IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE	
CIV-2018-419-115
CIV-2019-419-40 [2019] NZHC 548	

BETWEEN	PETROLEUM LOGISTICS LIMITED
Appellant	
AND	PETER LESLIE BERRY and GLENDA JOYCE BERRY sued as THE PL & G J
BERRY PARTNERSHIP trading as ACME FASTENERS
Respondents	

Hearing:	18 March 2019	
Appearances:	T Stevens for Appellant
D J G Cox for Respondents	
Judgment:	25 March 2019	

JUDGMENT OF LANG J
[on costs]

This judgment was delivered by me on 25 March 2019 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date……………

PETROLEUM LOGISTICS LTD v BERRY [2019] NZHC 548 [25 March 2019]

[1]	This judgment deals with the issue of costs payable by Mr and Mrs Berry to Petroleum Logistics Ltd (Petroleum Logistics) in three proceedings. They comprise two appeals to this Court and a proceeding in the District Court. The issue common to all three proceedings is whether Petroleum Logistics is entitled to an award of indemnity costs by virtue of the contractual arrangement between it and Mr and Mrs Berry.

[2]	As I observed in my substantive judgment in CIV 2018-419-115, the contractual arrangement between these parties was contained in a document called the Resellers Agreement.1 Petroleum Logistics relies in the present context on clause
16.1.0 of the Resellers Agreement, which provides as follows:

16.0	RESELLER INDEMNITY

16.1.0	Responsibility for Loss

The Reseller is solely responsible for all loss or damage (including claims for injury or death) arising out of:

(a)	any breach of this Agreement by the Reseller,

(b)	the presence, actions or activities of the Reseller or the presence of its property on or about PETROLEUM LOGISTICS ‘s or a PETROLEUM LOGISTICS Customer’s premises, other than in the operation of the Business.

(c)	The operation of the Business (except where the loss or damage is caused by the negligence of PETROLEUM LOGISTICS, its employees, agents or contractors”, or

(d)	Any other acts or omissions of the Reseller or any of its agents, employees or contractors.

The Reseller must indemnify and hold PETROLEUM LOGISTICS and its employees, agents and contractors harmless from all such claims, losses and damages, including legal fees.

[3]	The issue I need to decide is whether this clause requires Mr and Mrs Berry to reimburse Petroleum Logistics for the legal costs it has incurred in all three proceedings.

1	Berry v Petroleum Logistics Ltd [2018] NZHC 2765 at [4].

[4]	An issue also arises in relation to the question of interest on the judgment sum. I deal with that issue by consent at the conclusion of the judgment.

Procedural background

[5]	In a judgment delivered on 29 March 2018, Judge Spear entered summary judgment against Mr and Mrs Berry and in favour of Petroleum Logistics for the sum of $71,352.18 inclusive of interest.2 This related to unpaid invoices for fuel and oil that Petroleum Logistics had supplied to Mr and Mrs Berry between 2012 and 2017.

[6]	Mr and Mrs Berry appealed against the Judge’s decision to enter summary judgment. Petroleum Logistics cross-appealed in relation to the fact that the judgment sum was inclusive of interest. In a judgment delivered on 26 October 2018, I dismissed Mr and Mrs Berry’s appeal and allowed the cross-appeal by Petroleum Logistics.3 I deferred fixing costs in relation to the appeal because I was aware that issues were likely to arise in the District Court regarding the costs Petroleum Logistics would be seeking in relation to the proceeding in that Court. I considered it appropriate to deal with all costs issues together if possible.

[7]	In a judgment delivered on 21 December 2018, Judge Spear declined to award Petroleum Logistics indemnity costs.4 He fixed costs in the District Court proceeding in the sum of $9,000. He reduced that sum by $1,500 to reflect aspects of the proceeding in which Mr and Mrs Berry had met with success. As a result, Mr and Mrs Berry are required to pay costs in the sum of $7,500 in relation to the proceeding in the District Court.

[8]	Petroleum Logistics has now appealed against the Judge’s decision declining to award it indemnity costs in the District Court proceeding. It argues that the contractual arrangement between itself and Mr and Mrs Berry entitles it to seek indemnity costs in relation to all steps taken to recover the outstanding amount. This entitlement extends not only to the District Court proceeding but also to both appeals to this Court.

2	Petroleum Logistics Ltd v Berry [2018] NZDC 6002.
3	Berry v Petroleum Logistics Ltd [2018] NZHC 2765.
4	Petroleum Logistics Ltd v Berry [2018] NZDC 26893.

Approach

[9]	In both the District Court and this Court, costs are in the discretion of the Court.5 The rules that apply to costs in both courts permit the Court to make an award of indemnity costs where the party claiming costs is entitled to indemnity costs under a contract or deed.6

[10]	The Court of Appeal has considered the manner in which the latter of these principles is to be applied in several recent cases. In Watson & Son Ltd v Active Manuka Honey Association the contract between the parties contained the following clause:7
If any claim shall be made against the Company … by one J R Arkley in respect of matters arising prior to this agreement the vendors indemnify the purchasers against all such actions claims or judgments by J R Arkley against the Company … to take all action necessary to defend such actions or claims.

[11]	After discussing earlier authorities8 the Court observed:

[21] A number of cases were cited to us in relation to indemnity clauses of this type but the result inevitably depends upon the true interpretation of the provision at issue and its application to the circumstances of the case. We agree with [the trial Judge] that a provision of this type is to be interpreted upon ordinary principles of construction which require consideration of the language used in the context of the agreement as a whole in its factual matrix. If it is established that the provision for indemnity costs is applicable in the circumstances, then it is enforceable in accordance with its terms unless public policy considerations require a different result. The amount of any costs so awarded must be objectively reasonable.

(Emphasis added)

[12]	The most recent authority is the decision of the Court of Appeal in Newfoundworld Site 2 (Hotel) Ltd v Air New Zealand Ltd.9 That case concerned the following clause in a contract between the parties:

“[Party A] shall indemnify [Party B] from and against all losses, damage and costs incurred by [Party B] (excluding any consequential

5	District Court Rules 2014, r 14.1; High Court Rules 2016, r 14.1.
6	District Court Rules 2014, r 14.6(4)(e); High Court Rules 2016, r 14.6(4)(e).
7	Watson & Son Ltd v Active Manuka Honey Association [2009] NZCA 595.
8	Re Adelphi Hotel (Brighton) Ltd [1953] 1 WLR 955 (Ch); ANZ Banking Group (NZ) Ltd v Gibson [1986] 1 NZLR 556 (CA) and Frater Williams & Co Ltd v Australian Guarantee Corporation (NZ) Ltd (1994) 2 NZ ConvC 191,873 (CA).
9	Newfoundworld Site 2 (Hotel) Ltd v Air New Zealand Ltd [2018] NZCA 261.

or indirect losses, damages or costs) arising out of or related to a breach by [Party A] of any of the warranties or any undertaking given by [Party A] or breach by [Party A] of any term or condition of this Agreement.”

[13]	The Court of Appeal upheld the trial Judge’s determination that legal costs incurred by Party B were consequential or indirect losses that were expressly excluded by the clause on which Party A relied. The trial Judge had relied in this context on the following observations by the Court of Appeal in Boswell v Millar:10
“Costs are not damages, and they do not arise out of the breach of a contract. Rather, costs ‘are losses flowing from steps taken by [persons] to enforce [their] contractual rights, rather than flowing from the breach itself’.”

[14]	In Newfoundworld the Court of Appeal noted that costs of legal proceedings to enforce a breach of contract do not flow directly out of the breach. Rather, they are the result of the actions of a party taken to seek redress for that breach.11 The Court went on to say:

[84] In any case, we are not persuaded that a general right  to  be  indemnified for “costs” associated with a breach of contract extends to solicitor/client costs even if such costs could be categorised as “related”. The clause refers to costs, not legal costs. And it does not extend the indemnity to solicitor/client costs. The latter point is relevant because in New Zealand, legal costs are as a rule recoverable on a party/party basis, calculated by reference to the High Court Rules 2016. Rule 14.6(4)(e) provides that the court may order a party to pay indemnity costs if “the party claiming costs is entitled to indemnity costs under a contract or deed”. However, such an entitlement must be “plainly and unambiguously expressed”.

[footnotes omitted]

[15]	The Court then referred to cases in which the courts had construed provisions of a contract to determine whether a contractual provision permitted a claimant for costs to obtain indemnity costs:

[85]	There are cases in which an indemnity has been held to extend to solicitor/client costs, but they are on rather different facts to the present. In Suttie v Bridgecorp Ltd, the indemnity was for “all costs and expenses (including but not limited to legal fees) incurred by the Lender”.12 Significance was attached to the language of “legal fees”, not costs. In ANZ

10	Boswell v Millar [2014] NZCA 314, [2014] 3 NZLR 332 at [50].
11	At [82].
12	Suttie v Bridgecorp Ltd HC Auckland CIV-2006-404-3667; 8 December 2006 at [3].

Banking Group (NZ) Ltd v Gibson, the indemnity included costs and expenses “computed as between solicitor and own client”.13

[86]	Likewise, in Watson & Sons Ltd v Active Manuka Honey Assoc, the indemnity was against all “actions and damages that may result from the licensees' operations”.14 This Court said that the use of the term “actions or damages” plainly contemplated the possibility of court proceedings which might result in the Association incurring legal costs. The Court was satisfied that, as a matter of construction, the recovery of solicitor/client costs was necessarily implied. In reaching that view, the Court relied upon the decision in Beecher v Mills which involved a claim for legal costs under an indemnity given to the vendor in an agreement for sale and purchase of shares in a company.15 As with the clause in Watson, the clause in Beecher referred specifically to the possibility of a claim by a named party but made no specific reference to legal costs. The Court was satisfied in that case that it was a necessary implication of the clause that solicitor/client costs did fall within the indemnity.

[16]	It follows from all of these cases, and in particular the principles referred to in Watson & Sons Ltd v Active Manuka Honey Association16, that the Court is required to interpret the contractual provision relied on by a party claiming indemnity costs using conventional principles of construction. These require the Court to consider the language used in the context of the agreement as a whole in its factual matrix.

The Judge’s decision

[17]	The Judge observed that he derived the greatest assistance from the Court of Appeal’s decision in Newfoundworld. After citing the passages set out at [13] and [14] above he observed:17
[20]	The Court of Appeal in Newfoundworld concluded its consideration of this issue at paragraph [87]:

In the current matter, cl 11.2 makes no reference to legal costs, nor is there anything in the words that suggest such an indemnity was contemplated.

[21]	I am of the clear view that this is exactly the situation that I have before me in this Court.

[22]	I do not consider the plaintiff is entitled to indemnity costs in this case. It would have been a simple matter for Clause 16.1.0 to have clearly and unambiguously worded to have provided expressly and clearly for the

13	ANZ Banking Group (NZ) Ltd v Gibson [1986] 1 NZLR 556 (CA).
14	Watson & Sons Ltd v Active Manuka Honey Association above n 7 at [10].
15	Beecher v Mills [1993] MCLR 19 (CA).
16	Set out above at [11].
17	Petroleum Logistics Ltd v Berry above n 4.

recovery of solicitor/client costs incurred in respect of any court proceedings arising out of a breach.

[23]	Accordingly, costs are awarded to the plaintiff on both the summary judgment application and in respect of the application for stay on execution of the judgment since withdrawn on Scale 2B. To bring this issue to a conclusion, I fix those costs at $9,000.

[18]	Mr Cox on behalf of Mr and Mrs Berry submits the Judge was correct to reach the conclusion he did. Not surprisingly, Mr Stevens for Petroleum Logistics submits he was not.

Decision

[19]	For ease of reference I set out again the provision in the Resellers Agreement on which Petroleum Logistics relies:

16.0 RESELLER INDEMNITY

16.1.0	Responsibility for Loss

The Reseller is solely responsible for all loss or damage (including claims for injury or death) arising out of:

(a)	any breach of this Agreement by the Reseller,

(b)	the presence, actions or activities of the Reseller or the presence of its property on or about PETROLEUM LOGISTICS ‘s or a PETROLEUM LOGISTICS Customer’s premises, other than in the operation of the Business.

(c)	The operation of the Business (except where the loss or damage is caused by the negligence of PETROLEUM LOGISTICS, its employees, agents or contractors”, or

(d)	Any other acts or omissions of the Reseller or any of its agents, employees or contractors.

The Reseller must indemnify and hold PETROLEUM LOGISTICS and its employees, agents and contractors harmless from all such claims, losses and damages, including legal fees.

[20]	It is obvious from the Judge’s remarks at [21]18 that he viewed the facts of the present case as being on all fours with those in Newfoundworld. I respectfully take a different view because clause 16.1.0 refers to legal costs whereas the relevant

18	Set out above at [17].

provision in Newfoundworld only referred to costs.19 Furthermore, care needs to be taken in applying the approach taken in Newfoundworld to other cases because the focus in that case was on whether the legal costs incurred by the claimant were direct or indirect losses. If they were direct losses they were covered by the indemnity clause. If they were indirect or consequential losses they were expressly excluded. The Court of Appeal agreed with the trial Judge that such costs were indirect or consequential losses and were therefore excluded from the indemnity clause. In the present case clause 16.1.0 does not exclude indirect losses from the terms of the indemnity. It therefore makes no difference whether the losses were direct or indirect.

[21]	The language used in clause 16.1.0 makes it clear that Mr and Mrs Berry agreed to reimburse Petroleum Logistics for any losses, whether direct or indirect, caused to it either by breach of contract on their part or through the manner in which they operated their business. The fact that they breached the contract by failing to pay invoices on the due date meant that Petroleum Logistics suffered losses in the form of the amounts for which payment was not made.

[22]	I also consider those sums to be losses caused by the manner in which Mr and Mrs Berry operated their business. This flows from the fact that Mr and Mrs Berry fell behind in making payments to Petroleum Logistics in September 2016 and thereafter began to make rounded payments rather than paying invoices in full. This suggests they were short paying creditors as a result of cash flow issues in their business. Whatever their reason, Mr and Mrs Berry made a conscious business decision not to pay Petroleum Logistics in full from October 2016.

[23]	The real issue, however, is whether the indemnity for “legal costs” in clause
16.1.0 extends to legal costs incurred by Petroleum Logistics in suing Mr and Mrs Berry to recover the sums claimed in the unpaid invoices. In the passage from Newfoundland set out above at [14] the Court of Appeal initially appeared to place significance on the fact that, unlike the present case, the indemnity clause in question in that case referred only to “costs” and not to “legal costs”. In the next sentence, however, the Court made the point that the indemnity did not expressly extend to

19	The clause is set out above at [12].

solicitor/client costs. The Court saw this as being significant because legal costs in New Zealand are generally recoverable on a party/party basis rather than a solicitor/client basis. The Court then went on to say, relying on Re Adelphi Hotel (Brighton) Ltd, that any contractual entitlement to indemnity costs had to be “plainly and unambiguously expressed”.20

[24]	I find it difficult to reconcile the approach taken in Newfoundland with those taken in other cases, and in particular that taken by the Court of Appeal earlier in Watson & Son Ltd v Active Manuka Honey Association.21 That case concerned litigation relating to trademark and associated labelling issues in connection with the sale of honey. The plaintiff was the holder of a licence to use a trademark in consideration for the payment of licence fees and product levies. It issued proceedings against the licensor to restrain the licensor from terminating the licence agreement after a dispute arose regarding honey product being marketed by the licensee. The licensor relied on the following clause in the licence agreement to recover from the licensee the legal costs it had incurred in defending the proceeding:

16 EXCLUSION, INDEMNITY AND INSURANCE

…

16.2 The Licensee indemnifies AMHA against all actions and damages that may result from the Licensee’s operations in relation to the Products.

…

16.4 The Licensee must have insurance cover sufficient to meet the Licensee’s obligation to indemnify AMHA against all actions and damages that may result from the Licensee’s operations in relation to the Products.

[25]	The Court of Appeal interpreted Clause 16.2 as follows:

[22]   We have no doubt that cl 16.2, properly construed, includes an award of legal costs on an indemnity basis. The use of the terms “actions or damages” plainly contemplates the possibility of court proceedings which may result in the Association incurring legal costs. The extent of the indemnity is expressed in unqualified terms. We see no reason why it should not extend to cover legal costs incurred by the Association in relation to actions and damages falling within the scope of the clause.

20	Re Adelphi Hotel (Brighton) Ltd [1953] 1 WLR 955 at 961 (Ch).
21	Watson & Son Ltd v Active Manuka Honey Association, above n 7.

[26]	In reaching this conclusion the Court of Appeal agreed22 with the approach taken by the Court in Beecher v Mills.23 In that case the parties to an agreement for the sale and purchase of shares in a company were aware that a third party might issue proceedings against the company. The purchasers indemnified the vendor against “all such actions claims or judgments” by that person against the company. The Court of Appeal held these words entitled the vendor to recover from the purchasers the legal costs incurred in defending a claim by the person named in the clause even though the indemnity did not expressly refer to legal costs.

[27]	In Pangani Properties Ltd v Owens Transport Ltd Frater J took a similar approach even though the clause in question referred only to a lessee being required to pay to the lessor “all costs charges stamp duty and expenses” which may be incurred by the lessor.24 In Newfoundworld the Court of Appeal also acknowledged25 that indemnity costs had been awarded in Suttie v Bridgecorp Ltd in reliance on a clause that referred to “all costs and expenses (including but not limited to legal fees) incurred by the lender.26

[28]	Given the liberal approach taken in the earlier authorities I find it surprising that the Court of Appeal should take such a restrictive approach in Newfoundworld. I also respectfully find the Court’s reasoning based on party/party costs as compared to solicitor/client costs unpersuasive. It is difficult to see why any party would only seek an indemnity in relation to party/party costs. This would inevitably leave the claimant with a shortfall between the costs recovered and costs actually incurred. Sometimes the parties will agree that certain losses are to be excluded from the indemnity. That was the situation in Newfoundland in relation to indirect or consequential losses. Generally, however, a party seeking to rely upon an indemnity will seek a full and not partial indemnity. For these reasons I prefer the more liberal approach taken in Watson and the other authorities to which I have referred.

22	At [25].
23	Beecher v Mills above n 14.
24	Pangani Properties Ltd v Owens Transport Ltd, HC Auckland CIV-2001-404-2036, 12 July 2004.
25	Newfoundworld Site 2 (Hotel) Ltd v Air New Zealand Ltd above n 9, at [85].
26	Suttie v Bridgecorp Ltd above n 12.

[29]	Viewed as a whole, clause 16.1.0 has wide effect. It makes Mr and Mrs Berry solely responsible for all loss or damage arising from, among other things, any breach of the Resellers Agreement by them. Mr and Mrs Berry also hold Petroleum Logistics harmless from claims, losses and damages caused by any breach, and they provide Petroleum Logistics with an indemnity in respect of those claims, losses and damages. The indemnity extends to legal fees incurred by Petroleum Logistics arising out of such claims, losses and damages.

[30]	What then does the reference to “legal costs” in clause 16.1.0 mean? The most obvious application of the clause would be to legal costs incurred in defending claims by third parties arising out of any breach of contract by Mr and Mrs Berry. In accordance with the weight of judicial authority up until Newfoundworld, however, I consider it also extends to legal costs incurred by Petroleum Logistics suing to recover the losses it has suffered through Mr and Mrs Berry’s breach of contract.

[31]	I find support for this interpretation in the context of the agreement as a whole when viewed in its factual matrix. The Resellers Agreement was not the only contractual document that defined the parties’ relationship. Approximately three weeks prior to the execution of the Resellers Agreement Mr Berry also signed a credit account application. This contained a clause under which Mr Berry provided the following guarantee:

Personal/Director’s Guarantee and Indemnity

 IN CONSIDERATION of Petroleum Logistics Pacific Limited T/A Petroleum Logistics and its successors and assigns (“the Seller”) at the request of the Guarantor (as is now acknowledged) supplying and continuing to supply goods and/or services to

P L AND G J BERRY (“the Customer”)

(also referred to as the “Guarantor/s”) UNCONDITIONALLY AND IRREVOCABLY:

1.	GUARANTEE the due and punctual payment to the Seller of all moneys which are now owing to the Seller by the Customer and all further sums of money from time to time owing to the Seller by the Customer in respect of goods and services supplied or to be supplied by the Seller to the Customer or any other liability of the Customer to the Seller, and the due observance and performance by the Customer of all its obligations contained or implied in any contract with the Seller. If for any reason the Customer does not pay any

amount owing to the Seller the Guarantor will immediately on demand pay the relevant amount to the Seller.

2.	HOLD HARMLESS AND INDEMNIFY THE Seller on demand as a separate obligation against liability (including but not limited to damages costs losses and legal fees (as defined hereunder in paragraph (b) hereof) incurred by or assess against the Seller in connection with:

(a)	the supply of goods and/or services to the Customer; or

(b)	the recovery of moneys owing to the Seller by the Customer including the enforcement of this Guarantee and indemnity, and including but not limited to the Seller’s nominee’s costs of collection and legal costs calculated on a solicitor and own client basis; or

(c)	moneys paid by the Seller with the Customer’s consent in settlement of a dispute that arises or results from a dispute between the Seller, the Customer, and a third party or any combination thereof, over the supply of goods and/or services by the Seller to the Customer.

[32]	I consider this to be significant. When Mr Berry signed the Resellers Agreement he knew he had earlier signed the guarantee under the credit account application. This extended in the clearest of terms to legal costs incurred by Petroleum Logistics in recovering money owing by the partnership to Petroleum Logistics. That being the case, I consider clause 16.1.0 must be interpreted to similar effect.

[33]	Importantly, however, Mrs Berry did not sign either the Resellers Agreement or the credit account application. Mr Berry signed both documents on behalf of the partnership. Although I accept that Mr Berry is now liable to pay indemnity costs I am not prepared at this stage to make the same finding in relation to Mrs Berry because counsel did not address me on this issue during the hearing.

Result

[34]	I allow the appeal and set aside the order for costs made by the Judge in relation to Mr Berry. In its place I make an order that Mr Berry is liable to pay Petroleum Logistics its reasonable solicitor/client costs on this proceeding in the District Court. Petroleum Logistics is likewise entitled to indemnity costs on the two appeals to this Court.

[35]	I do not fix the quantum of costs payable by Mr Berry at this stage. The parties are to endeavour to reach agreement regarding that issue. If they cannot, the costs sought are to be taxed under Subpart 2 of Part 14 of the High Court Rules 2016.

[36]	Counsel for Petroleum Logistics should file and serve a concise memorandum no later than 1 April 2019 addressing the issue of Mrs Berry’s liability for indemnity costs having regard to the fact that she did not sign either document. Mr Cox is to respond no later than 8 April 2019. I will then issue a supplementary judgment dealing with the issue of Mrs Berry’s liability for costs.

Interest

[37]	The Judge awarded Petroleum Logistics interest on the outstanding amounts “at the relevant interest rate or rates derived from the internet’s site calculator pursuant to Part 4 of the Judicature Modernisation Act 2013”. Counsel agree that this was an error and that the Judicature Modernisation Bill was never enacted under that name. The relevant portions of the Bill for present purposes became part of the Interest on Money Claims Act 2016. The transitional provisions of that Act, and in particular Clause 2 of the First Schedule, provide that the Act does not apply to proceedings commenced before the Act came into effect. The proceeding in the District Court was commenced before that date. That being the case, the parties agree that interest should be calculated in accordance with ss 62B and 65A of the District Courts Act 1947.

[38]	This aspect of the appeal is allowed by consent and I set aside the order for interest made in the District Court. In its place I award interest on the judgment sum calculated in accordance with ss 62B and 65A of the District Courts Act 1947.

Lang J
Solicitors:
Rennie Cox, Auckland