Lv Trust Holdings Limited v Body Corporate 114424
[2013] NZHC 1764
•12 July 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-008245 [2013] NZHC 1764
UNDER Section 74 of the Unit Titles Act 2010
BETWEEN LV TRUST HOLDINGS LIMITED AND KP TRUST HOLDINGS LIMITED Applicants
ANDBODY CORPORATE 114424 & OTHERS
First to Twenty-first Respondents
Hearing: on the papers
Counsel: NR Campbell for Applicants
D Bigio and V Toan for Respondents
Judgment: 12 July 2013
JUDGMENT OF ASHER J (Approval of scheme and costs judgment)
This judgment was delivered by me on Friday, 12 July 2013 at 3.30 pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors/Counsel:
NR Campbell, Auckland.
ASCO Agmen-Smith & Co, Auckland. D Bigio, Auckland.
Glaister Ennor, Auckland.
LV TRUST HOLDINGS LTD AND KP TRUST HOLDINGS LIMITED v BODY CORPORATE 114424 & OTHERS [2013] NZHC 1764 [12 July 2013]
Introduction
[1] On 20 December 2012, I issued an interim judgment in relation to a dispute between LV Trust Holdings Ltd and KP Trust Holdings Ltd, the owners of unit 15 in the Shangri La apartments on Jervois Road, Ponsonby, and the Body Corporate and other unit owners.
[2] Shangri La apartments had suffered a leak problem that required significant work, including re-cladding the building with a glass curtain. It was necessary for a scheme to be drafted under s 74 of the Unit Titles Act 2010 in relation to this work. There were two significant issues that arose between the parties, and which led to the proceedings.
[3] The first was the cost allocation for the repairs between the units. The applicants had sought a scheme that provided for 50 per cent of a one-fifteenth share of the total cost to be borne by each unit, and the other 50 per cent in accordance with the utility interest for each unit. The Body Corporate and the other unit owners save for the applicants, in contrast, sought a scheme that provided for all the costs of the building to be borne by all unit owners on a utility interest basis, that is, equally. The difference arose from the fact that the applicants owned the largest unit, and if all the charges were to be paid on a utility basis they would pay considerably more than the other unit owners. On the applicants’ scheme they would still pay more, but the differential would be reduced.
[4] The second issue was whether the scheme should provide for the payment of compensation to the applicants. This issue arose from the applicants’ loss of the use of their unit for approximately 18 months during the building period for building- related reasons, whereas no other unit owners lost the use of their unit for this reason for more than six weeks.
[5] In my interim judgment, I decided both issues in favour of the applicants. The effect of this was, in substance, to approve the applicants’ proposals in relation to the contested issues in the proposed s 74 scheme.
[6] The judgment was, at the request of the parties, an interim judgment, leaving the issue of the settlement of the terms of the final scheme to be worked out between the parties following my judgment. Leave to apply for approval of that final scheme was reserved to both parties.
[7] I now have to determine whether to approve the final scheme that has now been submitted following the judgment. I also need to determine costs.
The scheme
[8] I am informed that the parties are both agreed that the scheme attached to counsel for the applicants memorandum of 8 May 2013 is accepted. Therefore, under s 74 of the Unit Titles Act 2010, I approve that scheme.
Costs
[9] The parties have been unable to agree costs. The applicants submit they should be awarded solicitor-client costs (indemnity costs) in respect of the proceedings, and solicitor-client costs at a 20 per cent discount in respect of their legal and expert advice prior to the issue of proceedings. They ask that these costs be treated as costs of the scheme.
[10] This submission is premised on the assumption that a body corporate’s costs in pursuing an application such as this will ultimately be recoverable from unit holders as a whole. This is said to support the submission that where, as here, the applicants have been left to take the initiative of applying for a scheme, the applicants are entitled to actual solicitor-client costs by order of this Court.
[11] Further, the applicants submit that it would be just for the Court to order that the Body Corporate’s costs in relation to opposing their application be met by the unit owners other than the applicants, with the costs to be shared according to those unit owners’ respective utility interests.
[12] Thus, the applicants’ position is that it should be fully reimbursed for all its legal costs in relation to the approval of the scheme and the disagreement that arose
and was resolved in this Court, and not have to contribute to the Body Corporate’s
costs in relation to the approval of the scheme and the dispute.
[13] The respondents submit that as a matter of basic approach any award of costs should be High Court scale costs on a 2B basis. They say that increased or solicitor- client costs are not justified in the circumstances. They also say that the applicants are not entitled to costs that pre-date the proceedings. They further submit that some of the costs sought by the applicants are not reasonable. As to the submission of the applicants that they not face levies from the Body Corporate stemming from its litigation costs, the respondents state that they have not and will not pursue those costs from the applicants. As a consequence I will make no orders to that effect.
Approach
[14] Section 74(9) of the Unit Titles Act, which provides for schemes, states: “The High Court may make an order for payment of costs that it thinks fit.” The applicants submit that this is a specific provision which prevails over the High Court regime.
[15] I see s 74(9) as recognising that there are a number of special cost considerations that will arise when a scheme is settled under the Unit Titles Act and that the Court has a broad discretion in this regard.
[16] Rule 14.1 of the High Court Rules 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).
[17] I do not consider that r 14.1(3) says any more than that a specific statutory provision as to costs overrides the r 14.1 directions. Where, as here, the statute’s reference to costs is also to leave it to the Court’s discretion, the Rules can still be the guide, subject to the specific complexities of the particular statutory regime and practical realities being recognised in any award. After all, r 14.1 provides only that the provisions of any Act may override subcls (1) and (2) of r 14.1, and those rules provide that costs are at the discretion of the Court.
[18] In the unit titles scheme context, there is the feature of there being a body corporate that represents all of the unit title owners. There may be unanimous support from unit owners, or there may be individual unit title owners that may not support the scheme. The body corporate is notionally acting on behalf of the unit title owners, but in fact some may be opposed to a proposed scheme. Unit title owners have a relationship with each other that is dictated by complex laws and rules, and just outcomes may require time and compromise. In such circumstances, the general principles that apply to the determination of costs, in particular the principles set out in r 14.2(a) that the party who fails will normally pay costs to the
party who succeeds, may not be applicable.1 Just as with Family Court proceedings,
where some greater flexibility is needed in making cost awards than is usually the case in civil proceedings, so too in relation to unit title proceedings. This is seen in the Family Court context where the High Court Rules, as subordinate legislation, give way to the paramount principle in the Care of Children Act 2004 that provides
for the welfare and best interests of the child.2 And it can also be seen in the
relationship property context, where the Court will on occasions refuse to make a costs order either way.3
[19] I do not see s 74(9) as excluding the application of the High Court Rules cost regime. The general principles applying to the determination of costs set out in
r 14.2 still have application, although the realities of the unit titles situation must be
1 For an example, see Body Corporate 172108 v Meader (No 4) HC Auckland CIV-2009-404-
6868, 10 February 2011 at [12].
2 G v Cox [2008] NZCA 146 at [25]–[28].
3 Nicola Peart (ed) Brookers Family Law — Family Property (online looseleaf ed, Brookers) at
PR40.01.
taken into account and may mean that some or all of those principles are inapplicable in a particular case.
[20] The costs concept in New Zealand is that parties are not entitled to indemnity costs, but only a percentage of those costs, from the successful party. In this regard the New Zealand system lies somewhere between the indemnity cost system of England and the no cost regimes in the United States of America. I do not see a basis for applying a different concept of cost allocation to unit title scheme disputes to that which applies generally to civil disputes. But just as in the Family Court arena where the special circumstances that can arise can be recognised, so too in the unit title context.
[21] This approach is in accordance with recent authority. In St Johns College Trust Board v Body Corporate 197230,4 Duffy J observed that while s 48(7) (the equivalent of s 79(4) in the 1972 Act) gave a general discretion, in exercising that discretion the Court could seek guidance from the principles in r 14 of the High Court Rules and of principles developed in relation thereto. In that case, the respondents who successfully opposed the applicant were awarded costs on a 2B
basis. The scale was also applied in respect of unit title disputes over s 48 schemes in Body Corporate 185632 v Thadhani5 and Lewis v Body Corporate S63621,6 and in the Court of Appeal in St Johns College Trust Board v Body Corporate 197230.7
[22] In some cases, in relation to the costs of a scheme, a compromise order can be made. This occurred in Body Corporate 172108 v Meader (No 4)8 where the Body Corporate was the applicant and one of the owners opposed the scheme in the form proposed. Each party enjoyed a measure of success, and the case changed process half way through. Heath J directed that the solicitor-client costs and disbursements of both the Body Corporate and the successful opposing owner be regarded as costs of the scheme so that they would be paid out of levies based on
unit entitlements. This reflected the fact that the end solution was a compromise
4 St Johns College Trust Board v Body Corporate 197230 [2013] NZHC 654 at [3].
5 Body Corporate 185632 v Thadhani [2012] NZHC 3173 at [16].
6 Lewis v Body Corporate S63621 HC Tauranga CIV-2008-470-772, 12 March 2010.
7 St Johns College Trust Board v Body Corporate 197230 [2013] NZCA 35 at [40].
8 Body Corporate 172108 v Meader (No 4) HC Auckland CIV-2009-404-6868, 10 February 2011.
between a situation where the parties had legitimate but conflicting interests and the
Judge was not prepared to criticise either of the parties.
[23] I do not consider the fact that the Body Corporate would eventually be able to levy its actual solicitor-client costs against all unit title holders means that this Court should grant applicants those same costs in every case where they bring the scheme application. An available mechanism by which a litigant might recover the entirety of its costs is irrelevant for the purpose of determining the costs to which an opposing party is entitled in contested litigation.
These facts
[24] In my view, this case had the flavour of ordinary litigation where parties were taking conflicting positions in support of their financial interests. This is what usually happens in court proceedings. The starting point then for a costs consideration is that the applicants have succeeded. In my view, they are entitled to costs on a 2B basis looking at the matter in the round. I do not consider that the case was sufficiently complex or the time involved sufficiently unusual to warrant a greater award, save in relation to the submissions which were extensive, and related to issues of law and fact which were far from straight forward, and the bundle, which was large. Those costs will be on a 2C basis.
[25] However, there is an unusual feature here, in that in common with family disputes, the parties were bound together by force of circumstances and obliged in order to move forward to arrive at an acceptable scheme. There were issues that had to be clarified and debated. I consider that there is merit in the submission that the applicants are entitled to some particular recognition for their particular efforts. It is in my view surprising that it was left up to the applicants as the owner of unit 15 to apply to the Court for approval of the scheme. This is something that the Body Corporate should have done, but declined to do. The applicants were forced to take the action that they did.
[26] The general discretion in s 74(9) enables me to take into account this particular factor in relation to the scheme. I note in particular the letter of the Body
Corporate’s lawyers of 9 November 2011 where in response to the applicants’ queries as to an application under s 74, the Body Corporate responded that it had no instructions to make an application and “… nor do we expect to receive such instructions”. So the applicants brought the application. Ultimately the Body Corporate accepted that an application was required and has indeed reached agreement on the terms of the scheme. In my view, the refusal to bring the proceedings by the Body Corporate was tactical or a reaction to inconvenient pressure. The applicants were forced to shoulder the costs of bringing an application that should have been borne by the Body Corporate.
[27] I have considered the fees invoices supplied by counsel and the solicitors instructed by the applicants. The solicitor charged fees of $23,521 including disbursements on 23 December 2011, which appeared to relate largely to the filing of proceedings. Further fees including disbursements of $4,949, $7,964, and $3,078 which related at least in part to the costs of serving the proceedings were charged. The barrister charged fees of $20,700, which appeared to relate to the filing of the proceedings, and further fees of $2,802 and $11,431 (with disbursements) which also appeared to relate at least in part to service issues.
[28] Looking at the matter in the round, I consider that a total allowance of
$45,000 for extra costs relating to the filing of the scheme and service of the various unit owners should be added to the applicants’ 2B costs.
[29] I recognise that there is an element of double counting in this figure, in that I have already awarded costs on a 2B scale on the initiation of the proceedings. I take that into account in discounting the actual fees charged in relation to the initiation of the proceeding and service.
[30] I am not prepared to make any order for costs prior to the issue of these proceedings. Such an order cannot be made under the High Court Rules provisions, which only relate to costs of a proceeding.9 The costs prior to the issue of the proceeding were all of the type of costs that can be expected where parties with
competing interests are involved in a commercial dispute and pursuing their
9 High Court Rules, r 14.1(1).
particular interests, and in my discretion under s 74(9) (which I accept could give me the power to make such an order), I decline to do so.
[31] I am not prepared to disallow any of the expert fees of the applicants. There was the usual give and take between experts and some changing of position, but nothing to warrant a departure from the usual principles.
Result
[32] I approve the scheme attached to the applicants’ memorandum of 8 May
2013.
[33] I make the following costs orders:
(a) The applicants are entitled to scale costs on a 2B basis save for costs on the preparation of submissions and the preparation of the bundle, which are on a 2C basis. The award includes all reasonable disbursements. Any details as to which attendances attract costs are to be determined by the Registrar.
(b)The applicants are entitled to an additional payment of costs from the respondents of $45,000 on account of them having to initiate and file the application to approve the scheme, a task which should have been carried out by the Body Corporate.
(c) The applicants are not entitled to any costs prior to the issue of proceedings.
(d)Given the respondents’ concession that their costs for the proceedings will not be levied on the applicants, I make no order but reserve leave to apply should any issues arise as to the applicants’ liability for the Body Corporate costs.
……………………………..
Asher J
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