Body Corporate 396711 v Sentinel Management Limited [2012] NZHC 2556 (3 October 2012)

Last Updated: 8 November 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2010-404-007754 [2012] NZHC 2556

UNDER the Declaratory Judgements Act 1908

BETWEEN BODY CORPORATE 396711

First Plaintiff

AND DENNIS JOHN ANSLEY Second Plaintiff

AND SENTINEL MANAGEMENT LIMITED Defendant

Hearing: (On the papers)

Counsel: T J Rainey for Plaintiffs

N R Campbell for Defendant

Judgment: 3 October 2012

JUDGMENT OF WOOLFORD J [As to costs]

This judgment was delivered by me on Wednesday, 3 October 2012 at 11:00 am pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors/Counsel:

Rainey Law, Solicitors, Auckland

Alexander Dorrington, Solicitors, Auckland

BODY CORPORATE 396711 & Or V SENTINEL MANAGEMENT LIMITED HC AK CIV-2010-404-007754 [3 October 2012]

[1] This is a judgment on costs following my judgment of 7 August 20121 which had the effect of terminating the management agreement between the defendant, Sentinel Management Limited (“SML”), and the first plaintiff, the Body Corporate, for the building known as the Sentinel in Takapuna.

[2] I have received memoranda from the parties as to costs.

Submissions

For the plaintiffs

[3] Mr Rainey, for the plaintiffs submitted that the overall success of the plaintiffs entitled them to costs and that the complexity of the case warranted a 2B categorisation using the rates in force subsequent to the 2012 amendment to the Rules. These were $37,810.00.

[4] Mr Rainey further relied on a letter from the defendant to the plaintiffs in May 2012 conceding one aspect of the services provided by SML was possible ultra vires and offering a resolution to the claim. Mr Rainey submitted that, because the plaintiffs had fared better than the offer and because the defendant had benefited from the delay provided by the litigation, this was an appropriate case in which to increase costs by 25 per cent.

[5] Lastly, Mr Rainey sought to recover the costs of the services provided by the Body Corporate secretary in preparing for the litigation as a disbursement. These totalled some $8,867.00. With court fees, the total costs claimed by the plaintiffs were $60,791.64.

[6] Mr Campbell, for the defendant, raised a number of issues with plaintiffs’ costs assessment. The first related to the applicable version of the daily recovery rate and costs schedules following the amendment of the Rules. He submitted that those provisions should not apply retrospectively. Mr Campbell further submitted that there were no grounds for allowing costs in respect of an interlocutory application that the plaintiffs withdrew, nor was this a proceeding requiring second counsel.

[7] Mr Campbell also submitted that under the former Schedule 3 the defendant should be allowed costs in respect of their amended defence to the second amended statement of claim. Any filing fee in respect of this second amended statement of claim should also be excluded.

[8] Mr Campbell submitted that the argument for increased costs was not within the terms of any rule relating to offers to settle.2 His submission was that, although the plaintiffs had achieved their aim in the litigation, they had enjoyed limited success on a number of the causes of action raised in their pleading and that these pleadings had lengthened the trial and increased each parties’ costs unnecessarily.

[9] Mr Campbell objected to the plaintiffs claiming the cost of the services of the body corporate secretary as a disbursement. Lastly, Mr Campbell sought that a deduction be made on the basis of the time and effort required in responding to the plaintiffs’ costs memorandum and the issues it raised. In the best case scenario the defendant accepted that it should pay costs of $18,911.01.

[10] The following issues arise:

(a) Whether the amendments to the High Court Rules have retrospective effect;

(b) Whether costs should be awarded in respect of an interlocutory application;

(c) Whether costs should be awarded in respect of amendments to the statement of claim;

(d) Whether costs for second counsel should be allowed;

(e) Whether increased costs should be awarded to the plaintiffs for a settlement offer;

(f) Whether a reduction in costs should be made for matters on which the plaintiffs were unsuccessful;

(g) Whether disbursements claimed by the plaintiffs should be allowed;

and

(h) Costs in respect of the costs matters.

[11] The case was one of moderate complexity requiring counsel with some experience in High Court litigation. Costs at a 2B level are appropriate.

Discussion

Retrospective effect

[12] The High Court Rules were amended on 14 May 2012 with effect from

14 June 2012. They do not contain any transitional provision. In a comprehensive

judgment in FM Custodians Ltd v Pati3 Associate Judge Abbott considered how the Rules should be interpreted in cases straddling the changeover. He held that the amended costs rates should only apply to steps taken in the proceedings which came after the change. I gratefully adopt his approach. The rates to be applied are those that applied prior to 14 June 2012 except where steps were taken following that date when the new rates will apply.

Costs on the interlocutory application

[13] An interlocutory application was filed in this proceeding seeking to have the matter determined by way of the originating application procedure rather than the statement of claim procedure. Following a mention hearing before Keane J at which His Honour pointed out that the need for evidence might make that procedure unsuitable, the plaintiffs withdrew the application and the parties agreed to proceed by way of statement of claim.

[14] Given that the matter was withdrawn and resolved by consent I decline to order costs in respect of the interlocutory application.

Amendment of statement of claim

[15] The plaintiffs amended their statement of claim twice. One reason for doing so was to include the cause of action relating to s 140 of the Unit Titles Act 2010.

[16] Item 3.6 of the previous version of sch 3 to the High Court Rules provided for:

3.6 Pleading in response to other party's amended pleading (payable regardless of outcome except where formal or consented to)

_{(emphasis added)}

[A]
0.3

[B]
0.6

[C]

2

3 [2012] NZHC 1902.

[17] The language of this provision is clear and I therefore make a deduction of

0.6 days from the plaintiffs’ costs to reflect the necessity for the defendant to plead to

the amended statement of claim.

Second Counsel

[18] While it lies within the discretion of the Court whether or not to order them, in general, the Court will grant costs for second counsel where either the matter is a complex one4 or one in which the sheer volume of factual material justifies a second

pair of hands in litigation.5 Ultimately it may be a matter for the evaluation of the

Judge and the exercise of their discretion. I do not think that an allowance for second counsel is warranted in this case.

Increased costs for settlement offer

[19] In this case the defendant made a written offer on 21 May 2010 offering to discontinue the concierge service, which it accepted might not be entirely compliant with the Act, in return for the plaintiffs ceasing to pursue this proceeding. The remainder of the letter details the reasons why SML believed the legal arguments against it had a limited chance of upsetting the balance of the management agreement.

[20] The plaintiffs’ submissions did not identify the Rule under which this letter was said to be relevant to the increase in costs. The offer in this case does not seem to fit within the parameters of rr 14.10 & 14.11 which normally relate to settlement offers in monetary terms where the defendant has offered a certain sum to settle the proceeding and the plaintiff has achieved less than that at trial.6 The relief sought in this proceeding was in the nature of declaratory orders and does not conform well to

_{that arrangement.}

4 _{Attorney-General of Samoa v TVWorks Ltd [2012] NZHC 824 at [8].}

5 Braeburn Dairies Ltd v McGregor & White Electrical Ltd HC Dunedin CIV-2009-412-668, 16

_{December 2011 at [10].}

6 See, for example: Moore v McNabb (2005) 18 PRNZ 127 (CA).

[21] There is provision to consider offers of settlement in increasing costs under r

14.6. This includes offers which are not captured by rr 14.10 & 14.11. In this case, the defendant’s letter conceded that one aspect of the management agreement was likely ultra vires and set out plausible grounds on which it believed the other aspects of the management agreement would be upheld. There is nothing unreasonable about the stance maintained in the defendant’s letter and the validity of the concierge services was not ultimately put in issue at trial as SML effectively conceded it. There is a limited connection between the defendant’s stance in the letter and the outcome at trial. There is also the fact that the defendant was the one making an offer to resolve the proceedings albeit one that the plaintiff has reasons for not accepting. The stance adopted in the letter is also a reasonable one. I decline to order an increase in costs under r 14.6 in respect of it.

Reduction in costs

[22] There is power to reduce the costs awarded to a party under r 14.7. The particular ground for reducing costs which the defendants have identified is under r 14.7(d) which provides that:

“although the party claiming costs has succeeded overall, that party has failed in relation to a cause of action or issue which significantly increased the costs of the party opposing costs”.

[23] There were six causes of action in the proceeding all of which aimed at upsetting the management agreement. The first cause of action challenged the validity of the amended rules. The plaintiffs were unsuccessful on this point. The second cause of action alleged that certain of the rules were ultra vires and could not be severed from the bulk of the management agreement. While the plaintiffs successfully argued that a number of the rules were ultra vires, these provisions would have been severable from the management agreement as a whole. The third cause of action related to a vendor’s duties in equity to a purchaser under a contract for sale and purchase of land. The plaintiffs were unsuccessful in showing either a duty on the vendor (who was not a party to the litigation) or dishonest assistance by the defendant. In the fourth cause of action the plaintiffs pleaded that the developer was under a promoter’s duty to the company. That argument was successful though

the question of what relief would have been appropriate was not gone into. On the fifth cause of action, alleging an unconscionable bargain, the plaintiffs were not successful. Lastly, the plaintiffs submitted that the contract was in breach of s 140 of the Unit Titles Act 2010. On that argument they were successful and I granted relief by declaring the agreement at an end.

[24] As can be seen from this summary, the pleadings in this case encompassed a number of causes of action. The plaintiffs were ultimately successful but, in the scheme of things, succeeded in only certain of the causes of action and enjoyed only partial success in some of those.

[25] I note the Court of Appeal’s comments in Packing In Ltd (in liq) v Chilcott:7

[5] In a case such as the present, where in broad terms each party has had similar success, we do not consider it helpful to focus too closely on the question which party has failed and which has succeeded. Costs in a case such as this should rather be based on the premise that approximately equal success and failure attended the efforts of both sides. To that starting point should be added issues such as how much time was spent on each transaction or group of transactions in issue, and any other matters which can reasonably be said to bear on the Court's ultimate discretion on the subject of costs. In the end, as in all costs matters, the Court must endeavour to do justice to both sides, bearing in mind all material features of the case.

[26] In this case considerable time was spent on issues on which the plaintiffs were unsuccessful or only partially successful. While I do not ignore the fact that they ultimately prevailed, I consider that the costs in time that the other party was put to warrant a reduction in costs of 25 per cent.

The plaintiffs’ disbursements

[27] The plaintiffs have claimed for a number of items as disbursements. Of these three are opposed by the defendant, they relate to:

(a) The services provided by the Body Corporate Secretary; (b) The filing fee paid for the interlocutory application; and

(c) The filing fee paid for the second amended statement of claim.

[28] Disbursements are dealt with under r 14.12. Obvious things such as court fees, photocopying and costs of service are explicitly provided for. Where other disbursements are claimed they fall to be determined on a case-by-case basis according to the Rule.

[29] I am not satisfied that all of the time claimed for Mr Plummer was “incurred for the purposes of the proceeding” as much of it appears to be related to liaising with the owners and the management committee on the progress of the litigation. While this may be closely connected with the litigation it is not for the purposes of it. In the analogous situation of a company or society, I do not consider that it would be proper for the officers of those bodies to claim their time spent keeping abreast of the litigation as disbursements.

[30] The records from Centurion (Mr Plummer’s employer) also record time spent in relation to Mr Plummer’s role as a witness. In respect of those charges, while Mr Plummer was not an expert witness, he was a professional person entitled to charge the plaintiffs for his time.8 As such I accept that the following may be claimed as reasonably necessary to the conduct of the proceeding:

(a) A charge of $345 for the 2 ½ hours for reviewing his brief for the hearing on 29 September 2011; and

(b) A charge of $480 for the 4 hours spent attending the hearing and giving evidence on 3 November 2011.

[31] I do not accept that there should be an allowance for any of the other charges set out in Centurion’s schedule including another item for simply attending the hearing as these matters were not reasonably necessary for the proceeding. Disbursements of $825 in respect of Mr Plummer’s evidence are allowed. Lastly I note that this case differs somewhat from the case of Countdown Properties

(Northlands) Ltd v Dunedin City Council.9 In that case Mr Plummer not only provided assistance to counsel but also gave evidence as a witness.

[32] The filing fee for the later amended statement of claim is not recoverable as a disbursement given that the amendment need not have been made. I apply the same approach in respect of the fee for the interlocutory application.

Defendant’s costs memorandum

[33] Mr Campbell supplied a carefully prepared memorandum on the issue of costs in this proceeding in which he pointed out a number of matters in the plaintiff’s costs memorandum and schedule which he submitted were incorrect. I have accepted many of his submissions. As such an allowance for the preparation of this memorandum seems appropriate.

[34] Mr Campbell submitted that there should be a deduction of $3,500 for the preparation of the memorandum which he noted equates to approximately 1.75 days under the post-amendment daily rates and is said to represent about 70 per cent of the actual costs incurred in the preparation of the memorandum.

[35] I accept that the defendant has presented comprehensive submissions on costs which have had a considerable measure of success. I consider that to award a party who has failed in the substantive proceeding but who has successfully argued a number of points on the matter of costs is sound in principle. It is analogous to awarding a party who succeeds on an interlocutory application costs even though they may fail on the substantive part of the proceeding. Reflecting the normal principle that the recovery for costs should be about two thirds of actual costs I would allow a deduction of $3,000 which is approximately 1.5 days; I then reduce this to $2,500 to reflect the fact that Mr Campbell’s arguments on some points did not succeed.

Other matters

[36] Mr Campbell has addressed a further matter in his memorandum which arose during the exchange of views on the matter of costs. As part of the transitional arrangements SML has been negotiating to sell its unit to the Body Corporate. A sale and purchase agreement was apparently entered into with a settlement date of

31 August 2012. In an initial statement of the amounts owing to the Body Corporate in respect of the unit only a small sum in outstanding fees was recorded. On

31 August 2012 that statement was updated to show an additional outstanding amount of $60,791.24 which was described as “Court case legal costs – refer T. Rainey – Rainey Law”. That amount is exactly the same as that claimed in the costs memorandum submitted to the Court by the plaintiffs.

[37] Mr Campbell has provided a number of authorities which address the question of whether a Body Corporate is entitled to recover the costs of legal action from a proprietor where that expense was incurred in litigation between the Body Corporate and the proprietor.

[38] I am not in possession of the full facts surrounding the amendment to the settlement statement nor have I heard from the plaintiffs on this point. Furthermore, I am certain that it is not proper for the Court to embark on an inquiry into the propriety of such a charge (under s 127 Unit Titles Act 2010) in the context of resolving costs. I do, however, note that the timing of the amendment and the costs memorandum, and the similarities between them may have created an unfortunate and unhelpful impression.

Result

[39] My conclusions are as follows:

(a) This proceeding is to be categorised as 2B; (b) The daily recovery rate is $1,880 per day;

(c) I make the following allowances for costs:

Step Description Time (B)

1 Commencement of proceeding by plaintiff 3

4.5 List of documents on discovery 1.5

4.6 Production of documents for inspection 1

_4.7 Inspection of documents _1.5

4.10 Filing memorandum for case management conference or mentions hearing

0.4

4.11 Appearance at case management conference 0.3

8 Preparation for hearing if case proceeds to hearing 4

9.1 Appearance at hearing: 2

Subtotal _13.7

3.6 Pleading in response to other party's amended pleading (payable regardless of outcome except where formal or consented to)

Less 0.6

Subtotal _{13.1 $24,628.00}

Reduction of 25 per cent for lack of success on some issues

$6,517.00 $18,111.00

Disbursements

Filing fee for originating application $408.99

Filling fee for amended statement of claim $92.00

Setting down fee $1,022.22

Hearing fee $2,416.80

Witness fees in respect of Mr Plummer $825.00

Subtotal _{$4,495.01 $22,606.01}

Deduction for preparation of defendant’s cost

_memorandum

$2,500.00 $20,106.01

Grand total $20,106.01

[40] The costs payable by the defendant to the plaintiffs therefore total

$20,106.01.

.....................................

Woolford J