Kingsbeer v Okey
[2024] NZHC 3582
•27 November 2024
IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY
I TE KŌTI MATUA O AOTEAROA TE PAPAIOEA ROHE
CIV-2024-454-010
[2024] NZHC 3582
UNDER the Property Law Act 2007 IN THE MATTER OF
an easement at Cessna Place, Palmerston North
BETWEEN
PAULINE ANNE KINGSBEER and
BERNADETTE PLAW as trustees of THE PAK TRUST
ApplicantsAND
RONALD GORDON OKEY and MCKENZIE MCPHAIL CORPORATE TRUSTEES LIMITED
Respondents
Hearing: 21 November 2024 Counsel:
A S Butler KC for Applicants
J K Mahuta-Coyle for Respondents
Judgment:
27 November 2024
JUDGMENT OF GRAU J
[Costs decision]
Costs following a successful application to extinguish an easement
[1] On 20 August 2024, I granted an application to extinguish the equitable right of way easement over a roadway at Cessna Place, Palmerston North.1 The background to the proceeding was set out in my decision as follows:2
[1] This proceeding, the latest instalment in a long-running dispute, is an application under the Property Law Act 2007 (PLA) for an order extinguishing
1 Kingsbeer v Okey [2024] NZHC 2323.
2 At [1]–[2] (footnotes omitted).
KINGSBEER v OKEY [COSTS] [2024] NZHC 3582 [27 November 2024]
an easement over a roadway in Palmerston North. The roadway is on the applicants’ property and the respondents have had the benefit of the easement since 1986. The roadway has been extensively damaged and continues to deteriorate. The respondents are largely responsible for that damage, caused by heavy vehicles accessing one of the respondent’s (Mr Okey’s) and his tenant’s businesses.
[2] In 2017, the High Court found the easement was invalid and, in the alternative, extinguished it. Later the same year, the Court of Appeal overturned that decision, finding that an equitable easement had been in place since 1986 and no grounds for extinguishment were made out. The Court of Appeal, however, ordered the respondents to pay 75 per cent and the applicants 25 per cent of the costs to upgrade the roadway. In 2024, some six- and-a-half years later, the roadway has still not been upgraded, nor has any proposal for upgrading even been agreed to. That state of affairs remains despite the parties twice returning to the High Court and consenting to orders under s 313 of the PLA to bring their dispute to an end, and despite a judicial warning that a failure by the respondents to act in accordance with the Court of Appeal’s judgment could lead to another application to extinguish the easement.
[2] I found three grounds for extinguishment had been made out—under ss 317(1)(a)(iii), (1)(b), and (1)(d) of the Property Law Act 2007 (the PLA)—but not a fourth (s 317(1)(a)(i)).3 I exercised my discretion to extinguish the easement and I declined to award compensation to the respondents.4
[3] As to the issue of costs, I noted the general principle that costs in civil litigation follow the event does not apply in proceedings brought under s 317 of the PLA where the unsuccessful party opposed extinguishment or modification, and so the question for the Court on costs was whether the respondents had acted reasonably in opposing the application to extinguish the easement.5
[4] The parties have been unable to agree costs. They filed memoranda and made oral submissions at a hearing. The respondents consider that costs ought to lie where they fall. The applicants’ position is that the respondents should pay costs on a scale basis, or even pay increased costs.
3 At [58], [70], [76], and [84].
4 At [89] and [92].
5 At [99]–[101]; with reference to Synlait Milk Ltd v New Zealand Industrial Park Ltd [2020] NZSC 157, [2020] 1 NZLR 657 [Synlait] at [202]; North Holdings Development Ltd v WGB Investments Ltd [2014] NZHC 1175 [North Holdings] at [11], and Sidwell Developments Ltd Partnership v Top Dream Development Ltd [2024] NZHC 1928 [Sidwell] at [22].
The applicants’ position
[5] The applicants say the Court must consider the conduct of the respondents in failing to engage with them to give effect to the orders made by the Court of Appeal in 2017 and the consent orders made by Cooke J in this Court in 2019 (which were further amended in 2022). The application to extinguish the easement was only necessary because the respondents did not comply with the orders.
[6] The applicants also point out that the exception to the normal rule of costs following the event is not immutable. In the s 317 cases that apply the exception there is nothing to indicate any intention to modify the Court’s ultimate discretion to award costs.6 Rather, a respondent acting reasonably to defend a s 317 application should generally not have to pay costs at first instance. But in the event of a further hearing such as an appeal, the normal rules apply.
[7] There is also a tension in the costs context between stressing the importance of a respondent’s ability to appropriately defend their property rights and the fundamental premise of s 317 that such a property right may (where the requirements of that provision are met) be extinguished. Moreover, the exception gives rise to the potential for a respondent to be motivated to act unreasonably in the knowledge they risk minimal consequences.
[8] The applicants maintain the respondents have acted unreasonably in defending the application, when, from the outset, they were unwilling to reach any agreement to upgrade the roadway. Justice Cooke had warned them in 2018 of the potential for a further s 317 application,7 despite which the parties had to return to court in 2019 and again in 2022 to agree consent orders. The respondents’ intransigence then continued, resulting in the present application to extinguish the easement. In defending the application, the respondents sought compensation without any evidential basis, and, in the meantime they were continuing to damage the applicants’ property.
6 As is the general rule set out in r 14.1 of the High Court Rules 2016.
7 Kingsbeer v Okey [2018] NZHC 3309 at [11] and [14].
[9] The applicants say the respondents’ non-compliance with court orders has put them to the cost of multiple additional hearings since 2017. In their submission, if the Court limits its consideration of the respondents’ conduct only to the defence of the current application, it would amount to turning a blind eye to the tortuous path the proceeding has taken. Their application to extinguish the easement would have been unnecessary if the respondents had complied with the Court of Appeal’s orders.
[10] In the alternative, the applicants submit the unusual circumstances of this case justify distinguishing the costs principles that would otherwise immunise the respondents against costs, when the respondents are parties that never seriously wished or intended to comply with court orders.
[11] Further, the applicants contend that increased costs of 30 per cent are reasonable, when my decision found that the respondents (in reality, Mr Okey) were never willing to reach any agreement for upgrade pursuant to the Court of Appeal’s orders. The result was the worsening of the damage to the roadway and the ever- increasing costs to repair it. The application was a final resort, and the applicants should not now be denied the costs to which they have been put by the respondents.
The respondents’ position
[12] The respondents accept the Court ultimately has a discretion to award costs, but stress that the inquiry as to costs is directed only at the conduct of the party during the proceeding. The respondents say there is nothing about their conduct that should provoke the Court to depart from the usual approach towards costs in a s 317 case because:
(a)their opposition was bona fide. It was not taken in bad faith when the respondents sought to protect a substantial and long relied-upon property right;
(b)they did nothing to delay or protract the proceeding by taking or pursuing unnecessary or meritless arguments;
(c)both parties accepted during the hearing that the use of the Court’s power in the factual circumstances of the case was unprecedented, meaning it was entirely reasonable for the respondents to seek to test whether the jurisdiction under s 317 was available and, if so, whether the Court’s discretion should be invoked; and
(d)although they did not provide evidence in support of their claim that extinguishment would cause them substantial injury, or to support a submission that they should be compensated for loss of the easement, that was not an approach that extended the cost or time of the proceeding—instead, it made it easier for the applicants.
[13] The respondents also point out there are no “policy” concerns raised in this case if they do not have to pay costs to the applicants. It is not as if they are getting their own costs paid, they have not conducted their defence in a way that has caused unnecessary cost to the applicants, and they have already paid the ultimate penalty by losing their property right. If the Court was to then order costs against them, it would amount to a double punishment for the same conduct (non-compliance with court orders) that resulted in the loss of the easement.
Discussion
[14] As noted above, the general principle that costs in civil litigation follow the event has been displaced in proceedings brought under s 317 of the PLA where the unsuccessful party opposed extinguishment or modification of an easement or covenant. In Synlait Milk Ltd v New Zealand Industrial Park Ltd (Synlait), the Supreme Court endorsed the following observation in Katz J’s High Court costs decision in North Holdings Development Ltd v WGB Investments Ltd:8
… a party who opposes extinguishment or modification of a covenant starts from the position of being “in the right”. In opposing the application they are seeking to protect their existing legal rights. For that reason the normal rule that costs follow the event does not apply. A respondent who unsuccessfully opposes an application to extinguish or modify a covenant should generally not have to pay the applicant’s costs, unless he or she has acted unreasonably.
8 Synlait, above n 5, [202]; citing North Holdings, above n 5, at [11].
[15] In Synlait, the Supreme Court considered that the respondent in that case had not acted unreasonably in opposing the application because it was not a “clear-cut case” and it was reasonable to seek to maintain the covenants. Therefore, no award of costs should have been made against them in the High Court, despite that their opposition did not succeed. But no costs award should have been made in their favour either.9
[16] In a very recent decision of Brewer J on this issue, his Honour pointed to the “understandable” policy justification for an exception to the ordinary application of the principles of costs when applications to extinguish covenants are often brought by the well-resourced.10 In the case before him, he took into account the right of the respondents to defend their existing legal rights, that the respondents’ arguments were real ones and tested the boundaries of the law, that the covenant in that case had unique features with a degree of uncertainty, and that the rejection of an offer to settle was not unreasonable.11 The result was that costs should lie where they fall.12 Even more recently, Gordon J likewise determined that costs should lie where they fall where an application to modify a covenant was successful.13
[17] The present case is, as both parties agree, unique. There are a number of matters that would support me following the authority above and ordering costs to lie where they fall.
[18] First, I do not consider that the respondents acted unreasonably in the course of the current proceedings. When I take into account the novelty of the ground of extinguishment the applicants sought under s 317(1)(a)(iii), it can fairly be said that it was not unreasonable for the respondents to test that application.
[19] Secondly (and relatedly) there is the fact that the applicants did not succeed on all of their pleaded grounds for extinguishment. I did not find that the ground for
9 At [205]–[207].
10 Sidwell, above n 5, at [22].
11 At [22]–[25].
12 At [26].
13 Tisot v Selak [2024] NZHC 3162.
extinguishment based on s 317(a)(i) was made out. Again, that suggests the respondents did not act unreasonably in defending the proceedings.
[20] On the other hand, it can equally be said (as I found in the substantive decision) that they have otherwise acted entirely unreasonably since 2017. Their conduct had the result that the applicants had no other choice but to bring the application to extinguish the easement, because the various orders made since 2017 were never capable of implementation.
[21] I make three points about this. First, I observe that, when the Supreme Court in Synlait endorsed Katz J’s approach to costs in North Holdings, it was in the context of considering whether to follow Australian practice that costs of an unsuccessful objector should be met by the successful applicant. The Supreme Court decided, on balance, that awarding costs to an unsuccessful objector would not be appropriate because, as it said, it was one thing to protect the objector against an adverse costs award (assuming it acted reasonably), but immunisation from any cost of its defence provided no real incentive to engage with a proposal to address the applicant’s concerns without the need for a court application, which the Court considered undesirable.14 Although the question here is different, being only whether costs should be awarded against the unsuccessful objector, I have some similar concerns about “immunising” an objector in the circumstances of the present case when there has never been any real attempt by the respondents to engage with the applicants’ concerns since 2017, and where the defence was largely based on what I considered was an unsupportable contention that it was not the respondent’s fault the parties could not get the road repaired.
[22] Secondly, I note the decision of Pollard v Williams, which was cited with approval in Synlait.15 In that case, Cooke J concluded that no award of costs should be made against an unsuccessful objector to the s 317 application at first instance but said the position was different on appeal, when the objector had (unsuccessfully) pursued an appeal and put the respondents to the cost of defending it.16 In the present
14 Synlait, above n 5, at [204].
15 At [206]–[207]; referring to Pollard v Williams [2019] NZHC 2029, (2019) 20 NZCPR 371 at [52].
16 At [52].
case, in 2017, the respondents were successful on appeal in opposing extinguishment. But that success—and the consequent preservation of their property right—came with conditions. They did not fulfil those conditions, as I found, having no incentive to do so, resulting in a second application for extinguishment. Thus, this proceeding is more akin to a further proceeding about the same issue, such that costs should follow the event. An associated matter, as the applicants have pointed out, is this case has necessarily required the Court to be concerned about the constitutional importance of parties complying with court orders. I observe that choosing to do nothing when one is unwilling to pay for something they have agreed to pay for, in circumstances where that agreement was the subject of court orders, has been described as disrespect of legal obligations and the rule of law.17
[23] Thirdly, there is force in Mr Butler KC’s submission that Synlait’s endorsement of Katz J’s approach to costs in North Holdings sits uncomfortably with its position that the courts should take a broader approach to applications to extinguish easements (or covenants). Some explanation of this point is required.
[24] Synlait specifically disapproved of the “conservative approach” to the exercise of the discretion under s 317, as expressed in the Court of Appeal’s 2017 decision in this case.18 As the Supreme Court said, the fundamental premise of s 317 is that property rights are liable to be modified or extinguished. A less restrictive approach is now to be taken. Contractual and property rights are now a consideration, not a fetter. However, Katz J’s approach to costs in North Holdings (which came before Synlait) proceeded from the position that, in cases involving s 317, the applicant is seeking “an indulgence from the court” because they are seeking to remove or modify existing contractual rights.19
[25] That begs the question: how can it amount to the seeking of an indulgence when an applicant is asking the Court to modify or extinguish a property right that Parliament has made liable to modification or extinguishment, and when the Supreme Court has also directed a more expansive approach is to be taken?
17 Gifford v Marlborough District Council [2023] NZHC 3141 at [34].
18 Synlait, above n 5, at [78] and [86]; Okey v Kingsbeer [2017] NZCA 625, (2017) 19 NZCPR 25.
19 North Holdings, above n 5, at [10].
[26] Thus, as Mr Butler put it, the endorsement in Synlait of Katz J’s approach to costs in this area is “curious”. And if the principle that informs the approach taken in North Holdings is one of seeking an indulgence, I agree it cannot be said that any indulgence was being sought in this case, when all the applicants were attempting to do was to stop the damage to Ms Kingsbeer’s road and finally get it repaired. Nor were the respondents merely standing on their property rights (as in North Holdings). Instead, as I found, they never had any intention to meet their legal obligations, thus they took the risk that the applicants might or might not file a subsequent application for extinguishment. The short point is that it is difficult to view the applicants as seeking any indulgence when Parliament has expressly codified the ability to modify or extinguish an easement (or covenant) where the requirements in s 317 are met, and that is exactly what has occurred in this case.
[27] I note, too, the policy justification for the exception that Brewer J referred to in Sidwell, being that applications to extinguish (in that case) covenants are often brought by the well-resourced. That case involved an application by a property developer to extinguish a covenant, and the unsuccessful objectors were homeowners who had built their “forever home” in reliance on the covenant. But the present case involves neighbours, one of whom has been causing increasing damage to the other’s property for years, in the face of court orders to pay the lion’s share of the work needed to repair it, and to the detriment of the other, who has literally reached the end of the road.
[28] After considering all the circumstances of this difficult case, I have reached the view that the respondents should pay costs. I do not however, order increased costs (which I note were not pressed in oral argument), given that the respondents did not act unreasonably during the proceedings, were not entirely unsuccessful, and because of my departure from what has become an orthodox position to take on costs in cases under s 317 of the PLA.
Decision
[29] The respondents are to pay costs to the applicants on a 2B basis. I record that there is no disagreement between the parties as to the appropriate costs calculation.
Grau J
Solicitors:
Fitzherbert Rowe Lawyers, Palmerston North
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