EBR Holdings Limited (in liquidation) v Van Duyn [2019] NZHC 3325 (17 December 2019)

Last Updated: 20 February 2020

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2009-090-1560 [2019] NZHC 3325

BETWEEN	EBR HOLDINGS LIMITED (IN LIQUIDATION) First Plaintiff VIVIEN JUDITH MADSEN-RIES AND HENRY DAVID LEVIN Second Plaintiffs
AND	JOHANNES VAN DUYN (SENIOR) AND GERARDA JACOBA MARIA VAN DUYN First Defendant .../cont

Hearing:	5 December 2019
Appearances:	H McKee and S Farnell for First Plaintiff No appearance by or on behalf of the Defendants N Faulkner and H Twomey for Smith & Partners (non-party)
Judgment:	17 December 2019

JUDGMENT OF GORDON J

This judgment was delivered by me

on 17 December 2019 at 11.30 am, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

Solicitors: Meredith Connell, Auckland

Robertsons, Auckland

EBR HOLDINGS LTD (IN LIQ) v VAN DUYN [2019] NZHC 3325 [17 December 2019]

JOHANNES VAN DUYN (JUNIOR)
Third Defendant

JOHANNES VAN DUYN (SENIOR), GERARDA JACOBA MARIA VAN DUYN, RENE MARINUS VAN DUYN AND JOHANNES VAN DUYN (JUNIOR)
Fourth Defendants

SOUTH HEAD TRUSTEES LIMITED
Fifth Defendant

MCLAREN GUISE ASSOCIATES LIMITED
Third Party

Introduction

[1] This is an application for costs against non-party solicitors. The application is brought by the first plaintiff, EBR Holdings Ltd (in liq) (EBR), against Smith & Partners, who previously acted for the first to third defendants (the van Duyns).

[2] The allegation is that Smith & Partners allowed an affidavit, which had been filed on behalf of the van Duyns, the defendants in a summary judgment application, to remain on the court file, despite becoming aware that the position taken in the affidavit by the deponent was incorrect and/or misleading; and knowing that the deponent had resiled from his position. Alternatively, it is alleged that Smith & Partners were at least reckless in not realising that was the case. This was a breach of a solicitor’s duty to the court.

[3] The position of Smith & Partners is that they were not aware that the affidavit was incorrect and/or misleading; the deponent did not expressly resile from the affidavit; and there was nothing that ought to have led them to question him about the affidavit. There was therefore no breach of their duty to the court.

Factual background

[4] EBR was incorporated on 3 January 2002 and put into liquidation on 30 January 2009 by order of the court on the application of the Commissioner of Inland Revenue. The second plaintiffs, Henry Levin and Vivien Madsen-Ries, are the current liquidators of EBR.

[5] The first defendants, Johannes van Duyn Senior and Gerarda van Duyn, had been shareholders of EBR since its incorporation. Mr van Duyn Senior was also a director of EBR from 12 September 2005 to 19 June 2008. The second and third defendants, Rene van Duyn and Johannes van Duyn Jr, are the sons of the first defendants (the van Duyn sons). They had been the directors of EBR since its incorporation. They were also shareholders.

[6] Following its liquidation, EBR filed proceedings in the District Court at Waitakere in August 2009 against the van Duyns, seeking to recover current account
debts totalling $309,969. Those debts were recorded in the financial statements for the financial year ending 31 March 2008 prepared by Nigel Harrison, an accountant and director of McLaren Guise Associates Ltd, chartered accountants. The accounts were signed by the van Duyn sons as directors of EBR.

[7] EBR sought summary judgment against the van Duyns. Smith & Partners acted for the van Duyns in opposition. Ilsaad Razak, a solicitor at Smith & Partners, had day to day conduct of the file between October 2009 and March 2010. He was supervised by partner, Peter Smith.

[8] Smith & Partners filed a notice of opposition dated 9 October 2009 to the application for summary judgment together with affidavits from Mr van Duyn Senior and Mr Harrison, both sworn 9 October 2009. The basis of the opposition was that the financial statements for the 2008 year were incorrect. In particular, it was said that the payments making up the current account debts recorded in the 2008 financial statements were not loans, drawings or shareholder advances by EBR to the van Duyns. Rather, they were payments made for insurance premiums to Fidelity Life Co Ltd (Fidelity Life) for the benefit of the Awaroa Family Trust and the South Head Trust (the Trusts). The van Duyns are trustees of the Awaroa Family Trust. South Head Trustees Ltd is the trustee of the South Head Trust.

[9] The van Duyns’ position was that EBR had borrowed sums from Fidelity Life, secured by mortgage, to enable the Trusts to purchase three properties. Fidelity Life required collateral life insurance policies to be taken out as security for the loans (the policies), with the policies being assigned to Fidelity Life, before it agreed to lend. Mr van Duyn Senior deposed in his affidavit that the payments making up the current account debts were payments made for mortgage repayments and life insurance premiums for the benefit of EBR, not the van Duyns personally. And the policies could not be held in the name of the Trusts, so they were registered in the name of the trustees.

The affidavit at issue

[10] Mr Harrison’s affidavit runs to eight paragraphs. I set out the key portions below:

3. ... Those statements [relied upon by the liquidators of EBR] were for the financial year ending 31 March 2008. At the time those financial statements were made, McLaren Guise believed that the information provided in the statements were [sic] correct. The financial statements were prepared by McLaren Guise based on the information available at the time. ...

4. In respect of the first defendant, I have attempted to obtain confirmation from Fidelity Life Insurance as to whether the insurance premiums, which seems [sic] to have been debited to the first defendant personally, were in respect of the Awaroa Family Trust or South Head Trust. Despite my best efforts in attempting to contact the insurance broker, I have not been able to obtain confirmation. I have however been informed by the first defendant that the insurance premiums that have been debited against him personally were in respect of insurance premiums for the properties owned by the trust.

5. In respect of the second and third defendants, I am satisfied based on information supplied to me that the claim made against the second and third Defendants in terms of what the Plaintiff company is terming “loans” or “drawings” are in fact not loans at all. They were payments that were made from the company for insurance premiums due to Fidelity Life Insurance. Those payments were mistakenly coded the same as drawings when the financial statements were prepared but they were in fact insurance premiums paid to Fidelity Life being mortgage protection insurance for properties owned by the South Head Trust and the Awaroa Family Trust.

6. Up until August 2009, we believed that those financial statements annexed to Vivien Judith Madsen-Ries affidavit were correct. It was not until the second and third Defendants brought in the Fidelity Insurance statements we then realised that the payments which we had initially classified as drawings or loan were in fact insurance premiums paid on behalf of the Awaroa Family Trust and South Head Trust. I annex hereto marked with the letter “A” copies of some of the Fidelity Life payments statements, policy summary, the term loan contract and loan statements, which have now been provided to McLaren Guise.

7. Since we have received this information last month, McLaren Guise has completed an updated financial statement summary, which is annexed hereto and marked with the letter “B”. Based on the current financial statement summary, the second and third Defendants owe the Plaintiff as reimbursement for shareholder advances the sum of

$13,273.00. The figures for the first defendant are based on what the first defendant advised me, in that as was the case with the second and third defendants, the amount claimed against him, was for insurance payments properly attributed to the Awaroa Family Trust and South Head Trust. I have taken the first Defendants [sic] advice as being true in making the adjustment shown in the financial statement summary in respect of the claim made against him personally.

[11] The updated financial statement summary for the year ending 31 March 2008 was annexed to Mr Harrison’s affidavit. Taking into account the Fidelity Life
payments, the updated statement showed that the van Duyn sons owed only $13,273 to EBR and Mr and Mrs van Duyn were owed $24,691 by EBR.

[12] On 11 December 2009, Mr Razak sent a draft affidavit to Mr Harrison, in reply to a further affidavit of Ms Madsen-Ries, for his comment. The reply affidavit was drafted in Mr Harrison’s name and included a statement that Mr Harrison “cannot rule out definitively” the position contended for by Mr van Duyn Senior. It also included a statement that Mr Harrison had concluded that: “Based on information subsequently provided to me, I have concluded that [the original 2008] financial statements relied on by the liquidators are incorrect.”

[13] Mr Harrison replied to Mr Razak saying, “Nothing in my drafted affidavit is substantiated by anything so I don’t think I can sign it [the draft affidavit]”.

[14] On 16 December 2009, Mr Razak then sent a significantly simplified draft reply affidavit to Mr Harrison. It stated that: “I cannot rule out definitively, as the liquidators have done, that the payments were for the Defendants personally and not for the Trust”. The draft was never filed; no further affidavit by Mr Harrison was filed in the summary judgment proceeding.

Procedural history

District Court — the summary judgment proceeding

[15] At the end of February 2010, Smith & Partners instructed Eugene St John, barrister, to appear for the van Duyns. (There are no allegations made by EBR against Mr St John). Mr Razak did not attend the summary judgment hearing.

[16] The original affidavit of 9 October 2009 remained on the court file for the summary judgment hearing before the District Court on 3 May 2010. By the time of the hearing, the van Duyns had filed a reply affidavit of Mr van Duyn Senior reiterating the position in his 9 October 2009 affidavit and an affidavit of Edward Phillipps, the van Duyns’ insurance broker. I will refer to the content of Mr Phillipps’ affidavit later in this judgment.
[17] In his written submissions, referring to Mr Harrison’s affidavit, Mr St John said:

The company’s [that is, EBR’s] accountants accepted that the relevant payments were mistakenly coded as drawings when they were in fact insurance premiums paid to Fidelity Life for properties owned by the South Head Trust and Awaroa Family Trust [that is, the Trusts].

[18] Judge Recordon, in his judgment issued on 7 September 2010, dismissed the application for summary judgment.¹ It is apparent that the Judge, while bearing in mind the need for a plaintiff to exclude the existence of an arguable defence, had some misgivings about the quality of the evidence adduced by the van Duyns to resist the claim. The Judge however concluded that:

[45] In my view the liquidators have not discharged the onus. Leading me to this conclusion are:

(a) The accounts have been rewritten by their original author, a professional, as having originally been inaccurate.

(b) There is sufficient in Mr Phillips’ [sic] evidence to persuade me that the arrangements in bookkeeping may have been unclear to the extent that a mistake made by Mr Harrison with the first accounts may have been understandable.

[19] The fourth and fifth defendants, the trustees of the Trusts, were joined as defendants on 25 January 2011.

[20] Smith & Partners ceased acting for the van Duyns in September 2011.

[21] On 23 November 2011, a District Court Judge gave leave to the defendants to join McLaren Guise as a third party. The van Duyns were alleging that the manner in which the 2008 accounts had initially been coded was negligent, leading to the claim for payment of the current account debts.

[22] An issue then arose about whether the claims were within the civil jurisdiction of the District Court. Ultimately, on 12 June 2014 the proceeding was transferred to this Court.

¹ EBR Holdings Ltd v van Duyn DC Waitakere CIV-2009-090-1560, 7 September 2010.

High Court — the substantive proceeding

[23] The substantive proceeding commenced before Heath J in this Court on 16 May 2016.² Some five days into the trial, it was aborted. The van Duyns had changed their position and accepted that some of the amounts that were previously asserted by them to be the proper business expenses of EBR were to be treated as part of the current account indebtedness of Mr van Duyn Senior, his wife and Mr van Duyn Junior. The van Duyns also sought to reallocate the amounts shown as owing to EBR in the financial statements for the year ended 31 March 2008. Leave was granted to file an amended statement of defence and an amended claim against the third party.

[24] The trial recommenced before Heath J in February 2017. In his decision of 21 July 2017 (the substantive decision), Heath J determined that the current account debts of $309,960 were correctly recorded in the 2008 accounts and were payable by the van Duyns together with interest.³ Heath J awarded costs and disbursements of
$192,747.50 against the van Duyns (which included the wasted costs award made on 25 May 2016 after the first hearing was aborted).

[25] In the course of the substantive decision, Heath J referred to Mr Harrison’s evidence saying:

[87] My reasons for concluding that I should rely on the signed accounts may be summarised as follows:

...

(e) Mr Harrison, after liquidation and without any evidential foundation to justify them, took steps to alter the financial statements that had been signed by the directors in 2008 to demonstrate that EBR paid to Fidelity Life moneys properly due by it. Not even the van Duyn interests now contend that the moneys paid to Fidelity Life were owed by EBR. I reject suggestions made by Mr Harrison in evidence that he was entitled to make changes to the financial statements after liquidation intervened to portray the transactions with Fidelity Life in a more favourable light for his clients.

[26] The issue for this Court, of course, is what Smith & Partners knew or ought to have known after filing Mr Harrison’s affidavit and before the summary judgment

² EBR Holdings Ltd (in liq) v van Duyn [2016] NZHC 1169.

³ EBR Holdings Ltd (in liq) v van Duyn (No 2) [2017] NZHC 1698.

application was heard, not what emerged later regarding Mr Harrison’s conduct. However, the course of events after the summary judgment application was dismissed is relevant for the purpose of determining quantum (in the event that I uphold EBR’s position as to a breach of duty to the court and that the breach resulted in unnecessary costs being incurred).

[27] Finally, and for completeness on the procedural history, I note that EBR pursued McLaren Guise and Mr Harrison in separate proceedings for damages in respect of the loss which EBR claimed was caused to it by various actions of Mr Harrison. The proceeding was discontinued after settlement was reached. The settlement sum is not known to the Court (nor to Smith & Partners).

Quantum of costs sought

[28] EBR claims that it incurred legal costs of $774,162.81 (excluding GST) in pursuing the proceeding to trial. Deducting the costs award of $192,747.50 paid by the van Duyns, EBR seeks recovery of $581,415.31 (excluding GST) or such sum as the Court considers just.

Issues

[29] There are three issues for determination:

(a) Is Smith & Partners prevented from fully responding to the allegations made against it, having regard to solicitor-client privilege?

(b) Does the conduct of Mr Razak and Mr Smith, and/or their omissions, amount to a serious dereliction of their duty to the court?

(c) Should the full costs incurred by EBR in proceeding to substantive trial be awarded against Smith & Partners?

[30] Before I discuss each of those issues, I address the question of jurisdiction to award costs against solicitors personally.
[31] The High Court has inherent jurisdiction to award costs against a solicitor for “serious dereliction of the solicitor’s duty to the Court”.⁴ The Court’s inherent jurisdiction to do so lies in the principle that, as officers of the Court, solicitors owe a duty to the Court, and the Court has a duty to ensure that its officers maintain an appropriate level of competence and do not abuse the Court’s processes.⁵

[32] The jurisdiction to order costs against a solicitor is both compensatory and punitive in nature.⁶ On the one hand, it is punitive in that its purpose is to punish the offending practitioner for a failure to fulfil his or her duty to the court. And it is directed against the practitioner personally.⁷ On the other hand, it is compensatory in that the inherent jurisdiction enables the Court to design its sanction for breach of duty so as to provide compensation for the disadvantaged litigant. It directs its attention to costs that would not have been incurred but for the failure in duty.⁸

Privilege: Is Smith & Partners prevented from fully responding to the allegations made against it?

[33] I first dispose of the issue of litigation privilege in respect of which there is no issue between the parties. Ms Twomey, for Smith & Partners, accepts that by the van Duyns joining McLaren Guise as a third party to the proceeding, there is no privilege in the communications between the van Duyns and Mr Harrison and communications between Smith & Partners and Mr Harrison. In other words, Smith & Partners accepts that privilege has been waived, under s 65 of the Evidence Act 2006, in respect of the communications in the common bundle between the van Duyns and Mr Harrison and between Smith & Partners and Mr Harrison.

[34] But Ms Twomey says the van Duyns have not waived privilege over the solicitor-client communications between themselves and Smith & Partners. Smith & Partners is therefore precluded from referring to those communications.

⁴ Harley v McDonald [2001] UKPC 18, [2002] 1 NZLR 1 at [45] and [48].

⁵ At [45].

⁶ At [49].

⁷ At [49].

⁸ At [49].

[35] Ms McKee, for EBR, while accepting that communications between Smith & Partners and the van Duyns, remain privileged, submits that those communications are irrelevant to the issues raised in this application. What is relevant, she says, are the communications between Smith & Partners and Mr Harrison. Ms McKee submits that nothing the van Duyns may have said to Smith & Partners could change the fact that Mr Harrison no longer believed the position he had taken in his affidavit.

[36] Smith & Partners’ position is that they did not know Mr Harrison’s affidavit was incorrect and that the surrounding evidence, including instructions from the van Duyns, supported their understanding of the reasonableness of the position taken to oppose the summary judgment application. It follows, Ms Twomey submits, that Smith & Partners is prevented from fully responding to the application by being unable to refer to their instructions from the van Duyns.

[37] The issue of solicitor-client privilege in an application for wasted costs was considered by the House of Lords in Medcalf v Mardell.⁹ There, Lord Bingham said:¹⁰

Where a wasted costs order is sought against a practitioner precluded by legal professional privilege from giving his full answer to the application, the court should not make an order unless, proceeding with extreme care, it is (a) satisfied that there is nothing the practitioner could say, if unconstrained, to resist the order and (b) that it is in all the circumstances fair to make the order.

[38] In my view, there is merit to Ms McKee’s submission: the relevant communications are those between the deponent, Mr Harrison, who is alleged to have resiled from the position taken in his affidavit and the solicitors, Smith & Partners, who prepared and filed that evidence. Nothing the van Duyns may have said to Smith & Partners impacts on the issue of whether Mr Harrison no longer believed in the position that he had taken in the affidavit.

[39] I also do not consider any instructions to Smith & Partners from the van Duyns impacts on the ability of Smith & Partners to respond. The position of Mr van Duyn Senior is clearly set out in his affidavit of 9 October 2009 and his reply affidavit. Mr Harrison refers to that position in his affidavit.

⁹ Medcalf v Mardell [2002] UKHL 27, [2003] 1 AC 120.

¹⁰ At [23], affirmed in New Zealand in PR v HG LCRO 69/2016 at [117]–[119].

[40] In my view, there is nothing further that Smith & Partner could say to resist the order. Accordingly, the existence of solicitor-client privilege does not preclude Smith & Partners from giving a full answer to the allegations made.

Does the conduct of Mr Razak and Mr Smith, and/or their omissions, amount to a serious dereliction of their duty to the court?

Serious dereliction of duty to the court — legal principles

[41] As to the kind of conduct that can be regarded as a serious dereliction of the solicitor’s duty to the court, the test is whether the conduct amounted to gross negligence or incompetence of an otherwise sufficiently high level.¹¹ A simple mistake or oversight or a mere error of judgement will not, of itself, be sufficiently serious.¹² However, where negligence or incompetence is alleged, the conduct must be put into its proper context. The essential point is that it is not errors of judgement that attract the exercise of the jurisdiction, but errors of a duty owed to the court.¹³

[42] There is a helpful discussion of the kind of conduct which has attracted wasted costs orders in Dominion Finance Group Ltd v Sade Developments Ltd, where Whata J stated:¹⁴

• [33] Specific examples of conduct attracting wasted costs orders against solicitors include:

(a) Allegations of moral turpitude without any evidence to support them.

(b) Permitting a client to make an inadequate or false (discovery) affidavit.

(c) The statement of claim was incomprehensible and the causes of action were plainly unarguable and the proceedings were brought without an order for a litigation guardian.

(d) The solicitor swore an affidavit in support of a petition asserting facts which any competent solicitor must have appreciated could not be established on the evidence available.

¹¹ Harley v McDonald, above n 4, at [55].

¹² At [55].

¹³ At [57].

14. Dominion Finance Group Ltd v Sade Developments Ltd HC Auckland CIV-2009-419-1556, 6 October 2011.
    • (e) Where a clerk, standing near the place where the jury assembled, discussed the case with the defendant and a re-trial was necessary.

(f) Where the lawyers failed to turn up to a hearing.

[34] Wasted costs orders were not granted in cases where:

(a) The practitioner was precluded from giving a full answer to the application because of legal professional privilege.

(b) Affidavit evidence clarified an otherwise misleading pleading.

(c) A mistake by a law clerk in a legal aid application.

(d) There were a combination of alleged errors, including proceeding in a certain way based on a misunderstanding of law, failing to ascertain that there was an error in a crucial fact, erroneous assumption that a defendant had been served, and misuse of the statutory demand procedure (in a context where there were time pressures and significant other difficulties for the solicitor in presenting the case).

...

[37] Unsurprisingly, there are no bright line thresholds to be applied in this context. However, given the themes set out in the authorities, I must be satisfied that the impugned conduct was obviously and grossly wrong, improper, negligent or misleading.

(footnotes omitted)

[43] It is a fundamental duty of solicitors not to mislead the court.¹⁵ This principle is reflected in r 13 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (the Rules), which provides:

The overriding duty of a lawyer acting in litigation is to the court concerned. Subject to this, the lawyer has a duty to act in the best interests of his or her client without regard for the personal interests of the lawyer.

[44] Rule 13.1 further states that a “lawyer has an absolute duty of honesty to the court and must not mislead or deceive the court”.

15. See, for example, R v Huang [2009] NZCA 527 at [47]–[50]; Dominion Finance Group Ltd v Sade Developments Ltd, above n 14, at [32]; and Rondel v Worsley [1969] 1 AC 191 (HL) at 227.

Position of Mr Razak and Mr Smith

[45] Both Mr Razak and Mr Smith have sworn affidavits for the purpose of this application. They both categorically deny that they considered that Mr Harrison’s affidavit was incorrect and/or misleading. Mr Razak’s evidence is that he did not deliberately and knowingly mislead the Court. He says that if he had any concerns that the affidavit was incorrect or misleading, he would not have allowed the affidavit to remain on the court file, as to do so would have been unethical and contrary to the duty he owed to the court.

[46] Mr Smith’s evidence is that he has been a solicitor for 46 years. He takes his professional obligations very seriously and is well aware of his overriding obligation to the court. He would not have allowed the court, or any other party, to be misled. He further says that he was never made aware that Mr Harrison’s affidavit was incorrect or misleading. His evidence is that Mr Razak was extremely careful and honest, and he has no doubt that if Mr Razak had any concerns about Mr Harrison’s affidavit, he would have raised those concerns with him.

Smith & Partners’ correspondence with Mr Harrison after affidavit filed

[47] There is, in fact, a relevant communication from Mr Harrison to Mr Razak on 8 October 2009, in other words, before Mr Harrison swore his affidavit on 9 October 2009. Ms McKee does not submit, having regard to the communication on 8 October 2009, that the affidavit should not have been filed. The submission is that Smith & Partners were on notice of Mr Harrison’s changed position at the very least by 12 October 2009. I now refer to the various emails.

[48] On 8 October 2009, Mr Razak forwarded Mr Harrison his amended draft affidavit for his approval/comments. Mr Harrison responded on the same day that he needed to see the loan documents before he could sign, to double check them. He asked if Mr Razak had received any. Mr Razak responded, on 8 October 2009, saying, “No, no loan docs at all. Do you want to call Hans [Mr van Duyn Senior] and talk to him directly?” Mr Harrison then responded on 8 October 2009 in an email which I set out in full:

Haven’t been able to reach Mr van Duyn have left a message nor received anything from them.

Meanwhile we have been combing through old files and come across the following documents – there was a loan contract for refinancing of the Awaroa loan in June 2002 showing Awaroa Trust as the borrower which repayments tie into the loan repayments on the mortgage statement which shows M R van Duyn’s name¹⁶ on the mortgage statement being the last trustee name on the contract.

Bad news is the insurance premiums Mr & Mrs van Duyn are paying looks like relates to a personal loan, see attached loan contract attached.¹⁷

[49] On 9 October 2009 at 4.36 pm, Mr Harrison sent an email to Mr Razak, saying:

This has arrived from Fidelity Life, but the policy summaries are still to come, we will check to see if we can find where the funds were deposited.

[50] This email was annexed to the affidavit of Mr Razak.¹⁸ The attachments also form part of the exhibit. The first attachment is the cover page of a fax from Fidelity Life (Neil Arnold) to McLaren Guise for the attention of Mr Harrison. The subject line reads: “Loan statements PN45764 and PN100958”. Mr Arnold says:

Please find copies of the above attached. I am still waiting for our client services department for copies of information for the insurance policies.

[51] There are 12 pages of attachments being mortgage statements which are variously headed:

(a) Policy No: 100958 H van Duyn

(b) Policy No: 45764 M R van Duyn

(c) Policy No: 45764(b) J van Duyn

(d) Policy No: 45764(c) South Head Trustees Ltd

¹⁶ It is agreed that “M R van Duyn” is a reference to the second defendant, Rene Marinus van Duyn.

¹⁷ There was no attachment to this email or other emails where the documents were made available to EBR on discovery by McLaren Guise after it was joined as a third party. The Court was told that attachments to emails were not included in the discovered documents.

¹⁸ Any emails forming part of Mr Razak’s affidavit do have attachments.

[52] On 9 October 2009 at 4.52 pm, there was an email from Fidelity Life to Mr Harrison:

Subject: van Duyn – 45764 & 100958 Dear Mr Harrison,

Neil Arnold asked me to provide you with information on the above policies. Please refer to the attachment for the information we have.

If there is anything else on the insurance side that I can help you with, please contact me.

[53] There are two pages attached. They do not appear to be the policies. They record dates of payments but are not linked to any particular policies.

[54] Mr Harrison forwarded the email referred to in [52] above to Mr Razak on 9 October 2009 at 5.02 pm saying:

Here is [sic] the policies but unfortunately nothing ties it to the trusts for parents – will look further on Monday.

[55] Mr Harrison responded to the email from Fidelity Life in [52] above on 12 October 2009 saying:

Thank you for your email, is there anything that shows whom the beneficiaries of those policies were before they were surrendered.

[56] There was a reply from Fidelity Life on the same day, which reads as follows:

Dear Mr Harrison, Policy 45764

At inception, the owners (beneficiaries) were Marinus & Christene [wife of Marinus] van Duyn.

On 10.5.2009 and assignment was registered making Marinus & Hans van Duyn the new owners. At his [sic] point Christene’s Life Cover was removed from the policy.

On 4.7.2000 an assignment was registered making Fidelity Life the owner. Policy 100958

From inception the owners have been Johannes & Gerada [sic] van Duyn.

[57] On 12 October 2009, Mr Harrison forwarded the above email trail to Mr Razak saying:

See below but the second policy 100958, the one being for Mr & Mrs van Duyn (Senior) shows them personally as beneficiaries for the policies the whole time, so we are sunk on that one unless you can argue something else.

Trinie in our office is still looking to find where the money was deposited but we are not sure we have records going back far enough.

[58] On the afternoon of 12 October 2009, Mr Razak forwarded the email trail (set out in [52] and [55] to [57] above) to Mr Smith. Mr Smith replied to Mr Razak early in the morning on 13 October 2009 saying:

It may be that they hold the policy on trust for one of their trusts?

[59] Just after midday on 13 October 2009, Mr Razak emailed Mr Smith saying:

Spoke with Nigel [Harrison] again, there is not one single document that links the policies to the trust and the beneficiaries are them personally. Furthermore, the loan was drawn down in 2000, but the trust was created in 2003 and there hasn’t been any change. Seems that van Duyn Senior may need to pay the 56,000.00, but the sons are ok.

[60] Mr Smith responded on 13 October 2009 saying:

You had better advise Hans [Mr van Duyn Senior].

[61] Mr Razak then forwarded the trail, which included the emails between himself and Mr Smith (referred to in [59] and [60] above), to Mr Harrison saying:

Can we have a meeting with van Duyn Senior on this question?

[62] Mr Harrison replied on 13 October 2009 saying:

Yes, if you think it necessary?

[63] Mr Razak replied to Mr Harrison on 13 October 2009:

Doesn’t seem like there is any other way and we need to explain to him why he has to pay. As it is, he thinks he has no liability. What suits you tomorrow?

[64] There is a memorandum dated 15 October 2009 from Mr Harrison to Mr van Duyn from which it can be inferred that a meeting took place on 14 October
2009. It would appear that the memorandum was to Mr van Duyn Senior as the subject line reads: “Insurance premiums – policy 100958 and Loan 100958”. It is not clear if the memorandum was also sent to Smith & Partners. It reads in part:

We had requested the loan and insurance policy information from Fidelity Life but so far it proves the opposite, that in fact it is your personal insurance premiums and therefore your personal drawings as there is no mention of any business entity. I requested from Fidelity Life information about what account the funds were banked into but they are not able to provide the info.

From what you are and Ted Phillipps have said that the funds where [sic] not used by you personally but for business purposes, therefore you are indicating the insurance premiums for policy 100958 relate to a business loan and not you personally.

For Smith and Partners to convince the liquidator the insurance premiums are business related and not yours personally they need some document indicating this from Ted Phillipps or Fidelity Life to substantiate this.

[65] On 15 October 2009, there was an email from a senior accountant at Fidelity Life to Mr Harrison as follows:

Subject: Bank account details PN100958 Nigel,

Standard practice in the case of a mortgage is that the funds are paid to our solicitors, who will then release it to the mortgage client.

As such we would not have a copy of the end bank account it was paid into. I presume this is what would have happened in the above case.

[66] Mr Harrison forwarded that email to Mr Razak on 15 October 2009 saying:

Fidelity not able to help unless you could contact their lawyers but would their lawyers retain information from that long ago?

[67] Mr Razak replied to Mr Harrison on 15 October 2009 as follows:

No they wouldn’t. I suppose we have done all we could and we will leave the rest to the Judge.

[68] On 11 December 2009, Mr Razak sent an email to Mr Harrison, copying in Mr Smith, as follows:

Nigel,

As discussed your draft affidavit attached. Please comeback [sic] to me early next week with your comments as we need to finalise the affidavit by next week Friday.

[69] Mr Harrison responded to Mr Razak on 15 December 2009:

I have looked at the Affidavit from the liquidator, nothing in my drafted affidavit is substantiated by anything so I don’t think I can sign it.

I have requested more info from Fidelity Life, specifically the full payment history of the policies for 45764 and 100958 as I don’t seem to have them.

There [sic] affidavit on page 2 note 9 refers to payments $1850.00, $1914.75 and $1981.77 which they note as Fidelity 45764 LR00N0045764, these are not any loan repayments of the three mortgage schedules we have under number 45764 or 100958.

I am hoping these payments are the more recent premiums paid for 45764 however, appendix “C” from Fidelity Life indicates it was for a “saving plan of Rene” which may or may not be these payments – really need fidelity life to confirm what the payments were exactly for.

Submissions

[70] Ms McKee refers to the following:

(a) Mr Harrison’s affidavit was in qualified terms. He referred to the fact that his evidence was based, in part, on Mr van Duyn Senior’s advice to him regarding payments by the first defendants. Mr Harrison also noted that he was still seeking confirmation of that account from Fidelity Life.

(b) Subsequent to the affidavit, there is the reply to Mr Harrison from Fidelity Life advising that the beneficiaries of the policy were Mr and Mrs van Duyn personally. Mr Harrison then emailed Mr Razak, forwarding him Fidelity Life’s reply, saying, “we are sunk on that one unless you can argue something else”.

(c) Mr Razak’s email of 13 October 2009 demonstrates that he understood the basis for Mr Harrison’s (alleged) changed position and agreed with it. Mr Razak stated that “there is not one single document that links the
policies to the trust and the beneficiaries are [the first defendants] personally”. He also noted that the relevant loan was drawn down before the Trusts even existed. In a following email, he stated that a meeting was required to “explain to [Mr van Duyn Senior] why he has to pay”.

(d) Mr Harrison’s refusal to swear a further affidavit which stated that he “could not rule out definitively” the position contended for by Mr van Duyn Senior, as the affidavit was not substantiated by anything.

[71] Ms McKee submits that the fact that Mr van Duyn Senior continued to insist that all payments were for the benefit of the Trusts was irrelevant. Mr Harrison had resiled from the position taken in his affidavit. Regardless of what Mr van Duyn Senior said or whatever other evidence Smith & Partners obtained to support Mr van Duyn Senior’s position, the fact remained that Mr Harrison himself no longer agreed with his own evidence.

[72] Ms McKee submits that even if, on a subjective basis, Mr Razak and Mr Smith did not know that Mr Harrison had changed his view, they were reckless and grossly negligent in not realising that was the case and taking appropriate action. She further submits that the conduct is made more serious because Mr Razak and Mr Smith knew the evidence would not be tested by cross-examination in the summary judgment context.

[73] Ms Twomey’s responds, first, by referring to the affidavits of Mr Razak and Mr Smith. She submits that it is not open to the Court to find that they knew Mr Harrison had resiled from his position when the evidence is to the contrary and in the absence of any cross-examination. Further, there is no evidence that Mr Harrison expressly resiled from the position as stated in his affidavit.

[74] Ms Twomey submits that, at most, the Court can make a finding that Mr Razak and Mr Smith were reckless, that is that they ought to have realised that was the position. In other words, that they had sufficient information to cause them to ask
Mr Harrison whether he had changed his position. All of that is denied by Smith & Partners.

[75] She further submits that Mr Harrison’s affidavit was clearly stated as being based on the advice of Mr van Duyn Senior. The position of Mr van Duyn Senior had not changed and was reaffirmed in his reply affidavit. Mr Harrison also said in his affidavit that he had yet to receive confirmation from Fidelity Life. He had always expressed concern over the lack of documents supporting Mr van Duyn Senior’s account. That lack of documentation had not changed. Mr Harrison’s email in response to the email from Mr Razak sending him a draft reply affidavit that documents were needed to support Mr van Duyn Senior’s account is, therefore, not evidence that he had resiled from his affidavit. That had always been his position. Furthermore, whilst Mr Harrison refused to sign the draft reply affidavit, he did not do so because he had not seen any substantiating documents. He did not resile from his position or say, or otherwise indicate, that it was incorrect.

[76] Ms Twomey refers to the affidavit of Mr Phillipps, sworn 17 December 2009. He made inquiries of Fidelity Life regarding the insurance policies. His evidence was that he was advised by Fidelity Life that it did not recognise trusts and only issued documentation in the name of the individual trustee(s). That evidence was not conclusive, but it did leave the position stated by Mr van Duyn Senior arguable. The Judge, in declining summary judgment, referred to Mr Phillipps’ evidence.

[77] Ms Twomey submits, in any event, Mr Harrison, in his affidavit, said he was satisfied, in respect of the van Duyn sons, that what had been classified by EBR as loans or drawings were in fact payments made from EBR to Fidelity Life for insurance premiums. That conclusion was reached based on information provided to McLaren Guise following the 2008 financial statements.

[78] Accordingly, Smith & Partners does not accept that Mr Harrison resiled from his affidavit such that allowing it to remain on the court file uncorrected was misleading or that, based on Mr Harrison’s comments, they should have been alerted to an issue and asked whether his original affidavit remained his position.

Discussion

[79] Both counsel have approached the issue on the basis of whether or not Smith & Partners knew, or ought to have known, that Mr Harrison had changed his position.

[80] However, the submissions, focused in that way, overlook what Mr Harrison also said in his affidavit in relation to Mr van Duyn Senior at [4] of the affidavit. He said that, despite his attempts to contact the insurance broker, he had not been able to obtain confirmation from Fidelity Life as to whether the insurance premiums, which seemed to have been debited to Mr van Duyn Senior personally, were in respect of the Awaroa Family Trust or South Head Trust. As noted above, Ms Twomey submitted that the lack of documentation had not changed.

[81] I accept that the correspondence shows that Mr Harrison was still seeking documentation, but he had nevertheless received some further information from Fidelity Life in relation to Mr van Duyn Senior. Can it therefore be said that Mr Razak and Mr Smith should have been aware that the affidavit was capable of misleading the court by failing to update the court as to information that had come into Mr Harrison’s possession and their possession?

[82] Framing that issue that way, it is apparent from the email correspondence between Mr Harrison and Smith & Partners that Mr Razak and Mr Smith ought to have known that Mr Harrison’s affidavit could mislead the court. I say that for the following reasons.

[83] The email from Fidelity Life on 12 October 2009 in relation to policy 100958 at [56] was that the owners were Mr and Mrs van Duyn Senior and they had been the owners since inception. To that, I add the letter from Fidelity Life to Mr Smith (undated but in response to a letter from Mr Smith of 20 November 2009) annexed to Mr Phillipps’ affidavit. Although the letter states that if the policies are in the name of a trust, Fidelity Life only registers them in the name of trustees, it also states:

We advise that whenever we lend out a mortgage, we require that collateral life insurance policies are taken out on the borrowers and that those life policies are assigned to Fidelity Life.

(emphasis added)

[84] This particular policy was not assigned to Fidelity Life. I consider that the information on policy 100958 from Fidelity Life, set out in its 12 October 2009 email, acted to qualify Mr Harrison’s statement in his affidavit that he had not been able to obtain confirmation of the position as to whether the premiums related to Mr van Duyn Senior personally, or whether they were in respect of the Trusts. The email was in the possession of Smith & Partners.

[85] This was all new information which cast doubt on Mr van Duyn Senior’s assertion that the payments in the accounts were for the benefit of the Trusts. While they did not have a complete picture from Fidelity Life, there was enough information for Smith & Partners to question whether Mr Harrison could properly continue to rely on Mr van Duyn Senior’s assertions. Mr Harrison’s express position in his affidavit was that he accepted Mr van Duyn Senior’s stated position as true and that (paraphrasing) he had no documentation from Fidelity Life.

[86] Mr Razak and Mr Smith did not take any steps after the affidavit had been filed with the result that the court was left with the misleading impression that Mr Harrison had received no information from Fidelity Life that might have detracted from Mr van Duyn Senior’s stated position.

[87] Mr Razak and Mr Smith were also both armed with the information that the loan was drawn down in 2000 but the trust was created in 2003 and there had not been any change.

[88] However, the position is different as far as the van Duyn sons are concerned. First, in his affidavit, Mr Harrison says that his position was based on documents received. There are documents annexed to his affidavit which relate to policy 4574. The lives assured are stated to be the van Duyn sons.

[89] There are eight monthly statements for policy 4574 annexed, having the name M R van Duyn (accepted to be the second defendant) typed on the statements. On six of the eight statements, there are the handwritten words “(Awaroa Trust)” beside the name M R van Duyn, thus enabling the inference to be drawn that M R van Duyn is named in his capacity as trustee of the Awaroa Trust. Mr Harrison makes no reference
to having made any notations on the documents annexed to his affidavit. It would therefore appear that the mortgage statements are in the form as received by Mr Harrison from Fidelity Life.

[90] There is also the email from Fidelity Life of 12 October 2009, which records that an assignment of this policy was registered making Fidelity Life the owner. When that detail is added to the letter referred to in [83] above, that supports the position taken by Mr Harrison in his affidavit in relation to the van Duyn sons.

[91] I therefore do not consider that any of the information or documentation that came to the notice of Mr Razak and Mr Smith in relation to the van Duyn sons did, or should have, put them on notice that the position as stated in Mr Harrison’s affidavit was, or could be, incorrect.

[92] For completeness, I note that there is Mr Harrison’s email to Mr Razak of 15 December 2009, set out at [69] above, where, in the last paragraph, he refers to a document from Fidelity Life indicating that payments were for a saving plan of Rene’s. However, I do not consider that that piece of information was sufficiently clear so as to detract from Mr Harrison’s stated position in his affidavit regarding the van Duyn sons.

[93] Returning to the position as regards Mr van Duyn Senior, in my view, the failure of Mr Razak and Mr Smith to act on the information that came into their possession after Mr Harrison’s affidavit was filed goes beyond lack of judgement. The contents of the affidavit, as originally drafted, suggested to the court that there was nothing in the possession of Mr Harrison that changed the position asserted by Mr van Duyn Senior.

[94] In my view, the emails did cast doubt on Mr van Duyn Senior’s position that the insurance premiums debited against him personally in the accounts were in respect of insurance premiums for the properties owned by the trust. The affidavit, left as it was, was misleading. In my view, the lack of any action (as to which see below) on the part of Mr Razak and Mr Smith went beyond a mere error of judgement. It resulted in a misleading affidavit being before the court.

Content of duty

[95] It is necessary to articulate what a lawyer’s duty is, on becoming aware, after an affidavit is filed, that it is misleading.

[96] Ms McKee submits that Smith & Partners were under a duty to seek to withdraw Mr Harrison’s affidavit.

[97] Mr Smith says in his affidavit that if he or any of his staff had any concerns regarding the accuracy of an affidavit he would have taken steps to withdraw the affidavit. Mr Razak similarly says that if he had had any concerns that the affidavit was incorrect or misleading, he would not have allowed it to remain on the court file.

[98] Ms Twomey, however, submits that an obligation to have the affidavit removed from the court file is not founded in the Rules nor in case law.

[99] Ms Twomey refers to r 13.10 and 13.10.1, which provide that:

Presenting evidence and witnesses

13.10 A lawyer must not adduce evidence knowing it to be false.

13.10.1 If a witness (not being the lawyer’s client) gives material evidence in support of the lawyer’s client’s case that the lawyer knows to be false, the lawyer must, in the absence of a retraction, refuse to examine the witness further on that matter. ...

[100] Ms Twomey submits that the obligation in r 13.10 clearly relates to a solicitor’s obligations when viva voce evidence has been given by a witness for the lawyer’s client. She submits that r 13.10 does not readily translate into the lawyer’s obligations in situations where evidence has been put before the court by way of affidavit. She says this then raises the question as to what the obligation is where there is an affidavit before the court which contains evidence which the lawyer knows to be false. She submits the obligation as argued for by EBR, namely to have the affidavit removed from the court file, would be more onerous than the obligation which exists in relation to r 13.10 (which is not to examine the witness further on it).
[101] She submits that a natural extension of r 13.10 must be that, in the situation of false evidence having been given viva voce, the lawyer must not refer to the evidence or close on any aspects of it known to be false. She therefore submits that, in relation to misleading affidavit evidence, it is difficult to elevate the duty higher than that, to one where the solicitor must remove the evidence, which would be more onerous than the obligation in r 13.10.1. She submits that in the same way as under r 13.10, the misleading evidence can remain uncorrected, but counsel cannot rely on it.

[102] Ms Twomey submits that, by analogy, the rule must be that Smith & Partners could not rely on the misleading affidavit but had no obligation to correct it. She says that Smith & Partners did not appear at the summary judgment hearing and therefore did not rely on or otherwise refer to Mr Harrison’s affidavit. I reject that last submission immediately. It cannot be right that a solicitor can, by instructing counsel rather than appearing themselves, be said to have complied with a duty not to mislead the court.

[103] In my view, whatever the content of r 13.10, regarding oral evidence, the overriding duty is not to mislead the court. In the end, allowing an incorrect affidavit to remain on the court file uncorrected misleads the court.

[104] There is limited assistance in the case law. In Myers v Elman, there is an observation made by Viscount Maugham as to the obligation on a solicitor when, after filing an affidavit of documents, the solicitor realises that the affidavit is incorrect:¹⁹

... Suppose that, before the action comes on for trial, facts come to the knowledge of the solicitor which show clearly that the original affidavit by his client as defendant was untrue and that important documents were omitted from it, what then is the duty of the solicitor? I cannot doubt that his duty to the plaintiff, and to the Court, is to inform his client that he, the solicitor, must inform the plaintiff’s solicitor of the omitted documents, and if this course is not assented to he must cease to act for the client. He cannot honestly contemplate the plaintiff failing in the action owing to his client’s false affidavit. That would, in effect, be to connive in a fraud and to defeat the ends of justice. A solicitor who has innocently put on the file an affidavit by his client which he has subsequently discovered to be certainly false owes it to the Court to put the matter right at the earliest date if he continues to act as solicitor upon the record. ...

¹⁹ Myers v Elman [1940] AC 282 (HL) at 293–294.

[105] In Forster v Legal Services Board, a decision of the Victorian Court of Appeal, the Court stated:²⁰

A lawyer who is a party to the presentation of evidence or the making of a statement to the Court that is partly true, but which does not amount to the whole truth, can create a misleading impression to the Court and thereby breach his or her duty to the Court. Once a misleading impression has been created, even if innocently, the lawyer has an obligation to correct that impression as soon as he or she becomes aware of the true position.²¹

[106] As is apparent from those cases, the duty not to mislead the court requires the solicitor “to correct” or “put the matter right” in relation to a misleading and/or false impression. The question then is: what must the solicitor do to put the matter right? As I have noted, and in summary, Ms McKee says that Smith & Partners should have taken steps to withdraw the affidavit. That appears to be supported by Mr Razak’s and Mr Smith’s comments in their affidavits.

[107] Ms Twomey, on the other hand, says that Smith & Partners need not correct the misleading impression; the solicitors simply cannot refer to it and by instructing counsel, there is no breach. As I have said, that latter submission cannot be right. Further, in Myers v Elman, Viscount Maugham said that the duty requires the solicitor to “inform his client that he, the solicitor, must inform the plaintiff’s solicitor of the omitted documents, and if this course is not assented to he must cease to act for the client”.²² (It should be noted, however, that that example was in relation to an affidavit of discovery.)

[108] Ultimately, in my view, regardless of what the duty requires, Mr Razak and Mr Smith failed to discharge it, as they did nothing to correct the misleading impression in Mr Harrison’s affidavit. They neither filed a further affidavit with the new information nor did they correct Mr Harrison’s affidavit by removing reference to Mr van Duyn Senior’s position (leaving only the parts in relating to the van Duyn sons, which were unaffected by the new information from Fidelity Life). Nor did Smith & Partners cease to act for the van Duyns before the summary judgment hearing. In allowing Mr Harrison’s misleading affidavit to remain on the court file uncorrected

²⁰ Forster v Legal Services Board [2013] VSCA 73, (2013) 40 VR 587 at [161].

²¹ Myers v Elman, above n 19, at 294.

²² At 293–294.

and thus allowing the Judge to rely on it in refusing to grant summary judgment, Smith & Partners failed to discharge its duty not to mislead the court.

[109] I do not find, that in failing to take any steps, either Mr Razak or Mr Smith acted to intentionally or deliberately mislead the court. Nevertheless, their failure to take any steps meant that what was said in Mr Harrison’s affidavit in respect of (a lack of) documentation relating to Mr van Duyn Senior was misleading. I therefore find that both Mr Razak and Mr Smith breached their duty not to mislead the court.

Should the full costs incurred by EBR in proceeding to a substantive trial be awarded against Smith & Partners?

[110] Wasted costs are compensatory in nature and reflect the costs that would not have been incurred but for the conduct complained of.²³

Res Judicata/issue estoppel?

[111] Heath J expressed a view on whether the liquidators ought to have obtained summary judgment. He said:²⁴

[175] I have no doubt that the liquidators ought to have obtained summary judgment in the District Court in 2010. Mr Harrison’s illegitimate attempts to massage the financial statements to his clients’ financial advantage plainly influenced Judge Recordon’s decision to refuse summary judgment. Indeed, the application was only dismissed because the Judge was not satisfied EBR had excluded an arguable defence based on Mr Harrison’s evidence, notwithstanding his misgivings about its quality.

(footnotes omitted)

[112] The Judge again expressed his view on this issue as follows:

[200] ... In my view, had Mr Harrison not given evidence in opposition to the application for summary judgment in the form set out in his affidavit,²⁵ it is probable that judgment would have been entered in favour of EBR against members of the van Duyn family on the same basis that I am now ordering.

[113] Neither counsel made submissions (and in my view correctly so) on whether or not this Court could make its own findings on whether the summary judgment

²³ At 319.

²⁴ EBR Holdings (in liq) v van Duyn (No 2), above n 3.

²⁵ The relevant parts of which are set out in this judgment at [10] above.

application would have succeeded had Smith & Partners taken any of the steps I have referred to.²⁶ The observations by Heath J were obiter (and Smith & Partners were not parties to the action). Further, by the time of the substantive hearing, the van Duyns had changed their position and the Judge had made credibility findings against Mr Harrison. The Judge’s comments were made in that context.

Would further costs have been incurred?

[114] The issue for this Court is not whether the decision on the summary judgment application would have been different had the correct position (as later found by Heath J) been before Judge Recordon. Rather the question is whether the breach of duty that I have found occurred, resulted in costs being incurred, which would not have been incurred but for the breach.

[115] The application in the District Court was for summary judgment against each of the defendants separately for separate specified sums. Even if Mr Harrison’s affidavit had been corrected in relation to Mr van Duyn Senior, and had the Judge granted summary judgment in relation to him, there is no reason to suppose summary judgment would have been granted in relation to the van Duyn sons. In other words, even if Mr Harrison’s affidavit had been corrected in relation to Mr van Duyn Senior, Mr Harrison’s position in relation to the van Duyn sons would have been unchanged.

[116] The proceeding would therefore have continued to trial with the van Duyn sons as defendants. It may be that the case would have been defended in a different way without all the defendants before the court. There has been no division of costs by reference to particular issues/defendants. However, that is not a reason for the Court to side-step the apportioning of costs. As was said by Katz J in Auckland Waterfront Development Agency Ltd v Mobil Oil New Zealand Ltd:²⁷

[53] ... It is often necessary in a costs context to take a pragmatic approach in order to ensure that justice is done between the parties. The court has an over-riding discretion on costs issues. ...

²⁶ KR Handley Spencer Bower and Handley: Res Judicata (5th ed, LexisNexis, London, 2019) at [1.01], [1.05] and [7.02], citing Thoday v Thoday [1964] P 181 (CA) at 197–198; and Talyancich v Index Developments Ltd [1992] 3 NZLR 28 (CA) at 38.

²⁷ Auckland Waterfront Development Agency Ltd v Mobil Oil New Zealand Ltd [2015] NZHC 470.

[117] I respectfully agree with that statement. In the end, an award of costs must be fair.

Submissions

[118] I start with counsel’s submissions (which were made on the basis that the application for summary judgment would have succeeded in its entirety).

[119] Ms McKee submits that while Smith & Partners stopped acting for the van Duyns around September 2011, before the substantive trial, it was its initial failure that made the substantive trial necessary. EBR therefore seeks costs of $581,415.31. She refers to the statement by Heath J that the liquidators could not be criticised for the time it had taken to reach the hearing. Heath J then referred to the fact that in doing so the liquidators had incurred costs that went well beyond those that would be ordinarily justified for recovering debts of this magnitude.²⁸ Heath J then went on to say:

[165] From a policy perspective, the possibility that liquidators will not be prepared to pursue claims of this nature because delay on the part of those who owe the money renders it uneconomic to do so is not something that should be encouraged. Disincentives should be in place to ensure that persons in the position of the directors in this case face up to their responsibilities at an early time and do not cause additional cost to the liquidators, and indirectly the creditors entitled to share in the moneys they owe. ...

[120] Ms McKee therefore submits there is support for an order of costs at the level now sought.

[121] In her oral submissions, Ms McKee made the alternative submission that a reasonable award of costs would be one-third of $774,162.81, but without deduction of $192,747.50 (being costs already awarded). In other words the sum would be
$258,054.27.

[122] In reply, Ms Twomey submits that, if the Court considers that Smith & Partners has shown a serious dereliction of its duty to the court, the costs claimed against Smith & Partners is “extraordinary, unreasonable and not recoverable”:

²⁸ EBR Holdings Ltd (in liq) v van Duyn (No 2), above n 3, at [164].

(a) EBR incurred costs of $977,397.80 (including GST) against a claimed debt of $309,969. The costs are unreasonable and entirely disproportionate to the size of the claim.

(b) The invoices rendered in support of the costs claimed do not itemise the attendances in any detail, with all invoices from 2012 onwards simply stated to be in respect to “all attendances and preparation in respect of the above matter, legal research, preparation of submissions and Court appearances as set out on the attached sheet”. Nothing was attached however.

(c) After the summary judgment hearing, Mr Harrison gave evidence under oath maintaining the position in his affidavit. Accordingly, even if the affidavit had been withdrawn, the evidence would have been presented in any event in December 2010.

(d) Smith & Partners ceased acting for the van Duyns in September 2011 and had no control or influence on matters thereafter. The substantive hearing took place in February 2017. EBR incurred $85,363.60 (including GST) in legal costs prior to the end of September 2011. Costs further to those cannot be attributed to Smith & Partners.

(e) Ms Madsen-Ries’ evidence for the substantive hearing was that the liquidators’ costs were extraordinarily high because the van Duyns objected or opposed at every step. These steps were beyond the control or influence of Smith & Partners; its failure (denied) is not causative.

[123] Ms Twomey made an alternative submissions based on the following. Of the fees of $774,162.81 incurred, the amount of $469,685.16 was incurred after 28 April 2016.²⁹ Therefore, as an alternative submission, Ms Twomey says, at the most, the award should be for a sum of $304,477.65.

²⁹ Based on invoices annexed to affidavit of Ms Madsen-Ries.

[124] In my view, there is merit in the alternative submission made by Ms Twomey. The invoice which follows the 28 April 2016 invoice is dated 24 May 2016. In other words, it is the day after the aborted hearing. The 24 May 2016 account was for the amount of $99,438.13. However, a significant portion of that sum was recovered in the costs award made by Heath J. I accept that the 28 April 2016 invoice date is an appropriate cut-off point. By the time the second hearing took place, the van Duyns had signed admissions (largely) accepting liability. The dispute had moved mainly to the allocation of debt.

[125] I therefore approach the award of costs on the basis that had I determined there had been a breach of duty to the court by misrepresenting the position in relation to all of the van Duyns, then an appropriate and fair award of costs would have been
$304,747.65 (that is $774,162.81 less $469,685.16). I consider a fair award of costs is one-third of that sum, on the basis that there were effectively three defendants, Mr van Duyn Senior and the two van Duyn sons.

Result

[126] The two solicitors concerned were in breach of their duty to the court in relation to evidence filed regarding Mr van Duyn Senior. For the reasons referred to above, I award costs to EBR against Smith & Partners in the sum of $101,582.55.

Costs

[127] Costs are reserved. If the parties are able to agree costs, a joint memorandum should be filed within 20 working days of the date of this judgment.

[128] If the parties cannot agree costs, then EBR is to file and serve its submissions within five working days of the date for the joint memorandum. Smith & Partners is to file and serve its memorandum within a further five working days. Memoranda should not exceed four pages (excluding attachments).




Gordon J