Body Corporate 185696 v Body Corporate Administration Limited
[2016] NZHC 1614
•18 July 2016
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2016-404-000722 [2016] NZHC 1614
BETWEEN BODY CORPORATE 185696
Applicant
AND
BODY CORPORATE ADMINISTRATION LIMITED Respondent
Hearing: 24 May 2016 Appearances:
T J G Allan and C Wei for Applicant
P Muir for RespondentJudgment:
18 July 2016
JUDGMENT OF PALMER J
This judgment is delivered by me on 18 July 2016 at 12 noon pursuant to r 11.5 of the High Court Rules.
..................................................... Registrar / Deputy Registrar
Solicitors:
Grove Darlow & Partners, Auckland (TJG Allan) Price Baker Berridge, Auckland (C Baker)
BODY CORPORATE 185696 v BODY CORPORATE ADMINISTRATION LTD [2016] NZHC 1614 [18 July
2016]
Summary
[1] The plaintiff, Body Corporate 185696 (the Body Corporate), brought legal proceedings against its former management company, the defendant, Body Corporation Administration Ltd (BCA), for failing to hand over records. After two months, the issuance of High Court proceedings and much gnashing of teeth the records were handed over. The Body Corporate now seeks indemnity costs. I find that BCA acted improperly and unnecessarily in opposing the Body Corporate’s claim. I award the indemnity costs sought.
What happened
A change of manager
[2] As secretary/manager BCA provided management services to Body Corporate 185696 in Quay St, Auckland, from 2009 in return for fees. It was removed on 23 February 2016 and another manager, Boutique Body Corporates Ltd (BBCL) appointed in its place. The resolution requested that files, records, accounts and funds of the Body Corporate be delivered to BBCL “as soon as practicable, and in any event within five working days”.
[3] Between 23 February and 17 March 2016 BBCL made eight requests for the records, on 23, 24, 25 February and 3, 9, 10, 11, 17 March. The 11 March email indicated they would seek indemnity costs.
Lawyers’ letters
[4] Eventually, a lawyer’s letter got results. On 17 March 2016 the Body Corporate’s solicitor wrote to BCA, threatening an application for a mandatory injunction and indemnity costs if the records were not handed over by 18 March. BCA made an initial delivery of a CD and three boxes of documents to BBCL on
21 March 2016 – almost a month after the change of manager.
[5] The initial delivery did not include copies of all the owner statements which BBCL then urgently requested on 23 March. On 5 April BBCL further requested a breakdown of outstanding levies and statements/activities for all the units. On
6 April BBCL reiterated those requests and advised that the solicitors had been instructed to seek an injunction and full indemnity costs.
[6] Again, it took a lawyer’s letter to get results. On 8 April the Body Corporate’s solicitors wrote to BCA saying that BCA had breached its fiduciary duties, committed an act of conversion and trespass of goods and demanded delivery of all records by noon on 11 April 2016 otherwise proceedings would be filed. They reminded BCA of the deadline on 11 April. On 11 April Glenn Kwok from BCA emailed some further information to BBCL.
High Court proceedings
[7] BCCL was not satisfied that this was everything they needed. On 12 April
2016 a Statement of Claim was filed in the High Court, seeking orders for delivery of the remaining identified information within 24 hours and delivery of the results of a database search and premises search within seven days, along with costs on a solicitor and client basis. On 13 April 2016 BCA filed a Notice of Opposition saying, in effect, it had already provided much of the documents that it possessed.
[8] On 18 April 2016 the Body Corporate sent yet another lawyer’s letter through
its solicitors replying to the claims in the Notice of Opposition. The same day,
18 April 2016, Mr Kwok swore an affidavit in support of the Notice of Opposition. He said that, until the Statement of Claim and the further letter of 18 April, he hadn’t known what information was required. He said that, once he did, he delivered material to BBCL by email on 18 April. He also delivered a box with six folders, a disc and a manila folder on 19 April 2016.
[9] On 20 April 2016, and before Fogarty J on 21 April, BBCL sought indemnity costs but did not pursue the orders it had sought since it believed the material had been delivered. However, later on 21 April BBCL realised it was still missing pre- contractual disclosure records – which was material because two units were to be sold the next day. Two pre-contractual disclosure records were provided that day. But another lawyer’s letter to BCA was necessary on 22 April 2016 requesting all such disclosures. A further disc was provided in response to this on 26 April 2016.
[10] In sum, over two months it took 14 emails or letters, including four lawyers’ letters, and the issuance and pursuit of High Court proceedings, which were defended, before BCA complied with its legal obligations to hand over the Body Corporate’s records.
Costs
[11] The Body Corporate seeks indemnity costs under rr 14.6(4)(a) or (f) or, alternatively, increased costs under r 14.6(3)(b)(iii), (c) or (d) or, alternatively again, costs on a 2C basis (though it acknowledges that would be higher than actual costs).
[12] The respective amounts involved are:
(a)
(b)
Costs on a 2B basis:
Costs on a 50% uplift to 2B:
$13,603.00;
$20,404.50;
(c)
Indemnity costs:
$21,868.95;1
(d)
Costs on a 2C basis:
$35,680.00.
Law
[13] Rule 14.6 of the High Court Rules provides, relevantly: 14.6
Increased costs and indemnity costs
(1)
Despite rules 14.2 to 14.5, the court may make an order—
(a) increasing costs otherwise payable under those
(increased costs); or
rules
(b) that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party (indemnity costs).
(2) The court may make the order at any stage of a proceeding and in relation to any step in it.
(3) The court may order a party to pay increased costs if—
1 The indemnity costs figure includes GST and disbursements but does not include the costs of the appearance on 24 May 2016.
(a) the nature of the proceeding or the step in it is such that the time required by the party claiming costs would substantially exceed the time allocated under band C; or
(b) the party opposing 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 with 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, 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
(c) the proceeding is of general importance to persons other than just the parties and it was reasonably necessary for the party claiming costs to bring it or participate in it in the interests of those affected; or
(d) some other reason exists which justifies the court making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.
(4) The court may order a party to pay indemnity costs if—
(a) the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or
(b) the party has ignored or disobeyed an order or direction of the court or breached an undertaking given to the court or another party; or
(c) costs are payable from a fund, the party claiming costs is a necessary party to the proceeding affecting the fund, and the party claiming costs has acted reasonably in the proceeding; or
(d) the person in whose favour the order of costs is made was not a party to the proceeding and has acted reasonably in relation to it; or
(e) the party claiming costs is entitled to indemnity costs under a contract or deed; or
(f) some other reason exists which justifies the court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious.
[14] Similar situations have been the subject of consideration by the High Court before in relation to the failure to hand over records of a body corporate:
(a) In Greenhalgh v Body Corporate 330324 Stevens J was satisfied that scale costs would be insufficient but was not satisfied that that situation truly involved the exceptional circumstances required for indemnity costs to be imposed.2 He awarded an uplift of 50% above scale costs on a 2B basis.
(b)In Tubbs and Gower v Urquhart, Lang J considered that a receiver’s application to the Court was necessary to prompt the respondent to comply with his obligations to comply with the Court’s orders.3 He, also, did not consider indemnity costs were appropriate in that case as the respondent did not ignore the Court’s orders entirely. But, because he did not provide further files for some weeks, a 50% uplift to category 2B costs was justified.
[15] More generally, in Bradbury v Westpac Banking Corporation in 2009, the Court of Appeal endorsed the following, non-exhaustive, circumstances in which indemnity costs have been ordered:4
(a) the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud;
(b) particular misconduct that causes loss of time to the court and to other parties;
(c) commencing or continuing proceedings for some ulterior motive;
2 Greenhalgh v Body Corporate 330324 HC Auckland CIV 2008-404-1854, 2 July 2008 at [23]- [25].
3 Tubbs & Ors v Urquhart HC Auckland CIV 2009-404-6951, 20 September 2010.
4 Bradbury v Westpac Banking Corporation [2009] 3 NZLR 400 (CA) at [29], citing Hedley v
Kiwi Co-operative Dairies Ltd (2002) 16 PRNZ 694 (HC).
(d) doing so in wilful disregard of known facts or clearly established law;
or
(e) making allegations which ought never to have been made or unduly prolonging a case by groundless contentions, summarised in French J’s “hopeless case” test.
[16] In General Marine Services Ltd v The Ship “Luana” in 2012 the Court of Appeal upheld an award of indemnity costs relying on that approach.5 It added that two further factors were relevant: GMS had breached an interim agreement; and GMS was on notice that indemnity costs would be claimed.
[17] I should also note that the differences between bands A, B and C are simply relative to each other, rather like the Three Bears’ porridge.6 The difference between band B and band C is whether a normal (B) or a comparatively large (C) amount of time for a particular step is considered reasonable.
Should indemnity costs be awarded?
Submissions
[18] Mr Allan, for the Body Corporate, submits that it should have been provided with its own records well before it was and it should not have been necessary to issue High Court proceedings to get them. He submits that, in the absence of a regulatory framework or disciplinary regime for body corporate managers, the Court should send a signal that legal obligations must be complied with. Mr Allan acknowledges that I will have to decide whether the proper inference is that BCA’s conduct was bumbling or that it was flagrant. He submits that r 14.6(4)(a) has been satisfied in that BCA acted contumeliously, or “improperly, or unnecessarily”, in “continuing, or defending” the proceeding by filing a Notice of Opposition and continuing the proceedings. Alternatively he submits that r 14.6(4)(f) “some other reason” has been satisfied. Mr Allan says BBCL’s staff have been put to significant additional effort and the missing documents meant BBCL was not able to comply
with its statutory obligations under the Unit Titles Act 2010.
5 General Marine Services Ltd v The Ship “Luana” [2012] NZCA 374, (2012) 21 PRNZ 345.
The Court of Appeal also endorsed the Bradbury approach in Accent Management Ltd v
Commissioner of Inland Revenue [2013] NZCA 155, [2013] 3 NZLR 374 at [60].
6 Rule 14.5(2) and TSB Bank Limited v Dollimore No 2 [2016] NZHC 253 at [5] to [8].
[19] Mr Muir, for BCA, submits that BCA’s simple inaction should not be seen as deliberate action and that the difference between action and omission makes a difference. He says BCA’s failure was a matter of disorganisation not of the sort of bad faith or flagrancy required for indemnity costs to be awarded. Mr Muir submits that the Notice of Opposition made clear that BCA was making honest efforts to comply rather than constituting pursuit of a hopeless case. He also criticises counsel for the Body Corporate for filing the memorandum of 21 April with the Court when it identified further documents it wanted, rather than simply communicating with BCA.
Analysis
[20] BCA opposed the Statement of Claim that the Body Corporate issued to get BCA to comply with its lawful obligations. Yet its Notice of Opposition said it “can and will” provide certain information,7 and it “can reasonably provide” further material if it was detailed by the applicant. The Body Corporate repeatedly assured the Court that it has provided all the information. Yet it had not. This was in the context of a failure over two months to provide any information except in response
to lawyers’ letters or the issuance of proceedings and a failure to provide all the required information for two weeks after proceedings were issued.
[21] I do not agree with Mr Muir that there is a difference between action and omission here. It was action that was required. Whether the cause was bad faith or disorganisation, or a combination, the failures were flagrant and continued after proceedings were issued. No blame can attach to counsel for the Body Corporate for filing its memorandum of 21 April given it was clarifying a situation that had arisen in court that morning.
[22] I do not consider that the matter required a comparatively large amount of time. So costs on a band C basis are not available.
[23] But I do consider that these circumstances constitute at least two of the circumstances identified in Bradbury for indemnity costs to be able to be awarded:
7 Clause 3.3 of the Notice of Opposition of 13 April 2016.
(a) The failure to comply with lawful obligations requiring legal proceedings to be issued caused loss of time to the court and to the Body Corporate.
(b)That failure appears to have been in wilful disregard of its clearly established obligations in law to hand over all of the Body Corporate’s own records.
[24] Accordingly, I consider BCA acted improperly and unnecessarily in continuing and defending the proceeding. Its misconduct was flagrant. It simply needed to have identified all the Body Corporate’s information that it held, and handed it over to BBCL. BBCL should not have needed to have repeatedly requested the information, should not have needed to involve solicitors, and should not have needed to have issued proceedings. Once they were issued, there should have been immediate compliance.
[25] BCA was warned four times in writing before proceedings were issued that indemnity costs would be sought if compliance did not occur. The proceedings sought indemnity costs. I award indemnity costs to the Body Corporate as requested as well as for any additional steps required, such as the 24 May 2016 appearance. The parties have leave to file memoranda by 5pm Friday 29 July 2016 if any further clarification is required.
Palmer J
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