LEPIONKA & COMPANY INVESTMENTS LTD v HORSESHOE BEND HAWKES BAY LTD _x000b_[2017] NZHC 1482

LEPIONKA & COMPANY INVESTMENTS LTD v HORSESHOE BEND HAWKES BAY LTD [2017] NZHC 1482 [31 July 2017]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2016-404-001410[2017] NZHC 1482BETWEEN LEPIONKA AND COMPANYINVESTMENTS LIMITEDPlaintiffAND HORSESHOE BEND HAWKES BAYLIMITEDDefendantHearing: 6 March 2017Appearances: M Colson for ApplicantNo appearance for RespondentE Grove for Non-Parties E OʼNeil and GLW Group LimitedJudgment: 31 July 2017JUDGMENT OF ASSOCIATE JUDGE SARGISSONThis judgment was delivered by me on 31 July 2017 at 3.30 p.m.pursuant to Rule 11.5 of the High Court Rules.Registrar/Deputy RegistrarDate.......................................Solicitors:Bell Gully, AucklandWalsh and Associates, HamiltonRankin Ellison, Australia[1] This judgment deals with outstanding costs matters on a successful application made by Lepionka & Company Investments Limited (Lepionka) against Horseshoe Hawkes Bay Limited.[2] The application was for an order that a caveat lodged by Horseshoe be removed. The caveat was lodged under the number 10352727 against the freehold title of a large property near Havelock North registered as 559971 (Hawkes Bay Registry). In my judgment of 30 September 2016, I ordered that the caveat be removed.1[3] For present purposes it is unnecessary to repeat at length the background to the application for removal, or the reasons for the order I made. These are set out in the judgment of 30 September. It is sufficient for present purposes to note three points.[4] The first is that Lepionka had sought the removal of the caveat in its capacity as mortgagee in possession exercising powers incidental to the power of sale. Lepionka wished to uplift titles for new lots created by a subdivision of the property that had been initiated by the registered proprietor, GLW Group Limited, in order to proceed with settlements of agreements for sale of some of the lots. Lepionka had adopted those agreements for sale pursuant to s 179. It submitted that the caveat was blocking its entitlement to pass title and that the interest Horseshoe relied upon (as described in the caveat), was an interest that could not be held by Horseshoe.[5] The second is that the application proceeded on an unopposed basis. Several individuals purported to file documents and to appear for Horseshoe in breach of thecourt's orders and the Mannix rule. This irregularity was not corrected, despiterepeated warnings of the consequences. Ultimately, I struck out Horseshoe'sopposition and the application proceeded on an undefended basis.[6] The third matter (as set out in my judgment of 30 September) is that I was satisfied that no arguable basis had been demonstrated for the interest claimed by1 Lepionka & Company Investments Ltd v Horseshoe Bend Hawkes Bay Ltd [2016] NZHC 2318.Horseshoe in its caveat, and therefore that Lepionka was entitled to the order it sought. I noted:[35] There is no room for the slightest inference that the sales contractsreferred to in Horseshoe's caveat afford Horseshoe the interest in Lot 7 thatits caveat claims. Horseshoe derives no ownership interest in Lot 7 from those contracts.[36] The essential position is that Lepionka as mortgagee in possession has sales that it wishes to settle and it is entitled to pass a title unencumbered by the caveat under s 179 Property Law Act 2007 and s 105 Land Transfer Act 1952. Further, it is entitled to the immediate and unconditional removal of the caveat, as no legitimate interest is held by Horseshoe that might warrantprotection pending presentation of Lepionka's transfers to it purchasers.[7] I reserved costs directing that Horseshoe would be given the opportunity to be heard on costs, assuming Lepionka was seeking costs.[8] Lepionka decided it would seek costs not only against Horseshoe but also against two non-parties: GLW and its director, Elizabeth O'Neil. It says that Ms O'Neil and GLW's former managing director, the now bankrupt Mr Paterson, were responsible for taking all of the steps in the relation to the application in the name ofHorseshoe. It says further that Ms O'Neil and Mr Paterson did this on behalf of GLW to delay Lepionka's exercising its mortgagee's powers. As a result, I madedirections allowing the non-parties to appear and be heard in opposition to the application for costs.[9] In each case Lepionka is seeking indemnity costs of $56,891.75 under r 14.6(4)(a) and(b). Alternatively, Lepionka seeks increased costs of $30,105.00 (being a 50% uplift in scale costs) pursuant to r 14.6(3)(b)(i) and (ii); or else scale costs on a 2B basis of $20,070.00 plus disbursements for $2,054.36.Lepionka's submissions[10] Counsel's submissions in support of Lepionka's costs application areessentially threefold.[11] He submits first that as Lepionka was the successful party and as costs follow the event under the statutory costs regime, Lepionka is entitled to costs.[12] Secondly, he submits that Horseshoe's conduct in the proceeding was such as to warrant indemnity costs or an increase on scale costs of 30% against Horseshoe. In support, he submits that:(a) Horseshoe was represented by counsel for a limited period only, up to and including the first call in early July 2016 when timetable directions were made. A one day fixture for a defended hearing was allocated at the insistence of Horseshoe's counsel, when a half day would have been sufficient; and this caused a significant delay in the proceeding.(b) Thereafter Horseshoe lacked legal representation and itsrepresentatives persistently breached the court's orders. This made itnecessary for further memoranda to be filed to seek the court'sinvolvement and for further conferences. Mr Patterson filed a set of incomprehensible documents in opposition, whereupon directions were made for the filing of fresh documents in opposition by a solicitor.(c) The amended directions were ignored and further documents were filed intermittently without the involvement of a solicitor. The court allowed these documents under protest from Lepionka, directing that submissions were to be filed by a solicitor, and making it clear that Horseshoe would not be heard unless represented by a lawyer.[13] The date for the filing of Horseshoe's submissions and authorities was 2 September. Nothing was filed by this date. On 5 September, Mr Paterson emailed the Court and advised the Registrar, on behalf of Horseshoe, that any continuation of the application would be a waste of the court's time andmoney. On 5 September I struck out Horseshoe's opposition for non-compliancewith the court's directions. On 6 September Ms O'Neil attempted to file latesubmissions by email without the involvement of a solicitor, and in breach of theCourt's directions. The submissions were not therefore accepted for filing.[14] Counsel for Lepionka says he repeatedly expressed concerns about delay and non-compliance on Horseshoe's part; and about the wasted time and cost involved in seeking the court's assistance and in making unnecessary appearances. He also submits that the inference that can properly be drawn from these events is that Horseshoe was never serious about opposing the application or complying with theCourt's directions.[15] Thirdly, counsel submits that these events carry the strong implication that Horseshoe was simply a vehicle used by GLW and Ms O'Neil to lodge the caveat toprotect GLW's purported interests, and possibly those of Ms O'Neil, and not anyinterest genuinely held, or purportedly held, by Horseshoe. In this last respectcounsel for Lepionka points, in support, to an affidavit sworn by Ms O'Neil in whichshe states:My understanding is that the Horseshoe Bend caveat was lodged in good faith to protect GLW's interest as proprietor of the property that, but for theactions of [Lepionka], would have been in its control.Submissions for the non-parties[16] The non-parties oppose any order for costs against them. Counsel appeared for them and made submissions on their behalf. The general import of his submissions was that it would be unjust for an order for costs to be made against them at this stage, if at all (or for that matter against Horseshoe for whom he was not appearing).[17] Counsel relies primarily on several arguments. The first is that Lepionka appears to have charged for the costs of and associated with the application andreceived security for them, by charging them "to the mortgage". An order wouldtherefore duplicate that.[18] Secondly, counsel argues that there are very good reasons why it would not be just in the circumstances of the case to exercise the discretion to order any costsagainst GLW or Ms O'Neil (or indeed Horseshoe). In doing so, he acknowledges the court's jurisdiction to order non-party costs, and that he has to accept that Ms O'Neilgave instructions and took steps in the proceeding for GLW. However, he reliesparticularly on Lepionka's refusal to allow the mortgage to be redeemed, and on its use of s 179 notices to adopt GLW's agreements to sell proposed new lots to Lepionka related parties. He referred to the existence of separate proceedings brought by GLW in CIV-2015-404-2168, which concern the issue of whetherLepionka's conduct in these respects disentitles it from relying on the s 179 notices.He argues that if the issue should ultimately be decided in GLW's favour, thenLepionka would have no further interest in the property, and "GLW would have been free" to incorporate Horseshoe to hold the land described in the caveat.[19] In support, counsel pointed to the Court of Appeal's judgment inColtart v Lepionka & Co Investments Limited [2016] 3 NZLR 36. The judgment deals with a number of issues including the question of whether equity might treatLepionka's conduct as ceding priority to the limited and equitable interest that another purchaser, a Mr Coltart, derived from GLW pursuant to an option topurchase the "homestead" lot in the subdivision. Counsel says that GLW makes thesame or a similar allegation in its proceeding. He points out that there is a decision of Woodhouse J on an application for security for costs in the GLW proceedingwhich places heavy reliance on the Court of Appeal's judgment.2Decision[20] There is no dispute that Lepionka, as the successful party to the application that was before me, has a prima facie entitlement to costs on the application pursuant to the statutory costs regime. Ordinarily such costs on an application of this kind would be assessed on a 2B basis.[21] Aside from the non-parties' submission based on the Court of Appeal'sdecision, there would be no real argument for Horseshoe or the non-parties in resisting an order for costs. Counsel acknowledges this reality. In the case of Horseshoe, as the party who has failed in respect of the application, it has a prima facie obligation to pay costs to Lepionka pursuant to the statutory costs regime.GLW and Ms O'Neil must also have recognised their potential exposure for those2 GLW Group Limited and Anor v Lepionka and Company Investments Limited and OrsCIV-2015-404-2168 [2016] NZHC 312. Woodhouse J's judgment was issued on 19 December2016, subsequent to my judgment.costs, in light of their responsibility for the steps taken purportedly on Horseshoe'sbehalf in the face of repeated warnings that Horseshoe should be legally represented and comply with directions.[22] I agree with counsel for Lepionka that the reliance placed by the non-partieson the Court of Appeal's decision is essentially a collateral attack on the judgment I issued. This costs judgment must be decided on the basis of the decision that was made on 8 September.[23] I note, as an aside, that it would have been helpful if Horseshoe had compliedwith the Court's direction to be legally represented, and to put its case in support of the caveat. I make no definitive statement on whether the outcome would have been different if it had done so, but the opportunity to advance such arguments, including any relying on the Court of Appeal's decision, was passed up. Without in any waywishing to be seen to revisit the outcome, I note only that:(a) Horseshoe chose not to put any case before me to justify its claimed interest, let alone any case that justified an interest by GLW based on wrongful refusal of its right to redeem its mortgage.(b) Such a case (as to GLW's right) was belatedly touched upon by counsel in his submissions on costs, but then only faintly. Relevantly, there was no attempt to show in meaningful terms how Horseshoe derived the interest claimed, or to develop an argument to supportwhy GLW's claimed right to redeem its mortgage might have been wrongfully rejected. It is apparent from Woodhouse J's judgment thatGLW endeavoured to redeem its mortgage on terms that involved cancellation of the very contracts GLW had entered into (and Lepionka had adopted), but there was no attempt to explain the basis for the right to redeem on such terms.[24] Two arguments remain. The first is the argument that an order for costs would duplicate compensation already available to Lepionka pursuant to its rights under the mortgage. I do not accept the argument. The proper course is to fix costson the application on the basis that such costs are the reasonable costs that Lepionka is entitled to on the successful application. The mortgage allows reasonable costs, and Lepionka as mortgagee may either seek payment of those costs pursuant to its rights under the mortgage or against Horseshoe and the non-parties.[25] The second argument is as to quantum. It will be apparent from what I have said that I accept that an uplift in scale costs is appropriate, but there is little in the way of evidence to justify indemnity costs. I have difficulty in understanding why costs of excess of $50,000 were incurred. Further, this is plainly a Category 2 proceeding. Band B is appropriate for all of the steps that were taken. The scale costs allowed for filing the originating application and supporting affidavits, the memoranda for the first case management conference, and the related appearance are appropriate and are intended to provide for recovery of two-thirds of actual costs. The scale costs allowed for the additional memoranda and appearances for compliance purposes are also intended to provide for recovery of two-thirds of actual costs.[26] On this basis, actual costs might attract an additional 30% on scale costs. In the end, any increase involves the exercise of a judgment, and I am satisfied that an increase of 30% on 2B costs would afford a reasonable measure of compensation to Lepionka for the matters it reasonably complains of.[27] I note that no issue was taken by counsel for the non-parties with the steps claimed for the purpose of assessing the quantum of 2B costs. I have reviewed the claim, allowing for the steps claimed and for the preparation of the bundle of documents. The correct calculation is that set out in the attached schedule.Result[28] I make an order for costs against Horseshoe and the two non-parties, GLWGroup Ltd and Elizabeth O'Neil, in the sum of $21,742.50 (being 2B scale costs of$16,725 plus an uplift of 30%), together with disbursements of $2,054.36._____________________Associate Judge SargissonSCHEDULE OF STEPS ALLOWED[1] Filing originating application and supporting affidavits (Item 37) – 2 days.[2] Preparation for first case management conference, filing memorandum for the conference, appearance at the conference (Item 39) – 1.1 days.[3] Preparation of written submissions (Item 40) – 1.5 days.[4] Preparation of bundle for hearing (Item 41) – 0.6 days.[5] Appearance at hearing (Item 42) – 0.5 days.[6] Three additional memoranda – 1.2 days.[7] Two additional appearances (Item 13) – 0.6 days.TOTAL 7.5 DAYS @ $2,230 per day = $16,725.PLUS 30% UPLIFT = $21,742.50.PLUS DISBURSEMENTS OF $2,054.36 = $23,796.86.