Official Assignee v 22 O'Shannessey Limited

[2022] NZHC 3217

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2022-404-000829

[2022] NZHC 3217

UNDER

Part 32 of the High Court Rules

IN THE MATTER OF

The bankruptcy of Andrew Michael Fonagy

BETWEEN

THE OFFICIAL ASSIGNEE

Applicant

AND

22 O’SHANNESSEY LIMITED

First Respondent

AND

WHARERIMU TRUSTEE LIMITED

Second Respondent

AND

MARAM PROPERTY TRADING LIMITED

Third Respondent

Hearing:

(On the papers)

Counsel:

Paul Murray for the Applicant

Robert Hucker and Mark Swan for the First Respondent No appearance for the Second Respondent

Jai Moss for the Third Respondent

Judgment:

2 December 2022

JUDGMENT OF MOORE J

[Costs]

This judgment was delivered by me on 2 December 2022 at 2:00 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/ Deputy Registrar Date:

THE OFFICIAL ASSIGNEE v 22 O’SHANNESSEY LIMITED & ORS [2022] NZHC 3217 [2 December 2022]

Introduction

[1]    The substantive dispute in these proceedings relates to transactions undertaken by an Andrew Fonagy prior to his adjudication as bankrupt, which the Official Assignee (“the Assignee”) claims were designed to defeat his creditors. The impugned transactions involve related parties. These included 22 O’Shannessey Ltd (“O’Shannessey”) and a family trust called the Wharerimu Trust (“the Trust”), of which the trustee was Wharerimu Trustee Ltd (“WTL”).

[2]    The Assignee was originally represented by Meredith Connell (“MC”). MC had previously represented a former corporate trustee of the Trust, called Ora Trustees Ltd (“Ora Trustees”).

[3]    WTL took issue with MC representing the Assignee in subsequent proceedings. It applied for orders that MC be prohibited from acting for the Assignee. MC did not accept that it was not entitled to act, but subsequently withdrew as counsel to avoid distracting from the substantive dispute.

[4]    WTL now seeks costs on its application. WTL’s position is that MC’s decision to withdraw means it was, in effect, the successful party.

[5]    MC’s position is that costs should lie where they fall. It says that WTL’s application lacked merit and it acted reasonably and pragmatically to resolve the issue.

Should costs lie where they fall?

[6]    The thrust of WTL’s argument is that MC’s withdrawal as counsel constitutes success on its application. Mr Hucker, for WTL, submitted that this is reflective of the merits of the application. He submitted that there is a perception of injustice arising from MC acting for Ora Trustees and then subsequently acting against WTL, the new trustee of the Trust. It follows, in his submission, that the merits of the application are clear. He submitted that as a consequence, WTL is entitled to costs.

[7]    Mr Hucker’s submissions have strong support in the default rule that costs follow the event. While costs are at the discretion of the Court,1 the general rule is that the party who fails with respect to a proceeding or an interlocutory application should pay costs to the party who succeeds.2 A common sense approach is taken to the issue of which party in a proceeding has succeeded whether in whole or in part.3

[8]    Here WTL achieved the outcome sought by its application. The application was for an order prohibiting MC from continuing to act for the Assignee. MC’s withdrawal meant that it did cease acting for the Assignee. The inescapable conclusion is that WTL succeeded.

[9]    Yet, that is not the end of the analysis. Costs may be reduced where the party claiming costs has contributed unnecessarily to the time or expense of the proceeding or step in it by taking or pursuing an unnecessary step.4 The Court expects applicants to explore resolution informally before issuing proceedings or making applications, save for urgent circumstances.5 A failure to pursue resolution through either a non- litigious approach or through a less expensive course of proceeding may warrant a reduction or refusal to grant costs.6 This is particularly where those costs:

(a)might fairly have been rendered unnecessary by a little forethought;7

(b)are the result of an unnecessary application;8 or

(c)were incurred despite a less expensive course of effecting the same outcome being readily available.9

1      High Court Rules 2016, r 14.1.

2      Rule 14.2(a).

3      Young v Tower Insurance Ltd [2017] NZHC 482 at [12] citing Driessen v Earthquake Commission & Southern Response Earthquake Services Ltd [2016] NZHC 1048.

4      High Court Rules 2016, r 14.7(f)(ii).

5      Morrell v World Solar Ltd [2018] NZHC 518 at [22].

6 At [22].

7      At [22] citing Re Commissioners for Railways (1902) 18 WN (NSW) 296 at 297.

8      At [22] citing Re Ewer (1903) 4 SR (NSW) 240.

9      At [22] citing Dore v Gormley (1962) 9 LGRA 187 at 190; and Commissioner of Stamp Duties v Edmunds [1989] 1 QdR 271 at 273.

[10]   Some other reason may also exist which justifies the court refusing costs or reducing costs despite the principle that the determination of costs should be predictable and expeditious.10

[11]   I am satisfied that the circumstances justify the application of these rules. On this point the somewhat lengthy background context to the application is instructive.

[12]   On 17 June 2022, Mr Hucker wrote to MC raising issues about MC’s involvement in the proceedings. At that time he was acting for O’Shannessey, but apparently not yet acting for WTL.

[13]   On 23 June 2022, Mr Steve Haszard, the Managing Partner of MC, responded. His position was that MC was entitled to act, for several reasons. He advised that Ora Trustees was no longer a client of the firm. Nor was it involved in the proceeding. The partner who had acted for Ora Trustees had left the firm. The file was locked down and the only person who could access it was Mr Haszard.

[14]   There were two calls of the freezing order application on 22 and 29 June 2022. WTL did not appear at either. After the second, the Assignee, O’Shannessey and another respondent agreed to timetable directions. One was that any application by O’Shannessey to restrain MC from acting was to be filed by 8 July 2022.

[15]   On 5 July 2022, Mr Hucker filed a notice of objection to the transactions which the Assignee sought to cancel. The notice was on behalf of O’Shannessey and WTL.

[16]   O’Shannessey never filed an application to restrain MC from acting. Almost two weeks later, however, WTL filed and served its application on MC without advance notice. Perhaps unsurprisingly given the previous case management process, MC’s position is that the application came as a surprise.

[17]   On 3 August 2022, MC made a without prejudice offer to WTL to resolve the application. The letter set out the previously described reasons why MC did not admit liability and saw no merit in WTL’s application. MC nevertheless suggested a

10     High Court Rules 2016, r 14.7(g).

“pragmatic approach”. The gist of it was that MC would cease acting for the Assignee, subject to briefing new counsel, if WTL withdrew its application with no issues as to costs.

[18]   WTL responded the following day. It made a counter-offer. The key differences were that MC provide an undertaking not to disclose particular information to new counsel and pay costs on the application.

[19]   On 8 August 2022, MC responded with a counter-offer. The offer suggested a revised form of the requested undertaking. It was again conditional on WTL not seeking costs.

[20]   On 10 August 2022, WTL responded on an open basis. It acknowledged that the parties disagreed on the merits of the application. WTL advised that it was for MC and the Assignee to decide whether the oppose the application. If the only remaining issue related to costs, WTL suggested that it could be addressed by an exchange of memoranda.

[21]   MC subsequently elected to withdraw, despite there being no agreement with WTL. It sent an open letter to WTL dated 16 August 2022. MC’s position was that while it had a strong basis to oppose the application, doing so could lead to WTL incurring costs to the detriment of creditors and would distract from the substantive proceeding. MC offered to provide an undertaking and suggested that WTL withdraw its application without prejudice as to costs.

[22]   Taking into account this background, it is my view that WTL failed to reasonably explore resolution of this issue informally before filing its application. WTL took no steps whatsoever to resolve the matter with MC before the application was filed.

[23]   The fact O’Shannessey had previously raised the issue further justifies MC’s position. Timetable directions expressly provided for O’Shannessey to make an application to restrain MC from acting. O’Shannessey did not file such an application. It was not unreasonable for MC to expect that to be the end of the matter, particularly

when counsel for O’Shannessey was also at that point acting for WTL. For WTL to then file an application roughly two weeks later would plainly be unanticipated.

[24]   Mr Hucker emphasises the fact that MC did not agree to cease acting until WTL filed the application seeking an order to that effect. Given the background described above, that is of no moment. MC clearly would not agree to cease acting after O’Shannessey seemingly decided not to pursue the application.

[25]   It is my view that MC acted reasonably to settle the matter after WTL’s application was filed. I agree that it had strong grounds of opposition. MC thus did not admit liability but benevolently withdrew as counsel to avoid prejudicing the substantive dispute.

[26]   The result of WTL’s conduct was to put MC to unnecessary time and expense in responding to an unforeseeable application. MC acted properly and reasonably in its attempts to settle the matter and minimise the associated costs. A reduction in costs is appropriate, so as to prevent it bearing WTL’s costs altogether.

[27]I therefore consider that costs should lie where they fall.

Result

[28]I order that costs lie where they fall.

Moore J

Barristers/Solicitors:

Akarana Chambers, Auckland Hucker & Associates, Auckland Canterbury Chambers, Christchurch