STRONG v HURUNUI HOTEL (2004) LIMITED [2015] NZHC 1557

STRONG v HURUNUI HOTEL (2004) LIMITED [2015] NZHC 1557 [6 July 2015]IN THE HIGH COURT OF NEW ZEALANDCHRISTCHURCH REGISTRYCIV-2015-409-000113[2015] NZHC 1557BETWEEN RODGER EDMOND STRONG,NOLA ANN STRONG ANDAMELIA LYNETTE SPENCE SIMPSONApplicantsAND HURUNUI HOTEL (2004) LIMITEDRespondentHearing: (Dealt with on the papers)Counsel: A N Riches for ApplicantsJ Moss for RespondentJudgment: 6 July 2015JUDGMENT OF GENDALL J(As to Costs)[1] In a judgment I gave in this proceeding on 3 June 2015 I granted to the respondent relief against cancellation of its lease of the Hurunui Hotel premises which it operated as lessee. In doing so I reserved leave to the parties to file memoranda on costs if they were unable to resolve costs between themselves.[2] Counsel for the applicant has now filed a memorandum as to costs dated 10 June 2015 and counsel for the respondent has filed his memorandum as to costs dated 1 July 2015.[3] Counsel confirm in these memoranda that, although there have been discussions between the parties, they have been unable to agree on the issue of costs.[4] The parties' positions as to costs are:(a) The applicants seek an order for costs on a category 2B basis together with disbursements. This is on the basis that, while relief against forfeiture of the lease was granted to the respondent (but on a strictly conditional basis here), this Court found as argued by the applicants there had been a serious breach of the lease on the part of the respondent. The applicants in effect had succeeded, with the Court requiring strict compliance with the maintenance provisions under the lease (and a significant security sum to be paid in the meantime to secure performance) with all other obligations under the lease in the meantime to be complied with.(b) The respondent's position is simply that there should be no order of costs made here. Costs should simply be left to lie where they fall.[5] On these issues, the starting point in any costs consideration must be r 14.2(a)High Court Rules which provides the general principle that "the party who fails withrespect to a proceeding or an interlocutory application should pay costs to the partywho succeeds."[6] In Commerce Commission v Southern Cross Medical Care Society,1 the Court of Appeal, in considering this r 14.2(a), said at [13] this represents:a presumption that in the absence of particular reasons to the contrary, costs will follow the event.[7] In this case the applicants in seeking costs are suggesting that the Court, in the exercising of its over-riding discretion, should grant costs to the applicants because of the nature of the respondent's default under the lease and all the prevailing circumstances.[8] As to this, the respondent does accept that it was in breach of the redecoration clause in the lease. It says, however, that it had already accepted this in evidence filed on 14 April 2015 and it was therefore unnecessary for this matter to proceed to1 Commerce Commission v Southern Cross Medical Care Society [2004] 1 NZLR 491 (CA).a hearing. The respondent's position, therefore, is that a fair and equitable result in this matter is simply that costs should lie where they fall.[9] On this Mr Moss, for the respondent, referred me to the Court of Appeal decision in Cunningham v Butterfield2 and noted the comment at para [57] in this decision:[57] what is required is a principled application of the rules. In cases such as this that may require an analysis of the facts to see what has given rise to the litigation, taking into account the conduct of the parties and whether one of them has contributed to its costs or engaged in other conduct that should influence the costs decision.[10] In Cunningham, the Court of Appeal held that costs should lie where they fall notwithstanding that a lessee was in breach of its contractual obligations and primarily responsible for the dispute that had arisen between the parties. It was noted that in granting relief to the lessee he had received an indulgence, but thelessee's conduct was not seen to be at the egregious end of the scale and issuesbetween the parties were regarded as not entirely one-sided.[11] Like the outcome in Cunningham, Mr Moss contends that costs in the present case should also lie where they fall. He suggests the respondent's conduct could notbe seen as egregious in the sense of being flagrant or outstandingly bad or shocking– he says it was simply non-compliance with maintenance provisions under the lease. In addition, Mr Moss contends that issues in this case were not entirely one- sided but, in light of my findings in my 3 June 2015 judgment, I leave this particular aspect on one side.[12] Finally, Mr Moss repeats that this is a matter which should not have gone to trial. He suggests the parties could and should have worked together with therespondent's chosen painter to finalise and have the necessary work done.[13] In response, counsel for the applicants contests many of these suggestions advanced by Mr Moss and maintains that there had been a serious and continuing2 Cunningham v Butterfield [2014] NZCA 213.breach of the lease by the respondent in this case. Although relief against forfeiture had been granted, he notes this occurred only on quite strict conditions.[14] As to these matters, it is useful to refer to several findings I reached in my 3 June 2015 substantive judgment:[22] there can be absolutely no doubt in my mind, that the respondentas lessee is in default in carrying out redecoration of the hotel under this cl 6.3(a) which was due by 23 September 2012in view of the lengthy timewhich has elapsed since September 2012, this can hardly be seen as a valid excuse or justification for the fact that no redecoration work has been undertaken.[23] Nor, in my view, can blame for this be laid at the feet of the applicants as landlords...[40] In the present case there can be no doubt in my mind that the breach, being failure to carry out the redecoration, was deliberate on the part of the respondent as lessee and could not be seen as inadvertent. It was not amatter which could possibly be seen as entirely beyond the tenant's controlin any sense.[15] Referring back to the Cunningham decision noted at [9] above, Mr Riches, counsel for the applicants, also referred me to para [57] of that decision noted there. In doing so he noted also a decision in this Court of Asher J in Ponsonby Mall Trust v NZ Food Industries.3[16] In Ponsonby Mall Trust Asher J referred to earlier High Court decisions in situations not dissimilar to the present, Walsh v Utting4 and Umbria Café v Bridgent Holdings Ltd5 where costs had been awarded to landlords despite the Court having granted relief to tenants. There it was acknowledged that an indulgence of the Court was being sought by the defaulting tenants. And Asher J went on to note that in these cases costs were awarded as:there was evidence of conduct on the part of the tenants that went morethan their inadvertence.3 Ponsonby Mall Trust v NZ Food Industries HC Auckland CIV-2005-404-3631, costs decision, 8 March 20064 Walsh v Utting [2004] 1 NZLR 402.5 Umbria Café v Bridgent Holdings Ltd HC Auckland CIV-2004-404-1311, 4 October 2004, John Hansen J.[17] It does turn out, however, that in Ponsonby Mall Trust Asher J did not award costs to the landlord, distinguishing its conduct in that case from that which had prevailed in the Walsh and Umbria Café decisions. In particular, at para [16] of his decision in Ponsonby Mall Trust Asher J stated:there had been no sharp dealing or attempt to take an advantage on the part of the defendant [the tenant]. Its error was innocent; a simple mistake. The plaintiffs [the landlords] sought to take advantage of that mistake"[18] But Asher J proceeded at para [18] of his decision to note: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.[19] Turning now to other decisions of this Court, in Browning v Pretty & Taylor Limited6 and in Neglasari Farms Limited v Brakatin Holdings Limited7 relief against forfeiture of the leases in question was granted strictly with a requirement or condition that arrears of outgoings and rental were paid immediately, that in theNeglasari Farms case, maintenance work required on the property was completed within a set timeframe, and importantly orders were made granting costs in favour of the landlords in each case.[20] Turning now to the present case, there can be no doubt in my mind here that the breach by the respondent of its obligations under the lease was a serious one. In particular:(a) The level of redecoration work for the hotel both interior and exterior was set out in the lease, it was long overdue and despite major efforts by the applicants to have the work specified and completed, it simply had not been addressed by the respondent in any real way.(b) Orders requiring redecoration were made following the arbitration on 15 September 2014. Despite this no steps were taken in any real way by the respondent.6 Browning v Pretty & Taylor Limited HC Auckland, 5 February 1996, Williams J.7 Neglasari Farms Limited v Brkatin Holdings Limited HC Auckland, 4 May 2010, Andrews J.(c) The applicants, as landlord, had provided a schedule setting out the work they saw as necessary to redecorate, but despite this no steps were taken by the respondent in the four months allowed for this to occur.(d) A Property Law Act Notice was issued by the applicants against the respondent but again despite this, no steps were taken.(e) The applicants it must be acknowledged out of a sense of some desperation, issued the present proceedings including an application for possession of the hotel premises. Despite this major and serious action on the part of the applicants, I am satisfied no genuinely effective steps were taken by the respondent until perhaps the day prior to the first call of this matter.[21] I conclude that without question in the current case, the respondent as lessee was in clear default under the lease and no blame for this could be placed at the feet of the applicants. The breach also, as I note at para [45] of my decision, was indeed a serious one.[22] Under all these circumstances I find that the applicants are entitled to an order for costs and disbursements on their application, despite the fact that to a point, the respondent was successful in obtaining conditional relief against forfeiture of the lease.[23] And, as to quantum, as I see it no real issue is taken here with the costs categorisation claimed by the applicant.[24] An order is made therefore that the applicants are entitled to costs with respect to this proceeding, calculated on a category 2 basis together with disbursements as approved by the Registrar....................................................Gendall JSolicitors:Saunders & Co, ChristchurchJai Moss, Christchurch