ANZ National Bank Limited v Hart [2012] NZHC 2291 (6 September 2012)

Last Updated: 18 September 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-002583 [2012] NZHC 2291

BETWEEN BARRY JOHN HART First Plaintiff

AND WOODHILL STUD LIMITED Second Plaintiff

AND WOODHILL HOLDINGS LIMITED Third Plaintiff

AND WOODHILL CORPORATION LIMITED Fourth Plaintiff

AND ANZ NATIONAL BANK LIMITED Defendant

CIV-2012-404-003643

AND BETWEEN ANZ NATIONAL BANK LIMITED Applicant

AND BARRY JOHN HART First Respondent

AND SERENELLA HOLDINGS LIMITED Second Respondent

AND WOODHILL FARMS LIMITED Third Respondent

AND WOODHILL STUD LIMITED Fourth Respondent

AND WOODHILL HOLDINGS LIMITED Fifth Respondent

AND MALORY CORPORATION LIMITED Sixth Respondent

_{Hearing: 31 August 2012}

HART V ANZ NATIONAL BANK LIMITED HC AK CIV-2012-404-002583 [6 September 2012]

Appearances: L A O'Gorman and A Williams for ANZ Bank

B Hart in Person

B Murray for N G Cooke

Judgment: 6 September 2012

_{JUDGMENT OF VENNING J}

This judgment was delivered by me on 6 September 2012 at 3.30 pm, pursuant to Rule 11.5 of the

High Court Rules.

Registrar/Deputy Registrar

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

Solicitors: Buddle Findlay, Auckland

Copy to: B J Hart, Auckland

N G Cooke, Auckland

ORDERS

A Declaring that Mr Cooke has ceased to be solicitor on record for the plaintiffs in the 2583 proceedings and the respondents in the 3643 proceedings.

B Directing that the current address for service of 15-17 Jervois Road, Ponsonby, Auckland 1011 is to remain as the address for service of Mr Hart and his related companies in both proceedings until a change in address for service is filed.

C Order (in the 3643 proceedings) reserving leave to the Bank to apply on 24 hours notice to remove any caveats lodged on behalf of the respondents (or any other company related to Mr Hart) against any of the properties that remain the subject matter of High Court proceedings 2583 and for orders that those caveats be removed from their respective titles upon registration of the transfer by the mortgagee to the mortgagee’s purchaser pursuant to the power of sale.

D In the 2583 proceedings the Bank is to have costs of and incidental to the second interim injunction application in the sum of $11,503.80 against Mr Hart and the other plaintiffs.

E In the 3643 proceedings the Bank is to have costs in relation to the originating application for orders for removal of caveats dated 26 June

2012 in the sum of $17,824.07 against Mr Hart and the other respondents.

F The application for costs against Mr Cooke personally is declined.

G The Bank is entitled to the costs of these applications on a reasonable solicitor/client basis against Mr Hart and his related companies.

H Costs are to lie where they fall on the Bank’s applications against Mr

Cooke personally.

Introduction

[1] These are yet further applications arising from ANZ National Bank Limited (the Bank’s) attempts to realise securities granted by Mr Hart and the other plaintiffs in CIV-2012-404-2583 (the 2583 proceedings).

[2] The Bank seeks orders:

(a) that Mr Hart and the other plaintiffs in the 2583 proceedings and Mr Hart and the respondents in CIV-2012-404-3643 (the 3643 proceedings) must pay the Bank’s reasonable solicitor and client costs. The Bank seeks $11,503.80 in the 2583 proceedings and

$17,824.07 in the 3643 proceedings;

(b) declaring that Mr Cooke is also liable on a joint and several basis for the costs; and

(c) declaring that Mr Hart and Mr Cooke have abused the processes of the Court;

[3] In the 3643 proceedings the Bank seeks a further order that any other caveats lodged against identified properties be removed from those titles upon registration of the transfer by the mortgagee to the mortgagee’s purchaser pursuant to the power of sale.

[4] For his part, Mr Cooke has made an application in the 2583 proceedings to be granted leave to withdraw as solicitor on record. The parties agree that Mr Cooke’s application may be treated as applying to the 3643 proceedings as well.

Representation/address for service

[5] Neither the Bank nor Mr Hart oppose Mr Cooke’s application. I make an order declaring that Mr Cooke has ceased to be solicitor on record for the plaintiffs in the 2583 proceedings and the respondents in the 3643 proceedings.

[6] The issue of the address for service of the parties Mr Cooke was on record for in both proceedings arises. Subject to the leave reserved below, the 3643 proceedings are effectively at an end. It is unlikely any further steps will be required in relation to those proceedings once the present issue of costs is determined.

[7] However, in the 2583 proceedings the Bank has applied for summary judgment on the plaintiffs’ substantive claim which still remains before the Court. While Mr Hart may enter an appearance and represent himself in those proceedings, the second to fourth plaintiffs, if they wish to be represented in the proceedings, will have to instruct an alternative solicitor to enter on record for them.

[8] To provide for those issues, I direct that until a change in address for service is filed the current address for service of 15-17 Jervois Road, Ponsonby, Auckland

1011 is to remain as the address for service of Mr Hart and his related companies in both proceedings.

Further caveats

[9] Ms O’Gorman advised the Court that all but two of the properties referred to in the 3643 proceedings had been sold by the Bank and settlement effected. It is only in relation to properties with the title references NA130B/550 and NA76B/938 that further issues may arise. However, given the actions of Mr Hart the Bank considered a further, prospective order was necessary. I accept that an order is necessary to protect the Bank’s position but, rather than make an order in the very broad terms sought by the Bank, the following order (in the 3643 proceedings) will, in my judgment, be sufficient:

Reserving leave to the Bank to apply on 24 hours notice to remove any caveats lodged on behalf of the respondents (or any other company related to

Mr Hart) against any of the properties that remain the subject matter of High Court proceedings 2583 and for orders that those caveats be removed from their respective titles upon registration of the transfer by the mortgagee to the mortgagee’s purchaser pursuant to the power of sale.

The declarations sought

[10] As noted, both interlocutory applications seek declarations that Mr Hart and Mr Cooke have abused the processes of the Court. As I indicated to Ms O’Gorman I do not consider it open to the Bank to seek a formal declaration by way of interlocutory application. It is, in any event, unnecessary for the Court to make a formal declaration on that issue. As I advised counsel and Mr Hart, in the course of considering the parties’ liability for indemnity costs, it may well be necessary for the Court to make findings as to whether or not their actions amounted to an abuse of the Court’s processes. Such a finding should be sufficient for the Bank’s purposes, without the need for a formal declaration.

Indemnity costs – Mr Hart and the related companies

[11] The Bank seeks indemnity costs against Mr Hart and the companies related to him in both sets of proceedings.1 The Bank says it is entitled to solicitor/client costs on an indemnity basis under the terms of the relevant loans, mortgages and guarantees and in any event would be entitled to indemnity costs under r 14.6(4) as a consequence of Mr Hart and his related companies’ conduct in the proceedings.

_{[12] Mr Hart filed a memorandum in opposition. Mr Hart submitted:}

the application for injunction was a proper application. It was only withdrawn because it was anticipated the parties would reach a commercial

_{settlement which did not occur. Negotiations are still continuing;}

_{the second injunction was withdrawn for the reasons advanced at the hearing;}

1 In referring to them as related companies I do not mean they are necessarily related in terms of s 2(3) of the Companies Act 1993. They are, however, closely associated with Mr Hart and his interests.

the Bank has invoiced the plaintiffs for all legal costs so that to pursue the application for an order for costs was unfair and unreasonable.

[13] In the event the Court was to make a costs award, Mr Hart submitted that costs should be at no more than scale. Mr Hart noted that in a related matter, Propst v ANZ National Bank Limited2 the Court ordered costs to scale. Mr Hart also rather optimistically suggested that the Court should let costs lie where they fall.

[14] As discussed with Mr Hart the Bank is entitled to solicitor/client costs (on a reasonable basis) in accordance with r 14.6(4)(e) and the indemnity costs provisions in the loan documentation that he and the related companies entered. None of the matters Mr Hart raises affects the Bank’s entitlement to reasonable solicitor/client costs on that basis.

[15] Further, even if the first application for injunction was a proper application, the application for costs does not relate to it. The costs of that application have been dealt with by the Court.3 The Bank only seeks costs in the 2583 proceedings in relation to the second injunction application. The without prejudice negotiations or ongoing discussions between Mr Hart and the Bank are not relevant to that issue.

[16] Next, I agree with Ms O’Gorman that there were no particular reasons given by Mr Hart for withdrawing the second application for injunction on 12 July 2012. Mr Hart simply advised that he no longer sought to pursue the application for injunction.

[17] Next, while Mr Hart may already have been billed by the Bank for the costs it seeks, the Bank is still entitled to seek the force of a Court order for those costs. No question of double recovery arises. The Bank can only recover the costs once. The order simply enables the Bank to take other enforcement steps.

[18] I am satisfied that, in terms of the security documentation completed by Mr

_{Hart and the related companies, the Bank is entitled (pursuant to r 14.6(4)(e)) to an}

2 _{Propst v ANZ National Bank Limited HC Auckland CIV-2012-404-002345, 11 May 2012.}

3. Hart & Ors v ANZ National Bank HC Auckland CIV-2012-404-002583, 13 July 20120 (Gilbert J).

order for indemnity costs as sought. For the reasons that follow I am also satisfied that, even absent such contractual obligation, the Bank is entitled to recover indemnity costs under r 14.6(4)(a) on a reasonable solicitor/client basis because of the actions of Mr Hart and the related companies. For the same reasons, while Serenella Holdings Ltd and Woodhill Farms Ltd are not liable for costs under the loan documentation, they, together with Mr Hart and the other related companies, are liable for indemnity costs as caveators in the 3643 proceedings.

Brief background

[19] The Bank says that both Mr Hart (and his related companies) and Mr Cooke, as the solicitor for Mr Hart and the related companies, abused the processes of the Court in both sets of proceedings; in the 2583 proceedings by pursuing the second application for interim injunction, and in the 3643 proceedings by lodging caveats on a piecemeal basis, and then opposing the application to remove the caveats where there was no arguable legal basis for the opposition.

[20] This requires consideration of the steps taken in the two sets of proceedings and Mr Cooke’s role in both proceedings. To do so, it is necessary to consider the factual background in a little more detail.

[21] The starting point for present purposes is that Mr Hart and his related companies had substantial borrowing from the Bank. They defaulted in their obligations to the Bank. The history and extent of the borrowing and default are not relevant to the present application. The important point is that the Bank took action to realise its securities. It sold a number of the properties referred to in the 2583 proceedings by mortgagee sales. The scheduled settlement dates for a number of the mortgagee sales was 25 June 2012.

[22] The plaintiffs in the 2583 proceedings decided to seek an injunction to prevent the settlements. Mr Cooke agreed to act as solicitor on record for Mr Hart and the related companies in those proceedings. Mr Katz QC was instructed as counsel. The proceedings were filed on 11 May 2012. The application for

injunction was allocated a hearing for 21 June, four days before the scheduled settlement date of 25 June.

[23] Without prior notice to the Bank, at the outset of the hearing on 21 June, Mr Katz advised he had no instructions from the plaintiffs and sought leave to withdraw. Mr Hart was present. He took no objection and Mr Katz was granted leave to withdraw. Mr Katz also advised that the application for interim injunction was to be withdrawn. Gilbert J dismissed the application accordingly.

[24] Then, on 25 June 2012, Mr Hart arranged to lodge a first batch of caveats with the District Land Registrar relating to the sales of the properties that were due to settle that day. Despite the obligations under the relevant mortgages not to grant any interests in the land and to disclose any such interests to the Bank, neither Mr Hart nor the mortgagor companies had previously advised the Bank that such interests existed. The interests claimed purported to relate to sale and purchase agreements dated 11 May 2012 (the same day that the 2583 proceedings were issued); an interest pursuant to an alleged lease dated 20 May 2002; and an easement interest under an agreement alleged dated 30 April 2012. Further, in what I infer was a deliberate attempt to make it difficult for the Bank to respond to the caveats, Mr Hart specified an address on Great Barrier Island as the address for service for the caveator companies, even though according to the Companies Office the registered address and address for service of the companies was in Ponsonby.

[25] To enable settlement to be completed, the Bank was required to file and serve an originating application for the removal of the caveats (the 3643 proceedings).

[26] When the application to remove the caveats was first called before the Court on 3 July, Mr Hart and the related companies were represented by Mr Hirschfeld. At that call counsel for the Bank was handed the second application for injunction in the

2583 proceedings. Both applications were allocated a hearing for 12 July. The second application for injunction repeated the grounds advanced to support the first application (which had been withdrawn) and added additional grounds based on the mortgagor’s right to redeem the properties.

[27] Mr Hart then arranged to lodge a second batch of caveats on 5 July 2012 in relation to the properties the Bank had sold that were due to settle on 6 July 2012. Again, despite the obligation not to grant any interest in land and to disclose any interests potentially adverse to it, that was the first notice the Bank had of the interests claimed in the caveats. The Bank only learned of the existence of the caveats when its solicitors discovered them in the course of obtaining title searches prior to the 12 July hearing.

[28] On 9 July 2012 the Bank was served with a notice of opposition to its application to remove the caveats in the 3643 proceedings. The notice of opposition identified Mr Cooke as the solicitor and gave his address as the address for service but, like the second application for injunction, the documentation had been prepared and signed by Mr Hart.

[29] At the commencement of the hearing on 12 July Mr Hart sought to withdraw the second application for interim injunction. On Mr Hart giving an undertaking to the Court that he would not pursue further injunctive relief against the Bank to prevent the Bank’s mortgagee sales and confirming that he would not oppose the application to remove the caveats in the related proceedings, the second application for injunctive relief was formally dismissed. It was only dismissed, however, after recording that the Bank was ready and able to deal with the matter substantively.

[30] At the same hearing on 12 July the Court went on to hear the Bank’s application in the 3643 proceedings and made orders for the removal of the caveats that had been lodged on 25 June and 5 July.

[31] Despite the fact Mr Hart appeared before the Court on 12 July on both sets of proceedings neither the Bank nor the Court was advised that, immediately prior to the Court hearing, a third batch of caveats dated 11 July 2012 had been lodged with the District Land Registrar at 9.19 a.m. on 12 July. Those caveats were witnessed by Mr Hart’s associate, Ms Murray, and allegedly related to an interest created by an agreement entered on 30 April 2012 for which again, no approval had been sought, and which had not been previously disclosed to the Bank.

[32] The Bank was then required to bring a separate originating application to remove those caveats because the caveator was Eriapa Uruamo, as a trustee for the Te Taou tribe. Ms O’Gorman advised the Court that those caveats have also been removed by the Court.

Does res judicata apply to the second application for injunction?

[33] In arguing that the second application for interim injunction was an abuse of process, the Bank relies on the concepts of res judicata, cause of action estoppel and issue estoppel.

[34] The Bank refers to three decisions from the United Kingdom to support the argument: Barber v Staffordshire County Council;4 Ako v Rothschild Asset Management Ltd and another;5 and SCF Finance Co Ltd v Masri and another (No

_3).6 _{Both Barber and Ako were Employment Tribunal cases. In Barber the}

Employment Appeal Tribunal dismissed an application on withdrawal by the applicant. The Court accepted the applicant was prevented from reapplying based on principles of res judicata. In Ako, it was clear that in substance the entire proceeding was being discontinued so that the originating application could be replaced with a new one joining another party. No cause of action estoppel applied. However, the Court appeared to accept that res judicata could have arisen if an application was dismissed after a withdrawal not amounting (in substance) to a discontinuance.

[35] In SCF Finance Co Ltd Mrs Masri applied to set aside or vary a freezing order that affected a bank account in her name. Immediately before the hearing of her application a judgment was delivered on a different application in which the Court made adverse comments about her husband, Mr Masri’s, evidence. Mr Masri intended to appeal that judgment. As a result Mrs Masri decided not to proceed with her own application, which was dismissed. The finance company then obtained a garnishee order over the account. Mrs Masri challenged the garnishee order and

_{sought to raise the issues identified in her first application to support her challenge.}

4 _{Barber v Staffordshire County Council [1996] 2 All ER 748}

5 _{Ako v Rothschild Asset Management Ltd and another [2002] 2 All ER 693.}

6 SCF Finance Co Ltd v Masri and another (No 3) [1987] 1 All ER 194.

The Court of Appeal agreed that she was precluded from raising those issues. In reaching that view the Court observed that:7

At the time at which the court had directed trial of the issue, Mrs Masri decided in seeking her own advantage and convenience, not to proceed with her application. ...

The Court considered it would be an abuse of process to allow Mrs Masri to raise the matters in opposition to the garnishee proceedings in those circumstances.

[36] In Gay v Bruns,8 proceedings that Mr Bruns had brought in 1992 were dismissed in 1994 for want of prosecution following his bankruptcy. The Official Assignee had elected not to pursue them. In 1996 Mr Bruns brought a fresh set of proceedings. They were indistinguishable from the first set of proceedings. The Court of Appeal held that as neither Mr Bruns nor the Official Assignee (acting in his bankrupt estate) had consented to the dismissal and the proceedings had not been dismissed on their merits, such a dismissal for want of prosecution could not (except in exceptional circumstances) give rise to res judicata or estoppel. No issue of abuse of process arose.

[37] Mr Hart suggested to the Court that he had advice from Mr Katz that, as the first application for injunction had not been formally determined then he was able to make the second application for injunction. There is no evidence from Mr Katz about the matter. Neither the Court nor the Bank is aware of the extent of the advice or what information Mr Katz was provided with before he gave that advice. I note that Mr Katz withdrew as counsel at the hearing before Gilbert J on 21 June and it was only sometime later, on 3 July, that the second application was filed.

[38] However, I accept that when Gilbert J dismissed the proceedings he did so following Mr Katz’s advice to the Court that the application was to be withdrawn. The first application for injunction was not determined on its merits. The advice the application was to be withdrawn and its subsequent dismissal is not the same as the

_{dismissal of an application by consent.}

7 _{At 209.}

8 Gay v Bruns [2003] NZCA 120; [2003] NZAR 547 (CA).

[39] In the circumstances I accept there could be an argument as to whether it can be said to be an abuse of process to pursue a second application for injunctive relief on largely the same grounds. As noted, while the application did repeat the same grounds as the first application it also sought to raise some further, additional, grounds. In any event, even if I accepted the Bank’s argument that the pursuit of that second application for interim injunction was an abuse of process on the basis of res judicata, it would, on those grounds, be a rather technical abuse of process. For the reasons that follow I am satisfied Mr Hart and his related companies have been a party to a more direct form of abuse of process.

Abuse of process generally

[40] The concept of the misuse of the processes of the Court amounting to an abuse of process is well established. In Goldsmith v Sperrings Ltd the Court of Appeal put it this way:9

(b) Abuse of legal process

In a civilised society, legal process is the machinery for keeping order and doing justice. It can be used properly or it can be abused. It is used properly when it is invoked for the vindication of ... rights or the enforcement of just claims. It is abused when it is diverted from its true course so as to serve extortion or oppression; or to exert pressure so as to achieve an improper end. When it is so abused, it is a tort, a wrong known to the law. The judges can and will intervene to stop it. They will stay the legal process, if they can, before any harm is done. If they cannot stop it in time, and harm is done, they will give damages against the wrongdoer.

Sometimes abuse can be shown by the very steps being taken in the courts.

...

At other times the abuse can only be shown by extrinsic evidence that the legal process is being used for an improper purpose. On the face of it, in any particular case, the legal process may appear to be entirely proper and correct. What may make it wrongful is the purpose for which it is used.

[41] In New Zealand the same principle was acknowledged by Doogue J in the case of New Zealand Permanent Trustees Ltd v Parsley Properties Ltd.10 In that case

_{the mortgagee NZ Permanent Trustees Ltd (NZPT) applied for orders removing}

9 _{Goldsmith v Sperrings Ltd [1977] 2 All ER 566 (CA) at 574.}

10 New Zealand Permanent Trustees Ltd v Parsley Properties Ltd HC Wellington M309/99, 13

December 1999.

caveats that had been lodged by the defendant, Parsley Properties Ltd (Parsley). Doogue J determined that Parsley could not establish a reasonably arguable case to justify the existence of the caveats. In dealing with the issue of costs he commented on the conduct of the parties:11

NZPT has been forced to bring the present application because of a second attempt by the McGaveston interests to prevent it exercising its powers of sale under its mortgage. That attempt was made notwithstanding that Mr McGaveston has deposed that he is not able to pay the sum owing to NZPT by First Investments into a stakeholder account pending determination of any issues between him or Parsley and NZPT and NMFM. The present circumstances where the McGaveston interests have sought to prevent NZPT's rightful exercise of its powers of sale after earlier substantial litigation, knowing that the mortgagee's powers of sale had been delayed by that litigation, come close to an abuse of the process of court. ... In that event it could be that Mr McGaveston's earlier claim was wrongly promoted. At some stage the position had to be known to his advisers, if not to him. As a result, NZPT has been forced to incur substantial costs as a matter of urgency in circumstances when it should not have been forced to incur any costs at all at this late stage.

The Judge then awarded costs of $20,000 to NZPT against Parsley.

[42] There are a number of similarities between the actions of the McGaveston interests in that case, and the actions of Mr Hart and his related companies in the present case.

[43] In this case, the filing of the caveats on a piecemeal basis, lodged with the District Land Registrar just prior to the due settlement dates of the relevant properties; the failure to advise the Bank of the interests which the caveats represented when the interests were purportedly granted; the failure to advise the Court that further caveats had been lodged when there was an application before the Court to remove other caveats on 12 July, and, without any merit, filing an opposition to the removal of the caveats combined with the second application for an interim injunction establishes, in my judgment, that Mr Hart was acting frivolously and vexatiously and with the deliberate object of using the processes of the Court to frustrate and thwart the Bank’s legitimate attempt to enforce its securities. To do so

_{was a clear and deliberate abuse of process of the Court.}

11 At [46].

[44] I am satisfied that, quite apart from the provisions of the security documents, costs on an indemnity basis are appropriate in both sets of proceedings against Mr Hart and his related entities on the grounds they have acted vexatiously, frivolously and improperly so as to abuse the process of the Court.12

Costs orders against Mr Hart and the related parties

[45] In the 2583 proceedings the Bank is to have costs of and incidental to the second interim injunction application in the sum of $11,503.80 against Mr Hart and the other plaintiffs. Mr Hart and the other plaintiffs are jointly and severally liable for those costs.

[46] In the 3643 proceedings the Bank is to have costs in relation to the originating application for orders for removal of caveats dated 26 June 2012 in the sum of $17,824.07 against Mr Hart and the other respondents. In those proceedings also Mr Hart and the other respondents are jointly and severally liable for the costs.

Mr Cooke’s position

[47] What then, was Mr Cooke’s role in all of this? Is he liable as the solicitor for

Mr Hart and his related companies’ abuse of process?

[48] The Bank pursues its claim against Mr Cooke on the basis that he was a party to the proceedings and the actions of Mr Hart that amounted to an abuse of process.

[49] The leading authority in relation to the position of a solicitor being personally liable for costs is the Privy Council decision of Harley v McDonald.13 The following statements of principle are particularly relevant to the Bank’s claim against Mr Cooke. First, the confirmation of the jurisdiction to award such costs lies in the Court’s inherent jurisdiction and the basis for it:

[45] The undoubted inherent jurisdiction of the Courts in New Zealand to

_{make a costs order against a client’s solicitor rests upon the principle that, as}

12 _{High Court Rules, r 14.6(4)(a).}

13 Harley v McDonald [2002] 1 NZLR 1 (PC).

officers of the Court, solicitors owe a duty to the Court, while the Court for its part has a duty to ensure that its officers achieve and maintain an appropriate level of competence and do not abuse the Court’s process. The Court’s duty is founded in the public interest that the procedures of the Court to which litigants and others are subjected are conducted by its officers as economically and efficiently as possible. ...

[50] Next, for an award to be made, the solicitor must have acted in serious dereliction of his or her duty to the Court:

[48] The next question is, what are the proper limits of that jurisdiction? The Court of Appeal held that the inherent jurisdiction can be invoked only in cases where there has been a serious dereliction of the solicitor’s duty to the Court, and that it can be invoked only while the costs remain a live issue before the Court which conducted the proceedings: [1999] 3 NZLR 545 at paras [39] and [42]. Their Lordships agree, but for the purposes of their judgment the question as to its proper limits requires to be examined more closely.

[51] The purpose of a costs order against a solicitor is both to compensate and to punish.

[49] A costs order against one of its officers is a sanction imposed by the Court. The inherent jurisdiction enables the Court to design its sanction for breach of duty in a way that will enable it to provide compensation for the disadvantaged litigant. But a costs order is also punitive. Although it may be expressed in terms which are compensatory, its purpose is to punish the offending practitioner for a failure to fulfil his duty to the Court. In Myers v Elman [1940] AC 282 Lord Wright of Richmond described the Court’s inherent jurisdiction as to costs in this way at p 319:

“The underlying principle is that the Court has a right and a duty to supervise the conduct of its solicitors, and visit with penalties any conduct of a solicitor which is of such a nature as to tend to defeat justice in the very cause in which he is engaged professionally . . .. The jurisdiction is not merely punitive but compensatory. The order is for payment of costs thrown away or lost because of the conduct complained of. It is frequently, as in this case, exercised in order to compensate the opposite party in the action.”

The jurisdiction is compensatory in that the Court directs its attention to costs that would not have been incurred but for the failure in duty. It is punitive in that the order is directed against the practitioner personally, not the party to the litigation who would otherwise have had to pay the costs.

[52] The overriding interest is the public interest in the administration of justice:

[52] All this may seem to be elementary. But the distinction which must always be observed between these different processes is fundamental to a proper understanding of the limits of the inherent summary jurisdiction of

the Court. The Court’s only concern when it is exercising this jurisdiction is

to serve the public interest in the administration of justice.

[53] Something more than oversight or a mere error of judgment is required:

[55] Then there is the question as to the kind of conduct that can be regarded as involving a serious breach of duty to the Court. Their Lordships agree with the Court of Appeal that the test for the exercise of the common law jurisdiction in New Zealand is that which was applied in England before the wasted costs jurisdiction under s 51 of the Supreme Courts Act 1981 came into effect: [1999] 3 NZLR 545 at para [55] (p 564). A simple mistake or oversight or a mere error of judgment will not, of itself, be sufficiently serious to fall into that category. Something more is required. In Myers v Elman at pp 291 – 292 Viscount Maugham indicated that the test was whether the conduct amounted to a serious dereliction of duty, and that negligence could be so described if it was at a sufficiently high level. At p 304 Lord Atkin described the kind of negligence that could lead to an exercise of the jurisdiction as gross negligence. At p 319 Lord Wright said that, while a mere mistake or error of judgment is not generally sufficient, a gross neglect or inaccuracy in a matter which it was a solicitor’s duty to ascertain with accuracy, such as whether he had a retainer to act, might suffice. A more precise definition of the level of seriousness is not appropriate. But where negligence or incompetence is alleged the conduct must be put into its proper context.

(emphasis added).

[54] A solicitor will not necessarily be excused by relying on counsel’s conduct of

the proceedings:

[56] The Court of Appeal held that serious incompetence resulting in a failure to appreciate that a claim is untenable is capable of amounting to a serious dereliction of duty to the Court: para [58] (p 565). They relied for this proposition on Davy-Chiesman v Davy-Chiesman [1984] Fam 48. In that case the Court of Appeal found that the Court was entitled to exercise its inherent jurisdiction against a solicitor who had failed to inform the Legal Aid Committee of the Law Society of a change in circumstances, as he had a duty to do under the regulations, when it appeared or ought to have appeared to a reasonable solicitor that the assisted person no longer had any reasonable prospect of success. The solicitor’s position was that he had relied on the advice of counsel who had said that the case should continue, and that account should be taken of the forcefulness of counsel’s personality and his experience. May LJ rejected this argument at p 66:

“ . . . making all allowances for that I cannot avoid the conclusion, differing respectfully from the judge, that this solicitor did abdicate responsibility for his proper part and role in the relevant litigation. I think that he relied blindly and with no mind of his own on counsel's views upon which, it must or ought to have been apparent to him, some question should have been raised. In my judgment this failure by the solicitor to question counsel's advice, let alone to report the situation on his own to the legal aid committee, as in any event I think he should have done, was a substantial failure on his part to

fulfil his duty to the court to promote in his particular sphere the

cause and proper administration of justice.”

[55] At the end of the day, the issue will be determined by consideration of whether the solicitor has breached his or her duty to the Court not to pursue or lend assistance to an abuse of the Court process:

[57] Their Lordships agree with the Court of Appeal’s conclusion in [1999] 3 NZLR 545 at para [59] (pp 565 – 566) that a duty rests on officers of the Court to achieve and maintain appropriate levels of competence and care and that, if he is in serious dereliction of such duty, the officer is properly amenable to the costs jurisdiction of the Court. But care must be taken not to assume that just because it appears to the Court that the case was hopeless there was a failure by the barrister or solicitor to achieve the appropriate level of competence and care. As Sir Thomas Bingham MR said in Ridehalgh v Horsefield [1994] Ch 205 at p 234:

“Legal representatives will, of course, whether barristers or solicitors, advise clients of the perceived weakness of their case and of the risk of failure. But clients are free to reject advice and insist that cases be litigated. It is rarely if ever safe for a court to assume that a hopeless case is being litigated on the advice of the lawyers involved. They are there to present the case; it is . . . for the judge and not the lawyers to judge it.

It is, however, one thing for a legal representative to present, on instructions, a case which he regards as bound to fail; it is quite another to lend his assistance to proceedings which are an abuse of the process of the court. . . . It is not entirely easy to distinguish by definition between the hopeless case and the case which amounts to an abuse of the process, but in practice it is not hard to say which is which and if there is doubt the legal representative is entitled to the benefit of it.”

The essential point is that it is not errors of judgment that attract the exercise of the jurisdiction, but errors of a duty owed to the Court.

[56] As noted, for the foregoing reasons I am satisfied Mr Hart and his related companies have abused the processes of the Court in both sets of proceedings. Mr Cooke was recorded as the solicitor on record in both. It is necessary to examine his involvement in them.

[57] Mr Cooke has practised as a lawyer for more than 35 years. Since 1977 he has been a sole practitioner and, since about 1997, his offices have been on the first floor of 15-17 Jervois Road, Ponsonby. Until recently Mr Hart also practised as a barrister from the ground floor of the same premises. They were obviously well known to each other.

[58] In May 2012 Mr Cooke accepted instructions from Mr Hart to be solicitor on record for him and his related companies in an application for interim injunction against the Bank. Mr Cooke was aware senior counsel, Mr Katz, had been instructed for the proceeding. Mr Cooke was also aware Mr Hart had sought advice from other competent barristers. Mr Hart signed the notice of proceeding and application for interim injunction. Mr Cooke was not involved in the preparation of any of the affidavits or other pleadings. At no stage did Mr Cooke appear in Court for Mr Hart.

[59] Mr Cooke explains this rather unusual practice on the basis that as Mr Hart was a lawyer of many years experience and for cost reasons he agreed to Mr Hart preparing all the papers for the proceeding.

[60] Mr Cooke says he effectively acted as a post box. Any documents (including emails) served at his offices as the address for service were passed to Mr Hart. Mr Hart conducted the proceedings and handled almost all the dealings with the Bank for himself and his companies.

[61] While Mr Cooke was aware of the first application for interim injunction he only became aware of the second application for interim injunction (which was apparently prepared and signed by Mr Hart) on 6 July, some time after the application had been filed.14 Mr Cooke says that he was not aware the second application also referred to him as solicitor on record. Mr Cooke presumed that he received the notice of opposition from the Bank because he was the solicitor on

record for the first application. The first notice Mr Cooke had of the second application was an email of 6 July from the Bank’s solicitors to the Court, copied to Mr Cooke, enclosing a notice of opposition. The email was also sent to Mr Hirschfeld, who at the time had appeared as counsel for Mr Hart.

[62] At about this time Mr Hart had moved from the ground floor offices of 15-17

Jervois Road to the offices of Mr Hirschfeld. Mr Cooke assumed Mr Hart had instructed Mr Hirschfeld. He did nothing further about the email.

14 It had been filed on 3 July 2012.

[63] Mr Cooke then received two further emails from the Bank’s solicitors regarding Mr Hart’s affairs on 9 and 10 July.

[64] The email of 9 July was referenced “Hart proceedings – abuse of process issues”. It was directed to Mr Cooke and asked:

Can you please confirm that you are aware of and intended to file and serve

(in your capacity as solicitor on record):

1) The attached notice of opposition in CIV-2012-404-3643; and

2) The second application for an interim injunction dated 3 July in

CIV-2012-404-2583.

As you know, the Bank’s position is that these steps amount to an abuse of process. In our pleadings we have referred to cases about the costs (and other) implications of this. Unless we hear otherwise, we will assume you are aware of and filing these documents and we intend to make submissions to the court on that basis.

[65] The email of 10 July was referenced “breach of obligations by plaintiffs”. It

was also directed to Mr Cooke, copied to Mr Hirschfeld, and noted:

In the hearing on 21 June in which your clients’ application for an injunction was dismissed, the court made a timetable order for you to file any submissions in opposition to the Bank’s costs memorandum by 4 July. No such memorandum has been filed or served, so those costs orders are unopposed.

Meanwhile, you are in breach of the following obligations in respect of the

12 July hearing;

- the obligation under Rule 7.39 of the High Court rules to file and serve your clients’ synopsis of argument and chronology at least 2 (clear) working days before the 12 July hearing;

- The obligation under Rule 7.39 of the High Court rules to file and serve the indexed and paginated set of relevant documents (i.e. the exhibits to the affidavits filed by both parties) at the same time;

- The practice of providing the Court and the other parties with a paginated or tabbed bundle of relevant pleadings and affidavits at the same time.

If your clients are still pursuing the second interim injunction application (despite the abuse of process issues that arise), please provide the synopsis and other bundles by 4pm today.

[66] Mr Cooke did not respond to the emails from the Bank’s solicitors. He explained his failure to respond was a result of work pressure. He had appeared as counsel before the Court of Appeal on the morning of 9 July. On the day prior, the Sunday, Mr Cooke had just finalised instructions to appear in the North Shore District Court for a one day hearing on 11 July. Mr Cooke says that after finishing the Court of Appeal hearing on 9 July he immediately turned to preparation for the hearing on 11 July and did not return to consider Mr Hart’s affairs until after he became aware of the outcome of the hearing on 12 July. Mr Cooke notes that apart from the email communications the Bank’s solicitors did not contact him by letter, cell phone, facsimile or in any other way.

[67] As Mr Hart’s address for service, on 11 July Mr Cooke received a copy of the Bank’s submissions and bundle of authorities for the hearing on 12 July. Mr Cooke says he did not read those authorities or submissions after he returned to the office following the hearing in the North Shore District Court on 11 July either, as he understood the conduct of the hearing was in the hands of Mr Hart and his counsel, Mr Hirschfeld to whom he noted the email had also been sent.

[68] Mr Cooke says that he knew nothing about the notice of opposition in the

3643 proceedings. He did not prepare, sign, or file any such notice of opposition and was unaware that such a step had been taken. I note that it appears from the Bank’s documents that the notice of opposition to the Bank’s application was sent to the Bank’s solicitors by a Mr Clode, an associate of Mr Hart.

[69] Mr Cooke says that he found himself in the position where any inquiries he did make with Mr Hart over the progress and status of the litigation with the Bank did not lead to a discussion as to the merits or otherwise of the procedural steps Mr Hart proposed to take or had taken. Mr Cooke says he was presented with situations that had been finalised and over which he had no prior knowledge or control.

[70] Mr Murray confirmed that Mr Cooke acknowledged he was formally the solicitor on record in the 2583 proceedings because of the wording of r 5.38 but submitted that his involvement in those proceedings was extremely limited and that he had no involvement in the 3643 proceedings. Mr Murray submitted that Mr

Cooke had not lent assistance to Mr Hart’s actions during the course of either set of proceedings, apart from his initial agreement to act in relation to the first application for interim injunction. Mr Murray emphasised that Mr Cooke had not actively participated in the conduct of either set of proceedings. He submitted that Mr Cooke’s explanation for not attending to the documents that did come to his notice (essentially pressure of work) was a reasonable one in the circumstances.

[71] In short, while Mr Murray accepted that Mr Cooke’s failure to respond to the Bank’s communications or inquire further about Mr Hart’s actions might lead to criticism of Mr Cooke, he nevertheless submitted Mr Cooke’s conduct fell short of the serious dereliction of duty or gross negligence that was required for an order for solicitor/client costs to be made against him.

[72] On the evidence before the Court, I accept that Mr Cooke was not directly aware of the steps Mr Hart was taking or the extent that Mr Hart had gone to, to frustrate the Bank’s position. Mr Cooke was not required for cross-examination, and in any event such a hearing would have suggested the case was not suitable for summary determination, as the Privy Council have said is necessary. The Court should generally only award costs against a solicitor where the breach is clear and

does not require determination of disputed facts:15

[50] As a general rule allegations of breach of duty relating to the conduct of the case by a barrister or solicitor with a view to the making of a costs order should be confined strictly to questions which are apt for summary disposal by the Court. Failures to appear, conduct which leads to an otherwise avoidable step in the proceedings or the prolongation of a hearing by gross repetition or extreme slowness in the presentation of evidence or argument are typical examples. The factual basis for the exercise of the jurisdiction in such circumstances is likely to be found in facts which are within judicial knowledge because the relevant events took place in Court or are facts that can easily be verified. Wasting the time of the Court or an abuse of its processes which results in excessive or unnecessary cost to litigants can thus be dealt with summarily on agreed facts or after a brief inquiry if the facts are not all agreed. Scope for the making of a costs order that will compensate as well as penalise is then likely to be found in making an order against the practitioner that will indemnify the opposing litigant against costs incurred as a result of the breach of duty that would otherwise not be recoverable.

_...

15 Harley v McDonald [2002] 1 NZLR 1 (PC) at [50].

[54] The Court must have particular regard in cases of this kind to the factual basis upon which the jurisdiction is to be exercised. It cannot rely on its own knowledge when it is faced with issues about the nature or scope of the instructions which the client has given about the conduct of the litigation or the advice that may or may not have been tendered to the client by his barrister or solicitor. Fairness to the barrister or solicitor requires that notice should be given of allegations about breaches of duty which raise these issues and that an opportunity should be given to them to challenge the allegations, if so advised, by cross-examining witnesses and leading evidence. These procedures are inconsistent with the summary nature of the jurisdiction. Bearing in mind the extra cost which an investigation of that kind may involve, and the overriding requirement of fairness to those who are at risk of being penalised, the Court may well conclude that further investigation under this procedure is not appropriate. This need not be seen as a surrender by the Court of its responsibility. The client may have other remedies. A complaint may be made to the Law Society leading to disciplinary sanctions against the barrister or solicitor, or a claim may be made by the client against the solicitor in damages for negligence.

[73] I accept Mr Cooke was unaware of the caveats. He had no involvement in relation to their lodgement. He had no reason to be aware of Mr Hart’s failure to comply with his obligations to the Bank under the terms of the security documents. He was unaware that Mr Hart had prepared and filed the notice of opposition in the

3643 proceedings (at least until the Bank’s email of 9 July). Mr Cooke was also unaware of the second application for injunction.

[74] The Bank’s claim against Mr Cooke for being a party to an abuse of process must be considered in that context. The Bank’s solicitors properly drew the documents to Mr Cooke’s attention. Mr Cooke did not take the time to consider them. He should have done so. However, even if he had, all that he could properly have done at that stage would have been to disassociate himself from the proceedings by seeking to withdraw as solicitor on record. By that stage the Bank’s solicitors had already incurred the cost of responding to Mr Hart’s second application in the 2583 proceedings and the opposition in the 3643 proceedings.

[75] While Ms O’Gorman is strictly correct in noting that the companies would have required a solicitor to represent them, Mr Hart would have been able to represent himself at the hearing of 12 July so that Mr Cooke’s default did not, of itself, add to the costs the Bank incurred in preparing for and presenting the argument on both proceedings at the hearing of 12 July. Mr Cooke’s failure to respond to the solicitor’s emails and to consider the documents may well be

categorised as failing to act properly, but the issue is whether it can be said to be gross negligence, so that he should have a costs order visited on him as a party to the abuse of process of the Court by Mr Hart and his related companies.

[76] The Bank relies on the cases of Davey-Chiesman v Davy-Chiesman;16 Myers v Elman;17 and Re Creehouse Limited.18 In Davey-Chiesman v Davy-Chiesman the solicitor was ordered to pay the costs of the litigation because the Court considered that it must have been apparent to the solicitor, at or shortly after a conference with

counsel, that the form of relief which counsel then intended to seek would fail because as a matter of law the client’s bankruptcy would mean any capital sum would not go direct to him and furthermore, was a form of relief which counsel had previously ruled out in an earlier opinion.

[77] In Davey-Chiesman the solicitor was actively involved in the conduct of the proceedings and in the meeting with counsel. The solicitor was effectively an active participant to the pursuit of a hopeless claim before the Court. By contrast, Mr Cooke took no active steps in the present proceedings.

[78] In Myers v Elman the solicitor was liable where he had entrusted the necessary work to a managing clerk. The case is not particularly relevant to the situation in the present case.

[79] Next, Ms O’Gorman sought to rely on the following comment by Lawton LJ

in Re Creehouse Ltd that:19

A solicitor on the record is shown to the world to be in charge of the litigation. If he is in charge of the litigation he is responsible for its proper conduct and it would be wholly inconsistent, in my opinion, with the position of a solicitor in relation to his duties, that he should be shown as being in charge of a litigation and responsible for it when in fact he was nothing more than a convenient postbox.

[80] In Re Creehouse Ltd the Court was considering a procedural issue, namely whether a solicitor, whose retainer was withdrawn, was obliged to give notice to

16 _{Davey-Chiesman v Davy-Chiesman [1984] 1 All ER 321 (CA).}

17 _{Myers v Elman [1940] AC 282 (HL).}

18 _{Re Creehouse Limited [1982] 3 All ER 659 (CA).}

19 Re Creehouse Ltd at 664.

other parties to the litigation that he was seeking to be taken off the record and whether those other parties should be allowed to be heard on that issue. The comment relied upon by Ms O’Gorman must be read in that context. The Court was sympathetic to the application by the solicitor to be removed from the record as solicitor and rejected the submission that the Court should insist the solicitor remain on record in order to provided a convenient post box or address for service.

[81] Ms O’Gorman also referred to Morris and Morris v Roberts20 and KOO Golden East Mongolia (A Body Corporate) v Bank of Nova Scotia21 to support her submission that a legal representative will be liable for a wasted costs order if, exercising the objective professional judgment of a reasonably competent solicitor,

he ought reasonably to have appreciated that the litigation in which he was acting constituted an abuse of process. However, both of those cases concerned consideration of the application of the statutory wasted costs provision, s 51 of the (United Kingdom) Supreme Court Act 1981. Section 51(7) of the Act defines “wasted costs” as:

“wasted costs” means any costs incurred by a party–

As a result of any improper, unreasonable or negligent act or omission on the part of any legal or other representative or any employee of such a representative; or which, in the light of any such act or omission occurring after they were incurred, the court considers it is unreasonable to expect that party to pay.

[82] Paragraph 53 of the Practice Direction provided at 53.4:

It is appropriate for the court to make a wasted costs order against a legal representative, only if–

(1) the legal representative has acted improperly, unreasonably or negligently;

(2) his conduct has caused a party to incur unnecessary costs, and

(3) it is just in all the circumstances to order him to compensate that party for the whole or part of those costs.

20 _{Morris and Morris v Roberts [2005] PNLR 41.}

21. KOO Golden East Mongolia (A Body Corporate) v Bank of Nova Scotia [2008] EWHC 1120 (QB).

[83] It is apparent from those provisions that mere negligence can support a “wasted costs” order in the United Kingdom. However, there is no equivalent statutory wasted cost provision in New Zealand22 and, as Harley v McDonald 23 confirms, gross negligence is required before the Court will make a costs order against a solicitor in New Zealand.

[84] For the above reasons, while I accept that Mr Cooke failed to acquit the obligations he had to the Court as a solicitor on record in the 2583 proceedings in particular, and while he can be criticised for failing to respond to the communications from the Bank’s solicitors, I am not prepared to say that, in the circumstances, his actions amounted to the gross negligence required to support the order for costs sought by the Bank. The application for costs against Mr Cooke personally is declined.

Costs

[85] The Bank is entitled to costs on a reasonable solicitor/client basis against Mr

Hart and his related companies for these applications.

[86] Although I have found the Bank has not made out its case for costs against Mr Cooke, the application was responsibly brought and, as noted, I have found Mr Cooke failed to act as he should have. In the circumstances costs are to lie where

_{they fall on the Bank’s applications against Mr Cooke personally.}

_{Venning J}

22 The term “wasted costs” is sometimes used in New Zealand, despite the absence of an equivalent provision, however, the test in Harley is still applied. See, for example, Dominion Finance Group Ltd (in Rec and Liq) v Sade Developments Ltd HC Auckland CIV-2009-419-

_{1556, 6 October 2011.}

23 Harley v McDonald [2002] 1 NZLR 1 (PC).