Swan v Grant [2016] NZCA 244 (2 June 2016)

Last Updated: 18 June 2016

IN THE COURT OF APPEAL OF NEW ZEALAND
CA436/2015 [2016] NZCA 244
BETWEEN	ANDREW MCGREGOR SWAN Appellant
AND	DAMIEN GRANT AND STEVEN KHOV AS LIQUIDATORS OF ROSEBUD CORPORATE TRUSTEE LIMITED Respondents

Hearing:	2 May 2016
Court:	Winkelmann, Simon France and Woolford JJ
Counsel:	S P Bryers for Appellant B J Norling and A Cherkashina for Respondents
Judgment:	2 June 2016 at 12.30 pm

JUDGMENT OF THE COURT

1. The applications for leave to adduce fresh evidence are declined.
2. The appeal is allowed.

100. The order as to costs in the High Court is quashed. A new order as to costs in respect of the High Court proceedings is made as follows. The appellant must pay the respondents costs in the High Court of $4,776.00 and usual disbursements.

4. The respondents must pay the appellant costs for standard appeal on a band A basis and usual disbursements.

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REASONS OF THE COURT

(Given by Winkelmann J)

Introduction

[1] The issue on appeal is whether Lang J was correct to order that a barrister pay costs on a liquidator’s application for production of a company’s documents, where the barrister resisted production because the barrister believed the documents were not the company’s.

Factual background

[2] Mr Swan acted for Rosebud Corporate Trustee Ltd (Rosebud) over a period of years. When Rosebud was placed in liquidation, the liquidators asked him to deliver up copies of documents he held for Rosebud. Mr Swan’s response to that request was that he had no records of Rosebud’s whatsoever other than copies of court documents the liquidators already had. In January 2015, the liquidators repeated their request. On this occasion Mr Swan’s response was different. He asserted litigation and legal advice privilege in respect of the documents and said “[u]nless you have any authority that this does not apply to liquidations or otherwise I cannot release any documents.”
[3] The liquidators duly provided Mr Swan with the authority he sought: s 261 of the Companies Act 1993, which gave the liquidators the power to request copies of the company’s documents, including from solicitors acting for the company. Nevertheless, Mr Swan continued to maintain what he called “privilege”, a somewhat incomprehensible claim in the circumstances. We infer he meant that the documents were Rosebud’s, and he did not accept the liquidators’ authority to uplift them.
[4] Because of Mr Swan’s intransigence, in February 2015 the liquidators commenced proceedings seeking orders that Mr Swan produce Rosebud’s books, records and documents. Mr Swan initially defended the proceeding, but by 18 March 2015, Mr Swan seems to have seen the error of his ways as on that date he provided the liquidators with “all books, records and documents of Rosebud”. But when the liquidators asked him to undertake he had provided all of Rosebud’s documents, he failed to do so. Instead he raised a further issue. On 24 March 2015, he told the liquidators that he held numerous emails from a Mr Rod Nielsen, whom he said was a discretionary beneficiary of the Rosebud Trust. Rosebud was the corporate trustee of that Trust. He asserted on Mr Nielsen’s behalf that these documents were not company property because he had acted for Mr Nielsen in his capacity as beneficiary of the Trust. All the documents in question were brought into existence for the purpose of giving Mr Nielsen advice or enabling advice to be given. It was thus possible that Mr Nielsen could claim privilege in respect of the documents. Mr Swan suggested that the best course was for him to file a memorandum in court recording he would abide by any decision of the Court,^[1] and suggesting that the application be served on Mr Nielsen so that he could protect the “privilege” if he wanted to.
[5] The liquidators rejected any notion that Mr Swan was acting for Mr Nielsen. They observed that in proceedings before the High Court there had been a finding that it was Mr Nielsen who made all decisions for Rosebud. The liquidators’ position was that Mr Swan’s continued resistance to producing the documents had no factual or legal basis. They offered to reconsider their position if Mr Swan would provide evidence to substantiate his view that the privilege was owed to Mr Nielsen.
[6] Mr Swan recommended that Mr Nielsen obtain independent legal representation in relation to the issue. Mr Nielsen consulted another barrister, Mr Paul Sills, who then communicated directly with the liquidators’ lawyer. Mr Sills maintained that the documents were the property of Mr Nielsen. He said that Mr Nielsen needed to be joined as a respondent to the proceeding.
[7] In the meantime Mr Nielsen instructed Mr Swan to not deliver the documents to the liquidators.
[8] On 18 June 2015, in the High Court at Auckland, Lang J issued a minute recording that Mr Swan proposed to abide the decision of the Court. The Judge nevertheless directed that he be present at the hearing of the application on 24 June 2015, and required him to bring with him all documents with respect to which Mr Nielsen claimed privilege.
[9] On 22 June 2015, Mr Sills told Mr Swan that Mr Nielsen had no standing with respect to the documents because he was an undischarged bankrupt, that it was for the Official Assignee to determine whether to release the documents, and that Mr Nielsen would be taking no further steps.
[10] At the hearing on 24 June 2015, Mr Swan had with him documents he identified as Mr Nielsen’s. He was unable to confirm to the Judge whether these were all of the documents as he had yet to finish his searching. He also informed the Court of Mr Nielsen’s position as he understood it from Mr Sills.
[11] Lang J directed that the documents Mr Swan had with him be placed in a sealed envelope, which he would endorse with an instruction that it was not to be opened without leave of a High Court judge.^[2] That envelope was then to be delivered into the custody of the liquidators’ solicitors, who were to correspond with the Official Assignee to ascertain the Official Assignee’s stance in relation to the issue of privilege. In the event the Official Assignee wished to assert privilege over the documents, the Judge would arrange a short hearing so that the issue of privilege could be resolved. The Judge recorded:

[5] Mr Swan is not at present able to undertake that the documents he has provided represent all of the documents that he holds on the company’s behalf. He is to continue searching his computer records to ensure that all documents in his possession are provided to the liquidators. He is to file and serve a memorandum no later than Friday 3 July 2015 confirming either that he holds no further documents, or that he has provided all further documents in his possession to the applicants’ solicitors in a sealed envelope. ...

[12] In relation to costs, the Judge simply said:

[6] Given that the applicants have effectively succeeded in obtaining the relief that they sought, I direct that Mr Swan is to pay costs to the applicants on a category 2B basis together with disbursements as fixed by the Registrar.

[13] Mr Swan sought recall of that judgment to the extent it related to costs, on the ground that he had not been heard on the issue. The Judge declined the application for recall; he had heard submissions on the issue of costs.^[3] The Judge also considered arguments from Mr Swan as to the quantum of costs claimed by the applicants. Mr Swan submitted that costs should not be awarded for steps taken following his advice to the liquidators that he would abide the decision of the Court. However, the Judge rejected the submission that because Mr Swan was abiding the decision of the Court from late March on, the liquidators should not be entitled to costs.^[4] The liquidators had to file responding memoranda and attend the 24 June 2015 hearing. He noted that Mr Swan’s stance changed only shortly before the hearing and he did not advise the applicants of that until the hearing commenced.^[5] The Judge declined to exclude from the costs calculation costs relating to steps taken after the March memorandum.

The appeal

[14] Mr Swan does not appeal against the award of costs which relates to the steps in the proceeding up until his advice to the liquidators on 24 March 2015 (which total $4,776.00).^[6] He challenges the further $5,373.00 awarded against him relating to the period when he was abiding the decision of the Court, although still refusing to deliver up the documents. While the amount involved is not great, Mr Swan says he has brought the appeal to obtain this Court’s ruling on a matter of principle; namely, should costs be awarded against a barrister who is instructed by a client to withhold documents because the client is claiming “privilege” in respect of the documents. Mr Swan says that, given the circumstances with which he was presented, if he had handed over the documents he may have been committing a breach of his ethical obligations to comply with his client’s instructions and/or to protect his client’s right to claim privilege; the course he took was the only one available to him.
[15] For Mr Swan, Mr Bryers submits that it was Mr Nielsen, not Mr Swan, who was resisting the handing over of the documents. If anyone should have been exposed to costs, it was Mr Nielsen on the basis of the principles that have been developed in relation to non-parties. The only course that Mr Swan had open to him was to effectively interplead, which he sought to do. Mr Swan took no active steps to join Mr Nielsen as a party because Mr Sills had told him that Mr Nielsen would apply to be joined to the proceedings. Those circumstances changed only two days before the hearing. It was left to Mr Swan to tell the Court and the liquidators.

Analysis

[16] The usual principle governing the award of costs is that the unsuccessful party should pay costs. That is the principle that was applied by the Judge in this case. Mr Swan properly conceded that he could not object to the award of costs against him up until at least his advice to the liquidators on 24 March 2015. He is right in that concession. Mr Swan resisted the liquidators’ request for delivery up of the documents without any proper basis for his position. He thereby put the liquidators to the costs of the proceeding.
[17] However, thereafter the position is different. If Mr Swan had a proper basis for raising the issue over ownership of the balance of the documents, then Mr Bryers was right that he had no alternative course of action available to him than to notify the Court of the issue, and abide the Court’s decision. When Mr Swan attended the hearing on 24 June, he did so because he was directed to attend by the Judge. He was not at that time taking an active position in respect of the documents. He was the bearer of the news in respect of Mr Nielsen’s changed position only because Mr Nielsen’s counsel did not attend.
[18] Lang J awarded costs on the basis that the liquidators were the successful party. That was certainly true with respect to events up to 24 March 2015, but not in respect of events thereafter. The 24 June hearing was for the purpose of determining whether Rosebud was entitled to the documents. That issue was not determined at the hearing. At the end of the hearing the position remained the same as it was at the beginning. There was uncertainty as to the ownership of the documents which remained to be resolved. Although the parties consistently discussed privilege, what was plainly at issue here was who owned the documents. Was it Rosebud? Was it Mr Nielsen? The issue was left to the Official Assignee to determine whether she would assert ownership on behalf of Mr Nielsen. She decided not to.
[19] The liquidators say that costs were properly awarded in connection with steps taken relating to the issue of ownership of this last portion of documents. Mr Norling for the liquidators argues Mr Swan did not responsibly raise the issue of ownership and throughout refused to provide evidence that the documents were generated when Mr Swan was acting for Mr Nielsen. To substantiate this allegation the liquidators applied for leave to file fresh evidence on appeal: an affidavit attaching documents in respect of which Mr Swan had raised ownership as an issue. The liquidators say these documents show that Mr Swan could not responsibly have held the view that Mr Nielsen owned the documents in question, since they were plainly Rosebud’s documents.
[20] We refuse leave to adduce this evidence. It is information that was not before the Judge when he determined the issue of costs. The liquidators elected not to proceed to require the Judge to determine ownership of the documents at the hearing, although that was the original purpose for the hearing. Instead they were content for the hearing to be concluded on the basis that the Official Assignee could decide whether to maintain the claimed ownership. If the liquidators had proceeded with their initial plan to have the Judge determine the issue of ownership, they might then have been able to seek costs on the basis that Mr Swan had not acted responsibly in raising the issue of ownership. But they did not. They cannot now seek to revisit that issue on appeal.
[21] The liquidators also seek to adduce evidence that after the hearing Mr Swan delivered additional documents he held for Rosebud. Again, the fact that Mr Swan discovered further documents of the company after the hearing is irrelevant. His neglect in failing to deliver all documents earlier did not in any way change the course of the proceeding, and certainly did not feature in the minutes on costs. The application for leave to adduce this evidence is also declined.
[22] To conclude, we consider that in determining quantum the Judge proceeded on the mistaken basis that the liquidators had been successful, and Mr Swan unsuccessful, in relation to the issue of the status of the balance of the documents.

Result

[23] The applications for leave to adduce further evidence are declined. The appeal is allowed. We quash the order of costs made in the High Court. We order instead Mr Swan is to pay the liquidators’ costs in the High Court in the sum of $4,776.00 and usual disbursements.
[24] The liquidators must pay Mr Swan costs for a standard appeal on a band A basis and usual disbursements.

Solicitors:
Richard S Wood, Auckland for Appellant
Waterstone Insolvency, Auckland for Respondents

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^[1] Such a memorandum was filed with the Court on 30 March 2015.

^[2] Grant v Swan HC Auckland CIV-2015-404-254, 24 June 2015 at [4].

^[3] Grant v Swan HC Auckland CIV-2015-404-254, 7 July 2015 at [2].

^[4] At [5].

^[5] At [8].

^[6] Excluding disbursements.