Samson v Mourant

[2016] NZHC 1119

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2015-404-2865 [2016] NZHC 1119

UNDER

Section 145A of the Land Transfer Act

1952

IN THE MATTER

of an application for an order that Caveat Number 9969049.1 North Auckland Land Registration District not lapse

BETWEEN

LYNSIE KAREN SAMSON Applicant

AND

CHRISTOPHER ERNEST MOURANT, MARY ISOBEL KENNEDY AND SHORTLAND TRUSTEES LIMITED Respondents

On the papers
Judgment:	31 May 2016

JUDGMENT AS TO COSTS OF THOMAS J

This judgment was delivered by me on 30 May 2016 at 12.00 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date:………………………….

SAMSON v MOURANT & ORS [2016] NZHC 1119 [31 May 2016]

Introduction

[1]      The applicant, Ms Samson, registered a caveat over a property in which she lived but which was owned by the M Mourant (No 2) Family Trust (the Trust). Ms Samson  was  a  discretionary beneficiary  of  the Trust.   After  communication between the parties, the respondents, the Trustees, on behalf of the Trust lodged an application with Land Information New Zealand on 19 November 2015 for the early lapse of the caveat on the basis that Ms Samson had no caveatable interest in the property.

[2]      On 1 December 2015, Ms Samson filed an application to sustain the caveat (the application).  The parties by consent agreed that a hearing should be set down. The fixture was allocated for 29 February 2016.

[3]      On 17 December 2015, Ms Samson’s lawyers wrote to the Trustees offering to discontinue the application if the Trustees paid $5000 toward Ms Samson’s legal fees, on the condition that a substantive application was made.  It appears this offer was rejected.

[4]      However, on 23 December 2015, the Trustees wrote to Ms Samson asking her to file substantive proceedings and to discontinue the application on the basis that the caveat would be sustained pending the outcome of the substantive proceedings.  No offer of costs was made.  On 24 December 2015, Ms Samson emailed protesting the refusal to pay costs and protesting the Trustees’ conduct.

[5]      On 21 January, the Trustees sought an order from the Court that the caveat should not lapse on conditions, including that Ms Samson file and serve a statement of claim within a set period of time.   On 22 January 2016, Ms Samson filed a memorandum of consent but seeking an order for costs.

[6]      On 26 January 2016, I made the orders sought and directed the parties to file memoranda as to costs if they could not agree.

[7]      Ms Samson says she is entitled to costs, and seeks an order for her actual or increased costs.   The Trustees now argue that costs should be delayed until determination of the substantive proceedings, and that, if costs are awarded, they should not be actual or increased costs.

Should costs be reserved?

Submissions

[8]      The Trustees say that the application is analogous to a summary judgment claim, in which costs are often not fixed when the application is determined.  This exception to the general approach is set out in r 14.8 of the High Court Rules which requires costs on interlocutory applications to be fixed at the time of the decision, with an exception for summary judgment.   The Trustees say that the principles underlying an application for a caveat not to lapse are the same as those in summary judgment and so the same principles should be applied.  Further, there has been no determination in this case as to the merits of the caveat, which will be determined when the substantive hearing is heard.

[9]      The  Trustees  say  that  their  approach  was  pragmatic  and  commercially sensible, and they should not be punished for that decision, as it could discourage parties from taking such approaches in the future.

[10]     Ms Samson says that the application was not an interlocutory one, so r 14.8 has no relevance.  She says that the basic principle is that the successful party should be awarded costs, and that, as the caveat did not lapse, she is the successful party. There are no unresolved factual disputes before the Court as there would be in an interlocutory decision.

Analysis

[11]     Applications for costs in cases relating to sustaining or removing caveats are typically decided, under the principle in r 14.2, when the case is determined.  Cases where the caveat is ultimately sustained or removed by consent indicate that costs

are still awarded to the “successful” party, being the person who has obtained the

desired outcome.1

[12]     The Court of Appeal, discussing the rationale for fixing costs at the time of a decision, stated:2

Apart from applications for summary judgment, the general approach to costs in respect of interlocutory applications is that they are dealt with at the time the applications are determined rather than being held over until the outcome of the proceedings is known.  This reflects the fact that the merits of particular applications and the merits of the substantive proceedings are different matters. So it is in this case.

[13]     An  argument  that  the  procedure  in  preserving  a  caveat  is  similar  to  a summary judgment application was made previously before Associate Judge Robinson. The Judge declined the invitation to apply a different regime, saying:3

[8] I do not consider the decisions relating to costs in respect of summary judgment applications to be appropriate when considering liability for costs in connection with applications to preserve caveats.   The application for summary judgment involves production of evidence to support the claim. Where the application is unsuccessful much of the evidence produced and considered will be relevant to the determination of the substantive claim.

[9] In any event the Court can in appropriate cases direct the plaintiff in an unsuccessful application for summary judgment to pay the defendants costs. In NZI Bank v Philpott Heron J at page 405 line 40 stated:

“There will be other cases where the plaintiff has embarked on summary judgment proceedings erroneously in the sense that the rules  do  not  allow  the  summary  judgment  procedure,  or  in  the certain knowledge that there is a bona fide question of fact or law which can be determined only after a trial.  In those circumstances the Court should be able in its discretion to deprive the plaintiff of costs in those unsuccessful and abortive proceedings and award costs to the defendant.”

[10]  Had  the  defendant  not  instigated  the  procedure  to  remove  the plaintiff’s caveat the plaintiff would not have incurred costs in applying to the Court to preserve the caveat and thus the status quo so as to enable the plaintiff's application for specific performance to proceed.  Consequently the defendant's conduct has involved the plaintiff in extra costs.  That is a very good reason to require the defendant to make a reasonable contribution to the plaintiff’s costs.

1      ASB Bank Ltd (398445) v LJ Holdings (No 1) Ltd [2015] NZHC 1433; Parks v Sutherland HC Palmerston North CIV-2011-454-5, 5 October 2012; Clement v Harihari [2015] NZHC 1334.

2      Chapman v Badon Ltd [2010] NZCA 613 at [12].

3      Gong v L & Y Holdings (Holding) Ltd HC Auckland CIV-2007-404-7423, 5 March 2008.

[14]     That is the situation pertaining to this case, and I concur with the Judge’s

reasoning and conclusion.

[15]     The Trustees point to other decisions in which it says that the Court has reserved costs in similar circumstances.4   Each dealt with the question of costs very briefly and turned significantly on the facts.

[16]     In this case, there is no basis for the Court to assess the likely position at trial as  regards  the  sustainability  of  the  caveat.    However,  ultimately,  although  the Trustees might be vindicated at trial, the standard position is that the successful party is entitled to costs now.  In Official Assignee v Menzies (No 2), Judge Bell said:5

[5] On the trustees' submission that no order for costs should be made until the substantive determination of the Official Assignee's claim to an equitable lien, the response is that an application to sustain a caveat is a discreet proceeding.  Items 25 to 30 in the Third Schedule, which provide a separate regime for fixing costs on a caveat application, recognise that costs on a caveat application can be fixed independently of the outcome of any later substantive proceeding.   Rule 14.8 provides that costs on interlocutory applications should be fixed when the application is determined and become payable when they are fixed.  In a similar way, costs on caveat applications should be fixed when the applications are determined and should become payable when they are fixed.  The principles under r 14.2 require that costs follow  the  event  (r  14.2(a))  and  that  costs  should  be  fixed  promptly  (r

14.2(g)) so that they can be paid promptly.  I see no reason in this case for departing from that general approach.

[17]     The application is a discrete proceeding and costs should be fixed now.

Costs

Submissions

[18]     Ms Samson submits that she was the successful party, in that she achieved the desired outcome in the proceeding.  She points to her written offer without prejudice save as to costs made by letter dated 17 December 2015 as justifying an award of

actual costs.

4      Duff v Hopkins (1994) 2 NZ ConvC 191,816 and Blumenthal v Stewart [2014] NZHC 1924, [2014] NZFLR 1002; Joshi v Eesha Holdings Ltd [2015] NZHC 3062.

5      Official Assignee v Menzies (No 2) HC Auckland CIV-2010-404-5457, 4 May 2011.

[19]   Alternatively, increased costs are sought on the basis of the Trustees’ unreasonable behaviour.  Counsel for Mr Samson says that the Trustees should never have utilised the administrative “quick fire” process of applying to lapse a caveat administratively  under  s  145A of  the  Land  Transfer Act  when  they  knew  the preservation of the caveat was a more than likely possibility, and that they either should have sought to have an order made to remove the caveat in a formal application  under  the  Land  Transfer Act,  or  should  themselves  have  brought  a proceeding for an order for possession of the property, seeking removal of the caveat within that proceeding.

[20]     The Trustees do not respond to the submission as to indemnity or increased costs on the basis of the settlement offer.  Indeed, in their memorandum on costs, no reference to the settlement offer is made at all. The Trustees’ response is that, even if costs are awarded now, Ms Samson should not be awarded costs as they did not act unreasonably in applying for the caveat to lapse. The Trustees submit that there is no legal basis to support Ms Samson’s claims about the process which “should” have been followed, and no factual basis to suggest that the Trustees acted unreasonably. They also submit that, in fact, they should be considered the “successful” party, based on the comments of the authors of Land Law in New Zealand, that:

Where it appears to the registered proprietor that the caveator will likely be able to show an arguable case, it is advisable for the registered proprietor to invite the caveator to commence a substantive proceeding within a stated time, failing which the registered proprietor will challenge the caveat with the intent that any order sustaining the caveat be on the condition that the caveator commence a substantive proceeding.  In this way, even if the caveat is sustained, the registered proprietor should be considered the successful party, and thereby entitled to costs, if such a condition is obtained.

Analysis

[21]     The authors of Land Law in New Zealand note that is relatively common to impose a condition that substantive proceedings must be commenced when a caveat is sustained by order of the Court.6  Consequently, the imposition of the condition cannot be taken to suggest that the Trustees “succeeded”.  Furthermore, the Trustees

did not follow the process outlined in Land Law in New Zealand because they did

6      Hinde, McMorland and Sim’s Land Law in New Zealand (online looseleaf edition, LexisNexis)

at [10.020A], fn 5.

not invite Ms Samson to commence substantive proceedings before they took steps to challenge the caveat.

[22]     It was not until the Trustees’ counter-offer of 23 December 2015 that they conceded there were factual disputes in issue.   However, the affidavit evidence in support of Ms Samson’s claim had been available to them since 20 March 2015 when the solicitors for Ms Samson wrote to the solicitors for the Trust attaching three affidavits supporting Ms Samson’s position.

[23]     The practice suggested in Land Law in New Zealand was only belatedly followed by the Trustees after their own actions forced Ms Samson to make the application.  It was Ms Samson’s lawyers who first suggested the way to resolve the application.

[24]     It is plain that Ms Samson has succeeded and is entitled to costs.

Should actual costs be awarded?

[25]     Ms Samson seeks actual costs on all steps taken in the proceeding relying on her written offer without prejudice save as to costs.

[26]     Ms Samson’s lawyers wrote to the Trustees’ lawyers on 17 December 2015 offering to  discontinue  the application  on  the  basis  it  was  unnecessary and  the probability a Court would find there was a highly arguable case to sustain the caveat. The  letter  noted  that  Ms Samson  had  been  invoiced  with  actual  legal  fees  of

$14,047.12, and scale costs were $5,446.00 at that point.  The letter offered to settle if the Trustees paid a $5,000 contribution to Ms Samson’s costs, on the basis that the caveat would not lapse provided Ms Samson filed her substantive claim within a specified time.  The letter stated that the offer was open until 23 December, and, if not accepted, full indemnity costs would be sought.

[27]     Ms  Samson’s  actual  costs  now  stand  at  $19,870.92.     Scale  costs  are

$8,762.00.

[28]     Written offers to settle proceedings with prejudice except as to costs are dealt with under r 14.10 of the High Court Rules.   The effect on costs of an offer is detailed in r 14.11.   It is explicitly at the discretion of the Court,7  and there is no presumption of indemnity costs, although such an offer will often lead to an award of increased costs.8 Rule 14.11 further states:

(3) Party A is entitled to costs on the steps taken in the proceeding after the offer is made, if party A—

(a) offers a sum of money to party B that exceeds the amount of a judgment obtained by party B against party A; or

(b) makes an offer that would have been more beneficial to party B

than the judgment obtained by party B against party A.

(4) The offer may be taken into account, if party A makes an offer that—

(a) does not fall within paragraph (a) or (b) of subclause (3); and

(b) is close to the value or benefit of the judgment obtained by party

B.

[29]     The offer in this case was identical to the ultimate judgment, meaning the offer “may be taken into account” in assessing costs. A successful r 14.10 offer does not of itself give rise to an entitlement to increased or indemnity costs which must still be assessed under r 14.6.9

[30]     Indemnity costs are governed by r 14.6(4) of the High Court Rules, which, relevant to this case, provides:

14.6     Increased costs and indemnity costs

…

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

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

…

7      Rule 14.11(1).

8      Weaver v HML Nominees [2016] NZHC 473 at [30].

9      Andrew  Beck  and  other  McGechan  on  Procedure  (online  looseleaf  edition,  Westlaw)  at

[HR14.11.02].

(f) 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.

[31]     The leading case on indemnity costs is Bradbury v Westpac and the principles within it have recently been confirmed by the Court of Appeal.10 The Westpac Court stated:11

(a)       standard scale applies by default where cause is not shown to depart from it;

(b)increased costs may be ordered where there is failure by the paying party to act reasonably; and

(c)       indemnity costs may be ordered where that party has behaved either badly or very unreasonably.

[32]     The  Court  described  the  necessary  behaviour  as  “exceptionally  bad”  or

“flagrant”.12

[33]     The Trustees could have accepted Ms Samson’s offer and saved both parties costs.  Their actions, in essentially making the same offer back to Ms Samson but without any costs component, were unreasonable in the circumstances.   However, their behaviour was not exceptionally bad or flagrant such that the only course of action is to make an order for indemnity costs.

Should increased costs be awarded?

[34]     The jurisdiction for granting increased costs is also set out under r 14.6:

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

…

10     Bradbury v Westpac Banking Corporation [2009] 3 NZLR 400 (CA); Ben Nevis Forestry v

Commissioner of Inland Revenue and Redcliffe Forestry Venture Limited [2014] NZCA 348.

11 At [27].

12     Citing Prebble v Awatere Huata (No 2) [2005] 2 NZLR 467 (SC) at [6].

(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

(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.

[35]     The procedure to be followed by an applicant seeking increased costs has been summarised by the Court of Appeal in Holdfast NZ Ltd v Selleys Pty Ltd:13

(a)       Categorise the proceedings in terms of category;

(b)Work out a reasonable time for each step in the proceeding (with reference to the daily recovery rates and the time allocations);

(c)       Apply for extra time for a particular step as necessary; and

(d)Only after the preceding three steps have been complied with should the applicant step back and consider the amount of costs it would receive by this process, and then argue for additional costs if it is

considered such can be justified.

13     Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [43] – [45] and [48].

(e)      It   is   also   established   that   in   only   the   most   exceptional   of circumstances would an increase of 50% above scale costs be warranted.

[36]     As emphasised by McGechan on Procedure, in ordering increased costs, “the courts uplift from scale, it is not a question of awarding a percentage of actual costs”.14

[37]     In this case, there is no challenge to the categorisation of costs on a 2B basis,

and the respondents have not challenged the applicant’s calculation of scale costs at

$8,762.00.  There have been no applications for additional time for any step in the proceeding.

[38]     Ms Samson argues for a 50 per cent uplift on scale costs because of the Trustees’ failure to act reasonably in the process they adopted for challenging the caveat, as they should have sought an order for possession of the property, or used s

143 (not s 145A) of the Land Transfer Act.  These are alleged to be unreasonable actions warranting an increase in costs.

[39]     Counsel for Ms Samson draws an analogy between the use of s 145A and the abuse of the statutory demand procedure, noting that the Trustees did not provide any evidence about the caveat despite Ms Samson having filed three different affidavits since March 2015.  Counsel submits there is an analogy between caveats and statutory demands in the High Court Rules, in the sense that r 19.12A similarly makes special provisions for the service of both types of application and points to two cases which suggest that the statutory demand process should not be used where

there is a genuine underlying dispute as to the debt.15  Counsel for Ms Samson says

there was a similarly genuine dispute on the facts here, and that the “quickfire”

s 145A process was inappropriate because it was likely that the preservation of the caveat would be ordered.

14     Andrew Beck and others McGechan on Procedure (online looseleaf ed, Westlaw) at HR 14.6.02 (1).

15     Gateway Cargo Systems Ltd v Airborne Freight Ltd HC Auckland CIV-2003-404-7202, 16

March 2004 and Daisy Ltd v Wellington Distributors Ltd [2014] NZHC 497.

[40]     Section  143  of  the  Land  Transfer Act  allows  for  any  applicant,  or  the registered proprietor, to apply to the High Court for an order that the caveat be removed.  Section 145A, which was the process used in this case, provides for the “early lapse” of a caveat by applying to the Registrar-General of Land, which then requires the caveator to apply to the High Court to sustain the caveat or it automatically lapses.

[41]     The sections provide alternative approaches to challenging a caveat.  There are no prescriptive guidelines as to when either approach should be used.  There is nothing  to  demonstrate  that  using  the  s  145A procedure  was  an  inappropriate method.  The Trustees were entitled to adopt a strategic approach to challenging the caveat which reduced the administrative burden on the Trust, and which would allow the caveat to lapse automatically if Ms Samson conceded her claim.  The use of a particular means of challenging the caveat was not unreasonable.

[42]     Looking at the broader claim by Ms Samson that it was unreasonable of the Trustees to challenge the caveat when it was clear there was a genuine underlying dispute, the Trustees have now adopted the position that a substantive evaluation of Ms Samson’s claim will be necessary.  The Trustees do not concede that there is any legal basis for Ms Samson’s caveat, but simply acknowledge that the application would not adequately deal with the necessary questions of fact.

[43]     However, the position is different from the abuse of the statutory demand procedure.    Further,  a  challenge  to  a  caveat  under  s  145A does  not  have  the potentially serious impacts of a statutory demand, which warrants the particular concern of the Court where such a procedure is misused.   In my view and on the limited available evidence, there is nothing to indicate that the s 145A application was an unreasonable procedure in the circumstances known to the Trustees at the time.

[44]     I  now  turn  to  consider  whether  the  failure  to  accept  the  offer  justifies increased costs.   In assessing whether a failure to accept a settlement offer is reasonable, the Court’s assessment is a broad one taking into account, amongst other matters, the offer, its timing, its size, the reasonable expectations of the party who

refuses the offer, and whether the parties were in a position to assess the merits when the offer was received.16     In this case, it is clear that both Ms Samson and the Trustees considered the offer to be a reasonable compromise, since it was mirrored in the Trustees’ later offer. The only dispute was over costs.

[45]     In my view, it was unreasonable not to accept the $5000 compromise on costs.   As the Trustees acknowledge by their reference to the practice considered advisable by the authors of Land Law in New Zealand, the course suggested by the lawyers for Ms Samson was the appropriate one.  She was then the successful party and entitled to costs.   The failure to accept the offer resulted in her expending

$5,796.80 unnecessarily.

[46]     In those circumstances, an uplift of 30 per cent is warranted as this recognises her unnecessary expenditure.

Result

[47]     For the reasons given, costs are awarded to Ms Samson on a 2B basis, with a

30 per cent uplift. This totals $11,390.60.

Thomas J

16     Weaver v HML Nominees Ltd, above n 8, at [30](a) – (i).