Gairloch Holdings Limited v Tullimore Investments Limited HC Wellington CIV 2010-485-295

[2010] NZHC 1402

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2010-485-295

BETWEEN  GAIRLOCH HOLDINGS LIMITED Plaintiff

ANDTULLIMORE INVESTMENTS LIMITED Defendant

Judgment:      4 August 2010 at 12.30 pm

JUDGMENT AS TO COSTS OF ASSOCIATE JUDGE D.I. GENDALL

This judgment was delivered by me

on 4 August 2010 at

12.30 pm pursuant to r 11.5 of the High Court Rules.

Solicitors:           Johnston Lawrence, Solicitors, PO Box, 1213, Wellington

Brandons, Solicitors, PO Box 36, Wellington

GAIRLOCH HOLDINGS LIMITED V TULLIMORE INVESTMENTS LIMITED HC WN CIV-2010-485-295

4 August 2010

Introduction

[1]      On 18 February 2010, the plaintiff applied for summary judgment against the defendant seeking an order for sale of a property. The application was opposed by the defendant. On 19 April 2010, interim orders were made by this Court by consent for the sale of the property by public auction and with no reserve price. The auction was successful and the application for summary judgment was effectively discontinued.

[2]     Both parties now claim that they are entitled to costs on the summary judgment application on a 2B basis plus disbursements.

Facts and Background

[3]      In 2006, the plaintiff and the defendant through their respective directors Paul Henry Beswick (“Mr Beswick”) and Anthony Harold Kebbell (“Mr Kebbell”) decided to purchase a property in Taupo for investment purposes. The purchase price was $275,000.00, and the property was jointly owned by the plaintiff and defendant company. Due to the decline in the property market, the plaintiff through its officers formed the opinion that the property should be sold as it was no longer worth developing. In addition, it appears that there was a break-down in the relationship between Mr Bewick, the director/shareholder of the plaintiff company, and Mr Kebbell, the director/shareholder of the defendant company.

[4]      When the proposition to sell the property was put to him, Mr Kebbell agreed in principle that the property should be put on the market. According to the plaintiff, however, Mr Kebbell subsequently refused to participate in or agree to any step to enable a sale to take place, despite efforts said to be extensive by Mr Bewick to organise a sale and several offers having been received from interested parties.

[5]      On 18 February 2010, the plaintiff finally applied for summary judgment seeking an order for sale of the property pursuant to s 339 of the Property Law Act

2007. The order that was sought was for a sale of the property by public auction, unless the parties were able to agree on a private sale arrangement (either as between themselves or to a third party).

[6]      The application was opposed by the defendant on the basis that an application under s 339 was inappropriate for summary judgment and that the orders were unnecessary,  as  the  property  had  already been  subject  to  a  sale  process.  In  an affidavit filed in support of the notice of opposition, Mr Kebbell claimed that he had not taken any steps to oppose the sale of the property, but that instead he had endeavoured to  achieve  a  reasonable  market  price.  It  was  his  position  that  any possible agreements for the sale of the property were not reflective of a fair and reasonable price, which he considered to be an amount of at least $200,000, and that an auction with no reserve price would expose the parties to real risk.

[7]      On 19 April 2010, the parties agreed to interim orders to be made for the sale of the property and as I have noted above this was to be by public auction without a reserve price. The orders were made without prejudice to the defendant’s continued opposition to the summary judgment application. The orders, did, however, authorise either party to bid at the auction if they wished to.  Costs were reserved.

[8]      The property subsequently sold at auction for a purchase price of $205,000.

Counsel’s Submissions on Costs and My Decision

[9]      The plaintiff now seeks costs on the basis that it says it was “forced” to make the application for summary judgment, and that the application would inevitably have been granted if the defendant had not consented to the interim orders. The plaintiff argues that it clearly made out the criteria for an order under s 339, referring to Mr Bewick’s wish to “move on” personally and financially, and noting also Mr Bewick’s health problems. It submits that it was entitled to a prompt sale by properly

marketed auction, as agreed to by the defendant “at the 11th  hour”, but that this

occurred only after putting the plaintiff to considerable legal cost.

[10]     Although the plaintiff did accept that summary judgment may not always be appropriate under s 339, it submits that it would have been available in the present case. It refers to a number of cases here, including Jacobson v Guo (2008) 9 NZCPR

850 at [3]-[6]. The defendant, however, contends that it is questionable whether it is suitable for any applications under s 339 to proceed by way of summary judgment, as the Court’s power requires consideration of discretionary and factual elements. It

further submits that the present case differs from others in which summary judgment was granted under s 339.

[11]     The defendant argues that it agreed at all times to the property being sold, but that any offers that had been made were below a fair market price. As such, the defendant says that the plaintiff’s application was misconceived, as it simply sought an order that the property be sold, and that it showed a “persistence to impose an unfair sale price” on the defendant. The defendant contends that this is confirmed by the purchase price of $205,000 achieved at auction, although I have some difficulty in following the logic of this argument.

[12]     The  defendant  also  argues  that  the  plaintiff’s  circumstances  could  not override the parties’ duty to obtain a reasonable price, and that the Court could not have imposed a “no reserve auction” on the parties without consent. In addition, it submits that the plaintiff’s failure to provide any independent valuation evidence would have put both parties to more cost, as the Court would have needed to order a valuation of the property in order to determine a fair and reasonable price.

[13]     Turning now to the legal principles to be considered on any costs application, it is a general principle applicable to the determination of costs that the party who fails with respect to a proceeding should pay costs to the party who succeeds: r 14.2. However, if a plaintiff discontinues a proceeding against a defendant, the plaintiff is ordinarily required to pay the defendant’s costs: r 15.23. This latter rule is subject to the Court’s general discretion as to costs in r 14.1. In Max v Auckland City Council HC  Auckland  CIV-2006-404-1,  9  June  2006,  for  example,  the  Court  awarded reduced costs to a discontinuing plaintiff because the defendant’s revised decision was  in  accordance  with  the  alternative  relief  sought  by  the  plaintiff,  and  the plaintiff’s proceeding had therefore been largely successful. See also Carmel College Auckland Limited v North Shore City Council HC Auckland CIV 2007-404-005894,

20 January 2009.

[14]     In my view, the presumption in r 15.23 is clearly displaced in the present case, as the plaintiff’s application was rendered unnecessary only by the defendant’s consent at the eleventh hour to a sale order.  It was not until 19 April 2010 that the defendant finally agreed to sell the property at auction with no reserve, which was

what the plaintiff had set out to achieve with its 18 February 2010 application for summary judgment.

[15]     The remaining issue, however, is whether an award of costs in favour of the plaintiff is appropriate here. The defendant maintains that the real source of disagreement between the parties was the price at which the property should be sold. The  plaintiff’s  application  sought  an  order  that  the  property  be  sold  by  public auction, but did not specify any conditions of sale such as a minimum price. The defendant’s position is that it is far from clear whether the Court would have made an order in accordance with the plaintiff’s expectations, namely that the property be sold even if the purchase price was below $200,000.

[16]     While I agree it is not entirely clear that the Court here would have made a summary judgment order under s 339, and if so, what form the order would have taken, I accept, as Robinson AJ did in Jackson v Guo, that this process is available and I note that the practical outcome of the defendant’s consent to the interim orders is that the defendant ceased his insistence that the property be sold for no less than

$200,000. The plaintiff’s application was therefore effectively successful, and the plaintiff in my view is entitled to costs. The fact that the price that was ultimately achieved at auction met the defendant’s minimum is immaterial. I also do not accept the defendant’s submission that the auction was a “process forced onto the defendant due to the plaintiff’s personal circumstances”. The interim order was made by consent, both parties had the opportunity to bid at the  auction reserved if they thought the price was too low, and there is no suggestion that the defendant was unduly prejudiced by the arrangement.

[17]     Finally,  I  note  also  the  argument  advanced  for  the  defendant  that  the plaintiff’s  reference  to  “without  prejudice”  communications  in  its  submissions should result in a costs award being made against it here. Prior to filing proceedings, the plaintiff it seems had sent draft affidavits to the defendant in a final attempt to resolve the matter privately. The defendant submits that these communications were marked “without prejudice” and therefore should not have been referred to. The plaintiff argues that it merely intended to show that it had made an effort to avoid litigation. I do not consider that reference to the affidavits was inappropriate, but in

any event, I record that I did not place any reliance on this matter in reaching my decision.

Conclusion

[18]      For all these reasons, the plaintiff is entitled to costs against the defendant here on its summary judgment application.

[19]     Costs are awarded to the plaintiff on the summary judgment application on a

2B basis together with disbursements as fixed by the Registrar.

‘Associate Judge D.I. Gendall’