Prasad v Indiana Publications (NZ) Limited HC Auckland CIV2010-404-3333

[2011] NZHC 737

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV2010-404-3333

IN THE MATTER OF     Section 13 Insolvency Act 2006

AND IN THE MATTER OF the bankruptcy of RAJENDRA PRASAD

BETWEEN  RAJENDRA PRASAD Applicant

ANDINDIANA PUBLICATIONS (NZ) LIMITED

First Respondent

ANDTHE OFFICIAL ASSIGNEE Second Respondent

Hearing:         13 May 2011

Appearances: N King for Applicant

G Harrison for First Respondent
No appearance for Official Assignee

Judgment:      14 June 2011 at 10:30 AM

RESERVED JUDGMENT OF ASSOCIATE JUDGE SARGISSON (Application to annul bankruptcy)

This judgment was delivered by me on 14 June 2011 at 10.30 am pursuant to

Rule 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date ..........................

Solicitors:

Mangere Town Centre, PO Box 43201, Mangere, Auckland

Parshotam & Co, PO Box 27079, Mt Roskill

PRASAD V INDIANA PUBLICATIONS (NZ) LIMITED HC AK CIV2010-404-3333 14 June 2011

[1]      On 11 November 2010, Mr Rajendra Prasad was adjudicated bankrupt in the High Court at Auckland on the application of the first respondent, Indiana Publications (NZ) Limited.  By application of 12 November 2011, he seeks an order to annul his adjudication.  The application relies on the sole ground that he should not have been adjudicated bankrupt.

[2]      The Official Assignee takes a neutral position with respect to the application. In a report filed in Court on 14 December 2010, the Assignee advises:

The   Assignee   notes   that   the   application   for   annulment   concerns circumstances   which   arise   prior   to   the   bankruptcy‟s   adjudication. Accordingly, the Assignee will abide the Court‟s decision as to whether the bankruptcy should be annulled under s 309 of the Insolvency Act 2006.

[3]      Indiana Publications opposes the application.

[4]      The question whether there should be an annulment turns on whether Mr

Prasad has demonstrated that he should not have been adjudicated bankrupt.

Background

[5]      This  proceeding  has  a  long  history  that  stems  from  a  copyright  dispute between Mr Prasad and Indiana Publications.

[6]      The dispute was the subject of a proceeding that Mr Prasad commenced in the Manukau District Court in June 2008.  Mr Prasad abandoned the proceeding on

19 February 2010.  On that day he filed a letter and a memorandum in the Manukau District Court and served them on Indiana Publications and other named defendants. The next day, 20 February 2011, summary judgment was entered against Mr Prasad and an order for indemnity costs was made against him.

[7]      These events are set out in more detail in the synopsis filed by counsel for Mr

Prasad. The material part is reproduced (in edited form) as follows:

[Mr Prasad] filed proceedings on 17 June 2008 [in the Manukau District Court] against [Indiana Publications (NZ) Limited and others].   This was proceeding [CIV-]2008-092-2719.

The defendants [filed an application for] summary judgment for res-judicata on 16 July 2008...

[The application] was due to be heard on 20 February 2009.

On 19 February 2009 Mr Prasad filed a discontinuance of the proceedings at the Manukau District Court.

The proceeding was called on 20 February 2009, Mr Prasad did not attend. Summary  judgment  was  entered for  the  defendants  and  indemnity costs [were awarded against him].

Counsel and the solicitors for the defendant submitted their invoices to the

Registrar.  [Counsel‟s] invoice included [the costs of] attending Court on 20

February 2009 plus GST.  [The invoices] were approved by the Registrar.

[8]      Mr  Prasad  filed  an  appeal  in  this  court  against  the  order  for  summary judgment and the costs order for $14,931.  The appeal was successful save for costs. For convenience I refer again to the narrative in counsel‟s synopsis:

[Mr  Prasad]  filed  an  appeal  [in  the  High  Court  against]  the  summary judgment [under CIV-2009-404-1521] which was heard on 30 July 2009. Justice Wylie, though holding the discontinuance on 19 February [in the Manukau District Court proceedings] was valid, [held that Mr Prasad] was liable  for  indemnity  costs  [in]  those  proceedings.    Mr  Prasad  was  not awarded cost on the appeal.

Justice  Wylie  awarded  the  same  quantum  of  costs  as  awarded  by  the

Registrar of the District Court.

[9]      It is this costs order of Wylie J that lies at the root of the present application for an order to annul Mr Prasad‟s adjudication.  I shall come back to the application. I begin however with Wylie J‟s judgments in respect of the discontinuance and costs.

Judgment in respect of discontinuance

[10]     Despite Indiana‟s submission to the contrary, Wylie J found that Mr Prasad‟s

letter  and  memorandum  had  discontinued  the  District  Court  proceeding  on  19

February 2009 and brought an end to the summary judgment proceeding:1

[29]      In my judgment it is clear enough that Mr Prasad‟s  letter, and his

memorandum, did or were intended to discontinue the proceedings.

Indeed his letter and memorandum could not have been clearer.  His intention was to discontinue his case against the defendants in the District  Court.    It  seems  to  me  that  effectively  Mr Prasad  did discontinue the proceedings and notwithstanding the failure to utilise form 40AA.   I refer to Wire Supplies Limited v Commissioner of Inland Revenue [2007] 3 NZLR 458 at para 167-170.

…

[33]     In the circumstances, it seems to me that Mr Prasad did discontinue the proceedings.  As a consequence, he brought the defendants‟ application  for  summary  judgment  to  an  end  because  it  was  an integral part of the proceedings.  It had not been brought by way of counterclaim.

[11]     When considering the remaining issue of costs however His Honour said:

[36]     It is manifestly clear to me that the defendants should be awarded costs consequent on the discontinuance.

[12]     Both sides were directed to file and serve costs memoranda as follows:

(a)       the defendants are to file and serve a memorandum detailing the costs they seek consequent upon the discontinuance of the proceedings in the District Court within 10 working days of the date of this judgment;

(b)       Mr Prasad is to file and serve a response to the defendants‟

memorandum within a further 10 working days; and

(c)       the defendants are to have a right of reply to Mr Prasad‟s

response within a period of a further 5 working days.

[13]     Costs memoranda were filed by both sides as directed.

The costs judgment

[14]     In the costs judgement,  which was issued on  9 October 2009,  Prasad v Indiana Publications (NZ) Limited and Ors Wylie J referred to the source of his jurisdiction to order costs on the discontinuance of the proceeding in the District Court, and the reasons why an award of indemnity costs was warranted:2   :

[3]       Rule 480C of the District Courts Rules provides that a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance.  As noted in my substantive judgment, the rule raises a presumption as to costs.

[4]       I have received memoranda from the parties.  It is my clear view that costs should be awarded against Mr Prasad in favour of the respondents.

[5]       Notwithstanding submissions by Mr Prasad to the contrary, it is clear that I have jurisdiction to make an order as to costs – see s 76(1)(c) of the District Courts Act 1947.

[6]      In my view an award of indemnity costs is appropriate in this case.

The District Courts Rules provide that that Court may order such costs – r 47C(1)(b).  So may this Court on an appeal.  Such costs can be made where the party against whom costs are ordered has acted vexatiously, frivolously, inappropriately or unnecessarily in commencing or continuing the proceeding.

[7]       For the reasons I have explained in my substantive decision, it is my clear view that Mr Prasad‟s proceedings in the District Court were misconceived from the outset. The matters which he seeks to litigate have  already  been  before  the  Courts  on  a  number  of  occasions. Indeed they have been to the Supreme Court.  It is hard to escape the conclusion that Mr Prasad is simply seeking to re-litigate what has already   been   decided.      The   only   difference   in   the   present proceedings is the name of the plaintiff.   Whether that makes any difference remains to be seen when Mr Prasad‟s proceedings in this Court are heard.   In any event, it is clear that the proceedings commenced by Mr Prasad in the District Court were unnecessary. He unilaterally elected to discontinue the proceedings at the very last moment.   The respondents were put to considerable expense in resisting the proceedings which in the event went nowhere.

[15]     His Honour ordered indemnity costs of $14,931.  He said:

[8]       The respondents‟ actual costs totalled $14,931.  I have examined the invoices, and there does not appear to be anything inappropriate in the same.  I make an order that Mr Prasad pay to the respondents the sum of $14,931 by way of costs in relation to the discontinuance of the proceedings in the District Court.

[emphasis added]

[16]     The invoices that His Honour referred to were the invoices of Mr Harrison, and the solicitor who instructed Mr Harrison to act as counsel for the defendants in the District Court proceeding.   It is  common ground that the invoiced amounts include GST on Mr Harrison‟s and the instructing solicitor‟s fees in respect of the

proceeding and that Mr Harrison‟s fees covered his attendance at and incidental to the summary judgment hearing on 20 February 2011.

[17]     Mr  Prasad  did  not  accept  that  he  should  have  to  pay  costs  on  his discontinuance. As set out in his counsel‟s synopsis:

[Mr Prasad] sought leave to take this award of costs of $14,971.00 to the

Court  of  Appeal.     Justice  Wylie  refused  leave  and  awarded  costs  of

$2,080.00 for the application for leave.  The $800.00 paid by [Mr Prasad] as security on the original appeal [was] to be applied to the costs order on the application for leave.

[18]     Though refused leave to appeal, Mr Prasad did not comply with the order for indemnity costs, and on 28 June 2010 Indiana Publications served a bankruptcy notice on him that was based on that costs order.  The bankruptcy notice was in the required statutory form and notified Mr Prasad of the standard options for compliance. Mr Prasad did not comply with the notice.

[19]     The  events  that  followed  culminated  in  an  application  for  Mr  Prasad‟s

adjudication and are also set out in counsel‟s synopsis:

[Mr Prasad] objected to the bankruptcy notice when the matter was initially called before Associate Judge Bell...   [Judge Bell] was not persuaded that there was any irregularity about the cost order of Justice Wylie.   However [Mr Prasad] did not raise the issues raised by counsel [in respect of the present application].

[Mr Prasad] has filed an appeal on the decision of Associate Judge Bell [in] CA489/2010 and it is understood the appeal is still awaiting the allocation of a hearing.

[Indiana Publications] filed an application for an order for adjudication on 4

August 2010.   Included in this application were a number of cost awards against [Mr Prasad].

On  8  October the  matter was  heard before  [Associate Judge  Faire] and judgment [that is, an order of adjudication was made] on 11 October 2010. His Honour [rejected] the assertion that an adjudication order may rely on one judgment only.   [He held that] to allow a challenge on a [foundation] judgment in an application for adjudication would be to allow a collateral attack, [and] that such judgments are not matters that can be reviewed in an application for an adjudication order.

Further that whether an order should be made, the wider public interest must be taken into account to determine whether adjudication is “conducive or detrimental to commercial interest and the interest of the general public.”

[Mr Prasad] then applied [unsuccessfully] to have [His Honour‟s] judgment recalled on 11 November 2010.

[20]     The application for adjudication was made on 4 August 2010 under s 13 of the Insolvency Act 2006. It relied on:

(a)       Mr Prasad‟s act of bankruptcy, committed when he failed to comply

with Indiana Publication‟s bankruptcy notice seeking $14,971; and

(b)      Six other costs orders that Mr Prasad has also failed to comply with.

The orders were made at various points during the history of the litigation and total in excess of $31,738.

[21]     As can be seen, the application for adjudication was successful, Mr Prasad was adjudicated bankrupt on 11 October 2010.   So far his attempts to have the adjudication set aside have failed.

Discussion - The present application

[22]     Mr  Prasad‟s application  for  annulment  is  made  under  s  309(1)(a)  which states:

309 Court may annul adjudication

(1)      The Court may, on the application of the Assignee or any person interested, annul the adjudication if –

(a)      The Court considers that the bankrupt should not have been

adjudicated bankrupt; …

[23]     Mr Prasad relies on two “irregularities” or errors in the costs judgment made of 9 October 2009 that he says demonstrate that the order of adjudication should not have been made in reliance on the costs order.

[24]     The alleged errors relate to Wylie J‟s determination of quantum arising from his approval of actual costs of $14,931 (inclusive of GST) invoiced by Mr Harrison and his instructing solicitor. The determination is said to have allowed erroneously:

(a)      Costs for steps taken after the discontinuance of the proceeding in the

Manukau District Court;

(b)      The GST claimed in the invoices.

[25]     Counsel for Mr Prasad contends that as the costs judgment contains such errors, the bankruptcy notice itself is irregular and that an order of adjudication based on such a notice amounts to an abuse of process.  He submits that the essential question posed in the application is:

...where a bankruptcy notice is issued upon a judgment that was based upon the incorrect determination, on an evidentiary issue [is] it a collateral attack upon „the decision” such that the evidentiary issue may not be subject to review in an application for an adjudication order..[that is] if the quantum claimed in the bankruptcy notice is incorrect,[and] the court ordering adjudication can see it is incorrect, should that court say we cannot review the judgment and grant relief?

[26]     In essence, the question attacks the costs judgment on which the bankruptcy notice was based.  Underlying the attack is the contention that the court that ordered adjudication had jurisdiction to review the judgment, and as does the court determining the present  application.    If relief  is  not  granted,  then  the  abuse of process will be ongoing.

[27]     I shall come back to this contention. First, I refer briefly to the alleged errors.

[28]     I begin  with  the second  of the alleged  errors.    In  making the order  for indemnity  costs  Wylie  J  allowed  GST  of  $1,635  on  legal  attendances,  which arguably runs counter to earlier authority.

[29]     Counsel for Mr Prasad relied on two discussions in support of his argument that GST should not have been  allowed.   In  the first, Suttie v Bridgecorp Ltd, Winkelmann J stated:3

[19]     Bridgecorp also seeks to recover the GST portion of the fees.   I assume that Bridgecorp is GST registered.  In those circumstances it would  be  entitled  to  claim  GST  input  credits.  Accordingly,  if

Bridgecorp were to recover the GST portion of the fees rendered, that would represent an over recovery.

[20]     Bridgecorp is entitled to indemnity costs, but on a GST exclusive basis.    I  request  that  the  Registrar  attend  to  settling  the  GST exclusive costs.

[30]     In the second, Burrows v Rental Space Limited, Chambers J said:4

I conclude this part of the judgment with a brief comment on a recently reported costs decision, Shephard v All Steel Services Limited (2000) 14

PRNZ 707.  In that case a successful party had sought costs in the sum of

$2,448.75.  The other party apparently took issue “with the inclusion of GST of $268.75”.   Counsel submitted “that the prescribed rates in the Second Schedule  on  which  the  claim  [was]  based  should  be  treated  as  GST inclusive”.   Rodney Hansen J agreed that the prescribed rates should be treated as GST inclusive and accordingly allowed costs of only $2,180.00. With respect, that decision is wrong.  Costs between parties are GST neutral. The  losing  party  when  required  to  make  a  contribution  towards  the successful party‟s costs is not paying for a service provided to it by the successful party or its lawyers.   I have discussed this matter with Rodney Hansen J and with Fisher J, chair of the Rules Committee.  Both agree with the views I have just expressed and have authorised me to say that they do so agree.  Shephard should be regarded, therefore, as wrongly decided.  Rodney Hansen J did not have the benefit of full argument before giving his brief three paragraph decision.   He certainly never envisaged that the decision would be reported.

[31]     Counsel for Indiana Publications concedes that based on Burrows it may be that GST should not have formed part of the costs award.

[32]     Turning  to  the  other  alleged  error,  counsel  for  Mr  Prasad  points  to  an apparent inconsistency in the costs judgment with respect to steps taken after the discontinuance.  In ordering indemnity costs of $14,931 Wylie J allowed indemnity for the cost of attendances incurred on 20 February for the purpose of obtaining summary judgment and preparing judgment. The purpose is set out clearly in the narration in Mr Harrison‟s invoice:

Preparing for hearing, attending Court 17 September, preparing submissions, receiving  and  perusing  plaintiff‟s  memo,  attending  Court  19  Jan  09, attending  Court  20  Feb 09  obtaining  judgment,  preparing judgment,  all incidental matters.

[emphasis added]

Yet the discontinuance had already brought to an end the summary judgment proceeding the previous day.

[33]     Mr Harrison accepts that the steps involved in the attendances on 20 February were taken after Mr Prasad filed, and Indiana had received the memorandum of discontinuance.   He also accepts that the order for costs “in relation to the discontinuance” was made under r 47C(1)(a) of the District Courts Rules.  The order was therefore for costs of and incidental to the proceeding up to and including the discontinuance.  Though impliedly accepting such, he does not accept that the costs claimed for attendances on 20 February were claimed by mistake.   Nor does he accept that Wylie J might have awarded them inadvertently or in error.

[34]     Without making any decision on either alleged error, it is not immediately apparent how costs of obtaining summary judgment on 20 February are costs in relation to or incidental to the discontinuance of the proceedings in the District Court that took effect on 19 February 2009.   Attendance at the District Court to obtain summary judgment on 20 February did not occur because of the discontinuance.  It occurred because Indiana argued that there was no effective discontinuance on 19

February and therefore that the summary judgment proceeding was still live. Wylie J

found the contrary.

[35]     I  refrain  from  saying  more  on  the  alleged  errors.    I expressly make  no determination.   Rather, I come back to the contention that the court that ordered adjudication had jurisdiction to review the judgment that contains the alleged errors. Counsel  for  Mr  Prasad  submits  that  had  the  alleged  errors  been  drawn  to  the attention of the court ordering adjudication, so that it could see that the costs judgment was incorrect, the outcome would have been a review of the costs order. An abuse of process would have been averted.

[36]     The  submission  is  misconceived.    As Associate  Judge  Faire  said  in  his judgment:5

Judgments may be challenged, in appropriate cases, by appeal, applications for rehearing or recall.   They are not matters, however, that can be the subject of review in an application for an adjudication order.  To allow this would be to allow a collateral attack upon the final decision where the parties have already had a full opportunity of contesting the decision in the Court by which the judgment was made: Hunter v Chief Constable of West Midlands Police [1982] AC 529 at 541.

[37]     Based on this authority I accept, as counsel for Indiana Publications submits, that the costs judgment was unassailable in the application for adjudication.

[38]     Had Mr Prasad raised the complaints he relies on presently, I would accept that the court may have adjourned the adjudication proceeding, as it commonly does, to allow Mr Prasad the opportunity to take one or other of the steps Judge Faire refers to, that is, to appeal, or apply for rehearing or recall.  But Mr Prasad did not raise his present complaints.  It is only now in the context of the present application that he does so, as his counsel candidly acknowledges.

[39]     I am satisfied therefore that there was no abuse of process as a result of the order of adjudication.  There is no abuse presently.  In this respect, I accept, as the Court found in Sircombe v Auto Wholesale Cars and Official Assignee, that it is not open to the court, in the context of on application for annulment, to make any decision that threatens the integrity of the foundation judgment.6   The jurisdiction to annul an order of adjudication, as with the jurisdiction to make an order of adjudication,  is  not  to  be  exercised  on  the  basis  of  a  collateral  attack  to  the foundation judgment.  The position is that the costs judgment stands and cannot be

challenged under the present application. If there were to be any “review” of the

costs judgment that is a matter for appeal, or by application for rehearing or recall.

[40]    Even if it were the case that there is jurisdiction to annul the order of adjudication on the grounds of the alleged errors, annulment remains a matter of discretion, which I would not exercise in Mr Prasad‟s favour.  I would not exercise

my discretion to annul the order.  My reasons follow:

6 Sircombe v Auto Wholesale Cars and Official Assignee HC Whangarei CIV-2003-488-129, 2

December 2003.

(a)      I am obliged to bear in mind that Mr Prasad has taken a number of opportunities  available  to  him  to  challenge  the  costs  judgment  of Wylie J.  Materially, on no occasion has he advanced the grounds he relies on presently.  He has had full opportunity to do so;

(b)Were I to allow annulment on such grounds it would place Mr Prasad in a better position than he would have been in had he raised them on an application for recall, or an application to set aside, or an appeal. Had he done so, inevitably there would still have been an order for indemnity costs, as counsel for Mr Prasad acknowledges.  The only possible  difference  could  be  a  reduced  amount,  possibly  for  the amount of the GST and possibly for the costs for the attendances on

20 February;

(c)      Materially, the costs judgment is but one of a number of awards of costs orders against Mr Prasad which he has declined to pay. All were pleaded to in the application for adjudication. All remain outstanding. There is no plausible indication that Mr Prasad is able to pay them. They are a plain and sufficient indication of his insolvency;

(d)There is no substance in counsel‟s submission that but for the costs judgment of Wylie J these other costs orders would not have been made.  As the submission goes, if the costs judgment had not been irregular Mr Prasad would have paid an award of indemnity costs. There would have been no other challenges and therefore no further costs  awards.    The  submission  ignores  that  Mr  Prasad‟s various challenges  to  the  costs  judgment  did  not  rely  on  the  present arguments.  They relied on other arguments entirely.  I have no reason to suppose that Mr Prasad would not have pursued those arguments. That he did, and is now saddled with other costs orders, is something that he must bear responsibility for.

[41]     Lastly, counsel for the judgment creditor has indicated that the judgment creditor will not pursue the issue of GST with the Official Assignee if Mr Prasad‟s other debts owing to the judgment creditor are paid.

[42]     The only remaining issue is one that arises incidentally. It is whether I should adjourn this proceeding to allow for further steps to review the costs judgment. Authority for that approach is set out in Sircombe.7   In Sircombe, Master Lang (as he then was) declined to review the judgment upon which the bankruptcy notice was based and the order of adjudication made.  However, he adjourned the application for annulment to give the bankrupt a final opportunity to apply for an order setting aside

the foundation judgment.

[43]     It will be apparent from what I have already said that I am satisfied that such approach is not appropriate here.  The consequences of adjourning this application for annulment would be to subject the judgment creditor to yet further pointless litigation and further cost.  It is in the interest of justice that there now be an end to the costs matter.

Result

[44]     I order:

(a)       The application for an  order to annul Mr Prasad‟s adjudication is

declined; and

(b)As Indiana Publications is the successful party it is entitled to costs on a 2B basis together with disbursements as fixed by the Registrar.

Associate Judge Sargisson

7 Sircombe at n5.