VILLA STREET HOLDINGS LIMITED v WATER MART WAIRARAPA (2017) LIMITED [2020] NZHC 1569

VILLA STREET HOLDINGS LIMITED v WATER MART WAIRARAPA (2017) LIMITED [2020] NZHC 1569[7 July 2020]IN THE HIGH COURT OF NEW ZEALANDMASTERTON REGISTRYI TE KŌTI MATUA O AOTEAROAWHAKAORIORI ROHECIV-2020-435-8[2020] NZHC 1569UNDER Section 244 of the Property Law Act 2007IN THE MATTER of an application for possession of land andcancellation of a leaseBETWEEN VILLA STREET HOLDINGS LIMITEDApplicantAND WATER MART WAIRARAPA (2017)LIMITEDRespondentCounsel: D Bleier for applicantP Michalik for respondentJudgment: 7 July 2020COSTS JUDGMENT OF ASSOCIATE JUDGE JOHNSTON[On the papers][1] The applicant, Villa Street Holdings Ltd, owns a property situated at 38–42Villa Street in Masterton. In mid 2017, Villa Street and the respondent, Water MartWairarapa (2017) Ltd, entered into an agreement pursuant to which Villa Street agreedto lease and Water Mart agreed to take on lease the property. The parties executed adeed of lease on 31 July 2017. The rental due pursuant to the lease was not paid on1 March 2020 and on 5 March 2020 Villa Street served on Water Mart a noticepursuant to s 245 of the Property Law Act 2006 requiring the overdue rent to be paid,which notice appears to have been ignored. Accordingly, on 24 March 2020,Villa Street commenced this proceeding seeking orders terminating the lease, grantingit possession, ordering the payment of outstanding rent, interest, compensation andcosts. On 22 April 2020, the respondent filed and served a notice of opposition.[2] The dispute concerning the lease was ultimately settled, and counsel informedthe Court of this in a joint memorandum dated 12 June 2020.[3] One additional aspect of the background is relevant. Villa Street's managingdirector is Mr Rodney Miller. Water Mart's managing director is Mr RichardMcNaughton. Both, I understand, are plumbers. Mr Miller formerly ran a plumbingbusiness, through another company, from the property owned by Villa Street. Thatbusiness was acquired by Mr McNaughton through Water Mart and has since been runby him from the property. Since the sale and purchase of the business there has beenconsiderable tension between Mr Miller and Mr McNaughton, with the latter makingserious allegations, including an allegation of fraud, in connection with the sale andpurchase of the business. Of course that commercial dispute is distinct from this leasedispute, involving different parties and different issues. But, inevitably, there has beensome crossover between the two disputes. It will be necessary to refer again to thisaspect of the background.[4] The only outstanding issue is costs. The parties have been unable to resolvethese, and they ask the Court to do so. Mr Bleier for Villa Street and Mr Michalik forWater Mart have filed and served memoranda, for which I thank them.[5] Mr Bleier refers the Court to r 14.6(e) of the High Court Rules 2016 whichprovides that the Court may award indemnity costs in various circumstances, includingwhere the party claiming costs has a contractual right to recover his, her or its solicitorand client costs. It is common ground that that is the position here. Clause 6.1 of thelease provides:The tenant shall pay the landlord's reasonable costs incurred in consideringany request by the tenant for the landlord's consent to any matter contemplatedby this lease, and the landlord's legal costs (as between lawyer and client) ofand incidental to the enforcement of the landlord's rights and remedies andpowers under the lease.[6] Mr Bleier goes on to refer to the Court of Appeal's judgment in Watson & SonLtd v Active Manuka Honey1 where the Court said in relation to the assessment ofsolicitor and client costs:1 Watson & Son Ltd v Active Manuka Honey [2009] NZCA 595 at [35].It is clear in principle and on authority that once it is established that theindemnity is applicable in the circumstances and that, properly construed, itincludes solicitor-client costs, no discretion remains available other than onpublic policy grounds or as part of an assessment by the Court as to whetherthe amount of the solicitor and client costs is objectively reasonable[7] As to the assessment of reasonableness, Mr Bleier referred to Frater Williams& Co Ltd v Australian Guarantee Corporation (NZ) Ltd:2The object is not to exercise a discretion but rather to assess whether thesolicitor-client costs sought are properly attributable to the exercisecontemplated in the original contract and are charged for at a level whichwould be regarded as acceptable in a costs revision under the LawPractitioners Act.[8] Mr Bleier accepts that the costs in this case are higher than might ordinarily beexpected in a case of this sort, and contends that this reflects the approach taken byWater Mart. He says that Mr McNaughton persisted in raising and re-raising issuesrelating to the commercial dispute in the context of this proceeding and that this addedmaterially to the costs.[9] For Water Mart, Mr Michalik accepts that Villa Street is entitled to its solicitorand client costs in relation to the dispute concerning the lease. He makes two closelyrelated — indeed, interwoven — submissions, first that a significant proportion of thecosts claimed were incurred in relation to the commercial dispute which is not coveredby the indemnity, and second that the costs incurred are not reasonable.[10] The essential issue is whether, to the extent that the Court may conclude thatthe charges appear higher than would normally be expected, that is explicable byreference to the actions of Mr McNaughton and the costs are nevertheless reasonable.[11] Mr Michalik's starting point is that the costs regime contained in theHigh Court Rules is designed to enable a successful party, not otherwise disqualifiedfrom claiming costs, to recover approximately two thirds of what his, her or itssolicitor and client costs might be. He makes an assessment of the scale of costs thatVilla Street may have been entitled to claim in this case had the lease not provided for2 Frater Williams & Co Ltd v Australian Guarantee Corporation (NZ) Ltd (1994) 2 NZ ConvC191-873 at 191, 887.the recovery of indemnity costs. These he calculates at $6,692. Multiplying that figureby 1.5 he arrives at a calculation of what one might expect Villa Street's solicitor andclient costs to have been, that is to say $10,038. He submits that the Court should treatthat figure as a starting point in assessing whether Villa Street's actual solicitor andclient costs are reasonable.[12] In relation to this Mr Michalik refers to the Court of Appeal's decisions inHoldfast NZ Ltd v Selleys Pty Ltd 3 and Bradbury v Westpac Banking Corporation.4[13] He acknowledges that those cases arose in a different context, namely indetermining a basis for ordering increased costs over scale.[14] In my view, there is a material difference between making an assessment ofsolicitor and client costs in the context of dealing with an application for increasedcosts on the one hand and the present situation. The difference is that here there is acontract to the effect that Villa Street will be indemnified by Water Mart for its actualcosts " of and incidental to the enforcement of [its] rights and remedies and powersunder the lease". As Mr Bleier submits, that means that Villa Street's claim is notnecessarily limited to the costs associated with taking formal steps in the proceeding.[15] Whilst in principle I accept that an assessment of scale costs multiplied by 1.5may be a useful point of reference, it is no more than that. Moreover, it seems to meto be important to bear in mind both that scale costs are dictated by the daily rates setout in sch 2 to the High Court Rules which are not necessarily fixed by reference tocurrent market conditions, and also that the time allowances contained in sch 3 do nottake account — and are not designed to take account — of the particular circumstancesof each case.[16] Mr Michalik draws attention to the fact that the costs claimed by Villa Streetare approximately 2.7 times his benchmark figure. That he suggests must mean thatin dealing with the lease dispute Villa Street's solicitors and counsel also included3 Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 at [46]–[48].4 Bradbury v Westpac Banking Corporation [2009] 3 NZLR 400 at [6] and [9].attendances more properly attributed to the underlying commercial dispute which hesubmits is not something covered by the indemnity.[17] It is certainly true that the standout feature in this case is that the lease disputetook place against the backdrop of the commercial dispute. Indeed, thecontemporaneous correspondence between the parties makes it clear that Water Martwithheld payment of the rental payable on 1 March 2019 expressly becauseMr McNaughton perceived himself or Water Mart to have a claim against Mr Milleror his former company.[18] Against that background, it is not at all difficult to envisage how Villa Street'ssolicitors and counsel were obliged to devote more time to each aspect of the leasedispute than might ordinarily be expected. A review of the correspondence betweenthe parties and Water Mart's Notice of opposition and affidavit evidence bears this out.[19] In those circumstances, I am not persuaded that scale costs are an especiallyhelpful guide in assessing the reasonableness of the costs incurred by Villa Street.[20] Villa Street's advisers apparently costed this file on a time and attendancebasis.[21] The hourly rates charged by Villa Street's solicitors ($260) and counsel ($350)appear to me to be well within the range that would be regarded as reasonable.[22] There is no suggestion that Villa Street's solicitors or counsel did not expendthe time they are said to have expended in dealing with the matter.[23] Accordingly, the issue reduces itself to a broad assessment of reasonablenessof the time involved.[24] Standing back from the matter as best I can, my assessment is that the total feesincurred by Villa Street in dealing with this matter ($27,280), are, in the circumstancesdescribed, not outside the range of costs that I would regard as reasonable (between$10,000 and $30,000). Certainly, they are towards the upper end of that range.However, I accept that the explanation for that is essentially that the commercialdispute and the approach adopted by Water Mart demanded that Villa Street'ssolicitors and counsel gave this matter more attention than might ordinarily benecessary. In the end, my judgement is that there is no basis upon which the Courtcould conclude that the costs incurred by Villa Street are unreasonable.[25] It follows that Villa Street is entitled to recover the full amount claimed, and Ienter judgment for Villa Street against Water Mart in the total sum of $27,820 ($27,280in respect of costs and $540 in respect of disbursements).Associate Judge JohnstonSolicitors:Gawith Burridge, Masterton for applicantTaverner Keys & Co, Carterton for respondent