Anthony Zvonko Tisot, Joanne Marie Tisot and Timothy Grant; Livingstone as trustees of the A & J Tisot Family Trust; s; Anthony Zvonko Tisot; ; And; Danny Selak; ; Danny Selak and Marie POSA as; trustees of Dan’s..
[2024] NZHC 3162
•31 October 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-000308
[2024] NZHC 3162
IN THE MATTER OF Covenant numbered D606543.7 BETWEEN
ANTHONY ZVONKO TISOT, JOANNE MARIE TISOT and TIMOTHY GRANT
LIVINGSTONE as trustees of the A & J TISOT FAMILY TRUST
First PlaintiffsANTHONY ZVONKO TISOT
Second PlaintiffAND
DANNY SELAK
First Defendant
DANNY SELAK and MARIE POSA as
trustees of DAN’S FAMILY TRUST Second Defendants
Hearing: On the papers Counsel:
D Broadmore and Z Sinclair for the Plaintiffs A Barker KC and L Kemp for the Defendants
Judgment:
31 October 2024
JUDGMENT OF GORDON J
[As to costs]
This judgment was delivered by me on 31 October 2024 at 11.30am, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors: Buddle Findlay, Auckland
Kemp Barristers & Solicitors, Kumeu Counsel : A Barker KC, Auckland
TISOT v SELAK [2024] NZHC 3162 [31 October 2024]
[1] This is a contested costs application following from a judgment I delivered on 24 May 2024 (judgment).1
[2] As at the date of the hearing, there was a restrictive covenant (covenant) over a property at 16A Scott Road Hobsonville owned by Anthony Tisot’s family trust, the A & J Family Trust (TF Trust), protecting a view shaft in favour of a property at 16 Scott Road Hobsonville owned by Danny Selak’s family trust, Dan’s Family Trust (DF Trust). On 19 May 2016, at Mr Tisot’s request, Mr Selak signed a Deed of Surrender agreeing to remove the covenant (Deed). This did not occur.
[3] On 11 February 2022, Mr Tisot and TF Trust commenced the proceedings. Their primary claim was that the Deed was enforceable, and they sought specific performance requiring removal of the covenant or damages for breach of the Deed. I found against the plaintiffs on those two causes of action. They also sought orders under s 317 of the Property Law Act (PLA) for the covenant to be extinguished, or in the alternative, modified. I made orders for modification of the covenant in accordance with a proposal provided to the Court during the plaintiffs’ closing submissions. I reserved the issue of costs.
[4] The parties have been unable to agree costs. The plaintiffs and defendants each say they were the overall successful party and are entitled to an award of costs. As well, the plaintiffs seek increased costs based, they say, on an unreasonable rejection by the defendants of settlement offers made prior to trial.
Background
[5] The factual background to the plaintiffs’ claims is set out in some detail in the judgment.2 It is not repeated here.
[6]Mr Tisot and the TF Trust commenced the proceedings seeking orders for:
(a)specific performance of the Deed requiring removal of the covenant; or
1 Tisot v Selak [2024] NZHC 1300 [judgment].
2 Judgment at [13]–[42].
(b)damages from Mr Selak for breach of the Deed requiring removal of the covenant; or
(c)orders under s 317 of the PLA for the covenant to be extinguished, or in the alternative, modified “as the Court considers appropriate, including extinguishing parts of the Covenant”.
[7] Mr Selak and the DF Trust admitted that Mr Selak signed the Deed but brought the following counterclaims and affirmative defences:
(a)The Deed was an unconscionable bargain and they sought a declaration that the Deed was void and of no effect.
(b)Mr Selak relied upon misrepresentations he said were made by Mr Tisot prior to Mr Selak signing the Deed and accordingly they sought a declaration that they would be entitled to cancel the Deed under s 37 of the Contract and Commercial Law Act 2017 (CCLA).
[8] Further, in relation to the pleadings as regards extinguishing or modifying the covenant the plaintiffs pleaded that would “not substantially injure any person entitled, including because the view of the harbour from the Benefited Land is adequately protected by the Reserve Land”.
[9] The pleading by the defendants in response was a denial and they said further that “the placing of dwellings on areas A and C of [the relevant deposited plan] would substantially injure the defendant to the extent it would undermine the Harbour views, cause a loss of privacy, create noise and light nuisance to the benefited land”.
[10] However, the defendants’ position at the hearing is recorded in the judgment as follows:
[9] As to s 317 of the PLA the defendants’ position is that the jurisdictional requirements for that section are not in issue. Mr Selak says he has always agreed that the covenant can be (mostly) extinguished. There is just one clause in issue. That should be amended so that he is provided with a protective view shaft from his property out to the harbour. He says a covenant in this form will still allow for significant development in one of the
identified areas on 16A Scott Road (area A) but with no development in the second area (area C). Mr Selak does not seek any financial compensation in addition to the protection of this view shaft.
[10] In the alternative, if the covenant were to be removed in its entirety the defendants say it would be appropriate for an award of financial compensation to be made to them.
[11] In support of their position, the defendants called Mark Parker, a registered surveyor, to provide the Court with a proposal as to modification of the covenant. The defendants’ proposal essentially preserved the view shaft from a point of one metre above the deck on the DF Trust’s property to the low tide mark on a particular harbour beacon, which prevented any houses from being built on area C. There would also be height restrictions for buildings on area A.3
[12] During his closing submissions for the plaintiffs, Mr Broadmore provided the Court with an alternative proposed modification to the covenant.4 That proposal allowed building on a portion of area C with no restrictions on building heights in area A.
[13]In the judgment I made the following orders:5
(a)a declaration that the Deed is void and of no effect (upholding the defendants’ counterclaim and affirmative defence);
(b)in the alternative, a declaration that the defendants were entitled to cancel that deed under s 37 of the CCLA (upholding the defendants’ further counterclaim and affirmative defence); and
(c)modification of the covenant under s 317 PLA adopting the proposal made by the plaintiffs (as referred to in [12] above).
3 The defendants’ proposal is set out in the judgment at [194]–[196].
4 See judgment at [197] and Annexure B.
5 At [213]–[216].
[14] I directed that counsel confer as to the precise terms of the order modifying the covenant under s 317 PLA. In doing so, I recognised that the Court “will need to hold a further hearing (possibly on the papers) as regards compensation, if any”.6
[15] After the judgment was delivered the parties independently reached agreement for the covenant to be removed in its entirety in exchange for $660,000 in compensation to be paid by the plaintiffs. Given the agreement a further hearing or further orders were accordingly not required on the substantive issues. But the Court was told that the agreement was without prejudice to the parties’ position on costs. They have been unable to agree on that issue.
Parties’ positions
[16] In summary, the parties each say they were successful and are entitled to an award of costs.
[17] The plaintiffs say they are the successful party. They succeeded on the s 317 PLA claim and are entitled to increased costs because the defendants failed, without reasonable justification, to accept three offers of settlement. In the circumstances, the plaintiffs seek 2B scale costs of $62,379 plus disbursements of $102,262.50 or, alternatively, for costs to lie where they fall.
[18] The defendants say they are the successful party on the primary issue of the enforceability of the Deed and seek 2B scale costs of $59,740 plus disbursements of
$18,278.75. In the alternative, the defendants say there is no entitlement to costs on the part of the plaintiffs. However, if costs are to be awarded to the plaintiffs, then the claimed disbursements for expert witness fees are unreasonable and should be reduced.
6 At [217].
Approach to costs
General principles
[19] The award of costs and disbursements is governed by part 14 of the High Court Rules 2016 (HCR). The Court has a broad discretion to award the costs of a proceeding.7 The determination of costs should be predictable and expeditious.8
[20] As a general principle, the party who fails in a proceeding should pay costs to the party who succeeds.9 The Court of Appeal has recognised that even if a party fails with most of its claims, it will be the overall successful party if some of its claims succeed.10 It is the “final result” of the overall successful party which is given primary weight when exercising the r 14.1 discretion.11
[21] These principles were articulated by Fitzgerald J in the High Court as follows:12
Those decisions make it clear that success on limited terms is nevertheless success overall for the purposes of r 14.2(1)(a). Further, once the successful party overall has been identified, there needs to be exceptional reasons before that party will be ordered to pay costs to the overall loser. If the overall successful party has failed on arguments or causes of action which substantially increased the costs of the losing party, and/or engaged in unreasonable or obdurate behaviour, those matters can be recognised under r 14.7(d), by refusing to award costs, or reducing the costs award from what it would otherwise have been. In the context of r 14.7(d), however, the Court in Water Guard cautioned that “the final result must ordinarily be given primary weight when exercising the r 14.1 discretion”.
[22] Rule 14.7(d), as referred to by Fitzgerald J, provides that the Court may refuse to make an order for costs or reduce the costs otherwise payable if the party that succeeded overall “failed in relation to a cause of action or issue which significantly increased the costs of the party opposing costs”.
7 High Court Rules, r 14.1.
8 Rule 14.2(1)(g).
9 Rule 14.2(1)(a).
10 Weaver v Auckland Council [2017] NZCA 330, (2017) 24 PRNZ 379 at [26].
11 Water Guard NZ Ltd v Midgen Enterprises Ltd [2017] NZCA 36 at [13].
12 Hugh Green Ltd v Auckland Council [2019] NZHC 660 at [20] (footnotes omitted).
Costs for applications under s 317 of the PLA
[23] The general principle that the party who fails in a proceeding should pay costs to the party who succeeds can be displaced in certain circumstances. The Courts have recognised that a defendant who unsuccessfully opposes an application under s 317 should not be required to pay the costs of the applicant. In the context of an application to extinguish a covenant, Katz J held that:13
[11] The nature of the proceedings must be kept in mind when considering costs issues. Unlike in ordinary civil litigation, a party who opposes extinguishment or modification of a covenant starts from the position of being “in the right”. In opposing the application they are seeking to protect their existing legal rights. For that reason the normal rule that costs follow the event does not apply. A respondent who unsuccessfully opposes an application to extinguish or modify a covenant should generally not have to pay the applicant’s costs, unless he or she has acted unreasonably.
Effect of settlement offers on costs
[24] Rule 14.10 of the HCR permits parties to make written offers without prejudice save as to costs that relate to an issue in the proceeding. The effect (if any) of making such an offer on the question of costs is at the discretion of the courts.14 However, the court may order a party to pay increased costs if the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by failing, without reasonable justification, to accept an offer of settlement.15
Plaintiffs’ submissions on costs
[25] Mr Broadmore submits that the plaintiffs were the successful party overall. He submits that modification of the covenant under s 317 of the PLA was advanced by the plaintiffs and was pleaded as an alternative cause of action from the beginning of the proceeding. That alternative cause of action was opposed by the defendants until their opening (oral) submissions, when the defendants accepted that all restrictions in the covenant could be extinguished except for an unspecified modification of the building restriction to protect the defendants’ view shaft.
13 North Holdings Development Ltd v WGB Investments Ltd [2014] NZHC 1175, as endorsed by the Supreme Court in Synlait Milk Ltd v New Zealand Industrial Park Ltd [2020] NZSC 157, [2020] 1 NZLR 657 at [202]–[204].
14 High Court Rules, r 14.11(1).
15 Rule 14.6(3)(b)(v).
[26] Mr Broadmore submits that the plaintiff’s proposed modifications were significantly more extensive than the modification proposed by the defendants. It was the plaintiff’s proposed modification that was ultimately adopted by the Court.
[27] Relevant to r 14.7(d), Mr Broadmore submits that all five expert witnesses gave evidence in relation to the making of an order under s 317 of the PLA (as to either extinguishment or modification of the covenant rather than in relation to the other causes of action).
Application under s 317 of the PLA
[28] Mr Broadmore acknowledges that as the defendants unsuccessfully opposed the plaintiffs’ application under s 317 of the PLA, ordinarily costs would lie where they fall.
[29] Mr Broadmore contends that whether compensation is ordered under s 317(2) is not material to determination of costs, and in any case should not weigh against an award of costs being made towards the plaintiffs. He submits the defendants never pleaded a claim for compensation, and never raised any issue in response to the plaintiffs’ letter dated 1 March 2024 which recorded the plaintiffs’ understanding that “the defendants are not seeking any compensation”. However, Mr Broadmore accepts that the defendants’ letter of 20 March 2024 does reference compensation. Finally, he submits that the judgment does not require the plaintiffs to pay compensation, instead leaving the question open pending the results of a further hearing in relation to compensation “if any”.16
Settlement offers
[30] Mr Broadmore says that the plaintiffs made three offers to settle (on 6 October 2021, 13 March 2024, and 25 March 2024), all of which were rejected by the defendants without reasonable justification. He submits in those circumstances the usual principle of costs lying where they fall in a s 317 PLA case, does not apply. He contends, in reliance on r 14.6(3)(b)(v), that in the circumstances an award of
16 Judgment at [217].
increased costs (2B scale costs) to the plaintiffs is appropriate. Mr Broadmore does not propose a percentage increase on scale costs (the usual approach where increased costs are sought). The Court infers that Mr Broadmore’s use of the term “increased costs” means an increase on the s 317 position (costs lie where they fall) to award the plaintiffs scale costs, as opposed to increased costs in the usual sense.
[31] In particular, Mr Broadmore submits that the rejection of the 6 October 2021 offer was unreasonable. That offer contained the plaintiffs’ proposal for the covenant to be modified with the following wording:
The Covenantor will not erect or permit to be erected any dwelling(s):
(i)on the area marked “A” on Deposited Plan 206422 that is more than two storeys high (the specific height limit being as permitted under the relevant Unitary Plan for a two-storey dwelling); and
(ii)on the area marked “C” on the Deposited Plan 206422 without the prior consent of the Covenantee.
[32] Mr Broadmore submits that the 6 October 2021 offer proposed significantly more onerous restrictions on the plaintiffs than the modification ultimately ordered by the Court. It also reflected the plaintiffs’ reasonable understanding of the defendants’ interests to protect their view, rather than to seek financial compensation.
[33] The settlement offer dated 13 March 2024 proposed that the covenant be modified to restrict only the erection of buildings on part of Area C. The settlement offer dated 25 March 2024 contained another offer on the same terms with the further inclusion of a restriction on planting trees over two metres in height.
Defendants’ submissions on costs
[34] Mr Barker submits that the defendants were the successful party overall. He submits that the primary issue that governed the pre-trial steps (such as discovery), the witnesses and the trial length was the enforceability or otherwise of the Deed. In the alternative, the plaintiffs sought an order under s 317 of the PLA for the covenant to be extinguished in its entirety. It is submitted that the plaintiffs were unsuccessful on both issues.
[35] Mr Barker submits that it is not accurate to suggest that the plaintiffs’ claim, as presented at trial, was for modification of the covenant as well as extinguishment. He says the plaintiffs did not file or lead any evidence proposing an alternative modification until closing submissions. Further, the plaintiffs’ evidence was filed while the amended statement of claim dated 5 December 2023 — which referred only to an extinguishment of the covenant — was operative.
[36] It is contended that the only issue on which the defendants were unsuccessful was in respect of their proposed modification to the covenant to provide a protection to the view shaft. Mr Barker submits that no weight should be placed on this for costs purposes because:
(a)The plaintiffs only proposed the alternative modification (that was ultimately accepted by the Court) in their closing submissions.
(b)The plaintiffs’ proposed modification was, in any event, a variation on the defendants’ proposal. While the defendants’ proposal was not accepted, it was a solution closer to the ultimate outcome in the case than the position taken by the plaintiffs throughout trial.
Application under s 317 of the PLA
[37] Mr Barker accepts that the Court left open the issue of compensation in the judgment. However, he submits that throughout the proceeding the plaintiffs never accepted a liability to pay compensation under s 317(2) until, obliquely, their closing submissions. Accordingly, this factor should not be weighed in favour of the plaintiffs when determining the overall successful party for costs purposes.
[38] In response to the submission on behalf of the plaintiffs that the defendants never pleaded a claim for compensation, Mr Barker says that is not a matter for the defendants. It is the obligation of the party seeking an order under s 317 of the PLA to satisfy the Court that such an order is appropriately made, and accordingly proof of a reasonable level of compensation was a matter for the plaintiffs. Further, he submits that the plaintiffs have mischaracterised the defendants’ position. The defendants’
position was that if the covenant was modified in the way they had proposed, then they would not seek compensation.
[39] Accordingly, Mr Barker says there is no basis on which the plaintiffs should be entitled to an award of costs which would be contrary to the usual position in respect of s 317 applications.
Settlement offers
[40] Mr Barker submits that the settlement offers referred to by the plaintiffs should not give rise to increased costs. He submits that the plaintiffs have never proposed, and the defendants have never rejected, any solution that was comparable to that ordered by the Court.
[41] In regards the plaintiffs’ offer dated 6 October 2021, Mr Barker says the defendants in their response sought to substantively engage on a possible resolution. However, that request was not resolved and the plaintiffs determined to issue proceedings.
[42] The plaintiffs’ offer dated 13 March 2024 was not comparable to the result in the judgment because it involved significantly fewer restrictions on building in area C, and there was no offer of compensation.
[43] On 20 March 2024 the defendants had made a counter-offer containing the same restrictions on building on area C as was ultimately adopted by the Court. This proposal was expressly rejected by way of the plaintiffs’ response dated 25 March 2024, yet was the one they advanced in closing submissions.
[44] Mr Barker submits that the correspondence shows the defendants were the reasonable party open to resolving this matter through negotiation and discussion. In particular, the offers in March 2024 were made one month before trial and so are of limited relevance.17
17 Loktronic Industries Ltd v Diver [2014] NZHC 1189 at [14]. In refusing to make an award for increased costs, Courtney J considered counsel’s submissions that it was not unreasonable for the plaintiff to refuse the offers because they were made very close to the hearing, and the fact that to a significant extent the outcome of the trial turned on oral evidence.
[45] In any case, Mr Barker submits that the defendants’ rejection of the offers were reasonable simply because they were opposing the plaintiffs’ primary claim that was based on the enforceability of the Deed. That claim was entirely rejected by the Court.
Plaintiffs’ disbursements
[46] Mr Barker makes the alternative submission that if the Court is minded to award costs to the plaintiffs, the amount claimed for expert witness fees ($102,262.50) is at an “extraordinary level” and should be reduced. For example, the fee for what was essentially a valuation of two properties is approximately $64,000 whereas the defendants’ expert witness’ fee for involvement on same issue totalled $11,068.75. In the absence of any material provided to explain the expert witness fees, and in light of all his other submissions, Mr Barker submits that the plaintiffs’ claimed disbursements are unreasonable and should be reduced.
[47] Mr Barker submits the expert evidence was relevant to the key issue as to whether the Court had jurisdiction to make a s 317 order, and if so, on what terms. He contends that these are matters on which the plaintiffs needed to satisfy the Court regardless of the position taken by the defendants. Accordingly, pursuant to the usual costs rule for s 317 applications, these costs should not be payable by the defendants.
[48] Mr Barker further notes that the proposed modification adopted by the Court relies on analysis of the view shaft undertaken by Cato Bolam at the defendants’ expense. The defendants have not sought any allowance for Cato Bolam’s invoice of
$12,864.48 for pragmatic reasons.
Analysis
[49] Without intending any disrespect to the detailed arguments advanced by both counsel, I view the issue of costs in relatively straightforward terms.
[50] First, although the plaintiffs lost their claim in relation to the Deed, they succeeded in their alternative argument under s 317 of the PLA. Modification of the covenant was an alternative to extinguishment in terms of the statement of claim that was operative at trial. The first statement of claim filed sought extinguishment or
alternatively modification (in terms as proposed in the statement of claim). It is correct that the modification alternative was dropped from the amended statement of claim but it was repleaded in the second amended statement of claim.
[51] In a joint memorandum dated 2 February 2024, counsel sought leave to file the second amended statement of claim (which was the claim operative during trial) and stated the following:
The proposed amendments to the statement of claim are minor. The amendments are to provide expressly for potential alternative relief in the form of modification of the covenant under s 317 of the Property Law Act 2007. Similar relief was sought in the original statement but was omitted from the amended statement of claim dated 5 December 2023. The amendment will not cause any prejudice.
[52] The plaintiffs succeeded in that I ordered modification of the covenant. It was the modification that was put forward by the plaintiffs. I rejected the defendants’ proposed modification. I consider the plaintiffs are the overall successful party having regard to the principles set out in [20] and [21] above.
[53] Accordingly, I reject the submission on behalf of the defendants that they were the overall successful party.
[54] That then leads to the principle that a defendant who unsuccessfully opposes an application under s 317 of the PLA should not be required to pay costs and that costs should lie where they fall.
[55] In this case the defendants opposed removal of the covenant in its entirety but agreed that there should be modification, but in terms that they proposed.
[56] The Court ultimately ordered modification but in a different form from that which was proposed by the defendants at the hearing. That would all tend to suggest that costs should lie where they fall.
[57] In relation to the plaintiffs’ position that offers of settlement were rejected by the defendants without reasonable justification, first, in relation to the 6 October 2021
proposal by the plaintiffs, the defendants responded on 15 October 2021 seeking to engage on a possible resolution. That request did not have an outcome.
[58] There were also other suggestions made by the defendants that were not addressed by the plaintiffs.
[59] The proposal in the plaintiffs’ 13 March 2024 letter involved fewer restrictions on buildings in area C than the Court ultimately ordered. As well, the plaintiffs did not offer compensation. In terms of restrictions on buildings within area C, it was in fact the defendants, who in correspondence prior to the hearing, proposed the modification that was ultimately ordered. The difference though was that the defendants also sought height restrictions over area A in terms of the view shaft (which I did not order).
[60] The 25 March 2024 offer was essentially the same as the 13 March 2024 offer but included a restriction on planting trees over a certain height. I do not consider that really added in any material way to the 13 March 2024 proposal.
[61] In any case, the ultimate question in determining costs for proceedings where an application under s 317 of the PLA was unsuccessfully opposed is whether the defendants acted reasonably in opposing the application.18 I consider the defendants’ rejection of the settlement offers was not unreasonable in the context of asserting their existing legal right. In the absence of any unreasonable conduct on the part of the defendants, the usual principle that costs should lie where they fall applies. Given this conclusion, it is unnecessary to comment on Mr Barker’s submission regarding the reasonableness of the plaintiffs’ claimed disbursements.
[62] Finally, I note that this proceeding was more than just a s 317 PLA case. There was the claim in relation to the Deed seeking either specific performance or damages for breach of contract. A large part of the hearing, including oral evidence and cross-examination of the lay witnesses and submissions, were focused on the
18 Synlait Milk Ltd v New Zealand Industrial Park Ltd, above n 13, at [204]–[205]. See also Sidwell Developments Ltd Partnership v Top Dream Development Ltd [2024] NZHC 1928 at [22]–[23].
enforceability of the Deed. The plaintiffs were unsuccessful on those two alternative causes of action.
[63] The time taken in relation to the issue of the enforceability of the Deed would have increased the costs for the defendants. However, even if there was a significant increase in the defendants’ costs, I do not consider r 14.7(d) has any application here where I have determined that costs should lie where they fall. While the rule enables the Court to reduce costs or make no award to the successful party, it does not provide a basis to award costs to the losing side, namely the defendants.
Result
[64] The parties’ applications for costs are dismissed. Costs are to lie where they fall.
Gordon J
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