Stringer v Minister of Lands
[2014] NZHC 776
•1 May 2014
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
CIV 2013-442-316 [2014] NZHC 776
UNDER section 26 of the Land Valuation
Proceedings Act 1948
IN THE MATTER OF
an appeal against a decision of the Land Valuation Tribunal on a claim for costs following a claim for compensation under the P ublic Works Act 1981
BETWEEN
PAUL THOMAS STRINGER Appellant
AND
MINISTER OF LANDS Respondent
Hearing: 15 April 2014 Counsel:
G Downing and G Engelbrecht for Appellant
M T Parker for RespondentJudgment:
1 May 2014
JUDGMENT OF RONALD YOUNG J
Introduction
[1] In April 2008 a parcel of land near State Highway 60 at the Ruby Bay by-pass owned by Mr Stringer was taken by the state by proclamation. The land was needed for roading. The Crown owned the land from May 2008 onwards. Mr Stringer and the Minister of Lands could not agree on the compensation payable for taking the land. The proceedings then issued by Mr Stringer seeking
Tribunal-ordered compensation came before the Land Valuation Tribunal.
STRINGER v MINISTER OF LANDS [2014] NZHC 776 [1 May 2014]
[2] Mr Stringer sought compensation for the land taken (including compensation for injurious affection and costs, apart from litigation costs) of $1,034,000. The Crown offered $345,000 plus legal costs, valuation expenses and interest. The Land Valuation Tribunal awarded $391,750.
[3] After the judgment the Land Valuation Tribunal invited submissions and subsequently issued a decision on costs and interest. Mr Stringer sought total pre-Tribunal filing costs (negotiating costs) and post-Tribunal filing costs of
$133,679.65 plus GST. In addition, Mr Stringer said that there should be compound interest on the compensation awarded from May 2008.
[4] The Land Valuation Tribunal awarded $20,000 in costs, including expert witness expenses and GST, and concluded that non-compounding (simple) interest was appropriate.
[5] Mr Stringer appeals against the costs and interest orders. He says that he should have full negotiating costs both legal and expert, full post-filing expert witness costs and 75 per cent of post-filing legal costs. Those sums should have GST added to them. In addition, Mr Stringer says the Tribunal should have awarded him compound interest, from the date of compulsory acquisition (May 2008) until the compensation ordered was paid (February 2014).
The Tribunal’s decision
[6] The Land Valuation Tribunal decision on costs was driven primarily by Mr Stringer’s approach to the litigation before the Tribunal. The Tribunal rejected his approach to his claim for compensation. The Tribunal considered that there were two important issues in assessing the value of the compulsorily taken land. First, if the land was subdividable, how should that affect the assessment of value? Secondly, in any event, what was the market for such subdivided land in the relevant area? The Tribunal accepted the land in question may be subdividable but concluded there was little demand for such land.
[7] The order for compensation by the Tribunal was slightly above the respondent’s offer. Mr Stringer’s claim was over 2.5 times larger than the ultimate award. The Tribunal concluded that Mr Stringer’s claim for injurious affection of some $237,500 (as part of his $1 million claim) had little evidence to support it and little or no justification. Thus, given that the Tribunal rejected Mr Stringer’s approach to the valuation of the land and his claim for injurious affection, it concluded that a substantially reduced costs award was appropriate.
Appropriate appellate approach
[8] Mr Stringer’s case is that this Court should make its own assessment of the appropriate costs award, the GST issue, and the compound or simple interest issue. That assessment would then dictate whether the decision of the Land Valuation Tribunal was wrong.1
[9] I agree with the respondent’s submissions, however, that decisions on costs generally involve a significant level of discretion in which trial courts have a particular advantage.
[10] In Shirley v Wairarapa District Health Board in a costs appeal, the Supreme
Court said:2
… an appellate court should not interfere unless satisfied that the Judge who made the order acted on a wrong principle, or failed to take into account some relevant matter, or took account of some irrelevant matter or was plainly wrong.
[11] I note that s 90(1) of the Public Works Act 1981, the relevant section on litigation costs in such circumstances, specifically mentions the Tribunal’s “discretion” on costs. However, in a practical sense the difference in approach
between the parties may not be of great moment in this particular case.
1 See Austin, Nichols & Co v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.
2 Shirley v Wairarapa District Health Board [2006] NZSC 63, [2006] 3 NZLR 523 at [15] (footnotes omitted).
Legal principles
[12] Before considering Mr Stringer’s submissions in detail, it is valuable in this case to identify the legal principles that apply. Mr Stringer had two costs claims. The first related to the costs incurred in an attempt to negotiate a settlement.3 The second claim related to the litigation costs claim.4
[13] There was disagreement between counsel as to the statutory authority for paying a claimant’s negotiating costs incurred before litigation. Mr Stringer says the relevant provision is s 60 which provides for compensation for land compulsorily taken. He submits that legal fees and expert witness costs incurred prior to litigation have been seen as part of an “injurious affection” claim or as compensation for the acquisition in s 60(1).
[14] The respondent says that s 66(1)(a)(ii) applies to a costs claim.
[15] That section provides:
66 Disturbance payments
(1) Subject to subsection (2), the owner of any land taken or acquired under this Act for a public work shall be entitled to recover compensation for any disturbance to his land and in particular to recover, where appropriate,—
(a) all reasonable costs incurred by him in moving from the land taken or acquired to other land acquired by him in substitution for the land taken or acquired, including—
….
(ii) the reasonable valuation and legal fees or costs incurred in respect of the land taken or acquired:
…
[16] Whichever is the appropriate section, both parties agree a claimant is entitled to reasonable expert fees and legal costs in the negotiation phase irrespective of the result of any claim before the Tribunal. Thus, ss 60 and 66 require that the
reasonable negotiating costs of a claimant must be paid as part of the cost of taking
3 Public Works Act 1981, ss 60 and 66.
4 Section 90.
the land. This can be distinguished from litigation costs which are covered by s 90. I will return to this claim later in the judgment.
[17] Section 90 of the Public Works Act 1981 provides as follows:
90 Costs in claims for compensation
(1) Subject to the provisions of this section, the costs of a hearing by the Land Valuation Tribunal under this Part of this Act shall be in the discretion of the Tribunal, which may direct to and by whom and in what manner those costs or any part of them shall be paid.
(2) Where the respondent has made an offer of any amount for compensation and the compensation awarded is less than the amount so offered, the Tribunal may order the claimant to bear his own costs and to pay the costs of the respondent in so far as the costs of either party are incurred after the making of the offer.
(3) If costs are not awarded in accordance with the provisions of subsection (2), the Tribunal shall, unless for special reasons it thinks it proper not to do so, order the respondent to bear his own costs and to pay the reasonable costs of the claimant.
(4) Without limiting the generality of the provisions of subsection (3), it is hereby declared that the fact that the Tribunal in any case considers that the amount claimed was unreasonably high having regard to the compensation awarded or the evidence before the Tribunal, shall be a special reason that the Tribunal may take into consideration for the purposes of that subsection.
[18] The fundamental approach in s 90 is that costs of a Tribunal hearing are at the discretion of the Tribunal (subs (1)). However, that approach is subject to the guidance in subss (2), (3) and (4).
[19] Subsection (2) does not apply to the current facts. The Minister of Lands made an offer of compensation which was less (although not by much) than the amount of compensation awarded by the Tribunal ($345,000 was offered and
$391,750 was ordered).
[20] Subsection (3) provides that in such a situation the Tribunal “shall, unless for special reasons it thinks it proper not to do so” order that the Minister of Lands should pay his own costs as well as a claimant’s reasonable costs.
[21] An example of “special reasons” is given in subs (4): where the Tribunal considers the amount of the claim was “unreasonably high having regard to the compensation awarded or the evidence before the Tribunal”. The Tribunal may take this special reason into consideration for the purposes of deciding costs awards under subs (3). Here, the Tribunal concluded that the amount claimed by Mr Stringer was unreasonably high having regard to both the compensation awarded and the evidence before the Tribunal. And so once the Tribunal is satisfied subs (3) does not apply then the general discretion provisions in subs (1) will apply to the costs awarded. The Tribunal applied this discretion and ordered the Minister of Lands to pay Mr Stringer $20,000 in costs.
Mr Stringer’s submissions
[22] As to negotiating costs, counsel submits that s 60 (or s 66 if the respondent’s approach is correct) provides that Mr Stringer is entitled to these costs (legal and expert) and that they should have been awarded to the appellant. The respondent accepts this principle but submits some of the costs sought by Mr Stringer as negotiation costs are not payable.
[23] As to s 90 Mr Stringer submits that the Tribunal was wrong when it concluded that his costs award should be substantially reduced “because of the claimant’s conduct in unreasonably pursuing a claim which was significantly higher than the amount awarded and which lacked the evidential foundation”.
[24] He says that while the Tribunal favoured the respondent’s experts, it cannot be said that his claim was unreasonably pursued or that it lacked an evidential foundation. The Tribunal was wrong in its costs judgment to say “the inescapable conclusion to be drawn is that the claimant simply did not have the evidence to support his claim for compensation on the hypothetical subdivisional basis”. In its substantive decision the Tribunal accepted the land had subdivisional potential.
[25] Mr Stringer stresses that the final compensation award of the Tribunal was significantly greater than the respondent’s final offer (more than $50,000) and the final award was greater by over $90,000 if the pre-filing legal and expert costs are factored in.
[26] The Tribunal criticised Mr Stringer’s claim of some $237,500 for “subsidiary” matters. His valuer valued the land at $796,500. The “subsidiary claim”, Mr Stringer says, was only 22 per cent of the total claim and should not have dominated the costs decision of the Tribunal as it did.
[27] Mr Stringer says in these circumstances it was wrong of the Tribunal to award only a modest portion of his actual costs and expert fees. He stresses that what must be kept in mind is that this was compulsory acquisition of land and that the Crown made an offer of compensation which was below that which was ordered by the Tribunal.
[28] As to expert witness’ expenses at trial, Mr Stringer submits these are ordinarily are fully awarded. He says that he was required to obtain expert evidence from valuers’, planning experts, a landscape architect and an arborist to respond to the respondent’s evidence. As to GST, the compensation should be exclusive of GST given the various accounts from the expert witnesses were GST exclusive.
[29] Finally, with respect to simple and compound interest, Mr Stringer submits that given compensation is to be on a “full” compensation basis (s 60) then the loss of use of the money and its diminution of value demands compound interest.
Discussion
Sections 60 and 66 – Costs
[30] First, I turn to the claim under ss 60 and 66 for reimbursement of negotiating costs. Mr Stringer sought reimbursement of legal fees of $13,630 and expert witness fees of $27,105.22, a total of $40,735.22 for negotiating costs. This claim is quite distinct from the s 90 litigation costs claim. Ordinarily it would be dealt with as part of the s 60 compensation claim. The Tribunal in its interim decision of
16 October 2013 did not deal with this aspect of the appellant’s claim. Its assessment was solely based on land value. It seems probable it intended to consider and award negotiation costs in its later costs judgment. However, the costs judgment did not deal with the s 60 and s 90 claims separately. Indeed the judgment did not mention the s 60 costs claim.
[31] Negotiation costs appear to have been considered by the Tribunal as part of the s 90 costs order. This was the wrong approach to negotiation costs. The parties correctly accepted that subject to an assessment of reasonableness of quantum, and subject to the expert witnesses’ evidence truly forming part of the negotiating position of Mr Stringer, then full reimbursement was payable for both legal fees and expert witness fees incurred in the unsuccessful negotiation between the parties. Sections 60 and 66 mandate that such costs are payable irrespective of the analysis of litigation costs pursuant to s 90.
[32] There was a dispute between the parties as to whether some of the negotiating costs claimed by Mr Stringer arose from expert witness evidence which was used in the negotiation.
[33] The Crown submitted that the reports of three “expert” witnesses were not used by Mr Stringer to support his negotiating position. Mr Stringer accepted that the report of one valuer, who it was suggested had made an error in his valuation, had not been used by him in the negotiations. His fees were not included in the expert witness negotiating costs claim.
[34] Counsel provided me with two documents relevant to the other two disputed expert witness claims. Both counsel accepted that on the basis of those documents, I should assess whether the expert evidence of these two witnesses had been used to inform Mr Stringer’s negotiating position. That is, whether their costs were properly part of the negotiation costs claim.
[35] The two documents were Property Action Limited’s valuation of the land taken, prepared in November 2008, and a copy of the various accounts from the expert witnesses instructed by Mr Stringer. The two expert witnesses whose fees were in issue were Staig and Smith, resource management consultants and Mr Rory Langbridge, a landscape architect.
[36] Having reviewed the material I am satisfied that information provided by both Staig and Smith and Mr Langbridge did form part of and inform Property
Action Limited’s valuation which in turn informed Mr Stringer’s approach to the valuation of the land at the negotiating stage.
[37] I am satisfied, therefore, that pursuant to s 60 (or s 66) Mr Stringer should have received reimbursement of his reasonable legal fees and expert witness fees of
$40,735.22 incurred in attempting to negotiate a settlement sum. This sum should be added to Mr Stringer’s s 60 compensation figure of $391,000. I note for completeness that the Minister of Lands’ offer of compensation was itself $345,000 plus (importantly) interest and reasonable legal and expert evidence costs. This additional costs award does not therefore affect the relativities between the Crown offer of compensation and the Tribunal’s order.
[38] The total sum of s 60 compensation and costs should be subject to the interest identified in the costs judgment of the Tribunal. The interest payable will thus need to be recalculated on the total sum of $431,735.22. I, therefore, allow the appeal with respect to the negotiating costs claim and award $40,735.22 costs to Mr Stringer.
Section 90 costs
[39] The statutory regime governing litigation costs is, as I have identified, straight-forward. It requires a series of assessments. In this case, s 90(2) did not apply and so the default position was s 90(3). The respondent claimed there were special reasons for an order from the Tribunal that the respondent not pay all of the “reasonable” costs of the claimant. The respondent relied upon subs (4), that the amount claimed by Mr Stringer was unreasonably high, having regard to the compensation awarded and the evidence before the Tribunal.
[40] The compensation sought by Mr Stringer was slightly over $1 million. The compensation awarded amounted to somewhat less than 38 per cent of that sum. It is hardly surprising, therefore, that the Tribunal concluded that the amount claimed for compensation was unreasonably high having regard to the compensation awarded. That conclusion triggered the special reasons provision in subs (3) and in turn meant the Tribunal could take this “special reason” into account in assessing costs. This it did.
[41] The Tribunal also concluded that there was evidence before it that the compensation claim was too high. The Tribunal concluded the approach of the appellant’s valuer could not be supported and that a significant portion, some
22 per cent ($237,500), of the appellant’s claim (the injurious affection) had no real basis to support it at all.
[42] The injurious affection claim was based solely on Mr Stringer’s evidence. The Tribunal concluded he had no particular expertise and that this claim was essentially without foundation. This was a significant part of Mr Stringer’s claim. To mount such a claim without any real factual or legal basis invited a costs response. This was a relevant factor in the ultimate costs order.
[43] As to the valuation of the land and the dispute as to value, this arose not so much from the methodology used but from the failure of Mr Stringer’s valuation witness to apply fundamental valuation principles. The Tribunal accepted that the land had subdivisional potential but that that potential might not be realised because local authority consents could not be obtained. More importantly, given the surplus of already subdivided land in this area there was likely to be little demand for such land. Thus, its subdivisional potential was of little importance in assessing what a well informed purchaser would pay. The valuer had to assess what influence the subdivisional potential would have on the market value of the land. The Tribunal found Mr Stringer’s valuer did not adequately carry out this fundamental assessment. It was not, therefore, surprising that the Tribunal concluded that there was little or no evidence to support the approach by Mr Stringer’s valuer.
[44] To return to s 90. For the reasons given I am satisfied the Tribunal correctly concluded that there were special reasons for not ordering the respondent to pay Mr Stringer’s reasonable costs. I turn now to a consideration of the costs that were ordered by the Tribunal.
[45] As I understood the submission, Mr Stringer complained that ordinarily reimbursement of expert witnesses in this type of litigation is made in full to a claimant, irrespective of a conclusion under s 90(4) that special reasons existed not to do so. I do not consider that there is any statutory authority for such a claim.
Where there are no special reasons under s 90(3) then subject to an assessment of reasonableness, the claimant could expect to be fully reimbursed for the expert witness fees they have incurred. However, where there are special reasons the Tribunal will need to make an assessment of what is a fair payment in the circumstances, taking account of the s 90(1) guidance and the broad approach to costs in s 90.
[46] The same approach is appropriate for legal fees pursuant to s 90. If there are no special reasons subs (3) requires payment of a claimant’s reasonable legal fees. Where, as here, there are special reasons then a careful assessment will be required of the special reasons, and the legal fees claimed. The special nature of Public Works Act 1981 compensation claims will need to be taken into account in the subs (4) assessment, as will the s 90(1) guidance.
[47] I am satisfied the Tribunal approached costs and expenses in the way s 90 anticipates. The Tribunal identified what it viewed as an unreasonably high claim for compensation. It did so in relation to both the compensation awarded and the evidence before the Tribunal. The Tribunal was satisfied that special reasons existed such that it was proper not to order the respondent to pay all of the reasonable costs of Mr Stringer. No error in this approach has been shown. There was, for the reasons I have identified, ample evidence to justify this conclusion.
[48] The Tribunal identified the following factors as relevant in setting the quantum of costs and witnesses expenses payable to the appellant:
(a) the fact the appellant was awarded 38 per cent of the amount of compensation sought;
(b) the respondent offered $345,000, relatively close to the final compensation award of $391,000 (excluding negotiating costs for both sums);
(c) even if Mr Stringer’s valuation methodology had been accepted it did not justify his claim given the failure to properly assess the market value of the land;
(d) Mr Stringer’s claim was inflated through the subsidiary claim without proper evidence;
(e) the failure to resolve the dispute prior to a hearing was primarily because of the inflated and unjustified claim by Mr Stringer.
[49] In summary, the Tribunal concluded that a substantial reduction in costs payable was justified for reasons (a) to (e). I am satisfied that these conclusions were justified and that the Tribunal in turn was justified in substantially reducing the costs payable to the appellant. Given there is a rational basis for a substantial reduction in costs the exact amount awarded is in my view within the discretion of the Tribunal and in the circumstances cannot be challenged. I reject the appeal against the s 90 costs award.
GST
[50] An award of costs is not subject to GST. No “service” is provided. While the expert witness fees claimed may have been GST exclusive (the better approach is a GST inclusive claim) this difference does not influence the quantum of the costs awarded.
Compound/simple interest
[51] The payment of interest from the time the land is “taken” under the Public Works Act 1981 is an attempt to ensure that a claimant is not out of pocket assuming the compensation is received at a later time. Here, the interest rates ordered by the Tribunal to be paid to Mr Stringer were 7.5 per cent, 8.4 per cent and 5 per cent for various periods. These rates typically exceeded (sometimes considerably) the six month bank investment rates (given in evidence at trial).
[52] Given that evidence there could be no justification for compounding the interest payments. Mr Stringer appears to have already been adequately compensated for not receiving his 2008 compensation until early 2014. However, perhaps a better approach in such cases would be to order interest at bank rates (say on a six-monthly investment rate) which would compound at six-monthly intervals to ensure the claimant is not out of pocket. This would then reasonably reflect a sensible, conservative approach to the use of the money reflected in the valuation.
[53] It is far better, however, for the relevant Crown authority to pay, without prejudice to any further claim by the claimant, what it considers a fair amount as soon as possible after the compulsory taking, assuming Crown possession of the land. This is likely to avoid significant interest claims.
[54] In summary:
(a) the appellant’s claim for negotiating costs is properly part of the s 60 compensation claim and the s 60 compensation payment is increased by $40,735.22 to $431,735.22;
(b) the Tribunal made no error in concluding s 90(4) applied and that there were special reasons which justified reduced costs;
(c) in such circumstances there is no rule of practice or law that mandates full payment of expert witness fees;
(d) the factors identified by the Tribunal justified a substantial reduction from reasonable costs. The final award in such circumstances is within the discretion of the Tribunal;
(e) costs awards are GST neutral;
(f) interest payable is non-compounding but needs to be recalculated to take into account order (a) and that the total sum on which interest is payable is $431,735.22. Interest on the $40,735.22 costs award
should accrue from the date these proceedings were filed (effectively
the end date of negotiations) until the amount is paid.
Costs
[55] If costs are sought memoranda should be filed within 14 days and in response within a further 14 days. Counsel may consider that both parties have succeeded on
some issues on the appeal.
Ronald Young J
Solicitors:
McFadden McMeeken Phillips, Nelson
Crown Law, Wellington
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