GLENMARY LAND LIMITED V DINESH INVESTMENTS LIMITED HC AK CIV-2011-404-3244

GLENMARY LAND LIMITED V DINESH INVESTMENTS LIMITED HC AK CIV-2011-404-3244 2 September 2011IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2011-404-3244BETWEEN GLENMARY LAND LIMITEDPlaintiffAND DINESH INVESTMENTS LIMITEDDefendantHearing: 31 August 2011Counsel: E J Werry for PlaintiffI F Williams for DefendantJudgment: 2 September 2011 at 4:30 PMJUDGMENT OF ASSOCIATE JUDGE ABBOTT[as to costs]This judgment was delivered by me on 2 September 2011 at 4:30pmpursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate: ................................_________________________________________________________________Solicitors:Recordon Dower, PO Box 13-138 Onehunga, Auckland 1643Mark Harrison & Associates, PO Box 162 Waimauku, AucklandCopy for:Edward J Werry, P O Box105-270 Auckland 1140Email: ejwerry@gmail.comIan F Williams, P O Box 4338 Auckland 1140Email: ianwilliams@shortlandchambers.co.nzCase Officer: Iutita.Esekielu@justice.govt.nz[1] This proceeding, which was issued on 2 June 2011 to challenge thedefendant's exercise of power of sale in respect of a property at 15 Glenmary Place,Papatoetoe, is to be discontinued.[2] Both parties seek costs. The plaintiff contends that it was necessary to issue the proceeding, and an accompanying application for interim injunction, to prevent the defendant selling at a significant under-value. The defendant says that any need for the proceeding had gone before it was issued.Background[3] The plaintiff purchased the property in October 2008, with the assistance of a loan from the defendant. The loan was secured by first mortgage.[4] The plaintiff defaulted on terms of the mortgage. The defendant served a notice under the Property Law Act 2007. Both the defendant and the plaintiff subsequently attempted to sell the property.[5] On 26 May 2011, the defendant entered into an unconditional agreement to sell the property to K T Glenmary Nominee Ltd for $1.08m, in exercise of its power of sale. The agreement provided for settlement on 27 May 2011. The defendant did not inform the plaintiff of the sale at the time.[6] On 29 May 2011, the plaintiff entered into a conditional agreement to sell the property to L Ling for $1.9m. The plaintiff says that its solicitors telephoned thedefendant's solicitors the following day, Monday 30 May 2011, to inform them of the Ling agreement, and were informed in that telephone conversation that the defendant had entered into the earlier agreement. The agreement was conditional on its purchaser confirming its intention to proceed after undertaking a due diligence investigation, and on the purchaser entering into an unconditional agreement to purchase an adjoining property (it also had a conditional agreement on that). Both conditions had to be satisfied within 15 working days.[7] The plaintiff had concerns about the bona fides of the defendant's agreement.It had no knowledge of the steps taken by the defendant to satisfy its statutory obligation as mortgagee exercising its power of sale but the purchase price was less than half of a valuation the purchaser had obtained in September 2010, and the property was being wholly funded by the defendant, apart from a deposit of $20,000 which it understood had not been paid.[8] Following a telephone conversation between solicitors, the plaintiff'ssolicitors wrote to the defendant's solicitors seeking confirmation that the defendantwould not proceed with settlement of its agreement, pointing out the mortgagee's obligation to obtain the best possible price for the property. The defendant'ssolicitors replied that the defendant intended to settle its unconditional agreement, and recorded the fact that there had been numerous conditional and unconditional agreements previously, none of which had proceeded to settlement. The solicitors noted that the defendant was firmly of the view that it had fulfilled its duty to obtain the best price possible.[9] Notwithstanding that exchange of correspondence, early in the afternoon of 31 May 2011 the defendant undertook that it would take no further steps on its agreement for 48 hours. The plaintiff says that the defendant was aware that if the parties could not agree on terms for settlement, the plaintiff would be applying for an injunction (it contends that the defendant was entitled to cancel the agreement because its purchaser had not paid an agreed deposit).[10] The plaintiff instructed its solicitors to prepare this proceeding, and an application for an interim injunction, against the possibility that terms could not be agreed for the defendant to cancel its agreement before the undertaking expired.[11] Shortly before the undertaking was due to expire, the defendant's solicitorssent correspondence to the plaintiff's solicitors showing that the defendant had sent a letter to the solicitors for K T Glenmary Nominee Ltd on 30 May 2011 cancelling its agreement, but that the latter was disputing the validity of the cancellation and had requested that the cancellation be withdrawn (a copy of the letter of cancellation itself was not provided).[12] In light of the dispute over cancellation the plaintiff elected to proceed to file its application for injunction on the afternoon of 2 June 2011 (disclosing the purported cancellation). It alleged that the defendant had breached its statutory duty under s 176 of the Property Law Act 2007 to take reasonable care to obtain the best price reasonably obtainable at the time of sale. The application was made without notice, although the proceedings were served on the defendant on a "Pickwick"basis.1 An interim injunction was made that afternoon.[13] Although there is no evidence on the Court file to this effect, counsel for the plaintiff stated from the bar that K T Glenmary Nominee Ltd subsequently lodged a caveat against the property. This fact was not challenged by counsel for the defendant.[14] Subsequently K T Glenmary Nominee Ltd acknowledged that its agreementwith the defendant was at an end. The plaintiff's solicitors were informed, and the plaintiff was asked to withdraw the proceeding and acknowledge that it had no claim for costs against the defendant. The plaintiff declined to do so. On 21 July 2011 the defendant filed notice of appearance, to reserve its right to be heard in the event that the plaintiff sought costs.[15] Further, although there is again no evidence to this effect before the Court, counsel for the plaintiff stated in his memorandum and confirmed orally that theplaintiff's agreement did not proceed (the purchaser, L Ling, elected not to do so after conducting due diligence) but that fact was not known at the time the proceeding was issued. It is not clear when the defendant was informed of this, but it was before it was required to file a statement of defence.Competing claims for costs[16] The plaintiff seeks an order for costs of $8,460 (calculated on a scale 2B basis) for issuing its substantive proceeding, issuing its application for interiminjunction, preparing its memorandum ahead of today's conference and appearing at the conference. Counsel submits that it was necessary to take these steps to protect1 Pickwick International Inc (GB) Ltd v Multiple Sound Distributors Ltd [1972] 3 All ER 384.the opportunity for the substantially higher purchase price available under the $1.9m agreement whilst due diligence was undertaken under that agreement, as it was clearthat the defendant's purchaser was not accepting the cancellation and the defendant was free to proceed to settle that agreement once its undertaking had expired.[17] Counsel also supported his argument by referring to the fact that the property has since been sold to a company having the same directorship and shareholding as K T Glenmary Nominees Ltd (although that fact is not in evidence before the Court).[18] The plaintiff also seeks disbursements as fixed by the Registrar.[19] The defendant resists the plaintiff's claim, and seeks costs in any event forresearching and preparing for a defence, preparing and filing its notice of appearance, preparing its memorandum for the case management conference and appearing at it. It does so on the basis that the plaintiff has elected to issue and now discontinue the proceeding, the proceeding has not been determined on its merits, there is nothing before the Court to indicate that the defendant acted other than bona fide (counsel referred to a valuation that has been provided to the plaintiff for a market value substantially below the price at which it sold), and, in any event, the defendant had told the plaintiff of its position before the proceeding was filed, at which point the purpose of the proceeding and the interim injunction fell away.[20] The defendant seeks costs on a scale 2B basis of $1692.00, uplifted by an allowance for a further 1.8 days of time to compensate it adequately for time spent researching and preparing for a defence.Discussion[21] As a general rule, a plaintiff who discontinues a proceeding will be requiredto pay the defendant's costs up to the point of discontinuance.2 This presumption is subject to any order of the Court to the contrary if the circumstances make a different2 High Court Rules, r 15.23.costs outcome just and equitable.3 It is also subject to the Court's general discretionas to the costs. Kroma Colour Prints ltd v Tridonicatco NZ Ltd.[22] The Court will not speculate on the merits of the case if it has not been heard, except where merits are clear, but will take into account whether the plaintiff acted reasonably in commencing and in discontinuing it, and whether the defendant acted promptly and reasonably in taking a step that negated the point of the proceeding(leading to the plaintiff's discontinuance). In the latter situation the likely outcome is that costs should lie where they fall.4[23] The starting point is that the plaintiff elected to issue this proceeding, and is now discontinuing it. It must show circumstances that make it unjust not to follow the usual path (discontinuing party to pay the costs of the other party) but rather for the other party to pay its costs.[24] This is not a case where the Court should attempt to take into account the merits of the substantive proceeding. They have not been determined. Any inference that could possibly be taken from the valuation evidence provided by the plaintiff in support of its application for the interim injunction is counterbalanced by the fact that the defendant has not had to put its case before the Court, and the advice from counsel for the defendant (not challenged by counsel for the plaintiff) that the defendant had a substantially lower valuation.[25] The essential issue is whether the defendant should take responsibility for theplaintiff's decision to issue this proceeding. I am not persuaded that it should. I can accept that the plaintiff had a concern by the correspondence given to it shortlybefore the time of expiry of the undertaking, which indicated that the defendant'spurchaser was still seeking to settle that agreement. The plaintiff focuses on the expiry of the undertaking. Although that goes some way towards explaining why it issued the proceeding, the critical point in my view is that the defendant at that time had done what the plaintiff had asked of it, namely, cancel the agreement. There is no evidence to suggest that the defendant would resile from its position and proceed3 Kroma Colour Prints Ltd v Tridonicatco NZ Ltd (2008) 18 PRNZ 973, at 975,4 Olive Frances Retirement Home Ltd v Director-General of Health HC Auckland CIV-2005-404- 1367, 13 July 2005.with the settlement, but if that was the plaintiff's concern, it could have sought anassurance on the point, or even an extension to the undertaking. There is no evidence of any attempt to clarify the position following receipt of the advice of cancellation early in the afternoon of 2 June 2011.[26] It is also relevant to take into account the defendant's position when it learned of the later agreement. I accept that the initial position (rebuffing the plaintiff) could have counted against the defendant had it continued to take that stance. However, it is clear that the defendant quickly reconsidered its position (or perhaps it was"hedging its bets") as it gave notice of cancellation to its purchaser the same day, 30 May 2011, and provided its undertaking the following day. I suspect that the defendant was hoping to reach an agreed position with its purchaser on cancellation during the period of the undertaking, but when that did not eventuate (and before the undertaking expired) it advised the plaintiff of the cancellation (in my view, committing itself to that path notwithstanding the unresolved position with its purchaser).[27] I do not see any significance for costs in the fact that K T Glenmary Nominees Ltd persisted with its challenge to the cancellation for a time (filing a caveat), or that the property was subsequently sold to a related company. As I have said, the defendant had done what was asked of it, before the proceeding was filed (the caveat is not relevant), and there is nothing to stop the defendant entering intothe subsequent agreement with the related company once the plaintiff's agreementlapsed.[28] I am not persuaded that this is a suitable case to depart from the usual approach that the discontinuing party pays costs to the party it has brought into theproceeding. I turn now to consider the defendant's request for costs, and particularlyits request for an uplift over the scale costs on a 2B basis to take into account the fact that although it did not file a statement of defence, it had to do most of that work atthe outset, to form a view on the proceeding.[29] Costs are awarded to a defendant for responding to a claim, rather than anticipating a claim. The defendant was only served with the proceeding on theafternoon of 2 June 2011, and there is no evidence to suggest that much, if anything, was done in response to the proceeding. That is consistent with the defendant's casethat it had cancelled its agreement. I accept that the defendant has incurred costs subsequently in filing an appearance, and in preparing for and appearing at the case management conference. However, I see no reason to depart from scale on those items.Decision[30] The plaintiff's application for costs is declined.[31] The plaintiff is to pay the defendant costs of $1692.00 as sought, on a scale 2B basis...........................................Associate Judge Abbott