Quattro Trustees Limited v Marjo [2014] NZHC 3396 (22 December 2014)

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UNDER	Section 244 of the Property Law Act 2007
IN THE MATTER	of a cancellation of lease for breach of covenant or condition
BETWEEN	ALBERT NG and TINA YUK HUNG NG Applicants
AND	PAUATAHANUI GS LIMITED Respondent

Hearing:	On the papers
Counsel:	A N Isac for Applicants J C Corry for Respondent
_Judgment	_{22 December 2014}

[1] This proceeding was an application by the applicants, the owners of premises in Pauatahanui, seeking orders under ss 244 and 251 of the Property Law Act 2007 (the Act) for possession of the premises occupied by the respondent as lessee, for the purpose of cancelling the lease for alleged breaches, and for compensation for the breaches. The respondent opposed the making of those orders, and applied for relief against cancellation of the breach under ss 252, 253, 255 and 256 of the Act.

[2] The proceedings were set down for hearing in October 2014. Shortly before the hearing, counsel filed a joint memorandum advising that the parties had been able to agree on terms which would avoid the need for that hearing, and proposed consent orders to dispose of the proceedings. In the memorandum counsel said:

7. As the parties have been unable to agree on the overall question of costs on the application they respectfully request that costs be reserved for determination by the Court and (subject to any direction by the court) be conducted on the papers.

[3] On 6 October 2014, I noted that memorandum “Orders by consent accordingly”.

[4] The parties have now filed memoranda. The respondent seeks costs on the basis that the claim has been dismissed. The applicants oppose costs.

[5] Counsel for the respondent submits that the respondent should be treated as a successful party. He relies upon r 15.23 of the High Court Rules, which provides that a plaintiff who discontinues a proceeding will normally be liable for costs.

[6] Rule 15.23 is not applicable. That rule applies to a unilateral discontinuance by the plaintiff. That is not the case here. The applicants’ proceedings were dismissed by a consent order. It is often the case, when litigation is settled, that the formal mechanism used to dispose of the proceedings is a discontinuance, or a consent order dismissing the proceedings. When those mechanisms are used, it is not generally appropriate to treat the party whose proceeding is discontinued or dismissed as an unsuccessful party, for costs purposes. The parties should, if costs are in issue, resolve those as part of the settlement.

[7] I must apply the principles in pt 14 of the High Court Rules for fixing costs. Those apply generally where there has been a judicial determination of the proceeding on the merits. The first general principle, in r 14.2(a), turns on success and failure in the proceeding. That will generally have been determined by the Court. Where there is no such determination, it is generally inappropriate for the parties to agree on settlement terms which require the Court to fix costs, except in cases where the outcome of the matter had proceeded to trial can be confidently predicted from the papers, without an examination of the merits.

[8] The correct approach to costs where there has not been a judicial determination of the proceedings has been helpfully discussed in a trio of decisions of the English Court of Appeal. The first is Brawley v Marczynski & Anor (No 1).¹

It was held that the Court has power to make a costs order when the substantive proceedings have been resolved without a trial but the parties have not agreed about costs. There is no tradition of there being “no order as to costs” merely because a dispute has been settled except as to costs, though if it is truly impossible to say what the likely outcome would have been, that is a possible order. The over-riding objective is to do justice between the parties without incurring unnecessary Court time and consequent additional costs. At each end of the spectrum there will be cases where it is obvious which side would have won had the substantive issues been argued to a conclusion. In between, the position will, in differing degrees, be less clear. How far the Court will be prepared to look into the unresolved substantive issues will depend on the circumstances of the particular case. In the absence of a good reason to make any other order, the fall-back position is to make no order as to costs.

4. The arguments advanced on this appeal have demonstrated the real difficulties inherent in asking a judge to exercise his discretion in respect of the costs of an action, which he has not tried. There are, no doubt, straightforward cases in which it is reasonably clear from the terms of the settlement that there is a winner and a loser in the litigation. In most cases of that description the parties themselves will realistically recognise the result and the costs will be agreed. There will be no need to involve the judge in

any decision on costs. If he becomes involved, because the parties cannot agree and ask him to resolve the costs dispute, the decision is not usually a difficult one for him to make.

5. There are, however, more complex cases (and this is such a case) in which it will be difficult for the judge to decide who is the winner and who is the loser without embarking on a course, which comes close to conducting a trial of the action that the parties intended to avoid by their compromise. The truth often is that neither side has won or lost. It is also true that a considerable number of cases are settled by the parties in the belief that the terms of settlement represent a victory, or at least a vindication of their position, in the litigation, or in the belief that they have not lost; or, at the very least, in the belief that the other side has not won.

6. In my judgment, in all but straightforward compromises, which are, in general, unlikely to involve him, a judge is entitled to say to the parties "If you have not reached an agreement on costs, you have not settled your dispute. The action must go on, unless your compromise covers costs as well."

10. It is not in dispute that a judge has jurisdiction to make an order for costs in proceedings in which all substantive issues have been disposed of by agreement – see the decision of this court in Brawley v Marczynski (No 1) [2002] EWCA Civ 756 [18], [2003] 1 WLR 813 at 819B. But he is not obliged to do so; and the dangers of embarking on that course were illustrated in BCT Software Solutions Ltd v C Brewer & Sons Ltd [2003] EWCA Civ 939, [2004] F.S.R 9 – see, in particular the observations of Lord Justice Mummery at paragraphs [4]-[6] and [18]. In the judgment that I delivered on that appeal I sought to analyse the difficulties at paragraphs [22] to [24]. I pointed out, at paragraph [23] that, unless the Court had a proper basis of agreed or determined facts upon which to decide whether the case was one in which it should give effect to "the general rule" under CPR

pursuant to CPR 44.3(2)(b), it must accept that it is not in a position to make an order about costs at all. I said this:

"That is not an abdication of the court's function in relation to costs. It is a proper recognition that the course which the parties have adopted in the litigation has led to the position in which the right way in which to discharge that function is to decide not to make an order about costs"

[11] I consider it appropriate to apply the principles emerging from those cases here. Because of the settlement, there has been no determination on the merits. I must decide whether this is one of those cases where the outcome, if the claim had proceeded, is obvious from a perusal of the papers alone, and without taking a view

_{on potentially contentious factual issues. Unless that is possible, I
should proceed on}

the basis that there is no clear winner or loser. In that event, there would need to be some other compelling reason to award costs, one way or the other.

[12] The essence of the dispute between the parties was that the respondent, in using the premises, discharged waste water including cooking residues with fat and oil, through a grease trap into a septic tank. That led to complaints to the Council and quite lengthy disputes between the parties about this issue. The Council installed a new waste disposal system, which largely eliminated the problem. This became operative in May 2014. That removed much of the ongoing concern and enabled the parties to agree on the terms on which the proceeding was settled, which included the dismissal of the applicants’ claim.

[13] Mr Corry’s submissions invite the Court to make an assessment of the merits on several aspects. I am satisfied that this is one of those cases where it is not obvious which side would have won had the substantive issues been argued to a conclusion. Mr Corry submits that it was unnecessary for the proceeding to be commenced in February 2014 when it was known that the new reticulation would be in place by about May 2014. I cannot say by considering the papers alone that it was unreasonable for the applicants to commence proceedings. There was a long history of disputes, and I cannot say that matters had not reached a stage where the issue of proceedings was an appropriate response. I am not able, without an examination of the facts, to find that the possible installation of the new system would have clearly made the proceedings unnecessary. The parties are to be commended for having resolved the dispute without a hearing. But they have not achieved complete agreement, because costs have not been agreed. The Court should be slow to impose an award of costs in those circumstances.

[14] I consider that there is no good reason to make any other order than the fall- back position, that there should be no order as to costs.

High Court of New Zealand Decisions

Quattro Trustees Limited v Marjo [2014] NZHC 3396 (22 December 2014)