Jespersen v Secretary of the Treasury
[2018] NZHC 3086
•27 November 2018
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
I TE KŌTI MATUA O AOTEAROA WHANGĀREI-TERENGA-PARĀOA ROHE
CIV-2017-488-145
[2018] NZHC 3086
UNDER the Property Law Act 2007, ss 339-343, and the Land Transfer Act 1952, s 143 IN THE MATTER
of Certificate of Title NZ42C/75 North Auckland
BETWEEN
GRAEME MARK JESPERSEN
First Applicant
GRAEME LEONARD ASKELUND
Second ApplicantGAVIN CRAWLEY
Third ApplicantAND
SECRETARY OF THE TREASURY
First Respondent
……………………………/continued
Hearing: On the papers Counsel:
KT Glover for applicants
M Singh for third and tenth respondents
Judgment
27 November 2018
JUDGMENT OF FITZGERALD J
[As to costs]
This judgment was delivered by me on 27 November 2018 at 11 am, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar……………………………………….. Date……………….…………
Solicitors: GM Legal, Auckland (G Muller)
Glaister Ennor, Auckland
Jespersen v Secretary of the Treasury [2018] NZHC 3086 [27 November 2018]
Respondents continued
EDWARD ERROL JOHNSTON
Second RespondentOHL LIMITED
Third RespondentANZ NATIONAL BANK LIMITED
Fourth RespondentASB BANK LIMITED
Fifth RespondentWENDY RUTH JOHNSTON
Sixth RespondentGERARDUS JOSEF MARIE MARTENS and ED JOHNSTON & CO TRUSTEES LIMITED
Seventh Respondents
DONALD ANZAC GEORGE REYLAND, AILSA GLORIA REYLAND and EDWARD ERROL JOHNSTON
Eighth RespondentsWAYNE MATTHEW McKENNA
Ninth RespondentFAI MONEY LIMITED
Tenth RespondentED JOHNSTON & CO TRUSTEES LIMITED
Eleventh Respondent
Introduction
[1] In my substantive judgment dated 5 October 2018, I confirmed I would make orders lapsing certain caveats and a notice of claim registered against a forestry block located in Northland (Property), of which the applicants and the third respondent are owners.1 I also reached conclusions and proposed draft orders in relation to the forthcoming sale of the Property, as well as orders as to the distribution of the proceeds of sale.
[2] The parties subsequently made further submissions on the form of the draft orders, which were settled by me in a minute dated 7 November 2018.
[3] In my substantive judgment, I encouraged the parties to agree costs. They have been unable to do so and accordingly this judgment determines the competing cost claims.
Factual background
[4] By way of very brief background, the applicants, the third respondent and until recently, the second respondent, are (or were) parties to a forestry syndicate which owns the Property and the radiata pine forest planted on it. The syndicate operates as a partnership.
[5] In November 2012, the second respondent was adjudicated bankrupt. The Official Assignee disclaimed his interest in the Property, as well as his rights in relation to the forest (Forestry Rights). There are various claims by the respondents (other than the third respondent) relating to the second respondent’s interests. To protect those claims, caveats and a notice of a relationship property claim were lodged against the Property.
[6] The applicants and the third respondent agree that now is the appropriate time to harvest the forest. That requires sale of the Property, or potentially only the Forest Right itself. They do not agree, however, on the process by which the sale will be conducted and how any disputes between them will be resolved.
1 Jespersen v Secretary of the Treasury [2018] NZHC 2603.
[7] To progress the sale it is also necessary for the parties to be able to provide clear title to any purchaser. For that reason, the applicants commenced these proceedings seeking orders lapsing the various caveats and notice of claim. Given the dispute brewing between the applicants and the third respondent as to the mechanics of the sale, the applicants also sought orders under ss 339 and 343 of the Property Law Act 2007 as to the method of sale and the division of proceeds.
[8]I reached the following conclusions in my substantive judgment:
(a)It was appropriate to make orders lapsing the various caveats and notice of claim. In the event, there was no substantive opposition to such orders. Pursuant to the final orders, the caveats and claim will lapse two days after entry into an unconditional sale agreement in relation to the Property and/or Forestry Right. The orders provide that the proceeds of sale attaching to the second respondent’s share will be held in trust pending the competing claims to those proceeds being resolved.
(b)I concluded it appropriate for there to be an order that would break any “deadlock” between the remaining partners to the sale process, though not in the precise terms advanced by the applicants.2 The final orders provide that if three out of the four partners agree on the terms of sale, the Registrar is directed to execute any documents on behalf of the fourth (dissenting) partner which might be necessary to effect the sale. There is, however, a “safety valve”, which reserves leave to any dissenting partner to seek urgent relief from the Court.
(c)The parties also disagreed on the precise method of sale. The applicants wanted to conduct a private sale process (so as to avoid incurring fees of a listing agent), while the third respondent sought the immediate appointment of a listing agent. I made orders that enable the private sale process to continue for a period of four months, and if the Property and/or Forestry Right has not sold by that time, a listing agent is to be appointed.
2 See [41]–[48].
(d)The first applicant also sought compensation for work carried out by him on behalf of the partnership, as well as to compensate him for his time and effort in relation to these proceedings. I declined to make those orders.
(e)The applicants also sought an order that their reasonable costs associated with these proceedings (up to the case management before Associate Judge Bell) be met out of the proceeds of sale, saying they properly related to partnership business (as opposed to being costs associated with the dispute between partners). I declined to make an order which set a “brightline” distinction between costs before and after the case management conference before the Associate Judge. I accepted, however, that to the extent the applicants’ costs were associated with the orders lapsing the caveats, the notice of claim and dealings in relation to the second respondent’s share, those costs have been incurred in relation to partnership business and are recoverable from the net proceeds of sale.3 I concluded that the applicants’ remaining costs relate to their dispute with the third respondent4 and ought to be subject to a costs award in the ordinary way.
(f)Finally, the third respondent also sought an order that its reasonable costs (on a solicitor/client basis) be paid from the net proceeds of sale, given its view that the applicants’ application (insofar as it concerned the dispute with the third respondent) ought not to have been brought. For reasons similar to those set out at (e) above, I declined to make such an order, noting that the third respondent’s costs should also be dealt with in a costs award on the proceedings in the ordinary way.
3 Referred to as “Partnership Business” costs.
4 Referred to as “Partnership Issues” costs.
The parties’ competing approaches to costs
The applicants’ submissions
[9] The applicants note that the judgment requires a distinction to be drawn between Partnership Business costs and Partnership Issues costs. They submit the most appropriate approach is to consider the “marginal work” required in relation to the orders which the third respondent contested (and thus reflecting Partnership Issues costs), bearing in mind the work which already needed to be undertaken in order to effect the sale of the Property and/or Forestry Right.
[10] Quite understandably, it is not possible to identify the time spent in relation to different or particular orders or documents submitted to the Court. The applicants submit, however, that at least 90 per cent of the work leading up to the case management conference before Associate Judge Bell related to the removal of the caveats/notice of claim and the orders for sale. The applicants say the additional work, for example, in relation to the first applicant’s compensation claim, was minimal. They accordingly propose that 90 per cent of their costs up to the case management conference should be categorised as Partnership Business costs and reimbursed out of the net sale proceeds. On that basis, the applicants seek costs (paid out of the net proceeds of sale) in the sum of $23,337.5
[11] In relation to costs incurred after the case management conference, the applicants say they were the successful party overall, and there should be a costs award in their favour (on a scale 2B basis). The applicants say the Court found in their favour on three of the four contested issues, including the main issue of how any deadlock was to be resolved between the four partners. They say the only matter on which they were not successful (allowances payable to the first applicant) did not occupy a significant amount of the hearing time or otherwise involve significant additional work.
[12]The applicants then seek an uplift of 25 per cent on scale costs, given, they say:
5 I note that this figure represents slightly more than 90 per cent of the actual costs (being $25,545).
(a)they spent a considerable amount of time engaging in correspondence in an effort to avoid the need for a hearing, which shows the applicants acted reasonably;
(b)open correspondence sets out the applicants’ position and if it had been made on a Calderbank basis, they could have put it before the Court in support of a claim for increased costs; and
(c)the applicants made a Calderbank offer shortly before the hearing which was substantially similar to the orders made by the Court, which justifies an uplift in this case.
[13] On this basis, the applicants seek a costs award against the third respondent in the sum of $9,812 (being 2B scale costs), plus $2,453 by way of a 25 per cent uplift and $1,728.27 for disbursements.
The third respondent’s submissions
[14] The third respondent disputes the suggestion that 90 per cent of the applicants’ costs up to the first case management conference were associated with Partnership Business. It does not oppose an order that fairly reflects what it says was the proper application that ought to have been brought, but says that even on a broad-brush approach, it cannot be the case that almost all of the work done up to the first case management conference was for Partnership Business. Counsel for the third respondent says that rather than the 10 per cent reduction proposed, a 40 per cent reduction is more appropriately made to exclude work relating to Partnership Issues. On that basis, the third respondent says the Partnership Business costs ought to be fixed at $15,327 (60 per cent of the total amount claimed). It says this should be more than adequate, given scale costs for the relevant steps6 would be $8,920.00.
[15] In relation to costs associated with Partnership Issues, the third respondent says it was the successful party overall. It says its opposition to the proceedings was only necessary as a result of the particular orders sought by the applicants which sought to
6 Namely preparing an originating application and affidavit, an interlocutory application for orders as to service and confidentiality, and an associated memorandum.
“divest [it] of its rights as a co-owner and partner and sought an allowance for [the first applicant] when there was an express agreement to the contrary”. The third respondent further submits it was quite proper and reasonable to oppose the orders in the form originally sought by the applicants, none of which were ordered by the Court.
[16] In this context, the third respondent says the applicants did not succeed on the sale orders they brought to the Court, and they also did not succeed in their opposition to the appointment of a listing agent. It also notes the applicants were unsuccessful in seeking orders in relation to the first applicant’s allowances and, at least in part, for orders that all their reasonable costs be paid out of the net proceeds of sale. The third respondent therefore submits that when looked at overall, the third respondent has been successful in its opposition to what it says were unfair and unjustified sale orders.
[17] The third respondent accordingly seeks a costs award on a 2B basis of $12,042, together with an uplift of 50 per cent, having regard to a Calderbank offer made by it prior to the hearing.
Analysis
Partnership Business costs
[18] As both counsel recognise, a relatively high level and broad-brush approach must be taken to the division of costs between Partnership Business and Partnership Issues.
[19] While I consider the 90 per cent split for costs up to the case management conference before Associate Judge Bell is too high, nor do I consider a reduction as great as 40 per cent is warranted. Having reviewed the invoices and the time records supplied, I consider a 20 per cent reduction to actual costs is sufficient. There is no doubt a significant proportion of the early work on these proceedings was directed to the issues concerning the caveats and notice of claim, including investigating methods for these to be removed from the title, engaging with all other respondents and/or their counsel and in preparing and filing the necessary papers.
[20] There is accordingly an order that the applicants’ costs in an amount of $20,436 (being 80 per cent of $25,545) are to be paid out of the net proceeds of sale. The applicants’ disbursements by way of filing fees (totalling $1,280) may also be paid from the net proceeds of sale.
Partnership Issues costs
[21] I have carefully considered the parties’ competing submissions. Each side claims to be the successful party overall. Standing back, I have reached the conclusion that Partnership Issues costs ought to lie where they fall.
[22] My initial view was that the applicants ought to be considered the successful party overall, despite not succeeding on all aspects of their claim. As the Court of Appeal made clear in Weaver, limited success is still success overall.7 The Court emphasised it would ordinarily be wrong to award costs against a successful party.8 It did, however, observe that depending on the particular facts, it may be appropriate to discount the costs award in favour of the successful party, or conclude that costs lie where they fall.9
[23] I accept the applicants’ submission that, as a matter of principle, they obtained an order for sale which enables them to proceed to a sale even if one partner disputes the terms of that sale. However, the order as originally sought was directed at the third respondent only and in my view was inappropriate. That approach reflected similar steps taken by the applicants earlier in these proceedings in declining to provide the third respondent with copies of valuations for the Property. Such an approach fails to recognise the third respondent is an equal partner in the Property. Had this approach been at the forefront of the applicants’ minds (but recognising the third respondent is not wholly without blame in exacerbating the situation), there may have been better prospects of reaching a compromise position.
7 Weaver v Auckland Council [2017] NZCA 330 at [26].
8 At [20], citing Shirley v Wairarapa District Health Board [2006] NZSC 63; [2006] 3 NZLR 523 at [15].
9 At [28].
[24] Further, the applicants’ success in obtaining an order which contains a mechanism for resolving deadlock nevertheless has grafted on to it the “safety valve” procedure set out at [45] of my substantive judgment.
[25] I declined to make the orders sought in relation to various cost allowances. The applicants were also only partially successful in seeking an order that their reasonable costs associated with the proceedings be paid out of the proceeds of sale. Further, while the applicants were successful in opposing the third respondent’s proposal to appoint a real estate agent now to manage the sale process, I ordered that an agent shall be appointed after four months if the Property and/or Forestry Right has not been sold in the interim.
[26] I am also mindful of the third respondent’s Calderbank offer shortly before the hearing, which would have involved a reasonably significant sum being paid to the first applicant in settlement of all claims by him relating to work undertaken in relation to the partnership. I am not satisfied, however, that the written offer should have any greater effect on the costs award.
[27] Accordingly, though I accept the applicants were the successful party overall, I nevertheless consider the appropriate outcome is that costs lie where they fall, including in relation to the additional disbursements sought.
Result
[28] There is accordingly an order that the applicants are to be reimbursed the sum of $20,436 from the net proceeds of sale, being costs associated with Partnership Business, plus $1,280 by way of disbursements.
[29]Costs are otherwise to lie where they fall.
Fitzgerald J
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