IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2009-404-003025 [2013] NZHC 654

IN THE MATTER OF	186-202 Queen Street

BETWEEN	ST JOHNS COLLEGE TRUST BOARD Applicant

AND	BODY CORPORATE 197230 AND OTHERS
First and Other Respondents

Hearing:	28 March 2013 (On the Papers)

Counsel:	B W Morley and G J Luen for the Applicant
C Baker for the First Respondent
D R Bigio for the Hayden Tate
(Second to Twenty-Fourth, Twenty-Sixth to Thirtieth and Thirty-Second to Thirty-Fourth) Respondents
T J G Allan for the Grove Darlow
(Thirty-Fifth to Fifty-Seventh, Sixty-Third, Sixty-Ninth and Seventy-Third) Respondents
I F Williams for the Seventy-First Respondent
M C Harris and A T B Joseph for the Gilbert Walker
(Seventy-Seventh to Eighty-Sixth) Respondents

Judgment:	28 March 2013

JUDGMENT OF DUFFY J [Re Costs]

This judgment was delivered by Justice Duffy on 28 March 2013 at 12.00 pm, pursuant to
r 11.5 of the High Court Rules

Registrar/Deputy Registrar
Date:

ST JOHNS COLLEGE TRUST BOARD v BODY CORPORATE 197230 and ORS HC AK CIV-2009-404-
003025 [28 March 2013]

[1]       Following their partial success in an application for a scheme under s 48 of the Unit Titles Act 1972 (the Act), the second to twenty-fourth, twenty-sixth to thirtieth and thirty-second to thirty-fourth respondents (the Hayden Tate respondents) seek an award of costs.

[2]       The  other  two  groups  of  respondents,  to  whom  I  will  refer  using  the references  adopted  in  the  substantive  hearing  (Grove  Darlow  respondents,  and Gilbert Walker respondents), as well as the applicant (St Johns), oppose an award of costs on the basis as sought by the Hayden Tate respondents, and suggest their own bases for such an award.

[3]       Section  48(7)  of  the Act  empowers  the  Court  to  “make  such  order  for payment of costs as it thinks fit”.  The parties have referred me to other decisions on costs  following  applications  for  Court  approval  of  s  48  schemes.    However,  I consider that those decisions turn on their facts.   These applications necessarily involve a variety of factual circumstances.  Nonetheless, I consider that in exercising this  discretion,  the Court  can  seek  guidance from  the principles  in  r 14  of the High Court Rules and the principles developed in relation thereto.

[4]	In this proceeding, the parties were agreed on a number of issues: (a)	The need for a s 48 scheme;
(b)	The nature and scope of the remediation works; and

(c)       Their  estimated  total  cost  of  $4M,  for  which  approximately  75 per cent related to remediation of common property and 25 per cent related to remediation of private property.

[5]       Where  they  parted  company  was  in  relation  to  how  the  cost  of  the remediation of the common property should be apportioned.  No one supported those costs being apportioned in accordance with the statutory formula in s 6 of the Act, which is the outcome that I held. Thus, no one was totally successful.

[6]	The differences between the schemes as contended for by each party and the outcome under the statutory formula in s 6 were helpfully set out in the submissions
of St Johns:

Liability for Remediation Costs

Scheme Proposed by Applicant and Gilbert Walker Respondents

Scheme Proposed by Hayden Tate Respondents

Judgment
Outcome

Applicant and Gilbert Walker Respondents

Common   : $538,000

Individual : Nil

Common and
Individual:
$2.54 million

Common   : $1.9 million

Individual : Nil

Grove Darlow
Respondents

Common   : $339,000

Individual : Nil

Common and
Individual:
$760,000

Common   : $597,000

Individual : Nil

Hayden Tate
Respondents

Common   : $2.127 million

Individual : $1 million

Common and
Individual:
$642,000

Common   : $501,000

Individual : $1 million

[7]       St Johns and the Gilbert Walker respondents contend that costs should lie where they fall.  These parties had promoted a scheme which constituted the greatest departure from the statutory formula in s 6.  They stood to achieve the greatest gain if their scheme had prevailed.  Conversely, the other respondents stood to suffer the greatest loss had  the St  Johns/Gilbert Walker scheme prevailed.   Therefore,  the greatest effort of the Grove Darlow and the Hayden Tate respondents was directed towards resisting the St Johns/Gilbert Walker scheme.  This is the reason for their claims  for  costs  awards  against  St  Johns  in  the  case  of  the  Grove  Darlow respondents, and St Johns/Gilbert Walker in the case of the Hayden Tate respondents.

[8]       Whilst neither party achieved total success, the above table shows that the scheme proposed by the Hayden Tate respondents was closer to the judgment outcome than the other scheme.  Grove Darlow did not propose an actual scheme, but instead submitted that the Court should adopt a compromise position that fell some way between each of the proposed schemes.

[9]       In cases like this, a scheme needs to be placed before the Court; hence, the commencement of a proceeding is unavoidable.  However, it does not always follow that there will be opposition to a proposed scheme, or that alternate schemes will be proposed as part of that opposition.  When that occurs, the parties involved are put to greater expense than would otherwise be the case.  In such circumstances where the hearing entails hearing witnesses from opposing sides, including expert evidence that is subject to cross-examination, the scheme application becomes more like a lis inter partes.  In this regard, I accept the submission of the Hayden Tate respondents that the hearing proceeded in a classically adversarial manner and, therefore, there is no reason to depart from the presumption that costs follow the event.

[10]     Here, the financial stakes were high for all parties, as is shown in the table at [6].  St Johns and the Gilbert Walker respondents presented a complex case that was founded on the opinions of their expert valuers.  A large part of the hearing time was spent on addressing and resisting their proposed scheme.

[11]     As  matters  turned  out,  the  valuation  evidence  was  not  pivotal  to  the proceeding’s outcome, which turned on a question of statutory interpretation and the application of the leading case in this area, Tisch v Body Corporate No 318596 [2011] NZCA 420, [2011] 3 NZLR 679.

[12]     The Gilbert Walker respondents argued that Tisch was not delivered at the time this proceeding was commenced.   That may be so, but once the Court of Appeal’s judgment in Tisch was delivered, its impact on this proceeding required consideration.  I consider that the St Johns and Gilbert Walker respondents had every opportunity  to  reconsider  their  approach.    Nonetheless,  they  proceeded  with  a scheme that  presented  a marked  departure  from  the statutory formula,  and  was contrary to all the indicators given in Tisch on the form of these schemes.  In such circumstances, I do not consider that this is a proceeding where costs should lie where they fall.

[13]     I have given careful consideration to the other suggested ways of dealing with costs submitted by St Johns and the Gilbert Walker respondents.   I am not persuaded by them.

[14]     The Grove Darlow respondents sought costs against St Johns only.  The costs

sought were “for one period and one distinct circumstance”. These were:

(a)       Wasted expenditure on account of St Johns initially preparing and filing the s 48 scheme in a procedurally wrong way by commencing an ordinary proceeding, rather than an originating application.   For this, the Grove Darlow respondents seek indemnity costs, or alternatively costs on a category 2B basis, which come to $6,004; and

(b)       Costs   associated   with   the   attendance   of   the   Grove   Darlow respondent’s  witness,  Mr  Stephens,  who  flew  from  Australia  to New Zealand  to  attend  the  hearing  as  he  was  required  to  present himself for cross-examination but during the course of the hearing, St Johns no longer required his presence.  For this, the Grove Darlow respondents want witness costs of $4,833.24.

[15]     In Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3

NZLR 400 (CA) at [27], the Court of Appeal identified the distinction between scale costs, increased costs and indemnity costs as follows:

[27]      The distinction among our three broad approaches: standard scale costs; increased costs; and indemnity costs may be summarised broadly:

(a)	standard scale applies by default where cause is not shown to depart from it;

(b)	increased costs may be ordered where there is failure by the paying party to act reasonably; and

(c)	indemnity  costs  may  be  ordered  where  that  party  has behaved either badly or very unreasonably.

[16]     Further, at [29] in Bradbury, the Court of Appeal noted that the circumstances and categories justifying an award of increased costs are not closed.

[17]     The Grove Darlow respondents submit that commencing and continuing a proceeding that is procedurally flawed justifies increased costs because the conduct is “unreasonable” or “very unreasonable”.

[18]     I  do  not  consider  that  the  initial  way  in  which  this  proceeding  was commenced demonstrates “bad” or “very unreasonable” behaviour.   Nor does it demonstrate “unreasonable” behaviour.  I do not consider, therefore, that an award of indemnity or increased costs is appropriate.

[19]   Whilst other applications have been commenced by way of originating application, my view on reading the High Court Rules is that the position is not clear. The  procedure  for  commencing  an  originating  application  is  in  Part  18  of  the High Court Rules.  Part 18 applies to the following: First, in r 18.1(a), where relief is claimed wholly within the equitable jurisdiction of this Court.    Secondly, determinations by the courts under those statutes that are specified in r 18.1(b).  That rule specifies a number of statutes.   It then provides in r 18.1(b)(iv) any repealed enactment to which Part 4 of the High Court Rules applied immediately before the commencement of these rules if the enactment continues to apply to the plaintiff.

[20]     Rule 18.1(b) does not specify the Unit Titles Act 2010, nor did the former Part 4 of the High Court Rules specify the Unit Titles Act 1972.  It is not, therefore, immediately apparent to me that an application for a s 48 scheme would come within r 18.1(b).

[21]     Rule 18.1(e) empowers the Court in any other proceedings to direct that Part

18 is to apply.  I suspect that this is the basis on which, in the past, court approval for s 48 schemes has been sought via a proceeding under Part 18.  It may be that parties have taken this approach without regard being paid to how the procedure is applied.

[22]     The situation is not one where for these types of proceeding there is an obvious clear procedure available under one part of the High Court Rules, and St Johns has obdurately chosen to commence its proceeding under another Part.  The overview of Part 18 records that one of the aims of the reforms to the High Court Rules in the early 1980s was to simplify the mode of commencement of proceedings, and it was originally envisaged that all proceedings could commence by way of notice of proceeding and statement of claim.  Many proceedings which used to be commenced differently (for example, judicial review) are now commenced by way of notice of proceeding and statement of claim.  I cannot see why a s 48 application

could  not  be  commenced  as  an  ordinary  proceeding.    Nor  can  I  see  how  the Grove Darlow respondents have been put to any difficulty by the way in which St Johns commenced the proceeding.

[23]     Regarding  the  wasted  costs  sought  for  Mr  Stephens’  attendance  at  the hearing, Mr Stephens was not an expert witness.  He is the director of a company that is the registered owner of one of the units in the property affected by the scheme.   He has some mathematical expertise, but he could not appear as an independent expert witness, given his connection with the subject property.

[24]     During the course of the hearing, the Grove Darlow respondents sought leave to adduce a second affidavit from Mr Stephens.   St Johns objected to this on the ground that the second affidavit contained argumentative opinion evidence from someone who was not an expert.  I agreed with this view of Mr Stephens’ evidence and refused leave to adduce the affidavit.   The view I expressed on the second affidavit had some application to the first affidavit as well.  It also contained material that amounted to his opinion, was argumentative and in the nature of submissions on other experts’ opinion evidence.   He opined on the mathematical outcomes of the various calculations that he had made in order to put forward the figures that constituted a pro rated by percentage version of the other schemes.  He purported to offer expert opinion on  the valuation evidence of the expert witnesses of other parties.

[25]     Until St Johns knew my view on Mr Stephens’ second affidavit, they were placed in  a position where if they did not accept his evidence,  they needed to challenge  it  by  cross-examination.     This  much  is  required  by  s  92  of  the Evidence Act 2006.   Thus, it was proper of them to file a notice  requiring Mr Stephens’ attendance for that purpose.

[26]     Once I ruled, in the course of the hearing, that Mr Stephens’ second affidavit was not admissible; the reasons I gave for doing so would have removed the need in the eyes of St Johns and the Gilbert Walker respondents to challenge the remainder of Mr Stephens’ evidence, as it was equally objectionable.  Since the evidence was of little weight, they no longer required him for cross-examination.

[27]     I do not see why St Johns should have to pay for Mr Stephens’ attendance.  If his time was wasted, responsibility for that lies at the door of those who prepared his evidence in  a form that was both contentious  and objectionable in terms of its admissibility.   The contentiousness of the evidence meant that St Johns quite reasonably considered that it had no option but to call him for cross-examination. The inadmissible character of the evidence meant that there was always a likelihood that (1) there would be an objection to the evidence at the hearing by the parties; (2) the Court, of its own volition, would object to receiving evidence in an inadmissible form; or (3) the Court would express a view of the evidence that made challenging it unnecessary.

[28]     Whilst it might be said that St Johns could have applied to have the first affidavit evidence of Mr Stephens excluded prior to the hearing, I do not see why the responsibility and cost of dealing with objectionable evidence should fall on the shoulders of the party detrimentally affected by such evidence.   It is the primary responsibility of a party preparing evidence for a proceeding to ensure that it is in admissible form.  If that responsibility is not properly discharged, that party takes the risk that wasted costs may arise in relation to the evidence and that witness’ attendance at court.  Whilst here the first affidavit was treated as having little or no weight, this was because its contents were largely inadmissible for the reasons I have already stated.  It follows that the cost associated with Mr Stephens’ evidence should fall on the Grove Darlow respondents.

[29]     The limited basis on which the Grove Darlow respondents sought costs has not persuaded me to award costs.   I have considered whether the Grove Darlow respondents should be given some award of costs against St Johns insofar as their opposition to the St Johns’ scheme was successful.  The Grove Darlow respondents put forward argument based on pro-rating the other schemes.  Their argument was successfully opposed by the other parties, which would necessarily include St Johns. Therefore, it seems to me that each has enjoyed a measure of success against the other and, accordingly, I consider that the Grove Darlow respondents are not entitled to an award of costs against St Johns on any basis.

[30]     I now deal with the costs sought by the Hayden Tate respondents.  I consider that given the partial success they enjoyed, the Hayden Tate respondents are entitled to some costs.  They seek costs on a category 2B basis with an uplift to cover the initial steps during which time the proceeding was commenced as an ordinary proceeding.   Later St Johns moved to apply for approval of a s 48 scheme as an interlocutory application in the context of the ordinary proceeding.

[31]     I have already dealt with the question of an uplift of costs to reflect the “procedural   irregularity”   when   dealing   with   the   costs   application   by   the Grove Darlow respondents.  For the same reasons, I refuse to allow an uplift of costs here.

[32]     I am satisfied that the Hayden Tate respondents should be awarded costs on a category 2B basis.  The proceeding was more in the nature of an ordinary proceeding given the evidential challenges by cross-examination that it involved.  I consider it involved no greater complexity than civil proceedings that are generally heard in this Court.

[33]     The Hayden Tate respondents have calculated costs on a category 2B basis as coming to $58,092.  Next there is the question of the appropriate level of discount to reflect the fact these respondents were only partially successful.  The greatest part of the  parties’ and  the  Court’s  attention  was  on  the  appropriate  apportionment  of responsibility for costs arising from the remediation of common property.  Here, the Hayden Tate respondents were successful as they advocated for apportionment in terms of the statutory formula.   They failed on their argument that the costs of remediating their private property should not be borne by individual unit holders.  I consider that  this  argument  formed no  more than  30  per cent  of their case.    I consider, therefore, that the quantum of their costs should be reduced by this amount.

[34]     When it comes to liability for payment of those costs, I consider that the following is relevant:

(a)       The majority of their trial resources were directed at the promotion of what became the joint scheme of St Johns and the Gilbert Walker respondents;

(b)       Far less attention was spent on promoting the aspect of their scheme that  saw  the  individual  unit-holders  avoid  paying  their  private property costs of remediation; and

(c)	Little   attention   was   directed   at   opposing   the   scheme   of   the

Grove Darlow respondents.

[35]     In such circumstances, I consider that the payment of the costs award should be split 90/10, with the Grove Darlow respondents paying 10 per cent of the award and St Johns and the Gilbert Walker respondents sharing joint equal responsibility for the other 90 per cent.

[36]     Regarding the Hayden Tate respondents’ claim for witness expenses, I am satisfied that in accordance with the principles expressed in Progressive Enterprises Ltd v North Shore City Council (2005) 17 PRNZ 919 (HC) at [22]–[26], they are entitled to claim their witnesses’ expenses as a disbursement.

[37]     I accept their argument that the attention of their expert witnesses addressed the expert evidence from St Johns and the Gilbert Walker respondents.   In such circumstances, I consider that the liability for payment of the Hayden Tate witness expenses should fall jointly and equally on those parties.

Result

[38]     The costs argument by St Johns and the Gilbert Walker respondents for costs to lie where they fall is rejected and dismissed.

[39]     The costs argument for certain costs to be paid by St Johns to Grove Darlow is rejected and dismissed.

[40]	The Hayden Tate respondents are awarded costs at category 2B, discounted by 30 per cent.  Liability to pay those costs is to be split between the other parties:
10 per cent to be paid by the Grove Darlow respondents; and 90 per cent to be shared equally by St Johns and the Gilbert Walker respondents.

[41]	Leave is reserved to the parties to come back to the Court, should there be any difficulty at arriving at the appropriate arithmetical calculations of these awards.

Duffy J

Counsel:      D R Bigio P O Box 4338 Shortland Street Auckland 1140 for the Hayden Tate (Second  to Twenty-Fourth, Twenty-Sixth  to Thirtieth  and Thirty-Second  to Thirty-Fourth) Respondents
I F Williams P O Box 4338 (DX CX10258) Shortland Street Auckland 1140 for the Seventy-First Respondent

Solicitors:	Hesketh  Henry  Private  Bag  92093  (DX  CP24017)  Victoria  Street  West
Auckland 1142 for the Applicant
Price   Baker   Berridge   P   O   Box   21463   (DX   DP92509)   Henderson
Waitakere 0650 for the First Respondent
Grove Darlow and Partners P O Box 2882 (DX CP24049) Shortland Street Auckland 1140 for the Grove Darlow (Thirty-Fifty to Fifty-Seventh, Sixty- Third, Sixty-Ninth and Seventy-Third) Respondents
Gilbert Walker P O Box 1595 (DX CP20524) Shortland Street Auckland 1140 for the Gilbert Walker (Seventy-Seventh to Eighty-Sixth) Respondents