Hawken Lane Development LP v Property Sales Direct Limited

[2021] NZHC 2021

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2021-404-0830

[2021] NZHC 2021

BETWEEN

HAWKEN LANE DEVELOPMENT LP

Applicant

AND

PROPERTY SALES DIRECT LIMITED

Respondent

Hearing:	On the papers
Counsel:	E St John and S Maloney for applicant P Spring for respondent
Judgment:	5 August 2021

JUDGMENT OF KATZ J

[Costs]

This judgment was delivered by me on 5 August 2021 at 3:00 pm Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

Solicitors:           Keegan Alexander, Auckland

Heritage Law, Auckland

Counsel:            E St John, O’Connell Chambers, Auckland

HAWKEN LANE DEVELOPMENT LP v PROPERTY SALES DIRECT LIMITED [2021] NZHC 2021

[5 August 2021]

Introduction

[1]                   Hawken Lane Development LP (“Hawken Lane”) is a property developer. It agreed to sell six lots in a development to Property Sales Direct Ltd (“PSDL”). PSDL paid deposits to Hawken Lane for the lots.

[2]                 Subsequent to the agreements for sale and purchase being entered into, the  lot boundaries were changed. It was common ground that the agreements were subsequently cancelled (although each party claims to be the cancelling party). Separate proceedings are on foot in relation to PSDL’s claim for repayment of its deposits.

[3]                 On 30 March 2021, PSDL lodged a caveat over one of the lots asserting an interest in the land under an agreement for sale and purchase. On 8 June 2021, I granted Hawken Lane’s application to remove the caveat.1 I found that PSDL had no reasonably arguable case to the interest stated in the caveat, given that the agreement for sale and purchase had been cancelled. Nor could PSDL sustain the caveat on the basis of an equitable lien securing the return of its deposit, because the deposit was held by Hawken Lane’s solicitors as a stakeholder pending resolution of the substantive proceeding. Further, it was not the interest relied on in the caveat.

[4]                 Hawken Lane now seeks indemnity costs of $23,727, on the basis that PSDL lodged the caveat to apply pressure for a commercial advantage. In the alternative, Hawken Lane seeks increased costs.

[5]                 PSDL acknowledges that Hawken Lane’s application was successful and that costs follow the event. It says, however, that its conduct does not meet the threshold for indemnity costs, and that 2B scale costs of $10,994 are appropriate.

1      Hawken Lane Development LP v Property Sales Direct Ltd [2021] NZHC 1410.

Should Hawken Lane be awarded indemnity costs?

Indemnity costs – the law

[6]                 The Court has a general discretion as to costs.2 This includes whether to grant an award for increased costs or indemnity costs.3

[7]                 The Court may order a party to pay indemnity costs where the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding.4 In Bradbury v Westpac Banking Corporation, the Court of Appeal summarised the circumstances in which indemnity costs have been awarded, as follows:5

(a)commencing or continuing proceedings for some ulterior motive;

(b)doing so in wilful disregard of known facts or clearly established law; or

(c)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.6

[8]                 The Court of Appeal noted that indemnity costs depart from the predictability of the Rules Committee’s regime, are exceptional, and therefore require exceptionally bad behaviour that can be described as “flagrant”.7

2      High Court Rules 2016, r 14.1.

3      Rule 14.6(1).

4      Rule 14.6(4)(a).

5      Bradbury v Westpac Banking Corporation [2009] 3 NZLR 400 (CA) at [29].

6      The “hopeless case” test is a reference to J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers, Western Australian Branch (No 2) (1993) 46 IR 301 at 303 per French J commenting that “Although there is said to be a presumption in such cases that the action was commenced or continued for some ulterior motive or in wilful disregard of known facts or clearly established law, it is not a necessary condition of the power to award such costs that a collateral purpose or some species of fraud be established. It is sufficient, in my opinion, to enliven the discretion to award such costs that, for whatever reason, a party persists in what should on proper consideration be seen to be a hopeless case.”

7      Bradbury v Westpac Banking Corporation [2009] 3 NZLR 400 (CA) at [28] citing Prebble v Awatere Huata (No 2) [2005] NZSC 18, [2005] 2 NZLR 467 at [6].

Submissions

[9]                 Mr St John, counsel for Hawken Lane, submits that PSDL has a history of using unacceptable tactics to try and force Hawken Lane to refund the deposit. For example, he says that PSDL attempted to liquidate Hawken Lane over a $52,000 debt in reliance of a statutory demand which had been taped to the front door of Hawken Lane’s business premises at 9.20 pm on a Saturday, four days before Christmas. PSDL eventually withdrew that proceeding and paid $13,000 in costs to Hawken Lane.    Mr St John further submits that PSDL has delayed unduly in advancing its substantive proceeding for the return of the deposits. He submits that the appropriate inference is that PSDL doubts the merits of its claim.

[10]             Hawken Lane further alleges that throughout this proceeding PSDL has continually demanded that Hawken Lane refund the deposit, while failing to engage with the issue of whether there was a caveatable interest. Hawken Lane further submits that PSDL sought to sustain the caveat without reasonable grounds by advancing arguments that at times verged on misleading. In its view, the caveat proceeding was issued for the improper purpose of pressuring Hawken Lane to release the deposit.

[11]             Mr Spring, counsel for PSDL, submits that Hawken Lane’s claim for indemnity costs relies on unsustainable allegations of bad faith. He submits that the liquidation proceeding was not an abuse of process. Rather, it was discontinued following negotiations between the parties. Mr Spring acknowledges that the position advanced by PSDL in this proceeding was wrong, but submits that the circumstances do not support a finding that the caveat was lodged in bad faith, or simply to apply commercial pressure.

Discussion

[12]The learned authors of Hinde McMorland and Sim Land Law in New Zealand

note that the jurisdiction to award indemnity or increased costs has been exercised

where a caveator has sought to sustain a caveat where there is no merit to the caveator’s claim, or where the caveator has acted vexatiously in seeking to sustain the caveat.8

[13]             In French v French, Associate Judge Doogue awarded indemnity costs against a caveator who lodged a caveat against the title to a farm property owned by his brother and his wife.9 The caveator did so as part of an on-going dispute about the wills of the brothers' parents, which he had unsuccessfully challenged in court proceedings seven years prior.10 Associate  Judge  Doogue  described  the  filing  of  the  caveat  as  “just another manifestation of his inability to accept the position”,11 and concluded indemnity costs were appropriate as:

[5]    … this was a case where it was crystal clear that the respondent had   no entitlement to lodge a caveat and, further, he must have known that, having regard to the terms of the judgment of Venning J which I referred to above.

[14]             In ASB Bank Ltd v Lambert, Ronald Young J awarded indemnity costs against a caveator who sought to sustain a caveat against a property on the basis of an agreement for sale and purchase that was a sham.12 The caveator had on at least ten previous occasions become involved in a mortgagee sale process with respect to land that she had originally had no interest, and unsuccessfully attempted to maintain caveats against that land.13 Her misconduct was such that Ronald Young J considered there was “every reason to believe she will continue to try to disrupt this mortgagee sale process” and made injunctive orders to, among other things, prevent her from lodging caveats against the property.14 His Honour turned to the issue of costs, and concluded that the caveator:

[50] … has had ample warning that this caveat has no chance of resisting challenge. She has continued to file caveats and resist their removal without justification. In the circumstances I make an order for indemnity costs …

8      DW McMorland and others Hinde McMorland and Sim Land Law in New Zealand (looseleaf ed, LexisNexis) at [10.020A] citing French v French HC Auckland CIV-2010-419-661, 17 August 2010; O’Malley v Sting Enterprises Ltd HC Christchurch CIV-2010-409-1656, 15 September 2010; and ASB Bank Ltd v Lambert [2013] NZHC 2135.

9      French v French HC Auckland CIV-2010-419-661, 17 August 2010 at [2] and [16].

10 At [2].

11 At [2].
12 ASB Bank Ltd v Lambert [2013] NZHC 2135 at [1]-[3], [25] and [50].

13 At [35].

14 At [45]-[46].

[15]             I consider that the present case does not involve the same standard of misconduct as in either French or Lambert. PSDL did not act nearly as vexatiously as the caveator in Lambert, who had repeatedly filed baseless caveats to the extent that an injunction was required to prevent her from doing so again. Nor does PSDL’s conduct compare to that of the caveator in French, who ignored a prior High Court judgment to the effect he had no interest in the property and still lodged a caveat seven years later.

[16]             Unlike the above cases, PSDL at least had an interest in the property at one point in time. PSDL also relied on authority establishing that the payment of a deposit can give rise to an equitable lien which supports a caveat. On the facts, however, this claim was misconceived because that was not the interest actually stated in the caveat and further, PSDL’s deposit was secured as it was held in a stakeholder’s trust account.

[17]             Although PSDL’s caveat was misconceived, I am not persuaded that PSDL’s conduct meets the high threshold of misconduct necessary for an award of indemnity costs.

Should Hawken Lane be awarded increased costs?

[18]             The Court may order a party to pay increased costs if the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or a step in it by, among other things, pursuing an argument that lacks merit,15 or failing without reasonable justification to accept a legal argument.16

[19]             In O’Malley v Sting Enterprises Ltd, Associate Judge Osborne awarded increased costs against an applicant who sought to sustain a caveat on the basis of an option to purchase when the respondent was required by court order only to disclose to the applicant a copy of any offer from a prospective buyer of the property which the respondent would be willing to accept, the applicant then having 48 hours in which to improve on the offer, with time being of the essence.17 The Judge noted that the

15     High Court Rules 2016, r 14.6(3)(b)(ii).

16     Rule 14.6(3)(b)(iii).

17     O’Malley v Sting Enterprises Ltd HC Christchurch CIV-2010-409-1656, 15 September 2010 at [6] and [35].

applicant did not refer to any authority for the proposition that his right under the order constituted an equitable interest or an interest which could be caveated.18 While there was a lack of merit in the position taken by the applicant that justified increased costs,19 the Judge rejected the respondent’s claim for indemnity costs as the application to sustain the caveat was not pursued vexatiously, frivolously, improperly, or unnecessarily.20

[20]             I consider that the present case is similar to O’Malley to the extent that both concern a caveator pursuing a meritless argument in the hopes of sustaining a caveat, but falling short of the threshold of misconduct required for indemnity costs. PSDL claimed an interest in the caveat on the basis of an interest through a cancelled agreement for sale and purchase. It ought to have known that its interest in the relevant land could not survive cancellation of that agreement. PSDL then claimed that the interest was an equitable lien resultant from the deposit. Yet, the deposit was held by the stakeholder that PSDL had agreed to. Further, an equitable lien was not the interest claimed in the caveat that PSDL sought to sustain.

[21]             PSDL’s attempt to sustain its caveat was therefore totally without merit. Further, the total lack of merit in PSDL’s position was pointed out to it in correspondence from Hawken Lane’s solicitor prior to the hearing. It was unreasonable for PSDL to continue to try and sustain the caveat in all the circumstances. An order of increased costs is therefore appropriate. The appropriate uplift on 2B scale costs is 50 per cent.

[22]             PSDL calculates the 2B scale costs as being $10,994 (while Hawken Lane did not provide a calculation of 2B scale costs). The appropriate costs award is therefore

$16,491.

18 At [30].

19 At [31].

20 At [32].

Result

[23]I order PSDL to pay costs to Hawken Lane in the sum of $16,491.

Katz J