Commissioner of Inland Revenue v Hayes

[2013] NZHC 3493

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-419-275 [2013] NZHC 3493

BETWEEN

COMMISSIONER OF INLAND

REVENUE Plaintiff

AND

NICHOLAS JOHN HAYES liquidator of
Hamilton

Defendant

Hearing:

24 October 2013

(on papers last submission)

Appearances:

Mr N Malarao / Mr D M Robinson for the Plaintiff
Mr M Hunwick for the Defendant

Judgment:

19 December 2013

JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE

This judgment was delivered by me on

19.12.13 at 4 p.m., pursuant to

Rule 11.5  of the High Court Rules.

Registrar/Deputy Registrar

Date……………

COMMISSIONER OF INLAND REVENUE v HAYES liquidator of Hamilton [2013] NZHC 3493 [19

December 2013]

[1]        In the judgment issued in this proceeding on 20 August 2013, an order was made pursuant to s 301 of the Companies Act 1993 for judgment in the sum of

$87,890.16.   The claim on which judgment was based was to the effect that the liquidator/defendant had distributed funds held by him in circumstances where the interest of the plaintiff as a preferred creditor was not protected.

[2]        The  plaintiff  now  seeks  costs.    Three  issues  arise  in  regard  to  that application:

(a)     Ought the Court to order reduced costs in accordance with High Court

Rules 14.13?

(b)     Is  a  claim  for  3.6  days  preparation  excessive  so  that  instead preparation based on two days would be more fair and reasonable?

(c)     Are the disbursements charged by the process server other than fair and reasonable?

Rule 14.13

[3]        Counsel for the defendant, Mr David Hayes asserts that the Commissioner brought the application in the High Court rather than the District Court for “strategic reasons”.   Those reasons are said to have been to get round the difficulty that summary judgment was not available in the District Court until all of the processes of serving information capsules and the like which were then a feature of the District Court procedure had been completed.  Mr Hayes said that the plaintiff’s proceedings are:

Littered with references to obtaining swift judgment which belies the motivation of using the High Court, avoiding the District Courts slower documentary processes.

[4]    As a result the plaintiff is said to have “clogged up the High Court as a strategic step” rather than proceeding in the District Court   For those reasons the

submission was made that the Commissioner should receive only costs that she would have obtained had the proceeding been brought in the District Court.

[5]    It is the contention of the defendant that various causes of action such as negligence or conversion could have been sued on in the District Court in order to recover the funds:

So  the  proceeding could have  been  brought  in the District  Court.   The Commissioner chose to use the gold plated services of the High Court for what  was  otherwise  a  simple  District  Court  claim  and  should  not  be rewarded with gold plated costs.

[6]      The first issue is whether r 14.13 actually applies:

14.13   Proceedings within jurisdiction of District Court

Costs ordered to be paid to a successful plaintiff must not exceed the costs and disbursements that the plaintiff would have recovered in the District Court if the proceeding could have been brought there, unless the court otherwise directs.

[7]    One  can  appreciate  that  there  is  good  sense  in  the  policy  which  requires litigation to be dealt with in the primary court, namely the District Court, unless there is some reason for departing from that approach.  Considerations which need to be weighed include whether the claim is one which can be aptly dealt with in the District Court.  Cases which are attended by complexity of factual and legal issues may not be appropriate for the primary court to deal with having regard to the pressure of business in those courts, or perhaps the specialist nature of a proceeding which meant that it is outside the scope of the mainstream business which is conducted in the primary court.  The possibility of appeals from the primary court may be another factor which needs to be taken into account.

[8]    In deciding the question whether this case was one which might just as readily have been dealt with in the District Court as in the High Court, a key issue is whether the rule requires that the claimant should be required to pass up a statutory remedy or cause of action which is not available in the District Court.   This is essentially what the defendant contends for in this case.   The submission for the defendant is that the facts comprising the cause of action in this case could have been just as readily the foundation of the cause of action in negligence or conversion in

the  District  Court  as  they  are  for  a  claim  under  s 301  of  the  Companies Act. Therefore, the argument runs, the plaintiff ought to have been required to present its claim on one of those bases in the District Court rather than bringing it as a claim under s 301 which only the High Court would deal with.

[9]    While it is correct that s 301 does include as one of the grounds for making an order for negligence on the part of the person concerned, it actually covers wider grounds. The section speaks of a person who:

Has misapplied or retained, or become liable or accountable for, money or property of the company, or been guilty of negligence, default, or breach of duty or trust in relation to the company…1

[10]  Some of those grounds, for example the misapplication ground and breach of duty,  would  not  seem  to  require  proof  of  fault  or  failure  to  observe  required standards of care which is the essence of a negligence claim.  All that needs to be demonstrated is that the defendant made the payment and that it was in breach of the priorities set out in Schedule 7 of the Act.  I should add that there was no dispute that that was the effect of the making of the payment.  The defendant himself admitted that he had made a mistake about the matter.   While he did not identify what the mistake was, it is plain that he meant he should have paid the money to the IRD rather than to the directors of the company.

[11]  To avoid prolonging this judgment unnecessarily, I will state the conclusion briefly:  that  is  that  it  cannot  be  suggested  that  the  plaintiff  in  this  case  has contravened High Court Rules 14.13 by bringing a claim based on s 301 in the High Court.   Section 301 embraces matters that are not within the competence of the District Court to decide.  Plainly, a proceeding based upon s 301 could not have been brought in the District Court.  It is no answer to say that a different proceeding based upon a different cause of action could have been brought in that Court.  To interpret the rule in such a way would be essentially to read procedural rules as if they had the effect of limiting substantive causes of action which have been made available by statute to claimants such as the plaintiff.  I consider that such an outcome is unlikely

to have been the objective of enacting r 14.13.  Therefore the District Court was not

1 S 301(1)

an alternative venue in which the plaintiff could have brought the proceeding and accordingly the submission on the part of the defendant that costs should be awarded on a District Court basis cannot be sustained.

[12]  The  next  point  concerns  the  ground  that  the  plaintiff  has  claimed  for  an excessive amount of preparation time.

[13]  The time actually claimed for is that which is reflected in the High Court Rules themselves.  It is based upon the amount of time that is allocated for a Category 2 proceeding, which relates to proceedings of average complexity requiring counsel of skill and experience considered average in the High Court.2

[14]  Once categorisation has been dealt with, the next issue is the fixing of the reasonable time for a step.   In this case it would appear to me that Band B is appropriate being the normal amount of time for a particular step in the proceeding. Given that the choices are Band A (“a comparatively small amount of time”) or Band C (“a comparatively large amount of time for the particular step”) and further having regard to the middle of the road complexity of this proceeding, there would not seem to be a lot of room for dispute about the resulting band.

[15]  Once the proceeding falls into a given band, the determination of what is a reasonable time is largely determined by the text of HCR 14.5(1) which effectively says that the time will be the time specified in Schedule 3.  It would not appear that the Court has any discretion to depart from the specific cost rules by invoking HCR 14.1 because the discretion in that rule is not unfettered and, in the words of

the learned authors of McGechan in their commentary:3

..... is exercisable only in situations not contemplated by the specific rules, or which are not fairly recognised by them.4

[16]  Having regard to the principal in HCR 14.2(g), I am of the view that restraint is required when it is contemplated that the Court should depart from the guideline

set out in the rules to which I have been referring.

2 HCR 14.3.

3 HCR 14.1.02.

4 And see Glaister v Amalgamated Dairies Ltd [2004] 2 NZLR 608.

[17]  The defendant says that “3.6 days to prepare the proceeding is excessive”. However that is not what is being sought.  The Commissioner is actually seeking 1.5

days for preparation which is the amount that is allowed for in Schedule 3 to the

High Court Rules.5

In my view there is nothing in this point.

[18]  The final issue concerns the claim for service of the proceedings.   This is apparently based upon a chargeable time of four hours for which the process server was engaged in “enquiry/reporting time”.  The service agent company states that the

bill was partly made up of:

Repeated attempts to contact and serve [the defendant].

[19]     The total bill of $855.60 appears to me to be quite a lot of money to serve one set of proceedings when there is an absence of detail as to how many visits had to be made and why that was.  In the absence of any supporting particulars in the actual invoice presented, I consider that disbursements of $500 for service is a reasonable

figure and that is the sum that I allow.

J.P. Doogue

Associate Judge

5 Item 40.