Tanedo v Designer's Destination Limited (in liquidation)
[2021] NZHC 3102
•17 November 2021
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2021-409-000311
[2021] NZHC 3102
BETWEEN KENNETH IAN PINEDA TANEDO and PATRICIA MAE TAN TANEDO
PlaintiffsAND
DESIGNER’S DESTINATION LIMITED (IN LIQUIDATION)
First Defendant
AND
FARRAR PROJECTS LIMITED
Second Defendant
AND
JASKIRAT SINGH
Third Defendant
Hearing: On the papers Counsel:
G E Slevin for Plaintiffs
A S R Kashyap, S C R Raju and S Y Y Yong for Second and Third Defendants
Judgment:
17 November 2021
COSTS JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 17 November 2021 at 4.30 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
TANEDO v DESIGNER’S DESTINATION LTD (In Liq) Costs Judgment [2021] NZHC 3102
[17 November 2021]
Introduction
[1] This judgment concerns competing applications for costs between the plaintiffs and the second and third defendants. The plaintiffs filed this proceeding accompanied by an application for summary judgment. As against the first defendant (a company in liquidation) they sought specific performance of an agreement for the sale and purchase of a property at Trainers Lane, Yaldhurst (the agreement). As against the second and third defendants, they sought the removal of a caveat lodged against the title to the property and damages.
[2] The proceeding was short-lived. It was filed on 19 July 2021, the plaintiffs took title to the property on 27 July 2021 and the proceeding was discontinued on 11 August 2021.
[3] The plaintiffs seek costs against the second and third defendants arguing they were successful in obtaining the result they wished to achieve. The second and third defendants oppose the plaintiffs’ application for costs and, in turn, seek indemnity costs against the plaintiffs. They say the proceeding was entirely unnecessary.
Background
[4] On 24 January 2020, the plaintiffs entered into the agreement with the first defendant (as vendor) to purchase a turnkey house package at 6 Trainers Lane in Yaldhurst (the property). The house build was due to be completed by October 2020. There were delays in completing the build.
[5] On 15 October 2020, the plaintiffs lodged a caveat against the title to the property.
[6] On 1 December 2020, the plaintiffs agreed to a variation of a mortgage that was registered against the title to the property. The variation allowed the first defendant to increase the amount secured by its mortgage.
[7] In April 2021, the first defendant borrowed additional funds from several lenders, including the second and third defendants. The first defendant granted the second and third defendants an interest in the property and they registered their caveat.
[8] Settlement of the plaintiffs’ purchase of the property was attempted on 12 and 25 May 2021. However, on each occasion, the first defendant’s solicitor advised settlement could not proceed.
[9] On 11 June 2021, the first defendant was placed into liquidation. The plaintiffs were notified on 18 June 2021 that the property would be sold at mortgagee sale by ASAP Finance Ltd if defaults by the first defendant were not remedied by 2 August 2021.
[10] On 12 July 2021, Mr Slevin, counsel instructed by the plaintiffs’ solicitor, wrote to the second and third defendants requesting the removal of their caveat. The letter stated if the caveat was not withdrawn by 5 pm on 14 July 2021 proceedings would be issued.
[11] On 13 July 2021, Mr Slevin wrote to the liquidator of the first defendant asserting the first defendant held the property in trust for the plaintiffs and advising the plaintiffs would issue proceedings seeking specific performance of the agreement for sale and purchase and removal of the second and third defendants’ caveat.
[12] By a separate letter of the same date, Mr Slevin wrote to the mortgagee advising that the first mortgagee would receive $415,565 on settlement of the sale to the plaintiffs provided the liquidators agreed to settle on this basis. He also noted the plaintiffs were preparing for the eventuality that the second and third defendants’ caveat was not withdrawn, in which case it would be necessary to issue proceedings for specific performance of the agreement for sale and purchase and removal of the caveat to facilitate settlement.
[13] On 14 July 2021, Mr Slevin emailed Mr Kashyap, counsel for the second and third defendants, stating the plaintiffs would issue proceedings if the caveat was not
withdrawn by 5 pm that day. Mr Slevin stated that the caveat was the “only obstacle” to settlement occurring.
[14] At 4.27 pm that same day, Mr Kashyap replied to Mr Slevin stating that his clients were owed monies by the first defendant and they were awaiting advice from the liquidator. He requested a breakdown of where the plaintiffs’ settlement money would be paid and, relevantly:
My client, for the avoidance of any doubt, stands ready to release the caveat (in fact I have a signed authority at hand) immediately I receive confirmation that the debt owed will be paid as was agreed with the vendor through their previous Lawyer.
[15] That evening, Mr Slevin replied by email stating he could only provide information about what his clients would pay on settlement which he said was
$486,000 and after account was taken of GST an amount of $415,565 would be available to the mortgagee. He, again, referred to the need for Court proceedings if the second and third defendants’ caveat was not withdrawn.
[16]On 15 July 2021 at 8:30 am, Mr Kashyap replied, stating:
…
My client accepts that if the Liquidator can confirm that [there] will be no monies left from the sale of this property my client will have no hesitation in removing their caveat.
However, until that point the caveat will be maintained.
It may assist your course to demand of the liquidator to provide us such details which would enable my client to consider their position.
[17] Mr Slevin replied promptly at 9:31 am saying “this will come as a great relief to my clients”. He also stated he had asked the liquidators to provide the information sought by Mr Kashyap.
[18] On 16 July 2021, Mr McMillan, who was acting on behalf of the liquidator, wrote a letter to the parties with a view to reaching an agreement in respect of the sale of the property. The letter is important because it demonstrates that there were matters other than the second and third defendants’ caveat which were preventing settlement of the sale. Relevantly, one of the issues raised by Mr McMillan was that the
liquidators required GST amounting to $63,391.30 and their fees and other costs to be met from the sale proceeds because there were no funds in the liquidation to pay these amounts.
[19] On 18 July 2021 (which was a Sunday) at 6.08 pm, Mr Slevin replied to Mr McMillan confirming the plaintiffs accepted the liquidator’s proposal subject to various undertakings being provided by counsel for the liquidators and the second and third defendants by 10 am the following morning failing which, he stated, proceedings would be filed on the Monday morning.
[20] On 19 July 2021 at 11.12 am, Mr Kashyap emailed Mr Slevin reiterating the second and third defendants’ caveat would be withdrawn upon confirmation that there were no funds from the sale that could be paid to his clients.
[21]That same day, this proceeding was filed and served.
[22] On 20 July 2021, Mr McMillan sent a letter by email to all parties setting out their respective positions and confirming the remaining issues to be resolved. The liquidator provided assurance that there would be no funds left over from the sale to pay the second and third defendants.
[23] At 1.06 pm, Mr Kashyap responded stating that his clients “agree[s] to remove the caveat… on the basis that there is no balance remaining to pay” his client[s]. He stated there was therefore no impediment to the sale of the property.
[24] At 1.12 pm, Mr Slevin sought to clarify that position, stating his understanding was Mr Kashyap’s clients’ “position is that they will not remove their caveats… unless their debt is paid”. Mr Kashyap responded saying “the caveat… will be withdrawn”.
[25] At 2.44 pm, Mr McMillan sent an email to Mr Kashyap asking him to further confirm his position. Mr Kashyap responded at 3.22 pm saying “the caveat over [the property] will be removed at settlement …”.1
1 Emphasis added.
[26] On 21 July 2021 at 9 am, Mr McMillan sent an email acknowledging that an agreed position had been reached and the parties could proceed with conveyancing for the property. The parties scheduled settlement for 27 July 2021 which was duly completed that day.
[27] I convened a telephone conference with counsel on 21 July 2021 and was advised that the proceeding was likely to be resolved the following week and on this basis I adjourned the telephone conference to 11 am on 28 July 2021.
[28] On 23 July 2021, Mr Slevin sent an email to Mr Kashyap seeking, inter alia, the immediate withdrawal of the caveat. The caveat was withdrawn that afternoon.
[29] At a teleconference before me on 28 July 2021, Mr Slevin confirmed settlement of the sale had occurred. He advised the plaintiffs would not seek costs against the first defendant but only from the second and third defendants. For the second and third defendants, Mr Kashyap advised that an application for costs would be opposed.
[30] On 11 August 2021, the plaintiffs filed a notice of discontinuance of the proceeding.
Principles - costs on discontinuance
[31]The starting point is r 15.23 of the High Court Rules 2016 which provides:
Unless the defendant otherwise agrees or the court otherwise orders, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance.
[32] All matters of costs are discretionary and must be exercised on a principled basis.2 The determination of costs, so far as possible, should be both predictable and expeditious.3 Rule 15.23 creates a presumption in favour of a defendant that a plaintiff who discontinues a proceeding will be liable for costs without the need for the
2 High Court Rules 2016, r 14.1.
3 Rule 14.2(1)(g).
defendant to establish the plaintiff acted unreasonably in commencing and then discontinuing the proceeding.4 The presumption is designed to give a certain and predictable outcome upon discontinuance but may be displaced if the Court finds there are circumstances which make it just and equitable that it should not apply.5
[33] In Powell v Hally Labels Ltd the Court of Appeal recognised that as a matter of practice the Court does not lightly allow a plaintiff to displace the presumption that costs follow discontinuance.6 The Court recognised the presumption may be displaced “in a clear case” where the plaintiff may have achieved its ends by other means or otherwise discontinued for reasons not connected to the merits, such as where a proceeding was reasonably brought but due to some intervening event or decision rendered redundant.7 The Court of Appeal noted that it does not invite a general enquiry into the reasonableness of a party’s conduct and its reluctance reflects the objectives of the High Court Rules:8
… which allow a plaintiff by discontinuance to end its proceeding unilaterally and fix its liability for costs at that point, and further contemplate that the liability should be predictable and the quantum readily calculable.
[34] In FM Custodians Ltd v Pati, Associate Judge Abbott stated the principles governing the exercise of the discretion under r 15.23 as follows:9
(a)As the general rule the Court will not consider the merits of the respective cases (unless they are so obvious that they should influence the costs issue).
(b)The Court will consider the reasonableness of the stance of both parties in the proceeding (whether it was reasonable for the plaintiff to bring and continue the proceeding, and for the defendant to oppose and continue to oppose it, up to the point of discontinuance).
(c)Conduct prior to the commencement of the proceeding may be relevant (for example, if any conduct by a defendant has precipitated the litigation), as may be the reason for discontinuing (for example,
4 The terms “defendant” and “plaintiff” are defined in r 1.3 of the High Court Rules 2016 and in accordance with those definitions the applicant is a plaintiff and the respondents are defendants for the purposes of r 15.23.
5 Andrew Beck and others (eds) McGechan on Procedure (online ed, Thomson Reuters) at [HR15.23.01].
6 Powell v Hally Labels Ltd [2014] NZCA 572 at [20].
7 At [21] and [22].
8 At [24] (footnote omitted).
9 FM Custodians Ltd v Pati [2012] NZHC 1902 at [11] (footnotes omitted).
where a change of circumstances has made the proceedings unnecessary).
The application of r 15.23
[35] Mr Slevin submits this is a “clear case” and the circumstances displace the presumption in r 15.23 that costs should follow a discontinuance. He advances several arguments in support of this.
[36] First, Mr Slevin submits the orders sought in the proceeding were not ultimately required only because under the settlement the caveat was withdrawn.
[37] Second, he argues the first defendant, as constructive trustee of the property for the plaintiffs, had no right to grant an interest in the property to the second and third defendants to secure advances without the plaintiffs’ consent.
[38] Third, Mr Slevin argues it was necessary for the plaintiffs to commence the proceeding urgently given the potential for the first mortgagee to exercise its power of sale. He emphasises the plaintiffs’ vulnerability and that it was not open to the first defendant’s liquidators to settle the plaintiffs’ purchase of the property for reasons which included that the second and third defendant “had refused to withdraw their caveat”.
[39] Mr Slevin accepts that Mr Kashyap did, on 19 July 2021, advise the caveat would be withdrawn on confirmation of there being no funds from the sale for the second and third defendants, but he says this was equivocal and unsatisfactory. He says also, that while on 20 July 2021 Mr Kashyup again conveyed his clients’ intention to remove the caveat he gave no undertaking to do so and it was not until 23 July 2021 that confirmation was received that a dealing had been submitted to withdraw the caveat. Mr Slevin submits had the proceeding not been filed, it would have remained open to the defendants to do nothing and to let the mortgagee sale proceed.
[40] Mr Slevin’s principal arguments can be summarised as it was reasonable and necessary for the proceeding to be filed against the second and third defendants because:
(a)it was the second and third defendants’ caveat that prevented settlement of the sale of the property to the plaintiffs; and
(b)the second and third defendants acted unreasonably in refusing to withdraw the caveat in the absence of confirmation from the liquidator that there were no funds available to pay their debt.
[41] I consider these submissions to be untenable. Contrary to what Mr Slevin asserted in his email to Mr Kashyup of 14 July 2021 the second and third defendants’ caveat was not the only obstacle to settlement of the sale. There was much correspondence involving Mr Slevin, and solicitors acting for the mortgagee and the liquidators, concerned with negotiating an agreed basis upon which the sale might proceed. The letter of 16 July 2021 from the liquidators’ solicitors sets out the position that had been reached at that stage and the issues that had yet to be resolved. As noted earlier, just one of the impediments to the settlement was the liquidators’ requirements concerning payment of GST and costs. An agreement was not reached until 21 July 2021 after the proceeding had been filed. I agree with the submission for the first and second defendant that in reality the caveat was inconsequential to the plaintiffs’ rights under their agreement to acquire the property from the first defendant and did not in fact prevent settlement.
[42] Importantly, the position of the second and third defendants remained unchanged from 15 July 2021 when Mr Kashyup advised Mr Slevin that upon confirmation from the liquidators there was no money left from the sale for the second and third defendants, they would have no hesitation in removing the caveat. That was an entirely reasonable position. It appears it satisfied Mr Slevin, who advised that this advice would come as a great relief to the plaintiffs. On the morning of 19 July 2021, Mr Kashyup confirmed the second and third defendants’ position. On 20 July 2021, upon receipt of the liquidators’ advice there would be no residual funds to pay the debt owed to the second and third defendants, Mr Kashyap promptly confirmed the caveat would be withdrawn. Given the very clear and reasonable position adopted by the second and third defendants throughout, I do not consider it was sensible or necessary for the plaintiffs to have issued proceedings against them.
[43] There is nothing in the argument that there was a delay between 20 July 2021 and 23 July 2021 in the withdrawal of the second and third defendants’ caveat. That cannot be a justification for issuing the proceeding as it had already been commenced. Further, the settlement of the sale was not scheduled until 27 July 2021.
[44] There is nothing either in the argument the first defendant had no right to grant the second and third defendants an interest in the property. There is nothing before me to suggest the first and second defendants did not have a caveatable interest. This is a matter between the plaintiffs and the first defendant.
[45] The issuing of the proceeding cannot be justified on the basis of urgency because of the possibility the mortgagee might exercise its power of sale after 2 August 2021. There was absolutely no prospect that the Court could determine the proceeding prior to that date. If the plaintiffs wished to restrain the mortgagee from exercising its power of sale, they would have had to seek an injunction but the mortgagee was not a party to the proceeding.
[46] What is more, the proceeding suffered from procedural defects. Perhaps most relevantly, an application to remove a caveat must be brought as an originating application, under pt 19 of the High Court Rules.10 Here, the plaintiffs sought to remove the caveat by way of a summary judgment application. The summary judgment procedure does not apply to proceedings under pt 19.11 The proceeding against the second and third defendants was fundamentally procedurally flawed.
[47] The plaintiffs have not displaced the presumption in r 15.23 and they must pay costs to the second and third defendants.
Should the second and third defendants be awarded costs on an indemnity basis?
[48] The defendants seek indemnity costs. Relevantly, r 14.6 of the High Court Rules deals with the award of increased or indemnity costs and provides:
10 High Court Rules, r 19.2(l)(a).
11 Rule 12.1.
14.6 Increased costs and indemnity costs
(1)Despite rules 14.2 to 14.5, the court may make an order—
(a)increasing costs otherwise payable under those rules (increased costs); or
(b)that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party (indemnity costs).
…
(3)The court may order a party to pay increased costs if—
…
(b)the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by
…
(ii)taking or pursuing an unnecessary step or an argument that lacks merit;
…
(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.
(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; or
…
(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.
[49] In seeking indemnity costs the second and third defendants rely on r 14.6(4)(a) and argue the plaintiffs commenced the proceeding unnecessarily. In Bradbury v Westpac Banking Corp the Court of Appeal noted that:12
Indemnity costs, which depart from the predictability of the Rules Committee’s regime, are exceptional and require exceptionally bad behaviour. That is why to justify an order for such costs the misconduct must be “flagrant”.
12 Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [28].
[50] In Saunders v Winton Stock Feed Ltd, the Court of Appeal held that the word unnecessarily “takes its meaning and flavour from the adverbs which precede it: “vexatiously, frivolously, improperly””.13 Indemnity costs may be awarded where a party makes “allegations which ought never to have been made or unduly prolonging a case by groundless contentions”, otherwise known as the hopeless case.14
[51] The commencement of this proceeding against the second and third defendants was ill-advised and, as should have been expected, turned out to be unnecessary. The plaintiffs jumped the proverbial gun in filing the proceeding with knowledge that a resolution was imminent. Importantly, that resolution was not dependant on the second and third defendants as their position was clearly stated and remained unchanged throughout. However, there is no suggestion here that the plaintiffs acted vexatiously, frivolously or for some improper motive. I have come to the view that it is not appropriate to award them indemnity costs.
[52] The second and third defendants did not file a defence to the plaintiffs’ claim. The steps taken by them were limited to their counsel’s attendance at a telephone conference and in preparing costs submissions which, I note, were helpful. In respect of such attendances, I award them costs calculated on a 2A basis in the sum of
$1,912.15
Result
[53] The plaintiffs’ claim for costs against the second and third defendants is dismissed.
[54] The second and third defendants are awarded costs against the plaintiffs in the sum of $1,912.
O G Paulsen Associate Judge
13 Saunders v Winton Stock Feed Ltd [2009] NZCA 148, (2009) 19 PRNZ 342 at [30] where the Court was considering what was r 48C(4)(a) of the High Court Rules.
14 Bradbury v Westpac Banking Corp, above n 12, at [29].
15 High Court Rules, sch 3, steps 13 and 24.
Solicitors:
D’Arcy Thomson Law (J Ling), Christchurch
Aaron Kashyap, Barrister and Solicitor, Auckland
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