Fava v Aral Property Holdings Limited
[2012] NZCA 585
•13 December 2012
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA500/2012 [2012] NZCA 585 |
| BETWEEN PHILIP JOSEPH FAVA |
| AND ARAL PROPERTY HOLDINGS LIMITED |
| Hearing: 15 November 2012 |
| Court: Ellen France, Stevens and Winkelmann JJ |
| Counsel: G J Judd QC for Appellant |
| Judgment: 13 December 2012 at 2.30 pm |
JUDGMENT OF THE COURT
AThe appeal is dismissed.
BThe appellant must give security for costs in the sum of $17,500 to the Registrar of the High Court.
CThe appellant’s application dated 23 February 2012 is stayed until the said sum is paid or security given.
DThe appellant must pay the respondent costs for a standard appeal on a band A basis plus usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by Ellen France J)
Table of Contents
Para No
Introduction [1]
The background [4]
The High Court decision to order security [16]
Impact of any non-compliance with r 13.5.3 [20]
Is the lawyers’ conduct in issue at this stage? [21]
The competing contentions[22]
The relevant law [27]
The costs judgment [38]
Impact on the security for costs application [52]
Result [60]
Introduction
The short point raised by this appeal is whether an order for security for costs should have been made. Peters J[1] determined that the appellant, Philip Fava, should give security in relation to an interlocutory application made by Mr Fava. In the interlocutory application, Mr Fava seeks orders that Ralph Simpson, a partner in Bell Gully, Joshua McBride, a barrister who was formerly a solicitor at Bell Gully, and the firm itself (the lawyers) should not be representing Aral Property Holdings Ltd, the respondent, in the present proceeding.
[1] Re Fava [2012] NZHC 1936.
Mr Fava challenges the order that he provide security on the basis that the solicitors for the respondent are acting in breach of the rules protecting independence in legal representation. The particular rule is r 13.5.3, which states that a lawyer must not act in a proceeding if the lawyer’s conduct is “in issue in the matter before the court”.[2] Mr Fava says the conduct of the lawyers is in issue in the matter before the court. They should not act and the High Court was in error in ordering security be given in these circumstances because to do so amounts to condoning an illegality.
[2] Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, r 13.5.3.
We first set out the background, before discussing the effect of any non‑compliance with r 13.5.3 on the decision to order that security be given. We then consider whether the conduct of the lawyers is in issue in terms of r 13.5.3 at this stage.
The background
The matter has something of a tortuous history. That history is set out in more detail in other proceedings.[3] For present purposes the following general summary will suffice.
[3]For example, Churchill Group Holdings Ltd v Aral Property Holdings Ltd HC Auckland CIV‑2001-404-2302, 22 December 2009 [HC costs judgment], and in Churchill Group Holdings Ltd v Fava [2010] NZCA 88 [CA stay judgment], a decision in relation to the proposed appeal from the HC costs judgment.
The matter has its genesis in a claim brought in the High Court by Churchill Group Holdings Ltd and related companies (Churchill Group) against the present respondent, Aral Property Holdings Ltd (Aral) and David Leung, the manager of Aral. Mr Fava was the sole director of each of the four plaintiff companies in the Churchill Group.
We interrupt the chronology of the claim by the Churchill Group to explain that it was in the course of interlocutory proceedings leading up to trial that events occurred concerning a witness statement that, in turn, led to allegations of misconduct being made against Mr Simpson. As we shall discuss, the conduct in issue arises from the manner in which Mr Simpson advanced an objection to the admissibility of evidence.
Shortly before the trial of Churchill Group’s claim was to conclude and after 31 days of hearing, Mr Fava was adjudicated bankrupt on 6 December 2006 having withdrawn his opposition to that course. The bankruptcy arose from a claim which, including costs, totalled about $7,000. Mr Fava’s adjudication in bankruptcy brought the Churchill proceedings to a halt. Hugh Williams J entered judgment by default in favour of Aral and Mr Leung.
Mr Fava’s bankruptcy ended after the effluxion of the three year period in December 2009.[4] In the meantime, Aral had applied for costs against the Churchill Group companies and Mr Fava personally. The costs application was heard over six days in March 2009. Mr Fava took an active part in the costs hearing. Hugh Williams J delivered his costs judgment on 22 December 2009.[5] The costs judgment was extensive, extending to over 150 pages.
[4] Insolvency Act 2006, s 290.
[5] HC costs judgment, above n 3.
The Judge said it was necessary to deal with the respective cases in some detail because Aral sought increased or indemnity costs on the basis that the Churchill Group/Fava interests had improperly pursued a hopeless case. The Churchill Group and Mr Fava submitted that costs should be refused or reduced, asserting that Aral and some of their professional advisors had acted improperly in a variety of respects.
Hugh Williams J made credibility findings adverse to the Churchill Group and Mr Fava on the critical issues. The Judge also rejected claims of misconduct on the part of Aral and their lawyers. The Judge concluded that an increased costs award was justified in favour of Aral, having noted that their total solicitor and client costs were of the order of over $3 million. Costs against the Churchill Group interests jointly and Mr Fava severally were awarded in the sum of $2 million (the costs judgment).
Mr Fava filed an appeal against the costs judgment. He ultimately accepted he needed to persuade the Official Assignee to continue the appeal. The Official Assignee declined to do so. This Court dismissed an application by Mr Fava for an extension of time to file a case on appeal and the appeal was struck out in part on the basis that the absence of the Official Assignee’s consent meant Mr Fava did not have standing to bring the appeal in the first place.[6]
[6] Churchill Group Holdings Ltd v Aral Property Holdings Ltd [2011] NZCA 34.
Mr Fava also sought a stay of execution of the costs judgment. Venning J declined to grant a stay.[7] That judgment was the subject of an unsuccessful appeal to this Court.[8] Mr Fava’s application to the Supreme Court seeking interim orders staying execution of the costs judgment was dismissed.[9]
[7]Churchill Group Holdings Ltd v Aral Property Holdings Ltd HC Auckland CIV-2001-404-2302, 27 January 2010.
[8] CA stay judgment, above n 3.
[9]See the discussion in Churchill Group Holdings Ltd v Aral Property Holdings Ltd [2010] NZSC 131. The Supreme Court declined to grant leave to appeal against this Court’s refusal to recall its stay judgment.
The next critical event in the present context was that Mr Fava was again adjudicated bankrupt on 11 May 2010. Aral was the creditor. Aral claimed a debt of over $1.5 million being the balance outstanding under the costs judgment.
In August 2011 Mr Fava brought a proceeding under s 238 of the Insolvency Act 2006. Under s 238, the court may make an order cancelling a creditor’s claim or reducing the amount claimed, if it considers that the claim was improperly admitted. Essentially, the claim seeks to go behind the costs judgment of Hugh Williams J. The thrust of Mr Fava’s s 238 application is that the costs judgment should be set aside because it is based on evidential findings not open to the Judge. As Associate Judge Bell said in a recent decision in an associated matter, Mr Fava’s “long-term aim is to have [the costs] judgment set aside, then to have the default judgment of 2006 set aside, and then to have an entire rehearing of [the initial claim]”.[10]
[10]Re Fava [2012] NZHC 2980 at [7]. Associate Judge Bell ordered Mr Fava pay security for costs in the sum of $20,000 on the s 238 application. The Associate Judge extended time for review of that decision to 10 working days after this Court gives judgment in the present appeal.
On 23 February 2012 Mr Fava filed the interlocutory application we have mentioned for an order that the lawyers not act in the s 238 proceedings. Aral’s response was to seek security for costs. As we have indicated, that application was successful. Mr Fava appeals against Peters J’s decision that he give security for costs on the basis that the order was wrong because it was made in a situation involving a breach of r 13.5.3.
The High Court decision to order security
Peters J was not satisfied that the lawyers’ conduct, particularly Mr Simpson’s conduct, was in issue in the proceeding. In the Judge’s view, the allegations about Mr Simpson did not “loom large” in the costs judgment either as to liability or as to quantum.[11]
[11] Re Fava, above n 1, at [18].
Secondly, Peters J said that even if she was wrong about the part played by the allegations against Mr Simpson, in the end it was for the court to control its own procedures. Peters J continued:
[19] ... 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.
The Judge acknowledged it was possible that the court hearing Mr Fava’s application that the lawyers not act would grant the orders Mr Fava seeks. However, Peters J said, she was dealing with an application for security for costs and was not prepared to dismiss that application “simply on the basis of Mr Fava’s pleading as it stands at present”.[12]
[12] At [20].
Peters J fixed security in the sum of $17,500. The application of 23 February 2012 seeking an order that the lawyers not act was stayed until the payment of the sum into the Court or security given for that amount.
Impact of any non-compliance with r 13.5.3
We think it unlikely that representation by lawyers acting in breach of r 13.5.3 would itself lead to a successful appeal where it is plain on the merits that Aral is entitled to security for costs. There is no issue that, putting the question of representation to one side, the security for costs application was properly made and granted. As Mr Miles QC submits for Aral, Mr Fava has a history of refusing or failing to pay costs.[13] In any event, as we now discuss, we agree with Peters J that it is premature to say that r 13.5.3 is engaged in a way that somehow affects the application for security for costs.
Is the lawyers’ conduct in issue at this stage?
[13]We set out in the appendix an extract from the chronology attached to the written submissions from Aral showing the unpaid costs.
We first set out the submissions.
The competing contentions
Mr Fava says the conduct of the lawyers is in issue essentially because, in the s 238 application, he pleads that Hugh Williams J was wrong in his findings about the lawyers. That pleading is one of the two bases on which he says the Judge erred in a way giving rise to a miscarriage of justice sufficient on the application of the principles of Corney v Brien to warrant a reopening of Aral’s claim in the bankruptcy and, in turn, the costs judgment.[14] The other basis advanced relates to Hugh Williams J’s findings on the merits of the Churchill Group claim.
[14] Corney v Brien (1951) 84 CLR 343 (HCA).
In addition, Mr Fava submits that the conduct of the lawyers during the aborted trial is an issue that has long permeated the litigation between the parties. That is borne out by the costs judgment, which on its face shows that the lawyers’ conduct was in issue.
Because the lawyers’ conduct is in issue in the current proceedings, the contention is that the lawyers should not have acted and it would be wrong to give Aral security in these circumstances. The submission is that if a lawyer’s conduct is in issue, his or her independence in discharging the duty to the court is compromised. Mr Judd QC in essence contends that the decision to grant security is tainted by the illegality of the lawyers’ breach of r 13.5.3.
For Aral, Mr Miles submits the application for security was properly made and appropriately granted. He points out that Mr Fava is a bankrupt who has consistently refused or failed to pay costs over a series of cases. Aral also says that the invocation of r 13.5.3 is a tactic amounting to an abuse of process. The argument is that Mr Fava seeks to elevate a minor disagreement over Mr Simpson’s conduct in order to effectively derail Aral’s defence.
Aral’s case is that the pleadings in themselves cannot engage r 13.5.3. Rather, what is required is an objective analysis of the conduct in the context of the litigation. Further, it is submitted that the misconduct must be sufficiently serious or central to put in issue the solicitor’s ability to give dispassionate advice to the client. This matter is not one which is to be lightly ruled on in favour of the party alleging misconduct because of the obvious risk of abuse of the rules and possible prejudice to the client of the lawyers concerned.
The relevant law
The Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008 (the Rules) are made by the New Zealand Law Society and approved by the Minister of Justice under the Lawyers and Conveyancers Act 2006 (the 2006 Act).[15] The Rules are binding on all lawyers and former lawyers under s 107(1) of the 2006 Act.
[15] Lawyers and Conveyancers Act 2006, ss 94, 95 and 100.
Rule 13.5.3 is one of a number of rules dealing with independence in litigation. These rules reflect the obligation on lawyers to be independent in providing relevant services to clients in s 4(b) of the 2006 Act. Rule 13.5.3 is found in a chapter of the rules dealing with lawyers as officers of the court. In terms of r 13, the overriding duty of a lawyer acting in litigation is to the court concerned. Rule 13 states that subject to this, “the lawyer has a duty to act in the best interests of his or her client without regard for the personal interests of the lawyer”.
Rule 13.5 sets out the general principle, namely, that a lawyer engaged in litigation for a client “must maintain his or her independence at all times”. Rule 13.5.1 deals with the impact of the situation in which it transpires that a lawyer may be required to give evidence of a contentious nature in the matter. The rule provides that a lawyer must not act in the proceeding in this situation.
Rule 13.5.2 states that, if after a lawyer has commenced acting in a proceeding, it becomes apparent that he or she or a member of the lawyer’s practice “is to give evidence of a contentious nature”, the lawyer must immediately tell the court and, “unless the court directs otherwise, cease acting”.
Rule 13.5.3, the provision in issue in this case, states that:
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.
Rule 13.5.4 states that a lawyer must not make submissions or express views to a court on any material evidence or material issue in terms that “convey or appear to convey the lawyer’s personal opinion” on the merits of the evidence or issue. For completeness, we mention that r 13.6 states that a lawyer or lawyers who are members of the same practice must not act in a dispute for two or more parties whose interests are not the same or where the lawyer or practice will be unable to ensure the discharge of any duty owed to any party to the dispute.
Although dealing with a different situation, namely, when the court may debar counsel and/or solicitors from acting in a particular case, Fisher J in Clear Communications Ltd v Telecom Corporation of New Zealand Ltd sets out some of the policy considerations underlying these rules.[16]
[16]Clear Communications Ltd v Telecom Corporation of New Zealand Ltd (1999) 14 PRNZ 477 (HC).
We have found helpful the following points made by Fisher J:[17]
[17] At 482–483.
(a)The Court has jurisdiction to debar counsel and/or solicitors from acting in a particular case where that step is necessary for the effective and efficient administration of justice … .
…
(c)Removal of a lawyer is not a retrospective sanction for past misconduct but a prospective measure to safeguard the future conduct of the particular proceedings … .
…
(e)A litigant should not be deprived of his or her choice of counsel without good reason … . In particular, the Courts should guard against allowing removal applications to be used as a tactical weapon to disadvantage the opposing party … . The danger is illustrated by the apparent prevalence of such applications in the United States … .
…
(f)An application for removal requires that a balance be struck between the injustice of depriving a party of his or her lawyer of choice and the injustice of allowing that lawyer to continue in prejudicial circumstances … .
(g)In view of lawyers’ obligations of confidentiality and loyalty, care must be taken not to visit upon the lawyer sins which may be essentially those of the client … .
…
(i)Similarly, the prima facie avenue for policing legal professional conduct is the disciplinary processes of the Law Society. …
Applying these considerations to the present issue, we agree with Aral that it is not sufficient to engage the rule in this case that Mr Fava’s pleadings refer to the lawyers’ conduct. It is necessary to also look at whether the lawyers’ conduct is truly in issue in the proceedings. This point emerges from a discussion by Thomas J, albeit under the earlier legislative scheme, in Kooky Garments Ltd v Charlton.[18] Thomas J said this:[19]
… Where the acts or omissions of the law firm, including situations where the actions of the client are based on advice given by the solicitors, are at the heart of the question in issue, the firm is, in a real sense, “defending” its actions or advice. There is, in such circumstances, a danger that the client will not be represented with the objectivity and independence which the client is entitled to and which the Court demands.
…
… [These observations] are restricted to the situation where the acts or omissions of the solicitors are an integral part of the other party’s complaint or the client has been sued in circumstances where he or she was acting on the advice of their solicitors and it is effectively that advice which is in issue. In such cases, apart altogether from the position of the client, the Court is not receiving the assistance of counsel who are observably independent. Independence is a function of counsel. The Court is entitled to assume that solicitors and counsel appearing before it possess that independence.
[18] Kooky Garments Ltd v Charlton [1994] 1 NZLR 587 (HC).
[19] At 589–590 (emphasis added).
Wilson J expressed similar concerns in Vector Gas Ltd v Bay of Plenty Energy Ltd:[20]
[147] Whatever the court or tribunal in which they are appearing, it is undesirable for practitioners to appear as counsel in litigation where they have been personally involved in the matters which are being litigated. In that situation, counsel are at risk of acting as witnesses and of losing objectivity.
[148] These dangers have long been recognised. In 1940, Myers CJ stated clearly in Hutchinson v Davis that “[a] practitioner cannot be allowed to act in the dual capacities of counsel and witness”. Northcroft and Blair JJ agreed.
[20]Vector Gas Ltd v Bay of Plenty EnergyLtd [2010] NZSC 5, [2010] 2 NZLR 444 (footnotes omitted).
In considering the applicability of r 13.5.3 in this case it is also necessary to approach that task with an air of reality and pragmatism. Parties ought not to be permitted to game the system. The application of the rule will affect not only those well-funded litigants for whom the requirement to change their solicitor may not be problematic, but also those who have little funds.
The costs judgment
We turn then to consider the costs judgment. As we shall explain, we agree with Peters J’s assessment that on the present information the lawyers’ conduct did not “loom large” in that decision.
In the costs judgment, Hugh Williams J was dealing with an application by Aral to award increased or indemnity costs under r 14.6 of the High Court Rules. Hugh Williams J referred to various aspects of r 14.6(3) which states that the court may order payment of increased costs in the specified circumstances. Of some relevance were r 14.6(3)(a) (the nature of the proceeding or step was such that more time was required) and r 14.6(3)(b) (the party had contributed unnecessarily to costs by pursuing an unnecessary application). However, Hugh Williams J said that the “principal matter in issue” was as follows:
[483] ... whether “some other reason” exists to justify orders under rr 14.6(3)(d)[21] and 14.6(4)(f)[22] and whether the [Churchill Group] and Mr Fava “acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing or defending” the claim under r 14.6(4)(a) particularly in the post-interlocutory phase.
[21]Rule 14.6(3)(d) states that a court may order increased costs where some other reason exists to justify that course.
[22]Rule 14.6(4)(f) states that indemnity costs may be ordered if some other reason exists to justify that course.
The other issue before Hugh Williams J in the costs judgment was Mr Fava’s contention that there were factors affecting Aral, particularly the actions of its lawyers, which should lead the Judge to decline the application, in whole or in part. As we have foreshadowed, the focus was particularly directed to Mr Simpson’s conduct in the course of the Churchill Group’s litigation. Mr Fava based his opposition on r 14.7(g) of the High Court Rules, which provides that the court may refuse to make an order for costs or may reduce the costs otherwise payable if:
(g)some other reason exists which justifies the Court refusing costs or reducing costs despite the principle that the determination of costs should be predictable and expeditious.
Accordingly, Mr Fava relied on the lawyers’ conduct in opposing the costs application. It also must be acknowledged that Aral, in turn, relied on Mr Fava’s allegations about the lawyers as part of its characterisation of Mr Fava’s conduct.
That said, Aral was awarded costs on an increased basis primarily because of the way the Churchill Group/Fava interests ran the litigation and because they persisted with it beyond an appropriate point. Hugh Williams J referred in this respect to the problems apparent in the Churchill Group’s case after what he described as the “very damaging cross-examination of Messrs Fava, Harris and Chong”.[23] This led to the conclusion that there was “some other reason” to award costs on an increased basis and no other reason to reduce costs. Hugh Williams J put it in this way:
[492] The result therefore is a combination of rr 14.6 and 14.7. Even if the [Churchill Group] and Mr Fava might, with major difficulty, be thought to be justified in the way in which they began and managed the litigation up to the commencement of the substantive hearing and, perhaps, towards the end of the [Churchill Group’s] case, there could have been little, if any, justification for them in continuing beyond that point.
[493] The conclusion is therefore that the way the [Churchill Group] and Mr Fava commenced and ran this litigation up to and towards the end of the [Churchill Group’s] case was such that – particularly in the latter portion of that period – they are liable to an order for increased costs. To continue the litigation beyond that point, they are liable to indemnity costs.
This analysis supports the view that the lawyers’ conduct did not “loom large” in the costs judgment.
[23] HC costs judgment, above n 3, at [486].
Further, the involvement of Mr Simpson in terms of the costs judgment has to be kept in perspective. In summary, the issue arose in the context of an application by the Churchill Group/Fava interests to introduce into evidence an unsworn statement of a Mr Chong as an annexure to an affidavit from Mr Fava. Mr Chong had been at one point an employee of Aral. Mr Simpson objected to the admissibility of the unsworn statement. In a memorandum produced to the High Court on 16 June 2003, Mr Simpson discussed the basis for the objection. Mr Simpson referred to differences between an earlier statement by Mr Chong which was confidential and the later statement annexed to Mr Fava’s affidavit. Mr Simpson said he had sighted the confidential statement when Mr Chong and Mr Stewart QC met with Mr Simpson on 9 June 2003 on a “without prejudice” basis.
The comment that Mr Simpson had “sighted” Mr Chong’s statement during a meeting with Mr Stewart led to Mr Stewart filing a memorandum on 26 June 2003 stating that Mr Chong’s statement “did not leave my possession at any stage and Mr Simpson did not read any part of the statement” though Mr Stewart said he had read out to Mr Simpson the last paragraph as to the basis on which Mr Chong’s statement had been provided. Mr Stewart said Mr Simpson could only have been “referring to the fact that he would have seen me holding a bulky statement in my hand”.
Mr Simpson’s further response was set out in a memorandum of 21 March 2005. He accepted his meeting with Mr Stewart was “without prejudice” but pointed out that he disclosed no part of the negotiations at the meeting. He accepted that Mr Chong’s statement did not leave Mr Stewart’s possession but he said that during the meeting Mr Stewart had “quoted several extracts from the statement”. Mr Simpson said he was confident that at one stage during the meeting he “looked over [Mr Stewart’s] shoulder” as they read one paragraph together.
Mr Stewart responded with an affidavit sworn on 16 May 2005. In that affidavit he said that at no stage during the 9 June meeting did he allow Mr Simpson to “look over my shoulder and read a paragraph of Mr Chong’s confidential” statement. Mr Stewart did not expressly respond to the assertion that he had quoted several extracts from the statement during the meeting.
Hugh Williams J’s view of this series of steps was as follows:[24]
[433] What is critical … is that it is clear Mr Simpson must have been told the detail of the particular passage in Mr Chong’s confidential statement as to the reasons for his resignation for him to be able to phrase [the relevant part of Mr Simpson’s memorandum of opposition] as he did. Since he did not read the statement itself, it follows that the resignation reason must have been one of the paragraphs Mr Stewart read Mr Simpson at the meeting. No other source presents itself.
[24] HC costs judgment, above n 3.
Mr Fava had various responses. Amongst other matters, it was said that Mr Simpson had misled the Court. In relation to this, Hugh Williams J said that the “main response” must be that Mr Simpson did not mislead the Court.[25] The Judge explained his reason for this view as follows. Essentially, the Judge said that according to the law as it then stood, there was very little chance a signed but unsworn statement (like that of Mr Chong’s) exhibited to the affidavit of another would be admitted into evidence. Hugh Williams J continued:
[440] … That it was a device was testified to by the fact that a sworn copy of the statement was admitted in evidence the following day. Even if the unsigned statement exhibited to Mr Fava’s affidavit had been admitted on 16 June, very little weight would have been paid to it – and indeed very little weight was accorded the sworn statement in the determination of the interlocutory applications then current.
[25] HC costs judgment, above n 3, at [440].
The Judge continued by noting, secondly, that Mr Simpson’s goal was to persuade the Court not to admit the affidavit with the unsworn statement annexed. Hence, the Judge said his memorandum and oral submissions were advocacy, which is part of everyday litigation. That was not synonymous with “misleading”.
In any event, although Mr Simpson was successful in having the affidavit ruled inadmissible, it was for reasons other than those he advanced and the success was only short-lived.[26] It lasted 24 hours. Thereafter, Mr Chong appeared as a witness for the Churchill Group/Fava interests, gave extensive evidence, and was subjected to extensive cross-examination at the substantive hearing. Accordingly, the Judge concluded that Mr Fava’s efforts to create significance from these events were unsupported by the facts.
[26]Churchill Group Holdings Ltd v Aral Property Holdings Ltd HC Auckland CP574/01, 16 June 2003.
It follows that, while part of Mr Fava’s argument, this aspect did not assume much importance in the costs judgment. Nor could it. In that context it can be characterised as something of a storm in a teacup. We therefore agree with Peters J as to the lack of importance of this aspect to the costs judgment.
Impact on the security for costs application
Even if the lawyers’ conduct was in issue, we also agree with Peters J that the stage of the proceeding is a relevant factor in the present appeal. Essentially, the s 238 application and the associated application that the lawyers not act are in their very early stages. To act now in the way contended for by Mr Fava would be premature.
Mr Judd argues the stage of the proceedings is not a relevant factor because the allegations relating to Mr Simpson have long permeated the litigation. He posits that they are part of what has been an ongoing continuum. However, the position is that Mr Fava is seeking to go behind the costs judgment by a s 238 application. At this stage, what is in issue is an application that the lawyers not act in that proceeding. The next step, as determined by Associate Judge Bell, is that there will be the first of what is a two-stage inquiry.[27] The first stage is a preliminary hearing to decide whether the costs judgment should be reopened. If it is found that it should be reopened, there would be a second hearing of the costs application.
[27] Re Fava, above n 10.
Further, as Mr Judd acknowledges, there are hurdles for Mr Fava to overcome. Associate Judge Bell, in considering whether to make an order for security for costs on the s 238 application, said he regarded the chances of Mr Fava’s challenge under s 238 surviving any preliminary investigation as being “extremely thin”.[28] It seems to us that Mr Fava may be using this challenge as a collateral means of seeking to revisit the costs judgment. In other words, it may be being used to circumvent the striking out of the appeal when the Official Assignee refused to consent to the continuation of that appeal.
[28] At [24].
The Associate Judge noted that other Judges had expressed similar views about Mr Fava’s prospects of success. Associate Judge Bell referred to the decision of Venning J on Mr Fava’s application for a stay of execution of the costs judgment. Venning J found that there was no merit in the appeal and regarded Mr Fava’s attempts to pursue the matter further as an exercise in futility. On appeal, this Court expressed agreement with Venning J’s reasoning. The Court continued:[29]
[12] … Even if the Court were satisfied that a miscarriage of justice had occurred and the judgment should be set aside, this would inevitably be on terms requiring at least a substantial contribution to the wasted costs incurred by the respondents in relation to the first hearing. Given the scale of the costs incurred during the trial, an award of several hundred thousand dollars would undoubtedly be made. It was not the fault of the respondents that the proceedings were brought to an abrupt end. That resulted from the failure by Mr Fava to pay a debt of a relatively trivial sum compared to the very large amount being claimed for damages against the respondent. As Mr Fava accepted, neither he nor his companies would have any means to pay such an amount with the consequence that the substantive claim could not be pursued.
[29] CA stay judgment, above n 3.
Randerson J, delivering the judgment of the Court noted that the same conclusion was reached by this Court in 2007.[30] The relevant observation was made in dismissing an appeal by Mr Fava against a refusal by the High Court to approve a proposal under the Insolvency Act 1967 to have his 2006 bankruptcy adjudication set aside for the purposes of resuscitating the substantive litigation. Again, the Court noted that it was difficult to see how the result could be achieved without Mr Fava, the Churchill Group interests or some other party meeting the respondent’s costs associated with the abandoned trial and providing substantial security for costs.
[30] Fava v Zaghloul [2007] NZCA 594.
The Supreme Court in Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd said that “[t]he general rule is that, once a court having jurisdiction … has entered its final judgment, that judgment is binding … unless it is set aside on appeal”.[31] The Court noted that there were “certain identified exceptions”.[32] The exception in issue in that case was fraud. Mr Fava relies on one of the exceptions to the principle of finality discussed in Corney v Brien.[33] In that case, Fullagar J discussed the origin of the power to “go behind” a judgment in bankruptcy. His Honour described the scope of the power in this way:[34]
No precise rules exist as to what circumstances call for an exercise of the power, but certain things are, I think, clear enough. If the judgment … followed a full investigation at a trial on which both parties appeared, the Court will not reopen the matter unless a prima facie case of fraud or collusion or miscarriage of justice is made out.
[31] Commissioner of Inland Revenue v Redcliffe Forestry Venture Ltd [2012] NZSC 94 at [1].
[32] At [1].
[33] Corney v Brien, above n 14.
[34] At 356–357.
It is not suggested that this case involves either fraud or collusion. Instead, Mr Fava relies on the miscarriage of justice ground. Mr Fava contends in his amended statement of claim that there was no evidence before the High Court to support the finding in the course of the costs judgment that his allegations in relation to Mr Simpson were unfounded. The challenge is to Hugh Williams J’s reasoning for the conclusion that Mr Simpson was not inaccurate when he said he had read or seen parts of the confidential statement.
In terms of what comprises a miscarriage, Mr Fava relies on Devi v Roy.[35] As Mr Judd notes, that case discussed the situations in which the Privy Council would go behind concurrent findings of fact by two lower courts. Lord Thankerton set out a number of propositions as to the practice relating to the approach to concurrent findings. Of the miscarriage of justice ground, Lord Thankerton said:[36]
(4) That, in order to obviate the practice [of not ordinarily reviewing concurrent factual findings], there must be some miscarriage of justice or violation of some principle of law or procedure. That miscarriage of justice means such a departure from the rules which permeate all judicial procedure as to make that which happened not in the proper sense of the word judicial procedure at all. That the violation of some principle of law or procedure must be such an erroneous proposition of law that if that proposition be corrected the finding cannot stand; or it may be the neglect of some principle of law or procedure, whose application will have the same effect. The question whether there is evidence on which the Courts could arrive at their finding is such a question of law.
Assuming without deciding that this is an appropriate analogy, the threshold is a high one, even on this analysis.
Result
[35] Devi v Roy [1946] AC 508 (PC).
[36] At [17(4)].
For these reasons we agree with the assessment of Peters J. Accordingly, the appeal is dismissed. The appellant must give security for costs in the sum of $17,500 to the Registrar of the High Court. The appellant’s application dated 23 February 2012 is stayed until the said sum is paid or security given.
The respondent, having succeeded, is entitled to costs on the appeal. The appellant must pay the respondent costs for a standard appeal on a band A basis plus usual disbursements.
Solicitors:
Murdoch Hall & Co, Auckland for Appellant
Bell Gully, Auckland for Respondent
APPENDIX
Extract from respondent’s submissions as to outstanding costs other than those in the costs judgment itself.
| 27/01/2010 | Churchill Group Holdings v Aral Property Holdings Ltd CIV-2001-404-2302, 27 January 2010. | Unsuccessful application by Mr Fava for stay of costs judgment. Mr Fava ordered to pay costs on a 2B basis for this application. Costs remain unpaid. |
| 11/05/2010 | Aral Property Holdings Limited v Fava HC Auckland CIV-2010-404-787, 11 May 2010. | Mr Fava adjudicated bankrupt. Order for costs in favour of Aral – $2,360. Costs remain unpaid. |
| 03/11/2010 | Churchill Group Holdings Ltd v Aral Property Holdings Ltd [2010] NZSC 131. | Unsuccessful application by Mr Fava for leave to appeal to appeal to the Supreme Court. Mr Fava ordered to pay costs of $2,500. Costs remain unpaid. |
| 26/11/2010 | Churchill Group Holdings Ltd v Aral Property Holdings Ltd [2010] NZCA 562. | Unsuccessful application by Mr Fava challenging the creditors’ representation. Costs of $7,423.15 remain unpaid. |
| 28/02/2011 | Churchill Group Holdings Ltd v Aral Property Holdings Ltd [2011] NZCA 34. | Unsuccessful application by Mr Fava for extension of time. Appeal against costs judgment struck out. Costs of $4,020 remain unpaid. |
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