Official Assignee v Black Bag Limited [2015] NZHC 1642 (14 July 2015)

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UNDER	Part 18 of the High Court Rules
BETWEEN	OFFICIAL ASSIGNEE in bankruptcy of the property of EDWARD JOHN HARMAN Plaintiff
AND	BLACK BAG LIMITED First Defendant LLOYD FERGUSSON Second Defendant

Date of hearing:	12 June 2015
Appearances:	Mr Neil for Plaintiff Ms Hui for Defendants
_Judgment:	_{14 July 2015}

OFFICIAL ASSIGNEE in bankruptcy of the property of HARMAN v BLACK BAG LIMITED [2015] NZHC

[1] This proceeding was commenced on 2 February 2014 when the Official Assignee (“plaintiff”) as administrator of the bankrupt estate of Edward John Harmon brought a claim against Black Bag Ltd and Mr Fergusson (“defendants”) alleging that the bankrupt had made insolvent gifts. Various relief was sought including monetary judgment and orders including the cancellation of guarantees and security interests. The current reason why the matter is before the Court is that an interlocutory application for further and better discovery was filed by the first defendant dated 30 January 2015. That application was opposed. The application was amended on 11 April 2015. On 23 April 2015, the parties took part in a telephone conference with Lang J. The Judge made timetabling orders in relation to the application. He recorded at paragraph 5 of the Minute that he issued following the conference that:

I record that at the listing of the matter on 6 May 2015 counsel expect to be in a position to advise the Court whether or not fixture on 12

2 June 2015, counsel for the first defendant advised the Registry that the fixture date of 12 June was no longer needed and, later that day, the plaintiff was served with a memorandum from the defendant’s counsel formally withdrawing the amended application.

[3] On 12 June, I heard from counsel concerning costs. The parties have been unable to agree as to which party should bear the costs of the application and amended application. Unfortunately, while the parties had avoided the need for a half-day fixture on the application for further and better discovery, the way matters developed, it turned out that they then committed themselves to a half-day fixture on costs at which they outlined the submissions which they would have concerning discovery. Amongst other things, a bundle of documents of nearly 200 pages was

filed and, as well, additional documentary exhibits were produced during the course of the hearing before me.

[4] The course that the proceeding has taken raises the question of whether the outcome of the application of the costs rules in this case has resulted in a predictable and expeditious outcome. The application reflects what is becoming a not unusual situation where, following the settlement of interlocutory disputes, the inability of the parties to agree on costs spawns “satellite” litigation which takes up a considerable amount of Court time. The level of detail which the parties in this case, and it is not atypical, have gone to pursue the question of costs must also be itself productive of considerable expense. No doubt the concern of the parties and their legal advisors to ensure that no stone is left unturned in the costs dispute reflects anxieties about exposure to risks of having to pay quite large costs awards in the wake of interlocutory applications that are settled or abandoned, without their being heard on the merits or a judgment entered on them. I should add that these remarks are not a criticism of counsel who appeared before me on the current application. It may, however, reflect a systemic problem that will need to be addressed at some point.

[5] The plaintiff relies upon the provisions of r 14.2 (a) and r 15.23 of the High Court Rules (“HCR”) in support of the application for costs. The position which the defendants take is that they were justified in issuing the application for further and better discovery in the first place and amending that application subsequently and that therefore they ought not to have to pay costs which ought to be reserved.

[6] The parties made extensive submissions which were intended to justify an order in their favour.

[7] In outline, the position which the defendants took was that they had justification for bringing the application for further and better discovery and for

directions with regard to whether legal privilege had been properly invoked by the plaintiff.

[8] The plaintiff, on the other hand, relied upon the fact that the Rules themselves provide for the outcome in a case like this, where an applicant abandons its application prior to the Court deciding it. As a second line of defence, the position which the plaintiff took was that the defendants were attempting to show that the particular circumstances of this case took the application outside the Rules which provide for what is to happen on discontinuance, because the merits of their claim, the plaintiff disputes that the defendants had good reason to start and then continue the application. It is my view that the plaintiff’s position is the correct one.

[9] The authorities make clear that, as a general rule, the Court, in considering costs on discontinuance, will not consider the merits of the competing contentions in the proceeding.¹However, that approach is departed from where the merits are so obvious that they should influence the costs issue.²

[10] Where there has been a discontinuance in circumstances where the applicant has received all of the relief orders that it set out to obtain, and therefore there was no need to continue with the application which was therefore discontinued, can represent such an exceptional case. That, however, is not what happened here.

[11] The case was partially resolved following an exchange of information between the parties which post-dated the filing of the application. However, I am satisfied on the evidence that the approach which the plaintiff took was that it was open to cooperating with the defendants in regard to queries that they had. Some of those queries were no doubt legitimate. For example, in November 2014, the plaintiff provided to the defendants a data stick which was intended to contain all of the documents which the plaintiff was required to provide an inspection in respect of. It turned out that some of the documents in question were not included on the data stick. Following a sensible email exchange, of the kind which is typically

_{undertaken between counsel in a situation like this, the problem was
fixed by the}

¹_{North Shore City Council v Local Government Commission
(1995) 9 PRNZ 182 (HC).}

plaintiff providing a replacement data medium containing the missing documents and evincing a readiness to remedy any other problems that might arise.

[12] Another instance involved a dispute between the parties concerning certain documents which related to companies that the bankrupt, Mr Harman, had been involved with. The Official Assignee, representing Mr Harman, took the position that the documents sought were not documents which were in the custody or control of the plaintiff and therefore did not represent a class of documents which the Official Assignee was obliged to discover. However, the Official Assignee took what appeared to be a reasonable and sensible approach by suggesting to the defendants that the Official Assignee could make use of the investigative powers contained in s

171 of the Insolvency Act 2006 to obtain documents. Any documents obtained would then be voluntarily provided to the defendants.

[13] The defendants’ advisers considered that provision of documents relating to companies that Mr Harman had been involved in might assist them in establishing that he and the companies had been acting in such a way that it would be justifiable to ignore the fact that the companies were juridically separate from him. In other words, it was hoped that it might be possible to take an approach that involved piercing the company veil. Were that to be possible, it could be the case that funds which were said to be owed to Mr Harman had in fact been accounted for by the transactions between himself and the companies so that there was no remaining debt, contrary to the situation which the plaintiff asserted.

[14] As I understand the position, when documents were obtained, the Official Assignee considered that legal professional privilege might apply in respect to some of the documents, and the documents were treated accordingly for the purposes of discovery. Still later, the Official Assignee adopted the additional, and alternative, ground of opposition for disclosing the documents that they were not relevant to an issue in the proceedings.

[15] This last ground was raised by the plaintiff on or about 13 January 2015 which was after the application for particular discovery had been filed but well before the date for the fixture in the proceeding.

[16] So the result was that the defendants had amended their application and the plaintiff had amended her notice of opposition by the end of April 2015. Prior to that date, the application for access to documents relating to lifting of the company veil had been the discontinued. The application so far sought to test whether the plaintiff was justified in claiming privilege for documents which was continued with. At a conference on 23 May 2015, the Judge who presided, Lang J, noted that the defendants may be considering whether or not to proceed with the application in its entirety. No further steps were taken towards discontinuing the matter, until after the plaintiff had filed its submissions in answer to the application.

[17] Thereafter, as I have already recorded, the defendants advised that they would be discontinuing the application.

[18] In my view, there is nothing in these circumstances as discussed to this point which would justify the displacement of the presumption that a party discontinuing is to pay costs on a basis analogous to r 15.23.

[19] In her careful submissions, Ms Hui advanced the further point that it was only after the defendants had sighted the submissions to be made on behalf of the plaintiff that a considered judgement could be made as to whether or not the application ought to be continued with.

[20] A party making a decision to bring an interlocutory application bears the responsibility for making a judgement as to whether or not there are sufficient prospects of success to merit that course being taken. There is no onus on the opposing party to warn the applicant of weaknesses or obstacles which lie in the path of the application and which are known to the respondent.

[21] Of course, once the application has been commenced, it is incumbent upon the respondent to comply with the HCR, the cumulative effect of which is to oblige it to make a full and proper disclosure of the grounds of opposition and any evidence in support thereof. There is no suggestion that that has not been done in this case.

[22] Had there not been compliance with the obligations on the respondent/plaintiff to which I have just made reference, accompanied by the late introduction of further material which gave rise to unanticipated issues, the position may have been different. In such a case, the Court might, in its discretion, adjourn the case so that the applicant has time to respond to the fresh material or it might permit a discontinuance on terms that limit the costs which the respondent could recover or even reverse the incidence of costs so that the respondent has to pay them even on the basis that the applicant had determined to discontinue the application.

[23] It is implicit in the submission that Ms Hui made that the plaintiff disclosed to the defendants that the plaintiff had a complete answer to the application. While that may be so, the further proposition cannot be extrapolated from the contention that the applicant was fully justified in bringing the application and continuing with that up until the submission for the plaintiff alerted to the problems in its path.

[24] The outcome must be, therefore, that the defendants are liable to pay the costs of the plaintiff.

[25] I consider that the appropriate basis for the costs order is that they be paid on a 2B basis. I do not consider that there are any grounds for an uplift. There may be some justification for the point that Mr Neil put forward that the respondent did not meet its obligations of cooperation pursuant to r 8.2. I do not, however, consider that case has been made out for an uplift in the level of costs on that ground. I would not disagree, though, that in an appropriate case, a party who, instead of adopting open communication with the other party concerning matters of discovery, proceeds prematurely down the route of bringing Court applications for behaving in some other way inconsistent with the requirements of r 8.2 may well be at risk as to costs and uplifted costs.

[26] Mr Neil for the plaintiff contended that the defendants ought to pay the costs of preparing for the costs hearing on 12 June 2015, given the fixture that had been vacated as a result of the defendants discontinuing the application. I invited the

parties to provide submissions on the question of whether such awards of costs were within the contemplation of the rules. The reason for doubting that the Court could make such an order is that if costs were awarded on costs applications, that could set in train an unlimited number of costs applications. The parties have now filed their additional submissions on that point which I now consider.

[27] Counsel referred to two different streams of authority on this subject. I have considered the arguments and the authorities which they referred to, including the judgment in Body Corporate Administration Limited v Mehta.³I conclude that it is correct that there is authority to grant such costs orders.

[28] I further agree, for the reasons which are set out in Haricot Investments Limited v Maerewhenua District Water Resource Company Limited,⁴that costs disputes may be resolved more readily if there are costs consequences for making or opposing all costs applications unsuccessfully.

[29] The High Court Rules authorise the making of orders for costs on the completion of an interlocutory applications.⁵The Rules do not treat an application for costs as being an exceptional case.

[30] There does not seem to be any case which analyses the case for excluding costs application from the general costs rules as a matter of policy. That is to say, there is nothing in the text of the rules themselves which justifies the conclusion that costs application are a special category in which the usual rules relating to awards of costs are excluded

[31] The brief research that I have carried out as to the position overseas revealed that, in some jurisdictions, there is express provision for awarding the costs on costs applications.⁶There does not seem to be any difficulty in those jurisdictions with

[32] The case to the contrary for not awarding costs has in the past been justified on the basis of Court practice. While there is no particular case which analyses the reasons for any such practice, it would seem to reflect the objective of limiting rather than expanding the range of disputes between the parties. However, I accept for the reasoning set out in the Haricot case above that making awards of costs in these circumstances may in fact assist rather than defeat that objective.

[33] I consider that the application which the plaintiff has brought, seeking costs in the sum of $796 (0.4 of a day) for preparing a memorandum of costs and for preparation for and attendance at the costs hearing, should be granted. The parties should confer on the appropriate amount of the order and, failing agreement, refer

where a detailed assessment of costs takes place, subject to the rights of the cost Judge to make some other order. See Halsbury’s Laws of England Civil Procedure (Volume 12, (2009)), at [1798]. Rule 733 of the Uniform Civil Procedure Rules 1999, in Queensland, and r 408(3) of the Federal Court Rules, in Canada, also make express provision for making costs order relating to the determination of costs in the substantive proceeding.

High Court of New Zealand Decisions

Official Assignee v Black Bag Limited [2015] NZHC 1642 (14 July 2015)