THE HONG KONG & SHANGHAI BANKING CORPORATION LTD V RICK DEES LTD HC AK CIV 2006-404-5278

THE HONG KONG & SHANGHAI BANKING CORPORATION LTD V RICK DEES LTD HC AK CIV 2006-404-5278 21 September 2006IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY CIV 2006-404-5278UNDER the Land Transfer Act 1952 BETWEEN THE HONG KONG & SHANGHAI BANKING CORPORATION LIMITED Applicant AND RICK DEES LIMITED Respondent Hearing: By Memorandum Appearances: D.M. Hughes / J.P. Nolen for Applicant No steps taken by Respondent Judgment: 21 September 2006 at 4.40pmCOST JUDGMENT OF ASSOCIATE JUDGE D.H. ABBOTTIn accordance with R540(4) I direct that the Registrar endorse this judgment with the delivery time of 4.40pm. on 21 September 2006Solicitors: Kensington Swan, Private Bag 92101, Auckland[1] The applicant seeks an award of increased costs in respect of its successful application to remove the respondent's caveat to permit sale of the subject properties by mortgagee sale. [2] An order for removal of the caveat was made on 7 September 2006. The respondent had not taken steps. In its application, the applicant applied for indemnity costs. At the hearing on 7 September 2006 I informed counsel for the applicant that I doubted that there were grounds for indemnity costs, but gave leave for counsel to file a memorandum in support of an application for indemnity costs or, alternatively, for increased costs if counsel believe that that was the more appropriate course. [3] Counsel for the applicant has filed a memorandum seeking increased costs. In essence, the grounds for the application are that the respondent had no basis for sustaining the caveat, and had unreasonably refused to withdraw it in the face of the pending mortgagee sale. The issue for the Court is whether the applicant has made out a basis for increased costs.Background[4] The applicant holds a mortgage over five flats at 15 Smith Avenue, Papakura. The mortgage was registered on 14 May 2003. [5] The respondent lodged Caveat X5932184.1 against these properties on 8 March 2004 claiming interests under agreements for sale and purchase with the registered proprietor. [6] The applicant is taking steps to sell the properties in exercise of its power of sale under the mortgage. It has entered into an agreement to sell the properties, conditional on removal of the respondent's caveat. On 10 August 2006 the applicant's solicitors wrote to the respondent and another caveator of the properties requesting removal of the caveats, and pointing out the interests on which the caveats were based were extinguished by exercise of the power of sale. The respondent was advised that the applicant would apply to this Court for an order removing thecaveat, and for costs on a solicitor and client basis, if the respondent failed to withdraw the caveat. [7] The second caveator responded immediately confirming that its caveat had been removed. On 16 August 2006 the applicant's solicitors were advised in a telephone conversation with the respondent's solicitors that the respondent was not intending to take any steps as it was of the view that its caveat would be removed when the transfer (pursuant to the power of sale) was registered. The applicant's evidence is that its solicitors pointed out that the caveat would not be removed automatically because the caveatable interest claimed by the respondent did not arise under an unregistered mortgage or an agreement to mortgage as required by s 141(3)(c) of the Land Transfer Act 1952. [8] The advice from the applicant's solicitors went unheeded. Accordingly, on 30 August 2006 the applicant filed its application to remove Caveat X5932184.1, together with an ex parte application for orders abridging time for filing of any opposition, with a view to having the application heard on 6 September 2006 or as soon as time was available after that date. [9] The proceedings were served on the respondent at its registered office on 31 August 2006. An order for abridgement of time was made on 1 September 2006, and a copy of the Court's minute recording that order was served on the respondent at its registered office on 4 September 2006. The respondent did not file any opposition, nor appear on the hearing of the originating application on 7 September 2006. [10] On 14 September 2006 the applicant applied by memorandum (in accordance with directions given at the hearing on 7 September 2006) for increased costs (of 50% on scale on a 2B basis) plus disbursements. The increased costs are sought on the grounds that the application was unnecessary as the respondent should have consented to removal of its caveat.Applicable principles[11] Under r 48C of the High Court Rules, the Court may make an order increasing costs otherwise payable in accordance with the rules. The circumstances in which such an order may be made are prescribed in r 48C(3) which reads:48C Increased costs and indemnity costs (3) The Court may order a party to pay increased costs if— (a) The nature of the proceeding or the step in the proceeding is such that the time required by the party claiming costs would substantially exceed the time allocated under band C; or (b) The party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in the proceeding by— (i) Failing to comply with these rules or a direction of the Court; or (ii) Taking or pursuing an unnecessary step or an argument that lacks merit; or (iii) Failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument; or (iv) Failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, notice for interrogatories, or other similar requirement under these rules; or (v) Failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 48G or some other offer to settle or dispose of the proceeding; or (c) The proceeding is of general importance to persons other than just the parties and it was reasonably necessary for the party claiming costs to bring the proceeding or participate in the proceeding in the interests of those affected; or (d) Some other reason exists which justifies the Court making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.[12] The Court of Appeal has recently provided guidance on the correct approach to an award of increased costs in Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897. That approach can be summarised as: a) First, the Court must establish the scale in accordance with rr 47-48B. This requires the Court to categorise the proceeding in terms of r 48, and then to work out a reasonable time for each step in the proceeding. b) In coming to a view on increased costs based on time needed, the Court considers the time reasonably required for the step, and increases the amount of time allocated for that step only if it exceeds the time allocation in the highest band (Band C). In other words, itmust come to the view that the time allocation under Band C is insufficient for the work reasonably undertaken. c) The grounds in r 48C(3)(b), (c) and (d) are additional to and distinct from an uplift based on time reasonably required. [13] In Holdfast NZ Ltd v Selleys Pty Ltd the Court of Appeal addressed only the grounds in r 48C(3)(b), which depend on a finding that "the party opposing costs is contributed unreasonably to the time or expense of the proceeding or step in the proceeding". Once that conduct has been made out "the court's normal response should be to provide an uplift on scale costs to what the rules contemplate a reasonable fee for that step to be". The Court of Appeal took the view that, as the scale represents two-thirds of the daily rate considered reasonable for a particular proceeding, an increase of 50% on scale costs would grant the costs-claiming party a fair recovery for a step unnecessarily forced on it (assuming that time had been reasonably calculated under the time bands, or under r 48C(3)(a)): Holdfast NZ Ltd v Selleys Pty Ltd at paragraphs [46] to [48].Discussion[14] The applicant accepts that cost category 2 is the appropriate category, and that the time required for the various steps comes within Band B. It claims an uplift of 50% from that scale determination, however, on the grounds that the respondent's standpoint that the caveat would lapse automatically lacked merit (r 48C(3)(b)(ii)), or that it failed without reasonable justification to accept its invitation to withdraw the caveat (r 48C(3)(b)(v)), or that its failure to respond to the applicant's request to withdraw the caveat otherwise constituted sufficient justification for the Court to make an order for increased costs: r 48C(3)(d). [15] There appear to be two issues which need to be determined on this application. The first is whether an award of costs should be made in circumstances where the respondent has taken no steps. The second is whether any ground for increased costs has been made out.[16] The first issue can be disposed of briefly. The respondent's caveatable interest in the properties was extinguished by the applicant's exercise of its power of sale: Jenssen v Jenssen & Ors CA246/90 13 December 1990 and Canterbury Finance Ltd v Sagar Trust Ltd (1997) 3 NZ ConvC 192,571. The caveatable interest claimed was said to arise from agreements for sale and purchase in respect of these properties. This was not an interest recognised by s 141(3)(c) of the Land Transfer Act 1952 as allowing the Registrar to register the transfer pursuant to the power of sale. The caveat had to be removed, it would not automatically lapse pursuant to s 141(4) of the Land Transfer Act 1952. [17] The respondent was put on notice that it had no basis for retaining the caveat and that an application would be brought and costs sought if it did not withdraw the caveat. In those circumstances, I consider that the applicant should be entitled to costs. [18] I turn then to consider whether there is a case for increased costs. The applicant relies on two of the grounds under r 48C(3)(b) in saying that the respondent has contributed unnecessarily to the expense of this proceeding by taking an argument that the application is unnecessary (because the caveat will lapse automatically) or in failing to accept the applicant's request to withdraw the caveat. As I read the grounds set out in r 48C(3)(b) they are all predicated on actions of the respondent which increased the time or cost of a proceeding once it has issued. In this case, the respondent took no steps and hence cannot be said to have increased the amount of time or expense of the proceeding. The respondent took a view as to the need for the proceeding (which I have found to be misconceived) but has done nothing further to hinder the making of the requisite order. I do not think an order for increased costs under r 48C(3)(b) can be made on these facts. [19] The other ground put forward by the applicant is the wider and more general provision in r 48C(3)(d). In my view, the respondent has exhibited a degree of intransigence over the matter. It is apparent from the affidavit of John Ray Kennedy sworn and filed in support of the application, that there has been a history of disputes between the parties. I infer that, faced with the inevitability that the caveat would be extinguished, the respondent decided it would do nothing to assist. Whilst that wouldhave been appropriate if the caveat had lapsed automatically on presentation of the transfer for registration, the applicant made it clear to the respondent two weeks before this application was filed that the caveat would not lapse automatically. In my view, the respondent's intransigence in light of that information does justify an order for increased costs.Quantum of costs[20] The applicant seeks an uplift of 50% on costs calculated on a 2B basis. In my view, that is the fair level of recovery for the applicant on the basis of the standard of "the notional solicitor or counsel appropriate for the category of proceeding" as confirmed by the Court of Appeal in Holdfast NZ Ltd v Selleys Pty Ltd. [21] I have also considered the items claimed by counsel for the applicant in his memorandum (at paragraph 13):Item No Description Allocated Days Daily Rate Total4.10 Filing memorandum for appearance 0.4 $1,600 $640 4.12 Preparing and filing interlocutory application for abridgement of time 0.6 $1,600 $960 4.17 Appearance at hearing 0.2 $1,600 $320 4.18 Sealing order 0.2 $1,600 $320 26 Preparing and filing specified originating application and supporting affidavits 1.6 $1,600 $2,560Total 3 $4,800[22] I am satisfied that all items and costs are properly claimable.Decision[23] The respondent is to pay the applicant's costs in the sum of $7,200 (being an increase of 50% on scale costs on a 2B basis as set out in the preceding paragraph) together with disbursements to be fixed by the Registrar. ________________________________Associate Judge D.H. Abbott