ARRIESGADO v GALLAGHER FAMILY INVESTMENTS LTD [2020] NZHC 567

ARRIESGADO v GALLAGHER FAMILY INVESTMENTS LTD [2020] NZHC 567 [19 March 2020]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2019-404-1713[2020] NZHC 567BETWEEN MARIA THERESA ARRIESGADO ANDVICENTE MARIO HIZON REYESPlaintiffsAND GALLAGHER FAMILY INVESTMENTSLIMITEDFirst DefendantLIAM GALLAGHERSecond DefendantCHRISTOPHER JAMES TAYLOR,SANDRA DIANE TAYLOR AND BRETTRONALD HOWSEThird DefendantsHearing: On the papersCounsel: M Lloyd, for the PlaintiffsNo appearance by or on behalf of the DefendantsJudgment: 19 March 2020JUDGMENT OF GORDON J[As to costs]This judgment was delivered by me on Thursday, 19 March 2020 at 3.30 pmpursuant to r 11.5 of the High Court Rules.Registrar/Deputy RegistrarSolicitors: Leigh Judd Law,Counsel: M Lloyd, AucklandIntroduction[1] The plaintiffs, Maria Arriesgado and Vicente Reyes (the Reyes) soughtjudgment by way of formal proof against the first and second defendants, GallagherFamily Investments Ltd (GFI) and Liam Gallagher, respectively.1[2] The Reyes are the owners of an apartment at 30 Heather Street, Parnell,Auckland which is a unit title development under the Unit Titles Act 2010 (UTA). TheReyes sought orders against GFI and Mr Gallagher in relation to four accessory unitsin that complex.[3] On 21 February 2019 I issued a judgment in favour of the Reyes and awardedindemnity costs to them.2 It is now necessary for the sum to be quantified. Pursuantto r 14.6(1)(b) of the High Court Rules 2016 (the Rules), the actual costs anddisbursements which can be recovered can only be those reasonably incurred by them.Submissions[4] Mr Lloyd for the Reyes has filed a memorandum on costs which claims$35,023.25 against GFI and Mr Gallagher. This is the amount set out in four invoicesup to 16 December 2019 and includes GST. Disbursements of $1,653.00 are claimedseparately. The total amount of these invoices does not include time spent on thematter since 16 December 2019, including Mr Lloyd's appearance at the hearing. Thistime (6.6 hours) is described as "unbilled time". Mr Lloyd's claim does, however,include time spent on work relating to the third defendants. He submits that thisamount of time is less than the 6.6 hours "unbilled time", implying that the totalamount claimed is therefore fair.[5] Mr Lloyd submits the case was a legally and factually complicated one,exacerbated by the Reyes' naivety and the refusal of Mr Gallagher or GFI to engagewith them or assist in any way.1 The first and second defendants did not file a statement of defence. The third defendants did so,and accordingly the hearing only related to the claim against the first and second defendants.2 Arriesgado v Gallagher Family Investments Ltd [2020] NZHC 232.Discussion[6] Mr Lloyd's submission is an accurate description of the circumstances.However, Mr Lloyd does not provide a supporting submission as to why the cost ofhis work prior to the commencement of proceedings should be included in the costshe claims. Efforts to negotiate with Mr Gallagher, arrangements relating to leases ofthe auxiliary units and discussions with the body corporate are all matters whichoccurred prior to the issue of the proceedings.Costs at discretion of the court: r 14.1[7] The award of indemnity costs is controlled by r 14.1 and r 14.6 (cited above)of the Rules.[8] Rule 14.1 establishes a wide discretion, in specific circumstances, in relationto costs:14.1 Costs at discretion of court(1) All matters are at the discretion of the court if they relate to costs—(a) of a proceeding; or(b) incidental to a proceeding; or(c) of a step in a proceeding.(2) Rules 14.2 to 14.10 are subject to subclause (1).[9] However the Court's discretion is not unfettered. It is qualified by the otherrules in Part 14. In this case r 14.6 is the relevant rule. Whether the costs claimed byMr Lloyd prior to the commencement of the proceeding come within the scope of r14.1 is a preliminary question to resolve.Scope of indemnity costs in this proceeding[10] A proceeding must be "extant" before costs can be incidental to it.3 InBraeburn Dairies Ltd v McGregor & White Electrical Ltd, French J considered a claimfor costs prior to commencement of the proceedings. These costs were described as3 Braeburn Dairies Ltd v McGregor & White Electrical Ltd HC Dunedin CIV-2009-412-668."incidental to the proceeding" in the same terms as r 14.1(1)(b). The Judge did notaccept this part of the claim:4I do not accept that these are costs incidental to a proceeding within themeaning of the Rule. Surprisingly, there appears to be no authority on point,but in my view the proceeding must be extant before costs can be incidentalto it. Otherwise, such costs would always be recoverable, which cannot be theintention of the Rule. Certainly, there was nothing unusual or exceptionalabout the legal work that had to be undertaken to investigate this claim.[11] As I have awarded indemnity costs, r 16.4(1)(b) is also relevant and, as notedabove, while indemnity costs are actual costs incurred by a party, they must bereasonably incurred: that the costs payable are the actual costs, disbursements, and witnessexpenses reasonably incurred by a party (indemnity costs).[12] Where the Court considers actual costs are unreasonably high, a lesser amountmay be awarded. McGechan on Procedure states "[c]osts are reasonably incurred if areasonable observer would expect those costs be incurred."5 In addition, McGechanalso states "[s]pecific items of expenditure which are found to be unreasonable areexcluded or reduced."6 However, the Court of Appeal has found a Court should notassess reasonableness in terms of the quantum of the dispute; the issue is not thatamount but whether the costs were "reasonably incurred".7[13] The Reyes' claim was filed in the High Court on 26 August 2019. Mr Lloydinvoiced for 60.1 hours prior to this date (not including time spent on matters relatingto the third defendant). The activities described in this period prior to thecommencement of proceedings include the preliminary negotiations on behalf of theReyes with Mr Gallagher and his solicitor in an effort to resolve the difficulty and,when they proved unsuccessful, negotiations regarding the use of parts of theaccessory units. Discussions with the body corporate apparently occurred too. I notethat some of these activities generated income for the Reyes. From around May 2019,Mr Lloyd's activities focused primarily on correspondence with the Reyes and his4 Braeburn Dairies Ltd v McGregor & White Electrical Ltd, above n 3, at [14].5 At [HR14.6.03(2)(a)]. See Bradbury v Westpac Banking Corp (2009) 18 PRNZ 859 (HC) at [204].6 At [HR14.6.03(2)(a)].7 Edel Metals Group Ltd v Geier Ltd [2018] NZCA 494 at [62].instructing solicitor. The statement of claim was apparently drafted a few days priorto the commencement of proceedings.[14] Following the reasoning in Braeburn Dairies, which I respectfully adopt, alarge portion of these costs were not incidental to a proceeding and cannot be claimed.However, I am prepared to consider whether a proceeding is "extant" immediatelyprior to the filing of the statement of claim. This is to address whether the 10.9 hoursspent in drafting the statement of claim and other materials to commence proceedingsand the discussions with the Reyes on the statement of claim immediately prior to itsfiling come with the definition of "incidental to a proceeding". They cannot be "of aproceeding" or "a step in a proceeding", the other matters in r 14.1(1) because bothpresume there is a proceeding and this did not occur, in this case, until 26 August 2019.[15] Proceedings which are extant are those in existence. No proceedings existedin this case until 26 August 2019 when the statement of claim was filed. However,that statement of claim had to be prepared by Mr Lloyd and approved by the Reyes.While "extant" would normally exclude such activities, I am prepared to accept thatonce an intention is formed to commence proceedings and steps are taken to draft theclaim on the basis of that intention, proceedings are extant. Alternatively, these stepsare incidental to a proceeding for the purposes of r 14.1(b). I would therefore acceptthe 10.9 hours spent on preparing the statement of claim and discussions with theReyes immediately prior to the filing of the claim. Those costs were reasonablyincurred.[16] It is possible there is other time in Mr Lloyd's timesheet which comes withinthis definition, such as taking instructions, but this is not clear from the materialsprovided and cannot be distinguished from other matters I do not consider areincidental to the proceeding. Prior to the commencement of the proceeding, I allow10.9 hours as incidental to the proceeding.Costs on account of the third defendant[17] These costs total 5.1 hours and are outside the scope of my costs order, whichwas against Mr Gallagher and GFI. They are not allowed.Parts of claim disallowed[18] There are attendances claimed after the commencement of the proceedingwhich are either not incidental to the proceeding (as it concerns the Reyes) or at leastit is unclear whether all parts of the attendance(s) are incidental to the proceeding. Itherefore exclude them:10 September 2019 2.8 hours Includes what appears to be researchregarding landlocked land (which wouldrelate to the third defendant)11 September 2019 3.3 hours Includes letters to Council and adjacentland owners (suggests these are bodycorporate matters)20-21 September 2019 1 hour Includes letters to and from Council15 October 2019 0.3 hours Emails with appraisal of accessory unit5-6 November 2019 0.5 hours Emails with appraisals for accessory units[19] A total of 7.9 hours are not allowed for these reasons.Unbilled time[20] Mr Lloyd has included in his timesheet a period of 6.6 hours which, as notedabove, is described as "unbilled time". This includes the time spent at the hearing.While this part of the claim is either a step in a proceeding or incidental to a proceedingand is reasonably incurred, Mr Lloyd has not invoiced for them and his submissionindicates he does not intend to do so. These costs have therefore not been incurred bythe Reyes. These attendances are not allowed.[21] There is a further reason for disallowing the 1.5 hours claimed for preparingthe costs memorandum which is part of the unbilled time. While there has been somedivergence in the Courts' approach to awarding costs on applications for costs, suchcosts may be awarded. However, the Court of Appeal has held there should be noorder for costs in a costs application where neither side's position has been completelyupheld.8 The claim for costs by Mr Lloyd on behalf of the Reyes has been only8 Paper Reclaim Ltd v Aotearoa International Ltd [2007] NZCA 544 at [62].partially successful. The time spent preparing the costs memorandum wouldotherwise be disallowed for this reason.Disbursements[22] The claim for disbursements totals $1,437.39 plus GST. The disbursements allrelate to the proceedings (court filing fee, service fees, sealing judgment). Thesedisbursements are allowed.Summary[23] Mr Lloyd's timesheet states he spent a total of 103 hours on the dispute. Onthe basis of the foregoing, the Reyes are entitled to claim 34.2 hours in indemnitycosts, including 10.9 hours spent in preparing the statement of claim and relatedmatters. The 49.2 hours for work done prior to the commencement of proceedings isnot allowed as is the 5.1 hours for work done on matters relating to the thirddefendants, 7.9 hours for other matters after commencement, and 6.6 hours in"unbilled time". The total claim for time spent on the proceedings is thus $11,970.00plus GST. The total amount of the indemnity costs and disbursements is $13,407.39plus GST.GST[24] The general principles for GST on costs is set out in New Zealand Venue andEvent Management Ltd v Worldwide NZ LLC.9 The purpose of indemnity costs is toprovide the successful party with full recovery of actual costs reasonably incurred ina proceeding. The GST liabilities of the successful party must be known to the Courtto achieve this purpose. The Court of Appeal decided that the Court should proceedon the basis that the successful party is GST registered and entitled to a GST inputcredit (that is, GST paid on expenses incurred could be claimed as an input tax credit).This approach was adopted to avoid double recovery. However, it also places an onuson a successful party who is not GST registered to advise the Court of its inability torecover GST if it wants to be fully indemnified for the costs of a proceeding.9 New Zealand Venue and Event Management Ltd v Worldwide NZ LLC [2016] NZCA 282at [13]-[16].[25] In his memorandum, Mr Lloyd does not address whether the Reyes areregistered for GST. On the authority in New Zealand Venue, therefore, I must assumethey are GST registered. The amount of indemnity costs will not include GST.Result[26] I award costs and disbursements in the sum of $13,407.39 in favour of theReyes against GFI and Mr Gallagher.___________________________________Gordon J