Neal v Neal

[2022] NZHC 2625

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-431

[2022] NZHC 2625

UNDER

Section 42 of the Property (Relationships) Act 1965

IN THE MATTER

of an application that Notice of Claim not lapse

BETWEEN

VANESSA ROSEMARY NEAL

Applicant

AND

COLIN ASHLEY NEAL

Respondent

Hearing:

On the papers

Counsel:

J McCartney KC for the Applicant

V A Crawshaw KC for the Respondent

Judgment:

12 October 2022

JUDGMENT OF GAULT J

(Costs)

This judgment was delivered by me on 12 October 2022 at 4:00 pm pursuant to r 11.5 of the High Court Rules 2016.

Registrar/Deputy Registrar

……………………………………

Solicitors / Counsel:

Ms J McCartney KC, Barrister, Auckland

Mr DJG Cox (applicant’s instructing solicitor), Rennie Cox Lawyers, Auckland Ms V A Crawshaw KC, Barrister, Auckland

Ms A Bradley (respondent’s instructing solicitor), Duncan Cotterill, Christchurch

NEAL v NEAL [2022] NZHC 2625 [12 October 2022]

[1]    This proceeding involved an originating application for an order that Ms Neal’s notice of claim not lapse. I made that order by consent, but the parties could not agree on costs. I considered that costs should be determined on the papers and made timetabling directions for affidavits and submissions.1

[2]    Ms Neal seeks indemnity or increased costs, and costs on costs. In terms of indemnity costs, she seeks solicitor/client costs to 20 April 2022 of $15,931.77 plus

$6,256 subsequently incurred in respect of affidavits and submissions seeking costs.

[3]Mr Neal accepts that Ms Neal is entitled to costs on a 2B basis calculated at

$6,884 but opposes indemnity or increased costs, and costs on costs.

Background

[4]    The parties were in a relationship from about 1998,  marrying  in  2005.  They separated in March 2021.

[5]    On 20 May 2021, Ms Neal registered a notice of claim over a property in Halsey Street, Auckland (the property) which Mr Neal had purchased on 13 May 2021.

[6]    In July 2021, Ms Neal commenced proceedings in this Court claiming a constructive trust.

[7]    In August 2021, Ms Neal commenced Family Court relationship property proceedings.

[8]    On 15 March 2022, Mr Neal applied to Land Information New Zealand to lapse Ms Neal’s notice of claim. On 21 March 2022, Ms Neal’s solicitors received notice of Mr Neal’s application to lapse the notice of claim.

[9]    On 1 April 2022, Ms Neal filed the originating application for an order that her notice of claim not lapse, together with an affidavit in support.

1      Neal v Neal HC Auckland CIV-2022-404-431, minute dated 26 April 2022.

[10]   On 7 April 2022, Mr Neal filed a notice of opposition indicating he did not oppose an order that the notice of claim not lapse but did oppose costs. He also filed an affidavit.

[11]   On 22 April 2022, Mr Neal’s counsel filed a memorandum indicating he was willing to pay 2B costs of $6,884.

Scale costs

[12]   Ms Neal submits it is apparent that category 2C applies as the steps taken in the proceeding exceeded the time provided under category 2B. That assumes rather than substantiates that the steps taken required such time. The originating application process for orders that a caveat or notice of claim not lapse is intended to be a streamlined one. I am not persuaded that scale costs should be calculated on a 2C basis. In terms of the time considered reasonable for each step reasonably required in relation to the proceeding,2 I consider that category B is sufficient.

[13]   In addition to the steps claimed, however, I allow 0.4 days for preparation / filing a memorandum for the April 2022 mention and 0.2 days for sealing the order.

[14]Accordingly, I calculate 2B costs and disbursements as being $8,313.

Indemnity / increased costs – applicable principles

[15]   Rule 14.6 of the High Court Rules 2016 provides for indemnity and increased costs. Ms Neal’s submissions set out r 14.6 in full but did not specify which paragraphs of subsections (3) and (4) are relied on.

Indemnity costs

[16]   Indemnity costs are provided for in r 14.6(4). Only the following paragraphs appear potentially relevant:

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

2      High Court Rules 2016, r 14.2(1)(c).

(a)the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or

…

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

[17]   As the Court of Appeal said in Bradbury v Westpac Banking Corporation, “unnecessarily” in the context of r 14.6(4)(a) takes its meaning from the adverbs which precede it: “vexatiously, frivolously, improperly”.3 Indemnity costs may be ordered where a party has behaved either badly or very unreasonably.4 The Court went on to say that indemnity costs, which depart from the predictability of the Rules Committee’s regime, are exceptional and require exceptionally bad behaviour. That is why to justify an order for such costs the misconduct must be “flagrant”.5

[18]   Rule 14.6(4)(f) requires specific circumstances overcoming the principle that the determination of costs should be predictable and expeditious.

[19]   The onus is on the applicant for indemnity costs to persuade the Court that such an award is justified.

Increased costs

[20]   Increased costs are provided for in r 14.6(3). Only the following paragraphs appear potentially relevant:

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

…

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

…

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

3      Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [26].

4 At [27].

5 At [28].

…

…

(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.

[21]   As the Court of Appeal said in Bradbury v Westpac Banking Corporation in the context of r 14.6(3)(b)(ii), increased costs may be ordered where there is failure by the paying party to act reasonably.6

[22]   Rule 14.6(3)(d) also requires specific circumstances overcoming the principle that the determination of costs should be predictable and expeditious.

[23]   Again, the onus is on an applicant for increased costs to persuade the Court that such an award is justified.

Discussion

[24]In summary, Ms Neal seeks indemnity or increased costs on the basis that:

(a)Mr Neal unnecessarily required her to incur the expense of the whole proceeding in circumstances where he knew she had an arguable case for the notice of claim. His application to lapse wholly lacked merit.

(b)Mr Neal improperly conveyed to the Court that there were no other funds to meet Westpac Fiji’s request/requirement  for  NZ$600,000. At all times, Mr Neal had access to his portfolio at Craig’s Investment Partners which held cash and shares in  excess  of  $10,000,000.  There were other sources available to fund the $600,000.

(c)There are other exacerbating factors, namely a pattern in the litigation of Mr Neal causing Ms Neal to commence proceedings to protect her entitlement to the property pool, only to then either withdraw, negotiate or agree before the hearing or before judgment but after causing

6      Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [27].

Ms Neal to unnecessarily incur the costs of taking action to protect her entitlement (described as “deep pocketing”).

(d)An award of indemnity or increased costs is required to both fairly reimburse Ms Neal for the unwarranted costs and to deter Mr Neal from this conduct.

[25]   I appreciate Ms Neal’s concern in the wider context of a relationship property dispute over significant assets where one party has control and is in a position to cause substantial costs to the other party.  However, two immediate issues arise.   First,   Ms Neal is seeking indemnity or increased costs on the basis of alleged misconduct by Mr Neal that in part precedes this originating application proceeding and relates to conduct in other proceedings. Secondly, Ms Neal is seeking indemnity or increased costs on the basis of alleged misconduct by Mr Neal that is contested. I address each of these issues before turning to the specific submissions.

[26]   As to the first issue, costs should generally reflect how parties have acted during a proceeding, not prior to it.7 Rule 14.6(4)(a) is limited to misconduct in “commencing, continuing, or defending a proceeding or a step in a proceeding”. Rule 14.6(3)(b)(ii) is similarly limited to conduct contributing “unnecessarily to the time or expense of the proceeding or step in it”. Rules 14.6(4)(f) and 14.6(3)(d) should, absent exceptional circumstances, be similarly constrained given the principle that the determination of costs should be predictable and expeditious. That principle incorporates another general principle, namely that the cost rules are concerned with the costs of or incidental to a proceeding or step in a proceeding.8

[27]   As to the second issue, even where the conduct relates to the proceeding, where proceedings have been resolved by consent, indemnity or increased costs may only be awarded on the basis of lack of merit if the lack of merit is both obvious and incontrovertible.9 Similarly, indemnity or increased costs may only be awarded on the

7      Paper Reclaim Ltd v Aotearoa International Ltd [2007] NZSC 26, [2007] 3 NZLR 169 at [40]-[41] affirming Paper Reclaim Ltd v Aotearoa International Ltd [2006] 3 NZLR 188 (CA) at [160].

8      High Court Rules 2016, r 14.1.

9      N-Tech Ltd v Abooth Ltd [2012] NZHC 1167 at [108]; and Sealegs International Ltd v Zhang

[2020] NZHC 912 at [23].

basis of misconduct where the misconduct is both obvious and incontrovertible. Costs, where not agreed, are usually determined on the papers following brief memoranda. Affidavits are sometimes appropriate, but the Court is not in a position to determine contested facts on affidavits. Moreover, a post-resolution inquiry into the reasonableness of the parties’ conduct is ordinarily contrary to the objectives of the costs rules. Here, in aggregate the parties filed three substantive affidavits and three memoranda addressing costs by reference to the conduct of the parties during the year preceding the originating application. The memoranda referred also to earlier affidavits filed in the proceeding and indeed to affidavits filed in the Family Court.

[28]With those observations in mind, I turn to the specific grounds raised.

[29]   I accept that by lodging a notice to lapse, Mr Neal put Ms Neal to the trouble of making an urgent originating application to the Court. I also accept that Mr Neal would, or at least should, have appreciated that Ms Neal had an arguable case for her notice of claim on the basis that the property was acquired from the proceeds of sale of shares acquired during the relationship. Even so, Mr Neal’s action lodging the notice to lapse preceded commencement of this proceeding and cannot be characterised as a step in the proceeding that wholly lacked merit. Mr Neal then indicated within a week – and before the first call – that he would not oppose an order sustaining the caveat. Even if Mr Neal’s conduct giving notice to lapse is within the scope of the cost rules, Mr Neal claims he was seeking to avoid a mortgagee sale and was not acting unreasonably when he lodged the notice to lapse. On the contested affidavit evidence, I am not in a position to make a determination as to Mr Neal’s motive or reasonableness when filing the notice to lapse. I accept the Court’s power to sustain a caveat is discretionary, whether exercised taking a cautious or more flexible “reasonable requirements” approach,10 and the Court may impose conditions. Unreasonableness or misconduct is not obvious and incontrovertible.

[30]   Related to this, Ms Neal submits that Mr Neal deliberately misled the Court by conveying that he could not access other funds to meet Westpac Fiji’s request / requirement for $600,000. This is also disputed. At least in part, the complaint is

10     Selak v Smith [2019] NZHC 1487 at [3].

based on Mr Neal’s subsequent costs affidavit although I apprehend it is also alleged that his 7 April 2022 affidavit was misleading (the same affidavit that indicated he did not oppose sustaining the notice of claim). Again, I am not in a position to make a misconduct determination on the basis of the contested affidavit evidence. That would be inappropriate, especially solely for the purposes of costs.

[31]   The alleged pattern of litigation is also denied. Addressing costs in this narrow originating application proceeding is not an opportunity to assess disputed allegations about conduct in other proceedings in this Court or the Family Court. Conduct in other proceedings is to be assessed in those proceedings. Further, I am not in a position to make a misconduct determination on the basis of the affidavit evidence.

[32]   For these reasons, I decline to award indemnity or increased costs for the period to 20 April 2022.

Costs on costs

[33]   As indicated, Ms Neal also seeks solicitor/client costs of $6,256 for the filing of subsequent affidavits and submissions on costs. I decline to award costs on costs for three reasons. First, while Mr Neal initially proposed that costs be reserved to another proceeding, which is not this Court’s approach to costs on an originating application to sustain a caveat,11 he subsequently – and before the first call – accepted that 2B scale costs were appropriate, and he has successfully opposed indemnity / increased costs and costs on a 2C basis. Secondly, while the Court has power to award costs in relation to costs matters, the Court is generally reluctant to award costs on costs.12 Thirdly, even when costs on costs are appropriate, they should generally be awarded by allowing scale costs for the filing of a costs memorandum (and affidavit if necessary). Indemnity or increased costs for those steps would also need to be justified by reference to the cost rules referred to above.

11 PHI Construction Ltd v Thomson [2021] NZHC 706 at [4], citing Samson v Mourant [2016] NZHC 1119 at [16]-[17]; Ding v Ai [2020] NZHC 858 at [4]; and Sain v Millie Erceg Trustee Ltd [2020] NZHC 1778.

12   See for example Jeffreys v Morgenstern [2013] NZHC 1361 at [40]; Barry Park Investments Ltd v Body Corporate Number 95388 [2016] NZHC 1527 at [25]; Epsom Woods Ltd v Waitakere Farms Ltd [2020] NZHC 3137 at [4]; Norrie v Crown Range Holdings Ltd [2022] NZHC 898 at [28]; DGL Manufacturing Ltd v Simmonds [2022] NZHC 1434 at [18]; and Legler v Formannoij [2022] NZHC 1804 at [12].

Result

[34]Mr Neal is to pay Ms Neal 2B costs and disbursements of $8,313.

Gault J