Harvey v Gateshead Investments Limited

[2014] NZHC 464

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2011-404-5909 [2014] NZHC 464

BETWEEN            CHRISTOPHER MICHAEL HARVEY First Plaintiff/First Counterclaim Defendant

AND  RACHEL SUSAN HARVEY

Second Plaintiff/ Second Counterclaim Defendant

ANDRICHARD JAMES PARKER Third Plaintiff

ANDGATESHEAD INVESTMENTS LIMITED First Defendant/First Counterclaim Plaintiff

AND  PARANUI PROPERTIES LIMITED

Second Defendant/Second Counterclaim Plaintiff

ANDBETA PACIFIC CORPORATION LIMITED Third Defendant

Hearing:                   On the papers

Counsel:                  J Toebes for Counterclaim Plaintiffs

L A B Kemp for Counterclaim Defendant

Judgment:                13 March 2014

JUDGMENT OF KATZ J (Costs)

This judgment was delivered by me on 13 March 2014 at 3:30 pm

Pursuant to Rule 11.5 High Court Rules

Registrar/Deputy Registrar

Solicitors:               J Toebes, JT Law, Wellington

L Kemp, Kemp Barristers & Solicitors, Auckland

HARVEY  & ORS v GATESHEAD INVESTMENTS LIMITED & ORS [2014] NZHC 464 [13 March 2014]

Introduction

[1]      The first and second defendants (together “the judgment creditors”) filed a counterclaim  against  the  first  plaintiff  (“the  executor”)  and  the  second  plaintiff (“Mrs Harvey”) that was partially successful.  The executor and Mrs Harvey submit that the judgment creditors should meet their costs of defending the counterclaim. The judgment creditors on the other hand submit that, if anyone is entitled to costs, it is them. They are, however, willing for costs to lie where they fall.

Background

[2]      Mrs Rachel Harvey, the second plaintiff, is a nurse.  She had interests in three rest home businesses and personally guaranteed the debts of those businesses.  She was unable to meet her obligations under the relevant guarantees and was eventually bankrupted.

[3]      With  creditors  demanding  payment,  Mrs  Harvey  and  her  late  husband Mr Michael Harvey attempted to remove their matrimonial home in Coatesville from the reach of Mrs Harvey’s creditors.  They owned the property as joint tenants. They entered into an agreement under the Property (Relationships) Act 1976 (“PRA”), pursuant to which Mrs Harvey agreed to transfer her interest in the property to Mr Harvey as his separate property.  In exchange Mr Harvey gave up any interest in the rest home businesses.

[4]      Mr Harvey subsequently died and a dispute arose between the executor of his will   and   Mrs   Harvey’s   creditors   regarding   the   Coatesville   property.   The counterclaim plaintiffs sought orders:

a)  declaring    the    relationship    property    agreement    between    Mr    and

Mrs Harvey to be void;

b)  removing the notice of claim under the PRA from the title to the property;

and

c)  vesting the Coatesville property in Mrs Harvey by survivorship (in which event it would have formed part of her bankrupt estate, for distribution to her creditors).

[5]      The judgment creditors sought summary judgment on their counterclaim. That application was heard by Associate Judge Faire.   His Honour held that the relationship property agreement was entered into with the intention of, and in any case having the effect of, defeating creditors in terms of s 47 of the PRA.1   It was therefore void as against creditors.  His honour accordingly made the orders set out at [4](a) and (b) above.  He found, however, that there were arguable defences to the claim that Mr Harvey’s joint interest in the Property had passed to Mrs Harvey by virtue of survivorship.   It was therefore necessary for that issue, which turned on whether the joint tenancy had been severed in equity prior to Mr Harvey’s death, to

proceed to trial.  Associate Judge Faire reserved the issue of costs, for determination at the conclusion of the proceeding.

[6]      That  sole  remaining  issue  in  the  proceeding,  whether  the  joint  tenancy between Mr and Mrs Harvey had been severed, was heard before me.  I concluded that the joint tenancy had been severed.2    I further concluded that severance of the joint tenancy did not prejudice creditors as at the date of the Agreement or, indeed, as  at  any  date  prior  to  Mr  Harvey’s  death.  The  creditors  had  no  recourse  to Mr Harvey’s   interest   in   the   Property   prior   to   his   death.  “Replenishing” Mrs Harvey’s share of the assets would therefore be sufficient to rectify any breach of s 47 of the PRA.   A reversal or voiding of the associated mutual agreement to

sever the joint tenancy was not required. I therefore declined to make the order set out at [3](c) above.

[7]      Against this background, it is necessary to determine what costs orders, if any, should be made in relation to the counterclaim, taking into account both the outcome of the hearing before Associate Judge Faire and the subsequent hearing

before me.

1      Harvey v Gateshead Investments Ltd [2012] NZHC 1059.

2      Harvey v Ors v Gateshead Investments Limited & Ors [2013] NZHC 2253, [2014] 2 NZLR 79.

Submissions

[8]      The executor seeks costs and disbursements totalling $26,151.70, calculated on a 2B scale basis.   The judgment creditors submit, on the other hand, that costs should lie where they fall, but if costs were to be awarded to any party, it should be to  them,  because  the  summary judgment  hearing  was  more  costly  than  the subsequent hearing before me.  Ultimately they were successful in obtaining two of the three orders sought in the counterclaim.

Discussion

[9]      Costs are a matter for the Court’s discretion.3    The primary principle is that “costs follow the event”, i.e. the party who fails in a proceeding should pay costs to the party who succeeds.4

[10]     In cases such as the present, where both sides have had some success in the proceedings, the proper approach was set out by the Court of Appeal in Packing In Ltd (in liq) v Chilcott.5   The Court said at [5]-[6]:

In a case... where in broad terms each party has had similar success, we do not consider it helpful to focus too closely on the question which party has failed and which has succeeded. Costs in a case such as this should rather be based on the premise that approximately equal success and failure attended the efforts of both sides. To that starting point should be added issues such as how much time was spent on each transaction or group of transactions in issue, and any other matters which can reasonably be said to bear on the Court's ultimate discretion on the subject of costs. In the end, as in all costs matters, the Court must endeavour to do justice to both sides, bearing in mind all material features of the case.

...

Success or failure... is better assessed by a realistic appraisal of the end result rather than by focusing on who initiated what step, and the extent to which that step succeeded or failed.

[11]     In this case three orders were sought in the counterclaim.   The judgment creditors succeeded, at the summary judgment stage, in obtaining two of the orders sought, namely an order declaring the relationship property agreement to be void and

3      High Court Rules, r 14.1.

4      Rule 14.2(a).

5      Packing In Ltd (in liq) v Chilcott (2003) 16 PRNZ 869 (CA).

a (closely related) order removing the notice of claim under the PRA from the title to the Coatesville property.   Those orders were of real substance as, if they had not been made, Mrs Harvey’s half interest in the Coatesville property would not have been available to her creditors.

[12]     At trial, however, the judgment creditors failed to obtain the third order sought, namely an order vesting the entire Coatesville property in Mrs Harvey by survivorship.   Again, this was an order of real substance.  The consequence of it was that Mr Harvey’s interest in the property would pass beneficially to his children under the terms of his will, rather than to Mrs Harvey by survivorship (in which event it would have formed part of her bankrupt estate, for distribution to her creditors).

[13]      In short, both the executor and the judgment creditors’ position was that they were entitled to the entire property.   The executor relied on the relationship property agreement as establishing his entitlement and the judgment creditors relied on the doctrine  of  survivorship.    Ultimately,  however,  the  consequence  of  the  various orders made was that each party received a half interest in the property.

[14]     In such circumstances the Chilcott approach of “a realistic appraisal of the end result” leads inexorably to the conclusion that costs should lie where they fall. The parties had roughly equal success.   The executor defeated the claim that the entire estate should vest in Mrs Harvey (for the benefit of her creditors), but the judgment creditors were successful in their claims for an order voiding the relationship property agreement and a consequential order removing the notice of claim from registration against the title to the property.

Result

[15]     I decline to grant an award of costs in favour of either party.  Costs are to lie where they fall.

Katz J