TARANAKI GALVANISERS LTD v UDDERFIELD LTD & ORS [2018] NZCA 297

TARANAKI GALVANISERS LTD v UDDERFIELD LTD & ORS [2018] NZCA 297 [7 August 2018]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA739/2017[2018] NZCA 297BETWEEN TARANAKI GALVANISERS LIMITEDAppellantAND UDDERFIELD LIMITEDFirst RespondentAND JOHN CHAPMANSecond RespondentAND MIKE CHILDS BUILDERS LIMITEDThird RespondentAND J D ENGINEERING LIMITEDFourth RespondentHearing: 25 June 2018Court: Williams, Simon France and Wylie JJCounsel: P J Mooney for AppellantS W Hughes QC for First RespondentNo Appearance for Second, Third and Fourth RespondentsJudgment: 7 August 2018 at 4.00 pmJUDGMENT OF THE COURTA The appeal is allowed in part. The first respondent is to pay the appellant'scosts in the High Court. There is no change to the orders made in relationto the third parties.B The first respondent must pay the appellant's costs for a standard appealon a band A basis together with usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by Simon France J)[1] This is an appeal against a costs ruling.1Facts[2] Udderfield Ltd (Udderfield) had a cowshed constructed, it believed, in 2007.In 2014 there were signs the steel framing was failing due to rust deterioration.The steel had been supplied by J D Engineering, galvanised (it seemed) byTaranaki Galvanisers Ltd (Galvanisers) and installed by Mike Childs Builders Ltd.[3] An on-site meeting of the interested parties was held in 2014 when the problememerged. Galvanisers attended. Galvanisers believed the problem was a lack ofdrainage holes which, if so, would be attributable to J D Engineering, or whoeverdirected them to prepare the steel in that way. The discussions continued with noresolution. Eventually Udderfield obtained an engineering report which laid the blameon the galvanising work (not the lack of drainage holes).[4] Udderfield sued Galvanisers. It pleaded the shed was constructed in March toJune 2007. It pleaded the defects identified in its building report and allegednegligence in the galvanising work.[5] Galvanisers filed a statement of defence. It pleaded it was unsure about themonth of construction but went on to plead facts about the job. It said it had raised atthe time the need for drainage holes but had been told to carry on and galvanise whatit had been given. This it did. It pleaded its contractual relationship was withJ D Engineering and it owed no duty of care to Udderfield.[6] Galvanisers then added as third parties the designer, steel supplier, builder, andinsurance company.1 Udderfield Ltd v Taranaki Galvanisers Ltd [2017] NZHC 3019.Galvanisers were the wrong defendant[7] When Galvanisers were first contacted in 2014, they were not immediately ableto recognise the particular 2007 job. This in part reflects the nature of their work.They receive the steel, galvanise it, and return it to the supplier. They are not otherwisepart of the overall building enterprise. However, Galvanisers recalled a 2008 occasionwhere they had galvanised steel for a cowshed at the request of J D Engineering wherethis rusting problem due to inadequate drainage had arisen. Galvanisers formed theview that Udderfield had its dates wrong, and concluded the complaint related to this2008 job. Galvanisers therefore participated in the discussions from 2014 onwards inthe belief it was its work under challenge, and as noted filed a statement of defence.[8] As it transpires, invoices were subsequently located that showed thegalvanising work was done in mid-2006. This is significant for two reasons:(a) Galvanisers did not exist then. There was a predecessor, TaranakiGalvanisers (2003) Ltd, which also did galvanising work for J DEngineering, but Galvanisers was only incorporated inSeptember 2006.2 It cannot have done the work. Advised of this,Udderfield discontinued.(b) The statement of claim was filed in March 2017. Mr Knowles, thefarmer behind Udderfield, remains adamant the shed was built in 2007,as pleaded. Whatever the case as regards that, it is common ground thegalvanising work was done in 2006. Section 393 of the Building Act2004 (a 10 year limitation provision) means Udderfield was too late,regardless of who it sued.[9] The issue of costs on the discontinuance was referred to the High Court fordecision.2 Taranaki Galvanisers (2003) Ltd had been wound up in 2007.Decision under appeal[10] Associate Judge Matthews noted that r 15.23 of the High Court Rules 2016governed the matter.3 It provides:15.23 CostsUnless the defendant otherwise agrees or the court otherwise orders,a plaintiff who discontinues a proceeding against a defendant mustpay costs to the defendant of and incidental to the proceeding up toand including the discontinuance.This presumption may be displaced when it is just and equitable to do so.The Associate Judge accordingly reviewed the unusual facts to determine if departurewas appropriate.[11] His Honour noted there was fault on both sides.4 Each of Udderfield andGalvanisers had failed to make the inquiries it could have to clear up the error.5The failures had persisted for three years since the matter was first raised and it wasappropriate that each bore their own costs.6[12] As regards the third parties, Associate Judge Matthews noted it was alsosurprising none of them had found out when the work was actually done.7 However,they were all added to the proceedings as a result of the same errors being made byUdderfield and Galvanisers.8 It was noted that the effect of r 15.23 was that in thenormal course of events, Galvanisers, as the party joining the third parties, couldexpect to pay.9[13] Associate Judge Matthews accepted that Udderfield could not have beenexpected to sue the third parties, as it had identified the cause of the defect and wasspecific in its litigation target.10 However, its core error was still an operative factor3 Udderfield Ltd v Taranaki Galvanisers Ltd, above n 1, at [5] and [17].4 At [11].5 At [11]–[13].6 At [15].7 At [16].8 At [16].9 At [18].10 At [18].in the third parties being joined and so it should meet some of the costs.11 Udderfieldwas required to meet one-third of the third parties' costs, with Galvanisers meeting therest.12[14] Galvanisers appeals both aspects. It contends that the presumption waswrongly displaced and it should have had its costs from the discontinuing party in thenormal way. As regards the third parties, it contends the nature of Udderfield's error(wrong defendant) and the futility of the proceeding (outside the limitation period)means Udderfield should have met all those costs.[15] We proceed to our decision. The submissions of the parties are reflected in itto the extent necessary.Decision[16] This is an appeal from the exercise of a discretion.13 However, we note in thiscase the Associate Judge was in no better position than we are, and the issue wasgoverned by a firm presumption. In Yarrall v Earthquake Commission this Courtrecently noted:14[12] Rule 15.23 imposes an obligation on a plaintiff who discontinuesa proceeding to pay the defendant's costs, unless the defendant agrees or thecourt orders otherwise. This Court has recognised the discretion to order"otherwise" may be exercised where it is "just and equitable".15 The onus ison the discontinuing plaintiff to persuade the court to exercise thatdiscretion.16 The presumption is not lightly displaced.17[17] Against that background we consider the Associate Judge erred in hisconclusion that the presumption had been displaced. The matters relied on byUdderfield are all matters where it is said Galvanisers could have made inquiries in11 At [19].12 At [20].13 High Court Rules 2016, r 14.1.14 Yarrall v Earthquake Commission [2016] NZCA 517, (2016) 23 PRNZ 765.15 Kroma Colour Prints Ltd v Tridonicatco NZ Ltd [2008] NZCA 150, (2008) 18 PRNZ 973 at [12]and [29].16 Powell v Hally Labels Ltd [2014] NZCA 572 at [21]; and Earthquake Commission v Whiting[2015] NZCA 144, (2015) 23 PRNZ 411 at [68].17 Powell v Hally Labels Ltd, above n 16, at [20].order to reveal the fundamental mistake Udderfield was making in failing to itselfcheck it was suing the correct defendant.[18] We agree that one can identify steps that could have been taken by either partyto bring the mistake to light earlier. However, Galvanisers did not induce the error,and comparing levels of fault is not necessary. Nothing attributed to Galvanisers, inour view, displaces the presumption that the discontinuing party pays the costs.The stark reality is that Udderfield has sued an entity that did not do the impugnedwork and indeed did not exist at the time the work was done. We also place weight onthe reality that now the correct date is known, the proceedings were out of time fromthe outset.18[19] The fundamental responsibility on a plaintiff is to plead the facts that establishthe liability of the defendant. Here, Udderfield initiated proceedings on the basis ofa report that said the galvanising work was at fault. However, the pleadings do notidentify the date on which this work was done, talking instead about construction ofthe cowshed generally. This failure to focus on when what is said to have been thenegligent work was done has proved important. A check of Galvanisers' publicrecords would have revealed its date of incorporation and alerted Udderfield to theimportance of identifying the time that work was done. That has proved a crucialoversight since discovery of the actual date of the galvanising work has disclosed twokey defects — the wrong defendant and a limitation problem.[20] In these circumstances, we consider the standard rule under r 15.23 properlyapplies, and it was a clear error to find the presumption displaced. We accordinglyallow this aspect of the appeal and make an order that in the High Court Udderfield isresponsible for Galvanisers' costs. We note from the memoranda filed inthe High Court that Galvanisers' actual costs are less than scale costs. Unless there isan issue as to reasonableness, Galvanisers is entitled to its actual costs anddisbursements.[21] We turn next to the third parties. It is common ground that they are entitled totheir costs. Also, the logic of the previous discussion is that, pursuant to r 15.23,18 Building Act 2004, s 393.Galvanisers is responsible. Udderfield's discontinuance did not bring theseproceedings to an end,19 so Galvanisers has discontinued as regards the third parties.[22] However, there is authority to say that unless the third party joinder wasunnecessary or improper, the unsuccessful plaintiff should ordinarily meet these costs.In Shirley v Wairarapa District Health Board, the Supreme Court endorsed thisstatement from Money World NZ 2000 Ltd v KVB Kunlun NZ Ltd:20[33] a successful defendant should only be called on to meet a thirdparty's costs if the joinder was unnecessary or was for some other reasonunjustified.[23] To like effect, in Shirley the Court had observed:[22] We think it more likely that when, as here, a defendant hasproperly joined a third party and the plaintiff fails, the plaintiff would beordered to pay the costs of both the defendant and the third party.(footnotes omitted.)[24] It seems then that Udderfield should meet these costs unless the joinder ofthe third parties was improper or unnecessary. There is no suggestion it was improper.As for unnecessary, it very much depends on the lens through which one looks.If focusing on the third parties who were joined, these were the correct third parties.They were all actually involved with the project and were connected to the factualissue — the failing steel framework.[25] If, however, one goes back a step further, then it was unnecessary for thereasons discussed. Galvanisers was not the correct defendant and could haveascertained this with greater endeavour (as it subsequently did). Equally, however, thesituation has come about because of Udderfield's mistakes in suing, out of time, thewrong defendant.[26] Mr Mooney, for Galvanisers, suggested Galvanisers was under pressurebecause of potential limitation issues, but we do not accept that can be so. At the time19 High Court Rules, r 15.25.20 Shirley v Wairarapa District Health Board [2006] NZSC 63, [2006] 3 NZLR 523 at [22], citingMoney World NZ 2000 Ltd v KVB Kunlun NZ Ltd HC Auckland CIV-2003-404-2542,23 September 2005.of joining the third parties, in March 2017, Galvanisers believed the work had beendone in 2008. On that reckoning, there was a year. Of more strength is the observationthat the High Court Rules say a third party notice must be issued within 10 workingdays of the filing of the statement of defence,21 but countering that is the reality thatGalvanisers had been alerted to the issue in 2014.[27] This is an issue on which reasonable minds can differ. We do not consider theAssociate Judge has made any error of principle and what is at issue is his assessmentof whether joinder was unnecessary, and if so, the impact of that. That falls very muchwithin the discretionary aspect of the costs regime, and we see no basis to interfere onappeal. This aspect of the appeal is dismissed.Result[28] The appeal is allowed in part. Udderfield is to pay Galvanisers's costs in theHigh Court.[29] There is no change to the orders made in relation to the third parties.[30] As regards this Court, Galvanisers has been successful on the major issue.Udderfield must pay Galvanisers costs for a standard appeal on a band A basis togetherwith usual disbursements.Solicitors:Mooney & Webb, New Plymouth for AppellantQuin Law, New Plymouth for First Respondent21 High Court Rules, r 4.4(2)(a).