Napier City Council v H2O Management (Napier) Ltd

[2020] NZHC 2481

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE

CIV-2020-441-3

[2020] NZHC 2481

BETWEEN

NAPIER CITY COUNCIL

Plaintiff

AND

H2O MANAGEMENT (NAPIER) LTD

Defendant

On the papers
Counsel:	J D Cameron for the plaintiff R A Rosser for the defendant
Judgment:	22 September 2020

JUDGMENT OF CULL J

Overview

[1]    On 31 July 2020,1 I dismissed an application by the plaintiff seeking leave to appeal an arbitral award (Award) on the grounds the grounds of appeal did not engage questions of law, as the questions raised were heavily fact-oriented and involved challenges to the Arbitrator’s interpretation of words of a management agreement (Agreement) between both parties regarding Ocean Spa in Napier (Ocean Spa). I found that the Arbitrator’s conclusions were sound and appropriate.

[2]Both parties have now filed memoranda for costs.

[3]    The defendant seeks costs on a 2B basis with a 50 per cent uplift “due to the untenable application and arguments pursued by [the plaintiff]”. Counsel for the

1      Napier City Council v H2O Management (Napier) Ltd [2020] NZHC 1913 [Substantive Judgment].

NAPIER CITY COUNCIL v H2O MANAGEMENT (NAPIER) LTD [2020] NZHC 2481 [22 September 2020]

plaintiff accepts it was unsuccessful in the substantive application but submits that costs should not exceed a 2B basis.

[4]The central issue is therefore whether increased costs should be awarded.

Law

[5]    The High Court Rules 2016 (Rules) provides that the court may make an order increasing costs otherwise payable under the rules if, among other things, the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or a step in it.2 Rule 14.6(3) provides:

(3)The court may order a party to pay increased costs if—

(a)the nature of the proceeding or the step in it is such that the time required by the party claiming costs would substantially exceed the time allocated under band C; or

(b)the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—

(i)failing to comply with these rules or with a direction of the court; or

(ii)taking or pursuing an unnecessary step or an argument that lacks merit; or

(iii)failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument; or

(iv)failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or other similar requirement under these rules; or

(v)failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding; or

(c)the proceeding is of general importance to persons other than just the parties and it was reasonably necessary for the party claiming costs to bring it or participate in it in the interests of those affected; or

2      High Court Rules 2016, r 14.6(3)(b).

(d)some other reason exists which justifies the court making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.

[6]    The issue is whether r 14.6(3)(b)(ii) or (iii) are engaged as per the submissions of the defendant.

[7]    The leading authority on the correct approach to increased costs is the four- step approach explained by the Court of Appeal in Holdfast NZ Ltd v Selleys Pty Ltd:3

(a)Categorisation: the  first step is  to  categorise  the  proceeding  under r 14.3. Both parties submit that this proceeding has been categorised as category 2.

(b)Standard time allocation: the second step is to work out a reasonable time for each step in the proceeding under r 14.5. Both parties also submit that this proceeding been categorised as band B.

(c)Increased time allocation: a party can, under r 14.6(3)(a) apply for extra time for a particular step. It is possible to get a greater time allocation for a particular step if the party can show that the step in the proceeding was such that the time required by the party would substantially exceed the time allocated under band C.

(d)Overall assessment: the fourth step requires the applicant for costs to step back and look at the costs award it could be entitled to at this point. If it considers it can argue for additional costs due to the way the other party conducted the case in terms of r 14.6(3)(b), it should do so. An increase of more than 50 per cent is unlikely.

Submissions and Discussion

[8]    The defendant seeks costs on a 2B basis with a 50 per cent uplift “due to the untenable application and arguments pursued by [the plaintiff]”. Increased costs are justified, they say, because the arguments made by the plaintiff were “hopeless”,

3      Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [40]-[48].

resulting in a longer and more expensive proceeding.4 It says the application was “so clearly untenable that its filing was unreasonable”.5 The Award was interpreted by the arbitrator on principles agreed to by both parties. The Agreement worked for some 15 years and it only has two more years before running to the end of the 20-year team.

[9]    The defendant claims the plaintiff had an “ulterior motive in attempting to obtain more control” over the Ocean Spa and/or to “out litigate” H2O in the final term on more favourable conditions.

[10]   In the alternative, the defendant submits that the plaintiff attempted to “re-run” arguments or reframe arguments not put before the Arbitrator to establish a breach. In support, of this, they point to the claim being untenable, that the plaintiff failed to accept that no terms were implied, that no questions of law were raised or that the Agreement continued to work following the relevant Award.

[11]   Counsel for the defendant also points to the fact that, once the plaintiff filed their application seeking leave to appeal, it pursued an untenable claim, failed to accept no terms were implied and that no questions of law were raised nor that the Agreement continued to work following the relevant Award. Once leave to appeal the Award was filed, H2O was required to respond with submissions twice the length.

[12]   The defendant submits that the plaintiff should have reassessed its position and withdrawn prior to the hearing. The defendant also points to the plaintiff’s failure to accept the unreasonableness of its position at the hearing “in the face of Her Honour’s clear indication of the lack of merit”. The plaintiff’s failure to accept the defendant’s legal argument, it says, was without reasonable justification. In these circumstances, the defendant says the requirements under r 14.6(3)(b)(ii) and (iii) are made out.

[13]   The defendant seeks a 50 per cent uplift, relying on Holdfast NZ Ltd v Selleys Pty Ltd, where the Court of Appeal held a that 50 per cent increase was fair for recovery of costs for the step unnecessarily forced upon the cost-claiming party, assuming the time allocated to the step had been reasonably calculated.6 The

4 Defendant Submissions on Costs at [4].

5 Defendant Submissions on Costs at [6].

6      Holdfast NZ Ltd v Selleys Pty Ltd, above n 3, at [47]-[48].

defendant also referred to Oxygen Air Ltd v LG Electronics Australia Pty Ltd, where the losing party’s fundamentally misconceived claims led to a 50 per cent uplift in costs. In that case, the Judge described the losing party’s case as “so lacking in merit or otherwise hopeless that it could well have supported an overall application for indemnity costs”.7 In this case, the defendant says, a 50 per cent uplift would be for fair recovery of unnecessary expense responding to an unmeritorious proceeding. The defendant also referred to Weaver v HML Nominees Ltd, which held that a 50 per cent uplift is appropriate where a party’s claim lacked merit and had no chance of success.8

[14]   Indemnity is a very high threshold to meet. This case is not a case that comes close to this standard, as was the case in Oxygen Air Ltd v LG Electronics Australia Pty Ltd. There are many distinguishing factors between both cases, in particular, the conduct of the losing party. It was apparent to Oxygen from the commencement of proceedings that its case was never seriously or genuinely arguable. Oxygen also failed to settle when it was given the opportunity to do so on considerably better terms than obtained in the substantive judgment. This present case does not reach the same standard for the reasons I elaborate upon below.

Plaintiff’s submissions

[15]   Counsel for the plaintiff submits that this Court “should not depart from the normal practice of awarding costs according to the High Court Rules scale”. The plaintiff acknowledges that it was unsuccessful and should pay costs in accordance with r 14.2(1)(a) of the Rules. Counsel submits that there is no basis for costs to exceed a 2B basis because this was a relatively simple application for leave to appeal an arbitration award. In support of a submission that it was not complex and not of great significance,9 Counsel points to the fact the hearing took only a quarter of a day. Further, Counsel says there is no basis for an allowance for a second and subsequent counsel, as sought by the defendant.10

7      Oxygen Air Ltd v LG Electronics Australia Pty Ltd [2020] NZHC 1863 at [22]-[23].

8      Weaver v HML Nominees Ltd [2016] NZHC 473. That case was successfully appeal in part in Weaver v Auckland Council [2017] NZCA 330, (2017) 24 PRNZ 379, however the Court upheld the particular finding that the Council was liable for costs with a 50 per cent uplift, at [53].

9      High Court Rules 2016, r 14.2(1)(b).

10 Plaintiff Submissions at [7].

[16]   As to the 50 per cent uplift, the plaintiff submits that none of the r 14.6 factors apply. The defendant was not required to spend time substantially in excess of that allocated. There was no failure by the plaintiff to comply with the Rules or any direction of this Court, nor any failing to admit facts, evidence or documents and no failure to accept legal argument without reasonable justification. A mere lack of success does not mean they had acted unreasonably or otherwise to warrant an uplift.

Discussion

[17]   The plaintiff did not take or pursue an unnecessary step or an argument that lacks merit. Although the application was ultimately dismissed, and I did find that the plaintiff’s challenge did not raise a question of law but was a challenge to an unfavourable interpretation of the Award for the plaintiff,11 the plaintiff’s arguments at the substantive hearing do not meet the threshold of lacking merit. Nor has it been shown that it was apparent to the plaintiff that its arguments were wholly untenable from the commencement of these proceedings, as was the case in Oxygen Air Ltd v LG Electronics Australia Pty Ltd.

[18]   I also do not uphold the defendant’s submission that the plaintiff should have reassessed its position before the  hearing.   The notice of opposition was filed on   21 February 2020. The plaintiff was entitled to pursue its claim. Without the benefit of full submissions from the defendant, it was not unreasonable that they did not abandon their claim. Submissions were not received until 1 July 2020 and the hearing, I note, was on 21 July 2020. This was a short space of time before the quarter-day hearing of the application for leave to appeal. It was also not a long or complex matter. In relation to the hearing itself, I consider the conduct of the plaintiff did not reach a level of a failure to accept legal argument without reasonable justification. Nor am I satisfied that these actions contributed unnecessarily to the time or expense of the proceeding.

[19]   As to the conduct of the plaintiff more broadly, I do not accept the defendant’s submission that the plaintiff had an ulterior motive to obtain control or “out-litigate” the defendant. There is no evidential foundation for this submission. The plaintiff did

11     Substantive Judgment, above n 1, at [21].

not simply re-run or reframe former arguments but challenged whether the Arbitrator had incorrectly implied terms into the Agreement.12 The plaintiff has a right to seek leave to appeal and chose to exercise it. It did so responsibly but failed to succeed. No further uplift of costs is justified in the circumstances.

[20]   There was no taking or pursuit of an unnecessary step or an argument without merit. The plaintiff did not fail, without reasonable justification, to admit facts, evidence, documents or accept a legal argument. And in any case, cumulatively, the actions of the plaintiff did not contribute unnecessarily to the time or expense of the proceedings. I also do not find any other r 14.6(3) factors to have been made out to warrant a 50 per cent increase of costs.

[21]   As the plaintiff was unsuccessful, costs should be awarded to the defendant on a 2B basis but, for the reasons stated above, there is to be no increase of costs.

Result

[22]Costs are awarded to the defendant on a 2B basis.

Cull J

Solicitors:

Lawson Robinson, Napier for the Plaintiff

Holland Beckett Law, Tauranga for the Defendant

12     Napier City Council v H2O Management (Napier) Ltd [2020] NZHC 1913 at [29].