Fava

[2012] NZHC 1936

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-4669 [2012] NZHC 1936

IN THE MATTER OF     the Insolvency Act 2006

AND IN THE MATTER OF the bankruptcy of Philip Joseph Fava

Hearing:         26 April 2012

Appearances: G J Judd QC for Applicant

J G Miles QC and J D McBride for Creditors

Judgment:      3 August 2012

JUDGMENT OF PETERS J

This judgment was delivered by Justice Peters on 3 August 2012 at 11:30 am pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date: ...................................

Solicitors:           Murdoch Price, Auckland:  [email protected]

Bell Gully, Auckland:  [email protected]

Counsel:            G J Judd QC, Auckland:  [email protected]

J G Miles QC, Auckland:  [email protected]

J D McBride, Auckland:  [email protected]

FAVA HC AK CIV-2011-404-4669 [3 August 2012]

Introduction

[1]      By application dated 30 March 2012 (“Aral’s application for security”), Aral Property Holdings Limited (“Aral”) seeks orders that the respondent (“Mr Fava”) provide security for costs in the sum of $20,000 and that an interlocutory application that Mr Fava has made should be stayed until such security is provided.

[2]      Mr Fava opposes the making of the orders sought.  He does so on the ground that the Court has no jurisdiction to entertain Aral’s application for security because the application is “unlawful or incompetent”, as it has been made in breach of r 13.5.3 of the Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (“r 13.5.3” and “Client Care Rules”).

[3]      For reasons set out below, I propose to grant the orders sought.

Background

[4]      In this proceeding Mr Fava seeks an order cancelling a claim for more than

$1.5 million that Aral has made, and which the Official Assignee has admitted, in

Mr Fava’s bankruptcy.1     That claim arises from  a judgment of this Court dated

22 December 2009 in CIV 2001-404-2302 (“CIV 2302”) in which the Court ordered the plaintiffs in CIV 2302 jointly,2 and Mr Fava severally, to pay costs of $2 million to Aral and other defendants (“costs judgment”).  Mr Fava took numerous steps in the High Court, Court of Appeal and Supreme Court to have the costs judgment stayed but was unsuccessful.

[5]      The Court may make an order for cancellation of a creditor’s claim if it considers that the claim was improperly admitted.   In considering that issue, the Court will assess the reasonableness of the Assignee’s decision and the process by

which it was reached.3   To obtain an order for cancellation, Mr Fava first will have to

1 Insolvency Act 2006, s 238(1).

2 The Plaintiffs being entities associated with Mr Fava.

3 Holdgate v Official Assignee HC Auckland B1545/96, 25 July 2002.

persuade the Court that it should look behind the costs judgment.   If Mr Fava succeeds in doing so, he will have to persuade the Court that it should reach a different view on costs to that reached in 2009.

[6]      In his amended statement of claim,4  Mr Fava pleads that Aral’s claim was improperly admitted because the costs judgment contains two “serious errors and inconsistencies”.    One  of  those  alleged  errors  or  inconsistencies  is  relevant  to Mr Fava’s  opposition  to Aral’s  application  for  security because  it  relates  to  the Court’s  assessment  of  allegations  that  Mr Fava  and  others  had  made  against Mr R G Simpson, a partner in Bell Gully, in the course of CIV 2302.

Representation application

[7]      The security for costs that Aral now seeks is in respect of costs it will incur in opposing an interlocutory application that Mr Fava has made in these proceedings. In that application Mr Fava seeks an order prohibiting Bell Gully, Mr Simpson and Mr J McBride from acting for Aral (“representation application”).5

Aral’s application for security

[8]      Aral’s application for security is made pursuant to High Court Rules, r 5.45, the relevant parts of which read as follows:

5.45     Order for security of costs

(1)      Subclause (2) applies if a Judge is satisfied, on the application of a defendant,—

(a)      ...

(b)       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.

(2)      A Judge may, if the Judge thinks it is just in all the circumstances, order the giving of security for costs.

4 Dated 16 March 2012.

5 Interlocutory Application dated 23 February 2012.

(3)      An order under subclause (2)—

(a)       requires the plaintiff or plaintiffs against whom the order is made to give security for costs as directed for a sum that the Judge considers sufficient—

(i)       by paying that sum into court; or

(ii)      by giving,  to the satisfaction of the Judge or the

Registrar, security for that sum; and

(b)       may stay the proceeding until the sum is paid or the security given.

[9]      On the face of it, Aral has good grounds for seeking security.  There is reason to believe that Mr Fava, a bankrupt, will be unable to pay Aral’s costs if he is unsuccessful on the representation application and there are circumstances which would otherwise make it just to order Mr Fava to give security.   Amongst other matters, counsel for Mr Fava expects it to take more substantially than a half day to argue the representation application, and there is no dispute that previously Mr Fava has failed to comply with Court orders requiring him to pay costs on other unsuccessful interlocutory applications.

Opposition

[10]     As  I have  said,  Mr  Fava  contends  that  the  Court  has  no  jurisdiction  to

entertain Aral’s application because:

(a)      the application is unlawful or incompetent as it has been made in breach of r 13.5.3;

(b)alternatively, the Court must not exercise its jurisdiction to award security unless and until it is satisfied that there has been no breach of r 13.5.3, as to do otherwise would put the Court at risk of lending itself to a possible breach of the rule.

[11]     Rule 13.5.3 reads as follows:

13.5.3 A lawyer must not act in a proceeding if the conduct or advice of the lawyer or of another member of the lawyer's practice is in issue in the  matter  before  the  court. This  rule  does  not  apply where  the

lawyer is acting for himself or herself, or for the member of the practice whose actions are in issue.

[12]     Mr  Fava  contends  that Aral’s  application  for  security has  been  made  in breach of r 13.5.3 because it has been “made” by Mr Simpson and Mr Simpson’s conduct is in issue in the proceeding (see [6] above).  As Mr Simpson is a partner in Bell  Gully,  Mr  Fava  also  contends  that  r 13.5.3  precludes  any member of  Bell Gully’s  practice  acting  on Aral’s  application  and  also  that  Bell  Gully  breached r 13.5.3 by filing Aral’s application and by instructing counsel for Aral.

[13]     It is not correct to say that Mr Simpson has made the application.  Aral has made the application, for security for its costs.  That said, Mr Simpson has signed Aral’s application as Aral’s solicitor.

[14]     Counsel for Aral rejects the submission that Aral’s application is unlawful or incompetent and also rejects the submission that Mr Simpson’s conduct is in issue in the  proceeding.    Counsel  for Aral  contends  that  Mr  Fava  has  contrived  to  put Mr Simpson’s  conduct  in  issue,  for  purely  strategic  reasons.    Counsel  for Aral submits that Mr Fava wishes to separate Aral from its legal advisers and that the relevant part of his present pleading, filed after the representation application, has been included principally as a means to that end.  Counsel for Aral submitted that Mr Fava was seeking to elevate a “trivial spat” between Mr Simpson and one of Mr Fava’s  legal  advisers,  in  hotly  contested  litigation,  into  “an  issue”  in  the proceeding and that Mr Fava had done no more than to assert that Mr Simpson’s conduct was in issue.

Discussion

[15]     I do not propose to treat Aral’s application as unlawful or incompetent for the

following reasons.

[16]     First,  on  the  information  available  at  present,  I  am  not  satisfied  that

Mr Simpson’s conduct is in issue in the manner anticipated by r 13.5.3.

[17]     On my reading of the costs judgment, allegations relating to Mr Simpson did not loom large in the Court’s decision, whether as to liability or quantum.   Other matters were more important and prominent in the Court’s decision.   To put it in context, the costs judgment is 156 pages long and traverses what was clearly a lengthy proceeding.  CIV 2302 commenced in 2001, went to a hearing in October

2006 and then, in the words of the Court, “came to an abrupt halt” in December 2006 when Mr Fava was adjudicated bankrupt and the Court entered judgment for the defendants.  The costs judgment followed some three years later and traverses the subject matter of the proceeding, the course that the proceeding took, the evidence that was given and so on.

[18]     These matters lend weight to counsel for Aral’s submission that Mr Fava has purported to put Mr Simpson’s conduct in issue for tactical reasons, rather than anything else.

[19]     Secondly, even if I am wrong in that, ultimately it is for the Court to control its own procedures.  At present, Mr Fava’s proceeding is at an early stage.  Mr Fava may amend his pleading and, as yet, he has not crossed the first threshold of persuading the Court to look behind the costs judgment.   In addition, Aral’s application  for  security  for  costs  is  meritorious  and  unaffected  by any  possible breach of r 13.5.3.

[20]     All of that said, it is quite possible that the Court who hears full argument on the representation application will grant the orders that Mr Fava seeks in that application.  However, I am dealing with an application for security for costs and I am not willing to dismiss that application simply on the basis of Mr Fava’s pleading as it stands at present.

Result

[21]     As I have said, Aral seeks security of $20,000, on the basis the proceeding is category 3C.  Apparently it has been estimated that it will take several days to argue the representation application.   In the circumstances, I fix security for costs in the sum of $17,500. That assumes a two day hearing with one counsel for Aral.

[22]     I order:

(a)      that   the  Plaintiff  give  security  for   costs   for  his   interlocutory application dated 23 February 2012 in the sum of $17,500, being a sum that the Court considers sufficient:

(i)       by paying that sum into Court; or

(ii)by giving, to the satisfaction of the Court or the Registrar, security for that sum.

(b)that the said application be stayed until the said sum is paid or the security given.

[23]     I  make  no  order  for  costs  at  present.     The  parties  may  submit  brief memoranda if they wish.

..................................................................

M Peters J