Body Corporate 328392 v Northern Trustee Services (no 145) Limited

[2020] NZHC 1230

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2019-404-871

[2020] NZHC 1230

BETWEEN

BODY CORPORATE 328392

Applicant

AND

NORTHERN TRUSTEE SERVICES (NO

145) LIMITED Respondent

Hearing:	On the papers
Appearances:	M L Thornton for Applicant G R Grant for Respondent
Judgment:	5 June 2020

JUDGMENT OF LANG J

[on costs]

This judgment was delivered by me on 5 June 2020 at 11.30 am, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar Date……………

Solicitors:

Michael Thornton, Auckland Rainey Law, Auckland

BODY CORPORATE 328392 v NORTHERN TRUSTEE SERVICES (NO 145) LTD [2020] NZHC 1230 [5

June 2020]

[1]    On 21 February 2020, I determined an application by Body Corporate 328392 (the body corporate) for orders under ss 319 and 320 of the Property Law Act 2007.1 The application was necessary because the body corporate is currently undertaking remedial work on its apartment complex to address longstanding weathertightness issues. It required access to adjoining land owned by Northern Trustee Services (No

145) Limited (Northern Trustee) so that it could carry out remedial work on the eastern boundary of its own property.

[2]    The parties have been unable to reach agreement regarding costs. I am required to determine that issue based on the matters raised in the memoranda filed by both counsel.

Background

[3]    The body corporate’s application was originally scheduled to be heard by Fitzgerald J on 6 September 2019. The Court allocated that fixture on 11 June 2019 after the body corporate sought an urgent hearing date. Shortly before the fixture was due to commence, however, the body corporate sought an adjournment because it wished to re-consider the scope of its remedial works.

[4]    On  3  September  2019,  Fitzgerald  J  vacated  the  hearing  scheduled  for   6 September 2019. On 2 December 2019, she issued a judgment requiring the body corporate to pay costs to Northern Trustee to reflect wasted costs associated with the adjournment of the hearing.2

[5]    In its original application the body corporate sought an order permitting it to have access to Northern Trustee’s land inter alia for the purpose of excavating a trench and installing a drain along the western boundary of Northern Trustee’s property. This was a significant undertaking because the trench was to be two metres wide and up to two metres deep. It was to run for approximately 45 metres along the western boundary of Northern Trustee’s land.

1      Body Corporate 328392 v Northern Trustee Services (No 145) Ltd [2020] NZHC 235.

2      Body Corporate 328392 v Northern Trustee Services (No 145) Ltd [2019] NZHC 3153.

[6]    Not surprisingly, Northern Trustee opposed this aspect of the application on the basis that the Court did not have jurisdiction under ss 319 and 320 of the Act to make such orders. The body corporate re-considered its position in light of the material filed by Northern Trustee in opposition to the application. In December 2019 it filed an amended application in which it no longer sought access to Northern Trustee’s land for the purpose of installing a drain. Instead it sought access for the purpose of erecting scaffolding on Northern Trustee’s land to enable it to carry out remedial work on its own property.

[7]    This judgment deals with the costs of the entire proceeding other than the wasted costs incurred by the adjournment of the fixture originally scheduled for 6 September 2019.

Relevant principles

[8]    Under the High Court Rules 2016 all matters as to the costs of a proceeding are at the discretion of the Court.3 In exercising that discretion the Court applies the principles set out in r 14.2. To the forefront of these is the principle that the party who fails with respect to a proceeding should pay costs to the party who succeeds.4

[9]    In the present case Northern Trustee seeks indemnity or increased costs in relation to the original application and increased costs in relation to the balance of the proceeding. The body corporate opposes this and seeks increased costs against Northern Trustee because of the approach it took in relation to the litigation. It is therefore necessary to briefly set out the principles that apply to increased and indemnity costs.

[10]   A party will only be entitled to indemnity costs where the other party to a proceeding acts in one of the ways specified in r 14.6(4):

…

(4)The court may order a party to pay indemnity costs if—

3      High Court Rules 2016, r 14.1(1).

4      Rule 14.2(1)(a).

(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.

[11]   The authorities confirm that indemnity costs will only be appropriate where the party against whom costs are sought acted badly or very unreasonably.5 In this context the term “unnecessarily” takes its meaning from the preceding words “vexatiously, frivolously and improperly”.

[12]   In the present case Northern Trustee contends the body corporate should pay indemnity costs in relation to the original application because it sought orders the Court had no power to make. It therefore says indemnity costs are appropriate under r 14.6(4)(a) and/or (f).

[13]The Court may award increased costs in the circumstances set out in r 14.6(3):

(3)The court may order a party to pay increased costs if—

(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

5      Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [27]–[28].

(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)     …

(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.

[14]   The body corporate contends it was the successful party in the proceeding because it ultimately obtained the orders it sought. It also says the issue that arose in relation to the drain did not materially increase the time and cost of the proceeding, and that Northern Trustee adopted an unreasonable stance in relation to offers of settlement that the body corporate made prior to the hearing before me.

[15]   Northern Trustee says it is entitled to increased costs in relation to the original application because the body corporate unnecessarily increased the time and expense of the proceeding by pursuing a course of action that had no legal merit and by failing for a considerable period of time to accept the merit of Northern Trustee’s argument in opposition to that application.

[16]   Northern Trustee also seeks disbursements, including experts’ costs and reimbursement of fees paid by it to its property manager, who undertook Northern Trustee’s response to both applications on its behalf.

The original application

[17]   I consider Northern Trustee must be regarded as the successful party in relation to the original application because the arguments it raised ultimately forced the body

corporate to abandon its bid to obtain orders permitting it to install a drain on Northern Trustee’s land.

[18]   I do not, however, consider the body corporate’s conduct in initially advancing its application seeking access to Northern Trustee’s land for that purpose meets the very high threshold required for an award of indemnity costs. The body corporate needed access to Northern Trustee’s land for a variety of purposes, only one of which was the installation of the drain. The body corporate clearly made an error in advancing the original application because it sought orders the Court had no power to make under the Act. There is no basis, however, to find that in doing so the body corporate acted badly or very unreasonably. It did not act frivolously, unnecessarily, vexatiously or improperly. I do not consider there is any justification for awarding Northern Trustee indemnity costs on the original application.

[19]   On the other hand, the body corporate clearly contributed unnecessarily to both the time and expense of the proceeding by seeking orders relating to the drain because it forced Northern Trustee to respond to an issue it should never have been required to address. In advancing that claim the body corporate pursued an argument that lacked merit. For a lengthy period it also failed to accept that Northern Trustee’s argument had merit. Jurisdiction therefore exists under r 14.6(3)(b)(ii) and (iii) to make an order for increased costs and I consider such an order to be appropriate.

[20]   I therefore direct the body corporate to pay costs to Northern Trustee on a category 2B basis in relation to all steps taken up to but not including 3 September 2019. The steps taken in relation to the adjournment of the first hearing were included in the costs awarded by Fitzgerald J on 2 December 2019.6

[21]   Costs are to be increased by 50 per cent to reflect the factors to which I have referred. In addition, I allow Northern Trustee costs calculated on the basis of two days for receiving and considering the seven affidavits the body corporate filed and served after Fitzgerald J issued her judgment but before it abandoned the original application. That award is also to be subject to the 50 per cent uplift.

6      Body Corporate 328392 v Northern Trustee Services (No 145) Ltd, above n 2, at [20].

[22]   Northern Trustee was required to meet the cost of briefing experts to deal with the issue relating to the proposed installation of the drain. It is entitled to be reimbursed for these in full less the sum of $2,000 awarded by Fitzgerald J to reflect experts’ wasted costs. It is also entitled to be reimbursed the filing fee on the Notice of Opposition it filed to the original application.

The amended application

[23]   At a simplistic level the body corporate was the successful party in relation to the amended application because it ultimately obtained orders authorising it to enter Northern Trustee’s land to erect scaffolding on it. This does not, however, reflect the approach to be taken in cases where a litigant seeks orders that abridge the rights of neighbouring landowners.

[24]   On Northern Trustee’s behalf Ms Grant submits that orders made under ss 319 and 320 of the Act may be regarded as an indulgence because they permit one party to enter upon another party’s land in circumstances where that party derives no benefit from the arrangement. She therefore submits the body corporate should pay costs to Northern Trustee even though the body corporate succeeded in obtaining the orders it sought.

[25]   Ms Grant relies for this submission on the following observations made by Priestley J in Norfolk Trustee Co Ltd v Tattersfield Securities Ltd:7

[44]   The word “indulgence” and a pattern of requiring a successful party   to contribute to the costs of opposing parties are both discernible under Part IX [of the Property Law Act 1952]. A litigant who successfully obtains a boundary adjustment for an encroachment, or access to landlocked land, or an order topping trees, cannot normally expect to obtain costs against a land owner whose property rights have been abridged by a court order. Indeed, frequently a contribution towards the costs of that land owner would be appropriate. Obviously the history behind the application, the respective conduct of the parties, and the way in which the proceeding has progressed will be relevant factors.

[26]   I consider the appropriate approach in this context is to assess which party was successful in the proceeding having regard not only to the end result but also to the

7      Norfolk Trustee Company Ltd v Tattersfield Securities Ltd HC Auckland CIV 2004-404-3668, 30 March 2005.

issues that arose and were resolved prior to the hearing. Some allowance must also be made for the fact that orders under ss 319 and 320 are of no benefit to, and will often be to the detriment of, the party who is forced to allow another party to have access to its land.

[27]   In the present case it is clear from Northern Trustee’s Notice of Opposition to the original application that it accepted from the outset that the body corporate could have access to its land to carry out repairs to its property. The sticking point throughout has been the terms on which that should occur.

[28]   I do not propose to traverse the correspondence between the parties’ solicitors regarding the issues that arose in this context. What becomes clear, however, is that Northern Trustee consistently sought details of the precise nature of the extent to which the body corporate sought to have access to its land. It was not until shortly before the hearing that the body corporate confirmed it would not be seeking vehicular access to Northern Trustee’s land,8 and that it only needed access to erect and use scaffolding to be placed on the western boundary of the land.

[29]   Northern Trustee was also consistent in its view that the body corporate should provide a bond and/or an indemnity to guard against the risk that its property might suffer damage as a result of the body corporate being able to have access to it. An issue arose with the proposed indemnity, however, because Northern Trustee suggested liability would accrue under this as soon as its director provided a letter confirming Northern Trustee had suffered loss as a result of the body corporate’s activities on its land. It is no surprise the body corporate refused to agree to this proposal.

[30]   With the assistance of the Court the parties eventually agreed on a detailed indemnity that enables Northern Trustee to provide the body corporate with claims for reimbursement of expenses or recovery of losses at the end of each three month period after the body corporate first enters Northern Trustee’s property. Northern Trustee must substantiate its claims with supporting documentation. In addition, the body

8      Other than to move and then replace a container that was sitting on the rear western boundary of Northern Trustee’s land.

corporate must provide a bond in the sum of $60,000 to meet the cost of any such damage or loss. The indemnity and/or the provision of a bond were outcomes Northern Trustee sought from the outset.

[31]   The body corporate has always accepted it should meet any losses or costs reasonably incurred by Northern Trustee as a result of its use of Northern Trustee’s land. It has always maintained, however, that Northern Trustee should be required to quantify and substantiate these. I consider the body corporate to have acted reasonably in insisting on these requirements. I therefore regard the provision of the indemnity and bond as largely neutral factors for present purposes.

[32]   Northern Trustee also sought details of the nature and estimated timeframe of the project so it could assess its likely impact on the tenants who occupy the property. This led to an issue on which the parties could not reach agreement. Northern Trustee insisted throughout that it should receive monetary compensation in advance for losses it was likely to suffer through the body corporate’s use of its land. In particular, Northern Trustee sought compensation for rental income it said it was likely to lose if its tenants vacated the property or paid reduced rent.

[33]   In this context Northern Trustee sought both weekly payments to reflect this factor and lump sum payments of between $20,000 and $100,000 by way of “access fees” or “rent fees”. At no stage, however, did it provide the body corporate with evidence as to the terms on which tenants were occupying buildings on the property. It is therefore not surprising that the body corporate declined to make these payments. Northern Trustee ultimately did not pursue these particular claims at the hearing but they played a large part in the parties not being able to reach agreement before trial.

[34]   At the hearing Northern Trustee maintained one claim for monetary compensation. It relied on evidence from a valuer, Mr David Wigmore, in support of a claim for compensation in the sum of $40,000 to reflect the fact that the body corporate’s use of the land was likely to delay future development of it. I viewed this as being largely a claim for lost opportunity and rejected it as being premature.9

9      Body Corporate 328392 v Northern Trustee Services (No 145) Ltd, above n 1, at [22]–[26].

[35]   It follows that Northern Trustee succeeded on having some of its proposals included in the terms of access the parties ultimately adopted. It failed throughout, however, in obtaining any immediate monetary compensation. By the time of the hearing this was the only remaining issue of any consequence to be determined but it was a major issue and always has been. Overall I consider the body corporate was the successful party in the proceeding because of this factor.

[36]   In addition, I consider the body corporate made at least one very reasonable offer of settlement prior to the hearing. In a letter its solicitors sent to Northern Trustee’s solicitors on 11 February 2020 the body corporate offered to pay Northern Trustee the sum of $65,000 towards its legal and experts’ fees. On my calculations this is more than Northern Trustee stands to receive under the orders I will make.

[37]   It follows that I consider it appropriate to make an award of costs in favour of the body corporate for all steps taken in relation to the amended application. This must be tempered, however, to reflect the fact that Northern Trustee will lose the ability to use part of its land for a considerable period and gains no corresponding benefit from the orders the Court has made.

[38]   I therefore make an award of costs in the body corporate’s favour on a category 2B basis for all steps taken from and including the point at which it filed its amended application. That award is to be reduced by 50 per cent to reflect the factor to which  I have just referred.

[39]   The body corporate is entitled to recover its disbursements as fixed by the Register.

Consultancy costs

[40]   This issue arises because Northern Trustee engaged a property management company called Orbix Group Ltd (Orbix) to represent it in its dealings with the body corporate. Orbix has rendered invoices to Northern Trustee totalling $38,572 for these services and Northern Trustee seeks reimbursement of that sum from the body corporate.

[41]   Orbix’s director, Mr Ward, provided an affidavit on Northern Trustee’s behalf but must be regarded as a witness of fact rather than an expert in a given field. Northern Trustee may therefore only recover Orbix’s fees as a disbursement if they satisfy the criteria set out in r 14.12 of the High Court Rules, which relevantly provides as follows:

14.12   Disbursements

(1)In this rule, —

Disbursement, in relation to a proceeding, —

(a)means an expense paid or incurred for the purposes of the proceeding that would ordinarily be charged for separately from legal professional services in a solicitor’s bill of costs; and

(b)includes—

(i)  fees of court for the proceeding:

(ii)   expenses of serving documents for the purposes of the proceeding:

(iii)  expenses of photocopying documents required by these rules or by a direction of the court:

(iv)   expenses of conducting a conference by telephone or video link; but

(c)does not include counsel’s fee.

relevant issue, in relation to a disbursement, means the issue in respect of which the disbursement was paid or incurred.

(2)A disbursement must, if claimed and verified, be included in the costs award for a proceeding to the extent that it is—

(a)of a class that is either—

(i)    approved by the court for the purpose of the proceeding; or

(ii)  specified in paragraph (b) of subclause (1); and

(b)specific to the conduct of the proceeding; and

(c)reasonably necessary for the conduct of the proceeding; and

(d)reasonable in amount.

(3)Despite subclause (2), a disbursement may be disallowed or reduced if it is disproportionate in the circumstances of the proceeding.

[42]   It can be argued that the services Mr Ward performed after the original application was filed were specific to the proceeding but I do not consider they can be regarded as being reasonably necessary for the conduct of the proceeding. It was not necessary for Northern Trustee to appoint Orbix to co-ordinate its response to the proceeding. Northern Trustee’s directors could have taken the same steps themselves to protect the company’s interests once the body corporate filed the proceeding. Northern Trustee was obviously entitled to elect to have its interests represented by a property manager such as Orbix but I do not consider the costs it incurred in doing so amount to a claimable disbursement in terms of r 14.12. It follows that I am not prepared to direct the body corporate to reimburse Northern Trustee for the fees it has paid to Orbix up until the date of the hearing before me.

[43]   An issue may still arise in relation to steps taken by Orbix to protect Northern Trustee’s interests following delivery of my judgment. In my judgment I suggested that the body corporate would need to reimburse Northern Trustee for the cost of Mr Ward’s services provided these related to the issue of access to its land.10 Examples I gave were the cost of Mr Ward supervising the moving of a container to enable the scaffolding to be erected and investigation of any complaints that Northern Trustee’s tenants might make about the body corporate’s use of Northern Trustee’s land. My observations regarding this issue were directed to the indemnity the body corporate has given to protect Northern Trustee against loss or damage caused by its use of Northern Trustee’s land. The indemnity does not extend to costs incurred by Northern Trustee prior to the point at which the body corporate enters on Northern Trustee’s land.

Result: summary

[44]   Northern Trustee is entitled to costs on a category 2B basis on all steps taken in relation to the original application other than those included in the award made by Fitzgerald J for wasted costs. Those costs are to be increased by 50 per cent. In addition, Northern Trustee is entitled to costs on a category 2B basis and calculated on

10     Body Corporate 328392 v Northern Trustee Services (No 145) Ltd, above n 1, at [27].

the basis of two days to reflect the need for it to consider and respond to the affidavits filed and served by the plaintiffs following delivery of the judgment of Fitzgerald J. It is also entitled to recover the fees paid to its experts in relation to the proposed drain that formed part of the original application.

[45] The body corporate is entitled to costs on a category 2B basis together with disbursements for all steps taken from and including the point at which it filed the amended application in December 2019. Those costs are to be reduced by 50 per cent to reflect the factor referred to at [37].

Leave reserved

[46]   Leave is reserved to both parties to file further memoranda if they cannot reach agreement regarding quantification of costs or require clarification of the effect of the orders I have made.

Lang J