Villa Street Holdings Limited v Water Mart Wairarapa (2017) Limited

[2020] NZHC 1569

IN THE HIGH COURT OF NEW ZEALAND MASTERTON REGISTRY

I TE KŌTI MATUA O AOTEAROA WHAKAORIORI ROHE

CIV-2020-435-8

[2020] NZHC 1569

UNDER

Section 244 of the Property Law Act 2007

IN THE MATTER

of an application for possession of land and cancellation of a lease

BETWEEN

VILLA STREET HOLDINGS LIMITED

Applicant

AND

WATER MART WAIRARAPA (2017) LIMITED

Respondent

Counsel:

D Bleier for applicant

P Michalik for respondent

Judgment:

7 July 2020

COSTS JUDGMENT OF ASSOCIATE JUDGE JOHNSTON

[On the papers]

[1]    The applicant, Villa Street Holdings Ltd, owns a property situated at 38–42 Villa Street in Masterton. In mid 2017, Villa Street and the respondent, Water Mart Wairarapa (2017) Ltd, entered into an agreement pursuant to which Villa Street agreed to lease and Water Mart agreed to take on lease the property. The parties executed a deed of lease on 31 July 2017.  The rental due pursuant to the lease was not paid on  1 March 2020 and on 5 March 2020 Villa Street served on Water Mart a notice pursuant to s 245 of the Property Law Act 2006 requiring the overdue rent to be paid, which notice appears to have been  ignored.  Accordingly,  on  24  March  2020, Villa Street commenced this proceeding seeking orders terminating the lease, granting it possession, ordering the payment of outstanding rent, interest, compensation and costs. On 22 April 2020, the respondent filed and served a notice of opposition.

VILLA STREET HOLDINGS LIMITED v WATER MART WAIRARAPA (2017) LIMITED [2020] NZHC 1569 [7 July 2020]

[2]    The dispute concerning the lease was ultimately settled, and counsel informed the Court of this in a joint memorandum dated 12 June 2020.

[3]    One additional aspect of the background is relevant. Villa Street’s managing director is Mr Rodney Miller. Water Mart’s managing director is Mr Richard McNaughton. Both, I understand, are plumbers. Mr Miller formerly ran a plumbing business, through another company, from the property owned by Villa Street. That business was acquired by Mr McNaughton through Water Mart and has since been run by him from the property. Since the sale and purchase of the business there has been considerable tension between Mr Miller and Mr McNaughton, with the latter making serious allegations, including an allegation of fraud, in connection with the sale and purchase of the business. Of course that commercial dispute is distinct from this lease dispute, involving different parties and different issues. But, inevitably, there has been some crossover between the two disputes. It will be necessary to refer again to this aspect of the background.

[4]    The only outstanding issue is costs. The parties have been unable to resolve these, and they ask the Court to do so. Mr Bleier for Villa Street and Mr Michalik for Water Mart have filed and served memoranda, for which I thank them.

[5]    Mr Bleier refers the Court to r 14.6(e) of the High Court Rules 2016 which provides that the Court may award indemnity costs in various circumstances, including where the party claiming costs has a contractual right to recover his, her or its solicitor and client costs. It is common ground that that is the position here. Clause 6.1 of the lease provides:

The tenant shall pay the landlord’s reasonable costs incurred in considering any request by the tenant for the landlord’s consent to any matter contemplated by this lease, and the landlord’s legal costs (as between lawyer and client) of and incidental to the enforcement of the landlord’s rights and remedies and powers under the lease.

[6]    Mr Bleier goes on to refer to the Court of Appeal’s judgment in Watson & Son Ltd v Active Manuka Honey1 where the Court said in relation to the assessment of solicitor and client costs:

1      Watson & Son Ltd v Active Manuka Honey [2009] NZCA 595 at [35].

It is clear in principle and on authority that once it is established that the indemnity is applicable in the circumstances and that, properly construed, it includes solicitor-client costs, no discretion remains available other than on public policy grounds or as part of an assessment by the Court as to whether the amount of the solicitor and client costs is objectively reasonable…

[7]    As to the assessment of reasonableness, Mr Bleier referred to Frater Williams & Co Ltd v Australian Guarantee Corporation (NZ) Ltd:2

The object is not to exercise a discretion but rather to assess whether the solicitor-client costs sought are properly attributable to the exercise contemplated in the original contract and are charged for at a level which would be regarded as acceptable in a costs revision under the Law Practitioners Act.

[8]    Mr Bleier accepts that the costs in this case are higher than might ordinarily be expected in a case of this sort, and contends that this reflects the approach taken by Water Mart. He says that Mr McNaughton persisted in raising and re-raising issues relating to the commercial dispute in the context of this proceeding and that this added materially to the costs.

[9]    For Water Mart, Mr Michalik accepts that Villa Street is entitled to its solicitor and client costs in relation to the dispute concerning the lease. He makes two closely related — indeed, interwoven — submissions, first that a significant proportion of the costs claimed were incurred in relation to the commercial dispute which is not covered by the indemnity, and second that the costs incurred are not reasonable.

[10]   The essential issue is whether, to the extent that the Court may conclude that the charges appear higher than would normally be expected, that is explicable by reference to the actions of Mr McNaughton and the costs are nevertheless reasonable.

[11]   Mr Michalik’s starting point is that  the  costs  regime  contained  in  the  High Court Rules is designed to enable a successful party, not otherwise disqualified from claiming costs, to recover approximately two thirds of what his, her or its solicitor and client costs might be. He makes an assessment of the scale of costs that Villa Street may have been entitled to claim in this case had the lease not provided for

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

the recovery of indemnity costs. These he calculates at $6,692. Multiplying that figure by 1.5 he arrives at a calculation of what one might expect Villa Street’s solicitor and client costs to have been, that is to say $10,038. He submits that the Court should treat that figure as a starting point in assessing whether Villa Street’s actual solicitor and client costs are reasonable.

[12]In relation to this Mr Michalik refers to the Court of Appeal’s decisions in

Holdfast NZ Ltd v Selleys Pty Ltd 3 and Bradbury v Westpac Banking Corporation.4

[13]   He acknowledges that those cases arose in a different context, namely in determining a basis for ordering increased costs over scale.

[14]   In my view, there is a material difference between making an assessment of solicitor and client costs in the context of dealing with an application for increased costs on the one hand and the present situation. The difference is that here there is a contract to the effect that Villa Street will be indemnified by Water Mart for its actual costs “ … of and incidental to the enforcement of [its] rights and remedies and powers under the lease”. As Mr Bleier submits, that means that Villa Street’s claim is not necessarily limited to the costs associated with taking formal steps in the proceeding.

[15]   Whilst in principle I accept that an assessment of scale costs multiplied by 1.5 may be a useful point of reference, it is no more than that. Moreover, it seems to me to be important to bear in mind both that scale costs are dictated by the daily rates set out in sch 2 to the High Court Rules which are not necessarily fixed by reference to current market conditions, and also that the time allowances contained in sch 3 do not take account — and are not designed to take account — of the particular circumstances of each case.

[16]   Mr Michalik draws attention to the fact that the costs claimed by Villa Street are approximately 2.7 times his benchmark figure. That he suggests must mean that in dealing with the lease dispute Villa Street’s solicitors and counsel also included

3      Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 at [46]–[48].

4      Bradbury v Westpac Banking Corporation [2009] 3 NZLR 400 at [6] and [9].

attendances more properly attributed to the underlying commercial dispute which he submits is not something covered by the indemnity.

[17]   It is certainly true that the standout feature in this case is that the lease dispute took place against the backdrop of the commercial dispute. Indeed, the contemporaneous correspondence between the parties makes it clear that Water Mart withheld payment  of  the  rental  payable  on  1  March  2019  expressly  because  Mr McNaughton perceived himself or Water Mart to have a claim against Mr Miller or his former company.

[18]   Against that background, it is not at all difficult to envisage how Villa Street’s solicitors and counsel were obliged to devote more time to each aspect of the lease dispute than might ordinarily be expected. A review of the correspondence between the parties and Water Mart’s Notice of opposition and affidavit evidence bears this out.

[19]   In those circumstances, I am not persuaded that scale costs are an especially helpful guide in assessing the reasonableness of the costs incurred by Villa Street.

[20]   Villa Street’s advisers apparently costed this file on a time and attendance basis.

[21]   The hourly rates charged by Villa Street’s solicitors ($260) and counsel ($350) appear to me to be well within the range that would be regarded as reasonable.

[22]   There is no suggestion that Villa Street’s solicitors or counsel did not expend the time they are said to have expended in dealing with the matter.

[23]   Accordingly, the issue reduces itself to a broad assessment of reasonableness of the time involved.

[24]   Standing back from the matter as best I can, my assessment is that the total fees incurred by Villa Street in dealing with this matter ($27,280), are, in the circumstances described, not outside the range of costs that I would regard as reasonable (between

$10,000 and $30,000). Certainly, they are towards the upper end of that range. However, I accept that the explanation for that is essentially that the commercial

dispute and the approach adopted by Water Mart demanded that Villa Street’s solicitors and counsel gave this matter more attention than might ordinarily be necessary. In the end, my judgement is that there is no basis upon which the Court could conclude that the costs incurred by Villa Street are unreasonable.

[25]   It follows that Villa Street is entitled to recover the full amount claimed, and I enter judgment for Villa Street against Water Mart in the total sum of $27,820 ($27,280 in respect of costs and $540 in respect of disbursements).

Associate Judge Johnston

Solicitors:

Gawith Burridge, Masterton for applicant

Taverner Keys & Co, Carterton for respondent