Houchens v Ruscoe

[2023] NZHC 3427

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE

CIV-2023-485-431

[2023] NZHC 3427

UNDER

Parts 4 and 19 of the High Court Rules 2016 and the Trusts Act 2019

BETWEEN

RYAN MARSHALL HOUCHENS

First Applicant

AND

GIA THANH PHAN

Second Applicant

AND

TRISTEN ANTHONY ROBINSON

Third Applicant

AND

JOSHUA DAVID STEVENSON

Fourth Applicant

AND

DAVID IAN RUSCOE AND MALCOLM RUSSELL MOORE

Respondents

Hearing:

On the papers

Counsel:

E B Moran for the Applicants

M A Corlett KC and S A Barker for the Respondents

Minute:

29 November 2023

JUDGMENT OF PALMER J

(Costs)

Counsel/Solicitors

J S Cooper KC, Auckland P G Watts KC, Auckland M A Corlett KC, Auckland Buddle Findlay, Wellington

Buddle Findlay, Christchurch

DLA Piper New Zealand, Wellington

HOUCHENS v RUSCOE [2023] NZHC 3427 [29 November 2023]

Judgment

[1]                 On 24 October 2023, I issued a judgment declining an interlocutory application by the applicants to appoint a special trust adviser and independent representative of account holders/beneficiaries of Cryptopia.1 I held:

(a)There was no evidence of anything approaching a breach of trust.2 The application seemed not to be based on an existing problem but was a means to find a problem – a fishing expedition. There is an insufficient evidential basis of a practical problem to make the sort of appointments sought.

(b)The appointments sought would not be an effective means of protecting the interests of account holders.3 I was not satisfied a representative counsel or special trust adviser would be able to reconcile the interests of account holders. It would seem inevitable that the proposal is practically unworkable.

(c)The appointment of counsel to assist the Court is a more effective means of protecting the interests of account holders.4 If an account holder has a significant issue they wish to pursue, they are able to apply to the Court to appear and be heard.

(d)In any case, the identified High Court Rules 2016 (the Rules) or provisions of the Trusts Act 2019 do not provide the Court with the jurisdiction to make the appointments sought or confer upon a special trust adviser the powers sought.5 If there was any jurisdiction to make the orders sought it would be found in the Court’s inherent equitable jurisdiction.6 But no problem of fairness affecting the interests of

1      Houchens v Ruscoe [2023] NZHC 2969.

2 At [20].

3 At [21].

4 At [22].

5      At [23]–[24].

6 At [25].

account holders, which they could not reasonably be expected to address, has been identified.

(e)“Costs follow the event”.7

Relevant law of costs

[2]                 Rule 14.6 of the Rules provides for increased and indemnity costs. It provides, relevantly:

(3)The court may order a party to pay increased costs if—

…

(b)the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—

(i)failing to comply with these rules or with a direction of the court; or

(ii)taking or pursuing an unnecessary step or an argument that lacks merit; or

(iii)failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument; or

…

(d) some other reason exists which justifies the court making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.

(4)The court may order a party to pay indemnity costs if—

(a) the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or

…

(f) some other reason exists which justifies the court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious.

7 At [26].

[3]                 The Court of Appeal in Bradbury v Westpac Banking Corp said “increased costs may be ordered where there is failure by the paying party to act reasonably”8 and “indemnity costs may be ordered where that party has behaved either badly or very unreasonably,”9 including pursuing a hopeless case or pursuing a case for an improper motive.10

Submissions

[4]                 The liquidators now seek an order that the applicants pay costs on an indemnity basis of $85,561, a 2B basis with an uplift of 50 per cent of $22,764.75, or on such basis as the court thinks just, together with the liquidators’ disbursements of $95.65 and costs on a 2B basis for the costs memorandum of $956. Mr Corlett KC submits:

(a)The application was brought for an ulterior purpose. The applicants each have an agreement with Mr Victor Cattermole for him to pay counsel’s fees. It is plainly not the case that he was not receiving any financial or other benefit, as the applicants say. Mr Cattermole is seeking assignment of account holders’ claims in exchange for a worthless token in his Cogito Metaverse. The appropriate inference is that the purpose of the application was to delay progress with the distribution application and to inform Mr Cattermole of the liquidators’ actions at all times. Neither is a proper purpose. The application was  a fishing expedition. The appointment applied for could have been raised when the liquidators proposed appointing Mr Watts KC as amicus.

(b)The applicants unnecessarily contributed to the time and expense of the proceeding by pursuing unnecessary steps and unmeritorious arguments. There were no jurisdictional or evidential bases for the orders sought. The application was unsupported by evidence, only allegations of breach of trust that were without merit. The applicants requested a later date for the hearing, pursued service as an issue,

8      Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [27].

9 At [27].

10     At [29] and see also [81].

continually filed additional late evidence without leave or notice, and refused to file the application as an originating application until directed by the Court. The liquidators instructed senior counsel because of the serious and repeated allegations of breach of trust which were abandoned and unsubstantiated.

(c)The legal costs of this proceeding will be borne by the account holders of Cryptopia. They ought not to do so when the application was meritless and brought for an improper purpose.

[5]                 Ms Moran, for the applicants, submits there is no basis to depart from the ordinary approach to costs being awarded on a 2B basis, of $12,308.50 plus disbursements of $95.65:

(a)Many of the liquidators’ concerns relate to Mr Cattermole, rather than the applicants. The Court did not find the application was brought for an ulterior motive or for Mr Cattermole to obtain information. Counsel did not act for Mr Cattermole.

(b)There is no evidence to support the proposition that the applicants have acted in breach of their duties to use Court processes for a proper purpose, which unfairly impugns the proposed independent counsel.

(c)The application was signalled before the applicants knew of the intended timing of the distribution. The Court found there was jurisdiction to make the application but there was insufficient evidence.

(d)Mr Barker, for the liquidators, asked the Registry to allocate the hearing date without advising the applicants. The application for directions as to service followed an unanswered letter. Leave was sought to file two late affidavits and granted for one. The applicants had no influence over the liquidators’ choice of counsel. It is incorrect to allege they made and abandoned unsubstantiated allegations of breach of trust.

(e)The applicants dispute some of the details of the costs claimed.

What costs should be awarded?

[6]                 I do not consider I am in a position to make finding about any ulterior purpose for bringing the proceedings. Inferences based on potential interests are an unsatisfactory basis to do so. I made no such finding in the judgment and there is no more evidence to found such a finding now. In the context of the lack of evidence to support anything approaching a breach of trust, I did find the application was a fishing expedition.11 But that alone does not justify awarding increased or indemnity costs.

[7]                 I accept that there were procedural deficiencies with the application and that I found there was a lack of jurisdiction to make the orders sought. But the procedural thicket of originating applications in relation to these issues made deficiencies likely to arise. The orders sought were novel, but the circumstances meant that counsel assisting the Court considered they might not be radical.

[8]                 The lack of evidence of allegations that were initially put in terms of breach of trust was undesirable. It put the liquidators to additional time and the expense of engaging senior counsel. For that I consider there should be an uplift in costs of 25 per cent.

[9]                 I do not award costs for the costs memorandum. The liquidators have not been successful in what they sought so it was reasonable for the applicants not to agree.

[10]Regarding more points of detailed disagreement:

(a)Costs are not awarded for appearance at a case management conference of 24 July 2023, or filing a memorandum dated 8 August 2023 for the conference on 9 August 2023, because they concerned different proceedings.

11     Houchens v Ruscoe, above n 1, at [20].

(b)The appearance at the hearing is for a half day because it was set down for two hours.

(c)I certify for second counsel.

Result

[11]I award costs on a 2B basis of $13,503.50, increased by 25 per cent to

$16,879.38, plus disbursements of $95.65, to the liquidators.

Palmer J