IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2012-404-2727 [2015] NZHC 1261

BETWEEN	WESTERN PARK VILLAGE LTD
Plaintiff	

AND	
SINAN ABED BAHO Defendant

DARRYL LAWRENCE HEAVEN First Counterclaim Defendant

EVELYN HEAVEN
Second Counterclaim Defendant

TRUSTEE MANAGEMENT LTD Third Counterclaim Defendant	

Hearing:	10 April 2015	

Counsel:	
S E Fitzgerald and M F Mabbett for Plaintiff and Counterclaim
Defendants
J E M Lethbridge for Defendant	

Judgment:	
8 June 2015	

JUDGMENT (NO. 2) OF HEATH J

This judgment was delivered by me on 8 June 2015 at 2.00 pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:
Russell McVeagh, Auckland
Grove Darlow & Partners, Auckland

WESTERN PARK VILLAGE LTD v BAHO [2015] NZHC 1261 [8 June 2015]

Introduction

[1]       In 2007, Western Park Village Ltd (Western Park) purchased 4/30 Augustus Terrace, Parnell from Mr Baho.  To facilitate the transaction, Mr Baho advanced part of the purchase price to Western Park.  The loan was expressed in US dollars and secured by a second mortgage (the mortgage) over the unit.

[2]       Western  Park  was  the  principal  debtor  under  the  mortgage,  which  was guaranteed by a director, Mr Heaven, Mrs Heaven and Trustee Management Ltd, the trustee of a family trust associated with Mr and Mrs Heaven.  Unless it is necessary to distinguish between them, I refer to those parties collectively as the Western Park interests.

[3]       Western Park took title to the Augustus Terrace property, but did not repay Mr Baho’s loan on due date.  When demand was made for payment Western Park asserted that Mr Baho had misrepresented a certain state of affairs to it when the contract to buy the unit was entered into.

The High Court proceeding

[4]     Western Park brought proceedings in this Court to obtain judgment for misrepresentation.     Damages  were  claimed  in   an  amount  that  would  have significantly reduced (if not extinguished) the debt due to Mr Baho.   Mr Baho counterclaimed.   In order to enforce the mortgage, Mr Baho needed both to repel Western Park’s claim and to establish his own debt.

[5]       On 10 February 2014, following a hearing in July and August 2013, I gave judgment (as to result only) on both claim and counterclaim.1   In substance, Mr Baho succeeded in defending all claims made by Western Park against him.   He also succeeded on his counterclaim, in respect of which judgment was entered in the sum of $NZ301,698.87, together with interest at the rate of 19% per annum from 21
December 2011 to the date of judgment.2

1	Western Park Village Ltd v Baho [2014] NZHC 102.
2	Ibid, at para [3](a) and (b).

[6]       When my judgment was delivered, leave was granted to Mr Baho to amend his counterclaim, to include a claim for possession of the Augustus Terrace property. I deferred that aspect of the claim for further determination.3   All questions of costs were reserved.4   Reasons for my decisions were given on 18 February 2014.5

[7]       The Western Park interests appealed against my judgment.  On 16 July 2014, Woolford J granted a stay of execution pending appeal, on the condition that a sum of US$127,750  be paid  into  Court  pending further order,  to  protect  Mr Baho’s judgment on his counterclaim.6

The appeal

[8]       The appeal was heard in November 2014.  The Court of Appeal delivered its judgment on 19 December 2014.7    Western Park succeeded in part.   That had the effect (after taking into account the amount paid into Court) of reducing the amount payable by Western Park to Mr Baho to $NZ154,073.48.  Interest was to run on that amount at 19% per annum from 25 May 2009 to the date of judgment.8     Post judgment interest will also accrue.

[9]       The  Court  of  Appeal  awarded  the  Western  Park  interests  an  amount equivalent to 80% of costs of a standard appeal, on a Band A basis with usual disbursements.  It determined that I should fix costs payable in this Court.9

Costs in the High Court

(a)       Context

[10]     I heard the application for costs on 10 April 2015, in conjunction with Mr Baho’s  application  for  a  possession  order.     At  that  stage,  the  position  was complicated by the existence of an application, by the Western Park interests, for
leave to appeal to the Supreme Court.  Any dispute about the consequences of the

3	Ibid, at para [3](c).
4	Ibid, at para [3](d).
5	Western Park Village Ltd v Baho [2014] NZHC 198.
6	Western Park Village Ltd v Baho [2014] NZHC 1671, at paras [42]–[44].
7	Western Park Village Ltd v Baho [2014] NZCA 630.
8	Ibid, at paras [82] and [83].

extant application for leave to appeal have (since) been rendered moot.  On 14 May

2015, the Supreme Court dismissed the application, with costs ordered in favour of

Mr Baho in the sum of $2,500.10

[11]     The competing contentions on questions of costs fall to be determined against the backdrop of the Court of Appeal’s judgment of 19 December 2014.11     Two significant features emerged from that judgment:

(a)       The first is that Western Park succeeded on a claim under cl 7.1(6)(b) of the Agreement for Sale and Purchase.   That claim had not been pleaded in this Court.   Leave to amend the Statement of Claim to encompass that claim was granted by the Court of Appeal before the hearing in that Court.12

(b)       The second is that the Court of Appeal held that I had erred in finding that there was no diminution in value of the property.  My conclusions on  that  issue  had  been  expressed  in  case   my  judgment  was successfully appealed.   On a more fulsome analysis, the Court of Appeal concluded that there was a diminution in value claimable in the sum of $NZ50,000.13

[12]     The Court of Appeal, in allowing the appeal, did not find that my conclusion on the amount owing to Mr Baho was wrong.   Rather, it offset the $NZ50,000 otherwise payable against the mortgage debt by way of equitable set-off.  The use of that technique to fix the amount owing to Mr Baho demonstrates how intertwined claim and counterclaim were.   As a result, of the Court of Appeal’s decision the amount  claimable  by  Mr  Baho  from  Western  Park  and  the  guarantors  of  the mortgage was reduced to the sum of $NZ154,073.48, together with interest at 19%
per annum from 25 May 2009 to the date of judgment.14  That remains the position.

10	Western Park Village Ltd v Baho [2015] NZSC 60.
11	Western Park Village Ltd v Baho [2014] NZCA 630.
12	Ibid, at paras [10], [39] and [41].
13	Ibid, at para [74].

(b)       Contractual indemnity costs

[13]     Ms Lethbridge’s primary submission is that Mr Baho is entitled to indemnity costs  in  respect  of  the  High  Court  proceedings.    This  claim  is  founded  on  a contractual obligation assumed by the Western Park interests under cl 27 of the mortgage.  A contractual obligation of that type is a factor that the Court can take into account in determining whether indemnity costs are appropriate.15

[14]     Relevantly, cl 27 provides:

COSTS

(a)        Payable by the party giving the security: the party giving this mortgage must pay to the mortgagee upon demand, the mortgagees legal costs (as between solicitor and client) for:

…

(ii)        costs on default: legal services arising from or relating to any default under this mortgage or the enforcement or exercise or attempted enforcement or exercise of any of the mortgagees rights, remedies and powers under this mortgage (including  the  giving  or  attempting  giving  of  any  notice under  the  Property  Law Act  1952)  or  any  enactment  in substitution for that Act, the inspection and valuation of the land and, if the mortgagee is a solicitors nominee company, the cost  of  compliance by the  relevant  solicitor with the Solicitors  Nominee  Company  Rules  1998  or  any  similar rules in relation to the matters mentioned in paragraph (ii))
…

[15]     Ms Lethbridge places reliance on Black v ASB Bank Ltd.16    In that case, the Court  of  Appeal  upheld  a  judgment  given  by  Associate  Judge  Bell  in  which indemnity costs (plus disbursements) were awarded against Mr Black on the basis of a similar clause in a mortgage that he had given in favour of ASB Bank Ltd.

[16]     There are two discrete questions that require attention:

(a)	The  first  is  whether  cl 27  provides  a  contractual  requirement  for indemnity costs to be given.17

15	High Court Rules, r 14.6(4)(e).
16	Black v ASB Bank Ltd [2012] NZCA 384.
17	Generally, see ANZ Banking Group (NZ) Ltd v Gibson [1986] 1 NZLR 556 (CA) and Beecher v
Mills [1993] MCLR 19 (CA).

(b)       The  second  is  whether,  if  it  does,  the  amounts  claimed  could  be

reduced on the grounds that some were not “reasonably incurred”.18

[17]     The nature of the second question was captured by Wild J, delivering the judgment of the Court of Appeal in Black v ASB Bank Ltd:

[77] As this Court held in Frater Williams & Co Ltd v Australian Guarantee Corporation (NZ) Ltd, where there is a contractual right to indemnity costs the question for the Court asked to make an order is: for the necessary steps, are the costs claimed reasonable in amount? That is because r 14.6(1)(b) permits the Court to order payment of costs “reasonably incurred”. It follows from the wording of r 14.6(1)(b) that indemnity costs are determined with reference to actual costs, but may be less than the actual costs if the Court considers the actual costs were not reasonably incurred.

(Footnote omitted)

[18]     Mr Baho made initial attempts in person, and later through his solicitors, to obtain payment of moneys owing to him.  He then faced a claim from Western Park for damages for misrepresentation.  Settlement of that claim proved impossible.  A counterclaim was issued to obtain judgment for the amount owing, so that Mr Baho could take steps under his mortgage to sell and recover the amount owing to him. Those cross-claims were intertwined; the amount of the debt owing to Mr Baho
could not be determined until both had been resolved.19

[19]     In my view, the costs that Mr Baho has incurred in defending Western Park’s claim  and  in  suing the Western  Park  interests  to  recover his  money are linked directly to the enforcement of the mortgage following default on the part of Western Park.    In  the  language  of  cl 27,  the  costs  were  incurred  as  part  of  Mr  Baho’s “enforcement … or attempted enforcement of his” right to repayment under the
mortgage.20

[20]     In assessing the quantum of costs that Mr Baho should receive, I bear in mind that I am dealing with costs only in the context of the High Court trial, in which
Western Park did not rely on the provision in the agreement for sale and purchase on

18	High Court Rules, r 14.6(1)(b).
19	See para [12] above.
20	Clause 27(a)(ii) is set out at para [14] above.

which it ultimately succeeded in the Court of Appeal.  That is a factor that militates against any division in the incidence of costs as between Western Park and Mr Baho.

[21]     The sum claimed for indemnity costs was, at the time submissions were filed on 25 August 2014, $94,831.27, plus disbursements of $17,673.76.   They include costs that relate to the stay application with which Woolford J dealt, and in respect of which the Western Park interests were generally successful.21

[22]     In Black v ASB Bank Ltd, the Court of Appeal referred to its earlier decision in Frater Williams & Co Ltd v Australian Guarantee Corporation (NZ) Ltd22  as support for the proposition that an indemnity costs order should be limited to those costs “reasonably incurred”.  The Court of Appeal recognised difficulties inherent in assessing the quantum of indemnity costs payable under a contractual obligation.  It reinforced the notion that “the Court’s assessment of the [costs] leaves “room for robust judgment as to the costs considered reasonable in all the circumstances”.”23

[23]     In my view, this is a case in which I can make a “robust” judgment.  I had the advantage of presiding over a trial of some eight days.   I was able to assess the witnesses and the reasonableness of stances that they took.  In particular, I accepted Mr Baho as a witness of the truth, whereas an adverse finding of credibility was
made against Mr Heaven.24   However, I must also take account of the approach taken

by Mr Baho to the stay application and make an allowance for the fact that an amount of $50,000 was ultimately deducted from the moneys owing to Mr Baho as a result of the appeal judgment.   I also take account of additional costs incurred by Mr Baho on the costs application with which I am dealing, and the allied application for  a  possession  order.     I  intend  to  take  a  global  view  of  both  costs  and
disbursements, in order to achieve finality.

21	Western Park Village Ltd v Baho [2014] NZHC 1671.
22	Frater Williams & Co Ltd v Australian Guarantee Corporation (NZ) Ltd (1994) 2 NZ ConvC
191,873 (CA) at 191,886–191,887.  See para [77] of Black v ASB Bank Ltd, set out at para [13]
above.
23	Frater Williams & Co Ltd v Australian Guarantee Corporation (NZ) Ltd (1994) 2 NZ ConvC
191,873 (CA), at 191,887 and Black v ASB Bank Ltd [2012] NZCA 384, at para [81].
24	Western Park Village Ltd v Baho [2014] NZHC 198 at paras [52] (Mr Baho) and [53] and [54] (Mr Heaven).

[24]     Taking all factors into account, I exercise my general discretion as to costs by awarding in favour of Mr Baho a sum of $85,000 (inclusive of disbursements).  That award includes costs on the applications with which I am now dealing.

Possession application

[25]     Mr Baho  seeks  an  order  granting possession  of the land  secured  by  his mortgage, so that he may take action to enforce the debt found to be payable by the Court of Appeal.   Although, at the time that I heard argument the application for leave to appeal to the Supreme Court was extant, the issue is no longer complicated
by that factor.25

[26]     Ms Fitzgerald, for the Western Park interests, raised both procedural and substantive objections to the application:

(a)       As to procedure, she submitted that the procedure adopted to make the application was inappropriate.  She contended that neither Part 13 or Part 17 of the High Court Rules applied.

(b)	Ms  Fitzgerald  contended,  as  a  result  of  the  Court  of  Appeal’s

judgment, that no valid notice under s 120 of the Property Law Act

2007 had been issued to support the granting of a possession order. That submission is made on the basis that the equitable set-off permitted by the Court of Appeal impeaches the demand previously made under the mortgage.

(c)       Further, she asserted that it was not open to me to make a possession order because, in dealing with the stay application, Woolford J had dismissed that aspect of the claim.  He had said:26

[43]      I therefore stay the execution of the judgment of Heath J dated 10 February 2014 to include a stay of the Property Law Act notice dated 6 June 2013 and any steps taken by Mr Baho to enforce the damages award on the condition that Western Park deposit the sum of US$127,750

25	See para [10] above.
26	Western Park Village Ltd v Baho [2014] NZHC 1671, at para [43].

into Court, which is to be held by the registry in an interest bearing US dollar account until further order of the Court.  I also  set  aside  the  various  charging  orders  obtained  by Mr Baho after the judgment was sealed.  I also dismiss the application for a possession order by Mr Baho.

[27]     I am not prepared to determine the possession order application on procedural grounds.   There has been no prejudice to the Western Park interests.   They have known for some time the basis on which Mr Baho put his application, and they have been able to respond fully to it on a substantive basis.  All questions of liability are now resolved.  There is no reason why the Western Park interests should not pay the amount ordered to Mr Baho to satisfy the debt.

[28]     There is no impediment to the Court entertaining a second application for a possession order.   Circumstances have changed, in that the proceeding has been finally determined.  I am prepared to treat the application as one made orally on the basis of the earlier evidence and that subsequently made available to me.   In the absence of prejudice to the Western park interests, that is a just means of determining the issues.

[29]     Now that the Western Park interests have exhausted appeal rights, there is no reason why Mr Baho should not be able to obtain possession of the land for the purposes of conducting a mortgagee sale.  Generally speaking, when entitlement to a sum under a mortgage is established and a mortgagee wishes to take possession of the property for the purposes of sale or receiving rents, a possession order will
follow.27

[30]     I am prepared to grant leave to enable Mr Baho to enter into possession of the land.  The order shall lie in Court until 5pm on 19 June 2015 to give the Western Park interests time to pay the debt.  If the debt has not been paid in full by that time, including the costs awarded in this judgment, Mr Baho may seal the order and enter
into possession immediately thereafter.

27         Southpac Custodians Ltd v Bank of New Zealand [1993] 1 NZLR 663 (CA), based on s 106 of the Land Transfer Act 1952.  See now s 126 of the Property Law Act 2007, under which the Court may grant leave to a mortgagee to enter into possession of mortgaged land even though a notice has not been served under s 119 of that Act.

Result

[31]	For those reasons:

(a)       Costs  and  disbursements  are  awarded  against  the  Western  Park interests (jointly and severally) in favour of Mr Baho in a global sum of $85,000.

(b)       I grant leave to enable Mr Baho to enter possession of the land.  The order shall lie in Court until 5pm on 19 June 2015 to give the Western Park interests time to pay the debt.  If the debt has not been paid in full  by  that  time,  including  the  costs  awarded  in  this  judgment, Mr Baho may seal the order and enter into possession immediately thereafter.

[32]	I thank counsel for their assistance.  I apologise for the delay in giving this judgment.

P R Heath J

Delivered at 2.00pm on 8 June 2015