Body Corporate 166208 v York Trustees Limited
[2021] NZHC 1974
•2 August 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2018-404-2623
[2021] NZHC 1974
BETWEEN BODY CORPORATE 166208
First Plaintiff
ROGER MURRAY BELL and WEBB ROSS JOHNSON TRUSTEES LIMITED
Second Plaintiffs
MASAMI TODA
Third PlaintiffDAVID JOHN COLLIS and JILLIAN KAY GAPES
Fourth Plaintiffs
PAMELA TAYLOR
Fifth PlaintiffAND
YORK TRUSTEES LIMITED
First Defendant
LYON TRUSTEE NO 10 LIMITED
Second Defendant
Hearing: On the papers Counsel:
D J Barr for the Plaintiffs
J Heatlie and J P Wood for the Defendants
Judgment:
2 August 2021
COSTS JUDGMENT OF DUFFY J
This judgment was delivered by me on 2 August 2021 at 4.00 pm pursuant to
Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
BODY CORPORATE 166208 v YORK TRUSTEES LIMITED [2021] NZHC 1974 [2 August 2021]
[1] The defendants (York Trustees) are owners of a unit in a residential Unit Titles development which leaks (the development). The first plaintiff is the development’s Body Corporate. York Trustees disputed the Body Corporate’s proposed approach to undertaking remediation work on the development. This led the Body Corporate to commence proceedings against York Trustees. It was subsequently joined by the other plaintiffs in the second amended statement of claim dated 14 February 2020 (the statement of claim). On 21 September 2020 I struck out the Body Corporate’s proceedings (the strike out judgment).1 Following their success in this Court, York Trustees now seek orders for costs and disbursements against the Body Corporate and the other plaintiffs. For convenience I shall refer to this group collectively as the Body Corporate.2
[2] The parties’ attempts at reaching an agreed outcome on costs and disbursements have failed. The issues of contention are:
(a)Whether the Body Corporate should pay indemnity costs from the point in time when York Trustees made an offer to resolve the dispute;
(b)Whether the Body Corporate should pay increased costs from the start of this proceeding on the ground there was never a tenable basis for the relief sought and the claim was hopeless;
(c)How York Trustees should be put in a neutral position for payments it has made as a Body Corporate member to contribute to the Body Corporate bringing this proceeding against York Trustees; and
(d)Whether York Trustees are entitled to an award of disbursements in regard to expert opinion evidence they obtained to assist them in the dispute with the Body Corporate;
1 Body Corporate 166208 v York Trustees Ltd [2020] NZHC 2463.
2 All plaintiffs are represented by the same lawyer who makes submissions on costs on their behalf.
[3] As is usual where indemnity or increased costs are sought, York Trustees have provided the Court with a schedule of the scale costs they would be entitled to ($35,252.50) and the filing fee disbursement for the statement of defence ($110).
[4]The Body Corporate contends:
(a)The quantum of scale costs as sought by York Trustees is incorrect, it should be $29,784.50;
(b)There is no justification for an award of increased or indemnity costs;
(c)Costs should be reduced by such proportion as the Court determines appropriate (to reflect York Trustees’ pursuit of an argument that lacked merit) and failure to (without reasonable justification) admit facts; and
(d)Regarding disbursements, Body Corporate contends York Trustees should not be entitled to expert fees because the sole expert for whom the fees are claimed confirmed the Body Corporate’s case. Secondly, the Body Corporate should be entitled to the costs of its expert building surveyor and expert cadastral surveyor.
I propose to deal with the costs issues first and the disbursement issues second.
Costs award
Ascertaining scale costs
[6] The starting point is the general principle that costs follow the event. Here, York Trustees were successful, and I see no reason to depart from the general approach. Accordingly, I am satisfied that they are entitled to an award of costs.
[7] Before the Court will contemplate awards of indemnity or increased costs it needs to ascertain the scale costs. This is because the discretion to award increased or indemnity costs takes into account the extent to which scale costs can be said in the circumstances to fall short of the sum the applicant is entitled to receive. Here, the parties dispute the quantification of the scale costs.
[8] The parties appear to agree on the appropriate categorisation of the scale costs. Each has approached the scale costs exercise using category 2B. This is not surprising as proceedings in this Court are typically category 2 and costs awards are usually based on a category 2B allocation. I shall proceed on this basis.
[9] I accept the Body Corporate’s argument that steps taken prior to 1 August 2019 for category 2B are subject to the daily recovery rate of $2,230 rather than the present rate, which is what York Trustees have used.3 Accordingly, for those steps the costs sought by York Trustees need to be adjusted to take the correct appropriate daily recovery rate into account. For the purpose of this exercise I have used the schedule prepared by the Body Corporate because it provides more accurate information and more closely resembles the layout of Schedule 3 of the High Court Rules. It follows that steps 2, 10, 11 (first step 11), and 21 (as shown in the Body Corporate’s schedule)4 will be reduced to the total figure of $9,589.
[10] There appears to be no dispute with the subsequent steps from March 2020 onwards, save for the last step (discussed below). For those steps (11 (second step 11), 20, 22, 24, 25 and 26 as shown on the Body Corporate’s schedule) the allocation comes to $19,000.50.
[11] There is a dispute between the parties regarding the last step, 30. York Trustees have claimed 2.5 days for the preparation of briefs. The Body Corporate submits that this is overly generous and that 0.5 days is appropriate because the defendants only served a single short brief (being 16 pages long). No one says anything else about this brief. I do not have a copy and it is not clear to me if the parties are referring inaccurately to the affidavit evidence prepared for the interlocutory hearing before me or to a brief of evidence prepared in anticipation of the trial proceeding. If it is the latter this would be a wasted cost that resulted from York Trustees preparing their evidence for a trial that never eventuated.
3 High Court Rules 2016 [as at 1 January 2018 to 31 July 2019], sch 2.
4 The same steps are also listed in York Trustees’ schedule but with less information which makes it more difficult to use them to make the adjustment.
[12] The application before me, which brought the proceeding to an end, was an application for summary judgment or strike out of the plaintiffs’ claim and vacation of the trial. In support of this application, York Trustees filed two affidavits, one from Barry James Gill and one from Trent Carey. Those documents were before me at the hearing. The decision to strike out the statement of claim meant there was no need to deal with the summary judgment application.5 The application was brought on two bases and could have succeeded on either basis; therefore I consider York Trustees are entitled to claim costs for the two affidavits they prepared.
[13] Under the High Court Rules 2016, costs for the preparation of affidavits are assessed based on an allocation formula that allows two days’ preparation time for the first day of hearing.6 I do not need to consider the allocation formula beyond this because here the proceeding was heard in one day. I reject the general thrust of the Body Corporate’s argument that the time allocated for the purpose of costs can be influenced by the length of the evidence prepared. The standard approach on scale costs is to give two days for the preparation of evidence for a one day interlocutory hearing. I see no basis here to depart from the standard approach. Accordingly, I consider York Trustees are entitled to costs for the preparation of the affidavit evidence, which is assessed at two days based on a daily recovery rate of $2,390. That brings the costs allocation for the evidence preparation to $4,780. Taken together, the three subtotals I have arrived at come to a grand total of $33,369.50. This figure falls somewhere between that identified by the parties.
[14] At the time of the hearing before me the trial date was imminent. York Trustees may, in terms of the Court timetable, have been required to prepare and exchange their evidence for trial. If they did, the effort would have been wasted once the statement of claim was struck out. However, they have not provided any explanation for the costs claim for the briefs of evidence item included in their schedule. In those circumstances, I am not prepared to make assumptions about the briefs of evidence. To my knowledge they did not form part of the hearing before me. Accordingly, no allowance will be made for those items. On the other hand, I have included in the costs award an allowance for the two affidavits that were provided in support of the
5 Evidence can also be filed to support a strike out application; see n 36 herein.
6 Schedule 3, step 30.
application before me. This will make up for the exclusion of an allocation for the briefs of evidence.7
Indemnity costs
[15] York Trustees say that they engaged their present solicitors, Rainey Law, shortly after the plaintiffs filed their second amended statement of claim dated 14 February 2020. On 28 February 2020, their solicitors wrote to the Body Corporate’s solicitors setting out concerns about the approach taken in that statement of claim (the letter). The letter is attached to the costs submission. York Trustees submit that the letter identified a clear jurisdictional issue with the Body Corporate pursuing a declaratory judgment on the allocation of repair costs. This contention aligns with my decision in the strike out judgment. Further, York Trustees argue that it was implicit from the letter that they would provide access to the Body Corporate to undertake repairs as necessary. As an alternative to the declaratory judgment, the letter suggested that this proceeding should be withdrawn with no issue as to costs, and York Trustees would take on the burden of making an application under s 74 of the Unit Titles Act 2007 for the Court to approve a remediation scheme. The letter also advised the Body Corporate that if it did not agree to the suggested course of action York Trustees would apply to strike out the Body Corporate’s proceeding.
[16] York Trustees contend that Body Corporate is now in a worse position than it would have been had it accepted that offer. The Body Corporate will now have to pay York Trustees’ costs when it could have taken a “drop costs offer”. The Body Corporate has spent further sums in litigation which it will not recoup in whole or in part. The Body Corporate could have taken advantage of York Trustees shouldering the burden of making an application to this Court for a scheme under s 74.
[17] The offer in the letter was made on an entirely open basis. York Trustees contend that in every other respect the letter conformed with the requirements of a Calderbank offer and should be considered effective as if it was one. In the alternative, York Trustees submits that r 14.6(4)(f) would allow the Court to award indemnity costs
7 Costs are discretionary. While the discretion is to be exercised in accordance with r 14 of the High Court Rules 2016 and the principles relevant to that rule, the exercise is not an exact science.
in this case. They contend that making written offers during proceedings which set out one party’s theory of the case allows both parties to readily understand the strengths and weaknesses of their position. In particular, such offers are an important tool for defendants who have no other means by which to limit the cost effect of proceedings against them that are doomed to fail. It should not matter whether the offer was made without prejudice save as to costs, or on an open basis. The Court should use an indemnity award as a caution to discourage plaintiffs from continuing with litigation in defiance of reason and when faced with a responsible alternative. In the present case, York Trustees’ solicitor and client costs from 28 February 2020 onwards come to a total of $72,410.10: being $5,031.25 owed to Davies Law and
$69,697.47 owed to Rainey Law. Details of both costs are provided.
[18] In response, the Body Corporate refers to the general approach to costs as set out by the Court of Appeal in Bradbury v Westpac Banking Corp,8 which discusses the broad approaches to standard scale costs, increased costs and indemnity costs. In this regard, standard scale applies by default where no cause is shown to depart from it. Increased costs may be ordered where there is a failure by the paying party to act reasonably; whilst indemnity costs may be ordered where the party has behaved either “badly or very unreasonably”.9 Unreasonableness relates to the conduct of the party against whom costs are sought. In this case, the Body Corporate’s conduct must be determined with regard to the precedents and commentary available to it when commencing and continuing the proceeding and the matters raised by York Trustees.
[19] The Body Corporate submits nothing in the present case shows it to have behaved unreasonably. The Body Corporate argues that its approach of seeking declarations following determination of disputed issues of fact in an ordinary proceeding is supported by relevant appellate authorities from the Court of Appeal and commentary (Sims Court Practice).
[20] Two settlement offers were presented by York Trustees; the first on 28 February 2020 in the letter. The Body Corporate contends this offer was reasonably rejected because it would have replaced a cause of action that had been approved by a
8 Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400.
9 At [27].
majority of the Body Corporate at an extraordinary general meeting with an application brought by York Trustees for a s 74 scheme. There would have been no exercise of democratic rights in approving the scheme. The Body Corporate also argues that it is not for an individual owner to propose a scheme if the Body Corporate has not had an opportunity to consider it by way of a general meeting.
[21] A second offer was made on 14 May 2020, which the Body Corporate presents as acceptable subject to appropriate consent orders being agreed. However, the terms could not be agreed.
[22] The Body Corporate further submits that the letter does not support York Trustees’ claim for indemnity costs based on the refusal to accept a Calderbank offer. In combination rr14.10 and 14.11 entitle a defendant to indemnity costs following refusal of a Calderbank offer. The Body Corporate argues that their effect is that an unsuccessful defendant may still be entitled to costs from the date of a Calderbank offer if the plaintiff’s success is less than what would have been achieved by the acceptance of the Calderbank offer. The Court of Appeal has held that a successful defendant’s pretrial offer to discontinue with no issue as to costs does not entitle it to indemnity or increased costs.10 Accordingly, nothing in the High Court Rules or any authority on costs supports York Trustees’ argument that it is entitled to indemnity costs as a consequence of the Body Corporate rejecting the proposed solution in its letter.
Increased costs
[23] For the steps taken before 29 February 2020, York Trustees seek increased costs on the basis they have spent a considerable amount of money in defending a proceeding that was, due to a jurisdictional barrier, doomed to fail. The strike out judgment described the claim as hopeless. For this reason, York Trustees contend that the Court should impose an increase of 75 per cent on the time for steps that occurred before 28 February 2020 (6.4 days). These come to $15,296. The proposed uplift brings the total to $26,768.
10 Hira Bhana & Co Ltd v PGG Wrightson Ltd [2007] NZCA 342.
[24] The Body Corporate acknowledges that the letter may be relevant for determining whether the Body Corporate was pursuing a claim that clearly lacked merit. The Body Corporate relies on N-Tech Ltd v Abooth Ltd where the Court confirmed that the assessment of an award of increased costs due to lack of merit is a two-step process.11 The party seeking costs must show that: (a) the claim was so flawed that nothing in the evidence or submissions to follow could save it; and (b) the plaintiff has acted unreasonably in bringing or continuing the claim. The Body Corporate submits the fact the claim was struck out is not in and of itself enough to justify increased costs. To have acted unreasonably (the second limb of the test) the Body Corporate must have brought the proceeding in circumstances where it would be unreasonable to expect it to succeed. In the present circumstances, the Body Corporate submits that bringing an ordinary proceeding seeking declaratory relief on the basis that the Court can resolve disputes of fact upon hearing the evidence is supported by authorities of the Court of Appeal and commentary in Sim’s Court Practice. Here, the Body Corporate draws a distinction between ss 2 and 3 of the Declaratory Judgments Act 1908. It also provides extensive argument on the merits of a proceeding under the Declaratory Judgments Act to resolve the dispute between it and York Trustees.
Discussion
[25] Before a party can claim increased or indemnity costs based on the unreasonable behaviour of the opposing party there must be an evidential basis to support the presence of such behaviour12.
[26] Here York Trustees relies on the Body Corporate’s failure to accept the first offer in the 28 February 2020 letter and the subsequent striking out of the statement of claim. They have said nothing about the response to the first offer (if there was one) nor have they mentioned the second offer made on 14 May 2020 or its refusal.
[27] The Body Corporate’s arguments against awarding above scale costs do not refer to any explanation by way of response that it may have given to York Trustees’
11 N-Tech Ltd v Abooth Ltd [2012] NZHC 1167 at [108].
12 Holdfast NZ Ltd v Selleys Pty Ltd [2005] 17 PRNZ 897 (CA) at [25] to [30].
first offer. The Body Corporate’s submission for not accepting the second offer (consent orders could not be agreed) does not in my view fully reflect its response letter dated 15 May 2020, a copy of which was given to me.13 That letter records that the Body Corporate could not obtain instructions to give a response in the requisite time frame. No extension of time was sought. The Body Corporate also wanted any agreement to be recorded in consent orders. However, given it could not obtain instructions it was in no position to agree to consent orders.
[28] Because neither party has relied on the second offer and the fact it came to nothing I have put that offer to the side. As to the first offer, all that I know about the failure to accept it comes from: (a) inferences drawn from the terms of the offer; (b) the fact it was not accepted; and (c) what transpired later, as is expressed in the strike out judgment. York Trustees are the party seeking more than scale costs. It was for them to provide an evidential basis for the level of unreasonableness they must establish before either indemnity or increased costs will be awarded.
[29] How the Body Corporate responded to the first offer could have provided some insight on this matter. As it is I have no such evidence. Instead, York Trustees proceeds on the unarticulated premise that because the claim was struck out — as “hopeless” due to having “no tenable basis” for seeking declaratory relief 14 — York Trustees necessarily qualify for an award of indemnity or increased costs. In combination with the advocated effect of the first offer, the case for indemnity or increased costs is presented as almost a foregone conclusion.
[30] On the other hand, the Body Corporate has responded by making further arguments on the substantive issues that were raised in its claim, to show why the claim was not unreasonable or untenable, and why the failure to accept the first offer cannot support an award of indemnity or increased costs.
[31] The core issue, which neither party has directly addressed, is whether a claim that is unreasonable and untenable for the purpose of the test for strike out can
13 See [21] herein.
14 Body Corporate 166208 v York Trustees Ltd [2020] NZHC 2463 at [35].
therefore be regarded as unreasonable in the context of the tests for awards of either indemnity or increased costs.
[32] No-one directed me to an authority that recognised and determined how to resolve this question. However, experience tells me that awards of indemnity or increased costs do not always follow the striking out of a statement of claim. A review of relevant High Court Rules is helpful here. Rule 15.1(1)(a) provides that a statement of claim will be struck out if a Court finds it discloses no reasonably arguable cause of action. The established principles for strike out on this ground hold that “it is inappropriate to strike out a claim summarily unless the court can be certain that it cannot succeed”.15 This is generally understood to mean the claim must be untenable. The strike out jurisdiction is to be exercised sparingly and only in clear cases. If a claim is potentially capable of remedy rather than strike out, the usual approach is to give the plaintiff an opportunity to replead it. Accordingly, a claim that is struck out under r 15.1(1)(a) will be one that has been found to be untenable, incapable of repair and therefore hopeless. At first blush such descriptions seem to meet the requirements for either increased or indemnity costs.
[33] Under r 14.6(3)(b)(ii), taking or pursuing an unnecessary step that lacks merit can attract increased costs. Under r 14.6.3(b)(v), a party who fails without reasonable justification to accept an offer of settlement (whether in the form of an offer under r 14.10 or some other offer to settle or dispose of the proceeding) can attract an award of increased costs. Under r 14.6(4)(a), a party who acts vexatiously, frivolously, improperly, or unnecessarily in commencing or continuing a proceeding can attract indemnity costs. These actions were categorised in Bradbury as: (a) failure to act reasonably (relevant to increased costs); or (b) behaving badly or very unreasonably (relevant to indemnity costs).16
[34] York Trustees also sought to rely on r 14.6(4)(f), which permits indemnity costs for some other reason. I do not accept this argument. I consider r 14.6(4)(f) is coloured by the more specific preceding parts of r 14.6(4), none of which are applicable here. Further, the cases where r 14.6(4)(f) has been applied involve worse
15 Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33].
16 Bradbury, above n 8, at [27].
conduct than is present here. McGechan on Procedure refers to authorities where the plaintiff brought a fraudulent insurance claim in one case, and, in another example, company directors breached their duties to the insolvent company and were guilty of reckless trading.17 Also relevant is the Court of Appeal’s reasoning in Hira Bhana & Co Ltd v PGG Wrightson Ltd, discussed at [41] to [45] herein. Accordingly, the relevant rules for consideration are r 14.6.4(a) and rr 14.6.3(b)(ii) and (v).
[35] In Bradbury, the Court of Appeal noted that the former rules used the word “unnecessarily” in r 48C(4)(a) (indemnity costs)18 and the word “unnecessary” in r 48C(3)(b)(ii) (increased costs).19 The Court acknowledged these terms are simply different grammatical forms of the same word, nevertheless, the Court found that the words’ respective applications were affected by different contexts. “Unnecessary” in r 48C(3)(b)(ii) was understood to refer to “simple unreasonableness” whereas “unnecessarily” in r 48C(4)(a) was said to “take its meaning and flavour from the adverbs which precede it: vexatiously, frivolously, improperly”.20 The Court thereby held that indemnity costs may be ordered when a party has behaved either “badly or very unreasonably”, whereas increased costs only are available for a “simple unreasonableness”.21
[36] I do not consider that the type of “unreasonableness” that results in a claim being struck out can automatically be equated with either type of “unreasonableness” identified in Bradbury in terms of conduct attracting indemnity or increased costs. Rather, Bradbury indicates that “unreasonableness” varies in degree and according to context.
[37] The pursuit of an untenable, hopeless claim similarly varies in degrees of unreasonableness. At its worst, the plaintiff intentionally pursues a claim that it knows to be untenable and hopeless. In descending order this is followed by wilful, then reckless, pursuit of such a claim. Next is careless pursuit with the least unreasonable
17 RA McGechan McGechan on Procedure (loose-leaf ed, Thomson Brookers) at [HR 14.6.03] citing Devcich v AMI Insurance Ltd HC Auckland CIV-2009-404-5567, 8 November 2011; Malco Holdings Ltd (in liq) v Crimp HC Invercargill CP23/99, 28 November 2000.
18 Now r 14.6(4)(a).
19 Now r 14.6(3)(b)(ii).20 Bradbury, above n 8, at [26], citing Saunders v Winton Stock Feed Ltd [2009] NZCA 148, at [30].
21 At [26] and [27].
being where the pursuit of an untenable, hopeless claim is well-intentioned but misguided or mistaken.
Indemnity costs
[38] I start with indemnity costs. The level of conduct justifying indemnity costs — “badly or very unreasonably” — requires evidence that the plaintiff knew its claim was untenable and hopeless but pursued it nonetheless. Typically fraud, malice or bad faith would underlie such conduct. Wilfully or even recklessly pursuing an untenable, hopeless claim might also qualify. Careless or misguided pursuit of a claim would not qualify in my view.
[39] Here there is no evidence to suggest the Body Corporate knowingly, wilfully, or recklessly decided to proceed with an untenable, hopeless claim.
[40] Does the receipt of the offer made in the letter make any difference to how the pursuit of the claim after that time is viewed? Failure to accept a settlement offer without reasonable justification is expressly provided as grounds for an order for increased costs,22 but not mentioned in relation to indemnity costs.23 This suggests to me that such failure will usually warrant no more than increased costs. Some additional factor will be required to elevate such conduct to the level of being “very bad or very unreasonable” before it will qualify for an award of indemnity costs.
[41] Does the combination of pursuit of an untenable hopeless claim in the face of the offer in the letter provide the additional factor that makes this conduct so very bad or very unreasonable that it warrants indemnity costs? I was not directed to any evidence that would suggest the Body Corporate, once in receipt of the offer, realised the hopelessness of its claim and knowingly, wilfully or recklessly decided to proceed nonetheless. Important here would have been the Body Corporate’s response to the offer as this may have suggested why the first offer was refused. If the offer was met with silence from the Body Corporate that may also have supported an inference of “very unreasonable conduct”. The first offer warranted a response and with it some
22 Rule 14.6.(3)(b)(v).
23 Rule 14.6.(4).
explanation for why it was rejected. Given the lack of evidence about any response I cannot rule out the possibility that misguided members of the Body Corporate genuinely continued to believe in the merits of their claim and prevented acceptance of the settlement offer. Whilst such conduct may meet the Bradbury test of “simple unreasonableness” for an award of increased costs it does not meet the test of behaving “badly or very unreasonably” that is required for an award of indemnity costs. Accordingly, I am not persuaded the Body Corporate’s conduct falls within r 14.6.4(a). In reaching this view I have given no weight to the arguments the Body Corporate makes about the reasonableness of its claim. Those arguments go beyond addressing whether the conduct in pursuing the claim is unreasonable for the purposes of an award of indemnity or increased costs. The arguments appear to be an attempt to relitigate the substantive issues which have already been decided. This approach is not permissible. Nor is it appropriate for me to revisit the reasons for the strike out here. The strike out judgment must speak for itself.
[42] I do not consider that rr 14.10 and 11 assist York Trustees. Curiously r 14.10 is expressed as limited to offers to “settle without prejudice save as to costs”. On a literal reading, this leaves no room for open offers. Relevant commentary contrasts a “without prejudice save as to costs” offer with “without prejudice” offers to settle, which are fully protected by privilege and therefore can never be disclosed to a Court.24 The same reasons behind making a without prejudice “save as to costs” offer underlie an open offer to settle. However, an open offer is bolder because it has absolutely no cloak of privilege. The receiving party is free to use the offer as evidence at trial to suggest the offeror recognises it bears some liability. Accordingly, when awarding costs I see no basis for treating an open offer to settle as something less than an offer made on a “without prejudice save as to costs” basis.
[43] Rule 14.11(1) provides that the effect of making of an offer under r 14.10 on an award of costs is at the discretion of the Court. Whether an open offer to settle should be viewed under r 14.10 or as a stand-alone relevant consideration for an award of costs (which is an alternate way of viewing it), is of little consequence when it comes to deciding whether or not to award indemnity costs. The focus of that decision
24 McGechan on Procedure, above n 17, at [HR 14.10.02(3)] citing Blakesfield v Foote [2016] NZHC 1354, [2016] NZAR 1112 at [20].
is whether the refusal is capable of being regarded as conduct that falls within r 14.6(4).25 As noted, I consider the conduct here is outside that rule. There is nothing in rr 14.10 or 14.11 that changes that conclusion.
Increased costs
[44] I now turn to consider increased costs. Relevant here are r 14.6(3)(ii) and (v). Until the Body Corporate received the letter there appears to have been nothing to alert it to the possibility its claim was untenable and hopeless. Matters changed when the letter was received. The letter was an open letter that laid out full reasons for why York Trustees regarded the Body Corporate’s claim as untenable. It contained offers:
(a) to agree to the claim being discontinued without costs to York Trustees; and (b) to commence a s 74 application.
[45] An offer to settle for the purpose of r 14.6(3)(b)(v) need not be in the form of an offer under r 14.10. The Body Corporate relies on Hira Bhana Ltd v PGG Wrightson Ltd where the Court of Appeal found that a “walk away” no costs offer could not entitle the successful defendant to an award of either increased or indemnity costs. I consider the finding in that decision is distinguishable from the present case.
[46] First, the Court of Appeal in Hira Bhana was dealing with a proceeding that had gone to trial. The Court accepted the unsuccessful plaintiff’s submission that it was obliged to put allegations to the defendant’s witnesses in cross-examination to provide a basis for the inferences that it wanted the trial Judge to draw. As matters turned out, the trial Judge refused to draw such inferences. However, that did not make it unreasonable for the plaintiff to have proceeded to trial:26
In circumstances where credibility of witnesses is a crucial factor in a case, it is not unreasonable to proceed to trial unless that challenge to the credibility is, of itself, vexatious or frivolous.
25 Hira Bhana, above n 10, at [27] and [29].
26 At [24].
[47] Second, the “walk away” offer was made early in the proceedings, over a year before the trial.27 Albeit in the context of discussing indemnity awards, the Court of Appeal found that:28
… where the nature of the offer made is simply a “walk away” proposition, made early in the proceedings, it cannot be the case that the mere fact that the party which rejected the offer subsequently loses means that party is required to pay indemnity costs or increased costs. If that were so, it would mean that the costs regime set out in rr 46–48G would be effectively bypassed in almost all cases where the defendant succeeds, because defendants would routinely make “walk away” offers of the kind made in this case, and then claim indemnity costs if they subsequently succeed at trial.
The present case is distinguishable because here the offer was made on 28 February 2020 in circumstances where the Body Corporate knew York Trustees was intending to apply to strike out its claim. The defendant acted promptly and the hearing was set down for 2 June 2020.
[48] Third, unlike the claim in Hira Bhana, which required assessment at trial and depended on credibility findings, the present claim was struck out for the reasons given in the strike out judgment. The assessment of the outcome did not hinge on evidential matters that could only be determined at trial. It follows that here there was nothing that could warrant the claim proceeding to trial.
[49] Fourth, the present offer was more than a “walk away” offer. In addition to offering to accept a discontinuance without costs, York Trustees offered to bring a s 74 application under the Unit Titles Act, which is the orthodox approach where leaky Unit Title buildings require extensive remediation.
[50] The Body Corporate dismisses York Trustee’s offer to bring a s 74 scheme. It argues that any such scheme would have replaced a course of action that had been approved by a majority of the Body Corporate at an extraordinary general meeting; it would therefore have been contrary to democratic principles to accept an offer by an
27 The proceeding went to trial in late 2005. The “walk away” offer was made in August 2004.
28 The judgment discusses why neither indemnity nor increased costs could be awarded on the basis of the “walk away” offer made in that case. Accordingly, I consider the reasoning can be applied to both types of costs.
individual unit owner to advance a scheme which had not been considered and approved by a majority in this way.
[51] I consider the offer by York Trustees to commence an alternate proceeding showed their willingness to have the dispute, which the parties clearly could not resolve for themselves, placed before the Court. It would have been open to the Body Corporate to meet and consider the s 74 scheme promoted by York Trustees. If the Body Corporate did not approve that scheme it could have proposed an alternate scheme. It is quite possible in the context of an application for a s 74 scheme, which is done by way of originating application, to file a notice of opposition which includes the promotion of an alternate scheme. If the parties cannot resolve their differences over the two proposals the court will determine which scheme will be the approved scheme. Accordingly, I reject the Body Corporate’s argument that York Trustee’s proposal to apply to the court for approval of a s 74 scheme was contrary to democratic rights enjoyed by members of Body Corporates under the Unit Titles Act.
[52] Further, I consider the offer to commence a s 74 scheme highlighted the bona fides of York Trustees in rejecting the Body Corporate’s approach. York Trustees were not just engaging in an obdurate rejection of the need for remediation work, they opposed the basis on which the Body Corporate proposed to proceed with getting the Court’s approval for this. Once a scheme by York Trustees was before the Court it would have been a simple matter for the Body Corporate to promote its own scheme in opposition. Thus the momentum of having the dispute resolved one way or the other by the Court would not have been lost.
[53] It follows that York Trustees were doing more than making a simple “walk away” offer. Further, the offer they made must be looked at in its own context. Once seen in this way it is readily distinguishable from the type of offer the Court of Appeal was dealing with in Hira Bhana. Instead the present offer must be assessed on its own terms, and in accordance with the principle recognised in Hira Bhana that there is no requirement to go beyond the wording of the relevant rules in assessing a claim for increased or indemnity costs.29
29 Hira Bhana, above n 10, at [27] and [29].
[54] I consider the letter offered the Body Corporate a sensible alternative pathway to resolve the remediation dispute. The Body Corporate had the benefit of legal advice. Objectively, it is difficult to see a reasonable basis for refusing the offer. The successful strike out application saved the parties from incurring needless trial costs in circumstances where the remediation work and the costs each unit owner had to contribute towards it would still have required resolution. It was not a problem they could decide to walk away from. Accordingly, I am satisfied that bringing an untenable, hopeless claim in combination with refusing a settlement offer, which provided an acceptable and orthodox alternative way of putting their dispute before the court, is the type of “simple unreasonableness” that warrants an award of increased costs.
[55] Here there is a further reason for increased costs which is unique to the involvement of the Body Corporate in the proceeding. This is the fact that the law required York Trustees to pay levies to the Body Corporate that covered it bringing the litigation against York Trustees.30
[56] In Body Corporate 198900 Ltd v Bhana Investments Ltd this Court addressed the “inherent unfairness” generated by the legal requirement that body corporate members must contribute to levies for body corporate litigation, even when they oppose the proceeding. In these circumstances, the Court held that it may exercise its discretion to make a costs award that rectifies any resulting unfairness.31 In Body Corporate 198900 Ltd the Court uplifted the costs award by the amount the successful defendants had been required to contribute to the Body Corporate’s costs in bringing the unsuccessful proceeding against them. I consider the same should be done here.
[57] Accordingly, I find there are several factors supporting an award of increased costs. Relevant to the non-acceptance of the settlement offer, the increase takes effect from the date of the offer in the letter (28 February 2020).32 Scale costs from this time onwards include steps 11, 22, 24, 25 and 26,33 as well as the additional costs I have
30 Tremont Holdings Ltd v Body Corporate 401803 [2015] NZCA 314, (2015) 16 NZCPR 509.
31 Body Corporate 198900 Ltd v Bhana Investments Ltd [2015] NZHC 2787 at [13].
32 It is after the 28 February 2020 letter that the combined effect of the claim being untenable and hopeless plus refusal of the offer takes effect.
33 This is the second step 11 (for preparation of memoranda and joint memoranda from 9 March 2020 to 8 September 2020) noted on the Body Corporate’s schedule of scale costs.
allowed for the preparation of the affidavits for the strike out application. In total these steps come to $17,805.50. Typically, increased costs do not exceed 50 per cent of scale costs. A 50 per cent increase will reflect conduct at the upper end of the range of conduct that attracts increased costs.34 Whilst I consider the conduct here attracts increased costs, I would not place it at the upper end of the range. It was misguided, but there is no evidence to support it being more than that. Thus, I consider an increase of 30 per cent on the steps taken after the offer was refused is appropriate. This recognises the unnecessary legal costs York Trustees incurred after that time. This brings the costs after 28 February 2020 to $23,147.15. When this sum is added to the earlier steps at scale costs ($15,564) the total comes to $38,711.15.
[58]In addition, I consider York Trustees are entitled to reimbursement for the
3.017 per cent of their share of the Body Corporate’s legal costs. This will require the Body Corporate to disclose to York Trustees the total sum of its actual legal costs for this proceeding, which York Trustees will have contributed to by way of levy payment based on their unit entitlement. An increase on this basis is done purely to address the unfairness of York Trustees having to pay for the Body Corporate’s actual legal costs through levies raised against them. The increase takes effect from the steps taken in the proceeding following the first offer. This offer was prompted by the statement of claim that was struck out and it came with the change in York Trustees’ lawyers. There has been no judgment on the earlier pleadings.
[59] In accordance with the process followed in Body Corporate 198900 Ltd, leave is reserved to York Trustees to make a further application for costs to take account of any further levy imposed on them by the Body Corporate to fund the costs award and any other flow on costs.
[60] The Body Corporate argued that any costs award York Trustees might receive should be reduced because they (a) failed to agree to a notice to admit facts and (b) disputed various facts relevant to the remediation issues. I find this argument misconceived. The strike out application did not involve any determinations of fact. Nor have any of the disputed facts been resolved in the Body Corporate’s favour.
34 Holdfast NZ Ltd v Selleys Pty Ltd [2005] 17 PRNZ 897 (CA).
These matters may have been relevant had the claim gone to trial, and the Body Corporate been successful in establishing its view of the facts. But as matters stand factual issues remain unresolved. Their resolution was unnecessary for the purpose of the strike out application. Therefore, they have no influence on costs for that application. Accordingly, I reject the Body Corporate’s claim for reduced costs.
Disbursements
[61] The Body Corporate contends that York Trustees are entitled to no more than a filing fee of $110. I consider York Trustees are entitled to filing fees to cover filing both a statement of defence and the strike out application. These are fees it was required to pay as a result of the Body Corporate bringing a claim against it.
[62] In addition, York Trustees claim for the costs of engaging their expert witness ($18,883.87). The Body Corporate disputes this claim, but also claims for its own expert witnesses’ fees.
[63] I am satisfied York Trustees are entitled to claim for their expert witness fees as a disbursement cost. The affidavits of Barry James Gill and Trent Cary were prepared before the strike out hearing and referred to in the strike out application. The affidavits were helpful to the Court as they provided evidence that supported the need for a s 74 scheme, which York Trustees contended was the appropriate procedural approach. The views I formed regarding the appropriateness of a s 74 scheme and the views I expressed at [23] of the strike out judgment were informed by Mr Gill’s evidence.35 York Trustees also contends that because the trial date was in October 2020 it had to prepare its witnesses for trial. However, I have put that argument to the side because it is not relevant to the strike out.36 Accordingly, I am satisfied the witness expense of $18,883.87 is a proper disbursement claim and should be granted.
[64] I reject the Body Corporate’s argument that it can claim for the fees of its expert witnesses. Its expert witnesses’ affidavits are referred to in the notice of opposition to
35 Evidence on strike out applications will be received: Pharmacy Care Systems Ltd v Attorney- General (2001) 15 PRNZ 465 (CA) at 472. Here the interlocutory application also included an application for summary judgment by a defendant, which the Court did not deal with. However, York Trustees were not to know that at the time they filed the interlocutory application.
36 See discussion at [14] herein relevant to the costs claim for the witnesses’ briefs of evidence.
the plaintiffs’ application for summary judgment and strike out. However, as the unsuccessful party in that application I see no basis for awarding it any claim for disbursements.
Result
[65] York Trustees are awarded costs and disbursements against the plaintiffs jointly and severally as follows:
(a)Costs in the sum of $38,711.15.
(b)Additional costs to be ascertained on the basis of their 3.017 per cent levy contribution to the Body Corporate’s actual legal costs; leave is reserved to the parties to return to Court should they be unable to reach agreement on this sum.
(c)Leave is reserved to York Trustees to return to Court to seek further costs on the basis set out at [58] and [59] herein.
(d)Disbursements in the sum of $18,883.87 (for expert witness fees; filing fees for filing a statement of defence; and the interlocutory application for summary judgment by a defendant and strike out).
Duffy J
Solicitors:
Simpson Grierson, Wellington Rainey Law, Auckland
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