Taharoto Motels Limited v Ritz Enterprises Limited

[2022] NZHC 3553

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-000304

[2022] NZHC 3553

BETWEEN

TAHAROTO MOTELS LIMITED

Applicant

AND

Ritz ENTERPRISES LIMITED

Respondent

Hearing:	(On the papers)
Counsel:	Ashleigh Ryder and Sean McAnally for the Applicant Peter Barrett and Matt Robertson for the Respondent
Judgment:	20 December 2022

JUDGMENT OF MOORE J

[Costs]

This judgment was delivered by me on 20 December 2022 at 2:00 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/ Deputy Registrar Date:

TAHAROTO MOTELS LIMITED v Ritz ENTERPRISES LIMITED [2022] NZHC 3553 [20 December 2022]

Background

[1]                 Tarahoto Motels Limited (“Tarahoto”) leases a motel site in Takapuna to Ritz Enterprises Limited (“Ritz”).

[2]                 A clause of the lease required Ritz to make monthly payments into a maintenance fund. For roughly two years, Ritz refused to make payments into the fund. Ritz’s position was that Tarahoto declined legitimate requests for payments from the fund in breach of the lease, alongside other breaches. It instead paid funds earmarked for the maintenance fund into a solicitor’s trust account.

[3]                 Tarahoto’s position is that it did not breach the lease and, in any event, the alleged breaches are historic. Ritz is said to be withholding payments to apply commercial pressure and proffering the alleged breaches as an excuse.

[4]                 Tarahoto thus applied under s 244 of the Property Law Act 2007 (“the PLA”) for cancellation of the lease and possession of the land. Ritz originally opposed the application. A fixture was set down for 14 July 2022.

[5]                 Two days before the hearing, counsel filed a joint memorandum advising that Ritz had remedied its breach of the lease by paying the arrears into the maintenance fund. Tarahoto no longer pursued its application, although there was disagreement as to costs. I issued a Minute recording that the application was withdrawn and costs were to be dealt with on the papers.1

[6]                 Tarahoto subsequently filed a memorandum seeking indemnity costs pursuant to cl 11.1.3 of the lease. Tarahoto says that its legal expenses relating to these proceedings were incurred as a consequence of Ritz’s breach.

[7]                 Ritz opposes an award of indemnity costs. It argues that the costs claimed are expenses flowing from the decision to initiate proceedings rather than the breach itself, in circumstances where Ritz was safeguarding the fund in response to Tarahoto’s conduct. If costs are awarded, Ritz seeks a reduction in costs.

1      Tarahoto Motels Ltd v Ritz Enterprises Ltd HC Auckland CIV-2022-404-304, 12 July 2022 (Minute of Moore J).

Should indemnity costs be awarded?

[8]The first issue is whether indemnity costs should be awarded.

[9]                 The Court has a general discretion as to costs.2 This includes whether to grant an award for indemnity costs.3 Indemnity costs are the actual costs, disbursements, and witness expenses reasonably incurred by a party.4

[10]              One of the circumstances in which the Court may award indemnity costs is where the party claiming costs is entitled to indemnity costs under a contract or deed.5 It is well-established that a party may contractually bind itself to pay the other party’s full solicitor/client costs.6 Where that occurs, the entitlement to indemnity costs must be plainly and unambiguously expressed.7

[11]Tarahoto seeks indemnity costs pursuant to the following clause of the lease:

“11.1   Lessee to Pay Lessor’s Costs

The Lessee shall pay:

…

11.1.3 all expenses (including legal costs on a solicitor and own- client basis) for which the Lessor shall be liable in consequence of any breach by the Lessee of any of the covenants of this Lease.”

[12]              Mr Barrett, for Ritz, submitted that the costs claimed are expenses flowing from the decision to initiate proceedings rather than the breach itself. He submitted that the application for cancellation was high handed and without merit. At most the Court would order contingent relief, upon which Ritz would be able to make good the failure to pay into the fund. It follows that other and more appropriate options were available.

2      High Court Rules 2016, r 14.1.

3      Rule 14.6(1).

4      Rule 14.6(1)(b).

5      Rule 14.6(4)(e).

6      Black v ASB Bank Ltd [2012] NZCA 384 at [78] citing ANZ Banking  Group  (NZ)  Ltd  v Gibson [1986] 1 NZLR 556 (CA).

7      Newfoundworld Site 2 (Hotel) Ltd v Air New Zealand Ltd [2018] NZCA 261, [2018] NZCCLR 22 at [84] citing Re Adelphi Hotel (Brighton) Ltd [1953] 1 WLR 955 (Ch) at 961.

[13]              It is difficult to see how these proceedings and the associated costs were not a consequence of Ritz’s breach. Ritz accepts that it elected not to pay into the maintenance fund. Tarahoto elected to bring proceedings as a result. Those proceedings would not have been commenced if Ritz had paid into the maintenance fund. They are plainly consequential upon the breach – as are the associated legal expenses.

[14]              That Tarahoto had other options available to it is not of significance. It was entitled to bring proceedings for cancellation and possession of the land. Even if it is accepted that Tarahoto’s best case scenario would be the granting of contingent relief, that constitutes success. Either Ritz would remedy the breach by complying with the conditions of relief or Tarahoto would be entitled to cancel the lease. Both eventualities are favourable to Tarahoto.

[15]              It transpired that Ritz elected to pay the arrears before Tarahoto’s application was heard and determined. This further supports the conclusion that the proceedings were a consequence of Ritz’s breach. The application was at that point rendered moot.

[16]              Ritz’s argument that Tarahoto misapplied maintenance funds and otherwise failed to comply with the lease does not assist on the issue of costs. Those are independent issues which Ritz could pursue if it wishes to, including through litigation. If it believes those claims to be meritorious and worthwhile, it may well bring them in future. But Tarahoto’s alleged breaches do not vitiate Ritz’s obligation to pay into the maintenance fund. Nor does earmarking and holding the arrears in a solicitor’s trust account. The proper course would have been for Ritz to pursue the resolution of its claims, while continuing to meet its obligations under the lease or negotiating and agreeing to an alternative arrangement with Tarahoto.

[17]              It follows that Tarahoto is entitled to indemnity costs under cl 11.1.3 of the lease.

Are the indemnity costs claimed reasonable?

[18]The final issue is whether the indemnity costs claimed are reasonable.

[19]              While the costs for which a party seeks indemnity must be “reasonably incurred”, the word “reasonable” does not import a discretion in the usual sense.8 The exercise of a judicial discretion to order less costs could erode the contractual protection the indemnity was intended to provide.9 The question of whether indemnity costs were reasonable involves an objective assessment of:10

(a)what tasks attract a costs indemnity on a proper construction of the contract;

(b)whether the task undertaken in the instant case was one of those contemplated in the contract;

(c)whether the steps taken were reasonably necessary in pursuance of that task;

(d)whether the rate at which they were then charged was reasonable having regard to the principles normally applicable to solicitor/client costs; and

(e)whether any other principles drawn from the general law of contract would in whole or in part deny the claimant its prima facie right to judgment.

[20]              Despite this, the test leaves “room for robust judgment as to the costs considered reasonable in all the circumstances” as it may not be feasible for the Court to make a detailed assessment of the reasonableness of the indemnity costs claimed.11

[21]              Here the costs claimed are supported by evidence of invoices. Counsel has made deductions from those invoices to exclude costs not directly relating to the

8      Black v ASB Bank Ltd [2012] NZCA 384 at [78] citing Frater Williams & Co Ltd v Australian Guarantee Corp (NZ) Ltd (1994) 2 NZ ConvC 191,873 (CA) at 191,887.

9      At [78] citing Beecher v Mills [1993] MCLR 19 (CA).

10 Watson & Son Ltd v Active Manuka Honey Association [2009] NZCA 595 at [20] citing Frater Williams & Co Ltd v Australian Guarantee Corp (NZ) Ltd (1994) 2 NZ ConvC 191,873 (CA) at 191,887. See also Black v ASB Bank Ltd [2012] NZCA 384 at [80].

11 Frater Williams & Co Ltd v Australian Guarantee Corp (NZ) Ltd (1994) 2 NZ ConvC 191,873 (CA) at 191,887.

proceeding, including the service of notices under the PLA. The hourly rates of lawyers involved appear reasonable given their experience. Nor does Ritz suggest that the indemnity costs claimed were unreasonable in the circumstances (on the basis that the fees were unjustifiable).

[22]I therefore consider that the costs claimed by Tarahoto are reasonable.

Result

[23]              I order that Ritz pay to Tarahoto indemnity costs of $29,578, together with disbursements of $734.43.

Moore J

Barristers/Solicitors:

Ms Ryder, Auckland

Mr McAnally, Auckland Mr Barrett, Auckland Mr Robertson, Auckland