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Lothbury Management Limited v Ryan [2021] NZHC 3011 (8 November 2021)

Last Updated: 21 December 2021

JUDGMENT OF PAUL DAVISON J

[Re: Costs]

This judgment was delivered by me on 8 November 2021 at 3pm pursuant to r 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:

Grant & Co., Auckland Vodanovich Law, Auckland

LOTHBURY MANAGEMENT LTD v RYAN AND ANOR [2021] NZHC 3011 [8 November 2021]

• [1] In a Judgment delivered on 1 October 2021 I dismissed the appeal by Lothbury Management Limited (the appellant) against a decision of the District Court on a question of law under s 119 of the Residential Tenancies Act 1986. The proceedings relate to the appellant’s claim against the respondents for arrears of rent and associated outgoings in relation to their occupation of a residence which was formerly the matrimonial home of Mr Stuart Lobb (who is the sole director of the appellant), and the first-named respondent Ms Verena Ryan. At the conclusion of the Judgment I found that the respondents were entitled to an award of costs on a scale 2B basis and I directed the parties to file costs memoranda.¹ This judgment determines the issue of costs, and also addresses the respondents’ application for an award of costs to be made against Mr Lobb personally as a non-party.

2B costs — Approach

• [2] Matters relating to costs are at the discretion of the Court,² which must be exercised on a principled basis.³ The determination of costs, so far as possible, should be both predictable and expeditious.⁴

• [3] Rule 14.2(1)(a) provides that, “the party who fails ... should pay costs to the party who succeeds”. The other relevant principles set out in r 14.2(1) are that:

(a) an award of costs should reflect the complexity and significance of the proceeding; and

(b) costs should be assessed by applying the appropriate daily recovery rate to the time considered reasonable for each step reasonably required in relation to the proceeding or interlocutory application.

• [4] The successful party is entitled to recover the actual disbursements incurred that were reasonable in amount, reasonably necessary for the conduct of the proceeding, and were specific to the conduct of the proceeding.⁵

¹ Lothbury Management Ltd v Ryan [2021] NZHC 2621 at [54].

² High Court Rules 2016, r 14.1(1).

³ Huakiwi Copenhagen Lot 4 Orchard Ltd v Te Moana [2019] NZHC 1582 at [13]; Bi v Westcoast Mining Ltd [2020] NZHC 2940 at [14].

⁴ High Court Rules 2016, r 14.2(1)(g).

⁵ High Court Rules 2016, r 14.12. See further A C Beck and others McGechan on Procedure (loose- leaf ed, Thomson Reuters) at [HR14.12].

Scale 2 B

• [5] The first issue is the appropriate scale to be applied. The respondent submits that an award of $9,799.00 for 2B costs and $60.00 in disbursements, totalling

$9,859.00 is appropriate. The appellant agrees and does not oppose an order being made in the sum of $9,859.00.

Non-party costs

• [6] The Respondents seek a non-party costs order against Stuart James Lobb. Mr Lobb is the sole shareholder and director of the appellant Lothbury Management Limited.

• [7] The general discretion as to costs contained in r 14.1 of the High Court Rules 2016 permits the Court to award costs against non-parties to litigation. They are generally regarded as being “exceptional” in the sense of being outside the ordinary run of cases where costs are awarded to or against parties who are directly involved in the proceedings.⁶ Non-party costs are only made when it is just to do so, and when the circumstances show that “something more” about the non-party’s conduct warrants costs being awarded against them.⁷

• [8] In Bassett-Burr v BPE Trustees Ltd the Court of Appeal recently reviewed and stated the principles applicable to applications for non-party costs:⁸

• [7] The Court has jurisdiction to order a non-party to pay costs.⁹ The general approach to the exercise of that jurisdiction was set out in the judgment of Lord Brown in Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) as follows:¹⁰

Although costs orders against non-parties are to be regarded as “exceptional”, exceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. The ultimate question in any such “exceptional” case is whether in all the circumstances it is

⁶ Minister of Education v H Construction North Island Ltd (in rec and liq) [2019] NZHC 1459 at [1].

⁷ Kidd v Equity Realty (1995) Ltd [2010] NZCA 452 at [16].

⁸ Bassett-Burr v BPE Trustees (No.1) Ltd [2020] NZCA 457.

⁹ Carborundum Abrasives Ltd v Bank of New Zealand (No 2) [1992] 3 NZLR 757 (HC); Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2) [2004] UKPC 39, [2005] 1 NZLR 145; and pursuant to the discretion in High Court Rules 2016, r 14.1.

¹⁰ Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2), above n 9, at [25(1)].

just to make the order. It must be recognised that this is inevitably to some extent a fact-specific jurisdiction and that there will often be a number of different considerations in play, some militating in favour of an order, some against.

• [8] A non-party costs award may be made against directors of companies (such as Mr Bassett-Burr) although, because of their duty to the company, the court may require an additional element such as impropriety or bad faith.¹¹

• [9] However, the courts have emphasised that the non-party should be put on notice of an intention to seek costs from them. Indeed, in Poh v Cousins & Associates, Associate Judge Osborne said:¹²

[27] There has been some emphasis in case law on the importance of the giving of notice to non-parties, before litigation is commenced, if there is later to be an application for costs to be paid by a non-party.

...

• [9] The Court of Appeal in Bassett-Burr also explained the fundamental importance of notice being given to the non-party by the filing and service on the non- party of an application for an order for costs to be made against them:¹³

The requirement for formal service of an application on the person against whom it is made is fundamental. The jurisdiction of the High Court to enter a money judgment against a person is dependent on service on that person of proceedings in an appropriate form notifying them of the claim.¹⁴ The Court can no more make an order requiring a non-party to make a payment without proper service of notice of that claim on the non-party than it could make such an order against a defendant without proper service of the relevant proceedings on that defendant. And whether a claim is made against a party or a non-party, basic principles of natural justice require that the person be given proper notice of the claim against them, including the grounds of that claim, the steps they must take if they wish to oppose the claim, and the time within which they must take any such steps before being exposed to the risk of an order being made against them in default of appearance.

• [10] I also note the more recent Court of Appeal decision Mills v Laboyrie.¹⁵ The Court noted the Bassett-Burr requirement for the giving of formal notice but held that, as the appellant had been given notice when a Calderbank offer was made that the respondents intended to seek costs from the appellant personally if their offer was rejected, the notice requirement had been satisfied. The Court stated:¹⁶

¹¹ See, for example, de Vries v Queenstown.com Ltd HC Invercargill CIV-2003-425-86, 23 December 2004.

¹² Poh v Cousins & Associates HC Christchurch CIV-2010-409-2654, 4 February 2011.

¹³ Bassett-Burr v BPE Trustees (No.1) Ltd, above n 8, at [12].

¹⁴ See, albeit in a different context, Cockburn v Kinzie Industries Inc [1988] NZHC 184; (1988) 1 PRNZ 243 (HC) at 245–246.

¹⁵ Mills v Laboyrie [2021] NZCA 450 at [84].

¹⁶ At [84].

It is apparent that [the appellant] was well aware of the costs application against him and engaged in opposition to it. Hence there are no natural justice concerns here of the nature of those which concerned this Court in Bassett- Burr.

Submissions

The respondent

• [11] Ms Cobcroft for the respondents seeks a non-party costs order against Mr Lobb relying on Dymocks Franchise Systems.¹⁷ Ms Cobcroft says that the appellant company is in reality the alter ego of Mr Lobb, and he was responsible for initiating and pursuing the claim for rent and outgoings brought against the respondents, and that he has a direct and personal interest in the subject of the litigation and its outcome.¹⁸

• [12] Counsel submits that exceptional circumstances exist, that justify the award of non-party costs, noting that: “exceptional” means no more than “outside the ordinary run of cases where parties pursue claims for their own benefit and at their own expense”.¹⁹ Ms Cobcroft says that liability for costs attaches to non-parties that not only fund a proceeding but substantially control it or are to benefit from it. She submits that the proceedings brough by the appellant were in reality brought to advance Mr Lobb’s own personal financial interests, and he should not avoid liability for meeting costs now that the proceeding he initiated and pursued has been unsuccessful. Ms Cobcroft also notes that the residential property for which rent was claimed is owned by the trustees of the Lothbury Trust which include Ms Ryan and that Mr Lobb and the appellant did not have any authority from the trust to bring proceedings on its behalf.

• [13] Ms Cobcroft submits that in all the circumstances of the case, it is just to make an order for costs against Mr Lobb personally.

¹⁷ Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2), above n 9, at [27].

Love v Auburn Apartments Limited (in rec and liq) [2013] NZHC 851.

¹⁸ Counsel refers to Australian caselaw on this point Knight v FP Special Assets Limited [1992] HCA 28: “where the circumstances of a case fall within that category an order for costs should be made against the non-party if the interests of justice require that it be made” adopted by the Privy Council in Dymocks Franchise Systems (NSW) Pty Ltd v Todd, above n 9, at [27].

¹⁹ Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2), above n 9, at [25].

The appellant

• [14] Mr Colthart for the appellant, while accepting the Court’s jurisdiction to make a non-party costs order, opposes the making of a non-party costs order against Mr Lobb. He also relies on Dymocks Franchise Systems, citing the following passage:²⁰

generally speaking, where a non-party promotes and funds proceedings by an insolvent company solely or substantially for his own financial benefit, he should be liable for the costs if his claim or defence or appeal fails.

• [15] The appellant submits the present case can be readily distinguished from that in Dymocks Franchise Systems as here the appellant is not insolvent, and indeed paid security for costs for its appeals. Mr Colthart submits that the appellant did not in fact act for Mr Lobb’s personal benefit. He says that the appellant was acting in the capacity of agent for the Lothbury Trust. Any award of damages against the respondents would have been paid to the Lothbury Trust, for the benefit of its beneficiaries, not Mr Lobb in his personal capacity.

• [16] Mr Colthart submits that the Tenancy Tribunal accepted that the appellant was authorised to act as an agent for the Lothbury Trust, and he notes that the respondents did not cross-appeal that finding. He accordingly submits that the respondents cannot now dispute the appellant’s authority to bring the proceeding in the context of an application for costs.

• [17] Finally, Mr Colthart submits that Mr Lobb’s role as shareholder and director of the company is an insufficient basis on which to make an award of costs against him. To do so would contradict the principle that a company is a legal entity distinct from its shareholders.

• [18] The appellant also submits that Mr Lobb has received insufficient notice of the application for costs against him. Such notice must be given promptly, and courts will take into account any unexplained delay.

²⁰ Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2), above n 9, at [29].

Discussion

Notice to the non-party

• [19] The first issue is whether sufficient notice has been given to Mr Lobb that an application for non-party costs against him would be made if the appellant’s appeal was unsuccessful. It appears that prior to service of the respondents’ costs memorandum of 12 October there had been no notification to Mr Lobb by the respondents that an award of costs would be sought in respect of him personally. The appellate guidance I have referred to, makes clear the importance of notice being given to non-parties so as to put them on notice that their actions and involvement in the litigation may expose them to an order for costs.

• [20] In Digital Masters Ltd v the Country Channel Ltd, Doogue AJ observed that the quantum of the costs liability could also be a relevant factor. He said:²¹

[46] I also consider it relevant to take into account the potential size of the order against the non-party. If it were the case that the non-party exposed itself to a very large liability in circumstances where notice was given very late that a claim of that kind would be made, the Court my may well hesitate to make an order.

• [21] Here the quantum of costs sought from Mr Lobb, while a not insignificant sum of $9,859.00 is not a “very large liability”. Moreover, had an application for an order for costs against Mr Lobb been filed and served or formal notice been given to him advising that the respondents would seek an order for costs against him personally even after the judgment dismissing the appellant’s appeal was delivered, I do not consider that such timing would be unfairly prejudicial to Mr Lobb having regard to the circumstances in which he was directly involved in all aspects of the steps taken by the appellant to initially make the claim against the respondents and subsequently bring the appeal.

²¹ Digital Masters Limited v The Country Channel Limited HC AK CIV-2009-404-6545, 24 June 2011 at [38]: “There is authority to the effect that a party who intends to seek costs from a non- party needs to bring that attention to the notice of the non-party promptly, otherwise the non-party is not aware that their actions are placing them at risk for the costs of the proceeding.”

• [22] The circumstances here are readily distinguishable from those in Mills v Laboyrie, as prior to filing their costs memorandum the respondents had not given Mr Lobb any notice of their intention to seek an order for costs against him personally.

• [23] In accordance with the fundamental requirements for the making of an application for costs against a non-party as described by the Court of Appeal in Bassett-Burr, for the respondents to seek an order for costs against Mr Lobb it is necessary that they make a formal application which is served on him, so as to afford him the opportunity to respond and be heard in relation to the matter. While Mr Lobb has been described by the District Court Judge as being the appellant’s “alter ego”²² and appears to have been personally instrumental in the appellant bringing the unsuccessful appeal for which costs are being sought, it is also relevant to note Kós J’s observation in Easton Agriculture Ltd ²³ that:

the non-party is entitled to respond and be heard. The Court cannot simply assume that the second plaintiff is attending fully to the receiver’s interests, despite the inherent likelihood that this is so.

• [24] Although it may be the case that the appellant’s action in bringing the appeal is being undertaken in order to benefit and advance Mr Lobb’s personal interests, that cannot be assumed and before any decision on that issue is made Mr Lobb is required to be given formal notice of the application for an order for costs against him personally, and to have an opportunity to be heard. For these reasons I decline the respondents’ informal application for an order for non-party costs against Mr Lobb.

• [25] I also note the appellant’s submission that it is not insolvent and is able to meet an award of costs in the amount agreed which it has consented to. That being the case, the respondents’ application for an order for costs against Mr Lobb personally would be unnecessary. Nevertheless, although I have declined the respondents’ informal application for an order for costs against Mr Lobb personally, I shall do so without prejudice to the respondents making a formal application for costs against Mr Lobb

²² Lothbury Management Ltd v Ryan [2021] NZDC 4902 at [9].

²³ Easton Agriculture Ltd v Manawatu-Wanganui Regional Council HC Palmerston North CIV- 2008-454-31, 22 December 2011 at [50], endorsed by the Court of Appeal in Bassett-Burr v BPE Trustees (No.1) Ltd, above n 8, at [10].

personally in the event that the appellant fails to comply with and pay the order for costs made against it.

Result

• [26] I make an order for costs and disbursement in favour of the respondents against the appellant, Lothbury Management Ltd, in the sum of $9,859.00.

• [27] I reserve leave for the respondents to bring an application for an order for non- party costs to be made against Mr Stuart Lobb.

Paul Davison J