Day v Official Assignee as Liquidator of GN Networks Limited (in liquidation)
[2017] NZHC 847
•2 May 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-002428 [2017] NZHC 847
UNDER the Companies Act 1993;
the Insolvency Act 2006; and
the Declaratory Judgments Act 1908IN THE MATTER OF
GN Networks Limited (in Liquidation)
BETWEEN
KENNETH PAUL DAY Plaintiff
AND
OFFICIAL ASSIGNEE AS LIQUIDATOR OF GN NETWORKS LIMITED
(IN LIQUIDATION) First Defendant
BABBELBEK FINANCE LIMITED Second Defendant
defendants continued over
Hearing: [On the Papers] Counsel:
M J Matthew and D J G Cox for the Plaintiff
K M Wakelin and G A Campbell for the First Defendant
A E Simkiss and H Bao for the Second DefendantJudgment:
2 May 2017
JUDGMENT OF EDWARDS J
This judgment was delivered by Justice Edwards on 2 May 2017 at 11.30 am, pursuant to
r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Date:
Solicitors: Rennie Cox, Auckland
Meredith Connell, Auckland
Minter Ellison Rudd Watts, Auckland
DAY v OFFICIAL ASSIGNEE [2017] NZHC 847 [2 May 2017]
ANTHONY JOHN McCULLAGH and
STEPHEN MARK LAWRENCE
as former receivers ofGN NETWORKS LIMITED (in Liquidation)
Third Defendants
SHIPWRECK TRADERS LIMITED Fourth Defendant
Introduction
[1] In a judgment dated 10 October 2016, Faire J dismissed and adjourned a number of interlocutory applications made by the second defendant.1 His Honour indicated that his preliminary view was that no order as to costs should be made, but as the parties had not been heard on that issue, he reserved costs.
[2] Both parties now seek costs orders in their favour. The second defendant seeks an order of costs relating to the plaintiff’s abandonment of a cause of action just prior to the interlocutory hearing, and for the plaintiff’s late disclosure of funding arrangements which required the hearing to be adjourned. It also seeks an order of costs under r 7.77(8) for the six amended statements of claim filed, and the seventh draft amended statement of claim served prior to the hearing.
[3] The plaintiff opposes the costs orders sought by the second defendant and seeks an order of costs in its favour for the interlocutory applications.
[4] Both parties have submitted memoranda in support of their respective claims, and by consent, the determination is made on the papers.
The judgment
[5] The second defendant made a number of interlocutory applications2 which were summarised by Faire J as follows:3
(a) That the plaintiff's statement of claim be struck out in its entirety as an abuse of process because the bringing of the proceeding and the funding arrangement amount to maintenance and champerty. In the alternative, the second defendant seeks an order that the proceeding be stayed on the same grounds;
(b) That portions of the statement of claim be struck out on the grounds of issue estoppel because they plead matters which have been determined by the High Court in a final judgment given in Williams v Hill;
(c) That portions of the statement of claim be struck out because they do not properly plead fraud and there is insufficient support for the pleading of fraud against the second defendant;
1 Day v The Official Assignee [2016] NZHC 2400.
2 The applications were contained in a single document dated 5 August 2016.
3 Day v The Official Assignee, above n 1, at [1].
(d) That a portion of the statement of claim that attempts to invoke the provisions of the Insolvency Act 2006 be struck out because there is no proper basis for invoking the provisions of that Act; and
(e) An increase in the current security for costs in respect of the disposal of the remaining parts of the statement of claim.
(footnote omitted)
[6] In addition, and as noted by the Judge,4 the second defendant had sought an order striking out causes of action seeking relief under the Declaratory Judgments Act. However, shortly before the hearing, the plaintiff served a seventh draft amended statement of claim which did not include those causes of action. The second defendant’s costs application includes its wasted costs relating to the late abandonment of those causes of action.
[7] Faire J reviewed the procedural history of the proceeding in some depth, observing that it made “very unhappy reading”.5 That history canvassed the six amended statements of claim which had been filed between 12 September 2014 and
20 July 2016, and the draft seventh amended statement of claim before the Court. Despite the large number of amended claims, Faire J considered the seventh claim unnecessarily prolix, and as giving rise to a number of problems which required yet further re-pleading.6
[8] The outcome in respect of each of the applications was as follows:7
(a) The applications to strike out on the grounds of maintenance and champerty, and issue estoppel were dismissed.
(b)The application to strike out portions of the statement of claim pleading fraud was adjourned to allow the Court to consider whether a properly pleaded amended statement of claim making those allegations could meet the requirements of the High Court Rules. (Since then an eighth amended statement of claim has been filed and
the application to strike out is no longer pursued on the fraud ground).
4 Day v The Official Assignee, above n 1, at [2].
5 At [7].
6 At [41].
7 Day v The Official Assignee, above n 1, at [111](a)–(h).
(c) The application to strike out the Insolvency Act 2006 pleading was resolved by agreement.8
(d)The plaintiff was directed to re-plead the statement of claim so that he identified precisely which of the causes of action referred to in s 301 of the Companies Act 1993 he relied upon.
(e) The application for security for costs was adjourned to be brought back before the Court once the amended statement of claim was filed.
[9] In relation to costs, Faire J said:
[114] The application has failed with the majority of orders sought. Nevertheless, the Court has identified significant problems with the statement of claim requiring amendment to the pleadings. In addition, the provisions of r 7.77 of the High Court Rules dealing with an amendment to pleadings are engaged. Having regard to those matters and taking into account the specific provisions of rr 14.2(a) and 14.7, my preliminary view is that no order for costs should be made on the application. Because Counsel may require the opportunity to address the issue and because it may not be possible to determine the issue of costs myself, I reserve costs. In the event that a party seeks an order, memoranda in support, opposition and reply shall be filed and served at seven day intervals.
The parties’ positions
[10] The second defendant’s claim for costs comprises two main parts. The first part relates to wasted costs in relation to the late abandonment of the Declaratory Judgments Act causes of action. Actual costs in the sum of $10,177.80 are sought (calculated on the basis of one-fifth of the total attendances for the interlocutory applications). Alternatively, scale costs on a 2B basis ($4,483) with a
50 per cent uplift, being $6,724, are sought.
[11] The second defendant also seeks an award for the additional costs incurred because of the plaintiff ’s failure to disclose funding arrangements which were central to the strike-out application for maintenance and champerty. Actual costs in the sum of $9,597 are sought; alternatively the sum of $6,690 is sought, this being 2B costs
comprising of $4,460 plus an uplift of 50 per cent.
8 Day v The Official Assignee, above n 1, at [97], [102]–[103]. The Court ordered minor changes to the plaintiff ’s prayer for relief and seventh statement of claim, replacing any references to s 237 of the Insolvency Act 2006 with s 284 of the Companies Act 1993.
[12] The second part of the second defendant’s claim relates to costs claimed for the successive amended statements of claim filed in this proceeding. The second defendant relies on r 7.77(8) which provides that the party filing an amended pleading must bear “all costs of and occasioned by” the original pleading and any amendments.
[13] The second defendant claims actual costs totalling $102,632.50 for the successive amendments. In the alternative, the sum of $32,558 by analogy to scale costs for the preparation of a defence or preparation of an amended defence in the High Court Rules is claimed. Those costs have been calculated on a schedule 2B basis for the first three statements of claim which were under 50 pages each, and on a schedule 2C basis for the remaining statements of claim which were over 50 pages each. The second defendant did not, however, file a statement of defence to any of the amended statements of claim the subject of its costs claim. It has only filed one statement of defence to the eighth, and current, amended statement of claim.
[14] The plaintiff disputes the second defendant’s claim. He seeks costs on the interlocutory applications on the basis that he was successful in his opposition and costs should follow the event. The plaintiff claims costs on a schedule 2B basis up until 8 September 2016, and on an indemnity basis from 9 September 2016 to
19 September 2016 in reliance on a letter sent on 8 September 2016 which enclosed the seventh amended statement of claim and invited the second defendant to withdraw the various interlocutory applications.
[15] I approach the respective arguments by first considering the plaintiff’s application for costs and the second defendant’s claim for wasted costs under the heading “interlocutory applications”. I then go on to consider the second defendant’s claim for costs in relation to the amended pleadings. Finally, I consider the net position in accordance with r 14.17.
Interlocutory applications
Maintenance and champerty
[16] The first application considered by Faire J was the application to strike out on the grounds of maintenance and champerty. The Judge granted leave to the plaintiff
to file two further affidavits which he regarded as having a direct bearing on the issue.9 The Judge concluded that the fact that Mr Ranchhod was paying Mr Day’s costs under an arrangement whereby he had no right to the fruits of the litigation and no control of the litigation did not justify striking out the proceeding as an abuse of process.10
[17] Further, the Judge concluded that Mr Day was not purchasing a bare right to sue by taking an assignment of the debt from Mr Towers, and the claim was not therefore contrary to public policy on the grounds of maintenance and champerty.11
The application to strike out on maintenance and champerty grounds was dismissed.
[18] In terms of result, the plaintiff was the successor and costs follow the event. However, it is clear from the Judge’s reasons that the conclusions reached relied heavily on the affidavit evidence disclosed, and in particular, the nature of the funding arrangements. Those funding arrangements were not disclosed prior to the hearing, despite it being obvious that disclosure was necessary to address the
maintenance and champerty allegations, and any security for costs arguments.12 The
hearing had to be adjourned to allow those affidavits to be provided. Had the funding arrangements been disclosed earlier the application may not have been made, or at the very least, the issues may have narrowed with appropriate concessions made by the second defendant.
[19] In my view, any claim for costs that the plaintiff may have for succeeding in relation to this application should be offset by the failure to disclose relevant evidence prior to the hearing. The net result is that no party is entitled to costs in relation to the application to strike out on maintenance and champerty grounds
despite that application being dismissed.
9 Day v The Official Assignee, above n 1, at [44]–[46].
10 At [60].
11 At [65] and [72].
12 Waterhouse v Contractors Bonding Ltd [2013] NZSC 89, [2014] 1 NZLR 91; Saunders v
Houghton [2009] NZCA 610, [2010] 3 NZLR 331 at [79].
Issue estoppel
[20] The plaintiff was wholly successful on the strike-out application on the grounds of issue estoppel. The Judge concluded that the parties in Williams v Hill were not the same as the parties in the current proceeding, and nor were they privies. The Judge also found that the issues were different.13 The plaintiff is entitled to costs in respect of that application.
Fraud
[21] In relation to the fraud allegations, the Judge identified the difficulties as arising directly from the relief sought by the plaintiff. He observed that the draft statement of claim did not identify with sufficient clarity what causes of action the plaintiff sought to pursue in reliance on s 301 of the Companies Act 1993.14
[22] His Honour expressed the view that while the Court does have jurisdiction to strike out, it was not appropriate in this case, and so the plaintiff would be directed to re-plead “yet again” a statement of claim which took into account the Court’s directions.15 The application was adjourned pending receipt of a further amended claim.
[23] The plaintiff cannot be considered the successor in relation to this application in light of those findings. Although the pleading was not struck out, it was clear that there were deficiencies in the plaintiff’s pleading which required rectification. In the circumstances, I consider costs should lie where they fall in respect of that application also.
Insolvency Act 2006
[24] The strike-out application in relation to the provisions of the Insolvency Act
2006 was recorded in Faire J’s judgment as being largely resolved by agreement.16
That appears to have arisen as a result of counsel conferring in the course of breaks in the hearing and advising on their agreement on an amendment which would
13 Day v The Official Assignee, above n 1, at [85] and [86].
14 At [90] and [93].
15 Day v The Official Assignee, above n 1, at [95].
address the issues raised by the strike out. Although the second defendant may legitimately claim that such a result was also due to deficiencies in the plaintiff’s pleading, on balance, I consider that each party should bear their own costs in relation to that negotiated outcome. That result is also neutral insofar as costs are concerned.
Security for costs
[25] In relation to the application for security for costs, Faire J stated that “assuming that the plaintiff is able to file an amended statement of claim that properly pleads the causes of action intended to be pursued under s 301 of the Companies Act, the current security is sufficient”. Whilst His Honour said that the current application was premature, that was due in part to the fact that a draft seventh amended statement of claim had only just been filed for the purposes of the hearing
and a statement of defence had not yet been filed.17
[26] The plaintiff submits that its arguments were a complete success in relation to the security for costs application. I do not agree. The position reached was substantially due to the seventh amended claim being filed in draft, and the requirement for a further re-pleading of the Companies Act causes of action. In my view, costs should lie where they fall in respect of this application also.
Abandonment of the Declaratory Judgments Act cause of action
[27] The second defendant’s claim for wasted costs in relation to the late disclosure of funding arrangements has already been taken into account in assessing costs in relation to the strike out on maintenance and champerty grounds. But, the second defendant also claims for wasted costs for the late abandonment of the Declaratory Proceedings Act causes of action.
[28] The second defendant’s application to strike out the pleading related specifically to those causes of action. Those causes of action were abandoned in the draft seventh amended statement of claim served under cover of letter dated
8 September 2016. By this time, the cost of making the application and preparing written submissions (due the following day) had already been incurred. The
withdrawal came too late to avoid those costs. An award of wasted costs in favour of the second defendant is appropriate in those circumstances.
Net position
[29] The net position is that the plaintiff is entitled to costs for successfully resisting the strike-out application on the grounds of issue estoppel, and the second defendant is entitled to costs for the late abandonment of the Declaratory Proceedings Act causes of action. The remaining issue is one of quantum.
[30] I do not consider the plaintiff’s application for indemnity costs to be warranted. The letter sent on 8 September 2016 was in response to many of the deficiencies identified by the second defendant which were the subject of its application. The letter was also received the day before the second defendant’s submissions were due to be filed. It came far too late to have any realistic effect on the question of costs.
[31] Similarly, I do not consider the second defendant’s claim for indemnity or increased costs is justified in the circumstances. The merits of the Declaratory Judgments Act causes were not considered by Faire J, and they were not the subject of submissions before me. I am not therefore in a position to determine whether they were vexatious or contributed to an unnecessary increase in costs over and above wasted costs calculated according to scale.
[32] It follows that the respective costs awards are to be calculated on a schedule
2B basis. Both parties are entitled to costs for filing their respective applications and notices of opposition, and for preparing written submissions. These costs cancel each other out. In addition, the plaintiff is entitled to costs for attendance at the two- day hearing, although only one-fifth of those costs should be allowed to reflect the time at the hearing on the single application on which it was successful. That amounts to $892, and, subject to any costs award on the amended pleadings (considered below), that sum is awarded to the plaintiff for the interlocutory applications.
Amendments to pleadings
[33] The second defendant seeks costs on all amended pleadings filed to date pursuant to r 7.77(8) which provides:
7.77 Filing of amended pleading
…
(8) If an amended pleading has been filed under this rule, the party filing the amended pleading must bear all the costs of and occasioned by the original pleading and any application for amendment, unless the court otherwise orders.
…
[34] Rule 7.77(8) does not specify when costs on an amended pleading are to be determined. That is in contrast to r 14.8 which provides for costs to be fixed on an opposed interlocutory application at the time that the application is determined unless there are special reasons not to do so.
[35] In Jones v Norterra Rural Resources Ltd, Woolford J declined to award indemnity costs pursuant to r 7.77(8) in advance of the hearing, noting that it might be quite difficult to isolate wasted costs involved in responding to an original pleading unless and until the amended pleading goes to trial.18
[36] If there had only been one or two amended statements of claim in this case, I would have followed that approach and declined to fix costs at this stage. However, there have been eight amended statements of claim served in the proceeding thus far. That is an exceptionally high number and it is appropriate that the wasted costs associated with each of those amended pleadings are identified and fixed at this juncture.
[37] The plaintiff submits that there are good reasons for the number of amended pleadings filed in this proceeding. In particular, the plaintiff points to the “staggered” nature of discovery and the second defendant’s request for particulars, as
requiring successive amended claims to be filed.
18 Jones v Norterra Rural Resources Ltd [2014] NZHC 2855 at [32].
[38] I do not consider either ground to provide an adequate explanation for the sheer number of amended pleadings. Rather, those submissions tend to confirm that each amended pleading has been filed as a knee-jerk reaction to a new and isolated development in the proceeding. That haphazard approach has led to unnecessarily prolix pleadings, and contributed to the “unhappy” procedural history canvassed in Faire J’s judgment. It has also put the second defendant to additional costs in considering each individual claim, researching the new causes of action pleaded, writing to counsel for the plaintiff pointing out the deficiencies, and in some respects making requests for particulars. These circumstances warrant an award of costs in favour of the second defendant pursuant to r 7.77(8) in my view.
[39] However, I am not persuaded that an award of indemnity costs in the sum of
$102,632.50 is appropriate. The spreadsheet of those costs provided with the memorandum of counsel in support of the costs application identifies costs which would be attributed to other aspects of the proceeding. These costs cannot be categorised as “wasted costs” until final determination of the substantive issues in the proceeding. As Woolford J noted in Jones v Norterra Rural Resources Ltd, the making of an indemnity order in advance of a substantive hearing is an exceptional
case.19 It is not until the substantive proceeding has been finally determined can a
view be reached on whether or not the various amended pleadings are frivolous, vexatious or otherwise an abuse of process.
[40] As an alternative to indemnity costs, the second defendant has calculated costs by way of analogy to the costs allowance for commencement of a statement of defence and an amended pleading in both schedule 2B and 2C. Costs are claimed in relation to the first three statements of claim on a 2B basis with the remaining statements of claim which are over 50 pages each claimed on a 2C basis.
[41] The calculation of costs on a 2B basis for the first three statements of claim, and 2C basis for the remaining statements of claim is appropriate in my view. A calculation of costs on that basis reflects the “comparatively large amount of time”20 for the costs occasioned by the prolix amended claims. However, the claim for costs
for the commencement of a defence is not appropriate where a statement of defence
19 Jones v Norterra Rural Resources Ltd, above n 19, at [36].
20 High Court Rules, r 14.5(2)(c).
has not been filed in my view. The second defendants will be entitled to claim costs for the commencement of their defence and the filing of their statement of defence if they are successful at trial and are awarded costs. That is the appropriate time to award costs on that basis.
[42] It follows that the claim is to be calculated by reference to the allowances for pleading in response to an amended pleading, and not for the commencement of a defence. Even then, a discount to the scale costs should be applied to reflect the fact that amended statements of defence were not filed and there was some overlap between the various amended pleadings. A 25 per cent discount from the scale costs claimed would appropriately reflect these factors in my view.
[43] Calculation of costs for an amended pleading on a schedule 2B basis (3 x
$1,338) and 2C basis (3 x $6,600) amounts to $23,814. Applying the 25 per cent discount leads to a total of $17,860.50 in favour of the second defendant.
Set-off
[44] Rule 14.17 allows costs awarded against each of the parties to be set off against each other.
[45] Applying that approach, the costs of $892 awarded to the plaintiff for the interlocutory applications are set off against the costs of $17,860.50 otherwise awarded to the second defendant for the costs occasioned by the amended pleadings. That results in a net position of $16,968.50, and I order the plaintiff to pay costs in that sum to the second defendant.
Result
[46] Costs in the sum of $892 are fixed in favour of the plaintiff in relation to the interlocutory applications determined by Faire J on 10 October 2016.
[47] Costs in the sum of $17,860.50 are fixed in favour of the defendant for the costs of and occasioned by the six amended pleadings filed in the proceeding. This sum does not include costs for the commencement of the defence or statement of
defence by the second defendant, with those costs to be determined on final resolution of the proceeding.
[48] I set off the costs to each party and order the plaintiff to pay the second defendant the sum of $16,968.50.
Edwards J
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