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.
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 party or its lawyers”. On the other hand, Winkelmann J must be right in saying that a party who is GST registered and has deducted its legal costs as an input for GST purposes as they are incurred, would be over-recovering if it received back all of its costs paid. By analogy, if the Court was seeking to award a particular proportion of costs to a GST-registered party, eg one-half, it would have to deduct the GST component to avoid an over-recovery of that proportion. (This however assumes that costs recovered by the Council are not themselves subject to GST.)
This leads me to conclude that when costs are sought it is helpful, and may be necessary, for the Court to know whether the party claiming costs is GST-registered, and whether it has claimed or will be claiming the costs incurred as an input (or if not, why not). Because this aspect had not been fully argued by counsel I issued a draft of this decision, with paras 1 to 7 exactly as set out above but without the last sentence of para 7, which has now been added. The Registrar then asked for counsel's comments on this and one other aspect of the draft, and I have now considered those further submissions.
In essence, Ms Radich for the Council advises (based on the Council's tax specialist's advice) that any sum of costs recovered by the Council will itself be subject to a liability to the IRD for an output tax under the GST regime of one-ninth. This would mean that the assumption that there would be an over-recovery by the Council is incorrect.
On behalf of the appellants Mr Clark submits that the view advanced for the Council “is not supported by any identified provision in the GST Act, any GST guide, or any IRD publication and appears contrary to case law on the issue”. 5 Mr Clark cites one case only, ...
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