Maydonoz NZ Ltd v Poppelwell

[2012] NZHC 2223

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-8144 [2012] NZHC 2223

BETWEEN  MAYDANOZ NZ LTD Plaintiff

ANDIAN RONALD POPPELWELL AND DOROTHY POPPELWELL TRADING AS THE POPPELWELL PARTNERSHIP Defendants

Hearing:         (On the papers)

Counsel:         DL Schnauer for Plaintiff

SHN Chan for Defendants

Judgment:      30 August 2012

JUDGMENT OF BREWER J (Costs)

This judgment was delivered by me on 30 August 2012 at 4:30 pm pursuant to Rule 11.5 High Court Rules.

Registrar/Deputy Registrar

SOLICITORS

Schnauer & Co (Auckland) for Plaintiff

McVeagh Fleming (Auckland) for Defendants

MAYDANOZ NZ LTD V POPPELWELL HC AK CIV-2011-404-8144 [30 August 2012]

Introduction

[1]      In  my  judgment  delivered  on  17  May  2012,  I  granted  the  plaintiff’s application for relief against cancellation of the lease it holds from the defendants.  I now have to decide costs.

[2]      On 13 December 2011, the defendants re-entered the leased premises from which the plaintiff operates a Turkish food takeaway business.  The defendants had issued two default notices which had not been complied with.  The first related to the absence of a type of fire extinguisher required by the defendants’ insurer and the second related to unpaid operating expenses in the sum of $2,805.41.

[3]      The  plaintiff  commenced  proceedings  on  16 December  2011  and,  on

22 December 2011, gained an interim injunction allowing the plaintiff to re-enter the premises.  In my judgment, I ruled that the first default notice was invalid but that the second default notice was valid.  I granted relief against cancellation on the basis of proportionality.  The gravity of the default, in all the circumstances, was greatly outweighed  by  the  destruction  of  the  plaintiff’s  livelihood  which  would  have occurred if the relief was not granted.

[4]      Both parties seek costs.  The defendants seek their actual costs on a solicitor- client basis.  The plaintiff seeks scale costs.

Submissions

[5]      The costs sought by the plaintiff on a 1B basis amount to $11,375  plus disbursements of $6,319.92.  The basis for the application is the submission that the defendants acted unreasonably in insisting on a defended hearing when there were several opportunities to resolve the dispute.   It is submitted that the plaintiff was largely successful in the overall litigation in that the first default notice was found to be invalid and that relief against cancellation was granted.

[6]      Counsel  for the defendants  submits  that  clause  6.1  of the deed  of lease requires the plaintiff to pay the defendants’ costs on a solicitor-client basis.[1]   These costs, supported by invoices, amount to $44,889.72 (GST exclusive).  It is submitted that these costs are within the range of what is considered reasonable for a case such as this.

The Law

[1] Rule 14.6(4)(e) provides that the Court may order indemnity costs if the party claiming costs is entitled to indemnity costs under a contract or deed.

[7]      The leading decision on costs in relief against forfeiture cases is Roses are Red Ltd v Methodist Church.[2]   The Court of Appeal set out the policy considerations as follows:[3]

[2] Roses are Red Ltd v Board of Administration of the Methodist Church of New Zealand (2009) 19

PRNZ 369 (CA).

[3] Ibid, at [40]-[41].

[40]      In addition to the general principles applicable to costs awards as set out in Shirley, there are some further broader policy considerations that are relevant to awards of costs where a tenant seeks relief against forfeiture. These considerations are as follows:

(a)        Where an application for relief against forfeiture is made following a breach of a lease, the tenant is seeking an indulgence.  The tenant who has breached may well be in a somewhat different position from other “winners”.

(b)        In terms of cases like the present one which were decided under  s 118(2)  of  the  Property  Law  Act,  the  Court  in granting relief has a discretion to grant relief on terms as to costs and other matters.   The Judge here did not make payment of costs a condition of relief but could have done so.

(c)        There is authority for the proposition that where, as here, the contract makes provision for payment of indemnity costs, there  is  an entitlement  to costs  on that  basis:  IBA Ltd  v Stanley’s  Nightclub  Ltd  [2007] NZCA 60, and Bishop  v Financial Trust Ltd [2008] NZCA 170. The Board did not put its case before us on that basis but, nonetheless, such a provision may be a relevant consideration.

[41]     These further considerations will also be relevant in determining how to approach costs in cases like the present.  In some cases, it may be self-evident that it was unfair or unreasonable for a landlord unnecessarily to impose the need for a defended hearing and the costs award can reflect that. For example, in Ponsonby Mall Trust Ltd v New Zealand Food Industries Ltd HC Auckland CIV-2005-404-3631 8 March 2006 at [18], a case relied

on by Roses are Red, Asher J suggested that in situations where the landlord was seeking to obtain some sort of commercial or other advantage or was somehow pressurising the tenant so as to improve its position, the usual rule that costs follow the event would apply.  In other cases, it may equally be plain  that  it  was  fortuitous  for  the  tenant  to  be  granted  relief  against forfeiture in which case the tenant can expect to pay costs.

[8]      This case involves an indemnity costs provision as contemplated above at (c). If the provision applies, the defendants are entitled to reasonable indemnity costs according to its terms.  In determining the application of indemnity costs clauses, the Court of Appeal has said:[4]

It is clear in principle and on authority that once it is established that the indemnity is applicable in the circumstances and that, properly construed, it includes solicitor-client costs, no discretion remains available other than on public policy grounds or as part of an assessment by the court as to whether the amount of the solicitor-client costs is objectively reasonable.

[4] Watson & Son Ltd v Active Manuka Honey Association [2009] NZCA 595 at [35].

[9]      Therefore, in determining whether solicitor-client costs should be awarded to the defendants, I must ask:

(1)       On a proper construction of the contract, is the plaintiff bound to pay

the defendants’ solicitor-client costs for these proceedings?

(2)       If  the  plaintiff  is  so  bound,  are  the  solicitor-client  costs  claimed objectively reasonable?

[10]     The  second  question,  in  itself,  has  two  sub-questions  that  go  to  its determination:

(1)       Were all the steps taken by the defendants reasonably necessary in pursuance of the task?[5]

(2)       Were the rates charged reasonable?[6]

[5] Tea Custodians (Bluestone) Ltd v Barnett HC Wellington CIV-2011-485-17, 6 December 2011 at [19].

[6] Ibid, at [21].

[11]     I approach this matter on the basis that there are no public policy grounds to justify the indemnity clause not applying.

Discussion

Do the terms of the clause cover these proceedings?

[12]     Clause 6.1 of the lease provides:

THE Tenant shall pay ... 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.

[13]     The relief against forfeiture application arose because the defendants were exercising their rights under the lease.   Therefore, defending that application is “incidental” to the enforcement of the defendants’ power under the lease because it arose as a consequence of that enforcement. This Court has held similarly in the past.[7]

Were the defendants’ steps reasonably necessary to enforce their rights under the

lease?

[7] NJH Holdings Ltd v Oliphant HC Auckland CIV-2006-404-4749, 18 March 2007.

[14]     In my judgment, I ruled that the first default notice was not valid.  I find that the steps taken in relation to issuing that notice, attempting to uphold it and the costs associated with that were not reasonably necessary.  I would in any event rule that the clause could not extend to requiring a tenant to pay for legal action by a landlord where it was held that the landlord was wrong in its assertions or unjustified in its actions.

[15]     On the other hand, the second default notice was valid and the subsequent eviction of the plaintiff from the premises was a step the defendants were entitled to take.  I find that it was also reasonable for the defendants to oppose the plaintiff’s

application for relief:

(a)      The plaintiff did not accept that the defendants were entitled to charge the operating expenses at issue.  It did not accept that its failure to pay the claimed operating expenses was a breach of the lease.  That had to be decided in the litigation; and

(b)The plaintiff included in its pleading a claim for $40,000 for breach of quiet enjoyment.

[16]     I do not accept the plaintiff’s submission that the defendants’ opposition to the application for relief against cancellation was unreasonable because they did not take advantage of opportunities to reach a negotiated settlement.   This was not a situation where breaches had been acknowledged and remedied, so that the point of negotiation would be the terms of re-entry.

Are the costs reasonable in light of the steps taken?

[17]     There is more than one possible approach to this question.  The defendants rely  on  that  of  Associate  Judge  Gendall  in  Tea  Custodians  Ltd  v  Barnett.[8]

Essentially,  the  reasonableness  of  solicitor-client  costs  is  assessed,  somewhat crudely, by calculating scale costs and applying the principle that scale costs are designed to represent about two-thirds of average actual costs.

[8] Tea Custodians (Bluestone) Ltd v Barnett, above n 5, at [21].

[18]     The other approach would be the more forensic one taken by Harrison J in Bradbury v Westpac Banking Corporation.[9]   That involves a breakdown and analysis of actual costs and a thorough chronology of the steps taken in the context of the rates charged by counsel.

Decision

[9] Bradbury v Westpac Banking Corporation (2008) 18 PRNZ 859.

[19]     I find that the defendants are entitled to costs.  The plaintiff did not succeed in proving that the defendants were not entitled to cancel the lease.  The decision that

the plaintiff could nevertheless have relief from that cancellation was an indulgence.

[20]     I find that clause 6.1 of the lease applies.   The basis for costs must be the defendants’  reasonable solicitor-client  costs.    Those costs  must  be calculated in respect of the steps taken in relation to the second default notice only.   The component of the defendants’ costs related to steps taken in respect to the first default notice (relating to the fire extinguisher) must be subtracted from the total costs.  That will include the steps of preparation, trial and submissions.

[21]     I  do  not  know  what  the  entitlement  to  costs  will  amount  to.    I  have insufficient information to use either the Tea Custodians approach or the Bradbury approach to assess them.

[22]     In Black v ASB Bank Ltd,[10] the Court of Appeal, in a different context, set out three avenues open to the Court where a detailed vetting of the reasonableness of indemnity costs is necessary.[11]   The Court confirmed that the procedure for taxation of costs remains available.[12]

[10] Black v ASB Bank Ltd [2012] NZCA 384.

[11] Ibid, at [81]-[99].

[12] Rules 14.18-14.21 and 14.23.

[23]     I order that the plaintiff pay the defendants’ reasonable solicitor-client costs in accordance with [20] above.  I direct the defendants to provide the plaintiff with an account for those costs, itemised in sufficient detail as to steps taken, time spent and rates charged so that a Registrar taxing the costs would have a proper understanding of how they were calculated.

[24]     This award of costs is subject to taxation.  That means in this case that if the

plaintiff  does  not  accept  the  defendants’  calculation  of  reasonable  costs,  the

defendants must establish their entitlement to the costs through the taxation process.

Brewer J