ANGLESEA MEDICAL PROPERTIES LTD V BRAEMAR HOSPITAL LTD HC HAM CIV 2006-419-1492

ANGLESEA MEDICAL PROPERTIES LTD V BRAEMAR HOSPITAL LTD HC HAM CIV 2006-419-1492 9 May 2008IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY CIV 2006-419-1492BETWEEN ANGLESEA MEDICAL PROPERTIES LIMITED Plaintiff AND BRAEMAR HOSPITAL LIMITED Defendant Hearing: On the papers Judgment: 9 May 2008JUDGMENT (No.2) OF ALLAN JSolicitors/counsel : Harkness Henry, PO Box 3077, Hamilton K P McDonald, PO Box 33106, Takapuna N S Gedye gedye@xtra.co.nz[1] These are cross applications for costs, consequent on the resolution of all outstanding issues in this proceeding. They are not the first such applications. In a judgment delivered on 9 October 2007, I awarded the plaintiff solicitor/client costs in respect of the plaintiff's application for an interim injunction, ultimately settled by a consent memorandum. The background to the proceeding was extensively canvassed in that judgment. It is unnecessary to do so again. [2] The present applications concern a related but different aspect of the proceeding. The settlement memorandum (reproduced at [28] of my earlier judgment) contemplated the making of separate written submissions by the parties to the Hamilton City Council in respect of an alleged change of use of the Knox Street Clinic building. Anglesea claimed that Braemar's move to overnight patient stays required alterations to the defendant's premises to ensure that the provisions of the Building Act 2004 were complied with. In the meantime, Anglesea considered both the defendant and the plaintiff (including its directors) were exposed to the possibility of prosecution for Building Act breaches. [3] The Hamilton City Council advised the parties on 3 January 2007 that the building was non-compliant, not only by reason of the contemplated move to overnight patient stays, but indeed from the commencement of the lease. So work was required in respect of the demised premises, in order to render them compliant. [4] Over a period of many months, the respective solicitors engaged in a somewhat acrimonious correspondence with respect to progress (or alleged lack of it) towards rendering the defendant's premises compliant with the requirements of the Building Act. Eventually the plaintiff lost patience with the defendant. It considered the delay had become too great, and that there was a risk of regulatory action by the Council. Accordingly it gave the defendant notice of breach pursuant to s 118 of the Property Law Act 1952, but invited the defendant to apply for relief against forfeiture, indicating that it would not oppose the grant of relief, at least on an interim basis.[5] The defendant applied to this Court for relief against forfeiture. The Court made interim orders by consent. The plaintiff's stated purpose in issuing the notice and then consenting to an interim order, was to minimise the risk of prosecution or other enforcement action by the Council against the plaintiff and/or its directors. [6] The defendant also applied for mandatory injunctions against the plaintiff, in respect of the plaintiff's refusal to consent to an evacuation scheme prepared by the defendant as part of the Council's compliance requirements. [7] Eventually the Council approved the steps taken by the defendant. The plaintiff's notice was withdrawn and it became unnecessary for the defendant to pursue its applications for relief against forfeiture and for mandatory injunctive relief. The present costs applications have followed. [8] The plaintiff relies upon clause 19.2(b) of the lease. Clause 19 provides:The parties shall bear their own costs in relation to the preparation, negotiation and completion of this Lease. In addition to the rent and any other money payable by the Lessee under this Lease, the Lessee shall pay: (a) the Lessor's reasonable legal costs of and incidental to the preparation, negotiation and completion of any extension, renewal, assignment or variation of this Lease (including all stamp duty payable if any) and the Lessor's costs in obtaining any consent or approval associated with the granting of any extension, renewal, assignment or variation of this Lease; and (b) the Lessor's costs, expenses and disbursements (including legal costs) incurred in remedying, or attempting to remedy, any breach by the Lessee of any obligation imposed on the Lessee under this Lease, or incurred in the exercise, or attempted exercise, or enforcement, or attempted enforcement, of any power, right or remedy conferred upon the Lessor by this Lease, or which the Lessor may otherwise incur in suing for Rent or other money payable by the Lessee under this Lease.[9] The defendant opposes any costs award to the plaintiff, and indeed itself seeks an award in respect of its own costs. It claims that the plaintiff's conduct in issuing a breach notice and then effectively requiring the defendant to make an application for relief against forfeiture, was unnecessary and an inappropriate response to the situation as it developed through 2007. In essence, the defendant's position is that the Council's requirements were substantial; that the plaintiff wasaware that compliance would be time consuming; that the defendant worked diligently to regularise the position and that the plaintiff simply over-reacted when it took the formal step of issuing a breach notice. [10] On the other hand, the plaintiff argues that it acted reasonably throughout, that for much of the time the defendant adopted a somewhat intransigent and uncommunicative approach, and that the plaintiff's concerns about possible regulatory action were reasonably held. It says that it acted in good faith throughout and was entitled to act as it did. [11] Both counsel have filed very detailed submissions in which they review the correspondence between the parties. Counsel for the plaintiff says that the correspondence demonstrates defaults and delay on the part of the defendant. The defendant says that the plaintiff acted unreasonably and had no basis for believing that the delays might result in action against the plaintiff, given the Council's awareness of the progress of compliance work. [12] I have no intention of reviewing the correspondence in detail. In my view, the plaintiff was entitled to form the view that it was appropriate to issue a breach notice. That is not to say that every lessor in the plaintiff's position would have taken that step, but I am satisfied that the plaintiff was acting in good faith, and that the opinion to which it came was reasonably held. [13] Clause 19.2(b) of the lease provides that the plaintiff is entitled to look to the lessee for payment of its legal costs and disbursements " in remedying or attempting to remedy, any breach by the Lessee of any obligation imposed on the Lessee under this Lease " In my view that provision provides a sufficient foundation for the plaintiff's present claim for costs. But, as noted at [62] of my earlier judgment, the costs concerned must of course be objectively reasonable:Frater Williams & Co Ltd v AGC (NZ) Ltd (1994) 2 NZConv-C 191,873 at 191,887. [14] Mr Gedye submits that the costs claimed by the plaintiff ($21,703.06) are objectively unreasonable because:a. AMPL did not need to incur any of the costs of harrying BHL throughout 2007 in relation to the change of use which was obviously under way, or of serving PLA notices or of pursuing the surprise visit on 20 July 2007. b. AMPL did not reasonably incur the costs of fire consultants. c. AMPL did not reasonably incur the cost of producing substantial evidence about the merits of the evacuation scheme. With HCC and Fire Service approval, AMPL had no legitimate interest in that scheme. d. The costs claimed by AMPL cover attendances well after AMPL's 18 September 2007 letter acknowledging that HCC had granted consent and that relief against forfeiture would be granted. It is wrong, under the guise of costs on this application, to lump in ongoing legal costs between September 2007 and February 2008 as these costs did not arise out of either application, both of which were sitting dormant during those months. e. The lack of any narration in the bills of costs annexed to the affidavit of Lomas prevents any assessment of what time was spent on what matters and whether it was reasonable. f. At the point where BHL was forced to bring an application for relief against forfeiture, the proper and reasonable response from AMPL (even on its own case) would have been to file a consent memorandum, perhaps on various terms and conditions, rather than to incur the costs of preparing lengthy and expensive affidavits in opposition. It seems likely that the bulk of the cost claimed by AMPL went into those affidavits and its notice of opposition. AMPL knew all along that it would not be asking the Court to determine the issue and that its affidavits were unnecessary.[15] Paragraphs a. and f. are covered by my finding that the actions of the plaintiff were objectively reasonable. Paragraphs b. and c. relate to the plaintiff's decision to instruct a consultant about aspects of a fire evacuation scheme, referred by the defendant to the plaintiff for approval. It seems that the plaintiff's consent as lessor may not have been necessary, but the plaintiff, having been asked to consent, was in my view entitled to take separate advice as to the adequacy of the proposed scheme. Its costs, and those of its consultant were therefore reasonably incurred. [16] Paragraph d. relates to costs after the Council had granted consent. Mr Branch advises the Court that the costs concerned cover two Chambers List callovers and the preparation of submissions in respect of the present costs application. In my view, those attendances are properly the subject of the present application for costs.[17] Paragraph e. complains of the lack of any narration in the bills of costs rendered by the plaintiff's solicitors. There is substance in this complaint. The bills of costs rendered by the plaintiff's solicitors contain no narration or detail whatever. The defendant is entitled to be satisfied that the bills of costs are objectively reasonable. [18] Mr Branch argues that the defendant, as the party chargeable, has the right to seek a revision of the relevant bills of costs, pursuant to the Law Practitioners Act. That would not, in my view, be appropriate. The party chargeable is entitled to have proper detail of the work done before any question of revision arises. [19] The plaintiff is prima facie entitled to an order for costs. However, the quantum of any such order must be subject to the defendant's rights to consider the reasonableness of those fees. To that end: a) The plaintiff's solicitors are to provide to Mr Gedye within 14 days, a detailed narration of the work done in respect of each of the bills of costs presently before the Court, together, if Mr Gedye requires it, with any relevant time records. b) If the defendant takes objection to any one or more of the bills of costs on the basis that quantum is unreasonable, Mr Gedye is to file and serve a memorandum to that effect within a further 14 days. c) If any such memorandum is filed, then any memorandum in opposition is to be filed and served within a further seven days, following which I will issue a final ruling. d) If there is no memorandum from Mr Gedye within the stipulated time, then Mr Branch is to file a brief memorandum advising the Court that no such memorandum has been filed, at which point I will issue a brief final judgment. [20] This present judgment is accordingly an interim judgment only.[21] The defendant seeks an order against the plaintiff for its own costs. In the light of my finding that the plaintiff is entitled to costs, that application must be declined. Quite apart from the plaintiff's entitlement to costs pursuant to clause 19 of the lease, it would be highly unusual for a lessee in the defendant's position to receive an award of costs. That is because costs on an application for relief against forfeiture are routinely awarded in favour of a lessee, even where relief is granted, because such relief is by way of an indulgence. Further, there is substance in my view in Mr Branch's submission that the application for a mandatory injunction would not have succeeded, both on the factual merits and as a matter of law.C J Allan J