Butcher v Body Corporate 324525

[2017] NZHC 1061

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2015-488-086 [2017] NZHC 1061

UNDER

the Declaratory Judgments Act 1908 and

Sections 173 and 210 of the Unit Titles
Act 2010

BETWEEN

ANTHONY JOHN BUTCHER AND RUTH BARBARA BUTCHER, LARRY LAWRENCE SMALL AND KM TRUSTEE SERVICES LTD, IVOR ANTHONY MILLINGTON, NEVILLE EADE, ROBYN KATHLEEN STENT, GRAEME PHIP DICKESON AND JULIE MAY DICKESON (BOTH DICKESONS STRUCK OUT AS AT 29 AUGUST 2016) Plaintiffs

AND

BODY CORPORATE 324525

Defendant

Hearing:	On the papers
Counsel:	B E Brill for the Plaintiffs TJG Allan and S Powrie for the Defendant
Judgment:	19 May 2017

COSTS JUDGMENT OF MUIR J

This judgment was delivered by me on Friday 19 May 2017 at 4.30 pm

Pursuant to Rule 11.5 of the High court Rules.

Registrar/Deputy Registrar

Date:…………………………

Counsel/Solicitors:

B E Brill, B E Brill Ltd, Paihia
TJG Allan, Grove Darlow & Partners, Auckland

S Powrie, Grove Darlow & Partners, Auckland

BUTCHER v BODY CORPORATE 324525 [2017] NZHC 1061 [19 May 2017]

Introduction

[1]      This judgment corrects all previous judgments where the Body Corporate has been incorrectly recorded as Body Corporate 342525.   The correct title is Body Corporate 324525.

[2]      The  defendant  applies  for  costs  following  its  successful  defence  of  the

plaintiffs’ claims.1

[3]      It does so on three alternative bases, namely: (1)           Indemnity costs of $170,113.80;2

(2)      Increased costs of $137,215.80;3

(3)      Scale 2B costs of $108,448.80.

[4]      The claim for indemnity costs in turn proceeds on two alternative bases, namely that:

(i)the  proceedings  were  in  substance  a  “pre-emptive  strike” against the defendant’s claim for recovery of levies associated with remediation of the Bridgewater development.   As such costs should be dealt with as if a claim for recovery of such levies had been brought and the issues resolved in that context. In that respect the defendant relies on s 124 of the Unit Titles Act 2010 (UTA) and the decision of the Court of Appeal in

Black v ASB Bank Ltd.4

1      Butcher v Body Corporate 342525 [2016] NZHC 3128. At [113] of that judgment I expressed the provisional view that costs be fixed on a 2B basis with allowance for second counsel and invited submissions in the absence of agreement. Extensive submissions have now been received.

2      High Court Rules 2016, r 14.6(4).

3      High Court Rules 2016, r 14.6(3).

4      Black v ASB Bank Ltd [2012] NZCA 384.

(ii)The plaintiffs’ conduct in commencing and continuing the proceeding was unnecessary and improper for the purposes of r 14.6(4)(a) of the High Court Rules 2016 and the plaintiffs failed to adhere to an undertaking to conduct a stock-take of issues with senior counsel before pursuing the claim to trial.

The claim for indemnity costs

[5]      Section 124(2) of the UTA provides:

(2)       The amount of any unpaid levy, together with any reasonable costs incurred in collecting the levy, is recoverable as a debt due to the body corporate by the person who was the unit owner at the time the levy became payable or by the person who is the unit owner at the time the proceedings are instituted.

[6]      Accordingly, it provides statutory authority for the recovery of reasonable

costs on an indemnity basis for “collecting any unpaid levy”.

[7]      In circumstances where a contractual indemnity exists for recovery of costs (as for example typically occurs  in the context of bank facility documents) the Courts have held that pre-emptive action by a debtor seeking, for example, declarations of invalidity will attract indemnity costs on the same basis as if raised in defence to the Bank’s claim.   Thus in Black v ASB Bank Ltd where the debtor launched a wide-ranging attack on the Bank’s right to enforce its securities, the Court of Appeal upheld a High Court award of indemnity costs based on the fact that the Bank had no option but to defend the claim and respond to each of the discrete issues raised by the appellant.

[8]      I accept that, in principle, the same approach should be available to pre- emptive  proceedings  designed  to  challenge  the  validity  of  an   unpaid  levy. Rule 14.6(f) of the High Court Rules indicates that the categories of a case where indemnity costs are appropriately awarded is not closed and the analogy with the availability of indemnity costs under contract or deed is in my view sufficiently close to recognise such recovery.

[9]      However, there are difficulties in  the application of that approach to the particular facts of this case.   That is because the proceedings had three distinct causes of action.

[10]     In the first, the plaintiffs made wide-ranging attacks on the defendant’s ability to recover five discrete levies (identified as SLs 2-6).  After the trial the plaintiffs elected to abandon their claims in this respect.  They did so without prejudice as to their rights, but that does not in my view derogate from an entitlement to indemnity costs on defence of the claims up until the point of abandonment.

[11]     The difficulty is, however, that the defendant’s actual solicitor client costs were not, understandably, raised on a basis particular to individual causes of action.

[12]     The other two causes of action were respectively for:

(1)orders setting aside multiple resolutions on the grounds that they were unjust and inequitable for the minority (s 210 of the UTA); and

(2)a declaration that various special and ordinary resolutions were ultra vires and of no effect on the basis that the works undertaken by the Body Corporate represented voluntary upgrades unnecessary to satisfy the requirements of s 49(1) of the Building Act 2004.

[13]     The s 210 UTA claim was likewise abandoned after the trial, although the plaintiffs attempted subsequently to resurrect it and I dealt with it substantively in my judgment.

[14]     That claim sought to set aside a significant number of resolutions passed at each of the 2015 AGM, 2015 EGM and 2015 EEGM.  These included resolutions adopting  the  upgrade  proposals,  appointing  architects  and  raising  a  levy  of  $3 million to fund the proposed works.

[15]     In my view any application of the Black principle to the UTA context should be carefully limited to pre-emptive strikes directed specifically to the collection of levies.  Section 210 represents a useful safety valve against abuse by a majority of its

dominant  position  and  the Court  should,  I consider,  be  reluctant  to  impose the chilling effect of a potential indemnity costs order other than in the clearest case.

[16]     Here so many different resolutions were challenged under the s 210 cause of action, including resolutions not specifically relating to levies, that I do not consider it appropriate to apply the approach in Black to that aspect of the claim.

[17]     Moreover, to the extent it may be said to have included a pre-emptive attack on the levy raised to fund the works, there is no practical basis on which to identify attendances specific to that sub-issue.

[18]     Likewise the Black principle seems to me inapplicable to the first cause of action.5    I accept that a claim for a declaration that intended works represented a voluntary upgrade might be considered, in one sense, a pre-emptive strike against a subsequent claim for levies, but in my view care is necessary in adopting such an approach so that legitimate (even if perhaps ultimately unsuccessful) claims are not tested for fear of incurring indemnity costs awards.  In my view the Black principle

should be limited to cases where a levy has been struck and the “pre-emptive strike” is  one  specifically  directed  to  the  Body  Corporate’s  authority  to  collect  that particular levy.  In the present case the challenge went substantially beyond the vires of the levy to include the authority of the Body Corporate to embark on aspects of the remediation itself.

[19]     The position I arrive at therefore is that, across the three causes of action, there  were  claims  to  which  the  Black  approach  may apply and  others  where  I consider  the  approach  inapplicable.     Nor  am  I  able  adequately  to  attribute attendances to the various categories.   I decline therefore to make an indemnity award on this basis.

[20]     Next, however, the defendant claims indemnity costs on account of the fact that,   in   its   submission,   the  plaintiffs  acted   improperly  or  unnecessarily  in

commencing or prosecuting the proceeding.  There is in my view sufficient merit in

5      The first cause of action was that to which the majority of the evidence was directed and which in terms of submissions featured at least equally with consideration of the various technical arguments raised in the context of SLs 2-6.

that argument to dissuade me from the provisional views I expressed on costs at the conclusion of my judgment. A number of factors influence me in that conclusion.

[21]     The claim under s 210 of the UTA was always untenable.  Indeed, of the five plaintiffs only Ms Stent had standing to bring it and since, as I found, she was “in the same boat” as  all  other  unit  holders  there was  no  proper basis  on  the existing authorities for her to allege that she had been unfairly or inequitably treated.  The insuperable difficulties which she faced were recognised in the ultimate decision to abandon the claim, albeit that this was after the trial and after the costs of defence had already been incurred.

[22]     Likewise, the plaintiffs abandoned, post trial, the majority of the first cause of action (those parts relating to SL 2-6).   This left only a requirement that I make declarations of lawfulness and/or validity in respect of the resolutions identified in A(I),  (II)  and  (III)  of  that  cause  of  action.    In  so  doing  the  number  of  issues ultimately requiring determination reduced from a range which I consider the defendant responsibly puts at between 40 and 50 (although initially identifying up to

70) to the five principal issues I identified in [76] and [77] of my judgment.

[23]     During case management of the trial I had emphasised the importance of focus on what I saw as the principal issue (the extent to which the consent obtained by Mr Butcher from Far North District Council (FNDC) subsequent to the delivery of my decision  in  Wheeldon6   effectively justified that  decision  being  revisited). Counsel for the plaintiffs provided assurances to me at a telephone conference on 5

May 2016 that, following delivery of the Court of Appeal’s decision in Wheeldon,7 a

“stock take” of all Butcher causes of action would be undertaken with senior counsel Mr Campbell QC and that, as a result, what came to be known as the “plethora” of subsidiary issues might be abandoned.

[24]     Although  senior  counsel  did  not  appear  at  the  trial,  I  accept  Mr  Brill’s

assurances that such a stock take did take place.   I do not therefore consider it

6      Wheeldon v Body Corporate 324525 [2015] NZHC 884, (2015) 16 NZCPR 829.

7      Wheeldon v Body Corporate 342525 [2016] NZCA 247, (2016) 17 NZCPR 353.

appropriate to assume, for the purposes of the costs assessment a beach of undertaking as the defendant invites me to do.

[25]     Nevertheless, there is force in the defendant’s submission that the decision to take every one of the issues to trial, ultimately only to abandon the majority of them, does indicate an insufficiently conscientious focus at the relevant time.  In the result, I accept that the defendant’s trial costs were very significantly increased from those which would otherwise have been incurred.  In particular, closing submissions ended up needlessly addressing a large number of technical issues which were ultimately abandoned.

[26]     Turning then to the third cause of action, I upheld the Body Corporate’s defence that this was an abuse of process on the principles established in Henderson v Henderson.8    At [49] to [56] of my judgment I recorded my view that evidence relating to Mr Butcher’s building consent represented an attempt to “backfill” deficiencies in the Wheeldon case.  I said that the claim represented:9

…  the very sort of inefficiency and  exposure  to  ongoing and  repetitive litigation that the rule in Henderson v Henderson is in my view, designed to prevent.

[27]     Such a finding of itself goes a significant distance towards satisfying the criteria  in  r 14.6(4)(a)  of  the  High  Court  Rules10   although  I  accept  Mr  Brill’s submission that it does not of itself conclude the inquiry.

[28]     In the present case however, the Court of Appeal had, by the date of the Butcher trial, already held, in the related Wheeldon proceedings, that Mr Butcher’s FNDC consent was neither “credible” nor “cogent” enough for evidence of it to be

admitted for appeal purposes.11

8      Henderson v Henderson (1843) 3 Hare 100

9 At [55].

10     A point to which I had not directed myself in expression of the provisional views referred to in in Butcher v Body Corporate342525, above n 1, at [113].

11     Wheeldon v Body Corporate 342525, above n 9, at [110] – [111], a view supported by the Supreme Court in Wheeldon v Body Corporate 324525 [2016] NZSC 125, at [10], albeit this decision was delivered after conclusion of the trial in Butcher.

[29]     In my judgment in the present proceedings at [63] to [70] I set out in further detail why I considered the Court of Appeal’s finding in relation to credibility and cogency was confirmed by subsequent evidence.  Significantly, even the plaintiffs’ expert was required to concede that he needed to reconsider the opinions expressed in his brief of evidence in light of the observed damage at the time of remediation.  I formed the clear impression that he had been inadequately briefed in this regard.

[30]     In my view the third cause of action was therefore fatally flawed at multiple levels and should have been recognised as such at the latest when the Court of Appeal’s decision was delivered in June 2016.  For my own part I would recognise an earlier date, namely the point at which expert evidence was filed in response to the application to adduce further evidence on appeal.12    It was at that point, in my view, that the lack of cogency was sufficiently exposed for present purposes.

[31]     I have also already indicated that, if an apportionment had been possible, I would have been likely to grant indemnity costs on defence of the abandoned claims relating to SLs 2-6, applying the approach in Black. In the event no such apportionment was possible but I accept that the attendances in that respect were substantial.

[32]     In  summary therefore,  I agree  with  the  defendant  that  this  was  in  large measure a hopeless claim, as reflected either in my findings or, as for example with the s 210 claim, in the plaintiffs’ decision to abandon the claim subsequent to trial. Moreover, as exemplified by the approach to SLs 2-6 (whatever the ultimate merit of the  plaintiffs’ arguments),  the  litigation  was  conducted  in  a  way  which  greatly exacerbated the defendant’s costs.  I am satisfied therefore that this is a case where indemnity costs should be granted.

[33]     Had I not reached this decision, then for the same reasons referred to in [20]- [31] above, I would have allowed the uplift claimed by the defendant.  I would have

done so by reference to r 14.6(3)(b)(ii) and (d) of the High Court Rules.

12     The appeal itself was heard on 12 November 2015.

[34]     Contrary to the plaintiffs’ submission, I do not consider it appropriate to deduct from either an indemnity calculation or an uplifted 2B calculation allowance for the defendant’s strike out application.   Costs on that were reserved following allocation of a prompt fixture.  It could not be considered to have been improperly brought and may indeed have been successful.   It should also have focused the plaintiffs on the insuperable difficulties they faced in the proceedings.

[35]     Having concluded that, in principle, indemnity costs are appropriate I am then required to determine their reasonableness as any order made by the Court is premised on such costs having been “reasonably incurred”.13

[36]     This is not a case where the plaintiffs specifically challenge any aspect of the defendant’s  solicitors’ costs  or  suggest  taxation  of  such  costs  under  r 14.18  or reference  to  the  Law  Society.    Nor  do  I  consider  the  legal  fees  incurred  of

$121,875.00 to have been unreasonable in relation to a four day trial involving expert evidence and very extensive submissions on what were indeed at that stage a “plethora” of issues.   As the Court of Appeal observed in Black,14 an element of “robust judgment” is called for in this respect. The various authorities collected at [105] and [106] of that decision (including the award by White J in Ibanez Ltd v Westpac New Zealand Ltd of $153,467.76 after a one day trial)15 confirm me in my belief that the defendant’s claims are reasonable at least in relation to solicitors’ costs.

Disbursements

[37]     I have greater difficulty with the claim for disbursements, however.   This includes 120.25 hours at $185 per hour for building consultant and expert witness Mr Gray (Veron/GBC).  Significantly, of that, 31 hours relates to preparation in the days immediately preceding and attendance at the hearing in circumstances where Mr Gray’s evidence was of a relatively narrow compass and did not feature significantly in the decision I arrived at.   Again applying an element of “robust

judgment”, I consider a deduction of 20 hours appropriate.

13     High Court Rules 2016, r 14.6(1)(b).

14 At [81].

15     Ibanex Ltd v Westpac New Zealand Ltd [2012] NZHC 1864.

[38]     Nor do I accept as a disbursement the Body Corporate manager’s costs of attending on counsel and the owners in respect of the litigation.  I accept Mr Brill’s submission that there is no provision in the Rules for this type of recovery and that bodies incorporated under the UTA are no different from those incorporated under other Acts in being required to conduct litigation through human agents.

[39]     I also disallow the claim for Resolution Architecture ($5,634.99).  Mr Brill has,  in  my view,  established  sufficient  foundation  for  a  claim  that  this  invoice featured  in  the  Body  Corporate’s  proceedings  against  FNDC  (referring  to  its inclusion in the Fourth Schedule to the Body Corporate’s fifth amended statement of claim) that it cannot in my view safely be included for present purposes.

[40]     Otherwise, however, I am prepared to accept the defendant’s assurances that no duplication arises in respect of the FNDC proceedings and withdraw my requirement16 that counsel personally certify this issue.17

[41]     In  the  result,  I  do  not  consider  reference  to  the  Registrar  is  required. However, as in the Wheeldon proceedings, should the assurances be shown to be incorrect,  I will  entertain  an  application  for  recall  of the  present  judgment  and consider a reference accordingly.

[42]     I therefore allow the following disbursements:

Photocopying	$ 1,994.27
Filing fees	$    860.87
NZ Law Society	$    251.00
(Document delivery and related)
Veron/GBC	$19.717.07
Total	$22,823.21

16     See Minute dated 16 May 2017.

17 I am fortified in that conclusion by the fact that Mr Brill has himself been closely involved in the FNDC proceedings and that the only duplication he has thus far been able to identify relates to the Resolution Architecture Account referred to in [38].

Allowance for plaintiffs’ success on audit resolution

[43]     At [93]–[97] of my decision I accepted the plaintiffs’ argument that in respect of the defendant’s audit dispensing resolution it could not purport to dispense with the requirement for future years.  At [113] I provisionally suggested that this may result in some modest abatement with regard to costs.

[44]     The matter occupied an immaterial part of the hearing and  I accept that because, as now advised, the Body Corporate in fact passed an audit dispensing resolution every year the Court’s order had limited practical consequence.

[45]     I  accept  the  defendant’s  submission  that  the  case  is  very  different  from Packing In Ltd (in liq) v Chilcott.18    Whether the case initially engaged 50 or 70 issues, the plaintiffs’ success in this one argument does not in my view require an adjustment in terms of ultimate outcome.

Position of the Dickesons

[46]     Mr and Mrs Dickeson were struck out of the proceeding as from 29 August

2016.19    Their liability for costs does not therefore include solicitor-client costs or experts’ costs incurred after that date.  I have not been provided with a calculation of their liability.    I reserve leave to  apply should  any issue  arise  relating to  such calculation.

Result

[47]     I award costs and disbursements in favour of the defendant in the amount of

$144,698.21 calculated as follows:

18     Packing In Ltd (in liq) v Chilcott (2003) 16 PRNZ 869 (CA)

19     See my Minute of 31 August 2016 at 10.21.31.

Solicitor/client costs	$121,875.00
Disbursements	$  22,823.21
Total	$144,698.21

Muir J