D J ALDRED V E E JOHNSTON HC AK CIV-2008-404-1848 [2009] NZHC 193 (23 February 2009)

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY
                                                                        CIV-2008-404-1848


                     IN THE MATTER OF          the Insolvency Act 2006

                     AND

                     IN THE MATTER
            DOUGLAS JAMES ALDRED
                                               Debtor

                     EX PARTE           
      EDWARD ERROL JOHNSTON
                                               Creditor


Hearing:             18 December 2008

Appearances:
A J Hayes on instructions for counsel for Creditor
             Debtor in Person

Judgment:            23 February 2009 at 4.30 pm


 RESERVED COSTS JUDGMENT OF ASSOCIATE JUDGE H SARGISSON




This judgment was delivered by Associate Judge Sargisson on 23 February
2009 at 4.30 pm pursuant
                               to Rule 11.5 of the High Court Rules

                                  
 Registrar/Deputy Registrar

Date ..........................




Solicitors:
Maude & Miller, PO Box 50 555, Porirua City 5240

Post:
D Aldred, 3b Woodford Avenue, Henderson, Waitakere City 0610


D J ALDRED V E E JOHNSTON HC AK CIV-2008-404-1848 23 February 2009

[1]    There is an outstanding costs issue in this bankruptcy proceeding.


[2]    The creditor's application for an adjudication
order was withdrawn at the
hearing on 18 December 2008 following the debtor's successful application to have
set aside the default
judgment on which the bankruptcy notice was based.


[3]    Counsel for the judgment creditor made an oral application for costs
on a 2B
basis. He did so on the basis that the bankruptcy proceeding was adjourned as an
indulgence to the judgment debtor, pending
the outcome of the latter's application to
the District Court to set aside the judgment on which the bankruptcy notice was
based.
He produced a copy of the judgment of Judge Roderick Joyce QC that set
aside the default judgment (see: Aldred v Johnston CIV-2007-404-2571,
District
Court, AK, 13/11/08). It refers to the circumstances that gave rise to judgment by
default and the factors His Honour took
into account in deciding to set aside that
judgment.


[4]     Mr Aldred did not accept that the circumstances were such that it
could be
said that the bankruptcy proceeding was brought and continued fairly until the order
setting aside was made.


[5]    Given
that the issue of costs was contentious, I invited Mr Hayes to file and
serve a brief memorandum of the actual costs attaching to
the bankruptcy proceeding
as opposed to the application to set aside. I wished to be satisfied that the costs
being sought did not
exceed the actual costs for steps taken in this Court and did not
also include costs for steps taken in the District Court. I also
directed that Mr Aldred
was to have an opportunity to file a memorandum in reply to the creditor's grounds
for an award and as to
quantum. With the agreement of the parties I recorded that I
would deal with the issue of costs on the papers.


[6]    I now have
counsel for the creditor's memorandum of 22 December 2008,
plus the letter that the debtor sent to the Court on the issue of costs.
That letter is
dated 6 January 2009.

[7]    The memorandum filed by counsel for the creditor advises with respect to
quantum that:


       a)       Counsel received invoices from her Auckland agent for three
                appearances in this Court relating
to the bankruptcy proceeding (31
                January, 28 August and 18 December 2008) each in the sum of
                $281.25;


       b)       She was unable to provide copies of the invoices she sent to the
                creditor.   This was because the
costs relating to the bankruptcy
                proceeding were separated from the costs relating to the balance of the
       
        file which relates to the application to set aside the judgment.


       c)       However, her own costs, as relate to the
bankruptcy proceedings only
                and as invoiced to the creditor by its agent are in the sum of
                approximately $1,200.00 (plus GST, being
a total of $1,350.00).


[8]    I take this to mean that the total costs are estimated to be $1350 plus GST.


[9]    The debtor
on the other hand outlines in his letter why he believes he should
not have to pay costs. He essentially repeated matters raised
at the hearing and
referred to in the District Court's judgment. At the heart of his submission is his
contention that he paid all
of the monies that were genuinely due to the creditor some
years ago and thought that the issue of costs was over, so when he was
served with
the District Court proceeding he did understand the seriousness of his failure to
respond. He also points to the order
to set aside as vindication of his position. The
implication in his submission is that the default judgment was always susceptible
to
being set aside, and that he was drawn into bankruptcy proceedings that were based
on a judgment that lacked a proper foundation
and should never have been
commenced. He nevertheless acknowledges that he failed to take steps to defend the
creditor's claim after
it was served on him, but he explains that he was also very
stressed and distracted by the efforts he had to make to deal with his
wife's residency
application.    He was travelling back and forth to China and was spending

considerable time there with his wife
and daughter to show the domestic relationship
was indeed genuine.


[10]   The starting point in determining whether there should
be an order for costs is
r 15.23 (or the former r 476C). It states:

       Unless the defendant otherwise agrees or the Court otherwise
orders, a
       plaintiff who discontinues a proceeding against a defendant must pay costs
       to the defendant of and incidental
to the proceeding up to and including the
       discontinuance.

[11]   Under the rule the default position is that it is the discontinuing
plaintiff (or
in this case, by analogy, the discontinuing creditor) who has the prima facie liability
for costs. There is no question
however of costs being awarded to Mr Aldred who
was not legally represented.       What is in issue is whether the creditor has
demonstrated
sufficient grounds to depart from the default position so as to warrant
an order for costs, and if so, whether costs should be awarded
according to scale on a
2B basis scale or in a decreased amount.


[12]   The principles that apply in determining an issue of this
kind are well
established. The presumption in awarding costs to a defendant against whom a
proceeding has been discontinued may be
displaced if there are just and equitable
circumstances not to apply it. The Court will not usually speculate in respect of
strengths
and weaknesses of the parties' cases, save the exceptional case. The
reasonableness of the stance of early party, however, must be
considered. The
discretion reposing in r 46 (now r 14.1) may also override the general principles
relating to discontinuance. Encompassed
by that statement of principle is whether
the plaintiff acted reasonably in commencing a proceeding, and the defendant in
defending
it. Thus, where the defendant acted reasonably in taking a step negating
the point of the proceeding, and the plaintiff then discontinued,
costs are likely to lie
where they fall: (see McGechan at HR 15.23.01).


[13]   While the creditor was entitled to commence the
bankruptcy proceeding
based on the unsatisfied default judgment, that factor must be weighed with other
relevant factors in deciding
whether the creditor has shown that it is just and
equitable for him to the have costs on the withdrawal of that proceeding. A key

factor is that it is plain from His Honour's judgment that Mr Aldred satisfied him
that it was unsafe to rely on the default judgement,
and that the fair and proper
course was indeed to set aside the default judgment. The creditor was unable to
adequately rebut that
conclusion. His Honour was clearly left with real reservations
about the adequacy of the judgment creditor's case, and was troubled by
the prospect
of letting the judgment stand because of the risk of injustice. He pointed to several
factors. These included that the
creditor's own case rested on an invoice for services
performed sometime before May 2001. His Honour noted that the invoice went
well
beyond what was pleaded. His Honour also noted the creditor endeavoured to
buttress the amount claimed by relying on an entitlement
to recovery costs without
an adequate evidential foundation. There were also issues arising from the business
relationship of the
parties and whether Mr Aldred was charged for work done for a
company owned by the creditor. These factors raise a real question
as to whether the
creditor ought to have discontinued the bankruptcy proceeding well before he did.


[14]   Whether the creditor
may yet satisfy the District Court as to the merit of his
original claim remains to be seen (if indeed he decides to bring a fresh
proceeding
and not to follow His Honour's urging that the matter be resolved by agreement).
However in the face of the factors that
led to the judgment being set aside, I do not
think the creditor has gone far enough to show that the indulgence he relies on is
sufficient reason to conclude that the just outcome is that he should have costs.


[15]   In reaching this view I do not overlook
His Honour's comment to the effect
that the debtor's delay resulted in the creditor taking perfectly appropriate steps in
pursuing
the bankruptcy application. No doubt His Honour was referring to the
creditor's statutory entitlement to proceed based on the default
judgment. However,
the pursuit of bankruptcy proceedings is a serious matter and where a creditor relies
on a default judgment to
support a bankruptcy proceeding, he must be prepared to
show the judgment is supportable on a prima facie basis if it is challenged.
       If he
cannot do that, he can expect to bear a real measure of responsibility for his own
costs in the wasted bankruptcy proceeding.


[16]   Nor do I overlook that in dealing with costs on the application to set aside,
His Honour went on to say he saw no reason
to depart from the usual practice of

recognising that where a defendant gets an indulgence, costs should go to the
erstwhile judgment
creditor. However, as His Honour quite properly noted, costs in
the bankruptcy proceeding is a matter for resolution in and by the
High Court, and
for my part, I do not accept that there is sufficient evidence before me to justify my
adopting the same approach
with respect to costs in the bankruptcy proceeding.


[17]   For the above reasons the result is that there will be no order for
costs.




                                              ___________________________

                                          
      Associate Judge Sargisson