BAM v GJM

[2013] NZHC 304

NOTE: ANY REPORT OF THIS PROCEEDING MUST COMPLY WITH SS

11B TO 11D OF THE FAMILY COURTS ACT 1980. FOR FURTHER INFORMATION PLEASE SEE COURT/ABOUT/MEDIA/GUIDELINES#FC9.

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-005766 [2013] NZHC 304

IN THE MATTER OF     an appeal under s 39(1)(b) of the

Property (Relationships) Act 1976

BETWEEN  BAM Appellant

ANDGJM Respondent

Hearing:         14 February 2013

Counsel:         R C Knight for the Appellant

B M Ward for the Respondent

Judgment:      25 February 2013

JUDGMENT OF DUFFY J

This judgment was delivered by Justice Duffy on 25 February 2013 at 3.00 pm, pursuant to

r 11.5 of the High Court Rules

Registrar/Deputy Registrar
Date:

Counsel:     R C Knight P O Box 2946 Shortland Street Auckland 1140 for the Appellant

Solicitors:    Gellert Ivanson Limited P O Box 302085 North Harbour North Shore City 0751 (DX CP35513) for the Respondent

Copy To:     Sean  Kelly  Lawyers  (S  P  Kelly)  Unit  G11  Zone  23  23  Edwin  Street

Mount Eden Auckland 1024 (DX CX10337)

BAM v GJM HC AK CIV-2012-404-005766 [25 February 2013]

[1]      This is an appeal against a decision of the Family Court declining to make an order for security for costs ordering the respondent to provide a charge to the value of $20,000 over her property at Takapuna. The appeal is opposed.

[2]      The appellant contends that the Family Court Judge failed to apply the settled principles for the making of such an order.   On the other hand, the respondent contends that the relevant legal principles were applied and that in terms of those principles, the threshold test for making such an order was not crossed.

[3]      The hearing in the Family Court has been set down for three days and is to occur in April of this year.

Family Court decision

[4]      The Judge commenced his decision by referring to the relevant rule, which is r 4.20.1(b) of the District Courts Rules 2009.  The relevant words of the rules are that “there is reason to believe that a plaintiff will be unable to pay the costs of the defendant if the plaintiff is unsuccessful in the plaintiff’s proceeding”.

[5]      The Judge said that the rule was designed to protect the defendants or respondents who are put to expense by “impecunious plaintiffs, particularly where the claim seems insubstantial” (at [3]).

[6]      The Judge then referred to the commentary in the relevant rule, which stated that:

The threshold test now seems to be that the defendant must adduce some evidence of impecuniosity and/or other reasons to support belief that the plaintiff will be unable to pay costs.

[7]      The   Judge   referred   to   earlier   descriptions   of   the   threshold   test   as “amorphous” and to authority relied upon by the appellant’s counsel (see Hamilton v Papakura District Council (1997) 11 PRNZ 333 at 335 per Hammond J.), where it was said that the rule:

Necessarily raises a threshold test; but I respectively agree with those authorities which hold that what is required is a broad overall assessment

under  that  head.    Further,  in  my  view,  that  exercise  is  not  one  to  be conducted in a vacuum: the Court has to have regard to the real situation of the parties, the nature of the proceeding and to cast a realistic eye over the course which the proceeding has, and will likely take.

[8]      The Judge then stated that the decision whether to order security being discretionary.  He noted the appellant’s submission that the respondent had put the matter in issue in the way in which she described her means in paragraph 8 of her affidavit of 25 July 2011 when she said:

I’m not in a very secure financial position because of my precarious work situation.  I own my own house which is currently worth around $345,000 but I have a $234,000 mortgage so I have only about $500 in the bank and my flatmate pays me $150 a week to make ends meet.  I own a 20 year old Toyota Corolla worth only about $1000 to $1500.

[9]      In  a  later  affidavit  relating  to  the  application  for  security  for  costs,  the respondent said:

Well, I’m clearly not a wealthy person.   I have  a full-time job earning

$50,000 per annum and the equity in my home is upward of $100,000.  I also have no one other than myself to financially look after …

[10]     The Judge noted counsel for the appellant’s submission that there was no corroboration of the value of the respondent’s home, nor the amount of the mortgage. However, the Judge went on to find that he saw no basis to disbelieve the evidence. He  later  relied  on  this  evidence  to  reach  the  view  the  respondent  was  not impecunious in terms of the rule.

[11]     The  Judge  then  discussed  the  substantive  application,  which  asserted  a de facto relationship between parties who had  previously been married  but then divorced.  He observed that the evidence showed that some witnesses shared a view that there was such a relationship, whereas others took an opposing view.  Thus, he recognised that the dispute between the parties was essentially factual and that the outcome would turn on the Court’s assessment of the evidence.

[12]     The Judge noted the quantum of the security sought and the manner of the security, that being in the form of an order that the respondent execute a charge for that sum against the title of her house.  The Judge rejected the appellant’s argument

that such an outcome was neutral and went on to observe that ordering security for costs is not the norm in the Family Court.

[13]     The Judge did, however, acknowledge that if unsuccessful, the respondent might well have to sell her house to pay costs and that she was aware of that prospect.  The Judge referred to the invitation from counsel for the appellant that the Judge should regard the evidence of the deponents for the appellant as being more weighty and being less hearsay evidence than the witnesses for the respondent.  The Judge went on to state that his impression was that the two groups of deponents (apart from the respondent) were obliged to give evidence about what they knew or occasionally have heard that will cast some light on the ultimate issue.  That issue was  whether  the  respondent  and  the  deceased  (whose  estate  the  appellant administers) were in a de facto relationship at the material time.  If they were, the respondent has rights under the Property (Relationships) Act 1976.  If they were not, her claim for such rights would inevitably fail.  The Judge opined that this was not a case where he regarded  one side or the other as being clearly likely to be the successful party.  In that regard, he distinguished the present case from that before the Court in Hamilton v Papakura District Council, observing: “This situation here is much more uncertain than appeared to be the case for example in Hamilton v Papakura District Council” (see [15]).  This seems to me to be a sound assessment of the proceeding, as its outcome hinges on the factual determination of whether there was a de facto relationship.  Until the evidence of the deponents is tested by cross-examination, it is difficult for a judge to assess which version of events will prevail.

[14]     The Judge then found that he was not satisfied in the context of the case that it would be a balanced exercise of a discretion to order the applicant to provide security for costs.  He went on to say (at [17]):

I am not suggesting she has a strong case nor am I suggesting that the respondent has a strong case.   I am simply responding to the size of this litigation, the likely size of costs and although she is not wealthy (I think she is right about that) nonetheless I do not find her as being “impecunious” in the context of the rule.

That said, he dismissed the application for security for costs.  Having found against the appellant, the Judge awarded costs to the respondent.

Grounds of appeal

[15]     The appellant relies on three grounds of appeal:

(a)      She asserts that the Judge erred in law in his approach to the issue of security for costs by holding that it was a discretionary matter and by not acknowledging that the threshold issue (being whether there is reason to believe that a plaintiff will be unable to pay the costs of the defendant, if unsuccessful) is a matter of evidence;

(b)The Judge did not consider the threshold test as a preliminary matter before going on to consider whether, in the exercise of his discretion, an order for security for costs should be made;

(c)      The Judge erred in finding that the appellant  failed to satisfy the threshold test; and

(d)The costs order made by the Judge was unjustified and did not take into account the fact that the appellant had some measure of success at the hearing and at the judicial conference.

[16]     The essence of the appellant’s argument is that the Judge wrongly conflated the exercise of discretion as to whether or not to award costs with the threshold issue of whether there was reason to believe that the respondent would be unable to pay the costs of the appellant if unsuccessful.  The appellant relied on a decision of this Court in Whisper Cove Limited v Terraco International Limited HC Auckland CIV

2007-404-3069, 23 October 2007 in which Venning J, in relation to an appeal against a dismissed application for security for costs, said that whether the threshold test in the relevant rule was made out was a factual finding that did not involve the exercise of any discretion.  Venning J made this finding for the purpose of determining the

applicable  appellate  principles  to  be  applied:  see  Austin,  Nichols  &  Co  Inc  v

Stichting Lodestar [2007] NZSC 103; [2008] 2 NZLR 141 at [16]:

Those exercising general rights of appeal are entitled to judgment in accordance with the opinion of the appellate court, even where that opinion is an assessment of fact and degree and entails a value judgment. If the appellate court’s opinion is different from the conclusion of the tribunal appealed from, then the decision under appeal is wrong in the only sense that matters, even if it was a conclusion on which minds might reasonably differ. In such circumstances it is an error for the High Court to defer to the lower Court’s assessment of the acceptability and weight to be accorded to the evidence, rather than forming its own opinion.

[17]     An appeal against a factual finding is to be determined in accordance with the principles of Austin, Nichols & Co Inc v Stichting Lodestar [2008] 2 NZLR 141 at

147, rather than the principles in May v May (1982) 1 NZFLR 165, which apply to appeals against a discretionary finding.

[18]     Whisper  Cove  makes  it  clear  that  in  dealing  with  an  appeal  against  a dismissal of an application for security for costs, the appellate court applies an Austin Nichols approach when considering the threshold issue of “impecuniosity”, and then applies an approach consistent with May v May when it comes to evaluating the discretionary aspect of the decision on appeal.

[19]     The appellant then submits that as the issue of impecuniosity is a factual finding, the appellant is entitled to judgment in accordance with the appeal court’s opinion. The appellant submits that as the Judge did not find that the respondent was impecunious, the threshold test had not been satisfied.  Therefore, there was no need for the Judge to proceed with exercising any discretion in relation to whether or not an order for security for costs should be made.

[20]     I accept the appellant’s submission that it is for me to reach my own view on the question of whether the respondent is unable to meet a costs order if unsuccessful in her claim against the appellant.   This necessarily involves determining if the decision of the Judge in the Family Court was right or wrong.  I also concur with the approach taken by Venning J in Whisper Cover when it comes to the application of the relevant appellate principles.

[21]     The  appellant  has  identified  the  following  alleged  errors  in  the  Judge’s approach.   First, an error regarding the threshold test.   The appellant submits that after misstating the law, the Judge then failed to determine as a preliminary step the threshold question of whether there was reason to believe that the respondent would be unable to pay costs if unsuccessful.  It is submitted that the Judge failed to review and evaluate the evidence as to the respondent’s financial situation, what a likely award of costs would be for the proceeding, and whether, on this evidence, there was reason to believe that the respondent would be unable to pay such costs in the event that her claim was unsuccessful.

[22]     It was also submitted that the Judge had made an error in finding that the respondent was not impecunious.  Here, it was submitted that the Judge erred when he found that the respondent was not impecunious in the context of the rule.

[23]     The appellant submits that, given there is more than enough reason to believe that the respondent will be unable to pay costs if ordered to do so, the evidence of financial difficulty highlighted by the respondent in her affidavit evidence, the inferences to be drawn from the lack of detail provided by the respondent in relation to her financial situation, and the equity available in her home.  The appellant argues that it is the respondent herself who has put the question of her financial position in issue in the passages of her affidavit that I have already cited.  The appellant argues that the details of the respondent’s financial status are solely within her knowledge and that it was incumbent upon her to provide some evidence to the Court in her opposition to the application for security for costs to dispel the earlier financial concerns that she had previously put in issue in her own affidavit evidence.   It is submitted that she has not done so.  She was also criticised for failing to provide any documentary first-hand evidence to support her assertions both as to the value of her home and to the amount of her mortgage.

[24]     Regarding the respondent’s reliance on the sale of her home to cover an award of costs, the appellant argues that the present circumstances are analogous to those in Hamilton v Papakura District Council where the plaintiffs deposed that they owned two properties worth $750,000 and upon which they owed $300,000; they

acknowledged that their business was running at a profit, but it faced difficulties.  No current accounts were produced in evidence. At p 337, Hammond J found:

When viewed in the broad way in which the Court must approach these questions, I think the reality is that the plaintiffs are struggling to finance this litigation.  Clearly priority will be given to advancing their cause; and, at the end of an expensive trial the plaintiffs may well be unable to pay costs; and at least without a realisation of the equity in their operation.  I appreciate the authorities are clear enough that it is not current liquidity which is the test; but I think there is sufficient cause for concern that the broad threshold test is met.

[25]     Here, the appellant argues that based upon the available evidence, there is sufficient reason to believe that the respondent, if unsuccessful, would be unable to meet an order for costs. Thus, the appellant argues the Judge erred in finding that the respondent was not impecunious.

[26]     The appellant argues that as he has established that the Judge made a factual error regarding the respondent’s ability to pay costs, it is, therefore, appropriate for this Court to apply the second part of the test, namely factors relevant to ascertaining if this is a proper case for the exercise of the discretion in favour of security.

[27]     The appellant then addresses a number of discretionary factors, including the merits of the claim; the conduct of the parties; whether ordering security for costs prohibit the respondent from pursuing her claim; and the question of whether the appellant is using the application oppressively against the respondent.   In essence, the appellant argues that the discretionary factors it has identified favour an award of security for costs in the form that is sought.  The sum of $20,000 is sought, as it is submitted  that that  equates  to  costs  likely to  be awarded  on  a 2B basis  in  the Family Court for a three day hearing.

Analysis

[28]     I have carefully considered the appellant’s submissions.   I accept that the judgment of the Family Court is not elegantly presented; the judgment gives the impression that the Judge has found that it would not be a balanced exercise of the discretion to order security for costs ahead of deciding that the respondent is not impecunious.  Thus, he appears to have completed the final stages of the two-part

test first.   But I am not convinced that the reasoning as outlined in the judgment necessarily reveals the Judge’s pattern of analysis.

[29]     The judgment was an oral judgment and delivered at the same time as a judgment on an application to file further affidavits.   I consider that some regard needs to be paid to the context in which the judgment was delivered.  It may well be that the Judge reasoned in accordance with the right sequence, but failed to express this.

[30]     The Judge has set out the appropriate tests in the judgment in a manner that suggests to me he clearly understood the sequential nature of the test and how to apply it. At [5], he described the question of whether a plaintiff will be unable to pay the costs of the defendant if the plaintiff is unsuccessful in the plaintiff’s proceeding as being an “amorphous” threshold test.  Thus, he clearly understood that there was a threshold test involving an assessment of the ability to pay costs.

[31]     The Judge assessed the financial evidence of the respondent and accepted it. The reason he accepted the evidence was because he saw no basis to disbelieve it.  In this  regard,  the  appellant  accepted  before  me  that  it  had  filed  no  evidence  to contradict  the  evidence  of  the  respondent.    The  Judge’s  decision  to  accept  the hearsay evidence of the respondent on her financial circumstances was a decision open to him under Part 2 of the Evidence Act 2006.

[32]     The appellant sought to argue that the evidence from the respondent which stated “I am not in a very secure financial position because of my precarious work situation” showed that she could not pay an award of costs.   However, the Judge appears to have put this subjective evaluation of those circumstances to one side and to have focused instead on the respondent’s account of the worth of her financial position.  The Judge also had the benefit of the respondent’s second affidavit, which specifically addressed her financial position in  relation to  the security for costs application.  Such evidence showed her to have a full-time job earning $50,000; with an equity in her home of upward of $100,000; and she was financially responsible for no one, other than herself.  The Judge’s references to this evidence show that he

had it in his mind when he considered that the respondent was someone who would be able to pay costs.

[33]     The Judge noted the appellant’s argument that there was no corroboration of the respondent’s financial evidence.  Such corroboration is not required.  It was open to the Judge to find that as he had no basis to disbelieve the evidence, he would therefore rely on it. The respondent’s account of the financial worth of her home and the  amount  of  her  mortgage  and  her  salary  is  second-hand.    Nonetheless,  the Evidence Act permits such evidence in civil proceedings.

[34]     Having said that he would not exercise the discretion to order security for costs, the Judge went on to say that, in his view, the size of the litigation and the likely size  of  the  cost  meant  that  he  did  not  find  the  respondent  impecunious. Clearly, here the Judge is saying that on the evidence before him, he was satisfied that the appellant had not established the respondent was someone who would be unable to pay an award of costs, should costs be awarded against her.  Whilst the Judge has mixed up the order in which he has set out his reasoning, this factual finding is enough to show the appellant could not meet the threshold test.   The question is do I agree with the Judge’s view, or do I take a different view?

[35]     I have looked at the evidence that was before the Judge.  I consider that it was open to him to rely on the respondent’s evidence and, having relied on it, I consider it was open to him to find that the equity she had in her home was sufficient to negate a finding that she would be unable to pay an award of costs should she be unsuccessful in the proceeding.  I would have come to the same view.  As it turns out, because I have had the benefit of fresh evidence to confirm the respondent’s financial circumstances, I am better placed than the Judge was to reach a view on the respondent’s ability to pay costs.

[36]     There was no dispute between the parties that this threshold issue must be crossed before any consideration is given to exercising the discretion as to whether or not to make an order for security for costs.   Since, in substance, the Judge has found that the threshold was not crossed, and I find his decision not to be in error in

that respect, there is no ground for proceeding to consider the exercise of the discretion.

[37]   However, I will now proceed to deal with additional evidence that the respondent filed in the appeal to bolster her claim that she was not someone who was unable to pay costs should they be awarded against her.  The manner in which this fresh evidence came before the Court was most unsatisfactory.  It was tendered by the respondent at the time when the respondent’s counsel began her submissions in the appeal.   Although the appellant’s counsel had been alerted to the information shortly before the hearing (some one or two days before), the respondent did not draw it to the Court’s attention until the respondent’s submissions were commenced. Consequently,  the  appellant  addressed  the  material  in  reply.     The  appellant responsibly did not strongly oppose the introduction of the material, but left it to the Court to determine whether it should be admitted.  Because the new fresh evidence was cogent and material, I decided to accept it.  It confirms the evidence on which the Judge relied.

[38]     The fresh evidence is in the form of a copy of the certificate of title for the respondent’s property; an appraisal by Harcourts' real estate agents of the value of the respondent’s home; and bank statements showing the amount of the mortgage. The effect of the fresh evidence is that it shows the appellant is the owner of a property at Takapuna in which there is a single mortgage to the ANZ Bank.   The mortgage secures two ANZ Bank loans: one for the sum of $118,600.87; and another for the sum of $118,378.26, making a total of $236,979.13.   This independent evidence bolsters the respondent’s case for asserting that she has funds available to her to pay an award of costs.  There are monthly payments totalling approximately

$330.   The real estate agent’s appraisal puts the value of the property at between

$376,000 and $390,000.

[39]     Like the Judge, I consider that this case is quite different from Hamilton v Papakura District Council.   That case involved novel questions of law, complex facts and the estimated hearing time was three weeks.  This present case is a three day hearing involving disputed facts as to whether or not there was a de facto relationship at the material time. There are no complex legal issues.  It is not a novel

case; indeed, determinations on the existence or otherwise of such relationships are a regular part of the Family Court’s work.

[40]     The estimated costs of $20,000 at category 2B of the relevant rules is not an amount that someone with the respondent’s net worth should have much difficulty finding.  Her mortgage costs are not extensive, given her salary of $50,000.  If she cannot find a way to pay such costs through increasing her loan from the bank, there is the possibility of selling her home.  In all the circumstances, I do not find that she is unable to pay an award of costs that might be made against her.

[41]     At the conclusion of the hearing, I heard the parties on costs.   Ordinarily, costs follow the event.  However, there is discretion to depart from this rule.

[42]     The respondent’s success was made inevitable by the fresh evidence.  This evidence should have been filed in the Family Court.  Whilst an adjustment to the sums in issue would qualify as updating evidence for an appellate court, the ability to obtain a real estate agent’s market appraisal of the value of the property and statements from the bank showing the level of the mortgage debt was there from the outset.  Had the appellant had the benefit of seeing the fresh evidence earlier, he may not have brought the appeal.

[43]     The respondent participated in a case management conference in this Court and gave no indication she sought to adduce fresh evidence.  Ordinarily, this requires an application to be made under r 20.16(2) of the High Court Rules.

[44]     The respondent argues that she should nonetheless receive some award of costs, even if at a discounted rate from the scale.  I accept that here, the respondent would have been successful even without the fresh evidence.   However, had the better quality evidence been available sooner, the appeal may have not been brought. The respondent would  ordinarily have been entitled to costs at category 2B.   I consider that an award of category 1A is appropriate, given her poor compliance with  this  Court’s  procedural  rules  and  the  impact  this  may  have  had  on  the appellant’s determination to pursue the appeal.

Result

[45]     The appeal is dismissed.

[46]     The respondent is awarded costs on the appeal at category 1A.

Duffy J