Body Corporate 201036 v Westpac Banking Corporation
[2015] NZHC 1955
•18 August 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-5177 [2015] NZHC 1955
UNDER the Unit Titles Act 2010 IN THE MATTER
of an application to settle a scheme under s
74 of the Unit Titles Act 2010BETWEEN
BODY CORPORATE 201036
ApplicantAND
WESTPAC BANKING CORPORATION First Respondent
Hearing: On the papeers Date:
18 August 2015
JUDGMENT AS TO COSTS OF THOMAS J
This judgment was delivered by me on 18 August 2015 at 12.30 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date:………………………….
BODY CORPORATE 201036 v WESTPAC BANKING CORPORATION [2015] NZHC 1955 [18 August 2015]
AND ANZ BANK NEW ZEALAND LIMITED
Second Respondent
AND
ASB Bank Limited
Third RespondentAND
TSB BANK LIMITED Fourth Respondent
AND
BANK OF NEW ZEALAND Fifth Respondent
AND
PEPPER NEW ZEALAND (CUSTODIANS) LIMITED Sixth Respondent
AND
CYNOTECH SECURITIES LIMITED Seventh Respondent
AND
AVANTI FINANCE LIMITED Eighth Respondent
AND
CLAUDE THOMAS SOMERS AND HEATHER LORRAINE SOMERS Nineth Respondent
Introduction
[1] In my judgment of 2 July 2015, I dismissed Body Corporate 201036’s (Body Corporate) application for relief pursuant to s 74(7) of the Unit Titles Act 2010 (the Act) against the defaulting owners who have not paid the levy raised for the purposes of repair of a leaky building.
[2] The seventh respondent, Cynotech Securities Ltd (Cynotech), was successful in defending the proceeding. It now claims indemnity costs or, alternatively, increased costs. In the event neither claim is successful, Cynotech seeks costs on a
2B basis.
[3] The Body Corporate opposes Cynotech’s application for costs beyond that
which would be awarded on a 2B basis.
Background
[4] The case concerned a terraced complex which was damaged through weathertightness issues. The Court sanctioned a scheme of repair under the Act (the Scheme) on 12 June 2014. One of the terms of the Scheme required a levy to be raised once a tendered price for the repair had been received but before an unconditional building contract was entered into.
[5] The levy was raised on 25 September 2014 but was not raised in accordance with the Scheme.
[6] The Body Corporate’s case was that the levied amount was debt due and owing to it. It sought orders to the following effect:
(a) judgment be entered against the defaulting owners in respect of the unpaid levy;
(b)the right to levy such further amounts as may be due by such unit owners for repairs in due course be reserved and that it be entitled to
approach the court for such further relief as may be required in due course;
(c) the ownership interests of the defaulting owners be charged the amount of the unpaid levies together with interest at 10 per cent and such further amounts as may be incurred obtaining the orders sought;
(d)the Sheriff be authorised to seize and sell the defaulting owners’ ownership interests in satisfaction of their indebtedness and to hold such further monies in trust pending completion of the repairs; and
(e) to the extent necessary, the Scheme be varied or amended.
[7] Cynotech did not oppose the first two orders sought by the Body Corporate because it considered it did not have standing to do so.
[8] I dismissed the application. In summary, the reasons were these. Judgment could not be entered against the defaulting owners because the levy was not validly raised. Putting the issue of ultra vires aside, s 74(7) of the Act could not be used as a vehicle to recover unpaid levies by having judgment entered against the defaulting owners because s 74 is not an enforcement mechanism.
[9] The application for charging and sale orders could not succeed because they would encroach upon the relationship between mortgagor and mortgagee. The real purpose of the application was to obtain new owners who were willing and able to pay the repair levy in future, which is not consistent with the purpose these orders are intended to serve.
[10] The Scheme cannot be varied or amended to reflect the procedural shortcuts the Body Corporate sought for its administrative convenience. Retrospective approval was not required because the Scheme adequately addresses raising a levy when building costs are known and provides measures for borrowing funds and applying for a Financial Assistance Package.
Submissions
Cynotech’s submissions
[11] Mr McDonald, for Cynotech, submits that the Body Corporate’s case was essentially a “hopeless” one because the submissions were made in wilful disregard of known facts or clearly established law. In his submission, the Body Corporate knew, before it issued its proceeding, that the levy was not validly raised in accordance with s 74(7) of the Act.
[12] Mr McDonald says the Body Corporate disregarded clearly established law relating to the collection and enforcement of debts as set out in the High Court Rules (Rules), including the rules relating to charging and sale orders. Further, its position represented a significant departure from existing common law principles relating to mortgagors and mortgagees. The relevant principles underlying the Body Corporate’s application were previously considered by the High Court in Body
Corporate 198072 v Bank of New Zealand (BNZ).1 Mr McDonald says the
arguments that were advanced by counsel for the Body Corporate in the present case were substantially similar to those considered and rejected by Allan J in the BNZ decision.
[13] Alternatively, Cynotech claims increased costs because, in Mr McDonald’s
submission, the arguments advanced by the Body Corporate lacked merit.
[14] Cynotech’s submission for increased costs also relies on a “without prejudice save as to costs” letter dated 3 March 2015, where Mr McDonald, on behalf of Cynotech, invited the Body Corporate to withdraw its proceedings. In Mr McDonald’s submission, the Body Corporate elected to proceed to a hearing with full knowledge of the weaknesses in its case.
The Body Corporate’s submissions
[15] In Ms Heatlie’s submission, Cynotech has not proved indemnity or increased costs should be awarded. Ms Heatlie submits indemnity costs should not be awarded
1 Body Corporate 198072 v Bank of New Zealand [BNZ] [2011] 3 NZLR 249 (HC).
because the standard requires a party to “behave badly” or “very unreasonably”
which has not been met in these circumstances. She explains:
(a) Cynotech only opposed orders 1(c) to (e). It did not oppose orders (a) and (b). Order (1)(a) sought judgment against the defaulting owners. Cynotech did not oppose nor dispute the power of the Court under s
74 to grant judgment if the levy was held to be due and owing. This, in Ms Heatlie’s submission, left a very real possibility of it being directed.
(b)The Body Corporate’s case did not wilfully disregard clearly established law. There were differences between the Body Corporate’s position and the facts in the BNZ decision.
(c) The position taken by the Body Corporate was open to it because the wording of s 74(7) contemplates that orders may be made by the Court to direct payment to the Body Corporate to give effect to the Scheme. Such orders are not inconsistent with entering judgment against defaulting orders because the usual execution process under the Rules would follow.
[16] Cynotech’s application for increased costs is also not justified, Ms Heatlie says. The Body Corporate did not pursue arguments which lacked merit. Ms Heatlie points out that the standard for meritless claims is high and the present case is not in the same league of cases in which the court has previously awarded increased costs.
[17] Ms Heatlie also disputes the submission that there was a settlement offer presented by Cynotech which was refused by the Body Corporate. Ms Heatlie submits that the letter merely invited the Body Corporate to withdraw proceedings and does not constitute a failure to accept an offer of settlement.
[18] In any event, Ms Heatlie says it was reasonable to reject Cynotech’s letter of
3 March 2015 at the time. The Body Corporate believed it had a reasonable prospect
of success and thus had no reason to abandon its application simply because of the weaknesses highlighted by the other side.
Relevant law
[19] The presumption is that the standard costs regime contained in the Rules should apply unless the party claiming increased or indemnity costs satisfies the court that a departure from the standard scale is justified.
[20] An award for increased or indemnity costs is a discretionary decision.2
Indemnity costs
[21] One of the grounds for an award of indemnity costs under the Rules includes that:3
(a) the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding
[22] In Bradbury v Westpac Banking Corporation, the Court of Appeal, noting that the categories are not closed, endorsed the following 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;
(d) doing so in wilful disregard of known facts or clearly established law;
(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.
2 High Court Rules, r 14.1(1).
3 High Court Rules, r 14.6(4)(a).
4 Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [29].
Increased costs
[23] Under r 14.6(3)(b), the Court may order a party to pay increased costs if:
(b) the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—
…
(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
…
(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
Analysis
[24] The essence of Cynotech’s submission is that the Body Corporate ought not
to have started its case in the first place.
[25] The differences between the type of costs orders sought by Cynotech is set out in Bradbury:
[27] The distinction among our three broad approaches – standard scale costs, increased costs and indemnity costs – may be summarised broadly:
(a) standard scale applies by default where cause is not shown to depart from it;
(b) increased costs may be ordered where there is failure by the paying party to act reasonably; and
(c) indemnity costs may be ordered where that party has behaved either badly or very unreasonably.
[26] It is well established that indemnity costs are only to be awarded in exceptional cases.5 In Bradbury, the Court explained:6
5 Bradbury v Westpac Corporation, above n 4, at [28] and Vero Liability Insurance Ltd v
Heartland Bank Ltd [2015] NZCA 288 at [116].
Indemnity costs, which depart from the predictability of the Rules Committee’s regime, are exceptional and require exceptionally bad behaviour. That is why to justify an order for such costs the misconduct must be “flagrant”.
[27] Overall, I am not satisfied the Body Corporate’s case was hopeless from inception such that pursuing it was flagrant, particularly in the case of recovery of levies and the Court’s power to “give effect” to the Scheme under s 74 of the Act. Its case for obtaining judgment was marginally arguable.
[28] An order for indemnity costs is directed at egregious behaviour. I accept Ms
Heatlie’s submission that the present case does not cross that threshold.
[29] Although falling short of the standard for an award of indemnity costs, I am satisfied that an order for increased costs is appropriate.
[30] Ms Heatlie correctly states the fact that the Body Corporate did not succeed is not the same as there being no merit to its case. She submits there were merits in the Body Corporate’s arguments. In my view, the Body Corporate lost sight of the merits in its claim by seeking to enforce shortcuts in more ways than one. It sought to obtain judgment in circumstances where it knew the levy was invalidly raised and sought enforcement of it bypassing clear and established procedure. It did so simply because, as Ms Heatlie submitted at the hearing, it was expedient or convenient for it
to do so:7
[a]ll parties are effectively before the Court, the defaulting owners have not opposed the application and, if it is not granted, then the Body Corporate will need to institute five new sets of proceedings to obtain the same result.
[31] However, as I said in the decision:8
The Body Corporate is seeking to take a number of procedural shortcuts for its administrative convenience. The orders sought are draconian in nature. They seek the forced sale of five properties where the defaulting owners are not in a position to resist. While s 74 gives the court the power to make orders “directing the payment of money”, it is not an enforcement mechanism. The powers which the Body Corporate would have the Court read into s 74 would need to be specifically legislated.
7 Body Corporate 201036 v Westpac Banking Corporation [2015] NZHC 1524 at [39].
[32] Furthermore, its application advocated a significant departure from the law relating to mortgagors and mortgagees in circumstances where the principles have recently been restated by the High Court in cases involving bodies corporate.
[33] In those circumstances, the Body Corporate, as the paying party, failed to act reasonably in putting forward its claim.9
[34] Cynotech’s claim for increased costs also relies on a letter dated 3 March
2015 from the solicitors for Cynotech to the solicitors for the Body Corporate on a “without prejudice save as to costs” basis. The letter highlighted that the Body Corporate was “not yet in a position to raise the levies” against Mrs Nuval because it had not obtained a tendered price. He added, in these terms:
The purpose of this letter is to advise that, should the Body Corporate elect to proceed to a hearing of this matter, and not obtain the relief sought in the proceedings, being the sale of the unit owned by Mrs Nuval, my client will be making application for indemnity costs.
Accordingly, I invite you to withdraw the proceedings against Mrs Nuval and against the Seventh Respondent. You will note that this letter is without prejudice save as to costs as indicated above.
[35] No reference was made in the letter as to how long the “offer” was to remain
open for acceptance or when a response was needed.
[36] The letter was not an offer of settlement within the ambit of r 14.10 of the Rules. At most, the letter amounts to a warning that Cynotech would be seeking indemnity costs if the case against it were not withdrawn.
[37] In saying that, however, the significance of the letter is in the information it contains. The letter is instructive in the sense that it was written to persuade the
Body Corporate to withdraw its claim because the levies were not validly raised.
9 Bradbury v Westpac Banking Corporation, above n 4, at [27].
Result
[38] For the reasons given, Cynotech is entitled to costs on a 2B basis with an uplift of 50 per cent.
Thomas J
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