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High Court of New Zealand Decisions |
Last Updated: 13 February 2013
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2011-404-4669 [2012] NZHC 2980
UNDER the Insolvency Act 2006
IN THE MATTER OF the bankruptcy of PHILIP JOSEPH FAVA BETWEEN PHILIP JOSEPH FAVA
Applicant
AND OFFICIAL ASSIGNEE Respondent
Hearing: 7 November 2012
Counsel: G J Judd QC for the Applicant, Mr Fava
J D McBride for Aral Property Holdings Limited
Judgment: 7 November 2012
ORAL JUDGMENT OF ASSOCIATE JUDGE BELL
Solicitors:
Murdoch Price, P O Box 217-006 Botany Junction, Auckland 2164, for P J Fava
Email: christine@murdochprice.co.nz
Bell Gully, P O Box 4199 Auckland 1140, for Aral Property Holdings Limited.
Email: Ralph.simpson@bellgully.com
Copy for:
Gary Judd QC, P O Box 137-273 Parnell, Auckland 1151, for P J Fava
Email: garyjjudd@gmail.com
Josh D McBride, P O Box 1008 Auckland 1140, for Aral Property Holdings Limited
Email: josh@joshmcbride.co.nz
FAVA V OFFICIAL ASSIGNEE HC AK CIV-2011-404-4669 [7 November 2012]
[1] Aral Property Holdings Ltd has applied for security for costs against Mr Fava, the applicant. Mr Fava opposes, but on confined grounds. He says that the application is misconceived for two reasons:
(a) This is the second application for security for costs in this matter and leave has not been granted to allow a second application.
(b) The application is unlawful and incompetent because it involves a breach of r 13.5.3 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008. The alleged breach of that rule is said to lie in the conduct of Mr Simpson, a partner in Bell Gully, the solicitors acting for Aral Property Holdings Ltd in this proceeding.
Background
[2] Mr Fava was adjudicated bankrupt on 11 May 2010. Aral was the creditor. It claimed a debt of $1,584,637.59 being the unpaid balance of a $2,000,000 order for costs under a judgment of Hugh Williams J given on 22 December 2009 in Churchill Group Holdings Ltd & Ors v Aral Property Holdings Ltd.1 Although Mr Fava was not a party to that litigation, Hugh Williams J ordered that Mr Fava personally should pay costs, in addition to the orders for costs made against the plaintiffs. Aral Property Holdings Ltd has claimed as a creditor for the judgment debt in Mr Fava’s bankruptcy.
[3] In the original litigation (CIV-2001-404-2302) Churchill Group Holdings Ltd and other companies associated with Mr Fava had sued Aral and its manager, Mr Leung, for $25 million in deceit and for breach of the Fair Trading Act. In addition, they claimed punitive damages of $25 million. The claims arose out of a
falling-out in a joint venture for a shopping centre at Whangaparaoa.
1 Churchill Group Holdings Ltd & Ors v Aral Property Holdings Ltd and Leung HC Auckland
CIV-2001-404-2302, 22 December 2012.
[4] The case went to a hearing in 2006, but came to an end after 31 days when Mr Fava was adjudicated bankrupt on the application of another creditor. Mr Fava became disqualified from holding office as director of the plaintiffs in the proceeding. On his adjudication in bankruptcy the proceeding came to a halt. Hugh Williams J entered judgment by default in favour of Aral and Mr Leung. Aral applied for costs in 2007. The costs application was heard over 6 days in March
2009. By now, Mr Fava was discharged from his first bankruptcy and he took an active part in the costs hearing. The judgment of Hugh Williams J is comprehensive and lengthy. It runs for 504 paragraphs and for 155 pages.
[5] While Mr Fava might not agree with what I am about to say, it seems abundantly clear from a reading of the decision of Hugh Williams J that some order for costs was going to be made against the defendants, arising out of the failure of the proceeding. In the costs hearing, the questions which Hugh Williams J had to decide were:
(a) whether costs should be awarded on a scale basis2 or whether they should be increased under r 14.6, or reduced under r 14.7, and
(b) whether Mr Fava personally should be ordered to pay costs as a non- party under the Privy Council’s decision in Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No 2).3
In finding for Aral and Mr Leung, Hugh Williams J broadly held that the plaintiffs’ case was hopeless; the plaintiffs were not justified in making serious allegations of misconduct against the defendants and their professional advisers; and that Mr Fava should pay costs under the Dymocks case because he effectively controlled the plaintiffs and was their alter ego. In coming to his decision, he relevantly referred to two major decisions on indemnity costs – the decision of Tomlinson J in Three Rivers District Council v Bank of England and the decision of the Court of Appeal in
Bradbury v Westpac Banking Corporation.4 He foresaw that while he had gone to
2 High Court Rules: r 14.3-5.
3 Dymocks Franchise Systems (NSW) Pty Ltd v Todd (No.2) [2005] 1 NZLR 145
4 Three Rivers District Council v Bank of England [2006] EWHC 816; and Bradbury v Westpac
Banking Corporation [2009] NZCA 234; (2009) 19 PRNZ 385 (CA); [2009] 3 NZLR 300 (CA).
considerable efforts to set out his reasons at length, Mr Fava might take issue and try to find fault with his decision. At paragraph [20] he said:
[20] The approach to costs and the broad, complex spectrum of the substantive proceeding (to say nothing of the time elapsed since it occurred) necessitated lengthy re-reading and summarizing almost the whole of the extensive evidence and reference to large numbers of documents as a prelude to and part of the preparation of this judgment. Reflection on that material has led to the view that not all needs to be incorporated or referred to in this judgment: only the more salient issues seem necessary to be covered. As a result the parties – Mr Fava in particular – will take the view some aspects of the evidence and their submissions have been incorrectly excluded or have been occasioned undue or insufficient prominence and, in a judgment of this length, there may well be minor factual errors, but, at the end of the day, the task has been to review the evidence, the documents and the submissions within the confines of rr 14.6 and 14.7 and deal with them accordingly.
[6] The present proceeding is under s 238 of the Insolvency Act 2006. Under that section the court can cancel an admitted creditor’s claim, or it can reduce the amount claimed if the court considers that the claim is improperly admitted. As the bankrupt, Mr Fava has standing to seek an order under that section. Aral has been served under s 238(3). As the creditor, whose debt is challenged, Aral has standing to oppose Mr Fava’s application. It is taking a more active part than the Official Assignee in opposing Mr Fava’s application. Being in the position of a defendant in the proceeding, it has standing to apply for security for costs.
[7] Mr Fava says that the costs decision of Hugh Williams J contains serious errors and inconsistencies. He says that the court should look through the decision because of those errors. His long-term aim is to have that judgment set aside, then to have the default judgment of 2006 set aside, and then to have an entire re-hearing of CIV-2001-404-2302.
[8] This proceeding is to follow two stages. There is to be, first, a preliminary hearing to decide whether the costs judgment should be re-opened. If it is found that the costs judgment should be re-opened, there would be a second hearing of the costs application. I gave directions for that in my minute of 8 November 2011. In taking
that approach, I was following the decision of Fullagar J in Corney v Brien.5
5 Corney v Brien [1951] HCA 31; (1951) 84 CLR 343 at 358.
Merits of the security for costs application
[9] Because Mr Fava does not oppose the merits of the security for costs application, I address that first and then consider the particular grounds he raises in opposition.
[10] Ordinarily an application for security for costs involves four questions:
(a) Has the applicant satisfied the court of the threshold under r 5.45(1)? (b) How should the court exercise its discretion under r 5.45(2)?
(c) What amount should security for costs be fixed at? (d) Should a stay be ordered?
Is there reason to believe that Mr Fava will not be able to pay an order for costs?
[11] Aral has established that there is reason to believe that Mr Fava will be unable to pay its costs if Mr Fava is unsuccessful in his proceeding under s 238 of the Insolvency Act. Mr Fava is bankrupt and that by itself is enough to give reason to believe that he would be unable to pay costs.
[12] There are added factors.
[13] In May 2011 I heard Mr Fava’s application under s 226 of the Insolvency Act, challenging the decision of the Official Assignee not to continue Mr Fava’s appeal against the decision of Hugh Williams J. In that hearing, the Official Assignee advised that there are no funds in the estate. As a bankrupt, Mr Fava is under a duty to disclose to the Official Assignee all his assets and liabilities so as to assist the Official Assignee in the administration of his bankruptcy. The absence of any funds in the estate is consistent with Mr Fava not having any ability to pay costs.
[14] Moreover, Aral has put in evidence orders for costs it has obtained against Mr
Fava in the High Court, Court of Appeal and Supreme Court. These orders run from
January 2010 when Venning J dismissed Mr Fava’s application to stay execution of the decision of Hugh Williams J, through to February 2011. Combined, those orders for costs come to $19,687.15. Mr Fava has not paid any of these orders for costs. His failure to pay earlier orders for costs in the recent past gives reason to believe that he will not be able to pay orders for costs in this case if it goes against him.
How should the Court exercise its discretion under r 5.45(2)?
[15] An order for costs is not made automatically once the defendant crosses the threshold under r 5.45(1). The court is required to weigh up competing considerations. On the one hand, a defendant is to be protected against a barren order for costs after successfully defending a claim. On the other hand, access to the courts for a genuine plaintiff is not lightly to be denied.
[16] At first sight, a bankrupt who challenges a decision of the Official Assignee might attract some sympathy. A court might be reluctant to prevent a person wishing to challenge a decision of the Official Assignee from being heard in court, even though they are bankrupt. A bankrupt with a genuine grievance would not be able to meet an order for costs. Requiring a bankrupt to provide security would create an injustice if the bankrupt is not able effectively to seek the court’s supervision of the Official Assignee. That is a factor going in favour of Mr Fava.
[17] In my judgment, there are important considerations going the other way.
[18] The first is the merits of the case. In considering the exercise of the discretion, courts ordinarily consider the merits of the plaintiff ’s case. The merits can be relevant in determining the genuineness of the claim and the need for the plaintiff to have access to the courts. The strength of the claim also goes to the amount of any security that is fixed.
[19] Mr Fava is challenging the decision of the Official Assignee to admit the claim made by Aral. Aral has a final judgment in its favour. On ordinary principles, it would be expected that a creditor who has claimed in bankruptcy would be able to
rely on a final judgment. However, there is a narrow exception. Mr Fava is trying to use that narrow exception.
[20] There is authority that a trustee in bankruptcy is not necessarily bound by a judgment in favour of a creditor, and may look behind the judgment. The leading authority is the decision of the High Court of Australia in Corney v Brien.6 Four of the judges of the High Court cited old authority that it is a settled rule that a court of bankruptcy can enquire into the consideration for a judgment debt. A judgment may be investigated, particularly when judgment has gone by default. They cited an earlier decision of the High Court of Australia in Petrie v Redmond where Latham CJ said:7
The court (ie the Court of Bankruptcy) is entitled to go behind the judgment and enquire into the validity of the debt where there has been fraud, collusion or miscarriage of justice... Also the court looks with suspicion on consent judgments and default judgments.
[21] Fullagar J gave a separate decision. He examined the law more closely. In particular, he considered the situation where there has been a trial on the merits, as opposed to a default judgment. He cited In Re Flatau ex parte Scotch Whisky Distillers Ltd where Fry LJ said, in relation to the power to look behind a judgment in bankruptcy:8
This power has never, so far as I am aware, been extended to cases in which a judgment has been obtained after issues have been tried out before a court.
Fullagar J said:9
No precise rules exist as to what circumstances call for an exercise of the power, but certain things are, I think, clear enough. If the judgment in question followed a full investigation at a trial in which both parties appeared, the court will not re-open the matter unless a prima facie case of fraud or collusion or miscarriage of justice is made out.
6 Above n 5.
7 Petrie v Redmond (1942) 13 ABC 48 at 49; (1943) QSR 75 at 76
8 In re Flatau; Ex parte Scotch Whisky Distillers Ltd (1888) 22 QBD 83 at 86.
9 At 357.
[22] Mr Fava relies on Corney v Brien to say that the court should re-open the matter and look behind the costs judgment. His amended statement of claim sets out two broad grounds for attacking the judgment:
(a) The “fiction contract allegation”, which involves an attack on
evidence given by Mr Leung in the hearing in 2006.
(b) Allegations against Bell Gully, against Mr Simpson in particular, as to alleged misconduct in June 2003.
[23] The basis for Mr Fava’s attack on these parts of the costs judgment is that there are serious errors and inconsistencies. Those are matters that might be grounds for appeal. But under the test in Corney v Brien, namely showing fraud or collusion or miscarriage of justice, Mr Fava’s case must go further than showing errors in the original judgment.
[24] The costs decision followed a hearing on the merits. There was a six day hearing to decide costs. Mr Fava took full part in that hearing, knowing that the application was aimed at him personally. In this proceeding under s 238 of the Insolvency Act 2006, to persuade the court to look behind the judgment he has to show that there was fraud or collusion, or a miscarriage of justice. As I read his pleadings (his initial statement of claim and the amended statement of claim), his case does not go that far. Effectively he is trying to relitigate the merits of the costs judgment. The bankruptcy court’s power to look through a judgment does not extend to allowing a disappointed litigant to re-argue the merits of the case in the absence of a prima facie case of fraud or collusion or miscarriage of justice. Accordingly, I regard the chances of Mr Fava’s challenge under s 238 surviving any preliminary investigation as being extremely thin.
[25] In case I had any doubt about the matter, I note that other judges have
expressed similar views as to the merits of Mr Fava’s case. I refer to the decision of
Venning J on Mr Fava’s application for a stay of execution.10 Before Venning J,
10 Churchill Group Holdings v Aral Property Holdings Ltd HC Auckland CIV-2001-404-2302,
27 January 2010.
Mr Fava said that he was intending to appeal and argued that without a stay his appeal would be rendered nugatory. Venning J refused the stay. He accepted that the consequence of the refusal of the stay was that the appeal would be rendered nugatory. In coming to the conclusion that the stay should be refused even though the appeal would be rendered nugatory, he found that there was no merit in the appeal. Instead, he regarded Mr Fava’s attempts to pursue the matter further as an exercise in futility.
[26] Mr Fava appealed against the decision of Venning J, but the Court of Appeal dismissed his appeal.11 Mr Fava also sought leave to appeal to the Supreme Court, but that application for leave was similarly dismissed.
[27] A further factor is the futility of the present proceeding. It is abundantly apparent that even under the best case for Mr Fava, the utmost he could hope for would be to get some reduction in the amount of the claim. That was a point recognised by Venning J in his decision refusing the stay of execution. Venning J noted that scale costs would be in the order of about $500,000. While Hugh Williams J ordered increased costs and a further sum for indemnity costs (for the last nine days of the hearing in 2006), Mr Fava, with everything going well for him, could hope only to have any costs order reduced to scale costs. The argument is really about the amount of the debt that should be admitted, rather than whether the debt was correctly admitted. As there are no funds in his estate available for creditors, it is a futile exercise to argue whether the debt is $1.5 million or $500,000 because it is going to make no difference to the administration of the bankruptcy and to the payment of any dividend.
[28] Another factor is Mr Fava’s litigiousness. Mr Fava has a long history of not taking “no” for an answer - even from the courts. He seems unable to accept that there should be an end of litigation. I note, for example, that in his earlier bankruptcy he applied for approval of a composition with his creditors under the Insolvency Act 1967. Potter J dismissed his first application. He then made another
application. His creditors applied for security for costs. Associate Judge Robinson
11 Churchill Group Holdings Ltd v Aral Property Holdings Ltd [2010] NZCA 88.
made an order for security for costs.12 Mr Fava unsuccessfully appealed that decision and, after that, unsuccessfully sought leave to appeal to the Supreme Court.
[29] Similarly, in the Churchill Group Holdings proceeding, after Venning J dismissed the application for a stay of execution, Mr Fava appealed to the Court of Appeal13 and then tried to take the matter further to the Supreme Court.
[30] I note also from the chronology attached to Mr McBride’s primary submissions, that other matters have gone before the Court of Appeal. The Court of Appeal gave a decision on Mr Fava’s application to re-call the judgment of 23 March
2010.14 The Court gave a decision on 26 November 2010 on an application by
Mr Fava challenging the creditors’ representation.15 There was an unsuccessful application on 28 February 2011 where Mr Fava’s application to seek an extension of time to file a case on appeal was struck out.16 Effectively, Mr Fava is running this case as though he were immune to a costs order. He personally pursues cases beyond any reasonable point, and he ignores orders for costs.
[31] The effect of this litigious conduct on his part is to cause unnecessary costs to his creditors. That litigious tendency of Mr Fava requires a firm response by requiring him to provide security for costs.
[32] Accordingly, I conclude that the balance favours requiring security for costs from Mr Fava.
How much should the court fix security for costs?
[33] Aral Property Holdings seeks $20,000 for security for costs. Mr McBride suggested a calculation on the basis of costs under category 3. With respect, this
case is within the jurisdiction of an associate judge.17 It does not seem to have the
12 Zaghloul v Fava HC Auckland, CIV-2006-404-5233, 23 December 2008, Associate Judge
Robinson.
13 Above n 11.
15 Fava v Aral Property Holdings Ltd [2010] NZCA 562.
16 Fava v Aral Property Holdings Ltd [2011] NZCA 34.
17 Judicature Act 1908, s 26I(2)(ha).
degree of difficulty and complexity that would require category 3 costs. Category 2 is adequate. However, I still regard the sum of $20,000 as appropriate. On a rough calculation, costs according to scale under category 2 band B would come to about
$18,000 if there is an allowance for one day for conferences, three days for preparing a statement of defence, a day or two days allowed for a full hearing, and an appropriate allowance for preparation. It is also necessary to take into account disbursements. It is also prudent to allow for some blow-out of those costs on account of Mr Fava’s tendency to pursue points which require more time and attendances on the part of all parties.
[34] On security for costs applications, it is common to make a discount for uncertainty of the outcome. In this case I regard the merits of Mr Fava’s claim as so barren that it would be inappropriate to apply any discount.
[35] In this case Mr Fava is running a risk of indemnity costs being awarded against him. I do not regard the sum of $20,000 as adequate cover for indemnity costs. To that extent, there is a discount on potential costs.
[36] Peters J fixed security for costs on an earlier application. She fixed security for an application to disqualify Bell Gully, Mr Simpson and Mr McBride from acting in this proceeding. The present security is to cover the parts of the proceeding outside that disqualification application. In other words, it is additional security to that ordered by Peters J.
Should the court order a stay?
[37] Given Mr Fava’s past failure to pay orders for costs, I do not have any confidence that he will put up security if a stay were not applied. Aral is entitled to protection against the case running on without security being provided. Accordingly this is an appropriate case for a stay.
[38] I now deal with the particular grounds set out in Mr Fava’s notice of
opposition.
Second security for costs application
[39] The argument is not directed at the previous security for costs decision given by Peters J on 3 August 2011. No argument is raised that an application for further security cannot be run in addition to Peters J’s order for security for costs. The application she heard was directed only at the disqualification application. The fact that she ordered security just for that part of the case does not stand in the way of Aral applying for security generally for the other parts of the other proceeding. Instead, Mr Fava’s opposition is directed at my minute of 8 November 2011.
[40] My minute did not refer at all to the question of security for costs. In that minute, I gave directions for the hearing of the application under s 238, without recording any decision about security for costs. Mr Judd QC points out that in memoranda filed for that conference and at earlier conferences, Aral had referred to security for costs, signalling its wish to seek security from Mr Fava.
[41] Mr Judd says that by my having given immediate directions for the hearing of the case without having made any order for security for costs, it must follow that I have dismissed the application for security for costs. Another view of the matter is that I might have overlooked the issue.
[42] One way of considering the matter is that before the conference security for costs may have been a live issue. After the conference, security for costs was no longer a live issue. For it to turn from a live issue to be no longer a live issue means that it must have been put out of the way. However, it is obvious that I did not make any decision on the merits of any security for costs application. If anything, the question of security for costs was simply sidelined.
[43] Under r 7.52, a party cannot make a second interlocutory application if the first interlocutory application fails, unless the court grants leave. If it is considered that I have dismissed an earlier security for costs application, this is an obvious case for granting leave, given that there was no consideration of the merits of that earlier security for costs application.
[44] In short, Aral did not pursue the security for costs issue in November 2011 but, in no longer pursuing the issue then, it has not given away the right to raise the matter now. Out of caution, I grant leave under r 7.52 and allow it to run the present application.
Is the present application competent?
[45] Mr Fava’s contention that Aral’s application is incompetent and unlawful was also raised before Peters J in Aral’s application for security for costs on the disqualification application.18 As in this application, Mr Fava relied on r 13.5.3 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008:
A lawyer must not act in a proceeding if the conduct or advice of the lawyer or of another member of the lawyer’s practice is in issue in the matter before the court. This rule does not apply where the lawyer is acting for himself or herself, or for the member of the practice whose actions are in issue.
[46] Peters J rejected Mr Fava’s arguments. She held that Mr Simpson’s conduct was not in issue in the manner anticipated by r 13.5.3. She noted that the allegations relating to Mr Simpson did not loom large in the decision of Hugh Williams J, whether as to liability or quantum. There were other matters that were more important and prominent in the court’s decision.
[47] Second, she held that even if she was wrong on that, it was for the court to control its own procedures. Mr Fava’s proceeding was then at an early stage. Mr Fava might amend his pleading, and he had not yet crossed the first threshold by persuading the court to look behind the costs judgment. She also said:19
All of that said, it is quite possible that the Court who hears the full argument on the representation application will grant the order Mr Fava seeks in that application. However, I am dealing with an application for security for costs and I am not willing to dismiss that application simply on the basis of Mr Fava’s pleading as it stands at present.
[48] As the issue of competence and lawfulness was before the Peters J, the question arises whether Mr Fava is free to advance the same objection, given that there has already been a finding against him on that issue. Peters J gave her decision
in an interlocutory application. There is guidance on an application of issue estoppel in interlocutory applications in the decision of the Court of Appeal in Joseph Lynch Land Co Ltd v Lynch.20 There, Tipping J said:21
In principle a sufficiently final and certain conclusion can no doubt be found in what is effectively an interlocutory judgment so as to found a subsequent issue estoppel. We consider, however, that considerable caution is necessary before coming to such a conclusion. If the parties have clearly accepted that an interlocutory ruling on a point shall be finally decisive between them then no doubt an issue estoppel or even a cause of action estoppel may arise...
In our judgment the ultimate question is concerned not so much with the character of the earlier decision, ie whether it should be regarded as final or interlocutory. The question is rather whether in the circumstances it is reasonable to regard the earlier decision as a final determination of the issue which one of the parties now wishes to raise. In Halsbury at para 977 it is said that the scope of the doctrine of issue estoppel depends on whether the Court takes a narrow or a wide view of the extent of the issues determined in the earlier case. A number of examples are given either way. If the earlier decision is in substance interlocutory, it will usually be reasonable to adopt a narrow view. ...
[49] Applying that approach, I take the narrow view. The issue that Peters J decided was that on an application for security for costs by Aral, made in Mr Fava’s application under s 238 of the Insolvency Act, Mr Fava was not entitled to raise an objection that the court had no jurisdiction to entertain Aral’s security for costs application because the application was unlawful or incompetent as being in breach of r 13.5.3 of the Lawyers: Conduct and Client Care Rules.
[50] In this case, the issue is exactly the same. Mr Fava has again asked the court not to entertain a security for costs application by Aral in the same proceeding on the grounds that the application is unlawful and incompetent as it is based on an alleged breach of r 13.5.3 of the Lawyers: Conduct and Client Care Rules. Accordingly, even taking the narrow approach, Mr Fava is asking the court to revisit the matter which Peters J has already decided against him. Issue estoppel applies. Mr Fava is not entitled to raise the same matter again.
[51] Mr Judd tried to persuade me that the decision of Peters J was not determinative. He said that it could be distinguished on three grounds.
[52] First, the application before Peters J was one made in the disqualification application whereas the present one was raised in the context of the proceeding as a whole. However, that is not a proper ground for not applying issue estoppel. Issue estoppel applies when a particular issue has been decided. It is distinct from cause of action estoppel.
[53] Next, he said that there was a change in circumstances. He relied on what he called an “unguarded concession” by counsel made in an email to the Court of Appeal as the relevant change in circumstances but the point, in fact, remains the same. The fact that in communications with the Court of Appeal, Mr McBride adverted to the fact that serious allegations had been made against Mr Simpson does not alter the point that Peters J found that under her first ground the Simpson issue did not loom large in the decision of Hugh Williams J.
[54] Finally, Mr Judd’s submission suggests that Peters J was misled. With
respect, I see nothing in that point either.
[55] In applying issue estoppel I also find support from a recent decision of the Supreme Court in Siemer v Judicial Conduct Commissioner.22 Mr Siemer had objected to paying security for costs for an appeal. The Court of Appeal dismissed his application to review the decision of the Registrar and Mr Siemer applied for leave to appeal against that decision. In declining Mr Siemer’s application for leave, the Supreme Court said:23
Mr Siemer has on this occasion presented essentially the same submissions as previously put forward and rejected. For instance, he raises again the argument that, because the respondent is an officer of state, he (Mr Siemer) should not be required to pay security for costs. Mr Siemer knows this argument has been previously rejected. It is an abuse of process to continue to file applications for leave based on grounds which Mr Siemer must know have limited or no chance of success.
[Citations omitted]
[56] In a similar way, Mr Fava is not entitled to make repeated objections to a security for costs application by alleging that the application is unlawful and incompetent because of a breach of rule 13.5.3.
[57] While I regard the decision of Peters J as binding, in case I have erred, I
consider the merits of the objection.
[58] Mr Judd has provided a copy of the submissions that he has filed with the Court of Appeal for Mr Fava’s appeal against the decision of Peters J. Mr Judd’s submissions put the test of Bell Gully’s and Mr Simpson’s involvement as raising these questions:
(a) Is Mr Simpson a member of Bell Gully?
(b) Is Mr Simpson or Bell Gully acting in this proceeding? (By that, Mr Judd refers to the s 238 proceeding, not the costs application decided by Hugh Williams J.)
(c) Is Mr Simpson’s conduct in issue in this proceeding?
[59] While Mr Judd invites “Yes” answers to all three, the third question is the one which I take issue with. There is clearly a question as to what extent Mr Simpson’s conduct must be in issue in this proceeding to warrant the court holding that the solicitors who have formerly acted for Aral are no longer entitled to do so.
[60] As I understand the costs judgment of Hugh Williams J, the allegations against Mr Simpson related to an incident in June 2003, and a related interlocutory application. Mr Simpson is said to have had a “without prejudice” meeting with Mr Stewart QC who was apparently acting for the plaintiffs. There is a question whether Mr Stewart showed Mr Simpson a copy of a statement by a Mr Chong, a proposed witness for the plaintiffs. There was a subsequent interlocutory application concerning the admissibility of a statement made by Mr Chong. Mr Chong had been employed by the defendants but was apparently willing to give evidence for the plaintiffs. He provided an unsigned and unsworn statement. Mr Simpson objected
to it being admitted as evidence. Later, an affidavit sworn by Mr Chong was provided to be used in evidence.
[61] Mr Simpson was criticised for allegedly misleading the court. Mr Simpson apparently indicated to the court that he had read a copy of Mr Chong’s statement at his meeting with Mr Stewart, and allegedly misled the court as to there being an inconsistent version of evidence given by Mr Chong. It is that alleged misleading of the court that has led to Mr Fava making allegations against Mr Simpson.
[62] Hugh Williams J considered the matter fully in his decision. The parts of his decision that deal with that matter run from paragraphs [388] to [450]. It is apparent from Hugh Williams J’s decision that the events relating to Mr Simpson covered a very limited period. These matters did not go to the substantive merits of the hearing in 2006. Hugh Williams J said:
[441] ... what Mr Simpson was trying to do in his No.5 Memorandum and oral submissions was persuade the Court not to admit Mr Fava’s fifth affidavit with its unsworn statement annexed. His memorandum and oral submissions were advocacy. Trying to persuade a Court by means of advocacy to adopt a particular point of view of the facts is part and parcel of everyday litigation. Advocacy is not synonymous with ‘misleading’.
[442] ... as has been remarked on a number of occasions, even if Mr Simpson set out to mislead the Court as opposed to trying to persuade it to a particular viewpoint, he omitted reference to the most important fact. Mr Simpson’s successful advocacy did not mislead the Court on that score. Even if he tried to, he failed on the grounds propounded. Although he was successful in having Mr Fava’s fifth affidavit ruled inadmissible, it was for different reasons and his success was only short-lived. It lasted 24 hours. Thereafter, Mr Chong was a constant witness for the plaintiffs and gave extensive evidence and was subjected to extensive cross-examination at the substantive hearing.
Paragraph [443] is to similar effect.
[63] As I understand Mr Fava’s case, he is trying to mount an argument that there was no proper basis for Hugh Williams J to make some of his findings in that part of his judgment. In particular, he has produced a further affidavit from Mr Stewart QC confirming that he did not disclose the contents of Mr Chong’s statement to Mr Simpson in their meeting.
[64] It is necessary to put the matter in perspective. In the costs decision itself, Hugh Williams J made it clear that Mr Fava’s allegations against Mr Simpson really took matters nowhere. They did not give any weight to Mr Fava’s arguments that costs should be reduced under r 14.7. It is possible that they were one factor in the decision that costs should be increased under r 14.6. But it would have been one factor amongst many. There were plenty of factors set out at length by Hugh Williams J that gave good grounds for increased costs, regardless of this issue involving Mr Simpson.
[65] It is appropriate to consider how that issue figures in the present proceeding. The allegations against Mr Simpson are trifling. The matter was disposed of following the interlocutory hearing, where Mr Simpson made his submissions. If he had set out to mislead the court, he got nowhere because Mr Chong swore an affidavit on behalf of the plaintiffs and was clearly a witness for the plaintiffs from that time onwards. The issue died there. It was pointless for Mr Fava to raise it in the context of the costs application. It was ultimately irrelevant to the costs application because, even if Hugh Williams J was in error on that point, it made no difference to the outcome of the decision as a whole.
[66] Similarly, in this proceeding the matter is trifling. It does not figure as a serious issue in this proceeding. At the end of the day, it amounts to no more than an attack on Mr Simpson’s advocacy. Those experienced in litigation know that no case is run perfectly. For litigants, there is always the temptation to criticise opposition counsel. It is an abuse of r 13.5.3 to criticise Mr Simpson so as to disqualify Bell Gully from representing Aral Property Holdings Ltd in this application.
[67] Accordingly, I would rule that the court should not disqualify Bell Gully under r 13.5.3, having set out in greater length what Peters J succeeded in stating more succinctly.
[68] I am also sympathetic to Mr McBride’s submission that the attempt to disqualify Bell Gully is really a tactic to get Bell Gully off the case after Aral has invested heavily in using Bell Gully in the Fava proceedings and would lose the benefit of that investment if it were then compelled to instruct new lawyers.
Result
[69] I make these orders:
(a) Under r 7.52 of the High Court Rules, I grant leave to bring this application, if leave is required.
(b) Mr Fava is to pay security for costs in the sum of $20,000.
(c) The proceeding is stayed if Mr Fava fails to pay that sum of $20,000 into court by 26 November 2012.
(d) If Mr Fava does not pay the security for costs into court by
8 February 2013, Aral Property Holdings Ltd may apply under r 7.48 to strike out the application under s 238.
(e) Aral Property Holdings Ltd is not required to file a statement of defence in the interim.
[70] I am advised that the Court of Appeal is to hear Mr Fava’s appeal against Peter J’s decision on 15 November 2012. Ordinarily I would expect Mr Fava would want to seek a review of my decision to protect his rights pending the Court of Appeal’s decision. That would be inefficient. A more efficient way of dealing with that is to extend the time during which Mr Fava can apply for a review of my decision. Under r 2.3(2) I extend the time for him to seek a review of my decision to
10 working days after the Court of Appeal gives its decision on the appeal to be heard on 15 November 2012.
Costs
[71] Aral Property Holdings Ltd has costs against Mr Fava on this application under category 2 band B, plus reasonable disbursements as fixed by the Registrar. I trust that counsel will be able to resolve the amount of costs. If they are unable to agree, memoranda may be filed.
....................................
R M Bell
Associate Judge
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URL: http://www.nzlii.org/nz/cases/NZHC/2012/2980.html