OM Hardware Limited v Body Corporate 303662 [2015] NZHC 574 (26 March 2015)

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BETWEEN	OM HARDWARE LIMITED First Applicant
AND	N R SKJELLERUP Second Applicant
AND	BURGUNDY FLEUR INVESTMENTS LIMITED Third Applicant
AND	T R BROWN and CAMBRIDGE TRUSTEE SERVICES LIMITED Fourth Applicants
AND	D C NOBES Fifth Applicant
AND	PANDORA PARNASSUS INVESTMENTS LIMITED Sixth Applicant
AND	BODY CORPORATE 303662 First Respondent
AND	BBS GROUP ENTERPRISES LIMITED Second Respondent
AND	OURWAY TOWER LIMITED Third Respondent

Hearing:	(On the papers)
Appearances:	J V Ormsby and SMK Hoffman for Applicants J E Bayley for Respondents
_Judgment:	_{26 March 2015}

OM HARDWARE LIMITED AND ORS v BODY CORPORATE 303662 AND ORS [2015] NZHC 574 [26 March 2015]

[1] On 17 February 2015, I gave judgment in favour of the applicants, allowing the ownerships interest of the units in the unit title plan for Body Corporate 303662 to be reassessed in the applicants’ favour and insurance proceeds distributed accordingly.

[2] I reserved the issue of costs and set a timetable for filing memoranda on costs if costs could not be agreed. Memoranda have now been filed in accordance with that timetable.

[3] The applicants seek costs in their favour, on a 2B basis, for the identified steps outlined in the schedule to their memorandum. They also seek a 50 per cent uplift in costs from the date of their first Calderbank offer on 30 July 2014 as they say that both that offer, and the subsequent Calderbank offer, were more beneficial to the respondents than the outcome achieved in the litigation.

[4] The second and third respondents (the respondents) accept they are liable to pay 2B scale costs, plus disbursements, to the applicants.¹However, they contest:

[5] The principles applying to the award of costs are well settled. They are set out at rules 14.1 – 14.7 of the High Court Rules. There is no dispute that, in accordance with r 14.2, the determination of costs should be predictable and the expeditious, and that this is to be achieved in most cases by applying the appropriate daily recovery rate to the time considered reasonable for each step reasonably required in relation to the proceeding. It is also uncontentious that the rules provide for increased or indemnity costs to be awarded in specified circumstances, including

where the unsuccessful party failed, without reasonable justification, to accept an offer of settlement which would have settled or disposed of the proceeding.²

[6] The award of disbursements is governed by r 14.12 and presumes that the successful party will be awarded the amount of disbursements it claims if the disbursement was specific to, and reasonably necessary for, the conduct of the proceeding, and reasonable in amount.

[8] The respondents challenge seven of the claimed items for the calculation of the applicants’ costs. These are:

The respondents say the case management conference did not occur as the parties agreed in advance by joint memorandum that it could be adjourned and that preparation for this conference was therefore adequately accommodated within the time afforded for preparing the memorandum, which is claimed under item 11;

(b) The claim for 0.5 days to prepare for and appear at an issues conference (item 14).

The respondents say this should be halved because, in fact, there was no requirement to appear at an issues conference;

The respondents say this relates to preparation for a normal trial rather than an originating application such as this. They say item 40, for preparation of written submissions, is the correct item to claim when preparing for the hearing of an originating application and the

allowance of three days under item 33 was excessive for a hearing lasting a little over one day in total and when the applicants were only required to briefly cross-examine one witness. If item 40 applies, the time allocation is 1.5 days, rather than three.

The respondents say the allocation is measured in quarter days and the applicants have claimed for 1.5 days. As the first day extended less than 0.75 of a day and the second day was less than 0.5 of a day, the claim should be 1.25 days in total, not 1.5 as claimed.

This was resisted on the basis that “[a]warding costs for the attendance of junior counsel in 2B cases tends to be the exception rather than the norm”.³There was nothing about this case that warranted an allowance for second counsel.

The respondents say that this step does not relate to originating applications (which this was) and the claim is in addition to the time which is afforded and claimed under item 37 for the preparation of affidavits in an originating application. There is therefore a doubling up, and the applicants have not established any basis to depart from item 37 being the applicable step.

(g) The claim for the preparation of a list of issues, authorities and a common bundle (item 31).

This is resisted on the basis it pertains to a trial. The correct allocation for the preparation of a bundle for the hearing of an originating application is item 41 and a list of issues and the bundle of authorities are accommodated within the claims under 14 and 40 respectively.

[10] I begin with the observation that r 14.5 of the High Court Rules presumes that, once the proceedings are categorised appropriately under r 14.3, a reasonable time for a step in the proceeding is the time specified in Schedule 3. That does not mean there must be a precise correlation between the specified time and the actual time spent in a particular case. There will be a variety of reasons why some steps can take more time and some steps will take less time to complete in an individual case, but subject always to the overriding protection that costs awarded in a

encourage overzealous scrutiny of the time allocations allowed for each step. To do so could equally invite claims that more time should be allocated for particular steps based on actual time spent and thereby undermine the principles set out in High Court r 14.2(c) and (g).

[11] In respect of the challenge to item 10, therefore, I simply note that Schedule 3 provides a time allocation for both preparation for a case management conference and preparation of a memorandum for it. I see no grounds for interfering with that, particularly where, as here, there were related discussions about discovery before the memorandum could be prepared.

[12] However, I accept that the next challenge, to item 14, has merit. There was no appearance at an issues conference so this time allocation should be halved to address the issue of preparation only. The allocation is therefore 0.25 days.

[13] The challenges to items 30, 31 and 33 all assert that these claims relate to a normal trial and are inappropriately applied to preparing for, and conducting, the hearing of an originating application.

[14] I accept this is an originating application and the presumption, therefore, is that items 37 to 43 apply to it. The question here becomes whether, because witnesses were called and cross-examined, it is more appropriate to invoke, by analogy, some of the time allocations for general civil proceedings in reliance on r 14.5.

[15] In relation to the claim for item 30, being for preparation of briefs or affidavits, I accept that the two day allocation afforded under item 37 is intended to encompass preparation of all affidavits for the applicants in an originating application. Item 30 is therefore not relevant. Item 31 is the claim for preparation of a list of issues, authorities and a common bundle. Again I accept that, as an originating application, the correct allocation for the preparation of a bundle for the hearing is item 41 so that is to apply rather than item 31. I also accept the respondents’ submission that the list of issues was accommodated within the claim for item 14 as the issues were identified in the course of preparing for the issues conference and no further list was prepared.

[16] The more difficult issue is whether item 33, preparation for hearing, should be disallowed because the appropriate step in the proceeding is item 40, preparation of written submissions. However, item 40 does assume the only task is to prepare written legal submissions but here the majority of the first day of hearing was taken up with hearing evidence and cross-examination. Given the nature of this hearing and the requirement to prepare cross-examination, I think it more appropriate to apply a time allocation which reflects the fact that preparation was more like that for a normal trial. I therefore consider item 33 is appropriately claimed. It will not, however, result in an allocation of three days given my findings on the next claimed item, item 42.

[17] The claim for appearance at hearing for sole or principal counsel is, as the applicants say, measured in quarter days. Because the first day of hearing was completed by the afternoon break, it was only 0.75 days and so the total hearing lasted 1.25 days. The claim for both item 42 and item 33 should be calculated accordingly.

[18] The last challenged claim, for item 43, is for second and subsequent counsel if allowed by the Court. While I accept that it was not unreasonable to have second counsel on this sort of case, the focus, particularly in a 2B proceeding, is on whether second counsel was necessary rather than reasonable. For example, in Roading & Asphalt Limited v South Waikato District Council, Keane J considered that the decision to award of costs for second counsel turns on whether the hearing could

have been conducted by principal counsel only. ⁵On that basis, I am satisfied that

this case was neither sufficiently complex nor intensive to justify a costs allowance for second counsel.

[19] The applicants consider there should be an increased costs award. This is primarily because the resulting judgment reflected the position set out to the respondents in the correspondence prior to litigation and the respondents did not accept reasonable Calderbank offers which were more advantageous to them than what was ultimately decided.

30 July 2014 and 29 October 2014. In the 30 July offer, the applicants offered to settle on the basis that:

(a) the insurance settlement proceeds for the building and relevant land would be distributed pursuant to the Ford Baker valuation;⁶

(b) Body Corporate fees paid by the second and third respondents would be adjusted accordingly and repaid to those respondents;

(c) the applicants would offer to purchase the respondents’ 38.52 per cent interest (being the reassessed entitlement) in the remaining land as if the land was worth $700,000 plus GST (compared to the $610,000

⁵_{Roading & Asphalt Limited v South Waikato District
Council [2012] NZHC 2243 at [4].}

⁶Which supported the reassessed entitlements which I confirmed in my decision.

[21] On 29 October 2014 the applicants made a second Calderbank offer. This was made on the same terms as the first Calderbank offer except on this occasion, the applicants offered to purchase the remaining interest held by the respondents in the land as if the land was worth approximately $756,000 plus GST compared to the CERA valuation of $610,000 plus GST.

[23] The respondents contest the suggestion that their refusal to settle on these terms was not reasonable. They say the offers were all premised on the applicants purchasing the underlying land, but the Court did not hear any evidence from a valuer as to the current value of the underlying land, or the value at the time the applicants made their offers. They consider the $610,000 offered by CERA was an “opening bid” and that even the offer of approximately $756,000 plus GST made on

29 October 2014 was below value. They say that the applicants cannot establish that their offers amounted to any concession at all given the lack of any definitive evidence as to the value of the underlying land. They also say that the offers, although contemplating a “clean break”, would have meant the respondents were excluded from realising the full value for their share of the land and this “would have likely been less favourable to them than if the applicants succeeded in the proceeding”.

[24] They also note that the additional component of the offers, being to refund the Body Corporate levies, was of no real consequence because, as the Court recognised, the amount associated with the refund paled in comparison to the value of the assets in dispute. Given that this was an “all or nothing” type of case, and given the parties had different views of the merits of the case, the second and third respondents say they were justified in requiring these issues to be tested at hearing, rather than accepting a settlement offer which arguably reflected no material concession. They conclude by saying that as they pursued their opposition “reasonably and in good faith”, there is no basis to punish them with increased or indemnity costs.

[25] Increased costs may be ordered where there is a failure by the paying party to act reasonably, and this includes where a Calderbank offer is unreasonably refused.⁷

[26] I do not accept that the outcome was so obvious that “the judgment was foreseeable”. As explained in the decision, the application of the “just and equitable” test is very fact-specific and there must always be some uncertainty as to its application in a novel fact situation.

[27] More importantly though, because both Calderbank offers were bundled up with an offer to acquire the underlying land, I am unable to accurately quantify the difference between the outcome achieved in the litigation and the outcome which ultimately would have been achieved by accepting the settlement offer. I do not consider the CERA offer of $610,000 plus GST to be reliable evidence as to valuation, particularly when there was untested valuation evidence before the Court which indicated the land value was more likely to be around $1 million plus GST. I therefore am unable to quantify the financial effect of the settlement offer (which combines division of insurance proceeds with the sale of land) with the financial effect of the decision (which must also be considered in combination with the values to be achieved when realising the underlying land).

[28] Because I cannot say with confidence that the outcome in the litigation was less favourable to the respondents than the outcome under the settlement offer, I cannot be satisfied it was unreasonable for the respondents to reject the Calderbank offers. For that reason, I will not award increased costs by way of an uplift for the steps taken by the applicants from the date of the first Calderbank offer.

... a necessary cost for the unit plan cancellation (with reference to s 177(7) of the Unit Titles Act 2010) even if the second and third respondents had agreed to a reassessment and no litigation was required.

[30] Accordingly, it is not a cost which is specific to the conduct of the proceeding as required by r 14.12(2)(b). It is considered that this cost should be borne by the Body Corporate as would occur in the ordinary course of a unit plan cancellation.

[31] The second challenged disbursement is the fee of $2,697.80 from the applicants’ schedule of costs for Mr Mahoney to travel to Christchurch to give his evidence. The respondents say they were prepared to have Mr Mahoney’s evidence taken as read provided the applicants only advanced the Ford Baker figures for a reassessment.

[32] As it transpired, I endorsed the Ford Baker figures for the reasons advanced by the respondents. The applicants, on the other hand, say that while the second and third respondents agreed to have Mr Mahoney’s evidence read and not enforce their notice to cross-examine him, they wished to continue to challenge the basis of the reassessment, including the date. As the notice of intention to cross-examine Mr Mahoney was not withdrawn, and the respondents intended to cross-examine Mr Naylor in respect of the merits of undertaking retrospective valuations, GST issues and the correct date of valuation, the applicants say they were entitled to call Mr Mahoney who also addressed these issues. Furthermore, they say, given the Gallery Apartments case, it was important to the applicants to illustrate there could be no dispute between reasonable and competent valuers over the relative

[33] I accept that because the respondents intended to cross-examine Mr Naylor in respect of the basis of the reassessment, including undertaking retrospective valuations, GST issues and the correct date of valuation, it was reasonable for the applicants to call Mr Mahoney to contribute his expert opinion on those issues and

_{be cross-examined on them. The applicants were entitled to have him
give that}

evidence in person, given the issues in dispute. Consequently, Mr Mahoney’s costs involved in attending the hearing were specific to the conduct of the proceeding and reasonably necessary for it. Those costs are allowed.

[34] In light of the above discussion, I make the following orders: (a) costs are awarded to the applicants on a 2B basis;

(b) the applicants’ costs are to be calculated based on the time allocations for the following items as listed in Schedule 3 of the High Court Rules: 37, 10, 11, 14 (reduced to .25 days), 21, 33 (reduced to

(c) the disbursements set out in the list attached to the applicants’ submissions are allowed, except for the cost of the Ford Baker valuation, which is a cost to be borne by the first respondent.

High Court of New Zealand Decisions

OM Hardware Limited v Body Corporate 303662 [2015] NZHC 574 (26 March 2015)