BODY CORPORATE 166208 v YORK TRUSTEES LIMITED [2021] NZHC 1974

BODY CORPORATE 166208 v YORK TRUSTEES LIMITED [2021] NZHC 1974 [2 August 2021]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV 2018-404-2623[2021] NZHC 1974BETWEEN BODY CORPORATE 166208First PlaintiffROGER MURRAY BELL and WEBBROSS JOHNSON TRUSTEES LIMITEDSecond PlaintiffsMASAMI TODAThird PlaintiffDAVID JOHN COLLIS and JILLIAN KAYGAPESFourth PlaintiffsPAMELA TAYLORFifth PlaintiffAND YORK TRUSTEES LIMITEDFirst DefendantLYON TRUSTEE NO 10 LIMITEDSecond DefendantHearing: On the papersCounsel: D J Barr for the PlaintiffsJ Heatlie and J P Wood for the DefendantsJudgment: 2 August 2021COSTS JUDGMENT OF DUFFY JThis judgment was delivered by me on 2 August 2021 at 4.00 pm pursuant toRule 11.5 of the High Court Rules.Registrar/ Deputy Registrar[1] The defendants (York Trustees) are owners of a unit in a residential Unit Titlesdevelopment which leaks (the development). The first plaintiff is the development'sBody Corporate. York Trustees disputed the Body Corporate's proposed approach toundertaking remediation work on the development. This led the Body Corporate tocommence proceedings against York Trustees. It was subsequently joined by the otherplaintiffs in the second amended statement of claim dated 14 February 2020 (thestatement of claim). On 21 September 2020 I struck out the Body Corporate'sproceedings (the strike out judgment).1 Following their success in this Court, YorkTrustees now seek orders for costs and disbursements against the Body Corporate andthe other plaintiffs. For convenience I shall refer to this group collectively as the BodyCorporate.2[2] The parties' attempts at reaching an agreed outcome on costs anddisbursements have failed. The issues of contention are:(a) Whether the Body Corporate should pay indemnity costs from the pointin time when York Trustees made an offer to resolve the dispute;(b) Whether the Body Corporate should pay increased costs from the startof this proceeding on the ground there was never a tenable basis for therelief sought and the claim was hopeless;(c) How York Trustees should be put in a neutral position for payments ithas made as a Body Corporate member to contribute to the BodyCorporate bringing this proceeding against York Trustees; and(d) Whether York Trustees are entitled to an award of disbursements inregard to expert opinion evidence they obtained to assist them in thedispute with the Body Corporate;1 Body Corporate 166208 v York Trustees Ltd [2020] NZHC 2463.2 All plaintiffs are represented by the same lawyer who makes submissions on costs on their behalf.[3] As is usual where indemnity or increased costs are sought, York Trustees haveprovided the Court with a schedule of the scale costs they would be entitled to($35,252.50) and the filing fee disbursement for the statement of defence ($110).[4] The Body Corporate contends:(a) The quantum of scale costs as sought by York Trustees is incorrect, itshould be $29,784.50;(b) There is no justification for an award of increased or indemnity costs;(c) Costs should be reduced by such proportion as the Court determinesappropriate (to reflect York Trustees' pursuit of an argument that lackedmerit) and failure to (without reasonable justification) admit facts; and(d) Regarding disbursements, Body Corporate contends York Trusteesshould not be entitled to expert fees because the sole expert for whomthe fees are claimed confirmed the Body Corporate's case. Secondly,the Body Corporate should be entitled to the costs of its expert buildingsurveyor and expert cadastral surveyor.[5] I propose to deal with the costs issues first and the disbursement issues second.Costs awardAscertaining scale costs[6] The starting point is the general principle that costs follow the event. Here,York Trustees were successful, and I see no reason to depart from the generalapproach. Accordingly, I am satisfied that they are entitled to an award of costs.[7] Before the Court will contemplate awards of indemnity or increased costs itneeds to ascertain the scale costs. This is because the discretion to award increased orindemnity costs takes into account the extent to which scale costs can be said in thecircumstances to fall short of the sum the applicant is entitled to receive. Here, theparties dispute the quantification of the scale costs.[8] The parties appear to agree on the appropriate categorisation of the scale costs.Each has approached the scale costs exercise using category 2B. This is not surprisingas proceedings in this Court are typically category 2 and costs awards are usually basedon a category 2B allocation. I shall proceed on this basis.[9] I accept the Body Corporate's argument that steps taken prior to 1 August 2019for category 2B are subject to the daily recovery rate of $2,230 rather than the presentrate, which is what York Trustees have used.3 Accordingly, for those steps the costssought by York Trustees need to be adjusted to take the correct appropriate dailyrecovery rate into account. For the purpose of this exercise I have used the scheduleprepared by the Body Corporate because it provides more accurate information andmore closely resembles the layout of Schedule 3 of the High Court Rules. It followsthat steps 2, 10, 11 (first step 11), and 21 (as shown in the Body Corporate's schedule)4will be reduced to the total figure of $9,589.[10] There appears to be no dispute with the subsequent steps from March 2020onwards, save for the last step (discussed below). For those steps (11 (second step11), 20, 22, 24, 25 and 26 as shown on the Body Corporate's schedule) the allocationcomes to $19,000.50.[11] There is a dispute between the parties regarding the last step, 30. York Trusteeshave claimed 2.5 days for the preparation of briefs. The Body Corporate submits thatthis is overly generous and that 0.5 days is appropriate because the defendants onlyserved a single short brief (being 16 pages long). No one says anything else about thisbrief. I do not have a copy and it is not clear to me if the parties are referringinaccurately to the affidavit evidence prepared for the interlocutory hearing before meor to a brief of evidence prepared in anticipation of the trial proceeding. If it is thelatter this would be a wasted cost that resulted from York Trustees preparing theirevidence for a trial that never eventuated.3 High Court Rules 2016 [as at 1 January 2018 to 31 July 2019], sch 2.4 The same steps are also listed in York Trustees' schedule but with less information which makesit more difficult to use them to make the adjustment.[12] The application before me, which brought the proceeding to an end, was anapplication for summary judgment or strike out of the plaintiffs' claim and vacation ofthe trial. In support of this application, York Trustees filed two affidavits, one fromBarry James Gill and one from Trent Carey. Those documents were before me at thehearing. The decision to strike out the statement of claim meant there was no need todeal with the summary judgment application.5 The application was brought on twobases and could have succeeded on either basis; therefore I consider York Trustees areentitled to claim costs for the two affidavits they prepared.[13] Under the High Court Rules 2016, costs for the preparation of affidavits areassessed based on an allocation formula that allows two days' preparation time for thefirst day of hearing.6 I do not need to consider the allocation formula beyond thisbecause here the proceeding was heard in one day. I reject the general thrust of theBody Corporate's argument that the time allocated for the purpose of costs can beinfluenced by the length of the evidence prepared. The standard approach on scalecosts is to give two days for the preparation of evidence for a one day interlocutoryhearing. I see no basis here to depart from the standard approach. Accordingly, Iconsider York Trustees are entitled to costs for the preparation of the affidavitevidence, which is assessed at two days based on a daily recovery rate of $2,390. Thatbrings the costs allocation for the evidence preparation to $4,780. Taken together, thethree subtotals I have arrived at come to a grand total of $33,369.50. This figure fallssomewhere between that identified by the parties.[14] At the time of the hearing before me the trial date was imminent. York Trusteesmay, in terms of the Court timetable, have been required to prepare and exchange theirevidence for trial. If they did, the effort would have been wasted once the statementof claim was struck out. However, they have not provided any explanation for thecosts claim for the briefs of evidence item included in their schedule. In thosecircumstances, I am not prepared to make assumptions about the briefs of evidence.To my knowledge they did not form part of the hearing before me. Accordingly, noallowance will be made for those items. On the other hand, I have included in thecosts award an allowance for the two affidavits that were provided in support of the5 Evidence can also be filed to support a strike out application; see n 36 herein.6 Schedule 3, step 30.application before me. This will make up for the exclusion of an allocation for thebriefs of evidence.7Indemnity costs[15] York Trustees say that they engaged their present solicitors, Rainey Law,shortly after the plaintiffs filed their second amended statement of claim dated 14February 2020. On 28 February 2020, their solicitors wrote to the Body Corporate'ssolicitors setting out concerns about the approach taken in that statement of claim (theletter). The letter is attached to the costs submission. York Trustees submit that theletter identified a clear jurisdictional issue with the Body Corporate pursuing adeclaratory judgment on the allocation of repair costs. This contention aligns with mydecision in the strike out judgment. Further, York Trustees argue that it was implicitfrom the letter that they would provide access to the Body Corporate to undertakerepairs as necessary. As an alternative to the declaratory judgment, the letter suggestedthat this proceeding should be withdrawn with no issue as to costs, and York Trusteeswould take on the burden of making an application under s 74 of the Unit Titles Act2007 for the Court to approve a remediation scheme. The letter also advised the BodyCorporate that if it did not agree to the suggested course of action York Trustees wouldapply to strike out the Body Corporate's proceeding.[16] York Trustees contend that Body Corporate is now in a worse position than itwould have been had it accepted that offer. The Body Corporate will now have to payYork Trustees' costs when it could have taken a "drop costs offer". The BodyCorporate has spent further sums in litigation which it will not recoup in whole or inpart. The Body Corporate could have taken advantage of York Trustees shoulderingthe burden of making an application to this Court for a scheme under s 74.[17] The offer in the letter was made on an entirely open basis. York Trusteescontend that in every other respect the letter conformed with the requirements of aCalderbank offer and should be considered effective as if it was one. In the alternative,York Trustees submits that r 14.6(4)(f) would allow the Court to award indemnity costs7 Costs are discretionary. While the discretion is to be exercised in accordance with r 14 of the HighCourt Rules 2016 and the principles relevant to that rule, the exercise is not an exact science.in this case. They contend that making written offers during proceedings which setout one party's theory of the case allows both parties to readily understand thestrengths and weaknesses of their position. In particular, such offers are an importanttool for defendants who have no other means by which to limit the cost effect ofproceedings against them that are doomed to fail. It should not matter whether theoffer was made without prejudice save as to costs, or on an open basis. The Courtshould use an indemnity award as a caution to discourage plaintiffs from continuingwith litigation in defiance of reason and when faced with a responsible alternative. Inthe present case, York Trustees' solicitor and client costs from 28 February 2020onwards come to a total of $72,410.10: being $5,031.25 owed to Davies Law and$69,697.47 owed to Rainey Law. Details of both costs are provided.[18] In response, the Body Corporate refers to the general approach to costs as setout by the Court of Appeal in Bradbury v Westpac Banking Corp,8 which discusses thebroad approaches to standard scale costs, increased costs and indemnity costs. In thisregard, standard scale applies by default where no cause is shown to depart from it.Increased costs may be ordered where there is a failure by the paying party to actreasonably; whilst indemnity costs may be ordered where the party has behaved either"badly or very unreasonably".9 Unreasonableness relates to the conduct of the partyagainst whom costs are sought. In this case, the Body Corporate's conduct must bedetermined with regard to the precedents and commentary available to it whencommencing and continuing the proceeding and the matters raised by York Trustees.[19] The Body Corporate submits nothing in the present case shows it to havebehaved unreasonably. The Body Corporate argues that its approach of seekingdeclarations following determination of disputed issues of fact in an ordinaryproceeding is supported by relevant appellate authorities from the Court of Appeal andcommentary (Sims Court Practice).[20] Two settlement offers were presented by York Trustees; the first on28 February 2020 in the letter. The Body Corporate contends this offer was reasonablyrejected because it would have replaced a cause of action that had been approved by a8 Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400.9 At [27].majority of the Body Corporate at an extraordinary general meeting with anapplication brought by York Trustees for a s 74 scheme. There would have been noexercise of democratic rights in approving the scheme. The Body Corporate alsoargues that it is not for an individual owner to propose a scheme if the Body Corporatehas not had an opportunity to consider it by way of a general meeting.[21] A second offer was made on 14 May 2020, which the Body Corporate presentsas acceptable subject to appropriate consent orders being agreed. However, the termscould not be agreed.[22] The Body Corporate further submits that the letter does not support YorkTrustees' claim for indemnity costs based on the refusal to accept a Calderbank offer.In combination rr14.10 and 14.11 entitle a defendant to indemnity costs followingrefusal of a Calderbank offer. The Body Corporate argues that their effect is that anunsuccessful defendant may still be entitled to costs from the date of a Calderbankoffer if the plaintiff's success is less than what would have been achieved by theacceptance of the Calderbank offer. The Court of Appeal has held that a successfuldefendant's pretrial offer to discontinue with no issue as to costs does not entitle it toindemnity or increased costs.10 Accordingly, nothing in the High Court Rules or anyauthority on costs supports York Trustees' argument that it is entitled to indemnitycosts as a consequence of the Body Corporate rejecting the proposed solution in itsletter.Increased costs[23] For the steps taken before 29 February 2020, York Trustees seek increasedcosts on the basis they have spent a considerable amount of money in defending aproceeding that was, due to a jurisdictional barrier, doomed to fail. The strike outjudgment described the claim as hopeless. For this reason, York Trustees contend thatthe Court should impose an increase of 75 per cent on the time for steps that occurredbefore 28 February 2020 (6.4 days). These come to $15,296. The proposed upliftbrings the total to $26,768.10 Hira Bhana & Co Ltd v PGG Wrightson Ltd [2007] NZCA 342.[24] The Body Corporate acknowledges that the letter may be relevant fordetermining whether the Body Corporate was pursuing a claim that clearly lackedmerit. The Body Corporate relies on N-Tech Ltd v Abooth Ltd where the Courtconfirmed that the assessment of an award of increased costs due to lack of merit is atwo-step process.11 The party seeking costs must show that: (a) the claim was soflawed that nothing in the evidence or submissions to follow could save it; and (b) theplaintiff has acted unreasonably in bringing or continuing the claim. The BodyCorporate submits the fact the claim was struck out is not in and of itself enough tojustify increased costs. To have acted unreasonably (the second limb of the test) theBody Corporate must have brought the proceeding in circumstances where it wouldbe unreasonable to expect it to succeed. In the present circumstances, the BodyCorporate submits that bringing an ordinary proceeding seeking declaratory relief onthe basis that the Court can resolve disputes of fact upon hearing the evidence issupported by authorities of the Court of Appeal and commentary in Sim's CourtPractice. Here, the Body Corporate draws a distinction between ss 2 and 3 of theDeclaratory Judgments Act 1908. It also provides extensive argument on the meritsof a proceeding under the Declaratory Judgments Act to resolve the dispute betweenit and York Trustees.Discussion[25] Before a party can claim increased or indemnity costs based on theunreasonable behaviour of the opposing party there must be an evidential basis tosupport the presence of such behaviour12.[26] Here York Trustees relies on the Body Corporate's failure to accept the firstoffer in the 28 February 2020 letter and the subsequent striking out of the statement ofclaim. They have said nothing about the response to the first offer (if there was one)nor have they mentioned the second offer made on 14 May 2020 or its refusal.[27] The Body Corporate's arguments against awarding above scale costs do notrefer to any explanation by way of response that it may have given to York Trustees'11 N-Tech Ltd v Abooth Ltd [2012] NZHC 1167 at [108].12 Holdfast NZ Ltd v Selleys Pty Ltd [2005] 17 PRNZ 897 (CA) at [25] to [30].first offer. The Body Corporate's submission for not accepting the second offer(consent orders could not be agreed) does not in my view fully reflect its responseletter dated 15 May 2020, a copy of which was given to me.13 That letter records thatthe Body Corporate could not obtain instructions to give a response in the requisitetime frame. No extension of time was sought. The Body Corporate also wanted anyagreement to be recorded in consent orders. However, given it could not obtaininstructions it was in no position to agree to consent orders.[28] Because neither party has relied on the second offer and the fact it came tonothing I have put that offer to the side. As to the first offer, all that I know about thefailure to accept it comes from: (a) inferences drawn from the terms of the offer; (b)the fact it was not accepted; and (c) what transpired later, as is expressed in the strikeout judgment. York Trustees are the party seeking more than scale costs. It was forthem to provide an evidential basis for the level of unreasonableness they mustestablish before either indemnity or increased costs will be awarded.[29] How the Body Corporate responded to the first offer could have provided someinsight on this matter. As it is I have no such evidence. Instead, York Trusteesproceeds on the unarticulated premise that because the claim was struck out — as"hopeless" due to having "no tenable basis" for seeking declaratory relief 14 — YorkTrustees necessarily qualify for an award of indemnity or increased costs. Incombination with the advocated effect of the first offer, the case for indemnity orincreased costs is presented as almost a foregone conclusion.[30] On the other hand, the Body Corporate has responded by making furtherarguments on the substantive issues that were raised in its claim, to show why theclaim was not unreasonable or untenable, and why the failure to accept the first offercannot support an award of indemnity or increased costs.[31] The core issue, which neither party has directly addressed, is whether a claimthat is unreasonable and untenable for the purpose of the test for strike out can13 See [21] herein.14 Body Corporate 166208 v York Trustees Ltd [2020] NZHC 2463 at [35].therefore be regarded as unreasonable in the context of the tests for awards of eitherindemnity or increased costs.[32] No-one directed me to an authority that recognised and determined how toresolve this question. However, experience tells me that awards of indemnity orincreased costs do not always follow the striking out of a statement of claim. A reviewof relevant High Court Rules is helpful here. Rule 15.1(1)(a) provides that a statementof claim will be struck out if a Court finds it discloses no reasonably arguable causeof action. The established principles for strike out on this ground hold that "it isinappropriate to strike out a claim summarily unless the court can be certain that itcannot succeed".15 This is generally understood to mean the claim must be untenable.The strike out jurisdiction is to be exercised sparingly and only in clear cases. If aclaim is potentially capable of remedy rather than strike out, the usual approach is togive the plaintiff an opportunity to replead it. Accordingly, a claim that is struck outunder r 15.1(1)(a) will be one that has been found to be untenable, incapable of repairand therefore hopeless. At first blush such descriptions seem to meet the requirementsfor either increased or indemnity costs.[33] Under r 14.6(3)(b)(ii), taking or pursuing an unnecessary step that lacks meritcan attract increased costs. Under r 14.6.3(b)(v), a party who fails without reasonablejustification to accept an offer of settlement (whether in the form of an offer underr 14.10 or some other offer to settle or dispose of the proceeding) can attract an awardof increased costs. Under r 14.6(4)(a), a party who acts vexatiously, frivolously,improperly, or unnecessarily in commencing or continuing a proceeding can attractindemnity costs. These actions were categorised in Bradbury as: (a) failure to actreasonably (relevant to increased costs); or (b) behaving badly or very unreasonably(relevant to indemnity costs).16[34] York Trustees also sought to rely on r 14.6(4)(f), which permits indemnitycosts for some other reason. I do not accept this argument. I consider r 14.6(4)(f) iscoloured by the more specific preceding parts of r 14.6(4), none of which areapplicable here. Further, the cases where r 14.6(4)(f) has been applied involve worse15 Couch v Attorney-General [2008] NZSC 45, [2008] 3 NZLR 725 at [33].16 Bradbury, above n 8, at [27].conduct than is present here. McGechan on Procedure refers to authorities where theplaintiff brought a fraudulent insurance claim in one case, and, in another example,company directors breached their duties to the insolvent company and were guilty ofreckless trading.17 Also relevant is the Court of Appeal's reasoning in Hira Bhana &Co Ltd v PGG Wrightson Ltd, discussed at [41] to [45] herein. Accordingly, therelevant rules for consideration are r 14.6.4(a) and rr 14.6.3(b)(ii) and (v).[35] In Bradbury, the Court of Appeal noted that the former rules used the word"unnecessarily" in r 48C(4)(a) (indemnity costs)18 and the word "unnecessary" inr 48C(3)(b)(ii) (increased costs).19 The Court acknowledged these terms are simplydifferent grammatical forms of the same word, nevertheless, the Court found that thewords' respective applications were affected by different contexts. "Unnecessary" inr 48C(3)(b)(ii) was understood to refer to "simple unreasonableness" whereas"unnecessarily" in r 48C(4)(a) was said to "take its meaning and flavour from theadverbs which precede it: vexatiously, frivolously, improperly".20 The Court therebyheld that indemnity costs may be ordered when a party has behaved either "badly orvery unreasonably", whereas increased costs only are available for a "simpleunreasonableness".21[36] I do not consider that the type of "unreasonableness" that results in a claimbeing struck out can automatically be equated with either type of "unreasonableness"identified in Bradbury in terms of conduct attracting indemnity or increased costs.Rather, Bradbury indicates that "unreasonableness" varies in degree and according tocontext.[37] The pursuit of an untenable, hopeless claim similarly varies in degrees ofunreasonableness. At its worst, the plaintiff intentionally pursues a claim that it knowsto be untenable and hopeless. In descending order this is followed by wilful, thenreckless, pursuit of such a claim. Next is careless pursuit with the least unreasonable17 RA McGechan McGechan on Procedure (loose-leaf ed, Thomson Brookers) at [HR 14.6.03] citingDevcich v AMI Insurance Ltd HC Auckland CIV-2009-404-5567, 8 November 2011; MalcoHoldings Ltd (in liq) v Crimp HC Invercargill CP23/99, 28 November 2000.18 Now r 14.6(4)(a).19 Now r 14.6(3)(b)(ii).20 Bradbury, above n 8, at [26], citing Saunders v Winton Stock Feed Ltd [2009] NZCA 148, at [30].21 At [26] and [27].being where the pursuit of an untenable, hopeless claim is well-intentioned butmisguided or mistaken.Indemnity costs[38] I start with indemnity costs. The level of conduct justifying indemnity costs —"badly or very unreasonably" — requires evidence that the plaintiff knew its claimwas untenable and hopeless but pursued it nonetheless. Typically fraud, malice or badfaith would underlie such conduct. Wilfully or even recklessly pursuing an untenable,hopeless claim might also qualify. Careless or misguided pursuit of a claim would notqualify in my view.[39] Here there is no evidence to suggest the Body Corporate knowingly, wilfully,or recklessly decided to proceed with an untenable, hopeless claim.[40] Does the receipt of the offer made in the letter make any difference to how thepursuit of the claim after that time is viewed? Failure to accept a settlement offerwithout reasonable justification is expressly provided as grounds for an order forincreased costs,22 but not mentioned in relation to indemnity costs.23 This suggests tome that such failure will usually warrant no more than increased costs. Someadditional factor will be required to elevate such conduct to the level of being "verybad or very unreasonable" before it will qualify for an award of indemnity costs.[41] Does the combination of pursuit of an untenable hopeless claim in the face ofthe offer in the letter provide the additional factor that makes this conduct so very bador very unreasonable that it warrants indemnity costs? I was not directed to anyevidence that would suggest the Body Corporate, once in receipt of the offer, realisedthe hopelessness of its claim and knowingly, wilfully or recklessly decided to proceednonetheless. Important here would have been the Body Corporate's response to theoffer as this may have suggested why the first offer was refused. If the offer was metwith silence from the Body Corporate that may also have supported an inference of"very unreasonable conduct". The first offer warranted a response and with it some22 Rule 14.6.(3)(b)(v).23 Rule 14.6.(4).explanation for why it was rejected. Given the lack of evidence about any response Icannot rule out the possibility that misguided members of the Body Corporategenuinely continued to believe in the merits of their claim and prevented acceptanceof the settlement offer. Whilst such conduct may meet the Bradbury test of "simpleunreasonableness" for an award of increased costs it does not meet the test of behaving"badly or very unreasonably" that is required for an award of indemnity costs.Accordingly, I am not persuaded the Body Corporate's conduct falls within r 14.6.4(a).In reaching this view I have given no weight to the arguments the Body Corporatemakes about the reasonableness of its claim. Those arguments go beyond addressingwhether the conduct in pursuing the claim is unreasonable for the purposes of an awardof indemnity or increased costs. The arguments appear to be an attempt to relitigatethe substantive issues which have already been decided. This approach is notpermissible. Nor is it appropriate for me to revisit the reasons for the strike out here.The strike out judgment must speak for itself.[42] I do not consider that rr 14.10 and 11 assist York Trustees. Curiously r 14.10is expressed as limited to offers to "settle without prejudice save as to costs". On aliteral reading, this leaves no room for open offers. Relevant commentary contrasts a"without prejudice save as to costs" offer with "without prejudice" offers to settle,which are fully protected by privilege and therefore can never be disclosed to aCourt.24 The same reasons behind making a without prejudice "save as to costs" offerunderlie an open offer to settle. However, an open offer is bolder because it hasabsolutely no cloak of privilege. The receiving party is free to use the offer as evidenceat trial to suggest the offeror recognises it bears some liability. Accordingly, whenawarding costs I see no basis for treating an open offer to settle as something less thanan offer made on a "without prejudice save as to costs" basis.[43] Rule 14.11(1) provides that the effect of making of an offer under r 14.10 onan award of costs is at the discretion of the Court. Whether an open offer to settleshould be viewed under r 14.10 or as a stand-alone relevant consideration for an awardof costs (which is an alternate way of viewing it), is of little consequence when itcomes to deciding whether or not to award indemnity costs. The focus of that decision24 McGechan on Procedure, above n 17, at [HR 14.10.02(3)] citing Blakesfield v Foote [2016]NZHC 1354, [2016] NZAR 1112 at [20].is whether the refusal is capable of being regarded as conduct that falls withinr 14.6(4).25 As noted, I consider the conduct here is outside that rule. There is nothingin rr 14.10 or 14.11 that changes that conclusion.Increased costs[44] I now turn to consider increased costs. Relevant here are r 14.6(3)(ii) and (v).Until the Body Corporate received the letter there appears to have been nothing to alertit to the possibility its claim was untenable and hopeless. Matters changed when theletter was received. The letter was an open letter that laid out full reasons for whyYork Trustees regarded the Body Corporate's claim as untenable. It contained offers:(a) to agree to the claim being discontinued without costs to York Trustees; and (b) tocommence a s 74 application.[45] An offer to settle for the purpose of r 14.6(3)(b)(v) need not be in the form ofan offer under r 14.10. The Body Corporate relies on Hira Bhana Ltd v PGGWrightson Ltd where the Court of Appeal found that a "walk away" no costs offercould not entitle the successful defendant to an award of either increased or indemnitycosts. I consider the finding in that decision is distinguishable from the present case.[46] First, the Court of Appeal in Hira Bhana was dealing with a proceeding thathad gone to trial. The Court accepted the unsuccessful plaintiff's submission that itwas obliged to put allegations to the defendant's witnesses in cross-examination toprovide a basis for the inferences that it wanted the trial Judge to draw. As mattersturned out, the trial Judge refused to draw such inferences. However, that did notmake it unreasonable for the plaintiff to have proceeded to trial:26In circumstances where credibility of witnesses is a crucial factor in a case, itis not unreasonable to proceed to trial unless that challenge to the credibilityis, of itself, vexatious or frivolous.25 Hira Bhana, above n 10, at [27] and [29].26 At [24].[47] Second, the "walk away" offer was made early in the proceedings, over a yearbefore the trial.27 Albeit in the context of discussing indemnity awards, the Court ofAppeal found that:28 where the nature of the offer made is simply a "walk away" proposition,made early in the proceedings, it cannot be the case that the mere fact that theparty which rejected the offer subsequently loses means that party is requiredto pay indemnity costs or increased costs. If that were so, it would mean thatthe costs regime set out in rr 46–48G would be effectively bypassed in almostall cases where the defendant succeeds, because defendants would routinelymake "walk away" offers of the kind made in this case, and then claimindemnity costs if they subsequently succeed at trial.The present case is distinguishable because here the offer was made on 28 February2020 in circumstances where the Body Corporate knew York Trustees was intendingto apply to strike out its claim. The defendant acted promptly and the hearing was setdown for 2 June 2020.[48] Third, unlike the claim in Hira Bhana, which required assessment at trial anddepended on credibility findings, the present claim was struck out for the reasons givenin the strike out judgment. The assessment of the outcome did not hinge on evidentialmatters that could only be determined at trial. It follows that here there was nothingthat could warrant the claim proceeding to trial.[49] Fourth, the present offer was more than a "walk away" offer. In addition tooffering to accept a discontinuance without costs, York Trustees offered to bring a s74 application under the Unit Titles Act, which is the orthodox approach where leakyUnit Title buildings require extensive remediation.[50] The Body Corporate dismisses York Trustee's offer to bring a s 74 scheme. Itargues that any such scheme would have replaced a course of action that had beenapproved by a majority of the Body Corporate at an extraordinary general meeting; itwould therefore have been contrary to democratic principles to accept an offer by an27 The proceeding went to trial in late 2005. The "walk away" offer was made in August 2004.28 The judgment discusses why neither indemnity nor increased costs could be awarded on the basisof the "walk away" offer made in that case. Accordingly, I consider the reasoning can be appliedto both types of costs.individual unit owner to advance a scheme which had not been considered andapproved by a majority in this way.[51] I consider the offer by York Trustees to commence an alternate proceedingshowed their willingness to have the dispute, which the parties clearly could notresolve for themselves, placed before the Court. It would have been open to the BodyCorporate to meet and consider the s 74 scheme promoted by York Trustees. If theBody Corporate did not approve that scheme it could have proposed an alternatescheme. It is quite possible in the context of an application for a s 74 scheme, whichis done by way of originating application, to file a notice of opposition which includesthe promotion of an alternate scheme. If the parties cannot resolve their differencesover the two proposals the court will determine which scheme will be the approvedscheme. Accordingly, I reject the Body Corporate's argument that York Trustee'sproposal to apply to the court for approval of a s 74 scheme was contrary to democraticrights enjoyed by members of Body Corporates under the Unit Titles Act.[52] Further, I consider the offer to commence a s 74 scheme highlighted the bonafides of York Trustees in rejecting the Body Corporate's approach. York Trustees werenot just engaging in an obdurate rejection of the need for remediation work, theyopposed the basis on which the Body Corporate proposed to proceed with getting theCourt's approval for this. Once a scheme by York Trustees was before the Court itwould have been a simple matter for the Body Corporate to promote its own schemein opposition. Thus the momentum of having the dispute resolved one way or theother by the Court would not have been lost.[53] It follows that York Trustees were doing more than making a simple "walkaway" offer. Further, the offer they made must be looked at in its own context. Onceseen in this way it is readily distinguishable from the type of offer the Court of Appealwas dealing with in Hira Bhana. Instead the present offer must be assessed on its ownterms, and in accordance with the principle recognised in Hira Bhana that there is norequirement to go beyond the wording of the relevant rules in assessing a claim forincreased or indemnity costs.2929 Hira Bhana, above n 10, at [27] and [29].[54] I consider the letter offered the Body Corporate a sensible alternative pathwayto resolve the remediation dispute. The Body Corporate had the benefit of legaladvice. Objectively, it is difficult to see a reasonable basis for refusing the offer. Thesuccessful strike out application saved the parties from incurring needless trial costsin circumstances where the remediation work and the costs each unit owner had tocontribute towards it would still have required resolution. It was not a problem theycould decide to walk away from. Accordingly, I am satisfied that bringing anuntenable, hopeless claim in combination with refusing a settlement offer, whichprovided an acceptable and orthodox alternative way of putting their dispute beforethe court, is the type of "simple unreasonableness" that warrants an award of increasedcosts.[55] Here there is a further reason for increased costs which is unique to theinvolvement of the Body Corporate in the proceeding. This is the fact that the lawrequired York Trustees to pay levies to the Body Corporate that covered it bringing thelitigation against York Trustees.30[56] In Body Corporate 198900 Ltd v Bhana Investments Ltd this Court addressedthe "inherent unfairness" generated by the legal requirement that body corporatemembers must contribute to levies for body corporate litigation, even when theyoppose the proceeding. In these circumstances, the Court held that it may exercise itsdiscretion to make a costs award that rectifies any resulting unfairness.31 In BodyCorporate 198900 Ltd the Court uplifted the costs award by the amount the successfuldefendants had been required to contribute to the Body Corporate's costs in bringingthe unsuccessful proceeding against them. I consider the same should be done here.[57] Accordingly, I find there are several factors supporting an award of increasedcosts. Relevant to the non-acceptance of the settlement offer, the increase takes effectfrom the date of the offer in the letter (28 February 2020).32 Scale costs from this timeonwards include steps 11, 22, 24, 25 and 26,33 as well as the additional costs I have30 Tremont Holdings Ltd v Body Corporate 401803 [2015] NZCA 314, (2015) 16 NZCPR 509.31 Body Corporate 198900 Ltd v Bhana Investments Ltd [2015] NZHC 2787 at [13].32 It is after the 28 February 2020 letter that the combined effect of the claim being untenable andhopeless plus refusal of the offer takes effect.33 This is the second step 11 (for preparation of memoranda and joint memoranda from 9 March2020 to 8 September 2020) noted on the Body Corporate's schedule of scale costs.allowed for the preparation of the affidavits for the strike out application. In total thesesteps come to $17,805.50. Typically, increased costs do not exceed 50 per cent ofscale costs. A 50 per cent increase will reflect conduct at the upper end of the rangeof conduct that attracts increased costs.34 Whilst I consider the conduct here attractsincreased costs, I would not place it at the upper end of the range. It was misguided,but there is no evidence to support it being more than that. Thus, I consider an increaseof 30 per cent on the steps taken after the offer was refused is appropriate. Thisrecognises the unnecessary legal costs York Trustees incurred after that time. Thisbrings the costs after 28 February 2020 to $23,147.15. When this sum is added to theearlier steps at scale costs ($15,564) the total comes to $38,711.15.[58] In addition, I consider York Trustees are entitled to reimbursement for the3.017 per cent of their share of the Body Corporate's legal costs. This will require theBody Corporate to disclose to York Trustees the total sum of its actual legal costs forthis proceeding, which York Trustees will have contributed to by way of levy paymentbased on their unit entitlement. An increase on this basis is done purely to address theunfairness of York Trustees having to pay for the Body Corporate's actual legal coststhrough levies raised against them. The increase takes effect from the steps taken inthe proceeding following the first offer. This offer was prompted by the statement ofclaim that was struck out and it came with the change in York Trustees' lawyers. Therehas been no judgment on the earlier pleadings.[59] In accordance with the process followed in Body Corporate 198900 Ltd, leaveis reserved to York Trustees to make a further application for costs to take account ofany further levy imposed on them by the Body Corporate to fund the costs award andany other flow on costs.[60] The Body Corporate argued that any costs award York Trustees might receiveshould be reduced because they (a) failed to agree to a notice to admit facts and (b)disputed various facts relevant to the remediation issues. I find this argumentmisconceived. The strike out application did not involve any determinations of fact.Nor have any of the disputed facts been resolved in the Body Corporate's favour.34 Holdfast NZ Ltd v Selleys Pty Ltd [2005] 17 PRNZ 897 (CA).These matters may have been relevant had the claim gone to trial, and the BodyCorporate been successful in establishing its view of the facts. But as matters standfactual issues remain unresolved. Their resolution was unnecessary for the purpose ofthe strike out application. Therefore, they have no influence on costs for thatapplication. Accordingly, I reject the Body Corporate's claim for reduced costs.Disbursements[61] The Body Corporate contends that York Trustees are entitled to no more thana filing fee of $110. I consider York Trustees are entitled to filing fees to cover filingboth a statement of defence and the strike out application. These are fees it wasrequired to pay as a result of the Body Corporate bringing a claim against it.[62] In addition, York Trustees claim for the costs of engaging their expert witness($18,883.87). The Body Corporate disputes this claim, but also claims for its ownexpert witnesses' fees.[63] I am satisfied York Trustees are entitled to claim for their expert witness feesas a disbursement cost. The affidavits of Barry James Gill and Trent Cary wereprepared before the strike out hearing and referred to in the strike out application. Theaffidavits were helpful to the Court as they provided evidence that supported the needfor a s 74 scheme, which York Trustees contended was the appropriate proceduralapproach. The views I formed regarding the appropriateness of a s 74 scheme and theviews I expressed at [23] of the strike out judgment were informed by Mr Gill'sevidence.35 York Trustees also contends that because the trial date was in October2020 it had to prepare its witnesses for trial. However, I have put that argument to theside because it is not relevant to the strike out.36 Accordingly, I am satisfied thewitness expense of $18,883.87 is a proper disbursement claim and should be granted.[64] I reject the Body Corporate's argument that it can claim for the fees of its expertwitnesses. Its expert witnesses' affidavits are referred to in the notice of opposition to35 Evidence on strike out applications will be received: Pharmacy Care Systems Ltd v Attorney-General (2001) 15 PRNZ 465 (CA) at 472. Here the interlocutory application also included anapplication for summary judgment by a defendant, which the Court did not deal with. However,York Trustees were not to know that at the time they filed the interlocutory application.36 See discussion at [14] herein relevant to the costs claim for the witnesses' briefs of evidence.the plaintiffs' application for summary judgment and strike out. However, as theunsuccessful party in that application I see no basis for awarding it any claim fordisbursements.Result[65] York Trustees are awarded costs and disbursements against the plaintiffs jointlyand severally as follows:(a) Costs in the sum of $38,711.15.(b) Additional costs to be ascertained on the basis of their 3.017 per centlevy contribution to the Body Corporate's actual legal costs; leave isreserved to the parties to return to Court should they be unable to reachagreement on this sum.(c) Leave is reserved to York Trustees to return to Court to seek furthercosts on the basis set out at [58] and [59] herein.(d) Disbursements in the sum of $18,883.87 (for expert witness fees; filingfees for filing a statement of defence; and the interlocutory applicationfor summary judgment by a defendant and strike out).Duffy JSolicitors:Simpson Grierson, WellingtonRainey Law, Auckland