AFI Management Pty Limited v Lepionka & Company Investments Limited

[2018] NZHC 1285

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2015-404-2836

[2018] NZHC 1285

IN THE MATTER

of the Property Law Act 2007

BETWEEN

AFI MANAGEMENT PTY LIMITED

Applicant

AND

LEPIONKA & COMPANY INVESTMENTS LIMITED

Respondent

……………………………/continued

Hearing:

On the papers

Counsel:

DW Grove for GLW Group Limited

MD O'Brien QC and MG Colson for defendant

Judgment:

1 June 2018

JUDGMENT OF FITZGERALD J

[As to costs]

This judgment was delivered by me on 1 June 2018, at 4 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:           Foy and Halse, Auckland

Bell Gully, Auckland

AFI Management Pty Limited v Lepionka & Company Investments Limited [2018] NZHC 1285 [1 June 2018]

CIV-2015-404-2168

BETWEEN  GLW GROUP LIMITED

First Plaintiff

GARTH BOWKETT PATERSON

Second Plaintiff

ANDLEPIONKA & COMPANY INVESTMENTS LIMITED

First Defendant

LEPIONKA & COMPANY LIMITED

Second Defendant

STEFAN JOZEF JOHN LEPIONKA and

NIGEL WARREN HUGHES as trustees of the SJ Lepionka Family Trust

Third Defendants

STEFAN JOZEF JOHN LEPIONKA

Fourth Defendant

[1]                  On 29 March 2018, I gave judgment on GLW Group Limited’s application for orders that:1

(a)Lepionka & Company Investments Ltd (“LCIL”) provide GLW with a redemption statement in relation to LCIL’s mortgage over GLW’s land; and

(b)GLW be permitted to redeem the LCIL mortgage on a “without prejudice” basis, pending GLW’s appeal of my substantive judgment in this proceeding.2

[2]                  I declined to order that GLW be permitted to redeem the mortgage on a without prejudice basis. In short, I did not consider such a step necessary to protect GLW’s position pending appeal. Further and in any event, GLW did not explain how its redemption of the mortgage would be “without prejudice”, when the relief it sought would have been final. Rather, I found that, in essence, GLW was seeking to relitigate aspects of my substantive judgment, and in particular, my finding that GLW’s right to redeem the mortgage had ceased upon LCIL’s exercise of its power of sale on 7 April 2015.

[3]                  At the hearing of GLW’s application, LCIL offered to provide GLW with a statement setting out how much was presently due and owing under the LCIL mortgage. I ordered a time period within which such a statement was to be provided to GLW.

[4]                  At the conclusion of the hearing, LCIL flagged that it would seek indemnity costs on the application. I made timetable directions for the parties to confer on costs, and to file memoranda if agreement could not be reached. The parties have not agreed costs.

1      AFI Management Pty Ltd v Lepionka & Company Investments Ltd [2018] NZHC 586.

2      AFI Management Pty Ltd v Lepionka & Company Investments Ltd [2017] NZHC 3116.

[5]                  LCIL seeks indemnity costs, or in the alternative, increased costs (with a 100 per cent uplift from scale) or scale costs (on a 2B basis). GLW says that costs should lie where they fall, or should be reserved pending the appeal.

[6]                  I record at the outset that I do not accept costs ought to be reserved. Costs on interlocutory applications are to be determined at the time the application is determined, unless there is some special reason to the contrary. There is no such special reason here.

Background

[7]                  The full background to this proceeding, and GLW’s application, is complex and somewhat convoluted. It is set out in full in my substantive judgment of December 2017, and my judgment of March 2018 on GLW’s present application. The key factual matters relevant to determining costs on GLW’s application can, however, be briefly stated.

[8]                  In my substantive judgment, I determined a range of legal and factual issues, including whether LCIL had wrongfully refused to permit GLW to redeem the mortgage, and whether LCIL had exercised its power of sale when adopting certain pre-existing contracts.3 I found that LCIL had not wrongfully refused to permit GLW to redeem the mortgage, and that its adoption of the pre-existing contracts did amount to the exercise of the mortgagee’s power of sale. As a result, GLW’s right to redeem ceased on that adoption.4

[9]                  Prior to the hearing of its application, GLW sought urgent orders (via urgent teleconferences) on other aspects of its application. As it transpired, the professed need for urgency was misconceived and the orders were not pursued.

[10]              The perceived urgency to deal with the remaining orders stems from the fact that AFI Management Pty Ltd (“AFI”), also a party to the substantive proceedings, has served a statutory demand on GLW. GLW has applied to set aside the statutory demand, which is to be heard by me on 8 June 2018. It appears GLW may have a

3      Pursuant to s 179 of the Property Law Act 2007 (“PLA”).

4      Section 97, PLA.

source of funds that would enable the debt underlying the statutory demand to be paid. But the provider of the funds had made a condition of that funding that GLW also redeems the LCIL mortgage. Hence GLW’s application for an order that the LCIL mortgage be redeemed, though on a without prejudice basis pending the appeal.

Approach to costs

General

[11]              It is trite that costs follow the event. Accordingly, the “successful” party will ordinarily be awarded costs.

[12]              The Court of Appeal has also confirmed the appropriate approach to costs where a party has been only partly successful. In Weaver v Auckland Council, the Court reinforced that the “loser” ordinarily pays, and observed that although the appellants in that case had not succeeded to the full extent of their damages claim (but only roughly to half that extent), “success on more limited terms is still success”.5 The Court went on to observe that given the limited success in that case, the award of costs to the appellants was to be reduced by 50 per cent.

[13]              These observations reflected and reinforced the Court of Appeal’s earlier comments in Water Guard NZ Ltd v Midgen Enterprises Ltd.6 In that case, the Court emphasised that it was unprincipled to award costs to the losing side. It disagreed with the High Court that the plaintiff had lost the status of being the overall “successful” party because it failed on most of its claims which had occupied most of the trial. It observed that those matters can be properly recognised in other ways, such as reducing costs otherwise payable or ordering costs to lie where they fall.

Increased and indemnity costs

[14]              Increased costs may be awarded if, relevantly in this case, the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or a step in it, by taking or pursuing an unnecessary step, or an argument that lacks merit.7

5      Weaver v Auckland Council [2017] NZCA 330 at [26].

6      Water Guard NZ Ltd v Midgen Enterprises Ltd [2017] NZCA 36.

7      High Court Rules 2016, r 14.6(3)(b)(ii).

[15]              The Court also has a discretion to award indemnity costs.8 Indemnity costs may be awarded if “the party [against whom costs are sought] has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in the proceeding”.9 Indemnity costs may also be awarded if some other reason exists justifying the imposition of indemnity costs.10

[16]              In Bradbury v Westpac Banking Corp, the Court of Appeal explained that indemnity costs may be awarded where a party has behaved either badly or very unreasonably.11 It contrasted the jurisdiction to grant increased costs, being directed to simple unreasonableness, with the jurisdiction to grant indemnity costs, being directed to “distinctly bad behaviour”.12 Examples of the latter were:13

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

(b)particular misconduct causing loss of time to the Court and other parties;

(c)commencing or continuing a proceeding for some ulterior motive;

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

(e)making allegations which ought never to have been made or unduly prolonging a case by groundless contentions – i.e. persisting in what should on proper consideration be seen to be a “hopeless case”.

[17]              As is evident from the above, indemnity costs are reserved for egregious conduct.

8      Rules 14.6(1)(b) and 14.6(4).

9      Rule 14.6(4)(a).

10     Rule 14.6(4)(f).

11     Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [27].

12 At [26].

13 At [29].

[18]              Finally, and in the case of both increased and indemnity costs, even if the qualifying ground is made out, the decision to award such costs remains a matter of discretion.

What costs should be awarded, and to whom?

[19]              I am satisfied that LCIL ought to be awarded costs on the application. I am not persuaded it ought to recover indemnity costs. I do consider, however, that increased costs are appropriate. I have reached this conclusion for the following reasons.

[20]              First, despite LCIL offering to provide a statement of what was owing under the mortgage, I am clear in my view that it remained the “successful party” on the application. GLW’s application for an order that LCIL provide a redemption statement received scant attention at the hearing. Further, the application for an order that LCIL provide a redemption statement was a somewhat hollow application, in the absence of the substantive and primary order that GLW be permitted to redeem the mortgage pending the determination of GLW’s appeal. In in any event, I did not order that LCIL provide GLW with a redemption statement. Rather, I confirmed the date by which LCIL was to provide its offered statement of amounts due under the mortgage.

[21]              Second, GLW’s application for an order that it be permitted to redeem the mortgage on a without prejudice basis was without merit. Ultimately, GLW was not able to articulate why this relief was required to preserve its position, or the broader status quo, pending the appeal, or how the relief would be “without prejudice” in any event. Rather, what GLW actually sought was that LCIL be removed (permanently) as mortgagor, and an amount required to secure the mortgage debt be paid into court pending the appeal. GLW’s funder would then become the registered mortgagor. That is final relief, and goes further than the relief GLW sought in the substantive proceeding and thus could secure on appeal.

[22]              Third, in support of its position, GLW referred me to authorities in which mortgage debts had been secured by payment into court, with the mortgage being released in the interim. However, as I set out in my judgment, those authorities considered quite different scenarios to that before this Court, in that they were not considering interim relief pending an appeal. Rather, the relief granted in those cases

was final. Further, to the extent GLW relied on the authorities for the proposition that the right to redeem the mortgage still exists, that is contrary to my earlier finding that GLW’s right to redeem was extinguished on 7 April 2015. As I noted in my judgment, those are properly matters for appeal.

[23]              Fourth, and allied to the above point, GLW’s position sought to relitigate aspects of my substantive judgment. GLW is obviously entitled to challenge the findings in my substantive judgment, and has done so through its appeal. An application for relief pending that appeal is not the appropriate vehicle for such challenge.

[24]              For these reasons, I am satisfied GLW contributed unnecessarily to the time or expense of a step in this proceeding, by taking an unnecessary step (namely its application for an order that GLW be permitted to redeem the mortgage on a “without prejudice” basis), and pursuing an argument that lacked merit.

[25]              As noted, I decline to exercise my discretion to order indemnity costs. I do not consider GLW’s conduct to be so bad or unreasonable to justify such an order. I do not view GLW’s conduct as involving any deliberate or wilful advancement of a meritless claim, or other similar egregious conduct warranting the sanction of indemnity costs. And while the jurisdiction to award indemnity costs can be enlivened by pursuing what on any view is a hopeless case, that is something more serious than pursuing an argument without merit. Standing back, I consider GLW’s position on this application fell within the latter, not the former.

[26]              I accordingly award LCIL scale costs on a 2B basis uplifted by 50 per cent. As commentary on the costs rules notes, an increase above 50 per cent is unlikely.14 If an uplift above this level is required to sanction poor behaviour, then it is likely the matter is within the territory of indemnity costs. LCIL did not address me on the basis for an uplift of 100 per cent, rather than 50 per cent.

14     John Wild and others McGechan on Procedure (online looseleaf ed, Thomson Reuters) at [HR14.6.02(1)(a)].

Result

[27]              LCIL is accordingly awarded increased costs in the sum of $9,868.50, as set out in the schedule to this judgment.

[28]Costs on the costs application are to lie where they fall.

Fitzgerald J

Schedule

Step	Description	Band B days	Amount
13	Appearance at case management conference (first teleconference on 20 March 2017)	0.3	$669.00
14	Appearance at case management conference (second teleconference on 20 March 2018)	0.3	$669.00
23	Filing opposition to interlocutory application	0.6	$1,338.00
24	Preparation of written submissions	1.5	$3,345.00
26	Appearance at hearing of defended application for principal counsel	0.25	$558.00
Total			$6,579.00
Uplift			50 %
Total costs			$9,868.50