Smith v Penney [2014] NZHC 619 (31 March 2014)

Last Updated: 29 September 2014

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2013-404-003064 [2014] NZHC 619

BETWEEN	NIGEL PHILIP SMITH (in his capacity as a trustee of the Maria Charles Family Trust) Plaintiff
AND	STEPHEN CHARLES PENNEY (in his personal capacity and in his capacity as a trustee of the Maria Charles Family Trust) First Defendant DONNA MARIA SIMUNOVICH (in her personal capacity and in her capacity as a trustee of the Maria Charles Family Trust) Second Defendant

Hearing:	(on the papers)
Appearances:	M Heard and F Whyte for the Plaintiff WGC Templeton for the First Defendant S McCabe for the Second Defendant
Judgment:	31 March 2014

_{[COSTS] JUDGMENT OF WYLIE J}

This judgment was delivered by Justice Wylie on 31 March 2014 at 4.00 pm

Pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

_Date:

SMITH v PENNEY & ANOR [2014] NZHC 619 [31 March 2014]

Introduction

[1] I refer to my reserved judgment dated 12 November 2013.¹ In that judgment, I upheld various orders made by Associate Judge Christiansen. I held that the plaintiff, Mr Smith, and the second defendant, Ms Simunovich, were entitled to an award of costs in their favour, and I invited counsel to file memoranda in that regard.²

[2] Mr Smith seeks either indemnity costs, or increased costs. So does Ms Simunovich. They both argue that the first defendant, Mr Penney, has acted frivolously and vexatiously, and that he has ignored Court orders.

[3] The first defendant, Mr Penney, opposes the applications. He accepts that costs should follow the event, but submits that there was nothing vexatious or frivolous in his behaviour, and that such unreasonableness (if any) as was displayed by him does not justify increased costs.

Background

[4] As noted in my substantive judgment, Mr Smith was, at all relevant times, the independent trustee of a family trust known as the Maria Charles Family Trust. The first and second defendants were his co-trustees. They were also the ultimate beneficiaries of the trust.

[5] When disputes arose in relation to the trust and the finalisation of its accounts, Mr Smith commenced proceedings. He sought various orders against Mr Penney. After initial difficulties with service (which were attributable to Mr Penney), the proceedings were heard by Associate Judge Christiansen on

7 August 2013. He considered it clear that Mr Penney had been receiving, but not accounting, for trust income, and he made orders requiring Mr Penney to pay to the trust all rental income he had received from trust properties, to deliver up to Mr Smith and Ms Simunovich as his co-trustees, all records concerning the leasing

_{of trust properties, and to refer to all trustees of the trust, all decisions made in}

¹ _{Smith v Penny [2013] NZHC 2988.}

² At [73].

relation to trust property, and comply with directions made by the trustees in accordance with the trust deed. Indemnity costs were ordered against Mr Penney.

[6] Mr Penney immediately breached the orders made by Associate Judge Christiansen. He belatedly filed a statement of defence. He did not account promptly to the trust. When he did finally account to the trust, he did not do so fully. Rather, he deducted monies he claimed he had spent on the trust’s properties. He did not pay the indemnity costs ordered by Associate Judge Christiansen.

[7] Mr Penney applied to review Associate Judge Christiansen’s decision. The

application for review failed in its entirety.

Mr Smith’s and Ms Simunovich’s Positions

[8] Mr Smith was doing no more than seeking to ensure that the trust deed was complied with, and that Mr Penney abided by his obligations as trustee. Mr Penney’s behaviour was in clear contravention of his obligations as a trustee, and it seems from email correspondence that he was aware of that from the outset. Mr Smith had no alternative but to seek to hold Mr Penney to account.

[9] Ms Simunovich, as a co-trustee, was necessarily a party to the proceedings. She played an appropriate part and no steps taken on her behalf were either unmeritorious or unnecessary.

[10] On the other hand, there are a number of aspects of Mr Penney’s behaviour on the application for review which cause concern and which have added significantly to the costs which have been incurred. For example:

(a) Mr Penney belatedly filed voluminous documentation. It was prolix and much of it was irrelevant.

(b) Mr Penney failed to comply with Venning J’s direction requiring that submissions be filed in a timely fashion. As a result, Mr Smith and Ms Simunovich had to try and second-guess the arguments Mr Penney would be relying on. Mr Smith’s solicitors did not receive

Mr Penney’s submissions until 10.11 am on 10 October 2013. Ms Simunovich’s counsel received the submissions during the afternoon of 10 October 2013. The hearing was due to commence on

11 October 2013.

(c) It is clear from letters sent by counsel for Mr Smith and Ms Simunovich to Mr Penney’s barrister that Mr Penney was warned his application for review lacked merit. Mr Penney was invited to withdraw his application and was warned that if he did not do so, the correspondence would be relied on in support of an application for costs.

(d) The application was initially advanced as an application to set aside Associate Judge Christiansen’s judgment, but ultimately, it transpired that Mr Penney was simply aggrieved by the order requiring him to account to the trust for the gross rentals received. What was sought was a variation of that order, so that Mr Penney should only be required to account for the net rentals received, after deduction of all expenses said to have been incurred in relation to trust properties.

(e) The case for Mr Penney was misconceived from the outset and the arguments advanced lacked merit. For example, the variation to the orders sought was based on a proposed cross claim or set off. However, costs incurred on the properties had not been paid by Mr Penney personally. Such monies as were spent on the trust properties were spent by another trust set up by Mr Penney. The orders which Mr Smith sought and obtained against Mr Penney could not be affected by any cross-claim or set-off. By way of further example, initially Mr Penney opposed the appointment of a Mr Taylor as a trustee, despite the fact that his previous legal advisor had suggested Mr Taylor in the first place. Mr Penney filed two affidavits in support of his objection. However, ultimately, Mr Penney elected to abide the decision of the Court.

(f) The legal submissions in reply made on Mr Penney’s behalf raised issues which had not been dealt with by either counsel for Mr Smith, or Ms Simunovich. As I noted in my substantive judgment, the submissions generally could be described as evolving submissions.

Costs Awards Generally

[11] All counsel agreed that 2B categorisation is appropriate. I agree. The proceedings involved issues of a nature appropriate to the engagement of reasonably skilled High Court counsel, and should have involved a moderate amount of time in preparation.

[12] I am, however, not persuaded that awarding costs on a 2B basis is appropriate in this case.

[13] The distinction between scale, increased and indemnity costs was summarised by the Court of Appeal in Bradbury v Westpac Banking Corporation.³

The Court there noted that standard scale costs applied by default where no cause is shown to depart from it, but increased costs may be awarded where there is failure by the paying party to act reasonably and that indemnity costs can be awarded where the party paying has behaved either badly, or very unreasonably.⁴ In addition to these grounds, increased costs are authorised by r 14.6(3)(a) where the time taken by a particular step significantly exceeds that allotted under band C.

Mr Smith’s Costs

[14] In my view, an award of indemnity costs in favour of Mr Smith is appropriate in the present case for the reasons I have set out above.

[15] The grounds on which indemnity costs can be awarded are set out in r 14.6(4) of the High Court Rules. Mr Smith was in a position where he had no alternative but to bring the proceedings, and Mr Penney contumaciously disregarded his obligations

_{as a trustee. It is my clear view that Mr Penney acted vexatiously in seeking to}

³ _{Bradbury v Westpac Banking Corporation [2009] NZCA 234; [2009] 3 NZLR 400.}

⁴ At [27].

review Associate Judge Christiansen’s decision. The grounds advanced by him were devoid of merit and frivolous. Further, Mr Penney ignored or disobeyed orders and directions made by the Court.

[16] The indemnity costs claimed by Mr Smith amount to $19,630.00. This is less than the total amount invoiced, because invoices sent to Mr Smith by his lawyers covered additional work. Explanations have been provided. I am satisfied that the costs claimed were properly incurred, and that the hourly rates charged out by Mr Smith’s legal advisors was appropriate.

[17] Accordingly, I make an award of $19,630.00 in favour of Mr Smith and against Mr Penney. Further, Mr Smith is entitled to his reasonable disbursements. If there is any dispute regarding the same, that dispute is to be referred to the Registrar.

Ms Simunovich’s Costs

[18] I am not satisfied that an award of indemnity costs is appropriate in Ms Simunovich’s favour against Mr Penney. I have reached that conclusion for the following reasons:

(a) The bulk of the legal argument was undertaken by counsel for Mr Smith. Counsel for Ms Simunovich very largely adopted that argument.

(b) Counsel for Ms Simunovich did advance the argument in relation to the appointment of new trustees, and whether or not Mr Taylor should be one of those trustees. That argument, however, was relatively self contained and required no detailed legal or factual analysis. As I have already noted, in any event, Mr Penney belatedly changed his stance in regard to this issue and agreed to abide the decision of the Court.

(c) Ms Simunovich and Mr Penney were previously married. There is considerable rancour between them. While the events which have led to this particular litigation are the fault of Mr Penney, there is undoubtedly a legacy of matrimonial bitterness, and that has not

contributed to the expeditious dispatch of this matter. I cannot exclude the possibility that Ms Simunovich has contributed to that outcome.

[19] I am, however, satisfied that increased costs are appropriate because Mr Penney contributed unnecessarily to the time and expense of the proceedings by failing to comply with directions of the Court, by taking unnecessary steps, by advancing arguments that lacked merit, and by failing, without reasonable justification, to accept arguments relating to Mr Taylor’s appointment as a new trustee.

[20] I award costs on a 2B basis, increased by 25 percent, in favour of

Ms Simunovich and against Mr Penney.

[21] Ms Simunovich has not put before me sufficient information on which I can fix costs on a 2B basis, but I would anticipate that counsel will be able to do that now that costs have been fixed. If there is any dispute between Ms Simunovich and Mr Penney, then a joint memorandum of counsel is to be filed within five working days from the date of this judgment. I will deal with that dispute on the papers.

[22] For the avoidance of doubt, and simply because repeated assertions have been made by counsel for Mr Penney to the contrary, I record that neither Mr Smith, nor Ms Simunovich, have sought to resile from the concession which they made prior to the hearing of the review application, and repeated in the course of the hearing before me. Neither seeks to enforce the indemnity costs order made by Associate Judge Christiansen, and both are content to accept costs on a 2B basis up until 7 August 2013 (the date of the hearing before Associate Judge Christiansen).

_{The orders made by me apply only to costs incurred after that date.}

Wylie J