PONSONBY MALL TRUST LTD & ANOR V NZ FOOD INDUSTRIES LTD HC AK CIV-2005-404-3631

PONSONBY MALL TRUST LTD & ANOR V NZ FOOD INDUSTRIES LTD HC AK CIV-2005-404-3631 8 March 2006IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV-2005-404-3631BETWEEN PONSONBY MALL TRUST LIMITED AND CRUMMER TRADING TRUST LIMITED Plaintiffs AND NEW ZEALAND FOOD INDUSTRIES LIMITED Defendant Hearing: 03 February 2006 Appearances: MRT Colthart for Plaintiffs DA Campbell for Defendant Judgment: 8 March 2006COSTS JUDGMENT OF ASHER JThis judgment was delivered by me on at am/pm pursuant to Rule 540(4) of the High Court Rules .. Registrar/Deputy Registrar DateSolicitors: Knight Coldicutt, PO Box 106-241 Auckland Kensington Swan, Private Bag 92101 Auckland[1] In a Judgment of 5 December 2005 the defendant succeeded in obtaining an order pursuant to s 120 of the Property Law Act 1952 that the plaintiffs grant a renewal of the defendant's lease. The plaintiffs failed to get an order for possession and were unsuccessful in their request that damages or compensation be paid to them. There is no doubt that the defendant was the party that succeeded in the action. However, the action arose from an error on the part of the defendant, namely its failure to renew the lease. In these circumstances, both parties have sought costs orders, and have filed written submissions in support.General principles[2] The general rule, contained in Rule 47(a) of the High Court Rules, is that a party who fails with respect to a proceeding should pay costs to the party who succeeds. The defendant relies on this Rule. This has been described in Commerce Commission v Southern Cross Medical Care Society [2004] 1 NZLR 491 (CA) as a "prescribed approach". It was said at para 13 that there was:" a presumption that in the absence of particular reasons to the contrary, costs will follow the event."[3] The plaintiffs in seeking to distinguish Rule 47(a) point to Rule 46, which provides that all matters relating to the costs of and incidental to a proceeding are at the discretion of the Court, and that Rule 47 applies to Rule 46. They submit that the defendant was in these proceedings seeking an indulgence from the Court to cure its own error in failing to give notice of intention to renew. [4] It is, of course, a feature of any application under s 120 that a defendant is seeking an indulgence from the Court to enable it to escape the usual contractual consequences of an error. Leases generally have a term as to how that lease is to be renewed. Usually when parties bind themselves to observe certain obligations in a contract, and they fail to do so, the Courts will not help them to escape the legal consequences of their error. Indeed, the whole principle of certainty of contract upon which commercial dealings depend, rests on that assumption.[5] The discretion to provide relief against forfeiture in relation to a failure to pay rent is a longstanding exception. It was first exercised by the English Courts of Equity prior to 1873, where relief by injunction was granted to restrain actions of ejectment: Woodfall, Landlord and Tenant Vol. 1, 17.152 – 17.153. Its rational rests on the lack of proportionality between the often very severe consequences of losing residential or commercial premises, a home or a business, against the slight moral culpability involved in an inadvertent failure to provide a notice on time. It is more often than not the case that the landlord is not penalised by the renewal, except insofar as that landlord cannot take advantage of the error. [6] In the cases where relief was granted, where appropriate it was ordered that the tenant pay the landlord's costs, even on a solicitor/client basis: Factors (Sundries) Ltd v Miller [1952] 2 All ER 630. Such orders were not always made. Where a forfeiture may have been technically justified, but the landlord had opposed relief unsuccessfully, costs were on occasions ordered against the landlord:Grangeside Properties Ltd v Collingwood Securities Ltd [1964] 1 WLR 139, 144. InAbbey National v Maybeach Ltd [1985] Ch 190, 206, those costs which had been increased by the landlord's opposition to the grant of relief, were ordered to be paid by the landlord. [7] These cases were in the context of relief being granted against forfeiture for breaches of the terms of the lease. This case is different, in that the relief is sought from the contractual consequences of non-renewal. This right to relief against refusal to grant renewal was introduced to New Zealand in 1928 by amendments to the then Property Law Act, and is now contained in s 120 of the Property Law Act 1952. There are differences between the two sections, but both give the Court a broad discretion, and the cases that apply to forfeiture for breach of lease are helpful. The events leading to the forfeiture can be either innocent mistakes or deliberate acts in both types of cases, and the costs consequences in the cases vary, according to the Court's perception of the facts and the conduct of the parties. [8] Both counsel have pointed to a number of New Zealand cases where costs have been awarded in favour of an unsuccessful landlord in relief against forfeiture cases. This appears to have been the usual pattern before 1995. I have been referredto four cases where costs were awarded on this basis: Carter v Te Aotonga Rangiheuea [1957] NZLR 1184, Re Lease, McNaught to McNaught [1958] NZLR 72, Verran v Public Trustee [1976] 1 NZLR 518, Laboratory Supplies Limited v Whineray (1985) 2 NZCPR 285. In one case, indeed, indemnity costs were awarded to the landlord: Re A Lease: Kennedy to Kennedy [1935] NZLR 564. [9] Since the current costs regime came into force on 2 January 2000 the outcomes have been more varied. Costs, including indemnity costs, have been awarded to the landlord in three cases: Walsh v Utting [2004] 1 NZLR 402, Umbria Café v Bridgent Holdings Limited (High Court Auckland, CIV 2004-404-1311, 4 October 2004, John Hansen J). In two cases costs have been awarded to the successful tenant: Jung Hong Duck v Satterthwaite Holdings Ltd (High Court Christchurch, M32/00, 9 August 2000, Chisholm J), Timberco (1999) Ltd v Sarvee Acquisitions Ltd (High Court Auckland, CIV 2005-419-878, 26 October 2005, Harrison J). [10] In the Walsh v Utting and Umbria Café v Bridgent Holdings Limited cases there was evidence of conduct on the part of the tenants that went more than their inadvertence. In particular in the case of Walsh v Utting it seems as if the tenant deliberately held off renewing the lease as part of a negotiation strategy with the landlord. [11] The question that arises is whether the usual rule that costs follow the event should apply, or whether the Court should exercise its discretion and award costs to the landlord because the reason for the proceedings was an error by the tenant. The plaintiff landlords can assert here that they were doing no more than seeking to maintain their existing legal rights.Facts of this case[12] In my Judgment I found: a) The defendant was a good tenant and not in material breach of the lease.b) The failure to give notice was the result of a serious but inadvertent error. The error arose because of a major personnel shake-up in the defendant at the relevant time, where no manager was left with responsibility for the task of looking after the lease. It was not deliberate or tactical. It was a mistake. c) The consequences of the loss of the renewal were very severe for the defendant. d) The plaintiffs would not be prejudiced by renewal in the sense that they had not entered into any commitments that would cause them loss on the basis of the non-renewal. However, they were deprived of the ability to take advantage of the non-renewal from the defendant, and had a genuine commercial interest in having the lease end so that redevelopment could be commenced. In spite of this, the plaintiff trusts were no worse off than they would have been but for the inadvertence, if relief was granted. The real prejudice to the lessor trust was the prejudice of not being able to take advantage of the mistake. [13] I have now been given further information about actions between the parties since the giving of the notice to renew. It was in fact the plaintiffs that initiated these proceedings somewhat unusually, seeking possession. The defendant sent the plaintiffs a Calderbank offer dated 2 November 2005, some four months after the proceedings were issued, alleging that the plaintiffs were being opportunistic but offering $5,000 in full and final settlement, on the basis that the lease was continued.Decision[14] The plaintiffs do not deserve any general obloquy for choosing to bring these proceedings and seek possession. They constituted a commercial entity seeking commercial advantage from a situation where they owed no moral obligation to the defendant. Nevertheless, in issuing the proceedings (and this would have equally been the case if the defendant had issued the proceedings and the plaintiffs hadchosen to defend them), the plaintiff landlords were knowingly taking a risk. They made a choice to oppose, and to incur the costs of that opposition. It was clear that the lease was of great importance to the defendant, and unsurprisingly the defendant contested the proceedings and invoked the relief jurisdiction. [15] In taking the course of action that it did the plaintiffs' position was in reality little different from the position of litigants in many proceedings. A judicial discretion was sought to be invoked; it would involve the application by the Court of various principles to various matters of fact. A decision would be reached either for or against. The plaintiffs took the risk that they could lose. Given the clear inadvertence of the non-renewal there had to be an obvious risk that the result would be adverse. [16] Moreover, there had been no sharp dealing or attempt to take an advantage on the part of the defendant. Its error was innocent; a simple mistake. The plaintiffs sought to take advantage of that mistake and, as I commented in my Judgment, would have been content to have accepted a sum of money as consideration for extending the lease further. It was not a case where the plaintiff landlords had disadvantaged themselves in reliance on the non-renewal. As I observed in my Judgment, they may well have suspected in an advertent error from an early stage. In any event they took no action in respect of the premises following the failure to renew, and appeared to be awaiting the outcome of these proceedings. [17] The position is somewhat different from what which arose in Walsh v Utting. In that case there was an element of deliberate delay which led to the loss of the right of renewal. The landlord had subsequently leased the property to a third party and was going to have to go through the task of extracting himself from that lease. Further, there had been no Calderbank offer, where a proposal had been made to pay an amount to the landlord. [18] On these particular facts I can see no basis for not observing the usual and primary rule that costs go to the successful party. A landlord that chooses to insist on its legal rights and resist relief may on occasions have understandable and pressing reasons for doing so, that have arisen as a consequence of the non-renewal,which may make a departure from the usual rule appropriate. In other cases, where a tenant's breach or non-renewal has been tactical or flagrant, a departure from the prescribed approach may be appropriate. Where, however, the non-renewal is inadvertent, and the resistance of the landlord is for commercial purposes, to enable it to improve its position from that which applied at the time of non-renewal, there is no reason to depart from the prescribed approach set out in Rule 47(a). There is nothing inherently inequitable in making the unsuccessful landlord pay costs. This is particularly so when an offer was made by the tenant to pay some costs to the landlord at a relatively early stage, as was in this case, and the landlord did not accept it.Quantum of costs[19] This was a case of average complexity, involving average time on the part of counsel, and I allocate costs on a 2B scale. [20] One counsel appeared for the plaintiffs. Two counsel appeared for the defendant. There were no particular complexities of law or fact which made the second counsel essential. Although the appointment of second counsel was perfectly reasonable, and indeed second counsel has had a significant role in this proceeding, that does not mean that allowance should be made for second counsel in a case such as this. Given the lack of complexity, and the fact that the plaintiffs were very well represented by counsel on his own, I am not prepared to order that costs of second counsel be paid. [21] I am not prepared to order that there be any increase in the costs to be paid because of the plaintiffs' conduct of the litigation. While they did refuse theCalderbank offer, that refusal is taken into account in the decision to give the defendant costs in the proceeding that arose from the defendant's error. TheCalderbank offer has already been weighted in the decision to give the defendant costs at the scale rate. [22] For this reason I disregard the material provided as to the actual costs of the defendant. The whole purpose of the new rules is to enable the Court to make costsorders on the basis of scale, rather than actual costs, and there is no reason to depart from that approach in this case. [23] I also note that it is argued that there should be some extra allowance made for the defendant, because of the way in which the plaintiffs chose to initiate these proceedings and make a special application for a priority fixture. However, the plaintiffs were lawfully entitled to possession at the time they initiated the proceeding, and they should not be specially penalised for issuing proceedings in a way which was perfectly open to them at the time. Moreover, I am not satisfied that if the proceeding had been commenced in any different way there would have been any difference as to costs overall.Summary[24] Costs are awarded to the defendant on a 2B scale and on the basis of one counsel appearing... Asher J