NAPIER CITY COUNCIL v H2O MANAGEMENT (NAPIER) LTD [2020] NZHC 2481

NAPIER CITY COUNCIL v H2O MANAGEMENT (NAPIER) LTD [2020] NZHC 2481 [22 September 2020]IN THE HIGH COURT OF NEW ZEALANDNAPIER REGISTRYI TE KŌTI MATUA O AOTEAROAAHURIRI ROHECIV-2020-441-3[2020] NZHC 2481BETWEEN NAPIER CITY COUNCILPlaintiffAND H2O MANAGEMENT (NAPIER) LTDDefendantOn the papersCounsel: J D Cameron for the plaintiffR A Rosser for the defendantJudgment: 22 September 2020JUDGMENT OF CULL JOverview[1] On 31 July 2020,1 I dismissed an application by the plaintiff seeking leave toappeal an arbitral award (Award) on the grounds the grounds of appeal did not engagequestions of law, as the questions raised were heavily fact-oriented and involvedchallenges to the Arbitrator's interpretation of words of a management agreement(Agreement) between both parties regarding Ocean Spa in Napier (Ocean Spa). Ifound that the Arbitrator's conclusions were sound and appropriate.[2] Both parties have now filed memoranda for costs.[3] The defendant seeks costs on a 2B basis with a 50 per cent uplift "due to theuntenable application and arguments pursued by [the plaintiff]". Counsel for the1 Napier City Council v H2O Management (Napier) Ltd [2020] NZHC 1913 [SubstantiveJudgment].plaintiff accepts it was unsuccessful in the substantive application but submits thatcosts should not exceed a 2B basis.[4] The central issue is therefore whether increased costs should be awarded.Law[5] The High Court Rules 2016 (Rules) provides that the court may make an orderincreasing costs otherwise payable under the rules if, among other things, the partyopposing costs has contributed unnecessarily to the time or expense of the proceedingor a step in it.2 Rule 14.6(3) provides:(3) The court may order a party to pay increased costs if—(a) the nature of the proceeding or the step in it is such that thetime required by the party claiming costs would substantiallyexceed the time allocated under band C; or(b) the party opposing costs has contributed unnecessarily to thetime or expense of the proceeding or step in it by—(i) failing to comply with these rules or with a directionof the court; or(ii) taking or pursuing an unnecessary step or anargument that lacks merit; or(iii) failing, without reasonable justification, to admitfacts, evidence, documents, or accept a legalargument; or(iv) failing, without reasonable justification, to complywith an order for discovery, a notice for furtherparticulars, a notice for interrogatories, or othersimilar requirement under these rules; or(v) failing, without reasonable justification, to accept anoffer of settlement whether in the form of an offerunder rule 14.10 or some other offer to settle ordispose of the proceeding; or(c) the proceeding is of general importance to persons other thanjust the parties and it was reasonably necessary for the partyclaiming costs to bring it or participate in it in the interests ofthose affected; or2 High Court Rules 2016, r 14.6(3)(b).(d) some other reason exists which justifies the court making anorder for increased costs despite the principle that thedetermination of costs should be predictable and expeditious.[6] The issue is whether r 14.6(3)(b)(ii) or (iii) are engaged as per the submissionsof the defendant.[7] The leading authority on the correct approach to increased costs is the four-step approach explained by the Court of Appeal in Holdfast NZ Ltd v Selleys Pty Ltd:3(a) Categorisation: the first step is to categorise the proceeding underr 14.3. Both parties submit that this proceeding has been categorisedas category 2.(b) Standard time allocation: the second step is to work out a reasonabletime for each step in the proceeding under r 14.5. Both parties alsosubmit that this proceeding been categorised as band B.(c) Increased time allocation: a party can, under r 14.6(3)(a) apply for extratime for a particular step. It is possible to get a greater time allocationfor a particular step if the party can show that the step in the proceedingwas such that the time required by the party would substantially exceedthe time allocated under band C.(d) Overall assessment: the fourth step requires the applicant for costs tostep back and look at the costs award it could be entitled to at this point.If it considers it can argue for additional costs due to the way the otherparty conducted the case in terms of r 14.6(3)(b), it should do so. Anincrease of more than 50 per cent is unlikely.Submissions and Discussion[8] The defendant seeks costs on a 2B basis with a 50 per cent uplift "due to theuntenable application and arguments pursued by [the plaintiff]". Increased costs arejustified, they say, because the arguments made by the plaintiff were "hopeless",3 Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [40]-[48].resulting in a longer and more expensive proceeding.4 It says the application was "soclearly untenable that its filing was unreasonable".5 The Award was interpreted by thearbitrator on principles agreed to by both parties. The Agreement worked for some15 years and it only has two more years before running to the end of the 20-year team.[9] The defendant claims the plaintiff had an "ulterior motive in attempting toobtain more control" over the Ocean Spa and/or to "out litigate" H2O in the final termon more favourable conditions.[10] In the alternative, the defendant submits that the plaintiff attempted to "re-run"arguments or reframe arguments not put before the Arbitrator to establish a breach. Insupport, of this, they point to the claim being untenable, that the plaintiff failed toaccept that no terms were implied, that no questions of law were raised or that theAgreement continued to work following the relevant Award.[11] Counsel for the defendant also points to the fact that, once the plaintiff filedtheir application seeking leave to appeal, it pursued an untenable claim, failed to acceptno terms were implied and that no questions of law were raised nor that the Agreementcontinued to work following the relevant Award. Once leave to appeal the Award wasfiled, H2O was required to respond with submissions twice the length.[12] The defendant submits that the plaintiff should have reassessed its position andwithdrawn prior to the hearing. The defendant also points to the plaintiff's failure toaccept the unreasonableness of its position at the hearing "in the face of Her Honour'sclear indication of the lack of merit". The plaintiff's failure to accept the defendant'slegal argument, it says, was without reasonable justification. In these circumstances,the defendant says the requirements under r 14.6(3)(b)(ii) and (iii) are made out.[13] The defendant seeks a 50 per cent uplift, relying on Holdfast NZ Ltd v SelleysPty Ltd, where the Court of Appeal held a that 50 per cent increase was fair forrecovery of costs for the step unnecessarily forced upon the cost-claiming party,assuming the time allocated to the step had been reasonably calculated.6 The4 Defendant Submissions on Costs at [4].5 Defendant Submissions on Costs at [6].6 Holdfast NZ Ltd v Selleys Pty Ltd, above n 3, at [47]-[48].defendant also referred to Oxygen Air Ltd v LG Electronics Australia Pty Ltd, wherethe losing party's fundamentally misconceived claims led to a 50 per cent uplift incosts. In that case, the Judge described the losing party's case as "so lacking in meritor otherwise hopeless that it could well have supported an overall application forindemnity costs".7 In this case, the defendant says, a 50 per cent uplift would be forfair recovery of unnecessary expense responding to an unmeritorious proceeding. Thedefendant also referred to Weaver v HML Nominees Ltd, which held that a 50 per centuplift is appropriate where a party's claim lacked merit and had no chance of success.8[14] Indemnity is a very high threshold to meet. This case is not a case that comesclose to this standard, as was the case in Oxygen Air Ltd v LG Electronics AustraliaPty Ltd. There are many distinguishing factors between both cases, in particular, theconduct of the losing party. It was apparent to Oxygen from the commencement ofproceedings that its case was never seriously or genuinely arguable. Oxygen alsofailed to settle when it was given the opportunity to do so on considerably better termsthan obtained in the substantive judgment. This present case does not reach the samestandard for the reasons I elaborate upon below.Plaintiff's submissions[15] Counsel for the plaintiff submits that this Court "should not depart from thenormal practice of awarding costs according to the High Court Rules scale". Theplaintiff acknowledges that it was unsuccessful and should pay costs in accordancewith r 14.2(1)(a) of the Rules. Counsel submits that there is no basis for costs to exceeda 2B basis because this was a relatively simple application for leave to appeal anarbitration award. In support of a submission that it was not complex and not of greatsignificance,9 Counsel points to the fact the hearing took only a quarter of a day.Further, Counsel says there is no basis for an allowance for a second and subsequentcounsel, as sought by the defendant.107 Oxygen Air Ltd v LG Electronics Australia Pty Ltd [2020] NZHC 1863 at [22]-[23].8 Weaver v HML Nominees Ltd [2016] NZHC 473. That case was successfully appeal in part inWeaver v Auckland Council [2017] NZCA 330, (2017) 24 PRNZ 379, however the Court upheldthe particular finding that the Council was liable for costs with a 50 per cent uplift, at [53].9 High Court Rules 2016, r 14.2(1)(b).10 Plaintiff Submissions at [7].[16] As to the 50 per cent uplift, the plaintiff submits that none of the r 14.6 factorsapply. The defendant was not required to spend time substantially in excess of thatallocated. There was no failure by the plaintiff to comply with the Rules or anydirection of this Court, nor any failing to admit facts, evidence or documents and nofailure to accept legal argument without reasonable justification. A mere lack ofsuccess does not mean they had acted unreasonably or otherwise to warrant an uplift.Discussion[17] The plaintiff did not take or pursue an unnecessary step or an argument thatlacks merit. Although the application was ultimately dismissed, and I did find that theplaintiff's challenge did not raise a question of law but was a challenge to anunfavourable interpretation of the Award for the plaintiff,11 the plaintiff's argumentsat the substantive hearing do not meet the threshold of lacking merit. Nor has it beenshown that it was apparent to the plaintiff that its arguments were wholly untenablefrom the commencement of these proceedings, as was the case in Oxygen Air Ltd vLG Electronics Australia Pty Ltd.[18] I also do not uphold the defendant's submission that the plaintiff should havereassessed its position before the hearing. The notice of opposition was filed on21 February 2020. The plaintiff was entitled to pursue its claim. Without the benefitof full submissions from the defendant, it was not unreasonable that they did notabandon their claim. Submissions were not received until 1 July 2020 and the hearing,I note, was on 21 July 2020. This was a short space of time before the quarter-dayhearing of the application for leave to appeal. It was also not a long or complex matter.In relation to the hearing itself, I consider the conduct of the plaintiff did not reach alevel of a failure to accept legal argument without reasonable justification. Nor am Isatisfied that these actions contributed unnecessarily to the time or expense of theproceeding.[19] As to the conduct of the plaintiff more broadly, I do not accept the defendant'ssubmission that the plaintiff had an ulterior motive to obtain control or "out-litigate"the defendant. There is no evidential foundation for this submission. The plaintiff did11 Substantive Judgment, above n 1, at [21].not simply re-run or reframe former arguments but challenged whether the Arbitratorhad incorrectly implied terms into the Agreement.12 The plaintiff has a right to seekleave to appeal and chose to exercise it. It did so responsibly but failed to succeed.No further uplift of costs is justified in the circumstances.[20] There was no taking or pursuit of an unnecessary step or an argument withoutmerit. The plaintiff did not fail, without reasonable justification, to admit facts,evidence, documents or accept a legal argument. And in any case, cumulatively, theactions of the plaintiff did not contribute unnecessarily to the time or expense of theproceedings. I also do not find any other r 14.6(3) factors to have been made out towarrant a 50 per cent increase of costs.[21] As the plaintiff was unsuccessful, costs should be awarded to the defendant ona 2B basis but, for the reasons stated above, there is to be no increase of costs.Result[22] Costs are awarded to the defendant on a 2B basis.Cull JSolicitors:Lawson Robinson, Napier for the PlaintiffHolland Beckett Law, Tauranga for the Defendant12 Napier City Council v H2O Management (Napier) Ltd [2020] NZHC 1913 at [29].