Architecture & Project Management Limited v Windowmakers Limited
[2015] NZHC 2268
•18 September 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-003023 [2015] NZHC 2268
BETWEEN ARCHITECTURE & PROJECT
MANAGEMENT LIMITED Plaintiff
AND
WINDOWMAKERS LIMITED First Defendant
MARTIN ERIC BAMFORD Second Defendant
PLATINUM PACIFIC HOMES LIMITED Third Defendant
Hearing: 8 June 2015 Appearances:
A Maclean for Plaintiff
K Sheehan for First Defendant
J Armstrong for Second and Third DefendantsJudgment:
18 September 2015
JUDGMENT OF COURTNEY J
This judgment was delivered by Justice Courtney on 18 September 2015 at 4.00 pm
pursuant to r 11.5 of the High Court Rules
Registrar / Deputy Registrar
Date………………………
ARCHITECTURE & PROJECT MANAGEMENT LTD v WINDOWMAKERS LTD [2015] NZHC 2268 [18
September 2015]
Introduction
[1] The plaintiff, Architecture & Project Management Ltd (APM) filed a notice of discontinuance on 4 November 2014. The defendants obtained an order for costs against APM’s director, Terence Brown, who was not a party to the proceeding. Mr Brown has applied out of time for leave to review Associate Judge Christiansen’s decision.1
[2] The defendants oppose leave being granted to bring the application out of time and the application for review itself on the ground that the Associate Judge’s decision was not made in chambers and therefore is not amenable to review; they maintain that the correct course is an appeal to the Court of Appeal.
[3] The following issues arise:
(a) Is the Associate Judge’s decision subject to review or should
Mr Brown have applied for leave to appeal to the Court of Appeal? (b) Should Mr Brown have leave to bring the application for review?
(c) Did the Associate Judge err in making the costs order against
Mr Brown?
[4] In the event that he fails on these issues Mr Brown seeks an order staying enforcement of the costs order.
Review or appeal?
The application for costs against Mr Brown
[5] In a minute dated 18 November 2014 the Associate Judge referred to the defendants’ intention to apply for costs against Mr Brown. He directed the defendants to serve their “costs applications and associated material” on Mr Brown and his solicitor, together with a copy of the minute. Mr Brown was directed that if he wished to respond to the application he should do so within 15 working days of
receipt of the documents. The Associate Judge signalled his intention to determine
1 Architecture & Project Management Ltd (in liquidation) v Windowmakers Ltd HC Auckland
CIV-2013-404-3023, 18 December 2014.
the application on the papers but allowed for the possibility of a hearing if Mr Brown wished.
[6] The defendants immediately filed a memorandum identifying the grounds on which they sought to have costs and disbursements on the discontinuance met by Mr Brown. Mr Brown filed a memorandum in opposition. Mr Brown did not request a hearing. The defendants replied. The Associate Judge determined the application on the papers and delivered his decision in writing on 18 December
2014. He ordered Mr Brown to pay costs and disbursements totalling $27,521.
Was the Associate Judge’s decision made in court or chambers?
[7] Associate Judges exercise both court and chambers jurisdictions by virtue of ss 26I and 26J of the Judicature Act 1908. The remedy open to a person dissatisfied with an Associate Judge’s decision depends on which jurisdiction the Associate Judge was exercising. If the decision was made “in Chambers”2 the remedy is review of the decision by a High Court Judge.3 But if it was not made “in Chambers” the remedy is an appeal to the Court of Appeal.4 The defendants argued that because the costs order constituted a final disposition of the rights of the parties in the proceeding, the remedy in this case is appeal. I do not agree.
[8] It is evident that the application for non-party costs was brought as an interlocutory application, which is an application made in accordance with r 7.19 or
7.415. Rule 7.19 is the relevant provision for present purposes. It simply sets out the
requirements as to the contents form and filing of an interlocutory application. It requires such an application to be in form G31 or G32, to state the relief sought, the grounds justifying that relief and to refer to any particular enactments or principles of law or judicial decisions relied on.
[9] The defendants’ memorandum was not precisely in the specified form in that it lacked the opening words required by the forms. In all other respects, however, it
did comply with r 7.19 and plainly was intended by the parties and accepted by the
2 “Chambers” appears in the Judicature Act 1908 in upper case even though it is not defined. It is spelt with lower case in the High Court Rules. In this decision I use upper case when citing from the Judicature Act. Otherwise I use lower case.
3 Judicature Act 1908 s 26P(1).
4 Judicature Act 1908 s 26P(2).
5 High Court Rule 1.3
Associate Judge as satisfying his direction to file an application for costs against a non-party.
[10] Rule 7.34(1) requires an interlocutory application to be determined in chambers:
An interlocutory application for which a hearing is required must be heard in chambers unless a Judge otherwise directs.
[11] The reference to a hearing being required is not significant because r 7.34(1) is to be read in conjunction with r 7.37 which permits an interlocutory application to be determined without holding a hearing if the respondent consents (which clearly Mr Brown did). The critical point is that, unless there is a direction to the contrary, the interlocutory application must be heard in chambers. As there was no direction to the contrary in this case if the Associate Judge had the jurisdiction to determine the application he must have done so in chambers.
[12] There is no doubt that the Associate Judge had the jurisdiction to deal with the costs application. The power to order costs arises under s 51C of the Judicature Act and r 14 of the High Court Rules. Section 51C confers on the Governor-General in Council, with the Concurrence of the Chief Justice and any 2 or more members of the Rules Committee the power to make rules regulating the practice and procedure of the High Court, Court of Appeal and Supreme Court, including altering and adding to the High Court Rules. One of these rules is, of course, r 14.1 which provides that:
(1) All matters are at the discretion of the court if they relate to costs –
(a) of a proceeding; or
(b) incidental to a proceeding; or
(c) of a step in a proceeding. (emphasis added)
[13] Plainly, the costs being sought were costs of and incidental to the proceeding; under r 15.23, unless the defendant otherwise agrees or the Court otherwise orders, a plaintiff who discontinues a proceeding must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance.
[14] “Court”, as it is used in r 14.1, is defined as:
the High Court and includes -
(a) a Judge of the High Court; and
(b) an Associate Judge of the High Court exercising the jurisdiction conferred on an Associate Judge by the Act or by rules made under s 26J of the [Judicature] Act.
[15] Section 26J(1) and (2) of the Judicature Act allows for rules to be made conferring on Associate Judges such of the jurisdiction and powers of a judge sitting in chambers as are specified either in the Judicature Act or in such rules:
(1) Notwithstanding anything contained in any other provision of this Act or of any other Act but subject to the provisions of this section, rules made under section 51C of this Act or rules made under any other Act in the manner provided in that section may confer [on Associate Judges], subject to such limitations and restrictions as may be specified in the rules, such of the jurisdiction and powers of a Judge sitting in Chambers, conferred by this Act or any other Act, as may be specified in the rules.
(2) Any such rules may contain such other provision as may be necessary –
(a) To enable the proper exercise [by Associate Judges] of the jurisdiction and powers so conferred; and
(b) To regulate the practice and procedure of the Court on any application to the Court under section 26P(1) of the Act to review the exercise by [an Associate Judge] of the jurisdiction and powers so conferred.
[16] Section 26IA provides that an Associate Judge:
… shall have, in all proceedings (including proceedings on an interlocutory application) properly before the Associate Judge, jurisdiction to make any order or to exercise any authority or jurisdiction that might be made or exercised by a Judge of the High Court.
[17] Rule 2.1(1) of the High Court Rules is a rule of the type referred to in s 26J, conferring on an Associate Judge the jurisdiction and powers of a Judge in chambers:
An Associate Judge has the jurisdiction and powers of a Judge in chambers conferred by the Act or these rules or another enactment.
[18] An interlocutory application for costs is therefore one in respect of which an
Associate Judge both can and must exercise the chambers jurisdiction. It follows
that Associate Judge Christiansen was exercising the chambers jurisdiction when he made the costs order against Mr Brown.
[19] For completeness, I note that in Carborundum Abrasives Ltd v Bank of New Zealand, which concerned the circumstances in which costs might be awarded against a non-party, Tompkins J considered that the application for costs against the non-party following discontinuance was a decision made by the Master in chambers.6
[20] The defendants relied on the decisions of the Supreme Court in Siemer v Heron7 and the Court of Appeal in Waterhouse v Contractors Bonding Ltd.8 Both cases contain clear statements to the effect that for purposes of determining whether a right of appeal exists, a decision is final and not interlocutory if it finally disposes of the rights of the parties in the proceeding. The defendants argued that the costs application in this case should be regarded as a final decision and therefore amenable only to appeal.
[21] I do not accept that submission because the contexts in which those decisions were made were very different to the present case. Siemer v Heron was concerned with s 66 of the Judicature Act 1908, which confers jurisdiction on the Court of Appeal to hear appeals from any judgment, decree or order of the High Court “subject to the provisions of the [Judicature Act]”. The case does not assist because s 26P specifically limits the right of appeal where the order is one made by an Associate Judge exercising the chambers jurisdiction.
[22] In Waterhouse the question was whether the grant of summary judgment in a commercial list proceeding was an “interlocutory decision” for the purposes of the right of appeal under s 24G of the Judicature Act. But the question in this case is not whether the costs order was an interlocutory decision; rather, it is whether the decision was made “in Chambers” for the purposes of s 26P(1).
[23] I therefore conclude that the application for costs against Mr Brown following discontinuance was an interlocutory application that had to be heard in
6 Carborundum Abrasives Ltd v Bank of New Zealand High Court Auckland CP No 1769/90 2
June 1992.
7 Siemer v Heron [2011] NZSC 133; [2012] 1 NZLR 309.
8 Waterhouse v Contractors Bonding Ltd [2013] NZCA 151.
chambers and therefore engaged the chambers jurisdiction of the Associate Judge. Any challenge to the decision is by way of review under s 26P(1) rather than appeal under s 26P(2).
Should APM have an extension of time to apply for review?
[24] The rules required that APM file its application for review within five working days of 18 December 2014.9 The application was not filed until 16
February 2015.
[25] The explanation for the late filing appears from Mr Brown’s affidavit filed in support of the application for leave. He had been in Australia when the orders were made. His lawyer contacted him on 16 January 2015 and told him that he had 20 working days from the date of the decision to appeal and the last day for filing an appeal would be 7 February 2015. However, when he met with his lawyer on
3 February 2015 following his return to New Zealand he was told that he actually needed to apply for a review of the decision and that he was out of time to do so. He instructed his lawyer to prepare an application for review but due to other work commitments the lawyer did not do that until 16 February 2015.
[26] The respondents did not challenge Mr Brown’s explanation. Their focus was on the merits of the review itself and the question of whether it should have been the subject of an appeal.
[27] I am satisfied that the explanation for the delay is reasonable and that no prejudice has arisen from it. I accordingly give leave to bring the application.
Review of Associate Judge’s decision
Approach on review
[28] An award of costs involves the exercise of discretion. In Shirley v Wairarapa District Health Board the Supreme Court confirmed that an appellate court should not interfere with a costs order unless satisfied that the Judge acted on a wrong
principle, or failed to take into account some relevant matter or took account of some
9 High Court Rules, r 2.3.
irrelevant matter or was plainly wrong.10 I consider that the same approach should apply to the review of an Associate Judge’s costs award.
Background to the proceedings
[29] APM was a property developer. In 2008 it was developing a residential property at Greenhithe. Mr Brown was then living in Spain. He engaged Platinum Pacific Homes Ltd (PPH) to oversee the construction and sale of the property. Martin Bamford was PPH’s sole director. He undertook the project management, including engaging contractors.
[30] By mid-2008 APM found that it was unable to pay its contractors until the property had been completed and sold. It was expected to be put on the market in late October 2008 and to sell for about $1.2m.
[31] Windowmakers had supplied and installed the joinery. When it demanded payment in October 2008 Mr Brown informed it that there were insufficient funds to pay it then, but that money would be available when the property was sold. Windowmakers would not wait. It advised Mr Brown that it would remove the joinery pursuant to its terms of trade, which provided that it retained ownership of all items supplied until they had been paid for in full. On 31 October 2008
Windowmakers’ agents entered the property and removed all the joinery.
[32] Because the property was insecure other contractors removed fittings that they had supplied. Mr Bamford himself removed items such as vanities, basins, tapware and plumbing fittings, the oven, oven-hood and dishwasher. Garage doors were removed, as were the gas fireplace, kitchen cabinetry and carpet.
[33] These events led to receivers being appointed. They sold the property “as is”
for $740,000.
[34] In December 2009 APM was struck off the Companies Register. In 2011, however, it was restored to the register for the sole purpose of bringing proceedings against Windowmakers, PPH and Martin Bamford. It had no other assets and was not trading. Funding of the proceedings came in part from Mr Brown and in part
from a contingency agreement with the company’s solicitor. The proceedings were
10 Shirley v Wairarapa District Health Board [2006] NZSC 63 at [15].
filed in May 2013, together with an application for summary judgment. They alleged trespass against each of the defendants and sought damages of slightly over
$600,000 for the loss of value sustained on the sale of the house in its incomplete state and a further $575,000 for consequential loss sustained as a result of being forced to sell another property to meet debts.
[35] In July 2013 the defendant filed a joint application for security for costs. In November 2013, just before the application for security for costs was to be heard, APM went into voluntary liquidation. The liquidators were unwilling to pursue the litigation and in May 2014 assigned the company’s rights in the litigation to Mr Brown for $20,000. Under the deed of assignment the company would receive
30% of any net recovery, whether from judgment or settlement.
[36] In July 2014 Mr Brown applied for an order substituting him for APM as the plaintiff. That application was to be heard at a case management conference on
30 October 2014. However, the limitation period for Mr Brown to commence a claim in his own name expired on 31 October 2014. The defendants signalled that they would oppose the application so Mr Brown elected to withdraw the application for joinder and commence proceedings in his own name before the expiry of the limitation period.
[37] The new proceedings were filed in October 2014. APM filed its notice of discontinuance on 4 November 2014. The defendants immediately sought costs against Mr Brown on the grounds that the sole purpose of APM being restored to the Companies Register was to pursue the claim that had now been discontinued and that Mr Brown had funded the litigation from his own resources, APM having neither assets nor income for that purpose.
Associate Judge Christiansen’s decision
[38] The Associate Judge canvassed the authorities relating to costs against non- parties, particularly Dymocks Franchise Systems (NSW) Pty Ltd v Todd & Ors,11
11 Dimocks Franchise Systems (NSW) Pty Ltd v Todd & Ors [2004] UKPC 39, [2005] 1 NZLR 145.
Mana Property Trustee v James Developments (No 2)12 and Metalloy Supplies v MA (UK) Ltd13 and proceeded on the basis that:14
The Court may make an order for costs against a non-party if it considers that party to be the real party interested in the outcome even though Mr Brown may earnestly be bringing these proceedings for the benefit of his company.
[39] The Associate Judge went to conclude that it was a proper case in which to order costs against Mr Brown because he was the funder of the litigation and had advanced it for his own benefit:15
It is clear APML was resurrected for the purpose of pursuing this proceeding; for Mr Brown’s ultimate benefit; that those proceedings were issued five years after the cause of action arose and none of the creditors were then actively pursuing the company for debts owed.
It appears Mr Brown did not pursue the proceedings for the benefit of creditors. Indeed after the liquidation of APML he sought an assignment of those causes of action to and for himself.
It was Mr Brown who entered into the contingency fee agreement to facilitate the bringing of the proceedings. …
Usually a director is not liable for the ordinary cause of actions of a company. The propriety of APML pursuing its claim is not in question. What is in question are the actions of Mr Brown in utilising his company as he did to achieve that outcome.
In the Court’s assessment it would likely have granted an order for security in circumstances where the company was being utilised for the purpose of returning value to the shareholders and where otherwise the company clearly had no other value.
It is apparent from Mr Brown’s own evidence that he initiated the proceeding for his own benefit. The Court accepts the assessment of counsel for the defendants that the steps in respect of which costs are sought by the defendants relate almost entirely to the period before APML was put into voluntary liquidation on 28 November 2013 and during the period Mr Brown was in control of APML. …
In this case the Court considers Mr Brown was the funder and it makes no difference that he entered into a contingency for the agreement to facilitate bringing the proceeding. As counsel for the defendants submits whether he paid himself or arranged a contingency for the payment, the net effect is the same. Further in answer to Mr Brown’s claim that the actions of the defendants have caused APML’s financial downfall it is equally clear from
12 Mana Property Trustee v James Developments (No 2) [2011] 2 NZLR 25.
13 Metalloy Supplies v MA (UK) Ltd [1997] 1 WLR 1613 (CA).
14 At [26].
15 At [28]–[30], [32]–[33].
Mr Brown’s own evidence that the company had “hit the wall” financially
well before the defendants took the action that they did.
Error in the Associate Judge’s decision?
[40] Mr McLean, for Mr Brown, argued that the Associate Judge applied the wrong principle in treating Mr Brown as the real party because at the relevant time he was acting solely in his capacity as the director of APM and, further, that his reasoning was not supported by the evidence. Mr MacLean relied on the Supreme Court’s decision in Mana Property Trustee. However, Ms Sheehan, for the first defendant, argued that the relevant principles were those articulated in the Privy Council’s decision in Dymocks and that Mana Property Trustee was distinguishable from Dymocks. She submitted that Mr Brown was the real party because he initiated the proceedings, funded them and stood to benefit personally from the outcome.
[41] The Privy Council decision in Dymocks is the leading New Zealand authority on costs against a non-party.16 The plaintiff company was insolvent and the litigation was funded by interests associated with the plaintiff’s directors, which were substantial creditors of the company and therefore stood to benefit directly if the claim succeeded. The Privy Council identified as particularly difficult those cases in which non-parties fund receivers or liquidators or financially insecure
companies in litigation designed to advance the funder’s own financial interest. The Board referred (among others) to the New Zealand cases of Carborundum,17 Arklow Investments Ltd v MacLean,18 and Metalloy Supplies and concluded that:19
In light of these authorities their Lordships would hold that, generally speaking, where a non-party promotes and funds proceedings by an insolvent company solely or substantially for his own financial benefit, he should be liable for the costs if his claim or defence or appeal fails. As explained in the cases, however, that is not to say that orders will invariably be made in such cases, particularly, say, where the party is himself a director or liquidator who can realistically be regarded as acting rather in the interests of the company (and more especially its shareholders and creditors) than in his own interests.
[42] The Privy Council cited Millett LJ’s statement in Metalloy with approval, which included the following:
16 Mana Property Trustees Ltd at [11].
17 Carborundum Abrasives Ltd v Bank of New Zealand (No 2) [1992] 3 NZLR 757.
18 Arklow Investments Ltd v MacLean unreported, 19 May 2000.
19 At paragraph 29.
The court has a discretion to make a costs order against a non-party. Such an order is, however, exceptional, since it is rarely appropriate. It may be made in a wide variety of circumstances where the third party is considered to be the real party interested in the outcome of the suit. It may also be made where the third party has been responsible for bringing the proceedings and they have been brought in bad faith or for an ulterior purpose or there is some other conduct on his part which makes it just and reasonable to make the order against him. It is not, however, sufficient to render a director liable for costs that he was a director or company and caused it to bring or defend proceedings which he funded and which ultimately failed. Where such proceedings are brought bona fide and for the benefit of the company, the company is the real plaintiff. If in such a case an order for costs could be made against the director in the absence of some impropriety or bad faith on his part, the doctrine of the separate liability of the company would be eroded and the principle that such orders should be exceptional will be nullified. …
(emphasis added)
[43] In comparison, Mana Property Trustee involved litigation promoted by the liquidator for the benefit of the company. The Supreme Court cited from both Metalloy and Dymocks, summarising the position as follows:20
A non-party like a director or liquidator is not at risk of a costs award in other than exceptional circumstances, that is, circumstances outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. In the case of a liquidator that is a principle of very long standing. There is certainly jurisdiction to order a liquidator as a non-party to pay costs personally but such an order will not be made unless there has been some relevant impropriety on the part of the liquidator. The courts recognise that the other party can protect its position should it be successful, through its ability to seek in advance an order for payment of security for costs.
[44] These cases show that costs against a non-party may be awarded if that person is the real party in the sense of standing to benefit from the litigation. However, merely funding the litigation or acting in the capacity of director or liquidator in litigation brought for the benefit of the company or creditors will not ordinarily lead to costs being awarded unless there is some relevant impropriety.
[45] The Associate Judge’s statement at [26] of his decision does not accurately reflect these principles because it suggests that a non-party may be regarded as the real party for the purposes of costs even if his or her actions in promoting the litigation were in good faith and for the benefit of the company. It is clear from both
Dymocks and Mana Property Trustees that a director who brings proceedings in
20 At [10].
good faith for the benefit of the company will not, save in exceptional circumstances, be exposed to a costs order.
[46] The Associate Judge identified the following facts as supporting his finding that Mr Brown had brought the proceedings for his own benefit: the proceedings were brought five years after the cause of action arose; none of the company’s creditors were actively pursuing the company for debts; after the liquidator Mr Brown sought an assignment of the causes of action for himself; it was Mr Brown who entered into the contingency fee arrangement.
[47] None of these facts are sufficient, either alone or in combination, to show that Mr Brown acted for his own benefit during the relevant period. The timing of the proceedings says nothing about Mr Brown’s motivation or whether he would benefit from the proceeds of the litigation. Nor does the fact that the company’s creditors were not taking active steps; if there were creditors it is they who would have first call on the proceeds of the litigation even if they had not actively participated in it. The assignment has no direct relevance, given that the focus of the application was on the period before it was entered into. In any event, the fact that Mr Brown took the assignment tends to suggest that, in the absence of the assignment, he would not have benefitted from the litigation. Nor does the fact that Mr Brown entered into the contingency fee agreement have any significance because he clearly did so on behalf of the company.
[48] At the relevant time Mr Brown was acting as a director of APM and bound to act in the interests of the company, its creditors and shareholders. Whilst Mr Brown was a shareholder, he was not, it seems, a creditor. If the company had no creditors then he would certainly be regarded as the real party, since the proceeds of any litigation would come to him (it appears that his wife no longer had an interest in the company). However, the evidence does not clearly show this to be the case. In his affidavit sworn on 7 July 2014 in support of the application for joinder, Mr Brown referred to the liquidator inviting the company’s creditors to fund the litigation but none was interested. That fact, coupled with the splitting of any net proceeds of the litigation between Mr Brown and the liquidator, suggests that there are, in fact, creditors who would have been entitled to first call on the proceeds of the litigation.
[49] If the proceeds of the litigation were likely to exceed the company’s debts Mr Brown would have benefitted from the litigation to that extent. Unfortunately, there is no evidence as to the nature and extent of the creditors. That is information that the defendants either had (as they were creditors themselves) or could have obtained from the liquidator. However, without it the Associate Judge did not have an adequate evidential basis for his finding that Mr Brown was the real party in the sense of benefiting solely or substantially from the litigation.
[50] I therefore find that the Associate Judge made an error in determining the application for costs against Mr Brown and that the circumstances and available evidence did not support the making of the order. The order for costs against Mr Brown is set aside.
[51] Given my conclusion it is unnecessary to deal with the application for stay of the order.
P Courtney J
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