CANTERBURY REGIONAL COUNCIL v KING HOUSE REMOVALS SOUTHLAND LTD [2018] NZHC 2433

CANTERBURY REGIONAL COUNCIL v KING HOUSE REMOVALS SOUTHLAND LTD [2018] NZHC2433 [14 September 2018]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYCIV-2017-409-000239[2018] NZHC 2433BETWEEN CANTERBURY REGIONAL COUNCILPlaintiffAND KING HOUSE REMOVALS SOUTHLANDLIMITEDDefendantHearing: (Determined on the papers)Counsel: J V Ormsby and J I Taylor for PlaintiffADG Hitchcock for DefendantJudgment: 14 September 2018JUDGMENT OF GENDALL JAs to CostsIntroduction[1] In a judgment I gave in this proceeding on 1 May 2018, the plaintiff,Canterbury Regional Council, effectively succeeded in its claim against the defendantand I made the declarations it sought regarding a lease between the Council as lessorand the defendant as lessee.[2] As to costs on the proceeding, at paras [75], [76] and [77] of the judgment Inoted:[75] As to costs, the Council has succeeded in this proceeding and isentitled to an award of costs against King House. Counsel nevertheless haverequested that they have an opportunity to make separate submissions oncosts.[76] Costs, therefore, at this point are reserved.[77] In the event that counsel are unable to agree between themselves onthe issue of costs, they may file in this Court (sequentially) memorandadirected to the issue of costs which are to be referred to me and, in the absenceof either party indicating they wish to be heard on the question of costs, I willmake a decision on costs on the basis of the memoranda filed and all thematerial then before the Court.[3] It appears that no final agreement has been reached between the partiesconcerning the issue of costs, although the defendant has acknowledged that theplaintiff is entitled to costs here but the defendant says these should be calculated onthe usual category 2B scale basis.[4] Counsel for the plaintiff, however, has now filed a memorandum on costs dated31 August 2018. Counsel for the defendant has responded and his memorandum filedin this Court is dated 10 September 2018. Both memoranda have been referred to me.[5] I have now had an opportunity to consider those memoranda and I give thisdecision on the basis of all matters addressed in this proceeding and the material filed.[6] As I have noted, counsel for the defendant in his memorandum accepts that theplaintiff has been successful at trial and is entitled to an award of costs. Mr Hitchcockfor the defendant, however, submits that costs should only be awarded on a standardcategory 2B basis which he calculates at $42,258.50 and, further, that there is no basisfor any award of either increased scale costs or indemnity costs here.[7] Counsel for the plaintiff, however, contends in his memorandum that the coststo be awarded to the Council here should be calculated either on an indemnity basis(pursuant to the terms of a provision in the lease) or, alternatively, on an increasedscale costs basis.Indemnity costs[8] I turn first to the lease in question between the plaintiff and the defendant.Clause 24 of this lease addresses costs and provides:24. Costs24.1 The Lessee shall pay the Lessor's solicitors costs of andincidental to the preparation of this lease and any variation or renewalor any deed recording a rent review and the stamp duty payable andthe Lessor's legal costs (as between solicitor and client) of andincidental to the enforcement or attempted enforcement of theLessor's rights, remedies and powers under this lease.[9] Counsel for the plaintiff suggests, therefore, that it has a contractual indemnityunder the lease for its legal costs here on a solicitor and own client basis. This is onthe basis that these costs are said to be incidental to the enforcement of the plaintiff'srights and powers as lessor under the lease.[10] Mr Ormsby suggests that in terms of cl 24 of the lease, this must clearly includethe enforcement of the plaintiff's right to call for a rent review and to seekdeterminations on the interpretation of the lease where (as here) that has beenstrenuously disputed for some considerable time by the defendant as lessee.[11] Prima facie, therefore, the plaintiff's position is that it is contractually entitledto indemnity costs. I agree. The principle that a party may contractually bind itself topay another's full solicitor/client costs is one firmly established under the authorities.1The plaintiff's contractual indemnity under the lease for its solicitor/client legal costsarises here, as I have noted above, where such costs are incidental to the enforcementof the plaintiff's rights, remedies and powers under the lease as lessor. As I see it, thatis precisely what has occurred here, given the defendant's protracted dispute as to theinterpretation of the rent review provision under the lease and the plaintiff's attemptsto enforce its rights to properly review the rent. It is also clear from the authorities,however, that this entitlement is subject to the indemnity not being seen as contrary topublic policy.2 A further qualification is that those costs must be reasonably incurred.3[12] The Court of Appeal has noted this in Watson & Son Ltd v Active ManukaHoney Association4 where it states:It is clear in principle and on authority that once it is established that theindemnity is applicable in the circumstances and that, properly construed, itincludes solicitor/client costs, no discretion remains available other than onpublic policy grounds or as part of an assessment by the Court as to whetherthe amount of the solicitor/client costs is objectively reasonable.1 ANZ Banking Group v Gibson [1986] 1 NZLR 5562 ANZ Banking Group v Gibson, above n 1, at 566.3 Black v ASB [2012] NZCA 384 at [77].4 Watson & Son Ltd v Active Manuka Honey Association [2009] NZCA 595 at [35].[13] Addressing the first question as to whether there are any public policy groundsexisting here against such an indemnity arrangement between a lessor and lessee, I amsatisfied that the answer to this question must be no. The indemnity costs provisionin the lease noted above is a common and often seen provision in lease contracts.There can be no suggestion in my view that public policy issues arise here.[14] As to the second qualification that these costs must be reasonably incurred,from the decision in Black v ASB5 the Court is required to assess:(a) What tasks attract a costs indemnity on a proper construction of thecontract;(b) Whether the tasks undertaken were those contemplated by the contract;(c) Whether the steps undertaken were reasonably necessary in pursuanceof those tasks;(d) Whether the rate at which the steps were charged was reasonablehaving regard to the principles normally applicable to solicitor/clientcosts; and(e) Whether any other principles drawn from the general law of contractand whole or in part deny the claimant its prima facie right to judgment.[15] In addressing these criteria, I am satisfied of the following:(a) In the present case, the tasks that the indemnity was to cover are theenforcement of the plaintiff's rights, remedies and powers under thelease relating particularly to the important rent review provision.(b) The dispute relating to the rent review position it seems was prolongedfor quite a considerable period of time without resolution. The stepstaken by the plaintiff here necessarily followed. They were5 Black v ASB, above n 3 at [80].contemplated by the lease. The longstanding deadlock between theparties for many years ultimately required the plaintiff to take the stepit did of issuing this proceeding to enforce its rights under the lease.(c) Those steps, which included what must really be considered asenforcement steps taken by the plaintiff here, cannot be seen asanything other than necessary and reasonable in all the circumstances,given the position adopted by the defendant over the rent review issue.(d) The indemnity costs sought by the plaintiff are calculated at $99,706.99together with $5,523 in disbursements, making a total of $105,229.99.Counsel for the defendant in his submissions concedes that thedisbursements claim of $5,523 is agreed. No real and detailed quantumdispute, however, appears to have been raised as to the $99,706.99indemnity costs sought. Invoices are before the Court relating to thesecosts. They amount to a little over double the category 2B scale costswhich the plaintiffs have calculated (being a figure of $44,266 which isonly slightly above the defendant's category 2B costs calculation of$42,258.50).(e) So far as the reasonableness of these costs are concerned, it appears thatright up to 17 days before the hearing of this matter, it was scheduledfor a three day fixture to deal with counter claims advanced by thedefendant pleading rectification and estoppel, comprising significantfactual disputes which were later abandoned. In all the circumstanceshere and given there is no real objection by the defendant to theplaintiff's quantum calculation of its indemnity costs, I am satisfiedhere that they are reasonable.[16] I conclude that the contractual costs indemnity in the lease between the partiesclearly applies here and that neither issues of public policy, nor the qualification ofreasonableness, in any way limits its application to the present situation.[17] That said, I find first, that the plaintiff is contractually entitled to payment ofits reasonable indemnity costs on a solicitor and own client basis in this proceedingand, secondly, that the $99,706.99 quantum sought is virtually unchallenged and isreasonable in all the circumstances of this proceeding.Order[18] An order is now made that the defendant is to pay to the plaintiff its contractualindemnity costs on this proceeding amounting to $99,706.99 together withdisbursements totalling $5,523....................................................Gendall JSolicitors:Wynn Williams, ChristchurchAWS Legal, Invercargill