Clotworthy v Clotworthy
[2023] NZHC 287
•24 February 2023
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
I TE KŌTI MATUA O AOTEAROA WHANGĀREI-TERENGA-PARĀOA ROHE
CIV-2022-488-059
[2023] NZHC 287
IN THE MATTER of the Property (Relationships) Act 1976 BETWEEN
JONATHAN ROSS CLOTWORTHY
Appellant
AND
RACHEL ALEXANDRA CLOTWORTHY
Respondent
Hearing: 2 February 2023 Counsel:
J Golightly for Appellant D E Foster for Respondent
Judgment:
24 February 2023
JUDGMENT OF BREWER J
This judgment was delivered by me on 24 February 2023 at 10 am pursuant to Rule 11.5 High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Marsden Woods Inskip Smith (Whangarei) for Appellant Thomson Wilson (Whangarei) for Respondent
CLOTWORTHY v CLOTWORTHY [2023] NZHC 287 [24 February 2023]
Introduction
[1] Mr Clotworthy appeals a costs award of $4,762.50 made against him by Judge H J Ellis in the Family Court.1
[2]The sequence of events leading to the award of costs is:
(a)Mrs Clotworthy filed an application for division of relationship property. The process server was unable to serve Mr Clotworthy.
(b)Mrs Clotworthy applied for an order for substituted service by leaving the service documents on Mr Clotworthy’s doorstep. This was, of course, a without notice application and was granted on the papers by a Registrar.
(c)The process server was unable to get access to Mr Clotworthy’s doorstep so left the documents in Mr Clotworthy’s letterbox.
(d)Mr Clotworthy found the documents and instructed his lawyers to file a Notice of Defence.
(e)In ignorance of this, Mrs Clotworthy’s lawyers filed a second application for substituted service by placing the documents in Mr Clotworthy’s letterbox. This was granted on the papers by the Registrar.
(f)Later that day, Mr Clotworthy’s lawyers filed his Notice of Defence and gave their address as Mr Clotworthy’s address for service.
(g)Judge Ellis describes what happened next:
[9] On 3 November 2021 Thomson Wilson [Mrs Clotworthy’s lawyers] sent an email to Ms Golightly [acting for Mr Clotworthy] attaching a letter from Ms Patterson [acting for Mrs Clotworthy] which included the
1 Clotworthy v Clotworthy [2022] NZFC 7189.
documents for service and asking that she acknowledge service on the form attached.
[10] On 22 November 2021 Ms Patterson’s secretary sent a further email to Ms Golightly referring to the 3 November 2021 email and asking her to complete and return the acknowledgement of service. Ms Golightly emailed later that day asking whether service had been effected on their firm. The secretary responded by saying that as a result of the second order for substituted service they needed to re-serve the documents.
[11] Ms Golightly sent a further email a while later to say they were not authorised to accept service; she reiterated that in a further email sent later that day. The email stated:
2. Secondly, as advised in earlier correspondence, we have not been authorised to accept service of your client’s application and supporting affidavits.
3. If you wish us to take instructions on the matter, please make this request and we will do so in the usual way. We would expect the date of service to be the date on which, after communicating authority (if given), we receive service of the documents.
(h)Subsequently, there was a Registrar’s review of the progress of the case. Mr Clotworthy’s lawyers were not told of it. Mrs Clotworthy’s lawyers told the Registrar there was still an issue about service and presaged an application for costs on the applications for substituted service. The Registrar referred the matter to Judge Howard-Sager.
(i)Judge Howard-Sager directed:
1. It is disappointing that service issues have not resolved, particularly given the respondent has filed a defence to the substantive application.
2. The pleadings need to be advanced.
3. Submissions only hearing on the issue of service to be allocated. 1 hour.
4. Applicant to file submissions 14 days in advance of the hearing and the respondent 7 days in advance.
5. With respect to the issue of costs, it is noted that an application is still anticipated. Ms Patterson is to ensure that any application is filed within 21 days. Any response to be filed within 14 days thereafter.
6. Both issues can be dealt with at the submissions only hearing. Counsel should therefore address both issues in their submissions.
(j)Mrs Clotworthy’s lawyers filed an on-notice interlocutory application for costs.
(k)Mr Clotworthy’s lawyers filed a notice of opposition in which they advised that there was no issue with service having been effected. Therefore, the issue remaining was whether costs should be awarded.
(l)The hearing was allocated first as a backup fixture, but it was not reached. It was eventually argued on 11 June 2022.
Judge Ellis’s decision
[3]The hearing was conducted by Judge Ellis who delivered a reserved decision.
[4] First, the Judge ruled that she had jurisdiction to award costs on the applications for substituted service because, although made “in the pre-trial period”,2 they are interlocutory applications.
[5] As to whether the Judge’s discretion to award costs should be exercised, her Honour’s position is summarised by her:
[31] Accordingly, I find that costs on both applications are warranted. Mr Clotworthy could have taken steps to be served, he knew as early as 22 June that his wife wanted to serve documents on him. His actions, to decline authority to his lawyers to accept service knowing that he would be away from the house making personal service nigh on impossible warranted the applications.
[6] The Judge decided also that an uplift of 25 per cent on scale costs was available:
[41] In short yes. I find rr 14.6(3)(b)(ii) and (iii) and (d) apply. Mr Clotworthy pursued an argument without merit, namely by stating that the firm of MWIS did not have instructions to accept service when the notice of defence provided their address as the address for service. It simply did not make sense for the firm to then refuse to accept the documents given the
2 At [15].
defence was to the very documents that Thomson Wilson wished to serve. The issue should have been simply and promptly dealt with. MWIS ought to have accepted the documents sent by email. Further, to then suggest that Mr Clotworthy be served via his mailbox as per the second order was unreasonable, not only because it was completely unnecessary, but because it would entail further cost, hassle and delay.
[7] As to quantum of scale costs, the Judge simply accepted Ms Patterson’s calculations.
Discussion
[8] A Judge has a broad discretion whether to award costs. Of course, the discretion has to be exercised in a principled way and in conformity with the applicable rules. An appeal against the exercise of such a discretion cannot succeed unless it can be shown that the Judge acted on a wrong principle, failed to take account of relevant considerations, factored in the irrelevant or was plainly wrong.3
Statutory Framework
[9] Section 40 of the Property (Relationships) Act 1975 allows the Court to make “such order as to costs as it thinks fit”. However, as is apparent from a number of judgments of this Court and the Court of Appeal discussed in Campbell v Campbell- Goldie, costs decisions in relationship property cases are to be treated in the same way as costs decisions in ordinary civil proceedings.4 This discretion is guided by r 207 of the Family Court Rules 2002, which provides:
207 Costs at discretion of court
(1)The court has discretion to determine the costs of—
(a)any proceeding:
(b)any step in a proceeding:
(c)any matter incidental to a proceeding.
(2)In exercising that discretion, the court may apply any or all of the following DCRs [District Court Rules 2014], so far as applicable and with all necessary modifications:
3 Harrington v Wilding [2019] NZCA 605 at [49], citing May v May (1982) 1 NZFLR 165 (CA); and Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109; [2013] 1 NZLR 305.
4 Campbell v Campbell-Goldie [2019] NZHC 1573 at [32]–[47].
(a)14.2—principles applying to determination of costs:
(b)14.3—categorisation of proceedings:
(c)14.4—appropriate daily recovery rates:
(d)14.5—determination of reasonable time:
(e)14.6—increased costs and indemnity costs:
(f)14.7—refusal of, or reduction in, costs:
(g)14.8—costs in interlocutory applications:
…
(3)This rule is subject to the provisions of the family law Act under which the proceedings are brought.
[10]Rule 14.8 of the District Court Rules 2014 provides:
14.8 Costs in interlocutory applications
(1)Costs on an opposed interlocutory application, unless there are special reasons to the contrary,—
(a)must be fixed in accordance with these rules when the application is determined; and
(b)become payable when they are fixed.
Jurisdiction
[11] I accept that the Judge had jurisdiction to make a costs order in relation to the applications for substituted service. They are interlocutory applications.5 Under r 14.8, the default position on opposed interlocutory applications is that costs are awarded following the event and not the conclusion of the proceedings.6 The rule in r 14.8 is further reinforced by the general principle in r 14.2(a) “the party who fails with respect to a proceeding or an interlocutory application should pay costs to the party who succeeds”. I consider the principle contained with r 14.2(a) and the Courts’
5 See Family Court Rules [FCRs], rr 8 and 126. FCRs r 126 states that an application for substituted service is by way of interlocutory application. It should be noted that r 4 of the District Court Rules [DCRs] provide a different definition of “interlocutory application”, which an application for substituted service would not meet. The inconsistent definitions are rendered moot by r 207 of the FCRs as it allows for “necessary modifications” to any DCRs rules and does not adopt the definitions found within r 4 of the DCRs.
6 The wording of r 14.8 of the DCRs and r 14.8 of High Court Rules 2016 is identical. In fact, several rules are identical. For this reason, I will rely upon relevant cases on the application and interpretation of the High Court Rules in interpreting the DCRs.
underlying discretion mean there is jurisdiction to determine costs after interlocutory applications, even if they are unopposed.7 In most circumstances, costs for interlocutory applications will become fixed and payable immediately following the event.
Awarding costs at the interlocutory stage
[12] However, these are not ‘most circumstances’. That is because the interlocutory applications in question were without notice and unopposed. Usually, costs for ex parte or unopposed interlocutory applications would be reserved and decided at the conclusion of the proceedings.8
[13] The rationale for r 14.8, that costs should follow opposed interlocutory applications, can be distilled to three considerations. First, the rule reflects the fact that the merits of particular applications and those of the substantive proceeding are different matters.9 Second, costs are best assessed contemporaneously by the judge who heard the application.10 Third, imposing costs on interlocutory applications immediately disincentivises parties from making frivolous or unnecessary applications.11
[14] These considerations are less relevant, or not applicable, for unopposed interlocutory applications. Applications for substituted service, for example, are solely for the benefit of the applicant and are procedural. They have nothing to do with the case itself.
7 Although r 14.8 does not apply, this Court has recognised that costs are available for ex parte or unopposed interlocutory applications. Laura O’Gorman (ed) Sim’s Court Practice (online ed, LexisNexis) at [HCR14.8.3], citing Hoole v Darby HC Auckland CIV-2006-404-5235, 30 March 2007 at [20]; Crawford v Ryland (1900) 18 NZLR 714 (SC); and Sharma v Wati HC Auckland CIV-2006-404-2976, 14 October 2008.
8 Hoole v Darby, above n 7, at [20].
9 Robert Osborne (ed) McGechan on Procedure (online ed, Thomson Reuters) at [HR14.8.04], citing Chapman v Badon Ltd [2010] NZCA 613, (2010) 20 PRNZ 83 at [12].
10 Osborne, above n 9, at [HR14.8.04], citing Self-Realization Meditation and Healing Centre Charitable Trust (New Zealand) v IAG New Zealand Ltd [2018] NZHC 2612 at [23].
11 O’Gorman, above n 7, at [HCR14.8.3]; and David Bullock and Tim Mullins The Law of Costs in New Zealand (LexisNexis, Wellington, 2022) at [2.51], citing Craig v Social Media Consultants Ltd [2017] NZHC 1613 at [13].
[15] On the face of the decision, Judge Ellis did not take into account this distinction.12 The appropriate course would have been to reserve costs until the final determination. The Judge erred in awarding costs at this stage.
Costs for Substituted Service
[16] The fundamental principle of costs is the “party who fails … should pay costs to the party who succeeds”, or in other words “the loser, and only the loser, pays”.13 Costs for an application for substituted service conflicts with this principle. Given the nature of a without notice unopposed interlocutory application for substituted service it is hard conceptualise a ‘winner’ and ‘loser’ as there is effectively no contest. And, as I have said, there is no link to the case itself.
[17] It is important to facilitate service so that proceedings can continue. However, there is an obvious degree of unfairness in imposing costs for an interlocutory application when a defendant may be unaware there is an issue with service, or even unaware of the existence of the proceeding.
[18] While not strictly analogous, but still relevant, the Courts have repeatedly refused to award costs for pre-proceedings conduct.14 Substituted service occurs after the proceedings are extant so it cannot be regarded as pre-proceedings conduct. However, substituted service occurs so early in the proceedings that it does engage some of the same considerations.
Avoidance of Service
[19] There is no obligation on the part of a proposed defendant to facilitate the service on him or her of the documents commencing a proceeding. To the extent the
12 Clotworthy v Clotworthy, above n 1, at [18], citing to Manukau Golf Club Inc v Shoye Venture Ltd, above n 3. The Supreme Court were concerned with an opposed interlocutory application and its appeal.
13 Shirley v Wairarapa District Health Board [2006] NZSC 63, [2006] 3 NZLR 523 at [19].
14 Braeburn Dairies Ltd v McGregor & White Electrical Ltd HC Dunedin CIV-2009-412-668, 16 December 2011 at [14]; Paper Reclaim Ltd v Aotearoa International Ltd [2006] 3 NZLR 188 (CA) at [160], decision upheld [2007] NZSC 26, [2007] 3 NZLR 169 at [40]–[41]; Thames- Coromandel District Council v Coromandel Heritage Protection Society Inc [2009] NZCA 204, (2009) 19 PRNZ 365 at [10].
Judge made her decision on the basis that Mr Clotworthy should have made service on him more convenient, that was an error.
[20] I do not hold that a defendant’s avoidance of service cannot be a ground for awarding costs prior to the determination of the proceeding. A vexatious or deliberate campaign to frustrate service might give grounds for the award of costs. Here, there were allegations Mr Clotworthy was actively avoiding service. But he denied that he did so in an affidavit filed in support of his opposition to costs being awarded, and gave explanations for the matters alleged. He was not cross-examined. To the extent the Judge did not accept Mr Clotworthy’s affidavit, she was in error. Costs should have been left to the end of the proceeding.
Appropriate recovery rates
[21] Judge Ellis awarded costs, before uplift, in favour of Mrs Clotworthy in the amount of $3,810.15 This figure reflects costs awarded on a category 1A basis for the following steps:
(a)Step 9.10 (preparing and filing interlocutory application (excluding summary judgment application) and supporting affidavits) for substituted service dated 24 September 2021;16
(b)Step 9.10 for substituted service dated 8 October 2021;
(c)Step 9.12 (preparing written submissions) for costs hearing on 25 February 2022;17
(d)Step 9.12 for costs hearing on 10 June 2022;
(e)Step 12 (preparation for a short trial);18 and
15 DCRs, schs 4 and 5. The calculation is: three days multiplied by the daily recover rate of $1,270 for a final figure of $3,810.
16 DCRs, sch 4. Step 9.10 amounts to 0.25 days.
17 DCRs, sch 4. Step 9.12 amounts to 0.5 days.
18 DCRs, sch 4. Step 12 amounts to 0.5 days.
(f)Step 13 (appearance at hearing of short trial).19
[22] Counsel disagree as to what were the appropriate steps. Ms Golightly submits the only step appropriate is a single step under 9.10, to reflect a single application for substituted service. In summary:
(a)Step 9.10 for substituted service dated 8 October 2021, should be treated as a variation of the earlier application;
(b)Step 9.12 is duplicated as the same written submissions could be used for the later fixture; and
(c)Steps 12 and 13 were incorrectly applied as a costs hearing should not be categorised as a “short trial”. The appropriate steps would have been steps 9.12 and 9.14.
[23] Ms Patterson disagrees and submits Judge Ellis was correct in accepting her schedule.
[24] In my view this dispute over costs should never have occurred. There was significant misunderstanding and error on the part of both lawyers involved. The point is that the issue of service was resolved as soon as Mr Clotworthy’s counsel filed his Notice of Defence, giving their firm’s address as his address for service.
[25] Ms Patterson did not need to take any further steps regarding service. Ms Golightly should not have engaged in the correspondence she did quibbling about service. Ms Patterson should not have told the Registrar there were still issues as to service. Judge Howard-Sager should have treated the filing of the Notice of Defence as resolving any issue of service and simply proceeded with standard case management.
[26] Ms Patterson filed an application for costs, and that had to be dealt with. But it seems all sense of proportion was lost.
19 DCRs, sch 4. Step 13 amounts to 1 days.
[27] In my view, if costs were to be awarded, they would be confined to step 9.10 for each application for substituted service.
[28] Costs have to be reasonable. Judge Ellis did not address why it was reasonable to order Mr Clotworthy to pay $4,762.50 for two simple, on the papers, applications for substituted service of which he was unaware. Particularly since he had accepted informal service (the papers he found in his letterbox) and instructed his lawyers to file a Notice of Defence.
[29] The major part of the costs award penalised Mr Clotworthy for opposing the application that he pay costs. Generally, costs are not awarded on costs.20
Increased costs
[30] As to increased costs, as I have said, there was error on the part of both Ms Patterson and Ms Golightly. The filing by Mr Clotworthy’s lawyers, on his instructions, of his Notice of Defence meant that he accepted service had taken place and he gave an address for service. Ms Patterson nevertheless served the documents at the address for service. That should have been the end of the matter. Ms Golightly’s correspondence was in error because service had been made. But there was no need for Ms Patterson to advise the Registrar that there were still issues with service and for Judge Howard-Sager to schedule a hearing. This was not the basis for an award of increased costs.
[31] Further, Judge Ellis erred in her application of the increased costs principles. The Judge specifically relied upon rr 14.6(3)(b)(ii) and (iii) and (d), which provide:
… the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in the proceeding by—
…
20 While the Courts do have jurisdiction to award costs on costs it should be rarely exercised. See for example Jeffreys v Morgenstern [2013] NZHC 1361 at [40]; Barry Park Investments Ltd v Body Corporate Number 95388 [2016] NZHC 1527 at [25]; Epsom Woods Ltd v Waitakere Farms Ltd [2020] NZHC 3137 at [4]; Norrie v Crown Range Holdings Ltd [2022] NZHC 898 at [28]; DGL Manufacturing Ltd v Simmonds [2022] NZHC 1434 at [18]; and Legler v Formannoij [2022] NZHC 1804 at [12].
(ii)taking or pursuing an unnecessary step or an argument that lacks merit; or
(iii)failing, without reasonable justification, to admit facts, evidence, or documents or accept a legal argument; or
…
(d) some other reason exists that justifies the court making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.
[32] The impugned conduct, Ms Golightly’s reply that she did not have instructions to receive service, did not occur within the proceeding or step. This was not an argument put before the Court and therefore should not have been considered for the purposes of increased costs.
Decision
[33] In my view, the Judge, overall, erred in the exercise of her discretion. The appeal is allowed. The order for costs is quashed. I direct that the issue of costs on the applications for substituted service is reserved for consideration at the conclusion of the proceeding.
[34] In my view, the issue of service of the proceeding should never have been before the Family Court. I have already said why. I have also pointed to error by both counsel. My preliminary view is that costs on the appeal should lie where they fall. If counsel wish to argue the point then submissions from the appellant are to be filed by 24 March 2023 and from the respondent by 14 April 2023.
Brewer J
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