IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE	
CIV-2019-404-2783
[2020] NZHC 3280	

BETWEEN	RED STAG TIMBER LIMITED
Plaintiff	
AND	JUKEN NEW ZEALAND LIMITED
Defendant	

Hearing:	On the papers	
Appearances:	N F Flanagan and D R Green for the Plaintiff C L Bryant and G J Luen for the Defendant	
Judgment:	16 December 2020	

JUDGMENT OF GAULT J
(Costs)

This judgment was delivered by me on 16 December 2020 at 11:00 am pursuant to r 11.5 of the High Court Rules 2016.
Registrar/Deputy Registrar

……………………………………

Solicitors / Counsel:
Mr N F Flanaghan and Mr D R Green, Meredith Connell, Auckland Mr A R Galbraith QC (counsel for the respondent), Auckland
Ms C Bryant and Ms G J Luen, Hesketh Henry, Auckland

RED STAG TIMBER LTD v JUKEN NEW ZEALAND LTD [2020] NZHC 3280 [16 December 2020]

[1]	The defendant (Juken) seeks indemnity or increased costs following discontinuance by the plaintiff (Red Stag).

Background

[2]	In November 2017 Red Stag issued proceeding CIV-2017-404-2753 against Juken alleging breach of the Fair Trading Act 1986 in relation to Juken’s labelling and marketing of its “J-Frame” laminated veneer lumber product in specified time periods between 2008 and September 2017.

[3]	On 19 September 2018 Associate Judge Bell struck out the cause of action for the period from 2008 to December 2012.1 He concluded that Red Stag had given no evidence to suggest any ground to believe that between 2008 and 2012 there were treatment standards for Juken’s products, that there were any labelling requirements, that Juken did not adhere to those standards and did not label its J-Frame correctly, and that Juken in any way misrepresented its J-Frame in trade.2

[4]	Associate Judge Bell made clear that the pleading of the cause of action failed for lack of particulars under r 5.26(b) of the High Court Rules 2016. It did not bar Red Stag from starting a fresh proceeding alleging Fair Trading Act breaches between 2008 and 2012, so long as it is procedurally compliant and also meets substantive requirements (including any limitation rules).

[5]	Separately, Associate Judge Bell declined Juken’s application for its limitation defence to be heard as a preliminary issue.

[6]	On 19 December 2019 Red Stag issued this second proceeding. Juken says it covered the same ground as the 2017 proceeding: the first cause of action was a restatement of the claim that had been struck out and the second cause of action alleged that Juken had provided unrepresentative samples of J-Frame for independent efficacy trials. Juken says this allegation was first made by Red Stag in May 2016.

1	Red Stag Timber Ltd v Juken New Zealand Ltd [2018] NZHC 2459.
2	At [28].

[7]	On 16 March 2020 Juken filed an application for strike out/defendant’s summary judgment.

[8]	On 3 July 2020 Red Stag filed a memorandum seeking leave to discontinue, which was granted by consent on 15 July 2020.

Indemnity costs

[9]	Rule 14.6(4)(a) provides:

The court may order a party to pay indemnity costs if—

(a)	the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; …

[10]	As the Court of Appeal said in Bradbury v Westpac Banking Corporation, “unnecessarily” in this context takes its meaning from the adverbs which precede it: “vexatiously, frivolously, improperly”.3 Indemnity costs may be ordered where a party has behaved either very badly or very unreasonably.4 The Court elaborated, saying that indemnity costs, which depart from the predictability of the Rules Committee’s regime, are exceptional and require exceptionally bad behaviour. That is why to justify an order for such costs the misconduct must be flagrant.5

[11]	While noting the categories in respect of which the discretion to award indemnity costs are not closed, the Court of Appeal endorsed the following list of circumstances in which indemnity costs have been ordered:6

(a)	the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud;

(b)	particular misconduct that causes loss of time to the court and to other parties;

3	Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [26].
4	At [27].
5	At [28].
6	At [29]. See also Slater v Blomfield [2019] NZCA 664, (2019) 25 PRNZ 218 at [13].

(c)	commencing or continuing proceedings for some ulterior motive;

(d)	doing so in wilful disregard of known facts or clearly established law;

(e)	making allegations which ought never to have been made or unduly prolonging a case by groundless contentions, summarised in French J’s “hopeless case” test.7

[12]	Indemnity costs may be awarded on the basis of lack of merit in a case which does not proceed to final determination, but only where the lack of merit is both obvious and incontrovertible.8

[13]	The onus is on the applicant for indemnity costs to persuade the Court that such an award is justified.

Increased costs

[14]	Rule 14.6(3)(b) provides:

The court may order a party to pay increased costs if—

…

(b)	the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—

(i)	failing to comply with these rules or with a direction of the court; or

(ii)	taking or pursuing an unnecessary step or an argument that lacks merit; or

(iii)	failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument; or

(iv)	failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or other similar requirement under these rules; or

7	J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WA Branch) (No 2)
(1993) 46 IR 301 (FCA) at 303.
8	N-Tech Ltd v Abooth Ltd [2012] NZHC 1167 at [108].

(v)	failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding; or

…

[15]	As the Court of Appeal also said in Bradbury v Westpac Banking Corporation, increased costs may be ordered where there is failure by the paying party to act reasonably.9

[16]	Taking or pursuing a proceeding that lacks merit can warrant increased costs under r 14.6(3)(b)(ii) but, if a proceeding is discontinued pre-judgment, only where the lack of merit is both obvious and incontrovertible.10

[17]	The onus is also on an applicant for increased costs to persuade the Court that such an award is justified.

Submissions in support of indemnity/increased costs

[18]	Juken claims that vexing a defendant with duplicative proceedings is an abuse of process and a waste of time and resources for Juken and the Court, relying on Johnson v Gore Wood and Co11 and Cowley v Shortland Productions Ltd.12 It submits that Red Stag must have known that both the causes of action were out of time. Juken applied in 2018 to have its limitation defence tried as a preliminary issue. It says Red Stag gave evidence that it identified the alleged non-compliance of J-Frame with the treatment standards in December 2014. The time bar should have been front of mind.

[19]	Juken also says the second cause of action alleges conduct that may amount to fraud. Such allegations must be carefully particularised, and the evidential foundation must be sufficient to establish a prima facie or arguable case. There is no room for a provisional or equivocal claim based on suspicion.13   It says the basis of Red Stag’s

9	Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [27].
10 N-Tech Ltd v Abooth Ltd [2012] NZHC 1167 at [108]; and Sealegs International Ltd v Zhang
[2020] NZHC 912 at [23].
11 Johnson v Gore Wood and Co [2002] 2 AC 1 (HL) at [31].
12 Cowley v Shortland Productions Ltd (1991) 5 PRNZ 76 (HC).
13 Paper Reclaim Ltd v Aotearoa International Ltd HC Auckland CIV-2004-404-4728, 14 February 2005 at [18], cited in Shannon v Shannon (2005) 17 PRNZ 587 (CA) at [123]. See also Commissioner of Inland  Revenue  v Redcliffe  Forestry  Venture  Ltd  [2012]  NZSC  94, [2013] 1 NZLR 804 at [33].

claim that the trial samples were unrepresentative was inadequately pleaded, and was also untrue:

(a)	the analytic tests for the trial samples are consistent with “market” samples; and

(b)	Red Stag knew that the photographs on which its claim was based were not a reliable indicator of the distribution of boron – its allegations had already been investigated by MBIE and the Commerce Commission, and had been found to have no substance.

[20]	Juken says, in response to Red Stag’s statement the claim would have been promptly withdrawn had Juken disclosed the laboratory reports in the 2017 proceeding, that Red Stag was aware that Juken opposed the disclosure of its treatment records as irrelevant to the pleaded case. Juken says the proper course was to apply for further discovery, not to make unsubstantiated allegations of conduct that could amount to fraud.

[21]	Juken submits that the circumstances of this proceeding are indeed exceptional, and indemnity costs are appropriate. It seeks indemnity costs of $93,171.50.

[22]	Alternatively, Juken seeks increased costs on the basis that this proceeding should not have been filed. It says the second cause of action was wholly without merit and made without a proper factual foundation. The first and third causes of action should have been brought in the 2017 proceeding (if at all). Juken has been left in a position where it will need to apply for a third time to strike out the 2007 to 2012 allegations.

[23]	Juken seeks an uplift of 50 per cent on scale costs, relying on Holdfast NZ Ltd v Selleys Pty Ltd.14 It calculates scale costs on a 2B basis, except for the statement of defence (including two requests for particulars), application for strike out/summary judgment and preparation of affidavits for that application, which it calculates on a 3C basis. Juken claims that the complexity and length of the various documents,

14	Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [47]-[48].

the seriousness of the issues at stake and the number of witnesses required speaks for the time needed to produce them.

[24]	Following Red Stag’s response, Juken filed a further memorandum seeking leave to reply and filing an affidavit attaching correspondence. Red Stag opposed leave. I indicated I would not determine leave in advance and Red Stag subsequently elected not to file a supplementary response.

Discussion

[25]	Red Stag accepts it is required to pay costs, including on a 3B basis for those steps claimed on a 3C basis. However, it does not accept that the high threshold for indemnity or increased costs is met. In essence, its position is that the matters advanced in the discontinued claim remain the subject of the 2017 proceeding such that the work Juken did will transfer across to them. It says that Juken has made no attempt to analyse the extent of its costs that actually were wasted. It says that two of the three causes of action are expressly carried over and the factual matters underlying the other remain at issue. If this proceeding had continued, consolidation of the two proceedings would have been inevitable given the significant factual overlap.

[26]	I deal first with the allegation of fraud. Making allegations of fraud knowing them to be false is one of the recognised categories that may justify indemnity costs referred to in Bradbury.15 Here, even assuming the second cause of action involves allegations of fraud (rather than merely that the products tested and sold differed, as Red Stag says), I am in no position to conclude at this stage that the allegations were made knowing them to be false. I say that irrespective of whether the allegations would have been brought or pursued if Juken had disclosed relevant documents in the 2017 proceeding. There now appears to be an issue as to whether the claim that the trial samples were unrepresentative remains live in the 2017 proceeding. If pursued, cost implications can be addressed following substantive determination of that claim.

15	Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [29]. See also Slater v Blomfield [2019] NZCA 664, (2019) 25 PRNZ 218 at [13].

[27]	In relation to alleged lack of merit more generally, this case involves a discontinuance rather than Court determination so any claimed departure from scale on the basis of alleged lack of merit can only succeed if the lack of merit is both obvious and incontrovertible. That is not so. As Red Stag submits, an allegation that parts of the claim are time barred turns on reasonable discoverability, which requires resolving disputed questions of fact – that will fall to be decided in the ongoing 2017 proceeding. I am also not in a position to determine those questions on this costs application.

[28]	Overall, I do not consider that this case falls into any of the recognised categories justifying indemnity costs referred to in Bradbury,16 nor that I can otherwise conclude on this costs application that bringing this claim involved flagrant misconduct justifying indemnity costs. I cannot even conclude that bringing it was an abuse of process for the purpose of the Court’s strike out jurisdiction which, without more, is insufficient to warrant indemnity costs.17

[29]	Turning to increased costs, for essentially the same reasons I am not in a position to conclude that the claim incontrovertibly lacked merit given what remains live in the ongoing 2017 proceeding. Red Stag acknowledges that if that later proves to be true, it will be reflected in a costs award in that context.

[30]	As to the duplication of proceedings, Red Stag says that this separate proceeding was partly a result of Associate Judge Bell’s reference to a “fresh proceeding”, and that the complaint of duplication is overstated. Those points may have some merit but, as Red Stag accepts, it would have been preferable to combine the substance of this proceeding into the 2017 proceeding from the outset.

[31]	Stepping back, I am not persuaded that increased costs should be awarded. However, I consider that Juken is entitled to scale costs on a 3C basis for the specific items sought given the reasonable time involved and otherwise on a 2B basis.

16	Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [29]. See also Slater v Blomfield [2019] NZCA 664, (2019) 25 PRNZ 218 at [13].
17	Minister of Education v James Hardie New Zealand [2018] NZHC 2960 at [21].

[32]	As for disbursements, Juken is entitled to payment of its filing fees and the cost of AssureQuality’s lawyers.

Result

[33]	Juken is entitled to costs of $50,008 plus the disbursements stated.

Gault J