Diamond Hostel Limited v Kim
[2020] NZHC 1639
•9 July 2020
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-2172
[2020] NZHC 1639
UNDER the Arbitration Act 1996 IN THE MATTER
of an Application for Leave to Appeal against Arbitration Tribunal’s Award
BETWEEN
DIAMOND HOSTEL LIMITED
Applicant
AND
SUNGJA KIM
Respondent
Hearing: On the papers Appearances:
S Kang for the Applicant
B J Norling for the Respondent
Judgment:
9 July 2020
JUDGMENT OF GORDON J
[As to costs]
This judgment was delivered by me on 9 July 2020 at 3 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors: Fairbrother Family Law, Napier
Norling Law Limited, Auckland
DIAMOND HOSTEL LTD v KIM [2020] NZHC 1639 [9 July 2020]
Introduction
[1]This is an application for costs by the respondent Sungja Kim.
[2] On 31 March 2020, I gave judgment in her favour, refusing an application by Diamond Hostel Ltd (Diamond) for leave to appeal against an Arbitration Tribunal’s Award.1
Background
[3] Diamond applied under cl 5(1)(c) of sch 2 of the Arbitration Act 1996 for leave to appeal part of a decision of an arbitrator given on 9 July 2019.
[4] The dispute related to Diamond’s liability for outgoings under a lease of a property, owned by Ms Kim, at Spring Creek, north of Blenheim. The arbitrator found Diamond was liable for outgoings under the terms of the lease. Diamond applied for leave to appeal on a question of law arising out of the arbitrator’s determination on liability. Ms Kim opposed leave.
[5] The exercise of the discretion to grant leave is subject to cl 5(2). It was common ground that the relevant principles for applying cl 5(2) are to be found in the decision of the Court of Appeal in Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd.2
[6] I found that the precondition in cl 5(2) – whether the question of law could substantially affect the rights of the parties – was not satisfied. Alternatively, even if I was wrong on that point, I would have exercised my discretion by refusing leave after taking account of the factors identified in Gold and Resource Developments.
[7]I declined leave to appeal the partial award of the arbitrator.
1 Diamond Hostel Ltd v Kim [2020] NZHC 663.
2 Gold and Resource Developments (NZ) Ltd v Doug Hood Ltd [2000] 3 NZLR 318 (CA).
Costs claimed
[8] Mr Norling, for Ms Kim, seeks indemnity costs against Diamond. This claim is founded not on Diamond’s conduct in the proceedings but instead on r 14.6(4)(e) of the High Court Rules 20163 and cl 6.1 of the deed of lease entered into by the parties. That clause provides, in part:
The Tenant shall pay … the Landlord’s legal costs (as between lawyer and client) of and incidental to the enforcement of the Landlord’s rights, remedies and powers under this lease.
[9] On this basis, Ms Kim seeks indemnity costs of $14,157.00 (a GST exclusive amount) and disbursements of $200.75, a total claim of $14,357.75.
Submissions
[10] In the substantive judgment I directed that each party file and serve a memorandum in the event agreement could not be reached on costs. Agreement was not reached and memoranda were filed. No provision was made for a reply by Ms Kim, nor for any further reply by Diamond. Such memoranda were filed without leave being sought. The two further memoranda will be received on this occasion but counsel should not take this as approval or encouragement to file memoranda without first seeking leave of the Court.
[11] Mr Norling submits the Court may order Diamond to pay indemnity costs because Ms Kim is entitled to such costs under a contract or deed, pursuant to r 14.6(4)(e). He acknowledges r 14.6(1)(b) requires costs payable to be “reasonably incurred by a party.”
[12] Mr Kang, for Diamond, submits that costs should lie where they fall or reduced costs should be awarded. He advances four grounds in support of this submission:
(a)Late filing of Ms Kim’s costs memorandum;
3 Rule 14.6.4(e) provides that the court may order a party to pay indemnity costs if the party claiming costs is entitled to indemnity costs under a contract or deed.
(b)Prior agreement in the proceeding that costs should be awarded on a 2B basis. (He also says that the District Court Rules 2014 should apply to the calculation of costs);
(c)Indemnity costs claimed are not reasonable; and
(d)Ms Kim acted unreasonably in refusing Diamond’s offer to settle the proceeding (and the liquidation proceeding involving the same two parties) and in making a counter-offer.
Delay
[13] Rule 14.2(g) provides that “so far as possible the determination of costs should be predictable and expeditious”. Mr Norling acknowledges that his memorandum on costs was filed late. He says the solicitor in charge of the file and who appeared at the hearing, ceased working at the firm shortly after judgment. Additionally his firm faced disruption caused by the COVID-19 pandemic emergency. Mr Kang says in response that those are not valid reasons for late filing. He refers to Mr Norling’s involvement in the proceeding (in that his name was on court documents) and other related proceedings. Mr Kang submits because the memorandum was filed late it should not be accepted and costs should lie where they fall.
[14] I do not accept Mr Kang’s submission. The judgment was issued shortly after Alert Level 4 came into effect which was just before midnight on 25 March 2020. Alert Level 2 (when businesses began reopening) came into effect just before midnight on 13 May 2020. The respondent’s memorandum was received by the Registry on 4 June 2020, just on one month overdue. The disruption caused by the lockdown was significant and I do not underestimate the difficulties law firms faced in responding to the crisis. Combined with the departure of the solicitor who had conduct of the file, I do not consider the delay in filing the costs memorandum is undue.
Indemnity costs
[15] The principle that a party can enter into a binding agreement to pay another party’s full solicitor-client costs is clearly established.4 But those costs must nevertheless be reasonably incurred. Assessing whether indemnity costs claimed under a contract are reasonably incurred requires the Court to assess whether the tasks undertaken were reasonably necessary and are within the scope of the terms of the indemnity. The rates charged must also be reasonable. Finally, the indemnity arises out of contract and so general contract law principles, particularly in the construction of the clause, are relevant to considering the claim.5 I note, in particular, that the Court of Appeal, in Kent Sing Trading Company v JNJ Holdings Ltd, has also said that the Court’s discretion in awarding indemnity costs is more limited because the obligation arises in contract.6
[16] I will undertake this assessment by first construing the term of the deed set out above. The tenant in this case is Diamond. The landlord is Ms Kim. She has incurred legal costs. Those legal costs arise because Diamond disputed its liability for outgoings under the terms of the lease. That dispute goes to Ms Kim’s rights to claim outgoings from Diamond. The costs she has incurred are “of and incidental” to the enforcement of her rights under the lease. Diamond is therefore liable, pursuant to cl 6.1, for Ms Kim’s legal costs on a solicitor-client basis.7
[17] I note that Mr Kang does not deny there is liability or challenge any of the activities Mr Norling claims for.
[18] I have reviewed the amounts claimed in the spreadsheet of attendances submitted by Mr Norling. The hourly rates are not specified. I calculate the hourly rate for the director to be $550.00; the hourly rate for the associate to be $375; for the administration manager $150; and for the administrator $120. I do not consider these rates to be unreasonable. I have also carefully reviewed the activities included in the
4 ANZ Banking Group (NZ) Ltd v Gibson [1986] 1 NZLR 556 (CA)
5 Watson & Son Ltd v Active Manuka Honey Association [2009] NZCA 595 at [20].
6 Kent Sing Trading Company v JNJ Holdings Ltd [2019] NZCA 388 at [132].
7 Compare at Audio Essentials Ltd v Tripathi [2019] NZHC 311 at [7], which deals with indemnity costs under a lease. The relevant clause is not quoted in the judgment but the terms appear very similar to cl 6.1 in this case. See also Kent Sing Trading Company v JNJ Holdings Ltd, above n 6, at [131].
spreadsheet. The limited extent of the director’s attendances reflect a supervisory function and do not indicate unnecessary duplication of effort. I am satisfied the attendances are both reasonably incurred and come within the scope of the indemnity given in cl 6.1.
[19] There does appear to have been a minor miscalculation in arriving at the total amount of the solicitor-client costs incurred. The correct amount is $14,156.50, rather than $14,157.00 claimed, in consequence.
[20]Disbursements of $200.75 claimed are appropriate.
Other matters
[21] Mr Kang’s submission that costs were previously agreed to be category 2B arises out of r 14.3(2), which permits a Court to determine at any time in advance, a category for the proceeding. This category applies to all subsequent determinations unless there are special reasons to the contrary. Rule 14.3(2) was engaged not by the joint memorandum but by a Judge’s minute adopting the contents of the joint memorandum. However, r 14.6(1) permits the Court to order an award of indemnity costs despite r 14.3. Such an approach was approved by the Court of Appeal in Black v ASB Bank Ltd:8
As the Judge pointed out, the answer to Mr Black’s argument on costs is that r 14.6 expressly provides that the Court may order indemnity costs notwithstanding any categorisation of the proceeding earlier made under r 14.3.
[22] This also answers Mr Kang’s rather unusual submission that the District Court Rules on costs should apply to this proceeding.
[23] That there was agreement between counsel on the appropriate category for costs for the purposes of the proceeding does not render ineffective the indemnity in the lease either. Diamond continues to be bound by the lease, and the indemnity it contains, which applies to the award of costs due to r 14.6(4)(e). Nor is there anything in the rules which binds agreement on costs in the manner Mr Kang suggests.
8 Black v ASB Bank Ltd [2019] NZCA 384 at [72].
[24] As to Mr Kang’s submission on the reasonableness of the indemnity costs claimed (relying on r 14.2(1)(d)), r 14.6(1) does not require indemnity costs to be reasonable, but rather “reasonably incurred”. In any event r 14.6 is expressed to be “despite rule 14.2”. The direct comparison Mr Kang makes between scale costs and actual costs, which is disputed by Mr Norling, is therefore of limited assistance.9 I must consider whether the indemnity costs claimed by Ms Kim are reasonably incurred and within the scope of the indemnity. I have made that finding.
[25] Finally, Mr Kang submits costs should be reduced under r 14.7(f)(v) because of Ms Kim’s conduct in relation to Diamond’s settlement offer. However, Ms Kim’s success in this proceeding demonstrates she was justified in rejecting that settlement.
[26] In his reply submissions, Mr Kang further states that Ms Kim’s counter-offer was unreasonable. That is not a relevant consideration for the purposes of r 14.7(f)(v), which is concerned with a failure to accept an offer without reasonable justification. The reasonableness of an offer received may be relevant to an assessment of whether there was reasonable justification to refuse the offer, and it is likely an unreasonable offer can be refused with reasonable justification, but that is not the situation here. I see no basis for reducing costs.
[27] Last, I address Mr Norling’s submission that the cost of preparing his costs memoranda and reviewing the memorandum from Mr Kang will need to be added to the claimed costs. He says that they will be provided to the Court before an award of costs is made. That information has not been made available to the Court. It was not contained in the reply memorandum of 19 June 2020. Costs should be predictable and expeditious.10 Having already received four memoranda in total, I intend to proceed to judgment.
9 See also Black v ASB Bank Ltd, above n 8, at [77].
10 Rule 14.2(1)(g).
Order
[28] I award costs and disbursements in the sum of $14,357.25 to Ms Kim against Diamond.
Gordon J
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