Nothling v Clayton
[2023] NZHC 1523
•19 June 2023
IN THE HIGH COURT OF NEW ZEALAND TAURANGA REGISTRY
I TE KŌTI MATUA O AOTEAROA TAURANGA MOANA ROHE
CIV-2022-470-000103
[2023] NZHC 1523
IN THE MATTER
AND
of the Insolvency Act 2006 IN THE MATTER
of the bankruptcy of MARK ARNOLD CLAYTON
BETWEEN
LYNN ALTHEA NOTHLING, ZAK EDWARD NOTHLING and ETH
TRUSTEES (NOTHLING) LIMITED
Judgment CreditorsAND
MARK ARNOLD CLAYTON
Judgment Debtor
Hearing: On the papers Appearances:
DG Hayes for the Judgment Debtor/Applicant
GC Jenkin for the Judgment Creditors/Respondents
Judgment:
19 June 2023
JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
[Costs]
This judgment was delivered by me on 19 June 2023 at 4 pm pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors:
NZ Commercial Law Group Ltd, Hamilton, GC Jenkin, Princes Chambers, Auckland,
Case Officer: Katrina George
NOTHLING & ORS v CLAYTON [2023] NZHC 1523 [19 June 2023]
Introduction
[1] The trustees of the Clayton Nothling Trust (Trustees) seek indemnity costs following the discontinuance of an application to set aside a bankruptcy notice served on Mr Mark Clayton.
Background
[2] The Trustees served a bankruptcy notice on Mr Clayton on 4 November 2022. The notice expired unanswered on 18 November 2022. Mr Clayton filed an application to set aside the notice on 21 November 2022.
[3]The grounds for the application to set aside the bankruptcy notice were:
(a)that the costs judgment dated 9 August 20221 was not entered for the three named judgment creditors who issued the bankruptcy notice and so the sealed judgment relied on is a nullity; and
(b)Mr Clayton has a counterclaim, cross-demand or set-off that equals or exceeds the amount of the claim of Ms Lynn Nothling and the Trustees.
[4] The Trustees filed a notice of opposition together with an application for adjudication on the basis that the application to set aside was filed out of time and therefore could not proceed.
[5] In my minute dated 3 February 2023, I raised the issue of the timing of the application to set aside as the joint memorandum filed seeking timetable directions on 27 January 2023 had recorded the date of expiry of the bankruptcy notice as being 18 November 2022 and it is settled law that the 10 working day time limit is not able to be extended. I recorded that it was not clear on what basis Mr Clayton could proceed with an application to set aside given it had been filed outside of the 10 working day time limit. I asked counsel to consider this point and if there was no proper basis for argument, to reconsider whether to proceed with the application.
1 Nothling v Clayton [2022] NZHC 1943.
[6] In the meantime, I stayed the application for adjudication by minute dated 7 February 2023 until the outcome of the application to set aside was known.
[7] Mr Clayton did not discontinue at that stage and a hearing for the application to set aside was allocated on 23 May 2023. The date for filing and serving the common bundle was set for 15 working days in advance of that hearing, being Monday, 1 May 2023. Mr Clayton did not comply with that direction and on Friday, 5 May 2023 filed a notice of discontinuance.
[8] The Trustees now seek indemnity costs on the basis that the application to set aside was a hopeless case and bound to fail and that in bringing it, Mr Clayton did so “with a view to causing damage and discomfort to the trust”.
[9] In addition, the Trustees seek an order confirming that the stay of the application for adjudication is lifted.
Relevant costs principles
[10] The starting point in any costs decision is r 14.1 of the High Court Rules 2016 which confirms that “all matters are at the discretion of the court if they relate to costs of a proceeding”. The discretion vested by r 14.1 is wide but must be exercised subject to the general principles in r 14.2 and the remaining costs provisions.
[11] Rule 14.6 provides for when increased or indemnity costs may be ordered and relevantly includes as follows:
14.6 Increased costs and indemnity costs
(1)Despite rules 14.2 to 14.5, the court may make an order—
(a)increasing costs otherwise payable under those rules (increased costs); or
(b)that the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party (indemnity costs).
(2) …
(3)The court may order a party to pay increased costs if—
(a)…
(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
…
…
(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.
[12] In Bradbury v Westpac Banking Corp, the Court of Appeal summarised the principles applying to the award of indemnity costs as follows:2
We therefore endorse Goddard J’s adoption in Hedley v Kiwi Co-Operative Dairies Ltd at [11] of Shepherd J’s summary in Colgate v Cussons at [24]. While recognising that the categories in respect of which the discretion may be exercised are not closed (see r 14.6(4)(f)), it listed the following circumstances in which indemnity costs have been ordered:
(a)the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud;
(b)particular misconduct that causes loss of time to the court and to other parties;
(c)commencing or continuing proceedings for some ulterior motive;
(d)doing so in wilful disregard of known facts or clearly established law;
2 Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [29] (citations omitted).
(e)making allegations which ought never to have been made or unduly prolonging a case by groundless contentions, summarised in French J’s “hopeless case” test.
[13] The reference to French J’s “hopeless case” test refers to the Australian decision of French J in J Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WÄ Branch) (No 2):3
Although there is said to be a presumption in such cases that the action was commenced or continued for some ulterior motive or in wilful disregard of known facts or clearly established law, it is not a necessary condition of the power to award such costs that a collateral purpose or some species of fraud be established. It is sufficient, in my opinion, to enliven the discretion to award such costs that, for whatever reason, a party persists in what should on proper consideration be seen to be a hopeless case. The case against the BTA (a reference to one of the respondents) was paper thin. The BTA's name was invoked on a sign associated with the picket and appeared in a newspaper advertisement referred to in the evidence. Two of the union officials involved in the picket had BTA authorisations to inspect premises under the relevant award. But much more than that was necessary to justify proceedings for a contravention of s.45D. In my opinion the order sought by the BTA should be made.
(emphasis added)
[14] An order for indemnity costs under r 14.6(4)(a) is defined, in r 14.6(1)(b), as an order that “the costs payable are the actual costs, disbursements, and witness expenses reasonably incurred by a party”. As follows, it is not an order necessarily for the full indemnification of the party to whom costs are payable, but only an indemnity in respect of that party’s reasonable costs.
[15] Rule 15.23 of the High Court Rules provides that unless the defendant otherwise agrees or the court otherwise orders, a plaintiff who discontinues a proceeding must pay costs to the defendant. The r 15.23 presumption is designed to give a certain and predictable outcome upon discontinuance, although it may be displaced where it is just and equitable in the circumstances that the presumption ought not to apply.4
3 J Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers (WÄ Branch) (No 2) (1993) 46 IR 301 at 303.
4 McGechan on Procedure (online ed, Thomson Reuters) at [HR15.23.01].
[16] The application to set aside was brought as an interlocutory application rather than a proceeding under part 18, as required by r 18.1(b)(ix). The presumption in r 15.23 has been applied by analogy to interlocutory applications in any event.5
Should the r 15.23 presumption be displaced?
[17] Despite the note in my minute dated 3 February 2023 suggesting that Mr Clayton consider the timing issue and reconsider whether he wished to proceed with the application, no steps were taken by the applicant to discontinue at that stage. Instead, Mr Clayton waited until after the first of the dates by which documents were required to be filed in advance of the hearing.
[18] In his costs memorandum, counsel for Mr Clayton does not respond to the submission that the application to set aside was a hopeless case and bound to fail or that in bringing it, Mr Clayton did so “with a view to causing damage and discomfort to the trust.” Instead, issues are raised in respect of the schedule of steps for which costs are claimed.
[19] There appears to be no question therefore that the presumption in r 15.23 applies as there is no reason for it to be displaced.
[20] I discuss the issues raised by Mr Clayton’s counsel in relation to the 2B costs calculation before discussing whether indemnity costs should be ordered.
What is the appropriate 2B costs calculation?
[21] Counsel for Mr Clayton submits the claim for step 30, the preparation of affidavits, appears to double up with step 2, the commencement of the proceedings, and that the claim for drafting submissions prior to when they were due and not in response to the applicant’s submissions, “appears to be incongruous with the claim for the whole scheduled costs of doing that work”.
[22] Although the application to set aside was filed as an interlocutory application when a statement of claim should have been filed (as required by r 18.1(b)(ix)), the
5 MV Celebre Ltd v Airwork Flight Operations Ltd [2015] NZHC 1400 at [9]–[10].
way in which the application proceeded was most similar to an originating application. In these circumstances, I think it is appropriate to refer to the time allocations allowed in schedule 3 for originating applications. The schedule allows two days for the filing of the notice of opposition and supporting affidavits (Step 38). In addition, I consider that the amount claimed for the preparation of written submissions ought to be reduced by a half, given they were not due for another eight working days at the time the notice of discontinuance was filed. These adjustments mean that the total time on a 2B basis is $8,484.50 plus the filing fee of $110. This amount is just under two thirds of the indemnity costs of $13,220 claimed by the Trustees.
Should indemnity costs be awarded?
[23] Indemnity costs are sought on the basis of the history of the matter, the fact that it was a hopeless case and that Mr Clayton brought it with a view to causing damage and discomfort to the trustee.
[24] The judgment on which the bankruptcy notice relies is a costs judgment issued by Associate Judge Taylor on 9 August 2022 in respect of an application by the Trustees to lapse a notice of claim lodged by Mr Clayton.6 The Trustees alleged that the notice of claim had been lodged vexatiously and was an abuse of process. Brewer J agreed and indicated to counsel that he would be prepared to order immediate removal of the notice of claim if the Nothlings provided a written undertaking that would preserve Mr Clayton’s ability to bring a claim against a separate property on Grey Street, Rotorua. Those undertakings were given, and Brewer J discharged the notice of claim with immediate effect.7 However, Mr Clayton did not subsequently take steps to lodge a notice of claim against the Grey Street property.
[25] Associate Judge Taylor awarded indemnity costs after referring to Bradbury v Westpac Banking Corp, as referred to above. His Honour then referred to French v French where the respondent had lodged a caveat against the title to a farm property owned by his brother and his wife, doing so as part of an ongoing dispute about wills concerning their parents.8 The respondent had previously propounded the
6 Nothling v Clayton, above n 1.
7 Nothling v Clayton HC Auckland CIV-2022-470-35, 23 May 2022 (Minute of Brewer J).
8 French v French HC Auckland CIV-2010-419-661, 17 August 2010.
later will of his father but his application to propound that will had been rejected by Venning J. Associate Judge Doogue held that filing the caveat was just another manifestation of the respondent’s inability to accept the position. In that case there was an aggravating factor as the caveat was lodged when his brother and his wife were on the verge of transferring their farm property pursuant to a sale agreement and the Judge accepted that the motive was designed to cause maximum inconvenience and discomfort to them. Associate Judge Doogue found that the respondent’s continued opposition to the application to remove the caveat fell into (c), (d) and (e) of categories set out in Bradbury.
[26] Associate Judge Taylor held the position was analogous to French v French and that Mr Clayton’s conduct also fell within categories (c), (d) and (e) of the Bradbury categories.
[27] In my view, the application to set aside the bankruptcy notice is again similar. The timing of the application to set aside the bankruptcy notice prevented the application from proceeding from the beginning. This point was raised by the Trustees in their notice of opposition and my minute dated 3 February 2023 yet Mr Clayton continued with the application until 5 May 2023. Furthermore, the first ground set out in the application to set aside the bankruptcy notice is effectively a failure to accept the costs judgment itself when the evidence of all Trustees consenting to the application was available for Mr Clayton. In addition, the second ground, relying on a counterclaim, cross-demand or set-off, was described in very brief detail in Mr Clayton’s affidavit filed in support of the application, was disputed by Ms Nothling in her affidavit in opposition and no reply evidence was filed by Mr Clayton.
[28] As referred to above, the costs submissions filed on behalf of Mr Clayton do not respond to the submission on behalf of the Trustees that the application to set aside was a hopeless case and bound to fail or that in bringing it, Mr Clayton did so “with a view to causing damage and discomfort to the trust.”
[29]In these circumstances, I consider that indemnity costs are appropriate.
[30] The costs claimed by Mr Jenkin of $13,220, including the filing fee, appear reasonable as the adjusted total of 2B costs of $8,594.50 (also including the filing fee), as discussed at [28] above, are just under two thirds of this figure.
[31] I record in support of this that increased costs of 50 per cent would have led to a costs award of $12,836.75, similar to the indemnity costs award being made here. The test for increased costs includes whether the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or a step in it by taking or pursuing an unnecessary step or an argument that lacks merit. This case clearly falls within that category and would have supported a 50 per cent increase in costs if indemnity costs were not awarded.
Application for stay to be lifted
[32] In my minute of 7 February 2023, I ordered that the application for adjudication filed by the judgment creditors on 31 January 2023 is stayed until determination, including by discontinuance, of the application to set aside. This was intended to lead to an automatic lifting of the stay following the filing of a notice of discontinuance. In case there has been any confusion, I confirm in this judgment that the stay is lifted
Result
[33] The judgment debtor/applicant, Mr Clayton, is to pay costs on an indemnity basis to the judgment creditors/respondents in the amount of $13,220 in respect of the application to set aside the bankruptcy notice served on him dated 22 September 2022.
[34] The order for a stay in respect of the judgment creditors’ application for adjudication is lifted as a result of the discontinuance.
Associate Judge Sussock
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