CHIP N REPAIR LTD v IAG NEW ZEALAND LTD [2023] NZHC 3028

CHIP N REPAIR LTD v IAG NEW ZEALAND LTD [2023] NZHC 3028 [30 October 2023]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2021-004-1415[2023] NZHC 3028BETWEEN CHIP N REPAIR LIMITEDPlaintiffAND IAG NEW ZEALAND LIMITEDDefendantHearing: On the papersCounsel: G Shand for the PlaintiffD J Friar and S R Hiebendaal for the DefendantJudgment: 30 October 2023COSTS JUDGMENT OF HARVEY JThis judgment is delivered by me on 30 October 2023 at 12.30 pmpursuant to r 11.5 of the High Court Rules......................................................Registrar / Deputy RegistrarSolicitors:Grant Shand, Barristers & Solicitors, AucklandBell Gully, AucklandIntroduction[1] Chip N Repair Limited is a windscreen repair service. It alleged that IAG NewZealand Limited breached s 13(i) the Fair Trading Act 1986.1 CNR claimed that IAGdid so by misrepresenting during a phone call to a policy holder that his windscreenrepair had to be completed by IAG's preferred repairers when the practice is that policyholders can choose any service provider. As a result, CNR claimed that it has suffereda loss of $1,098.25. CNR also alleged generalised losses estimated at $24,674 fromother clients affected by similar claimed misrepresentations.[2] On 18 August 2022, IAG's summary judgment application against CNR wasgranted, the Court being satisfied that there was a complete defence to the plaintiff'scause of action in the statement of claim.2[3] Costs memoranda were soon exchanged by counsel. IAG seeks both scale andindemnity costs while CNR opposed any costs award being made. In addition, IAGsought costs for CNR's application regarding an amended statement of defence.3Unfortunately, due to various difficulties, including administrative oversight withinthe registry, that is where matters lay until very recently. The long delay and resultinginconvenience to the parties in disposing of the costs applications is regretted.SubmissionsIAG[4] Mr Friar submitted that IAG was entitled to firstly, 2B scale costs anddisbursements up to and including the filing of its summary judgment application andevidence in support on 29 November 2021 in the sum of $3,438. Secondly, hecontended that IAG was entitled to indemnity costs of $63,624.25 plus disbursementsof $347.83 for all substantive steps after 29 November 2021, on two principal grounds.[5] First, once the evidence had been filed, it should have been clear to CNR thatit had no prospects of success. The relevant audio recording and transcript provided1 Referred to for convenience as CNR and IAG respectively.2 Chip N Repair Ltd v IAG New Zealand Ltd [2022] NZHC 2047.3 On 7 March 2022 Wylie J directed that this application be determined by the trial judge.by IAG established beyond doubt, according to counsel, that IAG did not make themisrepresentation claimed. Even so, CNR persisted with its claim as tomisrepresentation when it should have withdrawn it on the basis of the availableevidence.[6] Secondly, in spite of that, CNR made "an extortionate" settlement offer to IAG— that it would be appointed one of IAG's approved repairers while seeking $50,000,twice that sought in the proceeding. IAG argued the clear inference from thatsettlement offer is that CNR's ulterior motive in commencing the proceeding was tosecure appointment of itself as one of IAG's network of preferred repairers.[7] IAG argued that indemnity costs are warranted because CNR actedvexatiously, frivolously, improperly or unnecessarily in commencing and continuingproceedings when it knew that its claim is not based on fact and was contrary to theevidence. CNR then unduly prolonged the proceedings by its unreasonable conductincluding requiring an amended statement of defence and by its pursuit of a hopelesscase. This has led to unnecessary and wasted costs, according to counsel. Mr Friarreiterated that CNR's proposals revealed its ulterior motive in pursuing such a hopelesscase. Had CNR succeeded, then it could never have secured the remedies it wasattempting to draw out of IAG in its proposed settlement offer.[8] If the Court is unpersuaded as to indemnity costs, then Mr Friar submitted thatincreased costs were justified. A detailed schedule of calculations was provided. Inaddition, counsel cited the Court of Appeal decisions NR v MR and Broadspectrum(New Zealand) Ltd v Nathan in support.4 In short, a meritless argument for thepurposes of r 14.6(3)(b)(ii) justifies increased costs because costs should not beincurred when opposing a hopeless argument. Further, Mr Friar argued that an upliftof 50 per cent is appropriate in the circumstances which resulted in a calculation of$14,478 plus disbursements.[9] As noted, IAG also sought costs regarding CNR's application that it file anamended statement of defence. Mr Friar submitted that CNR was liable for increased4 NR v MR [2014] NZCA 623 (2014) 22 PRNZ 636 at [52]; and Broadspectrum (New Zealand) Ltdv Nathan [2017] NZCA 434 at [57].costs on this application because it was premature and unnecessary and arose out ofCNR's failure to agree a sensible timetable. According to IAG, it had committed tofiling an amended statement of defence by 1 December 2021. CNR then proposed atwo-week standstill to consider settlement options. After IAG informed CNR it wouldbe defending the claim, CNR refused to agree to a timetable. IAG informed CNR itwould be filing an amended statement of defence per the proposed timetable.Notwithstanding this communication, CNR applied for orders that IAG file and serveand amended statement of defence. After IAG did so in accordance with the proposedtimetable, CNR indicated it would not pursue said application.CNR[10] Mr Shand submitted that CNR commenced the proceeding seeking justice forindependent windscreen repairers. He contended that IAG has since changed itshandling of claims with its automated phone system now giving customers the chanceto use an independent repairer. This was a change in IAG's behaviour which,Mr Shand argued, could be seen as providing an element of success for CNR. Inaddition, counsel contended that the Court could view the proceeding as being for thebenefit of the community. In any event, should costs be awarded, CNR asks that thefact that it is a small business against a billion dollar insurance company be considered.[11] In addition, Mr Shand submitted that any costs awarded to IAG should be onthe District Court's scale for all steps as a category 2 proceeding. Counsel also rejectedall of IAG's submissions on indemnity costs. IAG, according to counsel, did makerepresentations that were arguably misleading and in support, Mr Tuhoro provided twoaffidavits. CNR did not consider its case was hopeless. Even though the Courtdecided that the pleaded misrepresentation was unproven, that does not, counselargued, make the facts false.[12] Mr Shand pointed out that CNR did not oppose the transfer application. Hesubmitted that after CNR filed the amended defence application, IAG filed itsamended statement of defence which included the information CNR had requested.Counsel contended this meant the application was justified and successful.[13] Mr Shand contended that CNR did not bring the proceeding for an ulteriorpurpose. It did not act improperly. CNR was entitled to make an offer of settlementwhich IAG was equally entitled to reject. It could have made its own offer but electednot to do so. In any event, counsel argued that the claimed costs of $63,624.25 areexcessive and unsupported by time cost breakdowns. Scale costs on a 2B basis wouldbe $9,652. As to increased costs, CNR contended that the claim is not substantiatedand grounds for an increase are not made out.[14] Finally, Mr Shand submitted that small businesses should not be dissuadedfrom using the Court to resolve disputes. The proceeding benefitted CNR and otherindependent repairers by IAG altering its processes around windscreen claims. Insummary, counsel contended that there should be no award of costs. If there is, CNRshould receive $1,719 for the application for IAG to file an amended statement ofdefence. Any award to IAG should be on a 2B basis.Legal principles[15] Pursuant to r 14.6(1), the Court may make an order increasing costs otherwisepayable. The core principle remains that costs are at the discretion of the Court. Scalecosts are assessed by applying the appropriate daily recovery rate to the timeconsidered reasonable for each step reasonably required in relation to the proceedingor interlocutory application.5 The "appropriate daily recovery rate" is applied to thecategories from r 14.3:Category 1proceedingsProceedings of a straightforward natureable to be conducted by counselconsidered junior in the High Court.Category 2proceedingsProceedings of average complexityrequiring counsel of skill andexperience considered average in theHigh CourtCategory 3proceedingsProceedings that because of theircomplexity or significance requirecounsel to have special5 High Court Rules 2016, r 14.2(1)(c).[16] As set out in r 14.3(2), the Court may at any time determine in advance aproceeding's category, which applies to all subsequent determinations of costs in theproceeding unless there are special reasons to the contrary.6[17] Different time bands may be applied for different steps in the proceedings:714.5 Determination of reasonable time(1) For the purposes of rule 14.2(c), a reasonable time for a step is –(a) the time specified for it in Schedule 3; or(b) a time determined by analogy with that schedule, if Schedule 3does not apply; or(c) the time assessed as likely to be required for the particular step, ifno analogy can usefully be made.(2) A determination of what is a reasonable time for a step undersubclause (1) must be made by reference –(a) to band A, if a comparatively small amount of time is consideredreasonable; or(b) to band B, if a normal amount of time is considered reasonable;or(c) to band C, if a comparatively large amount of time for theparticular step is considered reasonable.[18] As to increased and indemnity costs, r 14.6 provides:14.6 Increased costs and indemnity costs(3) The court may order a party to pay increased costs if –(b) the party opposing costs has contributed unnecessarily to thetime or expense of the proceeding or step in it by –(i) failing to comply with these rules or with a directionof the court;(ii) taking or pursuing an unnecessary step or anargument that lacks merit; or(iii) failing, without reasonable justification, to admitfacts, evidence, documents, or accept a legalargument;6 Rule 14.3(2).7 See Houghton v Saunders [2013] NZHC 3452 at [28].(iv) failing, without reasonable justification, to complywith an order for discovery [19] Increased costs may be ordered where the unsuccessful party has failed to actreasonably.8 In Commissioner of Inland Revenue v Chesterfields Preschools Ltd, itwas confirmed that the Court must consider the extent to which the failure to actreasonably has contributed to the time or expense of the proceeding, and only to thatextent will a percentage uplift be justified.9 In Holdfast NZ Ltd v Selleys Pty Ltd, theCourt of Appeal held that when calculating increased costs, an increase of 50 per centon scale costs should grant the costs-claiming party a fair recovery for any unnecessarysteps caused by the unsuccessful party.10[20] Uplifts claimed on the basis that the proceeding as a whole was unnecessaryare applied to all steps. In Broadspectrum (New Zealand) Ltd v Nathan, the Court ofAppeal confirmed its earlier statement in NR v MR that in cases where increased costsare granted on the basis that the proceedings were unmeritorious:11[52] In a case such as this, we do not consider that there needs to be a blowby blow comparison between time properly taken in respect of a particularstep and the appropriate uplift for each such step. All of the steps that havebeen necessary to oppose the application are steps that should not have beennecessary and have been taken at a cost that it should not have been necessaryto incur.Discussion[21] It is trite law that costs follow the events and that the successful party will beentitled to costs. Here, IAG was successful. While my initial indication to the partieswas that costs should lie where they fall, as IAG now seek costs, I accept that it isentitled to an award. There may be some moment in Mr Shand's submission thatIAG's practices did change as a direct or indirect result of the proceedings. However,although Mr Ale from CNR filed an affidavit setting out the new phone optionsencountered when calling IAG's providers, there is no evidence this change wasprompted by the proceedings.8 Bradbury v Westpac Banking Corp [2009] 3 NZLR 400, (2009) 19 PRNZ 385 (CA) at [27].9 Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2010] NZCA 400 at [165].10 Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [47].11 NR v MR [2014] NZCA 623, (2014) 22 PRNZ 636 at [52]; cited in Broadspectrum (New Zealand)Ltd v Nathan [2017] NZCA 434 at [57].[22] Accordingly, I take no issue with IAG's proposal that they be awarded 2B costson the District Court scale for steps taken up to the filing of evidence on 29 November2021, amounting to $3,438.00. Disbursements of $347.83 are also uncontroversial.[23] That said, I am not persuaded that indemnity costs are justified,notwithstanding counsel's arguments. CNR's claim was not frivolous, vexatious orimproper notwithstanding the production of the phone call by IAG. CNR's argumentsdid not succeed but its conduct in defending the summary judgment and/or pursuingits claim did not rise to the level deserving of an award of indemnity costs.[24] It is also a fair point that, on the one hand, costs should not be so prohibitiveas to disincentivise the use of the civil court system to resolve disputes. On the otherhand, a party should not have to expend significant sums defending futile or hopelessclaims. The Court must take account of a party's conduct during the litigation to assesswhether it had acted unreasonably or has continued to purse an ultimately hopelesscase that it knew or out to have known would likely prove unsuccessful.[25] CNR, once receiving the evidence from IAG, pivoted away from relying onthe phone call and pointed to other evidence that had not been sufficientlyparticularised or presented. It did not amend its claim despite ample time to do so.Because of this I found in the substantive judgment if it was to pursue those claims itwould need to do so by a new statement of claim. I am satisfied that there should bea modest increase of costs for the steps following the filing of summary judgment. Ata 2B scale those costs amount to $6,214. I consider an increase of 20 per cent reflectsthe unnecessary time and expense contributed by CNR, amounting to $7,456.80.[26] As to CNR's application that IAG file an amended statement of defence, Iaccept that ultimately IAG is entitled to costs because it successfully resisted the partsof the application requiring particulars it said were irrelevant and unnecessary. If CNRhad waited to receive the amended statement it may have transpired that its applicationwas unnecessary. I do not consider increased costs are appropriate. If it were not forCNR being on notice that IAG would shortly file an amended statement of defence Iwould have found that costs should lie where they fall. An award of costs in favourof IAG on a 2B basis therefore is a just result between parties. I do not allow costs forIAG's letter of response to CNR's notice because its contents duplicate material in thenotice of opposition. Therefore $764 is awarded in favour of IAG for this application.[27] Overall, I consider that costs award of $11,658, that takes account of bothparties' claims concerning the amended statement of defence, and all other matters,plus disbursements of $347 is justified.Decision[28] Chip N Repair Ltd must pay IAG New Zealand Ltd $11,658 plus $347 indisbursements._____________________________Harvey J