Spak (1996) Limited v Leroy
[2021] NZHC 3278
•2 December 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-1483
[2021] NZHC 3278
BETWEEN SPAK (1996) LIMITED
Plaintiff
AND
REECE LEROY
Defendant
AND
BODY CORPORATE 407404
Third Party
Hearing: (On the papers) Judgment:
2 December 2021
COSTS JUDGMENT OF VENNING J
This judgment was delivered by me on 2 December 2021 at 11.00 am, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Russell McVeagh, Auckland
K3 Legal Ltd, Auckland
Wotton & Kearney Ltd, Auckland
SPAK (1996) LIMITED v REECE LEROY [2021] NZHC 3278 [2 December 2021]
Introduction
[1] In a judgment delivered on 14 September 2021 Associate Judge Bell granted the defendant Reece Leroy’s applications for summary judgment and strike out against the plaintiff.1 On the issue of costs the Court noted that:
[113] Provisionally it appears that in light of the [plaintiff’s] conduct in this proceeding, ordinary scale costs will not be adequate and that an upward adjustment is appropriate.
[2] The Judge subsequently retired. The file has been referred to me as duty Judge to fix costs.
[3]There are several heads of costs that require consideration:
(a)costs on the defendant’s successful summary judgment and strike out applications;
(b)costs on the plaintiff’s withdrawn application to hold the defendant in contempt of court;
(c)costs on the plaintiff’s withdrawn application for unless orders against the defendant; and
(d)the third party’s costs.
Third party costs
[4] In its minute of 9 November 2021 the Court raised with the parties, (including the third party) if the third party claim was to be discontinued given the success of the defendant’s summary judgment and strike out applications, and if so, whether there were costs arising out of that to be addressed. I thank counsel for their memoranda in response.
[5] As the plaintiff has appealed the decision of Associate Judge Bell the defendant wishes to maintain the third party claim pending the outcome of that appeal. The third
1 Spak (1996) Ltd v Leroy [2021] NZHC 2398.
party challenges whether that is necessary but, having put the parties on notice as to its position, does not take the matter further. The defendant and plaintiff are content for the issue of third party costs to be adjourned to the new year.
[6] I reserve the issue of the third party’s position in relation to its costs and any subsequent costs between the plaintiff and defendant in relation to the third party’s position accordingly.
The plaintiff’s application for an unless order
[7] On 25 March 2021 Gordon J had made a costs order against the defendant in favour of the plaintiff in the sum of $4,780.00.2 On 1 April 2021 the plaintiff through its solicitors made demand for payment. The defendant did not pay immediately. On 22 April 2021 the plaintiff brought an application in which it sought:
(a)an order holding the defendant in contempt of Court for breach of an injunction order earlier granted by Davison J;3 and
(b)an unless order in relation to the defendant’s failure to pay the costs.
[8] Shortly afterwards, on 4 May 2021, the defendant paid the costs award. The plaintiff seeks costs on its application for the unless order. It submits the application was necessary and it was, in substance, successful as the defendant ultimately paid the costs. The plaintiff rather optimistically also seeks an uplift on scale costs.
[9] The plaintiff seeks to rely on Wylie J’s comments in Zespri International Ltd v Shanghai Neuhof Trade Company Ltd where the Judge ordered costs on an application for unless orders. In my judgment that was quite a different case. The application for unless orders in that case was not based on a failure to pay a costs award. The Judge had previously considered and adjourned Zespri’s application for unless orders and at the same time had made various directions. The respondents complied with those directions which obviated the need for any further orders.4 Wylie J accepted the
2 Spak (1996) Ltd v Leroy [2021] NZHC 613.
3 Spak (1996) Ltd v Leroy [2020] NZHC 2609.
4 Zespri International Ltd v Shanghai Neuhof Trade Company Ltd [2021] NZHC 168.
applicant was, in effect, successful and directed costs on the application for unless orders in Zespri’s favour. That situation is quite different to the present case.
[10] It would be extremely unlikely the Court would make an unless order based solely on the failure by a party to pay a previous costs award, particularly where the order was an open order, in other words, where it did not prescribe a date for compliance. Unless orders are normally reserved for circumstances where a party has failed to comply with a specific direction of the Court or is otherwise failing to advance their proceeding.
[11] The purpose of an unless order is to enforce compliance with Court orders and to ensure the efficient progress of litigation. They are made because a defaulting parties’ actions may be affecting not only the existing case but may be a waste of limited Court resources. Failure to promptly pay a costs award does not fall into that category. Costs awards can also be enforced in a number of ways without recourse to unless orders. I also note that the costs judgment had not been sealed.5
[12]Against that, the defendant should have promptly paid the costs award.
[13] In the circumstances I consider costs should lie where they fall on the application for an unless order.
Application for contempt orders
[14] As noted, the plaintiff also applied for an order holding the defendant in contempt. That application was subsequently withdrawn.
[15] The plaintiff acknowledges that it is liable for costs on its withdrawn application but submits costs should be on a scale basis.
[16] The defendant seeks costs on an indemnity basis. He submits the contempt application was a frivolous and hopeless abuse of process which was doomed to fail. The defendant notes that Associate Judge Bell, while ruling that he did not have
5 Rule 11.3 requires a judgment (which includes an order r 11.1) to be sealed before enforcement action is taken.
jurisdiction, observed that the contempt appeared to be founded on a claim based on an easement, despite easements not giving occupation rights. However, the matter was not ultimately the subject of any formal consideration or finding. The plaintiff withdrew its application before the merits were considered by the Court. In the circumstances costs should follow that withdrawal and be awarded to the defendant but I do not consider the defendant has not made out a basis for anything other than scale costs.
[17] The defendant is to have costs on a 2B basis in relation to the plaintiff’s application for contempt, together with any related disbursements.
The summary judgment/strike out application
[18] The defendant as the successful party on the summary judgment and strike out application is entitled to costs on the applications. The defendant seeks either indemnity costs or scale costs with a 50 per cent uplift on both applications.
[19]The plaintiff opposes the application for indemnity or increased costs.
[20]The applicable rules are r 14.6(3) and (4).
[21] The plaintiff submits that there was no failing on its behalf which increased the time or expense of the proceeding. It commenced its claim in an honest belief in its legitimacy and the sufficiency of its evidence. It was seeking to vindicate its property rights and the defendant’s conduct occurred against the backdrop of the plaintiff’s efforts to run a managed isolation facility with consequent risks to health and potential financial consequences.
[22] The plaintiff also says its failure to accept the defendant’s settlement offer does not support a claim for increased or indemnity costs as the offer was made before the defendant filed his statement of defence and the plaintiff was not in a position to undertake a proper assessment of the offer.
[23] The defendant does not suggest that the plaintiff’s actions increased the time or expense of the proceedings. Rather it says the proceedings were misconceived.
Further, in response to the plaintiff’s suggestion that it did not act unreasonably in refusing to accept the defendant’s offer for resolution, the letter accompanying the offer set out the flaws the defendant considered to exist in the plaintiff’s case. On 8 March 2021, the defendant through its solicitors, rejected the plaintiff’s offer for a limited settlement and made an offer for a full and final settlement of all matters. It proposed the defendant would pay $3,500 to the plaintiff on the basis the plaintiff would discontinue and the defendant would undertake not to trespass on the plaintiff’s property with the exact boundaries and shared areas to be formally clarified by the parties.
[24] While it did not contain evidence, the letter of offer on behalf of the defendant set out the principal issues the defendant had with the merits of the plaintiff’s claim, including that:
(a)there was an insufficient causative link between the alleged actions of the defendant and the “damages” claim;
(b)the purported trespasses appeared to relate to alleged conduct on levels 3 and 4, both of which had shared common areas and right-of-way easements; and
(c)the defendant was acting under the instructions of the body corporate as the building manager.
[25] In entering summary judgment for the defendant the Judge accepted his argument that he did not trespass as he was lawfully entitled to be on the floor under the easement.
[26] The failure to accept a reasonable offer of settlement supports an increased costs order under r 14.6(3)(b)(v).
[27] While noting the Judge would have struck out the proceedings as an abuse if he had not entered summary judgment for the defendant, the plaintiff makes the point that merely because its case may have been struck out as an abuse of process that does
not necessarily support an award of indemnity or increased costs. In Minister of Education v James Hardie New Zealand Fitzgerald J confirmed that something more was required. The Judge accepted that the focus must be on the conduct of the party opposing the costs or the manner in which it defended the application which might justify indemnity costs.6 The Court is also required to take into account the merits of the particular claim and the parties’ actions.
[28] Relevantly, as r 14.6(4)(a) confirms, the Court may order a party such as the plaintiff to pay indemnity costs if the party has acted vexatiously, frivolously, or improperly in commencing a proceeding. In the present case and based on Associate Judge Bell’s finding that requirement is met. It is sufficient to record the Judge’s findings at [91] to [93] of the judgment:7
[91] This case was not about the hotel seeking vindication of its property rights. If the hotel really were concerned that Mr LeRoy was not using the easement as he should have, it would have used the dispute resolution procedure under the easement. It would have taken up the suggestion of a meeting to resolve matters. The matter would not gone to court, least of all this Court.
[92] The hotel was annoyed with Mr LeRoy because of concerns he had raised for the welfare of the residents when the hotel became a managed isolation facility. It banned him from its premises to teach him a lesson. That was calculated to make it difficult for him to carry on his job as building manager, because it wanted to stop him using the easements in favour of the body corporate (although in law it could not do that). At the same time, it tried to weaken the body corporate’s confidence in him. The incidents on which it sued were trivial but were a pretext to put pressure on him. Its evidence was flimsy. The hotel blackened his name. It misrepresented the facts to the Court. It took advantage of Mr LeRoy procedurally by suing in this Court when he could not match its resources for High Court litigation. It gave him little time to oppose the interim injunction application. It used the interim injunction order improperly by preventing him from using the easements as he was entitled. It used the order against him to put him down in the eyes of the owners. It acted improperly in misrepresenting its case to the court. This was not about upholding its property rights but about oppressing Mr LeRoy.
[93] The case is an abuse of process. If I had not given summary judgment against the hotel, I would have struck out the statement of claim and dismissed the proceeding as an abuse of process.
[29] On the Judge’s analysis, this was more than just a technical description of the proceedings as an abuse of process sufficient to support a strike out. The Judge found
6 Minister of Education v James Hardie New Zealand [2018] NZHC 2960.
7 Spak (1996) Ltd v Leroy, above n 1.
the proceedings were brought for an improper purpose. The proceedings were hopeless and summary judgment was entered for the defendant. Indemnity costs are properly payable in relation to the application for summary judgment and strike out.
[30] The defendant has filed an affidavit by Patrick Shanahan-Pinker, a solicitor employed by the defendant’s solicitors, setting out the indemnity costs sought. I note that in calculating the costs the fees have not been claimed for the leave application, the costs application, or the ancillary issues that arose after the delivery of the judgment.
[31] However the indemnity costs claimed include services and attendances related to the contempt application for which I consider costs to scale are sufficient.
[32] The defendant will need to file a further affidavit with an amended schedule removing the attendances for the contempt application, and identifying the costs solely in relation to the summary judgment and strike out applications.
Orders/directions
[33](a) The issue of costs on the third party proceedings are reserved. Leave is also reserved to the parties to file further memoranda on that third party claim when the appeal is resolved and/or the substantive proceedings and the third party claim are otherwise at an end.
(b)The costs on the application for unless orders are to lie where they fall.
(c)The defendant is to have costs to scale on a 2B basis and disbursements for all attendances on the plaintiff’s application for contempt (including the memoranda on 5 and 6 May).
(d)The defendant is to have costs on an indemnity solicitor/client basis for all attendances in relation to the defendant’s summary judgment and strike out applications. To quantify those the defendant is to file a further affidavit annexing copies of the attendances and accounts relating solely to those applications, and excluding attendances for the
other applications. The affidavit should also annex a schedule of costs on a 2B basis for the contempt application. The affidavit is to be filed by 10 December 2021. Once the affidavit is filed it is to be referred to the Registrar for approval of costs in accordance with this judgment and to enable an order to be sealed.
(e)The defendant is, in addition, to have costs of $1,500 for preparation of the costs memoranda and the affidavits.
Venning J
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