction of 20 per cent on the costs awarded to ColeJohn.25 per cent uplift[20] As noted above Judge Wilson uplifted the costs awarded to Cole John by25 per cent on the basis of ASCO's misconceived contractual claim and failure tocomply with the Court's rules and directions.[21] I do not consider an uplift was justified on either basis.[22] First, it was wrong in any event for the Judge to calculate the uplift on the basisof the total award. Such an uplift is only available when, in terms of DCR, r 14.6(3)(b)a party opposing costs has contributed unnecessarily to the time or expense of theproceeding, as opposed to a step in the proceeding. Here it cannot be said that thesematters added in a material way to the time of the proceeding.[23] Focusing on each step, little time would have been spent by Cole John on thecause of action in contract given there was no contract. As both parties agreed, thefocus of the case from the outset was on Cole John's counterclaim that the work carriedout was defective. This involved inter alia both sides retaining experts and significantdisbursements being awarded to Cole John. I would particularly doubt that materialextra time or expense was incurred on the contract claim (as opposed to the timeallowance for each step) and do not consider that has been established. The Judgereferred in this regard to Cole John's submissions on costs but those submissions donot provide evidence of any significant additional work. Further, even though ASCO'sclaim in contract was not withdrawn until some weeks before the trial, it wassubstituted with the affirmative defence of set-off in the same sum. I agree withMr Swan that involved a change to the legal basis of the case (set-off instead ofcontract) rather than in substance. Finally on this point, I note a not dissimilar lateamendment was made by Cole John in its pleading of estoppel, which was notadvanced.[24] The failures by ASCO in meeting timetable and discovery orders wereidentified in Cole John's costs submissions. On 5 July 2018 Judge Marshall, byconsent of the parties, made timetabling orders that ASCO had to file its defence by19 July or Cole John could proceed to formal proof. ASCO's explanation for the delaywas that its representative was overseas. Then on 5 September 2018, Judge Menziesmade a direction that ASCO was to provide discovery by 24 September and unless itdid so Cole John could proceed by way of formal proof. However, the minute alsoaddressed dates for filing willsay statements ahead of a joint settlement conference.Last, a joint memorandum was filed on 5 August 2020 seeking timetabling orders byconsent, which included an unless order for the counterclaim to be set down for formalproof unless ASCO complied.[25] I agree with Mr Swan that those failures to comply with the directions did notwarrant a 25 per cent uplift, even in respect of the specific steps referred to. Cole Johnhad already been awarded costs for the filing of the three memoranda and theconferences it attended in relation to these timetabling steps. I agree that to furtherpenalise ASCO for these three instances is out of proportion to the failures of ASCOto comply with directions, which, despite the appearance of the unless order (byconsent), seem relatively minor.[26] I also note that delays caused in the case likely related primarily to the jointexpert report and COVID-19. This is recorded in a joint memorandum dated 1 May2020.[27] In summary, I find that the uplift in costs by 25 per cent was in error and nouplift was warranted. The change in pleading had little or no effect on the course ofthe proceeding. The delays in meeting timetable obligations caused no prejudice toCole John and any time taken to deal with the breaches was minimal in the overallproceeding and compensated by the standard award of costs.Allowance for three days preparation[28] As noted above, Cole John was awarded preparation time on a three day basiseven though the trial was two days. The total amount claimed by Cole John on a threeday basis was $11,460: $3,820 greater than for two days preparation.[29] At [22] of the costs judgment Judge Wilson noted that on 2 September 2020the hearing was set down for three days and in the following paragraph he expressedthe view that "the hearing did not go into a third day in large part because ASCO madea late decision not to call some expected witnesses".[30] This statement was not strictly correct. The Court had set the matter down forthree days on 2 September 2020 but following the discontinuance by ASCO of itsclaim on 16 September 2020 the parties reconsidered the trial time and the followingday the hearing time was reduced to two days.[31] At that time ASCO filed a memorandum dated 16 September that signalled itwas unlikely it would call any evidence. Mr Swan submits that was largely becausethe experts had already agreed on the remedial work to be carried out and the issue forASCO was essentially its liability for that defective work. That may be so but ASCO'sactual memorandum records that providing Cole John reduced its claim ASCO wasunlikely to call any evidence. Cole John did not reduce its claim.[32] ASCO nonetheless only called one witness. That decision seems to have beena very late decision; Cole John was apparently not notified of this until the hearing.Presumably Cole John would have at least had to prepare cross-examination for thetwo extra witnesses.[33] Although the Judge's reasoning may have been somewhat incomplete it doesseem that Cole John's preparation would have been greater than required for the twoday hearing, inter alia because the witnesses were not called.[34] Further, this is a matter that very much falls into the domain of the Judgehearing the case.15 He clearly considered three days allowance for preparation to bereasonable and I do not consider the allowance he made can be said to be wrong.Costs for additional discovery[35] Cole John claimed additional costs of $5,253 for a supplementary list ofdocuments, production and inspection of same.[36] Judge Wilson found that ongoing discovery is a necessary step to proceed totrial and awarded the additional sum.[37] Cole John provided two lists of documents. The first was on 9 August 2018and the second (supplementary) list was on 10 February 2020. Significantly, most ofthe documents (42 out of 69) in the supplementary list predated the first list ofdocuments. If they were relevant, they should have been included in that first list.16[38] The balance of the documents listed in the supplementary list were largelyphotos taken after the first list of documents along with five other documents,including a quote, Council records and a liquidator's report.[39] While in appropriate circumstances a successful party may be eligible for costsfor ongoing discovery, in the circumstances of this case I do not consider an additionalaward of costs to be justified.15 See Water Guard NZ Ltd v Midgen Enterprises Ltd, above n 11, at [11].16 Cole John did contend in written submissions that the second discovery was the result of one ofASCO's briefs putting the conduct of Cole John's former solicitor in issue. That point was notpursued orally and I would find it difficult to follow how such an issue was relevant. It does notseem to have been argued before the Judge.Finding by Judge Wilson that judgment sum is payable now[40] ASCO complains about paragraphs [13] and [27] in the costs judgment whichstate:(i) I find that there was no legal basis for ASCO's contractual claim asthere never was any contract between ASCO and Cole John; and(ii) The judgment sum is payable now.[41] As I understand it Mr Swan's concern here is connected to enforcement andinterest issues.[42] Mr Swan says that the District Court Judge is functus officio after delivery ofthe substantive judgment and that he had no jurisdiction to add to or change the effectof the judgment.[43] I agree with Mr Swan's statement of the law, but disagree that the substantivejudgment was in any way changed. First, it was implicit in ASCO's withdrawal of itsclaim for breach of contract that it accepted there was no legal basis for a claim framedin that way and it would be absurd to contend otherwise. Secondly, the effect of thesubstantive judgment of Judge Wilson is that judgment was entered. It was thereforepayable as from that date, subject to the reduction in the judgment sum following theappeal.[44] I accept that the paragraph at the end of the District Court judgment, on whichMr Swan relies (where the Judge refers to the need for the parties to confer onremediation costs), was confusing. It seems to have been a last minute (and incorrect)observation on the part of the Judge. It does not detract from the fact that judgmentwas entered at that time.Interest[45] In Cole John's third amended statement of counterclaim, it sought interestunder s 9 of the IMC.[46] Neither of the District Court judgments refers to interest but, as noted, thesealed judgment includes interest of $5,691.77 down to 1 October 2021 and interestthereafter until payment.[47] ASCO complains that Cole John has not provided its interest calculationsunder the IMC despite requests and that the interest sum for which judgment wassealed must be incorrect.[48] ASCO also claims that Cole John failed to plead s 10 of the IMC and that ColeJohn is therefore not entitled to an award of interest.[49] This is not a matter which falls into the domain of this appeal, which is anappeal against the costs judgment of Judge Wilson. The judgment did not relate tointerest on the judgment sum. In any event, I expect counsel to be well capable ofresolving this matter between them and I would be unimpressed if that were notpossible.[50] In the course of the hearing I pointed out that the interest calculation appearsto be incorrect. Absent a court order, interest can only be awarded on the (ultimate)judgment sum of $50,089 from the date of the District Court judgment, namely8 December 2020. It is difficult therefore to see how interest has reached the amountclaimed, by 1 October 2021. That would be in excess of 10 per cent per annum.Result[51] For the above reasons the appeal is allowed. The costs judgment is set asideand costs are to be recalculated on the basis of the findings above.[52] ASCO is the successful party on the appeal, all things considered, and isentitled to costs on a 2B basis. I do not need further submissions in that regard as allrelevant submissions are already before me.Hinton J