DRM Hospitality Limited v Gull Trustees Limited
[2024] NZHC 3990
•20 December 2024
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV 2024-419-91
[2024] NZHC 3990
UNDER The Property Law Act 2007 BETWEEN
DRM HOSPITALITY LIMTED
Applicant
AND
GULL TRUSTEES LIMITED and TE KOUMA TRUSTEES LIMITED
Respondents
On the papers Counsel:
S S Khan and M G Orange for the applicant
Q A M Davies and J S Marshall for the respondents
Judgment:
20 December 2024
COSTS JUDGMENT OF CAMPBELL J
This judgment was delivered by me on 20 December 2024 at 2.30 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar
DRM HOSPITALITY LTD v GULL TRUSTEES LTD and TE KOUMA TRUSTEES LTD [2024] NZHC 3990
[20 December 2024]
[1] The applicant, DRM Hospitality Ltd (DRM), was a tenant of commercial premises in Whitianga owned by the respondents, Gull Trustees Ltd and Te Kouma Trustees Ltd (the Trustees). The term of DRM’s lease ran to 21 April 2024. DRM had two rights of renewal for further terms of five years each.
[2] On 18 January 2024, DRM gave notice to the Trustees of its intention to renew the lease. The renewal clause in the deed of lease obliged the Trustees to grant a renewal if DRM was not in breach. On 22 January 2024, the Trustees gave notice to DRM of their refusal to renew the lease on the ground that DRM was in breach.
[3] On 26 April 2024, DRM commenced this proceeding seeking relief against the Trustees’ refusal to grant a renewal. On 3 May 2024, the Trustees wrote to DRM inviting it to discontinue the proceeding. On 5 May 2024, DRM wrote to the Trustees indicating it intended to abandon the premises. On 10 May 2024, DRM discontinued the proceeding. By then, the proceeding had not had it first call and the Trustees had noted filed or served any opposition.
[4] The Trustees seek costs on the discontinuance. They claim indemnity costs under cl 6.1 of the deed of lease. The Trustees claim a total of $61,275.46, notwithstanding that the proceeding was discontinued at a very early stage. They say their costs claim relates to:
(a)their decision to refuse to grant a renewal;
(b)costs incurred in anticipation of the proceeding being issued; and
(c)costs incurred from the point the proceeding was commenced until it was discontinued. They had, by then, drafted a notice of opposition and an affidavit in support but had not completed them.
[5] DRM’s primary position is that costs should lie where they fall. Alternatively, they say much of the costs claimed fall outside the scope of the proceeding and that the Trustees have failed to provide sufficient information to satisfy the Court that the costs fall within the scope of cl 6.1.
[6]I have to decide two issues:
(a)Should costs lie where they fall, or should costs be awarded to the Trustees?
(b)If costs are to be awarded to the Trustees, in what amount?
Should costs lie where they fall, or should costs be awarded to the Trustees?
[7] DRM’s discontinuance engaged r 15.23 of the High Court Rules 2016. This provides:
Unless the defendant otherwise agrees or the court otherwise orders, 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.
[8] The court sometimes “otherwise orders” where the reason for the discontinuance is that the plaintiff has otherwise obtained what it sought to achieve in the proceeding. If, for example, DRM had discontinued its proceeding because the Trustees had caved in and agreed to grant a renewal, the court would likely have allowed costs to lie where they fall (or even awarded costs to DRM). But nothing of the sort happened here. DRM chose to abandon its claim for a renewal.
[9] Counsel for DRM invited the Court to investigate the merits of the parties’ respective cases in the proceeding. Counsel said that Harvey J had done so in an analogous case, Conqra Asbestos Solutions Ltd v Warehouse World Ltd.1 In that case, however, there had been no discontinuance and r 15.23 was not engaged. It is not analogous.
[10] In accordance with r 15.23, therefore, DRM must pay costs to the Trustees. I now turn to quantum.
1 Conqra Asbestos Solutions Ltd v Warehouse World Ltd [2022] NZHC 321.
What amount of costs must DRM pay to the Trustees?
[11] Rule 14.6(4)(e) empowers a court to order payment of indemnity costs if “the party claiming costs is entitled to indemnity costs under a contract or deed”. The Trustees say they are entitled to indemnity costs under cl 6.1 of the deed of lease. This provides:
The Tenant shall pay the Landlord’s solicitors reasonable costs of and incidental to the preparation of this lease and any variation or renewal or any Deed recording a rent review, the Landlord’s reasonable costs incurred in considering any request by the Tenant for the Landlord’s consent to any matter contemplated by this Lease, and the Landlord’s legal costs (as between solicitor and client) of and incidental to the enforcement or attempted enforcement of the Landlord’s rights remedies and powers under this Lease.
[12] The Trustees claim not only for the costs of the steps taken in drafting an opposition to this proceeding but for the costs of tasks undertaken before the proceeding which the Trustees say related to the proceeding. The material submitted by the Trustees indicates that these pre-commencement costs dealt with three matters:
(a)costs relating to the Trustees’ decision to refuse to renew the lease;
(b)costs relating to the Trustees’ allegation that DRM had breached its obligation in the lease to provide accounts; and
(c)costs relating to the Trustees’ allegation that DRM had breached its obligation in the lease to maintain the premises.
[13] DRM makes two broad points on quantum. First, DRM says the pre- commencement costs cannot be recovered under the costs regime in the High Court Rules. DRM says that any claim by the Trustees to recover these costs must be pursued in a separate proceeding.
[14] Secondly, in respect of the Trustees’ claim for the costs of drafting an opposition to this proceeding, DRM says the Trustees have failed to put enough material before the court to show that these costs are reasonable.
[15]The following sub-issues arise:
(a)Can the costs award include the costs relating to the Trustees’ decision to refuse to renew the lease?
(b)Can the costs award include the costs relating to the Trustees’ allegations that DRM had breached its obligations to maintain the premises and provide accounts?
(c)Are the Trustees’ claimed costs for drafting an opposition to this proceeding reasonable?
Can the costs award include the costs relating to the Trustees’ decision to refuse to renew the lease?
[16] The Trustees claim these costs under cl 6.1. The Trustees’ submissions said that cl 6.1 provides that the Trustees are entitled:
… to solicitor/client costs both in respect of “any … renewal” and “of and incidental to the enforcement or in attempted enforcement of the landlord’s rights remedies and powers …”
[17] This misreads cl 6.1. In respect of renewals, cl 6.1 obliges DRM to pay “the Landlord’s solicitors reasonable costs of and incidental to the preparation of … any … renewal”. That costs entitlement is therefore for the cost of preparing a renewal. Here, no renewal was prepared.
[18] Clause 6.1 does not otherwise cover these costs. The Trustees’ decision to refuse the renewal was the exercise of a power, but was not “enforcement” or “attempted enforcement” of the power. Clause 6.1 also entitles the Trustees to their reasonable costs in considering any request by DRM for their consent to any matter contemplated by the lease. But the entitlement to renew the lease did not turn on the Trustees’ consent.
[19] The Trustees are therefore not entitled to recover the costs relating to their decision to refuse to renew the lease. On the information provided to me, it is not possible to identify the quantum of those costs. However, they appear to be subsumed within costs addressed in the next section of this judgment (which I also find to be unrecoverable as costs in this proceeding).
Can the costs award include the costs relating to the Trustees’ allegations that DRM had breached its obligations to maintain the premises and provide accounts?
[20]To address this question it is necessary to provide some further background.
[21] In early 2023, DRM and the Trustees were in dispute over several issues. The issues were DRM’s liability to pay monies under the lease, DRM’s compliance with its obligation in cl 46 of the lease to provide accounts, a rebate of rent claimed by DRM and alleged breaches of the lease by the Trustees of, among other things, the covenant for quiet enjoyment.
[22] The deed of lease required these disputes to be referred to arbitration. The disputes were so referred, and an arbitrator appointed in early July 2023. A liability hearing took place in early December 2023 and a partial award on liability was released on 8 April 2024 (with quantum to be determined later, if necessary). Among other things, the arbitrator found that DRM was in breach of its obligation to provide accounts.
[23] Separately from the arbitration, in December 2023 DRM obtained a builder’s report that outlined repairs said to be required at the premises. This was provided to the Trustees on 7 December 2023. In response, the Trustees commissioned a building consultant to attend the premises in early March 2024 and prepare a report. The Trustees then wrote to DRM on 27 March 2024 claiming that there were a large number of defects in the premises for which DRM was responsible under the lease. The Trustees said that if DRM applied for relief against the refusal to renew the lease, and the court granted such relief, any relief would inevitably be subject to a condition that DRM compensate the Trustees for the alleged breaches of the lease.
[24] Meanwhile, in January 2024, when refusing to grant a renewal of the lease, the Trustees alleged that DRM had failed to maintain the premises by failing to repaint them. The Trustees also relied on alleged breaches that were the subject of the arbitration, including DRM’s failure to provide accounts.
[25]The Trustees’ solicitors opened separate files for the following matters:
(a)File 7: “DRM Hospitality Limited’s insolvency”. This related to the allegation (upheld by the arbitrator) that DRM had breached its obligation to provide accounts.
(b)File 8: “Repairs”. This related to the allegation that DRM had breached its obligation to maintain the premises.
(c)File 9: “Application for Relief Against Refusal to Renew”. This was opened once this proceeding was served.
[26] The Trustees claim the following indemnity costs for tasks relating to the Trustees’ allegations that DRM had breached its obligations to maintain the premises and provide accounts:2
(a)Allegation that DRM had breached its obligation to maintain the premises: $25,264.92. These are for invoices dated from 31 January to 30 April 2024, including an invoice from the Trustees’ building consultant dated 11 April 2024 for his inspection and report on the premises.
(b)Allegation that DRM had breached its obligation to provide accounts:
$940.04. These are for invoices dated 28 February and 22 March 2024.
[27] The Trustees say that both costs are covered by cl 6.1 as being legal costs “of and incidental to the enforcement or attempted enforcement of the Landlord’s rights remedies and powers under this Lease”.
[28] In relation to the first category of costs, however, there has not yet been any determination that DRM breached its obligation to maintain the premises. DRM’s discontinuance says nothing about whether DRM was in breach of that obligation. The discontinuance merely meant that the Trustees were successful in DRM’s proceeding for relief.
2 These amounts and all others in this judgment are exclusive of GST, the Trustees claiming indemnity costs on that basis.
[29] A party who is unsuccessful in enforcing their rights or remedies or powers is usually unable to recover indemnity costs under a provision such as cl 6.1.3 It is not yet known whether the Trustees will be successful or unsuccessful in their claim that DRM breached its obligation to maintain the premises. The Trustees did not suggest that I should make a determination as to whether DRM was in breach (and it would not have been possible, on the limited material before me, for me to do so).
[30] The Trustees nonetheless claim that these costs are recoverable on an indemnity basis because they relate to DRM’s proceeding for relief. The Trustees submit that where costs are awarded pursuant to a contractual indemnity “the Court can award costs for events preceding litigation where those events relate to the litigation”. The Trustees rely on Kheshav International Ltd v Heaton Holdings Ltd as authority for that proposition.4
[31] Kheshav concerned a claim for pre-commencement costs under the same cl 6.1 as in this case (the clause being a term in widely-used standard form deed of lease). There appears to have been no dispute that the costs were covered by cl 6.1 and that the landlord was entitled to recover them. But the tenant resisted recovery of pre- commencement costs under the costs regime in the High Court Rules. The tenant submitted that the costs regime only allowed recovery of costs “of and incidental to the proceeding”, so the landlord could only recover the pre-commencement costs by bringing a separate proceeding. Associate Judge Lester rejected the submission, holding that such costs could be recovered under the costs regime “pursuant to an indemnity costs clause assuming (as here), the clause makes such payable”.5
[32] The present case is different. I cannot assume, as Associate Judge Lester was able to, that the costs relating to the allegation that DRM breached its maintenance obligation are payable under cl 6.1. The Trustees cannot sidestep the inquiry into
3 Watson & Son Ltd v Active Manuka Honey Association [2009] NZCA 595 (CA) at [29]; ABC Developmental Learning Centres (NZ) Ltd v Artemis Early Learning Ltd HC Christchurch CIV- 2010-409-1198, 7 October 2010; Synlait Milk Ltd v New Zealand Industrial Park Ltd [2020] NZSC 157, [2020] 1 NZLR 657 at [199]. In Synlait the Supreme Court said this was particularly the case where the clause did not refer to “attempted enforcement”. But the Court did not say this was solely the case. In ABC the clause referred to “attempted enforcement”.
4 Kheshav International Ltd v Heaton Holdings Ltd [2020] NZHC 1801 at [14]–[16].
5 At [17].
whether they will be successful in their claim for breach by piggybacking the pre- commencement costs onto their success in the relief proceeding.
[33]I therefore reject the Trustees’ claim for that category of costs.
[34] The second category of costs is different. The Trustees have been successful in their claim that DRM was in breach of its obligation to provide accounts. But that claim did not relate to DRM’s proceeding for relief. The Trustees’ claim that DRM breached the accounts obligation pre-dated the commencement of the arbitration. The modest amount claimed under this head is for invoices for work well before DRM began this proceeding. Even assuming that Kheshav is correct that the costs regime in the High Court Rules can cover pre-commencement costs (a matter on which I express no view), there would have to be a more direct relation to the tasks on which those costs were incurred and the litigation than is seen here.
[35]I therefore reject the Trustees’ claim for the second category of costs.
Are the Trustees’ claimed costs for drafting an opposition to this proceeding reasonable?
[36] The Trustees claim a total of $35,070.50 for the costs of drafting an opposition, including several affidavits, to DRM’s relief proceeding. This includes about $9,800 in expert witness expenses.
[37] Under r 14.6, an award of indemnity costs can only be for those costs “reasonably” incurred by the party claiming costs. DRM submits that the Court is unable to assess the reasonableness of the claimed costs because of a lack of information provided by the Trustees.
[38] I consider the Trustees have provided sufficient information for me to assess the reasonableness of the costs claimed. I have been provided with the hourly rates charged by the solicitors. The solicitors’ invoices attach detailed summaries of the attendances. The invoices of the witnesses are also detailed. I have been provided with the draft opposition and affidavits. These reveal that a substantial amount of work was undertaken. Given the nature of the proceeding, the work was carried out
under time pressure. Given all these factors, I am easily satisfied that the costs of $35,070.50 were reasonably incurred.
Result
[39]I order that DRM pay costs of $35,070.50 to the Trustees.
Campbell J
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