Kkeshav International Limited v Heaton Holdings Limited

[2020] NZHC 1801

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2020-409-120

[2020] NZHC 1801

BETWEEN

KKESHAV INTERNATIONAL LIMITED

Applicant

AND

HEATON HOLDINGS LIMITED

Respondent

Hearing:	On the papers
Counsel:	K M Graham for Applicant J Moss for Respondent
Judgment:	24 July 2020

JUDGMENT OF ASSOCIATE JUDGE LESTER

(Costs)

This judgment was delivered by me on 24 July 2020 at 10.00am pursuant to Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

24 July 2020

KKESHAV INTERNATIONAL LIMITED v HEATON HOLDINGS LIMITED [2020] NZHC 1801 [24 July 2020]

[1]    In a judgment delivered on 30 June 2020, I declined Kkeshav International Ltd (the tenant)’s application to set aside a statutory demand issued  by  Heaton  Holdings Ltd (the landlord) in respect of unpaid rental due under two tenancies between the parties.1

[2]    The landlord now seeks an award of costs in reliance on indemnity costs clauses in each of the leases. The clause is the same terms in each lease and relevantly provides:

6.1 THE Tenant shall pay the Landlord’s solicitors reasonable costs of and incidental to the preparation of this lease … and the Landlord’s legal costs (as between solicitor and client) of and incidental to the enforcement or attempted enforcement of the Landlord’s rights remedies and powers under this lease.

[3]    Ms Graham, counsel for the tenant, responsibly accepts the landlord has an entitlement to seek indemnity costs pursuant to cl 6.1 of the leases.

[4]    Unfortunately, counsel have not been able to agree the issue of costs and the issue has been referred to me.

[5]    The total solicitor-client costs claimed by the landlord is $19,719.55 (including GST), of which $11,600 is counsel’s fee and the balance is the solicitor’s fee.

[6]2B costs would be $10,626.

[7]    Ms Graham challenges the amount claimed, primarily on the basis the solicitor’s account relates to attendances prior to the commencement of the present application. Thus, Ms Graham characterises those costs as “pre-commencement costs”.  She  goes  on  to  refer  to  the  decision  of   French   J   in   Braeburn Dairies Ltd v McGregor & White Electrical Ltd, where her Honour concluded that costs for steps prior taken to the commencement of a proceeding were not costs “incidental to a proceeding” for the purposes of r 4.2

1      Kkeshav International Ltd v Heaton Holdings Ltd [2020] NZHC 1513.

2      Braeburn Dairies Ltd v McGregor & White  Electrical  Ltd  HC Dunedin CIV-2009-412-668,  16 December 2011 at [13] and [14].

[8]Rule 14.1 of the High Court Rules 2016 provides:

14.1     Costs at discretion of court

(1)All matters are at the discretion of the court if they relate to costs—

(a)of a proceeding; or

(b)incidental to a proceeding; or

(c)of a step in a proceeding.

(2)Rules 14.2 to 14.10 are subject to subclause (1).

(3)The provisions of any Act override subclauses (1) and (2).

[9]    Ms Graham goes on to refer to a decision of Fitzgerald J in Neill v Auckland Council, in which her Honour agreed with French J’s conclusions.3

[10]   Ms Graham finds support for her argument that the court cannot award pre-commencement costs by referring to the wording of r 14.1 which she says:

… limits the Court’s discretion to matters relating to costs of or incidental to a proceeding, or a step in a proceeding.

[11]Further, Ms Graham relies on rr 14.6.(2), 14.6(1) and 14.6(2) which provide:

14.6     Increased costs and indemnity costs

(1)Despite rules 14.2 to 14.5, the court may make an order—

(a)increasing costs otherwise payable under those rules (increased costs); or

(b)that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party (indemnity costs).

(2)The court may make the order at any stage of a proceeding and in relation to any step in it.

[12]   Ultimately, Ms Graham, recognising the breadth of the indemnity costs clause in the leases, submits that while the landlord could issue separate proceedings to recover pre-commencement costs, she says such are not within the jurisdiction of the court. She compares the present situation, which involved an application to set aside

3      Neill v Auckland Council [2017] NZHC 2703 at [13] and [14].

a statutory demand, to a proceeding where judgment is sought in respect of rental arrears and costs. In such cases, costs are sought on the indirect reliance of the terms of the lease, rather than through the costs provisions in the High Court Rules.

[13]   I am unable to accept this well crafted argument. High Court Rule 14.6(4) provides:

(4)       The court may order a party to pay indemnity costs if—

…

(e)the party claiming costs is entitled to indemnity costs under  a contract or deed; or

…

[14]   This Rule confirms that the court when exercising its power to award costs under pt 14 of the High Court Rules, can award costs payable pursuant to a contractual provision.   The power to award indemnity costs does not arise from r 14.1.   Nor do I read r 14.6(2) as restricting r 14.6(4) to costs only arising after a proceeding commences. Rule 14.6(2) only confirms that the Court need not defer awarding increased or indemnity costs to the end of a proceeding.

[15]   Here, the landlord was the respondent in the application. If Ms Graham’s argument was correct and pre-commencement costs could only be claimed if there was a pleading seeking the same, then every respondent/defendant with the benefit of an indemnity costs clause would have to issue a counterclaim or cross-proceeding to ensure that they were able to recover all of their costs.

[16]As the Court of Appeal noted in Beecher v Mills:4

Anything less than a full indemnity for costs properly incurred must leave the indemnitee with part of the liability for which the indemnifier is prima facie responsible... In the absence of a contrary indication it is not to be assumed that the parties intended such a result.

[17]   I recognise Ms Graham is not suggesting that at the end of the day the landlord would not be entitled to full indemnity, she is only suggesting the court cannot award

4      Beecher v Mills [1993] MCLR 19 (CA).

pre-commencement costs under pt 14 of the High Court Rules. But, I do not accept Ms Graham’s interpretation of the Rules. I find that r 14.6(4) permits the court to award pre-commencement costs pursuant to an indemnity costs clause assuming (as here), the clause makes such payable.

GST

[18]McGechan on Procedure provides:5

Indemnity costs will include GST if the party receiving the award is not GST registered and thus unable to recover GST, but will exclude GST if the party can    recover    GST:   New   Zealand   Venue   and    Event   Management Ltd v Worldwide (LLC) [2016] NZCA 282.

[19]   Here, the landlord is GST registered. If GST is removed from the total fee notes, then the  amount  that  would  be  payable  is  $17,169.55.  Scale  costs  plus 50 per cent  would be $15,939.  Scale costs  are intended to equate to two-thirds of   a notional reasonable fee, so adding 50 per cent brings scale up to what is deemed a reasonable fee. The difference between a notional reasonable fee and the actual fee here (which includes some disbursements), less GST, is not significant.

[20]   Accordingly, I find the landlord is entitled to a costs award as sought, but less GST, being an amount of $17,170 and I make a costs award order in favour of Heaton Holdings Ltd in the sum of $17,170.

Associate Judge Lester

Solicitors:

Cavell Leitch, Christchurch

Trollope & Co Lawyers, Christchurch

Copy to counsel:
J Moss, Barrister, Christchurch

5      Andrew  Beck  (ed),  McGechan   on   Procedure   (online   looseleaf   ed,  Thomson   Reuters) at [HR14.6.03(2)(b)].