Arriesgado v Gallagher Family Investments Limited
[2020] NZHC 567
•19 March 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-1713
[2020] NZHC 567
BETWEEN MARIA THERESA ARRIESGADO AND VICENTE MARIO HIZON REYES
Plaintiffs
AND
GALLAGHER FAMILY INVESTMENTS LIMITED
First Defendant
LIAM GALLAGHER
Second DefendantCHRISTOPHER JAMES TAYLOR, SANDRA DIANE TAYLOR AND BRETT RONALD HOWSE
Third Defendants
Hearing: On the papers Counsel:
M Lloyd, for the Plaintiffs
No appearance by or on behalf of the Defendants
Judgment:
19 March 2020
JUDGMENT OF GORDON J
[As to costs]
This judgment was delivered by me on Thursday, 19 March 2020 at 3.30 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors: Leigh Judd Law,
Counsel: M Lloyd, Auckland
ARRIESGADO v GALLAGHER FAMILY INVESTMENTS LTD [2020] NZHC 567 [19 March 2020]
Introduction
[1] The plaintiffs, Maria Arriesgado and Vicente Reyes (the Reyes) sought judgment by way of formal proof against the first and second defendants, Gallagher Family Investments Ltd (GFI) and Liam Gallagher, respectively.1
[2] The Reyes are the owners of an apartment at 30 Heather Street, Parnell, Auckland which is a unit title development under the Unit Titles Act 2010 (UTA). The Reyes sought orders against GFI and Mr Gallagher in relation to four accessory units in that complex.
[3] On 21 February 2019 I issued a judgment in favour of the Reyes and awarded indemnity costs to them.2 It is now necessary for the sum to be quantified. Pursuant to r 14.6(1)(b) of the High Court Rules 2016 (the Rules), the actual costs and disbursements which can be recovered can only be those reasonably incurred by them.
Submissions
[4]Mr Lloyd for the Reyes has filed a memorandum on costs which claims
$35,023.25 against GFI and Mr Gallagher. This is the amount set out in four invoices up to 16 December 2019 and includes GST. Disbursements of $1,653.00 are claimed separately. The total amount of these invoices does not include time spent on the matter since 16 December 2019, including Mr Lloyd’s appearance at the hearing. This time (6.6 hours) is described as “unbilled time”. Mr Lloyd’s claim does, however, include time spent on work relating to the third defendants. He submits that this amount of time is less than the 6.6 hours “unbilled time”, implying that the total amount claimed is therefore fair.
[5] Mr Lloyd submits the case was a legally and factually complicated one, exacerbated by the Reyes’ naivety and the refusal of Mr Gallagher or GFI to engage with them or assist in any way.
1 The first and second defendants did not file a statement of defence. The third defendants did so, and accordingly the hearing only related to the claim against the first and second defendants.
2 Arriesgado v Gallagher Family Investments Ltd [2020] NZHC 232.
Discussion
[6] Mr Lloyd’s submission is an accurate description of the circumstances. However, Mr Lloyd does not provide a supporting submission as to why the cost of his work prior to the commencement of proceedings should be included in the costs he claims. Efforts to negotiate with Mr Gallagher, arrangements relating to leases of the auxiliary units and discussions with the body corporate are all matters which occurred prior to the issue of the proceedings.
Costs at discretion of the court: r 14.1
[7] The award of indemnity costs is controlled by r 14.1 and r 14.6 (cited above) of the Rules.
[8] Rule 14.1 establishes a wide discretion, in specific circumstances, in relation to costs:
14.1 Costs at discretion of court
(1) All matters are at the discretion of the court if they relate to costs—
(a) of a proceeding; or
(b) incidental to a proceeding; or
(c) of a step in a proceeding.
(2) Rules 14.2 to 14.10 are subject to subclause (1).
[9] However the Court’s discretion is not unfettered. It is qualified by the other rules in Part 14. In this case r 14.6 is the relevant rule. Whether the costs claimed by Mr Lloyd prior to the commencement of the proceeding come within the scope of r
14.1 is a preliminary question to resolve.
Scope of indemnity costs in this proceeding
[10] A proceeding must be “extant” before costs can be incidental to it.3 In Braeburn Dairies Ltd v McGregor & White Electrical Ltd, French J considered a claim for costs prior to commencement of the proceedings. These costs were described as
3 Braeburn Dairies Ltd v McGregor & White Electrical Ltd HC Dunedin CIV-2009-412-668.
“incidental to the proceeding” in the same terms as r 14.1(1)(b). The Judge did not accept this part of the claim:4
I do not accept that these are costs incidental to a proceeding within the meaning of the Rule. Surprisingly, there appears to be no authority on point, but in my view the proceeding must be extant before costs can be incidental to it. Otherwise, such costs would always be recoverable, which cannot be the intention of the Rule. Certainly, there was nothing unusual or exceptional about the legal work that had to be undertaken to investigate this claim.
[11] As I have awarded indemnity costs, r 16.4(1)(b) is also relevant and, as noted above, while indemnity costs are actual costs incurred by a party, they must be reasonably incurred:
… that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party (indemnity costs).
[12] Where the Court considers actual costs are unreasonably high, a lesser amount may be awarded. McGechan on Procedure states “[c]osts are reasonably incurred if a reasonable observer would expect those costs be incurred.”5 In addition, McGechan also states “[s]pecific items of expenditure which are found to be unreasonable are excluded or reduced.”6 However, the Court of Appeal has found a Court should not assess reasonableness in terms of the quantum of the dispute; the issue is not that amount but whether the costs were “reasonably incurred”.7
[13] The Reyes’ claim was filed in the High Court on 26 August 2019. Mr Lloyd invoiced for 60.1 hours prior to this date (not including time spent on matters relating to the third defendant). The activities described in this period prior to the commencement of proceedings include the preliminary negotiations on behalf of the Reyes with Mr Gallagher and his solicitor in an effort to resolve the difficulty and, when they proved unsuccessful, negotiations regarding the use of parts of the accessory units. Discussions with the body corporate apparently occurred too. I note that some of these activities generated income for the Reyes. From around May 2019, Mr Lloyd’s activities focused primarily on correspondence with the Reyes and his
4 Braeburn Dairies Ltd v McGregor & White Electrical Ltd, above n 3, at [14].
5 At [HR14.6.03(2)(a)]. See Bradbury v Westpac Banking Corp (2009) 18 PRNZ 859 (HC) at [204].
6 At [HR14.6.03(2)(a)].
7 Edel Metals Group Ltd v Geier Ltd [2018] NZCA 494 at [62].
instructing solicitor. The statement of claim was apparently drafted a few days prior to the commencement of proceedings.
[14] Following the reasoning in Braeburn Dairies, which I respectfully adopt, a large portion of these costs were not incidental to a proceeding and cannot be claimed. However, I am prepared to consider whether a proceeding is “extant” immediately prior to the filing of the statement of claim. This is to address whether the 10.9 hours spent in drafting the statement of claim and other materials to commence proceedings and the discussions with the Reyes on the statement of claim immediately prior to its filing come with the definition of “incidental to a proceeding”. They cannot be “of a proceeding” or “a step in a proceeding”, the other matters in r 14.1(1) because both presume there is a proceeding and this did not occur, in this case, until 26 August 2019.
[15] Proceedings which are extant are those in existence. No proceedings existed in this case until 26 August 2019 when the statement of claim was filed. However, that statement of claim had to be prepared by Mr Lloyd and approved by the Reyes. While “extant” would normally exclude such activities, I am prepared to accept that once an intention is formed to commence proceedings and steps are taken to draft the claim on the basis of that intention, proceedings are extant. Alternatively, these steps are incidental to a proceeding for the purposes of r 14.1(b). I would therefore accept the 10.9 hours spent on preparing the statement of claim and discussions with the Reyes immediately prior to the filing of the claim. Those costs were reasonably incurred.
[16] It is possible there is other time in Mr Lloyd’s timesheet which comes within this definition, such as taking instructions, but this is not clear from the materials provided and cannot be distinguished from other matters I do not consider are incidental to the proceeding. Prior to the commencement of the proceeding, I allow
10.9 hours as incidental to the proceeding.
Costs on account of the third defendant
[17] These costs total 5.1 hours and are outside the scope of my costs order, which was against Mr Gallagher and GFI. They are not allowed.
Parts of claim disallowed
[18] There are attendances claimed after the commencement of the proceeding which are either not incidental to the proceeding (as it concerns the Reyes) or at least it is unclear whether all parts of the attendance(s) are incidental to the proceeding. I therefore exclude them:
10 September 2019
2.8 hours
Includes what appears to be research regarding landlocked land (which would relate to the third defendant)
11 September 2019
3.3 hours
Includes letters to Council and adjacent land owners (suggests these are body corporate matters)
20-21 September 2019
1 hour
Includes letters to and from Council
15 October 2019
0.3 hours
Emails with appraisal of accessory unit
5-6 November 2019
0.5 hours
Emails with appraisals for accessory units
[19]A total of 7.9 hours are not allowed for these reasons.
Unbilled time
[20] Mr Lloyd has included in his timesheet a period of 6.6 hours which, as noted above, is described as “unbilled time”. This includes the time spent at the hearing. While this part of the claim is either a step in a proceeding or incidental to a proceeding and is reasonably incurred, Mr Lloyd has not invoiced for them and his submission indicates he does not intend to do so. These costs have therefore not been incurred by the Reyes. These attendances are not allowed.
[21] There is a further reason for disallowing the 1.5 hours claimed for preparing the costs memorandum which is part of the unbilled time. While there has been some divergence in the Courts’ approach to awarding costs on applications for costs, such costs may be awarded. However, the Court of Appeal has held there should be no order for costs in a costs application where neither side’s position has been completely upheld.8 The claim for costs by Mr Lloyd on behalf of the Reyes has been only
8 Paper Reclaim Ltd v Aotearoa International Ltd [2007] NZCA 544 at [62].
partially successful. The time spent preparing the costs memorandum would otherwise be disallowed for this reason.
Disbursements
[22] The claim for disbursements totals $1,437.39 plus GST. The disbursements all relate to the proceedings (court filing fee, service fees, sealing judgment). These disbursements are allowed.
Summary
[23] Mr Lloyd’s timesheet states he spent a total of 103 hours on the dispute. On the basis of the foregoing, the Reyes are entitled to claim 34.2 hours in indemnity costs, including 10.9 hours spent in preparing the statement of claim and related matters. The 49.2 hours for work done prior to the commencement of proceedings is not allowed as is the 5.1 hours for work done on matters relating to the third defendants, 7.9 hours for other matters after commencement, and 6.6 hours in “unbilled time”. The total claim for time spent on the proceedings is thus $11,970.00 plus GST. The total amount of the indemnity costs and disbursements is $13,407.39 plus GST.
GST
[24] The general principles for GST on costs is set out in New Zealand Venue and Event Management Ltd v Worldwide NZ LLC.9 The purpose of indemnity costs is to provide the successful party with full recovery of actual costs reasonably incurred in a proceeding. The GST liabilities of the successful party must be known to the Court to achieve this purpose. The Court of Appeal decided that the Court should proceed on the basis that the successful party is GST registered and entitled to a GST input credit (that is, GST paid on expenses incurred could be claimed as an input tax credit). This approach was adopted to avoid double recovery. However, it also places an onus on a successful party who is not GST registered to advise the Court of its inability to recover GST if it wants to be fully indemnified for the costs of a proceeding.
9 New Zealand Venue and Event Management Ltd v Worldwide NZ LLC [2016] NZCA 282 at [13]-[16].
[25] In his memorandum, Mr Lloyd does not address whether the Reyes are registered for GST. On the authority in New Zealand Venue, therefore, I must assume they are GST registered. The amount of indemnity costs will not include GST.
Result
[26] I award costs and disbursements in the sum of $13,407.39 in favour of the Reyes against GFI and Mr Gallagher.
Gordon J
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