Body Corporate 169791 v Auckland City Council HC Auckland CIV-2004-404-005225
[2011] NZHC 853
•8 February 2011
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2004-404-005225
BETWEEN BODY CORPORATE 169791
First Plaintiff
ANDMAGDA FODERMAYER & ORS Second Plaintiff
ANDAUCKLAND CITY COUNCIL First Defendant (claim settled)
ANDLINES DESIGNS LIMITED Second Defendant (claim settled)
AND S MITCHELL
Third Defendant (claim discontinued)
ANDPAKENHAM GROUP LIMITED (IN LIQUIDATION) WAIMARIE MANAGEMENT LIMITED (IN LIQUIDATION) AND GLANVILLE INVESTMENTS LIMITED (IN LIQUIDATION)
Fourth Defendants
AND ONYX GROUP LIMITED
First Third Party (claim discontinued)
ANDGENERAL MANUKAU ENTERPRISES LIMITED
Second Third Party (claim struck out)
ANDALUMINIUM CITY (PENROSE) LIMITED
Third Third Party (claim discontinued)
AND M VESEY
Fourth Third Party
ANDFIRE ENGINEERING CONSULTANTS LIMITED
Fifth Third Party (claim discontinued)
AND G A THOMPSON
Sixth Third Party (claim discontinued)
BC 169791 V AUCKLAND CITY COUNCIL HC AK CIV-2004-404-005225 8 February 2011
AND RON WRIGHT & ASSOCIATES
Seventh Third Party (claim discontinued)
ANDVERO LIABILITY INSURANCE LIMITED
Eighth Third Party (claim discontinued)
Hearing: 7 February 2011
Appearances: G J Beresford and L Chapman for Plaintiffs
S Grant for Fourth Defendants
Judgment: 8 February 2011 17:00:00
JUDGMENT OF VENNING J
ON APPLICATION FOR STAY AND APPLICATION TO STRIKE
PLEADINGS
This judgment was delivered by me on 8 February 2011 at 5.00 pm, pursuant to Rule 11.5 of the High
Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Grimshaw & Co, Auckland
Claymore Law, Auckland
Copy to: S Grant, Auckland
Introduction
[1] The plaintiffs are the body corporate and unit owners of an apartment block in Auckland. It is a leaky building. The plaintiffs’ claim against the Auckland City Council and other defendants was scheduled for a fixture to begin in April this year.
[2] The plaintiffs have recently settled with the Auckland City Council and second defendant, Lines Designs Limited. The claim has either been discontinued or struck-out in relation to the other parties. The only remaining issue is the plaintiffs’ claim against the fourth defendants.
[3] The fourth defendants have been placed into liquidation. The plaintiffs have obtained leave to continue their claim against the companies in liquidation.
[4] There are two applications before the Court. One, an application by the plaintiffs to strike-out the fourth defendants’ defence for failure to pay a costs order. The other, a cross-application by the fourth defendants to stay the costs order pending an appeal against the costs judgment.
The costs judgment in issue
[5] The costs judgment followed the fourth defendants unsuccessful applications to strike-out the plaintiffs’ claim and for production of certain reports. The applications were heard before Associate Judge Robinson who, in a considered decision delivered 14 November 2007, dismissed both applications. The fourth defendants filed an application seeking to review the decisions but abandoned the application for review insofar as it related to the application for production. In a judgment delivered on 19 May 2009 Cooper J dismissed the application for review in relation to the application for strike-out. The fourth defendants then sought leave to appeal to the Court of Appeal against Cooper J’s decision. That application was dismissed on 26 October 2009. Given that Associate Judge Robinson had retired, Lang J as assigned Judge fixed costs on the applications to strike-out and for
production. The Judge accepted that category 3 applied to the proceedings but also accepted the plaintiffs’ argument that band C would not provide the plaintiffs with a reasonable contribution in relation to certain costs. He uplifted the time allowance. The effect of Lang J’s judgment of 17 August 2010 was to fix costs and disbursements in the sum of $65,429.98.
[6] One of the fourth defendants, Pakenham Group Limited (formerly Symphony
Group Limited) filed an appeal against that costs decision on 14 September 2010.
[7] As yet no date for the hearing of the appeal has been allocated. Counsel advises security for costs on the appeal was paid on 6 December 2010.
Liquidation of the fourth defendants
[8] Glanville Investments Limited was placed into voluntary liquidation on 26
July 2010, while Pakenham Group Limited and Waimarie Investments Limited were also voluntarily liquidated on 28 September 2010.
The application to strike-out
[9] The plaintiffs apply to strike-out the fourth defendants’ statement of defence to enable them to obtain judgment by way of formal proof. Rule 7.48 provides the Court with a general discretion as to the orders it may make where a party fails to comply with an interlocutory order. The Court may strike-out a party’s pleading for breach of Court orders: 7.48(2)(a). The rule can apply to failure to comply with
costs orders on interlocutory judgments: Kidd v van Heeren.1
[10] The fourth defendants oppose the application, largely in reliance on the appeal against the costs decision but also on the grounds there has been no contumelious conduct or wilful default by them. The fourth defendants also say the plaintiffs have not suffered any serious prejudice as a consequence of their failure to
pay costs.
1 Kidd v van Heeren HC Auckland CIV 2004-404-6352, 16 November 2006,.
The application for stay
[11] The application for stay refers to High Court Rule 20.10. The correct rule is r 12 of the Court of Appeal (Civil) Rules 2005. The stay is sought on the grounds that Pakenham has appealed the costs decision and its appeal rights will be rendered nugatory if the stay is not granted. Ms Grant submitted that the appeal had merit as Lang J was wrong to make an order for costs at the interlocutory stage of the proceedings and that, even if the costs order was ultimately upheld, the quantum might well be significantly reduced given that the order was made for more than costs on a 3C basis.
The issues behind the applications
[12] Both the plaintiffs and the fourth defendants have their own tactical reasons for pursuing the cross applications and in taking the steps they have taken in the proceedings to date. Although the fourth defendants are in liquidation and it appears there is no money to pay the order for costs (or for that matter any judgment that the plaintiffs may ultimately obtain in the substantive proceedings), the plaintiffs wish to obtain judgment against the fourth defendants as the first step in a possible claim against the directors of the fourth defendants.
[13] The plaintiffs want to avoid the cost of a two week defended hearing against the fourth defendants because the defendants concede they will not be able to pay any order for costs, let alone any judgment. The plaintiffs see the appeal and application for stay as a tactical attempt by the fourth defendants (or their backers) to try and avoid the consequences of the failure to pay the costs order.
[14] For their part, while the fourth defendants are in liquidation, I infer that there are interests associated with them that do not want the plaintiffs to obtain judgment against the fourth defendants. While the fourth defendants are now in liquidation, they have been in a poor financial position for some time. The evidence is that a third party, Symphony Properties Limited, has advanced considerable sums of
money to the fourth defendants by way of inter-company loans, to enable them to maintain their defence of these proceedings.
[15] Symphony retains an interest in the matter. By deed of assignment dated 28
September 2010 Pakenham agreed to assign to Symphony all Pakenham’s rights in the appeal to the Court of Appeal, including the right for Symphony to be substituted as appellant and to bring the appeal.
[16] In a related application to be dealt with by Lang J on the papers, the plaintiffs seek costs against Symphony as a non-party. Symphony’s response to that application is that while it has made a number of advances to the defendants it is now in no financial position to pay any costs. But despite the protestations by the defendants and Symphony that they have no ability to pay costs, Symphony maintains the appeal and the fourth defendants maintain counsel in these proceedings.
Decision
[17] It is apparent the applications are inter-related. It is convenient to consider the stay application first.
[18] The fourth defendants accept they do not have any funds to pay the costs order currently made. If a stay is not granted then, on the information before the Court, the plaintiffs would not be able to execute the costs judgment. The only practical sanction available to the plaintiffs for the non-payment of the costs is the striking-out of the fourth defendants’ defence.
[19] The factors to consider on a stay application are:
Whether the appeal may be rendered nugatory if a stay is not granted; The bona fides of the applicants as to the prosecution of the appeal; Whether the successful party will be injuriously affected;
Effect on third parties;
Novelty and importance of questions involved; Any public interest in the proceeding;
The overall balance of convenience: Keung & Ors v GBR Investment Limited;2 Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Limited & Anor.3
Will the appeal be rendered nugatory if a stay is not granted?
[20] Only Pakenham Group Ltd has filed an appeal. Neither Waimarie nor Glanville has joined the appeal. In Glanville’s case the liquidator’s representative has confirmed that the liquidators have decided to take no formal steps in the substantive proceedings.
[21] While if successful, the appeal may provide an opportunity for Glanville and Waimarie to apply out of time to set aside the costs order insofar as it affected them, at present they are not parties to it. Further, Pakenham has, for its own reasons, assigned its rights in relation to the appeal to Symphony for $1. In those circumstances it is difficult to accept an argument that if a stay is not granted it would disadvantage the fourth defendants. Further, they are already in liquidation. No further enforcement action can be taken against them to recover the costs. The practical outcome of the stay being declined would be to enable the plaintiffs to pursue their application to strike-out the fourth defendants’ defence, but that
application must be dealt with on its merits.
2 Keung & Ors v GBR Investment Limited [2010] NZCA 396 at [11].
3 Dymocks Franchise Systems (NSW) Pty Ltd v Bilgola Enterprises Limited & Anor (1999) 13
PRNZ 268 (HC) at [9].
[22] The appeal was brought within time but security for costs was not paid until
6 December. Under r 35 of the Court of Appeal (Civil) Rules 2005 security should have been paid within 20 working days of the appeal being filed. As noted, shortly after bringing the appeal Pakenham assigned the rights in the appeal to Symphony. No date for the appeal has been obtained as yet. Ms Grant advises that from her inquiries a half day fixture in the Court of Appeal would not be likely before July. That is, of course, after the substantive fixture in April. I am told the case on appeal is being finalised. It should however, be a straightforward matter. I have to observe that it appears the appeal has not been pursued vigorously so far.
Will the plaintiffs be injuriously affected by a stay?
[23] To the extent the stay would prevent the plaintiffs seeking to enforce the costs order by striking-out the fourth defendants’ defence then the plaintiffs would potentially be prejudiced. In the event the appeal is unsuccessful they will have been prevented from pursuing their strike-out and, if successful in the substantive proceedings would incur further irrecoverable costs associated with that hearing.
The effect on third parties
[24] Apart from Symphony, there is no effect on any third party if the stay is declined.
Novelty/importance
[25] There are no novel or important questions nor public interest issues in the proceeding.
[26] This is an appeal from a decision fixing costs on an interlocutory application to strike-out and for production of documents, both of which applications were determined against the fourth defendants. Given the presumption in r 14.8 it is difficult to see how the appeal could succeed on the ground that the Judge was wrong to have fixed costs on those applications as opposed to reserving them. The plaintiffs’ case may be more arguable as to quantum, but while the Judge departed from costs on a 3C basis by increasing the time bands he did so in the exercise of his discretion and on a principled basis. The prospects of the appeal succeeding are not high.
[27] Considering the above factors I am not satisfied that the stay sought by the fourth defendants should be granted.
[28] I turn to consider the issue of the plaintiffs’ application to strike-out the fourth defendants’ defence for failure to pay the costs order.
[29] It is a drastic step to strike-out a party’s defence. It may be seen to be even more draconian where the strike-out is based on a failure to pay an award of costs.
[30] Ms Grant submits the fourth defendants have good defences to the plaintiffs’ claim which should be heard. I accept for present purposes that the fourth defendants have credible and arguable defences to the claim. However, in an appropriate case the Court may strike-out otherwise arguable pleadings in the interests of justice and in order to ensure confidence in the judicial process.
[31] The reality of the position in this case must be considered. As noted the fourth defendants are all in liquidation. To date they have been funded by Symphony. There is now an affidavit dated 20 September 2010 from Mr Reynolds, a director of Symphony, to say that any order against Symphony will be futile as Symphony is unable to pay any costs. Despite that, and despite the funding it has provided to date, the fourth defendants seek to maintain an active role in the present application and the substantive hearing. They continue to be represented by
experienced counsel. It is apparent the fourth defendants are still funded for the litigation.
[32] The parties funding the litigation on behalf of the fourth defendants should pay the costs of previous unsuccessful steps in that litigation. Parties in the position of the fourth defendants (and their backers/funders) should not be able to have a free run at defending the proceedings while ignoring the obligation to pay costs that they have previously caused the plaintiffs to incur and which they have been directed to pay.
[33] However, in my judgment, the point has not yet been reached where the fourth defendants’ defence should be struck out. Rather than striking-out the fourth defendants defence summarily at this stage I consider the appropriate order is to make an unless order providing further time for the fourth defendants or their backers/funders to pay the costs award. In the event they choose not to do so with full knowledge of the consequences of such failure then the unless order will take effect.
Result/orders
[34] The fourth defendants’ application for stay is dismissed.
[35] Unless the fourth defendants pay the plaintiffs costs in the sum of $65,429.98 by 4.00 p.m. on 4 March 2011 the fourth defendants’ statement of defence to the plaintiffs’ claim will be struck-out with leave to the plaintiffs to prove their claim against the fourth defendant by way of formal proof.
Costs
[36] Costs on these applications on a 3B basis to the plaintiffs.
Venning J
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