Katavich v Meltzer and Haywood as Liquidators of Blackball Kitchens Limited (in liq) HC Auckland CIV-2006-404-005968

[2011] NZHC 245

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2006-404-005968

IN THE MATTER OF     Sections 284 and 323 of the Companies Act

1993 of the Companies Act 1993 and the Liquidation of Blackball Kitchens Limited (In Liquidation)

BETWEEN  ELAINE KATAVICH Applicant

ANDJEFFEREY MELTZER AND L J HAYWARD AS LIQUIDATORS OF BLACKBALL KITCHENS LIMITED (IN LIQUIDATION)

First Respondent

ANDBLACKBALL KITCHENS LIMITED (IN LIQUIDATION)

Second Respondent

Hearing:         (On the Papers)

Counsel:         P J Dale for the Applicant

R B Hucker and L F A Yaqub for the Respondents

Judgment:      24 March 2011

JUDGMENT OF DUFFY J [re Costs]

This judgment was delivered by Justice Duffy on 24 March 2011 at 4.00 pm, pursuant to

r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

KATAVICH v MELTZER and HAYWARD AS LIQUIDATORS OF BLACKBALL KITCHENS LIMITED (IN LIQUIDATION) HC AK CIV-2006-404-005968 24 March 2011

[1]      Mrs Katavich was the applicant in a long running application to have the liquidators of Blackball Kitchens Ltd (In Liquidation) (Blackball) replaced.   The application has a tortuous history.   Ultimately, orders were made removing the liquidators, who were the first respondents; and directing other steps be taken, which had the effect of reviving the liquidation process and allowing the Official Assignee to  be  appointed  as  liquidator  of  Blackball.     However,  this  was  not  before Mrs Katavich had effectively re-shaped the basis of her application.  As a result, the original grounds on which her application was brought did not contribute to the successful  outcome  that  she  eventually  achieved.     Against  this  background, Mrs Katavich claims costs.

[2]      The liquidators oppose any award of costs to Mrs Katavich.  They argue that given their success in opposing the original grounds for their removal, they should be awarded costs.

[3]      The general principles governing awards of costs are set out in r 14.2 of the High Court Rules.  In general, the party who fails should pay costs to the party who succeeds; costs should reflect the complexity and significance of the proceeding; and, insofar as possible, the determination of costs should be predictable and expeditious. This is now achieved through the application of the daily recovery rates provided in Schedule 2 to the High Court Rules.  This schedule sets out the daily recovery rates for the three categories of proceedings provided for in r 14.3, which are defined by the skill and experience required of counsel.

[4]      The general approach is that a proceeding is to be categorised early in its life and once so categorised, it retains that category unless the Court considers it should be re-categorised.   Whilst r 14.3(2) permits re-categorisation, special reasons for doing so must be demonstrated.   This is because the general principle that costs should be predictable and expeditious will mean that once the skill categorisation has been made, it will influence the parties’ conduct of the proceeding.  The fact that an earlier skill classification later proves inadequate is unlikely of itself to be a special reason for re-categorisation: see Tindall v Far North District Council HC Auckland CIV-2003-488-135, 25 May 2007 at [11].

[5]      However, the time bands provided in Schedule 2 are not constant.   It is accepted that the appropriate time band for each step in a proceeding may vary according to the complexity of the step.

[6]      Whilst the rules relating to categorisation of proceedings and the scale of costs provided in Schedule 2 can be expected to result in predictability, consistency and  efficiency,  the  outlook  changes  when  a  proceeding  does  not  follow  a conventional course and/or where the final outcome may arise from new events occurring late in the proceeding’s history.  This can necessitate a different approach so that the costs awarded lead to a result that does justice to both sides.

[7]      This proceeding progressed in a stop-start fashion with a hearing time that was first adjourned and later, once the hearing began, adjourned part heard.   The early and middle parts of the hearings were wasted on issues Mrs Katavich later abandoned.  She has acknowledged this by indicating that she is not seeking costs for any steps taken before 22 December 2009.   She submits that costs for those steps should lie where they fall, though she has not explained why these unnecessary steps should lead to this result.  She seeks costs solely for the steps taken since that date.

[8]      Costs for the work after 22 December 2009 are sought at category 3B.  These costs come to $9,954, being described as 4.2 days at $2,370 per day.  Mrs Katavich also seeks disbursements of $5,240.89, being two days hearing fees and a sealing fee on the Court’s order.  However, the Court records reveal that of the allocated two day hearing time in February 2010, only one day on 23 February 2010 was required. Thus the costs sought by Mrs Katavich need to be reduced to reflect the actual hearing time.

[9]      The costs would work out at two half days for hearing and four half days for preparation, making a total of three days. At the time, the category 3B scale rate was

$2,370 per day.  I calculate this to come to a total of $7,110.  At category 2B, the scale costs would be $4,800 ($1,600 x three days).  Further, the hearing fees claimed as a disbursement needs to be reduced to one day, which brings this claim down to

$2,600.

[10]     I  have  been  unable  to  find  any  indication  on  the  Court  file  that  this proceeding has already been categorised.  Nor has any party drawn to my attention any earlier categorisation.   Accordingly, I am approaching it on the basis that its categorisation will now form part of the assessment of costs.

[11]     Mrs Katavich does not argue that the level of skill required for the proceeding warrants it being categorised as 3B.  Rather, she appears to accept that, in principle, the proceeding is no more than a category 2B proceeding, but that this should be uplifed to category 3B as a result of what she says was the liquidators’ unreasonable refusal to accept her settlement offer of 22 December 2009.  She relies on r 14.11(3) to support this increase in costs.  Rule 14.11(3) provides that:

Party A is entitled to costs on the steps taken in the proceeding after an offer of settlement is made if party A

(a) offers a sum of money to party B that exceeds the amount of a judgment obtained by party B against party A; or

(b) makes an offer that would have been more beneficial to party B than the judgment obtained by party B against party A.

[12]     The offer of settlement was made in a letter dated 22 December 2009 that was  sent  to  the  respondents  on  a  “without  prejudice,  save  as  to  costs”  basis. Mrs Katavich contends that the letter contained an offer to settle on terms virtually identical to those contained in the Court orders that she obtained.  In this regard, she says that the offer of 22 December 2009 offered a sensible resolution, avoided any criticism of the liquidators, served the interests of the creditors, and was consistent with the liquidators’ statutory duties.  Had it been accepted, the parties would have avoided the additional costs of returning to Court for the resumption of the hearing in 2010.

[13]     Mrs Katavich argues that the liquidators’ rejection of her offer justifies her

now receiving an order for increased costs for steps taken in the proceeding after

22 December 2009.   She concludes her submissions on costs by saying that if the Court is not minded to make an order for increased costs (at category 3B), she submits costs should be on a 2B basis.

[14]     The liquidators oppose any award of costs to Mrs Katavich.  They contend that, in its original form, the application made by Mrs Katavich contained serious allegations of misconduct against them; none of which were made out.   The respondents rely on the findings in my judgment that there was no impropriety on their part, arguing that this is a substantial finding in their favour.   The baseless allegations that were of particular concern to the liquidators included the following:

(a)      That as private liquidators they were personally required to fund investigations into liquidations as an incidence of their appointment;

(b)That  they  had  received  payment  of  a  debt  they  were  owed  by Blackball’s shareholder and director directly from Blackball before it went  into  liquidation.     This  in  essence  was  accusing  them  of knowingly receiving and benefiting from a preferential payment that was within the timeframe for qualifying as a voidable transaction;

(c)      That they were not qualified to act as liquidators of Blackball due to the  conflict  of  interest  which  existed  through  them  also  being creditors of Blackball;

(d)      That they wrongly influenced the process of their appointment at the

creditors’ meeting;

(e)      That they should be removed as liquidators of Blackball for their misconduct; and

(f)      That  they should  be  disqualified  from  acting  as  liquidators  under s 280 of the Companies Act 1993.

[15]     As none of these allegations was established, the liquidators understandably see themselves as having enjoyed a substantial measure of success.  They argue that they   have   successfully   defended   themselves   against   serious   allegations   of impropriety against them and that they had no choice but to do so.  They say that

Mrs Katavich did not resile from those allegations except in a limited way prior to the last day of the hearing.

[16]     The liquidators also argue that the manner in which Mrs Katavich conducted the application made her susceptible to a costs order.  Rather than attempt to remove them in the neutral way that was finally used, she originally sought to have the Court make findings of misconduct on the part of the liquidators.  She also relied on s 250, which terminated the liquidation in circumstances where any new liquidation took effect from the time it was commenced.  This had the effect of removing the ability to investigate Mrs Katavich’s concerns regarding certain transactions, because with any new liquidation such transactions would be outside the statutory timeframe for voidable transactions.

[17]     At the heart of the conflict between Mrs Katavich and the liquidators was her concern that there were suspect transactions which warranted investigation.  Though they  did  not  dispute  this,  they  were  not  prepared  to  fund  any  investigation. Mrs Katavich would also not fund any investigation, and there were insufficient funds in Blackball for it to fund an investigation.   For this reason, Mrs Katavich wanted the liquidators replaced.  She had someone else in mind who was apparently prepared to investigate the suspect transactions on a contingency fee basis.   Her attempt to remove the liquidators on the grounds of their misconduct proved disastrous, as such an attack on the liquidators’ professional reputations generated a strong resistance from them.

[18]     The situation was problematic from the beginning as it was based on an affidavit from Giovanni Maio, Building Consultant, which contained opinion evidence and a narrative based, in part, on hearsay evidence.  This document was largely  the  evidence  on  which  Mrs  Katavich  relied  to  establish  her  original allegations against the liquidators.   On 26 August 2008, during the hearing of the application (which was then adjourned part heard) I struck out parts of the affidavit. Other parts were not read as, by then, Mrs Katavich acknowledged the objectionable form of parts of this affidavit.   Full details of the critical assessment I made of Mr Maio’s affidavit are in my Ruling, Katavich v Meltzer & Hayward as Liquidators

of Blackball Kitchens Ltd (in liq) HC Auckland CIV-2006-404-005968, 26 August

2008.

[19]     To benefit knowingly from a voidable transaction is to enjoy an unwarranted financial  advantage  over  other  creditors.    This  is  akin  to  fraud.    To  accuse professional persons who regularly accept appointment as professional liquidators of engaging in this sort of conduct is an allegation of the most serious kind.  As with allegations  of  fraud,  such  accusations  should  not  be  made  without  a  proper supporting foundation.  The evidence upon which Mrs Katavich largely relied was a second-hand account from Mr Maio of representations purportedly made by certain documents.    Mr  Maio  is  neither  a  qualified  lawyer,  nor  an  accountant.    He  is therefore  not  competent  to  offer  expert  opinion  evidence  on  the  legal  and commercial meaning and effect of company documents.

[20]     Mrs Katavich did not apply for discovery until April 2009, when the hearing of the proceeding was adjourned part heard, having commenced in August 2008. The application  for discovery was  largely unsuccessful,  but  I did  allow  limited discovery  at  that  late  stage  regarding  documents  which  were  relevant  to  show whether Blackball had paid for advice that the liquidators had given to Blackball’s director and shareholder before the company was put into voluntary liquidation: see Katavich v Meltzer and Ors HC Auckland CIV-2006-404-005968, 29 May 2009. The discovery of this material revealed that pre-liquidation debt to the liquidators was owed by the shareholder and director and paid for by that person.  Mr Maio’s reported understanding (at [13] of his affidavit) that Blackball had paid this debt was incorrect.  There was no merit whatsoever in Mr Maio’s affidavit testimony that the liquidators had personally received potentially preferential payments from Blackball. Furthermore, at the relevant time, the law permitted persons who had advised company officers pre-liquidation to accept appointment as liquidators.  Thus, there was nothing in Mrs Katavich’s complaint that the giving of the advice to the director/shareholder was a disqualifying event that precluded the liquidators from accepting their appointment to this role.

[21]     Whilst  discovery  is  not  usual  in  applications  like  the  present,  it  can  be obtained.    Given  the  seriousness  of  the  allegations,  Mrs  Katavich  should  have

applied for discovery before making them.   In any event, as the application for removal  was  brought  in  September  2006,  there  was  ample  time  to  apply  for discovery before it went to a hearing.   This would have enabled Mrs Katavich to reconsider the allegations of misconduct she was making against the liquidators, once copies of the relevant documentary evidence were in her possession.   I have previously commented critically about her failure to obtain discovery: see Katavich v Meltzer and Ors HC Auckland CIV-2006-404-005968, 29 May 2009.

[22]     The  liquidators  also  argue  that  the  lateness  of  the  discovery  application (3 April 2009) and the failure to obtain discovery of most of the topics sought in the application were additional burdens that they suffered.

[23]     I understand that Mrs Katavich’s application for the liquidators’ removal was a last minute application before Blackball was struck off the Companies Register and that given the urgency of the situation, she may have considered there was no time to seek discovery.  But even if that is so, she brought about that circumstance in leaving matters as long as she did.  It is irresponsible to leave taking any action to the final hour and then to make baseless, damaging allegations against other persons because pressure of time precludes a full examination of the grounds of the application.

[24]     It is for these reasons that the liquidators now seek costs.  They maintain that they have been put to considerable trouble and expense to protect their professional reputations from Mrs Katavich’s original ill-conceived arguments for their removal. Furthermore, the proceeding was commenced in September 2006 and given its protracted progress, the liquidators did not obtain the vindication they sought until

2010.

[25]     The liquidators seek costs on a category 2 basis, plus a 50 per cent uplift for all steps taken in the proceeding.   This works out at 17.2 days at $1,600 per day, being $27,520, plus the 50 per cent of $13,760, which brings the costs to a total of

$41,280.

[26]     Regarding the “without prejudice” correspondence on which Mrs Katavich now relies for her increased costs at category 3B, the liquidators accept that making

an offer under r 14.10 influences the exercise of the Court’s discretion on costs. However, the liquidators contend that no offer that is capable of satisfying r 14.10 was ever made.

[27]     The liquidators argue that the initial correspondence on 17 September 2009 from Mrs Katavich simply required the first respondents to consent to orders but with each party bearing their own costs, no concession on the part of Mrs Katavich, and no offer to withdraw the allegations of impropriety.   They say that in these circumstances, they had no option but to decline the offer.

[28]     The liquidators refer to an offer of settlement that they made on 5 October

2009.  They say that by then they had faced four days of opposed hearing time – three days hearing on the substantive application and one on the discovery application,   plus   the   costs   of   preparing   various   memoranda   and   attending conferences and the aborted first hearing.   In fact, they have miscalculated.   The hearing commenced on 26 August 2008 and ran until 27 August 2009.   It then resumed on 29 August 2009, 4 December 2009, and again on 23 February 2010, when it concluded.   They say they offered, on the basis that allegations were withdrawn, to resign in favour of another liquidator, provided Mrs Katavich partially met their costs to the sum of $18,000.  This sum was offered on the basis that it was less than the preparation and hearing time of four days allowed under the rules in category 2B basis.   The offer was declined.   The liquidators contend that it was unreasonable for Mrs Katavich to have done so.

[29]     The liquidators contend that the “without prejudice” offer of 22 December

2009 made by Mrs Katavich required a variation from the legal position relating to the recovery of costs of the liquidation incurred by the liquidators under reg 35 of the Companies Act 1993, Liquidation Regulations 1994.  They say the offer contained no proposal by Mrs Katavich to withdraw the allegations of misconduct.  They argue that given Mrs Katavich’s insistence on continuing with these allegations, any settlement offer was not genuinely made, but merely an attempt to mitigate risk on costs.  They also say that by the time the offer had been made, there was only one further hearing day remaining and it is therefore of limited weight.

[30]     The liquidators argue that there is no basis for costs to be calculated on a category 3B basis as the proceedings were of a complexity requiring an average solicitor; and that there ought not to be a departure from the banding except on a principled basis.   They also oppose any claim for a hearing and hearing fees on

24 February 2010, because whilst two days in February were allocated for hearing, the hearing concluded on 23 February 2010.

Discussion

[31]     There is a general principle that unless there are exceptional reasons, costs should follow the result, thus the loser pays: see Shirley v Wairarapa DHB [2006] 3

NZLR 523 at [19]. However, a different approach is taken when each of the opposing parties has enjoyed a similar measure of success. In Packing In Ltd (in liq) formerly known as Bond Cargo Limited v Chilcott (2003) 16 PRNZ 869 at [5], the Court of Appeal stated that in a case where each party has had broadly similar success, it is not helpful to focus closely on the question of which party has failed and which has succeeded.   Instead, costs should 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, and any other matters which reasonably bear on the Court’s ultimate discretion.   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.

[32]     In Packing In Ltd, Packing In Ltd had applied to the High Court for orders that 14 transactions not be set aside as voidable transactions.  The High Court made an order in respect of 11 transactions worth $60,971, but not in respect of three worth

$51,374.   The High Court awarded costs against Packing In Ltd.   The Court of Appeal subsequently held that the conclusion that Chilcott had succeeded was not entirely correct because Packing In Ltd had succeeded in obtaining orders setting aside 11 transactions.  The starting point should have been one of equal success and failure on both sides.

[33]     I am  satisfied  that  the  present  case  is  one  that  can  properly be seen  as resulting in each of the opposing parties enjoying a similar measure of success, and for this reason the competing costs applications should be dealt with in accordance with the principles of Packing In Ltd.   Mrs Katavich formally maintained the allegations of misconduct until the hearing of 23 February 2010, when she filed a memorandum setting out the areas of her application where she resiled from the more trenchant allegations of misconduct.   I recorded this change in stance in a Minute,  dated  23  February  2010:  see  Katavich  v  Meltzer  and  Hayward  as Liquidators of Blackball Kitchens Ltd (in liq) and Anor HC Auckland CIV-2006-

404-005968,  23  February  2010.    The  effect  was  to  remove  or  neutralise  the allegations to the point where the main thrust of the application was that as the liquidators would not investigate without funding, despite their acknowledgment that there was something to investigate, the reasonable response was to remove them from their role as liquidators and replace them with the Official Assignee.  This was the basis on which Mrs Katavich secured the orders she sought.   The reasons for removing the liquidators from their role are set out in Katavich v Meltzer & Hayward as Liquidators of Blackball Kitchens Ltd (in liq) and Anor HC Auckland CIV-2006-

404-005968, 29 October 2010, at [41]-[45].

[34]     Mrs Katavich failed to establish any of the allegations of misconduct that she had made earlier on.  Unlike Packing In Ltd, no sums of money were involved, so it is harder to establish the proportion of each party’s success.   Here one party has secured the outcome she wanted in the form of Court orders, while the opposing parties have secured the outcome they wanted in the form of findings by the Court. This is a result where each side has enjoyed an equal measure of success and failure.

[35]     Mrs Katavich argues that the orders I made reflect the outcome she sought, and the fact that findings favourable to the liquidators were made does not deflect from the fact the application was ultimately granted.   Whilst it is correct that the orders I made reflected the outcome Mrs Katavich sought, they were made on a very different basis from that originally propounded by Mrs Katavich.   Her failure to establish the original basis on which the orders were sought does, in my view, deflect from  the fact  the  application  was  ultimately granted.    It  follows  that  I am  not persuaded that she has been entirely successful.  I remain of the view, therefore, that

it is better to see each side as having enjoyed substantially equal success.  This is the starting point I propose to adopt.

[36]     I now turn to consider how much time each party spent on the matters in issue.   The winning approach adopted by Mrs Katavich was first aired part way through the hearing on 4 December 2009 and was continued when the final hearing resumed on 23 February 2010.   On 18 February 2010, the liquidators filed a memorandum requesting that Mrs  Katavich  declare the  grounds  for removal on which  she  no  longer  relied.     On  23  February  2010,  Mrs  Katavich  filed  a memorandum recording where she resiled from her original approach and formally abandoned the allegations of misconduct.

[37]     Before the hearing on 23 February 2010, there were opposed hearings on 26,

27 and 29 August 2009 and 4 December 2009, where Mrs Katavich either pursued or maintained her original position.   Then there was the opposed interlocutory application on 3 April 2009.  At the hearing on 3 April 2009 both parties enjoyed some success, and for this reason, I propose to exclude this hearing from the present consideration.  This leaves the hearings on 26, 27 , 29 August 2009 and 4 December

2010 to be weighed against the hearing on 23 February 2010.  My recollection is that Mrs Katavich began to shift her focus to the winning approach in the course of the hearing on 4 December 2010.  She has not sought costs for this day.  Despite that, I consider the shift in approach which was  then  becoming apparent is enough to neutralise this day when it comes to assessing costs.  This leaves the hearings on 26,

27 and 29 August 2009 to be weighed against the hearing on 23 February 2009.  It follows that two days more hearing time was spent on the original misconceived approach than on the latter winning approach.

[38]     If equal time had been spent on each approach, there may have been a reason for finding that costs should lie where they fall.  Given that the hearing time is more than twice that for one approach as for the other, this may have required an adjustment, with some award of costs going to the liquidators to reflect the greater costs they would have incurred in achieving their success.  But here, the settlement offers and serious unfounded allegations against the liquidators must be brought into the mix of considerations.

[39]     Regarding  the  settlement  offers,  I  find  that  Mrs  Katavich’s  offers  of

22 December 2009 omit the retraction of the allegations of misconduct. The findings in the judgment give the liquidators more than is offered in the settlement offers. Given the importance of those findings for the liquidators and the measure of success they reflect, I consider that the settlement offers fall short of the benefits the liquidators obtained from the judgment.   The settlement offers do not, therefore, qualify in terms of r 14.11(3).  It follows that I find that Mrs Katavich is not entitled to the increased costs she seeks.  Nor do I consider that the settlement offers entitle her to costs on any basis.  For the reasons I have already given, I consider that the greater part of the hearing time was spent on Mrs Katavich’s original approach, and this was not the basis of the orders she ultimately obtained.  Apart from anything else, this is a feature of the lateness of the settlement offer.

[40]     I now turn to consider the liquidators’ settlement offer of 5 October 2009. Apart from the requirement for payment of $18,000 in costs, the offer resembles the outcome in the judgment.  That the costs are so high is also a feature of the lateness of this offer.  Had the offer been made earlier, it may well have been accepted.  The stumbling block seems to have been the requirement for payment of $18,000.  Since this  figure  was  calculated  on  the  approximate  scale  costs  then  payable,  it  is reasonable to assume that had the offer been made earlier, when the costs were not so high, it might have been more acceptable to Mrs Katavich.  In this regard, the offer suffers from the problems which can arise when they are made late in a proceeding. Furthermore, the offer does not reflect the measure of success which the liquidators have enjoyed as it is by no means certain that the outcome could result in an award of costs of $18,000 to them.

[41]     It follows that I do not consider the offers of settlement from either side to influence the costs awards they each seek.

[42]     The proceeding has not been categorised for costs purposes.  I consider that it is not sufficiently complex so as to warrant being elevated above the usual 2B categorisation.   Once adjustment is made for the change in stance of 4 December

2009, which was formally adopted on 23 February 2010, I consider that the hearing days are as follows:

(a)       One half day for 4 December 2009 and two half days for 23 February

2010 favouring Mrs Katavich; and

(b)      Six half days (26, 27 29 August 2008) and one half day (4 December

2009) favouring the liquidators.

[43]     Seen in this way, the hearing time on 4 December 2009 is equally split between the opposing parties.  For the other hearing time, there are two half days for Mrs Katavich against six half days for the liquidators.  When each group is set off against the other, there are four half days excess favouring the liquidators.   This provides ample reflection of the time wasted on the original position.   I propose, therefore, to use those four half days as a costs credit in favour of the liquidators.  I have decided to treat all the preliminary steps except for preparation as equally apportioned to both sides, and so will not take them into account.  Nor have I taken into  account  the  hearing  on  19  March  2007  that  did  not  proceed  because Mrs Katavich failed to serve the other creditors.  Those persons had an interest in the proceeding.  I acknowledge that the liquidators would have prepared for that hearing. I also acknowledge that Mrs Katavich should have ensured she had commenced her proceedings properly, including ensuring that persons whose interests might be affected by the outcome of the proceeding were aware of it and had an opportunity to participate, should they have wished to do so.  Nonetheless, the assessment of costs will  inevitably  have  some  aspects  which  are  dealt  with  using  a  broad-brush approach.

[44]   Since the hearing days covering issues on which the liquidators have substantially been successful occurred before the increase in Schedule 2, I propose to apply the former category 2B rate of $1,600 per day.  At category 2B, four half days days hearing and the attendant eight half days preparation at $1,600 per day come to

$9,600.

[45]     Next there is the liquidators’ request for an uplift to reflect the irresponsible manner in which the allegations of misconduct were made, as well as the protracted way in which Mrs Katavich has progressed the proceeding.

[46]    Allegations made in Court proceedings enjoy the protection of absolute privilege.  This privilege is given in the public interest because it is believed that this will benefit the “advancement of public justice”: see Cabassi v Vila (1940) 64 CLR

130 at 141.  In Dentice v Valuers Board [1992] 1 NZLR 720 at 724, Eichelbaum CJ

described the rationale as follows:

As a matter of policy, in order to ensure the free and unfettered availability of witnesses in any cause, it has been thought best to provide an absolute immunity from civil action, regardless of the nature of the proceeding, and irrespective of whether the evidence was true or false, or given in good faith or with malice.

[47]     The  corollary to  this  rule  is  that  parties  and  counsel  will  not  abuse  the absolute privilege, and that the allegations and their written evidence will be expressed in a reasonable and responsible manner.  Failure to do so can give rise to an  award  of  costs  above  the  standard  scale.    For  discussion  on  the  distinction between  standard  costs,  increased  costs,  and  indemnity  costs,  see:  Bradbury  v Westpac Banking Corporation [2009] 3 NZLR 400 (CA) at [27]-[29].

[48]     In the present case, Mrs Katavich made serious allegations of professional misconduct on the part of the liquidators in reliance on Mr Maio’s evidence.  Whilst she may have had to commence her proceeding under pressure of time, once it began, it ran from 2006 until 2010.  She did not seek the primary evidence which would show whether or not the suspect payment to the liquidators was a voidable transaction until February 2009.   She was granted discovery of the relevant documents on 29 May 2009.  She did not formally resile from her allegations until February 2010.

[49]     I consider that the most serious aspect of Mrs Katavich’s application is not the making of the allegations of misconduct, but maintaining them until the latter stage of the proceeding.  This was in circumstances where at any time after she had commenced  the  proceeding,  she  could  have  applied  for  discovery and  seen  for herself that the suspect payment was not made by Blackball.  I consider that when a party irresponsibly maintains serious allegations of misconduct that are damaging to reputation without a proper foundation and without taking reasonable steps to ascertain their correctness, the failure of those allegations is relevant to costs whether

they were abandoned or rejected.   In addition to this allegation are the allegations listed  in  [14]  herein,  which  were  also  baseless  and  which  I consider  were  not reasonably maintained.  For this reason, I consider that an uplift of 50 per cent of the costs to be awarded could ordinarily be justified.  However, in this case the evidence that disproved the allegation was in the hands of the liquidators. As the respondents, they carried no burden of proof.  Nonetheless, they had it in their power to dispel the false  allegation  but  did  not  disclose  the  information  until  I  made  the  limited discovery order requiring them to do so.  Furthermore, they opposed the discovery application in its entirety, which means they opposed the making of the order that led to the disclosure of the information that proved the allegations to be false.  By not disclosing this information earlier, the liquidators contributed to those allegations being maintained.   Consequently, this is another factor that needs to be taken into consideration.  Against this background, I consider the appropriate uplift to be 25 per cent. This brings the award of costs to $12,000.

[50]     Mrs Katavich contends that the liquidators’ application for costs contains surprising propositions.   The liquidators have criticised her management of the proceedings and reliance on Mr Maio’s evidence.   In answer to these criticisms, Mrs Katavich contends that she should not be penalised for any such errors because she subsequently took the responsible step of bringing in more senior counsel.  She attempts to disassociate herself from what she now acknowledges may have been an “overly aggressive approach by Mr Maio”.   Further, Mrs Katavich says that she acted in the public interest in bringing the proceedings and that the proceeding involved a previously unsettled area of law, namely the extent of a liquidator’s duties under s 255 of the Insolvency Act when there is no creditor funding.

[51]     I do not accept this.  I consider the basis the liquidators have advanced for their costs to be reasonable.   Mrs Katavich must remain responsible for the consequences of her use of Mr Maio’s evidence.  As the applicant, she had control over the evidence she presented to the Court.  She cannot disassociate herself from the Mr Maio’s allegations.  Nor do I consider that Mrs Katavich acted in the public interest in bringing the proceedings.   There was nothing about her application to suggest that her primary concern was to ensure that a proper investigation was undertaken on behalf of all of the creditors.  I gained the impression that she wished

to have a proper investigation undertaken on her own behalf, but was not prepared to fund the investigation.  Her actions have delayed the completion of the liquidation process for some years.   It is unknown whether anything will eventuate from the Official Assignee taking over the liquidation process.  She argues that she should not be penalised for taking these steps.   If she had acted reasonably efficiently and expeditiously in the pursuit of her application, I would agree.  Here, the manner in which she has conducted the proceedings has resulted in the liquidators enjoying as much success as she has.  I also do not accept that her proceeding has the benefit of settling a previously unsettled area of the law.  I consider that the approach she took in arguing that s 255 required a private liquidator to fund investigations out of his or her own pocket was unrealistic.   I do not consider the circumstances of this proceeding to meet the description of a case where there was a genuine need to resolve an unsettled area.  Whilst I have given serious consideration to the arguments Mrs Katavich has set out in her memorandum in reply to the liquidators’ costs memorandum, I remain of the views I have set out herein and consider that she should be liable for the costs that I have awarded against her.

[52]     Mrs Katavich has limited the disbursements sought to two days hearing fees and the sealing fee on the Court’s order.   I consider this limited claim to be reasonable, given that the final days of the hearing were focused on issues on which she was successful.   However, I have adjusted the claim to take into account the hearing on 23 February 2010 lasting one day, instead of the allocated two days.   I find, therefore, that she is entitled to recover disbursements in the sum of $2,640.89.

Result

[53]     Mrs Katavich is awarded $2,640.89 disbursements.   There is no award of costs to her.

[54]     The liquidators are awarded $12,000 in costs.

Duffy J

Counsel:     P J Dale P O Box 130 Shortland Street Auckland 1140 for the Applicant

Solicitors:    Hucker and Associates P O Box 3843 Shortland Street Auckland 1140 for the

Respondents

Copy To:     S W Greer P O Box 12448 Penrose Auckland 1642