Official Assignee v MWA Consultants Limited (Company 5185761) [2018] NZHC 343 (7 March 2018)

Last Updated: 16 March 2018

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2016-409-001137 [2018] NZHC 343

BETWEEN	THE OFFICIAL ASSIGNEE Applicant
AND	MWA CONSULTANTS LIMITED (COMPANY 5185761) First Respondent
AND	LATIMER TRUSTEES LIMITED (COMPANY 5181241), FORMERLY MWA TRUSTEES LIMITED Second Respondent
AND	MWA TRUSTEES LIMITED (COMPANY 1535906) (in liq), FORMERLY LATIMER TRUSTEES LIMITED Third Respondent

Hearing:	On the papers
Counsel:	G Slevin for the Applicant M Withers for the First and Second Respondents
Judgment:	7 March 2018

JUDGMENT OF NATION J

[1] Through a judgment of 15 November 2017, the Official Assignee (the Assignee) was successful in obtaining:

OFFICIAL ASSIGNEE v MWA CONSULTANTS [2018] NZHC 343 [7 March 2018]

(a) judgment that transactions by which the first respondent had received
$60,550 be cancelled and the first respondent pay the Assignee $60,550;

(b) judgment that transactions by which the second respondent received the sum of $81,046.81 be cancelled and the second respondent pay the Assignee the sum of $81,046.81; and

(c) leave was reserved to the Assignee to seek the Court’s approval to continue with proceedings against the third respondent, which was then in liquidation, so as to seek judgment in the sum of $40,496.81.

[2] In a judgment of 8 December 2017, with the consent of the liquidator for the third respondent, I made an order that the third respondent pay to the applicant the sum of $40,496.81 but with no order as to costs as between the Assignee and the third respondent.

[3] On 15 December 2017, counsel for the Assignee filed an application for costs. In a minute of 20 December 2017, I directed that Mr Withers was to file his memorandum in response by 9 February 2018. On 9 February 2018, he filed a response which he said was on behalf of the first and second respondents and himself personally.

The application

[4] In her application, the Assignee seeks costs against the first and second respondents and against Mr Withers as a non-party. Costs are sought generally on a 2B basis but with an uplift of 50 per cent in respect of certain steps.

Submissions from Mr Withers

[5] Mr Withers submitted there should be no order for costs. He submitted that:

(a) He and Mrs Pye had “at all times cooperated with the OA” and informed them of what had happened to Mrs Pye’s inheritance.
(b) At the time the proceedings were brought, the respondent companies no longer held funds so the proceedings would not result in any meaningful recovery from the companies.

(c) He became involved personally in the proceedings after leave had been given for him to do so and the Court had encouraged him to remain involved when he indicated he might withdraw, the Assignee having indicating there might be a personal claim against him.

(d) He had not played an active role, as claimed by the Assignee and should not be punished for trying to assist Mrs Pye when she was being treated unfairly. Mr Slevin was wrong to tell the Court the Assignee had not opposed Mr Withers’ application for leave to represent the companies. He produced an email in which Mr Slevin expressly consented to that application.

(e) There was no benefit to the respondent companies or to him personally with all that happened. The companies never owned the funds they received.

(f) He had told Mrs Pye that, when the decision was made to set up a trust and for Mrs Pye to assign her inheritance, the transactions could be challenged. At all times, the companies had acted on the instructions of Mrs Pye.

Application for costs against Mr Withers

[6] The proceedings began with the Assignee making an application for freezing orders over funds, bank accounts and other property held by the three respondents, and an ancillary order that Mr Withers file in the Court and serve on the applicant a statement providing detailed information as to those funds and property. The application, dated 21 November 2016, was made on a without notice basis. Although Mr Withers was not named as a respondent in the proceedings, in the body of the document, the application for ancillary orders was made against him personally. At the same time, the Assignee served notice that, in the bankruptcy of Mrs Pye, it
intended to cancel as irregular transactions the dispositions of property which were the subject of the ultimate judgment for a total of $81,046.81.

[7] On 21 November 2016, the Court made the orders sought. They included ancillary orders that Mr Withers file and serve a statement setting out detailed information as to the funds and property which were the subject of the freezing orders.

[8] Mr Withers filed an unsigned statement in response. Over some 66 paragraphs, it sought to explain the background to the position Mrs Pye and the three respondents were in, sought to justify steps which Mrs Pye and Mr Withers had taken, and criticised the course of action taken by the IRD. In the statement, Mr Withers sought costs for his time and attendance in providing the response and for the distress the situation had caused. He said that he and Mrs Pye were seeking an order setting aside the notice to set aside irregular transactions. He also said he and Mrs Pye sought an order permitting legal fees be a charge against the assets of one of the trusts or, if the disposition was set aside, a charge on her assets in her insolvent estate. The legal fees he referred to were for him personally. He and Mrs Pye further sought an order that fees paid to him be approved as a legitimate expense, an order that the bank accounts subject to the freezing order be released and other orders.

[9] It was clear from the statement filed that Mr Withers had a personal interest independent of the respondent companies in the matters on which he was commenting and the orders he was seeking.

[10] I agree with the submission of counsel that the document was “lengthy, prolix, traversed irrelevant matters and attached irrelevant matters”.

[11] The Assignee had to file a detailed memorandum in response seeking clarification as to how the statement was to be treated. This led to Mr Withers filing what he described as a “further statement in response”. These statements and the Assignees memorandum led to Dunningham J making directions as to how matters should proceed in a minute of 30 November 2016. The Assignee directed that Mr Withers provide a signed statement as to who was the true owner of funds held by one of the respondent companies as trustee. No such statement was made. The direction
from Dunningham J was not however, as Mr Slevin submitted, a direction that Mr Withers sign the statements already provided. It was a direction that he must sign a further statement confirming the argument he had advanced as to who was the true owner of the funds which the Assignee had treated as belonging to a trust.

[12] The applications for judgment cancelling various transactions and ordering the respondents to pay various sums to the Assignee were advanced by way of application filed on 19 December 2016. Initially, no notice of opposition was filed and the matter was set down for formal proof. Immediately prior to the hearing, Mr Withers, by email, sought leave to file a notice of opposition out of time. Mr Withers later filed an application for leave to represent the respondents as a non-lawyer, specifically on the grounds the respondents had no funds and could not afford paid representation.

[13] I accept the submission for the Assignee that costs may be awarded against a non-party where the party is an insolvent person or a man of straw where the non- party has played an active role in the litigation and where the non-party has an interest in the subject of the litigation.¹ It will, however, be an exceptional case in which a non-party cost order should be made in the interests of justice. “Exceptional” in this sense means no more than “outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense”. Ultimately, the issue is whether, in all the circumstances, it is fair to make the order.²

[14] I am satisfied this is a case where it is appropriate to award costs against Mr Withers for reasons the Assignee referred in seeking an order for increased costs.

[15] These proceedings arose and were necessary as a direct result of Mr Withers’ control of the respondents and his orchestration of the complex scheme of transactions that were ultimately cancelled through the judgment in favour of the Assignee. The transactions were intended by Mr Withers to hinder, delay and defeat the creditor of an insolvent person who was, at the time, subject to a creditors application for adjudication.

¹ Knight v FP Special Assets Ltd [1992] HCA 28, (1992) 174 CLR 178 at 192-193.

² Dymocks Franchise System (NSW) Pty Ltd v Todd (No 2) [2004] UKPC 39, [2005] 1 NZLR 145.

[16] The transactions were intended to and did benefit the respondents. They also benefited Mr Withers personally at the expense of the bankrupt’s creditor and also at the expense of the claimed beneficiaries of the trust he established. When the funds went into their accounts, the companies and Mr Withers, as director of those companies, were in control of those funds. Mrs Pye benefited personally from the transactions through the $50,000 which was paid to her from the inheritance, although Mr Withers claimed this was by way of “advances”. As detailed in the judgment, the payment of funds into Mr Withers’ consultancy company’s bank account assisted that company with cash flow. Funds from the inheritance were taken in payment for legal work when there would otherwise have been little prospect of any such payment. There was a significant loan from the funds received for the benefit of Mr Withers’ family trust. There was a significant payment to his wife.

[17] But for the intervention of Mr Withers, the creditors judgment debt could have been satisfied, Mrs Pye’s bankruptcy could have been avoided and this proceeding would have been unnecessary. On all the evidence, I am satisfied that it was Mr Withers who orchestrated the various schemes in an attempt to avoid Mrs Pye’s inheritance being available to the Assignee in her bankruptcy for the benefit of the IRD. Mr Withers, in some misguided way, may have thought it appropriate to do all of this while retaining control of some funds to pay what he regarded should have been acceptable to the IRD, a sum significantly less than the judgment debt due to the IRD. That belief could not legally justify what happened.

[18] Mr Withers must shoulder a real measure of responsibility for the way in which the respondents sought to oppose the Assignee’s application. This was not because he had been given leave to represent the respondent companies in the proceedings but because he was a director of those companies and was responsible for the way they had become involved in all that had happened. It was this thinking that was reflected in the way Mrs Pye acted.

Application for costs against the first and second respondents

[19] The Assignee was successful in the proceedings against both of these respondents. The Assignee is entitled to an order for costs on a 2B basis for all steps in the proceedings as sought against those respondents.

Application for increased costs

[20] The applicant seeks an award of costs on a 2B basis against Mr Withers with an uplift of 50 per cent in respect of the memorandum of counsel dated 29 November 2016 seeking directions in response to Mr Withers’ initial statements. With a 50 per cent uplift, the costs which the Assignee seeks in respect of that step against Mr Withers personally are $1,338.

[21] Having regard to the significance of an order being made against Mr Withers personally on a 2B basis, I am not going to require him to pay increased costs in respect of that particular step in the proceedings.

[22] The Assignee seeks costs in relation to the filing of a joint memorandum with regard to Mr Withers’ application for leave to represent the respondents. Application is made for costs on an increased basis with regard to that step on the ground that the granting of leave to Mr Withers to represent the companies was an indulgence. I do not accept that is a proper reason to award increased costs for that step.

[23] As against both the first and second respondents, and Mr Withers personally, the applicant seeks costs on an increased basis with regard to steps taken in preparation for the substantive hearing and the hearing itself. That application was made on the grounds which I have already referred to in deciding that there should be an award of costs against Mr Withers personally. It was also submitted that the arguments presented at hearing in opposition to the application lacked merit and that matters could have been determined at a brief formal proof hearing had Mr Withers not chosen to pursue them. It was submitted that was so given the lack of evidence to support a claim that there was a valid assignment of property for valuable consideration, unsupported claims that the bankrupt was the subject of unfair treatment by the IRD
and the Assignee, and untenable arguments about the potential responsibility of trustees for trust debts.

[24] I agree there was little merit in the arguments advanced as to those matters but I do not accept that, but for the arguments advanced by Mr Withers, these proceedings could have been disposed of through a brief formal proof hearing. As should be apparent from the judgment, there were certain difficult legal issues which had to be resolved by the Court. The Assignee did face particular difficulties because of the way all the funds were no longer under the control of the respondents. I do not consider that it is appropriate to award increased costs on the basis suggested.

[25] Mr Withers’ conduct in relation to the proceedings, including the way he changed the names of companies during the hearing, his involvement in the transactions which made the proceedings necessary, should be marked with disapproval through a costs order. This is being done through the making of an order for costs against him personally.

Result

[26] The first and second respondents and Murray John Withers are jointly and severally ordered to pay costs to the applicant on a 2B basis as set out in the schedule attached to the application, without increase, together with the disbursements as set out in the application.

Solicitors:

G E Slevin

Copy to: Mr Withers.