Whai Rawa Railway Lands LP v Body Corporate 201036
[2022] NZHC 1285
•2 June 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-1258 [2022] NZHC 1285
BETWEEN WHAI RAWA RAILWAY LANDS LP
Applicant
AND
BODY CORPORATE 201036
Respondent
Hearing: On the papers Counsel:
D M Salmon QC, R M Keane and S Ma-Ching for the Applicant J P Wood and J Heatlie for the Respondent
Judgment:
2 June 2022
REISSUED JUDGMENT OF GORDON J
[As to Costs]
This judgment is delivered by me on 2 June 2022 at 12pm pursuant to r 11.5 of the High Court Rules.
.....................................................
Registrar / Deputy Registrar
Solicitors/Counsel:
D M Salmon QC, Barrister, AucklandR M Keane, Lee Salmon Long, Auckland S Ma-Ching, Lee Salmon Long, Auckland J P Wood, Court One, Auckland
J Heatlie, Court One, Auckland
WHAI RAWA RAILWAY LANDS LP v BODY CORPORATE 201036 [2022] NZHC 1285 [2 June 2022]
Introduction
[1] This proceeding concerns a lease dispute under the Unit Titles Act 2010 (UTA), between Whai Rawa Railway Lands LP (Whai Rawa), as lessor, and Body Corporate 201036 (Body Corporate), as lessee.
[2] On 1 November 2021 I issued a judgment1 in favour of Whai Rawa. I found that the Body Corporate had deliberately and knowingly breached the ground lease (the Lease) and the UTA, and the breaches were ongoing. The breaches included:
(a)A breach of the Lease due to the failure to pay ground rental at the agreed rate on the due dates on time;
(b)A breach of obligations under ss 87(2) and 115(2)(d) of the Act, to collect levies and pay ground rental before other expenses.
[3] I reserved costs, and observed that Whai Rawa, as the successful party, was prima facie entitled to costs. I directed that the parties were to file a joint memorandum if costs were agreed. The parties were to file and serve separate costs memoranda in the event they could not agree.2
[4] There has been no agreement on costs. Whai Rawa now seeks an order of costs and disbursements under r 14.6(4) of the High Court Rules 2016 (HCR). The costs are sought on an indemnity basis under cl 10.1 of the Lease, including pre- commencement costs arising from the Body Corporate’s breaches of the Lease and UTA, in the sum of $91,532.48 (including disbursements of $1,626.08 but excluding GST). Whai Rawa also seeks costs for the preparation of its costs memoranda in the sum of $11,950.
1 Whai Rawa Railway Lands LP v Body Corporate 201036 [2021] NZHC 2893.
2 At [125] – [126].
Procedural background
[5] Whai Rawa has filed five costs memoranda in relation to this application, dated 29 November 2021, 22 December 2021, 27 January 2022, 4 March 2022 and 28 April 2022.
[6] The Body Corporate has filed four memoranda on costs, dated 19 January 2022, 1 February 2022, 8 April 2022, and 18 May 2022.
[7] A costs application would not normally result in such a plethora of memoranda. In the first of my three minutes issued in relation to costs I observed that the filing of costs memoranda had proceeded in a somewhat unorthodox fashion, perhaps reflecting the progress of discussions between counsel. In addition, there are now the various issues mentioned in Whai Rawa’s claim for costs on costs and the Body Corporate’s response, which are discussed in the final part of this judgment.
[8] In its first costs memorandum, Whai Rawa claimed $133,220.50 (including disbursements but excluding GST). In its second memorandum Whai Rawa confirmed that certain steps in the proceeding would no longer be claimed. The memorandum did not identify the steps which would not be claimed, nor the reasons for the change of position. This update reduced the amount sought to $125,493.22 (including disbursements but excluding GST).
[9] In its fifth memorandum Whai Rawa withdrew claims for costs relating to the use of a second firm of solicitors, Thompson Blackie Biddle (TBB).3 Whai Rawa frames its reason for withdrawing this claim as being “in the spirit of attempting to narrow the costs dispute for the Court and avoid further delay in the fixing of costs”. The withdrawal is made without prejudice to Whai Rawa’s position on reasonableness. This adjustment appears to be a response to objections raised by the Body Corporate in its second memorandum.4 The issue of whether fees arising out of the use of a
3 Whai Rawa engaged two firms of solicitors in relation to the proceeding: Lee Salmon Long (LSL), as the solicitors on record; and Thompson Blackie Biddle (TBB), as its long-standing property lawyers with prior involvement in relevant lease matters. Claims withdrawn comprise $28,749.50 for TBB’s attendences and $5,221.23 for LSL’s attendances liaising with TBB.
4 In its memorandum dated 8 April 2022, the Body Corporate objected to costs associated with TBB as an “unnecessary extravagance” which were not properly recoverable.
second firm of solicitors, debated in earlier memoranda, is now moot. This update reduced the total amount sought to $91,532.48 (including disbursements but excluding GST). This is the sum now sought.
[10] Whai Rawa seeks costs in relation to the provision of legal services by its solicitors on record Lee Salmon Long (LSL), and senior counsel Davey Salmon QC (DS). Whai Rawa initially provided a costs schedule showing invoice numbers but no detail. Copies of relevant invoices, which were filed with the first memorandum, were heavily redacted so that the purpose of each attendance was undisclosed. Following the Body Corporate’s request in its first response memorandum, Whai Rawa subsequently supplied unredacted (save for instances of professional privilege), detailed, line by line, time recordings for LSL and DS. The issue of information required for a costs assessment under r 14.6(4)(e), debated in the earlier memoranda, is therefore now moot.
[11] In its second memorandum the Body Corporate made detailed calculations based on its interpretation of the time recording sheets. In its fifth memorandum Whai Rawa identified a number of errors in the Body Corporate’s calculations and provided recalculations. In its final memorandum, dated 18 May 2022, the Body Corporate accepted Whai Rawa’s calculations (except in relation to LSL’s fees for pre-instruction costs). This judgment relies on the figures provided by schedule 2 of Whai Rawa’s fifth memorandum, as accepted by the Body Corporate in its final memorandum.
Taxation on costs
[12] The Body Corporate’s primary position is that the Court should order “taxation on costs” under r 14.18 of the HCR. As an order for taxation by the Registrar would dispense with the need for further analysis by the Court, I address this issue separately and first.
[13]Rule 14.18 provides:
(1) Any party entitled to costs subject to taxation may obtain from the Registrar an appointment for taxation of the costs.
(2) The party entitled to the costs must serve a copy of the appointment on the party liable to pay the costs at least 2 working days before the day
appointed if the party liable to pay the costs has given an address for service.
[14] In this context, “taxation” simply means “assessment”. The process provides for the court registrar to undertake the assessment and award of costs, based on an itemised bill filed by the entitled party. Matters to be taken into account by the Registrar undertaking a taxation of costs will vary according to the order. However, the factors most likely to be considered include:5
· The complexity, difficulty or novelty of the questions involved.
· The skills, specialised knowledge and the responsibility required, and the time and labour expended by the solicitor and counsel.
· The number and importance of the documents prepared or perused.
· The place and circumstances in which the business is transacted.
· The importance of the matter to the client.
· Where money or property is involved, its amount or value.
[15] Taxation may be ordered when costs are payable on an indemnity basis under r 14.6, and the process may be used to determine relevance to the proceeding as well as reasonableness of quantum.
[16]However, the application of an appointment to tax costs is increasingly rare.6
McGechan on Procedure observes that:7
The prescriptive, detailed and “self-calculating” nature of the current costs rules has relegated rr 14.18 – 14.23 to virtual obscurity. Even indemnity costs are generally fixed by the Judge, rather than allowed “as taxed”.
[17] The Court of Appeal in Black v ASB Bank Ltd identified three approaches available to the court where a party liable to pay indemnity costs seeks a detailed vetting of the reasonableness of the costs sought:8
(a)Order for taxation of costs under the HCR;
5 Sim’s Court Practice HCR14.18.5.
6 According to McGechan, the last appointment to tax costs before the Registrar in the Christchurch Registry was over 20 years ago, and in Wellington it was in 1997.
7 McGechan on Procedure HR14.18.01.
8 Black v ASB Bank Ltd [2012] NZCA 384 at [82] – [84].
(b)Referral by agreement to the expert determination of a suitably qualified practitioner;
(c)Referral of the fee note to the New Zealand Law Society for a costs assessment.
[18] These approaches were discussed by the Court of Appeal in Edel Metals Ltd v Geier Ltd.9 The Court discounted the option of taxation in that particular case and expressed doubt as to “whether the Registrar would be the appropriate person to form a judgment” in a complex case.10 The Court of Appeal considered that the fixing of costs ought to be a matter carried out by the court, saying: “Where there is a dispute as to the reasonableness of indemnity costs, the trial court should make a decision on the reasonableness of costs claimed”.11
[19] Although the Court in Black confirmed that the capacity to tax costs under the HCR remains available, it also noted that “these rules have been little used of recent years”.12 While taxation of costs is still occasionally sought by litigants, it is very rarely ordered.
[20] In Sunde v Sunde, Associate Judge Andrew recently preferred the second approach identified in Black, and commented that the “taxation rules continue to be sparsely used”.13
[21] Jasani v Vincent Capital Ltd provides a recent example of the type of exceptional circumstances warranting an order for taxation of costs. In that case, Jagose J decided that costs should be determined by the Registrar because he had been a litigation partner in the relevant legal firm and was therefore unable to make an impartial assessment of whether the firm’s hourly rates and work practices were reasonable.14
9 Edel Metals Group Ltd v Geier Ltd [2018] NZCA 494.
10 At [63].
11 At [64].
12 At [82].
13 Sunde v Sunde [2020] NZHC 375 (costs decision) at [20].
14 Jasani v Vincent Capital Ltd [2019] NZHC 146 at [2] – [4]. See also Kooiman v FM Custodians Ltd [2019] NZCA 76 at [29]: in awarding indemnity costs, the Court of Appeal directed that (failing party agreement) the Registrar fix costs, with power to tax under r 53E(4) of the Court of
[22] Ms Heatlie and Mr Wood, for the Body Corporate, cite Crichton v Bank of New Zealand15 as authority for the principle that “Where there is a dispute on quantum the Court may direct that issue be referred to the Registrar for taxation”. Crichton is a short, unreported minute which awards indemnity costs against a party who had vacated an appeal. It was issued in the High Court in 2001. In the minute, Chambers J directed that:16
In the event of a dispute as to whether particular fees related to the appeal or in the event of a dispute as to the reasonableness of the fees charged, I direct that such dispute be referred to the Registrar for taxation under r 54 and the succeeding rules in the High Court Rules.
[23] Chambers J does not provide any reasons for his direction. It is also unclear from the minute whether taxation was actually required in the event, or if the direction was merely a backstop measure. In Crichton, the appellant accepted liability for indemnity costs, provided they were both relevant to the appeal and reasonable. Chambers J acknowledged that some of the fees sought by the respondent might not relate to the current appeal but might be recoverable by other means. The referral to the Registrar for taxation appears to have been a safeguard against inappropriate recovery under r 48C (now r 14.6).17
[24] Crichton does not appear to provide strong authority to support the Body Corporate’s submissions in favour of taxation of costs. It is clear from the minute of Chambers J that the availability of taxation by the Registrar is discretionary.
[25] In my view, this is not a case where taxation of costs should be ordered. There are no exceptional circumstances which warrant a departure from the standard approach to awarding indemnity costs under r 14.6(4)(e) where a party is indemnified by a term of a deed of lease. This is not a case where judicial conflict of interest is in issue. Counsel for the Body Corporate accept that this Court may undertake the process of a detailed vetting of costs claimed and that such an approach will not be
Appeal (Civil) Rules 2005 (rr 14.18–14.23 of the High Court Rules providing for the process on a taxation order).
15 Crichton v Bank of New Zealand HC Auckland AP 128-SW00, 12 February 2001.
16 At [4].
17 Judicature Act 1908, sch 2: High Court Rules, r 48C(4)(e), which is equivalent to High Court Rules 2016, r 14.6(4)(e).
dissimilar to that of taxation by the Registrar. I do not consider that the Body Corporate is at any disadvantage if costs are assessed by the Court in the usual way.
Indemnity costs
[26] The Court has a broad discretion to award costs of a proceeding.18 The party who fails with respect to a proceeding usually pays costs to the successful party.19 Where the successful party is indemnified by a clause applicable under a contract or deed, the Court is expressly empowered to order the losing party to pay indemnity costs, under r 14.6(4)(e).
[27] The Court has a discretion to control the level of indemnity costs.20 This is usually done by assessing a reasonable allocation of costs based on the time taken and the complexity and significance of the work.21 However, costs under a contractual provision are distinct from orders for indemnity costs under other parts of r 14.6(4).
Where the obligation to pay costs is contractual, the discretion is limited.22
[28] The legal principles governing the award of indemnity costs were set out by the Court of Appeal in Beecher v Mills:23
The applicable rule is stated by Halsbury (Vol 20 para 314) [see now Halsbury’s Laws of England (5 ed) [1265]] as follows:
In all cases where there is a contract of indemnity the costs of legal proceedings properly incurred by the person indemnified are recoverable under the indemnity.
A distinction may be drawn between a person entitled by contract to an indemnity for costs and one who is simply recovering costs as damages … In the case of a contract it must in the end be a matter of determining what recovery is expressly or impliedly intended. In principle, anything less than a full indemnity for costs properly incurred must leave the indemnitee with part of the liability for which the indemnifier is prima facie responsible … In the absence of a contrary indication it is not to be assumed that the parties intended such a result. Nor can there ordinarily be any room for the exercise of a judicial discretion to order less costs and thereby erode the contractual protection the indemnity was intended to provide …
18 High Court Rules 2016, r 14.1.
19 High Court Rules, r 14.2.
20 Black v ASB Bank Ltd [2012] NZCA 384 at [77] – [99].
21 Bradbury v Westpac Banking Corp (2008) 18 PRNZ 859 (HC) at [209].
22 Kent Sing Trading Co Ltd v JNJ Holdings Ltd, above n 34, at [132].
23 Beecher v Mills [1993] MCLR 19 (CA) at 25.
[29] The Court of Appeal in Frater Williams and Co Ltd v Australian Guarantee Corp (NZ) Ltd held that in principle a party may contractually bind itself to pay the other party’s full solicitor/client costs.24 The Court set out a series of questions which a Court must determine in order to make a proper assessment of indemnity costs sought under a contractual clause. 25
[30] This approach has been followed by the Court of Appeal in a number of decisions, including Black v ASB Bank Ltd.26 The Court in Black distinguished the approach to assessing indemnity costs under a deed or contract, from indemnity costs arising in other circumstances:
[79] … where the entitlement to indemnity costs is contractual and the Court is exercising its power under r 14.6(4)(e), the position is distinctly different from orders under either of r 14.6(4)(a) or (b). Bradbury v Westpac Banking Corp demonstrates the different approach required where an order is made under r 14.6(4)(a).
[31]Following Frater, the Court in Black set out the correct approach as follows:27
[80] Assessing whether the indemnity costs claimed under a contract are reasonable involves the Court making an objective assessment of these matters:
(a) what tasks attract a costs indemnity on a proper construction of the contract;
(b) whether the tasks undertaken were those contemplated in the contract;
(c) whether the steps undertaken were reasonably necessary in pursuance of those tasks;
(d) whether the rate at which the steps were 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.
24 Frater Williams and Co Ltd v Australian Guarantee Corp (NZ) Ltd [1995] ANZ ConvC 191,873 (CA).
25 At 191,886 – 191,887.
26 Black v ASB Bank Ltd, above n 20.
27 At [79] – [80] (footnotes omitted).
The Body Corporate’s position
[32] In its memorandum dated 8 April 2022, the Body Corporate submits that the amount sought is prima facie unreasonable. Ms Heatlie, for the Body Corporate, refers the Court to the High Court costs judgment Dark v Weenink,28 in which Winklemann J (as she was then) said:
[7] Rule 48C(1)(b) states the Court may make an order “that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party (indemnity costs)”. It is clear therefore that indemnity costs may be less than actual costs, if the Court considers the latter to be unreasonably high;
…
[8] As to what is meant by reasonably incurred, I have been assisted by the decision of McGechan J in Holden v Agricultural Finishes Ltd [1997] 3 NZLR 143, where the Court considered what an unsuccessful party was to pay by way of a “reasonable contribution” to “actually and reasonably incurred” (under r 46 as it was at the time). The Court noted that the concept did not envisage a reasonable contribution to actual but excessive costs. If a party is charged and pays excessive costs to a lawyer, then that party must stand the cost of the excess. One party cannot call upon another to subsidise extravagance and foolishness. Therefore the Court must be satisfied that the costs actually incurred fall within a reasonable range.
[33] Ms Heatlie submits that the Court must be alive to the fact that a party who believes it is the beneficiary of a contractual indemnity will not necessarily exercise the same degree of rigour in controlling the expense of litigation as it would when spending its own money. She says that the Court has an important oversight function in these circumstances.
[34] In this case, Ms Heatlie notes that the matter was filed under part 19 as an originating application. The evidence was by way of affidavit and no party exercised its right to cross-examine the makers of the affidavits. The matter was disposed of in a one-day hearing.
[35] Ms Heatlie submits that her firm is experienced in bringing and defending originating applications under the UTA. She says that an award of 2C scale costs for a one-day defended application would be $32,743. As scale costs represent two thirds of actual costs, indemnity costs in this case should be around $49,114.50 (plus GST
28 Dark v Weenink (No 2) Auckland HC CIV-2003-404-5846, 16 April 2007 (footnotes omitted).
and disbursements). She says this figure is an accurate representation of actual costs reasonably incurred by Whai Rawa.
[36] The alternative, proposed by Ms Heatlie, is that the Court should make a granular assessment of the costs claimed by Whai Rawa, which categorises costs into three distinct phases of the proceeding. The total sum proposed by the Body Corporate (in its memorandum dated 8 April 2022) is $62,146.84. Ms Heatlie’s proposed methodology and submissions are set out below.
Phase one: Pre-filing (2 February to 15 April; 19 April to 5 July 2021)
[37] The decision to file an application to appoint an administrator was made on 19 April 2021, and Whai Rawa instructed LSL accordingly. On 5 July 2021, LSL filed an application to appoint an administrator, accompanied by three affidavits totalling 69 paragraphs. The Body Corporate says that two of the affidavits are virtually identical, as the same text was used for both.
[38] The Body Corporate says that Band C costs allows $14,160 for this step; an uplift of 33 per cent indicates actual costs of $21,240.
[39]Whai Rawa claims $32,441.16.29
[40] Ms Heatlie submits that $11,011.68 recorded in the LSL narration prior to 19 April 2021 should be deducted because those costs were not incurred in the course of this proceeding. However, if the Court finds that LSL’s costs for this stage are claimable, Ms Heatlie submits that fees relating to LSL’s liaison with TBB during this phase (totalling $1,984.21) should be deducted, consistent with Whai Rawa’s withdrawal of all claims for LSL’s attendances for liaising with TBB. This would reduce the figure for LSL’s fees during this phase to $9,027.47.
[41] In summary, the Body Corporate submits that an appropriate award for this phase would be $21,429.48 (being a deduction of $11,011.68 for all pre-instruction costs from the amount sought). Alternatively, if LSL’s pre-instruction fees are
29 This figure is advanced by LSL in its memorandum dated 28 April 2022, sch 2. Whai Rawa has withdrawn a claim for $22,207.50 for TBB’s costs relating to this phase.
claimable, Ms Heatlie submits that the total should be $30,456.95 (being a deduction of $1,984.21 for LSL attendances for liaising with TBB from the amount sought).
Phase two: Case management hearing (6 July to 27 August)
[42] This phase involved one case management hearing, receiving the Body Corporate’s evidence and other intermediary steps.
[43] The Body Corporate say that Band C scale costs for steps taken are $6,453; actual costs should therefore be $9,679.50.
[44] Whai Rawa seeks $23,352.35 (LSL $18,839.85; DS $4,512.50).30
[45] Ms Heatlie acknowledges that comparison with the time steps in the schedule is distortive for this period because Whai Rawa’s lawyers were properly receiving and reviewing the Body Corporate’s opposition and evidence and making decisions on how to respond, which the schedule does not cater for. This partly justifies the increased costs for this phase.
[46] Ms Heatlie says that the case management hearing before Justice Harland took approximately 15 minutes. LSL filed a two-page memorandum prior to the hearing, and counsel for the Body Corporate filed a three-page memorandum.
[47] Ms Heatlie further notes that Mr Salmon charged $1,900 (two hours) for preparation and attendance at the hearing. LSL charged $6,845.28 (approximately 18 hours at $380 per hour) for preparation for the hearing and attendance by junior counsel.
[48] Ms Heatlie accepts Mr Salmon’s charges as appropriate and sufficient but says LSL should only have charged around $1,220 – incorporating $760 (two hours at
$380) for junior counsel’s appearance and $460 (one hour) for review by the solicitor on the record.
30 This figure is advanced by LSL in its memorandum dated 28 April 2022, sch 2. Whai Rawa has withdrawn a claim for $964.69 in costs relating to the involvement of TBB during this phase (being
$803 in fees charged by TBB and $161.69 in attendances charged by LSL for liaising with TBB).
[49] In summary, Ms Heatlie submits that LSL’s charges for the case management hearing are excessive to the figure of $5,625.28. If this amount were deducted, the costs award for this phase would be a total of $17,727.07 (LSL $13,214.57; DS
$4,512.50).
Phase three: Trial preparation and court attendances (28 August to 18 October 2021)
[50] On 27 August 2021, LSL filed further evidence from witnesses. Ms Heatlie interprets this as the beginning of the trial preparation phase. In this phase, Ms Heatlie says Whai Rawa’s lawyers reviewed the material and prepared submissions, undertook mechanical aspects of preparing material for the hearing, attended the one-day hearing and made post-hearing attendances.
[51] The Body Corporate say that Band C scale costs for steps taken are $11,950; actual costs should therefore be $17,925.
[52] Whai Rawa claims $34,112.89 (LSL $19,862.89; DS $14,250).31
[53] Ms Heatlie says she is prepared to challenge costs claimed by LSL and DS line by line if the matter is sent to taxation. Alternately, she suggests that an appropriate costs award for this phase would be $26,947.50 (being a 50 per cent uplift on actual costs of $17,925, based on Band C scale costs uplifted by 33 per cent).32
The parties’ positions
[54] In its memorandum dated 8 April 2022, the Body Corporate submitted that in the event that the Court declines to make an order for taxation of costs, the Court should either:
(a)Award 2C scale costs uplifted by 33 per cent ($49,114.50); or
31 This figure is advanced by LSL in its memorandum dated 28 April 2022, sch 2, and accepted by the Body Corporate in its reply memorandum dated 18 May 2022. Whai Rawa has withdrawn a claim for $6,253.10 in costs relating to the involvement of TBB during this phase (being $5,739 in fees charged by TBB and $514.10 in attendances charged by LSL for liaising with TBB).
32 Ms Heatlie’s calculation appears to be incorrect: a 50 per cent uplift on $17,925 is $26,887.50. This error is not material to the decision.
(b)Award an appropriate amount based on a granular analysis of costs as set out above ($62,146.84).
[55] However, the parties’ final positions on appropriate costs, indicated by Whai Rawa’s final memorandum dated 28 April 2022, and the Body Corporate’s final memorandum dated 18 May 2022, is set out as follows:
Whai Rawa Body Corporate Difference Phase one:
(5 February to 15
April 2021)
$11,011.68 $0
(alternatively,
$9,027.47)
$11,011.68
(alternatively,
$1,984.21)
Phase one:
(19 April to 5 July
2021)
$21,429.48 $21,429.48 $0 Phase two:
(6 July to 27 August)
$23,352.35
(LSL $18,839.85; DS $4,512.50)
$17,727.07
(LSL $13,214.57; DS
$4,512.50).
$5,625.28 Phase three:
(28 August to 18
October 2021)
$34,112.89
(LSL $19,862.89; DS $14,250)
$26,947.50
(Band C scale costs grossed up)
$7,165.39 Subtotal $89,906.40 $66,104.05 $23,802.35 Disbursements $1,626.08 $1,626.08 $0 Costs on costs $11,950 $0 $11,950 TOTAL $103,482.48 $67,730.13 $35,752.35
Assessment
[56] There is a preliminary, general issue as to whether scale costs are an appropriate starting point for assessing the reasonableness of indemnity costs. I do not accept the Body Corporate’s submission that the Court might fix costs based on 2C scale steps grossed up. The scale does not apply when fixing indemnity costs under rule 14.6(e). While indemnity costs must be reasonable and the Court can order costs at a level less than actual costs, it is inappropriate to approach matters using scale costs as a starting point.
[57] There is also a technical point raised by the Body Corporate regarding attendances by LSL for meetings with TBB at the pre-instruction stage of phase one.
I accept the submission for the Body Corporate that these attendances should be deducted. This is consistent with Whai Rawa’s decision to withdraw its claims for (a) all of TBB’s legal attendances and (b) the attendances for LSL for liaising with TBB.33 As Whai Rawa has conscientiously deducted these attendances from its claims for all other phases of the proceeding, I consider that the failure to do so here is a mere oversight. The Body Corporate says these attendances amount to $1,984.21. It attaches a schedule of LSL’s time recordings with relevant attendances highlighted which identify meetings between LSL and TBB. I find that relevant attendances total
$1,615.34 (as one attendance for $368.87 dated 16 February 2021 does not refer to TBB). On this basis, largely for the sake of consistency, I make a preliminary finding that meetings between LSL and TBB prior to 19 April 2021 are not recoverable.
[58]Three particular issues remain in dispute:
(a)Phase one: whether Whai Rawa may claim fees charged by LSL for steps taken prior to 19 April 2021 when the decision to file an application to appoint an administrator was made. Given that I have found that fees for liaison with TBB should be deducted, the amount in dispute is $9,027.47.
(b)Phase two: whether LSL’s charges relating to the case management conference before the Duty Judge are excessive. The amount in dispute is $5,625.28.
(c)Phase three: whether Whai Rawa’s costs for phase three are reasonable. The amount in dispute is $7,165.39.
[59] Additionally, there is the issue of whether the Court should award Whai Rawa costs for preparing their costs memoranda. This claim was made by Whai Rawa in its final memorandum and is opposed by the Body Corporate.
33 Memorandum of counsel for the applicant on costs dated 28 April 2022.
Indemnity costs
[60] Indemnity costs must be reasonable and reflect the proper construction of the contract. I now undertake a step-by-step assessment of the costs claimed by Whai Rawa, with reference to the steps set out in Frater.
What tasks attract a costs indemnity on a proper construction of the contract
[61] The relevant clause in the Lease between Whai Rawa and the Body Corporate is as follows:
10.1 The Lessee shall indemnify and keep indemnified the Lessor form [sic] and against any action, claim, demand, loss, damage, cost, expense and liability which the Lessor may suffer or incur, or for which the Lessor may become liable in respect of or arising from: …
(c) any failure by the Lessee to comply with any obligation imposed on the Lessee under this Lease or by law.
[62] The Court of Appeal considered a similar indemnity clause in a lease in Kent Sing Trading Co Ltd v JNJ Holdings Ltd and confirmed that the clause would entitle a successful party to solicitor/client costs. 34 The relevant clause in Kent Sing was as follows:
Lessee to Pay Lessor’s Costs
14.1 In addition to the Rent and other moneys reserved by this Lease the Lessee shall pay:
…
(b)All costs charges and expenses for which the Lessor shall become liable in consequence of or in connection with any breach or default by the Lessee in the performance or observance of any of the terms covenants and conditions of this Lease.
[63] Mr Salmon for Whai Rawa submits that the clause in this proceeding is wider than that in Kent Sing. He says that the clause entitles the lessor to an indemnity for costs arising not only from a breach of the lease but from the lessee’s breach of any obligation imposed by law. He submits that actual solicitor/client costs are therefore appropriate.
34 Kent Sing Trading Co Ltd v JNJ Holdings Ltd [2019] NZCA 388 at [131].
[64] On a proper construction of the contract, I consider that the clause indemnifies Whai Rawa against any cost arising from any failure of the Body Corporate to comply with any obligation imposed on the Body Corporate under the Lease or by law. The clause is intentionally broad in scope. The repeated use of the catch-all term “any” is instructive. I accept the submission for Whai Rawa that the clause is broader in scope than the lease clause considered in Kent Sing, which is expressly limited to the terms of the lease.
[65] As the Court of Appeal identified in Beecher v Mills “it must in the end be a matter of determining what recovery is expressly or impliedly intended”. The wording of the clause expressly indemnifies the lessor against the lessee’s breach of the Lease itself, or any obligation imposed by the law.
[66]The extent of the indemnity is discussed in Beecher v Mills:
In principle, anything less than a full indemnity for costs properly incurred must leave the indemnitee with part of the liability for which the indemnifier is prima facie responsible … In the absence of a contrary indication it is not to be assumed that the parties intended such a result. Nor can there ordinarily be any room for the exercise of a judicial discretion to order less costs and thereby erode the contractual protection the indemnity was intended to provide …
[67] There is no “contrary indication” in the Lease which displaces the presumption that the clause affords Whai Rawa full indemnity for costs properly incurred.
[68] The answer to the first question is, therefore, that any and all (reasonable) costs falling to Whai Rawa relating to tasks necessitated by the Body Corporate’s breach of the Lease attract a costs indemnity on a proper construction of the contract.
Whether the tasks undertaken were those contemplated in the contract
[69] As I have found that the relevant clause was broad in scope and provided a comprehensive degree of protection for the lessor, it is self-evident that tasks undertaken on behalf of Whai Rawa to recover losses incurred as a result of the Body Corporate’s breach of the Lease, were contemplated by the contract. Once the decision was taken to apply to the Court for the appointment of an administrator, the work involved in the preparation of the application, preparation for and appearance at the
case management hearing before Justice Harland and all the work involved in preparing for and attendance at the substantive hearing before me (including necessary post-hearing attendances), fell within the scope of the indemnity clause.
[70] However, the Body Corporate submits that it is not liable to pay costs incurred prior to Whai Rawa’s decision to file an application to appoint an administrator, which it says occurred on 19 April 2021. On the Body Corporate’s calculation, time recordings prior to this date total $11,011.68. As I have now determined that attendances for liaising with TBB (totalling $1,984.21) should be deducted from this figure, the amount in dispute is $9,027.47.
[71] Whai Rawa says that the usual principle that pre-commencement costs are not recoverable under r 14.1735 does not apply where there is a contractual indemnity in a lease and recovery is sought under r 14.6(4)(e). Whai Rawa refers the Court to Kkeshav International Ltd v Heaton Holdings Ltd, in which this Court confirmed that indemnity costs under a lease could include pre-commencement costs, so long as they fell within the scope of the clause.36 The Court in Kkeshav confirmed that the ability to award indemnity costs due under a contact arises under r 14.6, not the general r 14.1, and held that r 14.6(4) permits the court to award pre-commencement costs pursuant to an indemnity costs clause, so long as the clause makes those costs payable. The underlying rationale was that limiting costs awards under a contractual indemnity and rule 14.6 to those incurred only during the proceeding would inappropriately require every successful party with an indemnity clause to file additional proceedings against the losing party to recover the full extent of its costs.
[72] Therefore, I find that Whai Rawa is entitled to pre-instruction costs for LSL attendances prior to 19 April 2021, minus the costs of liaising with TBB. This amounts to $9,027.47. Whai Rawa is also entitled to a costs award for the undisputed amount of $21,429.48 for tasks undertaken in phase one after 19 April 2021.
35 Braeburn Dairies Ltd v McGregor & White Electrical Ltd HC Dunedin CIV-2009-412-668, 16 December 2011 at [13] and [14].
36 Kkeshav International Ltd v Heaton Holdings Ltd [2020] NZHC 1801.
[73] The answer to the second Frater question is that tasks relating to Whai Rawa’s legal actions against the Body Corporate, including those undertaken by LSL prior to 19 April 2021, were contemplated by the contract as a consequence of a breach of the Lease.
Whether the steps undertaken were reasonably necessary in pursuance of those tasks
[74] This question is relevant to the specific issues relating to phases two and three [at 58 (b) and (c) above]. The Body Corporate submits that fees charged by Whai Rawa’s solicitors, LSL, for these phases are excessive. Specifically, it says that fees indicate that junior counsel took 18 hours to prepare for a 15-minute case management hearing at phase two; a task which it says should have been completed in two or three hours. At phase three, it says that costs sought are excessive, given the steps taken.
Phase two: case management hearing
[75] Whai Rawa says that LSL’s fees for phase two arose because the Body Corporate advised it wished to oppose the originating application two weeks after the deadline for opposition, and two days before the scheduled list appearance. For this reason, Whai Rawa’s solicitors proceeded on the basis that it would have to seek administration on a “formal proof” basis given that the application was unopposed. This required additional preparation of submissions, an affidavit, and correspondence with the Body Corporate’s solicitors. In particular, Whai Rawa, through LSL, sent a letter to the Body Corporate on 5 July 2021, asking whether it would consent to administration. The Body Corporate did not respond to this letter, or file its opposition and evidence, or seek an extension of time. There was no communication until 2 August 2021, after Whai Rawa filed a memorandum advising it wished to proceed on a “formal proof” basis before the Duty Judge, and the Body Corporate responded with an email indicating an intention to oppose. An excerpt from this email follows:
We had anticipated that you would provide a proposed joint memorandum proposing timetable orders and directions for a hearing. Our client doesn’t consent to the appointment of an administrator and will oppose this application. Could you take instructions on withdrawing the request to have an administrator appointed on the duty judge list and propose dates for exchange of evidence. We believe that this will require at least a one day hearing, perhaps more.
[76] In response, the Body Corporate says that LSL erred in its approach to this phase because LSL lacks practical experience in originating applications. It says that it is not uncommon for respondents not to file an opposition in accordance with the timetable set out in the High Court Rules,37 and that the absence of consent is an effective indication of an intention to oppose.
[77] That is a surprising submission by the Body Corporate. The Court expects the HCR to be complied with. In my view, the Body Corporate was at fault when it failed to respond to Whai Rawa’s letter dated 5 July 2021 in a timely way. It was reasonable for Whai Rawa to consider that the application was unopposed, given the complete absence of communication on the Body Corporate’s part. The HCR provide timetable rules for good reasons. It would have avoided a great deal of unnecessary effort and expense (including in relation to the current costs application) if the Body Corporate had acted promptly and in accordance with the HCR. Further, the Body Corporate says, separately, that it acknowledges that parties should be given leeway in costs occasioned by its choice of solicitor, even where a lack of expertise (as asserted by the Body Corporate) results in higher than usual costs.
[78] Therefore, I find that LSL’s fees for the case management phase are not excessive. The amount of $5,625.28 (in dispute) is claimable. The total amount available to Whai Rawa for phase two is $23,352.35, as sought.
Phase three: substantive hearing
[79] At phase three, Ms Heatlie has not made any specific submissions identifying particular grounds for her objection to these costs. She simply identifies the steps taken as follows (and assesses appropriate costs based on 2C scale costs plus uplift):
(a)Review material and prepare submissions;
(b)Undertake mechanical aspects of preparing material for the hearing;
(c)Attend a one-day hearing and make post-hearing attendances.
37 High Court Rules, r 7.24.
[80] In its fifth memorandum, Whai Rawa submits the following reasons why costs properly incurred for the third phase may have been higher than an estimate based on 2C scale costs plus uplift:
(a)Both parties had two counsel; 2C scale costs are based on one counsel appearing at the hearing;
(b)The Body Corporate filed late undertakings (after the hearing); Whai Rawa's memorandum in response is not covered by steps 40, 41 and 42;
(c)COVID-19 necessitated extra attendances (including the use of unsworn affidavits and additional memoranda under the HCR and discussions with the Court regarding VMR);
(d)Whai Rawa filed an affidavit on 8 October 2021 (four days before the hearing) in reply to an affidavit dated 5 October 2021 which the Body Corporate filed without leave; and
(e)There were post judgment attendances such as reviewing the judgment, online meetings to address the consequences of the judgment and sealing the judgment.
[81] The difference between the amount claimed by Whai Rawa and the amount put forward by the Body Corporate as appropriate is $7,165.39. Whai Rawa has provided practical reasons why the costs were higher than 2C scale costs (plus uplift). I also consider there was a degree of complexity in the proceeding. There were novel issues in relation to the analysis of certain of the statutory provisions under consideration. The parties were required to make submissions on those issues. These reasons account for the difference between the parties. Therefore, the costs of $34,112.89 sought by Whai Rawa for phase three are not excessive or unreasonable.
[82] The answer to the third Frater question is that steps taken by Whai Rawa at phases two and three were properly taken and reasonably necessary in pursuance of the tasks contemplated by the contract.
Whether the rate at which the steps were charged was reasonable having regard to the principles normally applicable to solicitor/client costs
[83] The Body Corporate takes no issue with the hourly rates charged by LSL or DS. The issues raised all relate to the number of hours charged, the category of task undertaken, the party performing the task and the date of the task.
[84]I therefore conclude that the rates charged are reasonable.
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
[85] In the assessment of indemnity costs sought under r 14.6(4)(e), the exercise of judicial discretion is constrained by the principle of contractual freedom, in which contracting parties are free to bind themselves on the terms they agree upon. The Body Corporate would have obtained independent legal advice before signing the Lease. It would have been made aware of its obligations and liabilities under the Lease, including the scope of its costs liability under cl 10.1. It can be assumed that the Body Corporate considered its own interests before entering into the contract.
[86] In conclusion, having made an objective assessment of the matters identified by the Court of Appeal in Frater, I find that the indemnity costs claimed under contract by Whai Rawa were reasonably incurred for each of the three phases in the proceeding. Other than the deduction of attendances by LSL to liaise with TBB in the pre- instruction phase (discussed above at [57]), I see no reason to adjust the total sought by Whai Rawa.
Disbursements
[87] Whai Rawa seeks an order for disbursements of $1,626.08. The Body Corporate does not dispute the claim. The claim for disbursements is allowed.
Costs on costs
[88] Whai Rawa seeks the costs of pursuing its costs. It says the Body Corporate prolonged the resolution of costs, causing delay and increased expenditure. The claim is based on a 2C scale award. The sum of $11,950 is sought. Whai Rawa says its
actual costs are significantly more than that and the scale claimed is less than the scale proposed by the Body Corporate for other steps (2C scale plus 50 per cent uplift). However, in the interests of resolving costs without further delay it simply seeks a 2C scale award for the five memoranda it has filed.
[89] Whai Rawa identifies the following tasks as properly undertaken by LSL for the purpose of resolving costs due:
(a)A letter to the Body Corporate's solicitors setting out the costs claimed on 24 November 2021 and invoices.
(b)A costs memorandum for Whai Rawa and affidavit on 29 November 2021 setting out the amounts claimed.
(c)A further letter to the Body Corporate's solicitors dated 15 December 2021 that enclosed a full summary of costs, relevant staff and charges, and key documents produced in each period.
(d)Email correspondence with the Body Corporate's solicitors on 22 December 2021 in relation to taxation.
(e)A further memorandum for Whai Rawa on costs and affidavit on 22 December 2021 after a request by the Court for an update.
(f)Review of the Body Corporate's memorandum dated 19 January 2022 in relation to taxation. A further memorandum for Whai Rawa on taxation dated 27 January 2022. This included the provision of time- breakdowns by two law firms and counsel, categorised by step.
(g)Review of the Body Corporate's memorandum dated 1 February 2022 which sought a period for the parties to discuss costs.
(h)Review of my minute dated 2 February 2022 which allowed more time for the Body Corporate to take a position on costs.
(i)A further letter to the Body Corporate's solicitors dated 3 February 2022, explaining Whai Rawa's claim to costs in respect of the Duty Judge List.
(j)Email correspondence with the Body Corporate's solicitors on 3 and 4 March 2022, where the Body Corporate advised it no longer wished to have a discussion on costs and repeated the request for taxation.
(k)A further memorandum for Whai Rawa on 3 March 2022 after the Body Corporate failed to take a position on costs.
(l)Review of the Body Corporate's memorandum on 8 April 2022, which was the first time it specified its objections to costs.
(m)The fifth memorandum for Whai Rawa dated 28 April 2022.
[90] Whai Rawa submits that these costs fall within its entitlement under cl 10.1 of its Lease, and r 14.6(e).
[91] In response, the Body Corporate submits that this is not a matter of great complexity, and both parties have enjoyed a measure of success in relation to costs issues in dispute. It says further that Whai Rawa has acted unreasonably in circumstances where there was a more cost-effective alternative available, being an order for taxation on costs.
Discussion of costs on costs
[92] It is well established that costs may be awarded in respect of an application for costs, particularly where costs issues are complex. An application for costs is to be treated no differently for costs purposes from an ordinary interlocutory application, so costs may be awarded according to scale or on an increased or indemnity basis as appropriate.
[93] This costs application has been protracted. The Court has received multiple documents and memoranda from the parties between 29 November 2021 and 20 May 2022.
[94]Each party seeks to blame the other. In my view, neither party is blameless.
[95] The Body Corporate’s memoranda have rarely been filed promptly. Further, its application for taxation on costs was inappropriate and without merit. On other points, however, I consider that the Body Corporate raised valid objections to Whai Rawa’s original (and updated) claim for costs. I accept the Body Corporate’s submission that both parties have enjoyed a measure of success in relation to the costs application.
[96] Whai Rawa has filed memoranda promptly. However, its approach to the application has delayed the resolution of costs for the following reasons: it appears to have originally claimed costs relating to LSL’s fees which were not properly available and then changed its position (on 22 December 2021); it also sought costs for the second solicitor’s firm, TBB, and then changed its position on this significant point at a very late stage (on 28 April 2022); it delayed the disclosure of an unredacted narration showing time recordings for fees claimed until two months after the original application was filed (27 January 2022); and it failed to provide the Court with a detailed breakdown and explanation of costs incurred until its fifth and final memorandum (on 28 April 2022). The Body Corporate was obliged to oppose the application and object to all these matters in turn, before Whai Rawa made the proper concessions and disclosures.
[97] For the reasons give above, I find that the costs incurred by each party in relation to this costs application should lie where they fall.
Result
[98]I decline to award costs on costs.
[99] I make an award against the Body Corporate in favour of Whai Rawa as follows:
(a) Costs of $87,922.19.
(b) Disbursements of $1,626.08.
Gordon J
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