Henderson Reeves v Harbour View Heights Limited [2000] NZCA 285; (2000) 14 PRNZ 147 (19 April 2000)

Last Updated: 9 December 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA144/99

	BETWEEN	HENDERSON REEVES
		Appellant

	AND	HARBOUR VIEW HEIGHTS LIMITED
		Respondent

Hearing:	11 April 2000
Coram:	Blanchard J McGechan J Young J
Appearances:	T G Tetitahi for Appellant J W Watson for Respondent
Judgment:	19 April 2000

JUDGMENT OF THE COURT DELIVERED BY YOUNG J

Introduction

[1] This appeal against a judgment of Master Gambrill arises out of a dispute over legal costs between Henderson Reeves (a Whangarei firm of solicitors) and its former client, Harbour View Heights Ltd.

The background facts

[2] Harbour View Heights is owned by a family trust associated with Mr and Mrs Kevin Clark. Henderson Reeves acted for the company for a period of 2½ years up to January 1999. This was in relation to a subdivision of property and associated financing transactions. During this period, Mr and Mrs Clark were adjudicated bankrupt. This was in 1998. However, despite his bankruptcy, Mr Clark continued to have an involvement in the affairs of the company although we note that a Mr Brian Heape became the company’s sole director.
[3] There are four bills which, in one way or another, are in issue in this appeal:-

1. Invoice 5873 dated 28 January 1998 ($18,705.22);

2. Invoice 7698 dated 15 January 1999 ($950.07);

3. Invoice 7702 also dated 15 January 1999 ($3,929.50); and

4. Invoice 7724 dated 26 January 1999 ($1,129.50).

[4] The relationship between Henderson Reeves and Harbour View Heights came to a head in January 1999. At that time the $18,705.22 which had been outstanding since January 1998 had still not been paid. There was a meeting between Mr Smith and a partner in Henderson Reeves on 15 January 1999. During this meeting Mr Smith complained about the behaviour of Henderson Reeves and, in particular, as to costs which had been billed. These complaints were answered in a long letter from Henderson Reeves of 18 January 1999. Invoice 7724 which followed that letter, related to the 15 January 1999 meeting as to the complaints and the preparation of the Henderson Reeves response. The rendering of this last bill was perhaps a little provocative although we record that the account has subsequently been upheld following revision.
[5] The immediate response of Harbour View Heights to the Henderson Reeves letter of 18 January 1999 was to seek a review of the 28 January 1998 bill. This was on 20 January 1999.
[6] A party can refer a lawyer’s bill to the appropriate district law society (in this case the Auckland District Law Society) for revision, see s 145, Law Practitioners Act 1955. But this can be done as of right only within six months from the date of delivery of the bill. Harbour View Heights’ request for revision of the January 1998 bill thus lay outside the period during which revision was available as of right. Revision could still be directed by the Court under s 146 of the Act or by the Council of the Auckland District Law Society under s 144. But the Council of the Auckland District Law Society could only do so as of right if it acted within 12 months of the delivery of the bill. Once this period had expired, referral for revision could only occur by order of the Court and if special circumstances were shown, see s 151.
[7] The Auckland District Law Society declined to accept the January 1998 bill for revision. This decision was conveyed by letter of 2 February 1999. The request for revision was made outside the six months period within which a client has an absolute right to seek a revision. Whether the matter was addressed by the Auckland District Law Society before 28 January 1999 is unclear. Prior to that date, the Auckland District Law Society had the power, of its own motion, to require revision. After that date, the effect of s 151 is that such revision could only be ordered by the Court and if special circumstances existed.

The statutory demand and Harbour View Heights’ response

[8] Henderson Reeves then issued a statutory demand for $6,009.07 in respect of the money said to be owing in respect of the three invoices rendered in January 1999. This was on 23 March 1999.
[9] Harbour View Heights referred two of these bills of costs (invoices 7702 and 7724) to the Auckland District Law Society for revision. There was no request in relation to invoice 7698, the bill for $950.07. Harbour View Heights then applied to have the demand set aside and, as well, applied to the Court to have the January 1998 bill of costs referred to the Auckland District Law Society for revision. We emphasise that the January 1998 bill of costs was not the subject of the statutory demand which had been served on Harbour View Heights.
[10] In an affidavit filed on behalf of Harbour View Heights, Mr Heape said:-

The Applicant is solvent. Annexed hereto and marked with the letter “B” is a copy letter from the solicitors for [Harbour View Heights] to [Henderson Reeves] dated 28 April 1999 confirming the amount held in their trust account. It is the position of the Applicant that the issue of a statutory demand was an improper procedure to be adopted by the Respondent (and by the Respondents as solicitors) when the question of a debt only was sought to be recovered, and that the question of insolvency or solvency of the Applicant was to be determined.

In the letter referred to in Mr Heape’s affidavit, Harbour View Heights’ solicitors had said to Henderson Reeves:-

Our client company is able to pay any accounts which are properly payable. We are holding in our trust account the $6009.07 sought in your 23 March 1999 statutory demand.

[11] Invoice 7698 (which was not the subject of revision) would not, in itself, support the statutory demand as it was for less than the prescribed amount (which is $1,000).

The hearing in the High Court

[12] The case was heard by Master Gambrill on either 5, 6, or 7 May 1999. Master Gambrill’s judgment suggests that this case was heard on 7 May, Ms Tetitaha, for Henderson Reeves, thought that the case was heard on 5 May and Mr Watson, for Harbour View Heights, believed the case was heard on 6 May. The precise date is not of significance. What is of moment is that within a matter of a few days or perhaps a week following the hearing in the High Court, the Auckland District Law Society proposed to conduct a revision of the two bills which had been referred to it. This revision was to occur on 12 May 1999.
[13] Section 155 of the Law Practitioners Act 1982 provides:-

(1) Where under section 144 of this Act a District Council gives notice to a practitioner of its intention to revise his bill, no action for the recovery of the amount of the bill shall be commenced or proceeded with until after the revision has been completed and the time allowed for appeal has expired or, if an appeal is made, until the determination of the appeal and of any application for review following the appeal.

(2) Where a bill of costs has been referred for revision under this Part of this Act, whether by order of a Court or otherwise, the Court may, on such terms as it thinks fit, restrain the practitioner from commencing or proceeding with any action for the recovery of the amount of the bill until after the revision has been completed and the time allowed for appeal has expired or, if an appeal is made, until the determination of the appeal and of any application for review following the appeal.

[14] Given the provisions of this section, and for other reasons to which we will refer later, Henderson Reeves sought to have the proceedings adjourned until after the revision had been completed.

The approach of the Master

[15] Master Gambrill did not accede to the proposal that the proceedings be stood over until the result of the revision was known. Instead she heard argument. She then reserved her judgment. The revision which had been scheduled for 12 May proceeded on that day but the decision was reserved. Then in a judgment delivered on 25 May 1999, Master Gambrill set the statutory demand aside, referred the January 1998 bill of costs to the Auckland District Law Society for review under the Law Practitioners Act and awarded costs of $1,500 against Henderson Reeves.
[16] In her judgment, the Master, after reviewing the background, gave her reasons for setting aside the statutory demand. As we read her judgment, there were two reasons underpinning this decision:-

The money claimed in the statutory demand has been paid to the company’s now solicitor’s trust account I am assured from the Bar, and it is therefore available to meet the accounts and prima facie the company is therefore deemed to have met the test of solvency.

...

I am satisfied as the company can pay the debt the company is solvent, the Court’s function is not to collect the debt and after review of the accounts should be the subject of any legal recovery processes Messrs Henderson Reeves choose to take. I am satisfied the demand should be set aside (s 290) and therefore the creditor cannot be a creditor of the company.

When the Master came to deal with whether the January 1998 bill should be referred for revision, she addressed what might be regarded as the merits of Harbour View Heights’ application. She did not address whether she had jurisdiction to make such an order.

Subsequent events

[17] Without serious opposition, we admitted new evidence at the hearing of the appeal to update us as to the course of events since the decision of the Master.
[18] On 1 June 1999, the Auckland District Law Society upheld the two bills of costs which it had agreed to accept for revision, that is the bills of 15 and 26 January 1999. The January 1998 bill has also now been revised by the Auckland District Law Society (as directed by Master Gambrill) and this too was upheld in full. There has been no appeal against those decisions.
[19] Despite what was said by Harbour View Heights’ solicitors in the letter to which we have already referred (see paragraph 10 above), by Mr Heape in the passage from his affidavit to which we have already referred as well (see paragraph 10 above also) and by counsel in the remarks recorded by Master Gambrill (see paragraph 16), the solicitors for Harbour View Heights have refused to pay out the money which was once apparently in their trust account. They say they have taken the money themselves for their own costs.

The significance of the “undertaking”

[20] It may be arguable that there was an undertaking by Harbour View Heights’ solicitors to hold the $6,009.07 to meet the result of the cost revision. We rather think that this is what the Master thought. It is, at least at first sight, surprising that Harbour View Heights’ solicitors felt free to take this money for their own costs. Had the “undertaking” been honoured, this appeal would have been unnecessary.
[21] We are not in a position to determine whether the solicitors for Harbour View Heights did give an undertaking to the Court as to the disposition of the funds in their trust account. We are not invited to rule on this issue. In any event, it is not directly raised by the appeal. It is sufficient to say that Harbour View Heights’ solicitors have taken the view that they can appropriate the money in their trust account and that Harbour View Heights has, itself, apparently not dissented from this course of action. In those circumstances, it would not lie in the mouth of Harbour View Heights to suggest there was an unequivocal undertaking as to payment – the sort of undertaking which might have warranted the setting aside of the statutory demand.

The appeal

[22] The notice of appeal to this Court originally challenged only the referral of the January 1998 bill to the Auckland District Law Society and the order as to costs. Without opposition we amended the notice of appeal so that it covers the setting aside of the statutory demand.

Mootness

[23] There is a real sense in which at least some of the issues in this case are now moot.
[24] Given the time which has now elapsed since the decision of Master Gambrill, we have some reservations as to whether it is now open to Henderson Reeves to rely on the original statutory demand. Ms Tetitaha for Henderson Reeves floated the suggestion in argument that we might be prepared to move directly to a winding up of Harbour View Heights under s 291 of the Companies Act 1993. But this proposal was not signalled prior to argument and it would not have been right for us to have allowed such a contention to be sprung on Harbour View Heights and its counsel in this way. It may well be, however, that upon a referral of this litigation back to the High Court, that Court will, indeed, proceed directly to the liquidation of Harbour View Heights.
[25] The referral of the January 1998 bill to revision is, in a practical sense, now moot. The revision has in fact occurred and the position of Henderson Reeves has been upheld.
[26] Despite the mootness of the challenge to the referral of the January 1998 bill to revision and the possible lack of utility of any order which we make as to the setting aside the statutory demand, we are required to consider and determine this appeal. There are two reasons:-

1. There may be some advantage to Henderson Reeves in having the issue of the setting aside of the statutory demand remitted to the High Court; and
2. There is the order for costs made by Master Gambrill against Henderson Reeves which itself is challenged and which follows on from the other conclusions which she reached.

As well, there are important issues as to the general appropriateness of the procedure adopted and, in particular, whether the Master had jurisdiction to refer the January 1998 bill to revision.

The decision to set aside the statutory demand

[27] Given that the case was heard on 5, 6 or 7 May and the revision was to take place on 12 May, and allowing for the provisions of s 155 of the Law Practitioners Act, one might have expected that the application to set aside the statutory demand would be held over until the revision of two of the three underlying bills had occurred. This was suggested by Henderson Reeves in its notice of opposition. The suggestion was also recorded in Master Gambrill’s judgment. Moreover, no adequate particulars had been provided by Harbour View Heights in advance of the hearing before Master Gambrill supporting the contention that there was an arguable challenge available in respect of the bills. At the hearing there was reference to some apparent duplication of charges in relation to Dorchester Finance. This was raised only at the hearing and in circumstances where counsel for Henderson Reeves was not able to respond to the factual allegations.
[28] Master Gambrill’s judgment does not, in an explicit way, deal with why she did not accede to the application for the adjournment but it is perhaps implicit that her reasons were:

1. Her conclusion that the company was solvent; and
2. Her view that Henderson Reeves could pursue recovery of what was owed to it, if anything, after the relevant bills had been revised.

[29] Harbour View Heights was, in May 1999, owned by a family trust associated with two bankrupts. One of those bankrupts, despite his bankruptcy, was still involved with the company. Apart from a general reference to solvency by Mr Heape, the only evidence of solvency was that the company had apparently paid its solicitors the amount of the disputed invoices. However, it had not paid, for over a year, a bill for more than $18,000. It was not until nearly a year had passed after that bill was rendered that there was any challenge to the bill. We simply cannot see how an inference of solvency can be drawn in this situation.
[30] As well, Henderson Reeves cannot be criticised for issuing the statutory demand given that, at the time it was issued, there was no revision pending.
[31] If there had been an unequivocal undertaking to hold the money paid into the solicitor’s trust account to await and abide the outcome of the costs revision, then it may well have been appropriate to set aside the statutory demand on that basis alone. This is because a creditor who wished to pursue a statutory demand in such circumstances would normally be seen as acting improperly.
[32] As subsequent events have shown, no such unequivocal undertaking was provided and the respondent’s solicitors have felt free to appropriate, for their own purposes, the money in their trust account.
[33] In all of those circumstances, it seems to us that it was not appropriate for the Master to conclude that Harbour View Heights was solvent. Moreover, the case for an adjournment of the proceedings was overwhelming. So we propose to allow the appeal against the decision setting aside the statutory demand and will remit the underlying application to the High Court to be determined in accordance with this judgment. We leave it open to Henderson Reeves to seek immediate liquidation of Harbour View Heights at that time. Whether such an order should be made will be for the High Court to determine.

Referral of the January 1998 bill to revision

[34] Although referral of the bill to revision must now be regarded as moot, we are troubled by the question whether there was jurisdiction to make this order.
[35] The jurisdiction of Masters is provided for by ss 26I, 26IA and 26J of the Judicature Act :-
[36] Section 26I provides:

(1) A Master shall have and may exercise all the jurisdiction and powers of the Court in relation to the following matters:

(a) Any application for summary judgment:

(b) Any application to stay or dismiss an application for the appointment of a liquidator under the Companies Act 1955 or the Companies Act 1993, as the case may be:

(c) Any proceedings under which relief is claimed solely under any of the provisions of sections 140, 143, 144, 145, and 148 of the Land Transfer Act 1952 (which provisions relate to caveats):

(d) The assessment of damages where liability has been determined, or the trial of proceedings in which only the amount of the debt or damages is disputed:

(e) The entry of any judgment by consent, or the making of any other order by consent:

(f) Any other matter in respect of which jurisdiction is conferred on a Master by or under any Act.

(2) A Master shall have and may exercise all the jurisdiction and powers which are vested in the Court or a Judge by the following enactments:

[There follows a list of statutory provisions which do not include the relevant provisions of the Law Practitioners Act]

(3) A Master shall have and may exercise all the jurisdiction and powers of the Court to deal with costs and other matters incidental to the matters over which a Master has jurisdiction pursuant to subsection (1) or subsection (2) of this section. ...”

[37] Section 26IA provides:-

(1) Subject to subsection (2) of this section, a Master shall have, in all proceedings (including proceedings on an interlocutory application) properly before the Master, jurisdiction to make any order or to exercise any authority or jurisdiction that might be made or exercised by a Judge of the High Court.

(2) Nothing in subsection (1) of this section confers on a Master any jurisdiction or power of a kind described in subsection (3) or subsection (4) of section 26J of this Act.

[38] Section 26J provides:-

(1) Notwithstanding anything contained in any other provision of this Act or of any other Act but subject to the provisions of this section, rules made under section 51C of this Act or rules made under any other Act in the manner provided in that section may confer on Masters, subject to such limitations and restrictions as may be specified in the rules, such of the jurisdiction and powers of a Judge sitting in Chambers, conferred by this Act or any other Act, as may be specified in the rules. ...

[39] We accept that there may be scope for debate as to the circumstances in which it is open to a Master to exercise the power vested in the Court by the Law Practitioners Act to refer a bill for revision. Where summary judgment is sought in relation to a bill of costs, it would be open to a Master, seized of that dispute, to refer the underlying bill to revision under the Law Practitioners Act. Jurisdiction would then arise under s 26IA. Where there is an application to set aside a statutory demand based on a solicitor’s bill of costs, it might also be open to a Master to refer that bill of costs to revision. But there can be, in our view, no doubt that the Master had no such power to order revision in this case.
[40] We say this for the following reasons:-

1. The power to refer a bill for revision is not one of the heads of jurisdiction specifically conferred on Masters by s 26I. We reject the argument urged on us by Mr Watson that s 26I(1)(f) applies. The structure of the three sections makes it clear that a statutory vesting of jurisdiction in the High Court, or in a Judge of that Court, does not, without more, vest corresponding jurisdiction in a Master.
2. The January 1998 bill was not the subject of the statutory demand. So there is no basis upon which the referral of that bill for revision can fairly be regarded as ancillary to the exercise of the undoubted jurisdiction to determine whether to set aside the statutory demand. The most that could be said in support of the view that s 26IA applies is that the issue whether the January 1998 bill should be referred for revision arose between the parties to the application to set aside the statutory demand and, in a broad sense, related to the same general course of events. We do not accept that those two factors were sufficient to bring the case within the jurisdiction of the Master under s 26IA. By way of illustration, if Harbour View Heights had wished to commence proceedings for damages against Henderson Reeves for alleged negligence, it could not have tagged such a claim onto the application to set aside the statutory demand so as to give the Master jurisdiction over it. So we do not regard the order made by the Master as justified by s 26IA.
3. The jurisdiction to refer a bill for revision under the Law Practitioners Act is not expressed to be “exercisable by a Judge in Chambers” and, in any event, there is no rule which purports to provide that Masters may exercise that jurisdiction. So s 26J does not apply. The fact that this order was sought by what was styled as an interlocutory application does not bring the case within the jurisdiction of Masters under Rule 61A(1) to determine interlocutory applications. Whether an application is an “interlocutory application” must be addressed having regard to the true position. The nomenclature adopted by the parties cannot be decisive. The application cannot be regarded as an interlocutory matter comprehended in the proceedings seeking the setting aside of the statutory demand.

[41] There is an ancillary issue which could perhaps be raised. In a case where a Master exercises jurisdiction under s 26J, then a challenge to the decision must be by way of review and no right of appeal arises. If, on the other hand, a Master exercises jurisdiction under s 26I or s 26IA, then there is a right of appeal to this court. The position as to all of this is discussed in Talyancich v Index Developments Ltd [1992] 3 NZLR 28. Given that our view is that the Master had no jurisdiction under any of these sections, and allowing for the fact that, in any event, the revision she directed has now occurred, the point is of no moment.

Costs

[42] Having regard to what we have said, it follows that the costs order ought not to have been made.

The result of the appeal

[43] We allow the appeal against the order setting aside the statutory demand and remit the application to set aside the statutory demand to be determined by the High Court in accordance with this judgment.
[44] We record that it is open to Henderson Reeves to seek the immediate liquidation of Harbour View Heights at the resumed hearing.
[45] We set aside the order for costs made in favour of Harbour View Heights.
[46] We fix costs in favour of Henderson Reeves in the High Court, in relation to the argument before Master Gambrill, in the sum of $1,500 and, in this Court, in the sum of $3,000 together with reasonable disbursements including travel and accommodation expenses to be fixed by the Registrar if necessary.

Solicitors
Henderson Reeves, Whangarei for Appellant
Northlaw, Whangarei for the Respondent