FM Custodians Limited v Hannan

[2017] NZHC 3286

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA

TE WHANGANUI-Ā-TARA ROHE

CIV-2016-485-983 [2017] NZHC 3286

UNDER

THE INVOLVENCY ACT 2006

IN THE MATTER OF

The bankruptcy of Patrick Bernard
Christopher Hannan

BETWEEN

FM CUSTODIANS LIMITED Judgment Creditor

AND

PATRICK BERNARD CHRISTOPHER HANNAN

Judgment Debtor

Hearing:	On the papers
Counsel:	A M Cunninghame for the judgment creditor P B Hannan self-represented judgment debtor R B Hucker for the receiver
Judgment:	21 December 2017

JUDGMENT OF CULL J (As to costs)

[1]      This judgment deals with two applications for costs, following the judgment of 20 October 2017.1

Judgment of 20 October 2017

[2]      On 20 October 2017, I issued a judgment with reasons for declining to issue an interim injunction, preventing the sale of Unit 7A Waiu Street, Wainuiomata and

any other assets of Paddy Hannan Contracting Ltd.

1      FM Custodians Ltd v Hannan [2017] NZHC 2578.

[3]      Mr Hannan filed his application for interim injunction without notice on

9 October 2017, seeking urgency, because the receiver of Paddy Hannan Contracting Ltd, Mr Whitley authorised Bayley’s Real Estate to place the property on the market for tender.  After three previous unsuccessful attempts, the Lower Hutt City Council had  signed  a  conditional  Sale  and  Purchase Agreement,  which  was  to  become unconditional on Friday 13 October 2017.  Mr Hannan stated his reason for seeking an injunction was to prevent the sale of property, until the determination of his defended bankruptcy proceedings, which had been reserved for the decision of Associate Judge Smith.

[4]      I directed  that  the  without  notice  interlocutory  application  for  injunction together with the affidavit of Mr Hannan and his undertaking, be served by way of pickwick service on the receiver, Mr Whitley of Auckland, Bayley’s Real Estate Ltd and FM Custodians Ltd, the judgment creditor.2

The hearing on 12 October 2017

[5]      The hearing took place on 12 October 2017.  Notices of opposition were filed both by the judgment creditor and the non-party, Mr Whitley the receiver. Affidavits were filed in support of those notices.

[6]      At the hearing, appearances were made by counsel on behalf of both the judgment creditor and the non-party, Mr Whitley.   Mr Hannan’s application for injunction was unsuccessful, because in the absence of any pleaded statement of claim, Mr Hannan’s remedy was available in damages and his defended bankruptcy hearing did not have any bearing on the sale of the properties owned by Paddy Hannan Contracting Ltd.   Mr Hannan’s wish to bring claims against the receiver and the judgment creditor for irresponsible and negligent lending, amid other allegations, was available to him, without the need for an injunction restraining the sale.

[7]      The hearing was short. I had indicated orally to Mr Hannan that he would have difficulty in meeting the threshold test, because the remedy he was seeking be met in damages.   There was no serious question to be tried; the balance of convenience favoured the judgment creditor, because 7A Waiu Street was a difficult property to sell

and had been the subject of three attempts so far; and overall, the justice of the case did not require the issue of an interim injunction.

The application for costs

[8]      Following the issue of the judgment the judgment creditor and the receiver have both filed memoranda for indemnity and/or increased costs. The costs sought by the solicitors for the judgment creditor are $12,724.47 and for the receiver $10,497.98 or in the alternative increased costs in the amount of $8,914.35.

Costs principles

[9]      The first principle is that costs are ordered at the discretion of the High Court.3

Rule 14.2(1)(a) of the High Court Rules 2016 provides that the party who fails with respect to a proceeding or interlocutory application should pay the costs to the party who succeeds.

[10]     Indemnity costs may be awarded under:

(a)     rule 14.6(4)(a) where a party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing a proceeding;

(b)rule 14.6(4)(e) where the party claiming costs is entitled to indemnity costs under a contract or deed; or

(c)      rule 14.6(4)(f) where some other reason exists justifying the Court making an order for indemnity costs, despite the principle that the determination of costs should be predictable and expeditious.

[11]     Importantly, if costs are awarded on an indemnity basis, they must have been reasonably incurred.4

3      High Court Rules 2016, r 14.1(1).

[12]     The judgment creditor, FM Custodians seeks solicitor-client indemnity costs on the basis of cl 15 of the Loan Agreement entered into between Paddy Hannan Contracting Ltd and FM Custodians.  Clause 15 provided:

All fees, expenses and liabilities at any time incurred or charged by the Lender or by the Lender’s agents or employees in connection with the processing, variation, release or administration of the loan, or in the course of protecting or enforcing or attempting to protect or enforce the Lender’s right under this agreement must be paid by the Borrower to the Lender upon demand.

By way of example only, fees and expenses may include:

(a)       Administrative time and costs including the time of the lender’s staff or agents, whose time should be charged at reasonable rates; or

(b)       Legal fees and expenses on a solicitor-client basis.

[13]     Further, FM Custodians submit that they acted responsibly in responding to the application and had to act with a degree of urgency. Pertinently, their solicitors submit:

Given  the  history of  dealings  between the  parties, and  the  limited  time available, proceeding to a hearing  was  a more  pragmatic  approach  than attempting to negotiate withdrawal of the application.

[14]     Counsel who appeared at this injunction hearing has also been acting in relation to the bankruptcy application. As counsel submits, a significant amount of background information was relied on for the production of Mr Hutchison’s affidavit, which was produced at short notice.

Non-party costs

[15]     Mr Whitley, as receiver, also seeks indemnity costs as a non-party.   The application is made on the basis that Mr Whitley’s response was reasonable,5 because he as a non-party is served with an application and exercised his right to appear in opposition.  It is also submitted that it was reasonable to instruct Auckland counsel “particularly where Mr Whitley was disadvantaged by no statement of claim being filed.”  His counsel, Mr Hucker, submits that having been directed to be served with the application, Mr Whitley “had an obligation as an officer of the Court to ensure that the Court was advised of the steps that had been taken in the receivership with regard to the sale of the property.”  Mr Whitley also disclosed the agreement for sale and purchase as was appropriate and required.

[16]     Mr Hucker relied on the principle in r 14.6(4)(d) of the High Court Rules, that indemnity costs may be awarded in favour of a non-party where the non-party has acted reasonably in relation to the proceeding. Reliance was also placed on Bradbury v Westpac Bank Corp.6

[17]     Mr Hucker submits that the inference to be drawn from these proceedings is that Mr Hannan had an ulterior motive to prevent the sale of the property for his own commercial reasons, independently of the right or entitlement of either himself or of the  receiver  to  exercise  a  power  of  redemption  or  sale.    He  also  submits  that

Mr Hannan’s application was in wilful disregard of known facts or established law.

[18]     In the alternative, the receiver seeks increased costs on a 2B basis together with an uplift of 50 per cent on the basis that Mr Hannan pursued an unnecessary step or argument that lacked merit and caused costs to unnecessarily be incurred by the receiver.

Decision

[19]     Mr Hannan was unrepresented.  He filed his injunction application, together with an affidavit and an undertaking without a statement of claim.  The reason he sought the injunction was to await the outcome of his defended bankruptcy hearing, in which both Mr Whitley and FM Custodians had engaged.

[20]     FM  Custodians  Ltd  appointed  Mr Whitley as  receiver  of  Paddy Hannan Contracting Ltd.  As Ms Cunninghame for FM Custodians submits, FM Custodians was entitled to appoint a receiver over Paddy Hannan Contracting Ltd in the event of default and Mr Whitley was so appointed.

[21]     Mr Hannan has resisted both sets of costs on the basis that this is effectively “double dipping”.  Mr Whitley was not a party and nor did he seek to be joined to the proceeding.

[22]     I consider that costs for FM Custodians as well as Mr Whitley as a non-party is effectively double dipping here, because Mr Whitley is the agent for FM Custodians.

6      Bradbury v Westpac Bank Corp [2009] NZCA 234, [2009] 3 NZLR 400.

Further, although he was served, as was proper and directed, the injunction application was unlikely to succeed, on a scrutiny of the grounds for seeking it.

[23]     As both FM Custodians and Mr Whitley effectively submit, the proceeding was doomed. Although entitled to be present, Mr Whitley was not required to appear or have counsel appear on his behalf, particularly when FM Custodians was ably represented  by  counsel,  Ms Cunninghame,  who  had  appeared  in  the  defended bankruptcy proceedings.

[24]     FM Custodians is entitled to costs however.  I do not consider indemnity costs should be awarded on the basis of cl 15 of the Loan Agreement. I consider the defence of this urgent interlocutory injunction application is a step removed from the solicitor- client legal fees and expenses basis envisaged by cl 15 of the Loan Agreement.

[25]     The appointment of Mr Whitley and the other steps taken by the judgment creditor may be within the contemplation of cl 15, but I am not persuaded that the appearance and opposition to this interim injunction application either:

(a)       warrants solicitor-client indemnity costs; or

(b)      is contractually payable on the basis of the Loan Agreement.

[26]     Accordingly, I order that FM Custodians are entitled to 2B costs, together with reasonable expenses as approved by the registrar.  There will be no costs for the non- party in these circumstances.

Cull J

Solicitors: Anderson Lloyd Hucker Associates