Blair v Street
[2022] NZHC 1344
•8 June 2022
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2021-485-743
[2022] NZHC 1344
IN THE MATTER of an award of costs made in the District Court BETWEEN
ANDREW DOUGLAS BLAIR
Appellant
AND
MICHAEL JOHN STREET, JOAN ISABELLA STREET, PHILIP JOHN ENGLAND AND CHRISTOPHER JOHN STREET
Respondent
Hearing: 7 June 2022 (via VMR) Appearances:
D MacKenzie for Appellant
R K Macdonald for Respondent
Judgment:
8 June 2022
JUDGMENT OF ISAC J
Introduction
[1] Mr Blair appeals a decision of Judge Tompkins in the District Court awarding the respondents indemnity costs of $13,581.1 He says the Judge failed to apply the indemnity costs principles in the District Court Rules 2014 and, in any case, there was no basis to justify the award.
[2] The proceeding is striking for the disproportionate use of resources it has required to resolve an issue capable of resolution between the parties.
1 Street v Blair [2021] NZDC 20771.
BLAIR v STREET, STREET, ENGLAND AND STREET [2022] NZHC 1344 [8 June 2022]
Background
[3] On 31 December 2020, Mr Blair entered an agreement for sale and purchase of a residential property owned by the respondent trustees. The agreement was conditional on Mr Blair obtaining a building report that was satisfactory to him, albeit “on the basis of an objective assessment”.2
[4] Mr Blair obtained the report and, on 26 January 2021, his solicitor gave notice of cancellation of the agreement. There does not appear to be any real argument that the report supported Mr Blair’s decision to cancel the agreement. Regardless, the property was subsequently sold to a different purchaser at a higher price. So the Trustees have suffered no loss as a result of Mr Blair’s cancellation of the agreement.3 They certainly did not suffer any loss as a result of Mr Blair’s initial refusal to provide the complete building report.
[5] Later the same day, the Trustees requested a copy of the builder’s report as they were entitled to do under cl 9.4(5) of the agreement. It provides:
If the purchaser avoids this agreement for non-fulfilment of this condition pursuant to clause 9.10(5), the purchaser must provide the vendor immediately upon request with a copy of the building inspector’s report.
[6] The following day, 27 January 2021, Mr Blair’s solicitor provided a three-page “client summary” document that the building inspector had provided along with their full report. The building inspector advised Mr Blair that the summary was supplied as a separate document so that it could, upon request, be provided to vendors in response to a request under cl 9.4(5). The inspector explained the reason for this approach in these terms:
If the vendor requests the report subject to clause [9.4(5)] of the Agreement for Sale and Purchase of Real Estate, we would advise release of the Summary only to the vendors Solicitor. The Auckland District Law Society released a guidance document advising that the report need not follow any particular format, but must contain sufficient information to enable an objective assessment to be made. The information in the Summary satisfies this requirement.
2 Clause 9.4(1) of the Standard ADLS Agreement for Sale and Purchase of Real Estate, Tenth Edition 2019(2).
3 The only out-of-pocket expenses are the legal fees they inevitably incurred when they elected to sue Mr Blair for specific performance.
[7] In addition, the terms on which the report was provided to Mr Blair included a provision preventing disclosure of any part of the report to a third party without prior agreement from the building inspector.
[8] The Trustees were unsatisfied with the summary and requested the full report. Mr Blair’s solicitor responded that his instructions were to provide “only what had already been sent” and “not to debate the matter further”; he could not reply to any more emails on the issue. The Trustees replied that “[t]here is no debate”, and again requested the complete report.
[9] Without a reply, on 28 January 2021 the Trustees emailed Mr Blair directly requiring that he provide the full report by 1 pm the next day. If he did not, the Trustees would issue proceedings and “seek full indemnity costs for all work in this matter”.
[10] The Trust’s deadline passed on Friday 29 January without disclosure of the full report. The very next working day, Monday 1 February 2021, the Trustees filed an application for summary judgment in the District Court seeking specific performance and indemnity costs. The proceedings were not lengthy or complex. The statement of claim ran to a page and a half. The affidavit in support ran to just four sentences (plus exhibits).
[11]Proceedings were then served on Mr Blair’s solicitor.4
[12] On 5 February 2021, Mr Blair emailed the Trustees directly, explaining he had thought the summary report was sufficient to discharge his obligation under the agreement but that, in any event, he was not interested in arguing about it further. He said:
I am therefore happy to disclose a copy of the full report to you provided that you confirm that, if I do so, your client will promptly discontinue the claim against me with no issue as to costs.
[13] The Trustees did not accept Mr Blair’s proposal. Correspondence followed. Mr Macdonald, counsel for the Trustees, described Mr Blair’s conduct at one point as
4 An endorsed copy was served on Mr Blair on 12 February.
“a deliberate, in fact cynical breach for which there is no defence...”. On 10 February 2021, he responded to Mr Blair’s solicitor in these terms:
I am not a fan of sophistry or irrelevancy, or self serving puffery/assertions as to what may be in issue especially from a colleague. Nor do I appreciate lessons in contract law. Around construing conditions or interpretation.
What are the relevant facts. Your client terminated the contract. That was a serious step with potential consequences. He then deliberately failed to provide the report when, requested (on multiple occasions). And obfuscated. As did another solicitor acting for him. Then he wrote to me. I acknowledged his email. He then wrote again.
You write [as] if this is imaginary. Or as if issuing proceedings was unnecessary. Do you condone wilful/deliberate breaches of obligations Lisa? Your client thought nothing more would follow from his actions. Wrong.
[14] Eventually the full report was provided to the Trustees on 18 February 2021, just over three weeks after the original request. And at various times between 10 February and 1 March 2021 the two parties made offers to settle the issue of costs. The Trustees initially offered to settle costs for $6,000, but later reduced this figure to
$4,370. Mr Blair initially offered scale costs on a 1A basis of $2,037.50. Subsequently he increased his offer to $2,837.50, reflecting 2A costs.
[15] The parties remained approximately $1,500 apart. As a result, further extensive costs and resources were required to address a dispute the value of which comfortably falls within the jurisdiction of the Disputes Tribunal.
[16]In the end the Trustees applied to the District Court for indemnity costs of
$13,851. That application was opposed by Mr Blair and the matter came before Judge Tompkins.
[17] It appears the only information about the costs claimed was provided in a memorandum of counsel for the respondents. It was in these terms:
10.The plaintiffs have incurred costs of $13,581 (all figures include GST, for which the plaintiffs do not obtain an input credit):
10.1evaluation and preparation of proceeding: $6,486;
10.2exchanges with the defendant and his advisers from 1 February 2021 (proceedings issued) to 12 March 2021:
$2,731;
10.3preparation of the plaintiffs’ memorandum dated 15 March 2021: $546;
10.4preparation of the Synopsis and Documents: $2,453;
10.5attendance at the initial hearing and related correspondence:
$819; and
10.6preparation of this memorandum: $546.
[18] This summary does not provide a break-down of the hourly rates used, or whether the fees were those of counsel, or his instructing solicitor, or both. It is also evident that over half the fees charged ($7,095) either related to preparation of correspondence after proceedings had been filed, or steps to recover costs.
The District Court’s decision
[19] The Judge considered cl 9.4(5) imposed a clear obligation on Mr Blair to immediately disclose the full report upon request by the Trustees.5 He rejected the suggestion that Mr Blair was entitled to withhold the report based on the conflicting contractual requirement preventing disclosure of the report to third parties, which he said could not overcome the “simple, unambiguous and clear language” of the agreement for sale and purchase.6 Instead, Mr Blair “unjustifiably withheld the report and then sought to “drip feed” it, whilst at the same time seeking advantageous concessions with respect to costs”.7 The Judge found that Mr Blair “knew exactly what he was doing” throughout the period he withheld the full report,8 noting the Trustees had made eight requests for the report before the proceedings were issued and that disclosure took several weeks after cancellation of the agreement.9 Further, Mr Blair had been put on notice that “full costs” would be sought.
[20]The Judge concluded:10
In all the above circumstances the plaintiffs are entitled, in the exercise of the court’s overall discretion in relation to costs, to their full costs. Accordingly there will be a costs award in accordance with the plaintiff’s counsel’s memorandum dated 27 April 2021, of $13,581 (including GST).
5 Street v Blair, above n 1, at [11].
6 At [15]–[16].
7 At [11].
8 At [13].
9 At [14].
10 At [17].
Approach on appeal
[21] The decision to award or to decline costs involves the exercise of a broad discretion.11 It is well-settled that an appellate court should not interfere with a costs award unless satisfied that the judge erred in law or principle, failed to take account of some relevant matter, factored in the irrelevant or was plainly wrong.12
[22] While all matters relating to costs are discretionary, that discretion must of course be exercised on a principled basis. So far as possible the determination of costs should be predictable and expeditious.13 Scale costs apply by default where cause is not shown to depart from them.14 Indemnity costs may be ordered where that party has behaved either exceptionally badly or very unreasonably.15
Consideration
[23]The issues requiring determination are:
(a)whether the Judge made an error of the kind identified at [21] above; and
(b)if so, what the appropriate costs order in the District Court should be.
Did the Judge make an error when applying his discretion?
[24]Mr MacKenzie, on behalf of Mr Blair, argued the Judge made three errors:
(a)First, he did not refer to or apply r 14.6(4) of the District Court Rules, which governs the grant of indemnity costs;
(b)Second, in any case there was no behaviour by Mr Blair that would meet the high threshold for an award of indemnity costs. Put another
11 Kinney v Paddington [2021] NZCA 174 at [1].
12 At [1]; see also Kacem v Bashir [2010] NZSC 112; [2011] 2 NZLR 1; and Shirley v Wairarapa District Health Board [2006] NZSC 63, [2006] 3 NZLR 523 at [15].
13 District Court Rules 2014, r 14.2(1)(g).
14 Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [27]–[28].
15 At [27]–[28].
way, the Judge took the wrong approach when considering the conduct that might qualify as sufficiently bad to justify indemnity costs; and
(c)Finally, approximately half of the Trustee’s recovered costs were incurred after the report had been provided to the respondents. The Judge did not make findings of improper conduct in the proceeding after this point that would justify an award of indemnity costs.
[25] In relation to Mr Blair’s pre-proceeding conduct, Mr MacKenzie says this can sound only in damages, if they are available, not costs.16 And in any event, the inspector’s advice gave Mr Blair reasonable cause to believe that he had complied with his obligation under cl 9.4(5). Then, once proceedings were filed, Mr Blair immediately “raised the white flag”, and while endeavouring to resolve the issue of costs by agreement made the report available.
[26] Mr MacKenzie also criticises the Judge’s failure to consider whether the costs claimed by the Trustees were reasonable. No invoices have ever been provided for them, or a breakdown of how the costs were incurred.
[27] Mr Macdonald argues that the Judge was fully apprised of the facts and was entitled to come to the decision that he did. He argues that the Judge, by awarding indemnity costs, essentially granted the Trustees damages to compensate them for the costs they incurred in rectifying Mr Blair’s breach. He says Mr Blair’s “flagrant” breach of contract was as egregious as the conduct described in Bradbury, his position was always a “hopeless case”, and that indemnity costs were open to the Judge under r 14.6(4)(a) and (f). Alternatively, Mr Macdonald suggests indemnity costs were available under the general discretion provided by r 14.1, citing authority which appears to suggest that the costs rules should be applied flexibly. On a policy level, he argues courts should discourage parties in breach from putting the counterparties to the expense of enforcement.
16 Citing Paper Reclaim Ltd v Aotearoa International Ltd [2007] NZSC 26, [2007] 3 NZLR 169; see also Jones v O’Keefe [2019] NZCA 222 at [61]–[62]; Burden v ESR Group (NZ) Ltd [2021] NZHC 597 at [58]; Norrie v Range Holdings Ltd [2022] NZHC 898 at [16].
[28] It is not clear from the judgment that the Judge turned his mind to r 14.6(4). No reference is made to either the rule, or indeed to indemnity costs. The judgment instead refers to an award of “full-costs” in its conclusion.17 I therefore accept Mr MacKenzie’s submission that the Judge failed to consider the question of costs against the requirements in r 14.6(4). This was an error of law.
[29] Furthermore, I am not satisfied there was any conduct that could support an award of indemnity costs. The evidence indicates that while Mr Blair did not provide the “full” building inspector’s report for almost three weeks, he did provide the report summary immediately. The reason for this — rightly or wrongly — was the advice he had received from the building inspector, suggesting that the Auckland District Law Society supported the approach he had adopted, and the inspector’s contractual requirements prevented disclosure of the full report in any case. None of this amounts to the exceptionally bad behaviour required for an award of indemnity costs. Indeed, in virtually all cases where a party has breached a provision of a contract some element of carelessness or deliberateness will exist. That alone does not meet the standard required.
[30] There is also another fundamental difficulty with the Judge’s approach. All of the conduct claimed to warrant the grant of indemnity costs occurred before proceedings were instituted. Mr Blair took no steps to defend or oppose the Trustee’s claim for summary judgment once proceedings had been instituted. As the Supreme Court has observed,18 conduct prior to the commencement of proceedings is not misconduct in defending the proceeding or a step in the proceeding. Any remedy for pre-action conduct is in damages. And in this case, the full report was provided shortly after proceedings had been commenced. This is very far from the behaviour considered in Bradbury as requiring an award of indemnity costs.
[31] Finally, there was no information provided to the Court, or Mr Blair, which would permit a proper assessment of the reasonableness of the fees claimed. Given the simplicity and brevity of the pleadings filed, it is surprising that fees of $6,486 appear to have been incurred between 1 pm on Friday, 29 January 2021, and the filing of
17 Street v Blair, above n 1, at [17].
18 Paper Reclaim, above n 16, at [40]–[41].
proceedings on Monday, 1 February 2021. Most of the fees incurred, $7,095, arose after proceedings had been filed and appear to relate solely to the Trustee’s efforts to recover costs for commencing the proceedings (given Mr Blair took no steps to defend them).
[32] For these reasons the Judge erred when approaching the question of costs. I have concluded there was no basis to depart from the default position of costs according to scale.
[33]I therefore turn to consider afresh the exercise of the discretion.
What measure of costs in the District Court, if any?
[34] While Mr MacKenzie was at first inclined to argue that costs in the District Court should lie where they fall, he responsibly accepted that scale costs on a 2A basis could not be opposed. Indeed, such an award is consistent with Mr Blair’s offer to settle costs with the Trustees on this basis.
[35] Considering the matter afresh, the proceeding was extremely straight forward. The statement of claim was brief, as was the evidence in support. Nevertheless taking a generous view, costs on a category 2A basis for preparation and filing of the proceedings is appropriate for steps in the proceeding up to 23 February 2021.
[36] Thereafter, it was the Trustees’ decision to refuse a reasonable offer to settle costs, and their efforts to pursue a greater costs award, that was the cause of the expense they incurred. Indeed, while it was not pursued before me, there is a respectable argument the Trustees ought to be liable to Mr Blair for increased or indemnity costs after 23 February, having rejected his Calderbank offer. In those circumstances, it is not appropriate to award the Trustees costs for pursuing costs before the District Court.
Result and conclusion
[37] For the foregoing reasons the appeal is allowed, and the costs order made by the District Court is set aside. Given this matter has already occupied an unnecessary amount of court resources, it is appropriate that this Court fixes costs rather than refer the matter back to the District Court. I award the Trustees costs on a 2A basis for steps in the District Court proceeding up to 23 February 2021. This will inevitably require the Trustees to repay Mr Blair a proportion of the costs he has paid them. If there is any disagreement between the parties about the final calculation, leave to apply is reserved.
[38] At the hearing I indicated I intended to deal with costs on the appeal in this judgment. Mr MacKenzie submitted costs should follow the event and ought to be calculated in this Court on a 2B basis. I did not understand Mr Macdonald to suggest otherwise. Given the appellant has been successful, I make an award of costs in his favour on a 2B basis in relation to the appeal together with disbursements as fixed by the Registrar. If the parties are unable to agree on the relevant calculation once again leave to apply is reserved.
Isac J
Solicitors:
Maxwell Law, Lower Hutt for Appellant
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