Madsen-Ries v Mahoney
[2018] NZHC 1864
•26 July 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV 2016-404-1990
[2018] NZHC 1864
BETWEEN VIVIEN JUDITH MADSEN-RIES and
HENRY DAVID LEVIN as liquidators of Fixed Cost Civil Limited (In Liquidation) Plaintiff
AND
BRIAN TIMOTHY MAHONEY
First Defendant
BRIAN TIMOTHY MAHONEY, JUDITH ANNE SABICH and NEILSONS TRUSTEE
(2013) LIMITED as trustees of the Albany Heights Trust
Second DefendantSABICH ORGANIC GARDENS LIMITED
Third DefendantEARTHQUIP HOLDINGS LIMITED
Fourth Defendant
Hearing: On the papers Judgment:
26 July 2018
COSTS JUDGMENT OF DUFFY J
This judgment was delivered by me on 26 July 2018 at 10 am pursuant to
Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Solicitors/Counsel:
Meredith Connell, Auckland Hucker & Associates, Auckland
MADSEN-RIES and LEVIN as liquidators of Fixed Cost Civil Limited (In Liquidation) v MAHONEY & ORS [2018] NZHC 1864 [26 July 2018]
[1] This judgment should be read together with my judgment on granting an adjournment of the trial of this proceeding as a result of the first defendant, Mr Mahoney, being permitted to amend his statement of defence (the adjournment decision). The trial was to commence on 20 November 2017, but was adjourned on 6 November 2017.
[2] The reasons for the adjournment are already set out in the adjournment decision. In short, a report prepared by Staples Rodway accountants relevant to the liquidity of Fixed Cost Civil Ltd (FCCL) only came to the attention of Mr Mahoney’s counsel Mr Hucker shortly before the trial was due to commence. Once he read the Staples Rodway report Mr Hucker saw a benefit in pleading, by way of affirmative defence, Mr Mahoney’s reliance on that report.
[3] The effect of the late amendment to the statement of defence was that the plaintiffs, who did not oppose the amendment of Mr Mahoneys’ statement of defence, then sought the adjournment.
[4] The parties were given leave to file memoranda on costs if they were unable to reach agreement, which they have been.
[5] The plaintiffs seek wasted costs in the sum of $22,017.00 being: $14,829.50 legal costs and $7,187.50 for expert witness fees.
[6] The plaintiffs also seek costs on a 2B basis of $1338.00 for their efforts in pursuing the wasted costs award.
[7] A key feature in this matter is that Mr Mahoney was aware of and able to obtain a copy of the Staples Rodway report some time before his counsel Mr Hucker. Seemingly he never drew Mr Hucker’s attention to the existence of the report. Instead Mr Hucker only learned about the existence of this report around 22 September 2017 when he received the plaintiffs’ briefs of evidence. These included a brief of evidence of one of the plaintiffs Mr Levin, who referred to the Staples Rodway report. At that time, the plaintiffs had been unable to obtain a copy of this report.
[8] Around 20 October 2017, when Mr Mahoney was due to file his briefs of evidence Mr Hucker managed to obtain a copy of the Staples Rodway report, which he then used as a basis for the new affirmative defence that he included in Mr Mahoney’s amended statement of defence
[9] The plaintiffs were supplied with a copy of the Staples Rodway report when they received Mr Mahoney’s briefs of evidence. They have not received copies of the underlying material on which the report was based.
[10] It is surprising that Mr Mahoney never informed Mr Hucker about the Staples Rodway report much earlier on. By way of an explanation, Mr Mahoney in affidavit dated 15 December 2017, deposed as follows:
17.In preparing this Affidavit I have reviewed the transcript of the examination. At the time I did not recall any specific discussion about the Staples Rodway report but I accept that there is reference in the transcript…
18.There was no further follow up to either myself or my solicitors following the transcript that I am aware of requesting the Staples Rodway report prior to the Briefs of Evidence being filed.
19.I did not turn my mind to the report following the examination nor did I provide a copy of the report to my solicitors until the events referred to in paragraphs 21 to 25 below unfolded.
…
21.It was during the period that I was having my evidence briefed by my solicitors that they referred me to the evidence of Mr Levin concerning what was said to be alleged advice…
22.That was the first time that I became aware that the Staples Rodway report may be important for the proceedings. I had not given it a second thought since the liquidation of the Company having focussed on the business that I have been running.
23.I did not have the report to hand not could I recall having it anywhere.
24.On the instruction of my solicitors I had an IT person undertake a search on my personal computer to see if there had been a copy of the Staples Rodway report retained as I could not locate a physical copy of the report.
25.I then provided the report to my solicitors towards the end of the finalisation of completing my brief of evidence as soon as the IT specialist advised me that it had been recovered.
[11] I take it from Mr Mahoney’s affidavit that he did not raise the report with Mr Hucker because he did not “turn [his] mind to it”. It seems that this was through a possible combination of Mr Mahoney being distracted by his work, not thinking the report was important or a simple lapse of memory. I do not think that any of these reasons provides a reasonable justification for Mr Mahoney not bringing the report to Mr Hucker’s attention earlier. In circumstances like the present where a party to litigation seeks to avoid an award of wasted costs through his counsel not being properly informed of all relevant information in time to properly take advantage of that knowledge I consider that some reasonable explanation for why counsel was not informed earlier on by his client is required. If the party chooses instead to remain silent or provides no reasonable explanation this Court will then approach the question of costs on the basis it has no explanation for why Mr Mahoney did not inform Mr Hucker earlier on.
[12] There is a further issue regarding the plaintiffs’ request for an adjournment. They required the adjournment in order to be able to address more fully Mr Mahoney’s belated reliance on the Staples Rodway report. To achieve this, they want to obtain copies of the material on which this report is based. To date Staples Rodway has refused to provide a copy of their report when requested to do so pursuant to s 261 of the Companies Act 1993. This leaves the plaintiffs in the position where they either use their powers under s 266 of the Companies Act or they apply for non-party discovery.
[13] Mr Mahoney contends that the plaintiffs should have used their powers as liquidators under s 266 of the Companies Act 1993 earlier on to obtain copies of the report and the underlying material on which it is based. The liquidators reject this argument.
[14] Mr Levin has provided an affidavit in which he explains the difficulties the plaintiffs have experienced obtaining relevant information. In the affidavit Mr Levin makes complaint about Mr Mahoney’s provision of relevant information. I note that Mr Mahoney has filed no evidence in response.
[15] Mr Levin has provided an explanation for why the plaintiffs accepted Staples Rodway’s refusal to provide the report pursuant to the s 261 request. Until Mr Mahoney decided to rely upon the report its relevance as an affirmative defence for Mr Mahoney may not have been apparent to the plaintiffs. They cannot be expected to second guess what are likely potential affirmative defences for Mr Mahoney.
[16] The short point here is that Mr Mahoney knew of the Staples Rodway report and for reasons that are unexplained he seemingly failed to bring the report to the attention of Mr Hucker. Had Mr Mahoney raised the existence of the report with Mr Hucker earlier, steps to obtain the report and its impact on the proceedings could have been properly addressed in a timely fashion. My view is that Mr Mahoney is the author of the need for the adjournment and that he should therefore bear the onus of a wasted costs award. I refer to the comments of Venning J in Jeffreys v Morgenstern:1
[31] I turn to consider the issue of wasted costs… I accept the plaintiffs’ submission that the trial was vacated because of the defendants’ default. The plaintiffs have inevitably incurred wasted costs as a result of that. This Court has jurisdiction to make an order for wasted costs. As this Court has previously observed in the case Fu Hao Construction Ltd v Landco Albany Ltd default that leads to vacation of fixtures leads to inconvenience and costs not only to the other parties to that proceeding but to other parties awaiting fixtures in the Court. Fixtures allocated by this Court are commitments of limited judicial and Court resources…
[32] That is a further reason which supports an award of wasted costs. The Court should apply sanctions to parties who, through their own default, cause fixtures to be vacated.
(Citations omitted)
[17] Mr Mahoney also makes more general complaints about how the discovery process has been handled by the liquidators. I do not consider these complaints to be relevant to the issue at hand. The same applies to the issues regarding the extent to which Mr Mahoney has supplied boxes of information as part of his discovery obligations.
[18] Mr Mahoney then challenges the quantum of the costs sought. The breakdown of this quantum is as follows.
1 Jeffreys v Morgenstern [2013] NZHC 1361.
[19] The sought legal costs of $14,829.50 is broken down into two parts. First, it is calculated that $26,760 was incurred in preparation of the hearing prior to the amendment to the statement of defence. The plaintiffs seek 50 percent of this amount in wasted costs, namely $13,380. I consider this to be an appropriate scale.2
[20] The remaining $1,449.50 is calculated as the costs accrued from the steps necessarily taken in reaction to the amended statement of defence. 100 percent of these costs is sought. Again, I take no issue with this.
[21] Similarly, 50 percent of the actual expert witness fees is sought as wasted costs, namely $7,187.50. It follows that I also consider this to be an appropriate scale.3
[22] Mr Mahoney contends that the plaintiffs’ expert witnesses and the plaintiffs’ trial preparation has not been wasted. Work done to date can in Mr Mahoney’s view simply be carried forward and used for the new trial date. The plaintiffs understandably reject this argument. First their experts did not have the benefit of considering the Staples Rodway report or the underlying material on which it is based. They will no doubt have to revisit their expert opinion in light of this new information, once everything relevant has been obtained. Secondly, there is an element of trial preparation by counsel that cannot be carried over to a new trial date. Memories necessarily fade and so everything has to be looked at afresh for the new hearing. I consider it unrealistic to think preparation for one hearing means that will not require re-visiting if the trial of the proceeding is to be heard sometime later on. Justice Toogood said as much in Total Air Supply Co Ltd v Total Air Supply Co (2007) Ltd:4
[36] While it might be said that such work is not “wasted”, because the fruits of it can be applied when the matter comes to trial next year, it is unrealistic to expect counsel and witnesses to remain in the state of readiness they would have been in in the week or so leading up to the start of the trial when the matter is not likely to be heard for another years or so. Furthermore, now that the creditors issue is squarely before the Court for argument, counsel and expert witnesses for the defendants and the third party will necessarily have to revise their positions in the light of new pleadings and, potentially, new evidence.
2 See Jeffreys v Morgenstern at [37].
3 See Jeffreys v Morgenstern at [39]; see also Fu Hao Construction Ltd v Landco Albany Ltd HC Auckland CIV-2004-404-6608, 23 May 2008 at [9].
4 Total Air Supply Co Ltd v Total Air Supply Co (2007) Ltd HC Auckland CIV-2008-404-7627, 29 July 2011.
[23] The general principle is that costs follow the event. Here the event generating costs is the need for an adjournment which was brought about by Mr Mahoney’s unexplained failure to issue his counsel with full instructions in a timely fashion. That failure resulted in the plaintiffs losing the fixture. I am satisfied that the plaintiffs are entitled to wasted costs. I am also satisfied that the costs award the plaintiffs seek is reasonable in the circumstances.
[24] Accordingly, I find the plaintiffs are entitled to the award of costs which they seek. This is: $14,829.50 for wasted legal costs and $7,187.50 for wasted costs for their experts. The total costs award being: $22,017.00.
[25] I also award 2B costs of $1,338.00 to the plaintiffs for their efforts in pursing the wasted costs award.
Duffy J