Tauranga Bridge Marina Ltd v De Fall

[2016] NZHC 2704

IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY

CIV-2015-470-188 [2016] NZHC 2704

UNDER

the Declaratory Judgments Act 1908

BETWEEN

TAURANGA BRIDGE MARINA LTD Plaintiff

AND

NEVILLE JOHN DU FALL, JANET LOUISE DU FALL AND RUSSELL FREDERICK DU FALL as trustees of N.J Du Fall Family Trust

First Defendants

AND

CHRISTOPHER DENNIS DONALD COLLIER AND CA TRUSTEES (2012) LTD as trustees of Chris Collier Family Trust

Second Defendants

CONTINUED OVERLEAF

Hearing:	On the papers
Judgment:	11 November 2016

JUDGMENT AS TO COSTS OF THOMAS J

This judgment was delivered by me on 11 November 2016 at 3pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date:………………………….

TAURANGA BRIDGE MARINA LTD v DU FALL, DU FALL AND DU FALL as trustees of N.J Du Fall

Family Trust [2016] NZHC 2704 [11 November 2016]

AND

RUSSELL JOHN LEVY

Third Defendant

AND

STUART JAMES NEAVE Fourth Defendant

AND

STUART JAMES NEAVE AND SUE CELS

Fifth Defendants

AND

ALLARD ROBERT HENRY MITCHELL AND CLAYTON ROBERT HENRY MITCHELL as trustees of Bob Mitchell Sixth Defendants

AND

COLIN GRAHAM Seventh Defendant

Introduction

[1]      On 27 July 2016, I delivered judgment against the plaintiff in this case.1   The defendants  now  seek  costs.  On  a  2B  basis,  their  costs  and  disbursements  total

$62,726.78. The plaintiffs say that costs should lie where they fall.

[2]      The decision related to the proposed construction of a breakwater at a marina in Tauranga,  which  the  manager and  owner of  the marina, the plaintiff, sought partially to fund from contributions from the berth licence holders. The contributions were sought through an extraordinary resolution of the licence holders, overseen by the plaintiff and the Public Trust according to the terms of a Management Deed (Deed), which the plaintiff asserted governed the relationships between it and the licence holders. The defendants said that they were not bound by the resolution, and that they should not be required to pay the levies sought to fund the breakwater.

[3]      I held that the licensees were not bound by the Deed, and there was no estoppel despite their use of some of the benefits granted by the Deed. Further, the Deed and scheme as a whole arguably did not contemplate use of the scheme for re- developments of the marina, such as this. The levies could not be raised as an operating expense under the licences. As a consequence, the application for a declaration that the defendants were required to pay the levies was declined.

Submissions

Defendants’ submissions

[4]      The defendants say that they should receive costs on a 2B basis with a 50 per cent uplift to reflect the plaintiff’s conduct, and the plaintiff should be required to meet the costs award itself rather than compelling licence holders to do so.   The defendants rely on r 14.6(3)(c) and (d) of the High Court Rules, and say that the proceeding is of general importance to a wider group, as it affected all the licence holders. Furthermore, they say that the plaintiff’s conduct in the proceeding merits

increased costs,  given it had been  aware since 2009 of the legal difficulties of

1      Tauranga Bridge Marina Ltd v Du Fall [2016] NZHC 1747.

levying the licence holders; it knew of the lack of unanimity and other issues about the breakwater and proceeded anyway; it publicly identified the defendants; it used these High Court proceedings to avoid Disputes Tribunal proceedings brought by some of the defendants; and could have clarified the scope of the Deed proactively before the levies were raised.

[5]      The  defendants  say  that  the  costs  award  should  reflect  the  unnecessary expense to which they were put and the poor process followed by the plaintiff. They say the proceedings were not in the licence holders’ interests and the plaintiff should have known the first declaration it sought was extremely unlikely to be made.

[6]      The defendants say that the Court should order that the plaintiff must pay the costs itself, and not seek them from the licence holders. They acknowledge that the legal costs can be claimed as an operating expense, but say that the plaintiff did not act properly and in good faith. They say they should not face double legal fees, nor should all the licence holders be penalised.

Plaintiff ’s submissions

[7]      The plaintiff says that costs should lie where they fall because it brought the proceeding in the interests of the marina and the licence holders, not to further its own interests; it acted reasonably; and all legal costs will ultimately be borne by the licence holders.

[8]      It says that the proceeding was not commenced until there were only seven licence holders opposing the breakwater contributions, after extensive consultation. The case was a test case in the High Court given it would determine the rights and responsibilities of all the licence holders. It says it took a confined approach to minimise the expense of the court process. The costs will be passed on to the licence holders as “operating expenses”, as defined in cl 13 of the second schedule of the licences.

[9]      The plaintiff opposes increased costs on the same basis, and emphasises that it did not bring this case to the High Court to avoid the Disputes Tribunal claim or as a consequence of it. It takes issue with a number of other comments made by the

defendants in their submissions, and says that its actions were reasonable in holding the special general meeting and that it was most appropriate to act openly. It says there was no jurisdiction for the Court to look into the necessity or otherwise of the breakwater. The plaintiff also says that it, and associated entities, had for years relied on the Deed being binding on the licence holders, and that its arguments were not unreasonable.

Defendants’ response

[10]     In reply, the defendants say that there was no public interest in the plaintiff bringing the litigation. The defendants also make further complaints about increases in   operating   expenses   to   cover   shortfalls   from   refunding   the   breakwater contributions, and other issues between the parties. They say the plaintiff should meet its own legal costs, and say that, if costs lie where they fall, the unfairness will still be with the defendants as they will have to pay costs twice through contributions under their licences. They dispute the plaintiff’s interpretation of the Deed, and suggest that they will take further litigation if the expenses are levied as operating expenses.

Costs principles

[11]     The successful party is, as a general principle, entitled to costs.2  However, costs remain ultimately at the discretion of the court.3 Despite these rules, courts may order increased costs if, under r 14.6(3):

…

(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.

[12]     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.4   It is

2      High Court Rules, r 14.2.

3      Rule 14.1.

also established that in only the most exceptional of circumstances would an increase of 50 per cent above scale costs be warranted.

Can  the  plaintiffs  seek  reimbursement  of  their legal  costs  from the  licence holder owners?

[13]     Although I am not making a determination on this issue, on the face of it, the plaintiff  will  be  entitled  to  levy  licence  holders  for  any  costs  order  against  it. Pursuant to cl 4.1 of the licences, licensees must pay their proportion of operating expenses as defined in cl 1 as:

“Operating expenses” means the total of all rates, taxes, costs and expenses incurred by the Marina Manager or for which the Marina Manager is or may prospectively become liable in respect of the Marina, and includes, without limitation, any additional amount or amounts which the Marina Manager properly and reasonably determines are appropriate to be set aside in relation to the control, operation, occupation, maintenance and management of the Marina (but excluding costs and expenses which are the direct responsibility of the Berthholder in the Marina) and in particular but without limiting the generality of the foregoing includes the rates, taxes, costs and expenses specified in the second schedule.

[14]     The Second Schedule includes:

(13) All costs and expenses (including legal fees) incurred by the Marina

Manager or Trustee in:

(a) instituting prosecuting and compromising any legal proceedings to obtain or recover any moneys payable to the Marina Manager or the Trustee by Berthholders:

(b) Seeking advice on any question, case or proceeding the determination of which is or may be of significance to the Marina or the Berthholders and of taking such further steps in relation to any such case or proceeding as the Marina Manager or the Trustee considers desirable.

[15]     The  defendants  have  invited  the  Court  to  make  an  order  preventing  the plaintiff from levying licence holders for legal costs essentially on the basis that it would be unfair. They say that the Court should find there is an implied “good faith” requirement in cl 13(b) which precludes the plaintiff taking any action it sees as

desirable, as to allow otherwise would encourage the plaintiff to seek pointless legal

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

advice and would limit licence holders’ ability to challenge decisions, given they will

be penalised no matter the outcome.

[16]     The licences are contracts between the licence holders and the plaintiff. In the context of a costs decision on the papers, it is inappropriate to make interpretive decisions about the scope of the plaintiff ’s right to seek reimbursement of legal costs from  the  licence  holders.  There  is  clear  legal  debate  about  when  it  will  be appropriate to insert a “good faith” requirement into contracts by implication.5  On their natural meaning, the licences specifically allow the recovery of any legal costs related to cases the Marina Manager or Trustee thinks “desirable”.  There is no basis for the Court to make a pre-emptive decision as to how the plaintiff should exercise

its legal rights in this regard.

[17]   The  defendants  could  challenge  the  plaintiff’s  decision  to  seek reimbursement in separate legal proceedings if they felt it was required.   I would, however, observe that, in the circumstances and where the defendants were very much in the minority of licence holders in opposing making any contribution to the breakwater, they may well struggle to show the plaintiff was not acting in good faith in pursuing the matter.

[18]     In any event, I decline the invitation to make orders preventing the plaintiff from seeking reimbursement from the licence holders for its legal fees.

Should costs be awarded?

[19]     The defendants were the successful party. The presumption is that they are therefore entitled to costs.

[20]     The plaintiff relies on r 14.7(e), saying costs should be reduced or refused because the proceeding concerned a matter of public interest and the plaintiff acted reasonably in the conduct of the proceeding. However, this category is typically

limited to cases where the issue itself is one of public interest,6 and not simply where

5      See the discussion in John Burrows, Jeremy Finn and Stephen Todd Law of Contract in New

Zealand (5th ed, LexisNexis, Wellington, 2016) at 199 – 202.

6      For example, the plaintiff itself referred to Taylor v District Court at North Shore HC Auckland

a number of members of the public (here, all the licence holders) were interested in the outcome. The current case is in essence a private dispute, albeit one involving a number of parties.

[21]     Are there other matters which justify reducing or refusing costs, under r

14.7(g)?   It appears that all parties had operated on the assumption that the Deed bound the licensees.  There had been genuine attempts on the part of the plaintiff to obtain a majority approval of the breakwater in a manner it thought was compliant with the governing rules. Nothing suggests the plaintiff was disingenuous in that view. There was, therefore, a genuine interpretive dispute which needed resolution and which was brought as a declaratory proceeding rather than an adversarial one. The plaintiff was also operating to implement a scheme which had been backed by the vast majority of the licence holders.

[22]     The plaintiff’s reasonableness does not, in and of itself, warrant allowing costs to lie where they fall where one party has clearly succeeded. There will be many  cases  where  each  party  has  taken  a  reasonable  position,  but  the  Court ultimately decides that one party was successful. The major countervailing factor here is that there was no other way aside from bringing the action that the question of the interpretation of the Deed and licences could be finally determined. This was particularly the  case  given  the  conflicting  legal  advice  received  on  the  subject. Despite this, the plaintiff was ultimately unsuccessful even if its position was not unreasonable. Many parties may act reasonably but nevertheless be subject to a costs award given the presumption that the successful party receives costs.

[23]     The plaintiff submits that the unique construction of the scheme by which the Marina operates also puts this case into a category in which an award of costs would be unjust.  The licence holders will likely face the ultimate cost of the proceedings, recovered as an operating expense. The result is that a costs order may well end up resulting  in  the  defendants’  costs  being  defrayed  amongst  all  licence  holders,

including the defendants themselves.

CIV-2009-404-2350, 13 October 2010 and New Zealand Health Inc v South Taranaki District Council [2014] NZHC 993, cases involving respectively, fair trial rights and the legality of fluoridated water.

[24]     However, the fact that the liability for any costs will be borne by others does not mean that costs should not be awarded. The plaintiff cannot escape a costs award simply because of a contractual arrangement which allows it to recover from the licence holders. The licence holders are parties to a document with contractual effect, which renders them liable for legal costs.  To that extent, it is not unfair for them to bear the cost.  The alternative is that the defendants, despite being successful, would bear all their own costs.

[25]     I conclude that there is no clear basis under r 14.7 to reduce or refuse costs.

Should increased costs be awarded?

[26]     In my assessment, there is no basis to award increased costs. As discussed above, this was in essence a private dispute between parties. Rule 14.6(3)(c) is not applicable.

[27]     I address the defendants’ points about the reasonableness of the plaintiff’s

behaviour in turn:

(a)      In  relation  to  complaints  about  the  behaviour  of  the  plaintiff  in organising a special general meeting to authorise the breakwater, the decision to go ahead with the breakwater despite a lack of unanimity, and the identification of the defendants as not having paid their levies, increased costs are generally appropriate where there has been unreasonable conduct in relation to the proceeding itself, not in terms

of the behaviour prior to the commencement of litigation.7  In any

event, none of these actions were, in my assessment, particularly unreasonable. The construction of the breakwater was approved by the vast majority of licence holders and there was no reason to protect the defendants’ identity.

(b)While these proceedings commenced after the Disputes Tribunal proceeding, I am not persuaded these proceedings were used as a way

7      Re Estate of Keast [2015] NZHC 1505 at [7], citing Paper Reclaim Ltd v Aotearoa International

Ltd [2006] 3 NZLR 188 (CA) at [160].

of avoiding the Disputes Tribunal  proceeding.  It  does  appear that preparation for the present proceeding was well underway when notification of the Disputes Tribunal complaint by one of the defendants  was  received,  and  resort  to  some  form  of  dispute resolution was required given the intractable nature of the dispute and the fact the levy was being paid by the majority of licence holders. Furthermore, given the subject matter and scale of the proposed project, together with the fact the other defendants were refusing to pay the levy, it was not unreasonable to take the matter to the High Court.

(c)      The final complaint about the plaintiff’s behaviour is that the scope of the Deed and licences and their relationship could have been resolved by seeking the Court’s assistance at an earlier stage and not delaying doing so until after the general meeting. However, as I have noted, there appears to have been a broad assumption (albeit an incorrect one) that the effect of the Deed was decided, and there was no need to determine the matter until the present dispute arose.  A party is not required pre-emptively to obtain the Court’s view on the interpretation of a contract, deed, or other agreement before any dispute arises, even if there are clearly arguable disputes as to its interpretation.

As noted by the plaintiff, a declaratory action in the same form as the present application would have been needed to determine the matter even if brought earlier. The manner of application was not unreasonable, and in my view neither was the timing.

[28]     The defendants  also  say that  the  plaintiff ought  to  have  known  that  the application for a declaration validating the December 2014 resolution was extremely unlikely to succeed.  While that action clearly failed, it was not so unreasonable as to warrant increased costs. There was a genuine question about the effect of the Deed.

[29]     The  failure  of  the  plaintiff  to  bring  evidence  about  the  need  for  the breakwater was a strategic decision, and does not amount to unreasonableness which would warrant increased costs.

[30]     I decline to award increased costs for these reasons.

Result

[31]     For the reasons given, costs are awarded on a 2B basis to the defendants, plus disbursements.

Thomas J