Chapman v Badon Limited [2010] NZCA 613 (14 December 2010)

Last Updated: 5 January 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA782/2008 [2010] NZCA 613

BETWEEN ROWAN JOHN CHAPMAN, GEOFFREY DONALD CAMPBELL WALKER AND TERENCE FRANCIS MCGRATH First Appellants

AND MARTIN VICTOR RICHARDSON AND TIMOTHY JOSEPH GOLDFINCH Second Appellants

AND BADON LIMITED First Respondent

AND BIROA LIMITED Second Respondent

AND CLARKK LIMITED Third Respondent

AND COLWIL LIMITED Fourth Respondent

AND FAIRHOUSE LIMITED Fifth Respondent

AND WAITE LIMITED (IN LIQUIDATION) Sixth Respondent

Court: O'Regan P, Arnold and Ellen France JJ

Counsel: A Challis for Appellants R B Stewart QC and T P Mullins for Respondents

Judgment: 14 December 2010 at 2.30 pm

JUDGMENT OF THE COURT

The appellants’ application for costs is declined.

REASONS OF THE COURT
(Given by Arnold J)

Introduction

[1] The first and second appellants, partners at various times in the firm Gosling Chapman (Gosling Chapman), seek an award of costs against the respondents in respect of an appeal that they have abandoned. In particular, they seek costs in respect of:

(a) the abandoned appeal;

(b) their strike out application, which was declined by Venning J and was the subject of the abandoned appeal; and

(c) the respondents’ abandonment of the fifth cause of action against them.

[2] The application is opposed by the respondents. The parties are agreed that the application can be dealt with on the papers.

Background

[3] The High Court proceedings underlying the appeal arise out of investments promoted by Gosling Chapman to its clients in Digi-Tech Communication Ltd (Digi-Tech) and New Zealand Investments Ltd (NZIL) in the 1990s. We will not go into the full background. For present purposes it is sufficient to note that investors agreed to buy shares in Digi-Tech and NZIL, with the payment obligation spread over ten years. Investors could also acquire a loss of profits insurance policy to hedge their risk. The premium was $1 million, four per cent of which was to be paid by cash at the outset and the remaining 96 per cent funded through an offshore lender.
[4] The IRD began an investigation into the scheme, in particular into whether the transactions involved in the scheme had in fact been carried out. Gosling Chapman took responsibility for co-ordinating the response of investors to that investigation. With the assistance of a barrister, Mr Clews, and Russell McVeagh, Gosling Chapman conducted its own examination into the background to the investment scheme and gave information or advice (there is a dispute as to which) to investors concerning the cancellation of their share purchase arrangements.
[5] When payments were not made in accordance with the payment timetable, the vendor companies issued proceedings against the non-paying investors, as did Totara Investments Ltd (Totara) which had taken an assignment of the lenders’ rights under the investors’ loan agreements with the offshore funder. Those investors then issued third party claims against various parties, including Gosling Chapman. In one of the claims against Gosling Chapman the investors alleged that the firm had breached a duty of care which it owed them in various respects and sought to be indemnified by the firm in respect of any amount they were found liable to pay Totara (the fifth cause of action).
[6] Gosling Chapman applied to have the fifth cause of action struck out. Venning J refused that application, although he struck out one paragraph in the pleading.[1] Gosling Chapman then filed the present appeal.
[7] Before the appeal was heard, however, the Supreme Court determined an appeal which, as a practical matter, brought Totara’s claims against the investors to an end.[2] The effect of this was to render the fifth cause of action redundant and it was discontinued.

Discussion

[8] We deal first with the claims in respect of costs in the High Court.
[9] On the appellants’ unsuccessful strike out application, Venning J awarded costs to the respondents. The appellants seek to have that order quashed and an order in their favour substituted. The basis for this is that they have now achieved all they sought to achieve in bringing the application, namely termination of the fifth cause of action. Accordingly, they should be treated as if they had succeeded in the strike out application.
[10] There is a question as to the Court’s jurisdiction to quash or vary a costs order in the Court below where the appeal is abandoned. On an appeal, this Court has the power to give any judgment or make any order that which ought to have been given or made,[3] which includes the power to quash or vary orders for costs in the court below. The abandonment of an appeal “does not affect the power of the Court to make any order as to costs in respect of the appeal”.[4] Further, Ms Challis noted that r 53J of the Court of Appeal (Civil) Rules 2005 (the Rules) provides that nothing in rr 53 to 53I affects the Court’s power to quash or vary costs orders in the Court appealed from.
[11] We doubt that there is jurisdiction to quash an order in the High Court and substitute another order where an appeal is abandoned. First, r 44(3) refers to “costs in respect of the appeal.” On its face, that language is confined to costs associated with the conduct of the appeal (that is, the procedures or process in this Court). Second, as this Court noted in Parsot v Greig Developments Ltd, where, in the absence of success on the substantive aspect of an appeal, a party wishes to challenge a costs award against it, it must incorporate the challenge as a separate ground of appeal or commence a new appeal against the costs judgment.[5] Here, the appellants abandoned their appeal in its entirety.
[12] In any event, even if there is jurisdiction, we are satisfied that it should not be exercised. We do not consider that it is correct to treat the appellants as having succeeded on their appeal. Apart from applications for summary judgment, the general approach to costs in respect of interlocutory applications is that they are dealt with at the time the applications are determined rather than being held over until the outcome of the proceedings is known.[6] This reflects the fact that the merits of particular applications and the merits of the substantive proceedings are different matters. So it is in this case. Other developments have rendered the fifth cause of action redundant. But that does not mean that the appellants’ strike out application was properly brought or that their appeal would have succeeded. Assessing that would require consideration of the merits of the appeal, which we are in no position to undertake.
[13] The appellants face a similar difficulty in relation to their claim for costs in the High Court in respect of work associated with the fifth cause of action. We are simply in no position to assess those. Moreover, as we understand it, the appellants still face third party claims, so that the abandonment of the fifth cause of action does not end their involvement in the litigation. In those circumstances, the question of costs should be determined in the High Court when appropriate.
[14] This brings us to costs on the abandonment of the appeal. In the normal course if there was to be any award of costs it would be in favour of the respondents, the appellants having abandoned their appeal. In the present circumstances, however, we accept that another approach is justified. Despite that, we do not agree that the appellants are entitled to a costs order in their favour. The claim in respect of which the respondents sought an indemnity from the appellants has been brought to an end, which has had the effect of rendering the respondents’ third party claim against the appellants redundant and the appeal moot. The appellants would be in the same position as they are now in terms of the fifth cause of action if they had not brought the strike out application or the appeal. In those circumstances, we consider that costs should lie where they fall.
[15] Accordingly we decline the appellants’ application for costs. We make no order for costs in relation to the present application.

Solicitors:
McElroys, Auckland for Appellants
Lee Salmon Long, Auckland for Respondents

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[1] N-Tech Ltd v Abooth Ltd (Rec.) HC Auckland CIV-2006-404-3362, 21 November 2008.
[2] Totara Investments Ltd v Crismas Ltd [2010] NZSC 36, [2010] 3 NZLR 285.
[3] Court of Appeal (Civil) Rules 2005, r 48(4).
[4] Rule 44(3).
[5] Parsot v Greig Developments Ltd [2009] NZCA 241[2009] NZCA 241; , (2009) 10 NZCPR 308 at [33].
[6] High Court Rules, r 14.8.