Canterbury Regional Council v King House Removals Southland Limited [2018] NZHC 2433 (14 September 2018)

Last Updated: 19 September 2018

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

CIV-2017-409-000239 [2018] NZHC 2433

BETWEEN	CANTERBURY REGIONAL COUNCIL Plaintiff
AND	KING HOUSE REMOVALS SOUTHLAND LIMITED Defendant

Hearing:	(Determined on the papers)
Counsel:	J V Ormsby and J I Taylor for Plaintiff ADG Hitchcock for Defendant
Judgment:	14 September 2018

JUDGMENT OF GENDALL J

As to Costs

Introduction

[1] In a judgment I gave in this proceeding on 1 May 2018, the plaintiff, Canterbury Regional Council, effectively succeeded in its claim against the defendant and I made the declarations it sought regarding a lease between the Council as lessor and the defendant as lessee.

[2] As to costs on the proceeding, at paras [75], [76] and [77] of the judgment I noted:

[75] As to costs, the Council has succeeded in this proceeding and is entitled to an award of costs against King House. Counsel nevertheless have requested that they have an opportunity to make separate submissions on costs.

[76] Costs, therefore, at this point are reserved.

[77] In the event that counsel are unable to agree between themselves on the issue of costs, they may file in this Court (sequentially) memoranda

CANTERBURY REGIONAL COUNCIL v KING HOUSE REMOVALS SOUTHLAND LTD [2018] NZHC

2433 [14 September 2018]

directed to the issue of costs which are to be referred to me and, in the absence of either party indicating they wish to be heard on the question of costs, I will make a decision on costs on the basis of the memoranda filed and all the material then before the Court.

[3] It appears that no final agreement has been reached between the parties concerning the issue of costs, although the defendant has acknowledged that the plaintiff is entitled to costs here but the defendant says these should be calculated on the usual category 2B scale basis.

[4] Counsel for the plaintiff, however, has now filed a memorandum on costs dated 31 August 2018. Counsel for the defendant has responded and his memorandum filed in this Court is dated 10 September 2018. Both memoranda have been referred to me.

[5] I have now had an opportunity to consider those memoranda and I give this decision on the basis of all matters addressed in this proceeding and the material filed.

[6] As I have noted, counsel for the defendant in his memorandum accepts that the plaintiff has been successful at trial and is entitled to an award of costs. Mr Hitchcock for the defendant, however, submits that costs should only be awarded on a standard category 2B basis which he calculates at $42,258.50 and, further, that there is no basis for any award of either increased scale costs or indemnity costs here.

[7] Counsel for the plaintiff, however, contends in his memorandum that the costs to be awarded to the Council here should be calculated either on an indemnity basis (pursuant to the terms of a provision in the lease) or, alternatively, on an increased scale costs basis.

Indemnity costs

[8] I turn first to the lease in question between the plaintiff and the defendant. Clause 24 of this lease addresses costs and provides:

24. Costs

24.1 The Lessee shall pay the Lessor’s solicitors costs of and incidental to the preparation of this lease and any variation or renewal or any deed recording a rent review and the stamp duty payable and the Lessor’s legal costs (as between solicitor and client) of and

incidental to the enforcement or attempted enforcement of the Lessor’s rights, remedies and powers under this lease.

[9] Counsel for the plaintiff suggests, therefore, that it has a contractual indemnity under the lease for its legal costs here on a solicitor and own client basis. This is on the basis that these costs are said to be incidental to the enforcement of the plaintiff’s rights and powers as lessor under the lease.

[10] Mr Ormsby suggests that in terms of cl 24 of the lease, this must clearly include the enforcement of the plaintiff’s right to call for a rent review and to seek determinations on the interpretation of the lease where (as here) that has been strenuously disputed for some considerable time by the defendant as lessee.

[11] Prima facie, therefore, the plaintiff’s position is that it is contractually entitled to indemnity costs. I agree. The principle that a party may contractually bind itself to pay another’s full solicitor/client costs is one firmly established under the authorities.¹ The plaintiff’s contractual indemnity under the lease for its solicitor/client legal costs arises here, as I have noted above, where such costs are incidental to the enforcement of the plaintiff’s rights, remedies and powers under the lease as lessor. As I see it, that is precisely what has occurred here, given the defendant’s protracted dispute as to the interpretation of the rent review provision under the lease and the plaintiff’s attempts to enforce its rights to properly review the rent. It is also clear from the authorities, however, that this entitlement is subject to the indemnity not being seen as contrary to public policy.² A further qualification is that those costs must be reasonably incurred.³

[12] The Court of Appeal has noted this in Watson & Son Ltd v Active Manuka Honey Association⁴ where it states:

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

¹ ANZ Banking Group v Gibson [1986] 1 NZLR 556

² ANZ Banking Group v Gibson, above n 1, at 566.

³ Black v ASB [2012] NZCA 384 at [77].

⁴ Watson & Son Ltd v Active Manuka Honey Association [2009] NZCA 595 at [35].

[13] Addressing the first question as to whether there are any public policy grounds existing here against such an indemnity arrangement between a lessor and lessee, I am satisfied that the answer to this question must be no. The indemnity costs provision in the lease noted above is a common and often seen provision in lease contracts. There can be no suggestion in my view that public policy issues arise here.

[14] As to the second qualification that these costs must be reasonably incurred, from the decision in Black v ASB⁵ the Court is required to assess:

(a) What tasks attract a costs indemnity on a proper construction of the contract;

(b) Whether the tasks undertaken were those contemplated by 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 and whole or in part deny the claimant its prima facie right to judgment.

[15] In addressing these criteria, I am satisfied of the following:

(a) In the present case, the tasks that the indemnity was to cover are the enforcement of the plaintiff’s rights, remedies and powers under the lease relating particularly to the important rent review provision.

(b) The dispute relating to the rent review position it seems was prolonged for quite a considerable period of time without resolution. The steps taken by the plaintiff here necessarily followed. They were

⁵ Black v ASB, above n 3 at [80].

contemplated by the lease. The longstanding deadlock between the parties for many years ultimately required the plaintiff to take the step it did of issuing this proceeding to enforce its rights under the lease.

(c) Those steps, which included what must really be considered as enforcement steps taken by the plaintiff here, cannot be seen as anything other than necessary and reasonable in all the circumstances, given the position adopted by the defendant over the rent review issue.

(d) The indemnity costs sought by the plaintiff are calculated at $99,706.99 together with $5,523 in disbursements, making a total of $105,229.99. Counsel for the defendant in his submissions concedes that the disbursements claim of $5,523 is agreed. No real and detailed quantum dispute, however, appears to have been raised as to the $99,706.99 indemnity costs sought. Invoices are before the Court relating to these costs. They amount to a little over double the category 2B scale costs which the plaintiffs have calculated (being a figure of $44,266 which is only slightly above the defendant’s category 2B costs calculation of
$42,258.50).

(e) So far as the reasonableness of these costs are concerned, it appears that right up to 17 days before the hearing of this matter, it was scheduled for a three day fixture to deal with counter claims advanced by the defendant pleading rectification and estoppel, comprising significant factual disputes which were later abandoned. In all the circumstances here and given there is no real objection by the defendant to the plaintiff’s quantum calculation of its indemnity costs, I am satisfied here that they are reasonable.

[16] I conclude that the contractual costs indemnity in the lease between the parties clearly applies here and that neither issues of public policy, nor the qualification of reasonableness, in any way limits its application to the present situation.
[17] That said, I find first, that the plaintiff is contractually entitled to payment of its reasonable indemnity costs on a solicitor and own client basis in this proceeding and, secondly, that the $99,706.99 quantum sought is virtually unchallenged and is reasonable in all the circumstances of this proceeding.

Order

[18] An order is now made that the defendant is to pay to the plaintiff its contractual indemnity costs on this proceeding amounting to $99,706.99 together with disbursements totalling $5,523.






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

Gendall J

Solicitors:

Wynn Williams, Christchurch AWS Legal, Invercargill