Adcock & Devir v Marlborough District Council (Decision).doc (rp)
Decision No.  NZEnvC 35
BEFORE THE ENVIRONMENT COURT
Alternate Environment Judge FWM McElrea, sitting alone pursuant to Section 279 of the Act
In the Matter of an appeal under Section 120 of the Resource Management Act 1991 (the Act)
Ms M J Radich for respondent (applicant for costs)
Mr D J Clark for the appellants (respondent on costs)
Costs award and quantum in favour of the successful respondent Council in appeal proceedings — whether when fixing costs Court should exclude GST from the equation in considering amount of costs incurred by the successful party — whether GST ought to be payable by the losing party where there is no evidence or agreement in respect of the tax position of recipient of costs award — the appropriate quantum of costs in subdivision appeal cases.
Held: Since , the Environment Court has increasingly looked to the High Court or District Court scales of costs as guides to quantum issues. Therefore, the approach of the High Court towards issues of GST in costs should also be considered.
The general principles summarising the legal position were:
• GST is not to be added to costs awarded, as the losing party is not paying for a service provided to it by the successful party or its lawyers”;
• Where indemnity costs are awarded, it will be relevant to know whether the successful party is GST registered, and whether any costs reimbursed will themselves give rise to a liability to pay further GST output tax.
• If the successful party is not GST registered, then GST would be properly considered by the Court when focussing on the total costs payable by the successful litigant. In context, this means that costs actually incurred will have included GST that cannot be recovered from the IRD, and so should not be excluded from any award.
• A party ordered to pay costs is not able to deduct those costs for GST purposes if it is GST registered because it is not paying for a service provided to it by the successful party or its lawyers.
• Where a contribution to costs (i.e. not indemnity costs) is being made, the general principle is one of a reasonable contribution to expenses actually and reasonably incurred — which contribution can be guided to some extent by any relevant scale of costs in the civil jurisdiction. The scale produces sums which do not have GST amounts added to or subtracted from them, and are not adjusted according to whether the successful party is GST-registered.
• The general principle is that the Court should take account of the costs actually incurred, including GST where it applies.
• In fixing a reasonable contribution, the Court should make no assumptions about whether the tax-payer recipient will achieve some advantage or suffer some loss as a result of its particular tax position, unless there is either agreement between counsel or evidence and/or submissions that enable the Court to determine the point.
In respect of the issues in this case:
(1) The High Court, as a matter of practice, excludes the GST portion of the successful party's indemnity costs on the basis that the recipient was GST registered and would have claimed an input credit in respect of costs paid to its lawyers. As such, when indemnity costs are sought, the Environment Court would benefit from and, in some cases require, the successful party to disclose whether it is GST registered and has or will claim input credits in relation to its lawyers' costs. If the successful party is not GST registered, then the indemnity costs payable should include the GST component.
In those cases where only a contribution to the successful party's costs are sought, the general principle is one of a reasonable contribution to expenses actually and reasonably incurred, with the determination of the latter questions guided to some extent by any relevant scales of costs in the civil jurisdiction. Those scales do not have GST amounts added to or subtracted from them and accordingly are not to be adjusted according to whether the successful party is GST registered.
(2) While the Council claimed (via submissions by counsel only) that it had specialist tax advice showing that any sum of costs recovered will be subject to an output tax liability, the appellants vigorously disputed that interpretation. In lieu of actual evidence or agreement by counsel, the only approach open to the court is to make no assumption as to whether the recipient of the costs award will achieve some advantage or suffer any loss as a result of its tax position.
(3) In relation to fixing quantum, in , the Court held that in a subdivision appeal of greater complexity, an analogous categorisation of proceedings under category 3 of the DCR was appropriate. Generally in these cases councils are entitled to call on counsel with specialist skills and experience, as the councils would be required to take into account the outcome of the appeal and its reasons in the future. This case was less complex and therefore fixing under a mixture of steps under categories 2 and 3 on the DCR costs scale was appropriate. In all, were this case treated as a civil proceeding under the DCR, a costs award of between $12,352 to $18,335 for one counsel would have been appropriate on a scale basis.
Appellants ordered to pay $12,250 in costs.
Result: The appellants are to pay the respondent costs in the sum of $12,250
REASONS FOR THE DECISION
Marlborough District Council is the applicant in respect of costs but also the respondent to the appellants' appeal, and so to avoid confusion is referred to in this decision as “the Council”. The appellants are referred to simply by that title.
By a reserved decision given on 6 September 2010, the Court dismissed the appellants' appeal against the Council's decision declining subdivision consent in respect an 8 ha property at Godfrey Rd, Renwick, near Blenheim. The land was owned by the parents of one of the appellants (Mr Adcock) and the appellants had built a second dwelling on the parents' land, after getting a resource consent to construct the same as “a family flat”. Having obtained that resource consent and while the dwelling was still under construction, they applied for a resource consent to subdivide off the new dwelling with a small parcel of land in one corner of the parent lot. The Court upheld the Council's decision to decline consent.
Costs in this case are sought primarily on the basis that costs are always at the discretion of the Court, but that where a party has been unsuccessful at first instance and on appeal — as was the case here — that party is “more vulnerable to an award of costs”. 1 Mr Clark for the appellants did not dispute that proposition or attempt to argue that there should be no award of costs, but rather sought to limit any costs award to the sum of $7,500.
The Council seeks an award in the sum of $13,000, being a fraction under 50% of legal costs actually incurred in the appeal after excluding costs relating to mediation. There was no dispute by Mr Clark with the quantum of costs incurred, except to argue that:
[a] $3,100 + GST appears to have been expended in relation to the appellants' application for a preliminary decision;
[b] GST should be excluded from costs, which would reduce the claim to $11,804.16.
I start with this last point.
Ms Radich argues that there is no basis for the submission that GST should be excluded from the Council's claim. She cites a 1999 decision of Judge Bollard to the effect that where the Court decides to take into account the amount of costs actually incurred, the appropriate figure to use for that purpose is the amount actually payable by that party, including GST where applicable. 2
Given that the Environment Court is now more regularly looking to the High Court or District Court scales of costs as a guide as to quantum, cases decided under those Scales of Costs are also relevant. I refer to the first case cited at para HCR14.2.11 of Sim's Court Practice, namely 3 where Chambers J, having conferred with Rodney Hansen J and with Fisher J (then Chair of the Rules Committee) stated:
Costs between parties are GST neutral. The losing party when required to make a contribution towards the successful party's costs is not paying for a service provided to it by the successful party or its lawyers.
While that is undoubtedly correct, a comment and two qualifications must follow:
[a] What is stated is not inconsistent with what was said by Judge Bollard in 1999.
[b] The High Court has subsequently, when ordering indemnity costs, excluded the GST portion of the parties' legal costs on the basis that the recipient was GST registered and would have claimed an input credit in respect of costs paid to its lawyers, so that a recovery of the GST portion “would represent an over recovery”; 4 and
[c] It would follow from the dictum of Chambers J that a party ordered to pay costs is not able to deduct those costs for GST purposes if it is GST registered — because it is not “paying for a service provided to it by the successful...
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