M AND H
[2024] NZHC 3565
•27 November 2024
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-000862
[2024] NZHC 3565
UNDER the Insolvency Act 2006 IN THE MATTER
of an application for annulment of bankruptcy
BETWEEN
M
Plaintiff
AND
H
Defendant
Hearing: On the papers Appearances:
E Telle for the Plaintiff
G Neil / R Hindriksen for the Official Assignee
Judgment:
27 November 2024
COSTS JUDGMENT OF GARDINER J
This judgment was delivered by me on 6 November 2024 at 4.00 p.m. pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar Date.......................................
Solicitors:
Koo Telle Lawyers, Auckland Meredith Connell, Auckland
M v H [2024] NZHC 3565 [27 November 2024]
Introduction
[1] On 24 November 2022, this Court dismissed an application by M to annul the bankruptcy of her former partner H and ordered M to pay scale costs on a 2B basis to the Official Assignee in bankruptcy of the property of H (Assignee), who participated in the proceedings to assist the Court and to ensure that H’s interests were represented.1
[2] On 19 June 2024, the Court of Appeal allowed an appeal against this Court’s judgment, annulled H’s bankruptcy, ordered H to pay M Band A standard appeal costs in the Court of Appeal, quashed the High Court costs order, and directed the High Court to reconsider costs in light of its decision.2 This judgment is that reconsideration.
[3] The Assignee submits that costs ought to lie where they fall. Alternatively, that if the Court is minded to award costs against H, the costs ought not to exceed 2B scale costs. This is because M’s conduct and approach to the High Court application substantially increased the costs involved and it is unjust in the wider circumstances of the case for H to bear M’s costs in the High Court.
[4] M seeks an order for indemnity costs, or increased costs, from H because of his “egregious and flagrant…abuse and misconduct”.
Legal principles
[5] The unsuccessful party is generally ordered to pay costs to the successful party, but this ultimately remains at the discretion of the Court.3
[6] As the High Court has found previously, there are no set guidelines on how costs should be assessed by the initial court where the initial court’s ruling has been
1 M v H [2022] NZHC 3060 [High Court decision].
2 M v H [2023] NZCA 243.
3 High Court Rules 2016, r 14.1 and 14.2(1)(a); Shirley v Wairarapa District Health Board [2006] NZSC 63, [2006] 3 NZLR 523 at [19].
overturned by an appellate court, but case law supports the general principle that costs are awarded to the party that is “successful” in the lower court due to an appeal.4
[7] Time spent on unsuccessful arguments run by a successful party or the taking of unnecessary steps or arguments that lacked merit can justify a refusal or reduction of costs.5
[8] Indemnity costs may be ordered where, relevantly, the party acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or step in a proceeding.6
[9] Increased costs may be ordered where, relevantly, the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it, by taking or pursuing an unnecessary step or an argument that lacks merit.7
Discussion
[10] I adopt, as a starting point, the position that H should pay M’s costs on a scale 2B basis, consistent with the general principle.
[11] M submits that an order for indemnity or increase costs is appropriate because of H’s conduct by:
(a)voluntarily adjudicating himself bankrupt;
(b)refusing to agree to annul his bankruptcy;
(c)financially abusing M;
(d)posting abusive and upsetting social media posts;
4 LSG Sky Chefs New Zealand Ltd v Pacific Flight Catering Ltd [2015] NZHC 685 at [30];
Americhip Inc v Dean [2015] NZHC 1871 at [27]-[28]
5 High Court Rules 2016, r 14.7; Weaver v Auckland Council [2017] NZCA 330 at [26].
6 Rule 14.6(4)(a).
7 High Court Rules 2016, r 14.6(3)(ii).
(e)through the Assignee, opposing M’s application to have the bankruptcy annulled including on appeal; and
(f)through the Assignee, arguing that M did not have standing to bring the application for annulment.
[12]I do not accept that there are grounds for increased or indemnity costs against
H. In terms of [11](a) to (d), H’s conduct prior to the proceeding, that was the subject of the proceeding, is not relevant to the issue of whether indemnity or increased costs should be ordered.
[13] In terms of (e) and (f), it is important to note that H did not play any part in the hearings in this Court or the Court of Appeal. The Assignee was represented at the hearings and opposed M’s application and appeal. It did so to ensure that H’s interests were represented, to assist the Court, and because it considered that M’s application raised important legal issues.
[14] There was nothing vexatious, frivolous, or improper about the opposition to M’s application for annulment, or the arguments advanced by the Assignee. Nor were the arguments advanced hopeless, justifying increased costs. While ultimately the Court of Appeal did not agree with the Assignee’s position, it is clear from that Court’s judgment that the case raised important issues about the operation of the annulment provisions in the Insolvency Act 2006 in the context of debtor-initiated adjudications that had not been squarely addressed by the New Zealand courts before.
[15] The issue is whether ordinary costs (or a reduced amount) should be ordered against H or costs should lie where they fall.
[16]The Assignee submits that costs should lie where they fall because:
(a)M unsuccessfully pursued an alternative ground for annulment under s 309(1)(b) in the High Court. This was that H’s debts had been fully satisfied and the Assignee’s reasonable fees and costs paid, or an
arrangement put in place to do so. M did not pursue this ground on appeal.
(b)M advanced a different legal test in the Court of Appeal to the one that she accepted in the High Court. An issue raised by M in the course of the appeal was whether the correct test for annulment of bankruptcy on the basis of an improper purpose in the debtor’s application for bankruptcy required that the improper purpose be the debtor’s sole purpose, or merely the predominant purpose.8 This Court applied the sole purpose test, but the Court of Appeal determined that the appropriate test was whether the improper or collateral purpose was a substantial purpose.9 As the Court of Appeal acknowledged, M did not argue that the ‘sole purpose’ test was incorrect in this Court.
(c)M’s written submissions to this Court contained fundamental factual errors that required response from the Assignee and were largely premised on an assertion that H had misled the Court in seeking his adjudication - whereas H had not been adjudicated bankrupt by the Court.
(d)A large proportion of M’s written submissions filed in the High Court and counsel’s oral submissions at the High Court hearing advanced unwarranted and at times unnecessarily scathing and improper criticism of the Assignee and his legal counsel (in house and external). The position taken by M regarding the Assignee was rejected by both this Court and the Court of Appeal.
(e)Resolutions proposed by the Assignee prior to the High Court for annulment were rejected by M primarily because she took issue with the Assignee’s costs of administration being paid, which is what was ultimately directed by the Court of Appeal.
8 M v H [2024] NZCA 243, see discussion at [132] to [140].
9 At [139].
[17] Out of these, I consider that [16](a), (c) and (d) have a bearing on the potential order for costs against H. It is correct that M raised an unmeritorious alternative basis for annulment under s 309(1)(b). In this respect, M was unsuccessful in this Court. M did not advance this alternative ground on appeal.
[18] Moreover, M’s written submissions did proceed an incorrect assertion that H had misled the Court when he applied for bankruptcy, when in fact the Court was not involved. The Assignee was required to respond to this assertion in written submissions, and it was effectively abandoned by M’s counsel in oral submissions and not pursued on appeal.
[19] Furthermore, a significant issue raised by M in this Court was the reasonableness of the Assignee’s conduct and costs. These criticisms of the Assignee were rejected, with the Court concluding that there was no basis for the accusation that the Assignee had acted unreasonably or in breach of its duties. Likewise, the Court of Appeal found that “We are very far from a situation where he has acted outside his duties, below the expected standard, or in bad faith. Given H’s non-participation, we are grateful for the Assignee playing an active role in the appeal”.
[20] The Assignee also submits that it would be unjust for H to further bear the costs of M in this Court. The Court of Appeal ordered that the Assignee’s costs of the administration, which will include its legal costs in relation to the litigation, are to be paid by H and may be secured by way of charge over his interest in the property in question. H must also pay M’s costs on the appeal.
[21] It is unfortunate that H, who did not participate in the litigation, will bear all the Assignees legal costs in relation to both hearings, as well as M’s costs in the Court of Appeal. I am reluctant to add a further costs burden on him when it appears to have been the Assignee that actively opposed the application and the appeal.
[22] On the other hand, the Court of Appeal found that H initiated his adjudication for an improper purpose. It was this action that necessitated M’s application in the first place. It cannot be right for M to bear all her own costs in this Court.
[23] Balancing these considerations, I consider that the overall interests of justice require H to pay M’s 2B costs, reduced by 50 per cent to reflect the unmeritorious arguments she advanced in this Court described at [17] to [19].
Result
[24] I order H to pay M’s scale 2B costs, reduced by 50 per cent, and disbursements to be fixed by the Registrar.
Gardiner J
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