HJS AG Limited v Tumatatoro Limited
[2021] NZHC 717
•31 March 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-67
[2021] NZHC 717
BETWEEN HJS AG LIMITED
Applicant
AND
TUMATATORO LIMITED
First Respondent
MATILDA ORA THOMPSON, MOANA VICKI THOMPSON, SAM THOMPSON
and RIPEKA PATENE-STOUT as trustees of THE KAHUPEKA TE WAERO WHANAU TRUST
Second Respondent
Hearing: 31 March 2021 Appearances:
H Thompson for Applicant
K Naidu and S Loa for First Respondent
Judgment:
31 March 2021
JUDGMENT OF LANG J
[on costs]
This judgment was delivered by me on 31 March 2021 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date……………
Solicitors:
McMahon Butterworth Thompson, Auckland
HJS AG LTD v TUMATATORO LTD [2021] NZHC 717 [31 March 2021]
[1] HJS AG Limited (HJS AG) and Tumatatoro Limited (Tumatatoro ) are parties to the lease of rural land situated on East Coast Road near Kaiaua. Tumatatoro is the owner of the land and the lessor whilst HJS A is the lessee.
[2] The relationship between the parties has not always been harmonious, and this has led to previous litigation between them. HJS AG refused to pay rental between September 2020 and January 2021 because Tumatatoro had failed to pay costs awarded against it in an arbitration. This led to Tumatatoro purporting to cancel the lease and re-take possession of the land on 25 January 2021.
[3] In this proceeding HJS AG sought an order under s 253 of the Property Law Act 2007 granting it relief against cancellation of the lease. Tumatatoro subsequently returned possession of the land to HJS AG and withdrew the notices it had issued purporting to terminate the lease. It is therefore no longer necessary for HJS AG to pursue the proceeding but it seeks costs against Tumatatoro to reflect the fact that it was required to issue it.
[4] Tumatatoro opposes any award of costs being made. It contends the parties entered into a settlement other than in relation to the issue of costs, and that the Court has no means of assessing which party would have succeeded if the proceeding had gone to trial. It therefore says the Court should make no award of costs.
Background
[5] One of the disputes that led to an arbitration during 2020 resulted in the arbitrator, Mr Ben Vanderkolk, finding in favour of HJS AG. In a written award delivered subsequently on 16 October 2020, the arbitrator awarded costs in favour of HJS AG. HJS AG then registered the award of costs in this Court as a judgment.1 It therefore has a judgment debt in its favour in the sum of $219,019.80.
1 Under Article 35(1)(b) in Schedule 1 to the Arbitration Act 1996.
[6] Tumatatoro did not respond to requests for payment of the judgment sum. HJS AG then stopped paying the monthly instalments of rent under the lease. It did not pay rent between September 2020 and January 2021.
[7] This prompted Tumatatoro to give notice of its intention to cancel the lease for non-payment of rent. HJS AG refused to comply with those notices because it considered them to be defective. Tumatatoro then purported to cancel the lease for non-payment of rent. It entered and took possession of the property on 25 January 2020. This led HJS AG to issue the present proceeding on 26 January 2021.
[8] On 29 January 2021 Tumatatoro withdrew the notices it had issued. It also restored possession of the property to HJS AG. This meant it was no longer necessary for HJS AG to seek relief against forfeiture of the lease.
Did the parties reach a settlement other than in relation to costs?
[9] Because it is fundamental to Tumatatoro’s argument on costs I deal with this issue first.
[10] On Tumatatoro’s behalf Mr Naidu sought to rely on email correspondence between the parties’ legal advisers that occurred between 26 and 29 January 2021. He says this demonstrates they settled the outstanding dispute other than the issue of costs. If that is so costs should be determined in accordance with a line of authority discussed by Mackenzie J in Ng v Pauatahanui GS Ltd.2 These cases show that, where a case has been settled but for costs, the courts will often be unable to make any award of costs because it is not obvious which party would have been successful if the matter had proceeded to trial.
[11] The two principal email communications in this context occurred on 29 January 2021 between Mr Howard Thompson, HJS AG’s solicitor, and Mr Richard Smith, Tumatatoro’s solicitor. At 8.40 am Mr Thompson sent the following email to Mr Smith:
2 Ng v Pauatahanui GS Ltd [2014] NZHC 3397 at [7]-[11], citing Brawley v Marcynski (No 1) [2002] EWCA Civ 756, [2003] 1 WLR 813, BCT Software Solutions Ltd v C Brewer & Sons Ltd [2003] EWCA Civ 939 and Venture Finance Plc v Mead [2005] EWCA Civ 325.
Dear Richard
Further to my earlier correspondence, I now attach, by way of service on Tumatatoro Limited, an interim charging order issued by the High Court. The effect of this order is to charge the rent due by my client to yours and to charge future rent as it becomes due, with the obligation to pay the judgment debt obtained by my client against yours.
Your client is in unlawful occupation of the farm and my client will hold Tumatatoro Limited and Sam Thompson, personally, responsible for all losses it will suffer as a result of this. A very valuable milk supply contract is in jeopardy, apart from anything else.
If your client hands possession of the farm back to mine, today, my client would still be willing to negotiate with yours with a view to restructuring the debt your client owes to mine in a way that will allow your client (or the Kahupeka Te Waero Whanau Trust [KTWWT], as the case may be) to service its bank debt on an interest only basis until the judgment debt is satisfied. However, if my client must resort to a court order to obtain possession of the farm, its attitude is likely to harden.
Of course any restructure of the debt assumes that the lease will be renewed. To that end, please treat this email as a notice by HJS AG Limited to Tumatatoro Limited [of its] intention to renew the lease pursuant to cl 41.2 of the lease, for the Renewal Period, as defined in the lease.
[12]Mr Smith responded to this at 2.40 pm the same day as follows:
Dear Howard
Further to our telephone conversation of 1:10pm today, we can confirm that there have been discussions with Tumatatoro Ltd and its advisors in relation to your correspondence of 8:40 am today. We are advised that both the Director of Tumatatoro and the Trustees of the Kahupeka Te Waero Whanau Trust are prepared to enter into negotiations with your Client HJS AG Ltd. To that extent we have been given an undertaking that the farm property located at Kaiuaua will be vacated today. In doing so, both Tumatatoro Ltd and the Kahupeka Te Waero Whanau Trust meet the terms as described in your correspondence insofar as entering into a negotiation in respect of the costs award are concerned.
Further, we are advised that the Notices of Breach are now set aside. In doing so, the necessity for your Client’s Application to the Court for Injunctive Relief to be heard in the High Court, Auckland on Wednesday 3 February 2021 is not necessary. We are advised that our Client will take no further action in respect of the subject Notices as they wish to achieve a positive outcome in negotiations. We expect to be in a position to commence those negotiations once the Director and all Trustees have been consulted. We expect that process to be completed within four weeks; consequently it would be reasonable to expect negotiations to commence in the first week of March 2021.
[13] The arrangements recorded in these emails led to Mr Thompson and Mr Smith signing a joint memorandum on 2 February 2021 in which they advised the Court that HJS AG no longer needed to pursue its application for interim relief:
1.This memorandum is filed in respect of the first call of the applicant’s application for interlocutory relief, to take place at 10 am tomorrow, 3 February 2021.
2.The first respondent has now withdrawn its default notices against the applicant and has restored the applicant to possession of the leased premises.
3.Thus, the parties acknowledge that the applicant no longer requires interim relief. However, the parties have not yet reached agreement on costs.
…
[14] I do not consider these communications demonstrate that the parties had reached any settlement of outstanding issues by 2 February 2021, or thereafter. By that date Tumatatoro had withdrawn the notices it had earlier issued and had restored possession of the land to HJS AG. The parties had also agreed to commence dialogue about how Tumatatoro would pay the judgment debt. Matters went no further than that.
[15] It is therefore necessary to determine costs in accordance with conventional principles on costs.
Relevant principles
[16] Rule 14.2(1)(a) of the High Court Rules 2016 provides that the party who fails with respect to a proceeding should pay costs to the party who succeeds. Matters are different where the plaintiff discontinues a proceeding before it has been finally determined. In that event r 15.23 provides that the plaintiff must pay the defendant’s costs of the proceeding to that point. The rationale for this rule is that discontinuance “is ordinarily tantamount to judgment for the defendant”.3
[17] In the present case HJS AG had not discontinued the proceeding when the hearing before me took place so r 15.23 is arguably not directly engaged. Nevertheless
3 Powell v Hally Labels Ltd [2014] NZCA 572 at [19].
it is plain that HJS AG has no need to continue the proceeding because it has regained possession of the land and Tumatatoro has withdrawn the notices it issued. Furthermore, Mr Thompson confirmed during the hearing that it would now be appropriate for me to grant leave to discontinue the proceeding given that it no longer serves any purpose. I therefore consider it appropriate to grant HJS AG leave to discontinue the proceeding and to determine costs according to the principles that generally apply following discontinuance.
[18] In this context I derive assistance from the principles enunciated by the Court of Appeal in Powell v Hallys Labels Ltd, the case relied upon by HJS AG. In that case the Court observed:
[20] The Court guards its discretion over costs, but as a matter of practice it does not lightly allow a plaintiff to displace the presumption that costs follow discontinuance. We make three points.
[21] First, the Court does permit a plaintiff to show that its discontinuance should not be interpreted as failure; the proceeding having ended unilaterally rather than by judgment, the Court is prepared, in a clear case, to recognise that the plaintiff may have achieved its end by other means or otherwise discontinued for reasons not connected to the merits. That is consistent with the principle that costs follow the result.
[22] Second, the Court may consider, in a clear case, why the parties brought and defended the proceeding, and whether steps taken in it were reasonable. For example, a governmental or third party decision may have intervened, rendering the proceeding redundant. But this is merely to recognise that the interests of justice occasionally may require that such matters be taken into account. It is not to invite a general inquiry into the reasonableness of the parties conduct.
[23] Third, and consistent with what we have just said, a plaintiff may not displace the presumption merely by showing that it had some merit on its side. Indeed, the Court need not consider the merits and ordinarily refuses to do so unless they are immediately apparent.
[24] The Courts reluctance to embark on inquiries into merits or conduct reflects the objectives of the rules, which allow a plaintiff by discontinuance to end its proceeding unilaterally and fix its liability for costs at that point, and further contemplate that the liability should be predictable and the quantum readily calculable. To conduct a post-discontinuance inquiry into the merits or the reasonableness of the parties conduct is ordinarily contrary to these objectives; the inquiry causes the litigation to linger on its deathbed and puts the parties to further expense in pursuit of an uncertain award, all of which discourages discontinuance in other cases. Faced with the prospect of such an inquiry, Lord Denning MR said:
“It is plain that neither side wishes to go on with the action so as to get his own costs. But neither side wishes to pay the other sides costs. Each will fight rather than pay the other sides costs. So what is to be done? Is this case to go on simply about costs? I think not.”
(footnotes omitted)
Decision
[19] I do not consider HJS AG’s decision to discontinue the proceeding should be interpreted as failure on its part. Rather, I am satisfied that the proceeding achieved its desired purpose because it was one of the factors that prompted Tumatatoro to restore HJS AG to possession of the land and to withdraw the notices it had issued. To all intents and purposes HJS AG is therefore the successful party.
[20] Furthermore, I consider this is one of those rare cases in which the Court can confidently state that HJS AG would have succeeded if the proceeding had gone to trial. This requires consideration of the merits of its claim, an exercise that is often difficult when a plaintiff has discontinued a claim. Fortunately this is not such a case.
[21] I accept that HJS AG was not initially entitled to withhold payments of rental to reflect the fact that Tumatatoro had failed to pay the costs awarded in the arbitration. In withholding the rental payments HJS AG purported to apply a form of set-off against the amount owed to it under the judgment debt. However, the lease required HJS AG to pay rental “on the due date without deduction or set-off whether legal or equitable in the manner directed by the Lessor”.4 This meant HJS AG had no ability under the lease to set rental off against the amount owing under the judgment debt.
[22] Matters changed on 27 January 2021 when HJS AG obtained a charging order over the rental payable under the lease. Thereafter it became entitled to set off rental payments against the amount due under the judgment debt. Mr Thompson attached a copy of the charging order to his email to Mr Smith on the morning of 29 January 2021. This may well have been the final factor that prompted Tumatatoro to alter its stance.
4 Clause 3 in Schedule 2 to the Deed of Lease.
[23] I am therefore satisfied that HJS AG would inevitably have succeeded in obtaining relief against forfeiture once it obtained the charging order on 27 January 2021. It could therefore rebut the presumption against costs contained in r 15.23.
Result
[24] Tumatatoro is to pay costs to HJS AG in relation to both the interlocutory application and the substantive proceeding. Costs are to be calculated on a Category 2B basis together with disbursements as fixed by the Registrar. Costs in relation to the hearing before me are to be calculated on the basis that the hearing related to an interlocutory issue.
[25] Counsel have leave to file concise memoranda if they cannot reach agreement regarding the quantum of costs.
Lang J
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