WALLACE CORPORATION LTD V INTERNATIONAL MARKETING CORP LTD HC AK CIV 2003-404-7227

WALLACE CORPORATION LTD V INTERNATIONAL MARKETING CORP LTD HC AK CIV 2003-404- 7227 14 September 2006IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2003-404-7227BETWEEN WALLACE CORPORATION LIMITED Plaintiff AND INTERNATIONAL MARKETING CORP LTD Defendant Judgment: 14 September 2006 at 10 amCOSTS JUDGMENT OF WINKELMANN JThis judgment was delivered by me on 14 September 2006 at, 10 am pursuant to Rule540(4) of the High Court Rules. Registrar/ Deputy RegistrarLee Salmon Long, Auckland Martelli McKegg Wells & Cormack[1] In November 2005 I entered judgment in the defendant IMC's favour in a dispute between IMC and the plaintiff, WCL. [2] Between December 2001 and late 2002, WCL supplied meat with a value of approximately $23 million to IMC. At issue in the proceedings was the basis upon which that meat was supplied, there being no signed contract. [3] WCL sought to recover $434,262.58 plus interest from IMC, which it said was the invoice value of meat sold to IMC by it and not paid for. IMC said that it was marketing the meat for WCL, and was only obliged to pay WCL the price IMC obtained for the meat on on-sale. By reason of this pricing arrangement, IMC said that it owed WCL nothing. [4] WCL's statement of claim contained two causes of action. The first cause of action alleged that the meat the subject of the claim was sold to IMC pursuant to WCL's standard terms and conditions, which included terms that payment was to be made within 14 days and that there would be no set off. [5] The second cause of action was pleaded as an alternative to the first. WCL alleged that if there was a marketing agreement between WCL and IMC, then the terms of that agreement included obligations on IMC to maintain a "forward sold" position in respect of WCL product, and to carry out its marketing responsibilities in a competent fashion so as to eliminate market risk. WCL alleged that if IMC had maintained a forward sold position the invoice prices for which WCL claimed payment would have been based on the actual prices IMC had already obtained for the product through on-sale. [6] WCL alleged that in breach of the agreement, IMC failed to maintain a forward sold position in relation to WCL product, and thereby also failed to carry out its marketing responsibilities in a competent fashion so as to eliminate market risk to WCL in the bulk of its product. Judgment was sought for the $434,262.58, or an inquiry into damages.[7] IMC accepted that it was obliged to carry out its marketing responsibilities in a competent fashion, but denied it was obliged to eliminate market risk for WCL or maintain a forward sold position. [8] It said that in terms of the marketing agreement, it was entitled to claim price adjustments. IMC pleaded as an affirmative defence to WCL's claim, a set off of $445,829.99. IMC also brought a counterclaim against WCL (in respect of the price adjustments, totalling $450,818.95). [9] I held that the meat was not supplied by WCL to IMC pursuant to a simple sale contract as claimed by WCL (the first cause of action). Rather, IMC and WCL had agreed that IMC would market meat for WCL. IMC was contractually obliged to market the meat competently but was not obliged to eliminate market risk or to maintain a forward sold position. I held that WCL had not proved the IMC had failed to competently market WCL's meat (second cause of action). [10] Accordingly, on 24 November 2005 I entered judgment in IMC's favour on its counterclaim for payment of the sum of $412,996.79. I held that WCL failed on both its first and second causes of action. I therefore did not have to decide whether it was entitled to a set-off in respect of those claims but indicated that it would have been entitled to set-off against any if WCL had proved either of its claims. [11] IMC now seeks costs on the basis that it was successful at trial. It says that in reality, WCL was entirely unsuccessful in its claim, and IMC was entirely successful in its defence and its counterclaim (except in relation to its counterclaim in respect of one claim of $37.822.16, the Eskimo freight claim). IMC says that it has been put to substantial costs in proving all matters accepted by the Court, and that that reality should be reflected in the award of costs. [12] IMC seeks costs on the basis of the 2B scale for most steps in the proceeding including a claim for second counsel during the trial for three days at 50% of the lead counsel's charge. Total solicitor costs on a 2B scale are calculated on that basis to be $47,270.[13] IMC also seeks indemnity or increased costs in respect of an earlier unsuccessful summary judgment application by WCL. Associate Judge Sargisson who heard the application for summary judgment initially awarded IMC indemnity costs in respect of the summary judgment application of $4,738.50. On review, Heath J set aside the initial costs order and ordered that costs be reserved pending the outcome of the litigation. [14] IMC also seeks: (a) Costs on the filing of the costs memorandum. (b) Certain disbursements for its expert witness in relation to marketing issues. (c) Disbursements incurred in providing discovery.Costs for IMC[15] Rule 46(1) provides that all matters relating to costs of an incidental to a proceeding or a step of a proceeding are at the discretion of the Court. However, Rule 47 outlines the principles which are relevant to the exercise of that discretion. Rule 47(a) provides that the party who fails with respect to a proceeding or an interlocutory application should pay the cost to the party who succeeds. [16] Counsel for WCL submits that WCL is entitled to costs, or alternatively that costs should lie where they fall. This submission is made on the basis that WCL established at trial that its invoice were valid and that the product to which those invoices related had been supplied to IMC. IMC however failed to establish at trial that it had set-offs and counterclaims which exceeded the amount of WCL's invoices. In this situation WCL submits that the only fair and proper approach is for costs to lie where they fell. WCL claimed the payment of its unpaid invoices was effectively successful.[17] In this case I am clear that IMC succeeded in this proceeding and WCL failed. Both causes of action as pleaded by WCL were unsuccessful. The first was simply untenable. There was no evidence to suggest that the meat had been supplied on the basis of WCL's standard terms and conditions of sale. Indeed, WCL did not even prove the standard terms and conditions of its contracts of sale. In relation to the second cause of action, WCL again failed to establish that IMC had acted in breach of its contract or failed to exercise appropriate care in performing its contractual duties. [18] WCL opposes the award of costs of second counsel. Mr Long for WCL says that IMC was represented by counsel for three days of the hearing, and by one counsel for the remaining four days. Mr Long also recollects that the second counsel was not always present for full days. He submits that it is therefore clear that this is not a case where IMC considered that two counsel were necessary. The role played by IMC's second counsel in the hearing was limited. In the circumstances WCL opposes the award of costs for second counsel. [19] My note of the course of the proceedings is that the second counsel was present for three days of the proceeding. I am satisfied that two counsel were necessary in this proceeding given the volume of documentary evidence, and the very detailed factual material to be dealt with. I note that WCL was also represented by two counsel. In these circumstances I am prepared to award costs of a second counsel at the rate suggested in IMC's memorandum.Summary judgment application[20] IMC submits that the application for summary judgment was based on WCL's first cause of action in which it was alleged that the meat had been supplied pursuant to a simple sale contract incorporating WCL's standard terms of sale. In my judgment I recorded that it could not be seriously contended that the meat supplied was supplied by WCL to IMC pursuant to its standard invoice terms. IMC also relies on its solicitor's letter of 15 January 2004 when WCL was put on notice that the summary judgment was not appropriate and was advised that IMC would seek indemnity costs it was put to of defending the application.[21] WCL opposes the award of indemnity costs on the summary judgment application on the basis that truly exceptional circumstances do not exist in this case. [22] The threshold required for an order of indemnity costs is a high one as submitted by WCL. As WCL submits, the authorities confirm that an award of indemnity costs is reserved for cases where "truly exceptional circumstances exist":Hedley & Kiwi Co-operative Dairies Ltd [2002] 16 PRNZ 694. [23] Under Rule 48C(4) the Court may award indemnity costs if: (a) A party has acted vexatiously, frivolously, improperly or unnecessarily in commencing, continuing or defending a proceeding or a step in a proceeding. (b) Some other reason exists which justifies the Court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious. [24] However, I am satisfied that truly exceptional circumstances do exist in this case. WCL's claim as pleaded at the time of the summary judgment application was hopeless, and that must have been to the knowledge of WCL. There is no evidential foundation for the allegation contained in the cause of action on which that application was founded, that the meat was supplied to IMC on the basis of the terms and conditions of the standard contract of sale. Just how meritless that claim is, is evidenced by the failure of WCL to even produce into evidence the standard terms and conditions of sale. Accordingly, the costs in the quantum initially awarded by Associate Judge Sargisson on WLC's summary judgment application are an appropriate award of costs in IMC's favour on that application, and I so order.Disbursements[25] In relation to expert witness fees, WCL says that the costs of Mr Graham were unnecessary because WCL at no stage put at issue the accuracy of the "wash up invoices" which IMC's counterclaim and set-off were based upon.[26] However, a consideration of the pleadings establishes that although WCL admitted that the invoices were rendered in that amount, it only admitted the rendering of the invoices and not that they properly reflected a price adjustment IMC was entitled to make. Accordingly, IMC was left to prove that the invoices properly reflected price adjustment to which it was entitled. In those circumstances Mr Graham's evidence was necessary and his costs are claimable. [27] In relation to the costs and disbursements associated with Mr Weir, I accept that attendance at Auckland on two occasions prior to trial is more than WCL should have to bear. IMC is entitled to costs for travel and accommodation for Mr Weir on only one occasion prior to trial. In relation to the expenses for entertainment at Soul Bar & Bistro and Lion Bar on 21 April 2005, IMC is entitled to recover the cost of a meal only, and no alcohol. If there is continuing dispute in relation to that, the Registrar may resolve it. [28] WCL opposes the costs in the sum of $2,422.40 relating to the extraction of data from IMC's computer in the course of discovery. I accept WCL's submission that IMC is entitled to only standard scale costs in relation to the discovery process. Accordingly, Anchor Holdings costs of $2,422.40 are not properly claimable by IMC.Costs for memorandum for costs[29] IMC claims the costs of preparing its memorandum for costs. This is opposed by WCL. However, given what I consider to be the unrealistic approach taken to the principal issue on costs by WCL I am prepared to award costs to IMC for the preparation of the memorandum for costs.Defendant's claim for GST on expenses and disbursements[30] IMC has claimed Goods and Services Tax on the invoices from its experts, from the contractor employed to assist it with complying with its discovery obligations, and in relation to various other disbursements.[31] WCL submits that IMC cannot properly claim GST on the invoices. Because it is GST registered it would have claimed GST input credits. The net cost to IMC is therefore GST exclusive, and GST cannot therefore be recovered from WCL. [32] I assume that IMC is GST registered and has been or is able to claim input credits for the GST paid by it on those invoices. The net cost to it of the invoices is therefore exclusive of GST and it is therefore entitled to recover only the GST exclusive amounts of those invoices as disbursements.Request for clarification of judgment[33] WCL seeks a clarification of my judgment of 24 November 2005. I awarded judgment in favour of IMC on its counterclaim and dismissed WCL's first and second causes of action. WCL seeks clarification of the judgment because it says that it has already satisfied the judgment amount by reason of the set-off effected by IMC. It says the net position is that IMC owes WCL $21,265.79. WCL says that the judgment effectively allows IMC the benefit of a set-off as well as judgment for the full amount of the sums claimed. [34] I clarify that because WCL did not succeed on either its first or second causes of action, the finding in relation to the set-off was an indication only that if WCL had been entitled to judgment on those amounts, IMC would have been entitled to set-off the amount. [35] My view is that the judgment as currently articulated is correct. IMC is entitled to judgment on its counterclaim because WCL did not plead payment as a defence to IMC's counterclaim. However, I accept that this is a technical approach to the issues, particularly when it is clear that IMC would not be entitled to enforce the counterclaim judgment against WCL because of the set-off it has effected. [36] IMC has not however responded to WCL's application for clarification of judgment. If IMC consents to an amendment, I would be content to amend the judgment to reflect the fact that IMC would have been entitled to judgment on itscounterclaim, but on the facts as proven the judgment amount has been satisfied by means of a set-off. [37] I am not prepared to enter judgment in WCL's favour for the balance owing to it. This is because as I held, WCL did not plead a sustainable cause of action. Winkelmann J