Body Corporate 198900 Ltd v Bhana Investments Ltd

[2015] NZHC 2787

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-4263 [2015] NZHC 2787

IN THE MATTER

of a declaration pursuant to the

Declaratory Judgments Act 1908 and the
Unit Titles Act 2010

BETWEEN

BODY CORPORATE 198900 LIMITED Plaintiff

AND

BHANA INVESTMENTS LIMITED First Defendant

AND

COWBOYS PROPERTIES LIMIED Second Defendant

AND

SHERIFF PROPERTIES LIMITED Third Defendant

AND

SUN OCK LIMITED Fourth Defendant

AND

JGM INVESTMENTS NO. 2 LIMITED Fifth Defendant

On the papers
Appearances:	JP Wood for plaintiffs K Davenport QC for second and third defendants R Latton for fifth defendant
Judgment:	10 November 2015

COSTS JUDGMENT OF TOOGOOD J

This judgment was delivered by me on 10 November 2015 at 4:00 pm

Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

BODY CORPORATE 198900 LTD v BHANA INVESTMENTS LTD [2015] NZHC 2787 [10 November 2015]

[1]      The second, third and fifth defendants apply for costs following the release of a judgment in which the defendants claim to have been substantially successful.1

The plaintiff’s primary position is that costs should lie where they fall because not all of the defendants’ arguments were upheld.    In the alternative, the plaintiff acknowledges  that  the  costs  sought  by the fifth  defendant  are reasonable, on  a Category 2B basis, but submits that the costs and disbursements claimed by the second and third defendants are excessive.

The nature of the decision

[2]      The plaintiff, a body corporate of a building, sought a declaration that it was entitled  under the  Unit Titles Act  2010  and  its  rules  to  require the defendants, members of the body corporate, to remove various awnings attached to the underside of the building’s verandah, enclosing the space in front of the commercial units owned and/or occupied by the defendants. The body corporate argued that the awnings, being attached to the verandah, were common property and that, under the body corporate rules, a special resolution of the body corporate (which had not been passed) was required to approve the use of common property. There was a dispute about  whether  the  matter  was  suitable  for  a  declaratory judgment;  whether  the awnings were common property; and how any valid grant of consent to the awnings could be revoked.  The Court held that the matter was appropriate for declaratory judgment and held that the awnings were common property.   It was held that the rules of the body corporate require only the prior approval in writing of the body corporate or its committee to lawfully use common property, but require a special resolution of the body corporate to revoke that approval. The body corporate committee was found to have validly authorised the attachment of the awnings to the common property.   The Court made a declaration that the body corporate is not entitled under the Unit Titles Act 2010 and its rules to remove various awnings attached to the underside of the building’s verandah unless the body corporate terminates the grant of the prior approvals for the use of the common property by

special resolution in accordance with its rules.

1      Body Corporate 198900 v Bhana Investments Ltd [2015] NZHC 1620.

Discussion of the costs claims

[3]      I   have   taken   account   of   the   competing   arguments   advanced   by Ms Davenport QC  for  the  second  and  third  defendants,  Mr  Latton  for  the  fifth defendant and Mr Wood for the plaintiff, but it is unnecessary to set them out here. I simply  comment  on  the  issues  raised  by  the  costs  claims  on  behalf  of  the defendants and give my findings on each.

Should costs lie where they fall?

[4]      I do not accept the plaintiff’s contention that the parties had an equal amount of success or failure in the proceeding.   While it may have been to the plaintiff’s ultimate  advantage  to  “clarify  the  extent  of  its  legal  powers”  as  suggested  by Mr Wood, the principal objective of the proceeding was made clear by the plaintiff’s witness, Mr Tuxford; namely, to have the Court declare that the body corporate was entitled to require the defendants to remove the awnings and chairs and tables from the areas immediately adjacent to the building.   Although the defendants did not succeed in all of their arguments, they were ultimately successful on that principal issue and I see no reason why r 14.2(a) should not be given full effect.

Second counsel

[5]      I do not doubt that it was important to the directors of the second and third defendants that their solicitor should be able to attend Court with them as second counsel, but that is not the test.   Ms Lewis took no active part in the hearing. I accept Mr Wood’s submission that the case was not sufficiently complex to justify an award of costs for second counsel.2

Uplift for discovery issues

[6]      There  is  no  basis  upon  which  the  considered  interlocutory  decision  of Associate Judge Sargisson as to costs on the application for further and better discovery can be revisited by the trial judge as the defendants suggest.  I consider the

second  and  third  defendants’  costs  on  discovery  and  inspection  to  have  been

2      Nomoi Holdings Ltd v Elders Pastoral Holdings Ltd (2001) 15 PRNZ 155 (HC); Roading & Asphalt Ltd v South Waikato District Council [2012] NZHC 2243.

adequately  compensated  by  items  20  and  21  in  the  costs  schedule  attached  to

Ms Davenport’s memorandum.  I decline to award a further uplift on that ground.

Uplift for refusing to settle or engage in pre-trial mediation

[7]      Given the divergence of opinion as to the scope of the body corporate’s powers and the manner of their exercise, and because not all of the defendants’ arguments succeeded, I am not persuaded that the plaintiff acted unreasonably in rejecting the settlement offer of March 2014.   The matters in issue did not lend themselves comfortably to complete resolution by the offer as submitted.

[8]      In the settlement offer dated 31 March 2014, the second and third defendants offered to make the awnings attached to the verandah adjacent to their units a free- standing structure that will not be attached to the verandah, and to restore the verandah to its previous state.  In return, the plaintiff would discontinue proceedings and the second and third defendants would waive costs.  However, the offer did not address  one  of  the  key  issues  in  dispute:  whether  the  verandah  was  common property.  Resolution of that issue was important not only in the disposition of the current proceeding but also to inform the ongoing relationships between the parties. At  the  hearing,  Ms  Davenport  QC  argued  that  the  verandah  was  not  common property but rather a “building element”, and so the body corporate’s authorisation was not required to attach fixtures to the verandahs.  I did not accept Ms Davenport QC’s analysis and found in the plaintiff’s favour on this point.   Other issues not addressed by the offer included whether the case was an appropriate one for the Court to issue a declaration and whether the commencement of the proceeding was validly authorised by the body corporate.  Again, I resolved these questions in the favour of the plaintiff.   The three issues not addressed by the offer were of significance to the body corporate as the resolution of them provided guidance and certainty in relation to its future dealings with its members.

[9]      As to the plaintiff’s rejection of the defendants’ offer to mediate, the refusal of  an  ultimately  unsuccessful  party  to  engage  in  mediation  or  other  pre-trial

alternative  dispute  resolution  is  not  readily  susceptible  to  an  expression  of  the

Court’s disapproval through an uplift in costs.3

[10]     First, a party who or which acts unreasonably in a proceeding may be liable to increased or indemnity costs under costs rules which address such conduct expressly, but refusal to attend mediation is not one of the matters referred to in r 14.2 or, more pertinently, rr 14.6(3) and (4).  Second, the reasons why a party might reasonably decline an invitation to engage in pre-trial alternative dispute resolution are infinitely various and not necessarily related to an unreasonable attitude on the part of a litigant.  In this case, for example, the precedent value of having binding determinations by the Court on the scope of the body corporate’s powers and the manner in which the body corporate carries out its business would have been lost by a mediated settlement.

[11]     Third, in the absence of consent the Court has no power to direct the parties to litigation to attempt alternative dispute resolution4.   Uplifting a costs award in order to penalise a party for a refusal to mediate would come close to asserting such a power.5    Fourth, if the Court was to identify a refusal to attend mediation as a ground for increased costs per se, parties to litigation might be tempted to attend mediation without any genuine commitment to a negotiated resolution, simply to avoid a costs sanction.  Such a consequence would not be conducive to the ends of justice and applying the High Court’s costs rules in a way which led to that outcome would be inconsistent with the objective of the Rules “to secure the just, speedy, and inexpensive determination of any proceeding”.6     Even good faith participation in mediation does not guarantee a resolution of disputed issues so there is no merit in the Court’s assumption of a power to impose costs sanctions of the kind sought here. In any event, the privilege attached to communications in the course of mediation would inhibit the ability of the Court to inquire into a claim that a party acted in bad

faith in the mediation process.7

3     Glaister v Amalgamated Dairies Ltd (2003) 16 PRNZ 536 (HC), affirmed in Glaister v Amalgamated Dairies Ltd (2003) 16 PRNZ 840 (CA); Leaderbrand Produce Ltd v Danfoss (New Zealand) Ltd & Anor HC Auckland CIV-2006-404-6531, 19 June 2008.

4      High Court Rules, r 7.79.

5      Leaderbrand Produce Ltd v Danfoss (New Zealand) Ltd & Anor, above n 3, at [6].

6      High Court Rules, r 1.2.

7      Evidence Act 2006, s 57.

[12]     I decline to uplift the award of costs on these grounds.

Uplift for the contribution to the body corporate’s legal costs

[13]     The effect of the second and third defendants’ obligations under the body corporate’s rules, to contribute a proportionate share to the operating expenses of the body corporate, is that they are required to make a contribution to the cost of the proceedings brought against them unsuccessfully.  The inherent unfairness in such a position  was  recognised  by  the  Court  of Appeal  in  its  observation  in  Tremont Holdings Ltd v Body Corporate 4018038 that it is open to the High Court to exercise

its  costs  discretion9   to  make  an  award  of  costs  which  rectifies  any  unfairness

resulting from a party having to contribute to a body corporate’s costs in bringing an unsuccessful proceeding against it.  The issue has arisen in this case in circumstances which differ from those in Tremont Holdings:  the second and third defendants were named as parties to this proceeding solely because of their status as members of the body corporate.

[14]     Ms Davenport QC asserted in her costs memorandum10  that the contribution already made by the defendants to the  plaintiff’s costs (exclusive of GST) was

$3,023.56.  That calculation was not disputed by Mr Wood in his memorandum of

19 August 2015.   I consider this to be an appropriate case to exercise the Court’s general discretion by uplifting the award in favour of the second and third defendants by that amount.

[15]     Ms Davenport also requested the Court to declare that the second and third defendants shall not be required under s 127 of the Unit Titles Act 2010 to contribute to any further levy to fund the litigation, or any costs award, or in response to the exercise by the body corporate of its general powers to levy unit holders.  Without deciding the matter, I doubt the Court’s jurisdiction to do so in the context of a costs application.   In the event that a levy should be imposed on either or both of the second or third defendants, however, I reserve leave to those defendants to make a

further application for costs to take account of any further levy imposed.  In the light

8      Tremont Holdings Ltd v Body Corporate 401803 [2015] NZCA 314 at [25].

9      Under r 14.1 of the High Court Rules.

10     At [9.1] and [9.2].

of  that  leave,  and  my  views  on  the  body  corporate  costs  already  passed  on, I anticipate that the parties would be able to resolve the impact of a further levy without further recourse to the Court.

Disbursements

[16]     Ms Davenport has indicated that the service fee of $144.75 previously sought is now not claimed.  I am satisfied that the disbursements for the Prendos fees are properly recoverable; the evidence was relevant to the issues which were alive at the commencement of the trial.   I agree that the disbursements for printing and photocopying; title searches; and the “property bag” are properly attributable to the litigation and may be recovered also.

Orders

[17]     Applying these findings, I make the following orders:

(a)       The  plaintiff  shall  pay  costs  of  $43,112.06  and  disbursements  of

$9,226.55 to the second and third defendants.

(b)      The  plaintiff  shall  pay  costs  of  $31,939.50  and  disbursements  of

$110.00 to the fifth defendants.

(c)      Leave is reserved to the defendants 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  costs  in  the proceeding.

………………………..

Toogood J