STYLO MEDICAL SERVICES LTD v HUM HOSPITALITY LTD [2015] NZHC 2297

STYLO MEDICAL SERVICES LTD v HUM HOSPITALITY LTD [2015] NZHC 2297 [22 September 2015]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYCIV-2013-404-4995[2015] NZHC 2297UNDER Section 244 Property Law Act 2007BETWEEN STYLO MEDICAL SERVICES LTDApplicantAND HUM HOSPITALITY LTDRespondentHearing: On the papersCounsel: R O Parmenter for ApplicantS Abdale for RespondentJudgment: 22 September 2015JUDGMENT OF WHATA J[Costs]This judgment was delivered by me on 22 September 2015 at 4:30pmPursuant to r 11.5 of the High Court RulesRegistrar/Deputy RegistrarSolicitors: Winston Wang & Associates, AucklandFoy & Halse, AucklandCounsel: R O Parmenter, AucklandS Abdale, AucklandIntroduction[1] Stylo Medical Services Limited ("Stylo") is the landlord. Hum HospitalityLimited ("Hum") is the lessee. This is a costs judgment.[2] In my judgment of 27 May 2015,1 I:(a) Granted relief from forfeiture in respect of the second breach of repaircovenant cancellation application (the third cancellation application).(b) Dismissed an application for stay of the second breach of rental covenant cancellation (the fourth cancellation application).(c) Granted relief from forfeiture in respect of the fourth cancellationapplication, but subject to the condition that leave was reserved forStylo to seek cancellation in the event that any outstanding rentalpayments due and owing as at 31 June 2015 were not made inaccordance with the lease terms by that date.[3] I also directed that the parties have ten working days to file memoranda as to costs. Moore J granted an extension of time for the parties to file their submissions on costs to 31 July 2015.[4] The final costs submissions were received on 3 August 2015.[5] My judgment was the sixth High Court judgment in 24 months concerning a leasehold of a grand villa in Parnell. The depth and breadth of the acrimony betweenthe parties is perhaps best illustrated by Stylo's failed insistence that Hum shouldforfeit its lease because it was one day late in complying with an order of this Court to pay the rent.21 Stylo Medical Services Ltd v Hum Hospitality Ltd [2015] NZHC 1150 [6th cancellation decision].2 The Court of Appeal recently disposed of this. See Stylo Medical Services Ltd v Hum Hospitality Ltd [2015] NZCA 405.[6] I refer to this particular aspect because it illustrates:a) Stylo's insistence on strict adherence with the lease terms; andb) Hum's apparent inability to comply with the lease terms.Resolution[7] Costs must lie where they fall in relation to the second and fourth cancellation applications. There shall be an order of costs in favour of Stylo in relation to the stay application on a 2B basis.[8] My reasons follow:Context[9] The background to the long running dispute between the parties is thoroughly set out in previous judgments.3 This costs judgment concerns two outstanding matters, namely:(a) a second application for cancellation made by Stylo in respect of alleged non-compliance with a covenant of repair; and(b) a second application made by Stylo for non-payment of rent in January this year.[10] Hum also sought a stay in respect of the second application for non-payment of rent contending, in short, that it was an abuse of process.[11] As foreshadowed above, I resolved to grant relief in cancellation in respect of both applications. In respect of the alleged breach of the repair covenant I observed:[26] Given the foregoing, I have come to the view that in light of Mr White's report and the evidence as a whole, substantial works havebeen undertaken by Hum with key aspects of it undertaken to a good workmanlike standard. Any residual relevant breach of cl 48.5 appears to3 See Stylo Medical Services Ltd v Hum Hospitality Ltd, above n 1 at [3].be minor. I therefore conclude that it is appropriate that my temporary order be made final insofar as concerns the complaint made by Stylo in relation to non-compliance with cl 48 of the lease.[12] In relation to the non-payment of rent claim, after weighing the various factors for and against relief, I resolved that further relief was warranted in the circumstances. For present purposes I made the following observations:(a) Hum had made substantial improvements to the property so that it was habitable. The significance of this was highlighted by reference to the terms of the lease and a particular emphasis on the dilapidated state of the property at the commencement of the lease.(b) The amount owing at any time (after compliance with the first order of the Court) was small, relative to the contribution made by Hum to the property.(c) The lease was premised on the understanding that an exchange for the property being restored to a habitable state, Hum would be able to enjoy the leasehold over the very long term. The insistence by Stylo on its strict legal rights was, in my opinion, discordant with this underlying premise. While Stylo was fully entitled to insist on its legal rights, further relief from cancellation was warranted in those circumstances.[13] As to the stay application, I found that Stylo had not abused the PLA notice regime thus far. I observed, however, that Stylo was undertaking a litigious approach to rental payments and that closer scrutiny will need to be given to the appropriateness of costs on the applications, particular where any default has been very short.Framework[14] Rule 14.1 confers a general discretion on this Court to award costs. That discretion is not unfettered and should be exercised in accordance with the general scheme of Part 14. When the discretion is exercised outside the general scheme ofthose rules, then it must be undertaken in a considered and particularised way.4 InHoldfast New Zealand Ltd v Selleys Pty Ltd,5 the Court of Appeal held that the following steps should be taken when assessing costs:(a) Categorise the Proceeding under r 14.3;(b) Work out a reasonable time for each step under r 15.5;(c) Consider whether extra time is justified; and(d) Step back and assess overall entitlement to costs, under r 14.6 dealing with increased and indemnity costs.[15] As to increased costs, they may be awarded where one party can show that the other party failed to act reasonably. As to indemnity costs, the leading authority remains Bradbury v Westpac Banking Corporation.6 The relevant test is framed as follows:Indemnity costs may be ordered where that party has behaved either badly or very unreasonably.[16] The Court of Appeal in Cunningham v Butterfield had cause to examine the principles relating to costs in a lessor/lessee dispute and particularly in circumstances where relief has been granted.7[17] The Court concluded:[57] In our view the cases on which Mr Johnson relied should not be seen as establishing a general rule that costs will usually be granted in favour of a lessor who has unsuccessfully opposed an application for relief against forfeiture made by a lessee. While we accept that the cases temper the general rule that costs should follow the event, we do not consider that the position can be put on any more definite basis. Rather, 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 contributed4 Glaister v Amalgamated Dairies Ltd [2014] 2 NZLR 606 (CA).5 Holdfast New Zealand Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA).6 Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400, at [29].7 Cunningham v Butterfield [2014] NZCA 213.to its costs or engaged in other conduct that should influence the costs decision.[18] Against this backdrop I propose to examine each of the costs claims by reference to the separate applications.Submissions[19] Mr Parmenter seeks costs in respect of all three matters. The central thrust of his submissions is that Hum has enjoyed the considerable indulgence of the Court and costs should follow, as foreshadowed in my interim decision on the second breach of repair covenant application.8 He also says that the stay application was misconceived.[20] In rather more lengthy submissions, Ms Abdale claims (in short) that:(a) Stylo unreasonably failed to engage in alternative dispute resolution;(b) Stylo failed to meaningfully engage about the required repairs withHum after Ellis J's decision;(c) Stylo has waged a campaign against Hum;(d) The claim of breach of the repair covenant was res judicata, the matter having been resolved by Ellis J;(e) Hum was successful in obtaining relief against cancellation in every case;(f) Hum had paid the outstanding rentals by the time of the hearing;(g) As to quantum, the documents filed on second rental application is essentially the same documents as the first proceedings; and(h) Hum has now met all outgoings and rental.8 Stylo Medical Services Ltd v Hum Hospitality Ltd [2014] NZHC 1587.[21] Regrettably neither counsel referred to the leading authority on costs in this context. That gap has necessarily been filled by me at [16]. No further submissions were sought, given the relevant principles are both apposite and clear.The third cancellation application – second alleged breach of repair covenant[22] Contrary to my assumption in the interim decision on this matter, success was, in the end, equally shared:(a) Stylo established a case for cancellation, but the degree of non-compliance by Hum in respect to cl 48.5 was relatively minor by the time the matter came before me.(b) Stylo's previous application in relation to the same alleged breachesdid not succeed before Ellis J in the first of the cancellation proceedings. Notably, Ellis J did not award costs on that decision.(c) Stylo re-litigated the same matters raised in the first cancellation proceedings, though I accept on the basis that little or no progress had been made in terms of the repairs since that decision (so that no issue of res judicata arises in any literal sense).(d) Hum engaged, at its expense, an independent expert to assist the Court in the resolution of the claims of non-compliance. While in the end that report was of limited use, it enabled me to make a final conclusion on the merits of the application and I ultimately formed a view that the merits that lay with Hum in terms of the ongoing (minor) scale of any breach and relief.9[23] In those circumstances, I am satisfied that the ordinary rule that costs should be awarded in favour of the landlord in cases of relief from forfeiture should not9 I note with interest the observation of the Court of Appeal in Greenshell New Zealand Ltd (in rec) v Kennedy Bay Mussel Company (NZ) Ltd [2015] NZCA 374 at [62], that the paradigmcase for relief is "where the primary object of the bargain is to secure a stated result" which can be effectively attained "when the matter comes before the court". In this case the primary objectof the bargain was to restore the villa to enable its commercial use. With the substantial restoration of the villa, this object has been largely been obtained.apply. I am equally satisfied that Hum must carry its own costs – it had not completed all of the required works by the time of the hearings, and relief was still an indulgence.The fourth cancellation application – second breach of rental covenant[24] As mentioned in my judgment, the insistence by Stylo on its strict legal rights was, in my view, discordant with an underlying premise of the lease agreement, namely that Hum would enjoy the leasehold over a very long term once it had restored the grand villa to a habitable state (which it had done). Stylo also essentially filed a facsimile of the previous breach of rental covenant application. I have come to the view therefore that it would be wrong in the overall circumstances of the litigation to require Hum to bear the costs of the proceedings particularly given that the rental upon which the claim was based had been paid by the time of the hearing.[25] Balanced against this, the indulgence of this Court afforded to Hum is now well and truly spent. Hum must have known that Stylo had no more tolerance for non-compliance with the lease terms, and this was (at least) the second occasion of failure to comply with the rental payment provisions. While the rent owing was in fact paid prior to the hearing, there was evidence of further non-compliance with the rental covenant – though no PLA notice has been issued in respect of it at that time. I therefore reject the suggestion by Ms Abdale for Hum that it should be entitled to costs on this application.[26] Overall, therefore, the costs on both the proceedings should lie where they fall.Stay application[27] The application by Hum for stay was, as Mr Parmenter submitted, misconceived. Stylo was entitled to rely on the strict adherence to the covenants of the lease. While the approach it has taken is litigious, it is not for Hum to complainabout a foreseeable consequence of its own breach. Ms Armitage's affidavitevidence complaining about Stylo's lack of engagement might have resonated morestrongly if this was a solitary breach over a short span of time. But the broader context is one of various breaches of repair and rental covenants over a sustained period. There must therefore be an order in favour of Stylo on this application.[28] As to the quantum, there was little or no complexity to it and all the relevant facts were well known to the parties so I doubt that Stylo was put to a substantial additional expense. On that basis, I adopt an orthodox 2B measure for the purposes of costs on this specific issue, at 1 day for all attendances.Affidavit evidence[29] While Mr Parmenter did not object to the evidence filed with Hum'ssubmissions on costs, I wish to record my concern about the detailed affidavit evidence from Ms Armitage. The affidavit contains a number of serious allegations which could not possibly be resolved by me in the context of an orthodox resolution of a costs application on the papers. It had the potential to escalate this litigation still further. While I have taken it into account, in the end, it was of limited use to me.Outcome[30] I resolve:(a) There shall be no order as to costs in relation to the third and fourth cancellation applications; and(b) There shall be an order of 2B costs of $1990, together with disbursements as fixed by the registrar in favour of Stylo in relation to the stay application.________________________________Whata J