Reyes v Gallagher Family Investments Limited
[2022] NZHC 896
•3 May 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-1713
[2022] NZHC 896
BETWEEN MARIA and VINCENTE REYES
Plaintiffs
AND
GALLAGHER FAMILY INVESTMENTS LIMITED
First Defendant
LIAM GALLAGHER
Second DefendantCHRISTOPHER JAMES TAYLOR, SANDRA DIANE TAYLOR and BRETT RONALD HOWSE
Third Defendants
Hearing: On the papers Counsel:
M Lloyd for the Plaintiffs
WG Manning for the Third Defendants
Judgment:
3 May 2022
COSTS JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 3 May 2022 at 11.30am pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors/Counsel:
Leigh Judd Law, Auckland Patricia B Smith, Auckland
M Lloyd, Barrister, Auckland
WG Manning, Barrister, Auckland
REYES v GALLAGHER FAMILY INVESTMENTS LTD & ORS [2022] NZHC 896 [3 May 2022]
Introduction
[1] This proceeding has settled and a notice of discontinuance has been filed but the question of costs remains unresolved.
[2]Both parties now seek costs on a 2B basis.
[3] The third defendants rely on the presumption in r 15.23 of the High Court Rules 2016 that where a plaintiff discontinues a proceeding, the plaintiff must pay costs to the defendant unless the defendant otherwise agrees or the Court otherwise orders.
[4] The plaintiffs say that the r 15.23 presumption is rebutted where the discontinuance is made without prejudice to both parties’ rights to seek costs as it was in this case. If that is not correct the plaintiffs submit it is nevertheless just and equitable for the r 15.23 presumption to be displaced in this case and that any costs award ought to be in favour of the plaintiffs.
Background
[5] The plaintiffs are the owners of an apartment in Parnell, Auckland which is part of a unit title development under the Unit Titles Act 2010. The proceedings relate to accessory units (AU) in that development.
[6] The plaintiffs’ claim against the first and second defendants was determined by way of formal proof with the plaintiffs held to be entitled to the declarations sought.1
[7]The plaintiffs pleaded three causes of action against the third defendants:
(a)a claim for trespass in respect of AU25;
(b)a claim seeking an easement for access across the third defendants’ carpark (AU19) to facilitate access to the plaintiffs’ storage room (AU24) claimed to be “landlocked” in terms of s 327 of the Property Law Act 2007; and
1 Reyes v Gallagher Family Investments Ltd [2020] NZHC 232.
(c)a claim for compensation and other relief arising from an alleged breach by the third defendants of the plaintiffs’ right to quiet enjoyment.
[8] The third defendants admitted in their statement of defence that after settling the purchase of principal unit Q, they began utilising a storage unit which they understood to be AU26 but which was in fact AU25. That misunderstanding was alleged to be based upon a representation by the first defendant’s real estate agents.
[9] The third defendants further pleaded, without prejudice to their defence, that on 30 September 2019 the third defendants had ceased to occupy and use AU25.
[10] The deed of settlement entered into by the parties in November 2020 provided that if the plaintiffs were able to construct a door through the wall of another storage unit which they owned, AU23, which was adjacent to AU24, thereby facilitating their unfettered access to AU24, then they would discontinue the proceeding on the terms in relation to costs as set out below. There was no admission of liability by either the plaintiffs or the third defendants.
[11]The settlement agreement included the following clauses in relation to costs:
5.1The Reyes shall discontinue the Proceeding forthwith, on the basis that either party may seek costs upon the discontinuance if they so wish; and
5.2Save for any issue as to costs, the discontinuance shall operate as a full and final settlement of all claims and matters arising in the Proceeding.
Submissions
[12] The third defendants submit that other than permitting the plaintiffs’ reasonable access to the third defendants’ parking space for the limited purpose of constructing a door between the two accessory units owned by the plaintiffs, the third defendants made no concession to the plaintiffs.
[13]The third defendants therefore submit:2
7.1 The effect of r 15.23 is that where a plaintiff elects to discontinue a proceeding, presumptively costs follow the event.
7.2 The Rule makes plain the usual cost consequences of a plaintiff’s discontinuance, in circumstances where the Court has not heard evidence, and it is not in a position to speculate on the likely outcome of the trial.
7.3 The clear implication of the Deed of Settlement is that the relief sought by the plaintiffs under the Property Law Act was rendered nugatory by the construction of the door in the adjacent storage unit, which had always been owned by the plaintiffs themselves. Not only was this outcome achieved without the third defendants being required to make any substantive concession in respect of their carpark (AU19), it demonstrated conclusively that contrary to the Plaintiffs’ allegation for the purposes of the Property Law Act the Plaintiffs’ storage room (AU24) is not landlocked and never was.
7.4 In an open letter to the plaintiffs’ solicitor dated 10 May 2019, Mr Taylor (a trustee of the Third Defendant trust) wrote:
“I am aware that your clients own AU23 which is separated from AU24 by a concrete wall. It may be that it is your clients’ intention to access AU24 by creating a doorway through the concrete wall. If so, then they will not be concerned about accessing AU24 through AU19”.
The doorway suggested by Mr Taylor was the very solution which ultimately the plaintiffs resolved to proceed with, thereby achieving the desired access to AU24 without requiring relief under the Property Law Act in respect of AU19. Counsel is instructed that Mr Taylor’s letter was the last in a series of communications between the parties before the plaintiffs filed this proceeding more than three months later (without prior notice to the Third Defendants).
[14] The plaintiffs say that the third defendants’ submissions are premised erroneously on r 15.23 applying, submitting that the presumption is rebutted where the discontinuance is made, as it was in this case, “without prejudice to both the parties’ rights to seek costs upon it”.3
[15] The plaintiffs submit further that if the r 15.23 presumption does apply, that it is nevertheless just and equitable for the presumption to be displaced in this case because:4
2 Memorandum of counsel for third defendants regarding costs dated 28 February 2022.
3 Memorandum by counsel for the plaintiffs in relation to costs on the discontinuance of the plaintiffs’ claim dated 28 February 2022 at [8].
4 Plaintiffs’ reply memorandum dated 7 March 2022 at [5].
(a)This was not a unilateral discontinuance in a case that could not be won e.g. because the wrong defendant had been sued or that it was a cause of action that could not succeed or the like.
(b)This was a carefully negotiated settlement of a meritorious claim that has every chance of succeeding had it not settled as part of which settlement costs were reserved on the adjournment of the proceedings (clause 4) and where both parties reserved the right to apply for costs on a discontinuance if made (clause 5).
(c)At the time the settlement agreement was entered into the Reyes had already been successful with their first cause of action (removal of the Taylors from AU25 and the renouncing by the Taylors of any proprietary interest in it), and partially successful on their third cause of action (for the same reasons). Presuming costs in favour of the Taylors on one of the three causes of action which was never decided on its merits, whilst ignoring the Reyes’ success on their other two causes of action would be unfair and unjust.
(d)The Taylors’ conduct before and during the course of the litigation as set out in the Reyes’ submissions (primarily the time line Annexure
A) of 28 February 2022, is such that making of any orders of costs in their favour would be similarly unfair and unjust.
[16] The plaintiffs further submit that the position in respect of the second cause of action is not as simple as the third defendants put forward, with the passage quoted from Mr Taylor’s letter above suggesting the plaintiffs may be contemplating a door through the concrete wall between AU23 and AU24 being followed by:
Whether such a plan is feasible is an issue for [the plaintiffs]. No doubt there are substantial engineering and consent issues to be worked through, a risky exercise with no guarantee of success.
[17] As well as the engineering issues, the plaintiffs submit that because of the third defendants’ approach the plaintiffs feared construction of the door would be thwarted, explaining that the settlement agreement was required to include clauses adjourning the proceedings until the door was constructed and a CCC issued to ensure the door could be completed.
Evaluation
[18] I do not accept that the third defendants’ consent to the discontinuance displaces the r 15.23 presumption automatically. The wording of the settlement agreement in relation to costs is that:
5.1 The Reyes shall discontinue the proceeding forthwith, on the basis that either party may seek costs upon the discontinuance if they so wish.
[19] This wording does not mean the usual costs position on a discontinuance ought not to apply, it just allows either party to make its case for costs in the usual way. The question therefore is whether it is just and equitable for the presumption to be displaced in the circumstances of this case.
[20] McGechan on Procedure has a helpful summary applying to the consideration of this question as follows:5
(c)Although the court is not limited in the factors it may take into account when considering whether the presumption is displaced, generally:
(i)The court will not consider the merits of the respective cases, unless they are so obvious that they should influence the costs outcome.
(ii)The court will consider the reasonableness of the stance of both parties up to the point of discontinuance: whether it was reasonable for the plaintiff to bring and continue the proceedings; and for the defendant to oppose the proceeding. The plaintiff will not be able to avoid the presumption by showing that at one point it had reasonable grounds for believing it would be successful in the proceeding.
(iii)The reason for discontinuing may be relevant, for example, a change of circumstances rendering the proceeding unnecessary. However it must be clear that the plaintiff would have succeeded had the circumstances … not changed … .
[21] As is always the case, the Court’s general discretion in r 14.1 as to costs can override the general principles relating to discontinuance.
Merits
[22] Because of the settlement there has been no determination on the merits. The question, therefore, becomes whether this is one of those cases where the merits of the respective cases are so obvious that they should influence the costs outcome.
5 Andrew Beck and others McGechan on Procedure (online looseleaf ed, Brookers) at [HR15.23.01].
[23] Shortly before filing their statement of defence the third defendants vacated AU25, the accessory unit in respect of which the trespass claim had been made in the first cause of action. The third defendants did so without prejudice to their defence but this was essentially a success for the plaintiffs in terms of the first cause of action.
[24] The position in relation to the second and third causes of action is not as obvious. Although there was a resolution agreed between the parties, it was an alternative option to that pleaded. From the memoranda filed, the question of who has succeeded is clearly highly contested. I do not consider therefore that the merits in respect of the second and third causes of action are so obvious that they ought to affect the costs outcome.
Reasonableness
[25] Considering the reasonableness of the stance of both parties up to the point of discontinuance, I consider that whilst it may have been reasonable for the plaintiffs to bring and continue the proceedings, it was also reasonable for the third defendants to oppose the proceeding, at least in respect of the second and third causes of action. As both parties were reasonable in their approach in respect of those causes of action, I do not consider this affects whether the r 15.23 presumption ought to be displaced.
Reason for discontinuing
[26] Considering next the reason for discontinuing, an alternative resolution was agreed as compared to the result sought on the pleadings. The parties dispute whether this was a solution proposed by the third defendants prior to the proceedings being filed. Again, because it is clearly disputed, I do not consider that the reason for the discontinuance displaces the presumption either.
Conclusion
[27] Having considered the above matters, in my view it is just and equitable for the presumption to be displaced in respect of the first cause of action but not in respect of the second and third causes of action.
[28] It appears from the case law that usually the presumption will be displaced wholly or not at all. I consider, however, that the just and equitable approach in this case is for the presumption to be displaced in terms of the first cause of action only because the causes of action are sufficiently distinct as are the steps taken in response to the first cause of action. Although the actions of the third defendants in relation to AU25 were relevant to the third cause of action, the merits in regard to that cause of action are not sufficiently clear to support displacement in respect of that cause of action either in part or whole.
[29] For the first cause of action, I consider it is appropriate for costs to lie where they fall. For the second and third causes of action, I consider that the r 15.23 presumption applies in favour of an award of costs to the third defendants.
[30]The next question is how this affects the quantum of costs claimed.
Quantum
[31]The third defendants claim costs as follows:
Step
Days
Commencement of defence
2.0
Filing memorandum for case management conference
0.4
List of documents on discovery
2.5
Inspection of documents
1.5
Total:
6.4
[32] By the time their statement of defence was filed, the third defendants had vacated AU25.
[33] The question of rent of AU25 and outgoings paid by the plaintiffs while the defendants were in occupation of it were not resolved by the third defendants’ vacation of the unit but these are not matters which would have materially increased costs.
[34] On this basis, I reduce the first step “commencement of defence” by a third to reflect the displacement of the presumption in respect of this step. The further steps do not require adjustment as the steps following the filing of the statement of defence would still have been required despite the position in respect of the first cause of action. Although this is a slightly rough and ready approach, seeking further submissions from the parties is not justified in terms of the amounts in issue.
[35] As a result the time allocation for the commencement of the defence reduces from 2.0 to 1.33 days. The total time for which costs are to be awarded to the third defendants therefore reduces to 5.73 days. Both parties agree category 2B is appropriate. The total costs payable to the third defendants is therefore 5.73 x $2,390
= $13,694.70 plus disbursements.
Result
[36] The third defendants are awarded costs of $13,694.70 plus disbursements as fixed by the Registrar if necessary.
Associate Judge Sussock
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