Combined Property Maintenance Limited v Singh

[2021] NZHC 621

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-1771

[2021] NZHC 621

UNDER

section 143 of the Land Transfer Act 2017

IN THE MATTER

of an application that a caveat not lapse

BETWEEN

COMBINED PROPERTY MAINTENANCE LIMITED

Applicant

AND

VIKRAM SINGH and ANITA MISHERWAN

Respondents

Hearing:	On the papers
Counsel:	G Bogiatto for the Applicant J P Wood for the Respondents
Judgment:	30 March 2021

JUDGMENT OF GAULT J

(Costs)

This judgment was delivered by me on 30 March 2021 at 4:00 pm pursuant to r 11.5 of the High Court Rules 2016.

Registrar/Deputy Registrar

……………………………………

Solicitors:

Mr G Bogiatto, Solicitor, Auckland

Mr J P Wood and Ms J Heatlie, Rainey Law, Auckland

COMBINED PROPERTY MAINTENANCE LTD v SINGH and MISHERWAN [2021] NZHC 621 [30 March 2021]

[1]    This originating application for an order that caveats not lapse was withdrawn before hearing. Costs are disputed. The parties filed memoranda and I determine costs on the papers.

[2]    The respondents seek indemnity costs, including costs on costs, on the basis that the originating application was doomed to fail and the respondents made reasonable offers to settle the application that were rejected.

[3]    While not conceding that costs should be ordered, the applicant submits that the circumstances do not warrant making an order above scale costs.

Background

[4]    The parties signed a fixed price construction contract in 2018 to build four townhouses. Following scope changes, a payment dispute arose. The applicant lodged caveats claiming an interest in the land based on the value added by its construction works.

Discussion

[5]    The starting point is that a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance unless the defendant otherwise agrees or the Court otherwise  orders.1  This  presumption   applies   to   an   originating   application. The presumption may be displaced if the Court considers it would be just and equitable in the circumstances not to apply it.2

Indemnity costs

[6]Rule 14.6(4)(a) of the High Court Rules 2016 (the Rules) provides:

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; …

1      High Court Rules 2016, r 15.23.

2      Kroma Colour Prints Ltd v Tridonicatco NZ Ltd [2008] NZCA 150, (2008) 18 PRNZ 973 at [12].

[7]    As the Court of Appeal said in Bradbury v Westpac Banking Corporation, “unnecessarily” in this context takes its meaning from the adverbs which precede it: “vexatiously, frivolously, improperly”.3 Indemnity costs may be ordered where a party has behaved either very badly or very unreasonably.4 The Court elaborated, saying:5

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”.

[8]    While noting the categories in respect of which the discretion to award indemnity costs may be exercised are not closed, the Court of Appeal endorsed the following list of circumstances in which indemnity costs have been ordered:6

(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; or

(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.7

3      Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [26].

4 At [27].

5 At [28].

6      At [29] citing Goddard J’s adoption in Hedley v Kiwi Co-operative Dairies Ltd (2002) 16 PRNZ 694 at [11] of Sheppard J’s summary in Colgate-Palmolive Co v Cussons at 232-234. See also Slater v Blomfield [2019] NZCA 664, (2019) 25 PRNZ 218 at [13].

7      J-Corp Pty Ltd v Australian Builders Labourers Federated Union of Workers, Western Australian Branch (No 2) (1993) 46 IR 301 (FCA) at 303.

[9]    Indemnity costs may be awarded on the basis of lack of merit in a case which does not proceed to final determination, but only where the lack of merit is both obvious and incontrovertible.8

[10]   The onus is on an applicant for indemnity costs to persuade the Court that such an award is justified.

[11]   In relation to the respondents’ first submission, Mr Wood submits the originating application was doomed to fail because a payment dispute under a simple building contract that contained no provisions on charges could not give rise to a caveatable interest in land.

[12]   Mr Bogiatto, for the applicant, submits that at all times the applicant believed that it had a good and arguable case to sustain its caveats based on an equitable charge and/or an equitable lien.

[13]   As Mr Bogiatto submits, expenditure of one person’s money on maintaining or improving a property of another normally gives rise to a proprietary lien to recover the money expended.9  Similarly, an equitable charge will support a caveat.10  However, it does not follow that a claim for payment under a building contract, not including a charge, gives rise to a caveatable interest. Whether the particular contract and circumstances gave rise to a caveatable interest requires consideration of the evidence filed in the proceeding.

[14]   Just as the Court does not conduct a general inquiry into the reasonableness of the parties’ conduct when asked to displace the costs presumption on a discontinuance,11 the Court does not do so when asked to award increased or indemnity costs. As indicated, indemnity costs may only be awarded on the basis of lack of merit in a case which does not proceed to final determination where the lack

8      N-Tech Ltd v Abooth Ltd [2012] NZHC 1167 at [108]; and Sealegs International Ltd v Zhang

[2020] NZHC 912 at [23].

9      Andrew S Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at [30.2.4].

10     Campbell on Caveats, Neil Campbell QC (2nd ed, LexisNexis) in Hinde McMorland & Sim

Land Law in New Zealand (online looseleaf ed, LexisNexis) at [10.009(o)].

11     Powell v Hally Labels Ltd [2014] NZCA 572 at [22]-[24].

of merit is both obvious and incontrovertible. To conduct a post-discontinuance inquiry into the merits or the reasonableness of the parties’ conduct is ordinarily contrary to the objectives of the cost rules.

[15]   In the circumstances of this case where the proceeding has been discontinued, I am not persuaded that the lack of merit is both obvious and incontrovertible such that it amounts to flagrant misconduct.

[16]   Turning to the respondents’ second submission, refusing to accept a settlement offer – whether made on an open or Calderbank basis – may have an effect on costs. Rule 14.10 of the Rules applies to offers expressly stated to be without prejudice except as to costs and therefore does not apply to open offers, but an open offer may still be relevant to increased or indemnity costs under r 14.6.

[17]   The respondents’ offer made on 5 October 2020 was that if the applicant withdrew the application and undertook to refrain from making another such application or attempting to caveat the land, the respondents would pay the filing fee, said to be $500.

[18]   With hindsight, the applicant would have been better to accept the settlement offer. However, the offer was made at an early stage. Moreover, in the context of this proceeding discontinued pre-judgment, I am far from persuaded that rejecting the settlement offer amounted to flagrant misconduct warranting indemnity costs.

Costs on costs

[19]   While the Court has power to award costs in relation to costs, costs are often dealt with by way of exchange of memoranda and the Court is reluctant to award costs on costs.12 Here, the applicant should have accepted that scale costs were payable. However, the applicant did not act unreasonably when it rejected the respondents’ offer of $8,000 (approximately $1,000 less than the respondents’ estimated indemnity costs at the time). The parties share responsibility for not resolving the costs issue. As the

12 Jeffreys v Morgenstern [2013] NZHC 1361 at [40]; Barry Park Investments Ltd v Body Corporate Number 95388 [2016] NZHC 1527 at [25]; and Epsom Woods Ltd v Waitakere Farms Ltd [2020] NZHC 3137 at [4].

respondents have not made out their claim for indemnity costs, I decline to order costs on costs.

Deferral

[20]   The applicant submits that any award of costs should lie in Court until such time as the dispute between the parties which is currently the subject of District Court proceedings is resolved.

[21]   The originating application to sustain a caveat is a discrete proceeding in its own right. Just as costs should be fixed following the determination of the caveat proceeding notwithstanding ongoing substantive proceedings in the District Court,13  I do not consider the award of costs should lie in Court pending resolution of those substantive proceedings. That would amount to a stay, justification for which is not made out.

Result

[22]   The applicant is to pay the respondents 2B scale costs of $5,736 plus disbursements of $110, totalling $5,846.

Gault J

13     Ding v Ai [2020] NZHC 858 at [4].