Murray Knapp v Locktite Aluminium Specialities Ltd

• Jurisdiction: New Zealand
• Judge: Christina Inglis
• Judgment Date: 28 July 2015
• Docket Number: ARC 53/14
• Court: Employment Court
• Date: 28 July 2015

[2015] NZEmpC 124

IN THE EMPLOYMENT COURT AUCKLAND

ARC 53/14

In the matter of a challenge to a determination of the Employment Relations Authority

and

In the matter of an application for costs

Between

Murray Knapp

Plaintiff

and

Locktite Aluminium Specialities Limited

Defendant

Appearances:

W Reid, advocate for plaintiff

P Kotze, advocate for defendant

Application by the defendant for costs following the plaintiff's unsuccessful challenge to the Employment Relations Authority's dismissal of his personal grievance — the defendant also sought a contribution to costs incurred in the Authority — it said that no while challenge was pursued to the Authority's costs determination, the Court had the power to revisit the award of costs in that forum under s189(1) Employment Relations Act 2000 (ERA) (jurisdiction to … make such decisions or orders, … as in equity and good conscience [Court] thinks fit) — also sought GST on the costs — whether the Authority's costs could be revisited — whether GST should be calculated into the costs where the applicant was GST registered — whether the plaintiff had unreasonably rejected the defendant's settlement offers.

Held:

Regulation 68(1) Employment Court Regulations 2000 (the Regulations) provided that, in exercising the Court's discretion under the ERA to make orders as to costs, the Court could have regard to any conduct of the parties tending to increase or contain costs, including any offer made, a reasonable time before the hearing, to settle all or some of the matters at issue. The usual starting point in ordinary cases for cases was 66 per cent of actual and reasonable costs. From that starting point factors that justified either an increase or decrease were assessed.

While the Court could, in appropriate cases, uplift costs in its broad discretion, it was not appropriate to uplift the costs from the Authority. The issue of costs in the Authority was not before the Court. The Court dismissed the plaintiff's challenge and the Authority's costs order (that costs were to lie where they had fallen) was left undisturbed.

The position in relation to GST on costs was not beyond doubt and had been the subject of differing approaches. In Air New Zealand Ltd v Kerr what was described as a “GST-neutral” approach was adopted. This was recently followed in Wills v Goodman Fielder New Zealand Ltd, where it was said that costs between the parties had to be GST neutral as the unsuccessful party making a contribution to costs was not paying for a service provided to it by the successful party.

To be “GST neutral” the party seeking GST did not have to account to Inland Revenue for GST on a costs award, and the party paying costs was not able to claim back a GST component from Inland Revenue. This was because no GST-attracting service was being provided by the claimant to the party paying costs. In other words, the issue of GST neutrality related to the cost claim transaction, not to the underlying transactions giving rise to the costs incurred by the claimant party in a proceeding.

In relation to those transactions, GST would have been included in virtually all cases. If the claimant was GST registered, they would have been able to claim the GST back. If they were not GST registered they would not have been able to claim the GST back. The GST neutrality principle applied to the extent that costs awards did not, of themselves, attract GST. However this was a different consideration to whether or not a claimant could properly include GST in the amount sought by way of a costs award.

GST had obvious implications for the net quantum of actual costs incurred by the parties, and implications for the first stage of an assessment of costs — namely, an assessment of actual costs. That was because, depending on whether or not the claimant was GST registered, they had the potential to claim back the GST component from Inland Revenue. If they were, then their actual costs were the GST exclusive amount. If they were not, their actual costs would be the GST inclusive amount. At the current GST rate of 15 per cent the difference could be significant. It was employees who were more likely to be adversely affected.

In Wills the Court said that any circumstances which might otherwise have justified the inclusion of GST in an assessment of costs could be ameliorated through an uplift in its eventual award beyond the standard 66 per cent starting point. An uplift of approximately 7.4 per cent was allowed. This was however well short of what would have been achieved had the claimant been GST-registered. A determination of the actual costs incurred by the claimant party required knowledge of whether or not they are GST registered.

The objectives of clarity, consistency and certainty, and the broader objectives of the Act, were best met by assessing the claimant party's net costs at stage one of the Court's inquiry (assessment of actual costs), consistently with the established principle that a party was only entitled to claim the costs which it had actually incurred. If the claimant was GST registered, then the costs they had actually incurred was the amount exclusive of GST. If they were not GST registered, then the costs they had actually incurred was the amount inclusive of GST.

The defendant was an active trading entity and could be assumed to be GST registered. GST was not to be included.

Both settlement offers were written on a “without prejudice save as to costs” basis. The offers were clear as to their terms. Both were expressed as all-up offers for a compensatory sum. The issues had been well ventilated by the time the offers were made, having been through the Authority's investigative process. The plaintiff was well aware the defendant's case was factually strong. He was in a position to give the offers informed consideration and had the opportunity to take advice on them. The defendant clearly spelt out the consequences of non-acceptance. The plaintiff's rejection of settlement was unreasonable. Full contribution to the defendant's modest costs was appropriate in the circumstances.

There was no reason in principle why a party who had been put to the expense of applying for costs should not be entitled to a reasonable contribution. Such a step was a necessary incident of the proceeding where costs had not been agreed. The defendant had had mixed success on its costs application. In the circumstances a reasonable contribution to costs would be $150.

Order that defendant pay $2,950 costs.

COSTS JUDGMENT OF JUDGE Christina Inglis

Christina Inglis

1 The defendant has applied for costs following the plaintiff's unsuccessful challenge to a determination of the Employment Relations Authority (the Authority) dismissing his personal grievance. 1 The parties have been unable to agree costs and have subsequently filed memoranda.

2 The defendant seeks $7,853.75 by way of costs. This includes costs in the Authority, although no challenge to the Authority's determination (ordering that costs were to lie where they had fallen) was mounted; a contribution to the costs associated with attending mediation; inclusion of GST in assessing the costs incurred by the defendant in responding to the plaintiff's challenge; a contribution to costs on

its costs application; and an uplift for two settlement offers that were made, and rejected, prior to the hearing.

3 The plaintiff has filed very brief submissions in reply, seeking an order of costs of $2045.21.

Framework

4 The starting point is cl 19 of sch 3 of the Employment Relations Act 2000 (the Act). It confers a broad discretion as to costs, providing that:

• (1) The Court in any proceedings may order any party to pay to any other party such costs and expenses … as the Court thinks reasonable.

• (2) The Court may apportion any such costs and expenses between the parties or any of them as it thinks fit, and may at any time vary or alter any such order in such manner as it thinks reasonable.

5 Regulation 68(1) of the Employment Court Regulations 2000 (the Regulations) also deals with costs and has particular significance in this case. It provides that, in exercising the Court's discretion under the Act to make orders as to costs, the Court may have regard to:

… any conduct of the parties tending to increase or contain costs, including any offer made by either party to the other, a reasonable time before the hearing, to settle all or some of the matters at issue between the parties.

6 The discretion to award costs, while broad, is to be exercised judicially and in accordance with principle. The primary principle is that costs follow the event. 2 The usual starting point in ordinary cases is 66 per cent of actual and reasonable costs. From that starting point factors that justify either an increase or decrease are assessed. 3 I approach the application for costs in this case on this basis.

Authority costs available?

7 The defendant seeks a contribution to costs incurred in the Authority. While no challenge was pursued to the Authority's costs determination it is submitted that

the Court has the power to revisit the award of costs in that forum under s 189(1) of the Act. That is an ambitious submission. Section 189(1) provides that:

In all matters before it, the Court has, for the purpose of supporting successful employment relationships and promoting good faith behaviour, jurisdiction to determine them in such manner and to make such decisions or orders, not inconsistent with this or any other Act … as in equity and good conscience it thinks fit.

8 The short point is that the issue of costs in the Authority is not before the Court. The Court dismissed the plaintiff's challenge and the Authority's costs order (that costs were to lie where they had fallen) was left undisturbed. While the Court may, in appropriate cases, uplift costs in its broad discretion, it is not appropriate to uplift costs in...