Cintro Holdings Limited v F M Custodians Limited HC Auckland CIV 2009-404-406

[2010] NZHC 723

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2009-404-000406

UNDER  the Land Transfer Act 1952

IN THE MATTER OF     Caveat X7522219.1

BETWEEN  CINTRO HOLDINGS LIMITED Applicant

ANDF M CUSTODIANS LIMITED Respondent

Hearing:         by memoranda

Counsel:         J Waymouth for applicant

G J  Judd QC for respondent

Judgment:      18 May 2010 at 4:30pm

COSTS JUDGMENT OF ASSOCIATE JUDGE ABBOTT

This judgment was delivered by me on 18 May 2010 at 4:30pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:
Sue Stodart, Solicitor PO Box 302690, North Shore City for applicant

Halliwells, PO Box 422, Hawera 4640 for respondent

CINTRO HOLDINGS LIMITED V F M CUSTODIANS LIMITED HC AK CIV 2009-404-000406  18 May

2010

[1]      F M Custodians Limited (FMC), the respondent, has applied for indemnity costs following dismissal of this application for an order that a caveat not lapse. Cintro  Holdings  Limited  (Cintro)  had  sought  to  sustain  the  caveat  to  protect beneficial interests claimed under an agreement with the registered proprietor.  FMC held a mortgage over the land to secure a loan made to the registered proprietor.  The mortgage was registered prior to Cintro’s caveat.

[2]      FMC  seeks  indemnity  costs  of  $21,612.27  up  to  the  hearing  of  the application, and a further sum of $1,650 for necessary post-judgment attendances.  It says that the application could never succeed (in light of FMC’s prior registered mortgage) and was an  attempt by Cintro’s solicitor to protect himself from the consequences of an eleven month delay in lodging the caveat (a caveat was prepared and signed on 22 September 2006 but not lodged until 30 August 2007).  FMC made its loan and registered its mortgage three months before the caveat.

Principles and approach to indemnity costs

[3]      FMC makes its application under r 14.6(4) of the High Court Rules, and particularly the following:

14.6     Increased costs and indemnity costs

(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

...

(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;

[4]      These  provisions  (and  others  not  relevant  to  the  present  application)  are based on the conduct of the party from whom costs are being sought, as distinct from

mere lack of merit or perhaps poor judgment in pursuing a case.  The Supreme Court has commented that “flagrant misconduct” is required.[1]

[1] Prebble v Huata (No 2) [2005] 2 NZLR 467 at [6].

[5]      The  Court  of  Appeal  recently  examined  the  test  for  indemnity  costs  in Bradbury v Westpac Banking Corporation,[2] and said that “unnecessarily” as used in r 14.6(4)(a) required “distinctly bad behaviour”.  It went on to say:[3]

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”: Prebble v Awatere Huata (No 2) [2005] 2 NZLR 467 at [6] (SC).

[2] Bradbury v Westpac Banking Corporation [2009] 3 NZLR 400 at [24] – [30].

[3] At [28].

[6]      The Court of Appeal also:

a)       endorsed a summary of the kind of behaviour which could give rise to indemnity costs in a decision of the Federal Court of Australia (Sheppard  J),  Colgate-Palmolive  Co  v  Cussons  Pty  Ltd,[4]   earlier adopted in this Court in Hedley v Kiwi Co-operative Dairies Ltd.[5]

[4] Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 at 232-234.

[5] Hedley v Kiwi Co-operative Dairies Ltd (2002) 16 PRNZ 694 at [11]. 

Two of these categories are potentially relevant here, namely commencing or continuing proceedings for some ulterior motive, and doing so in wilful disregard of known facts or clearly established law; and

b)commented that Sheppard J’s category of “imprudent refusal of an offer of compromise” did not meet the criteria for indemnity, but might justify increased costs.[6]

The argument for indemnity

[6] Bradbury v Westpac Banking Corporation [2009] 3 NZLR 400 at [30].

[7]       Mr Judd, as counsel for FMC, submitted that it should have been apparent that the application could not succeed, and that it was a “try on” by Cintro’s solicitor

to protect himself from the consequences of a possible negligence claim for failing to lodge the caveat when it was signed.  He said that if the caveat had been lodged on time, FMC would not have made its advance, or at least not without ensuring that its interest would not be prejudiced by any interest claimed under the caveat.  He argued that the lack of merit could be taken from the fact that Cintro had changed its grounds following receipt of FMC’s notice of opposition, when it knew that those arguments could not succeed (the primary argument at the hearing of an implied consent under s 105 of the Land Transfer Act, or conduct suggesting acceptance of Cintro’s interest, was not mentioned in the notice of opposition).   He said it was significant that counsel for Cintro was initially acting on instructions given by the solicitor who failed to lodge the caveat, and invited the court to draw an inference of ulterior motive both from that and the fact that Cintro’s director said in his evidence that he did not know the reason that the caveat was not registered until 30 August

2007.

The opposition

[8]      Mr Waymouth, counsel for Cintro, submitted that there was nothing out of the  ordinary  in  this  case  to  warrant  indemnity  costs.    He  said  that  Cintro’s application was made bona fide in the belief that FMC had knowledge of Cintro’s prior beneficial interest (through prior correspondence and an earlier caveat withdrawn by agreement with the registered proprietor to allow for refinancing).  He argued that the later caveat could be sustained on the basis of that knowledge.  He also argued that it was not reasonable in any event to allow costs for an affidavit filed by FMC shortly before the hearing, and for a case management conference to address that late evidence, on the basis that it was essentially correcting errors in an earlier affidavit by FMC’s general manager.

Discussion

[9]      The premise on which FMC’s claim to indemnity costs is based is that no party reasonably advised would bring an application to sustain this caveat rather than make a claim against the solicitor who delayed lodging it.  I do not see the case as starkly obvious as that.  I accept that Cintro’s solicitor would have been embarrassed by his failure to register the caveat promptly, but not that that necessarily means that Cintro could not have instructed its solicitor to present an argument that it could claim priority under s 105 by reason of FMC’s implied consent.  It is clear from the evidence given by Cintro’s director that he believed that FMC had prior knowledge of Cintro’s interests under the agreement with the registered proprietor (in respect of a forestry right and the land itself under an exercised option to purchase).  It is not beyond the bounds of possibility that he would instruct his solicitor and counsel to sustain the caveat on that basis.  The fact that a successful application would also protect the solicitor from the consequences of his delay does not, of itself, require an inference that that was the controlling motivation.  The evidence of Cintro’s director that  he  did  not  know  of  the  reason  for  the  delay in  lodging  the  caveat  is  not inconsistent with a wish to argue that it be sustained.

[10]     Similarly, I do not find that the failure to refer in the application to an implied consent under s 105 necessarily requires an inference of ulterior motive.   Caveat applications often have to be brought quickly, and it would not be the first occasion on which grounds initially advanced are changed or expanded upon.  It is clear from correspondence exchanged between the parties before the application was filed that Cintro was advancing a case based on prior knowledge.  I accept that the further step of an implied consent appears to have advanced only after the notice of opposition was filed, and it became obvious that prior knowledge alone was not enough. However, that argument was open to Cintro if the facts could support it.  I found that the facts did not support it, but that is a different matter.

[11]     In summary, although the application was commenced on grounds which were unlikely to succeed, it was ultimately pursued on a ground that had a prospect of success subject to the findings of fact.  In light of that, and the clear impression that  I  have  of  the  evidence  of  Cintro’s  director  that  it  wished  to  pursue  its

application, I take the view that this case does not meet the high threshold required for an order for indemnity costs.

[12]     Mr Judd argued that Cintro should have withdrawn its application either on receipt of his instructing solicitor’s letter of 16 February 2009 or FMC’s notice of opposition: for the reasons just given I do not consider that it acted improperly or unnecessarily in not doing so.   If there was an argument still open to it, it was entitled to pursue that (as it did).  It does not cause the case to cross the threshold for indemnity costs, although it could have led to a claim for increased costs.  However, FMC has not advanced a clear or an evidential basis for increased costs for any step.

[13]     I turn to consider Cintro’s argument that costs should not be allowed, in any event, on late evidence by FMC to correct earlier errors and produce further documents after having been alerted to deficiencies in its evidence.  I do not see any reason to disallow costs on the affidavit or the conference to discuss it.  I accept Mr Judd’s  submission  that Cintro  had  questioned  the  completeness  of  the  evidence before the court and FMC wished to avoid an adjournment.  This arose as it became evident that s 105 was to be the focus of Cintro’s argument. I do not see that the corrections of the two errors in statements in earlier affidavit alter the need for, or value of, the remainder of the evidence (and hence the claim for costs in respect of it).  The further title searches helped a proper understanding of the letter that Cintro relied on as support for its argument on implied consent, what knowledge FMC had about the earlier caveat, its removal and the registration of FMC’s mortgage. All of these were important consideration in the s 105 argument.

[14]     Finally, I note that FMC also seeks costs for steps taken post-judgment in responding to a point on which further submissions were sought (timing of removal of the caveat).  I consider that it is entitled to the costs of counsel’s two memoranda on that point (albeit at scale rate) given Cintro’s failure to advise promptly post- judgment that the caveat had been withdrawn.

Decision

[15]     FMC’s  application  for  indemnity  costs  is  declined.     FMC  is  entitled, however, to costs on a 2B basis for all steps up to and inclusive of the hearing, and

for the preparation of post-judgment memoranda of 8 and 25 May 2009.

Associate Judge Abbott