Body Corporate 177519 v Lai
[2015] NZHC 1465
•26 June 2015
IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
CIV-2011-404-006408
[2015] NZHC 1465
BETWEEN BODY CORPORATE 177519
Plaintiff
AND
YUEN HAN LAI AND ORS
First Respondents
ASB BANK LIMITED
Second RespondentRespondents continued over …
Hearing: [On the Papers] Appearances:
C Baker for Plaintiff
M K McNab for Rspondents
Judgment:
26 June 2015
COSTS JUDGMENT OF DUFFY J
This judgment was delivered by Justice Duffy on 26 June 2015 at 4.00 pm, pursuant to
r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Counsel: M K Macnab, Auckland
Solicitors: Price Baker Berridge, Waitakere
Copies To: R P Kaur, Auckland
R S Wood, Auckland
BODY CORPORATE 177519 v LAI AND ORS [2015] NZHC 1465 [26 June 2015]
ANZ BANKING GROUP (NEW ZEALAND) LIMITED
Third Respondent
ANZ NATIONAL BANK LIMITED
Fourth Respondent
BANK OF NEW ZEALAND
Fifth Respondent
COUNTRYWIDE BANKING
CORPORATION LIMITED (now trading as ANZ NATIONAL BANK LIMITED)
Sixth Respondent
KOOKMIN BANK
Seventh Respondent
LLOYDS TSB MERCHANT BANK LIMITED
Eighth Respondent
MORTGAGE HOLDING TRUST COMPANY LIMITED
Ninth Respondent
THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED
Tenth Respondent
WESTPAC NEW ZEALAND LIMITED
Eleventh Respondent
ALLIED PRIME FINANCE LIMITED
Twelfth Respondent
NATIONAL AUSTRALIA FINANCE (ASIA) LIMITED
Thirteenth Respondent
GERALD ANTHONY MORTIMER
Fourteenth Respondent
NEW ZEALAND INSURANCE LIMITED
Fifteenth Respondent
DISTRICT LAND REGISTRAR
Sixteenth Respondent
[1] Ms Lai Chun Ko was successful in opposing the application by Body Corporate 177519 (“the body corporate”) for the Court to approve a scheme: first, under s 48 of the Unit Titles Act 1972; and secondly, under s 74 of the Unit Titles Act 2010.1
[2] The hearing of the application occurred in two stages. This was due to the financial collapse of the contractor who had undertaken to complete the works for the first scheme (“Mainzeal”).
[3] The body corporate is responsible for residential apartments known as Hobson Gardens. Ms Ko owns one of the units at Hobson Gardens. These apartments are what are commonly known as a leaky building. Mainzeal built the apartments. A large number of the unit owners of Hobson Gardens and the body corporate were plaintiffs2 in a leaky building proceeding that they brought against Mainzeal and other persons. Ms Ko was not a plaintiff in the proceeding as she was time-barred under the Limitation Act 1950.
[4] The plaintiffs arrived at a settlement with Mainzeal, the terms of which involved Mainzeal carrying out all necessary work to remediate the leaky building problem (“the remedial works”). The settlement agreement nominated a value of $1 for the remedial works. It was clear to everyone, however, that the works were worth considerably more than $1. The estimated cost of those repair works was in the vicinity of $13 million. In this way, the plaintiffs sought to recover the value of the remedial work in the same manner that would have occurred had the unit holders had to pay Mainzeal to perform the remedial works.
[5] Under the first scheme, the plaintiffs were viewed as the owners of the repairs. In this role, they sought to have the Court place a monetary value on the benefit they had obtained under the settlement agreement. They also sought for the Court to permit them to recover from the unit owners who were not party to the settlement a sum of money based on those unit owner’s individual unit entitlement.
1 These shall be referred to as the first scheme and the second scheme respectively. At the time the application for approval of the first scheme was made, the Unit Titles Act 1972 applied. By the time the application was amended for approval of the second scheme, the Unit Titles Act 2010 was in force.
2 Hereafter referred to collectively as “the plaintiffs”.
[6] Ms Ko contended that as the settlement agreement attributed a value of $1 to the remedial works, the Court could not go behind the face of the settlement agreement and order her to pay a sum that represented a proportionate benefit that was attributed to her, based on a Court determined value of the remedial works.
[7] The hearing of the application for approval of the first scheme proceeded in circumstances where Mainzeal had already started to carry out the remedial works. Before the Court gave judgment on the first scheme, Mainzeal went into liquidation. By that time, 70 per cent of the remedial work under the settlement agreement had been completed.
[8] When Mainzeal went into receivership, the balance of the agreed remedial works were incomplete. Thus, it became necessary for the body corporate to seek approval of the second scheme.
[9] The second scheme was in two parts. One part related to the works to be completed. For that, the body corporate sought to levy funds from the unit owner in proportion to their unit entitlement to allow the works to be completed. Ms Ko did not object to that part of the second scheme.
[10] However, the other part of the second scheme was based on an attempt to reclaim from Ms Ko and other unit holders in her circumstances a sum of money that represented the value of the remedial works that had been completed as apportioned between the non-plaintiff unit owners on the basis of their unit entitlement. By then, Mainzeal’s collapse meant that it was no longer possible for the plaintiffs to claim ownership of works to be performed under a settlement agreement. Instead, they were seeking to recover from Ms Ko a proportion of the value they attributed to the works that Mainzeal had actually completed. Ms Ko objected to this.
[11] I found that the provisions of s 74 of the Unit Titles Act 2010 did not go so far in their scope as to permit a court to approve a scheme on the basis as sought by the plaintiffs.
[12] Ms Ko now seeks costs. The parties are agreed that costs should be based on scale 2B, this being the category of costs that was set earlier on.
[13] Ms Ko has calculated costs at scale 2B as amounting to $56,814.50. The body corporate accepts that Ms Ko is entitled to costs. However, it disputes the quantum of costs that she seeks, for two reasons. It seeks to have the figure of $56,814.50 adjusted downwards.
[14] The body corporate contends that Ms Ko seeks $10,945 for items allocated to discovery and inspection. The body corporate contends that those items are not recoverable, as the proceeding commenced by originating application. This form of proceeding makes no provision for discovery, nor inspection in respect of either hearing (no lists of documents, no provision of documents by way of inspection).
[15] The second issue for which the body corporate seeks an adjustment downwards relates to the way in which Ms Ko’s case was presented.
[16] First, the body corporate refers to comments that I made during the hearing of the first application when Ms Ko’s counsel was notified that the way she was conducting the hearing (elongated cross-examination and irrelevant cross- examination) could have costs consequences, even if Ms Ko were successful in her opposition to the body corporate scheme.
[17] Secondly, the body corporate refers to the manner in which Ms Ko’s counsel conducted the second hearing, especially with regard to a witness called by Ms Ko (Brian Aitken), who had not been qualified by counsel for Ms Ko, and so there had to be a short adjournment to enable Mr Aitken to read schedule 4 to the High Court Rules.
[18] Thirdly, the body corporate complains about Ms Ko’s failure to file a notice of opposition to the second scheme in a timely fashion, and the impact of this on the hearing. Ms Ko filed a notice of opposition to the amended scheme late on the Friday prior to the commencement of the hearing on the following Monday. This notice of opposition identified for the first time a challenge to the formalities of voting requirements in respect of the decision to apply for approval of a scheme. This in turn
occasioned a delay of half of day while counsel for the body corporate sought documentation to append to an affidavit in order to prove the details of attendance at the relevant general meeting, voting numbers etcetera.
[19] The body corporate submits that in light of the identified deficiencies and the presentation of the case book of the respondent, there should be a reduction of 50 per cent in the costs for the hearing of the first application, for both the preparation for the hearing and the hearing time required for the second scheme. If a reduction to that extent were accepted, it would result in a further deduction of $7,711.25.
[20] Thus, the total deduction sought by the body corporate is $18,656.25. If the deduction were allowed, it would reduce the costs Ms Ko is entitled to receive to the sum of $38,158.25.
[21] In Ms Ko’s reply submissions, she submits that the body corporate has not referred to the High Court Rules to support its assertion that there should be a reduction in costs. She says that the first scheme application was made prematurely and that when it became clear that the first application was untenable, a fresh application was made raising novel and complex issues. She says that the time taken in cross- examination was necessary to “uncover the failings” in the body corporate’s evidence.
[22] Ms Ko’s counsel accepts that she failed to qualify the witness Mr Aitken. However, she notes that the body corporate also failed in their first application to qualify three of their expert witnesses and as a result, it cannot ask the Court to use this as a ground to reduce costs.
[23] Counsel then referred to the late notice of opposition that challenged the formalities of voting requirements. She submits that the body corporate had to satisfy the Court that a scheme should be approved and in order to do that, it had to show that the resolutions were lawfully passed. The evidence obtained by the body corporate on this point was required whether or not Ms Ko had opposed the application.
[24] Turning to discovery, counsel submits that the claim for costs involved in discovery was entirely appropriate as there were an extensive number of documents discovered.
[25] She submits that the costs claimed were conservative as two sets of proceedings could have been claimed. Instead, she chose to treat the second application as if it proceeded on the basis of amended pleadings. It is argued that the proceeding involved such complex issues that consideration was given to an application for category 3C costs.
Relevant rules
[26] Rule 14.1 of the High Court Rules provides that costs are at the discretion of the Court. That discretion is not, however, unfettered. It is qualified by the rules set out in rr 14.2 to 14.17. Any departure from the costs regime established by those rules must be a considered and particularised exercise of the discretion.3
[27] In general, costs follow the event.4 However, r 14.7 is applicable in this case as the body corporate has raised matters that it suggests warrant a reduction in costs. That rule provides:
14.7 Refusal of, or reduction in, costs
Despite rules 14.2 to 14.5, the court may refuse to make an order for costs or may reduce the costs otherwise payable under those rules if—
(a)the nature of the proceeding or the step in a proceeding is such that the time required by the party claiming costs would be substantially less than the time allocated under band A; or
(b)the property or interests at stake in the proceeding were of exceptionally low value; or
(c)the issues at stake were of little significance; or
3 Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109, [2013] 1 NZLR 305 at [7] and [16]; Glaister v Amalgamated Dairies Ltd [2004] 2 NZLR 606 (CA) at [22]; Mansfield Drycleaners Ltd v Quinny’s Drycleaning (Dentice Drycleaning Upper Hutt Ltd) (2002) 16 PRNZ 662 (CA) at [27].
4 High Court Rules, r 14.2(a).
(d)although the party claiming costs has succeeded overall, that party has failed in relation to a cause of action or issue which significantly increased the costs of the party opposing costs; or
(e)the proceeding concerned a matter of public interest, and the party opposing costs acted reasonably in the conduct of the proceeding; or
(f)the party claiming costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—
(i) failing to comply with these rules or a direction of the court; or
(ii)taking or pursuing an unnecessary step or an argument that lacks merit; or
(iii)failing, without reasonable justification, to admit facts, evidence, or documents, or accept a legal argument; or
(iv)failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or other similar requirement under these rules; or
(v)failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding; or
(g)some other reason exists which justifies the court refusing costs or reducing costs despite the principle that the determination of costs should be predictable and expeditious.
Analysis
[28] This is an originating application. The steps for which are expressly provided for in schedule 3 of the High Court Rules. I am satisfied that this application falls within category 2B. It was a straightforward application, that whilst unusual did not entail any legal complexity.
[29] I first address the steps claimed by Ms Ko in her costs memorandum to which I consider she is not entitled. She seeks the following costs:
First hearing
Step
Days
Cost ($)
Commencement of defence
2
3980
Preparation first conference
0.4
796
Preparation for pre-trial
0.5
995
Discovery
2.5
4975
Inspection
1.5
2985
Preparing affirmation
2.5
4975
Submissions
1.5
2985
Preparation for hearing
3
5970
Hearing
2
3980
Memo to recall
0.4
796
Second hearing
Step
Days
Cost ($)
Amended pleadings
0.6
1194
Conference x 2
0.2 x 2
796
Inspection
1.5
2985
Preparation affirmation
2.5
4975
Submissions
1.5
2985
Preparation of hearing
3
5970
Hearing time
2.75
5472.50
[30] In relation to both hearings, the three days claimed for “preparation for hearing” is not a step provided for under schedule 3 of the High Court Rules.
[31] In regards to the 2.5 days claimed for preparation of the affirmation for the first hearing, ordinarily, step 38 provides two days (band B) for “filing note of opposition and supporting affidavits”. The affirmation comes within this step and I decline to award separate costs for the affirmation.
[32]In relation to the second hearing, 0.6 is claimed for the amended pleadings and
2.5 days claimed for the preparation of the affirmation. I consider 2.5 days to be excessive and I reduce that to 1.5 days. The effect of this reduction is that, effectively, Ms Ko claims what she is entitled to under step 38 as if the amended application had been a new application.
[33] Therefore, before considering any of the body corporate’s arguments, the total costs award is reduced to $37,909.50.
Discovery and inspection
[34] Ms Ko claims that informal discovery was carried out and that an extensive number of documents were discovered. She says that discovery for the second hearing included significantly different material from the first. She accepts that there was no affidavit of documents pursuant to r 8.15 but says that it is not a large factor in the discovery process.
[35] In bringing an originating application, the body corporate would not have expected to pay for significant discovery and inspection costs. The originating application procedure under part 19 of the High Court Rules is straightforward in that it does not involve the usual particularised pleadings, interlocutory steps and discovery. Rule 19.2 provides a list of applications that must be made by originating application, including applications under s 74. Generally, these applications involve clearly defined and confined issues. The procedure is not well suited to cases where additional interlocutory steps are necessary for the proper determination of the issues.5
[36] Schedule 3 does not provide for a step in relation to discovery and inspection under the heading “originating applications”. However, in appropriate cases, the costs of informal discovery and inspection can be claimed by analogy in cases brought by way of originating application.6
5 Matthew Casey and others New Zealand procedure Manual: High Court (2nd ed, LexisNexis NZ, Wellington, 2013) at [HCR19.5.4].
6 See for example, Gibson v Stockco Ltd HC Auckland CIV-2009-404-7120, 14 June 2011 at [18].
[37] In this case, Ms Ko has claimed 2.5 days for discovery in relation to the first hearing and 1.5 days for inspection in relation to both hearings. Under steps 20 and 21 of schedule 3, 2.5 and 1.5 days are provided for the list of documents on discovery and inspection respectively on B banding. In Wilson v White, the Court of Appeal acknowledged that informal discovery is likely to be cheaper than formal discovery.7
[38] I am prepared to allow some costs for informal discovery and inspection but I reduce discovery to 1.5 days and I allow two days in total for inspection across both hearings.
Contribution to time and expense of proceeding
[39] The notes of evidence of the first hearing on 14 August 2012 reveal that there was examination of witnesses from the time the hearing commenced at 10.00 am until the Court adjourned at 3.31 pm. The notes of evidence run to 65 pages, apart from breaks for the usual adjournments. I have gone over that cross-examination. None of it was relevant to the legal issue on which Ms Ko succeeded. Ms Ko’s counsel cross- examined the quantity surveyor, Darren Bayer, on the basis upon which he concluded the value of the works then to be performed by Mainzeal came to approximately $13 million. Ms Ko’s counsel then cross-examined Kevin Traill, who is a unit owner and officer of the body corporate. This cross-examination was regarding the legal action taken against Mainzeal and other parties, as well as covering the nature of particular levies that had been approved by the Body Corporate for the purpose of pursuing the litigation, including levies that were not actually collected.
[40] During the second hearing Ms Ko’s counsel called Mr Aitken as a witness. Much of that examination adduced evidence that was not relevant to the narrow issue at hand, which was whether a s 74 scheme was appropriate in the circumstances and what the terms should be so that the outcome is fair to all unit owners. For example, Mr Aitken was questioned on the nature of Mainzeal’s receivership, its agreements with subcontractors and the percentage of work that had been completed which were matters not relevant to the legal issues at hand. I also accept the body corporate’s point
7 Wilson v White [2005] 3 NZLR 619 (CA) at [28].
that some of the examination was elongated and irrelevant at times which increased the length of the hearing.
[41] Apart from calling Mr Aitken and leading his evidence, Ms Ko’s counsel cross- examined Mr Traill again, a quantity surveyor, Mr Hall, and Mr Bayer, another quantity surveyor. The notes of evidence for the second hearing run to 93 pages. Once again, none of the cross-examination was relevant to the legal issues on which this proceeding turned.
[42] I am satisfied that both in the hearing commencing 14 August 2012 and the later hearing on 16 June 2014 there was an excessive amount of time wasted on cross- examination that has been shown to be irrelevant. This application could have been efficiently dealt with in two days at the most. The reason the hearing resumed in 2014 has nothing to do with Ms Ko and therefore there would always have been a need for two hearings. However each hearing could easily have been completed in a day had it not been for the unnecessary cross-examination.
[43] I am satisfied therefore that this is a case where it is appropriate to reduce the hearing time claimed for the two hearings to make allowance for the time lost due to excessive, unnecessary cross-examination in both hearings. As it is, the total time spent at the both hearings comes to 4.75 days. I consider that should be reduced to a total of two days in all. The basis for a reduction of costs is rr 14.7(f)(ii) and 14.7(g).
[44] The body corporate sought a reduction in costs to reflect the time Mr Aitken spent reading the fourth schedule to the High Court Rules at the second hearing. I acknowledge that Ms Ko failed to ensure her expert witness was properly qualified. However the body corporate also failed to qualify three of its expert witnesses. Accordingly I treat Mr Aitken’s non-compliance as a neutral factor.
Late notice of opposition
[45] An amended notice of opposition was filed on 13 June 2014, the Friday before the hearing was to commence on Monday 16 June. The body corporate says that the
notice of opposition raised for the first time a challenge to the formalities of voting requirements in respect of the decision to apply for the scheme.
[46] The body corporate says that the late notice of opposition caused a delay of half a day. I have considered this point in deciding to reduce the hearing time costs to two days.
Conclusion
[47]The deductions I have made results in a costs award of $28,457.
First hearing
Step
Days
Cost ($)
Court adjustment
Court adjustment cost
Commencement of defence
2
3980
2
3980
Preparation first conference
0.4
796
0.4
796
Preparation for pre-trial
0.5
995
0.5
995
Discovery
2.5
4975
1.5
2985
Inspection
1.5
2985
1
1990
Preparing affirmation
2.5
4975
0
0
Submissions
1.5
2985
1.5
2985
Preparation for hearing
3
5970
0
0
Hearing
2
3980
1
1990
Memo to recall
0.4
796
0.4
796
Second hearing
Step
Days
Cost ($)
Court adjustment (days)
Court adjustment costs
Amended pleadings
0.6
1194
0.6
1194
Conference x 2
0.2 x 2
796
0.2 x 2
796
Inspection
1.5
2985
1
1990
Preparation affirmation
2.5
4975
1.5
2985
Submissions
1.5
2985
1.5
2985
Preparation of hearing
3
5970
0
0
Hearing time
2.75
5472.50
1
1990
0