Auckland Council v Mawhinney
[2014] NZHC 297
•27 February 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-4227 [2014] NZHC 297
BETWEEN AUCKLAND COUNCIL Judgment Creditor / Respondent
ANDPETER WILLIAM MAWHINNEY Judgment Debtor / Applicant
Hearing: 18 February 2014
Appearances: Mr P W Mawhinney - Applicant
Mr M C Frogley for Respondent
Judgment: 27 February 2014
JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE
This judgment was delivered by me on
27.02.14 at 4 p.m.., pursuant to
Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
AUCKLAND COUNCIL v MAWHINNEY [2014] NZHC 297 [27 February 2014]
Background
[1] The parties to this proceeding were also parties to Environment Court proceedings under RMA 886/98. On 14 June 2012 the Environment Court made a costs order against Mr Mawhinney in the sum of $427,139.00. An appeal which Mr Mawhinney filed against that determination was abandoned on 5 September
2012.
[2] On 31 October 2013 the respondent served a bankruptcy notice on
Mr Mawhinney in an attempt to enforce the costs order. On 14 November 2013
Mr Mawhinney filed the present application for an order setting aside the bankruptcy notice.
[3] Mr Mawhinney was previously adjudicated bankrupt on 22 July 2010 and discharged on 24 September 2013.
[4] In relation to the application to set aside the current bankruptcy notice, Mr Mawhinney submitted that:
1.1The application to set aside the bankruptcy notice is based on three primary grounds that:
(a) the judgment debt was a provable debt as defined in s 232
Insolvency Act 2006, and therefore is a claim against the official assignee, not the applicant/judgment debtor
(“applicant”).
(b) the judgment debt is based on an order improperly made by the Environment Court
(c) the judgment debtor has claims against the respondent/judgment creditor (“respondent”) that exceed the amount of the judgment debt.
[5] I consider that the issues that require determination concerning Mr Mawhinneys continuing liability for the costs order should be stated in rather different terms from the way that Mr Mawhinney has put them but, I consider, without disadvantage to him.
Does Mr Mawhinney’s earlier bankruptcy release him from his liability to pay
the Environment Court costs?
[6] The starting point of Mr Mawhinney’s application is s 304 of the Insolvency
Act 2006 (“the Act”) which provides so far as is relevant:
304 – Debts from which bankrupt is released on discharge
1.On discharge, the bankrupt is released from all debts provable in the bankruptcy except those listed in subsection (2).
[7] It is common ground that s 304(2) has no application in the circumstances of this case.
[8] The question of whether Mr Mawhinney is released of the costs debt by operation of s 304 requires consideration of the provisions in the Act that prescribe what is and what is not a provable debt.
[9] Section 232(1) of the Act provides as follows:
232. What debts are provable debts
1. A provable debt is a debt or liability that the bankrupt owes
–
(a) At the time of adjudication: or
(b) After adjudication but before discharge, by reason of an obligation incurred by the bankrupt before adjudication.
[10] The dispute between the parties centres on the interpretation of s 232(1)(b).
[11] The issue is whether Mr Mawhinney’s costs debt was owed by reason of an obligation incurred before adjudication. Mr Mawhinney has argued that the costs were incurred when he became a party to the Environment Court proceeding and when the respondent incurred costs and expenses.
[12] This issue was resolved in favour of the the respondent’s interpretation by the decision of Kaye v Auckland District Law Society.1 This case considered the predecessor of s 232(1) which was s 87 of the Insolvency Act 1967.
[13] I consider that the respondent’s interpretation is inevitable for the reasons which were set out in the respondent’s submissions filed for the hearing of the present application:
5.In Kaye v Auckland District Law Society [1998] 1 NZLR 151, the appellant was a bankrupt practitioner who admitted four charges brought against him by the district law society. Although a bankrupt during the hearing, he was later discharged from bankruptcy and then ordered to pay costs by the New Zealand Law Practitioners Disciplinary Tribunal. The High Court held that the costs did not fall within s87(1) of the Insolvency Act 1967 as a provable debt, since the obligation to pay costs was not incurred before the time of adjudication. The liability did not arise until the Disciplinary Tribunal made the costs order. The Court said at page 158:
The obligation to pay costs awarded by the tribunal is not incurred before the time of adjudication. It is only incurred if and when the tribunal, as a result of a hearing, decides that costs should then be paid. The practitioner might have been subject to be brought before the tribunal at the date of his bankruptcy, but it cannot be said that potential created a debt or liability certain or contingent.
6.The Court of Appeal in the United Kingdom, similarly held in Glenister v Rowe [1999] 3 ALL ER 452 (CA) that an order for costs made against a debtor after discharge, in relation to proceedings commenced before bankruptcy, was not a contingent liability at the date of bankruptcy. That is because costs of a legal proceeding are at the discretion of the Court. Until an order for payment of cost is made there is no obligation or liability to pay them and there is no right to recover them.
[14] I consider that the statement of the position contained in that submission is correct. Mr Mawhinney submitted that Kaye was wrongly decided or that it can be distinguished from the current case.
[15] In my assessment, the meaning and effect of s 232 is plain in its application to the case before the Court. Before the costs order was made by the Environment Court, Mr Mawhinney was under no obligation to pay costs and he did not owe the
cost debt until the order was made. Therefore, the costs order does not come within
1 Kaye v Auckland District Law Society [1998] 1 NZLR 151 (HC).
s 232(1)(b). It follows that the debt for costs is not provable in terms of s 232 therefore s 304 of the Act does not release Mr Mawhinney from the obligation to pay the costs order.
Is the judgment debt based on an order improperly made by the Environment
Court?
[16] It is central to the attack which Mr Mawhinney makes on the Environment Court costs order that the Environment Court proceedings were vitiated by error. It is implicit in his submission that the determination of the Environment Court ought to be quashed or otherwise set aside which would have the consequential result that the costs order as part of the determinations would be abrogated and so the basis for the bankruptcy notice would be extinguished.
[17] However there is no jurisdiction in this Court when hearing an originating application to set aside a bankruptcy notice to revoke the determinations of the Environment Court.
[18] This Court is required to give effect to the orders of other courts and cannot ignore them. A party wishing to attack the validity of another court’s order must do so by direct means which would take the form of an appeal or judicial review proceedings. Unless such a step is taken, the subject judgment is to be accorded the status of full enforceability.
[19] The principle that is engaged is that of finality of judgments which was described by the Supreme Court in Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd in the following terms:2
Unless a judgment of a Court is set aside on further appeal or otherwise set aside or amended according to law, it is conclusive as to the legal consequences it decides.
The rule reflects both the public interest in there being an end to litigation and the private interest of parties to court processes in not being subjected by their opponents to vexatious relitigation. The rule recognises, however, that a policy of absolute finality is unsafe. It accommodates exceptional situations by allowing final determinations to be revisited but within prescribed limits.
2 Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd [2012] NZSC 94, [2013] 1 NZLR
804 at [28] per McGrath J (footnotes omitted).
For example, where there is no abuse of process involved, an application for recall of the judgment of a court can be made on grounds, which include “where counsel have failed to direct the Court’s attention to a legislative provision or authoritative decision of plain relevance”. Limitations on the exceptions ensure that they do not subsume the general rule of finality and conclusiveness of judgments. The need for this was recognised by Lord Wilberforce in the leading case on the availability of the particular exception which Redcliffe relies on in this case:
For a policy of closure to be compatible with justice, it must be attended with safeguards: so the law allows appeals: so the law, exceptionally, allows appeals out of time: so the law still more exceptionally allows judgments to be attacked on the ground of fraud: so limitation periods may, exceptionally, be extended. But these are exceptions to a general rule of high public importance, and as all the cases show, they are reserved for rare and limited cases, where the facts justifying them can be strictly proved.
[20] An example of an exceptional type of case where the court can exercise its inherent jurisdiction is where something went wrong with the processes in the court where a judgment was entered. For example, there may appear to be a substantial argument that the debtor was not served with the application on which the judgment was entered. Rather than the bankruptcy court entertaining arguments about whether the judgment ought to be set aside, the usual approach is that the court adjourns the bankruptcy proceeding to afford an opportunity for the debtor to apply to the court where judgment was entered to set aside that judgment on the grounds that proper
procedure in that court had not been followed.3
[21] There is not, however, any suggestion that the procedural requirements leading up to the making of the costs order by the Environment Court were not followed in the present case. Therefore the inherent jurisdiction has no application in relation to the enforceability of the debt for costs in this case. The position is therefore as Associate Judge Bell stated in Gates v Dench:4
It is necessary to put this inherent jurisdiction to prevent abuse of process into context. It is to be seen as an exception to the general principle that in bankruptcy court, judgments of other courts are final and the court will not reconsider them. When another court has given a judgment or made an order for payment of a sum of money, that judgment or order is final. That means that it is conclusive as to the matters that were in dispute in that case. If a party is dissatisfied with that decision, that party can appeal but, subject to any rights of appeal and review, the judgment stands. The decision binds
3 Dench v Gates [2013] NZHC 1138 at[13].
4 At [11] per Associate Judge Bell.
the parties – that means that they cannot contend that the judgment or order is in error or that they do not need to comply with it. It also means that the parties cannot start a new court case to argue the same matters again. And it also means that other courts have to treat that judgment or order as conclusive. Unless they are hearing an appeal, other courts will not accept arguments that the order or judgment is wrong, or does not need to be obeyed.
[22] It was Mr Mawhinney’s contention that the judgment of this Court in Mawhinney v Auckland Council came to the conclusion that the decision of the Environment Court had been erroneous.5 That being so, the cost order which was engrafted onto that decision could not stand.
[23] The judgment in that decision, which I shall refer to as “the appeal decision” set out a detailed history of the steps leading up to the Environment Court decision and the decision itself. The Environment Court in fact had given two determinations, an interim decision which was issued in 2003 and a final determination given in 2010.
[24] The appeals were brought by Mr Mawhinney or bodies associated with him. I shall refer to them collectively as the Mawhinney interests. In the appeal decision, Wylie J determined that such matters as affected the Mawhinney interests were dealt with in the interim decision in 2003. However, the Mawhinney interests never filed a timeous appeal against that decision nor did they apply for leave to appeal out of time.6 Further, the Court determined that:7
... [A]ll decisions relevant to the dismissal of the appeal were in fact made in the interim decision.
[25] It is correct that the Judge made some criticisms of the procedure which the Environment Court followed when dealing with the hearing and determination in the final decision. But there is no basis upon which Wylie J’s judgment can be construed as setting aside the Environment Court decision and thereby carrying away
the foundation for the costs order.
5 Mawhinney v Auckland Council (2011) 16 ELRNZ 608 (HC) at [111].
6 At [85].
7 At [117].
[26] A subsidiary argument which Mr Mawhinney put forward can be summarised as an assertion that it was the responsibility of the respondent that the Environment Court fell into error in the way that was described in the appeal judgment.8 I do not accept that argument. An alternative, and arguably more compelling way of viewing what happened was that the appellant, the Mawhinney interests, were the cause of the unnecessary additional step in the Environment Court proceedings by continuing the appeal passed the point where the interim order in effect determined the issues against them. Whether that is so or not, this subsidiary argument is not supported by
authority and is not correct in principle.
[27] An additional ground which Mr Mawhinney advances in support of his originating application is that he refers to the fact that he appealed the Environment Court order for costs and expenses to the High Court.
[28] However, Mr Mawhinney acknowledges himself that the appeal was treated as abandoned and was dismissed as a result of the appellant’s failure to pay security for costs. The only significance of this step is that a valid and enforceable costs order was subject to an unsuccessful attempt to impeach it but that step makes no difference to the continuing validity of the Environment Court costs order.
[29] The final issue that needs to be considered is the contention put forward by Mr Mawhinney that a further ground for attacking the Environment Court costs order is that it was contrary to his legitimate expectation that such an order would be made against him. In summary, the submission reflects a statement made in an Environment Court practice note that normally costs will not be awarded in “First Schedule” matters. It is not in dispute that the proceeding was a First Schedule matter.
[30] In its costs judgment, the Environment Court made reference to the statement of policy but said:9
The starting point for determining costs in a First Schedule proceeding is that costs will not normally be awarded. However the Court must retain its discretion to decide whether or not to award costs according to the
8 At [111] – [114].
9 Mawhinney v Auckland Council [2012] NZEnvC 117 at [29] per Judge Whiting.
circumstances of the case. The practice note acts as a guideline, but it cannot act as a fetter to the discretion under s 285 of the Act.
[31] In the first place, it is necessary to repeat that it is not for this Court in the course of an originating application of the present kind to comment on the propriety of the Environment Court costs judgment. However, even if comments were justified, it is difficult to take exception with the approach that the Environment Court adopted. The practice note could not displace the statutory requirement for the Environment Court to consider exercising its discretion to make costs orders in the cases which come before it. It would not have been correct in principle for the Environment Court to decline to consider exercising its statutory power to award costs because it construed the practice note has a binding direction. If it had done so, it seems likely that it would have proceeded unlawfully. In such circumstances, it cannot be right that Mr Mawhinney had a legitimate expectation that no costs would be awarded.
Does Mr Mawhinney have a claim against Auckland Council that exceeds the amount of the judgment debt?
[32] This part of the grounds in support of the notice of application reflects the wording of Form B 2 of the High Court Rules which provides that one of the alternatives available to a debtor served with a bankruptcy notice is that:
(c) You must satisfy the High Court that you have a counterclaim, set- off, or cross-demand against the judgment creditor –
(i) that equals or exceeds the amount claimed by the judgment creditor; and
(ii) that you could not put forward in the action or proceeding in which the judgment or order was obtained.
[33] The submission that was made for the respondent was that the cross-claim which Mr Mawhinney outlined in his affidavit is identical to one which was considered by the High Court in a judgment issued on 11 February 2013.10 The case that was before the Court on that occasion concerned claims which Mr Mawhinney
and others brought against Auckland Council that there had been an “egregious
10 Mawhinney v Auckland Council [2013] NZHC 159.
delay” on the part of the Council in approving applications for or relating to the proposed sub-division of land. Mr Mawhinney is claiming a set-off by seeking a claim for damages which is said to arise out of Auckland Council’s breach of statutory duty when processing earlier sub-division applications.
[34] The Judge reviewed the various authorities in this area including the judgment in Attorney-General v Carter in which the Court of Appeal,11 amongst other things, adopted the reasoning of the House of Lords in X (Minors) v V Bedfordshire County Council12 in which, Tipping J for the Court of Appeal recognised that a plaintiff did not have any cause of action for careless performance of a statutory duty in the absence of either a statutory right of action or a common law duty of care. Justice Duffy in the High Court concluded that this was a claim in which the enquiry was whether Parliament had intended that a claimant in the position of Mr Mawhinney should have a right of action against the Council for breach of its obligations under the Resource Management Act 1991.13 The Judge referred to another High Court decision in Mawhinney v Waitakere City Council and referred with approval to what Fogarty J said in that judgment at [46] and following. As the Judge did, I consider it will be helpful to set out in their entirety the passages from that judgment:14
[46] It is a matter of judgment that I am quite satisfied that the comprehensive character of the processes and remedies within the RMA precludes the need for the Court to identify any additional remedy by way of common law damages. It is not necessary to go into detail. The RMA is replete with procedures designed to ensure fairness, coupled with the ability to go to the Environment Court, at what is in legal terms practically ‘the drop of a hat’; to seek declarations to clarify the duties of the consent authorities and/or enforcement orders including against consent authorities. There are also rights of appeal on questions of law from the Environment Court. Parties can also proceed directly to the High Court by way of judicial review against the territorial authorities.
[47] There is no policy vacuum within which there is a need to identify a common law liability of damages. There can be such vacuums where the Court judges that unless the liability for damages is recognised there might not be sufficient incentive for the statutory duty to be applied.
11 Attorney-General v Carter [2003] 2 NZLR 160 (CA).
12 X (Minors) v V Bedfordshire County Council [1995] 2 AC 633.
13 Mawhinney v Auckland Council [2013] NZHC 159 at [8].14 Mawhinney v Waitakere City Council [2007] NZRMA 173 (HC) per Fogarty J.
[48] Another compelling consideration is that essentially the responsibility the RMA casts on territorial authorities to make plans and then act as consent authorities are duties coupled with discretions as to how the duties are to be discharged. Such duties are not easily breached. If they are simply not exercised then the normal remedy is by way of judicial review seeking an order of mandamus directing the authority to discharge the duty. As already noted, in this case a statute provides the statutory alternative to mandamus by way of enforcement orders and within s 91(3), the power to go to the Environment Court to seek an order directing the Council to move on.
[49] There is no tenable argument for a cause of action for breach of statutory duty available to the plaintiff.
[35] Having reviewed the authorities Duffy J stated:15
My assessment of the Resource Management Act is that contains alternative remedies in the form of statutory rights of appeal and judicial review; I can see no contrary indication that tells against these being the only available remedies for persons who consider that a territorial authority has failed to exercise its statutory powers and duties.
[36] The Judge therefore concluded that there was no cause of action available to Mr Mawhinney and others for breach of the provisions of the Resource Management Act.
[37] The respondent’s counsel, Mr Frogley submitted that Mr Mawhinney was bound by the doctrine of res judicata as his cross-claim or set-off argument is identical to the claims he brought in the earlier proceeding. Therefore Duffy J’s conclusions in the High Court now bind Mr Mawhinney and prevent him from setting up a cross-claim based upon identical grounds of action.
[38] I accept that submission is correct.
[39] In the course of the hearing I asked Mr Mawhinney to describe to me what causes of action were available to him following the Duffy J judgment. He told me that there would be an intention to amend the statement of claim so to include an
application for judicial review. He further advised me that the plaintiffs would rely
15 Mawhinney v Auckland Council [2013] NZHC 159 at [11].
upon r 30.3 of the High Court Rules. In particular, he considered that r 30.3(3) would entitle him to add a claim for damages to the application for judicial review. The sub-rule in question provides:
30.3 Procedure
(3) A statement of claim seeking an extraordinary remedy may claim more than 1 of those remedies and may claim any other relief (including damages) to which the plaintiff may be entitled.
[40] However that provision of the High Court Rules is a procedural one which describes how a claim which otherwise has validity can be included in a statement of claim which seeks judicial review. I do not read it as conferring a right of damages that is generated by a successful application for judicial review.
[41] Mr Mawhinney told me that he had not yet turned his mind to the exact nature of any additional claim for damages. This is not a satisfactory position to take for a debtor who is seeking to put forward a counterclaim.
[42] However, it is not possible to conceive of any basis for a claim for damages - whether or not brought in conjunction with an application for judicial review – assuming, as Duffy J decided, that there is no damages claim available for breach of statutory duty under the Resource Management Act.
[43] While Mr Mawhinney made reference to a potential claim for judicial review, the only type of relief which the Court might theoretically issue would be an order directing the Council to carry out its statutory obligations. I might add that there is little practical chance that such an application would succeed. I cannot envisage what further relief Mr Mawhinney might be entitled to which would take the form of damages or monetary compensation.
[44] In my assessment, the Mawhinney interests are unable to demonstrate that there is any viable cause of action which would give rise to a counterclaim, set-off or cross-claim. It follows that this ground for setting aside the bankruptcy notice fails.
Limitation
[45] A further ground upon which the applicant sought to set aside the bankruptcy notice was that the ability of the respondent to enforce the costs order had been lost because the claim was now time-barred.
[46] The submission that Mr Mawhinney made was:
7.1More than six years past between the costs and expenses incurred by the respondent and invoiced prior to the decision given 27 June 2003 and the application for costs by the respondent made on 23
December 2010 (as recorded at paragraph [3] Environment Court
Decision No. [2012] NZEnvC 117.
[47] I apprehend that Mr Mawhinney is saying that the “cause of action” upon which the Council was suing when it made its application for costs had accrued more than six years previously because some or all of the costs and expenses which were the foundation of the costs order sought, were incurred prior to the interim decision of the Environment Court delivered on 27 June 2003.
[48] The submission reflects an understanding on the part of Mr Mawhinney that making an application for costs in the course of a proceeding falls within s 4(2) of the Limitation Act 1950 which provides:
(2) An action for an account shall not be brought in respect of any matter which arose more than 6 years before the commencement of the action.
[49] I do not consider that that an application for security for costs is a type of proceeding which is covered by the provisions of the Limitation Act 1950. The term “action for an account” refers to proceeding such as where a principal seeks an account from his or her agent.16 There is no other provision in the Limitation Act which can aptly be applied to the process of fixing costs in litigation. Nor is there any procedural regulation that I have been referred to which would indicate that
there is an applicable limitation period.
16 John Burrows and others The Law of Contract in New Zealand (4th ed, LexisNexis, Wellington,
2012) at [21.6.2(a)].
[50] The conclusion must be that limitation arguments are irrelevant to whether or not the respondent is able to now take steps by way of a bankruptcy notice to recover payment of the costs order.
Mutuality
[51] The respondent also submitted that the claim which Mr Mawhinney allegedly was able to bring against Auckland Council does not bear sufficient mutuality to set- off against the debt that he owed. It was said that any claim made would be in his capacity as a trustee but the debt for the costs order was a debt against him personally. Because of the conclusion that I have come to on the issue of whether there is an arguable claim available to Mr Mawhinney against Auckland Council, which I have decided against Mr Mawhinney, there is no need to go on and consider the issue of mutuality of claims.
Costs
[52] I invited the parties at the conclusion of the hearing to comment on what costs orders should follow, depending upon the outcome of the current proceedings. Mr Frogley for the respondent was content that costs should be awarded on a 2B basis and that they should follow pursuant to r14.2(a) of the High Court Rules. Mr Mawhinney on the other hand considered that costs should lie where they fall irrespective of the outcome of the proceeding.
[53] In my view the position which the respondent has taken is the correct one. The applicant as the unsuccessful party ought to be required to pay costs and I order that he is to pay to the respondent costs on a 2B basis together with disbursements as
fixed by the registrar.
J.P. Doogue
Associate Judge
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